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What changed in HOME BANCSHARES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HOME BANCSHARES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+494 added−510 removedSource: 10-K (2024-02-26) vs 10-K (2023-02-24)

Top changes in HOME BANCSHARES INC's 2023 10-K

494 paragraphs added · 510 removed · 401 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

66 edited+17 added−12 removed212 unchanged
Biggest changeFailure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
Biggest changeFailure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. 20 Table of Contents As part of our bank subsidiary’s anti-money laundering (“AML”) program, we are required to designate a BSA officer, maintain a BSA/AML training program, maintain internal controls to effectuate the BSA/AML program, implement independent testing of the BSA/AML program, and comply with the Financial Crimes Enforcement Network’s “Customer Due Diligence for Financial Institutions Rule” (the “CDD Rule”).
Our bank subsidiary participated in the PPP as a lender. These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. Additionally, loan payments were deferred for the first six months of the loan term. The PPP commenced on April 3, 2020 and was available to qualified borrowers through May 31, 2021.
Our bank subsidiary participated in the PPP as a lender. These loans were eligible to be forgiven if certain conditions were satisfied and were fully guaranteed by the SBA. Additionally, loan payments were deferred for the first six months of the loan term. The PPP commenced on April 3, 2020 and was available to qualified borrowers through May 31, 2021.
To be well-capitalized, a banking organization is required to have at least a 10% total risk-based capital ratio, an 8% Tier 1 risk-based capital ratio, a 6.5% CET1 risk-based capital ratio and a 5% Tier 1 leverage ratio. As of December 31, 2022, we met all capital adequacy requirements and our bank subsidiary is considered well-capitalized for regulatory purposes.
To be well-capitalized, a banking organization is required to have at least a 10% total risk-based capital ratio, an 8% Tier 1 risk-based capital ratio, a 6.5% CET1 risk-based capital ratio and a 5% Tier 1 leverage ratio. As of December 31, 2023, we met all capital adequacy requirements and our bank subsidiary is considered well-capitalized for regulatory purposes.
Historically, our hiring and retaining experienced relationship bankers has been integral to our ability to grow quickly when entering new markets. • Maintain a “fortress” balance sheet – We intend to maintain a strong balance sheet through a focus on four key governing principles: (1) maintain solid asset quality; (2) remain well-capitalized; (3) pursue high performance metrics including return on tangible equity (ROTE), return on assets (ROA), efficiency ratio and net interest margin; and (4) retain liquidity at the bank holding company level that can be utilized should attractive acquisition opportunities be identified or for internal capital needs.
Historically, our hiring and retaining experienced relationship bankers has been integral to our ability to grow quickly when entering new markets. 7 Table of Contents • Maintain a “fortress” balance sheet – We intend to maintain a strong balance sheet through a focus on four key governing principles: (1) maintain solid asset quality; (2) remain well-capitalized; (3) pursue high performance metrics including return on tangible equity (ROTE), return on assets (ROA), efficiency ratio and net interest margin; and (4) retain liquidity at the bank holding company level that can be utilized should attractive acquisition opportunities be identified or for internal capital needs.
The required minimum capital and leverage ratios under the Basel III capital adequacy requirements in effect as of December 31, 2022, including the required capital conservation buffer, consist of CET1 capital of 7.0% (4.5% plus the required 2.5% capital conservation buffer), Tier 1 risk-based capital of 8.5% (6.0% plus the required 2.5% capital conservation buffer), total risk-based capital of 10.5% (8.0% plus the required 2.5% capital conservation buffer) and a leverage ratio of 4.0%.
The required minimum capital and leverage ratios under the Basel III capital adequacy requirements in effect as of December 31, 2023, including the required capital conservation buffer, consist of CET1 capital of 7.0% (4.5% plus the required 2.5% capital conservation buffer), Tier 1 risk-based capital of 8.5% (6.0% plus the required 2.5% capital conservation buffer), total risk-based capital of 10.5% (8.0% plus the required 2.5% capital conservation buffer) and a leverage ratio of 4.0%.
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.
Including the 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.
Failure to adequately meet these criteria could impose additional requirements and limitations on our bank subsidiary. Additionally, we must publicly disclose the terms of various Community Reinvestment Act-related agreements. Our bank subsidiary received a “satisfactory” CRA rating from the Federal Reserve Bank during its last exam as published in our bank’s CRA Public Evaluation. Capital Requirements.
Failure to adequately meet these criteria could impose additional requirements and limitations on our bank subsidiary. Additionally, we must publicly disclose the terms of various Community Reinvestment Act-related agreements. Our bank subsidiary received a “satisfactory” CRA rating from the Federal Reserve Bank during its last exam as published in our bank’s CRA Public Evaluation. 17 Table of Contents Capital Requirements.
For an additional discussion regarding the acquisition of LendingClub's Marine Portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K for the year ended December 31, 2022.
For an additional discussion regarding the acquisition of LendingClub's Marine Portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K for the year ended December 31, 2023.
During the second and third quarters of 2022, the Company redeemed, without penalty, all of its outstanding trust preferred securities. As a result, the Company no longer holds any trust preferred securities. 14 Table of Contents The federal banking agencies’ risk-based and leverage ratios are minimum supervisory ratios generally applicable to banking organizations that meet certain specified criteria.
During the second and third quarters of 2022, the Company redeemed, without penalty, all of its outstanding trust preferred securities. As a result, the Company no longer holds any trust preferred securities. The federal banking agencies’ risk-based and leverage ratios are minimum supervisory ratios generally applicable to banking organizations that meet certain specified criteria.
We will continue to monitor our capital consistent with the safety and soundness expectations of the federal regulators. Risk Management . Regulation YY initially required publicly-traded bank holding companies with $10 billion or more in total assets to establish a risk committee responsible for oversight of enterprise-wide risk management practices.
We will continue to monitor our capital consistent with the safety and soundness expectations of the federal regulators. 15 Table of Contents Risk Management . Regulation YY initially required publicly-traded bank holding companies with $10 billion or more in total assets to establish a risk committee responsible for oversight of enterprise-wide risk management practices.
Our Market Areas As of December 31, 2022, we conducted business principally through 76 branches in Arkansas, 78 branches in Florida, 63 branches in Texas, five branches in Alabama and one branch in New York City.
Our Market Areas As of December 31, 2023, we conducted business principally through 76 branches in Arkansas, 78 branches in Florida, 63 branches in Texas, five branches in Alabama and one branch in New York City.
It is our belief that judicious usage of these tools can improve the quality of our loan portfolio by providing our borrowers an improved probability of survival during difficult economic times. 10 Table of Contents Loan Approval Procedures. Our bank subsidiary has supplemented our common loan policies to establish its loan approval procedures as follows: • Individual Authorities.
It is our belief that judicious usage of these tools can improve the quality of our loan portfolio by providing our borrowers an improved probability of survival during difficult economic times. Loan Approval Procedures. Our bank subsidiary has supplemented our common loan policies to establish its loan approval procedures as follows: • Individual Authorities.
Mortgage Banking Operations . Our bank subsidiary is subject to the rules and regulations of FHA, VA, FNMA, FHLMC and GNMA with respect to originating, processing, selling and servicing mortgage loans and the issuance and sale of mortgage-backed securities.
Our bank subsidiary is subject to the rules and regulations of FHA, VA, FNMA, FHLMC and GNMA with respect to originating, processing, selling and servicing mortgage loans and the issuance and sale of mortgage-backed securities.
As a result, the Bank is no longer required to maintain required reserve balance with either the FRB or in the form of cash on hand. 18 Table of Contents Concentrated Commercial Real Estate Lending Regulations. The federal banking agencies, including the FDIC, have promulgated guidance governing financial institutions with concentrations in commercial real estate lending.
As a result, the Bank is no longer required to maintain required reserve balance with either the FRB or in the form of cash on hand. Concentrated Commercial Real Estate Lending Regulations. The federal banking agencies, including the FDIC, have promulgated guidance governing financial institutions with concentrations in commercial real estate lending.
In approving bank acquisitions by bank holding companies, the Federal Reserve Board is required to consider, among other things, the financial and managerial resources and future prospects of the bank holding company and the banks concerned, the convenience and needs of the communities to be served and various competitive factors. Subsidiary Bank General.
In approving bank acquisitions by bank holding companies, the Federal Reserve Board is required to consider, among other things, the financial and managerial resources and future prospects of the bank holding company and the banks concerned, the convenience and needs of the communities to be served and various competitive factors. 16 Table of Contents Subsidiary Bank General.
When this is the case, it is generally our practice to obtain an independent appraisal of this collateral within the Interagency Appraisal and Evaluation Guidelines. Real Estate – Construction/Land Development. This category of loans includes loans to residential and commercial developers to purchase raw land and to develop this land into residential and commercial land developments.
When this is the case, it is generally our practice to obtain an independent appraisal of this collateral within the Interagency Appraisal and Evaluation Guidelines. 8 Table of Contents Real Estate – Construction/Land Development. This category of loans includes loans to residential and commercial developers to purchase raw land and to develop this land into residential and commercial land developments.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies. Customer Information Security.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies. 21 Table of Contents Customer Information Security.
An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2022, our bank subsidiary was in compliance with the loans-to-one-borrower limitations. 19 Table of Contents Prohibitions Against Tying Arrangements.
An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2023, our bank subsidiary was in compliance with the loans-to-one-borrower limitations. Prohibitions Against Tying Arrangements.
As of December 31, 2022, we also operate loan production offices in Los Angeles, California; Miami, Florida and Dallas, Texas through our Centennial CFG division and in Chesapeake, Virginia and Baltimore, Maryland through our SPF division. 8 Table of Contents Lending Activities We originate loans primarily secured by single and multi-family real estate, residential construction and commercial buildings.
As of December 31, 2023, we also operate loan production offices in Los Angeles, California; Miami, Florida and Dallas, Texas through our Centennial CFG division and in Chesapeake, Virginia and Baltimore, Maryland through our SPF division. Lending Activities We originate loans primarily secured by single and multi-family real estate, residential construction and commercial buildings.
Accordingly, we aim to attract, develop and retain employees who can drive financial and strategic growth objectives and build long-term shareholder value while executing our community banking philosophy. On December 31, 2022, we had 2,774 full-time equivalent employees.
Accordingly, we aim to attract, develop and retain employees who can drive financial and strategic growth objectives and build long-term shareholder value while executing our community banking philosophy. On December 31, 2023, we had 2,819 full-time equivalent employees.
Like SPF, LH-Finance provides direct consumer financing for USCG registered high-end sail and power boats, as well as inventory floor plan lines of credit to marine dealers, primarily those selling USCG documented vessels.
Like SPF, LH-Finance provides direct consumer financing for United States Coast Guard ("USCG") registered high-end sail and power boats, as well as inventory floor plan lines of credit to marine dealers, primarily those selling USCG documented vessels.
Competition As of December 31, 2022, we conducted business through 223 branch locations in our primary market areas of Pulaski, Faulkner, Craighead, Lonoke, Pope, Washington, White, Benton, Greene, Sebastian, Cleburne, Independence, Stone, Baxter, Clay, Conway, Crawford, Johnson, Saline, Sharp and Yell counties in Arkansas; Broward, Monroe, Hillsborough, Leon, Sarasota, Bay, Franklin, Palm Beach, Gulf, Charlotte, Collier, Escambia, Orange, Osceola, Pasco, Pinellas, Polk, Walton, Miami-Dade, Lee, Calhoun, Gadsden, Hernando, Liberty, Okaloosa, Santa Rosa, Seminole, Wakulla and Manatee counties in Florida; Bailey; Briscoe; Carson; Castro; Collin; Comal; Dallam; Dallas; Deaf Smith; Floyd; Garza; Gillespie; Gray; Hale; Hall; Hemphill; Hutchinson; Kendall; Kerr; Lamb; Lipscomb; Lubbock; Lynn; Moore; Motley; Potter; Randall; Sherman; Swisher; Tarrant; Taylor; Travis; Wheeler and Williamson counties in Texas; Baldwin County in Alabama; and New York County in New York.
The offices of Cook Insurance Agency are located in Apalachicola and Crawfordville, Florida. 11 Table of Contents Competition As of December 31, 2023, we conducted business through 223 branch locations in our primary market areas of Pulaski, Faulkner, Craighead, Lonoke, Pope, Washington, White, Benton, Greene, Sebastian, Cleburne, Independence, Stone, Baxter, Clay, Conway, Crawford, Johnson, Saline, Sharp and Yell counties in Arkansas; Broward, Monroe, Hillsborough, Leon, Sarasota, Bay, Franklin, Palm Beach, Gulf, Charlotte, Collier, Escambia, Orange, Osceola, Pasco, Pinellas, Polk, Walton, Miami-Dade, Lee, Calhoun, Gadsden, Hernando, Liberty, Okaloosa, Santa Rosa, Seminole, Wakulla and Manatee counties in Florida; Bailey; Briscoe; Carson; Castro; Collin; Comal; Dallam; Dallas; Deaf Smith; Floyd; Garza; Gillespie; Gray; Hale; Hall; Hemphill; Hutchinson; Kendall; Kerr; Lamb; Lipscomb; Lubbock; Lynn; Moore; Motley; Potter; Randall; Sherman; Swisher; Tarrant; Taylor; Travis; Wheeler and Williamson counties in Texas; Baldwin County in Alabama; and New York County in New York.
Under FDICIA, as discussed below, a depository institution may not pay any dividend if payment would result in the depository institution being undercapitalized. 16 Table of Contents Acquisitions of Banks.
Under FDICIA, as discussed below, a depository institution may not pay any dividend if payment would result in the depository institution being undercapitalized. Acquisitions of Banks.
If a concentration is present, management must employ heightened risk management practices that address the following key elements: including board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending.
If a concentration is present, management must employ heightened risk management practices that address the following key elements: including board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending. 18 Table of Contents Mortgage Banking Operations .
Our goals in making these decisions are to maximize the return to our shareholders and to enhance our franchise. • Organic growth – We believe our current branch network provides us with the capacity to grow within our existing market areas.
Our goals in making these decisions are to maximize the return to our shareholders and to enhance our franchise. 6 Table of Contents • Organic growth – We believe our current branch network provides us with the capacity to grow within our existing market areas.
When this is the case, it is generally our practice to obtain an independent appraisal of this collateral within the Interagency Appraisal and Evaluation Guidelines . 9 Table of Contents Consumer.
When this is the case, it is generally our practice to obtain an independent appraisal of this collateral within the Interagency Appraisal and Evaluation Guidelines . Consumer.
In addition, we are not dependent upon any single lending relationship for an amount exceeding 10% of our revenues. As of December 31, 2022, the maximum amount outstanding to a single borrower was $231.8 million. As primarily a community lender, we believe from time to time it is in our best interest to agree to modifications or restructurings.
In addition, we are not dependent upon any single lending relationship for an amount exceeding 10% of our revenues. As of December 31, 2023, the maximum amount outstanding to a single borrower was $232.7 million. As primarily a community lender, we believe from time to time it is in our best interest to agree to modifications or restructurings.
For additional discussions regarding the acquisitions of Happy and LH-Finance, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 “Business Combinations” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for the year ended December 31, 2022.
For additional discussions regarding the acquisition of Happy, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 “Business Combinations” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for the year ended December 31, 2023.
Centennial Bank has branch locations in Arkansas, Florida, Texas, South Alabama and New York City. Although the Company has a diversified loan portfolio, at December 31, 2022 and 2021, commercial real estate loans represented 56.3% and 59.7% of gross loans and 230.1% and 212.2% of total stockholders’ equity, respectively.
Centennial Bank has branch locations in Arkansas, Florida, Texas, South Alabama and New York City. Although the Company has a diversified loan portfolio, at December 31, 2023 and 2022, commercial real estate loans represented 56.7% and 56.3% of gross loans and 215.5% and 230.1% of total stockholders’ equity, respectively.
When secured, we may independently assess the value of the collateral using a third-party valuation source. Commercial and Industrial. Our commercial and industrial loan portfolio primarily consisted of 6.9% unsecured loans, 33.9% inventory/accounts receivable financing, 8.1% equipment/vehicle financing and 51.1% other, including letters of credit at less than 1%, as of December 31, 2022.
When secured, we may independently assess the value of the collateral using a third-party valuation source. Commercial and Industrial. Our commercial and industrial loan portfolio primarily consisted of 7.3% unsecured loans, 32.3% inventory/accounts receivable financing, 8.7% equipment/vehicle financing and 51.7% other, including letters of credit at less than 1%, as of December 31, 2023.
The policy of the Federal Reserve Board that a bank holding company should serve as a source of strength to its subsidiary bank also results in the position of the Federal Reserve Board that a bank holding company should not maintain a level of cash dividends to its shareholders that places undue pressure on the capital of its bank subsidiary or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as such a source of strength.
Under Federal Reserve Board policy, a bank holding company should serve as a source of strength to its subsidiary bank and should not pay cash dividends to its shareholders at a level that places undue pressure on the capital of its bank subsidiary or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as such a source of strength.
Consumer loan repayments depend upon the borrower’s financial stability and are more likely to be adversely affected by divorce, job loss, illness and other personal hardships. Lending Policies. We have established common loan documentation procedures and policies, based on the type of loan, for our bank subsidiary. The board of directors periodically reviews these policies for validity.
Consumer loan repayments depend upon the borrower’s financial stability and are more likely to be adversely affected by divorce, job loss, illness and other personal hardships. 9 Table of Contents Lending Policies. We have established common loan documentation procedures and policies, based on the type of loan, for our bank subsidiary.
Ashley. Currently, our board of directors has established an in-house consolidated lending limit of $40.0 million to any one borrowing relationship without obtaining the approval of two of the following: the Chairman, Vice Chairman or our director Richard H. Ashley. We have 76 separate relationships that exceed this in-house limit.
Ashley. Currently, our board of directors has established an in-house consolidated lending limit of $40.0 million to any one borrowing relationship without obtaining the approval of two of the following: the Chairman, Vice Chairman or our director Richard H. Ashley.
Including the purchase accounting adjustments, as of the acquisition date, LH-Finance had approximately $409.1 million in total assets, including $407.4 million in total loans, which resulted in goodwill of $14.6 million being recorded. The acquired portfolio of loans is now housed in our SPF division.
Including the purchase accounting adjustments, as of the acquisition date, LH-Finance had approximately $409.1 million in total assets, including $407.4 million in total loans, which resulted in goodwill of $14.6 million being recorded. The acquired portfolio of loans is housed in our SPF division. The SPF division is responsible for servicing the acquired loan portfolio and originating new loan production.
In addition, it has been and will continue to be our practice to attempt to independently verify information provided by our borrowers, including assets and income. We have not made loans similar to those commonly referred to as “no doc” or “stated income” loans.
The board of directors periodically reviews these policies for validity. In addition, it has been and will continue to be our practice to attempt to independently verify information provided by our borrowers, including assets and income. We have not made loans similar to those commonly referred to as “no doc” or “stated income” loans.
As of December 31, 2022, 70% of our employees were women and 26% of our employees identify as a person of color. Further, as of December 31, 2022, 60% of the Company’s leadership positions were held by women. Employee Safety and Health. The health and well-being of our employees is a priority for our business.
As of December 31, 2023, 69% of our employees were women and 27% of our employees identify as a person of color. Further, as of December 31, 2023, 62% of the Company’s leadership positions were held by women. Employee Safety and Health. The health and well-being of our employees is a priority for our business.
The Dodd-Frank Act includes certain provisions concerning the capital regulations of the federal banking agencies. These provisions, often referred to as the “Collins Amendment,” are intended to subject bank holding companies to the same capital requirements as their bank subsidiaries and to eliminate or significantly reduce the use of hybrid capital instruments, especially trust preferred securities, as regulatory capital.
These provisions, often referred to as the “Collins Amendment,” are intended to subject bank holding companies to the same capital requirements as their bank subsidiaries and to eliminate or significantly reduce the use of hybrid capital instruments, especially trust preferred securities, as regulatory capital.
The Company’s total assets, total deposits, total revenue and net income for each of the past three years are as follows: December 31, 2022 2021 2020 (In thousands) Total assets $ 22,883,588 $ 18,052,138 $ 16,398,804 Total deposits 17,938,783 14,260,570 12,725,790 Total revenue (net interest income plus non-interest income) 933,787 710,540 694,341 Net income 305,262 319,021 214,448 Home BancShares acquires, organizes and invests in community banks that serve attractive markets.
The Company’s total assets, total deposits, total revenue and net income for each of the past three years are as follows: December 31, 2023 2022 2021 (In thousands) Total assets $ 22,656,658 $ 22,883,588 $ 18,052,138 Total deposits 16,787,711 17,938,783 14,260,570 Total revenue (net interest income plus non-interest income) 996,879 933,787 710,540 Net income 392,929 305,262 319,021 Home BancShares acquires, organizes and invests in community banks that serve attractive markets.
Carter, III 47 Executive Officer Regional President Kenneth Mikel Williamson, Jr. 52 Executive Officer Regional President Our Growth Strategy Our goals are to achieve growth in earnings per share and to create and build stockholder value.
Carter, III 48 Executive Officer Regional President Our Growth Strategy Our goals are to achieve growth in earnings per share and to create and build stockholder value.
Residential mortgage loans to individuals retained in our loan portfolio primarily consisted of approximately 42.3% owner occupied 1-4 family properties and approximately 47.6% non-owner occupied 1-4 family properties (rental) as of December 31, 2022 with the remaining 10.1% relating to condos and mobile homes.
Residential mortgage loans to individuals retained in our loan portfolio primarily consisted of approximately 50.1% owner occupied 1-4 family properties and approximately 40.9% non-owner occupied 1-4 family properties (rental) as of December 31, 2023 with the remaining 9.0% relating to condos and mobile homes.
Affiliate transactions are also subject to Section 23B of the Federal Reserve Act which generally requires that certain other transactions between the bank and its affiliates be on terms substantially the same, or at least as favorable to the bank, as those prevailing at that time for comparable transactions with or involving other non-affiliated persons.
An affiliate of a bank is generally any company or entity that controls, is controlled by, or is under common control with the bank. 19 Table of Contents Affiliate transactions are also subject to Section 23B of the Federal Reserve Act which generally requires that certain other transactions between the bank and its affiliates be on terms substantially the same, or at least as favorable to the bank, as those prevailing at that time for comparable transactions with or involving other non-affiliated persons.
Concurrent with enactment of the CARES Act, the federal bank regulatory agencies issued an interim final rule that delays the estimated impact on regulatory capital resulting from the implementation of CECL.
Temporary Regulatory Capital Relief related to Impact of Current Expected Credit Loss (“CECL”). Concurrent with enactment of the CARES Act, the federal bank regulatory agencies issued an interim final rule that delays the estimated impact on regulatory capital resulting from the implementation of CECL.
We will continue to evaluate de novo opportunities during 2023 and make decisions on a case-by-case basis in the best interest of the shareholders. 7 Table of Contents Community Banking Philosophy Our community banking philosophy consists of four basic principles: • manage our community banking franchise with experienced bankers and community bank boards who are empowered to make customer-related decisions quickly; • provide exceptional service and develop strong customer relationships; • pursue the business relationships of our local boards of directors, executive officers, stockholders, and customers to actively promote our community bank; and • maintain our commitment to the communities we serve by supporting civic and nonprofit organizations.
Community Banking Philosophy Our community banking philosophy consists of four basic principles: • manage our community banking franchise with experienced bankers and community bank boards who are empowered to make customer-related decisions quickly; • provide exceptional service and develop strong customer relationships; • pursue the business relationships of our local boards of directors, executive officers, stockholders, and customers to actively promote our community bank; and • maintain our commitment to the communities we serve by supporting civic and nonprofit organizations.
The SPF division is responsible for servicing the acquired loan portfolio and originating new loan production. In connection with this acquisition, we opened a new loan production office in Baltimore, Maryland. LendingClub Bank Marine Portfolio – On February 4, 2022, the Company completed the purchase of the performing marine loan portfolio of Utah-based LendingClub Bank (“LendingClub”).
In connection with this acquisition, we opened a new loan production office in Baltimore, Maryland. 5 Table of Contents LendingClub Bank Marine Portfolio – On February 4, 2022, the Company completed the purchase of the performing marine loan portfolio of Utah-based LendingClub Bank (“LendingClub”).
Unless and until a final rule is adopted, we cannot fully determine whether compliance with such a rule will adversely affect the Company’s or our bank subsidiary’s ability to hire, retain and motivate our key employees. 21 Table of Contents In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including the NYSE, to implement listing standards that require listed companies to adopt policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including the NYSE, to implement listing standards that require listed companies to adopt policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
Through the SPF division, Centennial Bank is working to build out a lending platform focusing on commercial and consumer marine loans. LH-Finance – On February 29, 2020, the Company completed the acquisition of LH-Finance, the marine lending division of People’s United Bank, N.A., for a cash purchase price of approximately $421.2 million.
LH-Finance – On February 29, 2020, the Company completed the acquisition of LH-Finance, the marine lending division of People’s United Bank, N.A., for a cash purchase price of approximately $421.2 million.
Progressively lower assessment rate schedules will take effect when the reserve ratio reaches 2 percent, and again when it reaches 2.5 percent. 17 Table of Contents Under the Federal Deposit Insurance Act, as amended, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Under the Federal Deposit Insurance Act, as amended, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Except for any additional employees acquired in future acquisitions, we expect that our 2023 staffing levels will be slightly higher than those at year end 2022 to meet increased regulatory requirements. We consider our employee relations to be good, and we have no collective bargaining agreements with any employees.
Except for any additional employees acquired in future acquisitions, we expect that our 2024 staffing levels will be lower than those at year end 2023 as a reflection of the efforts taken during the fourth quarter of 2023. We consider our employee relations to be good, and we have no collective bargaining agreements with any employees.
We and our subsidiary have established policies and procedures to assure our compliance with all privacy provisions of the Gramm-Leach-Bliley Act. 20 Table of Contents We are also subject to various regulatory guidance as updated from time to time and implemented by the Federal Financial Institutions Examinations Council (the “FFIEC”), an interagency body of the FDIC, the OCC, the Federal Reserve, the National Credit Union Administration and various state regulatory authorities.
We are also subject to various regulatory guidance as updated from time to time and implemented by the Federal Financial Institutions Examinations Council (the “FFIEC”), an interagency body of the FDIC, the OCC, the Federal Reserve, the National Credit Union Administration and various state regulatory authorities.
We believe the markets we entered into as a result of historical acquisitions provide us opportunities for organic growth as we now have a presence in several large markets where our market share has not previously been significant.
We believe the markets we entered into as a result of historical acquisitions provide us opportunities for organic growth as we now have a presence in several large markets where our market share has not previously been significant. Through our Centennial CFG franchise, we operate a national lending platform that focuses on commercial real estate plus commercial and industrial loans.
Insurance Centennial Insurance Agency, Inc. is an independent insurance agency, originally founded in 1959 and purchased by Centennial Bank in 2000. Centennial Insurance Agency writes policies for commercial and personal lines of business including insurance for property, casualty, life, health and employee benefits. It is subject to regulation by the Arkansas Insurance Department.
Centennial Insurance Agency writes policies for commercial and personal lines of business including insurance for property, casualty, life, health and employee benefits. It is subject to regulation by the Arkansas Insurance Department. The offices of Centennial Insurance Agency are currently located in Jacksonville, Cabot and Conway, Arkansas.
We believe that the rates we offer for core deposits are competitive with those offered by other financial institutions in our market areas. Additionally, our policy also permits the acceptance of 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.
We obtain most of our deposits from individuals and small businesses, and municipalities in our market areas. We believe that the rates we offer for core deposits are competitive with those offered by other financial institutions in our market areas. Additionally, our policy also permits the acceptance of brokered deposits.
Hester 59 Chief Lending Officer Chief Lending Officer and Director J. Stephen Tipton 41 Chief Operating Officer Chief Operating Officer Tracy M. French 61 Director and Executive Officer Chairman of the Board, Chief Executive Officer and President Donna J. Townsell 52 Senior Executive Vice President, Director of Investor Relations and Director Senior Executive Vice President and Director Russell D.
French 62 Director and Executive Officer Chairman of the Board, Chief Executive Officer and President Donna J. Townsell 53 Senior Executive Vice President, Director of Investor Relations and Director Senior Executive Vice President and Director Russell D.
Deposits and Other Sources of Funds Our principal source of funds for loans and investing in securities is core deposits. We offer a wide range of deposit services, including checking, savings, money market accounts and certificates of deposit. We obtain most of our deposits from individuals and small businesses, and municipalities in our market areas.
We have 79 separate relationships that exceed this in-house limit. 10 Table of Contents Deposits and Other Sources of Funds Our principal source of funds for loans and investing in securities is core deposits. We offer a wide range of deposit services, including checking, savings, money market accounts and certificates of deposit.
As of December 31, 2022, our capital conservation buffer was 6.91%, and our CET1 capital, Tier 1 risk-based capital, total risk-based capital and leverage ratios were 12.91%, 12.91, 16.54 and 10.86, respectively.
As of December 31, 2023, our capital conservation buffer was 8.15%, and our CET1 capital, Tier 1 risk-based capital, total risk-based capital and leverage ratios were 14.15%, 14.15%, 17.79% and 12.44%, respectively.
The proposed joint compensation regulations would require compensation practices consistent with the three principles discussed above. As of February 1, 2023, these regulations have not been finalized.
The proposed joint compensation regulations would require compensation practices consistent with the three principles discussed above. As of February 1, 2024, these regulations have not been finalized; however, the agencies have indicated that they intend to issue a third proposed rule in the near future.
We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute. Effect of Governmental Monetary Polices Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies.
We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.
The federal bank regulatory agencies may set capital requirements for a particular banking organization that are higher than the minimum ratios when circumstances warrant. Federal Reserve Board guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions, substantially above the minimum supervisory levels, without significant reliance on intangible assets.
Federal Reserve Board guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions, substantially above the minimum supervisory levels, without significant reliance on intangible assets. 14 Table of Contents The Dodd-Frank Act includes certain provisions concerning the capital regulations of the federal banking agencies.
Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers.
Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers. We and our subsidiary have established policies and procedures to assure our compliance with all privacy provisions of the Gramm-Leach-Bliley Act.
Cook Insurance Agency writes policies for commercial and personal lines of business including life insurance. It is subject to regulation by the Florida Insurance Department. The offices of Cook Insurance Agency are located in Apalachicola and Crawfordville, Florida.
Cook Insurance Agency, Inc. is an independent insurance agency, originally founded in 1913 and acquired by Centennial Bank in 2010 during our FDIC-assisted acquisition of Gulf State Community Bank. Cook Insurance Agency writes policies for commercial and personal lines of business including life insurance. It is subject to regulation by the Florida Insurance Department.
Rules applicable to certain large banking organizations have been implemented for LCR and for NSFR; however, based on our asset size, these rules do not currently apply to us or our bank subsidiary. 15 Table of Contents Stress Testing. Pursuant to the Dodd-Frank Act, in October 2012, the Federal Reserve Board published its final rules regarding company-run stress testing.
Treasury securities and other sovereign debt as a component of assets and increase the use of long-term debt as a funding source. Rules applicable to certain large banking organizations have been implemented for LCR and for NSFR; however, based on our asset size, these rules do not currently apply to us or our bank subsidiary. Stress Testing.
Our loan portfolio as of December 31, 2022, was comprised as follows: Total Loans Receivable Percentage of portfolio (Dollars in thousands) Real estate: Commercial real estate loans Non-farm/non-residential $ 5,632,063 39.1 % Construction/land development 2,135,266 14.8 Agricultural 346,811 2.4 Residential real estate loans Residential 1-4 family 1,748,551 12.1 Multifamily residential 578,052 4.0 Total real estate 10,440,743 72.4 Consumer 1,149,896 8.0 Commercial and industrial 2,349,263 16.3 Agricultural 285,235 2.0 Other 184,343 1.3 Total $ 14,409,480 100.0 % Real Estate – Non-farm/Non-residential.
Our loan portfolio as of December 31, 2023, was comprised as follows: Total Loans Receivable Percentage of portfolio (Dollars in thousands) Real estate: Commercial real estate loans Non-farm/non-residential $ 5,549,954 38.5 % Construction/land development 2,293,047 15.9 Agricultural 325,156 2.3 Residential real estate loans Residential 1-4 family 1,844,260 12.8 Multifamily residential 435,736 3.0 Total real estate 10,448,153 72.5 Consumer 1,153,690 8.0 Commercial and industrial 2,324,991 16.1 Agricultural 307,327 2.1 Other 190,567 1.3 Total $ 14,424,728 100.0 % Real Estate – Non-farm/Non-residential.
These secondary sources enable us to borrow funds at rates and terms which, at times, are more beneficial to us.
Secondary sources of funding include advances from the Federal Home Loan Bank of Dallas, the Federal Reserve Bank Discount Window, Federal Reserve Bank Term Funding Program ("BTFP") and other borrowings. These secondary sources enable us to borrow funds at rates and terms which, at times, are more beneficial to us.
Name Age Positions Held with Home BancShares, Inc. Positions Held with Centennial Bank John W. Allison 76 Chairman of the Board, Chief Executive Officer and President Director Brian S. Davis 57 Chief Financial Officer, Treasurer and Director Chief Financial Officer, Treasurer and Director Jennifer C. Floyd 48 Chief Accounting Officer Chief Accounting Officer Kevin D.
Our Management Team The following table sets forth, as of December 31, 2023, information concerning the individuals who are our executive officers. Name Age Positions Held with Home BancShares, Inc. Positions Held with Centennial Bank John W. Allison 77 Chairman of the Board, Chief Executive Officer and President Director Brian S.
No collateral or personal guarantees were required. Neither the government nor lenders were permitted to charge the recipients any fees. As of December 31, 2022, our bank subsidiary has approximately $7.3 million in PPP loans that remain outstanding. 22 Table of Contents Temporary Regulatory Capital Relief related to Impact of Current Expected Credit Loss (“CECL”).
No collateral or personal guarantees were required. Neither the government nor lenders were permitted to charge the recipients any fees. The majority of our bank subsidiary’s PPP loans outstanding as of December 31, 2022, were forgiven or repaid during 2023. As of December 31, 2023, the remaining balance of outstanding PPP loans was considered immaterial.
As opportunities arise, we will evaluate new (commonly referred to as de novo ) branches in our current markets and in other attractive market areas. We opened one de novo branch location during 2022 in Ft. Worth, Texas.
Additionally, through our SPF division, we operate a lending platform focusing on commercial and consumer marine loans. As opportunities arise, we will evaluate new (commonly referred to as de novo ) branches in our current markets and in other attractive market areas. We did not open any de novo branch locations in 2023.
Removed
Shore Premier Finance – On June 30, 2018, the Company acquired Shore Premier Finance (“SPF”), a division of Union Bank & Trust of Richmond, Virginia, the bank subsidiary of Union Bankshares Corporation.
Added
Davis 58 Chief Financial Officer, Treasurer and Director Chief Financial Officer, Treasurer and Director Jennifer C. Floyd 49 Chief Accounting Officer Chief Accounting Officer Kevin D. Hester 60 Chief Lending Officer Chief Lending Officer and Director J. Stephen Tipton 42 Chief Operating Officer Chief Operating Officer Tracy M.
Removed
The Company paid a purchase price of approximately $377.4 million in cash, subject to certain post-closing adjustments, and 1,250,000 shares of HBI common stock valued at approximately $28.2 million at the time of the acquisition. SPF provides direct consumer financing for United States Coast Guard (“USCG”) registered high-end sail and power boats.
Added
However, we will continue to evaluate de novo opportunities during 2024 and make decisions on a case-by-case basis in the best interest of the shareholders.
Removed
Additionally, SPF provides inventory floor plan lines of credit to marine dealers, primarily those selling USCG documented vessels.
Added
Trust and Investment Services Through Centennial Bank and its trust operating subsidiary, GoldStar Trust Company, we provide trust, wealth management and custodial services to customers throughout our footprint from offices in Arkansas and Texas. We had approximately $5.23 billion of assets under management and custody as of December 31, 2023.
Removed
Including the purchase accounting adjustments, as of acquisition date, SPF had approximately $377.0 million in total assets, including $376.2 million in total loans, which resulted in goodwill of $30.5 million being recorded. 5 Table of Contents This portfolio of loans is now housed in a division of Centennial Bank known as Shore Premier Finance.
Added
The bank offers a wide variety of trust and estate planning products and services including serving as trustee for personal trusts, testamentary trusts, life insurance trusts, special needs trusts, charitable trusts, 401(k) retirement plans, profit sharing plans and pension plans.
Removed
The SPF division of Centennial Bank is responsible for servicing the acquired loan portfolio and originating new loan production. In connection with this acquisition, Centennial Bank opened a new loan production office in Chesapeake, Virginia, to house the SPF division.
Added
In addition the bank offers administrative services such as estate administration and settlement, guardianship and conservator administration, investment management, farm and property management, section 1031 like-kind exchanges and Coverdell Education Savings Accounts. The bank also offers managed and self-directed IRAs.
Removed
For an additional discussion regarding the acquisition of SPF, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 “Business Combinations” in the Notes to Consolidated Financial Statements included our Annual Report on Form 10-K for the year ended December 31, 2020. 6 Table of Contents Our Management Team The following table sets forth, as of December 31, 2022, information concerning the individuals who are our executive officers.
Added
Centennial Bank also contracts with Ameriprise Financial Services, LLC (“Ameriprise”), a registered broker-dealer and investment adviser, to offer and sell various securities and other financial products to customers through associates who are employed by both Centennial Bank and Ameriprise.
Removed
Through our Centennial CFG franchise, we are continuing to build out a national lending platform that focuses on commercial real estate plus commercial and industrial loans. Additionally, through our SPF division, we are continuing to build a lending platform focusing on commercial and consumer marine loans.
Added
GoldStar Trust Company is a limited services trust company with a focus on providing alternative asset custodial services for assets not generally held by traditional brokerage and investment firms. Other products and services provided include trustee services, escrow and paying agent services.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

60 edited+15 added−19 removed100 unchanged
Biggest changeIf these developments negatively impact our ability to implement our business strategies, it may have a material adverse effect on our results of operations and future prospects. We are subject to heightened regulatory requirements as our total assets exceed $10 billion. Because our total assets exceed $10 billion, we and our bank subsidiary are subject to increased regulatory requirements.
Biggest changeIn addition, industry, legislative or regulatory developments may cause us to materially change our existing strategic direction, capital strategies, compensation or operating plans. If these developments negatively impact our ability to implement our business strategies, it may have a material adverse effect on our results of operations and future prospects.
Our ability to pay dividends depends on the following factors, among others: • We may not have sufficient earnings since our primary source of income, the payment of dividends to us by our bank subsidiary, is subject to federal and state laws that limit the ability of that bank to pay dividends. • Federal Reserve Board policy requires bank holding companies to pay cash dividends on common stock only out of net income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. • Before dividends may be paid on our common stock in any year, payments must be made on our subordinated debentures. 33 Table of Contents • Our board of directors may determine that, even though funds are available for dividend payments, retaining the funds for internal uses, such as expansion of our operations, is a better strategy.
Our ability to pay dividends depends on the following factors, among others: • We may not have sufficient earnings since our primary source of income, the payment of dividends to us by our bank subsidiary, is subject to federal and state laws that limit the ability of that bank to pay dividends. • Federal Reserve Board policy requires bank holding companies to pay cash dividends on common stock only out of net income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. • Before dividends may be paid on our common stock in any year, payments must be made on our subordinated debentures. • Our board of directors may determine that, even though funds are available for dividend payments, retaining the funds for internal uses, such as expansion of our operations, is a better strategy.
Such changes may require us to pay higher FDIC premiums than our current levels, or the FDIC may charge additional special assessments, either of which would increase our noninterest expense. Our profitability is vulnerable to interest rate fluctuations and monetary policy and could be adversely affected by any future actions taken by the Federal Reserve Board to address rising inflation.
Such changes may require us to pay higher FDIC premiums than our current levels, or the FDIC may charge additional special assessments, either of which would increase our noninterest expense. 25 Table of Contents Our profitability is vulnerable to interest rate fluctuations and monetary policy and could be adversely affected by any future actions taken by the Federal Reserve Board to address rising inflation.
Our high concentration of real estate loans and especially commercial real estate loans exposes us to increased lending risk. As of December 31, 2022, approximately 72.5% of our total loan portfolio was comprised of loans with real estate as a primary or secondary component of collateral.
Our high concentration of real estate loans and especially commercial real estate loans exposes us to increased lending risk. As of December 31, 2023, approximately 72.5% of our total loan portfolio was comprised of loans with real estate as a primary or secondary component of collateral.
Accordingly, our inability to receive dividends from our bank subsidiary could also have a material adverse effect on our business, financial condition and results of operations and the value of your investment in our common stock. Item 1B.
Accordingly, our inability to receive dividends from our bank subsidiary could also have a material adverse effect on our business, financial condition and results of operations and the value of your investment in our common stock.
If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our earnings and capital could be adversely affected. Because we have a concentration of exposure to a number of individual borrowers, a significant loss on any of those loans could materially and adversely affect us.
If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our earnings and capital could be adversely affected. 27 Table of Contents Because we have a concentration of exposure to a number of individual borrowers, a significant loss on any of those loans could materially and adversely affect us.
If we need additional capital but cannot raise it on terms acceptable to us, our ability to expand our operations could be materially impaired, our business, financial condition, results of operations and prospects may be adversely affected, and our stock price may decline. 29 Table of Contents Our growth and expansion strategy may not be successful, and our market value and profitability may suffer.
If we need additional capital but cannot raise it on terms acceptable to us, our ability to expand our operations could be materially impaired, our business, financial condition, results of operations and prospects may be adversely affected, and our stock price may decline. Our growth and expansion strategy may not be successful, and our market value and profitability may suffer.
If we were to become subject to significant environmental liabilities, it could have a material adverse effect on our results of operations and financial condition. 32 Table of Contents Our operations could be interrupted if certain external vendors on which we rely experience difficulty, terminate their services or fail to comply with banking laws and regulations.
If we were to become subject to significant environmental liabilities, it could have a material adverse effect on our results of operations and financial condition. Our operations could be interrupted if certain external vendors on which we rely experience difficulty, terminate their services or fail to comply with banking laws and regulations.
Our business or results of operations may be adversely affected by these and other negative effects of hurricanes or other significant weather events. We may incur environmental liabilities with respect to properties to which we take title. A significant portion of our loan portfolio is secured by real property.
Our business or results of operations may be adversely affected by these and other negative effects of such events. We may incur environmental liabilities with respect to properties to which we take title. A significant portion of our loan portfolio is secured by real property.
Violations of various laws, even if unintentional, may result in significant fines or other penalties, including restrictions on branching or bank acquisitions. 23 Table of Contents Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes.
Violations of various laws, even if unintentional, may result in significant fines or other penalties, including restrictions on branching or bank acquisitions. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes.
As of December 31, 2022, the legal lending limit of our bank subsidiary for secured loans was approximately $539.7 million. Our board of directors has established an in-house lending limit of $40.0 million to any one borrowing relationship without obtaining the approval of two of the following: our Chairman, John W. Allison, our Vice Chairman, Jack E.
As of December 31, 2023, the legal lending limit of our bank subsidiary for secured loans was approximately $556.7 million. Our board of directors has established an in-house lending limit of $40.0 million to any one borrowing relationship without obtaining the approval of two of the following: our Chairman, John W. Allison, our Vice Chairman, Jack E.
The security and integrity of our systems could be threatened by a variety of interruptions or information security breaches, including those caused by computer hacking, cyber-attacks, electronic fraudulent activity or attempted theft of financial assets. Our information systems have from time to time experienced such interruptions or breaches despite our best efforts to prevent them.
The security and integrity of our systems are increasingly threatened by a variety of interruptions or information security breaches, including those caused by computer hacking, cyber-attacks, electronic fraudulent activity or attempted theft of financial assets. Our information systems have from time to time experienced such interruptions or breaches despite our best efforts to prevent them.
Our regulators may also consider our compliance with these regulatory requirements when examining our operations generally or considering any request for regulatory approval we may make, even requests for approvals on unrelated matters. 24 Table of Contents Difficult market and economic conditions may adversely affect our industry and our business.
Our regulators may also consider our compliance with these regulatory requirements when examining our operations generally or considering any request for regulatory approval we may make, even requests for approvals on unrelated matters. Difficult market and economic conditions may adversely affect our industry and our business.
However, approximately 79.7% of our total loans and 84.6% of our real estate loans as of December 31, 2022, are to borrowers whose collateral is located in Arkansas, Florida, Texas, Alabama and New York, the states in which the Company has its branch locations.
However, approximately 79.8% of our total loans and 84.6% of our real estate loans as of December 31, 2023, are to borrowers whose collateral is located in Arkansas, Florida, Texas, Alabama and New York, the states in which the Company has its branch locations.
We cannot predict whether or to what extent damage that may be caused by future hurricanes or other weather events will affect our operations or the economies in our market areas, but such weather events could result in a decline in loan originations, a decline in the value or destruction of properties or other collateral securing our loans and an increase in the delinquencies, foreclosures and loan losses.
We cannot predict whether or to what extent damage that may be caused by future unforeseen catastrophic events, including hurricanes, other extreme weather events and natural disasters, will affect our operations or the economies in our market areas, but such events could result in a decline in loan originations, a decline in the value or destruction of properties or other collateral securing our loans and an increase in the delinquencies, foreclosures and loan losses.
Because of changing economic and market conditions affecting issuers, we may be required to record provisions for credit losses in future periods, which could have a material adverse effect on our business, financial condition or results of operations. As of December 31, 2022, we owned $1.29 billion of held-to-maturity investment securities.
Because of changing economic and market conditions affecting issuers, we may be required to record provisions for credit losses in future periods, which could have a material adverse effect on our business, financial condition or results of operations. 28 Table of Contents As of December 31, 2023, we owned $1.28 billion of held-to-maturity investment securities.
We expect that competition for suitable acquisition candidates may be significant. We may compete with other banks or financial service companies with similar acquisition strategies, many of which are larger and have greater financial and other resources. We cannot assure you that we will be able to successfully identify and acquire suitable acquisition targets on acceptable terms and conditions.
We may compete with other banks or financial service companies with similar acquisition strategies, many of which are larger and have greater financial and other resources. We cannot assure you that we will be able to successfully identify and acquire suitable acquisition targets on acceptable terms and conditions.
Our bank subsidiary’s deposits are insured by the FDIC up to legal limits, and accordingly, we are subject to FDIC deposit insurance assessments. As our bank subsidiary exceeds $10 billion in assets, we are subject to higher FDIC assessments.
Our FDIC insurance premiums and assessments could increase and result in higher noninterest expense. Our bank subsidiary’s deposits are insured by the FDIC up to legal limits, and accordingly, we are subject to FDIC deposit insurance assessments. As our bank subsidiary exceeds $10 billion in assets, we are subject to higher FDIC assessments.
In addition to the risks associated with the high concentration of real estate-secured loans, the commercial real estate and construction/land development loans, which comprised 56.3% of our total loan portfolio as of December 31, 2022, expose us to a greater risk of loss than our residential real estate loans, which comprised 16.1% of our total loan portfolio as of December 31, 2022.
In addition to the risks associated with the high concentration of real estate-secured loans, the commercial real estate and construction/land development loans, which comprised 56.7% of our total loan portfolio as of December 31, 2023, expose us to a greater risk of loss than our residential real estate loans, which comprised 15.8% of our total loan portfolio as of December 31, 2023.
In addition, if a third-party provider fails to provide the services we require, fails to meet contractual requirements, such as compliance with applicable laws and regulations, or suffers a cyber-attack or other security breach, our business could suffer economic and reputational harm that could have a material adverse effect on our business, financial condition or results of operations.
In addition, if a third-party provider fails to provide the services we require, fails to meet contractual requirements, such as compliance with applicable laws and regulations, or suffers a cyber-attack or other security breach, our business could suffer economic and reputational harm that could have a material adverse effect on our business, financial condition or results of operations. 32 Table of Contents Our earnings could be adversely impacted by incidences of fraud and compliance failure.
We endeavor to maintain an allowance for credit losses that we consider adequate to absorb future losses that may occur in our loan portfolio. As of December 31, 2022, our allowance for credit losses was approximately $289.7 million, or 2.01% of our total loans.
We endeavor to maintain an allowance for credit losses that we consider adequate to absorb future losses that may occur in our loan portfolio. As of December 31, 2023, our allowance for credit losses was approximately $288.2 million, or 2.00% of our total loans.
Engelkes, or our director Richard H. Ashley. As of December 31, 2022, we had a total of $6.46 billion, or 44.8% of our total loans, committed to the aggregate group of borrowers whose total debt exceeds the established in-house lending limit of $40.0 million.
Engelkes, or our director Richard H. Ashley. As of December 31, 2023, we had a total of $6.93 billion, or 48.1% of our total loans, committed to the aggregate group of borrowers whose total debt exceeds the established in-house lending limit of $40.0 million.
These risks include, among other things: • credit risk associated with the acquired bank’s loans and investments; • the use of inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to the target institution or assets; • the potential exposure to unknown or contingent liabilities related to the acquisition; • the time and expense required to integrate an acquisition; • the effectiveness of integrating operations, personnel and customers; • risks of impairment to goodwill or other than temporary impairment; and • potential disruption of our ongoing business.
These risks include, among other things: • credit risk associated with the acquired bank’s loans and investments; • the use of inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to the target institution or assets; • the potential exposure to unknown or contingent liabilities related to the acquisition; • the time and expense required to integrate an acquisition; • the effectiveness of integrating operations, personnel and customers; • risks of impairment to goodwill or other than temporary impairment; and • potential disruption of our ongoing business. 29 Table of Contents We expect that competition for suitable acquisition candidates may be significant.
Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements.
Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations.
Our annual goodwill impairment evaluation performed during the fourth quarter of 2022 indicated no impairment of goodwill for our reporting segments. We cannot provide assurance, however, that we will not be required to take an impairment charge in the future.
We conduct a review at least annually to determine whether goodwill is impaired. Our annual goodwill impairment evaluation performed during the fourth quarter of 2023 indicated no impairment of goodwill for our reporting segments. We cannot provide assurance, however, that we will not be required to take an impairment charge in the future.
As of December 31, 2022, approximately 72.5% of our total loans were secured by real estate. In prior years, difficult local economic conditions have adversely affected the values of our real estate collateral, and they could do so again if the economic conditions markets were to deteriorate in the future.
In prior years, difficult local economic conditions have adversely affected the values of our real estate collateral, and they could do so again if the economic conditions markets were to deteriorate in the future.
Negative developments in the financial services industry or other new legislation or regulations could adversely impact our operations and our financial performance by subjecting us to additional costs, restricting our business operations, including our ability to originate or sell loans, and/or increasing the ability of non-banks to offer competing financial services.
Negative developments in the financial services industry or other new legislation or regulations could adversely impact our operations and our financial performance by subjecting us to additional costs, restricting our business operations, including our ability to originate or sell loans, and/or increasing the ability of non-banks to offer competing financial services. 23 Table of Contents As regulation of the banking industry continues to evolve, we expect the costs of compliance to continue to increase and, thus, to affect our ability to operate profitably.
The Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding companies with $10 billion or more in total assets. In addition, banks with $10 billion or more in total assets are primarily examined by the CFPB with respect to various federal consumer financial protection laws and regulations.
In addition, banks with $10 billion or more in total assets are primarily examined by the CFPB with respect to various federal consumer financial protection laws and regulations.
Under current accounting standards, if we determine goodwill or intangible assets are impaired because, for example, the acquired business does not meet projected revenue targets or certain key employees leave, we are required to write down the carrying value of these assets. We conduct a review at least annually to determine whether goodwill is impaired.
At December 31, 2023, our goodwill and other identifiable intangible assets were $1.45 billion. Under current accounting standards, if we determine goodwill or intangible assets are impaired because, for example, the acquired business does not meet projected revenue targets or certain key employees leave, we are required to write down the carrying value of these assets.
An adverse development with respect to the market conditions of any of these specific market areas or a decrease in real estate values in those market areas could expose us to a greater risk of loss than a portfolio that is spread among a larger geographic base. 27 Table of Contents If the value of real estate were to deteriorate, a significant portion of our loans could become under-collateralized, which could have a material adverse effect on us.
An adverse development with respect to the market conditions of any of these specific market areas or a decrease in real estate values in those market areas could expose us to a greater risk of loss than a portfolio that is spread among a larger geographic base.
We could also face an increased risk of governmental and regulatory scrutiny as a result of the effects of the pandemic on market and economic conditions and actions governmental authorities take in response to those conditions.
We could also face an increased risk of governmental and regulatory scrutiny as a result of the effects of a pandemic on market and economic conditions and actions governmental authorities take in response to those conditions. Any such occurrence could have a significant adverse impact on our business, financial condition, liquidity or results of operations.
New index rates and payments will differ from LIBOR, which may lead to increased volatility. The transition has impacted our market risk profiles and required changes to our risk and pricing models, valuation tools, and product design. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.
The transition impacted our market risk profiles and required changes to our risk and pricing models, valuation tools, and product design. Additionally, the new index rates and payments differ from LIBOR, which may lead to increased volatility.
We are most subject to fraud and compliance risk in connection with the origination of loans, ACH transactions, wire transactions, ATM transactions, and checking transactions. Our largest fraud risk, associated with the origination of loans, includes the intentional misstatement of information in property appraisals or other underwriting documentation provided to us by third parties.
Our largest fraud risk, associated with the origination of loans, includes the intentional misstatement of information in property appraisals or other underwriting documentation provided to us by third parties. Compliance risk is the risk that loans are not originated in compliance with applicable laws and regulations and our standards.
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 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.
This includes commercial real estate loans (excluding construction/land development) of $5.98 billion, or 41.5% of total loans, construction/land development loans of $2.14 billion, or 14.8% of total loans, and residential real estate loans of $2.33 billion, or 16.1% of total loans.
This includes commercial real estate loans (excluding construction/land development) of $5.88 billion, or 40.8% of total loans, construction/land development loans of $2.29 billion, or 15.9% of total loans, and residential real estate loans of $2.28 billion, or 15.8% of total loans.
Our growth strategy includes strategic acquisitions of banks or bank assets. We have acquired 23 banks since we started our first subsidiary bank in 1999, including a total of 18 banks since 2010. We completed the acquisition of Happy Bancshares, headquartered in Amarillo, Texas, during the second quarter of 2022.
We have acquired 23 banks since we started our first subsidiary bank in 1999, including a total of 18 banks since 2010. We completed the acquisition of Happy Bancshares, headquartered in Amarillo, Texas, during the second quarter of 2022. We will continue to consider future strategic acquisitions, with a primary focus on Texas, Arkansas, Florida, Alabama and other nearby markets.
In response to recent inflation and its affects on U.S. business and consumers, the Federal Reserve Board has implemented eight interest rate increases since March 2022. It is widely anticipated that the Federal Reserve will implement multiple additional interest rate increases during 2023.
In response to recent inflation and its affects on U.S. business and consumers, the Federal Reserve Board implemented eleven interest rate increases since March 2022. However, in response to slowing inflation, it is expected that the Federal Reserve Board will begin reducing interest rates sometime in 2024.
One or more of these factors might cause us to have additional losses or liabilities, additional loan charge-offs, or increases in our allowance for credit losses, which would have a negative impact upon our financial condition and results of operations.
One or more of these factors might cause us to have additional losses or liabilities, additional loan charge-offs, or increases in our allowance for credit losses, which would have a negative impact upon our financial condition and results of operations. 30 Table of Contents If the goodwill that we may record or have recorded in connection with a business acquisition becomes impaired, it could require charges to earnings.
Any reduced availability of commercial credit or periods of sustained higher unemployment can further negatively impact the credit performance of commercial and consumer credit, resulting in additional write-downs. Any such market conditions could cause commercial and consumer deficiencies, low customer confidence, market volatility and generally sluggish business activity in our industry.
Any reduced availability of commercial credit or periods of sustained higher unemployment can further negatively impact the credit performance of commercial and consumer credit, resulting in additional write-downs.
We cannot assure that we will be successful in overcoming these risks or any other problems encountered in connection with acquisitions (including FDIC-assisted transactions) and de novo branching.
We cannot assure that we will be successful in overcoming these risks or any other problems encountered in connection with acquisitions (including FDIC-assisted transactions) and de novo branching. Our inability to overcome these risks could have an adverse effect on our ability to achieve our business strategy and maintain our market value and profitability.
The financial services industry continues to undergo rapid technological changes, with frequent introductions of new technology-driven products and services, including innovative ways that customers can make payments or manage their accounts, such as through the use of digital wallets or digital currencies.
Frequent introductions of new technology-driven products and services, including innovative ways that customers can make payments or manage their accounts, such as through the use of digital wallets or digital currencies, are continually occurring. In addition to better serving customers, effective use of technology increases efficiency and enables financial institutions to reduce costs.
Our earnings could be adversely impacted by incidences of fraud and compliance failure. Financial institutions are inherently exposed to fraud risk. A fraud can be perpetrated by a customer of our bank subsidiary, an employee, a vendor, or members of the general public.
Financial institutions are inherently exposed to fraud risk. A fraud can be perpetrated by a customer of our bank subsidiary, an employee, a vendor, or members of the general public. We are most subject to fraud and compliance risk in connection with the origination of loans, ACH transactions, wire transactions, ATM transactions, and checking transactions.
Our inability to overcome these risks could have an adverse effect on our ability to achieve our business strategy and maintain our market value and profitability. 30 Table of Contents If we acquire additional banks or bank assets in the future, there may be undiscovered risks or losses associated with such acquisitions which would have a negative impact upon our future income.
If we acquire additional banks or bank assets in the future, there may be undiscovered risks or losses associated with such acquisitions which would have a negative impact upon our future income. Our growth strategy includes strategic acquisitions of banks or bank assets.
In determining the size of the allowance, we analyze our loan portfolio based on our historical loss experience, volume and classification of loans, volume and trends in delinquencies and non-accruals, national and local economic conditions, and other pertinent information.
In determining the size of the allowance, we analyze our loan portfolio based on our historical loss experience, volume and classification of loans, volume and trends in delinquencies and non-accruals, national and local economic conditions, and other pertinent information. 26 Table of Contents If our assumptions are incorrect, our current allowance may be insufficient to absorb future loan losses, and increased loan loss reserves may be needed to respond to different economic conditions or adverse developments in our loan portfolio.
A failure in or breach of our operational or security systems, or those of our third-party service providers, including as a result of cyber-attacks, could disrupt our business, result in unintentional disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients, which may adversely affect our results of operations and future prospects. 31 Table of Contents A failure in or breach of our operational or security systems, or those of our third-party service providers, including as a result of cyber-attacks, could disrupt our business, result in unintentional disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.
We may be required to expend significant additional resources in the future to modify and enhance our protective measures. Additionally, we face the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate our business activities, including exchanges, clearing agents, clearing houses or other financial intermediaries.
Additionally, we face the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate our business activities, including exchanges, clearing agents, clearing houses or other financial intermediaries. Such parties could also be the source of an attack on, or breach of, our operational systems.
Failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations. 26 Table of Contents Risks Related to Our Business Our decisions regarding credit risk could be inaccurate and our allowance for credit losses may be inadequate, which would materially and adversely affect us.
Risks Related to Our Business Our decisions regarding credit risk could be inaccurate and our allowance for credit losses may be inadequate, which would materially and adversely affect us.
The amount of the purchase price that is allocated to goodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired. At December 31, 2022, our goodwill and other identifiable intangible assets were $1.46 billion.
When we acquire a business, a portion of the purchase price of the acquisition is generally allocated to goodwill and other identifiable intangible assets. The amount of the purchase price that is allocated to goodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired.
Compliance risk is the risk that loans are not originated in compliance with applicable laws and regulations and our standards. There can be no assurance that we can prevent or detect acts of fraud or violation of law or our compliance standards by the third parties that we deal with.
There can be no assurance that we can prevent or detect acts of fraud or violation of law or our compliance standards by the third parties that we deal with. Repeated incidences of fraud or compliance failures would adversely impact the performance of our loan portfolio.
While we experienced loan growth during 2022 through acquisitions and organically sufficient to more than offset our increased interest expense and overall loan demand has remained relatively strong, there can be no assurance that any such future actions by the Federal Reserve Board involving monetary policies will not cause any of the adverse effects described above on our deposit levels, loan demand or business and earnings.
There can be no assurance that any future actions by the Federal Reserve Board involving monetary policies will not cause any of the adverse effects described above on our deposit levels, loan demand or business and earnings We may experience future adverse impacts from the recent transition from the use of the LIBOR interest rate index.
In addition, our competitors may seek to gain market share by pricing below the current market rates for loans and paying higher rates for deposits.
In addition, our competitors may seek to gain market share by pricing below the current market rates for loans and paying higher rates for deposits. The banking business in our primary market areas is very competitive, and the level of competition facing us may increase further, which may limit our asset growth and financial results.
Unlike larger financial institutions that are more geographically diversified, our profitability depends primarily on the general economic conditions in our primary market areas.
Any such market conditions could cause commercial and consumer deficiencies, low customer confidence, market volatility and generally sluggish business activity in our industry. 24 Table of Contents Unlike larger financial institutions that are more geographically diversified, our profitability depends primarily on the general economic conditions in our primary market areas.
French, as well as other key Centennial Bank personnel. Centennial Bank, in particular, relies heavily on its management team’s relationships in its local communities to generate business.
French, as well as other key Centennial Bank personnel. Centennial Bank, in particular, relies heavily on its management team’s relationships in its local communities to generate business. The loss of services from a member of our current management team may materially and adversely affect our business, financial condition, results of operations and future prospects.
We cannot assure you that any future failures, interruption or security breaches will not occur, or if they do occur that they will be adequately addressed. While we have certain protective policies and procedures in place, the nature and sophistication of the threats continue to evolve.
We cannot assure you that any future failures, interruption or security breaches will not occur, or if they do occur that they will be adequately addressed, or that any such events that have occurred or may occur in the future will not result in material harm to our business, operations, reputation or profitability.
Future hurricanes or other adverse weather events could negatively affect our local economies or disrupt our operations, which would have an adverse effect on us. As illustrated in recent years by the impact of Hurricanes Irma, Michael and Ian, our markets in Alabama and Florida, like other coastal areas, are susceptible to hurricanes and tropical storms.
We may incur losses as a result of unforeseen or catastrophic events, including extreme weather events or other natural disasters. As illustrated in recent years by the impact of Hurricanes Michael, Ian and Idalia our markets in Alabama and Florida, like other coastal areas, are susceptible to hurricanes and tropical storms.
In addition, the pandemic resulted in temporary or permanent closures of many businesses, the institution of social distancing, face covering requirements and other health directives, and in some cases, self-isolation requirements. The pandemic also caused us to recognize credit losses in our loan portfolios and increases in our allowance for credit losses.
Treasury securities; resulted in ratings downgrades, credit deterioration, and defaults in many industries; increased demands on capital and liquidity; increased unemployment levels and decreased consumer confidence. In addition, the pandemic resulted in temporary or permanent closures of many businesses, the institution of social distancing, face covering requirements and other health directives, and in some cases, self-isolation requirements.
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 evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326. The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics.
Its economic impacts lowered equity market valuations; created significant volatility and disruption in financial markets; contributed to a decrease in the rates and yields on U.S. Treasury securities; resulted in ratings downgrades, credit deterioration, and defaults in many industries; increased demands on capital and liquidity; increased unemployment levels and decreased consumer confidence.
The COVID-19 pandemic disrupted U.S. and global supply chains and altered business and economic conditions throughout the U.S. and globally. Its economic impacts lowered equity market valuations; created significant volatility and disruption in financial markets; contributed to a decrease in the rates and yields on U.S.
The loss of services from a member of our current management team may materially and adversely affect our business, financial condition, results of operations and future prospects. 28 Table of Contents The value of securities in our investment portfolio may decline in the future. As of December 31, 2022, we owned $4.04 billion of available-for-sale investment securities.
The value of securities in our investment portfolio may decline in the future. As of December 31, 2023, we owned $3.51 billion of available-for-sale investment securities.
The banking business in our primary market areas is very competitive, and the level of competition facing us may increase further, which may limit our asset growth and financial results. 31 Table of Contents We continually encounter technological change, and we may have fewer resources than many of our competitors to continue to invest in technological improvements and innovations.
We continually encounter technological change, and we may have fewer resources than many of our competitors to continue to invest in technological improvements and innovations. The financial services industry continues to undergo rapid technological changes, including the development and use of artificial intelligence ("AI").
Removed
As regulation of the banking industry continues to evolve, we expect the costs of compliance to continue to increase and, thus, to affect our ability to operate profitably. In addition, industry, legislative or regulatory developments may cause us to materially change our existing strategic direction, capital strategies, compensation or operating plans.
Added
We are subject to heightened regulatory requirements as our total assets exceed $10 billion. Because our total assets exceed $10 billion, we and our bank subsidiary are subject to increased regulatory requirements. The Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding companies with $10 billion or more in total assets.
Removed
The impacts of the COVID-19 pandemic could materially and adversely affect our business, financial condition and results of operations. The COVID-19 pandemic disrupted U.S. and global supply chains and altered business and economic conditions throughout the U.S. and globally.
Added
The impacts of national or international pandemics could materially and adversely affect our business, financial condition and results of operations. Our operations and those of our customers and third-party service providers may be adversely affected by the widespread outbreak of contagious disease, including the COVID-19 virus.
Removed
Given the nature of COVID-19 variants, it is difficult to predict whether or when any future outbreaks of the virus may occur or the impacts that any such outbreak may have on our business.
Added
The pandemic also caused us to recognize credit losses in our loan portfolios and increases in our allowance for credit losses. The extent to which any future outbreaks of the COVID-19 virus or other contagious diseases may impact general economic and business conditions is highly uncertain and unpredictable.
Removed
Any impact will depend on future developments, including the long-term scope, severity and duration of the outbreak, the success of vaccination, treatment and other mitigation efforts, any further actions taken by governmental authorities in response to the economic and health effects of the pandemic, and the long-term financial impact of the pandemic on our customers, employees, counterparties and service providers.
Added
Future economic developments and the Federal Reserve Board’s policies in response, however, cannot be predicted with certainty. At this time, it is unknown how future action by the Federal Reserve Board involving monetary policies will affect our business and the banking industry.
Removed
Even as the economic and health impacts of the coronavirus subside, we could experience future volatility in the economy or a prolonged recession that could materially and adversely affect our business, financial condition, liquidity, or results of operations. 25 Table of Contents Our FDIC insurance premiums and assessments could increase and result in higher noninterest expense.
Added
We have certain loans that were originally indexed to LIBOR to calculate the interest rate. The U.S. dollar LIBOR index has not been published since June 2023, which necessitated the refinancing of the existing loans which were indexed to LIBOR. While these loans have been transitioned to a LIBOR alternative, a residual risk remains for transition issues.
Removed
We may be adversely impacted by the transition from the use of the LIBOR interest rate index in the future. We have certain loans, investment securities and subordinated debt securities indexed to LIBOR to calculate the interest rate.
Added
Residual issues that may remain from this transition are not certain and any failure to adequately manage this transition process with our customers may adversely impact our reputation. The failure of other financial institutions could adversely affect us, and we may incur losses on investments in other financial institutions.
Removed
The continued availability of the LIBOR index is not guaranteed after the United Kingdom administrators of LIBOR have announced that the publication of the most commonly used U.S. dollar LIBOR settings will cease to be published after June 2023.
Added
The financial system is highly interrelated, including as a result of lending, trading, clearing, counterparty, and other relationships. We have exposure to and routinely execute transactions with a wide variety of financial institutions, including brokers, dealers, commercial banks, investment banks and other substantial participants.
Removed
We cannot predict, in the interim, whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted. With respect to our loan assets, at this time, there is some industry guidance regarding acceptable alternatives to LIBOR.
Added
In addition, we currently hold and may in the future acquire additional investments in the debt or equity securities of other financial institutions. Some of the institutions or other participants with whom we transact business or in which we hold investments may experience instability due to financial challenges in the banking industry or may be perceived to be unstable.
Removed
After review and analysis from the Federal Reserve Board’s Alternative Reference Rates Committee, the Consumer Financial Protection Bureau published its final rule recommending the Secured Overnight Financing Rate, or SOFR, as a compliant replacement index to LIBOR that would not trigger a refinance under existing regulations for certain consumer loans.
Added
If any of these institutions or participants were to fail in meeting its obligations in full and on time, or were to enter bankruptcy, conservatorship, or receivership, the consequences could ripple throughout the financial system and may adversely affect our business, results of operations, financial condition, or prospects.
Removed
Loan contracts may also contain alternate rate language permitting transfer to SOFR, Wall Street Journal Prime or another index when LIBOR is no longer available. The timing and manner in which each customer’s contract transitions to a new index will vary on a case-by-case basis. There continues to be some uncertainty related to the LIBOR transition.
Added
Our investments in any such institutions could decline in value or become valueless, which could result in us incurring losses in our investment portfolio that may have a materially adverse effect our operating results.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2022, our bank subsidiary owned or leased a total of 76 branches in Arkansas, 78 branches in Florida, 63 branches in Texas, five branches in Alabama and one branch in New York City. The Company also owns or leases other buildings that provide space for operations, mortgage lending and other general purposes.
Biggest changeAs of December 31, 2023, our bank subsidiary owned or leased a total of 76 branches in Arkansas, 78 branches in Florida, 63 branches in Texas, five branches in Alabama and one branch in New York City. The Company also owns or leases other buildings that provide space for operations, mortgage lending and other general purposes.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 4. MINE SAFETY DISCLOSURE Not applicable. 34 Table of Contents PART II
Biggest changeItem 4. MINE SAFETY DISCLOSURE Not applicable. PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosure 34 PART II: Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 35 - 36 Item 6. Selected Financial Data 37 - 38 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 39 - 87 Item 7A.
Biggest changeItem 4. Mine Safety Disclosure 36 PART II: Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 36 -3 7 Item 6. Selected Financial Data 38 - 39 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 40 - 88 Item 7A.
Quantitative and Qualitative Disclosures About Market Risk 88 - 89 Item 8. Consolidated Financial Statements and Supplementary Data 89 - 151
Quantitative and Qualitative Disclosures About Market Risk 89 - 90 Item 8. Consolidated Financial Statements and Supplementary Data 90 - 152

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe 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: Issuer Purchases of Equity Securities Period Number of Shares Purchased Average Price Paid Per Share Purchased Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (1) October 1 through October 31, 2022 190,000 $ 24.23 190,000 19,642,134 November 1 through November 30, 2022 150,000 25.01 150,000 19,492,134 December 1 through December 31, 2022 500,000 23.21 500,000 18,992,134 Total 840,000 840,000 (1) The above described stock repurchase program has no expiration date . 35 Table of Contents Performance Graph Below is a graph which summarizes the cumulative return earned by the Company’s stockholders since December 31, 2017, compared with the cumulative total return on the Russell 2000 Index and S&P U.S.
Biggest changeThe 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: 36 Table of Contents Issuer Purchases of Equity Securities Period Number of Shares Purchased Average Price Paid Per Share Purchased Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (1) October 1 through October 31, 2023 530,000 $ 21.00 530,000 17,051,285 November 1 through November 30, 2023 220,000 21.31 220,000 16,831,285 December 1 through December 31, 2023 65,000 23.03 65,000 16,766,285 Total 815,000 815,000 (1) The above described stock repurchase program has no expiration date .
Information regarding regulatory restrictions on our ability to pay dividends is discussed in “Supervision and Regulation – Payment of Dividends.” During the three months ended December 31, 2022, the Company utilized a portion of its stock repurchase program most recently amended and approved by the Board of Directors on January 22, 2021.
Information regarding regulatory restrictions on our ability to pay dividends is discussed in “Supervision and Regulation – Payment of Dividends.” During the three months ended December 31, 2023, the Company utilized a portion of its stock repurchase program most recently amended and approved by the Board of Directors on January 22, 2021.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on the New York Stock Exchange under the symbol “HOMB.” As of February 21, 2023, there were approximately 1,776 stockholders of record of the Company’s common stock.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on the New York Stock Exchange under the symbol “HOMB.” As of February 16, 2024, there were approximately 1,626 stockholders of record of the Company’s common stock.
Our policy is to declare regular quarterly dividends based upon our earnings, financial position, capital improvements and such other factors deemed relevant by the Board of Directors. The dividend policy is subject to change, however, and the payment of dividends is not necessarily dependent upon the availability of earnings and future financial condition.
Our dividend policy is subject to change, however, and the payment of dividends is not necessarily dependent upon the availability of earnings and future financial condition.
BMI Banks Index. This presentation assumes that the fair value of the investment in the Company's common stock and each index was $100.00 on December 31, 2017 and that the subsequent dividends were reinvested.
This presentation assumes that the fair value of the investment in the Company's common stock and each index was $100.00 on December 31, 2018 and that the subsequent dividends were reinvested. Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Home BancShares, Inc. 100.00 123.70 126.54 161.83 155.79 178.88 Russell 2000 Index 100.00 125.53 150.58 172.90 137.56 160.85 S&P U.S.
Removed
Period Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Home BancShares, Inc. 100.00 71.75 88.76 90.80 116.12 111.78 Russell 2000 Index 100.00 88.99 111.70 134.00 153.85 122.41 S&P U.S. BMI Banks Index 100.00 83.54 114.74 100.10 136.10 112.89 36 Table of Contents
Added
Our policy is to declare regular quarterly dividends based upon our earnings, financial position, capital improvements and such other factors deemed relevant by the Board of Directors. We currently expect to continue declaring and paying quarterly cash dividends comparable to our historical quarterly dividend payments.
Added
Performance Graph Below is a graph which summarizes the cumulative return earned by the Company’s stockholders since December 31, 2018, compared with the cumulative total return on the Russell 2000 Index and S&P U.S. BMI Banks Index.
Added
BMI Banks Index 100.00 137.36 119.83 162.92 135.13 147.41 37 Table of Contents

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeSummary Consolidated Financial Data As of or for the Years Ended December 31, 2022 2021 2020 (Dollars and shares in thousands, except per share data) Income statement data: Total interest income $ 877,766 $ 625,171 $ 675,962 Total interest expense 119,090 52,200 93,407 Net interest income 758,676 572,971 582,555 Provision for credit losses 63,585 (4,752) 129,253 Net interest income after provision for credit losses 695,091 577,723 453,302 Non-interest income 175,111 137,569 111,786 Non-interest expense 475,627 298,517 287,385 Income before income taxes 394,575 416,775 277,703 Income tax expense 89,313 97,754 63,255 Net income $ 305,262 $ 319,021 $ 214,448 Per share data: Basic earnings per common share $ 1.57 $ 1.94 $ 1.30 Diluted earnings per common share 1.57 1.94 1.30 Book value per common share 17.33 16.90 15.78 Tangible book value per common share (non-GAAP) (1)(2) 10.17 10.80 9.70 Dividends – common 0.66 0.56 0.53 Average common shares outstanding 194,694 164,501 165,373 Average diluted shares outstanding 195,019 164,858 165,373 Performance ratios: Return on average assets 1.35 % 1.83 % 1.33 % Return on average assets excluding intangible Amortization (non-GAAP) (3) 1.47 1.96 1.45 Return on average common equity 9.17 11.89 8.57 Return on average tangible common equity excluding intangible amortization (non-GAAP) (1)(4) 15.63 19.20 14.59 Net interest margin (5) 3.81 3.66 4.06 Efficiency ratio 49.53 40.81 40.20 Efficiency ratio, as adjusted (non-GAAP) (6) 44.55 42.12 40.36 Asset quality: Non-performing assets to total assets 0.27 0.29 0.48 Non-performing loans to total loans 0.42 0.51 0.66 Allowance for credit losses to non-performing loans 475.99 471.61 331.10 Allowance for credit losses to total loans 2.01 2.41 2.19 Net charge-offs to average total loans 0.11 0.08 0.11 37 Table of Contents Summary Consolidated Financial Data – Continued As of the Years Ended December 31, 2022 2021 (Dollars and shares in thousands, except per share data) Balance sheet data (period end): Total assets $ 22,883,588 $ 18,052,138 Investment securities – available-for-sale 4,041,590 3,119,807 Loans receivable 14,409,480 9,836,089 Allowance for credit losses 289,669 236,714 Intangible assets 1,456,708 998,070 Non-interest-bearing deposits 5,164,997 4,127,878 Total deposits 17,938,783 14,260,570 Subordinated debentures 440,420 371,093 Stockholders' equity 3,526,362 2,765,721 Capital ratios: Common equity to assets 15.41 % 15.32 % Tangible common equity to tangible assets (non-GAAP) (1)(7) 9.66 10.36 Common equity Tier 1 capital 12.91 15.37 Tier 1 leverage ratio (8) 10.86 11.11 Tier 1 risk-based capital ratio 12.91 15.98 Total risk-based capital ratio 16.54 19.77 Dividend payout - common 42.07 28.88 __________________________ (1) Tangible calculations eliminate the effect of goodwill and acquisition-related intangible assets and the corresponding amortization expense on a tax-effected basis.
Biggest changeSummary Consolidated Financial Data As of or for the Years Ended December 31, 2023 2022 2021 (Dollars and shares in thousands, except per share data) Income statement data: Total interest income $ 1,175,053 $ 877,766 $ 625,171 Total interest expense 348,108 119,090 52,200 Net interest income 826,945 758,676 572,971 Provision for (recovery of) credit losses 12,133 63,585 (4,752) Net interest income after provision for credit losses 814,812 695,091 577,723 Non-interest income 169,934 175,111 137,569 Non-interest expense 472,863 475,627 298,517 Income before income taxes 511,883 394,575 416,775 Income tax expense 118,954 89,313 97,754 Net income $ 392,929 $ 305,262 $ 319,021 Per share data: Basic earnings per common share $ 1.94 $ 1.57 $ 1.94 Diluted earnings per common share 1.94 1.57 1.94 Book value per common share 18.81 17.33 16.90 Tangible book value per common share (non-GAAP) (1)(2) 11.63 10.17 10.80 Dividends – common 0.72 0.66 0.56 Average common shares outstanding 202,627 194,694 164,501 Average diluted shares outstanding 202,773 195,019 164,858 Performance ratios: Return on average assets 1.77 % 1.35 % 1.83 % Return on average assets excluding intangible Amortization (non-GAAP) (3) 1.93 1.47 1.96 Return on average common equity 10.82 9.17 11.89 Return on average tangible common equity excluding intangible amortization (non-GAAP) (1)(4) 18.36 15.63 19.20 Net interest margin (5) 4.25 3.81 3.66 Efficiency ratio 46.21 49.53 40.81 Efficiency ratio, as adjusted (non-GAAP) (6) 45.24 44.55 42.12 Asset quality: Non-performing assets to total assets 0.42 0.27 0.29 Non-performing loans to total loans 0.44 0.42 0.51 Allowance for credit losses to non-performing loans 449.66 475.99 471.61 Allowance for credit losses to total loans 2.00 2.01 2.41 Net charge-offs to average total loans 0.09 0.11 0.08 38 Table of Contents Summary Consolidated Financial Data – Continued As of the Years Ended December 31, 2023 2022 (Dollars and shares in thousands, except per share data) Balance sheet data (period end): Total assets $ 22,656,658 $ 22,883,588 Investment securities – available-for-sale 3,507,841 4,041,590 Investment securities – held-to-maturity 1,281,982 1,287,705 Loans receivable 14,424,728 14,409,480 Allowance for credit losses (288,234) (289,669) Intangible assets 1,447,023 1,456,708 Non-interest-bearing deposits 4,085,501 5,164,997 Total deposits 16,787,711 17,938,783 Subordinated debentures 439,834 440,420 Stockholders' equity 3,791,075 3,526,362 Capital ratios: Common equity to assets 16.73 % 15.41 % Tangible common equity to tangible assets (non-GAAP) (1)(7) 11.05 9.66 Common equity Tier 1 capital 14.15 12.91 Tier 1 leverage ratio (8) 12.44 10.86 Tier 1 risk-based capital ratio 14.15 12.91 Total risk-based capital ratio 17.79 16.54 Dividend payout - common 37.13 42.07 __________________________ (1) Tangible calculations eliminate the effect of goodwill and acquisition-related intangible assets and the corresponding amortization expense on a tax-effected basis.
(8) Leverage ratio is Tier 1 capital to quarterly average total assets less intangible assets and gross unrealized gains/losses on available-for-sale investment securities. 38 Table of Contents
(8) Leverage ratio is Tier 1 capital to quarterly average total assets less intangible assets and gross unrealized gains/losses on available-for-sale investment securities. 39 Table of Contents
(4) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Table 27,” for the non-GAAP tabular reconciliation. (5) Fully taxable equivalent (assuming an income tax rate of 26.135% for 2020, 25.740% for 2021 and 24.6735% for 2022).
(4) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Table 27,” for the non-GAAP tabular reconciliation. (5) Fully taxable equivalent (assuming an income tax rate of 25.740% for 2021, 24.6735% for 2022 and 24.989% for 2023).

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeTable 25: Tangible Book Value Per Share Years Ended December 31, 2022 2021 (In thousands, except per share data) Book value per share: A/B $ 17.33 $ 16.90 Tangible book value per share: (A-C-D)/B 10.17 10.80 (A) Total equity $ 3,526,362 $ 2,765,721 (B) Shares outstanding 203,434 163,699 (C) Goodwill 1,398,253 973,025 (D) Core deposit intangible 58,455 25,045 84 Table of Contents Table 26: Return on Average Assets Excluding Intangible Amortization Years Ended December 31, 2022 2021 2020 (Dollars in thousands) Return on average assets: A/D 1.35 % 1.83 % 1.33 % Return on average assets excluding intangible amortization: (A+B)/(D-E) 1.47 1.96 1.45 Return on average assets excluding fair value adjustment for marketable securities, initial provision for credit losses-acquisition, gain on securities, recoveries on historic losses, branch write-off expense, special dividend from equity investment, merger expenses, hurricane expenses, TRUPS redemption fees, special lawsuit settlement net of expense and outsourced special project expense: (ROA, as adjusted) (A+C)/D 1.67 1.73 1.30 (A) Net income $ 305,262 $ 319,021 $ 214,448 (B) Intangible amortization after-tax 6,624 4,220 4,317 (C) Adjustments after-tax 70,678 (16,893) (4,006) (D) Average assets 22,553,340 17,458,985 16,137,294 (E) Average goodwill, core deposits and other intangible assets 1,335,216 1,000,872 1,004,157 Table 27: Return on Average Tangible Equity Excluding Intangible Amortization Years Ended December 31, 2022 2021 2020 (Dollars in thousands) Return on average equity: A/D 9.17 % 11.89 % 8.57 % Return on average common equity excluding fair value adjustment for marketable securities, initial provision for credit losses-acquisition, gain on securities, recoveries on historic losses, branch write-off expense, special dividend from equity investment, merger expenses, hurricane expenses, TRUPS redemption fees, special lawsuit settlement net of expense and outsourced special project expense: (ROE, as adjusted) (A+C)/D 11.29 11.26 8.41 Return on average tangible equity excluding intangible amortization: B/(D-E) 15.63 19.20 14.59 Return on average tangible common equity excluding fair value adjustment for marketable securities, initial provision for credit losses-acquisition, gain on securities, recoveries on historic losses, branch write-off expense, special dividend from equity investment, merger expenses, hurricane expenses, TRUPS redemption fees, special lawsuit settlement net of expense and outsourced special project expense: (ROTCE, as adjusted) (A+C)/(D-E) 18.84 17.95 14.04 (A) Net income $ 305,262 $ 319,021 $ 214,448 (B) Earnings excluding intangible amortization 311,886 323,241 218,765 (C) Adjustments after-tax 70,678 (16,893) (4,006) (D) Average equity 3,330,718 2,684,139 2,503,200 (E) Average goodwill, core deposits and other intangible assets 1,335,216 1,000,872 1,004,157 85 Table of Contents Table 28: Tangible Equity to Tangible Assets Years Ended December 31, 2022 2021 (Dollars in thousands) Equity to assets: B/A 15.41 % 15.32 % Tangible equity to tangible assets: (B-C-D)/(A-C-D) 9.66 10.36 (A) Total assets $ 22,883,588 $ 18,052,138 (B) Total equity 3,526,362 2,765,721 (C) Goodwill 1,398,253 973,025 (D) Core deposit intangible 58,455 25,045 The efficiency ratio is a standard measure used in the banking industry and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income.
Biggest changeTable 25: Tangible Book Value Per Share Years Ended December 31, 2023 2022 (In thousands, except per share data) Book value per share: A/B $ 18.81 $ 17.33 Tangible book value per share: (A-C-D)/B 11.63 10.17 (A) Total equity $ 3,791,075 $ 3,526,362 (B) Shares outstanding 201,526 203,434 (C) Goodwill 1,398,253 1,398,253 (D) Core deposit intangible 48,770 58,455 85 Table of Contents Table 26: Return on Average Assets Excluding Intangible Amortization Years Ended December 31, 2023 2022 2021 (Dollars in thousands) Return on average assets: A/D 1.77 % 1.35 % 1.83 % Return on average assets excluding intangible amortization: (A+B)/(D-E) 1.93 1.47 1.96 Return on average assets, as adjusted: (A+C)/D 1.79 1.67 1.73 (A) Net income $ 392,929 $ 305,262 $ 319,021 (B) Intangible amortization after-tax 7,288 6,624 4,220 (C) Adjustments after-tax 5,540 70,678 (16,893) (D) Average assets 22,217,910 22,553,340 17,458,985 (E) Average goodwill, core deposits and other intangible assets 1,451,705 1,335,216 1,000,872 Table 27: Return on Average Tangible Equity Excluding Intangible Amortization Years Ended December 31, 2023 2022 2021 (Dollars in thousands) Return on average equity: A/D 10.82 % 9.17 % 11.89 % Return on average common equity, as adjusted: (A+C)/D 10.97 11.29 11.26 Return on average tangible equity excluding intangible amortization: B/(D-E) 18.36 15.63 19.20 Return on average tangible common equity, as adjusted: (A+C)/(D-E) 18.28 18.84 17.95 (A) Net income $ 392,929 $ 305,262 $ 319,021 (B) Earnings excluding intangible amortization 400,217 311,886 323,241 (C) Adjustments after-tax 5,540 70,678 (16,893) (D) Average equity 3,631,300 3,330,718 2,684,139 (E) Average goodwill, core deposits and other intangible assets 1,451,705 1,335,216 1,000,872 Table 28: Tangible Equity to Tangible Assets Years Ended December 31, 2023 2022 (Dollars in thousands) Equity to assets: B/A 16.73 % 15.41 % Tangible equity to tangible assets: (B-C-D)/(A-C-D) 11.05 9.66 (A) Total assets $ 22,656,658 $ 22,883,588 (B) Total equity 3,791,075 3,526,362 (C) Goodwill 1,398,253 1,398,253 (D) Core deposit intangible 48,770 58,455 86 Table of Contents 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.
During the year ended December 31, 2022, the Company recorded $10.0 million in income from the settlement of a lawsuit brought by the Company, net of legal expense, $6.7 million in recoveries on historic losses from loans charged off prior to acquisition, and $1.4 million in special dividends from equity investments, which were partially offset by $2.1 million in trust preferred securities ("TRUPS") redemption fees, $1.3 million loss for the decrease in fair value of marketable securities and $176,000 in hurricane expenses.
During the year ended December 31, 2022, the Company recorded $10.0 million in income from the settlement of a lawsuit brought by the Company, net of legal expense, $6.7 million in recoveries on historic losses from loans charged off prior to acquisition, and $1.4 million in special dividends from equity investments, which were partially offset by $2.1 million in trust preferred securities ("TRUPS") redemption fees, $1.3 million of loss for the decrease in fair value of marketable securities and $176,000 in hurricane expenses.
The summation of these items reduced net income by $81.6 million ($108.2 million pre-tax) and earnings per share by $0.42 per share for the year ended December 31, 2022.
The summation of these items reduced net income by $81.6 million ($108.2 million pre-tax) and earnings per share by $0.42 per share for the year ended December 31, 2022.
Excluding the impact of the acquisition of Happy, the Company determined that an additional $5.0 million provision for credit losses on loans was necessary due to increased loan growth during the year. However, excluding the impact of the acquisition of Happy, the Company determined no additional provision for unfunded commitments or investment securities was necessary as of December 31, 2022.
Excluding the impact of the acquisition of Happy, the Company determined that an additional $5.0 million provision for credit losses on loans was necessary due to increased loan growth during the year. However, excluding the impact of the acquisition of Happy, the Company determined no additional provision for unfunded commitments or investment securities was necessary as of December 31, 2022.
The increase in average earning assets is primarily the result of a $2.57 billion increase in average loans receivable and a $1.87 billion increase in average investment securities, largely resulting from the acquisition of Happy, which were partially offset by a $151.9 million decrease in average interest-bearing balances due from banks.
The increase in average earning assets is primarily the result of a $2.57 billion increase in average loans receivable and a $1.87 billion increase in average investment securities, largely resulting from the acquisition of Happy, which were partially offset by a $151.9 million decrease in average interest-bearing balances due from banks.
For the years ended December 31, 2022 and 2021, we recognized $16.3 million and $20.2 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by approximately 2 basis points.
For the years ended December 31, 2022 and 2021, we recognized $16.3 million and $20.2 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by approximately 2 basis points.
During 2022, the Company experienced a $31.8 million reduction in interest income from PPP loans due to the forgiveness of the PPP loans and the acceleration of the deferred fees for the loans that were forgiven. This reduction in income was dilutive to the net interest margin by approximately 8 basis points.
During 2022, the Company experienced a $31.8 million reduction in interest income from PPP loans due to the forgiveness of the PPP loans and the acceleration of the deferred fees for the loans that were forgiven. This reduction in income was dilutive to the net interest margin by approximately 8 basis points.
We recognized $3.8 million in event interest income for the year ended December 31, 2022 compared to $6.7 million in event income for the year ended December 31, 2021. This was dilutive to the net interest margin by approximately 2 basis points.
We recognized $3.8 million in event interest income for the year ended December 31, 2022 compared to $6.7 million in event income for the year ended December 31, 2021. This was dilutive to the net interest margin by approximately 2 basis points.
The overall increase in the net interest margin was due to an increase in interest income due to an increase in both average earning assets at higher yields which was partially offset by an increase in interest expense due to an increase in average interest-bearing liabilities at higher interest rates primarily as a result of the Happy acquisition and the current rising interest rate environment.
The overall increase in the net interest margin was due to an increase in interest income due to an increase in both average earning assets at higher yields, which was partially offset by an increase in interest expense due to an increase in average interest-bearing liabilities at higher interest rates primarily as a result of the Happy acquisition, and the current rising interest rate environment.
The Company first assesses whether it intends to sell or is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.
The Company first assesses whether it intends to sell or is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.
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.
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 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.
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. The Company has made the election to exclude accrued interest receivable on AFS securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets.
Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. The Company has made the election to exclude accrued interest receivable on AFS securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets.
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.
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 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 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 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 $2.93 billion, or 80.14%.
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 $2.93 billion, or 80.14%.
Our loan portfolio balance increased $4.57 billion to $14.41 billion as of December 31, 2022, from $9.84 billion as of December 31, 2021.
Our loan portfolio balance increased $4.57 billion to $14.41 billion as of December 31, 2022, from $9.84 billion as of December 31, 2021.
The increase in loans was 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 $678.6 million in organic loan growth during 2022.
The increase in loans was 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 $678.6 million in organic loan growth during 2022.
Total deposits increased $3.68 billion to $17.94 billion as of December 31, 2022 compared to $14.26 billion as of December 31, 2021.
Total deposits increased $3.68 billion to $17.94 billion as of December 31, 2022 compared to $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, partially offset by $2.18 billion in deposit decline during the year.
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, partially offset by $2.18 billion in deposit decline during the year.
Stockholders’ equity increased $760.6 million to $3.53 billion as of December 31, 2022, compared to $2.77 billion as of December 31, 2021.
Stockholders’ equity increased $760.6 million to $3.53 billion as of December 31, 2022, compared to $2.77 billion as of December 31, 2021.
The 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 $305.3 million in net income, which were partially offset by the $315.9 million decrease in accumulated other comprehensive income, $128.4 million of shareholder dividends paid and the repurchase of $70.9 million of our common stock during 2022.
The 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 $305.3 million in net income, which were partially offset by the $315.9 million decrease in accumulated other comprehensive income, $128.4 million of shareholder dividends paid and the repurchase of $70.9 million of our common stock during 2022.
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.
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 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.
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.
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.
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.
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.
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 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.
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.
The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032.
The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032.
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.
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.
The Company may, beginning with the interest payment date of July 31, 2025, and on any interest payment date thereafter, redeem the 2030 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 2030 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption.
The Company may, beginning with the interest payment date of July 31, 2025, and on any interest payment date thereafter, redeem the 2030 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 2030 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption.
The Company may also redeem the 2030 Notes at any time, including prior to July 31, 2025, 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 2030 Notes for U.S. federal income tax purposes or preclude the 2030 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.
The Company may also redeem the 2030 Notes at any time, including prior to July 31, 2025, 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 2030 Notes for U.S. federal income tax purposes or preclude the 2030 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.
The decrease in volume is due to the increase in interest rates. • The $1.8 million 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 $5.6 million decrease in 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 $2.2 million decrease in gain on sale of SBA loans is primarily due to the decrease in the volume of SBA loan sales during 2022. • The $1.5 million decrease in gain on OREO resulted from a reduction in the level of sales of OREO during 2022. • The $8.5 million decrease in the fair value adjustment for marketable securities is due to a reduction in the fair market value of marketable securities held by the Company. • The $27.6 million increase in other income is primarily due to $15.0 million in income from the settlement of a lawsuit brought by the Company and a $6.3 million adjustment for equity method investments.
The decrease in volume is due to the increase in interest rates. • The $1.8 million 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 $5.6 million decrease in 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 $2.2 million decrease in gain on sale of SBA loans is primarily due to the decrease in the volume of SBA loan sales during 2022. • The $1.5 million decrease in gain on OREO resulted from a reduction in the level of sales of OREO during 2022. • The $8.5 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 $27.6 million increase in other income is primarily due to $15.0 million in income from the settlement of a lawsuit brought by the Company and a $6.3 million adjustment for equity method investments.
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 occupies 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.
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 occupies 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 ("DCF").
The acquisition added new markets for expansion and brought complementary businesses together to drive synergies and growth. Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $6.69 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 acquisition added new markets for expansion and brought complementary businesses together to drive synergies and growth. Including the effects of 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.
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. 77 Table of Contents 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.
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. 78 Table of Contents 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 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.
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 a credit loss analysis of a previously classified credit or relationship.
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.
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. Generally, 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.
Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price indices and rental vacancy rate index. 45 Table of Contents The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics.
Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price indices and rental vacancy rate index. 46 Table of Contents The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics.
Non-performing loans from our Florida franchise were $20.5 million at December 31, 2022 compared to $26.8 million as of December 31, 2021. Non-performing loans from our new Texas franchise were $22.2 million at December 31, 2022. Non-performing loans from our Alabama franchise were $404,000 at December 31, 2022 compared to $470,000 as of December 31, 2021.
Non-performing loans from our Florida franchise were $20.5 million at December 31, 2022 compared to $26.8 million as of December 31, 2021. Non-performing loans from our new Texas franchise were $22.2 million at December 31, 2022. Nonperforming loans from our Alabama franchise were $404,000 at December 31, 2022 compared to $470,000 as of December 31, 2021.
As a result, the Company no longer holds any trust preferred securities as of December 31, 2022. On April 1, 2022, the Company acquired $140.0 million in aggregate principal amount of 5.500% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “2030 Notes”) from Happy, and the Company recorded approximately $144.4 million which included fair value adjustments..
As a result, the Company no longer holds any trust preferred securities. On April 1, 2022, the Company acquired $140.0 million in aggregate principal amount of 5.500% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “2030 Notes”) from Happy, and the Company recorded approximately $144.4 million which included fair value adjustments..
Income tax expense decreased by $8.4 million, or 8.6%, during 2022 due to the decrease in net income and the reduction in the marginal tax rate related to the Happy acquisition. 40 Table of Contents Our net interest margin on a fully taxable equivalent basis increased from 3.66% for the year ended December 31, 2021 to 3.81% for the year ended December 31, 2022.
Income tax expense decreased by $8.4 million, or 8.6%, during 2022 due to the decrease in net income and the reduction in the marginal tax rate related to the Happy acquisition. 43 Table of Contents Our net interest margin on a fully taxable equivalent basis increased from 3.66% for the year ended December 31, 2021 to 3.81% for the year ended December 31, 2022.
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 the date of issuance to, but excluding April 15, 2022, the Notes bore interest at an initial rate of 5.625% per annum.
Therefore, the total commitment does not necessarily represent future requirements. 82 Table of Contents Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions.
Therefore, the total commitment does not necessarily represent future requirements. 83 Table of Contents Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions.
Centennial CFG loan fees were $11.8 million and $11.9 million for the years ended December 31, 2022 and December 31, 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.
Centennial CFG loan fees were $9.9 million and $11.8 million for the years ended December 31, 2023 and December 31, 2022, 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.
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.
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 restructured loans 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.
The low level of charge-offs for the year emphasize the Company's strong asset quality, and additional disclosure of net charge-offs to average loans outstanding by loan category is not considered necessary. 70 Table of Contents Table 15 presents the allocation of allowance for credit losses as of December 31, 2022 and 2021.
The low level of charge-offs for the year emphasize the Company's strong asset quality, and additional disclosure of net charge-offs to average loans outstanding by loan category is not considered necessary. 70 Table of Contents Table 15 presents the allocation of allowance for credit losses as of December 31, 2023 and 2022.
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. 46 Table of Contents Acquisition Accounting and Acquired Loans .
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. 47 Table of Contents Acquisition Accounting and Acquired Loans .
Additional details for the year ended December 31, 2022 on some of the more significant changes are as follows: • The $14.8 million increase in service charges on deposit accounts is primarily due to an increase in overdraft and service charge fees related to the acquisition of Happy. • The $8.1 million increase in other service charges and fees is primarily due to an increase in interchange fees related to the acquisition of Happy. 55 Table of Contents • The $10.9 million increase in trust fees is primarily related to an increase in trust fees resulting from the acquisition of Happy. • The $8.0 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.
Additional details for the year ended December 31, 2022 on some of the more significant changes are as follows: • The $14.8 million increase in service charges on deposit accounts is primarily due to an increase in overdraft and service charge fees related to the acquisition of Happy. • The $8.1 million increase in other service charges and fees is primarily due to an increase in interchange fees related to the acquisition of Happy. • The $10.9 million increase in trust fees is primarily related to an increase in trust fees resulting from the acquisition of Happy. • The $8.0 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.
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. 83 Table of Contents In Table 24 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.
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. 84 Table of Contents In Table 24 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.
We account for credit losses in accordance with ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL"). 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.
We account for credit losses in accordance with ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASC 326" or "CECL"). 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.
Management believes that, as of December 31, 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.
Management believes that, as of December 31, 2023 and December 31, 2022, 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.
These increases were partially offset by an $8.5 million, or 117.7%, decrease in income for the fair value adjustment for marketable securities resulting from a $1.3 million decrease in the fair value of marketable securities for the year ended December 31, 2022, compared to a $7.2 million increase for the year ended December 31, 2021, an $8.0 million, or 31.2%, decrease in mortgage lending income, a $5.6 million, or 38.0%, decrease in dividends from FHLB, FRB, FNBB and other, a $2.2 million, or 92.3%, decrease in the gain on sale of SBA loans and a $1.5 million, or 75.0%, decrease in gain on OREO.
These increases were partially offset by an $8.5 million, or 117.7%, decrease in income for the fair value adjustment for marketable securities resulting from a $1.3 million decrease in the fair value of marketable securities for the year ended December 31, 2022, compared to a $7.2 million increase for the year ended December 31, 2021, an $8.0 million, or 31.2%, decrease in mortgage lending income, a $5.6 million, or 38.0%, decrease in dividends from FHLB, FRB, FNBB and other, a $2.2 million, or 92.3%, decrease in the gain on sale of SBA loans and a $1.5 million, or 75.0%, decrease in gain on other real estate owned ("OREO").
The table also presents the portion of our loans that have fixed interest rates and interest rates that fluctuate over the life of the loans based on changes in the interest rate environment. 61 Table of Contents The loans acquired during our acquisitions accrete interest income through accretion of the difference between the carrying amount of the loans and the expected cash flows.
The table also presents the portion of our loans that have fixed interest rates and interest rates that fluctuate over the life of the loans based on changes in the interest rate environment. The loans acquired during our acquisitions accrete interest income through accretion of the difference between the carrying amount of the loans and the expected cash flows.
This is usually established over a period of 6-12 months of timely payment performance. 69 Table of Contents Table 14 shows the allowance for credit losses, charge-offs and recoveries for loans as of and for the years ended December 31, 2022 and 2021.
This is usually established over a period of 6-12 months of timely payment performance. 69 Table of Contents Table 14 shows the allowance for credit losses, charge-offs and recoveries for loans as of and for the years ended December 31, 2023 and 2022.
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.
From and including April 15, 2022 to, but excluding the maturity date or earlier redemption, the 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 is less than zero, then three-month LIBOR would have been deemed to be zero.
Non-performing loans from our Centennial CFG franchise were $7.1 million at December 31, 2022 compared to $7.5 million as of December 31, 2021. 41 Table of Contents As of December 31, 2022, our non-performing assets increased to $61.5 million, or 0.27%, of total assets from $51.8 million, or 0.29%, of total assets as of December 31, 2021.
Non-performing loans from our Centennial CFG franchise were $7.1 million at December 31, 2022 compared to $7.5 million as of December 31, 2021. 44 Table of Contents As of December 31, 2022, our non-performing assets increased to $61.5 million, or 0.27%, of total assets from $51.8 million, or 0.29%, of total assets as of December 31, 2021.
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.
As a general rule, when it becomes evident that the full principal and accrued interest of a loan may not be collected, generally at 90 days past due, or by law at 105 days past due, we will reflect that loan as non-performing.
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.
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 “Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $297.0 million. The Notes were unsecured, subordinated debt obligations and would have matured on April 15, 2027.
Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the years ended December 31, 2022, 2021 and 2020, as well as changes in fully taxable equivalent net interest margin for the years 2022 compared to 2021 and 2021 compared to 2020.
Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the years ended December 31, 2023, 2022 and 2021, as well as changes in fully taxable equivalent net interest margin for the years 2023 compared to 2022 and 2022 compared to 2021.
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. 44 Table of Contents Credit Losses .
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. 45 Table of Contents Credit Losses .
The yield on interest earning assets was 4.40% and 3.99% for the year ended December 31, 2022 and 2021, respectively, as average interest earning assets increased from $15.86 billion to $20.15 billion.
The yield on interest earning assets was 4.40% and 3.99% for the years ended December 31, 2022 and 2021, respectively, as average interest earning assets increased from $15.86 billion to $20.15 billion.
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.
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 credit loss analysis. In estimating the net realizable value of the collateral, management may deem it appropriate to discount the appraisal based on the applicable circumstances.
Table 6 measures the various components of our non-interest income for the years ended December 31, 2022, 2021, and 2020, respectively, as well as changes for the years 2022 compared to 2021 and 2021 compared to 2020.
Table 6 measures the various components of our non-interest income for the years ended December 31, 2023, 2022, and 2021, respectively, as well as changes for the years 2023 compared to 2022 and 2022 compared to 2021.
Table 7 below sets forth a summary of non-interest expense for the years ended December 31, 2022, 2021, and 2020, as well as changes for the years ended 2022 compared to 2021 and 2021 compared to 2020.
Table 7 below sets forth a summary of non-interest expense for the years ended December 31, 2023, 2022, and 2021, as well as changes for the years ended 2023 compared to 2022 and 2022 compared to 2021.
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 .
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. 53 Table of Contents Acquired loans .
We recognize compensation expense for the grant-date fair value of the option award over the vesting period of the award. 47 Table of Contents Acquisitions 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.
We recognize compensation expense for the grant-date fair value of the option award over the vesting period of the award. 48 Table of Contents Acquisitions Acquisition of Happy Bancshares, Inc. On April 1, 2022, the Company completed the acquisition of Happy Bancshares, Inc., and merged Happy State Bank into Centennial Bank.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis presents our consolidated financial condition and results of operations for the years ended December 31, 2022, 2021 and 2020.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis presents our consolidated financial condition and results of operations for the years ended December 31, 2023, 2022 and 2021.
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.
Loans considered to be collateral dependent, 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.
Generally, a non-accrual loan that is restructured remains on non-accrual for a period of six months to demonstrate that the borrower can meet the restructured terms.
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.
Additional details for the year ended December 31, 2022 on some of the more significant changes are as follows: • The $68.1 million increase in salaries and employee benefits expense is primarily due to the acquisition of Happy. • The $16.8 million increase in occupancy and equipment expense 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 $10.7 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. 57 Table of Contents • The $47.7 million increase in merger and acquisition expense is due to costs associated with the acquisition of Happy. • The $3.1 million increase in advertising expense is primarily related to the acquisition of Happy. • The $3.2 million increase in amortization of intangibles is due to the acquisition of Happy. • The $3.8 million increase in electronic banking expenses is primarily due to the increased debit card processing fees and interchange network expense resulting from the acquisition of Happy. • The $3.0 million increase in FDIC and state assessment is primarily due to FDIC assessment reductions for 2021 and the acquisition of Happy during the second quarter of 2022. • The $5.7 million increase in legal and accounting expense is primarily due to expenses related to a lawsuit brought by the Company. • The $1.9 million increase in other professional fees is primarily related to the acquisition of Happy. • The $1.2 million increase in operating expense is primarily due to the acquisition of Happy. • The $9.8 million increase in other expenses is primarily related to the acquisition of Happy as well as $2.1 million in TRUPS redemption fees.
Additional details for the year ended December 31, 2022 on some of the more significant changes are as follows: • The $68.1 million increase in salaries and employee benefits expense is primarily due to the acquisition of Happy. • The $16.8 million increase in occupancy and equipment expense 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 $10.7 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 $47.7 million increase in merger and acquisition expense is due to costs associated with the acquisition of Happy. • The $3.1 million increase in advertising expense is primarily related to the acquisition of Happy. • The $3.2 million increase in amortization of intangibles is due to the acquisition of Happy. • The $3.8 million increase in electronic banking expenses is primarily due to the increased debit card processing fees and interchange network expense resulting from the acquisition of Happy. • The $3.0 million increase in FDIC and state assessment expense is primarily due to FDIC assessment reductions for 2021 and the acquisition of Happy during the second quarter of 2022. • The $5.7 million increase in legal and accounting expense is primarily due to expenses related to a lawsuit brought by the Company. • The $1.9 million increase in other professional fees is primarily related to the acquisition of Happy. • The $1.2 million increase in operating expense is primarily due to the acquisition of Happy. • The $9.8 million increase in other expenses is primarily related to the acquisition of Happy as well as $2.1 million in TRUPS redemption fees. 58 Table of Contents Income Taxes During 2023, the Company increased its marginal tax rate from 24.6735% to 24.989%.
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 measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics.
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. The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics.
Table 23 presents the anticipated funding requirements of our most significant financial commitments, excluding interest, as of December 31, 2022.
Table 23 presents the anticipated funding requirements of our most significant financial commitments, excluding interest, as of December 31, 2023.
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.
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 a specific allocation is needed.
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.
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 valuation report for the credit loss analysis.
Subordinated Debentures Subordinated debentures, which consist of subordinated debt securities and guaranteed payments on trust preferred securities, were $440.4 million and $371.1 million as of December 31, 2022 and 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.
Subordinated Debentures Subordinated debentures, which consist of subordinated debt securities and guaranteed payments on trust preferred securities, were $439.8 million and $440.4 million as of December 31, 2023 and 2022, 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.
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. The Company uses the discounted cash flow (“DCF”) method to estimate expected losses for all of Company’s loan pools.
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. The Company uses the DCF method to estimate expected losses for all of Company’s loan pools.
Other factors were changes related to occupancy and equipment expenses, data processing expenses, merger and acquisition expenses, electronic banking expense, FDIC and state assessment, hurricane expense, legal and accounting, other professional fees and other expense.
Other factors were changes related to occupancy and equipment expenses, data processing expenses, electronic banking expense, FDIC and state assessment expense, legal and accounting expenses, other professional fees and other expense.
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 (24.6735% for the year ended December 31, 2022, 25.740% for the year ended December 31, 2021 and 26.135% for year ended December 31, 2020).
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 (24.989% for the year ended December 31, 2023, 24.6735% for the year ended December 31, 2022 and 25.740% for year ended December 31, 2021).

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−0 removed15 unchanged
Biggest changeTable 31: Sensitivity of Net Interest Income Interest Rate Scenario Percentage Change from Base Up 200 basis points 7.48 % Up 100 basis points 3.77 Down 100 basis points (4.65) Down 200 basis points (10.21)
Biggest changeTable 31: Sensitivity of Net Interest Income Interest Rate Scenario Percentage Change from Base Up 200 basis points 9.61 % Up 100 basis points 4.93 Down 100 basis points (5.70) Down 200 basis points (11.82)
At December 31, 2022, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by us. 88 Table of Contents Table 31 presents our sensitivity to net interest income as of December 31, 2022.
At December 31, 2023, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by us. 89 Table of Contents Table 31 presents our sensitivity to net interest income as of December 31, 2023.

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