SIMMONS FIRST NATIONAL CORP [SFNC] Filings

10-Q 1 sfnc-20240630.htm 10-Q sfnc-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			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 000-06253

SIMMONS FIRST NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)


Arkansas			71-0407808
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)

501 Main Street			71601
Pine Bluff			(Zip Code)
Arkansas
(Address of principal executive offices)

(870) 541-1000

(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

SFNC

The Nasdaq Global Select Market

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 (§232.405 of this chapter) 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 definitions 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 Act.). ☐ Yes ☒ No

The number of shares outstanding of the Registrant’s Common Stock as of August 2, 2024, was 125,550,914.

Simmons First National Corporation

Quarterly Report on Form 10-Q

June 30, 2024

Table of Contents


		Page
Part I:	Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income (Loss)	5
	Consolidated Statements of Cash Flows	6
	Consolidated Statements of Stockholders' Equity	7
	Condensed Notes to Consolidated Financial Statements	9
	Report of Independent Registered Public Accounting Firm	48
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	49
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	73
Item 4.	Controls and Procedures	75

Part II:	Other Information
Item 1.	Legal Proceedings	75
Item 1A.	Risk Factors	75
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 3.	Defaults Upon Senior Securities	*
Item 4.	Mine Safety Disclosures	*
Item 5.	Other Information	76
Item 6.	Exhibits	76

Signatures		78

___________________

* No reportable information under this item.

Part I: Financial Information

Item 1. Financial Statements (Unaudited)

Simmons First National Corporation

Consolidated Balance Sheets

June 30, 2024 and December 31, 2023


	June 30,		December 31,
(In thousands, except share data)	2024		2023
	(Unaudited)
ASSETS
Cash and noninterest bearing balances due from banks	$	320,021	$	345,258
Interest bearing balances due from banks and federal funds sold	254,312		268,834
Cash and cash equivalents	574,333		614,092
Interest bearing balances due from banks - time	100		100
Investment securities:
Held-to-maturity, net of allowance for credit losses of $3,214 at June 30, 2024 and December 31, 2023	3,685,450		3,726,288
Available-for-sale, (amortized cost of $3,255,738 and $3,509,709 at June 30, 2024 and December 31, 2023, respectively)	2,885,904		3,152,153
Total investments	6,571,354		6,878,441
Mortgage loans held for sale	13,053		9,373
Loans	17,192,437		16,845,670
Allowance for credit losses on loans	(230,389)		(225,231)
Net loans	16,962,048		16,620,439
Premises and equipment	581,893		570,678
Foreclosed assets and other real estate owned	2,209		4,073
Interest receivable	126,625		122,430
Bank owned life insurance	505,023		500,559
Goodwill	1,320,799		1,320,799
Other intangible assets	104,943		112,645
Other assets	606,692		592,045
Total assets	$	27,369,072	$	27,345,674

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest bearing transaction accounts	$	4,624,186	$	4,800,880
Interest bearing transaction accounts and savings deposits	10,925,179		10,997,425
Time deposits	6,291,518		6,446,673
Total deposits	21,840,883		22,244,978
Federal funds purchased and securities sold under agreements to repurchase	52,705		67,969
Other borrowings	1,346,378		972,366
Subordinated notes and debentures	366,217		366,141
Accrued interest and other liabilities	304,020		267,732
Total liabilities	23,910,203		23,919,186

Stockholders’ equity:
Common stock, Class A, $0.01 par value; 350,000,000 shares authorized at June 30, 2024 and December 31, 2023; 125,487,520 and 125,184,119 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively	1,255		1,252
Surplus	2,506,469		2,499,930
Undivided profits	1,356,626		1,329,681
Accumulated other comprehensive loss	(405,481)		(404,375)
Total stockholders’ equity	3,458,869		3,426,488
Total liabilities and stockholders’ equity	$	27,369,072	$	27,345,674

See Condensed Notes to Consolidated Financial Statements.

Simmons First National Corporation

Consolidated Statements of Income

Three and Six Months Ended June 30, 2024 and 2023


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2024		2023		2024		2023
	(Unaudited)				(Unaudited)
INTEREST INCOME
Loans, including fees	$	270,937	$	244,292	$	532,427	$	471,790
Interest bearing balances due from banks and federal funds sold	2,964		4,023		5,974		6,806
Investment securities	55,050		48,751		113,051		97,525
Mortgage loans held for sale	194		154		342		236
TOTAL INTEREST INCOME	329,145		297,220		651,794		576,357

INTEREST EXPENSE
Deposits	153,033		108,364		304,966		195,892
Federal funds purchased and securities sold under agreements to repurchase	156		318		345		641
Other borrowings	15,025		18,612		26,674		27,460
Subordinated notes and debentures	7,026		6,696		13,998		11,299
TOTAL INTEREST EXPENSE	175,240		133,990		345,983		235,292

NET INTEREST INCOME	153,905		163,230		305,811		341,065
Provision for credit losses	11,099		61		21,305		24,277

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	142,806		163,169		284,506		316,788

NONINTEREST INCOME
Service charges on deposit accounts	12,252		12,882		24,207		25,319
Debit and credit card fees	8,162		7,986		16,408		15,938
Wealth management fees	8,274		7,440		15,752		14,805
Mortgage lending income	1,973		2,403		4,293		3,973
Bank owned life insurance income	3,876		2,555		7,690		5,528
Other service charges and fees	2,352		2,262		4,551		4,544
Loss on sale of securities, net	—		(391)		—		(391)
Other income	6,410		9,843		13,582		21,099
TOTAL NONINTEREST INCOME	43,299		44,980		86,483		90,815

NONINTEREST EXPENSE
Salaries and employee benefits	70,716		74,723		143,369		151,761
Occupancy expense, net	11,864		11,410		24,122		22,988
Furniture and equipment expense	5,623		5,128		10,764		10,179
Other real estate and foreclosure expense	117		289		296		475
Deposit insurance	5,682		5,201		12,817		10,094
Merger related costs	—		19		—		1,415
Other operating expenses	45,352		42,926		87,865		86,012
TOTAL NONINTEREST EXPENSE	139,354		139,696		279,233		282,924

INCOME BEFORE INCOME TAXES	46,751		68,453		91,756		124,679
Provision for income taxes	5,988		10,139		12,122		20,776

NET INCOME	$	40,763	$	58,314	$	79,634	$	103,903
BASIC EARNINGS PER SHARE	$	0.32	$	0.46	$	0.64	$	0.82
DILUTED EARNINGS PER SHARE	$	0.32	$	0.46	$	0.63	$	0.82

See Condensed Notes to Consolidated Financial Statements.

Simmons First National Corporation

Consolidated Statements of Comprehensive Income (Loss)

Three and Six Months Ended June 30, 2024 and 2023


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2024		2023		2024		2023
	(Unaudited)				(Unaudited)
NET INCOME	$	40,763	$	58,314	$	79,634	$	103,903

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized holding gains (losses) arising during the period on available-for-sale securities	363		(34,464)		(25,786)		35,499
Less: Reclassification adjustment for realized losses included in net income	—		(391)		—		(391)
Less: Realized gains (losses) on available-for-sale securities interest rate hedges	2,793		(28,506)		(12,582)		(14,961)
Less: Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity	(5,862)		(6,505)		(11,707)		(13,553)
Other comprehensive income (loss), before tax effect	3,432		938		(1,497)		64,404
Less: Tax effect of other comprehensive income (loss)	897		245		(391)		16,832

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)	2,535		693		(1,106)		47,572

COMPREHENSIVE INCOME	$	43,298	$	59,007	$	78,528	$	151,475

See Condensed Notes to Consolidated Financial Statements.

Simmons First National Corporation

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2024 and 2023


(In thousands)	June 30, 2024		June 30, 2023
	(Unaudited)		(Unaudited)
OPERATING ACTIVITIES
Net income	$	79,634	$	103,903
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	23,211		23,954
Provision for credit losses	21,305		24,277
Loss on sale of investments	—		391
Net amortization of investment securities and assets	8,907		6,295
Net amortization on borrowings	76		76
Stock-based compensation expense	7,537		8,018
Loss (gain) on sale of foreclosed assets and other real estate owned	186		(225)
Gain on sale of mortgage loans held for sale	(4,010)		(3,683)
Loss on sale of loans	234		—
Deferred income taxes	(1,238)		(335)
Income from bank owned life insurance	(8,041)		(6,716)
Originations of mortgage loans held for sale	(77,183)		(133,076)
Proceeds from sale of mortgage loans held for sale	77,513		129,903
Changes in assets and liabilities:
Interest receivable	(4,195)		(539)
Other assets	(13,082)		(1,548)
Accrued interest and other liabilities	41,335		27,658
Income taxes payable	(8,535)		(19,421)
Net cash provided by operating activities	143,654		158,932

INVESTING ACTIVITIES
Net change in loans	(361,615)		(698,580)
Proceeds from sale of loans	389		6,657
Net change in due from banks - time	—		250
Purchases of premises and equipment, net	(23,236)		(18,718)
Proceeds from sale of foreclosed assets and other real estate owned	2,448		1,477
Proceeds from maturities of available-for-sale securities	257,204		296,256
Purchases of available-for-sale securities	—		(1,526)
Proceeds from maturities of held-to-maturity securities	36,851		36,583
Purchases of held-to-maturity securities	—		(45,921)
Surrender of bank owned life insurance	2,201		—
Proceeds from bank owned life insurance death benefits	1,376		3,686
Net cash used in investing activities	(84,382)		(419,836)

FINANCING ACTIVITIES
Net change in deposits	(404,095)		(59,003)
Proceeds from issuance of other borrowed funds	1,800,000		2,350,000
Repayments of other borrowed funds	(1,425,988)		(1,835,957)
Dividends paid on common stock	(52,689)		(50,835)
Net change in federal funds purchased and securities sold under agreements to repurchase	(15,264)		(57,817)
Net shares cancelled under stock compensation plans	(1,965)		(2,505)
Shares issued under employee stock purchase plan	970		833
Repurchases of common stock	—		(20,022)
Net cash (used in) provided by financing activities	(99,031)		324,694

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(39,759)		63,790
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	614,092		682,122

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	574,333	$	745,912

See Condensed Notes to Consolidated Financial Statements.

Simmons First National Corporation

Consolidated Statements of Stockholders’ Equity

Three Months Ended June 30, 2024 and 2023


(In thousands, except share data)	Common Stock		Surplus		Accumulated Other Comprehensive Income (Loss)		Undivided Profits		Total
Three Months Ended June 30, 2024
Balance, March 31, 2024 (Unaudited)	$	1,254	$	2,503,673	$	(408,016)	$	1,342,215	$	3,439,126

Comprehensive income	—		—		2,535		40,763		43,298
Stock-based compensation plans, net – 67,902 shares	1		2,796		—		—		2,797
Dividends on common stock – $0.21 per share	—		—		—		(26,352)		(26,352)

Balance, June 30, 2024 (Unaudited)	$	1,255	$	2,506,469	$	(405,481)	$	1,356,626	$	3,458,869

Three Months Ended June 30, 2023
Balance, March 31, 2023 (Unaudited)	$	1,273	$	2,533,589	$	(470,681)	$	1,275,720	$	3,339,901

Comprehensive income	—		—		693		58,314		59,007
Stock-based compensation plans, net – 70,602 shares	—		2,820		—		—		2,820
Stock repurchases – 1,128,087 shares	(11)		(20,011)		—		—		(20,022)
Dividends on common stock – $0.20 per share	—		—		—		(25,380)		(25,380)

Balance, June 30, 2023 (Unaudited)	$	1,262	$	2,516,398	$	(469,988)	$	1,308,654	$	3,356,326

See Condensed Notes to Consolidated Financial Statements.

Simmons First National Corporation

Consolidated Statements of Stockholders’ Equity

Six Months Ended June 30, 2024 and 2023


(In thousands, except share data)	Common Stock		Surplus		Accumulated Other Comprehensive Income (Loss)		Undivided Profits		Total
Six Months Ended June 30, 2024
Balance, December 31, 2023	$	1,252	$	2,499,930	$	(404,375)	$	1,329,681	$	3,426,488

Comprehensive (loss) income	—		—		(1,106)		79,634		78,528
Stock issued for employee stock purchase plan – 53,161 shares	—		970		—		—		970
Stock-based compensation plans, net – 250,240 shares	3		5,569		—		—		5,572
Dividends on common stock – $0.42 per share	—		—		—		(52,689)		(52,689)

Balance, June 30, 2024 (Unaudited)	$	1,255	$	2,506,469	$	(405,481)	$	1,356,626	$	3,458,869

Six Months Ended June 30, 2023
Balance, December 31, 2022	$	1,270	$	2,530,066	$	(517,560)	$	1,255,586	$	3,269,362

Comprehensive income	—		—		47,572		103,903		151,475
Stock issued for employee stock purchase plan – 42,510 shares	—		833		—		—		833
Stock-based compensation plans, net – 263,630 shares	3		5,510		—		—		5,513
Stock repurchases - 1,128,087 shares	(11)		(20,011)		—		—		(20,022)
Dividends on common stock – $0.40 per share	—		—		—		(50,835)		(50,835)

Balance, June 30, 2023 (Unaudited)	$	1,262	$	2,516,398	$	(469,988)	$	1,308,654	$	3,356,326

See Condensed Notes to Consolidated Financial Statements.

SIMMONS FIRST NATIONAL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: PREPARATION OF INTERIM FINANCIAL STATEMENTS

Description of Business and Organizational Structure

Simmons First National Corporation (“Company”) is a Mid-South financial holding company headquartered in Pine Bluff, Arkansas, and the parent company of Simmons Bank, an Arkansas state-chartered bank that has been in operation since 1903 (“Simmons Bank” or the “Bank”). Simmons First Insurance Services, Inc. and Simmons First Insurance Services of TN, LLC are wholly-owned subsidiaries of Simmons Bank and are insurance agencies that offer various lines of personal and corporate insurance coverage to individual and commercial customers. The Company, through its subsidiaries, offers, among other things, consumer, real estate and commercial loans; checking, savings and time deposits; and specialized products and services (such as credit cards, trust and fiduciary services, investments, agricultural finance lending, equipment lending, insurance and Small Business Administration (“SBA”) lending) from approximately 234 financial centers as of June 30, 2024, located throughout market areas in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosures for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying consolidated balance sheet as of December 31, 2023, was derived from audited financial statements. In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair presentation of interim results of operations, including normal recurring accruals. Significant intercompany accounts and transactions have been eliminated in consolidation. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 27, 2024.

The preparation of financial statements, in accordance with accounting principles generally accepted in the United States (“US GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income items and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements and actual results may differ from these estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, the valuation of acquired loans, valuation of goodwill and subsequent impairment analysis, stock-based compensation plans and income taxes. Management obtains third party valuations to assist in valuing certain aspects of these material estimates, as appropriate, including independent appraisals for significant properties in connection with the determination of the allowance for credit losses and the fair value of acquired loans. Assumptions used in the goodwill impairment analysis involve internally projected forecasts, coupled with market and third-party data. These material estimates could change as a result of the uncertainty in current macroeconomic conditions and other factors that are beyond the Company’s control and could cause actual results to differ materially from those projected.

The Company identified an error in its previously issued unaudited consolidated statements of cash flows. The cash flows associated with other borrowings were presented on a net basis, rather than on a gross basis. The Company corrected this error in the accompanying unaudited consolidated statements of cash flows for the six months ended June 30, 2023. The correction had no impact to the total net cash used in financing activities in the period. The Company evaluated the materiality of this error utilizing Accounting Standards Codification (“ASC”) Topic 250 and SEC Staff Accounting Bulletin 99-M, both quantitatively and qualitatively, and concluded that this error is immaterial to the impacted prior period.

Recently Adopted Accounting Standards

Investment-Income Taxes - In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-02, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (“ASU 2023-02”), that introduced the option to apply the proportional amortization method to account for investments made primarily for the purpose of receiving income tax credits and other income tax benefits when certain requirements are met. The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the income statement as a component of income tax expense (benefit). ASU 2023-02 was effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2023, with early adoption permitted. The Company elected to early adopt ASU 2023-02 and apply the proportional amortization method for all income tax credits during the first quarter of 2023 by utilizing the modified retrospective method. The adoption of ASU 2023-02 did not have a material impact on the Company’s results of operations, financial position or disclosures.

Credit Losses on Financial Instruments - In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminated the accounting guidance on troubled debt restructurings (“TDRs”) for creditors in ASC Topic 310-40 and amended the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The ASU also updated the requirements related to accounting for credit losses under ASC 326 and added enhanced disclosures for creditors with respect to loan refinancings and restructurings made to borrowers experiencing financial difficulty. ASU 2022-02 was effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company adopted ASU 2022-02 effective January 1, 2023 on a prospective basis. The adoption of ASU 2022-02 did not have a material impact on the Company’s results of operations or financial position. See Note 4, Loans and Allowance for Credit Losses, for additional information.

Fair Value Hedging - In March 2022, the FASB issued ASU No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method (“ASU 2022-01”), which clarified the guidance on fair value hedge accounting of interest rate risk for portfolios of financial assets. This ASU amended the guidance in ASU 2017-12 that, among other things, established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible. ASU 2022-01 renamed that method the “portfolio layer” method and expanded the scope of the guidance to allow entities to apply the portfolio layer method to portfolios of all financial assets, including both prepayable and nonprepayable financial assets. The scope expansion is consistent with the FASB’s efforts to simplify hedge accounting and allowed entities to apply the same method to similar hedging strategies. ASU 2022-01 was effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The adoption of 2022-01 did not have a material impact on the Company’s results of operations, financial position or disclosures.

Reference Rate Reform – In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provided relief for companies preparing for discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”). LIBOR is a benchmark interest rate referenced in a variety of agreements that are used by numerous entities. On March 5, 2021, the U.K. Financial Conduct Authority (“FCA”) announced that the majority of LIBOR rates will no longer be published after December 31, 2021. Effective January 1, 2022, the ICE Benchmark Administration Limited, the administrator of the LIBOR, ceased the publication of one-week and two-month USD LIBOR and as of June 30, 2023, ceased the publications of the remaining tenors of USD LIBOR (one, three, six and 12-month).

Other interest rates used globally could also be discontinued for similar reasons. ASU 2020-04 provided optional expedients and exceptions to contracts, hedging relationships and other transactions affected by reference rate reform. The main provisions for contract modifications include optional relief by allowing the modification as a continuation of the existing contract without additional analysis and other optional expedients regarding embedded features. Optional expedients for hedge accounting permitted changes to critical terms of hedging relationships and to the designated benchmark interest rate in a fair value hedge and also provided relief for assessing hedge effectiveness for cash flow hedges. Companies were able to apply ASU 2020-04 immediately; however, the guidance was only available for a limited time (generally through December 31, 2022). The Company formed a LIBOR Transition Team in 2020, has created standard LIBOR replacement language for new and modified loan notes, and is monitoring the remaining loans with LIBOR rates monthly to ensure progress in updating these loans with acceptable LIBOR replacement language or converting them to other interest rates. During 2021, the Company did not offer LIBOR-indexed rates on loans which it originated, although it did participate in some shared credit agreements originated by other banks subject to the Company’s determination that the LIBOR replacement language in the loan documents met the Company’s standards. Pursuant to the Joint Regulatory Statement on LIBOR transition issued in October 2021, the Company’s policy, as of January 1,

2022, is not to enter into any new LIBOR-based credit agreements and not extend, renew, or modify prior LIBOR credit agreements without requiring conversion of the agreements to other interest rates. The adoption of ASU 2020-04 has not had a material impact on the Company’s financial position or results of operations.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which clarified that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the changes in the interest rates used for margining, discounting, or contract price alignment for derivative instruments that are being implemented as part of the market-wide transition to new reference rates (commonly referred to as the “discounting transition”). ASU 2021-01 also amended the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance and generally could be applied through December 31, 2022. ASU 2021-01 did not have a material impact on the Company’s financial position or results of operations.

In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”). ASU 2022-06 deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

Recently Issued Accounting Standards

Stock Compensation - In March 2024, the FASB issued ASU No. 2024-01, Compensation-Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards (“ASU 2024-01”), in response to feedback received by the FASB requesting guidance on how entities should determine the appropriate guidance to apply when accounting for the issuance of profits interest units and similar types of awards. ASU 2024-01 adds an example with four fact patterns to ASC 718-10 to assist preparers of financial statements in determining whether profits interest and similar awards should be accounted for within the scope of the guidance. ASU 2024-01 only addresses the scope determination and does not amend the recognition, classification or measurement guidance. ASU 2024-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024, with early adoption permitted for interim or annual financial statements that have not yet been issued or made available for issuance. Entities may choose to adopt 2024-01 on a prospective or retrospective basis. The adoption of ASU 2024-01 is not expected to have a material impact on the Company’s operations, financial position or disclosures.

Income Taxes - In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), primarily focused on income tax disclosures regarding effective tax rates and cash income taxes paid. ASU 2023-09 requires public business entities, on an annual basis, to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income by the applicable statutory income tax rate). ASU 2023-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024, with early adoption permitted. The Company will complete an evaluation of the impact this standard will have on its results of operations, financial position or disclosures.

Segment Reporting - In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which expands reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The amendments in this update introduce a new requirement to disclose significant segment expenses regularly provided to the chief operating decision maker, extend certain annual disclosures to interim periods, clarify that single reportable segment entities must apply Topic 280 in its entirety, permit more than one measure of segment profit or loss to be reported under certain conditions and require disclosure of the title and position of the chief operating decision maker. ASU 2023-07 is effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The adoption of ASU 2023-07 is not expected to have a material impact on the Company’s operations, financial position or disclosures.

There have been no other significant changes to the Company’s accounting policies disclosed in Note 1, Summary of Significant Accounting Policies, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Presently, the Company is not aware of any other changes to the Accounting Standards Codification that will have a material impact on its present or future financial position or results of operations.

NOTE 2: ACQUISITIONS

Spirit of Texas Bancshares, Inc.

On April 8, 2022, the Company completed its merger with Spirit of Texas Bancshares, Inc. (“Spirit”) pursuant to the terms of the Agreement and Plan of Merger dated as of November 18, 2021 (“Spirit Agreement”), at which time Spirit merged with and into the Company, with the Company continuing as the surviving corporation. The Company issued 18,275,074 shares of its common stock valued at approximately $464.9 million as of April 8, 2022, plus $1,393,508.90 in cash, in exchange for all outstanding shares of Spirit capital stock (and common stock equivalents) to effect the merger.

Prior to the acquisition, Spirit, headquartered in Conroe, Texas, conducted banking business through its subsidiary bank, Spirit of Texas Bank SSB, from 35 branches located primarily in the Texas Triangle - consisting of Dallas-Fort Worth, Houston, San Antonio and Austin metropolitan areas - with additional locations in the Bryan-College Station, Corpus Christi and Tyler metropolitan areas, along with offices in North Central and South Texas. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $3.11 billion in assets, including approximately $2.29 billion in loans (inclusive of loan discounts), and approximately $2.72 billion in deposits.

Goodwill of $174.1 million was recorded as a result of the transaction. The merger strengthened the Company’s position in the Texas market and brought forth additional opportunities in the Company’s current footprint, which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.

A summary, at fair value, of the assets acquired and liabilities assumed in the Spirit acquisition, as of the acquisition date, is as follows:


(In thousands)	Acquired from Spirit		Fair Value Adjustments		Fair Value
Assets Acquired
Cash and due from banks	$	277,790	$	—	$	277,790
Investment securities	362,088		(13,401)		348,687
Loans acquired	2,314,085		(19,925)		2,294,160
Allowance for credit losses on loans	(17,005)		7,382		(9,623)
Premises and equipment	84,135		(19,074)		65,061
Bank owned life insurance	36,890		—		36,890
Goodwill	77,681		(77,681)		—
Core deposit and other intangible assets	6,245		32,386		38,631
Other assets	58,403		(3,411)		54,992
Total assets acquired	$	3,200,312	$	(93,724)	$	3,106,588

Liabilities Assumed
Deposits:
Noninterest bearing transaction accounts	$	825,228	$	(534)	$	824,694
Interest bearing transaction accounts and savings deposits	1,383,663		—		1,383,663
Time deposits	509,209		1,081		510,290
Total deposits	2,718,100		547		2,718,647
Other borrowings	37,547		503		38,050
Subordinated debentures	36,491		879		37,370
Accrued interest and other liabilities	23,667		(3,311)		20,356
Total liabilities assumed	2,815,805		(1,382)		2,814,423
Equity	384,507		(384,507)		—
Total equity assumed	384,507		(384,507)		—
Total liabilities and equity assumed	$	3,200,312	$	(385,889)	$	2,814,423
Net assets acquired					292,165
Purchase price					466,311
Goodwill					$	174,146

During 2023, the Company finalized its analysis of the loans acquired along with other acquired assets and assumed liabilities related to the Spirit acquisition.

The Company’s operating results include the operating results of the acquired assets and assumed liabilities of Spirit subsequent to the acquisition date.

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

Cash and due from banks – The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Investment securities – Investment securities were acquired with an adjustment to fair value based upon quoted market prices if material. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value.

Loans acquired – Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. See Note 4, Loans and Allowance for Credit Losses, in the accompanying Notes to Consolidated Financial Statements for additional information related to purchased financial assets with credit deterioration.

Premises and equipment – Bank premises and equipment were acquired with an adjustment to fair value, which represents the difference between the Company’s current analysis of property and equipment values completed in connection with the acquisition and book value acquired.

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

Goodwill – The consideration paid as a result of the acquisition exceeded the fair value of the assets acquired, resulting in an intangible asset, goodwill. Goodwill established prior to the acquisitions, if applicable, was written off.

Core deposit intangible – This intangible asset represents the value of the relationships that the acquired banks had with their deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base and the net maintenance cost attributable to customer deposits. Any core deposit intangible established prior to the acquisitions, if applicable, was written off.

Other assets – The fair value adjustment results from certain assets whose value was estimated to be more or less than book value, such as certain prepaid assets, receivables and other miscellaneous assets. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value.

Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date. The Company performed a fair value analysis of the estimated weighted average interest rate of the certificates of deposits compared to the current market rates and recorded a fair value adjustment for the difference when material.

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

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

Accrued interest and other liabilities – The fair value adjustment results from certain liabilities whose value was estimated to be more or less than book value, such as certain accounts payable and other miscellaneous liabilities. The adjustment also establishes a liability for unfunded commitments equal to the fair value of that liability at the date of acquisition. The carrying amount of accrued interest and the remainder of other liabilities was deemed to be a reasonable estimate of fair value.

NOTE 3: INVESTMENT SECURITIES

Held-to-maturity (“HTM”) securities, which include any security for which the Company has both the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield method over the security’s estimated life. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to their earliest call date.

Available-for-sale (“AFS”) securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the individual security, are included in other income. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders’ equity, further discussed below. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield method over the estimated life of the security. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to their earliest call date.

During the quarters ended June 30, 2022 and September 30, 2021, the Company transferred, at fair value, $1.99 billion and $500.8 million, respectively, of securities from the AFS portfolio to the HTM portfolio. As of June 30, 2024, the related remaining combined net unrealized losses of $117.4 million in accumulated other comprehensive income (loss) will be amortized over the remaining life of the securities. No gains or losses on these securities were recognized at the time of transfer.

The amortized cost, fair value and allowance for credit losses of investment securities that are classified as HTM are as follows:


(In thousands)	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
Held-to-maturity

June 30, 2024
U.S. Government agencies	$	454,488	$	—	$	454,488	$	—	$	(95,882)	$	358,606
Mortgage-backed securities	1,119,741		—		1,119,741		171		(128,910)		991,002
State and political subdivisions	1,857,600		(191)		1,857,409		47		(428,369)		1,429,087
Other securities	256,835		(3,023)		253,812		—		(26,983)		226,829
Total HTM	$	3,688,664	$	(3,214)	$	3,685,450	$	218	$	(680,144)	$	3,005,524

December 31, 2023
U.S. Government agencies	$	453,121	$	—	$	453,121	$	—	$	(89,203)	$	363,918
Mortgage-backed securities	1,161,694		—		1,161,694		354		(107,834)		1,054,214
State and political subdivisions	1,858,680		(2,006)		1,856,674		284		(369,509)		1,487,449
Other securities	256,007		(1,208)		254,799		—		(25,010)		229,789
Total HTM	$	3,729,502	$	(3,214)	$	3,726,288	$	638	$	(591,556)	$	3,135,370

Mortgage-backed securities (“MBS”) are commercial MBS, secured by commercial properties, and residential MBS, generally secured by single-family residential properties. All mortgage-backed securities included in the table above were issued by U.S. government agencies or corporations. As of June 30, 2024, HTM MBS consisted of $139.0 million and $980.7 million of commercial MBS and residential MBS, respectively. As of December 31, 2023, HTM MBS consisted of $141.6 million and $1.02 billion of commercial MBS and residential MBS, respectively.

The amortized cost, fair value and allowance for credit losses of investment securities that are classified as AFS are as follows:


(In thousands)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
Available-for-sale

June 30, 2024
U.S. Treasury	$	1,294	$	—	$	—	$	(19)	$	1,275
U.S. Government agencies	68,370		—		37		(1,844)		66,563
Mortgage-backed securities	1,931,923		—		—		(201,081)		1,730,842
State and political subdivisions	1,010,060		—		125		(145,995)		864,190
Other securities	244,091		—		127		(21,184)		223,034
Total AFS	$	3,255,738	$	—	$	289	$	(370,123)	$	2,885,904

December 31, 2023
U.S. Treasury	$	2,285	$	—	$	—	$	(31)	$	2,254
U.S. Government agencies	74,460		—		35		(1,993)		72,502
Mortgage-backed securities	2,138,652		—		8		(198,353)		1,940,307
State and political subdivisions	1,035,147		—		187		(132,541)		902,793
Other securities	259,165		—		—		(24,868)		234,297
Total AFS	$	3,509,709	$	—	$	230	$	(357,786)	$	3,152,153

As of June 30, 2024, AFS MBS consisted of $597.7 million and $1.13 billion of commercial MBS and residential MBS, respectively. As of December 31, 2023, AFS MBS consisted of $710.1 million and $1.23 billion of commercial MBS and residential MBS, respectively.

Accrued interest receivable on HTM and AFS securities at June 30, 2024 was $20.5 million and $26.7 million, respectively, and is included in interest receivable on the consolidated balance sheets. The Company has made the election to exclude all accrued interest receivable from securities from the estimate of credit losses.

The following table summarizes the Company’s AFS investments in an unrealized loss position for which an allowance for credit loss has not been recorded as of June 30, 2024, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:


	Less Than 12 Months				12 Months or More				Total
(In thousands)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Available-for-sale
U.S. Treasury	$	1,275	$	(19)	$	—	$	—	$	1,275	$	(19)
U.S. Government agencies	989		—		61,692		(1,844)		62,681		(1,844)
Mortgage-backed securities	2,222		(174)		1,728,352		(200,907)		1,730,574		(201,081)
State and political subdivisions	18,617		(267)		835,387		(145,728)		854,004		(145,995)