HOME BANCSHARES INC
For the period ended Dec 31, 2024. Filed Feb 27, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 27, 2025
HOMB$29.86-0.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-26.
0001331520-24-000080
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-27.
0001331520-25-000076
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 324 previous paragraphs and 309 current paragraphs.
172 unchanged; 77 reworded; 57 added; 48 removed; 27 previous and 3 current paragraphs rearranged.
Tables are not compared: 42 previous and 54 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (57)
Current report
Our net income increased $9.3 million, or 2.4%, to $402.2 million for the year ended December 31, 2024, from $392.9 million for the same period in 2023. On a diluted earnings per share basis, our earnings were $2.01 per share for the year ended December 31, 2024 and $1.94 per share for the year ended December 31, 2023. The Company recorded $48.1 million in credit loss expense for the year ended December 31, 2024. This consisted of a $48.4 million provision for credit losses on loans, which was partially offset by a $330,000 recovery of credit losses on available-for-sale investments due to an improvement in the unrealized loss position for one of our subordinated debt investments. Of the $48.4 million provision for credit losses on loans recorded, $33.4 million as used to establish a hurricane reserve for loans located in the Federal Emergency Management Agency ("FEMA") disaster areas impacted by Hurricanes Helene and Milton, which made landfall during the third and fourth quarters of 2024. The hurricane related reserve had a $0.13 impact to diluted earnings per share. The remaining portion of the provision was related to loan growth. For the year ended December 31, 2024, the Company recorded a $3.0 million increase in the fair value of marketable securities, a $2.1 million gain on sale of a building from our Texas market, $257,000 in bank owned life insurance ("BOLI") death benefits and $2.3 million in Federal Deposit Insurance Corporation ("FDIC") special assessment expense.
Current report
Total interest income increased by $124.7 million, or 10.6%, and non-interest expense decreased by $25.9 million, or 5.5%. This was partially offset by a $102.9 million, or 29.6%, increase in interest expense and a $1.4 million, or 0.8%, decrease in non-interest income. The increase in interest income resulted from a $110.4 million, or 11.2%, increase in loan interest income and a $27.8 million, or 184.7%, increase in interest income on deposits at other banks, partially offset by a $13.4 million, or 7.9%, decrease in investment income. The decrease in non-interest expense was due to a $15.9 million, or 6.2%, decrease in salaries and employee benefits, a $7.9 million, or 6.6%, decrease in other operating expenses and a $2.3 million, or 3.8%, decrease in occupancy and equipment expense. The increase in interest expense was primarily due to an $80.7 million, or 27.3%, increase in interest on deposits, a $21.6 million, or 70.2%, increase in interest on FHLB and other borrowed funds and a $635,000, or 13.2%, increase in interest on securities sold under agreements to repurchase. The decrease in non-interest income was primarily due to an $8.5 million, or 22.2%, decrease in other income, a $2.6 million, or 784.3% decrease, in the gain/loss on OREO and a $1.2 million, or 2.7% decrease, in other service charges and fees, which were partially offset by a $5.1 million, or 47.0%, increase in mortgage lending income and a $4.1 million, or 371.6%, increase in income from the fair value adjustment for marketable securities.
Current report
Our net interest margin on a fully taxable equivalent basis increased from 4.25% for the year ended December 31, 2023 to 4.27% for the year ended December 31, 2024. The yield on interest earning assets was 6.51% and 6.03% for the year ended December 31, 2024 and 2023, respectively, as average interest earning assets increased from $19.57 billion to $20.09 billion. The increase in average interest earning assets is primarily due to a $499.7 million increase in average interest-bearing balances due from banks and a $360.3 million increase in average loans receivable, which were partially offset by a $341.8 million decrease in average investment securities. For the years ended December 31, 2024 and 2023, we recognized $8.1 million and $10.6 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by approximately 1 basis point. We recognized $4.9 million in event income for the year ended December 31, 2024, compared to $3.0 million for the year ended December 31, 2023. This increase was accretive to the net interest margin by 1 basis point. During the year ended December 31, 2024, the Company held approximately $500 million in excess liquidity, which was dilutive to the net interest margin by 8 basis points. The overall increase in the net interest margin was due to an increase in interest income from higher yields on average interest-earning assets and an increase in interest income due to changes in interest earning assets, partially offset by an increase in interest expense due to changes in interest-bearing liabilities and a change in interest rates paid on interest-bearing liabilities.
Current report
Our total assets as of December 31, 2024 decreased $165.9 million to $22.49 billion from the $22.66 billion reported as of December 31, 2023. The decrease in total assets is primarily due to a $442.0 million decrease in investment securities resulting from paydowns and maturities and a $89.9 million decrease in cash and cash equivalents during the year. Our loan portfolio balance increased $339.8 million to $14.76 billion as of December 31, 2024, from $14.42 billion as of December 31, 2023. The increase in loans was due to $471.4 million in organic loan growth within our legacy footprint, which was partially offset by $131.7 million of organic loan decline from our Centennial Commercial Finance Group ("CFG") franchise during 2024. Total deposits increased $358.6 million to $17.15 billion as of December 31, 2024 compared to $16.79 billion as of December 31, 2023. Stockholders’ equity increased $170.0 million to $3.96 billion as of December 31, 2024, compared to $3.79 billion as of December 31, 2023. The increase in stockholders’ equity is primarily associated with the $402.2 million in net income, which was partially offset by the $150.0 million of shareholder dividends paid, the repurchase of $86.1 million of our common stock during 2024 and the $7.0 million decrease in accumulated other comprehensive income. The improvement in stockholders’ equity was 4.5% for the year ended December 31, 2024 compared to December 31, 2023.
Current report
As of December 31, 2024, our non-performing loans increased to $98.9 million, or 0.67%, of total loans from $64.1 million, or 0.44%, of total loans as of December 31, 2023. The allowance for credit losses as a percentage of non-performing loans decreased to 278.99% as of December 31, 2024, compared to 449.66% as of December 31, 2023. As of December 31, 2024, our non-performing assets increased to $142.4 million, or 0.63%, of total assets from $95.4 million, or 0.42%, of total assets as of December 31, 2023.
Current report
The table below shows the non-performing loans and non-performing assets by region as of December 31, 2024:
Current report
The $7.4 million balance of non-accrual loans for our Centennial CFG Capital Markets Group at December 31, 2024 consists of three loans that are assessed for credit risk by the Federal Reserve under the Shared National Credit Program. The loans are not current on either principal or interest, and we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve. Any interest payments that are received will be applied to the principal balance. In addition, the $22.8 million balance of foreclosed assets held for sale for our Centennial CFG Property Finance Group consists of an office building located in California which was placed in foreclosed assets held for sale during the fourth quarter of 2023. This represents the largest component of the Company's $43.4 million in foreclosed assets held for sale.
Current report
The table below shows the non-performing loans and non-performing assets by region as of December 31, 2022:
Current report
•1-4 family construction
Current report
•All other construction
Current report
•1-4 family revolving home equity lines of credit (“HELOC”) & junior liens
Current report
•1-4 family senior liens
Current report
•Multifamily
Current report
•Owner occupies commercial real estate
Current report
•Non-owner occupied commercial real estate
Current report
•Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other
Current report
•Consumer auto
Current report
•Other consumer
Current report
•Other consumer - SPF
Current report
•Management has a reasonable expectation at the reporting date that restructured loans made to borrowers experiencing financial difficulty will be executed with an individual borrower.
Current report
•The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
Current report
Our net income increased $9.3 million, or 2.4%, to $402.2 million for the year ended December 31, 2024, from $392.9 million for the same period in 2023. On a diluted earnings per share basis, our earnings were $2.01 per share for the year ended December 31, 2024 and $1.94 per share for the year ended December 31, 2023. The Company recorded $48.1 million in credit loss expense for the year ended December 31, 2024. This consisted of a $48.4 million provision for credit losses on loans, which was partially offset by a $330,000 recovery of credit losses on available-for-sale investments due to an improvement in the unrealized loss position for one of our subordinated debt investments. Of the $48.4 million provision for credit losses on loans recorded, $33.4 million as used to establish a hurricane reserve for loans located in the FEMA disaster areas impacted by Hurricanes Helene and Milton, which made landfall during the third and fourth quarters of 2024. The hurricane related reserve had a $0.13 impact to diluted earnings per share. The remaining portion of the provision was related to loan growth. For the year ended December 31, 2024, the Company recorded a $3.0 million increase in the fair value of marketable securities, a $2.1 million gain on sale of a building from our Texas market, $257,000 in BOLI death benefits and $2.3 million in FDIC special assessment expense.
Current report
Our net interest margin on a fully taxable equivalent basis increased from 4.25% for the year ended December 31, 2023 to 4.27% for the year ended December 31, 2024. The yield on interest earning assets was 6.51% and 6.03% for the year ended December 31, 2024 and 2023, respectively, as average interest earning assets increased from $19.57 billion to $20.09 billion. The increase in average interest earning assets is primarily due to a $499.7 million increase in average interest-bearing balances due from banks and a $360.3 million increase in average loans receivable, which were partially offset by a $341.8 million decrease in average investment securities. For the years ended December 31, 2024 and 2023, we recognized $8.1 million and $10.6 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by approximately 1 basis point. We recognized $4.9 million in event income for the year ended December 31, 2024, compared to $3.0 million for the year ended December 31, 2023. This increase was accretive to the net interest margin by 1 basis point. During the year ended December 31, 2024, the Company held approximately $500 million in excess liquidity, which was dilutive to the net interest margin by 8 basis points. The overall increase in the net interest margin was due to an increase in interest income from higher yields on average interest-earning assets and an increase in interest income due to changes in interest earning assets, partially offset by an increase in interest expense due to changes in interest-bearing liabilities and a change in interest rates paid on interest-bearing liabilities.
Current report
Credit Loss Expense: During the year ended December 31, 2024, the Company recorded $48.1 million in credit loss expense. This consisted of a $48.4 million provision for credit losses on loans, which was partially offset by a $330,000 recovery of credit losses on available-for-sale investments due to an improvement in the unrealized loss position for one of our subordinated debt investments. Of the $48.4 million provision for credit losses on loans recorded, $33.4 million as used to establish a hurricane reserve for loans located in the FEMA disaster areas impacted by Hurricanes Helene and Milton, which made landfall during the third and fourth quarters of 2024. The Company determined the $2.0 million allowance for credit losses on the held-to-maturity portfolio was adequate. Therefore, no additional provision was considered necessary for the held-to-maturity portfolio.
Current report
Non-interest income decreased $1.4 million, or 0.8%, to $168.6 million for the year ended December 31, 2024 from $169.9 million for the same period in 2023. The primary factors that resulted in this decrease were the $8.5 million decrease in other income and $2.6 million decrease in gain on OREO, partially offset by the $5.1 million increase in mortgage lending income and $4.1 million increase in the fair value adjustment for marketable securities. Other factors were changes related to service charges on deposit accounts, trust fees, and gain on sale of branches, equipment and other assets.
Current report
•The $1.2 million decrease in other service charges and fees is primarily due to decreases in Centennial CFG property finance loan fees and Mastercard income.
Current report
•The $825,000 increase in trust fees is primarily related to an increases in personal trust fees, employee trust fees, IRA fees and retirement fees.
Current report
•The $595,000 increase in gain on sale of branches, equipment and other assets, net, is primarily due to the sale of a building from our Texas region during 2024.
Current report
•The $2.6 million decrease in gain on OREO is primarily due to revaluation of two OREO properties during 2024.
Current report
Non-interest expense decreased $25.9 million, or 5.5%, to $446.9 million for the year ended December 31, 2024, from $472.9 million for the same period in 2023. The primary factors that resulted in this decrease was the decrease in salaries and employee benefits expense and FDIC and state assessment expense, partially offset by the increases in legal and accounting fees and other expenses. Other factors were changes related to occupancy and equipment expenses, advertising expenses, amortization of intangibles, electronic banking expense and other professional fees.
Current report
•The $15.9 million decrease in salaries and employee benefits expense is primarily due to the Company's project to reduce the size of its workforce and a decrease in deferred loan costs.
Current report
•The $2.3 million decrease in occupancy and equipment expense is primarily due to decreases in lease, utility, maintenance and other occupancy expenses.
Current report
•The $1.8 million decrease in advertising expense is primarily due to a decreased volume of advertising.
Current report
•The $1.2 million decrease in amortization of intangibles is primarily due to the core deposit intangible from the Company's 2013 acquisition of Liberty Bank being fully amortized in 2023.
Current report
•The $10.1 million decrease in FDIC and state assessment expense is primarily due to the $13.0 million FDIC special assessment levied during the fourth quarter of 2023 in order to recover the losses to the Deposit Insurance Fund associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank, partially offset by the remaining portion of the FDIC special assessment being incurred during the second quarter of 2024.
Current report
•The $4.0 million increase in other expenses is primarily related to an increase in OREO expense and miscellaneous costs, partially offset by decreases in travel expenses, reimbursable loan fees and other losses.
Current report
Our total assets as of December 31, 2024 decreased $165.9 million to $22.49 billion from the $22.66 billion reported as of December 31, 2023. The decrease in total assets is primarily due to a $442.0 million decrease in investment securities resulting from paydowns and maturities and a $89.9 million decrease in cash and cash equivalents during the year. Our loan portfolio balance increased $339.8 million to $14.76 billion as of December 31, 2024, from $14.42 billion as of December 31, 2023. The increase in loans was due to $471.4 million in organic loan growth within our legacy footprint, which was partially offset by $131.7 million of organic loan decline from our CFG franchise during 2024. Total deposits increased $358.6 million to $17.15 billion as of December 31, 2024 compared to $16.79 billion as of December 31, 2023. Stockholders’ equity increased $170.0 million to $3.96 billion as of December 31, 2024, compared to $3.79 billion as of December 31, 2023. The increase in stockholders’ equity is primarily associated with the $402.2 million in net income, which was partially offset by the $150.0 million of shareholder dividends paid, the repurchase of $86.1 million of our common stock during 2024 and the $7.0 million decrease in accumulated other comprehensive income. The improvement in stockholders’ equity was 4.5% for the year ended December 31, 2024 compared to December 31, 2023.
Current report
Table 9 presents the composition of the funded and unfunded balances of our CRE portfolio by loan type, as of December 31, 2024 and December 31, 2023, and their respective percentages of our total CRE portfolio.
Current report
Table 9: CRE Loan Concentrations
Current report
(1) Agriculture real estate loans and owner-occupied non-farm non-residential loans are not included within CRE for regulatory reporting purposes.
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Removed paragraphs (48)
Previous report
As of December 31, 2023, our non-performing assets increased to $95.4 million, or 0.42%, of total assets from $61.5 million, or 0.27%, of total assets as of December 31, 2022. Non-performing assets from our Arkansas franchise were $15.5 million at December 31, 2023 compared to $8.5 million as of December 31, 2022. Non-performing assets from our Florida franchise were $17.3 million at December 31, 2023 compared to $20.8 million as of December 31, 2022. Non-performing assets from our Texas franchise were $33.8 million at December 31, 2023 compared to $22.4 million at December 31, 2022. Non-performing assets from our Alabama franchise were $413,000 at December 31, 2023 compared to $404,000 as of December 31, 2022. Non-performing assets from our SPF franchise were $2.8 million at December 31, 2023 compared to $2.3 million as of December 31, 2022. Non-performing assets from our CFG franchise were $25.6 million at December 31, 2023 compared to $7.1 million as of December 31, 2022.
Previous report
Our net income decreased $13.8 million, or 4.3%, to $305.3 million for the year ended December 31, 2022, from $319.0 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $1.57 per share for the year ended December 31, 2022 and $1.94 per share for the year ended December 31, 2021. As a result of the acquisition of Happy Bancshares, Inc. ("Happy"), which we completed on April 1, 2022, we incurred $49.6 million in merger expenses and recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments and a $2.0 million provision for credit losses on acquired held-to-maturity investment securities. The summation of these items reduced 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. 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.
Previous report
Total interest income increased by $252.6 million, or 40.4%, and non-interest income increased by $37.5 million, or 27.3%. This was partially offset by a $177.1 million, or 59.3%, increase in non-interest expense and a $66.9 million, or 128.1%, increase in interest expense. These fluctuations are primarily due to the acquisition of Happy during the second quarter of 2022 and the rising rate environment. The increase in interest income resulted from a $156.4 million, or 27.3%, increase in loan interest income, a $70.6 million, or 142.0%, increase in investment income and a $25.6 million, or 728.2%, increase in interest income on deposits at other banks. The increase in non-interest income was primarily due to a $27.6 million, or 133.2%, increase in other income, a $14.8 million, or 66.6%, increase in service charges on deposit accounts, a $10.9 million, or 555.9%, increase in trust fees, an $8.1 million, or 22.3%, increase in other service charges and fees and a $1.8 million, or 85.5%, increase in the cash value of life insurance. 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"). Included within other income was $15.0 million in income from the settlement of a lawsuit brought by the Company and $6.7 million in recoveries on historic losses from loans charged off prior to acquisition, and included within dividends from FHLB, FRB, FNBB and other were $1.4 million in special dividends. The increase in non-interest expense was due to a $68.1 million, or 39.9%, increase in salaries and employee benefits, $49.6 million in merger and acquisition expenses, a $33.8 million, or 52.1%, increase in other operating expenses, a $16.8 million, or 45.8%, increase in occupancy and equipment and a $10.7 million, or 43.9%, increase in data processing expense. Included within other operating expense were $5.0 million in legal expenses from a lawsuit brought by the Company, $2.1 million in TRUPS redemption fees and $176,000 in hurricane expenses. The increase in interest expense was primarily due to a $61.1 million, or 244.8%, increase in interest on deposits, a $3.5 million, or 45.7%, increase in interest on FHLB and other borrowed funds and a $1.4 million, or 7.5%, increase in interest on subordinated debentures as a result of the acquisition of $140.0 million of subordinated debt and $23.2 million in trust preferred securities from Happy during the second quarter of 2022. Income tax expense d…
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Previous report
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. 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 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. 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. 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.
Previous report
Our total assets as of December 31, 2022 increased $4.83 billion to $22.88 billion from the $18.05 billion reported as of December 31, 2021. The increase in total assets is primarily due to the acquisition of $6.69 billion in total assets, net of purchase accounting adjustments, from Happy during the second quarter of 2022. Cash and cash equivalents decreased $2.93 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. 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. 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. 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 improvement in stockholders’ equity was 27.5% for the year ended December 31, 2022 compared to December 31, 2021.
Previous report
As of December 31, 2022, our non-performing loans increased to $60.9 million, or 0.42%, of total loans from $50.2 million, or 0.51%, of total loans as of December 31, 2021. The allowance for credit losses as a percentage of non-performing loans increased to 475.99% as of December 31, 2022, compared to 471.61% as of December 31, 2021. Non-performing loans from our Arkansas franchise were $8.4 million at December 31, 2022 compared to $13.9 million 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. Non-performing loans from our SPF franchise were $2.3 million at December 31, 2022 compared to $1.5 million 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.
Previous report
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 assets from our Arkansas franchise were $8.5 million at December 31, 2022 compared to $14.4 million as of December 31, 2021. Non-performing assets from our Florida franchise were $20.8 million at December 31, 2022 compared to $27.9 million as of December 31, 2021. Non-performing assets from our new Texas franchise were $22.4 million at December 31, 2022. Non-performing assets from our Alabama franchise were $404,000 at December 31, 2022 compared to $470,000 as of December 31, 2021. Non-performing assets from our SPF franchise were $2.3 million at December 31, 2022 compared to $1.5 million as of December 31, 2021. Non-performing assets from our CFG franchise were $7.1 million at December 31, 2022 compared to $7.5 million as of December 31, 2021.
Previous report
The $7.1 million balance of non-accrual loans for our Centennial CFG market balance of non-accrual loans for our Centennial CFG market consists of two loans that are assessed for credit risk by the Federal Reserve under the Shared National Credit Program. Due to the condition of the two loans, partial charge-offs for a total of $5.4 million were taken on these loans during 2022. The loans are not current on either principal or interest, and we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve. Any interest payments that are received will be applied to the principal balance.
Previous report
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price indices and rental vacancy rate index.
Previous report
The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Purchase credit deteriorated (“PCD”) loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit loss.
Previous report
Our net income decreased $13.8 million, or 4.3%, to $305.3 million for the year ended December 31, 2022, from $319.0 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $1.57 per share for the year ended December 31, 2022 and $1.94 per share for the year ended December 31, 2021. As a result of the acquisition of Happy, which we completed on April 1, 2022, we incurred $49.6 million in merger expenses and recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments and a $2.0 million provision for credit losses on acquired held-to-maturity investment securities. The summation of these items reduced 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. 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 TRUPS redemption fees, $1.3 million loss for the decrease in fair value of marketable securities and $176,000 in hurricane expenses.
Previous report
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. 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. 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. 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. 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.
Previous report
Credit Loss Expense: During the year ended December 31, 2023, the Company recorded a $12.0 million provision for credit losses on loans, a $1.7 million provision for credit losses on investment securities and a recovery of $1.5 million provision for unfunded commitments.
Previous report
Acquired loans. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. This is commonly referred to as “double accounting" or "double count."
Previous report
Non-interest income increased $37.5 million, or 27.3%, to $175.1 million for the year ended December 31, 2022 from $137.6 million for the same period in 2021. The primary factors that resulted in this increase were the $27.6 million increase in other income, the $14.8 million increase in service charges on deposit accounts and the $10.9 million increase in trust fees. Other factors were changes related to other service charges and fees, mortgage lending income, cash value of life insurance, dividends from FHLB, FRB, FNBB & other, gain on sale of SBA loans, gain on OREO and fair value adjustment for marketable securities.
Previous report
•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.
Previous report
•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.
Previous report
• 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.
Previous report
• The $1.5 million decrease in gain on OREO resulted from a reduction in the level of sales of OREO during 2022.
Previous report
Non-interest expense increased $177.1 million, or 59.3%, to $475.6 million for the year ended December 31, 2022, from $298.5 million for the same period in 2021. The primary factors that resulted in this increase was the increase in salaries and employee benefits expense and merger 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.
Previous report
•The $68.1 million increase in salaries and employee benefits expense is primarily due to the acquisition of Happy.
Previous report
•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.
Previous report
•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.
Previous report
•The $1.2 million increase in operating expense is primarily due to the acquisition of Happy.
Previous report
•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.
Previous report
Our total assets as of December 31, 2022 increased $4.83 billion to $22.88 billion from the $18.05 billion reported as of December 31, 2021. The increase in total assets is primarily due to the acquisition of $6.69 billion in total assets, net of purchase accounting adjustments, from Happy during the second quarter of 2022. Cash and cash equivalents decreased $2.93 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. 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. 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. 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 improvement in stockholders’ equity was 27.5% for the year ended December 31, 2022 compared to December 31, 2021.
Previous report
During 2022, the Company experienced an increase of approximately $4.57 billion in loans. The increase in loans was primarily due to the acquisition of $3.65 billion in loans, net of purchase accounting adjustments, from Happy and $242.2 million in marine loans from LendingClub Bank during 2022, as well as $678.6 million in organic loan growth. The $678.6 million in organic loan growth included $352.7 million in loan growth for Centennial CFG and $483.6 million in loan growth within the remaining footprint, partially offset by a $157.7 million decline in PPP loans during 2022.
Previous report
Total non-performing loans were $64.1 million as of December 31, 2023, compared to $60.9 million as of December 31, 2022, for an increase of $3.2 million. The $3.2 million increase in non-performing loans is primarily the result of increases in non-performing loans in our Texas, Arkansas, SPF and Alabama markets of $11.3 million, $7.0 million, $452,000 and $9,000, respectively, which were partially offset by decreases in non-performing loans in our Florida and Centennial CFG markets of $11.2 million and $4.4 million, respectively. Non-performing loans at December 31, 2023, were $15.4 million, $9.3 million, $33.5 million, $413,000, $2.8 million and $2.7 million in the Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets, respectively.
Previous report
A loan modification that might not otherwise be considered may be granted. These loans can involve loans remaining on non-accrual, moving to non-accrual, or continuing on an accrual status, depending on the individual facts and circumstances of the borrower. Generally, a non-accrual loan that is restructured remains on non-accrual for a period of nine months to demonstrate that the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can pay under the new terms and may result in the loan being returned to an accrual status after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan will remain in a non-accrual status.
Previous report
The combination of adjustments for credit expectations (default and loss) and time expectations prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.
Previous report
The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans evaluated individually that are considered to be impaired are not included in the collective evaluation. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. For loans for which a specific reserve is not recorded, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation if a specific reserve is not recorded.
Previous report
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. 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. The amount or likelihood of loss on this credit may not yet be evident, so a charge-off would not be prudent. However, if the analysis indicates that a specific allocation is needed, then a specific allocation will be determined for this loan. This analysis is performed each quarter in connection with the preparation of the analysis of the adequacy of the allowance for credit losses, and if necessary, adjustments are made to the specific allocation provided for a particular loan..
Previous report
For collateral dependent loans, we do not consider an appraisal outdated simply due to the passage of time. However, if an appraisal is older than 13 months and if market or other conditions have deteriorated and we believe that the current market value of the property is not within approximately 20% of the appraised value, we will consider the appraisal outdated and order either a new appraisal or an internal valuation report for the credit loss analysis. The recognition of any provision or related charge-off on a collateral dependent loan is either through annual credit analysis or, many times, when the relationship becomes delinquent. If the borrower is not current, we will update our credit and cash flow analysis to determine the borrower's repayment ability. If we determine this ability does not exist and it appears that the collection of the entire principal and interest is not likely, then the loan could be placed on non-accrual status. In any case, loans are classified as non-accrual no later than 105 days past due. If the loan requires a quarterly credit loss analysis, this analysis is completed in conjunction with the completion of the analysis of the adequacy of the allowance for credit losses. Any exposure identified through the credit loss analysis is shown as a specific reserve. 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.
Previous report
In estimating the net realizable value of the collateral, management may deem it appropriate to discount the appraisal based on the applicable circumstances. In such case, the amount charged off may result in loan principal outstanding being below fair value as presented in the appraisal.
Previous report
Between the receipt of the original appraisal and the updated appraisal, we monitor the loan's repayment history. If the loan is $3.0 million or greater or the total loan relationship is $5.0 million or greater, our policy requires an annual credit review. Our policy requires financial statements from the borrowers and guarantors at least annually. In addition, we calculate the global repayment ability of the borrower/guarantors at least annually.
Previous report
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. It will remain non-performing until it performs in a manner that it is reasonable to expect that we will collect the full principal and accrued interest.
Previous report
When the amount or likelihood of a loss on a loan has been determined, a charge-off should be taken in the period it is determined. If a partial charge-off occurs, the quarterly impairment analysis will determine if the loan is still impaired, and thus continues to require a specific allocation.
Previous report
Net loans charged off for the years ended December 31, 2023 and 2022 were $13.4 million and $14.0 million, respectively. For the years ended December 31, 2023 and 2022, approximately $2.2 million and $1.4 million, respectively, of the net charge-offs were from our Arkansas market. For the years ended December 31, 2023 and 2022, approximately $2.3 million and $4.5 million, respectively, of the net charge-offs were from our Florida market. For the years ended December 31, 2023 and 2022, approximately $4.0 million and $5.4 million, respectively, of the net charge-offs were from our Texas market. Approximately $36,000 and $55,000 related to net charge-offs for the years ended December 31, 2023 and 2022, respectively, on loans in our Alabama market. For the years ended December 31, 2023 and 2022, approximately $305,000 and $290,000 of the net charge-offs were from our SPF market. For the years ended December 31, 2023 and 2022, approximately $4.6 million and $2.3 million, respectively, of the net charge-offs were from our Centennial CFG market.
Previous report
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 first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Previous report
The Company had access to approximately $1.37 billion in liquidity with the Federal Reserve Bank as of December 31, 2023. This consisted of $89.8 million available from the Discount Window and $1.28 billion available through the Bank Term Funding Program ("BTFP"). As of December 31, 2023, the primary and secondary credit rates available through the Discount Window were 5.50% and 6.00%, respectively, and the BTFP rate was 4.84%. As of December 31, 2023, the Company had drawn $700.0 million from the BTFP in the ordinary course of business. These advances are included within other borrowed funds and are secured by certain investment securities within our investment portfolio.
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Reworded paragraphs (77)
Previous wording
We are a bank holding company headquartered in Conway, Arkansas, offering a broad array of financial services through our wholly owned bank subsidiary, Centennial Bank (“Centennial”). As of December 31, 2023, we had, on a consolidated basis, total assets of $22.66 billion, loans receivable, net, of $14.14 billion, total deposits of $16.79 billion, and stockholders’ equity of $3.79 billion.
Current wording
We are a bank holding company headquartered in Conway, Arkansas, offering a broad array of financial services through our wholly owned bank subsidiary, Centennial Bank (“Centennial” or the "Bank"). As of December 31, 2024, we had, on a consolidated basis, total assets of $22.49 billion, loans receivable, net, of $14.49 billion, total deposits of $17.15 billion, and stockholders’ equity of $3.96 billion.
Previous wording
We generate most of our revenue from interest on loans and investments, service charges, and mortgage banking income. Deposits and FHLB borrowed funds are our primary source of funding. Our largest expenses are interest on our funding sources, salaries and related employee benefits and occupancy and equipment. We measure our performance by calculating our net interest margin, return on average assets and return on average common equity. We also measure our performance by our efficiency ratio and efficiency ratio, as adjusted (non-GAAP). The efficiency ratio is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a meaningful non-GAAP measure for management, as it excludes certain items and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding certain items such as merger expenses, hurricane expenses and/or gains and losses.
Current wording
We generate most of our revenue from interest on loans and investments, service charges, and mortgage banking income. Deposits and Federal Home Loan Bank ("FHLB") borrowed funds are our primary source of funding. Our largest expenses are interest on our funding sources, salaries and related employee benefits and occupancy and equipment. We measure our performance by calculating our net interest margin, return on average assets and return on average common equity. We also measure our performance by our efficiency ratio and efficiency ratio, as adjusted (non-GAAP). The efficiency ratio is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a meaningful non-GAAP measure for management, as it excludes certain items and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding certain items such as merger expenses, hurricane expenses and/or gains and losses.
Previous wording
(2)Fully taxable equivalent (assuming an income tax rate of 25.740% for 2021, 24.6735% for 2022 and 24.989% for 2023).
Current wording
(2)Fully taxable equivalent (assuming an income tax rate of 24.6735% for 2022, 24.989% for 2023 and 24.433% for 2024).
Previous wording
Our efficiency ratio was 49.53% for the year ended December 31, 2022, compared to 40.81% for the same period in 2021. For the year ended December 31, 2022, our efficiency ratio, as adjusted (non-GAAP), was 44.55%, compared to 42.12% reported for the year ended December 31, 2021. (See Table 29 for the non-GAAP tabular reconciliation).
Current wording
Our efficiency ratio was 42.74% for the year ended December 31, 2024, compared to 46.21% for the same period in 2023. For the year ended December 31, 2024, our efficiency ratio, as adjusted (non-GAAP), was 42.65%, compared to 45.24% reported for the year ended December 31, 2023. (See Table 29 for the non-GAAP tabular reconciliation.)
Previous wording
Our return on average assets was 1.35% for the year ended December 31, 2022, compared to 1.83% for the same period in 2021, and our return on average assets, as adjusted (non-GAAP) was 1.67% or the year ended December 31, 2022, compared to 1.73% for the same period in 2021. Our return on average common equity was 9.17% for the year ended December 31, 2022, compared to 11.89% for the same period in 2021.
Current wording
Our return on average assets was 1.77% for the both the years ended December 31, 2024 and 2023, and our return on average assets, as adjusted (non-GAAP), was 1.77% for the year ended December 31, 2024, compared to 1.79% for the same period in 2023. Our return on average common equity was 10.43% for the year ended December 31, 2024, compared to 10.82% for the same period in 2023.
Previous wording
Our net income increased $87.7 million, or 28.7%, to $392.9 million for the year ended December 31, 2023, from $305.3 million for the same period in 2022. On a diluted earnings per share basis, our earnings were $1.94 per share for the year ended December 31, 2023 and $1.57 per share for the year ended December 31, 2022. The Company recorded $12.1 million in credit loss expense for the year ended December 31, 2023. This consisted of a $12.0 million provision for credit losses on loans, a $1.7 million provision for credit losses on investment securities and a reversal of $1.5 million provision for unfunded commitments. During the year ended December 31, 2023, the Company recorded $13.0 million in FDIC special assessment expense and $1.1 million loss for the decrease in fair value of marketable securities, which were partially offset by $3.5 million in recoveries on historic losses from loans charged off prior to acquisition and $3.1 million in BOLI death benefits.
Current wording
Our net income increased $87.7 million, or 28.7%, to $392.9 million for the year ended December 31, 2023, from $305.3 million for the same period in 2022. On a diluted earnings per share basis, our earnings were $1.94 per share for the year ended December 31, 2023 and $1.57 per share for the year ended December 31, 2022. The Company recorded $12.1 million in credit loss expense for the year ended December 31, 2023. This consisted of a $12.0 million provision for credit losses on loans, a $1.7 million provision for credit losses on investment securities and a reversal of a $1.5 million provision for unfunded commitments. During the year ended December 31, 2023, the Company recorded $13.0 million in FDIC special assessment expense and a $1.1 million loss for the decrease in fair value of marketable securities, which were partially offset by $3.5 million in recoveries on historic losses from loans charged off prior to acquisition and $3.1 million in BOLI death benefits.
Previous wording
Our total assets as of December 31, 2023 decreased $226.9 million to $22.66 billion from the $22.88 billion reported as of December 31, 2022. The decrease in total assets is primarily due to a $539.5 million decrease in investment securities resulting from paydowns and maturities, which was partially offset by a $275.4 million increase in cash and cash equivalents during the year. Our loan portfolio balance increased $15.2 million to $14.42 billion as of December 31, 2023, from $14.41 billion as of December 31, 2022. The increase in loans was due to $340.4 million in organic loan growth within our legacy footprint, which was partially offset by $325.2 million of organic loan decline from our Centennial CFG franchise during 2023. Total deposits decreased $1.15 billion to $16.79 billion as of December 31, 2023 compared to $17.94 billion as of December 31, 2022. The decrease in deposits was primarily due to the runoff of deposits during 2023 as a result of the rising interest rate environment. Stockholders’ equity increased $264.7 million to $3.79 billion as of December 31, 2023, compared to $3.53 billion as of December 31, 2022. The increase in stockholders’ equity is primarily associated with the $392.9 million in net income and the $56.4 million increase in accumulated other comprehensive income, which were partially offset by the $145.9 million of shareholder dividends paid and the repurchase of $48.3 million of our common stock during 2023. The improvement in stockholders’ equity was 7.5% for the year ended December 31, 2023 compared to December 31, 2022.
Current wording
Our total assets as of December 31, 2023 decreased $226.9 million to $22.66 billion from the $22.88 billion reported as of December 31, 2022. The decrease in total assets is primarily due to a $539.5 million decrease in investment securities resulting from paydowns and maturities, which was partially offset by a $275.4 million increase in cash and cash equivalents during the year. Our loan portfolio balance increased $15.2 million to $14.42 billion as of December 31, 2023, from $14.41 billion as of December 31, 2022. The increase in loans was due to $340.4 million in organic loan growth within our legacy footprint, which was partially offset by $325.2 million of organic loan decline from our CFG franchise during 2023. Total deposits decreased $1.15 billion to $16.79 billion as of December 31, 2023 compared to $17.94 billion as of December 31, 2022. The decrease in deposits was primarily due to the runoff of deposits during 2023 as a result of the rising interest rate environment. Stockholders’ equity increased $264.7 million to $3.79 billion as of December 31, 2023, compared to $3.53 billion as of December 31, 2022. The increase in stockholders’ equity is primarily associated with the $392.9 million in net income and the $56.4 million increase in accumulated other comprehensive income, which were partially offset by the $145.9 million of shareholder dividends paid and the repurchase of $48.3 million of our common stock during 2023. The improvement in stockholders’ equity was 7.5% for the year ended December 31, 2023 compared to December 31, 2022.
Previous wording
As of December 31, 2023, our non-performing loans increased to $64.1 million, or 0.44%, of total loans from $60.9 million, or 0.42%, of total loans as of December 31, 2022. The allowance for credit losses as a percentage of non-performing loans decreased to 449.66% as of December 31, 2023, compared to 475.99% as of December 31, 2022. Non-performing loans from our Arkansas franchise were $15.4 million at December 31, 2023 compared to $8.4 million as of December 31, 2022. Non-performing loans from our Florida franchise were $9.3 million at December 31, 2023 compared to $20.5 million as of December 31, 2022. Non-performing loans from our Texas franchise were $33.5 million at December 31, 2023 compared to $22.2 million at December 31, 2022. Non-performing loans from our Alabama franchise were $413,000 at December 31, 2023 compared to $404,000 as of December 31, 2022. Non-performing loans from our Shore Premier Finance ("SPF") franchise were $2.8 million at December 31, 2023 compared to $2.3 million as of December 31, 2022. Non-performing loans from our Centennial CFG franchise were $2.7 million at December 31, 2023 compared to $7.1 million as of December 31, 2022.
Current wording
As of December 31, 2023, our non-performing loans increased to $64.1 million, or 0.44%, of total loans from $60.9 million, or 0.42%, of total loans as of December 31, 2022. The allowance for credit losses as a percentage of non-performing loans decreased to 449.66% as of December 31, 2023, compared to 475.99% as of December 31, 2022. As of December 31, 2023, our non-performing assets increased to $95.4 million, or 0.42%, of total assets from $61.5 million, or 0.27%, of total assets as of December 31, 2022.
Previous wording
•Other service charges and fees – These represent credit card interchange fees and Centennial CFG loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310. Interchange fees were $22.6 million and $22.1 million for the years ended December 31, 2023 and December 31, 2022, respectively. Centennial CFG loan fees were $9.9 million and $11.8 million for the years ended December 31, 2023 and December 31, 2022, respectively.
Current wording
•Other service charges and fees – These represent credit card interchange fees and Centennial CFG loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310. Interchange fees were $21.8 million and $22.6 million for the years ended December 31, 2024 and December 31, 2023, respectively. Centennial CFG loan fees were $9.5 million and $9.9 million for the years ended December 31, 2024 and December 31, 2023, respectively.
Previous wording
Loans Receivable and Allowance for Credit Losses. Except for loans acquired during our acquisitions, substantially all of our loans receivable are reported at their outstanding principal balance adjusted for any charge-offs, as it is management’s intent to hold them for the foreseeable future or until maturity or payoff, except for mortgage loans held for sale. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding.
Current wording
Loans Receivable and Allowance for Credit Losses. Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs, deferred fees or costs on originated loans. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yield on the related loans.
Previous wording
The Company uses the DCF method to estimate expected losses for all of Company’s loan pools. These pools are as follows: construction & land development; other commercial real estate; residential real estate; commercial & industrial; and consumer & other. The loan portfolio pools were selected in order to generally align with the loan categories specified in the quarterly call reports required to be filed with the Federal Financial Institutions Examination Council. For each of these loan pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.
Current wording
The Company uses the discount cash flow ("DCF") method to estimate expected losses for all of Company’s loan pools. These pools are as follows: construction & land development; other commercial real estate; residential real estate; commercial & industrial; and consumer & other. The loan portfolio pools were selected in order to generally align with the loan categories specified in the quarterly call reports required to be filed with the Federal Financial Institutions Examination Council. For each of these loan pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.
Previous wording
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, national retail sales index, housing price indices and rental vacancy rate index.
Current wording
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, national retail sales index, the Federal Housing Finance Agency ("FHFA") housing price index and rental vacancy rate index.
Previous wording
The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans evaluated individually that are considered to be collateral dependent are not included in the collective evaluation. For these loans, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral, net of estimated costs to sell, and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan, net of estimated costs to sell. For individually analyzed loans which are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation.
Current wording
Loans evaluated individually that are considered to be collateral dependent are not included in the collective evaluation. For these loans, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral, net of estimated costs to sell, and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan, net of estimated costs to sell. For individually analyzed loans which are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation.
Previous wording
Acquisition Accounting and Acquired Loans. We account for our acquisitions under FASB ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, and liabilities assumed are recorded at fair value. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.
Current wording
Acquisition Accounting and Acquired Loans. The Company accounts for its acquisitions under FASB Accounting Standards Codification ("ASC") Topic 805, Business Combinations, which requires the use of the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. In accordance with FASB ASC 326, the Company records both a discount or premium and an allowance for credit losses on acquired loans. All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.
Previous wording
Purchased loans that have experienced more than insignificant credit deterioration since origination are PCD loans. An allowance for credit losses is determined using the same methodology as other loans. For PCD loans not individually analyzed for impairment, the Company develops separate PCD models for each loan segment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.
Current wording
Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for credit losses. These models utilize a peer group benchmark in order to determine the probability of default and loss given default to be used in the calculation. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.
Previous wording
On April 1, 2022, the Company completed the acquisition of Happy Bancshares, Inc., and merged Happy State Bank into Centennial Bank. The Company issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million. The acquisition added new markets for expansion and brought complementary businesses together to drive synergies and growth.
Current wording
On April 1, 2022, the Company completed the acquisition of Happy Bancshares, Inc. ("Happy"), and merged Happy State Bank into Centennial Bank. The Company issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million. The acquisition added new markets for expansion and brought complementary businesses together to drive synergies and growth.
Previous wording
As of December 31, 2023, we had 223 branch locations. There were 76 branches in Arkansas, 78 branches in Florida, 63 branches in Texas, five branches in Alabama and one branch in New York City.
Current wording
As of December 31, 2024, we had 218 branch locations. There were 76 branches in Arkansas, 78 branches in Florida, 58 branches in Texas, five branches in Alabama and one branch in New York City.
Previous wording
Our net income increased $87.7 million, or 28.7%, to $392.9 million for the year ended December 31, 2023, from $305.3 million for the same period in 2022. On a diluted earnings per share basis, our earnings were $1.94 per share for the year ended December 31, 2023 and $1.57 per share for the year ended December 31, 2022. The Company recorded $12.1 million in credit loss expense for the year ended December 31, 2023. This consisted of a $12.0 million provision for credit losses on loans, a $1.7 million provision for credit losses on investment securities and a reversal of $1.5 million provision for unfunded commitments. During the year ended December 31, 2023, the Company recorded $13.0 million in Federal Deposit Insurance Corporation ("FDIC") special assessment expense and $1.1 million loss for the decrease in fair value of marketable securities, which were partially offset by $3.5 million in recoveries on historic losses from loans charged off prior to acquisition and $3.1 million in bank owned life insurance ("BOLI") death benefits.
Current wording
Our net income increased $87.7 million, or 28.7%, to $392.9 million for the year ended December 31, 2023, from $305.3 million for the same period in 2022. On a diluted earnings per share basis, our earnings were $1.94 per share for the year ended December 31, 2023 and $1.57 per share for the year ended December 31, 2022. The Company recorded $12.1 million in credit loss expense for the year ended December 31, 2023. This consisted of a $12.0 million provision for credit losses on loans, a $1.7 million provision for credit losses on investment securities and a reversal of a $1.5 million provision for unfunded commitments. During the year ended December 31, 2023, the Company recorded $13.0 million in FDIC special assessment expense and a $1.1 million loss for the decrease in fair value of marketable securities, which were partially offset by $3.5 million in recoveries on historic losses from loans charged off prior to acquisition and $3.1 million in BOLI death benefits.
Previous wording
Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments and rates paid on deposits and other borrowings, the level of non-performing loans and the amount of non-interest-bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate (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).
Current wording
Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments and rates paid on deposits and other borrowings, the level of non-performing loans and the amount of non-interest-bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate (24.433% for the year ended December 31, 2024, 24.989% for the year ended December 31, 2023 and 24.6735% for year ended December 31, 2022).
Previous wording
The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal Reserve increased the target rate seven times during 2022. First, on March 16, 2022, the target rate was increased to 0.25% to 0.50%. Second, on May 4, 2022, the target rate was increased to 0.75% to 1.00%. Third, on June 15, 2022, the target rate was increased to 1.50% to 1.75%. Fourth, on July 27, 2022, the target rate was increased to 2.25% to 2.50%. Fifth, on September 21, 2022, the target rate was increased to 3.00% to 3.25%. Sixth, on November 2, 2022, the target rate was increased to 3.75% to 4.00%. Seventh, on December 14, 2022, the target rate was increased to 4.25% to 4.50%. The Federal Reserve increased the target rate four times during 2023. First, on February 1, 2023, the target rate was increased to 4.50% to 4.75%, second, on March 22, 2023, the target rate was increased to 4.75% to 5.00%, third, on May 3, 2023, the target rate was increased to 5.00% to 5.25% and fourth, on July 26, 2023, the target rate was increased to 5.25% to 5.50%.
Current wording
The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal Reserve increased the target rate four times during 2023. First, on February 1, 2023, the target rate was increased to 4.50% to 4.75%, second, on March 22, 2023, the target rate was increased to 4.75% to 5.00%, third, on May 3, 2023, the target rate was increased to 5.00% to 5.25% and fourth, on July 26, 2023, the target rate was increased to 5.25% to 5.50%. The Federal Reserve reduced the target rate three times during 2024. First, on September 18, 2024, the Federal Reserve reduced the target rate to 4.75% to 5.00%, second, on November 7, 2024, the target rate was reduced to 4.50% to 4.75% and third, on December 18, 2024, the target rate was reduced to 4.25% to 4.50%.
Previous wording
Net interest income on a fully taxable equivalent basis increased $187.3 million, or 32.3%, to $767.3 million for the year ended December 31, 2022, from $580.1 million for the same period in 2021. This increase in net interest income was the result of a $254.2 million increase in interest income, partially offset by a $66.9 million increase in interest expense on a fully taxable equivalent basis. The $254.2 million increase in interest income was primarily the result of the higher level of average interest earnings assets due to the acquisition of Happy during the second quarter of 2022 and the increasing interest rate environment. The increase in earning assets resulted in an increase in interest income of approximately $185.5 million, and the higher yield on earning assets resulted in a decrease in interest income of approximately $68.7 million. The $66.9 million increase in interest expense was primarily the result of the higher level of average interest bearing liabilities due to the acquisition of Happy during the second quarter of 2022 and the increasing interest rate environment. The higher rates on interest bearing liabilities resulted in an increase in interest expense of approximately $52.8 million, and the increase in interest bearing liabilities resulted in an increase in interest expense of approximately $14.0 million.
Current wording
Net interest income on a fully taxable equivalent basis increased $24.9 million, or 3.0%, to $857.3 million for the year ended December 31, 2024, from $832.5 million for the same period in 2023. This increase in net interest income was the result of a $127.8 million increase in interest income, partially offset by a $102.9 million increase in interest expense on a fully taxable equivalent basis. The $127.8 million increase in interest income was primarily the result of the high interest rate environment. The higher yield on earning assets resulted in an increase in interest income of approximately $88.5 million, and the change in earning assets resulted in an increase in interest income of approximately $39.3 million. The $102.9 million increase in interest expense was also primarily the result of the high interest rate environment. The higher rates on interest bearing liabilities resulted in an increase in interest expense of approximately $68.9 million, and the change in interest bearing liabilities resulted in an increase in interest expense of approximately $34.0 million.
Previous wording
Our net interest margin on a fully taxable equivalent basis increased from 3.81% for the year ended December 31, 2022 to 4.25% for the year ended December 31, 2023. The yield on interest earning assets was 6.03% and 4.40% for the years ended December 31, 2023 and 2022, respectively, as average interest earning assets decreased from $20.15 billion to $19.57 billion. The decrease in average interest earning assets is primarily due to a $2.12 billion decrease in average interest-bearing balances due from banks, which was partially offset by a $1.37 billion increase in average loans receivable and a $171.0 million increase in average investment securities. For the years ended December 31, 2023 and 2022, we recognized $10.6 million and $16.3 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by approximately 3 basis points. The overall increase in the net interest margin was due to a decrease in average interest-bearing cash balances as well as an increase in interest income from higher yields on average interest-earning assets, 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.
Current wording
Our net interest margin on a fully taxable equivalent basis increased from 3.81% for the year ended December 31, 2022 to 4.25% for the year ended December 31, 2023. The yield on interest earning assets was 6.03% and 4.40% for the year ended December 31, 2023 and 2022, respectively, as average interest earning assets decreased from $20.15 billion to $19.57 billion. The decrease in average interest earning assets is primarily due to a $2.12 billion decrease in average interest-bearing balances due from banks, which was partially offset by a $1.37 billion increase in average loans receivable and a $171.0 million increase in average investment securities. For the years ended December 31, 2023 and 2022, we recognized $10.6 million and $16.3 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by approximately 3 basis points. The overall increase in the net interest margin was due to a decrease in average interest-bearing cash balances as well as an increase in interest income from higher yields on average interest-earning assets, 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 Bancshares, Inc. acquisition and the increased interest rate environment.
Previous wording
Net charge-offs to average total loans decreased to 0.09% for the year ended December 31, 2023 from 0.11% for the year ended December 31, 2022. Non-performing loans to total loans increased from 0.42% as of December 31, 2022 to 0.44% as of December 31, 2023.
Current wording
Net charge-offs to average total loans increased to 0.41% for the year ended December 31, 2024 from 0.09% for the year ended December 31, 2023. During the fourth quarter of 2024, the Company completed an asset quality cleanup project which was the main driver of the $47.4 million increase in net charge-offs for the year ended December 31, 2024 compared to December 31, 2023. Non-performing loans to total loans increased from 0.44% as of December 31, 2023 to 0.67% as of December 31, 2024.
Previous wording
Total non-interest income was $169.9 million in 2023, compared to $175.1 million in 2022 and $137.6 million in 2021. Our recurring non-interest income includes service charges on deposit accounts, other service charges and fees, trust fees, mortgage lending, insurance commissions, increase in cash value of life insurance, fair value adjustment for marketable securities and dividends.
Current wording
Total non-interest income was $168.6 million in 2024, compared to $169.9 million in 2023 and $175.1 million in 2022. Our recurring non-interest income includes service charges on deposit accounts, other service charges and fees, trust fees, mortgage lending, insurance commissions, increase in cash value of life insurance, fair value adjustment for marketable securities and dividends.
Previous wording
• 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. The decrease in volume is due to the increase in interest rates.
Current wording
•The $5.1 million increase in mortgage lending income is primarily related to an increase in volume of secondary market loans from the lower volume of loans during 2023.
Previous wording
•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.
Current wording
•The $4.1 million increase in the fair value adjustment for marketable securities is due to the changes in the fair value of marketable securities held by the Company.
Previous wording
• 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. Other factors include a $2.1 million increase in additional income for items previously charged off, $2.5 million increase in rental income and a $2.0 million increase in investment brokerage fee income, partially offset by a $478,000 decrease in gain on life insurance.
Current wording
•The $8.5 million decrease in other income is primarily due to a $7.4 million reduction in income for equity method investments, a $2.9 million reduction in BOLI death benefit income and a $3.0 million decrease in recoveries on historic losses, partially offset by a $2.2 million increase in rental income from OREO and a $2.1 million increase in investment brokerage fee income.
Previous wording
•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.
Current wording
•The $869,000 decrease in electronic banking expense is primarily due to a decrease in debit card processing fees and interchange network expenses.
Previous wording
•The $5.7 million increase in legal and accounting expense is primarily due to expenses related to a lawsuit brought by the Company.
Current wording
•The $3.7 million increase in legal and accounting expense is primarily due to ongoing legal matters.
Previous wording
•The $1.9 million increase in other professional fees is primarily related to the acquisition of Happy.
Current wording
•The $673,000 decrease in other professional fees is primarily due to cost saving measures following the acquisition of Happy.
Previous wording
Non-interest expense decreased $2.8 million, or 0.6%, to $472.9 million for the year ended December 31, 2023, from $475.6 million for the same period in 2022. The primary factors that resulted in this decrease was the decrease in merger expense, partially offset by increases in salaries and employee benefits expense and FDIC and state assessment expense. Other factors were changes related to occupancy and equipment expenses, data processing expenses, advertising expenses, amortization of intangibles, legal and accounting expenses and other expense.
Current wording
Non-interest expense increased $2.8 million, or 0.6%, to $472.9 million for the year ended December 31, 2023, from $475.6 million for the same period in 2022. The primary factors that resulted in this decrease was the decrease in merger expense, partially offset by increases in salaries and employee benefits expense and FDIC and state assessment expense. Other factors were changes related to occupancy and equipment expenses, data processing expenses, advertising expenses, amortization of intangibles, legal and accounting expenses and other expense.
Previous wording
•The $5.1 million increase in other expenses is primarily related to the acquisition of Happy, partially offset by the reduction of $2.1 million in TRUPS redemption fees which were incurred in 2022.
Current wording
•The $5.1 million increase in other expenses is primarily related to the acquisition of Happy, partially offset by the reduction of $2.1 million in trust preferred securities redemption fees which were incurred in 2022.
Previous wording
During 2021, the Company lowered its marginal tax rate from 26.135% to 25.740%. In an effort to more accurately reflect current state income apportionment and state tax rates, the state tax rate was lowered to 6.0%, lowering the blended rate to 25.74%. Florida and Arkansas were the main drivers in the tax rate reduction.
Current wording
During 2024, the Company lowered its marginal tax rate from 24.989% to 24.433%. In an effort to more accurately reflect legislative and current state income apportionment, the state tax rate was lowered to 4.346%. This lowered the blended rate to 24.433%.
Previous wording
Income tax expense increased $29.6 million, or 33.2%, to $119.0 million for the year ended December 31, 2023, from $89.3 million for 2022. Income tax expense decreased $8.4 million, or 8.6%, to $89.3 million for the year ended December 31, 2022, from $97.8 million for 2021. The effective tax rates for the years ended December 31, 2023, 2022 and 2021 were 23.24%, 22.64% and 23.45%, respectively. The Company’s marginal tax rate was 24.989%, 24.6735% and 25.740% for years ended December 31, 2023, 2022 and 2021, respectively.
Current wording
Income tax expense increased $1.1 million, or 1.0%, to $120.1 million for the year ended December 31, 2024, from $119.0 million for 2023. Income tax expense increased $29.6 million, or 33.2%, to $119.0 million for the year ended December 31, 2023, from $89.3 million for 2022. The effective tax rates for the years ended December 31, 2024, 2023 and 2022 were 22.99%, 23.24% and 22.64%, respectively. The Company’s marginal tax rate was 24.433%, 24.989% and 24.6735% for years ended December 31, 2024, 2023 and 2022, respectively.
Previous wording
Our total assets as of December 31, 2023 decreased $226.9 million to $22.66 billion from the $22.88 billion reported as of December 31, 2022. The decrease in total assets is primarily due to a $539.5 million decrease in investment securities resulting from paydowns and maturities, which was partially offset by a $275.4 million increase in cash and cash equivalents during the year. Our loan portfolio balance increased $15.2 million to $14.42 billion as of December 31, 2023, from $14.41 billion as of December 31, 2022. The increase in loans was due to $340.4 million in organic loan growth within our legacy footprint, which was partially offset by $325.2 million of organic loan decline from our Centennial Commercial Finance Group ("CFG") franchise during 2023. Total deposits decreased $1.15 billion to $16.79 billion as of December 31, 2023 compared to $17.94 billion as of December 31, 2022. The decrease in deposits was primarily due to the runoff of deposits during 2023 as a result of the rising interest rate environment. Stockholders’ equity increased $264.7 million to $3.79 billion as of December 31, 2023, compared to $3.53 billion as of December 31, 2022. The increase in stockholders’ equity is primarily associated with the $392.9 million in net income and the $56.4 million increase in accumulated other comprehensive income, which were partially offset by the $145.9 million of shareholder dividends paid and the repurchase of $48.3 million of our common stock during 2023. The improvement in stockholders’ equity was 7.5% for the year ended December 31, 2023 compared to December 31, 2022.
Current wording
Our total assets as of December 31, 2023 decreased $226.9 million to $22.66 billion from the $22.88 billion reported as of December 31, 2022. The decrease in total assets is primarily due to a $539.5 million decrease in investment securities resulting from paydowns and maturities, which was partially offset by a $275.4 million increase in cash and cash equivalents during the year. Our loan portfolio balance increased $15.2 million to $14.42 billion as of December 31, 2023, from $14.41 billion as of December 31, 2022. The increase in loans was due to $340.4 million in organic loan growth within our legacy footprint, which was partially offset by $325.2 million of organic loan decline from our CFG franchise during 2023. Total deposits decreased $1.15 billion to $16.79 billion as of December 31, 2023 compared to $17.94 billion as of December 31, 2022. The decrease in deposits was primarily due to the runoff of deposits during 2023 as a result of the rising interest rate environment. Stockholders’ equity increased $264.7 million to $3.79 billion as of December 31, 2023, compared to $3.53 billion as of December 31, 2022. The increase in stockholders’ equity is primarily associated with the $392.9 million in net income and the $56.4 million increase in accumulated other comprehensive income, which were partially offset by the $145.9 million of shareholder dividends paid and the repurchase of $48.3 million of our common stock during 2023. The improvement in stockholders’ equity was 7.5% for the year ended December 31, 2023 compared to December 31, 2022.
Previous wording
Our loan portfolio averaged $14.31 billion and $12.94 billion during the years ended December 31, 2023 and 2022, respectively. Loans receivable were $14.42 billion as of December 31, 2023 compared to $14.41 billion as of December 31, 2022, an increase of $15.2 million, or 0.1%.
Current wording
Our loan portfolio averaged $14.68 billion and $14.31 billion during the years ended December 31, 2024 and 2023, respectively. Loans receivable were $14.76 billion as of December 31, 2024 compared to $14.42 billion as of December 31, 2023, an increase of $339.8 million, or 2.4%.
Previous wording
The most significant components of the loan portfolio were commercial real estate, residential real estate, consumer and commercial and industrial loans. These loans are generally secured by residential or commercial real estate or business or personal property. Although these loans are primarily originated within our franchises in Arkansas, Florida, Texas, South Alabama and Centennial CFG, the property securing these loans may not physically be located within our market areas of Arkansas, Florida, Texas, Alabama and New York. Loans receivable were approximately $3.23 billion, $3.93 billion, $3.94 billion, $125.1 million, $1.24 billion and $1.95 billion as of December 31, 2023 in Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG, respectively.
Current wording
The most significant components of the loan portfolio were commercial real estate, residential real estate, consumer and commercial and industrial loans. These loans are generally secured by residential or commercial real estate or business or personal property. Although these loans are primarily originated within our franchises in Arkansas, Florida, Texas, South Alabama and Centennial CFG, the property securing these loans may not physically be located within our market areas of Arkansas, Florida, Texas, Alabama and New York. Loans receivable were approximately $3.42 billion, $4.15 billion, $3.90 billion, $111.0 million, $1.36 billion and $1.82 billion as of December 31, 2024 in Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG, respectively.
Previous wording
As of December 31, 2023, we had $867.5 million of construction/land development loans which were collateralized by land. This consisted of $84.2 million for raw land and $783.3 million for land with commercial and/or residential lots.
Current wording
As of December 31, 2024, we had $1.16 billion of construction/land development loans which were collateralized by land. This consisted of $107.8 million for raw land and $1.05 billion for land with commercial and/or residential lots.
Previous wording
As of December 31, 2023, commercial real estate loans totaled $8.17 billion, or 56.7% of loans receivable, as compared to $8.11 billion, or 56.3% of loans receivable, as of December 31, 2022. Commercial real estate loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $2.07 billion, $2.41 billion, $2.23 billion, $47.5 million, zero and $1.41 billion at December 31, 2023, respectively.
Current wording
As of December 31, 2024, commercial real estate loans totaled $8.50 billion, or 57.6% of loans receivable, as compared to $8.17 billion, or 56.7% of loans receivable, as of December 31, 2023. Commercial real estate loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $2.18 billion, $2.61 billion, $2.17 billion, $45.0 million, zero and $1.49 billion, respectively, at December 31, 2024.
Previous wording
Residential Real Estate Loans. We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas. Approximately 50.1% and 40.9% of our residential mortgage loans consist of owner occupied 1-4 family properties and non-owner occupied 1-4 family properties (rental), respectively, as of December 31, 2023, with the remaining 9.0% relating to condos and mobile homes. Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to many factors including the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.
Current wording
Residential Real Estate Loans. We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas. Approximately 57.1% and 36.2% of our residential mortgage loans consist of owner occupied 1-4 family properties and non-owner occupied 1-4 family properties (rental), respectively, as of December 31, 2024, with the remaining 6.7% relating to condos and mobile homes. Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to many factors including the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.
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During 2024, the Company experienced $339.8 million in organic loan growth. The $339.8 million in organic loan growth included $471.4 million in organic loan growth for our legacy footprint, which was partially offset by $131.7 million of organic loan decline for Centennial CFG during 2024.
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While the 2024 charge-offs and recoveries consisted of many relationships, there were seven individual relationships that consisted of charge-offs greater than $1.0 million. The first was a $26.1 million charge-off for a commercial real estate loan in our Texas market. The second was an $8.8 million charge-off for a commercial real estate loan in our Texas market. The third was a $6.5 million charge-off for a residential real estate loan in our Texas market. The fourth was a $3.0 million charge-off for a commercial and industrial loan in our Arkansas market. The fifth was a $2.0 million charge-off for a commercial and industrial loan in our Texas market. The sixth was a $2.0 million charge-off for a commercial and industrial loan in our Centennial CFG Market. The seventh was a $1.1 million charge-off for commercial real estate loan in our Texas market. As noted previously, the increase in charge-offs was primarily due to the asset quality cleanup project completed during the fourth quarter of 2024.
Current report — wording carried from elsewhere
At both December 31, 2024 and 2023, the $2.0 million allowance for credit losses for the held-to-maturity portfolio was considered adequate. No additional provision for credit losses was considered necessary for the HTM portfolio. During the year ended December 31, 2022, the Company recorded a $2.0 million provision for credit losses for the HTM portfolio as a result of the investment securities acquired as part of the Happy acquisition.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Results of Operations for the Years Ended December 31, 2023 and 2022
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Results of Operations for the Years Ended December 31, 2022 and 2021
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The allowance for credit losses for each segment is measured through the use of the discounted cash flow method ("DCF"). Loans evaluated individually that are considered to be collateral dependent are not included in the collective evaluation. For these loans, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral, net of estimated costs to sell, and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan, net of estimated costs to sell. For individually analyzed loans which are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation.
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Acquisition Accounting and Acquired Loans. We account for our acquisitions under ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, and liabilities assumed are recorded at fair value. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.
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Results of Operations for the Years Ended December 31, 2023, 2022 and 2021
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The Company accounts for credit losses in accordance with ASC 326. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credits, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases.
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Loans. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, national retail sales index, housing price indices and rental vacancy rate index.
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Investments – Available-for-sale: The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326. The Company first assesses whether it intends to sell or is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet these criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. 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.
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Investments – Held-to-Maturity. 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. 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. 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.
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•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.
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•The $10.9 million increase in trust fees is primarily related to an increase in trust fees resulting from the acquisition of Happy.
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• 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.
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• 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.
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•The $47.7 million increase in merger and acquisition expense is due to costs associated with the acquisition of Happy.
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•The $3.1 million increase in advertising expense is primarily related to the acquisition of Happy.
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•The $3.2 million increase in amortization of intangibles is due to the acquisition of Happy.
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The $2.7 million balance of non-accrual loans for our Centennial CFG Capital Markets Group consists of two loans that are assessed for credit risk by the Federal Reserve under the Shared National Credit Program. The loans are not current on either principal or interest, and we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve. Any interest payments that are received will be applied to the principal balance. In addition, the $22.8 million balance of foreclosed assets held for sale for our Centennial CFG Property Finance Group consists of an office building located in California which was placed in foreclosed assets held for sale during the fourth quarter of 2023. This represents the largest component of the Company's $30.5 million in foreclosed assets held for sale.
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Overview. The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed and expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
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Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:
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Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factors and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system and (ix) economic conditions.
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Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.
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Allowance for Credit Losses on Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
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The Company had $94.9 million and $221.1 million in impaired loans (which includes loans individually analyzed for credit losses for which a specific reserve has been recorded, non-accrual loans, loans past due 90 days or more and restructured loans made to borrowers experiencing financial difficulty) at December 31, 2023 and 2022, respectively.
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While the 2022 charge-offs and recoveries consisted of many relationships, there were three individual relationships consisting of charge-offs greater than $1.0 million. The first was a $4.0 million charge-off for a commercial and industrial loan in our Florida market. The second was a $3.6 million charge-off for a commercial and industrial loan in our Centennial CFG market, and the third was a $1.5 million charge-off for a commercial and industrial loan in our Centennial CFG market.
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During the year ended December 31, 2023, one of the Company’s AFS subordinated debt investment securities was downgraded below investment grade. As result, the Company wrote down the value of the investment to its unrealized loss position, which required a $1.7 million provision. The remaining $842,000 allowance for credit losses on AFS investments is associated with certain securities in the subordinated debt portfolio within the banking sector. These investments are classified within the other securities category of the AFS portfolio. The $2.0 million allowance for credit losses for the held-to-maturity portfolio was considered adequate. No additional provision for credit losses was considered necessary for the HTM portfolio.
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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 from Happy, and the Company recorded approximately $144.4 million which included fair value adjustments. The 2030 Notes are unsecured, subordinated debt obligations of the Company and will mature on July 31, 2030. 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. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2030 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.