Item 7. Management’s Discussion and Analysis
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The objective of this section is to provide an overview of the results of operations and financial condition of the Company by focusing on changes in certain key measures from year to year. It should be read in conjunction with the Consolidated Financial Statements and related Notes contained in “Item 8. Financial Statements and Supplementary Data,” and other financial data presented elsewhere in this report, particularly the information regarding the Company’s business operations described in Item 1. A detailed discussion comparing 2023 and 2022 results is incorporated herein by reference to Item 7 of the Company’s 2023 Annual Report on Form 10-K filed on February 26, 2024.
Executive Summary
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. A wide variety of deposit products and a complete suite of treasury management and international trade services complement our lending capabilities. 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 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.
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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) At or for the year ended December 31,
2024 2023 2022
EARNINGS
Total interest income $ 851,051 $ 764,919 $ 515,082
Total interest expense 282,955 202,327 41,179
Net interest income 568,096 562,592 473,903
Provision (benefit) for credit losses 21,508 36,605 (611)
Net interest income after provision (benefit) for credit losses 546,588 525,987 474,514
Total noninterest income 69,703 68,725 59,162
Total noninterest expense 385,047 348,186 274,216
Income before income tax expense 231,244 246,526 259,460
Income tax expense 45,978 52,467 56,417
Net income $ 185,266 $ 194,059 $ 203,043
Preferred dividends 3,750 3,750 4,041
Net income available to common shareholders $ 181,516 $ 190,309 $ 199,002
Basic earnings per share $ 4.86 $ 5.09 $ 5.32
Diluted earnings per share $ 4.83 $ 5.07 $ 5.31
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 %
Return on average tangible common equity 1
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 %
Efficiency ratio 60.37 % 55.15 % 51.44 %
Core efficiency ratio 1
58.42 % 53.42 % 49.77 %
Common dividend payout ratio 2
21.95 % 19.72 % 16.95 %
Book value per common share $ 47.37 $ 43.94 $ 38.93
Tangible book value per common share 1
$ 37.27 $ 33.85 $ 28.67
Average common equity to average assets 11.54 % 11.24 % 10.71 %
Tangible common equity to tangible assets 1
9.05 % 8.96 % 8.43 %
ASSET QUALITY
Net charge-offs $ 17,450 $ 38,044 $ 3,899
Nonperforming loans 42,687 43,728 9,981
Nonaccrual loans 42,667 43,181 9,766
Classified assets 193,838 185,389 99,122
Total assets 15,596,431 14,518,590 13,054,172
Total loans 11,220,355 10,884,118 9,737,138
Classified assets to total assets 1.24 % 1.28 % 0.76 %
Nonperforming loans to total loans 0.38 % 0.40 % 0.10 %
Nonperforming assets to total assets 0.30 % 0.34 % 0.08 %
ACL on loans to total loans 1.23 % 1.24 % 1.41 %
Net charge-offs to average loans 0.16 % 0.37 % 0.04 %
1 Non-GAAP measures. 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.
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The Company noted the following trends during 2024:
• The Company reported net income of $185.3 million, or $4.83 per diluted share for 2024, compared to $194.1 million, or $5.07 per diluted share for 2023. PPNR 1 for 2024 was $255.2 million, compared to $284.8 million in 2023. PPNR ROAA 1 for 2024 and 2023 was 1.72% and 2.06%, respectively. 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.
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 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 $0.90 per share in 2022.
• The process of converting to a leading core operating system was initiated.
1 PPNR, PPNR ROAA, and the core efficiency ratio are non-GAAP measures. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”
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RESULTS OF OPERATIONS
Net Interest Income
Average Balance Sheet
The following table presents, for the periods indicated, certain information related to our average interest-earning assets and interest-bearing liabilities, as well as, the corresponding interest rates earned and paid, all on a tax equivalent basis. Average balances are presented on a daily average basis.
Year ended December 31,
2024 2023 2022
($ in thousands) Average Balance Interest
Income/Expense Average
Yield/
Rate Average Balance Interest
Income/Expense Average
Yield/
Rate Average Balance Interest
Income/Expense Average
Yield/
Rate
Assets
Interest-earning assets:
Loans 1, 2
$ 10,990,774 $ 755,448 6.87 % $ 10,324,951 $ 688,439 6.67 % $ 9,193,682 $ 456,703 4.97 %
Taxable securities 1,512,132 53,167 3.52 1,320,664 40,920 3.10 1,228,514 29,638 2.41
Non-taxable securities 2
1,000,558 31,963 3.19 970,888 30,209 3.11 872,173 25,184 2.89
Total securities 2,512,690 85,130 3.39 2,291,552 71,129 3.10 2,100,687 54,822 2.61
Interest-earning deposits 368,221 18,918 5.14 260,214 13,430 5.16 1,074,165 10,599 0.99
Total interest-earning assets 13,871,685 859,496 6.20 12,876,717 772,998 6.00 12,368,534 522,124 4.22
Noninterest-earning assets 970,005 928,519 951,090
Total assets $ 14,841,690 $ 13,805,236 $ 13,319,624
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand accounts $ 3,033,616 $ 76,932 2.54 % $ 2,559,238 $ 46,976 1.84 % $ 2,318,363 $ 7,038 0.30 %
Money market accounts 3,494,497 127,651 3.65 3,043,794 92,976 3.05 2,781,579 19,306 0.69
Savings accounts 567,147 1,261 0.22 668,368 975 0.15 819,043 305 0.04
Certificates of deposit 1,371,009 58,764 4.29 1,198,551 42,796 3.57 569,272 3,509 0.62
Total interest-bearing deposits 8,466,269 264,608 3.13 7,469,951 183,723 2.46 6,488,257 30,158 0.46
Subordinated debentures and notes 156,260 10,497 6.72 155,702 9,781 6.28 155,160 9,166 5.91
FHLB advances 30,363 1,691 5.57 54,615 2,752 5.04 33,467 599 1.79
Securities sold under agreements to repurchase 164,959 5,667 3.44 168,745 3,647 2.16 211,039 506 0.24
Other borrowings 37,833 492 1.30 71,738 2,424 3.38 22,812 750 3.29
Total interest-bearing liabilities 8,855,684 282,955 3.20 7,920,751 202,327 2.55 6,910,735 41,179 0.60
Noninterest-bearing liabilities:
Demand deposits 4,042,368 4,131,163 4,805,549
Other liabilities 159,463 130,201 104,581
Total liabilities 13,057,515 12,182,115 11,820,865
Shareholders' equity 1,784,175 1,623,121 1,498,759
Total liabilities & shareholders' equity $ 14,841,690 $ 13,805,236 $ 13,319,624
Net interest income $ 576,541 $ 570,671 $ 480,945
Net interest spread 3.00 % 3.45 % 3.62 %
Net interest margin (tax equivalent) 4.16 % 4.43 % 3.89 %
1 Average balances include non-accrual loans. 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 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%. The tax-equivalent adjustments were $8.4 million, $8.1 million, and $7.0 million for the years ended December 31, 2024, 2023, and 2022, respectively.
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Rate/Volume
The following table sets forth, on a tax-equivalent basis for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in yield/rates and volume.
2024 compared to 2023 2023 compared to 2022
Increase (decrease) due to Increase (decrease) due to
($ in thousands) Volume 1
Rate 2
Net Volume 1
Rate 2
Net
Interest earned on:
Loans $ 45,473 $ 21,536 $ 67,009 $ 61,460 $ 170,276 $ 231,736
Taxable securities 6,347 5,900 12,247 2,355 8,927 11,282
Non-taxable securities 3
936 818 1,754 2,981 2,045 5,026
Interest-earning deposits 5,549 (61) 5,488 (13,192) 16,023 2,831
Total interest-earning assets 58,305 28,193 86,498 53,604 197,271 250,875
Interest paid on:
Interest-bearing demand accounts $ 9,794 $ 20,162 $ 29,956 $ 805 $ 39,133 $ 39,938
Money market accounts 14,928 19,747 34,675 1,987 71,683 73,670
Savings (165) 451 286 (66) 736 670
Certificates of deposit 6,674 9,294 15,968 7,363 31,924 39,287
Subordinated debentures and notes 35 681 716 32 583 615
FHLB advances (1,326) 265 (1,061) 555 1,599 2,154
Securities sold under agreements to repurchase (84) 2,104 2,020 (126) 3,268 3,142
Other borrowed funds (839) (1,093) (1,932) 1,729 (56) 1,673
Total interest-bearing liabilities 29,017 51,611 80,628 12,279 148,870 161,149
Net interest income $ 29,288 $ (23,418) $ 5,870 $ 41,325 $ 48,401 $ 89,726
1 Change in volume multiplied by yield/rate of prior period.
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 approximately 25%.
NOTE: 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 $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 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. The increase in deposit interest expense reflects higher rates paid on deposits, as well as successful marketing efforts that
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increased average deposits. 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. Average noninterest-bearing deposits declined $88.8 million, or 2%, in 2024 compared to the average for 2023. Average noninterest-bearing deposits represented 31% of total average deposits in 2024, compared to 36% 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 $51.6 million in 2024.
The tax-equivalent net interest margin was 4.16% for 2024, compared to 4.43% for 2023. The primary driver of the decrease in net interest margin from 2023 to 2024 was higher interest expense on the deposit portfolio. In 2023, the Federal Reserve increased interest rates three times for a total of 100 basis points. In the fourth quarter 2024, the Federal Reserve lowered the federal funds target rate by 100 basis points. As of December 31, 2024, variable-rate loans comprised approximately 60% of total loans. The earning-asset yield increased 20 basis points to 6.20% in 2024, compared to 6.00% in 2023. Comparatively, the cost of interest-bearing liabilities increased 65 basis points to 3.20%, from 2.55% in 2023.
Noninterest Income
The following table presents a comparative summary of the major components of noninterest income for each of the years in the three-year period ended December 31, 2024:
Year ended December 31, Change from
($ in thousands) 2024 2023 2022 2024 vs. 2023 2023 vs. 2022
Service charges on deposit accounts $ 18,344 $ 16,559 $ 18,326 $ 1,785 $ (1,767)
Wealth management revenue 10,452 10,030 10,010 422 20
Card services revenue 9,966 10,028 11,551 (62) (1,523)
Tax credit income 8,954 9,196 2,558 (242) 6,638
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 $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 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 $2.0 million, respectively, in 2023.
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Noninterest Expense
The following table presents a comparative summary of the components of noninterest expense:
Year ended December 31, Change from
($ in thousands) 2024 2023 2022 2024 vs. 2023 2023 vs. 2022
Employee compensation and benefits $ 182,713 $ 164,566 $ 147,029 $ 18,147 $ 17,537
Deposit costs 88,645 72,293 31,082 16,352 41,211
Occupancy 17,231 16,526 17,640 705 (1,114)
Data processing 19,671 15,196 13,513 4,475 1,683
Professional fees 6,257 5,719 7,079 538 (1,360)
Other expenses 70,530 73,886 57,873 (3,356) 16,013
Total noninterest expense $ 385,047 $ 348,186 $ 274,216 $ 36,861 $ 73,970
Efficiency ratio 60.37 % 55.15 % 51.44 % 5.22 % 3.71 %
Core efficiency ratio 1
58.42 % 53.42 % 49.77 % 5.00 % 3.65 %
1 A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”
Noninterest expense increased $36.9 million, or 11%, in 2024 compared to 2023. 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 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 $2.6 billion, resulting in an average deposit vertical cost of 2.82% and 2.75% for 2024 and 2023, respectively.
Income Taxes
The Company’s blended federal and state tax rate was approximately 24.8% in 2024 and 2023. The effective tax rate, which is adjusted for permanent differences, such as tax exempt income and tax credits, was 19.9% in 2024 compared to 21.3% in 2023. The effective tax rate decrease was driven by tax credit opportunities the Company has deployed as part of its tax planning strategy. See “Item 8. Note 16 – Income Taxes” for additional information.
FINANCIAL CONDITION
Summary Balance Sheet
($ in thousands) December 31, % Increase (Decrease)
2024 2023 2022 2024 vs. 2023 2023 vs. 2022
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 %
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 %
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 %
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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:
December 31,
2024 2023 2022
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 %
Assets
Loans by Type
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. The ability of the Company’s borrowers to honor their contractual obligations is partially dependent upon the local economy and its effect on the real estate market.
The following table sets forth the composition of the loan portfolio by type of loans:
December 31,
($ in thousands) 2024 2023
Commercial and industrial $ 4,716,689 $ 4,672,559
Commercial real estate - investor owned 2,606,964 2,451,953
Commercial real estate - owner occupied 2,367,823 2,351,618
Construction and land development 891,059 760,425
Residential real estate 359,263 372,188
Other 278,557 275,375
Total loans $ 11,220,355 $ 10,884,118
December 31,
2024 2023
Commercial and industrial 42.0 % 42.9 %
Commercial real estate - investor owned 23.2 % 22.5 %
Commercial real estate - owner occupied 21.1 % 21.6 %
Construction and land development 8.0 % 7.1 %
Residential real estate 3.2 % 3.4 %
Other 2.5 % 2.5 %
Total loans 100.0 % 100.0 %
C&I loans are made based on the borrower’s ability to generate cash flows for repayment from income sources, general credit strength, experience, and character, even though such loans may also be secured by real estate or other assets. 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 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. 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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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 for investor-owned and the operating business for owner-occupied. 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, 2024, $334.2 million of these loans include the use of interest reserves and follow standard underwriting guidelines. Construction projects are monitored by the loan officer and a centralized independent loan disbursement function.
• Residential real estate loans include residential mortgages, which are loans that, due to size or other attributes, do not qualify for conventional home mortgages available-for-sale in the secondary market, second mortgages, home equity lines and conventional mortgages that are part of a broad banking relationship with the Company. Residential mortgage loans are usually limited to a maximum of 80% of collateral value at origination.
Other loans represent loans to individuals, loans to state and political subdivisions, loans to nondepository financial institutions, and loans to purchase or are fully secured by investment securities. Credit risk is managed by thoroughly reviewing the creditworthiness of the borrowers prior to origination and thereafter.
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The following table presents a breakdown of loans by NAICS code at the periods indicated:
December 31,
2024 2023
($ in thousands) Outstanding Balance % Outstanding Balance %
Accommodation and Food Services $ 1,052,105 9 % $ 975,357 9 %
Administrative and Support and Waste Management and Remediation Services 207,003 2 % 215,733 2 %
Agriculture, Forestry, Fishing and Hunting 1
141,339 1 % 229,719 2 %
Arts, Entertainment, and Recreation 139,256 1 % 125,487 1 %
Construction 584,421 5 % 692,403 6 %
Educational Services 49,942 NM 54,044 1 %
Finance and Insurance 2,252,420 20 % 2,005,183 18 %
Health Care and Social Assistance 612,767 5 % 551,979 5 %
Information 68,839 1 % 97,052 1 %
Management of Companies and Enterprises 91,890 1 % 88,079 1 %
Manufacturing 750,480 7 % 704,750 7 %
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 11,889 NM 13,774 NM
Real Estate and Rental and Leasing 2,904,153 26 % 2,766,754 25 %
Retail Trade 561,932 5 % 513,763 5 %
Transportation and Warehousing 286,906 3 % 284,706 3 %
Utilities 7,139 NM 15,853 NM
Wholesale Trade 517,761 5 % 535,666 5 %
Other 107,134 1 % 67,167 1 %
Total Loans $ 11,220,355 100 % $ 10,884,118 100 %
1 Includes $54.2 million and $95.0 million in animal production at December 31, 2024, and 2023, respectively and $69.4 million and $113.8 million in crop production at December 31, 2024, and 2023, respectively.
At December 31, 2024 and 2023, the Company had an agricultural loan portfolio of $121.8 million and $229.7 million, respectively. The Company continues to wind down this portfolio over time as the loans mature or pay down. The Company does not intend to enter into new agricultural loans.
The following table presents a breakdown of commercial & industrial loans by size at the periods indicated:
December 31,
2024 2023
($ in thousands) Number of Loans Outstanding Balance Average Balance Number of Loans Outstanding Balance Average Balance
<$2 million 2,582 $ 864,511 $ 335 2,466 $ 850,849 $ 345
$2-5 million 343 1,114,922 3,251 339 1,114,522 3,288
$5-10 million 145 1,001,137 6,904 139 984,795 7,085
>$10 million 95 1,736,119 18,275 97 1,722,393 17,757
Total 3,165 $ 4,716,689 $ 1,490 3,041 $ 4,672,559 $ 1,537
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The following table presents a breakdown of commercial real estate loans (investor owned and owner occupied) by size at the periods indicated:
December 31,
2024 2023
($ in thousands) Number of Loans Outstanding Balance Average Balance Number of Loans Outstanding Balance Average Balance
<$2 million 2,958 $ 1,792,813 $ 606 3,133 $ 1,867,452 $ 596
$2-5 million 443 1,363,797 3,079 413 1,265,659 3,065
$5-10 million 114 765,059 6,711 118 793,837 6,727
>$10 million 65 1,053,118 16,202 57 876,623 15,379
Total 3,580 $ 4,974,787 $ 1,390 3,721 $ 4,803,571 $ 1,291
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 $271.8 million of multifamily commercial real estate loans as of December 31, 2024 and 2023, respectively.
The following table presents a breakdown of construction loans by size at the periods indicated:
December 31,
2024 2023
($ in thousands) Number of Loans Outstanding Balance Average Balance Number of Loans Outstanding Balance Average Balance
<$2 million 303 $ 128,236 $ 423 355 $ 143,461 $ 404
$2-5 million 52 162,936 3,133 60 190,857 3,181
$5-10 million 27 201,108 7,448 23 160,228 6,966
>$10 million 25 398,779 15,951 17 265,879 15,640
Total 407 $ 891,059 $ 2,189 455 $ 760,425 $ 1,671
The following table presents a breakdown of residential loans by size at the periods indicated:
December 31,
2024 2023
($ in thousands) Number of Loans Outstanding Balance Average Balance Number of Loans Outstanding Balance Average Balance
<$2 million 2,000 $ 275,321 $ 138 2,130 $ 284,594 $ 134
$2-5 million 19 62,409 3,285 18 58,337 3,241
$5-10 million 3 21,533 7,177 4 29,257 7,314
Total 2,022 $ 359,263 $ 178 2,152 $ 372,188 $ 173
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The following table presents a breakdown of other loans by size at the periods indicated:
December 31,
2024 2023
($ in thousands) Number of Loans Outstanding Balance Average Balance Number of Loans Outstanding Balance Average Balance
<$2 million 1,023 $ 92,471 $ 90 1,171 $ 105,759 $ 90
$2-5 million 20 65,074 3,254 18 60,801 3,378
$5-10 million 6 38,714 6,453 7 44,593 6,370
>$10 million 4 82,298 20,574 4 64,222 16,056
Total 1,053 $ 278,557 $ 265 1,200 $ 275,375 $ 229
The following table presents a breakdown of total loans by geographic region at the periods indicated:
December 31,
($ in thousands) 2024 2023
Midwest $ 3,201,313 $ 3,338,308
Southwest 1,784,824 1,565,852
West 1,855,380 1,813,239
Specialty and other loans 4,378,838 4,166,719
Total $ 11,220,355 $ 10,884,118
The following table presents a breakdown of total loans by MSA, excluding specialty and other loans, at the periods indicated:
December 31,
($ in thousands) 2024 2023
St. Louis, MO-IL MSA $ 2,225,856 $ 2,382,192
Los Angeles-Long Beach-Santa Ana, CA MSA 1,557,990 1,561,720
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
Las Vegas-Paradise, NV MSA 165,485 83,737
All other MSAs 77,364 95,024
Specialty and other loans 4,378,838 4,166,719
Total $ 11,220,355 $ 10,884,118
Loan guarantees, primarily on SBA 7(a) loans, totaled $947.7 million and $932.1 million at December 31, 2024 and 2023, respectively.
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The following table sets forth additional information on certain categories of loans that are included in total loans above at the periods indicated:
($ in thousands) December 31,
2024 December 31,
2023 Increase (decrease)
SBA loans 1,298,007 1,281,632 16,375 1 %
Sponsor finance 782,722 872,264 (89,542) (10) %
Life insurance premium finance 1,114,299 956,162 158,137 17 %
Tax credits 760,229 734,594 25,635 3 %
The sponsor finance portfolio is primarily comprised of loans in the manufacturing and wholesale trade sectors. It includes mid-market company mergers and acquisitions, targeted private equity firms, principally SBICs, and senior debt financing to portfolio companies.
The life insurance premium finance category specializes in financing whole life insurance premiums utilized in high net worth estate planning, through relationships with boutique estate planners throughout the United States.
The tax credit portfolio includes tax credit-related lending on affordable housing projects funded through the use of
federal and state low income housing tax credits. 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. The tax credits are sold to clients and other individuals for tax planning purposes.
SBA loans are originated under the SBA 7(a) program and are primarily owner-occupied, commercial real estate loans secured by a 1st lien. These loans predominantly have a 75% portion guaranteed by the SBA.
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. At December 31, 2024, no significant concentrations exceeding 10% of total loans existed in the Company’s loan portfolio, except as described above.
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The following table presents the maturity distribution of loans at December 31, 2024 categorized by fixed or variable interest rates, net of unearned loan fees:
($ in thousands) Due in One
Year or Less (1)
After One Through Five Years After Five Through Fifteen Years After
Fifteen Years Total Percent of
Total Loans
Fixed Rate Loans
Commercial and industrial $ 107,243 $ 592,690 $ 591,926 $ 12,247 $ 1,304,106 12 %
Real estate:
Commercial 394,125 1,823,671 343,165 180,183 2,741,144 24 %
Construction and land development 20,706 129,788 15,133 2,925 168,552 2 %
Residential 28,007 88,772 13,384 22,411 152,574 1 %
Other 928 53,078 77,201 36,309 167,516 1 %
Total $ 551,009 $ 2,687,999 $ 1,040,809 $ 254,075 $ 4,533,892 40 %
Variable Rate Loans
Commercial and industrial $ 1,258,702 $ 1,935,810 $ 211,279 $ 6,792 $ 3,412,583 30 %
Real estate:
Commercial 229,130 419,591 386,634 1,198,288 2,233,643 20 %
Construction and land development 372,803 171,872 97,920 79,912 722,507 7 %
Residential 34,294 23,049 58,288 91,058 206,689 2 %
Other 52,632 13,054 45,237 118 111,041 1 %
Total $ 1,947,561 $ 2,563,376 $ 799,358 $ 1,376,168 $ 6,686,463 60 %
Total Loans
Commercial and industrial $ 1,365,945 $ 2,528,500 $ 803,205 $ 19,039 $ 4,716,689 42 %
Real estate:
Commercial 623,255 2,243,262 729,799 1,378,471 4,974,787 44 %
Construction and land development 393,509 301,660 113,053 82,837 891,059 9 %
Residential 62,301 111,821 71,672 113,469 359,263 3 %
Other 53,560 66,132 122,438 36,427 278,557 2 %
Total $ 2,498,570 $ 5,251,375 $ 1,840,167 $ 1,630,243 $ 11,220,355 100 %
(1) Includes loans with no stated maturity and overdraft lines of credit.
The majority of variable loans are based on the prime rate or SOFR. At December 31, 2024, $4.6 billion or 68% of variable rate loans were subject to an interest rate floor. Most variable rate loan originations have one-to three-year maturities. Management monitors this mix as part of its interest rate risk management. 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 $350.0 million at December 31, 2024 and 2023, respectively. See “Interest Rate Risk” of this MD&A section for additional information.
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Provision and Allowance for Credit Losses
The following table presents the components of the provision for credit losses for the periods indicated:
December 31,
($ in thousands) 2024 2023
Provision for credit losses on loans
$ 20,629 $ 35,883
Provision for available-for-sale securities
— 4,281
Benefit for off-balance sheet commitments
(586) (5,450)
Provision / (Benefit) for held-to-maturity securities
(528) 50
Charge-offs of accrued interest
1,993 1,841
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.
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 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. Conversely, if economic conditions and the Company’s forecast worsens, the Company could recognize elevated levels of provision for credit losses. The provision is also reflective of charge-offs in the period.
The following table summarizes the allocation of the ACL on loans:
December 31,
($ in thousands) 2024 2023
Balance at End of Period Applicable to: Amount Percent of loans in each category to total loans Amount Percent of loans in each category to total loans
Commercial and industrial $ 63,231 42.1 % $ 58,886 42.9 %
Real estate:
Commercial 54,617 44.3 % 54,685 44.1 %
Construction and land development 9,837 8.0 % 10,198 7.0 %
Residential 6,534 3.2 % 6,142 3.4 %
Other 3,731 2.4 % 4,860 2.6 %
Total allowance $ 137,950 100.0 % $ 134,771 100.0 %
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 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 $17.5 million.
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The following table is a summary of net charge-offs (recoveries) to average loans for the periods indicated:
December 31,
2024 2023
($ 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 %
Real estate:
Commercial 3,510 3,934,764 0.09 % 4,446 4,712,037 0.09 %
Construction and land development 3,125 792,854 0.39 % (54) 712,578 (0.01) %
Residential (264) 352,754 (0.07) % (323) 362,641 (0.09) %
Other 654 306,583 0.21 % 718 290,054 0.25 %
Total $ 17,450 $ 10,989,912 0.16 % $ 38,044 $ 10,324,401 0.37 %
(1) Excludes loans held for sale.
See “Critical Accounting Policies and Estimates” of this MD&A section for more information on the allowance for credit losses methodology.
Nonperforming loans and assets
See “Item 8. 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 and other ratios, excluding government guaranteed portions, as of the dates indicated.
December 31,
($ in thousands) 2024 2023
Non-accrual loans $ 42,667 $ 43,181
Loans past due 90 days or more and still accruing interest 20 547
Total nonperforming loans 42,687 43,728
Other real estate 3,955 5,736
Total nonperforming assets $ 46,642 $ 49,464
Total assets $ 15,596,431 $ 14,518,590
Total loans 11,220,355 10,884,118
Total allowance for credit losses 137,950 134,771
ACL to nonaccrual loans 323 % 312 %
ACL to nonperforming loans 323 % 308 %
ACL to total loans 1.23 % 1.24 %
Nonaccrual loans to total loans 0.38 % 0.40 %
Nonperforming loans to total loans 0.38 % 0.40 %
Nonperforming assets to total assets 0.30 % 0.34 %
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Nonperforming loans based on loan type were as follows:
($ in thousands) December 31, 2024 Number of loans December 31, 2023 Number of loans
Commercial and industrial $ 15,821 37 % 23 $ 7,756 18 % 15
Commercial real estate 25,096 59 % 33 33,739 77 % 27
Construction and land development 1,503 3 % 2 1,269 3 % 3
Residential real estate 258 1 % 1 959 2 % 1
Other 9 NM 4 5 — % 2
Total $ 42,687 100 % 63 $ 43,728 100 % 48
The following table summarizes the changes in nonperforming loans:
Year ended December 31,
($ in thousands) 2024 2023
Nonperforming loans, beginning of period $ 43,728 $ 9,981
Additions to nonaccrual loans 55,747 109,766
Charge-offs (21,874) (43,215)
Principal payments (29,000) (25,871)
Moved to other real estate (5,914) (6,933)
Nonperforming loans, end of period $ 42,687 $ 43,728
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 $55.7 million.
Other real estate
The following table summarizes the changes in other real estate:
Year ended December 31,
($ in thousands) 2024 2023
Other real estate, beginning of period $ 5,736 $ 269
Additions 6,559 5,736
Changes in valuation allowance (156) —
Sales (8,184) (269)
Other real estate, end of period $ 3,955 $ 5,736
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Investments
At December 31, 2024, our portfolio of investment securities was $2.8 billion, or 18% of total assets, compared to $2.4 billion, or 16% of total assets as of December 31, 2023. The portfolio is comprised of both available-for-sale and held-to-maturity securities.
The table below sets forth the carrying value of investment securities, excluding the allowance for credit losses:
December 31,
2024 2023
($ in thousands) Amount % Amount %
Obligations of U.S. Government sponsored enterprises $ 276,040 9.9 % $ 296,446 12.5 %
Obligations of states and political subdivisions 1,168,256 41.9 % 1,007,870 42.5 %
Agency mortgage-backed securities 1,075,306 38.5 % 752,481 31.8 %
U.S. Treasury Bills 128,893 4.6 % 181,701 7.7 %
Corporate debt securities 142,967 5.1 % 130,994 5.5 %
Total $ 2,791,462 100.0 % $ 2,369,492 100.0 %
The allowance for credit losses on held-to-maturity debt securities was $0.3 million and $0.8 million at December 31, 2024 and 2023, respectively. The Company had no debt securities classified as trading at December 31, 2024, or 2023.
The following table summarizes contractual maturity and tax-equivalent yields on the investment portfolio at December 31, 2024:
Within 1 year 1 to 5 years 5 to 10 years Over 10 years Total
($ in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Obligations of U.S. Government-sponsored enterprises $ 28,053 1.0 % $ 207,431 1.8 % $ 30,048 4.3 % $ 10,508 2.1 % $ 276,040 2.0 %
Obligations of states and political subdivisions 1,900 3.6 % 23,914 2.5 % 324,161 3.4 % 818,281 3.7 % 1,168,256 3.6 %
Agency mortgage-backed securities 50,905 3.0 % 24,719 2.9 % 59,906 3.6 % 939,776 3.9 % 1,075,306 3.8 %
U.S. Treasury Bills 80,060 4.1 % 48,833 2.9 % — — % — — % 128,893 3.6 %
Corporate debt securities 5,008 3.3 % 114,163 3.3 % 23,796 4.9 % — — % 142,967 3.6 %
Total $ 165,926 3.2 % $ 419,060 2.4 % $ 437,911 3.6 % $ 1,768,565 3.8 % $ 2,791,462 3.5 %
Yields on tax-exempt securities are computed on a taxable equivalent basis using a tax rate of 24.8%. Actual maturities can differ from contractual maturities, as borrowers may have the right to call or repay obligations with or without prepayment penalties.
Other investments primarily consist of the FHLB capital stock, common stock investments related to our trust preferred securities, community development funds, and other investments in private equity funds, primarily SBICs. These investments do not have a stated maturity.
December 31,
2024 2023
($ in thousands) Amount % Amount %
FHLB capital stock $ 8,704 12.0 % $ 7,824 11.8 %
Other investments 64,080 88.0 % 58,371 88.2 %
Total $ 72,784 100.0 % $ 66,195 100.0 %
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Deposits
The following table shows the breakdown of deposits by type:
Years ended December 31, $ Increase (decrease) % Increase (decrease)
($ in thousands) 2024 2023 2024 vs. 2023 2024 vs. 2023
Noninterest-bearing demand accounts $ 4,484,072 $ 3,958,743 $ 525,329 13.3 %
Interest-bearing demand accounts 3,175,292 2,950,259 225,033 7.6 %
Money market accounts 3,564,063 3,399,280 164,783 4.8 %
Savings accounts 553,461 595,175 (41,714) (7.0) %
Certificates of deposit:
Brokered 484,588 482,759 1,829 0.4 %
Customer 885,016 790,155 94,861 12.0 %
Total deposits $ 13,146,492 $ 12,176,371 $ 970,121 8.0 %
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. 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 4.50% and a weighted average remaining term of 9 months at December 31, 2024. 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 $2.8 billion at the end of 2024 and 2023, respectively.
The following table shows the average balance and average rate of the Company’s deposits by type:
Years ended December 31,
2024 2023 2022
($ in thousands) Average Balance Average Rate Paid Average Balance Average Rate Paid Average Balance Average Rate Paid
Noninterest-bearing deposit accounts $ 4,042,368 — % $ 4,131,163 — % $ 4,805,549 — %
Interest-bearing demand accounts 3,033,616 2.54 % 2,559,238 1.84 % 2,318,363 0.30 %
Money market accounts 3,494,497 3.65 % 3,043,794 3.05 % 2,781,579 0.69 %
Savings accounts 567,147 0.22 % 668,368 0.15 % 819,043 0.04 %
Certificates of deposit:
Brokered 519,279 4.73 % 557,761 4.44 % 128,120 1.08 %
Customer 851,730 4.01 % 640,790 2.81 % 441,152 0.48 %
Total interest-bearing deposits $ 8,466,269 3.13 % $ 7,469,951 2.46 % $ 6,488,257 0.46 %
Total average deposits $ 12,508,637 2.12 % $ 11,601,114 1.58 % $ 11,293,806 0.27 %
Average total deposits were $12.5 billion for the year ended December 31, 2024, an increase of $907.5 million, or 8%, from December 31, 2023. The increase in 2024 was primarily due to organic growth in money market and interest-bearing demand accounts.
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The following table sets forth the maturities of estimated uninsured certificates of deposit as of December 31, 2024. Uninsured deposits are amounts estimated to exceed the FDIC deposit insurance limit and are not subject to any federal or state insurance program.
($ in thousands) Total
Three months or less $ 142,678
Over three through six months 52,082
Over six through twelve months 51,355
Over twelve months 22,102
Total $ 268,217
As of December 31, 2024, estimated uninsured deposits totaled $4.5 billion, including $268.2 million of certificates of deposit. At December 31, 2023 estimated uninsured deposits totaled $4.3 billion. 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
Shareholders’ equity totaled $1.8 billion at December 31, 2024, an increase of $107.9 million, or 6%, from December 31, 2023.
Significant activity during the year ended December 31, 2024 included the following:
• Increase from net income of $185.3 million;
• 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
Liquidity
The objective of liquidity management is to ensure we have the ability to generate sufficient cash or cash equivalents in a timely and cost-effective manner to meet our commitments as they become due. Typical demands on liquidity are changes in deposit levels, maturing time deposits which are not renewed, and fundings under credit commitments to customers. Funds are available from a number of sources, such as the core deposit base and loan and security repayments and maturities.
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 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.
The Company’s Asset-Liability Management Committee oversees our liquidity position, the parameters of which are approved by the Bank’s Board of Directors. Our liquidity position is monitored daily. Our liquidity management framework includes measurement of several key elements, such as a loan to deposit ratio, a liquidity ratio, and a dependency ratio. The Company’s liquidity framework also incorporates contingency planning to assess the nature and volatility of funding sources and to determine alternatives to these sources. While core deposits and loan and investment repayments are principal sources of liquidity, funding diversification is another key element of liquidity management and is achieved by strategically varying depositor types, terms, funding markets, and instruments.
Liquidity from assets is available primarily from cash balances and the investment portfolio. Cash and interest-bearing deposits with other banks totaled $764.2 million at December 31, 2024, compared to $433.0 million at December 31, 2023. The increase in cash balances during 2024 is due to deposit growth exceeding loan growth. The
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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 $1.3 billion could be pledged or sold to enhance liquidity, if necessary.
Available on- and off-balance sheet liquidity sources include the following items:
($ in thousands) December 31, 2024
Federal Reserve Bank borrowing capacity $ 2,751,533
FHLB borrowing capacity 1,304,235
Unpledged securities 1,325,619
Federal funds lines (7 correspondent banks) 140,000
Cash and interest-bearing deposits 764,170
Holding Company line of credit 25,000
Total $ 6,310,557
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. 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. The Company also has $2.8 billion available from the Federal Reserve Bank under a pledged loan agreement. 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. These transactions are managed through the Company’s various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company’s liquidity. The Company has $3.1 billion in unused commitments to extend credit as of December 31, 2024. While this commitment level would exhaust the majority the Company’s current liquidity resources, the nature of these commitments is such that the likelihood of funding them in the aggregate at any one time is low.
At the holding company level, our primary funding sources are dividends and payments from the Bank and proceeds from the issuance of equity (i.e. stock option exercises, stock offerings) and debt instruments. The main use of this liquidity is to provide the funds necessary to pay dividends to shareholders, service debt, invest in subsidiaries as necessary, and satisfy other operating requirements. 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 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. Deterioration in any of these factors could have a negative impact on the Company’s ability to access these funding sources and, as a result, these factors are monitored on an ongoing basis as part of the liquidity management process. The Bank is subject to regulations and, among other things, may be limited in its ability to pay dividends or transfer funds to the parent company. Accordingly, consolidated cash flows as presented in the consolidated statements of cash flows may not represent cash immediately available for the payment of cash dividends to the Company’s shareholders or for other cash needs.
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Through the normal course of operations, the Company has entered into certain contractual obligations and other commitments. 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. While contractual obligations represent future cash requirements of the Company, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans made by the Company. The Company also enters into derivative contracts under which the Company either receives cash from or pays cash to counterparties depending on changes in interest rates. Derivative contracts are carried at fair value on the consolidated balance sheet with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of the balance sheet date. The fair value of these contracts changes daily as market interest rates change. For additional information on the Company’s contractual obligations and commitments see the following footnotes in Item 8: “Note 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 and Contingent Liabilities.”
Capital Resources
The Company and the Bank are subject to various regulatory capital requirements administered by the state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements and results of operations of the Company. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its bank affiliate must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The banking affiliate’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and tier 1 capital to risk-weighted assets, and of tier 1 capital to average assets. To be categorized as “well-capitalized”, banks must maintain minimum total risk-based (10%), tier 1 risk-based (8%), common equity tier 1 risk-based (6.5%), and tier 1 leverage ratios (5%). As of December 31, 2024, and December 31, 2023, the Company and the Bank met all capital adequacy requirements to which they are subject.
The Bank met the definition of “well-capitalized” at each of December 31, 2024 and 2023. Refer to “Item 8. Note 14 – Regulatory Capital” for a summary of our risk-based capital and leverage ratios. The following table summarizes the Company’s capital ratios:
December 31, 2024 December 31, 2023
($ in thousands) EFSC Bank EFSC Bank To Be Well-Capitalized Minimum Ratio
with CCB
Common Equity Tier 1 Capital to Risk Weighted Assets 11.8 % 12.4 % 11.3 % 12.2 % 6.5 % 7.0 %
Tier 1 Capital to Risk Weighted Assets 13.1 % 12.4 % 12.7 % 12.2 % 8.0 % 8.5 %
Total Capital to Risk Weighted Assets 14.6 % 13.4 % 14.2 % 13.2 % 10.0 % 10.5 %
Leverage Ratio (Tier 1 Capital to Average Assets) 11.1 % 10.5 % 11.0 % 10.6 % 5.0 % N/A
Tangible common equity to tangible assets 1
9.05 % 8.96 %
Common equity tier 1 capital $ 1,505,162 $ 1,578,293 $ 1,387,802 $ 1,493,105
Tier 1 capital 1,670,810 1,578,353 1,553,448 1,493,163
Total risk-based capital 1,864,334 1,708,626 1,732,501 1,608,966
1 Not a required regulatory capital ratio
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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. The tangible common equity to tangible assets ratio is considered a non-GAAP measure. The tables included in this MD&A section under the caption “Use of Non-GAAP Financial Measures” reconcile these ratios to U.S. GAAP.
Risk Management
Market risk arises from exposure to changes in interest rates and other relevant market rate or price risk. The Company faces market risk in the form of interest rate risk through transactions other than trading activities. Market risk from these activities, in the form of interest rate risk, is measured and managed through a number of methods. The Company uses financial modeling techniques to measure interest rate risk. These techniques measure the sensitivity of future earnings due to changing interest rate environments. Guidelines established by the Bank’s Asset/Liability Management Committee and approved by the Bank’s Board of Directors are used to monitor exposure of earnings at risk. General interest rate movements are used to develop sensitivity as management believes it has no primary exposure to a specific point on the yield curve. These limits are based on the Company’s exposure to immediate and sustained parallel rate movements, either upward or downward. The Company does not have any direct market risk from commodity exposures.
Interest Rate Risk
Our interest rate risk management practices are aimed at optimizing net interest income, while guarding against deterioration that could be caused by certain interest rate scenarios. Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. We attempt to maintain interest-earning assets, comprised primarily of both loans and investments, and interest-bearing liabilities, comprised primarily of deposits, maturing or repricing in similar time horizons in order to manage any impact from market interest rate changes according to our risk tolerance. The Company uses an earnings simulation model to measure earnings sensitivity to changing rates.
The Company determines the sensitivity of its short-term future earnings to a hypothetical plus or minus 100 to 300 basis point parallel rate shock through the use of simulation modeling. The simulation of earnings includes the modeling of the balance sheet as an ongoing entity. Future business assumptions involving administered rate products, prepayments for future rate-sensitive balances, and the reinvestment of maturing assets and liabilities are included. These items are then modeled to project net interest income based on a hypothetical change in interest rates. The resulting net interest income for the next 12-month period is compared to the net interest income amount calculated using flat rates. This difference represents the Company’s earnings sensitivity to a positive or negative parallel rate shock.
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The following table summarizes the projected impact of interest rate shocks on net interest income:
Annual % change
in net interest income
At December 31,
Rate Shock 2024 2023
+ 300 bp 7.9% 9.8%
+ 200 bp 5.4% 6.6%
+ 100 bp 2.7% 3.3%
- 100 bp (3.0)% (3.5)%
- 200 bp (6.0)% (7.3)%
- 300 bp (8.5)% (11.2)%
In addition to the rate shocks shown in the table above, the Company models net interest income under various dynamic interest rate scenarios. In general, changes in interest rates are positively correlated with changes in net interest income.
The Company occasionally uses interest rate derivative instruments as an asset/liability management tool to hedge mismatches in interest rate exposure indicated by the net interest income simulation described above. 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, 2024, the Company had derivative contracts to manage interest rate risk, including $400.0 million in notional value on derivatives to hedge the cash flows on floating rate loans and $32.1 million in notional value on derivatives on floating rate debt. Derivative financial instruments are discussed in “Item 8. 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. 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.
The Company had $6.7 billion in variable rate loans as of December 31, 2024. 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 $2.7 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. 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
The following accounting policies are considered most critical to the understanding of the Company’s financial condition and results of operations. These critical accounting policies require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on experience. In the event different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected. 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
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discussion on the application of these and other accounting policies, see “Item 8. Note 1 – Summary of Significant Accounting Policies.”
The Company has prepared all of the consolidated financial information in this report in accordance with GAAP. The Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using loss experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. There can be no assurances that actual results will not differ from those estimates.
Allowance for Credit Losses
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. For purposes of determining the allowance for funded and unfunded loans, the portfolios are segregated into pools that share similar risk characteristics that are then further segregated by credit grades. Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. The Company estimates the amount of the allowance based on loan loss experience, adjusted for current and forecasted economic conditions, including unemployment, changes in GDP, and commercial and residential real estate prices. The Company’s forecast of economic conditions uses internal and external information and considers a weighted average of a baseline, upside, and downside scenarios. Because economic conditions can change and are difficult to predict, the anticipated amount of estimated loan defaults and losses, and therefore the adequacy of the allowance, could change significantly and have a direct impact on the Company’s credit costs. The Company’s allowance for credit losses on loans was $138.0 million at December 31, 2024 based on the weighting of the different economic scenarios. As a hypothetical example, if the Company had only used the upside scenario, the allowance would have decreased $27.7 million. Conversely, the allowance would have increased $47.4 million using only the downside scenario.
Income Taxes
Management uses certain assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax assets and liabilities and income tax expense. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance may be established. We consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change. A valuation allowance for deferred tax assets may be required in the future if the amounts of taxes recoverable through loss carry backs decline, if we project lower levels of future taxable income, or we project lower levels of tax planning strategies. Such valuation allowance would be established through a charge to income tax expense that would adversely affect our operating results.
Effects of New Accounting Pronouncements
See “Item 8. Note 1 – Summary of Significant Accounting Policies – Recent Accounting Pronouncements” for information on recent accounting pronouncements and their impact, if any, on our consolidated financial statements.
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Use of Non-GAAP Financial Measures
The Company’s accounting and reporting policies conform to U.S. GAAP and the prevailing practices in the banking industry. However, the Company provides other financial measures, such as core efficiency ratio, tangible common equity ratio, return on average tangible common equity, and tangible book value per common share, in this 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 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 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. 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. The Company’s management uses, and believes investors benefit from referring to, these non-GAAP measures and ratios in assessing the Company’s operating results and related trends and when forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP. The Company has provided a reconciliation of, where applicable, the most comparable GAAP financial measures and ratios to the non-GAAP financial measures and ratios, or a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.
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Reconciliations of Non-GAAP Financial Measures
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 $ 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)
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
At December 31,
($ and shares in thousands, except per share data) 2024 2023 2022
Shareholders' equity (GAAP) $ 1,824,002 $ 1,716,068 $ 1,522,263
Less preferred stock 71,988 71,988 71,988
Less goodwill 365,164 365,164 365,164
Less intangible assets 8,484 12,318 16,919
Tangible common equity (non-GAAP) $ 1,378,366 $ 1,266,598 $ 1,068,192
Common shares outstanding 36,988 37,416 37,253
Tangible book value per share (non-GAAP) $ 37.27 $ 33.85 $ 28.67
Total assets (GAAP) $ 15,596,431 $ 14,518,590 $ 13,054,172
Less goodwill 365,164 365,164 365,164
Less intangible assets 8,484 12,318 16,919
Tangible assets (non-GAAP) $ 15,222,783 $ 14,141,108 $ 12,672,089
Tangible common equity to tangible assets (non-GAAP) 9.05 % 8.96 % 8.43 %
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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
Average shareholder’s equity (GAAP) $ 1,784,175 $ 1,623,121 $ 1,498,759
Less average preferred stock 71,988 71,988 71,988
Less average goodwill 365,164 365,164 365,164
Less average intangible assets 10,329 14,531 19,516
Average tangible common equity (non-GAAP) $ 1,336,694 $ 1,171,438 $ 1,042,091
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 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 (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)
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 %
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ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Please refer to “Risk Factors” included in Item 1A and “Risk Management” and “Interest Rate Risk” included in Management’s Discussion and Analysis under Item 7.
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