Acquisition

6 Months Ended

Jun. 30, 2019

ACQUISITION

Reliance Bancshares, Inc.

On April 12, 2019, the Company completed its merger with Reliance Bancshares, Inc. (“Reliance”), headquartered in the St. Louis, Missouri, metropolitan area, pursuant to the terms of the Agreement and Plan of Merger (“Reliance Agreement”), dated November 13, 2018, as amended February 11, 2019. In the merger, each outstanding share of Reliance common stock, as well as each Reliance common stock equivalent was canceled and converted into the right to receive shares of the Company’s common stock and/or cash in accordance with the terms of the Reliance Agreement. In addition, each share of Reliance’s Series A Preferred Stock and Series B Preferred Stock was converted into the right to receive one share of Simmons’ comparable Series A Preferred Stock or Series B Preferred Stock, respectively, and each share of Reliance’s Series C Preferred Stock was converted into the right to receive one share of Simmons’ comparable Series C Preferred Stock (unless the holder of such Series C Preferred Stock elected to receive

alternate consideration in accordance with the Reliance Agreement). The Company issued 3,999,623 shares of its common stock and paid $62.7 million in cash to effect the merger. The Company also issued $42.0 million of preferred stock in exchange for all outstanding shares of Reliance preferred stock. On May 13, 2019, the Company redeemed all of the preferred stock issued in connection with the merger, and paid all accrued and unpaid dividends up to the date of redemption.

Prior to the merger, Reliance conducted banking business from 22 branches located in Missouri and Illinois. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $1.5 billion in assets, including approximately $1.1 billion in loans (inclusive of loan discounts), and approximately $1.2 billion in deposits. Contemporaneously with the completion of the Reliance merger, Reliance Bank was merged into Simmons Bank, with Simmons Bank as the surviving institution.

Goodwill of $80.8 million was recorded as a result of the transaction. The merger strengthened the Company’s market share and brought forth additional opportunities in the Company’s St. Louis metropolitan area footprint, which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.

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



(In thousands)	Acquired from Reliance			Fair Value Adjustments			Fair Value
Assets Acquired
Cash and due from banks	$	25,693		$	—		$	25,693
Due from banks - time	502			—			502
Investment securities	287,983			(1,763		)	286,220
Loans acquired	1,138,527			(41,657		)	1,096,870
Allowance for loan losses	(10,808		)	10,808			—
Foreclosed assets	11,092			(3,992		)	7,100
Premises and equipment	32,452			(3,001		)	29,451
Bank owned life insurance	39,348			—			39,348
Core deposit intangible	—			18,350			18,350
Other assets	24,175			5,001			29,176
Total assets acquired	$	1,548,964		$	(16,254	)	$	1,532,710

Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts	$	108,845		$	(33	)	$	108,812
Interest bearing transaction accounts and savings deposits	639,798			—			639,798
Time deposits	478,415			(1,758		)	476,657
Total deposits	1,227,058			(1,791		)	1,225,267
Securities sold under agreement to repurchase	14,146			—			14,146
Other borrowings	162,900			(5,500		)	157,400
Accrued interest and other liabilities	8,185			936			9,121
Total liabilities assumed	1,412,289			(6,355		)	1,405,934
Equity	136,675			(94,675		)	42,000
Total equity assumed	136,675			(94,675		)	42,000
Total liabilities and equity assumed	$	1,548,964		$	(101,030	)	$	1,447,934
Net assets acquired							84,776
Purchase price							165,539
Goodwill							$	80,763

The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the merger. Management will continue to review the estimated fair values and evaluate the assumed tax positions. The Company expects to finalize its analysis of the acquired assets and assumed liabilities in this transaction over the next few months, within one year of the merger. Therefore, adjustments to the estimated amounts and carrying values may occur.

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

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

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

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

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

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

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

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

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

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

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

Securities sold under agreement to repurchase – The carrying amount of securities sold under agreement to repurchase is a reasonable estimate of fair value based on the short-term nature of these liabilities.

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

Accrued interest and other liabilities – The adjustment establishes a liability for unfunded commitments equal to the fair value of that liability at the date of acquisition.

The Landrum Company (Pending Acquisition)

On July 30, 2019, the Company entered into an Agreement and Plan of Merger (the “Agreement”) with The Landrum Company (“Landrum”), headquartered in Columbia, Missouri pursuant to which, upon the terms and subject to the conditions of the Agreement, Landrum will merge with and into the Company, with the Company continuing as the surviving corporation. According to the terms of the Agreement, upon the consummation of the merger, (i) holders of Landrum’s common stock will receive, in the aggregate, 17,350,000 shares of the Company’s common stock and (ii) each share of Landrum’s series E preferred stock will be converted into the right to receive one share of the Company’s comparable series D preferred stock.

Landrum conducts banking business from 39 branches located in Missouri, Oklahoma and Texas. As of June 30, 2019, Landrum had approximately $3.3 billion in assets, $2.1 billion in loans and $3.0 billion in deposits. Completion of the transaction is expected during the fourth quarter of 2019 and is subject to certain closing conditions, including approval by the shareholders of Landrum, as well as customary regulatory approvals. Upon closing, Landrum will merge into the Company.