Centennial Trust - Summer 2023 Newsletter

Senior Vice President

Trust Investment Officer

Scott has been in the financial services industry for over 18 years of which the last 16 years has been spent as a financial planner helping clients meet their financial goals. He has a Bachelor of Business Administration from Texas Tech University and is a CERTIFIED FINANCIAL PROFESSIONAL® practitioner. His role with Happy Trust Company includes research and security selection, and portfolio management. Scott is the Treasurer for the Golden Spread Council of the Boy Scouts of America. He is also a Past-President of the Amarillo Downtown Kiwanis.

Quarterly Economic Update

In this Q2 recap: The US economy remained resilient in the first half of 2023, setting up a potential for a soft-landing. Continued worries about the banking sector could put that in jeopardy; Short-term treasury rates increase while long-term bonds have stayed steady.

Gross Domestic Product (GDP) for the first quarter came in at 2.0% annualized. This is down from 2.6% in the fourth quarter and 3.7% in the first quarter of 2022. Following two consecutive quarters of negative GDP growth starting in 2022, the year ended with two consecutive quarters of growth. While 2023’s first quarter also displayed growth, marginal growth shows a cooling GDP. Economists are anticipating growth slowing to the point of recession. A growing discussion is whether the economy will experience a soft landing, meaning that the recent Fed rate increases will not evolve into a recession. Should a recession result, economists view such an environment as a hard landing, which is when job expansion and economic growth are hindered.

The Federal Reserve has signaled that it is more concerned about combating inflation than the negative consequences of continued rising rates on the economy.

Inflation expectations among consumers continue to dissipate worldwide, as inflation expectations throughout European and Pacific Rim countries head downward. The Federal Reserve Bank of Atlanta projects a decrease in GDP growth in the U.S. as domestic economic growth recedes.

Concern over additional bank failures has created ongoing uncertainty for equity and bond markets, as the collapse of First Republic Bank in April has become the second-largest bank failure ever, with $229 billion in assets and over $100 billion in deposits.

Federal regulators struck a deal with JPMorgan, the nation’s largest bank, to take over the failed bank and assume its loans and assets. The FDIC and JPMorgan agreed to a loss–share transaction which is projected to maximize recoveries on the assets by keeping them in the private sector. The FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion.

Following the failure of Silicon Valley Bank, Signature Bank, and First Republic Bank, banks across the nation have been scrambling to maintain their depositors’ trust and cover losses of depositors’ withdrawals. To acquire short-term funding, many banks have turned to the Federal Reserve’s discount window, a backstop for banks that require liquidity assistance. Banks have been borrowing funds from the Fed’s discount window at levels not seen since the 2008 banking crisis. Once each year, the Federal Reserve conducts a test to assess how large banks are likely to perform under hypothetical economic conditions. The

results of the most recent tests revealed that all the major banking institutions passed this year’s stress test. The tests assumed a hypothetical 10% unemployment rate and a 40% drop in commercial real estate prices.

Earnings of S&P 500 companies came in with 77% topping analyst expectations. Consumer Discretionary and Industrial sectors led the way in earnings growth while Utilities and Materials lagged. The S&P 500 overall experienced a 4% growth rate in the quarter but lagged year over year. Overall, growth rates dropped prompting companies to scrap expansion thoughts.

In May, Congress passed legislation during last-minute negotiations to avert a default on the nation’s debt. The suspension on the U.S. government’s $31.4 trillion debt ceiling is temporary until lawmakers finalize legislation to fund ongoing federal obligations.

The impasse on the debt ceiling added strain to bond and equity markets. Treasury bond yields rose as increasing debt level concerns triggered increased trading in government bonds. Debt ceiling concerns in addition to the uncertainty surrounding regional banks’ exposure to commercial real estate contributed to a volatile environment throughout the month.

There have been several debt ceiling hurdles since the turn of the 20th century. Fortunately, the U.S. has never defaulted on its debt, which means the Treasury would be unable to pay its obligations. However, 2011 saw a point of near default, leading to credit rating agencies’ first downgrade of U.S. debt. In 2013, debates regarding the debt ceiling rose again, with the government experiencing a partial shutdown that led to the furloughing of hundreds of thousands of federal employees until the debt ceiling was suspended. More recently, another government shutdown occurred in 2018 when the debt ceiling yet again failed to be raised. Now, in 2023, the debt ceiling saw a near-default due to political gridlock and differing interests by the main political parties. The resolution to this will delay further debt negotiations until 2025, suspending the debt ceiling and keeping spending largely at its current level.

The Treasury Department plans to issue additional short-term debt to fund immediate federal expenses, with $61 billion in six-month bills and $68 billion in three-month bills already issued as of the first of June. Treasury issuances, also known as auctions, are part of the government’s ongoing cash management process.

Scott Richardson, CFP ®, AIF®

Index Returns

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Yields on short-term bonds rose in June as the Fed indicated that it intends to raise rates at least two more instances this year. Longerterm bond yields remained below shorter-term bond yields as confidence in future economic growth faltered.

Interest rates held steady in April with shorter-term rates rising, a result of the Fed expected to make a final rate increase before altering its course. Analysts are carefully tracking economic growth and inflation data to determine what direction the Fed might take. Many believe that the recent increase in rates has already brought about a retraction in economic activity.

The commercial real estate market has begun to show trends of shadow banking on the rise. Shadow banks are characterized as firms that issue short-term loans and invest the proceeds into mortgage-backed securities, which were at the forefront of the 2007-2009 financial crisis. Banking regulations have become more stringent since the financial crisis, yet banks still emerged as a weak link within the financial markets due to high-interest rates and speculative investments. Internationally, the International Monetary Fund (IMF) recently communicated concerns surrounding shadow banking practices in both the U.K. and South Korea.

Equity Update

Concerns surrounding the banking sector in April weighed on equities as additional regional banks looked vulnerable. Currently, the banking sector represents roughly 14% of total stock market capitalization.

Uncertainty with the debt ceiling created

volatility in domestic equities, yet still maintained positive year-to-date returns for the S&P 500 Index and the Nasdaq. The Dow Jones Industrial Average was still -0.72% for the year. Major international regional indices such as the MSCI EAFE, the MSCI Europe, the MSCI Pacific, and the MSCI Emerging Markets all maintained positive YTD results through the end of May.

Equity markets reacted to uncertainty in June as major indices saw an increase in volatility. Earnings continue to be a critical focal point as companies struggle to maintain elevated prices while consumer confidence has begun to erode.

Many analysts view the June rise in equities as a momentum rally, meaning that only a few companies have been leading the overall rise in the market. Earnings are becoming extremely critical as companies struggle to maintain higher prices as consumer demand weakens.

A concentration of companies in select sectors has thus far led the market this year, with technology and consumer discretionary stocks exhibiting the largest contribution. Utility and energy sectors lagged as rising rates and decreasing commodity prices hindered the sectors.

Major equity indices are positive for the year, with three sectors leading the broader market. Consumer Staples, Technology, and Communication Services have been the leading sectors thus far, but analysts are uncertain as to how sustainable the advances may be.

Fixed Income Update

Long-term bond yields held steady in April, while short-term bond yields rose slightly. Analysts view this as an indication that the Fed may still raise short-term rates a bit more yet expect inflation to ease longer term. Yields on the 10-year and 30-year Treasuries had nearly no change in April, yet yields on the 3, 4, 6, and 12-month Treasuries all saw increases.

As expected, the Federal Reserve announced the execution of its final rate increase in early May. Bond markets reacted with lower longterm yields as the Fed’s next move is projected by some analysts to be a reversal of rates. Elevated shorter-term bond yields are also expected to fall should the Fed reverse course. Government bond yields saw an increase in May as discussions surrounding the debt ceiling transpired. Even with the turmoil in May, all bond sectors were still posting positive year-to-date results as of the end of the month. The yield on the 10-year Treasury bond settled at 3.64%, rising slightly as possible increasing costs of borrowing for the government prompted concerns.

Inflation concerns have led the Fed to raise rates again in June as the bond market grapples with the increases. Short-term bond yields have risen relative to long-term bond yields as expectations are that interest rates will be lower in the future. The yield on the 2-year Treasury ended June at 4.87%, while the 10-year Treasury yield was 3.81% at the end of the month. Elevated yields continue to hamper housing with higher mortgage rates and consumer loans. Expectations of easing economic growth and lessening inflation have kept longer-term bond yields lower. •

U.S. Stock Market International Developed Emerging Markets Global Real Estate U.S. Bond Market Global Bond ex U.S.

US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net dividends]), Emerging Markets (MSCI Emerging Markets Index [net dividends]), Global Real Estate (S&P Global REIT Index [net dividends]), US Bond Market (Bloomberg US Aggregate Bond Index), and Global Bond Market ex US (Bloomberg Global Aggregate ex-USD Bond Index [hedged to USD]).

2nd Quarter Market Summary

The second quarter brought higher than expected GDP growth at 2.4%. The GDP number has led many to believe that the Federal Reserve has orchestrated a soft-landing for the economy. Time will tell whether this comes true or not. The US stock market saw widespread gains in Q2 with most of the market catching up with the technology stocks that led the way through May. Treasuries saw an increase in rates for the short maturities and saw stability in the long-term bonds.

World Market Capitalization

US Stocks

Ranked Returns for the Quarter (%)

Emerging Markets

Ryan Wilson Trust Officer II

Meet the Team

Kim Miller graduated from Arkansas State University Newport with a degree in data processing. She started her banking career in 2007 working for Liberty Bank of Arkansas in the trust department as an IRA administrative assistant. She helped administer all of the bank’s Individual Retirement Accounts across the state. In 2015, Kim joined Centennial Bank Trust’s Employee Benefit team which administers not only Individual Retirement Accounts but also corporate retirement accounts such as 401(k) plans, SEP and SIMPLE IRAs. Kim enjoys helping people save for retirement during their working years and assists them

after they retire through an IRA account. In 2019, Kim was promoted to Trust Officer and now manages her own book of accounts.

Kim and her husband Glen, who retired from the United State Marine Corp, and is now employed by Nice Pak reside in Trumann, Arkansas. They have two children: Kayla (28) who is an Occupational Therapist at Ridgecrest Health and Rehabilitation of Jonesboro and Emily (25) who is a registered Nurse at NEA Baptist Hospital in Jonesboro, Arkansas. Kim enjoys gardening, playing with her dog Chloe, shopping with friends, and traveling with her husband when they get a chance. •

Ryan Wilson has been a licensed and practicing attorney since 2008. During his time in private practice, he counseled clients and handled cases in many different areas, including probate, fiduciary, and trust litigation.

Ryan joined the Centennial Bank Trust Department in April 2023 and has loved every minute of it. He feels blessed to be a part of such a talented team of professionals.

Ryan is a past Treasurer of the Craighead County Bar Association and past member of the Arkansas Bar Association Board of Trustees. Ryan recently moved from

Jonesboro to Little Rock, and he is excited to get involved in other community and nonprofit organizations.

He received his B.A. in Business Administration from Rhodes College in Memphis, Tennessee, and his law degree from the University of Memphis Cecil C. Humphreys School of Law. Ryan is married to Abby. They have three children: Oliver (11), Graham (8), and Ava (1). In his spare time, Ryan enjoys spending time with family, discovering new music, and playing, watching, and coaching soccer. •

Little Rock, AR

Kim Miller

Trust Officer I

Jonesboro, AR

Carla Carson Senior Trust Officer Jonesboro, AR

Carla began her banking career while attending Arkansas State University where she worked full time each summer as a teller. After graduating from ASU with a Bachelor of Science Degree in Finance, she spent a year as an assistant buyer for the Dillard’s corporate office in Little Rock. She then returned to banking and her hometown of Jonesboro and began working as a Trust Assistant for the Employee Benefits Trust Officer. She has worked in finance for over 30 years and has worked at Centennial Bank since 2001. Now a vice president and senior trust officer, she holds the designation of CRSP, Certified Retirement Services Professional. Carla is passionate about helping people save money and plan for their futures. Her favorite saying is that you need to save now so at retirement you can work because you want to, not because you have to. She is involved in the community by donating time to several nonprofit organizations in Northeast Arkansas including United Way, the Food Bank and St. Bernard’s Medical Center.

Retirement Seen Through Your Eyes

by Carla Carson

How do you picture your future? Some see retirement as a time to start a new career. Others see it as a time to travel. Still others plan to spend more time with family and friends. With that in mind, here are some things to consider.

• What do you absolutely need to accomplish? If you could only get four or five things done in retirement, what would they be? Answering this question might lead you to compile a “short list” of life goals, and while they may have nothing to do with money, the financial decisions you make may be integral to pursuing them.

• What would revitalize you? Some people retire with no particular goals at all. After weeks or months of respite, ambition may return. They start to think about what pursuits or adventures they could embark on to make these years special. Others have known for decades what dreams they will follow ... and yet, when the time to follow them arrives, those dreams may unfold differently than anticipated and may even be supplanted by new ones. In retirement, time is really your most valuable asset. With more free time and opportunity for reflection, you might find your old dreams giving way to new ones.

• Who should you share your time with? Here is another profound choice you get to make in retirement. The quick answer to this question for many retirees would be “family.” Today, we have nuclear families, blended families, extended families; some people think of their friends or their employees as family.

• How much do you anticipate spending? We can’t control all retirement expenses, but we can manage some of them. The thought of downsizing your home may have crossed your mind. One benefit of downsizing is that it can potentially lead to no mortgage or a more manageable mortgage payment.

• Could you leave a legacy? Many of us would like to give our kids or grandkids a good start in life, but leaving an inheritance can be trickier than many realize. Tax laws are constantly changing, and the strategies that worked years ago may have more limited benefits today.

• How are you preparing for retirement? This is the most important question of all. The 401(k) plan is becoming one of the largest sources of retirement savings for many American workers. According to the Society of Professional Administrators and Recordkeepers (SPARK), over 55 million people participate in 401(k) plans. If you participate in a 401(k) plan, the good news is that you have more control over your retirement money. The bad news is that you have more control over your retirement money.

For people who do not have the time or the financial knowledge, managing your 401(k) plan can be a daunting task. Moreover, if you do not manage it properly, the 401(k) may not help you pursue your retirement goals. Here are 9 steps that may help you with your 401(k).

1. Participate

The dollars in your 401(k) plan may be a portion of your income at retirement. The government, and by extension, your employer, are giving you the opportunity to take advantage of two very powerful financial concepts: the ability to save money on a pre-tax basis, and the taxdeferred, compounded growth of those dollars. Saving money before it is included in your taxable income may reduce your annual tax bill. Some employers offer matching funds as an incentive for employees. If your employer is willing to give you money, you should consider taking advantage of the benefit. The only catch is that you may need to contribute some of your own money in order to receive the company match.

2. Determine your investor profile

Investor, know thyself! Every investor is different and knowing yourself is the first step to being comfortable with your overall strategy. Remember, 401(k) money is retirement money and everybody has different dreams about what their retirement will entail – traveling, boating, etc. But how comfortable are you with market volatility? Will you really be able to tolerate the inevitable ups and downs with the financial markets?

3. Allocate appropriately

Asset allocation is the principle of deciding how to spread your investments across various asset classes, such as stocks, bonds, and cash. The idea is to diversify your holdings in order to potentially increase returns while managing risk. A variety of factors determine the appropriate allocation for each individual – When you need the money, how much money you have now and expect to need later, what kind of risks you’re willing to take, and what other assets you have invested outside of your 401(k). Perhaps the most important factor is your time horizon – the more time you have, the more aggressive you can be. Asset allocation and diversification are approaches to help manage investment risk. They do not guarantee against investment loss.

4. Limit exposure to company stock

Company stock can be a double-edged sword. On one hand, as a loyal employee who understands the business, you want to participate in the

growth of the company by being a shareholder. On the other hand, it is risky to have too much of your portfolio in one stock. Having too much money in a single stock issue can create a non-diversified portfolio.

5. Reallocate tactically

While it is not advisable to move your money around daily, it is advisable to look at what your investments are doing from time to time. If one segment of the market has outperformed other segments, then your portfolio may no longer reflect your overall risk tolerance. Take a disciplined approach to monitor your investments.

6. Do not panic

Listening to the evening news, and hearing about the market changes on a daily basis, can cause even the most stalwart of investors to get nervous occasionally. Stocks fluctuate in value, it’s the nature of the beast. Just remember that you are investing in your 401(k) for the long term. There will continue to be dips and swings. Selling when your investments are down may not be the best approach. Patience can be a virtue.

7. Know your plan features

Every 401(k) plan has unique characteristics. To help maximize your plan, you need to know all your choices. Your plan documents, distributed by your benefits department, will outline choices such as hardship withdrawals, loans, vesting schedule, limitations to moving money, and in-service withdrawals. Read this document carefully or have a financial professional review it with you.

8. Borrowing capabilities

Many providers have loan provisions as an incentive to encourage greater participation – participants would be more likely to save for retirement if they could access the money before they retired. Some people believe that if the interest rate on the 401(k) loan is less than they would have to pay elsewhere, the 401(k) loan is a good deal. That may be, but it does not take into consideration the potential opportunity cost. The money in your plan cannot grow if it is not there! If you do some calculations, you may find that borrowing from your plan may make sense. But it’s wise to consider all your choices.

9. Consider tax consequences of your actions

Most of the things we do in our financial lives have tax consequences. For example, if you leave your current employer, and decide to take a distribution from your 401(k), you may have a taxable event and perhaps pay an early withdrawal penalty. You have four choices with your 401(k) when you leave your employers, and it’s best to explore each choice before making a hasty decision. A financial professional can help you weigh the pros and cons of each choice.

If you have questions about your existing plan or don’t have a retirement plan for you employees please give us a call to discuss how we might help. •