What changed in this filing

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Item 1. Business

2024-02-26 compared with 2023-02-24 · 33 added, 27 removed, 586 unchanged (9% of the section changed)

30 unchanged sentences

The following summary provides additional details concerning our acquisitions during the previous five fiscal years.

Shore Premier Finance – On June 30, 2018, the Company acquired Shore Premier Finance (“SPF”), a division of Union Bank & Trust of Richmond, Virginia, the bank subsidiary of Union Bankshares Corporation.

The Company paid a purchase price of approximately $377.4 million in cash, subject to certain post-closing adjustments, and 1,250,000 shares of HBI common stock valued at approximately $28.2 million at the time of the acquisition.

SPF provides direct consumer financing for United States Coast Guard (“USCG”) registered high-end sail and power boats.

Additionally, SPF provides inventory floor plan lines of credit to marine dealers, primarily those selling USCG documented vessels.

Including the purchase accounting adjustments, as of acquisition date, SPF had approximately $377.0 million in total assets, including $376.2 million in total loans, which resulted in goodwill of $30.5 million being recorded.

This portfolio of loans is now housed in a division of Centennial Bank known as Shore Premier Finance.

The SPF division of Centennial Bank is responsible for servicing the acquired loan portfolio and originating new loan production.

In connection with this acquisition, Centennial Bank opened a new loan production office in Chesapeake, Virginia, to house the SPF division.

Through the SPF division, Centennial Bank is working to build out a lending platform focusing on commercial and consumer marine loans.

LH-Finance – On February 29, 2020, the Company completed the acquisition of LH-Finance, the marine lending division of People’s United Bank, N.A., for a cash purchase price of approximately $421.2 million.

Like SPF, LH-Finance provides direct consumer financing for USCG registered high-end sail and power boats, as well as inventory floor plan lines of credit to marine dealers, primarily those selling USCG documented vessels.

Like SPF, LH-Finance provides direct consumer financing for United States Coast Guard ("USCG") registered high-end sail and power boats, as well as inventory floor plan lines of credit to marine dealers, primarily those selling USCG documented vessels.

Including the purchase accounting adjustments, as of the acquisition date, LH-Finance had approximately $409.1 million in total assets, including $407.4 million in total loans, which resulted in goodwill of $14.6 million being recorded.

The acquired portfolio of loans is now housed in our SPF division.

The acquired portfolio of loans is housed in our SPF division.

The SPF division is responsible for servicing the acquired loan portfolio and originating new loan production.

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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.

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 an additional discussion regarding the acquisition of LendingClub's Marine Portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K for the year ended December 31, 2023.

For additional discussions regarding the acquisitions of Happy and LH-Finance, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 “Business Combinations” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for the year ended December 31, 2022.

For an additional discussion regarding the acquisition of SPF, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 “Business Combinations” in the Notes to Consolidated Financial Statements included our Annual Report on Form 10-K for the year ended December 31, 2020.

For additional discussions regarding the acquisition of Happy, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 “Business Combinations” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for the year ended December 31, 2023.

Our Management Team

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Carter, III 48 Executive Officer Regional President

Kenneth Mikel Williamson, Jr.

52 Executive Officer Regional President

Our Growth Strategy

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We believe the markets we entered into as a result of historical acquisitions provide us opportunities for organic growth as we now have a presence in several large markets where our market share has not previously been significant.

Through our Centennial CFG franchise, we are continuing to build out a national lending platform that focuses on commercial real estate plus commercial and industrial loans.

Additionally, through our SPF division, we are continuing to build a lending platform focusing on commercial and consumer marine loans.

Through our Centennial CFG franchise, we operate a national lending platform that focuses on commercial real estate plus commercial and industrial loans.

Additionally, through our SPF division, we operate a lending platform focusing on commercial and consumer marine loans.

As opportunities arise, we will evaluate new (commonly referred to as de novo ) branches in our current markets and in other attractive market areas.

We opened one de novo branch location during 2022 in Ft.

Worth, Texas.

We will continue to evaluate de novo opportunities during 2023 and make decisions on a case-by-case basis in the best interest of the shareholders.

We did not open any de novo branch locations in 2023.

However, we will continue to evaluate de novo opportunities during 2024 and make decisions on a case-by-case basis in the best interest of the shareholders.

Community Banking Philosophy

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Additionally, our policy also permits the acceptance of brokered deposits.

Secondary sources of funding include advances from the Federal Home Loan Bank of Dallas, the Federal Reserve Bank Discount Window and other borrowings.

Secondary sources of funding include advances from the Federal Home Loan Bank of Dallas, the Federal Reserve Bank Discount Window, Federal Reserve Bank Term Funding Program ("BTFP") and other borrowings.

These secondary sources enable us to borrow funds at rates and terms which, at times, are more beneficial to us.

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We also receive ATM transaction fees from transactions performed by our customers participating in a shared network of automated teller machines and a debit card system that our customers can use throughout the United States, as well as in other countries.

Trust and Investment Services

Through Centennial Bank and its trust operating subsidiary, GoldStar Trust Company, we provide trust, wealth management and custodial services to customers throughout our footprint from offices in Arkansas and Texas.

We had approximately $5.23 billion of assets under management and custody as of December 31, 2023.

The bank offers a wide variety of trust and estate planning products and services including serving as trustee for personal trusts, testamentary trusts, life insurance trusts, special needs trusts, charitable trusts, 401(k) retirement plans, profit sharing plans and pension plans.

In addition the bank offers administrative services such as estate administration and settlement, guardianship and conservator administration, investment management, farm and property management, section 1031 like-kind exchanges and Coverdell Education Savings Accounts.

The bank also offers managed and self-directed IRAs.

Centennial Bank also contracts with Ameriprise Financial Services, LLC (“Ameriprise”), a registered broker-dealer and investment adviser, to offer and sell various securities and other financial products to customers through associates who are employed by both Centennial Bank and Ameriprise.

GoldStar Trust Company is a limited services trust company with a focus on providing alternative asset custodial services for assets not generally held by traditional brokerage and investment firms.

Other products and services provided include trustee services, escrow and paying agent services.

All accounts under management of GoldStar Trust Company are self-directed accounts in which the investment instruction is provided by the end client or their third party financial advisor.

Centennial Insurance Agency, Inc.

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On December 31, 2023, we had 2,819 full-time equivalent employees.

Except for any additional employees acquired in future acquisitions, we expect that our 2023 staffing levels will be slightly higher than those at year end 2022 to meet increased regulatory requirements.

Except for any additional employees acquired in future acquisitions, we expect that our 2024 staffing levels will be lower than those at year end 2023 as a reflection of the efforts taken during the fourth quarter of 2023.

We consider our employee relations to be good, and we have no collective bargaining agreements with any employees.

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Statutory and regulatory limitations apply to the dividends that our bank subsidiary can pay to us, as well as to the dividends we can pay to our shareholders.

The policy of the Federal Reserve Board that a bank holding company should serve as a source of strength to its subsidiary bank also results in the position of the Federal Reserve Board that a bank holding company should not maintain a level of cash dividends to its shareholders that places undue pressure on the capital of its bank subsidiary or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as such a source of strength.

Under Federal Reserve Board policy, a bank holding company should serve as a source of strength to its subsidiary bank and should not pay cash dividends to its shareholders at a level that places undue pressure on the capital of its bank subsidiary or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as such a source of strength.

Our ability to pay dividends is also subject to the provisions of Arkansas law.

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Under the Federal Deposit Insurance Act, as amended, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Additionally, in November 2023, based on its systemic risk determination announced on March 12, 2023, the FDIC adopted a final rule to impose a special assessment at an annual rate of approximately 13.4 basis points on the bank’s estimated uninsured deposits in excess of $5 billion to recover the loss to the DIF following the closures of Silicon Valley Bank and Signature Bank.

This assessment is only imposed on banks with assets of $5 billion or more.

During the fourth quarter of 2023, we recorded $13.0 million in FDIC special assessment expense in anticipation of this assessment.

The special assessment will be imposed beginning with the first quarterly assessment period of 2024 for an anticipated total of eight quarterly assessment periods.

Because the estimated loss pursuant to the systemic risk determination will be periodically adjusted, the FDIC retains the ability to cease collection early, impose an extended special assessment collection period after the initial eight-quarter collection period to collect the difference between losses and the amounts collected, and impose a one-time final shortfall special assessment after both receiverships terminate.

Community Reinvestment Act .

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As of February 1, 2024, these regulations have not been finalized;

however, the agencies have indicated that they intend to issue a third proposed rule in the near future.

Unless and until a final rule is adopted, we cannot fully determine whether compliance with such a rule will adversely affect the Company’s or our bank subsidiary’s ability to hire, retain and motivate our key employees.

In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including the NYSE, to implement listing standards that require listed companies to adopt policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.

The final rule requires us to adopt a clawback policy within 60 days after such listing standard becomes effective.

The corresponding NYSE listing rule was approved by the SEC in June 2023 and required listed companies to adopt a compliant clawback policy by December 1, 2023.

Our board of directors adopted such a policy on October 20, 2023.

The Federal Reserve Board reviews, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.” These reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements.

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Our bank subsidiary participated in the PPP as a lender.

These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA.

These loans were eligible to be forgiven if certain conditions were satisfied and were fully guaranteed by the SBA.

Additionally, loan payments were deferred for the first six months of the loan term.

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Neither the government nor lenders were permitted to charge the recipients any fees.

As of December 31, 2022, our bank subsidiary has approximately $7.3 million in PPP loans that remain outstanding.

The majority of our bank subsidiary’s PPP loans outstanding as of December 31, 2022, were forgiven or repaid during 2023.

As of December 31, 2023, the remaining balance of outstanding PPP loans was considered immaterial.

Temporary Regulatory Capital Relief related to Impact of Current Expected Credit Loss (“CECL”).

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We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.

Additionally, we cannot predict the impact of potential judicial interpretations of regulations or the outcome of the upcoming election cycle on banking statutes and regulations.

Effect of Governmental Monetary Polices

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business