SIMMONS FIRST NATIONAL CORP 10-Q

Item 1. Financial Statements (Unaudited) Simmons First National Corporation Consolidated Balance Sheets March 31, 2021 and December 31, 2020 March 31, December 31, (In thousands, except share data) 2021 2020 (Unaudited) ASSETS Cash and non-interest bearing balances due from banks $ 227,713 $ 217,499 Interest bearing balances due from banks and federal funds sold 3,677,750 3,254,653 Cash and cash equivalents 3,905,463 3,472,152 Interest bearing balances due from banks - time 1,334 1,579 Investment securities: Held-to-maturity, net of allowance for credit losses of $ 1,618 and $ 2,915 at March 31, 2021 and December 31, 2020, respectively 609,500 333,031 Available-for-sale, net of allowance for credit losses of $ 2,454 and $ 312 at March 31, 2021 and December 31, 2020, respectively (amortized cost of $ 4,582,052 and $ 3,397,043 at March 31, 2021 and December 31, 2020, respectively) 4,528,348 3,473,598 Total investments 5,137,848 3,806,629 Mortgage loans held for sale 63,655 137,378 Loans 12,195,873 12,900,897 Allowance for credit losses on loans ( 235,116 ) ( 238,050 ) Net loans 11,960,757 12,662,847 Premises and equipment 427,540 441,692 Premises held for sale 13,613 15,008 Foreclosed assets and other real estate owned 11,168 18,393 Interest receivable 71,359 72,597 Bank owned life insurance 257,152 255,630 Goodwill 1,075,305 1,075,305 Other intangible assets 107,091 111,110 Other assets 315,832 289,432 Total assets $ 23,348,117 $ 22,359,752 LIABILITIES AND STOCKHOLDERS’ EQUITY Deposits: Non-interest bearing transaction accounts $ 4,884,667 $ 4,482,091 Interest bearing transaction accounts and savings deposits 10,279,997 9,672,608 Time deposits 3,024,724 2,832,327 Total deposits 18,189,388 16,987,026 Federal funds purchased and securities sold under agreements to repurchase 323,053 299,111 Other borrowings 1,340,467 1,342,067 Subordinated debentures 383,008 382,874 Other liabilities held for sale — 154,620 Accrued interest and other liabilities 181,426 217,398 Total liabilities 20,417,342 19,383,096 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 March 31, 2021 and December 31, 2020 767 767 Common stock, Class A, $ 0.01 par value; 175,000,000 shares authorized at March 31, 2021 and December 31, 2020; 108,345,732 and 108,077,662 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively 1,083 1,081 Surplus 2,017,188 2,014,076 Undivided profits 948,913 901,006 Accumulated other comprehensive (loss) income ( 37,176 ) 59,726 Total stockholders’ equity 2,930,775 2,976,656 Total liabilities and stockholders’ equity $ 23,348,117 $ 22,359,752 See Condensed Notes to Consolidated Financial Statements. 3 Simmons First National Corporation Consolidated Statements of Income Three Months Ended March 31, 2021 and 2020 Three Months Ended March 31, (In thousands, except per share data) 2021 2020 (Unaudited) INTEREST INCOME Loans, including fees $ 146,424 $ 187,566 Interest bearing balances due from banks and federal funds sold 798 2,441 Investment securities 21,573 18,943 Mortgage loans held for sale 639 281 TOTAL INTEREST INCOME 169,434 209,231 INTEREST EXPENSE Deposits 13,179 31,277 Federal funds purchased and securities sold under agreements to repurchase 245 759 Other borrowings 4,802 4,877 Subordinated notes and debentures 4,527 4,835 TOTAL INTEREST EXPENSE 22,753 41,748 NET INTEREST INCOME 146,681 167,483 Provision for credit losses 1,445 23,134 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 145,236 144,349 NON-INTEREST INCOME Trust income 6,666 7,151 Service charges on deposit accounts 9,715 13,328 Other service charges and fees 1,922 1,588 Mortgage lending income 6,447 5,046 SBA lending income 240 296 Investment banking income 695 877 Debit and credit card fees 8,964 7,914 Bank owned life insurance income 1,523 1,298 Gain on sale of securities, net 5,471 32,095 Other income 10,260 12,801 TOTAL NON-INTEREST INCOME 51,903 82,394 NON-INTEREST EXPENSE Salaries and employee benefits 60,340 67,924 Occupancy expense, net 9,300 9,510 Furniture and equipment expense 5,415 5,723 Other real estate and foreclosure expense 343 325 Deposit insurance 1,308 2,475 Merger related costs 233 1,068 Other operating expenses 38,417 41,788 TOTAL NON-INTEREST EXPENSE 115,356 128,813 INCOME BEFORE INCOME TAXES 81,783 97,930 Provision for income taxes 14,363 20,694 NET INCOME 67,420 77,236 Preferred stock dividends 13 13 NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 67,407 $ 77,223 BASIC EARNINGS PER SHARE $ 0.62 $ 0.68 DILUTED EARNINGS PER SHARE $ 0.62 $ 0.68 See Condensed Notes to Consolidated Financial Statements. 4 Simmons First National Corporation Consolidated Statements of Comprehensive (Loss) Income Three Months Ended March 31, 2021 and 2020 Three Months Ended March 31, (In thousands) 2021 2020 (Unaudited) NET INCOME $ 67,420 $ 77,236 OTHER COMPREHENSIVE (LOSS) INCOME Unrealized holding (losses) gains arising during the period on available-for-sale securities ( 125,717 ) 55,569 Less: Reclassification adjustment for realized gains included in net income 5,471 32,095 Other comprehensive (loss) income, before tax effect ( 131,188 ) 23,474 Less: Tax effect of other comprehensive (loss) income ( 34,286 ) 6,135 TOTAL OTHER COMPREHENSIVE (LOSS) INCOME ( 96,902 ) 17,339 COMPREHENSIVE (LOSS) INCOME $ ( 29,482 ) $ 94,575 See Condensed Notes to Consolidated Financial Statements. 5 Simmons First National Corporation Consolidated Statements of Cash Flows Three Months Ended March 31, 2021 and 2020 (In thousands) March 31, 2021 March 31, 2020 (Unaudited) OPERATING ACTIVITIES Net income $ 67,420 $ 77,236 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 12,323 11,843 Provision for credit losses 1,445 23,134 Gain on sale of investments ( 5,471 ) ( 32,095 ) Net accretion of investment securities and assets ( 12,018 ) ( 14,975 ) Net amortization on borrowings 134 136 Stock-based compensation expense 3,852 4,506 Gain on sale of premises held for sale ( 177 ) — Gain on sale of foreclosed assets held for sale ( 134 ) ( 520 ) Gain on sale of mortgage loans held for sale ( 11,409 ) ( 5,843 ) Gain on sale of other intangibles — ( 301 ) Gain on sale of banking operations ( 5,300 ) ( 5,889 ) Deferred income taxes 3,227 ( 1,586 ) Income from bank owned life insurance ( 1,534 ) ( 1,800 ) Originations of mortgage loans held for sale ( 298,914 ) ( 182,550 ) Proceeds from sale of mortgage loans held for sale 384,046 196,511 Changes in assets and liabilities: Interest receivable 1,237 5,058 Other assets ( 30,187 ) 1,325 Accrued interest and other liabilities ( 20,733 ) 50,643 Income taxes payable ( 12,055 ) ( 21,221 ) Net cash provided by operating activities 75,752 103,612 INVESTING ACTIVITIES Net change in loans 705,540 ( 49,104 ) Proceeds from sale of loans 1,847 — Decrease in due from banks - time 245 245 Purchases of premises and equipment, net ( 2,514 ) ( 10,570 ) Proceeds from sale of premises held for sale 1,572 — Proceeds from sale of foreclosed assets held for sale 8,338 2,464 Proceeds from sale of available-for-sale securities 135,651 1,076,858 Proceeds from maturities of available-for-sale securities 185,636 1,255,991 Purchases of available-for-sale securities ( 1,464,377 ) ( 1,458,730 ) Proceeds from maturities of held-to-maturity securities 4,426 3,561 Purchases of held-to-maturity securities ( 280,043 ) ( 16,997 ) Proceeds from bank owned life insurance death benefits 573 763 Disposition of assets and liabilities held for sale ( 134,166 ) 123,610 Net cash (used in) provided by investing activities ( 837,272 ) 928,091 FINANCING ACTIVITIES Net change in deposits 1,192,740 ( 503,567 ) Dividends paid on preferred stock ( 13 ) ( 13 ) Dividends paid on common stock ( 19,500 ) ( 19,077 ) Net change in other borrowed funds ( 1,600 ) 99,230 Net change in federal funds purchased and securities sold under agreements to repurchase 23,942 227,714 Net shares issued (cancelled) under stock compensation plans 1,172 ( 3,063 ) Shares issued under employee stock purchase plan 1,170 956 Repurchases of common stock ( 3,080 ) ( 93,307 ) Net cash provided by (used in) financing activities 1,194,831 ( 291,127 ) INCREASE IN CASH AND CASH EQUIVALENTS 433,311 740,576 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,472,152 996,623 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,905,463 $ 1,737,199 See Condensed Notes to Consolidated Financial Statements. 6 Simmons First National Corporation Consolidated Statements of Stockholders’ Equity Three Months Ended March 31, 2021 and 2020 (In thousands, except share data) Preferred Stock Common Stock Surplus Accumulated Other Comprehensive (Loss) Income Undivided Profits Total Three Months Ended March 31, 2021 Balance, December 31, 2020 $ 767 $ 1,081 $ 2,014,076 $ 59,726 $ 901,006 $ 2,976,656 Comprehensive (loss) income — — — ( 96,902 ) 67,420 ( 29,482 ) Stock issued for employee stock purchase plan – 60,697 shares — 1 1,169 — — 1,170 Stock-based compensation plans, net – 338,289 shares — 2 5,022 — — 5,024 Stock repurchases – 130,916 shares — ( 1 ) ( 3,079 ) — — ( 3,080 ) Dividends on preferred stock — — — — ( 13 ) ( 13 ) Dividends on common stock – $ 0.18 per share — — — — ( 19,500 ) ( 19,500 ) Balance, March 31, 2021 (Unaudited) $ 767 $ 1,083 $ 2,017,188 $ ( 37,176 ) $ 948,913 $ 2,930,775 Three Months Ended March 31, 2020 Balance, December 31, 2019 $ 767 $ 1,136 $ 2,117,282 $ 20,891 $ 848,848 $ 2,988,924 Impact of ASU 2016-13 adoption — — — — ( 128,101 ) ( 128,101 ) Comprehensive income — — — 17,339 77,236 94,575 Stock issued for employee stock purchase plan – 43,681 shares — 1 955 — — 956 Stock-based compensation plans, net – 216,385 shares — 2 1,441 — — 1,443 Stock repurchases – 4,922,336 shares — ( 49 ) ( 93,258 ) — — ( 93,307 ) Dividends on preferred stock — — — — ( 13 ) ( 13 ) Dividends on common stock – $ 0.17 per share — — — — ( 19,077 ) ( 19,077 ) Balance, March 31, 2020 (Unaudited) $ 767 $ 1,090 $ 2,026,420 $ 38,230 $ 778,893 $ 2,845,400 See Condensed Notes to Consolidated Financial Statements. 7 SIMMONS FIRST NATIONAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1: PREPARATION OF INTERIM FINANCIAL STATEMENTS Description of Business and Organizational Structure Simmons First National Corporation (“Company”) is a Mid-South 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 198 financial centers as of March 31, 2021, located throughout market areas in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosures for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying consolidated balance sheet as of December 31, 2020, was derived from audited financial statements. In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair presentation of interim results of operations, including normal recurring accruals. Significant intercompany accounts and transactions have been eliminated in consolidation. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 25, 2021. The preparation of financial statements, in accordance with accounting principles generally accepted in the United States (“US GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income items and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements and actual results may differ from these estimates. Such estimates include, but are not limited to, the Company’s allowance for credit losses. 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. Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income. Recently Adopted Accounting Standards Reference Rate Reform – In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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 8 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 Accounting Standard Codification (“ASC”) 848 for contract modifications and hedge accounting apply to derivatives that are affected by the changes in the interest rates used for margining, discounting, or contract price alignment for derivative instruments that are being implemented as part of the market-wide transition to new reference rates (commonly referred to as 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. 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. The adoption of ASU 2019-12 did not have a material impact on the Company’s operations, financial position or disclosures. Fair Value Measurement Disclosures – In August 2018, the FASB issued 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. 9 The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and other receivables measured at amortized cost at the time the financial asset is originated or acquired. The allowance for credit losses is adjusted each period for changes in expected lifetime credit losses. This methodology replaces the multiple existing impairment methods in current guidance, which generally require that a loss be incurred before it is recognized. Within the life cycle of a loan or other financial asset, this new guidance will generally result in the earlier recognition of the provision for credit losses and the related allowance for credit losses than current practice. For available-for-sale debt securities that the Company intends to hold and where fair value is less than cost, credit-related impairment, if any, will be recognized through an allowance for credit losses and adjusted each period for changes in credit risk. The effective date for these amendments is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In preparation for implementation of ASU 2016-13, the Company formed a cross functional team that assessed its data and system needs and evaluated the potential impact of adopting the new guidance. The Company anticipated a significant change in the processes and procedures to calculate the loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the prior accounting practice that utilized the incurred loss model. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed in to law by the President of the United States and allows the option to temporarily defer or suspend the adoption of ASU 2016-13. During the deferral, a registrant would continue to use the incurred loss model for the allowance for loan and lease losses and would be in accordance with US GAAP. The Company did not elect 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 of a similar size. In December 2018, the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation (“FDIC”) (collectively, the “agencies”) issued a final rule revising regulatory capital rules in anticipation of the adoption of ASU 2016-13 that provided an option to phase in over a three year period on a straight line basis the day-one impact on earnings and Tier 1 capital (the “CECL Transition Provision”). In March 2020 and in response to the COVID-19 pandemic, the agencies issued a new regulatory capital rule revising the CECL Transition Provision to delay the estimated impact on regulatory capital stemming from the implementation of ASU 2016-13. The rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, followed by a three-year transition period (the “2020 CECL Transition Provision”). The Company elected to apply the 2020 CECL Transition Provision. The Company used the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality . The Company increased the allowance for credit losses by approximately $ 5.4 million at adoption for the assets previously identified as PCI. In accordance with ASU 2016-13, the Company did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. Recently Issued Accounting Standards There have been no other significant changes to the Company’s accounting policies from the 2020 Form 10-K. Presently, the Company is not aware of any other changes to the Accounting Standards Codification that will have a material impact on its present or future financial position or results of operations. 10 NOTE 2: INVESTMENT SECURITIES Held-to-maturity securities (“HTM”), 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 effective yield method over the estimated life of the security. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to their earliest call date. Available-for-sale securities (“AFS”), 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 effective yield method over the estimated life of the security. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to their earliest call date. 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 March 31, 2021 U.S. Government agencies $ 77,396 $ — $ 77,396 $ — $ ( 3,757 ) $ 73,639 Mortgage-backed securities 47,988 — 47,988 476 ( 1,099 ) 47,365 State and political subdivisions 485,158 ( 1,042 ) 484,116 1,718 ( 9,188 ) 476,646 Other securities 576 ( 576 ) — 44 — 44 Total HTM $ 611,118 $ ( 1,618 ) $ 609,500 $ 2,238 $ ( 14,044 ) $ 597,694 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 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 March 31, 2021 U.S. Treasury $ 600 $ — $ — $ — $ 600 U.S. Government agencies 511,973 — 369 ( 24,663 ) 487,679 Mortgage-backed securities 2,156,121 — 12,917 ( 35,952 ) 2,133,086 State and political subdivisions 1,570,747 ( 64 ) 25,916 ( 24,689 ) 1,571,910 Other securities 342,611 ( 2,390 ) 3,343 ( 8,491 ) 335,073 Total AFS $ 4,582,052 $ ( 2,454 ) $ 42,545 $ ( 93,795 ) $ 4,528,348 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 11 Accrued interest receivable on HTM and AFS securities at March 31, 2021 was $ 3.4 million and $ 20.2 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 March 31, 2021, 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 $ 402,235 $ ( 23,887 ) $ 49,123 $ ( 776 ) $ 451,358 $ ( 24,663 ) Mortgage-backed securities 1,622,032 ( 35,949 ) 323 ( 3 ) 1,622,355 ( 35,952 ) State and political subdivisions 299,613 ( 24,624 ) 90 ( 1 ) 299,703 ( 24,625 ) Other securities 49,421 ( 6,101 ) — — 49,421 ( 6,101 ) Total AFS $ 2,373,301 $ ( 90,561 ) $ 49,536 $ ( 780 ) $ 2,422,837 $ ( 91,341 ) As of March 31, 2021, the Company’s investment portfolio included $ 4.5 billion of AFS securities, of which $ 2.4 billion, or 53.5 %, were in an unrealized loss position that were 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 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. 12 The following table details activity in the allowance for credit losses by investment security type for the three months ended March 31, 2021 and 2020 on the Company’s HTM and AFS securities portfolios. (In thousands) State and Political Subdivisions Other Securities Total Three Months Ended March 31, 2021 Held-to-Maturity Beginning balance, January 1, 2021 $ 2,307 $ 608 $ 2,915 Provision for credit loss expense ( 1,265 ) 568 ( 697 ) Securities charged-off — ( 600 ) ( 600 ) Ending balance, March 31, 2021 $ 1,042 $ 576 $ 1,618 Available-for-sale Beginning balance, January 1, 2021 $ 217 $ 95 $ 312 Credit losses on securities not previously recorded 61 2,237 2,298 Reduction due to sales — ( 11 ) ( 11 ) Net decrease in allowance on previously impaired securities ( 214 ) 69 ( 145 ) Ending balance, March 31, 2021 $ 64 $ 2,390 $ 2,454 Three Months Ended March 31, 2020 Held-to-Maturity Beginning balance, January 1, 2020 $ — $ — $ — Impact of ASU 2016-13 adoption 58 311 369 Provision for credit loss expense 39 1 40 Ending balance, March 31, 2020 $ 97 $ 312 $ 409 Available-for-sale Beginning balance, January 1, 2020 $ — $ — $ — Impact of ASU 2016-13 adoption 373 — 373 Credit losses on securities not previously recorded 44 174 218 Net decrease in allowance on previously impaired securities ( 322 ) — ( 322 ) Ending balance, March 31, 2020 $ 95 $ 174 $ 269 The provision for credit losses related to AFS securities was $ 2,142,000 during the three months ended March 31, 2021. During the three months ended March 31, 2020, the provision for credit losses related to AFS securities was a benefit to expense of $ 104,000 . The following table summarizes bond ratings for the Company’s HTM portfolio, based upon amortized cost, issued by state and political subdivisions and other securities as of March 31, 2021: State and Political Subdivisions (In thousands) Not Guaranteed or Pre-Refunded Other Credit Enhancement or Insurance Pre-Refunded Total Other Securities Aaa/AAA $ 49,354 $ 17,894 $ — $ 67,248 $ — Aa/AA 176,578 74,570 — 251,148 — A 19,516 6,445 — 25,961 — Not Rated 95,729 45,072 — 140,801 576 Total $ 341,177 $ 143,981 $ — $ 485,158 $ 576 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. 13 Income earned on securities for the three months ended March 31, 2021 and 2020, is as follows: Three Months Ended March 31, (In thousands) 2021 2020 Taxable: Held-to-maturity $ 513 $ 171 Available-for-sale 9,607 12,581 Non-taxable: Held-to-maturity 2,004 72 Available-for-sale 9,449 6,119 Total $ 21,573 $ 18,943 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 $ 7,034 $ 7,117 $ 11,951 $ 12,000 After one through five years 8,931 9,317 28,425 28,755 After five through ten years 5,695 4,556 373,751 370,817 After ten years 541,470 529,339 2,010,880 1,982,767 Securities not due on a single maturity date 47,988 47,365 2,156,121 2,133,086 Other securities (no maturity) — — 924 923 Total $ 611,118 $ 597,694 $ 4,582,052 $ 4,528,348 The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $ 2.81 billion at March 31, 2021 and $ 2.01 billion at December 31, 2020. There were approximately $ 5.5 million of gross realized gains and $ 13,000 of gross realized losses from the sale of securities during the three months ended March 31, 2021. The Company sold approximately $ 135.7 million of investment securities during the three months ended March 31, 2021. There were approximately $ 32.1 million of gross realized gains and $ 2,080 of gross realized losses from the sale of securities during the three months ended March 31, 2020. During the first quarter of 2020, the Company sold approximately $ 1.1 billion of investment securities to create additional liquidity. The income tax expense/benefit related to security gains/losses was 26.135 % of the gross amounts in 2021 and 2020. NOTE 3: OTHER LIABILITIES HELD FOR SALE Illinois Branch Sale On November 30, 2020, the Company’s subsidiary bank, Simmons Bank, entered into a Branch Purchase and Assumption Agreement (the “Citizens Equity Agreement”) with Citizens Equity First Credit Union (“CEFCU”). On March 12, 2021, CEFCU completed its purchase of certain assets and assumption of certain liabilities (“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 assumed certain deposit liabilities and acquired certain loans, as well as cash, personal property and other fixed assets associated with the Illinois Branches. The Company recognized a gain on sale of $ 5.3 million related to the Illinois Branches in the three month period ended March 31, 2021. As of March 31, 2021, there were no outstanding other liabilities held for sale. 14 NOTE 4: LOANS AND ALLOWANCE FOR CREDIT LOSSES At March 31, 2021, the Company’s loan portfolio was $ 12.20 billion, compared to $ 12.90 billion at December 31, 2020. The various categories of loans are summarized as follows: March 31, December 31, (In thousands) 2021 2020 Consumer: Credit cards $ 175,458 $ 188,845 Other consumer 172,965 202,379 Total consumer 348,423 391,224 Real Estate: Construction and development 1,451,841 1,596,255 Single family residential 1,730,056 1,880,673 Other commercial 5,638,010 5,746,863 Total real estate 8,819,907 9,223,791 Commercial: Commercial 2,444,700 2,574,386 Agricultural 155,921 175,905 Total commercial 2,600,621 2,750,291 Other 426,922 535,591 Total loans $ 12,195,873 $ 12,900,897 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 $ 51.4 million and $ 57.3 million at March 31, 2021 and December 31, 2020, respectively. Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 47.8 million and $ 54.4 million at March 31, 2021 and December 31, 2020, 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. 15 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 originated loans pursuant to multiple PPP appropriations of the 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. As of March 31, 2021 and December 31, 2020, the total outstanding balance of PPP loans was $ 797.6 million and $ 904.7 million, respectively. Nonaccrual and Past Due Loans – Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The amortized cost basis of nonaccrual loans segregated by class of loans are as follows: March 31, December 31, (In thousands) 2021 2020 Consumer: Credit cards $ 397 $ 301 Other consumer 916 1,219 Total consumer 1,313 1,520 Real estate: Construction and development 2,296 3,625 Single family residential 24,395 28,062 Other commercial 42,211 24,155 Total real estate 68,902 55,842 Commercial: Commercial 44,159 65,244 Agricultural 482 273 Total commercial 44,641 65,517 Total $ 114,856 $ 122,879 16 As of March 31, 2021 and December 31, 2020, nonaccrual loans for which there was no related allowance for credit losses had an amortized cost of $ 18.8 million and $ 16.8 million, respectively. 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 March 31, 2021 Consumer: Credit cards $ 786 $ 453 $ 1,239 $ 174,219 $ 175,458 $ 336 Other consumer 1,221 329 1,550 171,415 172,965 85 Total consumer 2,007 782 2,789 345,634 348,423 421 Real estate: Construction and development 3,296 1,579 4,875 1,446,966 1,451,841 3 Single family residential 17,836 10,806 28,642 1,701,414 1,730,056 21 Other commercial 20,633 8,792 29,425 5,608,585 5,638,010 14 Total real estate 41,765 21,177 62,942 8,756,965 8,819,907 38 Commercial: Commercial 5,572 6,245 11,817 2,432,883 2,444,700 170 Agricultural 320 412 732 155,189 155,921 6 Total commercial 5,892 6,657 12,549 2,588,072 2,600,621 176 Other 23 — 23 426,899 426,922 — Total $ 49,687 $ 28,616 $ 78,303 $ 12,117,570 $ 12,195,873 $ 635 December 31, 2020 Consumer: Credit cards $ 708 $ 256 $ 964 $ 187,881 $ 188,845 $ 256 Other consumer 2,771 302 3,073 199,306 202,379 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 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. 17 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. During 2020 and the first quarter of 2021, the Company processed over 3,700 COVID-19 loan modifications in excess of $ 3.0 billion. As of March 31, 2021, the Company had the following loan modifications due to COVID-19 outstanding categorized by industry: (Dollars in thousands) Number Balance Assisted living 1 $ 17,310 Transportation 5 783 Consumer 37 3,776 Hotel 17 152,864 Food service 3 2,683 All other 16 31,029 Total 79 $ 208,445 Deferred interest on the above loans totaled $ 5.9 million as of March 31, 2021. The interest will be collected at the end of the note or once regular payments are resumed. As of March 31, 2021, over 3,300 loans totaling approximately $ 2.6 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 March 31, 2021 Real estate: Single-family residential 31 $ 3,133 15 $ 1,991 46 $ 5,124 Other commercial 1 48 1 8 2 56 Total real estate 32 3,181 16 1,999 48 5,180 Commercial: Commercial 3 624 3 1,479 6 2,103 Total commercial 3 624 3 1,479 6 2,103 Total 35 $ 3,805 19 $ 3,478 54 $ 7,283 18 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 There were no loans restructured as TDRs during the three month periods ended March 31, 2021 or 2020. Additionally, there were no loans considered TDRs for which a payment default occurred during the three months ended March 31, 2021 or 2020. The Company defines a payment default as a payment received more than 90 days after its due date. There were no TDRs with pre-modification loan balances for which OREO was received in full or partial satisfaction of the loans during the three month periods ended March 31, 2021 or 2020. At March 31, 2021 and December 31, 2020, the Company had $ 5,838,000 and $ 7,182,000 , respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At March 31, 2021 and December 31, 2020, the Company had $ 1,995,000 and $ 3,172,000 , 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. 19 • 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. 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. 20 The following tables present a summary of loans by credit quality indicator, other than pass or current, as of March 31, 2021 and December 31, 2020 segregated by class of loans. Term Loans Amortized Cost Basis by Origination Year (In thousands) 2021 (YTD) 2020 2019 2018 2017 2016 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total March 31, 2021 Consumer - credit cards Delinquency: 30-89 days past due $ — $ — $ — $ — $ — $ — $ 786 $ — $ 786 90+ days past due — — — — — — 453 — 453 Total consumer - credit cards — — — — — — 1,239 — 1,239 Consumer - other Delinquency: 30-89 days past due — 258 142 78 237 421 85 — 1,221 90+ days past due — 19 76 36 57 137 4 — 329 Total consumer - other — 277 218 114 294 558 89 — 1,550 Real estate - C&D Risk rating: 5 internal grade — 2,664 1,699 — — 16 13,042 — 17,421 6 internal grade 93 2,449 580 387 244 460 8,386 1,955 14,554 7 internal grade — — — — — — — — — Total real estate - C&D 93 5,113 2,279 387 244 476 21,428 1,955 31,975 Real estate - SF residential Delinquency: 30-89 days past due 717 1,906 1,730 3,660 2,229 6,766 828 — 17,836 90+ days past due — 1,166 628 2,069 2,006 4,311 626 — 10,806 Total real estate - SF residential 717 3,072 2,358 5,729 4,235 11,077 1,454 — 28,642 Real estate - other commercial Risk rating: 5 internal grade 66,468 121,611 1,463 965 13,348 32,957 89,957 7,293 334,062 6 internal grade 5,944 93,796 3,256 3,686 5,059 9,707 59,872 32,859 214,179 7 internal grade — — — — 1 — — 1 2 Total real estate - other commercial 72,412 215,407 4,719 4,651 18,408 42,664 149,829 40,153 548,243 Commercial Risk rating: 5 internal grade 124 3,274 202 67 8 29 5,883 18,954 28,541 6 internal grade 2,027 25,259 2,763 1,430 539 535 59,475 6,924 98,952 7 internal grade — 3 — 5 2 — — 1 11 Total commercial 2,151 28,536 2,965 1,502 549 564 65,358 25,879 127,504 Commercial - agriculture Risk rating: 5 internal grade 35 — 6 12 17 — 63 — 133 6 internal grade 58 57 79 279 68 17 105 73 736 7 internal grade — — — — — — — — — Total commercial - agriculture 93 57 85 291 85 17 168 73 869 Other Delinquency: 30-89 days past due — — — — — 23 — — 23 90+ days past due — — — — — — — — — Total other — — — — — 23 — — 23 Total $ 75,466 $ 252,462 $ 12,624 $ 12,674 $ 23,815 $ 55,379 $ 239,565 $ 68,060 $ 740,045 21 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 December 31, 2020 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 22 Allowance for Credit Losses Allowance for Credit Losses – The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical loss experience, and other qualitative considerations. The allowance, in the judgment of management, is necessary to reserve for expected loan losses and risks inherent in the loan portfolio. The Company’s allowance for credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for the effective interest rate used to discount prepayments, in accordance with ASC Topic 326-20, Financial Instruments - Credit Losses . Accordingly, the methodology is based on the Company’s reasonable and supportable economic forecasts, historical loss experience, and other qualitative adjustments. Loans with similar risk characteristics such as loan type, collateral type, and internal risk ratings are aggregated into homogeneous segments for assessment. Reserve factors are based on estimated probability of default and loss given default for each segment. The estimates are determined based on economic forecasts over the reasonable and supportable forecast period based on projected performance of economic variables that have a statistical relationship with the historical loss experience of the segments. For contractual periods that extend beyond the one-year forecast period, the estimates revert to average historical loss experiences over a one-year period on a straight-line basis. The Company also includes qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. Qualitative adjustments include, but are not limited to: • Changes in asset quality - Adjustments related to trending credit quality metrics including delinquency, non-performing 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. Loans that do not share similar risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating or are classified as a troubled debt restructuring. The allowance for credit loss is determined based on several methods including estimating the fair value of the underlying collateral or the present value of expected cash flows. For a collateral dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis adjusted for selling costs, when appropriate. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for credit losses as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the difference between the expected and contractual future cash flows of the loan. 23 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 $ 68.8 million as of March 31, 2021, 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 $ 1,837 $ — $ — $ 1,837 Single family residential 5,086 — — 5,086 Other commercial real estate 18,414 — — 18,414 Commercial — 39,827 3,624 43,451 Total $ 25,337 $ 39,827 $ 3,624 $ 68,788 The following table details activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2021. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. (In thousands) Commercial Real Estate Credit Card Other Consumer and Other Total Allowance for credit losses: Three Months Ended March 31, 2021 Beginning balance, January 1, 2021 $ 42,093 $ 182,868 $ 7,472 $ 5,617 $ 238,050 Provision for credit loss expense ( 6,940 ) 14,242 ( 4,587 ) ( 2,715 ) — Charge-offs ( 830 ) ( 1,687 ) ( 1,003 ) ( 731 ) ( 4,251 ) Recoveries 310 403 290 314 1,317 Net charge-offs ( 520 ) ( 1,284 ) ( 713 ) ( 417 ) ( 2,934 ) Ending balance, March 31, 2021 $ 34,633 $ 195,826 $ 2,172 $ 2,485 $ 235,116 Activity in the allowance for credit losses for the three months ended March 31, 2020 was as follows: (In thousands) Commercial Real Estate Credit Card Other Consumer and Other Total Allowance for credit losses: Three Months Ended March 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 30,907 ( 12,158 ) 2,750 4,698 26,197 Charge-offs ( 523 ) ( 396 ) ( 1,441 ) ( 1,379 ) ( 3,739 ) Recoveries 347 101 225 443 1,116 Net charge-offs ( 176 ) ( 295 ) ( 1,216 ) ( 936 ) ( 2,623 ) Ending balance, March 31, 2020 $ 76,327 $ 141,022 $ 7,817 $ 18,029 $ 243,195 As of March 31, 2021, the Company’s allowance for credit losses was considered sufficient based upon expected loan level cash flows that were supported by economic forecasts. As a result, additional provision expense was not recorded for the three months ended March 31, 2021, however the Company reallocated certain amounts of the allowance for credit losses among loan categories for the same period. 24 A change in forecast methodology, as well as the composition of the loans, resulted in a negative provision in the real estate C&D loan segment during the first quarter of 2020. Under the economic conditions during that time, the Company’s forecast of expected losses in the C&D segment no longer produced a forecast that was considered reasonable and supportable. As such, management adjusted the forecast methodology of this segment to better align with management’s expectation of loss under the modeled economic conditions. The other categories saw increases in the provision related to increased concern over the economic stresses related to COVID-19, as well as increased specific provisions of $22.0 million for two energy credits, that were previously identified as problem loans, both of which experienced further deterioration during the first quarter of 2020 and were negatively impacted by the sharp decline in commodity pricing. 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 March 31, 2021 and December 31, 2020 was $ 22.4 million. 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. No adjustment was made to the reserve for unfunded commitments during the first quarter of 2021 as it was considered sufficient to cover any loss expectations. For the three month period ended March 31, 2020, net adjustments to the reserve for unfunded commitments resulted in a benefit of $ 3.0 million and was included in the provision for credit losses in the statement of income. 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 the provision for credit losses for the three month periods ended March 31, 2021 and 2020 were as follows: Three Months Ended March 31, (In thousands) 2021 2020 Provision for credit losses related to: Loans $ — $ 26,198 Unfunded commitments — ( 3,000 ) Securities - HTM ( 697 ) 40 Securities - AFS 2,142 ( 104 ) Total $ 1,445 $ 23,134 NOTE 5: 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 Federal Home Loan Bank (“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. 25 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 as of March 31, 2021 and December 31, 2020 related to the Company’s right-of-use lease assets, included in premises and equipment, and lease liabilities, included in accrued interest and other liabilities. March 31, December 31, (Dollars in thousands) 2021 2020 Right-of-use lease assets $ 27,835 $ 31,348 Lease liabilities 27,897 31,433 Weighted average remaining lease term 7.25 years 6.55 years Weighted average discount rate 2.89 % 3.09 % Operating lease cost for the three month periods ended March 31, 2021 and 2020 was $ 2.8 million and $ 3.2 million, respectively. NOTE 6: PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. Total premises and equipment, net at March 31, 2021 and December 31, 2020 were as follows: March 31, December 31, (In thousands) 2021 2020 Right-of-use lease assets $ 27,835 $ 31,348 Premises and equipment: Land 89,950 90,953 Buildings and improvements 289,701 293,338 Furniture, fixtures and equipment 100,889 100,863 Software 65,136 64,877 Construction in progress 2,515 763 Accumulated depreciation and amortization ( 148,486 ) ( 140,450 ) Total premises and equipment, net $ 427,540 $ 441,692 NOTE 7: 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 $ 1.1 billion at March 31, 2021 and December 31, 2020. Goodwill impairment was neither indicated nor recorded during the three months ended March 31, 2021 or the year ended December 31, 2020. 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 assessment during each quarter of 2020 and concluded no impairment existed during each period. While the goodwill impairment analyses indicated no impairment during 2020, the Company’s assessment depended on several assumptions which were dependent on market and economic conditions, and future changes in those conditions could impact the Company’s assessment in the future. Due to the improved market and economic conditions, and the related effects on the Company’s share price, the Company did not perform an interim goodwill impairment assessment during the first quarter of 2021. 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. 26 Changes in the carrying amount and accumulated amortization of the Company’s core deposit premiums and other intangible assets at March 31, 2021 and December 31, 2020 were as follows: March 31, December 31, (In thousands) 2021 2020 Core deposit premiums: Balance, beginning of year $ 97,363 $ 111,808 Disposition of intangible asset (1) ( 674 ) ( 2,324 ) Amortization ( 3,001 ) ( 12,121 ) Balance, end of period 93,688 97,363 Books of business and other intangibles: Balance, beginning of year 13,747 15,532 Disposition of intangible asset — ( 413 ) Amortization ( 344 ) ( 1,372 ) Balance, end of period 13,403 13,747 Total other intangible assets, net $ 107,091 $ 111,110 _________________________ (1) Adjustments recorded for the premiums on certain deposit liabilities associated with the sale of banking operations. The carrying basis and accumulated amortization of the Company’s other intangible assets at March 31, 2021 and December 31, 2020 were as follows: March 31, December 31, (In thousands) 2021 2020 Core deposit premiums: Gross carrying amount $ 144,202 $ 146,355 Accumulated amortization ( 50,514 ) ( 48,992 ) Core deposit premiums, net 93,688 97,363 Books of business and other intangibles: Gross carrying amount 19,937 19,937 Accumulated amortization ( 6,534 ) ( 6,190 ) Books of business and other intangibles, net 13,403 13,747 Total other intangible assets, net $ 107,091 $ 111,110 The Company’s estimated remaining amortization expense on other intangible assets as of March 31, 2021 is as follows: (In thousands) Year Amortization Expense Remainder of 2021 $ 9,995 2022 13,275 2023 12,992 2024 12,090 2025 9,505 Thereafter 49,234 Total $ 107,091 27 NOTE 8: TIME DEPOSITS Time deposits included approximately $ 2.26 billion and $ 2.03 billion of certificates of deposit of $100,000 or more, at March 31, 2021, and December 31, 2020, respectively. Of this total approximately $ 1.1 billion and $ 889.8 million of certificates of deposit were over $250,000 at March 31, 2021 and December 31, 2020, respectively. NOTE 9: INCOME TAXES The provision for income taxes is comprised of the following components for the periods indicated below: Three Months Ended March 31, (In thousands) 2021 2020 Income taxes currently payable $ 11,136 $ 22,280 Deferred income taxes 3,227 ( 1,586 ) Provision for income taxes $ 14,363 $ 20,694 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: March 31, December 31, (In thousands) 2021 2020 Deferred tax assets: Loans acquired $ 8,465 $ 10,100 Allowance for credit losses 57,030 58,028 Valuation of foreclosed assets 1,673 1,673 Tax NOLs from acquisition 15,435 16,028 Deferred compensation payable 3,172 3,060 Accrued equity and other compensation 4,314 5,905 Acquired securities 539 587 Right-of-use lease liability 6,953 7,835 Unrealized loss on AFS securities 13,694 — Allowance for unfunded commitments 5,583 5,583 Other 8,500 7,600 Gross deferred tax assets 125,358 116,399 Deferred tax liabilities: Goodwill and other intangible amortization ( 38,312 ) ( 38,882 ) Accumulated depreciation ( 34,166 ) ( 34,667 ) Right-of-use lease asset ( 6,938 ) ( 7,813 ) Unrealized gain on AFS securities — ( 17,521 ) Other ( 4,458 ) ( 4,021 ) Gross deferred tax liabilities ( 83,874 ) ( 102,904 ) Net deferred tax asset $ 41,484 $ 13,495 28 A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown for the periods indicated below: Three Months Ended March 31, (In thousands) 2021 2020 Computed at the statutory rate (21%) $ 17,172 $ 20,560 Increase (decrease) in taxes resulting from: State income taxes, net of federal tax benefit 1,890 2,063 Stock-based compensation 103 26 Tax exempt interest income ( 2,510 ) ( 1,421 ) Tax exempt earnings on BOLI ( 241 ) ( 319 ) Federal tax credits ( 590 ) ( 1,034 ) Other differences, net ( 1,461 ) 819 Actual tax provision $ 14,363 $ 20,694 The Company follows ASC Topic 740, Income Taxes , which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC Topic 740 also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. The Company has no history of expiring net operating loss carryforwards and is projecting significant pre-tax and financial taxable income in future years. The Company expects to fully realize its deferred tax assets in the future. The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions. Section 382 of the Internal Revenue Code imposes an annual limit on the ability of a corporation that undergoes an “ownership change” to use its U.S. net operating losses to reduce its tax liability. The Company has engaged in two tax-free reorganization transactions in which acquired net operating losses are limited pursuant to Section 382. In total, approximately $ 68.3 million of federal net operating losses subject to the IRC Section 382 annual limitation are expected to be utilized by the Company. All of the acquired net operating loss carryforwards are 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. 29 NOTE 10: 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 $ 257.8 million and $ 248.9 million at March 31, 2021 and December 31, 2020, respectively. The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of March 31, 2021 and December 31, 2020 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 March 31, 2021 Repurchase agreements: U.S. Government agencies $ 257,803 $ — $ — $ — $ 257,803 December 31, 2020 Repurchase agreements: U.S. Government agencies $ 248,861 $ — $ — $ — $ 248,861 NOTE 11: OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES Debt at March 31, 2021 and December 31, 2020 consisted of the following components: March 31, December 31, (In thousands) 2021 2020 Other Borrowings FHLB advances, net of discount, due 2021 to 2035, 0.23 % to 7.37 % secured by real estate loans $ 1,307,460 $ 1,308,674 Other long-term debt 33,007 33,393 Total other borrowings 1,340,467 1,342,067 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, due 9/15/2037, floating rate of 1.37 % above the three month LIBOR rate, reset quarterly 10,310 10,310 Trust preferred securities, 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 25,211 25,172 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 3,027 3,023 Unamortized debt issuance costs ( 2,552 ) ( 2,643 ) Total subordinated notes and debentures 383,008 382,874 Total other borrowings and subordinated debt $ 1,723,475 $ 1,724,941 30 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 had total FHLB advances of $ 1.31 billion at March 31, 2021, 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 March 31, 2021 have original maturity dates of ten years to fifteen years with lockout periods that have expired. The Company expects the FHLB’s option to terminate the FOTO advances prior to stated maturity dates will not be exercised due to the current low interest rate environment. The possibility of the FHLB exercising the options is continually analyzed by the Company along with the market expected rate outcome. At March 31, 2021, the FHLB advances outstanding were secured by mortgage loans and investment securities totaling approximately $ 5.3 billion and the Company had approximately $ 2.8 billion of additional advances available from the FHLB. The trust preferred securities are tax-advantaged issues that qualify for inclusion as Tier 2 capital at March 31, 2021. 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 March 31, 2021, are as follows: Year (In thousands) Remainder of 2021 $ 2,064 2022 1,727 2023 1,686 2024 2,327 2025 4,876 Thereafter 1,710,795 Total $ 1,723,475 31 NOTE 12: 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 but has reached a settlement in principle with the plaintiffs to resolve this matter, subject to the preparation and execution of a mutually acceptable settlement agreement and release, as well as the court’s approval. The settlement is not expected to have a material adverse effect on the Company’s business, consolidated results of operations, financial condition, or cash flows. 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, prejudgment 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. 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, pre-judgment 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 (including amounts thereof) 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 business, 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 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). 32 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 October 22, 2019, the Company announced a new stock repurchase program (“Program”) that replaced the prior stock repurchase program approved on July 23, 2012, under which the Company may repurchase up to $ 60,000,000 of its Class A common stock currently issued and outstanding. On March 5, 2020, the Company announced an amendment to the Program that increased the maximum amount that may be repurchased under the Program from $ 60,000,000 to $ 180,000,000 . The Program will terminate on October 31, 2021 (unless terminated sooner). Under the Program, the Company may repurchase shares of its common stock through open market and privately negotiated transactions or otherwise. The timing, pricing, and amount of any repurchases under the Program will be determined by the Company’s management at its discretion based on a variety of factors, including, but not limited to, trading volume and market price of the Company’s common stock, corporate considerations, the Company’s working capital and investment requirements, general market and economic conditions, and legal requirements. The Program does not obligate the Company to repurchase any common stock and may be modified, discontinued, or suspended at any time without prior notice. The Company anticipates funding for this Program to come from available sources of liquidity, including cash on hand and future cash flow. During the three months ended March 31, 2021, the Company repurchased 130,916 shares at an average price of $ 23.53 per share under the Program. Market conditions and the Company’s capital needs will drive decisions regarding additional, future stock repurchases. The Company repurchased 4,922,336 shares at an average price of $ 18.96 per share during the same period in 2020. NOTE 14: UNDIVIDED PROFITS Simmons Bank, the Company’s subsidiary bank, is subject to legal limitations on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. The approval of the Commissioner of the Arkansas State Bank Department is required if the total of all dividends declared by an Arkansas state bank in any calendar year exceeds seventy-five percent ( 75 %) of the total of its net profits, as defined, for that year combined with seventy-five percent ( 75 %) of its retained net profits of the preceding year. At March 31, 2021, Simmons Bank had approximately $ 153.5 million available for payment of dividends to the Company, without prior regulatory approval. The risk-based capital guidelines of the Federal Reserve Board and the Arkansas State Bank Department include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. Under the Basel III Rules effective January 1, 2015, the criteria for a well-capitalized institution are: a 5 % “Tier l leverage capital” ratio, an 8 % “Tier 1 risk-based capital” ratio, 10 % “total risk-based capital” ratio; and a 6.5 % “common equity Tier 1 (CET1)” ratio. The Company and Simmons Bank, must hold a capital conservation buffer of 2.5 % composed of CET1 capital above its minimum risk-based capital requirements. Failure to meet this capital conservation buffer would result in additional limits on dividends, other distributions and discretionary bonuses. As of March 31, 2021, the Company and Simmons Bank met all capital adequacy requirements, including the capital conservation buffer, under the Basel III Capital Rules. The Company’s CET1 ratio was 14.08 % at March 31, 2021. NOTE 15: STOCK-BASED COMPENSATION The Company’s Board of Directors has adopted various stock-based compensation plans. The plans provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and performance stock units. Pursuant to the plans, shares are reserved for future issuance by the Company upon exercise of stock options or awards of restricted stock, restricted stock units, or performance stock units granted to directors, officers and other key employees. 33 The table below summarizes the transactions under the Company’s active stock-based compensation plans for the three months ended March 31, 2021: 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 Beginning balance, January 1, 2021 658 $ 22.48 5 $ 22.35 1,032 $ 24.53 Granted — — — — 202 29.65 Stock options exercised ( 166 ) 22.47 — — — — Stock awards/units vested (earned) — — ( 2 ) 22.20 ( 272 ) 25.74 Forfeited/expired — — — — ( 27 ) 25.56 Balance, March 31, 2021 492 $ 22.48 3 $ 22.48 935 $ 25.21 Exercisable, March 31, 2021 492 $ 22.48 The following table summarizes information about stock options under the plans outstanding at March 31, 2021: 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 0.80 $ 9.46 1 $ 9.46 10.65 — 10.65 3 1.83 10.65 3 10.65 20.29 — 20.29 47 3.75 20.29 47 20.29 20.36 — 20.36 1 3.63 20.36 1 20.36 22.20 — 22.20 53 3.98 22.20 53 22.20 22.75 — 22.75 306 4.36 22.75 306 22.75 23.51 — 23.51 74 4.81 23.51 74 23.51 24.07 — 24.07 7 4.46 24.07 7 24.07 $ 9.46 — $ 24.07 492 4.31 $ 22.48 492 $ 22.48 The table below summarizes the Company’s performance stock unit activity for the three months ended March 31, 2021: (In thousands) Performance Stock Units Non-vested, January 1, 2021 222 Granted — Vested (earned) ( 57 ) Forfeited ( 1 ) Non-vested, March 31, 2021 164 Stock-based compensation expense was $ 3.9 million and $ 4.5 million during the three months ended March 31, 2021 and 2020, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all stock-based awards. There was no unrecognized stock-based compensation expense related to stock options at March 31, 2021. Unrecognized stock-based compensation expense related to non-vested stock awards and stock units was $ 16.6 million at March 31, 2021. At such date, the weighted-average period over which this unrecognized expense is expected to be recognized was 1.7 years. 34 The intrinsic value of stock options outstanding and stock options exercisable at March 31, 2021 was $ 3.5 million. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $ 29.67 as of March 31, 2021, and the exercise price multiplied by the number of options outstanding. The total intrinsic value of stock options exercised during the three months ended March 31, 2021 and 2020, was $ 1.2 million and $ 8,000 , respectively. The fair value of the Company’s employee stock options granted is estimated on the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. There were no stock options granted during the three months ended March 31, 2021 and 2020. NOTE 16: EARNINGS PER SHARE (“EPS”) Basic EPS is computed by dividing reported net income available to common stockholders by weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing reported net income available to common stockholders by the weighted average common shares and all potential dilutive common shares outstanding during the period. The computation of earnings per share is as follows: Three Months Ended March 31, (In thousands, except per share data) 2021 2020 Net income available to common stockholders $ 67,407 $ 77,223 Average common shares outstanding 108,210 112,888 Average potential dilutive common shares 445 249 Average diluted common shares 108,655 113,137 Basic earnings per share $ 0.62 $ 0.68 Diluted earnings per share $ 0.62 $ 0.68 There were no stock options excluded from the earnings per share calculation for the three months ended March 31, 2021 due to the average market price exceeding the related stock option exercise price. There were 614,100 stock options excluded from the earnings per share calculation due to the related stock option exercise price exceeding the average market price for the three months ended March 31, 2020. NOTE 17: ADDITIONAL CASH FLOW INFORMATION The following is a summary of the Company’s additional cash flow information: Three Months Ended March 31, (In thousands) 2021 2020 Interest paid $ 19,264 $ 39,388 Income taxes paid 366 92 Transfers of loans to foreclosed assets held for sale 979 508 Transfers of premises to foreclosed assets and other real estate owned — 3,120 Transfers of loans to other assets held for sale — 114,925 Transfers of deposits to other liabilities held for sale — 58,405 35 NOTE 18: OTHER INCOME AND OTHER OPERATING EXPENSES Other income for the three months ended March 31, 2021 and 2020 was $ 10.3 million and $ 12.8 million, respectively, which included gains of $ 5.3 million and $ 5.9 million related the sale of banking operations for the same periods in 2021 and 2020, respectively. Other operating expenses consisted of the following: Three Months Ended March 31, (In thousands) 2021 2020 Professional services $ 5,247 $ 5,829 Postage 2,370 2,236 Telephone 1,632 2,185 Credit card expense 4,685 4,382 Marketing 3,153 4,385 Software and technology 10,251 9,445 Operating supplies 570 936 Amortization of intangibles 3,344 3,413 Branch right sizing expense 625 238 Other expense 6,540 8,739 Total other operating expenses $ 38,417 $ 41,788 NOTE 19: CERTAIN TRANSACTIONS From time to time, the Company and its subsidiaries have made loans, other extensions of credit, and vendor contracts to directors, officers, their associates and members of their immediate families. Additionally, some directors, officers and their associates and members of their immediate families have placed deposits with the Company’s subsidiary bank, Simmons Bank. Such loans and other extensions of credit, deposits and vendor contracts (which were not material) were made in the ordinary course of business, on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with unrelated persons or through a competitive bid process. Further, in management’s opinion, these extensions of credit did not involve more than normal risk of collectability or present other unfavorable features. NOTE 20: COMMITMENTS AND CREDIT RISK The Company grants agribusiness, commercial and residential loans to customers primarily throughout Arkansas, 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 March 31, 2021, the Company had outstanding commitments to extend credit aggregating approximately $ 682.7 million and $ 2.4 billion for credit card commitments and other loan commitments, respectively. At December 31, 2020, the Company had outstanding commitments to extend credit aggregating approximately $ 671.5 million and $ 2.4 billion for credit card commitments and other loan commitments, respectively. As of March 31, 2021, the Company had outstanding commitments to originate fixed rate-rate mortgage loans of approximately $ 165.9 million. At December 31, 2020, the Company had outstanding commitments to originate fixed-rate mortgage loans of approximately $ 214.0 million. 36 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 $ 44.6 million and $ 49.0 million at March 31, 2021, and December 31, 2020, respectively, with terms ranging from 9 months to 15 years. At March 31, 2021 and December 31, 2020, 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 $ 1.2 billion and $ 1.5 billion at March 31, 2021 and December 31, 2020, respectively, and they expire in less than one year from issuance. NOTE 21: 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. 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. 37 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 March 31, 2021 and December 31, 2020, the aggregate fair value of mortgage loans held for sale exceeded their cost. 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 liabilities held for sale – The Company’s other liabilities held for sale are reported at fair value utilizing Level 3 inputs. See Note 3, 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 March 31, 2021 and December 31, 2020. 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) March 31, 2021 Available-for-sale securities U.S. Treasury $ 600 $ 600 $ — $ — U.S. Government agencies 487,679 — 487,679 — Mortgage-backed securities 2,133,086 — 2,133,086 — State and political subdivisions 1,571,910 — 1,571,910 — Other securities 335,073 — 335,073 — Mortgage loans held for sale 63,655 — — 63,655 Derivative asset 18,597 — 18,597 — Derivative liability ( 18,799 ) — ( 18,799 ) — December 31, 2020 Available-for-sale securities U.S. Government agencies $ 477,237 $ — $ 477,237 $ — Mortgage-backed securities 1,394,936 — 1,394,936 — States 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 ) — 38 Certain financial assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Financial assets and liabilities measured at fair value on a nonrecurring basis include the following: Individually assessed loans (collateral-dependent) – When the Company has a specific expectation to initiate, or has initiated, foreclosure proceedings, and when the repayment of a loan is expected to be substantially dependent on the liquidation of underlying collateral, the relationship is deemed collateral-dependent. Fair value of the loan is determined by establishing an allowance for credit loss for any exposure based on the valuation of the underlying collateral. The valuation of the collateral is determined by either an independent third-party appraisal or other collateral analysis. Discounts can be made by the Company based upon the overall evaluation of the independent appraisal. Collateral-dependent loans are classified within Level 3 of the fair value hierarchy. Collateral values supporting the individually assessed loans are evaluated quarterly for updates to appraised values or adjustments due to non-current valuations. Foreclosed assets and other real estate owned – Foreclosed assets and other real estate owned are reported at fair value, less estimated costs to sell. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for credit losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is recognized by a charge to income. The fair value of foreclosed assets and other real estate owned is estimated using Level 3 inputs based on unobservable market data. The significant unobservable inputs (Level 3) used in the fair value measurement of collateral for collateral-dependent loans and foreclosed assets primarily relate to the specialized discounting criteria applied to the borrower’s reported amount of collateral. The amount of the collateral discount depends upon the condition and marketability of the collateral, as well as other factors which may affect the collectability of the loan. Management’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset. It is reasonably possible that a change in the estimated fair value for instruments measured using Level 3 inputs could occur in the future. As the Company’s primary objective in the event of default would be to liquidate the collateral to settle the outstanding balance of the loan, collateral that is less marketable would receive a larger discount. 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 March 31, 2021 and December 31, 2020. 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) March 31, 2021 Individually assessed loans (1) (2) (collateral-dependent) $ 6,619 $ — $ — $ 6,619 Foreclosed assets and other real estate owned (1) 997 — — 997 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 ________________________ (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 zero and $ 13,725,000 were related to collateral-dependent loans for which fair value re-measurements took place during the periods ended March 31, 2021 and December 31, 2020, respectively. 39 ASC Topic 825, Financial Instruments , requires disclosure in annual and interim financial statements of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis. The following methods and assumptions were used to estimate the fair value of each class of financial instruments not previously disclosed. Cash and cash equivalents – The carrying amount for cash and cash equivalents approximates fair value (Level 1). Interest bearing balances due from banks – The fair value of interest bearing balances due from banks – time is estimated using a discounted cash flow calculation that applies the rates currently offered on deposits of similar remaining maturities (Level 2). Held-to-maturity securities – Fair values for held-to-maturity securities equal quoted market prices, if available, such as for highly liquid government bonds (Level 1). If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things (Level 2). In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Loans – The fair value of loans is estimated by discounting the future cash flows, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Additional factors considered include the type of loan and related collateral, variable or fixed rate, classification status, remaining term, interest rate, historical delinquencies, loan to value ratios, current market rates and remaining loan balance. The loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans were based on current market rates for new originations of similar loans. Estimated credit losses were also factored into the projected cash flows of the loans. The fair value of loans is estimated on an exit price basis incorporating the above factors (Level 3). Deposits – The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date (i.e., their carrying amount) (Level 2). The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities (Level 3). Federal Funds purchased, securities sold under agreement to repurchase and short-term debt – The carrying amount for Federal funds purchased, securities sold under agreement to repurchase and short-term debt are a reasonable estimate of fair value (Level 2). Other borrowings – For short-term instruments, the carrying amount is a reasonable estimate of fair value. For long-term debt, rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value (Level 2). Subordinated debentures – The fair value of subordinated debentures is estimated using the rates that would be charged for subordinated debentures of similar remaining maturities (Level 2). Accrued interest receivable/payable – The carrying amounts of accrued interest approximated fair value (Level 2). Commitments to extend credit, letters of credit and lines of credit – The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. 40 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 March 31, 2021 Financial assets: Cash and cash equivalents $ 3,905,463 $ 3,905,463 $ — $ — $ 3,905,463 Interest bearing balances due from banks - time 1,334 — 1,334 — 1,334 Held-to-maturity securities 609,500 — 597,694 — 597,694 Interest receivable 71,359 — 71,359 — 71,359 Loans, net 11,960,757 — — 12,033,966 12,033,966 Financial liabilities: Non-interest bearing transaction accounts 4,884,667 — 4,884,667 — 4,884,667 Interest bearing transaction accounts and savings deposits 10,279,997 — 10,279,997 — 10,279,997 Time deposits 3,024,724 — — 3,037,995 3,037,995 Federal funds purchased and securities sold under agreements to repurchase 323,053 — 323,053 — 323,053 Other borrowings 1,340,467 — 1,414,703 — 1,414,703 Subordinated notes and debentures 383,008 — 399,678 — 399,678 Interest payable 12,376 — 12,376 — 12,376 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 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. NOTE 22: 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. 41 Derivative contracts involve the risk of dealing with institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have an investment grade credit rating and be approved by the Company’s asset/liability management committee. In arranging these products for its customers, the Company assumes additional credit risk from the customer and from the dealer counterparty with whom the transaction is undertaken. Credit risk exists due to the default credit risk created in the exchange of the payments over a period of time. Credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps with each counterparty. Access to collateral in the event of default is reasonably assured. Therefore, credit exposure may be reduced by the amount of collateral pledged by the counterparty. Hedge Structures The Company will seek to enter derivative structures that most effectively address the risk exposure and structural terms of the underlying position being hedged. The term and notional principal amount of a hedge transaction will not exceed the term or principal amount of the underlying exposure. In addition, the Company will use hedge indices which are the same as, or highly correlated to, the index or rate on the underlying exposure. Derivative credit exposure is monitored on an ongoing basis for each customer transaction and aggregate exposure to each counterparty is tracked. The Company has set a maximum outstanding notional contract amount at 10% of the Company’s assets. Customer Risk Management Interest Rate Swaps The Company’s qualified loan customers have the opportunity to participate in its interest rate swap program for the purpose of managing interest rate risk on their variable rate loans with the Company. The Company enters into such agreements with customers, then offsetting agreements are executed between the Company and an approved dealer counterparty to minimize market risk from changes in interest rates. The counterparty contracts are identical to customer contracts in terms of notional amounts, interest rates, and maturity dates, except for a fixed pricing spread or fee paid to the Company by the dealer counterparty. These interest rate swaps carry varying degrees of credit, interest rate and market or liquidity risks. The fair value of these derivative instruments is recognized as either derivative assets or liabilities in the accompanying consolidated balance sheets. The Company has a limited number of swaps that are standalone without a similar agreement with the loan customer. The following table summarizes the fair values of loan derivative contracts recorded in the accompanying consolidated balance sheets. March 31, 2021 December 31, 2020 (In thousands) Notional Fair Value Notional Fair Value Derivative assets $ 373,489 $ 18,597 $ 408,881 $ 35,846 Derivative liabilities 377,305 18,799 417,941 36,141 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 $ 32.2 million as of March 31, 2021. Energy Hedging The Company provides 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 March 31, 2021 for energy hedging Customer Sell to Company swaps were $ 13.4 million and the corresponding Company Sell to Dealer swaps were $ 13.4 million and the corresponding net fair value of the derivative asset and derivative liability was $ 306,000 . 42 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders, Board of Directors and Audit Committee Simmons First National Corporation Pine Bluff, Arkansas Results of Review of Interim Financial Statements We have reviewed the condensed consolidated balance sheet of Simmons First National Corporation and subsidiaries (“the Company”) as of March 31, 2021, and the related condensed consolidated statements of income, comprehensive income (loss), stockholders’ equity and cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively referred to as the “interim financial information or statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company and subsidiaries as of December 31, 2020, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated February 25, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Basis for Review Results These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. /s/ BKD, LLP Little Rock, Arkansas May 6, 2021 43