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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 March 31, 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: 205,639,194 shares as of May 8, 2022.

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HOME BANCSHARES, INC. FORM 10-Q March 31, 2022
INDEX
						Page No.
Part I:			Financial Information
Item 1:			Financial Statements
			Consolidated Balance Sheets – March 31, 2022 (Unaudited) and December 31, 2021			4
			Consolidated Statements of Income (Unaudited) – Three months ended March 31, 2022 and 2021			5
			Consolidated Statements of Comprehensive (Loss) Income (Unaudited) – Three months ended March 31, 2022 and 2021			6
			Consolidated Statements of Stockholders’ Equity (Unaudited) – Three months ended March 31, 2022 and 2021			7-8
			Consolidated Statements of Cash Flows (Unaudited) – Three months ended March 31, 2022 and 2021			9
			Condensed Notes to Consolidated Financial Statements (Unaudited)			10-49
			Report of Independent Registered Public Accounting Firm			50
Item 2:			Management’s Discussion and Analysis of Financial Condition and Results of Operations			51-85
Item 3:			Quantitative and Qualitative Disclosures About Market Risk			85-86
Item 4:			Controls and Procedures			86
Part II:			Other Information
Item 1:			Legal Proceedings			87
Item 1A:			Risk Factors			87
Item 2:			Unregistered Sales of Equity Securities and Use of Proceeds			87
Item 3:			Defaults Upon Senior Securities			87
Item 4:			Mine Safety Disclosures			87
Item 5:			Other Information			87
Item 6:			Exhibits			88-89
Signatures						90

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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 any businesses that we 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;

•risks associated with our customer relationship with the Cuban Embassy and our correspondent banking relationship with Banco Internacional de Comercio, S.A. (BICSA), a Cuban commercial bank;

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

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

•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)						March 31, 2022						December 31, 2021
						(Unaudited)
Assets
Cash and due from banks						$	173,134					$	119,908
Interest-bearing deposits with other banks						3,446,324						3,530,407
Cash and cash equivalents						3,619,458						3,650,315
Investment securities – available-for-sale, net of allowance for credit losses						2,957,322						3,119,807
Investment securities — held-to-maturity, net of allowance for credit losses						499,265						—
Total investment securities						3,456,587						3,119,807
Loans receivable						10,052,714						9,836,089
Allowance for credit losses						(234,768)						(236,714)
Loans receivable, net						9,817,946						9,599,375
Bank premises and equipment, net						274,503						275,760
Foreclosed assets held for sale						1,144						1,630
Cash value of life insurance						105,623						105,135
Accrued interest receivable						46,934						46,736
Deferred tax asset, net						116,605						78,290
Goodwill						973,025						973,025
Core deposit and other intangibles						23,624						25,045
Other assets						182,546						177,020
Total assets						$	18,617,995					$	18,052,138
Liabilities and Stockholders’ Equity
Deposits:
Demand and non-interest-bearing						$	4,311,400					$	4,127,878
Savings and interest-bearing transaction accounts						9,461,393						9,251,805
Time deposits						808,141						880,887
Total deposits						14,580,934						14,260,570
Securities sold under agreements to repurchase						151,151						140,886
FHLB and other borrowed funds						400,000						400,000
Accrued interest payable and other liabilities						131,339						113,868
Subordinated debentures						667,868						371,093
Total liabilities						15,931,292						15,286,417
Stockholders’ equity:
Common stock, par value $0.01; shares authorized 300,000,000 in 2022 and 2021; shares issued and outstanding 163,757,908 in 2022 and 163,699,282 in 2021						1,638						1,637
Capital surplus						1,485,524						1,487,373
Retained earnings						1,304,098						1,266,249
Accumulated other comprehensive (loss) income						(104,557)						10,462
Total stockholders’ equity						2,686,703						2,765,721
Total liabilities and stockholders’ equity						$	18,617,995					$	18,052,138

See Condensed Notes to Consolidated Financial Statements.

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Home BancShares, Inc.

Consolidated Statements of Income

						Three Months Ended March 31,
(In thousands, except per share data)						2022						2021
						(Unaudited)
Interest income:
Loans						$	129,442					$	150,917
Investment securities
Taxable						9,080						6,253
Tax-exempt						4,707						5,071
Deposits – other banks						1,673						410
Federal funds sold						1						—
Total interest income						144,903						162,651
Interest expense:
Interest on deposits						4,894						7,705
FHLB and other borrowed funds						1,875						1,875
Securities sold under agreements to repurchase						108						190
Subordinated debentures						6,878						4,793
Total interest expense						13,755						14,563
Net interest income						131,148						148,088
Provision for credit losses						—						—
Provision for credit losses - unfunded commitments						—						—
Total credit loss (benefit) expense						—						—
Net interest income after provision for credit losses						131,148						148,088
Non-interest income:
Service charges on deposit accounts						6,140						5,002
Other service charges and fees						7,733						7,608
Trust fees						574						522
Mortgage lending income						3,916						8,167
Insurance commissions						480						492
Increase in cash value of life insurance						492						502
Dividends from FHLB, FRB, FNBB & other						698						8,609
Gain on sale of SBA loans						95						—
Gain (loss) on sale of branches, equipment and other assets, net						16						(29)
Gain on OREO, net						478						401
Gain on securities, net						—						219
Fair value adjustment for marketable securities						2,125						5,782
Other income						7,922						8,001
Total non-interest income						30,669						45,276
Non-interest expense:
Salaries and employee benefits						43,551						42,059
Occupancy and equipment						9,144						9,237
Data processing expense						7,039						5,870
Merger and acquisition expenses						863						—
Other operating expenses						16,299						15,700
Total non-interest expense						76,896						72,866
Income before income taxes						84,921						120,498
Income tax expense						20,029						28,896
Net income						$	64,892					$	91,602
Basic earnings per share						$	0.40					$	0.55
Diluted earnings per share						$	0.40					$	0.55

See Condensed Notes to Consolidated Financial Statements.

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Home BancShares, Inc.

Consolidated Statements of Comprehensive (Loss) Income

						Three Months Ended March 31,
(In thousands)						2022						2021
						(Unaudited)
Net income						$	64,892					$	91,602
Net unrealized loss on available-for-sale securities						(155,715)						(33,400)
Other comprehensive loss before tax effect						(155,715)						(33,400)
Tax effect on other comprehensive loss						40,696						8,729
Other comprehensive loss						(115,019)						(24,671)
Comprehensive (loss) income						$	(50,127)					$	66,931

See Condensed Notes to Consolidated Financial Statements.

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Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 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

See Condensed Notes to Consolidated Financial Statements.

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Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 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

See Condensed Notes to Consolidated Financial Statements.

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Home BancShares, Inc.

Consolidated Statements of Cash Flows

						Three Months Ended March 31,
(In thousands)						2022						2021
						(Unaudited)
Operating Activities
Net income						$	64,892					$	91,602
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization						5,092						4,728
Increase in value of equity securities						(2,125)						(5,782)
Amortization of securities, net						6,759						6,618
Accretion of purchased loans						(3,089)						(5,485)
Share-based compensation						2,111						2,117
Gain on assets						(589)						(591)
Provision for credit losses						—						—
Provision for credit losses - unfunded commitments						—						—
Deferred income tax effect						2,380						(13,078)
Increase in cash value of life insurance						(492)						(502)
Originations of mortgage loans held for sale						(140,724)						(202,455)
Proceeds from sales of mortgage loans held for sale						139,101						203,936
Changes in assets and liabilities:
Accrued interest receivable						217						5,033
Other assets						(1,518)						13,943
Accrued interest payable and other liabilities						17,471						21,000
Net cash provided by operating activities						89,486						121,084
Investing Activities
Net decrease in loans, excluding purchased loans						25,579						441,905
Purchases of investment securities – available-for-sale						(137,261)						(299,058)
Purchases of investment securities - held-to-maturity						(498,930)						—
Proceeds from maturities of investment securities – available-for-sale						136,938						175,805
Proceeds from sales of investment securities – available-for-sale						—						18,112
Purchases of equity securities						(3,717)						(10,460)
Proceeds from sales of equity securities						13,778						15,354
Purchase of other investments						(11,940)						(50)
Proceeds from foreclosed assets held for sale						964						3,603
Proceeds from sale of SBA loans						2,859						—
Purchases of premises and equipment, net						(2,067)						(3,153)
Return of investment on cash value of life insurance						—						418
Purchase of marine loan portfolio						(242,617)						—
Net cash (used in) provided by investing activities						(716,414)						342,476
Financing Activities
Net increase in deposits						320,364						786,804
Net increase (decrease) in securities sold under agreements to repurchase						10,265						(6,002)
Proceeds from issuance of subordinated debentures						296,444						—
Proceeds from exercise of stock options						130						2,322
Repurchase of common stock						(4,089)						(8,770)
Dividends paid on common stock						(27,043)						(23,154)
Net cash provided by financing activities						596,071						751,200
Net change in cash and cash equivalents						(30,857)						1,214,760
Cash and cash equivalents – beginning of year						3,650,315						1,263,788
Cash and cash equivalents – end of period						$	3,619,458					$	2,478,548

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 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 March 31, 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.

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.

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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-Factor") 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 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 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 March 31,
			2022						2021
			(In thousands)
Net income			$	64,892					$	91,602
Average shares outstanding			163,787						165,257
Effect of common stock options			409						189
Average diluted shares outstanding			164,196						165,446
Basic earnings per share			$	0.40					$	0.55
Diluted earnings per share			$	0.40					$	0.55

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2. Business Combinations

Acquisition of Happy Bancshares, Inc.

Effective April 1, 2022, pursuant to an Agreement and Plan of Merger, dated as of September 15, 2021, as amended on October 18, 2021 and further amended on November 8, 2021 (the “Merger Agreement”) among the Company, Centennial, the Company’s acquisition subsidiary, HOMB Acquisition Sub III, Inc. (“Acquisition Sub”), Happy Bancshares, Inc. (“Happy”), and its wholly-owned bank subsidiary, Happy State Bank (“HSB”), Acquisition Sub merged with and into Happy and Happy merged with and into the Company, with the Company as the surviving entity (collectively, the “Merger”). HSB also merged with and into Centennial, with Centennial as the surviving entity.

Under the terms of the Merger Agreement, 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 stock appreciation rights of Happy received approximately $3.1 million in cash in cancellation of their stock appreciation rights immediately before the merger, for a total transaction value of approximately $961.9 million.

For further discussion of the acquisition, see Note 22 to the Condensed Notes to Consolidated Financial Statements.

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:

			March 31, 2022
			Available-for-Sale
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized (Losses)						Allowance for Credit Losses						Estimated Fair Value
			(In thousands)
U.S. government-sponsored enterprises			$	419,813					$	2,096					$	(11,134)					$	—					$	410,775
Residential mortgage-backed securities			1,155,954						370						(81,230)						—						1,075,094
Commercial mortgage-backed securities			342,383						624						(7,613)						—						335,394
State and political subdivisions			967,844						5,771						(43,837)						(842)						928,936
Other securities			213,719						384						(6,980)						—						207,123
Total			$	3,099,713					$	9,245					$	(150,794)					$	(842)					$	2,957,322

			March 31, 2022
			Held-to-Maturity
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized (Losses)						Allowance for Credit Losses						Estimated Fair Value
			(In thousands)
U.S. government-sponsored enterprises			$	499,265					$	18					$	(145)					$	—					$	499,138
Residential mortgage-backed securities			—						—						—						—						—
Commercial mortgage-backed securities			—						—						—						—						—
State and political subdivisions			—						—						—						—						—
Other securities			—						—						—						—						—
Total			$	499,265					$	18					$	(145)					$	—					$	499,138

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

During the three months ended March 31, 2022, the Company purchased $500.0 million of U.S. Treasury Securities with an initial book value of $498.9 million. These investments are classified as held-to-maturity and mature within one year. As of March 31, 2022, the amortized cost of these securities was $499.3 million.

Assets, principally investment securities, having a carrying value of approximately $1.20 billion and $1.15 billion at March 31, 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 $151.2 million and $140.9 million at March 31, 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 March 31, 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			$	11,547					$	11,577					$	499,265					$	499,138
Due after one year through five years			97,487						94,563						—						—
Due after five years through ten years			393,837						379,079						—						—
Due after ten years			1,096,505						1,059,615						—						—
Mortgage - backed securities: Residential			1,155,954						1,075,094						—						—
Mortgage - backed securities: Commercial			342,383						335,394						—						—
Other			2,000						2,000						—						—
Total			$	3,099,713					$	2,957,322					$	499,265					$	499,138

During the three months ended March 31, 2022, no available-for-sale securities were sold.

During the three months ended March 31, 2021, $17.9 million available-for-sale securities were sold. The gross realized gains on the sales totaled $219,000 for the three months ended March 31, 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 March 31, 2022 and December 31, 2021.

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			March 31, 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			$	379,074					$	(6,147)					$	83,468					$	(4,987)					$	462,542					$	(11,134)
Residential mortgage-backed securities			848,377						(61,158)						181,186						(20,072)						1,029,563						(81,230)
Commercial mortgage-backed securities			189,447						(4,820)						43,018						(2,793)						232,465						(7,613)
State and political subdivisions			673,364						(41,186)						24,312						(2,651)						697,676						(43,837)
Other securities			145,095						(6,380)						8,539						(600)						153,634						(6,980)
Total			$	2,235,357					$	(119,691)					$	340,523					$	(31,103)					$	2,575,880					$	(150,794)
Held to maturity:
U.S. government-sponsored enterprises			$	499,138					$	(145)					$	—					$	—					$	499,138					$	(145)

			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 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.

Management has determined that recording a provision for credit losses on the Company's held-to-maturity investments was not necessary due to the inherent low risk of the U.S. Treasury Securities, which comprise the entire balance of the held-to-maturity U.S. Government-sponsored enterprises investments, as well as the short-term maturities of these investments.

At March 31, 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. No additional provision for credit losses was considered necessary for the portfolio.

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			March 31, 2022						December 31, 2021
			(In thousands)
Allowance for credit losses:
Beginning balance			$	842					$	842
Provision for credit loss - investment securities			—						—
Balance, March 31			$	842					$	842
Provision for credit loss - investment securities									—
Balance, December 31, 2021									$	842

For the three months ended March 31, 2022, the Company had investment securities with approximately $31.1 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 59.2% 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 March 31, 2022, the Company's available-for-sale securities portfolio consisted of 1,330 investment securities, 892 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $150.8 million. The U.S. government-sponsored enterprises portfolio contained unrealized losses of $11.1 million on 60 securities. The residential mortgage-backed securities portfolio contained $81.2 million of unrealized losses on 365 securities, and the commercial mortgage-backed securities portfolio contained $7.6 million of unrealized losses on 105 securities. The state and political subdivisions portfolio contained $43.8 million of unrealized losses on 331 securities. In addition, the other securities portfolio contained $7.0 million of unrealized losses on 31 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. 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 March 31, 2022.

As of March 31, 2022, the Company's held-to-maturity securities portfolio consisted of 2 investment securities, one of which was in an unrealized loss position. As noted in the table above, U.S. government-sponsored enterprises portfolio contained unrealized losses of $145,000.

Income earned on securities for the three months ended March 31, 2022 and 2021, is as follows:

			For the Three Months Ended March 31,
			2022						2021
			(In thousands)
Taxable
Available-for-sale			$	8,745					$	6,253
Held-to-maturity			335						—
Non-taxable
Available-for-sale			4,707						5,071
Held-to-maturity			—						—
Total			$	13,787					$	11,324

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4. Loans Receivable

The various categories of loans receivable are summarized as follows:

			March 31, 2022						December 31, 2021
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	3,810,383					$	3,889,284
Construction/land development			1,856,096						1,850,050
Agricultural			142,920						130,674
Residential real estate loans
Residential 1-4 family			1,223,890						1,274,953
Multifamily residential			248,650						280,837
Total real estate			7,281,939						7,425,798
Consumer			1,059,342						825,519
Commercial and industrial			1,510,205						1,386,747
Agricultural			48,095						43,920
Other			153,133						154,105
Total loans receivable			10,052,714						9,836,089
Allowance for credit losses			(234,768)						(236,714)
Loans receivable, net			$	9,817,946					$	9,599,375

During the three months ended March 31, 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 March 31, 2021, the Company did not sell any guaranteed portions of certain SBA loans.

Mortgage loans held for sale of approximately $74.4 million and $72.7 million at March 31, 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 March 31, 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 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 $439,000 and $448,000 in PCD loans, as of March 31, 2022 and December 31, 2021, respectively.

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.

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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 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 first quarter of 2022, management determined that no changes to several of the economic factors for the various loss driver segments were necessary. The identified loss drivers by segment are included below as of both March 31, 2022 and December 31, 2021.

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, 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.

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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.

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 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.

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The following table presents the activity in the allowance for credit losses for the three months ended March 31, 2022:

			Three Months Ended March 31, 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
Loans charged off			—						—						(250)						(1,416)						(644)						(2,310)
Recoveries of loans previously    charged off			15						26						26						109						188						364
Net loans recovered (charged off)			15						26						(224)						(1,307)						(456)						(1,946)
Provision for credit losses			(2,081)						8,632						(11,123)						737						3,835						—
Balance, March 31			$	26,349					$	95,876					$	37,111					$	52,492					$	22,940					$	234,768

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

			Three Months Ended March 31, 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			—						(19)						(226)						(2,279)						(523)						(3,047)
Recoveries of loans previously    charged off			22						14						62						76						332						506
Net loans recovered (charged off)			22						(5)						(164)						(2,203)						(191)						(2,541)
Provision for credit loss - loans			(9,946)						5,421						1,545						5,497						(2,517)						—
Balance, March 31			22,937						93,869						54,597						49,824						21,705						242,932
Loans charged off			—						(627)						(319)						(5,963)						(1,705)						(8,614)
Recoveries of loans previously    charged off			36						771						621						515						453						2,396
Net loans recovered (charged off)			36						144						302						(5,448)						(1,252)						(6,218)
Provision for credit loss - loans			5,442						(6,795)						(6,441)						8,686						(892)						—
Balance, December 31			$	28,415					$	87,218					$	48,458					$	53,062					$	19,561					$	236,714

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

			March 31, 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			$	11,477					$	8,387					$	—
Construction/land development			1,042						—						—
Agricultural			367						—						—
Residential real estate loans
Residential 1-4 family			18,167						2,058						46
Multifamily residential			156						—						—
Total real estate			31,209						10,445						46
Consumer			1,400						—						—
Commercial and industrial			11,104						4,018						—
Agricultural & other			916						—						—
Total			$	44,629					$	14,463					$	46

			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 $44.6 million and $47.2 million in nonaccrual loans for the periods ended March 31, 2022 and December 31, 2021, respectively. In addition, the Company had $46,000 and $3.0 million in loans past due 90 days or more and still accruing for the periods ended March 31, 2022 and December 31, 2021, respectively.

The Company had $14.5 million and $9.2 million in nonaccrual loans with a specific reserve as of March 31, 2022 and December 31, 2021, respectively. The Company did not recognize any interest income on nonaccrual loans during the period ended March 31, 2022 or March 31, 2021.

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

			March 31, 2022
			Commercial Real Estate						Residential Real Estate						Other
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	280,938					$	—					$	—
Construction/land development			1,042						—						—
Agricultural			367						—						—
Residential real estate loans
Residential 1-4 family			—						19,074						—
Multifamily residential			—						1,109						—
Total real estate			282,347						20,183						—
Consumer			—						—						1,413
Commercial and industrial			—						—						16,655
Agricultural & other			—						—						916
Total			$	282,347					$	20,183					$	18,984

			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 $321.5 million and $331.5 million in collateral-dependent impaired loans for the periods ended March 31, 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

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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.

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

			March 31, 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			$	1,987					$	171					$	11,477					$	13,635					$	3,796,748					$	3,810,383					$	—
Construction/land    development			135						385						1,042						1,562						1,854,534						1,856,096						—
Agricultural			1,000						341						367						1,708						141,212						142,920						—
Residential real estate loans
Residential 1-4 family			2,871						256						18,213						21,340						1,202,550						1,223,890						46
Multifamily residential			—						—						156						156						248,494						248,650						—
Total real estate			5,993						1,153						31,255						38,401						7,243,538						7,281,939						46
Consumer			400						529						1,400						2,329						1,057,013						1,059,342						—
Commercial and industrial			554						175						11,104						11,833						1,498,372						1,510,205						—
Agricultural & other			546						96						916						1,558						199,670						201,228						—
Total			$	7,493					$	1,953					$	44,675					$	54,121					$	9,998,593					$	10,052,714					$	46

			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 March 31, 2022 and December 31, 2021 were $44.6 million and $47.2 million, respectively.

Interest recognized on impaired loans, including those loans with a specific reserve, during the three months ended March 31, 2022 was approximately $3.5 million, respectively. Interest recognized on impaired loans, including those loans with a specific reserve, during the three months ended March 31, 2021 was approximately $3.9 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, 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 March 31, 2022 and December 31, 2021 is as follows:

			March 31, 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			$	—					$	—					$	—					$	—					$	—					$	—					$	—					$	—
Risk rating 2			—						—						—						—						—						—						—						—
Risk rating 3			41,344						372,936						268,630						248,030						330,871						958,047						191,665						2,411,523
Risk rating 4			19,756						103,534						32,773						96,042						290,859						411,218						112,074						1,066,256
Risk rating 5			—						—						10,594						1,539						24,276						230,613						—						267,022
Risk rating 6			876						—						234						23,145						2,216						38,858						253						65,582
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total non-farm/non-residential			61,976						476,470						312,231						368,756						648,222						1,638,736						303,992						3,810,383
Construction/land development
Risk rating 1			$	—					$	—					$	—					$	—					$	—					$	—					$	—					$	—
Risk rating 2			—						—						—						—						—						226						—						226
Risk rating 3			33,909						263,928						107,455						97,927						20,589						50,002						127,916						701,726
Risk rating 4			76,586						263,046						232,903						472,552						31,635						60,556						7,885						1,145,163
Risk rating 5			—						—						—						374						—						1,171						376						1,921
Risk rating 6			—						—						—						635						3						6,422						—						7,060
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total construction/land development			110,495						526,974						340,358						571,488						52,227						118,377						136,177						1,856,096
Agricultural
Risk rating 1			$	—					$	—					$	—					$	—					$	—					$	—					$	—					$	—
Risk rating 2			—						—						—						—						—						—						—						—
Risk rating 3			7,325						22,672						26,584						7,425						6,132						25,925						5,396						101,459
Risk rating 4			357						4,283						1,405						363						1,567						27,786						4,596						40,357
Risk rating 5			—						—						166						—						—						—						—						166
Risk rating 6			—						—						44						—						—						894						—						938
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total agricultural			7,682						26,955						28,199						7,788						7,699						54,605						9,992						142,920
Total commercial real estate loans			$	180,153					$	1,030,399					$	680,788					$	948,032					$	708,148					$	1,811,718					$	450,161					$	5,809,399
Residential real estate loans
Residential 1-4 family
Risk rating 1			$	—					$	—					$	—					$	—					$	—					$	70					$	88					$	158
Risk rating 2			—						—						—						—						—						26						—						26
Risk rating 3			100,624						168,672						139,469						111,463						84,215						340,235						92,973						1,037,651
Risk rating 4			1,501						7,897						3,131						4,860						16,452						65,665						50,467						149,973
Risk rating 5			—						—						181						3,065						493						1,492						189						5,420
Risk rating 6			—						1,127						2,516						2,672						2,079						18,452						3,816						30,662
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total residential 1-4 family			102,125						177,696						145,297						122,060						103,239						425,940						147,533						1,223,890

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			March 31, 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			—						8,456						4,743						13,599						16,989						44,703						3,757						92,247
Risk rating 4			—						9,039						49,657						32,292						3,388						10,918						33,414						138,708
Risk rating 5			—						—						—						—						7,543						8,037						—						15,580
Risk rating 6			—						—						—						—						—						2,115						—						2,115
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total multifamily residential			—						17,495						54,400						45,891						27,920						65,773						37,171						248,650
Total real estate			$	282,278					$	1,225,590					$	880,485					$	1,115,983					$	839,307					$	2,303,431					$	634,865					$	7,281,939
Consumer
Risk rating 1			$	714					$	4,029					$	1,569					$	1,025					$	815					$	1,448					$	1,512					$	11,112
Risk rating 2			—						—						—						44						631						7						—						682
Risk rating 3			54,005						320,326						204,144						153,160						136,860						163,250						1,652						1,033,397
Risk rating 4			579						2,923						1,113						2,997						1,668						2,354						74						11,708
Risk rating 5			—						—						111						—						14						127						—						252
Risk rating 6			16						30						22						32						118						1,966						7						2,191
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total consumer			55,314						327,308						206,959						157,258						140,106						169,152						3,245						1,059,342
Commercial and industrial
Risk rating 1			$	303					$	52,314					$	7,726					$	331					$	97					$	21,508					$	8,223					$	90,502
Risk rating 2			—						164						13						—						—						233						160						570
Risk rating 3			123,627						121,930						58,580						72,706						54,819						83,385						149,441						664,488
Risk rating 4			5,389						173,141						29,972						90,147						75,533						38,503						268,167						680,852
Risk rating 5			—						6,170						595						428						6,767						8,405						513						22,878
Risk rating 6			—						472						10,306						3,891						24,774						7,584						2,211						49,238
Risk rating 7			—						—						—						—						1,667						—						—						1,667
Risk rating 8			—						—						—						—						—						8						2						10
Total commercial and industrial			129,319						354,191						107,192						167,503						163,657						159,626						428,717						1,510,205
Agricultural and other
Risk rating 1			$	—					$	2,514					$	—					$	—					$	—					$	106					$	662					$	3,282
Risk rating 2			9						—						—						3,467						—						910						730						5,116
Risk rating 3			27,717						36,157						41,353						4,117						6,695						46,415						8,872						171,326
Risk rating 4			—						4,965						192						117						1,554						2,145						10,648						19,621
Risk rating 5			—						—						—						—						—						1,297						—						1,297
Risk rating 6			—						59						—						20						—						507						—						586
Risk rating 7			—						—						—						—						—						—						—						—
Risk rating 8			—						—						—						—						—						—						—						—
Total agricultural and other			27,726						43,695						41,545						7,721						8,249						51,380						20,912						201,228
Total			$	494,637					$	1,950,784					$	1,236,181					$	1,448,465					$	1,151,319					$	2,683,589					$	1,087,739					$	10,052,714

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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 March 31, 2022 and December 31, 2021.

			March 31, 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			$	61,976					$	476,470					$	302,078					$	353,876					$	628,061					$	1,403,017					$	303,967					$	3,529,445
Non-performing			—						—						10,153						14,880						20,161						235,719						25						280,938
Total non-farm/non-residential			61,976						476,470						312,231						368,756						648,222						1,638,736						303,992						3,810,383
Construction/land development
Performing			$	110,495					$	526,974					$	340,358					$	570,853					$	52,064					$	118,133					$	136,177					$	1,855,054
Non-performing			—						—						—						635						163						244						—						1,042
Total construction/ land development			110,495						526,974						340,358						571,488						52,227						118,377						136,177						1,856,096
Agricultural
Performing			$	7,682					$	26,955					$	28,033					$	7,788					$	7,699					$	54,404					$	9,992					$	142,553
Non-performing			—						—						166						—						—						201						—						367
Total agricultural			7,682						26,955						28,199						7,788						7,699						54,605						9,992						142,920
Total commercial real estate loans			$	180,153					$	1,030,399					$	680,788					$	948,032					$	708,148					$	1,811,718					$	450,161					$	5,809,399
Residential real estate loans
Residential 1-4 family
Performing			$	102,125					$	177,089					$	143,259					$	119,733					$	101,897					$	416,203					$	144,510					$	1,204,816
Non-performing			—						607						2,038						2,327						1,342						9,737						3,023						19,074
Total residential 1-4 family			102,125						177,696						145,297						122,060						103,239						425,940						147,533						1,223,890
Multifamily residential
Performing			$	—					$	17,495					$	54,400					$	45,891					$	27,920					$	64,664					$	37,171					$	247,541
Non-performing			—						—						—						—						—						1,109						—						1,109
Total multifamily residential			—						17,495						54,400						45,891						27,920						65,773						37,171						248,650
Total real estate			$	282,278					$	1,225,590					$	880,485					$	1,115,983					$	839,307					$	2,303,431					$	634,865					$	7,281,939
Consumer
Performing			$	55,314					$	327,292					$	206,939					$	157,253					$	139,988					$	167,905					$	3,238					$	1,057,929
Non-performing			—						16						20						5						118						1,247						7						1,413
Total consumer			55,314						327,308						206,959						157,258						140,106						169,152						3,245						1,059,342
Commercial and industrial
Performing			$	129,319					$	354,191					$	107,052					$	163,721					$	154,552					$	158,668					$	426,047					$	1,493,550
Non-performing			—						—						140						3,782						9,105						958						2,670						16,655
Total commercial and industrial			129,319						354,191						107,192						167,503						163,657						159,626						428,717						1,510,205
Agricultural and other
Performing			$	27,726					$	43,695					$	41,545					$	7,701					$	8,249					$	50,484					$	20,912					$	200,312
Non-performing			—						—						—						20						—						896						—						916
Total agricultural and other			27,726						43,695						41,545						7,721						8,249						51,380						20,912						201,228
Total			$	494,637					$	1,950,784					$	1,236,181					$	1,448,465					$	1,151,319					$	2,683,589					$	1,087,739					$	10,052,714

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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 $7.2 million or 39 total revolving loans convert to term loans for the three months ended March 31, 2022 compared to $8.6 million or 72 total revolving loans convert to term loans for the three months ended March 31, 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 March 31, 2022 and December 31, 2021:

			March 31, 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					$	3,495					$	614					$	83					$	4,192
Construction/land    development			2						240						204						1						—						205
Agricultural			—						—						—						—						—						—
Residential real estate loans
Residential 1-4 family			16						2,329						824						114						316						1,254
Multifamily residential			1						1,130						953						—						—						953
Total real estate			30						9,784						5,476						729						399						6,604
Consumer			4						23						13						—						3						16
Commercial and industrial			11						2,391						167						54						74						295
Total			45						$	12,198					$	5,656					$	783					$	476					$	6,915

			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 March 31, 2022 and December 31, 2021 because they are not in compliance with the modified terms:

			March 31, 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						$	6					2						$	7
Construction/land development			1						204						1						210
Agricultural			—						—						1						262
Residential real estate loans
Residential 1-4 family			5						371						5						388
Total real estate			7						581						9						867
Consumer			3						3						3						3
Commercial and industrial			9						202						6						206
Total			19						$	786					18						$	1,076

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

			March 31, 2022						December 31, 2021
			(In thousands)
Commercial real estate loans
Non-farm/non-residential			$	275					$	536
Construction/land development			609						834
Residential real estate loans
Residential 1-4 family			260						260
Total foreclosed assets held for sale			$	1,144					$	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 March 31, 2022 and December 31, 2021, the balance of purchase credit deteriorated loans was approximately $439,000 and $448,000, respectively.

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 March 31, 2022 and December 31, 2021, were as follows:

			March 31, 2022						December 31, 2021
			(In thousands)
Goodwill
Balance, beginning of period			$	973,025					$	973,025
Acquisitions			—						—
Balance, end of period			$	973,025					$	973,025

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			March 31, 2022						December 31, 2021
			(In thousands)
Core Deposit and Other Intangibles
Balance, beginning of period			$	25,045					$	30,728
Amortization expense			(1,421)						(1,421)
Balance, March 31			23,624						29,307
Amortization expense									(4,262)
Balance, end of year									$	25,045

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

			March 31, 2022						December 31, 2021
			(In thousands)
Gross carrying basis			$	86,625					$	86,625
Accumulated amortization			(63,001)						(61,580)
Net carrying amount			$	23,624					$	25,045

Core deposit and other intangible amortization expense was approximately $1.4 million for the three months ended March 31, 2022 and 2021. The Company’s estimated amortization expense of core deposits and other intangibles for each of the years 2022 through 2026 is approximately: 2022 – $5.7 million; 2023 – $5.5 million; 2024 – $4.3 million; 2025 – $3.9 million; 2026 – $3.6 million.

The carrying amount of the Company’s goodwill was $973.0 million at each of March 31, 2022 and December 31, 2021. 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 March 31, 2022 and December 31, 2021, other assets were $182.5 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 $88.3 million and $88.2 million at March 31, 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 $48.3 million and $36.4 million at March 31, 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.

8. Deposits

The aggregate amount of time deposits with a minimum denomination of $250,000 was $277.8 million and $321.6 million at March 31, 2022 and December 31, 2021. The aggregate amount of time deposits with a minimum denomination of $100,000 was $482.5 million and $537.4 million at March 31, 2022 and December 31, 2021, respectively. Interest expense applicable to certificates in excess of $100,000 totaled $764,000 and $2.4 million for the three months ended March 31, 2022 and 2021. As of March 31, 2022 and December 31, 2021, brokered deposits were $625.7 million.

Deposits totaling approximately $1.83 billion and $1.91 billion at March 31, 2022 and December 31, 2021, respectively, were public funds obtained primarily from state and political subdivisions in the United States.

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9. Securities Sold Under Agreements to Repurchase

At March 31, 2022 and December 31, 2021, securities sold under agreements to repurchase totaled $151.2 million and $140.9 million, respectively. For the three-month periods ended March 31, 2022 and 2021, securities sold under agreements to repurchase daily weighted-average totaled $137.6 million and $159.7 million, respectively.

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

			March 31, 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			$	8,552					$	—					$	—					$	—					$	8,552
Mortgage-backed securities			8,010						—						—						—						8,010
State and political subdivisions			131,821						—						—						—						131,821
Other securities			2,768						—						—						—						2,768
Total borrowings			$	151,151					$	—					$	—					$	—					$	151,151

			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

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 March 31, 2022 and December 31, 2021. The Company had no other borrowed funds as of March 31, 2022 or December 31, 2021. At March 31, 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 $891.3 million and $1.07 billion at March 31, 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 March 31, 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 March 31, 2022 and December 31, 2021 was zero.

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11. Subordinated Debentures

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

			As of March 31, 2022						As of December 31, 2021
			(In thousands)
Trust preferred securities
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					$	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						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						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						16,495
Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15% above the three-month LIBOR rate, reset quarterly, currently callable without penalty			4,513						4,501
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			5,965						5,942
Subordinated debt securities
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			296,586						—
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			299,978						299,824
Total			$	667,868					$	371,093

Trust Preferred Securities. The Company holds trust preferred securities with a face amount of $73.3 million which are currently callable without penalty based on the terms of the specific agreements. The trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment subject to certain limitations. However, now that the Company has exceeded $15 billion in assets, the Tier 1 treatment of the Company’s outstanding trust preferred securities will be eliminated because of the completion of the acquisition of Happy Bancshares, but these securities will still be 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.

Subordinated Debt Securities. 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 may, beginning with the interest payment date of April 15, 2022, and on any interest payment date thereafter, 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. The Company may also redeem the 2027 Notes at any time, including prior to April 15, 2022, at its option, in whole but not in part, if: (i) a change or prospective change in law occurs that could prevent the Company from deducting interest payable on the 2027 Notes for U.S. federal income tax purposes; (ii) a subsequent event occurs that could preclude the 2027 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) the Company is required to register as an investment company under the Investment Company Act of 1940, as amended; in each case, at a redemption price equal to 100% of the principal amount of the 2027 Notes plus any accrued and unpaid interest to but excluding the redemption date. The 2027 Notes provided the Company with additional Tier 2 regulatory capital to support expected future growth.

On April 15, 2022, the Company completed the payoff of its $300.0 million in aggregate principal amount of the 2027 Notes. 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 (benefit) for income taxes for the three months ended March 31, 2022 and 2021:

			For the Three Months Ended March 31,
			2022						2021
			(In thousands)
Current:
Federal			$	13,260					$	31,535
State			4,389						10,439
Total current			17,649						41,974
Deferred:
Federal			1,788						(9,825)
State			592						(3,253)
Total deferred			2,380						(13,078)
Income tax expense			$	20,029					$	28,896

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The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows for the three months ended March 31, 2022 and 2021:

			Three Months Ended March 31,
			2022						2021
Statutory federal income tax rate			21.00		%				21.00		%
Effect of non-taxable interest income			(1.22)						(0.91)
Stock compensation			0.50						0.33
State income taxes, net of federal benefit			4.13						4.26
Executive officer compensation & other			(0.82)						(0.70)
Effective income tax rate			23.59		%				23.98		%

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:

			March 31, 2022						December 31, 2021
			(In thousands)
Deferred tax assets:
Allowance for credit losses			$	68,344					$	68,644
Deferred compensation			3,069						5,342
Stock compensation			5,260						5,044
Non-accrual interest income			761						694
Real estate owned			109						109
Unrealized loss on investment securities, available-for-sale			36,985						—
Loan discounts			3,652						4,169
Tax basis premium/discount on acquisitions			2,746						3,220
Investments			119						263
Other			6,248						5,283
Gross deferred tax assets			127,293						92,768
Deferred tax liabilities:
Accelerated depreciation on premises and equipment			697						761
Unrealized gain on securities			—						4,220
Core deposit intangibles			5,406						5,736
Deposits			67						65
FHLB dividends			2,833						2,820
Other			1,685						876
Gross deferred tax liabilities			10,688						14,478
Net deferred tax assets			$	116,605					$	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, North Carolina, Oklahoma, Pennsylvania, 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.

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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 three months of 2022, the Company repurchased a total of 180,000 shares with a weighted-average stock price of $22.69 per share. Shares repurchased under the program as of March 31, 2022 since its inception total 17,841,335 shares. The remaining balance available for repurchase is 21,910,665 shares at March 31, 2022.

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 March 31, 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 March 31, 2022, the Company had approximately 2,891,510 shares of common stock available for future grants under 2022 Plan, subject to shareholder approval of the 2022 Plan, including approximately 1,391,510 shares of common stock that remained available for future grants under the 2006 Plan at the time of its expiration. In addition, at March 31, 2021, approximately 3,010,016 shares of common stock were reserved for issuance pursuant to outstanding stock options under the 2006 Plan, which could become available for issuance under the 2022 Plan to the extent any such stock option is forfeited, terminates, expires or lapses without shares of common stock being issued, or to the extent that any such award is settled for cash, for a total of approximately 5,901,526 shares of common stock reserved for issuance pursuant to the Plans. As of March 31, 2022, no awards were outstanding under the 2022 Plan. No further awards may be granted under the 2006 Plan as of February 27, 2022.

The intrinsic value of the stock options outstanding and stock options vested at March 31, 2022 was $8.6 million and $7.9 million, respectively. The intrinsic value of stock options exercised during the three months ended March 31, 2022 was approximately $254,000. 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 $6.3 million as of March 31, 2022.

The table below summarizes the stock option transactions under the 2006 Plan at March 31, 2022 and December 31, 2021 and changes during the three-month period and year then ended:

			For the Three Months Ended March 31, 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			18						24.29						15						21.68
Forfeited/Expired			(5)						23.32						(57)						22.44
Exercised			(18)						10.08						(197)						14.78
Outstanding, end of period			3,010						20.14						3,015						20.06
Exercisable, end of period			1,773						$	18.35					1,543						$	17.46

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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 three months ended March 31, 2022 was $5.83 per share. There were 18,000 options granted during the three months ended March 31, 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 Three Months Ended March 31, 2022						For the Year Ended December 31, 2021
Expected dividend yield			2.72		%				2.59		%
Expected stock price volatility			31.12		%				70.13		%
Risk-free interest rate			1.73		%				0.75		%
Expected life of options			6.5 years						6.5 years

The following is a summary of currently outstanding and exercisable options at March 31, 2022:

Options Outstanding
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						0.80						$	8.62					140						$	8.62
$9.54 to $14.71						140						2.30						13.23						140						13.23
$16.77 to $16.86						130						2.39						16.80						130						16.80
$17.12 to $17.36						93						2.96						17.13						93						17.13
$17.40 to $18.46						871						3.38						18.45						738						18.45
$18.50 to $20.16						41						7.03						19.05						15						19.01
$20.58 to $21.25						158						4.01						21.08						149						21.10
$21.31 to $22.22						112						6.35						22.18						62						22.20
$22.70 to $23.32						1,227						6.31						23.32						246						23.32
$23.51 to $25.96						99						6.06						25.39						59						25.82
						3,010																		1,773

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

			As of March 31, 2022						As of December 31, 2021
			(In thousands)
Beginning of year			1,231						1,371
Issued			229						216
Vested			(176)						(320)
Forfeited			(6)						(36)
End of period			1,278						1,231
Amount of expense for three months and twelve months ended, respectively			$	1,735					$	7,112

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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 $18.2 million as of March 31, 2022.

14. Non-Interest Expense

The table below shows the components of non-interest expense for the three months ended March 31, 2022 and 2021:

			Three Months Ended March 31,
			2022						2021
			(In thousands)
Salaries and employee benefits			$	43,551					$	42,059
Occupancy and equipment			9,144						9,237
Data processing expense			7,039						5,870
Merger and acquisition expenses			863						—
Other operating expenses:
Advertising			1,266						1,046
Amortization of intangibles			1,421						1,421
Electronic banking expense			2,538						2,238
Directors’ fees			404						383
Due from bank service charges			270						249
FDIC and state assessment			1,668						1,363
Insurance			770						781
Legal and accounting			797						846
Other professional fees			1,609						1,613
Operating supplies			754						487
Postage			306						338
Telephone			337						346
Other expense			4,159						4,589
Total other operating expenses			16,299						15,700
Total non-interest expense			$	76,896					$	72,866

15. Leases

The Company leases land and office facilities under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2042 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 March 31, 2022, the balances of the right-of-use asset and lease liability was $39.7 million and $42.5 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 March 31, 2022 and December 31, 2021:

			March 31, 2022						December 31, 2021
2022			$	5,770					$	7,714
2023			6,698						6,574
2024			6,127						6,001
2025			5,639						5,510
2026			5,521						5,389
Thereafter			26,508						24,999
Total future minimum lease payments			$	56,263					$	56,187
Discount effect of cash flows			(13,754)						(13,778)
Present value of net future minimum lease payments			$	42,509					$	42,409

Additional information (dollar amounts in thousands):

			For the Three Months Ended
Lease expense:			March 31, 2022						March 31, 2021
Operating lease expense			$	1,822					$	2,009
Short-term lease expense			1						4
Variable lease expense			226						256
Total lease expense			$	2,049					$	2,269
Other information:
Cash paid for amounts included in the measurement of lease liabilities			$	1,829					$	1,994
Weighted-average remaining lease term (in years)			9.51						11.87
Weighted-average discount rate			3.41		%				3.52		%

The Company currently leases three properties from three related parties. Total rent expense from the leases was $35,000 or 1.78% of total lease expense and $35,000 or 1.54% of total lease expense for the three months ended March 31, 2022 and 2021, respectively.

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, 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 March 31, 2022 and December 31, 2021, commercial real estate loans represented 57.8% and 59.7% of total loans receivable, respectively, and 216.2% and 212.2% of total stockholders’ equity at March 31, 2022 and December 31, 2021, respectively. Residential real estate loans represented 14.6% and 15.8% of total loans receivable and 54.8% and 56.3% of total stockholders’ equity at March 31, 2022 and December 31, 2021, respectively.

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Approximately 69.9% of the Company’s total loans and 75.8% of the Company’s real estate loans as of March 31, 2022, are to borrowers whose collateral is located in Alabama, Arkansas, Florida and New York, the states in which the Company has its branch locations.

As of March 31, 2022, the markets in which we operate have begun to experience significant economic uncertainty primarily related to inflationary concerns, continuing supply chain issues and the potential impacts of international unrest. However, 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 March 31, 2022. In addition, the Company determined no additional provision for unfunded commitments was necessary as of March 31, 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 their 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 March 31, 2022 and December 31, 2021, commitments to extend credit of $3.19 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 March 31, 2022 and December 31, 2021, was $110.2 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 three 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.

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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 March 31, 2022, the Company meets all capital adequacy requirements to which it is subject.

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. Because our total consolidated assets were less than $15 billion as of December 31, 2009, our outstanding trust preferred securities continue to be treated as Tier 1 capital. However, now that the Company has exceeded $15 billion in assets, the Tier 1 treatment of the Company’s outstanding trust preferred securities will be phased out upon completion of the acquisition of Happy Bancshares, but these securities will still be 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 March 31, 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 14.87%, 10.84%, 15.45%, and 21.58%, respectively, as of March 31, 2022.

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19. Additional Cash Flow Information

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

			March 31,
			2022						2021
			(In thousands)
Interest paid			$	7,668					$	10,719
Income taxes paid			1,968						1,205
Assets acquired by foreclosure			—						1,786

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 are the only material instruments valued on a recurring basis which are held by the Company at fair value. The Company does not have any Level 1 securities. Primarily all of the Company's securities are considered to be Level 2 securities. These 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 March 31, 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 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.

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Financial Assets and Liabilities Measured on a Nonrecurring Basis

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. 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 $271.3 million and $280.0 million as of March 31, 2022 and December 31, 2021, respectively. This valuation is considered Level 3, consisting of appraisals of underlying collateral. The Company reversed approximately $73,000 and $58,000 of accrued interest receivable when impaired loans were put on non-accrual status during the three months ended March 31, 2022 and 2021, respectively.

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 March 31, 2022 and December 31, 2021, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $1.1 million and $1.6 million, respectively.

No foreclosed assets held for sale were remeasured during the three months ended March 31, 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 70% for commercial and residential real estate collateral.

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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.

			March 31, 2022
			Carrying Amount						Fair Value						Level
			(In thousands)
Financial assets:
Cash and cash equivalents			$	3,619,458					$	3,619,458					1
Investment securities - held-to-maturity			499,265						499,138						2
Loans receivable, net of impaired loans and allowance			9,546,605						10,010,107						3
Accrued interest receivable			46,934						46,934						1
FHLB, FRB & FNBB Bank stock; other equity investments			136,578						136,578						3
Financial liabilities:
Deposits:
Demand and non-interest bearing			$	4,311,400					$	4,311,400					1
Savings and interest-bearing transaction accounts			9,461,393						9,461,393						1
Time deposits			808,141						797,612						3
Securities sold under agreements to repurchase			151,151						151,151						1
FHLB and other borrowed funds			400,000						390,273						2
Accrued interest payable			10,885						10,885						1
Subordinated debentures			667,868						668,678						3

			December 31, 2021
			Carrying Amount						Fair Value						Level
			(In thousands)
Financial assets:
Cash and cash equivalents			$	3,650,315					$	3,650,315					1
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
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

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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.

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 represent 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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22. Subsequent Events

Effective April 1, 2022, pursuant to the Merger Agreement, dated as of September 15, 2021, as amended on October 18, 2021 and November 8, 2021, among the Company, Centennial, HOMB Acquisition Sub III, Inc. (“Acquisition Sub”), Happy and HSB, Acquisition Sub merged with and into Happy and Happy merged with and into the Company, with the Company as the surviving entity (collectively, the “Merger”). HSB also merged with and into Centennial, with Centennial as the surviving entity.

Under the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each outstanding share of common stock of Happy was converted into the right to receive, without interest, 2.17 shares of Company common stock (the “Merger Consideration”). Each unvested restricted share of Happy common stock outstanding at the Effective Time became fully vested and converted into the right to receive the Merger Consideration. In addition, at the Effective Time, each outstanding option to purchase Happy common stock was cancelled and converted into the right to receive the number of whole shares of Company common stock, together with any cash in lieu of fractional shares, equal to the product of (i) the number of shares of Happy common stock subject to the option, multiplied by (ii) the excess, if any, of $49.3675 (the Merger Consideration value) over the exercise price of the option, less applicable tax withholdings, divided by (iii) $22.75. Similarly, each stock appreciation right of Happy outstanding at the Effective Time was cancelled and converted into the right to receive a cash payment, without interest, equal to the product of (i) the number of shares of Happy common stock subject to the stock appreciation right, multiplied by (ii) the excess, if any, of $49.3675 over the grant price of the stock appreciation right, less applicable tax withholdings. For purposes of these calculations, the Merger Consideration value was determined using a volume-weighted average closing price of the Company’s common stock as reported on the New York Stock Exchange over the 20 consecutive trading day period ending on the third business day prior to the closing of the Merger, multiplied by 2.17.

Under the terms of the Merger Agreement, the Company issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. No cash consideration was paid in connection with the Merger, except that holders of outstanding shares of Happy common stock or “in-the-money” stock options of Happy at the time of the Merger received cash payments equal to $22.75, multiplied by any resulting fractional shares of Company common stock to which they were otherwise entitled in connection with the Merger. In addition, the holders of stock appreciation rights of Happy received approximately $3.1 million in cash in cancellation of their stock appreciation rights immediately before the Merger, for a total transaction value of approximately $961.9 million.

Prior to the acquisition, Happy conducted business from 62 branches in communities across the Texas Panhandle, South Plains, Austin, Central Texas and the Dallas/Fort Worth Metroplex. As of March 31, 2022, Happy had approximately $6.76 billion in assets, $3.61 billion in loans and $5.85 billion in deposits.

The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the Merger. Due to the recent closing, management remains in the early stages of reviewing the estimated fair values and evaluating the assumed tax positions of this Merger. The Company expects to finalize its analysis of the acquired assets and assumed liabilities in this transaction within one year of the Merger.

On April 15, 2022, the Company completed the payoff of its $300.0 million in aggregate principal amount of the 2027 Notes. 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. As provided in the notice of redemption, dated March 15, 2022, previously given to the 2027 Note holders, each 2027 Note holder was entitled to receive the Redemption Price upon presentment and surrender of the 2027 Notes to the Trustee, who acted as the Company’s paying agent in connection with the redemption.

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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 March 31, 2022, and the related condensed consolidated statements of income, comprehensive (loss) income, stockholders’ equity and cash flows for the three-month periods ended March 31, 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/ BKD, LLP

Little Rock, Arkansas

May 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 March 31, 2022, we had, on a consolidated basis, total assets of $18.62 billion, loans receivable, net of $10.05 billion, total deposits of $14.58 billion, and stockholders’ equity of $2.69 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
			March 31,
			2022						2021
			(Dollars in thousands, except per share data)
Total assets			$	18,617,995					$	17,240,241
Loans receivable			10,052,714						10,778,493
Allowance for credit losses			234,768						242,932
Total deposits			14,580,934						13,512,594
Total stockholders’ equity			2,686,703						2,645,204
Net income			64,892						91,602
Basic earnings per share			0.40						0.55
Diluted earnings per share			0.40						0.55
Book value per share			16.41						16.02
Tangible book value per share (non-GAAP)(1)			10.32						9.95
Annualized net interest margin – FTE			3.21%						4.02%
Efficiency ratio			46.15						36.60
Efficiency ratio, as adjusted (non-GAAP)(2)			47.33						40.68
Annualized return on average assets			1.43						2.22
Annualized return on average common equity			9.58						14.15

(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 March 31, 2022 and 2021

Our net income decreased $26.7 million, or 29.2%, to $64.9 million for the three-month period ended March 31, 2022, from $91.6 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $0.40 per share for the three-month period ended March 31, 2022 compared to $0.55 per share for the three-month period ended March 31, 2021. During the three-month periods ended March 31, 2022 and March 31, 2021, the Company did not record any provision for credit losses. The markets in which we operate have begun to experience significant economic uncertainty primarily related to inflationary concerns, continuing supply chain issues and the potential impacts of international unrest. However, 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 March 31, 2022. The Company recorded a $2.1 million adjustment for the increase in fair value of marketable securities, $3.3 million recovery on historic losses for a single borrower and $863,000 in merger and acquisition expenses.

Total interest income decreased by $17.7 million, or 10.9%, non-interest expense increased by $4.0 million, or 5.5%, and non-interest income decreased by $14.6 million, or 32.3%. This was partially offset by an $808,000, or 5.5%, decrease in total interest expense. The decrease in interest income was due to a $21.5 million decrease in loan interest income, which was partially offset by a $2.5 million increase in investment income and a $1.3 million increase in interest income on deposits at other banks. The increase in non-interest expense was due to a $1.5 million, or 3.5%, increase in salaries and employee benefits, a $1.2 million, or 19.9%, increase in data processing expense, a $863,000 increase in merger and acquisition expense, and a $599,000, or 3.8%, increase in other operating expenses. The decrease in non-interest income was primarily due to a $7.9 million, or 91.9%, decrease in dividends from FHLB, FRB, FNBB and other, a $4.3 million, or 52.1%, decrease in mortgage lending income, a $3.7 million, or 63.2%, decrease in fair value adjustment for marketable securities which was partially offset by a $1.1 million, or 22.8%, increase in service charges on deposit accounts. The decrease in interest expense was primarily due to a $2.8 million, or 36.5%, decrease in interest on deposits, which was partially offset by a $2.1 million, or 43.5%, increase in interest on subordinated debentures resulting from the completion of the new subordinated debt issue in January 2022. Income tax expense decreased by $8.9 million, or 30.7%, during the quarter due to a decrease in net income.

Our net interest margin decreased from 4.02% for the three-month period ended March 31, 2021 to 3.21% for the three-month period ended March 31, 2022. The yield on interest earning assets was 3.55% and 4.41% for the three months ended March 31, 2022 and 2021, respectively, as average interest earning assets increased from $15.12 billion to $16.77 billion. The increase in average earning assets is primarily the result of a $1.89 billion increase in average interest-bearing balances due from banks and an $851.9 million increase in average investment securities. This was partially offset by the $1.09 billion decrease in average loans receivable. Average PPP loan balances were $78.0 million for the three months ended March 31, 2022, compared to $633.8 million for the three months ended March 31, 2021. These loans bear interest at 1.00% plus the accretion of the deferred origination fee. Including deferred fees, we recognized total interest income of $2.2 million on PPP loans for the three months ended March 31, 2022 compared to $11.9 million for the three months ended March 31, 2021. The PPP loans were accretive to the net interest margin by 4 basis points for the three months ended March 31, 2022 compared to 16 basis points for the three months ended March 31, 2021. As of March 31, 2022, the Company had $1.6 million in remaining unamortized PPP fees. The market has continued to experience significant amounts of excess liquidity, and the Company completed an underwritten public offering of $300.0 million in aggregate principal of its 3.125% Fixed-to-Floating Rate Subordinated Notes due 2032 during January 2022. As a result, we had an increase of $1.89 billion in average interest-bearing cash balances for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The excess liquidity was dilutive to the net interest margin by 34 basis points, and the additional liquidity resulting from the subordinated debt issuance was dilutive to the net interest margin by 5 basis points. In addition, the increase in interest expense for the subordinated debentures was dilutive to the net interest margin by 5 basis points. For the three months ended March 31, 2022 and 2021, we recognized $3.1 million and $5.5 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by 6 basis points. We recognized $1.4 million in event interest income for the three months ended March 31, 2022 compared to $1.1 million for the three months ended March 31, 2021. This increased the net interest margin by 1 basis point.

Our efficiency ratio was 46.15% for the three months ended March 31, 2022, compared to 36.60% for the same period in 2021. For the first quarter of 2022, our efficiency ratio, as adjusted (non-GAAP), was 47.33%, compared to 40.68% reported for the first quarter of 2021. (See Table 23 for the non-GAAP tabular reconciliation).

Our annualized return on average assets was 1.43% for the three months ended March 31, 2022, compared to 2.22% for the same period in 2021. Our annualized return on average common equity was 9.58% and 14.15% for both the three months ended March 31, 2022, and 2021.

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

Our total assets as of March 31, 2022 increased $565.9 million to $18.62 billion from the $18.05 billion reported as of December 31, 2021. Cash and cash equivalents decreased $30.9 million, for the three months ended March 31, 2022. Our loan portfolio balance increased to $10.05 billion as of March 31, 2022 from $9.84 billion at December 31, 2021. The increase in loans was primarily due to the acquisition of $242.2 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $27.6 million in organic loan growth, partially offset by $53.2 million of PPP loan decline. Total deposits increased $320.4 million to $14.58 billion as of March 31, 2022 from $14.26 billion as of December 31, 2021. Stockholders’ equity decreased $79.0 million to $2.69 billion as of March 31, 2022, compared to $2.77 billion as of December 31, 2021. The $79.0 million decrease in stockholders’ equity is primarily associated with the $115.0 million in other comprehensive loss for the three months ended March 31, 2022, $27.0 million of shareholder dividends paid and stock repurchases of $4.1 million in 2022, partially offset by $64.9 million in net income for the three months ended March 31, 2022.

Our non-performing loans were $44.7 million, or 0.44% of total loans as of March 31, 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 525.50% as of March 31, 2022, from 471.61% as of December 31, 2021. Non-performing loans from our Arkansas franchise were $13.2 million at March 31, 2022 compared to $13.9 million as of December 31, 2021. Non-performing loans from our Florida franchise were $24.8 million at March 31, 2022 compared to $26.8 million as of December 31, 2021. Non-performing loans from our Alabama franchise were $480,000 at March 31, 2022 compared to $470,000 as of December 31, 2021. Non-performing loans from our Shore Premier Finance ("SPF") franchise were $1.4 million at March 31, 2022 compared to $1.5 million as of December 31, 2021. Non-performing loans from our Centennial Commercial Finance Group (“CFG”) franchise were $4.8 million at March 31, 2022 compared to $7.5 million as of December 31, 2021.

As of March 31, 2022, our non-performing assets decreased to $45.8 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 $13.2 million at March 31, 2022 compared to $14.4 million as of December 31, 2021. Non-performing assets from our Florida franchise were $25.9 million at March 31, 2022 compared to $27.9 million as of December 31, 2021. Non-performing assets from our Alabama franchise were $480,000 at March 31, 2022 compared to $470,000 as of December 31, 2021. Non-performing assets from our SPF franchise were $1.4 million at March 31, 2022 compared to $1.5 million as of December 31, 2021. Non-performing assets from our CFG franchise were $4.8 million at March 31, 2022 compared to $7.5 million as of December 31, 2021.

The $4.8 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.

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.

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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 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 $3.9 million and $3.8 million for the three months ended March 31, 2022 and 2021, respectively. Centennial CFG loan fees were $1.8 million and $2.0 million for the three months ended March 31, 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 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. 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. 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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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.

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-Factor") 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 purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. 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.

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.

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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.

Effective April 1, 2022, pursuant to an Agreement and Plan of Merger, dated as of September 15, 2021, as amended on October 18, 2021 and further amended on November 8, 2021 (the “Merger Agreement”) among the Company, Centennial, the Company’s acquisition subsidiary, HOMB Acquisition Sub III, Inc. (“Acquisition Sub”), Happy Bancshares, Inc. (“Happy”), and its wholly-owned bank subsidiary, Happy State Bank (“HSB”), Acquisition Sub merged with and into Happy and Happy merged with and into the Company, with the Company as the surviving entity (collectively, the “Merger”). HSB also merged with and into Centennial, with Centennial as the surviving entity.

Under the terms of the Merger Agreement, 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 stock appreciation rights of Happy received approximately $3.1 million in cash in cancellation of their stock appreciation rights immediately before the Merger, for a total transaction value of approximately $961.9 million.

For further discussion of the acquisition, see Note 22 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 March 31, 2022, we had 160 branch locations. There were 76 branches in Arkansas, 78 branches in Florida, five branches in Alabama and one branch in New York City.

With the completion of the acquisition of Happy as of April 1, 2022, the Company now operates 62 branches in Texas.

Results of Operations

For the three months ended March 31, 2022 and 2021

Our net income decreased $26.7 million, or 29.2%, to $64.9 million for the three-month period ended March 31, 2022, from $91.6 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $0.40 per share for the three-month period ended March 31, 2022 compared to $0.55 per share for the three-month period ended March 31, 2021. During the three-month periods ended March 31, 2022 and March 31, 2021, the Company did not record any provision for credit losses. The markets in which we operate have begun to experience significant economic uncertainty primarily related to inflationary concerns, continuing supply chain issues and the potential impacts of international unrest. However, 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 March 31, 2022. The Company recorded a $2.1 million adjustment for the increase in fair value of marketable securities, $3.3 million recovery on historic losses for a single borrower and $863,000 in merger and acquisition expenses.

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 (26.135% for 2022 and 25.74% for 2021).

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%. Presently, the Federal Reserve has indicated they are anticipating multiple rate increases for 2022.

Our net interest margin decreased from 4.02% for the three-month period ended March 31, 2021 to 3.21% for the three-month period ended March 31, 2022. The yield on interest earning assets was 3.55% and 4.41% for the three months ended March 31, 2022 and 2021, respectively, as average interest earning assets increased from $15.12 billion to $16.77 billion. The increase in average earning assets is primarily the result of a $1.89 billion increase in average interest-bearing balances due from banks and an $851.9 million increase in average investment securities. This was partially offset by the $1.09 billion decrease in average loans receivable. Average PPP loan balances were $78.0 million for the three months ended March 31, 2022, compared to $633.8 million for the three months ended March 31, 2021. These loans bear interest at 1.00% plus the accretion of the deferred origination fee. Including deferred fees, we recognized total interest income of $2.2 million on PPP loans for the three months ended March 31, 2022 compared to $11.9 million for the three months ended March 31, 2021. The PPP loans were accretive to the net interest margin by 4 basis points for the three months ended March 31, 2022 compared to 16 basis points for the three months ended March 31, 2021. As of March 31, 2022, the Company had $1.6 million in remaining unamortized PPP fees. The market has continued to experience significant amounts of excess liquidity, and the Company completed an underwritten public offering of $300.0 million in aggregate principal of its 3.125% Fixed-to-Floating Rate Subordinated Notes due 2032 during January 2022. As a result, we had an increase of $1.89 billion in average interest-bearing cash balances for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The excess liquidity was dilutive to the net interest margin by 34 basis points, and the additional liquidity resulting from the subordinated debt issuance was dilutive to the net interest margin by 5 basis points. In addition, the increase in interest expense for the subordinated debentures was dilutive to the net interest margin by 5 basis points. For the three months ended March 31, 2022 and 2021, we recognized $3.1 million and $5.5 million,

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respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by 6 basis points. We recognized $1.4 million in event interest income for the three months ended March 31, 2022 compared to $1.1 million for the three months ended March 31, 2021. This increased the net interest margin by 1 basis point.

Net interest income on a fully taxable equivalent basis decreased $17.0 million, or 11.4%, to $132.9 million for the three-month period ended March 31, 2022, from $149.9 million for the same period in 2021. This decrease in net interest income for the three-month period ended March 31, 2022 was the result of a $17.8 million decrease in interest income, partially offset by an $808,000 decrease in interest expense, on a fully taxable equivalent basis. The $17.8 million decrease in interest income was primarily the result of higher levels of interest earning assets at lower yields. Although our interest earning assets increased, our average loan balances decreased by $1.09 billion while average interest-bearing balances due from banks increased by $1.89 billion. The lower yield on earning assets resulted in a decrease in interest income of approximately $7.3 million, and the change in composition of earning assets at lower yields resulted in a decrease in interest income of approximately $10.5 million. The lower yield was primarily driven by the decrease in income on loans of $21.5 million, which was partially offset by an increase in income on investment securities of $2.4 million and a $1.3 million increase in income on interest-bearing balances due from banks. The $808,000 decrease in interest expense is primarily the result of interest-bearing liabilities repricing in a decreasing interest rate environment, which reduced interest expense by $3.4 million, partially offset by a $2.6 million increase in interest expense resulting from a change in the composition of average interest bearing liabilities. The decrease in interest expense was primarily driven by a $2.8 million decrease in interest expense on deposits, which was partially offset by a $2.1 million increase in interest expense on subordinated debentures resulting from the Company's issuance of $300.0 million in aggregate principal of its 3.125% Fixed-to-Floating Rate Subordinated Notes due 2032 during January 2022.

Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended March 31, 2022 and 2021, as well as changes in fully taxable equivalent net interest margin for the three months ended March 31, 2022 compared to the same period in 2021.

Table 2: Analysis of Net Interest Income

			Three Months Ended March 31,
			2022						2021
			(Dollars in thousands)
Interest income			$	144,903					$	162,651
Fully taxable equivalent adjustment			1,738						1,821
Interest income – fully taxable equivalent			146,641						164,472
Interest expense			13,755						14,563
Net interest income – fully taxable equivalent			$	132,886					$	149,909
Yield on earning assets – fully taxable equivalent			3.55		%				4.41		%
Cost of interest-bearing liabilities			0.49						0.56
Net interest spread – fully taxable equivalent			3.06						3.85
Net interest margin – fully taxable equivalent			3.21						4.02

Table 3: Changes in Fully Taxable Equivalent Net Interest Margin

			Three Months Ended March 31, 2022 vs. 2021
			(In thousands)
Decrease in interest income due to change in earning assets			$	(10,536)
Decrease in interest income due to change in earning asset yields			(7,295)
Increase in interest expense due to change in interest-bearing liabilities			(2,577)
Decrease in interest expense due to change in interest rates paid on interest-bearing liabilities			3,385
Decrease in net interest income			$	(17,023)

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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 months ended March 31, 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 March 31,
			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			$	3,497,894					$	1,673					0.19		%				$	1,610,463					$	410					0.10		%
Federal funds sold			1,751						1						0.23						119						—						—
Investment securities – taxable			2,486,401						9,080						1.48						1,637,061						6,253						1.55
Investment securities – non-taxable			850,722						6,284						3.00						848,158						6,700						3.20
Loans receivable			9,937,993						129,603						5.29						11,023,139						151,109						5.56
Total interest-earning assets			16,774,761						146,641						3.55		%				15,118,940						164,472						4.41		%
Non-earning assets			1,618,314																		1,599,950
Total assets			$	18,393,075																	$	16,718,890
LIABILITIES AND     STOCKHOLDERS’ EQUITY
Liabilities
Interest-bearing liabilities
Savings and interest-bearing transaction     accounts			$	9,363,793					$	3,873					0.17		%				$	8,338,791					4,716						0.23		%
Time deposits			854,593						1,021						0.48						1,209,431						2,989						1.00
Total interest-bearing deposits			10,218,386						4,894						0.19						9,548,222						7,705						0.33
Securities sold under agreement to     repurchase			137,565						108						0.32						159,697						190						0.48
FHLB and other borrowed funds			400,000						1,875						1.90						400,000						1,875						1.90
Subordinated debentures			611,888						6,878						4.56						370,421						4,793						5.25
Total interest-bearing liabilities			11,367,839						13,755						0.49		%				10,478,340						14,563						0.56		%
Non-interest-bearing liabilities
Non-interest-bearing deposits			4,155,894																		3,480,050
Other liabilities			121,362																		134,882
Total liabilities			15,645,095																		14,093,272
Stockholders’ equity			2,747,980																		2,625,618
Total liabilities and stockholders’     equity			$	18,393,075																	$	16,718,890
Net interest spread															3.06		%																3.85		%
Net interest income and margin									$	132,886					3.21		%										$	149,909					4.02		%

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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 months ended March 31, 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 March 31, 2022 over 2021
			Volume						Yield/Rate						Total
			(In thousands)
Increase (decrease) in:
Interest income:
Interest-bearing balances due from banks			$	722					$	541					$	1,263
Federal funds sold			—						1						1
Investment securities – taxable			3,113						(286)						2,827
Investment securities – non-taxable			20						(436)						(416)
Loans receivable			(14,391)						(7,115)						(21,506)
Total interest income			(10,536)						(7,295)						(17,831)
Interest expense:
Interest-bearing transaction and savings deposits			531						(1,374)						(843)
Time deposits			(713)						(1,255)						(1,968)
Federal funds purchased			—						—						—
Securities sold under agreement to repurchase			(24)						(58)						(82)
FHLB borrowed funds			—						—						—
Subordinated debentures			2,783						(698)						2,085
Total interest expense			2,577						(3,385)						(808)
Increase (decrease) in net interest income			$	(13,113)					$	(3,910)					$	(17,023)

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.”

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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 periods ended March 31, 2022 and March 31, 2021, the Company did not record any provision for credit losses. The markets in which we operate have begun to experience significant economic uncertainty primarily related to inflationary concerns, continuing supply chain issues and the potential impacts of international unrest. However, 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 March 31, 2022. Net charge-offs to average total loans was 0.08% for the three months ended March 31, 2022 compared to 0.09% for the three months ended March 31, 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 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.

During the three-month periods ended March 31, 2022 and March 31, 2021, the Company did not record any provision for credit losses on available-for-sale securities. At March 31, 2022, the Company determine the allowance for credit losses of $842,000, resulting from economic uncertainties was adequate for the investment portfolio. No additional provision for credit losses was considered necessary for the portfolio.

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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During the three months ended March 31, 2022, the Company purchased $500.0 million of U.S. Treasury Securities with an initial book value of $498.9 million. These investments are classified as held-to-maturity, and mature within one year. As of March 31, 2022, the amortized cost of these securities was $499.3 million. Management has determined that recording a provision for credit losses on these investments was not necessary due to the inherent low risk of U.S. Treasury Securities and the short-term maturities of these investments. As of March 31, 2021, the Company did not hold any held-to-maturity securities.

Non-Interest Income

Total non-interest income was $30.7 million for the three months ended March 31, 2022, compared to $45.3 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 months ended March 31, 2022 and 2021, respectively, as well as changes for the three months ended March 31, 2022 compared to the same period in 2021.

Table 6: Non-Interest Income

			Three Months Ended March 31,												2021 Change from 2020
			2022						2021
			(Dollars in thousands)
Service charges on deposit accounts			$	6,140					$	5,002					$	1,138					22.8		%
Other service charges and fees			7,733						7,608						125						1.6
Trust fees			574						522						52						10.0
Mortgage lending income			3,916						8,167						(4,251)						(52.1)
Insurance commissions			480						492						(12)						(2.4)
Increase in cash value of life insurance			492						502						(10)						(2.0)
Dividends from FHLB, FRB, FNBB & other			698						8,609						(7,911)						(91.9)
Gain on sale of SBA loans			95						—						95						100.0
Gain (loss) on sale of branches, equipment and other assets, net			16						(29)						45						155.2
Gain on OREO, net			478						401						77						19.2
Gain on securities, net			—						219						(219)						(100.0)
Fair value adjustment for marketable securities			2,125						5,782						(3,657)						(63.2)
Other income			7,922						8,001						(79)						(1.0)
Total non-interest income			$	30,669					$	45,276					$	(14,607)					(32.3)		%

Non-interest income decreased $14.6 million, or 32.3%, to $30.7 million for the three months ended March 31, 2022 from $45.3 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 as well as the lower level of mortgage lending income. Other factors were changes related to service charges on deposit accounts and fair value adjustment for marketable securities.

Additional details for the three months ended March 31, 2022 on some of the more significant changes are as follows:

•The $1.1 million increase in service charges on deposit accounts is primarily related to an increase in overdraft fees resulting from increased economic activity.

•The $4.3 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 $7.9 million decrease for dividends from FHLB, FRB, FNBB & other is primarily due to a decrease in special dividends from equity investments.

•The $3.7 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.

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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 months ended March 31, 2022 and 2021, as well as changes for the three months ended March 31, 2022 compared to the same period in 2021.

Table 7: Non-Interest Expense

			Three Months Ended March 31,												2022 Change from 2021
			2022						2021
			(Dollars in thousands)
Salaries and employee benefits			$	43,551					$	42,059					$	1,492					3.5		%
Occupancy and equipment			9,144						9,237						(93)						(1.0)
Data processing expense			7,039						5,870						1,169						19.9
Merger and acquisition expenses			863						—						863						100.0
Other operating expenses:
Advertising			1,266						1,046						220						21.0
Amortization of intangibles			1,421						1,421						—						—
Electronic banking expense			2,538						2,238						300						13.4
Directors' fees			404						383						21						5.5
Due from bank service charges			270						249						21						8.4
FDIC and state assessment			1,668						1,363						305						22.4
Insurance			770						781						(11)						(1.4)
Legal and accounting			797						846						(49)						(5.8)
Other professional fees			1,609						1,613						(4)						(0.2)
Operating supplies			754						487						267						54.8
Postage			306						338						(32)						(9.5)
Telephone			337						346						(9)						(2.6)
Other expense			4,159						4,589						(430)						(9.4)
Total non-interest expense			$	76,896					$	72,866					$	4,030					5.5		%

Non-interest expense increased $4.0 million, or 5.5%, to $76.9 million for the three months ended March 31, 2022 from $72.9 million for the same period in 2021. The primary factors that resulted in this increase were the changes related to salaries and employee benefits, data processing expense and merger and acquisition expense.

Additional details for the three months ended March 31, 2022 on some of the more significant changes are as follows:

•The $1.5 million increase in salaries and employee benefits expense is primarily due to increased salary expenses related to the normal increased cost of doing business.

•The $1.2 million increase in data processing expense is primarily related to the normal increased cost of doing business such as the increase in software, licensing, core processing expense, telecommunication services, internet banking and cash management expense and mobile banking expenses.

•The $863,000 increase in merger and acquisition expense is related to costs associated with the acquisition of Happy Bancshares, Inc.

Income Taxes

Income tax expense decreased $8.9 million, or 30.7%, to $20.0 million for the three-month period ended March 31, 2022, from $28.9 million for the same period in 2021. The effective income tax rate was 23.59% for the three month period ended March 31, 2022, compared to 23.98% for the same period in 2021.

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

Our total assets as of March 31, 2022 increased $565.9 million to $18.62 billion from the $18.05 billion reported as of December 31, 2021. Cash and cash equivalents decreased $30.9 million, for the three months ended March 31, 2022. Our loan portfolio balance increased to $10.05 billion as of March 31, 2022 from $9.84 billion at December 31, 2021. The increase in loans was primarily due to the acquisition of $242.2 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $27.6 million in organic loan growth, partially offset by $53.2 million of PPP loan decline. Total deposits increased $320.4 million to $14.58 billion as of March 31, 2022 from $14.26 billion as of December 31, 2021. Stockholders’ equity decreased $79.0 million to $2.69 billion as of March 31, 2022, compared to $2.77 billion as of December 31, 2021. The $79.0 million decrease in stockholders’ equity is primarily associated with the $115.0 million in other comprehensive loss for the three months ended March 31, 2022, $27.0 million of shareholder dividends paid and stock repurchases of $4.1 million in 2022, partially offset by $64.9 million in net income for the three months ended March 31, 2022.

Loan Portfolio

Loans Receivable

Our loan portfolio averaged $9.94 billion and $11.02 billion during the three months ended March 31, 2022 and 2021, respectively. Loans receivable were $10.05 billion and $9.84 billion as of March 31, 2022 and December 31, 2021, respectively.

From December 31, 2021 to March 31, 2022, the Company experienced an increase of approximately $216.6 million in loans. The increase in loans was primarily due to the acquisition of $242.2 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $27.6 million in organic loan growth, partially offset by $53.2 million of PPP loan decline. The $27.6 million in organic loan growth included $225.6 million in loan growth for Centennial CFG, while the remaining footprint experienced $198.0 million in loan decline during the first three months of 2022. As of March 31, 2022, the Company had $59.6 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, South Alabama and Centennial CFG, the property securing these loans may not physically be located within our market areas of Arkansas, Florida, Alabama and New York. Loans receivable were approximately $3.02 billion, $3.56 billion, $217.6 million, $1.11 billion and $2.15 billion as of March 31, 2022 in Arkansas, Florida, Alabama, SPF and Centennial CFG, respectively.

As of March 31, 2022, we had approximately $308.3 million of construction land development loans which were collateralized by land. This consisted of approximately $46.4 million for raw land and approximately $261.9 million for land with commercial and or residential lots.

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

Table 8: Loans Receivable

			March 31, 2022						December 31, 2021
			(In thousands)
Real estate:
Commercial real estate loans:
Non-farm/non-residential			$	3,810,383					$	3,889,284
Construction/land development			1,856,096						1,850,050
Agricultural			142,920						130,674
Residential real estate loans:
Residential 1-4 family			1,223,890						1,274,953
Multifamily residential			248,650						280,837
Total real estate			7,281,939						7,425,798
Consumer			1,059,342						825,519
Commercial and industrial			1,510,205						1,386,747
Agricultural			48,095						43,920
Other			153,133						154,105
Total loans receivable			$	10,052,714					$	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 March 31, 2022, commercial real estate loans totaled $5.81 billion, or 57.8%, 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, Alabama, SPF and Centennial CFG markets were $2.00 billion, $2.27 billion, $97.5 million, zero and $1.44 billion at March 31, 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 35.9% and 52.2% 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 March 31, 2022, with the remaining 11.9% 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 March 31, 2022, residential real estate loans totaled $1.47 billion, or 14.6%, 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, Alabama, SPF and Centennial CFG markets were $404.2 million, $884.3 million, $57.4 million, zero and $126.6 million at March 31, 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 March 31, 2022, consumer loans totaled $1.06 billion, or 10.5%, 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, Alabama, SPF and Centennial CFG markets were $19.6 million, $7.8 million, $710,000, $1.03 billion and zero at March 31, 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 March 31, 2022, commercial and industrial loans totaled $1.51 billion, or 15.0%, 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, Alabama, SPF and Centennial CFG markets were $470.1 million, $328.5 million, $52.1 million, $78.2 million and $581.3 million at March 31, 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 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 $439,000 and $448,000 in PCD loans, as of March 31, 2022 and December 31, 2021, respectively.

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

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Table 9: Non-performing Assets

			As of March 31, 2022						As of December 31, 2021
			(Dollars in thousands)
Non-accrual loans			$	44,629					$	47,158
Loans past due 90 days or more (principal or interest payments)			46						3,035
Total non-performing loans			44,675						50,193
Other non-performing assets
Foreclosed assets held for sale, net			1,144						1,630
Other non-performing assets			—						—
Total other non-performing assets			1,144						1,630
Total non-performing assets			$	45,819					$	51,823
Allowance for credit losses to non-accrual loans			526.04		%				501.96		%
Allowance for credit losses to non-performing loans			525.50						471.61
Non-accrual loans to total loans			0.44						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 $44.7 million and $50.2 million as of March 31, 2022 and December 31, 2021, respectively. Non-performing loans at March 31, 2022 were $13.2 million, $24.8 million, $480,000, $1.4 million and $4.8 million in the Arkansas, Florida, Alabama, SPF and Centennial CFG markets, respectively.

The $4.8 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 March 31, 2022, we had $6.1 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 $2.5 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 March 31, 2022 and December 31, 2021, the amount of TDRs was $6.9 million and $7.5 million, respectively. As of March 31, 2022 and December 31, 2021, 88.6% and 85.7%, respectively, of all restructured loans were performing to the terms of the restructure.

Total foreclosed assets held for sale were $1.1 million as of March 31, 2022, compared to $1.6 million as of December 31, 2021 for a decrease of $486,000. The foreclosed assets held for sale as of March 31, 2022 are comprised of $8,000 of assets located in Arkansas, $1.14 million located in Florida, and zero from Alabama, SPF and Centennial CFG.

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

Table 10: Foreclosed Assets Held For Sale

			As of March 31, 2022						As of December 31, 2021
			(In thousands)
Commercial real estate loans
Non-farm/non-residential			$	275					$	536
Construction/land development			609						834
Agricultural			—						—
Residential real estate loans
Residential 1-4 family			260						260
Multifamily residential			—						—
Total foreclosed assets held for sale			$	1,144					$	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 March 31, 2022 and December 31, 2021, impaired loans were $321.5 million and $331.5 million, respectively. The amortized cost balance for loans with a specific allocation decreased from $284.0 million to $276.8 million, and the specific allocation for impaired loans decreased by approximately $1.4 million for the period ended March 31, 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 March 31, 2022, our Arkansas, Florida, Alabama, SPF and Centennial CFG markets accounted for approximately $174.6 million, $140.2 million, $480,000, $1.4 million and $4.8 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 March 31, 2022 and December 31, 2021:

Table 11: Total Non-Accrual Loans

			As of March 31, 2022						As of December 31, 2021
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	11,477					$	11,923
Construction/land development			1,042						1,445
Agricultural			367						897
Residential real estate loans
Residential 1-4 family			18,167						16,198
Multifamily residential			156						156
Total real estate			31,209						30,619
Consumer			1,400						1,648
Commercial and industrial			11,104						13,875
Agricultural & other			916						1,016
Total non-accrual loans			$	44,629					$	47,158

If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $407,000 and $904,000, respectively, would have been recorded for the three-month periods ended March 31, 2022 and 2021.

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

Table 12: Loans Accruing Past Due 90 Days or More

			As of March 31, 2022						As of December 31, 2021
			(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential			$	—					$	2,225
Construction/land development			—						—
Agricultural			—						—
Residential real estate loans
Residential 1-4 family			46						701
Multifamily residential			—						—
Total real estate			46						2,926
Consumer			—						2
Commercial and industrial			—						107
Other			—						—
Total loans accruing past due 90 days or more			$	46					$	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 March 31, 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 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 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 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.

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

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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 $321.5 million and $331.5 million in collateral-dependent impaired loans for the periods ended March 31, 2022 and December 31, 2021, respectively.

Loans Collectively Evaluated for Impairment. Loans receivable collectively evaluated for impairment increased by approximately $213.1 million from $9.54 billion at December 31, 2021 to $9.75 billion at March 31, 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 1.89% and 1.94% at March 31, 2022 and December 31, 2021, respectively.

Charge-offs and Recoveries. Total charge-offs decreased to $2.3 million for the three months ended March 31, 2022, compared to $3.0 million for the same period in 2021. Total recoveries were $364,000 and $506,000 for the three months ended March 31, 2022 and 2021, respectively. For the three months ended March 31, 2022, net charge-offs were $268,000 for Arkansas, $1.2 million for Florida, $1,000 for Alabama, $458,000 for SPF and zero for Centennial CFG. These equal a net charge-off position of $1.9 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 months ended March 31, 2022 and 2021.

Table 13: Analysis of Allowance for Credit Losses

			Three Months Ended March 31,
			2022						2021
			(Dollars in thousands)
Balance, beginning of year			$	236,714					$	245,473
Loans charged off
Real estate:
Commercial real estate loans:
Non-farm/non-residential			—						19
Construction/land development			—						—
Agricultural			—						—
Residential real estate loans:
Residential 1-4 family			250						226
Multifamily residential			—						—
Total real estate			250						245
Consumer			63						67
Commercial and industrial			1,416						2,279
Agricultural			—						—
Other			581						456
Total loans charged off			2,310						3,047
Recoveries of loans previously charged off
Real estate:
Commercial real estate loans:
Non-farm/non-residential			26						14
Construction/land development			15						22
Agricultural			—						—
Residential real estate loans:
Residential 1-4 family			26						62
Multifamily residential			—						—
Total real estate			67						98
Consumer			11						46
Commercial and industrial			109						76
Agricultural			—						—
Other			177						286
Total recoveries			364						506
Net loans charged off			1,946						2,541
Provision for credit loss - loans			—						—
Balance, March 31			$	234,768					$	242,932
Net charge-offs to average loans receivable			0.08		%				0.09		%
Allowance for credit losses to total loans			2.34						2.25
Allowance for credit losses to net charge-offs			2,974.72						2,357.38

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

Table 14: Allocation of Allowance for Credit Losses

			As of March 31, 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			$	95,322					37.9		%				$	86,910					39.5		%
Construction/land development			26,349						18.5						28,415						18.8
Agricultural residential real estate loans			554						1.4						308						1.3
Residential real estate loans:
Residential 1-4 family			34,732						12.2						45,364						13.0
Multifamily residential			2,379						2.5						3,094						2.9
Total real estate			159,336						72.5						164,091						75.5
Consumer			20,690						10.5						16,612						8.4
Commercial and industrial			52,326						15.0						52,910						14.1
Agricultural			166						0.5						152						0.4
Other			2,250						1.5						2,949						1.6
Total			$	234,768					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 3.7 years as of March 31, 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 March 31, 2022, we had $499.3 million of held-to-maturity securities. Of the $499.3 million of held-to-maturity securities as of March 31, 2022, all were invested in U.S. Government-sponsored enterprises.

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 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 $2.96 billion and $3.12 billion as March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022, $1.41 billion, or 47.7%, 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, $928.9 million, or 31.4%, of our available-for-sale securities portfolio as of March 31, 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 $410.8 million, or 13.9%, invested in obligations of U.S. Government-sponsored enterprises as of March 31, 2022, compared to $433.0 million, or 13.9%, of our available-for-sale securities as of December 31, 2021. Also, we had approximately $207.1 million, or 7.0%, invested in other securities as of March 31, 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 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.

Management has determined that recording a provision for credit losses on the Company's held-to-maturity investments was not necessary due to the inherent low risk of the U.S. Treasury Securities, which comprise the entire balance of the held-to-maturity U.S. Government-sponsored enterprises investments, as well as the short-term maturities of these investments.

At March 31, 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. No additional provision for credit losses was considered necessary for the portfolio.

See Note 3 “Investment Securities” in the Condensed Notes to Consolidated Financial Statements for the carrying value and fair value of investment securities.

Deposits

Our deposits averaged $14.37 billion and $13.03 billion for the three months ended March 31, 2022 and March 31, 2021, respectively. Total deposits were $14.58 billion as of March 31, 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.

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

Table 15: Brokered Deposits

			March 31, 2022						December 31, 2021
			(In thousands)
Time Deposits			$	—					$	—
CDARS			—						—
Insured Cash Sweep and Other Transaction Accounts			625,721						625,704
Total Brokered Deposits			$	625,721					$	625,704

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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%. 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 months ended March 31, 2022 and 2021.

Table 16: Average Deposit Balances and Rates

			Three Months Ended March 31,
			2022												2021
			Average Amount						Average Rate Paid						Average Amount						Average Rate Paid
			(Dollars in thousands)
Non-interest-bearing transaction accounts			$	4,155,894					—		%				$	3,480,050					—		%
Interest-bearing transaction accounts			8,389,038						0.18						7,547,556						0.25
Savings deposits			974,755						0.06						791,235						0.07
Time deposits:
$100,000 or more			518,864						0.60						834,628						1.17
Other time deposits			335,729						0.31						374,803						0.62
Total			$	14,374,280					0.14		%				$	13,028,272					0.24		%

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 increased $10.3 million, or 7.3%, from $140.9 million as of December 31, 2021 to $151.2 million as of March 31, 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 March 31, 2022 and December 31, 2021. The Company had no other borrowed funds as of March 31, 2022 or December 31, 2021. At March 31, 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 $667.9 million and $371.1 million as of March 31, 2022 and December 31, 2021, respectively.

The Company holds trust preferred securities with a face amount of $73.3 million which are currently callable without penalty based on the terms of the specific agreements. The trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment subject to certain limitations. However, now that the Company has exceeded $15 billion in assets, the Tier 1 treatment of the Company’s outstanding trust preferred securities will be eliminated because of the completion of the acquisition of Happy Bancshares, but these securities will still be 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

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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 all of the trust preferred securities.

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.

On April 15, 2022, the Company completed the payoff of its $300.0 million in aggregate principal amount of the 2027 Notes. 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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Stockholders’ Equity

Stockholders’ equity decreased $79.0 million to $2.69 billion as of March 31, 2022, compared to $2.77 billion as of December 31, 2021. The $79.0 million decrease in stockholders’ equity is primarily associated with the $115.0 million in other comprehensive loss for the three months ended March 31, 2022, $27.0 million of shareholder dividends paid and stock repurchases of $4.1 million in 2022, partially offset by $64.9 million in net income for the three months ended March 31, 2022. The annualized decrease in stockholders’ equity for the first three months of 2022 was 11.6%. As of March 31, 2022 and December 31, 2021, our equity to asset ratio was 14.43% and 15.32%, respectively. Book value per share was $16.41 as of March 31, 2022, compared to $16.90 as of December 31, 2021, an 11.8% annualized decrease.

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 March 31, 2022 and 2021, respectively. The common stock dividend payout ratio for the three months ended March 31, 2022 and 2021 was 41.7% and 25.3%, respectively. On April 21, 2022, the Board of Directors declared a regular $0.165 per share quarterly cash dividend payable June 8, 2022, to shareholders of record May 18, 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 180,000 shares with a weighted-average stock price of $22.69 per share during the first three months of 2022. The remaining balance available for repurchase was 21,910,665 shares at March 31, 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.

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. 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. Because our total consolidated assets were less than $15 billion as of December 31, 2009, our outstanding trust preferred securities continue to be treated as Tier 1 capital. However, now that the Company has exceeded $15 billion in assets, the Tier 1 treatment of the Company’s outstanding trust preferred securities will be eliminated because of the completion of the acquisition of Happy Bancshares, but these securities will still be treated as Tier 2 capital.

Basel III 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 March 31, 2022 and December 31, 2021, we met all regulatory capital adequacy requirements to which we were subject.

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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”). 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 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”). The 2027 Notes are unsecured, subordinated debt obligations and mature on April 15, 2027. On April 15, 2022, the Company completed the payoff of its $300.0 million in aggregate principal amount of the 2027 Notes. 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.

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.

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

Table 17: Risk-Based Capital

			As of March 31, 2022						As of December 31, 2021
			(Dollars in thousands)
Tier 1 capital
Stockholders’ equity			$	2,686,703					$	2,765,721
ASC 326 transitional period adjustment			24,369						55,143
Goodwill and core deposit intangibles, net			(996,184)						(997,605)
Unrealized (gain) loss on available-for-sale securities			104,557						(10,462)
Total common equity Tier 1 capital			1,819,445						1,812,797
Qualifying trust preferred securities			71,305						71,270
Total Tier 1 capital			1,890,750						1,884,067
Tier 2 capital
Allowance for credit losses			234,768						236,714
ASC 326 transitional period adjustment			(24,369)						(55,143)
Disallowed allowance for credit losses (limited to 1.25% of risk weighted assets)			(56,444)						(33,514)
Qualifying allowance for credit losses			153,955						148,057
Qualifying subordinated notes			596,563						299,824
Total Tier 2 capital			750,518						447,881
Total risk-based capital			$	2,641,268					$	2,331,948
Average total assets for leverage ratio			$	17,443,200					$	16,960,683
Risk weighted assets			$	12,239,536					$	11,793,539
Ratios at end of period
Common equity Tier 1 capital			14.87		%				15.37		%
Leverage ratio			10.84						11.11
Tier 1 risk-based capital			15.45						15.98
Total risk-based capital			21.58						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

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.

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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.

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 March 31,
			2022						2021
			(Dollars in thousands)
GAAP net income available to common shareholders (A)			$	64,892					$	91,602
Adjustments:
Fair value adjustment for marketable securities			(2,125)						(5,782)
Gain on securities			—						(219)
Recoveries on historic losses			(3,288)						(5,107)
Special dividend from equity investment			—						(8,073)
Merger and acquisition expenses			863						—
Total adjustments			(4,550)						(19,181)
Tax-effect of adjustments(1)			(1,220)						(4,937)
Total adjustments after-tax			(3,330)						(14,244)
Earnings, as adjusted (C)			$	61,562					$	77,358
Average diluted shares outstanding (D)			164,196						165,446
GAAP diluted earnings per share: A/D			$	0.40					$	0.55
Adjustments after-tax: B/D			(0.03)						(0.08)
Diluted earnings per common share excluding adjustments: C/D			$	0.37					$	0.47

(1) Blended statutory rate of 26.135% for 2022 and 25.74% for 2021

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We had $996.6 million, $998.1 million, and $1.00 billion total goodwill, core deposit intangibles and other intangible assets as of March 31, 2022, December 31, 2021 and March 31, 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 March 31, 2022						As of December 31, 2021
			(In thousands, except per share data)
Book value per share: A/B			$	16.41					$	16.90
Tangible book value per share: (A-C-D)/B			10.32						10.80
(A) Total equity			$	2,686,703					$	2,765,721
(B) Shares outstanding			163,758						163,699
(C) Goodwill			973,025						973,025
(D) Core deposit and other intangibles			23,624						25,045

Table 20: Return on Average Assets

			Three Months Ended March 31,
			2022						2021
			(Dollars in thousands)
Return on average assets: A/D			1.43		%				2.22		%
Return on average assets excluding intangible amortization: (A+B)/(D-E)			1.54						2.39
Return on average assets excluding fair value adjustment for marketable securities, gain on securities, recoveries on historic losses, special dividend from equity investment and merger and acquisition expenses: (ROA, as adjusted) (A+C)/D			1.36						1.88
(A) Net income			$	64,892					$	91,602
Intangible amortization after-tax			1,049						1,055
(B) Earnings excluding intangible amortization			$	65,941					$	92,657
(C) Adjustments after-tax			$	(3,330)					$	(14,244)
(D) Average assets			18,393,075						16,718,890
(E) Average goodwill, core deposits and other intangible assets			997,338						1,003,011

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Table 21: Return on Average Equity

			Three Months Ended March 31,
			2022						2021
			(Dollars in thousands)
Return on average equity: A/D			9.58		%				14.15		%
Return on average common equity excluding fair value adjustment for marketable securities, gain on securities, recoveries on historic losses, special dividend from equity investment and merger and acquisition expenses: (ROE, as adjusted) (A+C)/D			9.09						11.95
Return on average tangible equity excluding intangible amortization: B/(D-E)			15.28						23.16
Return on average tangible common equity excluding fair value adjustment for    marketable securities, gain on securities, recoveries on historic losses, special    dividend from equity investment and merger and acquisition expenses:    (ROTCE, as adjusted) (A+C)/(D-E)			14.26						19.33
(A) Net income			$	64,892					$	91,602
(B) Earnings excluding intangible amortization			65,941						92,657
(C) Adjustments after-tax			(3,330)						(14,244)
(D) Average equity			2,747,980						2,625,618
(E) Average goodwill, core deposits and other intangible assets			997,338						1,003,011

Table 22: Tangible Equity to Tangible Assets

			As of March 31, 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)			9.59						10.36
(A) Total assets			$	18,617,995					$	18,052,138
(B) Total equity			2,686,703						2,765,721
(C) Goodwill			973,025						973,025
(D) Core deposit and other intangibles			23,624						25,045

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.

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Table 23: Efficiency Ratio, As Adjusted

			Three Months Ended March 31,
			2022						2021
			(Dollars in thousands)
Net interest income (A)			$	131,148					$	148,088
Non-interest income (B)			30,669						45,276
Non-interest expense (C)			76,896						72,866
FTE Adjustment (D)			1,738						1,821
Amortization of intangibles (E)			1,421						1,421
Adjustments:
Non-interest income:
Fair value adjustment for marketable securities			$	2,125					$	5,782
Special dividend from equity investment			—						8,073
Gain on OREO, net			478						401
Gain (loss) on branches, equipment and other assets, net			16						(29)
Gain on securities, net			—						219
Recoveries on historic losses			3,288						5,107
Total non-interest income adjustments (F)			$	5,907					$	19,553
Non-interest expense:
Merger and acquisition expenses			$	863					$	—
Total non-core non-interest expense (G)			$	863					$	—
Efficiency ratio (reported): ((C-E)/(A+B+D))			46.15		%				36.60		%
Efficiency ratio, as adjusted (non-GAAP): ((C-E-G)/(A+B+D-F))			47.33						40.68

Recently Issued Accounting Pronouncements

See Note 21 in 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.

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.

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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 March 31, 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 March 31, 2022.

Table 24: Sensitivity of Net Interest Income

Interest Rate Scenario						Percentage Change from Base
Up 200 basis points						12.30		%
Up 100 basis points						5.70
Down 100 basis points						(5.00)
Down 200 basis points						(7.40)

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.

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Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 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)
January 1 through January 31, 2022						40,000						$	24.47					40,000						22,050,665
February 1 through February 28, 2022						140,000						22.18						140,000						21,910,665
March 1 through March 31, 2022						—						—						—						21,910,665
Total						180,000												180,000

(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 4.11 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.
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.

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

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