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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 September 30, 2022
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition period from ______ to ______
Commission File Number: 001-41093
HOME BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Arkansas
71-0682831
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
719 Harkrider, Suite 100 ,Conway, Arkansas
72032
(Address of principal executive offices)(Zip Code)
(501) 339-2929
(Registrant's telephone number, including area code)
Not Applicable
Former name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareHOMBNew 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 FilerAccelerated filer
Non-accelerated filerSmaller 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: 203,971,240 shares as of November 3, 2022.


HOME BANCSHARES, INC.
FORM 10-Q
September 30, 2022
INDEX
Page No.
7-8
10-55
100-101


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of our statements contained in this document, including matters discussed under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operation,” are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to future events or our future financial performance and include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, including through prospective or potential acquisitions, our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to, the following:
the effects of future local, regional, national and international economic conditions, including inflation or a decrease in commercial real estate and residential housing values;
changes in the level of nonperforming assets and charge-offs, and credit risk generally;
the risks of changes in interest rates or the level and composition of deposits, loan demand and the values of loan collateral, securities and interest-sensitive assets and liabilities;
disruptions, uncertainties and related effects on credit quality, liquidity, other aspects of our business and our operations as a result of the ongoing COVID-19 pandemic and measures that have been or may be implemented or imposed in response to the pandemic;
the effect of any mergers, acquisitions or other transactions to which we or our bank subsidiary may from time to time be a party, including our ability to successfully integrate our recent acquisition of Happy Bancshares, Inc. and its bank subsidiary, as well as any other businesses that we may acquire;
the risk that expected cost savings and other benefits from acquisitions may not be fully realized or may take longer to realize than expected;
the possibility that an acquisition does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all;
the reaction to a proposed acquisition transaction of the respective companies’ customers, employees and counterparties;
diversion of management time on acquisition-related issues;
the ability to enter into and/or close additional acquisitions;
the availability of and access to capital on terms acceptable to us;
increased regulatory requirements and supervision that apply 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;
changes in governmental monetary and fiscal policies;
the effects of terrorism and efforts to combat it;
political instability, war, military conflicts (including the ongoing military conflict between Russia and Ukraine) and other major domestic or international events;
adverse weather events, including hurricanes, and other natural disasters;
the ability to keep pace with technological changes, including changes regarding cybersecurity;
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.


PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Home BancShares, Inc.
Consolidated Balance Sheets
(In thousands, except share data)September 30, 2022December 31, 2021
(Unaudited)  
Assets
Cash and due from banks$268,929 $119,908 
Interest-bearing deposits with other banks1,311,492 3,530,407 
Cash and cash equivalents1,580,421 3,650,315 
Fed funds sold2,700 — 
Investment securities – available-for-sale, net of allowance for credit losses4,085,102 3,119,807 
Investment securities — held-to-maturity, net of allowance for credit losses1,251,007 — 
Total investment securities5,336,109 3,119,807 
Loans receivable13,829,311 9,836,089 
Allowance for credit losses(289,203)(236,714)
Loans receivable, net13,540,108 9,599,375 
Bank premises and equipment, net411,479 275,760 
Foreclosed assets held for sale365 1,630 
Cash value of life insurance212,619 105,135 
Accrued interest receivable88,671 46,736 
Deferred tax asset, net228,979 78,290 
Goodwill1,394,353 973,025 
Core deposit intangibles60,932 25,045 
Other assets300,634 177,020 
Total assets$23,157,370 $18,052,138 
Liabilities and Stockholders’ Equity
Deposits:
Demand and non-interest-bearing$5,540,539 $4,127,878 
Savings and interest-bearing transaction accounts11,968,519 9,251,805 
Time deposits1,033,266 880,887 
Total deposits18,542,324 14,260,570 
Securities sold under agreements to repurchase121,555 140,886 
FHLB and other borrowed funds400,000 400,000 
Accrued interest payable and other liabilities192,908 113,868 
Subordinated debentures440,568 371,093 
Total liabilities19,697,355 15,286,417 
Stockholders’ equity:
Common stock, par value $0.01; shares authorized 300,000,000 in 2022 and 2021; shares issued and outstanding 204,219,052 in 2022 and 163,699,282 in 2021
2,042 1,637 
Capital surplus2,404,388 1,487,373 
Retained earnings1,361,040 1,266,249 
Accumulated other comprehensive (loss) income(307,455)10,462 
Total stockholders’ equity3,460,015 2,765,721 
Total liabilities and stockholders’ equity$23,157,370 $18,052,138 
See Condensed Notes to Consolidated Financial Statements.
4

Home BancShares, Inc.
Consolidated Statements of Income
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In thousands, except per share data)2022202120222021
(Unaudited)
Interest income:
Loans$195,841 $142,609 $507,062 $435,210 
Investment securities
Taxable28,273 8,495 58,294 21,933 
Tax-exempt8,069 4,839 20,501 14,815 
Deposits – other banks10,763 1,117 19,001 2,234 
Federal funds sold— 13 — 
Total interest income242,955 157,060 604,871 474,192 
Interest expense:
Interest on deposits23,347 5,642 38,970 19,781 
Federal funds purchased— — — 
FHLB and other borrowed funds1,917 1,917 5,688 5,688 
Securities sold under agreements to repurchase434 102 729 399 
Subordinated debentures4,153 4,788 16,472 14,373 
Total interest expense29,851 12,449 61,861 40,241 
Net interest income213,104 144,611 543,010 433,951 
Provision for credit losses on acquired loans— — 45,170 — 
Provision for credit losses on acquired unfunded commitments— — 11,410 — 
Provision for credit losses on unfunded commitments— — — (4,752)
Provision for credit losses on acquired held-to-maturity investment securities— — 2,005 — 
Total credit loss expense (benefit) — — 58,585 (4,752)
Net interest income after credit loss expense (benefit)213,104 144,611 484,425 438,703 
Non-interest income:
Service charges on deposit accounts10,756 5,941 26,980 16,059 
Other service charges and fees13,951 8,051 34,225 25,318 
Trust fees3,980 479 8,874 1,445 
Mortgage lending income4,179 5,948 14,091 20,317 
Insurance commissions601 586 1,739 1,556 
Increase in cash value of life insurance1,089 509 2,721 1,548 
Dividends from FHLB, FRB, FNBB & other1,741 2,661 6,384 13,916 
Gain on sale of SBA loans58 439 153 1,588 
(Loss) gain on sale of branches, equipment and other assets, net(13)(34)(86)
Gain on OREO, net— 246 487 1,266 
Gain on securities, net— — — 219 
Fair value adjustment for marketable securities(2,628)61 (2,304)7,093 
Other income9,487 4,322 25,096 15,366 
Total non-interest income43,201 29,209 118,451 105,605 
Non-interest expense:
Salaries and employee benefits65,290 42,469 174,636 126,990 
Occupancy and equipment15,133 9,305 38,533 27,584 
Data processing expense8,747 6,024 25,880 17,787 
Merger and acquisition expenses— 1,006 49,594 1,006 
Other operating expenses25,176 16,815 68,081 48,100 
Total non-interest expense114,346 75,619 356,724 221,467 
Income before income taxes141,959 98,201 246,152 322,841 
Income tax expense33,254 23,209 56,577 77,177 
Net income$108,705 $74,992 $189,575 $245,664 
Basic earnings per share$0.53 $0.46 $0.99 $1.49 
Diluted earnings per share$0.53 $0.46 $0.99 $1.49 
See Condensed Notes to Consolidated Financial Statements.
5

Home BancShares, Inc.
Consolidated Statements of Comprehensive (Loss) Income
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In thousands)2022202120222021
(Unaudited)
Net income$108,705 $74,992 $189,575 $245,664 
Net unrealized loss on available-for-sale securities(122,307)(4,218)(424,910)(24,527)
Other comprehensive loss before tax effect(122,307)(4,218)(424,910)(24,527)
Tax effect on other comprehensive loss30,757 1,102 106,993 6,410 
Other comprehensive loss(91,550)(3,116)(317,917)(18,117)
Comprehensive income (loss) $17,155 $71,876 $(128,342)$227,547 
See Condensed Notes to Consolidated Financial Statements.
6

Home BancShares, Inc.
Consolidated Statements of Stockholders’ Equity
Three and Nine Months Ended September 30, 2022
(In thousands, except share data)
Common
Stock
Capital
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balances at January 1, 2022$1,637 $1,487,373 $1,266,249 $10,462 $2,765,721 
Comprehensive income:
Net income— — 64,892 — 64,892 
Other comprehensive loss— — — (115,019)(115,019)
Net issuance of 15,909 shares of common stock from exercise of stock options
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
2,109 — — 2,111 
Cash dividends – Common Stock, $0.165 per share
— — (27,043)— (27,043)
Balances at March 31, 2022 (unaudited)$1,638 $1,485,524 $1,304,098 $(104,557)$2,686,703 
Comprehensive income:
Net Income— — 15,978 — 15,978 
Other comprehensive loss— — — (111,348)(111,348)
Net issuance of 1,500 shares of common stock from exercise of stock options
— 26 — — 26 
Issuance of 42,425,352 shares of common stock including approximately $2.5 million in certain stock award settlements and stock issuance costs -
Happy Bancshares acquisition
424 960,866 — — 961,290 
Repurchase of 1,032,732 shares of common stock
(10)(22,482)— — (22,492)
Share-based compensation net issuance of 138,499 shares of restricted common stock
2,337 — — 2,338 
Cash dividends – Common Stock, $0.165 per share
— — (33,930)— (33,930)
Balances at June 30, 2022 (unaudited)$2,053 $2,426,271 $1,286,146 $(215,905)$3,498,565 
Comprehensive income:
Net Income— — 108,705 — 108,705 
Other comprehensive loss— — — (91,550)(91,550)
Net issuance of 1,574 shares of common stock from exercise of stock options
— — — — — 
Repurchase of 1,045,799 shares of common stock
(10)(24,278)— — (24,288)
Share-based compensation net forfeiture of 27,250 shares of restricted stock
(1)2,395 — — 2,394 
Cash dividends – Common Stock, $0.165 per share
— — (33,811)— (33,811)
Balances at September 30, 2022 (unaudited)$2,042 $2,404,388 $1,361,040 $(307,455)$3,460,015 
See Condensed Notes to Consolidated Financial Statements.
7

Home BancShares, Inc.
Consolidated Statements of Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2021
(In thousands, except share data)
Common
Stock
Capital
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balances at January 1, 2021$1,651 $1,520,617 $1,039,370 $44,120 $2,605,758 
Comprehensive income:
Net income— — 91,602 — 91,602 
Other comprehensive loss— — — (24,671)(24,671)
Net issuance of 161,434 shares of common stock from exercise of stock options
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
2,115 — — 2,117 
Cash dividends – Common Stock, $0.14 per share
— — (23,154)— (23,154)
Balances at March 31, 2021 (unaudited)$1,651 $1,516,286 $1,107,818 $19,449 $2,645,204 
Comprehensive income:
Net income— — 79,070 — 79,070 
Other comprehensive income— — — 9,670 9,670 
Net issuance of 3,628 shares of common stock from exercise of stock options
— — — — — 
Repurchase of 635,000 shares of common stock
(6)(16,947)— — (16,953)
Share-based compensation net issuance of 21,500 shares of restricted common stock
— 2,276 — — 2,276 
Cash dividends – Common Stock, $0.14 per share
— — (23,078)— (23,078)
Balances at June 30, 2021 (unaudited)$1,645 $1,501,615 $1,163,810 $29,119 $2,696,189 
Comprehensive income:
Net income— — 74,992 — 74,992 
Other comprehensive loss— — — (3,116)(3,116)
Repurchase of 476,500 shares of common stock
(5)(11,274)— — (11,279)
Share-based compensation net forfeiture of 4,000 shares of restricted stock
— 2,247 — — 2,247 
Cash dividends – Common Stock, $0.14 per share
— — (22,971)— (22,971)
Balances at September 30, 2021 (unaudited)$1,640 $1,492,588 $1,215,831 $26,003 $2,736,062 
See Condensed Notes to Consolidated Financial Statements.
8

Home BancShares, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended September 30,
(In thousands)20222021
(Unaudited)
Operating Activities
Net income$189,575 $245,664 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization23,546 14,457 
Decrease (increase) in value of equity securities2,304 (7,093)
Amortization of securities, net17,324 21,018 
Accretion of purchased loans(12,844)(16,150)
Share-based compensation6,843 6,640 
Gain on assets(645)(2,987)
Provision for credit losses - acquired loans & unfunded commitments56,580 — 
Provision for credit losses - unfunded commitments— (4,752)
Provision for credit losses - acquired held-to-maturity investment securities2,005 — 
Deferred income tax effect(9,671)6,936 
Increase in cash value of life insurance(2,721)(1,548)
Originations of mortgage loans held for sale(432,589)(599,787)
Proceeds from sales of mortgage loans held for sale418,576 632,721 
Changes in assets and liabilities:
Accrued interest receivable(9,945)11,951 
Other assets(2,170)3,891 
Accrued interest payable and other liabilities22,999 (9,526)
Net cash provided by operating activities269,167 301,435 
Investing Activities
Net increase in federal funds sold(2,700)— 
Net (increase) decrease in loans, excluding purchased loans(84,995)1,278,846 
Purchases of investment securities – available-for-sale(1,200,812)(1,227,507)
Purchases of investment securities - held-to-maturity(636,474)— 
Proceeds from maturities of investment securities – available-for-sale458,291 487,242 
Proceeds from maturities of investment securities – held-to-maturity500,479 — 
Proceeds from sales of investment securities – available-for-sale— 18,112 
Purchases of equity securities(49,975)(10,460)
Proceeds from sales of equity securities13,778 15,354 
Purchase of other investments(38,224)(7,970)
Proceeds from foreclosed assets held for sale2,231 6,572 
Proceeds from sale of SBA loans3,745 16,722 
Purchases of premises and equipment, net(4,158)(8,065)
Return of investment on cash value of life insurance277 418 
Purchase of marine loan portfolio(242,617)— 
Net cash received - market acquisition858,943 — 
Net cash (used in) provided by investing activities(422,211)569,264 
Financing Activities
Net (decrease) increase in deposits(1,573,517)1,277,581 
Net decrease in securities sold under agreements to repurchase(19,331)(27,929)
Net decrease in FHLB and other borrowed funds(78,330)— 
Retirement of subordinated debentures(300,000)— 
Proceeds from issuance of subordinated debentures296,324 — 
Redemption of trust preferred securities(96,499)— 
Proceeds from exercise of stock options156 2,322 
Repurchase of common stock(50,869)(37,002)
Dividends paid on common stock(94,784)(69,203)
Net cash (used in) provided by financing activities(1,916,850)1,145,769 
Net change in cash and cash equivalents(2,069,894)2,016,468 
Cash and cash equivalents – beginning of year3,650,315 1,263,788 
Cash and cash equivalents – end of period$1,580,421 $3,280,256 
See Condensed Notes to Consolidated Financial Statements.
9

Home BancShares, Inc.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Home BancShares, Inc. (the “Company” or “HBI”) is a bank holding company headquartered in Conway, Arkansas. The Company is primarily engaged in providing a full range of banking services to individual and corporate customers through its wholly-owned community bank subsidiary – Centennial Bank (sometimes referred to as “Centennial” or the “Bank”). The Bank has branch locations in Arkansas, Florida, South Alabama, Texas and New York City. The Company is subject to competition from other financial institutions. The Company also is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.
A summary of the significant accounting policies of the Company follows:
Operating Segments
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Bank is the only significant subsidiary upon which management makes decisions regarding how to allocate resources and assess performance. Each of the branches of the Bank provide a group of similar banking services, including such products and services as commercial, real estate and consumer loans, time deposits, checking and savings accounts. The individual bank branches have similar operating and economic characteristics. While the chief decision maker monitors the revenue streams of the various products, services and branch locations, operations are managed, and financial performance is evaluated on a company-wide basis. Accordingly, all of the banking services and branch locations are considered by management to be aggregated into one reportable operating segment.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, the valuation of investment securities, the valuation of foreclosed assets and the valuations of assets acquired, and liabilities assumed in business combinations. In connection with the determination of the allowance for credit losses and the valuation of foreclosed assets, management obtains independent appraisals for significant properties.
Principles of Consolidation
The consolidated financial statements include the accounts of HBI and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Various items within the accompanying consolidated financial statements for previous years have been reclassified to provide more comparative information. These reclassifications had no effect on net earnings or stockholders’ equity.
Interim financial information
The accompanying unaudited consolidated financial statements as of September 30, 2022 and 2021 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

10

The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2021 Form 10-K, filed with the Securities and Exchange Commission.
Loans Receivable and Allowance for Credit Losses
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs, deferred fees or costs on originated loans. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yield on the related loans.
The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed and expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, national retail sales index, housing price indices and rental vacancy rate 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.
11

Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factors ("Q-Factors") and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.
Loans considered impaired, according to ASC 326, are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.
Acquisition Accounting and Acquired Loans
The Company accounts for its acquisitions under FASB ASC Topic 805, Business Combinations, which requires the use of the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. In accordance with ASC 326, the Company records both a discount or premium and an allowance for credit losses on acquired loans. All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.
Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. These models utilize a peer group benchmark in order to determine the probability of default and loss given default to be used in the calculation. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.
For further discussion of the Company’s acquisitions, see Note 2 to the Condensed Notes to Consolidated Financial Statements.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
12

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.
Trust fees - The Company enters into contracts with its customers to manage assets for investment, and/or transact on their accounts. The Company generally satisfies its performance obligations as services are rendered. The management fees are percentage based, flat, percentage of income or a fixed percentage calculated upon the average balance of assets depending upon account type. Fees are collected on a monthly or annual basis.
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
September 30,
Nine Months Ended
September 30,
2022202120222021
(In thousands)
Net income$108,705 $74,992 $189,575 $245,664 
Average shares outstanding204,829 164,126 191,584 164,717 
Effect of common stock options306 477 357 333 
Average diluted shares outstanding205,135 164,603 191,941 165,050 
Basic earnings per share$0.53 $0.46 $0.99 $1.49 
Diluted earnings per share$0.53 $0.46 $0.99 $1.49 
2. Business Combinations
Acquisition of Happy Bancshares, Inc.
On April 1, 2022, the Company completed the acquisition of Happy Bancshares, Inc. (“Happy”), and merged Happy State Bank into Centennial Bank. The Company issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million. The acquisition added new markets for expansion and brought complementary businesses together to drive synergies and growth.
13

Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $6.69 billion in total assets, $3.65 billion in loans and $5.86 billion in customer deposits. Happy formerly operated its banking business from 62 locations in Texas.
The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the acquisition. The Company will continue to review the estimated fair values of loans, deposits and intangible assets, and to evaluate the assumed tax positions and contingencies.
The Company has determined that the acquisition of the net assets of Happy constitutes a business combination as defined by the ASC Topic 805. Accordingly, the assets acquired and liabilities assumed are presented at their fair values as required. Fair values were determined based on the requirements of ASC Topic 820. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The following schedule is a preliminary breakdown of the assets acquired and liabilities assumed as of the acquisition date as adjusted during the measurement period:


14

Happy Bancshares, Inc.
Acquired
from Happy
Fair Value AdjustmentsAs Recorded
by HBI
(Dollars in thousands)
Assets
Cash and due from banks$112,999 $(87)$112,912 
Interest-bearing deposits with other banks746,031 — 746,031 
Cash and cash equivalents859,030 (87)858,943 
Investment securities - available-for-sale, net of allowance for credit losses1,773,540 8,485 1,782,025 
Total investment securities1,773,540 8,485 1,782,025 
Loans receivable 3,657,009 (4,389)3,652,620 
Allowance for credit losses(42,224)25,408 (16,816)
Loans receivable, net3,614,785 21,019 3,635,804 
Bank premises and equipment, net153,642 (6,977)146,665 
Foreclosed assets held for sale193 (77)116 
Cash value of life insurance105,049 105,052 
Accrued interest receivable31,575 — 31,575 
Deferred tax asset, net32,908 1,117 34,025 
Goodwill130,428 (130,428)— 
Core deposit and other intangibles10,672 31,591 42,263 
Other assets43,330 7,233 50,563 
Total assets acquired$6,755,152 $(68,121)$6,687,031 
Liabilities
Deposits
Demand and non-interest-bearing$1,932,756 $60 $1,932,816 
Savings and interest-bearing transaction accounts3,519,652 — 3,519,652 
Time deposits401,899 903 402,802 
Total deposits5,854,307 963 5,855,270 
FHLB and other borrowed funds74,212 4,118 78,330 
Accrued interest payable and other liabilities50,889 (6,258)44,631 
Subordinated debentures159,965 7,625 167,590 
Total liabilities assumed$6,139,373 $6,448 $6,145,821 
Equity
Total equity assumed615,779 (615,779)— 
Total liabilities and equity assumed$6,755,152 $(609,331)$6,145,821 
Net assets acquired541,210 
Purchase price962,538 
Goodwill$421,328 

15

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above:
Cash and due from banks, interest-bearing deposits with other banks and federal funds sold – The carrying amount of these assets was deemed a reasonable estimate of fair value based on the short-term nature of these assets.
Investment securities – Investment securities were acquired from Happy with an approximately $8.5 million adjustment to fair value based upon quoted market prices. Otherwise the book value was deemed to approximate fair value.
Loans – Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, whether or not the loan was amortizing and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. See Note 5 to the Condensed Notes to Consolidated Financial Statements, for additional information related to purchased financial assets with credit deterioration.
Bank premises and equipment – Bank premises and equipment were acquired from Happy with a $7.0 million adjustment to fair value. This represents the difference between current appraisals completed in connection with the acquisition and book value acquired.
Foreclosed assets held for sale – These assets are presented at the estimated fair values that management expects to receive when the properties are sold, net of related costs of disposal.
Cash value of life insurance – Bank owned life insurance is carried at its current cash surrender value, which is the most reasonable estimate of fair value.
Accrued interest receivable – The carrying amount of these assets was deemed a reasonable estimate of the fair value.
Core deposit intangible and other intangibles – This core deposit intangible asset represents the value of the relationships that Happy had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, and the net maintenance cost attributable to customer deposits.
Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition, equal the amount payable on demand at the acquisition date. The $963,000 fair value adjustment applied for time deposits was because the weighted-average interest rate of Happy’s certificates of deposits were estimated to be below the current market rates.
FHLB borrowed funds – The fair value of FHLB borrowed funds is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.
Accrued interest payable and other liabilities – The fair value adjustment results from certain liabilities whose value was estimated to be more or less than book value, such as certain accounts payable and other miscellaneous liabilities. The carrying amount of accrued interest and the remainder of other liabilities was deemed to be a reasonable estimate of fair value.
Subordinated debentures – The fair value of subordinated debentures is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.



16

During the third quarter of 2022, we continued to analyze the valuations assigned to the acquired assets and assumed liabilities and received updated information resulting in the revised fair values displayed below. We updated our estimated fair values of these items within our Consolidated Balance Sheet with a corresponding adjustment to goodwill. The changes are gross of taxes and reflected in the following table:
Acquired Asset or LiabilityBalance Sheet Line ItemProvisional EstimateRevised EstimateIncrease (Decrease)
(In thousands)
Cash and due from banksCash and due from banks112,867 112,912 45 
Loans receivableLoans receivable3,652,706 3,652,620 (86)
Bank premises and equipment, netBank premises and equipment, net142,067 146,665 4,598 
Deferred tax asset, netDeferred tax asset, net35,414 34,025 (1,389)
Equity method investments & other receivablesOther assets49,752 50,563 811 
GoodwillGoodwill425,375 421,328 (4,047)
Demand and non-interest bearing depositsDemand and non-interest bearing deposits1,932,756 1,932,816 60 
Accrued expenseAccrued interest payable and other liabilities44,759 44,631 (128)
All measurement period adjustments made during third quarter of 2022 have been deemed insignificant individually and in the aggregate. The Company will finalize its valuation of the Happy acquisition within the measurement period (no later than April 1, 2023).
The impact to the income statement resulting from the changes to the estimated fair values was insignificant. We continue to analyze the assumptions and related valuation results associated with the acquired assets and assumed liabilities, and accordingly, the valuations of these assets and liabilities are not final as of September 30, 2022. However, the valuations will be finalized no later than April 1, 2023. As the valuations remain provision and subject to updates, the purchase accounting accretion/amortization are also subject to adjustments.
The unaudited pro-forma combined consolidated financial information presents how the combined financial information of HBI and Happy might have appeared had the businesses actually been combined. The following schedule represents the unaudited pro forma combined financial information as of the three and nine-month periods ended September 30, 2022 and 2021, assuming the acquisition was completed as of January 1, 2021:

Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
(In thousands, except per share data)
Total interest income$242,955 $211,405 $662,273 $629,548 
Total non-interest income43,201 43,792 131,352 145,277 
Net income available to all shareholders108,705 90,846 291,262 220,499 
Basic earnings per common share$0.53 $0.44 $1.42 $1.06 
Diluted earnings per common share$0.53 $0.44 $1.41 $1.06 
The unaudited pro-forma consolidated financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of the period presented and had the impact of possible significant revenue enhancements and expense efficiencies from in-market cost savings, among other factors, been considered and, accordingly, does not attempt to predict or suggest future results. Pro-forma results include Happy merger expenses of $49.6 million, provision for credit losses on acquired loans of $45.2 million, provision for credit losses on acquired unfunded commitments of $11.4 million and provision for credit losses on acquired investment securities of $2.0 million for the nine months ended September 30, 2022 and 2021, respectively. The pro-forma financial information also does not necessarily reflect what the historical results of the combined company would have been had the companies been combined during this period.

17

Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. For PCD loans, the initial estimate of expected credit losses is recognized in the allowance for credit losses on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans purchased as part of the Happy acquisition with credit deterioration at acquisition:
April 1, 2022
(In thousands)
Purchased Loans with Credit Deterioration:
Par value$165,028 
Allowance for credit losses at acquisition(16,816)
Premium on acquired loans684 
Purchase price$148,896 
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:
September 30, 2022
Available-for-Sale
Amortized
Cost
Allowance for Credit LossesNet Carrying Amount
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Estimated
Fair Value
(In thousands)
U.S. government-sponsored enterprises$702,009 $— $702,009 $3,024 $(23,029)$682,004 
Residential mortgage-backed securities1,805,461 — 1,805,461 299 (207,313)1,598,447 
Commercial mortgage-backed securities361,251 — 361,251 — (21,023)340,228 
State and political subdivisions1,033,621 (842)1,032,779 709 (133,334)900,154 
Other securities594,369 — 594,369 — (30,100)564,269 
Total$4,496,711 $(842)$4,495,869 $4,032 $(414,799)$4,085,102 
September 30, 2022
Held-to-Maturity
Amortized
Cost
Allowance for Credit LossesNet Carrying Amount
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Estimated
Fair Value
(In thousands)
U.S. government-sponsored enterprises$42,950 $— $42,950 $— $(3,092)$39,858 
Residential mortgage-backed securities42,920 — 42,920 — (612)42,308 
Commercial mortgage-backed securities55,610 — 55,610 — (923)54,687 
State and political subdivisions1,111,532 (2,005)1,109,527 19 (145,241)964,305 
Total$1,253,012 $(2,005)$1,251,007 $19 $(149,868)$1,101,158 
18

December 31, 2021
Available-for-Sale
Amortized
Cost
Allowance for Credit LossesNet Carrying Amount
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Estimated
Fair Value
(In thousands)
U.S. government-sponsored enterprises$433,829 $— $433,829 $2,375 $(3,225)$432,979 
Residential mortgage-backed securities1,175,185 — 1,175,185 4,085 (18,551)1,160,719 
Commercial mortgage-backed securities372,702 — 372,702 6,521 (1,968)377,255 
State and political subdivisions973,318 (842)972,476 26,296 (1,794)996,978 
Other securities151,449 — 151,449 1,781 (1,354)151,876 
Total$3,106,483 $(842)$3,105,641 $41,058 $(26,892)$3,119,807 
On April 1, 2022, the Company completed the acquisition of Happy. Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $1.78 billion in investments, net of purchase accounting adjustments. The Company classified approximately $1.12 billion of investments acquired from Happy as held-to-maturity at the acquisition date.
Assets, principally investment securities, having a carrying value of approximately $2.27 billion and $1.15 billion at September 30, 2022 and December 31, 2021, respectively, were pledged to secure public deposits, as collateral for repurchase agreements, and for other purposes required or permitted by law. Investment securities pledged as collateral for repurchase agreements totaled approximately $121.6 million and $140.9 million at September 30, 2022 and December 31, 2021, respectively.
The amortized cost and estimated fair value of securities classified as available-for-sale and held-to-maturity at September 30, 2022, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
Available-for-SaleHeld-to-Maturity
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
(In thousands)
Due in one year or less$267,369 $266,669 $— $— 
Due after one year through five years178,033 166,906 4,770 4,531 
Due after five years through ten years473,289 434,042 215,931 193,346 
Due after ten years1,405,700 1,273,224 933,781 806,286 
Mortgage - backed securities: Residential1,805,461 1,598,447 42,920 42,308 
Mortgage - backed securities: Commercial361,251 340,228 55,610 54,687 
Other5,608 5,586  — 
Total$4,496,711 $4,085,102 $1,253,012 $1,101,158 
During the three and nine months ended September 30, 2022, no available-for-sale securities were sold.
During the three months ended September 30, 2021, no available-for-sale securities were sold. There were no realized gains or losses recorded on sales for the three months ended September 30, 2021. During the nine months ended September 30, 2021, $17.9 million in available-for-sale securities were sold. The gross realized gains on the sales totaled $219,000 for the nine months ended September 30, 2021.

19

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 September 30, 2022 and December 31, 2021.
September 30, 2022
Less Than 12 Months 12 Months or More Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(In thousands)
Available-for-sale:
U.S. government-sponsored enterprises$325,781 $(5,292)$117,320 $(17,737)$443,101 $(23,029)
Residential mortgage-backed securities881,787 (60,886)659,272 (146,427)1,541,059 (207,313)
Commercial mortgage-backed securities250,331 (11,866)74,932 (9,157)325,263 (21,023)
State and political subdivisions726,799 (104,506)109,019 (28,828)835,818 (133,334)
Other securities388,583 (24,884)41,184 (5,216)429,767 (30,100)
Total$2,573,281 $(207,434)$1,001,727 $(207,365)$3,575,008 $(414,799)
Held-to-maturity:
U.S. government-sponsored enterprises39,858 (3,092)— — 39,858 (3,092)
State and political subdivisions957,918 (145,241)— — 957,918 (145,241)
Residential mortgage-backed securities14,973 (612)— — 14,973 (612)
Commercial mortgage-backed securities16,513 (923)— — 16,513 (923)
Total$1,029,262 $(149,868)$— $— $1,029,262 $(149,868)
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 securities854,807 (15,246)104,897 (3,305)959,704 (18,551)
Commercial mortgage-backed securities100,702 (1,251)28,711 (717)129,413 (1,968)
State and political subdivisions136,135 (1,282)18,647 (512)154,782 (1,794)
Other securities75,744 (1,316)2,703 (38)78,447 (1,354)
Total$1,288,118 $(20,451)$233,082 $(6,441)$1,521,200 $(26,892)
The Company evaluates all securities quarterly to determine if any debt securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

20

The Company recorded a $2.0 million provision for credit losses on the held-to-maturity investment securities during the second quarter of 2022 as a result of the investment securities acquired as part of the Happy acquisition. Of the Company's held-to-maturity securities, $1.11 billion, or 88.7% are municipal securities. To estimate the necessary loss provision, the Company utilized historical default and recovery rates of the municipal bond sector and applied these rates using a pooling method. The remainder of investments classified as held-to-maturity are U.S government-sponsored enterprises and mortgage-backed securities all of which are guaranteed by the U.S. government. Due to the inherent low risk in these U.S. government guaranteed securities, no provision for credit loss was established on this portion of the portfolio.
At September 30, 2022, the Company determined that the allowance for credit losses of $842,000, resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio, and the allowance for credit losses for the held-to-maturity portfolio was considered adequate. No additional provision for credit losses was considered necessary for the portfolio.
Available-for-Sale Investment Securities
September 30, 2022December 31, 2021
(In thousands)
Allowance for credit losses:
Beginning balance$842 $842 
Provision for credit loss— — 
Balance, September 30
$842 $842 
Provision for credit loss— 
Balance, December 31, 2021
$842 
Held-to-Maturity Investment Securities
September 30, 2022December 31, 2021
State and Political Subdivisions Other SecuritiesState and Political SubdivisionsOther Securities
Allowance for credit losses:(In thousands)
Beginning balance$— $— $— $— 
Provision for credit loss - acquired securities(2,005)— — — 
Securities charged-off— — — — 
Recoveries— — — — 
Balance, September 30, 2022$(2,005)$— $— $— 
For the nine months ended September 30, 2022, the Company had available-for-sale investment securities with approximately $207.4 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 31.7% 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 September 30, 2022, the Company's available-for-sale securities portfolio consisted of 1,659 investment securities, 1,439 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $414.8 million. The U.S. government-sponsored enterprises portfolio contained unrealized losses of $23.0 million on 63 securities. The residential mortgage-backed securities portfolio contained $207.3 million of unrealized losses on 592 securities, and the commercial mortgage-backed securities portfolio contained $21.0 million of unrealized losses on 151 securities. The state and political subdivisions portfolio contained $133.3 million of unrealized losses on 533 securities. In addition, the other securities portfolio contained $30.1 million of unrealized losses on 100 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 September 30, 2022.

21

As of September 30, 2022, the Company's held-to-maturity securities portfolio consisted of 501 investment securities, 487 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $149.9 million. The U.S. government-sponsored enterprises portfolio contained unrealized losses of $3.1 million on 5 securities. The state and political subdivisions portfolio contained $145.2 million of unrealized losses on 477 securities. The residential mortgage-backed securities portfolio contained 612,000 of unrealized losses on 3 securities, and the commercial mortgage-backed securities portfolio contained 923,000 of unrealized losses on 2 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, the Company has determined that an additional provision for credit losses is not necessary as of September 30, 2022.
The following table summarizes bond ratings for the Company’s held-to-maturity portfolio, based upon amortized cost, issued by state and political subdivisions and other securities as of September 30, 2022:
State and Political SubdivisionsOther SecuritiesTotal
(In thousands)
Aaa/AAA$233,398 $42,950 $276,348 
Aa/AA846,155 — 846,155 
A30,381 — 30,381 
Baa/BBB— — — 
Not rated1,598 — 1,598 
Agency Backed— 98,530 98,530 
Total$1,111,532 $141,480 $1,253,012 
Income earned on securities for the three and nine months ended September 30, 2022 and 2021, is as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
(In thousands)
Taxable
Available-for-sale$21,873 $8,495 $45,110 $21,933 
Held-to-maturity6,400 — 13,184 — 
Non-taxable
Available-for-sale5,002 4,839 14,461 14,815 
Held-to-maturity3,067 — 6,040 — 
Total$36,342 $13,334 $78,795 $36,748 
22

4. Loans Receivable
The various categories of loans receivable are summarized as follows:
 September 30, 2022December 31, 2021
 (In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential$5,156,438 $3,889,284 
Construction/land development2,232,906 1,850,050 
Agricultural330,748 130,674 
Residential real estate loans
Residential 1-4 family1,704,850 1,274,953 
Multifamily residential525,110 280,837 
Total real estate9,950,052 7,425,798 
Consumer1,120,250 825,519 
Commercial and industrial2,268,750 1,386,747 
Agricultural313,693 43,920 
Other176,566 154,105 
Total loans receivable13,829,311 9,836,089 
Allowance for credit losses(289,203)(236,714)
Loans receivable, net$13,540,108 $9,599,375 
On April 1, 2022, the Company completed the acquisition of Happy. Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $3.65 billion in loans.
During the three months ended September 30, 2022, the Company sold $826,524 of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $58,000. During the nine months ended September 30, 2022, the Company sold $3.6 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $153,000. During the three months ended September 30, 2021, the Company sold $3.9 million guaranteed portions of certain SBA loans, which resulted in a gain of $439,000. During the nine months ended September 30, 2021, the Company sold $15.0 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $1.6 million.
Mortgage loans held for sale of approximately $86.7 million and $72.7 million at September 30, 2022 and December 31, 2021, respectively, are included in residential 1-4 family loans. Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid. The Company obtains forward commitments to sell mortgage loans to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. The forward commitments acquired by the Company for mortgage loans in process of origination are considered mandatory forward commitments. Because these commitments are structured on a mandatory basis, the Company is required to substitute another loan or to buy back the commitment if the original loan does not fund. These commitments are derivative instruments and their fair values at September 30, 2022 and December 31, 2021 were not material.
Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses. The Company held approximately $146.0 million and $448,000 in PCD loans, as of September 30, 2022 and December 31, 2021, respectively. This balance, as of September 30, 2022, consisted of $145.5 million resulting from the acquisition of Happy and $422,000 from the acquisition of LH-Finance.
23

A description of our accounting policies for loans, impaired loans and non-accrual loans are set forth in our 2021 Form 10-K filed with the SEC on February 24, 2022.
5. Allowance for Credit Losses, Credit Quality and Other
The Company uses the discounted cash flow (“DCF”) method to estimate expected losses for all of the Company’s loan pools. These pools are as follows: construction & land development; other commercial real estate; residential real estate; commercial & industrial; and consumer & other. The loan portfolio pools were selected in order to generally align with the loan categories specified in the quarterly call reports required to be filed with the Federal Financial Institutions Examination Council. For each of these loan pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.
Management qualitatively adjusts model results for risk factors ("Q-Factors") that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factors and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.
Each year management evaluates the performance of the selected models used in the CECL calculation through backtesting. Based on the results of the testing, management determines if the various models produced accurate results compared to the actual losses incurred for the current economic environment. Management then determines if changes to the input assumptions and economic factors would produce a stronger overall calculation that is more responsive to changes in economic conditions. The Company continues to use regression analysis to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default for the changes in the economic factors for the loss driver segments. Based on this analysis during the second quarter of 2022, management determined the previously selected economic factors for the various loss driver segments were appropriate and no changes were necessary. The identified loss drivers by segment are included below as of both September 30, 2022 and December 31, 2021.
Loss Driver SegmentCall Report Segment(s)Modeled Economic Factors
1-4 Family Construction1a1National Unemployment (%) & Housing Price Index (%)
All Other Construction1a2National Unemployment (%) & Gross Domestic Product (%)
1-4 Family Revolving HELOC & Junior Liens1c1National Unemployment (%) & Housing Price Index – CoreLogic (%)
1-4 Family Revolving HELOC & Junior Liens1c2bNational Unemployment (%) & Gross Domestic Product (%)
1-4 Family Senior Liens1c2aNational Unemployment (%) & Gross Domestic Product (%)
Multifamily1dRental Vacancy Rate (%) & Housing Price Index – Case-Schiller (%)
Owner Occupied CRE1e1National Unemployment (%) & Gross Domestic Product (%)
Non-Owner Occupied CRE1e2,1b,8National Unemployment (%) & Gross Domestic Product (%)
Commercial & Industrial, Agricultural, Non-Depository Financial Institutions, Purchase/Carry Securities, Other4a, 3, 9a, 9b1, 9b2, 10, OtherNational Unemployment (%) & National Retail Sales (%)
Consumer Auto6cNational Unemployment (%) & National Retail Sales (%)
Other Consumer6b, 6dNational Unemployment (%) & National Retail Sales (%)
Other Consumer - SPF6dNational 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.

24

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 the Company’s off-balance sheet credit exposures through the use of the existing DCF models for the Company’s loan portfolio pools. The off-balance sheet credit exposures exhibit similar risk characteristics as loans currently in the Company’s loan portfolio.
ASC 326 requires that both a discount and an allowance for credit losses be recorded on loans during an acquisition. The Company completed the acquisition of Happy on April 1, 2022. As a result, the Company recorded $4.4 million in net loan discounts and a $16.8 million increase in the allowance for credit losses related to PCD loans. In addition, the Company recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count" and an $11.4 million provision for credit losses on acquired unfunded commitments.

25

The following table presents the activity in the allowance for credit losses for the three and nine months ended September 30, 2022:
Three Months Ended September 30, 2022
Construction/
Land
Development
Other
Commercial
Real Estate
Residential
Real Estate
Commercial
& Industrial
Consumer
& Other
Total
(In thousands)
Allowance for credit losses:
Beginning balance$36,689 $115,195 $51,146 $68,309 $22,928 $294,267 
Loans charged off(11)— (48)(4,536)(1,718)(6,313)
Recoveries of loans previously charged
   off
778 45 189 229 1,249 
Net loans recovered (charged off)
(3)778 (3)(4,347)(1,489)(5,064)
Provision for credit losses(1,999)(23,560)(1,322)25,459 1,422 — 
Balance, September 30
$34,687 $92,413 $49,821 $89,421 $22,861 $289,203 
Nine Months Ended September 30, 2022
Construction/
Land
Development
Other
Commercial
Real Estate
Residential
Real Estate
Commercial
& Industrial
Consumer
& Other
Total
(In thousands)
Allowance for credit losses:
Beginning balance$28,415 $87,218 $48,458 $53,062 $19,561 $236,714 
Allowance for credit losses on PCD
   loans - Happy acquisition
950 9,283 980 5,596 16,816 
Loans charged off(11)— (337)(5,952)(5,588)(11,888)
Recoveries of loans previously charged
   off
325 856 94 519 597 2,391 
Net loans recovered (charged off)
314 856 (243)(5,433)(4,991)(9,497)
Provision for credit losses - acquired
   loans
7,205 18,711 7,380 11,303 571 45,170 
Provision for credit losses(2,197)(23,655)(6,754)24,893 7,713 — 
Balance, September 30$34,687 $92,413 $49,821 $89,421 $22,861 $289,203 
The following table presents the activity in the allowance for credit losses for the three and nine-months ended September 30, 2021 and the year ended December 31, 2021:
Three Months Ended September 30, 2021
Construction/
Land
Development
Other
Commercial
Real Estate
Residential
Real Estate
Commercial
& Industrial
Consumer
& Other
Total
(In thousands)
Allowance for credit losses:
Beginning balance$22,145 $93,127 $51,182 $52,282 $21,715 $240,451 
Loans charged off— (9)(220)(1,682)(558)(2,469)
Recoveries of loans previously charged
   off
44 388 80 171 691 
Net loans recovered (charged off)
35 168 (1,602)(387)(1,778)
Provision for credit losses3,830 (4,664)(447)1,922 (641)— 
Balance, September 30$25,983 $88,498 $50,903 $52,602 $20,687 $238,673 
26

Nine Months Ended September 30, 2021 and Year Ended December 31, 2021
Construction/
Land
Development
Other
Commercial
Real Estate
Residential
Real Estate
Commercial
& Industrial
Consumer
& Other
Total
(In thousands)
Allowance for credit losses:
Beginning balance$32,861 $88,453 $53,216 $46,530 $24,413 $245,473 
Loans charged off— (646)(543)(5,892)(1,458)(8,539)
Recoveries of loans previously charged
   off
47 112 554 382 644 1,739 
Net loans recovered (charged off)
47 (534)11 (5,510)(814)(6,800)
Provision for credit loss - loans(6,925)579 (2,324)11,582 (2,912)— 
Balance, September 30
25,983 88,498 50,903 52,602 20,687 238,673 
Loans charged off— — (2)(2,350)(770)(3,122)
Recoveries of loans previously charged
    off
11 673 129 209 141 1,163 
Net loans recovered (charged off)
11 673 127 (2,141)(629)(1,959)
Provision for credit loss - loans2,421 (1,953)(2,572)2,601 (497)— 
Balance, December 31
$28,415 $87,218 $48,458 $53,062 $19,561 $236,714 
The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing as of September 30, 2022 and December 31, 2021:
September 30, 2022
NonaccrualNonaccrual
with Reserve
Loans Past Due
Over 90 Days
Still Accruing
(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential$18,621 $8,341 $290 
Construction/land development1,895 — 34 
Agricultural772 — — 
Residential real estate loans
Residential 1-4 family16,549 — 1,445 
Multifamily residential156 — — 
Total real estate37,993 8,341 1,769 
Consumer1,778 — 15 
Commercial and industrial16,431 — 2,901 
Agricultural & other594 — 213 
Total$56,796 $8,341 $4,898 
27

 December 31, 2021
NonaccrualNonaccrual
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 development1,445 — — 
Agricultural897 — — 
Residential real estate loans
Residential 1-4 family16,198 3,000 701 
Multifamily residential156 — — 
Total real estate30,619 5,212 2,926 
Consumer1,648 — 
Commercial and industrial13,875 4,018 107 
Agricultural & other1,016 — — 
Total$47,158 $9,230 $3,035 
The Company had $56.8 million and $47.2 million in nonaccrual loans for the periods ended September 30, 2022 and December 31, 2021, respectively. In addition, the Company had $4.9 million and $3.0 million in loans past due 90 days or more and still accruing for the periods ended September 30, 2022 and December 31, 2021, respectively.
The Company had $8.3 million and $9.2 million in nonaccrual loans with a specific reserve as of September 30, 2022 and December 31, 2021, respectively. The Company did not recognize any interest income on nonaccrual loans during the period ended September 30, 2022 or September 30, 2021.
The following table presents the amortized cost basis of collateral-dependent impaired loans by class of loans as of September 30, 2022 and December 31, 2021:
September 30, 2022
Commercial
Real Estate
Residential
Real Estate
Other
(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential$168,432 $— $— 
Construction/land development1,928 — — 
Agricultural772 — — 
Residential real estate loans
Residential 1-4 family— 19,268 — 
Multifamily residential— 4,275 — 
Total real estate171,132 23,543 — 
Consumer— — 1,804 
Commercial and industrial— — 31,631 
Agricultural & other— — 1,229 
Total$171,132 $23,543 $34,664 
28

 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 development4,775 — — 
Agricultural897 — — 
Residential real estate loans
Residential 1-4 family— 19,775 — 
Multifamily residential— 1,300 — 
Total real estate289,591 21,075 — 
Consumer— — 1,663 
Commercial and industrial— — 18,193 
Agricultural & other— — 1,016 
Total$289,591 $21,075 $20,872 
The Company had $229.3 million and $331.5 million in collateral-dependent impaired loans for the periods ended September 30, 2022 and December 31, 2021, respectively.
Loans that do not share risk characteristics are evaluated on an individual basis. For collateral-dependent impaired loans, excluding assisted living loans which are evaluated using a market price valuation methodology, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the fair value of the underlying collateral less estimated costs to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan.
29

The following is an aging analysis for loans receivable as of September 30, 2022 and December 31, 2021:
September 30, 2022
Loans
Past Due
30-59 Days
Loans
Past Due
60-89 Days
Loans
Past Due
90 Days
or More
Total
Past Due
Current
Loans
Total
Loans
Receivable
Accruing
Loans
Past Due
90 Days
or More
(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential$16,357 $2,084 $18,911 $37,352 $5,119,086 $5,156,438 $290 
Construction/land development745 226 1,929 2,900 2,230,006 2,232,906 34 
Agricultural169 331 772 1,272 329,476 330,748 — 
Residential real estate loans
Residential 1-4 family2,583 6,296 17,994 26,873 1,677,977 1,704,850 1,445 
Multifamily residential738 — 156 894 524,216 525,110 — 
Total real estate20,592 8,937 39,762 69,291 9,880,761 9,950,052 1,769 
Consumer1,528 222 1,793 3,543 1,116,707 1,120,250 15 
Commercial and industrial4,199 5,209 19,332 28,740 2,240,010 2,268,750 2,901 
Agricultural & other1,864 42 807 2,713 487,546 490,259 213 
Total$28,183 $14,410 $61,694 $104,287 $13,725,024 $13,829,311 $4,898 

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 development92 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 family1,633 3,560 16,899 22,092 1,252,861 1,274,953 701 
Multifamily residential— — 156 156 280,681 280,837 — 
Total real estate3,159 4,630 33,545 41,334 7,384,464 7,425,798 2,926 
Consumer60 205 1,650 1,915 823,604 825,519 
Commercial and industrial958 316 13,982 15,256 1,371,491 1,386,747 107 
Agricultural and other587 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 September 30, 2022 and December 31, 2021 were $56.8 million and $47.2 million, respectively.
Interest recognized on impaired loans, including those loans with a specific reserve, during the three and nine months ended September 30, 2022 was approximately $2.8 million and $8.2 million, respectively. Interest recognized on impaired loans, including those loans with a specific reserve, during the three and nine months ended September 30, 2021 was approximately $3.3 million and $9.8 million, respectively. The amount of interest recognized on impaired loans on the cash basis is not materially different than the accrual basis.

30

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk rating of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans and (v) the general economic conditions in Arkansas, Florida, Texas, Alabama and New York.
The Company utilizes a risk rating matrix to assign a risk rating to each of its loans. Loans are rated on a scale from 1 to 8. Descriptions of the general characteristics of the 8 risk ratings are as follows:
Risk rating 1 – Excellent. Loans in this category are to persons or entities of unquestionable financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by bank certificates of deposit and savings accounts, with appropriate holds placed on the accounts, are to be rated in this category.
Risk rating 2 – Good. These are loans to persons or entities with strong financial condition and above-average liquidity that have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements and on which repayment is satisfactory may be included in this classification.
Risk rating 3 – Satisfactory. Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are included in this rating category. Overall, these loans are basically sound.
Risk rating 4 – Watch. Borrowers who have marginal cash flow, marginal profitability or have experienced an unprofitable year and a declining financial condition characterize these loans. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure.
Risk rating 5 – Other Loans Especially Mentioned (“OLEM”). A loan criticized as OLEM has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. OLEM assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.
Risk rating 6 – Substandard. A loan classified as substandard is inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual assets.
Risk rating 7 – Doubtful. A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the loan.
Risk rating 8 – Loss. Assets classified as loss are considered uncollectible and of such little value that the continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may occur in the future. This classification is based upon current facts, not probabilities. Assets classified as loss should be charged-off in the period in which they became uncollectible.
The Company’s classified loans include loans in risk ratings 6, 7 and 8. Loans may be classified, but not considered impaired, due to one of the following reasons: (1) The Company has established minimum dollar amount thresholds for loan impairment testing. All loans over $2.0 million that are rated 5 – 8 are individually assessed for impairment on a quarterly basis. Loans rated 5 – 8 that fall under the threshold amount are not individually tested for impairment and therefore are not included in impaired loans; (2) of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impaired and are not included in impaired loans.
31

Based on the most recent analysis performed, the risk category of loans by class of loans as of September 30, 2022 and December 31, 2021 is as follows:
September 30, 2022
Term Loans Amortized Cost Basis by Origination Year
20222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential
Risk rating 1$— $— $— $239 $— $154 $— $393 
Risk rating 2— — — 120 — 4,096 — 4,216 
Risk rating 3326,768 520,983 273,891 261,599 338,921 901,012 193,296 2,816,470 
Risk rating 4300,030 335,119 230,462 162,360 334,828 428,104 174,325 1,965,228 
Risk rating 51,895 — 4,890 14,558 36,406 218,232 95 276,076 
Risk rating 6876 196 10,394 27,350 5,575 49,405 112 93,908 
Risk rating 7147 — — — — — — 147 
Risk rating 8— — — — — — — — 
Total non-farm/non-residential629,716 856,298 519,637 466,226 715,730 1,601,003 367,828 5,156,438 
Construction/land development
Risk rating 1$— $12 $— $— $— $— $— $12 
Risk rating 2682 — — — — 216 — 898 
Risk rating 3336,055 303,919 108,525 97,837 22,763 37,966 126,452 1,033,517 
Risk rating 4404,746 498,212 125,985 78,634 14,272 45,042 20,652 1,187,543 
Risk rating 51,761 — — 332 — 1,164 — 3,257 
Risk rating 6— 14 125 755 709 6,076 — 7,679 
Risk rating 7— — — — — — — — 
Risk rating 8— — — — — — — — 
Total construction/land development743,244 802,157 234,635 177,558 37,744 90,464 147,104 2,232,906 
Agricultural
Risk rating 1$— $— $— $— $— $— $— $— 
Risk rating 2— 2,074 — — — — — 2,074 
Risk rating 339,533 42,315 33,486 16,015 10,950 40,385 4,833 187,517 
Risk rating 421,802 25,791 21,038 14,552 2,822 43,899 4,940 134,844 
Risk rating 5400 — — 331 — 603 — 1,334 
Risk rating 6— 1,630 2,232 — — 1,117 — 4,979 
Risk rating 7— — — — — — — — 
Risk rating 8— — — — — — — — 
Total agricultural61,735 71,810 56,756 30,898 13,772 86,004 9,773 330,748 
Total commercial real estate loans$1,434,695 $1,730,265 $811,028 $674,682 $767,246 $1,777,471 $524,705 $7,720,092 
Residential real estate loans
Residential 1-4 family
Risk rating 1$— $— $— $— $— $117 $36 $153 
Risk rating 2— — — — — 54 108,286 108,340 
Risk rating 3286,537 252,191 183,157 112,297 101,389 331,731 64,516 1,331,818 
Risk rating 433,876 39,168 62,626 11,561 18,702 63,964 345 230,242 
Risk rating 5825 — — 3,064 415 1,536 1,392 7,232 
Risk rating 6245 2,482 2,943 4,344 1,954 14,948 — 26,916 
Risk rating 7— — — — — — — — 
Risk rating 8— — 148 — — — 149 
Total residential 1-4 family321,483 293,841 248,874 131,266 122,460 412,351 174,575 1,704,850 
32

September 30, 2022
Term Loans Amortized Cost Basis by Origination Year
20222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
(In thousands)
Multifamily residential
Risk rating 1$— $— $— $— $— $— $— $— 
Risk rating 2— — — — — — — — 
Risk rating 337,574 15,929 14,229 14,080 14,051 54,479 39,356 189,698 
Risk rating 436,695 92,839 145,561 20,945 12,010 13,530 24 321,604 
Risk rating 5— — — — 3,162 7,936 — 11,098 
Risk rating 6— — — 738 — 1,816 — 2,554 
Risk rating 7— — — — — 156 — 156 
Risk rating 8— — — — — — — — 
Total multifamily residential74,269 108,768 159,790 35,763 29,223 77,917 39,380 525,110 
Total real estate$1,830,447 $2,132,874 $1,219,692 $841,711 $918,929 $2,267,739 $738,660 $9,950,052 
Consumer
Risk rating 1$4,996 $4,500 $1,302 $760 $612 $1,250 $1,453 $14,873 
Risk rating 2— — — 200 622 — — 822 
Risk rating 3203,762 296,512 167,387 137,420 124,442 143,068 10,484 1,083,075 
Risk rating 412,740 1,671 455 1,664 490 1,888 72 18,980 
Risk rating 514 12 109 — 10 374 17 536 
Risk rating 6113 93 111 170 1,389 — 1,884 
Risk rating 7— — — — — — — — 
Risk rating 8— — — 77 — 80 
Total consumer221,625 302,788 169,366 140,215 126,184 148,046 12,026 1,120,250 
Commercial and industrial
Risk rating 1$1,145 $11,993 $283 $284 $25 $21,561 $8,410 $43,701 
Risk rating 2734 309 29 198 — 227 626 2,123 
Risk rating 3223,596 140,093 81,114 74,943 61,724 94,954 291,151 967,575 
Risk rating 4142,731 223,367 71,312 112,569 83,835 50,257 494,761 1,178,832 
Risk rating 5421 9,600 2,050 356 7,211 9,230 621 29,489 
Risk rating 6871 1,266 11,278 4,299 5,237 10,062 4,965 37,978 
Risk rating 7— — 1,061 — 7,742 249 — 9,052 
Risk rating 8— — — — — — — — 
Total commercial and industrial369,498 386,628 167,127 192,649 165,774 186,540 800,534 2,268,750 
Agricultural and other
Risk rating 1$135 $267 $115 $— $— $$710 $1,232 
Risk rating 216 78 — 2,338 34 152 2,138 4,756 
Risk rating 399,036 38,861 31,404 5,404 9,205 47,816 136,353 368,079 
Risk rating 49,780 12,561 3,550 13,123 1,925 11,268 60,585 112,792 
Risk rating 5— 204 — — 740 1,278 2,230 
Risk rating 6— 61 157 32 304 602 14 1,170 
Risk rating 7— — — — — — — — 
Risk rating 8— — — — — — — — 
Total agricultural and other108,967 51,836 35,430 20,897 11,468 60,583 201,078 490,259 
Total$2,530,537 $2,874,126 $1,591,615 $1,195,472 $1,222,355 $2,662,908 $1,752,298 $13,829,311 
33

December 31, 2021
Term Loans Amortized Cost Basis by Origination Year
20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential
Risk rating 1$— $— $— $— $— $— $— $— 
Risk rating 2— — — — — — — — 
Risk rating 3284,127 281,982 266,990 341,642 195,301 891,035 194,640 2,455,717 
Risk rating 4111,697 32,788 115,989 301,520 90,747 345,254 90,028 1,088,023 
Risk rating 5— 10,930 2,239 23,117 49,926 189,038 — 275,250 
Risk rating 6— — 23,723 2,224 11,751 32,372 224 70,294 
Risk rating 7— — — — — — — — 
Risk rating 8— — — — — — — — 
Total non-farm/non-residential395,824 325,700 408,941 668,503 347,725 1,457,699 284,892 3,889,284 
Construction/land development
Risk rating 1$— $— $— $— $— $— $— $— 
Risk rating 2— — — — — 231 — 231 
Risk rating 3301,719 183,715 108,491 23,574 13,760 41,860 149,433 822,552 
Risk rating 4226,230 217,267 448,899 33,617 45,679 38,122 7,297 1,017,111 
Risk rating 5— — 388 — — 1,174 176 1,738 
Risk rating 6— 134 825 — 7,456 — 8,418 
Risk rating 7— — — — — — — — 
Risk rating 8— — — — — — — — 
Total construction/land development527,949 401,116 558,603 57,194 59,439 88,843 156,906 1,850,050 
Agricultural
Risk rating 1$— $— $— $— $— $— $— $— 
Risk rating 2— — — — — — — — 
Risk rating 321,480 27,931 7,768 6,564 5,103 21,689 7,026 97,561 
Risk rating 44,305 964 365 970 655 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 agricultural25,785 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 3210,970 147,523 119,861 94,848 82,474 296,687 85,836 1,038,199 
Risk rating 48,885 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 61,136 2,252 2,432 2,063 1,263 16,305 6,580 32,031 
Risk rating 7— — — — — — — — 
Risk rating 8— — — — — — 
Total residential 1-4 family220,991 153,172 182,197 115,018 106,193 368,042 129,340 1,274,953 
34

December 31, 2021
Term Loans Amortized Cost Basis by Origination Year
20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
(In thousands)
Multifamily residential
Risk rating 1$— $— $— $— $— $— $— $— 
Risk rating 2— — — — — — — — 
Risk rating 311,898 5,211 34,492 17,375 9,430 43,804 3,583 125,793 
Risk rating 43,755 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 residential15,653 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 — — 692 
Risk rating 3221,986 173,511 132,148 109,810 67,992 92,076 1,098 798,621 
Risk rating 43,547 923 2,944 1,776 158 2,641 79 12,068 
Risk rating 5— 116 — 15 — 131 — 262 
Risk rating 669 34 39 117 — 1,711 1,977 
Risk rating 7— — — — — — — — 
Risk rating 8— — — — — — — — 
Total consumer230,043 176,383 136,413 113,277 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 2175 16 — — 66 276 168 701 
Risk rating 3125,071 59,056 77,130 67,944 34,733 42,905 145,247 552,086 
Risk rating 4244,927 35,350 89,558 91,840 23,616 34,566 88,750 608,607 
Risk rating 56,185 609 480 8,258 5,712 2,851 582 24,677 
Risk rating 6492 15,377 5,913 24,941 5,477 2,233 342 54,775 
Risk rating 7— — — 1,696 — — — 1,696 
Risk rating 8— — — — — 16 17 
Total commercial and industrial476,429 123,160 173,431 194,797 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 354,534 44,030 5,158 7,092 2,009 46,570 8,750 168,143 
Risk rating 41,544 218 154 1,590 1,226 1,224 10,842 16,798 
Risk rating 5— — — — — 1,297 — 1,297 
Risk rating 653 — 23 13 33 562 — 684 
Risk rating 7— — — — — — — — 
Risk rating 8— — — — — — — — 
Total agricultural and other61,173 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 
35

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 September 30, 2022 and December 31, 2021.
September 30, 2022
Term Loans Amortized Cost Basis by Origination Year
20222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential
Performing$629,716 $856,298 $514,747 $440,000 $711,405 $1,468,064 $367,776 $4,988,006 
Non-performing— — 4,890 26,226 4,325 132,939 52 168,432 
Total non-farm/non-residential
629,716 856,298 519,637 466,226 715,730 1,601,003 367,828 5,156,438 
Construction/land development
Performing$743,244 $802,143 $234,460 $176,959 $36,886 $90,182 $147,104 $2,230,978 
Non-performing— 14 175 599 858 282 — 1,928 
Total construction/ land development
743,244 802,157 234,635 177,558 37,744 90,464 147,104 2,232,906 
Agricultural
Performing$61,735 $71,810 $56,189 $30,898 $13,772 $85,799 $9,773 $329,976 
Non-performing— — 567 — — 205 — 772 
Total agricultural61,735 71,810 56,756 30,898 13,772 86,004 9,773 330,748 
Total commercial real estate loans
$1,434,695 $1,730,265 $811,028 $674,682 $767,246 $1,777,471 $524,705 $7,720,092 
Residential real estate loans
Residential 1-4 family
Performing$321,236 $291,693 $246,007 $127,719 $120,756 $404,001 $174,170 $1,685,582 
Non-performing247 2,148 2,867 3,547 1,704 8,350 405 19,268 
Total residential 1-4 family
321,483 293,841 248,874 131,266 122,460 412,351 174,575 1,704,850 
Multifamily residential
Performing$74,269 $108,768 $159,790 $35,763 $26,061 $76,804 $39,380 $520,835 
Non-performing— — — — 3,162 1,113 — 4,275 
Total multifamily residential
74,269 108,768 159,790 35,763 29,223 77,917 39,380 525,110 
Total real estate$1,830,447 $2,132,874 $1,219,692 $841,711 $918,929 $2,267,739 $738,660 $9,950,052 
Consumer
Performing$221,525 $302,713 $169,266 $140,065 $126,157 $146,711 $12,009 $1,118,446 
Non-performing100 75 100 150 27 1,335 17 1,804 
Total consumer221,625 302,788 169,366 140,215 126,184 148,046 12,026 1,120,250 
Commercial and industrial
Performing$368,767 $384,257 $162,938 $188,867 $152,608 $182,885 $796,797 $2,237,119 
Non-performing731 2,371 4,189 3,782 13,166 3,655 3,737 31,631 
Total commercial and industrial369,498 386,628 167,127 192,649 165,774 186,540 800,534 2,268,750 
Agricultural and other
Performing$108,967 $51,836 $35,370 $20,865 $11,468 $59,996 $200,528 $489,030 
Non-performing— — 60 32 — 587 550 1,229 
Total agricultural and other108,967 51,836 35,430 20,897 11,468 60,583 201,078 490,259 
Total$2,530,537 $2,874,126 $1,591,615 $1,195,472 $1,222,355 $2,662,908 $1,752,298 $13,829,311 


36


December 31, 2021
Term Loans Amortized Cost Basis by Origination Year
20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
(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 agricultural25,785 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-performing611 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-performing57 28 10 117 — 1,444 1,663 
Total consumer230,043 176,383 136,413 113,277 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-performing161 4,447 9,228 2,778 892 682 18,193 
Total commercial and industrial476,429 123,160 173,431 194,797 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 other61,173 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 $17.6 million or 136 total revolving loans convert to term loans for the nine months ended September 30, 2022 compared to $27.8 million or 201 total revolving loans convert to term loans for the nine months ended September 30, 2021. These loans were considered immaterial for vintage disclosure inclusion.
37

The following is a presentation of troubled debt restructurings (“TDRs”) by class as of September 30, 2022 and December 31, 2021:
September 30, 2022
Number
of Loans
Pre-
Modification
Outstanding
Balance
Rate
Modification
Term
Modification
Rate
& Term
Modification
Post-
Modification
Outstanding
Balance
(Dollars in thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential12 $6,444 $3,203 $601 $438 $4,242 
Construction/land development216 193 — — 193 
Residential real estate loans
Residential 1-4 family14 2,307 814 111 282 1,207 
Multifamily residential1,130 957 — — 957 
Total real estate28 10,097 5,167 712 720 6,599 
Consumer18 12 — 13 
Commercial and industrial13 3,183 841 60 79 980 
Total43 $13,298 $6,020 $772 $800 $7,592 
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-residential12$6,119 $3,581 $623 $85 $4,289 
Construction/land development2240 210 — 211 
Agricultural1282 262 — — 262 
Residential real estate loans
Residential 1-4 family152,328 844 117 332 1,293 
Multifamily residential11,130 1,144 — — 1,144 
Total real estate3110,099 6,041 741 417 7,199 
Consumer422 13 — 16 
Commercial and industrial92,353 172 65 74 311 
Total44$12,474 $6,226 $806 $494 $7,526 
38

The following is a presentation of TDRs on non-accrual status as of September 30, 2022 and December 31, 2021 because they are not in compliance with the modified terms:
September 30, 2022December 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$$
Construction/land development193 210 
Agricultural— — 262 
Residential real estate loans
Residential 1-4 family338 388 
Total real estate536 867 
Consumer
Commercial and industrial11 897 206 
Total19 $1,434 18 $1,076 
The following is a presentation of total foreclosed assets as of September 30, 2022 and December 31, 2021:
September 30, 2022December 31, 2021
(In thousands)
Commercial real estate loans
Non-farm/non-residential$49 $536 
Construction/land development47 834 
Residential real estate loans
Residential 1-4 family269 260 
Total foreclosed assets held for sale$365 $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 September 30, 2022 and December 31, 2021, the balance of purchase credit deteriorated loans was approximately $146.0 million and $448,000, respectively. This balance, as of September 30, 2022, consisted of $145.5 million resulting from the acquisition of Happy and $422,000 from the acquisition of LH-Finance.
6. Goodwill and Core Deposits and Other Intangibles
Changes in the carrying amount and accumulated amortization of the Company’s goodwill and core deposits and other intangibles at September 30, 2022 and December 31, 2021, were as follows:
September 30, 2022December 31, 2021
(In thousands)
Goodwill
Balance, beginning of period$973,025 $973,025 
Acquisition of Happy Bancshares421,328 — 
Balance, end of period$1,394,353 $973,025 
39

September 30, 2022December 31, 2021
(In thousands)
Core Deposit Intangibles
Balance, beginning of period$25,045 $30,728 
Acquisition of Happy Bancshares42,263 — 
Amortization expense(6,376)(4,262)
Balance, September 30
60,932 26,466 
Amortization expense(1,421)
Balance, end of year$25,045 
The carrying basis and accumulated amortization of core deposit intangibles at September 30, 2022 and December 31, 2021 were:
September 30, 2022December 31, 2021
(In thousands)
Gross carrying basis$128,888 $86,625 
Accumulated amortization(67,956)(61,580)
Net carrying amount$60,932 $25,045 
Core deposit intangible amortization expense was approximately $2.5 million and $1.4 million for the three months ended September 30, 2022 and 2021, respectively. Core deposit intangible amortization expense was approximately $6.4 million and $4.3 million for the nine months ended September 30, 2022 and 2021, respectively. The Company’s estimated amortization expense of core deposits intangibles for each of the years 2022 through 2026 is approximately: 2022 – $8.9 million; 2023 – $9.7 million; 2024 – $8.5 million; 2025 – $8.1 million; 2026 – $7.8 million.
The carrying amount of the Company’s goodwill was $1.39 billion and $973.0 million at September 30, 2022 and December 31, 2021, respectively. Goodwill is tested annually for impairment during the fourth quarter or more often if events and circumstances indicate there may be an impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements.
7. Other Assets
Other assets consist primarily of equity securities without a readily determinable fair value and other miscellaneous assets. As of September 30, 2022 and December 31, 2021, other assets were $300.6 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 $120.7 million and $88.2 million at September 30, 2022 and December 31, 2021, and are accounted for at cost.
The Company has equity securities such as stock holdings in First National Bankers’ Bank and other miscellaneous holdings which are accounted for under ASC Topic 321. These equity securities without a readily determinable fair value were $72.6 million and $36.4 million at September 30, 2022 and December 31, 2021. There were no observable transactions during the period that would indicate a material change in fair value. Therefore, these investments were accounted for at cost, less impairment.




40

8. Deposits
The aggregate amount of time deposits with a minimum denomination of $250,000 was $303.2 million and $321.6 million at September 30, 2022 and December 31, 2021, respectively. The aggregate amount of time deposits with a minimum denomination of $100,000 was $615.1 million and $537.4 million at September 30, 2022 and December 31, 2021, respectively. Interest expense applicable to certificates in excess of $100,000 totaled $615,000 and $1.7 million for the three months ended September 30, 2022 and 2021, respectively. Interest expense applicable to certificates in excess of $100,000 totaled $2.0 million and $6.1 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022 and December 31, 2021, brokered deposits were $546.6 million and $625.7 million, respectively.
Deposits totaling approximately $2.56 billion and $1.91 billion at September 30, 2022 and December 31, 2021, respectively, were public funds obtained primarily from state and political subdivisions in the United States.
9. Securities Sold Under Agreements to Repurchase
At September 30, 2022 and December 31, 2021, securities sold under agreements to repurchase totaled $121.6 million and $140.9 million, respectively. For the three-month periods ended September 30, 2022 and 2021, securities sold under agreements to repurchase daily weighted-average totaled $126.8 million and $143.9 million, respectively. For the nine-month periods ended September 30, 2022 and 2021, securities sold under agreements to repurchase daily weighted-average totaled $129.1 million and $153.7 million, respectively.
The remaining contractual maturity of securities sold under agreements to repurchase in the consolidated balance sheets as of September 30, 2022 and December 31, 2021 is presented in the following table:
September 30, 2022December 31, 2021
Overnight and
Continuous
Total
Overnight and
Continuous
Total
(In thousands)
Securities sold under agreements to repurchase:
U.S. government-sponsored enterprises$6,968 $6,968 $8,433 $8,433 
Mortgage-backed securities6,076 6,076 7,920 7,920 
State and political subdivisions104,968 104,968 122,173 122,173 
Other securities3,543 3,543 2,360 2,360 
Total borrowings$121,555 $121,555 $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 September 30, 2022 and December 31, 2021. The Company had no other borrowed funds as of September 30, 2022 or December 31, 2021. At September 30, 2022 all of the outstanding balances were classified as short-term advances as the FHLB has provided notice of their intention to call all of the Company's FHLB borrowed funds within a year due to the low interest rates on the advances. At 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%. As noted above, expected maturities could differ from contractual maturities because FHLB may have the right to call or the Company may have the right to prepay certain obligations.
Additionally, the Company had $1.09 billion and $1.07 billion at September 30, 2022 and December 31, 2021, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits at September 30, 2022 and December 31, 2021, respectively.
The parent company took out a $20.0 million line of credit for general corporate purposes during 2015. The balance on this line of credit at September 30, 2022 and December 31, 2021 was zero.
41

11. Subordinated Debentures
Subordinated debentures at September 30, 2022 consisted of subordinated debt securities and subordinated debentures at December 31, 2021 consisted of subordinated debt securities and guaranteed payments on trust preferred securities, with the following components:
As of September 30, 2022
As of
December 31, 2021
(In thousands)
Trust preferred securities  
Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15% above the three-month LIBOR rate, reset quarterly, currently callable without penalty
— 4,501 
Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75% during the first five years and at a floating rate of 1.85% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty
— 3,093 
Subordinated debentures, issued in 2004, due 2034, fixed rate of 6.00% during the first five years and at a floating rate of 2.00% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty
— 15,464 
Subordinated debentures, issued in 2005, due 2035, fixed rate of 5.84% during the first five years and at a floating rate of 1.45% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty
— 25,774 
Subordinated debentures, issued in 2004, due 2034, fixed rate of 4.29% during the first five years and at a floating rate of 2.50% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty
— 16,495 
Subordinated debentures, issued in 2006, due 2036, fixed rate of 7.38% during the first five years and at a floating rate of 1.62% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty
— 5,942 
Subordinated debt securities
Subordinated notes, net of issuance costs, issued in 2020, due 2030, fixed rate of 5.50% during the first five years and at a floating rate of 534.5 basis points above the then three-month SOFR rate, reset quarterly, thereafter, callable in 2025 without penalty
143,732 — 
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
296,836 — 
Subordinated notes, net of issuance costs, issued in 2017, due 2027, fixed rate of 5.625% during the first five years and at a floating rate of 3.575% above the then three-month LIBOR rate, reset quarterly, thereafter, callable in 2022 without penalty
— 299,824 
Total$440,568 $371,093 
Trust Preferred Securities. On April 1, 2022, the Company acquired $23.2 million in trust preferred securities from Happy which were currently callable without penalty based on the terms of the specific agreements. During the second and third quarters of 2022, the Company redeemed, without penalty, the $23.2 million of the trust preferred securities acquired from Happy. In addition, during the second and third quarters, the Company also redeemed, without penalty, the $73.3 million of trust preferred securities held prior to the Happy acquisition. As a result, the Company no longer holds any trust preferred securities.
Subordinated Debt Securities. On April 1, 2022, the Company acquired $140.0 million of subordinated notes from Happy. These notes have a maturity date of July 31, 2030 and carry a fixed rate of 5.500% for the first five years. Thereafter, the notes bear interest at 3-month Secured Overnight Funding Rate (SOFR) plus 5.345%, resetting quarterly. Interest payments are due semi-annually, and the notes include a right of prepayment without penalty on or after July 31, 2025.
On January 18, 2022, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 3.125% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “2032 Notes”) for net proceeds, after underwriting discounts and issuance costs of approximately $296.4 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. From and including the date of issuance to, but excluding January 30, 2027 or the date of earlier redemption, the 2032 Notes will bear interest at an initial rate of 3.125% per annum, payable in arrears on January 30 and July 30 of each year. From and including January 30, 2027 to, but excluding, the maturity date or earlier redemption, the 2032 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be Three-Month Term SOFR), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2032 Notes, plus 182 basis points, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on April 30, 2027.
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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 were unsecured, subordinated debt obligations and would have matured on April 15, 2027. From and including the date of issuance to, but excluding April 15, 2022, the 2027 Notes bore 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 were to 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 was less than zero, then three-month LIBOR would have been deemed to be zero.
The Company, beginning with the interest payment date of April 15, 2022, and on any interest payment date thereafter, was permitted to redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. On April 15, 2022, the Company completed the payoff of the 2027 Notes in aggregate principal amount of $300.0 million. Each 2027 Note was redeemed pursuant to the terms of the Subordinated Indenture, as supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S. Bank Trust Company, National Association, the Trustee for the 2027 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.
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12. Income Taxes
The following is a summary of the components of the provision for income taxes for the three and nine months ended September 30, 2022 and 2021:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
(In thousands)
Current:
Federal$19,211 $14,693 $52,418 $52,771 
State5,068 4,864 13,830 17,470 
Total current24,279 19,557 66,248 70,241 
Deferred:
Federal7,101 2,744 (7,652)5,211 
State1,874 908 (2,019)1,725 
Total deferred8,975 3,652 (9,671)6,936 
Income tax expense$33,254 $23,209 $56,577 $77,177 
The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Statutory federal income tax rate21.00 %21.00 %21.00 %21.00 %
Effect of non-taxable interest income(1.07)(1.08)(1.69)(1.00)
Stock compensation0.02 0.16 0.25 0.23 
State income taxes, net of federal benefit3.40 3.50 3.04 4.00 
Executive officer compensation & other0.08 0.05 0.38 (0.32)
Effective income tax rate23.43 %23.63 %22.98 %23.91 %
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The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows:
September 30,
2022
December 31,
2021
(In thousands)
Deferred tax assets:
Allowance for credit losses$83,337 $68,644 
Deferred compensation6,483 5,342 
Stock compensation6,071 5,044 
Non-accrual interest income1,854 694 
Real estate owned108 109 
Unrealized loss on investment securities, available-for-sale104,452 — 
Loan discounts7,813 4,169 
Tax basis premium/discount on acquisitions1,767 3,220 
Investments29,609 263 
Other12,694 5,283 
Gross deferred tax assets254,188 92,768 
Deferred tax liabilities:
Accelerated depreciation on premises and equipment5,869 761 
Unrealized gain on securities— 4,220 
Core deposit intangibles14,582 5,736 
FHLB dividends2,781 2,820 
Other1,977 941 
Gross deferred tax liabilities25,209 14,478 
Net deferred tax assets$228,979 $78,290 
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and the states of Alabama, Arizona, Arkansas, California, Florida, Georgia, Illinois, Kansas, Kentucky, Maryland, Mississippi, Missouri, New Hampshire, New Jersey, New York, New Mexico, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas and Wisconsin. The Company is no longer subject to U.S. federal and state tax examinations by tax authorities for years before 2018.
13. Common Stock, Compensation Plans and Other
Common Stock
The Company’s Restated Articles of Incorporation, as amended, authorize the issuance of up to 300,000,000 shares of common stock, par value $0.01 per share.
The Company also has the authority to issue up to 5,500,000 shares of preferred stock, par value $0.01 per share under the Company’s Restated Articles of Incorporation, as amended.
Stock Repurchases
On January 22, 2021, the Company’s Board of Directors authorized the repurchase of up to an additional 20,000,000 shares of its common stock under the previously approved stock repurchase program. During the first nine months of 2022, the Company repurchased a total of 2,258,531 shares with a weighted-average stock price of $22.50 per share. Shares repurchased under the program as of September 30, 2022 since its inception total 19,919,866 shares. The remaining balance available for repurchase is 19,832,134 shares at September 30, 2022.

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Stock Compensation Plans
On January 21, 2022, the Company’s Board of Directors adopted, and on April 21, 2022, the Company's shareholders approved, the Home BancShares, Inc. 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan replaced the Company’s Amended and Restated 2006 Stock Option and Performance Incentive Plan (the “2006 Plan” and, together with the 2022 Plan, the “Plans”), which expired on February 27, 2022. The purpose of the Plans is to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate those persons to improve the Company’s business results. As of September 30, 2022, the maximum total number of shares of the Company’s common stock available for issuance under the 2022 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 September 30, 2022, the Company had 2,685,187 shares of common stock available for future grants under 2022 Plan. As of September 30, 2022, a total of 5,787,203 shares of common stock were reserved for issuance pursuant to the Plans.
The intrinsic value of the stock options outstanding and stock options vested at September 30, 2022 was $8.6 million and $8.3 million, respectively. The intrinsic value of stock options exercised during the nine months ended September 30, 2022 was approximately $259,000. Total unrecognized compensation cost, net of income tax benefit, related to non-vested stock option awards, which are expected to be recognized over the vesting periods, was approximately $5.3 million as of September 30, 2022.
The table below summarizes the stock option transactions under the 2022 Plan at September 30, 2022 and December 31, 2021 and changes during the three-month period and year then ended:
For the Nine Months Ended September 30, 2022
For the Year Ended
December 31, 2021
Shares (000) Weighted-
Average
Exercisable
Price
Shares (000) Weighted-
Average
Exercisable
Price
Outstanding, beginning of year3,015 $20.06 3,254 $19.77 
Granted181 21.09 15 21.68 
Forfeited/Expired(69)21.87 (57)22.44 
Exercised(25)12.00 (197)14.78 
Outstanding, end of period3,102 20.14 3,015 20.06 
Exercisable, end of period1,944 $18.47 1,543 $17.46 
Stock-based compensation expense for stock-based compensation awards granted is based on the grant-date fair value. For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company's employee stock options. The weighted-average fair value of options granted during the nine months ended September 30, 2022 was $5.19 per share. There were 180,500 options granted during the nine months ended September 30, 2022. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model based on the weighted-average assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate, and expected life of options granted.
The assumptions used in determining the fair value of the 2022 and 2021 stock option grants were as follows:
For the Nine Months Ended September 30, 2022
For the Year Ended December 31, 2021
Expected dividend yield3.14 %2.59 %
Expected stock price volatility31.21 %70.13 %
Risk-free interest rate2.81 %0.75 %
Expected life of options6.5 years6.5 years
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The following is a summary of currently outstanding and exercisable options at September 30, 2022:
Options OutstandingOptions Exercisable
Exercise PricesOptions
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 0.30$8.62 140 $8.62 
$9.54 to $14.71
140 1.8013.23 140 13.23 
$16.77 to $16.86
130 1.8916.80 130 16.80 
$17.12 to $17.36
86 2.5417.12 87 17.12 
$17.40 to $18.46
871 2.8818.45 871 18.45 
$18.50 to $20.16
41 6.5319.05 23 19.05 
$20.46 to $21.25
263 5.9520.83 149 21.10 
$21.31 to $22.22
132 6.4322.18 82 22.21 
$22.70 to $23.32
1,198 5.8123.32 245 23.32 
$23.51 to $25.96
101 5.6725.37 77 25.74 
3,102 1,944 
The table below summarized the activity for the Company’s restricted stock issued and outstanding at September 30, 2022 and December 31, 2021 and changes during the period and year then ended:
As of
September 30, 2022
As of
December 31, 2021
(In thousands)
Beginning of year1,231 1,371 
Issued399 216 
Vested(177)(320)
Forfeited(65)(36)
End of period1,388 1,231 
Amount of expense for nine months and twelve months ended, respectively
$5,663 $7,112 
Total unrecognized compensation cost, net of income tax benefit, related to non-vested restricted stock awards, which are expected to be recognized over the vesting periods, was approximately $16.7 million as of September 30, 2022.
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14. Non-Interest Expense
The table below shows the components of non-interest expense for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(In thousands)
Salaries and employee benefits$65,290 $42,469 $174,636 $126,990 
Occupancy and equipment15,133 9,305 38,533 27,584 
Data processing expense8,747 6,024 25,880 17,787 
Merger and acquisition expenses— 1,006 49,594 1,006 
Other operating expenses:
Advertising2,024 1,204 5,407 3,444 
Amortization of intangibles2,477 1,421 6,376 4,262 
Electronic banking expense3,828 2,521 9,718 7,375 
Directors’ fees354 395 1,133 1,192 
Due from bank service charges316 265 982 787 
FDIC and state assessment2,146 1,648 6,204 4,119 
Insurance959 749 2,702 2,317 
Legal and accounting1,581 1,050 3,439 2,954 
Other professional fees2,466 1,787 6,329 5,196 
Operating supplies681 474 2,430 1,426 
Postage614 301 1,476 931 
Telephone593 371 1,314 1,082 
Other expense7,137 4,629 20,571 13,015 
Total other operating expenses25,176 16,815 68,081 48,100 
Total non-interest expense$114,346 $75,619 $356,724 $221,467 
15. Leases
The Company leases land and office facilities under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2044 and do not include renewal options based on economic factors that would have implied that continuation of the lease was reasonably certain. Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. The leases generally include real estate taxes and common area maintenance (“CAM”) charges in the rental payments. Short-term leases are leases having a term of twelve months or less. In accordance with ASU 2018-11, the Company does not separate nonlease components from the associated lease component of our operating leases. As a result, the Company accounts for these components as a single component under Topic 842 since (i) the timing and pattern of transfer of the nonlease components and the associated lease component are the same and (ii) the lease component, if accounted for separately, would be classified as an operating lease. The Company recognizes short term leases on a straight-line basis and does not record a related ROU asset and liability for such leases. In addition, equipment leases were determined to be immaterial and a related ROU asset and liability for such leases is not recorded.
As of September 30, 2022, the balances of the right-of-use asset and lease liability were $44.0 million and $47.0 million, respectively. As of December 31, 2021, the balances of the right-of-use asset and lease liability were $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 September 30, 2022 and December 31, 2021:
September 30, 2022December 31, 2021
2022$2,247 $7,714 
20238,170 6,574 
20247,296 6,001 
20256,568 5,510 
20266,308 5,389 
Thereafter30,335 24,999 
Total future minimum lease payments$60,924 $56,187 
Discount effect of cash flows(13,890)(13,778)
Present value of net future minimum lease payments$47,034 $42,409 
Additional information (dollar amounts in thousands):
For the Three Months EndedNine Months Ended
Lease expense:September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Operating lease expense$2,052$1,971$5,991$5,961
Short-term lease expense2125
Variable lease expense215250658759
Total lease expense$2,269$2,222$6,651$6,725
Other information:
Cash paid for amounts included in the measurement of lease liabilities
$2,096$1,988$6,078$5,956
Weighted-average remaining lease term (in years)
9.219.679.359.78
Weighted-average discount rate3.48 %3.42 %3.42 %3.49 %
The Company currently leases three properties from three related parties. Total rent expense from the leases was $36,000 or 1.78% of total lease expense and $103,000 or 1.54% of total lease expense for the three and nine months ended September 30, 2022.
16. Significant Estimates and Concentrations of Credit Risks
Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for credit losses and certain concentrations of credit risk are reflected in Note 5, while deposit concentrations are reflected in Note 8.
The Company’s primary market areas are in Arkansas, Florida, Texas, South Alabama and New York. The Company primarily grants loans to customers located within these markets unless the borrower has an established relationship with the Company.
The diversity of the Company’s economic base tends to provide a stable lending environment. Although the Company has a loan portfolio that is diversified in both industry and geographic area, a substantial portion of its debtors’ ability to honor their contracts is dependent upon real estate values, tourism demand and the economic conditions prevailing in its market areas.
Although the Company has a diversified loan portfolio, at September 30, 2022 and December 31, 2021, commercial real estate loans represented 55.8% and 59.7% of total loans receivable, respectively, and 223.1% and 212.2% of total stockholders’ equity at September 30, 2022 and December 31, 2021, respectively. Residential real estate loans represented 16.1% and 15.8% of total loans receivable and 64.4% and 56.3% of total stockholders’ equity at September 30, 2022 and December 31, 2021, respectively.
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Approximately 79.4% of the Company’s total loans and 84.1% of the Company’s real estate loans as of September 30, 2022, are to borrowers whose collateral is located in Alabama, Arkansas, Florida, Texas and New York, the states in which the Company has its branch locations.
As of September 30, 2022, 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 September 30, 2022. In addition, the Company determined no additional provision for unfunded commitments was necessary as of September 30, 2022.
Any future volatility in the economy could cause the values of assets and liabilities recorded in the financial statements to change rapidly, resulting in material future adjustments in asset values, the allowance for credit losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.
17. Commitments and Contingencies
In the ordinary course of business, the Company makes various commitments and incurs certain contingent liabilities to fulfill the financing needs of its customers. These commitments and contingent liabilities include lines of credit and commitments to extend credit and issue standby letters of credit. The Company applies the same credit policies and standards as they do in the lending process when making these commitments. The collateral obtained is based on the assessed creditworthiness of the borrower.
At September 30, 2022 and December 31, 2021, commitments to extend credit of $4.67 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 September 30, 2022 and December 31, 2021, was $192.0 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 nine months of 2022, the Company requested approximately $129.8 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.

50

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total, Tier 1 common 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 September 30, 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 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 is 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: 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 September 30, 2022, the Bank met the capital standards for a well-capitalized institution. The Company’s “common equity Tier 1 risk-based capital” ratio, “Tier 1 leverage capital” ratio, “Tier 1 risk-based capital” ratio, and “total risk-based capital” ratio were 13.03%, 10.36%, 13.03%, and 16.75%, respectively, as of September 30, 2022.
19. Additional Cash Flow Information
In connection with the Happy acquisition, accounted for under ASC Topic 805, the Company acquired approximately $6.69 billion in assets, including $858.9 million in cash and cash equivalents, assumed $6.15 billion in liabilities, and issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million.
The following is a summary of the Company’s additional cash flow information during the nine-month periods ended:
September 30,
20222021
(In thousands)
Interest paid$65,123 $36,757 
Income taxes paid69,204 82,245 
Assets acquired by foreclosure327 2,058 
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20. Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is a hierarchy of three levels of inputs that may be used to measure fair values:
Level 1Quoted prices in active markets for identical assets or liabilities
Level 2Observable 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 3Unobservable 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.
Available-for-sale securities - the Company's available-for-sale securities are considered to be Level 2 securities. The Level 2 securities consist primarily of U.S. government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.
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.
Held-to-maturity securities – the Company's held-to-maturity securities are considered to be Level 2 securities. The Level 2 securities consist primarily of U.S. government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.
Impaired loans - 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 $169.7 million and $280.0 million as of September 30, 2022 and December 31, 2021, respectively. This valuation is considered Level 3, consisting of appraisals of underlying collateral. The Company reversed approximately $693,000 and $92,000 of accrued interest receivable when impaired loans were put on non-accrual status during the three months ended September 30, 2022 and 2021, respectively. The Company reversed approximately $842,000 and $276,000 of accrued interest receivable when impaired loans were put on non-accrual status during the nine months ended September 30, 2022 and 2021, respectively.
Foreclosed assets held for sale - Foreclosed assets held for sale 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 September 30, 2022 and December 31, 2021, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $365,000 and $1.6 million, respectively.
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No foreclosed assets held for sale were remeasured during the nine months ended September 30, 2022. Regulatory guidelines require the Company to reevaluate the fair value of foreclosed assets held for sale on at least an annual basis. The Company’s policy is to comply with the regulatory guidelines.
The significant unobservable (Level 3) inputs used in the fair value measurement of collateral for collateral-dependent impaired loans and foreclosed assets primarily relate to customized discounting criteria applied to the customer’s reported amount of collateral. The amount of the collateral discount depends upon the condition and marketability of the underlying collateral. As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount.
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.
September 30, 2022
Carrying
Amount
Fair ValueLevel
(In thousands)
Financial assets:
Cash and cash equivalents$1,580,421 $1,580,421 1
Federal funds sold2,700 2,700 1
Investment securities - available for sale4,085,102 4,085,102 2
Investment securities - held-to-maturity 1,251,007 1,101,158 2
Loans receivable, net of impaired loans and allowance13,340,436 13,754,133 3
Accrued interest receivable88,671 88,671 1
FHLB, FRB & FNBB Bank stock; other equity investments
193,287 193,287 3
Marketable equity securities51,003 51,003 1
Financial liabilities:
Deposits:
Demand and non-interest bearing$5,540,539 $5,540,539 1
Savings and interest-bearing transaction accounts11,968,519 11,968,519 1
Time deposits1,033,266 1,004,283 3
Securities sold under agreements to repurchase121,555 121,555 1
FHLB and other borrowed funds400,000 399,793 2
Accrued interest payable3,316 3,376 1
Subordinated debentures440,568 415,052 3
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December 31, 2021
Carrying
Amount
Fair ValueLevel
(In thousands)
Financial assets:
Cash and cash equivalents$3,650,315 $3,650,315 1
Investment securities - available for sale3,119,807 3,119,807 2
Loans receivable, net of impaired loans and allowance9,319,421 9,503,261 3
Accrued interest receivable46,736 46,736 1
FHLB, FRB & FNBB Bank stock; other equity investments
124,638 124,638 3
Marketable equity securities17,110 17,110 1
Financial liabilities:
Deposits:
Demand and non-interest bearing$4,127,878 $4,127,878 1
Savings and interest-bearing transaction accounts9,251,805 9,251,805 1
Time deposits880,887 901,280 3
Securities sold under agreements to repurchase140,886 140,886 1
FHLB and other borrowed funds400,000 401,362 2
Accrued interest payable4,798 4,798 1
Subordinated debentures371,093 374,894 3
21. Recent Accounting Pronouncements
In December 31, 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in the update simplify the accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in the update also simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; however, an entity may elect to do so on an entity-by-entity basis for a legal entity that is both not subject to tax and disregarded by the taxing authority. The amendments require that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company adopted the guidance effective January 1, 2021, and its adoption did not have a significant impact on our financial position or financial statement disclosures.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022.

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In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” The amendments in the update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in the update to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in this Update do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022.
In March 2022, the FASB issued ASU 2022-02, "Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." The amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The amendments require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with Subtopic 326-20, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. ASU 2022-02 is effective for entities that have adopted ASU No. 2016-13 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. These amendments should be applied prospectively. However, for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. Early adoption is permitted if an entity has adopted ASU 2016-13. If an entity elects to early adopt ASU 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is currently evaluating the potential impacts related to the adoption of the ASU.
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Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Home BancShares, Inc.
Conway, Arkansas
Results of Review of Interim Consolidated Financial Statements
We have reviewed the condensed consolidated balance sheet of Home BancShares, Inc. and subsidiaries (the “Company”) as of September 30, 2022, and the related condensed consolidated statements of income, comprehensive (loss) income and stockholders’ equity for the three-month and nine-month periods ended September 30, 2022 and 2021 and cash flows for the nine month periods ended September 30, 2022 and 2021, and the related notes (collectively referred to as the “interim financial information” or “statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company and subsidiaries as of December 31, 2021, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated February 24, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ FORVIS, LLP
(Formerly BKD, LLP)

Little Rock, Arkansas
November 4, 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 September 30, 2022, we had, on a consolidated basis, total assets of $23.16 billion, loans receivable, net of allowance for credit losses of $13.54 billion, total deposits of $18.54 billion, and stockholders’ equity of $3.46 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 sources 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 September 30,As of or for the Nine Months Ended September 30,
2022202120222021
(Dollars in thousands, except per share data)
Total assets$23,157,370$17,765,056$23,157,370$17,765,056
Loans receivable13,829,3119,901,10013,829,3119,901,100
Allowance for credit losses(289,203)(238,673)(289,203)(238,673)
Total deposits18,542,32414,003,37118,542,32414,003,371
Total stockholders’ equity3,460,0152,736,0623,460,0152,736,062
Net income108,70574,992189,575245,664
Basic earnings per share0.530.460.991.49
Diluted earnings per share0.530.460.991.49
Book value per share16.9416.6816.9416.68
Tangible book value per share (non-GAAP)(1)
9.8210.599.8210.59
Annualized net interest margin - FTE4.05%3.60%3.67%3.74%
Efficiency ratio43.2442.2652.4439.86
Efficiency ratio, as adjusted (non-GAAP)(2)
42.9742.2945.1341.67
Return on average assets1.811.681.131.90
Return on average common equity12.2510.977.7112.32
(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 September 30, 2022 and 2021
Our net income increased $33.7 million, or 45.0%, to $108.7 million for the three-month period ended September 30, 2022, from $75.0 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $0.53 per share for the three-month period ended September 30, 2022 compared to $0.46 per share for the three-month period ended September 30, 2021. The Company determined that a provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of September 30, 2022. In addition, the Company determined that a provision for unfunded commitments was not necessary as of September 30, 2022. During the three months ended September 30, 2022, the Company recorded $1.1 million in recoveries on historic losses and a $2.6 million loss for the decrease in the fair value of marketable securities.
Total interest income increased by $85.9 million, or 54.7%, and non-interest income increased by $14.0 million, or 47.9%. This was partially offset by a $17.4 million, or 139.8%, increase in total interest expense and a $38.7 million, or 51.2%, increase in non-interest expense. These fluctuations are primarily due to the acquisition of Happy Bancshares, Inc. ("Happy"),which we completed on April 1, 2022, and the rising rate environment. The increase in interest income resulted from a $53.2 million, or 37.3%, increase in loan interest income, a $23.0 million, or 172.6%, increase in investment income and a $9.6 million, or 863.6%, increase in interest income on deposits at other banks. The increase in non-interest income was primarily due to a $5.9 million, or 73.3%, increase in other services charges and fees, a $5.2 million, or 119.5%, increase in other income, a $4.8 million, or 81.0%, increase in service charges on deposit accounts, and a $3.5 million, or 730.9%, increase in trust fees. These increases were partially offset by a $2.7 million, or 4,408.2%, decrease in the fair value adjustment for marketable securities resulting from a $2.6 million decrease in the fair value of marketable securities, a $1.8 million, or 29.7%, decrease in mortgage lending income and a $920,000, or 34.6%, decrease in dividends from FHLB, FRB, FNBB and other. Included within other income was $1.1 million in recoveries on historic losses. The increase in interest expense was primarily due to a $17.7 million, or 313.8%, increase in interest on deposits which was partially offset by a $635,000, or 13.3%, decrease in interest on subordinated debentures. The increase in non-interest expense was due to a $22.8 million, or 53.7%, increase in salaries and employee benefits, an $8.4 million, or 49.7%, increase in other operating expenses, a $5.8 million, or 62.6%, increase in occupancy and equipment and a $2.7 million, or 45.2%, increase in data processing expense, partially offset by a decrease of $1.0 million in merger and acquisition expenses. Income tax expense increased by $10.0 million, or 43.3%, during the quarter due to an increase in net income.
Our net interest margin increased from 3.60% for the three-month period ended September 30, 2021 to 4.05% for the three-month period ended September 30, 2022. The yield on interest earning assets was 4.62% and 3.91% for the three months ended September 30, 2022 and 2021, respectively, as average interest earning assets increased from $16.11 billion to $21.09 billion. The increase in average interest earning assets is primarily due to a $3.78 billion increase in average loans receivable and a $2.15 billion increase in average investment securities, largely resulting from the acquisition of Happy, partially offset by a $949.6 million decrease in average interest-bearing balances due from banks. For the three months ended September 30, 2022 and 2021, we recognized $4.6 million and $4.9 million, respectively, in total net accretion for acquired loans and deposits. We recognized $943,000 in event interest income for the three months ended September 30, 2022 compared to $3.5 million for the three months ended September 30, 2021 which reduced the net interest margin by five basis points.
Our efficiency ratio was 43.24% for the three months ended September 30, 2022, compared to 42.26% for the same period in 2021. For the third quarter of 2022, our efficiency ratio, as adjusted (non-GAAP), was 42.97%, compared to 42.29% reported for the third quarter of 2021. (See Table 23 for the non-GAAP tabular reconciliation).
Our annualized return on average assets was 1.81% for the three months ended September 30, 2022, compared to 1.68% for the same period in 2021. Our annualized return on average assets, as adjusted (non-GAAP), was 1.83% for the three months ended September 30, 2022, compared to 1.67% for the same period in 2021. (See Table 20 for the non-GAAP tabular reconciliation). Our annualized return on average common equity was 12.25% and 10.97% for the three months ended September 30, 2022, and 2021, respectively. Our annualized return on average common equity, as adjusted (non-GAAP), was 12.39% for the three months ended September 30, 2022 and 10.87% for the same period in 2021. (See Table 21 for the non-GAAP tabular reconciliation).

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Results of Operations for the Nine Months Ended September 30, 2022 and 2021
Our net income decreased $56.1 million, or 22.8%, to $189.6 million for the nine-month period ended September 30, 2022, from $245.7 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $0.99 per share for the nine-month period ended September 30, 2022 compared to $1.49 per share for the nine-month period ended September 30, 2021. As a result of the acquisition of Happy, which we completed on April 1, 2022, we incurred $49.6 million in merger expenses and recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments, and a $2.0 million provision for credit losses on acquired held-to-maturity investment securities. The summation of these items reduced earnings by $108.2 million and earnings per share by $0.42 per share for the nine-month period ended September 30, 2022. Excluding the impact of the acquisition of Happy, the Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of September 30, 2022. In addition, excluding the impact of the acquisition of Happy, the Company determined no additional provision for unfunded commitments was necessary as of September 30, 2022. During the nine months ended September 30, 2022, the Company recorded $6.7 million in recoveries on historic losses and a $1.4 million special dividend from equity investments which were partially offset by a $2.3 million loss for the decrease in fair value of marketable securities and $2.1 million in TRUPS redemption fees.
Total interest income increased by $130.7 million, or 27.6%, and non-interest income increased by $12.8 million, or 12.2%. This was more than offset by a $135.3 million, or 61.1%, increase in non-interest expense and a $21.6 million, or 53.7%, increase in interest expense. These fluctuations are primarily due to the acquisition of Happy during the second quarter of 2022 and the rising rate environment. The increase in interest income resulted from a $71.9 million, or 16.5%, increase in loan interest income, a $42.0 million, or 114.4%, increase in investment income and a $16.8 million, or 750.5%, increase in interest income on deposits at other banks. The increase in non-interest income was primarily due to a $10.9 million, or 68.0%, increase in service charges on deposit accounts, a $9.7 million, or 63.3%, increase in other income, an $8.9 million, or 35.2%, increase in other service charges and fees, a $7.4 million, or 514.1%, increase in trust fees and a $1.2 million, or 75.8%, increase in the cash value of life insurance. These increases were partially offset by a $9.4 million, or 132.5%, decrease in income for the fair value adjustment for marketable securities resulting from a $2.3 million decrease in the fair value of marketable securities for the nine months ended September 30, 2022 compared to a $7.0 million increase for the nine months ended September 30, 2021, a $7.5 million, or 54.1%, decrease in dividends from FHLB, FRB, FNBB and other, a $6.2 million, or 30.6%, decrease in mortgage lending income and a $1.4 million, or 90.4%, decrease in the gain on sale of SBA loans. Included within other income was $6.7 million recovery on historic losses, and included within dividends from FHLB, FRB, FNBB and other was $1.4 million in special dividends. The increase in non-interest expense was due to $48.6 million in merger and acquisition expenses, a $47.6 million, or 37.5%, increase in salaries and employee benefits, a $20.0 million, or 41.5%, increase in other operating expenses, a $10.9 million, or 39.7% increase in occupancy and equipment and an $8.1 million, or 45.5%, increase in data processing expense. Included within other operating expense was $2.1 million in TRUPS redemption fees. The increase in interest expense was primarily due to a $19.2 million, or 97.0%, increase in interest on deposits and a $2.1 million, or 14.6%, increase in interest on subordinated debentures as a result of the acquisition of $140.0 million of subordinated debt and $23.2 million in trust preferred securities from Happy during the second quarter. Income tax expense decreased by $20.6 million, or 26.7%, during the quarter due to the decrease in net income.
Our net interest margin decreased from 3.74% for the nine-month period ended September 30, 2021 to 3.67% for the nine-month period ended September 30, 2022. The yield on interest earning assets was 4.08% for the nine-month periods ended September 30, 2022 and 2021, as average interest earning assets increased from $15.71 billion to $20.03 billion. The increase in average earning assets is primarily the result of a $2.01 billion increase in average loans receivable, a $1.78 billion increase in average investment securities, and a $527.4 million increase in average interest-bearing balances due from banks. For the nine months ended September 30, 2022 and 2021, we recognized $12.8 million and $16.2 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by 2 basis points. The Company experienced a $26.5 million reduction in interest income from PPP loans due to the forgiveness of the PPP loans and the acceleration of the deferred fees for the loans that were forgiven. This was dilutive to the net interest margin by approximately 8 basis points.
Our efficiency ratio was 52.44% for the nine-month period ended September 30, 2022, compared to 39.86% for the same period in 2021. For the first nine months of 2022, our efficiency ratio, as adjusted (non-GAAP), was 45.13%, compared to 41.67% reported for the first nine months of 2021. (See Table 23 for the non-GAAP tabular reconciliation).

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Our annualized return on average assets was 1.13% for the nine-month period ended September 30, 2022, compared to 1.90% for the same period in 2021. Our annualized return on average assets, as adjusted (non-GAAP), was 1.61% for the nine months ended September 30, 2022, compared to 1.76% for the same period in 2021. (See Table 20 for the non-GAAP tabular reconciliation). Our annualized return on average common equity was 7.71% and 12.32% for the nine-month period ended September 30, 2022, and 2021, respectively. Our annualized return on average common equity, as adjusted (non-GAAP), was 10.91% for the nine months ended September 30, 2022 and 11.44% for the same period in 2021. (See Table 21 for the non-GAAP tabular reconciliation).
Financial Condition as of and for the Period Ended September 30, 2022 and December 31, 2021
Our total assets as of September 30, 2022 increased $5.11 billion to $23.16 billion from $18.05 billion reported as of December 31, 2021. The increase in total assets is primarily due to the acquisition of $6.69 billion in total assets, net of purchase accounting adjustments, from Happy during the second quarter of 2022. Cash and cash equivalents decreased $2.07 billion, for the nine months ended September 30, 2022. Our loan portfolio balance increased to $13.83 billion as of September 30, 2022 from $9.84 billion at December 31, 2021. The increase in loans was primarily due to the acquisition of $3.65 billion in loans, net of purchase accounting adjustments, from Happy in the second quarter of 2022 and $242.2 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $98.4 million in organic loan growth. Total deposits increased $4.28 billion to $18.54 billion as of September 30, 2022 from $14.26 billion as of December 31, 2021. The increase in deposits was primarily due to the acquisition of $5.86 billion in deposits, net of purchase accounting adjustments, from Happy in the second quarter of 2022. Stockholders’ equity increased $694.3 million to $3.46 billion as of September 30, 2022, compared to $2.77 billion as of December 31, 2021. The $694.3 million increase in stockholders’ equity is primarily associated with the $961.3 million in common stock issued to Happy shareholders for the acquisition of Happy on April 1, 2022 and the $189.6 million in net income for the nine months ended September 30, 2022, partially offset by the $317.9 million in other comprehensive loss, the $94.8 million of shareholder dividends paid and stock repurchases of $50.9 million in 2022.
Our non-performing loans were $61.7 million, or 0.45% of total loans as of September 30, 2022, compared to $50.2 million, or 0.51% of total loans as of December 31, 2021. The allowance for credit losses as a percentage of non-performing loans decreased slightly to 468.77% as of September 30, 2022, from 471.61% as of December 31, 2021. Non-performing loans from our Arkansas franchise were $10.2 million at September 30, 2022 compared to $13.9 million as of December 31, 2021. Non-performing loans from our Florida franchise were $24.8 million at September 30, 2022 compared to $26.8 million as of December 31, 2021. Non-performing loans from our Texas franchise were $13.7 million at September 30, 2022 compared to zero as of December 31, 2021. Non-performing loans from our Alabama franchise were $204,000 at September 30, 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 September 30, 2022 compared to $1.5 million as of December 31, 2021. Non-performing loans from our Centennial Commercial Finance Group (“CFG”) franchise were $11.4 million at September 30, 2022 compared to $7.5 million as of December 31, 2021.
As of September 30, 2022, our non-performing assets increased to $62.2 million, or 0.27% 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 $10.2 million at September 30, 2022 compared to $14.4 million as of December 31, 2021. Non-performing assets from our Florida franchise were $25.0 million at September 30, 2022 compared to $27.9 million as of December 31, 2021. Non-performing assets from our Texas franchise were $14.0 million at September 30, 2022 compared to zero as of December 31, 2021. Non-performing assets from our Alabama franchise were $204,000 at September 30, 2022 compared to $470,000 as of December 31, 2021. Non-performing assets from our SPF franchise were $1.4 million at September 30, 2022 compared to $1.5 million as of December 31, 2021. Non-performing assets from our CFG franchise were $11.4 million at September 30, 2022 compared to $7.5 million as of December 31, 2021.
The $11.4 million balance of non-accrual loans for our Centennial CFG market consists of two loans that are assessed for credit risk by the Federal Reserve under the Shared National Credit Program. Due to the condition of the two loans, partial charge-offs for a total of $2.2 million were taken on these loans during the third quarter of 2022. The loans are not current on either principal or interest, and we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve. Any interest payments that are received will be applied to the principal balance.
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Critical Accounting Policies and Estimates
Overview. We prepare our consolidated financial statements based on the selection of certain accounting policies, generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions. Our accounting policies are described in detail in the notes to our consolidated financial statements included as part of this document.
We consider a policy critical if (i) the accounting estimate requires assumptions about matters that are highly uncertain at the time of the accounting estimate; and (ii) different estimates that could reasonably have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements. Using these criteria, we believe that the accounting policies most critical to us are those associated with our lending practices, including revenue recognition and the accounting for the allowance for credit losses, foreclosed assets, investments, intangible assets, income taxes and stock options.
Revenue Recognition. Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit and investment securities, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of non-interest income are as follows:
Service charges on deposit accounts – These represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.
Other service charges and fees – These represent credit card interchange fees and Centennial CFG loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310. Interchange fees were $6.1 million, $16.6 million, $4.2 million and $12.2 million for the three and nine months ended September 30, 2022 and 2021, respectively. Centennial CFG loan fees were $4.6 million, $9.7 million, $1.8 million and $7.1 million for the three and nine months ended September 30, 2022 and 2021, respectively.
Trust fees - The Company enters into contracts with its customers to manage assets for investment, and/or transact on their accounts. The Company generally satisfies its performance obligations as services are rendered. The management fees are percentage based, flat, percentage of income or a fixed percentage calculated upon the average balance of assets depending upon account type. Fees are collected on a monthly or annual basis.

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Investments – Available-for-sale. Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments ("CECL"). The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Investments – Held-to-Maturity. Securities held-to-maturity ("HTM"), which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Company has made the election to exclude accrued interest receivable on HTM securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets.
Loans Receivable and Allowance for Credit Losses. Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs, deferred fees or costs on originated loans. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yield on the related loans.
The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, national retail sales index, housing price indices and rental vacancy rate index.

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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 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-Factors") and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.
Loans considered impaired, according to ASC 326, are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.
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Acquisition Accounting and Acquired Loans. We account for our acquisitions under FASB ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.
Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures: The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
Foreclosed Assets Held for Sale. Real estate and personal properties acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Valuations are periodically performed by management, and the real estate and personal properties are carried at fair value less costs to sell. Gains and losses from the sale of other real estate and personal properties are recorded in non-interest income, and expenses used to maintain the properties are included in non-interest expenses.
Intangible Assets. Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. The core deposit intangibles are being amortized over 48 to 121 months on a straight-line basis. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual impairment test of goodwill and core deposit intangibles as required by FASB ASC 350, Intangibles - Goodwill and Other, in the fourth quarter or more often if events and circumstances indicate there may be an impairment.
Income Taxes. We account for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. We determine deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term “more likely than not” means a likelihood of more than 50 percent; the terms “examined” and “upon examination” also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Both we and our subsidiary file consolidated tax returns. Our subsidiary provides for income taxes on a separate return basis, and remits to us amounts determined to be currently payable.
Stock Compensation. In accordance with FASB ASC 718, Compensation - Stock Compensation, and FASB ASC 505-50, Equity-Based Payments to Non-Employees, the fair value of each option award is estimated on the date of grant. We recognize compensation expense for the grant-date fair value of the option award over the vesting period of the award.
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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 approximately $242.2 million of yacht loans. This portfolio of loans is housed within the Company's Shore Premier Finance division, which is responsible for servicing the acquired loan portfolio and originating new loan production.
Acquisition of Happy Bancshares, Inc.
On April 1, 2022, the Company completed the acquisition of Happy Bancshares, Inc. (“Happy”), and merged Happy State Bank into Centennial Bank. The Company issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million.
Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $6.69 billion in total assets, $3.65 billion in loans and $5.86 billion in customer deposits. Happy formerly operated its banking business from 62 locations in Texas.
For further discussion of the acquisition, see Note 2 "Business Combinations" to the Condensed Notes to Consolidated Financial Statements.
We will continue evaluating all types of potential bank acquisitions, which may include FDIC-assisted acquisitions as opportunities arise, to determine what is in the best interest of our Company. Our goal in making these decisions is to maximize the return to our investors.
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 September 30, 2022, we had 222 branch locations. There were 76 branches in Arkansas, 78 branches in Florida, 62 branches in Texas, five branches in Alabama and one branch in New York City.
Results of Operations
For the three and nine months ended September 30, 2022 and 2021
Our net income increased $33.7 million, or 45.0%, to $108.7 million for the three-month period ended September 30, 2022, from $75.0 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $0.53 per share for the three-month period ended September 30, 2022 compared to $0.46 per share for the three-month period ended September 30, 2021. 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 September 30, 2022. In addition, the Company determined no additional provision for unfunded commitments was necessary as of September 30, 2022. During the three months ended September 30, 2022, the Company recorded $1.1 million in recoveries on historic losses and a $2.6 million loss for the decrease in the fair value of marketable securities.

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Our net income decreased $56.1 million, or 22.8%, to $189.6 million for the nine-month period ended September 30, 2022, from $245.7 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $0.99 per share for the nine-month period ended September 30, 2022 compared to $1.49 per share for the nine-month period ended September 30, 2021. As a result of the acquisition of Happy, which we completed on April 1, 2022, we incurred $49.6 million in merger expenses and recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments, a $2.0 million provision for credit losses on acquired held-to-maturity investment securities. The summation of these items reduced earnings by $108.2 million and earnings per share by $0.42 per share for the nine-month period ended September 30, 2022. Excluding the impact of the acquisition of Happy, the Company determined that an additional provision for credit losses was not necessary, as the current level of the allowance for credit losses was considered adequate as of September 30, 2022. In addition, excluding the impact of the acquisition of Happy, the Company determined no additional provision for unfunded commitments was necessary as of September 30, 2022. During the nine months ended September 30, 2022, the Company recorded $6.7 million in recoveries on historic losses and a $1.4 million special dividend from equity investments, which were partially offset by a $2.3 million loss for the decrease in fair value of marketable securities and $2.1 million in TRUPS redemption fees.
Net Interest Income
Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments, rates paid on deposits and other borrowings, the level of non-performing loans and the amount of non-interest-bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate (25.1475% for 2022 and 25.74% for 2021).
The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. In 2020, the Federal Reserve lowered the target rate to 0.00% to 0.25%. This remained in effect throughout all of 2021. On March 16, 2022, the target rate was increased to 0.25% to 0.50%. On May 4, 2022, the target rate was increased to 0.75% to 1.00%. On June 15, 2022, the target rate was increased to 1.50% to 1.75%. On July 27, 2022, the target rate was increased to 2.25% to 2.50%. On September 21, 2022, the target rate was increased to 3.00% to 3.25%. Presently, the Federal Reserve has indicated they are anticipating further rate increases.
Our net interest margin increased from 3.60% for the three-month period ended September 30, 2021 to 4.05% for the three-month period ended September 30, 2022. The yield on interest earning assets was 4.62% and 3.91% for the three months ended September 30, 2022 and 2021, respectively, as average interest earning assets increased from $16.11 billion to $21.09 billion. The increase in average earning assets is primarily due to a $3.78 billion increase in average loans receivable, and a $2.15 billion increase in average investment securities largely resulting from the acquisition of Happy, partially offset by a $949.6 million decrease in average interest-bearing balances due from banks. For the three months ended September 30, 2022 and 2021, we recognized $4.6 million and $4.9 million, respectively, in total net accretion for acquired loans and deposits. We recognized $943,000 in event interest income for the three months ended September 30, 2022 compared to $3.5 million for the three months ended September 30, 2021, which reduced the net interest margin by five basis points.
Our net interest margin decreased from 3.74% for the nine-month period ended September 30, 2021 to 3.67% for the nine-month period ended September 30, 2022. The yield on interest earning assets was 4.08% for both of the nine-month periods ended September 30, 2022 and 2021, as average interest earning assets increased from $15.71 billion to $20.03 billion. The increase in average earning assets is primarily the result of a $2.01 billion increase in average loans receivable, a $1.78 billion increase in average investment securities, and a $527.4 million increase in average interest-bearing balances due from banks. For the nine months ended September 30, 2022 and 2021, we recognized $12.8 million and $16.2 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by 2 basis points. The Company experienced a $26.5 million reduction in interest income from PPP loans due to the forgiveness of the PPP loans and the acceleration of the deferred fees for the loans that were forgiven. This was dilutive to the net interest margin by approximately 8 basis points.

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Net interest income on a fully taxable equivalent basis increased $69.2 million, or 47.3%, to $215.5 million for the three-month period ended September 30, 2022, from $146.4 million for the same period in 2021. This increase in net interest income for the three-month period ended September 30, 2022 was the result of an $86.6 million increase in interest income, partially offset by a $17.4 million increase in interest expense, on a fully taxable equivalent basis. The $86.6 million increase in interest income was primarily the result of the higher level of average interest earning assets due to the acquisition of Happy during the second quarter of 2022 and the increasing interest rate environment. The increase in earning assets resulted in an increase in interest income of approximately $65.5 million, and the higher yield on earning assets resulted in an increase in interest income of approximately $21.1 million. The $17.4 million increase in interest expense is primarily the result of the higher level of average interest bearing liabilities due to the acquisition of Happy during the second quarter of 2022 and the increasing interest rate environment. The higher rates on interest bearing liabilities resulted in an increase in interest expense of approximately $14.7 million, and the increase in interest bearing liabilities resulted in an increase in interest expense of approximately $2.7 million.
Net interest income on a fully taxable equivalent basis increased $110.4 million, or 25.1%, to $549.7 million for the nine-month period ended September 30, 2022, from $439.3 million for the same period in 2021. This increase in net interest income for the nine-month period ended September 30, 2022 was the result of a $132.0 million increase in interest income, partially offset by a $21.6 million increase in interest expense, on a fully taxable equivalent basis. The $132.0 million increase in interest income was primarily the result of the higher level of average interest earning assets due to the acquisition of Happy during the second quarter of 2022 and the increasing interest rate environment. The increase in earning assets resulted in an increase in interest income of approximately $110.8 million, and the higher yield on earning assets resulted in a increase in interest income of approximately $21.2 million. The $21.6 million increase in interest expense is primarily the result of the higher level of average interest bearing liabilities due to the acquisition of Happy during the second quarter of 2022 and the increasing interest rate environment. The higher rates on interest bearing liabilities resulted in an increase in interest expense of approximately $11.6 million, and the increase in interest bearing liabilities resulted in an increase in interest expense of approximately $10.0 million.
Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and nine months ended September 30, 2022 and 2021, as well as changes in fully taxable equivalent net interest margin for the three and nine months ended September 30, 2022 compared to the same period in 2021.
Table 2: Analysis of Net Interest Income
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Dollars in thousands)
Interest income$242,955 $157,060 $604,871 $474,192 
Fully taxable equivalent adjustment2,437 1,748 6,646 5,343 
Interest income – fully taxable equivalent245,392 158,808 611,517 479,535 
Interest expense29,851 12,449 61,861 40,241 
Net interest income – fully taxable equivalent$215,541 $146,359 $549,656 $439,294 
Yield on earning assets – fully taxable equivalent4.62 %3.91 %4.08 %4.08 %
Cost of interest-bearing liabilities0.83 0.46 0.61 0.50 
Net interest spread – fully taxable equivalent3.79 3.45 3.47 3.58 
Net interest margin – fully taxable equivalent4.05 3.60 3.67 3.74 
Table 3: Changes in Fully Taxable Equivalent Net Interest Margin
Three Months Ended September 30,Nine Months Ended September 30,
2022 vs. 20212022 vs. 2021
(In thousands)
Increase in interest income due to change in earning assets$65,504 $110,827 
Increase in interest income due to change in earning asset yields21,080 21,155 
Increase in interest expense due to change in interest-bearing liabilities(2,742)(10,006)
Increase in interest expense due to change in interest rates paid on interest-bearing liabilities(14,660)(11,614)
Increase in net interest income$69,182 $110,362 
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Table 4 shows, for each major category of earning assets and interest-bearing liabilities, the average amount outstanding, the interest income or expense on that amount and the average rate earned or expensed for the three and nine months ended September 30, 2022 and 2021, respectively. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest-bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Non-accrual loans were included in average loans for the purpose of calculating the rate earned on total loans.
Table 4: Average Balance Sheets and Net Interest Income Analysis
Three Months Ended September 30,
20222021
Average
Balance
Income /
Expense
Yield /
Rate
Average
Balance
Income /
Expense
Yield /
Rate
(Dollars in thousands)
ASSETS
Earnings assets
Interest-bearing balances due from
    banks
$1,965,136 $10,763 2.17 %$2,914,785 $1,117 0.15 %
Federal funds sold1,176 3.04 82 — — 
Investment securities – taxable4,008,230 28,273 2.80 2,289,680 8,495 1.47 
Investment securities – non-taxable1,292,702 10,370 3.18 862,586 6,416 2.95 
Loans receivable13,822,459 195,977 5.63 10,043,393 142,780 5.64 
Total interest-earning assets21,089,703 245,392 4.62 %16,110,526 158,808 3.91 %
Non-earning assets2,689,066 1,584,700 
Total assets$23,778,769 $17,695,226 
LIABILITIES AND
    STOCKHOLDERS’ EQUITY
Liabilities
Interest-bearing liabilities
Savings and interest-bearing transaction
    accounts
$12,233,755 $22,388 0.73 %$8,794,657 3,613 0.16 %
Time deposits1,078,112 959 0.35 1,063,500 2,029 0.76 
Total interest-bearing deposits13,311,867 23,347 0.70 9,858,157 5,642 0.23 
Federal funds purchased14 — — — — — 
Securities sold under agreement to repurchase126,770 434 1.36 143,937 102 0.28 
FHLB and other borrowed funds400,012 1,917 1.90 400,000 1,917 1.90 
Subordinated debentures442,312 4,153 3.73 370,805 4,788 5.12 
Total interest-bearing liabilities14,280,975 29,851 0.83 %10,772,899 12,449 0.46 %
Non-interest-bearing liabilities
Non-interest-bearing deposits5,779,082 4,091,174 
Other liabilities199,416 120,200 
Total liabilities20,259,473 14,984,273 
Stockholders’ equity3,519,296 2,710,953 
Total liabilities and stockholders’ equity$23,778,769 $17,695,226 
Net interest spread3.79 %3.45 %
Net interest income and margin$215,541 4.05 %$146,359 3.60 %
68

Nine Months Ended September 30,
20222021
Average
Balance
Income /
Expense
Yield /
Rate
Average
Balance
Income /
Expense
Yield /
Rate
(Dollars in thousands)
ASSETS
Earnings assets
Interest-bearing balances due from banks$2,899,620 $19,001 0.88 %$2,372,227 $2,234 0.13 %
Federal funds sold1,593 13 1.09 83 — — 
Investment securities – taxable3,442,854 58,294 2.26 1,947,799 21,933 1.51 
Investment securities – non-taxable1,139,628 26,709 3.13 858,440 19,610 3.05 
Loans receivable12,547,275 507,500 5.41 10,532,411 435,758 5.53 
Total interest-earning assets20,030,970 611,517 4.08 %15,710,960 479,535 4.08 %
Non-earning assets2,308,827 1,594,442 
Total assets$22,339,797 $17,305,402 
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest-bearing liabilities
Savings and interest- bearing transaction accounts$11,420,566 $36,031 0.42 %$8,607,728 12,289 0.19 %
Time deposits1,035,340 2,939 0.38 1,131,538 7,492 0.89 
Total interest-bearing deposits12,455,906 38,970 0.42 9,739,266 19,781 0.27 
Federal funds purchased294 0.91 — — — 
Securities sold under agreement to repurchase129,076 729 0.76 153,677 399 0.35 
FHLB borrowed funds400,004 5,688 1.90 400,000 5,688 1.90 
Subordinated debentures540,175 16,472 4.08 370,615 14,373 5.19 
Total interest-bearing liabilities13,525,455 61,861 0.61 %10,663,558 40,241 0.50 %
Non-interest-bearing liabilities
Non-interest-bearing deposits5,363,770 3,848,302 
Other liabilities161,402 127,656 
Total liabilities19,050,627 14,639,516 
Stockholders’ equity3,289,170 2,665,886 
Total liabilities and stockholders’ equity$22,339,797 $17,305,402 
Net interest spread3.47 %3.58 %
Net interest income and margin$549,656 3.67 %$439,294 3.74 %
69

Table 5 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three and nine months ended September 30, 2022 compared to the same period in 2021, on a fully taxable basis. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates, in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.
Table 5: Volume/Rate Analysis
Three Months Ended September 30,Nine Months Ended September 30,
2022 over 20212022 over 2021
VolumeYield /
Rate
TotalVolumeYield /
Rate
Total
(In thousands)
(Decrease) increase in:
Interest income:
Interest-bearing balances due from banks$(480)$10,126 $9,646 $603 $16,164 $16,767 
Federal funds sold— — 13 13 
Investment securities – taxable8,987 10,791 19,778 21,955 14,406 36,361 
Investment securities – non-taxable3,416 538 3,954 6,578 521 7,099 
Loans receivable53,581 (384)53,197 81,691 (9,949)71,742 
Total interest income65,504 21,080 86,584 110,827 21,155 131,982 
Interest expense:
Interest-bearing transaction and savings deposits1,909 16,866 18,775 5,049 18,693 23,742 
Time deposits28 (1,098)(1,070)(590)(3,963)(4,553)
Federal funds purchased— — — — 
Securities sold under agreement to repurchase(14)346 332 (73)403 330 
Subordinated debentures819 (1,454)(635)5,618 (3,519)2,099 
Total interest expense2,742 14,660 17,402 10,006 11,614 21,620 
Increase (decrease) in net interest income$62,762 $6,420 $69,182 $100,821 $9,541 $110,362 
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, national retail sales index, housing price indices and rental vacancy rate index.
Acquired loans. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. This is commonly referred to as “double accounting" (or "double count").

70

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.
As a result of the Happy acquisition which was completed on April 1, 2022, the Company recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count" and an $11.4 million provision for credit losses on acquired unfunded commitments. 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 September 30, 2022. In addition, the Company determined no additional provision for unfunded commitments was necessary as of September 30, 2022.
Net charge-offs to average total loans was 0.15% for the three months ended September 30, 2022 compared to 0.07% for the three months ended September 30, 2021. Net charge-offs to average total loans was 0.10% for the nine months ended September 30, 2022 compared to 0.09% for the nine months ended September 30, 2021.
Investments – Available-for-sale: The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Investments – Held-to-Maturity. The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Company has made the election to exclude accrued interest receivable on HTM securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets.
The Company recorded a $2.0 million provision for credit losses on the held-to-maturity investment securities during the second quarter of 2022 as a result of the investment securities acquired as part of the Happy acquisition. Of the Company's held-to-maturity securities, $1.11 billion, or 88.7% are municipal securities. To estimate the necessary loss provision, the Company utilized historical default and recovery rates of the municipal bond sector and applied these rates using a pooling method. The remainder of investments classified as held-to-maturity are U.S. government-sponsored enterprises and mortgage-backed securities all of which are guaranteed by the U.S. government. Due to the inherent low risk in these U.S. government guaranteed securities, no provision for credit loss was established on this portion of the portfolio.
71

At September 30, 2022, the Company determined that the allowance for credit losses of $842,000, resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio, and the allowance for credit losses for the HTM portfolio resulting from the Happy acquisition was considered adequate. No additional provision for credit losses was considered necessary for the portfolio.
Non-Interest Income
Total non-interest income was $43.2 million and $118.5 million for the three and nine months ended September 30, 2022, compared to $29.2 million and $105.6 million for the same period in 2021. Our recurring non-interest income includes service charges on deposit accounts, other service charges and fees, trust fees, mortgage lending income, insurance commissions, increase in cash value of life insurance, fair value adjustment for marketable securities and dividends.
Table 6 measures the various components of our non-interest income for the three and nine months ended September 30, 2022 and 2021, respectively, as well as changes for the three and nine months ended September 30, 2022 compared to the same period in 2021.
Table 6: Non-Interest Income
Three Months Ended September 30,2021 Change
from 2020
Nine Months Ended September 30,2021 Change
from 2020
2022202120222021
(Dollars in thousands)
Service charges on deposit accounts$10,756 $5,941 $4,815 81.0 %$26,980 $16,059 $10,921 68.0 %
Other service charges and fees13,951 8,051 5,900 73.3 34,225 25,318 8,907 35.2 
Trust fees3,980 479 3,501 730.9 8,874 1,445 7,429 514.1 
Mortgage lending income4,179 5,948 (1,769)(29.7)14,091 20,317 (6,226)(30.6)
Insurance commissions601 586 15 2.6 1,739 1,556 183 11.8 
Increase in cash value of life insurance1,089 509 580 113.9 2,721 1,548 1,173 75.8 
Dividends from FHLB, FRB, FNBB & other1,741 2,661 (920)(34.6)6,384 13,916 (7,532)(54.1)
Gain on sale of SBA loans58 439 (381)(86.8)153 1,588 (1,435)(90.4)
(Loss) gain on sale of branches, equipment and other assets, net(13)(34)21 61.8 (86)91 105.8 
Gain on OREO, net— 246 (246)(100.0)487 1,266 (779)(61.5)
Gain on securities, net— — — 0.0 — 219 (219)(100.0)
Fair value adjustment for marketable securities(2,628)61 (2,689)(4408.2)(2,304)7,093 (9,397)(132.5)
Other income9,487 4,322 5,165 119.5 25,096 15,366 9,730 63.3 
Total non-interest income$43,201 $29,209 $13,992 47.9 %$118,451 $105,605 $12,846 12.2 %
Non-interest income increased $14.0 million, or 47.9%, to $43.2 million for the three months ended September 30, 2022 from $29.2 million for the same period in 2021. The primary factors that resulted in this increase were the increases in other service charges and fees, other income and service charges on deposit accounts. Other factors were changes related to trust fees, mortgage lending income, increase in cash value of life insurance, dividends from FHLB, FRB, FNBB and other and fair value adjustment for marketable securities.
Additional details for the three months ended September 30, 2022 on some of the more significant changes are as follows:
The $4.8 million increase in service charges on deposit accounts is primarily related to an increase in overdraft fees service charge fees related to the acquisition of Happy.
The $5.9 million increase in other service charges and fees is primarily related to an increase in Centennial CFG property finance loan fees and an increase in interchange fees related to the acquisition of Happy.
The $3.5 million increase in trust fees is primarily related to an increase in trust fees resulting from the acquisition of Happy.
72

The $1.8 million decrease in mortgage lending income is primarily related to a decrease in volume of secondary market loans from the high volume of loans during 2021. The decrease in volume is due to the increase in interest rates.
The $580,000 increase in cash value of life insurance is primarily related to the increase in bank owned life insurance resulting from the acquisition of Happy.
The $920,000 decrease for dividends from FHLB, FRB, FNBB & other is primarily due to a decrease in special dividends from equity investments, partially offset by an increase in dividend income from marketable securities and an increase in FRB stock holdings related to the acquisition of Happy.
The $2.7 million decrease in the fair value adjustment for marketable securities is due to a reduction in the fair value of marketable securities held by the Company.
The $5.2 million increase in other income is primarily due to a $3.3 million adjustment for equity method investments. Other factors causing this increase were a $404,000 increase in additional income for items previously charged off, which includes the $1.1 million in recoveries on historic losses; a $618,000 increase in investment brokerage fee income; a $307,000 increase in real estate rental income and a $522,000 increase in building rental income related to the acquisition of Happy.
Non-interest income increased $12.8 million, or 12.2%, to $118.5 million for the nine months ended September 30, 2022 from $105.6 million for the same period in 2021. The primary factors that resulted in this increase were the increase in service charges on deposit accounts and the increase in other income. Other factors were changes related to service charges and fees, trust fees, mortgage lending income, increase in cash value of life insurance, dividends from FHLB, FRB, FNBB and other, gain on sale of SBA loans and fair value adjustment for marketable securities.
Additional details for the nine months ended September 30, 2022 on some of the more significant changes are as follows:
The $10.9 million increase in service charges on deposit accounts is primarily related to an increase in overdraft fees and service charge fees resulting from the acquisition of Happy.
The $8.9 million increase in other service charges and fees is primarily related to an increase in Centennial CFG property finance loan fees and an increase in interchange acquisition fees resulting from the acquisition of Happy.
The $7.4 million increase in trust fees is primarily related to an increase in trust fees resulting from the acquisition of Happy.
The $6.2 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 decrease in volume is due to the increase in interest rates.
The $1.2 million increase in cash value of life insurance is primarily related to BOLI acquired in the acquisition of Happy.
The $7.5 million decrease for dividends from FHLB, FRB, FNBB & other is primarily due to a decrease in special dividends from equity investments, partially offset by an increase in FRB stock holdings related to the acquisition of Happy.
The $1.4 million decrease in gains on sales of SBA loans is primarily due to decrease in the volume of SBA loan sales during 2022.
The $779,000 decrease in gains on OREO resulted from a reduction in the level of sales of OREO during 2022.
The $9.4 million decrease in the fair value adjustment for marketable securities is due to a reduction in the fair value of marketable securities held by the Company.
The $9.7 million increase in other income is primarily due to a $3.3 million adjustment for equity method investments and a $3.2 million increase in additional income for items previously charged off, which includes the $6.7 million recoveries on historic losses. Other factors causing this increase were a $2.0 million increase in investment brokerage fee income, a $529,000 increase in real estate rental income and a $1.0 million increase in building rental income related to the acquisition of Happy.
73

Non-Interest Expense
Non-interest expense primarily consists of salaries and employee benefits, occupancy and equipment, data processing, and other expenses such as advertising, merger and acquisition expenses, amortization of intangibles, electronic banking expense, FDIC and state assessment, insurance, legal and accounting fees and other professional fees.
Table 7 below sets forth a summary of non-interest expense for the three and nine months ended September 30, 2022 and 2021, as well as changes for the three and nine months ended September 30, 2022 compared to the same period in 2021.
Table 7: Non-Interest Expense
Three Months Ended September 30,2022 Change
from 2021
Nine Months Ended September 30,2022 Change
from 2021
2022202120222021
(Dollars in thousands)
Salaries and employee benefits$65,290 $42,469 $22,821 53.7 %$174,636 $126,990 $47,646 37.5 %
Occupancy and equipment15,133 9,305 5,828 62.6 38,533 27,584 10,949 39.7 
Data processing expense8,747 6,024 2,723 45.2 25,880 17,787 8,093 45.5 
Merger and acquisition expenses— 1,006 (1,006)(100.0)49,594 1,006 48,588 4829.8 
Other operating expenses:
Advertising2,024 1,204 820 68.1 5,407 3,444 1,963 57.0 
Amortization of intangibles2,477 1,421 1,056 74.3 6,376 4,262 2,114 49.6 
Electronic banking expense3,828 2,521 1,307 51.8 9,718 7,375 2,343 31.8 
Directors' fees354 395 (41)(10.4)1,133 1,192 (59)(4.9)
Due from bank service charges316 265 51 19.2 982 787 195 24.8 
FDIC and state assessment2,146 1,648 498 30.2 6,204 4,119 2,085 50.6 
Insurance959 749 210 28.0 2,702 2,317 385 16.6 
Legal and accounting1,581 1,050 531 50.6 3,439 2,954 485 16.4 
Other professional fees2,466 1,787 679 38.0 6,329 5,196 1,133 21.8 
Operating supplies681 474 207 43.7 2,430 1,426 1,004 70.4 
Postage614 301 313 104.0 1,476 931 545 58.5 
Telephone593 371 222 59.8 1,314 1,082 232 21.4 
Other expense7,137 4,629 2,508 54.2 20,571 13,015 7,556 58.1 
Total non-interest expense$114,346 $75,619 $38,727 51.2 %$356,724 $221,467 $135,257 61.1 %
Non-interest expense increased $38.7 million, or 51.2%, to $114.3 million for the three months ended September 30, 2022 from $75.6 million for the same period in 2021. The primary factors that resulted in this increase were the changes related to salaries and employee benefits. Other factors were changes related to occupancy and equipment, data processing expense, merger and acquisition expenses, advertising expenses, amortization of intangibles, electronic banking expense and other expenses.
Additional details for the three months ended September 30, 2022 on some of the more significant changes are as follows:
The $22.8 million increase in salaries and employee benefits expense is primarily due to increased salary expenses and insurance expenses related to the acquisition of Happy.
The $5.8 million increase in occupancy and equipment expenses is primarily due to increases in depreciation on buildings, machinery and equipment; utility expenses; lease expense; equipment maintenance and repairs; janitorial expenses; property taxes and other occupancy expenses related to the acquisition of Happy.
The $2.7 million increase in data processing expense is primarily due to increases in telecommunication fees, depreciation of equipment and software, software maintenance and software licensing subscriptions related to the acquisition of Happy.
74

The $1.0 million decrease in merger and acquisition expense is related to preliminary costs associated with the acquisition of Happy during 2021, and the merger expenses for the current year being recorded during the first and second quarters of 2022.
The $820,000 increase in advertising expense is related to the acquisition of Happy.
The $1.1 million increase in amortization of intangibles is due to the acquisition of Happy.
The $1.3 million increase in electronic banking expense is due to increased debit card processing fees and interchange network expenses resulting from the acquisition of Happy.
The $2.5 million increase in other expenses is primarily related to the acquisition of Happy.
Non-interest expense increased $135.3 million, or 61.1%, to $356.7 million for the three months ended September 30, 2022 from $221.5 million for the same period in 2021. The primary factors that resulted in this increase were the changes related to salaries and employee benefits and merger and acquisition expense. Other factors were changes related to occupancy and equipment expense, data processing expense, advertising, advertising expenses, amortization of intangibles, electronic banking expense, FDIC and state assessment fees, other professional fees, operating supplies and other expenses.
Additional details for the nine months ended September 30, 2022 on some of the more significant changes are as follows:
The $47.6 million increase in salaries and employee benefits expense is primarily due to the acquisition of Happy.
The $10.9 million increase in occupancy and equipment expenses is primarily due to increases in depreciation on buildings, machinery and equipment; utility expenses; lease expense; equipment maintenance and repairs; janitorial expenses; property taxes and other occupancy expenses related to the acquisition of Happy.
The $8.1 million increase in data processing expense is primarily due to increases in telecommunication fees, computer software fees, licensing fees, mobile banking, internet banking and cash management expenses related to the acquisition of Happy.
The $48.6 million increase in merger and acquisition expense is related to costs associated with the acquisition of Happy.
The $2.0 million increase in advertising expense is related to the acquisition of Happy.
The $2.1 million increase in amortization of intangibles is due to the acquisition of Happy.
The $2.3 million increase in electronic banking expense is due to increased debit card processing fees and interchange network expenses resulting from the acquisition of Happy.
The $2.1 million increase in FDIC and state assessment expense is primarily due to FDIC assessment reductions for 2021 and the acquisition of Happy during the second quarter of 2022.
The $1.1 million increase in other professional fees is primarily due to the acquisition of Happy.
The $1.0 million increase in operating supplies is primarily due to the acquisition of Happy.
The $7.6 million increase in other expenses is primarily related to the acquisition of Happy as well as $2.1 million in TRUPS redemption fees.
Income Taxes
Income tax expense increased $10.0 million, or 43.3%, to $33.3 million for the three-month period ended September 30, 2022, from $23.2 million for the same period in 2021. Income tax expense decreased $20.6 million, or 26.7%, to $56.6 million for the nine-month period ended September 30, 2022, from $77.2 million for the same period in 2021. The effective income tax rate was 23.43% and 22.98% for the three and nine months ended September 30, 2022, compared to 23.63% and 23.91% for the same periods in 2021. The marginal tax rate was 25.1475% and 25.74% 2022 and 2021, respectively.
75

Financial Condition as of and for the Period Ended September 30, 2022 and December 31, 2021
Our total assets as of September 30, 2022 increased $5.11 billion to $23.16 billion from $18.05 billion reported as of December 31, 2021. The increase in total assets is primarily due to the acquisition of $6.69 billion in total assets, net of purchase accounting adjustments, from Happy during the second quarter of 2022. Cash and cash equivalents decreased $2.07 billion for the nine months ended September 30, 2022. Our loan portfolio balance increased to $13.83 billion as of September 30, 2022 from $9.84 billion at December 31, 2021. The increase in loans was primarily due to the acquisition of $3.65 billion in loans, net of purchase accounting adjustments, from Happy in the second quarter of 2022 and $242.2 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $98.4 million in organic loan growth. Total deposits increased $4.28 billion to $18.54 billion as of September 30, 2022 from $14.26 billion as of December 31, 2021. The increase in deposits was primarily due to the acquisition of $5.86 billion in deposits, net of purchase accounting adjustments, from Happy in the second quarter of 2022. Stockholders’ equity increased $694.3 million to $3.46 billion as of September 30, 2022, compared to $2.77 billion as of December 31, 2021. The $694.3 million increase in stockholders’ equity is primarily associated with the $961.3 million in common stock issued to Happy shareholders for the acquisition of Happy on April 1, 2022 and the $189.6 million in net income for the nine months ended September 30, 2022, partially offset by the $317.9 million in other comprehensive loss, the $94.8 million of shareholder dividends paid and stock repurchases of $50.9 million in 2022.
Loan Portfolio
Loans Receivable
Our loan portfolio averaged $13.82 billion and $10.04 billion during the three months ended September 30, 2022 and 2021, respectively. Our loan portfolio averaged $12.55 billion and $10.53 billion during the nine months ended September 30, 2022 and 2021, respectively. Loans receivable were $13.83 billion and $9.84 billion as of September 30, 2022 and December 31, 2021, respectively.
From December 31, 2021 to September 30, 2022, the Company experienced an increase of approximately $3.99 billion in loans. The increase in loans was primarily due to the acquisition of $3.65 billion in loans, net of purchase accounting adjustments, from Happy in the second quarter of 2022 and $242.2 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $98.4 million in organic loan growth. The $98.4 million in organic loan growth included $156.6 million in loan growth for Centennial CFG and $96.0 million in loan growth within the remaining footprint, which was partially offset by a $154.2 million in decline in PPP loans. As of September 30, 2022, the Company had $10.8 million of PPP loans.
The most significant components of the loan portfolio were commercial real estate, residential real estate, consumer and commercial and industrial loans. These loans are generally secured by residential or commercial real estate or business or personal property. Although these loans are primarily originated within our franchises in Arkansas, Florida, Texas, Alabama and Centennial CFG, the property securing these loans may not physically be located within our market areas of Arkansas, Florida, Texas, Alabama and New York. Loans receivable were approximately $3.06 billion, $3.62 billion, $3.74 billion, $183.5 million, $1.15 billion and $2.08 billion as of September 30, 2022 in Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG, respectively.
As of September 30, 2022, we had approximately $921.3 million of construction land development loans which were collateralized by land. This consisted of approximately $148.9 million for raw land and approximately $772.4 million for land with commercial and/or residential lots.
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Table 8 presents our loans receivable balances by category as of September 30, 2022 and December 31, 2021.
Table 8: Loans Receivable
September 30, 2022December 31, 2021
(In thousands)
Real estate:
Commercial real estate loans:
Non-farm/non-residential$5,156,438 $3,889,284 
Construction/land development2,232,906 1,850,050 
Agricultural330,748 130,674 
Residential real estate loans:
Residential 1-4 family1,704,850 1,274,953 
Multifamily residential525,110 280,837 
Total real estate9,950,052 7,425,798 
Consumer1,120,250 825,519 
Commercial and industrial2,268,750 1,386,747 
Agricultural313,693 43,920 
Other176,566 154,105 
Total loans receivable$13,829,311 $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 September 30, 2022, commercial real estate loans totaled $7.72 billion, or 55.8%, 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, Texas, Alabama, SPF and Centennial CFG markets were $1.95 billion, $2.36 billion, $2.21 billion, $80.7 million, zero and $1.12 billion at September 30, 2022, respectively.
Residential Real Estate Loans. We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas. Approximately 40.0% and 50.1% 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 September 30, 2022, with the remaining 9.9% 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 September 30, 2022, residential real estate loans totaled $2.23 billion, or 16.1%, of loans receivable, compared to $1.56 billion, or 15.8%, of loans receivable, as of December 31, 2021. Residential real estate loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $423.2 million, $930.0 million, $552.1 million, $46.7 million, zero and $278.0 million at September 30, 2022, respectively.
Consumer Loans. Our consumer loans are composed of secured and unsecured loans originated by our bank, the primary portion of which consists of loans to finance USCG registered high-end sail and power boats within our SPF division. The performance of consumer loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.

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As of September 30, 2022, consumer loans totaled $1.12 billion, or 8.1%, of loans receivable, compared to $825.5 million, or 8.4%, of loans receivable, as of December 31, 2021. Consumer loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $29.3 million, $8.4 million, $27.9 million, $890,000, $1.05 billion and zero at September 30, 2022, respectively.
Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years. Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally, accounts receivable are financed at between 50% and 80% of accounts receivable less than 60 days past due. Inventory financing will range between 50% and 80% (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans.
As of September 30, 2022, commercial and industrial loans totaled $2.27 billion, or 16.4%, of loans receivable, compared to $1.39 billion, or 14.1%, of loans receivable, as of December 31, 2021. Commercial and industrial loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $482.6 million, $264.0 million, $691.8 million, $52.6 million, $97.5 million and $680.4 million at September 30, 2022, respectively.
Non-Performing Assets
We classify our problem loans into three categories: past due loans, special mention loans and classified loans (accruing and non-accruing).
When management determines that a loan is no longer performing, and that collection of interest appears doubtful, the loan is placed on non-accrual status. Loans that are 90 days past due are placed on non-accrual status unless they are adequately secured and there is reasonable assurance of full collection of both principal and interest. Our management closely monitors all loans that are contractually 90 days past due, treated as “special mention” or otherwise classified or on non-accrual status.
Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses. The Company held approximately $146.0 million and $448,000 in PCD loans, as of September 30, 2022 and December 31, 2021, respectively.

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Table 9 sets forth information with respect to our non-performing assets as of September 30, 2022 and December 31, 2021. As of these dates, all non-performing restructured loans are included in non-accrual loans.
Table 9: Non-performing Assets
As of September 30, 2022As of December 31, 2021
(Dollars in thousands)
Non-accrual loans$56,796 $47,158 
Loans past due 90 days or more (principal or interest payments)4,898 3,035 
Total non-performing loans61,694 50,193 
Other non-performing assets
Foreclosed assets held for sale, net365 1,630 
Other non-performing assets104 — 
Total other non-performing assets469 1,630 
Total non-performing assets$62,163 $51,823 
Allowance for credit losses to non-accrual loans509.20 %501.96 %
Allowance for credit losses to non-performing loans468.77 471.61 
Non-accrual loans to total loans0.41 0.48 
Non-performing loans to total loans0.45 0.51 
Non-performing assets to total assets0.27 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 $61.7 million and $50.2 million as of September 30, 2022 and December 31, 2021, respectively. Non-performing loans at September 30, 2022 were $10.2 million, $24.8 million, $13.7 million, $204,000, $1.4 million and $11.4 million in the Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets, respectively.
The $11.4 million balance of non-accrual loans for our Centennial CFG market consists of two loans that are assessed for credit risk by the Federal Reserve under the Shared National Credit Program. Due to the condition of the two loans, partial charge-offs for a total of $2.2 million were taken on these loans during the third quarter of 2022. The loans are not current on either principal or interest, and we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve. Any interest payments that are received will be applied to the principal balance.
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 September 30, 2022, we had $6.2 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 $3.5 million and our Arkansas market contains $2.7 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 September 30, 2022 and December 31, 2021, the amount of TDRs was $7.6 million and $7.5 million, respectively. As of September 30, 2022 and December 31, 2021, 81.1% and 85.7%, respectively, of all restructured loans were performing to the terms of the restructure.
Total foreclosed assets held for sale were $365,000 as of September 30, 2022, compared to $1.6 million as of December 31, 2021 for a decrease of $1.3 million. The foreclosed assets held for sale as of September 30, 2022 are comprised of zero assets located in Arkansas, $260,000 located in Florida, $105,000 located in Texas and zero from Alabama, SPF and Centennial CFG.
Table 10 shows the summary of foreclosed assets held for sale as of September 30, 2022 and December 31, 2021.
Table 10: Foreclosed Assets Held For Sale
As of September 30, 2022As of December 31, 2021
(In thousands)
Commercial real estate loans
Non-farm/non-residential$49 $536 
Construction/land development47 834 
Residential real estate loans
Residential 1-4 family269 260 
Total foreclosed assets held for sale$365 $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 September 30, 2022 and December 31, 2021, impaired loans were $229.3 million and $331.5 million, respectively. The amortized cost balance for loans with a specific allocation decreased from $284.0 million to $169.7 million, and the specific allocation for impaired loans decreased by approximately $21.9 million for the period ended September 30, 2022 compared to the period ended December 31, 2021. The Company is continuing to monitor these impaired loans and will adjust the discount as necessary. As of September 30, 2022, our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets accounted for approximately $24.2 million, $132.3 million, $59.8 million, $204,000, $1.4 million and $11.4 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 September 30, 2022 and December 31, 2021:
Table 11: Total Non-Accrual Loans
As of September 30, 2022As of December 31, 2021
(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential$18,621 $11,923 
Construction/land development1,895 1,445 
Agricultural772 897 
Residential real estate loans
Residential 1-4 family16,549 16,198 
Multifamily residential156 156 
Total real estate37,993 30,619 
Consumer1,778 1,648 
Commercial and industrial16,431 13,875 
Agricultural & other594 1,016 
Total non-accrual loans$56,796 $47,158 
If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $1.1 million and $662,000, respectively, would have been recorded for the three-month periods ended September 30, 2022 and 2021. If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $3.2 million and $2.0 million, respectively, would have been recorded for the nine month periods ended September 30, 2022 and 2021. The interest income recognized on non-accrual loans for the three and nine months ended September 30, 2022 and 2021 was considered immaterial.
Table 12 shows the summary of accruing past due loans 90 days or more as of September 30, 2022 and December 31, 2021:
Table 12: Loans Accruing Past Due 90 Days or More
As of September 30, 2022As of December 31, 2021
(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential$290 $2,225 
Construction/land development34 — 
Residential real estate loans
Residential 1-4 family1,445 701 
Total real estate1,769 2,926 
Consumer15 
Commercial and industrial2,901 107 
Other213 — 
Total loans accruing past due 90 days or more$4,898 $3,035 
Our ratio of total loans accruing past due 90 days or more and non-accrual loans to total loans was 0.45% and 0.51% at September 30, 2022 and December 31, 2021, respectively.
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Allowance for Credit Losses
Overview. The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
The Company uses the discounted cash flow (“DCF”) method to estimate expected losses for all of the Company’s loan pools. These pools are as follows: construction & land development; other commercial real estate; residential real estate; commercial & industrial; and consumer & other. The loan portfolio pools were selected in order to generally align with the loan categories specified in the quarterly call reports required to be filed with the Federal Financial Institutions Examination Council. For each of these loan pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.
For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, national retail sales index, housing price indices and rental vacancy rate index.
The combination of adjustments for credit expectations (default and loss) and time expectations prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.
The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower or
the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
Management qualitatively adjusts model results for risk factors ("Q-Factors") that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factors and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.
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Loans considered impaired, according to ASC 326, are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.
Acquisition Accounting and Acquired Loans. We account for our acquisitions under FASB ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.
Purchased loans that have experienced more than insignificant credit deterioration since origination are PCD loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
Specific Allocations. As a general rule, if a specific allocation is warranted, it is the result of an analysis of a previously classified credit or relationship. Typically, when it becomes evident through the payment history or a financial statement review that a loan or relationship is no longer supported by the cash flows of the asset and/or borrower and has become collateral dependent, we will use appraisals or other collateral analysis to determine if collateral impairment has occurred. The amount or likelihood of loss on this credit may not yet be evident, so a charge-off would not be prudent. However, if the analysis indicates that an impairment has occurred, then a specific allocation will be determined for this loan. If our existing appraisal is outdated or the collateral has been subject to significant market changes, we will obtain a new appraisal for this impairment analysis. The majority of our impaired loans are collateral dependent at the present time, so third-party appraisals were used to determine the necessary impairment for these loans. Cash flow available to service debt was used for the other impaired loans. This analysis is performed each quarter in connection with the preparation of the analysis of the adequacy of the allowance for credit losses, and if necessary, adjustments are made to the specific allocation provided for a particular loan.

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For collateral dependent loans, we do not consider an appraisal outdated simply due to the passage of time. However, if an appraisal is older than 13 months and if market or other conditions have deteriorated and we believe that the current market value of the property is not within approximately 20% of the appraised value, we will consider the appraisal outdated and order either a new appraisal or an internal validation report for the impairment analysis. The recognition of any provision or related charge-off on a collateral dependent loan is either through annual credit analysis or, many times, when the relationship becomes delinquent. If the borrower is not current, we will update our credit and cash flow analysis to determine the borrower's repayment ability. If we determine this ability does not exist and it appears that the collection of the entire principal and interest is not likely, then the loan could be placed on non-accrual status. In any case, loans are classified as non-accrual no later than 105 days past due. If the loan requires a quarterly impairment analysis, this analysis is completed in conjunction with the completion of the analysis of the adequacy of the allowance for credit losses. Any exposure identified through the impairment analysis is shown as a specific reserve on the individual impairment. If it is determined that a new appraisal or internal validation report is required, it is ordered and will be taken into consideration during completion of the next impairment analysis.
In estimating the net realizable value of the collateral, management may deem it appropriate to discount the appraisal based on the applicable circumstances. In such case, the amount charged off may result in loan principal outstanding being below fair value as presented in the appraisal.
Between the receipt of the original appraisal and the updated appraisal, we monitor the loan's repayment history. If the loan is $3.0 million or greater or the total loan relationship is $5.0 million or greater, our policy requires an annual credit review. For these loans, our policy requires financial statements from the borrowers and guarantors at least annually. In addition, we calculate the global repayment ability of the borrower/guarantors at least annually on these loans.
As a general rule, when it becomes evident that the full principal and accrued interest of a loan may not be collected, or by law at 105 days past due, we will reflect that loan as non-performing. It will remain non-performing until it performs in a manner that it is reasonable to expect that we will collect the full principal and accrued interest.
When the amount or likelihood of a loss on a loan has been determined, a charge-off should be taken in the period it is determined. If a partial charge-off occurs, the quarterly impairment analysis will determine if the loan is still impaired, and thus continues to require a specific allocation.
The Company had $229.3 million and $331.5 million in collateral-dependent impaired loans for the periods ended September 30, 2022 and December 31, 2021, respectively.
Loans Collectively Evaluated for Impairment. Loans receivable collectively evaluated for impairment increased by approximately $4.10 billion from $9.54 billion at December 31, 2021 to $13.64 billion at September 30, 2022. The percentage of the allowance for credit losses allocated to loans receivable collectively evaluated for impairment to the total loans collectively evaluated for impairment was 1.90% and 1.94% at September 30, 2022 and December 31, 2021, respectively.
Charge-offs and Recoveries. Total charge-offs increased to $6.3 million for the three months ended September 30, 2022, compared to $2.5 million for the same period in 2021. Total charge-offs increased to $11.9 million for the nine months ended September 30, 2022, compared to $8.5 million for the same period in 2021. Total recoveries were $1.2 million and $691,000 for the three months ended September 30, 2022 and 2021, respectively. Total recoveries were $2.4 million and $1.7 million for the nine months ended September 30, 2022 and 2021, respectively. For the three months ended September 30, 2022, net charge-offs were $295,000 for Arkansas, $1.6 million for Florida, $1.0 million for Texas, $11,000 for Alabama and $2.2 million for Centennial CFG, partially offset by net recoveries of $3,000 for SPF. These equal a net charge-off position of $5.1 million. For the nine months ended September 30, 2022, net charge-offs were $825,000 for Arkansas, $4.3 million for Florida, $1.7 million for Texas, $47,000 for Alabama, $392,000 for SPF and $2.2 million for Centennial CFG. These equal a net charge-off position of $9.5 million.
We have not charged off an amount less than what was determined to be the fair value of the collateral as presented in the appraisal, less estimated costs to sell (for collateral dependent loans), for any period presented. Loans partially charged-off are placed on non-accrual status until it is proven that the borrower's repayment ability with respect to the remaining principal balance can be reasonably assured. This is usually established over a period of 6-12 months of timely payment performance.
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Table 13 shows the allowance for credit losses, charge-offs and recoveries as of and for the three and nine months ended September 30, 2022 and 2021.
Table 13: Analysis of Allowance for Credit Losses
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Dollars in thousands)
Balance, beginning of period$294,267 $240,451 $236,714 $245,473 
Allowance for credit losses on PCD loans - Happy acquisition— — 16,816 — 
Loans charged off
Real estate:
Commercial real estate loans:
Non-farm/non-residential— — 604 
Construction/land development11 — 11 — 
Agricultural— — — 42 
Residential real estate loans:
Residential 1-4 family48 220 337 543 
Total real estate59 229 348 1,189 
Consumer47 21 2,284 143 
Commercial and industrial4,536 1,682 5,952 5,892 
Other1,671 537 3,304 1,315 
Total loans charged off6,313 2,469 11,888 8,539 
Recoveries of loans previously charged off
Real estate:
Commercial real estate loans:
Non-farm/non-residential778 44 856 112 
Construction/land development325 47 
Residential real estate loans:
Residential 1-4 family45 388 94 554 
Total real estate831 440 1,275 713 
Consumer42 19 90 51 
Commercial and industrial189 80 519 382 
Other187 152 507 593 
Total recoveries1,249 691 2,391 1,739 
Net loans charged off 5,064 1,778 9,497 6,800 
Provision for credit loss - acquired loans— — 45,170 — 
Balance, September 30$289,203 $238,673 $289,203 $238,673 
Net charge-offs to average loans receivable0.15 %0.07 %0.10 %0.09 %
Allowance for credit losses to total loans2.09 2.41 2.09 2.41 
Allowance for credit losses to net charge-offs 1,439.47 3,383.50 2,277.65 2,625.21 


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Table 14 presents the allocation of allowance for credit losses as of September 30, 2022 and December 31, 2021.
Table 14: Allocation of Allowance for Credit Losses
As of September 30, 2022As 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$90,655 37.3 %$86,910 39.5 %
Construction/land development34,687 16.1 28,415 18.8 
Agricultural residential real estate loans1,758 2.4 308 1.3 
Residential real estate loans:
Residential 1-4 family45,074 12.3 45,364 13.0 
Multifamily residential4,747 3.8 3,094 2.9 
Total real estate176,921 71.9 164,091 75.5 
Consumer20,513 8.1 16,612 8.4 
Commercial and industrial88,143 16.4 52,910 14.1 
Agricultural1,278 2.3 152 0.4 
Other2,348 1.3 2,949 1.6 
Total$289,203 100.0 %$236,714 100.0 %
(1)Percentage of loans in each category to total loans receivable.
Investment Securities
Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as held-to-maturity, available-for-sale, or trading based on the intent and objective of the investment and the ability to hold to maturity. Fair values of securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities. The estimated effective duration of our securities portfolio was 5.2 years as of September 30, 2022.
Securities held-to-maturity, which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. As of September 30, 2022, we had $1.25 billion of held-to-maturity securities. As of September 30, 2022, $1.11 billion, or 88.7%, was invested in obligations of state and political subdivisions, $43.0 million, or 3.4%, were invested in obligations of U.S. Government-sponsored enterprises and $98.5 million, or 7.9%, were invested in mortgage-backed securities. The U.S. government-sponsored enterprises and mortgage-backed securities are guaranteed by the U.S. government.
Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity as other comprehensive (loss) income. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. Available-for-sale securities were $4.09 billion and $3.12 billion as September 30, 2022 and December 31, 2021, respectively.
As of September 30, 2022, $1.94 billion, or 47.5%, 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, $900.2 million, or 22.0%, of our available-for-sale securities portfolio as of September 30, 2022, were primarily invested in tax-exempt obligations of state and political subdivisions, compared to $997.0 million, or 32.0%, of our available-for-sale securities as of December 31, 2021. We had $682.0 million, or 16.7%, invested in obligations of U.S. Government-sponsored enterprises as of September 30, 2022, compared to $433.0 million, or 13.9%, of our available-for-sale securities as of December 31, 2021. Also, we had approximately $564.3 million, or 13.8%, invested in other securities as of September 30, 2022, compared to $151.9 million, or 4.9% of our available-for-sale securities as of December 31, 2021.
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The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
The Company recorded a $2.0 million provision for credit losses on the held-to-maturity investment securities during the second quarter of 2022 as a result of the investment securities acquired as part of the Happy acquisition. Of the Company's held-to-maturity securities, $1.11 billion, or 88.7% are municipal securities. To estimate the necessary loss provision, the Company utilized historical default and recovery rates of the municipal bond sector and applied these rates using a pooling method. The remainder of investments classified as held-to-maturity are U.S. government-sponsored enterprises and mortgage-backed securities all of which are guaranteed by the U.S. government. Due to the inherent low risk in these U.S. government guaranteed securities, no provision for credit loss was established on this portion of the portfolio.
At September 30, 2022, the Company determined that the allowance for credit losses of $842,000, resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio, and the allowance for credit losses for the HTM portfolio was considered adequate. No additional provision for credit losses was considered necessary for the portfolio.
See Note 3 to the Condensed Notes to Consolidated Financial Statements for the carrying value and fair value of investment securities.
Deposits
Our deposits averaged $19.09 billion and $17.82 billion for the three and nine months ended September 30, 2022, respectively. Our deposits averaged $13.95 billion and $13.59 billion for the three and nine months ended September 30, 2021, respectively. Total deposits were $18.54 billion as of September 30, 2022, and $14.26 billion as of December 31, 2021. Deposits are our primary source of funds. We offer a variety of products designed to attract and retain deposit customers. Those products consist of checking accounts, regular savings deposits, NOW accounts, money market accounts and certificates of deposit. Deposits are gathered from individuals, partnerships and corporations in our market areas. In addition, we obtain deposits from state and local entities and, to a lesser extent, U.S. Government and other depository institutions.
Our policy also permits the acceptance of brokered deposits. From time to time, when appropriate in order to fund strong loan demand, we accept brokered time deposits, generally in denominations of less than $250,000, from a regional brokerage firm, and other national brokerage networks. We also participate in the One-Way Buy Insured Cash Sweep (“ICS”) service and similar services, which provide for one-way buy transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements. Management believes these sources represent a reliable and cost-efficient alternative funding source for the Company. However, to the extent that our condition or reputation deteriorates, or to the extent that there are significant changes in market interest rates which we do not elect to match, we may experience an outflow of brokered deposits. In that event we would be required to obtain alternate sources for funding.

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Table 15 reflects the classification of the brokered deposits as of September 30, 2022 and December 31, 2021.
Table 15: Brokered Deposits
September 30, 2022December 31, 2021
(In thousands)
Insured Cash Sweep and Other Transaction Accounts546,643 625,704 
Total Brokered Deposits$546,643 $625,704 
The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will continue to manage interest expense through deposit pricing. We may allow higher rate deposits to run off during periods of limited loan demand. We believe that additional funds can be attracted, and deposit growth can be realized through deposit pricing if we experience increased loan demand or other liquidity needs.
The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. In 2020, the Federal Reserve lowered the target rate to 0.00% to 0.25%. This remained in effect throughout all of 2021. On March 16, 2022, the target rate was increased to 0.25% to 0.50%. On May 4, 2022, the target rate was increased to 0.75% to 1.00%. On June 15, 2022, the target rate was increased to 1.50% to 1.75%. On July 27, 2022, the target rate was increased to 2.25% to 2.50%. On September 21, 2022, the target rate was increased to 3.00% to 3.25%. Presently, the Federal Reserve has indicated they are anticipating further rate increases.
Table 16 reflects the classification of the average deposits and the average rate paid on each deposit category, which are in excess of 10 percent of average total deposits, for the three and nine months ended September 30, 2022 and 2021.
Table 16: Average Deposit Balances and Rates
Three Months Ended September 30,
20222021
Average
Amount
Average
Rate Paid
Average
Amount
Average
Rate Paid
(Dollars in thousands)
Non-interest-bearing transaction accounts$5,779,082 — %$4,091,174 — %
Interest-bearing transaction accounts10,759,379 0.81 7,895,663 0.18 
Savings deposits1,474,376 0.09 898,994 0.06 
Time deposits:
$100,000 or more654,550 0.37 708,524 0.94 
Other time deposits423,562 0.32 354,976 0.40 
Total$19,090,949 0.49 %$13,949,331 0.16 %
Nine Months Ended September 30,
20222021
Average
Amount
Average
Rate Paid
Average
Amount
Average
Rate Paid
(Dollars in thousands)
Non-interest-bearing transaction accounts$5,363,770 — %$3,848,302 — %
Interest-bearing transaction accounts10,058,021 0.47 7,754,622 0.21 
Savings deposits1,362,545 0.07 853,106 0.06 
Time deposits:
$100,000 or more635,555 0.43 767,594 1.06 
Other time deposits399,785 0.30 363,944 0.51 
Total$17,819,676 0.29 %$13,587,568 0.19 %
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Securities Sold Under Agreements to Repurchase
We enter into short-term purchases of securities under agreements to resell (resale agreements) and sales of securities under agreements to repurchase (repurchase agreements) of substantially identical securities. The amounts advanced under resale agreements and the amounts borrowed under repurchase agreements are carried on the balance sheet at the amount advanced. Interest incurred on repurchase agreements is reported as interest expense. Securities sold under agreements to repurchase decreased $19.3 million, or 13.7%, from $140.9 million as of December 31, 2021 to $121.6 million as of September 30, 2022.
FHLB and Other Borrowed Funds
The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $400.0 million at both September 30, 2022 and December 31, 2021. The Company had no other borrowed funds as of September 30, 2022 or December 31, 2021. At September 30, 2022 all of the outstanding balances were classified as short-term advances as the FHLB has provided notice of their intention to call all of the Company's FHLB borrowed funds within a year due to the low interest rates on the advances. At 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%. As noted above, 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 $440.6 million and $371.1 million as of September 30, 2022 and December 31, 2021, respectively.
On April 1, 2022, the Company acquired $23.2 million in trust preferred securities from Happy which were currently callable without penalty based on the terms of the specific agreements. During the second and third quarters of 2022, the Company redeemed, without penalty, the $23.2 million of the trust preferred securities acquired from Happy. In addition, during the second and third quarters, the Company also redeemed, without penalty, the $73.3 million of trust preferred securities held prior to the Happy acquisition. As a result, the Company no longer holds any trust preferred securities.
On April 1, 2022, the Company acquired $140.0 million of subordinated notes from Happy. These notes have a maturity date of July 31, 2030 and carry a fixed rate of 5.500% for the first five years. Thereafter, the notes bear interest at 3-month Secured Overnight Funding Rate (SOFR) plus 5.345% resetting quarterly. Interest payments are due semi-annually and the notes include a right of prepayment without penalty on or after July 31, 2025.
On January 18, 2022, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 3.125% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “2032 Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $296.4 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. From and including the date of issuance to, but excluding January 30, 2027 or the date of earlier redemption, the 2032 Notes will bear interest at an initial rate of 3.125% per annum, payable in arrears on January 30 and July 30 of each year. From and including January 30, 2027 to, but excluding the maturity date or earlier redemption, the 2032 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be Three-Month Term SOFR), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2032 Notes, plus 182 basis points, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on April 30, 2027.
The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.

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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 were unsecured, subordinated debt obligations and would have matured on April 15, 2027. From and including the date of issuance to, but excluding April 15, 2022, the 2027 Notes bore 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 were to 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 was less than zero, then three-month LIBOR would have been deemed to be zero.
The Company, beginning with the interest payment date of April 15, 2022, and on any interest payment date thereafter, was permitted to redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. On April 15, 2022, the Company completed the payoff of the 2027 Notes in aggregate principal amount of $300.0 million. Each 2027 Note was redeemed pursuant to the terms of the Subordinated Indenture, as supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S. Bank Trust Company, National Association, the Trustee for the 2027 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.
Stockholders’ Equity
Stockholders’ equity increased $694.3 million to $3.46 billion as of September 30, 2022, compared to $2.77 billion as of December 31, 2021. The $694.3 million increase in stockholders’ equity is primarily associated with the $961.3 million in common stock issued to Happy shareholders for the acquisition of Happy on April 1, 2022 and the $189.6 million in net income for the nine months ended September 30, 2022, partially offset by the $317.9 million in other comprehensive loss, the $94.8 million of shareholder dividends paid and stock repurchases of $50.9 million in 2022. As of September 30, 2022 and December 31, 2021, our equity to asset ratio was 14.94% and 15.32%, respectively. Book value per share was $16.94 as of September 30, 2022, compared to $16.90 as of December 31, 2021, a 0.3% annualized increase.
Common Stock Cash Dividends. We declared cash dividends on our common stock of $0.165 and $0.14 per share for the three months ended September 30, 2022 and 2021, respectively. The common stock dividend payout ratio for the three months ended September 30, 2022 and 2021 was 31.1% and 30.6%, respectively. The common stock dividend payout ratio for the nine months ended September 30, 2022 and 2021 was 50.0% and 28.2%, respectively. On October 21, 2022, the Board of Directors declared a regular $0.165 per share quarterly cash dividend payable December 7, 2022, to shareholders of record November 16, 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 2,258,531 shares with a weighted-average stock price of $22.50 per share during the first nine months of 2022. The remaining balance available for repurchase was 19,832,134 shares at September 30, 2022.
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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. 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 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 is 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 September 30, 2022 and December 31, 2021, we met all regulatory capital adequacy requirements to which we were subject.
On January 18, 2022, the Company completed an underwritten public offering of the 2032 Notes in aggregate principal amount of $300.0 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.
On April 1, 2022, the Company acquired $140.0 million of subordinated notes from Happy. These notes have a maturity date of July 31, 2030 and carry a fixed rate of 5.500% for the first five years. Thereafter, the notes bear interest at 3-month Secured Overnight Funding Rate (SOFR) plus 5.345% resetting quarterly. Interest payments are due semi-annually and the notes include a right of prepayment without penalty on or after July 31, 2025.
On April 3, 2017, the Company completed an underwritten public offering of the 2027 Notes in aggregate principal amount of $300.0 million. The 2027 Notes were unsecured, subordinated debt obligations and would have matured on April 15, 2027. On April 15, 2022, the Company completed the payoff of the 2027 Notes in aggregate principal amount of $300.0 million. Each 2027 Note was redeemed pursuant to the terms of the Subordinated Indenture, as supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S. Bank Trust Company, National Association, the Trustee for the 2027 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.

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On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to permit bank holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 27, 2020, the federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows bank holding companies and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. The Company has elected to adopt the interim final rule, which is reflected in the risk-based capital ratios presented below.
Table 17 presents our risk-based capital ratios on a consolidated basis as of September 30, 2022 and December 31, 2021.
Table 17: Risk-Based Capital
As of September 30, 2022As of December 31, 2021
(Dollars in thousands)
Tier 1 capital
Stockholders’ equity$3,460,015 $2,765,721 
ASC 326 transitional period adjustment24,369 55,143 
Goodwill and core deposit intangibles, net(1,454,837)(997,605)
Unrealized loss on available-for-sale securities307,455 (10,462)
Total common equity Tier 1 capital2,337,002 1,812,797 
Qualifying trust preferred securities— 71,270 
Total Tier 1 capital2,337,002 1,884,067 
Tier 2 capital
Allowance for credit losses289,203 236,714 
ASC 326 transitional period adjustment(24,369)(55,143)
Disallowed allowance for credit losses (limited to 1.25% of risk weighted assets)(39,796)(33,514)
Qualifying allowance for credit losses225,038 148,057 
Qualifying subordinated notes440,568 299,824 
Total Tier 2 capital665,606 447,881 
Total risk-based capital$3,002,608 $2,331,948 
Average total assets for leverage ratio$22,561,638 $16,960,683 
Risk weighted assets$17,929,429 $11,793,539 
Ratios at end of period
Common equity Tier 1 capital13.03 %15.37 %
Leverage ratio10.36 11.11 
Tier 1 risk-based capital13.03 15.98 
Total risk-based capital16.75 19.77 
Minimum guidelines – Basel III
Common equity Tier 1 capital7.00 %7.00 %
Leverage ratio4.00 4.00 
Tier 1 risk-based capital8.50 8.50 
Total risk-based capital10.50 10.50 
Well-capitalized guidelines
Common equity Tier 1 capital6.50 %6.50 %
Leverage ratio5.00 5.00 
Tier 1 risk-based capital8.00 8.00 
Total risk-based capital10.00 10.00 
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As of the most recent notification from regulatory agencies, our bank subsidiary was “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” we, as well as our banking subsidiary, must maintain minimum common equity Tier 1 capital, leverage, Tier 1 risk-based capital, and total risk-based capital ratios as set forth in the table. There are no conditions or events since that notification that we believe have changed the bank subsidiary’s category.
Non-GAAP Financial Measurements
Our accounting and reporting policies conform to generally accepted accounting principles in the United States (“GAAP”) and the prevailing practices in the banking industry. However, this report contains financial information determined by methods other than in accordance with GAAP, including earnings, as adjusted; diluted earnings per common share, as adjusted; tangible book value per share; return on average assets, excluding intangible amortization; return on average assets, as adjusted; return on average common equity, as adjusted; return on average tangible equity, excluding intangible amortization; return on average tangible equity, as adjusted; tangible equity to tangible assets; and efficiency ratio, as adjusted.
We believe these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these non-GAAP measures and ratios in assessing our operating results and related trends, and when planning and forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP.
The tables below present non-GAAP reconciliations of earnings, as adjusted, and diluted earnings per share, as adjusted, as well as the non-GAAP computations of tangible book value per share; return on average assets, excluding intangible amortization; return on average assets, as adjusted; return on average common equity, as adjusted; return on average tangible equity excluding intangible amortization; return on average tangible equity, as adjusted; tangible equity to tangible assets; and efficiency ratio, as adjusted. The items used in these calculations are included in financial results presented in accordance with GAAP.
Earnings, as adjusted, and diluted earnings per common share, as adjusted, are meaningful non-GAAP financial measures for management, as they exclude certain items such as merger expenses and/or certain gains and losses. Management believes the exclusion of these items in expressing earnings provides a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of our business, because management does not consider these items to be relevant to ongoing financial performance.

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In Table 18 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.
Table 18: Earnings, As Adjusted
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Dollars in thousands)
GAAP net income available to common shareholders (A)$108,705 $74,992 $189,575 $245,664 
Pre-tax adjustments:
Merger and acquisition expenses— 1,006 49,594 1,006 
Initial provision for credit losses - acquisition— — 58,585 — 
Fair value adjustment for marketable securities2,628 (61)2,304 (7,093)
Special dividend from equity investment— (2,227)(1,434)(12,500)
TRUPS redemption fees— — 2,081 — 
Recoveries on historic losses(1,065)— (6,706)(5,107)
Gain on securities— — — (219)
Total pre-tax adjustments1,563 (1,282)104,424 (23,913)
Tax-effect of adjustments(1)
393 (587)25,569 (6,412)
Total adjustments after-tax (B)1,170 (695)78,855 (17,501)
Earnings, as adjusted (C)$109,875 $74,297 $268,430 $228,163 
Average diluted shares outstanding (D)205,135 164,603 191,941 165,050 
GAAP diluted earnings per share: A/D$0.53 $0.46 $0.99 $1.49 
Adjustments after-tax: B/D0.01 (0.01)0.41 (0.11)
Diluted earnings per common share excluding adjustments: C/D$0.54 $0.45 $1.40 $1.38 
(1) Blended statutory rate of 25.1475% for 2022 and 25.74% for 2021
We had $1.46 billion, $998.1 million, and $999.5 million in total goodwill, core deposit intangibles and other intangible assets as of September 30, 2022, December 31, 2021 and September 30, 2021, respectively. Because of our level of intangible assets and related amortization expenses, management believes tangible book value per share, return on average assets excluding intangible amortization, return on average tangible equity, return on average tangible equity excluding intangible amortization, and tangible equity to tangible assets are useful in evaluating our company. Management also believes return on average assets, as adjusted, return on average equity, as adjusted, and return on average tangible equity, as adjusted, are meaningful non-GAAP financial measures, as they exclude items such as certain non-interest income and expenses that management believes are not indicative of our primary business operating results. These calculations, which are similar to the GAAP calculations of book value per share, return on average assets, return on average equity, and equity to assets, are presented in Tables 19 through 22, respectively.
Table 19: Tangible Book Value Per Share
As of September 30, 2022As of December 31, 2021
(In thousands, except per share data)
Book value per share: A/B$16.94 $16.90 
Tangible book value per share: (A-C-D)/B9.82 10.80 
(A) Total equity$3,460,015 $2,765,721 
(B) Shares outstanding204,219 163,699 
(C) Goodwill1,394,353 973,025 
(D) Core deposit intangibles60,932 25,045 
94

Table 20: Return on Average Assets
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Dollars in thousands)
Return on average assets: A/D1.81 %1.68 %1.13 %1.90 %
Return on average assets, as adjusted: (A+C)/D1.83 1.67 1.61 1.76 
Return on average assets excluding intangible amortization: B/(D-E)1.97 1.81 1.23 2.04 
(A) Net income$108,705 $74,992 $189,575 $245,664 
  Intangible amortization after-tax1,854 1,055 4,757 3,164 
(B) Earnings excluding intangible amortization$110,559 $76,047 $194,332 $248,828 
(C) Adjustments after-tax$1,170 $(695)$78,855 $(17,501)
(D) Average assets23,778,769 17,695,226 22,339,797 17,305,402 
(E) Average goodwill, core deposits and other intangible
      assets
1,459,034 1,000,175 1,294,971 1,001,585 
Table 21: Return on Average Equity
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Dollars in thousands)
Return on average equity: A/D12.25 %10.97 %7.71 %12.32 %
Return on average common equity, as adjusted: (A+C)/D12.39 10.87 10.91 11.44 
Return on average tangible common equity: A/(D-E)20.93 17.39 12.71 19.74 
Return on average tangible equity excluding intangible
    amortization: B/(D-E)
21.29 17.64 13.03 19.99 
Return on average tangible common equity, as adjusted:
    (A+C)/(D-E)
21.16 17.23 18.00 18.33 
(A) Net income$108,705 $74,992 $189,575 $245,664 
(B) Earnings excluding intangible amortization110,559 76,047 194,332 248,828 
(C) Adjustments after-tax1,170 (695)78,855 (17,501)
(D) Average equity3,519,296 2,710,953 3,289,170 2,665,886 
(E) Average goodwill, core deposits and other intangible
      assets
1,459,034 1,000,175 1,294,971 1,001,585 
Table 22: Tangible Equity to Tangible Assets
As of September 30, 2022As of December 31, 2021
(Dollars in thousands)
Equity to assets: B/A14.94 %15.32 %
Tangible equity to tangible assets: (B-C-D)/(A-C-D)9.24 10.36 
(A) Total assets$23,157,370 $18,052,138 
(B) Total equity3,460,015 2,765,721 
(C) Goodwill1,394,353 973,025 
(D) Core deposit intangibles60,932 25,045 

95

The efficiency ratio is a standard measure used in the banking industry and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a meaningful non-GAAP measure for management, as it excludes certain items and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding items such as merger expenses and/or certain gains, losses and other non-interest income and expenses. In Table 23 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.
Table 23: Efficiency Ratio, As Adjusted
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Dollars in thousands)
Net interest income (A)$213,104 $144,611 $543,010 $433,951 
Non-interest income (B)43,201 29,209 118,451 105,605 
Non-interest expense (C)114,346 75,619 356,724 221,467 
FTE Adjustment (D)2,437 1,748 6,646 5,343 
Amortization of intangibles (E)2,477 1,421 6,376 4,262 
Adjustments:
Non-interest income:
Fair value adjustment for marketable securities$(2,628)$61 $(2,304)$7,093 
Special dividend from equity investment— 2,227 1,434 12,500 
Gain on OREO, net— 246 487 1,266 
    Gain (loss) on branches, equipment and other assets, net(13)(34)(86)
Gain on securities, net— — — 219 
Recoveries on historic losses1,065 — 6,706 5,107 
Total non-interest income adjustments (F)$(1,576)$2,500 $6,328 $26,099 
Non-interest expense:
Merger and acquisition expenses— 1,006 49,594 1,006 
TRUPS redemption fees— — 2,081 — 
Total non-core non-interest expense (G)$— $1,006 $51,675 $1,006 
Efficiency ratio (reported): ((C-E)/(A+B+D))43.24 %42.26 %52.44 %39.86 %
Efficiency ratio, as adjusted (non-GAAP): ((C-E-G)/(A+B+D-F))42.97 42.29 45.13 41.67 
96

Recently Issued Accounting Pronouncements
See Note 21 to the Condensed Notes to Consolidated Financial Statements for a discussion of certain recently issued and recently adopted accounting pronouncements.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Liquidity and Market Risk Management
Asset/Liability Management. Our management actively measures and manages interest rate risk. The asset/liability committees of the boards of directors of our holding company and bank subsidiary are also responsible for approving our asset/liability management policies, overseeing the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviewing our interest rate sensitivity position.
Our objective is to manage liquidity in a way that ensures cash flow requirements of depositors and borrowers are met in a timely and orderly fashion while ensuring the reliance on various funding sources does not become so heavily weighted to any one source that it causes undue risk to the bank. Our liquidity sources are prioritized based on availability and ease of activation. Our current liquidity condition is a primary driver in determining our funding needs and is a key component of our asset liability management.
Various sources of liquidity are available to meet the cash flow needs of depositors and borrowers. Our principal source of funds is core deposits, including checking, savings, money market accounts and certificates of deposit. We may also from time to time obtain wholesale funding through brokered deposits. Secondary sources of funding include advances from the Federal Home Loan Bank of Dallas, the Federal Reserve Bank Discount Window and other borrowings, such as through correspondent banking relationships. These secondary sources enable us to borrow funds at rates and terms which, at times, are more beneficial to us. Additionally, as needed, we can liquidate or utilize our available for sale investment portfolio as collateral to provide funds for an intermediate source of liquidity.
Interest Rate Sensitivity. Our primary business is banking and the resulting earnings, primarily net interest income, are susceptible to changes in market interest rates. It is management’s goal to maximize net interest income within acceptable levels of interest rate and liquidity risks.
A key element in the financial performance of financial institutions is the level and type of interest rate risk assumed. The single most significant measure of interest rate risk is the relationship of the repricing periods of earning assets and interest-bearing liabilities. The more closely the repricing periods are correlated, the less interest rate risk we assume. We use net interest income simulation modeling and economic value of equity as the primary methods in analyzing and managing interest rate risk.
One of the tools that our management uses to measure short-term interest rate risk is a net interest income simulation model. This analysis calculates the difference between net interest income forecasted using base market rates and using a rising and a falling interest rate scenario. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately, and proportional to the change in market rates, depending on their contracted index. Some loans and investments include the opportunity of prepayment (embedded options), and accordingly, the simulation model uses indexes to estimate these prepayments and reinvest their proceeds at current yields. Our non-term deposit products re-price overnight in the model while we project certain other deposits by product type to have stable balances based on our deposit history. This accounts for the portion of our portfolio that moves more slowly than market rates and changes at our discretion.
This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that impact this analysis, including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change.
Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income.

For the rising and falling interest rate scenarios, the base market interest rate forecast was increased and decreased over twelve months by 200 and 100 basis points, respectively. At September 30, 2022, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by us.
97

Table 24 presents our sensitivity to net interest income as of September 30, 2022.
Table 24: Sensitivity of Net Interest Income
Interest Rate Scenario
Percentage Change
from Base
Up 200 basis points8.40 %
Up 100 basis points4.50 
Down 100 basis points(5.50)
Down 200 basis points(12.70)
Item 4: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Additionally, our disclosure controls and procedures were also effective in ensuring that information required to be disclosed in our Exchange Act report is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2022, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company or its subsidiaries are a party or of which any of their property is the subject.
Item 1A: Risk Factors
There were no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our Form 10-K for the year ended December 31, 2021, except for the Company ending its banking relationship with the Cuban Embassy and Banco Internacional de Comercia, S.A. during the second quarter of 2022. 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.
98

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:
PeriodNumber 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)
July 1 through July 31, 2022214,438 $20.82 214,438 20,663,495 
August 1 through August 31, 2022391,100 24.52 391,100 20,272,395 
September 1 through September 30, 2022440,261 23.19 440,261 19,832,134 
Total1,045,799  1,045,799  
(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.















99

Item 6: Exhibits
Exhibit No.Description of Exhibit
2.1
2.2
2.3
3.1
3.2
 
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
4.1
100

4.2Instruments 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
31.1
31.2
32.1
32.2
101.INSInline 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.SCHInline XBRL Taxonomy Extension Schema Document*
101.CALInlineXBRL Taxonomy Extension Calculation Linkbase Document*
101.LABInline XBRL Taxonomy Extension Label Linkbase Document*
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document*
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document*
104Cover 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.

101

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:November 4, 2022/s/ John W. Allison
John W. Allison, Chairman and Chief Executive Officer
Date:November 4, 2022/s/ Brian S. Davis
Brian S. Davis, Chief Financial Officer
Date:November 4, 2022/s/ Jennifer C. Floyd
Jennifer C. Floyd, Chief Accounting Officer
102
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