The following table presents a comparative summary of the major components of noninterest income:income for each of the years in the three-year period ended December 31, 2023:
Noninterest Expense
The following table presents a comparative summary of the major 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 ratio1 | 53.42 | % | | 49.77 | % | | 49.68 | % | | 3.65 | % | | 0.09 | % |
| | | | | | | | | |
1 A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.” |
|
| | | | | | | | | | | | | | | | | | | |
| Years ended December 31, | | Change from |
($ in thousands) | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
Core expenses (1): | | | | | | | | | |
Employee compensation and benefits - core | $ | 61,388 |
| | $ | 48,932 |
| | $ | 45,102 |
| | $ | 12,456 |
| | $ | 3,830 |
|
Occupancy - core | 9,057 |
| | 6,570 |
| | 6,474 |
| | 2,487 |
| | 96 |
|
Data processing - core | 6,272 |
| | 4,663 |
| | 4,229 |
| | 1,609 |
| | 434 |
|
Professional fees - core | 3,779 |
| | 2,614 |
| | 3,401 |
| | 1,165 |
| | (787 | ) |
FDIC and other insurance | 3,194 |
| | 3,018 |
| | 2,790 |
| | 176 |
| | 228 |
|
Loan, legal, and other real estate expense - core | 1,981 |
| | 1,239 |
| | 1,535 |
| | 742 |
| | (296 | ) |
Other - core | 22,289 |
| | 15,181 |
| | 13,941 |
| | 7,108 |
| | 1,240 |
|
Core noninterest expense (1) | 107,960 |
| | 82,217 |
| | 77,472 |
| | 25,743 |
| | 4,745 |
|
Merger related expenses | 6,462 |
| | 1,386 |
| | — |
| | 5,076 |
| | 1,386 |
|
Facilities disposal charge | 389 |
| | 1,040 |
| | — |
| | (651 | ) | | 1,040 |
|
Executive severance | — |
| | 332 |
| | — |
| | (332 | ) | | 332 |
|
FDIC loss share termination | — |
| | — |
| | 2,436 |
| | — |
| | (2,436 | ) |
FDIC clawback | — |
| | — |
| | 760 |
| | — |
| | (760 | ) |
Other expenses related to non-core acquired assets | 240 |
| | 1,094 |
| | 1,558 |
| | (854 | ) | | (464 | ) |
Other non-core expenses | — |
| | 41 |
| | — |
| | (41 | ) | | 41 |
|
Total noninterest expense | $ | 115,051 |
| | $ | 86,110 |
| | $ | 82,226 |
| | $ | 28,941 |
| | $ | 3,884 |
|
| | | | | | | | | |
(1) A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption "Use of Non-GAAP Financial Measures." |
Noninterest expensesexpense increased $28.9$74.0 million, or 34%27%, in 20172023 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. For certain deposit accounts in the prior period. Excluding non-comparable items, core noninterest expenses1 increased $25.7 million, or 31%. This increase primarily represents the additional operating and run-rateCompany’s specialized deposit portfolio, clients receive an earnings credit rate on average collected balances that may be used to offset expenses associated with JCB, as well as continued investmentsthe client’s activities for managing the accounts. These costs are reflected in underlying business growth. Other core noninterest expense includes $1.4 million of tax credit investment amortization. These investments have a corresponding and higher benefitas Deposit costs. The increase in the Company's income tax expense line and were consistent with the Company's overall tax planning efforts. Noninterest expenses increased $3.9 million, or 5%,deposit costs in 2016 compared to 2015, partially2023 is due to $1.4 million of mergerorganic growth in specialized deposits and an increase in market interest rates that increased the earnings credit rate and related expenses for the JCB acquisitionthose accounts. The Company maintained approximately $2.6 billion and $1.0 million$2.0 billion of average specialty deposits, resulting in an average specialty deposit cost of 2.75% and 1.41% for a facilities disposal charge2023 and 2022, respectively.
The increase in compensation and benefits was due to annual merit increases and an increase in full time equivalent employees, higher share-based compensation from lease buyouts of two unused facilities.
higher award levels, and higher medical costs due to inflationary increases. The Company expects to continue to invest in revenue producingits associates and other infrastructure that supports additional growth during 2018. These investmentsgrowth. In addition, low unemployment, inflationary pressures and a shift in employee work arrangements to a virtual/hybrid model are expected to resultcontinue to have an impact on future operating expenses.
The increase in other expense of $16.0 million was attributed primarily to a $6.1 million increase in FDIC assessment and other insurance, a $1.7 million increase in loan, legal and other real estate expenses, and a $1.6 million increase in marketing and public relations expenses. The increase in FDIC assessment and other insurance is primarily due to an FDIC special assessment in the amount of $2.4 million and an increase due to the growth of the balance sheet. In November 2023, the FDIC issued a Final Rule on Special Assessment Pursuant to Systemic Risk Determination, implementing a special assessment to recover the cost associated with protecting uninsured depositors following the closure of FDIC insured banks earlier in 2023. The FDIC will collect the special assessment at aan annual rate of 35% - 45%approximately 13.4 basis points over eight quarterly assessment periods beginning in January 2024. The Company’s portion of projected revenue growth for 2018, resultingthe special assessment is approximately $2.4 million and was expensed in modest improvement to the Company's efficiency ratio.fourth quarter of 2023.
Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax CutsThe Company’s blended federal and Jobs Act (the "Tax Act"). The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporatestate tax rate from 35% to 21%; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusionwas approximately 24.8% in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (AMT)2023 and changing how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax (BEAT), a new
minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss carryforwards created25.2% in tax years beginning after December 31, 2017.
In connection with our initial analysis of the impact of the Tax Act, we have recorded a net tax expense of $12.1 million in the period ending December 31, 2017. This net expense represents a revaluation of the Company's DTA for the corporate tax rate reduction.
In 2017, the Company recorded income tax expense of $38.3 million on pre-tax income of $86.5 million, resulting in an2022. The effective tax rate, which is adjusted for permanent differences, such as tax exempt income, was 21.3% in 2023 compared to 21.7% in 2022. In conjunction with the completion of 44.3%. The Company'sthe 2022 tax returns in the fourth quarter of 2023, the effective tax rate was significantly higher than 2016decreased due to the DTA revaluation charge of $12.1 million to incomea lower state tax expense and increased pre-tax earnings. These increases reduced the savings impact of permanent items. The following items impacted the 2017 effective tax rate:apportionment. See “Item 8. Note 16 – Income Taxes” for additional information.
tax credit investments made in the year yielded $1.6 million of federal tax credits, and
change in accounting standards resulted in $2.1 million of excess tax benefits on stock awards.
As a result of the new 21% corporate federal income tax rate, the Company expects its effective tax rate in 2018 to be approximately 17% - 19% with a 2% -3% lower rate in the first quarter expected due to the effect of vesting of employee stock awards.
In 2016, the Company recorded income tax expense of $26.0 million on pre-tax income of $74.8 million, resulting in an effective tax rate of 34.7%. The Company's effective tax rate was slightly higher than 2015 as pre-tax income was significantly higher, reducing the savings impact of permanent items. The following items impacted the 2016 effective tax rate:
interest income on tax exempt mortgages and municipal bonds of $1.0 million, and
decrease in the tax rate used for deferred tax assets of $0.3 million.
In 2015, the Company recorded income tax expense of $20.0 million on pre-tax income of $58.4 million, resulting in an effective tax rate of 34.2%. The following items impacted the 2015 effective tax rate:
interest income on tax exempt mortgages and municipal bonds of $1.0 million, and
release of reserves for uncertain tax positions due to remeasurement of $0.4 million.
FINANCIAL CONDITION
Summary Balance Sheet
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ 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) | % |
|
| | | | | | | | | | | | | | | | | |
($ in thousands) | December 31, | | % Increase (Decrease) |
2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
Total cash and cash equivalents | $ | 153,323 |
| | $ | 198,802 |
| | $ | 94,157 |
| | (22.88 | )% | | 111.14 | % |
Securities | 715,131 |
| | 541,260 |
| | 495,484 |
| | 32.12 | % | | 9.24 | % |
Portfolio loans | 4,066,659 |
| | 3,118,392 |
| | 2,750,737 |
| | 30.41 | % | | 13.37 | % |
Non-core acquired loans | 30,391 |
| | 39,769 |
| | 74,758 |
| | (23.58 | )% | | (46.80 | )% |
Total assets | 5,289,225 |
| | 4,081,328 |
| | 3,608,483 |
| | 29.60 | % | | 13.10 | % |
Deposits | 4,156,414 |
| | 3,233,361 |
| | 2,784,591 |
| | 28.55 | % | | 16.12 | % |
Total liabilities | 4,740,652 |
| | 3,694,230 |
| | 3,257,654 |
| | 28.33 | % | | 13.40 | % |
Total shareholders' equity | 548,573 |
| | 387,098 |
| | 350,829 |
| | 41.71 | % | | 10.34 | % |
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. The ability of the Company'sCompany’s borrowers to honor their contractual obligations is partially dependent upon the local economy and its effect on the real estate market.
The following table sets forth the composition of the Company's loan portfolio by type of loans at the dates indicated: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 | % |
|
| | | | | | | | | | | | | | | | | | | |
| December 31, |
($ in thousands) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Commercial and industrial | $ | 1,919,145 |
| | $ | 1,632,714 |
| | $ | 1,484,327 |
| | $ | 1,264,487 |
| | $ | 1,041,576 |
|
Commercial real estate - investor owned | 769,275 |
| | 544,808 |
| | 428,064 |
| | 396,751 |
| | 437,688 |
|
Commercial real estate - owner occupied | 554,589 |
| | 350,148 |
| | 342,959 |
| | 344,003 |
| | 341,631 |
|
Construction and land development | 345,209 |
| | 194,542 |
| | 161,061 |
| | 143,878 |
| | 117,032 |
|
Residential real estate | 342,518 |
| | 240,760 |
| | 196,498 |
| | 185,252 |
| | 158,527 |
|
Consumer and other | 135,923 |
| | 155,420 |
| | 137,828 |
| | 99,545 |
| | 40,859 |
|
Portfolio loans | $ | 4,066,659 |
| | $ | 3,118,392 |
| | $ | 2,750,737 |
| | $ | 2,433,916 |
| | $ | 2,137,313 |
|
Non-core acquired loans | 30,391 |
| | 39,769 |
| | 74,758 |
| | 99,103 |
| | 140,538 |
|
Total loans | $ | 4,097,050 |
| | $ | 3,158,161 |
| | $ | 2,825,495 |
| | $ | 2,533,019 |
| | $ | 2,277,851 |
|
| | | | | | | | | |
| December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Commercial and industrial | 47.2 | % | | 52.4 | % | | 54.0 | % | | 52.0 | % | | 48.7 | % |
Commercial real estate - investor owned | 18.9 | % | | 17.5 | % | | 15.5 | % | | 16.3 | % | | 20.5 | % |
Commercial real estate - owner occupied | 13.6 | % | | 11.2 | % | | 12.5 | % | | 14.1 | % | | 16.0 | % |
Construction and land development | 8.5 | % | | 6.2 | % | | 5.9 | % | | 5.9 | % | | 5.5 | % |
Residential real estate | 8.4 | % | | 7.7 | % | | 7.1 | % | | 7.6 | % | | 7.4 | % |
Consumer and other | 3.4 | % | | 5.0 | % | | 5.0 | % | | 4.1 | % | | 1.9 | % |
Portfolio loans | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
C&I loans are made based on the borrower'sborrower’s ability to generate cash flows for repayment from income sources, general credit strength, experience, and character, even though such loans may also be secured by real estate or other assets. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower'sborrower’s operations.
The Company continues to focus on originating high-quality C&I loan relationships as they typically have variable interest rates and allow for cross selling opportunities involving other banking products. C&I loan growth also supports our efforts to maintain the Company’s asset-sensitive interest rate risk position. Additionally, our specialized products, especially sponsor finance, life insurance premium financing, and tax credit lending, consist of primarily C&I loans, and have contributed significantly to the Company’s C&I loan growth. 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.
Real estate loans are also based on the borrower's character, but moreplace an emphasis is placed on the estimated cash flows from the operation of the property and/or the underlying collateral values, or both.value.
At December 31, 2017, $332.4 million, or 24%, of the•Our commercial real estate loans, wereincluding investor-owned and owner-occupied bycategories, primarily represent commercial and industrial businesses whereproperty loans on which the primary source of repayment is dependent on sources other than the underlying collateral. Multifamily and other commercial properties on which income from the property is the primary source of repayment represent the balance of this category and are located within our St. Louis, Kansas City, and Phoenix markets.property. These loans are principally underwritten based on the cash flow coverage of the property, the Company'sCompany’s loan to value guidelines, and generally require either the limited or full guaranty of principal sponsors of the credit. Commercial real estate loans also represent owner-occupied C&I loans for which the primary source of repayment is dependent on sources other than the underlying collateral.
Real estate construction•Construction and land development loans relating primarily to residential and commercial properties, represent financing secured by real estate under development for eventual sale or undeveloped ground. $74.5At December 31, 2023, $447.0 million of these loans include the use of interest reserves and follow standard
underwriting guidelines. Construction projects are monitored by the loan officer and a centralized independent loan disbursement function is employed.function.
•Residential real estate loans include residential mortgages, which are loans that, due to size or other attributes, do not qualify for conventional home mortgages available for saleavailable-for-sale in the secondary market, second mortgages, and home equity lines.lines and conventional mortgages that are part of a broad banking relationship with the Company. Residential mortgage loans are usually limited to a maximum of 80% of collateral value.value at origination.
Consumer and otherOther loans represent loans to individuals, loans to state and political subdivisions, loans to nondepository financial institutions, and loans to purchase or are fully secured by investment securities. Credit risk is managed by thoroughly reviewing the creditworthiness of the borrowers prior to origination and thereafter.
The following table illustrates loan growth, including selected specialized lending detail,presents a breakdown of loans by NAICS code at the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
($ 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 Hunting1 | 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 | % |
| | | | | | | |
1Includes $95.0 million and $94.0 million in animal production at December 31, 2023, and 2022, respectively and $113.8 million and $95.6 million in crop production at December 31, 2023, and 2022, respectively. |
At December 31, 20172023 and 2016:2022, the Company had an agricultural loan portfolio of $229.7 million and $200.1 million, respectively. The Company has announced its intent to wind down this portfolio over time as the loans mature or pay down. The Company does not intend to enter into new agricultural loans.
|
| | | | | | | | | | | | | | |
| December 31, | | | | |
($ in thousands) | 2017 | | 2016 | | Change | | % Change |
Enterprise value lending | $ | 407,644 |
| | $ | 388,798 |
| | $ | 18,846 |
| | 4.8 | % |
C&I - general | 911,790 |
| | 794,451 |
| | 117,339 |
| | 14.8 | % |
Life insurance premium financing | 364,876 |
| | 305,779 |
| | 59,097 |
| | 19.3 | % |
Tax credits | 234,835 |
| | 143,686 |
| | 91,149 |
| | 63.4 | % |
CRE, construction and land development | 1,669,073 |
| | 1,089,498 |
| | 579,575 |
| | 53.2 | % |
Residential real estate | 342,518 |
| | 240,760 |
| | 101,758 |
| | 42.3 | % |
Consumer and other | 135,923 |
| | 155,420 |
| | (19,497 | ) | | (12.5 | )% |
Portfolio loans | $ | 4,066,659 |
| | $ | 3,118,392 |
| | $ | 948,267 |
| | 30.4 | % |
The following table presents a breakdown of commercial & industrial loans by size at the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
($ in thousands) | Number of Loans | | Outstanding Balance | | Average Balance | | Number of Loans | | Outstanding Balance | | Average Balance |
<$2 million | 2,466 | | | $ | 850,849 | | | $ | 345 | | | 2,116 | | | $ | 771,717 | | | $ | 365 | |
$2-5 million | 339 | | | 1,114,522 | | | 3,288 | | | 314 | | | 991,748 | | | 3,158 | |
$5-10 million | 139 | | | 984,795 | | | 7,085 | | | 124 | | | 862,427 | | | 6,955 | |
>$10 million | 97 | | | 1,722,393 | | | 17,757 | | | 76 | | | 1,233,990 | | | 16,237 | |
Total | 3,041 | | | $ | 4,672,559 | | | $ | 1,537 | | | 2,630 | | | $ | 3,859,882 | | | $ | 1,468 | |
The following table presents a breakdown of commercial real estate loans (investor owned and owner occupied) by size at the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
($ in thousands) | Number of Loans | | Outstanding Balance | | Average Balance | | Number of Loans | | Outstanding Balance | | Average Balance |
<$2 million | 3,133 | | | $ | 1,867,452 | | | $ | 596 | | | 3,170 | | | $ | 1,872,671 | | | $ | 591 | |
$2-5 million | 413 | | | 1,265,659 | | | 3,065 | | | 416 | | | 1,272,977 | | | 3,060 | |
$5-10 million | 118 | | | 793,837 | | | 6,727 | | | 105 | | | 727,681 | | | 6,930 | |
>$10 million | 57 | | | 876,623 | | | 15,379 | | | 50 | | | 755,042 | | | 15,101 | |
Total | 3,721 | | | $ | 4,803,571 | | | $ | 1,291 | | | 3,741 | | | $ | 4,628,371 | | | $ | 1,237 | |
The Company continues to focus on originating high-quality C&I relationships as they typically have variable interest rateshad $482.0 million and allow for cross selling opportunities involving other banking products. For the period ending December 31, 2017, C&I$443.1 million of investor owned office real estate loans increased $286 million, or 18% from 2016. C&I loan growth also supports our efforts to maintain the Company's asset sensitive interest rate risk position. Additionally, our specialized products, especially Enterprise value lending, Life insurance premium financing, and Tax credit financing/lending, consist of primarily C&I loans, and have contributed significantly to the Company's loan growth. These loans are sourced through relationships developed with wealth and estate planning firms and private equity funds, and are not bound geographically by our three markets with branch facilities. As a result, these specialized loan products offer opportunities to expand and diversify our overall geographic concentration by entering into new markets.
The Enterprise value lending portfolio comprised 21% of the C&I category as of December 31, 2017. This2023 and 2022, respectively.
The following table presents a breakdown of construction loans by size at the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
($ in thousands) | Number of Loans | | Outstanding Balance | | Average Balance | | Number of Loans | | Outstanding Balance | | Average Balance |
<$2 million | 355 | | | $ | 143,461 | | | $ | 404 | | | 408 | | | $ | 181,813 | | | $ | 446 | |
$2-5 million | 60 | | | 190,857 | | | 3,181 | | | 52 | | | 154,563 | | | 2,972 | |
$5-10 million | 23 | | | 160,228 | | | 6,966 | | | 14 | | | 96,194 | | | 6,871 | |
>$10 million | 17 | | | 265,879 | | | 15,640 | | | 13 | | | 178,995 | | | 13,769 | |
Total | 455 | | | $ | 760,425 | | | $ | 1,671 | | | 487 | | | $ | 611,565 | | | $ | 1,256 | |
The following table presents a breakdown of residential loans by size at the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
($ in thousands) | Number of Loans | | Outstanding Balance | | Average Balance | | Number of Loans | | Outstanding Balance | | Average Balance |
<$2 million | 2,130 | | | $ | 284,594 | | | $ | 134 | | | 2,252 | | | $ | 293,691 | | | $ | 130 | |
$2-5 million | 18 | | | 58,337 | | | 3,241 | | | 21 | | | 70,658 | | | 3,365 | |
$5-10 million | 4 | | | 29,257 | | | 7,314 | | | 4 | | | 31,188 | | | 7,797 | |
| | | | | | | | | | | |
Total | 2,152 | | | $ | 372,188 | | | $ | 173 | | | 2,277 | | | $ | 395,537 | | | $ | 174 | |
The following table presents a breakdown of other loans by size at the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
($ in thousands) | Number of Loans | | Outstanding Balance | | Average Balance | | Number of Loans | | Outstanding Balance | | Average Balance |
<$2 million | 1,171 | | | $ | 105,759 | | | $ | 90 | | | 1,265 | | | $ | 125,136 | | | $ | 99 | |
$2-5 million | 18 | | | 60,801 | | | 3,378 | | | 18 | | | 59,099 | | | 3,283 | |
$5-10 million | 7 | | | 44,593 | | | 6,370 | | | 3 | | | 18,255 | | | 6,085 | |
>$10 million | 4 | | | 64,222 | | | 16,056 | | | 3 | | | 39,293 | | | 13,098 | |
Total | 1,200 | | | $ | 275,375 | | | $ | 229 | | | 1,289 | | | $ | 241,783 | | | $ | 188 | |
The following table presents a breakdown of total loans by geographic region at the periods indicated:
| | | | | | | | | | | |
| December 31, |
($ in thousands) | 2023 | | 2022 |
Midwest | $ | 3,338,308 | | | $ | 3,214,305 | |
Southwest | 1,565,852 | | | 1,242,125 | |
West | 1,813,239 | | | 1,654,899 | |
Specialty and other loans | 4,166,719 | | | 3,625,809 | |
Total | $ | 10,884,118 | | | $ | 9,737,138 | |
The following table presents a breakdown of total loans by MSA, excluding specialty and other loans, at the periods indicated:
| | | | | | | | | | | |
| December 31, |
($ in thousands) | 2023 | | 2022 |
St. Louis, MO-IL MSA | $ | 2,382,192 | | | $ | 2,328,830 | |
Los Angeles-Long Beach-Santa Ana, CA MSA | 1,561,720 | | | 1,477,084 | |
Kansas City, MO-KS MSA | 953,557 | | | 882,499 | |
Phoenix-Mesa-Scottsdale, AZ MSA | 899,768 | | | 692,788 | |
San Diego-Carlsbad-San Marcos, CA MSA | 234,808 | | | 177,815 | |
Albuquerque, NM MSA | 183,813 | | | 197,004 | |
Santa Fe, NM MSA | 167,321 | | | 180,976 | |
Dallas-Fort Worth-Arlington, TX MSA | 155,459 | | | 42,545 | |
Las Vegas-Paradise, NV MSA | 83,737 | | | 39,477 | |
All other MSAs | 95,024 | | | 92,311 | |
Specialty and other loans | 4,166,719 | | | 3,625,809 | |
Total | $ | 10,884,118 | | | $ | 9,737,138 | |
Loan guarantees, primarily on SBA 7(a) loans, totaled $932.1 million and $960.3 million at December 31, 2023 and 2022, respectively.
The following table provides additional information on select specialty lending detail, at the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
($ in thousands) | December 31, 2023 | | December 31, 2022 | | Increase (decrease) | | | | |
C&I | $ | 2,186,203 | | | $ | 1,904,654 | | | $ | 281,549 | | | 15 | % | | | | | | |
CRE investor owned | 2,291,660 | | | 2,176,424 | | | 115,236 | | | 5 | % | | | | | | |
CRE owner occupied | 1,262,264 | | | 1,174,094 | | | 88,170 | | | 8 | % | | | | | | |
SBA loans* | 1,281,632 | | | 1,312,378 | | | (30,746) | | | (2) | % | | | | | | |
Sponsor finance* | 872,264 | | | 635,061 | | | 237,203 | | | 37 | % | | | | | | |
Life insurance premium finance* | 956,162 | | | 817,115 | | | 139,047 | | | 17 | % | | | | | | |
Tax credits* | 734,594 | | | 559,605 | | | 174,989 | | | 31 | % | | | | | | |
Residential real estate | 359,957 | | | 379,924 | | | (19,967) | | | (5) | % | | | | | | |
Construction and land development | 670,567 | | | 534,753 | | | 135,814 | | | 25 | % | | | | | | |
Other | 268,815 | | | 243,130 | | | 25,685 | | | 11 | % | | | | | | |
Total loans | $ | 10,884,118 | | | $ | 9,737,138 | | | $ | 1,146,980 | | | 12 | % | | | | | | |
| | | | | | | | | | | | | |
| | | | | | |
*Specialty loan category | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The sponsor finance portfolio is primarily consistscomprised of loans in the manufacturing sector. As of December 31, 2017, the average outstanding balance of individual loans in this category was $4.3 million. The largest relationships within this category were a $15.6 million relationship in the administrative and support services sectorwholesale trade sectors. It includes mid-market company mergers and a $14.0 million relationship in the trucking industry.acquisitions, targeted private equity firms, principally SBICs, and senior debt financing to portfolio companies.
2018 portfolio loan growth is expected to be approximately 7% - 9%.
Following is a further breakdown of our loan categories at December 31, 2017 and 2016:
|
| | | | | | | | | | | | | | | | | |
| % of portfolio |
2017 | | 2016 |
Portfolio Loans | | Non-core Acquired Loans | | Total Loans | | Portfolio Loans | | Non-core Acquired Loans | | Total Loans |
Non Real estate | | | | | | | | | | | |
Commercial and industrial | 47 | % | | 9 | % | | 47 | % | | 52 | % | | 9 | % | | 52 | % |
Consumer and other | 3 | % | | — | % | | 3 | % | | 5 | % | | — | % | | 5 | % |
Total Non Real estate | 50 | % | | 9 | % | | 50 | % | | 57 | % | | 9 | % | | 57 | % |
| | | | | | | | | | | |
Real estate: | | | | | | | | | | | |
Commercial - investor owned | | | | | | | | | | | |
Retail | 6 | % | | 10 | % | | 6 | % | | 4 | % | | 8 | % | | 4 | % |
Commercial office | 6 | % | | 7 | % | | 6 | % | | 6 | % | | 11 | % | | 6 | % |
Multi-family housing | 2 | % | | — | % | | 2 | % | | 2 | % | | 1 | % | | 2 | % |
Industrial/ Warehouse | 3 | % | | — | % | | 3 | % | | 3 | % | | — | % | | 3 | % |
Other | 3 | % | | — | % | | 3 | % | | 3 | % | | — | % | | 3 | % |
Total | 20 | % | | 17 | % | | 20 | % | | 18 | % | | 20 | % | | 18 | % |
| | | | | | | | | | | |
Commercial - owner occupied | | | | | | | | | | | |
Commercial and industrial | 8 | % | | 30 | % | | 8 | % | | 9 | % | | 29 | % | | 9 | % |
Other | 6 | % | | 1 | % | | 6 | % | | 2 | % | | 1 | % | | 2 | % |
Total | 14 | % | | 31 | % | | 14 | % | | 11 | % | | 30 | % | | 11 | % |
| | | | | | | | | | | |
Construction and land development | 8 | % | | 11 | % | | 8 | % | | 6 | % | | 11 | % | | 6 | % |
| | | | | | | | | | | |
Residential | | | | | | | | | | | |
Investor owned | 6 | % | | 27 | % | | 6 | % | | 1 | % | | 5 | % | | 1 | % |
Owner occupied | 2 | % | | 5 | % | | 2 | % | | 7 | % | | 25 | % | | 7 | % |
Total | 8 | % | | 32 | % | | 8 | % | | 8 | % | | 30 | % | | 8 | % |
| | | | | | | | | | | |
Total Real estate | 50 | % | | 91 | % | | 50 | % | | 43 | % | | 91 | % | | 43 | % |
| | | | | | | | | | | |
Total | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
The following descriptions focus on portfolio loans at December 31, 2017, and exclude non-core acquired loans.life insurance premium finance category specializes in financing whole life insurance premiums utilized in high net worth estate planning, through relationships with boutique estate planners throughout the United States.
The tax credit portfolio includes tax credit-related lending on affordable housing projects funded through the use of
federal and state low income housing tax credits. In addition, we provide leveraged and other loans on projects funded through the CDFI New Markets Tax Credit Program. This portfolio also includes tax credit brokerage
through 10-year streams of state tax credits from affordable housing development funds. The tax credits are sold to clients and other individuals for tax planning purposes.
SBA loans are originated under the SBA 7(a) program and are primarily owner-occupied, commercial and industrial category represents $1.9 billion, or 47%, of portfolio loans. This category includes $615.6 million inreal estate loans secured by accounts receivable, inventory and equipment, $407.6 million from the Enterprise value lending portfolio, and $364.9 million in Life insurance premium financing.a 1st lien. These loans consist of over 1100 relationships with an average outstanding balance of $1.8 million. The largest loans within this category arepredominantly have a $22.7 million term loan secured75% portion guaranteed by accounts receivable and inventory and a $19.5 million term loan secured by life insurance premium financing within the St. Louis region.SBA.
The largest loans within the investor owned commercial real estate portfolio are retail and commercial office permanent loans. The Company had $246.9 million of investor owned permanent loans secured by retail properties. There were 121 loan relationships in this category with an average outstanding loan balance of $2.0 million. The largest loans outstanding at year end were a $13.3 million loan secured by a multi-tenant retail center in Phoenix, an $11.9 million loan secured by commercial land in the St. Louis area, and an $11.0 million loan secured by a hotel in Pennsylvania.
The Company had $234.7 million of investor owned permanent loans secured by commercial office properties. There were 94 loan relationships with an average outstanding loan balance of $2.5 million. The largest loans outstanding at year end were a $20.2 million loan secured by a multi-tenant office building in the St. Louis area, a $17.4 million loan secured by a multi-tenant office condominium complex in Phoenix, and a $13.8 million loan secured by a multi-tenant office building in the Kansas City region.
The largest loans within the owner occupied commercial real estate portfolio are commercial and industrial loans. The Company had $318.2 million of owner occupied loans secured by commercial and industrial properties. There were 345 loan relationships in this category with an average outstanding loan balance of $0.9 million. The largest loans outstanding at year end were a $9.8 million loan secured by an industrial building in Texas, a $8.8 million loan secured by an office building in Kansas, and an $7.3 million loan secured multi-tenant office building in Arizona.
Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2017,2023, no significant concentrations exceeding 10% of total loans existed in the Company'sCompany’s loan portfolio, except as described above.
LoansThe following table presents the maturity distribution of loans at December 31, 2017 mature2023 categorized by fixed or reprice as follows:variable interest rates, net of unearned loan fees:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | Due in One Year or Less (1) | | After One Through Five Years | | After Five Through Fifteen Years | | After Fifteen Years | | Total | | Percent of Total Loans |
Fixed Rate Loans | | | | | | | | | | | |
Commercial and industrial | $ | 51,175 | | | $ | 607,919 | | | $ | 604,659 | | | $ | 11,859 | | | $ | 1,275,612 | | | 12 | % |
Real estate: | | | | | | | | | | | |
Commercial | 302,811 | | | 1,647,258 | | | 461,445 | | | 147,176 | | | 2,558,690 | | | 23 | % |
Construction and land development | 30,137 | | | 56,756 | | | 3,171 | | | 2,176 | | | 92,240 | | | 1 | % |
Residential | 18,213 | | | 92,594 | | | 13,957 | | | 25,011 | | | 149,775 | | | 1 | % |
Other | 2,084 | | | 26,181 | | | 86,192 | | | 55,922 | | | 170,379 | | | 2 | % |
Total | $ | 404,420 | | | $ | 2,430,708 | | | $ | 1,169,424 | | | $ | 242,144 | | | $ | 4,246,696 | | | 39 | % |
Variable Rate Loans | | | | | | | | | | | |
Commercial and industrial | $ | 1,224,975 | | | $ | 1,985,579 | | | $ | 180,990 | | | $ | 5,403 | | | $ | 3,396,947 | | | 31 | % |
Real estate: | | | | | | | | | | | |
Commercial | 217,526 | | | 415,253 | | | 384,171 | | | 1,227,931 | | | 2,244,881 | | | 21 | % |
Construction and land development | 247,919 | | | 277,764 | | | 63,959 | | | 78,543 | | | 668,185 | | | 6 | % |
Residential | 36,337 | | | 25,351 | | | 58,760 | | | 101,965 | | | 222,413 | | | 2 | % |
Other | 42,902 | | | 14,713 | | | 47,261 | | | 120 | | | 104,996 | | | 1 | % |
Total | $ | 1,769,659 | | | $ | 2,718,660 | | | $ | 735,141 | | | $ | 1,413,962 | | | $ | 6,637,422 | | | 61 | % |
Total Loans | | | | | | | | | | | |
Commercial and industrial | $ | 1,276,150 | | | $ | 2,593,498 | | | $ | 785,649 | | | $ | 17,262 | | | $ | 4,672,559 | | | 43 | % |
Real estate: | | | | | | | | | | | |
Commercial | 520,337 | | | 2,062,511 | | | 845,616 | | | 1,375,107 | | | 4,803,571 | | | 44 | % |
Construction and land development | 278,056 | | | 334,520 | | | 67,130 | | | 80,719 | | | 760,425 | | | 7 | % |
Residential | 54,550 | | | 117,945 | | | 72,717 | | | 126,976 | | | 372,188 | | | 3 | % |
Other | 44,986 | | | 40,894 | | | 133,453 | | | 56,042 | | | 275,375 | | | 3 | % |
Total | $ | 2,174,079 | | | $ | 5,149,368 | | | $ | 1,904,565 | | | $ | 1,656,106 | | | $ | 10,884,118 | | | 100.0 | % |
| | | | | | | | | | | |
(1) Includes loans with no stated maturity and overdraft lines of credit. |
| | | | | | | | | | | | | | | | | | |
| Loans Maturing or Repricing |
($ in thousands) | In One Year or Less | | After One Through Five Years | | After Five Years | | Total | | Percent of Total Loans |
Fixed rate loans (1) (2) (3) | | | | | | | | | |
Commercial and industrial | $ | 138,249 |
| | $ | 269,487 |
| | $ | 28,326 |
| | $ | 436,062 |
| | 11 | % |
Real estate: | | | | | | | | | |
Commercial | 164,010 |
| | 719,158 |
| | 86,202 |
| | 969,370 |
| | 24 | % |
Construction and land development | 47,594 |
| | 106,431 |
| | 15,598 |
| | 169,623 |
| | 4 | % |
Residential | 48,474 |
| | 143,491 |
| | 33,566 |
| | 225,531 |
| | 5 | % |
Consumer and other | 12,969 |
| | 30,202 |
| | 22,450 |
| | 65,621 |
| | 2 | % |
Non-core acquired loans | 8,859 |
| | 8,013 |
| | 1,027 |
| | 17,899 |
| | — | % |
Total | $ | 420,155 |
| | $ | 1,276,782 |
| | $ | 187,169 |
| | $ | 1,884,106 |
| | 46 | % |
Variable rate loans (1) (2) | | | | | | | | | |
Commercial and industrial | $ | 1,431,681 |
| | $ | 38,085 |
| | $ | 13,317 |
| | $ | 1,483,083 |
| | 36 | % |
Real estate: | | | | | | | | | |
Commercial | 315,668 |
| | 71,488 |
| | 7,079 |
| | 394,235 |
| | 10 | % |
Construction and land development | 124,150 |
| | 11,695 |
| | — |
| | 135,845 |
| | 3 | % |
Residential | 91,691 |
| | 23,057 |
| | 2,239 |
| | 116,987 |
| | 3 | % |
Consumer and other | 48,810 |
| | 21,492 |
| | — |
| | 70,302 |
| | 2 | % |
Non-core acquired loans | 11,495 |
| | 997 |
| | — |
| | 12,492 |
| | — | % |
Total | $ | 2,023,495 |
| | $ | 166,814 |
| | $ | 22,635 |
| | $ | 2,212,944 |
| | 54 | % |
Loans (1) (2) | | | | | | | | | |
Commercial and industrial | $ | 1,569,930 |
| | $ | 307,572 |
| | $ | 41,643 |
| | $ | 1,919,145 |
| | 47 | % |
Real estate: | | | | | | | | | |
Commercial | 479,678 |
| | 790,646 |
| | 93,281 |
| | 1,363,605 |
| | 33 | % |
Construction and land development | 171,744 |
| | 118,126 |
| | 15,598 |
| | 305,468 |
| | 8 | % |
Residential | 140,165 |
| | 166,548 |
| | 35,805 |
| | 342,518 |
| | 8 | % |
Consumer and other | 61,779 |
| | 51,694 |
| | 22,450 |
| | 135,923 |
| | 3 | % |
Non-core acquired loans | 20,354 |
| | 9,010 |
| | 1,027 |
| | 30,391 |
| | 1 | % |
Total | $ | 2,443,650 |
| | $ | 1,443,596 |
| | $ | 209,804 |
| | $ | 4,097,050 |
| | 100 | % |
| | | | | | | | | |
(1) Loan balances are net of unearned loan fees. |
(2) Not adjusted for impact of interest rate swap agreements. |
(3) Fixed rate loans include variable rate loans with a rate floor that are currently accruing interest at the floor. |
Fixed rateThe majority of variable loans comprise 46% of the loan portfolio at December 31, 2017, and 54% of the Company's loans are variable rate loans, most of which are based on the prime rate or the LIBOR. The primeSOFR. At December 31, 2023, $4.2 billion or 64% of variable rate increased three times throughout 2017. In December 2017, the Federal Reserve raised the targeted Fed Fundsloans were subject to an interest rate 25 basis points from 1.25% to 1.50% resulting in a primefloor. Most variable rate of 4.50% compared to 3.75% in December 2016. Most loan originations have one to three yearone-to three-year maturities. Management monitors this mix as part of its interest rate risk management. See "Interest“Interest Rate Risk"Risk” of this MD&A section.
Of the $479.7 million of commercial real estate loans maturing in one year or less, $288.9 million, or 60%, represent loans secured by non-owner occupied commercial properties.
Provision and Allowance for LoanCredit Losses
The following table presents the components of the provision for credit losses for the periods indicated:
| | | | | | | | | | | |
| December 31, |
($ 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. The Company also records reversals of interest on nonaccrual loans and interest recoveries directly through the provision of credit losses.
CECL requires economic forecasts to be factored into determining estimated losses. As a result, CECL is designed to typically require a higher level of provision at the start of an economic downturn. The increase in the provision for credit losses in 2023 was primarily due to loan growth, net charge-offs and the increase in nonperforming loans. The provision for credit losses in 2023 also included the impact of the impairment of an available-for-sale investment security. The available-for-sale investment impairment was related to a subordinated debt security in a publicly-traded bank that failed in the first quarter of 2023. The provision benefit in the prior year-to-date period, was primarily due to an improvement in economic factors and the recovery of accrued interest on nonperforming loans.
To the extent the Company does not recognize charge-offs and economic forecasts improve in future periods, the Company could recognize a reversal of provision for credit losses. Conversely, if economic conditions and the Company’s forecast worsens, the Company could recognize elevated levels of provision for credit losses. The provision is also reflective of charge-offs in the period.
The following table summarizes changesthe 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. The decline in the allowance forto total loans ratio in 2023 compared to 2022 was primarily due to a shift in the mix of the loan losses arising from loans charged offportfolio to categories with lower reserve requirements, improvement in the economic forecast and recoveries on loans previously charged off, bynet loan category, and additions to the allowance charged to expense.
charge-offs of $38.0 million.
|
| | | | | | | | | | | | | | | | | | | |
| At December 31, |
($ in thousands) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Allowance for portfolio loans, at beginning of period | $ | 37,565 |
| | $ | 33,441 |
| | $ | 30,185 |
| | $ | 27,289 |
| | $ | 34,330 |
|
Loans charged off: | | | | | | | | | |
Commercial and industrial | (9,872 | ) | | (2,303 | ) | | (3,699 | ) | | (3,738 | ) | | (3,404 | ) |
Real estate: | | | | | | | | | |
Commercial | (207 | ) | | (95 | ) | | (702 | ) | | (700 | ) | | (4,991 | ) |
Construction and land development | (254 | ) | | — |
| | (350 | ) | | (905 | ) | | (896 | ) |
Residential | (973 | ) | | (25 | ) | | (1,313 | ) | | (48 | ) | | (1,053 | ) |
Consumer and other | (201 | ) | | (1,912 | ) | | (27 | ) | | (165 | ) | | (34 | ) |
Total loans charged off | (11,507 | ) | | (4,335 | ) | | (6,091 | ) | | (5,556 | ) | | (10,378 | ) |
Recoveries of loans previously charged off: | | | | | | | | | |
Commercial and industrial | 545 |
| | 674 |
| | 1,796 |
| | 1,768 |
| | 1,776 |
|
Real estate: | | | | | | | | | |
Commercial | 235 |
| | 1,165 |
| | 1,567 |
| | 1,101 |
| | 776 |
|
Construction and land development | 101 |
| | 934 |
| | 674 |
| | 806 |
| | 488 |
|
Residential | 390 |
| | 123 |
| | 337 |
| | 334 |
| | 939 |
|
Consumer and other | 73 |
| | 12 |
| | 101 |
| | 34 |
| | — |
|
Total recoveries of loans | 1,344 |
| | 2,908 |
| | 4,475 |
| | 4,043 |
| | 3,979 |
|
Net loan charge-offs | (10,163 | ) | | (1,427 | ) | | (1,616 | ) | | (1,513 | ) | | (6,399 | ) |
Provision (provision reversal) for loan losses | 10,764 |
| | 5,551 |
| | 4,872 |
| | 4,409 |
| | (642 | ) |
Allowance for portfolio loans, at end of period | $ | 38,166 |
| | $ | 37,565 |
| | $ | 33,441 |
| | $ | 30,185 |
| | $ | 27,289 |
|
| | | | | | | | | |
Allowance for PCI loans, at beginning of period | $ | 5,844 |
| | $ | 10,175 |
| | $ | 15,410 |
| | $ | 15,438 |
| | $ | 11,547 |
|
Loans charged off | (248 | ) | | (1,296 | ) | | (25 | ) | | (341 | ) | | (522 | ) |
Recoveries of loans | — |
| | — |
| | — |
| | — |
| | 114 |
|
Other | (551 | ) | | (1,089 | ) | | (796 | ) | | (770 | ) | | (675 | ) |
Net loan charge-offs | (799 | ) | | (2,385 | ) | | (821 | ) | | (1,111 | ) | | (1,083 | ) |
Provision (provision reversal) for loan losses | (634 | ) | | (1,946 | ) | | (4,414 | ) | | 1,083 |
| | 4,974 |
|
Allowance for PCI loans, at end of period | $ | 4,411 |
| | $ | 5,844 |
| | $ | 10,175 |
| | $ | 15,410 |
| | $ | 15,438 |
|
| | | | | | | | | |
Total allowance, at end of period | $ | 42,577 |
| | $ | 43,409 |
| | $ | 43,616 |
| | $ | 45,595 |
| | $ | 42,727 |
|
| | | | | | | | | |
Portfolio loans, average | $ | 3,810,055 |
| | $ | 2,915,744 |
| | $ | 2,520,734 |
| | $ | 2,255,180 |
| | $ | 2,097,920 |
|
Portfolio loans, ending (1) | 4,022,896 |
| | 3,118,392 |
| | 2,750,737 |
| | 2,433,916 |
| | 2,137,313 |
|
Net charge-offs to average portfolio loans (1) | 0.27 | % | | 0.05 | % | | 0.06 | % | | 0.07 | % | | 0.31 | % |
Allowance for portfolio loan losses to loans (1) | 0.95 | % | | 1.20 | % | | 1.22 | % | | 1.24 | % | | 1.28 | % |
|
(1) Excludes PCI loans |
The following table is a summary of net charge-offs (recoveries) to average loans for the allocationperiods 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.
To the extent the Company does not recognize charge-offs and economic forecasts improve in future periods, the Company could recognize provision reversals. Conversely, if economic conditions and the Company’s forecast worsens and charge-offs increase, the Company could recognize elevated levels of provision for credit losses. The provision is also reflective of charge-offs (recoveries) in the period.
See “Critical Accounting Policies and Estimates” of this MD&A section for more information on the allowance for loan losses on portfolio loans for the five years ended December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
($ in thousands) | Allowance | Percent by Category to Portfolio Loans | | Allowance | Percent by Category to Portfolio Loans | | Allowance | Percent by Category to Portfolio Loans | | Allowance | Percent by Category to Portfolio Loans | | Allowance | Percent by Category to Portfolio Loans |
Commercial and industrial | $ | 26,406 |
| 47.2 | % | | $ | 26,996 |
| 52.4 | % | | $ | 22,056 |
| 54.0 | % | | $ | 16,983 |
| 52.0 | % | | $ | 12,246 |
| 48.7 | % |
Real estate: | | | | | | | | | | | | | | |
Commercial | 7,198 |
| 33.5 | % | | 6,310 |
| 28.7 | % | | 6,453 |
| 28.0 | % | | 7,517 |
| 30.4 | % | | 10,696 |
| 36.5 | % |
Construction and land development | 1,487 |
| 7.6 | % | | 1,304 |
| 6.2 | % | | 1,704 |
| 5.9 | % | | 1,715 |
| 5.9 | % | | 2,136 |
| 5.5 | % |
Residential | 2,237 |
| 8.4 | % | | 2,023 |
| 7.7 | % | | 1,796 |
| 7.1 | % | | 2,830 |
| 7.6 | % | | 2,019 |
| 7.4 | % |
Consumer and other | 838 |
| 3.3 | % | | 932 |
| 5.0 | % | | 1,432 |
| 5.0 | % | | 1,140 |
| 4.1 | % | | 192 |
| 1.9 | % |
Total allowance | $ | 38,166 |
| 100.0 | % | | $ | 37,565 |
| 100.0 | % | | $ | 33,441 |
| 100.0 | % | | $ | 30,185 |
| 100.0 | % | | $ | 27,289 |
| 100.0 | % |
The provision for loan losses on portfolio loans for the year ended December 31, 2017 was $10.8 million, compared to $5.6 million, and $4.9 million for the comparable 2016 and 2015 periods, respectively. The provision for loan losses for the years ended December 31, 2017 and 2016 was primarily to provide for net charge-offs incurred on impaired loans, as well as organic loan growth in the portfolio.
The allowance for portfolio loan losses was 0.95% of portfolio loans at December 31, 2017, compared to 1.20%, and 1.22%, at December 31, 2016 and 2015, respectively. Management believes the allowance for loan losses is adequate to absorb inherent losses in the loan portfolio.
For PCI loans, the Company remeasures contractual and expected cash flows periodically. When the re-measurement process results in a decrease in expected cash flows, typically due to an increase in expected credit losses impairment is recorded through provision for loan losses. Similarly, when expected credit losses decrease in the re-measurement process, prior recorded impairment is reversed before the yield is increased prospectively. The provision reversal on PCI loans for the year ended December 31, 2017 was $0.6 million, compared to provision reversal of $1.9 million, and expense of $4.4 million for the comparable 2016 and 2015 periods, respectively.methodology.
Nonperforming assets
Nonperforming loans are defined asand assets
See “Item 8. Note 1 – Summary of Significant Accounting Policies” for more information on nonaccrual loans on non-accrual status, loans 90 days or more past due but still accruing interest, and restructured loans. Restructured loans involve the granting of a concession to a borrower due to their financial difficulty and include modification of terms of the loan, such as changes in payment schedule or interest rate. Nonperforming assets include nonperforming loans plus other real estate.
Nonperforming loans exclude PCI loans. PCI loans are accounted for on a pool basis, and the pools are considered to be performing. See Item 8, Note 5 – Loans for more information.
The Company's nonperforming loans meet the definition of “impaired loans” in accordance with U.S. GAAP.
The following table presents the categories of nonperforming assets and other ratios, excluding government guaranteed portions, as of the dates indicated:indicated.
| | | | | | | | | | | |
| December 31, |
($ 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 | % |
| | | |
|
| | | | | | | | | | | | | | | | | | | |
| December 31, |
($ in thousands) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Non-accrual loans | $ | 14,968 |
| | $ | 12,585 |
| | $ | 8,797 |
| | $ | 20,892 |
| | $ | 20,163 |
|
Restructured loans | 719 |
| | 2,320 |
| | 303 |
| | 1,352 |
| | 677 |
|
Total nonperforming loans | 15,687 |
| | 14,905 |
| | 9,100 |
| | 22,244 |
| | 20,840 |
|
Other real estate (1) | 498 |
| | 980 |
| | 8,366 |
| | 1,896 |
| | 7,576 |
|
Total nonperforming assets (1) (2) | $ | 16,185 |
| | $ | 15,885 |
| | $ | 17,466 |
| | $ | 24,140 |
| | $ | 28,416 |
|
| | | | | | | | | |
Total assets | $ | 5,289,225 |
| | $ | 4,081,328 |
| | $ | 3,608,483 |
| | $ | 3,277,003 |
| | $ | 3,170,197 |
|
Portfolio loans | 4,022,896 |
| | 3,118,392 |
| | 2,750,737 |
| | 2,433,916 |
| | 2,137,313 |
|
Nonperforming loans to total loans (2) | 0.39 | % | | 0.48 | % | | 0.34 | % | | 0.91 | % | | 0.98 | % |
Nonperforming assets to total assets (1) (2) | 0.31 | % | | 0.39 | % | | 0.48 | % | | 0.74 | % | | 0.90 | % |
Allowance for portfolio loans to nonperforming loans (2) | 243 | % | | 252 | % | | 367 | % | | 136 | % | | 131 | % |
| | | | | | | | | |
(1)The increase in other real estate included in nonperforming assets from 2014 to 2015 resulted from the reclassification of $5.1 million of other real estate previously covered under FDIC loss share agreements that were terminated in 2015. |
(2) Excludes PCI loans, except for their inclusion in total assets. |
Nonperforming loans
Nonperforming loans exclude PCI loans that are accounted for on a pool basis, as the pools are considered to be performing. See Item 8, Note 5 - Loans for more information on these loans.
Nonperforming loans based on loan type were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ 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 | |
|
| | | | | | | | | | | | | | | | | | | |
(in thousands) | December 31, 2017 | | Number of loans | | December 31, 2016 | | Number of loans |
Commercial and industrial | $ | 12,665 |
| | 81 | % | | 10 |
| | $ | 12,284 |
| | 82 | % | | 6 |
|
Commercial real estate | 909 |
| | 6 | % | | 4 |
| | 655 |
| | 4 | % | | 4 |
|
Construction and land development | 136 |
| | 1 | % | | 1 |
| | 1,904 |
| | 13 | % | | 3 |
|
Residential real estate | 1,602 |
| | 10 | % | | 3 |
| | 62 |
| | 1 | % | | 1 |
|
Consumer and other | 375 |
| | 2 | % | | 1 |
| | — |
| | — | % | | — |
|
Total | $ | 15,687 |
| | 100 | % | | 19 |
| | $ | 14,905 |
| | 100 | % | | 14 |
|
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 | |
|
| | | | | | | |
| Year ended December 31, |
(in thousands) | 2017 | | 2016 |
Nonperforming loans beginning of period | $ | 14,905 |
| | $ | 9,100 |
|
Additions to nonaccrual loans | 19,092 |
| | 18,853 |
|
Additions to restructured loans | 676 |
| | 2,320 |
|
Charge-offs | (11,307 | ) | | (4,092 | ) |
Other principal reductions | (7,396 | ) | | (9,546 | ) |
Moved to other real estate | (283 | ) | | (343 | ) |
Moved to performing | — |
| | (1,387 | ) |
Nonperforming loans end of period | $ | 15,687 |
| | $ | 14,905 |
|
Nonperforming loans at December 31, 20172023 increased $0.8$33.7 million, or 5%338%, when compared to December 31, 2016. Other principal reductions of $7.4 million includes $1.8 million of proceeds received from sales of collateral, $4.6 million of payments received from borrowers, and $1.0 million of proceeds from other loan settlements.
At December 31, 2017,2022. The increase in nonperforming loans were comprisedduring 2023 was primarily from additions to nonaccrual loans of primarily three relationships with the largest being a $5.4$109.8 million, C&I relationship, which represented 34%offset by principal payments of nonperforming loans. Approximately 42%$25.9 million and charge-offs of $43.2 million. The charge-offs of nonperforming loans were related to the Company's specialized lending products, 19% were locatedprimarily in the St. Louis market,C&I and 37% were locatedcommercial real estate (investor owned), representing 84% and 11% of gross charge-offs in the Kansas City market. At December 31, 2017, there were two performing restructured loans, or one relationship, that were excluded from nonperforming loans in the amount of $1.5 million. Nonperforming loans represented 0.39% of portfolio loans at December 31, 2017, versus 0.48% at December 31, 2016.2023, respectively.
At December 31, 2016, nonperforming loans were comprised of 11 relationships with the largest being a $9.8 million C&I relationship, which represented 66% of nonperforming loans. Approximately 91% of nonperforming loans were related to the Company's specialized lending products, 6% were located in the St. Louis market and 3% in the Kansas City market. At December 31, 2016, there were three performing restructured loans that were excluded from nonperforming loans in the amount of $1.9 million. Nonperforming loans represented 0.48% of portfolio loans at December 31, 2016, versus 0.34% at December 31, 2015.
Potential problem loans
Potential problem loans are unimpaired loans with a risk rating of 8-Substandard still accruing interest. See Item 8, Note 5 – Portfolio Loans for the definitions of risk ratings. Potential problem loans, which are not included in nonperforming loans, were $59.4 million, or 1.5%, of portfolio loans outstanding at December 31, 2017, compared to $77.6 million, or 2.5%, of portfolio loans outstanding at December 31, 2016. For these loans, payment of principal and interest is current and the loans are performing, however some doubts exist as to the borrower's ability to continue to comply with repayment terms. Potential problem loans include loans to companies that are characterized by significant losses or where downward trends in financial performance have been identified, or are in an industry that is experiencing significant difficulty.
Other real estate
Other real estate at December 31, 2017 was $0.5 million, compared to $1.0 million, at December 31, 2016. In 2015, $5.1 million of other real estate previously covered under FDIC loss share agreements was reclassified into other real estate due to termination of the Company's loss share agreements with the FDIC in the fourth quarter of 2015.
At December 31, 2017, other real estate was comprised of one commercial real estate property, or 45%, located in the Kansas City region, and one residential property, or 55%, located in the St. Louis region.
The following table summarizes the changes in other real estate:
| | | | | | | | | | | |
| Year ended December 31, |
($ 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 | |
|
| | | | | | | |
| Year ended December 31, |
(in thousands) | 2017 | | 2016 |
Other real estate, beginning of period | $ | 980 |
| | $ | 8,366 |
|
Additions and expenses capitalized to prepare property for sale | 2,338 |
| | 2,263 |
|
Writedowns in value | (133 | ) | | — |
|
Sales | (2,687 | ) | | (9,649 | ) |
Other real estate, end of period | $ | 498 |
| | $ | 980 |
|
The writedowns in fair value were recorded in loan, legal, and other real estate expense. For the year ended December 31, 2017, the Company realized a net gain of $0.1 million compared to $1.8 million in 2016 on the sale of other real estate and recorded these gains as part of noninterest income.
Investments
At December 31, 2017,2023, our portfolio of investment securities was $715 million,$2.4 billion, or 14%16%, of total assets. The portfolio is primarily comprisedassets, compared to $2.2 billion, or 17%, of agency mortgage-backed securities, obligationstotal assets as of U.S. Government-sponsored enterprises, as well as municipal bonds.December 31, 2022. The portfolio is comprised of both available for saleavailable-for-sale and held to maturityheld-to-maturity securities.
Other investments, at cost, per the consolidated balance sheets, primarily consist of the FHLB capital stock, common stock investments related to our trust preferred securities, and other investments in Small Business Investment Companies ("SBICs"). At December 31, 2017, of the $12.9 million in FHLB capital stock, $6.0 million is required for FHLB membership and $6.9 million is required to support our outstanding advances. Historically, it has been the FHLB's practice to automatically repurchase activity-based stock that became excess because of a member's reduction in advances. The FHLB has the discretion, but is not required, to repurchase any shares a member is not required to hold.
The table below sets forth the carrying value of investment securities, held byexcluding the Companyallowance for credit losses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 | | |
($ in thousands) | Amount | | % | | Amount | | % | | | | |
Obligations of 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. 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 $0.7 million at the dates indicated:
|
| | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2017 | | 2016 | | 2015 |
($ in thousands) | Amount | | % | | Amount | | % | | Amount | | % |
Obligations of U.S. Government sponsored enterprises | $ | 99,224 |
| | 13.4 | % | | $ | 107,660 |
| | 19.4 | % | | $ | 99,008 |
| | 19.3 | % |
Obligations of states and political subdivisions | 48,674 |
| | 6.6 | % | | 51,390 |
| | 9.2 | % | | 56,532 |
| | 11.0 | % |
Agency mortgage-backed securities | 567,233 |
| | 76.4 | % | | 382,210 |
| | 68.7 | % | | 339,944 |
| | 66.3 | % |
FHLB capital stock | 12,924 |
| | 1.7 | % | | 4,351 |
| | 0.8 | % | | 8,344 |
| | 1.6 | % |
Other investments | 13,737 |
| | 1.9 | % | | 10,489 |
| | 1.9 | % | | 9,111 |
| | 1.8 | % |
Total | $ | 741,792 |
| | 100.0 | % | | $ | 556,100 |
| | 100.0 | % | | $ | 512,939 |
| | 100.0 | % |
December 31, 2023 and 2022, respectively. The Company had no debt securities classified as trading at December 31, 2017, 2016,2023, or 2015.2022.
The following table summarizes expectedcontractual maturity and tax equivalent yield informationtax-equivalent yields on the investment portfolio at December 31, 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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. Government-sponsored enterprises | $ | 19,002 | | 2.0 | % | | $ | 233,663 | | 1.8 | % | | $ | 32,821 | | 4.2 | % | | $ | 10,960 | | 2.1 | % | | | | | $ | 296,446 | | 2.1 | % |
Obligations of states and political subdivisions | 6,357 | | 1.4 | % | | 22,167 | | 2.4 | % | | 214,115 | | 3.4 | % | | 765,231 | | 3.2 | % | | | | | 1,007,870 | | 3.3 | % |
Agency mortgage-backed securities | 103 | | 3.5 | % | | 74,432 | | 2.9 | % | | 67,521 | | 3.6 | % | | 610,425 | | 3.1 | % | | | | | 752,481 | | 3.1 | % |
U.S. Treasury Bills | 116,225 | | 4.2 | % | | 63,055 | | 3.0 | % | | 2,421 | | 3.1 | % | | — | | — | % | | | | | 181,701 | | 3.7 | % |
Corporate debt securities | — | | — | % | | 72,377 | | 3.2 | % | | 58,617 | | 3.5 | % | | — | | — | % | | | | | 130,994 | | 3.4 | % |
Total | $ | 141,687 | | 3.8 | % | | $ | 465,694 | | 2.4 | % | | $ | 375,495 | | 3.5 | % | | $ | 1,386,616 | | 3.2 | % | | | | | $ | 2,369,492 | | 3.1 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Within 1 year | | 1 to 5 years | | 5 to 10 years | | Over 10 years | | No Stated Maturity | | Total |
($ in thousands) | Amount | Yield | | Amount | Yield | | Amount | Yield | | Amount | Yield | | Amount | Yield | | Amount | Yield |
Obligations of U.S. Government-sponsored enterprises | $ | — |
| — | % | | $ | 99,224 |
| 1.84 | % | | $ | — |
| — | % | | $ | — |
| — | % | | $ | — |
| — | % | | $ | 99,224 |
| 1.84 | % |
Obligations of states and political subdivisions | 3,076 |
| 3.84 | % | | 11,442 |
| 4.50 | % | | 27,957 |
| 4.02 | % | | 6,198 |
| 3.14 | % | | — |
| — | % | | 48,673 |
| 4.01 | % |
Agency mortgage-backed securities | 3,072 |
| 3.21 | % | | 336,943 |
| 2.63 | % | | 219,774 |
| 2.84 | % | | 7,445 |
| 1.82 | % | | — |
| — | % | | 567,234 |
| 2.70 | % |
FHLB capital stock | — |
| — | % | | — |
| — | % | | — |
| — | % | | — |
| — | % | | 12,924 |
| 2.71 | % | | 12,924 |
| 2.71 | % |
Other investments | — |
| — | % | | — |
| — | % | | — |
| — | % | | — |
| — | % | | 13,737 |
| 0.63 | % | | 13,737 |
| 0.63 | % |
Total | $ | 6,148 |
| 3.53 | % | | $ | 447,609 |
| 2.50 | % | | $ | 247,731 |
| 2.97 | % | | $ | 13,643 |
| 2.42 | % | | $ | 26,661 |
| 1.64 | % | | $ | 741,792 |
| 2.63 | % |
Yields on tax-exempt securities are computed on a taxable equivalent basis using a tax rate of 38%24.8%. ExpectedActual maturities willcan differ from contractual maturities, as borrowers may have the right to call or repay obligations with or without prepayment penalties.
Other investments primarily consist of the FHLB capital stock, common stock investments related to our trust preferred securities, community development funds, and other investments in private equity funds, primarily SBICs. These investments do not have a stated maturity.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
($ in thousands) | Amount | | % | | Amount | | % |
FHLB capital stock | $ | 7,824 | | | 11.8 | % | | $ | 14,015 | | | 22.0 | % |
Other investments | 58,371 | | | 88.2 | % | | 49,775 | | | 78.0 | % |
Total | $ | 66,195 | | | 100.0 | % | | $ | 63,790 | | | 100.0 | % |
Deposits
The following table shows the breakdown of the Company's deposits by typetype:
| | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, | $ Increase (decrease) | | % Increase (decrease) |
($ in thousands) | 2023 | | 2022 | | 2023 vs. 2022 | | 2023 vs. 2022 |
Noninterest-bearing demand accounts | $ | 3,958,743 | | | $ | 4,642,732 | | | $ | (683,989) | | | (14.7) | % |
Interest-bearing demand accounts | 2,950,259 | | | 2,256,295 | | | 693,964 | | | 30.8 | % |
Money market accounts | 3,399,280 | | | 2,655,159 | | | 744,121 | | | 28.0 | % |
Savings accounts | 595,175 | | | 744,256 | | | (149,081) | | | (20.0) | % |
Certificates of deposit: | | | | | | | |
Brokered | 482,759 | | | 118,968 | | | 363,791 | | | 305.8 | % |
Customer | 790,155 | | | 411,740 | | | 378,415 | | | 91.9 | % |
Total deposits | $ | 12,176,371 | | | $ | 10,829,150 | | | $ | 1,347,221 | | | 12.4 | % |
| | | | | | | |
| | | | | | | |
Noninterest-bearing deposits / Total deposits | 33 | % | | 43 | % | | | | |
Brokered certificates of deposit increased $363.8 million, to $482.8 million at December 31, 2023. Brokered certificates of deposit are used for the periods indicated:
|
| | | | | | | | | | | | | | | | | |
| For the Years ended December 31, | | % Increase (decrease) |
($ in thousands) | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
Demand deposits | $ | 1,123,907 |
| | $ | 866,756 |
| | $ | 717,460 |
| | 29.7 | % | | 20.8 | % |
Interest-bearing transaction accounts | 915,653 |
| | 731,539 |
| | 564,420 |
| | 25.2 | % | | 29.6 | % |
Money market accounts | 1,342,931 |
| | 1,050,472 |
| | 1,053,662 |
| | 27.8 | % | | (0.3 | )% |
Savings | 195,150 |
| | 111,435 |
| | 92,861 |
| | 75.1 | % | | 20.0 | % |
Certificates of deposit: | | | | | | | | | |
Brokered | 115,306 |
| | 117,145 |
| | 39,573 |
| | (1.6 | )% | | 196.0 | % |
Other | 463,467 |
| | 356,014 |
| | 316,615 |
| | 30.2 | % | | 12.4 | % |
Total deposits | $4,156,414 | | $3,233,361 | | $2,784,591 | | 28.5 | % | | 16.1 | % |
| | | | | | | | | |
Non-time deposits / Total deposits | 86 | % | | 85 | % | | 87 | % | | | | |
Demand deposits / Total deposits | 27 | % | | 27 | % | | 26 | % | | | | |
An increaseterm liquidity purposes in deposits from 2016 to 2017 occurred in all areas exceptplace of FHLB borrowings. The brokered certificates of deposit which experiencedbalance has a slight decline. Coreweighted average cost of 4.73% and a weighted average remaining term of 7 months at December 31, 2023. The Company has a specialty deposit portfolio focusing primarily on property management, community associations, and escrow companies. These deposits defined astotaled $2.8 billion and $2.1 billion at the end of 2023 and 2022, respectively.
The following table shows the average balance and average rate of the Company’s deposits by type:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2023 | | 2022 | | 2021 |
($ in thousands) | Average Balance | | Average Rate Paid | | Average Balance | | Average Rate Paid | | Average Balance | | Average Rate Paid |
Noninterest-bearing deposit accounts | $ | 4,131,163 | | | — | % | | $ | 4,805,549 | | | — | % | | $ | 3,597,204 | | | — | % |
| | | | | | | | | | | |
Interest-bearing demand accounts | 2,559,238 | | | 1.84 | % | | 2,318,363 | | | 0.30 | % | | 2,122,752 | | | 0.08 | % |
Money market accounts | 3,043,794 | | | 3.05 | % | | 2,781,579 | | | 0.69 | % | | 2,557,836 | | | 0.18 | % |
Savings accounts | 668,368 | | | 0.15 | % | | 819,043 | | | 0.04 | % | | 724,768 | | | 0.03 | % |
Certificates of deposit: | | | | | | | | | | | |
Brokered | 557,761 | | | 4.44 | % | | 128,120 | | | 1.08 | % | | 66,265 | | | 1.66 | % |
Customer | 640,790 | | | 2.81 | % | | 441,152 | | | 0.48 | % | | 504,231 | | | 0.61 | % |
Total interest-bearing deposits | $ | 7,469,951 | | | 2.46 | % | | $ | 6,488,257 | | | 0.46 | % | | $ | 5,975,852 | | | 0.18 | % |
| | | | | | | | | | | |
Total average deposits | $ | 11,601,114 | | | 1.58 | % | | $ | 11,293,806 | | | 0.27 | % | | $ | 9,573,056 | | | 0.11 | % |
Average total deposits excluding timewere $11.6 billion for the year ended December 31, 2023, an increase of $307.3 million, or 3%, from December 31, 2022. The increase in 2023 was primarily due to organic growth in money market and interest-bearing demand accounts.
The following table sets forth the maturities of estimated uninsured certificates of deposit as of December 31, 2023. Uninsured deposits were $3.6are amounts estimated to exceed the FDIC deposit insurance limit and are not subject to any federal or state insurance program.
| | | | | |
($ in thousands) | Total |
Three months or less | $ | 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. Estimated uninsured deposits at December 31, 2023 include $0.5 million of balances that are collateralized or secured with third party insurance.
Shareholders’ equity
Shareholders’ equity totaled $1.7 billion at December 31, 2017,2023, an increase of $817$193.8 million, or 30%12.7%, from the prior year period. The increase in deposits reflects the acquisition of JCB, and continued progress across the Company's regions and business lines.
Maturities of certificates of deposit of $100,000 or more were as follows as of December 31, 2017:
|
| | | |
(in thousands) | Total |
Three months or less | $ | 59,709 |
|
Over three through six months | 52,990 |
|
Over six through twelve months | 94,658 |
|
Over twelve months | 94,359 |
|
Total | $ | 301,716 |
|
Shareholders' equity
Shareholders' equity totaled $549 million at December 31, 2017, an increase of $161.5 million from December 31, 2016. 2022.
Significant activity during the year ended December 31, 2017:2023 included the following:
Issuance•Increase from net income of 3.3 million shares$194.1 million;
•Net increase in fair value of common stock for the JCB acquisitionavailable-for-sale securities and cash flow hedges of $141.7 million,$29.3 million;
Repurchase of 429,555 shares of common stock at an average price of $38.69, or $16.6 million, pursuant to its publicly announced program,
Dividends•Decrease from dividends paid on common stock of $10.2$37.4 million and preferred stock of $3.8 million, respectively
Net income of $48.2 million.
Liquidity and Capital Resources
Liquidity
The objective of liquidity management is to ensure we have the ability to generate sufficient cash or cash equivalents in a timely and cost-effective manner to meet our commitments as they become due. Typical demands on liquidity are changes in deposit levels, maturing time deposits which are not renewed, and fundings under credit commitments to customers. Funds are available from a number of sources, such as the core deposit base and loansloan and securitiessecurity repayments and maturities.
Additionally, liquidity is provided from lines of credit with correspondent banks,the FHLB, the Federal Reserve, and the FHLB,correspondent banks; the ability to acquire large and brokered deposits,deposits; sales of the securities portfolio,portfolio; and the ability to sell loan participations to other banks. These alternatives are an important part of our liquidity plan and provide flexibility and efficient execution of the asset-liability management strategy.
The Bank'sCompany’s Asset-Liability Management Committee oversees our liquidity position, the parameters of which are approved by the Bank'sBank’s Board of Directors.Our liquidity position is monitored monthly by producing a liquidity report, which measures the amount of liquid versus non-liquid assets and liabilities.daily. Ourliquidity management framework includes measurement of several key elements, such as thea loan to deposit ratio, a liquidity ratio, and a dependency ratio. The Company'sCompany’s liquidity framework also incorporates contingency planning to assess the nature and volatility of funding sources and to determine alternatives to these sources. While core deposits and loan and investment repayments are principal sources of liquidity, funding diversification is another key element of liquidity management and is achieved by strategically varying depositor types, terms, funding markets, and instruments.
ForLiquidity from assets is available primarily from cash balances and the year endedinvestment portfolio. Cash and interest-bearing deposits with other banks totaled $433.0 million at December 31, 2017, net cash used by investing activities was $312.42023, compared to $291.4 million versus net cash used of $358.1 million in 2016.at December 31, 2022. The investing activities in 2017 primarily represents our normal business activity of making loans and investing in securities. Net cash provided by financing activities was $221.2 million in 2017, versus net cash provided of $380.2 million in 2016. The changeincrease in cash provided by financing activities was primarilybalances during 2023 is due to larger increasesdeposit growth exceeding loan growth. The increase in market interest rates in 2022-2023 increased the competitive environment for deposits, as depositors
have more alternatives to bank deposit accountsaccounts. While client deposit balances declined in the first half of 2023, successful marketing efforts increased total deposits in the last half of the year. Investment securities are another important tool to the Company’s liquidity objectives. Securities totaled $2.4 billion at December 31, 2023, and included $1.6 billion pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements. The remaining $808.7 million could be pledged or sold to enhance liquidity, if necessary.
Available on- and off-balance sheet liquidity sources include the following items:
| | | | | |
($ in thousands) | December 31, 2023 |
Federal Reserve Bank borrowing capacity | $ | 2,533,405 | |
FHLB borrowing capacity | 1,029,921 | |
Unpledged securities | 808,709 | |
Federal funds lines (6 correspondent banks) | 120,000 | |
Cash and interest-bearing deposits | 433,029 | |
Holding Company line of credit | 25,000 | |
Total | $ | 4,950,064 | |
The Company also has a portfolio of SBA guaranteed loans, a portion of which could be sold in the secondary market to generate earnings and liquidity. SBA loans totaling $42.1 million were sold during 2023.
Liability liquidity funding sources are available to increase financial flexibility. In addition to amounts borrowed at December 31, 2023, the Company could borrow an additional $1.0 billion from the FHLB of Des Moines under blanket loan pledges and has additional real estate loans that could be pledged. In the first quarter of 2024, the Company pledged an additional $495 million of loans to the FHLB to increase the borrowing capacity. The Company also has $2.5 billion available from the Federal Reserve Bank under a pledged loan agreement. Included in the Federal Reserve Bank borrowing capacity at December 31, 2023 is $215.0 million related to the Bank Term Funding Program. On January 24, 2024, the Federal Reserve announced that the program would cease making new loans on March 11, 2024. The Company also has unsecured federal funds lines with six correspondent banks totaling $120 million.
In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company’s various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company’s liquidity. The Company has $3.0 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.
At the holding company level, our primary funding sources are dividends and payments from the Bank and proceeds from the issuance of $50equity (i.e. stock option exercises, stock offerings) and debt instruments. The main use of this liquidity is to provide the funds necessary to pay dividends to shareholders, service debt, invest in subsidiaries as necessary, and satisfy other operating requirements. In 2023, the holding company maintained a revolving line of credit for an aggregate amount up to $25 million, all of subordinated notes bothwhich was available at December 31, 2023. The line of credit has a one-year term that was renewed in 2016, partially offset byFebruary 2024 for an increase in netadditional one-year term, and the interest rate was amended to one-month Term SOFR plus 185 basis points and the annual unused commitment fee was increased to 0.40%. The proceeds from FHLB advances in 2017.can be used for general corporate purposes.
The Company has an effective automatic shelf registration statement on Form S-3 allowing for the issuance of various forms of equity and debt securities. The Company’s ability to offer securities pursuant to the registration statement depends on market conditions and the Company’s continuing eligibility to use the Form S-3 under rules of the SEC.
Strong capital ratios, credit quality and core earnings are essential to retaining cost-effective access to the wholesale funding markets. Deterioration in any of these factors could have a negative impact on the Company'sCompany’s ability to access these funding sources and, as a result, these factors are monitored on an ongoing basis as part of the liquidity management
process. The Bank is subject to regulations and, among other things, may be limited in its ability to pay dividends or transfer funds to the parent company. Accordingly, consolidated cash flows as presented in the consolidated statements of cash flows may not represent cash immediately available for the payment of cash dividends to the Company'sCompany’s shareholders or for other cash needs.
Parent Company liquidity
The parent company's liquidity is managed to provide the funds necessary to pay dividends to shareholders, service debt, invest in subsidiaries as necessary, and satisfy other operating requirements. The parent company's primary funding sources to meet its liquidity requirements are dividends and payments from the Bank and proceeds from the issuance of equity (i.e. stock option exercises, stock offerings). Another source of funding for the parent company includes the issuance of subordinated debentures and other debt instruments.
The Company has an effective shelf registration statement on Form S-3 registering up to $100 million of common stock, preferred stock, debt securities, and various other securities, including combinations of such securities. The Company's ability to offer securities pursuant to the registration statement depends on market conditions and the Company's continuing eligibility to use the Form S-3 under rules of the SEC.
On November 1, 2016, the Company issued $50 million aggregate principal amount of 4.75% fixed-to-floating rate subordinated notes with a maturity date of November 1, 2026, which initially bear an annual interest rate of 4.75%, with interest payable semiannually. Beginning November 1, 2021, the interest rate resets quarterly to the three-month LIBOR rate plus a spread of 338.7 basis points, payable quarterly.
The Company has a senior unsecured revolving credit agreement (the "Revolving Agreement") with another bank allowing for borrowings up to $20 million which is renewed through February 2019. The proceeds can be used for general corporate purposes. The Revolving Agreement is subject to ongoing compliance with a number of customary affirmative and negative covenants as well as specified financial covenants. As of December 31, 2017, there were no outstanding balances under the Revolving Agreement.
The Bank has historically provided a dividend to supplement the parent company's liquidity at the discretion of the Bank's management. The Bank paid dividends of $20.0 million, $7.5 million, and $10.0 million throughout 2017, 2016, and 2015, respectively. The parent company's cash balance as of December 31, 2017 was $10.0 million, a $42.3 million decrease from December 31, 2016, primarily due to cash used for the acquisition of JCB. Management believes the current level of cash at the holding company will be sufficient to meet all projected cash needs for at least the next year.
As of December 31, 2017, the Company had $69.2 million of outstanding subordinated debentures as part of 10 Trust Preferred Securities Pools. These securities are classified as debt but are included in regulatory capital and the related interest expense is tax-deductible, which makes them an attractive source of funding.
Regulations issued by the Federal Reserve Board under the Basel III regulatory capital reforms allow our currently outstanding trust preferred securities to retain tier 1 capital status.
Bank liquidity
The Bank has a variety of funding sources available to increase financial flexibility. In addition to amounts currently borrowed, at December 31, 2017, the Bank could borrow an additional $484.7 million from the FHLB of Des Moines under blanket loan pledges and has an additional $898.1 million available from the Federal Reserve Bank under a pledged loan agreement. The Bank has unsecured federal funds lines with five correspondent banks totaling $75.0 million.
Investment securities are another important tool to the Bank's liquidity objectives. Securities totaled $715.1 million at December 31, 2017, and included $500.0 million that was pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements. The remaining $215.1 million could be pledged or sold to enhance liquidity, if necessary.
InThrough the normal course of business,operations, the BankCompany has entered into certain contractual obligations and other commitments. Such obligations relate to funding of operations through deposits or debt issuances, as well as leases for premises and equipment. As a financial services provider, the Company routinely enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters ofto extend credit. These transactions are managed through the Bank's various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluationWhile contractual obligations represent future cash requirements of the Company's liquidity.Company, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans made by the Company. The Bank has $1.4 billionCompany also enters into derivative contracts under which the Company either receives cash from or pays cash to counterparties depending on changes in unused commitmentsinterest rates. Derivative contracts are carried at fair value on the consolidated balance sheet with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of December 31, 2017. While this commitment level would exhaust the majority the Company's current liquidity resources, the naturebalance 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 is such thatsee the likelihood of funding themfollowing footnotes in the aggregate at any one time is low.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 Federalstate and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements.statements and results of operations of the Company. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its bank affiliate must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The banking affiliate’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and tier 1 capital to risk-weighted assets, and of tier 1 capital to average assets. To be categorized as “well capitalized”“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, 2017,2023, and December 31, 2016,2022, the Company and the Bank met all capital adequacy requirements to which they are subject.
The Bank met the definition of “well capitalized”“well-capitalized” at each of December 31, 2017, 2016,2023 and 2015.2022. Refer to Item 8 -“Item 8. Note 14 – Regulatory MattersCapital” for a summary of our risk-based capital and leverage ratios.
The following table summarizes the Company's variousCompany’s capital ratios at the dates indicated: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 assets1 | 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 | | | | | | | | |
|
| | | | | | | | | | | | | |
($ in thousands) | For the Year ended December 31, | | Well Capitalized |
2017 | | 2016 | | 2015 | | Minimum % |
Total capital to risk weighted assets | 12.21 | % | | 13.48 | % | | 11.85 | % | | 10.00% |
Tier 1 capital to risk weighted assets | 10.29 | % | | 10.99 | % | | 10.61 | % | | 8.00% |
Common equity tier 1 capital to risk weighted assets | 8.88 | % | | 9.52 | % | | 9.05 | % | | 6.50% |
Leverage ratio (Tier 1 capital to average assets) | 9.72 | % | | 10.42 | % | | 10.71 | % | | 5.00% |
Tangible common equity to tangible assets1 | 8.14 | % | | 8.76 | % | | 8.88 | % | | N/A |
Total risk-based capital | $ | 589,048 |
| | $ | 506,349 |
| | $ | 418,367 |
| | |
Tier 1 capital | 496,045 |
| | 412,865 |
| | 374,676 |
| | |
Common equity tier 1 capital | 428,398 |
| | 357,729 |
| | 319,553 |
| | |
| | | | | | | |
1 Not a required regulatory capital ratio | | |
The Company believes the tangible common equity and regulatory capital ratios are important measures of capital strength even though they arestrength. The tangible common equity to tangible assets ratio is considered to bea non-GAAP measures.measure. The tables further withinincluded in this MD&A section under the caption “Use of Non-GAAP Financial Measures” reconcile these ratios to U.S. GAAP.
Risk Management
Market risk arises from exposure to changes in interest rates and other relevant market rate or price risk. The Company faces market risk in the form of interest rate risk through transactions other than trading activities. Market risk from these activities, in the form of interest rate risk, is measured and managed through a number of methods. The Company uses financial modeling techniques to measure interest rate risk. These techniques measure the sensitivity of future earnings due to changing interest rate environments. Guidelines established by the Bank'sBank’s Asset/Liability Management Committee and approved by the Bank'sBank’s Board of Directors are used to monitor exposure of earnings at risk. General interest rate movements are used to develop sensitivity as management believes it has no primary exposure to a specific point on the yield curve. These limits are based on the Company'sCompany’s exposure to immediate and sustained parallel rate movements, up to 400 basis points, either upward or downward. The Company does not have any direct market risk from commodity exposures.
Interest Rate Risk
Our interest rate risk management practices are aimed at optimizing net interest income, while guarding against deterioration that could be caused by certain interest rate scenarios. Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. We attempt to maintain interest-earning assets, comprised primarily of both loans and investments, and interest-bearing liabilities, comprised primarily of deposits, maturing or repricing in similar time horizons in order to manage any impact from market interest rate changes according to our risk tolerance. The Company uses an earnings simulation model to measure earnings sensitivity to changing rates.
The Company determines the sensitivity of its short-term future earnings to a hypothetical plus or minus 100 to 300 basis point parallel rate shock through the use of simulation modeling. The simulation of earnings includes the modeling of the balance sheet as an ongoing entity. Future business assumptions involving administered rate products, prepayments for future rate-sensitive balances, and the reinvestment of maturing assets and liabilities are included. These items are then modeled to project net interest income based on a hypothetical change in interest rates. The resulting net interest income for the next 12-month period is compared to the net interest income amount calculated using flat rates. This difference represents the Company'sCompany’s earnings sensitivity to a positive or negative 100 basis points parallel rate shock.
The following table summarizes the expectedprojected impact of interest rate shocks on net interest income (due to the current level of interest rates, the 200 and 300 basis point downward shock scenarios are not shown):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)% |
| | |
|
| |
Rate Shock | Annual % change
in net interest income
|
+ 300 bp | 3.9% |
+ 200 bp | 2.7% |
+ 100 bp | 1.4% |
- 100 bp | -5.9% |
In addition to the rate shocks shown in the table above, the Company models net interest income under various dynamic interest rate scenarios. In general, changes in interest rates are positively correlated with changes in net interest income. The exception to this is a bear flattener scenario (short term rates move up more than long term rates), which results in a mild decrease in net interest income.
The Company occasionally uses interest rate derivative financial 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'sCompany’s exposures to interest rate fluctuations and provide more stable spreads between loan yields and the rate on their funding sources. At December 31, 2017,2023, the Company had no derivative contracts used to manage interest rate risk.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 also discussed in Item 8,“Item 8. Note 6 – Derivative Financial Instruments.
”
Contractual Obligations, Off-Balance Sheet Risk,The FCA has announced that the most common USD LIBOR settings (overnight, 1-month. 3-month, 6-month and Contingent Liabilities
Through12-month) will cease publication after September 30, 2024. LIBOR was the normal coursemost liquid and common interest rate index in the world and was commonly referenced in financial instruments. With the cessation of operations,LIBOR, the Company has entered into certain contractual obligationsselected term SOFR as the replacement index for the majority of its variable rate loans and other commitments. Such obligations relate to funding of operations through deposits or debt issuances,began providing customer notifications in early 2023. The Company ceased using LIBOR and ICE swap rates in new contracts and began issuing SOFR based loans in December 2021.
The Company had $6.6 billion in variable rate loans as well as leases for premises and equipment. As a financial services provider, the Company routinely enters into commitments to extend credit. While contractual obligations represent future cash requirements of the Company, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans made by the Company.
The required contractual obligations and other commitments, excluding any contractual interest1, at December 31, 2017, were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Payments due by Period |
(in thousands) | Total | | Less Than 1 Year | | Over 1 Year Less than 3 Years | | Over 3 Years Less than 5 Years | | Over 5 Years |
Operating leases | $ | 22,498 |
| | $ | 3,503 |
| | $ | 6,895 |
| | $ | 6,138 |
| | $ | 5,962 |
|
Certificates of deposit | 578,773 |
| | 431,427 |
| | 124,041 |
| | 22,698 |
| | 607 |
|
Subordinated debentures and notes | 119,241 |
| | — |
| | — |
| | — |
| | 119,241 |
|
Federal Home Loan Bank advances | 172,743 |
| | 172,743 |
| | — |
| | — |
| | — |
|
Commitments to extend credit | 1,298,424 |
| | 592,747 |
| | 364,437 |
| | 71,700 |
| | 269,540 |
|
Commitments - state tax credits | 23,744 |
| | 20,402 |
| | 3,342 |
| | — |
| | — |
|
Letters of credit | 73,790 |
| | 49,080 |
| | 24,685 |
| | 25 |
| | — |
|
SBICs (2) | 17,437 |
| | 3,487 |
| | 13,950 |
| | — |
| | — |
|
| | | | | | | | | |
(1) Interest charges on related contractual obligations were excluded from reported amounts as the potential cash outflows would have corresponding cash inflows from interest-earning assets. |
(2) Represents the estimated timing of various capital raises for SBICs. |
As of December 31, 2017, we had liabilities associated with uncertain tax positions2023. Of these loans, $4.2 billion have an interest rate floor and nearly all of $0.8 million. The tablethose loans were at or above does notthe floor. Variable rate loans include these liabilities due$2.8 billion indexed to the high degree of uncertainty regarding the future cash flows associated with these amounts.prime rate, $2.7 billion are indexed to SOFR, $294.8 million indexed to LIBOR, and $813.3 million indexed to other rates.
The Company also enters into derivative contracts under which the Company either receives cash from or pays cash to counterparties depending on changesChanges in interest rates. Derivative contracts are carried at fair valuerates will also have an effect on noninterest expense. Certain deposit accounts receive an earnings credit that provides a reimbursement for costs clients incur on the consolidated balance sheet with the fair value representing the net present value of expected future cash receipts or payments based on marketaccounts. As interest rates as ofincrease, the balance sheet date. The fair value of these contracts changes daily as marketamount available for reimbursement also increases, resulting in an increase to noninterest expense. Conversely, a decrease in interest rates change.would reduce the amount available for reimbursement and decrease noninterest expense.
CRITICAL ACCOUNTING POLICIES
Critical Accounting Policies and Estimates
The following accounting policies are considered most critical to the understanding of the Company'sCompany’s financial condition and results of operations. These critical accounting policies require management'smanagement’s most difficult, subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on actual experiences.experience. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected. The impact and any associated risks related to our critical accounting policies on our business operations are discusseddescribed throughout “Management's“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,“Item 8. Note 1 – Summary of Significant Accounting Policies.”
The Company has prepared all of the consolidated financial information in this report in accordance with U.S. GAAP. The Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include the valuation of loans, goodwill, intangible assets, and other long-lived assets, along with assumptions used in the calculation of income taxes, among others. These estimates and assumptions are based on management'smanagement’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historicalloss experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. Decreased real estate values, volatile credit markets, and persistent high unemployment have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statementstatements in future periods. There can be no assurances that actual results will not differ from those estimates.
Acquisitions
Acquisitions and Business Combinations are accounted for using the acquisition method of accounting. The assets and liabilities of the acquired entities have been recorded at their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets.
The purchase price allocation process requires an estimation of the fair values of the assets acquired and the liabilities assumed. When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the Company includes an estimate of the acquisition-date fair value as part of the cost of the combination. To determine the fair values, the Company relies on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. The results of operations of the acquired business are included in the Company's consolidated financial statements from the respective date of acquisition. Merger-related costs are costs the Company incurs to effect a business combination. In 2017, the Company changed its presentation of Merger related expenses as a separate component of Noninterest expenses on the Condensed Consolidated Statements of Operations. Merger related expenses include costs directly related to merger or acquisition activity and include legal and professional fees, system consolidation and conversion costs, and compensation costs such as severance and retention incentives for employees impacted by acquisition activity. The Company accounts for merger-related costs as expenses in the periods in which the costs are incurred and the services are received.
Allowance for LoanCredit Losses
The Company maintains anseparate allowances for funded loans, unfunded loans, and held-to-maturity securities, collectively referred to the ACL. The ACL is a valuation account to adjust the cost basis to the amount expected to be collected, based on management’s experience, current conditions, and reasonable and supportable forecasts. For purposes of determining the allowance for loan losses (“funded and unfunded loans, the allowance”), which is management's estimate of probable, inherent lossesportfolios are segregated into pools that share similar risk characteristics that are then further segregated by credit grades. Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the outstanding loan portfolio.collective evaluation. The Company estimates the amount of the allowance is based on management's continuous review and evaluation of the loan portfolio. The review and evaluation combines several factors including: consideration of loan loss experience; trends in past dueexperience, adjusted for current and nonperforming loans;forecasted economic conditions, including unemployment, changes in lending policiesGDP, and procedures; existing businesscommercial and residential real estate prices. The Company’s forecast of economic conditions; the fair valueconditions uses internal and external information and considers a weighted average of underlying collateral; changes in the naturea baseline, upside, and volume of the Company's loan portfolio; changes in the lending department of the Company; volume and severity of past due loans;
the quality of the loan review system; concentrations of credit and other qualitative and other factors which affect probable credit losses.downside scenarios. Because current economic conditions can change and are difficult to predict, the anticipated amount of estimated loan defaults and losses, and therefore the adequacy of the allowance, could change significantly.
In determiningsignificantly and have a direct impact on the allowance and the related provision for loan losses for portfolio loans, three principal elements are considered:
| |
1) | specific allocations based upon probable losses identified during a quarterly review of the loan portfolio, |
| |
2) | allocations based principally on the Company's risk rating formulas, and |
| |
3) | a qualitative adjustment based on other economic, environmental and portfolio factors. |
Company’s credit costs. The first element reflects management's estimate of probable losses based upon a systematic review of specific loans considered to be impaired. These estimates are based upon discounted cash flows as estimated and used to assign loss or collateral exposure, if they are collateral dependent for collection.
The second element reflects the application of our loan rating system. Loans are rated and assigned a loss allocation factor for each category based on a loss migration analysis using the Company's loss experience over the last six years. The higher the rating assigned to a loan, the greater the loss allocation percentage applied. This element also incorporates an estimate of the loss emergence period, which is an estimate of the time between when a credit event occurs and when the charge-off of a loan occurs. The process is an estimate and is, therefore, imprecise. For example, if our estimate of the loss emergence period would have been increased/decreased by one quarter, it would have resulted in an increase of $2.5 million and a decrease of $2.6 million, respectively, in our allowance at December 31, 2017.
The qualitative adjustment is based on management's evaluation of conditions that are not directly reflected in the loss migration analysis and/or specific reserve. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they may not be identified with specific problem credits. The conditions evaluated in connection with the qualitative or environmental adjustment include the following:
changes in lending policies and procedures;
changes in business and economic conditions;
changes in the nature and volume of our loan portfolio;
changes in our lending department;
changes in volume and/or severity of past due loans;
changes in the quality of our loan review system;
changes in the value of underlying collateral related to loans;
existence and effect of concentrations of credit within our loan portfolio; and
other external factors such as asset quality trends (including trends in nonperforming loans expected to result from existing conditions), and related allowance metrics of our peers.
Executive management reviews these conditions quarterly based on discussion with our lending staff. Management then assigns a specified number of basis points of allowance to each factor above by loan category. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or loan category as of the evaluation date, management's estimate of the effect of such conditions may be reflected as a specific allowance, applicable to such credit or loan category.
The allocation of theCompany’s allowance for loan losses by loan category is a result of the analysis above. The allocation methodology applied by the Company focuses on changes in the size and character of the loan portfolio, changes in levels of impaired and other nonperforming loans, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions, and historicalcredit losses on each portfolio category.
Management believes the allowance for loan losses is adequate at December 31, 2017.
Purchased Credit Impaired ('PCI") Loans
PCI loans were acquired in a business combination or transaction that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable. PCI loans were initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance. The difference between the undiscounted cash flows expected at acquisition and the investment in the loans, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loans. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. The Company aggregates individual loans with common risk characteristics into pools of loans. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loans over their remaining lives. Decreases in expected cash flows due to an inability to collect contractual cash flows are recognized as impairment through the provision for loan losses account. Any allowance for loan loss on these pools reflect only losses incurred after the acquisition. Disposals of loans, including sales of loans, paydowns, payments in full or foreclosures result in the removal or reduction of the loan from the loan pool.
PCI loans are generally considered accruing and performing, as the loans accrete income over the estimated life of the loan, in circumstances where cash flows are reasonably estimable by management. Accordingly, PCI loans that could be contractually past due could be considered to be accruing and performing. If the timing and amount of future cash flows is not reasonably estimable or is less than the carrying value, the loans may be classified as nonaccrual loans and the purchase price discount on those loans is not recorded as interest income until the timing and amount of future cash flows can be reasonably estimable.
Allowance for Loan Losses on PCI Loans
The Company updates its cash flow projections for purchased credit-impaired loans on a periodic basis. Assumptions utilized in this process include projections related to probability of default, loss severity, prepayment, extensions and recovery lag. Projections related to probability of default and prepayment are calculated utilizing a loan migration analysis and management's assessment of loss exposure including the fair value of underlying collateral. The loan migration analysis is a matrix that specifies the probability of a loan pool transitioning into a particular delinquency or liquidation state given its current performance at the measurement date. Loss severity factors are based upon industry data and historical experience.
Any decreases in expected cash flows after the acquisition date and subsequent measurement periods are recognized by recording an impairment in allowance for loan losses through a provision for loan losses.
Goodwill and Other Intangible Assets
The Company completes a goodwill impairment test in the fourth quarter each year or whenever events or changes in circumstances indicate that the Company may not be able to recover the goodwill, or intangible assets, respective carrying amount. The impairment test involves the use of various estimates and assumptions. Management believes that the estimates and assumptions utilized are reasonable. However, the Company may incur impairment charges related to goodwill or intangible assets in the future due to changes in business prospects or other matters that could impact estimates and assumptions.
Goodwill is evaluated for impairment at the reporting unit level. Reporting units are defined as the same level as, or one level below, an operating segment. An operating segment is a component of a business for which separate financial information is available that management regularly evaluates in deciding how to allocate resources and assess performance. At December 31, 2017, the Company had one reporting unit and one operating segment.
Potential impairments to goodwill must first be identified by performing a qualitative assessment which evaluates relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If this test indicates it is more likely than not that goodwill has been impaired, then a quantitative impairment test is completed. The quantitative impairment test calculates the fair value of the reporting unit and compares it with its carrying amount, including goodwill. If the carrying amount of goodwill exceeds its
implied fair market value, an impairment loss is recognized. That loss is equal to the carrying amount of goodwill that is in excess of its implied fair market value.
Intangible assets other than goodwill, such as core deposit intangibles, that are determined to have finite lives are amortized over their estimated remaining useful lives. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
In 2017, we performed both a qualitative and quantitative assessment to determine if our goodwill was impaired. At December 31, 2017 the Company had $117.3 million goodwill compared to $30.3$134.8 million at December 31, 2016 due2023 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.
Income Taxes
Management uses certain assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax assets and liabilities and income tax expense. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If current available information raises doubt as to the acquisitionrealization of JCB. The 2017 annual impairment evaluationthe deferred tax assets, a valuation allowance may be established. We consider the determination of goodwillthis valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and intangible balances did not identify any impairment.timing of recognition of deferred tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change. A valuation allowance for deferred tax assets may be required in the future if the amounts of taxes recoverable through loss carry backs decline, if we project lower levels of future taxable income, or we project lower levels of tax planning strategies. Such valuation allowance would be established through a charge to income tax expense that would adversely affect our operating results.
Effects of New Accounting Pronouncements
See Item 8,“Item 8. Note 211 – New AuthoritativeSummary of Significant Accounting GuidancePolicies – Recent Accounting Pronouncements” for information on recent accounting pronouncements and their impact, if any, on our consolidated financial statements.
Use of Non-GAAP Financial Measures
The Company'sCompany’s accounting and reporting policies conform to generally accepted accounting principles in the U.S. ("GAAP")GAAP and the prevailing practices in the banking industry. However, the Company provides other financial measures, such as core net income and net interest margin, and other core performance measures, regulatory capital ratios, and theefficiency ratio, tangible common equity ratio, return on average tangible common equity, and tangible book value per common share, in this filingreport that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company'scompany’s financial performance, financial position, or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.
The Company considers its core efficiency ratio, tangible common equity ratio, return on average tangible common equity, and tangible book value per common share, collectively “core performance measures,” presented in this earnings release and the included tables as important measures of financial performance, even though they are non-GAAP measures, as they provide supplemental information by which to evaluate the impact of non-core acquired loans and related income and expenses, the impact of certain non-comparable items, and the Company'sCompany’s operating performance on an ongoing basis. Core performance measures include contractual interest on non-core acquired loans, but exclude incremental accretion on these loans. Core performance measures also exclude the following:
the change incertain other income and expense items, such as the FDIC loss share receivable,
special assessment, merger-related expenses, facilities charges, and the gain or loss on sale of other real estate from non-core acquired loans,
expenses directly related to non-core acquired loans and other assets formerly covered under FDIC loss share agreements, and
certain other income and expense itemsinvestment securities, that the Company believes to be not indicative of or useful to measure the Company'sCompany’s operating performance on an ongoing basis, such as:
| |
◦ | executive separation costs, |
| |
◦ | merger related expenses, |
| |
◦ | deferred tax asset revaluation due to U.S. corporate income tax reform, and |
| |
◦ | the gain or loss on sale of investment securities. |
basis. The attached tables contain a reconciliation of these core performance measures to the GAAP measures. The Company believes that the tangible common equity ratio provides useful information to investors about the Company'sCompany’s capital strength even though it is considered to be a non-GAAP financial measure and is not part of the regulatory capital requirements to which the Company is subject.
The Company believes these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding the Company'sCompany’s performance and capital strength. The Company'sCompany’s management uses, and believes that investors benefit from referring to, these non-GAAP measures and ratios in assessing the Company'sCompany’s operating results and related trends and when forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP. The Company has provided a reconciliation of, where applicable, the most comparable GAAP financial measures and ratios to the non-GAAP financial measures and ratios, or a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.
Reconciliations of Non-GAAP Financial Measures
Core Efficiency Ratio
Core Performance Measures | | | | | | | | | | | | | | | | | |
| 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 | % |
|
| | | | | | | | | | | |
| For the Years ended |
($ in thousands, except per share data) | December 31, 2017 | | December 31, 2016 | | December 31, 2015 |
Net interest income | $ | 177,304 |
| | $ | 135,495 |
| | $ | 120,410 |
|
Less: Incremental accretion income | 7,718 |
| | 11,980 |
| | 12,792 |
|
Core net interest income | 169,586 |
| | 123,515 |
| | 107,618 |
|
| | | | | |
Total noninterest income | 34,394 |
| | 29,059 |
| | 20,675 |
|
Less: Gain on sale of other real estate from non-core acquired loans | (6 | ) | | 1,565 |
| | 107 |
|
Less: Other income from non-core acquired assets | — |
| | 621 |
| | — |
|
Less: Gain on sale of investment securities | 22 |
| | 86 |
| | 23 |
|
Less: Change in FDIC loss share receivable | — |
| | — |
| | (5,030 | ) |
Core noninterest income | 34,378 |
| | 26,787 |
| | 25,575 |
|
| | | | | |
Total core revenue | 203,964 |
| | 150,302 |
| | 133,193 |
|
| | | | | |
Provision for portfolio loan losses | 10,764 |
| | 5,551 |
| | 4,872 |
|
| | | | | |
Total noninterest expense | 115,051 |
| | 86,110 |
| | 82,226 |
|
Less: Merger related expenses | 6,462 |
| | 1,386 |
| | — |
|
Less: Other expenses related to non-core acquired loans | 240 |
| | 1,094 |
| | 1,558 |
|
Less: Facilities disposal charge | 389 |
| | 1,040 |
| | — |
|
Less: Executive severance | — |
| | 332 |
| | — |
|
Less: FDIC loss share termination | — |
| | — |
| | 2,436 |
|
Less: FDIC clawback | — |
| | — |
| | 760 |
|
Less: Other non-core expenses | — |
| | 41 |
| | — |
|
Core noninterest expense | 107,960 |
| | 82,217 |
| | 77,472 |
|
| | | | | |
Core income before income tax expense | 85,240 |
| | 62,534 |
| | 50,849 |
|
| | | | | |
Total income tax expense | 38,327 |
| | 26,002 |
| | 19,951 |
|
Less: Income tax expense from deferred tax asset revaluation due to the U.S. corporate tax rate change | 12,117 |
| | — |
| | — |
|
Less: Other non-core income tax expense1 | 882 |
| | 4,705 |
| | 2,893 |
|
Core income tax expense | 25,328 |
| | 21,297 |
| | 17,058 |
|
Core net income | $ | 59,912 |
| | $ | 41,237 |
| | $ | 33,791 |
|
| | | | | |
Core diluted earnings per share | $ | 2.58 |
| | $ | 2.03 |
| | $ | 1.66 |
|
Core return on average assets | 1.20 | % | | 1.09 | % | | 1.00 | % |
Core return on average common equity | 11.26 | % | | 11.10 | % | | 10.08 | % |
Core return on average tangible common equity | 14.46 | % | | 12.18 | % | | 11.22 | % |
Core efficiency ratio | 52.93 | % | | 54.70 | % | | 58.17 | % |
| | | | | |
1Other non-core income tax expense calculated at 38% of non-core pre-tax income plus an estimate of taxes payable related to non-deductible JCB acquistion costs. |
Net Interest Margin to Core Net Interest Margin (Fully tax equivalent)
|
| | | | | | | | | | | |
($ in thousands) | For the Years ended December 31, |
2017 | | 2016 | | 2015 |
Net interest income | $ | 179,114 |
| | $ | 137,261 |
| | $ | 122,141 |
|
Less: Incremental accretion income | 7,718 |
| | 11,980 |
| | 12,792 |
|
Core net interest income | $ | 171,396 |
| | $ | 125,281 |
| | $ | 109,349 |
|
| | | | | |
Average earning assets | $ | 4,611,671 |
| | $ | 3,570,186 |
| | $ | 3,163,339 |
|
Reported net interest margin | 3.88 | % | | 3.84 | % | | 3.86 | % |
Core net interest margin | 3.72 | % | | 3.51 | % | | 3.46 | % |
Tangible Common Equity, ratioTangible 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 | % |
|
| | | | | | | | | | | |
| For the Years ended December 31, |
($ in thousands) | 2017 | | 2016 | | 2015 |
Total shareholders' equity | $ | 548,573 |
| | $ | 387,098 |
| | $ | 350,829 |
|
Less: Goodwill | 117,345 |
| | 30,334 |
| | 30,334 |
|
Less: Intangible assets | 11,056 |
| | 2,151 |
| | 3,075 |
|
Tangible common equity | $ | 420,172 |
| | $ | 354,613 |
| | $ | 317,420 |
|
| | | | | |
Total assets | $ | 5,289,225 |
| | $ | 4,081,328 |
| | $ | 3,608,483 |
|
Less: Goodwill | 117,345 |
| | 30,334 |
| | 30,334 |
|
Less: Intangible assets | 11,056 |
| | 2,151 |
| | 3,075 |
|
Tangible assets | $ | 5,160,824 |
| | $ | 4,048,843 |
| | $ | 3,575,074 |
|
| | | | | |
Tangible common equity to tangible assets | 8.14 | % | | 8.76 | % | | 8.88 | % |
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)
Regulatory Capital to Risk-weighted | | | | | | | | | | | | | | | | | |
| 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 | % |
|
| | | | | | | | | | | |
| For the Years ended December 31, |
($ in thousands) | 2017 | | 2016 | | 2015 |
Total shareholders' equity | $ | 548,573 |
| | $ | 387,098 |
| | $ | 350,829 |
|
Less: Goodwill | 117,345 |
| | 30,334 |
| | 30,334 |
|
Less: Intangible assets, net of deferred tax liabilities | 6,661 |
| | 800 |
| | 759 |
|
Less: Unrealized gains (losses) | (3,818 | ) | | (1,741 | ) | | 218 |
|
Plus: Other | 12 |
| | 24 |
| | 37 |
|
Common equity tier 1 capital | 428,397 |
| | 357,729 |
| | 319,555 |
|
Plus: Qualifying trust preferred securities | 67,600 |
| | 55,100 |
| | 55,100 |
|
Plus: Other | 48 |
| | 36 |
| | 23 |
|
Tier 1 capital | 496,045 |
| | 412,865 |
| | 374,678 |
|
Plus: Tier 2 capital | 93,002 |
| | 93,484 |
| | 43,691 |
|
Total risk-based capital | $ | 589,047 |
| | $ | 506,349 |
| | $ | 418,369 |
|
| | | | | |
Total risk weighted assets determined in accordance with prescribed regulatory requirements | $ | 4,822,695 |
| | $ | 3,757,160 |
| | $ | 3,530,521 |
|
| | | | | |
Common equity tier 1 to risk weighted assets | 8.88 | % | | 9.52 | % | | 9.05 | % |
Tier 1 capital to risk-weighted assets | 10.29 | % | | 10.99 | % | | 10.61 | % |
Total risk-based capital to risk-weighted assets | 12.21 | % | | 13.48 | % | | 11.85 | % |
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Please refer to “Risk Factors” included in Item 1A and “Risk Management” and "Interest“Interest Rate Risk"Risk” included in Management'sManagement’s Discussion and Analysis under Item 7.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Enterprise Financial Services Corp and Subsidiaries
| | | | | |
| |
| Page Number |
Report of Independent Registered Public Accounting Firm, PCAOB ID 34 | |
| |
Consolidated Balance Sheets at December 31, 20172023 and 20162022 | |
| |
Consolidated Statements of OperationsIncome for the years ended December 31, 2017, 2016,2023, 2022, and 20152021 | |
| |
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016,2023, 2022, and 20152021 | |
| |
Consolidated Statements of Shareholders'Shareholders’ Equity for the years ended December 31, 2017, 2016,2023, 2022, and 20152021 | |
| |
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016,2023, 2022, and 20152021 | |
| |
Notes to Consolidated Financial Statements | |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and Board of Directors of
Enterprise Financial Services Corp
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Enterprise Financial Services Corp and subsidiaries (the "Company") as of December 31, 20172023 and 2016, and2022, the related consolidated statements of operations,income, comprehensive income, shareholders'shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 20172023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20172023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2018,26, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidatedthe Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included assessingevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses on Loans — Refer to Note 1 to the financial statements
Critical Audit Matter Description
The Company utilizes a discounted cash flow (“DCF”) method to measure the Allowance for Credit Losses (“ACL”) on loans collectively evaluated that are sub-segmented by credit risk levels. The DCF method incorporates assumptions for probability of default, loss given default, prepayments and curtailments over the contractual term of the loans. In determining the probability of default, the Company utilized a regression analysis to determine certain economic factors that are relevant loss drivers in the portfolio segments based on historical or peer evaluations. Additionally, the Company applies qualitative adjustments to address risks not directly captured in the quantitative
reserve; including to address macroeconomic uncertainty by weighting the forecasted baseline, upside, and downside economic factors.
We identified the ACL on loans as a critical audit matter because of the complexity of the Company’s model and the significant assumptions used by management. Auditing the ACL on loans required a high degree of auditor judgment and an increased extent of effort, including the need to involve credit specialists when performing audit procedures to evaluate the reasonableness of management’s models and assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s ACL on loans included the following, among others:
•We tested the design and operating effectiveness of management’s controls covering the key data, assumptions and judgments impacting the ACL on loans.
•We evaluated the appropriateness of the Company’s accounting policies, methodologies, and elections involved in determining the ACL on loans.
•We involved credit specialists to assist us in evaluating the Company’s development of the ACL model, including the selection of and calibration to economic factors.
•We assessed the reasonableness of the Company’s qualitative methodology, tested key calculations utilized within the qualitative estimate, and agreed underlying data within the calculation to source documents.
/s/ Deloitte & Touche LLP
St. Louis, Missouri
February 23, 201826, 2024
We have served as the Company'sCompany’s auditor since 2010.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and Board of Directors of
Enterprise Financial Services Corp
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Enterprise Financial Services Corp and subsidiaries (the "Company"“Company”) as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on the criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 20172023, of the Company and our report dated February 23, 201826, 2024, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Assessment onof Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company'sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company'scompany’s internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
Because of theits inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
St. Louis, Missouri
February 23, 2018
26, 2024
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 20172023 and 20162022 | | December 31, | |
| December 31, | |
| December 31, | |
($ in thousands, except per share data) | |
($ in thousands, except per share data) | |
($ in thousands, except per share data) | |
Assets | |
Assets | |
Assets | |
Cash and due from banks | |
Cash and due from banks | |
Cash and due from banks | |
Federal funds sold | |
Federal funds sold | |
Federal funds sold | |
Interest-earning deposits | |
Interest-earning deposits | |
Interest-earning deposits | |
Total cash and cash equivalents | |
Total cash and cash equivalents | |
Total cash and cash equivalents | |
Interest-earning deposits greater than 90 days | |
Interest-earning deposits greater than 90 days | |
Interest-earning deposits greater than 90 days | |
Securities available-for-sale | |
Securities available-for-sale | |
Securities available-for-sale | |
Securities held-to-maturity, net | |
Securities held-to-maturity, net | |
Securities held-to-maturity, net | |
Loans held-for-sale | |
Loans held-for-sale | |
Loans held-for-sale | |
Loans | |
Loans | |
Loans | |
Allowance for credit losses on loans | |
Allowance for credit losses on loans | |
Allowance for credit losses on loans | |
Total loans, net | |
Total loans, net | |
Total loans, net | |
| | (in thousands, except share and per share data) | December 31, 2017 | | December 31, 2016 |
Assets | | | |
Cash and due from banks | $ | 91,084 |
| | $ | 54,288 |
|
Federal funds sold | 1,223 |
| | 446 |
|
Interest-bearing deposits (including $1,365 and $675 pledged as collateral, respectively) | 61,016 |
| | 144,068 |
|
Total cash and cash equivalents | 153,323 |
| | 198,802 |
|
Interest-bearing deposits greater than 90 days | 2,645 |
| | 980 |
|
Securities available for sale | 641,382 |
| | 460,797 |
|
Securities held to maturity | 73,749 |
| | 80,463 |
|
Loans held for sale | 3,155 |
| | 9,562 |
|
Loans | 4,097,050 |
| | 3,158,161 |
|
Less: Allowance for loan losses | 42,577 |
| | 43,409 |
|
Total loans, net | 4,054,473 |
| | 3,114,752 |
|
Other real estate | 498 |
| | 980 |
|
Other investments, at cost | 26,661 |
| | 14,840 |
|
Other investments | |
| Other investments | |
| Other investments | |
Fixed assets, net | 32,618 |
| | 14,910 |
|
Accrued interest receivable | 14,069 |
| | 11,117 |
|
State tax credits, held for sale, including $400 and $3,585 carried at fair value, respectively | 43,468 |
| | 38,071 |
|
Fixed assets, net | |
Fixed assets, net | |
| Goodwill | |
| Goodwill | |
| Goodwill | 117,345 |
| | 30,334 |
|
Intangible assets, net | 11,056 |
| | 2,151 |
|
Intangible assets, net | |
Intangible assets, net | |
Other assets | 114,783 |
| | 103,569 |
|
Other assets | |
Other assets | |
Total assets | |
Total assets | |
Total assets | $ | 5,289,225 |
| | $ | 4,081,328 |
|
| | | |
Liabilities and Shareholders' equity | | | |
Demand deposits | $ | 1,123,907 |
| | $ | 866,756 |
|
Interest-bearing transaction accounts | 915,653 |
| | 731,539 |
|
| Liabilities and Shareholders' equity | |
| Liabilities and Shareholders' equity | |
Noninterest-bearing demand accounts | |
Noninterest-bearing demand accounts | |
Noninterest-bearing demand accounts | |
Interest-bearing demand accounts | |
Interest-bearing demand accounts | |
Interest-bearing demand accounts | |
Money market accounts | 1,342,931 |
| | 1,050,472 |
|
Savings | 195,150 |
| | 111,435 |
|
Money market accounts | |
Money market accounts | |
Savings accounts | |
Savings accounts | |
Savings accounts | |
Certificates of deposit: | |
Certificates of deposit: | |
Certificates of deposit: | | | |
Brokered | 115,306 |
| | 117,145 |
|
Other | 463,467 |
| | 356,014 |
|
Brokered | |
Brokered | |
Customer | |
Customer | |
Customer | |
Total deposits | 4,156,414 |
| | 3,233,361 |
|
Subordinated debentures and notes (net of debt issuance cost of $1,136 and $1,267, respectively) | 118,105 |
| | 105,540 |
|
Federal Home Loan Bank advances | 172,743 |
| | — |
|
Total deposits | |
Total deposits | |
Subordinated debentures and notes | |
Subordinated debentures and notes | |
Subordinated debentures and notes | |
FHLB advances | |
FHLB advances | |
FHLB advances | |
Other borrowings | 253,674 |
| | 276,980 |
|
Accrued interest payable | 1,730 |
| | 1,105 |
|
Other borrowings | |
Other borrowings | |
| Other liabilities | |
| Other liabilities | |
| Other liabilities | 37,986 |
| | 77,244 |
|
Total liabilities | 4,740,652 |
| | 3,694,230 |
|
Total liabilities | |
Total liabilities | |
| Commitments and contingent liabilities (Note 17) | |
| Commitments and contingent liabilities (Note 17) | |
| Commitments and contingent liabilities (Note 17) | |
| | | |
Shareholders' equity: | | | |
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 0 shares issued and outstanding | — |
| | — |
|
Common stock, $0.01 par value; 30,000,000 shares authorized; 23,781,112 and 20,306,353 shares issued, respectively | 238 |
| | 203 |
|
Treasury stock, at cost; 691,673 and 261,718 shares, respectively | (23,268 | ) | | (6,632 | ) |
Additional paid in capital | 350,061 |
| | 213,078 |
|
| Shareholders' equity: | |
| Shareholders' equity: | |
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 75,000 shares issued and outstanding, respectively ($1,000 per share liquidation preference) | |
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 75,000 shares issued and outstanding, respectively ($1,000 per share liquidation preference) | |
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 75,000 shares issued and outstanding, respectively ($1,000 per share liquidation preference) | |
Common stock, $0.01 par value; 75,000,000 shares authorized; 37,416,028 and 37,253,292 shares issued and outstanding, respectively | |
Common stock, $0.01 par value; 75,000,000 shares authorized; 37,416,028 and 37,253,292 shares issued and outstanding, respectively | |
Common stock, $0.01 par value; 75,000,000 shares authorized; 37,416,028 and 37,253,292 shares issued and outstanding, respectively | |
| Additional paid-in capital | |
| Additional paid-in capital | |
| Additional paid-in capital | |
Retained earnings | 225,360 |
| | 182,190 |
|
Accumulated other comprehensive loss | (3,818 | ) | | (1,741 | ) |
Retained earnings | |
Retained earnings | |
Accumulated other comprehensive loss, net | |
Accumulated other comprehensive loss, net | |
Accumulated other comprehensive loss, net | |
Total shareholders' equity | |
Total shareholders' equity | |
Total shareholders' equity | 548,573 |
| | 387,098 |
|
Total liabilities and shareholders' equity | $ | 5,289,225 |
| | $ | 4,081,328 |
|
Total liabilities and shareholders' equity | |
Total liabilities and shareholders' equity | |
SeeThe accompanying notes to consolidated financial statements.
are an integral part of these Consolidated Financial Statements.
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Statements of OperationsIncome
Years ended December 31, 2017, 2016,2023, 2022, and 20152021
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
($ in thousands, except per share data) | 2023 | | 2022 | | 2021 |
Interest income: | | | | | |
Loans | $ | 687,852 | | | $ | 456,007 | | | $ | 348,615 | |
Debt securities: | | | | | |
Taxable | 39,510 | | | 28,267 | | | 18,030 | |
Nontaxable | 22,717 | | | 18,838 | | | 13,814 | |
| | | | | |
Interest-earning deposits | 13,430 | | | 10,599 | | | 1,496 | |
Dividends on equity securities | 1,410 | | | 1,371 | | | 1,275 | |
Total interest income | 764,919 | | | 515,082 | | | 383,230 | |
Interest expense: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Deposits | 183,723 | | | 30,158 | | | 10,668 | |
Subordinated debentures and notes | 9,781 | | | 9,166 | | | 10,960 | |
FHLB advances | 2,752 | | | 599 | | | 803 | |
Other borrowings | 6,071 | | | 1,256 | | | 605 | |
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 | |
Noninterest income: | | | | | |
Deposit service charges | 16,559 | | | 18,326 | | | 15,428 | |
Wealth management revenue | 10,030 | | | 10,010 | | | 10,259 | |
Card services revenue | 10,028 | | | 11,551 | | | 11,880 | |
| | | | | |
Tax credit income | 9,196 | | | 2,558 | | | 8,028 | |
| | | | | |
| | | | | |
| | | | | |
Other income | 22,912 | | | 16,717 | | | 22,148 | |
Total noninterest income | 68,725 | | | 59,162 | | | 67,743 | |
Noninterest expense: | | | | | |
Employee compensation and benefits | 164,566 | | | 147,029 | | | 124,904 | |
Deposit costs | 72,293 | | | 31,082 | | | 14,211 | |
Occupancy | 16,526 | | | 17,640 | | | 16,286 | |
Data processing | 15,196 | | | 13,513 | | | 12,242 | |
| | | | | |
Professional fees | 5,719 | | | 7,079 | | | 4,289 | |
Branch-closure expenses | — | | | — | | | 3,441 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Merger-related expenses | — | | | — | | | 22,082 | |
Other expense | 73,886 | | | 57,873 | | | 48,464 | |
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 stock dividends | 3,750 | | | 4,041 | | | — | |
Net income available to common shareholders | $ | 190,309 | | | $ | 199,002 | | | $ | 133,055 | |
| | | | | |
Earnings per common share | | | | | |
Basic | $ | 5.09 | | | $ | 5.32 | | | $ | 3.86 | |
Diluted | 5.07 | | | 5.31 | | | 3.86 | |
|
| | | | | | | | | | | |
| Years ended December 31, |
(in thousands, except per share data) | 2017 | | 2016 | | 2015 |
Interest income: | | | | | |
Interest and fees on loans | 185,452 |
| | 137,738 |
| | 122,370 |
|
Interest on debt securities: | |
| | |
| | |
Taxable | 14,551 |
| | 9,590 |
| | 8,842 |
|
Nontaxable | 1,283 |
| | 1,300 |
| | 1,215 |
|
Interest on interest-bearing deposits | 804 |
| | 370 |
| | 211 |
|
Dividends on equity securities | 449 |
| | 226 |
| | 141 |
|
Total interest income | 202,539 |
| | 149,224 |
| | 132,779 |
|
Interest expense: | | | | | |
Interest-bearing transaction accounts | 2,195 |
| | 1,370 |
| | 1,149 |
|
Money market accounts | 8,708 |
| | 4,439 |
| | 2,993 |
|
Savings accounts | 459 |
| | 262 |
| | 219 |
|
Certificates of deposit | 5,838 |
| | 4,770 |
| | 6,051 |
|
Subordinated debentures and notes | 5,095 |
| | 1,894 |
| | 1,248 |
|
Federal Home Loan Bank advances | 2,356 |
| | 555 |
| | 127 |
|
Notes payable and other borrowings | 584 |
| | 439 |
| | 582 |
|
Total interest expense | 25,235 |
| | 13,729 |
| | 12,369 |
|
Net interest income | 177,304 |
| | 135,495 |
| | 120,410 |
|
Provision for portfolio loan losses | 10,764 |
| | 5,551 |
| | 4,872 |
|
Provision reversal for purchased credit impaired loan losses | (634 | ) | | (1,946 | ) | | (4,414 | ) |
Net interest income after provision for loan losses | 167,174 |
| | 131,890 |
| | 119,952 |
|
Noninterest income: | | | | | |
Service charges on deposit accounts | 11,043 |
| | 8,615 |
| | 7,923 |
|
Wealth management revenue | 8,102 |
| | 6,729 |
| | 7,007 |
|
Card services revenue | 5,433 |
| | 3,130 |
| | 2,496 |
|
Gain on state tax credits, net | 2,581 |
| | 2,647 |
| | 2,720 |
|
Gain on sale of other real estate | 93 |
| | 1,837 |
| | 142 |
|
Gain on sale of investment securities | 22 |
| | 86 |
| | 23 |
|
Change in FDIC loss share receivable | — |
| | — |
| | (5,030 | ) |
Miscellaneous income | 7,120 |
| | 6,015 |
| | 5,394 |
|
Total noninterest income | 34,394 |
| | 29,059 |
| | 20,675 |
|
Noninterest expense: | | | | | |
Employee compensation and benefits | 61,388 |
| | 49,846 |
| | 46,095 |
|
Occupancy | 9,057 |
| | 6,889 |
| | 6,573 |
|
Data processing | 6,272 |
| | 4,723 |
| | 4,339 |
|
Professional fees | 3,813 |
| | 3,825 |
| | 3,465 |
|
FDIC and other insurance | 3,194 |
| | 3,018 |
| | 2,790 |
|
Loan legal and other real estate expense | 2,220 |
| | 1,635 |
| | 1,812 |
|
FDIC loss share termination | — |
| | — |
| | 2,436 |
|
FDIC clawback | — |
| | — |
| | 760 |
|
Merger related expenses | 6,462 |
| | 1,386 |
| | — |
|
Other | 22,645 |
| | 14,788 |
| | 13,956 |
|
Total noninterest expense | 115,051 |
| | 86,110 |
| | 82,226 |
|
| | | | | |
Income before income tax expense | 86,517 |
| | 74,839 |
| | 58,401 |
|
Income tax expense | 38,327 |
| | 26,002 |
| | 19,951 |
|
Net income | $ | 48,190 |
| | $ | 48,837 |
| | $ | 38,450 |
|
| | | | | |
Earnings per common share | | | | | |
Basic | $ | 2.10 |
| | $ | 2.44 |
| | $ | 1.92 |
|
Diluted | 2.07 |
| | 2.41 |
| | 1.89 |
|
SeeThe accompanying notes to consolidated financial statements.
are an integral part of these Consolidated Financial Statements.
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2017, 2016,2023, 2022, and 20152021
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
($ in thousands) | 2023 | | 2022 | | 2021 |
Net income | $ | 194,059 | | | $ | 203,043 | | | $ | 133,055 | |
Other comprehensive income (loss), net of tax: | | | | | |
Change in unrealized gain (loss) on available-for-sale securities | 32,155 | | | (149,623) | | | (17,049) | |
Reclassification of gain on the sale of available-for-sale securities | (450) | | | — | | | — | |
Reclassification of gain on held-to-maturity securities | (2,605) | | | (2,696) | | | (3,624) | |
Change in unrealized gain (loss) on cash flow hedges | (491) | | | 2,798 | | | 1,161 | |
Reclassification of loss on cash flow hedges | 708 | | | 412 | | | 1,169 | |
| | | | | |
| | | | | |
| | | | | |
Total other comprehensive income (loss), net | 29,317 | | | (149,109) | | | (18,343) | |
Total comprehensive income | $ | 223,376 | | | $ | 53,934 | | | $ | 114,712 | |
|
| | | | | | | | | | | |
| Years ended December 31, |
(in thousands) | 2017 | | 2016 | | 2015 |
Net income | $ | 48,190 |
| | $ | 48,837 |
| | $ | 38,450 |
|
Other comprehensive loss, net of tax: | | | | | |
Unrealized losses on investment securities arising during the period, net of income tax benefit of $1,265, $1,168, and $899, respectively | (2,064 | ) | | (1,906 | ) | | (1,449 | ) |
Less: Reclassification adjustment for realized gains on sale of securities available for sale included in net income, net of income tax expense of $9, $33, and $9, respectively | (13 | ) | | (53 | ) | | (14 | ) |
Total other comprehensive loss | (2,077 | ) | | (1,959 | ) | | (1,463 | ) |
Total comprehensive income | $ | 46,113 |
| | $ | 46,878 |
| | $ | 36,987 |
|
SeeThe accompanying notes to consolidated financial statements.are an integral part of these Consolidated Financial Statements.
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
Years ended December 31, 2017, 2016,2023, 2022, and 20152021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred | | Common | | | | | | | | | | |
(in thousands, except per share data) | | Shares | | Amount | | Shares | | Amount | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders' Equity |
Balance December 31, 2020 | | — | | | $ | — | | | 31,210 | | | $ | 332 | | | $ | (73,528) | | | $ | 697,839 | | | $ | 417,212 | | | $ | 37,120 | | | $ | 1,078,975 | |
Net income | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 133,055 | | | $ | — | | | $ | 133,055 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (18,343) | | | (18,343) | |
Common stock dividends ($0.75 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (26,153) | | | — | | | (26,153) | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Repurchase of common stock | | — | | | — | | | (1,300) | | | (12) | | | — | | | (30,518) | | | (30,059) | | | — | | | (60,589) | |
Issuance under equity compensation plans, net | | — | | | — | | | 132 | | | — | | | — | | | 2,549 | | | (663) | | | — | | | 1,886 | |
| | | | | | | | | | | | | | | | | | |
Shares issued in connection with acquisition of First Choice Bancorp, net (gross issuance 7,808 shares) | | — | | | — | | | 7,777 | | | 78 | | | — | | | 342,912 | | | (710) | | | — | | | 342,280 | |
Preferred stock issuance, net of $3,012 issuance cost | | 75 | | | 71,988 | | | — | | | — | | | — | | | — | | | — | | | — | | | 71,988 | |
Share-based compensation | | — | | | — | | | — | | | — | | | — | | | 6,017 | | | — | | | — | | | 6,017 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Balance December 31, 2021 | | 75 | | | $ | 71,988 | | | 37,819 | | | $ | 398 | | | $ | (73,528) | | | $ | 1,018,799 | | | $ | 492,682 | | | $ | 18,777 | | | $ | 1,529,116 | |
Net income | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 203,043 | | | $ | — | | | $ | 203,043 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (149,109) | | | (149,109) | |
Common stock dividends ($0.90 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (33,602) | | | — | | | (33,602) | |
Preferred stock dividends ($53.89 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (4,041) | | | — | | | (4,041) | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Repurchase of common stock | | — | | | — | | | (700) | | | (7) | | | — | | | (18,867) | | | (14,049) | | | — | | | (32,923) | |
Issuance under equity compensation plans, net | | — | | | — | | | 134 | | | 2 | | | — | | | 2,460 | | | (689) | | | — | | | 1,773 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Share-based compensation | | — | | | — | | | — | | | — | | | — | | | 8,006 | | | — | | | — | | | 8,006 | |
Retirement of treasury stock (1,980 shares) | | — | | | — | | | — | | | (20) | | | 73,528 | | | (27,738) | | | (45,770) | | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Balance December 31, 2022 | | 75 | | | $ | 71,988 | | | 37,253 | | | $ | 373 | | | $ | — | | | $ | 982,660 | | | $ | 597,574 | | | $ | (130,332) | | | $ | 1,522,263 | |
Net income | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 194,059 | | | $ | — | | | $ | 194,059 | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 29,317 | | | 29,317 | |
Common stock dividends ($1.00 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (37,368) | | | — | | | (37,368) | |
Preferred stock dividends ($50.00 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (3,750) | | | — | | | (3,750) | |
| | | | | | | | | | | | | | | | | | |
Issuance under equity compensation plans, net | | — | | | — | | | 163 | | | 1 | | | — | | | 2,402 | | | (1,002) | | | — | | | 1,401 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Share-based compensation | | — | | | — | | | — | | | — | | | — | | | 10,146 | | | — | | | — | | | 10,146 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Balance December 31, 2023 | | 75 | | | $ | 71,988 | | | 37,416 | | | $ | 374 | | | $ | — | | | $ | 995,208 | | | $ | 749,513 | | | $ | (101,015) | | | $ | 1,716,068 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands, except per share data) | Common Stock | | Treasury Stock | | Additional paid in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Total shareholders' equity |
Balance December 31, 2014 | $ | 199 |
| | $ | (1,743 | ) | | $ | 207,731 |
| | $ | 108,373 |
| | $ | 1,681 |
| | $ | 316,241 |
|
Net income | — |
| | — |
| | — |
| | 38,450 |
| | — |
| | 38,450 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (1,463 | ) | | (1,463 | ) |
Cash dividends paid on common shares, $0.2625 per share | — |
| | — |
| | — |
| | (5,259 | ) | | — |
| | (5,259 | ) |
Issuance under equity compensation plans, 179,600 shares, net | 2 |
| | — |
| | (1,192 | ) | | — |
| | — |
| | (1,190 | ) |
Share-based compensation | — |
| | — |
| | 3,601 |
| | — |
| | — |
| | 3,601 |
|
Excess tax benefit related to equity compensation plans | — |
| | — |
| | 449 |
| | — |
| | — |
| | 449 |
|
Balance December 31, 2015 | $ | 201 |
|
| $ | (1,743 | ) |
| $ | 210,589 |
|
| $ | 141,564 |
|
| $ | 218 |
| | $ | 350,829 |
|
Net income | — |
| | — |
| | — |
| | 48,837 |
| | — |
| | 48,837 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (1,959 | ) | | (1,959 | ) |
Cash dividends paid on common shares, $0.41 per share | — |
| | — |
| | — |
| | (8,211 | ) | | — |
| | (8,211 | ) |
Repurchase of common shares | — |
| | (4,889 | ) | | — |
| | — |
| | — |
| | (4,889 | ) |
Issuance under equity compensation plans, 213,234 shares, net | 2 |
| | — |
| | (2,205 | ) | | — |
| | — |
| | (2,203 | ) |
Share-based compensation | — |
| | — |
| | 3,367 |
| | — |
| | — |
| | 3,367 |
|
Excess tax benefit related to equity compensation plans | — |
| | — |
| | 1,327 |
| | — |
| | — |
| | 1,327 |
|
Balance December 31, 2016 | $ | 203 |
|
| $ | (6,632 | ) |
| $ | 213,078 |
|
| $ | 182,190 |
|
| $ | (1,741 | ) | | $ | 387,098 |
|
Net income | — |
| | — |
| | — |
| | 48,190 |
| | — |
| | 48,190 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (2,077 | ) | | (2,077 | ) |
Cash dividends paid on common shares, $0.44 per share | — |
| | — |
| | — |
| | (10,249 | ) | | — |
| | (10,249 | ) |
Repurchase of common shares | — |
| | (16,636 | ) | | — |
| | — |
| | — |
| | (16,636 | ) |
Issuance under equity compensation plans, 174,895 shares, net | 2 |
| | — |
| | (2,911 | ) | | — |
| | — |
| | (2,909 | ) |
Shares issued in connection with acquisition of Jefferson County Bancshares, Inc., 3,299,865 shares, net | 33 |
| | — |
| | 141,696 |
| | — |
| | — |
| | 141,729 |
|
Share-based compensation | — |
| | — |
| | 3,427 |
| | — |
| | — |
| | 3,427 |
|
Reclassification for the adoption of share-based payment guidance | — |
| | — |
| | (5,229 | ) | | 5,229 |
| | — |
| | — |
|
Balance December 31, 2017 | $ | 238 |
|
| $ | (23,268 | ) |
| $ | 350,061 |
|
| $ | 225,360 |
|
| $ | (3,818 | ) | | $ | 548,573 |
|
SeeThe accompanying notes to consolidated financial statements.
are an integral part of these Consolidated Financial Statements.
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2017, 2016,2023, 2022, and 20152021
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
($ in thousands) | 2023 | | 2022 | | 2021 |
Cash flows from operating activities: | | | | | |
Net income | $ | 194,059 | | | $ | 203,043 | | | $ | 133,055 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation | 5,090 | | | 5,573 | | | 6,147 | |
Provision (benefit) for credit losses | 36,605 | | | (611) | | | 13,385 | |
Deferred income taxes | 2,380 | | | 2,194 | | | 545 | |
Net amortization of debt securities | 3,998 | | | 5,639 | | | 7,343 | |
Net amortization (accretion) on loans | 3,775 | | | 266 | | | (1,140) | |
Amortization of intangible assets | 4,601 | | | 5,367 | | | 5,690 | |
Amortization of servicing assets | 1,648 | | | 3,066 | | | 2,311 | |
Mortgage loans originated-for-sale | (19,610) | | | (67,470) | | | (159,670) | |
Proceeds from mortgage loans sold | 20,585 | | | 73,014 | | | 163,864 | |
Loss (gain) on: | | | | | |
Investment securities | (601) | | | — | | | — | |
Loans sold | (2,015) | | | — | | | — | |
Other real estate | (187) | | | 93 | | | (931) | |
Fixed assets | (46) | | | (54) | | | — | |
State tax credits | (904) | | | (1,506) | | | (2,220) | |
Asset impairment | — | | | — | | | 3,441 | |
| | | | | |
Share-based compensation | 10,146 | | | 8,006 | | | 6,017 | |
| | | | | |
| | | | | |
| | | | | |
Changes in other assets and liabilities, net | 8,714 | | | (19,980) | | | (17,262) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Net cash provided by operating activities | 268,238 | | | 216,640 | | | 160,575 | |
Cash flows from investing activities: | | | | | |
| | | | | |
Proceeds from acquisitions, net | — | | | — | | | 212,642 | |
Net (increase) decrease in loans | (1,238,276) | | | (722,677) | | | 138,455 | |
Proceeds received from: | | | | | |
| | | | | |
| | | | | |
Sale of debt securities, available-for-sale | 40,393 | | | — | | | 27,135 | |
Paydown or maturity of debt securities, available-for-sale | 233,105 | | | 238,909 | | | 306,360 | |
Paydown or maturity of debt securities, held-to-maturity | 9,135 | | | 11,913 | | | 49,947 | |
Redemption of other investments | 92,879 | | | 12,989 | | | 18,159 | |
Sale of loans | 44,975 | | | — | | | — | |
Sale of state tax credits held-for-sale | 4,592 | | | 20,645 | | | 18,507 | |
Sale of other real estate | 457 | | | 2,517 | | | 5,915 | |
Sale of fixed assets | 357 | | | 1,699 | | | — | |
Settlement of bank-owned life insurance policies | 1,155 | | | 534 | | | — | |
Payments for the purchase of: | | | | | |
Available-for-sale debt securities | (318,797) | | | (728,247) | | | (779,481) | |
Held-to-maturity debt securities | (56,365) | | | (182,004) | | | — | |
Other investments | (114,746) | | | (19,286) | | | (9,564) | |
| | | | | |
State tax credits held-for-sale | (90) | | | (18,846) | | | (8,689) | |
Fixed assets | (6,556) | | | (1,930) | | | (2,500) | |
Net cash used in investing activities | (1,307,782) | | | (1,383,784) | | | (23,114) | |
|
| | | | | | | | | | | |
| Years ended December 31, |
(in thousands) | 2017 | | 2016 | | 2015 |
Cash flows from operating activities: | | | | | |
Net income | $ | 48,190 |
| | $ | 48,837 |
| | $ | 38,450 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation | 3,281 |
| | 2,428 |
| | 2,022 |
|
Provision for loan losses | 10,130 |
| | 3,605 |
| | 458 |
|
Deferred income taxes | 21,105 |
| | 7,263 |
| | (5,763 | ) |
Net amortization of debt securities | 2,415 |
| | 3,225 |
| | 3,256 |
|
Amortization of intangible assets | 2,609 |
| | 924 |
| | 1,089 |
|
Gain on sale of investment securities | (22 | ) | | (86 | ) | | (23 | ) |
Mortgage loans originated for sale | (138,949 | ) | | (157,129 | ) | | (135,721 | ) |
Proceeds from mortgage loans sold | 145,836 |
| | 154,993 |
| | 133,552 |
|
Gain on sale of other real estate | (93 | ) | | (1,837 | ) | | (142 | ) |
Gain on state tax credits, net | (2,581 | ) | | (2,647 | ) | | (2,720 | ) |
Excess tax benefit of share-based compensation | — |
| | (1,327 | ) | | (449 | ) |
Share-based compensation | 3,427 |
| | 3,367 |
| | 3,601 |
|
Net accretion of loan discount and indemnification asset | (5,609 | ) | | (11,057 | ) | | (7,805 | ) |
Changes in: | | | | | |
Accrued interest receivable | (158 | ) | | (2,718 | ) | | (443 | ) |
Accrued interest payable | (27 | ) | | 476 |
| | (214 | ) |
Other assets | 506 |
| | (7,739 | ) | | 10,457 |
|
Other liabilities | (44,269 | ) | | 41,943 |
| | 7,582 |
|
Net cash provided by operating activities | 45,791 |
| | 82,521 |
| | 47,187 |
|
Cash flows from investing activities: | | | | | |
Proceeds from JCB acquisition, net of cash purchase price | 4,456 |
| | — |
| | — |
|
Net increase in loans | (270,090 | ) | | (328,023 | ) | | (290,326 | ) |
Net cash proceeds received from FDIC loss share receivable | — |
| | — |
| | 2,275 |
|
Proceeds from the termination of FDIC loss share agreements | — |
| | — |
| | 1,253 |
|
Proceeds from the sale of debt securities, available for sale | 144,076 |
| | 2,493 |
| | 41,069 |
|
Proceeds from the paydown or maturity of debt securities, available for sale | 143,949 |
| | 63,502 |
| | 53,733 |
|
Proceeds from the paydown or maturity of debt securities, held to maturity | 6,510 |
| | 3,655 |
| | 2,284 |
|
Proceeds from the redemption of other investments | 43,207 |
| | 52,279 |
| | 39,929 |
|
Proceeds from the sale of state tax credits held for sale | 15,314 |
| | 18,757 |
| | 16,337 |
|
Proceeds from the sale of other real estate | 2,779 |
| | 11,346 |
| | 7,378 |
|
Payments for the purchase of: | | | | | |
Available for sale debt securities | (325,393 | ) | | (81,195 | ) | | (152,044 | ) |
Held to maturity debt securities | — |
| | (40,529 | ) | | — |
|
Other investments | (56,412 | ) | | (49,645 | ) | | (36,046 | ) |
State tax credits held for sale | (18,294 | ) | | (8,201 | ) | | (20,981 | ) |
Fixed assets | (2,546 | ) | | (2,496 | ) | | (2,111 | ) |
Net cash used in investing activities | (312,444 | ) | | (358,057 | ) | | (337,250 | ) |
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
($ in thousands) | 2023 | | 2022 | | 2021 |
Cash flows from financing activities: | | | | | |
Net (decrease) increase in noninterest-bearing deposit accounts | $ | (683,989) | | | $ | 64,296 | | | $ | 869,203 | |
Net (decrease) increase in interest-bearing deposit accounts | 2,031,210 | | | (578,945) | | | 648,778 | |
Payments for the redemption of subordinated notes | — | | | — | | | (50,000) | |
Net increase (decrease) in short term FHLB advances, net | (100,000) | | | 100,000 | | | (160,000) | |
| | | | | |
Repayments of long-term FHLB advances | — | | | (50,000) | | | — | |
| | | | | |
| | | | | |
Repayments of notes payable | (5,714) | | | (5,714) | | | (7,143) | |
| | | | | |
Net (decrease) increase in other borrowings | (20,576) | | | (24,030) | | | 59,925 | |
Dividends paid on common stock | (37,368) | | | (33,602) | | | (26,153) | |
| | | | | |
| | | | | |
Repurchase of common stock | — | | | (32,923) | | | (60,589) | |
Dividends paid on preferred stock | (3,750) | | | (4,041) | | | — | |
Proceeds from issuance of preferred stock, net | — | | | — | | | 71,988 | |
| | | | | |
Other, net | 1,401 | | | 1,773 | | | 516 | |
Net cash provided by (used in) financing activities | 1,181,214 | | | (563,186) | | | 1,346,525 | |
Net (decrease) increase in cash and cash equivalents | 141,670 | | | (1,730,330) | | | 1,483,986 | |
Cash and cash equivalents, beginning of period | 291,359 | | | 2,021,689 | | | 537,703 | |
Cash and cash equivalents, end of period | $ | 433,029 | | | $ | 291,359 | | | $ | 2,021,689 | |
Supplemental disclosures of cash flow information: | | | | | |
Cash paid during the period for: | | | | | |
Interest | $ | 195,392 | | | $ | 40,736 | | | $ | 23,957 | |
Income taxes | 50,117 | | | 46,009 | | | 56,845 | |
Noncash investing and financing transactions: | | | | | |
Transfer to other real estate and repossessed assets owned in settlement of loans | $ | 6,933 | | | $ | — | | | $ | 3,227 | |
Sales of other real estate financed | — | | | — | | | 228 | |
| | | | | |
Transfer of securities from available-for-sale to held-to-maturity | — | | | 116,927 | | | — | |
Transfer to loans from fixed assets for building sale and leaseback | 1,460 | | | — | | | — | |
Right-of-use assets obtained in exchange for lease obligations | 15,640 | | | 9,512 | | | 5,658 | |
Leasehold improvement allowance in other assets | 2,483 | | | — | | | — | |
Common shares issued in connection with acquisitions | — | | | — | | | 343,650 | |
|
| | | | | | | | | | | |
| Years ended December 31, |
(in thousands) | 2017 | | 2016 | | 2015 |
Cash flows from financing activities: | | | | | |
Net increase in noninterest-bearing deposit accounts | 96,681 |
| | 149,296 |
| | 74,530 |
|
Net increase in interest-bearing deposit accounts | 61,204 |
| | 299,474 |
| | 218,551 |
|
Proceeds from the issuance of subordinated notes | — |
| | 48,733 |
| | — |
|
Proceeds from Federal Home Loan Bank advances | 1,716,500 |
| | 1,357,000 |
| | 945,900 |
|
Repayments of Federal Home Loan Bank advances | (1,544,000 | ) | | (1,467,000 | ) | | (979,900 | ) |
Proceeds from notes payable | 10,000 |
| | — |
| | — |
|
Repayments of notes payable | (10,000 | ) | | — |
| | (5,700 | ) |
Net increase (decrease) in other borrowings | (79,417 | ) | | 6,654 |
| | 36,143 |
|
Cash dividends paid on common stock | (10,249 | ) | | (8,211 | ) | | (5,259 | ) |
Excess tax benefit of share-based compensation | — |
| | 1,327 |
| | 449 |
|
Repurchase of common stock | (16,636 | ) | | (4,889 | ) | | — |
|
Payments for the issuance of equity instruments, net | (2,909 | ) | | (2,203 | ) | | (1,190 | ) |
Net cash provided by financing activities | 221,174 |
| | 380,181 |
| | 283,524 |
|
Net increase (decrease) in cash and cash equivalents | (45,479 | ) | | 104,645 |
| | (6,539 | ) |
Cash and cash equivalents, beginning of period | 198,802 |
| | 94,157 |
| | 100,696 |
|
Cash and cash equivalents, end of period | $ | 153,323 |
| | $ | 198,802 |
| | $ | 94,157 |
|
Supplemental disclosures of cash flow information: | | | | | |
Cash paid during the period for: | | | | | |
Interest | $ | 24,610 |
| | $ | 13,253 |
| | $ | 12,583 |
|
Income taxes | 12,449 |
| | 26,039 |
| | 15,763 |
|
Noncash transactions: | | | | | |
Transfer to other real estate owned in settlement of loans | $ | 564 |
| | $ | 2,743 |
| | $ | 8,248 |
|
Sales of other real estate financed | — |
| | 140 |
| | — |
|
Common shares issued in connection with JCB acquisition | 141,729 |
| | — |
| | — |
|
SeeThe accompanying notes to consolidated financial statements.
are an integral part of these Consolidated Financial Statements.
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used by the Company in the preparation of the consolidated financial statements are summarized below.
Business and Consolidation
Enterprise Financial Services Corp and subsidiaries (the “Company” or “Enterprise”) is a financial holding company that provides a full range of banking and wealth management services to individuals and corporate customers primarily located in the St. Louis,Arizona, California, Florida, Kansas, City,Missouri, Nevada, and Phoenix metropolitan marketsNew Mexico through its banking subsidiary, Enterprise Bank & Trust (the “Bank”). The consolidated financial statements include the accounts of the Company, and its subsidiaries, all of which are wholly owned.Trust. All intercompany accounts and transactions have been eliminated.
The Company is subject to competition from other financial and nonfinancial institutions providing financial services in the markets served by the Company's subsidiary. Additionally, the Company and its banking subsidiary are subject to the regulations of certainvarious federal and state agencies and undergo periodic examinations by those regulatory agencies. The Company has one operating segment.
Use of Estimates
The consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).GAAP. In preparing the consolidated financial statements, management is required to make estimates and assumptions, which significantly affect the reported amounts in the consolidated financial statements. Such estimates include the valuation of loans, goodwill, intangible assets, indemnification assets, and other long-lived assets, along with assumptions used in the calculation of income taxes, among others. These estimates and assumptions are based on management'smanagement’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. Decreased real estate values, volatile credit markets, and unemployment have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
Cash Flow Information
For purposes of reporting cash flows, the Company considers cash and due from banks, interest-bearing deposits and federal funds sold that mature within 90 days of the balance sheet date to be cash and cash equivalents. AtCash balances include deposits in transit and drafts in the process of collection. The Federal Reserve is authorized to establish reserve requirements on depository institutions. In 2020, the Federal Reserve reduced the reserve requirement to zero percent. As such, cash balances at the Federal Reserve at December 31, 20172023 and 2016, approximately $17.5 million,2022 were not subject to a reserve requirement.
Recent Accounting Pronouncements
FASB ASU 2021-01, Reference Rate Reform (Topic 848): Scope (ASU 2021-01). ASU 2021-01 was issued in January 2021 and $18.2 million, respectively,provides optional expedients and exceptions in ASC 848 to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendment only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of cashreference rate reform. The expedients and due from banks represented required reserves on deposits maintainedexceptions provided by the Companyamendments will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this update were effective immediately upon issuance and did not have a material effect on the consolidated financial statements. In December 2022, ASU 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset date of Topic 848 was issued, which extends the sunset date from December 31, 2022 to December 31, 2024.
FASB ASU 2022-02, Financial Instruments–Credit Losses (Topic 326); Troubled Debt Restructurings and Vintage Disclosures.ASU 2022-02 was issued in March 2022 and eliminates the accounting guidance on troubled
debt restructurings for creditors in ASC 310-40 and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. The amendments in this update will be effective for fiscal years beginning after December 15, 2022 for entities that have adopted the amendments in ASU 2016-13, Financial Instruments–Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. The adoption of ASU 2022-02 did not have a material effect on the consolidated financial statements.
FASB ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.ASU 2022-03 was issued in June 2022 to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) amend a related illustrative example, and (3) introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Federal Reserve Bank requirements.Topic 820. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company has evaluated the accounting and disclosure requirements of ASU 2022-03 and does not expect them to have a material effect on the consolidated financial statements.
FASB ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. ASU 2023-02 was issued in March 2023 to allow reporting entities to consistently account for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits. If certain conditions are met, a reporting entity may elect to account for its tax equity investments by using the proportional amortization method regardless of the program from which it receives income tax credits, instead of only low-income-housing tax credit (“LIHTC”) structures. This amendment also eliminates certain LIHTC-specific guidance aligning the accounting with other equity investments in tax credit structures. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is evaluating the accounting and disclosure requirements of ASU 2023-02 and does not expect them to have a material effect on the consolidated financial statements.
FASB ASU 2023-07, Improvements to Reportable Segment Disclosures. ASU 2023-07 was issued in November 2023 to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment disclosures. The amendments in this update require annual and interim disclosures on significant segment expenses that are regularly provided to the chief operating decision maker and require annual and interim disclosures on “other segment items” that comprise the difference between segment revenue less segment expense compared to the reported measure of segment profit or loss. In addition, the amendments will require all annual disclosures that are currently required to be reported on an interim basis and requires disclosure of the title and position of the chief operating decision maker and how that position uses the information to assess segment performance and the allocation of resources. ASU 2023-07 also requires entities that have a single reportable segment, such as the Company, to provide all disclosures required in this update and the existing segment disclosures in Topic 280. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the accounting and disclosure requirements of ASU 2023-07 and does not expect them to have a material effect on the consolidated financial statements.
FASB ASU 2023-09, Income Tax Disclosures. ASU 2023-09 was issued in December 2023 to require annual disclosures on specific categories in the income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. Annual disclosures are required on income taxes paid, including the amounts paid for federal, state and foreign taxes and the amount paid in individual jurisdictions if the amount is equal to or greater than 5% of total income taxes paid (net of refunds received). Additional annual disclosures are required on pre-tax income from continuing operations and income tax expense, disaggregated by domestic and foreign amounts. The amendments in this update are effective for fiscal years beginning after December 15, 2024. The Company is evaluating the accounting and disclosure requirements of ASU 2023-09 and does not expect them to have a material effect on the consolidated financial statements.
Investments
The Company has classified all investments in debt securities as available for saleeither available-for-sale or held to maturity.held-to-maturity.
Securities classified as available for saleavailable-for-sale are carried at fair value. Unrealized holding gains and losses for available for saleavailable-for-sale securities are excluded from earnings and reported as a net amount inas a separate component of shareholders'shareholders’ equity until realized. All previous fair value adjustments included in the separate component of shareholders'shareholders’ equity are reversed upon sale.
Securities classified as held to maturityheld-to-maturity are carried at historicalamortized cost and adjusted for amortization of premiums and accretion of discounts.
An ACL on held-to-maturity securities is deducted from the amortized cost basis of the securities to reflect the expected amount to be collected. When it is determined a security will not be collected, the balance is written-off through the allowance. In evaluating the need for an ACL, securities with similar risk characteristics are grouped and an estimate of expected cash flows is determined using loss experience, adjusted for current and reasonable and supportable forecasts of economic conditions.
DeclinesFor available-for-sale securities in a loss position, the Company evaluates whether the decline in fair value below amortized cost resulted from a credit loss or other factors. Losses attributed to credit are recognized through an ACL on available-for-sale securities, limited to the amount that the fair value of securities below their cost deemed to be other-than-temporary are reflected in operations as realized losses. In estimating other-than-temporary impairment losses, management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis. This analysis requires management to consider various factors, which include (1) the present value of the cash flows expected to be collected compared tois less than the amortized cost ofbasis. In assessing credit loss, the security,Company considers, among other things, (1) the extent to which fair value is less than the amortized cost basis, (2) duration and magnitude of the decline in value, (3) the financial condition of the issuer or issuers, (4) structure of the security, and (5) the intentadverse conditions specific to sell the security or whether it's more likely than notindustry, (3) historical payment patterns, (4) the likelihood of future payments, and (5) changes to the rating of a security by a rating agency.
The Company would be requiredhas elected to sellexclude accrued interest receivable balances from the security before its anticipated recoveryestimate of the ACL as these amounts are timely written off as a credit loss expense. Adjustments to the ACL on held-to-maturity and available-for-sale securities are recognized as a component of the provision for credit losses in market value.the Consolidated Statements of Income.
Premiums and discounts are amortized or accreted over the expected lives of the respective securities as an adjustment to yield using the interest method. Dividend and interest income is recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
Loans Held for SaleHeld-for-Sale and Servicing Assets
The Company provides long-term financing of one-to-four-family1-4 family residential real estate by originating fixed and variable rate loans. Long-term fixed and variable rate loans are usually sold into the secondary market with limited recourse. Upon receipt of an application for a real estate loan, the Company determines whether the loan will be sold into the secondary market or retained in the Company'sCompany’s loan portfolio. The interest rates on the loans sold are locked with the buyer and the Company bears no interest rate risk related to these loans. Mortgage loans held for saleheld-for-sale are carried at the lower of cost or fair value, which is determined on a specific identification method. The Company does not retain servicing on anythese loans.
The Company also originates SBA 7(a) loans that generally provide for a guarantee of 75% of the loan, up to a maximum amount. The guaranteed portion of the loan can be sold nor didin an active secondary market. For the years ended December 31, 2023 and 2022, all SBA7(a) loans are considered held-for-investment; however, as the Company have any capitalized mortgagemakes the determination to sell the loans, they will be moved into the held-for-sale category. Sales of SBA guaranteed loans are executed on a servicing retained basis, and the Company retains the rights atand obligations to service the loans. At December 31, 2017 or 2016. 2023, the Company was servicing SBA loans that had been sold and has recorded a related servicing asset of $2.9 million. The servicing asset is accounted for under the amortization method and is evaluated for impairment. Amortization of the servicing asset is recorded as a reduction to servicing income.
Gains on the sale of held-for-sale loans held for sale are reported net of direct origination fees and costs in the Company's consolidated statementsCompany’s Consolidated Statements of operations.Income.
Portfolio Loans
Loans are reported at the principal balance outstanding, net of unearned fees, costs, and premiums or discounts on acquired loans. Loan origination fees, direct origination costs, and premiums or discounts resulting from acquired loans are deferred and recognized over the lives of the related loans as a yield adjustment using the interest method.
Interest income on loans is accrued to income based on the principal amountbalance outstanding. The recognition of interest income is discontinued when a loan becomes 90 days past due or a significant deterioration in the borrower'sborrower’s credit has occurred which, in management'smanagement’s judgment, negatively impacts the collectibility of the loan. Unpaid interest on such loans is reversed at the time the loan becomes uncollectible and subsequent interest payments received are generally applied to principal if any doubt exists as to the collectibility of such principal; otherwise, such receipts are recorded as interest income.principal. Loans that have not been restructured are returned to accrual status when management believes full collectibility of principal and interest is expected. Non-accrual loans that have been restructured will remain in a non-accrual status until the borrower has made at least six months of consecutive contractual payments.
Purchased Credit Impaired ("PCI")The Company has elected to present the accrued interest receivable balance separate from amortized cost basis, to exclude accrued interest receivable balances from the tabular disclosures, and not to estimate an ACL on accrued interest receivable as these amounts are timely written off as a credit loss expense.
Accrued interest receivable totaled $66.7 million and $48.1 million at December 31, 2023 and 2022, respectively, and were reported in Other Assets on the consolidated balance sheets.
Acquired Loans
PCIAcquired loans were acquired in a business combination or transaction, thatare separated into two categories based on the credit risk characteristics of the underlying borrowers as either PCD, for loans which have evidence ofexperienced more than insignificant credit deterioration of credit quality since origination, and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable. PCIor loans were initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance.credit deterioration (non-PCD). At the date of acquisition, an ACL on PCD loans is determined and added to the amortized cost basis of the individual loans. The difference between the undiscounted cash flows expected at acquisitioninitial amortized cost basis and the investment inpar value of the loans,loan is a noncredit discount or the “accretable yield,”premium, which is recognized asamortized into interest income on a level-yield method over the life of the loans. Contractually required paymentsloan. The ACL on PCD loans is recorded in the acquisition accounting and no provision for interest and principal that exceedcredit losses is recognized at the undiscounted cash flows expected at acquisition or the “nonaccretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. The Company aggregates individual loans with common risk characteristics into pools of loans. Increases in expected cash flows subsequentdate. Subsequent changes to the initial investmentACL are recognized prospectivelyrecorded through adjustment ofprovision expense. For non-PCD loans, an ACL is established immediately after the yield on the loans over their remaining lives. Decreases in expected cash flows dueacquisition through a charge to an inability to collect contractual cash flows are recognized as impairment through the provision for loan losses account. Any allowancecredit losses.
The ACL for loan lossboth PCD and non-PCD is determined by pooling loans with similar risk characteristics and using the approach described below under “Allowance for Credit Losses on these pools reflect only losses incurred after the acquisition. Disposals of loans, including sales of loans, paydowns, payments in full or foreclosures result in the removal or reduction of the loan from the loan pool.Loans.”
PCI loans are generally considered accruing and performing, as the loans accrete income over the estimated life of the loan, in circumstances where cash flows are reasonably estimable by management. Accordingly, PCI loans that could be contractually past due could be considered to be accruing and performing. If the timing and amount of future cash flows is not reasonably estimable or is less than the carrying value, the loans may be classified as nonaccrual loans and the purchase price discount on those loans is not recorded as interest income until the timing and amount of future cash flows can be reasonably estimable.
ImpairedNon-accrual Loans
Loans are considered “impaired” when it becomes probable that the Company will be unable to collect all amounts due according to the loan's contractual terms. Non-accrual loans, loans past due greater than 90 days and still accruing, unless adequately secured and in the process of collection, and restructured loans qualify as “impaired loans.” Restructured loans involve the granting of a concession to a borrower experiencing financial difficulty involving the modification of terms of the loan, such as changes in payment schedule or interest rate.
When measuring impairment, the expected future cash flows of an impaired loan are discounted at the loan's effective interest rate at origination. Alternatively, impairment can be measured by reference to an observable market price, if one exists, or the fair value of the collateral for a collateral-dependent loan. Interest income on impaired loans is not accrued but is recorded when cash is received and only if principal is considered to be fully collectible. Loans and leases, which are deemed uncollectible, are charged off to the allowance for loan losses, while recoveries of amounts previously charged off are credited to the allowance for loan losses.
Impaired loans exclude PCI loans, as described above. Although, if the timing and amount of future cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and the purchase price discount on those loans is not recorded as interest income until the timing and amount of future cash flows can be reasonably estimated. See Note 5 – Loans for more information on these loans.
Loans are generally placed on non-accrual status when contractually past due 90 days or more as to interest or principal payments. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management'smanagement’s practice to place such loans on non-accrual status immediately, rather than delaying such action until the loans become 90 days past due. Previously accrued and uncollected interest on such loans is reversed. Income is recorded only to the extent that a determination has been made that the principal balance of the loan is collectablecollectible and the interest payments are subsequently received in cash, or for a restructured loan, the borrower has made six consecutive contractual payments. If collectabilitycollectibility of the principal is in doubt, payments received are applied to loan principal.
Loans past due 90 days or more but still accruing interest are also generally included in nonperforming loans. Loans past due 90 days or more but still accruing are classified as such where the underlying loans are both well secured (the collateral value is sufficient to covercovers principal and accrued interest) and are in the process of collection. At
Allowance for Credit Losses on Loans
The ACL on loans is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected. Loans are charged-off against the allowance when management deems the loan uncollectible.
Management estimates the allowance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.
The ACL on loans is measured on a collective basis when similar risk characteristics exist. The Company has identified the following portfolio segments:
C&I – C&I loans consist of loans to small and medium-sized businesses in a wide variety of industries. These loans are generally collateralized by inventory, accounts receivable, equipment, real estate and other commercial assets, and may be supported by other credit enhancements such as personal guarantees. Risk arises primarily due to a difference between expected and actual cash flows of the borrower. However, the recoverability of these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans. The fair value of the collateral securing these loans may fluctuate as market conditions change. Included within C&I are revolving loans supported by borrowing bases that fluctuate depending on the amount of underlying collateral. A portion of C&I loans consists of sponsor finance, which are loans with senior debt exposure to private equity backed companies.
CRE – CRE loans include various types of loans for which the Company holds real property as collateral. Commercial real estate lending activity is typically restricted to owner-occupied properties or to investor properties that are owned by customers with a current banking relationship. The primary risks of CRE loans include the borrower’s inability to pay, material decreases in the value of the real estate being held as collateral and significant increases in interest rates, which may make the real estate mortgage loan unprofitable. Real estate loans may be more adversely affected by conditions in the real estate markets and in the general economy.
Construction and Land Development – The Company originates loans to finance construction projects including 1-4 family residences, multifamily residences, commercial office, and industrial projects. Construction loans are generally collateralized by first liens on the real estate and have floating interest rates. Construction loans are considered to have higher risks due to construction completion and timing risk, and the ultimate repayment being sensitive to interest rate changes, governmental regulation of real property and the availability of long-term financing. Additionally, economic conditions may impact the Company’s ability to recover its investment in construction loans. Adverse economic conditions may negatively impact the real estate market which could affect the borrowers’ ability to complete and sell the project. Additionally, the fair value of the underlying collateral may fluctuate as market conditions change.
Residential Real Estate – The Company originates loans to finance one- to four-family residences, secured by both first and second liens. Repayment of these loans is dependent on the borrowers’ ability to pay and the fair value of the underlying collateral. Residential loans with a second lien are inherently riskier due to the junior lien position.
Agricultural – Agricultural loans are generally secured with equipment, livestock, crops or other non-real property and at times the underlying real property. Agricultural loans are primarily included as a component of CRE and C&I loans. As of December 31, 2017, we did2023, the Company has ceased originating new agricultural credit relationships.
Consumer – The Company provides a broad range of consumer loans to customers, including personal lines of credit, credit cards, recreational vehicles, yachts and automobile loans. Repayment of these loans is dependent on the borrowers’ ability to pay and the fair value of the underlying collateral. Consumer loans are included as a component of Other loans.
The Company utilizes a DCF method to measure the ACL on loans collectively evaluated that are sub-segmented by credit risk levels. The DCF method incorporates assumptions for probability of default, loss given default, prepayments and curtailments over the contractual term of the loans. In determining the probability of default, the Company utilized regression analysis to determine certain economic factors that are relevant loss drivers in the portfolio segments based on historical or peer evaluations. National unemployment is a loss driver used in all portfolios. The annual percentage change in gross domestic product is used in Construction, Agricultural, and Consumer portfolios. The annual percentage change in a commercial real estate index, national house price index and national retail sales are used in the CRE, Residential Real Estate and C&I portfolios, respectively. The contractual term excludes expected extensions, renewals, and modifications unless the extension or renewal options are included in the original or modified contract at the reporting date and are not have anyunconditionally cancellable by the Company.
The Company uses a one-year reasonable and supportable forecast that considers baseline, upside and downside economic scenarios. For periods beyond the forecast period, the Company reverts to historical loss rates on a straight-line basis over a one-year period.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs. Other individually-evaluated loans may be remeasured using a discounted cash flow method if appropriate. Non-accrual loans, loans past due greater than 90 days and not includedstill accruing, unless adequately secured and in nonperforming loans.the process of collection, and restructured loans are evaluated individually.
Loan Charge-Offs
Loans are charged-off when the primary and secondary sources of repayment (cash flow, collateral, guarantors, etc.) are less than their carrying value.value and the amounts are deemed uncollectible.
Allowance For Loan Losses
The allowance for loan losses is increased by provision charged to expense and is available to absorb charge-offs, net of recoveries. Management utilizes a systematic, documented approach in determining the appropriate level of the allowance for loan losses. The level of the allowance reflects management's continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions; and probable losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a degree of subjectivity and requires that the Company make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification
of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses.
Management believes the allowance for loan losses is adequate to absorb inherent losses in the loan portfolio. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions and other factors. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the Bank's loan portfolio. Such agencies may require additions to the allowance for loan losses based on their judgments and interpretations of information available to them at the time of their examinations.
Allowance for Loan Losses on PCI Loans
The Company updates its cash flow projections for PCI loans on a periodic basis. Assumptions utilized in this process include projections related to probability of default, loss severity, prepayment, extensions and recovery lag. Projections related to probability of default and prepayment are calculated utilizing a loan migration analysis and management's assessment of loss exposure including the fair value of underlying collateral. The loan migration analysis is a matrix that specifies the probability of a loan pool transitioning into a particular delinquency or liquidation state given its current performance at the measurement date. Loss severity factors are based upon industry data and historical experience.
Any decreases in expected cash flows after the acquisition date and subsequent measurement periods are recognized by recording an impairment in allowance for loan losses.
Other Real Estate and Repossessed Assets
Other real estate represents property acquired through foreclosure or deeded to the Company in lieu of foreclosure on loans on which the borrowers have defaulted on the payment of principal or interest. Other real estate is initially recorded on an individual asset basisat fair value less cost to sell and subsequently at the lower of cost or fair value less estimated costs to sell. The fair value of other real estate is based upon estimates of future cash flows, market value of similar assets, if available, or independent appraisals. These estimates involve significant uncertainties and judgments. As a result, fair value estimates may not be realizable in a current sale or settlement of the other real estate. Subsequent reductions in fair valueGains, losses and writedowns resulting from the writedown or sale of other real estate are expensed within noninterest expense.credited or charged to earnings.
Gains and losses resulting from the sale of other real estate are credited or charged to current period earnings. Costs of maintaining and operating other real estate are expensed as incurred, and expenditures to complete or improve other real estate properties are capitalized if the expenditures are expected to be recovered upon ultimate sale of the property.
Repossessed assets represent property, other than real estate, that is acquired through repossession and is initially recorded at estimated fair value on the date of acquisition, less costs to sell. Subsequent to repossession, the assets are carried at the lower of cost or fair value, less estimated costs to sell.
Fixed Assets
Buildings, leasehold improvements, furniture, fixtures, equipment, and capitalized softwareequipment are stated at cost less accumulated depreciation. All categories are computed using the straight-line method over their respective estimated useful lives. Furniture, fixtures and equipment is depreciated over three to ten years and buildings and leasehold improvements over ten to forty years, and capitalized software over three years, based upon estimated lives or lease obligation periods.
State Tax Credits Held for Sale
The Company has purchased the rights to receive 10-year streams of state tax credits at agreed upon discount rates and sells such tax credits to its clients and others. All stateState tax credits purchased prior to 2009 are accounted for at fair value. All state tax credits purchased since 2009 are accounted for at cost. The Company elected notis also a minority partner in a joint venture, accounted for as an equity method investment, that purchases state income tax credits for resale to account forcustomers. Income from both the sale of state tax credits purchased since 2009 at fair value in order to limitand earnings from the volatility of the fair value changesjoint venture are reported as tax credit income in the Company's consolidated statementsConsolidated Statements of operations.Income.
Cash Surrender Value of Life Insurance
The Company has purchased bank-owned life insurance policies on certain bank officers. Bank-owned life insurance is recorded at its cash surrender value. Changes in the cash surrender values, including death benefits in excess of the carrying amount, are included in noninterest income.
Federal Home Loan Bank Stock
The Bank, as a member of the Federal Home Loan Bank of Des Moines (“FHLB”),FHLB, is required to maintain an investment in the capital stock of the FHLB. The stock is redeemable at par by the FHLB, and is, therefore, carried at cost and periodically evaluated for impairment. The Company records FHLB dividends in interest income.
Goodwill and Other Intangible Assets
The Company tests goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the Company may not be able to recover the respective asset'sasset’s carrying amount. The Company'sCompany’s annual test for impairment was performed in the fourth quarter of December 31, 2017.2023. Such tests involve the use of estimates and assumptions. Core deposit intangibles are amortized using an accelerated method over an estimated useful life of approximately 10 years.
Potential impairments to goodwill must first be identified by performing a qualitative assessment which evaluates relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If this test indicates it is more likely than not that goodwill has been impaired, then a quantitative impairment test is completed. The quantitative impairment test calculates the fair value of the reporting unit and compares it with its carrying amount, including goodwill. If the carrying amount of goodwill exceeds its implied fair market value, an impairment loss is recognized. That loss is equal to the carrying amount of goodwill that is in excess of its implied fair market value.
Core deposit intangibles are amortized using an accelerated method over an estimated useful life of approximately 10 years.
Impairment of Long-Lived Assets
Long-lived assets, such as fixed assets and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for saleheld-for-sale are presented separately in the appropriate asset and liability sections of the balance sheet.
Derivative Financial Instruments and Hedging Activities
The Company uses derivative financial instruments to assist in the management ofmanaging interest rate sensitivity and to modify the repricing, maturity and option characteristics of certain assets and liabilities. In addition, the Company also offers an interest rate hedge program that includes interest rate swaps to assist its customers in managing their interest rate risk profile. In order to eliminate the interest rate risk associated with offering these products, the Company enters into derivative contracts with third parties to offset the customer contracts. The Company does not enter into derivative financial instruments for trading purposes.
Derivative instruments are required to be measured at fair value and recognized as either assets or liabilities in the consolidated financial statements. Fair value represents the payment the Company would receive or pay if the item were sold or bought in a current transaction. The accounting for changes in fair value (gains or losses) of a hedged item is dependent on whether the related derivative is designated and qualifies for “hedge accounting.” The Company assigns derivatives to one of these categories at the purchase date: cash flow hedge, fair value hedge, or non-designated derivatives.hedges as part of a customer interest-rate swap product. An assessment of the expected and ongoing hedge effectiveness of any derivative designated a fair value hedge or cash flow hedge is performed as required by the applicable accounting standards. Derivatives are included in other assets and other liabilities in the consolidated balance sheets. The fair value amounts recognized for derivative instruments and the fair value amounts recognized for the right to reclaim or obligation to return cash collateral are not offset when represented under a master netting arrangement. Generally, the only derivative instruments used by the Company have been interest rate swaps, collars, forward currency contracts, and interest rate caps.
The Company does not currently have derivative instruments designated as fair value or cash flow hedges. Certain derivative financial instruments are not designated as cash flow or as fair value hedges for accounting purposes. These non-designated derivatives are intended to provide interest rate protection on net interest income or noninterest income but do not meet hedge accounting treatment. Customer accommodation interest rate swap contracts are not designated as hedging instruments. Changes in the fair value of these instruments are recorded in interest income or noninterest income in the consolidated statements of income depending on the underlying hedged item.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. We evaluated theThe need for deferred tax asset valuation allowances is based on a more-likely-than-not standard. The ability to realize deferred tax assets depends on the ability to generate sufficient positive taxable income within the carryback or carryforward periods provided for in the laws for each applicable taxing jurisdiction. We consider theThe following possible sources of taxable income:income are considered: future reversal patterns of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences, taxable income in prior carryback years and the availability of qualified tax planning strategies. The assessment regarding whether a valuation allowance is required or should be adjusted depends on all available positive and negative factors including, but not limited to, nature, frequency, and severity of recent losses, duration of available carryforward periods, experience with tax attributes expiring unused and near and medium term financial outlook. Because of the complexity of tax laws and regulations, interpretation can be difficult and subject to legal judgment given specific facts and circumstances. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions regarding the estimated amounts of accrued taxes.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act of 2017 (“Tax Act”). SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company has recorded amounts based on the information known and reasonable estimates used as of December 31, 2017, but are subject to change based on a number of factors. The Company will complete its analysis of certain tax positions at the time it files its tax returns for the year ended December 31, 2017 and will be able to conclude if any further adjustments to the provisional estimate of the impact recorded is required.
Stock-BasedShare-Based Compensation
Stock-basedShare-based compensation is recognized as an expense for stock options, restricted stock awards, performance stock units, and restricted stock units granted to employees and directors in return for employee service. Equity classified awards are measured at the grant date fair value using either an observable market value or a valuation methodology, and are recognized over the requisite service period on a straight-line basis. Forfeitures are recorded as they occur. A description of the Company's stock-basedCompany’s share-based employee compensation plan is describedincluded in Note“Note 15 - Shareholders’ Equity and Compensation Plans.”
Specialty Deposits
The Company offers specialty deposit accounts to customers in certain industries, primarily community associations, property management, third party escrow, and trust services. These customers will typically receive an earnings credit rate on average collected balances that is used to offset their cost of maintaining the deposit accounts. Earnings credits, otherwise referred to as Deposit costs, are reflected as a component of non-interest expense in the Consolidated Statement of Income.
Acquisitions and Divestitures
Acquisitions and business combinations are accounted for using the acquisition method of accounting. The assets and liabilities of the acquired entities have been recorded at their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets.
The purchase price allocation process requires an estimation of the fair values of the assets acquired and the liabilities assumed. When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the Company includes an estimate of the acquisition-date fair value as part of the cost of the combination. To determine the fair values, the Company relies on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. The results of operations of the acquired business are included in the Company'sCompany’s consolidated financial statements from the date of acquisition. Merger-related costs are costs the Company incurs to effect a business combination. In 2017, the Company changed its presentation of Merger related expenses as a separate component of Noninterest expenses on the Condensed
Consolidated Statements of Operations. Merger related expenses include costs directly related to merger or acquisition activity and include legal and professional fees, system consolidation and conversion costs, and compensation costs such as severance and retention incentives for employees impacted by acquisition activity. The Company accounts for merger-related costs as expenses in the periods in which the costs are incurred and the services are received.
For divestitures, the Company measures an asset (disposal group) classified as held for saleheld-for-sale at the lower of its carrying value at the date the asset is initially classified as held for saleheld-for-sale or its fair value less costs to sell. The Company reports the results of operations of an entity or group of components that either has been disposed of or held for saleheld-for-sale as discontinued operations only if the disposal of that component represents a strategic shift that has or will have a major effect on an entity'sentity’s operations and financial results.
Any incremental direct costs incurred to transact the sale are allocated against the gain or loss on the sale. These costs would include items likesuch as legal fees, title transfer fees, broker fees, etc. Any goodwill and intangible assets associated with the portion of the reporting unit to be disposed of is included in the carrying amount of the business in determining the gain or loss on the sale.
Basic and Diluted Earnings Per Common Share
Basic earnings per common share data is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Common shares outstanding include common stock and restricted stock awards where recipients have satisfied the vesting terms. Diluted earnings per common share gives effect to all potential dilutive potential common shares outstanding during the period using the treasury stock method.
Consolidated Statement of Comprehensive Income
The Consolidated Statement of Comprehensive Income includes the amount and the related tax impact that have been reclassified from accumulated other comprehensive income to net income. The classification adjustment for unrealized loss/gain on sale of securities included in net income has been recorded through the gain on sale of investment securities line item, within noninterest income, in the Company'sCompany’s Consolidated Statements of Operations.Income.
Share Repurchases
The Company periodically adopts share repurchase plans that authorize open market repurchases of common stock. Shares acquired through the repurchase plan are classified as treasury stock or the shares are immediately retired upon settlement, depending on plan authorization. When shares are retired, the excess of repurchase price over par is allocated between additional paid in capital and retained earnings. The amount allocated to additional paid in capital is limited to the pro rata portion of additional paid in capital at the time of repurchase.
Reclassifications
Some itemsCertain amounts, including deposit costs and other noninterest expense, reported in prior periods in the prior year financial statements were“Consolidated Statements of Income,” and “Note 20 – Supplemental Financial Information,” have been reclassified to conform to the current presentation. In 2017, the Company changed its presentation of loans on the face of the Consolidated Balance Sheets to combine originated loans with purchased loans. See Note 5 - Loans for more information. The Company also changed its presentation of the Noninterest Income section on the face of the Consolidated Statements of Operations to separate card services revenue from other service charges and fee income. The difference was reclassified into miscellaneous income. Merger related expenses were reclassified from other expenses to be a separate component of the Noninterest Expense section on the Consolidated Statements of Operations. Reclassificationsreclassifications had no effect on prior year net income or shareholders'shareholders’ equity.
NOTE 2 - ACQUISITIONS & DIVESTITURES
Acquisition of Jefferson County Bancshares, Inc.
On February 10, 2017, the Company closed its acquisition of 100% of Jefferson County Bancshares, Inc. ("JCB") and its wholly-owned subsidiary, Eagle Bank and Trust Company of Missouri. JCB operated 13 full service retail and commercial banking offices in the metropolitan St. Louis area and one in Perry County, Missouri.
JCB shareholders received, based on their election, cash consideration in an amount of $85.39 per share of JCB common stock or 2.75 shares of EFSC common stock per share of JCB common stock, subject to allocation and proration procedures. Aggregate consideration at closing was 3.3 million shares of EFSC common stock and $29.3 million cash paid to JCB shareholders and holders of JCB stock options. Based on EFSC’s closing stock price of $42.95 on February 10, 2017, the overall transaction had a value of $171.0 million, including JCB’s common stock and stock options. The Company also recognized $6.5 million and $1.4 million of merger related costs that were recorded in noninterest expense in the statement of operations for the years ended December 31, 2017 and 2016, respectively.
The acquisition of JCB has been accounted for as a business combination using the acquisition method of accounting which requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date. Goodwill of $87.0 million arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of JCB into Enterprise. The goodwill is assigned as part of the Company's Banking reporting unit. None of the goodwill recognized is expected to be deductible for income tax purposes.
The following table presents the assets acquired and liabilities assumed of JCB as of February 10, 2017, and their estimated fair values:
|
| | | | | | | | | | | |
(in thousands) | As Recorded by JCB | | Adjustments | | As Recorded by EFSC |
Assets acquired: | | | | | |
Cash and cash equivalents | $ | 33,739 |
| | $ | — |
| | $ | 33,739 |
|
Interest-bearing deposits | 1,715 |
| | — |
| | 1,715 |
|
Securities | 148,670 |
| | — |
| | 148,670 |
|
Portfolio loans, net | 685,905 |
| | (11,094 | ) | (a) | 674,811 |
|
Other real estate owned | 6,762 |
| | (5,082 | ) | (b) | 1,680 |
|
Other investments | 2,695 |
| | — |
| | 2,695 |
|
Fixed assets, net | 21,780 |
| | (3,325 | ) | (c) | 18,455 |
|
Accrued interest receivable | 2,794 |
| | — |
| | 2,794 |
|
Goodwill | 7,806 |
| | (7,806 | ) | (d) | — |
|
Other intangible assets | 25 |
| | 11,489 |
| (e) | 11,514 |
|
Deferred tax assets | 4,634 |
| | 3,991 |
| (f) | 8,625 |
|
Other assets | 19,107 |
| | (296 | ) | (g) | 18,811 |
|
Total assets acquired | $ | 935,632 |
| | $ | (12,123 | ) | | $ | 923,509 |
|
| | | | | |
Liabilities assumed: | | | | | |
Deposits | $ | 764,539 |
| | $ | 629 |
| (h) | $ | 765,168 |
|
Other borrowings | 55,430 |
| | 681 |
| (i) | 56,111 |
|
Trust preferred securities | 12,887 |
| | (382 | ) | (j) | 12,505 |
|
Accrued interest payable | 653 |
| | — |
| | 653 |
|
Other liabilities | 5,006 |
| | 65 |
| | 5,071 |
|
Total liabilities assumed | $ | 838,515 |
| | $ | 993 |
| | $ | 839,508 |
|
| | | | | |
Net assets acquired | $ | 97,117 |
| | $ | (13,116 | ) | | $ | 84,001 |
|
| | | | | |
Consideration paid: | | | | | |
Cash | | | | | $ | 29,283 |
|
Common stock | | | | | 141,729 |
|
Total consideration paid | | | | | $ | 171,012 |
|
| | | | | |
Goodwill | | | | | $ | 87,011 |
|
| |
(a) | Fair value adjustments based on the Company’s evaluation of the acquired loan portfolio, write-off of net deferred loan costs, reclassification from other real estate owned, and elimination of the allowance for loan losses recorded by JCB. The fair value discount recorded to the loan portfolio is $24.7 million, inclusive of the allowance for loan losses previously recorded by JCB. |
| |
(b) | Fair value adjustment based on the Company’s evaluation of the acquired other real estate portfolio, and reclassification to portfolio loans. |
| |
(c) | Fair value adjustments based on the Company’s evaluation of the acquired premises and equipment. |
| |
(d) | Eliminate JCB’s recorded goodwill. |
| |
(e) | Record the core deposit intangible asset on the acquired core deposit accounts. Amount to be amortized using a sum of years digits method over a 10 year useful life. |
| |
(f) | Adjustment for deferred taxes at the acquisition date. |
| |
(g) | Fair value adjustment based on evaluation of other assets. |
| |
(h) | Fair value adjustment to time deposits based on current interest rates. |
| |
(i) | Fair value adjustment to the FHLB advances based on current interest rates. |
| |
(j) | Fair value adjustment based on the Company's evaluation of the trust preferred securities. |
The following table provides the unaudited pro forma information for the results of operations for the twelve months ended December 31, 2017 and 2016, as if the acquisition had occurred on January 1, 2016. The pro forma results combine the historical results of JCB with the Company’s Consolidated Statements of Income, adjusted for the impact of the application of the acquisition method of accounting including loan discount accretion, intangible assets amortization, and deposit and trust preferred securities premium accretion, net of taxes. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2016. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions. Only the acquisition related expenses that have been incurred as of December 31, 2017 are included in net income in the table below.
|
| | | | | | | |
| Pro Forma |
| Twelve months ended December 31, |
(in thousands, except per share data) | 2017 | | 2016 |
Total revenues (net interest income plus noninterest income) | $ | 213,910 |
| | $ | 199,033 |
|
Net income | 47,227 |
| | 56,994 |
|
Diluted earnings per common share | 2.03 |
| | 2.42 |
|
NOTE 32 - EARNINGS PER SHARE
Basic earnings per common share data is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method.
The following table presents a summary of per common share data and amounts for the periods indicated.
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
($ and shares in thousands, except per share data) | 2023 | | 2022 | | 2021 |
| | | | | |
| | | | | |
| | | | | |
Net income available to common shareholders | $ | 190,309 | | | $ | 199,002 | | | $ | 133,055 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Weighted average common shares outstanding | 37,370 | | | 37,381 | | | 34,436 | |
| | | | | |
Additional dilutive common stock equivalents | 137 | | | 119 | | | 60 | |
Weighted average diluted common shares outstanding | 37,507 | | | 37,500 | | | 34,496 | |
| | | | | |
Basic earnings per common share | $ | 5.09 | | | $ | 5.32 | | | $ | 3.86 | |
Diluted earnings per common share | $ | 5.07 | | | $ | 5.31 | | | $ | 3.86 | |
|
| | | | | | | | | | | |
| Years ended December 31, |
(in thousands, except per share data) | 2017 | | 2016 | | 2015 |
Net income as reported | $ | 48,190 |
| | $ | 48,837 |
| | $ | 38,450 |
|
| | | | | |
Weighted average common shares outstanding | 22,953 |
| | 20,003 |
| | 19,984 |
|
Additional dilutive common stock equivalents | 296 |
| | 287 |
| | 333 |
|
Weighted average diluted common shares outstanding | 23,249 |
| | 20,290 |
| | 20,317 |
|
| | | | | |
Basic earnings per common share: | $ | 2.10 |
| | $ | 2.44 |
| | $ | 1.92 |
|
Diluted earnings per common share: | $ | 2.07 |
| | $ | 2.41 |
| | $ | 1.89 |
|
There were noFor 2023, 2022 and 2021, common stock equivalents for fiscal years 2017,of approximately 419,000, 224,000 and 2016, and 0.1 million common stock equivalents for fiscal year 2015, which158,000, respectively, were excluded from the earnings per share calculation because their effect waswould have been anti-dilutive.
NOTE 43 - INVESTMENTS
The following table presents the amortized cost, gross unrealized gains and losses and fair value of securities availableavailable-for-sale and held-to-maturity:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
($ in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Available-for-sale securities: | | | | | | | |
Obligations of U.S. Government-sponsored enterprises | $ | 316,511 | | | $ | 303 | | | $ | (20,368) | | | $ | 296,446 | |
Obligations of states and political subdivisions | 500,881 | | | 57 | | | (68,767) | | | 432,171 | |
Agency mortgage-backed securities | 758,283 | | | 1,181 | | | (59,083) | | | 700,381 | |
Corporate debt securities | 8,750 | | | — | | | (1,176) | | | 7,574 | |
U.S. Treasury Bills | 184,709 | | | 62 | | | (3,070) | | | 181,701 | |
Total securities available-for-sale | $ | 1,769,134 | | | $ | 1,603 | | | $ | (152,464) | | | $ | 1,618,273 | |
| | | | | | | |
Held-to-maturity securities: | | | | | | | |
| | | | | | | |
Obligations of states and political subdivisions | $ | 575,699 | | | $ | 7,078 | | | $ | (47,461) | | | $ | 535,316 | |
Agency mortgage-backed securities | 52,100 | | | — | | | (5,424) | | | 46,676 | |
Corporate debt securities | 123,420 | | | 216 | | | (8,981) | | | 114,655 | |
Total securities held-to-maturity | $ | 751,219 | | | $ | 7,294 | | | $ | (61,866) | | | $ | 696,647 | |
Allowance for credit losses | (785) | | | | | | | |
Total securities held-to-maturity, net | $ | 750,434 | | | | | | | |
| | | | | | | |
| December 31, 2022 |
($ in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Available-for-sale securities: | | | | | | | |
Obligations of U.S. Government-sponsored enterprises | $ | 266,090 | | | $ | — | | | $ | (28,305) | | | $ | 237,785 | |
Obligations of states and political subdivisions | 507,842 | | | 27 | | | (90,425) | | | 417,444 | |
Agency mortgage-backed securities | 727,931 | | | 453 | | | (68,980) | | | 659,404 | |
Corporate debt securities | 13,750 | | | — | | | (1,110) | | | 12,640 | |
U.S. Treasury Bills | 213,441 | | | 1 | | | (4,908) | | | 208,534 | |
Total securities available-for-sale | $ | 1,729,054 | | | $ | 481 | | | $ | (193,728) | | | $ | 1,535,807 | |
| | | | | | | |
Held-to-maturity securities: | | | | | | | |
| | | | | | | |
Obligations of states and political subdivisions | $ | 529,012 | | | $ | 2,321 | | | $ | (65,347) | | | $ | 465,986 | |
Agency mortgage-backed securities | 57,018 | | | — | | | (6,416) | | | 50,602 | |
Corporate debt securities | 124,620 | | | 163 | | | (12,854) | | | 111,929 | |
Total securities held-to-maturity | $ | 710,650 | | | $ | 2,484 | | | $ | (84,617) | | | $ | 628,517 | |
Allowance for credit losses | (735) | | | | | | | |
Total securities held-to-maturity, net | $ | 709,915 | | | | | | | |
During 2023, the Company did not transfer any securities from available-for-sale to held-to-maturity. The Company believes the held-to-maturity category is consistent with the Company’s intent for salethese securities. In 2022, the Company transferred $116.7 million of securities from available-for-sale to held-to-maturity. The transfer of securities was made at fair value at the time of transfer. The unamortized portion of the unrealized holding gain at the time of transfer is retained in accumulated other comprehensive income and held to maturity:in the carrying value of held-to-
|
| | | | | | | | | | | | | | | |
| December 31, 2017 |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Available for sale securities: | | | | | | | |
Obligations of U.S. Government-sponsored enterprises | $ | 99,878 |
| | $ | 6 |
| | $ | (660 | ) | | $ | 99,224 |
|
Obligations of states and political subdivisions | 34,181 |
| | 674 |
| | (213 | ) | | 34,642 |
|
Agency mortgage-backed securities | 513,082 |
| | 727 |
| | (6,293 | ) | | 507,516 |
|
Total securities available for sale | $ | 647,141 |
| | $ | 1,407 |
| | $ | (7,166 | ) | | $ | 641,382 |
|
| | | | | | | |
Held to maturity securities: | | | | | | | |
Obligations of states and political subdivisions | $ | 14,031 |
| | $ | 69 |
| | $ | (46 | ) | | $ | 14,054 |
|
Agency mortgage-backed securities | 59,718 |
| | 16 |
| | (330 | ) | | 59,404 |
|
Total securities held to maturity | $ | 73,749 |
| | $ | 85 |
| | $ | (376 | ) | | $ | 73,458 |
|
| | | | | | | |
| December 31, 2016 |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Available for sale securities: | | | | | | | |
Obligations of U.S. Government-sponsored enterprises | $ | 107,312 |
| | $ | 348 |
| | $ | — |
| | $ | 107,660 |
|
Obligations of states and political subdivisions | 36,486 |
| | 630 |
| | (485 | ) | | 36,631 |
|
Agency mortgage-backed securities | 319,345 |
| | 1,101 |
| | (3,940 | ) | | 316,506 |
|
Total securities available for sale | $ | 463,143 |
| | $ | 2,079 |
| | $ | (4,425 | ) | | $ | 460,797 |
|
| | | | | | | |
Held to maturity securities: | | | | | | | |
Obligations of states and political subdivisions | $ | 14,759 |
| | $ | 11 |
| | $ | (242 | ) | | $ | 14,528 |
|
Agency mortgage-backed securities | 65,704 |
| | 45 |
| | (638 | ) | | 65,111 |
|
Total securities held to maturity | $ | 80,463 |
| | $ | 56 |
| | $ | (880 | ) | | $ | 79,639 |
|
maturity securities. The balance of held-to-maturity securities in the “Amortized Cost” column in the table above includes a cumulative net unamortized, unrealized gain of $14.1 million and $17.6 million at December 31, 2023 and 2022, respectively. Such amounts are amortized over the remaining life of the securities.
At December 31, 2017,2023 and 2016,2022, there were no holdings of securities of any one issuer in an amount greater than 10% of shareholders’ equity, other than the U.S. Government agencies and sponsored enterprises. The agency mortgage-backed securities are all issued by U.S. Government-sponsored enterprises. Securities having a fair value of $500.0 million$1.6 billion and $407.3$734.5 million at December 31, 2017,2023 and December 31, 2016,2022, respectively, were pledged as collateral to secure deposits of public institutions and for other purposes as required by law or contract provisions.
The amortized cost and estimated fair value of debt securities at December 31, 2017,2023, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The weighted average life of the agency mortgage-backed securities is approximately 45 years.
| | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-sale | | Held-to-maturity |
($ in thousands) | Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
Due in one year or less | $ | 141,734 | | | $ | 140,353 | | | $ | 1,230 | | | $ | 1,230 | |
Due after one year through five years | 327,794 | | | 309,375 | | | 81,887 | | | 77,227 | |
Due after five years through ten years | 130,737 | | | 117,025 | | | 190,949 | | | 183,396 | |
Due after ten years | 410,586 | | | 351,139 | | | 425,053 | | | 388,118 | |
Agency mortgage-backed securities | 758,283 | | | 700,381 | | | 52,100 | | | 46,676 | |
| $ | 1,769,134 | | | $ | 1,618,273 | | | $ | 751,219 | | | $ | 696,647 | |
|
| | | | | | | | | | | | | | | |
| Available for sale | | Held to maturity |
(in thousands) | Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
Due in one year or less | $ | 3,060 |
| | $ | 3,076 |
| | $ | — |
| | $ | — |
|
Due after one year through five years | 110,910 |
| | 110,480 |
| | 186 |
| | 195 |
|
Due after five years through ten years | 14,573 |
| | 14,980 |
| | 12,977 |
| | 12,981 |
|
Due after ten years | 5,516 |
| | 5,330 |
| | 868 |
| | 878 |
|
Agency mortgage-backed securities | 513,082 |
| | 507,516 |
| | 59,718 |
| | 59,404 |
|
| $ | 647,141 |
| | $ | 641,382 |
| | $ | 73,749 |
| | $ | 73,458 |
|
The following table represents a summary of investmentThere were 753 and 740 available-for-sale securities that hadin an unrealized loss:loss position as of December 31, 2023 and 2022, respectively, included in the following tables:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
Less than 12 months | | 12 months or more | | Total |
($ in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Obligations of U.S. Government-sponsored enterprises | $ | 25,886 | | | $ | 85 | | | $ | 247,027 | | | $ | 20,283 | | | $ | 272,913 | | | $ | 20,368 | |
Obligations of states and political subdivisions | 1,168 | | | 163 | | | 428,171 | | | 68,604 | | | 429,339 | | | 68,767 | |
Agency mortgage-backed securities | 58,249 | | | 417 | | | 540,032 | | | 58,666 | | | 598,281 | | | 59,083 | |
Corporate debt securities | — | | | — | | | 7,574 | | | 1,176 | | | 7,574 | | | 1,176 | |
U.S. Treasury Bills | 41,857 | | | 49 | | | 103,588 | | | 3,021 | | | 145,445 | | | 3,070 | |
| $ | 127,160 | | | $ | 714 | | | $ | 1,326,392 | | | $ | 151,750 | | | $ | 1,453,552 | | | $ | 152,464 | |
| | | | | | | | | | | |
|
| | | | | | | | | | | |
| December 31, 2022 |
Less than 12 months | | 12 months or more | | Total |
($ in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Obligations of U.S. Government-sponsored enterprises | $ | 73,738 | | | $ | 6,249 | | | $ | 163,047 | | | $ | 22,056 | | | $ | 236,785 | | | $ | 28,305 | |
Obligations of states and political subdivisions | 103,179 | | | 13,501 | | | 311,634 | | | 76,924 | | | 414,813 | | | 90,425 | |
Agency mortgage-backed securities | 334,431 | | | 20,038 | | | 281,321 | | | 48,942 | | | 615,752 | | | 68,980 | |
Corporate debt securities | 12,640 | | | 1,110 | | | — | | | — | | | 12,640 | | | 1,110 | |
U.S. Treasury Bills | 198,688 | | | 4,908 | | | — | | | — | | | 198,688 | | | 4,908 | |
| $ | 722,676 | | | $ | 45,806 | | | $ | 756,002 | | | $ | 147,922 | | | $ | 1,478,678 | | | $ | 193,728 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
Less than 12 months | | 12 months or more | | Total |
(in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Obligations of U.S. Government-sponsored enterprises | $ | 89,309 |
| | $ | 660 |
| | $ | — |
| | $ | — |
| | $ | 89,309 |
| | $ | 660 |
|
Obligations of states and political subdivisions | 13,951 |
| | 259 |
| | — |
| | — |
| | 13,951 |
| | 259 |
|
Agency mortgage-backed securities | 469,655 |
| | 6,034 |
| | 12,229 |
| | 589 |
| | 481,884 |
| | 6,623 |
|
| $ | 572,915 |
| | $ | 6,953 |
| | $ | 12,229 |
| | $ | 589 |
| | $ | 585,144 |
| | $ | 7,542 |
|
| | | | | | | | | | | |
| December 31, 2016 |
Less than 12 months | | 12 months or more | | Total |
(in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Obligations of states and political subdivisions | $ | 21,361 |
| | $ | 408 |
| | $ | 3,553 |
| | $ | 320 |
| | $ | 24,914 |
| | $ | 728 |
|
Agency mortgage-backed securities | 267,734 |
| | 4,084 |
| | 12,883 |
| | 493 |
| | 280,617 |
| | 4,577 |
|
| $ | 289,095 |
| | $ | 4,492 |
| | $ | 16,436 |
| | $ | 813 |
| | $ | 305,531 |
| | $ | 5,305 |
|
The unrealized losses at both December 31, 2017,2023 and 2016,2022, were primarily attributable to changes in market interest rates since the securities were purchased. Management systematically evaluatesIn 2023, an allowance for credit losses on available-for-sale investment securities was established through a provision for other-than-temporary declines in fair valuecredit losses of $4.2 million. A debt security of $4.2 million was subsequently charged-off against that allowance. At both December 31, 2023 and 2022, there was no ACL on a quarterly basis. This analysis requires management to consider various factors, which include among other considerations (1)available-for-sale securities outstanding.
Accrued interest receivable on held-to-maturity debt securities totaled $6.5 million and $5.8 million at December 31, 2023 and 2022, respectively, and is excluded from the present valueestimate of the cash flows expected to be collected compared to the amortized costcredit losses. The estimate of the security, (2) durationexpected credit losses considers historical credit loss information adjusted for current conditions and magnitude of the decline in value, (3) the financial condition of the issuer or issuers, (4) structure of the security,reasonable and (5) the intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in market value.supportable forecasts. At December 31, 20172023 and 2016, management performed its quarterly analysis of all2022, the ACL on held-to-maturity securities with an unrealized losswas $0.8 million and concluded no individual securities were other-than-temporarily impaired.$0.7 million, respectively.
The proceeds, gross gains and losses realized from sales of available for saleavailable-for-sale investment securities were as follows:
| | | | | | | | | | | | | | | | | |
| December 31, |
($ in thousands) | 2023 | | 2022 | | 2021 |
Gross gains realized | $ | 601 | | | $ | — | | | $ | — | |
| | | | | |
Proceeds from sales | 40,393 | | | — | | | 27,135 | |
|
| | | | | | | | | | | |
| December 31, |
(in thousands) | 2017 | | 2016 | | 2015 |
Gross gains realized | $ | 22 |
| | $ | 86 |
| | $ | 63 |
|
Gross losses realized | — |
| | — |
| | (40 | ) |
Proceeds from sales | 144,076 |
| | 2,493 |
| | 41,069 |
|
Other Investments At Cost
At December 31, 2017,2023 and 2016,2022, other investments at cost, totaled $26.7$66.2 million and $14.8$63.8 million, respectively. As a member of the FHLB, system administered by the Federal Housing Finance Agency, the Bank is required to maintain a minimum investment in capital stock with the FHLB Des Moines consisting of membership stock and activity-based stock. The FHLB capital stock of $12.9$7.8 million, and $4.4$14.0 million at December 31, 2017,2023 and 2016,2022, respectively, is recorded at cost, which represents redemption value, and is included in other investments in the consolidated balance sheets. The remaining amounts in other investments primarily include various investments in SBICs, CDFIs, and the Company'sCompany’s investment in unconsolidated trusts used to issue preferred securities to third parties, (see Notesee “Note 10 – Subordinated Debentures).Debentures and Notes.”
NOTE 54 - LOANS
The loan portfolio is comprised of loans originated by the Company and loans that were acquired in connection with the Company’s acquisitions. These loans are accounted for using the guidance in the Accounting Standards Codification (ASC) section 310-30 and 310-20. Loans accounted for using ASC 310-30 are sometimes referred to as purchased credit impaired, or PCI, loans.
The table below shows the loan portfolio composition including carrying value by segment of loans accounted for at amortized cost, which includes our originated loans, and loans accounted for as PCI.
|
| | | | | | | |
(in thousands)
| December 31, 2017 | | December 31, 2016 |
Loans accounted for at amortized cost | $ | 4,022,896 |
| | $ | 3,118,392 |
|
Loans accounted for as PCI | 74,154 |
| | 39,769 |
|
Total loans | $ | 4,097,050 |
| | $ | 3,158,161 |
|
The following tables refer to loans not accounted for as PCI loans.
Below istable presents a summary of loans by categorycategory:
| | | | | | | | | | | |
($ in thousands) | December 31, 2023 | | December 31, 2022 |
Commercial and industrial | $ | 4,674,056 | | | $ | 3,859,964 | |
Real estate loans: | | | |
Commercial - investor owned | 2,452,402 | | | 2,357,820 | |
Commercial - owner occupied | 2,344,117 | | | 2,270,551 | |
Construction and land development | 760,122 | | | 611,565 | |
Residential | 371,995 | | | 395,537 | |
Total real estate loans | 5,928,636 | | | 5,635,473 | |
Other | 285,653 | | | 248,990 | |
Loans, before unearned loan fees | 10,888,345 | | | 9,744,427 | |
Unearned loan fees, net | (4,227) | | | (7,289) | |
Loans, including unearned loan fees | $ | 10,884,118 | | | $ | 9,737,138 | |
The loan balance includes a net premium on acquired loans of $9.6 million and $11.9 million at December 31, 20172023 and 2016:
|
| | | | | | | |
(in thousands) | December 31, 2017 | | December 31, 2016 |
Commercial and industrial | $ | 1,918,720 |
| | $ | 1,632,714 |
|
Real estate loans: | | | |
Commercial - investor owned | 769,275 |
| | 544,808 |
|
Commercial - owner occupied | 554,589 |
| | 350,148 |
|
Construction and land development | 303,091 |
| | 194,542 |
|
Residential | 341,312 |
| | 240,760 |
|
Total real estate loans | 1,968,267 |
| | 1,330,258 |
|
Consumer and other | 137,234 |
| | 156,182 |
|
Loans, before unearned loan (fees) costs | 4,024,221 |
| | 3,119,154 |
|
Unearned loan (fees) costs, net | (1,325 | ) | | (762 | ) |
Loans, including unearned loan fees | $ | 4,022,896 |
| | $ | 3,118,392 |
|
Following is a summary of activity for the years ended2022, respectively. At December 31, 2017, 2016,2023 and 20152022 loans of $4.8 billion and $2.8 billion, respectively, were pledged to the FHLB and the Federal Reserve.
Consumer mortgage loans secured by residential real estate in process of foreclosure totaled $1.0 million at December 31, 2023. There were no consumer mortgage loans secured by residential real estate in process of foreclosure at December 31, 2022.
Loans to executive officers and directors, or to entities in which such individuals had beneficial interests as a shareholder, officer, or director.director totaled $0.1 million and $0.1 million for the year ended December 31, 2023 and 2022, respectively. Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did not involve more than the normal risk of collectibility.
|
| | | | | | | | | | | |
(in thousands) | December 31, 2017 | | December 31, 2016 | | December 31, 2015 |
Balance at beginning of year | $ | 15,406 |
| | $ | 4,394 |
| | $ | 13,513 |
|
New loans and advances | 1,353 |
| | 11,539 |
| | 641 |
|
Payments and other reductions | (11,410 | ) | | (527 | ) | | (9,760 | ) |
Balance at end of year | $ | 5,349 |
| | $ | 15,406 |
| | $ | 4,394 |
|
A summary of the activity, by loan category, in the allowance for loancredit losses on loans for 2021, 2022, and the2023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | Commercial and industrial | | CRE - investor owned | | CRE - owner occupied | | Construction and land development | | Residential real estate | | Other | | | | Total |
Balance at December 31, 2021 | | | | | | | | | | | | | | |
Allowance for credit losses on loans: | | | | | | | | | | | | | | | |
Balance, beginning of year | $ | 58,812 | | | $ | 32,062 | | | $ | 17,012 | | | $ | 21,413 | | | $ | 4,585 | | | $ | 2,787 | | | | | $ | 136,671 | |
Provision (benefit) for credit losses | 14,361 | | | 568 | | | (550) | | | (7,365) | | | 3,900 | | | 2,079 | | | | | 12,993 | |
Initial allowance on acquired PCD loans | 1,077 | | | 3,651 | | | 1,504 | | | 37 | | | — | | | 737 | | | | | 7,006 | |
Charge-offs | (12,113) | | | (2,487) | | | (602) | | | (3) | | | (1,521) | | | (459) | | | | | (17,185) | |
Recoveries | 1,688 | | | 2,083 | | | 196 | | | 454 | | | 963 | | | 172 | | | | | 5,556 | |
Balance, end of year | $ | 63,825 | | | $ | 35,877 | | | $ | 17,560 | | | $ | 14,536 | | | $ | 7,927 | | | $ | 5,316 | | | | | $ | 145,041 | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2022 | | | | | | | | | | | | | | |
Allowance for credit losses on loans: | | | | | | | | | | | | | | | |
Balance, beginning of year | $ | 63,825 | | | $ | 35,877 | | | $ | 17,560 | | | $ | 14,536 | | | $ | 7,927 | | | $ | 5,316 | | | | | $ | 145,041 | |
Provision (benefit) for credit losses | (6,121) | | | 46 | | | 4,867 | | | (3,145) | | | 540 | | | (397) | | | | | (4,210) | |
| | | | | | | | | | | | | | | |
Charge-offs | (6,082) | | | (478) | | | (395) | | | — | | | (2,068) | | | (370) | | | | | (9,393) | |
Recoveries | 2,213 | | | 746 | | | 720 | | | 53 | | | 1,529 | | | 233 | | | | | 5,494 | |
Balance, end of year | $ | 53,835 | | | $ | 36,191 | | | $ | 22,752 | | | $ | 11,444 | | | $ | 7,928 | | | $ | 4,782 | | | | | $ | 136,932 | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2023 | | | | | | | | | | | | | | |
Allowance for credit losses on loans: | | | | | | | | | | | | | | | |
Balance, beginning of year | $ | 53,835 | | | $ | 36,191 | | | $ | 22,752 | | | $ | 11,444 | | | $ | 7,928 | | | $ | 4,782 | | | | | $ | 136,932 | |
Provision (benefit) for credit losses | 38,308 | | | (335) | | | 523 | | | (1,300) | | | (2,109) | | | 796 | | | | | 35,883 | |
| | | | | | | | | | | | | | | |
Charge-offs | (36,302) | | | (4,869) | | | — | | | (9) | | | (656) | | | (1,379) | | | | | (43,215) | |
Recoveries | 3,045 | | | 293 | | | 130 | | | 63 | | | 979 | | | 661 | | | | | 5,171 | |
Balance, end of year | $ | 58,886 | | | $ | 31,280 | | | $ | 23,405 | | | $ | 10,198 | | | $ | 6,142 | | | $ | 4,860 | | | | | $ | 134,771 | |
| | | | | | | | | | | | | | | |
The Company recorded investment ina provision for credit losses on loans by classof $35.9 million and category based on impairment methoda provision benefit for credit losses of $4.2 million for the years ended indicated belowDecember 31, 2023 and 2022, respectively. An additional provision for credit losses of $0.7 million and $3.6 million was recorded in 2023 and 2022, respectively, for securities, unfunded commitments and accrued interest on nonaccrual loans. Acquisition-related provision expense of $25.4 million in 2021 was included in the provision for credit losses. This expense, commonly referred to as the “CECL double-count”, is as follows:recognized when a loan portfolio is acquired.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Commercial and industrial | | CRE - investor owned | | CRE - owner occupied | | Construction and land development | | Residential real estate | | Consumer and other | | Total |
Balance at December 31, 2017 | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | |
Balance, beginning of year | $ | 26,996 |
| | $ | 3,420 |
| | $ | 2,890 |
| | $ | 1,304 |
| | $ | 2,023 |
| | $ | 932 |
| | $ | 37,565 |
|
Provision (provision reversal) | 8,737 |
| | 456 |
| | 404 |
| | 336 |
| | 797 |
| | 34 |
| | 10,764 |
|
Losses charged off | (9,872 | ) | | (117 | ) | | (90 | ) | | (254 | ) | | (973 | ) | | (201 | ) | | (11,507 | ) |
Recoveries | 545 |
| | 131 |
| | 104 |
| | 101 |
| | 390 |
| | 73 |
| | 1,344 |
|
Balance, end of year | $ | 26,406 |
| | $ | 3,890 |
|
| $ | 3,308 |
|
| $ | 1,487 |
|
| $ | 2,237 |
|
| $ | 838 |
|
| $ | 38,166 |
|
| | | | | | | | | | | | | |
Balance at December 31, 2016 | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | |
Balance, beginning of year | $ | 22,056 |
| | $ | 3,484 |
| | $ | 2,969 |
| | $ | 1,704 |
| | $ | 1,796 |
| | $ | 1,432 |
| | $ | 33,441 |
|
Provision (provision reversal)
| 6,569 |
| | (11 | ) | | (1,202 | ) | | (1,334 | ) | | 129 |
| | 1,400 |
| | 5,551 |
|
Losses charged off | (2,303 | ) | | (95 | ) | | — |
| | — |
| | (25 | ) | | (1,912 | ) | | (4,335 | ) |
Recoveries | 674 |
| | 42 |
| | 1,123 |
| | 934 |
| | 123 |
| | 12 |
| | 2,908 |
|
Balance, end of year | $ | 26,996 |
| | $ | 3,420 |
|
| $ | 2,890 |
|
| $ | 1,304 |
|
| $ | 2,023 |
|
| $ | 932 |
|
| $ | 37,565 |
|
| | | | | | | | | | | | | |
Balance at December 31, 2015 | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | |
Balance, beginning of year | $ | 16,983 |
| | $ | 4,382 |
| | $ | 3,135 |
| | $ | 1,715 |
| | $ | 2,830 |
| | $ | 1,140 |
| | $ | 30,185 |
|
Provision (provision reversal)
| 6,976 |
| | (303 | ) | | (1,626 | ) | | (335 | ) | | (58 | ) | | 218 |
| | 4,872 |
|
Losses charged off | (3,699 | ) | | (664 | ) | | (38 | ) | | (350 | ) | | (1,313 | ) | | (27 | ) | | (6,091 | ) |
Recoveries | 1,796 |
| | 69 |
| | 1,498 |
| | 674 |
| | 337 |
| | 101 |
| | 4,475 |
|
Balance, end of year | $ | 22,056 |
| | $ | 3,484 |
| | $ | 2,969 |
|
| $ | 1,704 |
|
| $ | 1,796 |
|
| $ | 1,432 |
|
| $ | 33,441 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Commercial and industrial | | CRE - investor owned | | CRE - owner occupied | | Construction and land development | | Residential real estate | | Consumer and other | | Total |
Balance December 31, 2017 | | | | | | | | | | | | | |
Allowance for loan losses - Ending balance: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | 2,508 |
| | $ | — |
| | $ | 71 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,579 |
|
Collectively evaluated for impairment | 23,898 |
| | 3,890 |
| | 3,237 |
| | 1,487 |
| | 2,237 |
| | 838 |
| | 35,587 |
|
Total | $ | 26,406 |
| | $ | 3,890 |
| | $ | 3,308 |
| | $ | 1,487 |
| | $ | 2,237 |
| | $ | 838 |
| | $ | 38,166 |
|
Loans - Ending balance: | | | | | | | |
| | | | | | |
Individually evaluated for impairment | $ | 12,665 |
| | $ | 422 |
| | $ | 1,975 |
| | $ | 136 |
| | $ | 1,602 |
| | $ | 375 |
| | $ | 17,175 |
|
Collectively evaluated for impairment | 1,906,055 |
| | 768,853 |
| | 552,614 |
| | 302,955 |
| | 339,710 |
| | 135,534 |
| | 4,005,721 |
|
Total | $ | 1,918,720 |
| | $ | 769,275 |
| | $ | 554,589 |
| | $ | 303,091 |
| | $ | 341,312 |
| | $ | 135,909 |
| | $ | 4,022,896 |
|
| | | | | | | | | | | | | |
Balance December 31, 2016 | | | | | | | | | | | | | |
Allowance for loan losses - Ending balance: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | 2,909 |
| | $ | — |
| | $ | — |
| | $ | 155 |
| | $ | — |
| | $ | — |
| | $ | 3,064 |
|
Collectively evaluated for impairment | 24,087 |
| | 3,420 |
| | 2,890 |
| | 1,149 |
| | 2,023 |
| | 932 |
| | 34,501 |
|
Total | $ | 26,996 |
| | $ | 3,420 |
| | $ | 2,890 |
| | $ | 1,304 |
| | $ | 2,023 |
| | $ | 932 |
| | $ | 37,565 |
|
Loans - Ending balance: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | 12,523 |
| | $ | 430 |
| | $ | 1,854 |
| | $ | 1,903 |
| | $ | 62 |
| | $ | — |
| | $ | 16,772 |
|
Collectively evaluated for impairment | 1,620,191 |
| | 544,378 |
| | 348,294 |
| | 192,639 |
| | 240,698 |
| | 155,420 |
| | 3,101,620 |
|
Total | $ | 1,632,714 |
| | $ | 544,808 |
| | $ | 350,148 |
| | $ | 194,542 |
| | $ | 240,760 |
| | $ | 155,420 |
| | $ | 3,118,392 |
|
A summary of nonperforming loans individually evaluated for impairment by categoryThe CECL methodology incorporates various economic scenarios. The Company utilizes three forecasts in the model; Moody’s baseline, a stronger near-term growth upside and a moderate recession downside forecast. The Company weights these scenarios at 40%, 30%, and 30%, respectively, which added approximately $12.3 million to the ACL over the baseline model at December 31, 20172023. The forecasts at the end of 2023 incorporate an expectation that the federal funds rate has peaked at the range of 5.25% to 5.50% and 2016,will begin falling in the latter half of 2024. It is also assumed that the bank failures in early 2023 were not an indication of a broader problem in the industry. The Company has also recognized various risks posed by loans in certain segments, including the commercial office sector, by allocating additional reserves to those segments. Some of the key risks to the forecasts that could result in future provision for credit losses are market reactions to the Federal Reserve policy actions that could push the economy into a recession, persistently higher inflation, tightening in the credit markets, and further weakness in the financial system.
In addition to the CECL methodology, the Company incorporates qualitative adjustments into the ACL on loans to capture credit risks inherent within the loan portfolio that are not captured in the DCF model. Included in these risks are 1) changes in lending policies and procedures, 2) actual and expected changes in business and economic conditions, 3) changes in the nature and volume of the portfolio, 4) changes in lending management, 5) changes in volume and the income recognized on impaired loans is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
(in thousands) | Unpaid Contractual Principal Balance | | Recorded Investment With No Allowance | | Recorded Investment With Allowance | | Total Recorded Investment | | Related Allowance | | Average Recorded Investment |
Commercial and industrial | $ | 20,750 |
| | $ | 2,321 |
| | $ | 10,344 |
| | $ | 12,665 |
| | $ | 2,508 |
| | $ | 16,270 |
|
Real estate: | | | | | | | | | | | |
Commercial - investor owned | 560 |
| | 422 |
| | — |
| | 422 |
| | — |
| | 521 |
|
Commercial - owner occupied | 487 |
| | — |
| | 487 |
| | 487 |
| | 71 |
| | 490 |
|
Construction and land development | 441 |
| | 136 |
| | — |
| | 136 |
| | — |
| | 331 |
|
Residential | 1,730 |
| | 1,602 |
| | — |
| | 1,602 |
| | — |
| | 1,735 |
|
Consumer and other | 375 |
| | 375 |
| | — |
| | 375 |
| | — |
| | 375 |
|
Total | $ | 24,343 |
| | $ | 4,856 |
| | $ | 10,831 |
| | $ | 15,687 |
| | $ | 2,579 |
| | $ | 19,722 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
(in thousands) | Unpaid Contractual Principal Balance | | Recorded Investment With No Allowance | | Recorded Investment With Allowance | | Total Recorded Investment | | Related Allowance | | Average Recorded Investment |
Commercial and industrial | $ | 12,341 |
| | $ | 566 |
| | $ | 11,791 |
| | $ | 12,357 |
| | $ | 2,909 |
| | $ | 4,489 |
|
Real estate: | | | | | | | | | | | |
Commercial - investor owned | 525 |
| | 435 |
| | — |
| | 435 |
| | — |
| | 668 |
|
Commercial - owner occupied | 225 |
| | 231 |
| | — |
| | 231 |
| | — |
| | 227 |
|
Construction and land development | 1,904 |
| | 1,947 |
| | 359 |
| | 2,306 |
| | 155 |
| | 1,918 |
|
Residential | 62 |
| | 62 |
| | — |
| | 62 |
| | — |
| | 64 |
|
Consumer and other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 15,057 |
| | $ | 3,241 |
| | $ | 12,150 |
| | $ | 15,391 |
| | $ | 3,064 |
| | $ | 7,366 |
|
|
| | | | | | | | | | | |
| December 31, |
(in thousands) | 2017 | | 2016 | | 2015 |
Total interest income that would have been recognized under original terms on impaired loans | $ | 1,324 |
| | $ | 1,079 |
| | $ | 1,038 |
|
Total cash received and recognized as interest income on impaired loans | 643 |
| | 251 |
| | 226 |
|
Total interest income recognized on impaired loans still accruing | 63 |
| | 155 |
| | 36 |
|
There were no loans over 90 daysseverity of past due loans, 6) changes in the quality of the loan review system, 7) changes in the value of underlying collateral, 8) the existence and still accruing interest ateffect of concentrations of credit and 9) other factors such as the regulatory, legal and competitive environments and events such as natural disasters and pandemics.At December 31, 2017 or 2016.2023, the ACL on loans included a qualitative adjustment of $37.4 million. Of this amount, $15.2 million was allocated to Sponsor Finance loans due to their unsecured nature.
Gross charge-offs by loan class and year of origination is presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | Term Loans by Origination Year | | | | | | |
($ in thousands) | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans Converted to Term Loans | | Revolving Loans | | Total |
Commercial and industrial | | $ | 600 | | | $ | 2,999 | | | $ | 1,940 | | | $ | 2,539 | | | $ | — | | | $ | — | | | $ | 12,533 | | | $ | 15,178 | | | $ | 35,789 | |
Real estate: | | | | | | | | | | | | | | | | | | |
Commercial - investor owned | | — | | | — | | | 170 | | | — | | | 4,692 | | | 7 | | | — | | | — | | | 4,869 | |
| | | | | | | | | | | | | | | | | | |
Construction and land development | | — | | | — | | | — | | | — | | | — | | | 9 | | | — | | | — | | | 9 | |
Residential | | — | | | — | | | — | | | — | | | — | | | 480 | | | 176 | | | — | | | 656 | |
Other | | — | | | 3 | | | 459 | | | — | | | — | | | 319 | | | 12 | | | — | | | 793 | |
Total charge-offs by origination year | | $ | 600 | | | $ | 3,002 | | | $ | 2,569 | | | $ | 2,539 | | | $ | 4,692 | | | $ | 815 | | | $ | 12,721 | | | $ | 15,178 | | | $ | 42,116 | |
Total gross charge-offs by performing status | | | | | | | | | | | | | | | | | | 1,099 | |
Total gross charge-offs | | | | | | | | | | | | | | | | | | $ | 43,215 | |
The following tables present the recorded investment in nonperforming loans by category, excluding government guaranteed balances:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
($ in thousands) | Non-accrual | | Restructured, accruing | | Loans over 90 days past due and still accruing interest | | Total nonperforming loans | | Nonaccrual loans with no allowance |
Commercial and industrial | $ | 7,641 | | | $ | — | | | $ | 115 | | | $ | 7,756 | | | $ | 6,179 | |
Real estate: | | | | | | | | | |
Commercial - investor owned | 20,404 | | | — | | | — | | | 20,404 | | | 19,466 | |
Commercial - owner occupied | 12,972 | | | — | | | 363 | | | 13,335 | | | 9,010 | |
Construction and land development | 1,205 | | | — | | | 64 | | | 1,269 | | | 464 | |
Residential | 959 | | | — | | | — | | | 959 | | | 959 | |
Other | — | | | — | | | 5 | | | 5 | | | — | |
Total | $ | 43,181 | | | $ | — | | | $ | 547 | | | $ | 43,728 | | | $ | 36,078 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
($ in thousands) | Non-accrual | | Restructured, accruing | | Loans over 90 days past due and still accruing interest | | Total nonperforming loans | | Nonaccrual loans with no allowance |
Commercial and industrial | $ | 4,373 | | | $ | — | | | $ | 70 | | | $ | 4,443 | | | $ | 1,047 | |
Real estate: | | | | | | | | | |
Commercial - investor owned | 3,023 | | | — | | | — | | | 3,023 | | | — | |
Commercial - owner occupied | 1,177 | | | — | | | — | | | 1,177 | | | — | |
Construction and land development | 1,192 | | | — | | | — | | | 1,192 | | | 1,192 | |
Residential | — | | | 73 | | | — | | | 73 | | | — | |
Other | 1 | | | — | | | 72 | | | 73 | | | — | |
Total | $ | 9,766 | | | $ | 73 | | | $ | 142 | | | $ | 9,981 | | | $ | 2,239 | |
The nonperforming loan balances at December 31, 20172023 and 2016, is as follows:
|
| | | | | | | | | | | |
| December 31, 2017 |
(in thousands) | Non-accrual | | Restructured, not on non-accrual | | Total |
Commercial and industrial | $ | 11,946 |
| | $ | 719 |
| | $ | 12,665 |
|
Real estate: | | | | | |
Commercial - investor owned | 422 |
| | — |
| | 422 |
|
Commercial - owner occupied | 487 |
| | — |
| | 487 |
|
Construction and land development | 136 |
| | — |
| | 136 |
|
Residential | 1,602 |
| | — |
| | 1,602 |
|
Consumer and other | 375 |
| | — |
| | 375 |
|
Total | $ | 14,968 |
| | $ | 719 |
| | $ | 15,687 |
|
|
| | | | | | | | | | | |
| December 31, 2016 |
(in thousands) | Non-accrual | | Restructured, not on non-accrual | | Total |
Commercial and industrial | $ | 10,046 |
| | $ | 2,311 |
| | $ | 12,357 |
|
Real estate: | | | | | |
Commercial - investor owned | 435 |
| | — |
| | 435 |
|
Commercial - owner occupied | 231 |
| | — |
| | 231 |
|
Construction and land development | 2,286 |
| | 20 |
| | 2,306 |
|
Residential | 62 |
| | — |
| | 62 |
|
Consumer and other | — |
| | — |
| | — |
|
Total | $ | 13,060 |
| | $ | 2,331 |
| | $ | 15,391 |
|
The recorded investment by category for the portfolioDecember 31, 2022 exclude government guaranteed balances of $10.7 million and $6.7 million, respectively. Interest income recognized on nonaccrual loans that have been restructured duringwas immaterial in the years endedending December 31, 20172021, 2022 and 2016,2023.
Collateral-dependent nonperforming loans by class of loan is presented as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2017 | | Year ended December 31, 2016 |
(in thousands, except for number of loans) | Number of Loans | | Pre-Modification Outstanding Recorded Balance | | Post-Modification Outstanding Recorded Balance | | Number of Loans | | Pre-Modification Outstanding Recorded Balance | | Post-Modification Outstanding Recorded Balance |
Commercial and industrial | 1 |
| | $ | 676 |
| | $ | 676 |
| | 4 |
| | $ | 12,114 |
| | $ | 12,114 |
|
Real estate: | | | | | | | | | | | |
Commercial - investor owned | — |
| | — |
| | — |
| | 1 |
| | 248 |
| | 248 |
|
Commercial - owner occupied | — |
| | — |
| | — |
| | 1 |
| | 13 |
| | 13 |
|
Construction and land development | — |
| | — |
| | — |
| | 1 |
| | 20 |
| | 20 |
|
Residential | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer and other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | 1 |
| | $ | 676 |
| | $ | 676 |
| | 7 |
| | $ | 12,395 |
| | $ | 12,395 |
|
The restructured portfolio loans primarily resulted from interest rate concessions and changing the terms of the loans. As of December 31, 2017, the Company allocated no specific reserves to loans that have been restructured.dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Type of Collateral |
($ in thousands) | Commercial Real Estate | | Residential Real Estate | | Blanket Lien | | Other |
Commercial and industrial | $ | 527 | | | $ | 1,864 | | | $ | 344 | | | $ | 3,445 | |
Real estate: | | | | | | | |
Commercial - investor owned | 19,467 | | | — | | | — | | | — | |
Commercial - owner occupied | 5,904 | | | 1,638 | | | 1,831 | | | — | |
Construction and land development | 528 | | | 741 | | | — | | | — | |
Residential | — | | | 959 | | | — | | | — | |
Total | $ | 26,426 | | | $ | 5,202 | | | $ | 2,175 | | | $ | 3,445 | |
Portfolio loans restructured that subsequently defaulted during the year ended December 31, 2017, and 2016, are as follows: | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Type of Collateral |
($ in thousands) | Commercial Real Estate | | Residential Real Estate | | Blanket Lien | | |
Commercial and industrial | $ | — | | | $ | — | | | $ | 1,047 | | | |
Real estate: | | | | | | | |
Commercial - investor owned | 2,238 | | | 785 | | | — | | | |
Commercial - owner occupied | 1,177 | | | — | | | — | | | |
Construction and land development | — | | | 1,192 | | | — | | | |
Residential | — | | | 73 | | | — | | | |
Total | $ | 3,415 | | | $ | 2,050 | | | $ | 1,047 | | | |
|
| | | | | | | | | | | |
| Year ended December 31, 2017 | | Year ended December 31, 2016 |
(in thousands, except for number of loans) | Number of Loans | | Recorded Balance | | Number of Loans | | Recorded Balance |
Commercial and industrial | 2 |
| | 343 |
| | — |
| | — |
|
Real Estate: | | | | | | | |
Residential | 1 |
| | 5 |
| | — |
| | — |
|
Total | 3 |
| | 348 |
| | — |
| | — |
|
The aging of the recorded investment in past due portfolio loans by portfolio class and category is presented as of the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
($ in thousands) | 30-89 Days Past Due | | 90 or More Days Past Due | | Total Past Due | | Current | | Total |
Commercial and industrial | $ | 3,445 | | | $ | 9,037 | | | $ | 12,482 | | | $ | 4,661,574 | | | $ | 4,674,056 | |
Real estate: | | | | | | | | | |
Commercial - investor owned | 1,905 | | | 18,395 | | | 20,300 | | | 2,432,102 | | | 2,452,402 | |
Commercial - owner occupied | 8,409 | | | 14,142 | | | 22,551 | | | 2,321,566 | | | 2,344,117 | |
Construction and land development | 770 | | | 1,908 | | | 2,678 | | | 757,444 | | | 760,122 | |
Residential | 1,620 | | | 959 | | | 2,579 | | | 369,416 | | | 371,995 | |
Other | 82 | | | 4 | | | 86 | | | 285,567 | | | 285,653 | |
Loans, before unearned loan fees | 16,231 | | | 44,445 | | | 60,676 | | | 10,827,669 | | | 10,888,345 | |
Unearned loan fees, net | | | | | | | | | (4,227) | |
Total | | | | | | | | | $ | 10,884,118 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
($ in thousands) | 30-89 Days Past Due | | 90 or More Days Past Due | | Total Past Due | | Current | | Total |
Commercial and industrial | $ | 555 | | | $ | 2,373 | | | $ | 2,928 | | | $ | 3,857,036 | | | $ | 3,859,964 | |
Real estate: | | | | | | | | | |
Commercial - investor owned | — | | | 1,135 | | | 1,135 | | | 2,356,685 | | | 2,357,820 | |
Commercial - owner occupied | 8,628 | | | 164 | | | 8,792 | | | 2,261,759 | | | 2,270,551 | |
Construction and land development | 9 | | | 1,192 | | | 1,201 | | | 610,364 | | | 611,565 | |
Residential | 1,227 | | | — | | | 1,227 | | | 394,310 | | | 395,537 | |
Other | 18 | | | 72 | | | 90 | | | 248,900 | | | 248,990 | |
Loans, before unearned loan fees | 10,437 | | | 4,936 | | | 15,373 | | | 9,729,054 | | | 9,744,427 | |
Unearned loan fees, net | | | | | | | | | (7,289) | |
Total | | | | | | | | | $ | 9,737,138 | |
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default and loss given default model to determine the allowance for credit losses.
An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. The effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance.
The most common concession the Company provides to borrowers experiencing financial difficulty is a term extension. In limited circumstances, the Company may modify loans by providing principal forgiveness or an interest rate reduction. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
In some cases, the Company will modify a loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as an interest rate reduction or principal forgiveness, may be granted.
The following table shows the recorded investment at the end of the reporting period for loans modified to borrowers experiencing financial difficulty, disaggregated by loan class and type of concession granted:
| | | | | | | | | | | |
| Term Extension |
| Twelve months ended |
($ in thousands) | December 31, 2023 | | Percent of Total Loan Class |
Commercial and industrial | $ | 39,437 | | | 0.84 | % |
Real estate: | | | |
Commercial - investor owned | 9,411 | | | 0.38 | % |
Commercial - owner occupied | 94 | | | — | % |
Construction and land development | 1,137 | | | 0.15 | % |
Residential | 7,601 | | | 2.04 | % |
Other | 4 | | | — | % |
Total | $ | 57,684 | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty and outstanding at the end of the year:
| | | | | |
| Weighted Average Term Extension (in months) |
| Twelve months ended |
| December 31, 2023 |
Commercial and industrial | 5 |
Real estate: | |
Commercial - investor owned | 4 |
Commercial - owner occupied | 3 |
Construction and land development | 7 |
Residential | 3 |
Other | 48 |
The following table shows the aging of the recorded investment in modified loans by class:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
($ in thousands) | Current | | 30-89 Days Past Due | | 90 or More Days Past Due | | Total |
Commercial and industrial | $ | 39,187 | | | $ | 250 | | | $ | — | | | $ | 39,437 | |
Real estate: | | | | | | | |
Commercial - investor owned | 9,411 | | | — | | | — | | | 9,411 | |
Commercial - owner occupied | — | | | 94 | | | — | | | 94 | |
Construction and land development | 1,137 | | | — | | | — | | | 1,137 | |
Residential | 7,527 | | | 74 | | | — | | | 7,601 | |
Other | — | | | 4 | | | — | | | 4 | |
Total | $ | 57,262 | | | $ | 422 | | | $ | — | | | $ | 57,684 | |
As of December 31, 2017 and 20162023, no loans experienced a default subsequent to being granted a term extension modification in the prior twelve months. Default is shown below:defined as movement to nonperforming status, foreclosure or charge-off. As of December 31, 2023, the Company allocated an immaterial amount in specific reserves to loans that have been restructured.
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
(in thousands) | 30-89 Days Past Due | | 90 or More Days Past Due | | Total Past Due | | Current | | Total |
Commercial and industrial | $ | 7,882 |
| | $ | 1,770 |
| | $ | 9,652 |
| | $ | 1,909,068 |
| | $ | 1,918,720 |
|
Real estate: | | | | | | | | | |
Commercial - investor owned | 934 |
| | — |
| | 934 |
| | 768,341 |
| | 769,275 |
|
Commercial - owner occupied | — |
| | — |
| | — |
| | 554,589 |
| | 554,589 |
|
Construction and land development | 76 |
| | — |
| | 76 |
| | 303,015 |
| | 303,091 |
|
Residential | 1,529 |
| | 945 |
| | 2,474 |
| | 338,838 |
| | 341,312 |
|
Consumer and other | 407 |
| | — |
| | 407 |
| | 135,502 |
| | 135,909 |
|
Total | $ | 10,828 |
| | $ | 2,715 |
| | $ | 13,543 |
| | $ | 4,009,353 |
| | $ | 4,022,896 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
(in thousands) | 30-89 Days Past Due | | 90 or More Days Past Due | | Total Past Due | | Current | | Total |
Commercial and industrial | $ | 334 |
| | $ | 171 |
| | $ | 505 |
| | $ | 1,632,209 |
| | $ | 1,632,714 |
|
Real estate: | | | | | | | | | |
Commercial - investor owned | — |
| | 175 |
| | 175 |
| | 544,633 |
| | 544,808 |
|
Commercial - owner occupied | 212 |
| | 225 |
| | 437 |
| | 349,711 |
| | 350,148 |
|
Construction and land development | 355 |
| | 1,528 |
| | 1,883 |
| | 192,659 |
| | 194,542 |
|
Residential | 91 |
| | — |
| | 91 |
| | 240,669 |
| | 240,760 |
|
Consumer and other | 7 |
| | — |
| | 7 |
| | 155,413 |
| | 155,420 |
|
Total | $ | 999 |
| | $ | 2,099 |
| | $ | 3,098 |
| | $ | 3,115,294 |
| | $ | 3,118,392 |
|
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, and current economic factors among other factors. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:
•Grades 1, 2, and 3 – Includes loans to borrowers with a continuous record of strong earnings, sound balance sheet condition and capitalization, ample liquidity with solid cash flow, and whose management team has experience and depth within their industry.
•Grade 4 – Includes loans to borrowers with positive trends in profitability, satisfactory capitalization and balance sheet condition, and sufficient liquidity and cash flow.
•Grade 5 – Includes loans to borrowers that may display fluctuating trends in sales, profitability, capitalization, liquidity, and cash flow.
•Grade 6 – Includes loans to borrowers where an adverse change or perceived weakness has occurred, but may be correctable in the near future. Alternatively, this rating category may also include circumstances where the borrower is starting to reverse a negative trend or condition, or has recently been upgraded from a 7, 8, or 9 rating.
•Grade 7 – WatchSpecial Mention credits are borrowers that have experienced financial setback of a nature that is not determined to be severe or influence ‘ongoing concern’ expectations. Although possible, no loss is anticipated, due to strong collateral and/or guarantor support.
•Grade 8 – Substandard credits will include those borrowers characterized by significant losses and sustained downward trends in balance sheet condition, liquidity, and cash flow. Repayment reliance may have shifted to secondary sources. Collateral exposure may exist and additional reserves may be warranted.
•Grade 9 – Doubtful credits include borrowers that may show deteriorating trends that are unlikely to be corrected. Collateral values may appear insufficient for full recovery, therefore requiring a partial charge-off, or debt renegotiation with the borrower. The borrower may have declared bankruptcy or bankruptcy is likely in the near term. All doubtful rated credits will be on non-accrual.
The recorded investment by risk category of the loans by portfolio class and category atyear of origination is presented in the following tables as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | Term Loans by Origination Year | | | | | | |
($ in thousands) | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans Converted to Term Loans | | Revolving Loans | | Total |
Commercial and industrial | | | | | | | | | | | | | | | | | | |
Pass (1-6) | | $ | 1,567,738 | | | $ | 1,052,462 | | | $ | 345,292 | | | $ | 194,972 | | | $ | 123,425 | | | $ | 71,205 | | | $ | 12,163 | | | $ | 1,108,233 | | | $ | 4,475,490 | |
Special Mention (7) | | 52,523 | | | 6,845 | | | 8,597 | | | 544 | | | 453 | | | 242 | | | 272 | | | 19,590 | | | 89,066 | |
Classified (8-9) | | 12,824 | | | 19,306 | | | 1,833 | | | 812 | | | 339 | | | 363 | | | 508 | | | 45,830 | | | 81,815 | |
Total Commercial and industrial | | $ | 1,633,085 | | | $ | 1,078,613 | | | $ | 355,722 | | | $ | 196,328 | | | $ | 124,217 | | | $ | 71,810 | | | $ | 12,943 | | | $ | 1,173,653 | | | $ | 4,646,371 | |
| | | | | | | | | | | | | | | | | | |
Commercial real estate-investor owned | | | | | | | | | | | | | | | | | | |
Pass (1-6) | | $ | 495,131 | | | $ | 544,223 | | | $ | 492,974 | | | $ | 323,175 | | | $ | 165,343 | | | $ | 236,914 | | | $ | 5,222 | | | $ | 51,413 | | | $ | 2,314,395 | |
Special Mention (7) | | 3,626 | | | 22,725 | | | 51,851 | | | 1,657 | | | 164 | | | 5,526 | | | — | | | — | | | 85,549 | |
Classified (8-9) | | 9,411 | | | 1,034 | | | 43 | | | 15,838 | | | 2,831 | | | 4,919 | | | 48 | | | — | | | 34,124 | |
Total Commercial real estate-investor owned | | $ | 508,168 | | | $ | 567,982 | | | $ | 544,868 | | | $ | 340,670 | | | $ | 168,338 | | | $ | 247,359 | | | $ | 5,270 | | | $ | 51,413 | | | $ | 2,434,068 | |
| | | | | | | | | | | | | | | | | | |
Commercial real estate-owner occupied | | | | | | | | | | | | | | | | | | |
Pass (1-6) | | $ | 407,901 | | | $ | 486,701 | | | $ | 489,589 | | | $ | 301,399 | | | $ | 183,872 | | | $ | 313,474 | | | $ | 5,083 | | | $ | 30,036 | | | $ | 2,218,055 | |
Special Mention (7) | | 13,739 | | | 2,521 | | | 4,652 | | | 10,492 | | | 5,439 | | | 15,833 | | | — | | | 1,493 | | | 54,169 | |
Classified (8-9) | | 3,389 | | | 3,413 | | | 2,247 | | | 3,181 | | | 8,878 | | | 24,857 | | | 5,056 | | | — | | | 51,021 | |
Total Commercial real estate-owner occupied | | $ | 425,029 | | | $ | 492,635 | | | $ | 496,488 | | | $ | 315,072 | | | $ | 198,189 | | | $ | 354,164 | | | $ | 10,139 | | | $ | 31,529 | | | $ | 2,323,245 | |
| | | | | | | | | | | | | | | | | | |
Construction real estate | | | | | | | | | | | | | | | | | | |
Pass (1-6) | | $ | 292,689 | | | $ | 325,010 | | | $ | 96,426 | | | $ | 30,956 | | | $ | 1,413 | | | $ | 3,408 | | | $ | 10 | | | $ | 3,700 | | | $ | 753,612 | |
Special Mention (7) | | 42 | | | 2,958 | | | 1,046 | | | 210 | | | 123 | | | 114 | | | — | | | — | | | 4,493 | |
Classified (8-9) | | 1,137 | | | 704 | | | — | | | — | | | 13 | | | 466 | | | — | | | — | | | 2,320 | |
Total Construction real estate | | $ | 293,868 | | | $ | 328,672 | | | $ | 97,472 | | | $ | 31,166 | | | $ | 1,549 | | | $ | 3,988 | | | $ | 10 | | | $ | 3,700 | | | $ | 760,425 | |
| | | | | | | | | | | | | | | | | | |
Residential real estate | | | | | | | | | | | | | | | | | | |
Pass (1-6) | | $ | 59,259 | | | $ | 41,956 | | | $ | 51,436 | | | $ | 30,713 | | | $ | 17,793 | | | $ | 77,327 | | | $ | 1,464 | | | $ | 78,351 | | | $ | 358,299 | |
Special Mention (7) | | 322 | | | — | | | — | | | — | | | 75 | | | 1,801 | | | — | | | 614 | | | 2,812 | |
Classified (8-9) | | 127 | | | 1,073 | | | 69 | | | — | | | 30 | | | 1,492 | | | 74 | | | 7,500 | | | 10,365 | |
Total residential real estate | | $ | 59,708 | | | $ | 43,029 | | | $ | 51,505 | | | $ | 30,713 | | | $ | 17,898 | | | $ | 80,620 | | | $ | 1,538 | | | $ | 86,465 | | | $ | 371,476 | |
| | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | |
Pass (1-6) | | $ | 10,071 | | | $ | 55,923 | | | $ | 67,766 | | | $ | 53,569 | | | $ | 9,382 | | | $ | 19,657 | | | $ | 7 | | | $ | 28,464 | | | $ | 244,839 | |
Special Mention (7) | | — | | | — | | | 14,472 | | | — | | | — | | | — | | | — | | | 11,645 | | | 26,117 | |
Classified (8-9) | | — | | | — | | | — | | | — | | | — | | | 8 | | | — | | | — | | | 8 | |
Total Other | | $ | 10,071 | | | $ | 55,923 | | | $ | 82,238 | | | $ | 53,569 | | | $ | 9,382 | | | $ | 19,665 | | | $ | 7 | | | $ | 40,109 | | | $ | 270,964 | |
| | | | | | | | | | | | | | | | | | |
Total loans classified by risk category | | $ | 2,929,929 | | | $ | 2,566,854 | | | $ | 1,628,293 | | | $ | 967,518 | | | $ | 519,573 | | | $ | 777,606 | | | $ | 29,907 | | | $ | 1,386,869 | | | $ | 10,806,549 | |
Total loans classified by performing status | | | | | | | | | | | | | | | | | | 77,569 | |
Total loans | | | | | | | | | | | | | | | | | | $ | 10,884,118 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Term Loans by Origination Year | | | | | | |
($ in thousands) | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans Converted to Term Loans | | Revolving Loans | | Total |
Commercial and industrial | | | | | | | | | | | | | | | | | | |
Pass (1-6) | | $ | 1,403,381 | | | $ | 635,275 | | | $ | 332,740 | | | $ | 172,127 | | | $ | 62,729 | | | $ | 66,152 | | | $ | 8,388 | | | $ | 964,592 | | | $ | 3,645,384 | |
Special Mention (7) | | 37,048 | | | 10,836 | | | 13,858 | | | 423 | | | 7,995 | | | 4,102 | | | — | | | 72,944 | | | 147,206 | |
Classified (8-9) | | 16,176 | | | 4,457 | | | 1,627 | | | 24 | | | 166 | | | 183 | | | — | | | 21,349 | | | 43,982 | |
Total Commercial and industrial | | $ | 1,456,605 | | | $ | 650,568 | | | $ | 348,225 | | | $ | 172,574 | | | $ | 70,890 | | | $ | 70,437 | | | $ | 8,388 | | | $ | 1,058,885 | | | $ | 3,836,572 | |
| | | | | | | | | | | | | | | | | | |
Commercial real estate-investor owned | | | | | | | | | | | | | | | | | | |
Pass (1-6) | | $ | 667,107 | | | $ | 584,644 | | | $ | 392,402 | | | $ | 240,033 | | | $ | 115,530 | | | $ | 202,661 | | | $ | 1,457 | | | $ | 53,051 | | | $ | 2,256,885 | |
Special Mention (7) | | 18,844 | | | 5,751 | | | 23,502 | | | 11,605 | | | — | | | 13,063 | | | — | | | — | | | 72,765 | |
Classified (8-9) | | 1,823 | | | — | | | 465 | | | 953 | | | 193 | | | 6,092 | | | 49 | | | — | | | 9,575 | |
Total Commercial real estate-investor owned | | $ | 687,774 | | | $ | 590,395 | | | $ | 416,369 | | | $ | 252,591 | | | $ | 115,723 | | | $ | 221,816 | | | $ | 1,506 | | | $ | 53,051 | | | $ | 2,339,225 | |
| | | | | | | | | | | | | | | | | | |
Commercial real estate-owner occupied | | | | | | | | | | | | | | | | | | |
Pass (1-6) | | $ | 539,610 | | | $ | 555,690 | | | $ | 362,150 | | | $ | 232,335 | | | $ | 123,095 | | | $ | 270,613 | | | $ | — | | | $ | 57,308 | | | $ | 2,140,801 | |
Special Mention (7) | | 11,164 | | | 3,801 | | | 16,856 | | | 4,455 | | | 13,043 | | | 9,009 | | | — | | | 800 | | | 59,128 | |
Classified (8-9) | | — | | | 1,572 | | | 3,483 | | | 8,910 | | | 15,873 | | | 11,387 | | | — | | | — | | | 41,225 | |
Total Commercial real estate-owner occupied | | $ | 550,774 | | | $ | 561,063 | | | $ | 382,489 | | | $ | 245,700 | | | $ | 152,011 | | | $ | 291,009 | | | $ | — | | | $ | 58,108 | | | $ | 2,241,154 | |
| | | | | | | | | | | | | | | | | | |
Construction real estate | | | | | | | | | | | | | | | | | | |
Pass (1-6) | | $ | 290,146 | | | $ | 232,998 | | | $ | 53,129 | | | $ | 2,909 | | | $ | 2,061 | | | $ | 8,480 | | | $ | — | | | $ | 1,769 | | | $ | 591,492 | |
Special Mention (7) | | 17,331 | | | — | | | 681 | | | 146 | | | 111 | | | 106 | | | — | | | — | | | 18,375 | |
Classified (8-9) | | 1,192 | | | — | | | — | | | 14 | | | 471 | | | 21 | | | — | | | — | | | 1,698 | |
Total Construction real estate | | $ | 308,669 | | | $ | 232,998 | | | $ | 53,810 | | | $ | 3,069 | | | $ | 2,643 | | | $ | 8,607 | | | $ | — | | | $ | 1,769 | | | $ | 611,565 | |
| | | | | | | | | | | | | | | | | | |
Residential real estate | | | | | | | | | | | | | | | | | | |
Pass (1-6) | | $ | 63,317 | | | $ | 60,910 | | | $ | 48,796 | | | $ | 20,943 | | | $ | 11,259 | | | $ | 88,795 | | | $ | 579 | | | $ | 96,304 | | | $ | 390,903 | |
Special Mention (7) | | 331 | | | — | | | — | | | 79 | | | 352 | | | 781 | | | — | | | — | | | 1,543 | |
Classified (8-9) | | 121 | | | 73 | | | — | | | 53 | | | 1,102 | | | 994 | | | — | | | 5 | | | 2,348 | |
Total residential real estate | | $ | 63,769 | | | $ | 60,983 | | | $ | 48,796 | | | $ | 21,075 | | | $ | 12,713 | | | $ | 90,570 | | | $ | 579 | | | $ | 96,309 | | | $ | 394,794 | |
| | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | |
Pass (1-6) | | $ | 38,753 | | | $ | 88,613 | | | $ | 56,252 | | | $ | 10,556 | | | $ | 20,508 | | | $ | 10,796 | | | $ | — | | | $ | 9,536 | | | $ | 235,014 | |
Special Mention (7) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Classified (8-9) | | — | | | — | | | — | | | 4 | | | 3 | | | 11 | | | 3 | | | 4 | | | 25 | |
Total Other | | $ | 38,753 | | | $ | 88,613 | | | $ | 56,252 | | | $ | 10,560 | | | $ | 20,511 | | | $ | 10,807 | | | $ | 3 | | | $ | 9,540 | | | $ | 235,039 | |
| | | | | | | | | | | | | | | | | | |
Total loans classified by risk category | | $ | 3,106,344 | | | $ | 2,184,620 | | | $ | 1,305,941 | | | $ | 705,569 | | | $ | 374,491 | | | $ | 693,246 | | | $ | 10,476 | | | $ | 1,277,662 | | | $ | 9,658,349 | |
Total loans classified by performing status | | | | | | | | | | | | | | | | | | 78,789 | |
Total loans | | | | | | | | | | | | | | | | | | $ | 9,737,138 | |
In the tables above, loan originations in 2023 and 2022 with a classification of “special mention” or “classified” primarily represent renewals or modifications initially underwritten and originated in prior years. For certain loans the Company evaluates credit quality based on the aging status. The following tables present the recorded investment in loans based on payment activity as of the dates indicated:
| | | | | | | | | | | | | | | | | |
| December 31, 2023 |
($ in thousands) | Performing | | Non Performing | | Total |
Commercial and industrial | $ | 26,076 | | | $ | 112 | | | $ | 26,188 | |
Real estate: | | | | | |
Commercial - investor owned | 17,885 | | | — | | | 17,885 | |
Commercial - owner occupied | 28,373 | | | — | | | 28,373 | |
| | | | | |
Residential | 712 | | | — | | | 712 | |
Other | 4,406 | | | 5 | | | 4,411 | |
Total | $ | 77,452 | | | $ | 117 | | | $ | 77,569 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
($ in thousands) | Performing | | Non Performing | | Total |
Commercial and industrial | $ | 23,240 | | | $ | 70 | | | $ | 23,310 | |
Real estate: | | | | | |
Commercial - investor owned | 18,595 | | | — | | | 18,595 | |
Commercial - owner occupied | 29,397 | | | — | | | 29,397 | |
| | | | | |
Residential | 743 | | | — | | | 743 | |
Other | 6,672 | | | 72 | | | 6,744 | |
Total | $ | 78,647 | | | $ | 142 | | | $ | 78,789 | |
NOTE 5 - LEASES
Lessee Arrangements
The Company has banking and limited-service facilities, data centers, and certain equipment under lease agreements. Most of the leases expire between 2024 and 2028 and include one or more renewal options for up to 5 years. Five leases expire between 2030 and 2034. All leases are classified as operating leases.
| | | | | | | | | | | |
| For the year ended December 31, |
($ in thousands) | 2023 | | 2022 |
Operating lease cost | $ | 5,628 | | | $ | 5,868 | |
Short-term lease cost | 491 | | | 814 | |
| | | |
| | | |
Total lease cost | $ | 6,119 | | | $ | 6,682 | |
Payments on operating leases included in the measurement of lease liabilities during the twelve months ended December 31, 20172023 and 2022 totaled $5.5 million and $5.8 million, respectively. Right-of-use assets obtained in exchange for lease obligations totaled $15.6 million and $9.5 million during the twelve months ended December 31, 20162023 and 2022, respectively. The additions in 2023 and 2022 were primarily from lease renewals.
Supplemental balance sheet information related to leases is as follows:
| | | | | | | | | | | |
($ in thousands) | December 31, 2023 | | December 31, 2022 |
Operating lease right-of-use assets, included in other assets | $ | 25,406 | | | $ | 17,355 | |
Operating lease liabilities, included in other liabilities | 28,635 | | | 18,038 | |
| | | |
Operating leases | | | |
Weighted average remaining lease term | 7 years | | 5 years |
Weighted average discount rate | 3.9 | % | | 2.5 | % |
|
| | | | | | | | | | | | | | | |
| December 31, 2017 |
(in thousands) | Pass (1-6) | | Watch (7) | | Substandard (8) | | Total |
Commercial and industrial | $ | 1,769,102 |
| | $ | 94,002 |
| | $ | 55,616 |
| | $ | 1,918,720 |
|
Real estate: | | | | | | | |
Commercial - investor owned | 754,010 |
| | 10,840 |
| | 4,425 |
| | 769,275 |
|
Commercial - owner occupied | 514,616 |
| | 34,440 |
| | 5,533 |
| | 554,589 |
|
Construction and land development | 292,766 |
| | 9,983 |
| | 342 |
| | 303,091 |
|
Residential | 329,742 |
| | 3,648 |
| | 7,922 |
| | 341,312 |
|
Consumer and other | 134,704 |
| | 10 |
| | 1,195 |
| | 135,909 |
|
Total | $ | 3,794,940 |
| | $ | 152,923 |
| | $ | 75,033 |
| | $ | 4,022,896 |
|
Maturities of operating lease liabilities are as follows:
| | | | | | | | |
($ in thousands) | | | | |
Year | Amount | |
2024 | $ | 5,378 | | | | |
2025 | 5,586 | | | |
2026 | 5,682 | | | |
2027 | 4,442 | | | |
2028 | 2,979 | | | |
Thereafter | 9,011 | | | |
Total operating lease liabilities, payments | 33,078 | | | | |
Less: present value adjustment | 4,443 | | | | |
Operating lease liabilities | $ | 28,635 | | | | |
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
(in thousands) | Pass (1-6) | | Watch (7) | | Substandard (8) | | Total |
Commercial and industrial | $ | 1,499,114 |
| | $ | 57,416 |
| | $ | 76,184 |
| | $ | 1,632,714 |
|
Real estate: | | | | | | | |
Commercial - investor owned | 530,494 |
| | 10,449 |
| | 3,865 |
| | 544,808 |
|
Commercial - owner occupied | 306,658 |
| | 39,249 |
| | 4,241 |
| | 350,148 |
|
Construction and land development | 185,505 |
| | 6,575 |
| | 2,462 |
| | 194,542 |
|
Residential | 233,479 |
| | 2,997 |
| | 4,284 |
| | 240,760 |
|
Consumer and other | 153,984 |
| | — |
| | 1,436 |
| | 155,420 |
|
Total | $ | 2,909,234 |
| | $ | 116,686 |
| | $ | 92,472 |
| | $ | 3,118,392 |
|
Lessor Arrangements
Below isThe Company leases office space to a summarythird party through an operating lease. This lease has remaining lease terms of PCI loans by category attwo years. Lessor income was $1.8 million and $1.9 million for the twelve months ended December 31, 20172023, and 2016:2022.
|
| | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
($ in thousands) | Weighted- Average Risk Rating1 | Recorded Investment PCI Loans | | Weighted- Average Risk Rating1 | Recorded Investment PCI Loans |
Commercial and industrial | 6.38 | $ | 3,212 |
| | 5.87 | $ | 3,523 |
|
Real estate loans: | | | | | |
Commercial - investor owned | 7.36 | 42,887 |
| | 6.95 | 8,162 |
|
Commercial - owner occupied | 6.48 | 11,332 |
| | 6.39 | 11,863 |
|
Construction and land development | 5.99 | 5,883 |
| | 5.80 | 4,365 |
|
Residential | 5.99 | 10,781 |
| | 5.64 | 11,792 |
|
Total real estate loans | | 70,883 |
| | | 36,182 |
|
Consumer and other | 2.84 | 59 |
| | 1.64 | 64 |
|
Purchased credit impaired loans | | $ | 74,154 |
| | | $ | 39,769 |
|
| | | | | |
(1) Risk ratings are based on the borrower's contractual obligation, which is not reflective of the purchase discount. |
The aging of the recorded investment in past due PCI loans by portfolio class and category at December 31, 2017 and 2016 is shown below:
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
(in thousands) | 30-89 Days Past Due | | 90 or More Days Past Due | | Total Past Due | | Current | | Total |
Commercial and industrial | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,212 |
| | $ | 3,212 |
|
Real estate: | | | | | | | | | |
Commercial - investor owned | — |
| | 3,034 |
| | 3,034 |
| | 39,853 |
| | 42,887 |
|
Commercial - owner occupied | — |
| | 673 |
| | 673 |
| | 10,659 |
| | 11,332 |
|
Construction and land development | — |
| | — |
| | — |
| | 5,883 |
| | 5,883 |
|
Residential | 328 |
| | 255 |
| | 583 |
| | 10,198 |
| | 10,781 |
|
Consumer and other | — |
| | — |
| | — |
| | 59 |
| | 59 |
|
Total | $ | 328 |
| | $ | 3,962 |
| | $ | 4,290 |
| | $ | 69,864 |
| | $ | 74,154 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
(in thousands) | 30-89 Days Past Due | | 90 or More Days Past Due | | Total Past Due | | Current | | Total |
Commercial and industrial | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,523 |
| | $ | 3,523 |
|
Real estate: | | | | | | | | | |
Commercial - investor owned | — |
| | — |
| | — |
| | 8,162 |
| | 8,162 |
|
Commercial - owner occupied | — |
| | — |
| | — |
| | 11,863 |
| | 11,863 |
|
Construction and land development | — |
| | — |
| | — |
| | 4,365 |
| | 4,365 |
|
Residential | 169 |
| | 51 |
| | 220 |
| | 11,572 |
| | 11,792 |
|
Consumer and other | — |
| | — |
| | — |
| | 64 |
| | 64 |
|
Total | $ | 169 |
| | $ | 51 |
| | $ | 220 |
| | $ | 39,549 |
| | $ | 39,769 |
|
The following table is a rollforward of PCI loans, net of the allowance for loan losses, for the years ended December 31, 2017 and 2016.
|
| | | | | | | | | | | | | | | |
(in thousands) | Contractual Cashflows | | Non-accretable Difference | | Accretable Yield | | Carrying Amount |
Balance January 1, 2017 | $ | 66,003 |
| | $ | 18,902 |
| | $ | 13,176 |
| | $ | 33,925 |
|
Acquisitions | 68,763 |
| | 14,296 |
| | 5,312 |
| | 49,155 |
|
Principal reductions and interest payments | (24,530 | ) | | — |
| | — |
| | (24,530 | ) |
Accretion of loan discount | — |
| | — |
| | (7,573 | ) | | 7,573 |
|
Changes in contractual and expected cash flows due to remeasurement | 13,978 |
| | (1,465 | ) | | 5,486 |
| | 9,957 |
|
Reductions due to disposals | (11,503 | ) | | (2,727 | ) | | (2,439 | ) | | (6,337 | ) |
Balance December 31, 2017 | $ | 112,711 |
| | $ | 29,006 |
| | $ | 13,962 |
| | $ | 69,743 |
|
| | | | | | | |
Balance January 1, 2016 | $ | 116,689 |
| | $ | 26,765 |
| | $ | 25,341 |
| | $ | 64,583 |
|
Principal reductions and interest payments | (25,669 | ) | | — |
| | — |
| | (25,669 | ) |
Accretion of loan discount | — |
| | — |
| | (6,155 | ) | | 6,155 |
|
Changes in contractual and expected cash flows due to remeasurement | 11,718 |
| | 766 |
| | (1,500 | ) | | 12,452 |
|
Reductions due to disposals | (36,735 | ) | | (8,629 | ) | | (4,510 | ) | | (23,596 | ) |
Balance December 31, 2016 | $ | 66,003 |
| | $ | 18,902 |
| | $ | 13,176 |
| | $ | 33,925 |
|
The accretable yield is recognized in interest income over the estimated life of the acquired loans using the effective
yield method.
Outstanding customer balances on PCI loans were $94.9 million and $54.6 million as of December 31, 2017, and December 31, 2016, respectively.
On December 7, 2015, the Company entered into an agreement to terminate all existing loss share agreements with the FDIC. Under the terms of the agreement, the FDIC made a net payment to the bank of $1.3 million. The agreement eliminated the FDIC clawback liability of $3.5 million and the FDIC loss share receivable of $7.2 million. Accordingly, a pretax charge of $2.4 million was recorded in 2015 as a separate component of noninterest expense.
NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a party to variouswide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the normal courseamount, timing, and duration of businessthe Company’s known or expected cash receipts and its known or expected cash payments principally related to meet the needs of its clientsCompany’s loans and as part of its risk management activities. These instruments include interest rate swaps and option contracts and foreign exchange forward contracts.borrowings. The Company does not enter into derivative financial instruments for trading purposes.
Using derivative instruments can involve assuming counterparty credit riskCash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to varying degrees. Counterparty credit risk relatesadd stability to the lossinterest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company could incur if a counterparty were to default on a derivative contract. Notional amounts of derivative financial instruments do not represent credit risk, and are not recorded in the consolidated balance sheet. The overall credit risk and exposure to individual counterparties is monitored. The Company does not anticipate nonperformance by any counterparties. The amount of counterparty credit exposure is the unrealized gains in excess of collateral pledged, if any, on such derivative contracts along with the value of foreign exchange forward contracts. At December 31, 2017, the Company had $2.1 million of counterparty credit exposure on derivatives. This counterparty risk is consideredprimarily uses interest rate swaps as part of underwritingits interest rate risk management strategy.
For hedges of the Company’s variable-rate loans, interest rate swaps designated as cash flow hedges involve the receipt of fixed amounts and on-going monitoring policies. At December 31, 2017 and 2016, the Company had pledgedmaking variable rate payments. In the fourth quarter 2022, the Company executed a cash flow hedge to reduce a portion of $1.4 million and $0.7 million, respectively, as collateralvariability in connection withcash flows on the Company’s prime based loan portfolio. The interest rate swap agreements.
Hedging Instruments. At December 31, 2017,has a notional value of $100.0 million, that effectively fixes the Company had no outstanding hedging instruments used to manage risk.interest rate at 6.63% for the notional amount and has a maturity date of January 1, 2028. In the past,January 2023, the Company entered into another hedge on the prime based loan portfolio with a notional value of $50.0 million, that effectively fixes the interest rate capsat 6.56% for the notional amount and has a maturity date of February 1, 2027.
In addition, the Company executed a prime based interest rate collar in orderthe fourth quarter of 2022 with a notional amount of $100.0 million. The collar includes a cap of 8.14% and a floor of 5.25%. This transaction, commonly referred to economicallyas a zero cost collar, involves the Company selling an interest rate cap where payments will be made when the index exceeds the cap rate, and the purchase of a floor where payments will be received if the index falls below the floor. The collar matures on October 1, 2029.
For hedges of the variable-rate liabilities, interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company has executed a series of cash flow hedges to fix the effective interest rate for payments due on $62.0 million of junior subordinated debentures to a weighted-average-fixed rate of 2.62%.
Select terms of the hedges are as follows:
| | | | | | | | |
$ in thousands | | |
Notional | Fixed Rate | Maturity Date |
$15,465 | 2.60% | March 15, 2024 |
$14,433 | 2.60% | March 30, 2024 |
$18,558 | 2.64% | March 15, 2026 |
$13,506 | 2.64% | March 17, 2026 |
The gain or loss on derivatives designated and qualified as cash flow hedges of interest rate risk are recorded in accumulated other comprehensive income and subsequently reclassified into interest income or expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income or expense as interest payments are paid on the Company’s variable-rate loans and debt. During the next twelve months, the Company estimates an
additional $0.9 million will be reclassified as a decrease to interest expense and $1.7 million will be reclassified as a decrease to interest income.
Non-designated Hedges
Derivatives not designated as hedges are not considered speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of certain state tax credits held for sale. See Note 18 – Fair Value Measurements for further discussionboth the customer derivatives and the offsetting derivatives are recognized directly in earnings as a component of other noninterest income.
The table below presents the fair value of the state tax credits. Company’s derivative financial instruments as well as their classification on the Balance Sheet.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Notional Amount | | Derivative Assets | | Derivative Liabilities |
($ in thousands) | December 31, 2023 | | December 31, 2022 | | December 31, 2023 | | December 31, 2022 | | December 31, 2023 | | December 31, 2022 |
Derivatives designated as hedging instruments |
Interest rate swaps | $ | 211,962 | | | $ | 161,962 | | | $ | 1,389 | | | $ | 2,348 | | | $ | 233 | | | $ | 921 | |
Interest rate collar | 100,000 | | | 100,000 | | | 514 | | | — | | | — | | | 48 | |
Total | | | | | $ | 1,903 | | | $ | 2,348 | | | $ | 233 | | | $ | 969 | |
| | | | | | | | | | | |
Derivatives not designated as hedging instruments |
Interest rate swaps | $ | 779,152 | | | $ | 687,902 | | | $ | 15,886 | | | $ | 20,610 | | | $ | 15,951 | | | $ | 20,612 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
The notional amounttables below present a gross presentation, the effects of offsetting, and a net presentation of the derivativeCompany’s financial instruments usedsubject to manage risk was $3.5 million atoffsetting. The gross amounts of assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that financial assets and liabilities are presented on the Balance Sheet.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2023 |
| | | Gross Amounts Not Offset in the Statement of Financial Position | | |
($ in thousands) | Gross Amounts Recognized | | Gross Amounts Offset in the Statement of Financial Position | | Net Amounts of Assets presented in the Statement of Financial Position | | Financial Instruments | | Fair Value Collateral Posted | | Net Amount |
Assets: | | | | | | | | | | | |
Interest rate swaps | $ | 17,275 | | | $ | — | | | $ | 17,275 | | | $ | 1,105 | | | $ | 16,170 | | | $ | — | |
Interest rate collar | 514 | | | — | | | 514 | | | — | | | — | | | 514 | |
| | | | | | | | | | | |
Liabilities: | | | | | | | | | | | |
Interest rate swaps | $ | 16,184 | | | $ | — | | | $ | 16,184 | | | $ | 1,105 | | | $ | — | | | $ | 15,079 | |
| | | | | | | | | | | |
Securities sold under agreements to repurchase | 250,197 | | | — | | | 250,197 | | | — | | | 250,197 | | | — | |
|
As of December 31, 2022 |
| | | Gross Amounts Not Offset in the Statement of Financial Position | | |
($ in thousands) | Gross Amounts Recognized | | Gross Amounts Offset in the Statement of Financial Position | | Net Amounts of Assets presented in the Statement of Financial Position | | Financial Instruments | | Fair Value Collateral Posted | | Net Amount |
Assets: | | | | | | | | | | | |
Interest rate swaps | $ | 22,958 | | | $ | — | | | $ | 22,958 | | | $ | — | | | $ | 9,010 | | | $ | 13,948 | |
| | | | | | | | | | | |
Liabilities: | | | | | | | | | | | |
Interest rate swaps | $ | 21,533 | | | $ | — | | | $ | 21,533 | | | $ | — | | | $ | — | | | $ | 21,533 | |
Interest rate collar | 48 | | | — | | | 48 | | | — | | | — | | | 48 | |
Securities sold under agreements to repurchase | 270,773 | | | — | | | 270,773 | | | — | | | 270,773 | | | — | |
As of December 31, 2016.
Client-Related Derivative Instruments. The Company enters into interest rate swaps to allow customers to hedge changes in fair value of certain loans while maintaining a variable rate loan on its balance sheet. The Company also enters into foreign exchange forward contracts with clients, and enters into offsetting foreign exchange forward contracts with established financial institution counterparties. The table below summarizes the notional amounts and fair values of the client-related derivative instruments.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Asset Derivatives (Other Assets) | | Liability Derivatives (Other Liabilities) |
| Notional Amount | | Fair Value | | Fair Value |
(in thousands) | December 31, 2017 | | December 31, 2016 | | December 31, 2017 | | December 31, 2016 | | December 31, 2017 | | December 31, 2016 |
Non-designated hedging instruments | | | | | | | | | | | |
Interest rate swap contracts | $ | 394,852 |
| | $ | 124,322 |
| | $ | 2,061 |
| | $ | 982 |
| | $ | 2,061 |
| | $ | 982 |
|
Foreign exchange forward contracts | 1,528 |
| | 3,034 |
| | 1,528 |
| | 3,034 |
| | 1,528 |
| | 3,034 |
|
Changes in2023, the fair value of client-relatedcounterparty derivatives in a net liability position, which includes accrued interest, related to these agreements was $15.8 million. The company has minimum collateral posting thresholds with certain derivative instruments are recognized currentlycounterparties and posts collateral related to derivatives in operations. Fora net liability position. The Company has received cash collateral from counterparties on derivatives that were in a net asset position as noted in the years ended December 31, 2017 and 2016, the gains and losses offset each other due to the Company's hedging of the client swaps with other bank counterparties.tables above.
NOTE 7 - FIXED ASSETS
A summary of fixed assets at December 31, 2017 and 2016, is as follows:
| | | | | | | | | | | |
| December 31, |
($ in thousands) | 2023 | | 2022 |
Land | $ | 11,716 | | | $ | 12,362 | |
Buildings and leasehold improvements | 50,720 | | | 50,243 | |
Furniture, fixtures and equipment | 21,526 | | | 19,569 | |
| 83,962 | | | 82,174 | |
Less accumulated depreciation and amortization | 41,281 | | | 39,189 | |
Total fixed assets | $ | 42,681 | | | $ | 42,985 | |
|
| | | | | | | |
| December 31, |
(in thousands) | 2017 | | 2016 |
Land | $ | 7,263 |
| | $ | 3,103 |
|
Buildings and leasehold improvements | 32,384 |
| | 18,054 |
|
Furniture, fixtures and equipment | 8,272 |
| | 6,136 |
|
Capitalized software | 1,305 |
| | 1,305 |
|
| 49,224 |
| | 28,598 |
|
Less accumulated depreciation and amortization | 16,606 |
| | 13,688 |
|
Total fixed assets | $ | 32,618 |
| | $ | 14,910 |
|
Depreciation and amortization of fixed assets included in noninterest expense amounted to $3.3$5.1 million, $2.4$5.6 million, and $2.0$6.1 million in 2017, 2016,2023, 2022, and 2015,2021, respectively.
TheIn 2023, the Company has facilities leased under agreements that expirecompleted an asset sale-leaseback on a branch location in various years through 2029. The Company's rent expense totaled $3.3 million, $3.1 million,the Kansas City market and $3.1 million in 2017, 2016, and 2015, respectively. Sublease rental income was $0.03 million, $0.1 million, and $0.1 million for 2017, 2016, and 2015, respectively. For leases which renew or are subject to periodic rental adjustments, the monthly rental payments will be adjusted based on current market conditions and rates of inflation.
The future aggregate minimum rental commitments (in thousands) required under the Company's equipment and facilities leases are shown below:
|
| | | |
Year | Amount |
2018 | $ | 3,503 |
|
2019 | 3,477 |
|
2020 | 3,418 |
|
2021 | 3,337 |
|
2022 | 2,801 |
|
Thereafter | 5,962 |
|
Total | $ | 22,498 |
|
The Company has recorded a liabilitygain of $0.1 million. In 2021 the Company commenced the process to close three branch locations in California related to the First Choice acquisition. A lease and corresponding expense for the difference between the net present value of future lease payments and its estimated sublease income on certain vacant branches. As of December 31, 2017, this liability was $2.0 million. The Company recorded expense for the estimated net lease liabilityfixed asset impairment charge of $0.4 million, $0.5 was recognized and reported in merger-related expenses. Additionally, the Company also commenced the process to close two branches in St. Louis and consolidate the operations and customers of these branches with other nearby locations. An impairment charge of $3.4 million on these branches was recognized in 2021 for buildings, leases and $0.1 million in 2017, 2016, and 2015, respectively. The expense is recorded within other noninterest expense.fixed assets.
NOTE 8 - GOODWILL AND INTANGIBLE ASSETS
Goodwill increased to $117.3The Company’s goodwill was $365.2 million as offor the years ending December 31, 2017, compared to $30.3 million as of December 31, 2016 due to the acquisition of JCB. The annual goodwill impairment evaluations in 2017, 2016,2023 and 2015 did not identify any impairment.2022, respectively.
The table below presents a summary of intangible assets:
| | | | | | | | | | | |
($ in thousands) | Years ended December 31, |
2023 | | 2022 |
Core deposit intangible, net, beginning of year | $ | 16,919 | | | $ | 22,286 | |
| | | |
Amortization | (4,601) | | | (5,367) | |
Core deposit intangible, net, end of year | $ | 12,318 | | | $ | 16,919 | |
|
| | | | | | | |
(in thousands) | Years ended December 31, |
2017 | | 2016 |
Gross core deposit intangible balance, beginning of year | $ | 9,060 |
| | $ | 9,060 |
|
Additions | 11,514 |
| | — |
|
Gross core deposit intangible, end of period | 20,574 |
| | 9,060 |
|
Accumulated amortization | (9,518 | ) | | (6,909 | ) |
Core deposit intangible, net, end of year | $ | 11,056 |
| | $ | 2,151 |
|
Amortization expense on the core deposit intangibles was $2.6$4.6 million, $0.9$5.4 million, and $1.1$5.7 million for the years ended December 31, 2017, 2016,2023, 2022, and 2015,2021, respectively. The core deposit intangibles are being amortized over a 10year10-year period.
The following table reflects the expected amortization schedule for the core deposit intangible (in thousands) at December 31, 2017.2023.
| | | | | |
Year | Core Deposit Intangible ($ in thousands) |
2024 | $ | 3,834 | |
2025 | 3,068 | |
2026 | 2,301 | |
2027 | 1,535 | |
2028 | 953 | |
After 2028 | 627 | |
| $ | 12,318 | |
|
| | | |
Year | Core Deposit Intangible |
2018 | $ | 2,504 |
|
2019 | 2,129 |
|
2020 | 1,755 |
|
2021 | 1,381 |
|
2022 | 1,071 |
|
After 2022 | 2,216 |
|
| $ | 11,056 |
|
NOTE 9 - MATURITY OF CERTIFICATES OF DEPOSITDEPOSITS
Following is a summary of certificates of deposit maturities at December 31, 2017:2023:
| | | | | | | | | | | | | | | | | |
($ in thousands) | Brokered | | Customer | | Total |
Less than 1 year | $ | 387,609 | | | $ | 714,213 | | | $ | 1,101,822 | |
Greater than 1 year and less than 2 years | 95,150 | | | 61,365 | | | 156,515 | |
Greater than 2 years and less than 3 years | — | | | 6,073 | | | 6,073 | |
Greater than 3 years and less than 4 years | — | | | 2,946 | | | 2,946 | |
Greater than 4 years and less than 5 years | — | | | 1,291 | | | 1,291 | |
Greater than 5 years | — | | | 4,267 | | | 4,267 | |
| $ | 482,759 | | | $ | 790,155 | | | $ | 1,272,914 | |
|
| | | | | | | | | | | |
(in thousands) | Brokered | | Customer | | Total |
Less than 1 year | $ | 114,054 |
| | $ | 317,373 |
| | $ | 431,427 |
|
Greater than 1 year and less than 2 years | 1,252 |
| | 74,236 |
| | 75,488 |
|
Greater than 2 years and less than 3 years | — |
| | 48,553 |
| | 48,553 |
|
Greater than 3 years and less than 4 years | — |
| | 21,100 |
| | 21,100 |
|
Greater than 4 years and less than 5 years | — |
| | 1,598 |
| | 1,598 |
|
Greater than 5 years | — |
| | 607 |
| | 607 |
|
| $ | 115,306 |
| | $ | 463,467 |
| | $ | 578,773 |
|
Certificates of deposit balances over the FDIC insurance limit of $250,000 were $148.0$234.6 million as of December 31, 2017.2023.
At December 31, 2023, deposit accounts of executive officers and directors, or to entities in which such individuals had beneficial interests as a shareholder, officer, or director totaled $2.6 million.
The Company is a participant in certain networks that offer deposit placement services on a reciprocal basis that qualify large deposits for FDIC insurance. The Company had $91.7 million and $10.6 million of certificates of deposits, and $1.1 billion and $195.1 million of demand deposits in these reciprocal accounts at December 31, 2023 and 2022, respectively.
At December 31, 2023 and 2022, overdraft deposits of $1.6 million and $3.2 million, respectively, were reclassified to loans.
NOTE 10 - SUBORDINATED DEBENTURES AND NOTES
The amounts and terms of each issuance offollowing table summarizes the Company'sCompany’s subordinated debentures at December 31, 2017 and 2016 were as follows:31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | | Maturity Date | | Initial Call Date (1) | | Interest Rate |
($ in thousands) | 2023 | | 2022 |
EFSC Clayco Statutory Trust I | $ | 3,196 | | | $ | 3,196 | | | December 17, 2033 | | December 17, 2008 | | Floats @ 3 month term SOFR + 2.85% |
EFSC Capital Trust II | 5,155 | | | 5,155 | | | June 17, 2034 | | June 17, 2009 | | Floats @ 3 month term SOFR + 2.65% |
EFSC Statutory Trust III | 11,341 | | | 11,341 | | | December 15, 2034 | | December 15, 2009 | | Floats @ 3 month term SOFR + 1.97% |
EFSC Clayco Statutory Trust II | 4,124 | | | 4,124 | | | September 15, 2035 | | September 15, 2010 | | Floats @ 3 month term SOFR + 1.83% |
EFSC Statutory Trust IV | 10,310 | | | 10,310 | | | December 15, 2035 | | December 15, 2010 | | Floats @ 3 month term SOFR + 1.44% |
EFSC Statutory Trust V | 4,124 | | | 4,124 | | | September 15, 2036 | | September 15, 2011 | | Floats @ 3 month term SOFR + 1.60% |
EFSC Capital Trust VI | 14,433 | | | 14,433 | | | March 30, 2037 | | March 30, 2012 | | Floats @ 3 month term SOFR + 1.60% |
EFSC Capital Trust VII | 4,124 | | | 4,124 | | | December 15, 2037 | | December 15, 2012 | | Floats @ 3 month term SOFR + 2.25% |
JEFFCO Stat Trust I | 7,732 | | | 7,732 | | | February 22, 2031 | | February 22, 2011 | | Fixed @ 10.20% |
JEFFCO Stat Trust II (2) | 4,604 | | | 4,550 | | | March 17, 2034 | | March 17, 2009 | | Floats @ 3 month term SOFR + 2.75% |
Trinity Capital Trust III (2) | 5,473 | | | 5,406 | | | September 8, 2034 | | September 8, 2009 | | Floats @ 3 month term SOFR + 2.70% |
Trinity Capital Trust IV | 10,310 | | | 10,310 | | | November 23, 2035 | | August 23, 2010 | | Fixed @ 6.88% |
Trinity Capital Trust V (2) | 8,195 | | | 8,032 | | | December 15, 2036 | | September 15, 2011 | | Floats @ 3 month term SOFR + 1.65% |
Total junior subordinated debentures | 93,121 | | | 92,837 | | | | | | | |
5.75% Fixed-to-floating rate subordinated notes | 63,250 | | | 63,250 | | | June 1, 2030 | | June 1, 2025 | | Fixed @ 5.75% until June 1, 2025, then floats @ Benchmark rate (3 month term SOFR) + 5.66% |
| | | | | | | | | |
Debt issuance costs | (387) | | | (654) | | | | | | | |
Total fixed-to-floating rate subordinated notes | 62,863 | | | 62,596 | | | | | | | |
Total subordinated debentures and notes | $ | 155,984 | | | $ | 155,433 | | | | | | | |
| | | | | | | | | |
(1) Callable each quarter after initial call date. | | |
(2) Purchase accounting adjustments are reflected in the balance and also impact the effective interest rate. |
|
| | | | | | | | | | | | | |
| Amount | | Maturity Date | | Call Date | | Interest Rate |
(in thousands) | 2017 | | 2016 |
EFSC Clayco Statutory Trust I | $ | 3,196 |
| | $ | 3,196 |
| | December 17, 2033 | | December 17, 2008 | | Floats @ 3MO LIBOR + 2.85% |
EFSC Capital Trust II | 5,155 |
| | 5,155 |
| | June 17, 2034 | | June 17, 2009 | | Floats @ 3MO LIBOR + 2.65% |
EFSC Statutory Trust III | 11,341 |
| | 11,341 |
| | December 15, 2034 | | December 15, 2009 | | Floats @ 3MO LIBOR + 1.97% |
EFSC Clayco Statutory Trust II | 4,124 |
| | 4,124 |
| | September 15, 2035 | | September 15, 2010 | | Floats @ 3MO LIBOR + 1.83% |
EFSC Statutory Trust IV | 10,310 |
| | 10,310 |
| | December 15, 2035 | | December 15, 2010 | | Floats @ 3MO LIBOR + 1.44% |
EFSC Statutory Trust V | 4,124 |
| | 4,124 |
| | September 15, 2036 | | September 15, 2011 | | Floats @ 3MO LIBOR + 1.60% |
EFSC Capital Trust VI | 14,433 |
| | 14,433 |
| | March 30, 2037 | | March 30, 2012 | | Floats @ 3MO LIBOR + 1.60% |
EFSC Capital Trust VII | 4,124 |
| | 4,124 |
| | December 15, 2037 | | December 15, 2012 | | Floats @ 3MO LIBOR + 2.25% |
JEFFCO Stat Trust I (1) | 8,153 |
| | — |
| | February 22, 2031 | | February 22, 2011 | | Fixed @ 10.2% |
JEFFCO Stat Trust II (1) | 4,281 |
| | — |
| | March 17, 2034 | | March 17, 2009 | | Floats @ 3MO LIBOR + 2.75% |
Total trust preferred securities | 69,241 |
| | 56,807 |
| | | | | | |
| | | | | | | | | |
Fixed-to-floating rate subordinated notes | 50,000 |
| | 50,000 |
| | November 1, 2026 | | November 1, 2021 | | Fixed @ 4.75% until November 1, 2021, then floats @ 3MO LIBOR + 3.387% |
Debt issuance costs | (1,136 | ) | | (1,267 | ) | | | | | | |
Total fixed-to-floating rate subordinated notes | 48,864 |
| | 48,733 |
| | | | | | |
| | | | | | | | | |
Total subordinated debentures and notes | $ | 118,105 |
| | $ | 105,540 |
| | | | | | |
| | | | | | | | | |
(1) Purchase accounting adjustments are reflected in the balance and also impact the effective interest rate. |
The Company has 1013 unconsolidated statutory business trusts. These trusts issued preferred securities that were sold to third parties. The sole purpose of the trusts was to invest the proceeds in junior subordinated debentures of the Company that have terms identical to the trust preferred securities. The subordinated debentures, which are the sole assets of the trusts, are subordinate and junior in right of payment to all present and future senior and subordinated indebtedness and certain other financial conditions of the Company. The Company fully and unconditionally guarantees each trust'strust’s securities obligations. Under current regulations, the trust preferred securities are included in tier 1 capital for regulatory capital purposes, subject to certain limitations.
The trust preferred securities are redeemable in whole or in part on or after their respective call dates. Mandatory redemption dates may be shortened if certain conditions are met. The securities are classified as subordinated debentures in the Company'sCompany’s consolidated balance sheets. Interest on the subordinated debentures held by the trusts is recorded as interest expense in the Company's consolidated statementsCompany’s Consolidated Statements of operations.Income. The Company'sCompany’s investment in these trusts of $2.1$2.9 million at December 31, 2017, in these trusts2023 is included in other investments in the consolidated balance sheets. The Company has fixed the interest rate on a portion of its junior subordinated debentures through a series of
interest rate swaps. For further discussion of the interest rate swaps and the corresponding terms, see “Note 6 – Derivative Financial Instruments.”
On November 1, 2016, the Company issued $50 million of fixed-to-floating rate subordinated notes. The notes initially bearbore a fixed annual interest rate of 4.75%, with interest payable semiannually in arrears on May 1 and November 1 of each year, commencing May 1, 2017. CommencingOn November 1, 2021, the interest rateCompany redeemed the $50.0 million of subordinated debentures at par. A loss of $0.7 million on the redemption was recognized for the write-off of unamortized debt issuance costs.
On May 21, 2020, EFSC issued $63.3 million of 5.75% fixed-to-floating rate subordinated notes resets quarterlydue in 2030 in a public offering (the “2030 Notes”). From and including the date of issuance to, but excluding, June 1, 2025, the 2030 Notes will bear interest at a rate equal to 5.75% per annum, payable semiannually in arrears on each June 1 and December 1. From and including June 1, 2025 to, but excluding, the maturity date or the date of earlier redemption, the 2030 Notes will bear interest at a floating rate per annum equal to a benchmark rate (which is expected to be three-month LIBOR rateterm SOFR (as defined in the Indenture, dated May 21, 2020, between EFSC and U.S. Bank National Association, as trustee, and subsequent First Supplemental Indenture)), plus a spread of 338.7566.0 basis points, payable quarterly in arrears. On or after Novemberarrears on March 1, 2021,June 1, September 1 and December 1 of each year, commencing on September 1, 2025. Notwithstanding the Company will haveforegoing, in event that the option to redeembenchmark rate is less than zero, then the notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the subordinated notesbenchmark rate shall be deemed to be redeemed plus accrued interest, subject to applicable regulatory approval.zero. The Company’s obligation to make payments of principal and interest on the notes is subordinate and junior in right of payment to all of its senior debt. Current regulatory guidance allows for this subordinated debt to be treated as tier 2 regulatory capital for the first five years of its term, subject to certain limitations, and then phased out of tier 2 capital pro rata over the next five years.
NOTE 11 - FEDERAL HOME LOAN BANK ADVANCES
FHLB advances are collateralized by 1-4 family residential real estate loans, business loans, and certain commercial real estate loans. At December 31, 20172023 and 2016,2022, the carrying value of the loans pledged to the FHLB of Des Moines was $1.1$1.9 billion and $773.5 million,$1.4 billion, respectively. The loans are pledged to the secured line of credit to maintain the borrowing base, which had availability of approximately $484.7 million$1.0 billion at December 31, 2017.2023.
The Company also has an $12.9 million investment in the capital stock of the FHLB of Des Moines at December 31, 2017.
The following table summarizes the type, maturity, and rate of the Company'sCompany’s FHLB advances at December 31:
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 |
($ in thousands) | | Outstanding Balance | Weighted Rate | | Outstanding Balance | Weighted Rate |
Non-amortizing fixed advance | | $ | — | | — | % | | $ | 100,000 | | 4.57 | % |
| | | | | | |
| | | | | | |
|
| | | | | | | | | | | | |
| | 2017 | | 2016 |
($ in thousands) | Term | Outstanding Balance | Weighted Rate | | Outstanding Balance | Weighted Rate |
Non-amortizing fixed advance | Less than 1 year | $ | 172,743 |
| 1.56 | % | | $ | — |
| — | % |
Non-amortizing fixed advance | Greater than 1 year | — |
| — | % | | — |
| — | % |
Total Federal Home Loan Bank Advances | | $ | 172,743 |
| 1.56 | % | | $ | — |
| — | % |
At December 31, 2017, the Company used $18.1 million of collateral value to secure confirming letters of credit for public unit deposits and industrial development bonds.
NOTE 12 - OTHER BORROWINGS AND NOTES PAYABLE
Securities Sold Under Agreement to Repurchase
The Company enters into sales of securities under agreements to repurchase. The agreements are transacted with deposit customers and are utilized as an overnight investment product. The amounts received under these agreements represent short-term borrowings and are reflected as a liability in the consolidated balance sheets. The securities underlying these agreements are included in investment securities in the Consolidated Balance Sheets. The Company has no control over the market value of the securities, which fluctuates due to market conditions. However, the Company is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price. The Company manages this risk by maintaining an unpledged securities portfolio that it believes is sufficient to cover a decline in the market value of the securities sold under agreements to repurchase.
A summary of other borrowingssecurities sold under agreements to repurchase is as follows:
| | | | | | | | | | | |
| December 31, |
($ in thousands) | 2023 | | 2022 |
Securities sold under agreement to repurchase | $ | 250,197 | | | $ | 270,773 | |
| | | |
| | | |
| | | |
Average balance during the year | 168,745 | | | 211,039 | |
Maximum balance outstanding at any month-end | 250,197 | | | 284,269 | |
Average interest rate during the year | 2.16 | % | | 0.24 | % |
Average interest rate at December 31 | 3.56 | % | | 1.44 | % |
|
| | | | | | | |
| December 31, |
($ in thousands) | 2017 | | 2016 |
Securities sold under customer repurchase agreements | $ | 253,674 |
| | $ | 276,980 |
|
| | | |
Average balance during the year | $ | 220,807 |
| | $ | 206,643 |
|
Maximum balance outstanding at any month-end | 253,674 |
| | 276,980 |
|
Average interest rate during the year | 0.21 | % | | 0.19 | % |
Average interest rate at December 31 | 0.25 | % | | 0.18 | % |
Federal Reserve Line
The Bank also has a line with the Federal Reserve Bank of St. Louis which provides additional liquidity to the Company. As of December 31, 2017, $898.1 million2023, $2.5 billion was available under this line. Included in this line is $215.0 million related to the Bank Term Funding program. On January 24, 2024, the Federal Reserve announced that the program would cease making new loans on March 11, 2024. This line is secured by a pledge of certain eligible loans and securities aggregating $1.1$2.9 billion. There were no amounts drawn on the Federal Reserve line of credit as of December 31, 2017.2023.
Other Borrowings
The Bank has $36.2 million of borrowings from various entities related to New Market Tax Credit investments. These notes have remaining terms that range from 25-30 years. These notes have an interest rate of 1.0% and are generally interest only for the first 7 years.
Revolving Credit Line
In February 2016, the Company entered into a senior unsecured revolving credit agreement ("Revolving Agreement"(the “Revolving Agreement”) with another bank allowingbank. The Revolving Agreement has a one-year term, maturing on February 22, 2024, allows for borrowings up to $20 million.$25 million, and had an interest rate of one-month Term SOFR plus 136 basis points until February 2024. A fee of 0.30% annually is assessed against the unused commitment. The proceeds can be used for general corporate purposes. The Revolving Agreement is subject to ongoing compliance with a number of customary affirmative and negative covenants as well as specified financial covenants. The revolving credit line was not accessed in 2023 or 2022.
Term Loan
In February 2019, the Company entered into a five year, $40.0 million unsecured term loan agreement (the “Term Loan”) with another bank with the proceeds primarily used to fund the company’s cash portion of an acquisition in 2019. The interest rate was one-month LIBOR plus 125 basis points until February 2022. In February 2022, the interest rate on the Term Loan was amended to one-month Term SOFR plus 136 basis points. The term loan agreement matures in February 2024.
A summary of the amounts drawn on the Revolving Agreement as of December 31, 2017, and 2016Term Loan is as follows:
| | | | | | | | | | | |
| December 31, | |
($ in thousands) | 2023 | | 2022 |
Term Loan | $ | 11,429 | | | $ | 17,143 | |
| | | |
Average balance during the year | 14,959 | | | 20,681 | |
Maximum balance outstanding at any month-end | 17,143 | | | 22,857 | |
Weighted average interest rate during the year | 6.44 | % | | 2.94 | % |
Average interest rate at December 31 | 6.70 | % | | 5.48 | |
|
| | | | | | | |
| December 31, |
($ in thousands) | 2017 | | 2016 |
Outstanding balance | $ | — |
| | $ | — |
|
| | | |
Average balance during the year | $ | 822 |
| | $ | — |
|
Maximum balance outstanding at any month-end | 10,000 |
| | — |
|
Weighted average interest rate during the year | 3.50 | % | | — | % |
Average interest rate at December 31 | — | % | | — | % |
NOTE 13 - LITIGATION AND OTHER CONTINGENCIES
The Company and its subsidiaries are, from time to time, parties to various legal proceedings arising out of their businesses. Management believes that there are no such legal proceedings pending or threatened against the Company or its subsidiaries which,in the ordinary course of business, directly, indirectly, or in the aggregate that, if determined adversely, would have a material adverse effect on the business, consolidated financial condition, results of operations or cash flows of the Company or any of its subsidiaries.
NOTE 14 - REGULATORY MATTERSCAPITAL
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total, tier 1, and common equity tier 1 capital to risk-weighted assets, and of tier 1 capital to average assets. Management believes, as of December 31, 20172023 and 2016,2022, that the Company met all capital adequacy requirements to which it is subject.
As of December 31, 20172023 and 2016,2022, the Bank was categorized as “well capitalized”“well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”“well-capitalized” the Bank must maintain minimum total risk-based capital, tier 1 risk-based capital, common equity tier 1 risk-based capital, and tier 1 leverage ratios as set forth in the following table. In addition, the Company must maintain an additional CCB above the regulatory minimum ratio requirements. The CCB is designed to insulate banks from periods of stress and impose constraints on dividends, share repurchases and discretionary bonus payments when capital levels fall below prescribed levels.
The actual capital amounts and ratios are presented in the table below:following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 | | | |
| 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 |
|
| | | | | | | | | | | | | | | | | | | | |
| Actual | | For Capital Adequacy Purposes | | To Be Well Capitalized Under Applicable Action Provisions |
($ in thousands) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
As of December 31, 2017: | | | | | | | | | | | |
Total Capital (to Risk Weighted Assets) | | | | | | | | | | | |
Enterprise Financial Services Corp | $ | 589,047 |
| | 12.21 | % | | $ | 385,816 |
| | 8.00 | % | | $ | — |
| | — | % |
Enterprise Bank & Trust | 546,314 |
| | 11.36 |
| | 384,791 |
| | 8.00 |
| | 480,989 |
| | 10.00 |
|
Tier 1 Capital (to Risk Weighted Assets) | | | | | | | | | | | |
Enterprise Financial Services Corp | 496,045 |
| | 10.29 |
| | 289,362 |
| | 6.00 |
| | — |
| | — |
|
Enterprise Bank & Trust | 503,312 |
| | 10.46 |
| | 288,593 |
| | 6.00 |
| | 384,791 |
| | 8.00 |
|
Common Equity Tier 1 Capital (to Risk Weighted Assets) | | | | | | | | | | | |
Enterprise Financial Services Corp | 428,397 |
| | 8.88 |
| | 217,021 |
| | 4.50 |
| | — |
| | — |
|
Enterprise Bank & Trust | 503,264 |
| | 10.46 |
| | 216,445 |
| | 4.50 |
| | 312,643 |
| | 6.50 |
|
Leverage Ratio (Tier 1 Capital to Average Assets) | | | | | | | | | | | |
Enterprise Financial Services Corp | 496,045 |
| | 9.72 |
| | 204,087 |
| | 4.00 |
| | — |
| | — |
|
Enterprise Bank & Trust | 503,312 |
| | 9.68 |
| | 207,885 |
| | 4.00 |
| | 259,856 |
| | 5.00 |
|
| | | | | | | | | | | |
As of December 31, 2016: | | | | | | | | | | | |
Total Capital (to Risk Weighted Assets) | | | | | | | | | | | |
Enterprise Financial Services Corp | $ | 506,349 |
| | 13.48 | % | | $ | 300,573 |
| | 8.00 | % | | $ | — |
| | — | % |
Enterprise Bank & Trust | 430,981 |
| | 11.53 |
| | 298,982 |
| | 8.00 |
| | 373,728 |
| | 10.00 |
|
Tier 1 Capital (to Risk Weighted Assets) | | | | | | | | | | | |
Enterprise Financial Services Corp | 412,865 |
| | 10.99 |
| | 225,430 |
| | 6.00 |
| | — |
| | — |
|
Enterprise Bank & Trust | 387,497 |
| | 10.37 |
| | 224,237 |
| | 6.00 |
| | 298,982 |
| | 8.00 |
|
Common Equity Tier 1 Capital (to Risk Weighted Assets) | | | | | | | | | | | |
Enterprise Financial Services Corp | 357,729 |
| | 9.52 |
| | 169,072 |
| | 4.50 |
| | — |
| | — |
|
Enterprise Bank & Trust | 387,461 |
| | 10.37 |
| | 168,178 |
| | 4.50 |
| | 242,923 |
| | 6.50 |
|
Leverage Ratio (Tier 1 Capital to Average Assets) | | | | | | | | | | | |
Enterprise Financial Services Corp | 412,865 |
| | 10.42 |
| | 158,480 |
| | 4.00 |
| | — |
| | — |
|
Enterprise Bank & Trust | 387,497 |
| | 9.81 |
| | 157,933 |
| | 4.00 |
| | 197,417 |
| | 5.00 |
|
NOTE 15 - SHAREHOLDERS’ EQUITY AND COMPENSATION PLANS
Shareholders’ Equity
Common Stock
At December 31, 2023 and 2022, the Company has reserved the following shares of its authorized but unissued common stock for possible future issuance in connection with the following:
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
Outstanding performance units (maximum issuance) | 273,202 | | | 209,702 | |
Outstanding RSU’s | 290,141 | | | 269,868 | |
Outstanding options | 333,608 | | | 222,032 | |
2018 Stock Incentive Plan | 732,427 | | | 342,157 | |
Non-Management Director Plan | 130,162 | | | 55,878 | |
2018 Employee Stock Purchase Plan | 447,655 | | | 515,941 | |
Total | 2,207,195 | | | 1,615,578 | |
Common Stock Repurchase Plan
In April 2021, the Company’s board of directors authorized the repurchase of up to two million shares of the Company’s common stock. As of May 2022, this plan was depleted. In May 2022, the Company’s board of directors authorized the repurchase of up to two million shares of the Company’s common stock. The repurchases may be made in open market or privately negotiated transactions and the stock repurchase program will remain in effect until fully utilized or until modified, superseded or terminated. At December 31, 2023, there were two million shares available for repurchase under the plan.
Preferred Stock
The Company has 5,000,000 shares of authorized preferred stock with a par value of $0.01 with 75,000 shares issued and outstanding at the end of 2023 and 2022. The Board of Directors has the right to set for each series of preferred stock, subject to the laws of the State of Delaware, the dividend rate, conversion and redemption terms, voting rights and liquidation preferences, among others. In the fourth quarter 2021, the Company issued and sold 3,000,000 depositary shares, each representing 1/40th interest in a share of the Company’s 5% Noncumulative, Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), totaling $72.0 million, net of issuance costs. The depositary shares trade under the ticker “EFSCP”. The Series A Preferred Stock may be redeemed at the Company’s option, subject to prior regulatory approval, in whole or in part on any dividend payment date on or after December 15, 2026 or within 90 days following a regulatory capital event, as defined in the offering documents. If any Series A Preferred Stock are redeemed, a proportionate number of depositary shares will also be redeemed.
Dividends
The Company’s ability to pay dividends to its shareholders is generally dependent upon the payment of dividends by the Bank to the parent company. The Bank cannot pay dividends to the extent it would be deemed undercapitalized by the FDIC after making such dividend.
Preferred stock dividends, when and if declared by the board of directors, are payable, quarterly in arrears, on March 15, June 15, September 15 and December 15 of each year. If dividends on the Series A Preferred stock have not been declared or paid in six quarterly periods, whether or not consecutive, the number of directors on the board will automatically be increased by two and the holders of the Series A preferred stock will be entitled to vote for the additional directors. Quarterly dividends have been declared and paid in all periods since the preferred stock was issued.
Dividends on the Company’s capital stock are prohibited under the terms of the junior subordinated debenture agreements, see “Note 10 – Subordinated Debentures and Notes,” if the Company is in continuous default on its payment obligations to the capital trusts, has elected to defer interest payments on the debentures or extends the
interest payment period. 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. At December 31, 2023, the Company was not in default on any of the junior subordinated debenture issuances or preferred stock.
Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in accumulated other comprehensive income (loss) after-tax by component:
| | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | Net Unrealized Gain (Loss) on Available-for-Sale Debt Securities | | Unamortized Gain (Loss) on Held-to-Maturity Securities | | Net Unrealized Gain (Loss) on Cash Flow Hedges | | Total |
Balance, December 31, 2020 | $ | 22,320 | | | $ | 19,308 | | | $ | (4,508) | | | $ | 37,120 | |
Net change | (17,049) | | | (3,624) | | | 2,330 | | | (18,343) | |
Balance, December 31, 2021 | $ | 5,271 | | | $ | 15,684 | | | $ | (2,178) | | | $ | 18,777 | |
Net change | (149,623) | | | (2,696) | | | 3,210 | | | (149,109) | |
Transfer from available-for-sale to held-to-maturity | (197) | | | 197 | | | — | | | — | |
Balance, December 31, 2022 | $ | (144,549) | | | $ | 13,185 | | | $ | 1,032 | | | $ | (130,332) | |
Net change | 31,705 | | | (2,605) | | | 217 | | | 29,317 | |
| | | | | | | |
Balance, December 31, 2023 | $ | (112,844) | | | $ | 10,580 | | | $ | 1,249 | | | $ | (101,015) | |
The following table presents the pre-tax and after-tax changes in the components of other comprehensive income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
($ in thousands) | Pre-tax | | Tax effect | | After-tax | | Pre-tax | | Tax effect | | After-tax | | Pre-tax | | Tax effect | | After-tax |
Change in unrealized gain (loss) on available-for-sale securities | $ | 42,988 | | | $ | 10,833 | | | $ | 32,155 | | | $ | (200,030) | | | $ | (50,407) | | | $ | (149,623) | | | $ | (22,701) | | | $ | (5,652) | | | $ | (17,049) | |
Reclassification of gain on sale of available-for-sale securities(a) | (601) | | | (151) | | | (450) | | | — | | | — | | | — | | | — | | | — | | | — | |
Reclassification of gain on held-to-maturity securities(a) | (3,483) | | | (878) | | | (2,605) | | | (3,605) | | | (909) | | | (2,696) | | | (4,672) | | | (1,048) | | | (3,624) | |
Change in unrealized gain (loss) on cash flow hedges | (656) | | | (165) | | | (491) | | | 3,741 | | | 943 | | | 2,798 | | | 1,533 | | | 372 | | | 1,161 | |
Reclassification of loss on cash flow hedges(b) | 945 | | | 237 | | | 708 | | | 551 | | | 139 | | | 412 | | | 1,543 | | | 374 | | | 1,169 | |
Total other comprehensive income (loss) | $ | 39,193 | | | $ | 9,876 | | | $ | 29,317 | | | $ | (199,343) | | | $ | (50,234) | | | $ | (149,109) | | | $ | (24,297) | | | $ | (5,954) | | | $ | (18,343) | |
| | | | | | | | | | | | | | | | | |
(a)The pre-tax amount is reported in noninterest income/expense in the Consolidated Statements of Income.
(b)The pre-tax amount is reported in interest income/expense in the Consolidated Statements of Income.
Compensation Plans
The Company has adopted share-based compensation plans to reward and provide long-term incentive for directors and key employees of the Company.Company including its subsidiaries. These plans provide for the granting of stock, stock options, stock-settled stock appreciation rights, ("SSARs"), and restricted stock units (“RSUs”), and may contain performance terms for key employees as designated by the Company'sCompany’s Board of Directors upon the recommendation of the Compensation Committee of the Board. The Company uses authorized and unissued shares to satisfy share award exercises. At December 31, 2017, there were 86,082 shares available
The total excess income tax benefit (expense) for grant under the various share-based compensation plans.
Total share-based compensation expense thatarrangements was charged against income was $3.4$0.3 million, $3.4$0.1 million, and $3.6$(0.1) million for the years ended December 31, 2017, 2016,2023, 2022, and 20152021, respectively. The total excess income tax benefit for share-based compensation arrangements was $2.1 million, $1.3 million, and $0.4 million for the years ended December 31, 2017, 2016, and 2015, respectively.
Employee Stock Options and Stock-settled Stock Appreciation Rights
In determining compensation cost for stock options and SSARs, the Black-Scholes option-pricing model is used to estimate the fair value on date of grant. There were no grants of employee stock options or SSARs during the years ended December 31, 2017, 2016, or 2015.
Stock options have been granted to key employees with exercise prices equal to the market price of the Company's common stock at the date of grant and 10-year contractual terms. Stock options have a vesting schedule of three to five years. The SSARs are subject to continued employment, have a 10-year contractual term and vest ratably over five years. Neither stock options nor SSARs carry voting or dividend rights until exercised. At December 31, 2017,2023, there was no remaining$14.5 million of total unrecognized compensation expensecost related to stock options and SSARs and all outstandingunvested share-based compensation awards. The cost is expected to be recognized over a weighted-average term of approximately 2 years.
The following table summarizes share-based compensation expense:
| | | | | | | | | | | | | | | | | |
($ in thousands) | 2023 | | 2022 | | 2021 |
Performance stock units | $ | 2,879 | | | $ | 2,391 | | | $ | 1,777 | |
Restricted stock units | 5,014 | | | 4,156 | | | 3,109 | |
Stock options | 1,609 | | | 916 | | | 396 | |
| | | | | |
Employee stock purchase plan | 644 | | | 543 | | | 735 | |
Total share-based compensation expense | $ | 10,146 | | | $ | 8,006 | | | $ | 6,017 | |
Performance Stock Units
The Company has entered into long-term incentive agreements with certain key employees. These awards are vested. Various informationconditioned on certain performance criteria and market criteria measured against a group of peer banks over a three-year period for each grant. The awards contain minimum (threshold), target, and maximum (exceptional) performance levels. In the event of a change in control, as defined in the plan, the awards will vest at least at the target level. The amount of the awards is determined at the end of the three-year vesting and performance period. The fair value of performance units issued upon vesting in 2023, 2022, and 2021 were $1.6 million, $0.5 million, and $0.9 million, respectively.
Information related to the stock options and SSARsoutstanding grants at December 31, 2023 is shown below.below:
| | | | | | | | | | | | | | | | | |
($ in thousands, except per share data) | 2021 - 2023 Cycle | | 2022 - 2024 Cycle | | 2023 - 2025 Cycle |
Shares issuable at target | 38,412 | | | 41,765 | | | 56,424 | |
Maximum shares issuable | 76,824 | | | 83,530 | | | 112,848 | |
Unrecognized compensation cost | $ | 77 | | | $ | 1,001 | | | $ | 2,340 | |
Weighted average grant date fair value (per share) | $ | 47.16 | | | $ | 51.91 | | | $ | 62.19 | |
| | | | | |
| Maximum Shares Issuable |
Outstanding at December 31, 2022 | 209,702 | |
Granted | 112,848 | |
Vested (issued 31,142 shares) | (49,348) | |
Outstanding at December 31, 2023 | 273,202 | |
|
| | | | | | | | | | | |
(in thousands) | 2017 | | 2016 | | 2015 |
Compensation expense | $ | — |
| | $ | — |
| | $ | 50 |
|
Intrinsic value of option exercises on date of exercise | 3,156 |
| | 1,156 |
| | 74 |
|
Cash received from the exercise of stock options | 91 |
| | 87 |
| | 126 |
|
Following is a summary of the employee stock option and SSAR activity for 2017.
|
| | | | | | | | | | | | |
(in thousands, except share and per share data) | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
Outstanding at December 31, 2016 | 270,246 |
| | $ | 18.85 |
| | | | |
Granted | — |
| | — |
| | | | |
Exercised | (164,116 | ) | | 22.40 |
| | | | |
Forfeited | — |
| | — |
| | | | |
Outstanding at December 31, 2017 | 106,130 |
| | $ | 13.37 |
| | 1.9 years | | $ | 3,373 |
|
Exercisable at December 31, 2017 | 106,130 |
| | $ | 13.37 |
| | 1.9 years | | $ | 3,373 |
|
Restricted Stock Units
The Company awards nonvested stock, in the form of RSUs to employees and directors.employees. RSUs generally are subject to continued employment and generally vest ratably over twothree to five years. Vesting is accelerated upon a change in control or the employee meeting certain retirement criteria. RSUs do not carry voting or dividend rights until vested. Sales of the units are restricted prior to vesting.
Various information related to the RSUs is shown below.
| | | | | | | | | | | | | | | | | |
($ in thousands) | 2023 | | 2022 | | 2021 |
Total fair value of awards vesting during the year | $ | 3,894 | | | $ | 3,888 | | | $ | 2,855 | |
Unrecognized compensation cost | 8,438 | | | 8,507 | | | 4,622 | |
Expected years to recognize unearned compensation | 1.7 years | | 2.0 years | | 1.9 years |
Weighted average grant date fair value | $ | 50.46 | | | $ | 47.96 | | | $ | 44.01 | |
|
| | | | | | | | | | | |
($ in thousands) | 2017 | | 2016 | | 2015 |
Compensation expense | $ | 898 |
| | $ | 850 |
| | $ | 725 |
|
Total fair value at vesting date | 1,471 |
| | 2,275 |
| | 809 |
|
Total unrecognized compensation cost for nonvested stock units | 837 |
| | 1,084 |
| | 942 |
|
Expected years to recognize unearned compensation | 1.8 years |
| | 1.6 years |
| | 1.7 years |
|
A summary of the status of the Company'sCompany’s RSU awards as of December 31, 20172023 and changes during the year then ended is presented below.
| | | | | | | | | | | | | | |
| | Shares | | Weighted Average Grant Date Fair Value |
Outstanding at December 31, 2022 | | 269,868 | | | $ | 46.49 | |
Granted | | 107,353 | | | 50.46 | |
Vested | | (77,195) | | | 43.60 | |
Forfeited | | (9,885) | | | 47.65 | |
Outstanding at December 31, 2023 | | 290,141 | | | $ | 48.69 | |
Stock Options
In determining compensation cost for stock options, the Black-Scholes option-pricing model is used to estimate the fair value on date of grant. The model utilizes several assumptions in its calculations. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at the time of the grant. The expected term of options granted is based on the option's vesting schedule and expected exercise patterns and represent the period of time options granted are expected to be outstanding. The expected volatility is based on the historical volatility of the Company's stock and expected term of the option. The dividend yield is determined by annualizing the dividend rate as a percentage of the Company's stock price.
The following weighted average assumptions were used for grants issued during the year ended December 31, 2023.
| | | | | |
| |
| Weighted Average |
Risk Free Interest Rate | 4.09% |
Expected Dividend Yield | 1.84% |
Expected Volatility | 34.74% |
Expected Term (years) | 6.3 |
Non-qualified stock options have been granted to key employees with exercise prices equal to the market price of the Company’s common stock at the date of grant and 10-year contractual terms. Stock options have a vesting schedule of three to five years.
|
| | | | | | |
| Shares | | Weighted Average Grant Date Fair Value |
Outstanding at December 31, 2016 | 58,698 |
| | $ | 23.06 |
|
Granted | 16,462 |
| | 41.68 |
|
Vested | (33,206 | ) | | 18.48 |
|
Forfeited | (732 | ) | | 14.48 |
|
Outstanding at December 31, 2017 | 41,222 |
| | $ | 34.34 |
|
Following is a summary of stock option activity for 2023. | | | | | | | | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term |
Outstanding at December 31, 2022 | 222,032 | | | $ | 46.12 | | | |
Granted | 122,161 | | | 54.46 | | | |
Exercised | (909) | | | 45.28 | | | |
Forfeited | (9,676) | | | 48.30 | | | |
Outstanding at December 31, 2023 | 333,608 | | | $ | 49.11 | | | 8.2 years |
Exercisable at December 31, 2023 | 53,208 | | | $ | 45.30 | | | 7.5 years |
The intrinsic value of options exercised totaled $0.1 million and $0.1 million in 2023 and 2022, respectively.
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (“ESPP”) provides its eligible employees with an opportunity to purchase common stock through accumulated payroll contributions. The ESPP provides for shares to be purchased at 85% of the lesser of the stock price at the enrollment date or the exercise date. The maximum number of shares of common stock available for sale under the ESPP is 750,000. In 2023, 2022, and 2021, employees purchased 68,286, 55,123, and 64,826 shares, respectively, and there are 447,655 remaining shares available under the ESPP at December 31, 2023.
Stock Plan for Non-Management Directors
The Company has adopted a Stock Plan for Non-Management Directors, which provides for issuing up to 200,000400,000 shares of common stock to non-management directors as compensation in lieu of cash.compensation. At December 31, 2017,2023, there were 19,163108,893 shares of stock available for issuancegrant under the Stock Plan for Non-Management Directors.Directors, exclusive of 21,269 shares to be issued upon deferral release.
Various information related to the Director Plan is shown below.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Shares granted | 27,016 | | | 23,343 | | | 12,998 | |
Weighted average grant date fair value | $ | 41.31 | | | $ | 42.17 | | | $ | 46.05 | |
|
| | | | | | | | | | | |
(in thousands, except share and per share data) | 2017 | | 2016 | | 2015 |
Shares issued | 10,531 |
| | 12,528 |
| | 16,283 |
|
Weighted average fair value | $ | 42.46 |
| | $ | 31.25 |
| | $ | 24.43 |
|
Compensation expense | 397 |
| | 407 |
| | 373 |
|
Employee Stock Issuance
Restricted stock was issued to certain key employees as part of their compensation. The restricted stock may be in the form of a one-time award or paid in pro rata installments. The stock is restricted for at least 2 years and upon issuance may be fully vested or vest over 5 years. The Company recognized $0.1 million, zero, and $0.2 million of stock-based compensation expense for the shares issued to the employees in 2017, 2016, and 2015, respectively. The Company issued zero shares in 2017 and 2016, and 14,110 shares in 2015.
Long-term incentives
The Company has entered into long-term incentive agreements with certain key employees. These awards are conditioned on certain performance criteria and market criteria measured against a group of peer banks over a 3 year period for each grant. The awards contain minimum (threshold), target, and maximum (exceptional) performance levels. In the event of a change in control, as defined in the plan, the awards will vest at a minimum of the target level. The amount of the awards are determined at the end of the 3 year vesting and performance period. In January 2018, the Company awarded 134,600 shares to employees upon completion of the 2015-2017 performance cycle. In February 2017, the Company awarded 118,519 shares to employees upon completion of the 2014-2016 performance cycle. In
January 2016, the Company awarded 159,094 shares to employees upon completion of the 2013-2015 performance cycle. Information related to the outstanding grants at December 31, 2017 is shown below:
|
| | | | | | | |
(in thousands, except share and per share data)
| 2016 - 2018 Cycle | | 2017 - 2019 Cycle |
Shares issuable at target | 87,758 |
| | 55,203 |
|
Maximum shares issuable | 107,955 |
| | 68,263 |
|
Unrecognized compensation cost | $ | 949 |
| | $ | 1,792 |
|
Weighted average grant date fair value | 25.26 |
| | 40.72 |
|
The Company recorded $2.5 million, $2.5 million and $2.7 million of stock-based compensation expense for these awards during 2017, 2016 and 2015, respectively. In 2017 and 2016, this expense included an additional $0.3 million, and $0.2 million, respectively, related to modifications made for retiring executives. The modification allows for portions of outstanding performance awards to continue to vest as though employment had not terminated and will be paid based on actual performance as determined by the compensation committee following completion of the applicable performance period.
401(k) plansPlan
The Company has a 401(k) savings plan which covers substantially all full-time employees over the age of 21.21 and matches 100% of the first 6% of employee contributions. The amount charged to expense for the Company'sCompany’s contributions to the plan was $2.0$6.5 million, $1.7$5.8 million and $1.6$4.9 million for 2017, 2016,2023, 2022, and 2015,2021, respectively.
Deferred Compensation Plan
The Company has a nonqualified deferred compensation plan that permits certain executives to participate and defer up to 25% of their base salary and/or up to 100% of their eligible bonus for a plan year. Participants make an irrevocable election when they elect to participate for a plan year to receive the vested account balance following their retirement date, or at a future date not less than five years after the beginning of the plan year. At December 31, 2023, the Company had a liability of $3.7 million related to the deferred compensation plan.
NOTE 16 - INCOME TAXES
The components of income tax expense (benefit) for the years ended December 31, are as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
($ in thousands) | 2023 | | 2022 | | 2021 |
Current: | | | | | |
Federal | $ | 40,471 | | | $ | 42,718 | | | $ | 29,835 | |
State and local | 9,616 | | | 11,505 | | | 5,198 | |
Total current | 50,087 | | | 54,223 | | | 35,033 | |
Deferred: | | | | | |
Federal | 283 | | | 1,853 | | | 870 | |
State and local | 2,097 | | | 341 | | | (325) | |
Total deferred | 2,380 | | | 2,194 | | | 545 | |
Total income tax expense | $ | 52,467 | | | $ | 56,417 | | | $ | 35,578 | |
|
| | | | | | | | | | | |
| Years ended December 31, |
(in thousands) | 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | 15,845 |
| | $ | 17,005 |
| | $ | 22,916 |
|
State and local | 1,377 |
| | 1,734 |
| | 2,798 |
|
Total current | 17,222 |
| | 18,739 |
| | 25,714 |
|
Deferred: | | | | | |
Federal | 20,989 |
| | 5,959 |
| | (5,266 | ) |
State and local | 116 |
| | 1,304 |
| | (497 | ) |
Total deferred | 21,105 |
| | 7,263 |
| | (5,763 | ) |
Total income tax expense | $ | 38,327 |
| | $ | 26,002 |
| | $ | 19,951 |
|
A reconciliation of expected income tax expense, computed by applying the statutory federal income tax rate in 2017, 2016, and 2015 to income before income taxes and the amounts reflected in the consolidated statementsConsolidated Statements of operationsIncome is as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
($ in thousands) | 2023 | | 2022 | | 2021 |
Income tax expense at statutory rate | $ | 51,770 | | | $ | 54,487 | | | $ | 35,413 | |
Increase (reduction) in income tax resulting from: | | | | | |
Tax-exempt interest income, net | (4,942) | | | (4,351) | | | (3,198) | |
State and local income taxes, net | 9,445 | | | 9,767 | | | 4,936 | |
Bank-owned life insurance | (888) | | | (545) | | | (713) | |
Non-deductible expenses | 2,059 | | | 926 | | | 1,090 | |
| | | | | |
| | | | | |
Tax benefit of low-income housing tax credit ("LIHTC") investments, net | (56) | | | (195) | | | (132) | |
Excess tax benefits | (251) | | | (68) | | | 146 | |
Federal tax credits | (4,364) | | | (3,661) | | | (1,136) | |
| | | | | |
Non-taxable donation to charitable foundation | — | | | — | | | (263) | |
Other, net | (306) | | | 57 | | | (565) | |
Total income tax expense | $ | 52,467 | | | $ | 56,417 | | | $ | 35,578 | |
|
| | | | | | | | | | | |
| Years ended December 31, |
(in thousands) | 2017 | | 2016 | | 2015 |
Income tax expense at statutory rate | $ | 30,281 |
| | $ | 26,194 |
| | $ | 20,440 |
|
Increase (reduction) in income tax resulting from: | | | | | |
Tax-exempt income, net | (961 | ) | | (945 | ) | | (931 | ) |
State and local income taxes, net | 1,676 |
| | 1,673 |
| | 1,414 |
|
Bank-owned life insurance, net | (715 | ) | | (544 | ) | | (462 | ) |
Non-deductible expenses | 407 |
| | 263 |
| | 259 |
|
Change in estimated rate for deferred taxes | 12,117 |
| | 302 |
| | — |
|
Tax benefits of LIHTC investments, net | (257 | ) | | (181 | ) | | (179 | ) |
Excess tax benefits | (2,141 | ) | | — |
| | — |
|
Other federal tax benefits | (1,701 | ) | | — |
| | — |
|
Other, net | (379 | ) | | (760 | ) | | (590 | ) |
Total income tax expense | $ | 38,327 |
| | $ | 26,002 |
| | $ | 19,951 |
|
The net amount recognized as a component of tax expense for tax credits, other tax benefits, and amortization from low-income housing tax credit ("LIHTC")LIHTC investments recognized per the table above was $0.3 millionimmaterial for the year ended December 31, 2017. The net amount recognized as a component of income tax expense per the table above was2023, and $0.2 million and $0.1 million for the years ended December 31, 2016,2022, and 2015.December 31, 2021, respectively. As of December 31, 20172023 and 2016,2022, the carrying value of the investments related to low-income housing tax credits was $1.3$17.2 million and $1.4$7.3 million, respectively. No impairment losses have been recognized from forfeiture or ineligibility of tax credits or other circumstances during the life of any of the investments. As of December 31, 2017, the Company has future capital commitments of $4.8 million related to low-income housing tax credit investments. The capital commitments are expected to be called between the years 2018 - 2020.
A net deferred income tax asset of $22.5$76.7 million and $33.8$89.0 million is included in other assets in the consolidated balance sheets at December 31, 20172023 and 2016,2022, respectively. The tax effect of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities is as follows:
| | | | | | | | | | | |
| Year ended December 31, |
($ in thousands) | 2023 | | 2022 |
Deferred tax assets: | | | |
Allowance for loan losses | $ | 33,423 | | | $ | 34,507 | |
| | | |
Loans held-for-sale | 4,463 | | | 5,917 | |
Other real estate | — | | | 179 | |
Deferred compensation | 4,746 | | | 3,527 | |
| | | |
Accrued compensation | 6,047 | | | 6,294 | |
Unrealized losses on securities, net | 33,687 | | | 44,094 | |
Net operating losses and tax credits | 5,544 | | | 5,829 | |
Lease liability accrual | 7,101 | | | 4,545 | |
Other investments | 5,341 | | | 4,293 | |
Research and experimental expenses | 1,944 | | | — | |
Fixed assets | 2,341 | | | 2,867 | |
Other deferred tax assets | 4,823 | | | 3,596 | |
Total deferred tax assets | 109,460 | | | 115,648 | |
| | | |
Deferred tax liabilities: | | | |
| | | |
Acquired loans | 2,388 | | | 2,212 | |
| | | |
| | | |
Intangible assets | 8,576 | | | 8,676 | |
| | | |
Right of use asset | 6,301 | | | 4,374 | |
Other investments | 11,834 | | | 7,530 | |
Other deferred tax liabilities | 841 | | | 1,065 | |
Total deferred tax liabilities | 29,940 | | | 23,857 | |
Net deferred tax asset before valuation allowance | 79,520 | | | 91,791 | |
Less: valuation allowance | 2,812 | | | 2,830 | |
Net deferred tax asset | $ | 76,708 | | | $ | 88,961 | |
| | | |
|
| | | | | | | |
| Years ended December 31, |
(in thousands) | 2017 | | 2016 |
Deferred tax assets: | | | |
Allowance for loan losses | $ | 10,516 |
| | $ | 16,496 |
|
Basis difference on PCI assets, net | 5,748 |
| | 5,551 |
|
Basis difference on Other real estate | 694 |
| | 317 |
|
Deferred compensation | 2,719 |
| | 4,217 |
|
Goodwill and other intangible assets | 2,151 |
| | 5,520 |
|
Accrued compensation | 646 |
| | 899 |
|
Unrealized losses on securities available for sale | 1,490 |
| | 1,019 |
|
Other, net | 2,150 |
| | 925 |
|
Total deferred tax assets | 26,114 |
| | 34,944 |
|
| | | |
Deferred tax liabilities: | | | |
State tax credits held for sale, net of economic hedge | 26 |
| | 376 |
|
Core deposit intangibles | 2,731 |
| | 817 |
|
Other, net | 855 |
| | — |
|
Total deferred tax liabilities | 3,612 |
| | 1,193 |
|
Net deferred tax asset | $ | 22,502 |
| | $ | 33,751 |
|
Deferred tax rate | 24.7 | % | | 38.0 | % |
NetAs part of an acquisition in 2019, the company acquired net operating loss, tax credit, and capital loss deferred tax assets forassets. Net operating losses originated in the year ended December 31, 2017, experienced an increase of $8.6 million fromyears 2012, 2014-2017, and 2019 and will expire in the acquisition of JCB, offset by a revaluation adjustment of $12.1 million due to our initial analysis ofyears between 2032-2037. Tax credit carryforwards originated in years 2010-2015 and will expire in the impact of the Tax Act.years between 2030-2035.
A valuation allowance is provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. The Company didcompany determined it was more likely than not have anythat some of the acquired net operating loss and tax credit assets would not be realized and has recognized a valuation allowances for federal or state income taxes asallowance of $2.8 million at December 31, 2017 or 2016.2023 and 2022, respectively.
The Company and its subsidiaries file income tax returns in the federal jurisdiction and in ninethirty-two states. The Company is no longer subject to federal, state or local income tax audits by tax authorities for years before 2014,2018, with the exception of 20132016 and 2017 being an open yearyears by one state taxing authority. The Company is not currently under audit by any taxing jurisdiction.authorities. Net operating losses generated prior to 2016 that are utilized going forward would still be subject to examination.
As of December 31, 2017,2023, the gross amount of unrecognized tax benefits was $1.2$3.1 million and the total amount of net unrecognized tax benefits that would impact the effective tax rate, if recognized, was $0.8 million. As$2.4 million compared to $2.2 million and $2.5 million as of December 31, 20162022 and 2015, the total amount of the net unrecognized tax benefits that would impact the effective tax rate, if recognized, was $0.8 million and $0.9 million,2021, respectively. The Company believes it is reasonably possible that the gross amount of unrecognized benefits will be reduced by approximately $0.3$0.4 million as a
result of a lapse of statute of limitations in the next 12 months. The Company is under audit by the state of Missouri, and while the Company has concluded it has adequately provided for uncertain tax positions, the outcome of such audits are always uncertain and could result in additional tax expense, though immaterial.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and classifies such interest and penalties in the liability for unrecognized tax benefits. The amountsamount accrued for interest and penalties was $1.0 million for 2023, $0.6 million as of December 31, 2017, 2016,2022, and 2015 were not significant.$0.5 million for 2021.
The activity in the gross liability for unrecognized tax benefits was as follows:
| | | | | | | | | | | | | | | | | |
($ in thousands) | 2023 | | 2022 | | 2021 |
Balance at beginning of year | $ | 2,724 | | | $ | 2,697 | | | $ | 3,157 | |
Additions based on tax positions related to the current year | 727 | | | 683 | | | 563 | |
Additions for tax positions of prior years | 24 | | | 47 | | | 436 | |
Settlements for tax positions of prior years | — | | | (82) | | | (1,289) | |
Settlements or lapse of statute of limitations | (398) | | | (621) | | | (170) | |
Balance at end of year | $ | 3,077 | | | $ | 2,724 | | | $ | 2,697 | |
|
| | | | | | | | | | | |
(in thousands) | 2017 | | 2016 | | 2015 |
Balance at beginning of year | $ | 1,180 |
| | $ | 1,359 |
| | $ | 1,884 |
|
Additions based on tax positions related to the current year | 331 |
| | 239 |
| | 230 |
|
Additions for tax positions of prior years | 41 |
| | 39 |
| | 46 |
|
Reductions for tax positions of prior years | — |
| | — |
| | (437 | ) |
Settlements or lapse of statute of limitations | (308 | ) | | (457 | ) | | (364 | ) |
Balance at end of year | $ | 1,244 |
| | $ | 1,180 |
| | $ | 1,359 |
|
NOTE 17 - COMMITMENTS AND CONTINGENT LIABILITIES
Long-term Lease Commitments
See “Note 5 – Leases” in this report for information regarding the Company’s long-term lease commitments.
Off-balance-Sheet Commitments
The Company issues financial instruments in the normal course of the business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.
The Company’s extent of involvement and maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is not more than the contractual amount of these instruments.
The Company uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets.
The contractual amounts of off-balance-sheet financial instruments as of December 31, 2017, and December 31, 2016, are as follows:
| | | | | | | | | | | |
($ in thousands) | December 31, 2023 | | December 31, 2022 |
Commitments to extend credit | $ | 2,937,760 | | | $ | 3,113,966 | |
Letters of credit | 107,082 | | | 68,544 | |
Tax credits | 3,514 | | | 4,075 | |
| | | |
Limited partnership commitments | 32,548 | | | 35,090 | |
|
| | | | | | | |
(in thousands) | December 31, 2017 | | December 31, 2016 |
Commitments to extend credit | $ | 1,298,423 |
| | $ | 1,075,170 |
|
Letters of credit | 73,790 |
| | 78,954 |
|
There was an insignificant amount of unadvanced commitments on impaired loans at December 31, 20172023 and December 31, 2016.2022. Other liabilities include approximately $0.4an allowance for credit losses on unadvanced commitments of $6.6 million for estimated losses attributable to the unadvanced commitments.and $12.1 million at December 31, 2023 and 2022, respectively.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments usually have fixed expiration dates or other termination clauses, may have significant usage restrictions, and may require payment of a fee. Of the total commitments to extend credit at December 31, 2017,2023, and December 31, 2016, $112.02022, $191.6 million and $89.7$246.5 million, respectively, represent fixed rate loan commitments. Since certain of the commitments may expire without being drawn upon or may be revoked, the total commitment amounts do not necessarily represent future cash obligations. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, premises and equipment, and real estate.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit are issued to support contractual obligations of the Company’s customers. The credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers. The approximate remaining term of letters of credit range from 1one month to 39 years and 9 months at December 31, 2017.2023.
The Company also has off-balance sheet commitments for purchases of tax credits and commitments for various capital raises for limited partnership investments.
NOTE 18 - FAIR VALUE MEASUREMENTS
The fair value of an asset or liability is the exchange price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
•Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
•Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
•Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity'sentity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Fair value on a recurring basis
The following table summarizes financial instruments measured at fair value on a recurring basis, as of December 31, 2017 and 2016, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
($ in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value |
Assets | | | | | | | |
Securities available-for-sale | | | | | | | |
Obligations of U.S. Government-sponsored enterprises | $ | — | | | $ | 296,446 | | | $ | — | | | $ | 296,446 | |
Obligations of states and political subdivisions | — | | | 432,171 | | | — | | | 432,171 | |
Residential mortgage-backed securities | — | | | 700,381 | | | — | | | 700,381 | |
Corporate debt securities | — | | | 181,701 | | | — | | | 181,701 | |
U.S. Treasury Bills | — | | | 7,574 | | | — | | | 7,574 | |
Total securities available-for-sale | — | | | 1,618,273 | | | — | | | 1,618,273 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other investments | — | | | 2,941 | | | — | | | 2,941 | |
Derivatives | — | | | 17,789 | | | — | | | 17,789 | |
Total assets | $ | — | | | $ | 1,639,003 | | | $ | — | | | $ | 1,639,003 | |
| | | | | | | |
Liabilities | | | | | | | |
Derivatives | $ | — | | | $ | 16,184 | | | $ | — | | | $ | 16,184 | |
Total liabilities | $ | — | | | $ | 16,184 | | | $ | — | | | $ | 16,184 | |
|
| | | | | | | | | | | | | | | |
| December 31, 2017 |
(in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value |
Assets | | | | | | | |
Securities available for sale | | | | | | | |
Obligations of U.S. Government-sponsored enterprises | $ | — |
| | $ | 99,224 |
| | $ | — |
| | $ | 99,224 |
|
Obligations of states and political subdivisions | — |
| | 34,642 |
| | — |
| | 34,642 |
|
Residential mortgage-backed securities | — |
| | 507,516 |
| | — |
| | 507,516 |
|
Total securities available for sale | — |
| | 641,382 |
| | — |
| | 641,382 |
|
State tax credits held for sale | — |
| | — |
| | 400 |
| | 400 |
|
Derivative financial instruments | — |
| | 3,589 |
| | — |
| | 3,589 |
|
Total assets | $ | — |
| | $ | 644,971 |
| | $ | 400 |
| | $ | 645,371 |
|
| | | | | | | |
Liabilities | |
| | | | |
| | |
Derivative financial instruments | $ | — |
| | $ | 3,589 |
| | $ | — |
| | $ | 3,589 |
|
Total liabilities | $ | — |
| | $ | 3,589 |
| | $ | — |
| | $ | 3,589 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
($ in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value |
Assets | | | | | | | |
Securities available-for-sale | | | | | | | |
Obligations of U.S. Government-sponsored enterprises | $ | — | | | $ | 237,785 | | | $ | — | | | $ | 237,785 | |
Obligations of states and political subdivisions | — | | | 417,444 | | | — | | | 417,444 | |
Residential mortgage-backed securities | — | | | 659,404 | | | — | | | 659,404 | |
Corporate debt securities | — | | | 12,640 | | | — | | | 12,640 | |
U.S. Treasury Bills | — | | | 208,534 | | | — | | | 208,534 | |
Total securities available-for-sale | — | | | 1,535,807 | | | — | | | 1,535,807 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other investments | — | | | 2,667 | | | — | | | 2,667 | |
Derivative financial instruments | — | | | 22,958 | | | — | | | 22,958 | |
Total assets | $ | — | | | $ | 1,561,432 | | | $ | — | | | $ | 1,561,432 | |
| | | | | | | |
Liabilities | | | | | | | |
Derivative financial instruments | $ | — | | | $ | 21,581 | | | $ | — | | | $ | 21,581 | |
Total liabilities | $ | — | | | $ | 21,581 | | | $ | — | | | $ | 21,581 | |
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
(in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value |
Assets | | | | | | | |
Securities available for sale | | | | | | | |
Obligations of U.S. Government-sponsored enterprises | $ | — |
| | $ | 107,660 |
| | $ | — |
| | $ | 107,660 |
|
Obligations of states and political subdivisions | — |
| | 33,542 |
| | 3,089 |
| | 36,631 |
|
Residential mortgage-backed securities | — |
| | 316,506 |
| | — |
| | 316,506 |
|
Total securities available for sale | — |
| | 457,708 |
| | 3,089 |
| | 460,797 |
|
State tax credits held for sale | — |
| | — |
| | 3,585 |
| | 3,585 |
|
Derivative financial instruments | — |
| | 4,016 |
| | — |
| | 4,016 |
|
Total assets | $ | — |
| | $ | 461,724 |
| | $ | 6,674 |
| | $ | 468,398 |
|
| | | | | | | |
Liabilities | | | | | | | |
Derivative financial instruments | $ | — |
| | $ | 4,016 |
| | $ | — |
| | $ | 4,016 |
|
Total liabilities | $ | — |
| | $ | 4,016 |
| | $ | — |
| | $ | 4,016 |
|
•Securities available for saleavailable-for-sale. Securities classified as available for sale are reported at fair value utilizing Level 2 and Level 3 inputs. Fair values for Level 2available-for-sale securities are based upon dealer quotes, market spreads, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information and the bond'sbond’s terms and conditions at the security level. At December 31, 2017, there were no Level 3 Auction Rate Securities. Auction Rate Securities at December 31, 2017 were valued using a Level 2 pricing source similar to our other securities available for sale.
State tax credits held for sale. At December 31, 2017, of the $43.5 million of state tax credits held for sale on the consolidated balance sheet, approximately $0.4 million were carried at fair value. The remaining $43.1 million of state tax credits were accounted for at cost. The Company elected not to account for the state tax credits purchased since 2010 atChanges in fair value in order to limit the volatility of the fair value changes in our consolidated statements of operations.are recognized through accumulated other comprehensive income.
The Company is not aware of an active market that exists for the 10-year streams of state tax credit financial instruments. However, the Company’s principal market for these tax credits consists of Missouri state residents who buy these credits and local and regional accounting firms who broker them. As such, the Company employed a discounted cash flow analysis (income approach) to determine the fair value.
The fair value measurement is calculated using an internal valuation model with market data including discounted cash flows based upon the terms and conditions of the tax credits. If the underlying project remains in compliance with the various federal and state rules governing the tax credit program, each project will generate about 10 years of tax credits. The inputs to the discounted cash flow calculation include: the amount of tax credits generated each year, the anticipated sale price of the tax credit, the timing of the sale and a discount rate. The discount rate is estimated using the LIBOR swap curve at a point equal to the remaining life in years of credits plus a 205 basis point spread. With the exception of the discount rate, the other inputs to the fair value calculation are observable and readily available. The discount rate is considered a Level 3 input because it is an “unobservable input” and is based on the Company’s assumptions. An increase in the discount rate utilized would generally result in a lower estimated fair value of the tax credits. Alternatively, a decrease in the discount rate utilized would generally result in a higher estimated fair value of the tax credits. Given the significance of this input to the fair value calculation, the state tax credit assets are reported as Level 3 assets.
•Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The Company obtains counterparty quotations to value its interest rate swaps and caps. In addition, the Company validates the counterparty quotations with third partythird-party valuation sources. Derivatives with negative fair values are included in Other liabilities in the consolidated balance sheets. Derivatives with positive fair value are included in Other assets in the consolidated balance sheets.
Level 3 financial instruments
The following table presents Changes in the changes in Level 3 financial instruments measured at fair value on a recurring basis as of December 31, 2017 and 2016.
Purchases, sales, issuances and settlements. There were no Level 3 purchases duringclient-related derivative instruments are recognized through net income. For the years ended December 31, 20172023 and 2016.
Transfers in and/or out of Level 3. There was $3.1 million in Level 3 transfers2022, the gains and losses substantially offset each other due to Level 2 for the year ending December 31, 2017 because more observable market data became available for the Auction Rate Securities. The Company's policy is to recognize transfers into or out of a level asCompany’s hedging of the end of a reporting period. As a result, the transfers occurred on June 30, 2017. There were no transfers in and/or out of Level 3 for the year ending 2016.
client swaps with other bank counterparties. |
| | | | | | | |
| Securities available for sale, at fair value |
Years ended December 31, |
(in thousands) | 2017 | | 2016 |
Beginning balance | $ | 3,089 |
| | $ | 3,077 |
|
Total gains: | | | |
Included in other comprehensive income | 4 |
| | 12 |
|
Transfer in and/or out of Level 3 | (3,093 | ) | | — |
|
Ending balance | $ | — |
| | $ | 3,089 |
|
| | | |
Change in unrealized gains relating to assets still held at the reporting date | $ | — |
| | $ | 12 |
|
|
| | | | | | | |
| State tax credits held for sale, at fair value |
Years ended December 31, |
(in thousands) | 2017 | | 2016 |
Beginning balance | $ | 3,585 |
| | $ | 5,941 |
|
Total gains: | | | |
Included in earnings | 101 |
| | 177 |
|
Purchases, sales, issuances and settlements: | | | |
Sales | (3,286 | ) | | (2,533 | ) |
Ending balance | $ | 400 |
| | $ | 3,585 |
|
| | | |
Change in unrealized losses relating to assets still held at the reporting date | $ | (885 | ) | | $ | (575 | ) |
Fair value on a non-recurring basis
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
Impaired•Individually-evaluated loans. Impaired loans are included as Portfolio loans on the Company's consolidated balance sheets with amounts specifically reserved for credit impairment in the Allowance for loan losses. On a quarterly basis, fair value adjustments are recorded as necessary on impairedloans that no longer exhibit risk characteristics similar to other loans to account for (1) partial write-downs that are based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable. In addition, the Company may adjust the valuations based on other relevant market conditions or information. Accordingly, fair value estimates, including those obtained from real estate brokers or other third-party consultants, for collateral-dependent impaired loans are classified in Level 3 of the valuation hierarchy.
Fair value estimates on individually-evaluated loans utilizing a discounted cash flow approach are also classified as Level 3.
•Other Real Estate.real estate. These assets are initially reported at fair value, less cost to sell, and subsequently at the lower of the loan carrying amount at foreclosurecost or fair value.value, less cost to sell. Fair value is based on third party appraisals of each property and the Company'sCompany’s judgment of other relevant market conditions. These are considered Level 3 inputs.
•Loan servicing asset. The loan servicing asset is included in Other assets on the Company’s consolidated balance sheets and assessed for impairment on a quarterly basis. Market-based cash flow modeling and discounting models specific to the SBA industry are provided by a third-party valuation service and are considered Level 2 inputs.
The following table presentstables present financial instruments and non-financial assets still held as of the reporting date measured at fair value on a non-recurring basis as of December 31, 2017 and 2016.basis.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| (1) | | (1) | | (1) | | (1) |
($ in thousands) | Total Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Individually-evaluated loans | $ | 5,138 | | | $ | — | | | $ | — | | | $ | 5,138 | |
Other real estate | 5,736 | | | — | | | — | | | 5,736 | |
| | | | | | | |
Total | $ | 10,874 | | | $ | — | | | $ | — | | | $ | 10,874 | |
|
| | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| (1) | | (1) | | (1) | | (1) | |
(in thousands) | Total Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Total losses for the year ended December 31, 2017 |
Impaired loans | $ | 3,200 |
| | $ | — |
| | $ | — |
| | $ | 3,200 |
| $ | 6,599 |
|
Other real estate | — |
| | — |
| | — |
| | — |
| — |
|
Total | $ | 3,200 |
| | $ | — |
| | $ | — |
| | $ | 3,200 |
| $ | 6,599 |
|
| | December 31, 2022 | | | December 31, 2022 |
(1) | | | | | | | | | | | | | (1) |
($ in thousands) | | ($ in thousands) | Total Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| December 31, 2016 |
| (1) | | (1) | | (1) | | (1) | |
(in thousands) | Total Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Total losses for the year ended December 31, 2016 |
Impaired loans | $ | 175 |
| | $ | — |
| | $ | — |
| | $ | 175 |
| $ | 4,335 |
|
Other real estate | — |
| | — |
| | — |
| | — |
| 1 |
|
Other real estate | |
Other real estate | |
Loan servicing asset | |
Total | $ | 175 |
| | $ | — |
| | $ | — |
| | $ | 175 |
| $ | 4,336 |
|
(1) The amounts represent only balances measured at fair value during the period and still held as of the reporting date.
Impaired loans are reported at the fair value of the underlying collateral. Fair values for impaired loans are obtained from current appraisals by qualified licensed appraisers or independent valuation specialists. Other real estate owned is adjusted to fair value upon foreclosure of the underlying loan. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value less costs to sell. Fair value of other real estate is based upon the current appraised values of the properties as determined by qualified licensed appraisers and the Company’s judgment of other relevant market conditions. Certain state tax credits are reported at cost.
Carrying amount and fair value at December 31, 2017 and 2016
Following is a summary of the carrying amounts and fair values of the Company’s financial instruments on the consolidated balance sheets at December 31, 20172023 and 2016.
|
| | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
(in thousands) | Carrying Amount | | Estimated fair value | | Carrying Amount | | Estimated fair value |
Balance sheet assets | | | | | | | |
Cash and due from banks | $ | 91,084 |
| | $ | 91,084 |
| | $ | 54,288 |
| | $ | 54,288 |
|
Federal funds sold | 1,223 |
| | 1,223 |
| | 446 |
| | 446 |
|
Interest-bearing deposits | 63,661 |
| | 63,661 |
| | 145,048 |
| | 145,048 |
|
Securities available for sale | 641,382 |
| | 641,382 |
| | 460,797 |
| | 460,797 |
|
Securities held to maturity | 73,749 |
| | 73,458 |
| | 80,463 |
| | 79,639 |
|
Other investments, at cost | 26,661 |
| | 26,661 |
| | 14,840 |
| | 14,840 |
|
Loans held for sale | 3,155 |
| | 3,155 |
| | 9,562 |
| | 9,562 |
|
Derivative financial instruments | 3,589 |
| | 3,589 |
| | 4,016 |
| | 4,016 |
|
Portfolio loans, net | 4,054,473 |
| | 4,096,741 |
| | 3,114,752 |
| | 3,125,701 |
|
State tax credits, held for sale | 43,468 |
| | 44,271 |
| | 38,071 |
| | 41,264 |
|
Accrued interest receivable | 14,069 |
| | 14,069 |
| | 11,117 |
| | 11,117 |
|
| | | | | | | |
Balance sheet liabilities | | | | | | | |
Deposits | 4,156,414 |
| | 4,153,323 |
| | 3,233,361 |
| | 3,232,414 |
|
Subordinated debentures and notes | 118,105 |
| | 105,031 |
| | 105,540 |
| | 86,052 |
|
Federal Home Loan Bank advances | 172,743 |
| | 172,893 |
| | — |
| | — |
|
Other borrowings | 253,674 |
| | 253,530 |
| | 276,980 |
| | 276,905 |
|
Derivative financial instruments | 3,589 |
| | 3,589 |
| | 4,016 |
| | 4,016 |
|
Accrued interest payable | 1,730 |
| | 1,730 |
| | 1,105 |
| | 1,105 |
|
The following table presents the level in the2022. This summary excludes certain financial assets and liabilities for which carrying value approximates fair value hierarchy for the estimated fair values of only the Company’sand financial instruments that are not already on the consolidated balance sheetsrecorded at fair value at December 31, 2017, and December 31, 2016.
|
| | | | | | | | | | | | | | | |
| Estimated Fair Value Measurement at Reporting Date Using | | Balance at December 31, 2017 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | |
Financial Assets: | | | | | | | |
Securities held to maturity | $ | — |
| | $ | 73,458 |
| | $ | — |
| | $ | 73,458 |
|
Portfolio loans, net | — |
| | — |
| | 4,096,741 |
| | 4,096,741 |
|
State tax credits, held for sale | — |
| | — |
| | 43,871 |
| | 43,871 |
|
Financial Liabilities: | | | | | | | |
Deposits | 3,577,641 |
| | — |
| | 575,682 |
| | 4,153,323 |
|
Subordinated debentures and notes | — |
| | 105,031 |
| | — |
| | 105,031 |
|
Federal Home Loan Bank advances | — |
| | 172,893 |
| | — |
| | 172,893 |
|
Other borrowings | — |
| | 253,530 |
| | — |
| | 253,530 |
|
|
| Estimated Fair Value Measurement at Reporting Date Using | | Balance at December 31, 2016 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | |
Financial Assets: | | | | | | | |
Securities held to maturity | $ | — |
| | $ | 79,639 |
| | $ | — |
| | $ | 79,639 |
|
Portfolio loans, net | — |
| | — |
| | 3,125,701 |
| | 3,125,701 |
|
State tax credits, held for sale | — |
| | — |
| | 37,679 |
| | 37,679 |
|
Financial Liabilities: | | | | | | | |
Deposits | 2,760,202 |
| | — |
| | 472,212 |
| | 3,232,414 |
|
Subordinated debentures and notes | — |
| | 86,052 |
| | — |
| | 86,052 |
|
Federal Home Loan Bank advances | — |
| | — |
| | — |
| | — |
|
Other borrowings | — |
| | 276,905 |
| | — |
| | 276,905 |
|
The following methods and assumptions were used to estimate the fair value of each class of financialon a recurring basis disclosed above. Financial instruments for which it is practical to estimate such value:
Cash, Federal funds sold, and other short-term instruments
Forcarrying values approximate fair value include cash and due from banks, federal funds purchased, interest-bearingsold, interest bearing deposits, and accrued interest receivable (payable), the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period (Level 1).
Securities available for salereceivable/payable, demand, savings and held to maturity
The Company obtains fair value measurements for debt instruments from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions (Level 2).
Other investments
Other investments, which primarily consists of membership stock in the FHLB, is reported at cost, which approximates fair value (Level 2).
Loans held for sale
These loans consist of mortgages that are sold on the secondary market generally within three months of origination. They are reported at cost, which approximates fair value (Level 2).
Portfolio loans, net
The fair value of adjustable-rate loans approximates cost. The fair value of fixed-rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers for the same remaining maturities. The fair value of the acquired loans are based on the present value of expected future cash flows (Level 3). The method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC Topic 820.
State tax credits held for sale
The fair value of state tax credits held for sale is calculated using an internal valuation model with unobservable market data as discussed in further detail above (Level 3).
Derivative financial instruments
The fair value of derivative financial instruments is based on quoted market prices by the counterparty and verified by the Company using public pricing information (Level 2).
Deposits
The fair value of demand deposits, interest-bearing transaction accounts, money market accounts and savings deposits is the amount payable on demand at the reporting date (Level 1). The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities (Level 3).deposits.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
($ in thousands) | Carrying Amount | | Estimated fair value | | Level | | Carrying Amount | | Estimated fair value | | Level |
Balance sheet assets | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Securities held-to-maturity | $ | 750,434 | | | $ | 696,647 | | | Level 2 | | $ | 709,915 | | | $ | 628,517 | | | Level 2 |
Other investments | 63,255 | | | 63,255 | | | Level 2 | | 61,123 | | | 61,123 | | | Level 2 |
Loans held-for-sale | 359 | | | 359 | | | Level 2 | | 1,228 | | | 1,228 | | | Level 2 |
| | | | | | | | | | | |
Loans, net | 10,749,347 | | | 10,392,551 | | | Level 3 | | 9,600,206 | | | 9,328,844 | | | Level 3 |
State tax credits, held-for-sale | 22,115 | | | 23,897 | | | Level 3 | | 27,700 | | | 28,880 | | | Level 3 |
Servicing asset | 2,861 | | | 3,799 | | | Level 2 | | 3,648 | | | 3,905 | | | Level 2 |
| | | | | | | | | | | |
Balance sheet liabilities | | | | | | | | | | | |
Certificates of deposit | $ | 1,272,914 | | | $ | 1,265,905 | | | Level 3 | | $ | 530,708 | | | $ | 512,229 | | | Level 3 |
Subordinated debentures and notes | 155,984 | | | 154,354 | | | Level 2 | | 155,433 | | | 152,679 | | | Level 2 |
FHLB advances | — | | | — | | | Level 2 | | 100,000 | | | 100,004 | | | Level 2 |
Other borrowings | 297,829 | | | 274,658 | | | Level 2 | | 324,119 | | | 324,119 | | | Level 2 |
Subordinated debentures and notes
Fair value of subordinated debentures and notes is based on discounting the future cash flows using rates currently offered for financial instruments of similar remaining maturities (Level 2).
Federal Home Loan Bank advances
The fair value of the FHLB advances is based on the discounted value of contractual cash flows. The discount rate is estimated using current rates on borrowed money with similar remaining maturities (Level 2).
Other borrowed funds
Other borrowed funds include customer repurchase agreements, federal funds purchased, notes payable, and secured borrowings related to loan participations. The fair value of federal funds purchased, customer repurchase agreements and notes payable are assumed to be equal to their carrying amount since they have an adjustable interest rate (Level 2).
Commitments to extend credit and letters of credit
The fair value of commitments to extend credit and letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties (Level 2). The Company believes such commitments have been made on terms which are competitive in the markets in which it operates; however, no premium or discount is offered thereon and accordingly, the Company has not assigned a value to such instruments for purposes of this disclosure.
Limitations
Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Such estimates include the valuation of loans, goodwill, intangible assets, and other long-lived assets, along with assumptions used in the calculation of income taxes, among others. These estimates and assumptions are based on management'smanagement’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust suchenvironment. Such estimates and assumptions are adjusted when facts and circumstances dictate. DecreasingChanging real estate values, illiquid credit markets, volatile equity markets, and declineschanges in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ
significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statementstatements in future periods. In addition, these estimates do not reflect any premium or discount that could result from offering for sale at one time the Company'sCompany’s entire holdings of a particular financial instrument.instrument at one time. Fair value estimates are based on existing on-balance and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not
considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates.
NOTE 19 - PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheets
| | | | | | | | | | | |
| December 31, |
($ in thousands) | 2023 | | 2022 |
Assets | | | |
Cash | $ | 100,418 | | | $ | 99,018 | |
Investment in Bank | 1,748,260 | | | 1,553,657 | |
Investment in nonbank subsidiaries | 11,267 | | | 16,476 | |
Other assets | 27,701 | | | 30,312 | |
Total assets | $ | 1,887,646 | | | $ | 1,699,463 | |
| | | |
Liabilities and Shareholders’ Equity | | | |
Subordinated debentures and notes | $ | 155,984 | | | $ | 155,433 | |
Notes payable | 11,429 | | | 17,143 | |
Accounts payable and other liabilities | 4,165 | | | 4,624 | |
Shareholders' equity | 1,716,068 | | | 1,522,263 | |
Total liabilities and shareholders' equity | $ | 1,887,646 | | | $ | 1,699,463 | |
|
| | | | | | | |
| December 31, |
(in thousands) | 2017 | | 2016 |
Assets | | | |
Cash | $ | 9,977 |
| | $ | 52,245 |
|
Investment in Enterprise Bank & Trust | 623,439 |
| | 416,831 |
|
Investment in nonbank subsidiaries | 6,546 |
| | 2,798 |
|
Other assets | 28,741 |
| | 22,111 |
|
Total assets | $ | 668,703 |
| | $ | 493,985 |
|
| | | |
Liabilities and Shareholders' Equity | | | |
Subordinated debentures and notes | $ | 118,105 |
| | $ | 105,540 |
|
Accounts payable and other liabilities | 2,025 |
| | 1,347 |
|
Shareholders' equity | 548,573 |
| | 387,098 |
|
Total liabilities and shareholders' equity | $ | 668,703 |
| | $ | 493,985 |
|
Condensed Statements of OperationsIncome
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
($ in thousands) | 2023 | | 2022 | | 2021 |
Income: | | | | | |
Dividends from Bank | $ | 45,000 | | | $ | 75,000 | | | $ | 95,000 | |
Dividends from nonbank subsidiaries | 4,875 | | | 1,700 | | | 2,000 | |
Other | 7,736 | | | 1,086 | | | 3,600 | |
Total income | 57,611 | | | 77,786 | | | 100,600 | |
| | | | | |
Expenses: | | | | | |
Interest expense | 10,856 | | | 9,825 | | | 11,406 | |
| | | | | |
Other expenses | 8,774 | | | 8,580 | | | 11,037 | |
Total expenses | 19,630 | | | 18,405 | | | 22,443 | |
| | | | | |
Income before taxes and equity in undistributed earnings of subsidiaries | 37,981 | | | 59,381 | | | 78,157 | |
| | | | | |
Income tax benefit | 2,520 | | | 3,585 | | | 3,710 | |
| | | | | |
Net income before equity in undistributed earnings of subsidiaries | 40,501 | | | 62,966 | | | 81,867 | |
| | | | | |
Equity in undistributed earnings of subsidiaries | 153,558 | | | 140,077 | | | 51,188 | |
Net income | $ | 194,059 | | | $ | 203,043 | | | $ | 133,055 | |
|
| | | | | | | | | | | |
| Years ended December 31, |
(in thousands) | 2017 | | 2016 | | 2015 |
Income: | | | | | |
Dividends from subsidiaries | $ | 20,000 |
| | $ | 7,500 |
| | $ | 10,000 |
|
Other | 708 |
| | 491 |
| | 249 |
|
Total income | 20,708 |
| | 7,991 |
| | 10,249 |
|
| | | | | |
Expenses: | | | | | |
Interest expense-subordinated debentures and notes | 5,094 |
| | 1,893 |
| | 1,248 |
|
Interest expense-notes payable | 89 |
| | 53 |
| | 144 |
|
Other expenses | 5,486 |
| | 5,526 |
| | 3,823 |
|
Total expenses | 10,669 |
| | 7,472 |
| | 5,215 |
|
| | | | | |
Income before taxes and equity in undistributed earnings of subsidiaries | 10,039 |
| | 519 |
| | 5,034 |
|
| | | | | |
Income tax benefit | 3,098 |
| | 2,583 |
| | 2,118 |
|
| | | | | |
Net income before equity in undistributed earnings of subsidiaries | 13,137 |
| | 3,102 |
| | 7,152 |
|
| | | | | |
Equity in undistributed earnings of subsidiaries | 35,053 |
| | 45,735 |
| | 31,298 |
|
Net income and comprehensive income | $ | 48,190 |
| | $ | 48,837 |
| | $ | 38,450 |
|
Condensed Statements of Cash Flows
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
($ in thousands) | 2023 | | 2022 | | 2021 |
Cash flows from operating activities: | | | | | |
Net income | $ | 194,059 | | | $ | 203,043 | | | $ | 133,055 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Share-based compensation | 4,439 | | | 8,006 | | | 6,017 | |
Net income of subsidiaries | (203,433) | | | (216,777) | | | (148,188) | |
Dividends from subsidiaries | 49,875 | | | 76,700 | | | 97,000 | |
| | | | | |
Other, net | (421) | | | 6,102 | | | (16) | |
Net cash provided by operating activities | 44,519 | | | 77,074 | | | 87,868 | |
| | | | | |
Cash flows from investing activities: | | | | | |
| | | | | |
Proceeds from acquisitions, net of cash acquired | — | | | — | | | 2,346 | |
Purchases of other investments | (1,002) | | | (2,187) | | | (2,204) | |
| | | | | |
Proceeds from distributions on other investments | 3,314 | | | 3,878 | | | 2,656 | |
| | | | | |
Net cash provided by investing activities | 2,312 | | | 1,691 | | | 2,798 | |
| | | | | |
Cash flows from financing activities: | | | | | |
| | | | | |
Payments for the redemption of subordinated notes | — | | | — | | | (50,000) | |
| | | | | |
| | | | | |
| | | | | |
Repayment of long-term debt | (5,714) | | | (5,714) | | | (7,143) | |
| | | | | |
Dividends paid on common stock | (37,368) | | | (33,602) | | | (26,153) | |
| | | | | |
Payments for the repurchase of common stock | — | | | (32,923) | | | (60,589) | |
Proceeds from issuance of preferred stock | — | | | — | | | 71,988 | |
Dividends paid on preferred stock | (3,750) | | | (4,041) | | | — | |
Other | 1,401 | | | 1,773 | | | 516 | |
Net cash used in financing activities | (45,431) | | | (74,507) | | | (71,381) | |
| | | | | |
Net increase in cash and cash equivalents | 1,400 | | | 4,258 | | | 19,285 | |
Cash and cash equivalents, beginning of year | 99,018 | | | 94,760 | | | 75,475 | |
Cash and cash equivalents, end of year | $ | 100,418 | | | $ | 99,018 | | | $ | 94,760 | |
| | | | | |
Supplemental disclosures of cash flow information: | | | | | |
Noncash transactions: | | | | | |
Common shares issued in connection with acquisitions | $ | — | | | $ | — | | | $ | 343,650 | |
|
| | | | | | | | | | | |
| Years Ended December 31, |
(in thousands) | 2017 | | 2016 | | 2015 |
Cash flows from operating activities: | | | | | |
Net income | $ | 48,190 |
| | $ | 48,837 |
| | $ | 38,450 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | |
Share-based compensation | 3,427 |
| | 3,367 |
| | 3,601 |
|
Net income of subsidiaries | (55,053 | ) | | (53,235 | ) | | (41,298 | ) |
Dividends from subsidiaries | 20,000 |
| | 7,500 |
| | 10,000 |
|
Excess tax expense of share-based compensation | — |
| | (1,327 | ) | | (449 | ) |
Other, net | (1,806 | ) | | 1,848 |
| | 848 |
|
Net cash provided by operating activities | 14,758 |
| | 6,990 |
| | 11,152 |
|
| | | | | |
Cash flows from investing activities: | | | | | |
Cash contributions to subsidiaries | — |
| | (250 | ) | | — |
|
Cash paid for acquisitions, net of cash acquired | (25,187 | ) | | — |
| | — |
|
Purchases of other investments | (3,679 | ) | | (2,435 | ) | | (2,832 | ) |
Proceeds from distributions on other investments | 1,634 |
| | 1,151 |
| | 880 |
|
Net cash used by investing activities | (27,232 | ) | | (1,534 | ) | | (1,952 | ) |
| | | | | |
Cash flows from financing activities: | | | | | |
Proceeds from issuance of subordinated notes | — |
| | 48,733 |
| | — |
|
Proceeds from notes payable | 10,000 |
| | — |
| | — |
|
Repayments of notes payable | (10,000 | ) | | — |
| | (5,700 | ) |
Cash dividends paid | (10,249 | ) | | (8,211 | ) | | (5,259 | ) |
Excess tax benefit of share-based compensation | — |
| | 1,327 |
| | 449 |
|
Payments for the repurchase of common stock | (16,636 | ) | | (4,889 | ) | | — |
|
Payments for the issuance of equity instruments, net | (2,909 | ) | | (2,203 | ) | | (1,190 | ) |
Net cash provided (used) by financing activities | (29,794 | ) | | 34,757 |
| | (11,700 | ) |
| | | | | |
Net increase (decrease) in cash and cash equivalents | (42,268 | ) | | 40,213 |
| | (2,500 | ) |
Cash and cash equivalents, beginning of year | 52,245 |
| | 12,032 |
| | 14,532 |
|
Cash and cash equivalents, end of year | $ | 9,977 |
| | $ | 52,245 |
| | $ | 12,032 |
|
| | | | | |
Supplemental disclosures of cash flow information: | | | | | |
Noncash transactions: | | | | | |
Common shares issued in connection with JCB acquisition | $ | 141,729 |
| | $ | — |
| | $ | — |
|
NOTE 20 - QUARTERLY CONDENSEDSUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)
The following table presents unaudited quarterly financial information forother income and other expense components that primarily exceed one percent of the aggregate of total interest income and noninterest income in one or more of the periods indicated:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
($ in thousands) | 2023 | | 2022 | | 2021 |
Other income: | | | | | |
Community development fees | $ | 4,037 | | | $ | 5,304 | | | $ | 5,491 | |
Bank-owned life insurance | 3,688 | | | 3,324 | | | 2,938 | |
Other income | 15,187 | | | 8,089 | | | 13,719 | |
Total other noninterest income | $ | 22,912 | | | $ | 16,717 | | | $ | 22,148 | |
| | | | | |
Other expense: | | | | | |
Amortization of intangibles | $ | 4,601 | | | $ | 5,367 | | | $ | 5,691 | |
Banking expenses | 8,110 | | | 7,212 | | | 6,123 | |
| | | | | |
FDIC and other insurance | 13,164 | | | 7,098 | | | 5,789 | |
Loan, legal expenses | 8,639 | | | 6,943 | | | 7,130 | |
| | | | | |
Outside services | 7,040 | | | 5,399 | | | 4,992 | |
Other expenses | 32,332 | | | 25,854 | | | 18,739 | |
Total other noninterest expenses | $ | 73,886 | | | $ | 57,873 | | | $ | 48,464 | |
|
| | | | | | | | | | | | | | | |
| 2017 |
(in thousands, except per share data) | 4th Quarter | | 3rd Quarter | | 2nd Quarter | | 1st Quarter |
Interest income | $ | 54,789 |
| | $ | 52,468 |
| | $ | 51,542 |
| | $ | 43,740 |
|
Interest expense | 7,385 |
| | 6,843 |
| | 5,909 |
| | 5,098 |
|
Net interest income | 47,404 |
| | 45,625 |
|
| 45,633 |
|
| 38,642 |
|
Provision for portfolio loan losses | 3,186 |
| | 2,422 |
| | 3,623 |
| | 1,533 |
|
Provision reversal for purchased credit impaired loan losses | (279 | ) | | — |
| | (207 | ) | | (148 | ) |
Net interest income after provision for loan losses | 44,497 |
| | 43,203 |
|
| 42,217 |
|
| 37,257 |
|
Noninterest income | 11,112 |
| | 8,372 |
| | 7,934 |
| | 6,976 |
|
Noninterest expense | 28,260 |
| | 27,404 |
| | 32,651 |
| | 26,736 |
|
Income before income tax expense | 27,349 |
| | 24,171 |
|
| 17,500 |
|
| 17,497 |
|
Income tax expense | 19,820 |
| | 7,856 |
| | 5,545 |
| | 5,106 |
|
Net income | $ | 7,529 |
| | $ | 16,315 |
|
| $ | 11,955 |
|
| $ | 12,391 |
|
| | | | | | | |
Earnings per common share: | | | | | | | |
Basic | $ | 0.33 |
| | $ | 0.70 |
| | $ | 0.51 |
| | $ | 0.57 |
|
Diluted | 0.32 |
| | 0.69 |
| | 0.50 |
| | 0.56 |
|
| | | | | | | |
| 2016 |
(in thousands, except per share data) | 4th Quarter | | 3rd Quarter | | 2nd Quarter | | 1st Quarter |
Interest income | $ | 39,438 |
| | $ | 37,293 |
| | $ | 37,033 |
| | $ | 35,460 |
|
Interest expense | 3,984 |
| | 3,463 |
| | 3,250 |
| | 3,032 |
|
Net interest income | 35,454 |
| | 33,830 |
|
| 33,783 |
|
| 32,428 |
|
Provision for portfolio loan losses | 964 |
| | 3,038 |
| | 716 |
| | 833 |
|
Provision reversal for purchased credit impaired loan losses | (343 | ) | | (1,194 | ) | | (336 | ) | | (73 | ) |
Net interest income after provision for loan losses | 34,833 |
| | 31,986 |
|
| 33,403 |
|
| 31,668 |
|
Noninterest income | 9,029 |
| | 6,976 |
| | 7,049 |
| | 6,005 |
|
Noninterest expense | 23,181 |
| | 20,814 |
| | 21,353 |
| | 20,762 |
|
Income before income tax expense | 20,681 |
| | 18,148 |
| | 19,099 |
| | 16,911 |
|
Income tax expense | 7,053 |
| | 6,316 |
| | 6,747 |
| | 5,886 |
|
Net income | $ | 13,628 |
| | $ | 11,832 |
|
| $ | 12,352 |
|
| $ | 11,025 |
|
| | | | | | | |
Earnings per common share: | | | | | | | |
Basic | $ | 0.68 |
| | $ | 0.59 |
| | $ | 0.62 |
| | $ | 0.55 |
|
Diluted | 0.67 |
| | 0.59 |
| | 0.61 |
| | 0.54 |
|
NOTE 21 - NEW AUTHORITATIVE ACCOUNTING GUIDANCE
Financial Accounting Standards Board (the "FASB") Accounting Standards Update (the "ASU") 2018-02 "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". The amendment allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Entities will be able to early adopt the guidance in any interim or annual period for which financial statements have not yet been issued and apply it either (1) in the period of adoption or (2) retrospectively to each period in which the effect of the change in the federal income tax rate in the Tax Cuts and Jobs Act is recognized. It would also allow entities to elect to reclassify other stranded tax effects that relate to the Act but do not directly relate to the change in the federal rate (e.g., state taxes, changing from a worldwide tax system to a territorial system). Tax effects that are stranded in OCI for other reasons (e.g., prior changes in tax law, a change in valuation allowance) may not be reclassified. The Company plans to adopt this standard in the first quarter of 2018, and apply it to the same period. The adoption of this update will result in an increase to retained earnings of $0.8 million being reclassified from accumulated other comprehensive income.
FASB ASU 2017-12 "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" In August 2017, the FASB issued ASU 2017-12, "Targeted Improvement to Accounting for Hedging Activities". The objective of ASU 2017-12 is to improve the financial reporting of hedging relationships by better aligning an entity's risk management activity with the economic objectives in undertaking those activities. In addition, the amendments in this update simplify the application of hedge accounting for preparers of financial statements, as well as improve the understandability of an entity's risk management activities being conveyed to financial statement users. The new guidance becomes effective for periods beginning after December 15, 2018, with early adoption being permitted. The Company elected early adoption of this standard as of January 1, 2018. The effect of this adoption will have a minimal impact on the Company's consolidated financial statements.
FASB ASU 2017-09 "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting" In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting" which amends the scope of modification accounting for share-based payment awards. The amendments provide guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting with an intent to simplify the accounting under ASC 718. The amendments are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption being permitted. The Company has evaluated the new guidance and does not expect it to have a material impact on the Company's consolidated financial statements.
FASB ASU 2017-08 "Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities" In March 2017, the FASB issued ASU 2017-08, "Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20)" which shortens the amortization period of certain callable debt securities held at a premium to the earliest call date. The amendments are effective for public business entities for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption being permitted. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial statements.
FASB ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" In June 2016, the FASB issued ASU 2016-13, "Financial Instruments (Topic 326)" which changes the methodology for evaluating impairment of most financial instruments. The ASU replaces the currently used incurred loss model with a forward-looking expected loss model, which will generally result in a more timely recognition of losses. The guidance becomes effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial statements.
FASB ASU 2016-02 "Leases (Topic 842)" In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" which requires organizations that lease assets ("lessees") to recognize the assets and liabilities for the rights and obligations created by leases with terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee remains dependent on its classification as a finance or operating lease. The criteria for determining whether a lease is a finance or operating lease has not been significantly changed by this ASU. The ASU also requires additional disclosure of the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. The guidance becomes effective for periods beginning after December 15, 2018, including interim periods therein. Early adoption will be permitted. The adoption of this standard will gross up the Company's Consolidated Balance Sheet and utilize capital, but it will have no impact on the Consolidated Statements of Operations.
FASB ASU 2016-01 "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU 2016-01 requires equity investments to be measured at fair value through earnings, and eliminates the available-for-sale classification for equity securities with readily determinable fair values. For financial liabilities where the fair value option has been elected, changes in fair value due to instrument-specific credit risk must be recognized in other comprehensive income. When measuring the fair value of financial instruments at amortized cost, the exit price must be used for disclosure purposes. The ASU also requires that financial assets and liabilities be presented separately in the notes to the financial statements. This ASU becomes effective for fiscal years beginning after December 15, 2017, including interim periods therein. Early adoption is permitted with some exceptions. The Company has evaluated its applicable equity investments and determined that they primarily qualify for the measurement exception which allows those investments to be measured at their cost minus impairment. Any valuation adjustments will be recorded prospectively through net income, and the related disclosure will be included in the Notes to the Consolidated Financial Statements.
FASB ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of this guidance to annual reporting periods beginning after December 15, 2017 for public companies, and permits early adoption on a limited basis. The Company has conducted its initial assessment and is currently evaluating contracts to assess and quantify accounting methodology changes resulting from the adoption of ASU 2014-09. The majority of the Company’s revenues are derived from loans which are excluded from the new standard; therefore, the new guidance is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. The Company has decided upon the modified retrospective adoption method.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the “Act”) as of December 31, 2017.2023. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of December 31, 2017,2023, such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Act is accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Management'sManagement’s Assessment of Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(e)13a-15(f) and 15(d)-15(e)-15(f) under the Securities Exchange Act of 1934, as amended, the “Act”)Act). The Company’s internal control system is a process designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or untimely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial reporting. Further, because of changes in conditions, the effectiveness of any system of internal control may vary over time. The design of any internal control system also factors in resource constraints and consideration for the benefit of the control relative to the cost of implementing the control. Because of these inherent limitations in any system of internal control, management cannot provide absolute assurance that all control issues and instances of fraud within the Company have been detected.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2023. In making this assessment, management used the criteria set forth by the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management has concluded that the Company maintained an effective system of internal control over financial reporting based on these criteria as of December 31, 2017.2023.
The Company’s independent registered public accounting firm, Deloitte & Touche LLP, who audited the consolidated financial statements, has issued an audit report on the Company’s internal control over financial reporting as of December 31, 2017,2023, and it is included herein.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act) that occurred during the Company’s quarter ended December 31, 20172023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
None.During the year ended December 31, 2023, no officer or director of the company adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities of the company’s common stock that is intended to satisfy the affirmative defense conditions of Securities Exchange Act Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement as defined in 17 CFR § 229.408(c).
ITEM 9C: DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated herein by reference to the Board and Committee Information and Executive Officer sections of the Company'sCompany’s Proxy Statement for its annual meeting2024 Annual Meeting of Shareholders, which will be filed pursuant to be heldRegulation 14A under the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 2023.
Governance:
The Company has adopted a Code of Ethics applicable to all of its directors and employees, including the principal executive officer, principal financial officer and principal accounting officer. A copy of the Code of Ethics is available on Wednesday, May 2, 2018.the Company’s website at www.enterprisebank.com.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the Executive Compensation section of the Company'sCompany’s Proxy Statement for its annual meeting2024 Annual Meeting of Stockholders, which will be filed pursuant to be held on Wednesday, May 2, 2018.Regulation 14A under the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 2023.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information regarding the securities authorized for issuance under our equity compensation plans as of December 31, 2023.
EQUITY COMPENSATION PLAN INFORMATION
| | | | | | | | | | | | | | | | | | | | |
Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
Equity compensation plans approved by security holders | | 918,220 | | | $ | 49.11 | | | 1,288,975 | |
Equity compensation plans not approved by security holders | | — | | | — | | | — | |
Total | | 918,220 | | | $ | 49.11 | | | 1,288,975 | |
(a) Includes the following:
•290,141 shares of common stock to be issued upon vesting of outstanding restricted stock units under the 2018 Stock Incentive Plan;
•273,202 shares of common stock to be issued upon vesting of outstanding performance units under the 2018 Stock Incentive Plan;
•333,608 shares of common stock to be issued upon exercise of outstanding non-qualified stock options; and
•21,269 shares of common stock to be issued upon deferral release of common stock under the Non-Management Director Stock Plan.
(b) Includes the following:
•price only applicable to the outstanding non-qualified stock options.
(c) Includes the following:
•732,427 shares of common stock available for issuance under the 2018 Stock Incentive Plan;
•108,893 shares of common stock available for issuance under the Non-Management Director Stock Plan; and
•447,655 shares of common stock available for issuance under the 2018 Employee Stock Purchase Plan.
Additional information required by this item is incorporated herein by reference to the Information Regarding Beneficial Ownership section of the Company'sCompany’s Proxy Statement for its annual meeting2024 Annual Meeting of Stockholders, which will be filed pursuant to be held on Wednesday, May 2, 2018.Regulation 14A under the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 2023.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to the Related Person Transactions section of the Company'sCompany’s Proxy Statement for its annual meeting2024 Annual Meeting of Stockholders, which will be filed pursuant to be held on Wednesday, May 2, 2018.Regulation 14A under the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 2023.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to the Fees Paid to Independent Registered Public Accounting Firm section of the Company'sCompany’s Proxy Statement for its annual meeting2024 Annual Meeting of Stockholders, which will be filed pursuant to be held on Wednesday, May 2, 2018.Regulation 14A under the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 2023.
PART IV
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
The following consolidated financial statements of Enterprise Financial Services Corp and its subsidiaries and independent auditors'auditors’ reports are included in Part II, Item 8, of this Form 10-K.10-K and are incorporated by reference from Part II, Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2023 and 2022
Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
All financial statement schedules have been omitted, as they are either inapplicable or included in the Notes to Consolidated Financial Statements.
3. Exhibits
No.Description
4.2 Long-term borrowing instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company undertakes to furnish copies of such instruments to the Securities and Exchange Commission upon request.
10.1.2* Executive Employment Agreement dated September 13, 2013 by and between Enterprise Financial Services Corp and Keene S. Turner (incorporated by reference herein to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the period ending September 30, 2013 (File No. 001-15373)), amended by that First Amendment of Executive Employment Agreement dated as of February 27, 2015 (incorporated herein by reference to Exhibit 10.1.7 to the Registrant’s Annual Report on Form 10-K filed on February 27, 2015 (File No. 001-15373)),amended by that Second Amendment to Executive Employment Agreement dated as of October 29, 2015 (incorporated by reference to Exhibit 10.1.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ending September 30, 2015 (File No. 001-15373)), and amended by that Third Amendment to Executive Employment Agreement dated as of August 4, 2023 (incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the period ending June 30, 2023 (File No. 001-15373)).
10.1.3* Executive Employment Agreement dated effective January 1, 2005 by and between Enterprise Financial Services Corp and Scott R. Goodman, amended by that First Amendment of Executive Employment Agreement dated as of December 31, 2008 (incorporated herein by reference to Exhibit 10.1.5 to Registrant’s Annual Report on Form 10-K filed on March 15, 2013 (File 001-15373)), amended by that Second Amendment of Executive Employment Agreement dated October 11, 2013 (incorporated herein by reference to Exhibit 10.1.5 to Registrant’s Annual Report on Form 10-K filed on March 17, 2014 (File 001-15373)), and amended by that Third Amendment to Executive Employment Agreement dated as of August 4, 2023 (incorporated by reference to Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q for the period ending June 30, 2023 (File No. 001-15373)).
101+ Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Annual Report on Form 10-K for the period ended December 31, 2023, is formatted in Inline XBRL interactive data files: (i) Consolidated Balance Sheet at December 31, 2023 and December 31, 2022; (ii) Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021; (iv) Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023, 2022, and 2021; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021; and (vi) Notes to Consolidated Financial Statements.
104+ The cover page of Enterprise Financial Services Corp’s Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL (contained in Exhibit 101).
* Management contract or compensatory plan or arrangement.
+ Filed herewith
Note: In accordance with Item 601 (b) (4) (iii) of Regulation S-K, Registrant hereby agrees to furnish to the SEC, upon its request, a copy of any instrument that defines the rights of holders of each issue of long-term debt of Registrant and its consolidated subsidiaries for which consolidated and unconsolidated financial statements
are required to be filed and that authorizes a total amount of securities not in excess of ten percent of the total assets of the Registrant on a consolidated basis.
(b) The exhibits not incorporated by reference herein are filed herewith.
(c) The financial statement schedules are either included in the Notes to Consolidated Financial Statements or omitted if inapplicable.
ITEM 16: FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 23, 2018.26, 2024.
ENTERPRISE FINANCIAL SERVICES CORP
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/s/ James B. Lally |
James B. Lally |
Chief Executive Officer and Director |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-Kreport has been signed by the following persons on behalf of the registrant and in the capacities indicated on February 23, 2018.
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Signatures | | Title |
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Signatures | | Title |
/s/ James B. Lally | | Chief Executive Officer and Director (Principal Executive Officer)
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James B. Lally | |
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/s/ Keene S. Turner | | Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Keene S. Turner | |
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/s/ Mark G. PonderTroy R. Dumlao | | Senior Vice President and Controller
Chief Accounting Officer (Principal Accounting Officer) |
Mark G. PonderTroy R. Dumlao | |
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/s/ John S. Eulich*Michael A. DeCola* | | |
John S. EulichMichael A. DeCola | | Chairman of the Board of Directors |
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/s/ Lyne B. Andrich* | | |
Lyne B. Andrich | | Director |
| /s/ John Q. Arnold* | |
John Q. Arnold | | Director |
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/s/ Michael A. DeCola* | | |
Michael A. DeCola | | Director |
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/s/ Robert E. Guest, Jr.* | | |
Robert E. Guest, Jr. | | Director |
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/s/ James M. Havel* | | |
James M. Havel | | Director |
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/s/ Judith S. Heeter* | | |
Judith S. Heeter | | Director |
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/s/ Michael R. Holmes* | | |
Michael R. Holmes | | Director |
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/s/ Nevada A. Kent, IV* | | |
Nevada A. Kent, IV | | Director |
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/s/ Marcela Manjarrez* | | |
Marcela Manjarrez | | Director |
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/s/ Michael T. Normile*Stephen P. Marsh* | | |
Stephen P. Marsh | | Director |
| Michael T. Normile | |
/s/ Daniel A. Rodrigues* | | |
Daniel A. Rodrigues | | Director |
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/s/ Richard M. Sanborn* | | |
Richard M. Sanborn | | Director |
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/s/ Eloise E. Schmitz* | | |
Eloise E. Schmitz | | Director |
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/s/ Sandra A. Van Trease* | | |
Sandra A. Van Trease | | Director |
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/s/ Lina A. Young* | | |
Lina A. Young | | Director |
*Signed by Power of Attorney.By: /s/ Keene S. Turner
Keene S. Turner
Attorney-In-Fact
February 26, 2024