SIMMONS FIRST NATIONAL CORP 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Liquidity and Market Risk Management Parent Company The Company has leveraged its investment in its subsidiary bank and depends upon the dividends paid to it, as the sole shareholder of the subsidiary bank, as a principal source of funds for dividends to shareholders, stock repurchases and debt service requirements. At December 31, 2020, undivided profits of Simmons Bank were approximately $423.5 million, of which approximately $45.6 million was available for the payment of dividends to the Company without regulatory approval. In addition to dividends, other sources of liquidity for the Company are the sale of equity securities and the borrowing of funds. Subsidiary Bank Generally speaking, the Company’s subsidiary bank relies upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash used in investing activities. Typical of most banking companies, significant financing activities include: deposit gathering; use of short-term borrowing facilities, such as federal funds purchased and repurchase agreements; and the issuance of long-term debt. The subsidiary bank’s primary investing activities include loan originations and purchases of investment securities, offset by loan payoffs and investment cash flows and maturities. Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors and borrowers by either converting assets into cash or accessing new or existing sources of incremental funds. A major responsibility of management is to maximize net interest income within prudent liquidity constraints. Internal corporate guidelines have been established to constantly measure liquid assets as well as relevant ratios concerning earning asset levels and purchased funds. The management and Board of Directors of the subsidiary bank monitor these same indicators and makes adjustments as needed. Liquidity Management The objective of our liquidity management is to access adequate sources of funding to ensure that cash flow requirements of depositors and borrowers are met in an orderly and timely manner. Sources of liquidity are managed so that reliance on any one funding source is kept to a minimum. Our liquidity sources are prioritized for both availability and time to activation. Our liquidity is a primary consideration in determining funding needs and is an integral part of asset/liability management. Pricing of the liability side is a major component of interest margin and spread management. Adequate liquidity is a necessity in addressing this critical task. There are seven primary and secondary sources of liquidity available to the Company. The particular liquidity need and timeframe determine the use of these sources. The first source of liquidity available to the Company is federal funds. Federal funds are available on a daily basis and are used to meet the normal fluctuations of a dynamic balance sheet. The Bank has approximat ely $415.0 million in f ederal funds lines of credit from upstream correspondent banks that can be accessed, when needed. In order to ensure availability of these upstream funds we test these borrowing lines at least annually. Historical monitoring of these funds has made it possible for us to project seasonal fluctuations and structure our funding requirements on a month-to-month basis. Second, Simmons Bank has lines of credit available with the Federal Home Loan Bank. While we use portions of those lines to match off longer-term mortgage loans, we also use those lines to meet liquidity needs. Approximately $2.7 billion of these lines of credit are currently available, if needed, for liquidity. A third source of liquidity is that we have the ability to access large wholesale deposits from both the public and private sector to fund short-term liquidity needs. A fourth source of liquidity is the retail deposits available through our network of financial centers throughout Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas. Although this method can be a somewhat more expensive alternative to supplying liquidity, this source can be used to meet intermediate term liquidity needs. Fifth, we use a laddered investment portfolio that ensures there is a steady source of intermediate term liquidity. These funds can be used to meet seasonal loan patterns and other intermediate term balance sheet fluctuations. Approximately 91.3% of the investment portfolio is classified as available-for-sale. We also use securities held in the securities portfolio to pledge when obtaining public funds. 73 Sixth, we have a network of downstream correspondent banks from which we can access debt to meet liquidity needs. Finally, we have the ability to access funds through the Federal Reserve Bank Discount Window. We believe the various sources available are ample liquidity for short-term, intermediate-term and long-term liquidity. Market Risk Management Market risk arises from changes in interest rates. We have risk management policies to monitor and limit exposure to market risk. In asset and liability management activities, policies designed to minimize structural interest rate risk are in place. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Interest Rate Sensitivity Interest rate risk represents the potential impact of interest rate changes on net income and capital resulting from mismatches in repricing opportunities of assets and liabilities over a period of time. A number of tools are used to monitor and manage interest rate risk, including simulation models and interest sensitivity gap analysis. Management uses simulation models to estimate the effects of changing interest rates and various balance sheet strategies on the level of the Company’s net income and capital. As a means of limiting interest rate risk to an acceptable level, management may alter the mix of floating and fixed-rate assets and liabilities, change pricing schedules, manage investment maturities during future security purchases, or enter into derivative contracts such as interest rate swaps. The simulation model incorporates management’s assumptions regarding the level of interest rates or balance changes for indeterminate maturity deposits for a given level of market rate changes. These assumptions have been developed through anticipated pricing behavior. Key assumptions in the simulation models include the relative timing of prepayments, cash flows and maturities. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of a change in interest rates on net income or capital. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. As of December 31, 2020, the model simulations projected that 100 and 200 basis point increases in interest rates would result in a positive variance in net interest income of 5.01% and 10.43%, respectively, relative to the base case over the next 12 months, while decreases in interest rates of 25 basis points would result in a negative variance in net interest income of (0.53)% relative to the base case over the next 12 months. The likelihood of a decrease in interest rates in excess of 25 basis points as of December 31, 2020, is considered remote given current interest rate levels. These are good faith estimates and assume that the composition of our interest sensitive assets and liabilities existing at each year-end will remain constant over the relevant twelve month measurement period and that changes in market interest rates are instantaneous and sustained across the yield curve regardless of duration of pricing characteristics of specific assets or liabilities. Also, this analysis does not contemplate any actions that we might undertake in response to changes in market interest rates. We believe these estimates are not necessarily indicative of what actually could occur in the event of immediate interest rate increases or decreases of this magnitude. As interest-bearing assets and liabilities reprice in different time frames and proportions to market interest rate movements, various assumptions must be made based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive and market conditions, we anticipate that our future results will likely be different from the foregoing estimates, and such differences could be material. The table below presents our sensitivity to net interest income at December 31, 2020. Table 33: Net Interest Income Sensitivity Interest Rate Scenario % Change from Base Up 200 basis points 10.43% Up 100 basis points 5.01% Down 25 basis points (0.53)% 74 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX Management’s Report on Internal Control Over Financial Reporting 76 Report of Independent Registered Public Accounting Firm Report on Internal Control Over Financial Reporting 77 Report on Consolidated Financial Statements 78 Consolidated Balance Sheets, December 31, 2020 and 2019 81 Consolidated Statements of Income, Years Ended December 31, 2020, 2019 and 2018 82 Consolidated Statements of Comprehensive Income, Years Ended December 31, 2020, 2019 and 2018 83 Consolidated Statements of Cash Flows, Years Ended December 31, 2020, 2019 and 2018 84 Consolidated Statements of Stockholders’ Equity, Years Ended December 31, 2020, 2019 and 2018 85 Notes to Consolidated Financial Statements, December 31, 2020, 2019 and 2018 86 Note: Supplementary Data may be found in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quarterly Results” on page 72 hereof. 75 Management’s Report on Internal Control Over Financial Reporting The management of Simmons First National Corporation (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of the Company’s financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth in Internal Control – Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO ). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2020 is effective based on the specified criteria. BKD, LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, immediately follows. 76 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders, Board of Directors and Audit Committee Simmons First National Corporation Pine Bluff, Arkansas Opinion on the Internal Control over Financial Reporting We have audited Simmons First National Corporation’s (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated February 25, 2021, expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definitions and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. BKD, LLP /s/ BKD, LLP Little Rock, Arkansas February 25, 2021 77 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders, Board of Directors and Audit Committee Simmons First National Corporation Pine Bluff, Arkansas Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Simmons First National Corporation (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 25, 2021, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Adoption of New Accounting Standard As discussed in Notes 1, 3 and 5 to the 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. As discussed below, auditing the Company’s allowance for credit losses, including adoption of the new accounting guidance related to the estimate of allowance for credit losses, was a critical audit matter. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 78 Allowance for Credit Losses The Company’s loan portfolio totaled $12.90 billion as of December 31, 2020 and the allowance for credit losses on loans was $238.1 million. The Company’s unfunded loan commitments totaled $2.05 billion, with an allowance for credit loss of $22.4 million. The Company’s available-for-sale and held-to-maturity securities portfolios totaled $3.8 billion as of December 31, 2020, and the allowance for credit losses on securities was $3.2 million. Together these amounts represent the allowance for credit losses (“ACL”). As more fully described in the notes to the consolidated financial statements: • For loans receivable, the ACL is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. • For unfunded loan commitments, the ACL is a liability account calculated in accordance with ASC 326, reported as a component of accrued interest and other liabilities. • For securities, the ACL is a contra-valuation account that is deducted from the recorded basis of securities. The Company adopted ASC 326 effective January 1, 2020. The amount of each allowance account represented management’s best estimate of current expected credit losses on those financial instruments considering all available information from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Loans with similar risk characteristics are aggregated into homogenous segments for assessment. Reserve factors are based on estimated probability of default (PD) and loss given default (LGD) for each segment. The estimates include 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. Management qualitatively adjusted model results for risk factors that were not considered within the modeling processes but were still relevant in assessing the expected credit losses within the loan pools. In some cases, management determined that an individual loan exhibited unique risk characteristics which differentiated the loan from other loans with the identified loan pools. In such cases the loans were evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Auditing management’s estimate of the ACL involved a high degree of subjectivity due to the nature of the qualitative factor adjustments included in the ACL and complexities due to the implementation of probability of default and loss given default models. Management’s identification and measurement of the qualitative factor adjustments is highly judgmental and had a significant effect on the ACL. The primary procedures we performed related to this critical audit matter included: • Obtained an understanding of the Company’s process for establishing the ACL, including the implementation of models and the qualitative factor adjustments of the ACL • Evaluated and tested the design and operating effectiveness of related controls over the reliability and accuracy of data used to calculate and estimate the various components of the ACL including: ◦ Loan data completeness and accuracy ◦ Grouping of loans by segment ◦ Model inputs utilized including PD, LGD, remaining life and prepayment speed ◦ Approval of model assumptions selected ◦ Establishment of qualitative factors ◦ Loan risk ratings • Tested the mathematical accuracy of the calculation of the ACL • Performed reviews of individual credit files to evaluate the reasonableness of loan credit risk ratings • Tested internally prepared loan reviews to evaluate the reasonableness of loan credit risk ratings • Tested the completeness and accuracy of inputs utilized in the calculation of the ACL • Evaluated the qualitative adjustments to the ACL including assessing the basis for adjustments and the reasonableness of the significant assumptions including consideration of impact of COVID-19 • Tested the reasonableness of specific reserves on individually reviewed loans • Evaluated credit quality trends in delinquencies, non-accruals, charge-offs and loan risk ratings • Considered the overall reasonableness of the ACL and compared to trends identified within peer groups • Involved a specialist to review the appropriateness of the design and operation of the model • Tested estimated utilization rate of unfunded loan commitments • Reviewed documentation prepared to assess the methodology utilized by a third party performing the ACL calculation for securities for reasonableness 79 Goodwill Impairment Analysis The Company’s goodwill totaled $1.08 billion at December 31, 2020. As discussed in Notes 1 and 8 to the consolidated financial statements, goodwill is tested for impairment on the basis of one reporting unit at least annually, or more frequently as events occur or circumstances change. In the second, third and fourth quarter of fiscal year 2020, the Company assessed relevant events and circumstances and determined it was appropriate to perform an impairment test. In performing the test, management used both a market capitalization approach and discounted cash flow approach to determine the estimated fair value of the reporting unit. As a result of the analysis, management determined the fair value of the reporting unit exceeded the carrying value resulting in the recognition of no goodwill impairment charge. Auditing management's goodwill impairment test was complex due to the significant estimation and judgement required to determine the estimated fair value of the reporting unit. In particular, the fair value estimate was sensitive to significant assumptions, such as changes in the Company's financial forecast, the discount rate and terminal value, which are affected by expectations about future market or economic conditions, including uncertainty resulting from the COVID-19 pandemic. We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company's goodwill impairment process, including controls over management's review of the significant assumptions described above. To test the estimated fair value of the Company's reporting unit, with the support of our valuation specialists, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to current industry and economic trends. We assessed the historical accuracy of management's estimates and performed sensitivity analyses of significant assumptions to evaluate changes in the fair value estimate of the reporting unit resulting from changes in the assumptions. In addition, we tested management's reconciliation of the fair value of the reporting unit to the market capitalization of the Company. BKD, LLP /s/ BKD, LLP We have served as the Company’s auditor since 1972. Little Rock, Arkansas February 25, 2021 80 Simmons First National Corporation Consolidated Balance Sheets December 31, 2020 and 2019 (In thousands, except share data) 2020 2019 ASSETS Cash and non-interest bearing balances due from banks $ 217,499 $ 277,208 Interest bearing balances due from banks and federal funds sold 3,254,653 719,415 Cash and cash equivalents 3,472,152 996,623 Interest bearing balances due from banks – time 1,579 4,554 Investment securities: Held-to-maturity, net of allowance for credit losses of $ 2,915 at December 31, 2020 333,031 40,927 Available-for-sale, net of allowance for credit losses of $ 312 at December 31, 2020 (amortized cost of $ 3,397,043 and $ 3,263,151 at December 31, 2020 and 2019, respectively) 3,473,598 3,288,343 Total investments 3,806,629 3,329,270 Mortgage loans held for sale 137,378 58,102 Other assets held for sale 100 260,332 Loans 12,900,897 14,425,704 Allowance for credit losses on loans ( 238,050 ) ( 68,244 ) Net loans 12,662,847 14,357,460 Premises and equipment 441,692 492,384 Premises held for sale 15,008 — Foreclosed assets and other real estate owned 18,393 19,121 Interest receivable 72,597 62,707 Bank owned life insurance 255,630 254,152 Goodwill 1,075,305 1,055,520 Other intangible assets 111,110 127,340 Other assets 289,332 241,578 Total assets $ 22,359,752 $ 21,259,143 LIABILITIES AND STOCKHOLDERS’ EQUITY Deposits: Non-interest bearing transaction accounts $ 4,482,091 $ 3,741,093 Interest bearing transaction accounts and savings deposits 9,672,608 9,090,878 Time deposits 2,832,327 3,276,969 Total deposits 16,987,026 16,108,940 Federal funds purchased and securities sold under agreements to repurchase 299,111 150,145 Other borrowings 1,342,067 1,297,599 Subordinated debentures 382,874 388,260 Other liabilities held for sale 154,620 159,853 Accrued interest and other liabilities 217,398 165,422 Total liabilities 19,383,096 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 December 31, 2020 and 2019 767 767 Common stock, Class A, $ 0.01 par value; 175,000,000 shares authorized at December 31, 2020 and 2019; 108,077,662 and 113,628,601 shares issued and outstanding at December 31, 2020 and 2019, respectively 1,081 1,136 Surplus 2,014,076 2,117,282 Undivided profits 901,006 848,848 Accumulated other comprehensive income 59,726 20,891 Total stockholders’ equity 2,976,656 2,988,924 Total liabilities and stockholders’ equity $ 22,359,752 $ 21,259,143 See Notes to Consolidated Financial Statements. 81 Simmons First National Corporation Consolidated Statements of Income Years Ended December 31, 2020, 2019 and 2018 (In thousands, except per share data) 2020 2019 2018 INTEREST INCOME Loans $ 687,771 $ 710,935 $ 616,037 Interest bearing balances due from banks and federal funds sold 4,383 7,486 5,996 Investment securities 64,533 63,376 53,460 Mortgage loans held for sale 3,031 1,326 1,336 TOTAL INTEREST INCOME 759,718 783,123 676,829 INTEREST EXPENSE Deposits 79,860 139,011 87,210 Federal funds purchased and securities sold under agreements to repurchase 1,715 1,010 423 Other borrowings 19,652 23,008 23,654 Subordinated notes and debentures 18,757 18,341 16,848 TOTAL INTEREST EXPENSE 119,984 181,370 128,135 NET INTEREST INCOME 639,734 601,753 548,694 Provision for credit losses 74,973 43,240 38,148 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 564,761 558,513 510,546 NON-INTEREST INCOME Trust income 27,705 25,040 23,128 Service charges on deposit accounts 43,082 44,782 42,508 Other service charges and fees 6,624 5,824 7,469 Mortgage lending income 34,469 15,017 9,230 SBA lending income 1,329 2,669 1,813 Investment banking income 2,681 2,313 3,141 Debit and credit card fees 33,470 29,289 32,268 Bank owned life insurance income 5,815 4,768 4,415 Gain on sale of securities, net 54,806 13,314 61 Other income 38,547 62,015 23,721 TOTAL NON-INTEREST INCOME 248,528 205,031 147,754 NON-INTEREST EXPENSE Salaries and employee benefits 242,474 227,795 216,743 Occupancy expense, net 37,556 32,008 29,610 Furniture and equipment expense 24,038 18,220 16,323 Other real estate and foreclosure expense 1,752 3,442 4,480 Deposit insurance 9,184 4,416 8,721 Merger related costs 4,531 36,379 4,777 Other operating expenses 173,960 138,852 111,575 TOTAL NON-INTEREST EXPENSE 493,495 461,112 392,229 INCOME BEFORE INCOME TAXES 319,794 302,432 266,071 Provision for income taxes 64,890 64,265 50,358 NET INCOME 254,904 238,167 215,713 Preferred stock dividends 52 339 — NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 254,852 $ 237,828 $ 215,713 BASIC EARNINGS PER SHARE $ 2.32 $ 2.42 $ 2.34 DILUTED EARNINGS PER SHARE $ 2.31 $ 2.41 $ 2.32 See Notes to Consolidated Financial Statements. 82 Simmons First National Corporation Consolidated Statements of Comprehensive Income Years Ended December 31, 2020, 2019 and 2018 (In thousands) 2020 2019 2018 NET INCOME $ 254,904 $ 238,167 $ 215,713 OTHER COMPREHENSIVE INCOME (LOSS) Unrealized holding gains (losses) arising during the period on available-for-sale securities 107,382 76,109 ( 13,626 ) 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 54,806 13,314 61 Other comprehensive income (loss), before tax effect 52,576 65,342 ( 13,687 ) Less: Tax effect of other comprehensive income (loss) 13,741 17,077 ( 3,577 ) TOTAL OTHER COMPREHENSIVE INCOME (LOSS) 38,835 48,265 ( 10,110 ) COMPREHENSIVE INCOME $ 293,739 $ 286,432 $ 205,603 See Notes to Consolidated Financial Statements. 83 Simmons First National Corporation Consolidated Statements of Cash Flows Years Ended December 31, 2020, 2019 and 2018 (In thousands) 2020 2019 2018 OPERATING ACTIVITIES Net income $ 254,904 $ 238,167 $ 215,713 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 49,038 36,257 28,412 Provision for credit losses 74,973 43,240 38,148 Gain on sale of investments ( 54,806 ) ( 13,314 ) ( 61 ) Net accretion of investment securities and assets ( 56,771 ) ( 53,619 ) ( 48,684 ) Net amortization (accretion) on borrowings 541 394 ( 380 ) Stock-based compensation expense 13,197 12,921 9,725 Gain on sale of premises and equipment, net of impairment ( 14 ) — — Gain on sale of foreclosed assets and other real estate owned ( 391 ) ( 33 ) ( 650 ) Gain on sale of mortgage loans held for sale ( 44,864 ) ( 20,064 ) ( 12,844 ) Gain on sale of other intangibles ( 301 ) — — Gain on sale of branches ( 8,094 ) — — Loss (gain) on sale of loans — 4,451 ( 10 ) Gain on sale of Visa, Inc. class B common stock — ( 42,860 ) — Fair value write-down of closed branches 434 — 836 Deferred income taxes ( 122 ) 34,911 8,412 Income from bank owned life insurance ( 7,206 ) ( 4,854 ) ( 5,003 ) Originations of mortgage loans held for sale ( 1,206,818 ) ( 755,500 ) ( 546,676 ) Proceeds from sale of mortgage loans held for sale 1,172,406 756,642 556,759 Changes in assets and liabilities: Interest receivable ( 10,846 ) 3,231 ( 6,227 ) Other assets ( 7,480 ) 31,920 ( 35,113 ) Accrued interest and other liabilities 50,508 ( 35,886 ) 33,978 Income taxes payable ( 15,745 ) 20,074 ( 9,355 ) Net cash provided by operating activities 202,543 256,078 226,980 INVESTING ACTIVITIES Net collections (originations) of loans 1,327,248 23,806 ( 912,793 ) Proceeds from sale of loans 49,736 104,587 24,977 Decrease (increase) in due from banks - time 2,975 1,130 ( 1,620 ) Purchases of premises and equipment, net ( 13,272 ) ( 67,831 ) ( 29,740 ) Proceeds from sale of premises and equipment 369 — — Proceeds from sale of foreclosed assets and other real estate owned 10,788 17,986 27,751 Proceeds from sale of available-for-sale securities 1,717,364 1,226,578 — Proceeds from maturities of available-for-sale securities 2,346,930 793,270 258,182 Purchases of available-for-sale securities ( 4,140,963 ) ( 1,708,948 ) ( 784,113 ) Proceeds from maturities of held-to-maturity securities 13,970 31,969 80,803 Purchases of held-to-maturity securities ( 308,854 ) — ( 1,172 ) Proceeds from bank owned life insurance death benefits 2,018 2,435 1,814 Purchases of bank owned life insurance — — ( 4,000 ) Cash received in business combinations — 178,260 — Disposition of assets and liabilities held for sale 181,560 1,235 ( 55,211 ) Net cash provided by (used in) investing activities 1,189,869 604,477 ( 1,395,122 ) FINANCING ACTIVITIES Net change in deposits 1,086,713 ( 404,826 ) 1,305,877 Proceeds from issuance of subordinated notes and other borrowings — 25,500 326,355 Repayments of subordinated debentures and subordinated debt ( 7,442 ) — ( 113,990 ) Dividends paid on preferred stock ( 52 ) ( 339 ) — Dividends paid on common stock ( 74,593 ) ( 63,921 ) ( 55,646 ) Net change in other borrowed funds 45,983 ( 240,806 ) ( 34,574 ) Net change in federal funds purchased and securities sold under agreements to repurchase 148,966 40,207 ( 26,652 ) Net shares (cancelled) issued under stock compensation plans ( 4,087 ) ( 2,389 ) 1,162 Shares issued under employee stock purchase plan 956 1,312 1,026 Repurchase of common stock ( 113,327 ) ( 10,128 ) — Retirement of preferred stock — ( 42,000 ) — Net cash provided by (used in) financing activities 1,083,117 ( 697,390 ) 1,403,558 INCREASE IN CASH EQUIVALENTS 2,475,529 163,165 235,416 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 996,623 833,458 598,042 CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,472,152 $ 996,623 $ 833,458 See Notes to Consolidated Financial Statements. 84 Simmons First National Corporation Consolidated Statements of Stockholders’ Equity Years Ended December 31, 2020, 2019 and 2018 (In thousands, except share data) Preferred Stock Common Stock Surplus Accumulated Other Comprehensive Income (Loss) Undivided Profits Total Balance, December 31, 2017 $ — $ 920 $ 1,586,034 $ ( 17,264 ) $ 514,874 $ 2,084,564 Comprehensive income — — — ( 10,110 ) 215,713 205,603 Stock issued for employee stock purchase plan – 39,782 shares — — 1,026 — — 1,026 Stock-based compensation plans, net – 278,743 shares — 3 10,884 — — 10,887 Dividends on common stock – $ 0.60 per share — — — — ( 55,646 ) ( 55,646 ) Balance, December 31, 2018 — 923 1,597,944 ( 27,374 ) 674,941 2,246,434 Comprehensive income — — — 48,265 238,167 286,432 Stock issued for employee stock purchase plan – 60,413 shares — 1 1,311 — — 1,312 Stock-based compensation plans, net – 261,200 shares — 3 10,529 — — 10,532 Stock issued for Reliance acquisition - 3,999,623 shares 42,000 40 102,790 — — 144,830 Stock issued for Landrum acquisition - 17,349,722 shares 767 173 414,832 — — 415,772 Preferred stock retirement ( 42,000 ) — — — — ( 42,000 ) Stock repurchases - 390,000 shares — ( 4 ) ( 10,124 ) — — ( 10,128 ) Dividends on preferred stock — — — — ( 339 ) ( 339 ) Dividends on common stock – $ 0.64 per share — — — — ( 63,921 ) ( 63,921 ) 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 — — — 38,835 254,904 293,739 Stock issued for employee stock purchase plan - 43,681 shares — 1 955 — — 956 Stock-based compensation plans, net - 362,080 shares — 3 9,107 — — 9,110 Stock repurchases - 5,956,700 shares — ( 59 ) ( 113,268 ) — — ( 113,327 ) Dividends on preferred stock — — — — ( 52 ) ( 52 ) Dividends on common stock - $ 0.68 per share — — — — ( 74,593 ) ( 74,593 ) Balance, December 31, 2020 $ 767 $ 1,081 $ 2,014,076 $ 59,726 $ 901,006 $ 2,976,656 See Notes to Consolidated Financial Statements. 85 Simmons First National Corporation Notes to Consolidated Financial Statements NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations and Principles of Consolidation 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 Bank” or the “Bank”). 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 204 financial centers as of December 31, 2020, located throughout market areas in Arkansas, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas. The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Simmons Bank is an Arkansas state-chartered bank and a member of the Federal Reserve System through the Federal Reserve Bank of St. Louis. Due to the Company’s typical acquisition process, there may be brief periods of time during which the Company may operate another subsidiary bank that the Company acquired through a merger with a target bank holding company as a separate subsidiary while preparing for the merger and integration of that subsidiary bank into Simmons Bank. However, it is the Company’s intent to generally maintain Simmons Bank as the Company’s sole subsidiary bank. Operating Segments Operating segments are components of an enterprise about which separate financial information is available that is regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company is organized on a divisional basis. Each of the divisions provide a group of similar community banking services, including such products and services as loans; time deposits, checking and savings accounts; personal and corporate trust services; credit cards; investment management; insurance; and securities and investment services. Loan products include consumer, real estate, commercial, agricultural, equipment and SBA lending. The individual bank divisions have similar operating and economic characteristics. While the chief operating decision maker monitors the revenue streams of the various products, services, branch locations and divisions, operations are managed, financial performance is evaluated, and management makes decisions on how to allocate resources, on a Company-wide basis. Accordingly, the divisions are considered by management to be aggregated into one reportable operating segment. The Company also considers its trust, investment and insurance services to be operating segments. Information on these segments is not reported separately since they do not meet the quantitative thresholds under Accounting Standards Codification (“ASC”) Topic 280-10-50-12. Use of Estimates The preparation of financial statements, in accordance with 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. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and the valuation of acquired loans. Management obtains independent appraisals for significant properties in connection with the determination of the allowance for credit losses and the valuation of foreclosed assets. 86 Reclassifications During 2020, the Company moved “equity securities” from the “available-for-sale investment securities” into “other assets.” The change had no impact on net income. Various items within the accompanying consolidated financial statements for previous years have been reclassified to provide more comparative information. These reclassifications were not material to the consolidated financial statements. Cash Equivalents The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents are considered to include cash and non-interest bearing balances due from banks, interest bearing balances due from banks and federal funds sold and securities purchased under agreements to resell. At December 31, 2020, nearly all of the interest-bearing and non-interest bearing deposits were uninsured with nearly all of these balances held at the Federal Reserve Bank. Investment Securities Held-to-maturity (“HTM”) 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 (“AFS”) 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. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant yield method over the period to maturity. Trading securities, if any, which include any security held primarily for near-term sale, are carried at fair value. Gains and losses on trading securities are included in other income. Allowance for Credit Losses - Investment Securities On January 1, 2020, the Company was required to adopt a new credit loss methodology, the Current Expected Credit Losses (“CECL”) methodology. See Note 20, New Accounting Standards, for additional information regarding adoption. Allowance for Credit Losses - 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. Allowance for Credit Losses - 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. 87 Mortgage Loans Held For Sale Mortgage Loans Held for Sale are carried at fair value which is determined on an aggregate basis. Adjustments to fair value are recognized monthly and reflected in earnings. The Company regularly sells mortgages into the capital markets to mitigate the effects of interest rate volatility during the period from the time an interest rate lock commitment (“IRLC”) is issued until the IRLC funds creating a mortgage loan held for sale and its subsequent sale into the secondary/capital markets. Loan sales are typically executed on a mandatory basis. Under a mandatory commitment, the Company agrees to deliver a specified dollar amount with predetermined terms by a certain date. Generally, the commitment is not loan specific, and any combination of loans can be delivered into the outstanding commitment provided the terms fall within the parameters of the commitment. Upon failure to deliver, the Company is subject to fees based on market movement. The IRLCs are derivative instruments; their fair values at December 31, 2020 and 2019 were not material. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to correspondent lenders, investors or aggregators. Gains and losses are determined by the difference between the sale price and the carrying amount in the loans sold, net of discounts collected, or premiums paid. Hedge instruments are, likewise, carried at fair value and associated gains/losses are realized at time of settlement. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-offs 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. For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan. The accrual of interest on loans, except on certain government guaranteed loans, is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful. Discounts and premiums on purchased residential real estate loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method. 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. Additionally, for discussion of the Company’s accounting for acquired loans, see Acquisition Accounting, Loans later in this section. Allowance for Credit Losses On January 1, 2020, the Company was required to adopt a new credit loss methodology, the Current Expected Credit Losses (“CECL”) methodology. See Note 20, New Accounting Standards, for additional information regarding adoption. 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 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. Management’s evaluation of the allowance for credit losses is inherently subjective as it requires material estimates. It is management’s practice to review the allowance on a monthly basis, and after considering the factors previously noted, to determine the level of provision made to the allowance. 88 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. • 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. 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. 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. 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, 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. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The adequacy of the reserve for unfunded commitments is determined quarterly based on methodology similar to the methodology for determining the allowance for credit losses. 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 the provision for credit losses. 89 Allowance for Credit Losses Prior to the Adoption of CECL Prior to 2020, management categorized the allowance for credit losses by either general reserves or specific reserves. The allowance for credit losses was based on management’s assessment of several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies and nonaccruals, (3) lending policies and procedures including those for credit losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) external factors and pressure from competition, (6) the experience, ability and depth of lending management and staff, (7) seasoning of new products obtained and new markets entered through acquisition and (8) other factors and trends that affected specific loans and categories of loans. The Company established general allocations for each major loan category. This category also included allocations to loans which were collectively evaluated for loss such as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans. General reserves were established, based upon the aforementioned factors and allocated to the individual loan categories. Specific reserves were provided on loans that were considered impaired when it was probable that the Company would not receive all amounts due according to the contractual terms of the loan, including scheduled principal and interest payments. This included loans that were delinquent 90 days or more, nonaccrual loans and certain other loans identified by management. Specific reserves were accrued for probable losses on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeded the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of loan collateral. Acquisition Accounting, Loans The Company accounts for its acquisitions under ASC Topic 805, Business Combinations , which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. The Company’s historical acquisitions all occurred under previous US GAAP prior to the Company’s adoption of CECL. No allowance for loan losses related to the acquired loans was recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. The Company evaluates loans acquired in accordance with the provisions of ASC Topic 310-20, Nonrefundable Fees and Other Costs . The fair value discount on these loans is accreted into interest income over the weighted average life of the loans using a constant yield method. For further discussion of our acquisition and loan accounting, see Note 2, Acquisitions, and Note 5, Loans and Allowance for Credit Losses. Trust Assets Trust assets (other than cash deposits) held by the Company in fiduciary or agency capacities for its customers are not included in the accompanying consolidated balance sheets since such items are not assets of the Company. Premises and Equipment Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized by the straight-line method over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Right-of-use lease assets are operating leases with a term greater than one year and are included in premises and equipment. Foreclosed Assets Held For Sale Assets acquired by foreclosure or in settlement of debt and held for sale are valued at estimated fair value less estimated cost to sell as of the date of foreclosure. Management evaluates the value of foreclosed assets held for sale periodically and any decreases in the fair value are charged to other expense. 90 Bank Owned Life Insurance The Company maintains bank-owned life insurance policies on certain current and former employees and directors, which are recorded at their cash surrender values as determined by the insurance carriers. The appreciation in the cash surrender value of the policies is recognized as a component of non-interest income in the Company’s consolidated statements of income. Goodwill and Intangible Assets Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability. The Company performs an annual goodwill impairment test, and more frequently if circumstances warrant, in accordance with ASC Topic 350, Intangibles – Goodwill and Other, as amended by Accounting Standards Update (“ASU”) 2011-08 - Testing Goodwill for Impairment . ASC Topic 350 requires that goodwill and intangible assets that have indefinite lives be reviewed for impairment annually, or more frequently if certain conditions occur. Intangible assets with finite lives are amortized over the estimated life of the asset, and are reviewed for impairment whenever events or changes in circumstances indicated that the carrying value may not be recoverable. Impairment losses on recorded goodwill, if any, will be recorded as operating expenses. Derivative Financial Instruments The Company may enter into derivative contracts for the purposes of managing exposure to interest rate risk to meet the financing needs of its customers. A derivative instrument is a financial tool which derives its value from the value of some other financial instrument, variable index, including certain hedging instruments embedded in other contracts. These products are primarily designed to reduce interest rate risk for either the Company or its customers who proactively manage these risks. The Company records all derivatives on the balance sheet at fair value. In an effort to meet the financing needs of its customers, the Company has entered into fair value hedges. Fair value hedges include interest rate swap agreements on fixed rate loans. To qualify for hedge accounting, derivatives must be highly effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the point of inception of the derivative contract. For derivatives designated as hedging the exposure to changes in the fair value of the hedged item, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain of the hedging instrument. The fair value hedges are considered to be highly effective and any hedge ineffectiveness was deemed not material. Fair value adjustments related to cash flow hedges are recorded in other comprehensive income and are reclassified to earnings when the hedged transaction is reflected in earnings. Securities Sold Under Agreements to Repurchase The Company sells securities under agreements to repurchase to meet customer needs for sweep accounts. At the point funds deposited by customers become investable, those funds are used to purchase securities owned by the Company and held in its general account with the designation of Customers’ Securities. A third party maintains control over the securities underlying overnight repurchase agreements. The securities involved in these transactions are generally U.S. Treasury or Federal Agency issues. Securities sold under agreements to repurchase generally mature on the banking day following that on which the investment was initially purchased and are treated as collateralized financing transactions which are recorded at the amounts at which the securities were sold plus accrued interest. Interest rates and maturity dates of the securities involved vary and are not intended to be matched with funds from customers. Revenue from Contracts with Customers ASC Topic 606, Revenue from Contracts with Customers , applies to all contracts with customers to provide goods or services in the ordinary course of business. However, Topic 606 specifically does not apply to revenue related to financial instruments, guarantees, insurance contracts, leases, or nonmonetary exchanges. Given these scope exceptions, interest income recognition and measurement related to loans and investments securities, the Company’s two largest sources of revenue, are not accounted for under Topic 606. Also, the Company does not use Topic 606 to account for gains or losses on its investments in securities, loans, and derivatives due to the scope exceptions. 91 Certain revenue streams, such as service charges on deposit accounts, gains or losses on the sale of OREO, and trust income, fall under the scope of Topic 606 and the Company must recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. Topic 606 is applied using five steps: 1) identify the contract with the customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company has evaluated the nature of all contracts with customers that fall under the scope of Topic 606 and determined that further disaggregation of revenue from contracts with customers into categories was not necessary. There has not been significant revenue recognized in the current reporting periods resulting from performance obligations satisfied in previous periods. In addition, there has not been a significant change in timing of revenues received from customers. A description of performance obligations for each type of contract with customers is as follows: Service charges on deposit accounts – The Company’s primary source of funding comes from deposit accounts with its customers. Customers pay certain fees to access their cash on deposit including, but not limited to, non-transactional fees such as account maintenance, dormancy or statement rendering fees, and certain transaction-based fees such as ATM, wire transfer, overdraft or returned check fees. The Company generally satisfies its performance obligations as services are rendered. The transaction prices are fixed, and are charged either on a periodic basis or based on activity. Sale of OREO – In the normal course of business, the Company will enter into contracts with customers to sell OREO, which has generally been foreclosed upon by the Company. The Company generally satisfies its performance obligation upon conveyance of property from the Company to the customer, generally by way of an executed agreement. The transaction price is fixed, and on occasion the Company will finance a portion of the proceeds the customers uses to purchase the property. These properties are generally sold without recourse or warranty. Trust Income – The Company enters into contracts with its customers to manage assets for investment, and/or transact on their accounts. The Company generally satisfies its performance obligations as services are rendered. The management fee is a fixed percentage-based fee calculated upon the average balance of assets under management and is charged to customers on a monthly basis. Bankcard Fee Income – Periodic bankcard fees, net of direct origination costs, are recognized as revenue on a straight-line basis over the period the fee entitles the cardholder to use the card. Income Taxes The Company accounts for income taxes in accordance with income tax accounting guidance in ASC Topic 740, Income Taxes . The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company files consolidated income tax returns with its subsidiaries. 92 Earnings Per Share Basic earnings per share are computed based on the weighted average number of shares outstanding during each year. Diluted earnings per share are computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. All share and per share amounts have been restated to reflect the effect of the two -for-one stock split during February 2018. The computation of per share earnings is as follows: (In thousands, except per share data) 2020 2019 2018 Net income available to common stockholders $ 254,852 $ 237,828 $ 215,713 Average common shares outstanding 109,860 98,351 92,268 Average potential dilutive common shares 313 446 562 Average diluted common shares 110,173 98,797 92,830 Basic earnings per share $ 2.32 $ 2.42 $ 2.34 Diluted earnings per share $ 2.31 $ 2.41 $ 2.32 There were approximately 653,718 stock options excluded from the year ended December 31, 2020 earnings per share calculation due to the related stock option exercise price exceeding the average market price. There were no stock options excluded from earnings per share calculations due to the related stock option exercise price exceeding the average market price for the years ended December 31, 2019 and 2018. Stock-Based Compensation The Company 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 awarding of performance or bonus shares granted to directors, officers and other key employees. In accordance with ASC Topic 718, Compensation – Stock Compensation , the fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses various assumptions. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. For additional information, see Note 15, Employee Benefit Plans. 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. 93 Goodwill of $ 151.1 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. 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 18,781 82,659 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 $ 17,263 $ 3,399,152 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 9,869 40,926 Total liabilities assumed 3,125,207 9,291 3,134,498 Equity 256,682 ( 256,682 ) — Total equity assumed 256,682 ( 256,682 ) — Total liabilities and equity assumed $ 3,381,889 $ ( 247,391 ) $ 3,134,498 Net assets acquired 264,654 Purchase price 415,779 Goodwill $ 151,125 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 Landrum subsequent to the acquisition date. 94 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 transaction, 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 95 (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. 96 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. 97 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 December 31, 2020 Mortgage-backed securities $ 22,354 $ — $ 22,354 $ 683 $ — $ 23,037 State and political subdivisions 312,416 ( 2,307 ) 310,109 8,148 ( 30 ) 318,227 Other securities 1,176 ( 608 ) 568 93 — 661 Total HTM $ 335,946 $ ( 2,915 ) $ 333,031 $ 8,924 $ ( 30 ) $ 341,925 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 December 31, 2020 U.S. Government agencies $ 477,693 $ — $ 844 $ ( 1,300 ) $ 477,237 Mortgage-backed securities 1,374,769 — 21,261 ( 1,094 ) 1,394,936 State and political subdivisions 1,416,136 ( 217 ) 55,111 ( 307 ) 1,470,723 Other securities 128,445 ( 95 ) 2,447 ( 95 ) 130,702 Total AFS $ 3,397,043 $ ( 312 ) $ 79,663 $ ( 2,796 ) $ 3,473,598 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 98 Accrued interest receivable on HTM and AFS securities at December 31, 2020 was $ 1.0 million and $ 17.1 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 December 31, 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 $ 228,241 $ ( 432 ) $ 52,853 $ ( 868 ) $ 281,094 $ ( 1,300 ) Mortgage-backed securities 264,843 ( 1,082 ) 3,703 ( 12 ) 268,546 ( 1,094 ) State and political subdivisions 9,302 ( 88 ) 339 ( 2 ) 9,641 ( 90 ) Total AFS $ 502,386 $ ( 1,602 ) $ 56,895 $ ( 882 ) $ 559,281 $ ( 2,484 ) As of December 31, 2020, the Company’s investment portfolio included $ 3.5 billion of AFS securities, of which $ 559.3 million, or 16.1 %, 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 for which the 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 are pre-refunded by the issuers. 99 The following table details activity in the allowance for credit losses by investment security type for the year ended December 31, 2020 on the Company’s HTM and AFS securities held. (In thousands) State and Political Subdivisions Other Securities Total Held-to-maturity Beginning balance, January 1, 2020 $ — $ — $ — Impact of ASU 2016-13 adoption 58 311 369 Provision for credit loss expense 2,249 297 2,546 Ending balance, December 31, 2020 $ 2,307 $ 608 $ 2,915 Available-for-sale Beginning balance, January 1, 2020 $ — $ — $ — Impact of ASU 2016-13 adoption 373 — 373 Credit losses on securities not previously recorded 199 113 312 Reduction due to sales ( 244 ) — ( 244 ) Net decrease in allowance on previously impaired securities ( 111 ) ( 18 ) ( 129 ) Ending balance, December 31, 2020 $ 217 $ 95 $ 312 During the year ended December 31, 2020, the provision for credit losses was reduced by $ 61,000 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 December 31, 2020: State and Political Subdivisions (In thousands) Not Guaranteed or Pre-Refunded Other Credit Enhancement or Insurance Pre-Refunded Total Other Securities Aaa/AAA $ 52,058 $ 5,828 $ — $ 57,886 $ — Aa/AA 181,481 49,788 — 231,269 — A 19,838 1,022 — 20,860 — Not Rated 1,998 403 — 2,401 1,176 Total $ 255,375 $ 57,041 $ — $ 312,416 $ 1,176 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. 100 Income earned on securities for the years ended December 31, 2020, 2019 and 2018, is as follows: (In thousands) 2020 2019 2018 Taxable: Held-to-maturity $ 985 $ 1,207 $ 2,157 Available-for-sale 34,054 42,412 37,068 Non-taxable: Held-to-maturity 919 1,412 7,424 Available-for-sale 28,575 18,345 6,811 Total $ 64,533 $ 63,376 $ 53,460 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 $ 5,821 $ 5,895 $ 14,017 $ 14,089 After one through five years 10,708 11,199 30,634 31,071 After five through ten years 5,227 2,937 229,042 232,003 After ten years 291,836 298,857 1,747,650 1,800,568 Securities not due on a single maturity date 22,354 23,037 1,374,769 1,394,936 Other securities (no maturity) — — 931 931 Total $ 335,946 $ 341,925 $ 3,397,043 $ 3,473,598 The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $ 2.0 billion at December 31, 2020 and $ 1.7 billion at December 31, 2019. There were approximately $ 54.8 million of gross realized gains and $ 15,000 of gross realized losses from the sale of securities during the year ended December 31, 2020. During 2020, the Company sold approximately $ 1.7 billion of investment securities to create additional liquidity. There were approximately $ 13.3 million of gross realized gains and $ 4,000 of gross realized losses from the sale of securities during the year ended December 31, 2019. There were approximately $ 65,000 of gross realized gains and $ 4,000 of gross realized losses from the sale of securities during the year ended December 31, 2018. The income tax expense/benefit related to security gains/losses was 26.135 % of the gross amounts in 2020, 2019 and 2018. NOTE 4: OTHER ASSETS AND OTHER LIABILITIES HELD FOR SALE Colorado Branch Sale On February 10, 2020, 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. 101 Texas Branch Sale On December 20, 2019, 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. During 2020, the Company recognized a combined gain on sale of $ 8.1 million related to the Texas Branch Sale and Colorado Branch Sale. Pending Branch Sale On November 30, 2020, Simmons Bank entered into a Branch Purchase and Assumption Agreement (the “Citizens Equity Agreement”) with Citizens Equity First Credit Union (“CEFCU”) pursuant to which CEFCU will purchase certain assets and assume certain liabilities (the “Illinois Branch Sale”) associated with four Simmons Bank locations in the Metro East area of Southern Illinois, near St. Louis (collectively, the “Illinois Branches”). Pursuant to the terms of the Citizens Equity Agreement, CEFCU has agreed to assume certain deposit liabilities and to acquire certain loans, as well as cash, personal property and other fixed assets associated with the Illinois Branches. The combined loan and deposit balances of the Illinois Branches (excluding certain loans and deposits not subject to the Illinois Branch Sale) as of December 31, 2020, were approximately $ 340,000 and $ 155 million, respectively. The completion of the Illinois Branch Sale is subject to customary closing conditions and the approval of the purchase by the appropriate state and federal regulatory agencies. Subject to the satisfaction of such conditions and approvals, CEFCU and Simmons Bank expect to close the Illinois Branch Sale in the first quarter of 2021. NOTE 5: LOANS AND ALLOWANCE FOR CREDIT LOSSES At December 31, 2020, the Company’s loan portfolio was $ 12.90 billion, compared to $ 14.43 billion at December 31, 2019. The various categories of loans are summarized as follows: (In thousands) 2020 2019 Consumer: Credit cards $ 180,354 $ 204,802 Other consumer 210,870 249,694 Total consumer 391,224 454,496 Real estate: Construction and development 1,596,255 2,236,861 Single family residential 1,880,673 2,442,064 Other commercial 5,746,863 6,205,599 Total real estate 9,223,791 10,884,524 Commercial: Commercial 2,574,386 2,495,516 Agricultural 175,905 315,454 Total commercial 2,750,291 2,810,970 Other 535,591 275,714 Total loans $ 12,900,897 $ 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 $ 57.3 million and $ 91.6 million at December 31, 2020 and 2019, respectively. 102 Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 54.4 million and $ 48.9 million at December 31, 2020 and 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 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. Paycheck Protection Program (“PPP”) loans are also included in the commercial loan portfolio. 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. Paycheck Protection Program Loans - The Company participated in both PPP appropriations of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which provided 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. PPP loans have a zero percent risk-weight for regulatory capital ratios. During 2020, we originated 8,208 PPP loans with original balances totaling $ 975.6 million. As of December 31, 2020, the total outstanding balance of PPP loans was $ 904.7 million. 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. 103 The amortized cost basis of nonaccrual loans segregated by class of loans are as follows: (In thousands) 2020 2019 Consumer: Credit cards $ 301 $ 382 Other consumer 1,219 1,705 Total consumer 1,520 2,087 Real estate: Construction and development 3,625 5,289 Single family residential 28,062 27,695 Other commercial 24,155 16,582 Total real estate 55,842 49,566 Commercial: Commercial 65,244 40,924 Agricultural 273 753 Total commercial 65,517 41,677 Total $ 122,879 $ 93,330 Nonaccrual loans for which there is no related allowance for credit losses as of December 31, 2020 had an amortized cost of $ 16.8 million. These loans are individually assessed and do not hold an allowance due to being adequately collateralized under the collateral-dependent valuation method. 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 December 31, 2020 Consumer: Credit cards $ 708 $ 256 $ 964 $ 179,390 $ 180,354 $ 256 Other consumer 2,771 302 3,073 207,797 210,870 13 Total consumer 3,479 558 4,037 387,187 391,224 269 Real estate: Construction and development 1,375 3,089 4,464 1,591,791 1,596,255 — Single family residential 23,726 14,339 38,065 1,842,608 1,880,673 253 Other commercial 2,660 9,586 12,246 5,734,617 5,746,863 — Total real estate 27,761 27,014 54,775 9,169,016 9,223,791 253 Commercial: Commercial 7,514 7,429 14,943 2,559,443 2,574,386 56 Agricultural 226 187 413 175,492 175,905 — Total commercial 7,740 7,616 15,356 2,734,935 2,750,291 56 Other 92 — 92 535,499 535,591 — Total $ 39,072 $ 35,188 $ 74,260 $ 12,826,637 $ 12,900,897 $ 578 104 (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 December 31, 2019 Consumer: Credit cards $ 848 $ 641 $ 1,489 $ 203,313 $ 204,802 $ 259 Other consumer 4,884 735 5,619 244,075 249,694 — Total consumer 5,732 1,376 7,108 447,388 454,496 259 Real estate: Construction and development 5,792 1,078 6,870 2,229,991 2,236,861 — Single family residential 26,318 13,789 40,107 2,401,957 2,442,064 597 Other commercial 7,645 6,450 14,095 6,191,504 6,205,599 — Total real estate 39,755 21,317 61,072 10,823,452 10,884,524 597 Commercial: Commercial 10,579 13,551 24,130 2,471,386 2,495,516 — Agricultural 1,223 456 1,679 313,775 315,454 — Total commercial 11,802 14,007 25,809 2,785,161 2,810,970 — Other — — — 275,714 275,714 — Total $ 57,289 $ 36,700 $ 93,989 $ 14,331,715 $ 14,425,704 $ 856 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 December 31, 2019 Consumer: Credit cards $ 382 $ 382 $ — $ 382 $ — $ 373 $ 50 Other consumer 1,537 1,378 — 1,378 — 1,659 41 Total consumer 1,919 1,760 — 1,760 — 2,032 91 Real estate: Construction and development 4,648 4,466 72 4,538 4 2,464 61 Single family residential 19,466 15,139 2,963 18,102 42 15,470 382 Other commercial 10,645 4,713 3,740 8,453 694 9,983 247 Total real estate 34,759 24,318 6,775 31,093 740 27,917 690 Commercial: Commercial 53,436 6,582 28,998 35,580 5,007 28,219 697 Agricultural 525 383 116 499 — 908 22 Total commercial 53,961 6,965 29,114 36,079 5,007 29,127 719 Total $ 90,639 $ 33,043 $ 35,889 $ 68,932 $ 5,747 $ 59,076 $ 1,500 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. 105 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. In March 2020, the federal financial institution regulatory agencies issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and provided information regarding loan modifications. 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. In response to the concerns related to the expiration of the applicable period for which the election to not apply the guidance on accounting for TDRs to loan modifications, the CARES Act was amended in late fourth quarter of 2020 to extend COVID-19 relief related to loan modifications from the earlier of (i) January 1, 2022 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration. As of December 31, 2020, the Company has modified 3,729 loans totaling approximately $ 2.99 billion to loan customers affected by COVID-19. The following table summarizes these modified loans due to COVID-19 by industry. (Dollars in thousands) Number Balance Real Estate Rental and Leasing 1,038 $ 1,160,537 Accommodation and Food Services 374 859,006 Health Care and Social Assistance 206 285,690 Construction 164 118,964 Retail Trade 143 131,311 Other Services (Except Public Administration) 128 56,283 Other 1,676 379,054 Total 3,729 $ 2,990,845 Deferred interest on the above loans totaled $ 20.2 million as of December 31, 2020. The interest will be collected at the end of the note or once regular payments are resumed. As of December 31, 2020, over 3,600 loans totaling $ 2.9 billion that had previously been modified under the CARES Act had returned to regular payment terms in addition to those that have paid off. 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. 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 December 31, 2020 Real estate: Single-family residential 28 $ 2,463 18 $ 2,736 46 $ 5,199 Other commercial 1 49 1 12 2 61 Total real estate 29 2,512 19 2,748 48 5,260 Commercial: Commercial 3 626 3 1,627 6 2,253 Total commercial 3 626 3 1,627 6 2,253 Total 32 $ 3,138 22 $ 4,375 54 $ 7,513 106 Accruing TDR Loans Nonaccrual TDR Loans Total TDR Loans (Dollars in thousands) Number Balance Number Balance Number Balance December 31, 2019 Real estate: Construction and development — $ — 1 $ 72 1 $ 72 Single-family residential 25 2,627 20 1,330 45 3,957 Other commercial 1 476 2 80 3 556 Total real estate 26 3,103 23 1,482 49 4,585 Commercial: Commercial 4 2,784 3 79 7 2,863 Total commercial 4 2,784 3 79 7 2,863 Total 30 $ 5,887 26 $ 1,561 56 $ 7,448 The following table presents loans that were restructured as TDRs during the years ended December 31, 2020 and 2019 segregated by class of loans. Modification Type (Dollars in thousands) Number of Loans Balance Prior to TDR Balance at December 31, Change in Maturity Date Change in Rate Financial Impact on Date of Restructure Year Ended December 31, 2020 Real estate: Single-family residential 5 $ 1,948 $ 1,896 $ 1,896 $ — $ — Total real estate 5 $ 1,948 $ 1,896 $ 1,896 $ — $ — Year Ended December 31, 2019 Real estate: Single-family residential 4 $ 997 $ 996 $ 996 $ — $ — Total real estate 4 $ 997 $ 996 $ 996 $ — $ — During the year ended December 31, 2020, the Company modified five loans with a recorded investment of $ 1,948,000 prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by deferring amortized principal payments, changing the maturity dates and requiring interest-only payments for a period of up to 12 months. A specific reserve of $ 51,300 was determined necessary for these loans as of December 31, 2020. Additionally, there was no immediate financial impact from the restructuring of these loans as it was not considered necessary to charge-off interest or principal on the date of restructure. During the year ended December 31, 2020, six of the previously restructured loans with prior balances of $ 837,265 were paid off. During the year ended December 31, 2019, the Company modified four loans with a recorded investment of $ 997,000 prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by deferring amortized principal payments, changing the maturity dates and requiring interest-only payments for a period of up to 12 months. Based upon the fair value of the collateral, a specific reserve was no t determined necessary for these loans. Also, there was no immediate financial impact from the restructuring of these loans, as it was not considered necessary to charge-off interest or principal on the date of restructure. During the year ended December 31, 2019, three of the previously restructured loans with prior balances of $ 81,600 were paid off. There was one commercial loan with an outstanding balance of $ 2.1 million considered a TDR for which a payment default occurred during the year ended December 31, 2020. During the year ended December 31, 2019, there were four loans with an outstanding balance of $ 690,000 , consisting of commercial and real estate construction loans, considered TDRs for which a payment default occurred. The Company charged off approximately $ 552,000 for these loans. The Company defines a payment default as a payment received more than 90 days after its due date. 107 The Company had no TDRs with pre-modification loan balances for which OREO was received in full or partial satisfaction of the loans during the years ended December 31, 2020 and 2019. At December 31, 2020 and 2019, the Company had $ 7,182,000 and $ 5,789,000 , respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At December 31, 2020 and 2019, the Company had $ 3,172,000 and $ 4,458,000 , respectively, of OREO secured by residential real estate properties. 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. 108 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 December 31, 2020 segregated by class of loans. Term Loans Amortized Cost Basis by Origination Year (In thousands) 2020 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 $ — $ — $ — $ — $ — $ — $ 708 $ — $ 708 90+ days past due — — — — — — 256 — 256 Total consumer - credit cards — — — — — — 964 — 964 Consumer - other Delinquency: 30-89 days past due 234 441 327 658 689 84 339 — 2,772 90+ days past due 79 58 25 80 40 12 8 — 302 Total consumer - other 313 499 352 738 729 96 347 — 3,074 Real estate - C&D Risk rating: 5 internal grade 2,728 344 259 2,107 19 — 9,613 — 15,070 6 internal grade 294 2,069 404 449 342 320 17,914 14 21,806 7 internal grade — — — — — — — — — Total real estate - C&D 3,022 2,413 663 2,556 361 320 27,527 14 36,876 Real estate - SF residential Delinquency: 30-89 days past due 6,300 2,258 2,593 2,610 2,058 6,050 1,782 76 23,727 90+ days past due 557 1,853 2,735 2,582 832 3,852 1,928 — 14,339 Total real estate - SF residential 6,857 4,111 5,328 5,192 2,890 9,902 3,710 76 38,066 Real estate - other commercial Risk rating: 5 internal grade 100,085 4,346 10,738 19,943 26,245 10,608 63,305 23,435 258,705 6 internal grade 66,737 9,418 24,380 14,067 3,744 11,158 52,182 39,486 221,172 7 internal grade — — — — — — — — — Total real estate - other commercial 166,822 13,764 35,118 34,010 29,989 21,766 115,487 62,921 479,877 Commercial Risk rating: 5 internal grade 5,707 342 465 972 54 — 12,318 22,546 42,404 6 internal grade 23,227 4,495 1,586 730 276 334 53,682 7,522 91,852 7 internal grade — — — — — — — — — Total commercial 28,934 4,837 2,051 1,702 330 334 66,000 30,068 134,256 Commercial - agriculture Risk rating: 5 internal grade — 79 13 299 — 6 34 — 431 6 internal grade 86 101 64 47 12 10 68 75 463 7 internal grade — — — — — — — — — Total commercial - agriculture 86 180 77 346 12 16 102 75 894 Total $ 206,034 $ 25,804 $ 43,589 $ 44,544 $ 34,311 $ 32,434 $ 214,137 $ 93,154 $ 694,007 109 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 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 $ 70.0 million as of December 31, 2020, 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 $ 1,539 $ — $ — $ 1,539 Single family residential 6,950 — — 6,950 Other commercial real estate — 40,703 5,741 46,444 Commercial 15,065 — — 15,065 Total $ 23,554 $ 40,703 $ 5,741 $ 69,998 110 The following table details activity in the allowance for credit losses by portfolio segment for the years ended December 31, 2020, 2019 and 2018. 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 December 31, 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 42,017 42,276 4,288 ( 6,093 ) 82,488 Charge-offs ( 48,736 ) ( 13,788 ) ( 4,113 ) ( 4,022 ) ( 70,659 ) Recoveries 3,216 905 1,014 1,465 6,600 Net charge-offs ( 45,520 ) ( 12,883 ) ( 3,099 ) ( 2,557 ) ( 64,059 ) Ending balance, December 31, 2020 $ 42,093 $ 182,868 $ 7,472 $ 5,617 $ 238,050 December 31, 2019 Beginning balance, January 1, 2019 $ 20,514 $ 29,838 $ 3,923 $ 2,419 $ 56,694 Provision for credit loss expense 24,434 12,714 3,692 2,400 43,240 Charge-offs ( 23,352 ) ( 3,892 ) ( 4,585 ) ( 5,007 ) ( 36,836 ) Recoveries 1,267 501 1,021 2,357 5,146 Net charge-offs ( 22,085 ) ( 3,391 ) ( 3,564 ) ( 2,650 ) ( 31,690 ) Ending balance, December 31, 2019 $ 22,863 $ 39,161 $ 4,051 $ 2,169 $ 68,244 December 31, 2018 Beginning balance, January 1, 2018 $ 7,007 $ 27,699 $ 3,784 $ 3,596 $ 42,086 Provision for credit loss expense 21,176 8,846 3,185 4,941 38,148 Charge-offs ( 8,414 ) ( 7,698 ) ( 4,051 ) ( 6,675 ) ( 26,838 ) Recoveries 745 991 1,005 557 3,298 Net charge-offs ( 7,669 ) ( 6,707 ) ( 3,046 ) ( 6,118 ) ( 23,540 ) Ending balance, December 31, 2018 $ 20,514 $ 29,838 $ 3,923 $ 2,419 $ 56,694 The primary driver for the provision for credit losses for the year ended December 31, 2020 was the continued uncertainty of a more prolonged recovery than initially anticipated to the economies that affect the loan portfolio as certain industries are being more adversely impacted by the COVID-19 pandemic, such as the restaurant, retail and hotel industries. Additionally, specific provisions were made for two energy credits that were previously identified as problem loans that were impacted by the sharp decline in commodity pricing. Four energy credits within the Commercial segment were charged off during the second quarter of 2020 for a total of $ 32.6 million. The provision for credit losses was partially offset due to a reduction in loan growth. The Company updated credit loss forecasts using multiple Moody’s economic scenarios published in December 2020. The baseline economic forecast was weighted 68 % by the Company, while the downside scenario of S-2 was weighted 15 % and the upside scenario of S-1 was weighted 17 %. The weighting of the forecasts is characterized by, among others, market rates remaining low, the substantial decline of CRE prices, and the current national unemployment rate. 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 December 31, 2020 and December 31, 2019 was $ 22.4 million and $ 8.4 million, respectively. The increase from December 31, 2019 was due to the adoption of CECL. The adequacy of the reserve for unfunded commitments is determined quarterly based on methodology similar to the methodology for determining the allowance for credit losses. For the year ended December 31, 2020, net adjustments to the reserve for unfunded commitments resulted in a benefit of $ 10.0 million and was included in provision for credit losses in the statement of income. 111 Provision for Credit Losses Provision for credit losses is determined by the Company as the amount to be added to the allowance for credit loss accounts for various types of financial instruments including loans, securities and off-balance-sheet credit exposure after net charge-offs have been deducted to bring the allowance to a level which, in management's best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments. The components of provision for credit losses for the years ended December 31were as follows: (In thousands) 2020 2019 2018 Provision for credit losses related to: Loans $ 82,488 $ 43,240 $ 38,148 Unfunded commitments ( 10,000 ) — — Securities - HTM 2,546 — — Securities - AFS ( 61 ) — — Total $ 74,973 $ 43,240 $ 38,148 Provision for credit losses in 2019 and 2018 was calculated under the prior incurred loss accounting methodology. Furthermore, provision for credit losses related to unfunded commitments was previously reported as a component of other non-interest expense. NOTE 6: RIGHT-OF-USE LEASE ASSETS AND LEASE LIABILITIES 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. The following table presents information related to the Company’s right-of-use lease assets, included in premises and equipment, and lease liabilities, included in other liabilities, at December 31, 2020 and 2019. (Dollars in thousands) 2020 2019 Right-of-use lease assets $ 31,348 $ 40,675 Lease liabilities $ 31,433 $ 40,854 Weighted average remaining lease term 6.55 years 8.37 years Weighted average discount rate 3.09 % 3.27 % Operating lease cost for the years ended December 31, 2020, 2019 and 2018 was $ 13,103,000 , $ 13,560,000 , and $ 13,378,000 , respectively. 112 The Company’s remaining undiscounted minimum lease payments on operating leases as of December 31, 2020 are as follows: Year (In thousands) 2021 $ 9,192 2022 7,376 2023 5,256 2024 3,304 2025 2,299 Thereafter 8,000 Total undiscounted minimum lease payments 35,427 Less: Net present value adjustment 3,994 Lease liability included in other liabilities $ 31,433 NOTE 7: PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. Total premises and equipment, net at December 31, 2020 and December 31, 2019 were as follows: (In thousands) 2020 2019 Right-of-use lease assets $ 31,348 $ 40,675 Premises and equipment: Land 90,953 99,931 Buildings and improvements 293,338 309,290 Furniture, fixtures and equipment 100,863 99,343 Software 64,877 56,012 Construction in progress 763 6,998 Accumulated depreciation and amortization ( 140,450 ) ( 119,865 ) Total premises and equipment, net $ 441,692 $ 492,384 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 $ 1.08 billion at December 31, 2020 and $ 1.06 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. Goodwill increased $ 19.8 million during 2020 due to the continued assessment of the fair value and assumed tax position of the Landrum acquisition that was finalized during the third quarter of 2020. Goodwill impairment was neither indicated nor recorded in 2020, 2019 or 2018. 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. During the third and fourth quarters of 2020, the Company again performed a quantitative interim goodwill impairment assessment and concluded no impairment existed. While the goodwill impairment analysis indicated no impairment at December 31, 2020, the Company’s assessment depends on several assumptions which are dependent on market and economic conditions, and future changes in those conditions could impact the Company’s assessment in the future. 113 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 December 31, 2020 and 2019 were as follows: (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 ( 12,121 ) ( 10,694 ) Balance, end of year 97,363 111,808 Books of business and other intangibles: Balance, beginning of year 15,532 11,527 Acquisitions (3) — 5,116 Disposition of intangible asset ( 413 ) — Amortization ( 1,372 ) ( 1,111 ) Balance, end of year 13,747 15,532 Total other intangible assets, net $ 111,110 $ 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. The carrying basis and accumulated amortization of the Company’s other intangible assets at December 31, 2020 and 2019 were as follows: (In thousands) 2020 2019 Core deposit premiums: Gross carrying amount $ 146,355 $ 148,679 Accumulated amortization ( 48,992 ) ( 36,871 ) Core deposit premiums, net 97,363 111,808 Books of business and other intangibles: Gross carrying amount 19,937 20,350 Accumulated amortization ( 6,190 ) ( 4,818 ) Books of business and other intangibles, net 13,747 15,532 Total other intangible assets, net $ 111,110 $ 127,340 Core deposit premium amortization expense recorded for the years ended December 31, 2020, 2019 and 2018 was $ 12.1 million, $ 10.7 million and $ 9.5 million, respectively. Amortization expense recorded for books of business and other intangibles was $ 1.4 million, $ 1.1 million and $ 1.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. 114 The Company’s estimated remaining amortization expense on other intangible assets as of December 31, 2020 is as follows: Year (In thousands) 2021 $ 13,379 2022 13,327 2023 13,044 2024 12,141 2025 9,557 Thereafter 49,662 Total $ 111,110 NOTE 9: TIME DEPOSITS Time deposits included approximately $ 2.03 billion and $ 2.15 billion of certificates of deposit of $100,000 or more, at December 31, 2020 and 2019, respectively. Of this total approximately $ 889.8 million and $ 837.3 million of certificates of deposit were over $250,000 at December 31, 2020 and 2019, respectively. Brokered time deposits were $ 512.3 million and $ 1.06 billion at December 31, 2020 and 2019, respectively. Maturities of all time deposits at December 31, 2020 are as follows: Year (In thousands) 2021 $ 2,426,751 2022 285,555 2023 98,663 2024 15,353 2025 5,851 Thereafter 154 Total $ 2,832,327 Deposits are the Company’s primary funding source for loans and investment securities. The mix and repricing alternatives can significantly affect the cost of this source of funds and, therefore, impact the interest margin. NOTE 10: INCOME TAXES The provision for income taxes for the years ended December 31 is comprised of the following components: (In thousands) 2020 2019 2018 Income taxes currently payable $ 65,012 $ 29,354 $ 41,946 Deferred income taxes ( 122 ) 34,911 8,412 Provision for income taxes $ 64,890 $ 64,265 $ 50,358 115 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 as of December 31, 2020 and 2019: (In thousands) 2020 2019 Deferred tax assets: Loans acquired $ 10,100 $ 20,783 Allowance for credit losses 58,028 16,732 Valuation of foreclosed assets 1,673 2,626 Tax NOLs from acquisition 16,028 18,118 Deferred compensation payable 3,060 2,750 Accrued equity and other compensation 5,905 6,677 Acquired securities 587 3,393 Right-of-use lease liability 7,835 10,221 Allowance for unfunded commitments 5,583 — Other 7,600 7,886 Gross deferred tax assets 116,399 89,186 Deferred tax liabilities: Goodwill and other intangible amortization ( 38,882 ) ( 41,221 ) Accumulated depreciation ( 34,667 ) ( 36,554 ) Right-of-use lease asset ( 7,813 ) ( 10,176 ) Unrealized gain on available-for-sale securities ( 17,521 ) ( 3,720 ) Other ( 4,021 ) ( 7,651 ) Gross deferred tax liabilities ( 102,904 ) ( 99,322 ) Net deferred tax asset (liability) $ 13,495 $ ( 10,136 ) A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below for the years ended December 31: (In thousands) 2020 2019 2018 Computed at the statutory rate $ 67,143 $ 63,442 $ 55,875 Increase (decrease) in taxes resulting from: State income taxes, net of federal tax benefit 6,402 5,860 5,015 Discrete items related to ASU 2016-09 375 ( 38 ) ( 2,439 ) Tax exempt interest income ( 6,726 ) ( 4,390 ) ( 3,168 ) Tax exempt earnings on BOLI ( 1,214 ) ( 852 ) ( 869 ) Federal tax credits ( 2,177 ) ( 939 ) ( 3,003 ) Other differences, net 1,087 1,182 ( 1,053 ) Actual tax provision $ 64,890 $ 64,265 $ 50,358 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. 116 Income tax expense was lower during 2018 largely due to discrete tax benefits related to tax accounting for a cost segregation study, excess tax benefits related to restricted stock and a state tax deferred tax asset (“DTA”) adjustment. The purpose of the cost segregation study was to analyze the costs included in various projects and recognize the benefit of recording tax depreciation in the previous year when the federal rate was higher. The purpose of the state DTA adjustment was due to an analysis of projected state apportionment after certain acquisitions were merged into Simmons Bank. 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 $ 71.4 million of federal net operating losses subject to the IRC Section 382 annual limitation are expected to be utilized by the Company, of which $ 41.4 million is related to the Reliance acquisition that closed during second quarter of 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 2017 tax year and forward. The Company’s various state income tax returns are generally open from the 2017 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 $ 248.9 million and $ 133.2 million at December 31, 2020 and 2019, respectively. The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of December 31, 2020 and 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 December 31, 2020 Repurchase agreements: U.S. Government agencies $ 248,861 $ — $ — $ — $ 248,861 December 31, 2019 Repurchase agreements: U.S. Government agencies $ 133,220 $ — $ — $ — $ 133,220 117 NOTE 12: OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES Debt at December 31, 2020 and 2019 consisted of the following components: (In thousands) 2020 2019 Other Borrowings FHLB advances, net of discount, due 2021 to 2035, 0.23 % to 7.37 %, secured by real estate loans $ 1,308,674 $ 1,262,691 Other long-term debt 33,393 34,908 Total other borrowings 1,342,067 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 25,172 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 3,023 3,004 Other subordinated debentures, due 12/31/36, floating rate of prime rate minus 1.1 %, reset quarterly — 5,927 Unamortized debt issuance costs ( 2,643 ) ( 3,008 ) Total subordinated notes and debentures 382,874 388,260 Total other borrowings and subordinated debt $ 1,724,941 $ 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 the second quarter of 2020. The Company had total FHLB advances of $ 1.31 billion at December 31, 2020, 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 the end of the year have original maturity dates of ten years to fifteen years with lockout periods that have expired. During the fourth quarter of 2020, the Company reclassified the FOTO advances as long-term advances due to the current low interest rate environment and the expectation that FHLB will not exercise the option to terminate the FOTO advances prior to its stated maturity date. The possibility of the FHLB exercising the options is continually analyzed by the Company along with the market expected rate outcome. At December 31, 2020, the FHLB advances outstanding were secured by 118 mortgage loans and investment securities totaling approximately $ 5.6 billion and the Company had approximately $ 2.7 billion of additional advances available from the FHLB. At December 31, 2020, the Company had no FHLB advances outstanding with original or expected maturities of one year or less. 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 December 31, 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 December 31, 2020, are as follows: Year (In thousands) 2021 $ 2,812 2022 1,921 2023 1,758 2024 2,399 2025 4,948 Thereafter 1,711,103 Total $ 1,724,941 NOTE 13: 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. On January 18, 2018, the Board of Directors of the Company approved a two-for-one stock split of the Company’s outstanding Class A common stock (“Common Stock”) in the form of a 100% stock dividend for shareholders of record as of the close of business on January 30, 2018. The new shares were distributed by the Company’s transfer agent, Computershare, and the Company’s common stock began trading on a split-adjusted basis on the Nasdaq Global Select Market on February 9, 2018. All previously reported share and per share data included in filings subsequent to February 8, 2018 are restated to reflect the retroactive effect of this two -for-one stock split. 119 On March 19, 2018, the Company filed a shelf registration with the SEC. The shelf registration statement provides increased flexibility and more efficient access to raise capital from time to time through the sale of common stock, preferred stock, debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, units or a combination thereof, subject to market conditions. Specific terms and prices are determined at the time of any offering under a separate prospectus supplement that the Company is required to file with the SEC at the time of the specific offering. On April 19, 2018, shareholders of the Company approved an increase in the number of authorized shares from 120,000,000 to 175,000,000 . 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 2020, the Company repurchased 5,956,700 shares at an average price of $ 19.03 per share under the Program. Market conditions and the Company’s capital needs will drive decisions regarding additional, future stock repurchases. The Company repurchased 390,000 shares at an average price of $ 25.97 per share during 2019. NOTE 14: TRANSACTIONS WITH RELATED PARTIES At December 31, 2020 and 2019, Simmons Bank had extensions of credit to executive officers and directors and to companies in which Simmons Bank’s executive officers or directors were principal owners in the amount of $ 6.5 million at December 31, 2020 and $ 20.1 million at December 31, 2019. (In thousands) 2020 2019 Balance, beginning of year $ 20,138 $ 66,391 New extensions of credit 4,022 2,503 Repayments ( 17,624 ) ( 48,756 ) Balance, end of year $ 6,536 $ 20,138 In management’s opinion, such loans and other extensions of credit, deposits and vendor contracts (which were not material) were made in the ordinary course of business and were made 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 the normal risk of collectability or present other unfavorable features. 120 NOTE 15: EMPLOYEE BENEFIT PLANS Retirement Plans The Company offers a qualified 401(k) Plan in which the Company makes matching contributions to encourage employees to save money for their retirement. The 401(k) Plan covers substantially all employees. Under the terms of the 401(k) Plan, employees may defer a portion of their eligible pay, up to the maximum allowed by I.R.S. regulation, and the Company matches 100 % of the first 3 % of compensation and 50 % of the next 2 % of compensation for a total match of 4 % of eligible pay for each participant who defers 5 % or more of his or her eligible pay. Additionally, the Company may make profit-sharing contributions to the 401(k) Plan which are allocated among participants based upon 401(k) Plan compensation without regard to participant contributions. Contribution expense to the plan totaled $ 10,280,000 , $ 13,021,000 and $ 10,769,000 in 2020, 2019 and 2018, respectively. The Company also provides deferred compensation agreements with certain active and retired officers. The agreements provide monthly payments of retirement compensation for either stated periods or for the life of the participant. The charges to income for the plans were $ 2,716,000 for 2020, $ 2,294,000 for 2019 and $ 2,309,000 for 2018. Such charges reflect the straight-line accrual over the employment period of the present value of benefits due each participant, as of their full eligibility date, using an appropriate discount factor. Employee Stock Purchase Plan The Company established an Employee Stock Purchase Plan in 2015 which generally allows participants to make contributions of up to $ 25,000 per year, for the purpose of acquiring the Company’s common stock. At the end of each plan year, full shares of the Company’s stock are purchased for each employee based on that employee’s contributions. The Company has issued both general and special stock offerings under the plan. Substantially all employees are eligible for the general stock offering, under which full shares of the Company’s stock are purchased for an amount equal to 95 % of their fair market value at the end of the plan year, or, if lower, 95 % of their fair market value at the beginning of the plan year. The special stock offering is available to substantially all non-highly compensated employees with at least six months of service, and these employees may allocate up to $ 10,000 to this offering. Under the special stock offering, full shares of the Company’s stock are purchased for an amount equal to 85 % of their fair market value at the end of the plan year, or, if lower, 85 % of their fair market value at the beginning of the plan year. Stock-Based Compensation Plans 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 restricted stock, restricted stock units, or performance stock units granted to directors, officers and other key employees. Stock-based compensation expense for all stock-based compensation awards is based on the grant date fair value. For all awards except stock option awards, the grant date fair value is the market value per share as of the grant date. For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company’s employee stock options. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses various assumptions. Expected volatility is based on historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Forfeitures are estimated at the time of grant, and are based partially on historical experience. 121 Share and per share information regarding stock-based compensation plans has been adjusted to reflect the effects of the Company’s two -for-one stock split which became effective on February 8, 2018. The table below summarizes the transactions under the Company’s active stock compensation plans at December 31, 2020, 2019 and 2018, and changes during the years then ended: 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, December 31, 2017 812 $ 21.98 162 $ 20.85 828 $ 26.13 Granted — — — — 429 29.16 Stock options exercised ( 112 ) 19.22 — — — — Stock awards/units vested (earned) — — ( 80 ) 20.41 ( 311 ) 25.56 Forfeited/expired ( 5 ) 21.73 ( 10 ) 20.12 ( 129 ) 27.95 Balance, December 31, 2018 695 22.42 72 21.45 817 27.65 Granted — — — — 842 26.05 Stock options exercised ( 3 ) 12.79 — — — — Stock awards/units vested (earned) — — ( 49 ) 20.72 ( 405 ) 26.75 Forfeited/expired — — ( 2 ) 21.82 ( 102 ) 28.10 Balance, December 31, 2019 692 22.46 21 23.19 1,152 26.79 Granted — — — — 568 21.69 Stock options exercised ( 1 ) 10.71 — — — — Stock awards/units vested (earned) — — ( 16 ) 23.41 ( 550 ) 25.90 Forfeited/expired ( 33 ) 22.49 — — ( 138 ) 26.12 Balance, December 31, 2020 658 $ 22.48 5 $ 22.35 1,032 $ 24.53 Exercisable, December 31, 2020 658 $ 22.48 The following table summarizes information about stock options under the plans outstanding at December 31, 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 0.87 $ 9.46 1 $ 9.46 10.65 — 10.65 3 2.08 10.65 3 10.65 20.29 — 20.29 66 2.99 20.29 66 20.29 20.36 — 20.36 2 3.88 20.36 2 20.36 22.20 — 22.20 74 3.13 22.20 74 22.20 22.75 — 22.75 412 3.69 22.75 412 22.75 23.51 — 23.51 93 4.11 23.51 93 23.51 24.07 — 24.07 7 4.71 24.07 7 24.07 $ 9.46 — $ 24.07 658 3.62 $ 22.48 658 $ 22.48 122 The table below summarizes the Company’s performance stock unit activity for the years ended December 31, 2020, 2019 and 2018: (In thousands) Performance Stock Units Non-vested, December 31, 2017 177 Granted 72 Vested (earned) ( 55 ) Forfeited ( 17 ) Non-vested, December 31, 2018 177 Granted 118 Vested (earned) ( 93 ) Forfeited ( 3 ) Non-vested, December 31, 2019 199 Granted 122 Vested (earned) ( 81 ) Forfeited ( 18 ) Non-vested, December 31, 2020 222 Stock-based compensation expense was $ 13,197,000 in 2020, $ 12,921,000 in 2019 and $ 11,227,000 in 2018. 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 December 31, 2020. Unrecognized stock-based compensation expense related to non-vested stock awards and stock units was $ 15,524,000 at December 31, 2020. At such date, the weighted-average period over which this unrecognized expense is expected to be recognized was 1.7 years. The intrinsic value of stock options outstanding and stock options exercisable at December 31, 2020 was $ 134,000 . Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $ 21.59 at December 31, 2020, and the exercise price multiplied by the number of options outstanding. There were 900 stock options exercised in 2020 with an intrinsic value of $ 10,000 . There were 3,050 stock options exercised in 2019 with an intrinsic value of $ 43,000 . There were 111,728 stock options exercised in 2018 with an intrinsic value of $ 561,000 . 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 years ended December 31, 2020, 2019 and 2018. 123 NOTE 16: ADDITIONAL CASH FLOW INFORMATION The following is a summary of the Company’s additional cash flow information during the years ended December 31: (In thousands) 2020 2019 2018 Interest paid $ 123,995 $ 182,541 $ 122,801 Income taxes paid 47,777 51,999 25,718 Transfers of loans to foreclosed assets held for sale 10,712 4,760 16,858 Transfers of premises to foreclosed assets and other real estate owned 3,120 647 3,690 Transfers of premises to premises held for sale 11,200 — — Transfers of other real estate owned to premises held for sale 4,163 — — Right-of-use lease assets obtained in exchange for lessee operating lease liabilities (adoption of ASU 2016-02) — 32,757 — Transfers of held-to-maturity to available-for-sale securities — 216,373 — Transfers of loans to other assets held for sale 114,925 259,939 — Transfers of deposits to other liabilities held for sale 213,025 159,853 — NOTE 17: OTHER INCOME AND OTHER OPERATING EXPENSES Other income for the year ended December 31, 2020 was $ 38.5 million and included the gain on sales related to the Texas Branch Sale and Colorado Branch Sale of $ 8.1 million. Other income for the years ended December 31, 2019 and 2018 was $ 62.0 million, that primarily consisted of the gain on sale of Visa Inc. class B common stock of $ 42.9 million, and $ 23.7 million, respectively. Other operating expenses consisted of the following during the years ended December 31: (In thousands) 2020 2019 2018 Professional services $ 18,688 $ 16,897 $ 16,685 Postage 7,538 6,363 5,785 Telephone 8,833 7,685 5,947 Credit card expense 18,960 16,163 14,338 Marketing 19,396 16,499 8,410 Software and technology 39,724 25,146 15,558 Operating supplies 3,322 2,322 2,346 Amortization of intangibles 13,495 11,805 11,009 Branch right sizing expense 14,097 3,129 1,341 Other expense 29,907 32,843 30,156 Total other operating expenses $ 173,960 $ 138,852 $ 111,575 124 NOTE 18: 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. 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. Mortgage loans held for sale – Mortgage loans held for sale are reported at fair value on an aggregate basis. Adjustments to fair value are recognized monthly and reflected in earnings. In determining the fair value of loans held for sale, 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 December 31, 2020 and 2019, the aggregate fair value of mortgage loans held for sale exceeded their cost. 125 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 December 31, 2020 and 2019. Fair Value Measurements (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) December 31, 2020 Available-for-sale securities U.S. Government agencies $ 477,237 $ — $ 477,237 $ — Mortgage-backed securities 1,394,936 — 1,394,936 — State and political subdivisions 1,470,723 — 1,470,723 — Other securities 130,702 — 130,702 — Mortgage loans held for sale 137,378 — — 137,378 Derivative asset 35,846 — 35,846 — Other liabilities held for sale ( 154,620 ) — — ( 154,620 ) Derivative liability ( 36,141 ) — ( 36,141 ) — 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 — State and political subdivisions 880,524 — 880,524 — Other securities 20,896 — 20,896 — Mortgage loans held for sale 58,102 — — 58,102 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 ) — 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. 126 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. 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 December 31, 2020 and 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) December 31, 2020 Individually assessed loans (1) (2) (collateral-dependent) $ 66,209 $ — $ — $ 66,209 Foreclosed assets and other real estate owned (1) 17,074 — — 17,074 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 $ 13,725,000 and $ 1,297,000 were related to collateral-dependent loans for which fair value re-measurements took place during the years ended December 31, 2020 and 2019, respectively. 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. 127 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. 128 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 December 31, 2020 Financial assets: Cash and cash equivalents $ 3,472,152 $ 3,472,152 $ — $ — $ 3,472,152 Interest bearing balances due from banks - time 1,579 — 1,579 — 1,579 Held-to-maturity securities 333,031 — 341,925 — 341,925 Interest receivable 72,597 — 72,597 — 72,597 Loans, net 12,662,847 — — 12,736,991 12,736,991 Financial liabilities: Non-interest bearing transaction accounts 4,482,091 — 4,482,091 — 4,482,091 Interest bearing transaction accounts and savings deposits 9,672,608 — 9,672,608 — 9,672,608 Time deposits 2,832,327 — — 2,848,621 2,848,621 Federal funds purchased and securities sold under agreements to repurchase 299,111 — 299,111 — 299,111 Other borrowings 1,342,067 — 1,448,625 — 1,448,625 Subordinated notes and debentures 382,874 — 398,827 — 398,827 Interest payable 8,887 — 8,887 — 8,887 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 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. 129 NOTE 19: 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 December 31, 2020, the Company had outstanding commitments to extend credit aggregating approximately $ 671,488,000 and $ 2,355,953,000 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. As of December 31, 2020 and 2019, the Company had outstanding commitments to originate fixed-rate mortgage loans of approximately $ 213,998,000 and $ 51,136,000 respectively. The commitments extend over varying periods of time with the majority being disbursed within a thirty-day period. 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 $ 49,029,000 and $ 71,074,000 at December 31, 2020 and 2019, respectively, with terms ranging from 9 months to 15 years. At December 31, 2020 and 2019, the Company had no deferred revenue under standby letter of credit agreements. The Company has purchased letters of credit from the FHLB as security for certain public deposits. The amount of the letters of credit was $ 1,549,214,000 and $ 1,496,367,000 at December 31, 2020 and 2019, respectively, and they expire in less than one year from issuance. At December 31, 2020, the Company did not have concentrations of 5% or more of the investment portfolio in bonds issued by a single municipality. 130 NOTE 20: NEW ACCOUNTING STANDARDS Recently Adopted 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, it is likely that banks will no longer be required to report information that is used to determine LIBOR, and certain LIBOR rates will no longer be published. As a result, LIBOR could be discontinued as a reference rate. 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). The Company formed a LIBOR Transition Team in 2020 and has created standard LIBOR replacement language for new and modified loan notes and is not offering discontinued rates on new loans. The Company monitors the remaining loans with LIBOR rates monthly to ensure progress. The adoption of ASU 2020-04 has not had a material impact on the Company’s financial position or results of operations. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. ASU 2021-01 did not have a material impact on the Company’s financial position or results of operations. Fair Value Measurement Disclosures – In August 2018, the 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 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. 131 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 CARES Act was signed in to law by the President of the United States and allowed 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 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. Cloud Computing Arrangements – In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”), that amends the definition of a hosting arrangement and requires a customer in a hosting arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project. The internal-use software guidance states that only qualifying costs incurred during the application development stage can be capitalized. The effective date is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively in accordance with the applicable guidance. At the time of adoption, entities will be required to disclose the nature of its hosting arrangements that are service contracts and provide disclosures as if the deferred implementation costs were a separate, major depreciable asset class. The Company early adopted ASU 2018-15 in the first quarter 2019 and elected to apply the guidance prospectively to all software implementation costs incurred after the date of adoption. The applicable software implementation costs that have been capitalized subsequent to the adoption of ASU No. 2018-15 have not had a material impact on our financial position or results of operations. 132 Derivatives and Hedging: Targeted Improvements - In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), that changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in order to better align a company’s risk management activities and financial reporting for hedging relationships. In summary, this amendment 1) expands the types of transactions eligible for hedge accounting; 2) eliminates the separate measurement and presentation of hedge ineffectiveness; 3) simplifies the requirements around the assessment of hedge effectiveness; 4) provides companies more time to finalize hedge documentation; and 5) enhances presentation and disclosure requirements. The effective date was for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. All transition requirements and elections should be applied to existing hedging relationships on the date of adoption and the effects should be reflected as of the beginning of the fiscal year of adoption. As part of this new guidance, entities are allowed to designate as the hedged item, an amount that is not expected to be affected by prepayments, defaults or other events affecting the timing and amount of cash flows in a closed portfolio of prepayable financial instruments (this is referred to as the “last-of-layer” method). Under the last-of-layer method, entities are able to reclassify, only at the time of adoption, eligible callable debt securities from held-to-maturity to available-for-sale without tainting its intentions to hold future debt securities to maturity. The available-for-sale security must be reported at fair value and any unrealized gain or loss must be recorded as an adjustment to other comprehensive income upon adoption. The Company evaluated its held-to-maturity portfolio during the first quarter 2019 and identified certain municipal bonds with a fair value of $ 216.4 million that met the last-of-layer criteria under ASU 2017-12 and as a result, reclassified those to available-for-sale and recorded an unrealized gain of $ 2.5 million in accumulated other comprehensive income during the first quarter of 2019. Goodwill Impairment – In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), that eliminates Step 2 from the goodwill impairment test which required entities to compare the implied fair value of goodwill to its carrying amount. Under the amendments, the goodwill impairment will be measured as the excess of the reporting unit’s carrying amount over its fair value. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The effective date is for fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual impairment tests beginning in 2017. The Company early adopted ASU 2017-04 during the second quarter of 2019 to coincide with the Company’s formal impairment analysis. See Note 8, Goodwill and Other Intangible Assets, for additional information. Leases - In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), that establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. The new guidance results in a more consistent representation of the rights and obligations arising from leases by requiring lessees to recognize the lease asset and lease liabilities that arise from leases in the consolidated balance sheet and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. The effective date was for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 requires entities to adopt the new lease standard using a modified retrospective transition method, meaning an entity initially applies the new lease standard at the beginning of the earliest period presented in the financial statements. Due to complexities associated with using this method, in July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements , to relieve entities of the requirement to present prior comparative years’ results when they adopt the new lease standard and giving entities the option to recognize the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings. Adoption of ASU 2016-02 resulted in the recognition of right-of-use assets of $ 32.8 million and right-of-use liabilities of $ 32.8 million on the consolidated balance sheet with no material impact to the results of operations. The Company has elected to adopt the guidance using the optional transition method, which allows for a modified retrospective method of adoption with a cumulative effect adjustment to retained earnings without restating comparable periods. The Company also elected the relief package of practical expedients for which there is no requirement to reassess existence of leases, their classification, and initial direct costs as well as an exemption for short-term leases with a term of less than one year, whereby the Company did not recognize a lease liability or right-of-use asset on the consolidated balance sheet but instead will recognize lease payments as an expense over the lease term as appropriate. See Note 6, Right-of-Use Lease Assets and Lease Liabilities, for additional information related to the Company’s right-of-use lease obligations. 133 Recently Issued Accounting Standards 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 adoption of ASU 2019-12 is not expected to have a material impact on the Company’s operations, financial position or disclosures. Presently, the Company is not aware of any other changes to the Accounting Standards Codification that will have a material impact on the Company’s present or future financial position or results of operations. NOTE 21: 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. 134 The following table summarizes the fair values of loan derivative contracts recorded in the accompanying consolidated balance sheets for the years ended December 31, 2020 and 2019. 2020 2019 (In thousands) Notional Fair Value Notional Fair Value Derivative assets $ 408,881 $ 35,846 $ 401,969 $ 14,903 Derivative liabilities 417,941 36,141 387,075 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 $ 43.5 million as of December 31, 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. 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 December 31, 2020 for energy hedging Customer Sell to Company swaps were $ 14.8 million and the corresponding Company Sell to Dealer swaps were $ 14.8 million and the corresponding net fair value of the derivative asset and derivative liability was $ 536,000 . NOTE 22: CONTINGENT LIABILITIES In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings incidental to the conduct of our business, including proceedings based on breach of contract claims, lender liability claims, and other ordinary-course claims, some of which seek substantial relief or damages. On May 22, 2019, Danny Walkingstick and Whitnye Fort filed a putative class action complaint against Simmons Bank in the United States District Court for the Western District of Missouri. The operative complaint alleges that Simmons Bank improperly charges overdraft fees on transactions that did not actually overdraw customers’ accounts by utilizing the checking account’s “available balance” to assess overdraft fees instead of the “ledger balance.” Plaintiffs’ claims include breach of contract and unjust enrichment, and they seek to represent a proposed class of all Simmons Bank checking account customers who were assessed an overdraft fee on a transaction that purportedly did not overdraw the account. Plaintiffs seek unspecified damages, costs, attorneys’ fees, pre- and post-judgment interest, and other relief as the Court deems proper for themselves and the putative class. Simmons Bank denies the allegations and is vigorously defending the matter. On January 14, 2020, Susanne Pace filed a putative class action complaint against Landmark Bank, to which Simmons Bank is a successor by merger, in the Circuit Court of Boone County, Missouri. The complaint alleges that Landmark Bank improperly charged overdraft fees where a transaction was initially authorized on sufficient funds but later settled negative due to intervening transactions. The complaint asserts a claim for breach of contract, which incorporates the implied duty of good faith and fair dealing. Plaintiff seeks to represent a proposed class of all Landmark Bank checking account customers from Missouri who were allegedly charged overdraft fees on transactions that did not overdraw their checking account. Plaintiff seeks unspecified actual, statutory, and punitive damages as well as costs, attorneys’ fees, pre-judgment interest, an injunction, and other relief as the Court deems proper for herself and the putative class. Simmons Bank denies the allegations and is vigorously defending the matter. 135 On June 29, 2020, Shunda Wilkins, Diann Graham, and David Watson filed a putative class action complaint against Simmons Bank in the United States District Court for the Eastern District of Arkansas. The complaint alleges that Simmons Bank improperly charges multiple insufficient funds or overdraft fees when a merchant resubmits a rejected payment request. The complaint asserts claims for breach of contract and unjust enrichment. Plaintiffs seek to represent a proposed class of all Simmons Bank checking account customers who were charged multiple insufficient funds or overdraft fees on resubmitted payment requests. Plaintiffs seek unspecified damages, costs, attorney’s fees, prejudgment interest, an injunction, and other relief as the Court deems proper for themselves and the purported class. Simmons Bank denies the allegations and is vigorously defending the matter. We establish reserves for legal proceedings when potential losses become probable and can be reasonably estimated. While the ultimate resolution of any legal proceedings, including the matters described above, cannot be determined at this time, based on information presently available and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, either individually or in the aggregate, will not have a material adverse effect on our consolidated results of operations, financial condition, or cash flows. It is possible, however, that future developments could result in an unfavorable outcome for or resolution of any of these proceedings, which may be material to our results of operations for a given fiscal period. NOTE 23: STOCKHOLDERS’ EQUITY 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 December 31, 2020, Simmons Bank had approximately $ 45.6 million available for payment of dividends to the Company, without prior regulatory approval. The Company’s bank subsidiary is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its bank subsidiary must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The risk-based capital guidelines of the Federal Reserve Board 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. CET1 generally consists of common stock; retained earnings; accumulated other comprehensive income and certain minority interests; all subject to applicable regulatory adjustments and deductions. 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. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). As of December 31, 2020, the Company and its subsidiary bank met all capital adequacy requirements under the Basel III Capital Rules and exceeded the fully phased in capital conservation buffer. As of the most recent notification from regulatory agencies, the subsidiary bank was well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed these categories. 136 The Company’s and the subsidiary banks’ actual capital amounts and ratios are presented in the following table. Actual Minimum For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provision (In thousands) Amount Ratio (%) Amount Ratio (%) Amount Ratio (%) December 31, 2020 Total Risk-Based Capital Ratio Simmons First National Corporation $ 2,356,982 16.8 $ 1,122,372 8.0 N/A Simmons Bank 2,136,253 15.3 1,116,995 8.0 1,396,244 10.0 Tier 1 Risk-Based Capital Ratio Simmons First National Corporation 1,884,562 13.4 843,834 6.0 N/A Simmons Bank 2,046,711 14.6 841,114 6.0 1,121,485 8.0 Common Equity Tier 1 Capital Ratio Simmons First National Corporation 1,883,795 13.4 632,618 4.5 N/A Simmons Bank 2,046,711 14.6 630,836 4.5 911,207 6.5 Tier 1 Leverage Ratio Simmons First National Corporation 1,884,562 9.1 828,379 4.0 N/A Simmons Bank 2,046,711 9.9 826,954 4.0 1,033,692 5.0 December 31, 2019 Total Risk-Based Capital Ratio Simmons First National Corporation $ 2,272,858 13.7 $ 1,327,216 8.0 N/A Simmons Bank 1,852,880 12.9 1,149,073 8.0 1,436,341 10.0 Landmark Bank (1) 291,378 13.9 167,700 8.0 209,624 10.0 Tier 1 Risk-Based Capital Ratio Simmons First National Corporation 1,807,954 10.9 995,204 6.0 N/A Simmons Bank 1,777,602 12.3 867,123 6.0 1,156,164 8.0 Landmark Bank (1) 290,016 13.8 126,094 6.0 168,125 8.0 Common Equity Tier 1 Capital Ratio Simmons First National Corporation 1,807,187 10.9 746,086 4.5 N/A Simmons Bank 1,777,602 12.3 650,342 4.5 939,383 6.5 Landmark Bank (1) 270,016 12.9 94,192 4.5 136,055 6.5 Tier 1 Leverage Ratio Simmons First National Corporation 1,807,954 9.6 753,314 4.0 N/A Simmons Bank 1,777,602 10.7 664,524 4.0 830,655 5.0 Landmark Bank (1) 290,016 8.8 131,825 4.0 164,782 5.0 ______________________ (1) Landmark Bank was merged into Simmons Bank on February 14, 2020. 137 NOTE 24: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) Condensed Balance Sheets December 31, 2020 and 2019 (In thousands) 2020 2019 ASSETS Cash and cash equivalents $ 172,083 $ 104,068 Investment securities 1,648 743 Investments in wholly-owned subsidiaries 3,165,791 3,269,224 Loans 471 657 Intangible assets, net 133 133 Premises and equipment 25,606 27,351 Other assets 56,257 31,738 TOTAL ASSETS $ 3,421,989 $ 3,433,914 LIABILITIES Long-term debt $ 406,859 $ 413,760 Other liabilities 38,474 31,230 Total liabilities 445,333 444,990 STOCKHOLDERS’ EQUITY Preferred stock 767 767 Common stock 1,081 1,136 Surplus 2,014,076 2,117,282 Undivided profits 901,006 848,848 Accumulated other comprehensive gain (loss): Unrealized appreciation on available-for-sale securities, net of income taxes of $ 21,132 and $ 7,392 at December 31, 2020 and 2019 respectively 59,726 20,891 Total stockholders’ equity 2,976,656 2,988,924 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 3,421,989 $ 3,433,914 138 Condensed Statements of Income Years Ended December 31, 2020 , 2019 and 2018 (In thousands) 2020 2019 2018 INCOME Dividends from subsidiaries $ 311,253 $ 67,893 $ 145,980 Other income 762 13,658 658 Income 312,015 81,551 146,638 EXPENSE 37,204 40,594 32,714 Income before income taxes and equity in undistributed net income of subsidiaries 274,811 40,957 113,924 Provision for income taxes ( 9,438 ) ( 5,680 ) ( 10,732 ) Income before equity in undistributed net income of subsidiaries 284,249 46,637 124,656 Equity in undistributed net income of subsidiaries ( 29,345 ) 191,530 91,057 NET INCOME 254,904 238,167 215,713 Preferred stock dividends 52 339 — NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 254,852 $ 237,828 $ 215,713 Condensed Statements of Comprehensive Income Years Ended December 31, 2020 , 2019 and 2018 (In thousands) 2020 2019 2018 NET INCOME $ 254,904 $ 238,167 $ 215,713 OTHER COMPREHENSIVE INCOME (LOSS) Equity in other comprehensive income (loss) of subsidiaries 38,835 48,265 ( 10,110 ) COMPREHENSIVE INCOME $ 293,739 $ 286,432 $ 205,603 139 Condensed Statements of Cash Flows Years Ended December 31, 2020 , 2019 and 2018 (In thousands) 2020 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 254,904 $ 238,167 $ 215,713 Items not requiring (providing) cash Stock-based compensation expense 13,197 12,921 9,725 Depreciation and amortization 1,796 1,637 880 Deferred income taxes 1,583 ( 3,632 ) 26 Equity in undistributed net income of bank subsidiaries 29,345 ( 191,530 ) ( 91,057 ) Changes in: Other assets ( 27,056 ) 3,299 1,524 Other liabilities 7,790 ( 2,648 ) 17,340 Net cash provided by operating activities 281,559 58,214 154,151 CASH FLOWS FROM INVESTING ACTIVITIES Net collections of loans 186 117 219 Net (purchases of) proceeds from premises and equipment ( 7 ) ( 23,184 ) 3,342 (Advances to) repayment for subsidiaries ( 15,363 ) — 2,667 Proceeds from maturities of available-for-sale securities — 2,544 152 Purchases of available-for-sale securities — ( 439 ) ( 211 ) Cash paid in business combinations — ( 36,811 ) — Other, net 185 29 ( 1,903 ) Net cash (used in) provided by investing activities ( 14,999 ) ( 57,744 ) 4,266 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of subordinated notes — — 326,355 (Repayment ) issuance of long-term debt, net ( 7,442 ) 2,000 ( 231,352 ) (Cancellation) issuance of common stock, net ( 3,131 ) ( 1,077 ) 2,188 Stock repurchases ( 113,327 ) ( 10,128 ) — Dividends paid on preferred stock ( 52 ) ( 339 ) — Dividends paid on common stock ( 74,593 ) ( 63,921 ) ( 55,646 ) Preferred stock retirement — ( 42,000 ) — Net cash (used in) provided by financing activities ( 198,545 ) ( 115,465 ) 41,545 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 68,015 ( 114,995 ) 199,962 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 104,068 219,063 19,101 CASH AND CASH EQUIVALENTS, END OF YEAR $ 172,083 $ 104,068 $ 219,063 140 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.