SECURITIES ANDEXCHANGECOMMISSION

WASHINGTON,D.C. 20549

Commission file number 001-15373

Incorporated in the State of Delaware

I.R.S. Employer Identification # 43-1706259

Address: 150 North Meramec

Telephone: ~~(314)~~ (314) 725-5500



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	EFSC	Nasdaq Global Select Market



Large accelerated filer ~~[X]~~	☒	Accelerated filer ~~[ ]~~	☐
Non-accelerated filer ~~[ ]~~	~~(Do not check if a smaller reporting company)~~☐	Smaller reporting company ~~[ ]~~	☐
		Emerging growth company ~~[ ]~~	☐

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ~~[ ]~~☐

Yes ~~[ ]~~☐ No ~~[X]~~☒

As of October ~~24, 2018,~~23, 2019, the Registrant had ~~23,073,472~~26,518,924 shares of outstanding common stock, $0.01 par value per share.

This document is also available through our website at http://www.enterprisebank.com.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

TABLE OF CONTENTS



		Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets (Unaudited)		1

Condensed Consolidated Statements of Operations (Unaudited)		2

Condensed Consolidated Statements of Comprehensive Income (Unaudited)		3

Condensed Consolidated Statements of ~~Shareholders'~~Shareholders’ Equity (Unaudited)		4

Condensed Consolidated Statements of Cash Flows (Unaudited)		5

Notes to Condensed Consolidated Financial Statements (Unaudited)		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2732

Item 3. Quantitative and Qualitative Disclosures About Market Risk		4953

Item 4. Controls and Procedures		5054

PART II - OTHER INFORMATION

Item 1. Legal Proceedings		5054

Item 1A. Risk Factors		5055

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		5156

Item 3. Defaults Upon Senior Securities		5156

Item 4. Mine Safety Disclosures		5156

Item 5. Other Information		5156

Item 6. Exhibits		5258

Signatures		5460

PART 1 - ITEM 1 - FINANCIAL STATEMENTS

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)


(in thousands, except share and per share data)	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Assets
Cash and due from banks	$	78,119		$	91,084		$	153,730		$	91,511
Federal funds sold	1,571			1,223			2,829			1,714
Interest-bearing deposits (including $1,295 and $1,365 pledged as collateral, respectively)	76,375			61,016
Interest-earning deposits (including $17,785 and $1,305 pledged as collateral, respectively)							99,943			103,327
Total cash and cash equivalents	156,065			153,323			256,502			196,552
Interest-bearing deposits greater than 90 days	3,405			2,645
Interest-earning deposits greater than 90 days							3,975			3,185
Securities available for sale	670,328			641,382			1,247,333			721,369
Securities held to maturity	67,131			73,749
Securities held to maturity, at cost							60,786			65,679
Loans held for sale	738			3,155			6,281			392
Loans	4,267,430			4,097,050			5,228,014			4,350,001
Less: Allowance for loan losses	44,186			42,577			44,555			43,476
Total loans, net	4,223,244			4,054,473
Other real estate	408			498
Loans, net							5,183,459			4,306,525
Other investments, at cost	37,885			26,661			46,867			26,654
Fixed assets, net	32,354			32,618			59,216			32,109
Accrued interest receivable	19,879			14,069
State tax credits held for sale (including $171 and $400 carried at fair value, respectively)	45,625			43,468
Goodwill	117,345			117,345			211,251			117,345
Intangible assets, net	9,148			11,056			27,626			8,553
Other assets	133,984			114,783			243,495			167,299
Total assets	$	5,517,539		$	5,289,225		$	7,346,791		$	5,645,662

Liabilities and Shareholders' Equity
Demand deposits	$	1,062,126		$	1,123,907		$	1,295,450		$	1,100,718
Interest-bearing transaction accounts	743,351			915,653			1,307,855			1,037,684
Money market accounts	1,523,416			1,342,931			1,652,394			1,565,729
Savings	207,346			195,150			548,658			199,425
Certificates of deposit:
Brokered	202,323			115,306			209,754			198,981
Other	471,914			463,467			610,269			485,448
Total deposits	4,210,476			4,156,414			5,624,380			4,587,985
Subordinated debentures and notes (net of debt issuance cost of $1,038 and $1,136, respectively)	118,144			118,105
Subordinated debentures and notes (net of debt issuance cost of $907 and $1,005, respectively)							141,179			118,156
Federal Home Loan Bank advances	401,000			172,743			461,426			70,000
Other borrowings	161,795			253,674			162,920			221,450
Accrued interest payable	2,433			1,730
Notes payable							36,714			2,000
Other liabilities	36,854			37,986			74,077			42,267
Total liabilities	4,930,702			4,740,652			$	6,500,696		$	5,041,858

Commitments and contingent liabilities (Note 7)

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; 23,919,261 and 23,781,112 shares issued, respectively	239			238
Treasury stock, at cost; 827,595 and 691,673 shares, respectively	(30,108		)	(23,268		)
Common stock, $0.01 par value; 45,000,000 shares authorized; 28,042,628 and 23,938,994 shares issued, respectively							280			239
Treasury stock, at cost; 1,429,861 and 1,127,105 shares, respectively							(54,472		)	(42,655		)
Additional paid in capital	349,317			350,061			524,916			350,936
Retained earnings	284,016			225,360			356,160			304,566
Accumulated other comprehensive loss	(16,627		)	(3,818		)
Accumulated other comprehensive income (loss)							19,211			(9,282		)
Total shareholders' equity	586,837			548,573			846,095			603,804
Total liabilities and shareholders' equity	$	5,517,539		$	5,289,225		$	7,346,791		$	5,645,662

The accompanying notes are an integral part of these consolidated financial statements.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)


	Three months ended September 30,					Nine months ended September 30,						Three months ended September 30,				Nine months ended September 30,
(in thousands, except per share data)	2018			2017		2018			2017			2019		2018		2019		2018
Interest income:
Interest and fees on loans	$	55,383		$	48,020	$	158,781		$	135,253		$	71,214	$	55,383	$	201,867	$	158,781
Interest on debt securities:
Taxable	4,482			3,855		12,697			10,670			8,004		4,482		21,236		12,697
Nontaxable	263			294		816			984			969		263		2,277		816
Interest on interest-bearing deposits	306			173		777			537			572		306		1,722		777
Dividends on equity securities	323			126		729			306			319		323		794		729
Total interest income	60,757			52,468		173,800			147,750			81,078		60,757		227,896		173,800
Interest expense:
Interest-bearing transaction accounts	799			523		2,422			1,721			2,048		799		5,972		2,422
Money market accounts	5,423			2,410		13,221			5,841			6,959		5,423		20,470		13,221
Savings accounts	157			125		429			332			232		157		646		429
Certificates of deposit	2,878			1,493		7,115			4,081			3,970		2,878		11,060		7,115
Subordinated debentures and notes	1,483			1,316		4,305			3,768			1,956		1,483		5,562		4,305
Federal Home Loan Bank advances	1,729			832		4,435			1,684			2,203		1,729		5,297		4,435
Notes payable and other borrowings	195			144		561			423			664		195		1,785		561
Total interest expense	12,664			6,843		32,488			17,850			18,032		12,664		50,792		32,488
Net interest income	48,093			45,625		141,312			129,900			63,046		48,093		177,104		141,312
Provision for portfolio loan losses	2,332			2,422		6,588			7,578
Provision reversal for purchased credit impaired loan losses	(69		)	—		(2,064		)	(355		)
Provision for loan losses												1,833		2,263		5,031		4,524
Net interest income after provision for loan losses	45,830			43,203		136,788			122,677			61,213		45,830		172,073		136,788
Noninterest income:
Service charges on deposit accounts	2,997			2,820		8,855			8,146			3,246		2,997		9,547		8,855
Wealth management revenue	2,012			2,062		6,267			5,949			2,661		2,012		7,314		6,267
Card services revenue	1,760			1,459		4,926			3,888			2,494		1,760		6,745		4,926
Gain on sale of other real estate	13			—		13			17
Gain on state tax credits, net	192			77		508			332
Tax credit income												1,238		192		1,968		508
Gain on sale of investment securities	—			22		9			22			337		—		337		9
Miscellaneous income	1,436			1,932		7,067			4,928			3,588		1,449		8,847		7,080
Total noninterest income	8,410			8,372		27,645			23,282			13,564		8,410		34,758		27,645
Noninterest expense:
Employee compensation and benefits	16,297			15,090		49,370			46,096			20,845		16,297		60,884		49,370
Occupancy	2,394			2,434		7,142			6,628			3,179		2,394		9,004		7,142
Data processing	1,634			1,389		4,634			4,828			2,051		1,634		6,415		4,634
Professional fees	1,023			922		2,619			2,838			1,064		1,023		2,847		2,619
FDIC and other insurance	845			882		2,682			2,356
Loan legal and other real estate expense	322			586		598			1,544
Merger related expenses	—			315		—			6,462			393		—		17,969		—
Other	7,407			5,786		21,239			16,039			10,707		8,574		30,012		24,519
Total noninterest expense	29,922			27,404		88,284			86,791			38,239		29,922		127,131		88,284

Income before income tax expense	24,318			24,171		76,149			59,168			36,538		24,318		79,700		76,149
Income tax expense	1,802			7,856		10,461			18,507			7,469		1,802		16,051		10,461
Net income	$	22,516		$	16,315	$	65,688		$	40,661		$	29,069	$	22,516	$	63,649	$	65,688

Earnings per common share
Basic	$	0.97		$	0.70	$	2.84		$	1.77		$	1.09	$	0.97	$	2.46	$	2.84
Diluted	0.97			0.69		2.81			1.75			1.08		0.97		2.45		2.81

The accompanying notes are an integral part of these consolidated financial statements.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)


	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Net income	$	22,516		$	16,315		$	65,688		$	40,661		$	29,069		$	22,516		$	63,649		$	65,688
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities arising during the period, net of income tax expense (benefit) for three months of $(1,328) and $(493), and for nine months of $(3,926) and $775, respectively	(4,048		)	(805		)	(11,968		)	1,265
Less: Reclassification adjustment for realized gains on sale of securities available for sale included in net income, net of income tax expense for three months of $0 and $8, and for nine months of $2 and $8, respectively	—			(13		)	(7		)	(13		)
Unrealized gains (losses) on investment securities arising during the period, net of income tax expense (benefit) for three months of $2,306 and $(1,328), and for nine months of $10,293 and $(3,926), respectively													7,028			(4,047		)	31,377			(11,968		)
Reclassification adjustment for realized gains on sale of securities available for sale included in net income, net of income tax expense for three months of $83 and $0, and for nine months of $11 and $2, respectively													(254		)	—			(34		)	(7		)
Unrealized loss on cash flow hedges arising during the 2019 periods, net of income tax benefit for three months of $219 and for nine months of $947													(669		)	—			(2,886		)	—
Reclassification of loss on cash flow hedge arising during the 2019 periods, net of income tax benefit for three months of $10 and for nine months of $12													32			—			36			—
Total other comprehensive income (loss)	(4,048		)	(818		)	(11,975		)	1,252			6,137			(4,047		)	28,493			(11,975		)
Total comprehensive income	$	18,468		$	15,497		$	53,713		$	41,913		$	35,206		$	18,469		$	92,142		$	53,713

The accompanying notes are an integral part of these consolidated financial statements.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)


(in thousands, except per share data)	Common Stock			Treasury Stock			Additional paid in capital			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders' equity			Common Stock		Treasury Stock			Additional paid in capital			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
Balance at June 30, 2019																			$	280	$	(42,655	)	$	523,454		$	331,348		$	13,074		$	825,501
Net income																			—		—			—			29,069			—			29,069
Other comprehensive income																			—		—			—			—			6,137			6,137
Total comprehensive income																			—		—			—			29,069			6,137			35,206
Cash dividends paid on common shares, $0.16 per share																			—		—			—			(4,257		)	—			(4,257		)
Repurchase of common shares																			—		(11,817		)	—			—			—			(11,817		)
Issuance under equity compensation plans, 9,382 shares, net																			—		—			353			—			—			353
Share-based compensation																			—		—			1,109			—			—			1,109
Balance at September 30, 2019																			$	280	$	(54,472	)	$	524,916		$	356,160		$	19,211		$	846,095

Balance at December 31, 2018																			$	239	$	(42,655	)	$	350,936		$	304,566		$	(9,282	)	$	603,804
Net income																			—		—			—			63,649			—			63,649
Other comprehensive income																			—		—			—			—			28,493			28,493
Total comprehensive income																			—		—			—			63,649			28,493			92,142
Cash dividends paid on common shares, $0.45 per share																			—		—			—			(12,055		)	—			(12,055		)
Repurchase of common shares																			—		(11,817		)	—			—			—			(11,817		)
Issuance under equity compensation plans, 112,812 shares, net																			1		—			(881		)	—			—			(880		)
Share-based compensation																			—		—			3,016			—			—			3,016
Shares issued in connection with acquisition of Trinity Capital Corporation, 3,990,822 shares																			40		—			171,845			—			—			171,885
Balance at September 30, 2019																			$	280	$	(54,472	)	$	524,916		$	356,160		$	19,211		$	846,095

(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 at June 30, 2018																			$	239	$	(26,326	)	$	348,471		$	264,280		$	(12,580	)	$	574,084
Net income																			—		—			—			22,516			—			22,516
Other comprehensive loss																			—		—			—			—			(4,047		)	(4,047		)
Total comprehensive income (loss)																			—		—			—			22,516			(4,047		)	18,469
Cash dividends paid on common shares, $0.12 per share																			—		—			—			(2,780		)	—			(2,780		)
Repurchase of common shares																			—		(3,782		)	—			—			—			(3,782		)
Issuance under equity compensation plans, 18,592 shares, net																			—		—			(77		)	—			—			(77		)
Share-based compensation																			—		—			923			—			—			923
Reclassification adjustment for change in accounting policies																			—		—			—			834			(834		)	—
Balance at September 30, 2018																			$	239	$	(30,108	)	$	349,317		$	284,016		$	(16,627	)	$	586,837

Balance at December 31, 2017	$	238		$	(23,268	)	$	350,061		$	225,360		$	(3,818	)	$	548,573		$	238	$	(23,268	)	$	350,061		$	225,360		$	(3,818	)	$	548,573
Net income	—			—			—			65,688			—			65,688			—		—			—			65,688			—			65,688
Other comprehensive loss	—			—			—			—			(11,975		)	(11,975		)	—		—			—			—			(11,975		)	(11,975		)
Total comprehensive income (loss)	—			—			—			65,688			(11,975		)	53,713			—		—			—			65,688			(11,975		)	53,713
Cash dividends paid on common shares, $0.34 per share	—			—			—			(7,866		)	—			(7,866		)	—		—			—			(7,866		)	—			(7,866		)
Repurchase of common shares	—			(6,840		)	—			—			—			(6,840		)	—		(6,840		)	—			—			—			(6,840		)
Issuance under equity compensation plans, 138,149 shares, net	1			—			(3,298		)	—			—			(3,297		)	1		—			(3,298		)	—			—			(3,297		)
Share-based compensation	—			—			2,554			—			—			2,554			—		—			2,554			—			—			2,554
Reclassification adjustments for change in accounting policies	—		—	—			—			834			(834		)	—
Reclassification adjustment for change in accounting policies																			—		—			—			834			(834		)	—
Balance at September 30, 2018	$	239		$	(30,108	)	$	349,317		$	284,016		$	(16,627	)	$	586,837		$	239	$	(30,108	)	$	349,317		$	284,016		$	(16,627	)	$	586,837


(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 at December 31, 2016	$	203		$	(6,632	)	$	213,078		$	182,190		$	(1,741	)	$	387,098
Net income	—			—			—			40,661			—			40,661
Other comprehensive income	—			—			—			—			1,252			1,252
Total comprehensive income	—			—			—			40,661			1,252			41,913
Cash dividends paid on common shares, $0.33 per share	—			—			—			(7,709		)	—			(7,709		)
Repurchase of common shares	—			(16,636		)	—			—			—			(16,636		)
Issuance under equity compensation plans, 148,597 shares, net	1			—			(2,574		)	—			—			(2,573		)
Share-based compensation	—			—			2,514			—			—			2,514
Shares issued in connection with acquisition of Jefferson County Bancshares, Inc., 3,299,865 shares, net	33			—			141,696			—			—			141,729
Reclassification for the adoption of share-based payment guidance	—			—			(5,229		)	5,229			—			—
Balance at September 30, 2017	$	237		$	(23,268	)	$	349,485		$	220,371		$	(489	)	$	546,336

The accompanying notes are an integral part of these consolidated financial statements.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Nine months ended September 30,						Nine months ended September 30,
(in thousands, except share data)	2018			2017			2019			2018
Cash flows from operating activities:
Net income	$	65,688		$	40,661		$	63,649		$	65,688
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	2,622			2,426			4,187			2,622
Provision for loan losses	4,524			7,223			5,031			4,524
Deferred income taxes	2,822			1,239			4,777			2,822
Net amortization of debt securities	1,338			2,064			2,009			1,338
Amortization of intangible assets	1,908			1,920			3,993			1,908
Gain on sale of investment securities	(9		)	(22		)	(45		)	(9		)
Mortgage loans originated for sale	(30,136		)	(115,365		)	(39,260		)	(30,136		)
Proceeds from mortgage loans sold	32,839			118,798			33,503			32,839
Gain on sale of other real estate	(13		)	(17		)	(59		)	(13		)
Gain on state tax credits, net	(508		)	(332		)	(469		)	(508		)
Share-based compensation	2,554			2,514			3,016			2,554
Net accretion of loan discount	(1,253		)	(3,796		)
Accretion of loan discount							(8,101		)	(1,253		)
Changes in:
Accrued interest receivable	(5,811		)	(302		)	(1,031		)	(5,811		)
Accrued interest payable	703			249			560			703
Other assets	(16,309		)	755			1,270			(16,309		)
Other liabilities	(1,093		)	(44,398		)	(6,460		)	(1,093		)
Net cash provided by operating activities	59,866			13,617			66,570			59,866
Cash flows from investing activities:
Proceeds from JCB acquisition, net of cash purchase price	—			4,456
Net increase in loans	(172,449		)	(201,715		)
Proceeds from the sale of securities, available for sale	1,451			144,076
Proceeds from the paydown or maturity of securities, available for sale	61,881			126,073
Proceeds from the paydown or maturity of securities, held to maturity	4,988			4,145
Proceeds from the redemption of other investments	30,593			29,159
Proceeds from the sale of state tax credits held for sale	3,056			4,391
Proceeds from the sale of other real estate	467			2,513
Payments for the purchase/origination of:
Acquisition cash purchase price, net of cash and cash equivalents acquired							(23,377		)	—
Increase in loans							(197,514		)	(172,449		)
Proceeds received from:
Sale of debt securities, available for sale							314,189			1,451
Paydown or maturity of debt securities, available for sale							95,386			61,881
Paydown or maturity of debt securities, held to maturity							4,760			4,988
Redemption of other investments							43,034			30,593
Sale of state tax credits held for sale							3,978			3,056
Sale of other real estate							4,380			467
Payments for the purchase of:
Available for sale debt securities	(108,121		)	(263,453		)	(467,695		)	(108,121		)
Other investments	(44,597		)	(45,224		)	(61,226		)	(44,597		)
State tax credits held for sale	(4,704		)	(145		)	(9,666		)	(4,704		)
Fixed assets, net	(2,369		)	(1,864		)	(4,008		)	(2,369		)
Net cash used in investing activities	(229,804		)	(197,588		)	(297,759		)	(229,804		)
Cash flows from financing activities:
Net (decrease) increase in noninterest-bearing deposit accounts	(61,781		)	20,684
Net increase in interest-bearing deposit accounts	115,843			39,998
Net increase (decrease) in noninterest-bearing deposit accounts							25,653			(61,781		)
Net increase (decrease) in interest-bearing deposit accounts							(70,446		)	115,843
Proceeds from Federal Home Loan Bank advances	1,142,500			1,394,181			1,352,000			1,142,500
Repayments of Federal Home Loan Bank advances	(914,000		)	(1,145,681		)	(967,500		)	(914,000		)
Proceeds from notes payable	—			10,000			41,000			—
Repayments of notes payable							(6,286		)	—
Net decrease in other borrowings	(91,879		)	(123,987		)	(58,530		)	(91,879		)
Cash dividends paid on common stock	(7,866		)	(7,709		)	(12,055		)	(7,866		)
Payments for the repurchase of common stock	(6,840		)	(16,636		)	(11,817		)	(6,840		)
Payments for the issuance of equity instruments, net	(3,297		)	(2,573		)	(880		)	(3,297		)
Net cash provided by financing activities	172,680			168,277			291,139			172,680
Net increase (decrease) in cash and cash equivalents	2,742			(15,694		)
Net increase in cash and cash equivalents							59,950			2,742
Cash and cash equivalents, beginning of period	153,323			198,802			196,552			153,323
Cash and cash equivalents, end of period	$	156,065		$	183,108		$	256,502		$	156,065
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	31,785		$	16,948		$	49,862		$	31,785
Income taxes	8,492			9,382			12,955			8,492
Noncash transactions:
Transfer to other real estate owned in settlement of loans	$	—		$	289		$	7,964		$	—
Common shares issued in connection with JCB acquisition	—			141,729
Common shares issued in connection with acquisition							171,885			—

The accompanying notes are an integral part of these consolidated financial statements.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies used by Enterprise Financial Services Corp (the ~~"Company"~~“Company,” “EFSC,” or ~~"Enterprise"~~“Enterprise”) in the preparation of the condensed consolidated financial statements are summarized below:

Business and Consolidation

Enterprise is a financial holding company that provides a full range of banking and wealth management services to individuals and corporate customers located in the ~~St. Louis,~~Arizona, Kansas, ~~City,~~Missouri, and ~~Phoenix metropolitan~~New Mexico markets through its banking subsidiary, Enterprise Bank & Trust (the ~~"Bank"~~“Bank”).

Operating results for the three and nine months ended September 30, ~~2018~~2019 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, ~~2018.~~2019. For further information, refer to the consolidated financial statements and footnotes thereto included in the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, as filed with the Securities and Exchange Commission.

Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the accounting principles generally accepted in the United States of America ("(“U.S. ~~GAAP"~~GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated.

~~During the first quarter of 2018, the Company adopted Accounting Standards Update ("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. The guidance also provides an alternative to measure equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer (the “measurement alternative”). The Company elected the measurement alternative for its qualifying equity securities. The adoption of this update resulted in an insignificant increase to retained earnings which was reclassified from accumulated other comprehensive income.

~~In addition, the Company early adopted ASU 2017-12,~~ ~~"Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities"~~ ~~during the first quarter of 2018.~~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. The adoption of this update did not have a material effect on the Company's consolidated financial statements.

~~The Company also early adopted ASU 2018-02,~~ ~~"Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income"~~ during the first quarter of 2018. The ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017, which among other things, reduced the maximum federal corporate tax rate from 35% to 21%. The adoption of this update resulted in an increase to retained earnings of $0.8 million which was reclassified from accumulated other comprehensive income.

In the opinion of management, the consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the statements of financial position, results of operations, and cash flow for the interim periods.

Recently Adopted Accounting Pronouncements

~~Revenue~~

~~The Company adopted the accounting standard regarding revenue recognition in~~During the first quarter of ~~2018~~ 2019, the Company adopted Accounting Standards Update (“ASU”) 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.” ASU 2017-08 shortens the amortization period of certain callable debt securities held at a premium to the earliest call date. The adoption of this update did not have a material effect on the Company's consolidated financial statements.

The Company adopted ASU 2016-02 “Leases (Topic 842)” using the ~~modified retrospective approach.~~optional transition method effective on January 1, 2019. ASU 2016-02 requires organizations that lease assets to recognize the assets and liabilities for the rights and obligations created by leases. The ~~Company's~~Company recorded $15.5 million for right-to-use assets and $16.2 million for lease liabilities related to operating leases. The Company elected the practical expedients package which eliminates (1) the need to reassess whether any expired or existing contracts are or contain a lease, (2) the need to reassess the lease classification, and (3) the need to reassess initial direct costs for any existing leases. The Company also elected an accounting policy to not recognize assets and liabilities on leases 12 months or less, and an accounting policy for equipment and real estate leases to not separate nonlease components because the impact was immaterial.

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 utilizes 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 date of acquisition. Merger-related costs are costs the Company incurs to effect a business combination. The Company presents 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, gain or loss on sale of investment securities incurred through repositioning the acquired investment portfolio, 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.

Revenue

The Company’s revenues are primarily composed of interest income on financial instruments, including investment ~~securities, which are excluded from the scope of the new guidance. Certain other~~securities. Other noninterest income ~~from loans, investment securities and derivative financial instruments~~ is ~~also excluded from this guidance. Service~~primarily comprised of service charges on deposit accounts, wealth management revenue, card services revenue and ~~gain~~gains on sale of other real estate are within the scope of the guidance; however, there were no accounting policy changes as the Company's policies were consistent with the new guidance. Other noninterest income sources of revenue are considered immaterial. Implementation of this guidance did not change current business practices or have any changes to the Company's consolidated financial statements.

estate. Descriptions of our revenue-generating activities, ~~within the scope of this guidance,~~ which are presented in our income statement as components of noninterest income, are as follows:

Service charges on deposit accounts - represents fees generated from a variety of deposit products and services provided to customers under a day-to-day contract. These fees are recognized on a daily or monthly basis.

Wealth management revenue - represents monthly fees earned from directing, holding, and managing customers’ assets. Revenue is recognized over regular intervals, either monthly or quarterly.

Card services revenue - represents revenue earned from merchant, debit and credit cards as incurred and includes a contra revenue account for rebates.

Gain on sale of other real estate - represents income recognized at delivery of control of a property at the time of a real estate closing.

~~Income Taxes~~Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets on our consolidated balance sheet. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made prior to commencement and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We account for the lease and non-lease components as a single lease component.

Assumptions and judgments are used in applying ASC 842 and may include (1) the decision framework for identifying a lease, (2) the accounting policy election for equipment and real estate leases to not separate nonlease components, and (3) the discount rate for determining the initial present value of the lease payments which is based on information available at the commencement date for determining the lease term and assessing if optional periods are reasonably likely to be exercised. For the calculation at January 1, 2019, the discount rate was based on the remaining lease terms.

Derivative Instruments and Hedging Activities

FASB ASC 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how

and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

The ~~SEC staff issued SAB 118, which provides guidance~~Company records all derivatives on the balance sheet at fair value. The accounting for changes in the ~~tax effects~~fair value of derivatives depends on the intended use of the ~~Tax Cuts~~derivative, whether the Company has elected to designate a derivative in a hedging relationship and ~~Jobs Act of 2017 (“Tax Act”). SAB 118 provides~~apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as 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 aspectshedge of the ~~Act for which~~exposure to changes in the ~~accounting under ASC 740 is complete. To the extent~~fair value of an asset, liability, or firm commitment attributable to a ~~company’s accounting for certain income tax effects~~particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the ~~Tax Act is incomplete but it is able~~exposure to ~~determine a reasonable estimate, it must record a provisional estimate~~variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the ~~financial statements. If~~fair value of the hedged asset or liability that are attributable to the hedged risk in a ~~company cannot determine~~fair value hedge or the earnings effect of the hedged forecasted transactions in a ~~provisional estimate~~cash flow hedge. The Company may enter into derivative contracts that are intended to ~~be included in~~economically hedge certain of its risk, even though hedge accounting does not apply, or the ~~financial statements, it should continue~~Company elects not to apply ~~ASC 740 on~~hedge accounting.

The Company does not offset derivative asset and liability positions. However, the ~~basis~~Company's exposure to the credit risk of its derivative financial instruments is generally mitigated by master netting agreements with its counterparties.

The Alternative Reference Rates Committee (“ARRC”) has proposed that the ~~provisions~~Secured Overnight Funding Rate (“SOFR”) replace LIBOR. ARRC has proposed the transition to SOFR from LIBOR until the end of ~~the tax laws that were in effect immediately before the enactment of the Tax Act.~~2021. The Company has material contracts indexed to LIBOR. Industry organizations are currently working on the transition plan. The Company is monitoring this activity and evaluating the risks involved.

NOTE 2 - ACQUISITION

Acquisition of Trinity Capital Corporation.

On March 8, 2019, the Company closed its acquisition of 100% of Trinity Capital Corporation (“Trinity”) and its wholly-owned subsidiary, Los Alamos National Bank (“LANB”). Trinity operated 6 full-service retail and commercial banking offices in Los Alamos, Santa Fe, and Albuquerque, New Mexico.

Trinity shareholders received cash consideration of $1.84 per share of Trinity common stock and 0.1972 shares of EFSC common stock per share of Trinity common stock with cash in lieu of fractional shares. Aggregate consideration at closing was 4.0 million shares of EFSC common stock and $37.3 million cash paid to Trinity shareholders. Based on EFSC’s closing stock price of $43.07 on March 7, 2019, the overall transaction had a value of $209.2 million. The Company recognized $18.0 million and $1.3 million of merger-related costs recorded ~~amounts~~in noninterest expense in the statement of operations for the ~~effects~~nine months ended September 30, 2019, and the year ended December 31, 2018, respectively.

The acquisition of Trinity 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 ~~Tax Act using reasonable estimates based on currently available information~~acquisition date. Goodwill of $93.9 million arising from the acquisition consists largely of the synergies and ~~its interpretations thereof. This accounting may change due~~economies of scale expected from combining the operations of Trinity into Enterprise. The goodwill is assigned as part of the Company’s Banking reporting unit. None of the goodwill recognized is expected to ~~among other things, changes in interpretations the Company has made and the issuance of new~~be deductible for income tax ~~or accounting guidance.~~purposes.

The following table presents the assets acquired and liabilities assumed of Trinity as of March 8, 2019. Additional adjustments may be recorded during the allocation period specified by ASC 805 as additional information becomes known.



(in thousands)	As Recorded by Trinity		Adjustments				As Recorded by EFSC
Assets acquired:
Cash and cash equivalents	$	13,899	$	—			$	13,899
Interest-earning deposits greater than 90 days	100		—				100
Securities	428,715		(619		)	(a)	428,096
Loans	705,057		(20,743		)	(b)	684,314
Other real estate	5,284		(772		)	(c)	4,512
Other investments	6,673		—				6,673
Fixed assets	27,586		(300		)	(d)	27,286
Accrued interest receivable	3,997		—				3,997
Intangible assets	—		23,066			(e)	23,066
Deferred tax assets	10,708		(1,057		)	(f)	9,651
Other assets	35,045		(5,008		)	(g)	30,037
Total assets acquired	$	1,237,064	$	(5,433	)		$	1,231,631

Liabilities assumed:
Deposits	$	1,081,151	$	36		(h)	$	1,081,187
Subordinated debentures	26,806		(3,972		)	(i)	22,834
Federal Home Loan Bank advances	6,800		171			(j)	6,971
Accrued interest payable	370		—				370
Other liabilities	5,842		(827		)	(k)	5,015
Total liabilities assumed	$	1,120,969	$	(4,592	)		$	1,116,377

Net assets acquired	$	116,095	$	(841	)		$	115,254

Consideration paid:
Cash							$	37,275
Common stock							171,885
Total consideration paid							$	209,160

Goodwill							$	93,906

(a)Fair value adjustments of the securities portfolio as of the acquisition date.


(b)	Fair value adjustments based on the Company’s evaluation of the acquired loan portfolio, write-off of net deferred loan costs and elimination of the allowance for loan losses recorded by Trinity.


(c)	Fair value adjustment based on the Company’s evaluation of the acquired OREO portfolio.


(d)	Fair value adjustments based on the Company’s evaluation of the acquired premises and equipment.


(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 useful life of 10 years.


(f)	Adjustment for deferred taxes at the acquisition date.


(g)	Fair value adjustment of other assets at the acquisition date.


(h)	Fair value adjustment to time deposits.


(i)	Fair value adjustment to the trust preferred securities at the acquisition date.


(j)	Fair value adjustment to the Federal Home Loan Bank borrowings.


(k)	Fair value adjustment of other liabilities recorded during the second quarter of 2019 upon continued refinement of the fair values.

The following table provides the unaudited pro forma information for the results of operations for the nine months ended September 30, 2019 and 2018, as if the acquisition had occurred on January 1, 2018. The pro forma results combine the historical results of Trinity 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, 2018. 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 September 30, 2019 are included in net income in the table below.



	Pro Forma
	Nine months ended September 30,
(in thousands, except per share data)	2019		2018
Total revenues (net interest income plus noninterest income)	$	221,055	$	211,004
Net income	78,055		59,473
Diluted earnings per common share	3.00		2.18

NOTE 23 - EARNINGS PER SHARE

Basic earnings per common share data is calculated by dividing net income 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 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.



	Three months ended September 30,				Nine months ended September 30,
(in thousands, except per share data)	2019		2018		2019		2018
Net income as reported	$	29,069	$	22,516	$	63,649	$	65,688

Weighted average common shares outstanding	26,778		23,148		25,878		23,129
Additional dilutive common stock equivalents	90		181		98		211
Weighted average diluted common shares outstanding	26,868		23,329		25,976		23,340

Basic earnings per common share:	$	1.09	$	0.97	$	2.46	$	2.84
Diluted earnings per common share:	1.08		0.97		$	2.45	$	2.81

Three months ended
September 30, Nine months ended
September 30,
(in thousands, except per share data) 2018 2017 2018 2017
Net income as reported $ 22,516
$ 16,315
$ 65,688
$ 40,661

Weighted average common shares outstanding 23,148
23,324
23,129
22,914
Additional dilutive common stock equivalents 181
250
211
295
Weighted average diluted common shares outstanding 23,329
23,574
23,340
23,209

Basic earnings per common share: $ 0.97
$ 0.70
$ 2.84
$ 1.77
Diluted earnings per common share: $ 0.97
$ 0.69
$ 2.81
$ 1.75

For the three and nine months ended September 30, ~~2018 and 2017, there were no~~2019 common stock equivalents of approximately 21,000 and 26,000, respectively, were excluded from the earnings per share calculations because their effect would have been anti-dilutive. For the comparable periods in 2018, the amounts were immaterial.

NOTE 34 - INVESTMENTS

The following table presents the amortized cost, gross unrealized gains and losses and fair value of securities available for sale and held to maturity:



	September 30, 2019
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale securities:
Obligations of U.S. Government-sponsored enterprises	$	9,949	$	84	$	—		$	10,033
Obligations of states and political subdivisions	164,263		6,298		(248		)	170,313
Agency mortgage-backed securities	917,102		18,021		(1,012		)	934,111
U.S. Treasury bills	9,969		278		—			10,247
Corporate debt securities	116,355		6,274		—			122,629
Total securities available for sale	$	1,217,638	$	30,955	$	(1,260	)	$	1,247,333
Held to maturity securities:
Obligations of states and political subdivisions	$	12,468	$	167	$	—		$	12,635
Agency mortgage-backed securities	48,318		670		—			48,988
Total securities held to maturity	$	60,786	$	837	$	—		$	61,623

September 30, 2018
(in thousands) Amortized Cost Gross
Unrealized Gains Gross
Unrealized Losses Fair Value
Available for sale securities:
Obligations of U.S. Government-sponsored enterprises $ 99,914
$ —
$ (2,233 ) $ 97,681
Obligations of states and political subdivisions 30,563
238
(268 ) 30,533
Agency mortgage-backed securities 551,552
180
(19,385 ) 532,347
U.S. Treasury bills 9,960
—
(193 ) 9,767
Total securities available for sale $ 691,989
$ 418
$ (22,079 ) $ 670,328
Held to maturity securities:
Obligations of states and political subdivisions $ 12,521
$ 6
$ (324 ) $ 12,203
Agency mortgage-backed securities 54,610
—
(2,397 ) 52,213
Total securities held to maturity $ 67,131
$ 6

$ (2,721 )
$ 64,416



	December 31, 2018
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale securities:
Obligations of U.S. Government-sponsored enterprises	$	99,926	$	—	$	(1,428	)	$	98,498
Obligations of states and political subdivisions	26,566		327		(83		)	26,810
Agency mortgage-backed securities	596,825		1,160		(11,849		)	586,136
U.S. Treasury Bills	$	9,962	$	—	$	(37	)	$	9,925
Total securities available for sale	$	733,279	$	1,487	$	(13,397	)	$	721,369
Held to maturity securities:
Obligations of states and political subdivisions	$	12,506	$	16	$	(114	)	$	12,408
Agency mortgage-backed securities	53,173		—		(1,647		)	51,526
Total securities held to maturity	$	65,679	$	16	$	(1,761	)	$	63,934

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

At September 30, ~~2018,~~2019 and December 31, ~~2017,~~2018, there were no holdings of securities of any one issuer in an amount greater than 10% of shareholders’ equity, other than U.S. Government agencies and sponsored enterprises. The agency mortgage-backed securities are all issued by U.S. Government agencies and sponsored enterprises. Securities having a fair value of ~~$365.3~~$416.0 million and ~~$500.0~~$433.7 million at September 30, ~~2018,~~2019 and December 31, ~~2017,~~2018, 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 September 30, ~~2018,~~2019, 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 mortgage-backed securities is approximately 54 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	$	1,079	$	1,086	$	—	$	—
Due after one year through five years	27,564		28,081		3,879		3,929
Due after five years through ten years	127,062		133,705		8,589		8,706
Due after ten years	144,831		150,350		—		—
Agency mortgage-backed securities	917,102		934,111		48,318		48,988
	$	1,217,638	$	1,247,333	$	60,786	$	61,623

Available for sale Held to maturity
(in thousands) Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value
Due in one year or less $ 12,193
$ 12,107
$ —
$ —
Due after one year through five years 110,517
108,231
868
856
Due after five years through ten years 12,688
12,678
11,294
10,995
Due after ten years 5,039
4,965
359
352
Agency mortgage-backed securities 551,552
532,347
54,610
52,213
$ 691,989
$ 670,328

$ 67,131

$ 64,416

The following table represents a summary of investment securities that had an unrealized loss:



	September 30, 2019
	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	$	36,066	$	248	$	—	$	—	$	36,066	$	248
Agency mortgage-backed securities	124,823		352		55,333		660		180,156		1,012
	$	160,889	$	600	$	55,333	$	660	$	216,222	$	1,260

	December 31, 2018
	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	$	19,622	$	322	$	78,876	$	1,106	$	98,498	$	1,428
Obligations of states and political subdivisions	3,102		15		14,156		182		17,258		197
Agency mortgage-backed securities	87,357		2,211		389,770		11,285		477,127		13,496
U.S. Treasury bills	—		—		9,925		37		9,925		37
	$	110,081	$	2,548	$	492,727	$	12,610	$	602,808	$	15,158

September 30, 2018
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 $ 58,592
$ 1,353
$ 39,089
$ 880
$ 97,681
$ 2,233
Obligations of states and political subdivisions 24,152
468
3,296
124
27,448
592
Agency mortgage-backed securities 297,577
8,216
270,949
13,566
568,526
21,782
U.S. Treasury bills 9,767
193
—
—
9,767
193
$ 390,088
$ 10,230

$ 313,334

$ 14,570

$ 703,422

$ 24,800

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

The unrealized losses at both September 30, ~~2018,~~2019, and December 31, ~~2017,~~2018, were primarily attributable to changes in market interest rates since the securities were purchased. 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 among other considerations (1) the present value of the cash flows expected to be collected compared to the amortized cost of the security, (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 intent to sell the security or whether it is more likely than not the Company would be required to sell the security before its anticipated recovery in market value. At September 30, ~~2018,~~2019, management performed its quarterly analysis of all securities with an unrealized loss and concluded no individual securities were other-than-temporarily impaired.

NOTE 45 - LOANS

The loan portfolio is comprised of loans originated by the Company and loans acquired in connection with the Company’s acquisitions. These loans are accounted for using the guidance in the Accounting Standards Codification (ASC) ~~section~~sections 310-30 and 310-20. Loans accounted for using ASC 310-30 are sometimes referred to as purchased credit impaired ~~("PCI"~~(“PCI”) loans.

The table below shows the loan portfolio composition including carrying value categorized by loans accounted for at amortized cost, which includes our originated loans, and by loans accounted for as PCI.


(in thousands)	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Loans accounted for at amortized cost	$	4,218,341	$	4,022,896	$	5,132,391	$	4,303,600
Loans accounted for as PCI	49,089		74,154		95,623		46,401
Total loans	$	4,267,430	$	4,097,050	$	5,228,014	$	4,350,001

~~The following tables refer to~~At September 30, 2019, loans acquired in the Trinity acquisition included $562.4 million accounted for at amortized ~~cost.~~cost and $62.2 million accounted for as PCI. These loans were recorded at fair value with no allowance for loan losses.

The table below shows the composition of the allowance for loan losses:



(in thousands)	September 30, 2019		December 31, 2018
Allowance for loans accounted for at amortized cost	$	43,698	$	42,295
Allowance for loans accounted for as PCI	857		1,181
Total allowance for loan losses	$	44,555	$	43,476

Below is a summary of loans by category at September 30, ~~2018~~2019 and December 31, ~~2017:~~2018:



(in thousands)	September 30, 2019			December 31, 2018
Commercial and industrial	$	2,287,722		$	2,121,008
Real estate:
Commercial - investor owned	1,247,691			843,728
Commercial - owner occupied	660,433			604,498
Construction and land development	425,639			330,097
Residential	374,162			298,944
Total real estate loans	2,707,925			2,077,267
Consumer and other	139,090			107,351
Loans, before unearned loan fees	5,134,737			4,305,626
Unearned loan fees, net	(2,346		)	(2,026		)
Loans, including unearned loan fees	$	5,132,391		$	4,303,600

(in thousands) September 30, 2018 December 31, 2017
Commercial and industrial $ 2,032,929
$ 1,918,720
Real estate:
Commercial - investor owned 826,447
769,275
Commercial - owner occupied 589,045
554,589
Construction and land development 326,858
303,091
Residential 308,385
341,312
Total real estate loans 2,050,735
1,968,267
Consumer and other 136,025
137,234
Loans, before unearned loan fees 4,219,689
4,024,221
Unearned loan fees, net (1,348 ) (1,325 )
Loans, including unearned loan fees $ 4,218,341
$ 4,022,896

A summary of the activity in the allowance for loan losses and the recorded investment in loans by class and category based on impairment methodology through September 30, ~~2018,~~2019 and at December 31, ~~2017,~~2018, is as follows:



(in thousands)	Commercial and industrial			CRE - investor owned			CRE - owner occupied			Construction and land development			Residential real estate			Consumer and other			Total
Allowance for loan losses:
Balance at December 31, 2018	$	29,039		$	4,683		$	4,239		$	1,987		$	1,616		$	731		$	42,295
Provision (provision reversal) for loan losses	1,445			769			(431		)	(252		)	(288		)	233			1,476
Losses charged off	(1,853		)	(120		)	(36		)	(45		)	(67		)	(129		)	(2,250		)
Recoveries	29			7			2			9			364			13			424
Balance at March 31, 2019	$	28,660		$	5,339		$	3,774		$	1,699		$	1,625		$	848		$	41,945
Provision (provision reversal) for loan losses	1,781			364			591			(216		)	(345		)	(215		)	1,960
Losses charged off	(1,380		)	(431		)	—			—			(26		)	(53		)	(1,890		)
Recoveries	32			52			6			489			124			217			920
Balance at June 30, 2019	$	29,093		$	5,324		$	4,371		$	1,972		$	1,378		$	797		$	42,935
Provision (provision reversal) for loan losses	867			333			419			(88		)	193			109			1,833
Losses charged off	(1,295		)	—			(22		)	—			(255		)	(86		)	(1,658		)
Recoveries	209			11			3			260			65			40			588
Balance at September 30, 2019	$	28,874		$	5,668		$	4,771		$	2,144		$	1,381		$	860		$	43,698

(in thousands) Commercial and industrial CRE - investor owned
CRE -
owner occupied
Construction and land development Residential real estate Consumer and other Total
Allowance for loan losses:
Balance at December 31, 2017 $ 26,406
$ 3,890
$ 3,308
$ 1,487
$ 2,237
$ 838
$ 38,166
Provision (provision reversal) for loan losses 780
648
190
35
259
(41 ) 1,871
Losses charged off (732 ) —
—
—
(254 ) (49 ) (1,035 )
Recoveries 956
8
4
206
73
14
1,261
Balance at March 31, 2018 $ 27,410
$ 4,546

$ 3,502

$ 1,728

$ 2,315

$ 762

$ 40,263
Provision (provision reversal) for loan losses 2,852
5
340
(206 ) (573 ) (33 ) 2,385
Losses charged off (956 ) —
—
—
(38 ) (33 ) (1,027 )
Recoveries 118
10
3
168
59
28
386
Balance at June 30, 2018 $ 29,424
$ 4,561

$ 3,845

$ 1,690

$ 1,763

$ 724

$ 42,007
Provision (provision reversal) for loan losses 2,569
3
(197 ) 154
(187 ) (10 ) 2,332
Losses charged off (2,405 ) —
(22 ) —
(122 ) (46 ) (2,595 )
Recoveries 2
8
4
21
88
25
148
Balance at September 30, 2018 $ 29,590
$ 4,572

$ 3,630

$ 1,865

$ 1,542

$ 693

$ 41,892



(in thousands)	Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Consumer and other		Total
Balance September 30, 2019
Allowance for loan losses - Ending balance:
Individually evaluated for impairment	$	2,023	$	258	$	—	$	—	$	116	$	11	$	2,408
Collectively evaluated for impairment	26,851		5,410		4,771		2,144		1,265		849		41,290
Total	$	28,874	$	5,668	$	4,771	$	2,144	$	1,381	$	860	$	43,698
Loans - Ending balance:
Individually evaluated for impairment	$	11,433	$	2,637	$	1,423	$	—	$	1,267	$	11	$	16,771
Collectively evaluated for impairment	2,276,289		1,245,054		659,010		425,639		372,895		136,733		5,115,620
Total	$	2,287,722	$	1,247,691	$	660,433	$	425,639	$	374,162	$	136,744	$	5,132,391

Balance December 31, 2018
Allowance for loan losses - Ending balance:
Individually evaluated for impairment	$	4,266	$	—	$	109	$	—	$	52	$	26	$	4,453
Collectively evaluated for impairment	24,773		4,683		4,130		1,987		1,564		705		37,842
Total	$	29,039	$	4,683	$	4,239	$	1,987	$	1,616	$	731	$	42,295
Loans - Ending balance:
Individually evaluated for impairment	$	12,950	$	398	$	2,135	$	—	$	2,277	$	311	$	18,071
Collectively evaluated for impairment	2,108,058		843,330		602,363		330,097		296,667		105,014		4,285,529
Total	$	2,121,008	$	843,728	$	604,498	$	330,097	$	298,944	$	105,325	$	4,303,600

(in thousands) Commercial and industrial CRE - investor owned
CRE -
owner occupied
Construction and land development Residential real estate Consumer and other Total
Balance September 30, 2018
Allowance for loan losses - Ending balance:
Individually evaluated for impairment $ 4,128
$ —
$ 177
$ —
$ 9
$ —
$ 4,314
Collectively evaluated for impairment 25,462
4,572
3,453
1,865
1,533
693
37,578
Total $ 29,590
$ 4,572

$ 3,630

$ 1,865

$ 1,542

$ 693

$ 41,892
Loans - Ending balance:

Individually evaluated for impairment $ 12,197
$ 770
$ 2,655
$ —
$ 2,477
$ 312
$ 18,411
Collectively evaluated for impairment 2,020,732
825,677
586,390
326,858
305,908
134,365
4,199,930
Total $ 2,032,929
$ 826,447

$ 589,045

$ 326,858

$ 308,385

$ 134,677

$ 4,218,341

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

A summary of nonperforming loans individually evaluated for impairment by category at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, and the income recognized on impaired loans is as follows:


	September 30, 2018												September 30, 2019
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment		Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and industrial	$	20,938	$	3,266	$	8,931	$	12,197	$	4,128	$	10,414	$	24,233	$	1,096	$	10,337	$	11,433	$	2,023	$	12,429
Real estate:
Commercial - investor owned	1,039		770		—		770		—		657		3,312		1,135		1,502		2,637		258		2,525
Commercial - owner occupied	1,328		826		462		1,288		177		1,074		245		221		—		221		—		27
Construction and land development	—		—		—		—		—		—		—		—		—		—		—		—
Residential	2,600		2,008		469		2,477		9		2,410		1,388		1,021		246		1,267		116		1,782
Consumer and other	329		312		—		312		—		334		1		—		11		11		11		11
Total	$	26,234	$	7,182	$	9,862	$	17,044	$	4,314	$	14,889	$	29,179	$	3,473	$	12,096	$	15,569	$	2,408	$	16,774



	December 31, 2018
(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	$	21,893	$	3,294	$	9,656	$	12,950	$	4,266	$	13,827
Real estate:
Commercial - investor owned	553		398		—		398		—		277
Commercial - owner occupied	847		472		336		808		109		691
Construction and land development	—		—		—		—		—		—
Residential	2,425		1,659		618		2,277		52		778
Consumer and other	329		—		312		312		26		—
Total	$	26,047	$	5,823	$	10,922	$	16,745	$	4,453	$	15,573

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



	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2019		2018		2019		2018
Total interest income that would have been recognized under original terms	$	247	$	614	$	893	$	1,615
Total cash received and recognized as interest income on non-accrual loans	77		68		262		157
Total interest income recognized on accruing impaired loans	3		110		115		133

Three months ended September 30, Nine months ended September 30,
(in thousands) 2018 2017 2018 2017
Total interest income that would have been recognized under original terms $ 614
$ 306
$ 1,615
$ 961
Total cash received and recognized as interest income on non-accrual loans 68
117
157
156
Total interest income recognized on accruing, impaired loans 110
8
133
55

The recorded investment in nonperforming loans by category at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, is as follows:


	September 30, 2018								September 30, 2019
(in thousands)	Non-accrual		Restructured, not on non-accrual		Loans over 90 days past due and still accruing interest		Total		Non-accrual		Restructured, accruing		Loans over 90 days past due and still accruing interest		Total
Commercial and industrial	$	10,088	$	820	$	1,289	$	12,197	$	11,409	$	—	$	24	$	11,433
Real estate:
Commercial - investor owned	770		—		—		770		2,637		—		—		2,637
Commercial - owner occupied	1,288		—		—		1,288		221		—		—		221
Construction and land development	—		—		—		—		—		—		—		—
Residential	2,477		—		—		2,477		1,162		79		26		1,267
Consumer and other	312		—		—		312		1		—		10		11
Total	$	14,935	$	820	$	1,289	$	17,044	$	15,430	$	79	$	60	$	15,569


	December 31, 2017						December 31, 2018
(in thousands)	Non-accrual		Restructured, not on non-accrual		Total		Non-accrual		Restructured, accruing		Total
Commercial and industrial	$	11,946	$	719	$	12,665	$	12,805	$	145	$	12,950
Real estate:
Commercial - investor owned	422		—		422		398		—		398
Commercial - owner occupied	487		—		487		808		—		808
Construction and land development	136		—		136		—		—		—
Residential	1,602		—		1,602		2,197		80		2,277
Consumer and other	375		—		375		312		—		312
Total	$	14,968	$	719	$	15,687	$	16,520	$	225	$	16,745

There were no loans over 90 days past due and still accruing ~~interest~~ at December 31, ~~2017.~~2018.

There were no loans restructured during the three months ended September 30, 2019. The recorded investment by category for the portfolio loans restructured during the three months ended September 30, 2018, is as follows:



	September 30, 2018
(in thousands, except for number of loans)	Number of loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial	1	$	187	$	187
Total	1	$	187	$	187

The recorded investment by category for the portfolio loans restructured during the nine months ended September 30, 2019 and 2018, is as follows:



	September 30, 2019					September 30, 2018
(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	$	187	$	187
Real estate:
Commercial - owner occupied	1	188		188		—	—		—
Residential	2	332		332		—	—		—
Total	3	$	520	$	520	1	$	187	$	187

As of September 30, 2019, the Company had $0.6 million in specific reserves allocated to restructured loans totaling $3.3 million.

Restructured loans that ~~have been~~subsequently defaulted during the three months ended September 30, 2019 included 1 commercial and industrial loan with a recorded balance of $0.1 million. Restructured loans that subsequently defaulted for the nine months ended September 30, 2019 included 2 commercial and industrial loans with an aggregate recorded balance of $0.4 million. There were no troubled debt restructured loans that subsequently defaulted during the three and nine months ended September 30, ~~2018 and 2017, is as follows:~~

2018.

Three months ended September 30, 2018 Three months ended September 30, 2017
(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
$ 187
$ 187
—
$ —
$ —
Total 1
$ 187
$ 187
—
$ —
$ —

Nine months ended September 30, 2018 Nine months ended September 30, 2017
(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
$ 187
$ 187
1
$ 676
$ 676
Total 1
$ 187
$ 187
1
$ 676
$ 676

As of September 30, 2018, the Company had $2.6 million in specific reserves allocated to $8.0 million of loans that have been restructured. During the three and nine months ended September 30, 2018 and 2017, there were no portfolio loans that subsequently defaulted.

The aging of the recorded investment in past due loans by portfolio class and category at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, is shown below.


	September 30, 2018										September 30, 2019
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total		30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	11,213	$	6,020	$	17,233	$	2,015,696	$	2,032,929	$	6,913	$	7,314	$	14,227	$	2,273,495	$	2,287,722
Real estate:
Commercial - investor owned	1,362		129		1,491		824,956		826,447		2,408		2,000		4,408		1,243,283		1,247,691
Commercial - owner occupied	258		808		1,066		587,979		589,045		1,166		—		1,166		659,267		660,433
Construction and land development	—		—		—		326,858		326,858		62		—		62		425,577		425,639
Residential	864		1,156		2,020		306,365		308,385		2,098		1,183		3,281		370,881		374,162
Consumer and other	—		—		—		134,677		134,677		107		—		107		136,637		136,744
Total	$	13,697	$	8,113	$	21,810	$	4,196,531	$	4,218,341	$	12,754	$	10,497	$	23,251	$	5,109,140	$	5,132,391



	December 31, 2018
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	66	$	10,257	$	10,323	$	2,110,685	$	2,121,008
Real estate:
Commercial - investor owned	529		127		656		843,072		843,728
Commercial - owner occupied	292		565		857		603,641		604,498
Construction and land development	6		—		6		330,091		330,097
Residential	709		897		1,606		297,338		298,944
Consumer and other	—		312		312		105,013		105,325
Total	$	1,602	$	12,158	$	13,760	$	4,289,840	$	4,303,600

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

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, 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 – Watch 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 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 at September 30, ~~2018,~~2019, which is based upon the most recent analysis performed, and December 31, ~~2017,~~2018, is as follows:


	September 30, 2018								September 30, 2019
(in thousands)	Pass (1-6)		Watch (7)		Classified (8 & 9)		Total		Pass (1-6)		Watch (7)		Classified (8 & 9)		Total
Commercial and industrial	$	1,835,230	$	142,768	$	54,931	$	2,032,929	$	2,091,433	$	120,930	$	75,359	$	2,287,722
Real estate:
Commercial - investor owned	798,116		22,275		6,056		826,447		1,226,499		17,552		3,640		1,247,691
Commercial - owner occupied	540,961		43,399		4,685		589,045		625,365		28,763		6,305		660,433
Construction and land development	315,022		11,775		61		326,858		418,357		7,179		103		425,639
Residential	298,076		3,058		7,251		308,385		368,241		3,333		2,588		374,162
Consumer and other	134,359		7		311		134,677		136,738		—		6		136,744
Total	$	3,921,764	$	223,282	$	73,295	$	4,218,341	$	4,866,633	$	177,757	$	88,001	$	5,132,391



	December 31, 2018
(in thousands)	Pass (1-6)		Watch (7)		Classified (8 & 9)		Total
Commercial and industrial	$	1,927,782	$	146,033	$	47,193	$	2,121,008
Real estate:
Commercial - investor owned	823,128		15,083		5,517		843,728
Commercial - owner occupied	563,003		31,834		9,661		604,498
Construction and land development	318,451		11,580		66		330,097
Residential	287,802		4,232		6,910		298,944
Consumer and other	105,007		6		312		105,325
Total	$	4,025,173	$	208,768	$	69,659	$	4,303,600

December 31, 2017
(in thousands) Pass (1-6) Watch (7) Classified (8 & 9) 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

Below is a summary of PCI loans by category at September 30, ~~2018~~2019 and December 31, ~~2017:~~



	September 30, 2019			December 31, 2018
(in thousands)	Weighted- Average Risk Rating¹	Recorded Investment PCI Loans		Weighted- Average Risk Rating¹	Recorded Investment PCI Loans
Commercial and industrial	5.77	$	15,773	6.09	$	2,159
Real estate:
Commercial - investor owned	7.04	39,329		7.19	23,939
Commercial - owner occupied	6.58	20,435		7.39	9,669
Construction and land development	5.75	7,847		6.03	4,548
Residential	6.31	12,011		6.40	6,082
Total real estate loans		79,622			44,238
Consumer and other	5.54	228		2.18	4
Total		$	95,623		$	46,401
¹Risk ratings are based on the borrower’s contractual obligation, which is not reflective of the purchase discount.

September 30, 2018 December 31, 2017
(in thousands)
Weighted-
Average
Risk Rating¹
Recorded
Investment
PCI Loans

Weighted-
Average
Risk Rating¹
Recorded
Investment
PCI Loans
Commercial and industrial 6.39 $ 2,923
6.38 $ 3,212
Real estate:
Commercial - investor owned 7.23 25,172
7.36 42,887
Commercial - owner occupied 7.45 9,520
6.48 11,332
Construction and land development 6.01 5,168
5.99 5,883
Residential 6.35 6,291
5.99 10,781
Consumer and other 7.08 15
2.84 59
Total $ 49,089
$ 74,154
¹Risk 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 September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, is shown below:



	December 31, 2018
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	—	$	—	$	—	$	2,159	$	2,159
Real estate:
Commercial - investor owned	416		88		504		23,435		23,939
Commercial - owner occupied	591		6,279		6,870		2,799		9,669
Construction and land development	—		—		—		4,548		4,548
Residential	146		37		183		5,899		6,082
Consumer and other	—		—		—		4		4
Total	$	1,153	$	6,404	$	7,557	$	38,844	$	46,401

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

The following table is a roll forward of PCI loans, net of the allowance for loan losses, for the nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.



(in thousands)	Contractual Cashflows			Non-accretable Difference			Accretable Yield			Carrying Amount
Balance December 31, 2018	$	73,157		$	15,299		$	12,638		$	45,220
Acquisitions	111,963			13,542			30,238			68,183
Principal reductions and interest payments	(33,548		)	—			—			(33,548		)
Accretion of loan discount	—			—			(8,014		)	8,014
Changes in contractual and expected cash flows due to remeasurement	10,490			(2,057		)	(86		)	12,633
Reductions due to disposals	(9,121		)	(3,345		)	(40		)	(5,736		)
Balance September 30, 2019	$	152,941		$	23,439		$	34,736		$	94,766

Balance December 31, 2017	$	112,710		$	29,005		$	13,964		$	69,741
Principal reductions and interest payments	(38,165		)	—			—			(38,165		)
Accretion of loan discount	—			—			(5,118		)	5,118
Changes in contractual and expected cash flows due to remeasurement	4,341			(8,939		)	3,179			10,101
Balance September 30, 2018	$	78,886		$	20,066		$	12,025		$	46,795

(in thousands) Contractual Cashflows Non-accretable Difference Accretable Yield Carrying Amount
Balance December 31, 2017 $ 112,710
$ 29,005
$ 13,964
$ 69,741
Principal reductions and interest payments (38,165 ) —
—
(38,165 )
Accretion of loan discount —
—
(5,118 ) 5,118
Changes in contractual and expected cash flows due to remeasurement 4,341
(8,939 ) 3,179
10,101
Balance September 30, 2018 $ 78,886
$ 20,066

$ 12,025

$ 46,795

Balance December 31, 2016 $ 66,003
$ 18,902
$ 13,176
$ 33,925
Acquisitions 68,763
14,296
5,312
49,155
Principal reductions and interest payments (16,319 ) —
—
(16,319 )
Accretion of loan discount —
—
(5,473 ) 5,473
Changes in contractual and expected cash flows due to remeasurement 11,110
(702 ) 3,776
8,036
Reductions due to disposals (6,393 ) (1,612 ) (1,595 ) (3,186 )
Balance September 30, 2017 $ 123,164
$ 30,884

$ 15,196

$ 77,084

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 ~~$68.6~~$121.5 million and ~~$94.9~~$64.7 million as of September 30, ~~2018,~~2019, and December 31, ~~2017,~~2018, respectively.

The Company has banking and limited-service facilities, datacenters, and certain equipment leased under agreements. Most of the leases expire between 2019 and 2024 and include one or more renewal options of up to five years. One lease expires in 2030. All leases are classified as operating leases.



	For the three months ended		For the nine months ended
(in thousands)	September 30, 2019		September 30, 2019
Operating lease cost	$	821	$	2,434
Short-term lease cost	81		215
Total lease cost	$	902	$	2,649

Payments on operating leases included in the measurement of lease liabilities during the nine months ended September 30, 2019 totaled $2.4 million. Right-of-use assets obtained in exchange for lease obligations totaled $0.4 million during the nine months ended September 30, 2019.

Supplemental balance sheet information related to leases was as follows:



	As of
(in thousands)	September 30, 2019
Operating lease right-of-use assets, included in other assets	$	13,849
Operating lease liabilities, included in other liabilities	14,440

Operating leases
Weighted average remaining lease term	5 years
Weighted average discount rate	3.0		%

Maturities of operating lease liabilities were as follows:



(in thousands)
Year	Amount
2019	$	818
2020	3,329
2021	3,355
2022	2,795
2023	2,191
Thereafter	3,143
Total operating lease liabilities, payments	15,631
Less: present value adjustment	1,191
Operating lease liabilities	$	14,440

As of September 30, 2019, the Company has an operating lease amendment for the expansion of an existing facility that has not yet commenced. This amendment is expected to commence in 2019 with a lease term of 8 years.

Lessor income was immaterial during the three and nine months ended September 30, 2019. During the second quarter of 2019, the Company executed an agreement, as landlord, to lease a portion of an owned building. The agreement commenced in the third quarter of 2019 with current payments prorated for partial occupancy. The initial term is for 7 years, with an annual rental income of $1.3 million.

NOTE 57 - COMMITMENTS AND CONTINGENCIES

The Company issues financial instruments with off balance sheet risk 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 represented by 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. At September 30, ~~2018,~~2019, the amount of unadvanced commitments on impaired loans was insignificant.

The contractual amounts of off-balance-sheet financial instruments as of September 30, ~~2018,~~2019, and December 31, ~~2017,~~2018, are as follows:



(in thousands)	September 30, 2019		December 31, 2018
Commitments to extend credit	$	1,426,131	$	1,344,687
Letters of credit	51,375		44,665

(in thousands) September 30, 2018 December 31, 2017
Commitments to extend credit $ 1,315,284
$ 1,298,423
Letters of credit 49,633
73,790
Off-Balance Sheet Credit Risk

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

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance or payment of a customer to a third party. These standby 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. As of September 30, ~~2018,~~2019, the approximate remaining terms of standby letters of credit range from 1 month to 35 years ~~and 3 months~~.

The Company and its subsidiaries are, from time to time, parties to various legal proceedings arising out of their businesses. Management believes there are no such proceedings pending or threatened against the Company or its subsidiaries which, 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 68 - DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a ~~party to various~~wide 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 ~~used~~to manage exposures that arise from business activities that result in the ~~normal course~~receipt or payment of ~~business~~future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to ~~meet~~manage differences in the ~~needs~~amount, timing, and duration of the Company’s known or expected cash receipts and its ~~clients and as part of its risk management activities. These instruments include interest rate swap agreements and option contracts and foreign exchange forward contracts.~~known or expected cash payments principally related to the Company’s borrowings. The Company does not enter into derivative financial instruments for trading purposes.

~~Hedging Instruments.~~ ~~At September 30, 2018,~~Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company ~~had no outstanding derivative contracts used to manage risk.~~

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest 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 expense as interest payments are paid on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $0.5 million will be reclassified as an increase to interest expense.

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 that 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 fair value of certain loans while maintaining a variable rate loan on its own books. 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) September 30,
2018 December 31,
2017 September 30,
2018 December 31,
2017 September 30,
2018 December 31,
2017
Non-designated hedging instruments
Interest rate swap contracts $ 433,664
$ 394,852
$ 4,772
$ 2,061
$ 4,772
$ 2,061
Foreign exchange forward contracts 123
1,528
123
1,528
123
1,528

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of September 30, 2019 and December 31, 2018.



	Derivative Assets										Derivative Liabilities
	September 30, 2019					December 31, 2018					September 30, 2019			December 31, 2018
(in thousands)	Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives Designated as Hedging Instruments
Interest rate swap	$	185,886	Other Assets	$	—	$	—	Other Assets	$	—	Other Liabilities	$	3,785	Other Liabilities	$	—
Total				$	—				$	—		$	3,785		$	—

Derivatives not Designated as Hedging Instruments
Interest rate swap	$	628,864	Other Assets	$	13,561	$	494,567	Other Assets	$	2,217	Other Liabilities	$	14,666	Other Liabilities	$	2,217
Foreign exchange forward contracts	—		Other Assets	—		806		Other Assets	806		Other Liabilities	—		Other Liabilities	806
Total				$	13,561				$	3,023		$	14,666		$	3,023

The tables below present the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income for the three and nine months ended September 30, ~~2018~~2019. The Company did not have cash flow hedging instruments in 2018. The loss reclassified from accumulated OCI is recorded as an adjustment to interest expense.



	Amount of Loss Recognized in OCI						Amount of Loss Reclassified from Accumulated OCI into Income
(in thousands)	Three months ended September 30, 2019			Nine months ended September 30, 2019			Three months ended September 30, 2019			Nine months ended September 30, 2019
Derivatives in Cash Flow Hedging Relationships
Interest rate swap	$	(846	)	$	(3,785	)	$	(42	)	$	(48	)
Total	$	(846	)	$	(3,785	)	$	(42	)	$	(48	)

The table below presents a gross presentation, the effects of offsetting, and ~~2017,~~a net presentation of the ~~gains~~Company’s financial instruments that are subject to offsetting as of September 30, 2019 and ~~losses offset each other due~~December 31, 2018. The gross amounts of assets or liabilities can be reconciled to the ~~Company's hedging~~tabular disclosure of fair value. The tabular disclosure of fair value provides the ~~client swaps~~location that financial assets and ~~foreign exchange contracts~~liabilities are presented on the Balance Sheet.



As of September 30, 2019
							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 swap	$	13,561	$	—	$	13,561	$	22	$	—	$	13,539

Liabilities:
Interest rate swap	$	18,451	$	—	$	18,451	$	22	$	17,785	$	644
Securities sold under agreements to repurchase	162,920		—		162,920		—		162,920		—

As of December 31, 2018
							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 swap	$	2,217	$	—	$	2,217	$	—	$	—	$	2,217

Liabilities:
Interest rate swap	$	2,217	$	—	$	2,217	$	—	$	—	$	2,217
Securities sold under agreements to repurchase	221,450		—		221,450		—		221,450		—

As of September 30, 2019, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $18.5 million. Further, the Company has minimum collateral posting thresholds with ~~other bank counterparties.~~certain of its derivative counterparties and has posted collateral of $17.8 million.

NOTE 79 - FAIR VALUE MEASUREMENTS

The following table summarizes financial instruments measured at fair value on a recurring basis as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:



	September 30, 2019
(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	$	—	$	10,033	$	—	$	10,033
Obligations of states and political subdivisions	—		170,313		—		170,313
Agency mortgage-backed securities	—		934,111		—		934,111
U.S. Treasury bills	—		10,247		—		10,247
Corporate debt securities	—		122,629				122,629
Total securities available for sale	—		1,247,333		—		1,247,333
Other investments	164		—		—		164
Derivatives	—		13,561		—		13,561
Total assets	$	164	$	1,260,894	$	—	$	1,261,058

Liabilities
Derivatives	$	—	$	18,451	$	—	$	18,451
Total liabilities	$	—	$	18,451	$	—	$	18,451

September 30, 2018
(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 $ —
$ 97,681
$ —
$ 97,681
Obligations of states and political subdivisions —
30,533
—
30,533
Residential mortgage-backed securities —
532,347
—
532,347
U.S. Treasury bills —
9,767
—
9,767
Total securities available for sale $ —
$ 670,328

$ —

$ 670,328
Other investments 144
—
—
144
State tax credits held for sale —
—
171
171
Derivative financial instruments —
4,895
—
4,895
Total assets $ 144
$ 675,223

$ 171

$ 675,538

Liabilities

Derivative financial instruments $ —
$ 4,895
$ —
$ 4,895
Total liabilities $ —
$ 4,895

$ —

$ 4,895

for Identical Assets

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 fair value.

~~The remaining state tax credits carried at fair value are expected to be sold within the next several quarters. The state tax credit assets are reported as Level 3 assets.~~

Level 3 financial instruments

The following table presents the changes in Level 3 financial instruments measured at fair value on a recurring basis as of September 30, ~~2018~~2019 and ~~2017.~~2018.



	State tax credits held for sale
	Three months ended September 30,					Nine months ended September 30,
(in thousands)	2019		2018			2019		2018
Beginning balance	$	—	$	299		$	—	$	400
Total gains:
Included in earnings	—		7			—		13
Purchases, sales, issuances and settlements:
Sales	—		(135		)	—		(242		)
Ending balance	$	—	$	171		$	—	$	171

Change in unrealized losses relating to assets still held at the reporting date	$	—	$	(34	)	$	—	$	(60	)

Securities available for sale, at fair value
Three months ended September 30, Nine months ended September 30,
(in thousands) 2018 2017 2018 2017
Beginning balance $ —
$ —
$ —
$ 3,089
Total gains:
Included in other comprehensive income —
—
—
4
Purchases, sales, issuances and settlements:
Purchases —
—
—
—
Transfer in and/or out of Level 3 —
—
—
(3,093 )
Ending balance $ —
$ —
$ —
$ —

Change in unrealized gains relating to assets still held at the reporting date $ —
$ —
$ —
$ —

State tax credits held for sale
Three months ended September 30, Nine months ended September 30,
(in thousands) 2018 2017 2018 2017
Beginning balance $ 299
$ 1,274
$ 400
$ 3,585
Total gains:
Included in earnings 7
—
13
49
Purchases, sales, issuances and settlements:
Sales (135 ) —
(242 ) (2,360 )
Ending balance $ 171
$ 1,274
$ 171
$ 1,274

Change in unrealized gains (losses) relating to assets still held at the reporting date $ (34 ) $ —
$ (60 ) $ (655 )

From time to time, the Company measures certain assets at fair value on a nonrecurring basis. These include assets measured at the lower of cost or fair value that were recognized at fair value below cost at the end of the period. ~~The following table presents financial instruments and non-financial assets measured at fair value on a non-recurring basis as of September 30, 2018.~~

Quoted Prices in Active

Significant
Unobservable
Inputs

Quoted Prices in Active

Significant
Unobservable
Inputs

~~(1) The amounts represent only balances measured at fair value during the period and still held as of the reporting date.~~

Following is a summary of the carrying amounts and fair values of the Company’s financial instruments on the consolidated balance sheets at September 30, ~~2018~~2019 and December 31, ~~2017. Fair values that are not estimable are listed at the carrying value.~~2018.



	September 30, 2019				December 31, 2018
(in thousands)	Carrying Amount		Estimated fair value		Carrying Amount		Estimated fair value
Balance sheet assets
Cash and due from banks	$	153,730	$	153,730	$	91,511	$	91,511
Federal funds sold	2,829		2,829		1,714		1,714
Interest-bearing deposits	103,918		103,918		106,512		106,512
Securities available for sale	1,247,333		1,247,333		721,369		721,369
Securities held to maturity	60,786		61,623		65,679		63,934
Other investments, at cost	46,867		46,867		26,654		26,654
Loans held for sale	6,281		6,281		392		392
Derivative financial instruments	13,561		13,561		3,023		3,023
Portfolio loans, net	5,183,459		5,123,351		4,306,525		4,253,239
State tax credits, held for sale	43,808		46,981		37,587		39,169
Accrued interest receivable	21,097		21,097		16,069		16,069

Balance sheet liabilities
Deposits	5,624,380		5,604,045		4,587,985		4,583,047
Subordinated debentures and notes	141,179		131,603		118,156		106,316
Federal Home Loan Bank advances	461,426		464,033		70,000		70,000
Other borrowings and notes payable	199,634		199,539		223,450		223,260
Derivative financial instruments	18,451		18,451		3,023		3,023
Accrued interest payable	2,907		2,907		1,977		1,977

September 30, 2018 December 31, 2017
(in thousands) Carrying Amount Estimated fair value Carrying Amount Estimated fair value
Balance sheet assets
Cash and due from banks $ 78,119
$ 78,119
$ 91,084
$ 91,084
Federal funds sold 1,571
1,571
1,223
1,223
Interest-bearing deposits 79,780
79,780
63,661
63,661
Securities available for sale 670,328
670,328
641,382
641,382
Securities held to maturity 67,131
64,416
73,749
73,458
Other investments, at cost 37,885
37,885
26,661
26,661
Loans held for sale 738
738
3,155
3,155
Derivative financial instruments 4,895
4,895
3,589
3,589
Portfolio loans, net 4,223,244
4,254,581
4,054,473
4,096,741
State tax credits, held for sale 45,625
48,622
43,468
44,271
Accrued interest receivable 19,879
19,879
14,069
14,069

Balance sheet liabilities
Deposits 4,210,476
4,203,913
4,156,414
4,153,323
Subordinated debentures and notes 118,144
105,611
118,105
105,031
Federal Home Loan Bank advances 401,000
400,977
172,743
172,893
Other borrowings 161,795
161,676
253,674
253,530
Derivative financial instruments 4,895
4,895
3,589
3,589
Accrued interest payable 2,433
2,433
1,730
1,730

The following table presents the level in the fair value hierarchy for the estimated fair values of only the Company’s financial instruments that are not already presented on the condensed consolidated balance sheets at fair value at September 30, ~~2018,~~2019, and December 31, ~~2017.~~2018.



	Estimated Fair Value Measurement at Reporting Date Using						Balance at September 30, 2019
(in thousands)	Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity	$	—	$	61,623	$	—	$	61,623
Portfolio loans, net	—		—		5,123,351		5,123,351
State tax credits, held for sale	—		—		46,981		46,981
Financial Liabilities:
Deposits	4,804,357		—		799,688		5,604,045
Subordinated debentures and notes	—		131,603		—		131,603
Federal Home Loan Bank advances	—		464,033		—		464,033
Other borrowings and notes payable	—		199,539		—		199,539

	Estimated Fair Value Measurement at Reporting Date Using						Balance at December 31, 2018
(in thousands)	Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity	$	—	$	63,934	$	—	$	63,934
Portfolio loans, net	—		—		4,253,239		4,253,239
State tax credits, held for sale	—		—		39,169		39,169
Financial Liabilities:
Deposits	3,903,556		—		679,491		4,583,047
Subordinated debentures and notes	—		106,316		—		106,316
Federal Home Loan Bank advances	—		70,000		—		70,000
Other borrowings and notes payable	—		223,260		—		223,260

Estimated Fair Value Measurement at Reporting Date Using Balance at September 30, 2018
(in thousands) Level 1 Level 2 Level 3
Financial Assets:
Securities held to maturity $ —
$ 64,416
$ —
$ 64,416
Portfolio loans, net —
—
4,254,581
4,254,581
State tax credits, held for sale —
—
48,451
48,451
Financial Liabilities:
Deposits 3,536,239
—
667,674
4,203,913
Subordinated debentures and notes —
105,611
—
105,611
Federal Home Loan Bank advances —
400,977
—
400,977
Other borrowings —
161,676
—
161,676

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

NOTE 10 - GOODWILL AND INTANGIBLE ASSETS

Goodwill increased $93.9 million to $211.3 million at September 30, 2019 from $117.3 million at December 31, 2018 due to the acquisition of Trinity.

The table below presents a summary of intangible assets:



	Nine months ended
(in thousands)	September 30, 2019
Gross core deposit intangible, beginning of period	$	20,574
Additions from acquisition	23,066
Gross core deposit intangible, end of period	43,640
Accumulated amortization	(16,014		)
Core deposit intangible, net, end of period	$	27,626

Amortization expense on the core deposit intangible was $1.6 million and $0.6 million for the quarters ended September 30, 2019 and 2018, and $4.0 million and $1.9 million for the nine months ended September 30, 2019 and 2018, respectively. The core deposit intangibles are being amortized over a 10year period.

The following table reflects the expected amortization schedule for the core deposit intangible at September 30, 2019.



Year	Core Deposit Intangible (in thousands)
2019	$	1,550
2020	5,608
2021	4,814
2022	4,085
2023	3,456
After 2023	8,113
	$	27,626

NOTE 11 - SUBORDINATED DEBENTURES

The amounts and terms of each issuance of the Company’s subordinated debentures at September 30, 2019 and December 31, 2018 were as follows:

Amount

Maturity Date

Call Date

Interest Rate

(in thousands)

September 30, 2019

December 31, 2018

EFSC Clayco Statutory Trust I

3,196

December 17, 2033

December 17, 2008

Floats @ 3MO LIBOR + 2.85%

EFSC Capital Trust II

5,155

June 17, 2034

June 17, 2009

Floats @ 3MO LIBOR + 2.65%

EFSC Statutory Trust III

11,341

December 15, 2034

December 15, 2009

Floats @ 3MO LIBOR + 1.97%

EFSC Clayco Statutory Trust II

4,124

September 15, 2035

September 15, 2010

Floats @ 3MO LIBOR + 1.83%

EFSC Statutory Trust IV

10,310

December 15, 2035

December 15, 2010

Floats @ 3MO LIBOR + 1.44%

EFSC Statutory Trust V

4,124

September 15, 2036

September 15, 2011

Floats @ 3MO LIBOR + 1.60%

EFSC Capital Trust VI

14,433

March 30, 2037

March 30, 2012

Floats @ 3MO LIBOR + 1.60%

EFSC Capital Trust VII

4,124

December 15, 2037

December 15, 2012

Floats @ 3MO LIBOR + 2.25%

JEFFCO Stat Trust I (1)

7,920

8,019

February 22, 2031

February 22, 2011

Fixed @ 10.20%

JEFFCO Stat Trust II (1)

4,375

4,335

March 17, 2034

March 17, 2009

Floats @ 3MO LIBOR + 2.75%

Trinity Capital Trust III (1)

5,189

—

September 8, 2034

September 8, 2009

Floats @ 3MO LIBOR + 2.70%

Trinity Capital Trust IV (1)

10,293

—

November 23, 2035

August 23, 2010

Fixed @ 6.88%

Trinity Capital Trust V (1)

7,502

—

December 15, 2036

September 15, 2011

Floats @ 3MO LIBOR + 1.65%

Total junior subordinated debentures

92,086

69,161

Fixed-to-floating rate subordinated notes

50,000

November 1, 2026

November 1, 2021

Fixed @ 4.75% until
November 1, 2021, then floats @ 3MO LIBOR + 3.387%

Debt issuance costs

(907

)

(1,005

)

Total fixed-to-floating rate subordinated notes

49,093

48,995

Total subordinated debentures and notes

141,179

118,156

(1) Purchase accounting adjustments are reflected in the balance and also impact the effective interest rate.

As part of the acquisition of Trinity, the Company acquired additional junior subordinated debentures issued by unconsolidated statutory trusts with a par value of $26.8 million. The Company has assigned a fair value of $22.8 million to these junior subordinated debentures.

NOTE 812 - NEW AUTHORITATIVE ACCOUNTING GUIDANCE

Financial Accounting Standards Board (the "FASB") ASU 2018-15 "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement" In August 2018, the FASB issued ASU 2018-15, which amends ASC 350-402 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. ASU 2018-15 aligns the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract. The amendments are effective for public business entities for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption being permitted. The Company is currently evaluating the new guidance and has not yet determined the impact this standard may have on its consolidated balance sheets.

~~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 has evaluated the new guidance and does not expect it to have a material impact on the Company's consolidated financial statements. At September 30, 2018, the book value of callable bonds purchased at a premium totaled $22.0 million, and the amount of unamortized premium remaining on these securities was $0.7 million.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Forward Looking Statements

The following discussion describes the significant changes to the financial condition of the Company that have occurred during the first nine months of ~~2018~~2019 compared to the financial condition as of December 31, ~~2017.~~2018. In addition, this discussion summarizes the significant factors affecting the results of operations, liquidity and cash flows of the Company for the three and nine months ended September 30, ~~2018,~~2019, compared to the same periods in ~~2017.~~2018. This discussion should be read in conjunction with the accompanying condensed consolidated financial statements included in this report and our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. Certain financial condition comparisons to the prior year and results of operations comparisons for the linked quarter are included for additional trend analysis.

Executive Summary

The Company closed its acquisition of Trinity Capital Corporation (“Trinity”) on March 8, 2019. The results of operations of Trinity are included in our consolidated results from this date forward and are excluded from preceding periods. See “Item 1, Note 2 – Acquisitions” for more information.

The following table presents the fair values of assets acquired and liabilities assumed of Trinity as of March 8, 2019:



(in thousands)
Assets acquired:
Cash and cash equivalents	$	13,899
Interest-earning deposits greater than 90 days	100
Securities	428,096
Loans	684,314
Other real estate	4,512
Other investments	6,673
Fixed assets	27,286
Accrued interest receivable	3,997
Intangible assets	23,066
Deferred tax assets	9,651
Other assets	30,037
Total assets acquired	$	1,231,631

Liabilities assumed:
Deposits	$	1,081,187
Subordinated debentures	22,834
FHLB advances	6,971
Accrued interest payable	370
Other liabilities	5,015
Total liabilities assumed	$	1,116,377

Net assets acquired	$	115,254

Consideration paid:
Cash	$	37,275
Common stock	171,885
Total consideration paid	$	209,160

Goodwill	$	93,906

Below are highlights of our financial performance for the three and nine months ended September 30, ~~2018, as~~2019 and 2018.



(in thousands, except per share data)	At or for the three months ended						For the nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
EARNINGS
Total interest income	$	81,078		$	60,757		$	227,896		$	173,800
Total interest expense	18,032			12,664			50,792			32,488
Net interest income	63,046			48,093			177,104			141,312
Provision for portfolio loans	1,833			2,263			5,031			4,524
Net interest income after provision for loan losses	61,213			45,830			172,073			136,788
Total noninterest income	13,564			8,410			34,758			27,645
Total noninterest expense	38,239			29,922			127,131			88,284
Income before income tax expense	36,538			24,318			79,700			76,149
Income tax expense	7,469			1,802			16,051			10,461
Net income	$	29,069		$	22,516		$	63,649		$	65,688

Basic earnings per share	$	1.09		$	0.97		$	2.46		$	2.84
Diluted earnings per share	1.08			0.97			2.45			2.81

Return on average assets	1.60		%	1.63		%	1.26		%	1.62		%
Return on average common equity	13.66			15.22			11.00			15.41
Return on average tangible common equity¹	19.08			19.42			15.16			19.85
Net interest margin (tax equivalent)	3.81			3.78			3.85			3.78
Core net interest margin¹	3.69			3.74			3.76			3.74
Efficiency ratio	49.91			52.96			60.01			52.25
Core efficiency ratio¹	51.73			52.23			52.96			52.86
Book value per common share	$	31.79		$	25.41
Tangible book value per common share¹	22.82			19.94

ASSET QUALITY
Net charge-offs	$	1,070		$	2,447		$	3,866		$	2,862
Nonperforming loans	15,569			17,044
Classified assets	93,984			73,704
Nonperforming loans to total loans	0.30		%	0.40		%
Nonperforming assets to total assets	0.33			0.32
Allowance for loan losses to total loans	0.85			1.04
Net charge-offs to average loans (annualized)	0.08			0.23			0.11		%	0.09		%

(1) A non-GAAP measure. A reconciliation has been included in this section under the caption “Use of Non-GAAP Financial Measures.”

For the three and nine months ended September 30, 2019 compared to the ~~linked quarter ended June 30, 2018,~~three and prior year period. The Company closed its acquisition of Jefferson County Bancshares, Inc. ("JCB") on February 10, 2017. The results of operations of JCB are included in our consolidated results since this date and, therefore, were not included for the full nine months prior year period.

(in thousands, except per share data) For the Three Months ended/At For the Nine Months ended
September 30,
2018 June 30,
2018 September 30,
2017 September 30,
2018 September 30,
2017
EARNINGS
Total interest income $ 60,757
$ 57,879
$ 52,468
$ 173,800
$ 147,750
Total interest expense 12,664
10,831
6,843
32,488
17,850
Net interest income 48,093
47,048
45,625
141,312
129,900
Provision for portfolio loans 2,332
2,385
2,422
6,588
7,578
Provision reversal for PCI loans (69 ) (1,995 ) —
(2,064 ) (355 )
Net interest income after provision for loan losses 45,830
46,658
43,203
136,788
122,677
Total noninterest income 8,410
9,693
8,372
27,645
23,282
Total noninterest expense 29,922
29,219
27,404
88,284
86,791
Income before income tax expense 24,318
27,132

24,171
76,149
59,168
Income tax expense 1,802
4,881
7,856
10,461
18,507
Net income $ 22,516
$ 22,251
$ 16,315
$ 65,688
$ 40,661

Basic earnings per share $ 0.97
$ 0.96
$ 0.70
$ 2.84
$ 1.77
Diluted earnings per share 0.97
0.95
0.69
2.81
1.75

Return on average assets 1.63 % 1.65 % 1.27 % 1.62 % 1.11 %
Return on average common equity 15.22 % 15.70 % 11.69 % 15.41 % 10.37 %
Return on average tangible common equity 19.42 % 20.23 % 15.23 % 19.85 % 13.25 %
Net interest margin (fully tax equivalent) 3.78 % 3.77 % 3.88 % 3.78 % 3.87 %
Efficiency ratio 52.96 % 51.50 % 50.75 % 52.25 % 56.66 %
Tangible book value per common share $ 19.94
$ 19.32
$ 18.09

ASSET QUALITY⁽¹⁾

Net charge-offs $ 2,447
$ 641
$ 803
$ 2,862
$ 6,851
Nonperforming loans 17,044
14,801
8,985

Classified assets 73,704
74,001
80,757

Nonperforming loans to portfolio loans 0.40 % 0.35 % 0.23 %
Nonperforming assets to total assets ⁽¹⁾
0.32 % 0.28 % 0.18 %
Allowance for loan losses to portfolio loans 0.99 % 1.00 % 0.97 %
Net charge-offs to average loans (annualized) 0.23 % 0.06 % 0.08 % 0.09 % 0.24 %

(1) Excludes purchased credit impaired loans and related assets, except for their inclusion in total assets.

Below are highlights of the Company's Core performance measures, which we believe are important measures of financial performance, but are non-GAAP measures. For additional information, refer to the reconciliation of Core performance measures included in this MD&A section under the caption "Use of Non-GAAP Financial Measures".

For the Three Months ended For the Nine Months ended
(in thousands) September 30,
2018 June 30,
2018 September 30,
2017 September 30,
2018 September 30,
2017
CORE PERFORMANCE MEASURES(1)

Net interest income $ 47,558
$ 46,757
$ 44,069
$ 139,720
$ 124,685
Provision for portfolio loans 2,332
2,385
2,422
6,588
7,578
Noninterest income 8,403
9,026
8,350
25,949
23,260
Noninterest expense 29,228
29,209
27,070
87,566
79,814
Income before income tax expense 24,401
24,189
22,927
71,515
60,553
Income tax expense 4,372
4,145
7,391
11,857
18,636
Net income $ 20,029
$ 20,044
$ 15,536
$ 59,658
$ 41,917

Earnings per share $ 0.86
$ 0.86
$ 0.66
$ 2.56
$ 1.81
Return on average assets 1.45 % 1.48 % 1.21 % 1.47 % 1.14 %
Return on average common equity 13.54 % 14.14 % 11.13 % 14.00 % 10.69 %
Return on average tangible common equity 17.28 % 18.22 % 14.50 % 18.03 % 13.66 %
Net interest margin (fully tax equivalent) 3.74 % 3.75 % 3.75 % 3.74 % 3.71 %
Efficiency ratio 52.23 % 52.36 % 51.64 % 52.86 % 53.95 %

~~For the~~ nine months ended September 30, 2018, ~~compared to~~ the Company notes the following trends:

For the three and nine months ended September 30, ~~2017,~~2019, the Company ~~noted the following trends:~~

~~The Company reported~~had net income of $29.1 million and $63.6 million, respectively, compared to $22.5 million and $65.7 million orin the prior year periods. Earnings per diluted share for the three and nine months ended September 30, 2019, were $1.08 and $2.45 per diluted share, respectively, and $0.97 and $2.81 per diluted share, for the ~~nine months ended September 30, 2018, compared to $40.7 million, or $1.75~~same periods in 2018. Net income and

earnings per ~~diluted~~ share for the ~~same period in 2017. The $1.06 increase in earnings per share primarily increased~~first nine months of 2019 were impacted from ~~growth in~~$18.0 million pretax ($14.0 million after tax), of merger-related expenses compared to the ~~balance sheet resulting from organic loan and deposit growth, fee income growth, and corporate tax reform.~~prior year period.

•

~~On a core basis~~Excluding the impact of merger-related expenses, the adjusted return on average assets¹, ~~net income grew 42% to $59.7 million, or $2.56 per diluted share,~~adjusted return on average common equity¹, and adjusted return on average tangible common equity¹ were 1.54%, 13.42%, and 18.50%, respectively, for the nine months ended September 30, ~~2018, compared to $41.9 million, or $1.81 per diluted share, in the prior year period. The diluted core earnings per share~~¹ ~~increase of $0.75 continues to be driven by revenue growth, which expanded $17.7 million, or 12%.~~2019.

Net interest income for the ~~first~~three and nine months ~~of 2018~~ended September 30, 2019 increased ~~$11.4~~$15.0 million ~~or 9%, from~~and $35.8 million over the prior year ~~period due to strong portfolio~~periods. The acquisition of Trinity along with organic loan growth and ~~a higher average yield partially offset by~~ an expanded investment portfolio supported the increase in ~~cost of funds and a reduction in incremental accretion on non-core acquired loans.~~net interest income over the prior year periods.

•

~~Net~~The net interest margin for both the ~~first~~three and nine months ~~of 2018 decreased nine basis points to 3.78% when compared to~~ended September 30, 2019 expanded over the prior year ~~period of 3.87%. Core net interest margin~~¹~~, which excludes incremental accretion on non-core acquired loans, increased three basis points to 3.74% for the first nine months of 2018 from the prior year period~~periods, primarily due to the impact of interest rate increases on portfolio loans out-pacing the increase in deposit and borrowing ~~costs.~~costs and the addition of Trinity’s lower-cost deposit portfolio. Core net interest margin,¹ which excludes incremental accretion on non-core acquired loans, increased two basis points to 3.76% for the first nine months of 2019 from the prior year period, and decreased five basis points to 3.69% for the three months ended September 30, 2019 from the prior year period. The decline in core net interest margin during the third quarter of 2019 over the prior year period was primarily caused by the reduction in short-term rates during the three months ended September 30, 2019. Additionally, the overall mix of interest-earning assets negatively impacted net interest margin due to a larger investment portfolio.

Noninterest income for the three and nine months ended September 30, 2019 increased $5.2 million and $7.1 million, respectively, compared to the prior year periods due to contributions from Trinity of approximately $2.4 million and $5.3 million, respectively, primarily related to wealth management and card services revenue. Tax credit income also contributed to the increase in both periods.

Noninterest expense for the three and nine months ended September 30, 2019 increased $8.3 million and $38.8 million, respectively, compared to the prior year periods. The increase for the three months ended September 30, 2019 reflects the ongoing operating expenses from the Trinity acquisition, including planned cost savings from the transaction. The increase in the first nine months of 2019 was primarily due to merger-related expenses of $18.0 million and increased operating expenses following the closing of the Trinity acquisition, most notably in employee compensation and benefits.

Balance sheet highlights:

•

Loans – Total loans increased to $5.2 billion at September 30, 2019, increasing $878.0 million when compared to December 31, 2018. The increase is primarily attributable to the acquisition of Trinity along with growth in the commercial and industrial (“C&I”), commercial real estate (“CRE”), and life insurance premium finance categories, partially offset by paydowns outpacing growth in the other categories.

•

Deposits – Total deposits at September 30, 2019 were $5.6 billion, an increase of $1.0 billion, from December 31, 2018. The increase is primarily attributable to the acquisition of Trinity. Core deposits, defined as total deposits excluding time deposits, were $4.8 billion at September 30, 2019, an increase of $900.8 million, or 23% when compared to December 31, 2018. The ratio of noninterest-bearing deposits to total deposits was relatively stable at 23% at September 30, 2019, compared to 24% at December 31, 2018.


•	Asset quality – Nonperforming loans were $15.6 million at September 30, 2019, compared to $16.7 million at December 31, 2018. Nonperforming loans represented 0.30% and 0.38% of total loans at September 30, 2019 and December 31, 2018, respectively.

The provision for loan losses was $1.8 million and $5.0 million for the three and nine months ended September 30, 2019, respectively, compared to $2.3 million and $4.5 million for the prior year periods, respectively. See “Item 1, Note 5 – Portfolio Loans, and Provision and Allowance for Loan Losses” of this Quarterly Report on Form 10-Q for more information.


•	Shareholders’ equity – The Company repurchased 302,756 shares at an average price of $39.03 per share in the third quarter of 2019.

¹A non-GAAP measure. A reconciliation has been included in this ~~MD&A~~ section under the caption ~~"Use~~“Use of Non-GAAP Financial Measures."”

Noninterest income for the first nine months of 2018 increased $4.4 million or 19%, compared to the prior year period primarily due to $2.0 million of nonrecurring revenue along with higher income from deposit service charges and card services from growth in the client base.

•

Noninterest expense was $88.3 million for the nine months ended September 30, 2018, compared to $86.8 million for the comparable period in 2017. Noninterest expense for the 2017 period included $6.5 million of merger related expenses. Core noninterest expense¹ was $87.6 million for the nine months ended September 30, 2018, compared to $79.8 million for the prior year period primarily due to increases in compensation and benefit expense from investments in revenue producing personnel, tax credit amortization of $2.0 million, and other operating expenses from the acquisition of JCB.

~~Balance sheet highlights:~~

~~Loans~~ – Portfolio loans increased to $4.2 billion at September 30, 2018, increasing $183 million when compared to December 31, 2017 primarily in the commercial and industrial, and commercial real estate categories.

~~Deposits~~ – Total deposits at September 30, 2018 were $4.2 billion, an increase of $54 million, or 1% from December 31, 2017. Core deposits, defined as total deposits excluding time deposits, were $3.5 billion at September 30, 2018, a decrease of $41 million, or 1% when compared to December 31, 2017.

~~Asset quality~~ – Nonperforming loans were $17.0 million at September 30, 2018, compared to $14.9 million at December 31, 2017. Nonperforming loans represented 0.40% and 0.35% of portfolio loans at September 30, 2018 and December 31, 2017, respectively.

~~Provision for portfolio loan losses was $6.6 million for the nine months ended September 30, 2018, compared to $7.6 million for the nine months ended September 30, 2017. See Item 1, Note 4 –~~ ~~Portfolio Loans, and Provision and Allowance for Loan Losses~~ ~~in this section for more information.~~

¹~~A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption "Use of Non-GAAP Financial Measures."~~

RESULTS OF OPERATIONS

Net Interest Income

Average Balance Sheet

Non-core acquired loans were those acquired from the FDIC and were previously covered by shared-loss agreements. These loans continue to be accounted for as purchased credit impaired loans. Approximately $31 million of loans acquired from JCB's portfolio are also accounted for as purchased credit impaired loans. However, all loans acquired from JCB are included in portfolio loans. The following ~~table presents,~~tables present, for the periods indicated, certain information related to our average interest-earning assets and interest-bearing liabilities, as well as, the corresponding interest rates earned and paid, all on a tax equivalent basis. Non-core acquired loans noted in the table below were acquired from the FDIC and were previously covered by shared-loss agreements.


	Three months ended September 30,														Three months ended September 30,
	2018							2017							2019						2018
(in thousands)	Average Balance			Interest Income/Expense		Average Yield/ Rate		Average Balance			Interest Income/Expense		Average Yield/ Rate		Average Balance		Interest Income/Expense		Average Yield/ Rate		Average Balance		Interest Income/Expense		Average Yield/ Rate
Assets
Interest-earning assets:
Taxable portfolio loans (1)	$	4,196,242		$	54,086	5.11	%	$	3,866,434		$	45,526	4.67	%	$	5,140,946	$	68,309	5.27	%	$	4,196,242	$	54,086	5.11	%
Tax-exempt portfolio loans (2)	34,392			483		5.57		38,202			623		6.47		26,364		482		7.25		34,392		483		5.57
Non-core acquired loans - contractual	21,891			399		7.23		35,120			553		6.25		10,699		402		14.91		21,891		399		7.23
Non-core acquired loans - incremental accretion				535		9.70					1,556		17.57				2,140		79.36				535		9.70
Total loans	4,252,525			55,503		5.18		3,939,756			48,258		4.86		5,178,009		71,333		5.47		4,252,525		55,503		5.18
Taxable investments in debt and equity securities	715,846			4,805		2.66		667,520			3,981		2.37
Non-taxable investments in debt and equity securities (2)	39,283			349		3.52		43,537			475		4.33
Taxable debt and equity investments															1,169,753		8,323		2.82		715,846		4,805		2.66
Non-taxable debt and equity investments (2)															143,107		1,287		3.57		39,283		349		3.52
Short-term investments	64,919			306		1.87		61,859			173		1.11		113,214		572		2.00		64,919		306		1.87
Total securities and short-term investments	820,048			5,460		2.64		772,916			4,629		2.38		1,426,074		10,182		2.83		820,048		5,460		2.64
Total interest-earning assets	5,072,573			60,963		4.77		4,712,672			52,887		4.45		6,604,083		81,515		4.90		5,072,573		60,963		4.77
Noninterest-earning assets:
Cash and due from banks	88,924							76,661
Other assets	354,788							348,100
Allowance for loan losses	(44,781		)					(41,939		)
Noninterest-earning assets															618,274						398,931
Total assets	$	5,471,504						$	5,095,494						$	7,222,357					$	5,471,504

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	758,621		$	799	0.42	%	$	805,073		$	523	0.26	%	$	1,356,328	$	2,048	0.60	%	$	758,621	$	799	0.42	%
Money market accounts	1,523,822			5,423		1.41		1,314,274			2,410		0.73		1,639,603		6,959		1.68		1,523,822		5,423		1.41
Savings	208,057			157		0.30		200,394			125		0.25		548,109		232		0.17		208,057		157		0.30
Certificates of deposit	678,214			2,878		1.68		580,951			1,493		1.02		820,943		3,970		1.92		678,214		2,878		1.68
Total interest-bearing deposits	3,168,714			9,257		1.16		2,900,692			4,551		0.62		4,364,983		13,209		1.20		3,168,714		9,257		1.16
Subordinated debentures	118,134			1,483		4.98		118,086			1,316		4.42		141,136		1,956		5.50		118,134		1,483		4.98
FHLB advances	311,522			1,729		2.20		249,462			832		1.31		378,207		2,203		2.31		311,522		1,729		2.20
Other borrowed funds	160,151			195		0.48		206,533			144		0.28		193,055		664		1.36		160,151		195		0.48
Total interest-bearing liabilities	3,758,521			12,664		1.34		3,474,773			6,843		0.78		5,077,381		18,032		1.41		3,758,521		12,664		1.34
Noninterest bearing liabilities:
Demand deposits	1,086,809							1,031,346							1,232,360						1,086,809
Other liabilities	39,409							35,662							68,642						39,409
Total liabilities	4,884,739							4,541,781							6,378,383						4,884,739
Shareholders' equity	586,765							553,713							843,974						586,765
Total liabilities & shareholders' equity	$	5,471,504						$	5,095,494						$	7,222,357					$	5,471,504
Net interest income				$	48,299						$	46,044					$	63,483					$	48,299
Net interest spread						3.43	%						3.67	%					3.49	%					3.43	%
Net interest margin						3.78	%						3.88	%					3.81	%					3.78	%
Core net interest margin (3)						3.74	%						3.75	%					3.69	%					3.74	%

Non-taxable income is presented on a ~~fully~~ tax-equivalent basis using a 24.7% ~~and 38.0%~~ tax rate in ~~2018~~2019 and ~~2017, respectively.~~2018. The tax-equivalent adjustments were ~~$0.2~~$0.4 million and ~~$0.4~~$0.2 million for the three months ended September 30, 2019 and 2018, ~~and 2017,~~ respectively.

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

(1) Change in volume multiplied by yield/rate of prior period.

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

(3) Nontaxable income is presented on a ~~fully-tax~~tax equivalent basis using the combined statutory federal and state income tax rate in effect for each tax year.

NOTE: The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.

Net interest income (on a tax equivalent basis) for the three and nine months ended September 30, 2019 increased 31% and 26%, respectively, over the prior year periods primarily from higher loan and investment volumes. Loan and investment volumes benefited from the Trinity acquisition and organic growth in the loan portfolio. In addition to an increase in interest rates in the current-year periods that positively impacted net interest income, incremental accretion on non-core acquired loans also contributed to the increase. The increase in incremental accretion was ~~$48.3 million~~due to successful loan workouts on several non-core acquired loans.

The tax-equivalent net interest margin was 3.81% and 3.85% for the three and nine months ended September 30, 2019, respectively, compared to 3.78% in both the prior year periods. The net interest margin benefited from the impact of interest rate increases on the Company's asset sensitive balance sheet and the incremental accretion on non-core acquired loans. While the overall yield on interest-earning assets increased in 2019 over the prior year periods, short-term interest rates at September 30, 2019 have declined from September 30, 2018. An increase in the investment portfolio in 2019 over 2018 has contributed to growth in net interest income, but the shift in earning assets between loans and investments has also reduced the net interest margin. Total investments were 22% of average interest earning assets for the three months ended September 30, ~~2018,~~2019, compared to ~~$46.0 million for the same period of 2017, an increase of $2.3 million, or 5%. The tax-equivalent net interest margin was 3.78% for the third quarter of 2018, compared to 3.88%~~16% in ~~the third quarter of 2017. Portfolio loan growth and higher rates supported the $8.1 million increase in interest income over~~ the prior year period. ~~The yield on taxable portfolio loans~~Partially offsetting the increase from earning assets was the cost of total interest-bearing liabilities that increased 44seven basis points ~~from the prior year period to 5.11%~~and 28 basis points for the three and nine months ended September 30, 2018, due to increasing interest rates on the existing variable-rate loan portfolio and higher rates on newly originated loans. The run-off of higher yielding non-core acquired loans continues to negatively impact net interest margin and resulted in a $1.2 million decrease in interest income for the three months ended September 30, 20182019, respectively, compared to the prior year ~~period.~~periods. The increase

Net interest income (on a tax equivalent basis) was $141.9 million for the nine months ended September 30, 2018, compared to $131.3 million for the same period of 2017, an increase of $10.7 million, or 8%. The tax-equivalent net interest margin was 3.78% for the nine months ended September 30, 2018, compared to 3.87% for the prior year period. The decrease in net interest margin was primarily due to a decline in contributions from non-core acquired

The Company manages its balance sheet to ~~grow core net interest income and expects to maintain~~defend against pressures on core net interest margin, ~~over the coming quarters as growth~~which could be negatively impacted by continued competition for deposits, current interest rate conditions, and downward movement in ~~loan yields balance rising deposit prices. However, pressure on funding costs could hinder the expected trends in core net interest margin.~~short-term rates.

~~Non-Core Acquired Assets Contribution~~

For the Three Months ended For the Nine Months ended
(in thousands) September 30,
2018 September 30,
2017 September 30,
2018 September 30,
2017
Accelerated cash flows and other incremental accretion $ 535
$ 1,556
$ 1,592
$ 5,215
Provision reversal for non-core acquired loan losses 69
—
2,064
355
Other income 7
—
1,038
—
Less: Other expenses (credits) 12
19
(203 ) 126
Non-core acquired assets income before income tax expense $ 599
$ 1,537
$ 4,897
$ 5,444

¹~~A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption "Use of Non-GAAP Financial Measures."~~

The following table presents a comparative summary of the major components of noninterest income for the periods indicated.

Core noninterest income(1)

Nine months ended September 30,
(in thousands) 2018 2017 Increase (decrease)
Service charges on deposit accounts $ 8,855
$ 8,146
$ 709
9 %
Wealth management revenue 6,267
5,949
318
5 %
Card services revenue 4,926
3,888
1,038
27 %
Gain on state tax credits, net 508
332
176
53 %
Gain on sale of other real estate 13
17
(4 ) (24 )%
Miscellaneous income - core 5,380
4,928
452
9 %
Core noninterest income(1)
25,949
23,260
2,689
12 %
Gain on sale of investment securities 9
22
(13 ) (59 )%
Other income from non-core acquired assets 1,038
—
1,038
NM
Other 649
—
649
NM
Total noninterest income $ 27,645
$ 23,282
$ 4,363
19 %

(1) A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption "Use of Non-GAAP Financial Measures."

The Company expects growth in ~~core fee~~noninterest income of a high single digit percentage for 2019 and 2020 over ~~2018 levels.~~the previous year’s level, exclusive of the impact of the Trinity acquisition.

Noninterest Expense

The following table presents a comparative summary of the major components of noninterest expense for the periods indicated.


										2019 compared to 2018
	Three months ended September 30,									Three months ended September 30,											Nine months ended September 30,
(in thousands)	2018		2017		Increase (decrease)					2019			2018			Increase (decrease)					2019			2018			Increase (decrease)
Core expenses (1):
Employee compensation and benefits	$	16,297	$	15,090	$	1,207		8	%	$	20,845		$	16,297		$	4,548		28	%	$	60,884		$	49,370		$	11,514		23	%
Occupancy	2,394		2,434		(40		)	(2	)%	3,179			2,394			785			33	%	9,004			7,142			1,862			26	%
Data processing	1,634		1,389		245			18	%	2,051			1,634			417			26	%	6,415			4,634			1,781			38	%
FDIC and other insurance	845		731		114			16	%
Professional fees	1,023		920		103			11	%	1,064			1,023			41			4	%	2,847			2,619			228			9	%
Loan, legal and other real estate expense	310		567		(257		)	(45	)%
Merger related expenses										393			—			393			—	%	17,969			—			17,969			—	%
Other	6,725		5,939		786			13	%	10,707			8,574			2,133			25	%	30,012			24,519			5,493			22	%
Core noninterest expense⁽¹⁾	29,228		27,070		2,158			8	%
Merger related expenses	—		315		(315		)	(100	)%
Other non-core	682		—		682			—	%
Other expenses related to non-core acquired loans	12		19		(7		)	(37	)%
Total noninterest expense	$	29,922	$	27,404	$	2,518		9	%	$	38,239		$	29,922		$	8,317		28	%	$	127,131		$	88,284		$	38,847		44	%
(1) A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption "Use of Non-GAAP Financial Measures."

Efficiency ratio										49.91		%	52.96		%	(3.05		)%			60.01		%	52.25		%	7.76		%
Core efficiency ratio¹										51.73		%	52.23		%	(0.5		)%			52.96		%	52.86		%	0.1		%
¹A non-GAAP measure. A reconciliation has been included in this section under the caption “Use of Non-GAAP Financial Measures.”										¹A non-GAAP measure. A reconciliation has been included in this section under the caption “Use of Non-GAAP Financial Measures.”

Nine months ended September 30,
(in thousands) 2018 2017 Increase (decrease)
Core expenses (1):
Employee compensation and benefits $ 49,370
$ 46,096
$ 3,274
7 %
Occupancy 7,142
6,628
514
8 %
Data processing 4,634
4,828
(194 ) (4 )%
FDIC and other insurance 2,682
2,356
326
14 %
Professional fees 2,619
2,833
(214 ) (8 )%
Loan, legal and other real estate expense 800
1,418
(618 ) (44 )%
Other 20,319
15,655
4,664
30 %
Core noninterest expense⁽¹⁾
87,566
79,814
7,752
10 %
Merger related expenses —
6,462
(6,462 ) (100 )%
Other non-core 921
389
532
137 %
Other expenses related to non-core acquired loans (203 ) 126
(329 ) (261 )%
Total noninterest expense $ 88,284
$ 86,791
$ 1,493
2 %
(1) A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption "Use of Non-GAAP Financial Measures."

Efficiency improvements that have resulted in net interest income and ~~$2.0 million of~~noninterest income growth exceeding the growth in noninterest expense, excluding merger expenses, have resulted in continued improvements to the Company’s efficiency ratio.

The Company’s effective tax ~~credit amortization.~~

The Company expects its effective tax rate for the ~~remainder~~full year of ~~2018 and~~ 2019 to be approximately ~~18% -~~ 20%., excluding potential tax planning strategies.

Summary Balance Sheet

The Trinity acquisition added $1.2 billion of assets and $1.1 billion of liabilities to the balance sheet in 2019.

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's~~Company’s borrowers to honor their contractual obligations is partially dependent upon the local economy and its effect on the real estate market.

The following table summarizes the composition of the ~~Company's~~Company’s loan portfolio:

~~Portfolio loa~~Loans grew by ~~$183.1~~$878 million to ~~$4.2~~$5.2 billion at September 30, ~~2018,~~2019, when compared toDecember 31, ~~2017. Non-core~~2018. The increase is primarily attributable to the acquisition of Trinity along with growth in the C&I, CRE, and life insurance premium finance categories, partially offset by paydowns outpacing growth in the other categories. We expect continued loan growth in 2019 and 2020 to be 6-8% excluding Trinity acquired ~~loans totaled $17.7 million at September 30, 2018, a~~ ~~decrease of~~ ~~$12.7 million, or 42%, from December 31, 2017, primarily as a result of principal paydowns and accelerated loan payoffs.~~loans.

Enterprise value lending¹

Life insurance premium financing¹

¹Specialized categories may include a mix of C&I, CRE, construction and land development, or consumer and other loans.

Specialized lending products, especially ~~Enterprise~~enterprise value lending, life insurance premium financing, and tax credits, consist of primarily C&I ~~loans, and have contributed significantly to the Company's loan growth.~~loans. These loans are sourced through relationships developed with estate planning firms and private equity funds, and are not bound geographically by our ~~traditional three~~four markets. These specialized loan products offer opportunities to expand and diversify geographically by entering into new markets. The Company continues to focus on originating high-quality C&I relationships, as they typically have variable interest rates and allow for cross selling opportunities involving other banking products. C&I ~~loans increased $114 million during the first nine months of 2018 and represented 48% of the Company's loan portfolio at September 30, 2018. We expect continued total portfolio~~ loan growth, ~~in 2018 and 2019~~coupled with typically fixed-rate CRE lending, supports management’s efforts to bemaintain a ~~high single digit percentage.~~flexible asset sensitive interest rate risk position.

Provision and Allowance for Loan Losses

The following table summarizes changes in the allowance for loan losses arising from loans charged off and recoveries on loans previously charged off, by loan category, and additions to the allowance charged to expense.


	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Allowance at beginning of period, for portfolio loans	$	42,007		$	36,673		$	38,166		$	37,565		$	42,935		$	42,007		$	42,295		$	38,166
Loans charged off:
Commercial and industrial	(2,405		)	(613		)	(4,093		)	(6,781		)	(1,295		)	(2,405		)	(4,528		)	(4,093		)
Real estate:
Commercial	(22		)	(45		)	(22		)	(90		)	(22		)	(22		)	(609		)	(22		)
Construction and land development	—			—			—			(5		)	—			—			(45		)	—
Residential	(122		)	(503		)	(414		)	(777		)	(255		)	(122		)	(348		)	(414		)
Consumer and other	(46		)	(75		)	(128		)	(143		)	(86		)	(46		)	(268		)	(128		)
Total loans charged off	(2,595		)	(1,236		)	(4,657		)	(7,796		)	(1,658		)	(2,595		)	(5,798		)	(4,657		)
Recoveries of loans previously charged off:
Commercial and industrial	2			205			1,076			342			209			2			270			1,076
Real estate:
Commercial	12			18			37			219			14			12			81			37
Construction and land development	21			25			395			83			260			21			758			395
Residential	88			172			220			259			65			88			553			220
Consumer and other	25			13			67			42			40			25			270			67
Total recoveries of loans	148			433			1,795			945			588			148			1,932			1,795
Net loan charge-offs	(2,447		)	(803		)	(2,862		)	(6,851		)	(1,070		)	(2,447		)	(3,866		)	(2,862		)
Provision for loan losses	2,332			2,422			6,588			7,578			1,833			2,332			5,269			6,588
Allowance at end of period, for portfolio loans ~~(1)~~	$	41,892		$	38,292		$	41,892		$	38,292		$	43,698		$	41,892		$	43,698		$	41,892

Allowance at beginning of period, for purchased credit impaired loans	$	2,363		$	5,126		$	4,411		$	5,844		$	886		$	2,363		$	1,181		$	4,411
Loans charged off	—			(175		)	—			(223		)	—			—			—			—
Recoveries of loans	—			—			—			—			—			—			—			—
Other	—			(52		)	(53		)	(367		)
Net loan charge-offs	—			(227		)	(53		)	(590		)	—			—			—			—
Provision reversal for purchased credit impaired loan losses	(69		)	—			(2,064		)	(355		)	—			(69		)	(238		)	(2,064		)
Other													(29		)	—			(86		)	(53		)
Allowance at end of period, for purchased credit impaired loans	$	2,294		$	4,899		$	2,294		$	4,899		$	857		$	2,294		$	857		$	2,294

Total allowance at end of period	$	44,186		$	43,191		$	44,186		$	43,191		$	44,555		$	44,186		$	44,555		$	44,186

Portfolio loans, average	$	4,230,090		$	3,904,636		$	4,178,900		$	3,754,891		$	5,164,409		$	4,230,090		$	4,916,631		$	4,178,900
Portfolio loans, ending(1)	4,218,341			3,948,676			4,218,341			3,948,676
Net charge-offs to average portfolio loans (1)	0.23		%	0.08		%	0.09		%	0.24		%
Allowance for portfolio loan losses to loans (1)	0.99		%	0.97		%	0.99		%	0.97		%

(1) Excludes PCI loans.
Total loans, average													5,178,009			4,252,525			4,930,635			4,205,585
Total loans, ending													5,228,014			4,267,430
Net charge-offs to average loans													0.08		%	0.23		%	0.11		%	0.09		%
Allowance for loan losses to total loans													0.85		%	1.04		%	0.85		%	1.04		%

The provision for loan losses ~~on portfolio loans~~ for the three and ninemonths ended September 30, ~~2018~~2019was ~~$6.6~~$1.8 million and $5.0 million, respectively, compared to ~~$7.6~~$2.3 million and $4.5 million for same ~~period~~periods in ~~2017.~~2018, respectively. The provision is reflective of loan growth and charge-offs in ~~portfolio loan balances, and maintaining a prudent credit risk posture.~~the period.

The allowance for loan losses ~~on portfolio loans~~ was ~~0.99%~~0.85% of ~~portfolio~~ loans at September 30, ~~2018,~~2019, compared to ~~0.97%~~1.04% at September 30, ~~2017.~~ 2018. The decrease in the ratio of allowance for loan losses to total loans was primarily due to the acquisition of Trinity loans that were recorded at fair value and did not have a corresponding allowance for loan losses. The Company recorded a credit mark on the Trinity loan portfolio of $24.4 million at acquisition.

Management believes the allowance for loan losses is adequate to absorb inherent losses in the loan portfolio.

Nonperforming assets

The following table presents the categories of nonperforming assets and other ratios as of the dates indicated.

Nonperforming loans decreased $1.2 million to $15.6 million at September 30, 2019 from $16.7 million at December 31, 2018. Net charge-offs in 2019, that contributed to the decline in nonperforming loans, are comprised primarily of two loan relationships identified as nonperforming loans at the end of 2018. The charge-off of these loans did not significantly impact the provision for loan losses, as the credits were specifically reserved at the end of 2018.

Other real estate increased in 2019 primarily due to the foreclosure of a $5.4 million commercial property that was a purchased credit impaired loan from our acquisition of Jefferson County Bancshares Inc., along with the addition of 15 properties with the acquisition of Trinity totaling $4.5 million. The foreclosure of the commercial property did not result in a write-down of the asset. These additions were partially offset by other real estate sales of $4.3 million.

Nonperforming loans exclude PCI loans that are accounted for on a pool ~~basis as the pools are considered to be performing.~~basis. See Item 1, Note 45 – Loans for more information on these loans.

Nonperforming loans based on loan type were as follows:

The following table summarizes the changes in nonperforming loans:

Other real estate was $8.5 million at September 30, 2019 compared to $0.4 million at September 30, ~~2018 compared to $0.5 million at September 30, 2017.~~2018.

Writedowns in fair value are recorded in ~~loan legal and~~ other ~~real estate~~noninterest expense based on current market activity shown in the appraisals.

Liabilities totaled ~~$4.9~~$6.5 billion at September 30, ~~2018,~~2019, compared to ~~$4.7~~$5.0 billion at December 31, ~~2017.~~2018. The increase in liabilities was due to ~~$54 million~~$1.0 billion of growth in total deposits primarily attributable to the acquisition of Trinity and a ~~$228~~$391.4 million increase in Federal Home Loan Bank (“FHLB”) advances, partially offset by a decrease of ~~$92~~$23.8 million in other ~~borrowings.~~borrowings and notes payable. The increase in Federal Home Loan Bank advances supported the increase in the investment portfolio, the reduction in higher-cost other borrowings and the Company’s share repurchase plan.

Total deposits at September 30, ~~2018~~2019 were ~~$4.2~~$5.6 billion, an increase of 1%23%, from December 31, ~~2017, primarily from increases~~2018. The increase is due to the acquisition of Trinity, partially offset by a decline in ~~money market accounts and brokered certificates of deposit. The composition of our noninterest~~interest-bearing deposits. Noninterest bearing deposits ~~remained relatively stable at 25%~~as a percentage of total deposits was 23% at September 30, ~~2018~~2019 compared to ~~27%~~24% at December 31, ~~2017.~~2018. The deposit portfolio acquired with Trinity had a lower percentage of noninterest-bearing deposit accounts as part of the total deposit base. However, the cost of funds on the Trinity interest-bearing deposit portfolio was relatively lower than the Company’s deposits prior to the acquisition.

~~Shareholders'~~Shareholders’ Equity

~~Shareholders'~~Shareholders’ equity totaled ~~$586.8~~$846.1 million at September 30, ~~2018,~~2019, an increase of ~~$38.3~~$242.3 million from December 31, ~~2017.~~2018. Significant activity during the nine months ended September 30, ~~2018~~2019 was as follows:

Liquidity and Capital Resources

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 run-off from demand deposits, maturing time deposits which are not renewed, and fundings under credit commitments

to customers. Funds are available from a number of sources, such as from the core deposit base and from loans and securities repayments and maturities.

Additionally, liquidity is provided from sales of the securities portfolio, fed fund lines with correspondent banks, borrowings from the Federal Reserve and the FHLB, the ability to acquire large and brokered deposits, 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's~~Bank’s Asset-Liability Management Committee oversees our liquidity position, the parameters of which are approved by the ~~Bank's~~Bank’s Board of Directors.Our liquidity position is monitored monthly by ~~producing a liquidity report, which measures~~measuring the amount of liquid versus non-liquid assets and liabilities. Ourliquidity management framework

The parent ~~company's~~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~~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). ~~$22.5 million in dividends has been paid to the parent company from the Bank in 2018.~~ 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~~Company’s ability to offer securities pursuant to the registration statement depends on market conditions and the ~~Company's~~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"~~“Revolving Agreement”) with another bank allowing for borrowings up to ~~$20~~$25 million ~~which is renewed through~~that matures in February ~~2019.~~2020. 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 September 30, ~~2018,~~2019, there ~~were no~~was $1 million outstanding ~~balances~~ under the Revolving Agreement.

The Company has a five-year term note for $40 million that matures in March 2024. The Company principally used the proceeds from the issuance of the note to fund the cash consideration at the closing of the acquisition of Trinity.

As of September 30, ~~2018,~~2019, the Company had ~~$69.2~~$92 million of outstanding subordinated debentures as part of ~~ten Trust Preferred Securities Pools.~~13 statutory trusts which includes $23 million acquired in the Trinity acquisition. These ~~securities~~debentures 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.

Management believes our current level of cash at the holding company of ~~$16.5~~$6 million, along with the ~~Company's~~Company’s other available funding sources, will be sufficient to meet all projected cash needs for the remainder of ~~2018.~~2019.

The Bank has a variety of funding sources available to increase financial flexibility. In addition to amounts currently borrowed, at September 30, ~~2018,~~2019, the Bank had borrowing capacity of ~~$266.2~~$532 million from the FHLB of Des Moines under blanket loan pledges, and has an additional ~~$1.1~~$1 billion available from the Federal Reserve Bank under a pledged loan agreement. The Bank has unsecured federal funds lines with six correspondent banks totaling ~~$95.0~~$90 million, and ~~$79.0~~$296 million of unsecured credit through the American Financial Exchange.

Investment securities are another important tool toin managing the ~~Bank's~~Bank’s liquidity objectives. ~~Total securities available for sale of $670.3 million~~Securities totaled $1.3 billion at September 30, ~~2018,~~2019, and included ~~$352.4~~$416 million ~~of securities that were~~ pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements. The remaining ~~$317.9~~$893 million could be pledged or sold to enhance liquidity, if necessary. ~~In addition, $51.5 million of unpledged held to maturity securities could also be pledged for liquidity purposes.~~

In the normal course of business, the Bank enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the ~~Bank's~~Bank’s various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the

The Company and the Bank are subject to various regulatory capital requirements administered by the 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. 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, Tier 1, and common equity tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. To be categorized as “well capitalized”, banks must maintain minimum total risk-based (10%), Tier 1 risk-based (8%), common equity tier 1 risk-based (6.5%), and Tier 1 leverage ratios (5%). As of September 30, ~~2018,~~2019, and December 31, ~~2017,~~2018, the Company and the Bank met all capital adequacy requirements to which they are subject.

The Bank continues to exceed regulatory standards and met the definition of “well-capitalized” (the highest category) at September 30, ~~2018. The Company adopted the Regulatory Capital Framework (Basel III) in 2015, and has implemented the necessary processes and procedures to comply.~~2019.

The following table summarizes the ~~Bank's~~Bank’s various capital ratios at the dates indicated:

The following table summarizes the ~~Company's~~Company’s various capital ratios at the dates indicated:

Tangible common equity to tangible assets¹

¹ Not a required regulatory capital ratio

The Company believes the tangible common equity ratio ~~and the common equity tier 1 capital ratio are~~is an important ~~measures~~measure of capital strength, even though ~~they are~~it is considered ~~to be~~a non-GAAP ~~measures.~~measure. A reconciliation has been included in this ~~MD&A~~ section under the caption ~~"Use~~“Use of Non-GAAP Financial Measures."”

Use of Non-GAAP Financial Measures:

The Company believes these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding the ~~Company's~~Company’s performance and capital strength. The ~~Company's~~Company’s management uses, and believes that investors benefit from referring to, these non-GAAP measures and ratios in assessing the ~~Company's~~Company’s operating results and related trends and when forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP. In the following tables, 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.

Core Performance Measures

Less: Non-recurring excise tax²

Less: Other non-core income tax expense^{1, 2}

¹Other non-core income tax expense calculated at 24.7% of non-core pretax income for 2018. For 2017, the calculation is 38.0% of non-core pretax income plus an estimate of taxes payable related to non-deductible JCB acquisition costs.

²Income tax for the quarter ended September 30, 2018, includes a $2.7 million income tax planning benefit, associated with the excise tax expense, recognized upon finalization of the Company's 2017 tax returns.

Net Interest Margin to Core Net Interest Margin ~~(fully tax~~(tax equivalent)

(in thousands) September 30, 2018 December 31, 2017
Total shareholders' equity $ 586,837
$ 548,573
Less: Goodwill 117,345
117,345
Less: Intangible assets 9,148
11,056
Tangible common equity $ 460,344
$ 420,172

Total assets $ 5,517,539
$ 5,289,225
Less: Goodwill 117,345
117,345
Less: Intangible assets 9,148
11,056
Tangible assets $ 5,391,046
$ 5,160,824

Tangible common equity to tangible assets 8.54 % 8.14 %

~~Regulatory Capital to Risk-Weighted Assets~~



(in thousands)	September 30, 2019			December 31, 2018
Total shareholders' equity	$	846,095		$	603,804
Less: Goodwill	211,251			117,345
Less: Intangible assets	27,626			8,553
Tangible common equity	$	607,218		$	477,906

Total assets	$	7,346,791		$	5,645,662
Less: Goodwill	211,251			117,345
Less: Intangible assets, net	27,626			8,553
Tangible assets	$	7,107,914		$	5,519,764

Tangible common equity to tangible assets	8.54		%	8.66		%

(in thousands) September 30, 2018 December 31, 2017
Total shareholders' equity $ 586,837
$ 548,573
Less: Goodwill 117,345
117,345
Less: Intangible assets, net of deferred tax liabilities 6,888
6,661
Plus: Unrealized gains (losses) (16,627 ) (3,818 )
Plus: Other —
12
Common equity Tier 1 capital 479,231
428,397
Plus: Qualifying trust preferred securities 67,600
67,600
Plus: Other 60
48
Tier 1 capital 546,891
496,045
Plus: Tier 2 capital 94,611
93,002
Total risk-based capital 641,502
589,047

Total risk-weighted assets determined in accordance with prescribed regulatory requirements $ 4,958,999
$ 4,822,695

Common equity tier 1 to risk-weighted assets 9.66 % 8.88 %
Tier 1 capital to risk-weighted assets 11.03 % 10.29 %
Total risk-based capital to risk-weighted assets 12.94 % 12.21 %



	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2019		2018		2019		2018
Average shareholder’s equity	$	843,974	$	586,765	$	773,843	$	569,915
Less: Average goodwill	211,251		117,345		188,231		117,345
Less: Average intangible assets, net	28,392		9,445		24,327		10,074
Average tangible common equity	$	604,331	$	459,975	$	561,285	$	442,496



~~[X]~~☒		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



☐
~~[ ]~~		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ~~For the transition period from ______ to ______~~

		~~Commission file number 001-15373~~



	Three months ended September 30, 2018					Three months ended September 30, 2017
(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	$	187	$	187	—	$	—	$	—
Total	1	$	187	$	187	—	$	—	$	—



	Nine months ended September 30, 2018					Nine months ended September 30, 2017
(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	$	187	$	187	1	$	676	$	676
Total	1	$	187	$	187	1	$	676	$	676



					Asset Derivatives (Other Assets)				Liability Derivatives (Other Liabilities)
	Notional Amount				Fair Value				Fair Value
(in thousands)	September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Non-designated hedging instruments
Interest rate swap contracts	$	433,664	$	394,852	$	4,772	$	2,061	$	4,772	$	2,061
Foreign exchange forward contracts	123		1,528		123		1,528		123		1,528



	(1)		(1)		(1)		(1)						(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 three months ended September 30, 2018		Total losses for the nine months ended September 30, 2018		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 three months ended September 30, 2019		Total losses for the nine months ended September 30, 2019
Impaired loans	$	485	$	—	$	—	$	485	$	248	$	457	$	1,589	$	—	$	—	$	1,589	$	118	$	1,532
Other real estate	—		—		—		—		—		—
Total	$	485	$	—	$	—	$	485	$	248	$	457	$	1,589	$	—	$	—	$	1,589	$	118	$	1,532

(1) The amounts represent only balances measured at fair value during the period and still held as of the reporting date.													(1) The amounts represent only balances measured at fair value during the period and still held as of the reporting date.



(in thousands, except per share data)	For the Three Months ended/At									For the Nine Months ended
(in thousands, except per share data)	September 30, 2018			June 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
EARNINGS
Total interest income	$	60,757		$	57,879		$	52,468		$	173,800		$	147,750
Total interest expense	12,664			10,831			6,843			32,488			17,850
Net interest income	48,093			47,048			45,625			141,312			129,900
Provision for portfolio loans	2,332			2,385			2,422			6,588			7,578
Provision reversal for PCI loans	(69		)	(1,995		)	—			(2,064		)	(355		)
Net interest income after provision for loan losses	45,830			46,658			43,203			136,788			122,677
Total noninterest income	8,410			9,693			8,372			27,645			23,282
Total noninterest expense	29,922			29,219			27,404			88,284			86,791
Income before income tax expense	24,318			27,132			24,171			76,149			59,168
Income tax expense	1,802			4,881			7,856			10,461			18,507
Net income	$	22,516		$	22,251		$	16,315		$	65,688		$	40,661

Basic earnings per share	$	0.97		$	0.96		$	0.70		$	2.84		$	1.77
Diluted earnings per share	0.97			0.95			0.69			2.81			1.75

Return on average assets	1.63		%	1.65		%	1.27		%	1.62		%	1.11		%
Return on average common equity	15.22		%	15.70		%	11.69		%	15.41		%	10.37		%
Return on average tangible common equity	19.42		%	20.23		%	15.23		%	19.85		%	13.25		%
Net interest margin (fully tax equivalent)	3.78		%	3.77		%	3.88		%	3.78		%	3.87		%
Efficiency ratio	52.96		%	51.50		%	50.75		%	52.25		%	56.66		%
Tangible book value per common share	$	19.94		$	19.32		$	18.09

ASSET QUALITY⁽¹⁾
Net charge-offs	$	2,447		$	641		$	803		$	2,862		$	6,851
Nonperforming loans	17,044			14,801			8,985
Classified assets	73,704			74,001			80,757
Nonperforming loans to portfolio loans	0.40		%	0.35		%	0.23		%
Nonperforming assets to total assets ⁽¹⁾	0.32		%	0.28		%	0.18		%
Allowance for loan losses to portfolio loans	0.99		%	1.00		%	0.97		%
Net charge-offs to average loans (annualized)	0.23		%	0.06		%	0.08		%	0.09		%	0.24		%

(1) Excludes purchased credit impaired loans and related assets, except for their inclusion in total assets.


(1)	Average balances include non-accrual loans. The income on such loans is included in interest but is recognized only upon receipt. Loan fees, net of amortization of deferred loan origination fees and costs, included in interest income are approximately ~~$1.0~~$1.3 million and ~~$0.9~~$1.0 million for the three months ended September 30, ~~2018~~2019 and ~~2017~~2018 respectively.


(3)	A non-GAAP measure. A reconciliation has been included in this ~~MD&A~~ section under the caption ~~"Use~~“Use of Non-GAAP Financial measures."”


(2)	Non-taxable income is presented on a fully tax-equivalent basis using a 24.7% ~~and 38.0%~~ tax rate in ~~2018~~2019 and ~~2017, respectively.~~2018. The tax-equivalent adjustments were ~~$0.6~~$1.1 million and ~~$1.4~~$0.6 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively.


	2018 compared to 2017																		2019 compared to 2018
	Three months ended September 30,									Nine months ended September 30,									Three months ended September 30,									Nine months ended September 30,
	Increase (decrease) due to									Increase (decrease) due to									Increase (decrease) due to									Increase (decrease) due to
(in thousands)	Volume(1)			Rate(2)			Net			Volume(1)			Rate(2)			Net			Volume(1)			Rate(2)			Net			Volume(1)			Rate(2)			Net
Interest earned on:
Taxable portfolio loans	$	4,067		$	4,493		$	8,560		$	15,506		$	12,208		$	27,714
Tax-exempt portfolio loans (3)	(58		)	(82		)	(140		)	(272		)	(280		)	(552		)
Taxable loans																			$	12,487		$	1,736		$	14,223		$	29,304		$	11,564		$	40,868
Tax-exempt loans (3)																			(128		)	127			(1		)	(387		)	300			(87		)
Non-core acquired loans	(664		)	(511		)	(1,175		)	(1,766		)	(2,268		)	(4,034		)	(698		)	2,306			1,608			(2,135		)	4,417			2,282
Taxable investments in debt and equity securities	306			518			824			1,510			940			2,450
Non-taxable investments in debt and equity securities (3)	(43		)	(83		)	(126		)	(229		)	(275		)	(504		)
Taxable debt and equity investments																			3,213			305			3,518			6,968			1,636			8,604
Non-taxable debt and equity investments (3)																			933			5			938			1,927			14			1,941
Short-term investments	9			124			133			(95		)	335			240			244			22			266			673			272			945
Total interest-earning assets	$	3,617		$	4,459		$	8,076		$	14,654		$	10,660		$	25,314		$	16,051		$	4,501		$	20,552		$	36,350		$	18,203		$	54,553

Interest paid on:
Interest-bearing transaction accounts	$	(32	)	$	308		$	276		$	63		$	638		$	701		$	809		$	440		$	1,249		$	1,753		$	1,797		$	3,550
Money market accounts	441			2,572			3,013			1,026			6,354			7,380			436			1,100			1,536			1,048			6,201			7,249
Savings	5			27			32			41			56			97			167			(92		)	75			402			(185		)	217
Certificates of deposit	285			1,100			1,385			478			2,556			3,034			650			442			1,092			1,804			2,141			3,945
Subordinated debentures	1			166			167			62			475			537			308			165			473			677			580			1,257
FHLB advances	240			657			897			1,262			1,489			2,751			385			89			474			(255		)	1,117			862
Borrowed funds	(38		)	89			51			(109		)	247			138			47			422			469			76			1,148			1,224
Total interest-bearing liabilities	902			4,919			5,821			2,823			11,815			14,638			2,802			2,566			5,368			5,505			12,799			18,304
Net interest income	$	2,715		$	(460	)	$	2,255		$	11,831		$	(1,155	)	$	10,676		$	13,249		$	1,935		$	15,184		$	30,845		$	5,404		$	36,249


	At the quarter ended
(in thousands)	September 30, 2018		December 31, 2017		Increase (decrease)					September 30, 2019		December 31, 2018		Increase (decrease)
C&I - general	$	967,525	$	936,588	$	30,937		3.3	%	$	1,174,569	$	995,491	$	179,078		18	%
CRE investor owned - general	841,309		801,156		40,153			5.0	%	1,281,332		862,423		418,909			49
CRE owner occupied - general	480,106		468,151		11,955			2.6	%	566,219		496,835		69,384			14
Enterprise value lending¹	442,439		407,644		34,795			8.5	%	417,521		465,992		(48,471		)	(10	)
Life insurance premium financing¹	378,826		364,876		13,950			3.8	%	468,051		417,950		50,101			12
Residential real estate - general	309,053		342,140		(33,087		)	(9.7	)%	386,174		304,671		81,503			27
Construction and land development - general	309,879		294,123		15,756			5.4	%	403,590		310,832		92,758			30
Tax credits¹	256,666		234,835		21,831			9.3	%	265,626		262,735		2,891			1
Agriculture¹	137,761		91,031		46,730			51.3	%	136,249		136,188		61			—
Consumer and other - general	126,194		126,115		79			0.1	%	128,683		96,884		31,799			33
Portfolio loans	$	4,249,758	$	4,066,659	$	183,099		4.5	%
Total loans										$	5,228,014	$	4,350,001	$	878,013		20	%

Note: Certain prior period amounts have been reclassified among the categories to conform to the current period presentation.
¹Specialized categories may include a mix of C&I, CRE, construction and land development, or consumer and other loans.	¹Specialized categories may include a mix of C&I, CRE, construction and land development, or consumer and other loans.									¹Specialized categories may include a mix of C&I, CRE, construction and land development, or consumer and other loans.



Rate Shock	Annual % change in net interest income
+ 300 bp	~~5.2%~~6.0%
+ 200 bp	~~3.5%~~4.1%
+ 100 bp	~~1.8%~~2.3%
- 100 bp	~~(2.7)~~(3.8)%
- 200 bp	(7.6)%


Period	Total number of shares purchased (a)	Weighted-average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs	Total number of shares purchased (a)	Weighted-average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
July 1, 2018 through July 31, 2018	—	—		—	1,319,412
August 1, 2018 through August 31, 2018	—	—		—	1,319,412
September 1, 2018 through September 30, 2018	71,007	53.26		71,007	1,248,405
July 1, 2019 through July 31, 2019						32,113	39.51		32,113	916,782
August 1, 2019 through August 31, 2019						223,183	38.96		223,183	693,599
September 1, 2019 through September 30, 2019						47,460	39.05		47,460	646,139
Total	71,007	$	53.26	71,007	1,248,405	302,756	$	39.03	302,756	646,139

(a) In May 2015, 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. The timing and exact amount of common stock repurchases will depend on a number of factors including, among others, market and general economic conditions, economic capital and regulatory capital considerations, alternative uses of capital, the potential impact on our credit ratings, and contractual and regulatory limitations.


3.1	Certificate of Incorporation of Registrant, (incorporated herein by reference to Exhibit 3.1 of Registrant's Registration Statement on Form S-1 filed on December 16, 1996 (File No. 333-14737)).


3.2	Amendment to the Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit 4.2 to Registrant's Registration Statement on Form S-8 filed on July 1, 1999 (File No. 333-82087)).


3.6	Certificate of Designations of Registrant for Fixed Rate Cumulative Perpetual Preferred Stock, Series A, dated December 17, 2008 (incorporated herein by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K filed on December 23, 2008 (File No. 001-15373)).


3.9	Amended and Restated Bylaws of Registrant (incorporated herein by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K filed on June 12, 2015 (File No. 001-15373)).


*~~12.1~~10.1	~~Computation~~Amended and Restated Executive Employment Agreement dated as of ~~Ratio of Earnings to Fixed Charges~~October 24, 2019 by and ~~Preferred Dividends.~~between Enterprise Financial Services Corp and Douglas N. Bauche (filed herewith).


*10.2	Executive Employment Agreement dated as of October 24, 2019 by and between Enterprise Financial Services Corp and Nicole M. Iannacone (filed herewith).


*10.3	Executive Employment Agreement dated as of October 24, 2019 by and between Enterprise Financial Services Corp and Mark G. Ponder (filed herewith).


*31.1	Chief Executive ~~Officer's~~Officer’s Certification required by Rule 13(a)-14(a).


*31.2	Chief Financial ~~Officer's~~Officer’s Certification required by Rule 13(a)-14(a).


**32.1	Chief Executive Officer Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to section § 906 of the Sarbanes-Oxley Act of 2002.


**32.2	Chief Financial Officer Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to section § 906 of the Sarbanes-Oxley Act of 2002.


101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document


101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document



	ENTERPRISE FINANCIAL SERVICES CORP

	By:	/s/ James B. Lally
		James B. Lally
		Chief Executive Officer

	By:	/s/ Keene S. Turner
		Keene S. Turner
		Chief Financial Officer