What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-04 · 291 added, 310 removed, 1011 unchanged (37% of the section changed)

4 unchanged sentences

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 June 30, 2023, we had, on a consolidated basis, total assets of $22.13 billion, loans receivable, net of allowance for credit losses of $13.90 billion, total deposits of $17.00 billion, and stockholders’ equity of $3.65 billion.

As of September 30, 2023, we had, on a consolidated basis, total assets of $21.95 billion, loans receivable, net of allowance for credit losses of $13.99 billion, total deposits of $16.52 billion, and stockholders’ equity of $3.65 billion.

We generate the majority of our revenue from interest on loans and investments, service charges, and mortgage banking income.

5 unchanged sentences

Key Financial Measures

As of or for the Three Months Ended June 30, As of or for the Six Months Ended June 30,

As of or for the Three Months Ended September 30, As of or for the Nine Months Ended September 30,

2023 2022 2023 2022

(Dollars in thousands, except per share data) (Dollars in thousands, except per share data)

(Dollars in thousands, except per share data)

Total assets $ 21,950,638 $ 23,157,370 $ 21,950,638 $ 23,157,370

17 unchanged sentences

(2) See Table 23 for the non-GAAP tabular reconciliation.

Results of Operations for the Three Months Ended June 30, 2023 and 2022

Our net income increased $89.3 million, or 558.8%, to $105.3 million for the three-month period ended June 30, 2023, from $16.0 million for the same period in 2022.

On a diluted earnings per share basis, our earnings were $0.52 per share for the three-month period ended June 30, 2023 compared to $0.08 per share for the three-month period ended June 30, 2022.

During the second quarter of 2022, we completed the acquisition of Happy Bancshares, Inc.

As a result of the acquisition of Happy, we incurred $48.7 million in merger expenses and recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments and a $2.0 million provision for credit losses on acquired held-to-maturity investment securities.

The summation of these items reduced earnings by $107.3 million and earnings per share by $0.39 per share for the three-month period ended June 30, 2022.

The Company recorded a $4.0 million provision for credit losses for the quarter ended June 30, 2023.

This consisted of a $2.3 million provision for credit losses on loans and a $1.7 million provision for credit losses on available-for-sale investment securities.

The Company determined that a provision for unfunded commitments was not necessary as of June 30, 2023 as the current level was considered adequate.

During the three months ended June 30, 2023, the Company recorded $2.8 million in bank owned life insurance ("BOLI") death benefits and a $783,000 increase in the fair value of marketable securities.

Total interest income increased by $72.6 million, or 33.5%, non-interest income increased by $4.9 million, or 11.1%, and non-interest expense decreased $49.2 million, or 29.73%.

This was partially offset by a $63.7 million, or 349.1%, increase in total interest expense.

These fluctuations are primarily due to the rising rate environment and the acquisition of Happy.

The increase in interest income resulted from a $61.4 million, or 33.8%, increase in loan interest income and a $14.0 million, or 48.9%, increase in investment income, partially offset by a $2.8 million, or 43.2%, decrease in interest income on deposits at other banks.

The increase in non-interest income was primarily due to a $7.5 million, or 97.0%, increase in other income and a $2.6 million, or 143.5%, increase in the fair value adjustment for marketable securities, partially offset by a $3.3 million, or 55.8%, decrease in mortgage lending income and a $1.0 million, or 25.9%, decrease in dividends from FHLB, FRB, FNBB and other.

The increase in interest expense was primarily due to a $59.4 million, or 553.8%, increase in interest on deposits and a $4.7 million, or 247.9%, increase in interest on FHLB and other borrowed funds, partially offset by a $1.3 million, or 24.2%, decrease in interest on subordinated debentures.

The decrease in non-interest expense was due to a decrease of $48.7 million, or 100.00%, in merger and acquisition expenses, a $1.3 million, or 1.9%, decrease in salaries and employee benefits and a $943,000, or 9.3%, decrease in data processing expense, partially offset by a $1.1 million, or 4.0%, increase in other operating expenses and a $667,000, or 4.7%, increase in occupancy and equipment.

Income tax expense increased by $28.3 million, or 859.8%, during the quarter due to an increase in net income.

Our net interest margin increased from 3.64% for the three-month period ended June 30, 2022 to 4.28% for the three-month period ended June 30, 2023.

The yield on interest earning assets was 5.96% and 3.97% for the three months ended June 30, 2023 and 2022, respectively, as average interest earning assets decreased from $22.18 billion to $19.58 billion.

Results of Operations for the Three Months Ended September 30, 2023 and 2022

Our net income decreased $10.3 million, or 9.4%, to $98.5 million for the three-month period ended September 30, 2023, from $108.7 million for the same period in 2022.

On a diluted earnings per share basis, our earnings were $0.49 per share for the three-month period ended September 30, 2023 compared to $0.53 per share for the three-month period ended September 30, 2022.

The Company recorded $1.3 million in credit loss expense for the quarter ended September 30, 2023.

This consisted of a $2.8 million provision for credit losses on loans and a reversal of $1.5 million provision for unfunded commitments.

During the three months ended September 30, 2023, the Company recorded $338,000 in bank owned life insurance ("BOLI") death benefits and a $4.5 million increase in the fair value of marketable securities.

Total interest income increased by $51.3 million, or 21.1%, and non-interest income increased by $212,000, or 0.5%.

This was more than offset by a $62.5 million, or 209.3%, increase in total interest expense and a $416,000, or 0.4%, increase in non-interest expense.

These fluctuations are primarily due to the rising interest rate environment.

The increase in interest income resulted from a $53.6 million, or 27.4%, increase in loan interest income and a $6.0 million, or 16.6%, increase in investment income, partially offset by an $8.4 million, or 78.4%, decrease in interest income on deposits at other banks.

The increase in non-interest income was primarily due to a $7.1 million, or 271.5%, increase in the fair value adjustment for marketable securities and a $1.2 million, or 67.5%, increase in dividends from FHLB, FRB, FNBB and other, partially offset by a $3.8 million, or 27.4%, decrease in other service charges and fees, a $3.3 million, or 34.9%, decrease in other income, and a $1.0 million, or 25.1%, decrease in mortgage lending income.

The increase in interest expense was primarily due to a $55.4 million, or 237.1%, increase in interest on deposits, a $6.2 million, or 325.7%, increase in interest on FHLB and other borrowed funds and a $910,000, or 209.7%, increase in interest on securities sold under agreements to repurchase.

The increase in non-interest expense was due to an increase of $508,000, or 2.0%, in other operating expenses, an increase of $356,000, or 4.1%, in data processing expense and an increase of $330,000, or 2.2%, in occupancy and equipment expense, partially offset by $778,000, or 1.2%, decrease in salaries and employee benefits.

Income tax expense decreased by $2.4 million, or 7.3%, during the quarter due to the decrease in net income.

Our net interest margin increased from 4.05% for the three-month period ended September 30, 2022 to 4.19% for the three-month period ended September 30, 2023.

The yield on interest earning assets was 6.09% and 4.62% for the three months ended September 30, 2023 and 2022, respectively, while average interest earning assets decreased from $21.09 billion to $19.26 billion.

The decrease in average interest earning assets is primarily due to a $1.77 billion decrease in average interest-bearing balances due from banks and $429.7 million decrease in average investment securities, partially offset by a $369.0 million increase in average loans receivable.

For the three months ended June 30, 2023 and 2022, we recognized $2.7 million and $5.2 million, respectively, in total net accretion for acquired loans and deposits.

The reduction in accretion was dilutive to the net interest margin by five basis points.

We recognized $1.3 million in event interest income for the three months ended June 30, 2023 compared to $1.4 million for the three months ended June 30, 2022 .

For the three months ended September 30, 2023 and 2022, we recognized $2.4 million and $4.6 million, respectively, in total net accretion for acquired loans and deposits.

The reduction in accretion was dilutive to the net interest margin by four basis points.

The overall increase in the net interest margin was due to a decrease in average interest-bearing cash balances as well as an increase in interest income from higher yields on average interest-earning assets, which was partially offset by an increase in interest expense due to the higher yields on average interest-bearing liabilities as a result of the current rising interest rate environment.

Our efficiency ratio was 44.00% for the three months ended June 30, 2023, compared to 66.31% for the same period in 2022.

For the first quarter of 2023, our efficiency ratio, as adjusted (non-GAAP), was 44.83%, compared to 46.02% reported for the first quarter of 2022.

Our efficiency ratio was 45.53% for the three months ended September 30, 2023, compared to 43.24% for the same period in 2022.

For the third quarter of 2023, our efficiency ratio, as adjusted (non-GAAP), was 46.44%, compared to 42.97% reported for the third quarter of 2022.

(See Table 23 for the non-GAAP tabular reconciliation).

Our annualized return on average assets was 1.90% for the three months ended June 30, 2023, compared to 0.26% for the same period in 2022.

Our annualized return on average assets was 1.78% for the three months ended September 30, 2023, compared to 1.81% for the same period in 2022.

(See Table 20 for the related non-GAAP financial measures and tabular reconciliation).

Our annualized return on average common equity was 11.63% and 1.78% for the three months ended June 30, 2023, and 2022, respectively.

Our annualized return on average common equity was 10.65% and 12.25% for the three months ended September 30, 2023, and 2022, respectively.

(See Table 21 for the related non-GAAP financial measures and tabular reconciliation).

Results of Operations for the Six Months Ended June 30, 2023 and 2022

Our net income increased $127.4 million, or 157.5%, to $208.2 million for the six months ended June 30, 2023, from $80.9 million for the same period in 2022.

On a diluted earnings per share basis, our earnings were $1.02 per share for the six months ended June 30, 2023 compared to $0.44 per share for the six months ended June 30, 2022.

Results of Operations for the Nine Months Ended September 30, 2023 and 2022

Our net income increased $117.1 million, or 61.8%, to $306.7 million for the nine months ended September 30, 2023, from $189.6 million for the same period in 2022.

On a diluted earnings per share basis, our earnings were $1.51 per share for the nine months ended September 30, 2023 compared to $0.99 per share for the nine months ended September 30, 2022.

As a result of the acquisition of Happy, we incurred $49.6 million in merger expenses and recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments and a $2.0 million provision for credit losses on acquired held-to-maturity investment securities.

The summation of these items reduced earnings by $108.2 million and earnings per share by $0.44 per share for the six-month period ended June 30, 2022.

The Company recorded a $5.2 million provision for credit losses for the six months ended June 30, 2023.

This consisted of a $3.5 million provision for credit losses on loans and a $1.7 million provision for credit losses on available-for-sale investment securities.

The Company determined that a provision for unfunded commitments was not necessary as of June 30, 2023 as the current level was considered adequate.

During the six months ended June 30, 2023, the Company recorded a $10.6 million decrease in the fair value of marketable securities, $3.5 million in recoveries on historic losses and $2.8 million in BOLI death benefits.

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.

The Company recorded $6.5 million in credit loss expense for the nine months ended September 30, 2023.

This consisted of a $6.3 million provision for credit losses on loans and a $1.7 million provision for credit losses on available-for-sale investment securities, partially offset by a reversal of $1.5 million provision for unfunded commitments.

During the nine months ended September 30, 2023, the Company recorded a $6.1 million decrease in the fair value of marketable securities, $3.5 million in recoveries on historic losses and $3.1 million in BOLI death benefits.

Total interest income increased by $264.0 million, or 43.6%, non-interest income increased by $8.6 million, or 7.3%, and non-interest expense decreased by $11.0 million, or 3.1%.

This was partially offset by a $182.8 million, or 295.5%, increase in total interest expense.

These fluctuations are primarily due to the acquisition of Happy and the rising rate environment.

The increase in interest income resulted from a $168.9 million, or 54.3%, increase in loan interest income and a $43.5 million, or 102.4%, increase in investment income.

The increase in non-interest income was primarily due to an $11.4 million, or 72.9%, increase in other income, a $4.0 million, or 82.2%, increase in trust fees, a $3.4 million, or 16.6%, increase in other service charges and fees, a $2.8 million, or 17.6%, increase in service charges on deposit accounts, a $1.1 million, or 23.1%, increase in dividends from FHLB, FRB, FNBB and other, and a $906,000, or 5,033.3%, increase in gain on sale of branches, equipment and other assets, net.

These increases were partially offset by a $10.9 million, or 3,379.3%, decrease in the fair value adjustment for marketable securities and a $4.7 million, or 47.3%, decrease in mortgage lending income.

Included within other income was $3.5 million in recoveries on historic losses.

These fluctuations are primarily due to the acquisition of Happy and the rising interest rate environment.

The increase in interest income resulted from a $222.6 million, or 43.9%, increase in loan interest income and a $49.5 million, or 62.9%, increase in investment income, partially offset by an $8.3 million decrease in interest income on deposits at other banks.

The increase in non-interest income was primarily due to an $8.1 million, or 32.2%, increase in other income, a $4.7 million, or 53.0%, increase in trust fees, a $2.2 million, or 8.0%, increase in service charges on deposit accounts, a $2.2 million, or 35.2%, increase in dividends from FHLB, FRB, FNBB and other, and a $919,000 increase in gain on sale of branches, equipment and other assets, net.

These increases were partially offset by a $5.7 million, or 40.7%, decrease in mortgage lending income and a $3.8 million, or 165.5%, decrease in the fair value adjustment for marketable securities.

Included within other income were $3.5 million in recoveries on historic losses and $3.1 million in BOLI death benefits.

The increase in interest expense was primarily due to a $169.0 million, or 433.8%, increase in interest on deposits, a $15.3 million, or 268.3%, increase in interest on FHLB and other borrowed funds and a $2.6 million, or 357.2%, increase in interest on securities sold under agreements to repurchase, partially offset by a $4.1 million, or 24.9%, decrease in interest on subordinated debentures.

The decrease in non-interest expense was due to a $49.6 million, or 100.0%, decrease in merger and acquisition expense, partially offset by a $19.7 million, or 18.0%, increase in salaries and employee benefits, an $11.0 million, or 25.6%, increase in other operating expenses, a $6.5 million, or 27.7%, increase in occupancy and equipment and a $986,000, or 5.8%, increase in data processing expense.

Income tax expense increased by $38.2 million, or 164.0%, during the six months ended June 30, 2023 due to an increase in net income.

Our net interest margin increased from 3.46% for the six months ended June 30, 2022 to 4.33% for the six months ended June 30, 2023.

The yield on interest earning assets was 5.88% and 3.79% for the six months ended June 30, 2023 and 2022, respectively, as average interest earning assets increased from $19.49 billion to $19.82 billion.

The increase in average interest earning assets is primarily due to a $2.47 billion increase in average loans receivable and an $859.7 million increase in average investment securities, largely resulting from the acquisition of Happy, partially offset by a $3.00 billion decrease in average interest-bearing balances due from banks.

For the six months ended June 30, 2023 and 2022, we recognized $5.8 million and $8.3 million, respectively, in total net accretion for acquired loans and deposits.

The reduction in accretion was dilutive to the net interest margin by two basis points.

We recognized $3.4 million in event interest income for the six months ended June 30, 2023 compared to $2.0 million for the six months ended June 30, 2022, which increased the net interest margin by two basis points.

The decrease in non-interest expense was due to a $49.6 million, or 100.0%, decrease in merger and acquisition expense, partially offset by an $18.9 million, or 10.8%, increase in salaries and employee benefits, an $11.5 million, or 16.9%, increase in other operating expenses, a $6.8 million, or 17.7%, increase in occupancy and equipment and a $1.3 million, or 5.2%, increase in data processing expense.

Income tax expense increased by $35.8 million, or 63.3%, during the nine months ended September 30, 2023 due to an increase in net income.

Our net interest margin increased from 3.67% for the nine months ended September 30, 2022 to 4.28% for the nine months ended September 30, 2023.

The yield on interest earning assets was 5.95% and 4.08% for the nine months ended September 30, 2023 and 2022, respectively, while average interest earning assets decreased from $20.03 billion to $19.63 billion.

The decrease in average interest earning assets is primarily due to a $2.59 billion decrease in average interest-bearing balances due from banks, partially offset by a $1.76 billion increase in average loans receivable and a $425.2 million increase in average investment securities.

For the nine months ended September 30, 2023 and 2022, we recognized $8.3 million and $12.8 million, respectively, in total net accretion for acquired loans and deposits.

The reduction in accretion was dilutive to the net interest margin by three basis points.

The overall increase in the net interest margin was due to a decrease in average interest-bearing cash balances as well as an increase in interest income from higher yields on average interest-earning assets, partially offset by an increase in interest expense due to an increase in average interest-bearing liabilities at higher interest rates primarily as a result of the Happy acquisition and the current rising interest rate environment.

Our efficiency ratio was 44.39% for the six months ended June 30, 2023, compared to 58.26% for the same period in 2022.

For the second quarter of 2023, our efficiency ratio, as adjusted (non-GAAP), was 44.12%, compared to 46.53% reported for the second quarter of 2022.

Our efficiency ratio was 44.76% for the nine months ended September 30, 2023, compared to 52.44% for the same period in 2022.

For the nine months ended September 30, 2023, our efficiency ratio, as adjusted (non-GAAP), was 44.86%, compared to 45.13% reported for the same period in 2022.

(See Table 23 for the non-GAAP tabular reconciliation).

Our annualized return on average assets was 1.87% for the six months ended June 30, 2023, compared to 0.75% for the same period in 2022.

Our annualized return on average assets was 1.84% for the nine months ended September 30, 2023, compared to 1.13% for the same period in 2022.

(See Table 20 for the related non-GAAP financial measures and tabular reconciliation).

Our annualized return on average common equity was 11.66% and 5.14% for the six months ended June 30, 2023, and 2022, respectively.

Our annualized return on average common equity was 11.32% and 7.71% for the nine months ended September 30, 2023, and 2022, respectively.

(See Table 21 for the related non-GAAP financial measures and tabular reconciliation).

Financial Condition as of and for the Period Ended June 30, 2023 and December 31, 2022

Our total assets as of June 30, 2023 decreased $757.2 million to $22.13 billion from $22.88 billion reported as of December 31, 2022.

The decrease in total assets is primarily due to a $399.1 million decrease in investment securities resulting from paydowns and maturities during the first six months of 2023.

Cash and cash equivalents decreased $113.6 million for the six months ended June 30, 2023.

Our loan portfolio balance decreased to $14.18 billion as of June 30, 2023 from $14.41 billion at December 31, 2022.

Financial Condition as of and for the Period Ended September 30, 2023 and December 31, 2022

Our total assets as of September 30, 2023 decreased $933.0 million to $21.95 billion from $22.88 billion reported as of December 31, 2022.

The decrease in total assets is primarily due to a $573.6 million decrease in investment securities resulting from paydowns and maturities during the first nine months of 2023.

Cash and cash equivalents decreased $236.7 million for the nine months ended September 30, 2023.

Our loan portfolio balance decreased to $14.27 billion as of September 30, 2023 from $14.41 billion at December 31, 2022.

The decrease in loans was primarily due to $263.7 million of organic loan decline from our Centennial Commercial Finance Group ("CFG") franchise, partially offset by $126.1 million organic loan growth in our remaining footprint.

Total deposits decreased $941.9 million to $17.00 billion as of June 30, 2023 from $17.94 billion as of December 31, 2022.

The decrease in deposits was primarily due to the runoff of deposits during the first six months of 2023 as a result of the current rising interest rate environment.

Stockholders’ equity increased $127.7 million to $3.65 billion as of June 30, 2023, compared to $3.53 billion as of December 31, 2022.

The $127.7 million increase in stockholders’ equity is primarily associated with the $208.2 million in net income for the six months ended June 30, 2023 and the $12.8 million in other comprehensive income, partially offset by the $73.1 million of shareholder dividends paid and stock repurchases of $25.3 million in 2023.

Our non-performing loans were $60.5 million, or 0.43% of total loans as of June 30, 2023, compared to $60.9 million, or 0.42% of total loans, as of December 31, 2022.

The allowance for credit losses as a percentage of non-performing loans decreased slightly to 472.23% as of June 30, 2023, from 475.99% as of December 31, 2022.

Non-performing loans from our Arkansas franchise were $11.2 million at June 30, 2023 compared to $8.4 million as of December 31, 2022.

Non-performing loans from our Florida franchise were $19.7 million at June 30, 2023 compared to $20.5 million as of December 31, 2022.

Non-performing loans from our Texas franchise were $22.6 million at June 30, 2023 compared to $22.2 million as of December 31, 2022.

Non-performing loans from our Alabama franchise were $382,000 at June 30, 2023 compared to $404,000 as of December 31, 2022.

Non-performing loans from our Shore Premier Finance ("SPF") franchise were $3.8 million at June 30, 2023 compared to $2.3 million as of December 31, 2022.

Non-performing loans from our Centennial CFG franchise were $2.8 million at June 30, 2023 compared to $7.1 million as of December 31, 2022.

As of June 30, 2023, our non-performing assets decreased to $61.3 million, or 0.28% of total assets, from $61.5 million, or 0.27% of total assets, as of December 31, 2022.

Non-performing assets from our Arkansas franchise were $11.4 million at June 30, 2023 compared to $8.5 million as of December 31, 2022.

Non-performing assets from our Florida franchise were $20.0 million at June 30, 2023 compared to $20.8 million as of December 31, 2022.

Non-performing assets from our Texas franchise were $23.0 million at June 30, 2023 compared to $22.4 million as of December 31, 2022.

Non-performing assets from our Alabama franchise were $382,000 at June 30, 2023 compared to $404,000 as of December 31, 2022.

Non-performing assets from our SPF franchise were $3.8 million at June 30, 2023 compared to $2.3 million as of December 31, 2022.

Non-performing assets from our Centennial CFG franchise were $2.8 million at June 30, 2023 compared to $7.1 million as of December 31, 2022.

The $2.8 million balance of non-accrual loans for our Centennial CFG market consists of two loans that are assessed for credit risk by the Federal Reserve under the Shared National Credit Program.

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.

Total deposits decreased $1.42 billion to $16.52 billion as of September 30, 2023 from $17.94 billion as of December 31, 2022.

The decrease in deposits was primarily due to the runoff of deposits during the first nine months of 2023 as a result of the current rising interest rate environment.

Stockholders’ equity increased $128.5 million to $3.65 billion as of September 30, 2023, compared to $3.53 billion as of December 31, 2022.

The $128.5 million increase in stockholders’ equity is primarily associated with the $306.7 million in net income for the nine months ended September 30, 2023, partially offset by the $109.6 million of shareholder dividends paid, the $45.1 million in other comprehensive loss and stock repurchases of $31.0 million in 2023.

Our non-performing loans were $90.9 million, or 0.64% of total loans as of September 30, 2023, compared to $60.9 million, or 0.42% of total loans, as of December 31, 2022.

The allowance for credit losses as a percentage of non-performing loans decreased to 314.29% as of September 30, 2023, from 475.99% as of December 31, 2022.

Non-performing loans from our Arkansas franchise were $12.6 million at September 30, 2023 compared to $8.4 million as of December 31, 2022.

Non-performing loans from our Florida franchise were $17.3 million at September 30, 2023 compared to $20.5 million as of December 31, 2022.

Non-performing loans from our Texas franchise were $27.2 million at September 30, 2023 compared to $22.2 million as of December 31, 2022.

Non-performing loans from our Alabama franchise were $372,000 at September 30, 2023 compared to $404,000 as of December 31, 2022.

Non-performing loans from our Shore Premier Finance ("SPF") franchise were $3.0 million at September 30, 2023 compared to $2.3 million as of December 31, 2022.

Non-performing loans from our Centennial CFG franchise were $30.4 million at September 30, 2023 compared to $7.1 million as of December 31, 2022.

As of September 30, 2023, our non-performing assets increased to $91.6 million, or 0.42% of total assets, from $61.5 million, or 0.27% of total assets, as of December 31, 2022.

Non-performing assets from our Arkansas franchise were $12.8 million at September 30, 2023 compared to $8.5 million as of December 31, 2022.

Non-performing assets from our Florida franchise were $17.5 million at September 30, 2023 compared to $20.8 million as of December 31, 2022.

Non-performing assets from our Texas franchise were $27.5 million at September 30, 2023 compared to $22.4 million as of December 31, 2022.

Non-performing assets from our Alabama franchise were $372,000 at September 30, 2023 compared to $404,000 as of December 31, 2022.

Non-performing assets from our SPF franchise were $3.0 million at September 30, 2023 compared to $2.3 million as of December 31, 2022.

Non-performing assets from our Centennial CFG franchise were $30.4 million at September 30, 2023 compared to $7.1 million as of December 31, 2022.

The $30.4 million balance of non-accrual loans for our Centennial CFG market consists of three loans, one loan totaling $27.6 million which was placed on non-accrual status effective August 30, 2023, with all accrued interest reversed effective the non-accrual date and the remaining $2.8 million balance consists of two loans that are assessed for credit risk by the Federal Reserve under the Shared National Credit Program.

These two 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.

55 unchanged sentences

• Other consumer

• Other consumer - SPF

• Other consumer - Shore Premier Finance ("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.

For these loans, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral, net of estimated costs to sell, and the amortized cost basis of the loan as of the measurement date.

When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral.

The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan, net of estimated costs to sell.

For 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.

For individually analyzed loans which are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

75 unchanged sentences

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 June 30, 2023, we had 223 branch locations.

As of September 30, 2023, we had 223 branch locations.

There were 76 branches in Arkansas, 78 branches in Florida, 63 branches in Texas, five branches in Alabama and one branch in New York City.

Results of Operations

For the three and six months ended June 30, 2023 and 2022

Our net income increased $89.3 million, or 558.8%, to $105.3 million for the three-month period ended June 30, 2023, from $16.0 million for the same period in 2022.

On a diluted earnings per share basis, our earnings were $0.52 per share for the three-month period ended June 30, 2023 compared to $0.08 per share for the three-month period ended June 30, 2022.

During the second quarter of 2022, we completed the acquisition of Happy.

The summation of these items reduced earnings by $107.3 million and earnings per share by $0.39 per share for the three-month period ended June 30, 2022.

The Company recorded a $4.0 million provision for credit losses for the quarter ended June 30, 2023.

This consisted of a $2.3 million provision for credit losses on loans and a $1.7 million provision for credit losses on available-for-sale investment securities.

The Company determined that a provision for unfunded commitments was not necessary as of June 30, 2023 as the current level was considered adequate.

During the three months ended June 30, 2023, the Company recorded $2.8 million in BOLI death benefits and a $783,000 increase in the fair value of marketable securities.

Our net income increased $127.4 million, or 157.5%, to $208.2 million for the six months ended June 30, 2023, from $80.9 million for the same period in 2022.

On a diluted earnings per share basis, our earnings were $1.02 per share for the six months ended June 30, 2023 compared to $0.44 per share for the six months ended June 30, 2022.

For the three and nine months ended September 30, 2023 and 2022

Our net income decreased $10.3 million, or 9.4%, to $98.5 million for the three-month period ended September 30, 2023, from $108.7 million for the same period in 2022.

The Company recorded $1.3 million in credit loss expense for the quarter ended September 30, 2023.

This consisted of a $2.8 million provision for credit losses on loans and a reversal of $1.5 million provision for unfunded commitments.

During the three months ended September 30, 2023, the Company recorded $338,000 in BOLI death benefits and a $4.5 million increase in the fair value of marketable securities.