What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-02-26 compared with 2023-02-24 · 314 added, 312 removed, 1933 unchanged (24% of the section changed)

37 unchanged sentences

Sensitivity of Net Interest Income

Interest Rate Scenario Percentage

Interest Rate Scenario Percentage Change from Base

Up 200 basis points 9.61 %

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In making this assessment, management used the criteria set forth in Internal Control – Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on management's assessment and those criteria, which excluded the operations of Happy Bancshares, Inc.

("Happy") as noted below, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2022.

In conducting the assessment of the effectiveness of its internal control over financial reporting as of December 31, 2022, the Company has excluded the operations of Happy as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission (not to extend more than one year beyond the date of the acquisition or for more than one annual reporting period).

In conducting the assessment of the effectiveness of its disclosure controls and procedures as of December 31, 2022, the Company has excluded those disclosure controls and procedures of Happy that are subsumed by internal control over financial reporting.

The acquisition was completed on April 1, 2022.

As of December 31, 2022, Happy's assets represented approximately 16.9% of the Company's total consolidated assets.

Business Combinations" for further discussion of the merger and its impact on the Company's consolidated financial statements.

FORVIS, LLP (formerly BKD, LLP), Little Rock, Arkansas, (U.S.

Based on management's assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2023.

FORVIS, LLP, Little Rock, Arkansas, (U.S.

PCAOB Auditor Firm I.D.:

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In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2023, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2024, expressed an unqualified opinion thereon .

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

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.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses

Critical Audit Matter Description

As discussed in Note 5 , the Company uses the discounted cash flow (DCF) method to estimate expected losses for all of the Company’s loan pools that exhibit similar risk characteristics.

For each loan pool, the Company generates cash flow projections at the instrument level adjusting payment expectations for estimated prepayment speed, curtailments, time to recovery, probability of default and loss given default.

The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers when modeling lifetime probability of default and loss given default.

The Company’s analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.

The Company evaluates the performance of the selected models used in the calculation and determines if changes to the input assumptions and economic factors are necessary to produce a calculation that is more responsive to changes in economic conditions.

Additional qualitative adjustments are applied for risk factors that are not considered within the modeling process but are relevant in assessing the expected credit losses within the loan pools.

Loans that do not share risk characteristics are evaluated on an individual basis.

For loans individually evaluated, 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.

The Company applies expected funding percentages to the respective model loss rates to estimate the allowance for unfunded commitments.

Auditing management’s estimate of the allowances for loan credit losses (ACL) and unfunded commitments involved a high degree of subjectivity due to the complexities of the probability of default and loss given default models and the nature of the qualitative factor adjustments.

Management’s qualitative factor adjustments are highly judgmental and had a significant effect on the ACL.

How the Critical Audit Matter was Addressed in the Audit

Our audit procedures related to the ACL and allowance for unfunded commitments included the following procedures, among others:

• Obtained an understanding, evaluated the design and tested the operating effectiveness of controls, including information technology, over the reliability and accuracy of data used to calculate and estimate the various components of the ACL including:

As discussed in Notes 1 and 5 to the financial statements, the Company’s loan portfolio and the associated allowance for credit losses (“ACL”) were $14.4 billion and $288.2 million as of December 31, 2023, respectively.

The Company estimates the ACL based on internal and external information relating to past events, current conditions, and reasonable and supportable forecasts.

The Company uses the discounted cash flow method to estimate expected losses for all of the Company’s loan segments that exhibit similar risk characteristics and loans that do not share risk characteristics are evaluated on an individual basis.

For each loan segment, the Company generates cash flow projections at the instrument level adjusting payment expectations for estimated prepayment speed, curtailments, time to recovery, probability of default and loss given default.

Additional qualitative adjustments are applied for risk factors that are not considered within the modeling process but are relevant in assessing the expected credit losses within the loan segments.

Consideration is given to the following factors:

changes in lending policies, procedures and strategies;

changes in nature and volume of the portfolio;

staff experience;

changes in volume and trends in classified loans, delinquencies and nonaccruals;

concentration risk;

trends in underlying collateral values;

external factors such as competition, legal and regulatory environment;

changes in the quality of the loan review system;

and economic conditions.

Auditing management’s estimate of the allowances for loan credit losses, and more specifically the qualitative factor adjustments applied in the ACL, is a critical audit matter.

The principal consideration for our determination of the critical audit matter is a high degree of subjectivity of the assumptions utilized in calculating the qualitative reserve component within the model.

Furthermore, certain inputs and assumptions lack observable data and, therefore, applying audit procedures required a higher degree of auditor judgement and subjectivity due to the nature and extent of audit evidence and effort required to address this matter.

The primary audit procedures we performed to address this critical audit matter included:

• Obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the reliability and accuracy of data used to calculate and estimate the various components of the ACL including:

◦ Loan data completeness and accuracy,

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◦ Model inputs utilized,

• Approval of model assumptions selected

• Establishment of qualitative factors

• Tested the mathematical accuracy of the calculation of the ACL

• Tested individual loan files to evaluate the reasonableness of loan credit risk ratings

• Tested the completeness and accuracy of inputs utilized in the calculation of the ACL

• Evaluated the reasonableness of selected loss drivers utilized and loss driver forecasts for each loan segment

• Tested the reasonableness of specific reserves on individually evaluated loans

• Tested estimated funding rate of unfunded loan commitments

• Evaluated the qualitative adjustments, including any additional factors utilized for specific identified risks and assessed the reasonableness and basis for adjustments

• Evaluated the accuracy and completeness of Topic 326 disclosures in the consolidated financial statements

Business Combination Accounting

Critical Audit Matter Description

As discussed in Note 2 , the Company completed the acquisition of Happy Bancshares, Inc.

(Happy) and merged Happy State Bank into Centennial Bank on April 1, 2022.

Management determined that the acquisition qualified as a business and accordingly, all identifiable assets acquired and liabilities assumed were valued at fair value, resulting in additional goodwill of approximately $421.3 million.

The identification and valuation of such acquired assets and assumed liabilities requires management to exercise significant judgment and consider the use of third-party specialists to estimate fair values.

Auditing management’s estimates of the fair value of assets acquired and liabilities assumed involved a high degree of subjectivity due to the significant judgment applied, the sensitivity to underlying assumptions in determining fair value and assessing the appropriateness of the third-party specialists’ models.

How the Critical Audit Matter was Addressed in the Audit

Our audit procedures related to the fair value of assets acquired and liabilities assumed included the following procedures, among others:

• Obtained and reviewed the Merger Agreement to gain an understanding of the underlying terms of the acquisition

• Obtained an understanding, evaluated the design and tested the operating effectiveness of acquisition accounting controls, including but not limited to, management’s review of valuation results provided by outside vendors

• Obtained and reviewed management’s business combination accounting analysis to gain an understanding of adjustments recorded

• Tested the mathematical accuracy of the adjustments included in the business combination accounting analysis focusing on the completeness and accuracy of the balance sheet acquired and related fair value

• Obtained valuation estimates prepared by management and the Company’s valuation specialists.

With the assistance of our valuation specialists, challenged the appropriateness of the valuations allocated to assets acquired and liabilities assumed, including but not limited to, testing of critical inputs, assumptions applied, and valuation models utilized

• Recalculated goodwill

• Evaluated the accuracy and completeness of disclosures in the consolidated financial statements

◦ Approval of model assumptions selected, and

◦ Qualitative factors have been appropriately identified, are adequately supported, and accurately applied.

• Evaluated and tested the data and inputs utilized within the ACL calculation for completeness and accuracy including mathematical accuracy of the calculation.

• Evaluated the qualitative factors for appropriate identification and application including reasonableness of the basis for adjustment.

• Analyzed the total qualitative factor adjustment applied to each loan segment, in comparison to changes in the Company’s quantitatively driven expected credit losses and loan segments and evaluated the appropriateness of the total qualitative factor adjustments applied in the overall allowance.

• Utilized the assistance of the firm’s internal specialists to test the mathematical operation of the model.

/s/ FORVIS, LLP

(Formerly, BKD, LLP)

We have served as the Company’s auditor since 2005.

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(2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2022 and 2021, and for each of the three years in the period ended December 31, 2022, and our report dated February 24, 2023, expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2023 and 2022, and for each of the three years in the period ended December 31, 2023, and our report dated February 26, 2024, expressed an unqualified opinion on those financial statements.

Basis for Opinion

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We believe that our audit provides a reasonable basis for our opinion.

As described in Management’s Report on Internal Control over Financial Reporting , the scope of management’s assessment of internal control over financial reporting as of December 31, 2022, has excluded Happy Bancshares, Inc.

acquired on April 1, 2022.

We have also excluded Happy Bancshares, Inc.

from the scope of our audit of internal control over financial reporting.

Happy Bancshares, Inc.

represented approximately 16.9% of consolidated total assets as of December 31, 2022.

Definitions and Limitations of Internal Control Over Financial Reporting

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/s/ FORVIS, LLP

(Formerly, BKD, LLP)

Little Rock, Arkansas

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Cash and cash equivalents 1,000,213 724,790

Investment securities – available-for-sale, net of allowance for credit losses 4,041,590 3,119,807

Investment securities – held-to-maturity, net of allowance for credit losses 1,287,705 —

Federal funds sold 5,100 —

Investment securities — available-for-sale, net of allowance for credit losses of $ 2,525 and $ 842 at December 31, 2023 and December 31, 2022, respectively (amortized cost of $ 3,840,927 and $ 4,445,620 at December 31, 2023 and December 31, 2022, respectively)

3,507,841 4,041,590

Investment securities — held-to-maturity, net of allowance for credit losses of $ 2,005 at both December 31, 2023 and 2022

1,281,982 1,287,705

Total investment securities 4,789,823 5,329,295

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Retained earnings 1,690,112 1,443,087

Accumulated other comprehensive (loss) income ( 305,458 ) 10,462

Accumulated other comprehensive loss

( 249,075 ) ( 305,458 )

Total stockholders’ equity 3,791,075 3,526,362

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Provision for credit losses on loans 11,950 50,170 —

Provision for credit losses on unfunded commitments 11,410 ( 4,752 ) 16,989

(Recovery of) provision for credit losses on unfunded commitments ( 1,500 ) 11,410 ( 4,752 )

Provision for credit losses on investment securities 1,683 2,005 —

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Net income available to all stockholders $ 392,929 $ 305,262 $ 319,021

Net unrealized (loss) gain on available-for-sale securities ( 417,349 ) ( 45,567 ) 37,771

Other comprehensive (loss) income, before tax effect ( 417,349 ) ( 45,567 ) 37,771

Tax effect on other comprehensive (loss) income 101,429 11,909 ( 9,872 )

Other comprehensive (loss) income ( 315,920 ) ( 33,658 ) 27,899

Comprehensive (loss) income $ ( 10,658 ) $ 285,363 $ 242,347

Net unrealized gain (loss) on available-for-sale securities 72,617 ( 417,349 ) ( 45,567 )

Other comprehensive income (loss), before tax effect 72,617 ( 417,349 ) ( 45,567 )

Tax effect on other comprehensive (income) loss ( 16,234 ) 101,429 11,909

Other comprehensive income (loss) 56,383 ( 315,920 ) ( 33,658 )

Comprehensive income (loss) $ 449,312 $ ( 10,658 ) $ 285,363

See accompanying notes.

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Comprehensive

Balances at December 31, 2019 $ 1,664 $ 1,537,091 $ 956,555 $ 16,221 $ 2,511,531

Cumulative change in accounting principle (adoption of ASC 326) — — ( 43,956 ) — ( 43,956 )

Balance at January 1, 2020 (as adjusted for change in accounting principle) 1,664 1,537,091 912,599 16,221 2,467,575

Balances at January 1, 2021 $ 1,651 $ 1,520,617 $ 1,039,370 $ 44,120 $ 2,605,758

Comprehensive income:

Net income — — 319,021 — 319,021

Other comprehensive income — — — 27,899 27,899

Other comprehensive loss — — — ( 33,658 ) ( 33,658 )

Net issuance of 176,846 shares of common stock from exercise of stock options

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2 154 — — 156

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 3,098,531 shares of common stock

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Net income — — 392,929 — 392,929

Other comprehensive loss — — — ( 315,920 ) ( 315,920 )

Other comprehensive income — — — 56,383 56,383

Net issuance of 118,653 shares of common stock from exercise of stock options

1 801 — — 802

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 2,225,849 shares of common stock

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2 9,272 — — 9,274

Excise tax expense from repurchase of common stock — ( 430 ) — — ( 430 )

Cash dividends – Common Stock, $ 0.72 per share

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Consolidated Statements of Cash Flows

Years Ended December 31,

(In thousands) 2023 2022 2021

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Investing Activities

Net increase in federal funds sold ( 5,100 ) — —

Net (increase) decrease in loans, excluding loans acquired ( 9,037 ) ( 673,883 ) 1,328,378

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Proceeds from sales of equity securities 1,522 13,778 16,381

(Purchases) redemptions of other investments ( 60,889 ) ( 9,784 ) 13,355

Purchases of other investments ( 3,364 ) ( 60,889 ) ( 9,784 )

Proceeds from foreclosed assets held for sale 1,292 2,319 7,599

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Net cash proceeds received (paid) – market acquisitions — 858,584 —

Net cash (used in) provided by investing activities ( 1,024,270 ) 624,660 ( 651,941 )

Net cash provided by (used in) investing activities 578,459 ( 1,024,270 ) 624,660

Home BancShares, Inc.

Consolidated Statements of Cash Flows

Years Ended December 31,

(In thousands) 2023 2022 2021

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Net (decrease) increase in deposits, excluding deposits acquired ( 1,151,072 ) ( 2,177,058 ) 1,534,780

Net (decrease) increase in securities sold under agreements to repurchase ( 9,740 ) ( 28,045 ) 25,204

Net decrease in federal funds purchased — — ( 5,000 )

Net increase (decrease) in securities sold under agreements to repurchase 10,939 ( 9,740 ) ( 28,045 )

Increase in FHLB and other borrowed funds 6,476,550 601,000 —

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Cash and cash equivalents consist of cash on hand, cash held as demand deposits at various banks and the Federal Reserve Bank (“FRB”) and interest-bearing deposits with other banks.

For many years, reserve requirements played a central role in the implementation of monetary policy by creating a stable demand for reserves.

In January 2019, the Federal Open Market Committee announced its intention to implement monetary policy in an ample reserves regime.

Reserve requirements do not play a significant role in this operating framework.

In light of the shift to an ample reserves regime, the FRB reduced the reserve requirement ratios to zero percent effective on March 26, 2020.

As a result, the Bank is no longer required to maintain required reserve balance with either the FRB or in the form of cash on hand.

Investment Securities

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The allowance for credit losses for each segment is measured through the use of the discounted cash flow method.

Loans evaluated individually that are considered to be impaired are not included in the collective evaluation.

For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.

For loans for which a specific reserve is not recorded, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation if a specific reserve is not recorded.

Loans evaluated individually that are considered to be collateral dependent are not included in the collective evaluation.

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

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

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

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

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.

• Management has a reasonable expectation at the reporting date that restructured loans made to borrowers experiencing financial difficulty will be executed with an individual borrower.

• 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.

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(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.

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Acquisition Accounting and Acquired Loans

The Company accounts for its acquisitions under ASC Topic 805, Business Combinations , which requires the use of the purchase 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 or premium and an allowance for credit losses on acquired loans.

The Company accounts for its acquisitions under FASB Accounting Standards Codification ("ASC") Topic 805, Business Combinations , which requires the use of the purchase method of accounting.

All identifiable assets acquired, including loans, are recorded at fair value.

In accordance with FASB ASC 326, the Company records both a discount or premium and an allowance for credit losses on acquired loans.

All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements .

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An allowance for credit losses is determined using the same methodology as other loans.

For PCD loans not individually analyzed for impairment, the Company develops separate PCD models for each loan segment.

The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for credit losses.

These models utilize a peer group benchmark in order to determine the probability of default and loss given default to be used in the calculation.

The 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.

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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.

For further discussion of the Company’s acquisitions, see Note 2 to the Notes to Consolidated Financial Statements.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

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Stock Options

The Company accounts for stock options in accordance with FASB ASC 718, Compensation - Stock Compensation, and FASB ASC 505-50, Equity-Based Payments to Non-Employees , which establishes standards for the accounting for transactions in which an entity (i) exchanges its equity instruments for goods and services, or (ii) incurs liabilities in exchange for goods and services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of the equity instruments.

The Company accounts for stock options in accordance with FASB ASC 718, Compensation - Stock Compensation, which establishes standards for the accounting for transactions in which an entity (i) exchanges its equity instruments for goods and services, or (ii) incurs liabilities in exchange for goods and services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of the equity instruments.

FASB ASC 718 requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the measurement date, which is generally the date of the grant.

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Revenue Recognition.

Accounting Standards Codification ("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.

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.

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As of December 31, 2023, 2022 and 2021, the Company's stock options were dilutive to earnings per share.

However, as of December 31, 2020, options to purchase 3.3 million shares of common stock with a weighted average exercise price of $ 19.77 were excluded from the computation of diluted earnings per share as the majority of the options had an exercise price which was greater than the average market price of the common stock.

The impact of anti-dilutive shares to the diluted earnings per share calculation was considered immaterial for the periods ended December 31, 2023, 2022 and 2021.

Business Combinations

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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, intangible assets and other 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.

The Company has determined that the acquisition of the net assets of Happy constitutes a business combination as defined by ASC Topic 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.

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.

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:

Fair values were determined based on the requirements of ASC Topic 820, Fair Value Measurements .

The following schedule is a breakdown of the assets acquired and liabilities assumed as of the acquisition date:

Happy Bancshares, Inc.

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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 and fourth quarters 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 $ 112,553 $ ( 314 )

Loans receivable Loans receivable 3,652,706 3,652,620 ( 86 )

Bank premises and equipment, net Bank premises and equipment, net 142,067 141,372 ( 695 )

Deferred tax asset, net Deferred tax asset, net 35,414 31,816 ( 3,598 )

Equity method investments & Other assets Other assets 49,752 58,897 9,145

Goodwill Goodwill 425,375 425,228 ( 147 )

Demand and non-interest bearing deposits Demand and non-interest bearing deposits 1,932,756 1,932,823 67

Accrued expense and other liabilities Accrued interest payable and other liabilities 44,759 48,997 4,238

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 December 31, 2022.

However, the valuations will be finalized no later than April 1, 2023.

As the valuations remain provisional 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.

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Purchase price $ 148,896

Acquisition of 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.

The Company paid a purchase price of approximately $ 421.2 million in cash.

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

Additionally, LH-Finance provides 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 the Shore Premier Finance (“SPF”) division.

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

In connection with this acquisition, Centennial opened a new loan production office in Baltimore, Maryland.

The Company has determined that the acquisition of the net assets of LH-Finance constitutes a business combination as defined by the ASC Topic 805.

Accordingly, the assets acquired are presented at their fair values as required.

Fair values were determined based on the requirements of ASC Topic 820.

Investment Securities

6 unchanged sentences

government-sponsored enterprises $ 361,494 $ — $ 361,494 $ 2,247 $ ( 17,093 ) $ 346,648

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

government-sponsored mortgage-backed securities 1,711,668 — 1,711,668 310 ( 191,557 ) 1,520,421

Private mortgage-backed securities 191,522 — 191,522 — ( 16,117 ) 175,405

Non-government-sponsored asset backed securities 370,203 — 370,203 821 ( 7,551 ) 363,473

State and political subdivisions 990,318 — 990,318 1,938 ( 75,931 ) 916,325

7 unchanged sentences

government-sponsored enterprises $ 43,285 $ — $ 43,285 $ — $ ( 2,607 ) $ 40,678

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

government-sponsored mortgage-backed securities 130,278 — 130,278 106 ( 4,362 ) 126,022

State and political subdivisions 1,110,424 ( 2,005 ) 1,108,419 456 ( 105,094 ) 1,003,781

6 unchanged sentences

government-sponsored enterprises $ 682,316 $ — $ 682,316 $ 2,713 $ ( 23,209 ) $ 661,820

Residential mortgage-backed securities 1,175,185 — 1,175,185 4,085 ( 18,551 ) 1,160,719

Commercial mortgage-backed securities 372,702 — 372,702 6,521 ( 1,968 ) 377,255

government-sponsored mortgage-backed securities 1,900,796 — 1,900,796 71 ( 215,405 ) 1,685,462

Private mortgage-backed securities 197,435 — 197,435 — ( 18,302 ) 179,133

Non-government-sponsored asset backed securities 428,933 — 428,933 95 ( 14,654 ) 414,374

State and political subdivisions 1,021,188 ( 842 ) 1,020,346 1,649 ( 115,698 ) 906,297

1 unchanged sentence

Total $ 4,445,620 $ ( 842 ) $ 4,444,778 $ 4,779 $ ( 407,967 ) $ 4,041,590

December 31, 2022

Held-to-Maturity

Cost Allowance for Credit Losses Net Carrying Amount Gross

(Losses) Estimated

(In thousands)

government-sponsored enterprises $ 43,017 $ — $ 43,017 $ — $ ( 3,349 ) $ 39,668

government-sponsored mortgage-backed securities 135,000 — 135,000 131 ( 3,756 ) 131,375

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

On April 1, 2022, the Company completed the acquisition of Happy.

Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $ 1.78 billion in investments, net of purchase accounting adjustments.

Including the effects of the purchase accounting adjustments, as of 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.

Assets, principally investment securities, having a fair value of approximately $ 3.57 billion and $ 2.35 billion at December 31, 2023 and 2022, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Also, investment securities pledged as collateral for repurchase agreements totaled approximately $ 131.1 million and $ 140.9 million at December 31, 2022 and 2021.

Also, investment securities pledged as collateral for repurchase agreements totaled approximately $ 142.1 million and $ 131.1 million at December 31, 2023 and 2022, respectively.

The amortized cost and estimated fair value of securities classified as available-for-sale and held-to-maturity at December 31, 2023, by contractual maturity, are shown below.

10 unchanged sentences

Due after ten years 922,418 859,604 820,267 739,741

Mortgage - backed securities:

Residential 1,759,025 1,547,643 49,088 47,907

Mortgage - backed securities:

Commercial 339,206 316,952 85,912 83,468

Other 1,501 1,498 — —

government-sponsored mortgage-backed securities 1,711,668 1,520,421 130,278 126,022

Private mortgage-backed securities 191,522 175,405 — —

Non-government-sponsored asset backed securities 370,203 363,473 — —

Total $ 3,840,927 $ 3,507,841 $ 1,283,987 $ 1,170,481

During the year ended December 31, 2023, no available-for-sale securities were sold.

During the year ended December 31, 2022, $ 67.3 million in available-for-sale securities were sold, and no gain or loss was recognized.

1 unchanged sentence

The income tax expense/benefit to net security gains and losses was 25.740 % of the gross amounts.

During the year ended December 31, 2020, no available-for-sale securities were sold.

The following shows gross unrealized losses and estimated fair value of investment securities classified as available-for-sale, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position as of December 31, 2022 and 2021:

The following 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 December 31, 2023 and 2022:

December 31, 2023

6 unchanged sentences

government-sponsored enterprises $ 2,742 $ ( 2 ) $ 180,569 $ ( 17,091 ) $ 183,311 $ ( 17,093 )

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 )

government-sponsored mortgage-backed securities 102,831 ( 2,166 ) 1,392,318 ( 189,391 ) 1,495,149 ( 191,557 )

Private mortgage-backed securities 9,298 ( 226 ) 166,107 ( 15,891 ) 175,405 ( 16,117 )

Non-government-sponsored asset backed securities — — 213,838 ( 7,551 ) 213,838 ( 7,551 )

State and political subdivisions 28,596 ( 400 ) 769,860 ( 75,531 ) 798,456 ( 75,931 )

3 unchanged sentences

government-sponsored enterprises $ — $ — $ 40,677 $ ( 2,607 ) $ 40,677 $ ( 2,607 )

Residential mortgage-backed securities 40,892 ( 1,205 ) — — 40,892 ( 1,205 )

Commercial mortgage-backed securities 65,948 ( 2,551 ) — — 65,948 ( 2,551 )

government-sponsored mortgage-backed securities 48,498 ( 861 ) 65,573 ( 3,501 ) 114,071 ( 4,362 )

State and political subdivisions 21,493 ( 297 ) 956,578 ( 104,797 ) 978,071 ( 105,094 )

6 unchanged sentences

(In thousands)

Available-for-sale:

government-sponsored enterprises $ 315,531 $ ( 3,056 ) $ 128,527 $ ( 20,153 ) $ 444,058 $ ( 23,209 )

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 )

government-sponsored mortgage-backed securities 850,268 ( 46,505 ) 807,566 ( 168,900 ) 1,657,834 ( 215,405 )

Private mortgage-backed securities 179,133 ( 18,302 ) — — 179,133 ( 18,302 )

Non-government-sponsored asset backed securities 285,724 ( 9,726 ) 39,133 ( 4,928 ) 324,857 ( 14,654 )

State and political subdivisions 485,817 ( 50,484 ) 338,638 ( 65,214 ) 824,455 ( 115,698 )

1 unchanged sentence

Total $ 2,255,449 $ ( 143,387 ) $ 1,348,287 $ ( 264,580 ) $ 3,603,736 $ ( 407,967 )

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.

Held-to-maturity:

government-sponsored enterprises $ 39,668 $ ( 3,349 ) $ — $ — $ 39,668 $ ( 3,349 )

government-sponsored mortgage-backed securities 106,840 ( 3,756 ) — — 106,840 ( 3,756 )

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 ("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 .

The Company first assesses whether it intends to sell or is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis.

3 unchanged sentences

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is

recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

2 unchanged sentences

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.

Debt 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.

Debt 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.

The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics.

3 unchanged sentences

Losses are charged against the allowance when management believes the uncollectability of a security is confirmed.

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 86.2 % 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.

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 December 31, 2022, the Company determined the allowance for credit losses of $ 842,000 , resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio.

No additional provision for credit losses was considered necessary for the portfolio.

During the year ended December 31, 2023, one of the Company’s AFS subordinated debt investment securities was downgraded below investment grade.

As result, the Company wrote down the value of the investment to its unrealized loss position, which required a $ 1.7 million provision.

The remaining $ 842,000 allowance for credit losses on AFS investments is associated with certain securities in the subordinated debt portfolio within the banking sector.

These investments are classified within the other securities category of the AFS portfolio.

The $ 2.0 million allowance for credit losses for the held-to-maturity portfolio was considered adequate.

No additional provision for credit losses was considered necessary for the HTM portfolio.

Available-for-Sale Investment Securities

Year Ended December 31, 2022 Year Ended December 31, 2021

Years Ended December 31,

2023 2022 2021

(In thousands)

4 unchanged sentences

Held-to-Maturity Investment Securities

Year Ended Dec 31, 2022

State and Political Subdivisions Other Securities

Years Ended December 31,

2023 2022 2021

Allowance for credit losses:

6 unchanged sentences

For the year ended December 31, 2023, the Company had available-for-sale investment securities with approximately $ 333.5 million in unrealized losses, which have been in continuous loss positions for more than twelve months.

With the exception of the securities with credit losses noted above, 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 30.4 % of the Company’s available-for-sale 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.

For the year ended December 31, 2022, the Company had available-for-sale investment securities with approximately $ 264.6 million in unrealized losses, which had 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 33.0 % of the Company’s available-for-sale investment portfolio will mature and be repaid to the Company within five years or less.

In addition, approximately 33.0 % of the Company’s available-for-sale investment portfolio was expected to mature or pay down within five years or less.

As a result, the Company has the ability and intent to hold such securities until maturity.

For the year ended December 31, 2021, the Company had approximately $ 6.4 million in unrealized losses, which were in continuous loss positions for more than twelve months.

The Company’s assessments indicated that the cause of the market depreciation was primarily the change in interest rates and not the issuer’s financial condition, or downgrades by rating agencies.

In addition, approximately 55.7 % of the Company’s investment portfolio was expected to mature and be repaid to the Company within five years or less.

As a result, the Company had the ability and intent to hold such securities until maturity.

As of December 31, 2023, the Company's available-for-sale securities portfolio consisted of 1,583 investment securities, 1,296 of which were in an unrealized loss position.

1 unchanged sentence

The U.S government-sponsored enterprises portfolio contained unrealized losses of $ 17.1 million on 59 securities.

The residential mortgage-backed securities portfolio contained $ 211.5 million of unrealized losses on 591 securities, and the commercial mortgage-backed securities portfolio contained $ 22.3 million of unrealized losses on 145 securities.

The state and political subdivisions portfolio contained $ 115.7 million of unrealized losses on 501 securities.

government-sponsored mortgage-backed securities portfolio contained $ 191.6 million of unrealized losses on 669 securities, and the private mortgage-backed securities portfolio contained $ 16.1 million of unrealized losses on 32 securities.

The non-government-sponsored asset backed securities portfolio contained $ 7.6 million of unrealized losses on 31 securities.

The state and political subdivisions portfolio contained.

In addition, the other securities portfolio contained $ 75.9 million of unrealized losses on 444 securities.

The unrealized losses on the Company's available-for-sale 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 December 31, 2022.

In addition, the other securities portfolio contained $ 28.0 million of unrealized losses on 61 securities.

With the exception of the investments for which an allowance for credit losses has been established, the unrealized losses on the Company's investments were primarily a result of interest rate changes, and the Company expects to recover the amortized cost basis over the term of the securities.

The Company has determined that, as of December 31, 2023, an additional provision for credit losses is not necessary 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.

As of December 31, 2023, the Company's held-to-maturity securities portfolio consisted of 507 investment securities, 486 of which were in an unrealized loss position.

1 unchanged sentence

government-sponsored enterprises portfolio contained unrealized losses of $ 2.6 million on 5 securities.

government-sponsored mortgage-backed securities portfolio contained $ 4.4 million of unrealized losses on 18 securities.

The state and political subdivisions portfolio contained $ 105.1 million of unrealized losses on 463 securities.

The residential mortgage-backed securities portfolio contained $ 1.2 million of unrealized losses on 6 securities, and the commercial mortgage-backed securities portfolio contained $ 2.6 million of unrealized losses on 10 securities.

The unrealized losses on the Company's held-to-maturity investments were a result of interest rate changes.

2 unchanged sentences

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 December 31, 2023:

State and Political Subdivisions Other Securities Total

State and Political Subdivisions U.S.

government-sponsored enterprises U.S.

government-sponsored mortgage-backed securities Total

(In thousands)

32 unchanged sentences

On April 1, 2022, the Company completed the acquisition of Happy.

Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $ 3.65 billion in loans.

Including the effects of the purchase accounting adjustments, as of the acquisition date, Happy had approximately $ 3.65 billion in loans.

During the year ended December 31, 2023, the Company sold $ 3.7 million of the guaranteed portion of certain SBA loans, which resulted in a gain of approximately $ 278,000 .

During the year ended December 31, 2021, the Company sold $ 22.7 million of the guaranteed portion of certain SBA loans, which resulted in a gain of $ 2.4 million.

During the year ended December 31, 2022, the Company sold $ 4.1 million of the guaranteed portion of certain SBA loans, which resulted in a gain of $ 183,000 .

During the year ended December 31, 2021, the Company sold $ 22.7 million of the guaranteed portion of certain SBA loans, which resulted in a gain of $ 2.4 million.

Mortgage loans held for sale of approximately $ 123.4 million and $ 79.9 million at December 31, 2023 and 2022, respectively, are included in residential 1-4 family loans.

5 unchanged sentences

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.

The Company regularly sells mortgages into the capital markets to mitigate the effects of interest rate volatility during the period from the time an interest rate lock commitment (“IRLC”) is issued until the IRLC funds creating a mortgage loan held for sale and its subsequent sale into the secondary/capital markets.

Loan sales are typically executed on a mandatory basis.

Under a mandatory commitment, the Company agrees to deliver a specified dollar amount with predetermined terms by a certain date.

Generally, the commitment is not loan specific, and any combination of loans can be delivered into the outstanding commitment provided the terms fall within the parameters of the commitment.

Upon failure to deliver, the Company is subject to fees based on market movement.

These commitments are derivative instruments and their fair values at December 31, 2023 and 2022 were not material.

6 unchanged sentences

Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.

The Company held approximately $ 142.5 million and $ 448,000 in PCD loans, as of December 31, 2022 and 2021, respectively.

This balance, as of December 31, 2022, consisted of $ 142.1 million resulting from the acquisition of Happy and $ 415,000 from the acquisition of LH-Finance.

The Company held approximately $ 130.7 million and $ 142.5 million in PCD loans, as of December 31, 2023 and 2022, respectively.

The balance, as of December 31, 2023, consisted of $ 130.4 million resulting from the acquisition of Happy and $ 376,100 from the acquisition of LH-Finance.

The balance, as of December 31, 2022, consisted of $ 142.1 million resulting from the acquisition of Happy and $ 415,000 from the acquisition of LH-Finance.

Allowance for Credit Losses, Credit Quality and Other

25 unchanged sentences

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 first quarter of 2021, management determined that changes to several of the economic factors for the various loss driver segments were necessary.

The identified loss drivers by segment are included below as of both December 31, 2022 and 2021, respectively.

The identified loss drivers by segment are included below as of December 31, 2023 and 2022.

Loss Driver Segment

39 unchanged sentences

Consumer & Other Loans.

Our consumer & other loans are primarily composed of loans to finance USCG registered high-end sail and power boats as a result of our acquisitions of Shore Premier Finance on June 30, 2018 and LH-Finance on February 29, 2020.

Our consumer & other loans are primarily composed of loans to finance United States Coast Guard 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.

5 unchanged sentences

The off-balance sheet credit exposures exhibit similar risk characteristics as loans currently in the Company’s loan portfolio.

During the year ended December 31, 2022, the Company recorded a $ 5.0 million provision for credit losses on loans due to increased loan growth.

However, the Company determined that no additional provision was necessary for unfunded commitments as the current levels of the reserve was considered adequate.

ASC 326 requires that both a discount and an allowance for credit losses be recorded on loans during an acquisition.

The Company completed the acquisition of Happy on April 1, 2022.

During the year ended December 31, 2023, the Company recorded a $ 12.0 million provision for credit losses on loans, and the Company reversed $ 1.5 million in provision for unfunded commitments.

During the year ended December 31, 2022, the Company completed the acquisition of 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.

During the first quarter of 2020, we completed the acquisition of $ 406.2 million of loans from LH-Finance.

As a result, the Company recorded a $ 6.6 million loan discount and a $ 9.3 million increase in the allowance for credit losses for this acquisition.

A small portion of the loans acquired during the quarter were purchase credit deteriorated (“PCD”) loans, so the Company recorded a $ 357,000 allowance for credit losses on these loans.

In addition, the Company recorded a $ 5.0 million provision for credit losses on loans due to increased loan growth.

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, 2021, the Company did not record a provision for credit losses on loans as the level of the allowance for credit losses was considered adequate, and the Company reversed $ 4.8 million in provision for unfunded commitments.

The following table presents the activity in the allowance for credit losses for the year ended December 31, 2023.

9 unchanged sentences

Beginning balance $ 32,243 $ 93,848 $ 50,963 $ 89,354 $ 23,261 $ 289,669

Allowance for credit losses on PCD loans - Happy acquisition 950 9,283 980 5,596 7 16,816

Loans charged off ( 263 ) ( 2,335 ) ( 269 ) ( 9,157 ) ( 4,031 ) ( 16,055 )

1 unchanged sentence

Net loans recovered (charged off) ( 150 ) ( 1,802 ) 60 ( 8,574 ) ( 2,919 ) ( 13,385 )

Provision for credit loss - acquired loans 7,205 18,711 7,380 11,303 571 45,170

Provision for credit loss - loans 1,784 ( 13,411 ) 4,837 12,030 6,710 11,950

12 unchanged sentences

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 ( 1 ) — ( 446 ) ( 9,773 ) ( 7,047 ) ( 17,267 )

1 unchanged sentence

Net loans recovered (charged off) 404 967 ( 327 ) ( 8,993 ) ( 6,082 ) ( 14,031 )

Provision for credit loss - acquired loans 7,205 18,711 7,380 11,303 571 45,170

Provision for credit loss - loans ( 4,731 ) ( 22,331 ) ( 5,528 ) 28,386 9,204 5,000

12 unchanged sentences

Beginning balance $ 32,861 $ 88,453 $ 53,216 $ 46,530 $ 24,413 $ 245,473

Impact of adopting ASC 326 ( 5,296 ) 15,912 16,680 11,584 5,108 43,988

Allowance for credit losses on PCD

loans - LH Finance acquisition — — — — 357 357

Loans charged off — ( 646 ) ( 545 ) ( 8,242 ) ( 2,228 ) ( 11,661 )

Recoveries of loans previously

charged off 107 647 337 218 761 2,070

Net loans recovered

(charged off) ( 1,111 ) ( 2,394 ) ( 148 ) ( 7,546 ) ( 1,217 ) ( 12,416 )

Recoveries of loans previously charged off

58 785 683 591 785 2,902

Net loans recovered (charged off)

58 139 138 ( 7,651 ) ( 1,443 ) ( 8,759 )

Provision for credit loss - loans ( 4,504 ) ( 1,374 ) ( 4,896 ) 14,183 ( 3,409 ) —

Provision for loan losses - acquired

loans — — — — 9,309 9,309

Balance December 31

38 unchanged sentences

The Company had $ 2.5 million and $ 8.4 million in nonaccrual loans with a specific reserve as of December 31, 2023 and 2022, respectively.

The Company did not recognize any interest income on nonaccrual loans during the periods ended December 31, 2022 and 2021.

The following table presents the amortized cost basis of collateral-dependent impaired loans by class of loans as of December 31, 2022 and 2021, respectively:

Interest income recognized on the non-accrual loans for the years ended December 31, 2023, 2022 and 2021 was considered immaterial .

The following table presents the amortized cost basis of impaired loans by class of 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) as of December 31, 2023 and 2022, respectively:

December 31, 2023

30 unchanged sentences

Total $ 164,554 $ 21,801 $ 34,749

The Company had $ 221.1 million and $ 331.5 million in collateral-dependent impaired loans for the periods ended December 31, 2022 and 2021, respectively.

The Company had $ 94.9 million and $ 221.1 million in impaired loans for the periods ended December 31, 2023 and 2022, respectively.

Loans that do not share risk characteristics are evaluated on an individual basis.

For collateral-dependent impaired 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 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 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 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 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 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.

The following is an aging analysis for loans receivable as of December 31, 2023 and 2022:

28 unchanged sentences

Non-accruing loans were $ 60.0 million and $ 51.0 million at December 31, 2023 and 2022, respectively.

Interest recognized on impaired loans, including those loans with a specific reserve, during the years ended December 31, 2022, 2021 and 2020 was approximately $ 9.6 million, $ 14.7 million and $ 3.4 million, respectively.

Interest recognized on impaired loans during the years ended December 31, 2023, 2022 and 2021 was approximately $ 2.5 million, $ 9.6 million and $ 14.7 million, respectively.

The amount of interest recognized on impaired loans on the cash basis is not materially different than the accrual basis.

228 unchanged sentences

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 following table presents gross write-offs by origination date for the year ended December 31, 2023.

December 31, 2023

Term Loans Amortized Cost Basis by Origination Year

2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total

(In thousands)

Commercial real estate loans

Non-farm/non-residential $ — $ — $ — $ — $ 1,826 $ 502 $ — $ 2,328

Construction/land development — 2 168 5 — 88 — 263

Agricultural — — — — 1 6 — 7

Residential real estate loans

Residential 1-4 family — 29 28 73 13 126 — 269

Total real estate — 31 196 78 1,840 722 — 2,867

Consumer — 51 44 98 63 263 25 544

Commercial and industrial — 407 1,110 894 911 5,369 466 9,157

Agricultural & other 3,252 * 1 1 2 64 3 164 3,487

Total $ 3,252 $ 490 $ 1,351 $ 1,072 $ 2,878 $ 6,357 $ 655 $ 16,055

*The 2023 write-off primarily consists of overdrafts.

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses.

93 unchanged sentences

These loans were considered immaterial for vintage disclosure inclusion.

The following is a presentation of troubled debt restructurings (“TDRs”) by class as of December 31, 2022 and 2021:

The following table presents the amortized cost basis of modified loans to borrowers experiencing financial difficulty by class and modification type at December 31, 2023.

The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

December 31, 2023

Combination of Modifications

Term Extension Interest Rate Reduction Principal Reduction Interest Only Interest Rate Reduction and Term Extension Principal Reduction and Interest Rate Reduction Term Extension and Interest Only Term Extension and Principal Reduction Post-

Percentage of Total Class of Loans Receivable

(Dollars in thousands)

4 unchanged sentences

Residential 1-4 family 560 598 106 59 516 — — 116 1,955 0.11 %

Multifamily residential 1 1,130 969 — — 969

Total real estate 958 598 106 1,745 864 — 16,023 116 20,410 0.20 %

2 unchanged sentences

Total $ 3,225 $ 636 $ 149 $ 3,518 $ 938 $ 5 $ 16,023 $ 116 $ 24,610 0.17 %

During the year ended December 31, 2023, the Company restructured approximately $ 19.5 million in loans to 21 borrowers.

The ending balance of these loans as of December 31, 2023, was $ 21.0 million.

The Company considered the financial effect of these loan modifications to borrowers experiencing financial difficulty during the year ended December 31, 2023 immaterial for tabular disclosure inclusion.

Three of the modified loans accounted for $ 18.2 million of the total post-modification outstanding balance.

Two of the loans involved the loans being placed on interest only payments for 36 months and the term being extended an additional 36 months while the interest rate was increased by 9 basis points.

The third loan involved a new loan being underwritten resulting in the term being extended by approximately 49 months and the interest rate increasing by 3.45 percentage points.

None of the $ 24.6 million in restructured loans held by the Company were considered to be collateral dependent as of December 31, 2023.

The following table presents the amortized cost basis of loans that had a payment default during the year ended December 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

December 31, 2023

Term Extension Interest Rate Reduction Principal Reduction Interest Only Combination Interest Rate Reduction and Term Extension Combination Interest Rate Reduction and Principal Reduction Combination Term Extension and Principal Reduction

(Dollars in thousands)

5 unchanged sentences

Residential 1-4 family 299 105 9 — 328 — 116

Total real estate 299 105 9 — 328 — 116

Consumer 14 — — 29 — 5 —

Commercial and industrial — — — — — — —

Total $ 313 $ 105 $ 9 $ 29 $ 328 $ 5 $ 116

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The Company has modified 21 loans over the past 12 months to borrowers experiencing financial difficulty.

The pre-modification balance of the loans was $ 19.5 million, and the ending balance as of December 31, 2023 was $ 21.0 million.

The $ 21.0 million balance consists of $ 905,000 of non-accrual loans and $ 20.1 million of current loans, of which $ 1.5 million were 60-89 days past due as of December 31, 2023.

The remaining balance of the loans was current as of December 31, 2023.

The following is a presentation of troubled debt restructurings (“TDRs”) by class as of December 31, 2022:

December 31, 2022

(Dollars in thousands)

Commercial real estate loans

Non-farm/non-residential 11 $ 4,462 $ 1,395 $ 598 $ 436 $ 2,429

Construction/land development 1 216 177 — — 177

Residential real estate loans

Residential 1-4 family 14 2,115 772 145 290 1,207

Multifamily residential 1 1,130 969 — — 969

3 unchanged sentences

Total 44 $ 11,140 $ 4,072 $ 790 $ 883 $ 5,745

The following is a presentation of TDRs on non-accrual status as of December 31, 2022, and 2021 because they are not in compliance with the modified terms:

December 31, 2022 December 31, 2021

Number of Loans

Recorded Balance

The following is a presentation of TDRs on non-accrual status as of December 31, 2022 because they are not in compliance with the modified terms:

December 31, 2022

Number of Loans

Recorded Balance

(Dollars in thousands)

Commercial real estate loans

1 unchanged sentence

Construction/land development 1 177

Agricultural — — 1 262

Residential real estate loans

1 unchanged sentence

Total real estate 7 657

Consumer 1 1 3 3

Commercial and industrial 13 931

Total 21 $ 1,589

Upon the Company's determination that a modified loan (or portion of 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 defaults impact the loss rate by applicable loan pool for the quarterly CECL calculation.

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.

The Company has purchased loans for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.

The Company held approximately $ 130.7 million and $ 142.5 million in PCD loans, as of December 31, 2023 and 2022, respectively.

The balance, as of December 31, 2023, consisted of $ 130.4 million resulting from the acquisition of Happy and $ 376,100 from the acquisition of LH-Finance.

The balance, as of December 31, 2022, consisted of $ 142.1 million resulting from the acquisition of Happy and $ 415,000 from the acquisition of LH-Finance.

The following is a presentation of total foreclosed assets as of December 31, 2023 and 2022:

4 unchanged sentences

Construction/land development 47 47

Agricultural — —

Residential real estate loans

2 unchanged sentences

Total foreclosed assets held for sale $ 30,486 $ 546

The Company has purchased loans for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.

As of December 31, 2022 and 2021, the balance of purchase credit deteriorated loans was approximately $ 142.5 million and $ 448,000 , respectively.

This balance, as of December 31, 2022, consisted of $ 142.1 million resulting from the acquisition of Happy and $ 415,000 from the acquisition of LH-Finance.

Goodwill and Core Deposit Intangible

25 unchanged sentences

2027 – $ 6.6 million and 2028 – $ 4.2 million.

The carrying amount of the Company’s goodwill was $ 1.40 billion and $ 973.0 million at December 31, 2022 and 2021, respectively.

The carrying amount of the Company’s goodwill was $ 1.40 billion at both December 31, 2023 and 2022.

Goodwill is tested annually for impairment during the fourth quarter or more frequently if changes or circumstances occur.

10 unchanged sentences

The aggregate amount of time deposits with a minimum denomination of $250,000 was $ 836.7 million and $ 333.2 million at December 31, 2023 and 2022, respectively.

The aggregate amount of time deposits with a minimum denomination of $100,000 was $ 639.3 million and $ 537.4 million at December 31, 2022 and 2021, respectively.

The aggregate amount of time deposits with a minimum denomination of $100,000 was $ 1.09 billion and $ 639.3 million at December 31, 2023 and 2022, respectively.

Interest expense applicable to certificates in excess of $100,000 totaled $ 26.1 million, $ 3.4 million and $ 7.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

22 unchanged sentences

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $ 600.0 million and $ 650.0 million at December 31, 2023 and 2022, respectively.

The Company had no other borrowed funds as of December 31, 2022 or December 31, 2021.

At December 31, 2022, $ 50.0 million and $ 600.0 million of the outstanding balance were classified as short-term and long-term advances, respectively.

At December 31, 2023, the entire $ 600.0 million balance was classified as long-term advances.

At December 31, 2022, $ 50.0 million and $ 600.0 million of the outstanding balance was classified as short-term and long-term advances, respectively.

The FHLB advances mature from 2025 to 2037 with fixed interest rates ranging from 3.37 % to 4.84 % and are secured by loans and investments securities.

Expected maturities could differ from contractual maturities because the FHLB has have the right to call or the Company has the right to prepay certain obligations.

Other borrowed funds were $ 701.3 million as of December 31, 2023 and were classified as short-term advances.

The Company had no other borrowed funds as of December 31, 2022.

The Company had access to approximately $ 1.37 billion in liquidity with the Federal Reserve Bank as of December 31, 2023.

This consisted of $ 89.8 million available from the Discount Window and $ 1.28 billion available through the Bank Term Funding Program ("BTFP").

As of December 31, 2023, the primary and secondary credit rates available through the Discount Window were 5.50 % and 6.00 %, respectively, and the BTFP rate was 4.84 %.

As of December 31, 2023, the Company had drawn $ 700.0 million from the BTFP in the ordinary course of business.

These advances are included within other borrowed funds and are secured by certain investment securities within our investment portfolio.

Additionally, the Company had $ 1.33 billion and $ 1.14 billion at December 31, 2023 and 2022, respectively, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits at December 31, 2023 and 2022, respectively.

4 unchanged sentences

2026 100,000 100,000

Thereafter 400,000 —

$ 1,301,300 $ 1,301,300

Additionally, 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 December 31, 2022 and 2021 was zero .

Subordinated Debentures

5 unchanged sentences

(In thousands)

Trust preferred securities

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

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

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

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

Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15 % above the three-month LIBOR rate, reset quarterly, currently callable without penalty

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

Subordinated debt securities

Subordinated notes issued in 2020, due 2030, fixed rate of 5.500 % 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

$ 142,084 $ 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

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

297,750 297,020

Total $ 439,834 $ 440,420

61 unchanged sentences

Loan discounts 5,119 7,007

Tax basis premium/discount on acquisitions 1,222 3,220

Tax basis on acquisitions

Investments 24,669 28,523

Deposits — ( 65 )

Other 14,691 8,007

2 unchanged sentences

Accelerated depreciation on premises and equipment

Unrealized gain on securities available-for-sale — 4,220

Tax basis on acquisitions

Core deposit intangibles 11,021 14,755

3 unchanged sentences

Net deferred tax assets $ 197,164 $ 209,321

The Company and its subsidiaries file income tax returns in the U.S.

federal jurisdiction 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 files income tax returns in the U.S.

federal jurisdiction.

The Company is no longer subject to U.S.

federal and state tax examinations by tax authorities for years before 2019.

The Company’s income tax returns are open and subject to examinations from the 2020 tax year and forward.

The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in other non-interest expense.

4 unchanged sentences

Stock Repurchases

On January 22, 2021, the Board of Directors of the Company authorized the repurchase of up to an additional 20,000,000 shares of the Company’s common stock under the previously approved stock repurchase program.

During 2022, the Company utilized a portion of this stock repurchase program in order to repurchase a total of 3,098,531 shares with a weighted-average stock price of $ 22.84 per share.

During 2023, the Company repurchased a total of 2,225,849 shares with a weighted-average stock price of $ 21.69 per share.

The 2023 earnings were used to fund the repurchases during the year.

10 unchanged sentences

The intrinsic value of the stock options vested at December 31, 2023, 2022 and 2021 was $ 10.3 million, $ 7.5 million and $ 10.7 million, respectively.

The intrinsic value of the stock options exercised during 2022, 2021 and 2020 was $ 1.8 million, $ 2.0 million, and $ 719,000 , respectively.

The intrinsic value of the stock options exercised during 2023, 2022 and 2021 was $ 1.9 million, $ 1.8 million, and $ 2.0 million, respectively.

Total unrecognized compensation cost, net of income tax benefit, related to non-vested awards, which are expected to be recognized over the vesting periods, was approximately $ 3.7 million as of December 31, 2023.

20 unchanged sentences

2023 2022 2021

Expected dividend yield 3.14 % 2.59 % Not Applicable

Expected stock price volatility 31.18 % 70.13 % Not Applicable

Risk-free interest rate 2.82 % 0.75 % Not Applicable

Expected life of options 6.5 years 6.5 years Not Applicable

Expected dividend yield 2.98 % 3.14 % 2.59 %

Expected stock price volatility 27.97 % 31.18 % 70.13 %

Risk-free interest rate 3.37 % 2.82 % 0.75 %

Expected life of options 6.5 years 6.5 years 6.5 years

The following is a summary of currently outstanding and exercisable options at December 31, 2023:

17 unchanged sentences

91 4.40 25.59 71 25.95

$ 20.46 to $ 21.25

258 5.63 20.84 155 21.08

$ 21.31 to $ 22.22

127 6.05 22.18 82 22.21

$ 22.70 to $ 23.32

1,185 5.55 23.32 240 23.32

$ 23.51 to $ 25.96

104 5.52 25.34 77 25.74

The table below summarizes the activity for the Company’s restricted stock issued and outstanding at December 31, 2023, 2022 and 2021 and changes during the years then ended:

55 unchanged sentences

At December 31, 2023 and 2022, related party loans were approximately $ 63.2 million and $ 76.5 million, respectively.

New loans and advances on prior commitments made to the related parties were $ 24.8 million and $ 1.7 million for the years ended December 31, 2022 and 2021, respectively.

New loans and advances on prior commitments made to the related parties were $ 662,000 and $ 24.8 million for the years ended December 31, 2023 and 2022, respectively.

Repayments of loans made by the related parties were $ 11.0 million and $ 9.1 million for the years ended December 31, 2023 and 2022, respectively.

6 unchanged sentences

Short-term leases are leases having a term of twelve months or less.

In accordance with ASU 2018-11, the Company does not separate nonlease components from the associated lease component of our operating leases.

The 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.

The Company recognizes short-term leases on a straight-line basis and does not record a related right-of-use ("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 December 31, 2022, the balances of the right-of-use asset and lease liability were $ 42.9 million and $ 46.0 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 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 December 31, 2022 and 2021:

As of December 31, 2023, the balances of the ROU asset and lease liability were $ 42.2 million and $ 45.0 million, respectively.

As of December 31, 2022, the balances of the ROU asset and lease liability were $ 42.9 million and $ 46.0 million, respectively.

The ROU 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 as of December 31, 2023 and 2022:

December 31, 2023

(In thousands)

Thereafter 19,827

3 unchanged sentences

December 31, 2022

(In thousands)

Thereafter 24,591

2 unchanged sentences

Present value of net future minimum lease payments $ 45,954

Additional information (dollar amounts in thousands):

Additional information:

December 31, 2023

1 unchanged sentence

December 31, 2021

(In thousands)

Lease expense:

62 unchanged sentences

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 if the loan is collateral dependent.

Impaired loans - Impaired loans include 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.

Impaired loans are carried at the net realizable value of the collateral if the loan is collateral dependent.

A portion of the allowance for credit losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance.

2 unchanged sentences

This valuation is considered Level 3, consisting of appraisals of underlying collateral.

The Company reversed $ 1.1 million and $ 380,000 of accrued interest receivable when impaired loans were put on non-accrual status during the years ended December 31, 2022 and 2021, respectively.

The Company reversed $ 2.4 million and $ 1.1 million of accrued interest receivable when impaired loans were put on non-accrual status during the years ended December 31, 2023 and 2022, respectively.

Foreclosed assets held for sale - Foreclosed assets held for sale are held by the Company at fair value, less estimated costs to sell.

2 unchanged sentences

The fair value of foreclosed assets held for sale is estimated using Level 3 inputs based on appraisals of underlying collateral.

As of December 31, 2022 and 2021, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $ 546,000 and $ 1.6 million, respectively.

As of December 31, 2023 and 2022, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $ 30.5 million and $ 546,000 , respectively.

No foreclosed assets held for sale were remeasured during the year ended December 31, 2023.

34 unchanged sentences

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

26 unchanged sentences

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.

The Company elected to adopt the interim final rule, which is reflected in the risk-based capital ratios presented below.

Basel III became effective for the Company and its bank subsidiary on January 1, 2015.

39 unchanged sentences

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.

In connection with the LH-Finance acquisition, accounted for using the purchase method, the Company acquired approximately $ 409.1 million in assets, including $ 407.4 million in loans as of February 29, 2020, and paid $ 421.2 million in cash.

The following is summary of the Company’s additional cash flow information during the years ended December 31:

10 unchanged sentences

Investments in wholly-owned subsidiaries 3,679,597 3,538,344

Investments in unconsolidated subsidiaries — 2,201

Other assets 18,049 19,422

31 unchanged sentences

Items not requiring (providing) cash

Depreciation — — 216

Amortization 1,912 767 769

(Accretion)/ amortization

( 586 ) 1,912 767

Share-based compensation 9,274 9,133 8,848

Decrease (increase) in value of equity securities 1,094 1,272 ( 7,178 )

Gain on assets — — ( 320 )

Equity in undistributed income of subsidiaries ( 84,869 ) ( 116,566 ) ( 51,462 )

3 unchanged sentences

Cash flows from investing activities

Proceeds from sale of premises and equipment, net — — 1,841

Net cash proceeds from Happy Bancshares, Inc.

2 unchanged sentences

Redemptions of other investments — 2,899 —

Net cash provided by (used in) investing activities 168,130 3,105 ( 13,174 )

Net cash provided by investing activities

1,522 168,130 3,105

Cash flows from financing activities

20 unchanged sentences

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.

ASU 2020-04 was effective upon issuance and generally could 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.

4 unchanged sentences

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 2021-01 was effective upon issuance and generally can be applied through December 31, 2022.

ASU 2021-01 was effective upon issuance and generally could be applied through December 31, 2022.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures." 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.

Troubled Debt Restructurings ("TDR") and Vintage 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.

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 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The amendments require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases.

Gross write-off information must be included in the vintage disclosures required for public business entities, 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 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, for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

Early adoption is permitted if an entity has adopted ASU 2016-13.

If an entity elects to early adopt ASU 2022-02 in an interim period, the guidance should be applied as of 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.

The Company adopted the guidance effective January 1, 2023 and elected to apply the amendments prospectively.

The adoption did not have a significant impact on our financial position.

In December 2022, the FASB issued ASU 2022-06, " Reference Rate Reform (Topic 848):

5 unchanged sentences

ASU 2022-06 was effective upon issuance.

In November 2023, the FASB issued ASU 2023-07, " Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ." The amendments apply to all public entities that are required to report segment information in accordance with FASB ASC Topic 280, Segment Reporting .

The amendments in the ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

The amendments require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss.

Public entities are required to disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition.

In addition, public entities must provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by FASB ASC Topic 280, Segment Reporting , in interim periods.

The amendments clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit.

However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements.

The Amendments require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.

Finally, the amendments require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in ASC Topic 280.

The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

A public entity should apply the amendments retrospectively to all prior periods presented in the financial statements.

Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption.

The Company is currently evaluating the potential impacts related to the adoption of the ASU.

In December 2023, the FASB issued ASU 2023-09, " Income Taxes (Topic 740):

Improvements to Income Tax Disclosures ." The amendments require that public business entities on an annual basis (a) disclose specific categories in the rate reconciliation and (b) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate).

The amendments also require that all entities disclose on an annual basis the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes, and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received).

The amendments require that all entities disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign.

The ASU is effective for public business entities for annual periods beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.

The amendments should be applied on a prospective basis.

Retrospective application is permitted.

The Company is currently evaluating the potential impacts related to the adoption of the ASU.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

1 unchanged sentence

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 7A. Quantitative and Qualitative Disclosures About Market Risk