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What changed in ENTERPRISE FINANCIAL SERVICES CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ENTERPRISE FINANCIAL SERVICES CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+277 added−297 removedSource: 10-K (2024-02-26) vs 10-K (2023-02-24)

Top changes in ENTERPRISE FINANCIAL SERVICES CORP's 2023 10-K

277 paragraphs added · 297 removed · 217 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

57 edited+12 added−17 removed86 unchanged
Biggest changeOther factors that could cause or contribute to such differences include, but are not limited to: our ability to efficiently integrate acquisitions, including the Seacoast and First Choice acquisitions, into our operations, retain the customers of these businesses and grow the acquired operations; credit risk; changes in the appraised valuation of real estate securing impaired loans; our ability to recover our investment in loans; fluctuations in the fair value of collateral underlying loans; outcomes of litigation and other contingencies; exposure to general and local economic conditions; risks associated with rapid increases or decreases in prevailing interest rates; changes in business prospects that could impact goodwill estimates and assumptions; consolidation within the banking industry; competition from banks and other financial institutions; the ability to attract and retain relationship officers and other key personnel; burdens imposed by federal and state regulation; changes in regulatory requirements; changes in accounting regulation or standards applicable to banks, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the CECL model, which we adopted on January 1, 2020 and which changed how we estimate credit losses and may increase the required level of our allowance for credit losses in future periods; changes in the method of determining LIBOR and the phase-out of LIBOR; natural disasters; war or terrorist activities, or pandemics, including the COVID-19 pandemic, and their effects on economic and business environments in which we operate, including the ongoing disruption to the financial market and other economic activity caused by the COVID-19 pandemic; and other risks discussed under the caption “Risk Factors” in Item 1A of this Annual Report on Form 10-K, all of which could cause actual results to differ from those set forth in the forward-looking statements.
Biggest changeWhile there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation: our ability to efficiently integrate acquisitions into our operations, retain the customers of these businesses and grow the acquired operations; credit risk; changes in the appraised valuation of real estate securing impaired loans; our ability to recover our investment in loans; fluctuations in the fair value of collateral underlying loans; outcomes of litigation and other contingencies; exposure to general and local economic and market conditions, including risk of recession, high unemployment rates, higher inflation and its impacts (including U.S. federal government measures to address higher inflation), U.S. fiscal debt, budget and tax matters, and any slowdown in global economic growth; risks associated with rapid increases or decreases in prevailing interest rates; changes in business prospects that could impact goodwill estimates and assumptions; consolidation within the banking industry; competition from banks and other financial institutions; the ability to attract and retain relationship officers and other key personnel; burdens imposed by federal and state regulation; changes in legislative or regulatory requirements, as well as current, pending or future legislation or regulation that could have a negative effect on our revenue and business, including rules and regulations relating to bank products and financial services; changes in accounting policies and practices or accounting standards; natural disasters; terrorist activities, war and geopolitical matters (including the war in Israel and potential for a broader regional conflict and the war in Ukraine and the imposition of additional sanctions and export controls in connection therewith), or pandemics, or other health emergencies and their effects on economic and business environments in which we operate, including the related disruption to the financial market and other economic activity; and other risks discussed under the caption “Risk Factors” in Item 1A of this Annual Report on Form 10-K, all of which could cause actual results to differ from those set forth in the forward-looking statements.
The following table summarizes the prompt corrective action categories: 7 Prompt Corrective Action Category Total Risk-Based Capital Tier 1 Risk-Based Capital Common Equity Tier 1 Risk-Based Capital Tier 1 Leverage Ratio Well-capitalized 10.0% 8.0% 6.5% 5.0% Adequately capitalized 8.0% 6.0% 4.5% 4.0% Undercapitalized Significantly undercapitalized Critically undercapitalized Tangible equity / Total assets ≤ 2.0% In addition to the minimum capital ratios noted in the table above, the Basel III Capital Rules require the maintenance of a CCB consisting of CET1 capital in an amount equal to 2.5% of risk weighted assets to avoid restrictions on the ability to make capital distributions and to pay certain discretionary bonus payments to executive officers.
The following table summarizes the prompt corrective action categories: Prompt Corrective Action Category Total Risk-Based Capital Tier 1 Risk-Based Capital Common Equity Tier 1 Risk-Based Capital Tier 1 Leverage Ratio Well-capitalized 10.0% 8.0% 6.5% 5.0% Adequately capitalized 8.0% 6.0% 4.5% 4.0% Undercapitalized Significantly undercapitalized Critically undercapitalized Tangible equity / Total assets ≤ 2.0% In addition to the minimum capital ratios noted in the table above, the Basel III Capital Rules require the maintenance of a CCB consisting of CET1 capital in an amount equal to 2.5% of risk weighted assets to avoid restrictions on the ability to make capital distributions and to pay certain discretionary bonus payments to executive officers.
The Dodd-Frank Act codified this longstanding policy by adopting a provision requiring, among other things, that bank holding companies serve as a source of strength for an subsidiary depository institution. Such financial and managerial support from the 5 Company may be required at times when, without this legal requirement, the Company may not be inclined to provide it.
The Dodd-Frank Act codified this longstanding policy by adopting a provision requiring, among other things, that bank holding companies serve as a source of strength for an subsidiary depository institution. Such financial and managerial support from the Company may be required at times when, without this legal requirement, the Company may not be inclined to provide it.
In response to ever increasing needs for data/information security and functional efficiency, we continue to offer cash management systems that employ mobile technology and fraud detection/mitigation services. Enterprise Trust offers a wide range of fiduciary, investment management, and financial advisory services to facilitate our providing these services.
In response to ever increasing needs for data/information security and functional efficiency, we continue to offer cash management systems that employ mobile technology and fraud detection/mitigation services. Enterprise Trust offers a wide range of fiduciary, investment management, and financial advisory services to facilitate providing these services.
An “undercapitalized” bank also is generally prohibited from increasing its average total assets, making acquisitions, establishing new branches, or engaging in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the FDIC.
An “undercapitalized” bank also is generally prohibited from increasing its average total assets, making acquisitions, establishing new branches, or engaging in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the 7 FDIC.
The Bank’s payment of dividends also could be affected or limited by other factors, such as events or circumstances which would lead the FDIC to require that it maintain capital in excess of regulatory guidelines.
The Bank’s payment of dividends also could be affected or limited by other 8 factors, such as events or circumstances which would lead the FDIC to require that it maintain capital in excess of regulatory guidelines.
The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other 6 actions.
The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions.
Mortgage Reform: The CFPB has adopted final rules implementing minimum standards for the origination of residential mortgages, including standards regarding a customer’s ability to repay, restricting variable-rate lending by requiring the ability to repay variable-rate loans be determined by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions.
Mortgage Reform: The CFPB has adopted final rules implementing minimum standards for the origination of residential mortgages, including standards regarding a customer’s ability to repay, restricting variable-rate lending by requiring the ability to repay variable-rate loans be determined by using the maximum rate that could apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions.
Also, the FDIC may treat an “undercapitalized” bank as being “significantly undercapitalized” if it determines that those actions are necessary to carry out the purpose of the law. All of the Bank’s capital ratios were at levels that qualify it to be “well-capitalized” for regulatory purposes as of December 31, 2022 (see “Item 8. Note 14 - Regulatory Capital”).
Also, the FDIC may treat an “undercapitalized” bank as being “significantly undercapitalized” if it determines that those actions are necessary to carry out the purpose of the law. All of the Bank’s capital ratios were at levels that qualify it to be “well-capitalized” for regulatory purposes as of December 31, 2023 (see “Item 8. Note 14 – Regulatory Capital”).
The adoption of a volunteer time-off policy and improvements to internal communication processes are examples of changes that have been made in response to survey results. Our efforts are being recognized. For the past five years, the Bank has been included in the “Best Banks to Work for” by American Banker magazine for our dedication to employee satisfaction.
The adoption of a volunteer time-off policy and improvements to internal communication processes are examples of changes that have been made in response to survey results. Our efforts are being recognized. For the past six years, the Bank has been included in the “Best Banks to Work for” by American Banker magazine for our dedication to employee satisfaction.
To achieve these objectives we have developed a business strategy that leverages a focused and relationship-oriented distribution and sales approach, with an emphasis on niche businesses, while maintaining prudent credit and interest rate risk management, opportunities for fee income, appropriate supporting technology, and controlled expenses.
To achieve these objectives we have developed a business strategy that leverages a focused and relationship-oriented distribution and sales approach, with an emphasis on niche businesses, while maintaining prudent credit and interest rate risk management, opportunities for fee income, appropriate supporting technology, and controlling expenses.
Community Reinvestment Act: The Community Reinvestment Act (“CRA”) requires that, in connection with examinations of financial institutions within its jurisdiction, the FDIC is required to evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those institutions.
Community Reinvestment Act: The CRA requires that, in connection with examinations of financial institutions within its jurisdiction, the FDIC is required to evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those institutions.
In addition to base salary, approximately 60% of associates are eligible to participate in the Company’s Short Term Incentive Plan (“STIP”) program. Our STIP program is designed to align compensation with an associate’s performance in a given year. The program sets a performance level of short-term incentive awards that an associate is eligible to earn.
In addition to base salary, approximately 64% of associates are eligible to participate in the Company’s Short Term Incentive Plan (“STIP”) program. Our STIP program is designed to align compensation with an associate’s performance in a given year. The program sets a performance level of short-term incentive awards that an associate is eligible to earn.
Such legislation may change applicable statutes and the operating environment in substantial and unpredictable ways. We cannot determine the ultimate effect that future legislation or implementing regulations would have upon our financial condition or upon our results of operations or the results of operations of any of our subsidiaries.
Such legislation may change applicable statutes and the operating environment in substantial and unpredictable ways. We cannot determine the ultimate effect that future legislation or implementing regulations would have on our financial condition or our results of operations or the results of operations of any of our subsidiaries.
The program offers financial rewards to associates who adopt healthy habits and participate in wellness education and health screens. Annual health screenings are provided to all associates at no charge. Associate Feedback . We conduct associate surveys to ensure we understand what is important to our associates, including their opinions on a variety of topics.
The program offers financial rewards to associates who adopt healthy habits and participate in wellness education and health screens. Annual health screenings are provided to all associates enrolled in medical benefits at no charge. Associate Feedback . We conduct associate surveys to ensure we understand what is important to our associates, including their opinions on a variety of topics.
Such forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company, and include, without limitation, statements about the Company’s plans, strategies, goals, objectives, expectations, or consequences of statements about the future performance, operations, products and services of the Company and its subsidiaries, as well as statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, products and services, shareholder value creation and the impact of the Seacoast and First Choice acquisitions and other acquisitions.
Such forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company, and include, without limitation, statements about the Company’s plans, strategies, goals, objectives, expectations, or consequences of statements about the future performance, operations, products and services of the Company and its subsidiaries, as well as statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, products and services, shareholder value creation and the impact of acquisitions.
Furthermore, unless dividends on all outstanding shares of the Series A Preferred Stock for the most recently completed dividend period have been paid or declared, dividends on, and repurchases of, common stock is prohibited.
Furthermore, unless dividends on all outstanding shares of the Series A Preferred Stock for the most recently completed dividend period have been paid or declared, dividends on, and repurchases of, common stock are prohibited.
Dividend Restrictions and Stock Repurchases: From time to time the Company may engage in stock repurchases. The Federal Reserve requires that bank and financial holding companies, where certain conditions are triggered, provide prior notice to, consult with, and in certain circumstances seek the approval of, the Federal Reserve or reserve bank staff prior to implementing a stock repurchase plan.
Dividend Restrictions and Share Repurchases: From time to time the Company may engage in share repurchases. The Federal Reserve requires that bank and financial holding companies, where certain conditions are triggered, 5 provide prior notice to, consult with, and in certain circumstances seek the approval of, the Federal Reserve or reserve bank staff prior to implementing a share repurchase plan.
Under Federal Reserve policies, financial holding companies may pay cash dividends on common stock only out of income available over the past year if prospective earnings retention is consistent with the organization’s expected future needs and financial condition and if the organization is not in danger of not meeting its minimum regulatory capital requirements.
Under Federal Reserve policies, financial holding companies may pay cash dividends on common stock only out of income available over the past year if prospective earnings retention is consistent with the organization’s expected future needs and financial condition and if the organization is not in danger of failing to meet its minimum regulatory capital requirements.
We also offer a wide array of benefits for our associates and their families including 401(k), medical, dental and vision benefits as well as life insurance and short-term disability for all full-time associates. Our wellness program is designed to help associates avoid illness while improving and maintaining their general health.
We also offer a wide array of benefits for our associates and their families including 401(k), paid time off, parental leave, medical, dental and vision benefits as well as life insurance and short-term disability for all full-time associates. Our wellness program is designed to help associates avoid illness while improving and maintaining their general health.
Readers should carefully review all disclosures we file from time to time with the SEC which are available on the Company’s website at www.enterprisebank.com under “Investor Relations.” 1 General Development and Description of Our Business Enterprise Financial Services Corp (“Company,” “we,” “us,” or “our”), headquartered in Clayton, Missouri, is a financial holding company incorporated under Delaware law in December 1994.
Readers should carefully review all disclosures we file from time to time with the SEC which are available on the Company’s website at www.enterprisebank.com under “Investor Relations.” 1 General Development and Description of Our Business Enterprise Financial Services Corp, headquartered in Clayton, Missouri, is a financial holding company incorporated under Delaware law in December 1994.
We are a secured lender 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 2 funded through the U.S. Department of the Treasury Community Development Financial Institution (“CDFI”) New Markets Tax Credit Program.
We are a secured lender 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 U.S. Department of the Treasury Community Development Financial Institution (“ Treasury 2 CDFI”) New Markets Tax Credit (“NMTC”) Program.
Lending services include C&I, CRE, real estate construction and development, residential real estate, SBA, consumer and other loan products. A wide variety of deposit products, including property management and homeowners association along with a complete suite of treasury management and international trade services for operating businesses, complement our lending capabilities.
Lending services include C&I, CRE, real estate construction and development, residential real estate, SBA, consumer and other loan products. A wide variety of deposit products, including property management and community associations along with a complete suite of treasury management and international trade services for operating businesses, complement our lending capabilities.
At December 31, 2022, the Company had $93.0 million of trust preferred securities that are grandfathered under this provision.
At December 31, 2023, the Company had $93.0 million of trust preferred securities that are grandfathered under this provision.
In order to remain a financial holding company, the Company must continue to be considered well-managed and well-capitalized by the Federal Reserve, and the Bank must continue to be considered well-managed and well-capitalized by the FDIC, and have at least a “satisfactory” rating under the Community Reinvestment Act.
In order to remain a financial holding company, the Company must continue to be considered well-managed and well-capitalized by the Federal Reserve, and the Bank must continue to be considered well-managed and well-capitalized by the FDIC, and have at least a “satisfactory” rating under the CRA.
Strong competition for deposit and loan products affects the rates of those products, as well as the terms on which they are offered to customers. Supervision and Regulation The Company is a financial holding company registered under the Bank Holding Company Act of 1956, as amended (“BHCA”) and is subject to regulation, supervision and examination by the Federal Reserve.
Strong competition for deposit and loan products affects the rates of those products, as well as the terms on which they are offered to customers. Supervision and Regulation The Company is a financial holding company registered under the BHCA and is subject to regulation, supervision and examination by the Federal Reserve.
These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. The Bank has an outstanding rating under CRA. The last significant interagency revision to the CRA regulations occurred in 1995.
These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. The Bank has a satisfactory rating under CRA. Prior to 2023, the last significant interagency revision to the CRA regulations occurred in 1995.
We will continue to monitor for the final rulemaking and evaluate the impact of any changes to the CRA regulations. 9 USA PATRIOT Act: The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) requires each financial institution to: (i) establish an anti-money laundering program; (ii) establish due diligence policies, procedures and controls with respect to its private banking accounts and correspondent banking accounts involving foreign individuals and certain foreign banks; and (iii) implement certain due diligence policies, procedures and controls with regard to correspondent accounts in the United States for, or on behalf of, a foreign bank that does not have a physical presence in any country.
USA PATRIOT Act: The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) requires each financial institution to: (i) establish an anti-money laundering program; (ii) establish due diligence policies, procedures and controls with respect to its private banking accounts and correspondent banking accounts involving foreign individuals and certain foreign banks; and (iii) implement certain due diligence policies, procedures and controls with regard to correspondent accounts in the United States for, or on behalf of, a foreign bank that does not have a physical presence in any country.
We have made progress in this area, but continue to strive to further diversify our workforce and strengthen our culture of inclusion. Focusing on a Safe and Healthy Workplace . We value our associates and are committed to providing a safe and healthy workplace.
Our diversity data is monitored by the Board. We have made progress in this area and continue to strive to further diversify our workforce and strengthen our culture of inclusion. Focusing on a Safe and Healthy Workplace . We value our associates and are committed to providing a safe and healthy workplace.
We are committed to offering a competitive total compensation package that is consistent with our principles and aligned with the Company’s financial performance. We regularly compare compensation and benefits with peer companies and market data, making adjustments as needed to ensure compensation stays competitive.
Additionally, we have established succession plans to ensure continuation of critical roles and operations. We are committed to offering a competitive total compensation package that is consistent with our principles and aligned with the Company’s financial performance. We regularly compare compensation and benefits with peer companies and market data, making adjustments as needed to ensure our compensation stays competitive.
These programs include: • Career Acceleration Program - This trainee program allows participants to experience a wide range of assignments by rotating through the various product partners and operational areas of the Company.
These programs include: • Career Acceleration Program - This trainee program introduces participants to the foundations of credit and commercial banking, while allowing participants to experience a wide range of assignments by rotating through the various product partners and operational areas of the Company.
One of the most comprehensive legislative acts in recent years was the Dodd-Frank Act, which contains a set of provisions designed to govern the practices and oversight of financial institutions and other participants in the financial markets. The Dodd-Frank Act made extensive changes in the regulation of financial institutions and their holding companies.
The Dodd-Frank Act is a comprehensive legislative act that contains a set of provisions designed to govern the practices and oversight of financial institutions and other participants in the financial markets. The Dodd-Frank Act made extensive changes in the regulation of financial institutions and their holding companies.
Some of the changes brought about by the Dodd-Frank Act have been modified by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the “Regulatory Relief Act”), signed into law on May 24, 2018. Legislative and Regulatory Actions in Connection with Global Pandemic .
Some of the changes brought about by the Dodd-Frank Act have been modified by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, signed into law on May 24, 2018.
Additionally, our Business Continuity Plan and Pandemic Plan are important components in helping maintain the health and safety of our associates and clients.
Additionally, our Business Continuity Plan is an important component in helping maintain the health and safety of our associates and clients.
Acquisitions: With certain limited exceptions, the BHCA requires every financial holding company or bank holding company to obtain the prior approval of the Federal Reserve before (i) acquiring substantially all the assets of any bank, (ii) acquiring direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, it would own or control more than 5% of the voting shares of such bank (unless it already owns or controls the majority of such shares), or (iii) merging or consolidating with another bank holding company.
See “Liquidity and Capital Resources” in the MD&A for more information on our capital adequacy, and “Bank Subsidiary - Community Reinvestment Act” below for more information on the CRA. 4 Acquisitions: With certain limited exceptions, the BHCA requires every financial holding company or bank holding company to obtain the prior approval of the Federal Reserve before (i) acquiring substantially all the assets of any bank, (ii) acquiring direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, it would own or control more than 5% of the voting shares of such bank (unless it already owns or controls the majority of such shares), or (iii) merging or consolidating with another bank holding company.
We also employ seasonal/temporary associates and occasionally hire independent contractors for specific projects that require a highly specialized skill set or to provide additional resources during peak times, as needed. Our performance measures and compensation determinations are designed to ensure the proper balance of risk and reward. Performance evaluations facilitate our ongoing assessment of associates’ skills and improvements as needed.
At December 31, 2023, we employed 1,172 regular full-time and 49 part-time associates. We also employ seasonal/temporary associates and occasionally hire independent contractors for specific projects that require a highly specialized skill set or to provide additional resources during peak times, as needed. Our performance measures and compensation determinations are designed to ensure the proper balance of risk and reward.
The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer relations. 8 UDAP and UDAAP: Banking regulatory agencies have increasingly used a general consumer protection statute to address “unethical” or otherwise “bad” business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law.
UDAP and UDAAP: Banking regulatory agencies have increasingly used a general consumer protection statute to address “unethical” or otherwise “bad” business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law.
These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers.
These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers. The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer relations.
These guidelines include concentrations in certain types of CRE that may warrant greater supervisory scrutiny: total reported loans for construction, land development, and other land represent 100% or more of the institutions total capital; or total commercial real estate loans represent 300% or more of the institution’s total capital, and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50% or more in the prior 36 months.
These guidelines include concentrations in certain types of CRE that may warrant greater supervisory scrutiny: total reported loans for construction, land development, and other land represent 100% or more of the institutions total capital; or total commercial real estate loans represent 300% or more of the institution’s total capital, and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50% or more in the prior 36 months. 9 Volcker Rule: On December 10, 2013, the federal regulators adopted final regulations to implement the proprietary trading and private fund prohibitions of the Volcker Rule under the Dodd-Frank Act.
The new rules, which were mandated as part of the Dodd-Frank Act and which became effective in January 2023, will require the Company to adopt a policy implementing the rules within 60 days after the Nasdaq listing standards become effective. Bank Subsidiary The Bank is subject to extensive federal and state regulatory oversight.
The new rules, which were mandated as part of the Dodd-Frank Act became effective in January 2023. Pursuant to Nasdaq listing standards, the Company adopted a clawback policy that implemented the rules in the third quarter of 2023. 6 Bank Subsidiary The Bank is subject to extensive federal and state regulatory oversight.
These increases were instituted to maintain a competitive total rewards package that attracts and retains top talent. The decision to increase our minimum wage was made after extensive research, including reviewing the current market landscape both inside and outside of banking and financial services, and with feedback from leadership. Currently, 96% of our associates earn more than the minimum wage.
The determination for our minimum wage was made after extensive research, including reviewing the current market landscape both inside and outside of banking and financial services, and with feedback from leadership. Currently, 96% of our associates earn more than the minimum wage.
EFSC is the holding company for Enterprise Bank & Trust, a full-service financial institution offering banking and wealth management services to individuals and corporate customers primarily located in Arizona, California, Kansas, Missouri, Nevada, and New Mexico. Our executive offices are located at 150 North Meramec Avenue, Clayton, Missouri 63105, and our telephone number is (314) 725-5500.
EFSC is the holding company for Enterprise Bank & Trust, a full-service financial institution offering banking and wealth management services to individuals and corporate customers primarily located in Arizona, California, Florida, Kansas, Missouri, Nevada, and New Mexico, in addition to loan and deposit production offices throughout the United States.
In particular, the Federal Reserve regulates monetary policy and interest rates in order to influence general economic conditions. These policies have a significant influence on overall growth and distribution of loans, investments and deposits and affect interest rates charged on loans or paid for deposits.
These policies have a significant influence on overall growth and distribution of loans, investments and deposits and affect interest rates charged on loans or paid for deposits. Federal Reserve monetary policies have had a significant effect on the operating results of all financial institutions in the past and may continue to do so in the future.
In May 2022, federal bank regulatory agencies jointly issued a proposal to strengthen and modernize regulations implementing the CRA to better achieve the purposes of the law. The comment period ended on August 5, 2022.
In May 2022, federal bank regulatory agencies jointly issued a proposal to strengthen and modernize regulations implementing the CRA to better achieve the purposes of the law. On October 24, 2023, the Board of Governors of the Federal Reserve System, the FDIC, and the OCC issued a final rule amending the agencies’ CRA regulations.
We use annual talent reviews to identify high performing associates and future potential leaders, provide insight into critical development needs and retention risks, and identify business-critical talent needs, including anticipated workforce planning challenges. Additionally, we have established succession plans to ensure continuation of critical roles and operations.
Performance evaluations facilitate our ongoing assessment of associates’ skills and improvements as needed. We use annual talent reviews to identify high performing associates and future potential leaders, provide 10 insight into critical development needs and retention risks, and identify business-critical talent needs, including anticipated workforce planning challenges.
Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s analysis and expectations only as of the date of such statements.
The Company cautions that the preceding list is not exhaustive of all possible risk factors and other factors could also adversely affect the Company’s results. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s analysis and expectations only as of the date of such statements.
Our Diversity, Equity & Inclusion Council is tasked with making recommendations on specific steps we can take to ensure we are driving positive change in our communities. In addition, we have several associate development 11 programs that help to create a more inclusive environment by giving associates and other individuals of all backgrounds additional opportunities to succeed and contribute.
In addition, we have several associate development programs that help to create a more inclusive environment by giving associates and other individuals of all backgrounds additional opportunities to succeed and contribute.
Our focus areas include community associations, property management, third party escrow, and trust services. In addition, we service deposit accounts for customers in our specialized lending niches, including sponsor finance, tax credit and life insurance premium financing. These accounts are primarily demand accounts and have a low overall interest cost.
Specialty deposits – In addition to commercial operating accounts for our C&I customers, we offer specialty deposit accounts to customers in certain industries with complex account needs. Our focus areas include community associations, property management, third party escrow, and trust services. These accounts are primarily demand accounts and have a low overall interest cost.
The STIP target is defined as a percentage of base salary based on the associate’s grade level as determined by our Human Resources department. In the past 18 months, we have raised our internal minimum wage twice. As of January 1, 2023, our minimum wage is $17 per hour.
The STIP target is defined as a percentage of base salary based on the associate’s grade level as determined by our Human Resources department. As of January 1, 2024, our minimum wage is $17 per hour. The current minimum wage was instituted to maintain a competitive total rewards package that attracts and retains top talent.
Maintaining asset quality – We monitor asset quality through formal, ongoing, multiple-level reviews of loans in each market and specialized lending niche. These reviews are overseen by the Bank’s credit administration department. In addition, the loan portfolio is subject to ongoing monitoring by a loan review function that reports directly to the Bank’s Board of Directors or its committees.
We have begun the process of converting our primary operating system to a leading core solution, and plan to implement the new core in late 2024. Maintaining asset quality – We monitor asset quality through formal, ongoing, multiple-level reviews of loans in each market and specialized lending niche. These reviews are overseen by the Bank’s credit administration department.
Expense management – We manage expenses carefully through detailed budgeting and expense approval processes. Our success is gauged through the measurement of the “efficiency ratio.” The efficiency ratio is equal to noninterest expense divided by total revenue (tax equivalent net interest income plus noninterest income).
Our success is gauged through the measurement of the “efficiency ratio.” The efficiency ratio is equal to noninterest expense divided by total revenue (tax equivalent net interest income plus noninterest income). Growth through Acquisitions – Disciplined strategic acquisitions have contributed significantly to the Company’s growth and expansion. 3 Competition The Company and its subsidiaries operate in highly competitive markets.
Upon successful completion of the program, participants receive a small stipend and are guaranteed an interview with one of the program sponsors. • Empower & Enlighten - This program pairs our senior leaders with mid-level women and minority associates to foster an environment of mutual understanding, to remove generational boundaries and implicit biases, and to build the bridges that connect people to opportunity. • Business Resource Groups - These groups bring together associates with a shared identity, interest or goal to create community and opportunities for improvement and engagement.
Upon successful completion of the program, participants receive a small stipend and are guaranteed an interview with one of the program sponsors. • Business Resource Groups - These groups bring together associates with a shared identity, interest or goal to create community and opportunities for improvement and engagement. 11 We track the representation of women and underrepresented minorities because we believe that diversity helps us build more effective teams and improve our client experience, leading to greater success for the Company and our shareholders.
We expect and encourage participation and collaboration, and understand that we need each other to be successful. We value accountability because it is essential to our success, and we accept our responsibility to hold ourselves and others accountable for meeting shareholder commitments and achieving exceptional standards of performance.
We value accountability because it is essential to our success, and we accept our responsibility to hold ourselves and others accountable for meeting shareholder commitments and achieving exceptional standards of performance. We also believe in supporting our associates to achieve a work/life balance. Attracting and Retaining Talent. Our goal is to offer careers to our associates; not just jobs.
The Durbin Amendment cap became effective for the Bank on July 1, 2022 and resulted in a reduction in interchange income earned by the Bank. Governmental Policies The operations of the Company and its subsidiaries are affected not only by general economic conditions, but also by the policies of various regulatory authorities.
Governmental Policies The operations of the Company and its subsidiaries are affected not only by general economic conditions, but also by the policies of various regulatory authorities. In particular, the Federal Reserve regulates monetary policy and interest rates in order to influence general economic conditions.
We believe diversity of thought and experiences results in better outcomes and empowers our associates to make more meaningful contributions within our company and communities. We continue to learn and grow, and our current initiatives reflect our ongoing efforts around a more diverse, inclusive and equitable workplace.
In 2023, we were ranked fifth among similar financial institutions with more than $10 billion in assets. Diversity, Equity & Inclusion . We believe diversity of thought and experiences results in better outcomes and empowers our associates to make more meaningful contributions within our company and communities.
We lend the partnership money with 6 - 12 year terms and receive interest income and fee income as projects close or credits are sold. Specialty deposits – In addition to commercial operating accounts for our C&I customers, we offer specialty deposit accounts to customers in certain industries with complex account needs.
We have a minority ownership in a partnership that acquires, invests and sells, state low income housing tax credits. We lend the partnership money with 6 - 12 year terms and receive interest income and fee income as projects close or credits are sold.
Federal Reserve monetary policies have had a significant effect on the operating results of all financial institutions in the past and may continue to do so in the future. Human Capital Management We pride ourselves in creating an open, diverse, and transparent culture that celebrates teamwork and recognizes associates at all levels.
Human Capital Management We pride ourselves in creating an open, diverse, and transparent culture that celebrates teamwork and recognizes associates at all levels. We expect and encourage participation and collaboration, and understand that we need each other to be successful.
Removed
The COVID-19 pandemic could continue to adversely affect us, our customers, counterparties, employees, and third-party service providers, and the extent of its impact remains uncertain. Uneven economic recovery from COVID-19 across sectors could adversely affect our business, financial position, results of operations, liquidity and prospects.
Added
Our executive offices are located at 150 North Meramec Avenue, Clayton, Missouri 63105, and our telephone number is (314) 725-5500.
Removed
In addition, governmental action as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways.
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In 2023, we were awarded a $60.0 million NMTC allocation from the Treasury CDFI. This was our sixth NMTC allocation and brings the total amount of these allocations to $303.0 million. We will continue to participate in the application process for future awards, as well as serve as a secured lender to other allocatees. • Tax Credit Brokerage .
Removed
In prior years, we were selected to distribute New Markets Tax Credits, and we continue to participate in the application process, as well as serve as a secured lender to other allocatees. • Tax Credit Brokerage . We have a minority ownership in a partnership that acquires, invests and sells, state low income housing tax credits.
Added
Customers in our specialty deposit products will typically receive an earnings credit rate that is used to offset the cost of maintaining the deposit accounts. Payments made by the Company through the application of the earnings credit is reflected as a component of non-interest expense in the Consolidated Statement of Income.
Removed
Growth through Acquisitions – Disciplined strategic acquisitions have contributed significantly to the Company’s growth and expansion over the past several years. O n July 21, 2021, the Company closed its acquisition of First Choice and its wholly-owned bank subsidiary, FCB. First Choice operated eight full service branches in Southern California with total assets of $2.3 billion.
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In addition, the loan portfolio is subject to ongoing monitoring by a loan review function that reports directly to the Bank’s Board of Directors or its committees. Expense management – We manage expenses carefully through detailed budgeting and expense approval processes.
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The First Choice acquisition strengthened the Company’s commercial banking presence in the California market. On November 12, 2020, the Company closed its acquisition of Seacoast and its wholly-owned bank subsidiary, Seacoast Commerce Bank. Seacoast operated five full-service retail and commercial banking offices in California and Nevada, as well as SBA loan production and deposit production offices in various states.
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The objective of the final rule is to strengthen the achievement of the core purpose of the statute, and adapt to changes in the banking industry, including the expanded role of mobile and online banking.
Removed
Seacoast had total 3 assets of $1.3 billion. The Seacoast acquisition enhanced the Company’s commercial and specialty lending verticals, while enhancing the Company’s funding profile with deposit expertise in certain specialty deposit areas. Competition The Company and its subsidiaries operate in highly competitive markets.
Added
The final rule becomes effective on April 1, 2024, while most of the new requirements are applicable beginning January 1, 2026, and the remaining requirements are applicable January 1, 2027.
Removed
On January 31, 2020, the Secretary of Health and Human Services declared a public health emergency due to the global outbreak of a new strain of coronavirus (COVID-19). On March 13, 2020, the President of the United States proclaimed COVID-19 as a national emergency, following the World Health Organization’s categorization of the outbreak as a pandemic.
Added
In addition, an issuer may receive up to 1 cent per transaction for fraud prevention. The Durbin Amendment cap became effective for the Bank on July 1, 2022 and resulted in a reduction in interchange income earned by the Bank.
Removed
On January 30, 2023, the President announced an intention to allow the national emergency to expire on May 11, 2023. 4 On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act contains provisions to assist individuals and businesses, including the SBA’s Paycheck Protection Program.
Added
In October 2023, the Federal Reserve issued a proposed rule to lower the interchange fee cap to a level that the Federal Reserve believes is reasonable and proportional to the cost incurred by card issuers. Under the proposal, the base cap would decrease from 21 cents to 14.4 cents and from 5 basis points to 4 basis points.
Removed
The PPP provided guaranteed loans that are forgivable if certain requirements are met. Subsequent legislation increased the overall PPP authorization through the end of the program on May 31, 2021. The CARES Act also provided certain temporary regulatory relief for financial institutions.
Added
In addition, the fraud-prevention adjustment would increase from 1 cent to 1.3 cents. We will continue to monitor for final rulemaking and will evaluate the impact of any changes.
Removed
The act permitted financial institutions to temporarily suspend any determination of a loan modified as a result of the effects of the COVID-19 pandemic as being a troubled debt restructuring (“TDR”), including impairment for accounting purposes, through the end of 2021.
Added
Corporate Governance and Risk Management: In September 2023, the FDIC issued proposed rulemaking to establish standards for corporate governance and risk management for FDIC insured banks with total consolidated assets of $10 billion or more. The proposed guidelines would set standards for corporate governance, risk management practices and board oversight.
Removed
We elected to apply the CARES Act relief to certain loan modifications that related primarily to short-term payment deferrals and did not classify such modifications as TDRs during the allowed term.
Added
In establishing the proposed guidelines, the FDIC considered the OCCs heightened standards for banks with total consolidated assets of $50 billion or more and the Federal Reserve’s enhanced prudential standards for bank holding companies with total consolidated assets of $100 billion or more. We will continue to monitor for final rulemaking and will evaluate the impact of any changes.
Removed
See “Liquidity and Capital Resources” in the MD&A for more information on our capital adequacy, and “Bank Subsidiary - Community Reinvestment Act” below for more information on the Community Reinvestment Act.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur stock price and the price of our depositary shares can fluctuate significantly in response to a variety of factors including, among other things: • actual or anticipated quarterly fluctuations in our operating results and financial condition; • changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts; • reputation; • failure to meet analysts’ revenue or earnings estimates; • speculation in the press or investment community; • strategic actions by us or our competitors, such as acquisitions or restructurings; • actions by institutional shareholders; • fluctuations in the stock prices and operating results of our competitors; • general market conditions and, in particular, developments related to market conditions for the financial services industry; • proposed or adopted regulatory changes or developments; • anticipated or pending investigations, proceedings or litigation that involve or affect us; and/or • domestic and international economic factors unrelated to our performance. 23 The stock market and, in particular, the market for financial institution stocks, has historically experienced significant volatility.
Biggest changeThese broad market fluctuations could make it more difficult for you to resell your common stock or depositary shares when you want and at prices you find attractive. 23 Our stock price and the price of our depositary shares can fluctuate significantly in response to a variety of factors including, among other things: • actual or anticipated quarterly fluctuations in our operating results and financial condition; • changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts; • reputation; • failure to meet analysts’ revenue or earnings estimates; • speculation in the press or investment community; • strategic actions by us or our competitors, such as acquisitions or restructurings; • actions by institutional shareholders; • fluctuations in the stock prices and operating results of our competitors; • general market conditions and, in particular, developments related to market conditions for the financial services industry; • proposed or adopted regulatory changes or developments; • anticipated or pending investigations, proceedings or litigation that involve or affect us; and/or • domestic and international economic factors unrelated to our performance.
The regional economic conditions in areas where we conduct our business 16 have an impact on the demand for our products and services as well as the ability of our clients to repay loans, the value of the collateral securing loans, and the stability of our deposit funding sources.
The regional economic conditions in areas where we conduct our business have an impact on the demand for our products and services as well as the ability of our clients to repay 16 loans, the value of the collateral securing loans, and the stability of our deposit funding sources.
Moreover, we cannot give any assurance we will benefit from any market growth or favorable economic conditions in our primary market areas even if they do occur. We face potential risk from changes in governmental monetary policies. The Company’s earnings are affected by domestic economic conditions and the monetary and fiscal policies of the U.S. government and its agencies.
Moreover, we cannot give any assurance we will benefit from any market growth or favorable economic conditions in our primary market areas even if they do occur. We face potential risk from changes in governmental monetary policies. Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the U.S. government and its agencies.
Any failures, interruptions or security breaches in our information systems could damage our reputation, result in a loss of client business, result in a violation of privacy or other laws, or expose us to civil litigation, regulatory fines or losses not covered by insurance. We rely on third-party vendors to provide key components of our business infrastructure.
Any material failures, interruptions or security breaches in our information systems could damage our reputation, result in a loss of client business, result in a violation of privacy or other laws, or expose us to civil litigation, regulatory fines or losses not covered by insurance. We rely on third-party vendors to provide key components of our business infrastructure.
When a borrower defaults on a loan secured by real property, the Company may purchase the property in foreclosure or accept a deed to the property surrendered by the borrower. We may also take over the management of commercial properties whose owners have defaulted on loans. We may also own and lease premises where branches and other facilities are located.
When a borrower defaults on a loan secured by real property, we may purchase the property in foreclosure or accept a deed to the property surrendered by the borrower. We may also take over the management of commercial properties whose owners have defaulted on loans. We may also own and lease premises where branches and other facilities are located.
With the increased importance and focus on climate change, we are making efforts to enhance our governance of climate change-related risks and integrate climate considerations into our risk governance framework. Nonetheless, the risks associated with climate change are rapidly changing and evolving in an escalating fashion, making them difficult to assess due to limited data and other uncertainties.
With the increased importance and focus on climate change, we are making efforts to enhance our governance of climate change-related risks and integrate climate considerations into our risk governance framework. Nonetheless, 25 the risks associated with climate change are rapidly changing and evolving in an escalating fashion, making them difficult to assess due to limited data and other uncertainties.
These actions may limit the ability of the Bank or Company to execute its business plan and thus can lead to an adverse impact on the results of operations or financial position. 14 Financial Risks Our business is subject to interest rate risk and variations in interest rates may negatively affect our financial performance.
These actions may limit the ability of the Bank or Company to execute its business plan and thus can lead to an adverse impact on the results of operations or financial position. Financial Risks Our business is subject to interest rate risk and variations in interest rates may negatively affect our financial performance.
We are headquartered in Missouri, but have branch locations in the Kansas City, Phoenix, Los Angeles, and San Diego metropolitan areas, as well as Northern New Mexico and Nevada. Over time, we may acquire or open locations in other parts of the United States as well.
We are headquartered in Missouri, but have branch locations in the Kansas City, Phoenix, Los Angeles, and San Diego metropolitan areas, as well as Northern New Mexico, Florida and Nevada. Over time, we may acquire or open locations in other parts of the United States as well.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations and future prospects.
Failure to maintain and implement adequate programs to combat money laundering 14 and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations and future prospects.
We maintain an allowance for credit losses, which is a reserve established through a provision for credit losses charged to expense, that represents management’s estimate of probable losses within the existing portfolio of loans. The allowance, in the judgment of management, is sufficient to reserve for estimated credit losses and risks inherent in the loan portfolio.
We maintain an allowance for credit losses, which is a reserve established through a provision for credit losses charged to expense, that represents management’s estimate of probable losses within the existing loan portfolio. The allowance, in the judgment of management, is sufficient to reserve for estimated credit losses and risks inherent in the loan portfolio.
The acquisition of other financial services companies or assets present risks to the Company in addition to those presented by the nature of the business acquired. Our earnings, financial condition, and prospects after a merger or acquisition depend in part on our ability to successfully integrate the operations of the acquired company.
The acquisition of other financial services companies or assets present risks to us in addition to those presented by the nature of the business acquired. Our earnings, financial condition, and prospects after a merger or acquisition depend in part on our ability to successfully integrate the operations of the acquired company.
A majority of our loans are to businesses and individuals in the St. Louis, Kansas City, Phoenix, Los Alamos, Albuquerque, Santa Fe, Los Angeles, San Diego, and Las Vegas metropolitan areas. These loans are funded by deposits in the same metropolitan areas.
A majority of our loans are to businesses and individuals in the St. Louis, Kansas City, Phoenix, Los Alamos, Albuquerque, Santa Fe, Los Angeles, San Diego, Dallas, and Las Vegas metropolitan areas. These loans are funded by deposits in the same metropolitan areas.
Thus, if a cash flow transaction becomes non-performing, our primary recourse to recover some or all of the principal of our loan or other debt product would be to force the sale of all or part of the company as a going concern.
Thus, if a cash flow transaction becomes non-performing, our primary 17 recourse to recover some or all of the principal of our loan or other debt product would be to force the sale of all or part of the company as a going concern.
Because of the differences in the maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates may not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Our assets and liabilities may react differently to changes in overall interest rates or conditions.
Because of the differences in the maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates may not produce equivalent changes in income earned on interest-earning assets and expense paid on interest-bearing liabilities. Our assets and liabilities may react differently to changes in overall interest rates or conditions.
In addition, some of our cash flow loans may be viewed as stretch loans, meaning they may be at leverage multiples that exceed traditional accepted bank 17 lending standards for senior cash flow loans.
In addition, some of our cash flow loans may be viewed as stretch loans, meaning they may be at leverage multiples that exceed traditional accepted bank lending standards for senior cash flow loans.
These increased credit losses, where the Bank has retained credit exposure, could decrease our assets, net income and available cash. The loans we make to our borrowers may bear interest at a variable interest rate. When market interest rates increase, the amount of revenue borrowers need to service their debt also increases.
These increased credit losses, where the Bank has retained credit exposure, could decrease our assets, net income and available cash. The loans we make to our borrowers often bear interest at a variable interest rate. When market interest rates increase, the amount of revenue borrowers need to service their debt also increases.
The trading price of the shares of our common stock and our depositary shares and the value of our other securities will depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales of our equity or equity related securities, and other factors identified in this annual report and other reports by the Company.
The trading price of the shares of our common stock and our depositary shares and the value of our other securities will depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales of our equity or equity related securities, and other factors identified in this annual report and our other reports.
If we do not manage our growth successfully, then our business, results of operations or financial condition may be adversely affected. 15 We may incur impairments to goodwill. As of December 31, 2022, we had $365 million recorded as goodwill. We evaluate our goodwill for impairment at least annually.
If we do not manage our growth successfully, then our business, results of operations or financial condition may be adversely affected. 15 We may incur impairments to goodwill. As of December 31, 2023, we had $365 million recorded as goodwill. We evaluate our goodwill for impairment at least annually.
At the time of purchase, many of our mortgage-backed securities had a higher interest rate than prevailing market rates, resulting in a premium purchase price. In accordance with applicable accounting standards, we amortize the premium over the expected life of the mortgage-backed security.
At the time of purchase, some of our mortgage-backed securities had a higher interest rate than prevailing market rates, resulting in a premium purchase price. In accordance with applicable accounting standards, we amortize the premium over the expected life of the mortgage-backed security.
The cost of cleaning up or paying damages and penalties associated with environmental problems could increase our operating expenses. It may cost more to clean a property than the property is worth. We could also be liable for pollution generated by a borrower’s operations if the Company takes a role in managing those operations after a default.
The cost of cleaning up or paying damages and penalties associated with environmental problems could increase our operating expenses. It may cost more to clean a property than the property is worth. We could also be liable for pollution generated by a borrower’s operations if we take a role in managing those operations after a default.
A substantial portion of our income is derived from the differential or “spread” between the interest earned on loans, investment securities, and other interest-earning assets, and the interest paid on deposits, borrowings, and other interest-bearing liabilities.
A substantial portion of our income is derived from the differential or “spread” between the interest earned on loans, investment securities, and other interest-earning assets, and the interest and/or earnings credit paid on deposits, borrowings, and other interest-bearing liabilities.
Investors receive an overall tax credit equal to 39% of their total equity investment, credited at a rate of five percent in each of the first three years and six percent in each of the final four years.
Investors receive an overall tax credit equal to 39% of their qualified equity investment, credited at a rate of five percent in each of the first three years and six percent in each of the final four years.
The value of mortgage-backed obligations in our investment portfolio may fluctuate for several reasons, including (i) delinquencies and defaults on the mortgages underlying such obligations, due in part to high unemployment rates, (ii) falling home prices, (iii) lack of a liquid market for such obligations, and (iv) uncertainties in respect of government-sponsored enterprises such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), which guarantee such obligations.
The value of mortgage-backed obligations in our investment portfolio may fluctuate for several reasons, including (i) delinquencies and defaults on the mortgages underlying such obligations, due in part to high unemployment rates, (ii) falling home prices, (iii) lack of a liquid market for such obligations, and (iv) uncertainties in respect of government-sponsored enterprises such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, which guarantee such obligations.
ITEM 1A: RISK FACTORS An investment in our common shares is subject to risks inherent to our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report.
ITEM 1A: RISK FACTORS An investment in our common or depositary stock is subject to risks inherent to our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report.
While we have lending, foreclosure and facilities guidelines intended to exclude properties with an unreasonable risk of contamination, hazardous substances could exist on some of the properties the Company may own, manage or occupy. We face the risk that environmental laws could force us to clean up the properties at the Company’s expense.
While we have lending, foreclosure and facilities guidelines intended to exclude properties with an unreasonable risk of contamination, hazardous substances could exist on some of the properties we may own, manage or occupy. We face the risk that environmental laws could force us to clean up the properties at our expense.
The value of our common shares could decline due to any of these risks, and you could lose all or part of your investment. Risks Relating to General Economic and Market Conditions An economic downturn could adversely affect our financial condition, results of operations or cash flows.
The value of our common and depositary stock could decline due to any of these risks, and you could lose all or part of your investment. Risks Relating to General Economic and Market Conditions An economic downturn could adversely affect our financial condition, results of operations or cash flows.
If we are unable or determine not to pay dividends on our outstanding equity securities, the market price of such securities could be materially adversely affected. There can be no assurance of any future dividends on our common stock or our outstanding preferred stock.
If we are unable or determine not to pay dividends on our outstanding equity securities, the market price of such securities could be materially adversely affected. There can be no assurance of any future dividends on our common stock or our depositary shares.
Recent highly publicized events have highlighted the importance of cybersecurity, including cyberattacks against other financial institutions, governmental agencies, and other organizations that resulted in the compromise of personal and/or confidential information, the theft or destruction of corporate information, and demands for ransom payments to release corporate information encrypted by “ransomware.” A successful cyberattack could harm the Bank’s reputation and/or impair its ability to provide services to its clients.
Recent highly publicized material events have highlighted the importance of cybersecurity, including cyberattacks against other financial institutions, governmental agencies, and other organizations that resulted in the compromise of personal and/or confidential information, the theft or destruction of corporate information, and demands for ransom payments to release corporate information encrypted by “ransomware.” A successful cyberattack could materially and adversely affect the Bank’s reputation and/or impair its ability to provide services to its clients.
We also have derivatives that result from a service we provide to certain qualifying clients approved through our credit process and therefore, these derivatives are not used to manage interest rate risk in our assets or liabilities. The Company does not enter into derivative financial instruments for trading purposes.
We also have derivatives that result from a service we provide to certain qualifying clients approved through our credit process and therefore, these derivatives are not used to manage interest rate risk in our assets or liabilities. We do not enter into derivative financial instruments for trading purposes.
Any problems caused by these third parties, including as a result of inadequate or interrupted service, could adversely affect our ability to deliver products and services to our clients and otherwise conduct our business.
Any problems caused by these third parties, including as a result of inadequate or interrupted service, could materially affect our ability to successfully deliver products and services to our clients and otherwise conduct our business.
Significant negative industry or economic trends, including the lack of recovery in the market price of our common stock, or reduced future cash flows or disruptions to our business, could result in impairments to goodwill. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on experience and to rely on projections of future operating performance.
Significant negative industry or economic trends, including a sustained decrease in the market price of our common stock, or reduced future cash flows or disruptions to our business, could result in impairments to goodwill. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on experience and to rely on projections of future operating performance.
If we are unable to manage these risks, our operations may be materially and adversely affected. 22 Technology and Cybersecurity Risks A failure in or breach, or the inability to recognize a potential breach of our operational or security systems, or those of our third party service providers, including as a result of cyber-attacks, could disrupt our business, result in unintentional disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and adversely impact our earnings.
If we are unable to manage these risks, our operations may be materially and adversely affected. 22 Technology and Cybersecurity Risks A failure in or breach, or the inability to recognize a potential breach of our operational or security systems, or those of our third party service providers, including as a result of cyber-attacks, may cause industry-wide operational disruptions that could materially affect our business, result in unintentional disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and adversely impact our earnings.
Additional provisions to increase the allowance for credit losses, should they become necessary, would result in a decrease in net income and a reduction in capital, and may have a material adverse effect on our financial condition and results of operations. The transition from LIBOR may adversely affect the results of our operations.
Additional provisions to increase the allowance for credit losses, should they become necessary, would result in a decrease in net income and a reduction in capital, and may have a material adverse effect on our financial condition and results of operations.
We could experience increased expenses resulting from strategic planning, litigation, and technology and market changes, and reputational harm as a result of negative public sentiment, regulatory scrutiny, and reduced investor and stakeholder confidence due to our response to climate change and our climate change strategy, which, in turn, could have a material negative impact on our business, results of operations, and financial condition. 26 ITEM 1B: UNRESOLVED STAFF COMMENTS None.
We could experience increased expenses resulting from strategic planning, litigation, and technology and market changes, and reputational harm as a result of negative public sentiment, regulatory scrutiny, and reduced investor and stakeholder confidence due to our response to climate change and our climate change strategy, which, in turn, could have a material negative impact on our business, results of operations, and financial condition.
Competitive and Reputational Risks The loss of any of our executive officers or other key employees, or the inability to recruit highly skilled and other key employees, may adversely affect our operations. The Company believes its growth and continued success will depend in large part on its executive team and other key employees.
Competitive and Reputational Risks The loss of any of our executive officers or other key employees, or the inability to recruit highly skilled and other key employees, may adversely affect our operations. We believe our growth and continued success will depend in large part on our executive team and other key employees.
We continue to monitor the adequacy of our loan credit allowance and may need to increase it if economic conditions deteriorate.
We continue to monitor the adequacy of our loan credit allowance and may need to increase it if economic conditions or other factors deteriorate.
In the event the Bank was restricted from paying dividends to the Company or making payments under the tax sharing agreement, the Company may not be able to service its debt, pay its other obligations or pay dividends on its common stock or preferred stock.
In the event the Bank was restricted from paying 24 dividends to us or making payments under the tax sharing agreement, we may not be able to service our debt, pay our other obligations or pay dividends on our common stock or preferred stock.
The Company depends on payments from the Bank, including dividends, management fees and payments under tax sharing agreements, for substantially all of the Company’s liquidity requirements. Federal and state regulations limit the amount of dividends and the amount of payments the Bank may make to the Company under tax sharing agreements.
We depend on payments from the Bank, including dividends, management fees and payments under tax sharing agreements, for substantially all of our liquidity requirements. Federal and state regulations limit the amount of dividends and the amount of payments the Bank may make to us under tax sharing agreements.
Our SBA lending program is dependent upon the U.S. federal government. As an approved participant in the SBA Preferred Lender’s Program (a “Preferred Lender”), we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not Preferred Lenders.
As an approved participant in the SBA Preferred Lender’s Program (a “Preferred Lender”), we enable our clients to obtain SBA loans without being 13 subject to the potentially lengthy SBA approval process necessary for lenders that are not Preferred Lenders.
As a result, the market price of our common stock and depositary shares may be volatile. In addition, the trading volume in our common stock and depositary shares may fluctuate more than usual and cause significant price variations to occur.
The stock market and, in particular, the market for financial institution stocks, has historically experienced significant volatility. As a result, the market price of our common stock and depositary shares may be volatile. In addition, the trading volume in our common stock and depositary shares may fluctuate more than usual and cause significant price variations to occur.
Information security, including cybersecurity, is a high priority for the Company.
Information security, including cybersecurity, is a high priority for us.
If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the way the loan was originated, funded, or serviced by us, the SBA may seek recovery of the principal loss related to the deficiency. 13 Changes in government regulation and supervision may increase our costs or impact our ability to operate in certain lines of business.
If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the way the loan was originated, funded, or serviced by us, the SBA may seek recovery of the principal loss related to the deficiency.
The Company has bolstered, and may in the future bolster, significant resources to implement technologies and various response and recovery plans and procedures as part of its information security program.
We have expended, and may in the future expend, significant resources to implement technologies and various response and recovery plans and procedures as part of our information security program.
Because our business is highly regulated, the laws, rules, regulations and supervisory guidance and policies applicable to us are subject to regular modification and change and could result in an adverse impact on our results of operations.
Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, rather than shareholders. Because our business is highly regulated, the laws, rules, regulations and supervisory guidance and policies applicable to us are subject to regular modification and change and could result in an adverse impact on our results of operations.
Any such change could have a material adverse effect on our results of operations and stock price. Declines in asset values may result in impairment charges and adversely impact the value of our investments and our financial performance and capital. We hold an investment portfolio that includes, but is not limited to, municipal bonds, government securities and agency mortgage-backed securities.
Any such change could have a material adverse effect on our results of operations and stock price. Declines in asset values may result in impairment charges and adversely impact the value of our investments and our financial performance and capital.
Business – Supervision and Regulation - Financial Holding Company - Dividend Restrictions and Share Repurchases” for additional information. 24 Moreover, any other financing agreements that we enter into in the future may limit our ability to pay cash dividends on our capital stock, including the common stock.
Moreover, any other financing agreements that we enter into in the future may limit our ability to pay cash dividends on our capital stock, including the common stock.
Although we have no present intention to issue any additional shares of our authorized preferred stock, there can be no assurance that the Company will not do so in the future.
Although we have no present intention to issue any additional shares of our authorized preferred stock, there can be no assurance that the Company will not do so in the future. General Risk Factors Climate change may materially adversely affect our business and results of operations. Political and social attention to the issue of climate change has continued.
These instruments prohibit the payment of dividends on our common stock in certain situations. See “Item 1.
These instruments prohibit the payment of dividends on our common stock in certain situations. See “Item 1. Business – Supervision and Regulation - Financial Holding Company - Dividend Restrictions and Share Repurchases” for additional information.
Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities.
We hold an investment portfolio that includes, but is not limited to, municipal bonds, corporate debt securities, government securities and agency mortgage-backed securities. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities.
In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations could make it more difficult for you to resell your common stock or depositary shares when you want and at prices you find attractive.
In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies.
The Company cannot predict the nature or impact of future changes in monetary and fiscal policies. Legal, Regulatory and Tax Risks SBA lending is an important part of our business. Our SBA lending program is dependent upon the U.S. federal government, and we face specific risks associated with originating SBA loans.
Our SBA lending program is dependent upon the U.S. federal government, and we face specific risks associated with originating SBA loans. Our SBA lending program is dependent upon the U.S. federal government.
Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, rather than shareholders.
Changes in government regulation and supervision may increase our costs or impact our ability to operate in certain lines of business. Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations.
Removed
On December 31, 2021, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates the LIBOR, ceased issuance of 24 of the 35 LIBOR settings. Five U.S. dollar settings (overnight, 1-month, 3-month, 6-month and 1-year) will no longer be representative after June 30, 2023. New contracts indexed to LIBOR were prohibited after December 31, 2021.
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We cannot predict the nature or impact of future changes in monetary and fiscal policies. Adverse developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system and could have a material effect on our operations and/or stock price.
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The Company has selected SOFR as a replacement rate to LIBOR. SOFR is different from LIBOR in that it is a backward looking secured rate rather than a forward looking unsecured rate. These differences could lead to a greater disconnect between our costs to raise funds using SOFR as compared to LIBOR.
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In the first quarter of 2023, high-profile bank failures involving Silicon Valley Bank, Signature Bank and First Republic Bank generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks.
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Replacement interest rates to LIBOR may perform differently and we may incur significant costs to transition both our borrowing arrangements and the loan agreements with our customers from LIBOR, which may have an adverse effect on our results of operations.
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In assessing the failures in 2023, the banking regulators noted that each of the failed banks had a high proportion of deposits that exceeded FDIC deposit insurance limits. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks.
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General Risk Factors The global coronavirus (“COVID-19”) pandemic may continue to lead to periods of significant volatility in financial, commodities and other markets and could harm our business and results of operations.
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As a result, some chose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which impacted our liquidity, cost of funding, loan funding capacity, net interest margin, capital and results of operations.
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Given the ongoing and dynamic nature of the COVID-19 pandemic, it is difficult to predict the impact of the pandemic on our business, and there is no guarantee that our efforts to address or mitigate the adverse impacts of the COVID-19 pandemic will be effective in the future.
Added
In connection with the high-profile bank failures of early 2023, uncertainty and concern has been, and may be in the future, compounded by advances in technology that increase the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns.
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We do not yet know the full extent of the COVID-19 pandemic’s effect on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including continued rise in inflation or interest rates, labor shortages or supply chain disruptions.
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While the Department of the Treasury, the Federal Reserve, and the FDIC ensured that depositors of Silicon Valley Bank, Signature Bank and First Republic Bank had access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will continue to be successful in restoring customer confidence in regional banks and the banking system more broadly.
Removed
The full impact of the COVID-19 pandemic could have a material adverse effect on our business, financial condition and results of operations, growth strategy, cash flows as well as our regulatory capital and liquidity ratios, and will depend on highly uncertain and unpredictable future developments, including: • The duration, extent, and severity of the pandemic.
Added
In addition, the banking operating environment and public trading prices of banking institutions can be highly correlated, in particular during times of stress, which could adversely impact the trading prices of our common stock and potentially our results of operations. Legal, Regulatory and Tax Risks SBA lending is an important part of our business.
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A spread of COVID-19 and the rise of new variants could cause severe disruptions in the U.S. economy, to our clients’ business or their willingness to conduct banking and other financial transactions.
Added
Our core operating system conversion may result in business interruptions or other adverse developments. We plan to replace our core operating systems, including those for loans, deposits, financials and other ancillary systems (collectively referred to as “core system”). The conversion to the new core system is expected to be completed in 2024.
Removed
We may continue to see the economic effects of the COVID-19 pandemic that could affect our business, financial condition, and results of operations. • The ongoing effect on our customers, counterparties, employees and third-party providers. The COVID-19 pandemic and its associated consequences and uncertainties are affecting individuals, households, and businesses differently and unevenly.
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We use the core system to track client relationships and accounts and report financial information. The core system is integrated with various other applications that are used to service client requests by bank personnel or directly by clients (such as online and mobile banking).
Removed
Negative impacts to our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans, and their willingness and ability to conduct banking and other financial transactions. • The effect on economies and markets.
Added
Changing the core system will subject us to operational risks during and after the conversion, including disruptions to its technology systems, which may adversely impact our clients. We have documented plans, policies and procedures designed to prevent or limit the risks of a failure during or after the conversion of our core system.
Removed
The continuation of the COVID-19 pandemic may also negatively impact regional economic conditions for a period of time, resulting in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability, which could adversely affect our business, financial condition, results of operations and cash flows.
Added
However, there can be no assurance that any such adverse developments will not occur or, if they do occur, that they will be timely and adequately remediated.
Removed
In addition, actions by U.S. federal, state and local governments to address the pandemic could had a significant adverse effect on the markets in which we conduct our business. Climate change may materially adversely affect our business and results of operations. 25 Political and social attention to the issue of climate change has increased.
Added
The ultimate impact of any adverse development could damage our reputation, result in a loss of client business, subject us to regulatory scrutiny, or expose it to civil litigation and possibly financial liability, any of which could have a material effect on our business, financial condition, and results of operations.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2: PROPERTIES Our executive offices are located at 150 North Meramec Avenue, Clayton, Missouri, 63105. As of December 31, 2022, we utilized banking locations and administrative offices throughout our market areas of Arizona, California, Kansas, Missouri, Nevada, and New Mexico. Additionally, the Company has a limited network of SBA loan production offices and deposit production offices in various states.
Biggest changeITEM 2: PROPERTIES Our executive offices are located at 150 North Meramec Avenue, Clayton, Missouri, 63105. As of December 31, 2023, we utilized banking locations and administrative offices throughout our market areas of Arizona, California, Florida, Kansas, Missouri, Nevada, and New Mexico.
We own or lease our facilities and believe all of our properties are in good condition to meet our business needs.
Additionally, the Company has a limited network of loan production offices and deposit production offices in various other states. We own or lease our facilities and believe all of our properties are in good condition to meet our business needs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+1 added−1 removed3 unchanged
Biggest changeDividends The Company paid quarterly cash dividends on common shares in 2022 and 2021 and anticipates continuing to pay comparable dividends. Total dividends paid on common shares were $0.90 in 2022 and $0.75 in 2021. However, we have no obligation to pay dividends and we may change our dividend policy at any time without notice to our shareholders.
Biggest changeDividends The Company paid quarterly cash dividends on common shares in each of 2023, 2022 and 2021 and anticipates continuing to pay comparable dividends. Total dividends paid per common share were $1.00 in 2023, $0.90 in 2022 and $0.75 in 2021.
As a result, no assurance can be given that dividends will be paid in the future with respect to our common stock. 27 Recent Sales of Unregistered Securities and Use of Proceeds None. Issuer Purchases of Equity Securities None.
As a result, no assurance can be given that dividends will be paid in the future with respect to our common stock. Recent Sales of Unregistered Securities and Use of Proceeds None. 28 Issuer Purchases of Equity Securities None.
The graph assumes an investment of $100.00 in the Company’s common stock and each index at the respective closing price on December 31, 2017 and reinvestment of all quarterly dividends. The investment is measured as of each subsequent fiscal year end.
The graph assumes an investment of $100.00 in the Company’s common stock and each index at the respective closing price on December 31, 2018 and reinvestment of all quarterly dividends. The investment is measured as of each subsequent fiscal year end.
Stock Performance Graph The following graph compares the cumulative total shareholder return on the Company’s common stock from December 31, 2017 through December 31, 2022. The graph compares the Company’s common stock with the Nasdaq Composite Index (U.S. companies) and the S&P Regional Banks Select Industry Index.
Stock Performance Graph The following graph compares the cumulative total shareholder return on the Company’s common stock from December 31, 2018 through December 31, 2023. The graph compares the Company’s common stock with the Nasdaq Composite Index (U.S. companies) and the S&P Regional Banks Select Industry Index.
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Our Common Stock The Company’s common stock trades on the Nasdaq Global Select Market under the symbol “EFSC.” As of February 22, 2023, the Company had 1,725 registered shareholders of common stock.
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Our Common Stock The Company’s common stock trades on the Nasdaq Global Select Market under the symbol “EFSC.” As of February 21, 2024, the Company had 1,670 registered shareholders of common stock.
Our ability to pay dividends is substantially dependent upon the ability of our subsidiaries to pay cash dividends to us. Information on regulatory restrictions on our ability to pay dividends is set forth in “Part I, Item 1.
Information on regulatory restrictions on our ability to pay dividends is set forth in “Part I, Item 1.
Period Ending December 31, Index 2017 2018 2019 2020 2021 2022 Enterprise Financial Services Corp $ 100.00 $ 84.14 $ 109.38 $ 81.22 $ 111.19 $ 117.88 Nasdaq Composite Index $ 100.00 $ 97.16 $ 132.81 $ 192.47 $ 235.15 $ 158.65 S&P Regional Banks Select Industry Index $ 100.00 $ 81.23 $ 103.68 $ 96.33 $ 134.76 $ 114.88 *Source: S&P Global Market Intelligence.
Period Ending December 31, Index 2018 2019 2020 2021 2022 2023 Enterprise Financial Services Corp $ 100.00 $ 129.98 $ 96.41 $ 131.97 $ 139.92 $ 130.59 Nasdaq Composite Index $ 100.00 $ 136.69 $ 198.10 $ 242.03 $ 163.28 $ 236.17 S&P Regional Banks Select Industry Index $ 100.00 $ 127.64 $ 118.58 $ 165.90 $ 141.42 $ 130.91 *Source: S&P Global Market Intelligence.
Removed
Used with permission. All rights reserved. 28 ITEM 6: [RESERVED]
Added
However, we have no obligation to pay dividends and we may change our dividend policy at any time without notice to our shareholders. Our ability to pay dividends is substantially dependent upon the ability of our subsidiaries to pay cash dividends to us.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

99 edited+35 added−50 removed50 unchanged
Biggest changeReconciliations of Non-GAAP Financial Measures Core Efficiency Ratio 54 For the Years ended December 31, ($ in thousands) 2022 2021 2020 Net interest income (GAAP) $ 473,903 $ 360,194 $ 270,001 Tax-equivalent adjustment 7,042 5,151 3,190 Less incremental accretion income — — 4,083 Noninterest income (GAAP) 59,162 67,743 54,503 Less gain (loss) on sale of other real estate (93) 884 — Less gain on sale of investment securities — — 421 Less other non-core income — — 265 Core revenue (non-GAAP) $ 540,200 $ 432,204 $ 322,925 Noninterest expense (GAAP) $ 274,216 $ 245,919 $ 167,159 Less amortization on intangibles 5,367 5,691 5,673 Less merger-related expenses — 22,082 4,174 Less branch-closure expenses — 3,441 — Less other non-core expenses — — 57 Core noninterest expense (non-GAAP) $ 268,849 $ 214,705 $ 157,255 Core efficiency ratio (non-GAAP) 49.77 % 49.68 % 48.70 % Tangible Common Equity, Tangible Book Value per Share, and Tangible Common Equity Ratio Period ended December 31, ($ in thousands, except per share data) 2022 2021 2020 Total shareholders' equity $ 1,522,263 $ 1,529,116 $ 1,078,975 Less preferred stock 71,988 71,988 — Less goodwill 365,164 365,164 260,567 Less intangible assets 16,919 22,286 23,084 Tangible common equity $ 1,068,192 $ 1,069,678 $ 795,324 Common shares outstanding 37,253 37,820 31,210 Tangible book value per share $ 28.67 $ 28.28 $ 25.48 Total assets $ 13,054,172 $ 13,537,358 $ 9,751,571 Less goodwill 365,164 365,164 260,567 Less intangible assets 16,919 22,286 23,084 Tangible assets $ 12,672,089 $ 13,149,908 $ 9,467,920 Tangible common equity to tangible assets 8.43 % 8.13 % 8.40 % 55 Return on Average Tangible Common Equity (ROATCE) For the Years ended December 31, ($ in thousands) 2022 2021 2020 Average shareholder’s equity $ 1,498,759 $ 1,277,153 $ 902,875 Less average preferred stock 71,988 8,903 — Less average goodwill 365,164 307,614 217,205 Less average intangible assets 19,516 22,460 23,551 Average tangible common equity $ 1,042,091 $ 938,176 $ 662,119 Net income available to common shareholders (GAAP) $ 199,002 $ 133,055 $ 74,384 Return on average tangible common equity 19.10 % 14.18 % 11.23 %
Biggest changeThe 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. 55 Reconciliations of Non-GAAP Financial Measures Core Efficiency Ratio For the Years ended December 31, ($ in thousands) 2023 2022 2021 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 Less gain on sale of investment securities 601 — — Less gain (loss) on sale of other real estate owned 187 (93) 884 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 % Tangible Common Equity, Tangible Book Value per Share, and Tangible Common Equity Ratio Period ended December 31, ($ and shares in thousands, except per share data) 2023 2022 2021 Shareholders' equity (GAAP) $ 1,716,068 $ 1,522,263 $ 1,529,116 Less preferred stock 71,988 71,988 71,988 Less goodwill 365,164 365,164 365,164 Less intangible assets 12,318 16,919 22,286 Tangible common equity (non-GAAP) $ 1,266,598 $ 1,068,192 $ 1,069,678 Common shares outstanding 37,416 37,253 37,820 Tangible book value per share (non-GAAP) $ 33.85 $ 28.67 $ 28.28 Total assets (GAAP) $ 14,518,590 $ 13,054,172 $ 13,537,358 Less goodwill 365,164 365,164 365,164 Less intangible assets 12,318 16,919 22,286 Tangible assets (non-GAAP) $ 14,141,108 $ 12,672,089 $ 13,149,908 Tangible common equity to tangible assets (non-GAAP) 8.96 % 8.43 % 8.13 % 56 Return on Average Tangible Common Equity (ROATCE) For the Years ended December 31, ($ in thousands) 2023 2022 2021 Average shareholder’s equity (GAAP) $ 1,623,121 $ 1,498,759 $ 1,277,153 Less average preferred stock 71,988 71,988 8,903 Less average goodwill 365,164 365,164 307,614 Less average intangible assets 14,531 19,516 22,460 Average tangible common equity (non-GAAP) $ 1,171,438 $ 1,042,091 $ 938,176 Net income available to common shareholders (GAAP) $ 190,309 $ 199,002 $ 133,055 FDIC special assessment (after tax) 1,814 — — Net income available to common shareholders adjusted (non-GAAP) $ 192,123 $ 199,002 $ 133,055 Return on average tangible common equity adjusted for FDIC assessment (non-GAAP) 16.40 % 19.10 % 14.18 % Return on average common equity (GAAP) 12.27 % 13.95 % 10.49 % Return on average common equity adjusted for FDIC assessment (non-GAAP) 12.39 % 13.95 % 10.49 % Pre-Provision Net Revenue (PPNR) and Pre-Provision Net Revenue Return on Average Assets (PPNR ROAA) For the Years ended December 31, ($ in thousands) 2023 2022 2021 Net interest income $ 562,592 $ 473,903 $ 360,194 Noninterest income 68,725 59,162 67,743 FDIC special assessment 2,412 — — Less gain on sale of investment securities 601 — — Less gain (loss) on sale of other real estate owned 187 (93) 884 Less noninterest expense 348,186 274,216 245,919 PPNR (non-GAAP) $ 284,755 $ 258,942 $ 181,134 Average assets $ 13,805,236 $ 13,319,624 $ 11,467,310 PPNR ROAA (non-GAAP) 2.06 % 1.94 % 1.58 % Return on Average Assets (ROAA) For the Years ended December 31, ($ in thousands) 2023 2022 2021 Net income (GAAP) $ 194,059 $ 203,043 $ 133,055 FDIC special assessment (after tax) 1,814 — — Net income adjusted (non-GAAP) 195,873 203,043 133,055 Average assets $ 13,805,236 $ 13,319,624 $ 11,467,310 ROAA (GAAP) 1.41 % 1.52 % 1.16 % ROAA adjusted for FDIC special assessment (non-GAAP) 1.42 % 1.52 % 1.16 %
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.
This portfolio also includes tax credit brokerage 42 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.
The ACL is a valuation account to adjust the cost basis to the amount expected to 52 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.
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.
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. 50 Risk Management Market risk arises from exposure to changes in interest rates and other relevant market rate or price risk.
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.
Actual maturities can differ from contractual maturities, as borrowers may have the right to call or repay obligations with or without prepayment penalties. 46 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.
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.
The attached tables contain a reconciliation of these core performance measures to the GAAP measures. The Company believes the tangible common equity ratio provides useful information to investors about the Company’s capital strength even though it is considered to be a non-GAAP financial measure and is not part of the regulatory capital requirements to which the Company is subject.
The 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’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. Strong capital ratios, credit quality and core earnings are essential to retaining cost-effective access to the wholesale funding markets.
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. 50 Strong capital ratios, credit quality and core earnings are essential to retaining cost-effective access to the wholesale funding markets.
The impact and any associated risks related to our critical accounting policies on our business operations are described throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see “Item 8.
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 53 discussion on the application of these and other accounting policies, see “Item 8.
With the cessation of LIBOR, the Company has selected term SOFR as the replacement index for the majority of its variable rate loans and has begun providing customer notifications in early 2023. The Company ceased using LIBOR and ICE swap rates in new contracts and began issuing SOFR based loans in December 2021.
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.
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 49 market interest rates as of the balance sheet date. The fair value of these contracts changes daily as market interest rates change.
Derivative contracts are carried at fair value on the consolidated balance sheet with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of the balance sheet date. The fair value of these contracts changes daily as market interest rates change.
For additional information on the Company’s contractual obligations and commitments see the following footnotes in Item 8: “Note 5 – Leases,” “Note 6 – Derivative Financial Instruments,” “Note 10 – Subordinated Debentures and Notes,” “Note 11 – Federal Home Loan Bank Advances,” “Note 12 – Other Borrowings,” and “Note 17 – Commitments.” Capital Resources The Company and the Bank are subject to various regulatory capital requirements administered by the state and federal banking agencies.
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.
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 2022, 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, 2022.
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 2023, the holding company maintained a revolving line of credit for an aggregate amount up to $25 million, all of which was available at December 31, 2023.
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, 2022, and December 31, 2021, the Company and the Bank met all capital adequacy requirements to which they are subject.
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, 2023, and December 31, 2022, the Company and the Bank met all capital adequacy requirements to which they are subject.
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. 53 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.
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. 54 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.
For certain deposit accounts in the Company’s specialized deposit portfolio, clients receive an earnings credit rate on average collected balances that may be used to offset expenses associated with the client’s activities for managing the accounts. These expenses are reflected in noninterest expense.
For certain deposit accounts in the Company’s specialized deposit portfolio, clients receive an earnings credit rate on average collected balances that may be used to offset expenses associated with the client’s activities for managing the accounts. These costs are reflected in noninterest expense as Deposit costs.
The following table summarizes contractual maturity and tax-equivalent yields on the investment portfolio at December 31, 2022: 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.
The following table summarizes contractual maturity and tax-equivalent yields on the investment portfolio at December 31, 2023: 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.
This follows a period of highly expansionary fiscal support from the federal government during the start of the COVID-19 pandemic in 2020-2021. 29 Financial Performance Highlights Below are highlights of our financial performance for the years ended December 31, 2022, 2021 and 2020.
This follows a period of highly expansionary fiscal support from the federal government during the start of the COVID-19 pandemic in 2020-2021. 30 Financial Performance Highlights Below are highlights of our financial performance for the years ended December 31, 2023, 2022 and 2021.
At December 31, 2022, no significant concentrations exceeding 10% of total loans existed in the Company’s loan portfolio, except as described above.
At December 31, 2023, no significant concentrations exceeding 10% of total loans existed in the Company’s loan portfolio, except as described above.
A detailed discussion comparing 2021 and 2020 results is incorporated herein by reference to Item 7 of the Company’s 2021 Annual Report on Form 10-K filed on February 25, 2022. Executive Summary Our Company offers a broad range of business and personal banking services including wealth management services.
A detailed discussion comparing 2022 and 2021 results is incorporated herein by reference to Item 7 of the Company’s 2022 Annual Report on Form 10-K filed on February 24, 2023. Executive Summary Our Company offers a broad range of business and personal banking services including wealth management services.
Core performance measures exclude certain other income and expense items such as merger-related expenses, facilities charges, and the gain or loss on sale of investment securities, which the Company believes to be not indicative of or useful to measure the Company’s operating performance on an ongoing basis.
Core performance measures exclude certain other income and expense items, such as the FDIC special assessment, merger-related expenses, facilities charges, and the gain or loss on sale of investment securities, that the Company believes to be not indicative of or useful to measure the Company’s operating performance on an ongoing basis.
The Company considers its core efficiency ratio, tangible common equity ratio, return on average tangible common equity, and tangible book value per common share, collectively “core performance measures,” presented in this report, as relevant measures of financial performance, even though they are non-GAAP measures, as they provide supplemental information by which to evaluate the impact of certain non-comparable items, and the Company’s operating performance on an ongoing basis.
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.
The Company had no debt securities classified as trading at December 31, 2022, or 2021.
The Company had no debt securities classified as trading at December 31, 2023, or 2022.
At December 31, 2022, the Company had derivative contracts to manage interest rate risk, including $200.0 million in notional value on derivatives to hedge the cash flows on 51 floating rate loans and $62.0 million in notional value on derivatives on floating rate debt. Derivative financial instruments are discussed in “Item 8.
At December 31, 2023, the Company had derivative contracts to manage interest rate risk, including $250.0 million in notional value on derivatives to hedge the cash flows on floating rate loans and $62.0 million in notional value on derivatives on floating rate debt. Derivative financial instruments are discussed in “Item 8.
A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.” 30 The Company noted the following trends during 2022: • The Company reported net income of $203.0 million, or $5.31 per diluted share for 2022, compared to $133.1 million, or $3.86 per diluted share for 2021.
A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.” 31 The Company noted the following trends during 2023: • The Company reported net income of $194.1 million, or $5.07 per diluted share for 2023, compared to $203.0 million, or $5.31 per diluted share for 2022.
The majority of variable loans are based on the prime rate, LIBOR, or SOFR. At December 31, 2022, $3.7 billion or 60% of variable rate loans were subject to an interest rate floor. Most loan originations have one-to three-year maturities. Management monitors this mix as part of its interest rate risk management.
The majority of variable loans are based on the prime rate or SOFR. At December 31, 2023, $4.2 billion or 64% of variable rate loans were subject to an interest rate floor. Most variable rate loan originations have one-to three-year maturities. Management monitors this mix as part of its interest rate risk management.
The Company’s allowance for credit losses on loans was $136.9 million at December 31, 2022 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 $24.1 million. Conversely, the allowance would have increased $40.5 million using only the downside scenario.
The Company’s allowance for credit losses on loans was $134.8 million at December 31, 2023 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 $27.5 million. Conversely, the allowance would have increased $43.9 million using only the downside scenario.
The Company’s core efficiency ratio 1 was stable at 49.8% in 2022, compared to 49.7% for the prior year. • The Company’s effective tax rate was 21.7% in 2022 compared to 21.1% in 2021. 1 Non-GAAP measures.
The Company’s core efficiency ratio 1 was 53.4% in 2023, compared to 49.8% for the prior year. • The Company’s effective tax rate was 21.3% in 2023 compared to 21.7% in 2022. 1 Non-GAAP measures.
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 $480.9 million for 2022, compared to $365.3 million for 2021, an increase of $115.6 million, or 32%.
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 $570.7 million for 2023, compared to $480.9 million for 2022, an increase of $89.8 million, or 19%.
The increase in 2022 was due to a reallocation of excess liquidity into the investment portfolio. The portfolio is comprised of both available-for-sale and held-to-maturity securities. The table below sets forth the carrying value of investment securities, excluding the allowance for credit losses: December 31, 2022 2021 ($ in thousands) Amount % Amount % Obligations of U.S.
The portfolio is comprised of both available-for-sale and held-to-maturity securities. 46 The table below sets forth the carrying value of investment securities, excluding the allowance for credit losses: December 31, 2023 2022 ($ in thousands) Amount % Amount % Obligations of U.S.
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.
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 loans may be forgivable by the SBA if certain requirements are met. 41 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.
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.
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. As of December 31, 2022, variable-rate loans comprised approximately 63% of total loans.
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. As of December 31, 2023, variable-rate loans comprised approximately 61% of total loans. The increase in market interest rates also increased the cost on interest bearing liabilities.
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, 2022: Year ended December 31, Change from ($ in thousands) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Service charges on deposit accounts $ 18,326 $ 15,428 $ 11,717 $ 2,898 $ 3,711 Wealth management revenue 10,010 10,259 9,732 (249) 527 Card services revenue 11,551 11,880 9,481 (329) 2,399 Tax credit income 2,558 8,028 6,611 (5,470) 1,417 Miscellaneous income 16,717 22,148 16,962 (5,431) 5,186 Total noninterest income $ 59,162 $ 67,743 $ 54,503 $ (8,581) $ 13,240 Noninterest income decreased $8.6 million, or 13%, in 2022 compared to 2021.
Noninterest Income The following table presents a comparative summary of the major components of noninterest income for each of the years in the three-year period ended December 31, 2023: Year ended December 31, Change from ($ in thousands) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Service charges on deposit accounts $ 16,559 $ 18,326 $ 15,428 $ (1,767) $ 2,898 Wealth management revenue 10,030 10,010 10,259 20 (249) Card services revenue 10,028 11,551 11,880 (1,523) (329) Tax credit income 9,196 2,558 8,028 6,638 (5,470) Miscellaneous income 22,912 16,717 22,148 6,195 (5,431) Total noninterest income $ 68,725 $ 59,162 $ 67,743 $ 9,563 $ (8,581) Noninterest income increased $9.6 million, or 16%, in 2023 compared to 2022.
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.
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.
Securities totaled $2.2 billion at December 31, 2022, and included $734 million pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements. The remaining $1.4 billion could be pledged or sold to enhance liquidity, if necessary. Liability liquidity funding sources are available to increase financial flexibility.
Securities totaled $2.4 billion at December 31, 2023, and included $1.6 billion pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements. The remaining $808.7 million could be pledged or sold to enhance liquidity, if necessary.
Treasury Bills 208,534 9.3 % 91,170 5.1 % Corporate debt securities 137,260 6.1 % 138,193 7.7 % Total $ 2,246,457 100.0 % $ 1,796,301 100.0 % The allowance for credit losses on held-to-maturity debt securities was $0.7 million and $0.6 million at December 31, 2022 and 2021, respectively.
Treasury Bills 181,701 7.7 % 208,534 9.3 % Corporate debt securities 130,994 5.5 % 137,260 6.1 % Total $ 2,369,492 100.0 % $ 2,246,457 100.0 % The allowance for credit losses on held-to-maturity debt securities was $0.8 million and $0.7 million at December 31, 2023 and 2022, respectively.
A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.” Noninterest expense increased $28.3 million, or 12%, in 2022 compared to 2021. The increase was attributed primarily to a $22.1 million increase in compensation and benefits, a $16.9 million increase in deposit costs and a $9.4 million increase in other expenses.
A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.” Noninterest expense increased $74.0 million, or 27%, in 2023 compared to 2022. 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.
At December 31, 2022, $351.9 million of these loans include the use of interest reserves and follow standard underwriting guidelines.
At December 31, 2023, $447.0 million of these loans include the use of interest reserves and follow standard 38 underwriting guidelines.
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.
The Company has $3.0 billion in unused commitments to extend credit as of December 31, 2023. While this commitment level would exhaust the majority the Company’s current liquidity resources, the nature of these commitments is such that the likelihood of funding them in the aggregate at any one time is low.
The following table summarizes the Company’s capital ratios: December 31, 2022 December 31, 2021 ($ in thousands) EFSC Bank EFSC Bank To Be Well-Capitalized Minimum Ratio with CCB Common Equity Tier 1 Capital to Risk Weighted Assets 11.1 % 12.1 % 11.3 % 12.5 % 6.5 % 7.0 % Tier 1 Capital to Risk Weighted Assets 12.6 % 12.1 % 13.0 % 12.5 % 8.0 % 8.5 % Total Capital to Risk Weighted Assets 14.2 % 13.1 % 14.7 % 13.5 % 10.0 % 10.5 % Leverage Ratio (Tier 1 Capital to Average Assets) 10.9 % 10.5 % 9.7 % 9.3 % 5.0 % 4.0 % Tangible common equity to tangible assets 1 8.4 % 8.1 % Common equity tier 1 capital $ 1,228,786 $ 1,333,978 $ 1,091,823 $ 1,201,340 Tier 1 capital 1,394,426 1,334,030 1,257,462 1,201,391 Total risk-based capital 1,568,332 1,444,685 1,423,036 1,303,715 1 Not a required regulatory capital ratio The Company believes the tangible common equity and regulatory capital ratios are important measures of capital strength.
Note 14 – Regulatory Capital” for a summary of our risk-based capital and leverage ratios. 51 The following table summarizes the Company’s capital ratios: December 31, 2023 December 31, 2022 ($ in thousands) EFSC Bank EFSC Bank To Be Well-Capitalized Minimum Ratio with CCB Common Equity Tier 1 Capital to Risk Weighted Assets 11.3 % 12.2 % 11.1 % 12.1 % 6.5 % 7.0 % Tier 1 Capital to Risk Weighted Assets 12.7 % 12.2 % 12.6 % 12.1 % 8.0 % 8.5 % Total Capital to Risk Weighted Assets 14.2 % 13.2 % 14.2 % 13.1 % 10.0 % 10.5 % Leverage Ratio (Tier 1 Capital to Average Assets) 11.0 % 10.6 % 10.9 % 10.5 % 5.0 % N/A Tangible common equity to tangible assets 1 8.96 % 8.43 % Common equity tier 1 capital $ 1,387,802 $ 1,493,105 $ 1,228,786 $ 1,333,978 Tier 1 capital 1,553,448 1,493,163 1,394,426 1,334,030 Total risk-based capital 1,732,501 1,608,966 1,568,332 1,444,685 1 Not a required regulatory capital ratio The Company believes the tangible common equity and regulatory capital ratios are important measures of capital strength.
The following table sets forth the composition of the loan portfolio by type of loans: December 31, ($ in thousands) 2022 2021 Commercial and industrial $ 3,859,882 $ 3,392,375 Commercial real estate - investor owned 2,357,820 2,141,143 Commercial real estate - owner occupied 2,270,551 2,035,785 Construction and land development 611,565 734,073 Residential real estate 395,537 454,052 Other 241,783 260,214 Total loans $ 9,737,138 $ 9,017,642 December 31, 2022 2021 Commercial and industrial 39.6 % 37.6 % Commercial real estate - investor owned 24.2 % 23.8 % Commercial real estate - owner occupied 23.3 % 22.6 % Construction and land development 6.3 % 8.1 % Residential real estate 4.1 % 5.0 % Other 2.5 % 2.9 % Total loans 100.0 % 100.0 % 37 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 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. 37 The following table sets forth the composition of the loan portfolio by type of loans: December 31, ($ in thousands) 2023 2022 Commercial and industrial $ 4,672,559 $ 3,859,882 Commercial real estate - investor owned 2,451,953 2,357,820 Commercial real estate - owner occupied 2,351,618 2,270,551 Construction and land development 760,425 611,565 Residential real estate 372,188 395,537 Other 275,375 241,783 Total loans $ 10,884,118 $ 9,737,138 December 31, 2023 2022 Commercial and industrial 42.9 % 39.6 % Commercial real estate - investor owned 22.5 % 24.2 % Commercial real estate - owner occupied 21.6 % 23.3 % Construction and land development 7.1 % 6.3 % Residential real estate 3.4 % 4.1 % 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 following table is a summary of the allocation of the allowance for credit losses for the periods indicated: December 31, ($ in thousands) 2022 2021 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 $ 53,835 39.6 % $ 63,825 37.6 % Real estate: Commercial 58,943 47.5 % 53,437 46.3 % Construction and land development 11,444 6.3 % 14,536 8.1 % Residential 7,928 4.1 % 7,927 5.1 % Other 4,782 2.5 % 5,316 2.9 % Total allowance $ 136,932 100.0 % $ 145,041 100.0 % The allowance for credit losses was 1.41% of total loans at December 31, 2022, compared to 1.61%, and 1.89%, at December 31, 2021 and 2020, respectively.
The following table summarizes the allocation of the ACL on loans: December 31, ($ in thousands) 2023 2022 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 $ 58,886 42.9 % $ 53,835 39.6 % Real estate: Commercial 54,685 44.1 % 58,943 47.5 % Construction and land development 10,198 7.0 % 11,444 6.3 % Residential 6,142 3.4 % 7,928 4.1 % Other 4,860 2.6 % 4,782 2.5 % Total allowance $ 134,771 100.0 % $ 136,932 100.0 % The allowance for credit losses was 1.24% of total loans at December 31, 2023, compared to 1.41%, and 1.61%, at December 31, 2022 and 2021, respectively.
($ in thousands, except per share data) Year ended December 31, 2022 2021 2020 EARNINGS Total interest income $ 515,082 $ 383,230 $ 304,779 Total interest expense 41,179 23,036 34,778 Net interest income 473,903 360,194 270,001 Provision (benefit) for credit losses (611) 13,385 65,398 Net interest income after provision (benefit) for credit losses 474,514 346,809 204,603 Total noninterest income 59,162 67,743 54,503 Total noninterest expense 274,216 245,919 167,159 Income before income tax expense 259,460 168,633 91,947 Income tax expense 56,417 35,578 17,563 Net income $ 203,043 $ 133,055 $ 74,384 Preferred dividends 4,041 — — Net income available to common shareholders $ 199,002 $ 133,055 $ 74,384 Basic earnings per share $ 5.32 $ 3.86 $ 2.76 Diluted earnings per share $ 5.31 $ 3.86 $ 2.76 Return on average assets 1.52 % 1.16 % 0.90 % Return on average common equity 13.95 % 10.49 % 8.24 % Return on average tangible common equity 1 19.10 % 14.18 % 11.23 % Net interest margin (fully tax equivalent) 3.89 % 3.41 % 3.56 % Efficiency ratio 51.44 % 57.47 % 51.51 % Core efficiency ratio 1 49.77 % 49.68 % 48.70 % Dividend payout ratio 16.89 % 19.66 % 26.61 % Book value per common share $ 38.93 $ 38.53 $ 34.57 Tangible book value per common share 1 $ 28.67 $ 28.28 $ 25.48 Average common equity to average assets 11.25 % 11.14 % 10.94 % Tangible common equity to tangible assets 1 8.43 % 8.13 % 8.40 % At or for the year ended December 31, 2022 2021 2020 ASSET QUALITY Net charge-offs $ 3,899 $ 11,629 $ 1,907 Nonperforming loans 9,981 28,024 38,507 Classified assets 99,122 100,797 123,808 Classified assets to total assets 0.76 % 0.74 % 1.27 % Nonperforming loans to total loans 0.10 % 0.31 % 0.53 % Nonperforming assets to total assets 0.08 % 0.23 % 0.45 % Allowance for credit losses to total loans 1.41 % 1.61 % 1.89 % Net charge-offs to average loans 0.04 % 0.14 % 0.03 % 1 Non-GAAP measures.
($ in thousands, except per share data) Year ended December 31, 2023 2022 2021 EARNINGS Total interest income $ 764,919 $ 515,082 $ 383,230 Total interest expense 202,327 41,179 23,036 Net interest income 562,592 473,903 360,194 Provision (benefit) for credit losses 36,605 (611) 13,385 Net interest income after provision (benefit) for credit losses 525,987 474,514 346,809 Total noninterest income 68,725 59,162 67,743 Total noninterest expense 348,186 274,216 245,919 Income before income tax expense 246,526 259,460 168,633 Income tax expense 52,467 56,417 35,578 Net income $ 194,059 $ 203,043 $ 133,055 Preferred dividends 3,750 4,041 — Net income available to common shareholders $ 190,309 $ 199,002 $ 133,055 Basic earnings per share $ 5.09 $ 5.32 $ 3.86 Diluted earnings per share $ 5.07 $ 5.31 $ 3.86 Return on average assets 1 1.42 % 1.52 % 1.16 % Return on average common equity 1 12.39 % 13.95 % 10.49 % Return on average tangible common equity 1 16.40 % 19.10 % 14.18 % Net interest margin (fully tax equivalent) 4.43 % 3.89 % 3.41 % Efficiency ratio 55.15 % 51.44 % 57.47 % Core efficiency ratio 1 53.42 % 49.77 % 49.68 % Common dividend payout ratio 19.64 % 16.89 % 19.66 % Book value per common share $ 43.94 $ 38.93 $ 38.53 Tangible book value per common share 1 $ 33.85 $ 28.67 $ 28.28 Average common equity to average assets 11.76 % 11.25 % 11.14 % Tangible common equity to tangible assets 1 8.96 % 8.43 % 8.13 % At or for the year ended December 31, 2023 2022 2021 ASSET QUALITY Net charge-offs $ 38,044 $ 3,899 $ 11,629 Nonperforming loans 43,728 9,981 28,024 Nonaccrual loans 43,181 9,766 23,449 Classified assets 185,389 99,122 100,797 Total assets 14,518,590 13,054,172 13,537,358 Total loans 10,884,118 9,737,138 9,017,642 Classified assets to total assets 1.28 % 0.76 % 0.74 % Nonperforming loans to total loans 0.40 % 0.10 % 0.31 % Nonperforming assets to total assets 0.34 % 0.08 % 0.23 % ACL on loans to total loans 1.24 % 1.41 % 1.61 % Net charge-offs to average loans 0.37 % 0.04 % 0.14 % 1 Non-GAAP measures.
Year ended December 31, 2022 2021 2020 ($ 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 $ 9,193,682 $ 456,703 4.97 % $ 8,055,873 $ 349,112 4.33 % $ 6,071,496 $ 270,673 4.46 % Taxable securities 1,228,514 29,638 2.41 908,189 19,305 2.13 1,016,100 25,524 2.51 Non-taxable securities 2 872,173 25,184 2.89 659,804 18,468 2.80 350,501 11,151 3.18 Total securities 2,100,687 54,822 2.61 1,567,993 37,773 2.41 1,366,601 36,675 2.68 Interest-earning deposits 1,074,165 10,599 0.99 1,084,853 1,496 0.14 228,760 620 0.27 Total interest-earning assets 12,368,534 522,124 4.22 10,708,719 388,381 3.63 7,666,857 307,968 4.02 Noninterest-earning assets 951,090 758,591 587,057 Total assets $ 13,319,624 $ 11,467,310 $ 8,253,914 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand accounts $ 2,318,363 $ 7,038 0.30 % $ 2,122,752 $ 1,614 0.08 % $ 1,494,364 $ 2,101 0.14 % Money market accounts 2,781,579 19,306 0.69 2,557,836 4,669 0.18 1,977,826 7,754 0.39 Savings accounts 819,043 305 0.04 724,768 225 0.03 589,832 279 0.05 Certificates of deposit 569,272 3,509 0.62 570,496 4,160 0.73 676,889 10,915 1.61 Total interest-bearing deposits 6,488,257 30,158 0.46 5,975,852 10,668 0.18 4,738,911 21,049 0.44 Subordinated debentures and notes 155,160 9,166 5.91 195,686 10,960 5.60 179,534 9,885 5.51 FHLB advances 33,467 599 1.79 59,945 803 1.34 241,635 2,673 1.11 Securities sold under agreements to repurchase 211,039 506 0.24 225,894 235 0.10 206,338 542 0.26 Other borrowings 22,812 750 3.29 26,428 370 1.40 32,147 629 1.96 Total interest-bearing liabilities 6,910,735 41,179 0.60 6,483,805 23,036 0.36 5,398,565 34,778 0.64 Noninterest bearing liabilities: Demand deposits 4,805,549 3,597,204 1,854,982 Other liabilities 104,581 109,148 97,492 Total liabilities 11,820,865 10,190,157 7,351,039 Shareholders' equity 1,498,759 1,277,153 902,875 Total liabilities & shareholders' equity $ 13,319,624 $ 11,467,310 $ 8,253,914 Net interest income $ 480,945 $ 365,345 $ 273,190 Net interest spread 3.62 % 3.27 % 3.38 % Net interest margin (tax equivalent) 3.89 % 3.41 % 3.56 % 1 Average balances include non-accrual loans.
Year ended December 31, 2023 2022 2021 ($ 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 $ 10,324,951 $ 688,439 6.67 % $ 9,193,682 $ 456,703 4.97 % $ 8,055,873 $ 349,112 4.33 % Taxable securities 1,320,664 40,920 3.10 1,228,514 29,638 2.41 908,189 19,305 2.13 Non-taxable securities 2 970,888 30,209 3.11 872,173 25,184 2.89 659,804 18,468 2.80 Total securities 2,291,552 71,129 3.10 2,100,687 54,822 2.61 1,567,993 37,773 2.41 Interest-earning deposits 260,214 13,430 5.16 1,074,165 10,599 0.99 1,084,853 1,496 0.14 Total interest-earning assets 12,876,717 772,998 6.00 12,368,534 522,124 4.22 10,708,719 388,381 3.63 Noninterest-earning assets 928,519 951,090 758,591 Total assets $ 13,805,236 $ 13,319,624 $ 11,467,310 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand accounts $ 2,559,238 $ 46,976 1.84 % $ 2,318,363 $ 7,038 0.30 % $ 2,122,752 $ 1,614 0.08 % Money market accounts 3,043,794 92,976 3.05 2,781,579 19,306 0.69 2,557,836 4,669 0.18 Savings accounts 668,368 975 0.15 819,043 305 0.04 724,768 225 0.03 Certificates of deposit 1,198,551 42,796 3.57 569,272 3,509 0.62 570,496 4,160 0.73 Total interest-bearing deposits 7,469,951 183,723 2.46 6,488,257 30,158 0.46 5,975,852 10,668 0.18 Subordinated debentures and notes 155,702 9,781 6.28 155,160 9,166 5.91 195,686 10,960 5.60 FHLB advances 54,615 2,752 5.04 33,467 599 1.79 59,945 803 1.34 Securities sold under agreements to repurchase 168,745 3,647 2.16 211,039 506 0.24 225,894 235 0.10 Other borrowings 71,738 2,424 3.38 22,812 750 3.29 26,428 370 1.40 Total interest-bearing liabilities 7,920,751 202,327 2.55 6,910,735 41,179 0.60 6,483,805 23,036 0.36 Noninterest bearing liabilities: Demand deposits 4,131,163 4,805,549 3,597,204 Other liabilities 130,201 104,581 109,148 Total liabilities 12,182,115 11,820,865 10,190,157 Shareholders' equity 1,623,121 1,498,759 1,277,153 Total liabilities & shareholders' equity $ 13,805,236 $ 13,319,624 $ 11,467,310 Net interest income $ 570,671 $ 480,945 $ 365,345 Net interest spread 3.45 % 3.62 % 3.27 % Net interest margin (tax equivalent) 4.43 % 3.89 % 3.41 % 1 Average balances include non-accrual loans.
Loan fees in 2022 and 2021 included PPP fees of $4.1 million and $21.7 million, respectively. 2 Non-taxable income is presented on a fully tax-equivalent basis using a 25.2% tax rate in each of 2022 and 2021 and a 24.7% tax rate in 2020.
Interest income includes net loan fees of $13.8 million, $16.7 million, and $28.4 million for the years ended December 31, 2023, 2022, and 2021 respectively. Loan fees in 2022 and 2021 included PPP fees of $4.1 million and $21.7 million, respectively. 2 Non-taxable income is presented on a fully tax-equivalent basis using a tax rate of approximately 25%.
Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on experience. In the event different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected.
In the event different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected.
The charge-offs off nonperforming loans were primarily in C&I and residential real estate, representing 65% and and 22% of gross charge-offs in 2022, respectively. 45 Other real estate The following table summarizes the changes in other real estate: Year ended December 31, ($ in thousands) 2022 2021 Other real estate, beginning of period $ 3,493 $ 5,330 Additions — 3,175 Writedowns in value (268) (29) Sales (2,956) (4,983) Other real estate, end of period $ 269 $ 3,493 Investments At December 31, 2022, our portfolio of investment securities was $2.2 billion, or 17%, of total assets, compared to $1.8 billion, or 13%, of total assets as of December 31, 2021.
Other real estate The following table summarizes the changes in other real estate: Year ended December 31, ($ in thousands) 2023 2022 Other real estate, beginning of period $ 269 $ 3,493 Additions 5,736 — Writedowns in value — (268) Sales (269) (2,956) Other real estate, end of period $ 5,736 $ 269 Investments At December 31, 2023, our portfolio of investment securities was $2.4 billion, or 16%, of total assets, compared to $2.2 billion, or 17%, of total assets as of December 31, 2022.
The Company also has unsecured federal funds lines with six correspondent banks totaling $90 million. In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company’s various risk management processes.
In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company’s various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company’s liquidity.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.
Income Taxes Management uses certain assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax assets and liabilities and income tax expense. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.
Note 1 – Summary of Significant Accounting Policies” for more information on nonaccrual loans and other real estate. 44 The following table presents the categories of nonperforming assets, excluding government guaranteed portions: December 31, ($ in thousands) 2022 2021 Non-accrual loans $ 9,766 $ 23,449 Loans past due 90 days or more and still accruing interest 142 1,716 Restructured loans 73 2,859 Total nonperforming loans 9,981 28,024 Other real estate 269 3,493 Total nonperforming assets $ 10,250 $ 31,517 Total assets $ 13,054,172 $ 13,537,358 Total loans 9,737,138 9,017,642 Total allowance for credit losses 136,932 145,041 Allowance for credit losses to nonaccrual loans 1,402 % 619 % Allowance for credit losses to nonperforming loans 1,372 % 518 % Allowance for credit losses to total loans 1.41 % 1.61 % Nonaccrual loans to total loans 0.10 % 0.26 % Nonperforming loans to total loans 0.10 % 0.31 % Nonperforming assets to total assets 0.08 % 0.23 % Nonperforming loans based on loan type were as follows: ($ in thousands) December 31, 2022 Number of loans December 31, 2021 Number of loans Commercial and industrial $ 4,443 44 % 14 $ 21,538 77 % 34 Commercial real estate 4,200 42 % 10 4,414 16 % 14 Construction and land development 1,192 12 % 2 — — % — Residential real estate 73 1 % 1 2,048 7 % 12 Other 73 1 % 2 24 — % 4 Total $ 9,981 100 % 29 $ 28,024 100 % 64 The following table summarizes the changes in nonperforming loans: Year ended December 31, ($ in thousands) 2022 2021 Nonperforming loans, beginning of period $ 28,024 $ 38,507 Additions to nonaccrual loans 8,904 43,350 Charge-offs (9,393) (17,185) Principal payments (17,554) (36,648) Nonperforming loans, end of period $ 9,981 $ 28,024 Nonperforming loans at December 31, 2022 decreased $18.0 million, or 64%, when compared to December 31, 2021.
December 31, ($ in thousands) 2023 2022 Non-accrual loans $ 43,181 $ 9,766 Loans past due 90 days or more and still accruing interest 547 142 Restructured loans — 73 Total nonperforming loans 43,728 9,981 Other real estate 5,736 269 Total nonperforming assets $ 49,464 $ 10,250 Total assets $ 14,518,590 $ 13,054,172 Total loans 10,884,118 9,737,138 Total allowance for credit losses 134,771 136,932 ACL to nonaccrual loans 312 % 1,402 % ACL to nonperforming loans 308 % 1,372 % ACL to total loans 1.24 % 1.41 % Nonaccrual loans to total loans 0.40 % 0.10 % Nonperforming loans to total loans 0.40 % 0.10 % Nonperforming assets to total assets 0.34 % 0.08 % 45 Nonperforming loans based on loan type were as follows: ($ in thousands) December 31, 2023 Number of loans December 31, 2022 Number of loans Commercial and industrial $ 7,756 18 % 15 $ 4,443 44 % 14 Commercial real estate 33,739 77 % 27 4,200 42 % 10 Construction and land development 1,269 3 % 3 1,192 12 % 2 Residential real estate 959 2 % 1 73 1 % 1 Other 5 — % 2 73 1 % 2 Total $ 43,728 100 % 48 $ 9,981 100 % 29 The following table summarizes the changes in nonperforming loans: Year ended December 31, ($ in thousands) 2023 2022 Nonperforming loans, beginning of period $ 9,981 $ 28,024 Additions to nonaccrual loans 109,766 8,904 Charge-offs (43,215) (9,393) Principal payments (25,871) (17,554) Moved to other real estate and repossessed assets (6,933) — Nonperforming loans, end of period $ 43,728 $ 9,981 Nonperforming loans at December 31, 2023 increased $33.7 million, or 338%, when compared to December 31, 2022.
The tax-equivalent adjustments were $7.0 million for the year ended December 31, 2022, $5.1 million for the year ended December 31, 2021, and $3.2 million for the year ended December 31, 2020. 33 Rate/Volume The following table sets forth, on a tax-equivalent basis for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in yield/rates and volume. 2022 compared to 2021 2021 compared to 2020 Increase (decrease) due to Increase (decrease) due to ($ in thousands) Volume 1 Rate 2 Net Volume 1 Rate 2 Net Interest earned on: Loans $ 52,238 $ 55,353 $ 107,591 $ 86,183 $ (7,744) $ 78,439 Taxable securities 7,474 2,859 10,333 (2,541) (3,678) (6,219) Non-taxable securities 3 6,115 601 6,716 8,799 (1,482) 7,317 Interest-earning deposits (15) 9,118 9,103 1,313 (437) 876 Total interest-earning assets 65,812 67,931 133,743 93,754 (13,341) 80,413 Interest paid on: Interest-bearing demand accounts $ 162 $ 5,262 $ 5,424 $ 689 $ (1,176) $ (487) Money market accounts 443 14,194 14,637 1,844 (4,929) (3,085) Savings 31 49 80 55 (109) (54) Certificates of deposit (9) (642) (651) (1,506) (5,249) (6,755) Subordinated debentures and notes (2,368) 574 (1,794) 902 173 1,075 FHLB advances (423) 219 (204) (2,341) 471 (1,870) Securities sold under agreements to repurchase (16) 287 271 47 (354) (307) Other borrowed funds (57) 437 380 (100) (159) (259) Total interest-bearing liabilities (2,237) 20,380 18,143 (410) (11,332) (11,742) Net interest income $ 68,049 $ 47,551 $ 115,600 $ 94,164 $ (2,009) $ 92,155 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 25.2% and 24.7% for 2021 and 2020, respectively.
The tax-equivalent adjustments were $8.1 million, $7.0 million, and $5.1 million for the years ended December 31, 2023, 2022, and 2021 respectively. 33 Rate/Volume The following table sets forth, on a tax-equivalent basis for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in yield/rates and volume. 2023 compared to 2022 2022 compared to 2021 Increase (decrease) due to Increase (decrease) due to ($ in thousands) Volume 1 Rate 2 Net Volume 1 Rate 2 Net Interest earned on: Loans $ 61,460 $ 170,276 $ 231,736 $ 52,238 $ 55,353 $ 107,591 Taxable securities 2,355 8,927 11,282 7,474 2,859 10,333 Non-taxable securities 3 2,981 2,045 5,026 6,115 601 6,716 Interest-earning deposits (13,192) 16,023 2,831 (15) 9,118 9,103 Total interest-earning assets 53,604 197,271 250,875 65,812 67,931 133,743 Interest paid on: Interest-bearing demand accounts $ 805 $ 39,133 $ 39,938 $ 162 $ 5,262 $ 5,424 Money market accounts 1,987 71,683 73,670 443 14,194 14,637 Savings (66) 736 670 31 49 80 Certificates of deposit 7,363 31,924 39,287 (9) (642) (651) Subordinated debentures and notes 32 583 615 (2,368) 574 (1,794) FHLB advances 555 1,599 2,154 (423) 219 (204) Securities sold under agreements to repurchase (126) 3,268 3,142 (16) 287 271 Other borrowed funds 1,729 (56) 1,673 (57) 437 380 Total interest-bearing liabilities 12,279 148,870 161,149 (2,237) 20,380 18,143 Net interest income $ 41,325 $ 48,401 $ 89,726 $ 68,049 $ 47,551 $ 115,600 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%.
FINANCIAL CONDITION Summary Balance Sheet ($ in thousands) December 31, % Increase (Decrease) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Total cash and cash equivalents $ 291,359 $ 2,021,689 $ 537,703 (85.59) % 275.99 % Securities 2,245,722 1,795,687 1,400,039 25.06 % 28.26 % Total loans 9,737,138 9,017,642 7,224,935 7.98 % 24.81 % Total assets 13,054,172 13,537,358 9,751,571 (3.57) % 38.82 % Deposits 10,829,150 11,343,799 7,985,389 (4.54) % 42.06 % Total liabilities 11,531,909 12,008,242 8,672,596 (3.97) % 38.46 % Total shareholders’ equity 1,522,263 1,529,116 1,078,975 (0.45) % 41.72 % Assets Loans by Type The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector; however, a substantial portion of the portfolio, including the C&I category, is secured by real estate.
FINANCIAL CONDITION Summary Balance Sheet ($ in thousands) December 31, % Increase (Decrease) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Total cash and cash equivalents $ 433,029 $ 291,359 $ 2,021,689 48.62 % (85.59) % Securities 2,368,707 2,245,722 1,795,687 5.48 % 25.06 % 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) % Deposits 12,176,371 10,829,150 11,343,799 12.44 % (4.54) % 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) % 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, 2023 2022 2021 Total cash and cash equivalents 2.98 % 2.23 % 14.93 % Securities 16.31 % 17.20 % 13.26 % Total loans 74.97 % 74.59 % 66.61 % Total assets 100.00 % 100.00 % 100.00 % Deposits 95.11 % 93.91 % 94.47 % Total liabilities 100.00 % 100.00 % 100.00 % Total shareholders’ equity 100.00 % 100.00 % 100.00 % Assets Loans by Type The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector; however, a substantial portion of the portfolio, including the C&I category, is secured by real estate.
Government sponsored enterprises $ 237,785 10.6 % $ 173,511 9.6 % Obligations of states and political subdivisions 946,456 42.1 % 811,463 45.2 % Agency mortgage-backed securities 716,422 31.9 % 581,964 32.4 % U.S.
Government sponsored enterprises $ 296,446 12.5 % $ 237,785 10.6 % Obligations of states and political subdivisions 1,007,870 42.5 % 946,456 42.1 % Agency mortgage-backed securities 752,481 31.8 % 716,422 31.9 % U.S.
Cash and interest-bearing deposits with other banks totaled $291.4 million at December 31, 2022, compared to $2.0 billion at 48 December 31, 2021. The decline in cash balances during 2022 is due to loan growth and a deployment of liquidity into the investment portfolio, coupled with a decline in total deposits.
Cash and interest-bearing deposits with other banks totaled $433.0 million at December 31, 2023, compared to $291.4 million at December 31, 2022. The increase in cash balances during 2023 is due to deposit growth exceeding loan growth.
In addition to amounts borrowed at December 31, 2022, the Company could borrow an additional $752 million from the FHLB of Des Moines under blanket loan pledges and has additional real estate loans that could be pledged. The Company also has $1.4 billion available from the Federal Reserve Bank under a pledged loan agreement.
SBA loans totaling $42.1 million were sold during 2023. Liability liquidity funding sources are available to increase financial flexibility. In addition to amounts borrowed at December 31, 2023, the Company could borrow an additional $1.0 billion from the FHLB of Des Moines under blanket loan pledges and has additional real estate loans that could be pledged.
The primary driver of the increase in net interest margin from 2021 to 2022 was an increase market interest rates. In 2022, the Federal Reserve significantly increased interest rates for the first time since 2018. The federal funds target rate increased 425 basis points in 2022.
The tax-equivalent net interest margin was 4.43% for 2023, compared to 3.89% for 2022. The primary driver of the increase in net interest margin from 2022 to 2023 was an increase market interest rates. In 2023, the Federal Reserve increased interest rates three times. The federal funds target rate increased 100 basis points in 2023.
The resulting net interest income for the next 12-month period is compared to the net interest income amount calculated using flat rates. This difference represents the Company’s earnings sensitivity to a positive or negative parallel rate shock.
The resulting net interest income for the next 12-month period is compared to the net interest income amount calculated using flat rates.
Credit risk is managed by thoroughly reviewing the creditworthiness of the borrowers prior to origination and thereafter. 38 The following table presents a breakdown of loans by NAICS code at the periods indicated: December 31, 2022 2021 ($ in thousands) Outstanding Balance % Outstanding Balance % Accommodation and Food Services $ 880,870 9 % $ 785,485 9 % Administrative and Support and Waste Management and Remediation Services 200,586 2 % 176,601 2 % Agriculture, Forestry, Fishing and Hunting 1 200,144 2 % 195,342 2 % Arts, Entertainment, and Recreation 105,851 1 % 120,805 1 % Construction 555,343 6 % 580,731 6 % Educational Services 51,083 — % 52,034 1 % Finance and Insurance 1,622,712 17 % 1,344,389 15 % Health Care and Social Assistance 455,839 5 % 372,109 4 % Information 100,004 1 % 64,686 1 % Management of Companies and Enterprises 78,548 1 % 84,110 1 % Manufacturing 694,483 7 % 613,725 7 % Mining, Quarrying, and Oil and Gas Extraction 8,106 — % 9,771 — % Other Services (except Public Administration) 536,112 6 % 593,149 7 % Professional, Scientific, and Technical Services 304,027 3 % 329,009 4 % Public Administration 9,111 — % 11,358 — % Real Estate and Rental and Leasing 2,534,275 26 % 2,462,088 27 % Retail Trade 517,659 5 % 460,763 5 % Transportation and Warehousing 257,384 3 % 214,132 2 % Utilities 34,079 — % 25,393 — % Wholesale Trade 491,218 5 % 445,771 5 % Other 99,704 1 % 76,191 1 % Total Loans $ 9,737,138 100 % $ 9,017,642 100 % 1 Includes $94.0 million and $95.5 million in animal production at December 31, 2022, and 2021, respectively and $95.6 million and $92.1 million in crop production at December 31, 2022, and 2021, respectively.
The following table presents a breakdown of loans by NAICS code at the periods indicated: December 31, 2023 2022 ($ in thousands) Outstanding Balance % Outstanding Balance % Accommodation and Food Services $ 975,357 9 % $ 880,870 9 % Administrative and Support and Waste Management and Remediation Services 215,733 2 % 200,586 2 % Agriculture, Forestry, Fishing and Hunting 1 229,719 2 % 200,144 2 % Arts, Entertainment, and Recreation 125,487 1 % 105,851 1 % Construction 692,403 6 % 555,343 6 % Educational Services 54,044 1 % 51,083 — % Finance and Insurance 2,005,183 18 % 1,622,712 17 % Health Care and Social Assistance 551,979 5 % 455,839 5 % Information 97,052 1 % 100,004 1 % Management of Companies and Enterprises 88,079 1 % 78,548 1 % Manufacturing 704,750 7 % 694,483 7 % Mining, Quarrying, and Oil and Gas Extraction 32,024 — % 8,106 — % Other Services (except Public Administration) 588,449 5 % 536,112 6 % Professional, Scientific, and Technical Services 326,176 3 % 304,027 3 % Public Administration 13,774 — % 9,111 — % Real Estate and Rental and Leasing 2,766,754 25 % 2,534,275 26 % Retail Trade 513,763 5 % 517,659 5 % Transportation and Warehousing 284,706 3 % 257,384 3 % Utilities 15,853 — % 34,079 — % Wholesale Trade 535,666 5 % 491,218 5 % Other 67,167 1 % 99,704 1 % Total Loans $ 10,884,118 100 % $ 9,737,138 100 % 1 Includes $95.0 million and $94.0 million in animal production at December 31, 2023, and 2022, respectively and $113.8 million and $95.6 million in crop production at December 31, 2023, and 2022, respectively.
($ in thousands) Total Three months or less $ 27,656 Over three through six months 22,492 Over six through twelve months 48,721 Over twelve months 25,702 Total $ 124,571 As of December 31, 2022, estimated uninsured deposits totaled $5.9 billion, including $124.6 million of certificates of deposit. Also, at December 31, 2021 estimated uninsured deposits totaled $5.9 billion.
($ in thousands) Total Three months or less $ 118,125 Over three through six months 48,185 Over six through twelve months 48,786 Over twelve months 19,507 Total $ 234,603 As of December 31, 2023, estimated uninsured deposits totaled $4.3 billion, including $234.6 million of certificates of deposit. At December 31, 2022 estimated uninsured deposits totaled $5.9 billion.
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. 36 Income Taxes The Company’s blended federal and state tax rate was approximately 25.2% at the end of both 2022 and 2021.
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 following table summarizes the projected impact of interest rate shocks on net interest income: Rate Shock 1 Annual % change in net interest income At December 31, 2022 2021 + 300 bp 11.1% 22.9% + 200 bp 7.5% 14.1% + 100 bp 3.8% 5.6% - 100 bp (4.1)% NA - 200 bp (9.0)% NA - 300 bp (15.1)% NA 1 Due to the levels of interest rates in 2021, the downward shock scenarios are not shown.
This difference represents the Company’s earnings sensitivity to a positive or negative parallel rate shock. 52 The following table summarizes the projected impact of interest rate shocks on net interest income: Rate Shock Annual % change in net interest income At December 31, 2023 2022 + 300 bp 9.8% 11.1% + 200 bp 6.6% 7.5% + 100 bp 3.3% 3.8% - 100 bp (3.5)% (4.1)% - 200 bp (7.3)% (9.0)% - 300 bp (11.2)% (15.1)% In addition to the rate shocks shown in the table above, the Company models net interest income under various dynamic interest rate scenarios.
Included in this decrease was a decline of $2.1 million in debit card interchange income, partially offset by a $1.8 million increase in credit card fees. The Durbin Amendment limits the amount of interchange income banks can earn on debit card transactions after total assets exceed $10 billion.
The Durbin Amendment limits the amount of interchange income banks can earn on debit card transactions after total assets exceed $10 billion.
This increase was due to deposit growth and the number of accounts using the Company’s treasury management products and was also partially attributed to a full year of First Choice deposit service revenue. 35 Noninterest Expense The following table presents a comparative summary of the components of noninterest expense: Year ended December 31, Change from ($ in thousands) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Employee compensation and benefits $ 147,029 $ 124,904 $ 92,288 $ 22,125 $ 32,616 Occupancy 17,640 16,286 13,457 1,354 2,829 Data processing 13,513 12,242 9,050 1,271 3,192 Professional fees 7,079 4,289 3,940 2,790 349 Branch-closure expenses — 3,441 — (3,441) 3,441 Merger-related expenses — 22,082 4,174 (22,082) 17,908 Deposit costs 31,082 14,211 1,246 16,871 12,965 Other expenses 57,873 48,464 43,004 9,409 5,460 Total noninterest expense $ 274,216 $ 245,919 $ 167,159 $ 28,297 $ 78,760 Efficiency ratio 51.44 % 57.47 % 51.51 % (6.03) % 5.96 % Core efficiency ratio 1 49.77 % 49.68 % 48.70 % 0.09 % 0.98 % 1 A non-GAAP measure.
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. 35 Noninterest Expense The following table presents a comparative summary of the components of noninterest expense: Year ended December 31, Change from ($ in thousands) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Employee compensation and benefits $ 164,566 $ 147,029 $ 124,904 $ 17,537 $ 22,125 Deposit costs 72,293 31,082 14,211 41,211 16,871 Occupancy 16,526 17,640 16,286 (1,114) 1,354 Data processing 15,196 13,513 12,242 1,683 1,271 Professional fees 5,719 7,079 4,289 (1,360) 2,790 Branch-closure expenses — — 3,441 — (3,441) Merger-related expenses — — 22,082 — (22,082) Other expenses 73,886 57,873 48,464 16,013 9,409 Total noninterest expense $ 348,186 $ 274,216 $ 245,919 $ 73,970 $ 28,297 Efficiency ratio 55.15 % 51.44 % 57.47 % 3.71 % (6.03) % Core efficiency ratio 1 53.42 % 49.77 % 49.68 % 3.65 % 0.09 % 1 A non-GAAP measure.
The line of credit has a one-year term that was renewed in February 2023. 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 has an effective automatic shelf registration statement on Form S-3 allowing for the issuance of various forms of equity and debt securities.
The increase in deposit costs in 2022 is due to organic growth in specialized deposits and an increase in market interest rates that impacts competitive conditions that those clients can garner in the market.
The increase in 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 increase was due to growth in average earning assets due to the inclusion of a full year of First Choice operations, organic growth in the loan portfolio and a deployment of excess liquidity into the investment portfolio. Average securities represented 17% of earnings assets in 2022 and 15% in 2021.
Average 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.
The Company continues to focus on originating high-quality C&I relationships as they typically have variable interest rates and allow for cross selling opportunities involving other banking products. C&I loan growth also supports our efforts to maintain the Company’s asset-sensitive interest rate risk position.
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.
The Bank met the definition of “well-capitalized” at each of December 31, 2022 and 2021. Refer to “Item 8. Note 14 – Regulatory Capital” for a summary of our risk-based capital and leverage ratios.
The Bank met the definition of “well-capitalized” at each of December 31, 2023 and 2022. Refer to “Item 8.
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.
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.
In 2022, the Federal Reserve increased interest rates seven times for a total increase of 425 basis points to the Federal Funds Target Interest Rate during the year, while also changing its accommodative monetary policy through a reduction of Treasuries and agency mortgage-backed securities held on its balance sheet.
The 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.
As a result, these specialized loan products offer opportunities to expand and diversify our overall geographic concentration by entering into new markets.
These loans are sourced through relationships developed with wealth and estate planning firms, private equity funds and tax credit specialists and are not bound geographically to our markets. As a result, these specialized loan products offer opportunities to expand and diversify our overall geographic concentration by entering into new markets.
The increase was primarily due to the 4.97% loan yield in 2022, which increased 64 basis points, from 4.33% in 2021. • Noninterest income decreased $8.5 million, or 13%, to $59.2 million in 2022 compared to $67.7 million in 2021.
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.
Average interest-earning deposits decreased from 10% to 9% of earning assets, due to the increase in securities. Volume growth of the balance sheet drove an increase in interest income on earning assets of $65.8 million, while the increase in interest rates drove interest income on interest-earnings assets up by $67.9 million in 2022 compared to 2021.
Volume growth of the balance sheet drove an increase in interest income on earning assets of $53.6 million, while the increase in interest rates drove interest income on interest-earnings assets up by $197.3 million in 2023 compared to 2022. Total interest expense increased $161.1 million in 2023 primarily due to increased deposit interest expense.
See “Interest Rate Risk” of this MD&A section. 42 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) 2022 2021 Benefit for loan losses $ (4,210) $ (10,911) Provision on acquired loans — 23,904 Provision for off-balance sheet commitments 1 4,462 1,911 Provision for held-to-maturity securities 121 165 Recovery of accrued interest (984) (1,684) Provision (benefit) for credit losses $ (611) $ 13,385 1 2021 includes $1.5 million as part of the First Choice acquired commitments.
See “Interest Rate Risk” of this MD&A section. 43 Provision and Allowance for Credit Losses The following table presents the components of the provision for credit losses for the periods indicated: December 31, ($ in thousands) 2023 2022 Provision (benefit) for credit losses on loans $ 35,883 $ (4,210) Provision for available-for-sale securities 4,281 — Provision (benefit) for off-balance sheet commitments (5,450) 4,462 Provision for held-to-maturity securities 50 121 Charge-offs (recoveries) of accrued interest 1,841 (984) Provision (benefit) for credit losses $ 36,605 $ (611) 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.
Of these loans, $3.7 billion have an interest rate floor and nearly all of those loans were at or above the floor. $1.4 billion in variable rate loans are indexed to LIBOR, $2.9 billion are indexed to the prime rate, $1.4 billion are indexed to SOFR, and $413.4 million are indexed to other rates.
The Company had $6.6 billion in variable rate loans as of December 31, 2023. Of these loans, $4.2 billion have an interest rate floor and nearly all of those loans were at or above the floor.
The Company’s financial condition, operating results and liquidity in 2022 were impacted by the monetary policy actions enacted to address rising inflation.
The Company’s results of operations are also affected by prevailing economic conditions, competition, government policies and other actions of regulatory agencies. The Company’s financial condition, operating results and liquidity in 2023 continued to be impacted by the monetary policy actions enacted to address rising inflation.
The following table is a summary of net charge-offs (recoveries) to average loans for the periods indicated: December 31, 2022 2021 ($ 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 $ 3,869 $ 3,555,483 0.11 % $ 10,425 $ 3,195,017 0.33 % Real estate: Commercial (593) 4,323,757 (0.01) % 810 3,586,773 0.02 % Construction and land development (53) 689,048 (0.01) % (451) 673,646 (0.07) % Residential 539 382,485 0.14 % 558 396,777 0.14 % Other 137 240,816 0.06 % 287 197,172 0.15 % Total $ 3,899 $ 9,191,589 0.04 % $ 11,629 $ 8,049,385 0.14 % (1) Excludes loans held for sale.
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 $38.0 million. 44 The following table is a summary of net charge-offs (recoveries) to average loans for the periods indicated: December 31, 2023 2022 ($ in thousands) Net Charge-offs (Recoveries) Average Loans(1) Net Charge-offs (Recoveries)/Average Loans Net Charge-offs (Recoveries) Average Loans(1) Net Charge-offs (Recoveries)/Average Loans Commercial and industrial $ 33,257 $ 4,247,091 0.78 % $ 3,869 $ 3,555,483 0.11 % Real estate: Commercial 4,446 4,712,037 0.09 % (593) 4,323,757 (0.01) % Construction and land development (54) 712,578 (0.01) % (53) 689,048 (0.01) % Residential (323) 362,641 (0.09) % 539 382,485 0.14 % Other 718 290,054 0.25 % 137 240,816 0.06 % Total 38,044 10,324,401 0.37 % 3,899 9,191,589 0.04 % (1) Excludes loans held for sale.
Additionally, our specialized products, especially sponsor finance, life insurance premium financing, and tax credit lending, consist of primarily C&I loans, and have contributed significantly to the Company’s C&I loan growth. These loans are sourced through relationships developed with wealth and estate planning firms, private equity funds and tax credit specialists and are not bound geographically by our markets.
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 did not recognize an acquisition related provision for credit losses in 2022. 43 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.
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.
A lease and fixed asset impairment charge of $3.8 million was recognized, including $0.4 million reported in merger-related expenses. • The Company redeemed $50.0 million of 4.75% fixed-to-floating rate subordinated notes. • The Company issued and sold 3,000,000 depositary shares, each representing 1/40th interest in a share of 5% noncumulative, perpetual preferred stock totaling $72.0 million, net of issuance costs. • The Company repurchased 1,299,527 of its common shares at a weighted-average share price of $46.62. • Dividends paid in 2021 of $0.75 per share increased $0.03 per share, or 4%, compared to $0.72 per share in 2020. 32 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.
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 700,473 of its common shares at a weighted-average share price of $47.00. • Dividends paid in 2022 of $0.90 per share increased $0.15 per share, or 20%, compared to $0.75 per share in 2021. • Retired 1,980,093 shares of treasury stock. 32 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.

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