What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-02-19 · 302 added, 348 removed, 583 unchanged (53% of the section changed)

7 unchanged sentences

Our Company offers a broad range of business and personal banking services including wealth management services.

Lending services include commercial and industrial, commercial real estate, real estate construction and development, residential real estate, and other loans.

Lending services include commercial and industrial, commercial real estate, real estate construction and development, residential real estate, specialty, and other loans.

A wide variety of deposit products and a complete suite of treasury management and international trade services complement our lending capabilities.

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The Company’s results of operations are also affected by prevailing economic conditions, competition, government policies and other actions of regulatory agencies.

The Company closed its acquisition of Seacoast and its wholly-owned subsidiary, Seacoast Commerce Bank, on November 12, 2020.

Seacoast operated five full-service retail and commercial banking offices in California and Nevada as well as SBA loan production offices and deposit production offices in Arizona, California, Colorado, Illinois, Indiana, Massachusetts, Michigan, Nevada, Ohio, Oregon, Texas, Utah, and Washington.

The Company closed its acquisition of Trinity and its wholly-owned subsidiary, LANB, on March 8, 2019.

Trinity operated six full-service retail and commercial banking offices in Los Alamos, Santa Fe, and Albuquerque, New Mexico.

The results of operations of Seacoast and Trinity are included in our consolidated results in periods after the respective acquisition dates and are excluded from preceding periods.

The Company’s financial condition, operating results and liquidity in 2020 and 2021 were impacted by COVID-19 and the monetary and fiscal policy changes enacted to address the pandemic.

Starting in 2020, the Federal Reserve reduced interest rates and reserve requirements, while also increasing quantitative easing through purchases of Treasuries and agency mortgage-backed securities.

The federal government’s fiscal support of the economy through the Cares Act, the ARA and other acts have been highly expansionary.

Low interest rates, supply chain disruptions and monetary and fiscal policies contributed to higher inflation in 2021, leading the Federal Reserve to begin tapering its quantitative easing in November 2021.

The following table summarizes the significant components of the First Choice and Seacoast transactions at the date of acquisition.

Note 2 – Acquisitions” for more information.

The following table summarizes the significant components of the Seacoast and Trinity transactions at the date of acquisition:

Seacoast Trinity

($ in thousands) November 12, 2020 March 8, 2019

First Choice Seacoast

($ in thousands) July 21, 2021 November 12, 2020

Loans, net $ 1,936,137 $ 1,190,441

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Common stock 1

343,650 167,035

Total consideration paid $ 345,802 $ 168,665

1 Common stock consideration for First Choice was $342,280, net of $1,370 for shares withheld on the settlement of share-based awards of First Choice employees.

Financial Performance Highlights

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• The Company reported net income of $133.1 million, or $3.86 per diluted share for 2021, compared to $74.4 million, or $2.76 per diluted share for 2020.

An increase in operating revenue (net interest income and

noninterest income) of $36.6 million in 2020 was offset by a $59.0 million increase in the provision for credit losses.

The increase in the provision for credit losses was primarily due to the forward-looking CECL methodology and the worsening outlook for forecasted economic factors.

In addition to organic growth, contributing to the

increase in net income was a full year of Seacoast operations and a partial year of First Choice operations.

Net income also benefited from a reduction in the provision for credit losses of $52.0 million in 2021 compared to 2020, which was partially offset by a $17.9 million increase in merger-related expenses.

Acquisition related provision for credit losses of $25.4 million and $8.6 million in 2021 and 2020, respectively, were included in the provision for credit losses.

This expense, commonly referred to as the “CECL double-count”, is recognized when a loan portfolio is acquired.

Excluding the CECL double-count, the provision for credit losses decreased in 2021 primarily due to strong credit quality, the forward-looking CECL methodology and the improved outlook for forecasted economic factors compared to 2020.

• Net interest income for 2021 totaled $360.2 million , an increase of $90.2 million, or 33%, compared to $270.0 million for 2020.

PPP interest and fee income totaled $19.6 million in 2020.

The Seacoast acquisition added $8.0 million and the Company benefited from a full year of Trinity operations in 2020 compared to a partial year in 2019.

PPP interest and fee income totaled $27.3 million and $19.6 million in 2021 and 2020, respectively.

The First Choice acquisition added $37.9 million and the Company benefited from a full year of Seacoast operations in 2021 compared to a partial year in 2020.

Organic growth in the loan portfolio also contributed to the current year increase in net interest income.

• Net interest margin decreased 15 basis points to 3.41% during 2021, compared to 3.56% in 2020.

The decrease was primarily due to a decline in interest rates during 2020 that reduced the earning asset yield to 4.02% from 4.85%, coupled with the shift in 2020 in earning assets to lower yielding PPP loans and short-term investments.

The one-month and three-month LIBOR rates were 0.14% and 0.24%, respectively, at December 31, 2020, compared to 1.76% and 1.97%, respectively, at December 31, 2019.

At December 31, 2020, the Company had $2.5 billion in loans indexed to LIBOR.

The decrease was primarily due to an increase in liquidity from deposit growth.

Average interest-bearing cash accounts of $1.1 billion had a yield of 0.14% in 2021, compared to $228.8 million at a yield of 0.27% in 2020.

• Noninterest income increased $13.2 million, or 24%, to $67.7 million in 2021 compared to $54.5 million in 2020.

This improvement was primarily due to a $2.3 million increase in mortgage revenue on higher volumes and a $2.5 million increase in income from community development investments.

This improvement was primarily due to organic growth and the acquisitions of Seacoast and First Choice.

• Noninterest expenses totaled $245.9 million for 2021, an increase of $78.8 million , or 47%, compared to 2020.

The operations of Seacoast added $6.0 million of noninterest expense in 2020, in addition to $4.2 million of merger-related expenses.

The Company also incurred a full year of Trinity operating expenses in 2020, compared to a partial year in 2019.

These increases were offset by a reduction in the Trinity merger expenses of $18.0 million in 2019.

Seacoast and First Choice increased noninterest expense $51.2 million in 2021 compared to 2020, in addition to a $17.9 million increase in merger-related expenses year-over-year.

The Company’s efficiency ratio was 57.5% in 2021, compared to 51.5% for the prior year.

The decrease in 2020 was primarily due to the merger-related expenses.

The Company’s core efficiency ratio 1 was 51.0% in 2020, compared to 52.4% for the prior year.

• The Company’s effective tax rate was 19.1% for the year ended December 31, 2020 compared to 20.1% in 2019.

The lower rate in 2020 primarily resulted from increased benefits from tax exempt income.

The increase in 2021 was primarily due to merger-related expenses.

The Company’s core efficiency ratio 1 was relatively stable at 51.6% in 2021, compared to 51.0% for the prior year.

• The Company’s effective tax rate was 21.1% in 2021 compared to 19.1% in 2020.

The higher rate in 2021 primarily resulted from higher pre-tax income and the Company’s expanded geographic footprint and the related state apportionment.

1 Non-GAAP measures.

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During 2021, we announced the following significant transactions:

• On November 12, 2020, the Company announced the completion of its acquisition of Seacoast which was merged with and into the Company, and Seacoast Commerce Bank, Seacoast’s wholly-owned subsidiary, merged with and into the Bank.

Aggregate consideration at closing was 5.0 million shares of Company common stock to Seacoast shareholders.

• On July 21, 2021, the Company announced the completion of its acquisition of First Choice, a commercial bank based in Los Angeles, CA, with $2.3 billion in assets.

The overall transaction had a value of $346 million.

• Assisted new and existing customers with navigating and accessing PPP loans through the approval of approximately 3,900 loans totaling $859 million.

• In May 2020, the Company issued $63.3 million of 5.75% fixed-to-floating rate subordinated notes due in 2030.

The notes are callable beginning in 2025 and are included in tier 2 capital.

• Continued supporting customers through PPP, lending an additional $341 million of PPP loans.

• The Company announced the closing of five branch locations in California and St.

A lease and fixed asset impairment charge of $3.8 million was recognized, including $0.4 million reported in merger-related expenses.

The Company expects to realize annual cost savings of approximately $2.3 million related to these closures.

• The Company redeemed $50.0 million of 4.75% fixed-to-floating rate subordinated notes.

• The Company issued and sold 3,000,000 depositary shares, each representing 1/40th interest in a share of 5% noncumulative, perpetual preferred stock totaling $72.0 million, net of issuance costs.

• The Company repurchased 1,299,527 of its common shares at a weighted-average share price of $46.62.

At December 31, 2020, there were 95,907 shares remaining to be purchased under its existing share repurchase plan.

At December 31, 2021, there were 700,473 shares remaining to be purchased under the existing share repurchase plan.

• Dividends paid in 2021 of $0.75 per share increased $0.03 per share, or 4%, compared to $0.72 per share in 2020.

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During 2020, we announced the following significant transactions:

• On March 8, 2019, the Company announced the completion of its acquisition of Trinity which was merged with and into the Company, and LANB, Trinity’s wholly-owned subsidiary, merged with and into the Bank.

Aggregate consideration at closing was 4.0 million shares of Company common stock and $37.3 million cash paid to Trinity shareholders.

• On November 12, 2020, the Company announced the completion of its acquisition of Seacoast which operated five full-service retail and commercial banking offices in California and Nevada as well as SBA loan production offices and deposit production offices in various states.

Aggregate consideration at closing was 5.0 million shares of Company common stock to Seacoast shareholders.

The overall transaction had a value of $169 million.

• The Company repurchased 396,737 of its common shares at a weighted-average share price of $39.13, pursuant to its publicly announced share repurchase program.

• Assisted new and existing customers with navigating and accessing PPP loans through the approval of approximately 3,900 loans totaling $859 million.

• In May 2020, the Company issued $63.3 million of 5.75% fixed-to-floating rate subordinated notes due in 2030.

The notes are callable beginning in 2025 and are included in tier 2 capital.

• The Company repurchased 456,251 of its common shares at a weighted-average share price of $33.64.

• Dividends paid in 2020 of $0.72 per share increased $0.10 per share, or 16%, compared to $0.62 per share in 2019.

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The following table presents, for the periods indicated, certain information related to our average interest-earning assets and interest-bearing liabilities, as well as, the corresponding interest rates earned and paid, all on a tax equivalent basis.

Average balances are presented on a daily average basis.

Year ended December 31,

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Interest-earning assets:

Taxable loans 1

$ 8,055,873 $ 349,112 4.33 % $ 6,071,496 $ 270,673 4.46 % $ 5,018,568 $ 269,864 5.38 %

Tax-exempt loans 2

36,318 1,759 4.84 29,583 1,852 6.26 34,371 1,889 5.50

Total loans 6,071,496 270,673 4.46 5,018,568 269,864 5.38 4,222,359 217,680 5.16

Taxable investments in debt and equity securities 1,016,100 25,524 2.51 1,064,913 30,085 2.83 712,227 18,375 2.58

Non-taxable investments in debt and equity securities 2

Taxable securities 908,189 19,305 2.13 1,016,100 25,524 2.51 1,064,913 30,085 2.83

Non-taxable securities 2

659,804 18,468 2.80 350,501 11,151 3.18 131,161 4,668 3.56

Short-term investments 228,760 620 0.27 107,433 2,128 1.98 66,771 1,141 1.71

Total securities and short-term investments 1,595,361 37,295 2.34 1,303,507 36,881 2.83 819,036 20,942 2.56

Total securities 1,567,993 37,773 2.41 1,366,601 36,675 2.68 1,196,074 34,753 2.91

Interest-earning deposits 1,084,853 1,496 0.14 228,760 620 0.27 107,433 2,128 1.98

Total interest-earning assets 10,708,719 388,381 3.63 7,666,857 307,968 4.02 6,322,075 306,745 4.85

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Interest-bearing liabilities:

Interest-bearing transaction accounts $ 1,494,364 $ 2,101 0.14 % $ 1,286,641 $ 7,592 0.59 % $ 827,155 $ 3,643 0.44 %

Interest-bearing demand accounts $ 2,122,752 $ 1,614 0.08 % $ 1,494,364 $ 2,101 0.14 % $ 1,286,641 $ 7,592 0.59 %

Money market accounts 2,557,836 4,669 0.18 1,977,826 7,754 0.39 1,608,349 26,267 1.63

Savings 589,832 279 0.05 489,310 841 0.17 206,286 597 0.29

Savings accounts 724,768 225 0.03 589,832 279 0.05 489,310 841 0.17

Certificates of deposit 570,496 4,160 0.73 676,889 10,915 1.61 799,079 15,156 1.90

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Interest income includes net loan fees of $28.4 million, $18.4 million, and $4.5 million for the years ended December 31, 2021, 2020, and 2019 respectively.

The increase in loan fees in 2020 is due to PPP fees of $13.8 million.

2 Non-taxable income is presented on a fully tax-equivalent basis using a 24.7% tax rate.

Loan fees in 2021 and 2020 included PPP fees of $21.7 million and $13.8 million, respectively.

2 Non-taxable income is presented on a fully tax-equivalent basis using a 25.2% tax rate in 2021 and a 24.7% tax rate in each of 2020 and 2019.

The tax-equivalent adjustments were $5.1 million for the year ended December 31, 2021, $3.2 million for the year ended December 31, 2020, and $1.6 million for the year ended December 31, 2019.

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Interest earned on:

Taxable loans $ 50,916 $ (50,014) $ 902 $ 38,793 $ 13,428 $ 52,221

Tax-exempt loans 3

374 (467) (93) (282) 245 (37)

Taxable investments in debt and equity securities (1,334) (3,227) (4,561) 9,825 1,885 11,710

Non-taxable investments in debt and equity securities 3

Loans $ 86,183 $ (7,744) $ 78,439 $ 51,290 $ (50,481) $ 809

Taxable securities (2,541) (3,678) (6,219) (1,334) (3,227) (4,561)

Non-taxable securities 3

8,799 (1,482) 7,317 7,027 (544) 6,483

Short-term investments 1,228 (2,736) (1,508) 782 205 987

Interest-earning deposits 1,313 (437) 876 1,228 (2,736) (1,508)

Total interest-earning assets 93,754 (13,341) 80,413 58,211 (56,988) 1,223

Interest paid on:

Interest-bearing transaction accounts $ 1,063 $ (6,554) $ (5,491) $ 2,450 $ 1,499 $ 3,949

Interest-bearing demand accounts $ 689 $ (1,176) $ (487) $ 1,063 $ (6,554) $ (5,491)

Money market accounts 1,844 (4,929) (3,085) 4,970 (23,483) (18,513)

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2 Change in yield/rate multiplied by volume of prior period.

3 Nontaxable income is presented on a fully tax equivalent basis using a 24.7% tax rate.

3 Nontaxable income is presented on a fully tax equivalent basis using a tax rate of 25.2% and 24.7% for 2021 and 2020, respectively.

The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.

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Total interest income increased $80.4 million and total interest expense decreased $11.7 million.

The increase in net interest income in 2020 was primarily due to higher loan volumes, which benefited from PPP and the Seacoast acquisition, and a decline in the interest rate on interest-bearing liabilities.

A decline in the yield on earning assets offset the benefit provided by higher loan volumes and a lower cost of funds.

The increase in net interest income in 2021 was primarily due to higher loan volumes, which benefited from the Seacoast and First Choice acquisitions, PPP loans, and a decline in the interest rate on interest-bearing liabilities.

Loans issued through the PPP bear interest at 1% and have either a two or five year maturity.

As a PPP lender, the Company also receives fees for the issuance of PPP loans that vary based on the size of the loan.

Interest income and loan fees included in net interest income from the PPP program totaled $27.3 million and $19.6 million in 2021 and 2020, respectively.

During 2021, the Company received $14.6 million in PPP loan fees for loans originated in the year.

These fees are recognized over the life of the loan, or when the loan is repaid or forgiven.

At December 31, 2021, the Company has $272.0 million in PPP loans and $4.2 million in deferred fees, compared to $698.6 million in loans and $11.3 million in fees at the end of 2020.

The tax-equivalent net interest margin was 3.41% for 2021, compared to 3.56% for 2020.

The primary driver of the decline in net interest margin from 2019 to 2020 was a decline in short-term rates.

The federal funds target rate declined 150 basis points in 2020 and one-month LIBOR declined 162 basis points.

The decline in short-term rates reduced the yield on the Company’s variable-rate loan portfolio, which represents approximately 60% of total loans.

In addition, a shift in the composition of the loan portfolio to lower yielding PPP loans reduced the net interest margin.

The yield on PPP loans was 3.47% on an average balance of $563.6 million in 2020.

Excluding PPP, the yield on the loan portfolio was 4.56%.

In response to the decline in interest rates, the Company proactively reduced the cost of certain managed money market and interest-bearing transaction accounts.

The primary driver of the decline in net interest margin from 2020 to 2021 was an increase in liquidity from deposit growth.

Average interest-bearing cash balances grew to $1.1 billion, an increase of $856.1 million from 2020.

In addition, 2021 was impacted by a full year of low interest rates following the Federal Reserve’s reduction of interest rates in 2020.

The federal funds target rate declined 150 basis points in 2020 and one-month LIBOR declined over 160 basis points.

decline in short-term rates reduced the yield on the Company’s variable-rate loan portfolio, as well as the yield earned on new loan production.

As of December 31, 2021, variable-rate loans comprised approximately 63% of total loans.

In response to the decline in interest rates, the Company proactively reduced the cost of certain managed money market and interest-bearing accounts, while also reducing certificates of deposit balances and wholesale borrowings.

Average interest-earning assets increased $3.0 billion, or 40%, to $10.7 billion for the year ended December 31, 2021.

The increase was due to growth in average total loans of $1.1 billion, or 21%, primarily due to PPP loans.

Average securities and short-term investments increased $291.9 million, or 22%.

Securities represented 18% of earnings assets in 2020 and 19% in 2019.

Short-term securities increased from 2% to 3% of earning assets, primarily due to higher liquidity from deposit growth.

Due to volume growth in the balance sheet, interest income on earning assets increased $58.2 million.

The increase was due to growth in average earning assets due to the inclusion of a full year of Seacoast operations, a partial year of First Choice operations and the previously mentioned increase in liquidity from deposit generation.

Average securities represented 15% of earnings assets in 2021 and 18% in 2020.

The acquisitions of Seacoast and First Choice did not include any significant investment security balances.

The Company has taken a measured approach to investing excess liquidity into the investment portfolio, increasing the average balance from $1.4 billion in 2020 to $1.6 billion in 2021.

Average interest-earning deposits increased from 3% to 10% of earning assets, primarily due to higher liquidity from deposit growth.

Volume growth of the balance sheet drove an increase in interest income on earning assets of $93.8 million.

Interest income on interest-earnings assets decreased $13.3 million primarily due the decline in interest rates in 2021 compared to 2020.

Average interest-bearing liabilities increased $589.2 million, or 12% for the year ended December 31, 2020, .

The increase in average interest-bearing liabilities resulted from $555.5 million of growth in interest-bearing deposits primarily due to customer liquidity provided by PPP loans.

While average interest-bearing liabilities increased, interest expense declined $31.6 million due to a 75 basis point decline in the cost of deposits.

The Company issued $63.3 million of subordinated debentures in May 2020 at 5.75% and reduced its use of FHLB advances.

Average interest-bearing liabilities increased $1.1 billion, or 20% for the year ended December 31, 2021.

The increase resulted from $1.2 billion of growth in interest-bearing deposits.

While average interest-bearing liabilities increased, interest expense declined $11.7 million due to a 26 basis point decline in the cost of deposits, primarily due to the run-off of higher yielding certificates of deposit.

The Company issued $63.3 million of subordinated debentures in May 2020 with an interest rate of 5.75% that was included for a full year in 2021.

Partially offsetting this additional expense was the redemption of the $50.0 million subordinated debentures at 4.75% in the fourth quarter 2021.

The total cost of interest-bearing liabilities declined 28 basis points, from 0.64% in 2021 to 0.36% in 2021.

Volume growth in deposits and other borrowings used to fund asset growth increased interest expense in 2020 by $5.7 million.

The shift in the mix of interest-bearing liabilities from certificates of deposit and wholesale borrowings to interest-bearing and noninterest-bearing deposits reduced interest expense in 2021 by $0.4 million.

Interest expense on interest-bearing liabilities decreased $11.3 million for the year ended December 31, 2021 due to lower rates.

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Noninterest income increased $13.2 million, or 24%, in 2021 compared to 2020.

This improvement was primarily due to higher income from tax credit income and other miscellaneous income, primarily mortgage revenue, community development investment fees, swap fees, and BOLI income.

Due to the slowdown in economic activity in 2020 caused by the pandemic, volumes on card and deposit services were down.

Conversely, mortgage revenue was strong as customers took advantage of low, long-term mortgage rates.

Similarly, tax credit income increased in 2020 as activity levels remained strong.

This improvement was primarily due to a $5.4 million increase from Seacoast and First Choice, a $3.6 million increase in other income, primarily private equity and community development investments, a $2.4 million increase in card services income, and a $1.4 million increase in tax credit activity.

Noninterest Expense

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Professional fees 4,289 3,940 3,683 349 257

Branch-closure expenses 3,441 — — 3,441 —

Merger-related expenses 22,082 4,174 17,969 17,908 (13,795)

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Noninterest expense increased $78.8 million, or 47%, in 2021 compared to 2020.

While total noninterest expense did not materially change from 2019, there were offsetting changes within the expense categories.

The Company recorded $6.0 million of operating expenses from the acquisition of Seacoast, including $3.0 million in employee compensation and benefits and $2.2 million in other expenses from SBA lending and customer marketing and support services.

Fiscal 2020 was also the first full year of Trinity operations.

Employee compensation increased $11.0 million in 2020 compared to 2019, due to the previously mentioned increases from Seacoast and Trinity, annual merit and cost of living increases of approximately 3% of base salaries, and higher mortgage commissions commensurate with the increase in revenue.

Merger related expenses of $4.2 million on the Seacoast acquisition were $13.8 million lower than the $18.0 million recorded in 2019 on the Trinity acquisition.

In 2020, the majority of the Company's employees shifted to a virtual work environment.

The Company did not experience a significant change in its operating expense from this development.

The Company expects to continue to invest in revenue producing associates and other infrastructure that supports additional growth.

The Company’s blended federal and state tax rate is approximately 24.9%.

The acquisitions of Seacoast and First Choice added $57.2 million of operating expenses in 2021, compared to $6.0 million from Seacoast in 2020.

Excluding First Choice and Seacoast, employee compensation and benefits increased $7.0 million in 2021 compared to 2020, or 8%.

The primary components of the increase in compensation and benefits were $2.7 million in salaries from merit increases and net new positions, $1.3 million in employee benefits, and $1.2 million in equity-based compensation.

The Company announced in the third quarter of 2021 the closure of two branch locations in St.

Louis and recognized a lease and fixed asset impairment charge of $3.4 million.

The branch closures became effective in January 2022.

Merger related expenses of $22.1 million on the First Choice and Seacoast acquisitions, including the cost of closing three California locations, were $17.9 million higher than the $4.2 million recorded in 2020 on the Seacoast acquisition.

The Company expects to realize annual cost savings of approximately $2.3 million related to these closures.

The Company did not earn a full year of operating income, or incur a full year of expense, from First Choice in 2021, but will do so in 2022.

The Company does not expect to incur any additional merger expenses on First Choice or Seacoast.

The Company expects to continue to invest in its associates and other infrastructure that supports growth.

In addition, low unemployment, inflationary pressures and a shift in employee work arrangements to a virtual/hybrid model are expected to impact future operating expenses.

The Company’s blended federal and state tax rate is approximately 25.2% at the end of 2021, compared to 24.9% at the end of 2020.

Permanent differences between pre-tax income and taxable income along with tax planning initiatives reduced the effective income tax rate in 2021 to 21.1% compared to 19.1% in 2020.

In addition, pursuant to the CARES Act, the Company was able to carryback a net operating loss to a prior period with a higher tax rate.

This generated a tax benefit in 2020 of approximately $0.5 million.

The increase in the effective tax rate in 2021 was primarily due to higher pretax income in 2021 and an increase in state taxable income due to the Company’s expanded geographic footprint.

Additionally, in 2020, the Company was able to carryback a net operating loss to a prior period with a higher tax rate, reducing the effective tax for that year.

FINANCIAL CONDITION

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The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector;

however, a substantial portion of the portfolio, including the C&I category, is secured by $4.0 billion of real estate.

however, a substantial portion of the portfolio, including the C&I category, is secured by real estate.

The ability of the Company’s borrowers to honor their contractual obligations is partially dependent upon the local economy and its effect on the real estate market.

The following table sets forth the composition of the Company’s loan portfolio by type of loans at the dates indicated:

The following table sets forth the composition of the Company’s loan portfolio by type of loans:

($ in thousands) 2021 2020

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Total loans $ 9,017,642 $ 7,224,935

2020 2019 2018 2017 2016

Commercial and industrial 37.6 % 42.8 %

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The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations.

PPP loans of $272.0 million and $698.6 million were included in C&I loans in the tables above at the end of 2021 and 2020, respectively.

The Company continues to focus on originating high-quality C&I relationships as they typically have variable interest rates and allow for cross selling opportunities involving other banking products.

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As a result, these specialized loan products offer opportunities to expand and diversify our overall geographic concentration by entering into new markets.

For the period ending December 31, 2020, C&I loans increased $727.8 million, or 31%, from 2019 primarily due to PPP loans.

Real estate loans place an emphasis on the estimated cash flows from the operation of the property and/or the underlying collateral value.

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Commercial real estate loans also represent owner-occupied C&I loans for which the primary source of repayment is dependent on sources other than the underlying collateral.

For the period ending December 31, 2020, commercial real estate loans increased $1.1 billion, or 55%, from 2019 primarily due to the acquisition of Seacoast.

• Construction and land development loans relating primarily to residential and commercial properties, represent financing secured by real estate under development for eventual sale or undeveloped ground.

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$5-10 million 8 54,019 6,752

>$10 million 1 12,143 12,143

Total 2,493 $ 454,052 $ 182

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California 1,715,978

Specialty, PPP and Other loans 3,278,230

Total $ 9,017,642

The table above excludes $698.6 million of PPP loans and $1.9 billion of specialty lending at December 31, 2020 and $1.0 billion of specialty lending at December 31, 2019.

The following table illustrates selected specialty lending detail, at December 31, 2021 and 2020:

December 31, Seacoast Acquired Loans

December 31, First Choice Acquired Loans

($ in thousands) 2021 2020 Change % Change at 12/31/21

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SBA loans 1,241,449 895,930 345,519 38.6 % 164,094

SBA PPP loans 698,645 — 698,645 NM 85,729

Sponsor finance 508,469 396,487 111,982 28.2 % —

Life insurance premium financing 593,562 534,092 59,470 11.1 % —

Tax credits 486,881 382,602 104,279 27.3 % —

SBA PPP loans 271,958 698,645 (426,687) (61.1) % 149,334

Residential real estate 430,985 318,091 112,894 35.5 % 151,970

Construction and land development 625,526 474,399 151,127 31.9 % 173,969

Tax credits 382,602 294,210 88,392 30.0 % —

Other 253,107 174,878 78,229 44.7 % 32,351

Total Loans $ 9,017,642 $ 7,224,935 $ 1,792,707 24.8 % $ 1,815,125

Certain prior period amounts have been reclassified among the categories to conform to the current period presentation.

The sponsor finance portfolio is primarily comprised of loans in the manufacturing and wholesale trade sectors.

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federal and state low income housing tax credits.

In addition, we provide leveraged and other loans on projects funded through the U.S.

Department of the Treasury Community Development Financial Institution (“CDFI”) New Markets Tax Credit Program.

In addition, we provide leveraged and other loans on projects funded through the CDFI New Markets Tax Credit Program.

This portfolio also includes tax credit brokerage through 10-year streams of Missouri state tax credits from affordable housing development funds.

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($ in thousands) Due in One

Year or Less After One Through Five Years After

Five Years Total Percent of

Year or Less (1)

After One Through Five Years After Five Through Fifteen Years After

Fifteen Years Total Percent of

Fixed Rate Loans

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Total $ 1,755,551 $ 3,869,577 $ 1,615,884 $ 1,776,630 $ 9,017,642 100 %

Fixed rate loans comprise 43% of the total loan portfolio at December 31, 2020, and 58% of the Company’s loans are variable-rate loans, most of which are based on the prime rate or LIBOR.

(1) Includes loans with no stated maturity and overdraft lines of credit.

The majority of variable loans are based on the prime rate or LIBOR.

At December 31, 2021, $3.2 billion or 57% of variable rate loans were subject to an interest rate floor.

Most loan originations have one-to three-year maturities.

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See “Interest Rate Risk” of this MD&A section.

Of the $1.6 billion of commercial real estate loans maturing in one year or less, $469 million, or 29%, represent loans secured by non-owner occupied commercial properties.

Provision and Allowance for Loan Losses

The adoption of CECL on January 1, 2020 increased the ACL on loans by $28.4 million, or 65%, and the allowance for unfunded commitments by $2.4 million.

Provision and Allowance for Credit Losses

The adoption of CECL on January 1, 2020 increased the ACL on loans by $28.4 million, or 65%, and the allowance for unfunded commitments by $2.4 million as compared to 2019.

These increases were offset in retained earnings and did not impact the consolidated statement of operations.

The following table summarizes changes in the ACL on loans arising from CECL adoption;

additions to the allowance from acquired PCD loans, additions charged to expense, as well as loan charge-offs and recoveries by loan category.

The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date.

The Company also records reversals of interest on nonaccrual loans and interest recoveries directly through the provision of credit losses.

CECL requires economic forecasts to be factored into determining estimated losses.

As a result, CECL will typically require a higher level of provision at the start of an economic downturn.

The decrease in the provision for credit losses in 2021 was primarily due to a change in economic forecasts, which has significantly improved since the start of the COVID-19 pandemic in March 2020.

Two of the primary economic loss drivers used in estimating the ACL include the percentage change in GDP and unemployment.

At December 31, 2021, the Company’s forecast of the percentage change in GDP included a range of (2.2)% to 6.7% and the percentage change in unemployment included a range of 3.0% to 8.7%.

At the beginning of the pandemic at March 2020, the forecast of the percentage change in GDP included a range of (9.6)% to 2.1% and the percentage change in unemployment included a range of 6.0% to 13.0%.

The Company utilizes a one-year reasonable and supportable forecast and a one-year reversion period.

In the acquisition of First Choice, we recognized an allowance of $7.6 million on PCD loans and an allowance of $23.9 million on non-PCD loans.

Similarly, in the acquisition of Seacoast we recognized an allowance of $3.5 million on PCD loans and $8.6 million on non-PCD loans.

Pursuant to the CECL accounting methodology, the allowance on PCD loans is recorded as part of the acquired loan portfolio.

The allowance on non-PCD loans is established through a charge to the provision for credit losses in the post-combination financial statements.

To the extent the Company does not recognize charge-offs and economic forecasts improve in future periods, the Company could recognize a reversal of provision for credit losses.

Conversely, if economic conditions and the Company’s forecast worsens, the Company could recognize elevated levels of provision for credit losses.

The provision is also reflective of charge-offs in the period.

The following table presents the components of the provision for credit losses for the periods indicated:

(in thousands) 2021 2020

Allowance, at beginning of period $ 43,288 $ 43,476 $ 42,577 $ 43,409 $ 43,616

CECL adoption 28,387 — — — —

PCD loans immediately charged-off (1,680) — — — —

Allowance, at beginning of period, adjusted for adoption of CECL $ 69,995 $ 43,476 $ 42,577 $ 43,409 $ 43,616

Initial allowance on acquired PCD loans 3,524 — — — —

Provision (benefit) for loan losses $ (10,911) $ 54,822

Provision on acquired loans 23,904 8,557

Provision for off-balance sheet commitments 1

Provision for held-to-maturity securities 165 147

Recovery of accrued interest (1,684) (1,005)

Provision for credit losses $ 13,385 $ 65,398

Commercial and industrial (5,381) (6,882) (6,894) (9,872) (2,303)

Commercial (528) (609) (313) (207) (95)

Construction and land development (31) (54) (56) (254) —

Residential (408) (667) (546) (973) (25)

Other (391) (382) (167) (201) (1,912)

Total charge-offs (6,739) (8,594) (7,976) (11,507) (4,335)

1 2021 includes $1.5 million as part of the First Choice acquired commitments.

The following table is a summary of the allocation of the allowance for credit losses for the periods indicated:

($ in thousands) 2021 2020

Balance at End of Period Applicable to:

Amount Percent of loans in each category to total loans Amount Percent of loans in each category to total loans

Commercial and industrial $ 63,825 37.6 % $ 58,812 42.8 %

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Other 5,316 2.9 % 2,787 2.5 %

Total recoveries 6,512 2,184 2,292 1,344 2,908

Net charge-offs (227) (6,410) (5,684) (10,163) (1,427)

Net charge-offs on PCI loans — (150) (61) (799) (2,385)

Allowance, at end of period $ 136,671 $ 43,288 $ 43,476 $ 42,577 $ 43,409

The following table presents the components of the provision for credit losses:

(in thousands) 2020 2019

Provision for loan losses $ 54,822 $ 6,372

Day 2 provision on Seacoast acquired loans 8,557 —

Provision for off-balance sheet commitments 2,877 —

Provision for held-to-maturity securities 147 —

Recovery of accrued interest (1,005) —

Provision for credit losses $ 65,398 $ 6,372

The following table is a summary of the allocation of the allowance for loan losses for the five-year period ended December 31, 2020:

2020 2019 2018 2017 2016

($ in thousands) Allowance Percent Allowance Percent Allowance Percent Allowance Percent Allowance Percent

Total allowance $ 145,041 100.0 % $ 136,671 100.0 %

The allowance for credit losses was 1.61% of total loans at December 31, 2021, compared to 1.89%, and 0.81%, at December 31, 2020 and 2019, respectively.

The decline in the allowance to total loans ratio in 2021 was primarily due to the comparatively lower ACL on the First Choice loan portfolio, net loan charge-offs of $11.6 million, improved credit metrics, and continued improvement in economic forecasts.

The increase in the ratio in 2020 compared to 2019 was due to the adoption of CECL and higher provision expense due to the pandemic, partially offset by the acquisition of Seacoast and PPP loans which included $1.3 billion in government-guaranteed loans with no allowance.

The following table is a summary of net charge-offs (recoveries) to average loans for the periods indicated:

($ in thousands) Net Charge-offs (Recoveries) Average Loans (1)

Net Charge-offs (Recoveries)/Average Loans Net Charge-offs (Recoveries) Average Loans (1)

Net Charge-offs (Recoveries)/Average Loans

Commercial and industrial $ 10,425 $ 3,195,017 0.33 % $ 3,533 $ 2,917,784 0.12 %

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Other 287 197,172 0.15 % 275 142,312 0.19 %

Total allowance $ 136,671 100.0 % $ 43,288 100.0 % $ 43,476 100.0 % $ 42,577 100.0 % $ 43,409 100.0 %

The Company also records reversals of interest on nonaccrual loans and interest recoveries directly through the provision of credit losses.

CECL requires economic forecasts to be factored into determining estimated losses.

As a result, CECL will typically require a higher level of provision at the start of an economic downturn.

The increase in the provision for credit losses in 2020 was primarily due to a change in economic forecasts from the end of 2019, which significantly deteriorated in March 2020 due to the COVID-19 pandemic and the resulting slow-down of business activity.

Two of the primary economic loss drivers used in estimating the ACL include the percentage change in GDP and unemployment.

At December 31, 2020, the Company’s forecast of the percentage change in GDP included a range of (2.5)% to 11.9% and the percentage change in unemployment included a range of 5.6% to 9.8%.

The Company utilizes a one-year reasonable and supportable forecast and a one-year reversion period

As part of the acquisition of Seacoast, we recognized an allowance of $3.5 million on the PCD portfolio.

In addition, we recognized $8.6 million on the non-PCD portion of the portfolio.

To the extent the Company does not recognize charge-offs and economic forecasts improve in future periods, the Company could recognize a reversal of provision for credit losses.

Conversely, if economic conditions and the Company’s forecast worsens, the Company could recognize elevated levels of provision for credit losses.

The provision is also reflective of charge-offs in the period.

The allowance for loan losses was 1.89% of total loans at December 31, 2020, compared to 0.81%, and 1.00%, at December 31, 2019 and 2018, respectively.

The increase in 2020 compared to 2019 was due to the adoption of CECL and higher provision expense due to the pandemic, partially offset by the acquisition of Seacoast and PPP loans which include $1.3 billion in government-guaranteed loans with no allowance.

See “Critical Accounting Policies” of this MD&A section for more information on the allowance for loan losses methodology.

Nonperforming assets

Prior to the adoption of CECL, PCI loans were accounted for in performing pools of loans and were not individually identified as nonaccrual or classified.

Under the CECL accounting model, the Company did not elect to maintain PCI pools for certain loans which are now accounted for individually and are now included in nonperforming and classified loans.

PCI loans are referred to as PCD under CECL.

Note 1 – Summary of Significant Accounting Policies” for more policy information on impaired loans and other real estate.

The following table presents the categories of nonperforming assets, excluding government guaranteed portions, as of the dates indicated:

Total $ 11,629 $ 8,049,385 0.14 % $ 1,907 $ 6,060,936 0.03 %

(1) Excludes loans held for sale.

See “Critical Accounting Policies and Estimates” of this MD&A section for more information on the allowance for credit losses methodology.

Nonperforming loans and assets

Note 1 – Summary of Significant Accounting Policies” for more information on impaired loans and other real estate.

The following table presents the categories of nonperforming assets, excluding government guaranteed portions:

($ in thousands) 2021 2020

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Total loans 9,017,642 7,224,935

Total allowance for credit losses 145,041 136,671

Allowance for credit losses to nonaccrual loans 619 % 393 %

Allowance for credit losses to nonperforming loans 518 % 355 %

Allowance for credit losses to total loans 1.61 % 1.89 %

Nonaccrual loans to total loans 0.26 % 0.48 %

Nonperforming loans to total loans 0.31 % 0.53 %

Nonperforming assets to total assets 0.23 % 0.45 %

Allowance for loan losses to nonperforming loans 355 % 164 % 260 % 271 % 291 %

Nonperforming loans

Nonperforming loans based on loan type were as follows:

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Nonperforming loans, beginning of period $ 38,507 $ 26,425

CECL adoption 8,462 —

PCD loans immediately charged off (1,680) —

Nonperforming loans, January 1 $ 33,207 $ 16,745

Additions to nonaccrual loans 43,350 30,424

Additions to restructured loans 3,750 —

Charge-offs (17,185) (6,739)

Principal reductions (16,303) (12,205)

Moved to other real estate (798) (1,732)

Moved to performing (361) (674)

Loans past due 90 days or more and still accruing interest (98) 250

Principal payments (36,648) (18,385)

Nonperforming loans, end of period $ 28,024 $ 38,507

Nonperforming loans at December 31, 2020 increased $12.1 million, or 46%, when compared to December 31, 2019.

The increase in nonperforming loans during 2020 was primarily from a $9.1 million hotel loan.

The Company has a specific reserve of $2.8 million for the potential collateral shortfall.

The Company has implemented several loan programs to assist its customers impacted by the COVID-19 pandemic.

These programs include consumer and business deferral programs and expanded small business lines of credit.

The following table presents loans modified as part of our COVID-19 deferral programs that remained in a deferral status:

($ in thousands) December 31, 2020

Commercial real estate $ 26,122

Commercial and industrial 15,708

Construction real estate 20,892

Residential real estate 255

Total loan modifications $ 62,977

Percentage of total loans 0.87 %

Loans in a deferral status at December 31, 2020 listed above include $30.3 million of loans receiving more than one deferral.

The deferral modifications are primarily set to expire in the first quarter of 2021.

Potential problem loans

Potential problem loans are unimpaired loans with a risk rating of 8-Substandard still accruing interest.

Note 5 – Loans” for the definitions of risk ratings.

Potential problem loans, which are not included in nonperforming loans, were $80 million, or 1.05%, o f loans outstanding at December 31, 2020, compared to $56 million, or 1.20%, of loans outstanding at December 31, 2019.

Potential problem loans at December 31, 2020 include the addition of $30.7 million of PCI loans previously accounted for in performing loan pools.

For these loans, payment of principal and interest is current and the loans are performing;

however, some doubts exist as to the borrower’s ability to continue to comply with repayment terms.

Potential problem loans include loans to companies characterized by significant losses or where downward trends in financial performance have been identified, or are in an industry experiencing significant difficulty.

Nonperforming loans at December 31, 2021 decreased $10.5 million, or 27%, when compared to December 31, 2020.

The decrease in nonperforming loans during 2021 was primarily from principal payments of $36.6 million and charge-offs of $17.2 million.

The Company implemented several loan programs to assist its customers impacted by the COVID-19 pandemic, including providing short-term payment deferrals, primarily for 90 days or less.

As of December 31, 2021, substantially all of these loans have returned to a paying status.

Other real estate

Other real estate at December 31, 2021 and December 31, 2020 was $3.5 million and $5.3 million, respectively.

At December 31, 2020, other real estate was comprised of four properties located in the St.

Louis region and four properties in New Mexico consisting of a mix of commercial, land, and residential.

The following table summarizes the changes in other real estate:

2 unchanged sentences

Other real estate, beginning of period $ 5,330 $ 6,344

Additions and expenses capitalized to prepare property for sale 756 8,148

Additions from acquisition — 3,225

Additions 3,175 756

Writedowns in value (29) (1,104)

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Writedowns in fair value were recorded in loan, legal, and other real estate expense.

At December 31, 2020, our portfolio of investment securities was $1.4 billion, or 14%, of total assets.

At December 31, 2021, our portfolio of investment securities was $1.8 billion, or 13%, of total assets, compared to $1.4 million, or 14%, of total assets as of December 31, 2020.

The portfolio is comprised of both available-for-sale and held-to-maturity securities.

Other investments primarily consist of the FHLB capital stock, common stock investments related to our trust preferred securities, community development funds, and other investments in private equity funds, primarily SBICs.

The table below sets forth the carrying value of investment securities held by the Company at the dates indicated:

2020 2019 2018

($ in thousands) Amount % Amount % Amount %

The table below sets forth the carrying value of investment securities held by the Company:

($ in thousands) Amount % Amount %

Obligations of U.S.

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Corporate debt securities 138,193 7.7 % 141,991 10.1 %

Other investments:

FHLB capital stock 10,774 0.8 % 15,673 1.2 % 9,158 1.1 %

Other investments 37,991 2.6 % 22,371 1.6 % 17,496 2.2 %

Total $ 1,796,301 100.0 % $ 1,400,488 100.0 %

The allowance for credit losses on held-to-maturity debt securities was $0.6 million and $0.4 million at December 31, 2021 and 2020, respectively.

The Company had no debt securities classified as trading at December 31, 2021, or 2020.

The following table summarizes expected maturity and tax-equivalent yield information on the investment portfolio at December 31, 2021:

Within 1 year 1 to 5 years 5 to 10 years Over 10 years No Stated Maturity Total

($ in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield

Within 1 year 1 to 5 years 5 to 10 years Over 10 years Total

($ in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield

Obligations of U.S.

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Corporate debt securities — — % 5,181 3.28 % 133,012 3.37 % — — % 138,193 3.37 %

FHLB capital stock — — % — — % — — % — — % 10,774 4.23 % 10,774 4.23 %

Other investments — — % — — % — — % — — % 37,991 0.56 % 37,991 0.56 %

Total $ 104,550 0.74 % $ 515,767 2.31 % $ 397,650 2.36 % $ 778,334 2.69 % $ 1,796,301 2.39 %

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Expected maturities will differ from contractual maturities, as borrowers may have the right to call or repay obligations with or without prepayment penalties.

The following table shows the breakdown of the Company’s deposits by type for the periods indicated:

($ in thousands) Amount % Amount %

FHLB capital stock $ 12,075 20.2 % $ 10,774 22.1 %

Other investments 47,821 79.8 % 37,991 77.9 %

Total $ 59,896 100.0 % $ 48,765 100.0 %

The following table summarizes expected maturity and tax-equivalent yield information on other investments at December 31, 2021:

No Stated Maturity

($ in thousands) Amount Yield

FHLB capital stock $ 12,075 4.13 %

Other investments 47,821 1.78 %

Total $ 59,896 2.25 %

The following table shows the breakdown of the Company’s deposits by type:

Years ended December 31, % Increase (decrease)

($ in thousands) 2021 2020 2021 vs.

2019 2019 vs.

Noninterest-bearing deposit accounts $ 2,711,828 $ 1,327,348 $ 1,100,718 104.3 % 20.6 %

Interest-bearing transaction accounts 1,768,497 1,367,444 1,037,684 29.3 % 31.8 %

Noninterest-bearing demand accounts $ 4,578,436 $ 2,711,828 68.8 %

Interest-bearing demand accounts 2,465,884 1,768,497 39.4 %

Money market accounts 2,890,976 2,327,066 24.2 %

Savings accounts 800,210 627,903 27.4 %

Total core deposits 7,435,294 4,944,576 3,903,556

Certificates of deposit:

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Total deposits $ 11,343,799 $ 7,985,389 42.1 %

Core deposits / Total deposits 93 % 86 % 85 %

Noninterest-bearing deposits / Total deposits 40 % 34 %

Core deposits, defined as total deposits excluding certificates of deposits, were $7.4 billion at December 31, 2020, an increase of $2.5 billion, or 50%, from December 31, 2019.

The following table shows the average balance and average rate of the Company’s deposits by type:

Years ended December 31,

2021 2020 2019

($ in thousands) Average Balance Average Rate Paid Average Balance Average Rate Paid Average Balance Average Rate Paid

Noninterest-bearing deposit accounts $ 3,597,204 — % $ 1,854,982 — % $ 1,228,832 — %

Interest-bearing demand accounts 2,122,752 0.08 % 1,494,364 0.14 % 1,286,641 0.59 %

Money market accounts 2,557,836 0.18 1,977,826 0.39 1,608,349 1.63

Savings accounts 724,768 0.03 589,832 0.05 489,310 0.17

Certificates of deposit 570,496 0.73 676,889 1.61 799,079 1.90

Total interest-bearing deposits $ 5,975,852 0.18 $ 4,738,911 0.44 $ 4,183,379 1.19

Total average deposits $ 9,573,056 0.11 $ 6,593,893 0.32 $ 5,412,211 0.92

Average total deposits were $9.6 billion for the year ended December 31, 2021, an increase of $3.0 billion, or 45%, from December 31, 2020.

The increase in 2021 was primarily due to the First Choice and Seacoast acquisitions and the high level of liquidity in the economy.

The increase in 2020 was primarily due to the Seacoast acquisition and PPP loan fundings.

Certificates of deposit, the highest cost portion of the deposit portfolio, declined $0.3 million in 2020.

The following table sets forth the maturities of certificates of deposit of $100,000 or more as of December 31, 2020:

The following table sets forth the maturities of estimated uninsured certificates of deposit as of December 31, 2021:

($ in thousands) Total

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Total $ 93,672

As of December 31, 2021, estimated uninsured deposits totaled $5.9 billion, including $93.7 million of certificates of deposit.

At December 31, 2020, estimated uninsured deposits totaled $3.3 billion.

Shareholders’ equity

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Significant activity during the year ended December 31, 2021 included the following:

• increase from the issuance of approximately 5.0 million shares of common stock for the Seacoast acquisition reflecting approximately $167 million of consideration;

• increase from the issuance of approximately 7.8 million shares of common stock for the First Choice acquisition reflecting $342.3 million of consideration;

• increase from net income of $133.1 million;

• net increase in fair value of available-for-sale securities and cash flow hedges of $19.4 million;

• increase from issuance of preferred stock of $72.0 million, net;

• decrease from share repurchases of $60.6 million, pursuant to the Company’s publicly-announced stock repurchase program;

• decrease from dividends paid on common stock of $26.2 million;

• decrease from share repurchase of $15.3 million, pursuant to the Company’s publicly-announced stock repurchase program.

• net decrease in fair value of available-for-sale securities and cash flow hedges of $18.3 million.

Liquidity and Capital Resources

The objective of liquidity management is to ensure we have the ability to generate sufficient cash or cash equivalents in a timely and cost-effective manner to meet our commitments as they become due.

Typical demands on liquidity are changes in deposit levels, maturing time deposits which are not renewed, and fundings under credit

commitments to customers.

Funds are available from a number of sources, such as the core deposit base and loans and securities repayments and maturities.

Typical demands on liquidity are changes in deposit levels, maturing time deposits which are not renewed, and fundings under credit commitments to customers.

Funds are available from a number of sources, such as the core deposit base and loan and security repayments and maturities.

Additionally, liquidity is provided from lines of credit with the FHLB, the Federal Reserve, and correspondent banks;

the ability to acquire large and brokered deposits, sales of the securities portfolio, and the ability to sell loan participations to other banks.

the ability to acquire large and brokered deposits;

sales of the securities portfolio;

and the ability to sell loan participations to other banks.

These alternatives are an important part of our liquidity plan and provide flexibility and efficient execution of the asset-liability management strategy.

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Our liquidity position is monitored daily.

Our liquidity management framework includes measurement of several key elements, such as the loan to deposit ratio, a liquidity ratio, and a dependency ratio.

Our liquidity management framework includes measurement of several key elements, such as a loan to deposit ratio, a liquidity ratio, and a dependency ratio.

The Company’s liquidity framework also incorporates contingency planning to assess the nature and volatility of funding sources and to determine alternatives to these sources.

While core deposits and loan and investment repayments are principal sources of liquidity, funding diversification is another key element of liquidity management and is achieved by strategically varying depositor types, terms, funding markets, and instruments.

Liquidity from asset categories is provided through cash and interest-bearing deposits with other banks, which totaled $537.7 million at December 31, 2020, compared to $167.3 million at December 31, 2019.

The low interest rate environment, coupled with an uncertain outlook and government stimulus, such as the PPP, have increased liquidity for the banking industry, including the Company.

Liquidity from assets is available primarily from cash balances and the investment portfolio.

Cash and interest-bearing deposits with other banks totaled $2.0 billion at December 31, 2021, compared to $537.7 million at December 31, 2020.

The low interest rate environment, coupled with an uncertain outlook and government stimulus, such as the PPP, has increased liquidity within the banking industry, including the Company.

Investment securities are another important tool to the Company’s liquidity objectives.

Securities totaled $1.8 billion at December 31, 2021, and included $753 million pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements.

The remaining $874 million could be pledged or sold to enhance liquidity, if necessary.

The remaining $1.0 billion could be pledged or sold to enhance liquidity, if necessary.

Liability liquidity funding sources are available to increase financial flexibility.

In addition to amounts currently borrowed, at December 31, 2020, the Company could borrow an additional $739 million from the FHLB of Des Moines under blanket loan pledges and has an additional $921 million available from the Federal Reserve Bank under a pledged loan agreement.

In addition to amounts borrowed at December 31, 2021, the Company could borrow an additional $709 million from the FHLB of Des Moines under blanket loan pledges and has additional real estate loans of approximately $970.0 million that could be pledged.

The Company also has $1.1 billion available from the Federal Reserve Bank under a pledged loan agreement.

The Company also has unsecured federal funds lines with six correspondent banks totaling $90 million.

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The main use of this liquidity is to provide the funds necessary to pay dividends to shareholders, service debt, invest in subsidiaries as necessary, and satisfy other operating requirements.

The holding company maintains a revolving line of credit for an aggregate amount up to $25 million, all of which is available at December 31, 2020.

The line of credit has a one-year term and matures in February 2021 and is in the process for renewal.

In 2021, the holding company maintained a revolving line of credit for an aggregate amount up to $25 million, all of which was available at December 31, 2021.

The line of credit has a one-year term that was renewed in February 2022.

The proceeds can be used for general corporate purposes.

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Strong capital ratios, credit quality and core earnings are essential to retaining cost-effective access to the wholesale funding markets.

Deterioration in any of these factors could have a negative impact on the Company’s ability to

access these funding sources and, as a result, these factors are monitored on an ongoing basis as part of the liquidity management process.

Deterioration in any of these factors could have a negative impact on the Company’s ability to access these funding sources and, as a result, these factors are monitored on an ongoing basis as part of the liquidity management process.

The Bank is subject to regulations and, among other things, may be limited in its ability to pay dividends or transfer funds to the parent company.

Accordingly, consolidated cash flows as presented in the consolidated statements of cash flows may not represent cash immediately available for the payment of cash dividends to the Company’s shareholders or for other cash needs.

Through the normal course of operations, the Company has entered into certain contractual obligations and other commitments.

Such obligations relate to funding of operations through deposits or debt issuances, as well as leases for premises and equipment.

As a financial services provider, the Company routinely enters into commitments to extend credit.

While contractual obligations represent future cash requirements of the Company, a significant portion of commitments to extend credit may expire without being drawn upon.

Such commitments are subject to the same credit policies and approval process accorded to loans made by the Company.

The Company also enters into derivative contracts under which the Company either receives cash from or pays cash to counterparties depending on changes in interest rates.

Derivative contracts are carried at fair value on the consolidated balance sheet with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of the balance sheet date.

The fair value of these contracts changes daily as market interest rates change.

For additional information on the Company’s contractual obligations and commitments see the following footnotes in Item 8:

“Note 6 – Leases,” “Note 7 – Derivative Financial Instruments,” “Note 11 – Subordinated Debentures,” “Note 12 – Federal Home Loan Bank Advances,” “Note 13 – Other Borrowings,” and “Note 18 – Commitments.”

Capital Resources

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements.

The Company and the Bank are subject to various regulatory capital requirements administered by the state and federal banking agencies.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its bank affiliate must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.

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Refer to “Item 8.

Note 15 – Regulatory Matters” for a summary of our risk-based capital and leverage ratios.

The following table summarizes the Company’s various capital ratios at the dates indicated:

($ in thousands) December 31,

2020 2019 2018

Total capital to risk weighted assets 14.9 % 12.9 % 13.0 %

Tier 1 capital to risk weighted assets 12.1 % 11.4 % 11.1 %

Note 15 – Regulatory Capital” for a summary of our risk-based capital and leverage ratios.

The following table summarizes the Company’s capital ratios:

December 31, 2021 December 31, 2020

($ in thousands) EFSC Bank EFSC Bank To Be Well-Capitalized Minimum Ratio

Common Equity Tier 1 Capital to Risk Weighted Assets 11.3 % 12.5 % 10.9 % 12.5 % 6.5 % 7.0 %

Tier 1 Capital to Risk Weighted Assets 13.0 % 12.5 % 12.1 % 12.5 % 8.0 % 8.5 %

Total Capital to Risk Weighted Assets 14.7 % 13.5 % 14.9 % 13.7 % 10.0 % 10.5 %

Leverage Ratio (Tier 1 Capital to Average Assets) 9.7 % 9.3 % 10.0 % 10.3 % 5.0 % 4.0 %

Tangible common equity to tangible assets 1

8.4 % 8.9 % 8.7 %

Total risk-based capital $ 1,094,601 $ 804,273 $ 650,859

Tier 1 capital 889,527 710,480 556,958

Common equity tier 1 capital $ 1,091,823 $ 1,201,340 $ 795,873 $ 913,116

1 Not a required regulatory capital ratio

The following table summarizes the Bank’s various capital ratios at the dates indicated:

($ in thousands) December 31, Well-Capitalized

2020 2019 2018 Minimum %

Total capital to risk weighted assets 13.7 % 12.4 % 12.3 % 10.0%

Tier 1 capital to risk weighted assets 12.5 % 11.7 % 11.4 % 8.0%

Tier 1 common equity to risk weighted assets 12.5 % 11.7 % 11.4 % 6.5%

Leverage ratio (Tier 1 capital to average assets) 10.3 % 10.3 % 10.5 % 5.0%

Total risk-based capital $ 1,004,839 $ 769,254 $ 611,197

Tier 1 capital 1,257,462 1,201,391 889,527 913,169

Common equity tier 1 capital 913,116 725,406 567,239

Total risk-based capital 1,423,036 1,303,715 1,094,601 1,004,839

1 Not a required regulatory capital ratio

The Company believes the tangible common equity and regulatory capital ratios are important measures of capital strength even though they are considered to be non-GAAP measures.

The tables further within MD&A reconcile these ratios to U.S.

The tables included in this MD&A section under the caption “Use of Non-GAAP Financial Measures” reconcile these ratios to U.S.

Risk Management

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The resulting net interest income for the next 12-month period is compared to the net interest income amount calculated using flat rates.

This difference represents the Company’s earnings sensitivity to a positive or negative 100 basis points parallel rate shock.

This difference represents the Company’s earnings sensitivity to a positive or negative parallel rate shock.

The following table summarizes the projected impact of interest rate shocks on net interest income at December 31, 2021:

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They are used to modify the Company’s exposures to interest rate fluctuations and provide more stable spreads between loan yields and the rate on their funding sources.

At December 31, 2020, the Company had $62.0 million in derivative

contracts used to manage interest rate risk.

At December 31, 2021, the Company had $62.0 million in derivative contracts used to manage interest rate risk.

Derivative financial instruments are also discussed in “Item 8.

Note 7 – Derivative Financial Instruments.”

The United Kingdom’s Financial Conduct Authority (“FCA”) announced in 2017 that market participants should not rely on LIBOR after 2021.

The FCA has announced that the most common USD LIBOR settings (overnight, 1-month.

3-month, 6-month and 12-month) will cease publication after June 30, 2023.

LIBOR is the most liquid and common interest rate index in the world and is commonly referenced in financial instruments.

While the Ice Benchmark Administration Ltd., who administers LIBOR, has said that it intends to continue to produce LIBOR after 2021, there can be no guarantee that it will continue without the FCA compelling or persuading LIBOR panel banks to submit quotes.

The Federal Reserve’s Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Funding Rate (“SOFR”) replace LIBOR.

However, at this time, the Company has not identified a replacement index for LIBOR.

The Federal Reserve’s Alternative Reference Rates Committee has proposed that SOFR replace LIBOR.

The Company expects to select a replacement index and provide customer notification in early 2023, prior to the cessation of the USD LIBOR settings.

While a replacement index has not yet been selected, the Company ceased using LIBOR and ICE swap rates in new contracts and began issuing SOFR based loans in December 2021.

We have exposure to LIBOR in various financial contracts.

Instruments that may be impacted include loans, securities, debt instruments and derivatives, among other financial contracts indexed to LIBOR and that mature after December 31, 2021.

We have an internal working group composed of members from legal, credit, finance, operations, risk and audit to monitor developments, develop policies and procedures, assess the impact to the Company, consider relevant options and to determine an appropriate replacement index for affected contracts that expire after the expected discontinuation of LIBOR on December 31, 2021.

We also have loans that are indirectly linked to LIBOR through reference to the ICE swap rate.

We are actively working to amend and address impacted contracts to allow for a replacement index.

However, amending certain contracts indexed to LIBOR may require consent from the counterparties which could be difficult and costly to obtain in certain limited circumstances.

As of December 31, 2020, the Company’s financial contracts indexed to LIBOR included $2.5 billion in loans, $239.2 million in deposits and borrowings, and $992.2 million (notional) in derivatives.

However, amending certain contracts indexed to LIBOR may require consent from the counterparties which could be difficult and costly to obtain in certain circumstances.

As of December 31, 2021, the Company’s financial contracts indexed to LIBOR included $2.8 billion in loans (including $618.4 million indirectly linked to LIBOR through reference to an ICE swap rate), $125.3 million in borrowings, and $889.0 million (notional) in derivatives.

In addition, LIBOR is used in the Company’s analysis of the fair value of tax credits and may be referenced in other financial contracts not included in the discussion above.

The Company has $4.1 billion in variable rate loans as of December 31, 2020.

Of these loans, $1.7 billion, or 37.0% , have a floor.

The Company had $5.7 billion in variable rate loans as of December 31, 2021.

Of these loans, $3.2 billion have an interest rate floor and 95% of those loans were at the floor.

$2.8 billion in variable rate loans are indexed to LIBOR, $2.4 billion are indexed to the prime rate, and $382.8 million are indexed to other rates.

Contractual Obligations, Off-Balance Sheet Risk, and Contingent Liabilities

Through the normal course of operations, the Company has entered into certain contractual obligations and other commitments.

Such obligations relate to funding of operations through deposits or debt issuances, as well as leases for premises and equipment.

As a financial services provider, the Company routinely enters into commitments to extend credit.

While contractual obligations represent future cash requirements of the Company, a significant portion of commitments to extend credit may expire without being drawn upon.

Such commitments are subject to the same credit policies and approval process accorded to loans made by the Company.

The recorded contractual obligations and other commitments, excluding any contractual interest, 1 at December 31, 2020, were as follows:

Payments due by Period

($ in thousands) Total Less Than

1 Year Over 1 Year

3 Years Over 3 Years Less than

5 Years Over 5 Years

Operating leases $ 15,397 $ 4,353 $ 5,610 $ 3,168 $ 2,266

Certificates of deposit 550,095 384,563 113,208 46,744 5,580

Subordinated debentures and notes 209,750 — — — 209,750

FHLB advances 50,000 — — 50,000 —

Notes payable 30,000 7,143 11,428 11,429 —

(1) Interest charges on related contractual obligations were excluded from reported amounts as the potential cash outflows would have corresponding cash inflows from interest-earning assets.

The contractual commitments of off-balance sheet financial instruments at December 31, 2020, were as follows:

` Payments due by Period

($ in thousands) Total Less Than

1 Year Over 1 Year

3 Years Over 3 Years Less than

5 Years Over 5 Years

Commitments to extend credit $ 1,946,068 $ 1,351,213 $ 250,423 $ 132,077 $ 212,355

Letters of credit 50,971 46,181 4,665 125 —

State tax credits 24,473 12,886 11,587 — —

Limited partnership commitments 23,400 4,556 18,844 — —

Note 18 – Commitments” for narrative disclosure regarding off-balance sheet arrangements.

As of December 31, 2020, we had liabilities associated with uncertain tax positions of $3.1 million.

The table above does not include these liabilities due to the high degree of uncertainty regarding the future cash flows associated with these amounts.

The Company also enters into derivative contracts under which the Company either receives cash from or pays cash to counterparties depending on changes in interest rates.

The fair value of these contracts changes daily as market interest rates change.

CRITICAL ACCOUNTING POLICIES

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The following accounting policies are considered most critical to the understanding of the Company’s financial condition and results of operations.

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The Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period.

Such estimates include the valuation of loans, goodwill, intangible assets, and other long-lived assets, along with assumptions used in the calculation of income taxes, among others.

These estimates and assumptions are based on management’s best estimates and judgment.

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We adjust such estimates and assumptions when facts and circumstances dictate.

Decreased real estate values, volatile credit markets, and persistent high unemployment have combined to increase the uncertainty inherent in such estimates and assumptions.

As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statement in future periods.

Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

There can be no assurances that actual results will not differ from those estimates.

Allowance for Credit Losses

On January 1, 2020, the Company adopted Accounting Standard Update 2016-13 “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” This standard, referred to as CECL, requires an estimate of lifetime expected credit losses on certain financial assets measured at amortized cost.

The Company maintains separate allowances for funded loans, unfunded loans, and held-to-maturity securities, collectively the ACL.

The ACL is a valuation account to adjust the cost basis to the amount expected to be collected, based on management’s estimate of experience, current conditions, and reasonable and supportable forecasts.

For purposes of determining the allowance for funded and unfunded loans, the portfolios are segregated into pools that share similar risk characteristics that are then further segregated by credit grades.

Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the collective evaluation.

The Company estimates the amount of the allowance based on loan loss experience, adjusted for current and forecasted economic conditions, including unemployment, changes in GDP, and commercial and residential real estate prices.

The Company’s forecast of economic conditions uses internal and external information and considers a weighted average of a baseline, upside, and downside scenarios.

Because economic conditions can change and are difficult to predict, the anticipated amount of estimated loan defaults and losses, and therefore the adequacy of the allowance, could change significantly and have a direct impact on the Company’s credit costs.

The Company’s allowance for credit losses on loans was $145.0 million at December 31, 2021 based on the weighting of the different economic scenarios.

As a hypothetical example, if the Company had only used the upside scenario, the allowance would have decreased $20.5 million.

Conversely, the allowance would have increased $43.9 million using only the downside scenario.

Acquisitions and Business Combinations are accounted for using the acquisition method of accounting.

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The Company accounts for merger-related costs as expenses in the periods in which the costs are incurred and the services are received.

Allowance for Credit Losses

On January 1, 2020, the Company adopted Accounting Standard Update 2016-13 “Financial Instruments - Credit Losses (Topic 326):

The Company maintains separate allowances for funded loans, unfunded loans, and held-to-maturity securities, collectively the ACL.

Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the collective evaluation.

The Company estimates the amount of the allowance based on historical loan loss experience, adjusted for current and forecasted economic conditions, including unemployment, changes in GDP, and commercial and residential real estate prices.

The Company’s forecast of economic conditions uses internal and external information and considers a weighted average of a baseline, upside, and downside scenarios.

Goodwill and Other Intangible Assets

The Company completes a goodwill impairment test in the fourth quarter each year or whenever events or changes in circumstances indicate that the Company may not be able to recover the goodwill or intangible assets respective carrying amounts.

The impairment test involves the use of various estimates and assumptions.

Management believes the estimates and assumptions utilized are reasonable.

However, the Company may incur impairment charges related to goodwill or intangible assets in the future due to changes in business prospects or other matters that could impact estimates and assumptions.

Intangible assets other than goodwill, such as core deposit intangibles, that are determined to have finite lives are amortized over their estimated remaining useful lives.

These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.

If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Impact of Inflation and Changing Prices

Our consolidated financial statements and related data presented in this Annual Report on Form 10-K have been prepared in accordance with U.S.

GAAP, which requires the measurement of financial position and operating results in terms of historical dollar amounts (except with respect to securities classified as available-for-sale which are carried at market value) without considering the changes in the relative purchasing power of money over time due to inflation.

Substantially all of our assets and liabilities are monetary in nature;

as a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation.

Interest rates do not necessarily move in the same direction or to the same magnitude as the price of goods and services.

Management uses certain assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax assets and liabilities and income tax expense.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance may be established.

We consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets, including projections of future taxable income.

These judgments and estimates are reviewed on a continual basis as regulatory and business factors change.

A valuation allowance for deferred tax assets may be required in the future if the amounts of taxes recoverable through loss carry backs decline, if we project lower levels of future taxable income, or we project lower levels of tax planning strategies.

Such valuation allowance would be established through a charge to income tax expense that would adversely affect our operating results.

Effects of New Accounting Pronouncements

Note 22 – New Authoritative Accounting Guidance” for information on recent accounting pronouncements and their impact, if any, on our consolidated financial statements.

Note 1 – Summary of Significant Accounting Policies – Recent Accounting Pronouncements” for information on recent accounting pronouncements and their impact, if any, on our consolidated financial statements.

Use of Non-GAAP Financial Measures

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GAAP and the prevailing practices in the banking industry.

However, the Company provides other financial measures, such as core efficiency ratio, tangible common equity ratio, return on average tangible common equity, and tangible book value per common share, in this filing that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position, or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.

The Company considers its core efficiency ratio, tangible common equity ratio, return on average tangible common equity, and tangible book value per common share, collectively “core performance measures” presented in this Annual Report on Form 10-K, as relevant measures of financial performance, even though they are non-GAAP measures, as they provide supplemental information by which to evaluate the impact of certain non-comparable items, and the Company’s operating performance on an ongoing basis.

Core performance measures exclude certain other income and expense items such as merger-related expenses, facilities charges, and the gain or loss on sale of investment securities, the Company believes to be not indicative of or useful to measure the Company’s operating performance on an ongoing basis.

However, the Company provides other financial measures, such as core efficiency ratio, tangible common equity ratio, return on average tangible common equity, and tangible book value per common share, in this report that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position, or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.

The Company considers its core efficiency ratio, tangible common equity ratio, return on average tangible common equity, and tangible book value per common share, collectively “core performance measures” presented in this report, as relevant measures of financial performance, even though they are non-GAAP measures, as they provide supplemental information by which to evaluate the impact of certain non-comparable items, and the Company’s operating performance on an ongoing basis.

Core performance measures exclude certain other income and expense items such as merger-related expenses, facilities charges, and the gain or loss on sale of investment securities, which

the Company believes to be not indicative of or useful to measure the Company’s operating performance on an ongoing basis.

The attached tables contain a reconciliation of these core performance measures to the GAAP measures.

The Company believes that the tangible common equity ratio provides useful information to investors about the Company’s capital strength even though it is considered to be a non-GAAP financial measure and is not part of the regulatory capital requirements to which the Company is subject.

The Company believes the tangible common equity ratio provides useful information to investors about the Company’s capital strength, even though it is considered to be a non-GAAP financial measure, and is not part of the regulatory capital requirements to which the Company is subject.

The Company believes these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding the Company’s performance and capital strength.

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Core Efficiency Ratio

For the Years ended

($ in thousands) December 31, 2020 December 31, 2019 December 31, 2018

For the Years ended December 31,

($ in thousands) 2021 2020 2019

Net interest income $ 360,194 $ 270,001 $ 238,717

Incremental accretion income 4,083 4,783 3,701

Less incremental accretion income — 4,083 4,783

Core net interest income 360,194 265,918 233,934

Total noninterest income 67,743 54,503 49,176

Other income from non-core acquired assets — 1,372 1,048

Gain on sale of investment securities 421 243 9

Other non-core income 265 266 675

Less gain on sale of other real estate 884 — —

Less other income from non-core acquired assets — — 1,372

Less gain on sale of investment securities — 421 243

Less other non-core income — 265 266

Core noninterest income 66,859 53,817 47,295

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Total noninterest expense $ 245,919 $ 167,159 $ 165,485

Merger related expenses 4,174 17,969 1,271

Other expenses (credits) related to non-core acquired loans 57 257 (163)

Facilities disposal charge — — 239

Other non-core expenses — — 682

Less merger-related expenses 22,082 4,174 17,969

Less branch-closure expenses 3,441 — —

Less other non-core expenses — 57 257

Core noninterest expense $ 220,396 $ 162,928 $ 147,259

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Total shareholders' equity $ 1,529,116 $ 1,078,975 $ 867,185

Goodwill 260,567 210,344 117,345

Intangible assets 23,084 26,076 8,553

Less preferred stock 71,988 — —

Less goodwill 365,164 260,567 210,344

Less intangible assets 22,286 23,084 26,076

Tangible common equity $ 1,069,678 $ 795,324 $ 630,765

Total assets $ 13,537,358 $ 9,751,571 $ 7,333,791

Goodwill 260,567 210,344 117,345

Intangible assets 23,084 26,076 8,553

Less goodwill 365,164 260,567 210,344

Less intangible assets 22,286 23,084 26,076

Tangible assets $ 13,149,908 $ 9,467,920 $ 7,097,371

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Average shareholder’s equity $ 1,277,153 $ 902,875 $ 795,477

Less average preferred stock 8,903 — —

Less average goodwill 307,614 217,205 193,804

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For the Years ended December 31,

($ in thousands) 2020 2019 2018

($ and shares in thousands) 2021 2020 2019

Tangible common equity (calculated above) $ 1,069,678 $ 795,324 $ 630,765

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

What changed 10-K

Item 7. Management’s Discussion and Analysis