SIMMONS FIRST NATIONAL CORP 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Liquidity and Market Risk Management Parent Company The Company has leveraged its investment in its subsidiary bank and depends upon the dividends paid to it, as the sole shareholder of the subsidiary bank, as a principal source of funds for dividends to shareholders, stock repurchases and debt service requirements. At December 31, 2021, undivided profits of Simmons Bank were approximately $498.7 million, none of which were available for the payment of dividends to the Company without regulatory approval. In addition to dividends, other sources of liquidity for the Company are the sale of equity securities and the borrowing of funds. Subsidiary Bank Generally speaking, the Company’s subsidiary bank relies upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash used in investing activities. Typical of most banking companies, significant financing activities include: deposit gathering; use of short-term borrowing facilities, such as federal funds purchased and repurchase agreements; and the issuance of long-term debt. The subsidiary bank’s primary investing activities include loan originations and purchases of investment securities, offset by loan payoffs and investment cash flows and maturities. Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors and borrowers by either converting assets into cash or accessing new or existing sources of incremental funds. A major responsibility of management is to maximize net interest income within prudent liquidity constraints. Internal corporate guidelines have been established to constantly measure liquid assets as well as relevant ratios concerning earning asset levels and purchased funds. The management and Board of Directors of the subsidiary bank monitor these same indicators and makes adjustments as needed. Liquidity Management The objective of our liquidity management is to access adequate sources of funding to ensure that cash flow requirements of depositors and borrowers are met in an orderly and timely manner. Sources of liquidity are managed so that reliance on any one funding source is kept to a minimum. Our liquidity sources are prioritized for both availability and time to activation. Our liquidity is a primary consideration in determining funding needs and is an integral part of asset/liability management. Pricing of the liability side is a major component of interest margin and spread management. Adequate liquidity is a necessity in addressing this critical task. There are seven primary and secondary sources of liquidity available to the Company. The particular liquidity need and timeframe determine the use of these sources. The first source of liquidity available to the Company is federal funds. Federal funds are available on a daily basis and are used to meet the normal fluctuations of a dynamic balance sheet. The Bank has approximat ely $415.0 million in f ederal funds lines of credit from upstream correspondent banks that can be accessed, when needed. In order to ensure availability of these upstream funds we test these borrowing lines at least annually. Historical monitoring of these funds has made it possible for us to project seasonal fluctuations and structure our funding requirements on a month-to-month basis. Second, Simmons Bank has lines of credit available with the Federal Home Loan Bank. While we use portions of those lines to match off longer-term mortgage loans, we also use those lines to meet liquidity needs. Approximately $2.9 billion of these lines of credit are currently available, if needed, for liquidity. A third source of liquidity is that we have the ability to access large wholesale deposits from both the public and private sector to fund short-term liquidity needs. A fourth source of liquidity is the retail deposits available through our network of financial centers throughout Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas. Although this method can be a somewhat more expensive alternative to supplying liquidity, this source can be used to meet intermediate term liquidity needs. Fifth, we use a laddered investment portfolio that ensures there is a steady source of intermediate term liquidity. These funds can be used to meet seasonal loan patterns and other intermediate term balance sheet fluctuations. Approximately 82.3% of the investment portfolio is classified as available-for-sale. We also use securities held in the securities portfolio to pledge when obtaining public funds. 67 Sixth, we have a network of downstream correspondent banks from which we can access debt to meet liquidity needs. Finally, we have the ability to access funds through the Federal Reserve Bank Discount Window. We believe the various sources available are ample liquidity for short-term, intermediate-term and long-term liquidity. Market Risk Management Market risk arises from changes in interest rates. We have risk management policies to monitor and limit exposure to market risk. In asset and liability management activities, policies designed to minimize structural interest rate risk are in place. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Interest Rate Sensitivity Interest rate risk represents the potential impact of interest rate changes on net income and capital resulting from mismatches in repricing opportunities of assets and liabilities over a period of time. A number of tools are used to monitor and manage interest rate risk, including simulation models and interest sensitivity gap analysis. Management uses simulation models to estimate the effects of changing interest rates and various balance sheet strategies on the level of the Company’s net income and capital. As a means of limiting interest rate risk to an acceptable level, management may alter the mix of floating and fixed-rate assets and liabilities, change pricing schedules, manage investment maturities during future security purchases, or enter into derivative contracts such as interest rate swaps. The simulation model incorporates management’s assumptions regarding the level of interest rates or balance changes for indeterminate maturity deposits for a given level of market rate changes. These assumptions have been developed through anticipated pricing behavior. Key assumptions in the simulation models include the relative timing of prepayments, cash flows and maturities. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of a change in interest rates on net income or capital. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. As of December 31, 2021, the model simulations projected that 100 and 200 basis point increases in interest rates would result in a positive variance in net interest income of 1.86% and 5.20%, respectively, relative to the base case over the next 12 months, while decreases in interest rates of 25 basis points would result in a negative variance in net interest income of 1.53% relative to the base case over the next 12 months. The likelihood of a decrease in interest rates in excess of 25 basis points as of December 31, 2021, is considered remote given current interest rate levels and indications that the Federal Reserve will raise rates in 2022. These are good faith estimates and assume that the composition of our interest sensitive assets and liabilities existing at each year-end will remain constant over the relevant twelve month measurement period and that changes in market interest rates are instantaneous and sustained across the yield curve regardless of duration of pricing characteristics of specific assets or liabilities. Also, this analysis does not contemplate any actions that we might undertake in response to changes in market interest rates. We believe these estimates are not necessarily indicative of what actually could occur in the event of immediate interest rate increases or decreases of this magnitude. As interest-bearing assets and liabilities reprice in different time frames and proportions to market interest rate movements, various assumptions must be made based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive and market conditions, we anticipate that our future results will likely be different from the foregoing estimates, and such differences could be material. The table below presents our sensitivity to net interest income at December 31, 2021. Table 29: Net Interest Income Sensitivity Interest Rate Scenario % Change from Base Up 200 basis points 5.20% Up 100 basis points 1.86% Down 25 basis points 1.53% 68 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX Management’s Report on Internal Control Over Financial Reporting 70 Report of Independent Registered Public Accounting Firm (PCAOB ID 686 ) Report on Internal Control Over Financial Reporting 71 Report on Consolidated Financial Statements 72 Consolidated Balance Sheets, December 31, 202 1 and 20 20 74 Consolidated Statements of Income, Years Ended December 31, 202 1 , 20 20 and 20 19 75 Consolidated Statements of Comprehensive Income , Years Ended December 31, 2021, 2020 and 2019 76 Consolidated Statements of Cash Flows, Years Ended December 31, 202 1 , 20 20 and 201 9 77 Consolidated Statements of Stockholders’ Equity, Years Ended December 31, 202 1 , 20 20 and 2 019 78 Notes to Consolidated Financial Statements, December 31, 202 1 , 20 20 and 201 9 79 69 Management’s Report on Internal Control Over Financial Reporting The management of Simmons First National Corporation (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of the Company’s financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth in Internal Control – Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO ). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2021 is effective based on the specified criteria. BKD, LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, immediately follows. 70 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders, Board of Directors and Audit Committee Simmons First National Corporation Pine Bluff, Arkansas Opinion on the Internal Control over Financial Reporting We have audited Simmons First National Corporation’s (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated February 25, 2022, expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definitions and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. BKD, LLP /s/ BKD, LLP Little Rock, Arkansas February 25, 2022 71 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders, Board of Directors and Audit Committee Simmons First National Corporation Pine Bluff, Arkansas Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Simmons First National Corporation (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 25, 2022, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Adoption of New Accounting Standard As discussed in Notes 1, 3 and 5 to the consolidated financial statements, the Company has changed its method of accounting for the allowance for credit losses in 2020 due to the adoption of Accounting Standards Update No. 2016-13, Financial Instruments, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current-period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for Credit Losses The Company’s loan portfolio totaled $12.01 billion as of December 31, 2021 and the allowance for credit losses on loans was $205.3 million. The Company’s unfunded loan commitments totaled $2.94 billion, with an allowance for credit loss of $22.4 million. The Company’s available-for-sale and held-to-maturity securities portfolios totaled $8.64 billion as of December 31, 72 2021, and the allowance for credit losses on securities was $1.3 million. Together these amounts represent the allowance for credit losses (“ACL”). As more fully described in the notes to the consolidated financial statements: • For loans receivable, the ACL is a contra-asset valuation account, calculated in accordance with Topic 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. • For unfunded loan commitments, the ACL is a liability account calculated in accordance with Topic 326, reported as a component of accrued interest and other liabilities. • For securities, the ACL is a contra-valuation account that is deducted from the recorded basis of securities. The amount of each allowance account represented management’s best estimate of current expected credit losses on those financial instruments considering all available information from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Loans with similar risk characteristics are aggregated into homogenous segments for assessment. Reserve factors are based on estimated probability of default (PD) and loss given default (LGD) for each segment. The estimates include economic forecasts over the reasonable and supportable forecast period based on projected performance of economic variables that have a statistical relationship with the historical loss experience of the segments. Management qualitatively adjusted model results for risk factors that were not considered within the modeling processes but were still relevant in assessing the expected credit losses within the loan pools. In some cases, management determined that an individual loan exhibited unique risk characteristics which differentiated the loan from other loans with the identified loan pools. In such cases the loans were evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Auditing management’s estimate of the ACL involved a high degree of subjectivity due to the nature of the qualitative factor adjustments included in the ACL and complexities due to the implementation of probability of default and loss given default models. Management’s identification and measurement of the qualitative factor adjustments is highly judgmental and had a significant effect on the ACL. The primary procedures we performed related to this critical audit matter included: • Obtained an understanding of the Company’s process for establishing the ACL • Evaluated and tested the design and operating effectiveness of related controls over the reliability and accuracy of data used to calculate and estimate the various components of the ACL including: ◦ Loan data completeness and accuracy ◦ Grouping of loans by segment ◦ Model inputs utilized including PD, LGD, remaining life and prepayment speed ◦ Approval of model assumptions selected ◦ Establishment of qualitative factors ◦ Loan risk ratings • Tested the mathematical accuracy of the calculation of the ACL • Performed reviews of individual credit files to evaluate the reasonableness of loan credit risk ratings • Tested internally prepared loan reviews to evaluate the reasonableness of loan credit risk ratings • Tested the completeness and accuracy of inputs utilized in the calculation of the ACL • Evaluated the qualitative adjustments to the ACL including assessing the basis for adjustments and the reasonableness of the significant assumptions including consideration of impact of COVID-19 • Tested the reasonableness of specific reserves on individually reviewed loans • Evaluated credit quality trends in delinquencies, non-accruals, charge-offs and loan risk ratings • Considered the overall reasonableness of the ACL and compared to trends identified within peer groups • Tested estimated utilization rate of unfunded loan commitments • Reviewed documentation prepared to assess the methodology utilized by a third party performing the ACL calculation for securities for reasonableness • Evaluated the accuracy and completeness of Topic 326 disclosures in the consolidated financial statements. BKD, LLP /s/ BKD, LLP We have served as the Company’s auditor since 1972. Little Rock, Arkansas February 25, 2022 73 Simmons First National Corporation Consolidated Balance Sheets December 31, 2021 and 2020 (In thousands, except share data) 2021 2020 ASSETS Cash and non-interest bearing balances due from banks $ 209,190 $ 217,499 Interest bearing balances due from banks and federal funds sold 1,441,463 3,254,653 Cash and cash equivalents 1,650,653 3,472,152 Interest bearing balances due from banks – time 1,882 1,579 Investment securities: Held-to-maturity, net of allowance for credit losses of $ 1,279 and $ 2,915 at December 31, 2021 and 2020, respectively 1,529,221 333,031 Available-for-sale, net of allowance for credit losses of $ 0 and $ 312 at December 31, 2021 and 2020, respectively (amortized cost of $ 7,130,861 and $ 3,397,043 at December 31, 2021 and 2020, respectively) 7,113,545 3,473,598 Total investments 8,642,766 3,806,629 Mortgage loans held for sale 36,356 137,378 Other assets held for sale 100 100 Loans 12,012,503 12,900,897 Allowance for credit losses on loans ( 205,332 ) ( 238,050 ) Net loans 11,807,171 12,662,847 Premises and equipment 483,469 441,692 Premises held for sale — 15,008 Foreclosed assets and other real estate owned 6,032 18,393 Interest receivable 72,990 72,597 Bank owned life insurance 445,305 255,630 Goodwill 1,146,007 1,075,305 Other intangible assets 106,235 111,110 Other assets 325,793 289,332 Total assets $ 24,724,759 $ 22,359,752 LIABILITIES AND STOCKHOLDERS’ EQUITY Deposits: Non-interest bearing transaction accounts $ 5,325,318 $ 4,482,091 Interest bearing transaction accounts and savings deposits 11,588,770 9,672,608 Time deposits 2,452,460 2,832,327 Total deposits 19,366,548 16,987,026 Federal funds purchased and securities sold under agreements to repurchase 185,403 299,111 Other borrowings 1,337,973 1,342,067 Subordinated debentures 384,131 382,874 Other liabilities held for sale — 154,620 Accrued interest and other liabilities 201,863 217,398 Total liabilities 21,475,918 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 December 31, 2020 — 767 Common stock, Class A, $ 0.01 par value; 175,000,000 shares authorized at December 31, 2021 and 2020; 112,715,444 and 108,077,662 shares issued and outstanding at December 31, 2021 and 2020, respectively 1,127 1,081 Surplus 2,164,989 2,014,076 Undivided profits 1,093,270 901,006 Accumulated other comprehensive income (loss) ( 10,545 ) 59,726 Total stockholders’ equity 3,248,841 2,976,656 Total liabilities and stockholders’ equity $ 24,724,759 $ 22,359,752 See Notes to Consolidated Financial Statements. 74 Simmons First National Corporation Consolidated Statements of Income Years Ended December 31, 2021, 2020 and 2019 (In thousands, except per share data) 2021 2020 2019 INTEREST INCOME Loans, including fees $ 555,008 $ 687,771 $ 710,935 Interest bearing balances due from banks and federal funds sold 2,795 4,383 7,486 Investment securities 111,693 64,533 63,376 Mortgage loans held for sale 1,565 3,031 1,326 TOTAL INTEREST INCOME 671,061 759,718 783,123 INTEREST EXPENSE Deposits 41,172 79,860 139,011 Federal funds purchased and securities sold under agreements to repurchase 579 1,715 1,010 Other borrowings 19,495 19,652 23,008 Subordinated notes and debentures 18,283 18,757 18,341 TOTAL INTEREST EXPENSE 79,529 119,984 181,370 NET INTEREST INCOME 591,532 639,734 601,753 Provision for credit losses ( 32,704 ) 74,973 43,240 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 624,236 564,761 558,513 NON-INTEREST INCOME Wealth management fees 31,172 30,386 27,353 Service charges on deposit accounts 43,231 43,082 44,782 Other service charges and fees 7,696 6,624 5,824 Mortgage lending income 21,798 34,469 15,017 Debit and credit card fees 28,245 24,711 22,137 Bank owned life insurance income 8,902 5,815 4,768 Gain on sale of securities, net 15,498 54,806 13,314 Other income 35,273 39,876 64,684 TOTAL NON-INTEREST INCOME 191,815 239,769 197,879 NON-INTEREST EXPENSE Salaries and employee benefits 246,335 242,474 227,795 Occupancy expense, net 38,797 37,556 32,008 Furniture and equipment expense 19,890 24,038 18,220 Other real estate and foreclosure expense 2,121 1,752 3,442 Deposit insurance 6,973 9,184 4,416 Merger related costs 15,911 4,531 36,379 Other operating expenses 153,562 165,201 131,700 TOTAL NON-INTEREST EXPENSE 483,589 484,736 453,960 INCOME BEFORE INCOME TAXES 332,462 319,794 302,432 Provision for income taxes 61,306 64,890 64,265 NET INCOME 271,156 254,904 238,167 Preferred stock dividends 47 52 339 NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 271,109 $ 254,852 $ 237,828 BASIC EARNINGS PER SHARE $ 2.47 $ 2.32 $ 2.42 DILUTED EARNINGS PER SHARE $ 2.46 $ 2.31 $ 2.41 See Notes to Consolidated Financial Statements. 75 Simmons First National Corporation Consolidated Statements of Comprehensive Income Years Ended December 31, 2021, 2020 and 2019 (In thousands) 2021 2020 2019 NET INCOME $ 271,156 $ 254,904 $ 238,167 OTHER COMPREHENSIVE INCOME (LOSS) Unrealized holding gains (losses) arising during the period on available-for-sale securities ( 91,226 ) 107,382 76,109 Unrealized holding gain on the transfer of held-to-maturity securities to available-for-sale per ASU 2017-12 — — 2,547 Less: Reclassification adjustment for realized gains included in net income 15,498 54,806 13,314 Less: Realized loss on available-for-sale securities interest rate hedges ( 10,588 ) — — Net unrealized gains on securities transferred from available-for-sale to held-to-maturity during the period 1,106 — — Less: Amortization of net unrealized gains on securities transferred from available-for-sale to held-to-maturity ( 104 ) — — Other comprehensive income (loss), before tax effect ( 95,134 ) 52,576 65,342 Less: Tax effect of other comprehensive income (loss) ( 24,863 ) 13,741 17,077 TOTAL OTHER COMPREHENSIVE INCOME (LOSS) ( 70,271 ) 38,835 48,265 COMPREHENSIVE INCOME $ 200,885 $ 293,739 $ 286,432 See Notes to Consolidated Financial Statements. 76 Simmons First National Corporation Consolidated Statements of Cash Flows Years Ended December 31, 2021, 2020 and 2019 (In thousands) 2021 2020 2019 OPERATING ACTIVITIES Net income $ 271,156 $ 254,904 $ 238,167 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 47,220 49,038 36,257 Provision for credit losses ( 32,704 ) 74,973 43,240 Gain on sale of investments ( 15,498 ) ( 54,806 ) ( 13,314 ) Net accretion of investment securities and assets ( 52,781 ) ( 56,771 ) ( 53,619 ) Net amortization on borrowings 1,257 541 394 Stock-based compensation expense 15,868 13,197 12,921 Gain on sale of premises and equipment, net of impairment ( 591 ) ( 14 ) — Gain on sale of foreclosed assets and other real estate owned ( 932 ) ( 391 ) ( 33 ) Gain on sale of mortgage loans held for sale ( 36,434 ) ( 44,864 ) ( 20,064 ) Gain on sale of other intangibles — ( 301 ) — Gain on sale of branches ( 5,316 ) ( 8,094 ) — Loss on sale of loans — — 4,451 Gain on sale of Visa, Inc. class B common stock — — ( 42,860 ) Fair value write-down of closed branches — 434 — Deferred income taxes 10,937 ( 122 ) 34,911 Income from bank owned life insurance ( 9,477 ) ( 7,206 ) ( 4,854 ) Originations of mortgage loans held for sale ( 1,034,716 ) ( 1,206,818 ) ( 755,500 ) Proceeds from sale of mortgage loans held for sale 1,190,891 1,172,406 756,642 Changes in assets and liabilities: Interest receivable 4,423 ( 10,846 ) 3,231 Other assets ( 33,495 ) ( 7,480 ) 31,920 Accrued interest and other liabilities ( 50,620 ) 50,508 ( 35,886 ) Income taxes payable 8,592 ( 15,745 ) 20,074 Net cash provided by operating activities 277,780 202,543 256,078 INVESTING ACTIVITIES Net collections (originations) of loans 2,333,893 1,327,248 23,806 Proceeds from sale of loans 28,033 49,736 104,587 Decrease in due from banks - time 292 2,975 1,130 Purchases of premises and equipment, net ( 47,861 ) ( 13,272 ) ( 67,831 ) Proceeds from sale of premises and equipment 5,621 369 — Proceeds from sale of foreclosed assets and other real estate owned 21,983 10,788 17,986 Proceeds from sale of available-for-sale securities 342,577 1,717,364 1,226,578 Proceeds from maturities of available-for-sale securities 1,001,669 2,346,930 793,270 Purchases of available-for-sale securities ( 5,266,148 ) ( 4,140,963 ) ( 1,708,948 ) Proceeds from maturities of held-to-maturity securities 15,712 13,970 31,969 Purchases of held-to-maturity securities ( 708,580 ) ( 308,854 ) — Proceeds from bank owned life insurance death benefits 3,814 2,018 2,435 Purchases of bank owned life insurance ( 160,000 ) — — Cash received in business combinations, net 25,425 — 178,260 Disposition of assets and liabilities held for sale ( 134,166 ) 181,560 1,235 Net cash provided by (used in) investing activities ( 2,537,736 ) 1,189,869 604,477 FINANCING ACTIVITIES Net change in deposits 847,494 1,086,713 ( 404,826 ) Proceeds from issuance of other borrowings — — 25,500 Repayments of subordinated debentures ( 1,563 ) ( 7,442 ) — Dividends paid on preferred stock ( 47 ) ( 52 ) ( 339 ) Dividends paid on common stock ( 78,845 ) ( 74,593 ) ( 63,921 ) Net change in other borrowed funds ( 80,254 ) 45,983 ( 240,806 ) Net change in federal funds purchased and securities sold under agreements to repurchase ( 116,562 ) 148,966 40,207 Net shares (cancelled) issued under stock compensation plans 290 ( 4,087 ) ( 2,389 ) Shares issued under employee stock purchase plan 1,170 956 1,312 Repurchase of common stock ( 132,459 ) ( 113,327 ) ( 10,128 ) Retirement of preferred stock ( 767 ) — ( 42,000 ) Net cash provided by (used in) financing activities 438,457 1,083,117 ( 697,390 ) INCREASE (DECREASE) IN CASH EQUIVALENTS ( 1,821,499 ) 2,475,529 163,165 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,472,152 996,623 833,458 CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,650,653 $ 3,472,152 $ 996,623 See Notes to Consolidated Financial Statements. 77 Simmons First National Corporation Consolidated Statements of Stockholders’ Equity Years Ended December 31, 2021, 2020 and 2019 (In thousands, except share data) Preferred Stock Common Stock Surplus Accumulated Other Comprehensive Income (Loss) Undivided Profits Total Balance, December 31, 2018 $ — $ 923 $ 1,597,944 $ ( 27,374 ) $ 674,941 $ 2,246,434 Comprehensive income — — — 48,265 238,167 286,432 Stock issued for employee stock purchase plan – 60,413 shares — 1 1,311 — — 1,312 Stock-based compensation plans, net – 261,200 shares — 3 10,529 — — 10,532 Stock issued for Reliance acquisition - 3,999,623 shares 42,000 40 102,790 — — 144,830 Stock issued for Landrum acquisition - 17,349,722 shares 767 173 414,832 — — 415,772 Preferred stock retirement ( 42,000 ) — — — — ( 42,000 ) Stock repurchases - 390,000 shares — ( 4 ) ( 10,124 ) — — ( 10,128 ) Dividends on preferred stock — — — — ( 339 ) ( 339 ) Dividends on common stock – $ 0.64 per share — — — — ( 63,921 ) ( 63,921 ) Balance, December 31, 2019 767 1,136 2,117,282 20,891 848,848 2,988,924 Impact of ASU 2016-13 adoption — — — — ( 128,101 ) ( 128,101 ) Comprehensive income — — — 38,835 254,904 293,739 Stock issued for employee stock purchase plan - 43,681 shares — 1 955 — — 956 Stock-based compensation plans, net - 362,080 shares — 3 9,107 — — 9,110 Stock repurchases - 5,956,700 shares — ( 59 ) ( 113,268 ) — — ( 113,327 ) Dividends on preferred stock — — — — ( 52 ) ( 52 ) Dividends on common stock - $ 0.68 per share — — — — ( 74,593 ) ( 74,593 ) Balance, December 31, 2020 767 1,081 2,014,076 59,726 901,006 2,976,656 Comprehensive income — — — ( 70,271 ) 271,156 200,885 Stock issued for employee stock purchase plan - 60,697 shares — 1 1,169 — — 1,170 Stock-based compensation plans, net - 474,970 shares — 4 16,154 — — 16,158 Stock issued for Landmark acquisition - 4,499,872 shares — 45 138,146 — — 138,191 Stock issued for Triumph acquisition - 4,164,712 shares — 42 127,857 — — 127,899 Preferred stock retirement ( 767 ) — — — — ( 767 ) Stock repurchases - 4,562,469 shares — ( 46 ) ( 132,413 ) — — ( 132,459 ) Dividends on preferred stock — — — — ( 47 ) ( 47 ) Dividends on common stock – $ 0.72 per share — — — — ( 78,845 ) ( 78,845 ) Balance, December 31, 2021 $ — $ 1,127 $ 2,164,989 $ ( 10,545 ) $ 1,093,270 $ 3,248,841 See Notes to Consolidated Financial Statements. 78 Simmons First National Corporation Notes to Consolidated Financial Statements NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations and Principles of Consolidation Simmons First National Corporation (“Company”) is a 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 199 financial centers as of December 31, 2021, located throughout market areas in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas. The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Simmons Bank is an Arkansas state-chartered bank and a member of the Federal Reserve System through the Federal Reserve Bank of St. Louis. Due to the Company’s typical acquisition process, there may be brief periods of time during which the Company may operate another subsidiary bank that the Company acquired through a merger with a target bank holding company as a separate subsidiary while preparing for the merger and integration of that subsidiary bank into Simmons Bank. However, it is the Company’s intent to generally maintain Simmons Bank as the Company’s sole subsidiary bank. Operating Segments Operating segments are components of an enterprise about which separate financial information is available that is regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company is organized on a divisional basis, with divisions grouped based on community and metro markets located within the Company’s footprint. Each of the divisions, as well as their respective groups, provide a group of similar community banking services, including such products and services as loans; time deposits, checking and savings accounts; treasury management, personal and corporate trust services; credit cards; investment management; insurance; and securities and investment services. Loan products include consumer, real estate, commercial, agricultural, equipment, warehouse lending and SBA lending. The individual bank divisions have similar operating and economic characteristics. While the chief operating decision maker monitors the revenue streams of the various products, services, branch locations, divisions and groups, operations are managed, financial performance is evaluated, and management makes decisions on how to allocate resources, on a Company-wide basis. Accordingly, the divisions and their respective groups are considered by management to be aggregated into one reportable operating segment. The Company also considers its trust, investment and insurance services to be operating segments. Information on these segments is not reported separately since they do not meet the quantitative thresholds under Accounting Standards Codification (“ASC”) Topic 280-10-50-12. Use of Estimates The preparation of financial statements, in accordance with US GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income items and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements and actual results may differ from these estimates. Such estimates include, but are not limited to, the Company’s allowance for credit losses. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and the valuation of acquired loans. Management obtains independent appraisals for significant properties in connection with the determination of the allowance for credit losses and the valuation of foreclosed assets. 79 Reclassifications During 2021, certain debit and credit card transaction fees were reclassified from non-interest expense to non-interest income. These transaction fees, as well as additional 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 and were not material to the consolidated financial statements. During 2020, the Company moved equity securities from the available-for-sale investment securities into other assets as well as the related income which moved from interest income to non-interest income. The change had no impact on net income. Various items within the accompanying consolidated financial statements for previous years have been reclassified to provide more comparative information. These reclassifications were not material to the consolidated financial statements. Cash Equivalents The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents are considered to include cash and non-interest bearing balances due from banks, interest bearing balances due from banks and federal funds sold and securities purchased under agreements to resell. At December 31, 2021, nearly all of the interest-bearing and non-interest bearing deposits were uninsured with nearly all of these balances held at the Federal Reserve Bank. Investment Securities Held-to-maturity 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. 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. Trading securities, if any, which include any security held primarily for near-term sale, are carried at fair value. Gains and losses on trading securities are included in other income. Allowance for Credit Losses - Investment Securities Allowance for Credit Losses - HTM Securities - The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Company has made the election to exclude accrued interest receivable on HTM securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Allowance for Credit Losses - AFS Securities - For AFS securities in an unrealized loss position, the Company first evaluates whether it intends to sell, or whether it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of these criteria regarding intent or requirement to sell is met, the AFS security amortized cost basis is written down to fair value through income. If the criteria is not met, the Company is required to assess whether the decline in fair value has resulted from credit losses or noncredit-related factors. If the assessment indicates a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit loss is recorded through income as a component of provision for credit loss expense. If the assessment indicates that a credit loss does not exist, the Company records the decline in fair value through other comprehensive income, net of related income tax effects. The Company has made the election to exclude accrued interest receivable on AFS securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management 80 believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Mortgage Loans Held For Sale Mortgage Loans Held for Sale are carried at fair value which is determined on an aggregate basis. Adjustments to fair value are recognized monthly and reflected in earnings. The Company regularly sells mortgages into the capital markets to mitigate the effects of interest rate volatility during the period from the time an interest rate lock commitment (“IRLC”) is issued until the IRLC funds creating a mortgage loan held for sale and its subsequent sale into the secondary/capital markets. Loan sales are typically executed on a mandatory basis. Under a mandatory commitment, the Company agrees to deliver a specified dollar amount with predetermined terms by a certain date. Generally, the commitment is not loan specific, and any combination of loans can be delivered into the outstanding commitment provided the terms fall within the parameters of the commitment. Upon failure to deliver, the Company is subject to fees based on market movement. The IRLCs are derivative instruments; their fair values at December 31, 2021 and 2020 were not material. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to correspondent lenders, investors or aggregators. Gains and losses are determined by the difference between the sale price and the carrying amount in the loans sold, net of discounts collected, or premiums paid. Hedge instruments are, likewise, carried at fair value and associated gains/losses are realized at time of settlement. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-offs are reported at their amortized cost basis, which is the unpaid principal balance outstanding, net of unearned income, deferred loan fees and costs, premiums and discounts associated with acquisition date fair value adjustments on acquired loans, and any direct principal charge-offs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance on the consolidated balance sheets. For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan. The accrual of interest on loans, except on certain government guaranteed loans, is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful. Discounts and premiums on purchased residential real estate loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method. Further information regarding accounting policies related to past due loans, non-accrual loans, and troubled-debt restructurings is presented in Note 5, Loans and Allowance for Credit Losses. Additionally, for discussion of the Company’s accounting for acquired loans, see Acquisition Accounting, Loans later in this section. Allowance for Credit Losses 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 credit losses and risks inherent in the loan portfolio. The Company’s allowance for credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for prepayments, in accordance with ASC Topic 326-20, Financial Instruments - Credit Losses . Accordingly, the methodology is based on the Company’s reasonable and supportable economic forecasts, historical loss experience, and other qualitative adjustments. Management’s evaluation of the allowance for credit losses is inherently subjective as it requires material estimates. It is management’s practice to review the allowance on a monthly basis, and after considering the factors previously noted, to determine the level of provision made to the allowance. 81 Loans with similar risk characteristics such as loan type, collateral type, and internal risk ratings are aggregated into homogeneous segments for assessment. Reserve factors are based on estimated probability of default and loss given default for each segment. The estimates are determined based on economic forecasts over the reasonable and supportable forecast period based on projected performance of economic variables that have a statistical relationship with the historical loss experience of the segments. For contractual periods that extend beyond the one-year forecast period, the estimates revert to average historical loss experiences over a one-year period on a straight-line basis. The Company also includes qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. Qualitative adjustments include, but are not limited to: • Changes in asset quality - Adjustments related to trending credit quality metrics including delinquency, nonperforming loans, charge-offs, and risk ratings that may not be fully accounted for in the reserve factor. • Changes in the nature and volume of the portfolio - Adjustments related to current changes in the loan portfolio that are not fully represented or accounted for in the reserve factors. • Changes in lending and loan monitoring policies and procedures - Adjustments related to current changes in lending and loan monitoring procedures as well as review of specific internal policy compliance metrics. • Changes in the experience, ability, and depth of lending management and other relevant staff - Adjustments to measure increasing or decreasing credit risk related to lending and loan monitoring management. • Changes in the value of underlying collateral of collateralized loans - Adjustments related to improving or deterioration of the value of underlying collateral that are not fully captured in the reserve factors. • Changes in and the existence and effect of any concentrations of credit - Adjustments related to credit risk of specific industries that are not fully captured in the reserve factors. • Changes in regional and local economic and business conditions and developments - Adjustments related to expected and current economic conditions at a regional or local-level that are not fully captured within the Company’s reasonable and supportable forecast. • Data imprecisions due to limited historical loss data - Adjustments related to limited historical loss data that is representative of the collective loan portfolio. Collateral Dependent Loans Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the allowance for credit loss is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. For a collateral dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis adjusted for selling costs, when appropriate. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for credit losses as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the difference between the expected and contractual future cash flows of the loan. Reserve for Unfunded Commitments In addition to the allowance for credit losses, the Company has established a reserve for unfunded commitments, classified in other liabilities, representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The adequacy of the reserve for unfunded commitments is determined quarterly based on methodology similar to the methodology for determining the allowance for credit losses. The allowance for credit loss is reported as a component of accrued interest and other liabilities in the consolidated balance sheets. Adjustments to the allowance are reported in the income statement as a component of the provision for credit losses. 82 Acquisition Accounting, Loans The Company accounts for its acquisitions under ASC Topic 805, Business Combinations , which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. The fair value for acquired loans at the time of acquisition is based on a variety of factors including discounted expected cash flows, adjusted for estimated prepayments and credit losses. In accordance with ASC 326, the fair value adjustment is recorded as premium or discount to the unpaid principal balance of each acquired loan. Loans that have been identified as having experienced a more-than-insignificant deterioration in credit quality since origination is a purchased credit deteriorated (“PCD”) loan. The net premium or discount on PCD loans is adjusted by the Company’s allowance for credit losses recorded at the time of acquisition. The remaining net premium or discount is accreted or amortized into interest income over the remaining life of the loan using a constant yield method. The net premium or discount on loans that are not classified as PCD (“non-PCD”), that includes credit and non-credit components, is accreted or amortized into interest income over the remaining life of the loan using a constant yield method. The Company then records the necessary allowance for credit losses on the non-PCD loans through provision for credit losses expense. For further discussion of our acquisition and loan accounting, see Note 2, Acquisitions, and Note 5, Loans and Allowance for Credit Losses. Trust Assets Trust assets (other than cash deposits) held by the Company in fiduciary or agency capacities for its customers are not included in the accompanying consolidated balance sheets since such items are not assets of the Company. Premises and Equipment Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized by the straight-line method over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Right-of-use lease assets are operating leases with a term greater than one year and are included in premises and equipment. Foreclosed Assets Held For Sale Assets acquired by foreclosure or in settlement of debt and held for sale are valued at estimated fair value less estimated cost to sell as of the date of foreclosure. Management evaluates the value of foreclosed assets held for sale periodically and any decreases in the fair value are charged to other expense. Bank Owned Life Insurance The Company maintains bank-owned life insurance policies on certain current and former employees and directors, which are recorded at their cash surrender values as determined by the insurance carriers. The appreciation in the cash surrender value of the policies is recognized as a component of non-interest income in the Company’s consolidated statements of income. Goodwill and Intangible Assets Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability. The Company performs an annual goodwill impairment test, and more than annually if circumstances warrant, in accordance with ASC Topic 350, Intangibles – Goodwill and Other, as amended by Accounting Standards Update (“ASU”) 2011-08 - Testing Goodwill for Impairment . ASC Topic 350 requires that goodwill and intangible assets that have indefinite lives be reviewed for impairment annually, or more frequently if certain conditions occur. Intangible assets with finite lives are amortized over the estimated life of the asset, and are reviewed for impairment whenever events or changes in circumstances indicated that the carrying value may not be recoverable. Impairment losses on recorded goodwill, if any, will be recorded as operating expenses. Derivative Financial Instruments The Company may enter into derivative contracts for the purposes of managing exposure to interest rate risk to meet the financing needs of its customers. A derivative instrument is a financial tool which derives its value from the value of some other financial 83 instrument, variable index, including certain hedging instruments embedded in other contracts. These products are primarily designed to reduce interest rate risk for either the Company or its customers who proactively manage these risks. The Company records all derivatives on the balance sheet at fair value. In an effort to meet the financing needs of its customers and mitigate the impact of changing interest rates on the fair value of AFS securities, the Company has entered into fair value hedges. Fair value hedges include interest rate swap agreements on fixed rate loans and fixed rate callable AFS securities. To qualify for hedge accounting, derivatives must be highly effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the point of inception of the derivative contract. For derivatives designated as hedging the exposure to changes in the fair value of the hedged item, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain of the hedging instrument. The fair value hedges are considered to be highly effective and any hedge ineffectiveness was deemed not material. Fair value adjustments related to cash flow hedges are recorded in other comprehensive income and are reclassified to earnings when the hedged transaction is reflected in earnings. Securities Sold Under Agreements to Repurchase The Company sells securities under agreements to repurchase to meet customer needs for sweep accounts. At the point funds deposited by customers become investable, those funds are used to purchase securities owned by the Company and held in its general account with the designation of Customers’ Securities. A third party maintains control over the securities underlying overnight repurchase agreements. The securities involved in these transactions are generally U.S. Treasury or Federal Agency issues. Securities sold under agreements to repurchase generally mature on the banking day following that on which the investment was initially purchased and are treated as collateralized financing transactions which are recorded at the amounts at which the securities were sold plus accrued interest. Interest rates and maturity dates of the securities involved vary and are not intended to be matched with funds from customers. Revenue from Contracts with Customers ASC Topic 606, Revenue from Contracts with Customers , applies to all contracts with customers to provide goods or services in the ordinary course of business. However, Topic 606 specifically does not apply to revenue related to financial instruments, guarantees, insurance contracts, leases, or nonmonetary exchanges. Given these scope exceptions, interest income recognition and measurement related to loans and investments securities, the Company’s two largest sources of revenue, are not accounted for under Topic 606. Also, the Company does not use Topic 606 to account for gains or losses on its investments in securities, loans, and derivatives due to the scope exceptions. Certain revenue streams, such as service charges on deposit accounts, gains or losses on the sale of OREO, and trust income, fall under the scope of Topic 606 and the Company must recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. Topic 606 is applied using five steps: 1) identify the contract with the customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company has evaluated the nature of all contracts with customers that fall under the scope of Topic 606 and determined that further disaggregation of revenue from contracts with customers into categories was not necessary. There has not been significant revenue recognized in the current reporting periods resulting from performance obligations satisfied in previous periods. In addition, there has not been a significant change in timing of revenues received from customers. A description of performance obligations for each type of contract with customers is as follows: Service charges on deposit accounts – The Company’s primary source of funding comes from deposit accounts with its customers. Customers pay certain fees to access their cash on deposit including, but not limited to, non-transactional fees such as account maintenance, dormancy or statement rendering fees, and certain transaction-based fees such as ATM, wire transfer, overdraft or returned check fees. The Company generally satisfies its performance obligations as services are rendered. The transaction prices are fixed, and are charged either on a periodic basis or based on activity. Sale of OREO – In the normal course of business, the Company will enter into contracts with customers to sell OREO, which has generally been foreclosed upon by the Company. The Company generally satisfies its performance obligation upon conveyance of property from the Company to the customer, generally by way of an executed agreement. The transaction price is fixed, and on 84 occasion the Company will finance a portion of the proceeds the customers uses to purchase the property. These properties are generally sold without recourse or warranty. Wealth Management Fees – The Company enters into contracts with its customers to manage assets for investment, and/or transact on their accounts. The Company generally satisfies its performance obligations as services are rendered. The management fee is a fixed percentage-based fee calculated upon the average balance of assets under management and is charged to customers on a monthly basis. Bankcard Fee Income – Periodic bankcard fees, net of direct origination costs, are recognized as revenue on a straight-line basis over the period the fee entitles the cardholder to use the card. Income Taxes The Company accounts for income taxes in accordance with income tax accounting guidance in ASC Topic 740, Income Taxes . The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company files consolidated income tax returns with its subsidiaries. Earnings Per Share Basic earnings per share are computed based on the weighted average number of shares outstanding during each year. Diluted earnings per share are computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. The computation of per share earnings is as follows: (In thousands, except per share data) 2021 2020 2019 Net income available to common stockholders $ 271,109 $ 254,852 $ 237,828 Average common shares outstanding 109,577 109,860 98,351 Average potential dilutive common shares 621 313 446 Average diluted common shares 110,198 110,173 98,797 Basic earnings per share $ 2.47 $ 2.32 $ 2.42 Diluted earnings per share $ 2.46 $ 2.31 $ 2.41 There were no stock options excluded from earnings per share calculations due to the related stock option exercise price exceeding the average market price for the years ended December 31, 2021 and 2019. There were approximately 653,718 stock options excluded from the year ended December 31, 2020 earnings per share calculation due to the related stock option exercise price exceeding the average market price. 85 Stock-Based Compensation The Company has adopted various stock-based compensation plans. The plans provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and performance stock units. Pursuant to the plans, shares are reserved for future issuance by the Company, upon exercise of stock options or awarding of performance or bonus shares granted to directors, officers and other key employees. In accordance with ASC Topic 718, Compensation – Stock Compensation , the fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses various assumptions. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. For additional information, see Note 15, Employee Benefit Plans. NOTE 2: ACQUISITIONS Landmark Community Bank On October 8, 2021, the Company completed its acquisition of Landmark Community Bank (“Landmark”) pursuant to the terms of the Agreement and Plan of Merger dated as of June 4, 2021 (“Landmark Agreement”), at which time Landmark merged with and into Simmons Bank, with Simmons Bank continuing as the surviving entity. The Company issued 4,499,872 shares of its common stock valued at approximately $ 138.2 million as of October 8, 2021, plus $ 6,451,727.43 in cash, in exchange for all outstanding shares of Landmark capital stock (and common stock equivalents) to effect the merger. Prior to the acquisition, Landmark, headquartered in Collierville, Tennessee, conducted banking business from 8 branches located in the Memphis and Nashville, Tennessee, metropolitan areas. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $ 968.5 million in assets, including approximately $ 789.3 million in loans (inclusive of loan discounts), and approximately $ 802.7 million in deposits. Goodwill of $ 31.7 million was recorded as a result of the transaction. The merger strengthened the Company’s market share and brought forth additional opportunities in the Company’s current footprint, which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes. A summary, at fair value, of the assets acquired and liabilities assumed in the Landmark acquisition, as of the acquisition date, is as follows: (In thousands) Acquired from Landmark Fair Value Adjustments Fair Value Assets Acquired Cash and due from banks $ 27,591 $ — $ 27,591 Due from banks - time 100 — 100 Investment securities 114,793 ( 265 ) 114,528 Loans acquired 785,551 3,767 789,318 Allowance for credit losses on loans ( 5,980 ) 3,621 ( 2,359 ) Premises and equipment 9,540 ( 4,099 ) 5,441 Bank owned life insurance 21,287 — 21,287 Core deposit intangible 88 4,071 4,159 Other assets 13,036 ( 4,608 ) 8,428 Total assets acquired $ 966,006 $ 2,487 $ 968,493 86 (In thousands) Acquired from Landmark Fair Value Adjustments Fair Value Liabilities Assumed Deposits: Non-interest bearing transaction accounts $ 110,393 $ — $ 110,393 Interest bearing transaction accounts and savings deposits 425,777 — 425,777 Time deposits 266,835 ( 334 ) 266,501 Total deposits 803,005 ( 334 ) 802,671 Other borrowings 47,023 — 47,023 Accrued interest and other liabilities 8,459 ( 3,122 ) 5,337 Total liabilities assumed 858,487 ( 3,456 ) 855,031 Equity 107,519 ( 107,519 ) — Total equity assumed 107,519 ( 107,519 ) — Total liabilities and equity assumed $ 966,006 $ ( 110,975 ) $ 855,031 Net assets acquired 113,462 Purchase price 145,195 Goodwill $ 31,733 The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the merger. Management will continue to review the estimated fair values and evaluate the assumed tax positions. The Company expects to finalize its analysis of the acquired assets and assumed liabilities in this transaction within one year of the completion of the merger. Therefore, adjustments to the estimated amounts and carrying values may occur. The Company’s operating results include the operating results of the acquired assets and assumed liabilities of Landmark subsequent to the acquisition date. Triumph Bancshares, Inc. On October 8, 2021, the Company completed its merger with Triumph Bancshares, Inc. (“Triumph”) pursuant to the terms of the Agreement and Plan of Merger dated as of June 4, 2021 (“Triumph Agreement”), at which time Triumph merged with and into the Company, with the Company continuing as the surviving corporation. The Company issued 4,164,712 shares of its common stock valued at approximately $ 127.9 million as of October 8, 2021, plus $ 1,693,402.93 in cash, in exchange for all outstanding shares of Triumph capital stock (and common stock equivalents) to effect the merger. Prior to the acquisition, Triumph, headquartered in Memphis, Tennessee, conducted banking business through its subsidiary bank, Triumph Bank, from 6 branches located in the Memphis and Nashville, Tennessee, metropolitan areas. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $ 848.2 million in assets, including approximately $ 700.4 million in loans (inclusive of loan discounts), and approximately $ 719.7 million in deposits. Goodwill of $ 39.0 million was recorded as a result of the transaction. The merger strengthened the Company’s market share and brought forth additional opportunities in the Company’s current footprint, which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes. 87 A summary, at fair value, of the assets acquired and liabilities assumed in the Triumph acquisition, as of the acquisition date, is as follows: (In thousands) Acquired from Triumph Fair Value Adjustments Fair Value Assets Acquired Cash and due from banks $ 7,484 $ — $ 7,484 Due from banks - time 495 — 495 Investment securities 130,571 ( 1,106 ) 129,465 Loans acquired 702,460 ( 2,020 ) 700,440 Allowance for credit losses on loans ( 12,617 ) 1,525 ( 11,092 ) Premises and equipment 2,774 484 3,258 Goodwill 1,550 ( 1,550 ) — Core deposit intangible — 5,136 5,136 Other assets 12,806 209 13,015 Total assets acquired $ 845,523 $ 2,678 $ 848,201 Liabilities Assumed Deposits: Non-interest bearing transaction accounts $ 115,729 $ — $ 115,729 Interest bearing transaction accounts and savings deposits 383,434 — 383,434 Time deposits 219,477 1,094 220,571 Total deposits 718,640 1,094 719,734 Other borrowings 2,854 — 2,854 Subordinated debentures 30,700 — 30,700 Accrued interest and other liabilities 2,882 455 3,337 Total liabilities assumed 755,076 1,549 756,625 Equity 90,446 ( 90,446 ) — Total equity assumed 90,446 ( 90,446 ) — Total liabilities and equity assumed $ 845,522 $ ( 88,897 ) $ 756,625 Net assets acquired 91,576 Purchase price 130,544 Goodwill $ 38,968 The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the merger. Management will continue to review the estimated fair values and evaluate the assumed tax positions. The Company expects to finalize its analysis of the acquired assets and assumed liabilities in this transaction within one year of the completion of the merger. Therefore, adjustments to the estimated amounts and carrying values may occur. The Company’s operating results include the operating results of the acquired assets and assumed liabilities of Triumph subsequent to the acquisition date. The Landrum Company On October 31, 2019, the Company completed its merger with The Landrum Company (“Landrum”) pursuant to the terms of the Agreement and Plan of Merger dated as of July 30, 2019 (“Landrum Agreement”), at which time Landrum merged with and into the Company, with the Company continuing as the surviving corporation. Pursuant to the terms of the Landrum Agreement, the shares of Landrum Class A Common Voting Stock, par value $ 0.01 per share, and Landrum Class B Common Nonvoting Stock, par value $ 0.01 per share, were converted into the right to receive, in the aggregate, approximately 17,350,000 shares of the Company’s common stock and each share of Landrum’s series E preferred stock was converted into the right to receive one share of the Company’s comparable series D preferred stock. The Company issued 17,349,722 shares of its common stock and 767 shares of its series D preferred stock, par value $ 0.01 per share, in exchange for all outstanding shares of Landrum capital stock to effect the merger. 88 Prior to the acquisition, Landrum, headquartered in Columbia, Missouri, conducted banking business through its subsidiary bank, Landmark Bank, from 39 branches located in Missouri, Oklahoma and Texas. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $ 3.4 billion in assets, including approximately $ 2.0 billion in loans (inclusive of loan discounts), and approximately $ 3.0 billion in deposits. The systems conversion occurred on February 14, 2020, at which time Landmark Bank merged into Simmons Bank, with Simmons Bank as the surviving institution. Goodwill of $ 151.1 million was recorded as a result of the transaction. The merger strengthened the Company’s market share and brought forth additional opportunities in the Company’s current footprint, which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes. A summary, at fair value, of the assets acquired and liabilities assumed in the Landrum acquisition, as of the acquisition date, is as follows: (In thousands) Acquired from Landrum Fair Value Adjustments Fair Value Assets Acquired Cash and due from banks $ 215,285 $ — $ 215,285 Due from banks - time 248 — 248 Investment securities 1,021,755 4,228 1,025,983 Loans acquired 2,049,137 ( 43,651 ) 2,005,486 Allowance for loan losses ( 22,736 ) 22,736 — Foreclosed assets 373 ( 183 ) 190 Premises and equipment 63,878 18,781 82,659 Bank owned life insurance 19,206 — 19,206 Goodwill 407 ( 407 ) — Core deposit intangible — 24,345 24,345 Other intangibles 412 4,704 5,116 Other assets 33,924 ( 13,290 ) 20,634 Total assets acquired $ 3,381,889 $ 17,263 $ 3,399,152 Liabilities Assumed Deposits: Non-interest bearing transaction accounts $ 716,675 $ — $ 716,675 Interest bearing transaction accounts and savings deposits 1,465,429 — 1,465,429 Time deposits 867,197 299 867,496 Total deposits 3,049,301 299 3,049,600 Other borrowings 10,055 — 10,055 Subordinated debentures 34,794 ( 877 ) 33,917 Accrued interest and other liabilities 31,057 9,869 40,926 Total liabilities assumed 3,125,207 9,291 3,134,498 Equity 256,682 ( 256,682 ) — Total equity assumed 256,682 ( 256,682 ) — Total liabilities and equity assumed $ 3,381,889 $ ( 247,391 ) $ 3,134,498 Net assets acquired 264,654 Purchase price 415,779 Goodwill $ 151,125 During 2020, the Company finalized its analysis of the loans acquired along with other acquired assets and assumed liabilities. The Company’s operating results include the operating results of the acquired assets and assumed liabilities of Landrum subsequent to the acquisition date. 89 Reliance Bancshares, Inc. On April 12, 2019, the Company completed its merger with Reliance Bancshares, Inc. (“Reliance”), headquartered in the St. Louis, Missouri, metropolitan area, pursuant to the terms of the Agreement and Plan of Merger (“Reliance Agreement”), dated November 13, 2018, as amended February 11, 2019. In the merger, each outstanding share of Reliance common stock, as well as each Reliance common stock equivalent, was canceled and converted into the right to receive shares of the Company’s common stock and/or cash in accordance with the terms of the Reliance Agreement. In addition, each share of Reliance’s Series A Preferred Stock and Series B Preferred Stock was converted into the right to receive one share of Simmons’ comparable Series A Preferred Stock or Series B Preferred Stock, respectively, and each share of Reliance’s Series C Preferred Stock was converted into the right to receive one share of Simmons’ comparable Series C Preferred Stock (unless the holder of such Series C Preferred Stock elected to receive alternate consideration in accordance with the Reliance Agreement). The Company issued 3,999,623 shares of its common stock and paid $ 62.7 million in cash to effect the merger. The Company also issued $ 42.0 million of its Series A Preferred Stock and Series B Preferred Stock. On May 13, 2019, the Company redeemed all of the preferred stock issued in connection with the merger, and paid all accrued and unpaid dividends up to the date of redemption. On October 29, 2019, the Company amended its Amended and Restated Articles of Incorporation to cancel the Series C Preferred Stock, having 140 authorized shares, of which no shares were ever issued or outstanding. Prior to the acquisition, Reliance conducted banking business through its subsidiary bank, Reliance Bank, from 22 branches located in Missouri and Illinois. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $ 1.5 billion in assets, including approximately $ 1.1 billion in loans (inclusive of loan discounts), and approximately $ 1.2 billion in deposits. Contemporaneously with the completion of the Reliance merger, Reliance Bank was merged into Simmons Bank, with Simmons Bank as the surviving institution. Goodwill of $ 78.5 million was recorded as a result of the transaction. The merger strengthened the Company’s market share and brought forth additional opportunities in the Company’s St. Louis metropolitan area footprint, which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes. A summary, at fair value, of the assets acquired and liabilities assumed in the Reliance transaction, as of the acquisition date, is as follows: (In thousands) Acquired from Reliance Fair Value Adjustments Fair Value Assets Acquired Cash and due from banks $ 25,693 $ — $ 25,693 Due from banks - time 502 — 502 Investment securities 287,983 ( 1,873 ) 286,110 Loans acquired 1,138,527 ( 41,657 ) 1,096,870 Allowance for loan losses ( 10,808 ) 10,808 — Foreclosed assets 11,092 ( 5,180 ) 5,912 Premises and equipment 32,452 ( 3,001 ) 29,451 Bank owned life insurance 39,348 — 39,348 Core deposit intangible — 18,350 18,350 Other assets 25,165 6,911 32,076 Total assets acquired $ 1,549,954 $ ( 15,642 ) $ 1,534,312 90 (In thousands) Acquired from Reliance Fair Value Adjustments Fair Value Liabilities Assumed Deposits: Non-interest bearing transaction accounts $ 108,845 $ ( 33 ) $ 108,812 Interest bearing transaction accounts and savings deposits 639,798 — 639,798 Time deposits 478,415 ( 1,758 ) 476,657 Total deposits 1,227,058 ( 1,791 ) 1,225,267 Securities sold under agreement to repurchase 14,146 — 14,146 Other borrowings 162,900 ( 5,500 ) 157,400 Accrued interest and other liabilities 8,185 268 8,453 Total liabilities assumed 1,412,289 ( 7,023 ) 1,405,266 Equity 137,665 ( 137,665 ) — Total equity assumed 137,665 ( 137,665 ) — Total liabilities and equity assumed $ 1,549,954 $ ( 144,688 ) $ 1,405,266 Net assets acquired 129,046 Purchase price 207,539 Goodwill $ 78,493 During 2020, the Company finalized its analysis of the loans acquired along with other acquired assets and assumed liabilities. The Company’s operating results include the operating results of the acquired assets and assumed liabilities of Reliance subsequent to the acquisition date. The following is a description of the methods used to determine the fair values of significant assets and liabilities presented in the acquisitions above. Cash and due from banks and time deposits due from banks – The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets. Investment securities – Investment securities were acquired with an adjustment to fair value based upon quoted market prices if material. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value. Loans acquired – Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. See Note 5, Loans and Allowance for Credit Losses, in the accompanying Notes to Consolidated Financial Statements for additional information related to purchased financial assets with credit deterioration. Foreclosed assets – These assets are presented at the estimated present values that management expects to receive when the properties are sold, net of related costs of disposal. Premises and equipment – Bank premises and equipment were acquired with an adjustment to fair value, which represents the difference between the Company’s current analysis of property and equipment values completed in connection with the acquisition and book value acquired. Bank owned life insurance – Bank owned life insurance is carried at its current cash surrender value, which is the most reasonable estimate of fair value. Goodwill – The consideration paid as a result of the acquisition exceeded the fair value of the assets acquired, resulting in an intangible asset, goodwill. Goodwill established prior to the acquisitions, if applicable, was written off. 91 Core deposit intangible – This intangible asset represents the value of the relationships that the acquired banks had with their deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base and the net maintenance cost attributable to customer deposits. Any core deposit intangible established prior to the acquisitions, if applicable, was written off. Other intangibles – These intangible assets represent the value of the relationship that Landrum had with their trust and wealth management customers. The fair value of these intangible assets was estimated based on a combination of discounted cash flow methodology and a market valuation approach. Intangible assets for Landrum also included mortgage servicing rights. Other intangibles established prior to the acquisitions, if applicable, were written off. Other assets – The fair value adjustment results from certain assets whose value was estimated to be more or less than book value, such as certain prepaid assets, receivables and other miscellaneous assets. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value. Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date. The Company performed a fair value analysis of the estimated weighted average interest rate of the certificates of deposits compared to the current market rates and recorded a fair value adjustment for the difference when material. Securities sold under agreement to repurchase – The carrying amount of securities sold under agreement to repurchase is a reasonable estimate of fair value based on the short-term nature of these liabilities. Other borrowings – The fair value of other borrowings is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities. Subordinated debentures – The fair value of subordinated debentures is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities. Accrued interest and other liabilities – The fair value adjustment results from certain liabilities whose value was estimated to be more or less than book value, such as certain accounts payable and other miscellaneous liabilities. The adjustment also establishes a liability for unfunded commitments equal to the fair value of that liability at the date of acquisition. The carrying amount of accrued interest and the remainder of other liabilities was deemed to be a reasonable estimate of fair value. Spirit of Texas Bancshares, Inc. (Pending Acquisition) On November 19, 2021, the Company announced that it had entered into an Agreement and Plan of Merger (“Spirit Agreement”) with Spirit of Texas Bancshares, Inc. (“Spirit”), headquartered in Conroe, Texas, to acquire Spirit, including its wholly-owned bank subsidiary, Spirit of Texas Bank SSB. According to the terms and subject to the conditions of the Spirit Agreement, upon consummation of the transaction, holders of Spirit’s common stock and common stock equivalents will receive, in the aggregate, 18,325,000 shares of the Company’s common stock, subject to certain conditions and potential adjustments under the Agreement, including substituting cash for the Company’s common stock to the extent necessary to cash out Spirit’s stock options and warrants (the “Merger Consideration”). Based on the closing price of $ 31.73 for Simmons common stock on November 17, 2021, the Merger Consideration would have an implied aggregate value of approximately $ 581 million. Spirit conducts banking business from 37 locations primarily in the Texas Triangle – consisting of the Dallas-Fort Worth, Houston, San Antonio and Austin metropolitan areas – with additional locations in the Bryan-College Station, Corpus Christi and Tyler metropolitan areas, along with offices in North Central and South Texas. As of December 31, 2021, Spirit had approximately $ 3.3 billion in assets, $ 2.3 billion in loans and $ 2.8 billion in deposits. Completion of the transaction is expected during the second quarter of 2022 and is subject to certain closing conditions, including approval by the shareholders of Spirit, as well as customary regulatory approvals. Simultaneously with the closing of the transaction, Spirit Bank is expected to be merged with and into Simmons Bank. 92 NOTE 3: INVESTMENT SECURITIES Held-to-maturity (“HTM”) securities, which include any security for which the Company has the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield method over the security’s estimated life. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to their earliest call date. Available-for-sale (“AFS”) securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the individual security, are included in other income. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders’ equity, 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. During the third quarter of 2021, the Company transferred, at fair value, $ 500.8 million of securities from the AFS portfolio to the HTM portfolio. The related net unrealized gains of $ 1.0 million remained in accumulated other comprehensive income (loss) at December 31, 2021 and will be amortized over the remaining life of the securities. No gains or losses on these securities were recognized at the time of transfer. The amortized cost, fair value and allowance for credit losses of investment securities that are classified as HTM are as follows: (In thousands) Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value Held-to-maturity December 31, 2021 U.S. Government agencies 232,609 — 232,609 — ( 7,914 ) 224,695 Mortgage-backed securities $ 70,342 $ — $ 70,342 $ 232 $ ( 1,425 ) $ 69,149 State and political subdivisions 1,210,248 ( 1,197 ) 1,209,051 6,166 ( 8,462 ) 1,206,755 Other securities 17,301 ( 82 ) 17,219 — ( 440 ) 16,779 Total HTM $ 1,530,500 $ ( 1,279 ) $ 1,529,221 $ 6,398 $ ( 18,241 ) $ 1,517,378 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 Mortgage-backed securities (“MBS”) are commercial MBS, secured by commercial properties, and residential MBS, generally secured by single-family residential properties. All mortgage-backed securities included in the table above were issued by U.S. government agencies or corporations. As of December 31, 2021, HTM MBS consisted of $ 4.9 million and $ 65.5 million of commercial MBS and residential MBS, respectively. As of December 31, 2020, HTM MBS consisted of $ 7.7 million and $ 14.7 million of commercial MBS and residential MBS, respectively. 93 The amortized cost, fair value and allowance for credit losses of investment securities that are classified as AFS are as follows: (In thousands) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value Available-for-sale December 31, 2021 U.S. Treasury 300 — — — 300 U.S. Government agencies $ 374,754 $ — $ 495 $ ( 10,608 ) $ 364,641 Mortgage-backed securities 4,485,548 — 6,307 ( 43,239 ) 4,448,616 State and political subdivisions 1,791,097 — 30,556 ( 1,995 ) 1,819,658 Other securities 479,162 — 6,647 ( 5,479 ) 480,330 Total AFS $ 7,130,861 $ — $ 44,005 $ ( 61,321 ) $ 7,113,545 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 All mortgage-backed securities included in the table above were issued by U.S. government agencies or corporations. As of December 31, 2021, AFS MBS consisted of $ 1.53 billion and $ 2.92 billion of commercial MBS and residential MBS, respectively. As of December 31, 2020, AFS MBS consisted of $ 406.1 million and $ 988.8 million of commercial MBS and residential MBS, respectively. Accrued interest receivable on HTM and AFS securities at December 31, 2021 was $ 9.7 million and $ 23.4 million, respectively, and is included in interest receivable on the consolidated balance sheets. The Company has made the election to exclude all accrued interest receivable from securities from the estimate of credit losses. The following table summarizes the Company’s AFS investments in an unrealized loss position for which an allowance for credit loss has not been recorded as of December 31, 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 $ 152,908 $ ( 3,297 ) $ 160,913 $ ( 7,311 ) $ 313,821 $ ( 10,608 ) Mortgage-backed securities 3,632,822 ( 33,551 ) 323,683 ( 9,688 ) 3,956,505 ( 43,239 ) State and political subdivisions 530,647 ( 709 ) 29,565 ( 1,286 ) 560,212 ( 1,995 ) Other securities 228,182 ( 5,240 ) 6,984 ( 239 ) 235,166 ( 5,479 ) Total AFS $ 4,544,559 $ ( 42,797 ) $ 521,145 $ ( 18,524 ) $ 5,065,704 $ ( 61,321 ) As of December 31, 2021, the Company’s investment portfolio included $ 7.11 billion of AFS securities, of which $ 5.07 billion, or 71.2 %, were in an unrealized loss position that are not deemed to have credit losses. A portion of the unrealized losses were related to the Company’s mortgage-backed securities, which are issued and guaranteed by U.S. government-sponsored entities and agencies, and the Company’s state and political securities, specifically investments in insured fixed rate municipal bonds for which the issuers continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, the decline in fair value for each of the above AFS securities is attributable to the rates for those investments yielding less than current market rates. Management does not believe any of the securities are impaired due to reasons of credit quality. Management believes the declines in fair value for the securities are temporary. Management does not have the intent to 94 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 MBS 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. The following table details activity in the allowance for credit losses by investment security type for the years ended December 31, 2021 and 2020 on the Company’s HTM and AFS securities held. (In thousands) State and Political Subdivisions Other Securities Total December 31, 2021 Held-to-maturity Beginning balance, January 1, 2021 $ 2,307 $ 608 $ 2,915 Provision for credit loss expense ( 1,110 ) ( 73 ) ( 1,183 ) Securities charged-off — ( 600 ) ( 600 ) Recoveries — 147 147 Ending balance, December 31, 2021 $ 1,197 $ 82 $ 1,279 Available-for-sale Beginning balance, January 1, 2021 $ 217 $ 95 $ 312 Reduction due to sales — ( 11 ) ( 11 ) Net decrease in allowance on previously impaired securities ( 217 ) ( 84 ) ( 301 ) Ending balance, December 31, 2021 $ — $ — $ — December 31, 2020 Held-to-maturity Beginning balance, January 1, 2020 $ — $ — $ — Impact of ASU 2016-13 adoption 58 311 369 Provision for credit loss expense 2,249 297 2,546 Ending balance, December 31, 2020 $ 2,307 $ 608 $ 2,915 Available-for-sale Beginning balance, January 1, 2020 $ — $ — $ — Impact of ASU 2016-13 adoption 373 — 373 Credit losses on securities not previously recorded 199 113 312 Reduction due to sales ( 244 ) — ( 244 ) Net decrease in allowance on previously impaired securities ( 111 ) ( 18 ) ( 129 ) Ending balance, December 31, 2020 $ 217 $ 95 $ 312 Based upon the Company’s analysis of the underlying risk characteristics of its AFS portfolio, including credit ratings and other qualitative factors, as previously discussed, there was no provision for credit losses related to AFS securities recorded in the last half of 2021. During the year ended December 31, 2021 and 2020, the provision for credit losses was reduced by $ 312,000 and $ 61,000 , respectively, related to AFS securities. 95 The following table summarizes bond ratings for the Company’s HTM portfolio issued by state and political subdivisions and other securities as of December 31, 2021: State and Political Subdivisions (In thousands) Not Guaranteed or Pre-Refunded Other Credit Enhancement or Insurance Pre-Refunded Total Other Securities Aaa/AAA $ 129,473 $ 102,712 $ — $ 232,185 $ — Aa/AA 481,887 316,345 — 798,232 — A 42,727 89,643 — 132,370 — Baa/BBB — 13,539 13,539 Not Rated 6,207 27,715 — 33,922 17,301 Total $ 660,294 $ 549,954 $ — $ 1,210,248 $ 17,301 Historical loss rates associated with securities having similar grades as those in the Company’s portfolio have generally not been significant. Pre-refunded securities, if any, have been defeased by the issuer and are fully secured by cash and/or U.S. Treasury securities held in escrow for payment to holders when the underlying call dates of the securities are reached. Securities with other credit enhancement or insurance continue to make timely principal and interest payments under the contractual terms of the securities. Accordingly, no allowance for credit losses has been recorded for these securities as there is no current expectation of credit losses related to these securities. Income earned on securities for the years ended December 31, 2021, 2020 and 2019, is as follows: (In thousands) 2021 2020 2019 Taxable: Held-to-maturity $ 4,208 $ 985 $ 1,207 Available-for-sale 54,768 34,054 42,412 Non-taxable: Held-to-maturity 16,047 919 1,412 Available-for-sale 36,670 28,575 18,345 Total $ 111,693 $ 64,533 $ 63,376 The amortized cost and estimated fair value by maturity of securities are shown in the following table as of December 31, 2021. Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. Accordingly, actual maturities may differ from contractual maturities. Held-to-Maturity Available-for-Sale (In thousands) Amortized Cost Fair Value Amortized Cost Fair Value One year or less $ 5,333 $ 5,396 $ 7,821 $ 7,845 After one through five years 4,801 5,023 61,456 61,669 After five through ten years 27,081 25,874 532,085 533,711 After ten years 1,422,943 1,411,936 2,043,326 2,061,081 Securities not due on a single maturity date 70,342 69,149 4,485,547 4,448,615 Other securities (no maturity) — — 626 624 Total $ 1,530,500 $ 1,517,378 $ 7,130,861 $ 7,113,545 The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $ 3.9 billion at December 31, 2021 and $ 2.0 billion at December 31, 2020. 96 The Company sold approximately $ 342.6 million of investment securities compared to approximately $ 1.7 billion of investment securities during 2021 and 2020, respectively. The increase in securities sold in 2020 was in large part related to efforts by the Company to increase liquidity in response to the early stages of the COVID-19 pandemic. There were approximately $ 15.9 million of gross realized gains and $ 422,000 of gross realized losses from the sale of securities during the year ended December 31, 2021. There were approximately $ 54.8 million of gross realized gains and $ 15,000 of gross realized losses from the sale of securities during the year ended December 31, 2020. There were approximately $ 13.3 million of gross realized gains and $ 4,000 of gross realized losses from the sale of securities during the year ended December 31, 2019. The income tax expense/benefit related to security gains/losses was 26.135 % of the gross amounts in 2021, 2020 and 2019. The Company has entered into various fair value hedging transactions to mitigate the impact of changing interest rates on the fair value of AFS securities. See Note 21: Derivative Instruments for disclosure of the gains and losses recognized on derivative instruments and the cumulative fair value hedging adjustments to the carrying amount of the hedged securities. NOTE 4: OTHER ASSETS AND OTHER LIABILITIES HELD FOR SALE Texas Branch Sale On December 20, 2019, Simmons Bank entered into a Branch Purchase and Assumption Agreement (the “Spirit Branch Agreement”) with Spirit of Texas Bank, SSB (“Spirit Bank”), a wholly-owned subsidiary of Spirit of Texas Bancshares, Inc. On February 28, 2020, Spirit Bank completed its purchase of certain assets and assumption of certain liabilities (“Texas Branch Sale”) associated with five Simmons Bank locations in Austin, San Antonio, and Tilden, Texas (collectively, the “Texas Branches”). Pursuant to the terms of the Spirit Branch Agreement, Spirit Bank assumed certain deposit liabilities and acquired certain loans, as well as cash, real property, personal property and other fixed assets associated with the Texas Branches. The loan and deposit balances of the Texas Branches were $ 260.3 million and $ 139.5 million, respectively. Colorado Branch Sale On February 10, 2020, Simmons Bank entered into a Branch Purchase and Assumption Agreement (the “First Western Agreement”) with First Western Trust Bank (“First Western”), a wholly-owned subsidiary of First Western Financial, Inc. On May 18, 2020, First Western completed its purchase of certain assets and assumption of certain liabilities (“Colorado Branch Sale”) associated with four Simmons Bank locations in Denver, Englewood, Highlands Ranch, and Lone Tree, Colorado (collectively, the “Colorado Branches”). Pursuant to the terms of the First Western Agreement, First Western assumed certain deposit liabilities and acquired certain loans, as well as cash, personal property and other fixed assets associated with the Colorado Branches. The loan and deposit balances of the Colorado Branches were $ 120.4 million and $ 63.1 million, respectively. During 2020, the Company recognized a combined gain on sale of $ 8.1 million related to the Texas Branch Sale and Colorado Branch Sale. Illinois Branch Sale On November 30, 2020, Simmons Bank entered into a Branch Purchase and Assumption Agreement (the “Citizens Equity Agreement”) with Citizens Equity First Credit Union (“CEFCU”). On March 12, 2021, CEFCU completed its purchase of certain assets and assumption of certain liabilities (the “Illinois Branch Sale”) associated with four Simmons Bank locations in the Metro East area of Southern Illinois, near St. Louis (collectively, the “Illinois Branches”). Pursuant to the terms of the Citizens Equity Agreement, CEFCU assumed certain deposit liabilities and acquired certain loans, as well as cash, personal property and other fixed assets associated with the Illinois Branches. The loan and deposit balances of the Illinois Branches were $ 354,000 and $ 137.9 million, respectively. During 2021, the Company recognized a gain on sale of $ 5.3 million related to the Illinois Branches. As of December 31, 2021, there were no outstanding other assets and other liabilities held for sale. 97 NOTE 5: LOANS AND ALLOWANCE FOR CREDIT LOSSES At December 31, 2021, the Company’s loan portfolio was $ 12.01 billion, compared to $ 12.90 billion at December 31, 2020. The various categories of loans are summarized as follows: (In thousands) 2021 2020 Consumer: Credit cards $ 187,052 $ 188,845 Other consumer 168,318 202,379 Total consumer 355,370 391,224 Real estate: Construction and development 1,326,371 1,596,255 Single family residential 2,101,975 1,880,673 Other commercial 5,738,904 5,746,863 Total real estate 9,167,250 9,223,791 Commercial: Commercial 1,992,043 2,574,386 Agricultural 168,717 175,905 Total commercial 2,160,760 2,750,291 Other 329,123 535,591 Total loans $ 12,012,503 $ 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 $ 21.5 million and $ 57.3 million at December 31, 2021 and 2020, respectively. Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 39.8 million and $ 54.4 million at December 31, 2021 and 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 economic downturns resulting in increasing unemployment. Other consumer loans include direct and indirect installment loans and account overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures. Real estate – The real estate loan portfolio consists of construction and development loans (“C&D”), single family residential loans and commercial loans. C&D and commercial real estate (“CRE”) loans can be particularly sensitive to valuation of real estate. CRE 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 CRE – 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. 98 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 December 31, 2021 and 2020, the total outstanding balance of PPP loans was $ 116.7 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: (In thousands) 2021 2020 Consumer: Credit cards $ 377 $ 301 Other consumer 381 1,219 Total consumer 758 1,520 Real estate: Construction and development 2,296 3,625 Single family residential 19,268 28,062 Other commercial 26,953 24,155 Total real estate 48,517 55,842 Commercial: Commercial 18,774 65,244 Agricultural 152 273 Total commercial 18,926 65,517 Other 3 — Total $ 68,204 $ 122,879 As of December 31, 2021 and 2020, nonaccrual loans for which there was no related allowance for credit losses had an amortized cost of $ 14.5 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. 99 An age analysis of the amortized cost basis of past due loans, including nonaccrual loans, segregated by class of loans is as follows: (In thousands) Gross 30-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans 90 Days Past Due & Accruing December 31, 2021 Consumer: Credit cards $ 847 $ 413 $ 1,260 $ 185,792 $ 187,052 $ 247 Other consumer 1,149 130 1,279 167,039 168,318 — Total consumer 1,996 543 2,539 352,831 355,370 247 Real estate: Construction and development 114 504 618 1,325,753 1,326,371 — Single family residential 11,313 9,398 20,711 2,081,264 2,101,975 102 Other commercial 2,474 12,268 14,742 5,724,162 5,738,904 — Total real estate 13,901 22,170 36,071 9,131,179 9,167,250 102 Commercial: Commercial 4,812 10,074 14,886 1,977,157 1,992,043 — Agricultural 13 117 130 168,587 168,717 — Total commercial 4,825 10,191 15,016 2,145,744 2,160,760 — Other — 3 3 329,120 329,123 — Total $ 20,722 $ 32,907 $ 53,629 $ 11,958,874 $ 12,012,503 $ 349 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. 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. 100 The provisions in the CARES Act included an election to not apply the guidance on accounting for TDRs to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration. In March 2020, the federal financial institution regulatory agencies issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and provided information regarding loan modifications. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act. In response to the concerns related to the expiration of the applicable period for which the election to not apply the guidance on accounting for TDRs to loan modifications, the CARES Act was amended in late fourth quarter of 2020 to extend COVID-19 relief related to loan modifications from the earlier of (i) January 1, 2022 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration. As of December 31, 2021, the Company had 51 COVID-19 loan modifications outstanding in the amount of $ 8.6 million, compared to 3,729 modifications outstanding in the amount of $ 2.99 billion as of December 31, 2020. The majority of COVID-19 loan modifications have returned to performing status or paid off. TDRs are individually evaluated for expected credit losses. The Company assesses the exposure for each modification, either by the fair value of the underlying collateral or the present value of expected cash flows, and determines if a specific allowance for credit losses is needed. The following table presents a summary of TDRs segregated by class of loans. Accruing TDR Loans Nonaccrual TDR Loans Total TDR Loans (Dollars in thousands) Number Balance Number Balance Number Balance December 31, 2021 Real estate: Single-family residential 28 $ 3,087 14 $ 1,196 42 $ 4,283 Other commercial 1 766 2 48 3 814 Total real estate 29 3,853 16 1,244 45 5,097 Commercial: Commercial 2 436 2 1,406 4 1,842 Total commercial 2 436 2 1,406 4 1,842 Total 31 $ 4,289 18 $ 2,650 49 $ 6,939 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 $ 7,513 101 The following table presents loans that were restructured as TDRs during the years ended December 31, 2021 and 2020 segregated by class of loans. Modification Type (Dollars in thousands) Number of Loans Balance Prior to TDR Balance at December 31, Change in Maturity Date Change in Rate Financial Impact on Date of Restructure Year Ended December 31, 2021 Real estate: Single-family residential 3 274 197 — 197 — Other commercial 1 784 766 — 766 — Total real estate 4 $ 1,058 $ 963 $ — $ 963 $ — Year Ended December 31, 2020 Real estate: Single-family residential 5 $ 1,948 $ 1,896 $ 1,896 $ — $ — Total real estate 5 $ 1,948 $ 1,896 $ 1,896 $ — $ — During the year ended December 31, 2021, the Company modified four loans with a recorded investment of $ 1,058,000 prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by deferring amortized principal payments, changing the maturity dates and requiring interest-only payments for a period of up to 12 months. A specific reserve of $ 5,129 was determined necessary for these loans as of December 31, 2021. Additionally, there was no immediate financial impact from the restructuring of these loans as it was not considered necessary to charge-off interest or principal on the date of restructure. During the year ended December 31, 2021, nine of the previously restructured loans with prior balances of $ 1,002,874 were paid off. During the year ended December 31, 2020, the Company modified five loans with a recorded investment of $ 1,948,000 prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by deferring amortized principal payments, changing the maturity dates and requiring interest-only payments for a period of up to 12 months. Based upon the fair value of the collateral, a specific reserve of $ 51,300 was determined as necessary for these loans as of December 31, 2020. Also, there was no immediate financial impact from the restructuring of these loans, as it was not considered necessary to charge-off interest or principal on the date of restructure. During the year ended December 31, 2020, six of the previously restructured loans with prior balances of $ 837,265 were paid off. There was no loans considered TDRs for which a payment default occurred during the year ended December 31, 2021. During the year ended December 31, 2020, there was one commercial loan with an outstanding balance of $ 2.1 million considered a TDR for which a payment default occurred. The Company defines a payment default as a payment received more than 90 days after its due date. The Company had no TDRs with pre-modification loan balances for which OREO was received in full or partial satisfaction of the loans during the years ended December 31, 2021 and 2020. At December 31, 2021 and 2020, the Company had $ 1,806,000 and $ 7,182,000 , respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At December 31, 2021 and 2020, the Company had $ 831,000 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. 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 risk ratings is as follows: 102 • 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. • 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”). • 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. • 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. • 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. • 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. • 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. • 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 90 days or more 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. 103 Effective April 2021, the Company implemented an expanded, dual risk rating scale that utilizes quantitative models and qualitative factors (“score cards”) to assist in determining the appropriate risk rating for its commercial loans. This dual risk rating methodology incorporates a “probability of default” analysis which utilizes quantified metrics such as loan terms and financial performance, as well as a “loss given default” analysis which utilizes collateral values and economics of the market, among other attributes. Model outputs are reviewed and analyzed to ensure the projected risk levels are commensurate with underwriting and credit leader expectations. The expanded risk rating scale includes Probability of Default levels of 1 – 16 and Loss Given Default levels of A – I. The expanded scale allows for more granular recognition of risk and diversification of grading among traditional Pass grades. Implementation of the expanded risk rating scale did not have a material impact on the results of the allowance for credit losses calculation. The following is a reconciliation between the expanded risk rating scale and the Company’s traditional risk rating segments utilized within the commercial loan classes presented in the credit quality indicator tables. • Pass - Includes loans with an expanded risk rating of 1 through 11. Loans with a risk rating of 10 and 11 equate to loans included on management’s “watch list” and is intended to be utilized on a temporary basis for pass grade borrowers where a significant risk-modifying action is anticipated in the near term. • Special Mention - Includes loans with an expanded risk rating of 12. • Substandard - Includes loans with an expanded risk rating of 13 and 14. • Doubtful and loss - Includes loans with an expanded risk rating of 15 and 16. 104 The following table presents a summary of loans by credit quality indicator, as of December 31, 2021 segregated by class of loans. Term Loans Amortized Cost Basis by Origination Year (In thousands) 2021 2020 2019 2018 2017 2016 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total Consumer - credit cards Delinquency: Current $ — $ — $ — $ — $ — $ — $ 185,792 $ — $ 185,792 30-89 days past due — — — — — — 847 — 847 90+ days past due — — — — — — 413 — 413 Total consumer - credit cards — — — — — — 187,052 — 187,052 Consumer - other Delinquency: Current 97,830 21,885 11,712 6,756 5,416 3,833 19,607 — $ 167,039 30-89 days past due 265 121 164 49 219 156 175 — 1,149 90+ days past due 23 23 28 21 13 22 — — 130 Total consumer - other 98,118 22,029 11,904 6,826 5,648 4,011 19,782 — 168,318 Real estate - C&D Risk rating: Pass 74,813 83,729 28,803 17,349 8,505 9,319 1,074,617 20,285 $ 1,317,420 Special mention — — 270 — — 47 — — 317 Substandard 191 77 16 54 324 423 5,598 1,951 8,634 Doubtful and loss — — — — — — — — — Total real estate - C&D 75,004 83,806 29,089 17,403 8,829 9,789 1,080,215 22,236 1,326,371 Real estate - SF residential Delinquency: Current 419,605 335,788 185,190 260,037 193,110 421,957 256,155 9,422 $ 2,081,264 30-89 days past due 1,061 883 1,662 791 1,077 4,360 1,479 — 11,313 90+ days past due 27 561 507 1,199 1,358 5,104 570 72 9,398 Total real estate - SF residential 420,693 337,232 187,359 262,027 195,545 431,421 258,204 9,494 2,101,975 Real estate - other commercial Risk rating: Pass 1,349,746 807,701 375,824 267,696 476,029 537,493 1,409,099 164,856 5,388,444 Special mention 28,151 30,981 2,799 6,650 39,361 4,801 38,638 1,608 152,989 Substandard 28,137 10,186 5,243 10,806 30,060 27,107 53,860 32,072 197,471 Doubtful and loss — — — — — — — — — Total real estate - other commercial 1,406,034 848,868 383,866 285,152 545,450 569,401 1,501,597 198,536 5,738,904 Commercial Risk rating: Pass 455,499 187,517 80,486 57,437 36,529 57,099 1,004,971 41,885 1,921,423 Special mention 670 2,482 1,066 189 261 2,770 8,500 10,499 26,437 Substandard 3,436 18,381 4,397 1,196 578 850 8,242 7,103 44,183 Doubtful and loss — — — — — — — — — Total commercial 459,605 208,380 85,949 58,822 37,368 60,719 1,021,713 59,487 1,992,043 Commercial - agriculture Risk rating: Pass 32,780 20,230 10,253 3,646 2,364 459 98,245 327 168,304 Special mention — — — — — — — — — Substandard 191 25 27 53 22 3 23 69 413 Doubtful and loss — — — — — — — — — Total commercial - agriculture 32,971 20,255 10,280 3,699 2,386 462 98,268 396 168,717 Other Delinquency: Current 24,247 4,740 1,236 22,438 6,692 5,578 264,189 — 329,120 30-89 days past due — — — — — — — — — 90+ days past due — — — — — 3 — — 3 Total other 24,247 4,740 1,236 22,438 6,692 5,581 264,189 — 329,123 Total $ 2,516,672 $ 1,525,310 $ 709,683 $ 656,367 $ 801,918 $ 1,081,384 $ 4,431,020 $ 290,149 $ 12,012,503 105 The following table presents a summary of loans by credit quality indicator, as of December 31, 2020 segregated by class of loans. Term Loans Amortized Cost Basis by Origination Year (In thousands) 2020 2019 2018 2017 2016 2015 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total Consumer - credit cards Delinquency: Current $ — $ — $ — $ — $ — $ — $ 187,881 $ — $ 187,881 30-89 days past due — — — — — — 708 — 708 90+ days past due — — — — — — 256 — 256 Total consumer - credit cards — — — — — — 188,845 — 188,845 Consumer - other Delinquency: Current 69,334 44,215 27,525 21,995 19,023 2,530 14,684 — $ 199,306 30-89 days past due 234 441 327 658 689 84 338 — 2,771 90+ days past due 79 58 25 80 40 12 8 — 302 Total consumer - other 69,647 44,714 27,877 22,733 19,752 2,626 15,030 — 202,379 Real estate - C&D Risk rating: Pass 165,990 35,989 31,279 15,960 9,233 4,807 1,272,870 23,251 $ 1,559,379 Special mention 2,728 344 259 2,107 19 — 9,613 — 15,070 Substandard 294 2,069 404 449 342 320 17,914 14 21,806 Doubtful and loss — — — — — — — — — Total real estate - C&D 169,012 38,402 31,942 18,516 9,594 5,127 1,300,397 23,265 1,596,255 Real estate - SF residential Delinquency: Current 473,340 209,810 297,308 235,429 183,229 236,395 196,505 10,592 $ 1,842,608 30-89 days past due 6,300 2,258 2,593 2,610 2,058 6,050 1,781 76 23,726 90+ days past due 557 1,853 2,735 2,582 832 3,852 1,928 — 14,339 Total real estate - SF residential 480,197 213,921 302,636 240,621 186,119 246,297 200,214 10,668 1,880,673 Real estate - other commercial Risk rating: Pass 1,563,245 525,750 375,303 518,534 372,679 284,098 1,445,428 181,949 5,266,986 Special mention 100,085 4,346 10,738 19,943 26,245 10,608 63,305 23,435 258,705 Substandard 66,737 9,418 24,380 14,067 3,744 11,158 52,182 39,486 221,172 Doubtful and loss — — — — — — — — — Total real estate - other commercial 1,730,067 539,514 410,421 552,544 402,668 305,864 1,560,915 244,870 5,746,863 Commercial Risk rating: Pass 1,168,085 154,740 110,383 65,757 35,198 45,568 803,751 56,648 2,440,130 Special mention 5,707 342 465 972 54 — 12,318 22,546 42,404 Substandard 23,227 4,495 1,586 730 276 334 53,682 7,522 91,852 Doubtful and loss — — — — — — — — — Total commercial 1,197,019 159,577 112,434 67,459 35,528 45,902 869,751 86,716 2,574,386 Commercial - agriculture Risk rating: Pass 36,128 19,144 10,014 4,671 1,916 340 101,238 1,560 175,011 Special mention — 79 13 299 — 6 34 — 431 Substandard 86 101 64 47 12 10 68 75 463 Doubtful and loss — — — — — — — — — Total commercial - agriculture 36,214 19,324 10,091 5,017 1,928 356 101,340 1,635 175,905 Other Delinquency: Current 125 4,260 27,256 6,489 2,628 6,065 488,676 — 535,499 30-89 days past due 59 — — — 33 — — — 92 90+ days past due — — — — — — — — — Total other 184 4,260 27,256 6,489 2,661 6,065 488,676 — 535,591 Total $ 3,682,340 $ 1,019,712 $ 922,657 $ 913,379 $ 658,250 $ 612,237 $ 4,725,168 $ 367,154 $ 12,900,897 106 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. 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 $ 47.1 million and $ 70.0 million as of December 31, 2021 and 2020, respectively, 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. 107 (In thousands) Real Estate Collateral Energy Other Collateral Total December 31, 2021 Construction and development $ 2,489 $ — $ — $ 2,489 Single family residential 1,838 — — 1,838 Other commercial real estate 32,849 — — 32,849 Commercial — — 9,913 9,913 Total $ 37,176 $ — $ 9,913 $ 47,089 December 31, 2020 Construction and development $ 1,539 $ — $ — $ 1,539 Single family residential 6,950 — — 6,950 Other commercial real estate — 40,703 5,741 46,444 Commercial 15,065 — — 15,065 Total $ 23,554 $ 40,703 $ 5,741 $ 69,998 The following table details activity in the allowance for credit losses by portfolio segment for the years ended December 31, 2021, 2020 and 2019. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. (In thousands) Commercial Real Estate Credit Card Other Consumer and Other Total December 31, 2021 Beginning balance, January 1, 2021 $ 42,093 $ 182,868 $ 7,472 $ 5,617 $ 238,050 Acquisition adjustment for PCD loans 3,349 10,101 — 1 13,451 Provision for credit loss expense ( 22,031 ) ( 7,918 ) ( 908 ) ( 352 ) ( 31,209 ) Charge-offs ( 10,613 ) ( 10,691 ) ( 3,625 ) ( 2,053 ) ( 26,982 ) Recoveries 4,660 4,910 1,048 1,404 12,022 Net charge-offs ( 5,953 ) ( 5,781 ) ( 2,577 ) ( 649 ) ( 14,960 ) Ending balance, December 31, 2021 $ 17,458 $ 179,270 $ 3,987 $ 4,617 $ 205,332 December 31, 2020 Beginning balance, January 1, 2020 - prior to adoption of CECL $ 22,863 $ 39,161 $ 4,051 $ 2,169 $ 68,244 Impact of CECL adoption 22,733 114,314 2,232 12,098 151,377 Provision for credit loss expense 42,017 42,276 4,288 ( 6,093 ) 82,488 Charge-offs ( 48,736 ) ( 13,788 ) ( 4,113 ) ( 4,022 ) ( 70,659 ) Recoveries 3,216 905 1,014 1,465 6,600 Net charge-offs ( 45,520 ) ( 12,883 ) ( 3,099 ) ( 2,557 ) ( 64,059 ) Ending balance, December 31, 2020 $ 42,093 $ 182,868 $ 7,472 $ 5,617 $ 238,050 December 31, 2019 Beginning balance, January 1, 2019 $ 20,514 $ 29,838 $ 3,923 $ 2,419 $ 56,694 Provision for credit loss expense 24,434 12,714 3,692 2,400 43,240 Charge-offs ( 23,352 ) ( 3,892 ) ( 4,585 ) ( 5,007 ) ( 36,836 ) Recoveries 1,267 501 1,021 2,357 5,146 Net charge-offs ( 22,085 ) ( 3,391 ) ( 3,564 ) ( 2,650 ) ( 31,690 ) Ending balance, December 31, 2019 $ 22,863 $ 39,161 $ 4,051 $ 2,169 $ 68,244 108 As of December 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. Provision expense was recaptured during the year based upon improved asset credit quality metrics combined with improved Moody’s economic modeling scenarios. The Company updated credit loss forecasts using multiple Moody’s economic scenarios published in December 2021. The baseline economic forecast was weighted 65 % by the Company, while the downside scenario of S-2 was weighted 17 % and the upside scenario of S-1 was weighted 18 %. The weighting of the forecasts is characterized by, among others, continual increase of CRE prices, increasing market rates and declining national unemployment rates. While forecasts in various sectors have improved as of December 31, 2021 when compared with the prior year, the Company continues to closely monitor the scenarios as the economy emerges from the pandemic. The primary driver for the provision for credit losses for the year ended December 31, 2020 was related to concern over the economic stresses related to COVID-19. Additionally, specific provisions were made for two energy credits that were previously identified as problem loans that were impacted by the sharp decline in commodity pricing. Four energy credits within the Commercial segment were charged off during 2020 for a total of $ 32.6 million. 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 was $ 22.4 million, as of December 31, 2021 and 2020 respectively. 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 2021 as it was considered sufficient to cover any loss expectations. Provision for Credit Losses Provision for credit losses is determined by the Company as the amount to be added to the allowance for credit loss accounts for various types of financial instruments including loans, securities and off-balance-sheet credit exposure after net charge-offs have been deducted to bring the allowance to a level which, in management's best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments. The components of provision for credit losses for the years ended December 31 were as follows: (In thousands) 2021 2020 2019 Provision for credit losses related to: Loans $ ( 31,209 ) $ 82,488 $ 43,240 Unfunded commitments — ( 10,000 ) — Securities - HTM ( 1,183 ) 2,546 — Securities - AFS ( 312 ) ( 61 ) — Total $ ( 32,704 ) $ 74,973 $ 43,240 Provision for credit losses in 2019 was calculated under the prior incurred loss accounting methodology. Furthermore, provision for credit losses related to unfunded commitments was previously reported as a component of other non-interest expense. Purchased Credit Deteriorated Loans Purchased loans that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. For PCD loans, the initial estimate of expected credit losses is recognized in the allowance for credit loss on the date of acquisition using the same methodology as discussed in the Allowance for Credit Losses section included above. 109 The following table provides a summary of loans purchased as part of the Landmark acquisition with credit deterioration at acquisition: (In thousands) Commercial Real Estate Credit Card Other Consumer and Other Total Unpaid principal balance 11,046 55,549 — 67 66,662 PCD allowance for credit loss at acquisition ( 350 ) ( 2,008 ) — ( 1 ) ( 2,359 ) Non-credit related discount ( 160 ) ( 2,415 ) — ( 2 ) ( 2,577 ) Fair value of PCD loans 10,536 51,126 — 64 61,726 The following table provides a summary of loans purchased as part of the Triumph acquisition with credit deterioration at acquisition: (In thousands) Commercial Real Estate Credit Card Other Consumer and Other Total Unpaid principal balance 40,466 80,803 — 15 121,284 PCD allowance for credit loss at acquisition ( 2,999 ) ( 8,093 ) — — ( 11,092 ) Non-credit related discount ( 279 ) ( 1,314 ) — ( 1 ) ( 1,594 ) Fair value of PCD loans 37,188 71,396 — 14 108,598 NOTE 6: RIGHT-OF-USE LEASE ASSETS AND LEASE LIABILITIES The Company accounts for its leases in accordance with ASC Topic 842, Leases , which requires recognition of most leases, including operating leases, with a term greater than 12 months on the balance sheet. At lease commencement, the lease contract is reviewed to determine whether the contract is a finance lease or an operating lease; a lease liability is recognized on a discounted basis, related to the Company’s obligation to make lease payments; and a right-of-use asset is also recognized related to the Company’s right to use, or control the use of, a specified asset for the lease term. The Company accounts for lease and non-lease components (such as taxes, insurance and common area maintenance costs) separately as such amounts are generally readily determinable under the lease contracts. Lease payments over the expected term are discounted using the Company’s FHLB advance rates for borrowings of similar term. If it is reasonably certain that a renewal or termination option will be exercised, the effects of such options are included in the determination of the expected lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company’s leases are classified as operating leases with a term, including expected renewal or termination options, greater than one year, and are related to certain office facilities and office equipment. The following table presents information related to the Company’s right-of-use lease assets, included in premises and equipment, and lease liabilities, included in other liabilities, at December 31, 2021 and 2020. (Dollars in thousands) 2021 2020 Right-of-use lease assets $ 48,855 $ 31,348 Lease liabilities $ 49,321 $ 31,433 Weighted average remaining lease term 7.96 years 6.55 years Weighted average discount rate 2.00 % 3.09 % Operating lease cost for the years ended December 31, 2021, 2020 and 2019 was $ 11,530,000 , $ 13,103,000 , and $ 13,560,000 , respectively. 110 The Company’s remaining undiscounted minimum lease payments on operating leases as of December 31, 2021 are as follows: Year (In thousands) 2022 $ 11,441 2023 8,850 2024 6,786 2025 5,483 2026 4,549 Thereafter 16,773 Total undiscounted minimum lease payments 53,882 Less: Net present value adjustment 4,561 Lease liability included in other liabilities $ 49,321 NOTE 7: PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. Total premises and equipment, net at December 31, 2021 and December 31, 2020 were as follows: (In thousands) 2021 2020 Right-of-use lease assets $ 48,855 $ 31,348 Premises and equipment: Land 101,728 90,953 Buildings and improvements 320,844 293,338 Furniture, fixtures and equipment 107,122 100,863 Software 66,947 64,877 Construction in progress 9,117 763 Accumulated depreciation and amortization ( 171,144 ) ( 140,450 ) Total premises and equipment, net $ 483,469 $ 441,692 NOTE 8: GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill is tested annually, or more often than annually, if circumstances warrant, for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. Goodwill totaled $ 1.15 billion at December 31, 2021 and $ 1.08 billion at December 31, 2020. During 2019, the Company recorded $ 131.3 million and $ 78.5 million of goodwill as a result of its acquisitions of Landrum and Reliance, respectively. Goodwill increased $ 19.8 million during 2020 due to the continued assessment of the fair value and assumed tax position of the Landrum acquisition that was finalized during the third quarter of 2020. The Company recorded $ 39.0 million and $ 31.7 million of goodwill related to its acquisitions of Triumph and Landmark during 2021, respectively. Goodwill impairment was neither indicated nor recorded in 2021, 2020 or 2019. During the first quarter of 2020, the Company’s share price began to decline as the markets in the United States responded to the global COVID-19 pandemic. As a result of that economic decline, the effect on share price and other factors, the Company performed an interim goodwill impairment assessment during each quarter of 2020 and concluded no impairment existed during each period. Due to the improved market and economic conditions during 2021, and the related effects on the Company’s share price, the Company did not perform any interim goodwill impairment assessments in addition to the annual impairment test. An interim goodwill impairment analysis will be performed by the Company if the stock price falls below the book value per share for a full quarter. During the second quarter of 2021, the Company performed an annual goodwill impairment analysis and concluded no impairment existed. While the goodwill impairment analysis indicated no impairment at December 31, 2021, the Company’s assessment depends on several assumptions which are dependent on market and economic conditions, and future changes in those conditions could impact the Company’s assessment in the future. 111 Core deposit premiums represent the value of the relationships that acquired banks had with their deposit customers and are amortized over periods ranging from 10 years to 15 years and are periodically evaluated, at least annually, as to the recoverability of their carrying value. Other intangible assets represent the value of other acquired relationships, including relationships with trust and wealth management customers, and are being amortized over various periods ranging from 10 years to 15 years. Changes in the carrying amount and accumulated amortization of the Company’s core deposit premiums and other intangible assets at December 31, 2021 and 2020 were as follows: (In thousands) 2021 2020 Core deposit premiums: Balance, beginning of year $ 97,363 $ 111,808 Acquisitions (1) 9,295 — Disposition of intangible asset (2) ( 674 ) ( 2,324 ) Amortization ( 12,122 ) ( 12,121 ) Balance, end of year 93,862 97,363 Books of business and other intangibles: Balance, beginning of year 13,747 15,532 Disposition of intangible asset — ( 413 ) Amortization ( 1,374 ) ( 1,372 ) Balance, end of year 12,373 13,747 Total other intangible assets, net $ 106,235 $ 111,110 _________________________ (1) Core deposit premiums of $ 5.1 million and $ 4.2 million were recorded during 2021 as part of the Triumph and Landmark acquisitions, respectively. See Note 2, Acquisitions, for additional information on acquisitions completed in 2021. (2) 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 December 31, 2021 and 2020 were as follows: (In thousands) 2021 2020 Core deposit premiums: Gross carrying amount $ 153,496 $ 146,355 Accumulated amortization ( 59,634 ) ( 48,992 ) Core deposit premiums, net 93,862 97,363 Books of business and other intangibles: Gross carrying amount 19,937 19,937 Accumulated amortization ( 7,564 ) ( 6,190 ) Books of business and other intangibles, net 12,373 13,747 Total other intangible assets, net $ 106,235 $ 111,110 Core deposit premium amortization expense recorded for the years ended December 31, 2021, 2020 and 2019 was $ 12.1 million, $ 12.1 million and $ 10.7 million, respectively. Amortization expense recorded for books of business and other intangibles was $ 1.4 million, $ 1.4 million, and $ 1.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. 112 The Company’s estimated remaining amortization expense on other intangible assets as of December 31, 2021 is as follows: Year (In thousands) 2022 $ 13,894 2023 13,612 2024 12,709 2025 10,125 2026 9,652 Thereafter 46,243 Total $ 106,235 NOTE 9: TIME DEPOSITS Time deposits included approximately $ 784.9 million and $ 889.8 million of certificates of deposit over $250,000 at December 31, 2021 and 2020, respectively. Brokered time deposits were $ 466.0 million and $ 512.3 million at December 31, 2021 and 2020, respectively. Maturities of all time deposits at December 31, 2021 are as follows: Year (In thousands) 2022 $ 1,998,105 2023 307,625 2024 97,887 2025 34,903 2026 13,352 Thereafter 588 Total $ 2,452,460 Deposits are the Company’s primary funding source for loans and investment securities. The mix and repricing alternatives can significantly affect the cost of this source of funds and, therefore, impact the interest margin. NOTE 10: INCOME TAXES The provision for income taxes for the years ended December 31 is comprised of the following components: (In thousands) 2021 2020 2019 Income taxes currently payable $ 50,369 $ 65,012 $ 29,354 Deferred income taxes 10,937 ( 122 ) 34,911 Provision for income taxes $ 61,306 $ 64,890 $ 64,265 113 The tax effects of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows as of December 31, 2021 and 2020: (In thousands) 2021 2020 Deferred tax assets: Loans acquired $ 4,832 $ 10,100 Allowance for credit losses 48,462 58,028 Valuation of foreclosed assets 628 1,673 Tax NOLs from acquisition 13,537 16,028 Deferred compensation payable 3,426 3,060 Accrued equity and other compensation 5,776 5,905 Acquired securities 223 587 Right-of-use lease liability 11,984 7,835 Unrealized loss on available-for-sale securities 8,164 — Allowance for unfunded commitments 5,442 5,583 Other 7,202 7,600 Gross deferred tax assets 109,676 116,399 Deferred tax liabilities: Goodwill and other intangible amortization ( 38,329 ) ( 38,882 ) Accumulated depreciation ( 26,347 ) ( 34,667 ) Right-of-use lease asset ( 11,871 ) ( 7,813 ) Unrealized gain on available-for-sale securities — ( 17,521 ) Unrealized gain on swaps ( 2,767 ) — Other ( 3,718 ) ( 4,021 ) Gross deferred tax liabilities ( 83,032 ) ( 102,904 ) Net deferred tax asset $ 26,644 $ 13,495 A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below for the years ended December 31: (In thousands) 2021 2020 2019 Computed at the statutory rate $ 69,807 $ 67,143 $ 63,442 Increase (decrease) in taxes resulting from: State income taxes, net of federal tax benefit 4,452 6,402 5,860 Discrete items related to share-based compensation ( 17 ) 375 ( 38 ) Tax exempt interest income ( 11,510 ) ( 6,726 ) ( 4,390 ) Tax exempt earnings on bank owned life insurance ( 1,212 ) ( 1,214 ) ( 852 ) Federal tax credits ( 2,260 ) ( 2,177 ) ( 939 ) Other differences, net 2,046 1,087 1,182 Actual tax provision $ 61,306 $ 64,890 $ 64,265 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 114 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 three tax-free reorganization transactions in which acquired net operating losses are limited pursuant to Section 382. In total, approximately $ 60.9 million of federal net operating losses subject to the IRC Section 382 annual limitation are expected to be utilized by the Company, of which $ 30.9 million is related to the Reliance acquisition that closed during 2019 and $ 1.9 million is related to the Landmark acquisition that closed during the fourth quarter of 2021. All of the acquired Reliance net operating losses are expected to be fully utilized by 2027, with the remaining acquired net operating loss carryforwards expected to be fully utilized by 2036. The Company files income tax returns in the U.S. federal jurisdiction. The Company’s U.S. federal income tax returns are open and subject to examinations from the 2018 tax year and forward. The Company’s various state income tax returns are generally open from the 2018 and later tax return years based on individual state statute of limitations. NOTE 11: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE The Company utilizes securities sold under agreements to repurchase to facilitate the needs of its customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. The Company monitors collateral levels on a continuous basis. The Company may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with the Company’s safekeeping agents. The gross amount of recognized liabilities for repurchase agreements was $ 170.4 million and $ 248.9 million at December 31, 2021 and 2020, respectively. The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of December 31, 2021 and 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 December 31, 2021 Repurchase agreements: U.S. Government agencies $ 170,403 $ — $ — $ — $ 170,403 December 31, 2020 Repurchase agreements: U.S. Government agencies $ 248,861 $ — $ — $ — $ 248,861 115 NOTE 12: OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES Debt at December 31, 2021 and 2020 consisted of the following components: (In thousands) 2021 2020 Other Borrowings FHLB advances, net of discount, due 2022 to 2035, 0.23 % to 7.37 %, secured by real estate loans $ 1,306,143 $ 1,308,674 Other long-term debt 31,830 33,393 Total other borrowings 1,337,973 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, net of discount, due 9/15/2037, floating rate of 1.37 % above the three month LIBOR rate, reset quarterly 10,310 10,310 Trust preferred securities, net of discount, due 6/6/2037, floating rate of 1.57 % above the three month LIBOR rate, reset quarterly, callable without penalty 10,310 10,310 Trust preferred securities, due 12/15/2035, floating rate of 1.45 % above the three month LIBOR rate, reset quarterly, callable without penalty 6,702 6,702 Trust preferred securities, net of discount, due 6/15/2037, floating rate of 1.85 % above the three month LIBOR rate, reset quarterly, callable without penalty 25,329 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 3,041 3,023 Unamortized debt issuance costs ( 1,561 ) ( 2,643 ) Total subordinated notes and debentures 384,131 382,874 Total other borrowings and subordinated debt $ 1,722,104 $ 1,724,941 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 London Interbank Offered Rate (“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 terms of the Company’s Notes and trust preferred securities utilize the three month LIBOR rate to determine the interest rate and expense due each quarter. The Company is currently reviewing all applicable documents and working with the debt holders and all relevant parties to determine the alternate interest rate index to be utilized, or other impacts, when the relevant LIBOR rate is discontinued. The Company had total FHLB advances of $ 1.31 billion at December 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 the end of the year have original maturity dates of ten years to fifteen years with lockout periods that have expired. During the fourth quarter of 2020, the Company reclassified the FOTO advances as long-term advances due to the current low interest rate environment and the expectation that FHLB will not exercise the option to terminate the FOTO advances prior to its stated maturity date. The possibility of the FHLB exercising the options is continually analyzed by the Company along with the market expected rate outcome. At December 31, 2021, the FHLB advances outstanding were secured by mortgage loans and investment securities totaling approximately $ 4.3 billion and the Company had approximately $ 2.9 billion of 116 additional advances available from the FHLB. At December 31, 2021, the Company had $ 98,000 of FHLB advances outstanding with original or expected maturities of one year or less. The trust preferred securities are tax-advantaged issues that qualify for inclusion as Tier 2 capital at December 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 December 31, 2021, are as follows: Year (In thousands) 2022 $ 1,833 2023 1,789 2024 2,425 2025 4,956 2026 1,881 Thereafter 1,709,220 Total $ 1,722,104 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 $ 80.0 million. On October 29, 2019, the Company filed 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. On November 30, 2021, the Company redeemed all of the Series D Preferred Stock, including accrued and unpaid dividends. On March 31, 2021, the Company filed a shelf registration with the SEC. The shelf registration statement provides increased flexibility and more efficient access to raise capital from time to time through the sale of common stock, preferred stock, debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, units or a combination thereof, subject to market conditions. Specific terms and prices are determined at the time of any offering under a separate prospectus supplement that the Company is required to file with the SEC at the time of the specific offering. On April 19, 2018, shareholders of the Company approved an increase in the number of authorized shares from 120,000,000 to 175,000,000 . On July 23, 2012, the Company approved a stock repurchase program which authorized the repurchase of up to 1,700,000 shares of common stock. On October 22, 2019, the Company announced a new stock repurchase program (“2019 Program”) that replaced the stock repurchase program approved on July 23, 2012, under which the Company may repurchase up to $ 60.0 million of its Class A Common Stock currently issued and outstanding. On March 5, 2020, the Company announced an amendment to the 2019 Program that increased the maximum amount that may be repurchased under the 2019 Program from $ 60.0 million to $ 180.0 million. Effective July 23, 2021, the Company approved a second amendment that increased the maximum amount that may be repurchased under the 2019 Program to $ 276.5 million. 117 During 2021, the Company repurchased 4,562,469 shares at an average price of $ 29.03 per share under the 2019 Program. Market conditions and the Company’s capital needs will drive decisions regarding additional, future stock repurchases. The Company repurchased 5,956,700 shares at an average price of $ 19.03 per share during 2020. During January 2022, the Company substantially exhausted the remaining capacity under the 2019 Program and authorized a new stock repurchase program (the “2022 Program”) under which the Company may repurchase up to $ 175.0 million of its Class A common stock currently issued and outstanding. Under the 2022 Program, which replaced the 2019 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 2022 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 2022 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 2022 Program to come from available sources of liquidity, including cash on hand and future cash flow. NOTE 14: TRANSACTIONS WITH RELATED PARTIES At December 31, 2021 and 2020, Simmons Bank had extensions of credit to executive officers and directors and to companies in which Simmons Bank’s executive officers or directors were principal owners in the amount of $ 6.2 million at December 31, 2021 and $ 6.5 million at December 31, 2020. (In thousands) 2021 2020 Balance, beginning of year $ 6,536 $ 20,138 New extensions of credit 1,487 4,022 Repayments ( 1,807 ) ( 17,624 ) Balance, end of year $ 6,216 $ 6,536 In management’s opinion, such loans and other extensions of credit, deposits and vendor contracts (which were not material) were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with unrelated persons or through a competitive bid process. Further, in management’s opinion, these extensions of credit did not involve more than the normal risk of collectability or present other unfavorable features. 118 NOTE 15: EMPLOYEE BENEFIT PLANS Retirement Plans The Company offers a qualified 401(k) Plan in which the Company makes matching contributions to encourage employees to save money for their retirement. The 401(k) Plan covers substantially all employees. Under the terms of the 401(k) Plan, employees may defer a portion of their eligible pay, up to the maximum allowed by I.R.S. regulation, and the Company matches 100 % of the first 3 % of compensation and 50 % of the next 2 % of compensation for a total match of 4 % of eligible pay for each participant who defers 5 % or more of his or her eligible pay. Additionally, the Company may make profit-sharing contributions to the 401(k) Plan which are allocated among participants based upon 401(k) Plan compensation without regard to participant contributions. Contribution expense to the plan totaled $ 13.9 million, $ 10.3 million and $ 13.0 million in 2021, 2020 and 2019, respectively. The Company also provides deferred compensation agreements with certain active and retired officers. The agreements provide monthly payments of retirement compensation for either stated periods or for the life of the participant. The charges to income for the plans were $ 2.7 million for 2021, $ 2.7 million for 2020 and $ 2.3 million for 2019. Such charges reflect the straight-line accrual over the employment period of the present value of benefits due each participant, as of their full eligibility date, using an appropriate discount factor. Employee Stock Purchase Plan The Company established an Employee Stock Purchase Plan in 2015 which generally allows participants to make contributions of up to $ 25,000 per year, for the purpose of acquiring the Company’s common stock. At the end of each plan year, full shares of the Company’s stock are purchased for each employee based on that employee’s contributions. The Company has issued both general and special stock offerings under the plan. Substantially all employees are eligible for the general stock offering, under which full shares of the Company’s stock are purchased for an amount equal to 95 % of their fair market value at the end of the plan year, or, if lower, 95 % of their fair market value at the beginning of the plan year. The special stock offering is available to substantially all non-highly compensated employees with at least six months of service, and these employees may allocate up to $ 10,000 to this offering. Under the special stock offering, full shares of the Company’s stock are purchased for an amount equal to 85 % of their fair market value at the end of the plan year, or, if lower, 85 % of their fair market value at the beginning of the plan year. Stock-Based Compensation Plans The Company’s Board of Directors has adopted various stock-based compensation plans. The plans provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and performance stock units. Pursuant to the plans, shares are reserved for future issuance by the Company upon exercise of stock options or awards of restricted stock, restricted stock units, or performance stock units granted to directors, officers and other key employees. Stock-based compensation expense for all stock-based compensation awards is based on the grant date fair value. For all awards except stock option awards, the grant date fair value is the market value per share as of the grant date. For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company’s employee stock options. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses various assumptions. Expected volatility is based on historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Forfeitures are estimated at the time of grant, and are based partially on historical experience. 119 The table below summarizes the transactions under the Company’s active stock compensation plans at December 31, 2021, 2020 and 2019, and changes during the years then ended: Stock Options Outstanding Non-vested Stock Awards Outstanding Non-vested Stock Units Outstanding (Shares in thousands) Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Grant-Date Fair Value Number of Shares Weighted Average Grant-Date Fair Value Balance, December 31, 2018 695 $ 22.42 72 $ 21.45 817 $ 27.65 Granted — — — — 842 26.05 Stock options exercised ( 3 ) 12.79 — — — — Stock awards/units vested (earned) — — ( 49 ) 20.72 ( 405 ) 26.75 Forfeited/expired — — ( 2 ) 21.82 ( 102 ) 28.10 Balance, December 31, 2019 692 22.46 21 23.19 1,152 26.79 Granted — — — — 568 21.69 Stock options exercised ( 1 ) 10.71 — — — — Stock awards/units vested (earned) — — ( 16 ) 23.41 ( 550 ) 25.90 Forfeited/expired ( 33 ) 22.49 — — ( 138 ) 26.12 Balance, December 31, 2020 658 22.48 5 22.35 1,032 24.53 Granted — — — — 599 29.20 Stock options exercised ( 185 ) 22.42 — — — — Stock awards/units vested (earned) — — ( 3 ) 22.48 ( 433 ) 25.61 Forfeited/expired — — — — ( 87 ) 25.86 Balance, December 31, 2021 473 $ 22.50 2 $ 22.20 1,111 $ 26.49 Exercisable, December 31, 2021 473 $ 22.50 The following table summarizes information about stock options under the plans outstanding at December 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 $ 10.65 — $ 10.65 3 1.08 $ 10.65 3 $ 10.65 20.29 — 20.29 47 3.00 20.29 47 20.29 20.36 — 20.36 1 2.88 20.36 1 20.36 22.20 — 22.20 51 3.23 22.20 51 22.20 22.75 — 22.75 293 3.61 22.75 293 22.75 23.51 — 23.51 71 4.05 23.51 71 23.51 24.07 — 24.07 7 3.71 24.07 7 24.07 $ 10.65 — $ 24.07 473 3.56 $ 22.50 473 $ 22.50 120 The table below summarizes the Company’s performance stock unit activity for the years ended December 31, 2021, 2020 and 2019: (In thousands) Performance Stock Units Non-vested, December 31, 2018 177 Granted 118 Vested (earned) ( 93 ) Forfeited ( 3 ) Non-vested, December 31, 2019 199 Granted 122 Vested (earned) ( 81 ) Forfeited ( 18 ) Non-vested, December 31, 2020 222 Granted 97 Vested (earned) ( 57 ) Forfeited ( 5 ) Non-vested, December 31, 2021 257 Stock-based compensation expense was $ 15.9 million in 2021, $ 13.2 million in 2020 and $ 12.9 million in 2019. Stock-based compensation expense is recognized ratably over the requisite service period for all stock-based awards. There was no unrecognized stock-based compensation expense related to stock options at December 31, 2021. Unrecognized stock-based compensation expense related to non-vested stock awards and stock units was $ 16.1 million at December 31, 2021. At such date, the weighted-average period over which this unrecognized expense is expected to be recognized was 1.7 years. The intrinsic value of stock options outstanding and stock options exercisable at December 31, 2021 was $ 3.3 million. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $ 29.58 at December 31, 2021, and the exercise price multiplied by the number of options outstanding. There were 184,888 stock options exercised in 2021 with an intrinsic value of $ 1.3 million. There were 900 stock options exercised in 2020 with an intrinsic value of $ 10,000 . There were 3,050 stock options exercised in 2019 with an intrinsic value of $ 43,000 . The fair value of the Company’s employee stock options granted is estimated on the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. There were no stock options granted during the years ended December 31, 2021, 2020 and 2019. 121 NOTE 16: ADDITIONAL CASH FLOW INFORMATION The following is a summary of the Company’s additional cash flow information during the years ended December 31: (In thousands) 2021 2020 2019 Interest paid $ 82,914 $ 123,995 $ 182,541 Income taxes paid 55,202 47,777 51,999 Transfers of loans to foreclosed assets held for sale 4,322 10,712 4,760 Transfers of premises to foreclosed assets and other real estate owned — 3,120 647 Transfers of premises to premises held for sale — 11,200 — Transfers of other real estate owned to premises held for sale — 4,163 — Transfer of premises held for sale to other real estate owned 4,368 — — Transfer of premises held for sale to premises 5,610 — — Right-of-use lease assets obtained in exchange for lessee operating lease liabilities (adoption of ASU 2016-02) — — 32,757 Transfers of available-for-sale to held-to-maturity securities 500,809 — — Transfers of held-to-maturity to available-for-sale securities — — 216,373 Transfers of loans to other assets held for sale — 114,925 259,939 Transfers of deposits to other liabilities held for sale — 213,025 159,853 NOTE 17: OTHER INCOME AND OTHER OPERATING EXPENSES Other income for the year ended December 31, 2021 was $ 35.3 million and included the gain on sale related to the Illinois Branch Sale of $ 5.3 million. Other income for the year ended December 31, 2020 was $ 39.9 million, which included the gain on sales related to the Texas Branch Sale and Colorado Branch Sale of $ 8.1 million, and other income for the year ended December 31, 2019 was $ 64.7 million, that primarily consisted of the gain on sale of Visa Inc. class B common stock of $ 42.9 million. Other operating expenses consisted of the following during the years ended December 31: (In thousands) 2021 2020 2019 Professional services $ 18,921 $ 18,688 $ 16,897 Postage 8,276 7,538 6,363 Telephone 6,234 8,833 7,685 Credit card expense 11,112 10,199 9,011 Marketing 22,234 19,396 16,499 Software and technology 40,608 39,724 25,146 Operating supplies 2,766 3,322 2,322 Amortization of intangibles 13,494 13,495 11,805 Branch right sizing expense ( 537 ) 14,097 3,129 Other expense 30,454 29,909 32,843 Total other operating expenses $ 153,562 $ 165,201 $ 131,700 122 NOTE 18: FAIR VALUE MEASUREMENTS ASC Topic 820, Fair Value Measurements defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a fair value hierarchy that requires the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Topic 820 describes three levels of inputs that may be used to measure fair value: • Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities. • Level 2 Inputs – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 Inputs – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. Available-for-sale securities – Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and certain other financial products. 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 (AT-C 320), which is made available for the Company’s review. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company’s investment in U.S. Treasury securities, if any, is reported at fair value utilizing Level 1 inputs. The remainder of the Company’s available-for-sale securities are reported at fair value utilizing Level 2 inputs. Mortgage loans held for sale – Mortgage loans held for sale are reported at fair value on an aggregate basis. Adjustments to fair value are recognized monthly and reflected in earnings. In determining the fair value of loans held for sale, the Company may consider outstanding investor commitments, discounted cash flow analyses with market assumptions or the fair value of the collateral if the loan is collateral dependent. Such loans are classified within either Level 2 or Level 3 of the fair value hierarchy. Where assumptions are made using significant unobservable inputs, such loans held for sale are classified as Level 3. At December 31, 2021 and 2020, the aggregate fair value of mortgage loans held for sale exceeded their cost. 123 Derivative instruments – The Company’s derivative instruments are reported at fair value utilizing Level 2 inputs. The Company obtains fair value measurements from dealer quotes. Other assets and other liabilities held for sale – The Company’s other assets and other liabilities held for sale are reported at fair value utilizing Level 3 inputs. See Note 4, Other Assets and Other Liabilities Held for Sale. The following table sets forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a recurring basis as of December 31, 2021 and 2020. Fair Value Measurements (In thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2021 Available-for-sale securities U.S. Treasury $ 300 $ 300 $ — $ — U.S. Government agencies 364,641 — 364,641 — Mortgage-backed securities 4,448,616 — 4,448,616 — State and political subdivisions 1,819,658 — 1,819,658 — Other securities 480,330 — 480,330 — Mortgage loans held for sale 36,356 — — 36,356 Derivative asset 25,852 — 25,852 — Derivative liability ( 15,443 ) — ( 15,443 ) — December 31, 2020 Available-for-sale securities U.S. Government agencies 477,237 — 477,237 — Mortgage-backed securities 1,394,936 — 1,394,936 — State and political subdivisions 1,470,723 — 1,470,723 — Other securities 130,702 — 130,702 — Mortgage loans held for sale 137,378 — — 137,378 Derivative asset 35,846 — 35,846 — Other liabilities held for sale ( 154,620 ) — — ( 154,620 ) Derivative liability ( 36,141 ) — ( 36,141 ) — 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 due to the unobservable inputs used in determining their fair value such as collateral values and the borrower’s underlying financial condition. Collateral values supporting the individually assessed loans are evaluated quarterly for updates to appraised values or adjustments due to non-current valuations. 124 Foreclosed assets and other real estate owned – Foreclosed assets and other real estate owned are reported at fair value, less estimated costs to sell. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for credit losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is recognized by a charge to income. The fair value of foreclosed assets and other real estate owned is estimated using Level 3 inputs based on unobservable market data. The significant unobservable inputs (Level 3) used in the fair value measurement of collateral for collateral-dependent loans and foreclosed assets primarily relate to the specialized discounting criteria applied to the borrower’s reported amount of collateral. The amount of the collateral discount depends upon the condition and marketability of the collateral, as well as other factors which may affect the collectability of the loan. Management’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset. It is reasonably possible that a change in the estimated fair value for instruments measured using Level 3 inputs could occur in the future. As the Company’s primary objective in the event of default would be to liquidate the collateral to settle the outstanding balance of the loan, collateral that is less marketable would receive a larger discount. The following table sets forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a nonrecurring basis as of December 31, 2021 and 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) December 31, 2021 Individually assessed loans (1) (2) (collateral-dependent) $ 47,089 $ — $ — $ 47,089 Foreclosed assets and other real estate owned (1) 4,875 — — 4,875 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 $ 4,214,000 and $ 13,725,000 were related to collateral-dependent loans for which fair value re-measurements took place during the years ended December 31, 2021 and 2020, respectively. ASC Topic 825, Financial Instruments , requires disclosure in annual and interim financial statements of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis. The following methods and assumptions were used to estimate the fair value of each class of financial instruments not previously disclosed. Cash and cash equivalents – The carrying amount for cash and cash equivalents approximates fair value (Level 1). Interest bearing balances due from banks – The fair value of interest bearing balances due from banks – time is estimated using a discounted cash flow calculation that applies the rates currently offered on deposits of similar remaining maturities (Level 2). Held-to-maturity securities – Fair values for held-to-maturity securities equal quoted market prices, if available, such as for highly liquid government bonds (Level 1). If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things (Level 2). In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. 125 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. 126 The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows: Carrying Fair Value Measurements (In thousands) Amount Level 1 Level 2 Level 3 Total December 31, 2021 Financial assets: Cash and cash equivalents $ 1,650,653 $ 1,650,653 $ — $ — $ 1,650,653 Interest bearing balances due from banks - time 1,882 — 1,882 — 1,882 Held-to-maturity securities, net 1,529,221 — 1,517,378 — 1,517,378 Interest receivable 72,990 — 72,990 — 72,990 Loans, net 11,807,171 — — 11,922,735 11,922,735 Financial liabilities: Non-interest bearing transaction accounts 5,325,318 — 5,325,318 — 5,325,318 Interest bearing transaction accounts and savings deposits 11,588,770 — 11,588,770 — 11,588,770 Time deposits 2,452,460 — — 2,451,055 2,451,055 Federal funds purchased and securities sold under agreements to repurchase 185,403 — 185,403 — 185,403 Other borrowings 1,337,973 — 1,393,711 — 1,393,711 Subordinated notes and debentures 384,131 — 394,464 — 394,464 Interest payable 6,759 — 6,759 — 6,759 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, net 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 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. 127 NOTE 19: COMMITMENTS AND CREDIT RISK The Company grants agri-business, 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 December 31, 2021, the Company had outstanding commitments to extend credit aggregating approximately $ 685.3 million and $ 3.41 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 $ 2.36 billion for credit card commitments and other loan commitments, respectively. As of December 31, 2021 and 2020, the Company had outstanding commitments to originate fixed-rate mortgage loans of approximately $ 108.5 million and $ 214.0 million respectively. The commitments extend over varying periods of time with the majority being disbursed within a thirty-day period. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company had total outstanding letters of credit amounting to $ 37.7 million and $ 49.0 million at December 31, 2021 and 2020, respectively, with terms ranging from 9 months to 15 years. At December 31, 2021 and 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 $ 59.1 million and $ 1.55 billion at December 31, 2021 and 2020, respectively, and they expire in less than one year from issuance. At December 31, 2021, the Company did not have concentrations of 5% or more of the investment portfolio in bonds issued by a single municipality. 128 NOTE 20: NEW ACCOUNTING STANDARDS Recently Adopted Accounting Standards Reference Rate Reform – In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides relief for companies preparing for discontinuation of interest rates such as LIBOR. LIBOR is a benchmark interest rate referenced in a variety of agreements that are used by numerous entities. On March 5, 2021, the U.K. Financial Conduct Authority (“FCA”) announced that the majority of LIBOR rates will no longer be published after December 31, 2021, although a number of key settings will continue until June 2023, to support the rundown of legacy contracts only. As a result, LIBOR should be discontinued as a reference rate. Other interest rates used globally could also be discontinued for similar reasons. ASU 2020-04 provides optional expedients and exceptions to contracts, hedging relationships and other transactions affected by reference rate reform. The main provisions for contract modifications include optional relief by allowing the modification as a continuation of the existing contract without additional analysis and other optional expedients regarding embedded features. Optional expedients for hedge accounting permits changes to critical terms of hedging relationships and to the designated benchmark interest rate in a fair value hedge and also provides relief for assessing hedge effectiveness for cash flow hedges. Companies are able to apply ASU 2020-04 immediately; however, the guidance will only be available for a limited time (generally through December 31, 2022). The Company formed a LIBOR Transition Team in 2020, has created standard LIBOR replacement language for new and modified loan notes, and is monitoring the remaining loans with LIBOR rates monthly to ensure progress in updating these loans with acceptable LIBOR replacement language or converting them to other interest rates. The Company has not been offering LIBOR-indexed rates originated by other banks, subject to the Company’s determination that the LIBOR replacement language in the loan documents meets the Company’s standards. Pursuant to the Interagency Statement on LIBOR Transition issued in November 2020, the Company will not enter into any new LIBOR-based credit agreements after December 31, 2021. The adoption of ASU 2020-04 has not had a material impact on the Company’s financial position or results of operations. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the 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 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 129 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. The adoption of ASU 2018-13 did not have a material impact on the Company’s fair value disclosures. Credit Losses on Financial Instruments – In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires earlier measurement of credit losses, expands the range of information considered in determining expected credit losses and enhances disclosures. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments replace the incurred loss impairment methodology in current US GAAP with a methodology (the current expected credit losses, or “CECL”, methodology) that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and other receivables measured at amortized cost at the time the financial asset is originated or acquired. The allowance for credit losses is adjusted each period for changes in expected lifetime credit losses. This methodology replaces the multiple existing impairment methods in current guidance, which generally require that a loss be incurred before it is recognized. Within the life cycle of a loan or other financial asset, this new guidance will generally result in the earlier recognition of the provision for credit losses and the related allowance for credit losses than current practice. For available-for-sale debt securities that the Company intends to hold and where fair value is less than cost, credit-related impairment, if any, will be recognized through an allowance for credit losses and adjusted each period for changes in credit risk. The effective date for these amendments is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In preparation for implementation of ASU 2016-13, the Company formed a cross functional team that assessed its data and system needs and evaluated the potential impact of adopting the new guidance. The Company anticipated a significant change in the processes and procedures to calculate the loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the prior accounting practice that utilized the incurred loss model. On March 27, 2020, the CARES Act was signed in to law by the President of the United States and allowed the option to temporarily defer or suspend the adoption of ASU 2016-13. During the deferral, a registrant would continue to use the incurred loss model for the allowance for loan and lease losses and would be in accordance with US GAAP. The Company has not elected to temporarily defer the adoption of ASU 2016-13 and adopted the new standard as of January 1, 2020. Upon adoption, the Company recorded an additional allowance for credit losses on loans of approximately $ 151.4 million and an adjustment to the reserve for unfunded commitments recorded in other liabilities of $ 24.0 million. The Company also recorded an additional allowance for credit losses on investment securities of $ 742,000 . The impact at adoption was reflected as an adjustment to beginning retained earnings, net of income taxes, in the amount of $ 128.1 million. The significant impact to the Company’s allowance for credit losses at the date of adoption was driven by the substantial amount of loans acquired held by the Company. The Company had approximately one third of total loans categorized as acquired at the adoption date with very little reserve allocated to them due to the previous incurred loss impairment methodology. As such, the amount of the CECL adoption impact was greater on the Company when compared to a non-acquisitive bank. In December 2018, the Federal Reserve, Office of the Comptroller of the Currency and FDIC (collectively, the “agencies”) issued a final rule revising regulatory capital rules in anticipation of the adoption of ASU 2016-13 that provided an option to phase in over a three year period on a straight line basis the day-one impact on earnings and Tier 1 capital (the “CECL Transition Provision”). In March 2020 and in response to the COVID-19 pandemic, the agencies issued a new regulatory capital rule revising the CECL Transition Provision to delay the estimated impact on regulatory capital stemming from the implementation of ASU 2016-13. The rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, followed by a three-year transition period (the “2020 CECL Transition Provision”). The Company elected to apply the 2020 CECL Transition Provision. 130 Derivatives and Hedging: Targeted Improvements - In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), that changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in order to better align a company’s risk management activities and financial reporting for hedging relationships. In summary, this amendment 1) expands the types of transactions eligible for hedge accounting; 2) eliminates the separate measurement and presentation of hedge ineffectiveness; 3) simplifies the requirements around the assessment of hedge effectiveness; 4) provides companies more time to finalize hedge documentation; and 5) enhances presentation and disclosure requirements. The effective date was for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. All transition requirements and elections should be applied to existing hedging relationships on the date of adoption and the effects should be reflected as of the beginning of the fiscal year of adoption. As part of this new guidance, entities are allowed to designate as the hedged item, an amount that is not expected to be affected by prepayments, defaults or other events affecting the timing and amount of cash flows in a closed portfolio of prepayable financial instruments (this is referred to as the “last-of-layer” method). Under the last-of-layer method, entities are able to reclassify, only at the time of adoption, eligible callable debt securities from held-to-maturity to available-for-sale without tainting its intentions to hold future debt securities to maturity. The available-for-sale security must be reported at fair value and any unrealized gain or loss must be recorded as an adjustment to other comprehensive income upon adoption. The Company evaluated its held-to-maturity portfolio during the first quarter 2019 and identified certain municipal bonds with a fair value of $ 216.4 million that met the last-of-layer criteria under ASU 2017-12 and as a result, reclassified those to available-for-sale and recorded an unrealized gain of $ 2.5 million in accumulated other comprehensive income during the first quarter of 2019. Leases - In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), that establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. The new guidance results in a more consistent representation of the rights and obligations arising from leases by requiring lessees to recognize the lease asset and lease liabilities that arise from leases in the consolidated balance sheet and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. The effective date was for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 requires entities to adopt the new lease standard using a modified retrospective transition method, meaning an entity initially applies the new lease standard at the beginning of the earliest period presented in the financial statements. Due to complexities associated with using this method, in July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements , to relieve entities of the requirement to present prior comparative years’ results when they adopt the new lease standard and giving entities the option to recognize the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings. Adoption of ASU 2016-02 resulted in the recognition of right-of-use assets of $ 32.8 million and right-of-use liabilities of $ 32.8 million on the consolidated balance sheet with no material impact to the results of operations. The Company has elected to adopt the guidance using the optional transition method, which allows for a modified retrospective method of adoption with a cumulative effect adjustment to retained earnings without restating comparable periods. The Company also elected the relief package of practical expedients for which there is no requirement to reassess existence of leases, their classification, and initial direct costs as well as an exemption for short-term leases with a term of less than one year, whereby the Company did not recognize a lease liability or right-of-use asset on the consolidated balance sheet but instead will recognize lease payments as an expense over the lease term as appropriate. See Note 6, Right-of-Use Lease Assets and Lease Liabilities, for additional information related to the Company’s right-of-use lease obligations. 131 Recently Issued Accounting Standards Leases - In July 2021, the FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors-Certain Leases with Variable Lease Payments (“ASU 2021-05”), that amends lease classification requirements for lessors. In accordance with ASU 2021-05, lessors should classify and account for a lease that have variable lease payments that do not depend on a reference index rate as an operating lease if both of the following criteria are met: i) the lease would have been classified as a sales-type lease or a direct financing lease under the previous lease classification criteria and ii) sales-type or direct financing lease classification would result in a Day 1 loss. ASU 2021-05 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company has evaluated the impact this standard will have on its results of operations, financial position or disclosures, and it is not expected to have a material impact. Presently, the Company is not aware of any other changes to the Accounting Standards Codification that will have a material impact on the Company’s present or future financial position or results of operations. NOTE 21: DERIVATIVE INSTRUMENTS The Company utilizes derivative instruments to manage exposure to various types of interest rate risk for itself and its customers within policy guidelines. Transactions should only be entered into with an associated underlying exposure. All derivative instruments are carried at fair value. Derivative contracts involve the risk of dealing with institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have an investment grade credit rating and be approved by the Company’s asset/liability management committee. In arranging these products for its customers, the Company assumes additional credit risk from the customer and from the dealer counterparty with whom the transaction is undertaken. Credit risk exists due to the default credit risk created in the exchange of the payments over a period of time. Credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps with each counterparty. Access to collateral in the event of default is reasonably assured. Therefore, credit exposure may be reduced by the amount of collateral pledged by the counterparty. Hedge Structures The Company will seek to enter derivative structures that most effectively address the risk exposure and structural terms of the underlying position being hedged. The term and notional principal amount of a hedge transaction will not exceed the term or principal amount of the underlying exposure. In addition, the Company will use hedge indices which are the same as, or highly correlated to, the index or rate on the underlying exposure. Derivative credit exposure is monitored on an ongoing basis for each customer transaction and aggregate exposure to each counterparty is tracked. The Company has set a maximum outstanding notional contract amount at 10 % of the Company’s assets. Fair Value Hedges For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. During the third quarter of 2021, the Company began utilizing interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate callable AFS securities. The hedging strategy converts the fixed interest rates to variable interest rates based on federal funds rates. The following table summarizes the fair value hedges recorded in the accompanying consolidated balance sheets. December 31, 2021 December 31, 2020 (In thousands) Balance Sheet Location Weighted Average Pay Rate Receive Rate Notional Fair Value Notional Fair Value Derivative assets Other assets 1.21 % Federal Funds $ 1,001,715 $ 10,524 $ — $ — 132 The following amounts were recorded on the balance sheet related to carrying amounts and cumulative basis adjustments for fair value hedges. Carrying Amount of Hedged Assets Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Assets Line Item on the Balance Sheet (In thousands) 2021 2020 2021 2020 Investment securities - Available-for-sale $ 1,063,173 $ — $ 10,524 $ — 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 for the years ended December 31, 2021 and 2020. 2021 2020 (In thousands) Notional Fair Value Notional Fair Value Derivative assets $ 318,428 $ 15,328 $ 408,881 $ 35,846 Derivative liabilities 321,985 15,443 417,941 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 $ 37.8 million as of December 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 December 31, 2021 for energy hedging Customer Sell to Company swaps were $ 12.1 million and the corresponding Company Sell to Dealer swaps were $ 12.1 million and the corresponding net fair value of the derivative asset and derivative liability was $ 199,000 . The outstanding notional value as of December 31, 2020 for energy hedging Customer Sell to Company swaps were $ 14.8 million and the corresponding Company Sell to Dealer swaps were $ 14.8 million and the corresponding net fair value of the derivative asset and derivative liability was $ 536,000 . 133 NOTE 22: CONTINGENT LIABILITIES In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings incidental to the conduct of our business, including proceedings based on breach of contract claims, lender liability claims, and other ordinary-course claims, some of which seek substantial relief or damages. On May 22, 2019, Danny Walkingstick and Whitnye Fort filed a putative class action complaint against Simmons Bank in the United States District Court for the Western District of Missouri. The operative complaint alleges that Simmons Bank improperly charges overdraft fees on transactions that did not actually overdraw customers’ accounts by utilizing the checking account’s “available balance” to assess overdraft fees instead of the “ledger balance.” Plaintiffs’ claims include breach of contract and unjust enrichment, and they seek to represent a proposed class of all Simmons Bank checking account customers who were assessed an overdraft fee on a transaction that purportedly did not overdraw the account. Plaintiffs seek unspecified damages, costs, attorneys’ fees, pre- and post-judgment interest, and other relief as the Court deems proper for themselves and the putative class. Simmons Bank denies the allegations 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 in the Circuit Court of Boone County, Missouri against Landmark Bank, formerly a wholly-owned subsidiary of The Landrum Company, to which Simmons Bank is a successor by merger in connection with the Company’s acquisition of The Landrum Company, which closed in October 2019. 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 but has reached a settlement in principle with the plaintiff 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 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. On May 13, 2021, Susanne Pace filed a second putative class action complaint in the circuit court of Boone County, Missouri against Landmark Bank, to which Simmons Bank is a successor by merger, which was removed to the United States District Court for the Western District of Missouri, Central Division. The complaint alleged that Landmark Bank improperly charged multiple insufficient funds or overdraft fees when a merchant or other originator resubmits a rejected payment request. The complaint asserted claims for breach of contract, including breach of the covenant of good faith and fair dealing. Plaintiff sought to represent a proposed class of all Landmark Bank checking account customers who were charged multiple insufficient funds or overdraft fees on resubmitted payment requests. Plaintiff sought unspecified damages, costs, attorney’s fees, pre- and post-judgment interest, an injunction, and other relief as the Court deems proper for herself and the purported class. Simmons Bank denies the allegations, and on January 11, 2022, the Court granted Simmons Bank’s motion to compel arbitration. 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. 134 NOTE 23: STOCKHOLDERS’ EQUITY Simmons Bank, the Company’s subsidiary bank, is subject to legal limitations on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. The approval of the Commissioner of the Arkansas State Bank Department is required if the total of all dividends declared by an Arkansas state bank in any calendar year exceeds seventy-five percent (75%) of the total of its net profits, as defined, for that year combined with seventy-five percent (75%) of its retained net profits of the preceding year. Under the foregoing dividend restrictions, and while maintaining its “well capitalized” status, at December 31, 2021, Simmons Bank had paid to the Company all available dividends. While past dividends are not necessarily indicative of amounts that may be paid, or available to be paid in future periods, net profits of Simmons Bank and cash balances at the Company are projected to be sufficient to pay quarterly dividends on the Company’s common stock at current levels and interest and principal on the Company’s debt as well as meet other liquidity needs. The Company’s bank subsidiary is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its bank subsidiary must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The risk-based capital guidelines of the Federal Reserve Board 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. CET1 generally consists of common stock; retained earnings; accumulated other comprehensive income and certain minority interests; all subject to applicable regulatory adjustments and deductions. The Company and Simmons Bank, must hold a capital conservation buffer 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. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). As of December 31, 2021, the Company and its subsidiary bank met all capital adequacy requirements under the Basel III Capital Rules and exceeded the fully phased in capital conservation buffer. As of the most recent notification from regulatory agencies, the subsidiary bank was well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed these categories. 135 The Company’s and the subsidiary bank’ actual capital amounts and ratios are presented in the following table. Actual Minimum For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provision (In thousands) Amount Ratio (%) Amount Ratio (%) Amount Ratio (%) December 31, 2021 Total Risk-Based Capital Ratio Simmons First National Corporation $ 2,603,142 16.7 $ 1,247,014 8.0 N/A Simmons Bank 2,389,704 15.4 1,241,405 8.0 1,551,756 10.0 Tier 1 Risk-Based Capital Ratio Simmons First National Corporation 2,147,158 13.8 933,547 6.0 N/A Simmons Bank 2,317,855 15.0 927,142 6.0 1,236,189 8.0 Common Equity Tier 1 Capital Ratio Simmons First National Corporation 2,147,158 13.8 700,160 4.5 N/A Simmons Bank 2,317,855 15.0 695,357 4.5 1,004,404 6.5 Tier 1 Leverage Ratio Simmons First National Corporation 2,147,158 9.1 943,806 4.0 N/A Simmons Bank 2,317,855 9.8 946,063 4.0 1,182,579 5.0 December 31, 2020 Total Risk-Based Capital Ratio Simmons First National Corporation $ 2,356,982 16.8 $ 1,122,372 8.0 N/A Simmons Bank 2,136,253 15.3 1,116,995 8.0 1,396,244 10.0 Tier 1 Risk-Based Capital Ratio Simmons First National Corporation 1,884,562 13.4 843,834 6.0 N/A Simmons Bank 2,046,711 14.6 841,114 6.0 1,121,485 8.0 Common Equity Tier 1 Capital Ratio Simmons First National Corporation 1,883,795 13.4 632,618 4.5 N/A Simmons Bank 2,046,711 14.6 630,836 4.5 911,207 6.5 Tier 1 Leverage Ratio Simmons First National Corporation 1,884,562 9.1 828,379 4.0 N/A Simmons Bank 2,046,711 9.9 826,954 4.0 1,033,692 5.0 136 NOTE 24: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) Condensed Balance Sheets December 31, 2021 and 2020 (In thousands) 2021 2020 ASSETS Cash and cash equivalents $ 175,711 $ 172,083 Investment securities 2,932 1,648 Investments in wholly-owned subsidiaries 3,444,624 3,165,791 Loans 2610 471 Intangible assets, net 133 133 Premises and equipment 23,861 25,606 Other assets 53,877 56,257 TOTAL ASSETS $ 3,703,748 $ 3,421,989 LIABILITIES Long-term debt $ 406,552 $ 406,859 Other liabilities 48,355 38,474 Total liabilities 454,907 445,333 STOCKHOLDERS’ EQUITY Preferred stock — 767 Common stock 1,127 1,081 Surplus 2,164,989 2,014,076 Undivided profits 1,093,270 901,006 Accumulated other comprehensive gain (loss): Unrealized appreciation on available-for-sale securities, net of income taxes of $( 3,731 ) and $ 21,132 at December 31, 2020 and 2019 respectively ( 10,545 ) 59,726 Total stockholders’ equity 3,248,841 2,976,656 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 3,703,748 $ 3,421,989 137 Condensed Statements of Income Years Ended December 31, 2021 , 2020 and 2019 (In thousands) 2021 2020 2019 INCOME Dividends from subsidiaries $ 227,310 $ 311,253 $ 67,893 Other income 1,080 762 13,658 Income 228,390 312,015 81,551 EXPENSE 44,847 37,204 40,594 Income before income taxes and equity in undistributed net income of subsidiaries 183,543 274,811 40,957 Provision for income taxes ( 11,314 ) ( 9,438 ) ( 5,680 ) Income before equity in undistributed net income of subsidiaries 194,857 284,249 46,637 Equity in undistributed net income of subsidiaries 76,299 ( 29,345 ) 191,530 NET INCOME 271,156 254,904 238,167 Preferred stock dividends 47 52 339 NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 271,109 $ 254,852 $ 237,828 Condensed Statements of Comprehensive Income Years Ended December 31, 2021 , 2020 and 2019 (In thousands) 2021 2020 2019 NET INCOME $ 271,156 $ 254,904 $ 238,167 OTHER COMPREHENSIVE INCOME (LOSS) Equity in other comprehensive income (loss) of subsidiaries ( 70,271 ) 38,835 48,265 COMPREHENSIVE INCOME $ 200,885 $ 293,739 $ 286,432 138 Condensed Statements of Cash Flows Years Ended December 31, 2021 , 2020 and 2019 (In thousands) 2021 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 271,156 $ 254,904 $ 238,167 Items not requiring (providing) cash Stock-based compensation expense 15,868 13,197 12,921 Depreciation and amortization 1,805 1,796 1,637 Deferred income taxes 3,347 1,583 ( 3,632 ) Equity in undistributed net income of bank subsidiaries ( 76,299 ) 29,345 ( 191,530 ) Changes in: Other assets ( 2,099 ) ( 27,056 ) 3,299 Other liabilities 11,109 7,790 ( 2,648 ) Net cash provided by operating activities 224,887 281,559 58,214 CASH FLOWS FROM INVESTING ACTIVITIES Net collections of loans ( 2,139 ) 186 117 Net (purchases of) proceeds from premises and equipment ( 83 ) ( 7 ) ( 23,184 ) (Advances to) repayment for subsidiaries — ( 15,363 ) — Proceeds from maturities of available-for-sale securities — — 2,544 Purchases of available-for-sale securities — — ( 439 ) Cash paid in business combinations ( 6,818 ) — ( 36,811 ) Other, net 2 185 29 Net cash used in investing activities ( 9,038 ) ( 14,999 ) ( 57,744 ) CASH FLOWS FROM FINANCING ACTIVITIES (Repayment) issuance of long-term debt, net ( 1,563 ) ( 7,442 ) 2,000 (Cancellation) issuance of common stock, net 1,460 ( 3,131 ) ( 1,077 ) Stock repurchases ( 132,459 ) ( 113,327 ) ( 10,128 ) Dividends paid on preferred stock ( 47 ) ( 52 ) ( 339 ) Dividends paid on common stock ( 78,845 ) ( 74,593 ) ( 63,921 ) Preferred stock retirement ( 767 ) — ( 42,000 ) Net cash used in financing activities ( 212,221 ) ( 198,545 ) ( 115,465 ) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,628 68,015 ( 114,995 ) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 172,083 104,068 219,063 CASH AND CASH EQUIVALENTS, END OF YEAR $ 175,711 $ 172,083 $ 104,068 139 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.