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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☑			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2022

or

☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition period from ______ to ______

Commission File Number: 001-41093

HOME BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Arkansas						71-0682831
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
719 Harkrider, Suite 100 ,Conway, Arkansas						72032
(Address of principal executive offices)						(Zip Code)
(501) 339-2929
(Registrant's telephone number, including area code)
Not Applicable
Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

HOMB

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer			☑			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
						Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Common Stock Issued and Outstanding: 205,065,089 shares as of August 8, 2022.

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HOME BANCSHARES, INC. FORM 10-Q June 30, 2022
INDEX
						Page No.
Part I:			Financial Information
Item 1:			Financial Statements
			Consolidated Balance Sheets – June 30, 2022 (Unaudited) and December 31, 2021			4
			Consolidated Statements of Income (Unaudited) – Three and six months ended June 30, 2022 and 2021			5
			Consolidated Statements of Comprehensive (Loss) Income (Unaudited) – Three and six months ended June 30, 2022 and 2021			6
			Consolidated Statements of Stockholders’ Equity (Unaudited) – Three and six months ended June 30, 2022 and 2021			7-8
			Consolidated Statements of Cash Flows (Unaudited) – Six months ended June 30, 2022 and 2021			9
			Condensed Notes to Consolidated Financial Statements (Unaudited)			10-53
			Report of Independent Registered Public Accounting Firm			54
Item 2:			Management’s Discussion and Analysis of Financial Condition and Results of Operations			55-94
Item 3:			Quantitative and Qualitative Disclosures About Market Risk			94-95
Item 4:			Controls and Procedures			96
Part II:			Other Information
Item 1:			Legal Proceedings			96
Item 1A:			Risk Factors			96
Item 2:			Unregistered Sales of Equity Securities and Use of Proceeds			96
Item 3:			Defaults Upon Senior Securities			96
Item 4:			Mine Safety Disclosures			96
Item 5:			Other Information			96
Item 6:			Exhibits			97-98
Signatures						99

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of our statements contained in this document, including matters discussed under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operation,” are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to future events or our future financial performance and include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, including through prospective or potential acquisitions, our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to, the following:

•the effects of future local, regional, national and international economic conditions, including inflation or a decrease in commercial real estate and residential housing values;

•changes in the level of nonperforming assets and charge-offs, and credit risk generally;

•the risks of changes in interest rates or the level and composition of deposits, loan demand and the values of loan collateral, securities and interest-sensitive assets and liabilities;

•disruptions, uncertainties and related effects on credit quality, liquidity, other aspects of our business and our operations as a result of the ongoing COVID-19 pandemic and measures that have been or may be implemented or imposed in response to the pandemic;

•the effect of any mergers, acquisitions or other transactions to which we or our bank subsidiary may from time to time be a party, including our ability to successfully integrate our recent acquisition of Happy Bancshares, Inc. and its bank subsidiary, as well as any other businesses that we may acquire;

•the risk that expected cost savings and other benefits from acquisitions may not be fully realized or may take longer to realize than expected;

•the possibility that an acquisition does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all;

•the reaction to a proposed acquisition transaction of the respective companies’ customers, employees and counterparties;

•diversion of management time on acquisition-related issues;

•the ability to enter into and/or close additional acquisitions;

•the availability of and access to capital on terms acceptable to us;

•increased regulatory requirements and supervision that applies as a result of our exceeding $10 billion in total assets;

•legislation and regulation affecting the financial services industry as a whole, and the Company and its subsidiaries in particular, including the effects resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), recent reforms to the Dodd-Frank Act, legislation and regulations in response to the COVID-19 pandemic and other future legislative and regulatory changes;

•changes in governmental monetary and fiscal policies;

•the effects of terrorism and efforts to combat it;

•political instability, war, military conflicts (including the ongoing military conflict between Russia and Ukraine) and other major domestic or international events;

•adverse weather events, including hurricanes, and other natural disasters;

•the ability to keep pace with technological changes, including changes regarding cybersecurity;

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•an increase in the incidence or severity of fraud, illegal payments, cybersecurity breaches or other illegal acts impacting our bank subsidiary, our vendors or our customers;

•the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with competitors offering banking products and services by mail, telephone and the Internet;

•potential claims, expenses and other adverse effects related to current or future litigation, regulatory examinations or other government actions;

•the effect of changes in accounting policies and practices and auditing requirements, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters;

•higher defaults on our loan portfolio than we expect; and

•the failure of assumptions underlying the establishment of our allowance for credit losses or changes in our estimate of the adequacy of the allowance for credit losses.

All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Note. Our actual results may differ significantly from those we discuss in these forward-looking statements. For other factors, risks and uncertainties that could cause our actual results to differ materially from estimates and projections contained in these forward-looking statements, see the “Risk Factors” section of our Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2022.

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PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

Home BancShares, Inc.

Consolidated Balance Sheets

(In thousands, except share data)						June 30, 2022						December 31, 2021
						(Unaudited)
Assets
Cash and due from banks						$	287,451					$	119,908
Interest-bearing deposits with other banks						2,528,925						3,530,407
Cash and cash equivalents						2,816,376						3,650,315
Investment securities – available-for-sale, net of allowance for credit losses						3,791,509						3,119,807
Investment securities — held-to-maturity, net of allowance for credit losses						1,366,781						—
Total investment securities						5,158,290						3,119,807
Loans receivable						13,923,873						9,836,089
Allowance for credit losses						(294,267)						(236,714)
Loans receivable, net						13,629,606						9,599,375
Bank premises and equipment, net						415,056						275,760
Foreclosed assets held for sale						373						1,630
Cash value of life insurance						211,811						105,135
Accrued interest receivable						80,274						46,736
Deferred tax asset, net						208,585						78,290
Goodwill						1,398,400						973,025
Core deposit and other intangibles						63,410						25,045
Other assets						270,987						177,020
Total assets						$	24,253,168					$	18,052,138
Liabilities and Stockholders’ Equity
Deposits:
Demand and non-interest-bearing						$	6,036,583					$	4,127,878
Savings and interest-bearing transaction accounts						12,424,192						9,251,805
Time deposits						1,119,297						880,887
Total deposits						19,580,072						14,260,570
Securities sold under agreements to repurchase						118,573						140,886
FHLB and other borrowed funds						400,000						400,000
Accrued interest payable and other liabilities						197,503						113,868
Subordinated debentures						458,455						371,093
Total liabilities						20,754,603						15,286,417
Stockholders’ equity:
Common stock, par value $0.01; shares authorized 300,000,000 in 2022 and 2021; shares issued and outstanding 205,290,527 in 2022 and 163,699,282 in 2021						2,053						1,637
Capital surplus						2,426,271						1,487,373
Retained earnings						1,286,146						1,266,249
Accumulated other comprehensive (loss) income						(215,905)						10,462
Total stockholders’ equity						3,498,565						2,765,721
Total liabilities and stockholders’ equity						$	24,253,168					$	18,052,138

See Condensed Notes to Consolidated Financial Statements.

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Home BancShares, Inc.

Consolidated Statements of Income

						Three Months Ended June 30,												Six Months Ended June 30,
(In thousands, except per share data)						2022						2021						2022						2021
						(Unaudited)
Interest income:
Loans						$	181,779					$	141,684					$	311,221					$	292,601
Investment securities
Taxable						20,941						7,185						30,021						13,438
Tax-exempt						7,725						4,905						12,432						9,976
Deposits – other banks						6,565						707						8,238						1,117
Federal funds sold						3						—						4						—
Total interest income						217,013						154,481						361,916						317,132
Interest expense:
Interest on deposits						10,729						6,434						15,623						14,139
Federal funds purchased						2						—						2						—
FHLB and other borrowed funds						1,896						1,896						3,771						3,771
Securities sold under agreements to repurchase						187						107						295						297
Subordinated debentures						5,441						4,792						12,319						9,585
Total interest expense						18,255						13,229						32,010						27,792
Net interest income						198,758						141,252						329,906						289,340
Provision for credit losses on acquired loans						45,170						—						45,170						—
Provision for credit losses on acquired unfunded commitments						11,410						—						11,410						—
Provision for credit losses on unfunded commitments						—						(4,752)						—						(4,752)
Provision for credit losses on acquired held-to-maturity investment securities						2,005						—						2,005						—
Total credit loss expense (benefit)						58,585						(4,752)						58,585						(4,752)
Net interest income after credit loss expense (benefit)						140,173						146,004						271,321						294,092
Non-interest income:
Service charges on deposit accounts						10,084						5,116						16,224						10,118
Other service charges and fees						12,541						9,659						20,274						17,267
Trust fees						4,320						444						4,894						966
Mortgage lending income						5,996						6,202						9,912						14,369
Insurance commissions						658						478						1,138						970
Increase in cash value of life insurance						1,140						537						1,632						1,039
Dividends from FHLB, FRB, FNBB & other						3,945						2,646						4,643						11,255
Gain on sale of SBA loans						—						1,149						95						1,149
Gain (loss) on sale of branches, equipment and other assets, net						2						(23)						18						(52)
Gain on OREO, net						9						619						487						1,020
Gain on securities, net						—						—						—						219
Fair value adjustment for marketable securities						(1,801)						1,250						324						7,032
Other income						7,687						3,043						15,609						11,044
Total non-interest income						44,581						31,120						75,250						76,396
Non-interest expense:
Salaries and employee benefits						65,795						42,462						109,346						84,521
Occupancy and equipment						14,256						9,042						23,400						18,279
Data processing expense						10,094						5,893						17,133						11,763
Merger and acquisition expenses						48,731						—						49,594						—
Other operating expenses						26,606						15,585						42,905						31,285
Total non-interest expense						165,482						72,982						242,378						145,848
Income before income taxes						19,272						104,142						104,193						224,640
Income tax expense						3,294						25,072						23,323						53,968
Net income						$	15,978					$	79,070					$	80,870					$	170,672
Basic earnings per share						$	0.08					$	0.48					$	0.44					$	1.03
Diluted earnings per share						$	0.08					$	0.48					$	0.44					$	1.03

See Condensed Notes to Consolidated Financial Statements.

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Home BancShares, Inc.

Consolidated Statements of Comprehensive (Loss) Income

						Three Months Ended June 30,												Six Months Ended June 30,
(In thousands)						2022						2021						2022						2021
						(Unaudited)
Net income						$	15,978					$	79,070					$	80,870					$	170,672
Net unrealized (loss) gain on available-for-sale securities						(146,888)						13,091						(302,603)						(20,309)
Other comprehensive (loss) income before tax effect						(146,888)						13,091						(302,603)						(20,309)
Tax effect on other comprehensive loss (income)						35,540						(3,421)						76,236						5,308
Other comprehensive (loss) income						(111,348)						9,670						(226,367)						(15,001)
Comprehensive (loss) income						$	(95,370)					$	88,740					$	(145,497)					$	155,671

See Condensed Notes to Consolidated Financial Statements.

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Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

Three and Six Months Ended June 30, 2022
(In thousands, except share data)						Common Stock						Capital Surplus						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Total
Balances at January 1, 2022						$	1,637					$	1,487,373					$	1,266,249					$	10,462					$	2,765,721
Comprehensive income:
Net income						—						—						64,892						—						64,892
Other comprehensive loss						—						—						—						(115,019)						(115,019)
Net issuance of 15,909 shares of common stock from exercise of stock options						1						129						—						—						130
Repurchase of 180,000 shares of common stock						(2)						(4,087)						—						—						(4,089)
Share-based compensation net issuance of 222,717 shares of restricted common stock						2						2,109						—						—						2,111
Cash dividends – Common Stock, $0.165 per share						—						—						(27,043)						—						(27,043)
Balances at March 31, 2022 (unaudited)						$	1,638					$	1,485,524					$	1,304,098					$	(104,557)					$	2,686,703
Comprehensive income:
Net Income						—						—						15,978						—						15,978
Other comprehensive loss						—						—						—						(111,348)						(111,348)
Net issuance of 1,500 shares of common stock from exercise of stock options						—						26						—						—						26
Issuance of 42,425,352 shares of common stock including approximately $2.5 million in certain stock award settlements and stock issuance costs - Happy Bancshares acquisition						424						960,866						—						—						961,290
Repurchase of 1,032,732 shares of common stock						(10)						(22,482)						—						—						(22,492)
Share-based compensation net issuance of 138,499 shares of restricted common stock						1						2,337						—						—						2,338
Cash dividends – Common Stock, $0.165 per share						—						—						(33,930)						—						(33,930)
Balances at June 30, 2022 (unaudited)						$	2,053					$	2,426,271					$	1,286,146					$	(215,905)					$	3,498,565

See Condensed Notes to Consolidated Financial Statements.

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Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

For the Three and Six Months Ended June 30, 2021
(In thousands, except share data)						Common Stock						Capital Surplus						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Total
Balances at January 1, 2021						$	1,651					$	1,520,617					$	1,039,370					$	44,120					$	2,605,758
Comprehensive income:
Net income						—						—						91,602						—						91,602
Other comprehensive loss						—						—						—						(24,671)						(24,671)
Net issuance of 161,434 shares of common stock from exercise of stock options						1						2,321						—						—						2,322
Repurchase of 330,000 shares of common stock						(3)						(8,767)						—						—						(8,770)
Share-based compensation net issuance of 214,684 shares of restricted common stock						2						2,115						—						—						2,117
Cash dividends – Common Stock, $0.14 per share						—						—						(23,154)						—						(23,154)
Balances at March 31, 2021 (unaudited)						$	1,651					$	1,516,286					$	1,107,818					$	19,449					$	2,645,204
Comprehensive income:
Net income						—						—						79,070						—						79,070
Other comprehensive income						—						—						—						9,670						9,670
Net issuance of 3,628 shares of common stock from exercise of stock options						—						—						—						—						—
Repurchase of 635,000 shares of common stock						(6)						(16,947)						—						—						(16,953)
Share-based compensation net issuance of 21,500 shares of restricted common stock						—						2,276						—						—						2,276
Cash dividends – Common Stock, $0.14 per share						—						—						(23,078)						—						(23,078)
Balances at June 30, 2021 (unaudited)						$	1,645					$	1,501,615					$	1,163,810					$	29,119					$	2,696,189

See Condensed Notes to Consolidated Financial Statements.

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Home BancShares, Inc.

Consolidated Statements of Cash Flows

						Six Months Ended June 30, 2022
(In thousands)						2022						2021
						(Unaudited)
Operating Activities
Net income						$	80,870					$	170,672
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization						15,480						9,535
Increase in value of equity securities						(324)						(7,032)
Amortization of securities, net						12,874						13,693
Accretion of purchased loans						(8,266)						(11,282)
Share-based compensation						4,449						4,393
Gain on assets						(600)						(2,336)
Provision for credit losses - acquired loans						45,170						—
Provision for credit losses - acquired unfunded commitments						11,410						—
Provision for credit losses - unfunded commitments						—						(4,752)
Provision for credit losses - acquired held-to-maturity investment securities						2,005						—
Deferred income tax effect						(18,645)						3,311
Increase in cash value of life insurance						(1,632)						(1,039)
Originations of mortgage loans held for sale						(308,850)						(393,886)
Proceeds from sales of mortgage loans held for sale						243,823						419,052
Changes in assets and liabilities:
Accrued interest receivable						(1,548)						11,803
Other assets						(1,067)						5,116
Accrued interest payable and other liabilities						27,466						(4,832)
Net cash provided by operating activities						102,615						212,416
Investing Activities
Net (increase) decrease in loans, excluding purchased loans						(126,794)						989,477
Purchases of investment securities – available-for-sale						(655,393)						(968,660)
Purchases of investment securities - held-to-maturity						(501,882)						—
Proceeds from maturities of investment securities – available-for-sale						333,315						336,834
Proceeds from maturities of investment securities – held-to-maturity						250,020						—
Proceeds from sales of investment securities – available-for-sale						—						18,112
Purchases of equity securities						(29,975)						(10,460)
Proceeds from sales of equity securities						13,778						15,354
Purchase of other investments						(27,867)						(5,084)
Proceeds from foreclosed assets held for sale						1,874						5,422
Proceeds from sale of SBA loans						2,859						12,361
Purchases of premises and equipment, net						(6,596)						(6,252)
Return of investment on cash value of life insurance						—						418
Purchase of marine loan portfolio						(242,617)						—
Net cash received - market acquisition						858,898						—
Net cash (used in) provided by investing activities						(130,380)						387,522
Financing Activities
Net (decrease) increase in deposits						(535,708)						1,165,551
Net decrease in securities sold under agreements to repurchase						(22,313)						(18,391)
Net decrease in FHLB and other borrowed funds						(78,330)						—
Retirement of subordinated debentures						(300,000)						—
Proceeds from issuance of subordinated debentures						296,444						—
Redemption of trust preferred securities						(78,869)						—
Proceeds from exercise of stock options						156						2,322
Repurchase of common stock						(26,581)						(25,723)
Dividends paid on common stock						(60,973)						(46,232)
Net cash (used in) provided by financing activities						(806,174)						1,077,527
Net change in cash and cash equivalents						(833,939)						1,677,465
Cash and cash equivalents – beginning of year						3,650,315						1,263,788
Cash and cash equivalents – end of period						$	2,816,376					$	2,941,253

See Condensed Notes to Consolidated Financial Statements.

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Home BancShares, Inc.

Condensed Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Home BancShares, Inc. (the “Company” or “HBI”) is a bank holding company headquartered in Conway, Arkansas. The Company is primarily engaged in providing a full range of banking services to individual and corporate customers through its wholly-owned community bank subsidiary – Centennial Bank (sometimes referred to as “Centennial” or the “Bank”). The Bank has branch locations in Arkansas, Florida, South Alabama, Texas and New York City. The Company is subject to competition from other financial institutions. The Company also is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

A summary of the significant accounting policies of the Company follows:

Operating Segments

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Bank is the only significant subsidiary upon which management makes decisions regarding how to allocate resources and assess performance. Each of the branches of the Bank provide a group of similar banking services, including such products and services as commercial, real estate and consumer loans, time deposits, checking and savings accounts. The individual bank branches have similar operating and economic characteristics. While the chief decision maker monitors the revenue streams of the various products, services and branch locations, operations are managed, and financial performance is evaluated on a company-wide basis. Accordingly, all of the banking services and branch locations are considered by management to be aggregated into one reportable operating segment.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, the valuation of investment securities, the valuation of foreclosed assets and the valuations of assets acquired, and liabilities assumed in business combinations. In connection with the determination of the allowance for credit losses and the valuation of foreclosed assets, management obtains independent appraisals for significant properties.

Principles of Consolidation

The consolidated financial statements include the accounts of HBI and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Various items within the accompanying consolidated financial statements for previous years have been reclassified to provide more comparative information. These reclassifications had no effect on net earnings or stockholders’ equity.

Interim financial information

The accompanying unaudited consolidated financial statements as of June 30, 2022 and 2021 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

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The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2021 Form 10-K, filed with the Securities and Exchange Commission.

Loans Receivable and Allowance for Credit Losses

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs, deferred fees or costs on originated loans. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yield on the related loans.

The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed and expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, commercial real estate price index, housing price index and national retail sales index.

The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The identified loan segments are as follows:

•1-4 family construction

•All other construction

•1-4 family revolving home equity lines of credit (“HELOC”) & junior liens

•1-4 family senior liens

•Multifamily

•Owner occupied commercial real estate

•Non-owner occupied commercial real estate

•Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other

•Consumer auto

•Other consumer

•Other consumer - SPF

The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans evaluated individually that are considered to be collateral dependent are not included in the collective evaluation. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. For loans that are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation if a specific reserve is not recorded.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

•Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower.

•The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

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Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factors ("Q-Factors") and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.

Loans considered impaired, according to ASC 326, are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest 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.

Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.

Acquisition Accounting and Acquired Loans

The Company accounts for its acquisitions under FASB ASC Topic 805, Business Combinations, which requires the use of the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. In accordance with ASC 326, the Company records both a discount or premium and an allowance for credit losses on acquired loans. All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. These models utilize a peer group benchmark in order to determine the probability of default and loss given default to be used in the calculation. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.

For further discussion of the Company’s acquisitions, see Note 2 to the Condensed Notes to Consolidated Financial Statements.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

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Revenue Recognition

Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit, investment securities and mortgage lending income, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our significant revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of non-interest income are as follows:

•Service charges on deposit accounts – These represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

•Other service charges and fees – These represent credit card interchange fees and Centennial Commercial Finance Group (“Centennial CFG”) loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. The Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310.

Earnings per Share

Basic earnings per share is computed based on the weighted-average number of shares outstanding during each year. Diluted earnings per share is computed using the weighted-average shares and all potential dilutive shares outstanding during the period. The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the following periods:

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(In thousands)
Net income			$	15,978					$	79,070					$	80,870					$	170,672
Average shares outstanding			205,683						164,781						184,851						165,018
Effect of common stock options			332						445						372						296
Average diluted shares outstanding			206,015						165,226						185,223						165,314
Basic earnings per share			$	0.08					$	0.48					$	0.44					$	1.03
Diluted earnings per share			$	0.08					$	0.48					$	0.44					$	1.03

2. Business Combinations

Acquisition of Happy Bancshares, Inc.

On April 1, 2022, the Company completed the acquisition of Happy Bancshares, Inc. (“Happy”), and merged Happy State Bank into Centennial Bank. The Company issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million. The acquisition added new markets for expansion and brings complementary businesses together to drive synergies and growth.

Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $6.68 billion in total assets, $3.65 billion in loans and $5.86 billion in customer deposits. Happy formerly operated its banking business from 62 locations in Texas.

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The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the acquisition. The Company will continue to review the estimated fair values of loans, deposits and intangible assets, and to evaluate the assumed tax positions and contingencies.

The Company has determined that the acquisition of the net assets of Happy constitutes a business combination as defined by the ASC Topic 805. Accordingly, the assets acquired and liabilities assumed are presented at their fair values as required. Fair values were determined based on the requirements of ASC Topic 820. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The following schedule is a preliminary breakdown of the assets acquired and liabilities assumed as of the acquisition date:

			Happy Bancshares, Inc.
			Acquired from Happy						Fair Value Adjustments						As Recorded by HBI
			(Dollars in thousands)
Assets
Cash and due from banks			$	112,999					$	(132)					$	112,867
Interest-bearing deposits with other banks			746,031						—						746,031
Cash and cash equivalents			859,030						(132)						858,898
Investment securities - available-for-sale, net of allowance for credit losses			1,773,540						8,485						1,782,025
Total investment securities			1,773,540						8,485						1,782,025
Loans receivable			3,657,009						(4,303)						3,652,706
Allowance for credit losses			(42,224)						25,408						(16,816)
Loans receivable, net			3,614,785						21,105						3,635,890
Bank premises and equipment, net			153,642						(11,575)						142,067
Foreclosed assets held for sale			193						(77)						116
Cash value of life insurance			105,049						3						105,052
Accrued interest receivable			31,575						—						31,575
Deferred tax asset, net			32,908						2,506						35,414
Goodwill			130,428						(130,428)						—
Core deposit and other intangibles			10,672						31,591						42,263
Other assets			43,330						6,422						49,752
Total assets acquired			$	6,755,152					$	(72,100)					$	6,683,052
Liabilities
Deposits
Demand and non-interest-bearing			$	1,932,756					$	—					$	1,932,756
Savings and interest-bearing transaction accounts			3,519,652						—						3,519,652
Time deposits			401,899						903						402,802
Total deposits			5,854,307						903						5,855,210
FHLB and other borrowed funds			74,212						4,118						78,330
Accrued interest payable and other liabilities			50,889						(6,130)						44,759
Subordinated debentures			159,965						7,625						167,590
Total liabilities assumed			$	6,139,373					$	6,516					$	6,145,889
Equity
Total equity assumed			615,779						(615,779)						—
Total liabilities and equity assumed			$	6,755,152					$	(609,263)					$	6,145,889
Net assets acquired															537,163
Purchase price															962,538
Goodwill															$	425,375

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The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above:

Cash and due from banks, interest-bearing deposits with other banks and federal funds sold – The carrying amount of these assets was deemed a reasonable estimate of fair value based on the short-term nature of these assets.

Investment securities – Investment securities were acquired from Happy with an approximately $8.5 million adjustment to fair value based upon quoted market prices. Otherwise the book value was deemed to approximate fair value.

Loans – 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, 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 to the Condensed Notes to Consolidated Financial Statements, for additional information related to purchased financial assets with credit deterioration.

Bank premises and equipment – Bank premises and equipment were acquired from Happy with a $11.6 million adjustment to fair value. This represents the difference between current appraisals completed in connection with the acquisition and book value acquired.

Foreclosed assets held for sale – These assets are presented at the estimated fair values that management expects to receive when the properties are sold, net of related costs of disposal.

Cash value of life insurance – Bank owned life insurance is carried at its current cash surrender value, which is the most reasonable estimate of fair value.

Accrued interest receivable – The carrying amount of these assets was deemed a reasonable estimate of the fair value.

Core deposit intangible and other intangibles – This core deposit intangible asset represents the value of the relationships that Happy had with its 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.

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 $903,000 fair value adjustment applied for time deposits was because the weighted-average interest rate of Happy’s certificates of deposits were estimated to be below the current market rates.

FHLB borrowed funds – The fair value of FHLB borrowed funds is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.

Accrued interest payable 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 carrying amount of accrued interest and the remainder of other liabilities was deemed to be a reasonable estimate of fair value.

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.

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The unaudited pro-forma combined consolidated financial information presents how the combined financial information of HBI and Happy might have appeared had the businesses actually been combined. The following schedule represents the unaudited pro forma combined financial information as of the three and six-month periods ended June 30, 2022 and 2021, assuming the acquisition was completed as of January 1, 2021:

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(In thousands, except per share data)
Total interest income			$	217,013					$	211,279					$	419,318					$	418,143
Total non-interest income			44,581						44,427						88,151						101,485
Net income available to all shareholders			96,923						34,536						182,557						129,653
Basic earnings per common share			$	0.47					$	0.17					$	0.89					$	0.63
Diluted earnings per common share			$	0.47					$	0.17					$	0.88					$	0.62

The unaudited pro-forma consolidated financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of the period presented and had the impact of possible significant revenue enhancements and expense efficiencies from in-market cost savings, among other factors, been considered and, accordingly, does not attempt to predict or suggest future results. Pro-forma results include Happy merger expenses of $48.7 million and $49.6 million, provision for credit losses on acquired loans of $45.2 million, provision for credit losses on acquired unfunded commitments of $11.4 million and provision for credit losses on acquired investment securities of $2.0 million for the three and six months ended June 30, 2022 and 2021, respectively. The pro-forma financial information also does not necessarily reflect what the historical results of the combined company would have been had the companies been combined during this period.

Purchased loans and leases 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 losses on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans purchased as part of the Happy acquisition with credit deterioration at acquisition:

			April 1, 2022
			(In thousands)
Purchased Loans with Credit Deterioration:
Par value			$	165,028
Allowance for credit losses at acquisition			(16,816)
Premium on acquired loans			684
Purchase price			$	148,896

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3. Investment Securities

The following table summarizes the amortized cost and fair value of securities that are classified as available-for-sale and held-to-maturity are as follows:

			June 30, 2022
			Available-for-Sale
			Amortized Cost						Allowance for Credit Losses						Net Carrying Amount						Gross Unrealized Gains						Gross Unrealized (Losses)						Estimated Fair Value
			(In thousands)
U.S. government-sponsored enterprises			$	465,293					$	—					$	465,293					$	2,822					$	(16,658)					$	451,457
Residential mortgage-backed securities			1,780,519						—						1,780,519						657						(152,990)						1,628,186
Commercial mortgage-backed securities			363,117						—						363,117						14						(13,067)						350,064
State and political subdivisions			1,027,748						(842)						1,026,906						1,111						(93,486)						934,531
Other securities			444,184						—						444,184						131						(17,044)						427,271
Total			$	4,080,861					$	(842)					$	4,080,019					$	4,735					$	(293,245)					$	3,791,509

			June 30, 2022
			Held-to-Maturity
			Amortized Cost						Allowance for Credit Losses						Net Carrying Amount						Gross Unrealized Gains						Gross Unrealized (Losses)						Estimated Fair Value
			(In thousands)
U.S. Treasuries			$	277,688					$	—					$	277,688					$	—					$	(1,659)					$	276,029
State and political subdivisions			1,091,098						(2,005)						1,089,093						26						(91,868)						997,251
Total			$	1,368,786					$	(2,005)					$	1,366,781					$	26					$	(93,527)					$	1,273,280

			December 31, 2021
			Available-for-Sale
			Amortized Cost						Allowance for Credit Losses						Net Carrying Amount						Gross Unrealized Gains						Gross Unrealized (Losses)						Estimated Fair Value
			(In thousands)
U.S. government-sponsored enterprises			$	433,829					$	—					$	433,829					$	2,375					$	(3,225)					$	432,979
Residential mortgage-backed securities			1,175,185						—						1,175,185						4,085						(18,551)						1,160,719
Commercial mortgage-backed securities			372,702						—						372,702						6,521						(1,968)						377,255
State and political subdivisions			973,318						(842)						972,476						26,296						(1,794)						996,978
Other securities			151,449						—						151,449						1,781						(1,354)						151,876
Total			$	3,106,483					$	(842)					$	3,105,641					$	41,058					$	(26,892)					$	3,119,807

On April 1, 2022, the Company completed the acquisition of Happy. Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $1.78 billion in investments, net of purchase accounting adjustments. The Company classified approximately $1.12 billion of investments acquired from Happy as held-to-maturity at the acquisition date.

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Assets, principally investment securities, having a carrying value of approximately $2.77 billion and $1.15 billion at June 30, 2022 and December 31, 2021, respectively, were pledged to secure public deposits, as collateral for repurchase agreements, and for other purposes required or permitted by law. Investment securities pledged as collateral for repurchase agreements totaled approximately $118.6 million and $140.9 million at June 30, 2022 and December 31, 2021, respectively.

The amortized cost and estimated fair value of securities classified as available-for-sale and held-to-maturity at June 30, 2022, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

			Available-for-Sale												Held-to-Maturity
			Amortized Cost						Estimated Fair Value						Amortized Cost						Estimated Fair Value
			(In thousands)
Due in one year or less			$	21,153					$	21,175					$	249,949					$	249,689
Due after one year through five years			145,743						140,380						4,757						4,690
Due after five years through ten years			487,573						459,863						181,961						168,691
Due after ten years			1,277,149						1,186,305						932,119						850,210
Mortgage - backed securities: Residential			1,780,519						1,628,186						—						—
Mortgage - backed securities: Commercial			363,117						350,064						—						—
Other			5,607						5,536						—						—
Total			$	4,080,861					$	3,791,509					$	1,368,786					$	1,273,280

During the three and six months ended June 30, 2022, no available-for-sale securities were sold.

During the three months ended June 30, 2021, no available-for-sale securities were sold. There were no realized gains or losses recorded on sales for the three months ended June 30, 2021. During the six months ended June 30, 2021, $17.9 million in available-for-sale securities were sold. The gross realized gains on the sales totaled $219,000 for the six months ended June 30, 2021.

The following table shows gross unrealized losses and estimated fair value of investment securities classified as available-for-sale and held-to-maturity, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position as of June 30, 2022 and December 31, 2021.

			June 30, 2022
			Less Than 12 Months												12 Months or More												Total
			Fair Value						Unrealized Losses						Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
			(In thousands)
Available-for-sale:
U.S. government-sponsored enterprises			$	115,827					$	(10,132)					$	67,691					$	(6,526)					$	183,518					$	(16,658)
Residential mortgage-backed securities			1,205,092						(105,830)						253,686						(47,160)						1,458,778						(152,990)
Commercial mortgage-backed securities			299,151						(9,507)						44,291						(3,560)						343,442						(13,067)
State and political subdivisions			789,862						(89,276)						22,922						(4,210)						812,784						(93,486)
Other securities			293,266						(15,278)						17,222						(1,766)						310,488						(17,044)
Total			$	2,703,198					$	(230,023)					$	405,812					$	(63,222)					$	3,109,010					$	(293,245)
Held-to-maturity:
U.S. Treasuries			276,029						(1,659)						—						—						276,029						(1,659)
State and political subdivisions			998,550						(91,868)						—						—						998,550						(91,868)
Total			$	1,274,579					$	(93,527)					$	—					$	—					$	1,274,579					$	(93,527)

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			December 31, 2021
			Less Than 12 Months												12 Months or More												Total
			Fair Value						Unrealized Losses						Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
			(In thousands)
U.S. government-sponsored enterprises			$	120,730					$	(1,356)					$	78,124					$	(1,869)					$	198,854					$	(3,225)
Residential mortgage-backed securities			854,807						(15,246)						104,897						(3,305)						959,704						(18,551)
Commercial mortgage-backed securities			100,702						(1,251)						28,711						(717)						129,413						(1,968)
State and political subdivisions			136,135						(1,282)						18,647						(512)						154,782						(1,794)
Other securities			75,744						(1,316)						2,703						(38)						78,447						(1,354)
Total			$	1,288,118					$	(20,451)					$	233,082					$	(6,441)					$	1,521,200					$	(26,892)

The Company evaluates all securities quarterly to determine if any debt securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that 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 losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

The Company recorded a $2.0 million provision for credit losses on the held-to-maturity investment securities during the second quarter of 2022 as a result of the investment securities acquired as part of the Happy acquisition. Of the Company's held-to-maturity securities, $1.09 billion, or 79.7% are municipal securities. To estimate the necessary loss provision, the Company utilized historical default and recovery rates of the municipal bond sector and applied these rates using a pooling method. The remainder of investments classified as held-to-maturity are U.S. Treasury securities. Due to the inherent low risk in U.S. Treasury securities, no provision for credit loss was established on that portion of the portfolio.

At June 30, 2022, the Company determined that the allowance for credit losses of $842,000, resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio, and the allowance for credit losses for the held-to-maturity portfolio resulting from the Happy acquisition was considered adequate. No additional provision for credit losses was considered necessary for the portfolio.

Available-for-Sale Investment Securities
			June 30, 2022						December 31, 2021
			(In thousands)
Allowance for credit losses:
Beginning balance			$	842					$	842
Provision for credit loss			—						—
Balance, June 30			$	842					$	842
Provision for credit loss									—
Balance, December 31, 2021									$	842

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Held-to-Maturity Investment Securities
			June 30, 2022												December 31, 2021
			State and Political Subdivisions						U.S. Treasuries						State and Political Subdivisions						U.S. Treasuries
Allowance for credit losses:			(In thousands)
Beginning balance			$	—					$	—					$	—					$	—
Provision for credit loss - acquired securities			(2,005)						—						—						—
Securities charged-off			—						—						—						—
Recoveries			—						—						—						—
Balance, June 30, 2022			$	(2,005)					$	—					$	—					$	—

For the six months ended June 30, 2022, the Company had investment securities with approximately $63.2 million in unrealized losses, which have been in continuous loss positions for more than twelve months. The Company’s assessments indicated that the cause of the market depreciation was primarily due to the change in interest rates and not the issuer’s financial condition or downgrades by rating agencies. In addition, approximately 33.4% of the principal balance from the Company’s investment portfolio will mature or are expected to pay down within five years or less. As a result, the Company has the ability and intent to hold such securities until maturity.

As of June 30, 2022, the Company's available-for-sale securities portfolio consisted of 1,644 investment securities, 1,333 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $293.2 million. The U.S. government-sponsored enterprises portfolio contained unrealized losses of $16.7 million on 58 securities. The residential mortgage-backed securities portfolio contained $153.0 million of unrealized losses on 575 securities, and the commercial mortgage-backed securities portfolio contained $13.1 million of unrealized losses on 152 securities. The state and political subdivisions portfolio contained $93.5 million of unrealized losses on 466 securities. In addition, the other securities portfolio contained $17.0 million of unrealized losses on 82 securities. The unrealized losses on the Company's investments were a result of interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value was attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company has determined that an additional provision for credit losses is not necessary as of June 30, 2022.

As of June 30, 2022, the Company's held-to-maturity securities portfolio consisted of 482 investment securities, 480 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $93.5 million. The U.S Treasury portfolio contained unrealized losses of $1.7 million on 5 securities, and the state and political subdivisions portfolio contained $91.9 million of unrealized losses on 475 securities.

The following table summarizes bond ratings for the Company’s held-to-maturity portfolio, based upon amortized cost, issued by state and political subdivisions and other securities as of June 30, 2022:

			State and Political Subdivisions						U.S. Treasuries						Total
			(In thousands)
Aaa/AAA			$	217,912					$	277,688					$	495,600
Aa/AA			837,675						—						837,675
A			33,677						—						33,677
Baa/BBB			—						—						—
Not rated			1,834						—						1,834
Total			$	1,091,098					$	277,688					$	1,368,786

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Income earned on securities for the three and six months ended June 30, 2022 and 2021, is as follows:

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(In thousands)
Taxable
Available-for-sale			$	14,493					$	7,185					$	23,238					$	13,438
Held-to-maturity			6,448						—						6,783						—
Non-taxable
Available-for-sale			4,751						4,905						9,459						9,976
Held-to-maturity			2,974						—						2,973						—
Total			$	28,666					$	12,090					$	42,453					$	23,414

4. Loans Receivable

The various categories of loans receivable are summarized as follows:

			June 30, 2022						December 31, 2021
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	5,092,539					$	3,889,284
Construction/land development			2,595,384						1,850,050
Agricultural			329,106						130,674
Residential real estate loans
Residential 1-4 family			1,708,221						1,274,953
Multifamily residential			389,633						280,837
Total real estate			10,114,883						7,425,798
Consumer			1,106,343						825,519
Commercial and industrial			2,187,771						1,386,747
Agricultural			324,630						43,920
Other			190,246						154,105
Total loans receivable			13,923,873						9,836,089
Allowance for credit losses			(294,267)						(236,714)
Loans receivable, net			$	13,629,606					$	9,599,375

On April 1, 2022, the Company completed the acquisition of Happy. Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $3.65 billion in loans.

During the three months ended June 30, 2022, the Company did not sell any guaranteed portions of certain SBA loans. During the six months ended June 30, 2022, the Company sold $2.8 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $95,000. During the three months ended June 30, 2021, the Company did not sell any guaranteed portions of certain SBA loans. During the six months ended June 30, 2021, the Company sold $11.1 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $1.1 million.

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Mortgage loans held for sale of approximately $137.8 million and $72.7 million at June 30, 2022 and December 31, 2021, respectively, are included in residential 1-4 family loans. Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid. The Company obtains forward commitments to sell mortgage loans to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. The forward commitments acquired by the Company for mortgage loans in process of origination are considered mandatory forward commitments. Because these commitments are structured on a mandatory basis, the Company is required to substitute another loan or to buy back the commitment if the original loan does not fund. These commitments are derivative instruments and their fair values at June 30, 2022 and December 31, 2021 were not material.

Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses. The Company held approximately $152.3 million and $448,000 in PCD loans, as of June 30, 2022 and December 31, 2021, respectively. The balance consisted of $151.8 million resulting from the acquisition of Happy and $432,000 from the acquisition of LH-Finance.

A description of our accounting policies for loans, impaired loans and non-accrual loans are set forth in our 2021 Form 10-K filed with the SEC on February 24, 2022.

5. Allowance for Credit Losses, Credit Quality and Other

The Company uses the discounted cash flow (“DCF”) method to estimate expected losses for all of the Company’s loan pools. These pools are as follows: construction & land development; other commercial real estate; residential real estate; commercial & industrial; and consumer & other. The loan portfolio pools were selected in order to generally align with the loan categories specified in the quarterly call reports required to be filed with the Federal Financial Institutions Examination Council. For each of these loan pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.

Management qualitatively adjusts model results for risk factors ("Q-Factors") that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factors and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.

Each year management evaluates the performance of the selected models used in the CECL calculation through backtesting. Based on the results of the testing, management determines if the various models produced accurate results compared to the actual losses incurred for the current economic environment. Management then determines if changes to the input assumptions and economic factors would produce a stronger overall calculation that is more responsive to changes in economic conditions. The Company continues to use regression analysis to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default for the changes in the economic factors for the loss driver segments. Based on this analysis during the second quarter of 2022, management determined the previously selected economic factors for the various loss driver segments were appropriate and no changes were necessary. The identified loss drivers by segment are included below as of both June 30, 2022 and December 31, 2021.

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Loss Driver Segment			Call Report Segment(s)			Modeled Economic Factors
1-4 Family Construction			1a1			National Unemployment (%) & Housing Price Index (%)
All Other Construction			1a2			National Unemployment (%) & Gross Domestic Product (%)
1-4 Family Revolving HELOC & Junior Liens			1c1			National Unemployment (%) & Housing Price Index – CoreLogic (%)
1-4 Family Revolving HELOC & Junior Liens			1c2b			National Unemployment (%) & Gross Domestic Product (%)
1-4 Family Senior Liens			1c2a			National Unemployment (%) & Gross Domestic Product (%)
Multifamily			1d			Rental Vacancy Rate (%) & Housing Price Index – Case-Schiller (%)
Owner Occupied CRE			1e1			National Unemployment (%) & Gross Domestic Product (%)
Non-Owner Occupied CRE			1e2,1b,8			National Unemployment (%) & Gross Domestic Product (%)
Commercial & Industrial, Agricultural, Non-Depository Financial Institutions, Purchase/Carry Securities, Other			4a, 3, 9a, 9b1, 9b2, 10, Other			National Unemployment (%) & National Retail Sales (%)
Consumer Auto			6c			National Unemployment (%) & National Retail Sales (%)
Other Consumer			6b, 6d			National Unemployment (%) & National Retail Sales (%)
Other Consumer - SPF			6d			National Unemployment (%)

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

The combination of adjustments for credit expectations (default and loss) and time expectations prepayment, curtailment, and time to recovery produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.

Construction/Land Development and Other Commercial Real Estate Loans. We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized (where defined) over a 15 to 30 year period with balloon payments due at the end of one to five years. These loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis.

Residential Real Estate Loans. We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas. Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to many factors including the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.

Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally, accounts receivable are financed at between 50% and 80% of accounts receivable less than 60 days past due. Inventory financing will range between 50% and 80% (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans.

Consumer & Other Loans. Our consumer & other loans are primarily composed of loans to finance USCG registered high-end sail and power boats. The performance of consumer & other loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.

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Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit loss on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The Company uses the DCF method to estimate expected losses for all of the Company’s off-balance sheet credit exposures through the use of the existing DCF models for the Company’s loan portfolio pools. The off-balance sheet credit exposures exhibit similar risk characteristics as loans currently in the Company’s loan portfolio.

ASC 326 requires that both a discount and allowance for credit losses be recorded on loans during an acquisition. The Company completed the acquisition of Happy on April 1, 2022. As a result, the Company recorded $4.3 million in net loan discounts and a $16.8 million increase in the allowance for credit losses related to PCD loans. In addition, the Company recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count" and an $11.4 million provision for credit losses on acquired unfunded commitments.

The following table presents the activity in the allowance for credit losses for the three and six months ended June 30, 2022:

			Three Months Ended June 30, 2022
			Construction/ Land Development						Other Commercial Real Estate						Residential Real Estate						Commercial & Industrial						Consumer & Other						Total
			(In thousands)
Allowance for credit losses:
Beginning balance			$	26,349					$	95,876					$	37,111					$	52,492					$	22,940					$	234,768
Allowance for credit losses on PCD loans - Happy acquisition			950						9,283						980						5,596						7						16,816
Loans charged off			—						—						(39)						—						(3,226)						(3,265)
Recoveries of loans previously charged off			302						52						23						221						180						778
Net loans recovered (charged off)			302						52						(16)						221						(3,046)						(2,487)
Provision for credit losses - acquired loans			7,205						18,711						7,380						11,303						571						45,170
Provision for credit losses			1,883						(8,727)						5,691						(1,303)						2,456						—
Balance, June 30			$	36,689					$	115,195					$	51,146					$	68,309					$	22,928					$	294,267

			Six Months Ended June 30, 2022
			Construction/ Land Development						Other Commercial Real Estate						Residential Real Estate						Commercial & Industrial						Consumer & Other						Total
			(In thousands)
Allowance for credit losses:
Beginning balance			$	28,415					$	87,218					$	48,458					$	53,062					$	19,561					$	236,714
Allowance for credit losses on PCD loans - Happy acquisition			950						9,283						980						5,596						7						16,816
Loans charged off			—						—						(289)						(1,416)						(3,870)						(5,575)
Recoveries of loans previously charged off			317						78						49						330						368						1,142
Net loans recovered (charged off)			317						78						(240)						(1,086)						(3,502)						(4,433)
Provision for credit losses - acquired loans			7,205						18,711						7,380						11,303						571						45,170
Provision for credit losses			(198)						(95)						(5,432)						(566)						6,291						—
Balance, June 30			$	36,689					$	115,195					$	51,146					$	68,309					$	22,928					$	294,267

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The following table presents the balances in the allowance for credit losses for the six-month period ended June 30, 2021 and the year ended December 31, 2021:

			Six Months Ended June 30, 2021 and Year Ended December 31, 2021
			Construction/ Land Development						Other Commercial Real Estate						Residential Real Estate						Commercial & Industrial						Consumer & Other						Total
			(In thousands)
Allowance for credit losses:
Beginning balance			$	32,861					$	88,453					$	53,216					$	46,530					$	24,413					$	245,473
Loans charged off			—						(637)						(323)						(4,210)						(900)						(6,070)
Recoveries of loans previously charged    off			39						68						166						302						473						1,048
Net loans recovered (charged off)			39						(569)						(157)						(3,908)						(427)						(5,022)
Provision for credit loss - loans			(10,755)						5,243						(1,877)						9,660						(2,271)						—
Balance, June 30			22,145						93,127						51,182						52,282						21,715						240,451
Loans charged off			—						(9)						(222)						(4,032)						(1,328)						(5,591)
Recoveries of loans previously charged     off			19						717						517						289						312						1,854
Net loans recovered (charged off)			19						708						295						(3,743)						(1,016)						(3,737)
Provision for credit loss - loans			6,251						(6,617)						(3,019)						4,523						(1,138)						—
Balance, December 31			$	28,415					$	87,218					$	48,458					$	53,062					$	19,561					$	236,714

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing as of June 30, 2022 and December 31, 2021:

			June 30, 2022
			Nonaccrual						Nonaccrual with Reserve						Loans Past Due Over 90 Days Still Accruing
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	14,247					$	2,137					$	10,712
Construction/land development			1,050						—						246
Agricultural			194						—						711
Residential real estate loans
Residential 1-4 family			17,210						—						2,378
Multifamily residential			156						—						—
Total real estate			32,857						2,137						14,047
Consumer			1,321						—						43
Commercial and industrial			8,698						2,268						2,342
Agricultural & other			1,294						—						—
Total			$	44,170					$	4,405					$	16,432

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			December 31, 2021
			Nonaccrual						Nonaccrual with Reserve						Loans Past Due Over 90 Days Still Accruing
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	11,923					$	2,212					$	2,225
Construction/land development			1,445						—						—
Agricultural			897						—						—
Residential real estate loans
Residential 1-4 family			16,198						3,000						701
Multifamily residential			156						—						—
Total real estate			30,619						5,212						2,926
Consumer			1,648						—						2
Commercial and industrial			13,875						4,018						107
Agricultural & other			1,016						—						—
Total			$	47,158					$	9,230					$	3,035

The Company had $44.2 million and $47.2 million in nonaccrual loans for the periods ended June 30, 2022 and December 31, 2021, respectively. In addition, the Company had $16.4 million and $3.0 million in loans past due 90 days or more and still accruing for the periods ended June 30, 2022 and December 31, 2021, respectively.

The Company had $4.4 million and $9.2 million in nonaccrual loans with a specific reserve as of June 30, 2022 and December 31, 2021, respectively. The Company did not recognize any interest income on nonaccrual loans during the period ended June 30, 2022 or June 30, 2021.

The following table presents the amortized cost basis of collateral-dependent impaired loans by class of loans as of June 30, 2022 and December 31, 2021:

			June 30, 2022
			Commercial Real Estate						Residential Real Estate						Other
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	330,460					$	—					$	—
Construction/land development			1,296						—						—
Agricultural			905						—						—
Residential real estate loans
Residential 1-4 family			—						20,714						—
Multifamily residential			—						1,108						—
Total real estate			332,661						21,822						—
Consumer			—						—						1,376
Commercial and industrial			—						—						27,326
Agricultural & other			—						—						1,915
Total			$	332,661					$	21,822					$	30,617

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			December 31, 2021
			Commercial Real Estate						Residential Real Estate						Other
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	283,919					$	—					$	—
Construction/land development			4,775						—						—
Agricultural			897						—						—
Residential real estate loans
Residential 1-4 family			—						19,775						—
Multifamily residential			—						1,300						—
Total real estate			289,591						21,075						—
Consumer			—						—						1,663
Commercial and industrial			—						—						18,193
Agricultural & other			—						—						1,016
Total			$	289,591					$	21,075					$	20,872

The Company had $385.1 million and $331.5 million in collateral-dependent impaired loans for the periods ended June 30, 2022 and December 31, 2021, respectively.

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral-dependent impaired loans, excluding lodging and assisted living loans, 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 losses is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan 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 loan 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 cost basis of the loan exceeds the fair value of the underlying collateral less estimated costs 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 loan.

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The following is an aging analysis for loans receivable as of June 30, 2022 and December 31, 2021:

			June 30, 2022
			Loans Past Due 30-59 Days						Loans Past Due 60-89 Days						Loans Past Due 90 Days or More						Total Past Due						Current Loans						Total Loans Receivable						Accruing Loans Past Due 90 Days or More
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	14,579					$	1,871					$	24,959					$	41,409					$	5,051,130					$	5,092,539					$	10,712
Construction/land development			3,553						2,145						1,296						6,994						2,588,390						2,595,384						246
Agricultural			4,106						337						905						5,348						323,758						329,106						711
Residential real estate loans
Residential 1-4 family			3,729						4,404						19,588						27,721						1,680,500						1,708,221						2,378
Multifamily residential			54						—						156						210						389,423						389,633						—
Total real estate			26,021						8,757						46,904						81,682						10,033,201						10,114,883						14,047
Consumer			701						122						1,364						2,187						1,104,156						1,106,343						43
Commercial and industrial			7,996						1,140						11,040						20,176						2,167,595						2,187,771						2,342
Agricultural & other			658						72						1,294						2,024						512,852						514,876						—
Total			$	35,376					$	10,091					$	60,602					$	106,069					$	13,817,804					$	13,923,873					$	16,432

			December 31, 2021
			Loans Past Due 30-59 Days						Loans Past Due 60-89 Days						Loans Past Due 90 Days or More						Total Past Due						Current Loans						Total Loans Receivable						Accruing Loans Past Due 90 Days or More
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	1,434					$	576					$	14,148					$	16,158					$	3,873,126					$	3,889,284					$	2,225
Construction/land development			92						22						1,445						1,559						1,848,491						1,850,050						—
Agricultural			—						472						897						1,369						129,305						130,674						—
Residential real estate loans
Residential 1-4 family			1,633						3,560						16,899						22,092						1,252,861						1,274,953						701
Multifamily residential			—						—						156						156						280,681						280,837						—
Total real estate			3,159						4,630						33,545						41,334						7,384,464						7,425,798						2,926
Consumer			60						205						1,650						1,915						823,604						825,519						2
Commercial and industrial			958						316						13,982						15,256						1,371,491						1,386,747						107
Agricultural and other			587						2						1,016						1,605						196,420						198,025						—
Total			$	4,764					$	5,153					$	50,193					$	60,110					$	9,775,979					$	9,836,089					$	3,035

Non-accruing loans at June 30, 2022 and December 31, 2021 were $44.2 million and $47.2 million, respectively.

Interest recognized on impaired loans, including those loans with a specific reserve, during the three and six months ended June 30, 2022 was approximately $4.8 million and $9.5 million, respectively. Interest recognized on impaired loans, including those loans with a specific reserve, during the three and six months ended June 30, 2021 was approximately $3.6 million and $7.1 million, respectively. The amount of interest recognized on impaired loans on the cash basis is not materially different than the accrual basis.

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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 risk rating of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans and (v) the general economic conditions in Arkansas, Florida, Texas, Alabama and New York.

The Company utilizes a risk rating matrix to assign a risk rating to each of its loans. Loans are rated on a scale from 1 to 8. Descriptions of the general characteristics of the 8 risk ratings are as follows:

•Risk rating 1 – Excellent. Loans in this category are to persons or entities of unquestionable financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by bank certificates of deposit and savings accounts, with appropriate holds placed on the accounts, are to be rated in this category.

•Risk rating 2 – Good. These are loans to persons or entities with strong financial condition and above-average liquidity that have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements and on which repayment is satisfactory may be included in this classification.

•Risk rating 3 – Satisfactory. Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are included in this rating category. Overall, these loans are basically sound.

•Risk rating 4 – Watch. Borrowers who have marginal cash flow, marginal profitability or have experienced an unprofitable year and a declining financial condition characterize these loans. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure.

•Risk rating 5 – Other Loans Especially Mentioned (“OLEM”). A loan criticized as OLEM 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. OLEM assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.

•Risk rating 6 – Substandard. A loan classified as substandard is inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual assets.

•Risk rating 7 – Doubtful. A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the loan.

•Risk rating 8 – Loss. Assets classified as loss are considered uncollectible and of such little value that the continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may occur in the future. This classification is based upon current facts, not probabilities. Assets classified as loss should be charged-off in the period in which they became uncollectible.

The Company’s classified loans include loans in risk ratings 6, 7 and 8. Loans may be classified, but not considered impaired, due to one of the following reasons: (1) The Company has established minimum dollar amount thresholds for loan impairment testing. All loans over $2.0 million that are rated 5 – 8 are individually assessed for impairment on a quarterly basis. Loans rated 5 – 8 that fall under the threshold amount are not individually tested for impairment and therefore are not included in impaired loans; (2) of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impaired and are not included in impaired loans.

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Based on the most recent analysis performed, the risk category of loans by class of loans as of June 30, 2022 and December 31, 2021 is as follows:

			June 30, 2022
			Term Loans Amortized Cost Basis by Origination Year
			2022						2021						2020						2019						2018						Prior						Revolving Loans Amortized Cost Basis						Total
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential
Risk rating 1			$	—					$	—					$	—					$	245					$	—					$	161					$	—					$	406
Risk rating 2			—						—						—						122						—						4,188						—						4,310
Risk rating 3			168,978						512,718						295,392						299,302						354,655						970,977						219,357						2,821,379
Risk rating 4			185,605						310,791						184,980						177,523						400,884						464,893						134,386						1,859,062
Risk rating 5			8,462						—						4,181						14,622						36,376						232,972						95						296,708
Risk rating 6			876						—						12,785						29,675						5,630						61,442						266						110,674
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total non-farm/non-residential			363,921						823,509						497,338						521,489						797,545						1,734,633						354,104						5,092,539
Construction/land development
Risk rating 1			$	—					$	12					$	—					$	—					$	—					$	—					$	—					$	12
Risk rating 2			1,262						—						—						—						—						221						—						1,483
Risk rating 3			202,232						310,042						119,690						103,278						25,526						40,011						122,957						923,736
Risk rating 4			331,263						544,674						212,516						468,082						12,562						49,210						18,033						1,636,340
Risk rating 5			3,975						—						21,126						353						—						1,167						—						26,621
Risk rating 6			—						—						—						743						1						6,448						—						7,192
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total construction/land development			538,732						854,728						353,332						572,456						38,089						97,057						140,990						2,595,384
Agricultural
Risk rating 1			$	—					$	—					$	—					$	—					$	—					$	—					$	—					$	—
Risk rating 2			—						2,111						—						—						—						—						—						2,111
Risk rating 3			29,103						46,291						36,778						17,266						11,114						42,619						5,317						188,488
Risk rating 4			16,094						26,835						20,058						15,415						1,916						46,253						4,774						131,345
Risk rating 5			4,005						—						—						—						—						—						—						4,005
Risk rating 6			—						—						1,757						—						—						1,400						—						3,157
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total agricultural			49,202						75,237						58,593						32,681						13,030						90,272						10,091						329,106
Total commercial real estate loans			$	951,855					$	1,753,474					$	909,263					$	1,126,626					$	848,664					$	1,921,962					$	505,185					$	8,017,029
Residential real estate loans
Residential 1-4 family
Risk rating 1			$	—					$	—					$	—					$	—					$	—					$	118					$	37					$	155
Risk rating 2			—						—						—						—						—						115						—						115
Risk rating 3			228,300						254,988						183,584						122,093						105,793						361,623						105,987						1,362,368
Risk rating 4			25,964						41,184						66,127						12,130						18,418						71,178						70,261						305,262
Risk rating 5			2,734						180						—						3,066						501						1,557						186						8,224
Risk rating 6			—						2,180						2,413						3,825						2,414						17,814						3,450						32,096
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						1						—						1
Total residential 1-4 family			256,998						298,532						252,124						141,114						127,126						452,406						179,921						1,708,221

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			June 30, 2022
			Term Loans Amortized Cost Basis by Origination Year
			2022						2021						2020						2019						2018						Prior						Revolving Loans Amortized Cost Basis						Total
			(In thousands)
Multifamily residential
Risk rating 1			$	—					$	—					$	—					$	—					$	—					$	—					$	—					$	—
Risk rating 2			—						—						—						—						—						—						—						—
Risk rating 3			3,583						18,192						17,855						14,667						16,076						55,525						39,631						165,529
Risk rating 4			8,034						29,526						121,156						23,503						12,113						15,609						270						210,211
Risk rating 5			—						—						—						—						3,183						7,984						—						11,167
Risk rating 6			—						—						—						747						—						1,823						—						2,570
Risk rating 7			—						—						—						—						—						156						—						156
Risk rating 8			—						—						—						—						—						—						—						—
Total multifamily residential			11,617						47,718						139,011						38,917						31,372						81,097						39,901						389,633
Total real estate			$	1,220,470					$	2,099,724					$	1,300,398					$	1,306,657					$	1,007,162					$	2,455,465					$	725,007					$	10,114,883
Consumer
Risk rating 1			$	3,194					$	5,020					$	1,607					$	955					$	703					$	1,370					$	1,476					$	14,325
Risk rating 2			—						—						1						224						631						—						—						856
Risk rating 3			146,607						310,018						186,953						146,049						131,267						151,552						6,150						1,078,596
Risk rating 4			3,207						1,284						621						2,177						552						2,336						74						10,251
Risk rating 5			33						12						110						—						12						559						—						726
Risk rating 6			17						71						30						172						—						1,215						7						1,512
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						77						—						77
Total consumer			153,058						316,405						189,322						149,577						133,165						157,109						7,707						1,106,343
Commercial and industrial
Risk rating 1			$	920					$	32,090					$	6,644					$	304					$	29					$	21,677					$	7,979					$	69,643
Risk rating 2			170						307						81						197						—						254						546						1,555
Risk rating 3			176,716						166,123						89,398						79,402						48,010						95,750						282,994						938,393
Risk rating 4			26,642						231,306						49,175						123,869						80,950						57,810						494,944						1,064,696
Risk rating 5			283						6,156						28,092						361						7,239						9,480						806						52,417
Risk rating 6			18						577						12,237						4,462						24,553						11,165						6,122						59,134
Risk rating 7			—						—						—						—						1,634						299						—						1,933
Risk rating 8			—						—						—						—						—						—						—						—
Total commercial and industrial			204,749						436,559						185,627						208,595						162,415						196,435						793,391						2,187,771
Agricultural and other
Risk rating 1			$	136					$	727					$	114					$	—					$	—					$	5					$	746					$	1,728
Risk rating 2			73						123						—						3,467						34						968						1,795						6,460
Risk rating 3			107,154						41,975						32,179						6,170						10,553						48,565						123,477						370,073
Risk rating 4			8,981						18,330						3,635						13,824						2,101						11,582						75,742						134,195
Risk rating 5			—						8						203						—						—						1,311						—						1,522
Risk rating 6			—						57						194						16						—						631						—						898
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total agricultural and other			116,344						61,220						36,325						23,477						12,688						63,062						201,760						514,876
Total			$	1,694,621					$	2,913,908					$	1,711,672					$	1,688,306					$	1,315,430					$	2,872,071					$	1,727,865					$	13,923,873

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			December 31, 2021
			Term Loans Amortized Cost Basis by Origination Year
			2021						2020						2019						2018						2017						Prior						Revolving Loans Amortized Cost Basis						Total
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential
Risk rating 1			$	—					$	—					$	—					$	—					$	—					$	—					$	—					$	—
Risk rating 2			—						—						—						—						—						—						—						—
Risk rating 3			284,127						281,982						266,990						341,642						195,301						891,035						194,640						2,455,717
Risk rating 4			111,697						32,788						115,989						301,520						90,747						345,254						90,028						1,088,023
Risk rating 5			—						10,930						2,239						23,117						49,926						189,038						—						275,250
Risk rating 6			—						—						23,723						2,224						11,751						32,372						224						70,294
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total non-farm/non-residential			395,824						325,700						408,941						668,503						347,725						1,457,699						284,892						3,889,284
Construction/land development
Risk rating 1			$	—					$	—					$	—					$	—					$	—					$	—					$	—					$	—
Risk rating 2			—						—						—						—						—						231						—						231
Risk rating 3			301,719						183,715						108,491						23,574						13,760						41,860						149,433						822,552
Risk rating 4			226,230						217,267						448,899						33,617						45,679						38,122						7,297						1,017,111
Risk rating 5			—						—						388						—						—						1,174						176						1,738
Risk rating 6			—						134						825						3						—						7,456						—						8,418
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total construction/land development			527,949						401,116						558,603						57,194						59,439						88,843						156,906						1,850,050
Agricultural
Risk rating 1			$	—					$	—					$	—					$	—					$	—					$	—					$	—					$	—
Risk rating 2			—						—						—						—						—						—						—						—
Risk rating 3			21,480						27,931						7,768						6,564						5,103						21,689						7,026						97,561
Risk rating 4			4,305						964						365						970						655						22,143						2,065						31,467
Risk rating 5			—						166						—						—						—						—						—						166
Risk rating 6			—						44						—						—						—						1,436						—						1,480
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total agricultural			25,785						29,105						8,133						7,534						5,758						45,268						9,091						130,674
Total commercial real estate loans			$	949,558					$	755,921					$	975,677					$	733,231					$	412,922					$	1,591,810					$	450,889					$	5,870,008
Residential real estate loans
Residential 1-4 family
Risk rating 1			$	—					$	—					$	—					$	—					$	—					$	76					$	89					$	165
Risk rating 2			—						—						—						—						—						29						—						29
Risk rating 3			210,970						147,523						119,861						94,848						82,474						296,687						85,836						1,038,199
Risk rating 4			8,885						3,397						56,839						16,887						21,874						53,578						36,642						198,102
Risk rating 5			—						—						3,065						1,220						582						1,366						193						6,426
Risk rating 6			1,136						2,252						2,432						2,063						1,263						16,305						6,580						32,031
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						1						—						1
Total residential 1-4 family			220,991						153,172						182,197						115,018						106,193						368,042						129,340						1,274,953

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			December 31, 2021
			Term Loans Amortized Cost Basis by Origination Year
			2021						2020						2019						2018						2017						Prior						Revolving Loans Amortized Cost Basis						Total
			(In thousands)
Multifamily residential
Risk rating 1			$	—					$	—					$	—					$	—					$	—					$	—					$	—					$	—
Risk rating 2			—						—						—						—						—						—						—						—
Risk rating 3			11,898						5,211						34,492						17,375						9,430						43,804						3,583						125,793
Risk rating 4			3,755						44,294						30,060						3,412						2,981						18,805						33,723						137,030
Risk rating 5			—						—						—						7,591						8,105						—						—						15,696
Risk rating 6			—						—						—						—						890						1,428						—						2,318
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total multifamily residential			15,653						49,505						64,552						28,378						21,406						64,037						37,306						280,837
Total real estate			$	1,186,202					$	958,598					$	1,222,426					$	876,627					$	540,521					$	2,023,889					$	617,535					$	7,425,798
Consumer
Risk rating 1			$	4,441					$	1,799					$	1,237					$	920					$	226					$	1,383					$	1,893					$	11,899
Risk rating 2			—						—						45						639						—						8						—						692
Risk rating 3			221,986						173,511						132,148						109,810						67,992						92,076						1,098						798,621
Risk rating 4			3,547						923						2,944						1,776						158						2,641						79						12,068
Risk rating 5			—						116						—						15						—						131						—						262
Risk rating 6			69						34						39						117						—						1,711						7						1,977
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total consumer			230,043						176,383						136,413						113,277						68,376						97,950						3,077						825,519
Commercial and industrial
Risk rating 1			$	99,579					$	12,752					$	350					$	118					$	102					$	21,436					$	9,851					$	144,188
Risk rating 2			175						16						—						—						66						276						168						701
Risk rating 3			125,071						59,056						77,130						67,944						34,733						42,905						145,247						552,086
Risk rating 4			244,927						35,350						89,558						91,840						23,616						34,566						88,750						608,607
Risk rating 5			6,185						609						480						8,258						5,712						2,851						582						24,677
Risk rating 6			492						15,377						5,913						24,941						5,477						2,233						342						54,775
Risk rating 7			—						—						—						1,696						—						—						—						1,696
Risk rating 8			—						—						—						—						—						16						1						17
Total commercial and industrial			476,429						123,160						173,431						194,797						69,706						104,283						244,941						1,386,747
Agricultural and other
Risk rating 1			$	5,042					$	—					$	40					$	—					$	—					$	110					$	552					$	5,744
Risk rating 2			—						—						3,467						—						—						909						983						5,359
Risk rating 3			54,534						44,030						5,158						7,092						2,009						46,570						8,750						168,143
Risk rating 4			1,544						218						154						1,590						1,226						1,224						10,842						16,798
Risk rating 5			—						—						—						—						—						1,297						—						1,297
Risk rating 6			53						—						23						13						33						562						—						684
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total agricultural and other			61,173						44,248						8,842						8,695						3,268						50,672						21,127						198,025
Total			$	1,953,847					$	1,302,389					$	1,541,112					$	1,193,396					$	681,871					$	2,276,794					$	886,680					$	9,836,089

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The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. The Company also evaluates credit quality based on the aging status of the loan, which was previously presented and by payment activity. The following tables present the amortized cost of performing and nonperforming loans as of June 30, 2022 and December 31, 2021.

			June 30, 2022
			Term Loans Amortized Cost Basis by Origination Year
			2022						2021						2020						2019						2018						Prior						Revolving Loans Amortized Cost Basis						Total
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential
Performing			$	363,921					$	823,509					$	483,438					$	476,985					$	774,705					$	1,485,540					$	353,981					$	4,762,079
Non-performing			—						—						13,900						44,504						22,840						249,093						123						330,460
Total non-farm/non-residential			363,921						823,509						497,338						521,489						797,545						1,734,633						354,104						5,092,539
Construction/land development
Performing			$	538,732					$	854,677					$	353,332					$	571,712					$	37,933					$	96,712					$	140,990					$	2,594,088
Non-performing			—						51						—						744						156						345						—						1,296
Total construction/ land development			538,732						854,728						353,332						572,456						38,089						97,057						140,990						2,595,384
Agricultural
Performing			$	49,202					$	75,237					$	58,593					$	32,681					$	13,030					$	89,367					$	10,091					$	328,201
Non-performing			—						—						—						—						—						905						—						905
Total agricultural			49,202						75,237						58,593						32,681						13,030						90,272						10,091						329,106
Total commercial real estate loans			$	951,855					$	1,753,474					$	909,263					$	1,126,626					$	848,664					$	1,921,962					$	505,185					$	8,017,029
Residential real estate loans
Residential 1-4 family
Performing			$	256,998					$	297,261					$	249,716					$	137,945					$	125,699					$	442,616					$	177,272					$	1,687,507
Non-performing			—						1,271						2,408						3,169						1,427						9,790						2,649						20,714
Total residential 1-4 family			256,998						298,532						252,124						141,114						127,126						452,406						179,921						1,708,221
Multifamily residential
Performing			$	11,617					$	47,718					$	139,011					$	38,917					$	31,372					$	79,989					$	39,901					$	388,525
Non-performing			—						—						—						—						—						1,108						—						1,108
Total multifamily residential			11,617						47,718						139,011						38,917						31,372						81,097						39,901						389,633
Total real estate			$	1,220,470					$	2,099,724					$	1,300,398					$	1,306,657					$	1,007,162					$	2,455,465					$	725,007					$	10,114,883
Consumer
Performing			$	153,058					$	316,350					$	189,302					$	149,430					$	133,165					$	155,962					$	7,700					$	1,104,967
Non-performing			—						55						20						147						—						1,147						7						1,376
Total consumer			153,058						316,405						189,322						149,577						133,165						157,109						7,707						1,106,343
Commercial and industrial
Performing			$	204,749					$	435,803					$	182,667					$	204,643					$	153,210					$	192,144					$	787,229					$	2,160,445
Non-performing			—						756						2,960						3,952						9,205						4,291						6,162						27,326
Total commercial and industrial			204,749						436,559						185,627						208,595						162,415						196,435						793,391						2,187,771
Agricultural and other
Performing			$	116,344					$	61,220					$	36,122					$	23,461					$	12,688					$	61,852					$	201,274					$	512,961
Non-performing			—						—						203						16						—						1,210						486						1,915
Total agricultural and other			116,344						61,220						36,325						23,477						12,688						63,062						201,760						514,876
Total			$	1,694,621					$	2,913,908					$	1,711,672					$	1,688,306					$	1,315,430					$	2,872,071					$	1,727,865					$	13,923,873

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			December 31, 2021
			Term Loans Amortized Cost Basis by Origination Year
			2021						2020						2019						2018						2017						Prior						Revolving Loans Amortized Cost Basis						Total
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential
Performing			$	395,824					$	315,447					$	394,061					$	648,351					$	298,086					$	1,268,731					$	284,865					$	3,605,365
Non-performing			—						10,253						14,880						20,152						49,639						188,968						27						283,919
Total non-farm/non-residential			395,824						325,700						408,941						668,503						347,725						1,457,699						284,892						3,889,284
Construction/land development
Performing			$	527,949					$	400,982					$	557,778					$	57,024					$	59,439					$	85,197					$	156,906					$	1,845,275
Non-performing			—						134						825						170						—						3,646						—						4,775
Total construction/land development			527,949						401,116						558,603						57,194						59,439						88,843						156,906						1,850,050
Agricultural
Performing			$	25,785					$	28,939					$	8,133					$	7,534					$	5,758					$	44,537					$	9,091					$	129,777
Non-performing			—						166						—						—						—						731						—						897
Total agricultural			25,785						29,105						8,133						7,534						5,758						45,268						9,091						130,674
Total commercial real estate loans			$	949,558					$	755,921					$	975,677					$	733,231					$	412,922					$	1,591,810					$	450,889					$	5,870,008
Residential real estate loans
Residential 1-4 family
Performing			$	220,380					$	151,459					$	180,113					$	113,845					$	105,129					$	360,700					$	123,552					$	1,255,178
Non-performing			611						1,713						2,084						1,173						1,064						7,342						5,788						19,775
Total residential 1-4 family			220,991						153,172						182,197						115,018						106,193						368,042						129,340						1,274,953
Multifamily residential
Performing			$	15,653					$	49,505					$	64,552					$	28,378					$	21,406					$	62,737					$	37,306					$	279,537
Non-performing			—						—						—						—						—						1,300						—						1,300
Total multifamily residential			15,653						49,505						64,552						28,378						21,406						64,037						37,306						280,837
Total real estate			$	1,186,202					$	958,598					$	1,222,426					$	876,627					$	540,521					$	2,023,889					$	617,535					$	7,425,798
Consumer
Performing			$	229,986					$	176,355					$	136,403					$	113,160					$	68,376					$	96,506					$	3,070					$	823,856
Non-performing			57						28						10						117						—						1,444						7						1,663
Total consumer			230,043						176,383						136,413						113,277						68,376						97,950						3,077						825,519
Commercial and industrial
Performing			$	476,424					$	122,999					$	168,984					$	185,569					$	66,928					$	103,391					$	244,259					$	1,368,554
Non-performing			5						161						4,447						9,228						2,778						892						682						18,193
Total commercial and industrial			476,429						123,160						173,431						194,797						69,706						104,283						244,941						1,386,747
Agricultural and other
Performing			$	61,173					$	44,248					$	8,819					$	8,682					$	3,235					$	49,725					$	21,127					$	197,009
Non-performing			—						—						23						13						33						947						—						1,016
Total agricultural and other			61,173						44,248						8,842						8,695						3,268						50,672						21,127						198,025
Total			$	1,953,847					$	1,302,389					$	1,541,112					$	1,193,396					$	681,871					$	2,276,794					$	886,680					$	9,836,089

The Company had approximately $13.8 million or 83 total revolving loans convert to term loans for the six months ended June 30, 2022 compared to $21.7 million or 140 total revolving loans convert to term loans for the six months ended June 30, 2021. These loans were considered immaterial for vintage disclosure inclusion.

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The following is a presentation of troubled debt restructurings (“TDRs”) by class as of June 30, 2022 and December 31, 2021:

			June 30, 2022
			Number of Loans						Pre- Modification Outstanding Balance						Rate Modification						Term Modification						Rate & Term Modification						Post- Modification Outstanding Balance
			(Dollars in thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			11						$	6,085					$	3,404					$	608					$	82					$	4,094
Construction/land development			1						216						199						—						—						199
Agricultural			—						—						—						—						—						—
Residential real estate loans
Residential 1-4 family			14						2,166						660						112						299						1,071
Multifamily residential			1						1,130						952						—						—						952
Total real estate			27						9,597						5,215						720						381						6,316
Consumer			4						23						12						—						3						15
Commercial and industrial			10						2,099						152						41						74						267
Total			41						$	11,719					$	5,379					$	761					$	458					$	6,598

			December 31, 2021
			Number of Loans						Pre- Modification Outstanding Balance						Rate Modification						Term Modification						Rate & Term Modification						Post- Modification Outstanding Balance
			(Dollars in thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			12						$	6,119					$	3,581					$	623					$	85					$	4,289
Construction/land development			2						240						210						1						—						211
Agricultural			1						282						262						—						—						262
Residential real estate loans
Residential 1-4 family			15						2,328						844						117						332						1,293
Multifamily residential			1						1,130						1,144						—						—						1,144
Total real estate			31						10,099						6,041						741						417						7,199
Consumer			4						22						13						—						3						16
Commercial and industrial			9						2,353						172						65						74						311
Total			44						$	12,474					$	6,226					$	806					$	494					$	7,526

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The following is a presentation of TDRs on non-accrual status as of June 30, 2022 and December 31, 2021 because they are not in compliance with the modified terms:

			June 30, 2022												December 31, 2021
			Number of Loans						Recorded Balance						Number of Loans						Recorded Balance
			(Dollars in thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			1						$	5					2						$	7
Construction/land development			1						199						1						210
Agricultural			—						—						1						262
Residential real estate loans
Residential 1-4 family			5						352						5						388
Total real estate			7						556						9						867
Consumer			3						3						3						3
Commercial and industrial			8						176						6						206
Total			18						$	735					18						$	1,076

The following is a presentation of total foreclosed assets as of June 30, 2022 and December 31, 2021:

			June 30, 2022						December 31, 2021
			(In thousands)
Commercial real estate loans
Non-farm/non-residential			$	49					$	536
Construction/land development			55						834
Residential real estate loans
Residential 1-4 family			269						260
Total foreclosed assets held for sale			$	373					$	1,630

The Company has purchased loans for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. As of June 30, 2022 and December 31, 2021, the balance of purchase credit deteriorated loans was approximately $152.3 million and $448,000, respectively. This balance, as of June 30, 2022, consisted of $151.8 million resulting from the acquisition of Happy and $432,000 from the acquisition of LH-Finance.

6. Goodwill and Core Deposits and Other Intangibles

Changes in the carrying amount and accumulated amortization of the Company’s goodwill and core deposits and other intangibles at June 30, 2022 and December 31, 2021, were as follows:

			June 30, 2022						December 31, 2021
			(In thousands)
Goodwill
Balance, beginning of period			$	973,025					$	973,025
Acquisition of Happy Bancshares			425,375						—
Balance, end of period			$	1,398,400					$	973,025

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			June 30, 2022						December 31, 2021
			(In thousands)
Core Deposit and Other Intangibles
Balance, beginning of period			$	25,045					$	30,728
Acquisition of Happy Bancshares			42,263						—
Amortization expense			(3,898)						(2,842)
Balance, June 30			63,410						27,886
Amortization expense									(2,841)
Balance, end of year									$	25,045

The carrying basis and accumulated amortization of core deposits and other intangibles at June 30, 2022 and December 31, 2021 were:

			June 30, 2022						December 31, 2021
			(In thousands)
Gross carrying basis			$	128,888					$	86,625
Accumulated amortization			(65,478)						(61,580)
Net carrying amount			$	63,410					$	25,045

Core deposit and other intangible amortization expense was approximately $2.5 million and $1.4 million for the three months ended June 30, 2022 and 2021, respectively. Core deposit and other intangible amortization expense was approximately $3.9 million and $2.8 million for the six months ended June 30, 2022 and 2021, respectively. The Company’s estimated amortization expense of core deposits and other intangibles for each of the years 2022 through 2026 is approximately: 2022 – $8.9 million; 2023 – $9.7 million; 2024 – $8.5 million; 2025 – $8.1 million; 2026 – $7.8 million.

The carrying amount of the Company’s goodwill was $1.40 billion and $973.0 million at June 30, 2022 and December 31, 2021, respectively. Goodwill is tested annually for impairment during the fourth quarter or more often if events and circumstances indicate there may be an 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 consolidated financial statements.

7. Other Assets

Other assets consist primarily of equity securities without a readily determinable fair value and other miscellaneous assets. As of June 30, 2022 and December 31, 2021, other assets were $271.0 million and $177.0 million, respectively.

The Company has equity securities without readily determinable fair values such as stock holdings in the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank (“Federal Reserve”) which are outside the scope of ASC Topic 321, Investments – Equity Securities (“ASC Topic 321”). These equity securities without a readily determinable fair value were $112.1 million and $88.2 million at June 30, 2022 and December 31, 2021, and are accounted for at cost.

The Company has equity securities such as stock holdings in First National Bankers’ Bank and other miscellaneous holdings which are accounted for under ASC Topic 321. These equity securities without a readily determinable fair value were $70.3 million and $36.4 million at June 30, 2022 and December 31, 2021. There were no observable transactions during the period that would indicate a material change in fair value. Therefore, these investments were accounted for at cost, less impairment.

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8. Deposits

The aggregate amount of time deposits with a minimum denomination of $250,000 was $353.2 million and $321.6 million at June 30, 2022 and December 31, 2021. The aggregate amount of time deposits with a minimum denomination of $100,000 was $688.2 million and $537.4 million at June 30, 2022 and December 31, 2021, respectively. Interest expense applicable to certificates in excess of $100,000 totaled $661,000 and $2.0 million for the three months ended June 30, 2022 and 2021. Interest expense applicable to certificates in excess of $100,000 totaled $1.4 million and $4.4 million for the six months ended June 30, 2022 and 2021. As of June 30, 2022 and December 31, 2021, brokered deposits were $626.9 million and $625.7 million, respectively.

Deposits totaling approximately $2.69 billion and $1.91 billion at June 30, 2022 and December 31, 2021, respectively, were public funds obtained primarily from state and political subdivisions in the United States.

9. Securities Sold Under Agreements to Repurchase

At June 30, 2022 and December 31, 2021, securities sold under agreements to repurchase totaled $118.6 million and $140.9 million, respectively. For the three-month periods ended June 30, 2022 and 2021, securities sold under agreements to repurchase daily weighted-average totaled $123.1 million and $157.6 million, respectively. For the six-month periods ended June 30, 2022 and 2021, securities sold under agreements to repurchase daily weighted-average totaled $130.2 million and $158.6 million, respectively.

The remaining contractual maturity of securities sold under agreements to repurchase in the consolidated balance sheets as of June 30, 2022 and December 31, 2021 is presented in the following tables:

			June 30, 2022
			Overnight and Continuous						Up to 30 Days						30-90 Days						Greater than 90 Days						Total
			(In thousands)
Securities sold under agreements to repurchase:
U.S. government-sponsored enterprises			$	6,540					$	—					$	—					$	—					$	6,540
Mortgage-backed securities			3,300						—						—						—						3,300
State and political subdivisions			105,319						—						—						—						105,319
Other securities			3,414						—						—						—						3,414
Total borrowings			$	118,573					$	—					$	—					$	—					$	118,573

			December 31, 2021
			Overnight and Continuous						Up to 30 Days						30-90 Days						Greater than 90 Days						Total
			(In thousands)
Securities sold under agreements to repurchase:
U.S. government-sponsored enterprises			$	8,433					$	—					$	—					$	—					$	8,433
Mortgage-backed securities			7,920						—						—						—						7,920
State and political subdivisions			122,173						—						—						—						122,173
Other securities			2,360						—						—						—						2,360
Total borrowings			$	140,886					$	—					$	—					$	—					$	140,886

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10. FHLB and Other Borrowed Funds

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $400.0 million at both June 30, 2022 and December 31, 2021. The Company had no other borrowed funds as of June 30, 2022 or December 31, 2021. At June 30, 2022 and December 31, 2021, all of the outstanding balances were classified as long-term advances. The FHLB advances mature in 2033 with fixed interest rates ranging from 1.76% to 2.26%. Expected maturities could differ from contractual maturities because FHLB may have the right to call or the Company may have the right to prepay certain obligations.

Additionally, the Company had $1.09 billion and $1.07 billion at June 30, 2022 and December 31, 2021, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits at June 30, 2022 and December 31, 2021, respectively.

The parent company took out a $20.0 million line of credit for general corporate purposes during 2015. The balance on this line of credit at June 30, 2022 and December 31, 2021 was zero.

11. Subordinated Debentures

Subordinated debentures at June 30, 2022 and December 31, 2021 consisted of subordinated debt securities and guaranteed payments on trust preferred securities with the following components:

			As of June 30, 2022						As of December 31, 2021
			(In thousands)
Trust preferred securities
Subordinated debentures, issued in 2004, due 2034, floating rate of 4.00% above the three-month LIBOR rate, reset quarterly, currently callable without penalty			$	2,165					$	—
Subordinated debentures, issued in 2003, due 2034, floating rate of 2.95% above the three-month LIBOR rate, reset quarterly, currently callable without penalty			10,310						—
Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15% above the three-month LIBOR rate, reset quarterly, currently callable without penalty			5,155						4,501
Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75% during the first five years and at a floating rate of 1.85% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty			—						3,093
Subordinated debentures, issued in 2004, due 2034, fixed rate of 6.00% during the first five years and at a floating rate of 2.00% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty			—						15,464
Subordinated debentures, issued in 2005, due 2035, fixed rate of 5.84% during the first five years and at a floating rate of 1.45% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty			—						25,774
Subordinated debentures, issued in 2004, due 2034, fixed rate of 4.29% during the first five years and at a floating rate of 2.50% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty			—						16,495
Subordinated debentures, issued in 2006, due 2036, fixed rate of 7.38% during the first five years and at a floating rate of 1.62% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty			—						5,942
Subordinated debt securities
Subordinated notes, net of issuance costs, issued in 2020, due 2030, fixed rate of 5.50% during the first five years and at a floating rate of 534.5 basis points above the then three-month SOFR rate, reset quarterly, thereafter, callable in 2025 without penalty			144,063						—
Subordinated notes, net of issuance costs, issued in 2022, due 2032, fixed rate of 3.125% during the first five years and at a floating rate of 182 basis points above the then three-month SOFR rate, reset quarterly, thereafter, callable in 2027 without penalty			296,762						—
Subordinated notes, net of issuance costs, issued in 2017, due 2027, fixed rate of 5.625% during the first five years and at a floating rate of 3.575% above the then three-month LIBOR rate, reset quarterly, thereafter, callable in 2022 without penalty			—						299,824
Total			$	458,455					$	371,093

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Trust Preferred Securities. The Company holds trust preferred securities with a face amount of $17.6 million which are currently callable without penalty based on the terms of the specific agreements. The trust preferred securities are tax-advantaged issues that previously qualified for Tier 1 capital treatment subject to certain limitations. However, now that the Company has exceeded $15 billion in assets and has completed the acquisition of Happy Bancshares, the Tier 1 treatment of the Company’s outstanding trust preferred securities has been eliminated, and these securities are now treated as Tier 2 capital. Distributions on these securities are included in interest expense. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in the Company’s subordinated debentures, the sole asset of each trust. The trust 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 subordinated debentures held by the trust. The Company wholly owns the common securities of each trust. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related subordinated debentures. The Company’s obligations under the subordinated securities and other relevant trust agreements, in 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 has received approval from the Federal Reserve to redeem the trust preferred securities, and is in the process of redeeming all of its trust preferred securities.

On April 1, 2022, the Company acquired $23.2 million in trust preferred securities from Happy which were currently callable without penalty based on the terms of the specific agreements. During the quarter, $10.7 million of these trust preferred securities were paid off without penalty. As of June 30, 2022, the Company held a face amount of $12.5 million in trust preferred securities acquired from Happy.

During the second quarter of 2022, the Company chose to redeem an additional $68.1 million in trust preferred securities held prior to the acquisition of Happy. As of June 30, 2022, the Company's remaining balance of trust preferred securities which were held prior to the acquisition of Happy was $5.1 million.

Subordinated Debt Securities. On April 1, 2022, the Company acquired $140.0 million of subordinated notes from Happy. These notes have a maturity date of July 31, 2030 and carry a fixed rate of 5.500% for the first five years. Thereafter, the notes bear interest at 3-month Secured Overnight Funding Rate (SOFR) plus 5.345% resetting quarterly. Interest payments are due semi-annually and the notes include a right of prepayment without penalty on or after July 31, 2025.

On January 18, 2022, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 3.125% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “2032 Notes”) for net proceeds, after underwriting discounts and issuance costs of approximately $296.4 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. From and including the date of issuance to, but excluding January 30, 2027 or the date of earlier redemption, the 2032 Notes will bear interest at an initial rate of 3.125% per annum, payable in arrears on January 30 and July 30 of each year. From and including January 30, 2027 to, but excluding the maturity date or earlier redemption, the 2032 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be Three-Month Term SOFR), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2032 Notes, plus 182 basis points, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on April 30, 2027.

The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.

On April 3, 2017, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 5.625% Fixed-to-Floating Rate Subordinated Notes due 2027 (the “2027 Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $297.0 million. The 2027 Notes are unsecured, subordinated debt obligations and mature on April 15, 2027. From and including the date of issuance to, but excluding April 15, 2022, the 2027 Notes bear interest at an initial rate of 5.625% per annum. From and including April 15, 2022 to, but excluding the maturity date or earlier redemption, the 2027 Notes bear interest at a floating rate equal to three-month LIBOR as calculated on each applicable date of determination plus a spread of 3.575%; provided, however, that in the event three-month LIBOR is less than zero, then three-month LIBOR shall be deemed to be zero.

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The Company, beginning with the interest payment date of April 15, 2022, and on any interest payment date thereafter, was permitted to redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. On April 15, 2022, the Company completed the payoff of the 2027 Notes in aggregate principal amount of $300.0 million. Each 2027 Note was redeemed pursuant to the terms of the Subordinated Indenture, as supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S. Bank Trust Company, National Association, the Trustee for the 2027 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date.

12. Income Taxes

The following is a summary of the components of the provision for income taxes for the three and six months ended June 30, 2022 and 2021:

			For the Three Months Ended June 30,												For the Six Months Ended June 30,
			2022						2021						2022						2021
			(In thousands)
Current:
Federal			$	19,242					$	15,175					$	33,207					$	38,058
State			5,077						5,024						8,761						12,599
Total current			24,319						20,199						41,968						50,657
Deferred:
Federal			(16,636)						3,661						(14,752)						2,488
State			(4,389)						1,212						(3,893)						823
Total deferred			(21,025)						4,873						(18,645)						3,311
Income tax expense			$	3,294					$	25,072					$	23,323					$	53,968

The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows for the three and six months ended June 30, 2022 and 2021:

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Statutory federal income tax rate			21.00		%				21.00		%				21.00		%				21.00		%
Effect of non-taxable interest income			(8.30)						(1.03)						(2.53)						(0.97)
Stock compensation			0.90						0.16						0.58						0.25
State income taxes, net of federal benefit			(4.38)						4.18						2.56						4.22
Executive officer compensation & other			7.87						(0.24)						0.77						(0.48)
Effective income tax rate			17.09		%				24.07		%				22.38		%				24.02		%

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The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows:

			June 30, 2022						December 31, 2021
			(In thousands)
Deferred tax assets:
Allowance for credit losses			$	84,584					$	68,644
Deferred compensation			5,310						5,342
Stock compensation			6,211						5,044
Non-accrual interest income			1,914						694
Real estate owned			109						109
Unrealized loss on investment securities, available-for-sale			72,534						—
Loan discounts			8,550						4,169
Tax basis premium/discount on acquisitions			2,216						3,220
Investments			34,527						263
Deposits			207						—
Other			17,392						5,283
Gross deferred tax assets			233,554						92,768
Deferred tax liabilities:
Accelerated depreciation on premises and equipment			4,095						761
Unrealized gain on securities			—						4,220
Core deposit intangibles			15,360						5,736
FHLB dividends			2,782						2,820
Other			2,732						941
Gross deferred tax liabilities			24,969						14,478
Net deferred tax assets			$	208,585					$	78,290

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and the states of Alabama, Arizona, Arkansas, California, Florida, Georgia, Illinois, Kansas, Kentucky, Maryland, Mississippi, Missouri, New Hampshire, New Jersey, New York, New Mexico, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas and Wisconsin. The Company is no longer subject to U.S. federal and state tax examinations by tax authorities for years before 2018.

13. Common Stock, Compensation Plans and Other

Common Stock

The Company’s Restated Articles of Incorporation, as amended, authorize the issuance of up to 300,000,000 shares of common stock, par value $0.01 per share.

The Company also has the authority to issue up to 5,500,000 shares of preferred stock, par value $0.01 per share under the Company’s Restated Articles of Incorporation, as amended.

Stock Repurchases

On January 22, 2021, the Company’s Board of Directors authorized the repurchase of up to an additional 20,000,000 shares of its common stock under the previously approved stock repurchase program. During the first six months of 2022, the Company repurchased a total of 1,212,732 shares with a weighted-average stock price of $21.89 per share. Shares repurchased under the program as of June 30, 2022 since its inception total 18,874,067 shares. The remaining balance available for repurchase is 20,877,933 shares at June 30, 2022.

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Stock Compensation Plans

On January 21, 2022, the Company’s Board of Directors adopted, and on April 21, 2022, the Company's shareholders approved, the Home BancShares, Inc. 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan replaced the Company’s Amended and Restated 2006 Stock Option and Performance Incentive Plan (the “2006 Plan” and, together with the 2022 Plan, the “Plans”), which expired on February 27, 2022. The purpose of the Plans is to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate those persons to improve the Company’s business results. As of June 30, 2022, the maximum total number of shares of the Company’s common stock available for issuance under the 2022 Plan, subject to shareholder approval of the Plan, was 14,788,000 shares (representing 13,288,000 shares approved for issuance under the 2006 Plan plus 1,500,000 shares added upon adoption of the 2022 Plan). At June 30, 2022, the Company had 2,617,211 shares of common stock available for future grants under 2022 Plan, subject to shareholder approval of the 2022 Plan. As of June 30, 2022, a total of 5,761,527 shares of common stock were reserved for issuance pursuant to the Plans.

The intrinsic value of the stock options outstanding and stock options vested at June 30, 2022 was $5.7 million and $5.4 million, respectively. The intrinsic value of stock options exercised during the six months ended June 30, 2022 was approximately $259,000. Total unrecognized compensation cost, net of income tax benefit, related to non-vested stock option awards, which are expected to be recognized over the vesting periods, was approximately $5.5 million as of June 30, 2022.

The table below summarizes the stock option transactions under the 2022 Plan at June 30, 2022 and December 31, 2021 and changes during the three-month period and year then ended:

			For the Six Months Ended June 30, 2022												For the Year Ended December 31, 2021
			Shares (000)						Weighted- Average Exercisable Price						Shares (000)						Weighted- Average Exercisable Price
Outstanding, beginning of year			3,015						$	20.06					3,254						$	19.77
Granted			178						21.04						15						21.68
Forfeited/Expired			(29)						22.83						(57)						22.44
Exercised			(20)						10.63						(197)						14.78
Outstanding, end of period			3,144						20.14						3,015						20.06
Exercisable, end of period			1,813						$	18.46					1,543						$	17.46

Stock-based compensation expense for stock-based compensation awards granted is based on the grant-date fair value. 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 weighted-average fair value of options granted during the six months ended June 30, 2022 was $5.17 per share. There were 178,000 options granted during the six months ended June 30, 2022. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model based on the weighted-average assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate, and expected life of options granted.

The assumptions used in determining the fair value of the 2022 and 2021 stock option grants were as follows:

			For the Six Months Ended June 30, 2022						For the Year Ended December 31, 2021
Expected dividend yield			3.15		%				2.59		%
Expected stock price volatility			31.22		%				70.13		%
Risk-free interest rate			2.80		%				0.75		%
Expected life of options			6.5 years						6.5 years

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The following is a summary of currently outstanding and exercisable options at June 30, 2022:

Options Outstanding																								Options Exercisable
Exercise Prices						Options Outstanding Shares (000)						Weighted- Average Remaining Contractual Life (in years)						Weighted- Average Exercise Price						Options Exercisable Shares (000)						Weighted- Average Exercise Price
$6.56 to $8.62						140						0.55						$	8.62					140						$	8.62
$9.54 to $14.71						140						2.05						13.23						140						13.23
$16.77 to $16.86						130						2.14						16.80						130						16.80
$17.12 to $17.36						92						2.72						17.13						92						17.13
$17.40 to $18.46						871						3.13						18.45						738						18.45
$18.50 to $20.16						41						6.78						19.05						23						19.05
$20.46 to $21.25						293						6.58						20.79						149						21.10
$21.31 to $22.22						132						6.68						22.18						82						22.21
$22.70 to $23.32						1,208						6.06						23.32						246						23.32
$23.51 to $25.96						99						5.81						25.39						73						25.85
						3,144																		1,813

The table below summarized the activity for the Company’s restricted stock issued and outstanding at June 30, 2022 and December 31, 2021 and changes during the period and year then ended:

			As of June 30, 2022						As of December 31, 2021
			(In thousands)
Beginning of year			1,231						1,371
Issued			391						216
Vested			(177)						(320)
Forfeited			(31)						(36)
End of period			1,414						1,231
Amount of expense for six months and twelve months ended, respectively			$	3,664					$	7,112

Total unrecognized compensation cost, net of income tax benefit, related to non-vested restricted stock awards, which are expected to be recognized over the vesting periods, was approximately $19.2 million as of June 30, 2022.

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14. Non-Interest Expense

The table below shows the components of non-interest expense for the three and six months ended June 30, 2022 and 2021:

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(In thousands)
Salaries and employee benefits			$	65,795					$	42,462					$	109,346					$	84,521
Occupancy and equipment			14,256						9,042						23,400						18,279
Data processing expense			10,094						5,893						17,133						11,763
Merger and acquisition expenses			48,731						—						49,594						—
Other operating expenses:
Advertising			2,117						1,194						3,383						2,240
Amortization of intangibles			2,477						1,421						3,898						2,842
Electronic banking expense			3,352						2,616						5,890						4,854
Directors’ fees			375						414						779						797
Due from bank service charges			396						273						666						522
FDIC and state assessment			2,390						1,108						4,058						2,471
Insurance			973						787						1,743						1,568
Legal and accounting			1,061						1,058						1,858						1,904
Other professional fees			2,254						1,796						3,863						3,409
Operating supplies			995						465						1,749						952
Postage			556						292						862						630
Telephone			384						365						721						711
Other expense			9,276						3,796						13,435						8,385
Total other operating expenses			26,606						15,585						42,905						31,285
Total non-interest expense			$	165,482					$	72,982					$	242,378					$	145,848

15. Leases

The Company leases land and office facilities under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2044 and do not include renewal options based on economic factors that would have implied that continuation of the lease was reasonably certain. Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. The leases generally include real estate taxes and common area maintenance (“CAM”) charges in the rental payments. Short-term leases are leases having a term of twelve months or less. In accordance with ASU 2018-11, the Company does not separate nonlease components from the associated lease component of our operating leases. As a result, the Company accounts for these components as a single component under Topic 842 since (i) the timing and pattern of transfer of the nonlease components and the associated lease component are the same and (ii) the lease component, if accounted for separately, would be classified as an operating lease. The Company recognizes short term leases on a straight-line basis and does not record a related ROU asset and liability for such leases. In addition, equipment leases were determined to be immaterial and a related ROU asset and liability for such leases is not recorded.

As of June 30, 2022, the balances of the right-of-use asset and lease liability was $45.6 million and $48.7 million, respectively. As of December 31, 2021, the balances of the right-of-use asset and lease liability was $39.6 million and $42.4 million, respectively The right-of-use asset is included in bank premises and equipment, net, and the lease liability is included in accrued interest payable and other liabilities.

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The minimum rental commitments under these noncancelable operating leases are as follows (in thousands) as of June 30, 2022 and December 31, 2021:

			June 30, 2022						December 31, 2021
2022			$	4,547					$	7,714
2023			8,153						6,574
2024			7,296						6,001
2025			6,568						5,510
2026			6,308						5,389
Thereafter			30,335						24,999
Total future minimum lease payments			$	63,207					$	56,187
Discount effect of cash flows			(14,505)						(13,778)
Present value of net future minimum lease payments			$	48,702					$	42,409

Additional information (dollar amounts in thousands):

			For the Three Months Ended												Six Months Ended
Lease expense:			June 30, 2022						June 30, 2021						June 30, 2022						June 30, 2021
Operating lease expense			$	2,116					$	1,981					$	3,939					$	3,990
Short-term lease expense			—						1						1						5
Variable lease expense			218						251						443						508
Total lease expense			$	2,334					$	2,233					$	4,383					$	4,503
Other information:
Cash paid for amounts included in the measurement of lease liabilities			$	2,154					$	1,974					$	3,983					$	3,968
Weighted-average remaining lease term (in years)			9.33						9.75						9.42						9.84
Weighted-average discount rate			3.38		%				3.53		%				3.39		%				3.53		%

The Company currently leases three properties from three related parties. Total rent expense from the leases was $36,000 or 1.56% of total lease expense and $73,000 or 1.66% of total lease expense for the three and six months ended June 30, 2022.

16. Significant Estimates and Concentrations of Credit Risks

Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for credit losses and certain concentrations of credit risk are reflected in Note 5, while deposit concentrations are reflected in Note 8.

The Company’s primary market areas are in Arkansas, Florida, Texas, South Alabama and New York. The Company primarily grants loans to customers located within these markets unless the borrower has an established relationship with the Company.

The diversity of the Company’s economic base tends to provide a stable lending environment. Although the Company has a loan portfolio that is diversified in both industry and geographic area, a substantial portion of its debtors’ ability to honor their contracts is dependent upon real estate values, tourism demand and the economic conditions prevailing in its market areas.

Although the Company has a diversified loan portfolio, at June 30, 2022 and December 31, 2021, commercial real estate loans represented 57.6% and 59.7% of total loans receivable, respectively, and 229.2% and 212.2% of total stockholders’ equity at June 30, 2022 and December 31, 2021, respectively. Residential real estate loans represented 15.1% and 15.8% of total loans receivable and 60.0% and 56.3% of total stockholders’ equity at June 30, 2022 and December 31, 2021, respectively.

Approximately 78.0% of the Company’s total loans and 82.1% of the Company’s real estate loans as of June 30, 2022, are to borrowers whose collateral is located in Alabama, Arkansas, Florida, Texas and New York, the states in which the Company has its branch locations.

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As of June 30, 2022, the markets in which we operate have been experiencing significant economic uncertainty primarily related to inflationary concerns, continuing supply chain issues and the potential impacts of international unrest. However, excluding the impact of the acquisition of Happy Bancshares, the Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of June 30, 2022. In addition, excluding the impact of the acquisition of Happy Bancshares, the Company determined no additional provision for unfunded commitments was necessary as of June 30, 2022.

Any future volatility in the economy could cause the values of assets and liabilities recorded in the financial statements to change rapidly, resulting in material future adjustments in asset values, the allowance for credit losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.

17. Commitments and Contingencies

In the ordinary course of business, the Company makes various commitments and incurs certain contingent liabilities to fulfill the financing needs of its customers. These commitments and contingent liabilities include lines of credit and commitments to extend credit and issue standby letters of credit. The Company applies the same credit policies and standards as they do in the lending process when making these commitments. The collateral obtained is based on the assessed creditworthiness of the borrower.

At June 30, 2022 and December 31, 2021, commitments to extend credit of $4.47 billion and $3.05 billion, respectively, were outstanding. A percentage of these balances are participated out to other banks; therefore, the Company can call on the participating banks to fund future draws. Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

Outstanding standby letters of credit are contingent commitments issued by the Company, generally to guarantee the performance of a customer in third-party borrowing arrangements. The term of the guarantee is dependent upon the creditworthiness of the borrower, some of which are long-term. 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. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments. The maximum amount of future payments the Company could be required to make under these guarantees at June 30, 2022 and December 31, 2021, was $164.9 million and $110.8 million, respectively.

The Company and/or its bank subsidiary have various unrelated legal proceedings, most of which involve loan foreclosure activity pending, which, in the aggregate, are not expected to have a material adverse effect on the financial position or results of operations or cash flows of the Company and its subsidiary.

18. Regulatory Matters

The Bank is subject to a legal limitation on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the parent company without prior approval is 75% of the current year earnings plus 75% of the retained net earnings of the preceding year. Since the Bank is also under supervision of the Federal Reserve, it is further limited if the total of all dividends declared in any calendar year by the Bank exceeds the Bank’s net profits to date for that year combined with its retained net profits for the preceding two years. During the first six months of 2022, the Company requested approximately $53.1 million in regular dividends from its banking subsidiary.

The Company’s banking 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 consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s 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. Furthermore, the Company’s regulators could require adjustments to regulatory capital not reflected in the consolidated financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total, common Tier 1 equity and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of June 30, 2022, the Company meets all capital adequacy requirements to which it is subject.

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On December 31, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to permit bank holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 27, 2020, the federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows bank holding companies and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. The Company elected to adopt the interim final rule, which is reflected in the Company's risk-based capital ratios.

In July 2013, the Federal Reserve Board and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” and certain provisions of the Dodd-Frank Act (“Basel III”). Basel III applies to all depository institutions, bank holding companies with total consolidated assets of $500 million or more, and savings and loan holding companies. Basel III became effective for the Company and its bank subsidiary on January 1, 2015. Basel III limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” of 2.5% of common equity Tier 1 capital to risk-weighted assets, which is in addition to the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement began being phased in beginning January 1, 2016 at the 0.625% level and increased by 0.625% on each subsequent January 1, until it reached 2.5% on January 1, 2019 when the phase-in period ended, and the full capital conservation buffer requirement became effective.

Basel III permanently grandfathers trust preferred securities and other non-qualifying capital instruments that were issued and outstanding as of May 19, 2010 in the Tier 1 capital of bank holding companies with total consolidated assets of less than $15 billion as of December 31, 2009. The rule phases out of Tier 1 capital these non-qualifying capital instruments issued before May 19, 2010 by all other bank holding companies. However, now that the Company has exceeded $15 billion in assets and has completed the acquisition of Happy Bancshares, the Tier 1 treatment of the Company’s outstanding trust preferred securities has been eliminated, and these securities are now treated as Tier 2 capital.

Basel III also amended the prompt corrective action rules to incorporate a “common equity Tier 1 capital” requirement and to raise the capital requirements for certain capital categories. In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization will be required to have at least a 4.5% “common equity Tier 1 risk-based capital” ratio, a 4% “Tier 1 leverage capital” ratio, a 6% “Tier 1 risk-based capital” ratio and an 8% “total risk-based capital” ratio.

The Federal Reserve Board’s risk-based capital guidelines include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. Under Basel III, the criteria for a well-capitalized institution are now: a 6.5% “common equity Tier 1 risk-based capital” ratio, a 5% “Tier 1 leverage capital” ratio, an 8% “Tier 1 risk-based capital” ratio, and a 10% “total risk-based capital” ratio. As of June 30, 2022, the Bank met the capital standards for a well-capitalized institution. The Company’s “common equity Tier 1 risk-based capital” ratio, “Tier 1 leverage capital” ratio, “Tier 1 risk-based capital” ratio, and “total risk-based capital” ratio were 12.78%, 9.77%, 12.88%, and 16.61%, respectively, as of June 30, 2022.

19. Additional Cash Flow Information

In connection with the Happy acquisition, accounted for under ASC Topic 805, the Company acquired approximately $6.68 billion in assets, including $858.9 million in cash and cash equivalents, assumed $6.15 billion in liabilities, issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million.

The following is a summary of the Company’s additional cash flow information during the six-month periods ended:

			June 30,
			2022						2021
			(In thousands)
Interest paid			$	27,605					$	28,428
Income taxes paid			38,553						58,685
Assets acquired by foreclosure			9						1,951

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20. Financial Instruments

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is a hierarchy of three levels of inputs that may be used to measure fair values:

Level 1			Quoted prices in active markets for identical assets or liabilities
Level 2			Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices 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			Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers of financial instruments between levels within the fair value hierarchy are recognized on the date management determines that the underlying circumstances or assumptions have changed.

Financial Assets and Liabilities Measured on a Recurring Basis

Available-for-sale securities and marketable equity securities are the only material instruments valued on a recurring basis which are held by the Company at fair value. Primarily all of the Company's securities are considered to be Level 2 securities, with the exception of the marketable equity securities, which are considered to be Level 1 securities. The Level 2 securities consist primarily of U.S. government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions. 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 bond’s terms and conditions, among other things. As of June 30, 2022 and December 31, 2021, Level 3 securities were immaterial. In addition, there were no material transfers between hierarchy levels during 2022 and 2021. See Note 3 to the Condensed Notes to Consolidated Financial Statements for additional detail related to investment securities.

The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment portfolio securities with complicated structures. Pricing for the Company’s investment securities is fairly generic and is easily obtained. The Company uses a third-party comparison pricing vendor in order to reflect consistency in the fair values of the investment securities sampled by the Company each quarter.

Financial Assets and Liabilities Measured on a Nonrecurring Basis

Held-to-maturity investment securities and impaired loans that are collateral dependent are the only material financial assets valued on a non-recurring basis which are held by the Company at fair value. The held-to-maturity investment securities consist primarily of state and political subdivisions plus U.S. Treasury 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 bond’s terms and conditions, among other things. Loan impairment is reported when full payment under the loan terms is not expected. Impaired loans are carried at the net realizable value of the collateral if the loan is collateral dependent. A portion of the allowance for credit losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for credit losses to require an increase, such increase is reported as a component of the provision for credit losses. The fair value of loans with specific allocated losses was $323.1 million and $280.0 million as of June 30, 2022 and December 31, 2021, respectively. This valuation is considered Level 3, consisting of appraisals of underlying collateral. The Company reversed approximately $77,000 and $126,000 of accrued interest receivable when impaired loans were put on non-accrual status during the three months ended June 30, 2022 and 2021, respectively. The Company reversed approximately $149,000 and $184,000 of accrued interest receivable when impaired loans were put on non-accrual status during the six months ended June 30, 2022 and 2021, respectively.

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Nonfinancial Assets and Liabilities Measured on a Nonrecurring Basis

Foreclosed assets held for sale are the only material non-financial assets valued on a non-recurring basis which are held by the Company 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 held for sale is estimated using Level 3 inputs based on appraisals of underlying collateral. As of June 30, 2022 and December 31, 2021, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $373,000 and $1.6 million, respectively.

No foreclosed assets held for sale were remeasured during the six months ended June 30, 2022. Regulatory guidelines require the Company to reevaluate the fair value of foreclosed assets held for sale on at least an annual basis. The Company’s policy is to comply with the regulatory guidelines.

The significant unobservable (Level 3) inputs used in the fair value measurement of collateral for collateral-dependent impaired loans and foreclosed assets primarily relate to customized discounting criteria applied to the customer’s reported amount of collateral. The amount of the collateral discount depends upon the condition and marketability of the underlying collateral. As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount. During the reported periods, collateral discounts ranged from 10% to 60% for commercial and residential real estate collateral.

Fair Values of Financial Instruments

The following table presents the estimated fair values of the Company’s financial instruments. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

			June 30, 2022
			Carrying Amount						Fair Value						Level
			(In thousands)
Financial assets:
Cash and cash equivalents			$	2,816,376					$	2,816,376					1
Investment securities - available for sale			3,791,509						3,791,509						2
Investment securities - held-to-maturity (U.S. Treasuries)			277,688						276,029						1
Investment securities - held-to-maturity (state and political subdivisions)			1,089,093						997,251						2
Loans receivable, net of impaired loans and allowance			13,302,682						13,695,308						3
Accrued interest receivable			80,274						80,274						1
FHLB, FRB & FNBB Bank stock; other equity investments			182,399						182,399						3
Marketable equity securities			33,631						33,631						1
Financial liabilities:
Deposits:
Demand and non-interest bearing			$	6,036,583					$	6,036,583					1
Savings and interest-bearing transaction accounts			12,424,192						12,424,192						1
Time deposits			1,119,297						1,096,797						3
Securities sold under agreements to repurchase			118,573						118,573						1
FHLB and other borrowed funds			400,000						400,025						2
Accrued interest payable			9,203						9,203						1
Subordinated debentures			458,455						430,470						3

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			December 31, 2021
			Carrying Amount						Fair Value						Level
			(In thousands)
Financial assets:
Cash and cash equivalents			$	3,650,315					$	3,650,315					1
Investment securities - available for sale			3,119,807						3,119,807						2
Loans receivable, net of impaired loans and allowance			9,319,421						9,503,261						3
Accrued interest receivable			46,736						46,736						1
FHLB, FRB & FNBB Bank stock; other equity investments			124,638						124,638						3
Marketable equity securities			17,110						17,110						1
Financial liabilities:
Deposits:
Demand and non-interest bearing			$	4,127,878					$	4,127,878					1
Savings and interest-bearing transaction accounts			9,251,805						9,251,805						1
Time deposits			880,887						901,280						3
Securities sold under agreements to repurchase			140,886						140,886						1
FHLB and other borrowed funds			400,000						401,362						2
Accrued interest payable			4,798						4,798						1
Subordinated debentures			371,093						374,894						3

21. Recent Accounting Pronouncements

In December 31, 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in the update simplify the accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in the update also simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; however, an entity may elect to do so on an entity-by-entity basis for a legal entity that is both not subject to tax and disregarded by the taxing authority. The amendments require that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company adopted the guidance effective January 1, 2021, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In March 2020, the FASB issued ASU 2020-04,“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022.

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In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” The amendments in the update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in the update to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in this Update do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022.

In March 2022, the FASB issued ASU 2022-02, "Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." The amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The amendments require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with Subtopic 326-20, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. ASU 2022-02 is effective for entities that have adopted ASU No. 2016-13 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. These amendments should be applied prospectively. However, for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. Early adoption is permitted if an entity has adopted ASU 2016-13. If an entity elects to early adopt ASU 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is currently evaluating the potential impacts related to the adoption of the ASU.

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Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

Home BancShares, Inc.

Conway, Arkansas

Results of Review of Interim Consolidated Financial Statements

We have reviewed the condensed consolidated balance sheet of Home BancShares, Inc. and subsidiaries (the “Company”) as of June 30, 2022, and the related condensed consolidated statements of income, comprehensive (loss) income and stockholders’ equity for the three-month and six-month periods ended June 30, 2022 and 2021 and cash flows for the six month periods ended June 30, 2022 and 2021, and the related notes (collectively referred to as the “interim financial information” or “statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company and subsidiaries as of December 31, 2021, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated February 24, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ FORVIS, LLP

(Formerly BKD,LLP)

Little Rock, Arkansas

August 9, 2022

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Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our Form 10-K, filed with the Securities and Exchange Commission on February 24, 2022, which includes the audited financial statements for the year ended December 31, 2021. Unless the context requires otherwise, the terms “Company,” “us,” “we,” and “our” refer to Home BancShares, Inc. on a consolidated basis.

General

We are a bank holding company headquartered in Conway, Arkansas, offering a broad array of financial services through our wholly-owned bank subsidiary, Centennial Bank (sometimes referred to as “Centennial” or the “Bank”). As of June 30, 2022, we had, on a consolidated basis, total assets of $24.25 billion, loans receivable, net of allowance for credit losses of $13.63 billion, total deposits of $19.58 billion, and stockholders’ equity of $3.50 billion.

We generate most of our revenue from interest on loans and investments, service charges, and mortgage banking income. Deposits and Federal Home Loan Bank (“FHLB”) and other borrowed funds are our primary source of funding. Our largest expenses are interest on our funding sources, salaries and related employee benefits and occupancy and equipment. We measure our performance by calculating our return on average common equity, return on average assets and net interest margin. We also measure our performance by our efficiency ratio, which is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a non-GAAP measure and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding adjustments such as merger and acquisition expenses and/or certain gains, losses and other non-interest income and expenses.

Table 1: Key Financial Measures

			As of or for the Three Months Ended June 30,												As of or for the Six Months Ended June 30,
			2022						2021						2022						2021
			(Dollars in thousands, except per share data)
Total assets			$	24,253,168					$	17,627,192					$	24,253,168					$	17,627,192
Loans receivable			13,923,873						10,199,175						13,923,873						10,199,175
Allowance for credit losses			(294,267)						(240,451)						(294,267)						(240,451)
Total deposits			19,580,072						13,891,341						19,580,072						13,891,341
Total stockholders’ equity			3,498,565						2,696,189						3,498,565						2,696,189
Net income			15,978						79,070						80,870						170,672
Basic earnings per share			0.08						0.48						0.44						1.03
Diluted earnings per share			0.08						0.48						0.44						1.03
Book value per share			17.04						16.39						17.04						16.39
Tangible book value per share (non-GAAP)(1)			9.92						10.31						9.92						10.31
Annualized net interest margin - FTE			3.64%						3.61%						3.46%						3.81%
Efficiency ratio			66.31						41.09						58.26						38.72
Efficiency ratio, as adjusted (non-GAAP)(2)			46.02						42.07						46.53						41.36
Return on average assets			0.26						1.81						0.75						2.01
Return on average common equity			1.78						11.92						5.14						13.02

(1)See Table 19 for the non-GAAP tabular reconciliation.

(2)See Table 23 for the non-GAAP tabular reconciliation.

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Results of Operations for the Three Months Ended June 30, 2022 and 2021

Our net income decreased $63.1 million, or 79.8%, to $16.0 million for the three-month period ended June 30, 2022, from $79.1 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $0.08 per share for the three-month period ended June 30, 2022 compared to $0.48 per share for the three-month period ended June 30, 2021. During the second quarter of 2022, we completed the previously announced acquisition of Happy Bancshares, Inc. ("Happy"). As a result of the acquisition of Happy, which we completed on April 1, 2022, we incurred $48.7 million in merger expenses and recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments, a $2.0 million provision for credit losses on acquired held-to-maturity investment securities. The summation of these items reduced earnings by $107.3 million and earnings per share by $0.39 per share for the three-month period ended June 30, 2022. The markets in which we operate have been experiencing significant economic uncertainty primarily related to inflationary concerns, continuing supply chain issues and the potential impacts of international unrest. However, excluding the impact of the acquisition of Happy, the Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of June 30, 2022. In addition, excluding the impact of the acquisition of Happy, the Company determined no additional provision for unfunded commitments was necessary as of June 30, 2022. During the three months ended June 30, 2022, the Company recorded $1.4 million in special dividend from equity investments, $2.4 million in recoveries on historic losses, $1.8 million loss for the decrease in the fair value of marketable securities and $2.1 million in trust preferred securities ("TRUPS") redemption fees.

Total interest income increased by $62.5 million, or 40.5%, and non-interest income increased by $13.5 million, or 43.3%. This was more than offset by a $5.0 million, or 38.0%, increase in total interest expense and a $92.5 million, or 126.7%, increase in non-interest expense. The increase in interest income was due to a $40.1 million, or 28.3%, increase in loan interest income, a $16.6 million, or 137.1%, increase in investment income and a $5.9 million, or 828.6%, increase in interest income on deposits at other banks. The increase in non-interest income was primarily due to a $5.0 million, or 97.1%, increase in service charges on deposit accounts, a $4.6 million, or 152.6%, increase in other income, a $3.9 million, or 873.0%, increase in trust fees, a $2.9 million, or 29.8%, increase in other services charges and fees and $1.3 million, or 49.1%, increase in dividends from FHLB, FRB, FNBB and other which was partially offset by a $3.1 million, or 244.1%, decrease in the fair value adjustment for marketable securities resulting from a $1.8 million loss for the decrease in the fair value of marketable securities, and a $1.1 million, or 100.0%, decrease in gain on sale of SBA loans. Included within other income was $2.4 million in recoveries on historic losses, and included within dividends from FHLB, FRB, FNBB and other was $1.4 million in special dividends. The increase in interest expense was primarily due to a $4.3 million, or 66.8%, increase in interest on deposits and a $649,000, or 13.5%, increase in interest on subordinated debentures as a result of the acquisition of $140.0 million of subordinated debt and $23.2 million in trust preferred securities from Happy during the quarter. The increase in non-interest expense was due to $48.7 million in merger and acquisition expenses, a $23.3 million, or 55.0%, increase in salaries and employee benefits, an $11.0 million, or 70.7%, increase in other operating expenses, a $5.2 million, or 57.7%, increase in occupancy and equipment and a $4.2 million, or 71.3%, increase in data processing expense. Included within other operating expense was $2.1 million in TRUPS redemption fees. Income tax expense decreased by $21.8 million, or 86.9%, during the quarter due to a decrease in net income. These fluctuations are primarily due to the acquisition of Happy during the quarter and the rising rate environment.

Our net interest margin increased from 3.61% for the three-month period ended June 30, 2021 to 3.64% for the three-month period ended June 30, 2022. The yield on interest earning assets was 3.97% and 3.94% for the three months ended June 30, 2022 and 2021, respectively, as average interest earning assets increased from $15.89 billion to $22.18 billion. The increase in average earning assets is primarily due to a $3.30 billion increase in average loans receivable, a $2.31 billion increase in average investment securities, and $675.6 million increase in average interest-bearing balances due from banks due to the acquisition of Happy during the quarter. For the three months ended June 30, 2022 and 2021, we recognized $5.2 million and $5.8 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by one basis point. We recognized $1.4 million in event interest income for the three months ended June 30, 2022 compared to $942,000 for the three months ended June 30, 2021. This increased the net interest margin by one basis point.

Our efficiency ratio was 66.31% for the three months ended June 30, 2022, compared to 41.09% for the same period in 2021. For the second quarter of 2022, our efficiency ratio, as adjusted (non-GAAP), was 46.02%, compared to 42.07% reported for the second quarter of 2021. (See Table 23 for the non-GAAP tabular reconciliation).

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Our annualized return on average assets was 0.26% for the three months ended June 30, 2022, compared to 1.81% for the same period in 2021. Our annualized return on average assets, as adjusted (non-GAAP), was 1.57% for the three months ended June 30, 2022, compared to 1.75% for the same period in 2021. (See Table 20 for the non-GAAP tabular reconciliation). Our annualized return on average common equity was 1.78% and 11.92% for the three months ended June 30, 2022, and 2021, respectively. Our annualized return on average common equity, as adjusted (non-GAAP), was 10.83% for the three months ended June 30, 2022 and 11.54% for the same period in 2021. (See Table 21 for the non-GAAP tabular reconciliation).

Results of Operations for the Six Months Ended June 30, 2022 and 2021

Our net income decreased $89.8 million, or 52.6%, to $80.9 million for the six-month period ended June 30, 2022, from $170.7 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $0.44 per share for the six-month period ended June 30, 2022 compared to $1.03 per share for the six-month period ended June 30, 2021. As a result of the acquisition of Happy, which we completed on April 1, 2022, we incurred $49.6 million in merger expenses and recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments, a $2.0 million provision for credit losses on acquired held-to-maturity investment securities. The summation of these items reduced earnings by $108.2 million and earnings per share by $0.44 per share for the six-month period ended June 30, 2022. The markets in which we operate have been experiencing significant economic uncertainty primarily related to inflationary concerns, continuing supply chain issues and the potential impacts of international unrest. However, excluding the impact of the acquisition of Happy, the Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of June 30, 2022. In addition, excluding the impact of the acquisition of Happy, the Company determined no additional provision for unfunded commitments was necessary as of June 30, 2022. During the six months ended June 30, 2022, the Company recorded a $324,000 adjustment for the increase in fair value of marketable securities, $1.4 million special dividend from equity investments, $2.1 million in TRUPS redemption fees and a $5.6 million recovery on historic losses.

Total interest income increased by $44.8 million, or 14.1%. This was more than offset by a $1.1 million, or 1.5%, decrease in non-interest income, a $4.2 million, or 15.2%, increase in interest expense and a $96.5 million, or 66.2%, increase in non-interest expense. The increase in interest income was due to an $18.6 million, or 6.4%, increase in loan interest income, a $19.0 million, or 81.3%, increase in investment income and a $7.1 million, or 637.5%, increase in interest income on deposits at other banks. The decrease in non-interest income was primarily due to a $6.7 million, or 95.4%, decrease in income for the fair value adjustment for marketable securities resulting from a $324,000 increase in the fair value of marketable securities for the six months ended June 30, 2022 compared to a $7.0 million increase for the six months ended June 30, 2021, a $6.6 million, or 58.7%, decrease in dividends from FHLB, FRB, FNBB and other, a $4.5 million, or 31.0%, decrease in mortgage lending income, which was partially offset by a $6.1 million, or 60.3%, increase in service charges on deposit accounts, a $4.6 million, or 41.3%, increase in other income, a $3.9 million, or 406.6%, increase in trust fees and a $3.0 million, or 17.4%, increase in other service charges and fees. Included within other income was $5.6 million recovery on historic losses, and included within dividends from FHLB, FRB, FNBB and other was $1.4 million in special dividends. The increase in interest expense was primarily due to a $2.7 million, or 28.5%, increase in interest on subordinated debentures as a result of the acquisition of $140.0 million of subordinated debt and $23.2 million in trust preferred securities from Happy during the second quarter, and a $1.5 million, or 10.5%, increase in interest on deposits. The increase in non-interest expense was due to $49.6 million in merger and acquisition expenses, a $24.8 million, or 29.4%, increase in salaries and employee benefits, an $11.6 million, or 37.1%, increase in other operating expenses, a $5.4 million, or 45.7%, increase in data processing expense and a $5.1 million, or 28.0% increase in occupancy and equipment. Included within other operating expense was $2.1 million in TRUPS redemption fees. Income tax expense decreased by $30.6 million, or 56.8%, during the quarter due to a decrease in net income. These fluctuations are primarily due to the acquisition of Happy during the second quarter of 2022 and the rising rate environment.

Our net interest margin decreased from 3.81% for the six-month period ended June 30, 2021 to 3.46% for the six-month period ended June 30, 2022. The yield on interest earning assets was 3.79% and 4.17% for the six-month period ended June 30, 2022 and 2021, respectively, as average interest earning assets increased from $15.51 billion to $19.49 billion. The increase in average earning assets is primarily the result of a $1.59 billion increase in average investment securities, a $1.28 billion increase in average interest-bearing balances due from banks and a $1.12 billion increase in average loans receivable. For the six months ended June 30, 2022 and 2021, we recognized $8.3 million and $11.3 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by 3 basis points. The Company experienced an $18.8 million reduction in interest income from PPP loans due to the forgiveness of the PPP loans and the acceleration of the deferred fees for the loans that were forgiven. This was dilutive to the net interest margin by approximately 9 basis points.

Our efficiency ratio was 58.26% for the six-month period ended June 30, 2022, compared to 38.72% for the same period in 2021. For the first six months of 2022, our efficiency ratio, as adjusted (non-GAAP), was 46.53%, compared to 41.36% reported for the first six months of 2021. (See Table 23 for the non-GAAP tabular reconciliation).

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Our annualized return on average assets was 0.75% for the six-month period ended June 30, 2022, compared to 2.01% for the same period in 2021. Our annualized return on average assets, as adjusted (non-GAAP), was 1.48% for the six months ended June 30, 2022, compared to 1.81% for the same period in 2021. (See Table 20 for the non-GAAP tabular reconciliation). Our annualized return on average common equity was 5.14% and 13.02% for the six-month period ended June 30, 2022, and 2021, respectively. Our annualized return on average common equity, as adjusted (non-GAAP), was 10.08% for the six months ended June 30, 2022 and 11.74% for the same period in 2021. (See Table 21 for the non-GAAP tabular reconciliation).

Financial Condition as of and for the Period Ended June 30, 2022 and December 31, 2021

Our total assets as of June 30, 2022 increased $6.20 billion to $24.25 billion from the $18.05 billion reported as of December 31, 2021. The increase in total assets is primarily due to the acquisition of $6.68 billion in total assets, net of purchase accounting adjustments, from Happy during the second quarter of 2022. Cash and cash equivalents decreased $833.9 million, for the six months ended June 30, 2022. Our loan portfolio balance increased to $13.92 billion as of June 30, 2022 from $9.84 billion at December 31, 2021. The increase in loans was primarily due to the acquisition of $3.65 billion in loans, net of purchase accounting adjustments, from Happy in the second quarter of 2022 and $242.2 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $192.9 million in organic loan growth. Total deposits increased $5.32 billion to $19.58 billion as of June 30, 2022 from $14.26 billion as of December 31, 2021. The increase in deposits was primarily due to the acquisition of $5.86 billion in deposits, net of purchase accounting adjustments, from Happy in the second quarter of 2022. Stockholders’ equity increased $732.8 million to $3.50 billion as of June 30, 2022, compared to $2.77 billion as of December 31, 2021. The $732.8 million increase in stockholders’ equity is primarily associated with the $961.3 million in common stock issued to Happy shareholders for the acquisition of Happy on April 1, 2022 and the $80.9 million in net income for the six months ended June 30, 2022, partially offset by the $226.4 million in other comprehensive loss, the $61.0 million of shareholder dividends paid and stock repurchases of $26.6 million in 2022.

Our non-performing loans were $60.6 million, or 0.44% of total loans as of June 30, 2022, compared to $50.2 million, or 0.51% of total loans as of December 31, 2021. The allowance for credit losses as a percentage of non-performing loans increased to 485.57% as of June 30, 2022, from 471.61% as of December 31, 2021. Non-performing loans from our Arkansas franchise were $15.0 million at June 30, 2022 compared to $13.9 million as of December 31, 2021. Non-performing loans from our Florida franchise were $33.3 million at June 30, 2022 compared to $26.8 million as of December 31, 2021. Non-performing loans from our Texas franchise were $5.5 million at June 30, 2022 compared to zero as of December 31, 2021. Non-performing loans from our Alabama franchise were $813,000 at June 30, 2022 compared to $470,000 as of December 31, 2021. Non-performing loans from our Shore Premier Finance ("SPF") franchise were $1.3 million at June 30, 2022 compared to $1.5 million as of December 31, 2021. Non-performing loans from our Centennial Commercial Finance Group (“CFG”) franchise were $4.7 million at June 30, 2022 compared to $7.5 million as of December 31, 2021.

As of June 30, 2022, our non-performing assets increased to $61.1 million, or 0.25% of total assets, from $51.8 million, or 0.29% of total assets, as of December 31, 2021. Non-performing assets from our Arkansas franchise were $15.0 million at June 30, 2022 compared to $14.4 million as of December 31, 2021. Non-performing assets from our Florida franchise were $33.6 million at June 30, 2022 compared to $27.9 million as of December 31, 2021. Non-performing assets from our Texas franchise were $5.7 million at June 30, 2022 compared to zero as of December 31, 2021. Non-performing assets from our Alabama franchise were $813,000 at June 30, 2022 compared to $470,000 as of December 31, 2021. Non-performing assets from our SPF franchise were $1.3 million at June 30, 2022 compared to $1.5 million as of December 31, 2021. Non-performing assets from our CFG franchise were $4.7 million at June 30, 2022 compared to $7.5 million as of December 31, 2021.

The $4.7 million balance of non-accrual loans for our Centennial CFG market consists of one loan that is assessed for credit risk by the Federal Reserve under the Shared National Credit Program. The decision to place this loan on non-accrual status was made by the Federal Reserve and not the Company. The loan that makes up the total balance is still current on both principal and interest. However, all interest payments are currently being applied to the principal balance. Because the Federal Reserve required us to place this loan on non-accrual status, we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve.

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Critical Accounting Policies and Estimates

Overview. We prepare our consolidated financial statements based on the selection of certain accounting policies, generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions. Our accounting policies are described in detail in the notes to our consolidated financial statements included as part of this document.

We consider a policy critical if (i) the accounting estimate requires assumptions about matters that are highly uncertain at the time of the accounting estimate; and (ii) different estimates that could reasonably have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements. Using these criteria, we believe that the accounting policies most critical to us are those associated with our lending practices, including revenue recognition and the accounting for the allowance for credit losses, foreclosed assets, investments, intangible assets, income taxes and stock options.

Revenue Recognition. Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit and investment securities, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of non-interest income are as follows:

•Service charges on deposit accounts – These represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

•Other service charges and fees – These represent credit card interchange fees and Centennial CFG loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310. Interchange fees were $6.5 million, $10.5 million, $4.3 million and $8.1 million for the three and six months ended June 30, 2022 and 2021, respectively. Centennial CFG loan fees were $3.3 million, $5.1 million, $3.3 million and $5.3 million and for the three and six months ended June 30, 2022 and 2021, respectively.

Investments – Available-for-sale. Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments ("CECL"). The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that 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 losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

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Investments – Held-to-Maturity. Securities held-to-maturity ("HTM"), which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. 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.

Loans Receivable and Allowance for Credit Losses. Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs, deferred fees or costs on originated loans. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yield on the related loans.

The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price index and national retail sales index.

The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The identified loan segments are as follows:

•1-4 family construction

•All other construction

•1-4 family revolving home equity lines of credit (“HELOC”) & junior liens

•1-4 family senior liens

•Multifamily

•Owner occupied commercial real estate

•Non-owner occupied commercial real estate

•Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other

•Consumer auto

•Other consumer

•Other consumer - SPF

The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. For loans that are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation if a specific reserve is not recorded.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

•Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower.

•The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

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Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factors ("Q-Factors") and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.

Loans considered impaired, according to ASC 326, are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest 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.

Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.

Acquisition Accounting and Acquired Loans. We account for our acquisitions under FASB 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. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures: The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Foreclosed Assets Held for Sale. Real estate and personal properties acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Valuations are periodically performed by management, and the real estate and personal properties are carried at fair value less costs to sell. Gains and losses from the sale of other real estate and personal properties are recorded in non-interest income, and expenses used to maintain the properties are included in non-interest expenses.

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Intangible Assets. Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. The core deposit intangibles are being amortized over 48 to 121 months on a straight-line basis. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual impairment test of goodwill and core deposit intangibles as required by FASB ASC 350, Intangibles - Goodwill and Other, in the fourth quarter or more often if events and circumstances indicate there may be an impairment.

Income Taxes. We account for income taxes in accordance with income tax accounting guidance (ASC 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. We determine 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 basis 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 the 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.

Both we and our subsidiary file consolidated tax returns. Our subsidiary provides for income taxes on a separate return basis, and remits to us amounts determined to be currently payable.

Stock Compensation. In accordance with FASB ASC 718, Compensation - Stock Compensation, and FASB ASC 505-50, Equity-Based Payments to Non-Employees, the fair value of each option award is estimated on the date of grant. We recognize compensation expense for the grant-date fair value of the option award over the vesting period of the award.

Acquisitions

Acquisition of Marine Portfolio

On February 4, 2022, the Company completed the purchase of the performing marine loan portfolio of Utah-based LendingClub Bank (“LendingClub”). Under the terms of the purchase agreement with LendingClub, the Company acquired yacht loans totaling approximately $242.2 million. This portfolio of loans is housed within the Company's Shore Premier Finance division, which is responsible for servicing the acquired loan portfolio and originating new loan production.

Acquisition of Happy Bancshares, Inc.

On April 1, 2022, the Company completed the acquisition of Happy Bancshares, Inc. (“Happy”), and merged Happy State Bank into Centennial Bank. The Company issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million.

Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $6.68 billion in total assets, $3.65 billion in loans and $5.86 billion in customer deposits. Happy formerly operated its banking business from 62 locations in Texas.

For further discussion of the acquisition, see Note 2 "Business Combinations" to the Condensed Notes to Consolidated Financial Statements.

We will continue evaluating all types of potential bank acquisitions, which may include FDIC-assisted acquisitions as opportunities arise, to determine what is in the best interest of our Company. Our goal in making these decisions is to maximize the return to our investors.

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Branches

As opportunities arise, we will continue to open new (commonly referred to as de novo) branches in our current markets and in other attractive market areas.

As of June 30, 2022, we had 222 branch locations. There were 76 branches in Arkansas, 78 branches in Florida, 62 branches in Texas, five branches in Alabama and one branch in New York City.

Results of Operations

For the three and six months ended June 30, 2022 and 2021

Our net income decreased $63.1 million, or 79.8%, to $16.0 million for the three-month period ended June 30, 2022, from $79.1 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $0.08 per share for the three-month period ended June 30, 2022 compared to $0.48 per share for the three-month period ended June 30, 2021. During the second quarter of 2022, we completed the previously announced acquisition of Happy Bancshares, Inc. ("Happy"). As a result of the acquisition of Happy, which we completed on April 1, 2022, we incurred $48.7 million in merger expenses and recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments, a $2.0 million provision for credit losses on acquired held-to-maturity investment securities. The summation of these items reduced earnings by $107.3 million and earnings per share by $0.39 per share for the three-month period ended June 30, 2022. The markets in which we operate have been experiencing significant economic uncertainty primarily related to inflationary concerns, continuing supply chain issues and the potential impacts of international unrest. However, excluding the impact of the acquisition of Happy, the Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of June 30, 2022. In addition, excluding the impact of the acquisition of Happy, the Company determined no additional provision for unfunded commitments was necessary as of June 30, 2022. During the three months ended June 30, 2022, the Company recorded $1.4 million in special dividend from equity investments, $2.4 million in recoveries on historic losses, $1.8 million loss for the decrease in the fair value of marketable securities and $2.1 million in TRUPS redemption fees.

Our net income decreased $89.8 million, or 52.6%, to $80.9 million for the six-month period ended June 30, 2022, from $170.7 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $0.44 per share for the six-month period ended June 30, 2022 compared to $1.03 per share for the six-month period ended June 30, 2021. As a result of the acquisition of Happy, which we completed on April 1, 2022, we incurred $49.6 million in merger expenses and recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments, a $2.0 million provision for credit losses on acquired held-to-maturity investment securities. The summation of these items reduced earnings by $108.2 million and earnings per share by $0.44 per share for the six-month period ended June 30, 2022. The markets in which we operate have been experiencing significant economic uncertainty primarily related to inflationary concerns, continuing supply chain issues and the potential impacts of international unrest. However, excluding the impact of the acquisition of Happy, the Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of June 30, 2022. In addition, excluding the impact of the acquisition of Happy, the Company determined no additional provision for unfunded commitments was necessary as of June 30, 2022. During the six months ended June 30, 2022, the Company recorded a $324,000 adjustment for the increase in fair value of marketable securities, $1.4 million special dividend from equity investments, $2.1 million in TRUPS redemption fees and a $5.6 million recovery on historic losses.

Net Interest Income

Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments, rates paid on deposits and other borrowings, the level of non-performing loans and the amount of non-interest-bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate (25.1475% for 2022 and 25.74% for 2021).

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The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. In 2020, the Federal Reserve lowered the target rate to 0.00% to 0.25%. This remained in effect throughout all of 2021. On March 16, 2022, the target rate was increased to 0.25% to 0.50%. On May 4, 2022, the target rate was increased to 0.75% to 1.00%. On June 15, 2022, the target rate was increased to 1.50% to 1.75%. Presently, the Federal Reserve has indicated they are anticipating multiple rate increases for 2022.

Our net interest margin increased from 3.61% for the three-month period ended June 30, 2021 to 3.64% for the three-month period ended June 30, 2022. The yield on interest earning assets was 3.97% and 3.94% for the three months ended June 30, 2022 and 2021, respectively, as average interest earning assets increased from $15.89 billion to $22.18 billion. The increase in average earning assets is primarily due to a $3.30 billion increase in average loans receivable, a $2.31 billion increase in average investment securities, and $675.6 million increase in average interest-bearing balances due from banks due to the acquisition of Happy during the quarter. For the three months ended June 30, 2022 and 2021, we recognized $5.2 million and $5.8 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by one basis point. We recognized $1.4 million in event interest income for the three months ended June 30, 2022 compared to $942,000 for the three months ended June 30, 2021. This increased the net interest margin by one basis point.

Our net interest margin decreased from 3.81% for the six-month period ended June 30, 2021 to 3.46% for the six-month period ended June 30, 2022. The yield on interest earning assets was 3.79% and 4.17% for the six-month period ended June 30, 2022 and 2021, respectively, as average interest earning assets increased from $15.51 billion to $19.49 billion. The increase in average earning assets is primarily the result of a $1.59 billion increase in average investment securities, a $1.28 billion increase in average interest-bearing balances due from banks and a $1.12 billion increase in average loans receivable. For the six months ended June 30, 2022 and 2021, we recognized $8.3 million and $11.3 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by 3 basis points. The Company experienced an $18.8 million reduction in interest income from PPP loans due to the forgiveness of the PPP loans and the acceleration of the deferred fees for the loans that were forgiven. This was dilutive to the net interest margin by approximately 9 basis points.

Net interest income on a fully taxable equivalent basis increased $58.2 million, or 40.7%, to $201.2 million for the three-month period ended June 30, 2022, from $143.0 million for the same period in 2021. This increase in net interest income for the three-month period ended June 30, 2022 was the result of a $63.2 million increase in interest income, partially offset by an $5.0 million increase in interest expense, on a fully taxable equivalent basis. The $63.2 million increase in interest income was primarily the result of the higher level of average interest earning assets due to the acquisition of Happy during the second quarter of 2022 and the increasing interest rate environment. The higher yield on earning assets resulted in an increase in interest income of approximately $6.9 million, and the increase in earning assets resulted in an increase in interest income of approximately $56.3 million. The $5.0 million increase in interest expense is primarily the result of the higher level of average interest bearing liabilities due to the acquisition of Happy during the second quarter of 2022 and the increasing interest rate environment. The higher yield on interest bearing liabilities resulted in an increase in interest expense of approximately $548,000 and the increase in interest bearing liabilities resulted in an increase in interest expense of approximately $4.5 million.

Net interest income on a fully taxable equivalent basis increased $41.2 million, or 14.1%, to $334.1 million for the six-month period ended June 30, 2022, from $292.9 million for the same period in 2021. This increase in net interest income for the six-month period ended June 30, 2022 was the result of a $45.4 million increase in interest income, partially offset by a $4.2 million increase in interest expense, on a fully taxable equivalent basis. The $45.4 million increase in interest income was primarily the result of the higher level of average interest earning assets due to the acquisition of Happy during the second quarter of 2022 partially offset by lower earning asset yields. The lower yield on earning assets resulted in a decrease in interest income of approximately $844,000, and the increase in earning assets resulted in an increase in interest income of approximately $46.2 million. The $4.2 million increase in interest expense is primarily the result of the higher level of average interest bearing liabilities due to the acquisition of Happy during the second quarter of 2022 partially offset by lower interest rates paid on interest-bearing liabilities. The lower yield on interest bearing liabilities resulted in an decrease in interest expense of approximately $2.8 million and the increase in interest bearing liabilities resulted in an increase in interest expense of approximately $7.0 million.

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Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and six months ended June 30, 2022 and 2021, as well as changes in fully taxable equivalent net interest margin for the three and six months ended June 30, 2022 compared to the same period in 2021.

Table 2: Analysis of Net Interest Income

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(Dollars in thousands)
Interest income			$	217,013					$	154,481					$	361,916					$	317,132
Fully taxable equivalent adjustment			2,471						1,774						4,209						3,595
Interest income – fully taxable equivalent			219,484						156,255						366,125						320,727
Interest expense			18,255						13,229						32,010						27,792
Net interest income – fully taxable equivalent			$	201,229					$	143,026					$	334,115					$	292,935
Yield on earning assets – fully taxable equivalent			3.97		%				3.94		%				3.79		%				4.17		%
Cost of interest-bearing liabilities			0.49						0.49						0.49						0.53
Net interest spread – fully taxable equivalent			3.48						3.45						3.30						3.64
Net interest margin – fully taxable equivalent			3.64						3.61						3.46						3.81

Table 3: Changes in Fully Taxable Equivalent Net Interest Margin

			Three Months Ended June 30,						Six Months Ended June 30,
			2022 vs. 2021						2022 vs. 2021
			(In thousands)
Increase in interest income due to change in earning assets			$	56,278					$	46,242
Increase (decrease) increase in interest income due to change in earning asset yields			6,951						(844)
Increase in interest expense due to change in interest-bearing liabilities			(4,478)						(7,014)
(Increase) decrease in interest expense due to change in interest rates paid on interest-bearing liabilities			(548)						2,796
Increase (decrease) increase in net interest income			$	58,203					$	41,180

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Table 4 shows, for each major category of earning assets and interest-bearing liabilities, the average amount outstanding, the interest income or expense on that amount and the average rate earned or expensed for the three and six months ended June 30, 2022 and 2021, respectively. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest-bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Non-accrual loans were included in average loans for the purpose of calculating the rate earned on total loans.

Table 4: Average Balance Sheets and Net Interest Income Analysis

			Three Months Ended June 30,
			2022																		2021
			Average Balance						Income / Expense						Yield / Rate						Average Balance						Income / Expense						Yield / Rate
			(Dollars in thousands)
ASSETS
Earnings assets
Interest-bearing balances due from     banks			$	3,252,674					$	6,565					0.81		%				$	2,577,101					$	707					0.11		%
Federal funds sold			1,857						3						0.65						51						—						—
Investment securities – taxable			3,817,209						20,941						2.20						1,909,485						7,185						1.51
Investment securities – non-taxable			1,270,602						10,055						3.17						864,416						6,494						3.01
Loans receivable			13,838,687						181,920						5.27						10,541,466						141,869						5.40
Total interest-earning assets			22,181,029						219,484						3.97		%				15,892,519						156,255						3.94		%
Non-earning assets			2,607,336																		1,598,840
Total assets			$	24,788,365																	$	17,491,359
LIABILITIES AND     STOCKHOLDERS’ EQUITY
Liabilities
Interest-bearing liabilities
Savings and interest-bearing transaction     accounts			$	12,632,612					$	9,770					0.31		%				$	8,684,726					3,960						0.18		%
Time deposits			1,170,860						959						0.33						1,123,287						2,474						0.88
Total interest-bearing deposits			13,803,472						10,729						0.31						9,808,013						6,434						0.26
Federal funds purchased			869						2						0.92						—						—						—
Securities sold under agreement to repurchase			123,011						187						0.61						157,570						107						0.27
FHLB and other borrowed funds			400,000						1,896						1.90						400,000						1,896						1.90
Subordinated debentures			568,187						5,441						3.84						370,613						4,792						5.19
Total interest-bearing liabilities			14,895,539						18,255						0.49		%				10,736,196						13,229						0.49		%
Non-interest-bearing liabilities
Non-interest-bearing deposits			6,138,497																		3,966,968
Other liabilities			162,571																		128,048
Total liabilities			21,196,607																		14,831,212
Stockholders’ equity			3,591,758																		2,660,147
Total liabilities and stockholders’ equity			$	24,788,365																	$	17,491,359
Net interest spread															3.48		%																3.45		%
Net interest income and margin									$	201,229					3.64		%										$	143,026					3.61		%

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			Six Months Ended June 30,
			2022																		2021
			Average Balance						Income / Expense						Yield / Rate						Average Balance						Income / Expense						Yield / Rate
			(Dollars in thousands)
ASSETS
Earnings assets
Interest-bearing balances due from banks			$	3,374,606					$	8,238					0.49		%				$	2,096,452					$	1,117					0.11		%
Federal funds sold			1,805						4						0.45						84						—						—
Investment securities – taxable			3,155,481						30,021						1.92						1,774,026						13,438						1.53
Investment securities – non-taxable			1,061,822						16,339						3.10						856,332						13,194						3.11
Loans receivable			11,899,115						311,523						5.28						10,780,972						292,978						5.48
Total interest-earning assets			19,492,829						366,125						3.79		%				15,507,866						320,727						4.17		%
Non-earning assets			2,115,558																		1,599,393
Total assets			$	21,608,387																	$	17,107,259
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest-bearing liabilities
Savings and interest- bearing transaction accounts			$	11,007,232					$	13,643					0.25		%				$	8,512,714					8,677						0.21		%
Time deposits			1,013,600						1,980						0.39						1,166,121						5,462						0.94
Total interest-bearing deposits			12,020,832						15,623						0.26						9,678,835						14,139						0.29
Federal funds purchased			437						2						0.92						—						—						—
Securities sold under agreement to repurchase			130,248						295						0.46						158,628						297						0.38
FHLB borrowed funds			400,000						3,771						1.90						400,000						3,771						1.90
Subordinated debentures			589,917						12,319						4.21						370,518						9,585						5.22
Total interest-bearing liabilities			13,141,434						32,010						0.49		%				10,607,981						27,792						0.53		%
Non-interest-bearing liabilities
Non-interest-bearing deposits			5,152,673																		3,724,854
Other liabilities			142,080																		131,446
Total liabilities			18,436,187																		14,464,281
Stockholders’ equity			3,172,200																		2,642,978
Total liabilities and stockholders’ equity			$	21,608,387																	$	17,107,259
Net interest spread															3.30		%																3.64		%
Net interest income and margin									$	334,115					3.46		%										$	292,935					3.81		%

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Table 5 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three and six months ended June 30, 2022 compared to the same period in 2021, on a fully taxable basis. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates, in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.

Table 5: Volume/Rate Analysis

			Three Months Ended June 30,																		Six Months Ended June 30,
			2022 over 2021																		2022 over 2021
			Volume						Yield / Rate						Total						Volume						Yield / Rate						Total
			(In thousands)
Increase (decrease) in:
Interest income:
Interest-bearing balances due from banks			$	232					$	5,626					$	5,858					$	1,036					$	6,085					$	7,121
Federal funds sold			—						3						3						—						4						4
Investment securities – taxable			9,432						4,324						13,756						12,480						4,103						16,583
Investment securities – non-taxable			3,198						363						3,561						3,162						(17)						3,145
Loans receivable			43,416						(3,365)						40,051						29,564						(11,019)						18,545
Total interest income			56,278						6,951						63,229						46,242						(844)						45,398
Interest expense:
Interest-bearing transaction and savings deposits			2,295						3,515						5,810						2,859						2,107						4,966
Time deposits			101						(1,616)						(1,515)						(638)						(2,844)						(3,482)
Federal funds purchased			1						1						2						1						1						2
Securities sold under agreement to repurchase			(28)						108						80						(58)						56						(2)
FHLB borrowed funds			—						—						—						—						—						—
Subordinated debentures			2,109						(1,460)						649						4,850						(2,116)						2,734
Total interest expense			4,478						548						5,026						7,014						(2,796)						4,218
Increase (decrease) in net interest income			$	51,800					$	6,403					$	58,203					$	39,228					$	1,952					$	41,180

Provision for Credit Losses

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credits, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standards of a company’s portfolio. In addition, ASC 326 requires credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities management does not intend to sell or believes that it is more likely than not, they will be required to sell.

Loans. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price index and national retail sales index.

Acquired loans. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. This is commonly referred to as “double accounting" (or "double count").

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The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The identified loan segments are as follows:

•1-4 family construction

•All other construction

•1-4 family revolving HELOC & junior liens

•1-4 family senior liens

•Multifamily

•Owner occupied commercial real estate

•Non-owner occupied commercial real estate

•Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other

•Consumer auto

•Other consumer

•Other consumer - SPF

The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.

During the three-month and six-month periods ended June 30, 2022, the Company recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count" and an $11.4 million provision for credit losses on acquired unfunded commitments resulting from the acquisition of Happy on April 1, 2022. As of June 30, 2022, the markets in which we operate have been experiencing significant economic uncertainty primarily related to inflationary concerns, continuing supply chain issues and the potential impacts of international unrest. However, excluding the impact of the acquisition of Happy, the Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of June 30, 2022. In addition, excluding the impact of the acquisition of Happy, the Company determined no additional provision for unfunded commitments was necessary as of June 30, 2022.

Net charge-offs to average total loans was 0.07% for the three months ended June 30, 2022 compared to 0.09% for the three months ended June 30, 2021. Net charge-offs to average total loans was 0.08% for the six months ended June 30, 2022 compared to 0.09% for the six months ended June 30, 2021.

Investments – Available-for-sale: The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that 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 losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Investments – Held-to-Maturity. 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.

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The Company recorded a $2.0 million provision for credit losses on the held-to-maturity investment securities during the second quarter of 2022 as a result of the investment securities acquired as part of the Happy acquisition. Of the Company's held-to-maturity securities, $1.09 billion, or 79.7% are municipal securities. To estimate the necessary loss provision, the Company utilized historical default and recovery rates of the municipal bond sector and applied these rates using a pooling method. The remainder of investments classified as held-to-maturity are U.S. Treasury securities. Due to the inherent low risk in U.S. Treasury securities, no provision for credit loss was established on that portion of the portfolio.

At June 30, 2022, the Company determined that the allowance for credit losses of $842,000, resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio, and the allowance for credit losses for the HTM portfolio resulting from the Happy acquisition was considered adequate. No additional provision for credit losses was considered necessary for the portfolio.

Non-Interest Income

Total non-interest income was $44.6 million and $75.3 million for the three and six months ended June 30, 2022, compared to $31.1 million and $76.4 million for the same period in 2021. Our recurring non-interest income includes service charges on deposit accounts, other service charges and fees, trust fees, mortgage lending income, insurance commissions, increase in cash value of life insurance, fair value adjustment for marketable securities and dividends.

Table 6 measures the various components of our non-interest income for the three and six months ended June 30, 2022 and 2021, respectively, as well as changes for the three and six months ended June 30, 2022 compared to the same period in 2021.

Table 6: Non-Interest Income

			Three Months Ended June 30,												2021 Change from 2020												Six Months Ended June 30,												2021 Change from 2020
			2022						2021																		2022						2021
			(Dollars in thousands)
Service charges on deposit accounts			$	10,084					$	5,116					$	4,968					97.1		%				$	16,224					$	10,118					$	6,106					60.3		%
Other service charges and fees			12,541						9,659						2,882						29.8						20,274						17,267						3,007						17.4
Trust fees			4,320						444						3,876						873.0						4,894						966						3,928						406.6
Mortgage lending income			5,996						6,202						(206)						(3.3)						9,912						14,369						(4,457)						(31.0)
Insurance commissions			658						478						180						37.7						1,138						970						168						17.3
Increase in cash value of life insurance			1,140						537						603						112.3						1,632						1,039						593						57.1
Dividends from FHLB, FRB, FNBB & other			3,945						2,646						1,299						49.1						4,643						11,255						(6,612)						(58.7)
Gain on sale of SBA loans			—						1,149						(1,149)						(100.0)						95						1,149						(1,054)						(91.7)
Gain (loss) on sale of branches, equipment and other assets, net			2						(23)						25						108.7						18						(52)						70						134.6
Gain on OREO, net			9						619						(610)						(98.5)						487						1,020						(533)						(52.3)
Gain on securities, net			—						—						—						0.0						—						219						(219)						(100.0)
Fair value adjustment for marketable securities			(1,801)						1,250						(3,051)						(244.1)						324						7,032						(6,708)						(95.4)
Other income			7,687						3,043						4,644						152.6						15,609						11,044						4,565						41.3
Total non-interest income			$	44,581					$	31,120					$	13,461					43.3		%				$	75,250					$	76,396					$	(1,146)					(1.5)		%

Non-interest income increased $13.5 million, or 43.3%, to $44.6 million for the three months ended June 30, 2022 from $31.1 million for the same period in 2021. The primary factors that resulted in this increase were the increase in service charges on deposit account and the increase in other income. Other factors were changes related to other services charges and fees, trust fees, dividends from FHLB, FRB, FNBB and other, gain on sale of SBA loans, gain on OREO and fair value adjustment for marketable securities.

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Additional details for the three months ended June 30, 2022 on some of the more significant changes are as follows:

•The $5.0 million increase in service charges on deposit accounts is primarily related to an increase in overdraft fees resulting from the acquisition of Happy.

•The $2.9 million increase in other service charges and fees is primarily related to an increase in interchange fees resulting from the acquisition of Happy.

•The $3.9 million increase in trust fees is primarily related to an increase in trust fees resulting from the acquisition of Happy.

•The $1.3 million increase for dividends from FHLB, FRB, FNBB & other is primarily due to an increase in special dividends from equity investments and an increase in FRB stock holdings related to the acquisition of Happy.

•The $1.1 million decrease in gains on sales of SBA loans was due to no SBA loan sales taking place during the second quarter of 2022.

•The $610,000 decrease in gains on OREO resulted from a reduction in the level of sales of OREO during 2022.

•The $3.1 million decrease in the fair value adjustment for marketable securities is due to a reduction in the fair market values of marketable securities held by the Company.

•The $4.6 million increase in other income is primarily due to a $2.8 million increase in additional income for items previously charged off, a $878,000 increase in investment brokerage fee income, a $260,000 increase in real estate rental income and a $492,000 increase in building rental income related to the acquisition of Happy.

Non-interest income decreased $1.1 million, or 1.5%, to $75.3 million for the six months ended June 30, 2022 from $76.4 million for the same period in 2021. The primary factors that resulted in this decrease were the reduction in dividends from FHLB, FRB, FNBB & other, the reduction in fair value adjustment for marketable securities and the reduction in mortgage lending income which was partially offset by the increase in service charges on deposit accounts, increase in other income and increase in trust fees. Other factors were changes related to other service charges and fees and gain on sale of SBA loans.

Additional details for the six months ended June 30, 2022 on some of the more significant changes are as follows:

•The $6.1 million increase in service charges on deposit accounts is primarily related to an increase in overdraft fees resulting from the acquisition of Happy.

•The $3.0 million increase in other service charges and fees is primarily related to an increase in interchange acquisition fees resulting from the acquisition of Happy.

•The $3.9 million increase in trust fees is primarily related to an increase in employee and personal trust fees resulting from the acquisition of Happy.

•The $4.5 million decrease in mortgage lending income is primarily due to a decrease in volume of secondary market loans from the high volume of loans during 2021.

•The $6.6 million decrease for dividends from FHLB, FRB, FNBB & other is primarily due to a decrease in special dividends from equity investments, partially offset by an increase in FRB stock holdings related to the acquisition of Happy.

•The $1.1 million decrease in gains on sales of SBA loans is primarily due to decrease in the volume of SBA loan sales during 2022.

•The $533,000 decrease in gains on OREO resulted from a reduction in the level of sales of OREO during 2022.

•The $6.7 million decrease in the fair value adjustment for marketable securities is due to a reduction in the increase of the fair market values of marketable securities held by the Company.

•The $4.6 million increase in other income is primarily due to a $2.8 million increase in additional income for items previously charged off and a $1.4 million increase in investment brokerage fee income related to the acquisition of Happy.

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Non-Interest Expense

Non-interest expense primarily consists of salaries and employee benefits, occupancy and equipment, data processing, and other expenses such as advertising, merger and acquisition expenses, amortization of intangibles, electronic banking expense, FDIC and state assessment, insurance, legal and accounting fees and other professional fees.

Table 7 below sets forth a summary of non-interest expense for the three and six months ended June 30, 2022 and 2021, as well as changes for the three and six months ended June 30, 2022 compared to the same period in 2021.

Table 7: Non-Interest Expense

			Three Months Ended June 30,												2022 Change from 2021												Six Months Ended June 30,												2022 Change from 2021
			2022						2021																		2022						2021
			(Dollars in thousands)
Salaries and employee benefits			$	65,795					$	42,462					$	23,333					55.0		%				$	109,346					$	84,521					$	24,825					29.4		%
Occupancy and equipment			14,256						9,042						5,214						57.7						23,400						18,279						5,121						28.0
Data processing expense			10,094						5,893						4,201						71.3						17,133						11,763						5,370						45.7
Merger and acquisition expenses			48,731						—						48,731						100.0						49,594						—						49,594						100.0
Other operating expenses:
Advertising			2,117						1,194						923						77.3						3,383						2,240						1,143						51.0
Amortization of intangibles			2,477						1,421						1,056						74.3						3,898						2,842						1,056						37.2
Electronic banking expense			3,352						2,616						736						28.1						5,890						4,854						1,036						21.3
Directors' fees			375						414						(39)						(9.4)						779						797						(18)						(2.3)
Due from bank service charges			396						273						123						45.1						666						522						144						27.6
FDIC and state assessment			2,390						1,108						1,282						115.7						4,058						2,471						1,587						64.2
Insurance			973						787						186						23.6						1,743						1,568						175						11.2
Legal and accounting			1,061						1,058						3						0.3						1,858						1,904						(46)						(2.4)
Other professional fees			2,254						1,796						458						25.5						3,863						3,409						454						13.3
Operating supplies			995						465						530						114.0						1,749						952						797						83.7
Postage			556						292						264						90.4						862						630						232						36.8
Telephone			384						365						19						5.2						721						711						10						1.4
Other expense			9,276						3,796						5,480						144.4						13,435						8,385						5,050						60.2
Total non-interest expense			$	165,482					$	72,982					$	92,500					126.7		%				$	242,378					$	145,848					$	96,530					66.2		%

Non-interest expense increased $92.5 million, or 126.7%, to $165.5 million for the three months ended June 30, 2022 from $73.0 million for the same period in 2021. The primary factors that resulted in this increase were the changes related to salaries and employee benefits and merger and acquisition expense. Other factors were changes related to occupancy and equipment, data processing expense, amortization of intangibles, FDIC and state assessment fees and other expenses.

Additional details for the three months ended June 30, 2022 on some of the more significant changes are as follows:

•The $23.3 million increase in salaries and employee benefits expense is primarily due to increased salary expenses and insurance expenses related to the acquisition of Happy.

•The $5.2 million increase in occupancy and equipment expenses is primarily due to increases in depreciation on buildings, machinery and equipment, increases in utility expenses and increases in property taxes related to the acquisition of Happy.

•The $4.2 million increase in data processing expense is primarily due to increases in telecommunication fees, computer software fees, licensing fee and increases in internet banking and cash management expenses related to the acquisition of Happy.

•The $48.7 increase in merger and acquisition expense is related to costs associated with the acquisition of Happy.

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•The $923,000 increase in advertising expense is related to the acquisition of Happy.

•The $1.1 million increase in amortization of intangibles is due to the acquisition of Happy.

•The $736,000 increase in electronic banking expense is due to increased debit card processing fees and interchange network expenses resulting from the acquisition of Happy.

•The $1.3 million increase in FDIC and state assessment expense is primarily due to FDIC assessment reductions for 2021 and the acquisition of Happy during the second quarter of 2022.

•The $5.5 million increase in other expenses is primarily related to the acquisition of Happy as well as $2.1 million in TRUPS redemption fees.

Non-interest expense increased $96.5 million, or 66.2%, to $242.4 million for the three months ended June 30, 2022 from $145.8 million for the same period in 2021. The primary factors that resulted in this increase were the changes related to salaries and employee benefits and merger and acquisition expense. Other factors were changes related to occupancy and equipment expense, data processing expense, advertising, amortization of intangibles, electronic banking expense, FDIC and state assessment fees and other expenses.

Additional details for the six months ended June 30, 2022 on some of the more significant changes are as follows:

•The $24.8 million increase in salaries and employee benefits expense is primarily due to the acquisition of Happy.

•The $5.1 million increase in occupancy and equipment expense is primarily due to increases in depreciation on buildings, machinery and equipment, increases in utility expenses and increases in property taxes related to the acquisition of Happy.

•The $5.4 million increase in data processing expense is primarily due to increases in telecommunication fees, computer software fees, licensing fee and increases in internet banking and cash management expenses related to the acquisition of Happy.

•The $49.6 million increase in merger and acquisition expense is related to costs associated with the acquisition of Happy.

•The $1.1 million increase in advertising expense is related to the acquisition of Happy.

•The $1.1 million increase in amortization of intangibles is due to the acquisition of Happy.

•The $1.0 million increase in electronic banking expense is due to increased debit card processing fees and interchange network expenses resulting from the acquisition of Happy.

•The $1.6 million increase in FDIC and state assessment expense is primarily due to FDIC assessment reductions for 2021 and the acquisition of Happy during the second quarter of 2022.

•The $5.1 million increase in other expenses is primarily related to the acquisition of Happy. as well as $2.1 million in TRUPS redemption fees.

Income Taxes

Income tax expense decreased $21.8 million, or 86.9%, to $3.3 million for the three-month period ended June 30, 2022, from $25.1 million for the same period in 2021. Income tax expense decreased $30.6 million, or 56.8%, to $23.3 million for the six-month period ended June 30, 2022, from $54.0 million for the same period in 2021. The effective income tax rate was 17.09% and 22.38% for the three and six months ended June 30, 2022, compared to 24.07% and 24.02% for the same periods in 2021. The marginal tax rate was 25.1475% and 25.74% 2022 and 2021, respectively.

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Financial Condition as of and for the Period Ended June 30, 2022 and December 31, 2021

Our total assets as of June 30, 2022 increased $6.20 billion to $24.25 billion from the $18.05 billion reported as of December 31, 2021. The increase in total assets is primarily due to the acquisition of $6.68 billion in total assets, net of purchase accounting adjustments, from Happy during the second quarter of 2022. Cash and cash equivalents decreased $833.9 million, for the six months ended June 30, 2022. Our loan portfolio balance increased to $13.92 billion as of June 30, 2022 from $9.84 billion at December 31, 2021. The increase in loans was primarily due to the acquisition of $3.65 billion in loans, net of purchase accounting adjustments, from Happy in the second quarter of 2022 and $242.2 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $192.9 million in organic loan growth. Total deposits increased $5.32 billion to $19.58 billion as of June 30, 2022 from $14.26 billion as of December 31, 2021. The increase in deposits was primarily due to the acquisition of $5.86 billion in deposits, net of purchase accounting adjustments, from Happy in the second quarter of 2022. Stockholders’ equity increased $732.8 million to $3.50 billion as of June 30, 2022, compared to $2.77 billion as of December 31, 2021. The $732.8 million increase in stockholders’ equity is primarily associated with the $961.3 million in common stock issued to Happy shareholders for the acquisition of Happy on April 1, 2022 and the $80.9 million in net income for the six months ended June 30, 2022, partially offset by the $226.4 million in other comprehensive loss, the $61.0 million of shareholder dividends paid and stock repurchases of $26.6 million in 2022.

Loan Portfolio

Loans Receivable

Our loan portfolio averaged $13.84 billion and $10.54 billion during the three months ended June 30, 2022 and 2021, respectively. Our loan portfolio averaged $11.90 billion and $10.78 billion during the six months ended June 30, 2022 and 2021, respectively. Loans receivable were $13.92 billion and $9.84 billion as of June 30, 2022 and December 31, 2021, respectively.

From December 31, 2021 to June 30, 2022, the Company experienced an increase of approximately $4.09 billion in loans. The increase in loans was primarily due to the acquisition of $3.65 billion in loans, net of purchase accounting adjustments, from Happy in the second quarter of 2022 and $242.2 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $192.9 million in organic loan growth. The $192.9 million in organic loan growth included $498.6 million in loan growth for Centennial CFG which was partially offset by $177.9 million in loan decline within the remaining footprint as well as $127.8 million in PPP loan decline. As of June 30, 2022, the Company had $37.2 million of PPP loans.

The most significant components of the loan portfolio were commercial real estate, residential real estate, consumer and commercial and industrial loans. These loans are generally secured by residential or commercial real estate or business or personal property. Although these loans are primarily originated within our franchises in Arkansas, Florida, Texas, Alabama and Centennial CFG, the property securing these loans may not physically be located within our market areas of Arkansas, Florida, Texas, Alabama and New York. Loans receivable were approximately $3.03 billion, $3.49 billion, $3.66 billion, $202.5 million, $1.12 billion and $2.42 billion as of June 30, 2022 in Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG, respectively.

As of June 30, 2022, we had approximately $1.05 billion of construction land development loans which were collateralized by land. This consisted of approximately $136.8 million for raw land and approximately $912.5 million for land with commercial and/or residential lots.

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Table 8 presents our loans receivable balances by category as of June 30, 2022 and December 31, 2021.

Table 8: Loans Receivable

			June 30, 2022						December 31, 2021
			(In thousands)
Real estate:
Commercial real estate loans:
Non-farm/non-residential			$	5,092,539					$	3,889,284
Construction/land development			2,595,384						1,850,050
Agricultural			329,106						130,674
Residential real estate loans:
Residential 1-4 family			1,708,221						1,274,953
Multifamily residential			389,633						280,837
Total real estate			10,114,883						7,425,798
Consumer			1,106,343						825,519
Commercial and industrial			2,187,771						1,386,747
Agricultural			324,630						43,920
Other			190,246						154,105
Total loans receivable			$	13,923,873					$	9,836,089

Commercial Real Estate Loans. We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized (where defined) over a 15 to 30-year period with balloon payments due at the end of one to five years. These loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis.

As of June 30, 2022, commercial real estate loans totaled $8.02 billion, or 57.6%, of loans receivable, as compared to $5.87 billion, or 59.7%, of loans receivable, as of December 31, 2021. Commercial real estate loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $1.97 billion, $2.27 billion, $2.14 billion, $87.9 million, zero and $1.55 billion at June 30, 2022, respectively.

Residential Real Estate Loans. We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas. Approximately 38.6% and 51.6% of our residential mortgage loans consist of owner occupied 1-4 family properties and non-owner occupied 1-4 family properties (rental), respectively, as of June 30, 2022, with the remaining 9.8% relating to condos and mobile homes. Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.

As of June 30, 2022, residential real estate loans totaled $2.10 billion, or 15.1%, of loans receivable, compared to $1.56 billion, or 15.8%, of loans receivable, as of December 31, 2021. Residential real estate loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $416.6 million, $862.2 million, $562.8 million, $49.3 million, zero and $206.9 million at June 30, 2022, respectively.

Consumer Loans. Our consumer loans are composed of secured and unsecured loans originated by our bank, the primary portion of which consists of loans to finance USCG registered high-end sail and power boats within our SPF division. The performance of consumer loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.

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As of June 30, 2022, consumer loans totaled $1.11 billion, or 7.9%, of loans receivable, compared to $825.5 million, or 8.4%, of loans receivable, as of December 31, 2021. Consumer loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $23.2 million, $7.8 million, $31.3 million, $977,000, $1.04 billion and zero at June 30, 2022, respectively.

Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years. Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally, accounts receivable are financed at between 50% and 80% of accounts receivable less than 60 days past due. Inventory financing will range between 50% and 80% (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans.

As of June 30, 2022, commercial and industrial loans totaled $2.19 billion, or 15.7%, of loans receivable, compared to $1.39 billion, or 14.1%, of loans receivable, as of December 31, 2021. Commercial and industrial loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $453.9 million, $288.4 million, $653.0 million, $56.4 million, $73.1 million and $662.9 million at June 30, 2022, respectively.

Non-Performing Assets

We classify our problem loans into three categories: past due loans, special mention loans and classified loans (accruing and non-accruing).

When management determines that a loan is no longer performing, and that collection of interest appears doubtful, the loan is placed on non-accrual status. Loans that are 90 days past due are placed on non-accrual status unless they are adequately secured and there is reasonable assurance of full collection of both principal and interest. Our management closely monitors all loans that are contractually 90 days past due, treated as “special mention” or otherwise classified or on non-accrual status.

Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses. The Company held approximately $152.3 million and $448,000 in PCD loans, as of June 30, 2022 and December 31, 2021, respectively.

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Table 9 sets forth information with respect to our non-performing assets as of June 30, 2022 and December 31, 2021. As of these dates, all non-performing restructured loans are included in non-accrual loans.

Table 9: Non-performing Assets

			As of June 30, 2022						As of December 31, 2021
			(Dollars in thousands)
Non-accrual loans			$	44,170					$	47,158
Loans past due 90 days or more (principal or interest payments)			16,432						3,035
Total non-performing loans			60,602						50,193
Other non-performing assets
Foreclosed assets held for sale, net			373						1,630
Other non-performing assets			104						—
Total other non-performing assets			477						1,630
Total non-performing assets			$	61,079					$	51,823
Allowance for credit losses to non-accrual loans			666.21		%				501.96		%
Allowance for credit losses to non-performing loans			485.57						471.61
Non-accrual loans to total loans			0.32						0.48
Non-performing loans to total loans			0.44						0.51
Non-performing assets to total assets			0.25						0.29

Our non-performing loans are comprised of non-accrual loans and accruing loans that are contractually past due 90 days. Our bank subsidiary recognizes income principally on the accrual basis of accounting. When loans are classified as non-accrual, the accrued interest is charged off and no further interest is accrued, unless the credit characteristics of the loan improve. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for credit losses.

Total non-performing loans were $60.6 million and $50.2 million as of June 30, 2022 and December 31, 2021, respectively. Non-performing loans at June 30, 2022 were $15.0 million, $33.3 million, $5.5 million, $813,000, $1.3 million and $4.7 million in the Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets, respectively.

The $4.7 million balance of non-accrual loans for our Centennial CFG market consists of one loan that is assessed for credit risk by the Federal Reserve under the Shared National Credit Program. The decision to place this loan on non-accrual status was made by the Federal Reserve and not the Company. The loan that makes up the total balance is still current on both principal and interest. However, all interest payments are currently being applied to the principal balance. Because the Federal Reserve required us to place this loan on non-accrual status, we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve.

Troubled debt restructurings (“TDRs”) generally occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near term. As a result, we will work with the borrower to prevent further difficulties, and ultimately to improve the likelihood of recovery on the loan. In those circumstances it may be beneficial to restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in an unfavorable and depressed real estate market. When we have modified the terms of a loan, we usually either reduce the monthly payment and/or interest rate for generally about three to twelve months. For our TDRs that accrue interest at the time the loan is restructured, it would be a rare exception to have charged-off any portion of the loan. As of June 30, 2022, we had $5.9 million of restructured loans that are in compliance with the modified terms and are not reported as past due or non-accrual in Table 9. Our Florida market contains $3.6 million and our Arkansas market contains $2.3 million of these restructured loans.

A loan modification that might not otherwise be considered may be granted resulting in classification as a TDR. These loans can involve loans remaining on non-accrual, moving to non-accrual, or continuing on an accrual status, depending on the individual facts and circumstances of the borrower. Generally, a non-accrual loan that is restructured remains on non-accrual for a period of nine months to demonstrate that the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can pay under the new terms and may result in the loan being returned to an accrual status after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan will remain in a non-accrual status.

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The majority of the Bank’s loan modifications relates to commercial lending and involves reducing the interest rate, changing from a principal and interest payment to interest-only, lengthening the amortization period, or a combination of some or all of the three. In addition, it is common for the Bank to seek additional collateral or guarantor support when modifying a loan. At June 30, 2022 and December 31, 2021, the amount of TDRs was $6.6 million and $7.5 million, respectively. As of June 30, 2022 and December 31, 2021, 88.9% and 85.7%, respectively, of all restructured loans were performing to the terms of the restructure.

Total foreclosed assets held for sale were $373,000 as of June 30, 2022, compared to $1.6 million as of December 31, 2021 for a decrease of $1.3 million. The foreclosed assets held for sale as of June 30, 2022 are comprised of $8,000 of assets located in Arkansas, $260,000 located in Florida, $105,000 located in Texas and zero from Alabama, SPF and Centennial CFG.

Table 10 shows the summary of foreclosed assets held for sale as of June 30, 2022 and December 31, 2021.

Table 10: Foreclosed Assets Held For Sale

			As of June 30, 2022						As of December 31, 2021
			(In thousands)
Commercial real estate loans
Non-farm/non-residential			$	49					$	536
Construction/land development			55						834
Residential real estate loans
Residential 1-4 family			269						260
Multifamily residential			—						—
Total foreclosed assets held for sale			$	373					$	1,630

A loan is considered impaired when it is probable that we will not receive all amounts due according to the contracted terms of the loans. Impaired loans include non-performing loans (loans past due 90 days or more and non-accrual loans), criticized and/or classified loans with a specific allocation, loans categorized as TDRs and certain other loans identified by management that are still performing (loans included in multiple categories are only included once). As of June 30, 2022 and December 31, 2021, impaired loans were $385.1 million and $331.5 million, respectively. The amortized cost balance for loans with a specific allocation increased from $284.0 million to $323.1 million, and the specific allocation for impaired loans increased by approximately $6.6 million for the period ended June 30, 2022 compared to the period ended December 31, 2021. The Company is continuing to monitor these impaired loans and will adjust the discount as necessary. As of June 30, 2022, our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets accounted for approximately $176.3 million, $145.0 million, $57.1 million, $813,000, $1.3 million and $4.7 million of the impaired loans, respectively.

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Past Due and Non-Accrual Loans

Table 11 shows the summary of non-accrual loans as of June 30, 2022 and December 31, 2021:

Table 11: Total Non-Accrual Loans

			As of June 30, 2022						As of December 31, 2021
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	14,247					$	11,923
Construction/land development			1,050						1,445
Agricultural			194						897
Residential real estate loans
Residential 1-4 family			17,210						16,198
Multifamily residential			156						156
Total real estate			32,857						30,619
Consumer			1,321						1,648
Commercial and industrial			8,698						13,875
Agricultural & other			1,294						1,016
Total non-accrual loans			$	44,170					$	47,158

If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $672,000 and $795,000, respectively, would have been recorded for the three-month periods ended June 30, 2022 and 2021. If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $1.3 million and $1.6 million, respectively, would have been recorded for the six month periods ended June 30, 2022 and 2021. The interest income recognized on non-accrual loans for the three and six months ended June 30, 2022 and 2021 was considered immaterial.

Table 12 shows the summary of accruing past due loans 90 days or more as of June 30, 2022 and December 31, 2021:

Table 12: Loans Accruing Past Due 90 Days or More

			As of June 30, 2022						As of December 31, 2021
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	10,712					$	2,225
Construction/land development			246						—
Agricultural			711						—
Residential real estate loans
Residential 1-4 family			2,378						701
Multifamily residential			—						—
Total real estate			14,047						2,926
Consumer			43						2
Commercial and industrial			2,342						107
Other			—						—
Total loans accruing past due 90 days or more			$	16,432					$	3,035

Our ratio of total loans accruing past due 90 days or more and non-accrual loans to total loans was 0.44% and 0.51% at June 30, 2022 and December 31, 2021, respectively.

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Allowance for Credit Losses

Overview. The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Company uses the discounted cash flow (“DCF”) method to estimate expected losses for all of the Company’s loan pools. These pools are as follows: construction & land development; other commercial real estate; residential real estate; commercial & industrial; and consumer & other. The loan portfolio pools were selected in order to generally align with the loan categories specified in the quarterly call reports required to be filed with the Federal Financial Institutions Examination Council. For each of these loan pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price index and national retail sales index.

The combination of adjustments for credit expectations (default and loss) and time expectations prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.

The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower or

the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Management qualitatively adjusts model results for risk factors ("Q-Factors") that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factors and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.

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Loans considered impaired, according to ASC 326, are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest 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.

Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.

Acquisition Accounting and Acquired Loans. We account for our acquisitions under FASB 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. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

Purchased loans that have experienced more than insignificant credit deterioration since origination are PCD loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Specific Allocations. As a general rule, if a specific allocation is warranted, it is the result of an analysis of a previously classified credit or relationship. Typically, when it becomes evident through the payment history or a financial statement review that a loan or relationship is no longer supported by the cash flows of the asset and/or borrower and has become collateral dependent, we will use appraisals or other collateral analysis to determine if collateral impairment has occurred. The amount or likelihood of loss on this credit may not yet be evident, so a charge-off would not be prudent. However, if the analysis indicates that an impairment has occurred, then a specific allocation will be determined for this loan. If our existing appraisal is outdated or the collateral has been subject to significant market changes, we will obtain a new appraisal for this impairment analysis. The majority of our impaired loans are collateral dependent at the present time, so third-party appraisals were used to determine the necessary impairment for these loans. Cash flow available to service debt was used for the other impaired loans. This analysis is performed each quarter in connection with the preparation of the analysis of the adequacy of the allowance for credit losses, and if necessary, adjustments are made to the specific allocation provided for a particular loan.

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For collateral dependent loans, we do not consider an appraisal outdated simply due to the passage of time. However, if an appraisal is older than 13 months and if market or other conditions have deteriorated and we believe that the current market value of the property is not within approximately 20% of the appraised value, we will consider the appraisal outdated and order either a new appraisal or an internal validation report for the impairment analysis. The recognition of any provision or related charge-off on a collateral dependent loan is either through annual credit analysis or, many times, when the relationship becomes delinquent. If the borrower is not current, we will update our credit and cash flow analysis to determine the borrower's repayment ability. If we determine this ability does not exist and it appears that the collection of the entire principal and interest is not likely, then the loan could be placed on non-accrual status. In any case, loans are classified as non-accrual no later than 105 days past due. If the loan requires a quarterly impairment analysis, this analysis is completed in conjunction with the completion of the analysis of the adequacy of the allowance for credit losses. Any exposure identified through the impairment analysis is shown as a specific reserve on the individual impairment. If it is determined that a new appraisal or internal validation report is required, it is ordered and will be taken into consideration during completion of the next impairment analysis.

In estimating the net realizable value of the collateral, management may deem it appropriate to discount the appraisal based on the applicable circumstances. In such case, the amount charged off may result in loan principal outstanding being below fair value as presented in the appraisal.

Between the receipt of the original appraisal and the updated appraisal, we monitor the loan's repayment history. If the loan is $3.0 million or greater or the total loan relationship is $5.0 million or greater, our policy requires an annual credit review. For these loans, our policy requires financial statements from the borrowers and guarantors at least annually. In addition, we calculate the global repayment ability of the borrower/guarantors at least annually on these loans.

As a general rule, when it becomes evident that the full principal and accrued interest of a loan may not be collected, or by law at 105 days past due, we will reflect that loan as non-performing. It will remain non-performing until it performs in a manner that it is reasonable to expect that we will collect the full principal and accrued interest.

When the amount or likelihood of a loss on a loan has been determined, a charge-off should be taken in the period it is determined. If a partial charge-off occurs, the quarterly impairment analysis will determine if the loan is still impaired, and thus continues to require a specific allocation.

The Company had $385.1 million and $331.5 million in collateral-dependent impaired loans for the periods ended June 30, 2022 and December 31, 2021, respectively.

Loans Collectively Evaluated for Impairment. Loans receivable collectively evaluated for impairment increased by approximately $4.04 billion from $9.54 billion at December 31, 2021 to $13.57 billion at June 30, 2022. The percentage of the allowance for credit losses allocated to loans receivable collectively evaluated for impairment to the total loans collectively evaluated for impairment was 1.74% and 1.94% at June 30, 2022 and December 31, 2021, respectively.

Charge-offs and Recoveries. Total charge-offs increased to $3.3 million for the three months ended June 30, 2022, compared to $3.0 million for the same period in 2021. Total charge-offs decreased to $5.6 million for the six months ended June 30, 2022, compared to $6.1 million for the same period in 2021. Total recoveries were $778,000 and $542,000 for the three months ended June 30, 2022 and 2021, respectively. Total recoveries were $1.1 million and $1.0 million for the six months ended June 30, 2022 and 2021, respectively. For the three months ended June 30, 2022, net charge-offs were $262,000 for Arkansas, $1.5 million for Florida, $724,000 for Texas, $35,000 for Alabama and zero for Centennial CFG, partially offset by net recoveries of $63,000 for SPF. These equal a net charge-off position of $2.5 million. For the six months ended June 30, 2022, net charge-offs were $530,000 for Arkansas, $2.7 million for Florida, $724,000 for Texas, $36,000 for Alabama, $395,000 for SPF and zero for Centennial CFG. These equal a net charge-off position of $4.4 million.

We have not charged off an amount less than what was determined to be the fair value of the collateral as presented in the appraisal, less estimated costs to sell (for collateral dependent loans), for any period presented. Loans partially charged-off are placed on non-accrual status until it is proven that the borrower's repayment ability with respect to the remaining principal balance can be reasonably assured. This is usually established over a period of 6-12 months of timely payment performance.

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Table 13 shows the allowance for credit losses, charge-offs and recoveries as of and for the three and six months ended June 30, 2022 and 2021.

Table 13: Analysis of Allowance for Credit Losses

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(Dollars in thousands)
Balance, beginning of year			$	234,768					$	242,932					$	236,714					$	245,473
Allowance for credit losses on PCD loans - Happy acquisition			16,816						—						16,816						—
Loans charged off
Real estate:
Commercial real estate loans:
Non-farm/non-residential			—						576						—						595
Construction/land development			—						—						—						—
Agricultural			—						42						—						42
Residential real estate loans:
Residential 1-4 family			39						97						289						323
Multifamily residential			—						—						—						—
Total real estate			39						715						289						960
Consumer			2,174						55						2,237						122
Commercial and industrial			—						1,931						1,416						4,210
Agricultural			—						—						—						—
Other			1,052						322						1,633						778
Total loans charged off			3,265						3,023						5,575						6,070
Recoveries of loans previously charged off
Real estate:
Commercial real estate loans:
Non-farm/non-residential			52						54						78						68
Construction/land development			302						17						317						39
Agricultural			—						—						—						—
Residential real estate loans:
Residential 1-4 family			23						104						49						166
Multifamily residential			—						—						—						—
Total real estate			377						175						444						273
Consumer			37						(14)						48						32
Commercial and industrial			221						226						330						302
Agricultural			—						—						—						—
Other			143						155						320						441
Total recoveries			778						542						1,142						1,048
Net loans charged off			2,487						2,481						4,433						5,022
Provision for credit loss - acquired loans			45,170						—						45,170						—
Balance, June 30			$	294,267					$	240,451					$	294,267					$	240,451
Net charge-offs to average loans receivable			0.07		%				0.09		%				0.08		%				0.09		%
Allowance for credit losses to total loans			2.11						2.36						2.11						2.36
Allowance for credit losses to net charge-offs			2,949.95						2,416.29						3,291.77						2,374.30

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Table 14 presents the allocation of allowance for credit losses as of June 30, 2022 and December 31, 2021.

Table 14: Allocation of Allowance for Credit Losses

			As of June 30, 2022												As of December 31, 2021
			Allowance Amount						% of loans(1)						Allowance Amount						% of loans(1)
			(Dollars in thousands)
Real estate:
Commercial real estate loans:
Non-farm/non- residential			$	113,645					36.6		%				$	86,910					39.5		%
Construction/land development			36,689						18.6						28,415						18.8
Agricultural residential real estate loans			1,550						2.4						308						1.3
Residential real estate loans:
Residential 1-4 family			47,343						12.3						45,364						13.0
Multifamily residential			3,803						2.8						3,094						2.9
Total real estate			203,030						72.7						164,091						75.5
Consumer			20,460						7.9						16,612						8.4
Commercial and industrial			66,894						15.7						52,910						14.1
Agricultural			1,415						2.3						152						0.4
Other			2,468						1.4						2,949						1.6
Total			$	294,267					100.0		%				$	236,714					100.0		%

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

Investment Securities

Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as held-to-maturity, available-for-sale, or trading based on the intent and objective of the investment and the ability to hold to maturity. Fair values of securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities. The estimated effective duration of our securities portfolio was 5.2 years as of June 30, 2022.

Securities held-to-maturity, which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. As of June 30, 2022, we had $1.37 billion of held-to-maturity securities. Of the $1.37 billion of held-to-maturity securities as of June 30, 2022, $1.09 billion, or 79.7%, is invested in obligations of state and political subdivisions and the other $277.7 million, or 20.3%, is invested in U.S. Treasury securities.

Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity as other comprehensive (loss) income. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. Available-for-sale securities were $3.79 billion and $3.12 billion as June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022, $1.98 billion, or 52.2%, of our available-for-sale securities were invested in mortgage-backed securities, compared to $1.54 billion, or 49.3%, of our available-for-sale securities as of December 31, 2021. To reduce our income tax burden, $934.5 million, or 24.6%, of our available-for-sale securities portfolio as of June 30, 2022, were primarily invested in tax-exempt obligations of state and political subdivisions, compared to $997.0 million, or 32.0%, of our available-for-sale securities as of December 31, 2021. We had $451.5 million, or 11.9%, invested in obligations of U.S. Government-sponsored enterprises as of June 30, 2022, compared to $433.0 million, or 13.9%, of our available-for-sale securities as of December 31, 2021. Also, we had approximately $427.3 million, or 11.3%, invested in other securities as of June 30, 2022, compared to $151.9 million, or 4.9% of our available-for-sale securities as of December 31, 2021.

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The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that 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 losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

The Company recorded a $2.0 million provision for credit losses on the held-to-maturity investment securities during the second quarter of 2022 as a result of the investment securities acquired as part of the Happy acquisition. Of the Company's held-to-maturity securities, $1.09 billion, or 79.7% are municipal securities. To estimate the necessary loss provision, the Company utilized historical default and recovery rates of the municipal bond sector and applied these rates using a pooling method. The remainder of investments classified as held-to-maturity are U.S. Treasury securities. Due to the inherent low risk in U.S. Treasury securities, no provision for credit loss was established on that portion of the portfolio.

At June 30, 2022, the Company determined that the allowance for credit losses of $842,000, resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio, and the allowance for credit losses for the HTM portfolio resulting from the Happy acquisition was considered adequate. No additional provision for credit losses was considered necessary for the portfolio.

See Note 3 to the Condensed Notes to Consolidated Financial Statements for the carrying value and fair value of investment securities.

Deposits

Our deposits averaged $19.94 billion and $17.17 billion for the three and six months ended June 30, 2022, respectively. Our deposits averaged $13.77 billion and $13.40 billion for the three and six months ended June 30, 2021, respectively. Total deposits were $19.58 billion as of June 30, 2022, and $14.26 billion as of December 31, 2021. Deposits are our primary source of funds. We offer a variety of products designed to attract and retain deposit customers. Those products consist of checking accounts, regular savings deposits, NOW accounts, money market accounts and certificates of deposit. Deposits are gathered from individuals, partnerships and corporations in our market areas. In addition, we obtain deposits from state and local entities and, to a lesser extent, U.S. Government and other depository institutions.

Our policy also permits the acceptance of brokered deposits. From time to time, when appropriate in order to fund strong loan demand, we accept brokered time deposits, generally in denominations of less than $250,000, from a regional brokerage firm, and other national brokerage networks. We also participate in the One-Way Buy Insured Cash Sweep (“ICS”) service and similar services, which provide for one-way buy transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements. Management believes these sources represent a reliable and cost-efficient alternative funding source for the Company. However, to the extent that our condition or reputation deteriorates, or to the extent that there are significant changes in market interest rates which we do not elect to match, we may experience an outflow of brokered deposits. In that event we would be required to obtain alternate sources for funding.

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Table 15 reflects the classification of the brokered deposits as of June 30, 2022 and December 31, 2021.

Table 15: Brokered Deposits

			June 30, 2022						December 31, 2021
			(In thousands)
Time Deposits			$	—					$	—
CDARS			—						—
Insured Cash Sweep and Other Transaction Accounts			626,929						625,704
Total Brokered Deposits			$	626,929					$	625,704

The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will continue to manage interest expense through deposit pricing. We may allow higher rate deposits to run off during periods of limited loan demand. We believe that additional funds can be attracted, and deposit growth can be realized through deposit pricing if we experience increased loan demand or other liquidity needs.

The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. In 2020, the Federal Reserve lowered the target rate to 0.00% to 0.25%. This remained in effect throughout all of 2021. On March 16, 2022, the target rate was increased to 0.25% to 0.50%. On May 4, 2022, the target rate was increased to 0.75% to 1.00%. On June 15, 2022, the target rate was increased to 1.50% to 1.75%. Presently, the Federal Reserve has indicated they are anticipating multiple rate increases for 2022.

Table 16 reflects the classification of the average deposits and the average rate paid on each deposit category, which are in excess of 10 percent of average total deposits, for the three and six months ended June 30, 2022 and 2021.

Table 16: Average Deposit Balances and Rates

			Three Months Ended June 30,
			2022												2021
			Average Amount						Average Rate Paid						Average Amount						Average Rate Paid
			(Dollars in thousands)
Non-interest-bearing transaction accounts			$	6,138,497					—		%				$	3,966,968					—		%
Interest-bearing transaction accounts			10,999,598						0.35						7,816,822						0.20
Savings deposits			1,633,014						0.07						867,904						0.06
Time deposits:
$100,000 or more			731,761						0.36						761,017						1.06
Other time deposits			439,099						0.27						362,270						0.51
Total			$	19,941,969					0.22		%				$	13,774,981					0.19		%

			Six Months Ended June 30,
			2022												2021
			Average Amount						Average Rate Paid						Average Amount						Average Rate Paid
			(Dollars in thousands)
Non-interest-bearing transaction accounts			$	5,152,673					—		%				$	3,724,854					—		%
Interest-bearing transaction accounts			9,701,529						0.27						7,682,933						0.22
Savings deposits			1,305,703						0.07						829,781						0.06
Time deposits:
$100,000 or more			625,901						0.46						797,619						1.12
Other time deposits			387,699						0.29						368,502						0.56
Total			$	17,173,505					0.18		%				$	13,403,689					0.21		%

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Securities Sold Under Agreements to Repurchase

We enter into short-term purchases of securities under agreements to resell (resale agreements) and sales of securities under agreements to repurchase (repurchase agreements) of substantially identical securities. The amounts advanced under resale agreements and the amounts borrowed under repurchase agreements are carried on the balance sheet at the amount advanced. Interest incurred on repurchase agreements is reported as interest expense. Securities sold under agreements to repurchase decreased $22.3 million, or 15.8%, from $140.9 million as of December 31, 2021 to $118.6 million as of June 30, 2022.

FHLB and Other Borrowed Funds

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $400.0 million at both June 30, 2022 and December 31, 2021. The Company had no other borrowed funds as of June 30, 2022 or December 31, 2021. At June 30, 2022 and December 31, 2021, all of the outstanding balances were classified as long-term advances. The FHLB advances mature in 2033 with fixed interest rates ranging from 1.76% to 2.26%. Expected maturities could differ from contractual maturities because FHLB may have the right to call or the Company may have the right to prepay certain obligations.

Subordinated Debentures

Subordinated debentures, which consist of subordinated debt securities and guaranteed payments on trust preferred securities, were $458.5 million and $371.1 million as of June 30, 2022 and December 31, 2021, respectively.

The Company holds trust preferred securities with a face amount of $17.6 million which are currently callable without penalty based on the terms of the specific agreements. The trust preferred securities are tax-advantaged issues that previously qualified for Tier 1 capital treatment subject to certain limitations. However, now that the Company has exceeded $15 billion in assets and has completed the acquisition of Happy Bancshares, the Tier 1 treatment of the Company’s outstanding trust preferred securities has been eliminated, and these securities are now treated as Tier 2 capital. Distributions on these securities are included in interest expense. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in the Company’s subordinated debentures, the sole asset of each trust. The trust 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 subordinated debentures held by the trust. The Company wholly owns the common securities of each trust. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related subordinated debentures. The Company’s obligations under the subordinated securities and other relevant trust agreements, in 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 has received approval from the Federal Reserve to redeem the trust preferred securities, and is in the process of redeeming all of its trust preferred securities.

On April 1, 2022, the Company acquired $23.2 million in trust preferred securities from Happy which were currently callable without penalty based on the terms of the specific agreements. During the quarter, $10.7 million of these trust preferred securities were paid off without penalty. As of June 30, 2022, the Company held a face amount of $12.5 million in trust preferred securities acquired from Happy.

During the second quarter, the Company chose to redeem an additional $68.1 million in trust preferred securities held prior to the acquisition of Happy. As of June 30, 2022, the Company's remaining balance of trust preferred securities which were held prior to the acquisition of Happy was $5.1 million.

On April 1, 2022, the Company acquired $140.0 million of subordinated notes from Happy. These notes have a maturity date of July 31, 2030 and carry a fixed rate of 5.500% for the first five years. Thereafter, the notes bear interest at 3-month Secured Overnight Funding Rate (SOFR) plus 5.345% resetting quarterly. Interest payments are due semi-annually and the notes include a right of prepayment without penalty on or after July 31, 2025.

On January 18, 2022, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 3.125% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “2032 Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $296.4 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. From and including the date of issuance to, but excluding January 30, 2027 or the date of earlier redemption, the 2032 Notes will bear interest at an initial rate of 3.125% per annum, payable in arrears on January 30 and July 30 of each year. From and including January 30, 2027 to, but excluding the maturity date or earlier redemption, the 2032 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be Three-Month Term SOFR), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2032 Notes, plus 182 basis points, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on April 30, 2027.

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The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.

On April 3, 2017, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 5.625% Fixed-to-Floating Rate Subordinated Notes due 2027 (the “2027 Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $297.0 million. The 2027 Notes are unsecured, subordinated debt obligations and mature on April 15, 2027. From and including the date of issuance to, but excluding April 15, 2022, the 2027 Notes bear interest at an initial rate of 5.625% per annum. From and including April 15, 2022 to, but excluding the maturity date or earlier redemption, the 2027 Notes bear interest at a floating rate equal to three-month LIBOR as calculated on each applicable date of determination plus a spread of 3.575%; provided, however, that in the event three-month LIBOR is less than zero, then three-month LIBOR shall be deemed to be zero.

The Company, beginning with the interest payment date of April 15, 2022, and on any interest payment date thereafter, was permitted to redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. On April 15, 2022, the Company completed the payoff of the 2027 Notes in aggregate principal amount of $300.0 million. Each 2027 Note was redeemed pursuant to the terms of the Subordinated Indenture, as supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S. Bank Trust Company, National Association, the Trustee for the 2027 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date.

Stockholders’ Equity

Stockholders’ equity increased $732.8 million to $3.50 billion as of June 30, 2022, compared to $2.77 billion as of December 31, 2021. The $732.8 million increase in stockholders’ equity is primarily associated with the $961.3 million in common stock issued to Happy shareholders for the acquisition of Happy on April 1, 2022 and the $80.9 million in net income for the six months ended June 30, 2022, partially offset by the $226.4 million in other comprehensive loss, the $61.0 million of shareholder dividends paid and stock repurchases of $26.6 million in 2022. As of June 30, 2022 and December 31, 2021, our equity to asset ratio was 14.43% and 15.32%, respectively. Book value per share was $17.04 as of June 30, 2022, compared to $16.90 as of December 31, 2021, a 3.5% annualized increase.

Common Stock Cash Dividends. We declared cash dividends on our common stock of $0.165 and $0.14 per share for the three months ended June 30, 2022 and 2021, respectively. The common stock dividend payout ratio for the three months ended June 30, 2022 and 2021 was 212.4% and 29.2%, respectively. The common stock dividend payout ratio for the six months ended June 30, 2022 and 2021 was 75.4% and 27.1%, respectively. On July 22, 2022, the Board of Directors declared a regular $0.165 per share quarterly cash dividend payable September 7, 2022, to shareholders of record August 17, 2022.

Stock Repurchase Program. On January 22, 2021, the Company’s Board of Directors authorized the repurchase of up to an additional 20,000,000 shares of its common stock under the previously approved stock repurchase program. We repurchased a total of 1,212,732 shares with a weighted-average stock price of $21.89 per share during the first six months of 2022. The remaining balance available for repurchase was 20,877,933 shares at June 30, 2022.

Liquidity and Capital Adequacy Requirements

Risk-Based Capital. We, as well as our bank subsidiary, are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and other discretionary actions by regulators that, if enforced, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators as to components, risk weightings and other factors.

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In July 2013, the Federal Reserve Board and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” and certain provisions of the Dodd-Frank Act (“Basel III”). Basel III applies to all depository institutions, bank holding companies with total consolidated assets of $500 million or more, and savings and loan holding companies. Basel III became effective for the Company and its bank subsidiary on January 1, 2015. Basel III limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” of 2.5% of common equity Tier 1 capital to risk-weighted assets, which is in addition to the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement began being phased in beginning January 1, 2016 at the 0.625% level and increased by 0.625% on each subsequent January 1, until it reached 2.5% on January 1, 2019 when the phase-in period ended, and the full capital conservation buffer requirement became effective.

Basel III permanently grandfathers trust preferred securities and other non-qualifying capital instruments that were issued and outstanding as of May 19, 2010 in the Tier 1 capital of bank holding companies with total consolidated assets of less than $15 billion as of December 31, 2009. The rule phases out of Tier 1 capital these non-qualifying capital instruments issued before May 19, 2010 by all other bank holding companies. However, now that the Company has exceeded $15 billion in assets and has completed the acquisition of Happy Bancshares, the Tier 1 treatment of the Company’s outstanding trust preferred securities has been eliminated, and these securities are now treated as Tier 2 capital.

Basel III also amended the prompt corrective action rules to incorporate a “common equity Tier 1 capital” requirement and to raise the capital requirements for certain capital categories. In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization will be required to have at least a 4.5% “common equity Tier 1 risk-based capital” ratio, a 4% “Tier 1 leverage capital” ratio, a 6% “Tier 1 risk-based capital” ratio and an 8% “total risk-based capital” ratio.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of June 30, 2022 and December 31, 2021, we met all regulatory capital adequacy requirements to which we were subject.

On January 18, 2022, the Company completed an underwritten public offering of the 2032 Notes in aggregate principal amount of $300.0 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.

On April 1, 2022, the Company acquired $140.0 million of subordinated notes from Happy. These notes have a maturity date of July 31, 2030 and carry a fixed rate of 5.500% for the first five years. Thereafter, the notes bear interest at 3-month Secured Overnight Funding Rate (SOFR) plus 5.345% resetting quarterly. Interest payments are due semi-annually and the notes include a right of prepayment without penalty on or after July 31, 2025.

On April 3, 2017, the Company completed an underwritten public offering of the 2027 Notes in aggregate principal amount of $300.0 million. The 2027 Notes are unsecured, subordinated debt obligations and mature on April 15, 2027. On April 15, 2022, the Company completed the payoff of the 2027 Notes in aggregate principal amount of $300.0 million. Each 2027 Note was redeemed pursuant to the terms of the Subordinated Indenture, as supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S. Bank Trust Company, National Association, the Trustee for the 2027 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date.

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On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to permit bank holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 27, 2020, the federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows bank holding companies and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. The Company has elected to adopt the interim final rule, which is reflected in the risk-based capital ratios presented below.

Table 17 presents our risk-based capital ratios on a consolidated basis as of June 30, 2022 and December 31, 2021.

Table 17: Risk-Based Capital

			As of June 30, 2022						As of December 31, 2021
			(Dollars in thousands)
Tier 1 capital
Stockholders’ equity			$	3,498,565					$	2,765,721
ASC 326 transitional period adjustment			24,369						55,143
Goodwill and core deposit intangibles, net			(1,461,362)						(997,605)
Unrealized (gain) loss on available-for-sale securities			215,905						(10,462)
Total common equity Tier 1 capital			2,277,477						1,812,797
Qualifying trust preferred securities			17,630						71,270
Total Tier 1 capital			2,295,107						1,884,067
Tier 2 capital
Allowance for credit losses			294,267						236,714
ASC 326 transitional period adjustment			(24,369)						(55,143)
Disallowed allowance for credit losses (limited to 1.25% of risk weighted assets)			(46,178)						(33,514)
Qualifying allowance for credit losses			223,720						148,057
Qualifying subordinated notes			440,825						299,824
Total Tier 2 capital			664,545						447,881
Total risk-based capital			$	2,959,652					$	2,331,948
Average total assets for leverage ratio			$	23,482,743					$	16,960,683
Risk weighted assets			$	17,817,635					$	11,793,539
Ratios at end of period
Common equity Tier 1 capital			12.78		%				15.37		%
Leverage ratio			9.77						11.11
Tier 1 risk-based capital			12.88						15.98
Total risk-based capital			16.61						19.77
Minimum guidelines – Basel III
Common equity Tier 1 capital			7.00		%				7.00		%
Leverage ratio			4.00						4.00
Tier 1 risk-based capital			8.50						8.50
Total risk-based capital			10.50						10.50
Well-capitalized guidelines
Common equity Tier 1 capital			6.50		%				6.50		%
Leverage ratio			5.00						5.00
Tier 1 risk-based capital			8.00						8.00
Total risk-based capital			10.00						10.00

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As of the most recent notification from regulatory agencies, our bank subsidiary was “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” we, as well as our banking subsidiary, must maintain minimum common equity Tier 1 capital, leverage, Tier 1 risk-based capital, and total risk-based capital ratios as set forth in the table. There are no conditions or events since that notification that we believe have changed the bank subsidiary’s category.

Non-GAAP Financial Measurements

Our accounting and reporting policies conform to generally accepted accounting principles in the United States (“GAAP”) and the prevailing practices in the banking industry. However, this report contains financial information determined by methods other than in accordance with GAAP, including earnings, as adjusted; diluted earnings per common share, as adjusted; tangible book value per share; return on average assets, excluding intangible amortization; return on average assets, as adjusted; return on average common equity, as adjusted; return on average tangible equity, excluding intangible amortization; return on average tangible equity, as adjusted; tangible equity to tangible assets; and efficiency ratio, as adjusted.

We believe these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these non-GAAP measures and ratios in assessing our operating results and related trends, and when planning and forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP.

The tables below present non-GAAP reconciliations of earnings, as adjusted, and diluted earnings per share, as adjusted, as well as the non-GAAP computations of tangible book value per share; return on average assets, excluding intangible amortization; return on average assets, as adjusted; return on average common equity, as adjusted; return on average tangible equity excluding intangible amortization; return on average tangible equity, as adjusted; tangible equity to tangible assets; and efficiency ratio, as adjusted. The items used in these calculations are included in financial results presented in accordance with GAAP.

Earnings, as adjusted, and diluted earnings per common share, as adjusted, are meaningful non-GAAP financial measures for management, as they exclude certain items such as merger expenses and/or certain gains and losses. Management believes the exclusion of these items in expressing earnings provides a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of our business, because management does not consider these items to be relevant to ongoing financial performance.

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In Table 18 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.

Table 18: Earnings, As Adjusted

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(Dollars in thousands)
GAAP net income available to common shareholders (A)			$	15,978					$	79,070					$	80,870					$	170,672
Pre-tax adjustments:
Merger and acquisition expenses			48,731						—						49,594						—
Initial provision for credit losses - acquisition			58,585						—						58,585						—
Fair value adjustment for marketable securities			1,801						(1,250)						(324)						(7,032)
Special dividend from equity investment			(1,434)						(2,200)						(1,434)						(10,273)
TRUPS redemption fees			2,081						—						2,081						—
Recoveries on historic losses			(2,353)						—						(5,641)						(5,107)
Gain on securities			—						—						—						(219)
Total pre-tax adjustments			107,411						(3,450)						102,861						(22,631)
Tax-effect of adjustments(1)			26,396						(888)						25,176						(5,825)
Total adjustments after-tax (B)			81,015						(2,562)						77,685						(16,806)
Earnings, as adjusted (C)			$	96,993					$	76,508					$	158,555					$	153,866
Average diluted shares outstanding (D)			206,015						165,226						185,223						165,314
GAAP diluted earnings per share: A/D			$	0.08					$	0.48					$	0.44					$	1.03
Adjustments after-tax: B/D			0.39						(0.02)						0.42						(0.10)
Diluted earnings per common share excluding adjustments: C/D			$	0.47					$	0.46					$	0.86					$	0.93

(1) Blended statutory rate of 25.1475% for 2022 and 25.74% for 2021

We had $1.46 billion, $998.1 million, and $1.00 billion total goodwill, core deposit intangibles and other intangible assets as of June 30, 2022, December 31, 2021 and June 30, 2021, respectively. Because of our level of intangible assets and related amortization expenses, management believes tangible book value per share, return on average assets excluding intangible amortization, return on average tangible equity, return on average tangible equity excluding intangible amortization, and tangible equity to tangible assets are useful in evaluating our company. Management also believes return on average assets, as adjusted, return on average equity, as adjusted, and return on average tangible equity, as adjusted, are meaningful non-GAAP financial measures, as they exclude items such as certain non-interest income and expenses that management believes are not indicative of our primary business operating results. These calculations, which are similar to the GAAP calculations of book value per share, return on average assets, return on average equity, and equity to assets, are presented in Tables 19 through 22, respectively.

Table 19: Tangible Book Value Per Share

			As of June 30, 2022						As of December 31, 2021
			(In thousands, except per share data)
Book value per share: A/B			$	17.04					$	16.90
Tangible book value per share: (A-C-D)/B			9.92						10.80
(A) Total equity			$	3,498,565					$	2,765,721
(B) Shares outstanding			205,291						163,699
(C) Goodwill			1,398,400						973,025
(D) Core deposit and other intangibles			63,410						25,045

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Table 20: Return on Average Assets

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(Dollars in thousands)
Return on average assets: A/D			0.26		%				1.81		%				0.75		%				2.01		%
Return on average assets excluding intangible amortization: (A+B)/(D-E)			0.31						1.95						0.83						2.16
Return on average assets, as adjusted: (A+C)/D			1.57						1.75						1.48						1.81
(A) Net income			$	15,978					$	79,070					$	80,870					$	170,672
Intangible amortization after-tax			1,854						1,055						2,903						2,110
(B) Earnings excluding intangible amortization			$	17,832					$	80,125					$	83,773					$	172,782
(C) Adjustments after-tax			$	81,015					$	(2,562)					$	77,685					$	(16,806)
(D) Average assets			24,788,365						17,491,359						21,608,387						17,107,259
(E) Average goodwill, core deposits and other intangible assets			1,423,466						1,001,598						1,211,580						1,002,301

Table 21: Return on Average Equity

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(Dollars in thousands)
Return on average equity: A/D			1.78		%				11.92		%				5.14		%				13.02		%
Return on average common equity, as adjusted: (A+C)/D			10.83						11.54						10.08						11.74
Return on average tangible equity excluding intangible amortization: B/(D-E)			3.30						19.38						8.62						21.24
Return on average tangible common equity, as adjusted: (A+C)/(D-E)			17.94						18.50						16.31						18.91
(A) Net income			$	15,978					$	79,070					$	80,870					$	170,672
(B) Earnings excluding intangible amortization			17,832						80,125						83,773						172,782
(C) Adjustments after-tax			81,015						(2,562)						77,685						(16,806)
(D) Average equity			3,591,758						2,660,147						3,172,200						2,642,978
(E) Average goodwill, core deposits and other intangible assets			1,423,466						1,001,598						1,211,580						1,002,301

Table 22: Tangible Equity to Tangible Assets

			As of June 30, 2022						As of December 31, 2021
			(Dollars in thousands)
Equity to assets: B/A			14.43		%				15.32		%
Tangible equity to tangible assets: (B-C-D)/(A-C-D)			8.94						10.36
(A) Total assets			$	24,253,168					$	18,052,138
(B) Total equity			3,498,565						2,765,721
(C) Goodwill			1,398,400						973,025
(D) Core deposit and other intangibles			63,410						25,045

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The efficiency ratio is a standard measure used in the banking industry and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a meaningful non-GAAP measure for management, as it excludes certain items and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding items such as merger expenses and/or certain gains, losses and other non-interest income and expenses. In Table 23 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.

Table 23: Efficiency Ratio, As Adjusted

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(Dollars in thousands)
Net interest income (A)			$	198,758					$	141,252					$	329,906					$	289,340
Non-interest income (B)			44,581						31,120						75,250						76,396
Non-interest expense (C)			165,482						72,982						242,378						145,848
FTE Adjustment (D)			2,471						1,774						4,209						3,595
Amortization of intangibles (E)			2,477						1,421						3,898						2,842
Adjustments:
Non-interest income:
Fair value adjustment for marketable securities			$	(1,801)					$	1,250					$	324					$	7,032
Special dividend from equity investment			1,434						2,200						1,434						10,273
Gain on OREO, net			9						619						487						1,020
Gain (loss) on branches, equipment and other assets, net			2						(23)						18						(52)
Gain on securities, net			—						—						—						219
Recoveries on historic losses			2,353						—						5,641						5,107
Total non-interest income adjustments (F)			$	1,997					$	4,046					$	7,904					$	23,599
Non-interest expense:
Merger and acquisition expenses			48,731						—						49,594						—
Total non-core non-interest expense (G)			$	50,812					$	—					$	51,675					$	—
Efficiency ratio (reported): ((C-E)/(A+B+D))			66.31		%				41.09		%				58.26		%				38.72		%
Efficiency ratio, as adjusted (non-GAAP): ((C-E-G)/(A+B+D-F))			46.02						42.07						46.53						41.36

Recently Issued Accounting Pronouncements

See Note 21 to the Condensed Notes to Consolidated Financial Statements for a discussion of certain recently issued and recently adopted accounting pronouncements.

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Liquidity and Market Risk Management

Asset/Liability Management. Our management actively measures and manages interest rate risk. The asset/liability committees of the boards of directors of our holding company and bank subsidiary are also responsible for approving our asset/liability management policies, overseeing the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviewing our interest rate sensitivity position.

Our objective is to manage liquidity in a way that ensures cash flow requirements of depositors and borrowers are met in a timely and orderly fashion while ensuring the reliance on various funding sources does not become so heavily weighted to any one source that it causes undue risk to the bank. Our liquidity sources are prioritized based on availability and ease of activation. Our current liquidity condition is a primary driver in determining our funding needs and is a key component of our asset liability management.

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Various sources of liquidity are available to meet the cash flow needs of depositors and borrowers. Our principal source of funds is core deposits, including checking, savings, money market accounts and certificates of deposit. We may also from time to time obtain wholesale funding through brokered deposits. Secondary sources of funding include advances from the Federal Home Loan Bank of Dallas, the Federal Reserve Bank Discount Window and other borrowings, such as through correspondent banking relationships. These secondary sources enable us to borrow funds at rates and terms which, at times, are more beneficial to us. Additionally, as needed, we can liquidate or utilize our available for sale investment portfolio as collateral to provide funds for an intermediate source of liquidity.

Interest Rate Sensitivity. Our primary business is banking and the resulting earnings, primarily net interest income, are susceptible to changes in market interest rates. It is management’s goal to maximize net interest income within acceptable levels of interest rate and liquidity risks.

A key element in the financial performance of financial institutions is the level and type of interest rate risk assumed. The single most significant measure of interest rate risk is the relationship of the repricing periods of earning assets and interest-bearing liabilities. The more closely the repricing periods are correlated, the less interest rate risk we assume. We use net interest income simulation modeling and economic value of equity as the primary methods in analyzing and managing interest rate risk.

One of the tools that our management uses to measure short-term interest rate risk is a net interest income simulation model. This analysis calculates the difference between net interest income forecasted using base market rates and using a rising and a falling interest rate scenario. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately, and proportional to the change in market rates, depending on their contracted index. Some loans and investments include the opportunity of prepayment (embedded options), and accordingly, the simulation model uses indexes to estimate these prepayments and reinvest their proceeds at current yields. Our non-term deposit products re-price overnight in the model while we project certain other deposits by product type to have stable balances based on our deposit history. This accounts for the portion of our portfolio that moves more slowly than market rates and changes at our discretion.

This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that impact this analysis, including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change.

Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income.

For the rising and falling interest rate scenarios, the base market interest rate forecast was increased and decreased over twelve months by 200 and 100 basis points, respectively. At June 30, 2022, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by us.

Table 24 presents our sensitivity to net interest income as of June 30, 2022.

Table 24: Sensitivity of Net Interest Income

Interest Rate Scenario						Percentage Change from Base
Up 200 basis points						12.10		%
Up 100 basis points						6.20
Down 100 basis points						(5.90)
Down 200 basis points						(9.60)

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Item 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Additionally, our disclosure controls and procedures were also effective in ensuring that information required to be disclosed in our Exchange Act report is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

On April 1, 2022, we completed our acquisition of Happy Bancshares, Inc. ("Happy"), and as a result, we extended our oversight and monitoring processes that support our internal control over financial reporting during the second quarter of 2022, to include the operations of Happy. Otherwise, there were no changes in the Company’s internal controls over financial reporting during the quarter ended June 30, 2022, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1: Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company or its subsidiaries are a party or of which any of their property is the subject.

Item 1A: Risk Factors

There were no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our Form 10-K for the year ended December 31, 2021. See the discussion of our risk factors in the Form 10-K, as filed with the SEC. The risks described are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of the Company’s common stock during the periods indicated:

Period						Number of Shares Purchased						Average Price Paid Per Share Purchased						Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs						Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs(1)
April 1 through April 30, 2022						572,732						$	22.22					572,732						21,337,933
May 1 through May 31, 2022						180,000						21.55						180,000						21,157,933
June 1 through June 30, 2022						280,000						20.92						280,000						20,877,933
Total						1,032,732												1,032,732

(1)The above described stock repurchase program has no expiration date.

Item 3: Defaults Upon Senior Securities

Not applicable.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

Not applicable.

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Item 6: Exhibits

Exhibit No.						Description of Exhibit
2.1						Agreement and Plan of Merger, dated as of September 15, 2021, by and among Home BancShares, Inc., Centennial Bank, Happy Bancshares, Inc., and Happy State Bank (incorporated by reference to Exhibit 2.1 of Home BancShares’s Current Report on Form 8-K filed on September 15, 2021)**
2.2						Amendment and Joinder Agreement, dated as of October 18, 2021, by and among Home Bancshares, Inc., Centennial Bank, Happy Bancshares, Inc., Happy State Bank and HOMB Acquisition Sub III, Inc. (incorporated by reference to Appendix A of Home BancShares’s registration statement on Form S-4 (File No. 333-260446)), as amended)
2.3						Second Amendment to Agreement and Plan of Merger, dated as of November 8, 2021, by and among Home BancShares, Inc., Centennial Bank, HOMB Acquisition Sub III, Inc., Happy Bancshares, Inc. and Happy State Bank (incorporated by reference to Appendix A of Home BancShares’s registration statement on Form S-4 (File No. 333-260446), as amended)
3.1						Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)
3.2						Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.2 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)
3.3						Second Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.3 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)
3.4						Third Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.4 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)
3.5						Fourth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, filed on August 8, 2007)
3.6						Fifth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 4.6 of Home BancShares’s registration statement on Form S-3 (File No. 333-157165))
3.7						Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, filed with the Secretary of State of the State of Arkansas on January 14, 2009 (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K, filed on January 21, 2009)
3.8						Seventh Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on April 19, 2013)
3.9						Eighth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on April 22, 2016)
3.10						Ninth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on April 23, 2019)
3.11						Tenth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 4.11 of Home BancShares’s registration statement on Form S-8 (File No. 333-264409))
3.12						Amended and Restated Bylaws of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on January 28, 2021)
3.13						Amendment to the Amended and Restated Bylaws of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on April 22, 2022)
4.1						Specimen Stock Certificate representing Home BancShares, Inc. Common Stock (incorporated by reference to Exhibit 4.12 of the Company’s registration statement on Form S-3ASR (File No. 333-261495))

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4.2						Instruments defining the rights of security holders including indentures. Home BancShares hereby agrees to furnish to the SEC upon request copies of instruments defining the rights of holders of long-term debt of Home BancShares and its consolidated subsidiaries. No issuance of debt exceeds ten percent of the assets of Home BancShares and its subsidiaries on a consolidated basis.
10.1						Employment Agreement by and between Mikel Williamson and Centennial Bank, effective April 1, 2022.***
15						Awareness of Independent Registered Public Accounting Firm*
31.1						CEO Certification Pursuant Rule 13a-14(a)/15d-14(a)*
31.2						CFO Certification Pursuant Rule 13a-14(a)/15d-14(a)*
32.1						CEO Certification Pursuant 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes – Oxley Act of 2002*
32.2						CFO Certification Pursuant 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes – Oxley Act of 2002*
101.INS						Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.*
101.SCH						Inline XBRL Taxonomy Extension Schema Document*
101.CAL						InlineXBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document*
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document*
104						Cover Page Interactive Data File (embedded within the Inline XBRL document)

*    Filed herewith

**    The disclosure schedules referenced in the Agreement and Plan of Merger have been omitted pursuant to Item 601(a)(5) of SEC Regulation S-K. The Company hereby agrees to furnish supplementally a copy of any omitted disclosure schedule to the SEC upon request.

*** Filed herewith. Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of SEC Regulation S-K. The Company hereby agrees to furnish supplementally an unredacted copy of the exhibit to the SEC upon request.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HOME BANCSHARES, INC.

(Registrant)

Date:			August 9, 2022						/s/ John W. Allison
									John W. Allison, Chairman and Chief Executive Officer
Date:			August 9, 2022						/s/ Brian S. Davis
									Brian S. Davis, Chief Financial Officer
Date:			August 9, 2022						/s/ Jennifer C. Floyd
									Jennifer C. Floyd, Chief Accounting Officer

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