What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-02-26 · 176 added, 199 removed, 705 unchanged (35% of the section changed)

6 unchanged sentences

Executive Summary

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

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

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

1 unchanged sentence

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 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.

The Company’s financial condition, operating results and liquidity in 2024 continued to be impacted by monetary policy actions.

The Federal Reserve decreased the target federal funds rate 100 basis points in the fourth quarter 2024, following a 100 basis point increase in 2023.

The Federal Reserve has begun to loosen its monetary policy, but has indicated it will continue to reduce its balance sheet namely through a reduction in bond holdings.

These actions represent the Federal Reserve’s response to an environment of high inflation and elevated interest rates following a period of highly expansionary fiscal support from the federal government during the COVID-19 pandemic in 2020-2021.

Financial Performance Highlights

Below are highlights of our financial performance for the years ended December 31, 2024, 2023 and 2022.

($ in thousands, except per share data) Year ended December 31,

($ in thousands, except per share data) At or for the year ended December 31,

2024 2023 2022

14 unchanged sentences

Return on average assets 1.25 % 1.41 % 1.52 %

Adjusted return on average assets 1

1.26 % 1.41 % 1.52 %

Return on average common equity 10.60 % 12.27 % 13.95 %

Adjusted return on average common equity 1

10.71 % 12.35 % 13.95 %

1 unchanged sentence

13.58 % 16.25 % 19.10 %

Adjusted return on average tangible common equity 1

13.71 % 16.35 % 19.10 %

Net interest margin (fully tax equivalent) 4.16 % 4.43 % 3.89 %

3 unchanged sentences

Common dividend payout ratio 2

21.95 % 19.72 % 16.95 %

Book value per common share $ 47.37 $ 43.94 $ 38.93

4 unchanged sentences

9.05 % 8.96 % 8.43 %

At or for the year ended December 31,

2023 2022 2021

ASSET QUALITY

12 unchanged sentences

A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”

2 Common dividends per share divided by diluted earnings per share.

The Company noted the following trends during 2024:

2 unchanged sentences

PPNR ROAA 1 for 2024 and 2023 was 1.72% and 2.06%, 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.

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 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 decrease in PPNR 1 and PPNR ROAA 1 was primarily due to increases in employee compensation and benefits, deposit costs, and expenses incurred in connection with the core system conversion, partially offset by an increase in operating revenue.

Offsetting the decrease in PPNR 1 and PPNR ROAA 1 was a $15.1 million decrease in the provision for credit losses in 2024 compared to 2023, due to an improvement in overall asset quality.

• NIM decreased to 4.16% in 2024, from 4.43% in 2023, primarily due to the impact of higher interest expense on the deposit portfolio from an increase in deposit rates and average balances.

The total cost of deposits was 2.12% in 2024 compared to 1.58% in 2023.

Offsetting the decline in NIM was a $995.0 million increase in average interest earning assets, which resulted in total net interest income of $568.1 million, a $5.5 million increase over the prior year.

• Noninterest income was $69.7 million, an increase of $1.0 million from $68.7 million in 2023.

Noninterest expense was $385.0 million in 2024, an 11% increase from $348.2 million in 2023.

The increase in noninterest expense was primarily from higher customer deposit servicing costs due to higher average balances and an increase in earnings credit rates, an increase in compensation due to the recruitment of new relationship bankers and annual merit increases, and expenses related to the core system conversion.

The core efficiency ratio 1 was 58.4% in 2024, compared to 53.4% in 2023.

• The Company’s effective tax rate was 19.9% in 2024 compared to 21.3% in 2023.

1 Non-GAAP measures.

A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”

2023 Significant Transactions

2024 Financial Highlights

During 2024, we announced the following significant transactions:

• The Company had a return on average assets of 1.25%.

This drove a 10.1% increase in tangible book value per share in 2024.

• Dividends paid in 2024 of $1.06 per share increased $0.06 per share, or 6%, compared to $1.00 per share in 2023.

• 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:

• The Company repurchased 626,778 of its common shares at a weighted-average share price of $46.95.

• In the fourth quarter 2024, the Company successfully completed the conversion of its legacy core system into a new core banking platform.

2023 Financial Highlights

During 2023, we announced the following significant transactions:

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

1 PPNR, PPNR ROAA, and the core efficiency ratio are non-GAAP measures.

A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”

RESULTS OF OPERATIONS

44 unchanged sentences

Interest income includes net loan fees of $9.6 million, $13.8 million, and $16.7 million for the years ended December 31, 2024, 2023, and 2022 respectively.

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

Loan fees in 2022 included Paycheck Protection Program fees of $4.1 million.

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

26 unchanged sentences

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%.

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.

Net interest income (on a tax equivalent basis) was $576.5 million for 2024, compared to $570.7 million for 2023, an increase of $5.9 million.

The increase in net interest income in 2024 was primarily due to a higher average yield on interest earning assets and organic loan growth, which was partially offset by an increase in the average cost paid on interest bearing liabilities.

Total tax equivalent interest income increased $86.5 million in 2024 primarily due to a $67.0 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.

The increase was primarily due to an increase in average loan balances of $665.8 million during the year.

In addition, the loan yield increased 20 basis points from 6.67% in 2023 to 6.87% in 2024.

Tax equivalent interest income on securities (taxable and non-taxable) in 2024 increased $14.0 million from 2023, primarily due to increases of $7.3 million in interest income on average balances and $6.7 million in yield.

Average securities represented 18% of earnings assets in both 2024 and 2023.

Overall, average interest-earning assets increased $995.0 million, or 8%, to $13.9 billion for the year ended December 31, 2024, primarily due to success in growing the deposit portfolio.

The loan portfolio expanded and excess liquidity was deployed into the investment portfolio and other interest-earning assets.

Volume growth of the balance sheet drove an increase in interest income on earning assets of $58.3 million, while higher loan and securities yields drove interest income on interest-earning assets up by $28.2 million in 2024 compared to 2023.

Total interest expense increased $80.6 million in 2024 primarily due to increased deposit interest expense.

1 unchanged sentence

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.

Remixing of the deposit portfolio from noninterest-bearing and lower cost accounts into higher cost accounts contributed to the increase in deposit interest expense in 2024.

Total average interest-bearing deposits increased to $8.5 billion, an increase of $996.3 million, or 13%, in 2024 over the average for 2023.

1 unchanged sentence

Average noninterest-bearing deposits represented 31% of total average deposits in 2024, compared to 36% in 2023.

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.

Overall, average interest-bearing liabilities increased $934.9 million, or 12%, for the year ended December 31, 2024.

The shift in volume from noninterest-bearing deposit accounts into higher cost deposit accounts increased interest expense in 2024 by $29.0 million, while the increase in the average cost of interest-bearing liabilities increased interest expense $51.6 million in 2024.

The tax-equivalent net interest margin was 4.16% for 2024, compared to 4.43% for 2023.

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

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

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

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

The primary driver of the decrease in net interest margin from 2023 to 2024 was higher interest expense on the deposit portfolio.

In 2023, the Federal Reserve increased interest rates three times for a total of 100 basis points.

In the fourth quarter 2024, the Federal Reserve lowered the federal funds target rate by 100 basis points.

As of December 31, 2024, variable-rate loans comprised approximately 60% of total loans.

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

The earning-asset yield increased 20 basis points to 6.20% in 2024, compared to 6.00% in 2023.

9 unchanged sentences

Tax credit income 8,954 9,196 2,558 (242) 6,638

Miscellaneous income 22,912 16,717 22,148 6,195 (5,431)

Other income 21,987 22,912 16,717 (925) 6,195

Total noninterest income $ 69,703 $ 68,725 $ 59,162 $ 978 $ 9,563

Noninterest income increased $1.0 million, or 1%, in 2024 compared to 2023.

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.

This increase was primarily due to a $1.8 million increase in service charges on deposit accounts, partially offset by a $0.9 million decrease in other income.

Other income decreased primarily due to lower private equity and community development income ($3.1 million) and gains on the sale of SBA loans ($0.6 million), offset by an increase in gains on sale of other real estate owned ($2.9 million).

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 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.

In 2024, the Company sold the guaranteed portion of SBA 7(a) loans of $23.1 million for a gain of $1.4 million, compared to $42.1 million and $2.0 million, respectively, in 2023.

Noninterest Expense

8 unchanged sentences

Professional fees 6,257 5,719 7,079 538 (1,360)

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

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

Other expenses 70,530 73,886 57,873 (3,356) 16,013

6 unchanged sentences

Noninterest expense increased $36.9 million, or 11%, in 2024 compared to 2023.

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.

The increase was attributed primarily to an increase in compensation and benefits due to annual merit increases and the recruitment of new relationship bankers, a $16.4 million increase in deposit costs, and a $4.5 million increase in data processing primarily related to the core system conversion.

The total cost of the core conversion in noninterest expense was $4.9 million in 2024.

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

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 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.

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.

The increase in deposit costs in 2024 is due to organic growth in the deposit verticals and an increase in market interest rates that increased the earnings credit rate and related expenses for those accounts.

Average balances in the deposit verticals were approximately $3.1 billion and $2.6 billion, resulting in an average deposit vertical cost of 2.82% and 2.75% for 2024 and 2023, respectively.

The Company’s blended federal and state tax rate was approximately 24.8% in 2024 and 2023.

The effective tax rate, which is adjusted for permanent differences, such as tax exempt income and tax credits, was 19.9% in 2024 compared to 21.3% in 2023.

The effective tax rate decrease was driven by tax credit opportunities the Company has deployed as part of its tax planning strategy.

Note 16 – Income Taxes” for additional information.

4 unchanged sentences

2023 2023 vs.

Total cash and cash equivalents $ 433,029 $ 291,359 $ 2,021,689 48.62 % (85.59) %

Cash and cash equivalents $ 764,170 $ 433,029 $ 291,359 76.47 % 48.62 %

Securities 2,791,205 2,368,707 2,245,722 17.84 % 5.48 %

Total loans 10,884,118 9,737,138 9,017,642 11.78 % 7.98 %

Total assets 14,518,590 13,054,172 13,537,358 11.22 % (3.57) %

Loans 11,220,355 10,884,118 9,737,138 3.09 % 11.78 %

Assets 15,596,431 14,518,590 13,054,172 7.42 % 11.22 %

Deposits 13,146,492 12,176,371 10,829,150 7.97 % 12.44 %

Total liabilities 12,802,522 11,531,909 12,008,242 11.02 % (3.97) %

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

Liabilities 13,772,429 12,802,522 11,531,909 7.58 % 11.02 %

Shareholders’ equity 1,824,002 1,716,068 1,522,263 6.29 % 12.73 %

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:

2024 2023 2022

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 %

Cash and cash equivalents to total assets 4.90 % 2.98 % 2.23 %

Securities to total assets 17.90 % 16.31 % 17.20 %

Loans to total assets 71.94 % 74.97 % 74.59 %

Deposits to total liabilities 95.46 % 95.11 % 93.91 %

Loans by Type

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

The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector other than those noted in the table of loans by NAICS code below;

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

18 unchanged sentences

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

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.

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

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 to our markets.

1 unchanged sentence

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

• Our commercial real estate loans, including investor-owned and owner-occupied categories, primarily represent commercial property loans on which the primary source of repayment is income from the property.

These loans are principally underwritten based on the cash flow coverage of the property, the Company’s loan to value guidelines, and generally require either the limited or full guaranty of principal sponsors of the credit.

The Company also maintains standards for amortization and maturity terms.

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.

In an effort to mitigate credit risk, the Company routinely reviews its loan portfolio for various concentrations.

Annually, management prepares an assessment of credit risk in the various loan portfolios, with a significant portion of the commercial loan portfolio subject to review.

These reviews consider the Company’s collateral position as well as exposure to a given industry sector.

The Company performs site visits as part of the underwriting process, in addition to stress tests for vacancy, rental and interest rates on certain property types.

The Company believes that the loan portfolio is sufficiently diversified to provide protection from deterioration in any particular industry, geography or devaluation of a specific collateral type.

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

underwriting guidelines.

At December 31, 2024, $334.2 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.

11 unchanged sentences

Construction 584,421 5 % 692,403 6 %

Educational Services 54,044 1 % 51,083 — %

Educational Services 49,942 NM 54,044 1 %

Finance and Insurance 2,252,420 20 % 2,005,183 18 %

3 unchanged sentences

Manufacturing 750,480 7 % 704,750 7 %

Mining, Quarrying, and Oil and Gas Extraction 32,024 — % 8,106 — %

Mining, Quarrying, and Oil and Gas Extraction 5,494 NM 32,024 NM

Other Services (except Public Administration) 556,325 5 % 588,449 5 %

Professional, Scientific, and Technical Services 311,160 3 % 326,176 3 %

Public Administration 13,774 — % 9,111 — %

Public Administration 11,889 NM 13,774 NM

Real Estate and Rental and Leasing 2,904,153 26 % 2,766,754 25 %

1 unchanged sentence

Transportation and Warehousing 286,906 3 % 284,706 3 %

Utilities 15,853 — % 34,079 — %

Utilities 7,139 NM 15,853 NM

Wholesale Trade 517,761 5 % 535,666 5 %

3 unchanged sentences

At December 31, 2024 and 2023, the Company had an agricultural loan portfolio of $121.8 million and $229.7 million, respectively.

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

The Company continues 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.

14 unchanged sentences

The Company had $513.7 million and $482.0 million of investor owned office real estate loans as of December 31, 2024 and 2023, respectively.

The Company also had $322.5 million and $271.8 million of multifamily commercial real estate loans as of December 31, 2024 and 2023, respectively.

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

29 unchanged sentences

Los Angeles-Long Beach-Santa Ana, CA MSA 1,557,990 1,561,720

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

Phoenix-Mesa-Scottsdale, AZ MSA 993,239 899,768

Kansas City, MO-KS MSA 975,457 953,557

San Diego-Carlsbad-San Marcos, CA MSA 297,359 234,808

Dallas-Fort Worth-Arlington, TX MSA 185,242 155,459

Albuquerque, NM MSA 211,642 183,813

Santa Fe, NM MSA 151,883 167,321

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

Las Vegas-Paradise, NV MSA 165,485 83,737

3 unchanged sentences

Loan guarantees, primarily on SBA 7(a) loans, totaled $947.7 million and $932.1 million at December 31, 2024 and 2023, respectively.

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

The following table sets forth additional information on certain categories of loans that are included in total loans above at the periods indicated:

($ in thousands) December 31,

1 unchanged sentence

2023 Increase (decrease)

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

CRE investor owned 2,291,660 2,176,424 115,236 5 %

CRE owner occupied 1,262,264 1,174,094 88,170 8 %

SBA loans 1,298,007 1,281,632 16,375 1 %

2 unchanged sentences

Tax credits 760,229 734,594 25,635 3 %

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

Construction and land development 670,567 534,753 135,814 25 %

Other 268,815 243,130 25,685 11 %

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.

33 unchanged sentences

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

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

The Company has also entered into interest rate hedges to reduce the cash flow impact of changes in interest rates on the variable rate loan portfolio.

These hedges, which include interest rate swaps and collars, had a notional amount of $400.0 million and $350.0 million at December 31, 2024 and 2023, respectively.

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

Provision and Allowance for Credit Losses

1 unchanged sentence

($ in thousands) 2024 2023

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

Provision for credit losses on loans

$ 20,629 $ 35,883

Provision for available-for-sale securities

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

Provision for held-to-maturity securities 50 121

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

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

Benefit for off-balance sheet commitments

(586) (5,450)

Provision / (Benefit) for held-to-maturity securities

Charge-offs of accrued interest

Provision for credit losses

$ 21,508 $ 36,605

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.

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

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

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.

The decrease in the provision for credit losses in 2024 was primarily due to improved credit quality, including a reduction in net charge-offs.

The higher provision for credit losses in the prior year 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, related to a subordinated debt security in a publicly-traded bank that failed in the first quarter of 2023.

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.

12 unchanged sentences

The allowance for credit losses was 1.23% of total loans at December 31, 2024, compared to 1.24%, and 1.41%, at December 31, 2023 and 2022, respectively.

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 decrease in the allowance to total loans ratio in 2024 compared to 2023 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 $17.5 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 $ 10,425 $ 5,602,957 0.19 % $ 33,257 $ 4,247,091 0.78 %

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.

5 unchanged sentences

Loans past due 90 days or more and still accruing interest 20 547

Restructured loans — 73

Total nonperforming loans 42,687 43,728

16 unchanged sentences

Residential real estate 258 1 % 1 959 2 % 1

Other 5 — % 2 73 1 % 2

Other 9 NM 4 5 — % 2

Total $ 42,687 100 % 63 $ 43,728 100 % 48

6 unchanged sentences

Principal payments (29,000) (25,871)

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

Moved to other real estate (5,914) (6,933)

Nonperforming loans, end of period $ 42,687 $ 43,728

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.

Nonperforming loans at December 31, 2024 decreased $1.0 million, or 2%, when compared to December 31, 2023.

The decrease in nonperforming loans during 2024 was primarily from principal payments of $29.0 million and charge-offs of $21.9 million, partially offset by additions to nonaccrual loans of $55.7 million.

Other real estate

4 unchanged sentences

Additions 6,559 5,736

Writedowns in value — (268)

Changes in valuation allowance (156) —

Sales (8,184) (269)

44 unchanged sentences

Noninterest-bearing deposits / Total deposits 34 % 33 %

Total deposits increased $970.1 million, primarily due to client deposit growth.

Brokered certificates of deposit increased $1.8 million, to $484.6 million at December 31, 2024.

1 unchanged sentence

The brokered certificates of deposit balance has a weighted average cost of 4.50% and a weighted average remaining term of 9 months at December 31, 2024.

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

The Company has a deposit vertical portfolio focusing primarily on property management, community associations, and legal industry and escrow services.

These deposits totaled $3.4 billion and $2.8 billion at the end of 2024 and 2023, respectively.

24 unchanged sentences

At December 31, 2023 estimated uninsured deposits totaled $4.3 billion.

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

Estimated uninsured deposits include $0.5 billion of balances that are collateralized or secured with third party insurance at December 31, 2024 and 2023, respectively.

Shareholders’ equity

2 unchanged sentences

• Increase from net income of $185.3 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

• Net decrease in fair value of available-for-sale securities and cash flow hedges of $15.7 million;

• Decrease from dividends paid on common stock of $39.6 million and preferred stock of $3.8 million

• Decrease from share repurchases of $29.6 million, pursuant to the Company’s publicly-announced stock repurchase program.

Liquidity and Capital Resources

2 unchanged sentences

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;

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.

and the ability to sell loan participations to other banks and loans on the secondary market.

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

7 unchanged sentences

The increase in cash balances during 2024 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.

increase in market interest rates in 2022 - 2023 increased the competitive environment for deposits, as depositors had more alternatives to bank deposit accounts.

Successful marketing efforts increased total deposits in 2024.

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

Securities totaled $2.8 billion at December 31, 2024, and included $1.5 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.

The remaining $1.3 billion could be pledged or sold to enhance liquidity, if necessary.

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

8 unchanged sentences

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.

The guaranteed portion of SBA loans totaling $23.1 million and $42.1 million were sold during 2024 and 2023.

Liability liquidity funding sources are available to increase financial flexibility.

In addition to amounts borrowed at December 31, 2024, the Company could borrow an additional $1.3 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 $2.8 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.

The Company also has unsecured federal funds lines with seven correspondent banks totaling $140 million.

In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit.

7 unchanged sentences

In 2024, 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, 2024.

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.

The Company has an effective automatic shelf registration statement on Form S-3 allowing for the issuance of various forms of equity and debt securities.

The Company’s ability to offer securities pursuant to the registration statement depends on market conditions and the Company’s continuing eligibility to use the Form S-3 under rules of the SEC.

The line of credit had a one-year term that matured in February 2025, the interest rate was one-month Term SOFR plus 185 basis points, and an annual unused commitment fee of 0.40% was assessed.

The proceeds could be used for general corporate purposes.

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

3 unchanged sentences

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.

Such obligations relate to funding 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.

30 unchanged sentences

1 Not a required regulatory capital ratio

Total regulatory capital includes $63.3 million of subordinated debentures that were issued in 2020 at a fixed rate of 5.75%.

The interest rate on these debentures resets to a floating rate based on 3 month term SOFR plus a spread of 5.66% in June of 2025.

When the interest rate resets, the debentures become callable and the inclusion in regulatory capital begins to phase out over a five year period.

The Company believes the tangible common equity and regulatory capital ratios are important measures of capital strength.

23 unchanged sentences

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

Rate Shock Annual % change

Annual % change

in net interest income

At December 31,

Rate Shock 2024 2023

+ 300 bp 7.9% 9.8%

10 unchanged sentences

Derivative financial instruments are discussed in “Item 8.

Note 6 – Derivative Financial Instruments.”

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 September 30, 2024.

Financial Statements and Supplementary Data – Note 6 – Derivative Financial Instruments.”

The FCA ceased publishing the most common USD LIBOR settings (overnight, 1-month.

3-month, 6-month and 12-month) after September 30, 2024.

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

3 unchanged sentences

Of these loans, $4.6 billion have an interest rate floor and nearly all of those loans were at or above the floor.

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.

Variable rate loans include $2.7 billion indexed to the prime rate, $3.2 billion are indexed to SOFR, and $807.4 million indexed to other rates.

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

20 unchanged sentences

Allowance for Credit Losses

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

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

22 unchanged sentences

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.

Core performance measures exclude certain other income and expense items, such as core conversion expenses, FDIC special assessment, merger-related expenses, facilities charges, and the gain or loss on sale of other real estate owned and 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.

5 unchanged sentences

Reconciliations of Non-GAAP Financial Measures

Core Efficiency Ratio

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

For the years ended December 31,

($ in thousands) 2024 2023 2022

Net interest income (GAAP) $ 562,592 $ 473,903 $ 360,194

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

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

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

Net interest income $ 568,096 $ 562,592 $ 473,903

Noninterest income 69,703 68,725 59,162

FDIC special assessment 625 2,412 —

Core conversion expense 4,868 — —

Less gain on sale of investment securities — 601 —

Less gain (loss) on sale of other real estate owned 3,089 187 (93)

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

Noninterest expense (GAAP) $ 348,186 $ 274,216 $ 245,919

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

Less branch closure expenses — — 3,441

Less merger-related expenses — — 22,082

Less FDIC special assessment 2,412 — —

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

Core efficiency ratio (non-GAAP) 53.42 % 49.77 % 49.68 %

Less noninterest expense 385,047 348,186 274,216

PPNR (non-GAAP) $ 255,156 $ 284,755 $ 258,942

Average assets $ 14,841,690 $ 13,805,236 $ 13,319,624

PPNR ROAA (non-GAAP) 1.72 % 2.06 % 1.94 %

Tangible Common Equity, Tangible Book Value per Share, and Tangible Common Equity Ratio

Period ended December 31,

At December 31,

($ and shares in thousands, except per share data) 2024 2023 2022

11 unchanged sentences

Tangible common equity to tangible assets (non-GAAP) 9.05 % 8.96 % 8.43 %

Return on Average Tangible Common Equity (ROATCE)

For the Years ended December 31,

Return on Average Tangible Common Equity (ROATCE) and Return on Average Assets (ROAA)

At or for the years ended December 31,

($ in thousands) 2024 2023 2022

4 unchanged sentences

Average tangible common equity (non-GAAP) $ 1,336,694 $ 1,171,438 $ 1,042,091

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

Net income (GAAP) $ 185,266 $ 194,059 $ 203,043

FDIC special assessment (after tax) 470 1,814 —

Core conversion expense (after tax) 3,661 — —

Less gain on sale of investment securities (after tax) — 452 —

Less net gain (loss) on sale of other real estate owned (after tax) 2,323 141 (70)

Net income adjusted (non-GAAP) $ 187,074 $ 195,280 $ 203,113

Less preferred stock dividends 3,750 3,750 4,041

Net income available to common shareholders adjusted (non-GAAP) $ 183,324 $ 191,530 $ 199,072

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)

Return on average common equity (non-GAAP) 10.60 % 12.27 % 13.95 %

Adjusted return on average common equity (non-GAAP) 10.71 % 12.35 % 13.95 %

ROATCE (non-GAAP) 13.58 % 16.25 % 19.10 %

Adjusted ROATCE (non-GAAP) 13.71 % 16.35 % 19.10 %

Average assets $ 14,841,690 $ 13,805,236 $ 13,319,624

Return on average assets (GAAP) 1.25 % 1.41 % 1.52 %

Adjusted return on average assets (non-GAAP) 1.26 % 1.41 % 1.52 %

Core Efficiency Ratio

For the years ended December 31,

($ in thousands) 2024 2023 2022

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

Noninterest income 68,725 59,162 67,743

FDIC special assessment 2,412 — —

Net interest income (GAAP) $ 568,096 $ 562,592 $ 473,903

Tax-equivalent adjustment 8,445 8,079 7,042

Net interest income - FTE (non-GAAP) 576,541 570,671 480,945

Noninterest income (GAAP) 69,703 68,725 59,162

Less gain on sale of investment securities — 601 —

Less gain (loss) on sale of other real estate owned 3,089 187 (93)

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 %

Core revenue (non-GAAP) $ 643,155 $ 638,608 $ 540,200

Noninterest expense (GAAP) $ 385,047 $ 348,186 $ 274,216

Less amortization on intangibles 3,834 4,601 5,367

Less core conversion expense 4,868 — —

Less FDIC special assessment 625 2,412 —

Core noninterest expense (non-GAAP) $ 375,720 $ 341,173 $ 268,849

Core efficiency ratio (non-GAAP) 58.42 % 53.42 % 49.77 %

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