What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-02-24 · 236 added, 191 removed, 668 unchanged (39% of the section changed)

9 unchanged sentences

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

Tax-credit brokerage activities consist of the acquisition of Federal and State tax credits and the sale of these tax credits.

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

The Company’s financial condition, operating results and liquidity in 2022 were impacted by the monetary policy actions enacted to address rising inflation.

In 2022, the Federal Reserve increased interest rates seven times for a total increase of 425 basis points to the Federal Funds Target Interest Rate during the year, while also changing its accommodative monetary policy through a reduction of Treasuries and agency mortgage-backed securities held on its balance sheet.

The Company’s financial condition, operating results and liquidity in 2023 continued to be impacted by the monetary policy actions enacted to address rising inflation.

The Federal Reserve increased the target federal funds rate 100 basis points in 2023, following a 425 basis point increase in 2022.

The Federal Reserve has continued to tighten their monetary policy by reducing Treasuries and agency mortgage-backed securities held on its balance sheet.

This follows a period of highly expansionary fiscal support from the federal government during the start of the COVID-19 pandemic in 2020-2021.

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Return on average assets 1

1.42 % 1.52 % 1.16 %

Return on average common equity 1

12.39 % 13.95 % 10.49 %

Return on average tangible common equity 1

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53.42 % 49.77 % 49.68 %

Dividend payout ratio 16.89 % 19.66 % 26.61 %

Common dividend payout ratio 19.64 % 16.89 % 19.66 %

Book value per common share $ 43.94 $ 38.93 $ 38.53

9 unchanged sentences

Nonperforming loans 43,728 9,981 28,024

Nonaccrual loans 43,181 9,766 23,449

Classified assets 185,389 99,122 100,797

Total assets 14,518,590 13,054,172 13,537,358

Total loans 10,884,118 9,737,138 9,017,642

Classified assets to total assets 1.28 % 0.76 % 0.74 %

1 unchanged sentence

Nonperforming assets to total assets 0.34 % 0.08 % 0.23 %

Allowance for credit losses to total loans 1.41 % 1.61 % 1.89 %

ACL on loans to total loans 1.24 % 1.41 % 1.61 %

Net charge-offs to average loans 0.37 % 0.04 % 0.14 %

3 unchanged sentences

• The Company reported net income of $194.1 million, or $5.07 per diluted share for 2023, compared to $203.0 million, or $5.31 per diluted share for 2022.

In addition to organic growth, contributing to the increase in net income was a full year of First Choice operations and an increase in market interest rates.

Net income in 2022 also benefited from a reduction in the provision for credit losses of $14.0 million and a $25.5 million reduction in merger-related and branch-closure expenses, compared to 2021.

Acquisition related provision for credit losses of $25.4 million were included in the provision for credit losses in 2021.

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

Excluding the CECL double-count, the benefit for credit losses decreased in 2022 primarily due to loan growth and the forward-looking CECL methodology and the worsening outlook for forecasted economic factors compared to 2021.

• Preferred stock dividends of $4.0 million were declared and paid on the Series A Preferred Stock.

PPNR 1 for 2023 was $284.8 million, compared to $258.9 million in 2022.

PPNR ROAA 1 for 2023 and 2022 was 2.06% and 1.94%, respectively.

Organic earning-asset growth and expansion of net interest income due to the increase in market interest rates were the primary contributors to the PPNR increase in 2023.

Offsetting the increase in PPNR was a $37.2 million increase in the provision for credit losses in 2023 compared to 2022.

• Net interest income for 2023 totaled $562.6 million, an increase of $88.7 million, or 19%, compared to $473.9 million for 2022.

Organic loan growth, higher average loan balances from the First Choice acquisition, and an increase in market interest rates increased net interest income.

These increases were partially offset by a decline in PPP interest and fee income as the program wound down.

PPP income totaled $5.0 million and $27.3 million in 2022 and 2021, respectively.

• The net interest margin increased 48 basis points to 3.89% during 2022, compared to 3.41% in 2021.

The Company’s asset sensitive balance sheet benefited from the increase in market interest rates during 2023.

Net interest margin increased 54 basis points to 4.43% during 2023, compared to 3.89% in 2022.

The increase was primarily due to the 6.67% loan yield in 2023, which increased 170 basis points, from 4.97% in 2022.

• Noninterest income decreased $8.5 million, or 13%, to $59.2 million in 2022 compared to $67.7 million in 2021.

While the increase in interest rates benefited net interest income, higher interest rates resulted in lower mortgage banking and tax credit income.

The Company also became subject to the Durbin Amendment limitation on interchange income in 2022, which reduced card services revenue by approximately $2.0 million.

• Noninterest expenses totaled $274.2 million for 2022, an increase of $28.3 million, or 12%, compared to 2021.

A full year of First Choice expenses, higher compensation from merit increases and an expanded associate base, and higher deposit servicing costs were the primary drivers of the increase in noninterest expense.

Offsetting these increases were declines in nonrecurring expenses of $22.1 million in merger expenses and $3.4 million in branch-closure expenses recognized in 2021.

The Company’s core efficiency ratio 1 was stable at 49.8% in 2022, compared to 49.7% for the prior year.

• Noninterest income was $68.7 million, an increase of 16% from $59.2 million in 2022.

The increase was primarily due to higher volumes in tax credit income, private equity and community development income, and gains on the sale of SBA loans.

Offsetting these amounts were a decrease in deposit services charges due to higher earnings credit rates, and a decrease in card services income due to the full year impact of the Durbin Amendment.

• Total noninterest expense was $348.2 million in 2023, a 27% increase from $274.2 million in 2022.

The increase was primarily from higher customer servicing deposit costs due to higher deposit balances and an increase in earnings credit rates, and an increase in compensation from a larger associate base and annual merit increases.

The Company’s core efficiency ratio 1 was 53.4% in 2023, compared to 49.8% for the prior year.

• The Company’s effective tax rate was 21.3% in 2023 compared to 21.7% in 2022.

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During 2023, we announced the following significant transactions:

• The Company repurchased 700,473 of its common shares at a weighted-average share price of $47.00.

• Dividends paid in 2023 of $1.00 per share increased $0.10 per share, or 11%, compared to $0.90 per share in 2022.

• Retired 1,980,093 shares of treasury stock.

• The Company paid $3.8 million, or $50.00 per share, to preferred shareholders in 2023.

• The process of converting to a leading core operating system was initiated.

The conversion is expected to be completed in the fourth quarter of 2024.

2022 Significant Transactions

During 2022, we announced the following significant transactions:

• 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.

• 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 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 700,473 of its common shares at a weighted-average share price of $47.00.

• Dividends paid in 2022 of $0.90 per share increased $0.15 per share, or 20%, compared to $0.75 per share in 2021.

• Retired 1,980,093 shares of treasury stock.

RESULTS OF OPERATIONS

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Loan fees in 2022 and 2021 included PPP fees of $4.1 million and $21.7 million, respectively.

2 Non-taxable income is presented on a fully tax-equivalent basis using a 25.2% tax rate in each of 2022 and 2021 and a 24.7% tax rate in 2020.

The tax-equivalent adjustments were $7.0 million for the year ended December 31, 2022, $5.1 million for the year ended December 31, 2021, and $3.2 million for the year ended December 31, 2020.

2 Non-taxable income is presented on a fully tax-equivalent basis using a tax rate of approximately 25%.

The tax-equivalent adjustments were $8.1 million, $7.0 million, and $5.1 million for the years ended December 31, 2023, 2022, and 2021 respectively.

The following table sets forth, on a tax-equivalent basis for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in yield/rates and volume.

22 unchanged sentences

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

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.

3 Nontaxable income is presented on a fully tax equivalent basis using a tax rate of approximately 25%.

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.

Net interest income (on a tax equivalent basis) was $570.7 million for 2023, compared to $480.9 million for 2022, an increase of $89.8 million, or 19%.

Total interest income increased $133.7 million and total interest expense increased $18.1 million.

The increase in net interest income in 2022 was primarily due to a higher average yield on interest earning assets and higher loan volumes that benefited from the First Choice acquisition.

These increases were offset by a decline in PPP loan income and an increase in the average cost paid on interest bearing liabilities.

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

The Company also received fees for the issuance of PPP loans that varied based on the size of the loan.

Interest income and loan fees included in net interest income from the PPP program totaled $5.0 million and $27.3 million in 2022 and 2021, respectively.

At December 31, 2022, the Company had $7.3 million in PPP loans and $0.1 million in deferred fees, compared to $272.0 million in loans and $4.2 million in fees at the end of 2021.

The increase in net interest income in 2023 was primarily due to a higher average yield on interest earning assets and organic loan growth.

These increases were offset by an increase in the average cost paid on interest bearing liabilities.

Total tax equivalent interest income increased $250.9 million in 2023 primarily due to a $231.7 million increase in loan interest income.

The increase was primarily due to the 6.67% loan yield in 2023, which increased 170 basis points, from 4.97% in 2022.

In addition, average loan balances in 2023 increased to $10.3 billion, an increase of $1.1 billion over the average for 2022.

Tax equivalent interest income on securities (taxable and non-taxable) in 2023 increased $16.3 million from 2022, primarily due to an $11.0 million increase in yield and a $5.3 million increase in average balances.

Average securities represented 18% of earnings assets in 2023 and 17% in 2022.

Overall, average interest-earning assets increased $0.5 billion, or 4%, to $12.9 billion for the year ended December 31, 2023.

The increase was due to organic growth in average earning assets in the loan portfolio and a deployment of excess liquidity into the investment portfolio.

Volume growth of the balance sheet drove an increase in interest income on earning assets of $53.6 million, while the increase in interest rates drove interest income on interest-earnings assets up by $197.3 million in 2023 compared to 2022.

Total interest expense increased $161.1 million in 2023 primarily due to increased deposit interest expense.

The increase in deposit interest expense reflects higher rates paid on deposits, as well as successful marketing efforts that

increased average deposits.

Remixing of the deposit portfolio from non-interest bearing and lower cost accounts into higher cost accounts contributed to the increase in deposit interest expense in 2023.

Total average interest-bearing deposits increased to $7.5 billion, an increase of $981.7 million, or 15%, in 2023 over the average for 2022.

Average noninterest bearing deposits declined $674.4 million, or 14%, in 2023 compared to the average for 2022.

Average noninterest bearing deposits represented 36% of total average deposits in 2023, compared to 43% in 2022.

Overall, average interest-bearing liabilities increased $1.0 billion, or 15% for the year ended December 31, 2023.

The current mix of interest-bearing liabilities increased interest expense in 2023 by $12.3 million, while the increase in the average cost of interest bearing liabilities increased interest expense $148.9 million in 2023.

The tax-equivalent net interest margin was 4.43% for 2023, compared to 3.89% for 2022.

The primary driver of the increase in net interest margin from 2022 to 2023 was an increase market interest rates.

In 2022, the Federal Reserve significantly increased interest rates for the first time since 2018.

In 2023, the Federal Reserve increased interest rates three times.

The federal funds target rate increased 100 basis points in 2023.

1 unchanged sentence

As of December 31, 2023, variable-rate loans comprised approximately 61% of total loans.

The increase in market interest rates also increased the cost on interest bearing liabilities, although at a slower rate than the increase on the earning asset yield.

The earning asset yield

increased 59 basis points to 4.22% in 2022, compared to 3.63% in 2021.

The increase in market interest rates also increased the cost on interest bearing liabilities.

The earning asset yield increased 178 basis points to 6.00% in 2023, compared to 4.22% in 2022.

Comparatively, the cost of interest bearing liabilities increased 195 basis points to 2.55%, from 0.60% in 2022.

Average interest-earning assets increased $1.7 billion, or 15%, to $12.4 billion for the year ended December 31, 2022.

The increase was due to growth in average earning assets due to the inclusion of a full year of First Choice operations, organic growth in the loan portfolio and a deployment of excess liquidity into the investment portfolio.

Average securities represented 17% of earnings assets in 2022 and 15% in 2021.

Average interest-earning deposits decreased from 10% to 9% of earning assets, due to the increase in securities.

Volume growth of the balance sheet drove an increase in interest income on earning assets of $65.8 million, while the increase in interest rates drove interest income on interest-earnings assets up by $67.9 million in 2022 compared to 2021.

Average interest-bearing liabilities increased $426.9 million, or 7% for the year ended December 31, 2022.

The increase resulted from $512.4 million of growth in interest-bearing deposits, primarily in money market and interest bearing demand deposit accounts due to organic growth and the First Choice acquisition.

Average debt and wholesale borrowings declined $85.5 million in 2022 from 2021, due to the redemption of $50.0 million in subordinated debentures at 4.75% in the fourth quarter 2021 and a decreased need for wholesale borrowings due to the growth in average deposits.

The total cost of interest-bearing liabilities increased 24 basis points, from 0.36% in 2021 to 0.60% in 2022.

The shift in the mix of interest-bearing liabilities reduced interest expense in 2022 by $2.2 million, while the increase in the average cost of interest bearing liabilities increased interest expense $20.4 million in 2022.

Noninterest Income

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Total noninterest income $ 68,725 $ 59,162 $ 67,743 $ 9,563 $ (8,581)

Noninterest income decreased $8.6 million, or 13%, in 2022 compared to 2021.

This decrease was primarily due to a $5.5 million decrease in tax credit income and a $5.4 million decrease in miscellaneous income.

Rising interest rates reduced tax credit income due to the impact on tax credit projects carried at fair value.

The rise in interest rates increased the discount rate used in the fair value of these projects, resulting in a lower fair value.

The $5.4 million decline in miscellaneous income was primarily due to a $2.6 million decrease in mortgage banking income and a $2.6 million decrease in private equity distributions.

The rise in market interest rates in 2022 reduced demand for 1-4 family mortgages, which led to the decline in mortgage banking income.

Private equity distributions are not a consistent source of income and fluctuates based on distributions from the underlying funds.

Included within miscellaneous income was a $1.0 million increase in swap fee income in 2022 from customer hedging transactions, that was offset by a $1.0 million decrease in gains on the sale of other real estate.

Noninterest income increased $9.6 million, or 16%, in 2023 compared to 2022.

This increase was primarily due to a $6.6 million increase in tax credit income and a $6.2 million increase in miscellaneous income.

Tax credit income increased due to higher activity and a decline in longer term interest rates that positively impacted tax credits carried at fair value.

Miscellaneous income increased due to private equity and community development income and gains on the sale of SBA loans.

Private equity and community development income are not consistent sources of income and fluctuate based on distributions and earnings from the underlying funds.

In 2023, $42.1 million of SBA loans were sold and a gain of $2.0 million was recognized.

No SBA loans were sold in 2022.

Card services revenue declined $1.5 million in 2023.

Included in this decrease was a decline of $2.1 million in debit card interchange income, partially offset by a $1.8 million increase in credit card fees.

Included in this decline was a decrease of $2.3 million in debit card interchange income, partially offset by a $0.6 million increase in credit card fees.

The Durbin Amendment limits the amount of interchange income banks can earn on debit card transactions after total assets exceed $10 billion.

This limitation went into effect for the Company at the beginning of the third quarter of 2022 and was the primary driver of the reduction in debit card revenue.

The decreases in noninterest income described above were partially offset by a $2.9 million increase in service charges on deposit accounts.

This increase was due to deposit growth and the number of accounts using the Company’s treasury management products and was also partially attributed to a full year of First Choice deposit service revenue.

Noninterest Expense

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Employee compensation and benefits $ 164,566 $ 147,029 $ 124,904 $ 17,537 $ 22,125

Deposit costs 72,293 31,082 14,211 41,211 16,871

Occupancy 16,526 17,640 16,286 (1,114) 1,354

3 unchanged sentences

Merger-related expenses — — 22,082 — (22,082)

Deposit costs 31,082 14,211 1,246 16,871 12,965

Other expenses 73,886 57,873 48,464 16,013 9,409

6 unchanged sentences

Noninterest expense increased $74.0 million, or 27%, in 2023 compared to 2022.

The increase was attributed primarily to a $22.1 million increase in compensation and benefits, a $16.9 million increase in deposit costs and a $9.4 million increase in other expenses.

The increase in compensation and benefits was due to annual merit increases and an increase in full time equivalent employees, higher share-based compensation from higher award levels and higher performance based vesting due to the Company’s financial performance, and a full year of First Choice operations.

First Choice operations added $11.2 million in additional noninterest expense in 2022 over 2021.

The increase was attributed primarily to a $41.2 million increase in deposit costs, a $17.5 million increase in compensation and benefits, and a $16.0 million increase in other expenses.

For certain deposit accounts in the Company’s specialized deposit portfolio, clients receive an earnings credit rate on average collected balances that may be used to offset expenses associated with the client’s activities for managing the accounts.

These expenses are reflected in noninterest expense.

The increase in deposit costs in 2022 is due to organic growth in specialized deposits and an increase in market interest rates that impacts competitive conditions that those clients can garner in the market.

The increase in other expense of $9.4 million was attributed primarily to a $3.1 million increase in business development, a $2.0 million increase in the amortization of tax credit investments, a $1.4 million increase in SBA repair and denial reserves, a $1.0 million increase in credit/debit card transaction processing expenses, and a $1.0 million increase in FDIC assessment insurance.

The increase in business development is primarily due to increased activity as the economy has reopened since the start of the COVID-19 pandemic.

The increase in amortization of tax credit investments is primarily due to new investments in new market tax credits that are amortized in noninterest expense, while the tax benefit is recognized in tax expense.

The increase in credit/debit card transaction processing is due to higher volumes of activity and the increase in FDIC assessment insurance is due to the increase in the overall balance sheet of the Company.

Partially offsetting the increases described above were decreases of $22.1 million in merger related expenses on the First Choice acquisition and a $3.4 million decrease in branch-closure expenses from a branch rationalization project that was finalized in 2021.

These costs are reflected in noninterest expense as Deposit costs.

The increase in deposit costs in 2023 is due to organic growth in specialized deposits and an increase in market interest rates that increased the earnings credit rate and related expenses for those accounts.

The Company maintained approximately $2.6 billion and $2.0 billion of average specialty deposits, resulting in an average specialty deposit cost of 2.75% and 1.41% for 2023 and 2022, respectively.

The increase in compensation and benefits was due to annual merit increases and an increase in full time equivalent employees, higher share-based compensation from higher award levels, and higher medical costs due to inflationary increases.

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 continue to have an impact on future operating expenses.

The Company’s blended federal and state tax rate was approximately 25.2% at the end of both 2022 and 2021.

The increase in other expense of $16.0 million was attributed primarily to a $6.1 million increase in FDIC assessment and other insurance, a $1.7 million increase in loan, legal and other real estate expenses, and a $1.6 million increase in marketing and public relations expenses.

The increase in FDIC assessment and other insurance is primarily due to an FDIC special assessment in the amount of $2.4 million and an increase due to the growth of the balance sheet.

In November 2023, the FDIC issued a Final Rule on Special Assessment Pursuant to Systemic Risk Determination, implementing a special assessment to recover the cost associated with protecting uninsured depositors following the closure of FDIC insured banks earlier in 2023.

The FDIC will collect the special assessment at an annual rate of approximately 13.4 basis points over eight quarterly assessment periods beginning in January 2024.

The Company’s portion of the special assessment is approximately $2.4 million and was expensed in the fourth quarter of 2023.

The Company’s blended federal and state tax rate was approximately 24.8% in 2023 and 25.2% in 2022.

The effective tax rate, which is adjusted for permanent differences, such as tax exempt income, was 21.3% in 2023 compared to 21.7% in 2022.

The increase was primarily due to higher pretax income in 2022 and an increase in state taxable income due to the Company’s expanded geographic footprint.

In conjunction with the completion of the 2022 tax returns in the fourth quarter of 2023, the effective tax rate decreased due to a lower state tax apportionment.

Note 16 – Income Taxes” for additional information.

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Total shareholders’ equity 1,716,068 1,522,263 1,529,116 12.73 % (0.45) %

The table below represents the summary balance sheet shown as a percentage of account class (total assets, total liabilities or total shareholders’ equity), as applicable:

2023 2022 2021

Total cash and cash equivalents 2.98 % 2.23 % 14.93 %

Securities 16.31 % 17.20 % 13.26 %

Total loans 74.97 % 74.59 % 66.61 %

Total assets 100.00 % 100.00 % 100.00 %

Deposits 95.11 % 93.91 % 94.47 %

Total liabilities 100.00 % 100.00 % 100.00 %

Total shareholders’ equity 100.00 % 100.00 % 100.00 %

Loans by Type

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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 $7.3 million and $272.0 million were included in C&I loans in the tables above at the end of 2022 and 2021, 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.

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

C&I loan growth also supports our efforts to maintain the Company’s asset-sensitive interest rate risk position.

Additionally, our specialized products, especially sponsor finance, life insurance premium financing, and tax credit lending, consist of primarily C&I loans, and have contributed significantly to the Company’s C&I loan growth.

These loans are sourced through relationships developed with wealth and estate planning firms, private equity funds and tax credit specialists and are not bound geographically by our markets.

These loans are sourced through relationships developed with wealth and estate planning firms, private equity funds and tax credit specialists and are not bound geographically to our markets.

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

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• 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.

At December 31, 2022, $351.9 million of these loans include the use of interest reserves and follow standard underwriting guidelines.

At December 31, 2023, $447.0 million of these loans include the use of interest reserves and follow standard

underwriting guidelines.

Construction projects are monitored by the loan officer and a centralized independent loan disbursement function.

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1 Includes $95.0 million and $94.0 million in animal production at December 31, 2023, and 2022, respectively and $113.8 million and $95.6 million in crop production at December 31, 2023, and 2022, respectively.

At December 31, 2023 and 2022, the Company had an agricultural loan portfolio of $229.7 million and $200.1 million, respectively.

The Company has announced its intent to wind down this portfolio over time as the loans mature or pay down.

The Company does not intend to enter into new agricultural loans.

The following table presents a breakdown of commercial & industrial loans by size at the periods indicated:

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Total 3,041 $ 4,672,559 $ 1,537 2,630 $ 3,859,882 $ 1,468

The following table presents a breakdown of commercial real estate loans by size at the periods indicated:

The following table presents a breakdown of commercial real estate loans (investor owned and owner occupied) by size at the periods indicated:

($ in thousands) Number of Loans Outstanding Balance Average Balance Number of Loans Outstanding Balance Average Balance

4 unchanged sentences

Total 3,721 $ 4,803,571 $ 1,291 3,741 $ 4,628,371 $ 1,237

The Company had $482.0 million and $443.1 million of investor owned office real estate loans as of December 31, 2023 and 2022, respectively.

The following table presents a breakdown of construction loans by size at the periods indicated:

10 unchanged sentences

$5-10 million 4 29,257 7,314 4 31,188 7,797

>$10 million — — — 1 12,143 12,143

Total 2,152 $ 372,188 $ 173 2,277 $ 395,537 $ 174

11 unchanged sentences

West 1,813,239 1,654,899

Specialty, PPP and Other loans 3,625,809 3,337,696

Specialty and other loans 4,166,719 3,625,809

Total $ 10,884,118 $ 9,737,138

Loan guarantees, primarily on SBA 7(a) loans, totaled $960.3 million and $1.2 billion at December 31, 2022 and 2021, respectively.

The following table presents a breakdown of total loans by MSA, excluding specialty and other loans, at the periods indicated:

($ in thousands) 2023 2022

Louis, MO-IL MSA $ 2,382,192 $ 2,328,830

Los Angeles-Long Beach-Santa Ana, CA MSA 1,561,720 1,477,084

Kansas City, MO-KS MSA 953,557 882,499

Phoenix-Mesa-Scottsdale, AZ MSA 899,768 692,788

San Diego-Carlsbad-San Marcos, CA MSA 234,808 177,815

Albuquerque, NM MSA 183,813 197,004

Santa Fe, NM MSA 167,321 180,976

Dallas-Fort Worth-Arlington, TX MSA 155,459 42,545

Las Vegas-Paradise, NV MSA 83,737 39,477

All other MSAs 95,024 92,311

Specialty and other loans 4,166,719 3,625,809

Total $ 10,884,118 $ 9,737,138

Loan guarantees, primarily on SBA 7(a) loans, totaled $932.1 million and $960.3 million at December 31, 2023 and 2022, respectively.

The following table provides additional information on select specialty lending detail, at the periods indicated:

($ in thousands) 2022 2021 Change % Change

($ in thousands) December 31,

2023 December 31,

2022 Increase (decrease)

C&I $ 2,186,203 $ 1,904,654 $ 281,549 15 %

5 unchanged sentences

Tax credits* 734,594 559,605 174,989 31 %

SBA PPP loans 7,272 271,958 (264,686) (97.3) %

Residential real estate 359,957 379,924 (19,967) (5) %

2 unchanged sentences

Total loans $ 10,884,118 $ 9,737,138 $ 1,146,980 12 %

*Specialty loan category

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

4 unchanged sentences

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 state tax credits from affordable housing development funds.

This portfolio also includes tax credit brokerage

through 10-year streams of state tax credits from affordable housing development funds.

The tax credits are sold to clients and other individuals for tax planning purposes.

1 unchanged sentence

These loans predominantly have a 75% portion guaranteed by the SBA.

SBA PPP loans originated in response to the COVID-19 pandemic and are guaranteed by the SBA.

The loans may be forgivable by the SBA if certain requirements are met.

Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions.

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

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

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

At December 31, 2023, $4.2 billion or 64% of variable rate loans were subject to an interest rate floor.

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

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

Management monitors this mix as part of its interest rate risk management.

3 unchanged sentences

($ in thousands) 2023 2022

Benefit for loan losses $ (4,210) $ (10,911)

Provision on acquired loans — 23,904

Provision for off-balance sheet commitments 1

Provision (benefit) for credit losses on loans $ 35,883 $ (4,210)

Provision for available-for-sale securities 4,281 —

Provision (benefit) for off-balance sheet commitments (5,450) 4,462

Provision for held-to-maturity securities 50 121

Recovery of accrued interest (984) (1,684)

Charge-offs (recoveries) of accrued interest 1,841 (984)

Provision (benefit) for credit losses $ 36,605 $ (611)

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

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.

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

The decrease in the provision for credit losses in 2022 was primarily due to the provision on acquired loans from the First Choice acquisition recognized in 2021, partially offset by a change in economic forecasts that worsened in 2022 and an increase in unfunded commitments.

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

At December 31, 2022, the Company’s forecast of the percentage change in GDP included a range of (2.3)% to 3.5% and unemployment included a range of 3.5% to 7.7%.

This compares to a range of (2.2)% to 6.7% for the percentage change in GDP and a range of 3.0% to 8.7% for unemployment in 2021.

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

In the acquisition of First Choice in 2021, we recognized an allowance of $7.6 million on PCD loans and an allowance of $23.9 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 was established through a charge to the provision for credit losses in the post-combination financial statements.

The Company did not recognize an acquisition related provision for credit losses in 2022.

The increase in the provision for credit losses in 2023 was primarily due to loan growth, net charge-offs and the increase in nonperforming loans.

The provision for credit losses in 2023 also included the impact of the impairment of an available-for-sale investment security.

The available-for-sale investment impairment was related to a subordinated debt security in a publicly-traded bank that failed in the first quarter of 2023.

The provision benefit in the prior year-to-date period, was primarily due to an improvement in economic factors and the recovery of accrued interest on nonperforming loans.

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.

1 unchanged sentence

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

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

The following table summarizes the allocation of the ACL on loans:

($ in thousands) 2023 2022

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The allowance for credit losses was 1.24% of total loans at December 31, 2023, compared to 1.41%, and 1.61%, at December 31, 2022 and 2021, respectively.

The decline in the allowance to total loans ratio in 2022 compared to 2021 was primarily due to an improvement in credit quality, a shift in the mix of the loan portfolio to categories with lower reserve requirements, and net loan charge-offs of $3.9 million.

The decline in the allowance to total loans ratio in 2023 compared to 2022 was primarily due to a shift in the mix of the loan portfolio to categories with lower reserve requirements, improvement in the economic forecast and net loan charge-offs of $38.0 million.

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

($ 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 $ 33,257 $ 4,247,091 0.78 % $ 3,869 $ 3,555,483 0.11 %

5 unchanged sentences

(1) Excludes loans held for sale.

To the extent the Company does not recognize charge-offs and economic forecasts improve in future periods, the Company could recognize provision reversals.

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

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

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

1 unchanged sentence

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

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

The following table presents the categories of nonperforming assets and other ratios, excluding government guaranteed portions, as of the dates indicated.

($ in thousands) 2023 2022

8 unchanged sentences

Total allowance for credit losses 134,771 136,932

Allowance for credit losses to nonaccrual loans 1,402 % 619 %

Allowance for credit losses to nonperforming loans 1,372 % 518 %

Allowance for credit losses to total loans 1.41 % 1.61 %

ACL to nonaccrual loans 312 % 1,402 %

ACL to nonperforming loans 308 % 1,372 %

ACL to total loans 1.24 % 1.41 %

Nonaccrual loans to total loans 0.40 % 0.10 %

16 unchanged sentences

Principal payments (25,871) (17,554)

Moved to other real estate and repossessed assets (6,933) —

Nonperforming loans, end of period $ 43,728 $ 9,981

Nonperforming loans at December 31, 2022 decreased $18.0 million, or 64%, when compared to December 31, 2021.

The decrease in nonperforming loans during 2022 was primarily from principal payments of $17.6 million and charge-offs of $9.4 million.

The charge-offs off nonperforming loans were primarily in C&I and residential real estate, representing 65% and and 22% of gross charge-offs in 2022, respectively.

Nonperforming loans at December 31, 2023 increased $33.7 million, or 338%, when compared to December 31, 2022.

The increase in nonperforming loans during 2023 was primarily from additions to nonaccrual loans of $109.8 million, offset by principal payments of $25.9 million and charge-offs of $43.2 million.

The charge-offs of nonperforming loans were primarily in C&I and commercial real estate (investor owned), representing 84% and 11% of gross charge-offs in 2023, respectively.

Other real estate

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At December 31, 2023, our portfolio of investment securities was $2.4 billion, or 16%, of total assets, compared to $2.2 billion, or 17%, of total assets as of December 31, 2022.

The increase in 2022 was due to a reallocation of excess liquidity into the investment portfolio.

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

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The following table shows the breakdown of deposits by type:

Years ended December 31, % Increase (decrease)

Years ended December 31, $ Increase (decrease) % Increase (decrease)

($ in thousands) 2023 2022 2023 vs.

2022 2023 vs.

Noninterest-bearing demand accounts $ 3,958,743 $ 4,642,732 $ (683,989) (14.7) %

4 unchanged sentences

Brokered 482,759 118,968 363,791 305.8 %

Other 411,740 479,323 (14.1) %

Customer 790,155 411,740 378,415 91.9 %

Total deposits $ 12,176,371 $ 10,829,150 $ 1,347,221 12.4 %

Noninterest-bearing deposits / Total deposits 33 % 43 %

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

Brokered certificates of deposit increased $363.8 million, to $482.8 million at December 31, 2023.

Brokered certificates of deposit are used for term liquidity purposes in place of FHLB borrowings.

The brokered certificates of deposit balance has a weighted average cost of 4.73% and a weighted average remaining term of 7 months at December 31, 2023.

The Company has a specialty deposit portfolio focusing primarily on property management, community associations, and escrow companies.

These deposits totaled $2.8 billion and $2.1 billion at the end of 2023 and 2022, respectively.

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

Years ended December 31,

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Certificates of deposit:

Brokered 557,761 4.44 % 128,120 1.08 % 66,265 1.66 %

Customer 640,790 2.81 % 441,152 0.48 % 504,231 0.61 %

Total interest-bearing deposits $ 7,469,951 2.46 % $ 6,488,257 0.46 % $ 5,975,852 0.18 %

Total average deposits $ 11,601,114 1.58 % $ 11,293,806 0.27 % $ 9,573,056 0.11 %

Average total deposits were $11.3 billion for the year ended December 31, 2022, an increase of $1.7 billion, or 18%, from December 31, 2021.

The increase in 2022 was primarily due to a full year of balances from the First Choice acquisition and organic growth.

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

Average total deposits were $11.6 billion for the year ended December 31, 2023, an increase of $307.3 million, or 3%, from December 31, 2022.

The increase in 2023 was primarily due to organic growth in money market and interest-bearing demand accounts.

The following table sets forth the maturities of estimated uninsured certificates of deposit as of December 31, 2023.

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As of December 31, 2023, estimated uninsured deposits totaled $4.3 billion, including $234.6 million of certificates of deposit.

Also, at December 31, 2021 estimated uninsured deposits totaled $5.9 billion.

At December 31, 2022 estimated uninsured deposits totaled $5.9 billion.

Estimated uninsured deposits at December 31, 2023 include $0.5 million of balances that are collateralized or secured with third party insurance.

Shareholders’ equity

Shareholders’ equity totaled $1.5 billion at December 31, 2022, a decrease of $6.9 million, or 0.4%, from December 31, 2021.

Shareholders’ equity totaled $1.7 billion at December 31, 2023, an increase of $193.8 million, or 12.7%, from December 31, 2022.

Significant activity during the year ended December 31, 2023 included the following:

• Increase from net income of $194.1 million;

• Net decrease in fair value of available-for-sale securities and cash flow hedges of $149.1 million;

• Net increase in fair value of available-for-sale securities and cash flow hedges of $29.3 million;

• Decrease from dividends paid on common stock of $37.4 million and preferred stock of $3.8 million, respectively

• Decrease from share repurchases of $32.9 million, pursuant to the Company’s publicly-announced stock repurchase program;

• Retirement of 1,980,093 of treasury stock shares.

Liquidity and Capital Resources

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

Cash and interest-bearing deposits with other banks totaled $291.4 million at December 31, 2022, compared to $2.0 billion at

December 31, 2021.

The decline in cash balances during 2022 is due to loan growth and a deployment of liquidity into the investment portfolio, coupled with a decline in total deposits.

The increase in market interest rates in 2022 increased the competitive environment for deposits, as depositors have more alternatives to bank deposit accounts.

This reverses the trend from 2020-2021, when the low interest rate environment, coupled with an uncertain outlook and government stimulus, increased liquidity within the banking industry.

Cash and interest-bearing deposits with other banks totaled $433.0 million at December 31, 2023, compared to $291.4 million at December 31, 2022.

The increase in cash balances during 2023 is due to deposit growth exceeding loan growth.

The increase in market interest rates in 2022-2023 increased the competitive environment for deposits, as depositors

have more alternatives to bank deposit accounts.

While client deposit balances declined in the first half of 2023, successful marketing efforts increased total deposits in the last half of the year.

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

Securities totaled $2.2 billion at December 31, 2022, and included $734 million pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements.

The remaining $1.4 billion could be pledged or sold to enhance liquidity, if necessary.

Securities totaled $2.4 billion at December 31, 2023, and included $1.6 billion pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements.

The remaining $808.7 million could be pledged or sold to enhance liquidity, if necessary.

Available on- and off-balance sheet liquidity sources include the following items:

($ in thousands) December 31, 2023

Federal Reserve Bank borrowing capacity $ 2,533,405

FHLB borrowing capacity 1,029,921

Unpledged securities 808,709

Federal funds lines (6 correspondent banks) 120,000

Cash and interest-bearing deposits 433,029

Holding Company line of credit 25,000

Total $ 4,950,064

The Company also has a portfolio of SBA guaranteed loans, a portion of which could be sold in the secondary market to generate earnings and liquidity.

SBA loans totaling $42.1 million were sold during 2023.

Liability liquidity funding sources are available to increase financial flexibility.

In addition to amounts borrowed at December 31, 2022, the Company could borrow an additional $752 million from the FHLB of Des Moines under blanket loan pledges and has additional real estate loans that could be pledged.

In addition to amounts borrowed at December 31, 2023, the Company could borrow an additional $1.0 billion from the FHLB of Des Moines under blanket loan pledges and has additional real estate loans that could be pledged.

In the first quarter of 2024, the Company pledged an additional $495 million of loans to the FHLB to increase the borrowing capacity.

The Company also has $2.5 billion available from the Federal Reserve Bank under a pledged loan agreement.

Included in the Federal Reserve Bank borrowing capacity at December 31, 2023 is $215.0 million related to the Bank Term Funding Program.

On January 24, 2024, the Federal Reserve announced that the program would cease making new loans on March 11, 2024.

The Company also has unsecured federal funds lines with six correspondent banks totaling $120 million.

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In 2023, 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, 2023.

The line of credit has a one-year term that was renewed in February 2023.

The line of credit has a one-year term that was renewed in February 2024 for an additional one-year term, and the interest rate was amended to one-month Term SOFR plus 185 basis points and the annual unused commitment fee was increased to 0.40%.

The proceeds can be used for general corporate purposes.

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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.

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 5 – Leases,” “Note 6 – Derivative Financial Instruments,” “Note 10 – Subordinated Debentures and Notes,” “Note 11 – Federal Home Loan Bank Advances,” “Note 12 – Other Borrowings,” and “Note 17 – Commitments.”

Capital Resources

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Total Capital to Risk Weighted Assets 14.2 % 13.2 % 14.2 % 13.1 % 10.0 % 10.5 %

Leverage Ratio (Tier 1 Capital to Average Assets) 10.9 % 10.5 % 9.7 % 9.3 % 5.0 % 4.0 %

Leverage Ratio (Tier 1 Capital to Average Assets) 11.0 % 10.6 % 10.9 % 10.5 % 5.0 % N/A

Tangible common equity to tangible assets 1

8.96 % 8.43 %

Common equity tier 1 capital $ 1,387,802 $ 1,493,105 $ 1,228,786 $ 1,333,978

27 unchanged sentences

The following table summarizes the projected impact of interest rate shocks on net interest income:

Annual % change

Rate Shock Annual % change

in net interest income

3 unchanged sentences

+ 100 bp 3.3% 3.8%

- 100 bp (4.1)% NA

- 200 bp (9.0)% NA

- 300 bp (15.1)% NA

1 Due to the levels of interest rates in 2021, the downward shock scenarios are not shown.

- 100 bp (3.5)% (4.1)%

- 200 bp (7.3)% (9.0)%

- 300 bp (11.2)% (15.1)%

In addition to the rate shocks shown in the table above, the Company models net interest income under various dynamic interest rate scenarios.

2 unchanged sentences

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, 2022, the Company had derivative contracts to manage interest rate risk, including $200.0 million in notional value on derivatives to hedge the cash flows on

floating rate loans and $62.0 million in notional value on derivatives on floating rate debt.

At December 31, 2023, the Company had derivative contracts to manage interest rate risk, including $250.0 million in notional value on derivatives to hedge the cash flows on floating rate loans and $62.0 million in notional value on derivatives on floating rate debt.

Derivative financial instruments are discussed in “Item 8.

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

With the cessation of LIBOR, the Company has selected term SOFR as the replacement index for the majority of its variable rate loans and has begun providing customer notifications in early 2023.

With the cessation of LIBOR, the Company has selected term SOFR as the replacement index for the majority of its variable rate loans and began providing customer notifications in early 2023.

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, debt instruments and derivatives, among other financial contracts indexed to LIBOR and that mature after December 31, 2022.

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

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 from the replacement index for affected contracts that expire after the expected discontinuation of representative LIBOR on June 30, 2023.

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, 2022, the Company’s financial contracts indexed to LIBOR included $1.4 billion in loans (including $497.5 million indirectly linked to LIBOR through reference to an ICE swap rate), $74.8 million in borrowings, and $466.9 million (notional) in derivatives.

The Company had $6.6 billion in variable rate loans as of December 31, 2023.

Of these loans, $4.2 billion have an interest rate floor and nearly all of those loans were at or above the floor.

$1.4 billion in variable rate loans are indexed to LIBOR, $2.9 billion are indexed to the prime rate, $1.4 billion are indexed to SOFR, and $413.4 million are indexed to other rates.

Variable rate loans include $2.8 billion indexed to the prime rate, $2.7 billion are indexed to SOFR, $294.8 million indexed to LIBOR, and $813.3 million indexed to other rates.

Changes in interest rates will also have an effect on noninterest expense.

Certain deposit accounts receive an earnings credit that provides a reimbursement for costs clients incur on the accounts.

As interest rates increase, the amount available for reimbursement also increases, resulting in an increase to noninterest expense.

Conversely, a decrease in interest rates would reduce the amount available for reimbursement and decrease noninterest expense.

Critical Accounting Policies and Estimates

4 unchanged sentences

The impact and any associated risks related to our critical accounting policies on our business operations are described throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect our reported and expected financial results.

For a detailed discussion on the application of these and other accounting policies, see “Item 8.

For a detailed

discussion on the application of these and other accounting policies, see “Item 8.

Note 1 – Summary of Significant Accounting Policies.”

9 unchanged sentences

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

The ACL is a valuation account to adjust the cost basis to the amount expected to

be collected, based on management’s experience, current conditions, and reasonable and supportable forecasts.

The ACL is a valuation account to adjust the cost basis to the amount expected to be collected, based on management’s 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.

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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.

The assets and liabilities of the acquired entities have been recorded at their estimated fair values at the date of acquisition.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets.

The purchase price allocation process requires an estimation of the fair values of the assets acquired and the liabilities assumed.

When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the Company includes an estimate of the acquisition-date fair value as part of the cost of the combination.

To determine the fair values, the Company relies on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques.

The results of operations of the acquired business are included in the Company’s consolidated financial statements from the respective date of acquisition.

Merger-related costs are costs the Company incurs to effect a business combination.

Merger-related expenses include costs directly related to merger or acquisition activity and include legal and professional fees, system consolidation and conversion costs, and compensation costs such as severance and retention incentives for employees impacted by acquisition activity.

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

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.

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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 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 earnings release and the included tables as important 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 the FDIC special assessment, merger-related expenses, facilities charges, and the gain or loss on sale of investment securities, that 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 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 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 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.

8 unchanged sentences

Tax-equivalent adjustment 8,079 7,042 5,151

Less incremental accretion income — — 4,083

Net interest income - FTE (non-GAAP) 570,671 480,945 365,345

Noninterest income (GAAP) 68,725 59,162 67,743

Less gain (loss) on sale of other real estate (93) 884 —

Less gain on sale of investment securities 601 — —

Less other non-core income — — 265

Less gain (loss) on sale of other real estate owned 187 (93) 884

Core revenue (non-GAAP) $ 638,608 $ 540,200 $ 432,204

1 unchanged sentence

Less amortization on intangibles 4,601 5,367 5,691

Less merger-related expenses — 22,082 4,174

Less branch closure expenses — — 3,441

Less other non-core expenses — — 57

Less merger-related expenses — — 22,082

Less FDIC special assessment 2,412 — —

Core noninterest expense (non-GAAP) $ 341,173 $ 268,849 $ 214,705

2 unchanged sentences

Period ended December 31,

($ in thousands, except per share data) 2022 2021 2020

Total shareholders' equity $ 1,522,263 $ 1,529,116 $ 1,078,975

($ and shares in thousands, except per share data) 2023 2022 2021

Shareholders' equity (GAAP) $ 1,716,068 $ 1,522,263 $ 1,529,116

Less preferred stock 71,988 71,988 71,988

1 unchanged sentence

Less intangible assets 12,318 16,919 22,286

Tangible common equity $ 1,068,192 $ 1,069,678 $ 795,324

Tangible common equity (non-GAAP) $ 1,266,598 $ 1,068,192 $ 1,069,678

Common shares outstanding 37,416 37,253 37,820

Tangible book value per share $ 28.67 $ 28.28 $ 25.48

Total assets $ 13,054,172 $ 13,537,358 $ 9,751,571

Tangible book value per share (non-GAAP) $ 33.85 $ 28.67 $ 28.28

Total assets (GAAP) $ 14,518,590 $ 13,054,172 $ 13,537,358

Less goodwill 365,164 365,164 365,164

Less intangible assets 12,318 16,919 22,286

Tangible assets $ 12,672,089 $ 13,149,908 $ 9,467,920

Tangible common equity to tangible assets 8.43 % 8.13 % 8.40 %

Tangible assets (non-GAAP) $ 14,141,108 $ 12,672,089 $ 13,149,908

Tangible common equity to tangible assets (non-GAAP) 8.96 % 8.43 % 8.13 %

Return on Average Tangible Common Equity (ROATCE)

1 unchanged sentence

($ in thousands) 2023 2022 2021

Average shareholder’s equity $ 1,498,759 $ 1,277,153 $ 902,875

Average shareholder’s equity (GAAP) $ 1,623,121 $ 1,498,759 $ 1,277,153

Less average preferred stock 71,988 71,988 8,903

1 unchanged sentence

Less average intangible assets 14,531 19,516 22,460

Average tangible common equity $ 1,042,091 $ 938,176 $ 662,119

Average tangible common equity (non-GAAP) $ 1,171,438 $ 1,042,091 $ 938,176

Net income available to common shareholders (GAAP) $ 190,309 $ 199,002 $ 133,055

Return on average tangible common equity 19.10 % 14.18 % 11.23 %

FDIC special assessment (after tax) 1,814 — —

Net income available to common shareholders adjusted (non-GAAP) $ 192,123 $ 199,002 $ 133,055

Return on average tangible common equity adjusted for FDIC assessment (non-GAAP) 16.40 % 19.10 % 14.18 %

Return on average common equity (GAAP) 12.27 % 13.95 % 10.49 %

Return on average common equity adjusted for FDIC assessment (non-GAAP) 12.39 % 13.95 % 10.49 %

Pre-Provision Net Revenue (PPNR) and Pre-Provision Net Revenue Return on Average Assets (PPNR ROAA)

For the Years ended December 31,

($ in thousands) 2023 2022 2021

Net interest income $ 562,592 $ 473,903 $ 360,194

Noninterest income 68,725 59,162 67,743

FDIC special assessment 2,412 — —

Less gain on sale of investment securities 601 — —

Less gain (loss) on sale of other real estate owned 187 (93) 884

Less noninterest expense 348,186 274,216 245,919

PPNR (non-GAAP) $ 284,755 $ 258,942 $ 181,134

Average assets $ 13,805,236 $ 13,319,624 $ 11,467,310

PPNR ROAA (non-GAAP) 2.06 % 1.94 % 1.58 %

Return on Average Assets (ROAA)

For the Years ended December 31,

($ in thousands) 2023 2022 2021

Net income (GAAP) $ 194,059 $ 203,043 $ 133,055

FDIC special assessment (after tax) 1,814 — —

Net income adjusted (non-GAAP) 195,873 203,043 133,055

Average assets $ 13,805,236 $ 13,319,624 $ 11,467,310

ROAA (GAAP) 1.41 % 1.52 % 1.16 %

ROAA adjusted for FDIC special assessment (non-GAAP) 1.42 % 1.52 % 1.16 %

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

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

What changed 10-K

Item 7. Management’s Discussion and Analysis