UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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| ☑ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended September 30, 2022March 31, 2023
or
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| ☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition period from ______ to ______
Commission File Number: 001-41093
HOME BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
| | | | | | | | |
| Arkansas | | 71-0682831 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
719 Harkrider, Suite 100, ,Conway,Conway, Arkansas | | 72032 |
| (Address of principal executive offices) | | (Zip Code) |
| | |
| (501) 339-2929 |
| (Registrant's telephone number, including area code) |
|
| Not Applicable |
| Former name, former address and former fiscal year, if changed since last report |
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, par value $0.01 per share | | HOMB | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| | | | | | | | | | | |
| Large Accelerated Filer | ☑ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Common Stock Issued and Outstanding: 203,971,240202,798,792 shares as of November 3, 2022.May 4, 2023.
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HOME BANCSHARES, INC.
FORM 10-Q
September 30, 2022March 31, 2023 |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of our statements contained in this document, including matters discussed under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operation,” are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to expectations, beliefs, projections, future financial performance, future plans and strategies, and anticipated events or our future financial performancetrends, and include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, including through prospective or potential acquisitions, our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to, the following:
•the effects of future local, regional, national and international economic conditions, including inflation or a decrease in commercial real estate and residential housing values;
•changes in the level of nonperforming assets and charge-offs, and credit risk generally;
•the risks of changes in interest rates or the level and composition of deposits, loan demand and the values of loan collateral, securities and interest-sensitive assets and liabilities;
•disruptions, uncertainties and related effects on credit quality, liquidity, other aspects of our business and our operations as athat may result from any future outbreaks of the ongoing COVID-19 pandemic and measures that have been or may be implemented or imposed in response to the pandemic;
•the effect of any mergers, acquisitions or other transactions to which we or our bank subsidiary may from time to time be a party, including our ability to identify, complete and successfully integrate our recent acquisition of Happy Bancshares, Inc. and its bank subsidiary, as well as any other businesses that we may acquire;new acquisitions;
•the risk that expected cost savings and other benefits from acquisitions may not be fully realized or may take longer to realize than expected;
•the possibility that an acquisition does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all;
•the reaction to a proposed acquisition transaction of the respective companies’ customers, employees and counterparties;
•diversion of management time on acquisition-related issues;
•the ability to enter into and/or close additional acquisitions;
•the availability of and access to capital and liquidity on terms acceptable to us;
•increased regulatory requirements and supervision that applyapplies as a result of our exceedinghaving over $10 billion in total assets;
•legislation and regulation affecting the financial services industry as a whole, and the Company and its subsidiaries in particular;particular, and future legislative and regulatory changes;
•changes in governmental monetary and fiscal policies;
•the effects of terrorism and efforts to combat it;
•political instability, war, military conflicts (including the ongoing military conflict between Russia and Ukraine) and other major domestic or international events;
•adverse weather events, including hurricanes, and other natural disasters;
•the ability to keep pace with technological changes, including changes regarding cybersecurity;
•an increase in the incidence or severity of fraud, illegal payments, cybersecurity breaches or other illegal acts impacting our bank subsidiary, our vendors or our customers;
•the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with competitors offering banking products and services by mail, telephone and the Internet;
•potential claims, expenses and other adverse effects related to current or future litigation, regulatory examinations or other government actions;
•potential increases in deposit insurance assessments, increased regulatory scrutiny, investment portfolio losses, or market disruptions resulting from financial challenges in the banking industry;
•the effect of changes in accounting policies and practices and auditing requirements, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters;
•higher defaults on our loan portfolio than we expect; and
•the failure of assumptions underlying the establishment of our allowance for credit losses or changes in our estimate of the adequacy of the allowance for credit losses.
All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Note. Our actual results may differ significantly from those we discuss in these forward-looking statements. For other factors, risks and uncertainties that could cause our actual results to differ materially from estimates and projections contained in these forward-looking statements, see the “Risk Factors” section of our Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2022.2023 and this Form 10-Q.
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Home BancShares, Inc.
Consolidated Balance Sheets
| | (In thousands, except share data) | (In thousands, except share data) | | September 30, 2022 | | December 31, 2021 | (In thousands, except share data) | | March 31, 2023 | | December 31, 2022 |
| | | (Unaudited) | | | | | (Unaudited) | | |
| Assets | Assets | | Assets | |
| Cash and due from banks | Cash and due from banks | | $ | 268,929 | | | $ | 119,908 | | Cash and due from banks | | $ | 250,841 | | | $ | 263,893 | |
| Interest-bearing deposits with other banks | Interest-bearing deposits with other banks | | 1,311,492 | | | 3,530,407 | | Interest-bearing deposits with other banks | | 437,213 | | | 460,897 | |
| Cash and cash equivalents | Cash and cash equivalents | | 1,580,421 | | | 3,650,315 | | Cash and cash equivalents | | 688,054 | | | 724,790 | |
| Fed funds sold | | 2,700 | | | — | | |
| Investment securities – available-for-sale, net of allowance for credit losses | | 4,085,102 | | | 3,119,807 | | |
| Investment securities — held-to-maturity, net of allowance for credit losses | | 1,251,007 | | | — | | |
| | Investment securities — available-for-sale, at estimated fair value (amortized cost of $4,111,197 and $4,445,620 at March 31, 2023 and December 31, 2022, respectively) | | Investment securities — available-for-sale, at estimated fair value (amortized cost of $4,111,197 and $4,445,620 at March 31, 2023 and December 31, 2022, respectively) | | 3,772,138 | | | 4,041,590 | |
| Investment securities — held-to-maturity, net of allowance for credit losses of $2,005 at both March 31, 2023 and December 31, 2022 | | Investment securities — held-to-maturity, net of allowance for credit losses of $2,005 at both March 31, 2023 and December 31, 2022 | | 1,286,373 | | | 1,287,705 | |
| Total investment securities | Total investment securities | | 5,336,109 | | | 3,119,807 | | Total investment securities | | 5,058,511 | | | 5,329,295 | |
| Loans receivable | Loans receivable | | 13,829,311 | | | 9,836,089 | | Loans receivable | | 14,386,634 | | | 14,409,480 | |
| Allowance for credit losses | Allowance for credit losses | | (289,203) | | | (236,714) | | Allowance for credit losses | | (287,169) | | | (289,669) | |
| Loans receivable, net | Loans receivable, net | | 13,540,108 | | | 9,599,375 | | Loans receivable, net | | 14,099,465 | | | 14,119,811 | |
| Bank premises and equipment, net | Bank premises and equipment, net | | 411,479 | | | 275,760 | | Bank premises and equipment, net | | 402,094 | | | 405,073 | |
| Foreclosed assets held for sale | Foreclosed assets held for sale | | 365 | | | 1,630 | | Foreclosed assets held for sale | | 425 | | | 546 | |
| Cash value of life insurance | Cash value of life insurance | | 212,619 | | | 105,135 | | Cash value of life insurance | | 214,792 | | | 213,693 | |
| Accrued interest receivable | Accrued interest receivable | | 88,671 | | | 46,736 | | Accrued interest receivable | | 102,740 | | | 103,199 | |
| Deferred tax asset, net | Deferred tax asset, net | | 228,979 | | | 78,290 | | Deferred tax asset, net | | 193,334 | | | 209,321 | |
| Goodwill | Goodwill | | 1,394,353 | | | 973,025 | | Goodwill | | 1,398,253 | | | 1,398,253 | |
| Core deposit intangibles | Core deposit intangibles | | 60,932 | | | 25,045 | | Core deposit intangibles | | 55,978 | | | 58,455 | |
| Other assets | Other assets | | 300,634 | | | 177,020 | | Other assets | | 304,609 | | | 321,152 | |
| Total assets | Total assets | | $ | 23,157,370 | | | $ | 18,052,138 | | Total assets | | $ | 22,518,255 | | | $ | 22,883,588 | |
| Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | | | | Liabilities and Stockholders’ Equity | | | | |
| Deposits: | Deposits: | | Deposits: | |
| Demand and non-interest-bearing | Demand and non-interest-bearing | | $ | 5,540,539 | | | $ | 4,127,878 | | Demand and non-interest-bearing | | $ | 4,945,729 | | | $ | 5,164,997 | |
| Savings and interest-bearing transaction accounts | Savings and interest-bearing transaction accounts | | 11,968,519 | | | 9,251,805 | | Savings and interest-bearing transaction accounts | | 11,392,566 | | | 11,730,552 | |
| Time deposits | Time deposits | | 1,033,266 | | | 880,887 | | Time deposits | | 1,107,171 | | | 1,043,234 | |
| Total deposits | Total deposits | | 18,542,324 | | | 14,260,570 | | Total deposits | | 17,445,466 | | | 17,938,783 | |
| Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | | 121,555 | | | 140,886 | | Securities sold under agreements to repurchase | | 138,742 | | | 131,146 | |
| FHLB and other borrowed funds | FHLB and other borrowed funds | | 400,000 | | | 400,000 | | FHLB and other borrowed funds | | 650,000 | | | 650,000 | |
| Accrued interest payable and other liabilities | Accrued interest payable and other liabilities | | 192,908 | | | 113,868 | | Accrued interest payable and other liabilities | | 212,887 | | | 196,877 | |
| Subordinated debentures | Subordinated debentures | | 440,568 | | | 371,093 | | Subordinated debentures | | 440,275 | | | 440,420 | |
| Total liabilities | Total liabilities | | 19,697,355 | | | 15,286,417 | | Total liabilities | | 18,887,370 | | | 19,357,226 | |
| Stockholders’ equity: | Stockholders’ equity: | | | | | Stockholders’ equity: | | | | |
| Common stock, par value $0.01; shares authorized 300,000,000 in 2022 and 2021; shares issued and outstanding 204,219,052 in 2022 and 163,699,282 in 2021 | | 2,042 | | | 1,637 | | |
| Common stock, par value $0.01; shares authorized 300,000,000 in 2023 and 2022; shares issued and outstanding 203,168,141 in 2023 and 203,433,690 in 2022 | | Common stock, par value $0.01; shares authorized 300,000,000 in 2023 and 2022; shares issued and outstanding 203,168,141 in 2023 and 203,433,690 in 2022 | | 2,032 | | | 2,034 | |
| Capital surplus | Capital surplus | | 2,404,388 | | | 1,487,373 | | Capital surplus | | 2,375,754 | | | 2,386,699 | |
| Retained earnings | Retained earnings | | 1,361,040 | | | 1,266,249 | | Retained earnings | | 1,509,400 | | | 1,443,087 | |
| Accumulated other comprehensive (loss) income | | (307,455) | | | 10,462 | | |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | | (256,301) | | | (305,458) | |
| Total stockholders’ equity | Total stockholders’ equity | | 3,460,015 | | | 2,765,721 | | Total stockholders’ equity | | 3,630,885 | | | 3,526,362 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | | $ | 23,157,370 | | | $ | 18,052,138 | | Total liabilities and stockholders’ equity | | $ | 22,518,255 | | | $ | 22,883,588 | |
Home BancShares, Inc.
Consolidated Statements of Income
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, |
| (In thousands, except per share data) | (In thousands, except per share data) | | 2022 | | 2021 | | 2022 | | 2021 | (In thousands, except per share data) | | 2023 | | 2022 |
| | | (Unaudited) | | | (Unaudited) |
| Interest income: | Interest income: | | Interest income: | |
| Loans | Loans | | $ | 195,841 | | | $ | 142,609 | | | $ | 507,062 | | | $ | 435,210 | | Loans | | $ | 236,997 | | | $ | 129,442 | |
| Investment securities | Investment securities | | Investment securities | |
| Taxable | Taxable | | 28,273 | | | 8,495 | | | 58,294 | | | 21,933 | | Taxable | | 35,288 | | | 9,080 | |
| Tax-exempt | Tax-exempt | | 8,069 | | | 4,839 | | | 20,501 | | | 14,815 | | Tax-exempt | | 7,963 | | | 4,707 | |
| Deposits – other banks | Deposits – other banks | | 10,763 | | | 1,117 | | | 19,001 | | | 2,234 | | Deposits – other banks | | 4,685 | | | 1,673 | |
| Federal funds sold | Federal funds sold | | 9 | | | — | | | 13 | | | — | | Federal funds sold | | 6 | | | 1 | |
| Total interest income | Total interest income | | 242,955 | | | 157,060 | | | 604,871 | | | 474,192 | | Total interest income | | 284,939 | | | 144,903 | |
| Interest expense: | Interest expense: | | | | | | | | | Interest expense: | | | | |
| Interest on deposits | Interest on deposits | | 23,347 | | | 5,642 | | | 38,970 | | | 19,781 | | Interest on deposits | | 59,162 | | | 4,894 | |
| Federal funds purchased | | — | | | — | | | 2 | | | — | | |
| | FHLB and other borrowed funds | FHLB and other borrowed funds | | 1,917 | | | 1,917 | | | 5,688 | | | 5,688 | | FHLB and other borrowed funds | | 6,190 | | | 1,875 | |
| Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | | 434 | | | 102 | | | 729 | | | 399 | | Securities sold under agreements to repurchase | | 868 | | | 108 | |
| Subordinated debentures | Subordinated debentures | | 4,153 | | | 4,788 | | | 16,472 | | | 14,373 | | Subordinated debentures | | 4,124 | | | 6,878 | |
| Total interest expense | Total interest expense | | 29,851 | | | 12,449 | | | 61,861 | | | 40,241 | | Total interest expense | | 70,344 | | | 13,755 | |
| Net interest income | Net interest income | | 213,104 | | | 144,611 | | | 543,010 | | | 433,951 | | Net interest income | | 214,595 | | | 131,148 | |
| Provision for credit losses on acquired loans | | — | | | — | | | 45,170 | | | — | | |
| Provision for credit losses on acquired unfunded commitments | | — | | | — | | | 11,410 | | | — | | |
| Provision for credit losses on unfunded commitments | | — | | | — | | | — | | | (4,752) | | |
| Provision for credit losses on acquired held-to-maturity investment securities | | — | | | — | | | 2,005 | | | — | | |
| Total credit loss expense (benefit) | | — | | | — | | | 58,585 | | | (4,752) | | |
| Net interest income after credit loss expense (benefit) | | 213,104 | | | 144,611 | | | 484,425 | | | 438,703 | | |
| Provision for credit losses on loans | | Provision for credit losses on loans | | 1,200 | | | — | |
| | Total credit loss expense | | Total credit loss expense | | 1,200 | | | — | |
| Net interest income after credit loss expense | | Net interest income after credit loss expense | | 213,395 | | | 131,148 | |
| Non-interest income: | Non-interest income: | | | | | | | | | Non-interest income: | | | | |
| Service charges on deposit accounts | Service charges on deposit accounts | | 10,756 | | | 5,941 | | | 26,980 | | | 16,059 | | Service charges on deposit accounts | | 9,842 | | | 6,140 | |
| Other service charges and fees | Other service charges and fees | | 13,951 | | | 8,051 | | | 34,225 | | | 25,318 | | Other service charges and fees | | 11,875 | | | 7,733 | |
| Trust fees | Trust fees | | 3,980 | | | 479 | | | 8,874 | | | 1,445 | | Trust fees | | 4,864 | | | 574 | |
| Mortgage lending income | Mortgage lending income | | 4,179 | | | 5,948 | | | 14,091 | | | 20,317 | | Mortgage lending income | | 2,571 | | | 3,916 | |
| Insurance commissions | Insurance commissions | | 601 | | | 586 | | | 1,739 | | | 1,556 | | Insurance commissions | | 526 | | | 480 | |
| Increase in cash value of life insurance | Increase in cash value of life insurance | | 1,089 | | | 509 | | | 2,721 | | | 1,548 | | Increase in cash value of life insurance | | 1,104 | | | 492 | |
| Dividends from FHLB, FRB, FNBB & other | Dividends from FHLB, FRB, FNBB & other | | 1,741 | | | 2,661 | | | 6,384 | | | 13,916 | | Dividends from FHLB, FRB, FNBB & other | | 2,794 | | | 698 | |
| Gain on sale of SBA loans | Gain on sale of SBA loans | | 58 | | | 439 | | | 153 | | | 1,588 | | Gain on sale of SBA loans | | 139 | | | 95 | |
| (Loss) gain on sale of branches, equipment and other assets, net | | (13) | | | (34) | | | 5 | | | (86) | | |
| Gain on sale of branches, equipment and other assets, net | | Gain on sale of branches, equipment and other assets, net | | 7 | | | 16 | |
| Gain on OREO, net | Gain on OREO, net | | — | | | 246 | | | 487 | | | 1,266 | | Gain on OREO, net | | — | | | 478 | |
| Gain on securities, net | | — | | | — | | | — | | | 219 | | |
| | Fair value adjustment for marketable securities | Fair value adjustment for marketable securities | | (2,628) | | | 61 | | | (2,304) | | | 7,093 | | Fair value adjustment for marketable securities | | (11,408) | | | 2,125 | |
| Other income | Other income | | 9,487 | | | 4,322 | | | 25,096 | | | 15,366 | | Other income | | 11,850 | | | 7,922 | |
| Total non-interest income | Total non-interest income | | 43,201 | | | 29,209 | | | 118,451 | | | 105,605 | | Total non-interest income | | 34,164 | | | 30,669 | |
| Non-interest expense: | Non-interest expense: | | | | | | | | | Non-interest expense: | | | | |
| Salaries and employee benefits | Salaries and employee benefits | | 65,290 | | | 42,469 | | | 174,636 | | | 126,990 | | Salaries and employee benefits | | 64,490 | | | 43,551 | |
| Occupancy and equipment | Occupancy and equipment | | 15,133 | | | 9,305 | | | 38,533 | | | 27,584 | | Occupancy and equipment | | 14,952 | | | 9,144 | |
| Data processing expense | Data processing expense | | 8,747 | | | 6,024 | | | 25,880 | | | 17,787 | | Data processing expense | | 8,968 | | | 7,039 | |
| Merger and acquisition expenses | Merger and acquisition expenses | | — | | | 1,006 | | | 49,594 | | | 1,006 | | Merger and acquisition expenses | | — | | | 863 | |
| Other operating expenses | Other operating expenses | | 25,176 | | | 16,815 | | | 68,081 | | | 48,100 | | Other operating expenses | | 26,234 | | | 16,299 | |
| Total non-interest expense | Total non-interest expense | | 114,346 | | | 75,619 | | | 356,724 | | | 221,467 | | Total non-interest expense | | 114,644 | | | 76,896 | |
| Income before income taxes | Income before income taxes | | 141,959 | | | 98,201 | | | 246,152 | | | 322,841 | | Income before income taxes | | 132,915 | | | 84,921 | |
| Income tax expense | Income tax expense | | 33,254 | | | 23,209 | | | 56,577 | | | 77,177 | | Income tax expense | | 29,953 | | | 20,029 | |
| Net income | Net income | | $ | 108,705 | | | $ | 74,992 | | | $ | 189,575 | | | $ | 245,664 | | Net income | | $ | 102,962 | | | $ | 64,892 | |
| Basic earnings per share | Basic earnings per share | | $ | 0.53 | | | $ | 0.46 | | | $ | 0.99 | | | $ | 1.49 | | Basic earnings per share | | $ | 0.51 | | | $ | 0.40 | |
| Diluted earnings per share | Diluted earnings per share | | $ | 0.53 | | | $ | 0.46 | | | $ | 0.99 | | | $ | 1.49 | | Diluted earnings per share | | $ | 0.51 | | | $ | 0.40 | |
See Condensed Notes to Consolidated Financial Statements.
Home BancShares, Inc.
Consolidated Statements of Comprehensive Income (Loss) Income
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (In thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| | (Unaudited) |
| Net income | | $ | 108,705 | | | $ | 74,992 | | | $ | 189,575 | | | $ | 245,664 | |
| Net unrealized loss on available-for-sale securities | | (122,307) | | | (4,218) | | | (424,910) | | | (24,527) | |
| Other comprehensive loss before tax effect | | (122,307) | | | (4,218) | | | (424,910) | | | (24,527) | |
| Tax effect on other comprehensive loss | | 30,757 | | | 1,102 | | | 106,993 | | | 6,410 | |
| Other comprehensive loss | | (91,550) | | | (3,116) | | | (317,917) | | | (18,117) | |
| Comprehensive income (loss) | | $ | 17,155 | | | $ | 71,876 | | | $ | (128,342) | | | $ | 227,547 | |
| | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
| (In thousands) | | 2023 | | 2022 |
| | (Unaudited) |
| Net income | | $ | 102,962 | | | $ | 64,892 | |
| Net unrealized gain (loss) on available-for-sale securities | | 64,968 | | | (155,715) | |
| Other comprehensive gain (loss) before tax effect | | 64,968 | | | (155,715) | |
| Tax effect on other comprehensive income (loss) | | (15,811) | | | 40,696 | |
| Other comprehensive income (loss) | | 49,157 | | | (115,019) | |
| Comprehensive income (loss) | | $ | 152,119 | | | $ | (50,127) | |
See Condensed Notes to Consolidated Financial Statements.
Home BancShares, Inc.
Consolidated Statements of Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three and Nine Months Ended September 30, 2022 |
| (In thousands, except share data) | | Common Stock | | Capital Surplus | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| Balances at January 1, 2022 | | $ | 1,637 | | | $ | 1,487,373 | | | $ | 1,266,249 | | | $ | 10,462 | | | $ | 2,765,721 | |
| Comprehensive income: | | | | | | | | | | |
| Net income | | — | | | — | | | 64,892 | | | — | | | 64,892 | |
| Other comprehensive loss | | — | | | — | | | — | | | (115,019) | | | (115,019) | |
| Net issuance of 15,909 shares of common stock from exercise of stock options | | 1 | | | 129 | | | — | | | — | | | 130 | |
| Repurchase of 180,000 shares of common stock | | (2) | | | (4,087) | | | — | | | — | | | (4,089) | |
| Share-based compensation net issuance of 222,717 shares of restricted common stock | | 2 | | | 2,109 | | | — | | | — | | | 2,111 | |
| Cash dividends – Common Stock, $0.165 per share | | — | | | — | | | (27,043) | | | — | | | (27,043) | |
| Balances at March 31, 2022 (unaudited) | | $ | 1,638 | | | $ | 1,485,524 | | | $ | 1,304,098 | | | $ | (104,557) | | | $ | 2,686,703 | |
| Comprehensive income: | | | | | | | | | | |
| Net Income | | — | | | — | | | 15,978 | | | — | | | 15,978 | |
| Other comprehensive loss | | — | | | — | | | — | | | (111,348) | | | (111,348) | |
| Net issuance of 1,500 shares of common stock from exercise of stock options | | — | | | 26 | | | — | | | — | | | 26 | |
Issuance of 42,425,352 shares of common stock including approximately $2.5 million in certain stock award settlements and stock issuance costs - Happy Bancshares acquisition | | 424 | | | 960,866 | | | — | | | — | | | 961,290 | |
| Repurchase of 1,032,732 shares of common stock | | (10) | | | (22,482) | | | — | | | — | | | (22,492) | |
| Share-based compensation net issuance of 138,499 shares of restricted common stock | | 1 | | | 2,337 | | | — | | | — | | | 2,338 | |
| Cash dividends – Common Stock, $0.165 per share | | — | | | — | | | (33,930) | | | — | | | (33,930) | |
| Balances at June 30, 2022 (unaudited) | | $ | 2,053 | | | $ | 2,426,271 | | | $ | 1,286,146 | | | $ | (215,905) | | | $ | 3,498,565 | |
| Comprehensive income: | | | | | | | | | | |
| Net Income | | — | | | — | | | 108,705 | | | — | | | 108,705 | |
| Other comprehensive loss | | — | | | — | | | — | | | (91,550) | | | (91,550) | |
| Net issuance of 1,574 shares of common stock from exercise of stock options | | — | | | — | | | — | | | — | | | — | |
| Repurchase of 1,045,799 shares of common stock | | (10) | | | (24,278) | | | — | | | — | | | (24,288) | |
| Share-based compensation net forfeiture of 27,250 shares of restricted stock | | (1) | | | 2,395 | | | — | | | — | | | 2,394 | |
| Cash dividends – Common Stock, $0.165 per share | | — | | | — | | | (33,811) | | | — | | | (33,811) | |
| Balances at September 30, 2022 (unaudited) | | $ | 2,042 | | | $ | 2,404,388 | | | $ | 1,361,040 | | | $ | (307,455) | | | $ | 3,460,015 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2023 |
| (In thousands, except share data) | | Common Stock | | Capital Surplus | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| Balances at January 1, 2023 | | $ | 2,034 | | | $ | 2,386,699 | | | $ | 1,443,087 | | | $ | (305,458) | | | $ | 3,526,362 | |
| Comprehensive income: | | | | | | | | | | |
| Net income | | — | | | — | | | 102,962 | | | — | | | 102,962 | |
| Other comprehensive income | | — | | | — | | | — | | | 49,157 | | | 49,157 | |
| Net issuance of 66,451 shares of common stock from exercise of stock options | | 1 | | | 85 | | | — | | | — | | | 86 | |
| Repurchase of 590,000 shares of common stock | | (6) | | | (13,534) | | | — | | | — | | | (13,540) | |
| Share-based compensation net issuance of 258,000 shares of restricted common stock | | 3 | | | 2,504 | | | — | | | — | | | 2,507 | |
| Cash dividends – Common Stock, $0.18 per share | | — | | | — | | | (36,649) | | | — | | | (36,649) | |
| Balances at March 31, 2023 (unaudited) | | $ | 2,032 | | | $ | 2,375,754 | | | $ | 1,509,400 | | | $ | (256,301) | | | $ | 3,630,885 | |
See Condensed Notes to Consolidated Financial Statements.
Home BancShares, Inc.
Consolidated Statements of Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three and Nine Months Ended September 30, 2021 |
| (In thousands, except share data) | | Common Stock | | Capital Surplus | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| Balances at January 1, 2021 | | $ | 1,651 | | | $ | 1,520,617 | | | $ | 1,039,370 | | | $ | 44,120 | | | $ | 2,605,758 | |
| Comprehensive income: | | | | | | | | | | |
| Net income | | — | | | — | | | 91,602 | | | — | | | 91,602 | |
| Other comprehensive loss | | — | | | — | | | — | | | (24,671) | | | (24,671) | |
| Net issuance of 161,434 shares of common stock from exercise of stock options | | 1 | | | 2,321 | | | — | | | — | | | 2,322 | |
| Repurchase of 330,000 shares of common stock | | (3) | | | (8,767) | | | — | | | — | | | (8,770) | |
| Share-based compensation net issuance of 214,684 shares of restricted common stock | | 2 | | | 2,115 | | | — | | | — | | | 2,117 | |
| Cash dividends – Common Stock, $0.14 per share | | — | | | — | | | (23,154) | | | — | | | (23,154) | |
| Balances at March 31, 2021 (unaudited) | | $ | 1,651 | | | $ | 1,516,286 | | | $ | 1,107,818 | | | $ | 19,449 | | | $ | 2,645,204 | |
| Comprehensive income: | | | | | | | | | | |
| Net income | | — | | | — | | | 79,070 | | | — | | | 79,070 | |
| Other comprehensive income | | — | | | — | | | — | | | 9,670 | | | 9,670 | |
| Net issuance of 3,628 shares of common stock from exercise of stock options | | — | | | — | | | — | | | — | | | — | |
| Repurchase of 635,000 shares of common stock | | (6) | | | (16,947) | | | — | | | — | | | (16,953) | |
| Share-based compensation net issuance of 21,500 shares of restricted common stock | | — | | | 2,276 | | | — | | | — | | | 2,276 | |
| Cash dividends – Common Stock, $0.14 per share | | — | | | — | | | (23,078) | | | — | | | (23,078) | |
| Balances at June 30, 2021 (unaudited) | | $ | 1,645 | | | $ | 1,501,615 | | | $ | 1,163,810 | | | $ | 29,119 | | | $ | 2,696,189 | |
| Comprehensive income: | | | | | | | | | | |
| Net income | | — | | | — | | | 74,992 | | | — | | | 74,992 | |
| Other comprehensive loss | | — | | | — | | | — | | | (3,116) | | | (3,116) | |
| Repurchase of 476,500 shares of common stock | | (5) | | | (11,274) | | | — | | | — | | | (11,279) | |
| Share-based compensation net forfeiture of 4,000 shares of restricted stock | | — | | | 2,247 | | | — | | | — | | | 2,247 | |
| Cash dividends – Common Stock, $0.14 per share | | — | | | — | | | (22,971) | | | — | | | (22,971) | |
| Balances at September 30, 2021 (unaudited) | | $ | 1,640 | | | $ | 1,492,588 | | | $ | 1,215,831 | | | $ | 26,003 | | | $ | 2,736,062 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2022 |
| (In thousands, except share data) | | Common Stock | | Capital Surplus | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
| Balances at January 1, 2022 | | $ | 1,637 | | | $ | 1,487,373 | | | $ | 1,266,249 | | | $ | 10,462 | | | $ | 2,765,721 | |
| Comprehensive income: | | | | | | | | | | |
| Net income | | — | | | — | | | 64,892 | | | — | | | 64,892 | |
| Other comprehensive loss | | — | | | — | | | — | | | (115,019) | | | (115,019) | |
| Net issuance of 15,909 shares of common stock from exercise of stock options | | 1 | | | 129 | | | — | | | — | | | 130 | |
| Repurchase of 180,000 shares of common stock | | (2) | | | (4,087) | | | — | | | — | | | (4,089) | |
| Share-based compensation net issuance of 222,717 shares of restricted common stock | | 2 | | | 2,109 | | | — | | | — | | | 2,111 | |
| Cash dividends – Common Stock, $0.165 per share | | — | | | — | | | (27,043) | | | — | | | (27,043) | |
| Balances at March 31, 2022 (unaudited) | | $ | 1,638 | | | $ | 1,485,524 | | | $ | 1,304,098 | | | $ | (104,557) | | | $ | 2,686,703 | |
See Condensed Notes to Consolidated Financial Statements.
Home BancShares, Inc.
Consolidated Statements of Cash Flows | | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| (In thousands) | (In thousands) | | 2022 | | 2021 | (In thousands) | | 2023 | | 2022 |
| | | (Unaudited) | | | (Unaudited) |
| Operating Activities | Operating Activities | | Operating Activities | |
| Net income | Net income | | $ | 189,575 | | | $ | 245,664 | | Net income | | $ | 102,962 | | | $ | 64,892 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation & amortization | Depreciation & amortization | | 23,546 | | | 14,457 | | Depreciation & amortization | | 7,722 | | | 5,092 | |
| Decrease (increase) in value of equity securities | Decrease (increase) in value of equity securities | | 2,304 | | | (7,093) | | Decrease (increase) in value of equity securities | | 11,408 | | | (2,125) | |
| Amortization of securities, net | Amortization of securities, net | | 17,324 | | | 21,018 | | Amortization of securities, net | | 3,835 | | | 6,759 | |
| Accretion of purchased loans | Accretion of purchased loans | | (12,844) | | | (16,150) | | Accretion of purchased loans | | (3,172) | | | (3,089) | |
| Share-based compensation | Share-based compensation | | 6,843 | | | 6,640 | | Share-based compensation | | 2,507 | | | 2,111 | |
| Gain on assets | Gain on assets | | (645) | | | (2,987) | | Gain on assets | | (146) | | | (589) | |
| Provision for credit losses - acquired loans & unfunded commitments | | 56,580 | | | — | | |
| Provision for credit losses - unfunded commitments | | — | | | (4,752) | | |
| Provision for credit losses - acquired held-to-maturity investment securities | | 2,005 | | | — | | |
| Provision for credit losses - loans | | Provision for credit losses - loans | | 1,200 | | | — | |
| | Deferred income tax effect | Deferred income tax effect | | (9,671) | | | 6,936 | | Deferred income tax effect | | 176 | | | 2,380 | |
| Increase in cash value of life insurance | Increase in cash value of life insurance | | (2,721) | | | (1,548) | | Increase in cash value of life insurance | | (1,104) | | | (492) | |
| Originations of mortgage loans held for sale | Originations of mortgage loans held for sale | | (432,589) | | | (599,787) | | Originations of mortgage loans held for sale | | (90,465) | | | (140,724) | |
| Proceeds from sales of mortgage loans held for sale | Proceeds from sales of mortgage loans held for sale | | 418,576 | | | 632,721 | | Proceeds from sales of mortgage loans held for sale | | 66,655 | | | 139,101 | |
| Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
| Accrued interest receivable | Accrued interest receivable | | (9,945) | | | 11,951 | | Accrued interest receivable | | 459 | | | 217 | |
| Other assets | Other assets | | (2,170) | | | 3,891 | | Other assets | | (99) | | | (1,518) | |
| Accrued interest payable and other liabilities | Accrued interest payable and other liabilities | | 22,999 | | | (9,526) | | Accrued interest payable and other liabilities | | 16,010 | | | 17,471 | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 269,167 | | | 301,435 | | Net cash provided by operating activities | | 117,948 | | | 89,486 | |
| Investing Activities | Investing Activities | | | | | Investing Activities | | | | |
| Net increase in federal funds sold | | (2,700) | | | — | | |
| Net (increase) decrease in loans, excluding purchased loans | | (84,995) | | | 1,278,846 | | |
| | Net decrease in loans, excluding purchased loans | | Net decrease in loans, excluding purchased loans | | 43,894 | | | 25,579 | |
| Purchases of investment securities – available-for-sale | Purchases of investment securities – available-for-sale | | (1,200,812) | | | (1,227,507) | | Purchases of investment securities – available-for-sale | | — | | | (137,261) | |
| Purchases of investment securities - held-to-maturity | Purchases of investment securities - held-to-maturity | | (636,474) | | | — | | Purchases of investment securities - held-to-maturity | | — | | | (498,930) | |
| Proceeds from maturities of investment securities – available-for-sale | Proceeds from maturities of investment securities – available-for-sale | | 458,291 | | | 487,242 | | Proceeds from maturities of investment securities – available-for-sale | | 330,539 | | | 136,938 | |
| Proceeds from maturities of investment securities – held-to-maturity | Proceeds from maturities of investment securities – held-to-maturity | | 500,479 | | | — | | Proceeds from maturities of investment securities – held-to-maturity | | 1,378 | | | — | |
| Proceeds from sales of investment securities – available-for-sale | | — | | | 18,112 | | |
| | Purchases of equity securities | Purchases of equity securities | | (49,975) | | | (10,460) | | Purchases of equity securities | | — | | | (3,717) | |
| Proceeds from sales of equity securities | Proceeds from sales of equity securities | | 13,778 | | | 15,354 | | Proceeds from sales of equity securities | | — | | | 13,778 | |
| Purchase of other investments | | (38,224) | | | (7,970) | | |
| Purchase (redemption) of other investments | | Purchase (redemption) of other investments | | 5,239 | | | (11,940) | |
| Proceeds from foreclosed assets held for sale | Proceeds from foreclosed assets held for sale | | 2,231 | | | 6,572 | | Proceeds from foreclosed assets held for sale | | 157 | | | 964 | |
| Proceeds from sale of SBA loans | Proceeds from sale of SBA loans | | 3,745 | | | 16,722 | | Proceeds from sale of SBA loans | | 2,337 | | | 2,859 | |
| Purchases of premises and equipment, net | Purchases of premises and equipment, net | | (4,158) | | | (8,065) | | Purchases of premises and equipment, net | | (2,404) | | | (2,067) | |
| Return of investment on cash value of life insurance | | 277 | | | 418 | | |
| | Purchase of marine loan portfolio | Purchase of marine loan portfolio | | (242,617) | | | — | | Purchase of marine loan portfolio | | — | | | (242,617) | |
| Net cash received - market acquisition | | 858,943 | | | — | | |
| Net cash (used in) provided by investing activities | | (422,211) | | | 569,264 | | |
| | Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | | 381,140 | | | (716,414) | |
| Financing Activities | Financing Activities | | | | | Financing Activities | | | | |
| Net (decrease) increase in deposits | Net (decrease) increase in deposits | | (1,573,517) | | | 1,277,581 | | Net (decrease) increase in deposits | | (493,317) | | | 320,364 | |
| Net decrease in securities sold under agreements to repurchase | Net decrease in securities sold under agreements to repurchase | | (19,331) | | | (27,929) | | Net decrease in securities sold under agreements to repurchase | | 7,596 | | | 10,265 | |
| | Net decrease in FHLB and other borrowed funds | | (78,330) | | | — | | |
| Retirement of subordinated debentures | | (300,000) | | | — | | |
| | Proceeds from issuance of subordinated debentures | Proceeds from issuance of subordinated debentures | | 296,324 | | | — | | Proceeds from issuance of subordinated debentures | | — | | | 296,444 | |
| Redemption of trust preferred securities | | (96,499) | | | — | | |
| | Proceeds from exercise of stock options | Proceeds from exercise of stock options | | 156 | | | 2,322 | | Proceeds from exercise of stock options | | 86 | | | 130 | |
| Repurchase of common stock | Repurchase of common stock | | (50,869) | | | (37,002) | | Repurchase of common stock | | (13,540) | | | (4,089) | |
| | Dividends paid on common stock | Dividends paid on common stock | | (94,784) | | | (69,203) | | Dividends paid on common stock | | (36,649) | | | (27,043) | |
| Net cash (used in) provided by financing activities | Net cash (used in) provided by financing activities | | (1,916,850) | | | 1,145,769 | | Net cash (used in) provided by financing activities | | (535,824) | | | 596,071 | |
| Net change in cash and cash equivalents | Net change in cash and cash equivalents | | (2,069,894) | | | 2,016,468 | | Net change in cash and cash equivalents | | (36,736) | | | (30,857) | |
| Cash and cash equivalents – beginning of year | Cash and cash equivalents – beginning of year | | 3,650,315 | | | 1,263,788 | | Cash and cash equivalents – beginning of year | | 724,790 | | | 3,650,315 | |
| Cash and cash equivalents – end of period | Cash and cash equivalents – end of period | | $ | 1,580,421 | | | $ | 3,280,256 | | Cash and cash equivalents – end of period | | $ | 688,054 | | | $ | 3,619,458 | |
See Condensed Notes to Consolidated Financial Statements.
Home BancShares, Inc.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Home BancShares, Inc. (the “Company” or “HBI”) is a bank holding company headquartered in Conway, Arkansas. The Company is primarily engaged in providing a full range of banking services to individual and corporate customers through its wholly-owned community bank subsidiary – Centennial Bank (sometimes referred to as “Centennial” or the “Bank”). The Bank has branch locations in Arkansas, Florida, South Alabama, Texas and New York City. The Company is subject to competition from other financial institutions. The Company also is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.
A summary of the significant accounting policies of the Company follows:
Operating Segments
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Bank is the only significant subsidiary upon which management makes decisions regarding how to allocate resources and assess performance. Each of the branches of the Bank provide a group of similar banking services, including such products and services as commercial, real estate and consumer loans, time deposits, checking and savings accounts. The individual bank branches have similar operating and economic characteristics. While the chief decision maker monitors the revenue streams of the various products, services and branch locations, operations are managed, and financial performance is evaluated on a company-wide basis. Accordingly, all of the banking services and branch locations are considered by management to be aggregated into one reportable operating segment.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, the valuation of investment securities, the valuation of foreclosed assets and the valuations of assets acquired, and liabilities assumed in business combinations. In connection with the determination of the allowance for credit losses and the valuation of foreclosed assets, management obtains independent appraisals for significant properties.
Principles of Consolidation
The consolidated financial statements include the accounts of HBI and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Various items within the accompanying consolidated financial statements for previous years have been reclassified to provide more comparative information. These reclassifications had no effect on net earnings or stockholders’ equity.
Interim financial information
The accompanying unaudited consolidated financial statements as of September 30,March 31, 2023 and 2022 and 2021 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 20212022 Form 10-K, filed with the Securities and Exchange Commission.
Loans Receivable and Allowance for Credit Losses
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs, deferred fees or costs on originated loans. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yield on the related loans.
The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed and expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, national retail sales index, housing price indices and rental vacancy rate index.
The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The identified loan segments are as follows:
•1-4 family construction
•All other construction
•1-4 family revolving home equity lines of credit (“HELOC”) & junior liens
•1-4 family senior liens
•Multifamily
•Owner occupied commercial real estate
•Non-owner occupied commercial real estate
•Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other
•Consumer auto
•Other consumer
•Other consumer - SPF
Loans that do not share risk characteristics are evaluated on an individual basis. For these loans, excluding assisted living loans which are evaluated using a market price valuation methodology, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the 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 for each segment is measured throughmay be zero if the usefair value of the discounted cash flow method. Loans evaluatedcollateral at the measurement date exceeds the amortized cost basis of the loan, net of estimated costs to sell.
For loans individually that are consideredanalyzed 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 be collateral dependent are not included in the collective evaluation. For those loans that are classifiedborrowers experiencing financial difficulty (which we define as impaired,"impaired" loans), an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. For loans that are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation if a specific reserve is not recorded.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:
•Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower.
•The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factors ("Q-Factors") and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.
Loans considered impaired, according to ASC 326, are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.
Acquisition Accounting and Acquired Loans
The Company accounts for its acquisitions under FASB ASCAccounting 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.
Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment.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 initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.
For further discussion of the Company’s acquisitions, see Note 2 to the Condensed Notes to Consolidated Financial Statements.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
Revenue Recognition
Accounting Standards Codification ("ASC")ASC Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit, investment securities and mortgage lending income, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our significant revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of non-interest income are as follows:
•Service charges on deposit accounts – These represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.
•Other service charges and fees – These represent credit card interchange fees and Centennial Commercial Finance Group (“Centennial CFG”) loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. The Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310.
•Trust fees - The Company enters into contracts with its customers to manage assets for investment, and/or transact on their accounts. The Company generally satisfies its performance obligations as services are rendered. The management fees are percentage based, flat, percentage of income or a fixed percentage calculated upon the average balance of assets depending upon account type. Fees are collected on a monthly or annual basis.
Earnings per Share
Basic earnings per share is computed based on the weighted-average number of shares outstanding during each year. Diluted earnings per share is computed using the weighted-average shares and all potential dilutive shares outstanding during the period. The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the following periods:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
| | (In thousands) | | (In thousands) |
| Net income | Net income | $ | 108,705 | | | $ | 74,992 | | | $ | 189,575 | | | $ | 245,664 | | Net income | $ | 102,962 | | | $ | 64,892 | |
| Average shares outstanding | Average shares outstanding | 204,829 | | | 164,126 | | | 191,584 | | | 164,717 | | Average shares outstanding | 203,456 | | | 163,787 | |
| Effect of common stock options | Effect of common stock options | 306 | | | 477 | | | 357 | | | 333 | | Effect of common stock options | 169 | | | 409 | |
| Average diluted shares outstanding | Average diluted shares outstanding | 205,135 | | | 164,603 | | | 191,941 | | | 165,050 | | Average diluted shares outstanding | 203,625 | | | 164,196 | |
| Basic earnings per share | Basic earnings per share | $ | 0.53 | | | $ | 0.46 | | | $ | 0.99 | | | $ | 1.49 | | Basic earnings per share | $ | 0.51 | | | $ | 0.40 | |
| Diluted earnings per share | Diluted earnings per share | $ | 0.53 | | | $ | 0.46 | | | $ | 0.99 | | | $ | 1.49 | | Diluted earnings per share | $ | 0.51 | | | $ | 0.40 | |
The impact of anti-dilutive shares to the diluted earnings per share calculation was considered immaterial for the periods ended March 31, 2023 and 2022.
2. Business Combinations
Acquisition of Happy Bancshares, Inc.
On April 1, 2022, the Company completed the acquisition of Happy Bancshares, Inc. (“Happy”), and merged Happy State Bank into Centennial Bank. The Company issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million. The acquisition added new markets for expansion and brought complementary businesses together to drive synergies and growth.
Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $6.69 billion in total assets, $3.65 billion in loans and $5.86 billion in customer deposits. Happy formerly operated its banking business from 62 locations in Texas.
The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the acquisition. The Company will continue to review the estimated fair values of loans, deposits and intangible assets, and to evaluate the assumed tax positions and contingencies.
The Company has determined that the acquisition of the net assets of Happy constitutes a business combination as defined by the ASC Topic 805.805, Business Combinations. Accordingly, the assets acquired and liabilities assumed are presented at their fair values as required. Fair values were determined based on the requirements of ASC Topic 820.820, Fair Value Measurements. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change.nature. The following schedule is a preliminary breakdown of the assets acquired and liabilities assumed as of the acquisition date as adjusted during the measurement period:date:
| | | | | | | | | | | | | | | | | |
| Happy Bancshares, Inc. |
| Acquired
from Happy | | Fair Value Adjustments | | As Recorded
by HBI |
| (Dollars in thousands) |
| Assets | | | | | |
| Cash and due from banks | $ | 112,999 | | | $ | (446) | | | $ | 112,553 | |
| Interest-bearing deposits with other banks | 746,031 | | | — | | | 746,031 | |
| Cash and cash equivalents | 859,030 | | | (446) | | | 858,584 | |
| Investment securities - available-for-sale, net of allowance for credit losses | 1,773,540 | | | 8,485 | | | 1,782,025 | |
| | | | | |
| Total investment securities | 1,773,540 | | | 8,485 | | | 1,782,025 | |
| Loans receivable | 3,657,009 | | | (4,389) | | | 3,652,620 | |
| Allowance for credit losses | (42,224) | | | 25,408 | | | (16,816) | |
| Loans receivable, net | 3,614,785 | | | 21,019 | | | 3,635,804 | |
| Bank premises and equipment, net | 153,642 | | | (12,270) | | | 141,372 | |
| Foreclosed assets held for sale | 193 | | | (77) | | | 116 | |
| Cash value of life insurance | 105,049 | | | 3 | | | 105,052 | |
| Accrued interest receivable | 31,575 | | | — | | | 31,575 | |
| Deferred tax asset, net | 32,908 | | | (1,092) | | | 31,816 | |
| Goodwill | 130,428 | | | (130,428) | | | — | |
| Core deposit and other intangibles | 10,672 | | | 31,591 | | | 42,263 | |
| Other assets | 43,330 | | | 15,567 | | | 58,897 | |
| Total assets acquired | $ | 6,755,152 | | | $ | (67,648) | | | $ | 6,687,504 | |
| Liabilities | | | | | |
| Deposits | | | | | |
| Demand and non-interest-bearing | $ | 1,932,756 | | | $ | 67 | | | $ | 1,932,823 | |
| Savings and interest-bearing transaction accounts | 3,519,652 | | | — | | | 3,519,652 | |
| Time deposits | 401,899 | | | 903 | | | 402,802 | |
| Total deposits | 5,854,307 | | | 970 | | | 5,855,277 | |
| | | | | |
| FHLB and other borrowed funds | 74,212 | | | 4,118 | | | 78,330 | |
| Accrued interest payable and other liabilities | 50,889 | | | (1,892) | | | 48,997 | |
| Subordinated debentures | 159,965 | | | 7,625 | | | 167,590 | |
| Total liabilities assumed | $ | 6,139,373 | | | $ | 10,821 | | | $ | 6,150,194 | |
| Equity | | | | | |
| Total equity assumed | 615,779 | | | (615,779) | | | — | |
| Total liabilities and equity assumed | $ | 6,755,152 | | | $ | (604,958) | | | $ | 6,150,194 | |
| Net assets acquired | | | | | 537,310 | |
| Purchase price | | | | | 962,538 | |
| Goodwill | | | | | $ | 425,228 | |
| | | | | | | | | | | | | | | | | |
| Happy Bancshares, Inc. |
| Acquired
from Happy | | Fair Value Adjustments | | As Recorded
by HBI |
| (Dollars in thousands) |
| Assets | | | | | |
| Cash and due from banks | $ | 112,999 | | | $ | (87) | | | $ | 112,912 | |
| Interest-bearing deposits with other banks | 746,031 | | | — | | | 746,031 | |
| Cash and cash equivalents | 859,030 | | | (87) | | | 858,943 | |
| Investment securities - available-for-sale, net of allowance for credit losses | 1,773,540 | | | 8,485 | | | 1,782,025 | |
| | | | | |
| Total investment securities | 1,773,540 | | | 8,485 | | | 1,782,025 | |
| Loans receivable | 3,657,009 | | | (4,389) | | | 3,652,620 | |
| Allowance for credit losses | (42,224) | | | 25,408 | | | (16,816) | |
| Loans receivable, net | 3,614,785 | | | 21,019 | | | 3,635,804 | |
| Bank premises and equipment, net | 153,642 | | | (6,977) | | | 146,665 | |
| Foreclosed assets held for sale | 193 | | | (77) | | | 116 | |
| Cash value of life insurance | 105,049 | | | 3 | | | 105,052 | |
| Accrued interest receivable | 31,575 | | | — | | | 31,575 | |
| Deferred tax asset, net | 32,908 | | | 1,117 | | | 34,025 | |
| Goodwill | 130,428 | | | (130,428) | | | — | |
| Core deposit and other intangibles | 10,672 | | | 31,591 | | | 42,263 | |
| Other assets | 43,330 | | | 7,233 | | | 50,563 | |
| Total assets acquired | $ | 6,755,152 | | | $ | (68,121) | | | $ | 6,687,031 | |
| Liabilities | | | | | |
| Deposits | | | | | |
| Demand and non-interest-bearing | $ | 1,932,756 | | | $ | 60 | | | $ | 1,932,816 | |
| Savings and interest-bearing transaction accounts | 3,519,652 | | | — | | | 3,519,652 | |
| Time deposits | 401,899 | | | 903 | | | 402,802 | |
| Total deposits | 5,854,307 | | | 963 | | | 5,855,270 | |
| | | | | |
| FHLB and other borrowed funds | 74,212 | | | 4,118 | | | 78,330 | |
| Accrued interest payable and other liabilities | 50,889 | | | (6,258) | | | 44,631 | |
| Subordinated debentures | 159,965 | | | 7,625 | | | 167,590 | |
| Total liabilities assumed | $ | 6,139,373 | | | $ | 6,448 | | | $ | 6,145,821 | |
| Equity | | | | | |
| Total equity assumed | 615,779 | | | (615,779) | | | — | |
| Total liabilities and equity assumed | $ | 6,755,152 | | | $ | (609,331) | | | $ | 6,145,821 | |
| Net assets acquired | | | | | 541,210 | |
| Purchase price | | | | | 962,538 | |
| Goodwill | | | | | $ | 421,328 | |
The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above:
Cash and due from banks, interest-bearing deposits with other banks and federal funds sold – The carrying amount of these assets was deemed a reasonable estimate of fair value based on the short-term nature of these assets.
Investment securities – Investment securities were acquired from Happy with an approximately $8.5 million adjustment to fair value based upon quoted market prices. Otherwise, the book value was deemed to approximate fair value.
Loans – Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, whether or not the loan was amortizing and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. See Note 5 to the Condensed Notes to Consolidated Financial Statements, for additional information related to purchased financial assets with credit deterioration.
Bank premises and equipment – Bank premises and equipment were acquired from Happy with a $7.0$12.3 million adjustment to fair value. This represents the difference between current appraisals completed in connection with the acquisition and book value acquired.
Foreclosed assets held for sale – These assets are presented at the estimated fair values that management expects to receive when the properties are sold, net of related costs of disposal.
Cash value of life insurance – Bank owned life insurance is carried at its current cash surrender value, which is the most reasonable estimate of fair value.
Accrued interest receivable – The carrying amount of these assets was deemed a reasonable estimate of the fair value.
Core deposit intangible and other intangibles – This core deposit intangible asset represents the value of the relationships that Happy had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, and the net maintenance cost attributable to customer deposits.
Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition, equal the amount payable on demand at the acquisition date. The $963,000$903,000 fair value adjustment applied for time deposits was because the weighted-average interest rate of Happy’s certificates of deposits were estimated to be below the current market rates.
FHLB borrowed funds – The fair value of FHLB borrowed funds is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.
Accrued interest payable and other liabilities – The fair value adjustment results from certain liabilities whose value was estimated to be more or less than book value, such as certain accounts payable and other miscellaneous liabilities. The carrying amount of accrued interest and the remainder of other liabilities was deemed to be a reasonable estimate of fair value.
Subordinated debentures – The fair value of subordinated debentures is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.
During the third quarter of 2022, we continued to analyze the valuations assigned to the acquired assets and assumed liabilities and received updated information resulting in the revised fair values displayed below. We updated our estimated fair values of these items within our Consolidated Balance Sheet with a corresponding adjustment to goodwill. The changes are gross of taxes and reflected in the following table:
| | | | | | | | | | | | | | |
| Acquired Asset or Liability | Balance Sheet Line Item | Provisional Estimate | Revised Estimate | Increase (Decrease) |
| | (In thousands) |
| Cash and due from banks | Cash and due from banks | 112,867 | | 112,912 | | 45 | |
| Loans receivable | Loans receivable | 3,652,706 | | 3,652,620 | | (86) | |
| Bank premises and equipment, net | Bank premises and equipment, net | 142,067 | | 146,665 | | 4,598 | |
| Deferred tax asset, net | Deferred tax asset, net | 35,414 | | 34,025 | | (1,389) | |
| Equity method investments & other receivables | Other assets | 49,752 | | 50,563 | | 811 | |
| Goodwill | Goodwill | 425,375 | | 421,328 | | (4,047) | |
| Demand and non-interest bearing deposits | Demand and non-interest bearing deposits | 1,932,756 | | 1,932,816 | | 60 | |
| Accrued expense | Accrued interest payable and other liabilities | 44,759 | | 44,631 | | (128) | |
All measurement period adjustments made during third quarter of 2022 have been deemed insignificant individually and in the aggregate. The Company will finalize its valuation of the Happy acquisition within the measurement period (no later than April 1, 2023).
The impact to the income statement resulting from the changes to the estimated fair values was insignificant. We continue to analyze the assumptions and related valuation results associated with the acquired assets and assumed liabilities, and accordingly, the valuations of these assets and liabilities are not final as of September 30, 2022. However, the valuations will be finalized no later than April 1, 2023. As the valuations remain provision and subject to updates, the purchase accounting accretion/amortization are also subject to adjustments.
The unaudited pro-forma combined consolidated financial information presents how the combined financial information of HBI and Happy might have appeared had the businesses actually been combined. The following schedule represents the unaudited pro forma combined financial information as of the three and nine-month periodsmonth period ended September 30,March 31, 2022, and 2021, assuming the acquisition was completed as of January 1, 2021:
| | | | | |
| Three Months Ended March 31, 2022 |
| (In thousands, except per share data) | |
| Total interest income | $ | 202,305 | |
| Total non-interest income | 43,570 | |
| Net income available to all shareholders | 85,823 | |
| |
| Basic earnings per common share | $ | 0.42 | |
| Diluted earnings per common share | 0.42 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (In thousands, except per share data) |
| Total interest income | $ | 242,955 | | | $ | 211,405 | | | $ | 662,273 | | | $ | 629,548 | |
| Total non-interest income | 43,201 | | | 43,792 | | | 131,352 | | | 145,277 | |
| Net income available to all shareholders | 108,705 | | | 90,846 | | | 291,262 | | | 220,499 | |
| | | | | | | |
| Basic earnings per common share | $ | 0.53 | | | $ | 0.44 | | | $ | 1.42 | | | $ | 1.06 | |
| Diluted earnings per common share | $ | 0.53 | | | $ | 0.44 | | | $ | 1.41 | | | $ | 1.06 | |
The unaudited pro-forma consolidated financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of the period presented and had the impact of possible significant revenue enhancements and expense efficiencies from in-market cost savings, among other factors, been considered and, accordingly, does not attempt to predict or suggest future results.Pro-forma results include Happy merger expenses of $49.6 million, provision for credit losses on acquired loans of $45.2 million, provision for credit losses on acquired unfunded commitments of $11.4 million and provision for credit losses on acquired investment securities of $2.0 million for the nine months ended September 30, 2022 and 2021, respectively. The pro-forma financial information also does not necessarily reflect what the historical results of the combined company would have been had the companies been combined during this period.
Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. For PCD loans, the initial estimate of expected credit losses is recognized in the allowance for credit losses on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans purchased as part of the Happy acquisition with credit deterioration at acquisition:
| | | | | |
| April 1, 2022 |
| (In thousands) |
| Purchased Loans with Credit Deterioration: | |
| Par value | $ | 165,028 | |
| Allowance for credit losses at acquisition | (16,816) | |
| Premium on acquired loans | 684 | |
| Purchase price | $ | 148,896 | |
3. Investment Securities
The following table summarizes the amortized cost and fair value of securities that are classified as available-for-sale and held-to-maturity are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Available-for-Sale |
| Amortized Cost | | Allowance for Credit Losses | | Net Carrying Amount | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Estimated Fair Value |
| (In thousands) |
| U.S. government-sponsored enterprises | $ | 702,009 | | | $ | — | | | $ | 702,009 | | | $ | 3,024 | | | $ | (23,029) | | | $ | 682,004 | |
| Residential mortgage-backed securities | 1,805,461 | | | — | | | 1,805,461 | | | 299 | | | (207,313) | | | 1,598,447 | |
| Commercial mortgage-backed securities | 361,251 | | | — | | | 361,251 | | | — | | | (21,023) | | | 340,228 | |
| State and political subdivisions | 1,033,621 | | | (842) | | | 1,032,779 | | | 709 | | | (133,334) | | | 900,154 | |
| Other securities | 594,369 | | | — | | | 594,369 | | | — | | | (30,100) | | | 564,269 | |
| Total | $ | 4,496,711 | | | $ | (842) | | | $ | 4,495,869 | | | $ | 4,032 | | | $ | (414,799) | | | $ | 4,085,102 | |
| | | September 30, 2022 | | March 31, 2023 |
| | Held-to-Maturity | | Available-for-Sale |
| | Amortized Cost | | Allowance for Credit Losses | | Net Carrying Amount | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Estimated Fair Value | | Amortized Cost | | Allowance for Credit Losses | | Net Carrying Amount | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Estimated Fair Value |
| | (In thousands) | | (In thousands) |
| U.S. government-sponsored enterprises | U.S. government-sponsored enterprises | $ | 42,950 | | | $ | — | | | $ | 42,950 | | | $ | — | | | $ | (3,092) | | | $ | 39,858 | | U.S. government-sponsored enterprises | $ | 412,770 | | | $ | — | | | $ | 412,770 | | | $ | 2,689 | | | $ | (18,324) | | | $ | 397,135 | |
| Residential mortgage-backed securities | Residential mortgage-backed securities | 42,920 | | | — | | | 42,920 | | | — | | | (612) | | | 42,308 | | Residential mortgage-backed securities | 1,723,065 | | | — | | | 1,723,065 | | | 782 | | | (175,923) | | | 1,547,924 | |
| Commercial mortgage-backed securities | Commercial mortgage-backed securities | 55,610 | | | — | | | 55,610 | | | — | | | (923) | | | 54,687 | | Commercial mortgage-backed securities | 321,806 | | | — | | | 321,806 | | | — | | | (17,860) | | | 303,946 | |
| State and political subdivisions | State and political subdivisions | 1,111,532 | | | (2,005) | | | 1,109,527 | | | 19 | | | (145,241) | | | 964,305 | | State and political subdivisions | 1,011,609 | | | (842) | | | 1,010,767 | | | 1,409 | | | (95,993) | | | 916,183 | |
| | Other securities | | Other securities | 641,947 | | | — | | | 641,947 | | | 648 | | | (35,645) | | | 606,950 | |
| Total | Total | $ | 1,253,012 | | | $ | (2,005) | | | $ | 1,251,007 | | | $ | 19 | | | $ | (149,868) | | | $ | 1,101,158 | | Total | $ | 4,111,197 | | | $ | (842) | | | $ | 4,110,355 | | | $ | 5,528 | | | $ | (343,745) | | | $ | 3,772,138 | |
| | | December 31, 2021 | | March 31, 2023 |
| | Available-for-Sale | | Held-to-Maturity |
| | Amortized Cost | | Allowance for Credit Losses | | Net Carrying Amount | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Estimated Fair Value | | Amortized Cost | | Allowance for Credit Losses | | Net Carrying Amount | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Estimated Fair Value |
| | (In thousands) | | (In thousands) |
| U.S. government-sponsored enterprises | U.S. government-sponsored enterprises | $ | 433,829 | | | $ | — | | | $ | 433,829 | | | $ | 2,375 | | | $ | (3,225) | | | $ | 432,979 | | U.S. government-sponsored enterprises | $ | 43,082 | | | $ | — | | | $ | 43,082 | | | $ | — | | | $ | (2,080) | | | $ | 41,002 | |
| Residential mortgage-backed securities | Residential mortgage-backed securities | 1,175,185 | | | — | | | 1,175,185 | | | 4,085 | | | (18,551) | | | 1,160,719 | | Residential mortgage-backed securities | 48,024 | | | — | | | 48,024 | | | 344 | | | (435) | | | 47,933 | |
| Commercial mortgage-backed securities | Commercial mortgage-backed securities | 372,702 | | | — | | | 372,702 | | | 6,521 | | | (1,968) | | | 377,255 | | Commercial mortgage-backed securities | 85,857 | | | — | | | 85,857 | | | 473 | | | (1,000) | | | 85,330 | |
| State and political subdivisions | State and political subdivisions | 973,318 | | | (842) | | | 972,476 | | | 26,296 | | | (1,794) | | | 996,978 | | State and political subdivisions | 1,111,415 | | | (2,005) | | | 1,109,410 | | | 199 | | | (113,959) | | | 995,650 | |
| Other securities | 151,449 | | | — | | | 151,449 | | | 1,781 | | | (1,354) | | | 151,876 | | |
| | Total | Total | $ | 3,106,483 | | | $ | (842) | | | $ | 3,105,641 | | | $ | 41,058 | | | $ | (26,892) | | | $ | 3,119,807 | | Total | $ | 1,288,378 | | | $ | (2,005) | | | $ | 1,286,373 | | | $ | 1,016 | | | $ | (117,474) | | | $ | 1,169,915 | |
On April 1, 2022, the Company completed the acquisition | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Available-for-Sale |
| Amortized Cost | | Allowance for Credit Losses | | Net Carrying Amount | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Estimated Fair Value |
| (In thousands) |
| U.S. government-sponsored enterprises | $ | 682,316 | | | $ | — | | | $ | 682,316 | | | $ | 2,713 | | | $ | (23,209) | | | $ | 661,820 | |
| Residential mortgage-backed securities | 1,759,025 | | | — | | | 1,759,025 | | | 71 | | | (211,453) | | | 1,547,643 | |
| Commercial mortgage-backed securities | 339,206 | | | — | | | 339,206 | | | — | | | (22,254) | | | 316,952 | |
| State and political subdivisions | 1,021,188 | | | (842) | | | 1,020,346 | | | 1,649 | | | (115,698) | | | 906,297 | |
| Other securities | 643,885 | | | — | | | 643,885 | | | 346 | | | (35,353) | | | 608,878 | |
| Total | $ | 4,445,620 | | | $ | (842) | | | $ | 4,444,778 | | | $ | 4,779 | | | $ | (407,967) | | | $ | 4,041,590 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Held-to-Maturity |
| Amortized
Cost | | Allowance for Credit Losses | | Net Carrying Amount | | Gross
Unrealized
Gains | | Gross
Unrealized
(Losses) | | Estimated
Fair Value |
| (In thousands) |
| U.S. government-sponsored enterprises | $ | 43,017 | | | $ | — | | | $ | 43,017 | | | $ | — | | | $ | (3,349) | | | $ | 39,668 | |
| Residential mortgage-backed securities | 49,088 | | | — | | | 49,088 | | | 24 | | | (1,205) | | | 47,907 | |
| Commercial mortgage-backed securities | 85,912 | | | — | | | 85,912 | | | 107 | | | (2,551) | | | 83,468 | |
| State and political subdivisions | 1,111,693 | | | (2,005) | | | 1,109,688 | | | 65 | | | (154,650) | | | 955,103 | |
| | | | | | | | | | | |
| Total | $ | 1,289,710 | | | $ | (2,005) | | | $ | 1,287,705 | | | $ | 196 | | | $ | (161,755) | | | $ | 1,126,146 | |
The Company's available-for-sale portfolio includes investments in Pacific Western Bank with a par value of Happy. Including the effects$7.5 million and Western Alliance Bancorporation with a par value of the known purchase accounting adjustments,$12.0 million, as of March 31, 2023. These investments are included within the acquisition date, Happy had approximately $1.78 billion in investments, net of purchase accounting adjustments. The Company classified approximately $1.12 billion of investments acquired from Happy as held-to-maturity at the acquisition date.other securities classification.
Assets, principally investment securities, having a carrying value of approximately $2.27$2.79 billion and $1.15$2.35 billion at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, were pledged to secure public deposits, as collateral for repurchase agreements, and for other purposes required or permitted by law. Investment securities pledged as collateral for repurchase agreements totaled approximately $121.6$138.7 million and $140.9$131.1 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
The amortized cost and estimated fair value of securities classified as available-for-sale and held-to-maturity at September 30, 2022,March 31, 2023, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
| | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale | | Held-to-Maturity |
| Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
| (In thousands) |
| Due in one year or less | $ | 267,369 | | | $ | 266,669 | | | $ | — | | | $ | — | |
| Due after one year through five years | 178,033 | | | 166,906 | | | 4,770 | | | 4,531 | |
| Due after five years through ten years | 473,289 | | | 434,042 | | | 215,931 | | | 193,346 | |
| Due after ten years | 1,405,700 | | | 1,273,224 | | | 933,781 | | | 806,286 | |
| Mortgage - backed securities: Residential | 1,805,461 | | | 1,598,447 | | | 42,920 | | | 42,308 | |
| Mortgage - backed securities: Commercial | 361,251 | | | 340,228 | | | 55,610 | | | 54,687 | |
| Other | 5,608 | | | 5,586 | | | — | | | — | |
| Total | $ | 4,496,711 | | | $ | 4,085,102 | | | $ | 1,253,012 | | | $ | 1,101,158 | |
During the three and nine months ended September 30, 2022, no available-for-sale securities were sold.
During the three months ended September 30, 2021, no available-for-sale securities were sold. There were no realized gains or losses recorded on sales for the three months ended September 30, 2021. During the nine months ended September 30, 2021, $17.9 million in available-for-sale securities were sold. The gross realized gains on the sales totaled $219,000 for the nine months ended September 30, 2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale | | Held-to-Maturity |
| Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
| (In thousands) |
| Due in one year or less | $ | 12,004 | | | $ | 11,990 | | | $ | — | | | $ | — | |
| Due after one year through five years | 173,648 | | | 164,591 | | | 4,795 | | | 4,616 | |
| Due after five years through ten years | 465,413 | | | 425,265 | | | 216,363 | | | 199,003 | |
| Due after ten years | 1,413,761 | | | 1,316,921 | | | 933,339 | | | 833,033 | |
| Mortgage - backed securities: Residential | 1,723,065 | | | 1,547,924 | | | 48,024 | | | 47,933 | |
| Mortgage - backed securities: Commercial | 321,806 | | | 303,946 | | | 85,857 | | | 85,330 | |
| Other | 1,500 | | | 1,501 | | | — | | | — | |
| Total | $ | 4,111,197 | | | $ | 3,772,138 | | | $ | 1,288,378 | | | $ | 1,169,915 | |
During the three months ended March 31, 2023 and 2022, no available-for-sale securities were sold.
The following table shows gross unrealized losses and estimated fair value of investment securities classified as available-for-sale and held-to-maturity, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position as of September 30, 2022March 31, 2023 and December 31, 2021.2022.
| | | September 30, 2022 | | March 31, 2023 |
| | Less Than 12 Months | | 12 Months or More | | Total | | Less Than 12 Months | | 12 Months or More | | Total |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | (In thousands) | | (In thousands) |
| Available-for-sale: | Available-for-sale: | | Available-for-sale: | |
| U.S. government-sponsored enterprises | U.S. government-sponsored enterprises | $ | 325,781 | | | $ | (5,292) | | | $ | 117,320 | | | $ | (17,737) | | | $ | 443,101 | | | $ | (23,029) | | U.S. government-sponsored enterprises | $ | 42,873 | | | $ | (833) | | | $ | 151,099 | | | $ | (17,491) | | | $ | 193,972 | | | $ | (18,324) | |
| Residential mortgage-backed securities | Residential mortgage-backed securities | 881,787 | | | (60,886) | | | 659,272 | | | (146,427) | | | 1,541,059 | | | (207,313) | | Residential mortgage-backed securities | 286,471 | | | (11,069) | | | 1,165,292 | | | (164,854) | | | 1,451,763 | | | (175,923) | |
| Commercial mortgage-backed securities | Commercial mortgage-backed securities | 250,331 | | | (11,866) | | | 74,932 | | | (9,157) | | | 325,263 | | | (21,023) | | Commercial mortgage-backed securities | 89,739 | | | (2,104) | | | 214,207 | | | (15,756) | | | 303,946 | | | (17,860) | |
| State and political subdivisions | State and political subdivisions | 726,799 | | | (104,506) | | | 109,019 | | | (28,828) | | | 835,818 | | | (133,334) | | State and political subdivisions | 98,912 | | | (3,167) | | | 716,784 | | | (92,826) | | | 815,696 | | | (95,993) | |
| Other securities | Other securities | 388,583 | | | (24,884) | | | 41,184 | | | (5,216) | | | 429,767 | | | (30,100) | | Other securities | 349,014 | | | (9,661) | | | 194,082 | | | (25,984) | | | 543,096 | | | (35,645) | |
| Total | Total | $ | 2,573,281 | | | $ | (207,434) | | | $ | 1,001,727 | | | $ | (207,365) | | | $ | 3,575,008 | | | $ | (414,799) | | Total | $ | 867,009 | | | $ | (26,834) | | | $ | 2,441,464 | | | $ | (316,911) | | | $ | 3,308,473 | | | $ | (343,745) | |
| Held-to-maturity: | Held-to-maturity: | | | | | | | | | | | | Held-to-maturity: | | | | | | | | | | | |
| U.S. government-sponsored enterprises | U.S. government-sponsored enterprises | 39,858 | | | (3,092) | | | — | | | — | | | 39,858 | | | (3,092) | | U.S. government-sponsored enterprises | $ | 14,668 | | | $ | (332) | | | $ | 26,334 | | | $ | (1,748) | | | $ | 41,002 | | | $ | (2,080) | |
| State and political subdivisions | 957,918 | | | (145,241) | | | — | | | — | | | 957,918 | | | (145,241) | | |
| Residential mortgage-backed securities | Residential mortgage-backed securities | 14,973 | | | (612) | | | — | | | — | | | 14,973 | | | (612) | | Residential mortgage-backed securities | 17,136 | | | (435) | | | — | | | — | | | 17,136 | | | (435) | |
| Commercial mortgage-backed securities | Commercial mortgage-backed securities | 16,513 | | | (923) | | | — | | | — | | | 16,513 | | | (923) | | Commercial mortgage-backed securities | 51,579 | | | (1,000) | | | — | | | — | | | 51,579 | | | (1,000) | |
| State and political subdivisions | | State and political subdivisions | 33,899 | | | (1,355) | | | 953,987 | | | (112,604) | | | 987,886 | | | (113,959) | |
| Total | Total | $ | 1,029,262 | | | $ | (149,868) | | | $ | — | | | $ | — | | | $ | 1,029,262 | | | $ | (149,868) | | Total | $ | 117,282 | | | $ | (3,122) | | | $ | 980,321 | | | $ | (114,352) | | | $ | 1,097,603 | | | $ | (117,474) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Less Than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| (In thousands) |
| U.S. government-sponsored enterprises | $ | 120,730 | | | $ | (1,356) | | | $ | 78,124 | | | $ | (1,869) | | | $ | 198,854 | | | $ | (3,225) | |
| Residential mortgage-backed securities | 854,807 | | | (15,246) | | | 104,897 | | | (3,305) | | | 959,704 | | | (18,551) | |
| Commercial mortgage-backed securities | 100,702 | | | (1,251) | | | 28,711 | | | (717) | | | 129,413 | | | (1,968) | |
| State and political subdivisions | 136,135 | | | (1,282) | | | 18,647 | | | (512) | | | 154,782 | | | (1,794) | |
| Other securities | 75,744 | | | (1,316) | | | 2,703 | | | (38) | | | 78,447 | | | (1,354) | |
| Total | $ | 1,288,118 | | | $ | (20,451) | | | $ | 233,082 | | | $ | (6,441) | | | $ | 1,521,200 | | | $ | (26,892) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Less Than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| (In thousands) |
| Available-for-sale: | | | | | | | | | | | |
| U.S. government-sponsored enterprises | $ | 315,531 | | | $ | (3,056) | | | $ | 128,527 | | | $ | (20,153) | | | $ | 444,058 | | | $ | (23,209) | |
| Residential mortgage-backed securities | 817,351 | | | (54,025) | | | 717,587 | | | (157,428) | | | 1,534,938 | | | (211,453) | |
| Commercial mortgage-backed securities | 212,050 | | | (10,782) | | | 89,979 | | | (11,472) | | | 302,029 | | | (22,254) | |
| State and political subdivisions | 485,817 | | | (50,484) | | | 338,638 | | | (65,214) | | | 824,455 | | | (115,698) | |
| Other securities | 424,700 | | | (25,040) | | | 73,556 | | | (10,313) | | | 498,256 | | | (35,353) | |
| Total | $ | 2,255,449 | | | $ | (143,387) | | | $ | 1,348,287 | | | $ | (264,580) | | | $ | 3,603,736 | | | $ | (407,967) | |
| Held to maturity: | | | | | | | | | | | |
| U.S. government-sponsored enterprises | $ | 39,668 | | | $ | (3,349) | | | $ | — | | | $ | — | | | $ | 39,668 | | | $ | (3,349) | |
| Residential mortgage-backed securities | 40,892 | | | (1,205) | | | — | | | — | | | 40,892 | | | (1,205) | |
| Commercial mortgage-backed securities | 65,948 | | | (2,551) | | | — | | | — | | | 65,948 | | | (2,551) | |
| State and political subdivisions | 955,563 | | | (154,650) | | | — | | | — | | | 955,563 | | | (154,650) | |
| Total | $ | 1,102,071 | | | $ | (161,755) | | | $ | — | | | $ | — | | | $ | 1,102,071 | | | $ | (161,755) | |
Debt securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. The Company evaluates all securities quarterly to determine if any debt securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet thisthese 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.
premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. The Company recordedevaluates all securities quarterly to determine if any securities in a $2.0 millionloss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics. The 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 held-to-maturity investment securities duringconsolidated balance sheets. Changes in the second quarter of 2022allowance for credit losses are recorded as a result of the investment securities acquired as part of the Happy acquisition. Of the Company's held-to-maturity securities, $1.11 billion, or 88.7% are municipal securities. To estimate the necessary loss provision, the Company utilized historical default and recovery rates of the municipal bond sector and applied these rates using a pooling method. The remainder of investments classified as held-to-maturity are U.S government-sponsored enterprises and mortgage-backed securities all of which are guaranteed by the U.S. government. Due to the inherent low risk in these U.S. government guaranteed securities, no provision for (or reversal of) credit loss was established on this portionexpense. Losses are charged against the allowance when management believes the uncollectability of the portfolio.a security is confirmed.
At September 30, 2022,March 31, 2023, the Company determined that the allowance for credit losses of $842,000 resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio, and the $2.0 million allowance for credit losses for the held-to-maturity portfolio was also considered adequate. No additional provision for credit losses was considered necessary for the portfolio.
| | | | | | | | | | | |
| Available-for-Sale Investment Securities |
| September 30, 2022 | | December 31, 2021 |
| (In thousands) |
| Allowance for credit losses: | | | |
| Beginning balance | $ | 842 | | | $ | 842 | |
| Provision for credit loss | — | | | — | |
| Balance, September 30 | $ | 842 | | | $ | 842 | |
| Provision for credit loss | | | — | |
| Balance, December 31, 2021 | | | $ | 842 | |
| | | | | | | | | | | |
| Available-for-Sale Investment Securities |
| March 31, 2023 | | December 31, 2022 |
| (In thousands) |
| Allowance for credit losses: | | | |
| Beginning balance | $ | 842 | | | $ | 842 | |
| Provision for credit loss | — | | | — | |
| Balance, March 31 | $ | 842 | | | $ | 842 | |
| Provision for credit loss | | | — | |
| Balance, December 31, 2022 | | | $ | 842 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Held-to-Maturity Investment Securities |
| September 30, 2022March 31, 2023 | | December 31, 20212022 |
| State and Political Subdivisions | | Other Securities | | State and Political Subdivisions | | Other Securities |
| Allowance for credit losses: | (In thousands) |
| Beginning balance | $ | — (2,005) | | | $ | — | | | $ | — | | | $ | — | |
| Provision for credit loss - acquired securities | (2,005)— | | | — | | | — | | | — | |
| Securities charged-off | — | | | — | | | — | | | — | |
| Recoveries | — | | | — | | | — | | | — | |
Balance, September 30, 2022Ending balance, March 31 | $ | (2,005) | | | $ | — | | | $ | — | | | $ | — | |
| Provision for credit loss | | | | | (2,005) | | | — | |
| Balance, December 31, 2022 | | | | | $ | (2,005) | | | $ | — | |
For the ninethree months ended September 30, 2022,March 31, 2023, the Company had available-for-sale investment securities with approximately $207.4$316.9 million in unrealized losses, which have been in continuous loss positions for more than twelve months. The Company’s assessments indicated that the cause of the market depreciation was primarily due to the change in interest rates and not the issuer’s financial condition or downgrades by rating agencies.In addition, approximately 31.7%30.4% of the principal balance from the Company’s investment portfolio will mature or are expected to pay down within five years or less. As a result, the Company has the ability and intent to hold such securities until maturity.
As of September 30, 2022,March 31, 2023, the Company's available-for-sale securities portfolio consisted of 1,6591,621 investment securities, 1,4391,353 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $414.8$343.7 million.The U.S. government-sponsored enterprises portfolio contained unrealized losses of $23.0$18.3 million on 6364 securities. The residential mortgage-backed securities portfolio contained $207.3$175.9 million of unrealized losses on 592569 securities, and the commercial mortgage-backed securities portfolio contained $21.0$17.9 million of unrealized losses on 151141 securities. The state and political subdivisions portfolio contained $133.3$96.0 million of unrealized losses on 533468 securities. In addition, the other securities portfolio contained $30.1$35.6 million of unrealized losses on 100111 securities.The unrealized losses on the Company's investments were a result of interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value was attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company has determined that an additional provision for credit losses is not necessary as of September 30, 2022.
As of September 30, 2022,March 31, 2023, the Company's held-to-maturity securities portfolio consisted of 501506 investment securities, 487490 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $149.9$117.5 million. The U.S. government-sponsored enterprises portfolio contained unrealized losses of $3.1$2.1 million on 5 securities. The state and political subdivisions portfolio contained $145.2$114.0 million of unrealized losses on 477474 securities. The residential mortgage-backed securities portfolio contained 612,000435,000 of unrealized losses on 34 securities, and the commercial mortgage-backed securities portfolio contained 923,000$1.0 million of unrealized losses on 27 securities. The unrealized losses on the Company's investments were a result of interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value was attributable to changes in interest rates and not credit quality, the Company has determined that an additional provision for credit losses is not necessary as of September 30, 2022.March 31, 2023.
The following table summarizes bond ratings for the Company’s held-to-maturity portfolio, based upon amortized cost, issued by state and political subdivisions and other securities as of September 30, 2022:March 31, 2023:
| | | State and Political Subdivisions | | Other Securities | | Total | | State and Political Subdivisions | | Other Securities | | Total |
| | (In thousands) | | (In thousands) |
| Aaa/AAA | Aaa/AAA | $ | 233,398 | | | $ | 42,950 | | | $ | 276,348 | | Aaa/AAA | $ | 234,631 | | | $ | 43,082 | | | $ | 277,713 | |
| Aa/AA | Aa/AA | 846,155 | | | — | | | 846,155 | | Aa/AA | 847,644 | | | — | | | 847,644 | |
| A | A | 30,381 | | | — | | | 30,381 | | A | 27,611 | | | — | | | 27,611 | |
| Baa/BBB | — | | | — | | | — | | |
| | Not rated | Not rated | 1,598 | | | — | | | 1,598 | | Not rated | 1,529 | | | — | | | 1,529 | |
| Agency Backed | Agency Backed | — | | | 98,530 | | | 98,530 | | Agency Backed | — | | | 133,881 | | | 133,881 | |
| Total | Total | $ | 1,111,532 | | | $ | 141,480 | | | $ | 1,253,012 | | Total | $ | 1,111,415 | | | $ | 176,963 | | | $ | 1,288,378 | |
Income earned on securities for the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, is as follows:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
| | (In thousands) | | | | | | (In thousands) |
| Taxable | Taxable | | Taxable | |
| Available-for-sale | Available-for-sale | $ | 21,873 | | | $ | 8,495 | | | $ | 45,110 | | | $ | 21,933 | | Available-for-sale | $ | 27,798 | | | $ | 8,745 | |
| Held-to-maturity | Held-to-maturity | 6,400 | | | — | | | 13,184 | | | — | | Held-to-maturity | 7,490 | | | 335 | |
| Non-taxable | Non-taxable | | Non-taxable | |
| Available-for-sale | Available-for-sale | 5,002 | | | 4,839 | | | 14,461 | | | 14,815 | | Available-for-sale | 4,826 | | | 4,707 | |
| Held-to-maturity | Held-to-maturity | 3,067 | | | — | | | 6,040 | | | — | | Held-to-maturity | 3,137 | | | — | |
| Total | Total | $ | 36,342 | | | $ | 13,334 | | | $ | 78,795 | | | $ | 36,748 | | Total | $ | 43,251 | | | $ | 13,787 | |
4. Loans Receivable
The various categories of loans receivable are summarized as follows:
| | | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | | (In thousands) | | (In thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans | Commercial real estate loans | | Commercial real estate loans | |
| Non-farm/non-residential | Non-farm/non-residential | $ | 5,156,438 | | | $ | 3,889,284 | | Non-farm/non-residential | $ | 5,524,125 | | | $ | 5,632,063 | |
| Construction/land development | Construction/land development | 2,232,906 | | | 1,850,050 | | Construction/land development | 2,160,514 | | | 2,135,266 | |
| Agricultural | Agricultural | 330,748 | | | 130,674 | | Agricultural | 342,814 | | | 346,811 | |
| Residential real estate loans | Residential real estate loans | | Residential real estate loans | |
| Residential 1-4 family | Residential 1-4 family | 1,704,850 | | | 1,274,953 | | Residential 1-4 family | 1,748,231 | | | 1,748,551 | |
| Multifamily residential | Multifamily residential | 525,110 | | | 280,837 | | Multifamily residential | 637,633 | | | 578,052 | |
| Total real estate | Total real estate | 9,950,052 | | | 7,425,798 | | Total real estate | 10,413,317 | | | 10,440,743 | |
| Consumer | Consumer | 1,120,250 | | | 825,519 | | Consumer | 1,173,325 | | | 1,149,896 | |
| Commercial and industrial | Commercial and industrial | 2,268,750 | | | 1,386,747 | | Commercial and industrial | 2,368,428 | | | 2,349,263 | |
| Agricultural | Agricultural | 313,693 | | | 43,920 | | Agricultural | 250,851 | | | 285,235 | |
| Other | Other | 176,566 | | | 154,105 | | Other | 180,713 | | | 184,343 | |
| Total loans receivable | Total loans receivable | 13,829,311 | | | 9,836,089 | | Total loans receivable | 14,386,634 | | | 14,409,480 | |
| Allowance for credit losses | Allowance for credit losses | (289,203) | | | (236,714) | | Allowance for credit losses | (287,169) | | | (289,669) | |
| Loans receivable, net | Loans receivable, net | $ | 13,540,108 | | | $ | 9,599,375 | | Loans receivable, net | $ | 14,099,465 | | | $ | 14,119,811 | |
On April 1, 2022, the Company completed the acquisition
During the three months ended September 30, 2022,March 31, 2023, the Company sold $826,524 of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $58,000.During the nine months ended September 30, 2022, the Company sold $3.6$2.2 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $153,000.$139,000. During the three months ended September 30, 2021,March 31, 2022, the Company sold $3.9$2.8 million guaranteed portions of certain SBA loans, which resulted in a gain of $439,000. During the nine months ended September 30, 2021, the Company sold $15.0 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $1.6 million.$95,000.
Mortgage loans held for sale of approximately $86.7$103.7 million and $72.7$79.9 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, are included in residential 1-4 family loans. Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid. The Company obtains forward commitments to sell mortgage loans to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. The forward commitments acquired by the Company for mortgage loans in process of origination are considered mandatory forward commitments. Because these commitments are structured on a mandatory basis, the Company is required to substitute another loan or to buy back the commitment if the original loan does not fund. These commitments are derivative instruments and their fair values at September 30, 2022March 31, 2023 and December 31, 20212022 were not material.
Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment.credit losses. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses. The Company held approximately $146.0$136.2 million and $448,000$142.5 million in PCD loans, as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. This balance, as of September 30, 2022,March 31, 2023, consisted of $145.5$135.8 million resulting from the acquisition of Happy and $422,000$404,000 from the acquisition of LH-Finance.
A description of our accounting policies for loans, impaired loans and non-accrual loans are set forth in our 20212022 Form 10-K filed with the SEC on February 24, 2022.2023.
5. Allowance for Credit Losses, Credit Quality and Other
The Company uses the discounted cash flow (“DCF”) method to estimate expected losses for all of the Company’s loan pools. These pools are as follows: construction & land development; other commercial real estate; residential real estate; commercial & industrial; and consumer & other. The loan portfolio pools were selected in order to generally align with the loan categories specified in the quarterly call reports required to be filed with the Federal Financial Institutions Examination Council. For each of these loan pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.
Management qualitatively adjusts model results for risk factors ("Q-Factors") that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factors and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.
Each year management evaluates the performance of the selected models used in the CECL calculation through backtesting. Based on the results of the testing, management determines if the various models produced accurate results compared to the actual losses incurred for the current economic environment. Management then determines if changes to the input assumptions and economic factors would produce a stronger overall calculation that is more responsive to changes in economic conditions. The Company continues to use regression analysis to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default for the changes in the economic factors for the loss driver segments. Based on this analysis during the second quarter of 2022, management determined the previously selected economic factors for the various loss driver segments were appropriate and no changes were necessary. The identified loss drivers by segment are included below as of both September 30, 2022March 31, 2023 and December 31, 2021.2022.
| | | | | | | | |
|
| Loss Driver Segment | Call Report Segment(s) | Modeled Economic Factors |
| 1-4 Family Construction | 1a1 | National Unemployment (%) & Housing Price Index (%) |
| All Other Construction | 1a2 | National Unemployment (%) & Gross Domestic Product (%) |
| 1-4 Family Revolving HELOC & Junior Liens | 1c1 | National Unemployment (%) & Housing Price Index – CoreLogic (%) |
| 1-4 Family Revolving HELOC & Junior Liens | 1c2b | National Unemployment (%) & Gross Domestic Product (%) |
| 1-4 Family Senior Liens | 1c2a | National Unemployment (%) & Gross Domestic Product (%) |
| Multifamily | 1d | Rental Vacancy Rate (%) & Housing Price Index – Case-Schiller (%) |
| Owner Occupied CRE | 1e1 | National Unemployment (%) & Gross Domestic Product (%) |
| Non-Owner Occupied CRE | 1e2,1b,8 | National Unemployment (%) & Gross Domestic Product (%) |
| Commercial & Industrial, Agricultural, Non-Depository Financial Institutions, Purchase/Carry Securities, Other | 4a, 3, 9a, 9b1, 9b2, 10, Other | National Unemployment (%) & National Retail Sales (%) |
| Consumer Auto | 6c | National Unemployment (%) & National Retail Sales (%) |
| Other Consumer | 6b, 6d | National Unemployment (%) & National Retail Sales (%) |
| Other Consumer - SPF | 6d | National Unemployment (%) |
For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.
The combination of adjustments for credit expectations (default and loss) and time expectations prepayment,(prepayment, curtailment, and time to recoveryrecovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.
Construction/Land Development and Other Commercial Real Estate Loans. We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized (where defined) over a 15 to 30 year period with balloon payments due at the end of one to five years. These loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis.
Residential Real Estate Loans. We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas. Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to many factors including the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.
Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally, accounts receivable are financed at between 50% and 80% of accounts receivable less than 60 days past due. Inventory financing will range between 50% and 80% (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans.
Consumer & Other Loans. Our consumer & other loans are primarily composed of loans to finance USCG registered high-end sail and power boats. The performance of consumer & other loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.
Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit loss on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The Company uses the DCF method to estimate expected losses for all of the Company’s off-balance sheet credit exposures through the use of the existing DCF models for the Company’s loan portfolio pools. The off-balance sheet credit exposures exhibit similar risk characteristics as loans currently in the Company’s loan portfolio.
ASC 326 requires that bothDuring the period ended March 31, 2023, the Company recorded a discount and an allowance$1.2 million provision for credit losses be recorded on loans during an acquisition. Theloans. However, the Company determined that no additional provision was necessary for unfunded commitments as the current level of the reserve was considered adequate.
During the year ended December 31, 2022, the Company completed the acquisition of Happy on April 1, 2022.Happy. As a result, the Company recorded $4.4 million in net loan discounts and a $16.8 million increase in the allowance for credit losses related to PCD loans. In addition, the Company recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count" and an $11.4 million provision for credit losses on acquired unfunded commitments.
the reserve was considered adequate. The following table presents the activity in the allowance for credit losses for the three and nine months ended September 30, 2022:March 31, 2023:
| | | Three Months Ended September 30, 2022 | | Three Months Ended March 31, 2023 |
| | Construction/
Land
Development | | Other
Commercial
Real Estate | | Residential
Real Estate | | Commercial
& Industrial | | Consumer
& Other | | Total | | Construction/
Land
Development | | Other
Commercial
Real Estate | | Residential
Real Estate | | Commercial
& Industrial | | Consumer
& Other | | Total |
| | (In thousands) | | (In thousands) |
| Allowance for credit losses: | Allowance for credit losses: | | Allowance for credit losses: | |
| Beginning balance | Beginning balance | $ | 36,689 | | | $ | 115,195 | | | $ | 51,146 | | | $ | 68,309 | | | $ | 22,928 | | | $ | 294,267 | | Beginning balance | $ | 32,243 | | | $ | 93,848 | | | $ | 50,963 | | | $ | 89,354 | | | $ | 23,261 | | | $ | 289,669 | |
| | Loans charged off | Loans charged off | (11) | | | — | | | (48) | | | (4,536) | | | (1,718) | | | (6,313) | | Loans charged off | (25) | | | (73) | | | (59) | | | (3,006) | | | (1,125) | | | (4,288) | |
Recoveries of loans previously charged off | Recoveries of loans previously charged off | 8 | | | 778 | | | 45 | | | 189 | | | 229 | | | 1,249 | | Recoveries of loans previously charged off | 7 | | | 19 | | | 126 | | | 109 | | | 327 | | | 588 | |
| Net loans recovered (charged off) | Net loans recovered (charged off) | (3) | | | 778 | | | (3) | | | (4,347) | | | (1,489) | | | (5,064) | | Net loans recovered (charged off) | (18) | | | (54) | | | 67 | | | (2,897) | | | (798) | | | (3,700) | |
| | Provision for credit losses | Provision for credit losses | (1,999) | | | (23,560) | | | (1,322) | | | 25,459 | | | 1,422 | | | — | | Provision for credit losses | (1,053) | | | (6,816) | | | 403 | | | 5,939 | | | 2,727 | | | 1,200 | |
| Balance, September 30 | $ | 34,687 | | | $ | 92,413 | | | $ | 49,821 | | | $ | 89,421 | | | $ | 22,861 | | | $ | 289,203 | | |
| Balance, March 31 | | Balance, March 31 | $ | 31,172 | | | $ | 86,978 | | | $ | 51,433 | | | $ | 92,396 | | | $ | 25,190 | | | $ | 287,169 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| Construction/ Land Development | | Other Commercial Real Estate | | Residential Real Estate | | Commercial & Industrial | | Consumer & Other | | Total |
| (In thousands) |
| Allowance for credit losses: | | | | | | | | | | | |
| Beginning balance | $ | 28,415 | | | $ | 87,218 | | | $ | 48,458 | | | $ | 53,062 | | | $ | 19,561 | | | $ | 236,714 | |
| Allowance for credit losses on PCD loans - Happy acquisition | 950 | | | 9,283 | | | 980 | | | 5,596 | | | 7 | | | 16,816 | |
| Loans charged off | (11) | | | — | | | (337) | | | (5,952) | | | (5,588) | | | (11,888) | |
Recoveries of loans previously charged off | 325 | | | 856 | | | 94 | | | 519 | | | 597 | | | 2,391 | |
| Net loans recovered (charged off) | 314 | | | 856 | | | (243) | | | (5,433) | | | (4,991) | | | (9,497) | |
| Provision for credit losses - acquired loans | 7,205 | | | 18,711 | | | 7,380 | | | 11,303 | | | 571 | | | 45,170 | |
| Provision for credit losses | (2,197) | | | (23,655) | | | (6,754) | | | 24,893 | | | 7,713 | | | — | |
| Balance, September 30 | $ | 34,687 | | | $ | 92,413 | | | $ | 49,821 | | | $ | 89,421 | | | $ | 22,861 | | | $ | 289,203 | |
The following table presents the activity in the allowance for credit losses for the three and nine-monthsmonths ended September 30, 2021March 31, 2022 and the year ended December 31, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| Construction/ Land Development | | Other Commercial Real Estate | | Residential Real Estate | | Commercial & Industrial | | Consumer & Other | | Total |
| (In thousands) |
| Allowance for credit losses: | | | | | | | | | | | |
| Beginning balance | $ | 22,145 | | | $ | 93,127 | | | $ | 51,182 | | | $ | 52,282 | | | $ | 21,715 | | | $ | 240,451 | |
| Loans charged off | — | | | (9) | | | (220) | | | (1,682) | | | (558) | | | (2,469) | |
Recoveries of loans previously charged off | 8 | | | 44 | | | 388 | | | 80 | | | 171 | | | 691 | |
| Net loans recovered (charged off) | 8 | | | 35 | | | 168 | | | (1,602) | | | (387) | | | (1,778) | |
| Provision for credit losses | 3,830 | | | (4,664) | | | (447) | | | 1,922 | | | (641) | | | — | |
| Balance, September 30 | $ | 25,983 | | | $ | 88,498 | | | $ | 50,903 | | | $ | 52,602 | | | $ | 20,687 | | | $ | 238,673 | |
| | | Nine Months Ended September 30, 2021 and Year Ended December 31, 2021 | | Three Months Ended March 31, 2022 and Year Ended December 31, 2022 |
| | Construction/
Land
Development | | Other
Commercial
Real Estate | | Residential
Real Estate | | Commercial & Industrial | | Consumer
& Other | | Total | | Construction/
Land
Development | | Other
Commercial
Real Estate | | Residential
Real Estate | | Commercial & Industrial | | Consumer
& Other | | Total |
| | (In thousands) | | (In thousands) |
| Allowance for credit losses: | Allowance for credit losses: | | Allowance for credit losses: | |
| Beginning balance | Beginning balance | $ | 32,861 | | | $ | 88,453 | | | $ | 53,216 | | | $ | 46,530 | | | $ | 24,413 | | | $ | 245,473 | | Beginning balance | $ | 28,415 | | | $ | 87,218 | | | $ | 48,458 | | | $ | 53,062 | | | $ | 19,561 | | | $ | 236,714 | |
| Loans charged off | Loans charged off | — | | | (646) | | | (543) | | | (5,892) | | | (1,458) | | | (8,539) | | Loans charged off | — | | | — | | | (250) | | | (1,416) | | | (644) | | | (2,310) | |
Recoveries of loans previously charged off | Recoveries of loans previously charged off | 47 | | | 112 | | | 554 | | | 382 | | | 644 | | | 1,739 | | Recoveries of loans previously charged off | 15 | | | 26 | | | 26 | | | 109 | | | 188 | | | 364 | |
| Net loans recovered (charged off) | Net loans recovered (charged off) | 47 | | | (534) | | | 11 | | | (5,510) | | | (814) | | | (6,800) | | Net loans recovered (charged off) | 15 | | | 26 | | | (224) | | | (1,307) | | | (456) | | | (1,946) | |
| Provision for credit loss - loans | Provision for credit loss - loans | (6,925) | | | 579 | | | (2,324) | | | 11,582 | | | (2,912) | | | — | | Provision for credit loss - loans | (2,081) | | | 8,632 | | | (11,123) | | | 737 | | | 3,835 | | | — | |
| Balance, September 30 | 25,983 | | | 88,498 | | | 50,903 | | | 52,602 | | | 20,687 | | | 238,673 | | |
| Balance, March 31 | | Balance, March 31 | 26,349 | | | 95,876 | | | 37,111 | | | 52,492 | | | 22,940 | | | 234,768 | |
| Allowance for credit losses on PCD loans | | Allowance for credit losses on PCD loans | 950 | | | 9,283 | | | 980 | | | 5,596 | | | 7 | | | 16,816 | |
| Loans charged off | Loans charged off | — | | | — | | | (2) | | | (2,350) | | | (770) | | | (3,122) | | Loans charged off | (1) | | | — | | | (196) | | | (8,357) | | | (6,403) | | | (14,957) | |
Recoveries of loans previously charged off | Recoveries of loans previously charged off | 11 | | | 673 | | | 129 | | | 209 | | | 141 | | | 1,163 | | Recoveries of loans previously charged off | 390 | | | 941 | | | 93 | | | 671 | | | 777 | | | 2,872 | |
| Net loans recovered (charged off) | Net loans recovered (charged off) | 11 | | | 673 | | | 127 | | | (2,141) | | | (629) | | | (1,959) | | Net loans recovered (charged off) | 389 | | | 941 | | | (103) | | | (7,686) | | | (5,626) | | | (12,085) | |
| Provision for credit loss - acquired loans | | Provision for credit loss - acquired loans | 7,205 | | | 18,711 | | | 7,380 | | | 11,303 | | | 571 | | | 45,170 | |
| Provision for credit loss - loans | Provision for credit loss - loans | 2,421 | | | (1,953) | | | (2,572) | | | 2,601 | | | (497) | | | — | | Provision for credit loss - loans | (2,650) | | | (30,963) | | | 5,595 | | | 27,649 | | | 5,369 | | | 5,000 | |
| Balance, December 31 | Balance, December 31 | $ | 28,415 | | | $ | 87,218 | | | $ | 48,458 | | | $ | 53,062 | | | $ | 19,561 | | | $ | 236,714 | | Balance, December 31 | $ | 32,243 | | | $ | 93,848 | | | $ | 50,963 | | | $ | 89,354 | | | $ | 23,261 | | | $ | 289,669 | |
The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing as of September 30, 2022March 31, 2023 and December 31, 2021:2022:
| | | September 30, 2022 | | March 31, 2023 |
| | Nonaccrual | | Nonaccrual
with Reserve | | Loans Past Due
Over 90 Days
Still Accruing | | Nonaccrual | | Nonaccrual
with Reserve | | Loans Past Due
Over 90 Days
Still Accruing |
| | (In thousands) | | (In thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans | Commercial real estate loans | | Commercial real estate loans | |
| Non-farm/non-residential | Non-farm/non-residential | $ | 18,621 | | | $ | 8,341 | | | $ | 290 | | Non-farm/non-residential | $ | 14,002 | | | $ | 8,383 | | | $ | 3,046 | |
| Construction/land development | Construction/land development | 1,895 | | | — | | | 34 | | Construction/land development | 4,555 | | | — | | | 6 | |
| Agricultural | Agricultural | 772 | | | — | | | — | | Agricultural | 463 | | | — | | | — | |
| Residential real estate loans | Residential real estate loans | | Residential real estate loans | |
| Residential 1-4 family | Residential 1-4 family | 16,549 | | | — | | | 1,445 | | Residential 1-4 family | 18,319 | | | — | | | 367 | |
| Multifamily residential | Multifamily residential | 156 | | | — | | | — | | Multifamily residential | — | | | — | | | — | |
| Total real estate | Total real estate | 37,993 | | | 8,341 | | | 1,769 | | Total real estate | 37,339 | | | 8,383 | | | 3,419 | |
| Consumer | Consumer | 1,778 | | | — | | | 15 | | Consumer | 2,733 | | | — | | | 23 | |
| Commercial and industrial | Commercial and industrial | 16,431 | | | — | | | 2,901 | | Commercial and industrial | 24,123 | | | — | | | 4,884 | |
| Agricultural & other | Agricultural & other | 594 | | | — | | | 213 | | Agricultural & other | 1,206 | | | — | | | 241 | |
| Total | Total | $ | 56,796 | | | $ | 8,341 | | | $ | 4,898 | | Total | $ | 65,401 | | | $ | 8,383 | | | $ | 8,567 | |
| | | | December 31, 2021 | | December 31, 2022 |
| | Nonaccrual | | Nonaccrual
with Reserve | | Loans Past Due
Over 90 Days
Still Accruing | | Nonaccrual | | Nonaccrual
with Reserve | | Loans Past Due
Over 90 Days
Still Accruing |
| | (In thousands) | | (In thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans | Commercial real estate loans | | Commercial real estate loans | |
| Non-farm/non-residential | Non-farm/non-residential | $ | 11,923 | | | $ | 2,212 | | | $ | 2,225 | | Non-farm/non-residential | $ | 12,219 | | | $ | 8,383 | | | $ | 1,844 | |
| Construction/land development | Construction/land development | 1,445 | | | — | | | — | | Construction/land development | 1,977 | | | — | | | 31 | |
| Agricultural | Agricultural | 897 | | | — | | | — | | Agricultural | 278 | | | — | | | — | |
| Residential real estate loans | Residential real estate loans | | Residential real estate loans | |
| Residential 1-4 family | Residential 1-4 family | 16,198 | | | 3,000 | | | 701 | | Residential 1-4 family | 18,083 | | | — | | | 1,374 | |
| Multifamily residential | Multifamily residential | 156 | | | — | | | — | | Multifamily residential | — | | | — | | | — | |
| Total real estate | Total real estate | 30,619 | | | 5,212 | | | 2,926 | | Total real estate | 32,557 | | | 8,383 | | | 3,249 | |
| Consumer | Consumer | 1,648 | | | — | | | 2 | | Consumer | 2,842 | | | — | | | 35 | |
| Commercial and industrial | Commercial and industrial | 13,875 | | | 4,018 | | | 107 | | Commercial and industrial | 14,920 | | | — | | | 6,300 | |
| Agricultural & other | Agricultural & other | 1,016 | | | — | | | — | | Agricultural & other | 692 | | | — | | | 261 | |
| Total | Total | $ | 47,158 | | | $ | 9,230 | | | $ | 3,035 | | Total | $ | 51,011 | | | $ | 8,383 | | | $ | 9,845 | |
The Company had $56.8$65.4 millionand $47.2$51.0 million in nonaccrual loans for the periods ended September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. In addition, the Company had$4.9 $8.6 million and $3.0$9.8 million in loans past due 90 days or more and still accruing for the periods ended September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
The Company had $8.3 million and $9.2$8.4 million in nonaccrual loans with a specific reserve as of September 30, 2022both March 31, 2023 and December 31, 2021, respectively.2022. The Company did not recognize any interest income on nonaccrual loans during the period ended September 30, 2022March 31, 2023 or September 30, 2021.March 31, 2022.
The following table presents the amortized cost basis of collateral-dependent 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) by class of loans as of September 30, 2022March 31, 2023 and December 31, 2021:2022:
| | | September 30, 2022 | | March 31, 2023 |
| | Commercial
Real Estate | | Residential
Real Estate | | Other | | Commercial
Real Estate | | Residential
Real Estate | | Other |
| | (In thousands) | | (In thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans | Commercial real estate loans | | Commercial real estate loans | |
| Non-farm/non-residential | Non-farm/non-residential | $ | 168,432 | | | $ | — | | | $ | — | | Non-farm/non-residential | $ | 132,105 | | | $ | — | | | $ | — | |
| Construction/land development | Construction/land development | 1,928 | | | — | | | — | | Construction/land development | 4,560 | | | — | | | — | |
| Agricultural | Agricultural | 772 | | | — | | | — | | Agricultural | 463 | | | — | | | — | |
| Residential real estate loans | Residential real estate loans | | Residential real estate loans | |
| Residential 1-4 family | Residential 1-4 family | — | | | 19,268 | | | — | | Residential 1-4 family | — | | | 18,976 | | | — | |
| Multifamily residential | Multifamily residential | — | | | 4,275 | | | — | | Multifamily residential | — | | | 926 | | | — | |
| Total real estate | Total real estate | 171,132 | | | 23,543 | | | — | | Total real estate | 137,128 | | | 19,902 | | | — | |
| Consumer | Consumer | — | | | — | | | 1,804 | | Consumer | — | | | — | | | 2,767 | |
| Commercial and industrial | Commercial and industrial | — | | | — | | | 31,631 | | Commercial and industrial | — | | | — | | | 34,310 | |
| Agricultural & other | Agricultural & other | — | | | — | | | 1,229 | | Agricultural & other | — | | | — | | | 1,446 | |
| Total | Total | $ | 171,132 | | | $ | 23,543 | | | $ | 34,664 | | Total | $ | 137,128 | | | $ | 19,902 | | | $ | 38,523 | |
| | | | December 31, 2021 | | December 31, 2022 |
| | Commercial
Real Estate | | Residential
Real Estate | | Other | | Commercial
Real Estate | | Residential
Real Estate | | Other |
| | (In thousands) | | (In thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans | Commercial real estate loans | | Commercial real estate loans | |
| Non-farm/non-residential | Non-farm/non-residential | $ | 283,919 | | | $ | — | | | $ | — | | Non-farm/non-residential | $ | 162,268 | | | $ | — | | | $ | — | |
| Construction/land development | Construction/land development | 4,775 | | | — | | | — | | Construction/land development | 2,008 | | | — | | | — | |
| Agricultural | Agricultural | 897 | | | — | | | — | | Agricultural | 278 | | | — | | | — | |
| Residential real estate loans | Residential real estate loans | | Residential real estate loans | |
| Residential 1-4 family | Residential 1-4 family | — | | | 19,775 | | | — | | Residential 1-4 family | — | | | 20,832 | | | — | |
| Multifamily residential | Multifamily residential | — | | | 1,300 | | | — | | Multifamily residential | — | | | 969 | | | — | |
| Total real estate | Total real estate | 289,591 | | | 21,075 | | | — | | Total real estate | 164,554 | | | 21,801 | | | — | |
| Consumer | Consumer | — | | | — | | | 1,663 | | Consumer | — | | | — | | | 2,888 | |
| Commercial and industrial | Commercial and industrial | — | | | — | | | 18,193 | | Commercial and industrial | — | | | — | | | 30,334 | |
| Agricultural & other | Agricultural & other | — | | | — | | | 1,016 | | Agricultural & other | — | | | — | | | 1,527 | |
| Total | Total | $ | 289,591 | | | $ | 21,075 | | | $ | 20,872 | | Total | $ | 164,554 | | | $ | 21,801 | | | $ | 34,749 | |
The Company had $229.3$195.6 million and $331.5$221.1 million in collateral-dependent impaired loans for the periods ended September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
Loans that do not share risk characteristics are evaluated on an individual basis. For collateral-dependent impairedthese loans, excluding assisted living loans which are evaluated using a market price valuation methodology, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral, 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. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the fair value of the underlying collateral less estimated costs to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan.
The following is an aging analysis for loans receivable as of September 30, 2022March 31, 2023 and December 31, 2021:2022:
| | | September 30, 2022 | | March 31, 2023 |
| | Loans
Past Due
30-59 Days | | Loans
Past Due
60-89 Days | | Loans
Past Due
90 Days
or More | | Total
Past Due | | Current
Loans | | Total
Loans
Receivable | | Accruing
Loans
Past Due
90 Days
or More | | Loans
Past Due
30-59 Days | | Loans
Past Due
60-89 Days | | Loans
Past Due
90 Days
or More | | Total
Past Due | | Current
Loans | | Total
Loans
Receivable | | Accruing
Loans
Past Due
90 Days
or More |
| | (In thousands) | | (In thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans | Commercial real estate loans | | Commercial real estate loans | |
| Non-farm/non-residential | Non-farm/non-residential | $ | 16,357 | | | $ | 2,084 | | | $ | 18,911 | | | $ | 37,352 | | | $ | 5,119,086 | | | $ | 5,156,438 | | | $ | 290 | | Non-farm/non-residential | $ | 31,407 | | | $ | 3,628 | | | $ | 17,048 | | | $ | 52,083 | | | $ | 5,472,042 | | | $ | 5,524,125 | | | $ | 3,046 | |
| Construction/land development | Construction/land development | 745 | | | 226 | | | 1,929 | | | 2,900 | | | 2,230,006 | | | 2,232,906 | | | 34 | | Construction/land development | 1,372 | | | — | | | 4,561 | | | 5,933 | | | 2,154,581 | | | 2,160,514 | | | 6 | |
| Agricultural | Agricultural | 169 | | | 331 | | | 772 | | | 1,272 | | | 329,476 | | | 330,748 | | | — | | Agricultural | — | | | 52 | | | 463 | | | 515 | | | 342,299 | | | 342,814 | | | — | |
| Residential real estate loans | Residential real estate loans | | Residential real estate loans | |
| Residential 1-4 family | Residential 1-4 family | 2,583 | | | 6,296 | | | 17,994 | | | 26,873 | | | 1,677,977 | | | 1,704,850 | | | 1,445 | | Residential 1-4 family | 6,149 | | | 330 | | | 18,686 | | | 25,165 | | | 1,723,066 | | | 1,748,231 | | | 367 | |
| Multifamily residential | Multifamily residential | 738 | | | — | | | 156 | | | 894 | | | 524,216 | | | 525,110 | | | — | | Multifamily residential | 476 | | | — | | | — | | | 476 | | | 637,157 | | | 637,633 | | | — | |
| Total real estate | Total real estate | 20,592 | | | 8,937 | | | 39,762 | | | 69,291 | | | 9,880,761 | | | 9,950,052 | | | 1,769 | | Total real estate | 39,404 | | | 4,010 | | | 40,758 | | | 84,172 | | | 10,329,145 | | | 10,413,317 | | | 3,419 | |
| Consumer | Consumer | 1,528 | | | 222 | | | 1,793 | | | 3,543 | | | 1,116,707 | | | 1,120,250 | | | 15 | | Consumer | 641 | | | 27 | | | 2,756 | | | 3,424 | | | 1,169,901 | | | 1,173,325 | | | 23 | |
| Commercial and industrial | Commercial and industrial | 4,199 | | | 5,209 | | | 19,332 | | | 28,740 | | | 2,240,010 | | | 2,268,750 | | | 2,901 | | Commercial and industrial | 1,637 | | | 1,096 | | | 29,007 | | | 31,740 | | | 2,336,688 | | | 2,368,428 | | | 4,884 | |
| Agricultural & other | Agricultural & other | 1,864 | | | 42 | | | 807 | | | 2,713 | | | 487,546 | | | 490,259 | | | 213 | | Agricultural & other | 623 | | | 22 | | | 1,447 | | | 2,092 | | | 429,472 | | | 431,564 | | | 241 | |
| Total | Total | $ | 28,183�� | | | $ | 14,410 | | | $ | 61,694 | | | $ | 104,287 | | | $ | 13,725,024 | | | $ | 13,829,311 | | | $ | 4,898 | | Total | $ | 42,305 | | | $ | 5,155 | | | $ | 73,968 | | | $ | 121,428 | | | $ | 14,265,206 | | | $ | 14,386,634 | | | $ | 8,567 | |
| | | December 31, 2021 | | December 31, 2022 |
| | Loans
Past Due
30-59 Days | | Loans
Past Due
60-89 Days | | Loans
Past Due
90 Days
or More | | Total
Past Due | | Current
Loans | | Total
Loans
Receivable | | Accruing
Loans
Past Due
90 Days
or More | | Loans
Past Due
30-59 Days | | Loans
Past Due
60-89 Days | | Loans
Past Due
90 Days
or More | | Total
Past Due | | Current
Loans | | Total
Loans
Receivable | | Accruing
Loans
Past Due
90 Days
or More |
| | (In thousands) | | (In thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans | Commercial real estate loans | | Commercial real estate loans | |
| Non-farm/non-residential | Non-farm/non-residential | $ | 1,434 | | | $ | 576 | | | $ | 14,148 | | | $ | 16,158 | | | $ | 3,873,126 | | | $ | 3,889,284 | | | $ | 2,225 | | Non-farm/non-residential | $ | 4,242 | | | $ | 2,117 | | | $ | 14,063 | | | $ | 20,422 | | | $ | 5,611,641 | | | $ | 5,632,063 | | | $ | 1,844 | |
| Construction/land development | Construction/land development | 92 | | | 22 | | | 1,445 | | | 1,559 | | | 1,848,491 | | | 1,850,050 | | | — | | Construction/land development | 4,042 | | | 1,892 | | | 2,008 | | | 7,942 | | | 2,127,324 | | | 2,135,266 | | | 31 | |
| Agricultural | Agricultural | — | | | 472 | | | 897 | | | 1,369 | | | 129,305 | | | 130,674 | | | — | | Agricultural | 1,469 | | | 193 | | | 278 | | | 1,940 | | | 344,871 | | | 346,811 | | | — | |
| Residential real estate loans | Residential real estate loans | | Residential real estate loans | |
| Residential 1-4 family | Residential 1-4 family | 1,633 | | | 3,560 | | | 16,899 | | | 22,092 | | | 1,252,861 | | | 1,274,953 | | | 701 | | Residential 1-4 family | 6,715 | | | 605 | | | 19,457 | | | 26,777 | | | 1,721,774 | | | 1,748,551 | | | 1,374 | |
| Multifamily residential | Multifamily residential | — | | | — | | | 156 | | | 156 | | | 280,681 | | | 280,837 | | | — | | Multifamily residential | — | | | — | | | — | | | — | | | 578,052 | | | 578,052 | | | — | |
| Total real estate | Total real estate | 3,159 | | | 4,630 | | | 33,545 | | | 41,334 | | | 7,384,464 | | | 7,425,798 | | | 2,926 | | Total real estate | 16,468 | | | 4,807 | | | 35,806 | | | 57,081 | | | 10,383,662 | | | 10,440,743 | | | 3,249 | |
| Consumer | Consumer | 60 | | | 205 | | | 1,650 | | | 1,915 | | | 823,604 | | | 825,519 | | | 2 | | Consumer | 950 | | | 539 | | | 2,877 | | | 4,366 | | | 1,145,530 | | | 1,149,896 | | | 35 | |
| Commercial and industrial | Commercial and industrial | 958 | | | 316 | | | 13,982 | | | 15,256 | | | 1,371,491 | | | 1,386,747 | | | 107 | | Commercial and industrial | 3,007 | | | 1,075 | | | 21,220 | | | 25,302 | | | 2,323,961 | | | 2,349,263 | | | 6,300 | |
| Agricultural and other | Agricultural and other | 587 | | | 2 | | | 1,016 | | | 1,605 | | | 196,420 | | | 198,025 | | | — | | Agricultural and other | 1,065 | | | 57 | | | 953 | | | 2,075 | | | 467,503 | | | 469,578 | | | 261 | |
| Total | Total | $ | 4,764 | | | $ | 5,153 | | | $ | 50,193 | | | $ | 60,110 | | | $ | 9,775,979 | | | $ | 9,836,089 | | | $ | 3,035 | | Total | $ | 21,490 | | | $ | 6,478 | | | $ | 60,856 | | | $ | 88,824 | | | $ | 14,320,656 | | | $ | 14,409,480 | | | $ | 9,845 | |
Non-accruing loans at September 30, 2022March 31, 2023 and December 31, 20212022 were $56.8$65.4 millionand $47.2$51.0 million, respectively.
Interest recognized on impaired loans including those loans with a specific reserve, during the three and nine months ended September 30, 2022March 31, 2023 was approximately $2.8 million and $8.2 million, respectively.$1.8 million. Interest recognized on impaired loans including those loans with a specific reserve, during the three and nine months ended September 30, 2021March 31, 2022 was approximately $3.3 million and $9.8 million, respectively.$3.5 million. The amount of interest recognized on impaired loans on the cash basis is not materially different than the accrual basis.
Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk rating of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans and (v) the general economic conditions in Arkansas, Florida, Texas, Alabama and New York.
The Company utilizes a risk rating matrix to assign a risk rating to each of its loans. Loans are rated on a scale from 1 to 8. Descriptions of the general characteristics of the 8 risk ratings are as follows:
•Risk rating 1 – Excellent. Loans in this category are to persons or entities of unquestionable financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by bank certificates of deposit and savings accounts, with appropriate holds placed on the accounts, are to be rated in this category.
•Risk rating 2 – Good. These are loans to persons or entities with strong financial condition and above-average liquidity that have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements and on which repayment is satisfactory may be included in this classification.
•Risk rating 3 – Satisfactory. Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are included in this rating category. Overall, these loans are basically sound.
•Risk rating 4 – Watch. Borrowers who have marginal cash flow, marginal profitability or have experienced an unprofitable year and a declining financial condition characterize these loans. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure.
•Risk rating 5 – Other Loans Especially Mentioned (“OLEM”). A loan criticized as OLEM has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. OLEM assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.
•Risk rating 6 – Substandard. A loan classified as substandard is inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual assets.
•Risk rating 7 – Doubtful. A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the loan.
•Risk rating 8 – Loss. Assets classified as loss are considered uncollectible and of such little value that the continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may occur in the future. This classification is based upon current facts, not probabilities. Assets classified as loss should be charged-off in the period in which they became uncollectible.
The Company’s classified loans include loans in risk ratings 6, 7 and 8. Loans may be classified, but not considered impaired,collateral dependent, due to one of the following reasons: (1) The Company has established minimum dollar amount thresholds for loan impairmentcredit loss testing. All loans over $2.0 million that are rated 5 – 8 are individually assessed for impairmentcredit losses on a quarterly basis. Loans rated 5 – 8 that fall under the threshold amount are not individually tested for impairmentcredit losses and therefore are not included in impairedcollateral dependent loans; (2) of the loans that are above the threshold amount and tested for impairment,credit losses after testing, some are considered to not be impairedcollateral dependent and are not included in impairedcollateral dependent loans.
Based on the most recent analysis performed, the risk category of loans by class of loans as of September 30, 2022March 31, 2023 and December 31, 20212022 is as follows:
| | | September 30, 2022 | | March 31, 2023 |
| | Term Loans Amortized Cost Basis by Origination Year | | | Term Loans Amortized Cost Basis by Origination Year | |
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans Amortized Cost Basis | | Total | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| | (In thousands) | | (In thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans | Commercial real estate loans | | Commercial real estate loans | |
| Non-farm/non-residential | Non-farm/non-residential | | Non-farm/non-residential | |
| Risk rating 1 | Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | 239 | | | $ | — | | | $ | 154 | | | $ | — | | | $ | 393 | | Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 236 | | | $ | 128 | | | $ | 55 | | | $ | 419 | |
| Risk rating 2 | Risk rating 2 | — | | | — | | | — | | | 120 | | | — | | | 4,096 | | | — | | | 4,216 | | Risk rating 2 | — | | | — | | | — | | | — | | | 116 | | | 3,897 | | | — | | | 4,013 | |
| Risk rating 3 | Risk rating 3 | 326,768 | | | 520,983 | | | 273,891 | | | 261,599 | | | 338,921 | | | 901,012 | | | 193,296 | | | 2,816,470 | | Risk rating 3 | 49,805 | | | 609,299 | | | 589,161 | | | 254,728 | | | 264,382 | | | 1,133,831 | | | 368,390 | | | 3,269,596 | |
| Risk rating 4 | Risk rating 4 | 300,030 | | | 335,119 | | | 230,462 | | | 162,360 | | | 334,828 | | | 428,104 | | | 174,325 | | | 1,965,228 | | Risk rating 4 | 7,428 | | | 455,941 | | | 249,424 | | | 234,679 | | | 156,170 | | | 750,670 | | | 100,479 | | | 1,954,791 | |
| Risk rating 5 | Risk rating 5 | 1,895 | | | — | | | 4,890 | | | 14,558 | | | 36,406 | | | 218,232 | | | 95 | | | 276,076 | | Risk rating 5 | — | | | 7,979 | | | 750 | | | 1,201 | | | 14,271 | | | 68,935 | | | 768 | | | 93,904 | |
| Risk rating 6 | Risk rating 6 | 876 | | | 196 | | | 10,394 | | | 27,350 | | | 5,575 | | | 49,405 | | | 112 | | | 93,908 | | Risk rating 6 | — | | | 650 | | | 181 | | | 16,228 | | | 26,493 | | | 155,844 | | | 636 | | | 200,032 | |
| Risk rating 7 | Risk rating 7 | 147 | | | — | | | — | | | — | | | — | | | — | | | — | | | 147 | | Risk rating 7 | — | | | 117 | | | — | | | — | | | — | | | 1,253 | | | — | | | 1,370 | |
| Risk rating 8 | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total non-farm/non-residential | Total non-farm/non-residential | 629,716 | | | 856,298 | | | 519,637 | | | 466,226 | | | 715,730 | | | 1,601,003 | | | 367,828 | | | 5,156,438 | | Total non-farm/non-residential | 57,233 | | | 1,073,986 | | | 839,516 | | | 506,836 | | | 461,668 | | | 2,114,558 | | | 470,328 | | | 5,524,125 | |
| Construction/land development | Construction/land development | | Construction/land development | |
| Risk rating 1 | Risk rating 1 | $ | — | | | $ | 12 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 12 | | Risk rating 1 | $ | — | | | $ | — | | | $ | 11 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 11 | |
| Risk rating 2 | Risk rating 2 | 682 | | | — | | | — | | | — | | | — | | | 216 | | | — | | | 898 | | Risk rating 2 | 98 | | | 392 | | | — | | | — | | | — | | | 204 | | | — | | | 694 | |
| Risk rating 3 | Risk rating 3 | 336,055 | | | 303,919 | | | 108,525 | | | 97,837 | | | 22,763 | | | 37,966 | | | 126,452 | | | 1,033,517 | | Risk rating 3 | 82,561 | | | 473,350 | | | 248,405 | | | 81,144 | | | 48,000 | | | 50,803 | | | 77,279 | | | 1,061,542 | |
| Risk rating 4 | Risk rating 4 | 404,746 | | | 498,212 | | | 125,985 | | | 78,634 | | | 14,272 | | | 45,042 | | | 20,652 | | | 1,187,543 | | Risk rating 4 | 6,229 | | | 383,970 | | | 448,309 | | | 50,117 | | | 35,213 | | | 27,504 | | | 135,529 | | | 1,086,871 | |
| Risk rating 5 | Risk rating 5 | 1,761 | | | — | | | — | | | 332 | | | — | | | 1,164 | | | — | | | 3,257 | | Risk rating 5 | — | | | — | | | — | | | — | | | 287 | | | 1,193 | | | — | | | 1,480 | |
| Risk rating 6 | Risk rating 6 | — | | | 14 | | | 125 | | | 755 | | | 709 | | | 6,076 | | | — | | | 7,679 | | Risk rating 6 | — | | | 1,018 | | | 1,306 | | | 1,230 | | | 842 | | | 5,520 | | | — | | | 9,916 | |
| Risk rating 7 | Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total construction/land development | Total construction/land development | 743,244 | | | 802,157 | | | 234,635 | | | 177,558 | | | 37,744 | | | 90,464 | | | 147,104 | | | 2,232,906 | | Total construction/land development | 88,888 | | | 858,730 | | | 698,031 | | | 132,491 | | | 84,342 | | | 85,224 | | | 212,808 | | | 2,160,514 | |
| Agricultural | Agricultural | | Agricultural | |
| Risk rating 1 | Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Risk rating 1 | $ | — | | | $ | 1,723 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,723 | |
| Risk rating 2 | Risk rating 2 | — | | | 2,074 | | | — | | | — | | | — | | | — | | | — | | | 2,074 | | Risk rating 2 | 253 | | | — | | | 2,021 | | | — | | | — | | | — | | | — | | | 2,274 | |
| Risk rating 3 | Risk rating 3 | 39,533 | | | 42,315 | | | 33,486 | | | 16,015 | | | 10,950 | | | 40,385 | | | 4,833 | | | 187,517 | | Risk rating 3 | 27,968 | | | 48,779 | | | 37,167 | | | 32,191 | | | 16,105 | | | 40,356 | | | 6,128 | | | 208,694 | |
| Risk rating 4 | Risk rating 4 | 21,802 | | | 25,791 | | | 21,038 | | | 14,552 | | | 2,822 | | | 43,899 | | | 4,940 | | | 134,844 | | Risk rating 4 | 110 | | | 18,286 | | | 24,576 | | | 19,487 | | | 8,360 | | | 43,169 | | | 4,771 | | | 118,759 | |
| Risk rating 5 | Risk rating 5 | 400 | | | — | | | — | | | 331 | | | — | | | 603 | | | — | | | 1,334 | | Risk rating 5 | — | | | — | | | — | | | — | | | 320 | | | 603 | | | — | | | 923 | |
| Risk rating 6 | Risk rating 6 | — | | | 1,630 | | | 2,232 | | | — | | | — | | | 1,117 | | | — | | | 4,979 | | Risk rating 6 | — | | | — | | | 2,972 | | | 1,441 | | | 4,971 | | | 1,057 | | | — | | | 10,441 | |
| Risk rating 7 | Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total agricultural | Total agricultural | 61,735 | | | 71,810 | | | 56,756 | | | 30,898 | | | 13,772 | | | 86,004 | | | 9,773 | | | 330,748 | | Total agricultural | 28,331 | | | 68,788 | | | 66,736 | | | 53,119 | | | 29,756 | | | 85,185 | | | 10,899 | | | 342,814 | |
| Total commercial real estate loans | Total commercial real estate loans | $ | 1,434,695 | | | $ | 1,730,265 | | | $ | 811,028 | | | $ | 674,682 | | | $ | 767,246 | | | $ | 1,777,471 | | | $ | 524,705 | | | $ | 7,720,092 | | Total commercial real estate loans | $ | 174,452 | | | $ | 2,001,504 | | | $ | 1,604,283 | | | $ | 692,446 | | | $ | 575,766 | | | $ | 2,284,967 | | | $ | 694,035 | | | $ | 8,027,453 | |
| Residential real estate loans | Residential real estate loans | | | | | | | | | | | | | | | | Residential real estate loans | | | | | | | | | | | | | | | |
| Residential 1-4 family | Residential 1-4 family | | Residential 1-4 family | |
| Risk rating 1 | Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 117 | | | $ | 36 | | | $ | 153 | | Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 114 | | | $ | 39 | | | $ | 153 | |
| Risk rating 2 | Risk rating 2 | — | | | — | | | — | | | — | | | — | | | 54 | | | 108,286 | | | 108,340 | | Risk rating 2 | 70 | | | — | | | — | | | — | | | — | | | 40 | | | 1 | | | 111 | |
| Risk rating 3 | Risk rating 3 | 286,537 | | | 252,191 | | | 183,157 | | | 112,297 | | | 101,389 | | | 331,731 | | | 64,516 | | | 1,331,818 | | Risk rating 3 | 77,386 | | | 345,010 | | | 257,009 | | | 168,502 | | | 105,448 | | | 388,884 | | | 113,757 | | | 1,455,996 | |
| Risk rating 4 | Risk rating 4 | 33,876 | | | 39,168 | | | 62,626 | | | 11,561 | | | 18,702 | | | 63,964 | | | 345 | | | 230,242 | | Risk rating 4 | 7,194 | | | 34,667 | | | 34,069 | | | 18,845 | | | 11,309 | | | 74,965 | | | 76,885 | | | 257,934 | |
| Risk rating 5 | Risk rating 5 | 825 | | | — | | | — | | | 3,064 | | | 415 | | | 1,536 | | | 1,392 | | | 7,232 | | Risk rating 5 | — | | | 224 | | | — | | | 92 | | | 3,049 | | | 801 | | | — | | | 4,166 | |
| Risk rating 6 | Risk rating 6 | 245 | | | 2,482 | | | 2,943 | | | 4,344 | | | 1,954 | | | 14,948 | | | — | | | 26,916 | | Risk rating 6 | — | | | 2,368 | | | 3,038 | | | 4,375 | | | 4,380 | | | 13,739 | | | 1,967 | | | 29,867 | |
| Risk rating 7 | Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | Risk rating 8 | — | | | — | | | 148 | | | — | | | — | | | 1 | | | — | | | 149 | | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | 4 | | | — | | | 4 | |
| Total residential 1-4 family | Total residential 1-4 family | 321,483 | | | 293,841 | | | 248,874 | | | 131,266 | | | 122,460 | | | 412,351 | | | 174,575 | | | 1,704,850 | | Total residential 1-4 family | 84,650 | | | 382,269 | | | 294,116 | | | 191,814 | | | 124,186 | | | 478,547 | | | 192,649 | | | 1,748,231 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Term Loans Amortized Cost Basis by Origination Year | | | | |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| (In thousands) |
| Multifamily residential | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Risk rating 2 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 3 | 2,123 | | | 44,742 | | | 61,211 | | | 44,871 | | | 33,569 | | | 65,733 | | | 6,744 | | | 258,993 | |
| Risk rating 4 | 307 | | | 44,792 | | | 104,447 | | | 153,355 | | | 8,241 | | | 21,546 | | | 1,368 | | | 334,056 | |
| Risk rating 5 | — | | | — | | | — | | | 31,604 | | | — | | | 10,923 | | | — | | | 42,527 | |
| Risk rating 6 | — | | | — | | | — | | | — | | | 292 | | | 1,765 | | | — | | | 2,057 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total multifamily residential | 2,430 | | | 89,534 | | | 165,658 | | | 229,830 | | | 42,102 | | | 99,967 | | | 8,112 | | | 637,633 | |
| Total real estate | $ | 261,532 | | | $ | 2,473,307 | | | $ | 2,064,057 | | | $ | 1,114,090 | | | $ | 742,054 | | | $ | 2,863,481 | | | $ | 894,796 | | | $ | 10,413,317 | |
| Consumer | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | 1,289 | | | $ | 4,296 | | | $ | 3,469 | | | $ | 987 | | | $ | 493 | | | $ | 1,427 | | | $ | 1,518 | | | $ | 13,479 | |
| Risk rating 2 | — | | | — | | | — | | | — | | | 186 | | | 605 | | | — | | | 791 | |
| Risk rating 3 | 72,799 | | | 270,959 | | | 263,402 | | | 137,490 | | | 123,521 | | | 239,156 | | | 18,553 | | | 1,125,880 | |
| Risk rating 4 | 1,194 | | | 21,053 | | | 2,042 | | | 251 | | | 1,658 | | | 2,871 | | | 70 | | | 29,139 | |
| Risk rating 5 | — | | | 7 | | | 640 | | | 19 | | | — | | | 343 | | | — | | | 1,009 | |
| Risk rating 6 | — | | | 330 | | | 157 | | | 243 | | | 969 | | | 1,266 | | | 56 | | | 3,021 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | 3 | | | — | | | 3 | | | — | | | — | | | — | | | 6 | |
| Total consumer | 75,282 | | | 296,648 | | | 269,710 | | | 138,993 | | | 126,827 | | | 245,668 | | | 20,197 | | | 1,173,325 | |
| Commercial and industrial | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | 557 | | | $ | 1,510 | | | $ | 5,480 | | | $ | 260 | | | $ | 243 | | | $ | 21,281 | | | $ | 6,449 | | | $ | 35,780 | |
| Risk rating 2 | 47 | | | 1,460 | | | 254 | | | 24 | | | 163 | | | 225 | | | 651 | | | 2,824 | |
| Risk rating 3 | 96,850 | | | 299,023 | | | 115,784 | | | 76,607 | | | 70,709 | | | 211,722 | | | 243,567 | | | 1,114,262 | |
| Risk rating 4 | 39,190 | | | 64,120 | | | 103,244 | | | 68,084 | | | 78,227 | | | 107,399 | | | 539,277 | | | 999,541 | |
| Risk rating 5 | — | | | 80,927 | | | 6,651 | | | 138 | | | 1,234 | | | 88 | | | 75,296 | | | 164,334 | |
| Risk rating 6 | 38 | | | 9,508 | | | 7,130 | | | 1,692 | | | 4,178 | | | 23,231 | | | 3,403 | | | 49,180 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | 2,507 | | | — | | | 2,507 | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total commercial and industrial | 136,682 | | | 456,548 | | | 238,543 | | | 146,805 | | | 154,754 | | | 366,453 | | | 868,643 | | | 2,368,428 | |
| Agricultural and other | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | 1 | | | $ | 186 | | | $ | 16 | | | $ | 115 | | | $ | — | | | $ | 92 | | | $ | 499 | | | $ | 909 | |
| Risk rating 2 | 301 | | | 139 | | | 31 | | | — | | | 2,339 | | | 100 | | | 467 | | | 3,377 | |
| Risk rating 3 | 37,910 | | | 56,134 | | | 35,260 | | | 28,500 | | | 3,975 | | | 54,210 | | | 108,756 | | | 324,745 | |
| Risk rating 4 | 1,183 | | | 6,468 | | | 10,917 | | | 1,594 | | | 1,468 | | | 11,010 | | | 49,315 | | | 81,955 | |
| Risk rating 5 | — | | | — | | | 4,670 | | | 204 | | | — | | | 593 | | | 11 | | | 5,478 | |
| Risk rating 6 | 701 | | | 12 | | | 467 | | | 257 | | | 10,891 | | | 1,202 | | | 1,570 | | | 15,100 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total agricultural and other | 40,096 | | | 62,939 | | | 51,361 | | | 30,670 | | | 18,673 | | | 67,207 | | | 160,618 | | | 431,564 | |
| Total | $ | 513,592 | | | $ | 3,289,442 | | | $ | 2,623,671 | | | $ | 1,430,558 | | | $ | 1,042,308 | | | $ | 3,542,809 | | | $ | 1,944,254 | | | $ | 14,386,634 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Term Loans Amortized Cost Basis by Origination Year | | | | |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| (In thousands) |
| Real estate: | | | | | | | | | | | | | | | |
| Commercial real estate loans | | | | | | | | | | | | | | | |
| Non-farm/non-residential | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | 237 | | | $ | — | | | $ | 132 | | | $ | 85 | | | $ | 454 | |
| Risk rating 2 | — | | | — | | | — | | | 118 | | | — | | | 3,992 | | | — | | | 4,110 | |
| Risk rating 3 | 616,809 | | | 509,269 | | | 263,188 | | | 279,157 | | | 322,278 | | | 852,727 | | | 374,371 | | | 3,217,799 | |
| Risk rating 4 | 438,565 | | | 341,047 | | | 235,669 | | | 161,421 | | | 321,188 | | | 482,437 | | | 139,203 | | | 2,119,530 | |
| Risk rating 5 | — | | | 757 | | | 1,145 | | | 14,417 | | | 35,273 | | | 37,561 | | | 95 | | | 89,248 | |
| Risk rating 6 | 876 | | | 196 | | | 14,247 | | | 26,649 | | | 4,720 | | | 153,909 | | | 194 | | | 200,791 | |
| Risk rating 7 | 131 | | | — | | | — | | | — | | | — | | | — | | | — | | | 131 | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total non-farm/non-residential | 1,056,381 | | | 851,269 | | | 514,249 | | | 481,999 | | | 683,459 | | | 1,530,758 | | | 513,948 | | | 5,632,063 | |
| Construction/land development | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | — | | | $ | 11 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 11 | |
| Risk rating 2 | 682 | | | — | | | — | | | — | | | — | | | 210 | | | — | | | 892 | |
| Risk rating 3 | 421,774 | | | 283,546 | | | 83,631 | | | 48,350 | | | 19,340 | | | 34,910 | | | 75,797 | | | 967,348 | |
| Risk rating 4 | 354,852 | | | 512,541 | | | 58,368 | | | 79,924 | | | 11,520 | | | 43,634 | | | 65,960 | | | 1,126,799 | |
| Risk rating 5 | — | | | — | | | 30,987 | | | 310 | | | — | | | 1,140 | | | — | | | 32,437 | |
| Risk rating 6 | 612 | | | — | | | 574 | | | 751 | | | 3 | | | 5,839 | | | — | | | 7,779 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total construction/land development | 777,920 | | | 796,098 | | | 173,560 | | | 129,335 | | | 30,863 | | | 85,733 | | | 141,757 | | | 2,135,266 | |
| Agricultural | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | 1,749 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,749 | |
| Risk rating 2 | — | | | 2,048 | | | — | | | — | | | — | | | — | | | — | | | 2,048 | |
| Risk rating 3 | 61,725 | | | 43,356 | | | 32,895 | | | 16,475 | | | 10,326 | | | 37,892 | | | 5,996 | | | 208,665 | |
| Risk rating 4 | 18,870 | | | 25,252 | | | 20,532 | | | 8,706 | | | 3,154 | | | 42,886 | | | 4,755 | | | 124,155 | |
| Risk rating 5 | — | | | — | | | — | | | 326 | | | — | | | 603 | | | — | | | 929 | |
| Risk rating 6 | — | | | 1,630 | | | 1,623 | | | 4,972 | | | — | | | 1,040 | | | — | | | 9,265 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total agricultural | 82,344 | | | 72,286 | | | 55,050 | | | 30,479 | | | 13,480 | | | 82,421 | | | 10,751 | | | 346,811 | |
| Total commercial real estate loans | $ | 1,916,645 | | | $ | 1,719,653 | | | $ | 742,859 | | | $ | 641,813 | | | $ | 727,802 | | | $ | 1,698,912 | | | $ | 666,456 | | | $ | 8,114,140 | |
| Residential real estate loans | | | | | | | | | | | | | | | |
| Residential 1-4 family | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 115 | | | $ | 40 | | | $ | 155 | |
| Risk rating 2 | — | | | — | | | — | | | — | | | — | | | 48 | | | 2 | | | 50 | |
| Risk rating 3 | 360,510 | | | 255,775 | | | 176,955 | | | 112,053 | | | 98,093 | | | 314,492 | | | 110,881 | | | 1,428,759 | |
| Risk rating 4 | 37,471 | | | 35,875 | | | 61,418 | | | 11,871 | | | 15,577 | | | 61,034 | | | 65,674 | | | 288,920 | |
| Risk rating 5 | — | | | — | | | — | | | 3,049 | | | 226 | | | 328 | | | — | | | 3,603 | |
| Risk rating 6 | 849 | | | 2,423 | | | 3,564 | | | 3,521 | | | 2,536 | | | 12,662 | | | 1,508 | | | 27,063 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
| Total residential 1-4 family | 398,830 | | | 294,073 | | | 241,937 | | | 130,494 | | | 116,432 | | | 388,680 | | | 178,105 | | | 1,748,551 | |
| | | September 30, 2022 | | December 31, 2022 |
| | Term Loans Amortized Cost Basis by Origination Year | | | Term Loans Amortized Cost Basis by Origination Year | |
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans Amortized Cost Basis | | Total | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| | (In thousands) | | (In thousands) |
| Multifamily residential | Multifamily residential | | Multifamily residential | |
| Risk rating 1 | Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Risk rating 2 | Risk rating 2 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Risk rating 2 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 3 | Risk rating 3 | 37,574 | | | 15,929 | | | 14,229 | | | 14,080 | | | 14,051 | | | 54,479 | | | 39,356 | | | 189,698 | | Risk rating 3 | 38,830 | | | 37,566 | | | 14,127 | | | 33,813 | | | 13,098 | | | 60,117 | | | 6,534 | | | 204,085 | |
| Risk rating 4 | Risk rating 4 | 36,695 | | | 92,839 | | | 145,561 | | | 20,945 | | | 12,010 | | | 13,530 | | | 24 | | | 321,604 | | Risk rating 4 | 43,478 | | | 101,282 | | | 182,850 | | | 8,284 | | | 11,934 | | | 11,779 | | | 1,201 | | | 360,808 | |
| Risk rating 5 | Risk rating 5 | — | | | — | | | — | | | — | | | 3,162 | | | 7,936 | | | — | | | 11,098 | | Risk rating 5 | — | | | — | | | — | | | — | | | 3,142 | | | 7,897 | | | — | | | 11,039 | |
| Risk rating 6 | Risk rating 6 | — | | | — | | | — | | | 738 | | | — | | | 1,816 | | | — | | | 2,554 | | Risk rating 6 | — | | | — | | | — | | | 302 | | | — | | | 1,818 | | | — | | | 2,120 | |
| Risk rating 7 | Risk rating 7 | — | | | — | | | — | | | — | | | — | | | 156 | | | — | | | 156 | | Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total multifamily residential | Total multifamily residential | 74,269 | | | 108,768 | | | 159,790 | | | 35,763 | | | 29,223 | | | 77,917 | | | 39,380 | | | 525,110 | | Total multifamily residential | 82,308 | | | 138,848 | | | 196,977 | | | 42,399 | | | 28,174 | | | 81,611 | | | 7,735 | | | 578,052 | |
| Total real estate | Total real estate | $ | 1,830,447 | | | $ | 2,132,874 | | | $ | 1,219,692 | | | $ | 841,711 | | | $ | 918,929 | | | $ | 2,267,739 | | | $ | 738,660 | | | $ | 9,950,052 | | Total real estate | $ | 2,397,783 | | | $ | 2,152,574 | | | $ | 1,181,773 | | | $ | 814,706 | | | $ | 872,408 | | | $ | 2,169,203 | | | $ | 852,296 | | | $ | 10,440,743 | |
| Consumer | Consumer | | | | | | | | | | | | | | | | Consumer | | | | | | | | | | | | | | | |
| Risk rating 1 | Risk rating 1 | $ | 4,996 | | | $ | 4,500 | | | $ | 1,302 | | | $ | 760 | | | $ | 612 | | | $ | 1,250 | | | $ | 1,453 | | | $ | 14,873 | | Risk rating 1 | $ | 5,332 | | | $ | 3,952 | | | $ | 1,134 | | | $ | 637 | | | $ | 552 | | | $ | 1,176 | | | $ | 1,467 | | | $ | 14,250 | |
| Risk rating 2 | Risk rating 2 | — | | | — | | | — | | | 200 | | | 622 | | | — | | | — | | | 822 | | Risk rating 2 | — | | | — | | | — | | | 193 | | | 614 | | | — | | | — | | | 807 | |
| Risk rating 3 | Risk rating 3 | 203,762 | | | 296,512 | | | 167,387 | | | 137,420 | | | 124,442 | | | 143,068 | | | 10,484 | | | 1,083,075 | | Risk rating 3 | 284,828 | | | 276,044 | | | 146,256 | | | 132,763 | | | 118,244 | | | 135,266 | | | 16,093 | | | 1,109,494 | |
| Risk rating 4 | Risk rating 4 | 12,740 | | | 1,671 | | | 455 | | | 1,664 | | | 490 | | | 1,888 | | | 72 | | | 18,980 | | Risk rating 4 | 15,306 | | | 2,293 | | | 422 | | | 1,216 | | | 459 | | | 907 | | | 69 | | | 20,672 | |
| Risk rating 5 | Risk rating 5 | 14 | | | 12 | | | 109 | | | — | | | 10 | | | 374 | | | 17 | | | 536 | | Risk rating 5 | — | | | 633 | | | 19 | | | — | | | 8 | | | 810 | | | — | | | 1,470 | |
| Risk rating 6 | Risk rating 6 | 113 | | | 93 | | | 111 | | | 170 | | | 8 | | | 1,389 | | | — | | | 1,884 | | Risk rating 6 | 215 | | | 156 | | | 270 | | | 970 | | | 24 | | | 1,386 | | | 101 | | | 3,122 | |
| Risk rating 7 | Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | Risk rating 8 | — | | | — | | | 2 | | | 1 | | | — | | | 77 | | | — | | | 80 | | Risk rating 8 | 3 | | | — | | | 1 | | | — | | | — | | | 77 | | | — | | | 81 | |
| Total consumer | Total consumer | 221,625 | | | 302,788 | | | 169,366 | | | 140,215 | | | 126,184 | | | 148,046 | | | 12,026 | | | 1,120,250 | | Total consumer | 305,684 | | | 283,078 | | | 148,102 | | | 135,779 | | | 119,901 | | | 139,622 | | | 17,730 | | | 1,149,896 | |
| Commercial and industrial | Commercial and industrial | | Commercial and industrial | |
| Risk rating 1 | Risk rating 1 | $ | 1,145 | | | $ | 11,993 | | | $ | 283 | | | $ | 284 | | | $ | 25 | | | $ | 21,561 | | | $ | 8,410 | | | $ | 43,701 | | Risk rating 1 | $ | 3,450 | | | $ | 7,692 | | | $ | 268 | | | $ | 264 | | | $ | 16 | | | $ | 21,298 | | | $ | 8,832 | | | $ | 41,820 | |
| Risk rating 2 | Risk rating 2 | 734 | | | 309 | | | 29 | | | 198 | | | — | | | 227 | | | 626 | | | 2,123 | | Risk rating 2 | 1,590 | | | 305 | | | 27 | | | 198 | | | — | | | 226 | | | 781 | | | 3,127 | |
| Risk rating 3 | Risk rating 3 | 223,596 | | | 140,093 | | | 81,114 | | | 74,943 | | | 61,724 | | | 94,954 | | | 291,151 | | | 967,575 | | Risk rating 3 | 301,063 | | | 126,312 | | | 80,636 | | | 73,360 | | | 71,964 | | | 112,017 | | | 253,111 | | | 1,018,463 | |
| Risk rating 4 | Risk rating 4 | 142,731 | | | 223,367 | | | 71,312 | | | 112,569 | | | 83,835 | | | 50,257 | | | 494,761 | | | 1,178,832 | | Risk rating 4 | 70,862 | | | 120,618 | | | 69,963 | | | 89,975 | | | 81,389 | | | 48,496 | | | 568,795 | | | 1,050,098 | |
| Risk rating 5 | Risk rating 5 | 421 | | | 9,600 | | | 2,050 | | | 356 | | | 7,211 | | | 9,230 | | | 621 | | | 29,489 | | Risk rating 5 | 83,272 | | | 14,762 | | | 159 | | | 1,408 | | | 6,815 | | | 185 | | | 75,891 | | | 182,492 | |
| Risk rating 6 | Risk rating 6 | 871 | | | 1,266 | | | 11,278 | | | 4,299 | | | 5,237 | | | 10,062 | | | 4,965 | | | 37,978 | | Risk rating 6 | 4,842 | | | 2,539 | | | 11,204 | | | 4,193 | | | 5,769 | | | 16,559 | | | 3,554 | | | 48,660 | |
| Risk rating 7 | Risk rating 7 | — | | | — | | | 1,061 | | | — | | | 7,742 | | | 249 | | | — | | | 9,052 | | Risk rating 7 | — | | | — | | | — | | | — | | | 4,316 | | | 202 | | | 85 | | | 4,603 | |
| Risk rating 8 | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total commercial and industrial | Total commercial and industrial | 369,498 | | | 386,628 | | | 167,127 | | | 192,649 | | | 165,774 | | | 186,540 | | | 800,534 | | | 2,268,750 | | Total commercial and industrial | 465,079 | | | 272,228 | | | 162,257 | | | 169,398 | | | 170,269 | | | 198,983 | | | 911,049 | | | 2,349,263 | |
| Agricultural and other | Agricultural and other | | Agricultural and other | |
| Risk rating 1 | Risk rating 1 | $ | 135 | | | $ | 267 | | | $ | 115 | | | $ | — | | | $ | — | | | $ | 5 | | | $ | 710 | | | $ | 1,232 | | Risk rating 1 | $ | 297 | | | $ | 266 | | | $ | 115 | | | $ | — | | | $ | — | | | $ | 95 | | | $ | 722 | | | $ | 1,495 | |
| Risk rating 2 | Risk rating 2 | 16 | | | 78 | | | — | | | 2,338 | | | 34 | | | 152 | | | 2,138 | | | 4,756 | | Risk rating 2 | 140 | | | 78 | | | — | | | 2,338 | | | 34 | | | 115 | | | 1,661 | | | 4,366 | |
| Risk rating 3 | Risk rating 3 | 99,036 | | | 38,861 | | | 31,404 | | | 5,404 | | | 9,205 | | | 47,816 | | | 136,353 | | | 368,079 | | Risk rating 3 | 85,707 | | | 36,004 | | | 30,546 | | | 4,725 | | | 7,986 | | | 46,748 | | | 131,760 | | | 343,476 | |
| Risk rating 4 | Risk rating 4 | 9,780 | | | 12,561 | | | 3,550 | | | 13,123 | | | 1,925 | | | 11,268 | | | 60,585 | | | 112,792 | | Risk rating 4 | 7,627 | | | 13,591 | | | 2,598 | | | 1,671 | | | 1,710 | | | 8,766 | | | 69,179 | | | 105,142 | |
| Risk rating 5 | Risk rating 5 | — | | | 8 | | | 204 | | | — | | | — | | | 740 | | | 1,278 | | | 2,230 | | Risk rating 5 | — | | | 8 | | | 204 | | | — | | | — | | | 593 | | | 745 | | | 1,550 | |
| Risk rating 6 | Risk rating 6 | — | | | 61 | | | 157 | | | 32 | | | 304 | | | 602 | | | 14 | | | 1,170 | | Risk rating 6 | — | | | 58 | | | 157 | | | 11,137 | | | 304 | | | 949 | | | 944 | | | 13,549 | |
| Risk rating 7 | Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total agricultural and other | Total agricultural and other | 108,967 | | | 51,836 | | | 35,430 | | | 20,897 | | | 11,468 | | | 60,583 | | | 201,078 | | | 490,259 | | Total agricultural and other | 93,771 | | | 50,005 | | | 33,620 | | | 19,871 | | | 10,034 | | | 57,266 | | | 205,011 | | | 469,578 | |
| Total | Total | $ | 2,530,537 | | | $ | 2,874,126 | | | $ | 1,591,615 | | | $ | 1,195,472 | | | $ | 1,222,355 | | | $ | 2,662,908 | | | $ | 1,752,298 | | | $ | 13,829,311 | | Total | $ | 3,262,317 | | | $ | 2,757,885 | | | $ | 1,525,752 | | | $ | 1,139,754 | | | $ | 1,172,612 | | | $ | 2,565,074 | | | $ | 1,986,086 | | | $ | 14,409,480 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Term Loans Amortized Cost Basis by Origination Year | | | | |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| (In thousands) |
| Real estate: | | | | | | | | | | | | | | | |
| Commercial real estate loans | | | | | | | | | | | | | | | |
| Non-farm/non-residential | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Risk rating 2 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 3 | 284,127 | | | 281,982 | | | 266,990 | | | 341,642 | | | 195,301 | | | 891,035 | | | 194,640 | | | 2,455,717 | |
| Risk rating 4 | 111,697 | | | 32,788 | | | 115,989 | | | 301,520 | | | 90,747 | | | 345,254 | | | 90,028 | | | 1,088,023 | |
| Risk rating 5 | — | | | 10,930 | | | 2,239 | | | 23,117 | | | 49,926 | | | 189,038 | | | — | | | 275,250 | |
| Risk rating 6 | — | | | — | | | 23,723 | | | 2,224 | | | 11,751 | | | 32,372 | | | 224 | | | 70,294 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total non-farm/non-residential | 395,824 | | | 325,700 | | | 408,941 | | | 668,503 | | | 347,725 | | | 1,457,699 | | | 284,892 | | | 3,889,284 | |
| Construction/land development | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Risk rating 2 | — | | | — | | | — | | | — | | | — | | | 231 | | | — | | | 231 | |
| Risk rating 3 | 301,719 | | | 183,715 | | | 108,491 | | | 23,574 | | | 13,760 | | | 41,860 | | | 149,433 | | | 822,552 | |
| Risk rating 4 | 226,230 | | | 217,267 | | | 448,899 | | | 33,617 | | | 45,679 | | | 38,122 | | | 7,297 | | | 1,017,111 | |
| Risk rating 5 | — | | | — | | | 388 | | | — | | | — | | | 1,174 | | | 176 | | | 1,738 | |
| Risk rating 6 | — | | | 134 | | | 825 | | | 3 | | | — | | | 7,456 | | | — | | | 8,418 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total construction/land development | 527,949 | | | 401,116 | | | 558,603 | | | 57,194 | | | 59,439 | | | 88,843 | | | 156,906 | | | 1,850,050 | |
| Agricultural | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Risk rating 2 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 3 | 21,480 | | | 27,931 | | | 7,768 | | | 6,564 | | | 5,103 | | | 21,689 | | | 7,026 | | | 97,561 | |
| Risk rating 4 | 4,305 | | | 964 | | | 365 | | | 970 | | | 655 | | | 22,143 | | | 2,065 | | | 31,467 | |
| Risk rating 5 | — | | | 166 | | | — | | | — | | | — | | | — | | | — | | | 166 | |
| Risk rating 6 | — | | | 44 | | | — | | | — | | | — | | | 1,436 | | | — | | | 1,480 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total agricultural | 25,785 | | | 29,105 | | | 8,133 | | | 7,534 | | | 5,758 | | | 45,268 | | | 9,091 | | | 130,674 | |
| Total commercial real estate loans | $ | 949,558 | | | $ | 755,921 | | | $ | 975,677 | | | $ | 733,231 | | | $ | 412,922 | | | $ | 1,591,810 | | | $ | 450,889 | | | $ | 5,870,008 | |
| Residential real estate loans | | | | | | | | | | | | | | | |
| Residential 1-4 family | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 76 | | | $ | 89 | | | $ | 165 | |
| Risk rating 2 | — | | | — | | | — | | | — | | | — | | | 29 | | | — | | | 29 | |
| Risk rating 3 | 210,970 | | | 147,523 | | | 119,861 | | | 94,848 | | | 82,474 | | | 296,687 | | | 85,836 | | | 1,038,199 | |
| Risk rating 4 | 8,885 | | | 3,397 | | | 56,839 | | | 16,887 | | | 21,874 | | | 53,578 | | | 36,642 | | | 198,102 | |
| Risk rating 5 | — | | | — | | | 3,065 | | | 1,220 | | | 582 | | | 1,366 | | | 193 | | | 6,426 | |
| Risk rating 6 | 1,136 | | | 2,252 | | | 2,432 | | | 2,063 | | | 1,263 | | | 16,305 | | | 6,580 | | | 32,031 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
| Total residential 1-4 family | 220,991 | | | 153,172 | | | 182,197 | | | 115,018 | | | 106,193 | | | 368,042 | | | 129,340 | | | 1,274,953 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Gross Loan Write-Offs by Origination Year | | | | |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| (In thousands) |
| Real estate | | | | | | | | | | | | | | | |
| Commercial real estate loans | | | | | | | | | | | | | | | |
| Non-farm/non-residential | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 14 | | | $ | 56 | | | $ | — | | | $ | 70 | |
| Construction/land development | — | | | 2 | | | 19 | | | 5 | | | — | | | — | | | — | | | 26 | |
| Agricultural | — | | | — | | | — | | | — | | | 1 | | | 1 | | | — | | | 2 | |
| Residential real estate loans | | | | | | | | | | | | | | | |
| Residential 1-4 family | — | | | 5 | | | 6 | | | 5 | | | 5 | | | 33 | | | 5 | | | 59 | |
| Multifamily residential | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total real estate | — | | | 7 | | | 25 | | | 10 | | | 20 | | | 90 | | | 5 | | | 157 | |
| Consumer | — | | | 12 | | | 16 | | | 14 | | | 2 | | | 154 | | | 23 | | | 221 | |
| Commercial and industrial | — | | | 5 | | | 574 | | | 391 | | | 3 | | | 2,026 | | | 1 | | | 3,000 | |
| Agricultural & other | 901 | | * | 1 | | | 5 | | | 1 | | | — | | | 1 | | | 1 | | | 910 | |
| Total | $ | 901 | | | $ | 25 | | | $ | 620 | | | $ | 416 | | | $ | 25 | | | $ | 2,271 | | | $ | 30 | | | $ | 4,288 | |
*The 2023 write-off consists entirely of overdrafts.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Term Loans Amortized Cost Basis by Origination Year | | | | |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| (In thousands) |
| Multifamily residential | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Risk rating 2 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 3 | 11,898 | | | 5,211 | | | 34,492 | | | 17,375 | | | 9,430 | | | 43,804 | | | 3,583 | | | 125,793 | |
| Risk rating 4 | 3,755 | | | 44,294 | | | 30,060 | | | 3,412 | | | 2,981 | | | 18,805 | | | 33,723 | | | 137,030 | |
| Risk rating 5 | — | | | — | | | — | | | 7,591 | | | 8,105 | | | — | | | — | | | 15,696 | |
| Risk rating 6 | — | | | — | | | — | | | — | | | 890 | | | 1,428 | | | — | | | 2,318 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total multifamily residential | 15,653 | | | 49,505 | | | 64,552 | | | 28,378 | | | 21,406 | | | 64,037 | | | 37,306 | | | 280,837 | |
| Total real estate | $ | 1,186,202 | | | $ | 958,598 | | | $ | 1,222,426 | | | $ | 876,627 | | | $ | 540,521 | | | $ | 2,023,889 | | | $ | 617,535 | | | $ | 7,425,798 | |
| Consumer | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | 4,441 | | | $ | 1,799 | | | $ | 1,237 | | | $ | 920 | | | $ | 226 | | | $ | 1,383 | | | $ | 1,893 | | | $ | 11,899 | |
| Risk rating 2 | — | | | — | | | 45 | | | 639 | | | — | | | 8 | | | — | | | 692 | |
| Risk rating 3 | 221,986 | | | 173,511 | | | 132,148 | | | 109,810 | | | 67,992 | | | 92,076 | | | 1,098 | | | 798,621 | |
| Risk rating 4 | 3,547 | | | 923 | | | 2,944 | | | 1,776 | | | 158 | | | 2,641 | | | 79 | | | 12,068 | |
| Risk rating 5 | — | | | 116 | | | — | | | 15 | | | — | | | 131 | | | — | | | 262 | |
| Risk rating 6 | 69 | | | 34 | | | 39 | | | 117 | | | — | | | 1,711 | | | 7 | | | 1,977 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total consumer | 230,043 | | | 176,383 | | | 136,413 | | | 113,277 | | | 68,376 | | | 97,950 | | | 3,077 | | | 825,519 | |
| Commercial and industrial | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | 99,579 | | | $ | 12,752 | | | $ | 350 | | | $ | 118 | | | $ | 102 | | | $ | 21,436 | | | $ | 9,851 | | | $ | 144,188 | |
| Risk rating 2 | 175 | | | 16 | | | — | | | — | | | 66 | | | 276 | | | 168 | | | 701 | |
| Risk rating 3 | 125,071 | | | 59,056 | | | 77,130 | | | 67,944 | | | 34,733 | | | 42,905 | | | 145,247 | | | 552,086 | |
| Risk rating 4 | 244,927 | | | 35,350 | | | 89,558 | | | 91,840 | | | 23,616 | | | 34,566 | | | 88,750 | | | 608,607 | |
| Risk rating 5 | 6,185 | | | 609 | | | 480 | | | 8,258 | | | 5,712 | | | 2,851 | | | 582 | | | 24,677 | |
| Risk rating 6 | 492 | | | 15,377 | | | 5,913 | | | 24,941 | | | 5,477 | | | 2,233 | | | 342 | | | 54,775 | |
| Risk rating 7 | — | | | — | | | — | | | 1,696 | | | — | | | — | | | — | | | 1,696 | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | 16 | | | 1 | | | 17 | |
| Total commercial and industrial | 476,429 | | | 123,160 | | | 173,431 | | | 194,797 | | | 69,706 | | | 104,283 | | | 244,941 | | | 1,386,747 | |
| Agricultural and other | | | | | | | | | | | | | | | |
| Risk rating 1 | $ | 5,042 | | | $ | — | | | $ | 40 | | | $ | — | | | $ | — | | | $ | 110 | | | $ | 552 | | | $ | 5,744 | |
| Risk rating 2 | — | | | — | | | 3,467 | | | — | | | — | | | 909 | | | 983 | | | 5,359 | |
| Risk rating 3 | 54,534 | | | 44,030 | | | 5,158 | | | 7,092 | | | 2,009 | | | 46,570 | | | 8,750 | | | 168,143 | |
| Risk rating 4 | 1,544 | | | 218 | | | 154 | | | 1,590 | | | 1,226 | | | 1,224 | | | 10,842 | | | 16,798 | |
| Risk rating 5 | — | | | — | | | — | | | — | | | — | | | 1,297 | | | — | | | 1,297 | |
| Risk rating 6 | 53 | | | — | | | 23 | | | 13 | | | 33 | | | 562 | | | — | | | 684 | |
| Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total agricultural and other | 61,173 | | | 44,248 | | | 8,842 | | | 8,695 | | | 3,268 | | | 50,672 | | | 21,127 | | | 198,025 | |
| Total | $ | 1,953,847 | | | $ | 1,302,389 | | | $ | 1,541,112 | | | $ | 1,193,396 | | | $ | 681,871 | | | $ | 2,276,794 | | | $ | 886,680 | | | $ | 9,836,089 | |
The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. The Company also evaluates credit quality based on the aging status of the loan, which was previously presented and by payment activity. The following tables present the amortized cost of performing and nonperforming loans as of September 30, 2022March 31, 2023 and December 31, 2021.2022.
| | | September 30, 2022 | | March 31, 2023 |
| | Term Loans Amortized Cost Basis by Origination Year | | | Term Loans Amortized Cost Basis by Origination Year | |
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans Amortized Cost Basis | | Total | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| | (In thousands) | | (In thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans | Commercial real estate loans | | Commercial real estate loans | |
| Non-farm/non-residential | Non-farm/non-residential | | Non-farm/non-residential | |
| Performing | Performing | $ | 629,716 | | | $ | 856,298 | | | $ | 514,747 | | | $ | 440,000 | | | $ | 711,405 | | | $ | 1,468,064 | | | $ | 367,776 | | | $ | 4,988,006 | | Performing | $ | 57,233 | | | $ | 1,073,986 | | | $ | 839,516 | | | $ | 505,576 | | | $ | 451,438 | | | $ | 1,994,261 | | | $ | 470,010 | | | $ | 5,392,020 | |
| Non-performing | Non-performing | — | | | — | | | 4,890 | | | 26,226 | | | 4,325 | | | 132,939 | | | 52 | | | 168,432 | | Non-performing | — | | | — | | | — | | | 1,260 | | | 10,230 | | | 120,297 | | | 318 | | | 132,105 | |
| Total non-farm/non-residential | Total non-farm/non-residential | 629,716 | | | 856,298 | | | 519,637 | | | 466,226 | | | 715,730 | | | 1,601,003 | | | 367,828 | | | 5,156,438 | | Total non-farm/non-residential | 57,233 | | | 1,073,986 | | | 839,516 | | | 506,836 | | | 461,668 | | | 2,114,558 | | | 470,328 | | | 5,524,125 | |
| Construction/land development | Construction/land development | | Construction/land development | |
| Performing | Performing | $ | 743,244 | | | $ | 802,143 | | | $ | 234,460 | | | $ | 176,959 | | | $ | 36,886 | | | $ | 90,182 | | | $ | 147,104 | | | $ | 2,230,978 | | Performing | $ | 88,888 | | | $ | 857,712 | | | $ | 696,384 | | | $ | 131,261 | | | $ | 83,849 | | | $ | 85,052 | | | $ | 212,808 | | | $ | 2,155,954 | |
| Non-performing | Non-performing | — | | | 14 | | | 175 | | | 599 | | | 858 | | | 282 | | | — | | | 1,928 | | Non-performing | — | | | 1,018 | | | 1,647 | | | 1,230 | | | 493 | | | 172 | | | — | | | 4,560 | |
| Total construction/ land development | Total construction/ land development | 743,244 | | | 802,157 | | | 234,635 | | | 177,558 | | | 37,744 | | | 90,464 | | | 147,104 | | | 2,232,906 | | Total construction/ land development | 88,888 | | | 858,730 | | | 698,031 | | | 132,491 | | | 84,342 | | | 85,224 | | | 212,808 | | | 2,160,514 | |
| Agricultural | Agricultural | | Agricultural | |
| Performing | Performing | $ | 61,735 | | | $ | 71,810 | | | $ | 56,189 | | | $ | 30,898 | | | $ | 13,772 | | | $ | 85,799 | | | $ | 9,773 | | | $ | 329,976 | | Performing | $ | 28,331 | | | $ | 68,788 | | | $ | 66,635 | | | $ | 53,119 | | | $ | 29,698 | | | $ | 84,881 | | | $ | 10,899 | | | $ | 342,351 | |
| Non-performing | Non-performing | — | | | — | | | 567 | | | — | | | — | | | 205 | | | — | | | 772 | | Non-performing | — | | | — | | | 101 | | | — | | | 58 | | | 304 | | | — | | | 463 | |
| Total agricultural | Total agricultural | 61,735 | | | 71,810 | | | 56,756 | | | 30,898 | | | 13,772 | | | 86,004 | | | 9,773 | | | 330,748 | | Total agricultural | 28,331 | | | 68,788 | | | 66,736 | | | 53,119 | | | 29,756 | | | 85,185 | | | 10,899 | | | 342,814 | |
| Total commercial real estate loans | Total commercial real estate loans | $ | 1,434,695 | | | $ | 1,730,265 | | | $ | 811,028 | | | $ | 674,682 | | | $ | 767,246 | | | $ | 1,777,471 | | | $ | 524,705 | | | $ | 7,720,092 | | Total commercial real estate loans | $ | 174,452 | | | $ | 2,001,504 | | | $ | 1,604,283 | | | $ | 692,446 | | | $ | 575,766 | | | $ | 2,284,967 | | | $ | 694,035 | | | $ | 8,027,453 | |
| Residential real estate loans | Residential real estate loans | | | | | | | | | | | | | | | | Residential real estate loans | | | | | | | | | | | | | | | |
| Residential 1-4 family | Residential 1-4 family | | Residential 1-4 family | |
| Performing | Performing | $ | 321,236 | | | $ | 291,693 | | | $ | 246,007 | | | $ | 127,719 | | | $ | 120,756 | | | $ | 404,001 | | | $ | 174,170 | | | $ | 1,685,582 | | Performing | $ | 84,650 | | | $ | 379,666 | | | $ | 292,377 | | | $ | 188,286 | | | $ | 120,702 | | | $ | 471,579 | | | $ | 191,995 | | | $ | 1,729,255 | |
| Non-performing | Non-performing | 247 | | | 2,148 | | | 2,867 | | | 3,547 | | | 1,704 | | | 8,350 | | | 405 | | | 19,268 | | Non-performing | — | | | 2,603 | | | 1,739 | | | 3,528 | | | 3,484 | | | 6,968 | | | 654 | | | 18,976 | |
| Total residential 1-4 family | Total residential 1-4 family | 321,483 | | | 293,841 | | | 248,874 | | | 131,266 | | | 122,460 | | | 412,351 | | | 174,575 | | | 1,704,850 | | Total residential 1-4 family | 84,650 | | | 382,269 | | | 294,116 | | | 191,814 | | | 124,186 | | | 478,547 | | | 192,649 | | | 1,748,231 | |
| Multifamily residential | Multifamily residential | | Multifamily residential | |
| Performing | Performing | $ | 74,269 | | | $ | 108,768 | | | $ | 159,790 | | | $ | 35,763 | | | $ | 26,061 | | | $ | 76,804 | | | $ | 39,380 | | | $ | 520,835 | | Performing | $ | 2,430 | | | $ | 89,534 | | | $ | 165,658 | | | $ | 229,830 | | | $ | 42,102 | | | $ | 99,041 | | | $ | 8,112 | | | $ | 636,707 | |
| Non-performing | Non-performing | — | | | — | | | — | | | — | | | 3,162 | | | 1,113 | | | — | | | 4,275 | | Non-performing | — | | | — | | | — | | | — | | | — | | | 926 | | | — | | | 926 | |
| Total multifamily residential | Total multifamily residential | 74,269 | | | 108,768 | | | 159,790 | | | 35,763 | | | 29,223 | | | 77,917 | | | 39,380 | | | 525,110 | | Total multifamily residential | 2,430 | | | 89,534 | | | 165,658 | | | 229,830 | | | 42,102 | | | 99,967 | | | 8,112 | | | 637,633 | |
| Total real estate | Total real estate | $ | 1,830,447 | | | $ | 2,132,874 | | | $ | 1,219,692 | | | $ | 841,711 | | | $ | 918,929 | | | $ | 2,267,739 | | | $ | 738,660 | | | $ | 9,950,052 | | Total real estate | $ | 261,532 | | | $ | 2,473,307 | | | $ | 2,064,057 | | | $ | 1,114,090 | | | $ | 742,054 | | | $ | 2,863,481 | | | $ | 894,796 | | | $ | 10,413,317 | |
| Consumer | Consumer | | | | | | | | | | | | | | | | Consumer | | | | | | | | | | | | | | | |
| Performing | Performing | $ | 221,525 | | | $ | 302,713 | | | $ | 169,266 | | | $ | 140,065 | | | $ | 126,157 | | | $ | 146,711 | | | $ | 12,009 | | | $ | 1,118,446 | | Performing | $ | 75,282 | | | $ | 296,409 | | | $ | 269,577 | | | $ | 138,734 | | | $ | 125,887 | | | $ | 244,528 | | | $ | 20,141 | | | $ | 1,170,558 | |
| Non-performing | Non-performing | 100 | | | 75 | | | 100 | | | 150 | | | 27 | | | 1,335 | | | 17 | | | 1,804 | | Non-performing | — | | | 239 | | | 133 | | | 259 | | | 940 | | | 1,140 | | | 56 | | | 2,767 | |
| Total consumer | Total consumer | 221,625 | | | 302,788 | | | 169,366 | | | 140,215 | | | 126,184 | | | 148,046 | | | 12,026 | | | 1,120,250 | | Total consumer | 75,282 | | | 296,648 | | | 269,710 | | | 138,993 | | | 126,827 | | | 245,668 | | | 20,197 | | | 1,173,325 | |
| Commercial and industrial | Commercial and industrial | | Commercial and industrial | |
| Performing | Performing | $ | 368,767 | | | $ | 384,257 | | | $ | 162,938 | | | $ | 188,867 | | | $ | 152,608 | | | $ | 182,885 | | | $ | 796,797 | | | $ | 2,237,119 | | Performing | $ | 136,682 | | | $ | 451,112 | | | $ | 234,302 | | | $ | 145,900 | | | $ | 150,896 | | | $ | 349,623 | | | $ | 865,603 | | | $ | 2,334,118 | |
| Non-performing | Non-performing | 731 | | | 2,371 | | | 4,189 | | | 3,782 | | | 13,166 | | | 3,655 | | | 3,737 | | | 31,631 | | Non-performing | — | | | 5,436 | | | 4,241 | | | 905 | | | 3,858 | | | 16,830 | | | 3,040 | | | 34,310 | |
| Total commercial and industrial | Total commercial and industrial | 369,498 | | | 386,628 | | | 167,127 | | | 192,649 | | | 165,774 | | | 186,540 | | | 800,534 | | | 2,268,750 | | Total commercial and industrial | 136,682 | | | 456,548 | | | 238,543 | | | 146,805 | | | 154,754 | | | 366,453 | | | 868,643 | | | 2,368,428 | |
| Agricultural and other | Agricultural and other | | Agricultural and other | |
| Performing | Performing | $ | 108,967 | | | $ | 51,836 | | | $ | 35,370 | | | $ | 20,865 | | | $ | 11,468 | | | $ | 59,996 | | | $ | 200,528 | | | $ | 489,030 | | Performing | $ | 40,096 | | | $ | 62,927 | | | $ | 50,937 | | | $ | 30,669 | | | $ | 18,631 | | | $ | 67,142 | | | $ | 159,716 | | | $ | 430,118 | |
| Non-performing | Non-performing | — | | | — | | | 60 | | | 32 | | | — | | | 587 | | | 550 | | | 1,229 | | Non-performing | — | | | 12 | | | 424 | | | 1 | | | 42 | | | 65 | | | 902 | | | 1,446 | |
| Total agricultural and other | Total agricultural and other | 108,967 | | | 51,836 | | | 35,430 | | | 20,897 | | | 11,468 | | | 60,583 | | | 201,078 | | | 490,259 | | Total agricultural and other | 40,096 | | | 62,939 | | | 51,361 | | | 30,670 | | | 18,673 | | | 67,207 | | | 160,618 | | | 431,564 | |
| Total | Total | $ | 2,530,537 | | | $ | 2,874,126 | | | $ | 1,591,615 | | | $ | 1,195,472 | | | $ | 1,222,355 | | | $ | 2,662,908 | | | $ | 1,752,298 | | | $ | 13,829,311 | | Total | $ | 513,592 | | | $ | 3,289,442 | | | $ | 2,623,671 | | | $ | 1,430,558 | | | $ | 1,042,308 | | | $ | 3,542,809 | | | $ | 1,944,254 | | | $ | 14,386,634 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Term Loans Amortized Cost Basis by Origination Year | | | | |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| (In thousands) |
| Real estate: | | | | | | | | | | | | | | | |
| Commercial real estate loans | | | | | | | | | | | | | | | |
| Non-farm/non-residential | | | | | | | | | | | | | | | |
| Performing | $ | 1,056,381 | | | $ | 851,269 | | | $ | 509,258 | | | $ | 456,196 | | | $ | 679,187 | | | $ | 1,403,874 | | | $ | 513,630 | | | $ | 5,469,795 | |
| Non-performing | — | | | — | | | 4,991 | | | 25,803 | | | 4,272 | | | 126,884 | | | 318 | | | 162,268 | |
| Total non-farm/non-residential | 1,056,381 | | | 851,269 | | | 514,249 | | | 481,999 | | | 683,459 | | | 1,530,758 | | | 513,948 | | | 5,632,063 | |
| Construction/land development | | | | | | | | | | | | | | | |
| Performing | $ | 777,309 | | | $ | 796,098 | | | $ | 172,987 | | | $ | 128,736 | | | $ | 30,860 | | | $ | 85,511 | | | $ | 141,757 | | | $ | 2,133,258 | |
| Non-performing | 611 | | | — | | | 573 | | | 599 | | | 3 | | | 222 | | | — | | | 2,008 | |
| Total construction/land development | 777,920 | | | 796,098 | | | 173,560 | | | 129,335 | | | 30,863 | | | 85,733 | | | 141,757 | | | 2,135,266 | |
| Agricultural | | | | | | | | | | | | | | | |
| Performing | $ | 82,344 | | | $ | 72,286 | | | $ | 55,050 | | | $ | 30,479 | | | $ | 13,480 | | | $ | 82,143 | | | $ | 10,751 | | | $ | 346,533 | |
| Non-performing | — | | | — | | | — | | | — | | | — | | | 278 | | | — | | | 278 | |
| Total agricultural | 82,344 | | | 72,286 | | | 55,050 | | | 30,479 | | | 13,480 | | | 82,421 | | | 10,751 | | | 346,811 | |
| Total commercial real estate loans | $ | 1,916,645 | | | $ | 1,719,653 | | | $ | 742,859 | | | $ | 641,813 | | | $ | 727,802 | | | $ | 1,698,912 | | | $ | 666,456 | | | $ | 8,114,140 | |
| Residential real estate loans | | | | | | | | | | | | | | | |
| Residential 1-4 family | | | | | | | | | | | | | | | |
| Performing | $ | 397,464 | | | $ | 292,100 | | | $ | 239,047 | | | $ | 127,250 | | | $ | 114,337 | | | $ | 380,210 | | | $ | 177,311 | | | $ | 1,727,719 | |
| Non-performing | 1,366 | | | 1,973 | | | 2,890 | | | 3,244 | | | 2,095 | | | 8,470 | | | 794 | | | 20,832 | |
| Total residential 1-4 family | 398,830 | | | 294,073 | | | 241,937 | | | 130,494 | | | 116,432 | | | 388,680 | | | 178,105 | | | 1,748,551 | |
| Multifamily residential | | | | | | | | | | | | | | | |
| Performing | $ | 82,308 | | | $ | 138,848 | | | $ | 196,977 | | | $ | 42,399 | | | $ | 28,174 | | | $ | 80,642 | | | $ | 7,735 | | | $ | 577,083 | |
| Non-performing | — | | | — | | | — | | | — | | | — | | | 969 | | | — | | | 969 | |
| Total multifamily residential | 82,308 | | | 138,848 | | | 196,977 | | | 42,399 | | | 28,174 | | | 81,611 | | | 7,735 | | | 578,052 | |
| Total real estate | $ | 2,397,783 | | | $ | 2,152,574 | | | $ | 1,181,773 | | | $ | 814,706 | | | $ | 872,408 | | | $ | 2,169,203 | | | $ | 852,296 | | | $ | 10,440,743 | |
| Consumer | | | | | | | | | | | | | | | |
| Performing | $ | 305,620 | | | $ | 282,944 | | | $ | 147,820 | | | $ | 134,831 | | | $ | 119,877 | | | $ | 138,288 | | | $ | 17,628 | | | $ | 1,147,008 | |
| Non-performing | 64 | | | 134 | | | 282 | | | 948 | | | 24 | | | 1,334 | | | 102 | | | 2,888 | |
| Total consumer | 305,684 | | | 283,078 | | | 148,102 | | | 135,779 | | | 119,901 | | | 139,622 | | | 17,730 | | | 1,149,896 | |
| Commercial and industrial | | | | | | | | | | | | | | | |
| Performing | $ | 464,285 | | | $ | 267,719 | | | $ | 159,152 | | | $ | 165,733 | | | $ | 160,267 | | | $ | 194,162 | | | $ | 907,611 | | | $ | 2,318,929 | |
| Non-performing | 794 | | | 4,509 | | | 3,105 | | | 3,665 | | | 10,002 | | | 4,821 | | | 3,438 | | | 30,334 | |
| Total commercial and industrial | 465,079 | | | 272,228 | | | 162,257 | | | 169,398 | | | 170,269 | | | 198,983 | | | 911,049 | | | 2,349,263 | |
| Agricultural and other | | | | | | | | | | | | | | | |
| Performing | $ | 93,771 | | | $ | 50,001 | | | $ | 33,416 | | | $ | 19,818 | | | $ | 10,034 | | | $ | 56,631 | | | $ | 204,380 | | | $ | 468,051 | |
| Non-performing | — | | | 4 | | | 204 | | | 53 | | | — | | | 635 | | | 631 | | | 1,527 | |
| Total agricultural and other | 93,771 | | | 50,005 | | | 33,620 | | | 19,871 | | | 10,034 | | | 57,266 | | | 205,011 | | | 469,578 | |
| Total | $ | 3,262,317 | | | $ | 2,757,885 | | | $ | 1,525,752 | | | $ | 1,139,754 | | | $ | 1,172,612 | | | $ | 2,565,074 | | | $ | 1,986,086 | | | $ | 14,409,480 | |
The Company had approximately $6.2 million or 64 total revolving loans convert to term loans for the three months ended March 31, 2023 compared to$7.2 million or 39 total revolving loans convert to term loans for the three months ended March 31, 2022. These loans were considered immaterial for vintage disclosure inclusion.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Term Extension | | Interest Rate Reduction | | Principal Reduction | | Interest Only | | Combination Interest Rate Reduction and Term Extension | | Combination Principal Reduction and Interest Rate Reduction | | Post-
Modification
Outstanding
Balance | | Total Class of Loans Receivable |
| | | |
| Real estate: | | | | | | | | | | | | | | | |
| Commercial real estate loans | | | | | | | | | | | | | | | |
| Non-farm/non-residential | $ | 591 | | | $ | — | | | $ | — | | | $ | 1,346 | | | $ | 353 | | | $ | — | | | $ | 2,290 | | | 0.04 | % |
| Construction/land development | — | | | — | | | — | | | 166 | | | — | | | — | | | 166 | | | 0.01 | % |
| Agricultural | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | % |
| Residential real estate loans | | | | | — | | | | | | | | | | | |
| Residential 1-4 family | 182 | | | 517 | | | — | | | 70 | | | 259 | | | — | | | 1,028 | | | 0.06 | % |
| Multifamily residential | — | | | — | | | — | | | 926 | | | — | | | — | | | 926 | | | 0.15 | % |
| Total real estate | 773 | | | 517 | | | — | | | 2,508 | | | 612 | | | — | | | 4,410 | | | 0.04 | % |
| Consumer | — | | | — | | | 1 | | | 11 | | | — | | | 7 | | | 19 | | | — | % |
| Commercial and industrial | 36 | | | 60 | | | 69 | | | 668 | | | 74 | | | 2 | | | 909 | | | 0.04 | % |
| Agricultural & other | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | | | — | % |
| Total | $ | 809 | | | $ | 577 | | | $ | 70 | | | $ | 3,187 | | | $ | 686 | | | $ | 12 | | | $ | 5,341 | | | 0.04 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Term Loans Amortized Cost Basis by Origination Year | | | | |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| (In thousands) |
| Real estate: | | | | | | | | | | | | | | | |
| Commercial real estate loans | | | | | | | | | | | | | | | |
| Non-farm/non-residential | | | | | | | | | | | | | | | |
| Performing | $ | 395,824 | | | $ | 315,447 | | | $ | 394,061 | | | $ | 648,351 | | | $ | 298,086 | | | $ | 1,268,731 | | | $ | 284,865 | | | $ | 3,605,365 | |
| Non-performing | — | | | 10,253 | | | 14,880 | | | 20,152 | | | 49,639 | | | 188,968 | | | 27 | | | 283,919 | |
| Total non-farm/non-residential | 395,824 | | | 325,700 | | | 408,941 | | | 668,503 | | | 347,725 | | | 1,457,699 | | | 284,892 | | | 3,889,284 | |
| Construction/land development | | | | | | | | | | | | | | | |
| Performing | $ | 527,949 | | | $ | 400,982 | | | $ | 557,778 | | | $ | 57,024 | | | $ | 59,439 | | | $ | 85,197 | | | $ | 156,906 | | | $ | 1,845,275 | |
| Non-performing | — | | | 134 | | | 825 | | | 170 | | | — | | | 3,646 | | | — | | | 4,775 | |
| Total construction/land development | 527,949 | | | 401,116 | | | 558,603 | | | 57,194 | | | 59,439 | | | 88,843 | | | 156,906 | | | 1,850,050 | |
| Agricultural | | | | | | | | | | | | | | | |
| Performing | $ | 25,785 | | | $ | 28,939 | | | $ | 8,133 | | | $ | 7,534 | | | $ | 5,758 | | | $ | 44,537 | | | $ | 9,091 | | | $ | 129,777 | |
| Non-performing | — | | | 166 | | | — | | | — | | | — | | | 731 | | | — | | | 897 | |
| Total agricultural | 25,785 | | | 29,105 | | | 8,133 | | | 7,534 | | | 5,758 | | | 45,268 | | | 9,091 | | | 130,674 | |
| Total commercial real estate loans | $ | 949,558 | | | $ | 755,921 | | | $ | 975,677 | | | $ | 733,231 | | | $ | 412,922 | | | $ | 1,591,810 | | | $ | 450,889 | | | $ | 5,870,008 | |
| Residential real estate loans | | | | | | | | | | | | | | | |
| Residential 1-4 family | | | | | | | | | | | | | | | |
| Performing | $ | 220,380 | | | $ | 151,459 | | | $ | 180,113 | | | $ | 113,845 | | | $ | 105,129 | | | $ | 360,700 | | | $ | 123,552 | | | $ | 1,255,178 | |
| Non-performing | 611 | | | 1,713 | | | 2,084 | | | 1,173 | | | 1,064 | | | 7,342 | | | 5,788 | | | 19,775 | |
| Total residential 1-4 family | 220,991 | | | 153,172 | | | 182,197 | | | 115,018 | | | 106,193 | | | 368,042 | | | 129,340 | | | 1,274,953 | |
| Multifamily residential | | | | | | | | | | | | | | | |
| Performing | $ | 15,653 | | | $ | 49,505 | | | $ | 64,552 | | | $ | 28,378 | | | $ | 21,406 | | | $ | 62,737 | | | $ | 37,306 | | | $ | 279,537 | |
| Non-performing | — | | | — | | | — | | | — | | | — | | | 1,300 | | | — | | | 1,300 | |
| Total multifamily residential | 15,653 | | | 49,505 | | | 64,552 | | | 28,378 | | | 21,406 | | | 64,037 | | | 37,306 | | | 280,837 | |
| Total real estate | $ | 1,186,202 | | | $ | 958,598 | | | $ | 1,222,426 | | | $ | 876,627 | | | $ | 540,521 | | | $ | 2,023,889 | | | $ | 617,535 | | | $ | 7,425,798 | |
| Consumer | | | | | | | | | | | | | | | |
| Performing | $ | 229,986 | | | $ | 176,355 | | | $ | 136,403 | | | $ | 113,160 | | | $ | 68,376 | | | $ | 96,506 | | | $ | 3,070 | | | $ | 823,856 | |
| Non-performing | 57 | | | 28 | | | 10 | | | 117 | | | — | | | 1,444 | | | 7 | | | 1,663 | |
| Total consumer | 230,043 | | | 176,383 | | | 136,413 | | | 113,277 | | | 68,376 | | | 97,950 | | | 3,077 | | | 825,519 | |
| Commercial and industrial | | | | | | | | | | | | | | | |
| Performing | $ | 476,424 | | | $ | 122,999 | | | $ | 168,984 | | | $ | 185,569 | | | $ | 66,928 | | | $ | 103,391 | | | $ | 244,259 | | | $ | 1,368,554 | |
| Non-performing | 5 | | | 161 | | | 4,447 | | | 9,228 | | | 2,778 | | | 892 | | | 682 | | | 18,193 | |
| Total commercial and industrial | 476,429 | | | 123,160 | | | 173,431 | | | 194,797 | | | 69,706 | | | 104,283 | | | 244,941 | | | 1,386,747 | |
| Agricultural and other | | | | | | | | | | | | | | | |
| Performing | $ | 61,173 | | | $ | 44,248 | | | $ | 8,819 | | | $ | 8,682 | | | $ | 3,235 | | | $ | 49,725 | | | $ | 21,127 | | | $ | 197,009 | |
| Non-performing | — | | | — | | | 23 | | | 13 | | | 33 | | | 947 | | | — | | | 1,016 | |
| Total agricultural and other | 61,173 | | | 44,248 | | | 8,842 | | | 8,695 | | | 3,268 | | | 50,672 | | | 21,127 | | | 198,025 | |
| Total | $ | 1,953,847 | | | $ | 1,302,389 | | | $ | 1,541,112 | | | $ | 1,193,396 | | | $ | 681,871 | | | $ | 2,276,794 | | | $ | 886,680 | | | $ | 9,836,089 | |
During the three-months ended March 31, 2023, the Company restructured approximately $52,000 in loans to three borrowers. The ending balance of these loans as of March 31, 2023, was $48,000. The Company had approximately $17.6 million or 136 total revolving loans convertconsidered the financial effect of these loan modifications to term loans forborrowers experiencing financial difficulty during the nine monthsthree-months ended September 30, 2022 compared to$27.8 million or 201 total revolving loans convert to term loans for the nine months ended September 30, 2021. These loans were consideredMarch 31, 2023 immaterial for vintagetabular disclosure inclusion.
The following table presents the amortized cost basis of loans that had a payment default during the three-months ended March 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Term Extension | | Interest Rate Reduction | | Principal Reduction | | Interest Only | | Combination Interest Rate Reduction and Term Extension | | Combination Principal Reduction and Interest Rate Reduction |
| (Dollars in thousands) |
| Real estate | | | | | | | | | | | |
| Commercial real estate loans | | | | | | | | | | | |
| Non-farm/non-residential | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | |
| Construction/land development | — | | | — | | | — | | | — | | | — | | | — | |
| Agricultural | — | | | — | | | — | | | — | | | — | | | — | |
| Residential real estate loans | | | | | | | | | | | |
| Residential 1-4 family | 76 | | | — | | | — | | | — | | | — | | | — | |
| Total real estate | 76 | | | — | | | — | | | — | | | — | | | — | |
| Consumer | — | | | — | | | 1 | | | — | | | — | | | 7 | |
| Commercial and industrial | 28 | | | — | | | 69 | | | 668 | | | — | | | 2 | |
| Agricultural & other | — | | | — | | | — | | | — | | | — | | | 3 | |
| Total | $ | 104 | | | $ | — | | | $ | 70 | | | $ | 668 | | | $ | — | | | $ | 12 | |
The following is a presentationCompany closely monitors the performance of troubled debt restructurings (“TDRs”) by classthe loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The Company has modified 11 loans over the past 12 months to borrowers experiencing financial difficulty. The pre-modification balance of the loans was $1.3 million, and the ending balance as of September 30, 2022March 31, 2023 was $854,000. The $854,000 balance consists of $810,000 of current loans, $7,000 of loans 30-89 days past due and December 31, 2021:$37,000 of loans past due 90 days or more.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Number
of Loans | | Pre-
Modification
Outstanding
Balance | | Rate
Modification | | Term
Modification | | Rate
& Term
Modification | | Post-
Modification
Outstanding
Balance |
| (Dollars in thousands) |
| Real estate: | | | | | | | | | | | |
| Commercial real estate loans | | | | | | | | | | | |
| Non-farm/non-residential | 12 | | | $ | 6,444 | | | $ | 3,203 | | | $ | 601 | | | $ | 438 | | | $ | 4,242 | |
| Construction/land development | 1 | | | 216 | | | 193 | | | — | | | — | | | 193 | |
| | | | | | | | | | | |
| Residential real estate loans | | | | | | | | | | | |
| Residential 1-4 family | 14 | | | 2,307 | | | 814 | | | 111 | | | 282 | | | 1,207 | |
| Multifamily residential | 1 | | | 1,130 | | | 957 | | | — | | | — | | | 957 | |
| Total real estate | 28 | | | 10,097 | | | 5,167 | | | 712 | | | 720 | | | 6,599 | |
| Consumer | 2 | | | 18 | | | 12 | | | — | | | 1 | | | 13 | |
| Commercial and industrial | 13 | | | 3,183 | | | 841 | | | 60 | | | 79 | | | 980 | |
| Total | 43 | | | $ | 13,298 | | | $ | 6,020 | | | $ | 772 | | | $ | 800 | | | $ | 7,592 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Number
of Loans | | Pre-
Modification
Outstanding
Balance | | Rate
Modification | | Term
Modification | | Rate
& Term
Modification | | Post-
Modification
Outstanding
Balance |
| (Dollars in thousands) |
| Real estate: | | | | | | | | | | | |
| Commercial real estate loans | | | | | | | | | | | |
| Non-farm/non-residential | 12 | | $ | 6,119 | | | $ | 3,581 | | | $ | 623 | | | $ | 85 | | | $ | 4,289 | |
| Construction/land development | 2 | | 240 | | | 210 | | | 1 | | | — | | | 211 | |
| Agricultural | 1 | | 282 | | | 262 | | | — | | | — | | | 262 | |
| Residential real estate loans | | | | | | | | | | | |
| Residential 1-4 family | 15 | | 2,328 | | | 844 | | | 117 | | | 332 | | | 1,293 | |
| Multifamily residential | 1 | | 1,130 | | | 1,144 | | | — | | | — | | | 1,144 | |
| Total real estate | 31 | | 10,099 | | | 6,041 | | | 741 | | | 417 | | | 7,199 | |
| Consumer | 4 | | 22 | | | 13 | | | — | | | 3 | | | 16 | |
| Commercial and industrial | 9 | | 2,353 | | | 172 | | | 65 | | | 74 | | | 311 | |
| Total | 44 | | $ | 12,474 | | | $ | 6,226 | | | $ | 806 | | | $ | 494 | | | $ | 7,526 | |
a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses on loans is adjusted by the same amount. The followingdefaults impact the loss rate by applicable loan pool for the quarterly CECL calculation. 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 presentation of TDRs on non-accrual status as of September 30, 2022 and December 31, 2021 because they arespecific reserve is not in compliance with the modified terms:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Number of
Loans | | Recorded
Balance | | Number of
Loans | | Recorded
Balance |
| (Dollars in thousands) |
| Real estate: | | | | | | | |
| Commercial real estate loans | | | | | | | |
| Non-farm/non-residential | 1 | | | $ | 5 | | | 2 | | | $ | 7 | |
| Construction/land development | 1 | | | 193 | | | 1 | | | 210 | |
| Agricultural | — | | | — | | | 1 | | | 262 | |
| Residential real estate loans | | | | | | | |
| Residential 1-4 family | 5 | | | 338 | | | 5 | | | 388 | |
| Total real estate | 7 | | | 536 | | | 9 | | | 867 | |
| Consumer | 1 | | | 1 | | | 3 | | | 3 | |
| Commercial and industrial | 11 | | | 897 | | | 6 | | | 206 | |
| Total | 19 | | | $ | 1,434 | | | 18 | | | $ | 1,076 | |
recorded.
The following is a presentation of total foreclosed assets as of September 30, 2022March 31, 2023 and December 31, 2021:2022:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (In thousands) |
| Commercial real estate loans | | | |
| Non-farm/non-residential | $ | 49 | | | $ | 536 | |
| Construction/land development | 47 | | | 834 | |
| Residential real estate loans | | | |
| Residential 1-4 family | 269 | | | 260 | |
| Total foreclosed assets held for sale | $ | 365 | | | $ | 1,630 | |
The Company has purchased loans for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. As of September 30, 2022 and December 31, 2021, the balance of purchase credit deteriorated loans was approximately $146.0 million and $448,000, respectively. This balance, as of September 30, 2022, consisted of $145.5 million resulting from the acquisition of Happy and $422,000 from the acquisition of LH-Finance. | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| (In thousands) |
| Commercial real estate loans | | | |
| Non-farm/non-residential | $ | 118 | | | $ | 118 | |
| Construction/land development | 47 | | | 47 | |
| Residential real estate loans | | | |
| Residential 1-4 family | 260 | | | 260 | |
| Multifamily residential | — | | | 121 | |
| Total foreclosed assets held for sale | $ | 425 | | | $ | 546 | |
6. Goodwill and Core Deposits and Other Intangibles
Changes in the carrying amount and accumulated amortization of the Company’s goodwill and core deposits and other intangibles at September 30, 2022March 31, 2023 and December 31, 2021,2022, were as follows:
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | (In thousands) | | (In thousands) |
| Goodwill | Goodwill | | Goodwill | |
| Balance, beginning of period | Balance, beginning of period | $ | 973,025 | | | $ | 973,025 | | Balance, beginning of period | $ | 1,398,253 | | | $ | 973,025 | |
| Acquisition of Happy Bancshares | Acquisition of Happy Bancshares | 421,328 | | | — | | Acquisition of Happy Bancshares | — | | | 425,228 | |
| Balance, end of period | Balance, end of period | $ | 1,394,353 | | | $ | 973,025 | | Balance, end of period | $ | 1,398,253 | | | $ | 1,398,253 | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| (In thousands) |
| Core Deposit Intangibles | | | |
| Balance, beginning of period | $ | 58,455 | | | $ | 25,045 | |
| Amortization expense | (2,477) | | | (1,421) | |
| Balance, March 31 | $ | 55,978 | | | 23,624 | |
| Acquisition of Happy Bancshares | | | 42,263 | |
| Amortization expense | | | (7,432) | |
| Balance, end of year | | | $ | 58,455 | |
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (In thousands) |
| Core Deposit Intangibles | | | |
| Balance, beginning of period | $ | 25,045 | | | $ | 30,728 | |
| Acquisition of Happy Bancshares | 42,263 | | | — | |
| Amortization expense | (6,376) | | | (4,262) | |
| Balance, September 30 | 60,932 | | | 26,466 | |
| Amortization expense | | | (1,421) | |
| Balance, end of year | | | $ | 25,045 | |
The carrying basis and accumulated amortization of core deposit intangibles at September 30, 2022March 31, 2023 and December 31, 20212022 were:
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | (In thousands) | | (In thousands) |
| Gross carrying basis | Gross carrying basis | $ | 128,888 | | | $ | 86,625 | | Gross carrying basis | $ | 128,888 | | | $ | 128,888 | |
| Accumulated amortization | Accumulated amortization | (67,956) | | | (61,580) | | Accumulated amortization | (72,910) | | | (70,433) | |
| Net carrying amount | Net carrying amount | $ | 60,932 | | | $ | 25,045 | | Net carrying amount | $ | 55,978 | | | $ | 58,455 | |
Core deposit intangible amortization expense was approximately $2.5 million and $1.4 million for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. Core deposit intangible amortization expense was approximately $6.4 million and $4.3 million for the nine months ended September 30, 2022 and 2021, respectively. The Company’s estimated amortization expense of core deposits intangibles for each of the years 20222023 through 20262027 is approximately: 2022 – $8.9 million; 2023 – $9.7 million; 2024 – $8.5$8.4 million; 2025 – $8.1$8.0 million; 20262026– $7.8 million; 2027 – $7.8$6.6 million.
The carrying amount of the Company’s goodwill was $1.39$1.40 billion and $973.0 million at September 30, 2022both March 31, 2023 and December 31, 2021, respectively.2022. Goodwill is tested annually for impairment during the fourth quarter or more often if events and circumstances indicate there may be an impairment. During the 2022 review, no impairment was found. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements.
7. Other Assets
Other assets consist primarily of equity securities without a readily determinable fair value and other miscellaneous assets. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, other assets were $300.6$304.6 millionand $177.0$321.2 million, respectively.
The Company has equity securities without readily determinable fair values such as stock holdings in the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank (“Federal Reserve”) which are outside the scope of ASC Topic 321, Investments – Equity Securities (“ASC Topic 321”). These equity securities without a readily determinable fair value were $120.7$135.8 million and $88.2$135.3 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, and are accounted for at cost.
The Company has equity securities such as stock holdings in First National Bankers’ Bank and other miscellaneous holdings which are accounted for under ASC Topic 321. These equity securities without a readily determinable fair value were$72.6 $74.9 million and $36.4$80.6 million at September 30, 2022March 31, 2023 and December 31, 2021.2022, respectively. There were no observable transactions during the period that would indicate a material change in fair value. Therefore,
Included in other assets are marketable equity securities held at the Holding Company which are accounted for under ASC Topic 321. These marketable equity securities were $40.6 million and $52.0 million at March 31, 2023 and December 31, 2022, respectively. The March 31, 2023 balance consisted primarily of investments in Pacific Western Bank and PNC Financial Services Group, Inc. The fair value of these investments were accounted$15.5 million and $18.9 million, respectively, at March 31, 2023. The Company recorded $11.4 million in expense for at cost, less impairment.the fair value adjustment for these marketable securities during the three months ended March 31, 2023.
8. Deposits
The aggregate amount of time deposits with a minimum denomination of $250,000 was $303.2$366.2 millionand $321.6$333.2 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. The aggregate amount of time deposits with a minimum denomination of $100,000 was $615.1$680.4 million and $537.4$639.3 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Interest expense applicable to certificates in excess of $100,000 totaled $615,000$2.9 million and $1.7 million$764,000 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. Interest expense applicable to certificates in excess of $100,000 totaled$2.0 million and $6.1 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, brokered deposits were $546.6$484.5 million and $625.7$476.6 million, respectively.
Deposits totaling approximately$2.56 $2.87 billionand $1.91$2.65 billion at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, were public funds obtained primarily from state and political subdivisions in the United States.
9. Securities Sold Under Agreements to Repurchase
At September 30, 2022March 31, 2023 and December 31, 2021,2022, securities sold under agreements to repurchase totaled $121.6$138.7 million and $140.9$131.1 million, respectively. For the three-month periods ended September 30,March 31, 2023 and 2022, and 2021, securities sold under agreements to repurchase daily weighted-average totaled $126.8$134.9 million and $143.9$137.6 million, respectively. For the nine-month periods ended September 30, 2022 and 2021, securities sold under agreements to repurchase daily weighted-average totaled $129.1 million and $153.7 million, respectively.
The remaining contractual maturity of securities sold under agreements to repurchase in the consolidated balance sheets as of September 30, 2022March 31, 2023 and December 31, 20212022 is presented in the following table:
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | Overnight and Continuous | | Total | | Overnight and Continuous | | Total | | Overnight and Continuous | | Total | | Overnight and Continuous | | Total |
| | (In thousands) | | (In thousands) |
| Securities sold under agreements to repurchase: | Securities sold under agreements to repurchase: | | Securities sold under agreements to repurchase: | |
| U.S. government-sponsored enterprises | U.S. government-sponsored enterprises | $ | 6,968 | | | $ | 6,968 | | | $ | 8,433 | | | $ | 8,433 | | U.S. government-sponsored enterprises | $ | 5,747 | | | $ | 5,747 | | | $ | 5,322 | | | $ | 5,322 | |
| Mortgage-backed securities | Mortgage-backed securities | 6,076 | | | 6,076 | | | 7,920 | | | 7,920 | | Mortgage-backed securities | 5,146 | | | 5,146 | | | 5,153 | | | 5,153 | |
| State and political subdivisions | State and political subdivisions | 104,968 | | | 104,968 | | | 122,173 | | | 122,173 | | State and political subdivisions | 124,958 | | | 124,958 | | | 117,674 | | | 117,674 | |
| Other securities | Other securities | 3,543 | | | 3,543 | | | 2,360 | | | 2,360 | | Other securities | 2,891 | | | 2,891 | | | 2,997 | | | 2,997 | |
| Total borrowings | Total borrowings | $ | 121,555 | | | $ | 121,555 | | | $ | 140,886 | | | $ | 140,886 | | Total borrowings | $ | 138,742 | | | $ | 138,742 | | | $ | 131,146 | | | $ | 131,146 | |
10. FHLB and Other Borrowed Funds
The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $400.0$650.0 million at both September 30, 2022March 31, 2023 and December 31, 2021.2022. The Company had no other borrowed funds as of September 30, 2022March 31, 2023 or December 31, 2021.2022. At September 30, 2022 allMarch 31, 2023, $50.0 million and $600.0 million of the outstanding balances were classified as short-term and long-term advances, as the FHLB has provided notice of their intention to call all of the Company's FHLB borrowed funds within a year due to the low interest rates on the advances.respectively. At December 31, 2021, all2022, $50.0 million and $600.0 million of the outstanding balances were classified as short-term and long-term advances.advances, respectively. The FHLB advances mature in 2033from 2023 to 2037 with fixed interest rates ranging from 1.76%2.26% to 2.26%4.84%. As noted above, expected maturities could differ from contractual maturities because FHLB may have the right to call, or the Company may have the right to prepay certain obligations.
Additionally, the Company had $1.09$1.15 billionand $1.07$1.14 billion at September 30, 2022March 31, 2023 and December 31, 2021,2022, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
The parent company took out a $20.0 million line of credit for general corporate purposes during 2015. The balance on this line of credit at September 30, 2022March 31, 2023 and December 31, 20212022 was zero.
The Company had access to approximately $677.7 million in liquidity with the Federal Reserve Bank as of March 31, 2023. This consisted of $71.8 million available from the Discount Window and $605.9 million available through the Bank Term Funding Program ("BTFP"). As of March 31, 2023, the primary and secondary credit rates available through the Discount Window were 5.00% and 5.50%, respectively, and the BTFP rate was 4.85%. As of March 31, 2023, the balance on these available sources was zero.
11. Subordinated Debentures
Subordinated debentures at September 30,March 31, 2023 and December 31, 2022 consisted of subordinated debt securities and subordinated debentures at December 31, 2021 consisted of subordinated debt securities and guaranteed payments on trust preferred securities, with the following components:
| | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
| (In thousands) |
| Trust preferred securities | | | |
| | | |
| | | |
| Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15% above the three-month LIBOR rate, reset quarterly, currently callable without penalty | — | | | 4,501 | |
| Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75% during the first five years and at a floating rate of 1.85% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty | — | | | 3,093 | |
| Subordinated debentures, issued in 2004, due 2034, fixed rate of 6.00% during the first five years and at a floating rate of 2.00% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty | — | | | 15,464 | |
| Subordinated debentures, issued in 2005, due 2035, fixed rate of 5.84% during the first five years and at a floating rate of 1.45% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty | — | | | 25,774 | |
| Subordinated debentures, issued in 2004, due 2034, fixed rate of 4.29% during the first five years and at a floating rate of 2.50% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty | — | | | 16,495 | |
| Subordinated debentures, issued in 2006, due 2036, fixed rate of 7.38% during the first five years and at a floating rate of 1.62% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty | — | | | 5,942 | |
| Subordinated debt securities | | | |
| Subordinated notes, net of issuance costs, issued in 2020, due 2030, fixed rate of 5.50% during the first five years and at a floating rate of 534.5 basis points above the then three-month SOFR rate, reset quarterly, thereafter, callable in 2025 without penalty | 143,732 | | | — | |
| Subordinated notes, net of issuance costs, issued in 2022, due 2032, fixed rate of 3.125% during the first five years and at a floating rate of 182 basis points above the then three-month SOFR rate, reset quarterly, thereafter, callable in 2027 without penalty | 296,836 | | | — | |
| Subordinated notes, net of issuance costs, issued in 2017, due 2027, fixed rate of 5.625% during the first five years and at a floating rate of 3.575% above the then three-month LIBOR rate, reset quarterly, thereafter, callable in 2022 without penalty | — | | | 299,824 | |
| Total | $ | 440,568 | | | $ | 371,093 | |
| | | | | | | | | | | |
| As of March 31, 2023 | | As of December 31, 2022 |
| (In thousands) |
| Subordinated debt securities | | | |
| Subordinated notes, net of issuance costs, issued in 2020, due 2030, fixed rate of 5.50% during the first five years and at a floating rate of 534.5 basis points above the then three-month SOFR rate, reset quarterly, thereafter, callable in 2025 without penalty | $ | 143,075 | | | $ | 143,400 | |
| Subordinated notes, net of issuance costs, issued in 2022, due 2032, fixed rate of 3.125% during the first five years and at a floating rate of 182 basis points above the then three-month SOFR rate, reset quarterly, thereafter, callable in 2027 without penalty | 297,200 | | | 297,020 | |
| Total | $ | 440,275 | | | $ | 440,420 | |
Trust Preferred Securities.
On April 1, 2022, the Company acquired $23.2 million in trust preferred securities from Happy which were currently callable without penalty based on the termsTable of the specific agreements. During the second and third quarters of 2022, the Company redeemed, without penalty, the $23.2 million of the trust preferred securities acquired from Happy. In addition, during the second and third quarters, the Company also redeemed, without penalty, the $73.3 million of trust preferred securities held prior to the Happy acquisition. As a result, the Company no longer holds any trust preferred securities.ContentsSubordinated Debt Securities. On April 1, 2022, the Company acquired $140.0 million in aggregate principal amount of 5.500% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “2030 Notes”) from Happy, and the Company recorded approximately $144.4 million which included fair value adjustments. The 2030 Notes are unsecured, subordinated notes from Happy. These notes have adebt obligations of the Company and will mature on July 31, 2030. From and including the date of issuance to, but excluding July 31, 2025 or the date of earlier redemption, the 2030 Notes will bear interest at an initial rate of 5.50% per annum, payable in arrears on January 31 and July 31 of each year. From and including July 31, 2025 to, but excluding, the maturity date of July 31,or earlier redemption, the 2030 and carry a fixed rate of 5.500% for the first five years. Thereafter, the notesNotes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be 3-month Secured Overnight Funding Rate (SOFR)), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2030 Notes, plus 5.345%, resetting quarterly. Interest payments are due semi-annually, and the notes include a right of prepayment without penaltypayable quarterly in arrears on or afterJanuary 31, April 30, July 31, and October 31 of each year, commencing on October 31, 2025.
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.
On January 18, 2022, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 3.125% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “2032 Notes”) for net proceeds, after underwriting discounts and issuance costs of approximately $296.4 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. From and including the date of issuance to, but excluding January 30, 2027 or the date of earlier redemption, the 2032 Notes will bear interest at an initial rate of 3.125% per annum, payable in arrears on January 30 and July 30 of each year. From and including January 30, 2027 to, but excluding, the maturity date or earlier redemption, the 2032 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be Three-Month Term SOFR), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2032 Notes, plus 182 basis points, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on April 30, 2027.
The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.
On April 3, 2017, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 5.625% Fixed-to-Floating Rate Subordinated Notes due 2027 (the “2027 Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $297.0 million. The 2027 Notes were unsecured, subordinated debt obligations and would have matured on April 15, 2027. From and including the date of issuance to, but excluding April 15, 2022, the 2027 Notes bore interest at an initial rate of 5.625% per annum. From and including April 15, 2022 to, but excluding, the maturity date or earlier redemption, the 2027 Notes were to bear interest at a floating rate equal to three-month LIBOR as calculated on each applicable date of determination plus a spread of 3.575%; provided, however, that in the event three-month LIBOR was less than zero, then three-month LIBOR would have been deemed to be zero.
The Company, beginning with the interest payment date of April 15, 2022, and on any interest payment date thereafter, was permitted to redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. On April 15, 2022, the Company completed the payoff of the 2027 Notes in aggregate principal amount of $300.0 million. Each 2027 Note was redeemed pursuant to the terms of the Subordinated Indenture, as supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S. Bank Trust Company, National Association, the Trustee for the 2027 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.
12. Income Taxes
The following is a summary of the components of the provision for income taxes for the three and nine months ended September 30, 2022March 31, 2023 and 2021:2022:
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
| | (In thousands) | | (In thousands) |
| Current: | Current: | | Current: | |
| Federal | Federal | $ | 19,211 | | | $ | 14,693 | | | $ | 52,418 | | | $ | 52,771 | | Federal | $ | 24,740 | | | $ | 13,260 | |
| State | State | 5,068 | | | 4,864 | | | 13,830 | | | 17,470 | | State | 5,037 | | | 4,389 | |
| Total current | Total current | 24,279 | | | 19,557 | | | 66,248 | | | 70,241 | | Total current | 29,777 | | | 17,649 | |
| Deferred: | Deferred: | | | | | | | | Deferred: | | | |
| Federal | Federal | 7,101 | | | 2,744 | | | (7,652) | | | 5,211 | | Federal | 146 | | | 1,788 | |
| State | State | 1,874 | | | 908 | | | (2,019) | | | 1,725 | | State | 30 | | | 592 | |
| Total deferred | Total deferred | 8,975 | | | 3,652 | | | (9,671) | | | 6,936 | | Total deferred | 176 | | | 2,380 | |
| Income tax expense | Income tax expense | $ | 33,254 | | | $ | 23,209 | | | $ | 56,577 | | | $ | 77,177 | | Income tax expense | $ | 29,953 | | | $ | 20,029 | |
The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows for the three and nine months ended September 30, 2022March 31, 2023 and 2021:2022:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
| Statutory federal income tax rate | Statutory federal income tax rate | 21.00 | % | | 21.00 | % | | 21.00 | % | | 21.00 | % | Statutory federal income tax rate | 21.00 | % | | 21.00 | % |
| Effect of non-taxable interest income | Effect of non-taxable interest income | (1.07) | | | (1.08) | | | (1.69) | | | (1.00) | | Effect of non-taxable interest income | (0.78) | | | (1.22) | |
| Stock compensation | Stock compensation | 0.02 | | | 0.16 | | | 0.25 | | | 0.23 | | Stock compensation | 0.39 | | | 0.50 | |
| State income taxes, net of federal benefit | State income taxes, net of federal benefit | 3.40 | | | 3.50 | | | 3.04 | | | 4.00 | | State income taxes, net of federal benefit | 2.49 | | | 4.13 | |
| Executive officer compensation & other | Executive officer compensation & other | 0.08 | | | 0.05 | | | 0.38 | | | (0.32) | | Executive officer compensation & other | (0.56) | | | (0.82) | |
| Effective income tax rate | Effective income tax rate | 23.43 | % | | 23.63 | % | | 22.98 | % | | 23.91 | % | Effective income tax rate | 22.54 | % | | 23.59 | % |
The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows:
| | | September 30,
2022 | | December 31,
2021 | | March 31,
2023 | | December 31,
2022 |
| | (In thousands) | | (In thousands) |
| Deferred tax assets: | Deferred tax assets: | | Deferred tax assets: | |
| Allowance for credit losses | Allowance for credit losses | $ | 83,337 | | | $ | 68,644 | | Allowance for credit losses | $ | 79,668 | | | $ | 80,232 | |
| Deferred compensation | Deferred compensation | 6,483 | | | 5,342 | | Deferred compensation | 5,071 | | | 7,817 | |
| Stock compensation | Stock compensation | 6,071 | | | 5,044 | | Stock compensation | 5,816 | | | 6,180 | |
| Non-accrual interest income | Non-accrual interest income | 1,854 | | | 694 | | Non-accrual interest income | 1,693 | | | 1,518 | |
| Real estate owned | Real estate owned | 108 | | | 109 | | Real estate owned | 103 | | | 103 | |
| Unrealized loss on investment securities, available-for-sale | Unrealized loss on investment securities, available-for-sale | 104,452 | | | — | | Unrealized loss on investment securities, available-for-sale | 85,767 | | | 98,587 | |
| Loan discounts | Loan discounts | 7,813 | | | 4,169 | | Loan discounts | 6,357 | | | 7,007 | |
| Tax basis premium/discount on acquisitions | Tax basis premium/discount on acquisitions | 1,767 | | | 3,220 | | Tax basis premium/discount on acquisitions | 774 | | | 1,222 | |
| Investments | Investments | 29,609 | | | 263 | | Investments | 28,884 | | | 28,523 | |
| | Other | Other | 12,694 | | | 5,283 | | Other | 8,208 | | | 8,007 | |
| Gross deferred tax assets | Gross deferred tax assets | 254,188 | | | 92,768 | | Gross deferred tax assets | 222,341 | | | 239,196 | |
| Deferred tax liabilities: | Deferred tax liabilities: | | | | Deferred tax liabilities: | | | |
| Accelerated depreciation on premises and equipment | Accelerated depreciation on premises and equipment | 5,869 | | | 761 | | Accelerated depreciation on premises and equipment | 3,393 | | | 4,252 | |
| Unrealized gain on securities | — | | | 4,220 | | |
| | Core deposit intangibles | Core deposit intangibles | 14,582 | | | 5,736 | | Core deposit intangibles | 14,676 | | | 14,755 | |
| FHLB dividends | FHLB dividends | 2,781 | | | 2,820 | | FHLB dividends | 2,892 | | | 2,681 | |
| Other | Other | 1,977 | | | 941 | | Other | 8,046 | | | 8,187 | |
| Gross deferred tax liabilities | Gross deferred tax liabilities | 25,209 | | | 14,478 | | Gross deferred tax liabilities | 29,007 | | | 29,875 | |
| Net deferred tax assets | Net deferred tax assets | $ | 228,979 | | | $ | 78,290 | | Net deferred tax assets | $ | 193,334 | | | $ | 209,321 | |
The Company and its subsidiaries filefiles income tax returns in the U.S. federal jurisdictionjurisdiction. The Company's income tax returns are open and the states of Alabama, Arizona, Arkansas, California, Florida, Georgia, Illinois, Kansas, Kentucky, Maryland, Mississippi, Missouri, New Hampshire, New Jersey, New York, New Mexico, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas and Wisconsin. The Company is no longer subject to U.S. federalexaminations from the 2019 tax year and forward. The Company's various state income tax examinations byreturns are generally open from the 2019 and later tax authorities forreturn years before 2018.based on individual state statute of limitations.
13. Common Stock, Compensation Plans and Other
Common Stock
The Company’s Restated Articles of Incorporation, as amended, authorize the issuance of up to 300,000,000 shares of common stock, par value $0.01 per share.
The Company also has the authority to issue up to 5,500,000 shares of preferred stock, par value $0.01 per share under the Company’s Restated Articles of Incorporation, as amended.
Stock Repurchases
On January 22, 2021, the Company’s Board of Directors authorized the repurchase of up to an additional 20,000,000 shares of its common stock under the previously approved stock repurchase program. During the first ninethree months of 2022,2023, the Company repurchased a total of 2,258,531590,000 shares with a weighted-average stock price of $22.50$22.92 per share. Shares repurchased under the program as of September 30, 2022March 31, 2023 since its inception total 19,919,86621,349,866 shares. The remaining balance available for repurchase is 19,832,13418,402,134 shares at September 30, 2022.March 31, 2023.
Stock Compensation Plans
On January 21, 2022, the Company’s Board of Directors adopted, and on April 21, 2022, the Company's shareholders approved, the Home BancShares, Inc. 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan replaced the Company’s Amended and Restated 2006 Stock Option and Performance Incentive Plan (the “2006 Plan” and, together with the 2022 Plan, the “Plans”), which expired on February 27, 2022. The purpose of the Plans is to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate those persons to improve the Company’s business results. As of September 30, 2022,March 31, 2023, the maximum total number of shares of the Company’s common stock available for issuance under the 2022 Plan was 14,788,000 shares (representing 13,288,000 shares approved for issuance under the 2006 Plan plus 1,500,000 shares added upon adoption of the 2022 Plan). At September 30, 2022,March 31, 2023, the Company had 2,685,1872,524,598 shares of common stock available for future grants under 2022 Plan. As of September 30, 2022, a total of 5,787,203and 5,408,114 shares of common stock were reserved for issuance pursuant to the Plans.
The intrinsic value of the stock options outstanding and stock options vested at September 30, 2022March 31, 2023 was $8.6$4.8 million and $8.3$4.6 million, respectively. The intrinsic value of stock options exercised during the ninethree months ended September 30, 2022March 31, 2023 was approximately $259,000.$1.4 million. Total unrecognized compensation cost, net of income tax benefit, related to non-vested stock option awards, which are expected to be recognized over the vesting periods, was approximately $5.3$3.7 million as of September 30, 2022.March 31, 2023.
The table below summarizes the stock option transactions under the 2022 Plan at September 30, 2022March 31, 2023 and December 31, 20212022 and changes during the three-month period and year then ended:
| | | For the Nine Months Ended September 30, 2022 | | For the Year Ended December 31, 2021 | | For the Three Months Ended March 31, 2023 | | For the Year Ended December 31, 2022 |
| | Shares (000) | | Weighted-
Average
Exercisable
Price | | Shares (000) | | Weighted-
Average
Exercisable
Price | | Shares (000) | | Weighted-
Average
Exercisable
Price | | Shares (000) | | Weighted-
Average
Exercisable
Price |
| Outstanding, beginning of year | Outstanding, beginning of year | 3,015 | | | $ | 20.06 | | | 3,254 | | | $ | 19.77 | | Outstanding, beginning of year | 2,971 | | | $ | 20.45 | | | 3,015 | | | $ | 20.06 | |
| Granted | Granted | 181 | | | 21.09 | | | 15 | | | 21.68 | | Granted | 25 | | | 22.63 | | | 183 | | | 21.13 | |
| Forfeited/Expired | Forfeited/Expired | (69) | | | 21.87 | | | (57) | | | 22.44 | | Forfeited/Expired | (5) | | | 23.32 | | | (96) | | | 21.89 | |
| Exercised | Exercised | (25) | | | 12.00 | | | (197) | | | 14.78 | | Exercised | (107) | | | 9.29 | | | (131) | | | 11.30 | |
| Outstanding, end of period | Outstanding, end of period | 3,102 | | | 20.14 | | | 3,015 | | | 20.06 | | Outstanding, end of period | 2,884 | | | 20.88 | | | 2,971 | | | 20.45 | |
| Exercisable, end of period | Exercisable, end of period | 1,944 | | | $ | 18.47 | | | 1,543 | | | $ | 17.46 | | Exercisable, end of period | 1,973 | | | 19.95 | | | 1,837 | | | 18.89 | |
Stock-based compensation expense for stock-based compensation awards granted is based on the grant-date fair value. For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company's employee stock options.The weighted-average fair value of options granted during the ninethree months ended September 30, 2022March 31, 2023 was $5.19$5.37 per share. There were 180,50025,000 options granted during the ninethree months ended September 30, 2022.March 31, 2023. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model based on the weighted-average assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate, and expected life of options granted.
The assumptions used in determining the fair value of the 20222023 and 20212022 stock option grants were as follows:
| | | For the Nine Months Ended September 30, 2022 | | For the Year Ended December 31, 2021 | | For the Three Months Ended March 31, 2023 | | For the Year Ended December 31, 2022 |
| Expected dividend yield | Expected dividend yield | 3.14 | % | | 2.59 | % | Expected dividend yield | 2.98 | % | | 3.14 | % |
| Expected stock price volatility | Expected stock price volatility | 31.21 | % | | 70.13 | % | Expected stock price volatility | 27.97 | % | | 31.18 | % |
| Risk-free interest rate | Risk-free interest rate | 2.81 | % | | 0.75 | % | Risk-free interest rate | 3.37 | % | | 2.82 | % |
| Expected life of options | Expected life of options | 6.5 years | | 6.5 years | Expected life of options | 6.5 years | | 6.5 years |
The following is a summary of currently outstanding and exercisable options at September 30, 2022:March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Options Outstanding | | Options Exercisable |
| Exercise Prices | | Options
Outstanding
Shares
(000) | | Weighted-
Average
Remaining
Contractual
Life (in years) | | Weighted-
Average
Exercise
Price | | Options
Exercisable
Shares (000) | | Weighted-
Average
Exercise
Price |
| $6.56 to $8.62 | | 140 | | | 0.30 | | $ | 8.62 | | | 140 | | | $ | 8.62 | |
| $9.54 to $14.71 | | 140 | | | 1.80 | | 13.23 | | | 140 | | | 13.23 | |
| $16.77 to $16.86 | | 130 | | | 1.89 | | 16.80 | | | 130 | | | 16.80 | |
| $17.12 to $17.36 | | 86 | | | 2.54 | | 17.12 | | | 87 | | | 17.12 | |
| $17.40 to $18.46 | | 871 | | | 2.88 | | 18.45 | | | 871 | | | 18.45 | |
| $18.50 to $20.16 | | 41 | | | 6.53 | | 19.05 | | | 23 | | | 19.05 | |
| $20.46 to $21.25 | | 263 | | | 5.95 | | 20.83 | | | 149 | | | 21.10 | |
| $21.31 to $22.22 | | 132 | | | 6.43 | | 22.18 | | | 82 | | | 22.21 | |
| $22.70 to $23.32 | | 1,198 | | | 5.81 | | 23.32 | | | 245 | | | 23.32 | |
| $23.51 to $25.96 | | 101 | | | 5.67 | | 25.37 | | | 77 | | | 25.74 | |
| | 3,102 | | | | | | | 1,944 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Options Outstanding | | Options Exercisable |
| Exercise Prices | | Options
Outstanding
Shares
(000) | | Weighted-
Average
Remaining
Contractual
Life (in years) | | Weighted-
Average
Exercise
Price | | Options
Exercisable
Shares (000) | | Weighted-
Average
Exercise
Price |
| $14.00 to $15.99 | | 100 | | | 1.8 | | $ | 14.71 | | | 100 | | | $ | 14.71 | |
| $16.00 to $17.99 | | 200 | | | 1.66 | | 16.96 | | | 200 | | | 16.96 | |
| $18.00 to $19.99 | | 892 | | | 2.54 | | 18.48 | | | 879 | | | 18.47 | |
| $20.00 to $21.99 | | 270 | | | 5.49 | | 20.88 | | | 160 | | | 21.10 | |
| $22.00 to $23.99 | | 1,331 | | | 5.41 | | 23.21 | | | 564 | | | 23.16 | |
| $24.00 to $25.99 | | 91 | | | 5.15 | | 25.59 | | | 70 | | | 25.96 | |
| | 2,884 | | | | | | | 1,973 | | | |
The table below summarized the activity for the Company’s restricted stock issued and outstanding at September 30, 2022March 31, 2023 and December 31, 20212022 and changes during the period and year then ended:
| | | As of September 30, 2022 | | As of December 31, 2021 | | As of March 31, 2023 | | As of December 31, 2022 |
| | (In thousands) | | (In thousands) |
| Beginning of year | Beginning of year | 1,231 | | | 1,371 | | Beginning of year | 1,381 | | | 1,231 | |
| Issued | Issued | 399 | | | 216 | | Issued | 261 | | | 409 | |
| Vested | Vested | (177) | | | (320) | | Vested | (137) | | | (178) | |
| Forfeited | Forfeited | (65) | | | (36) | | Forfeited | (3) | | | (81) | |
| End of period | End of period | 1,388 | | | 1,231 | | End of period | 1,502 | | | 1,381 | |
| Amount of expense for nine months and twelve months ended, respectively | $ | 5,663 | | | $ | 7,112 | | |
| Amount of expense for the three months and twelve months ended, respectively | | Amount of expense for the three months and twelve months ended, respectively | $ | 2,158 | | | $ | 7,646 | |
Total unrecognized compensation cost, net of income tax benefit, related to non-vested restricted stock awards, which are expected to be recognized over the vesting periods, was approximately $16.7$18.2 million as of September 30, 2022.March 31, 2023.
14. Non-Interest Expense
The table below shows the components of non-interest expense for the three and nine months ended September 30, 2022March 31, 2023 and 2021:2022:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
| | (In thousands) | | (In thousands) |
| Salaries and employee benefits | Salaries and employee benefits | $ | 65,290 | | | $ | 42,469 | | | $ | 174,636 | | | $ | 126,990 | | Salaries and employee benefits | $ | 64,490 | | | $ | 43,551 | |
| Occupancy and equipment | Occupancy and equipment | 15,133 | | | 9,305 | | | 38,533 | | | 27,584 | | Occupancy and equipment | 14,952 | | | 9,144 | |
| Data processing expense | Data processing expense | 8,747 | | | 6,024 | | | 25,880 | | | 17,787 | | Data processing expense | 8,968 | | | 7,039 | |
| Merger and acquisition expenses | Merger and acquisition expenses | — | | | 1,006 | | | 49,594 | | | 1,006 | | Merger and acquisition expenses | — | | | 863 | |
| Other operating expenses: | Other operating expenses: | | Other operating expenses: | |
| Advertising | Advertising | 2,024 | | | 1,204 | | | 5,407 | | | 3,444 | | Advertising | 2,231 | | | 1,266 | |
| Amortization of intangibles | Amortization of intangibles | 2,477 | | | 1,421 | | | 6,376 | | | 4,262 | | Amortization of intangibles | 2,477 | | | 1,421 | |
| Electronic banking expense | Electronic banking expense | 3,828 | | | 2,521 | | | 9,718 | | | 7,375 | | Electronic banking expense | 3,330 | | | 2,538 | |
| Directors’ fees | Directors’ fees | 354 | | | 395 | | | 1,133 | | | 1,192 | | Directors’ fees | 460 | | | 404 | |
| Due from bank service charges | Due from bank service charges | 316 | | | 265 | | | 982 | | | 787 | | Due from bank service charges | 273 | | | 270 | |
| FDIC and state assessment | FDIC and state assessment | 2,146 | | | 1,648 | | | 6,204 | | | 4,119 | | FDIC and state assessment | 3,500 | | | 1,668 | |
| Insurance | Insurance | 959 | | | 749 | | | 2,702 | | | 2,317 | | Insurance | 889 | | | 770 | |
| Legal and accounting | Legal and accounting | 1,581 | | | 1,050 | | | 3,439 | | | 2,954 | | Legal and accounting | 1,088 | | | 797 | |
| Other professional fees | Other professional fees | 2,466 | | | 1,787 | | | 6,329 | | | 5,196 | | Other professional fees | 2,284 | | | 1,609 | |
| Operating supplies | Operating supplies | 681 | | | 474 | | | 2,430 | | | 1,426 | | Operating supplies | 738 | | | 754 | |
| Postage | Postage | 614 | | | 301 | | | 1,476 | | | 931 | | Postage | 501 | | | 306 | |
| Telephone | Telephone | 593 | | | 371 | | | 1,314 | | | 1,082 | | Telephone | 528 | | | 337 | |
| Other expense | Other expense | 7,137 | | | 4,629 | | | 20,571 | | | 13,015 | | Other expense | 7,935 | | | 4,159 | |
| Total other operating expenses | Total other operating expenses | 25,176 | | | 16,815 | | | 68,081 | | | 48,100 | | Total other operating expenses | 26,234 | | | 16,299 | |
| Total non-interest expense | Total non-interest expense | $ | 114,346 | | | $ | 75,619 | | | $ | 356,724 | | | $ | 221,467 | | Total non-interest expense | $ | 114,644 | | | $ | 76,896 | |
15. Leases
The Company leases land and office facilities under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2044 and do not include renewal options based on economic factors that would have implied that continuation of the lease was reasonably certain. Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. The leases generally include real estate taxes and common area maintenance (“CAM”) charges in the rental payments. Short-term leases are leases having a term of twelve months or less. In accordance with ASU 2018-11, theThe Company does not separate nonlease components from the associated lease component of our operating leases. As a result, the Company accounts for these components as a single component under Topic 842 since (i) the timing and pattern of transfer of the nonlease components and the associated lease component are the same and (ii) the lease component, if accounted for separately, would be classified as an operating lease. The Company recognizes short term leases on a straight-line basis and does not record a related ROU asset and liability for such leases. In addition, equipment leases were determined to be immaterial and a related ROU asset and liability for such leases is not recorded.
As of September 30,March 31, 2023, the balances of the right-of-use asset and lease liability were $43.2 million and $46.2 million, respectively. As of December 31, 2022, the balances of the right-of-use asset and lease liability were $44.0$42.9 million and $47.0 million, respectively. As of December 31, 2021, the balances of the right-of-use asset and lease liability were $39.6 million and $42.4$46.0 million, respectively The right-of-use asset is included in bank premises and equipment, net, and the lease liability is included in accrued interest payable and other liabilities.
The minimum rental commitments under these noncancelable operating leases are as follows (in thousands) as of September 30, 2022March 31, 2023 and December 31, 2021:2022:
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| 2022 | $ | 2,247 | | | $ | 7,714 | | |
| 2023 | 2023 | 8,170 | | | 6,574 | | 2023 | $ | 6,695 | | | $ | 8,332 | |
| 2024 | 2024 | 7,296 | | | 6,001 | | 2024 | 8,016 | | | 7,463 | |
| 2025 | 2025 | 6,568 | | | 5,510 | | 2025 | 7,250 | | | 6,739 | |
| 2026 | 2026 | 6,308 | | | 5,389 | | 2026 | 6,872 | | | 6,352 | |
| 2027 | | 2027 | 6,331 | | | 5,821 | |
| Thereafter | Thereafter | 30,335 | | | 24,999 | | Thereafter | 24,591 | | | 24,591 | |
| Total future minimum lease payments | Total future minimum lease payments | $ | 60,924 | | | $ | 56,187 | | Total future minimum lease payments | $ | 59,755 | | | $ | 59,298 | |
| Discount effect of cash flows | Discount effect of cash flows | (13,890) | | | (13,778) | | Discount effect of cash flows | (13,567) | | | (13,344) | |
| Present value of net future minimum lease payments | Present value of net future minimum lease payments | $ | 47,034 | | | $ | 42,409 | | Present value of net future minimum lease payments | $ | 46,188 | | | $ | 45,954 | |
Additional information (dollar amounts in thousands):
| | | For the Three Months Ended | | Nine Months Ended | | For the Three Months Ended |
| Lease expense: | Lease expense: | September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 | Lease expense: | March 31, 2023 | | March 31, 2022 |
| Operating lease expense | Operating lease expense | $ | 2,052 | | $ | 1,971 | | $ | 5,991 | | $ | 5,961 | Operating lease expense | $ | 1,955 | | $ | 1,822 |
| Short-term lease expense | Short-term lease expense | 2 | | 1 | | 2 | | 5 | Short-term lease expense | — | | 1 |
| Variable lease expense | Variable lease expense | 215 | | 250 | | 658 | | 759 | Variable lease expense | 260 | | 226 |
| Total lease expense | Total lease expense | $ | 2,269 | | $ | 2,222 | | $ | 6,651 | | $ | 6,725 | Total lease expense | $ | 2,215 | | $ | 2,049 |
| Other information: | Other information: | | | | | | | | Other information: | | | |
| Cash paid for amounts included in the measurement of lease liabilities | Cash paid for amounts included in the measurement of lease liabilities | $ | 2,096 | | $ | 1,988 | | $ | 6,078 | | $ | 5,956 | Cash paid for amounts included in the measurement of lease liabilities | $ | 2,023 | | $ | 1,829 |
| Weighted-average remaining lease term (in years) | Weighted-average remaining lease term (in years) | 9.21 | | 9.67 | | 9.35 | | 9.78 | Weighted-average remaining lease term (in years) | 8.84 | | 9.51 |
| Weighted-average discount rate | Weighted-average discount rate | 3.48 | % | | 3.42 | % | | 3.42 | % | | 3.49 | % | Weighted-average discount rate | 3.48 | % | | 3.41 | % |
The Company currently leases three properties from three related parties. Total rent expense from the leases was $36,000$35,000, or 1.78%1.56%, of total lease expense and $103,000$35,000, or 1.54%1.78%, of total lease expense for the three and nine months ended September 30, 2022.March 31, 2023 and 2022, respectively.
16. Significant Estimates and Concentrations of Credit Risks
Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for credit losses and certain concentrations of credit risk are reflected in Note 5, while deposit concentrations are reflected in Note 8.
The Company’s primary market areas are in Arkansas, Florida, Texas, South Alabama and New York. The Company primarily grants loans to customers located within these markets unless the borrower has an established relationship with the Company.
The diversity of the Company’s economic base tends to provide a stable lending environment. Although the Company has a loan portfolio that is diversified in both industry and geographic area, a substantial portion of its debtors’ ability to honor their contracts is dependent upon real estate values, tourism demand and the economic conditions prevailing in its market areas.
Although the Company has a diversified loan portfolio, at September 30, 2022March 31, 2023 and December 31, 2021,2022, commercial real estate loans represented 55.8% and 59.7%56.3% of total loans receivable, respectively, and 223.1%221.1% and 212.2%230.1% of total stockholders’ equity at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Residential real estate loans represented 16.1%16.6% and 15.8%16.1% of total loans receivable and 64.4%65.7% and 56.3%66.0% of total stockholders’ equity at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
Approximately 79.4%79.9% of the Company’s total loans and 84.1%85.1% of the Company’s real estate loans as of September 30, 2022,March 31, 2023, are to borrowers whose collateral is located in Alabama, Arkansas, Florida, Texas and New York, the states in which the Company has its branch locations.
During the period ended March 31, 2023, the Company recorded a $1.2 million provision for credit losses on loans. However, the Company determined that anno additional provision was necessary for credit losses was not necessaryunfunded commitments as the current level of the allowance for credit lossesreserve was considered adequate as of September 30, 2022. In addition, the Company determined no additional provision for unfunded commitments was necessary as of September 30, 2022.adequate.
Any future volatility in the economy could cause the values of assets and liabilities recorded in the financial statements to change rapidly, resulting in material future adjustments in asset values, the allowance for credit losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.
17. Commitments and Contingencies
In the ordinary course of business, the Company makes various commitments and incurs certain contingent liabilities to fulfill the financing needs of its customers. These commitments and contingent liabilities include lines of credit and commitments to extend credit and issue standby letters of credit. The Company applies the same credit policies and standards as they do in the lending process when making these commitments. The collateral obtained is based on the assessed creditworthiness of the borrower.
At September 30, 2022March 31, 2023 and December 31, 2021,2022, commitments to extend credit of$4.67 $4.93 billionand $3.05$4.83 billion, respectively, were outstanding. A percentage of these balances are participated out to other banks; therefore, the Company can call on the participating banks to fund future draws. Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.
Outstanding standby letters of credit are contingent commitments issued by the Company, generally to guarantee the performance of a customer in third-party borrowing arrangements. The term of the guarantee is dependent upon the creditworthiness of the borrower, some of which are long-term. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments. The maximum amount of future payments the Company could be required to make under these guarantees at September 30, 2022March 31, 2023 and December 31, 2021,2022, was $192.0$184.9 million and $110.8$184.6 million, respectively.
The Company and/or its bank subsidiary have various unrelated legal proceedings, most of which involve loan foreclosure activity pending, which, in the aggregate, are not expected to have a material adverse effect on the financial position or results of operations or cash flows of the Company and its subsidiary.
18. Regulatory Matters
The Bank is subject to a legal limitation on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the parent company without prior approval is 75% of the current year earnings plus 75% of the retained net earnings of the preceding year. Since the Bank is also under supervision of the Federal Reserve, it is further limited if the total of all dividends declared in any calendar year by the Bank exceeds the Bank’s net profits to date for that year combined with its retained net profits for the preceding two years. During the first ninethree months of 2022,2023, the Company requested approximately $129.8$89.6 million in regular dividends from its banking subsidiary.
The Company’s banking subsidiary is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company’s regulators could require adjustments to regulatory capital not reflected in the consolidated financial statements.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total, Tier 1 common equity Tier 1 ("CET1") and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of September 30, 2022,March 31, 2023, the Company meets all capital adequacy requirements to which it is subject.
On December 31, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to permit bank holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 27, 2020, the federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows bank holding companies and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. The Company elected to adopt the interim final rule, which is reflected in the Company's risk-based capital ratios.
In July 2013, the Federal Reserve Board and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” and certain provisions of the Dodd-Frank Act (“Basel III”). Basel III applies to all depository institutions, bank holding companies with total consolidated assets of $500 million or more, and savings and loan holding companies. Basel III became effective for the Company and its bank subsidiary on January 1, 2015. Basel III limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” of 2.5% of common equity Tier 1 capital to risk-weighted assets, which is in addition to the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement began being phased in beginning January 1, 2016 at the 0.625% level and increased by 0.625% on each subsequent January 1, until it reached 2.5% on January 1, 2019 when the phase-in period ended, and the full capital conservation buffer requirement became effective.
Basel III amended the prompt corrective action rules to incorporate a “common equity Tier 1 capital”CET1 requirement and to raise the capital requirements for certain capital categories. In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization is required to have at least a 4.5% “common equityCET1 risk-based capital ratio, a 4% Tier 1 leverage capital ratio, a 6% Tier 1 risk-based capital” ratio, a 4% “Tier 1 leverage capital” ratio, a 6% “Tier 1 risk-based capital”capital ratio and an 8% “totaltotal risk-based capital”capital ratio.
The Federal Reserve Board’s risk-based capital guidelines include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. Under Basel III, the criteria for a well-capitalized institution are: a 6.5% “common equityCET1 risk-based capital ratio, a 5% Tier 1 leverage capital ratio, an 8% Tier 1 risk-based capital” ratio, a 5% “Tier 1 leverage capital” ratio, an 8% “Tier 1 risk-based capital”capital ratio, and a 10% “totaltotal risk-based capital”capital ratio. As of September 30, 2022,March 31, 2023, the Bank met the capital standards for a well-capitalized institution. The Company’s “common equityCET1 risk-based capital ratio, Tier 1 leverage capital ratio, Tier 1 risk-based capital” ratio, “Tier 1 leverage capital” ratio, “Tier 1 risk-based capital”capital ratio, and “totaltotal risk-based capital”capital ratio were 13.03%13.21%, 10.36%11.37%, 13.03%13.21%, and 16.75%16.84%, respectively, as of September 30, 2022.March 31, 2023.
19. Additional Cash Flow Information
In connection with the Happy acquisition, accounted for under ASC Topic 805, the Company acquired approximately $6.69 billion in assets, including $858.9 million in cash and cash equivalents, assumed $6.15 billion in liabilities, and issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million.
The following is a summary of the Company’s additional cash flow information during the nine-monththree-month periods ended:
| | | September 30, | | March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| | (In thousands) | | (In thousands) |
| Interest paid | Interest paid | $ | 65,123 | | | $ | 36,757 | | Interest paid | $ | 71,697 | | | $ | 7,668 | |
| Income taxes paid | Income taxes paid | 69,204 | | | 82,245 | | Income taxes paid | 1,600 | | | 1,968 | |
| Assets acquired by foreclosure | Assets acquired by foreclosure | 327 | | | 2,058 | | Assets acquired by foreclosure | 16 | | | — | |
20. Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants onat the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair values:
| | | | | |
| Level 1 | Quoted prices in active markets for identical assets or liabilities |
| |
| Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities |
| |
| Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers of financial instruments between levels within the fair value hierarchy are recognized on the date management determines that the underlying circumstances or assumptions have changed.
Available-for-sale securities -– the Company's available-for-sale securities are considered to be Level 2 securities. The Level 2 securities consist primarily of U.S. government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.
The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment portfolio securities with complicated structures. Pricing for the Company’s investment securities is fairly generic and is easily obtained. The Company uses a third-party comparison pricing vendor in order to reflect consistency in the fair values of the investment securities sampled by the Company each quarter.
Held-to-maturity securities – the Company's held-to-maturity securities are considered to be Level 2 securities. The Level 2 securities consist primarily of U.S. government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.
Impaired loans –- Impaired loans are carried at the net realizable value of the collateral or observable market price if the loan is collateral dependent. A portion of the allowance for credit losses is allocated to impairedcollateral dependent loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for credit losses to require an increase, such increase is reported as a component of the provision for credit losses. The fair value of loans with specific allocated losses was $169.7$126.5 million and $280.0$168.6 million as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. This valuation is considered Level 3, consisting of appraisals of underlying collateral. The Company reversed approximately $693,000 $236,000and $92,000$73,000 of accrued interest receivable when impaired loans were put on non-accrual status during the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. The Company reversed approximately $842,000 and $276,000 of accrued interest receivable when impaired loans were put on non-accrual status during the nine months ended September 30, 2022 and 2021, respectively.
Foreclosed assets held for sale -– Foreclosed assets held for sale are held by the Company at fair value, less estimated costs to sell. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for credit losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is recognized by a charge to income. The fair value of foreclosed assets held for sale is estimated using Level 3 inputs based on appraisals of underlying collateral. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $365,000$425,000 and $1.6 million,$546,000, respectively.
No foreclosed assets held for sale were remeasured during the ninethree months ended September 30, 2022.March 31, 2023. Regulatory guidelines require the Company to reevaluate the fair value of foreclosed assets held for sale on at least an annual basis. The Company’s policy is to comply with the regulatory guidelines.
The significant unobservable (Level 3) inputs used in the fair value measurement of collateral for collateral-dependent impaired loans and foreclosed assets primarily relate to customized discounting criteria applied to the customer’s reported amount of collateral. The amount of the collateral discount depends upon the condition and marketability of the underlying collateral. As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount.
Fair Values of Financial Instruments
The following table presents the estimated fair values of the Company’s financial instruments. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants onat the measurement date.
| | | September 30, 2022 | | March 31, 2023 |
| | Carrying
Amount | | Fair Value | | Level | | Carrying
Amount | | Fair Value | | Level |
| | (In thousands) | | | | (In thousands) | | |
| Financial assets: | Financial assets: | | Financial assets: | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 1,580,421 | | | $ | 1,580,421 | | | 1 | Cash and cash equivalents | $ | 688,054 | | | $ | 688,054 | | | 1 |
| Federal funds sold | 2,700 | | | 2,700 | | | 1 | |
| | Investment securities - available for sale | Investment securities - available for sale | 4,085,102 | | | 4,085,102 | | | 2 | Investment securities - available for sale | 3,772,138 | | | 3,772,138 | | | 2 |
| Investment securities - held-to-maturity | Investment securities - held-to-maturity | 1,251,007 | | | 1,101,158 | | | 2 | Investment securities - held-to-maturity | 1,286,373 | | | 1,169,915 | | | 2 |
| Loans receivable, net of impaired loans and allowance | Loans receivable, net of impaired loans and allowance | 13,340,436 | | | 13,754,133 | | | 3 | Loans receivable, net of impaired loans and allowance | 13,926,998 | | | 13,815,264 | | | 3 |
| Accrued interest receivable | Accrued interest receivable | 88,671 | | | 88,671 | | | 1 | Accrued interest receivable | 102,740 | | | 102,740 | | | 1 |
| FHLB, FRB & FNBB Bank stock; other equity investments | FHLB, FRB & FNBB Bank stock; other equity investments | 193,287 | | | 193,287 | | | 3 | FHLB, FRB & FNBB Bank stock; other equity investments | 210,714 | | | 210,714 | | | 3 |
| Marketable equity securities | Marketable equity securities | 51,003 | | | 51,003 | | | 1 | Marketable equity securities | 40,626 | | | 40,626 | | | 1 |
| Financial liabilities: | Financial liabilities: | | Financial liabilities: | |
| Deposits: | Deposits: | | Deposits: | |
| Demand and non-interest bearing | Demand and non-interest bearing | $ | 5,540,539 | | | $ | 5,540,539 | | | 1 | Demand and non-interest bearing | $ | 4,945,729 | | | $ | 4,945,729 | | | 1 |
| Savings and interest-bearing transaction accounts | Savings and interest-bearing transaction accounts | 11,968,519 | | | 11,968,519 | | | 1 | Savings and interest-bearing transaction accounts | 11,392,566 | | | 11,392,566 | | | 1 |
| Time deposits | Time deposits | 1,033,266 | | | 1,004,283 | | | 3 | Time deposits | 1,107,171 | | | 1,083,401 | | | 3 |
| Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 121,555 | | | 121,555 | | | 1 | Securities sold under agreements to repurchase | 138,742 | | | 138,742 | | | 1 |
| FHLB and other borrowed funds | FHLB and other borrowed funds | 400,000 | | | 399,793 | | | 2 | FHLB and other borrowed funds | 650,000 | | | 609,610 | | | 2 |
| Accrued interest payable | Accrued interest payable | 3,316 | | | 3,376 | | | 1 | Accrued interest payable | 9,269 | | | 9,269 | | | 1 |
| Subordinated debentures | Subordinated debentures | 440,568 | | | 415,052 | | | 3 | Subordinated debentures | 440,275 | | | 400,925 | | | 3 |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Carrying
Amount | | Fair Value | | Level |
| (In thousands) | | |
| Financial assets: | | | | | |
| Cash and cash equivalents | $ | 724,790 | | | $ | 724,790 | | | 1 |
| Investment securities - available for sale | 4,041,590 | | | 4,041,590 | | | 2 |
| Investment securities - held-to-maturity | 1,287,705 | | | 1,126,146 | | | 2 |
| Loans receivable, net of impaired loans and allowance | 13,929,892 | | | 13,723,865 | | | 3 |
| Accrued interest receivable | 103,199 | | | 103,199 | | | 1 |
| FHLB, FRB & FNBB Bank stock; other equity investments | 215,952 | | | 215,952 | | | 3 |
| Marketable equity securities | 52,034 | | | 52,034 | | | 1 |
| Financial liabilities: | | | | | |
| Deposits: | | | | | |
| Demand and non-interest bearing | $ | 5,164,997 | | | $ | 5,164,997 | | | 1 |
| Savings and interest-bearing transaction accounts | 11,730,552 | | | 11,730,552 | | | 1 |
| Time deposits | 1,043,234 | | | 1,014,348 | | | 3 |
| Securities sold under agreements to repurchase | 131,146 | | | 131,146 | | | 1 |
| FHLB and other borrowed funds | 650,000 | | | 595,886 | | | 2 |
| Accrued interest payable | 10,622 | | | 10,622 | | | 1 |
| Subordinated debentures | 440,420 | | | 411,686 | | | 3 |
| | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Carrying
Amount | | Fair Value | | Level |
| (In thousands) | | |
| Financial assets: | | | | | |
| Cash and cash equivalents | $ | 3,650,315 | | | $ | 3,650,315 | | | 1 |
| Investment securities - available for sale | 3,119,807 | | | 3,119,807 | | | 2 |
| Loans receivable, net of impaired loans and allowance | 9,319,421 | | | 9,503,261 | | | 3 |
| Accrued interest receivable | 46,736 | | | 46,736 | | | 1 |
| FHLB, FRB & FNBB Bank stock; other equity investments | 124,638 | | | 124,638 | | | 3 |
| Marketable equity securities | 17,110 | | | 17,110 | | | 1 |
| Financial liabilities: | | | | | |
| Deposits: | | | | | |
| Demand and non-interest bearing | $ | 4,127,878 | | | $ | 4,127,878 | | | 1 |
| Savings and interest-bearing transaction accounts | 9,251,805 | | | 9,251,805 | | | 1 |
| Time deposits | 880,887 | | | 901,280 | | | 3 |
| Securities sold under agreements to repurchase | 140,886 | | | 140,886 | | | 1 |
| FHLB and other borrowed funds | 400,000 | | | 401,362 | | | 2 |
| Accrued interest payable | 4,798 | | | 4,798 | | | 1 |
| Subordinated debentures | 371,093 | | | 374,894 | | | 3 |
21. Recent Accounting Pronouncements
In December 31, 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in the update simplify the accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in the update also simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; however, an entity may elect to do so on an entity-by-entity basis for a legal entity that is both not subject to tax and disregarded by the taxing authority. The amendments require that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company adopted the guidance effective January 1, 2021, and its adoption did not have a significant impact on our financial position or financial statement disclosures.
In March 2020, the FASB issued ASU 2020-04, “ReferenceReference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”Reporting ("ASU 2020-04"). ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022.
Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 (ASU 2022-06) defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.”Scope ("ASU 2022-01"). The amendments in the update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in the update to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in this Update do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.
In March 2022, the FASB issued ASU 2022-02, "Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings ("TDR") and Vintage Disclosures.Disclosures ("ASU 2022-02"). The amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The amendments require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.leases. Gross write-off information must be included in the vintage disclosures required for public business entities, in accordance with Subtopic 326-20, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. ASU 2022-02 is effective for entities that have adopted ASU No. 2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. These amendments should be applied prospectively. However, forThe Company adopted the transition method related to the recognitionguidance effective January 1, 2023 and measurement of TDRs, an entity has the optionelected to apply the amendments prospectively. The adoption did not have a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings insignificant impact on our financial position.
In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. These amendments extend the period of adoption. Early adoption is permitted if an entity has adopted ASU 2016-13. If an entity elects to early adopt ASU 2022-02time preparers can utilize the reference rate reform relief guidance in an interim period,Topic 848. The objective of the guidance shouldin Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be applied as ofpermitted to apply the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is currently evaluating the potential impacts related to the adoption of the ASU.relief in Topic 848. ASU 2022-06 was effective upon issuance.
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Home BancShares, Inc.
Conway, Arkansas
Results of Review of Interim Consolidated Financial Statements
We have reviewed the condensed consolidated balance sheet of Home BancShares, Inc. (“the Company”) and subsidiaries (the “Company”) as of September 30, 2022,March 31, 2023, and the related condensed consolidated statements of income, comprehensive (loss) income and stockholders’(loss), stockholder’s equity, for the three-month and nine-month periods ended September 30, 2022 and 2021 and cash flows for the nine monththree-month periods ended September 30,March 31, 2023 and 2022, and 2021, and the related notes (collectively(collectively referred to as the “interim“interim financial information”information or “statements”statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company and subsidiaries as of December 31, 2021,2022, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein), and in our report dated February 24, 2022,2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021,2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ FORVIS, LLP
(Formerly BKD, LLP)
Little Rock, Arkansas
November 4, 2022May 5, 2023
Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our Form 10-K, filed with the Securities and Exchange Commission on February 24, 2022,2023, which includes the audited financial statements for the year ended December 31, 2021.2022. Unless the context requires otherwise, the terms “Company,” “us,” “we,” and “our” refer to Home BancShares, Inc. on a consolidated basis.
General
We are a bank holding company headquartered in Conway, Arkansas, offering a broad array of financial services through our wholly-owned bank subsidiary, Centennial Bank (sometimes referred to as “Centennial” or the “Bank”). As of September 30, 2022,March 31, 2023, we had, on a consolidated basis, total assets of $23.16$22.52 billion, loans receivable, net of allowance for credit losses of $13.54$14.10 billion, total deposits of $18.54$17.45 billion, and stockholders’ equity of $3.46$3.63 billion.
We generate most of our revenue from interest on loans and investments, service charges, and mortgage banking income. Deposits and Federal Home Loan Bank (“FHLB”) and other borrowed funds are our primary sources of funding. Our largest expenses are interest on our funding sources, salaries and related employee benefits and occupancy and equipment. We measure our performance by calculating our return on average common equity, return on average assets and net interest margin. We also measure our performance by our efficiency ratio, which is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a non-GAAP measure and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding adjustments such as merger and acquisition expenses and/or certain gains, losses and other non-interest income and expenses.
Table 1: Key Financial Measures
| | | As of or for the Three Months Ended September 30, | | As of or for the Nine Months Ended September 30, | | As of or for the Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
| | (Dollars in thousands, except per share data) | | (Dollars in thousands, except per share data) |
| Total assets | Total assets | $ | 23,157,370 | | $ | 17,765,056 | | $ | 23,157,370 | | $ | 17,765,056 | Total assets | $ | 22,518,255 | | $ | 18,617,995 |
| Loans receivable | Loans receivable | 13,829,311 | | 9,901,100 | | 13,829,311 | | 9,901,100 | Loans receivable | 14,386,634 | | 10,052,714 |
| Allowance for credit losses | Allowance for credit losses | (289,203) | | (238,673) | | (289,203) | | (238,673) | Allowance for credit losses | (287,169) | | (234,768) |
| Total deposits | Total deposits | 18,542,324 | | 14,003,371 | | 18,542,324 | | 14,003,371 | Total deposits | 17,445,466 | | 14,580,934 |
| Total stockholders’ equity | Total stockholders’ equity | 3,460,015 | | 2,736,062 | | 3,460,015 | | 2,736,062 | Total stockholders’ equity | 3,630,885 | | 2,686,703 |
| Net income | Net income | 108,705 | | 74,992 | | 189,575 | | 245,664 | Net income | 102,962 | | 64,892 |
| Basic earnings per share | Basic earnings per share | 0.53 | | 0.46 | | 0.99 | | 1.49 | Basic earnings per share | 0.51 | | 0.40 |
| Diluted earnings per share | Diluted earnings per share | 0.53 | | 0.46 | | 0.99 | | 1.49 | Diluted earnings per share | 0.51 | | 0.40 |
| Book value per share | Book value per share | 16.94 | | 16.68 | | 16.94 | | 16.68 | Book value per share | 17.87 | | 16.41 |
Tangible book value per share (non-GAAP)(1) | Tangible book value per share (non-GAAP)(1) | 9.82 | | 10.59 | | 9.82 | | 10.59 | Tangible book value per share (non-GAAP)(1) | 10.71 | | 10.32 |
| Annualized net interest margin - FTE | Annualized net interest margin - FTE | 4.05% | | 3.60% | | 3.67% | | 3.74% | Annualized net interest margin - FTE | 4.37% | | 3.21% |
| Efficiency ratio | Efficiency ratio | 43.24 | | 42.26 | | 52.44 | | 39.86 | Efficiency ratio | 44.80 | | 46.15 |
Efficiency ratio, as adjusted (non-GAAP)(2) | Efficiency ratio, as adjusted (non-GAAP)(2) | 42.97 | | 42.29 | | 45.13 | | 41.67 | Efficiency ratio, as adjusted (non-GAAP)(2) | 43.42 | | 47.33 |
| Return on average assets | Return on average assets | 1.81 | | 1.68 | | 1.13 | | 1.90 | Return on average assets | 1.84 | | 1.43 |
| Return on average common equity | Return on average common equity | 12.25 | | 10.97 | | 7.71 | | 12.32 | Return on average common equity | 11.70 | | 9.58 |
(1)See Table 19 for the non-GAAP tabular reconciliation.
(2)See Table 23 for the non-GAAP tabular reconciliation.
Results of Operations for the Three Months Ended September 30,March 31, 2023 and 2022 and 2021
Our net income increased $33.7$38.1 million, or 45.0%58.7%, to $108.7$103.0 million for the three-month period ended September 30, 2022,March 31, 2023, from $75.0$64.9 million for the same period in 2021.2022. On a diluted earnings per share basis, our earnings were $0.53$0.51 per share for the three-month period ended September 30, 2022March 31, 2023 compared to $0.46$0.40 per share for the three-month period ended September 30, 2021.March 31, 2022. The Company determined thatrecorded a $1.2 million provision for credit losses was not necessary asfor the current level of the allowance for credit losses was considered adequate as of September 30, 2022. In addition,quarter ended March 31, 2023. However, the Company determined that a provision for unfunded commitments was not necessary as of September 30, 2022.March 31, 2023 as the current level was considered adequate. During the three months ended September 30, 2022,March 31, 2023, the Company recorded $1.1$3.5 million in recoveries on historic losses and a $2.6an $11.4 million loss for the decrease in the fair value of marketable securities.securities.
Total interest income increased by $85.9$140.0 million, or 54.7%96.6%, and non-interest income increased by $14.0$3.5 million, or 47.9%11.4%. This was partially offset by a $17.4$56.6 million, or 139.8%411.4%, increase in total interest expense and a $38.7$37.7 million, or 51.2%49.1%, increase in non-interest expense. These fluctuations are primarily due to the acquisition of Happy Bancshares, Inc. ("Happy"),which we completed on April 1, 2022, and the rising rate environment. The increase in interest income resulted from a $53.2$107.6 million, or 37.3%83.1%, increase in loan interest income, a $23.0$29.5 million, or 172.6%213.7%, increase in investment income and a $9.6$3.0 million, or 863.6%180.0%, increase in interest income on deposits at other banks. The increase in non-interest income was primarily due to a $5.9$4.3 million, or 73.3%747.4%, increase in trust fees, a $4.1 million, or 53.6%, increase in other services charges and fees, a $5.2$3.9 million, or 119.5%49.6%, increase in other income, a $4.8$3.7 million, or 81.0%60.3%, increase in service charges on deposit accounts, and a $3.5$2.1 million, or 730.9%300.3%, increase in trust fees.dividends from FHLB, FRB, FNBB and other. These increases were partially offset by a $2.7$13.5 million, or 4,408.2%636.8%, decrease in the fair value adjustment for marketable securities resulting from a $2.6an $11.4 million decrease in the fair value of marketable securities, and a $1.8$1.3 million, or 29.7%34.3%, decrease in mortgage lending income and a $920,000, or 34.6%, decrease in dividends from FHLB, FRB, FNBB and other.income. Included within other income was $1.1$3.5 million in recoveries on historic losses. The increase in interest expense was primarily due to a $17.7$54.3 million, or 313.8%1,108.9%, increase in interest on deposits and a $4.3 million, or 230.1%, increase in interest on FHLB and other borrowed funds which was partially offset by a $635,000,$2.8 million, or 13.3%40.0%, decrease in interest on subordinated debentures.The increase in non-interest expense was due to a $22.8$20.9 million, or 53.7%48.1%, increase in salaries and employee benefits, an $8.4a $9.9 million, or 49.7%61.0%, increase in other operating expenses, a $5.8 million, or 62.6%63.5%, increase in occupancy and equipment and a $2.7$1.9 million, or 45.2%27.4%, increase in data processing expense, partially offset by a decrease of $1.0 million$863,000 in merger and acquisition expenses. Income tax expense increased by $10.0$9.9 million, or 43.3%49.5%, during the quarter due to an increase in net income.
Our net interest margin increased from 3.60%3.21% for the three-month period ended September 30, 2021March 31, 2022 to 4.05%4.37% for the three-month period ended September 30, 2022.March 31, 2023. The yield on interest earning assets was 4.62%5.79% and 3.91%3.55% for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, as average interest earning assets increased from $16.11$16.77 billion to $21.09$20.06 billion. The increase in average interest earning assets is primarily due to a $3.78$4.54 billion increase in average loans receivable and a $2.15$1.82 billion increase in average investment securities, largely resulting from the acquisition of Happy, partially offset by a $949.6 million$3.07 billion decrease in average interest-bearing balances due from banks. For the three months ended September 30,March 31, 2023 and 2022, and 2021, we recognized $4.6$3.2 million and $4.9$3.1 million, respectively, in total net accretion for acquired loans and deposits. We recognized $943,000$2.1 million in event interest income for the three months ended September 30, 2022March 31, 2023 compared to $3.5$1.4 million for the three months ended September 30, 2021March 31, 2022 which reducedincreased the net interest margin by fiveone basis points.point. 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.
Our efficiency ratio was 43.24%44.80% for the three months ended September 30, 2022,March 31, 2023, compared to 42.26%46.15% for the same period in 2021.2022. For the thirdfirst quarter of 2022,2023, our efficiency ratio, as adjusted (non-GAAP), was 42.97%43.42%, compared to 42.29%47.33% reported for the thirdfirst quarter of 2021.2022. (See Table 23 for the non-GAAP tabular reconciliation).
Our annualized return on average assets was 1.81%1.84% for the three months ended September 30, 2022,March 31, 2023, compared to 1.68%1.43% for the same period in 2021. Our annualized return on average assets, as adjusted (non-GAAP), was 1.83% for the three months ended September 30, 2022, compared to 1.67% for the same period in 2021.2022. (See Table 20 for the non-GAAP tabular reconciliation). Our annualized return on average common equity was 12.25%11.70% and 10.97%9.58% for the three months ended September 30,March 31, 2023, and 2022, and 2021, respectively. Our annualized return on average common equity, as adjusted (non-GAAP), was 12.39% for the three months ended September 30, 2022 and 10.87% for the same period in 2021. (See Table 21 for the non-GAAP tabular reconciliation).
Results of Operations for the Nine Months Ended September 30, 2022 and 2021
Our net income decreased $56.1 million, or 22.8%, to $189.6 million for the nine-month period ended September 30, 2022, from $245.7 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $0.99 per share for the nine-month period ended September 30, 2022 compared to $1.49 per share for the nine-month period ended September 30, 2021. As a result of the acquisition of Happy, which we completed on April 1, 2022, we incurred $49.6 million in merger expenses andrecorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments, and a $2.0 million provision for credit losses on acquired held-to-maturity investment securities. The summation of these items reduced earnings by $108.2 million and earnings per share by $0.42 per share for the nine-month period ended September 30, 2022. Excluding the impact of the acquisition of Happy, the Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of September 30, 2022. In addition, excluding the impact of the acquisition of Happy, the Company determined no additional provision for unfunded commitments was necessary as of September 30, 2022. During the nine months ended September 30, 2022, the Company recorded $6.7 million in recoveries on historic losses and a $1.4 million special dividend from equity investments which were partially offset by a $2.3 million loss for the decrease in fair value of marketable securities and $2.1 million in TRUPS redemption fees.
Total interest income increased by $130.7 million, or 27.6%, and non-interest income increased by $12.8 million, or 12.2%. This was more than offset by a $135.3 million, or 61.1%, increase in non-interest expense and a $21.6 million, or 53.7%, increase in interest expense. These fluctuations are primarily due to the acquisition of Happy during the second quarter of 2022 and the rising rate environment. The increase in interest income resulted from a $71.9 million, or 16.5%, increase in loan interest income, a $42.0 million, or 114.4%, increase in investment income and a $16.8 million, or 750.5%, increase in interest income on deposits at other banks. The increase in non-interest income was primarily due to a $10.9 million, or 68.0%, increase in service charges on deposit accounts, a $9.7 million, or 63.3%, increase in other income, an $8.9 million, or 35.2%, increase in other service charges and fees, a $7.4 million, or 514.1%, increase in trust fees and a $1.2 million, or 75.8%, increase in the cash value of life insurance. These increases were partially offset by a $9.4 million, or 132.5%, decrease in income for the fair value adjustment for marketable securities resulting from a $2.3 million decrease in the fair value of marketable securities for the nine months ended September 30, 2022 compared to a $7.0 million increase for the nine months ended September 30, 2021, a $7.5 million, or 54.1%, decrease in dividends from FHLB, FRB, FNBB and other, a $6.2 million, or 30.6%, decrease in mortgage lending income and a $1.4 million, or 90.4%, decrease in the gain on sale of SBA loans. Included within other income was $6.7 million recovery on historic losses, and included within dividends from FHLB, FRB, FNBB and other was $1.4 million in special dividends. The increase in non-interest expense was due to $48.6 million in merger and acquisition expenses, a $47.6 million, or 37.5%, increase in salaries and employee benefits, a $20.0 million, or 41.5%, increase in other operating expenses, a $10.9 million, or 39.7% increase in occupancy and equipment and an $8.1 million, or 45.5%, increase in data processing expense. Included within other operating expense was $2.1 million in TRUPS redemption fees. The increase in interest expense was primarily due to a $19.2 million, or 97.0%, increase in interest on deposits and a $2.1 million, or 14.6%, increase in interest on subordinated debentures as a result of the acquisition of $140.0 million of subordinated debt and $23.2 million in trust preferred securities from Happy during the second quarter. Income tax expense decreased by $20.6 million, or 26.7%, during the quarter due to the decrease in net income.
Our net interest margin decreased from 3.74% for the nine-month period ended September 30, 2021 to 3.67% for the nine-month period ended September 30, 2022. The yield on interest earning assets was 4.08% for the nine-month periods ended September 30, 2022 and 2021, as average interest earning assets increased from $15.71 billion to $20.03 billion. The increase in average earning assets is primarily the result of a $2.01 billion increase in average loans receivable, a $1.78 billion increase in average investment securities, and a $527.4 million increase in average interest-bearing balances due from banks. For the nine months ended September 30, 2022 and 2021, we recognized $12.8 million and $16.2 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by 2 basis points. The Company experienced a $26.5 million reduction in interest income from PPP loans due to the forgiveness of the PPP loans and the acceleration of the deferred fees for the loans that were forgiven. This was dilutive to the net interest margin by approximately 8 basis points.
Our efficiency ratio was 52.44% for the nine-month period ended September 30, 2022, compared to 39.86% for the same period in 2021. For the first nine months of 2022, our efficiency ratio, as adjusted (non-GAAP), was 45.13%, compared to 41.67% reported for the first nine months of 2021. (See Table 23 for the non-GAAP tabular reconciliation).
Our annualized return on average assets was 1.13% for the nine-month period ended September 30, 2022, compared to 1.90% for the same period in 2021. Our annualized return on average assets, as adjusted (non-GAAP), was 1.61% for the nine months ended September 30, 2022, compared to 1.76% for the same period in 2021. (See Table 20 for the non-GAAP tabular reconciliation). Our annualized return on average common equity was 7.71% and 12.32% for the nine-month period ended September 30, 2022, and 2021, respectively. Our annualized return on average common equity, as adjusted (non-GAAP), was 10.91% for the nine months ended September 30, 2022 and 11.44% for the same period in 2021. (See Table 21 for the non-GAAP tabular reconciliation).
Financial Condition as of and for the Period Ended September 30, 2022March 31, 2023 and December 31, 20212022
Our total assets as of September 30, 2022 increased $5.11 billionMarch 31, 2023 decreased $365.3 million to $23.16$22.52 billion from $18.05$22.88 billion reported as of December 31, 2021.2022. The increasedecrease in total assets is primarily due to the acquisition of $6.69 billion$270.8 million decrease in total assets, net of purchase accounting adjustments,investment securities resulting from Happypaydowns and maturities during the secondfirst quarter of 2022.2023. Cash and cash equivalents decreased $2.07 billion,$36.7 million, for the ninethree months ended September 30, 2022.March 31, 2023. Our loan portfolio balance increaseddecreased to $13.83$14.39 billion as of September 30, 2022March 31, 2023 from $9.84$14.41 billion at December 31, 2021.2022. The increasedecrease in loans was primarily due to the acquisition$94.6 million of $3.65 billion in loans, net of purchase accounting adjustments,organic loan decline from Happy in the second quarter of 2022our Centennial Commercial Finance Group franchise and $242.2$2.1 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $98.4PPP loan decline, partially offset by $73.9 million in organic loan growth.growth in our remaining footprint. Total deposits increased $4.28 billiondecreased $493.3 million to $18.54$17.45 billion as of September 30, 2022March 31, 2023 from $14.26$17.94 billion as of December 31, 2021.2022. The increasedecrease in deposits was primarily due to the acquisitionrunoff of $5.86 billion in deposits net of purchase accounting adjustments, from Happy in the secondnormal course of business during the first quarter of 2022.2023 as a result of the current interest rate environment. Stockholders’ equity increased $694.3$104.5 million to $3.46$3.63 billion as of September 30, 2022,March 31, 2023, compared to $2.77$3.53 billion as of December 31, 2021.2022. The $694.3$104.5 million increase in stockholders’ equity is primarily associated with the $961.3 million in common stock issued to Happy shareholders for the acquisition of Happy on April 1, 2022 and the $189.6$103.0 million in net income for the ninethree months ended September 30, 2022,March 31, 2023 and the $49.2 million in other comprehensive income, partially offset by the $317.9 million in other comprehensive loss, the $94.8$36.6 million of shareholder dividends paid and stock repurchases of $50.9$13.5 million in 2022.2023.
Our non-performing loans were $61.7 million, or 0.45% of total loans as of September 30, 2022, compared to $50.2$74.0 million, or 0.51% of total loans as of March 31, 2023, compared to $60.9 million, or 0.42% of total loans as of December 31, 2021.2022. The allowance for credit losses as a percentage of non-performing loans decreased slightly to 468.77%388.23% as of September 30, 2022,March 31, 2023, from 471.61%475.99% as of December 31, 2021.2022. Non-performing loans from our Arkansas franchise were $10.2$11.2 million at September 30, 2022March 31, 2023 compared to $13.9$8.4 million as of December 31, 2021.2022. Non-performing loans from our Florida franchise were $24.8$20.0 million at September 30, 2022March 31, 2023 compared to $26.8$20.5 million as of December 31, 2021.2022. Non-performing loans from our Texas franchise were $13.7$26.9 million at September 30, 2022March 31, 2023 compared to zero$22.2 million as of December 31, 2021.2022. Non-performing loans from our Alabama franchise were $204,000$390,000 at September 30, 2022March 31, 2023 compared to $470,000$404,000 as of December 31, 2021.2022. Non-performing loans from our Shore Premier Finance ("SPF") franchise were $1.4$2.1 million at September 30, 2022March 31, 2023 compared to $1.5$2.3 million as of December 31, 2021.2022. Non-performing loans from our Centennial Commercial Finance Group (“CFG”) franchise were $11.4$13.4 million at September 30, 2022March 31, 2023 compared to $7.5$7.1 million as of December 31, 2021.2022.
As of September 30, 2022,March 31, 2023, our non-performing assets increased to $62.2$74.5 million, or 0.27%0.33% of total assets, from $51.8$61.5 million, or 0.29%0.27% of total assets, as of December 31, 2021.2022. Non-performing assets from our Arkansas franchise were $10.2$11.2 million at September 30, 2022March 31, 2023 compared to $14.4$8.5 million as of December 31, 2021.2022. Non-performing assets from our Florida franchise were $25.0$20.2 million at September 30, 2022March 31, 2023 compared to $27.9$20.8 million as of December 31, 2021.2022. Non-performing assets from our Texas franchise were $14.0$27.1 million at September 30, 2022March 31, 2023 compared to zero$22.4 million as of December 31, 2021.2022. Non-performing assets from our Alabama franchise were $204,000$390,000 at September 30, 2022March 31, 2023 compared to $470,000$404,000 as of December 31, 2021.2022. Non-performing assets from our SPF franchise were $1.4$2.1 million at September 30, 2022March 31, 2023 compared to $1.5$2.3 million as of December 31, 2021.2022. Non-performing assets from our CFG franchise were $11.4$13.4 million at September 30, 2022March 31, 2023 compared to $7.5$7.1 million as of December 31, 2021.2022.
The $11.4$13.4 million balance of non-accrual loans for our Centennial CFG market consists of twofour loans that are assessed for credit risk by the Federal Reserve under the Shared National Credit Program. Due to the condition of the twofour loans, partial charge-offs for a total of $2.2$2.0 million were taken on these loans during the third quarter of 2022.three months ended March 31, 2023. 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.
Critical Accounting Policies and Estimates
Overview. We prepare our consolidated financial statements based on the selection of certain accounting policies, generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions. Our accounting policies are described in detail in the notes to our consolidated financial statements included as part of this document.
We consider a policy critical if (i) the accounting estimate requires assumptions about matters that are highly uncertain at the time of the accounting estimate; and (ii) different estimates that could reasonably have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements. Using these criteria, we believe that the accounting policies most critical to us are those associated with our lending practices, including revenue recognition and the accounting for the allowance for credit losses, foreclosed assets, investments, intangible assets, income taxes and stock options.
Revenue Recognition. Credit LossesAccounting Standards Codification ("ASC") Topic 606,. We account for credit losses in accordance with ASU 2016-13, Revenue from Contracts with CustomersFinancial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("("ASC Topic 606"326"), establishes principles. 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 reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans,insurance (loan commitments, standby letters of creditcredits, financial guarantees, and investment securities, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASCsimilar instruments) and net investments in leases recognized by a lessor in accordance with Topic 606, which are presented in our income statements as components of non-interest income are as follows:
•Service charges842 on deposit accounts – These represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.leases.
•Other service charges and fees – These represent credit card interchange fees and Centennial CFG loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310. Interchange fees were $6.1 million, $16.6 million, $4.2 million and $12.2 million for the three and nine months ended September 30, 2022 and 2021, respectively. Centennial CFG loan fees were $4.6 million, $9.7 million, $1.8 million and $7.1 million for the three and nine months ended September 30, 2022 and 2021, respectively.
•Trust fees - The Company enters into contracts with its customers to manage assets for investment, and/or transact on their accounts. The Company generally satisfies its performance obligations as services are rendered. The management fees are percentage based, flat, percentage of income or a fixed percentage calculated upon the average balance of assets depending upon account type. Fees are collected on a monthly or annual basis.
Investments – Available-for-sale.Available-for-sale. Securities available-for-sale ("AFS") are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments ("CECL").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, 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.
Investments – Held-to-Maturity. SecuritiesDebt securities held-to-maturity ("HTM"), which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics. The 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.
Loans Receivable and Allowance for Credit Losses. LossesLoans. Except for loans acquired during our acquisitions, substantially all of our 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 feesas it is management’s intent to hold them for the foreseeable future or costs on originated loans.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. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yield on the related loans.
The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expectedconfirmed and expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, national retail sales index,rental vacancy rate, housing price indices and rental vacancy rate index.
The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The identified loan segments are as follows:
•1-4 family construction
•All other construction
•1-4 family revolving home equity lines of credit (“HELOC”) & junior liens
•1-4 family senior liens
•Multifamily
•Owner occupiedoccupies commercial real estate
•Non-owner occupied commercial real estate
•Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other
•Consumer auto
•Other consumer
•Other consumer - SPF
The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans that do not share risk characteristics are evaluated on an individual basis. LoansFor these loans, excluding assisted living loans which are evaluated using a market price valuation methodology, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the 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 loans individually are not also included in the collective evaluation. For thoseanalyzed for credit losses for which a specific reserve has been recorded, non-accrual loans, that are classifiedloans past due 90 days or more and restructured loans made to borrowers experiencing financial difficulty (which we define as impaired,"impaired" loans), an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. For loans that are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation if a specific reserve is not recorded.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:
•Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower.
•The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factors ("Q-Factors") and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.
Loans considered impaired, according to ASC 326, are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.
Acquisition Accounting and Acquired Loans. 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.
PurchasedThe Company has purchased loans, thatsome of which have experienced more than insignificant credit deterioration since origination are purchaseorigination. Purchase credit deteriorated (“PCD”) loans.loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-creditnoncredit 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.loss.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures: 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.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.
ForeclosedIntangible Assets Held for Sale. Real estate and personal properties acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Valuations are periodically performed by management, and the real estate and personal properties are carried at fair value less costs to sell. Gains and losses from the sale of other real estate and personal properties are recorded in non-interest income, and expenses used to maintain the properties are included in non-interest expenses.
Intangible Assets.. Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. The core deposit intangibles are being amortized over 48 months to 121 months on a straight-line basis. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual impairment test of goodwill and core deposit intangibles as required by FASB ASC 350, Intangibles - Goodwill and Other, in the fourth quarter or more often if events and circumstances indicate there may be an impairment.
Income Taxes.Taxes. We account for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. We determine deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term “more likely than not” means a likelihood of more than 50 percent; the terms “examined” and “upon examination” also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Both we and our subsidiary file consolidated tax returns. Our subsidiary provides for income taxes on a separate return basis, and remits to us amounts determined to be currently payable.
Stock Compensation.Compensation. In accordance with FASB ASC 718, Compensation - Stock Compensation, and FASB ASC 505-50, Equity-Based Payments to Non-Employees, the fair value of each option award is estimated on the date of grant. We recognize compensation expense for the grant-date fair value of the option award over the vesting period of the award.
AcquisitionsOn April 1, 2022, the Company completed the acquisition of Happy Bancshares, Inc. (“Happy”), and merged Happy State Bank into Centennial Bank. The Company issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million.
Including the purchase accounting adjustments, as of the acquisition date, Happy had approximately $6.69 billion in total assets, $3.65 billion in loans and $5.86 billion in customer deposits. Happy formerly operated its banking business from 62 locations in Texas.
For further discussion of the acquisition, see Note 2 "Business Combinations" to the Condensed Notes to Consolidated Financial Statements.
Acquisition of Marine Portfolio
On February 4, 2022, the Company completed the purchase of the performing marine loan portfolio of Utah-based LendingClub Bank (“LendingClub”). Under the terms of the purchase agreement with LendingClub, the Company acquired approximately $242.2 million of yacht loans. This portfolio of loans is housed within the Company's Shore Premier Finance division, which is responsible for servicing the acquired loan portfolio and originating new loan production.
Acquisition of Happy Bancshares, Inc.
On April 1, 2022, the Company completed the acquisition of Happy Bancshares, Inc. (“Happy”), and merged Happy State Bank into Centennial Bank. The Company issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million.
Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $6.69 billion in total assets, $3.65 billion in loans and $5.86 billion in customer deposits. Happy formerly operated its banking business from 62 locations in Texas.
For further discussion of the acquisition, see Note 2 "Business Combinations" to the Condensed Notes to Consolidated Financial Statements.
We will continue evaluating all types of potential bank acquisitions, which may include FDIC-assisted acquisitions as opportunities arise, to determine what is in the best interest of our Company. Our goal in making these decisions is to maximize the return to our investors.
Branches
As opportunities arise, we will continue to open new (commonly referred to as de novo) branches in our current markets and in other attractive market areas.
As of September 30, 2022,March 31, 2023, we had 222223 branch locations. There were 76 branches in Arkansas, 78 branches in Florida, 6263 branches in Texas, five branches in Alabama and one branch in New York City.
Results of Operations
For the three and nine months ended September 30,March 31, 2023 and 2022 and 2021
Our net income increased $33.7$38.1 million, or 45.0%58.7%, to $108.7$103.0 million for the three-month period ended September 30, 2022,March 31, 2023, from $75.0$64.9 million for the same period in 2021.2022. On a diluted earnings per share basis, our earnings were $0.53$0.51 per share for the three-month period ended September 30, 2022March 31, 2023 compared to $0.46$0.40 per share for the three-month period ended September 30, 2021.March 31, 2022. The Company determined that an additionalrecorded a $1.2 million provision for credit losses was not necessary ason loans for the current level of the allowance for credit losses was considered adequate as of September 30, 2022. In addition,quarter ended March 31, 2023. However, the Company determined no additionalthat a provision for unfunded commitments was not necessary as of September 30, 2022.March 31, 2023 as the current level was considered adequate. During the three months ended September 30, 2022,March 31, 2023, the Company recorded $1.1$3.5 million in recoveries on historic losses and a $2.6an $11.4 million loss for the decrease in the fair value of marketable securities.
Our net income decreased $56.1 million, or 22.8%, to $189.6 million for the nine-month period ended September 30, 2022, from $245.7 million for the same period in 2021. On a diluted earnings per share basis, our earnings were $0.99 per share for the nine-month period ended September 30, 2022 compared to $1.49 per share for the nine-month period ended September 30, 2021. As a result of the acquisition of Happy, which we completed on April 1, 2022, we incurred $49.6 million in merger expenses andrecorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments, a $2.0 million provision for credit losses on acquired held-to-maturity investment securities. The summation of these items reduced earnings by $108.2 million and earnings per share by $0.42 per share for the nine-month period ended September 30, 2022. Excluding the impact of the acquisition of Happy, the Company determined that an additional provision for credit losses was not necessary, as the current level of the allowance for credit losses was considered adequate as of September 30, 2022. In addition, excluding the impact of the acquisition of Happy, the Company determined no additional provision for unfunded commitments was necessary as of September 30, 2022. During the nine months ended September 30, 2022, the Company recorded $6.7 million in recoveries on historic losses and a $1.4 million special dividend from equity investments, which were partially offset by a $2.3 million loss for the decrease in fair value of marketable securities and $2.1 million in TRUPS redemption fees.
Net Interest Income
Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments, rates paid on deposits and other borrowings, the level of non-performing loans and the amount of non-interest-bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate (25.1475%(24.6735% for 20222023 and 25.74%26.135% for 2021)2022).
The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. In 2020, theThe Federal Reserve loweredincreased the target rate to 0.00% to 0.25%. This remained in effect throughout all of 2021. Onseven times during 2022. First, on March 16, 2022, the target rate was increased to 0.25% to 0.50%. OnSecond, on May 4, 2022, the target rate was increased to 0.75% to 1.00%. OnThird, on June 15, 2022, the target rate was increased to 1.50% to 1.75%. OnFourth, on July 27, 2022, the target rate was increased to 2.25% to 2.50%. OnFifth, on September 21, 2022, the target rate was increased to 3.00% to 3.25%. Presently,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 has indicated they are anticipating furtherincreased the target rate increases.twice during the first quarter of 2023. First, on February 1, 2023, the target rate was increased to 4.50% to 4.75%, and second, on March 22, 2023, the target rate was increased to 4.75% to 5.00%.
Our net interest margin increased from 3.60%3.21% for the three-month period ended September 30, 2021March 31, 2022 to 4.05%4.37% for the three-month period ended September 30, 2022.March 31, 2023. The yield on interest earning assets was 4.62%5.79% and 3.91%3.55% for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, as average interest earning assets increased from $16.11$16.77 billion to $21.09$20.06 billion. The increase in average interest earning assets is primarily due to a $3.78$4.54 billion increase in average loans receivable and a $2.15$1.82 billion increase in average investment securities, largely resulting from the acquisition of Happy, partially offset by a $949.6 million$3.07 billion decrease in average interest-bearing balances due from banks. For the three months ended September 30,March 31, 2023 and 2022, and 2021, we recognized $4.6$3.2 million and $4.9$3.1 million, respectively, in total net accretion for acquired loans and deposits. We recognized $943,000$2.1 million in event interest income for the three months ended September 30, 2022March 31, 2023 compared to $3.5$1.4 million for the three months ended September 30, 2021,March 31, 2022 which reducedincreased the net interest margin by fiveone basis points.
Ourpoint. The overall increase in the net interest margin decreased from 3.74% for the nine-month period ended September 30, 2021was due to 3.67% for the nine-month period ended September 30, 2022. The yield onan increase in interest earning assets was 4.08% for both of the nine-month periods ended September 30, 2022 and 2021, as average interest earning assets increased from $15.71 billionincome due to $20.03 billion. Thean increase in both average earning assets is primarily the result of a $2.01 billionat higher yields, which was partially offset by an increase in average loans receivable, a $1.78 billion increase in average investment securities, and a $527.4 millioninterest expense due to an increase in average interest-bearing balances due from banks. For the nine months ended September 30, 2022 and 2021, we recognized $12.8 million and $16.2 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the netliabilities at higher interest margin by 2 basis points. The Company experiencedrates primarily as a $26.5 million reduction in interest income from PPP loans due to the forgivenessresult of the PPP loansHappy acquisition and the acceleration of the deferred fees for the loans that were forgiven. This was dilutive to the netcurrent rising interest margin by approximately 8 basis points.
Net interest income on a fully taxable equivalent basis increased $69.2$83.3 million, or 47.3%62.7%, to $215.5$216.2 million for the three-month period ended September 30, 2022,March 31, 2023, from $146.4$132.9 million for the same period in 2021.2022. This increase in net interest income for the three-month period ended September 30, 2022March 31, 2023 was the result of an $86.6a $139.9 million increase in interest income, partially offset by a $17.4$56.6 million increase in interest expense, on a fully taxable equivalent basis. The $86.6$139.9 million increase in interest income was primarily the result of the higher level of average interest earning assets due to the acquisition of Happy during the second quarter of 2022 and the increasing interest rate environment. The increase in earning assets resulted in an increase in interest income of approximately $65.5$76.5 million, and the higher yield on earning assets resulted in an increase in interest income of approximately $21.1$63.5 million. The $17.4$56.6 million increase in interest expense is primarily the result of the increasing interest rate environment as well as 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.2022. The higher rates on interest bearing liabilities resulted in an increase in interest expense of approximately $14.7$55.2 million, and the increase in interest bearing liabilities resulted in an increase in interest expense of approximately $2.7$1.4 million.
Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, as well as changes in fully taxable equivalent net interest margin for the three and nine months ended September 30, 2022March 31, 2023 compared to the same period in 2021.2022.
Table 2: Analysis of Net Interest Income
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
| | (Dollars in thousands) | | (Dollars in thousands) |
| Interest income | Interest income | $ | 242,955 | | | $ | 157,060 | | | $ | 604,871 | | | $ | 474,192 | | Interest income | $ | 284,939 | | | $ | 144,903 | |
| Fully taxable equivalent adjustment | Fully taxable equivalent adjustment | 2,437 | | | 1,748 | | | 6,646 | | | 5,343 | | Fully taxable equivalent adjustment | 1,628 | | | 1,738 | |
| Interest income – fully taxable equivalent | Interest income – fully taxable equivalent | 245,392 | | | 158,808 | | | 611,517 | | | 479,535 | | Interest income – fully taxable equivalent | 286,567 | | | 146,641 | |
| Interest expense | Interest expense | 29,851 | | | 12,449 | | | 61,861 | | | 40,241 | | Interest expense | 70,344 | | | 13,755 | |
| Net interest income – fully taxable equivalent | Net interest income – fully taxable equivalent | $ | 215,541 | | | $ | 146,359 | | | $ | 549,656 | | | $ | 439,294 | | Net interest income – fully taxable equivalent | $ | 216,223 | | | $ | 132,886 | |
| Yield on earning assets – fully taxable equivalent | Yield on earning assets – fully taxable equivalent | 4.62 | % | | 3.91 | % | | 4.08 | % | | 4.08 | % | Yield on earning assets – fully taxable equivalent | 5.79 | % | | 3.55 | % |
| Cost of interest-bearing liabilities | Cost of interest-bearing liabilities | 0.83 | | | 0.46 | | | 0.61 | | | 0.50 | | Cost of interest-bearing liabilities | 2.06 | | | 0.49 | |
| Net interest spread – fully taxable equivalent | Net interest spread – fully taxable equivalent | 3.79 | | | 3.45 | | | 3.47 | | | 3.58 | | Net interest spread – fully taxable equivalent | 3.73 | | | 3.06 | |
| Net interest margin – fully taxable equivalent | Net interest margin – fully taxable equivalent | 4.05 | | | 3.60 | | | 3.67 | | | 3.74 | | Net interest margin – fully taxable equivalent | 4.37 | | | 3.21 | |
Table 3: Changes in Fully Taxable Equivalent Net Interest Margin
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 vs. 2021 | | 2022 vs. 2021 |
| (In thousands) |
| Increase in interest income due to change in earning assets | $ | 65,504 | | | $ | 110,827 | |
| Increase in interest income due to change in earning asset yields | 21,080 | | | 21,155 | |
| Increase in interest expense due to change in interest-bearing liabilities | (2,742) | | | (10,006) | |
| Increase in interest expense due to change in interest rates paid on interest-bearing liabilities | (14,660) | | | (11,614) | |
| Increase in net interest income | $ | 69,182 | | | $ | 110,362 | |
| | | | | |
| Three Months Ended March 31, |
| 2023 vs. 2022 |
| (In thousands) |
| Increase in interest income due to change in earning assets | $ | 76,466 | |
| Increase in interest income due to change in earning asset yields | 63,460 | |
| Increase in interest expense due to change in interest-bearing liabilities | (1,355) | |
| Increase in interest expense due to change in interest rates paid on interest-bearing liabilities | (55,234) | |
| Increase in net interest income | $ | 83,337 | |
Table 4 shows, for each major category of earning assets and interest-bearing liabilities, the average amount outstanding, the interest income or expense on that amount and the average rate earned or expensed for the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, respectively. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest-bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Non-accrual loans were included in average loans for the purpose of calculating the rate earned on total loans.
Table 4: Average Balance Sheets and Net Interest Income Analysis
| | | Three Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| | Average Balance | | Income / Expense | | Yield / Rate | | Average Balance | | Income /
Expense | | Yield /
Rate | | Average Balance | | Income / Expense | | Yield / Rate | | Average Balance | | Income /
Expense | | Yield /
Rate |
| | (Dollars in thousands) | | (Dollars in thousands) |
| ASSETS | ASSETS | | ASSETS | |
| Earnings assets | Earnings assets | | Earnings assets | |
Interest-bearing balances due from
banks | Interest-bearing balances due from
banks | $ | 1,965,136 | | | $ | 10,763 | | | 2.17 | % | | $ | 2,914,785 | | | $ | 1,117 | | | 0.15 | % | Interest-bearing balances due from banks | $ | 426,051 | | | $ | 4,685 | | | 4.46 | % | | $ | 3,497,894 | | | $ | 1,673 | | | 0.19 | % |
| Federal funds sold | Federal funds sold | 1,176 | | | 9 | | | 3.04 | | | 82 | | | — | | | — | | Federal funds sold | 474 | | | 6 | | | 5.13 | | | 1,751 | | | 1 | | | 0.23 | |
| Investment securities – taxable | Investment securities – taxable | 4,008,230 | | | 28,273 | | | 2.80 | | | 2,289,680 | | | 8,495 | | | 1.47 | | Investment securities – taxable | 3,867,737 | | | 35,288 | | | 3.70 | | | 2,486,401 | | | 9,080 | | | 1.48 | |
| Investment securities – non-taxable | Investment securities – non-taxable | 1,292,702 | | | 10,370 | | | 3.18 | | | 862,586 | | | 6,416 | | | 2.95 | | Investment securities – non-taxable | 1,289,564 | | | 9,482 | | | 2.98 | | | 850,722 | | | 6,284 | | | 3.00 | |
| Loans receivable | Loans receivable | 13,822,459 | | | 195,977 | | | 5.63 | | | 10,043,393 | | | 142,780 | | | 5.64 | | Loans receivable | 14,474,072 | | | 237,106 | | | 6.64 | | | 9,937,993 | | | 129,603 | | | 5.29 | |
| Total interest-earning assets | Total interest-earning assets | 21,089,703 | | | 245,392 | | | 4.62 | % | | 16,110,526 | | | 158,808 | | | 3.91 | % | Total interest-earning assets | 20,057,898 | | | 286,567 | | | 5.79 | % | | 16,774,761 | | | 146,641 | | | 3.55 | % |
| Non-earning assets | Non-earning assets | 2,689,066 | | | | | 1,584,700 | | | | | Non-earning assets | 2,637,957 | | | | | 1,618,314 | | | | |
| Total assets | Total assets | $ | 23,778,769 | | | $ | 17,695,226 | | | Total assets | $ | 22,695,855 | | | $ | 18,393,075 | | |
LIABILITIES AND
STOCKHOLDERS’ EQUITY | LIABILITIES AND
STOCKHOLDERS’ EQUITY | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
| Liabilities | Liabilities | | Liabilities | |
| Interest-bearing liabilities | Interest-bearing liabilities | | Interest-bearing liabilities | |
Savings and interest-bearing transaction
accounts | Savings and interest-bearing transaction
accounts | $ | 12,233,755 | | | $ | 22,388 | | | 0.73 | % | | $ | 8,794,657 | | | 3,613 | | | 0.16 | % | Savings and interest-bearing transaction accounts | $ | 11,579,329 | | | $ | 54,857 | | | 1.92 | % | | $ | 9,363,793 | | | 3,873 | | | 0.17 | % |
| Time deposits | Time deposits | 1,078,112 | | | 959 | | | 0.35 | | | 1,063,500 | | | 2,029 | | | 0.76 | | Time deposits | 1,072,094 | | | 4,305 | | | 1.63 | | | 854,593 | | | 1,021 | | | 0.48 | |
| Total interest-bearing deposits | Total interest-bearing deposits | 13,311,867 | | | 23,347 | | | 0.70 | | | 9,858,157 | | | 5,642 | | | 0.23 | | Total interest-bearing deposits | 12,651,423 | | | 59,162 | | | 1.90 | | | 10,218,386 | | | 4,894 | | | 0.19 | |
| Federal funds purchased | Federal funds purchased | 14 | | | — | | | — | | | — | | | — | | | — | | Federal funds purchased | — | | | — | | | — | | | — | | | — | | | — | |
| Securities sold under agreement to repurchase | Securities sold under agreement to repurchase | 126,770 | | | 434 | | | 1.36 | | | 143,937 | | | 102 | | | 0.28 | | Securities sold under agreement to repurchase | 134,934 | | | 868 | | | 2.61 | | | 137,565 | | | 108 | | | 0.32 | |
| FHLB and other borrowed funds | FHLB and other borrowed funds | 400,012 | | | 1,917 | | | 1.90 | | | 400,000 | | | 1,917 | | | 1.90 | | FHLB and other borrowed funds | 651,111 | | | 6,190 | | | 3.86 | | | 400,000 | | | 1,875 | | | 1.90 | |
| Subordinated debentures | Subordinated debentures | 442,312 | | | 4,153 | | | 3.73 | | | 370,805 | | | 4,788 | | | 5.12 | | Subordinated debentures | 440,346 | | | 4,124 | | | 3.80 | | | 611,888 | | | 6,878 | | | 4.56 | |
| Total interest-bearing liabilities | Total interest-bearing liabilities | 14,280,975 | | | 29,851 | | | 0.83 | % | | 10,772,899 | | | 12,449 | | | 0.46 | % | Total interest-bearing liabilities | 13,877,814 | | | 70,344 | | | 2.06 | % | | 11,367,839 | | | 13,755 | | | 0.49 | % |
| Non-interest-bearing liabilities | Non-interest-bearing liabilities | | | | | | Non-interest-bearing liabilities | | | | | |
| Non-interest-bearing deposits | Non-interest-bearing deposits | 5,779,082 | | | 4,091,174 | | | Non-interest-bearing deposits | 5,043,219 | | | 4,155,894 | | |
| Other liabilities | Other liabilities | 199,416 | | | 120,200 | | | Other liabilities | 205,230 | | | 121,362 | | |
| Total liabilities | Total liabilities | 20,259,473 | | | 14,984,273 | | | Total liabilities | 19,126,263 | | | 15,645,095 | | |
| Stockholders’ equity | Stockholders’ equity | 3,519,296 | | | 2,710,953 | | | Stockholders’ equity | 3,569,592 | | | 2,747,980 | | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 23,778,769 | | | $ | 17,695,226 | | | Total liabilities and stockholders’ equity | $ | 22,695,855 | | | $ | 18,393,075 | | |
| Net interest spread | Net interest spread | | | 3.79 | % | | | | 3.45 | % | Net interest spread | | | 3.73 | % | | | | 3.06 | % |
| Net interest income and margin | Net interest income and margin | | $ | 215,541 | | | 4.05 | % | | $ | 146,359 | | | 3.60 | % | Net interest income and margin | | $ | 216,223 | | | 4.37 | % | | $ | 132,886 | | | 3.21 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
| Average
Balance | | Income /
Expense | | Yield /
Rate | | Average
Balance | | Income /
Expense | | Yield /
Rate |
| (Dollars in thousands) |
| ASSETS | | | | | | | | | | | |
| Earnings assets | | | | | | | | | | | |
| Interest-bearing balances due from banks | $ | 2,899,620 | | | $ | 19,001 | | | 0.88 | % | | $ | 2,372,227 | | | $ | 2,234 | | | 0.13 | % |
| Federal funds sold | 1,593 | | | 13 | | | 1.09 | | | 83 | | | — | | | — | |
| Investment securities – taxable | 3,442,854 | | | 58,294 | | | 2.26 | | | 1,947,799 | | | 21,933 | | | 1.51 | |
| Investment securities – non-taxable | 1,139,628 | | | 26,709 | | | 3.13 | | | 858,440 | | | 19,610 | | | 3.05 | |
| Loans receivable | 12,547,275 | | | 507,500 | | | 5.41 | | | 10,532,411 | | | 435,758 | | | 5.53 | |
| Total interest-earning assets | 20,030,970 | | | 611,517 | | | 4.08 | % | | 15,710,960 | | | 479,535 | | | 4.08 | % |
| Non-earning assets | 2,308,827 | | | | | | | 1,594,442 | | | | | |
| Total assets | $ | 22,339,797 | | | | | | | $ | 17,305,402 | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | |
| Savings and interest- bearing transaction accounts | $ | 11,420,566 | | | $ | 36,031 | | | 0.42 | % | | $ | 8,607,728 | | | 12,289 | | | 0.19 | % |
| Time deposits | 1,035,340 | | | 2,939 | | | 0.38 | | | 1,131,538 | | | 7,492 | | | 0.89 | |
| Total interest-bearing deposits | 12,455,906 | | | 38,970 | | | 0.42 | | | 9,739,266 | | | 19,781 | | | 0.27 | |
| Federal funds purchased | 294 | | | 2 | | | 0.91 | | | — | | | — | | | — | |
| Securities sold under agreement to repurchase | 129,076 | | | 729 | | | 0.76 | | | 153,677 | | | 399 | | | 0.35 | |
| FHLB borrowed funds | 400,004 | | | 5,688 | | | 1.90 | | | 400,000 | | | 5,688 | | | 1.90 | |
| Subordinated debentures | 540,175 | | | 16,472 | | | 4.08 | | | 370,615 | | | 14,373 | | | 5.19 | |
| Total interest-bearing liabilities | 13,525,455 | | | 61,861 | | | 0.61 | % | | 10,663,558 | | | 40,241 | | | 0.50 | % |
| Non-interest-bearing liabilities | | | | | | | | | | | |
| Non-interest-bearing deposits | 5,363,770 | | | | | | | 3,848,302 | | | | | |
| Other liabilities | 161,402 | | | | | | | 127,656 | | | | | |
| Total liabilities | 19,050,627 | | | | | | | 14,639,516 | | | | | |
| Stockholders’ equity | 3,289,170 | | | | | | | 2,665,886 | | | | | |
| Total liabilities and stockholders’ equity | $ | 22,339,797 | | | | | | | $ | 17,305,402 | | | | | |
| Net interest spread | | | | | 3.47 | % | | | | | | 3.58 | % |
| Net interest income and margin | | | $ | 549,656 | | | 3.67 | % | | | | $ | 439,294 | | | 3.74 | % |
Table 5 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three and nine months ended September 30, 2022March 31, 2023 compared to the same period in 2021,2022, on a fully taxable basis. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates, in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.
Table 5: Volume/Rate Analysis
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 over 2021 | | 2022 over 2021 | | 2023 over 2022 |
| | Volume | | Yield /
Rate | | Total | | Volume | | Yield /
Rate | | Total | | Volume | | Yield /
Rate | | Total |
| | (In thousands) | | | | (In thousands) |
| (Decrease) increase in: | (Decrease) increase in: | | (Decrease) increase in: | |
| Interest income: | Interest income: | | Interest income: | |
| Interest-bearing balances due from banks | Interest-bearing balances due from banks | $ | (480) | | | $ | 10,126 | | | $ | 9,646 | | | $ | 603 | | | $ | 16,164 | | | $ | 16,767 | | Interest-bearing balances due from banks | $ | (2,710) | | | $ | 5,722 | | | $ | 3,012 | |
| Federal funds sold | Federal funds sold | — | | | 9 | | | 9 | | | — | | | 13 | | | 13 | | Federal funds sold | (1) | | | 6 | | | 5 | |
| Investment securities – taxable | Investment securities – taxable | 8,987 | | | 10,791 | | | 19,778 | | | 21,955 | | | 14,406 | | | 36,361 | | Investment securities – taxable | 7,089 | | | 19,119 | | | 26,208 | |
| Investment securities – non-taxable | Investment securities – non-taxable | 3,416 | | | 538 | | | 3,954 | | | 6,578 | | | 521 | | | 7,099 | | Investment securities – non-taxable | 3,227 | | | (29) | | | 3,198 | |
| Loans receivable | Loans receivable | 53,581 | | | (384) | | | 53,197 | | | 81,691 | | | (9,949) | | | 71,742 | | Loans receivable | 68,861 | | | 38,642 | | | 107,503 | |
| Total interest income | Total interest income | 65,504 | | | 21,080 | | | 86,584 | | | 110,827 | | | 21,155 | | | 131,982 | | Total interest income | 76,466 | | | 63,460 | | | 139,926 | |
| Interest expense: | Interest expense: | | | | | | | | | | | | Interest expense: | | | | | |
| Interest-bearing transaction and savings deposits | Interest-bearing transaction and savings deposits | 1,909 | | | 16,866 | | | 18,775 | | | 5,049 | | | 18,693 | | | 23,742 | | Interest-bearing transaction and savings deposits | 1,128 | | | 49,856 | | | 50,984 | |
| Time deposits | Time deposits | 28 | | | (1,098) | | | (1,070) | | | (590) | | | (3,963) | | | (4,553) | | Time deposits | 320 | | | 2,964 | | | 3,284 | |
| Federal funds purchased | Federal funds purchased | — | | | — | | | — | | | 2 | | | — | | | 2 | | Federal funds purchased | — | | | — | | | — | |
| Securities sold under agreement to repurchase | Securities sold under agreement to repurchase | (14) | | | 346 | | | 332 | | | (73) | | | 403 | | | 330 | | Securities sold under agreement to repurchase | (2) | | | 762 | | | 760 | |
| | FHLB borrowed funds | | FHLB borrowed funds | 1,636 | | | 2,679 | | | 4,315 | |
| Subordinated debentures | Subordinated debentures | 819 | | | (1,454) | | | (635) | | | 5,618 | | | (3,519) | | | 2,099 | | Subordinated debentures | (1,727) | | | (1,027) | | | (2,754) | |
| Total interest expense | Total interest expense | 2,742 | | | 14,660 | | | 17,402 | | | 10,006 | | | 11,614 | | | 21,620 | | Total interest expense | 1,355 | | | 55,234 | | | 56,589 | |
| Increase (decrease) in net interest income | Increase (decrease) in net interest income | $ | 62,762 | | | $ | 6,420 | | | $ | 69,182 | | | $ | 100,821 | | | $ | 9,541 | | | $ | 110,362 | | Increase (decrease) in net interest income | $ | 75,111 | | | $ | 8,226 | | | $ | 83,337 | |
Provision for Credit Losses
The measurement of expectedCredit Loss Expense: During the period ended March 31, 2023, the Company recorded a $1.2 million provision for credit losses underon loans. However, 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 accountedCompany determined that no additional provision was necessary for as insurance (loanunfunded commitments standby letters of credits, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standardscurrent level of a company’s portfolio. In addition, ASC 326 requires credit lossesthe reserve was considered adequate.
Net charge-offs to be presented as an allowance rather than as a write-down on availableaverage total loans was 0.10% for sale debt securities management does not intendthe three months ended March 31, 2023 compared to sell or believes that it is more likely than not, they will be required to sell.0.08% for the three months ended March 31, 2022.
Loans. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, national retail sales index, housing price indices and rental vacancy rate index.
Acquired loans. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. This is commonly referred to as “double accounting" (or "double count").
The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The identified loan segments are as follows:
•1-4 family construction
•All other construction
•1-4 family revolving HELOC & junior liens
•1-4 family senior liens
•Multifamily
•Owner occupied commercial real estate
•Non-owner occupied commercial real estate
•Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other
•Consumer auto
•Other consumer
•Other consumer - SPF
The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually that are considered to be collateral dependent are not also included in the collective evaluation. For those loans that are classified as impaired,collateral dependent, an allowance is established when the discounted cash flows, collateral value or observable market price of the impairedcollateral dependent loan is lower than the carrying value of that loan.
As a result of the Happy acquisition which was completed on April 1, 2022, the Company recorded a $45.2 million provision for credit losses on acquired For loans for which a specific reserve is not recorded, an allowance is recorded based on the CECL "double count" and an $11.4 million provision for credit losses on acquired unfunded commitments.The Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of September 30, 2022. In addition, the Company determined no additional provision for unfunded commitments was necessary as of September 30, 2022.
Net charge-offs to average total loans was 0.15%loss rate for the three months ended September 30, 2022 compared to 0.07% forrespective pool within the three months ended September 30, 2021. Net charge-offs to average total loans was 0.10%for the nine months ended September 30, 2022 compared to 0.09% for the nine months ended September 30, 2021.collective evaluation if a specific reserve is not recorded.
Investments – Available-for-sale: The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Investments – Held-to-Maturity. The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Company has made the election to exclude accrued interest receivable on HTM securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets.
The Company recorded a $2.0 million provision Changes in the allowance for credit losses on the held-to-maturity investment securities during the second quarter of 2022are recorded as a result of the investment securities acquired as part of the Happy acquisition. Of the Company's held-to-maturity securities, $1.11 billion, or 88.7% are municipal securities. To estimate the necessary loss provision, the Company utilized historical default and recovery rates of the municipal bond sector and applied these rates using a pooling method. The remainder of investments classified as held-to-maturity are U.S. government-sponsored enterprises and mortgage-backed securities all of which are guaranteed by the U.S. government. Due to the inherent low risk in these U.S. government guaranteed securities, no provision for (or reversal of) credit loss was established on this portionexpense. Losses are charged against the allowance when management believes the uncollectability of the portfolio.
At September 30, 2022,March 31, 2023, the Company determined that the allowance for credit losses of $842,000 resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio, and the $2.0 million allowance for credit losses for the HTMheld-to-maturity portfolio resulting from the Happy acquisition was also considered adequate. No additional provision for credit losses was considered necessary for the portfolio.
Non-Interest Income
Total non-interest income was $43.2 million and $118.5$34.2 million for the three and nine months ended September 30, 2022,March 31, 2023, compared to $29.2 million and $105.6$30.7 million for the same period in 2021.2022. Our recurring non-interest income includes service charges on deposit accounts, other service charges and fees, trust fees, mortgage lending income, insurance commissions, increase in cash value of life insurance, fair value adjustment for marketable securities and dividends.
Table 6 measures the various components of our non-interest income for the three and nine months ended September 30, 2022March 31, 2023 and 2021, respectively, as well as changes for the three and nine months ended September 30, 2022 compared to the same period in 2021.2022.
Table 6: Non-Interest Income
| | | Three Months Ended September 30, | | 2021 Change
from 2020 | | Nine Months Ended September 30, | | 2021 Change
from 2020 | | Three Months Ended March 31, | | 2023 Change
from 2022 |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | |
| | (Dollars in thousands) | | (Dollars in thousands) |
| Service charges on deposit accounts | Service charges on deposit accounts | $ | 10,756 | | | $ | 5,941 | | | $ | 4,815 | | | 81.0 | % | | $ | 26,980 | | | $ | 16,059 | | | $ | 10,921 | | | 68.0 | % | Service charges on deposit accounts | $ | 9,842 | | | $ | 6,140 | | | $ | 3,702 | | | 60.3 | % |
| Other service charges and fees | Other service charges and fees | 13,951 | | | 8,051 | | | 5,900 | | | 73.3 | | | 34,225 | | | 25,318 | | | 8,907 | | | 35.2 | | Other service charges and fees | 11,875 | | | 7,733 | | | 4,142 | | | 53.6 | |
| Trust fees | Trust fees | 3,980 | | | 479 | | | 3,501 | | | 730.9 | | | 8,874 | | | 1,445 | | | 7,429 | | | 514.1 | | Trust fees | 4,864 | | | 574 | | | 4,290 | | | 747.4 | |
| Mortgage lending income | Mortgage lending income | 4,179 | | | 5,948 | | | (1,769) | | | (29.7) | | | 14,091 | | | 20,317 | | | (6,226) | | | (30.6) | | Mortgage lending income | 2,571 | | | 3,916 | | | (1,345) | | | (34.3) | |
| Insurance commissions | Insurance commissions | 601 | | | 586 | | | 15 | | | 2.6 | | | 1,739 | | | 1,556 | | | 183 | | | 11.8 | | Insurance commissions | 526 | | | 480 | | | 46 | | | 9.6 | |
| Increase in cash value of life insurance | Increase in cash value of life insurance | 1,089 | | | 509 | | | 580 | | | 113.9 | | | 2,721 | | | 1,548 | | | 1,173 | | | 75.8 | | Increase in cash value of life insurance | 1,104 | | | 492 | | | 612 | | | 124.4 | |
| Dividends from FHLB, FRB, FNBB & other | Dividends from FHLB, FRB, FNBB & other | 1,741 | | | 2,661 | | | (920) | | | (34.6) | | | 6,384 | | | 13,916 | | | (7,532) | | | (54.1) | | Dividends from FHLB, FRB, FNBB & other | 2,794 | | | 698 | | | 2,096 | | | 300.3 | |
| Gain on sale of SBA loans | Gain on sale of SBA loans | 58 | | | 439 | | | (381) | | | (86.8) | | | 153 | | | 1,588 | | | (1,435) | | | (90.4) | | Gain on sale of SBA loans | 139 | | | 95 | | | 44 | | | 46.3 | |
| (Loss) gain on sale of branches, equipment and other assets, net | (13) | | | (34) | | | 21 | | | 61.8 | | | 5 | | | (86) | | | 91 | | | 105.8 | | |
| Gain on sale of branches, equipment and other assets, net | | Gain on sale of branches, equipment and other assets, net | 7 | | | 16 | | | (9) | | | (56.3) | |
| Gain on OREO, net | Gain on OREO, net | — | | | 246 | | | (246) | | | (100.0) | | | 487 | | | 1,266 | | | (779) | | | (61.5) | | Gain on OREO, net | — | | | 478 | | | (478) | | | (100.0) | |
| Gain on securities, net | Gain on securities, net | — | | | — | | | — | | | 0.0 | | | — | | | 219 | | | (219) | | | (100.0) | | Gain on securities, net | — | | | — | | | — | | | 0.0 | |
| Fair value adjustment for marketable securities | Fair value adjustment for marketable securities | (2,628) | | | 61 | | | (2,689) | | | (4408.2) | | | (2,304) | | | 7,093 | | | (9,397) | | | (132.5) | | Fair value adjustment for marketable securities | (11,408) | | | 2,125 | | | (13,533) | | | (636.8) | |
| Other income | Other income | 9,487 | | | 4,322 | | | 5,165 | | | 119.5 | | | 25,096 | | | 15,366 | | | 9,730 | | | 63.3 | | Other income | 11,850 | | | 7,922 | | | 3,928 | | | 49.6 | |
| Total non-interest income | Total non-interest income | $ | 43,201 | | | $ | 29,209 | | | $ | 13,992 | | | 47.9 | % | | $ | 118,451 | | | $ | 105,605 | | | $ | 12,846 | | | 12.2 | % | Total non-interest income | $ | 34,164 | | | $ | 30,669 | | | $ | 3,495 | | | 11.4 | % |
Non-interest income increased $14.0$3.5 million, or 47.9%11.4%, to $43.2$34.2 million for the three months ended September 30, 2022March 31, 2023 from $29.2$30.7 million for the same period in 2021.2022. The primary factors that resulted in this increase were the increases in service charges on deposit accounts, trust fees, other service charges and fees and other income and service charges on deposit accounts.income. Other factors were changes related to trust fees, mortgage lending income, increase in cash value of life insurance and dividends from FHLB, FRB, FNBB & other, partially offset by decreases in mortgage lending income and other andthe fair value adjustment for marketable securities.
Additional details for the three months ended September 30, 2022March 31, 2023 on some of the more significant changes are as follows:
•The $4.8$3.7 million increase in service charges on deposit accounts is primarily related to an increase in overdraft fees and service charge fees related to the acquisition of Happy.
•The $5.9$4.1 million increase in other service charges and fees is primarily related to an increase in Centennial CFG property finance loan fees and an increase in interchange fees related to the acquisition of Happy.
•The $3.5$4.3 million increase in trust fees is primarily related to an increase in trust fees resulting from the acquisition of Happy.
•The $1.8$1.3 million decrease in mortgage lending income is primarily related to a decrease in volume of secondary market loans from the highhigher volume of loans during 2021.2022. The decrease in volume is due to the increase in interest rates.
•The $580,000$612,000 increase in cash value of life insurance is primarily related to the increase in bank owned life insurance resulting from the acquisition of Happy.
•The $920,000 decrease$2.1 million increase for dividends from FHLB, FRB, FNBB & other is primarily due to a decrease in special dividends from equity investments, partially offset by an increase in dividend income from marketable securities and an increase in dividends on FHLB and FRB stock holdings related to the acquisition of Happy.
•The $2.7$13.5 million decrease in the fair value adjustment for marketable securities is due to a reduction in the fair value of marketable securities held by the Company.
•The $5.2$3.9 million increase in other income is primarily due to a $3.3$3.8 million adjustmentof income for equity method investments. Other factors causing this increase wereinvestments and a $404,000 increase in additional income for items previously charged off, which includes the $1.1 million in recoveries on historic losses; a $618,000 increase in investment brokerage fee income; a $307,000 increase in real estate rental income and a $522,000 increase in building rental income related to the acquisition of Happy.
Non-interest income increased $12.8 million, or 12.2%, to $118.5 million for the nine months ended September 30, 2022 from $105.6 million for the same period in 2021. The primary factors that resulted in this increase were the increase in service charges on deposit accounts and the increase in other income. Other factors were changes related to service charges and fees, trust fees, mortgage lending income, increase in cash value of life insurance, dividends from FHLB, FRB, FNBB and other, gain on sale of SBA loans and fair value adjustment for marketable securities.
Additional details for the nine months ended September 30, 2022 on some of the more significant changes are as follows:
•The $10.9 million increase in service charges on deposit accounts is primarily related to an increase in overdraft fees and service charge fees resulting from the acquisition of Happy.
•The $8.9 million increase in other service charges and fees is primarily related to an increase in Centennial CFG property finance loan fees and an increase in interchange acquisition fees resulting from the acquisition of Happy.
•The $7.4 million increase in trust fees is primarily related to an increase in trust fees resulting from the acquisition of Happy.
•The $6.2Happy partially offset by a $1.2 million decrease in mortgage lending income is primarily due to a decrease in volume of secondary market loans from the high volume of loans during 2021. The decrease in volume is due to the increase in interest rates.
•The $1.2 million increase in cash value of life insurance is primarily related to BOLI acquired in the acquisition of Happy.
•The $7.5 million decrease for dividends from FHLB, FRB, FNBB & other is primarily due to a decrease in special dividends from equity investments, partially offset by an increase in FRB stock holdings related to the acquisition of Happy.
•The $1.4 million decrease in gains on sales of SBA loans is primarily due to decrease in the volume of SBA loan sales during 2022.
•The $779,000 decrease in gains on OREO resulted from a reduction in the level of sales of OREO during 2022.
•The $9.4 million decrease in the fair value adjustment for marketable securities is due to a reduction in the fair value of marketable securities held by the Company.
•The $9.7 million increase in other income is primarily due to a $3.3 million adjustment for equity method investments and a $3.2 million increase in additional income for items previously charged off, which includes the $6.7 million recoveries on historic losses. Other factors causing this increase were a $2.0 million increase in investment brokerage fee income, a $529,000 increase in real estate rental income and a $1.0 million increase in building rental income related to the acquisition of Happy.
Non-Interest Expense
Non-interest expense primarily consists of salaries and employee benefits, occupancy and equipment, data processing, and other expenses such as advertising, merger and acquisition expenses, amortization of intangibles, electronic banking expense, FDIC and state assessment, insurance, legal and accounting fees and other professional fees.
Table 7 below sets forth a summary of non-interest expense for the three and nine months ended September 30, 2022March 31, 2023 and 2021, as well as changes for the three and nine months ended September 30, 2022 compared to the same period in 2021.2022.
Table 7: Non-Interest Expense
| | | Three Months Ended September 30, | | 2022 Change
from 2021 | | Nine Months Ended September 30, | | 2022 Change
from 2021 | | Three Months Ended March 31, | | 2023 Change
from 2022 |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | |
| | (Dollars in thousands) | | (Dollars in thousands) |
| Salaries and employee benefits | Salaries and employee benefits | $ | 65,290 | | | $ | 42,469 | | | $ | 22,821 | | | 53.7 | % | | $ | 174,636 | | | $ | 126,990 | | | $ | 47,646 | | | 37.5 | % | Salaries and employee benefits | $ | 64,490 | | | $ | 43,551 | | | $ | 20,939 | | | 48.1 | % |
| Occupancy and equipment | Occupancy and equipment | 15,133 | | | 9,305 | | | 5,828 | | | 62.6 | | | 38,533 | | | 27,584 | | | 10,949 | | | 39.7 | | Occupancy and equipment | 14,952 | | | 9,144 | | | 5,808 | | | 63.5 | |
| Data processing expense | Data processing expense | 8,747 | | | 6,024 | | | 2,723 | | | 45.2 | | | 25,880 | | | 17,787 | | | 8,093 | | | 45.5 | | Data processing expense | 8,968 | | | 7,039 | | | 1,929 | | | 27.4 | |
| Merger and acquisition expenses | Merger and acquisition expenses | — | | | 1,006 | | | (1,006) | | | (100.0) | | | 49,594 | | | 1,006 | | | 48,588 | | | 4829.8 | | Merger and acquisition expenses | — | | | 863 | | | (863) | | | (100.0) | |
| Other operating expenses: | Other operating expenses: | | Other operating expenses: | |
| Advertising | Advertising | 2,024 | | | 1,204 | | | 820 | | | 68.1 | | | 5,407 | | | 3,444 | | | 1,963 | | | 57.0 | | Advertising | 2,231 | | | 1,266 | | | 965 | | | 76.2 | |
| Amortization of intangibles | Amortization of intangibles | 2,477 | | | 1,421 | | | 1,056 | | | 74.3 | | | 6,376 | | | 4,262 | | | 2,114 | | | 49.6 | | Amortization of intangibles | 2,477 | | | 1,421 | | | 1,056 | | | 74.3 | |
| Electronic banking expense | Electronic banking expense | 3,828 | | | 2,521 | | | 1,307 | | | 51.8 | | | 9,718 | | | 7,375 | | | 2,343 | | | 31.8 | | Electronic banking expense | 3,330 | | | 2,538 | | | 792 | | | 31.2 | |
| Directors' fees | Directors' fees | 354 | | | 395 | | | (41) | | | (10.4) | | | 1,133 | | | 1,192 | | | (59) | | | (4.9) | | Directors' fees | 460 | | | 404 | | | 56 | | | 13.9 | |
| Due from bank service charges | Due from bank service charges | 316 | | | 265 | | | 51 | | | 19.2 | | | 982 | | | 787 | | | 195 | | | 24.8 | | Due from bank service charges | 273 | | | 270 | | | 3 | | | 1.1 | |
| FDIC and state assessment | FDIC and state assessment | 2,146 | | | 1,648 | | | 498 | | | 30.2 | | | 6,204 | | | 4,119 | | | 2,085 | | | 50.6 | | FDIC and state assessment | 3,500 | | | 1,668 | | | 1,832 | | | 109.8 | |
| Insurance | Insurance | 959 | | | 749 | | | 210 | | | 28.0 | | | 2,702 | | | 2,317 | | | 385 | | | 16.6 | | Insurance | 889 | | | 770 | | | 119 | | | 15.5 | |
| Legal and accounting | Legal and accounting | 1,581 | | | 1,050 | | | 531 | | | 50.6 | | | 3,439 | | | 2,954 | | | 485 | | | 16.4 | | Legal and accounting | 1,088 | | | 797 | | | 291 | | | 36.5 | |
| Other professional fees | Other professional fees | 2,466 | | | 1,787 | | | 679 | | | 38.0 | | | 6,329 | | | 5,196 | | | 1,133 | | | 21.8 | | Other professional fees | 2,284 | | | 1,609 | | | 675 | | | 42.0 | |
| Operating supplies | Operating supplies | 681 | | | 474 | | | 207 | | | 43.7 | | | 2,430 | | | 1,426 | | | 1,004 | | | 70.4 | | Operating supplies | 738 | | | 754 | | | (16) | | | (2.1) | |
| Postage | Postage | 614 | | | 301 | | | 313 | | | 104.0 | | | 1,476 | | | 931 | | | 545 | | | 58.5 | | Postage | 501 | | | 306 | | | 195 | | | 63.7 | |
| Telephone | Telephone | 593 | | | 371 | | | 222 | | | 59.8 | | | 1,314 | | | 1,082 | | | 232 | | | 21.4 | | Telephone | 528 | | | 337 | | | 191 | | | 56.7 | |
| Other expense | Other expense | 7,137 | | | 4,629 | | | 2,508 | | | 54.2 | | | 20,571 | | | 13,015 | | | 7,556 | | | 58.1 | | Other expense | 7,935 | | | 4,159 | | | 3,776 | | | 90.8 | |
| Total non-interest expense | Total non-interest expense | $ | 114,346 | | | $ | 75,619 | | | $ | 38,727 | | | 51.2 | % | | $ | 356,724 | | | $ | 221,467 | | | $ | 135,257 | | | 61.1 | % | Total non-interest expense | $ | 114,644 | | | $ | 76,896 | | | $ | 37,748 | | | 49.1 | % |
Non-interest expense increased $38.7$37.7 million, or 51.2%49.1%, to $114.3$114.6 million for the three months ended September 30, 2022March 31, 2023 from $75.6$76.9 million for the same period in 2021.2022. The primary factorsfactor that resulted in this increase werewas the changes related toincrease in salaries and employee benefits.benefits expense. Other factors were changes related to occupancy and equipment, data processing expense, merger and acquisition expenses, advertising expenses, amortization of intangibles, electronic banking expenses, FDIC and state assessment expense, other professional fees and other expenses partially offset by the change in merger and acquisition expenses.
Additional details for the three months ended September 30, 2022March 31, 2023 on some of the more significant changes are as follows:
•The $22.8$20.9 million increase in salaries and employee benefits expense is primarily due to increased salary expenses and insurance expenses related to the acquisition of Happy.
•The $5.8 million increase in occupancy and equipment expenses is primarily due to increases in depreciation on buildings, machinery and equipment; utility expenses; lease expense; equipment maintenance and repairs; janitorial expenses; property taxes and other occupancy expenses related to the acquisition of Happy.
•The $2.7$1.9 million increase in data processing expense is primarily due to increases in telecommunication fees, depreciation of equipment and software, software maintenance and software licensing subscriptions related to the acquisition of Happy.
•The $863,000 decrease in merger and acquisition expense is due to the costs associated with the acquisition of Happy being incurred during the first and second quarters of 2022.
•The $1.0 million decrease in merger and acquisition expense is related to preliminary costs associated with the acquisition of Happy during 2021, and the merger expenses for the current year being recorded during the first and second quarters of 2022.
•The $820,000$965,000 increase in advertising expense is related to the acquisition of Happy.
•The $1.1 million increase in amortization of intangibles is due to the acquisition of Happy.
•The $1.3$792,000 million increase in electronic banking expense is due to increased debit card processing fees and interchange network expenses resulting from the acquisition of Happy.
•The $2.5$1.8 million increase in FDIC and state assessment expense is primarily due to a two basis-point increase in assessment rate in the first quarter of 2023 implemented on large financial institutions to increase the FDIC reserves and the acquisition of Happy.
•The $675,000 increase in other professional fees is primarily related to the acquisition of Happy.
•The $3.8 million increase in other expenses is primarily related to the acquisition of Happy.
Non-interest expense increased $135.3 million, or 61.1%, to $356.7 million for the three months ended September 30, 2022 from $221.5 million for the same period in 2021. The primary factors that resulted in this increase were the changes related to salaries and employee benefits and merger and acquisition expense. Other factors were changes related to occupancy and equipment expense, data processing expense, advertising, advertising expenses, amortization of intangibles, electronic banking expense, FDIC and state assessment fees, other professional fees, operating supplies and other expenses.
Additional details for the nine months ended September 30, 2022 on some of the more significant changes are as follows:
•The $47.6 million increase in salaries and employee benefits expense is primarily due to the acquisition of Happy.
•The $10.9 million increase in occupancy and equipment expenses is primarily due to increases in depreciation on buildings, machinery and equipment; utility expenses; lease expense; equipment maintenance and repairs; janitorial expenses; property taxes and other occupancy expenses related to the acquisition of Happy.
•The $8.1 million increase in data processing expense is primarily due to increases in telecommunication fees, computer software fees, licensing fees, mobile banking, internet banking and cash management expenses related to the acquisition of Happy.
•The $48.6 million increase in merger and acquisition expense is related to costs associated with the acquisition of Happy.
•The $2.0 million increase in advertising expense is related to the acquisition of Happy.
•The $2.1 million increase in amortization of intangibles is due to the acquisition of Happy.
•The $2.3 million increase in electronic banking expense is due to increased debit card processing fees and interchange network expenses resulting from the acquisition of Happy.
•The $2.1 million increase in FDIC and state assessment expense is primarily due to FDIC assessment reductions for 2021 and the acquisition of Happy during the second quarter of 2022.
•The $1.1 million increase in other professional fees is primarily due to the acquisition of Happy.
•The $1.0 million increase in operating supplies is primarily due to the acquisition of Happy.
•The $7.6 million increase in other expenses is primarily related to the acquisition of Happy as well as $2.1 million in TRUPS redemption fees.
Income Taxes
Income tax expense increased $10.0$9.9 million, or 43.3%49.5%, to $33.3$30.0 million for the three-month period ended September 30, 2022,March 31, 2023, from $23.2$20.0 million for the same period in 2021. Income tax expense decreased $20.6 million, or 26.7%, to $56.6 million for the nine-month period ended September 30, 2022, from $77.2 million for the same period in 2021.2022. The effective income tax rate was 23.43% and 22.98%22.54% for the three and nine months ended September 30, 2022,March 31, 2023, compared to 23.63% and 23.91%23.59% for the same periods in 2021.2022. The marginal tax rate was 25.1475%24.6735% and 25.74%26.135% 2023 and 2022, and 2021, respectively.
Financial Condition as of and for the Period Ended September 30, 2022March 31, 2023 and December 31, 20212022
Our total assets as of September 30, 2022 increased $5.11 billionMarch 31, 2023 decreased $365.3 million to $23.16$22.52 billion from $18.05$22.88 billion reported as of December 31, 2021.2022. The increasedecrease in total assets is primarily due to the acquisition of $6.69 billion$270.8 million decrease in total assets, net of purchase accounting adjustments,investment securities resulting from Happypaydowns and maturities during the secondfirst quarter of 2022.2023. Cash and cash equivalents decreased $2.07 billion$36.7 million, for the ninethree months ended September 30, 2022.March 31, 2023. Our loan portfolio balance increaseddecreased to $13.83$14.39 billion as of September 30, 2022March 31, 2023 from $9.84$14.41 billion at December 31, 2021.2022. The increasedecrease in loans was primarily due to the acquisition$94.6 million of $3.65 billion in loans, net of purchase accounting adjustments,organic loan decline from Happy in the second quarter of 2022our Centennial Commercial Finance Group franchise and $242.2$2.1 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $98.4PPP loan decline, partially offset by $73.9 million in organic loan growth.growth in our remaining footprint. Total deposits increased $4.28 billiondecreased $493.3 million to $18.54$17.45 billion as of September 30, 2022March 31, 2023 from $14.26$17.94 billion as of December 31, 2021.2022. The increasedecrease in deposits was primarily due to the acquisitionrunoff of $5.86 billion in deposits net of purchase accounting adjustments, from Happy in the secondnormal course of business during the first quarter of 2022.2023 as a result of the current interest rate environment. Stockholders’ equity increased $694.3$104.5 million to $3.46$3.63 billion as of September 30, 2022,March 31, 2023, compared to $2.77$3.53 billion as of December 31, 2021.2022. The $694.3$104.5 million increase in stockholders’ equity is primarily associated with the $961.3 million in common stock issued to Happy shareholders for the acquisition of Happy on April 1, 2022 and the $189.6$103.0 million in net income for the ninethree months ended September 30, 2022,March 31, 2023 and the $49.2 million in other comprehensive income, partially offset by the $317.9 million in other comprehensive loss, the $94.8$36.6 million of shareholder dividends paid and stock repurchases of $50.9$13.5 million in 2022. 2023.
Loan Portfolio
Loans Receivable
Our loan portfolio averaged $13.82$14.47 billion and $10.04$9.94 billion during the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. Our loan portfolio averaged $12.55 billion and $10.53 billion during the nine months ended September 30, 2022 and 2021, respectively. Loans receivable were $13.83$14.39 billion and $9.84$14.41 billion as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
From December 31, 20212022 to September 30, 2022,March 31, 2023, the Company experienced an increasea decline of approximately$3.99 billion $22.8 million in loans. The increasedecrease in loans was primarily due to the acquisition$94.6 million of $3.65 billion in loans, net of purchase accounting adjustments,organic loan decline from Happy in the second quarter of 2022our Centennial Commercial Finance Group franchise and $242.2$2.1 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $98.4PPP loan decline partially offset by $73.9 million in organic loan growth. The $98.4 million in organic loan growth included $156.6 million in loan growth for Centennial CFG and $96.0 million in loan growth within theour remaining footprint, which was partially offset by a $154.2 million in decline in PPP loans.footprint. As of September 30, 2022,March 31, 2023, the Company had $10.8$5.3 million of PPP loans.
The most significant components of the loan portfolio were commercial real estate, residential real estate, consumer and commercial and industrial loans. These loans are generally secured by residential or commercial real estate or business or personal property. Although these loans are primarily originated within our franchises in Arkansas, Florida, Texas, Alabama and Centennial CFG, the property securing these loans may not physically be located within our market areas of Arkansas, Florida, Texas, Alabama and New York. Loans receivable were approximately $3.06$3.17 billion, $3.62$3.90 billion, $3.74$3.70 billion, $183.5$165.3 million, $1.15$1.27 billion and $2.08$2.18 billion as of September 30, 2022March 31, 2023 in Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG, respectively.
As of September 30, 2022,March 31, 2023, we had approximately $921.3$747.1 million of construction construction/land development loans which were collateralized by land. This consisted of approximately $148.9$81.6 million for raw land and approximately $772.4$665.5 million for land with commercial and/or residential lots.
Table 8 presents our loans receivable balances by category as of September 30, 2022March 31, 2023 and December 31, 2021.2022.
Table 8: Loans Receivable
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | (In thousands) | | (In thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans: | Commercial real estate loans: | | Commercial real estate loans: | |
| Non-farm/non-residential | Non-farm/non-residential | $ | 5,156,438 | | | $ | 3,889,284 | | Non-farm/non-residential | $ | 5,524,125 | | | $ | 5,632,063 | |
| Construction/land development | Construction/land development | 2,232,906 | | | 1,850,050 | | Construction/land development | 2,160,514 | | | 2,135,266 | |
| Agricultural | Agricultural | 330,748 | | | 130,674 | | Agricultural | 342,814 | | | 346,811 | |
| Residential real estate loans: | Residential real estate loans: | | Residential real estate loans: | |
| Residential 1-4 family | Residential 1-4 family | 1,704,850 | | | 1,274,953 | | Residential 1-4 family | 1,748,231 | | | 1,748,551 | |
| Multifamily residential | Multifamily residential | 525,110 | | | 280,837 | | Multifamily residential | 637,633 | | | 578,052 | |
| Total real estate | Total real estate | 9,950,052 | | | 7,425,798 | | Total real estate | 10,413,317 | | | 10,440,743 | |
| Consumer | Consumer | 1,120,250 | | | 825,519 | | Consumer | 1,173,325 | | | 1,149,896 | |
| Commercial and industrial | Commercial and industrial | 2,268,750 | | | 1,386,747 | | Commercial and industrial | 2,368,428 | | | 2,349,263 | |
| Agricultural | Agricultural | 313,693 | | | 43,920 | | Agricultural | 250,851 | | | 285,235 | |
| Other | Other | 176,566 | | | 154,105 | | Other | 180,713 | | | 184,343 | |
| Total loans receivable | Total loans receivable | $ | 13,829,311 | | | $ | 9,836,089 | | Total loans receivable | $ | 14,386,634 | | | $ | 14,409,480 | |
Commercial Real Estate Loans. We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized (where defined) over a 15 to 30-year period with balloon payments due at the end of one to five years. These loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis.
As of September 30, 2022,March 31, 2023, commercial real estate loans totaled $7.72$8.03 billion, or 55.8%,of loans receivable, as compared to $5.87$8.11 billion, or 59.7%56.3%, of loans receivable, as of December 31, 2021.2022. Commercial real estate loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $1.95$2.00 billion, $2.36$2.45 billion, $2.21$2.19 billion, $80.7$74.6 million, zero and $1.12$1.32 billion at September 30, 2022,March 31, 2023, respectively.
Residential Real Estate Loans. We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas. Approximately 40.0%45.8% and 50.1%46.7% of our residential mortgage loans consist of owner occupied 1-4 family properties and non-owner occupied 1-4 family properties (rental), respectively, as of September 30, 2022,March 31, 2023, with the remaining 9.9%7.5% relating to condos and mobile homes. Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.
As of September 30, 2022,March 31, 2023, residential real estate loans totaled $2.23$2.39 billion, or 16.1%16.6%, of loans receivable, compared to $1.56$2.33 billion, or 15.8%16.1%, of loans receivable, as of December 31, 2021.2022. Residential real estate loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $423.2$489.1 million, $930.0$985.2 million, $552.1$602.6 million, $46.7$41.8 million, zero and $278.0$267.2 million at September 30, 2022,March 31, 2023, respectively.
Consumer Loans. Our consumer loans are composed of secured and unsecured loans originated by our bank, the primary portion of which consists of loans to finance USCG registered high-end sail and power boats within our SPF division. The performance of consumer loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.
As of September 30, 2022,March 31, 2023, consumer loans totaled $1.12$1.17 billion, or 8.1%8.2%, of loans receivable, compared to $825.5 million,$1.15 billion, or 8.4%8.0%, of loans receivable, as of December 31, 2021.2022. Consumer loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $29.3$37.8 million, $8.4 million, $27.9$22.3 million, $890,000, $1.05$505,000, $1.10 billion and zero at September 30, 2022,March 31, 2023, respectively.
Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years. Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally, accounts receivable are financed at between 50% and 80% of accounts receivable less than 60 days past due. Inventory financing will range between 50% and 80% (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans.
As of September 30, 2022,March 31, 2023, commercial and industrial loans totaled $2.27$2.37 billion, or 16.4%16.5%, of loans receivable, compared to $1.39$2.35 billion, or 14.1%16.3%, of loans receivable, as of December 31, 2021.2022. Commercial and industrial loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $482.6$480.7 million, $264.0$404.1 million, $691.8$676.2 million, $52.6$44.5 million, $97.5$170.4 million and $680.4$592.6 million at September 30, 2022,March 31, 2023, respectively.
Non-Performing Assets
We classify our problem loans into three categories: past due loans, special mention loans and classified loans (accruing and non-accruing).
When management determines that a loan is no longer performing, and that collection of interest appears doubtful, the loan is placed on non-accrual status. Loans that are 90 days past due are placed on non-accrual status unless they are adequately secured and there is reasonable assurance of full collection of both principal and interest. Our management closely monitors all loans that are contractually 90 days past due, treated as “special mention” or otherwise classified or on non-accrual status.
Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans.losses. 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. TheThe Company held approximately $146.0$136.2 million and $448,000$142.5 million in PCD loans, as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
Table 9 sets forth information with respect to our non-performing assets as of September 30, 2022March 31, 2023 and December 31, 2021.2022. As of these dates, all non-performing restructured loans are included in non-accrual loans.
Table 9: Non-performing Assets
| | | As of September 30, 2022 | | As of December 31, 2021 | | As of March 31, 2023 | | As of December 31, 2022 |
| | (Dollars in thousands) | | (Dollars in thousands) |
| Non-accrual loans | Non-accrual loans | $ | 56,796 | | | $ | 47,158 | | Non-accrual loans | $ | 65,401 | | | $ | 51,011 | |
| Loans past due 90 days or more (principal or interest payments) | Loans past due 90 days or more (principal or interest payments) | 4,898 | | | 3,035 | | Loans past due 90 days or more (principal or interest payments) | 8,567 | | | 9,845 | |
| Total non-performing loans | Total non-performing loans | 61,694 | | | 50,193 | | Total non-performing loans | 73,968 | | | 60,856 | |
| Other non-performing assets | Other non-performing assets | | | | Other non-performing assets | | | |
| Foreclosed assets held for sale, net | Foreclosed assets held for sale, net | 365 | | | 1,630 | | Foreclosed assets held for sale, net | 425 | | | 546 | |
| Other non-performing assets | Other non-performing assets | 104 | | | — | | Other non-performing assets | 74 | | | 74 | |
| Total other non-performing assets | Total other non-performing assets | 469 | | | 1,630 | | Total other non-performing assets | 499 | | | 620 | |
| Total non-performing assets | Total non-performing assets | $ | 62,163 | | | $ | 51,823 | | Total non-performing assets | $ | 74,467 | | | $ | 61,476 | |
| Allowance for credit losses to non-accrual loans | Allowance for credit losses to non-accrual loans | 509.20 | % | | 501.96 | % | Allowance for credit losses to non-accrual loans | 439.09 | % | | 567.86 | % |
| Allowance for credit losses to non-performing loans | Allowance for credit losses to non-performing loans | 468.77 | | | 471.61 | | Allowance for credit losses to non-performing loans | 388.23 | | | 475.99 | |
| Non-accrual loans to total loans | Non-accrual loans to total loans | 0.41 | | | 0.48 | | Non-accrual loans to total loans | 0.45 | | | 0.35 | |
| Non-performing loans to total loans | Non-performing loans to total loans | 0.45 | | | 0.51 | | Non-performing loans to total loans | 0.51 | | | 0.42 | |
| Non-performing assets to total assets | Non-performing assets to total assets | 0.27 | | | 0.29 | | Non-performing assets to total assets | 0.33 | | | 0.27 | |
Our non-performing loans are comprised of non-accrual loans and accruing loans that are contractually past due 90 days. Our bank subsidiary recognizes income principally on the accrual basis of accounting. When loans are classified as non-accrual, the accrued interest is charged off and no further interest is accrued, unless the credit characteristics of the loan improve. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for credit losses.
Total non-performing loans were $61.7$74.0 million and $50.2$60.9 million as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.Non-performing loans at September 30, 2022March 31, 2023 were $10.2$11.2 million, $24.8$20.0 million, $13.7$26.9 million, $204,000, $1.4$390,000, $2.1 million and $11.4$13.4 million in the Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets, respectively.
The $11.4$13.4 million balance of non-accrual loans for our Centennial CFG market consists of twofour loans that are assessed for credit risk by the Federal Reserve under the Shared National Credit Program. Due to the condition of the twofour loans, partial charge-offs for a total of $2.2$2.0 million were taken on these loans during the third quarter of 2022.three months ended March 31, 2023. The loans are not current on either principal or interest, and we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve. Any interest payments that are received will be applied to the principal balance.
Troubled debt restructurings (“TDRs”)Debt restructuring generally occuroccurs when a borrower is experiencing, or is expected to experience, financial difficulties in the near term. As a result, we will work with the borrower to prevent further difficulties, and ultimately to improve the likelihood of recovery on the loan. In those circumstances it may be beneficial to restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in an unfavorable and depressed real estate market. When we have modified the terms of a loan, we usually either reduce the monthly payment and/or interest rate for generally about three to twelve months. For our TDRsrestructured loans that accrue interest at the time the loan is restructured, it would be a rare exception to have charged-off any portion of the loan. As of September 30, 2022,March 31, 2023, we had $6.2$3.3 million of restructured loans that are in compliance with the modified terms and are not reported as past due or non-accrual in Table 9.non-accrual. Our Florida market contains $3.5$1.2 million and our Arkansas market contains $2.7$2.1 million of these restructured loans.
A loan modification that might not otherwise be considered may be granted resulting in classification as a TDR.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.
The majority of the Bank’s loan modifications relatesrestructured loans relate to commercialreal estate lending and involvesgenerally involve reducing the interest rate, changing from a principal and interest payment to interest-only, lengthening the amortization period, or a combination of some or all of the three. In addition, it is common for the Bank to seek additional collateral or guarantor support when modifying a loan. At September 30, 2022 and DecemberMarch 31, 2021,2023, the amount of TDRsrestructured loans was $7.6 million and $7.5 million, respectively.$5.3 million. As of September 30, 2022 and DecemberMarch 31, 2021, 81.1% and 85.7%, respectively,2023, 61.6% of all restructured loans were performing to the terms of the restructure.
Total foreclosed assets held for sale were $365,000$425,000 as of September 30, 2022,March 31, 2023, compared to $1.6 million$546,000 as of December 31, 20212022 for a decrease of $1.3 million.$121,000. The foreclosed assets held for sale as of September 30, 2022March 31, 2023 are comprised of zero assets located in Arkansas, $260,000 located in Florida, $105,000$165,000 located in Texas and zero fromin Alabama, SPF and Centennial CFG.
Table 10 shows the summary of foreclosed assets held for sale as of September 30, 2022March 31, 2023 and December 31, 2021.2022.
Table 10: Foreclosed Assets Held For Sale
| | | As of September 30, 2022 | | As of December 31, 2021 | | As of March 31, 2023 | | As of December 31, 2022 |
| | (In thousands) | | (In thousands) |
| Commercial real estate loans | Commercial real estate loans | | Commercial real estate loans | |
| Non-farm/non-residential | Non-farm/non-residential | $ | 49 | | | $ | 536 | | Non-farm/non-residential | $ | 118 | | | $ | 118 | |
| Construction/land development | Construction/land development | 47 | | | 834 | | Construction/land development | 47 | | | 47 | |
| Residential real estate loans | Residential real estate loans | | Residential real estate loans | |
| Residential 1-4 family | Residential 1-4 family | 269 | | | 260 | | Residential 1-4 family | 260 | | | 260 | |
| | Multifamily residential | | Multifamily residential | — | | | 121 | |
| Total foreclosed assets held for sale | Total foreclosed assets held for sale | $ | 365 | | | $ | 1,630 | | Total foreclosed assets held for sale | $ | 425 | | | $ | 546 | |
AThe Company considers a loan is consideredto be impaired when it is probable that we will not receive all amounts due according to the contracted terms of the loans. ImpairedLoans individually analyzed for credit losses for which a specific reserve has been recorded, non-accrual loans, include non-performing loans (loans past due 90 days or more and non-accrual loans), criticized and/or classifiedrestructured loans with a specific allocation,made to borrowers experiencing financial difficulty comprise the classification of loans categorizedwhich we define as TDRs and certain other loans identified by management that are still performing (loans included in multiple categories are only included once)."impaired" loans. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, impaired loans were$229.3 $195.6 millionand $331.5$221.1 million, respectively. The amortized cost balance for loans with a specific allocation decreased from $284.0$168.6 million to $169.7$126.5 million, and the specific allocation for impaired loans decreased by approximately $21.9$8.1 million for the period ended September 30, 2022March 31, 2023 compared to the period ended December 31, 2021. The Company is continuing to monitor these impaired loans and will adjust the discount as necessary.2022. As of September 30, 2022,March 31, 2023, our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets accounted for approximately $24.2$24.7 million, $132.3$124.3 million, $59.8$30.6 million, $204,000, $1.4$390,000, $2.1 million and $11.4$13.4 million of the impaired loans, respectively.
Past Due and Non-Accrual Loans
Table 11 shows the summary of non-accrual loans as of September 30, 2022March 31, 2023 and December 31, 2021:2022:
Table 11: Total Non-Accrual Loans
| | | As of September 30, 2022 | | As of December 31, 2021 | | As of March 31, 2023 | | As of December 31, 2022 |
| | (In thousands) | | (In thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans | Commercial real estate loans | | Commercial real estate loans | |
| Non-farm/non-residential | Non-farm/non-residential | $ | 18,621 | | | $ | 11,923 | | Non-farm/non-residential | $ | 14,002 | | | $ | 12,219 | |
| Construction/land development | Construction/land development | 1,895 | | | 1,445 | | Construction/land development | 4,555 | | | 1,977 | |
| Agricultural | Agricultural | 772 | | | 897 | | Agricultural | 463 | | | 278 | |
| Residential real estate loans | Residential real estate loans | | Residential real estate loans | |
| Residential 1-4 family | Residential 1-4 family | 16,549 | | | 16,198 | | Residential 1-4 family | 18,319 | | | 18,083 | |
| Multifamily residential | 156 | | | 156 | | |
| | Total real estate | Total real estate | 37,993 | | | 30,619 | | Total real estate | 37,339 | | | 32,557 | |
| Consumer | Consumer | 1,778 | | | 1,648 | | Consumer | 2,733 | | | 2,842 | |
| Commercial and industrial | Commercial and industrial | 16,431 | | | 13,875 | | Commercial and industrial | 24,123 | | | 14,920 | |
| Agricultural & other | Agricultural & other | 594 | | | 1,016 | | Agricultural & other | 1,206 | | | 692 | |
| Total non-accrual loans | Total non-accrual loans | $ | 56,796 | | | $ | 47,158 | | Total non-accrual loans | $ | 65,401 | | | $ | 51,011 | |
If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $1.1$1.4 million and $662,000,$407,000, respectively, would have been recorded for the three-month periods ended September 30, 2022March 31, 2023 and 2021. If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $3.2 million and $2.0 million, respectively, would have been recorded for the nine month periods ended September 30, 2022 and 2021.2022. The interest income recognized on non-accrual loans for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021 was considered immaterial.
Table 12 shows the summary of accruing past due loans 90 days or more as of September 30, 2022March 31, 2023 and December 31, 2021:2022:
Table 12: Loans Accruing Past Due 90 Days or More
| | | As of September 30, 2022 | | As of December 31, 2021 | | As of March 31, 2023 | | As of December 31, 2022 |
| | (In thousands) | | (In thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans | Commercial real estate loans | | Commercial real estate loans | |
| Non-farm/non-residential | Non-farm/non-residential | $ | 290 | | | $ | 2,225 | | Non-farm/non-residential | $ | 3,046 | | | $ | 1,844 | |
| Construction/land development | Construction/land development | 34 | | | — | | Construction/land development | 6 | | | 31 | |
| | Residential real estate loans | Residential real estate loans | | Residential real estate loans | |
| Residential 1-4 family | Residential 1-4 family | 1,445 | | | 701 | | Residential 1-4 family | 367 | | | 1,374 | |
| | Total real estate | Total real estate | 1,769 | | | 2,926 | | Total real estate | 3,419 | | | 3,249 | |
| Consumer | Consumer | 15 | | | 2 | | Consumer | 23 | | | 35 | |
| Commercial and industrial | Commercial and industrial | 2,901 | | | 107 | | Commercial and industrial | 4,884 | | | 6,300 | |
| Other | Other | 213 | | | — | | Other | 241 | | | 261 | |
| Total loans accruing past due 90 days or more | Total loans accruing past due 90 days or more | $ | 4,898 | | | $ | 3,035 | | Total loans accruing past due 90 days or more | $ | 8,567 | | | $ | 9,845 | |
Our ratio of total loans accruing past due 90 days or more and non-accrual loans to total loans was 0.45%0.51% and 0.51%0.42% at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
Allowance for Credit Losses
Overview. The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’loan’s amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
The Company uses the discounted cash flow (“DCF”) method to estimate expected losses for all of the Company’s loan pools. These pools are as follows: construction & land development; other commercial real estate; residential real estate; commercial & industrial; and consumer & other. The loan portfolio pools were selected in order to generally align with the loan categories specified in the quarterly call reports required to be filed with the Federal Financial Institutions Examination Council. For each of these loan pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.
For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, national retail sales index, housing price indices and rental vacancy rate index.index.
The combination of adjustments for credit expectations (default and loss) and time expectations prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.
The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans that do not share risk characteristics are evaluated on an individual basis. LoansFor these loans, excluding assisted living loans which are evaluated using a market price valuation methodology, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the 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 loans individually are not also included in the collective evaluation. For thoseanalyzed for credit losses for which a specific reserve has been recorded, non-accrual loans, that are classifiedloans past due 90 days or more and restructured loans made to borrowers experiencing financial difficulty (which we define as impaired,"impaired" loans), an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. For loans that are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation if a specific reserve is not recorded.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies:
•Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower orborrower.
the•The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
Management qualitatively adjusts model results for risk factors ("Q-Factors") that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factors and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.
Loans considered impaired, according to ASC 326, are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.
Acquisition Accounting and Acquired Loans. We account for our acquisitions under FASB ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.
Purchased loans that have experienced more than insignificant credit deterioration since origination are PCD loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment.credit losses. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
Specific Allocations. As a general rule, if a specific allocation is warranted, it is the result of ana 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 collateral impairment has occurred.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 an impairment has occurred,a specific allocation is needed, then a specific allocation will be determined for this loan. If our existing appraisal is outdated or the collateral has been subject to significant market changes, we will obtain a new appraisal for this impairment analysis. The majority of our impaired loans are collateral dependent at the present time, so third-party appraisals were used to determine the necessary impairment for these loans. Cash flow available to service debt was used for the other impaired loans. This analysis is performed each quarter in connection with the preparation of the analysis of the adequacy of the allowance for credit losses, and if necessary, adjustments are made to the specific allocation provided for a particular loan.
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 validationvaluation report for the impairmentcredit 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 impairmentcredit 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 impairmentcredit loss analysis is shown as a specific reserve on the individual impairment.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 impairmentcredit loss analysis.
In estimating the net realizable value of the collateral, management may deem it appropriate to discount the appraisal based on the applicable circumstances. In such case, the amount charged off may result in loan principal outstanding being below fair value as presented in the appraisal.
Between the receipt of the original appraisal and the updated appraisal, we monitor the loan's repayment history. If the loan is $3.0 million or greater or the total loan relationship is $5.0 million or greater, our policy requires an annual credit review. For these loans, our policy requires financial statements from the borrowers and guarantors at least annually. In addition, we calculate the global repayment ability of the borrower/guarantors at least annually on these loans.
As a general rule, when it becomes evident that the full principal and accrued interest of a loan may not be collected, or by law at 105 days past due, we will reflect that loan as non-performing. It will remain non-performing until it performs in a manner that it is reasonable to expect that we will collect the full principal and accrued interest.
When the amount or likelihood of a loss on a loan has been determined, a charge-off should be taken in the period it is determined. If a partial charge-off occurs, the quarterly impairmentcredit loss analysis will determine if the loan is still impaired,collateral dependent, and thus continues to require a specific allocation.
The Company had $229.3$195.6 million and $331.5$221.1 million in collateral-dependent 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) for the periods ended September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
Loans Collectively Evaluated for ImpairmentCredit Loss.. Loans receivable collectively evaluated for impairmentcredit loss increased by approximately $4.10 billion$58.2 million from $9.54$14.19 billion at December 31, 20212022 to $13.64$14.25 billion at September 30, 2022.March 31, 2023. The percentage of the allowance for credit losses allocated to loans receivable collectively evaluated for impairmentcredit loss to the total loans collectively evaluated for impairmentcredit loss was 1.90%1.85% and 1.94%1.82% at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
Charge-offs and Recoveries. Total charge-offs increased to $6.3$4.3 million for the three months ended September 30, 2022,March 31, 2023, compared to $2.5$2.3 million for the same period in 2021. Total charge-offs increased to $11.9 million for the nine months ended September 30, 2022, compared to $8.5 million for the same period in 2021.2022. Total recoveries were $1.2 million$588,000 and $691,000$364,000 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. Total recoveries were $2.4 million and $1.7 million for the nine months ended September 30, 2022 and 2021, respectively. For the three months ended September 30, 2022,March 31, 2023, net charge-offs were $295,000$214,000 for Arkansas, $1.6 million$200,000 for Florida, $1.0$1.2 million for Texas, $11,000$6,000 for Alabama, and $2.2 million for Centennial CFG, partially offset by net recoveries of $3,000 for SPF. These equal a net charge-off position of $5.1 million. For the nine months ended September 30, 2022, net charge-offs were $825,000 for Arkansas, $4.3 million for Florida, $1.7 million for Texas, $47,000 for Alabama, $392,000$136,000 for SPF and $2.2$2.0 million for Centennial CFG. These equal a net charge-off position of $9.5$3.7 million.
We have not charged off an amount less than what was determined to be the fair value of the collateral as presented in the appraisal, less estimated costs to sell (for collateral dependent loans), for any period presented. Loans partially charged-off are placed on non-accrual status until it is proven that the borrower's repayment ability with respect to the remaining principal balance can be reasonably assured. This is usually established over a period of 6-12 months of timely payment performance.
Table 13 shows the allowance for credit losses, charge-offs and recoveries as of and for the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022.
Table 13: Analysis of Allowance for Credit Losses
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
| | (Dollars in thousands) | | | | (Dollars in thousands) |
| Balance, beginning of period | Balance, beginning of period | $ | 294,267 | | | $ | 240,451 | | | $ | 236,714 | | | $ | 245,473 | | Balance, beginning of period | $ | 289,669 | | | $ | 236,714 | |
| | Allowance for credit losses on PCD loans - Happy acquisition | — | | | — | | | 16,816 | | | — | | |
| | Loans charged off | Loans charged off | | Loans charged off | |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans: | Commercial real estate loans: | | Commercial real estate loans: | |
| Non-farm/non-residential | Non-farm/non-residential | — | | | 9 | | | — | | | 604 | | Non-farm/non-residential | 71 | | | — | |
| Construction/land development | Construction/land development | 11 | | | — | | | 11 | | | — | | Construction/land development | 25 | | | — | |
| Agricultural | Agricultural | — | | | — | | | — | | | 42 | | Agricultural | 2 | | | — | |
| Residential real estate loans: | Residential real estate loans: | | Residential real estate loans: | |
| Residential 1-4 family | Residential 1-4 family | 48 | | | 220 | | | 337 | | | 543 | | Residential 1-4 family | 59 | | | 250 | |
| | Total real estate | Total real estate | 59 | | | 229 | | | 348 | | | 1,189 | | Total real estate | 157 | | | 250 | |
| Consumer | Consumer | 47 | | | 21 | | | 2,284 | | | 143 | | Consumer | 221 | | | 63 | |
| Commercial and industrial | Commercial and industrial | 4,536 | | | 1,682 | | | 5,952 | | | 5,892 | | Commercial and industrial | 3,006 | | | 1,416 | |
| | Other | Other | 1,671 | | | 537 | | | 3,304 | | | 1,315 | | Other | 904 | | | 581 | |
| Total loans charged off | Total loans charged off | 6,313 | | | 2,469 | | | 11,888 | | | 8,539 | | Total loans charged off | 4,288 | | | 2,310 | |
| Recoveries of loans previously charged off | Recoveries of loans previously charged off | | | | | | | | Recoveries of loans previously charged off | | | |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans: | Commercial real estate loans: | | Commercial real estate loans: | |
| Non-farm/non-residential | Non-farm/non-residential | 778 | | | 44 | | | 856 | | | 112 | | Non-farm/non-residential | 19 | | | 26 | |
| Construction/land development | Construction/land development | 8 | | | 8 | | | 325 | | | 47 | | Construction/land development | 7 | | | 15 | |
| | Residential real estate loans: | Residential real estate loans: | | Residential real estate loans: | |
| Residential 1-4 family | Residential 1-4 family | 45 | | | 388 | | | 94 | | | 554 | | Residential 1-4 family | 118 | | | 26 | |
| | Multifamily residential | | Multifamily residential | 8 | | | — | |
| Total real estate | Total real estate | 831 | | | 440 | | | 1,275 | | | 713 | | Total real estate | 152 | | | 67 | |
| Consumer | Consumer | 42 | | | 19 | | | 90 | | | 51 | | Consumer | 41 | | | 11 | |
| Commercial and industrial | Commercial and industrial | 189 | | | 80 | | | 519 | | | 382 | | Commercial and industrial | 109 | | | 109 | |
| | Other | Other | 187 | | | 152 | | | 507 | | | 593 | | Other | 286 | | | 177 | |
| Total recoveries | Total recoveries | 1,249 | | | 691 | | | 2,391 | | | 1,739 | | Total recoveries | 588 | | | 364 | |
| Net loans charged off | Net loans charged off | 5,064 | | | 1,778 | | | 9,497 | | | 6,800 | | Net loans charged off | 3,700 | | | 1,946 | |
| Provision for credit loss - acquired loans | Provision for credit loss - acquired loans | — | | | — | | | 45,170 | | | — | | Provision for credit loss - acquired loans | 1,200 | | | — | |
| | Balance, September 30 | $ | 289,203 | | | $ | 238,673 | | | $ | 289,203 | | | $ | 238,673 | | |
| Balance, March 31 | | Balance, March 31 | $ | 287,169 | | | $ | 234,768 | |
| Net charge-offs to average loans receivable | Net charge-offs to average loans receivable | 0.15 | % | | 0.07 | % | | 0.10 | % | | 0.09 | % | Net charge-offs to average loans receivable | 0.10 | % | | 0.08 | % |
| Allowance for credit losses to total loans | Allowance for credit losses to total loans | 2.09 | | | 2.41 | | | 2.09 | | | 2.41 | | Allowance for credit losses to total loans | 2.00 | | | 2.34 | |
| Allowance for credit losses to net charge-offs | Allowance for credit losses to net charge-offs | 1,439.47 | | | 3,383.50 | | | 2,277.65 | | | 2,625.21 | | Allowance for credit losses to net charge-offs | 1,913.75 | | | 2,974.72 | |
Table 14 presents the allocation of allowance for credit losses as of September 30, 2022March 31, 2023 and December 31, 2021.2022.
Table 14: Allocation of Allowance for Credit Losses
| | | As of September 30, 2022 | | As of December 31, 2021 | | As of March 31, 2023 | | As of December 31, 2022 |
| | Allowance
Amount | | % of loans(1) | | Allowance
Amount | | % of loans(1) | | Allowance
Amount | | % of loans(1) | | Allowance
Amount | | % of loans(1) |
| | (Dollars in thousands) | | (Dollars in thousands) |
| Real estate: | Real estate: | | Real estate: | |
| Commercial real estate loans: | Commercial real estate loans: | | Commercial real estate loans: | |
| Non-farm/non- residential | Non-farm/non- residential | $ | 90,655 | | | 37.3 | % | | $ | 86,910 | | | 39.5 | % | Non-farm/non- residential | $ | 85,504 | | | 38.3 | % | | $ | 92,197 | | | 39.1 | % |
| Construction/land development | Construction/land development | 34,687 | | | 16.1 | | | 28,415 | | | 18.8 | | Construction/land development | 31,172 | | | 15.0 | | | 32,243 | | | 14.8 | |
| Agricultural residential real estate loans | Agricultural residential real estate loans | 1,758 | | | 2.4 | | | 308 | | | 1.3 | | Agricultural residential real estate loans | 1,474 | | | 2.4 | | | 1,651 | | | 2.4 | |
| Residential real estate loans: | Residential real estate loans: | | Residential real estate loans: | |
| Residential 1-4 family | Residential 1-4 family | 45,074 | | | 12.3 | | | 45,364 | | | 13.0 | | Residential 1-4 family | 44,847 | | | 12.2 | | | 45,312 | | | 12.1 | |
| Multifamily residential | Multifamily residential | 4,747 | | | 3.8 | | | 3,094 | | | 2.9 | | Multifamily residential | 6,586 | | | 4.4 | | | 5,651 | | | 4.0 | |
| Total real estate | Total real estate | 176,921 | | | 71.9 | | | 164,091 | | | 75.5 | | Total real estate | 169,583 | | | 72.3 | | | 177,054 | | | 72.4 | |
| Consumer | Consumer | 20,513 | | | 8.1 | | | 16,612 | | | 8.4 | | Consumer | 22,705 | | | 8.2 | | | 20,907 | | | 8.0 | |
| Commercial and industrial | Commercial and industrial | 88,143 | | | 16.4 | | | 52,910 | | | 14.1 | | Commercial and industrial | 91,357 | | | 16.5 | | | 88,131 | | | 16.3 | |
| Agricultural | Agricultural | 1,278 | | | 2.3 | | | 152 | | | 0.4 | | Agricultural | 1,039 | | | 1.7 | | | 1,223 | | | 2.0 | |
| Other | Other | 2,348 | | | 1.3 | | | 2,949 | | | 1.6 | | Other | 2,485 | | | 1.3 | | | 2,354 | | | 1.3 | |
| Total | Total | $ | 289,203 | | | 100.0 | % | | $ | 236,714 | | | 100.0 | % | Total | $ | 287,169 | | | 100.0 | % | | $ | 289,669 | | | 100.0 | % |
(1)Percentage of loans in each category to total loans receivable.
Investment Securities
Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as held-to-maturity, available-for-sale, or trading based on the intent and objective of the investment and the ability to hold to maturity. Fair values of securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities. The estimated effective duration of our securities portfolio was 5.25.4 years as of September 30, 2022.March 31, 2023.
Securities held-to-maturity, which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. As of September 30, 2022, weWe had $1.25$1.29 billion of held-to-maturity securities. As of September 30,securities at both March 31, 2023 and December 31, 2022. At both March 31, 2023 and December 31, 2022, $1.11 billion, or 88.7%86.2%, was invested in obligations of state and political subdivisions, $43.0subdivisions. As of March 31, 2023, $43.1 million, or 3.4%3.3%, werewas invested in obligations of U.S. Government-sponsored enterprises, and $98.5compared to $43.0 million, or 7.9%3.34%, wereas of December 31, 2022. We had $133.9 million, or 10.4%, invested in mortgage-backed securities.securities as of March 31, 2023, compared to $135.0 million, or 10.5% as of December 31, 2022. The U.S. government-sponsored enterprises and mortgage-backed securities are guaranteed by the U.S. government.
Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity as other comprehensive (loss) income. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. Available-for-sale securities were $4.09$3.77 billion and $3.12$4.04 billion as September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
As of September 30, 2022, $1.94March 31, 2023, $1.85 billion, or 47.5%49.1%, of our available-for-sale securities were invested in mortgage-backed securities, compared to $1.54$1.86 billion, or 49.3%46.1%, of our available-for-sale securities as of December 31, 2021.2022. To reduce our income tax burden, $900.2$916.2 million, or 22.0%24.3%, of our available-for-sale securities portfolio as of September 30, 2022,March 31, 2023, were primarily invested in tax-exempt obligations of state and political subdivisions, compared to $997.0$906.3 million, or 32.0%22.4%, of our available-for-sale securities as of December 31, 2021.2022. We had $682.0$397.1 million, or 16.7%10.5%, invested in obligations of U.S. Government-sponsored enterprises as of September 30, 2022,March 31, 2023, compared to $433.0$661.8 million, or 13.9%16.4%, of our available-for-sale securities as of December 31, 2021.2022. Also, we had approximately $564.3$607.0 million, or 13.8%16.1%, invested in other securities as of September 30, 2022,March 31, 2023, compared to $151.9$608.9 million, or 4.9%15.1% of our available-for-sale securities as of December 31, 2021.
The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
The Company recorded a $2.0 million provision for credit losses on the held-to-maturity investment securities during the second quarter of 2022 as a result of the investment securities acquired as part of the Happy acquisition. Of the Company's held-to-maturity securities, $1.11 billion, or 88.7% are municipal securities. To estimate the necessary loss provision, the Company utilized historical default and recovery rates of the municipal bond sector and applied these rates using a pooling method. The remainder of investments classified as held-to-maturity are U.S. government-sponsored enterprises and mortgage-backed securities all of which are guaranteed by the U.S. government. Due to the inherent low risk in these U.S. government guaranteed securities, no provision for credit loss was established on this portion of the portfolio.
At September 30, 2022,March 31, 2023, the Company determined that the allowance for credit losses of $842,000 resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio, and the $2.0 million allowance for credit losses for the HTMheld-to-maturity portfolio was also considered adequate. No additional provision for credit losses was considered necessary for the portfolio.
See Note 3 to the Condensed Notes to Consolidated Financial Statements for the carrying value and fair value of investment securities.
Deposits
Our deposits averaged $19.09 billion and $17.82$17.69 billion for the three and nine months ended September 30, 2022, respectively.March 31, 2023. Our deposits averaged $13.95 billion and $13.59$14.37 billion for the three and nine months ended September 30, 2021, respectively.March 31, 2022. Total deposits were $18.54$17.45 billion as of September 30, 2022,March 31, 2023, and $14.26$17.94 billion as of December 31, 2021.2022. Deposits are our primary source of funds. We offer a variety of products designed to attract and retain deposit customers. Those products consist of checking accounts, regular savings deposits, NOW accounts, money market accounts and certificates of deposit. Deposits are gathered from individuals, partnerships and corporations in our market areas. In addition, we obtain deposits from state and local entities and, to a lesser extent, U.S. Government and other depository institutions.
Our policy also permits the acceptance of brokered deposits. From time to time, when appropriate in order to fund strong loan demand, we accept brokered time deposits, generally in denominations of less than $250,000, from a regional brokerage firm, and other national brokerage networks. We also participate in the One-Way Buy Insured Cash Sweep (“ICS”) service and similar services, which provide for one-way buy transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements. Management believes these sources represent a reliable and cost-efficient alternative funding source for the Company. However, to the extent that our condition or reputation deteriorates, or to the extent that there are significant changes in market interest rates which we do not elect to match, we may experience an outflow of brokered deposits. In that event we would be required to obtain alternate sources for funding.
Table 15 reflects the classification of the brokered deposits as of September 30, 2022March 31, 2023 and December 31, 2021.2022.
Table 15: Brokered Deposits
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | (In thousands) | | (In thousands) |
| | Insured Cash Sweep and Other Transaction Accounts | Insured Cash Sweep and Other Transaction Accounts | 546,643 | | | 625,704 | | Insured Cash Sweep and Other Transaction Accounts | $ | 484,487 | | | $ | 476,630 | |
| Total Brokered Deposits | Total Brokered Deposits | $ | 546,643 | | | $ | 625,704 | | Total Brokered Deposits | $ | 484,487 | | | $ | 476,630 | |
The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will continue to manage interest expense through deposit pricing. We may allow higher rate deposits to run off during periods of limited loan demand. We believe that additional funds can be attracted, and deposit growth can be realized through deposit pricing if we experience increased loan demand or other liquidity needs.
The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. In 2020, theThe Federal Reserve loweredincreased the target rate to 0.00% to 0.25%. This remained in effect throughout all of 2021. Onseven times during 2022. First, on March 16, 2022, the target rate was increased to 0.25% to 0.50%. OnSecond, on May 4, 2022, the target rate was increased to 0.75% to 1.00%. OnThird, on June 15, 2022, the target rate was increased to 1.50% to 1.75%. OnFourth, on July 27, 2022, the target rate was increased to 2.25% to 2.50%. OnFifth, on September 21, 2022, the target rate was increased to 3.00% to 3.25%. Presently,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 has indicated they are anticipating furtherincreased the target rate increases.twice during the first quarter of 2023. First, on February 1, 2023, the target rate was increased to 4.50% to 4.75%, and second, on March 22, 2023, the target rate was increased to 4.75% to 5.00%.
Table 16 reflects the classification of the average deposits and the average rate paid on each deposit category, which are in excess of 10 percent of average total deposits, for the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022.
Table 16: Average Deposit Balances and Rates
| | | Three Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| | Average
Amount | | Average
Rate Paid | | Average
Amount | | Average
Rate Paid | | Average
Amount | | Average
Rate Paid | | Average
Amount | | Average
Rate Paid |
| | (Dollars in thousands) | | (Dollars in thousands) |
| Non-interest-bearing transaction accounts | Non-interest-bearing transaction accounts | $ | 5,779,082 | | | — | % | | $ | 4,091,174 | | | — | % | Non-interest-bearing transaction accounts | $ | 5,043,219 | | | — | % | | $ | 4,155,894 | | | — | % |
| Interest-bearing transaction accounts | Interest-bearing transaction accounts | 10,759,379 | | | 0.81 | | | 7,895,663 | | | 0.18 | | Interest-bearing transaction accounts | 10,225,694 | | | 2.08 | | | 8,389,038 | | | 0.18 | |
| Savings deposits | Savings deposits | 1,474,376 | | | 0.09 | | | 898,994 | | | 0.06 | | Savings deposits | 1,353,635 | | | 0.76 | | | 974,755 | | | 0.06 | |
| Time deposits: | Time deposits: | | Time deposits: | |
| $100,000 or more | $100,000 or more | 654,550 | | | 0.37 | | | 708,524 | | | 0.94 | | $100,000 or more | 661,623 | | | 1.81 | | | 518,864 | | | 0.60 | |
| Other time deposits | Other time deposits | 423,562 | | | 0.32 | | | 354,976 | | | 0.40 | | Other time deposits | 410,471 | | | 1.34 | | | 335,729 | | | 0.31 | |
| Total | Total | $ | 19,090,949 | | | 0.49 | % | | $ | 13,949,331 | | | 0.16 | % | Total | $ | 17,694,642 | | | 1.36 | % | | $ | 14,374,280 | | | 0.14 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
| Average
Amount | | Average
Rate Paid | | Average
Amount | | Average
Rate Paid |
| (Dollars in thousands) |
| Non-interest-bearing transaction accounts | $ | 5,363,770 | | | — | % | | $ | 3,848,302 | | | — | % |
| Interest-bearing transaction accounts | 10,058,021 | | | 0.47 | | | 7,754,622 | | | 0.21 | |
| Savings deposits | 1,362,545 | | | 0.07 | | | 853,106 | | | 0.06 | |
| Time deposits: | | | | | | | |
| $100,000 or more | 635,555 | | | 0.43 | | | 767,594 | | | 1.06 | |
| Other time deposits | 399,785 | | | 0.30 | | | 363,944 | | | 0.51 | |
| Total | $ | 17,819,676 | | | 0.29 | % | | $ | 13,587,568 | | | 0.19 | % |
Securities Sold Under Agreements to Repurchase
We enter into short-term purchases of securities under agreements to resell (resale agreements) and sales of securities under agreements to repurchase (repurchase agreements) of substantially identical securities. The amounts advanced under resale agreements and the amounts borrowed under repurchase agreements are carried on the balance sheet at the amount advanced. Interest incurred on repurchase agreements is reported as interest expense. Securities sold under agreements to repurchase decreased $19.3increased $7.6 million, or 13.7%5.8%, from $140.9$131.1 million as of December 31, 20212022 to $121.6$138.7 million as of September 30, 2022.March 31, 2023.
FHLB and Other Borrowed Funds
The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $400.0$650.0 million at both September 30, 2022March 31, 2023 and December 31, 2021.2022. The Company had no other borrowed funds as of September 30, 2022March 31, 2023 or December 31, 2021.2022. At September 30, 2022 allMarch 31, 2023, $50.0 million and $600.0 million of the outstanding balances were classified as short-term and long-term advances, as the FHLB has provided notice of their intention to call all of the Company's FHLB borrowed funds within a year due to the low interest rates on the advances.respectively. At December 31, 2021, all2022, $50.0 million and $600.0 million of the outstanding balances were classified as short-term and long-term advances.advances, respectively. The FHLB advances mature in 2033from 2023 to 2037 with fixed interest rates ranging from 1.76%2.26% to 2.26%4.84%. As noted above, expected maturities could differ from contractual maturities because FHLB may have the right to call, or the Company may have the right to prepay certain obligations.
The Company had access to approximately $677.7 million in liquidity with the Federal Reserve Bank as of March 31, 2023. This consisted of $71.8 million available from the Discount Window and $605.9 million available through the Bank Term Funding Program ("BTFP"). As of March 31, 2023, the primary and secondary credit rates available through the Discount Window were 5.00% and 5.50%, respectively, and the BTFP rate was 4.85%. As of March 31, 2023, the balance on these available sources was zero. For further discussion of the Company's available sources of liquidity, see Item 3: Quantitative and Qualitative Disclosures about Market Risk.
Subordinated Debentures
Subordinated debentures which consist of subordinated debt securities and guaranteed payments on trust preferred securities, were $440.6$440.3 million and $371.1$440.4 million as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
On April 1, 2022, the Company acquired $23.2 million in trust preferred securities from Happy which were currently callable without penalty based on the terms of the specific agreements. During the second and third quarters of 2022, the Company redeemed, without penalty, the $23.2 million of the trust preferred securities acquired from Happy. In addition, during the second and third quarters, the Company also redeemed, without penalty, the $73.3 million of trust preferred securities held prior to the Happy acquisition. As a result, the Company no longer holds any trust preferred securities.
On April 1, 2022, the Company acquired $140.0 million in aggregate principal amount of 5.500% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “2030 Notes”) from Happy, and the Company recorded approximately $144.4 million which included fair value adjustments. The 2030 Notes are unsecured, subordinated notes from Happy. These notes have adebt obligations of the Company and will mature on July 31, 2030. From and including the date of issuance to, but excluding July 31, 2025 or the date of earlier redemption, the 2030 Notes will bear interest at an initial rate of 5.50% per annum, payable in arrears on January 31 and July 31 of each year. From and including July 31, 2025 to, but excluding, the maturity date of July 31,or earlier redemption, the 2030 and carry a fixed rate of 5.500% for the first five years. Thereafter, the notesNotes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be 3-month Secured Overnight Funding Rate (SOFR)), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2030 Notes, plus 5.345% resetting quarterly. Interest payments are due semi-annually and the notes include a right of prepayment without penalty, payable quarterly in arrears on or afterJanuary 31, April 30, July 31, and October 31 of each year, commencing on October 31, 2025.
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.
On January 18, 2022, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 3.125% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “2032 Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $296.4 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. From and including the date of issuance to, but excluding January 30, 2027 or the date of earlier redemption, the 2032 Notes will bear interest at an initial rate of 3.125% per annum, payable in arrears on January 30 and July 30 of each year. From and including January 30, 2027 to, but excluding the maturity date or earlier redemption, the 2032 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be Three-Month Term SOFR), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2032 Notes, plus 182 basis points, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on April 30, 2027.
The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.
On April 3, 2017, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 5.625% Fixed-to-Floating Rate Subordinated Notes due 2027 (the “2027 Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $297.0 million. The 2027 Notes were unsecured, subordinated debt obligations and would have matured on April 15, 2027. From and including the date of issuance to, but excluding April 15, 2022, the 2027 Notes bore interest at an initial rate of 5.625% per annum. From and including April 15, 2022 to, but excluding the maturity date or earlier redemption, the 2027 Notes were to bear interest at a floating rate equal to three-month LIBOR as calculated on each applicable date of determination plus a spread of 3.575%; provided, however, that in the event three-month LIBOR was less than zero, then three-month LIBOR would have been deemed to be zero.
The Company, beginning with the interest payment date of April 15, 2022, and on any interest payment date thereafter, was permitted to redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. On April 15, 2022, the Company completed the payoff of the 2027 Notes in aggregate principal amount of $300.0 million. Each 2027 Note was redeemed pursuant to the terms of the Subordinated Indenture, as supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S. Bank Trust Company, National Association, the Trustee for the 2027 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.
Stockholders’ Equity
Stockholders’ equity increased $694.3$104.5 million to $3.46$3.63 billion as of September 30, 2022,March 31, 2023, compared to $2.77$3.53 billion as of December 31, 2021.2022. The $694.3$104.5 million increase in stockholders’ equity is primarily associated with the $961.3 million in common stock issued to Happy shareholders for the acquisition of Happy on April 1, 2022 and the $189.6$103.0 million in net income for the ninethree months ended September 30, 2022,March 31, 2023 and the $49.2 million in other comprehensive income, partially offset by the $317.9 million in other comprehensive loss, the $94.8$36.6 million of shareholder dividends paid and stock repurchases of $50.9$13.5 million in 2022.2023. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, our equity to asset ratio was 14.94%16.12% and 15.32%15.41%, respectively. Book value per share was $16.94$17.87 as of September 30, 2022,March 31, 2023, compared to $16.90$17.33 as of December 31, 2021,2022, a 0.3%12.6% annualized increase.
Common Stock Cash Dividends. We declared cash dividends on our common stock of $0.165$0.18 and $0.14$0.165 per share for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. The common stock dividend payout ratio for the three months ended September 30,March 31, 2023 and 2022 was 35.6% and 2021 was 31.1% and 30.6%, respectively. The common stock dividend payout ratio for the nine months ended September 30, 2022 and 2021 was 50.0% and 28.2%41.7%, respectively. On October 21, 2022,April 20, 2023, the Board of Directors declared a regular $0.165$0.18 per share quarterly cash dividend payable DecemberJune 7, 2022,2023, to shareholders of record November 16, 2022.May 17, 2023.
Stock Repurchase Program. On January 22, 2021,During the Company’s Boardfirst three months of Directors authorized2023, the repurchase of up to an additional 20,000,000 shares of its common stock under the previously approved stock repurchase program. WeCompany repurchased a total of 2,258,531590,000 shares with a weighted-average stock price of $22.50$22.92 per share duringshare. Shares repurchased under the first nine monthsprogram as of 2022.March 31, 2023 since its inception total 21,349,866 shares. The remaining balance available for repurchase was 19,832,134is 18,402,134 shares at September 30, 2022.March 31, 2023.
Liquidity and Capital Adequacy Requirements
Risk-Based Capital. We, as well as our bank subsidiary, are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and other discretionary actions by regulators that, if enforced, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators as to components, risk weightings and other factors.
In July 2013, the Federal Reserve Board and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” and certain provisions of the Dodd-Frank Act (“Basel III”). Basel III applies to all depository institutions, bank holding companies with total consolidated assets of $500 million or more, and savings and loan holding companies. Basel III became effective for the Company and its bank subsidiary on January 1, 2015. Basel III limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” of 2.5% of common equity Tier 1 capital to risk-weighted assets, which is in addition to the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement began being phased in beginning January 1, 2016 at the 0.625% level and increased by 0.625% on each subsequent January 1, until it reached 2.5% on January 1, 2019 when the phase-in period ended, and the full capital conservation buffer requirement became effective.
Basel III amended the prompt corrective action rules to incorporate a “commoncommon equity Tier 1 capital”("CET1") capital requirement and to raise the capital requirements for certain capital categories. In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization is required to have at least a 4.5% “common equityCET1 risk-based capital ratio, a 4% Tier 1 leverage ratio, a 6% Tier 1 risk-based capital” ratio, a 4% “Tier 1 leverage capital” ratio, a 6% “Tier 1 risk-based capital”capital ratio and an 8% “totaltotal risk-based capital”capital ratio.
Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of September 30, 2022March 31, 2023 and December 31, 2021,2022, we met all regulatory capital adequacy requirements to which we were subject.
On January 18, 2022, the Company completed an underwritten public offering of the 2032 Notes in aggregate principal amount of $300.0 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.
On April 1, 2022, the Company acquired $140.0 million of subordinated notes from Happy. These notes have a maturity date of July 31, 2030 and carry a fixed rate of 5.500% for the first five years. Thereafter, the notes bear interest at 3-month Secured Overnight Funding Rate (SOFR) plus 5.345% resetting quarterly. Interest payments are due semi-annually and the notes include a right of prepayment without penalty on or after July 31, 2025.
On April 3, 2017, the Company completed an underwritten public offering of the 2027 Notes in aggregate principal amount of $300.0 million.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 20272030 Notes wereare unsecured, subordinated debt obligations and would have matured on April 15, 2027. On April 15, 2022,of the Company completedand will mature on July 31, 2030. The Company may, beginning with the payoffinterest 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 2027 Notes in aggregateFederal Reserve if then required, at a redemption price equal to 100% of the principal amount of $300.0 million. Each 2027 Note wasthe 2030 Notes to be redeemed pursuant to the terms of the Subordinated Indenture, as supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S. Bank Trust Company, National Association, the Trustee for the 2027 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to but excluding the 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 date.
the principal amount of the 2030 Notes plus any accrued and unpaid interest to, but excluding, the redemption On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to permit bank holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 27, 2020, the federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows bank holding companies and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. The Company has elected to adopt the interim final rule, which is reflected in the risk-based capital ratios presented below.
Table 17 presents our risk-based capital ratios on a consolidated basis as of September 30, 2022March 31, 2023 and December 31, 2021.2022.
Table 17: Risk-Based Capital
| | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
| (Dollars in thousands) |
| Tier 1 capital | | | |
| Stockholders’ equity | $ | 3,460,015 | | | $ | 2,765,721 | |
| ASC 326 transitional period adjustment | 24,369 | | | 55,143 | |
| Goodwill and core deposit intangibles, net | (1,454,837) | | | (997,605) | |
| Unrealized loss on available-for-sale securities | 307,455 | | | (10,462) | |
| Total common equity Tier 1 capital | 2,337,002 | | | 1,812,797 | |
| Qualifying trust preferred securities | — | | | 71,270 | |
| Total Tier 1 capital | 2,337,002 | | | 1,884,067 | |
| Tier 2 capital | | | |
| Allowance for credit losses | 289,203 | | | 236,714 | |
| ASC 326 transitional period adjustment | (24,369) | | | (55,143) | |
| Disallowed allowance for credit losses (limited to 1.25% of risk weighted assets) | (39,796) | | | (33,514) | |
| Qualifying allowance for credit losses | 225,038 | | | 148,057 | |
| Qualifying subordinated notes | 440,568 | | | 299,824 | |
| Total Tier 2 capital | 665,606 | | | 447,881 | |
| Total risk-based capital | $ | 3,002,608 | | | $ | 2,331,948 | |
| Average total assets for leverage ratio | $ | 22,561,638 | | | $ | 16,960,683 | |
| Risk weighted assets | $ | 17,929,429 | | | $ | 11,793,539 | |
| Ratios at end of period | | | |
| Common equity Tier 1 capital | 13.03 | % | | 15.37 | % |
| Leverage ratio | 10.36 | | | 11.11 | |
| Tier 1 risk-based capital | 13.03 | | | 15.98 | |
| Total risk-based capital | 16.75 | | | 19.77 | |
| Minimum guidelines – Basel III | | | |
| Common equity Tier 1 capital | 7.00 | % | | 7.00 | % |
| Leverage ratio | 4.00 | | | 4.00 | |
| Tier 1 risk-based capital | 8.50 | | | 8.50 | |
| Total risk-based capital | 10.50 | | | 10.50 | |
| Well-capitalized guidelines | | | |
| Common equity Tier 1 capital | 6.50 | % | | 6.50 | % |
| Leverage ratio | 5.00 | | | 5.00 | |
| Tier 1 risk-based capital | 8.00 | | | 8.00 | |
| Total risk-based capital | 10.00 | | | 10.00 | |
| | | | | | | | | | | |
| As of March 31, 2023 | | As of December 31, 2022 |
| (Dollars in thousands) |
| Tier 1 capital | | | |
| Stockholders’ equity | $ | 3,630,885 | | | $ | 3,526,362 | |
| ASC 326 transitional period adjustment | 16,246 | | | 24,369 | |
| Goodwill and core deposit intangibles, net | (1,453,793) | | | (1,456,270) | |
| Unrealized loss on available-for-sale securities | 256,301 | | | 305,458 | |
| Total common equity Tier 1 capital | 2,449,639 | | | 2,399,919 | |
| | | |
| Total Tier 1 capital | 2,449,639 | | | 2,399,919 | |
| Tier 2 capital | | | |
| Allowance for credit losses | 287,169 | | | 289,669 | |
| ASC 326 transitional period adjustment | (16,246) | | | (24,369) | |
| Disallowed allowance for credit losses (limited to 1.25% of risk weighted assets) | (38,150) | | | (32,184) | |
| Qualifying allowance for credit losses | 232,773 | | | 233,116 | |
| Qualifying subordinated notes | 440,276 | | | 440,420 | |
| Total Tier 2 capital | 673,049 | | | 673,536 | |
| Total risk-based capital | $ | 3,122,688 | | | $ | 3,073,455 | |
| Average total assets for leverage ratio | $ | 21,541,545 | | | $ | 22,091,588 | |
| Risk weighted assets | $ | 18,546,971 | | | $ | 18,583,293 | |
| Ratios at end of period | | | |
| Common equity Tier 1 capital | 13.21 | % | | 12.91 | % |
| Leverage ratio | 11.37 | | | 10.86 | |
| Tier 1 risk-based capital | 13.21 | | | 12.91 | |
| Total risk-based capital | 16.84 | | | 16.54 | |
| Minimum guidelines – Basel III | | | |
| Common equity Tier 1 capital | 7.00 | % | | 7.00 | % |
| Leverage ratio | 4.00 | | | 4.00 | |
| Tier 1 risk-based capital | 8.50 | | | 8.50 | |
| Total risk-based capital | 10.50 | | | 10.50 | |
| Well-capitalized guidelines | | | |
| Common equity Tier 1 capital | 6.50 | % | | 6.50 | % |
| Leverage ratio | 5.00 | | | 5.00 | |
| Tier 1 risk-based capital | 8.00 | | | 8.00 | |
| Total risk-based capital | 10.00 | | | 10.00 | |
As of the most recent notification from regulatory agencies, our bank subsidiary was “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” we, as well as our banking subsidiary, must maintain minimum common equity Tier 1CET1 capital, leverage, Tier 1 risk-based capital, and total risk-based capital ratios as set forth in the table. There are no conditions or events since that notification that we believe have changed the bank subsidiary’s category.
Non-GAAP Financial Measurements
Our accounting and reporting policies conform to generally accepted accounting principles in the United States (“GAAP”) and the prevailing practices in the banking industry. However, this report contains financial information determined by methods other than in accordance with GAAP, including earnings, as adjusted; diluted earnings per common share, as adjusted; tangible book value per share; return on average assets, excluding intangible amortization; return on average assets, as adjusted; return on average common equity, as adjusted; return on average tangible equity, excluding intangible amortization; return on average tangible equity, as adjusted; tangible equity to tangible assets; and efficiency ratio, as adjusted.
We believe these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these non-GAAP measures and ratios in assessing our operating results and related trends, and when planning and forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP.
The tables below present non-GAAP reconciliations of earnings, as adjusted, and diluted earnings per share, as adjusted, as well as the non-GAAP computations of tangible book value per share; return on average assets, excluding intangible amortization; return on average assets, as adjusted; return on average common equity, as adjusted; return on average tangible equity excluding intangible amortization; return on average tangible equity, as adjusted; tangible equity to tangible assets; and efficiency ratio, as adjusted. The items used in these calculations are included in financial results presented in accordance with GAAP.
Earnings, as adjusted, and diluted earnings per common share, as adjusted, are meaningful non-GAAP financial measures for management, as they exclude certain items such as merger expenses and/or certain gains and losses. Management believes the exclusion of these items in expressing earnings provides a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of our business, because management does not consider these items to be relevant to ongoing financial performance.
In Table 18 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.
Table 18: Earnings, As Adjusted
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
| | (Dollars in thousands) | | (Dollars in thousands) |
| GAAP net income available to common shareholders (A) | GAAP net income available to common shareholders (A) | $ | 108,705 | | | $ | 74,992 | | | $ | 189,575 | | | $ | 245,664 | | GAAP net income available to common shareholders (A) | $ | 102,962 | | | $ | 64,892 | |
| Pre-tax adjustments: | Pre-tax adjustments: | | Pre-tax adjustments: | |
| Merger and acquisition expenses | Merger and acquisition expenses | — | | | 1,006 | | | 49,594 | | | 1,006 | | Merger and acquisition expenses | — | | | 863 | |
| Initial provision for credit losses - acquisition | — | | | — | | | 58,585 | | | — | | |
| | Fair value adjustment for marketable securities | Fair value adjustment for marketable securities | 2,628 | | | (61) | | | 2,304 | | | (7,093) | | Fair value adjustment for marketable securities | 11,408 | | | (2,125) | |
| Special dividend from equity investment | — | | | (2,227) | | | (1,434) | | | (12,500) | | |
| TRUPS redemption fees | — | | | — | | | 2,081 | | | — | | |
| | Recoveries on historic losses | Recoveries on historic losses | (1,065) | | | — | | | (6,706) | | | (5,107) | | Recoveries on historic losses | (3,461) | | | (3,288) | |
| Gain on securities | — | | | — | | | — | | | (219) | | |
| | Total pre-tax adjustments | Total pre-tax adjustments | 1,563 | | | (1,282) | | | 104,424 | | | (23,913) | | Total pre-tax adjustments | 7,947 | | | (4,550) | |
Tax-effect of adjustments(1) | Tax-effect of adjustments(1) | 393 | | | (587) | | | 25,569 | | | (6,412) | | Tax-effect of adjustments(1) | 1,961 | | | (1,220) | |
| Total adjustments after-tax (B) | Total adjustments after-tax (B) | 1,170 | | | (695) | | | 78,855 | | | (17,501) | | Total adjustments after-tax (B) | 5,986 | | | (3,330) | |
| Earnings, as adjusted (C) | Earnings, as adjusted (C) | $ | 109,875 | | | $ | 74,297 | | | $ | 268,430 | | | $ | 228,163 | | Earnings, as adjusted (C) | $ | 108,948 | | | $ | 61,562 | |
| Average diluted shares outstanding (D) | Average diluted shares outstanding (D) | 205,135 | | | 164,603 | | | 191,941 | | | 165,050 | | Average diluted shares outstanding (D) | 203,625 | | | 164,196 | |
| GAAP diluted earnings per share: A/D | GAAP diluted earnings per share: A/D | $ | 0.53 | | | $ | 0.46 | | | $ | 0.99 | | | $ | 1.49 | | GAAP diluted earnings per share: A/D | $ | 0.51 | | | $ | 0.40 | |
| Adjustments after-tax: B/D | Adjustments after-tax: B/D | 0.01 | | | (0.01) | | | 0.41 | | | (0.11) | | Adjustments after-tax: B/D | 0.03 | | | (0.03) | |
| Diluted earnings per common share excluding adjustments: C/D | Diluted earnings per common share excluding adjustments: C/D | $ | 0.54 | | | $ | 0.45 | | | $ | 1.40 | | | $ | 1.38 | | Diluted earnings per common share excluding adjustments: C/D | $ | 0.54 | | | $ | 0.37 | |
(1) Blended statutory rate of 25.1475%24.674% for 20222023 and 25.74%26.135% for 20212022.
We had $1.45 billion, $1.46 billion, $998.1 million, and $999.5$996.6 million in total goodwill and core deposit intangibles and other intangible assets as of September 30, 2022,March 31, 2023, December 31, 20212022 and September 30, 2021,March 31, 2022, respectively. Because of our level of intangible assets and related amortization expenses, management believes tangible book value per share, return on average assets excluding intangible amortization, return on average tangible equity, return on average tangible equity excluding intangible amortization, and tangible equity to tangible assets are useful in evaluating our company. Management also believes return on average assets, as adjusted, return on average equity, as adjusted, and return on average tangible equity, as adjusted, are meaningful non-GAAP financial measures, as they exclude items such as certain non-interest income and expenses that management believes are not indicative of our primary business operating results. These calculations, which are similar to the GAAP calculations of book value per share, return on average assets, return on average equity, and equity to assets, are presented in Tables 19 through 22, respectively.
Table 19: Tangible Book Value Per Share
| | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
| (In thousands, except per share data) |
| Book value per share: A/B | $ | 16.94 | | | $ | 16.90 | |
| Tangible book value per share: (A-C-D)/B | 9.82 | | | 10.80 | |
| (A) Total equity | $ | 3,460,015 | | | $ | 2,765,721 | |
| (B) Shares outstanding | 204,219 | | | 163,699 | |
| (C) Goodwill | 1,394,353 | | | 973,025 | |
| (D) Core deposit intangibles | 60,932 | | | 25,045 | |
Table 19: Tangible Book Value Per Share
| | | | | | | | | | | |
| As of March 31, 2023 | | As of December 31, 2022 |
| (In thousands, except per share data) |
| Book value per share: A/B | $ | 17.87 | | | $ | 17.33 | |
| Tangible book value per share: (A-C-D)/B | 10.71 | | | 10.17 | |
| (A) Total equity | $ | 3,630,885 | | | $ | 3,526,362 | |
| (B) Shares outstanding | 203,168 | | | 203,434 | |
| (C) Goodwill | 1,398,253 | | | 1,398,253 | |
| (D) Core deposit intangibles | 55,978 | | | 58,455 | |
Table 20: Return on Average Assets
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
| | (Dollars in thousands) | | (Dollars in thousands) |
| Return on average assets: A/D | Return on average assets: A/D | 1.81 | % | | 1.68 | % | | 1.13 | % | | 1.90 | % | Return on average assets: A/D | 1.84 | % | | 1.43 | % |
| Return on average assets, as adjusted: (A+C)/D | Return on average assets, as adjusted: (A+C)/D | 1.83 | | | 1.67 | | | 1.61 | | | 1.76 | | Return on average assets, as adjusted: (A+C)/D | 1.95 | | | 1.36 | |
| Return on average assets excluding intangible amortization: B/(D-E) | Return on average assets excluding intangible amortization: B/(D-E) | 1.97 | | | 1.81 | | | 1.23 | | | 2.04 | | Return on average assets excluding intangible amortization: B/(D-E) | 2.00 | | | 1.54 | |
| (A) Net income | (A) Net income | $ | 108,705 | | | $ | 74,992 | | | $ | 189,575 | | | $ | 245,664 | | (A) Net income | $ | 102,962 | | | $ | 64,892 | |
| Intangible amortization after-tax | Intangible amortization after-tax | 1,854 | | | 1,055 | | | 4,757 | | | 3,164 | | Intangible amortization after-tax | 1,866 | | | 1,049 | |
| (B) Earnings excluding intangible amortization | (B) Earnings excluding intangible amortization | $ | 110,559 | | | $ | 76,047 | | | $ | 194,332 | | | $ | 248,828 | | (B) Earnings excluding intangible amortization | $ | 104,828 | | | $ | 65,941 | |
| (C) Adjustments after-tax | (C) Adjustments after-tax | $ | 1,170 | | | $ | (695) | | | $ | 78,855 | | | $ | (17,501) | | (C) Adjustments after-tax | $ | 5,986 | | | $ | (3,330) | |
| (D) Average assets | (D) Average assets | 23,778,769 | | | 17,695,226 | | | 22,339,797 | | | 17,305,402 | | (D) Average assets | 22,695,855 | | | 18,393,075 | |
| (E) Average goodwill, core deposits and other intangible assets | (E) Average goodwill, core deposits and other intangible assets | 1,459,034 | | | 1,000,175 | | | 1,294,971 | | | 1,001,585 | | (E) Average goodwill, core deposits and other intangible assets | 1,455,423 | | | 997,338 | |
Table 21: Return on Average Equity
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
| | (Dollars in thousands) | | (Dollars in thousands) |
| Return on average equity: A/D | Return on average equity: A/D | 12.25 | % | | 10.97 | % | | 7.71 | % | | 12.32 | % | Return on average equity: A/D | 11.70 | % | | 9.58 | % |
| Return on average common equity, as adjusted: (A+C)/D | Return on average common equity, as adjusted: (A+C)/D | 12.39 | | | 10.87 | | | 10.91 | | | 11.44 | | Return on average common equity, as adjusted: (A+C)/D | 12.38 | | | 9.09 | |
| Return on average tangible common equity: A/(D-E) | Return on average tangible common equity: A/(D-E) | 20.93 | | | 17.39 | | | 12.71 | | | 19.74 | | Return on average tangible common equity: A/(D-E) | 19.75 | | | 15.03 | |
Return on average tangible equity excluding intangible
amortization: B/(D-E) | Return on average tangible equity excluding intangible
amortization: B/(D-E) | 21.29 | | | 17.64 | | | 13.03 | | | 19.99 | | Return on average tangible equity excluding intangible amortization: B/(D-E) | 20.11 | | | 15.28 | |
Return on average tangible common equity, as adjusted:
(A+C)/(D-E) | Return on average tangible common equity, as adjusted:
(A+C)/(D-E) | 21.16 | | | 17.23 | | | 18.00 | | | 18.33 | | Return on average tangible common equity, as adjusted: (A+C)/(D-E) | 20.90 | | | 14.26 | |
| (A) Net income | (A) Net income | $ | 108,705 | | | $ | 74,992 | | | $ | 189,575 | | | $ | 245,664 | | (A) Net income | $ | 102,962 | | | $ | 64,892 | |
| (B) Earnings excluding intangible amortization | (B) Earnings excluding intangible amortization | 110,559 | | | 76,047 | | | 194,332 | | | 248,828 | | (B) Earnings excluding intangible amortization | 104,828 | | | 65,941 | |
| (C) Adjustments after-tax | (C) Adjustments after-tax | 1,170 | | | (695) | | | 78,855 | | | (17,501) | | (C) Adjustments after-tax | 5,986 | | | (3,330) | |
| (D) Average equity | (D) Average equity | 3,519,296 | | | 2,710,953 | | | 3,289,170 | | | 2,665,886 | | (D) Average equity | 3,569,592 | | | 2,747,980 | |
(E) Average goodwill, core deposits and other intangible
assets | (E) Average goodwill, core deposits and other intangible
assets | 1,459,034 | | | 1,000,175 | | | 1,294,971 | | | 1,001,585 | | (E) Average goodwill, core deposits and other intangible assets | 1,455,423 | | | 997,338 | |
Table 22: Tangible Equity to Tangible Assets
| | | | | | | | | | | |
| As of September 30, 2022 | | As of December 31, 2021 |
| (Dollars in thousands) |
| Equity to assets: B/A | 14.94 | % | | 15.32 | % |
| Tangible equity to tangible assets: (B-C-D)/(A-C-D) | 9.24 | | | 10.36 | |
| (A) Total assets | $ | 23,157,370 | | | $ | 18,052,138 | |
| (B) Total equity | 3,460,015 | | | 2,765,721 | |
| (C) Goodwill | 1,394,353 | | | 973,025 | |
| (D) Core deposit intangibles | 60,932 | | | 25,045 | |
| | | | | | | | | | | |
| As of March 31, 2023 | | As of December 31, 2022 |
| (Dollars in thousands) |
| Equity to assets: B/A | 16.12 | % | | 15.41 | % |
| Tangible equity to tangible assets: (B-C-D)/(A-C-D) | 10.33 | | | 9.66 | |
| (A) Total assets | $ | 22,518,255 | | | $ | 22,883,588 | |
| (B) Total equity | 3,630,885 | | | 3,526,362 | |
| (C) Goodwill | 1,398,253 | | | 1,398,253 | |
| (D) Core deposit intangibles | 55,978 | | | 58,455 | |
The efficiency ratio is a standard measure used in the banking industry and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a meaningful non-GAAP measure for management, as it excludes certain items and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding items such as merger expenses and/or certain gains, losses and other non-interest income and expenses. In Table 23 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.
Table 23: Efficiency Ratio, As Adjusted
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 |
| | (Dollars in thousands) | | (Dollars in thousands) |
| Net interest income (A) | Net interest income (A) | $ | 213,104 | | | $ | 144,611 | | | $ | 543,010 | | | $ | 433,951 | | Net interest income (A) | $ | 214,595 | | | $ | 131,148 | |
| Non-interest income (B) | Non-interest income (B) | 43,201 | | | 29,209 | | | 118,451 | | | 105,605 | | Non-interest income (B) | 34,164 | | | 30,669 | |
| Non-interest expense (C) | Non-interest expense (C) | 114,346 | | | 75,619 | | | 356,724 | | | 221,467 | | Non-interest expense (C) | 114,644 | | | 76,896 | |
| FTE Adjustment (D) | FTE Adjustment (D) | 2,437 | | | 1,748 | | | 6,646 | | | 5,343 | | FTE Adjustment (D) | 1,628 | | | 1,738 | |
| Amortization of intangibles (E) | Amortization of intangibles (E) | 2,477 | | | 1,421 | | | 6,376 | | | 4,262 | | Amortization of intangibles (E) | 2,477 | | | 1,421 | |
| Adjustments: | Adjustments: | | Adjustments: | |
| Non-interest income: | Non-interest income: | | Non-interest income: | |
| Fair value adjustment for marketable securities | Fair value adjustment for marketable securities | $ | (2,628) | | | $ | 61 | | | $ | (2,304) | | | $ | 7,093 | | Fair value adjustment for marketable securities | $ | (11,408) | | | $ | 2,125 | |
| Special dividend from equity investment | — | | | 2,227 | | | 1,434 | | | 12,500 | | |
| | Gain on OREO, net | Gain on OREO, net | — | | | 246 | | | 487 | | | 1,266 | | Gain on OREO, net | — | | | 478 | |
| Gain (loss) on branches, equipment and other assets, net | Gain (loss) on branches, equipment and other assets, net | (13) | | | (34) | | | 5 | | | (86) | | Gain (loss) on branches, equipment and other assets, net | 7 | | | 16 | |
| Gain on securities, net | — | | | — | | | — | | | 219 | | |
| | Recoveries on historic losses | Recoveries on historic losses | 1,065 | | | — | | | 6,706 | | | 5,107 | | Recoveries on historic losses | 3,461 | | | 3,288 | |
| Total non-interest income adjustments (F) | Total non-interest income adjustments (F) | $ | (1,576) | | | $ | 2,500 | | | $ | 6,328 | | | $ | 26,099 | | Total non-interest income adjustments (F) | $ | (7,940) | | | $ | 5,907 | |
| Non-interest expense: | Non-interest expense: | | | | | | | | Non-interest expense: | | | |
| | Merger and acquisition expenses | Merger and acquisition expenses | — | | | 1,006 | | | 49,594 | | | 1,006 | | Merger and acquisition expenses | — | | | 863 | |
| | TRUPS redemption fees | — | | | — | | | 2,081 | | | — | | |
| | Total non-core non-interest expense (G) | Total non-core non-interest expense (G) | $ | — | | | $ | 1,006 | | | $ | 51,675 | | | $ | 1,006 | | Total non-core non-interest expense (G) | $ | — | | | $ | 863 | |
| Efficiency ratio (reported): ((C-E)/(A+B+D)) | Efficiency ratio (reported): ((C-E)/(A+B+D)) | 43.24 | % | | 42.26 | % | | 52.44 | % | | 39.86 | % | Efficiency ratio (reported): ((C-E)/(A+B+D)) | 44.80 | % | | 46.15 | % |
| Efficiency ratio, as adjusted (non-GAAP): ((C-E-G)/(A+B+D-F)) | Efficiency ratio, as adjusted (non-GAAP): ((C-E-G)/(A+B+D-F)) | 42.97 | | | 42.29 | | | 45.13 | | | 41.67 | | Efficiency ratio, as adjusted (non-GAAP): ((C-E-G)/(A+B+D-F)) | 43.42 | | | 47.33 | |
Recently Issued Accounting Pronouncements
See Note 21 to the Condensed Notes to Consolidated Financial Statements for a discussion of certain recently issued and recently adopted accounting pronouncements.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Liquidity and Market Risk Management
At March 31, 2023, we held $2.74 billion in assets that could be used for liquidity purposes, which we refer to as net available internal liquidity. This balance consisted of $2.15 billion in unpledged investment securities which could be used for additional secured borrowing capacity, $407.2 million in cash on deposit with the Federal Reserve Bank ("FRB") and $185.9 million in other liquid cash accounts.
Consistent with our practice of maintaining access to significant external liquidity, we had $4.18 billion in net available sources of borrowed funds, which we refer to as net available external liquidity, as of March 31, 2023. This included $5.20 billion in total borrowing capacity with the Federal Home Loan Bank ("FHLB"), of which $1.80 billion has been drawn upon in the ordinary course of business, resulting in $3.40 billion in net available liquidity with the FHLB as of March 31, 2023. The $1.80 billion consisted of $650.0 million in outstanding FHLB advances and $1.15 billion used for pledging purposes. We also had access to approximately $677.7 million in liquidity with the FRB as of March 31, 2023. This consisted of $71.8 million available borrowing capacity from the Discount Window and $605.9 million available through the Bank Term Funding Program ("BTFP"). As of March 31, 2023, the Company also had access to $55.0 million from First National Bankers’ Bank ("FNBB"), and $45.0 million from other various external sources.
Overall, we had $6.92 billion net available liquidity as of March 31, 2023, which consisted of $2.74 billion of net available internal liquidity and $4.18 billion in net available external liquidity. Details on our available liquidity as of March 31, 2023 is available below.
| | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Total Available | | Amount Used | | Net Availability |
| Internal Sources | | | | | | |
| Unpledged investment securities (market value) | | $ | 2,150,186 | | | $ | | $ | 2,150,186 | |
| Cash at FRB | | 407,210 | | | — | | | 407,210 | |
| Other liquid cash accounts | | 185,943 | | | — | | | 185,943 | |
| Total Internal Liquidity | | 2,743,339 | | | — | | | 2,743,339 | |
| External Sources | | | | | | |
| FHLB | | 5,201,603 | | | 1,798,490 | | | 3,403,113 | |
| FRB Discount Window | | 71,755 | | | — | | | 71,755 | |
| BTFP (par value) | | 605,896 | | | — | | | 605,896 | |
| FNBB | | 55,000 | | | — | | | 55,000 | |
| Other | | 45,000 | | | — | | | 45,000 | |
| Total External Liquidity | | 5,979,254 | | | 1,798,490 | | | 4,180,764 | |
| Total Available Liquidity | | $ | 8,722,593 | | | $ | 1,798,490 | | | $ | 6,924,103 | |
We have continued to limit our exposure to uninsured deposits and have been actively monitoring this in light of the current banking environment. As of March 31, 2023, we held approximately $7.89 billion in uninsured deposits of which $2.68 billion were collateralized deposits, for a net position of $5.21 billion. This represents approximately 29.9% of total deposits. In addition, net available liquidity exceeded uninsured and uncollateralized deposits by $1.72 billion.
| | | | | |
| (in thousands) | As of March 31, 2023 |
| Uninsured Deposits | $ | 7,892,121 | |
| Collateralized Deposits | 2,683,804 | |
| Net Uninsured Position | 5,208,317 | |
| |
| Total Available Liquidity | 6,924,103 | |
| Net Uninsured Position | 5,208,317 | |
| Net Available Liquidity in Excess of Uninsured Deposits | $ | 1,715,786 | |
Subsequent to the end of the quarter, we made the decision to pledge additional investment securities with a market value of $761.5 million in order to increase our BTFP borrowing capacity by $825.5 million, which represents the par value of the pledged investment securities. This increased the net available liquidity exceeding uninsured deposits by $64.0 million.
Asset/Liability Management. Our management actively measures and manages interest rate risk. The asset/liability committees of the boards of directors of our holding company and bank subsidiary are also responsible for approving our asset/liability management policies, overseeing the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviewing our interest rate sensitivity position.
Our objective is to manage liquidity in a way that ensures cash flow requirements of depositors and borrowers are met in a timely and orderly fashion while ensuring the reliance on various funding sources does not become so heavily weighted to any one source that it causes undue risk to the bank. Our liquidity sources are prioritized based on availability and ease of activation. Our current liquidity condition is a primary driver in determining our funding needs and is a key component of our asset liability management.
Various sources of liquidity are available to meet the cash flow needs of depositors and borrowers. Our principal source of funds is core deposits, including checking, savings, money market accounts and certificates of deposit. We may also from time to time obtain wholesale funding through brokered deposits. Secondary sources of funding include advances from the Federal Home Loan Bank of Dallas, the Federal Reserve Bank Discount Window and other borrowings, such as through correspondent banking relationships. These secondary sources enable us to borrow funds at rates and terms which, at times, are more beneficial to us. Additionally, as needed, we can liquidate or utilize our available for sale investment portfolio as collateral to provide funds for an intermediate source of liquidity.
Interest Rate Sensitivity. Our primary business is banking and the resulting earnings, primarily net interest income, are susceptible to changes in market interest rates. It is management’s goal to maximize net interest income within acceptable levels of interest rate and liquidity risks.
A key element in the financial performance of financial institutions is the level and type of interest rate risk assumed. The single most significant measure of interest rate risk is the relationship of the repricing periods of earning assets and interest-bearing liabilities. The more closely the repricing periods are correlated, the less interest rate risk we assume. We use net interest income simulation modeling and economic value of equity as the primary methods in analyzing and managing interest rate risk.
One of the tools that our management uses to measure short-term interest rate risk is a net interest income simulation model. This analysis calculates the difference between net interest income forecasted using base market rates and using a rising and a falling interest rate scenario. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately, and proportional to the change in market rates, depending on their contracted index. Some loans and investments include the opportunity of prepayment (embedded options), and accordingly, the simulation model uses indexes to estimate these prepayments and reinvest their proceeds at current yields. Our non-term deposit products re-price overnight in the model while we project certain other deposits by product type to have stable balances based on our deposit history. This accounts for the portion of our portfolio that moves more slowly than market rates and changes at our discretion.
This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that impact this analysis, including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change.
Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income.
For the rising and falling interest rate scenarios, the base market interest rate forecast was increased and decreased over twelve months by 200 and 100 basis points, respectively. At September 30, 2022,March 31, 2023, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by us.
Table 24 presents our sensitivity to net interest income as of September 30, 2022.March 31, 2023.
Table 24: Sensitivity of Net Interest Income
| | | | | | | | |
| Interest Rate Scenario | | Percentage Change from Base |
| Up 200 basis points | | 8.408.55 | % |
| Up 100 basis points | | 4.504.58 | |
| Down 100 basis points | | (5.50)(4.83) | |
| Down 200 basis points | | (12.70)(9.36) | |
Item 4: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Additionally, our disclosure controls and procedures were also effective in ensuring that information required to be disclosed in our Exchange Act report is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2022,March 31, 2023, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company or its subsidiaries are a party or of which any of their property is the subject.
Item 1A: Risk Factors
ThereExcept for the risk factor set forth below, there were no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our Form 10-K for the year ended December 31, 2021, except for the Company ending its banking relationship with the Cuban Embassy and Banco Internacional de Comercia, S.A. during the second quarter of 2022. See the discussion of our risk factors in the Form 10-K, as filed with the SEC. The risks described are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
The failure of other financial institutions could adversely affect us, and we may incur losses on investments in other financial institutions.
TableThe financial system is highly interrelated, including as a result of Contentslending, trading, clearing, counterparty, and other relationships. We have exposure to and routinely execute transactions with a wide variety of financial institutions, including brokers, dealers, commercial banks, investment banks and other substantial participants. In addition, we currently hold and may in the future acquire additional investments in the debt or equity securities of other financial institutions. Some of the institutions or other participants with whom we transact business or in which we hold investments may experience instability due to financial challenges in the banking industry or may be perceived to be unstable. If any of these institutions or participants were to fail in meeting its obligations in full and on time, or were to enter bankruptcy, conservatorship, or receivership, the consequences could ripple throughout the financial system and may adversely affect our business, results of operations, financial condition, or prospects. Our investments in any such institutions could decline in value or become valueless, which could result in us incurring losses in our investment portfolio that may have a materially adverse effect our operating results. Further, our stock price may be negatively impacted by failures of other financial institutions and their effects on consumer and investor confidence, and we may experience increased deposit insurance premiums, increased regulatory scrutiny and other adverse effects on our business, profitability or financial condition as a result of these failures.Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of the Company’s common stock during the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Number of
Shares
Purchased | | Average Price
Paid Per Share
Purchased | | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs | | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs(1) |
| July 1 through July 31, 2022 | | 214,438 | | | $ | 20.82 | | | 214,438 | | | 20,663,495 | |
| August 1 through August 31, 2022 | | 391,100 | | | 24.52 | | | 391,100 | | | 20,272,395 | |
| September 1 through September 30, 2022 | | 440,261 | | | 23.19 | | | 440,261 | | | 19,832,134 | |
| Total | | 1,045,799 | | | | | 1,045,799 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Number of
Shares
Purchased | | Average Price
Paid Per Share
Purchased | | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs | | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs(1) |
| January 1 through January 31, 2023 | | 150,000 | | | $ | 22.67 | | | 150,000 | | | 18,842,134 | |
| February 1 through February 28, 2023 | | 60,000 | | | 23.95 | | | 60,000 | | | 18,782,134 | |
| March 1 through March 31, 2023 | | 380,000 | | | 22.85 | | | 380,000 | | | 18,402,134 | |
| Total | | 590,000 | | | | | 590,000 | | | |
(1)The above described stock repurchase program has no expiration date.
Item 3: Defaults Upon Senior Securities
Not applicable.
Item 4: Mine Safety Disclosures
Not applicable.
Item 5: Other Information
Not applicable.
Item 6: Exhibits
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| Exhibit No. | | Description of Exhibit |
| 2.1 | | |
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| 2.2 | | Amendment and Joinder Agreement, dated as of October 18, 2021, by and among Home Bancshares, Inc., Centennial Bank, Happy Bancshares, Inc., Happy State Bank and HOMB Acquisition Sub III, Inc. (incorporated by reference to Appendix A of Home BancShares’s registration statement on Form S-4 (File No. 333-260446)), as amended) |
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| 2.3 | | Second Amendment to Agreement and Plan of Merger, dated as of November 8, 2021, by and among Home BancShares, Inc., Centennial Bank, HOMB Acquisition Sub III, Inc., Happy Bancshares, Inc. and Happy State Bank (incorporated by reference to Appendix A of Home BancShares’s registration statement on Form S-4 (File No. 333-260446), as amended) |
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| 3.1 | | |
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| 3.2 | | |
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| 3.3 | | |
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| 3.4 | | |
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| 3.5 | | |
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| 3.6 | | |
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| 3.7 | | |
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| 3.8 | | |
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| 3.10 | | |
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| 3.12 | | |
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| 3.13 | | |
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| 4.1 | | |
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| 4.2 | | Instruments defining the rights of security holders including indentures. Home BancShares hereby agrees to furnish to the SEC upon request copies of instruments defining the rights of holders of long-term debt of Home BancShares and its consolidated subsidiaries. No issuance of debt exceeds ten percent of the assets of Home BancShares and its subsidiaries on a consolidated basis. |
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| 15 | | |
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| 31.1 | | |
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| 31.2 | | |
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| 32.1 | | |
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| 32.2 | | |
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| 101.INS | | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.* |
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| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document* |
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| 101.CAL | | InlineXBRL Taxonomy Extension Calculation Linkbase Document* |
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| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document* |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document* |
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| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document* |
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| 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith
** The disclosure schedules referenced in the Agreement and Plan of Merger have been omitted pursuant to Item 601(a)(5) of SEC Regulation S-K. The Company hereby agrees to furnish supplementally a copy of any omitted disclosure schedule to the SEC upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HOME BANCSHARES, INC.
(Registrant)
| | | | | | | | | | | |
| Date: | November 4, 2022May 5, 2023 | | /s/ John W. Allison |
| | | John W. Allison, Chairman and Chief Executive Officer |
| | | |
| Date: | November 4, 2022May 5, 2023 | | /s/ Brian S. Davis |
| | | Brian S. Davis, Chief Financial Officer |
| | | |
| Date: | November 4, 2022May 5, 2023 | | /s/ Jennifer C. Floyd |
| | | Jennifer C. Floyd, Chief Accounting Officer |