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 ~~[ ]~~	☐	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 ~~April 26,~~July 24, 2019, the Registrant had ~~26,880,408~~26,881,832 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’ 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		3032

Item 3. Quantitative and Qualitative Disclosures About Market Risk		5053

Item 4. Controls and Procedures		5154

PART II - OTHER INFORMATION

Item 1. Legal Proceedings		5154

Item 1A. Risk Factors		5255

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		5356

Item 3. Defaults Upon Senior Securities		5356

Item 4. Mine Safety Disclosures		5356

Item 5. Other Information		5356

Item 6. Exhibits		5457

Signatures		5559

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)	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Assets
Cash and due from banks	$	85,578		$	91,511		$	106,835		$	91,511
Federal funds sold	1,934			1,714			2,744			1,714
Interest-earning deposits (including $6,665 and $1,305 pledged as collateral, respectively)	133,970			103,327
Interest-earning deposits (including $14,195 and $1,305 pledged as collateral, respectively)							79,821			103,327
Total cash and cash equivalents	221,482			196,552			189,400			196,552
Interest-earning deposits greater than 90 days	3,485			3,185			2,750			3,185
Securities available for sale	1,099,185			721,369			1,223,052			721,369
Securities held to maturity, at cost	64,368			65,679			62,725			65,679
Loans held for sale	654			392			1,437			392
Loans	5,017,077			4,350,001			5,149,497			4,350,001
Less: Allowance for loan losses	43,095			43,476			43,822			43,476
Loans, net	4,973,982			4,306,525			5,105,675			4,306,525
Other real estate	6,804			469			10,531			469
Other investments, at cost	34,860			26,654			42,990			26,654
Fixed assets, net	60,301			32,109			58,888			32,109
Operating lease right-of-use asset	14,858			—			14,164			—
Accrued interest receivable	26,276			16,069			27,008			16,069
State tax credits held for sale, at cost	37,215			37,587			37,294			37,587
Goodwill	207,632			117,345			211,251			117,345
Intangible assets, net	31,048			8,553			29,201			8,553
Bank-owned life insurance							101,416			73,233
Other assets	150,607			113,174			64,073			39,941
Total assets	$	6,932,757		$	5,645,662		$	7,181,855		$	5,645,662

Liabilities and Shareholders' Equity
Demand deposits	$	1,186,508		$	1,100,718		$	1,181,577		$	1,100,718
Interest-bearing transaction accounts	1,389,826			1,037,684			1,392,586			1,037,684
Money market accounts	1,580,291			1,565,729			1,611,766			1,565,729
Savings	575,740			199,425			550,839			199,425
Certificates of deposit:
Brokered	180,788			198,981			213,138			198,981
Other	623,960			485,448			609,432			485,448
Total deposits	5,537,113			4,587,985			5,559,338			4,587,985
Subordinated debentures and notes (net of debt issuance cost of $972 and $1,005, respectively)	140,668			118,156
Subordinated debentures and notes (net of debt issuance cost of $940 and $1,005, respectively)							141,100			118,156
Federal Home Loan Bank advances	180,466			70,000			389,446			70,000
Other borrowings	172,171			221,450			160,961			221,450
Notes payable	40,000			2,000			37,143			2,000
Operating lease liability	15,462			—			14,815			—
Accrued interest payable	3,231			1,977			2,701			1,977
Other liabilities	45,811			40,290			50,850			40,290
Total liabilities	6,134,922			5,041,858			6,356,354			5,041,858

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; 28,004,905 and 23,938,994 shares issued, respectively	280			239
Common stock, $0.01 par value; 45,000,000 shares authorized; 28,033,246 and 23,938,994 shares issued, respectively							280			239
Treasury stock, at cost; 1,127,105 shares	(42,655		)	(42,655		)	(42,655		)	(42,655		)
Additional paid in capital	521,761			350,936			523,454			350,936
Retained earnings	316,959			304,566			331,348			304,566
Accumulated other comprehensive income (loss)	1,490			(9,282		)	13,074			(9,282		)
Total shareholders' equity	797,835			603,804			825,501			603,804
Total liabilities and shareholders' equity	$	6,932,757		$	5,645,662		$	7,181,855		$	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 March 31,				Three months ended June 30,						Six months ended June 30,
(in thousands, except per share data)	2019		2018		2019			2018			2019		2018
Interest income:
Interest and fees on loans	$	61,025	$	50,450	$	69,628		$	52,948		$	130,653	$	103,398
Interest on debt securities:
Taxable	5,475		3,987		7,757			4,228			13,232		8,215
Nontaxable	447		282		861			271			1,308		553
Interest on interest-bearing deposits	447		240		703			231			1,150		471
Dividends on equity securities	223		205		252			201			475		406
Total interest income	67,617		55,164		79,201			57,879			146,818		113,043
Interest expense:
Interest-bearing transaction accounts	1,790		806		2,134			817			3,924		1,623
Money market accounts	6,515		3,353		6,996			4,445			13,511		7,798
Savings accounts	183		125		231			147			414		272
Certificates of deposit	3,332		1,899		3,758			2,338			7,090		4,237
Subordinated debentures and notes	1,648		1,368		1,958			1,454			3,606		2,822
Federal Home Loan Bank advances	1,398		1,258		1,696			1,448			3,094		2,706
Notes payable and other borrowings	408		184		713			182			1,121		366
Total interest expense	15,274		8,993		17,486			10,831			32,760		19,824
Net interest income	52,343		46,171		61,715			47,048			114,058		93,219
Provision for loan losses	1,476		1,871		1,722			390			3,198		2,261
Net interest income after provision for loan losses	50,867		44,300		59,993			46,658			110,860		90,958
Noninterest income:
Service charges on deposit accounts	2,935		2,851		3,366			3,007			6,301		5,858
Wealth management revenue	1,992		2,114		2,661			2,141			4,653		4,255
Card services revenue	1,790		1,516		2,461			1,650			4,251		3,166
Gain on sale of other real estate	66		—
Tax credit activity, net	158		252
Gain (loss) on sale of other real estate					(18		)	—			48		—
Tax credit income					572			64			730		316
Miscellaneous income	2,289		2,809		2,922			2,831			5,211		5,640
Total noninterest income	9,230		9,542		11,964			9,693			21,194		19,235
Noninterest expense:
Employee compensation and benefits	19,352		16,491		20,687			16,582			40,039		33,073
Occupancy	2,637		2,406		3,188			2,342			5,825		4,748
Data processing	1,906		1,467		2,458			1,533			4,364		3,000
Professional fees	746		849		1,037			747			1,783		1,596
FDIC and other insurance	848		917		815			920			1,663		1,837
Loan legal and other real estate expense	482		299		818			(23		)	1,300		276
Merger related expenses	7,270		—		10,306			—			17,576		—
Other	6,597		6,714		9,745			7,118			16,342		13,832
Total noninterest expense	39,838		29,143		49,054			29,219			88,892		58,362

Income before income tax expense	20,259		24,699		22,903			27,132			43,162		51,831
Income tax expense	4,103		3,778		4,479			4,881			8,582		8,659
Net income	$	16,156	$	20,921	$	18,424		$	22,251		$	34,580	$	43,172

Earnings per common share
Basic	$	0.68	$	0.91	$	0.69		$	0.96		$	1.36	$	1.87
Diluted	0.67		0.90		0.68			0.95			1.36		1.85

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 March 31,						Three months ended June 30,						Six months ended June 30,
(in thousands)	2019			2018			2019			2018			2019			2018
Net income	$	16,156		$	20,921		$	18,424		$	22,251		$	34,580		$	43,172
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 $3,774 and $(2,265), respectively	11,504			(6,904		)
Less: Reclassification adjustment for realized gains (losses) on sale of securities available for sale included in net income, net of income tax expense (benefit) for three months of ($72) and $2, respectively	220			(7		)
Unrealized loss on cash flow hedges arising during the period, net of income tax benefit of $312	(952		)	—
Unrealized gains (losses) on investment securities arising during the period, net of income tax expense (benefit) for three months of $4,213 and $(333), and for six months of $7,987 and $(2,598), respectively							12,845			(1,017		)	24,349			(7,921		)
Less: Reclassification adjustment for realized gains (losses) on sale of securities available for sale included in net income, net of income tax expense (benefit) for six months of $(72) and $2, respectively							—			—			220			(7		)
Unrealized loss on cash flow hedges arising during the 2019 periods, net of income tax benefit for three months of $413 and for six months of $726							(1,261		)	—			(2,213		)	—
Total other comprehensive income (loss)	10,772			(6,911		)	11,584			(1,017		)	22,356			(7,928		)
Total comprehensive income	$	26,928		$	14,010		$	30,008		$	21,234		$	56,936		$	35,244

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 March 31, 2019																		$	280	$	(42,655	)	$	521,761		$	316,959		$	1,490		$	797,835
Net income																		—		—			—			18,424			—			18,424
Other comprehensive income																		—		—			—			—			11,584			11,584
Total comprehensive income																		—		—			—			18,424			11,584			30,008
Cash dividends paid on common shares, $0.15 per share																		—		—			—			(4,035		)	—			(4,035		)
Issuance under equity compensation plans, 28,341 shares, net																		—		—			707			—			—			707
Share-based compensation																		—		—			986			—			—			986
Balance at June 30, 2019																		$	280	$	(42,655	)	$	523,454		$	331,348		$	13,074		$	825,501

Balance at December 31, 2018	$	239	$	(42,655	)	$	350,936		$	304,566		$	(9,282	)	$	603,804		$	239	$	(42,655	)	$	350,936		$	304,566		$	(9,282	)	$	603,804
Net income	—		—			—			16,156			—			16,156			—		—			—			34,580			—			34,580
Other comprehensive income	—		—			—			—			10,772			10,772			—		—			—			—			22,356			22,356
Total comprehensive income	—		—			—			16,156			10,772			26,928			—		—			—			34,580			22,356			56,936
Cash dividends paid on common shares, $0.14 per share	—		—			—			(3,763		)	—			(3,763		)
Issuance under equity compensation plans, 75,089 shares, net	1		—			(1,941		)	—			—			(1,940		)
Cash dividends paid on common shares, $0.29 per share																		—		—			—			(7,798		)	—			(7,798		)
Issuance under equity compensation plans, 103,430 shares, net																		1		—			(1,234		)	—			—			(1,233		)
Share-based compensation	—		—			921			—			—			921			—		—			1,907			—			—			1,907
Shares issued in connection with acquisition of Trinity Capital Corporation, 3,990,822 shares	40		—			171,845			—			—			171,885			40		—			171,845			—			—			171,885
Balance at March 31, 2019	$	280	$	(42,655	)	$	521,761		$	316,959		$	1,490		$	797,835

Balance at June 30, 2019																		$	280	$	(42,655	)	$	523,454		$	331,348		$	13,074		$	825,501

(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 March 31, 2018																		$	239	$	(26,326	)	$	348,092		$	244,573		$	(11,563	)	$	555,015
Net income																		—		—			—			22,251			—			22,251
Other comprehensive loss																		—		—			—			—			(1,017		)	(1,017		)
Total comprehensive income (loss)																		—		—			—			22,251			(1,017		)	21,234
Cash dividends paid on common shares, $0.11 per share																		—		—			—			(2,544		)	—			(2,544		)
Issuance under equity compensation plans, 32,959 shares, net																		—		—			(534		)	—			—			(534		)
Share-based compensation																		—		—			913			—			—			913
Balance at June 30, 2018																		$	239	$	(26,326	)	$	348,471		$	264,280		$	(12,580	)	$	574,084

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	—		—			—			20,921			—			20,921			—		—			—			43,172			—			43,172
Other comprehensive loss	—		—			—			—			(6,911		)	(6,911		)	—		—			—			—			(7,928		)	(7,928		)
Total comprehensive income (loss)	—		—			—			20,921			(6,911		)	14,010			—		—			—			43,172			(7,928		)	35,244
Cash dividends paid on common shares, $0.11 per share	—		—			—			(2,542		)	—			(2,542		)
Cash dividends paid on common shares, $0.22 per share																		—		—			—			(5,086		)	—			(5,086		)
Repurchase of common shares	—		(3,058		)	—			—			—			(3,058		)	—		(3,058		)	—			—			—			(3,058		)
Issuance under equity compensation plans, 86,598 shares, net	1		—			(2,687		)	—			—			(2,686		)
Issuance under equity compensation plans, 119,557 shares, net																		1		—			(3,221		)	—			—			(3,220		)
Share-based compensation	—		—			718			—			—			718			—		—			1,631			—			—			1,631
Reclassification adjustment for change in accounting policies	—		—			—			834			(834		)	—			—		—			—			834			(834		)	—
Balance at March 31, 2018	$	239	$	(26,326	)	$	348,092		$	244,573		$	(11,563	)	$	555,015
Balance at June 30, 2018																		$	239	$	(26,326	)	$	348,471		$	264,280		$	(12,580	)	$	574,084

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)


	Three months ended March 31,						Six months ended June 30,
(in thousands, except share data)	2019			2018			2019			2018
Cash flows from operating activities:
Net income	$	16,156		$	20,921		$	34,580		$	43,172
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	1,162			849			2,743			1,707
Provision for loan losses	1,476			1,870			3,198			2,261
Deferred income taxes	2,727			2,290			3,813			3,156
Net amortization of debt securities	407			533			1,189			956
Amortization of intangible assets	838			656			2,418			1,288
Loss (gain) on sale of investment securities	292			(9		)	292			(9		)
Mortgage loans originated for sale	(4,087		)	(12,389		)	(11,645		)	(25,064		)
Proceeds from mortgage loans sold	3,825			13,917			10,629			27,070
Gain on sale of other real estate	(66		)	—			(48		)	—
Gain on state tax credits, net	(158		)	(252		)	(107		)	(316		)
Share-based compensation	921			718			1,907			1,631
Net accretion of loan discount	(596		)	(467		)
Accretion of loan discount							(4,702		)	(793		)
Changes in:
Accrued interest receivable	(6,210		)	(3,209		)	(6,942		)	(3,739		)
Accrued interest payable	884			315			354			154
Other assets	(104		)	(888		)	(9,697		)	(809		)
Other liabilities	(1,755		)	(2,640		)	(7,415		)	1,203
Net cash provided by operating activities	15,712			22,215			20,567			51,868
Cash flows from investing activities:
Acquisition cash purchase price, net of cash and cash equivalents acquired	(23,376		)	—			(23,377		)	—
Net decrease (increase) in loans	13,855			(93,125		)
Increase in loans							(121,115		)	(178,386		)
Proceeds from the sale of securities, available for sale	259,420			1,451			263,298			1,451
Proceeds from the paydown or maturity of securities, available for sale	27,684			19,683			58,229			40,743
Proceeds from the paydown or maturity of securities, held to maturity	1,269			1,639			2,864			3,239
Proceeds from the redemption of other investments	11,744			13,514			31,138			22,728
Proceeds from the sale of state tax credits held for sale	2,381			1,356			2,252			1,940
Proceeds from the sale of other real estate	66			—			2,281			—
Payments for the purchase/origination of:
Payments for the purchase of:
Available for sale debt securities	(221,711		)	(40,313		)	(363,900		)	(62,055		)
Other investments	(14,977		)	(17,864		)	(43,589		)	(33,719		)
State tax credits held for sale	(1,852		)	—			(1,852		)	(4,636		)
Fixed assets, net	(1,268		)	(370		)	(2,236		)	(1,915		)
Net cash provided by (used in) investing activities	53,235			(114,029		)
Net cash used in investing activities							(196,007		)	(210,610		)
Cash flows from financing activities:
Net decrease in noninterest-bearing deposit accounts	(83,290		)	(22,202		)	(88,219		)	(72,938		)
Net (increase) decrease in interest-bearing deposit accounts	(48,770		)	147,165
Net increase (decrease) in interest-bearing deposit accounts							(21,615		)	164,436
Proceeds from Federal Home Loan Bank advances	364,525			484,500			962,000			907,500
Repayments of Federal Home Loan Bank advances	(259,500		)	(432,500		)	(649,500		)	(718,500		)
Proceeds from notes payable	40,000			—			40,000			—
Repayments of notes payable	(2,000		)	—			(4,857		)	—
Net decrease in other borrowings	(49,279		)	(87,085		)	(60,490		)	(86,458		)
Cash dividends paid on common stock	(3,763		)	(2,542		)	(7,798		)	(5,086		)
Payments for the repurchase of common stock	—			(3,058		)	—			(3,058		)
Payments for the issuance of equity instruments, net	(1,940		)	(2,686		)	(1,233		)	(3,220		)
Net cash (used in) provided by financing activities	(44,017		)	81,592
Net increase (decrease) in cash and cash equivalents	24,930			(10,222		)
Net cash provided by financing activities							168,288			182,676
Net increase in cash and cash equivalents							(7,152		)	23,934
Cash and cash equivalents, beginning of period	196,552			153,323			196,552			153,323
Cash and cash equivalents, end of period	$	221,482		$	143,101		$	189,400		$	177,257
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	14,020		$	8,677		$	32,036		$	19,670
Income taxes	—			685			11,915			780
Noncash transactions:
Transfer to other real estate owned in settlement of loans	$	1,372		$	—		$	7,783		$	—
Common shares issued in connection with acquisition	171,885			—			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”) 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 Arizona, Kansas, Missouri, and New Mexico markets through its banking subsidiary, Enterprise Bank & Trust (the “Bank”).

Operating results for the three and six months ended ~~March 31,~~June 30, 2019 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2019. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 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”) 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.

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

During the first quarter of 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 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 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 relies on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. The results of operations of the acquired business are included in the Company’s consolidated financial statements from the 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 noninterest income from loans, investment securities and derivative financial instruments is also excluded from this guidance. Service charges on deposit accounts, wealth management revenue, card services revenue, and gain 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.

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.

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.

~~As required by ASC 815, the~~The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. ~~Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation.~~ 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 fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting.

The Company does not offset derivative asset and liability positions. However, the 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 Secured Overnight Funding Rate ("SOFR") replace ~~USD-LIBOR.~~LIBOR. ARRC has proposed that the transition to SOFR from ~~USD-LIBOR~~LIBOR will take place by the end of 2021. The Company has material contracts ~~that are~~ indexed to ~~USD-LIBOR.~~LIBOR. Industry organizations are currently working on the transition plan. The Company is ~~currently~~ 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 six full-service retail and commercial banking offices in Los Alamos, Santa Fe, and Albuquerque, New Mexico.

Trinity shareholders received cash consideration ~~in an amount~~ 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 ~~also~~ recognized ~~$7.3~~$17.6 million and $1.3 million of merger related costs ~~that were~~ recorded in noninterest expense in the statement of operations for the ~~three~~six months ended ~~March 31,~~June 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 acquisition date. The estimates of fair value are preliminary and subject to refinement as the Company completes its evaluation of the acquired assets and liabilities. Goodwill of ~~$90.3~~$93.9 million arising from the acquisition consists largely of the synergies and 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 be deductible for income tax purposes.

The following table presents the assets acquired and liabilities assumed of Trinity as of March 8, 2019. The following information is presented on a provisional basis based upon all information available to the Company at the present time and is subject to change, and such changes could be material. The Company continues to review the underlying assumptions and valuation techniques utilized to calculate the fair value of certain definite-lived intangibles, loans, goodwill and deferred income taxes. Additional adjustments may be recorded during the allocation period specified by ASC 805 as additional information becomes known.

Adjustments in the second quarter of 2019 increased goodwill by $3.6 million.


(in thousands)	As Recorded by TCC		Adjustments				As Recorded by EFSC		As Recorded by Trinity		Adjustments				As Recorded by EFSC
Assets acquired:
Cash and cash equivalents	$	13,899	$	—			$	13,899	$	13,899	$	—			$	13,899
Interest-earning deposits greater than 90 days	100		—				100		100		—				100
Securities	428,715		(414		)	(a)	428,301		428,715		(619		)	(a)	428,096
Loans, net	705,057		(21,493		)	(b)	683,564
Loans									705,057		(20,743		)	(b)	684,314
Other real estate	5,284		(321		)	(c)	4,963		5,284		(772		)	(c)	4,512
Other investments	6,673		—				6,673		6,673		—				6,673
Fixed assets, net	27,586		500			(d)	28,086
Fixed assets									27,586		(300		)	(d)	27,286
Accrued interest receivable	3,997		—				3,997		3,997		—				3,997
Intangible assets	—		23,333			(e)	23,333		—		23,066			(e)	23,066
Deferred tax assets	10,708		2			(f)	10,710		10,708		(1,057		)	(f)	9,651
Other assets	35,045		(2,947		)	(g)	32,098		35,045		(5,008		)	(g)	30,037
Total assets acquired	$	1,237,064	$	(1,340	)		$	1,235,724	$	1,237,064	$	(5,433	)		$	1,231,631

Liabilities assumed:
Deposits	$	1,081,151	$	36		(h)	$	1,081,187	$	1,081,151	$	36		(h)	$	1,081,187
Subordinated debentures	26,806		(4,325		)	(i)	22,481		26,806		(3,972		)	(i)	22,834
Federal Home Loan Bank advances	6,800		171			(j)	6,971		6,800		171			(j)	6,971
Accrued interest payable	370		—				370		370		—				370
Other liabilities	5,842		—				5,842		5,842		(827		)	(k)	5,015
Total liabilities assumed	$	1,120,969	$	(4,118	)		$	1,116,851	$	1,120,969	$	(4,592	)		$	1,116,377

Net assets acquired	$	116,095	$	2,778			$	118,873	$	116,095	$	(841	)		$	115,254

Consideration paid:
Cash							$	37,276							$	37,275
Common stock							171,884								171,885
Total consideration paid							$	209,160							$	209,160

Goodwill							$	90,287							$	93,906

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


~~(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)	~~Recording of~~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 ~~three~~six months ended ~~March 31,~~June 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 ~~March 31,~~June 30, 2019 are included in net income in the table below.



	Pro Forma
	Six months ended June 30,
(in thousands, except per share data)	2019		2018
Total revenues (net interest income plus noninterest income)	$	144,915	$	140,612
Net income	48,987		33,616
Diluted earnings per common share	1.65		1.23

Pro Forma
Three months ended March 31,
(in thousands, except per share data) 2019 2018
Total revenues (net interest income plus noninterest income) $ 71,983
$ 68,874
Net income 23,100
15,009
Diluted earnings per common share 0.82
0.55

NOTE 3 - 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 June 30,				Six months ended June 30,
(in thousands, except per share data)	2019		2018		2019		2018
Net income as reported	$	18,424	$	22,251	$	34,580	$	43,172

Weighted average common shares outstanding	26,887		23,124		25,415		23,119
Additional dilutive common stock equivalents	53		194		73		213
Weighted average diluted common shares outstanding	26,940		23,318		25,488		23,332

Basic earnings per common share:	$	0.69	$	0.96	$	1.36	$	1.87
Diluted earnings per common share:	0.68		0.95		$	1.36	$	1.85

Three months ended
March 31,
(in thousands, except per share data) 2019 2018
Net income as reported $ 16,156
$ 20,921

Weighted average common shares outstanding 23,927
23,115
Additional dilutive common stock equivalents 156
172
Weighted average diluted common shares outstanding 24,083
23,287

Basic earnings per common share: $ 0.68
$ 0.91
Diluted earnings per common share: 0.67
0.90

For the three and six months ended ~~March 31,~~June 30, 2019 ~~and 2018,~~ there were ~~122,270~~approximately 130,000 and 0,99,000, respectively, common stock equivalents 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 4 - 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:



	June 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	$	49,998	$	153	$	—		$	50,151
Obligations of states and political subdivisions	114,173		4,523		—			118,696
Agency mortgage-backed securities	911,770		14,122		(1,845		)	924,047
U.S. Treasury bills	9,966		239		—			10,205
Corporate debt securities	116,434		3,519		—			119,953
Total securities available for sale	$	1,202,341	$	22,556	$	(1,845	)	$	1,223,052
Held to maturity securities:
Obligations of states and political subdivisions	$	12,474	$	160	$	(1	)	$	12,633
Agency mortgage-backed securities	50,251		251		(74		)	50,428
Total securities held to maturity	$	62,725	$	411	$	(75	)	$	63,061

March 31, 2019
(in thousands) Amortized Cost Gross
Unrealized Gains Gross
Unrealized Losses Fair Value
Available for sale securities:
Obligations of U.S. Government-sponsored enterprises $ 54,128
$ —
$ (347 ) $ 53,781
Obligations of states and political subdivisions 114,770
2,218
(3 ) 116,985
Agency mortgage-backed securities 895,899
6,461
(4,816 ) 897,544
U.S. Treasury bills 9,964
113
—
10,077
Corporate debt securities 20,768
30
—
20,798
Total securities available for sale $ 1,095,529
$ 8,822
$ (5,166 ) $ 1,099,185
Held to maturity securities:
Obligations of states and political subdivisions $ 12,490
$ 91
$ (20 ) $ 12,561
Agency mortgage-backed securities 51,878
11
(303 ) 51,586
Total securities held to maturity $ 64,368
$ 102

$ (323 )
$ 64,147



	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, 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

At ~~March 31,~~June 30, 2019, and December 31, 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 ~~$478.8~~$460.7 million and $433.7 million at ~~March 31,~~June 30, 2019, and December 31, 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 ~~March 31,~~June 30, 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 4 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	$	1,571	$	1,579	$	—	$	—
Due after one year through five years	67,794		68,369		3,883		3,931
Due after five years through ten years	127,156		131,019		8,591		8,702
Due after ten years	94,050		98,038		—		—
Agency mortgage-backed securities	911,770		924,047		50,251		50,428
	$	1,202,341	$	1,223,052	$	62,725	$	63,061

Available for sale Held to maturity
(in thousands) Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value
Due in one year or less $ 1,876
$ 1,888
$ —
$ —
Due after one year through five years 67,451
67,377
2,534
2,546
Due after five years through ten years 31,819
32,135
9,957
10,015
Due after ten years 98,484
100,241
—
—
Agency mortgage-backed securities 895,899
897,544
51,877
51,586
$ 1,095,529
$ 1,099,185

$ 64,368

$ 64,147

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



	June 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	386		1		839		—		1,225		1
Agency mortgage-backed securities	17,122		300		178,017		1,619		195,139		1,919
	$	17,508	$	301	$	178,856	$	1,619	$	196,364	$	1,920

	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

March 31, 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 U.S. Government-sponsored enterprises $ 19,854
$ 95
$ 29,796
$ 252
$ 49,650
$ 347
Obligations of states and political subdivisions 680
10
2,949
13
3,629
23
Agency mortgage-backed securities 47,506
685
326,319
4,434
373,825
5,119
$ 68,040
$ 790

$ 359,064

$ 4,699

$ 427,104

$ 5,489

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

The unrealized losses at both ~~March 31,~~June 30, 2019, and December 31, 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 ~~March 31,~~June 30, 2019, management performed its quarterly analysis of all securities with an unrealized loss and concluded no individual securities were other-than-temporarily impaired.

NOTE 5 - 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”) 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)	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Loans accounted for at amortized cost	$	4,894,574	$	4,303,600	$	5,046,182	$	4,303,600
Loans accounted for as PCI	122,503		46,401		103,315		46,401
Total loans	$	5,017,077	$	4,350,001	$	5,149,497	$	4,350,001

At ~~March 31,~~June 30, 2019, loans acquired in the Trinity acquisition included ~~$602~~$600 million accounted for at amortized cost and ~~$80~~$68 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)	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Allowance for loans accounted for at amortized cost	$	41,945	$	42,295	$	42,935	$	42,295
Allowance for loans accounted for as PCI	1,150		1,181		887		1,181
Total allowance for loan losses	$	43,095	$	43,476	$	43,822	$	43,476

The following tables ~~refer~~are not applicable to ~~loans accounted for at amortized cost.~~PCI loans.

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



(in thousands)	June 30, 2019			December 31, 2018
Commercial and industrial	$	2,248,571		$	2,121,008
Real estate:
Commercial - investor owned	1,198,308			843,728
Commercial - owner occupied	678,046			604,498
Construction and land development	396,370			330,097
Residential	395,828			298,944
Total real estate loans	2,668,552			2,077,267
Consumer and other	131,041			107,351
Loans, before unearned loan fees	5,048,164			4,305,626
Unearned loan fees, net	(1,982		)	(2,026		)
Loans, including unearned loan fees	$	5,046,182		$	4,303,600

(in thousands) March 31, 2019 December 31, 2018
Commercial and industrial $ 2,209,437
$ 2,121,008
Real estate:
Commercial - investor owned 1,144,868
843,728
Commercial - owner occupied 647,198
604,498
Construction and land development 358,884
330,097
Residential 416,731
298,944
Total real estate loans 2,567,681
2,077,267
Consumer and other 119,368
107,351
Loans, before unearned loan fees 4,896,486
4,305,626
Unearned loan fees, net (1,912 ) (2,026 )
Loans, including unearned loan fees $ 4,894,574
$ 4,303,600

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 ~~March 31,~~June 30, 2019, and at December 31, 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

(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



(in thousands)	Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Consumer and other		Total
Balance June 30, 2019
Allowance for loan losses - Ending balance:
Individually evaluated for impairment	$	2,402	$	165	$	9	$	—	$	23	$	—	$	2,599
Collectively evaluated for impairment	26,691		5,159		4,362		1,972		1,355		797		40,336
Total	$	29,093	$	5,324	$	4,371	$	1,972	$	1,378	$	797	$	42,935
Loans - Ending balance:
Individually evaluated for impairment	$	15,112	$	1,284	$	1,629	$	—	$	3,060	$	—	$	21,085
Collectively evaluated for impairment	2,233,459		1,197,024		676,417		396,370		392,768		129,059		5,025,097
Total	$	2,248,571	$	1,198,308	$	678,046	$	396,370	$	395,828	$	129,059	$	5,046,182

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 March 31, 2019
Allowance for loan losses - Ending balance:
Individually evaluated for impairment $ 2,199
$ 596
$ 119
$ —
$ —
$ —
$ 2,914
Collectively evaluated for impairment 26,461
4,743
3,655
1,699
1,625
848
39,031
Total $ 28,660
$ 5,339

$ 3,774

$ 1,699

$ 1,625

$ 848

$ 41,945
Loans - Ending balance:

Individually evaluated for impairment $ 7,205
$ 1,527
$ 2,296
$ —
$ 408
$ —
$ 11,436
Collectively evaluated for impairment 2,202,232
1,143,341
644,902
358,884
416,323
117,456
4,883,138
Total $ 2,209,437
$ 1,144,868

$ 647,198

$ 358,884

$ 416,731

$ 117,456

$ 4,894,574

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

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


	March 31, 2019												June 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	$	9,515	$	2,168	$	5,037	$	7,205	$	2,199	$	7,855	$	28,835	$	6,826	$	8,286	$	15,112	$	2,402	$	16,728
Real estate:
Commercial - investor owned	1,555		271		1,256		1,527		596		1,527		1,948		459		825		1,284		165		1,460
Commercial - owner occupied	484		467		—		467		—		471		405		231		155		386		9		393
Construction and land development	—		—		—		—		—		—		—		—		—		—		—		—
Residential	409		408		—		408		—		408		3,069		2,928		132		3,060		23		1,869
Consumer and other	—		—		—		—		—		—		—		—		—		—		—		—
Total	$	11,963	$	3,314	$	6,293	$	9,607	$	2,795	$	10,261	$	34,257	$	10,444	$	9,398	$	19,842	$	2,599	$	20,450



	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, 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



	Three months ended June 30,				Six months ended June 30,
(in thousands)	2019		2018		2019		2018
Total interest income that would have been recognized under original terms	$	210	$	467	$	647	$	1,001
Total cash received and recognized as interest income on non-accrual loans	123		78		185		89
Total interest income recognized on accruing, impaired loans	110		13		113		23

Three months ended March 31,
(in thousands) 2019 2018
Total interest income that would have been recognized under original terms $ 436
$ 534
Total cash received and recognized as interest income on non-accrual loans 62
11
Total interest income recognized on accruing, impaired loans 3
11

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


	March 31, 2019						June 30, 2019
(in thousands)	Non-accrual		Restructured, not on non-accrual		Total		Non-accrual		Restructured, accruing		Loans over 90 days past due and still accruing interest		Total
Commercial and industrial	$	7,094	$	111	$	7,205	$	11,009	$	104	$	3,999	$	15,112
Real estate:
Commercial - investor owned	1,527		—		1,527		1,284		—		—		1,284
Commercial - owner occupied	467		—		467		386		—		—		386
Construction and land development	—		—		—		—		—		—		—
Residential	328		80		408		2,980		80		—		3,060
Consumer and other	—		—		—		—		—		—		—
Total	$	9,416	$	191	$	9,607	$	15,659	$	184	$	3,999	$	19,842


	December 31, 2018						December 31, 2018
(in thousands)	Non-accrual		Restructured, not on non-accrual		Total		Non-accrual		Restructured, accruing		Total
Commercial and industrial	$	12,805	$	145	$	12,950	$	12,805	$	145	$	12,950
Real estate:
Commercial - investor owned	398		—		398		398		—		398
Commercial - owner occupied	808		—		808		808		—		808
Construction and land development	—		—		—		—		—		—
��Residential	2,197		80		2,277
Residential							2,197		80		2,277
Consumer and other	312		—		312		312		—		312
Total	$	16,520	$	225	$	16,745	$	16,520	$	225	$	16,745

At June 30, 2019, loans over 90 days past due and still accruing totaled $4.0 million. There were no loans over 90 days past due and still accruing ~~interest~~ at ~~March 31, 2019 and~~ December 31, 2018.

There were no ~~portfolio~~ loans restructured during the three and six months ended ~~March 31,~~June 30, 2018. The recorded investment by category for the portfolio loans that have been restructured during the three and six months ended June 30, 2019, ~~and 2018.~~is as follows:



	June 30, 2019
(in thousands, except for number of loans)	Number of loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate:
Commercial - owner occupied	1	188		188
Residential	2	332		332
Total	3	$	520	$	520

As of ~~March 31,~~June 30, 2019, the Company had ~~$1.2~~$1.0 million in specific reserves allocated to ~~$4.7 million of~~restructured loans totaling $3.5 million.

Restructured loans that ~~have been restructured. During~~subsequently defaulted during the three and six months ended ~~March 31,~~June 30, 2019 included one commercial and ~~2018, there~~industrial loan with a recorded balance of $272,000. There were no troubled debt ~~restructurings~~restructured loans that subsequently ~~defaulted.~~defaulted during the three and six months ended June 30, 2018.

The aging of the recorded investment in past due loans by portfolio class and category at ~~March 31,~~June 30, 2019 and December 31, 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	$	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, 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

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.

~~borrower is starting to reverse a negative trend or condition, or has recently been upgraded from a 7, 8, or 9 rating.~~

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 ~~March 31,~~June 30, 2019, which is based upon the most recent analysis performed, and December 31, 2018, is as follows:



	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, 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

Below is a summary of PCI loans by category at ~~March 31,~~June 30, 2019 which includes preliminary fair value adjustments related to the Trinity acquisition and December 31, 2018:



	June 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	5.80	$	16,909	6.09	$	2,159
Real estate:
Commercial - investor owned	6.94	41,988		7.19	23,939
Commercial - owner occupied	6.68	22,616		7.39	9,669
Construction and land development	5.74	8,187		6.03	4,548
Residential	6.29	13,372		6.40	6,082
Total real estate loans		86,163			44,238
Consumer and other	5.11	243		2.18	4
Total		$	103,315		$	46,401
¹Risk ratings are based on the borrower’s contractual obligation, which is not reflective of the purchase discount.

March 31, 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 4.75 $ 17,613
6.09 $ 2,159
Real estate:
Commercial - investor owned 6.68 42,948
7.19 23,939
Commercial - owner occupied 6.81 35,026
7.39 9,669
Construction and land development 6.16 10,481
6.03 4,548
Residential 6.20 16,171
6.40 6,082
Total real estate loans 122,239
46,397
Consumer and other 3.58 264
2.18 4
Total $ 122,503
$ 46,401
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 ~~March 31,~~June 30, 2019 and December 31, 2018, is shown below:


	March 31, 2019										June 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	$	945	$	—	$	945	$	16,668	$	17,613	$	1,525	$	—	$	1,525	$	15,384	$	16,909
Real estate:
Commercial - investor owned	1,580		1,868		3,448		39,500		42,948		1,317		1,917		3,234		38,754		41,988
Commercial - owner occupied	751		6,358		7,109		27,917		35,026		—		1,381		1,381		21,235		22,616
Construction and land development	152		258		410		10,071		10,481		70		154		224		7,963		8,187
Residential	1,648		849		2,497		13,674		16,171		226		235		461		12,911		13,372
Consumer and other	—		—		—		264		264		—		—		—		243		243
Total	$	5,076	$	9,333	$	14,409	$	108,094	$	122,503	$	3,138	$	3,687	$	6,825	$	96,490	$	103,315



	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, 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

The following table is a roll forward of PCI loans, net of the allowance for loan losses, for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 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	(19,285		)	—			—			(19,285		)
Accretion of loan discount	—			—			(4,645		)	4,645
Changes in contractual and expected cash flows due to remeasurement	7,725			(2,057		)	627			9,155
Reductions due to disposals	(8,709		)	(3,224		)	5			(5,490		)
Balance June 30, 2019	$	164,851		$	23,560		$	38,863		$	102,428

Balance December 31, 2017	$	112,710		$	29,005		$	13,964		$	69,741
Principal reductions and interest payments	(22,667		)	—			—			(22,667		)
Accretion of loan discount	—			—			(3,400		)	3,400
Changes in contractual and expected cash flows due to remeasurement	3,281			(8,771		)	4,124			7,928
Balance June 30, 2018	$	93,324		$	20,234		$	14,688		$	58,402

(in thousands) Contractual Cashflows Non-accretable Difference Accretable Yield Carrying Amount
Balance December 31, 2018 $ 73,157
$ 15,299
$ 12,638
$ 45,220
Acquisitions 120,713
11,531
28,520
80,662
Principal reductions and interest payments (10,033 ) —
—
(10,033 )
Accretion of loan discount —
—
(1,603 ) 1,603
Changes in contractual and expected cash flows due to remeasurement 4,081
(6 ) 94
3,993
Reductions due to disposals (120 ) (28 ) —
(92 )
Balance March 31, 2019 $ 187,798
$ 26,796

$ 39,649

$ 121,353

Balance December 31, 2017 $ 112,710
$ 29,005
$ 13,962
$ 69,743
Principal reductions and interest payments (12,142 ) —
—
(12,142 )
Accretion of loan discount —
—
(1,755 ) 1,755
Changes in contractual and expected cash flows due to remeasurement 2,863
—
—
2,863
Balance March 31, 2018 $ 103,431
$ 29,005

$ 12,207

$ 62,219

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 $151.1 million and $64.7 million as of ~~March 31,~~June 30, 2019, and December 31, 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 the leases are classified as operating leases.

For the three months ended
(in thousands) March 31, 2019
Operating lease cost $ 806
Short-term lease cost 35
Less: sublease income $ (88 )
Total lease cost $ 753

For the three months ended
(in thousands) March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Payments on operating leases $ 861

Supplemental balance sheet information related to leases was as follows:



	As of
(in thousands)	June 30, 2019
Operating lease right-of-use assets	$	14,164
Operating lease liabilities	14,815

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

As of
(in thousands) March 31, 2019
Operating lease right-of-use assets $ 14,858
Operating lease liabilities 15,462

Operating leases
Weighted average remaining lease term 6 years
Weighted average discount rate 3.0 %

Maturities of operating lease liabilities were as follows:



(in thousands)
Year	Amount
2019	$	1,618
2020	3,246
2021	3,272
2022	2,709
2023	2,106
Thereafter	3,143
Total operating lease liabilities, payments	16,094
Less: present value adjustment	1,279
Operating lease liabilities	$	14,815

As of ~~March 31,~~June 30, 2019, we have an operating lease amendment for the expansion of an existing facility that has not yet commenced. This amendment will commence in 2019 with a lease term of 8 years.

During the quarter ended June 30, 2019, we executed an agreement, as landlord, to lease a portion of an owned building. The agreement will commence in the third quarter of 2019. The initial term is for 7 years, with an annual rental income of $1.3 million.

NOTE 7 - 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 ~~March 31,~~June 30, 2019, the amount of unadvanced commitments on impaired loans was insignificant.

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



(in thousands)	June 30, 2019		December 31, 2018
Commitments to extend credit	$	1,393,782	$	1,344,687
Letters of credit	52,060		44,665

(in thousands) March 31, 2019 December 31, 2018
Commitments to extend credit $ 1,411,819
$ 1,344,687
Letters of credit 53,645
44,665

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments usually have fixed expiration dates or other termination clauses, may have significant usage restrictions, and may require payment of a fee. Of the total commitments to extend credit at ~~March 31,~~June 30, 2019, and December 31, 2018, approximately ~~$122.1~~$134.3 million and $68.5 million, respectively, represent fixed rate loan commitments. Since certain of the commitments may expire without being drawn upon or may be revoked, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, premises and equipment, and real estate. Other liabilities includes $0.4 million for estimated losses attributable to the unadvanced commitments at ~~March 31,~~June 30, 2019, and December 31, 2018.

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 ~~March 31,~~June 30, 2019, the approximate remaining terms of standby letters of credit range from 1 month to 5 years.

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 8 - 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 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 to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings. The Company does not enter into derivative financial instruments for trading purposes.

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 primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During 2019, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. These cash flow hedges swap variable 90 day LIBOR to a fixed rate of 2.62% on average for an average term of six years.

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

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 the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings as a component of other noninterest income.

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

The ~~table~~tables below ~~presents~~present the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income for the three and six months ended ~~March 31, 2019 and~~June 30, 2019. The Company did not have cash flow hedging instruments in 2018.



	Amount of Gain or (Loss) Recognized in OCI on Derivative			Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
(in thousands)	Six months ended June 30, 2019				Six months ended June 30, 2019
Derivatives in Cash Flow Hedging Relationships
Interest rate swap	$	(2,939	)	Interest Expense	$	(6	)
Total	$	(2,939	)		$	(6	)

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s ~~derivatives~~financial instruments that are subject to offsetting as of ~~March 31,~~June 30, 2019 and December 31, 2018. The gross amounts of ~~derivative~~ assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that ~~derivative~~financial assets and liabilities are presented on the Balance Sheet.



As of June 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	$	10,511	$	—	$	10,511	$	97	$	—	$	10,413

Liabilities:
Interest rate swap	$	14,325	$	—	$	14,325	$	97	$	13,982	$	246
Securities sold under agreements to repurchase	160,961		—		160,961		—		160,961		—

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 March 31, 2019
Assets 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
Interest rate swap $ 5,277
$ —
$ 5,277
$ 657
$ —
$ 4,620

Liabilities 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 Liabilities presented in the Statement of Financial Position Financial Instruments Fair Value Collateral Posted Net Amount
Interest rate swap $ 6,541
$ —
$ 6,541
$ 657
$ 5,216
$ 668
Securities sold under agreements to repurchase 172,171
—
172,171
—
172,171
—

As of December 31, 2018
Assets 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
Interest rate swap $ 2,217
$ —
$ 2,217
$ —
$ —
$ 2,217

Liabilities 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 Liabilities presented in the Statement of Financial Position Financial Instruments Fair Value Collateral Posted Net Amount
Interest rate swap $ 2,217
$ —
$ 2,217
$ —
$ —
$ 2,217
Securities sold under agreements to repurchase 221,450
—
221,450
—
221,450
—

As of ~~March 31,~~June 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 ~~$5.2~~$14.3 million. ~~As of March 31, 2019,~~Further, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of ~~$5.2~~$14.2 million.

NOTE 9 - FAIR VALUE MEASUREMENTS

~~Below is a description of certain assets and liabilities measured at fair value.~~

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



	June 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	$	—	$	50,151	$	—	$	50,151
Obligations of states and political subdivisions	—		118,696		—		118,696
Agency mortgage-backed securities	—		924,047		—		924,047
U.S. Treasury bills	—		10,205		—		10,205
Corporate debt securities	—		119,953				119,953
Total securities available for sale	—		1,223,052		—		1,223,052
Other investments	145		—		—		145
Derivatives	—		11,124		—		11,124
Total assets	$	145	$	1,234,176	$	—	$	1,234,321

Liabilities
Derivatives	$	—	$	14,938	$	—	$	14,938
Total liabilities	$	—	$	14,938	$	—	$	14,938

March 31, 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 $ —
$ 53,781
$ —
$ 53,781
Obligations of states and political subdivisions —
116,985
—
116,985
Agency mortgage-backed securities —
897,544
—
897,544
U.S. Treasury bills —
10,077
—
10,077
Corporate debt securities —
20,798
20,798
Total securities available for sale —
1,099,185

—

1,099,185
Other investments 145
—
—
145
Derivatives —
6,703
—
6,703
Total assets $ 145
$ 1,105,888

$ —

$ 1,106,033

Liabilities

Derivatives $ —
$ 7,967
$ —
$ 7,967
Total liabilities $ —
$ 7,967

$ —

$ 7,967



	December 31, 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	$	—	$	98,498	$	—	$	98,498
Obligations of states and political subdivisions	—		26,810		—		26,810
Agency mortgage-backed securities	—		586,136		—		586,136
U.S. Treasury bills	—		9,925		—		9,925
Total securities available for sale	—		721,369		—		721,369
Other investments	121		—		—		121
Derivatives	—		3,023		—		3,023
Total assets	$	121	$	724,392	$	—	$	724,513

Liabilities
Derivatives	$	—	$	3,023	$	—	$	3,023
Total liabilities	$	—	$	3,023	$	—	$	3,023

~~Securities available for sale~~. Securities classified as available for sale are reported at fair value utilizing Level 2 and Level 3 inputs. Fair values for Level 2 securities are based upon dealer quotes, market spreads, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions at the security level. Changes in fair value are recognized through accumulated other comprehensive income.

~~Other investments.~~ At March 31, 2019, of the $34.9 million of other investments on the condensed consolidated balance sheet, approximately $0.2 million was carried at fair value. The remaining $34.7 million of other investments were accounted for at cost. Other investments reported at fair value represent equity securities with quoted market prices (Level 1). Changes in fair value are recognized in net income.

~~Derivatives~~. The Company uses interest rate swaps as part of its cash flow strategy to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques as discussed further below. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The estimates of fair value are made using a standardized methodology that nets the discounted expected future cash receipts and cash payments (based on observable market inputs). Derivatives are reported at fair value utilizing Level 2 inputs.

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 ~~March 31,~~June 30, 2019 and 2018.


	State tax credits held for sale					State tax credits held for sale
	Three months ended March 31,					Three months ended June 30,					Six months ended June 30,
(in thousands)	2019		2018			2019		2018			2019		2018
Beginning balance	$	—	$	400		$	—	$	350		$	—	$	400
Total gains:
Included in earnings	—		3			—		3			—		6
Purchases, sales, issuances and settlements:
Sales	—		(53		)	—		(54		)	—		(107		)
Ending balance	$	—	$	350		$	—	$	299		$	—	$	299

Change in unrealized gains (losses) relating to assets still held at the reporting date	$	—	$	(13	)	$	—	$	(13	)	$	—	$	(26	)

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. ~~There were no financial instruments and non-financial assets measured at fair value on a non-recurring basis as of March 31, 2019.~~




	(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 June 30, 2019		Total losses for the six months ended June 30, 2019
Impaired loans	$	1,054	$	—	$	—	$	1,054	$	1,199	$	1,199
Total	$	1,054	$	—	$	—	$	1,054	$	1,199	$	1,199

(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 ~~March 31,~~June 30, 2019 and December 31, 2018. Fair values that are not estimable are listed at the carrying value.



	June 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	$	106,835	$	106,835	$	91,511	$	91,511
Federal funds sold	2,744		2,744		1,714		1,714
Interest-bearing deposits	82,571		82,571		106,512		106,512
Securities available for sale	1,223,052		1,223,052		721,369		721,369
Securities held to maturity	62,725		63,061		65,679		63,934
Other investments, at cost	42,990		42,990		26,654		26,654
Loans held for sale	1,437		1,437		392		392
Derivative financial instruments	11,124		11,124		3,023		3,023
Portfolio loans, net	5,105,675		5,049,215		4,306,525		4,253,239
State tax credits, held for sale	37,294		39,037		37,587		39,169
Accrued interest receivable	27,008		27,008		16,069		16,069

Balance sheet liabilities
Deposits	5,559,338		5,536,456		4,587,985		4,583,047
Subordinated debentures and notes	141,100		132,301		118,156		106,316
Federal Home Loan Bank advances	389,446		389,471		70,000		70,000
Other borrowings	198,104		197,988		223,450		223,260
Derivative financial instruments	14,938		14,938		3,023		3,023
Accrued interest payable	2,701		2,701		1,977		1,977

March 31, 2019 December 31, 2018
(in thousands) Carrying Amount Estimated fair value Carrying Amount Estimated fair value
Balance sheet assets
Cash and due from banks $ 85,578
$ 85,578
$ 91,511
$ 91,511
Federal funds sold 1,934
1,934
1,714
1,714
Interest-bearing deposits 137,455
137,455
106,512
106,512
Securities available for sale 1,099,185
1,099,185
721,369
721,369
Securities held to maturity 64,368
64,147
65,679
63,934
Other investments, at cost 34,860
34,860
26,654
26,654
Loans held for sale 654
654
392
392
Derivative financial instruments 6,703
6,703
3,023
3,023
Portfolio loans, net 4,973,982
4,920,761
4,306,525
4,253,239
State tax credits, held for sale 37,215
39,355
37,587
39,169
Accrued interest receivable 26,276
26,276
16,069
16,069

Balance sheet liabilities
Deposits 5,537,113
5,532,053
4,587,985
4,583,047
Subordinated debentures and notes 140,668
131,634
118,156
106,316
Federal Home Loan Bank advances 180,466
180,463
70,000
70,000
Other borrowings 212,171
212,026
223,450
223,260
Derivative financial instruments 7,967
7,967
3,023
3,023
Accrued interest payable 3,231
3,231
1,977
1,977

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 ~~March 31,~~June 30, 2019, and December 31, 2018.



	Estimated Fair Value Measurement at Reporting Date Using						Balance at June 30, 2019
(in thousands)	Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity	$	—	$	63,031	$	—	$	63,031
Portfolio loans, net	—		—		5,049,215		5,049,215
State tax credits, held for sale	—		—		39,037		39,037
Financial Liabilities:
Deposits	4,736,768		—		799,688		5,536,456
Subordinated debentures and notes	—		132,301		—		132,301
Federal Home Loan Bank advances	—		389,471		—		389,471
Other borrowings	—		197,988		—		197,988

	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	—		223,260		—		223,260

Estimated Fair Value Measurement at Reporting Date Using Balance at March 31, 2019
(in thousands) Level 1 Level 2 Level 3
Financial Assets:
Securities held to maturity $ —
$ 64,147
$ —
$ 64,147
Portfolio loans, net —
—
4,920,761
4,920,761
State tax credits, held for sale —
—
39,355
39,355
Financial Liabilities:
Deposits 4,732,365
—
799,688
5,532,053
Subordinated debentures and notes —
131,634
—
131,634
Federal Home Loan Bank advances —
180,463
—
180,463
Other borrowings —
212,026
—
212,026

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 —
223,260
—
223,260

NOTE 10 - GOODWILL AND INTANGIBLE ASSETS

Goodwill increased ~~$90.3~~$93.9 million to ~~$207.6~~$211.3 million at ~~March 31,~~June 30, 2019 from $117.3 million at December 31, 2018 due to the acquisition of ~~Trinity.~~Trinity, including $3.6 million recorded in the second quarter of 2019 from continued refinement of the fair values.

The table below presents a summary of intangible assets:



	Six months ended
(in thousands)	June 30, 2019
Gross core deposit intangible balance, beginning of period	$	20,574
Additions	23,066
Gross core deposit intangible, end of period	43,640
Accumulated amortization	(14,439		)
Core deposit intangible, net, end of year	$	29,201

The following table reflects the expected amortization schedule for the core deposit intangible (in thousands) at ~~March 31,~~June 30, 2019.



Year	Core Deposit Intangible
2019	$	3,125
2020	5,608
2021	4,814
2022	4,085
2023	3,456
After 2023	8,113
	$	29,201

NOTE 11 - SUBORDINATED DEBENTURES

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

Amount

Maturity Date

Call Date

Interest Rate

(in thousands)

June 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)

7,953

8,019

February 22, 2031

February 22, 2011

Fixed @ 10.20%

JEFFCO Stat Trust II (1)

4,362

4,335

March 17, 2034

March 17, 2009

Floats @ 3MO LIBOR + 2.75%

Trinity Capital Trust III (1)

5,172

—

September 8, 2034

September 8, 2009

Floats @ 3MO LIBOR + 2.70%

Trinity Capital Trust IV (1)

10,284

—

November 23, 2035

August 23, 2010

Fixed @ 6.88%

Trinity Capital Trust V (1)

7,462

—

December 15, 2036

September 15, 2011

Floats @ 3MO LIBOR + 1.65%

Total junior subordinated debentures

92,040

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

(940

)

(1,005

)

Total fixed-to-floating rate subordinated notes

49,060

48,995

Total subordinated debentures and notes

141,100

118,156

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

Amount Maturity Date Call Date Interest Rate
(in thousands) March 31, 2019 December 31, 2018
EFSC Clayco Statutory Trust I $ 3,196
$ 3,196
December 17, 2033 December 17, 2008 Floats @ 3MO LIBOR + 2.85%
EFSC Capital Trust II 5,155
5,155
June 17, 2034 June 17, 2009 Floats @ 3MO LIBOR + 2.65%
EFSC Statutory Trust III 11,341
11,341
December 15, 2034 December 15, 2009 Floats @ 3MO LIBOR + 1.97%
EFSC Clayco Statutory Trust II 4,124
4,124
September 15, 2035 September 15, 2010 Floats @ 3MO LIBOR + 1.83%
EFSC Statutory Trust IV 10,310
10,310
December 15, 2035 December 15, 2010 Floats @ 3MO LIBOR + 1.44%
EFSC Statutory Trust V 4,124
4,124
September 15, 2036 September 15, 2011 Floats @ 3MO LIBOR + 1.60%
EFSC Capital Trust VI 14,433
14,433
March 30, 2037 March 30, 2012 Floats @ 3MO LIBOR + 1.60%
EFSC Capital Trust VII 4,124
4,124
December 15, 2037 December 15, 2012 Floats @ 3MO LIBOR + 2.25%
JEFFCO Stat Trust I (1) 7,986
8,019
February 22, 2031 February 22, 2011 Fixed @ 10.20%
JEFFCO Stat Trust II (1) 4,348
4,335
March 17, 2034 March 17, 2009 Floats @ 3MO LIBOR + 2.75%
Trinity Capital Trust III (1) 5,156
—
September 8, 2034 September 8, 2009 Floats @ 3MO LIBOR + 2.70%
Trinity Capital Trust IV (1) 9,921
—
November 23, 2035 August 23, 2010 Fixed @ 6.88%
Trinity Capital Trust V (1) 7,422
—
December 15, 2036 September 15, 2011 Floats @ 3MO LIBOR + 1.65%
Total junior subordinated debentures 91,640
69,161

Fixed-to-floating rate subordinated notes 50,000
50,000
November 1, 2026 November 1, 2021 Fixed @ 4.75% until
November 1, 2021, then floats @ 3MO LIBOR + 3.387%
Debt issuance costs (972 ) (1,005 )
Total fixed-to-floating rate subordinated notes 49,028
48,995

Total subordinated debentures and notes $ 140,668
$ 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 preliminary fair value of ~~$22.5~~$22.8 million to these junior subordinated debentures.

NOTE 12 - 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 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” In August 2018, the FASB issued ASU 2018-13, which changes the fair value measurement disclosure requirements of ASC 820. The amendments in this ASU are the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting — Chapter 8: Notes to Financial Statements, which the Board finalized on August 28, 2018. The Board used the guidance in the Concepts Statement, including consideration of costs and benefits, to improve the effectiveness of ASC 820’s disclosure requirements. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The Company has selected the option to adopt the removal or modification of disclosures during the second quarter of 2019. The Company is currently evaluating the ~~new guidance~~additional disclosures and has not yet determined the impact this standard may have on its consolidated financial statements.

FASB ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” In June 2016, the FASB issued ASU 2016-13, “Financial Instruments (Topic 326)” which changes the methodology for evaluating impairment of most financial instruments. The ASU replaces the currently used incurred loss model with a forward-looking expected loss model, which will generally result in a more timely recognition of losses. Existing PCI assets will be grandfathered and classified as purchased credit deteriorated (PCD) assets at the date of adoption. The PCD assets will be grossed up for the allowance for expected credit losses at the date of adoption and the noncredit discount will continue to be recognized in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses on PCD assets will be recorded through the allowance. The guidance becomes effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company has formed an implementation team that includes members of accounting, credit, and loan operations to review the requirements of ASU 2016-13, and has contracted with a software provider to aid in implementation. The Company has assessed its data and system needs, selected portfolio segmentations, and ~~has begun designing its financial~~is continuing to refine forecast inputs, document, test and evaluate the loss forecasting models ~~to estimate expected credit losses in accordance with the standard. Further development, testing and evaluation of said models is required~~ to determine the impact that adoption of this standard will have on the Company’s financial statements.

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

RESULTS OF OPERATIONS

Forward Looking Statements

Some of the information in this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements typically are identified with use of terms such as “may,” “might,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “could,” “continue” and the negative of these terms and similar words, although some forward-looking statements may be expressed differently. Forward-looking statements also include, but are not limited to, statements regarding plans, objectives, expectations or consequences of statements about the future performance, operations products and services of the Company and its subsidiaries. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including, but not limited to: our ability to efficiently integrate acquisitions into our operations, retain the customers of these businesses and grow the acquired operations; credit risk; changes in the appraised valuation of real estate securing impaired loans; outcomes of litigation and other contingencies; exposure to general and local economic conditions; risks associated with rapid increases or decreases in prevailing interest rates; consolidation within the banking industry; competition from banks and other financial institutions; our ability to attract and retain relationship officers and other key personnel; burdens imposed by federal and state regulation; changes in regulatory requirements; changes in accounting regulation or standards applicable to banks; and other risks discussed under the caption “Risk Factors” under Part 1, Item 1A of our 2018 Annual Report on Form 10-K or within this Form 10-Q, all of which could cause the Company’s actual results to differ from those set forth in the forward-looking statements.

Readers are cautioned not to place undue reliance on our forward-looking statements, which reflect management’s analysis and expectations only as of the date of such statements. Forward-looking statements speak only as of the date they are made, and the Company does not intend, and undertakes no obligation, to publicly revise or update forward-looking statements after the date of this report, whether as a result of new information, future events or otherwise, except as required by federal securities law. You should understand that it is not possible to predict or identify all risk factors. Readers should carefully review all disclosures we file from time to time with the Securities and Exchange Commission which are available on our website at www.enterprisebank.com under “Investor Relations.”

Introduction

The following discussion describes the significant changes to the financial condition of the Company that have occurred during the first ~~three~~six months of 2019 compared to the financial condition as of December 31, 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 six months ended ~~March 31,~~June 30, 2019, compared to the same periods in 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, 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 ~~since~~from this date forward and ~~therefore, were not included~~are excluded from preceding periods. See “Item 1, Note 2 – Acquisitions” for ~~the linked quarter ended December 31, 2018 and prior year period.~~ more information.

The following table presents the preliminary estimated 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	$	13,899
Interest-earning deposits greater than 90 days	100		100
Securities	428,301		428,096
Loans, net	683,564
Loans			684,314
Other real estate	4,963		4,512
Other investments	6,673		6,673
Fixed assets, net	28,086
Fixed assets			27,286
Accrued interest receivable	3,997		3,997
Intangible assets	23,333		23,066
Deferred tax assets	10,710		9,651
Other assets	32,098		30,037
Total assets acquired	$	1,235,724	$	1,231,631

Liabilities assumed:
Deposits	$	1,081,187	$	1,081,187
Subordinated debentures	22,481		22,834
FHLB advances	6,971		6,971
Accrued interest payable	370		370
Other liabilities	5,842		5,015
Total liabilities assumed	$	1,116,851	$	1,116,377

Net assets acquired	$	118,873	$	115,254

Consideration paid:
Cash	$	37,276	$	37,275
Common stock	171,884		171,885
Total consideration paid	$	209,160	$	209,160

Goodwill	$	90,287	$	93,906

Below are highlights of our financial performance for the three and six months ended ~~March 31,~~June 30, 2019 ~~as compared to the linked quarter ended December 31, 2018,~~ and ~~prior year period.~~2018.


(in thousands, except per share data)	At or for the three months ended									At or for the Three Months ended						For the Six Months ended
	March 31, 2019			December 31, 2018			March 31, 2018			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
EARNINGS
Total interest income	$	67,617		$	64,002		$	55,164		$	79,201		$	57,879		$	146,818		$	113,043
Total interest expense	15,274			13,409			8,993			17,486			10,831			32,760			19,824
Net interest income	52,343			50,593			46,171			61,715			47,048			114,058			93,219
Provision for portfolio loans	1,476			2,120			1,871			1,722			390			3,198			2,261
Net interest income after provision for loan losses	50,867			48,473			44,300			59,993			46,658			110,860			90,958
Total noninterest income	9,230			10,702			9,542			11,964			9,693			21,194			19,235
Total noninterest expense	39,838			30,747			29,143			49,054			29,219			88,892			58,362
Income before income tax expense	20,259			28,428			24,699			22,903			27,132			43,162			51,831
Income tax expense	4,103			4,899			3,778			4,479			4,881			8,582			8,659
Net income	$	16,156		$	23,529		$	20,921		$	18,424		$	22,251		$	34,580		$	43,172

Basic earnings per share	$	0.68		$	1.02		$	0.91		$	0.69		$	0.96		$	1.36		$	1.87
Diluted earnings per share	0.67			1.02			0.90			0.68			0.95			1.36			1.85

Return on average assets	1.10		%	1.69		%	1.59		%	1.05		%	1.65		%	1.07		%	1.62		%
Return on average common equity	9.89			15.61			15.31			9.09			15.70			9.45		%	15.51		%
Return on average tangible common equity¹	12.93			19.79			19.92			12.92			20.23			12.93		%	20.08		%
Net interest margin (tax equivalent)	3.87			3.94			3.80			3.86			3.77			3.87		%	3.79		%
Core net interest margin¹	3.79			3.77			3.74			3.80			3.75			3.80		%	3.74		%
Efficiency ratio	64.70			50.16			52.31			66.58			51.50			65.72		%	51.90		%
Core efficiency ratio¹	54.06			49.77			54.02			53.30			52.36			53.65		%	53.18		%
Book value per common share	$	29.68		$	26.47		$	24.02		$	30.68		$	24.81
Tangible book value per common share¹	20.80			20.95			18.49			21.74			19.32

ASSET QUALITY
Net charge-offs (recoveries)	$	1,826		$	2,822		$	(226	)
Net charge-offs										$	970		$	641		$	2,796		$	415
Nonperforming loans	9,607			16,745			15,582			19,842			14,801
Classified assets	79,750			70,126			77,195			91,715			74,001
Nonperforming loans to total loans	0.19		%	0.38		%	0.37		%	0.39		%	0.35		%
Nonperforming assets to total assets	0.24			0.30			0.30			0.42			0.28
Allowance for loan losses to total loans	0.86			1.00			1.07			0.85			1.04
Net charge-offs (recoveries) to average loans (annualized)	0.16			0.26			(0.02		)
Net charge-offs to average loans (annualized)										0.08			0.06			0.12		%	0.02		%

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

For the ~~three~~six months ended ~~March 31,~~June 30, 2019 compared to the ~~three~~six months ended ~~March 31,~~June 30, 2018, the Company noted the following trends:

~~The Company reported net income of $16.2 million, or $0.67~~

•

The Company reported net income of $34.6 million, or $1.36 per diluted share, for the six months ended June 30, 2019, compared to $43.2 million, or $1.85 per diluted share, for the same period in 2018. The earnings per share decrease of $0.49 primarily resulted from $17.6 million pretax ($13.7 million after tax), or $0.54 per diluted share, of merger-related expenses. Return on average assets (“ROAA”), return on average common equity (“ROAE”), and return on average tangible common equity¹ (“ROATCE”) were 1.07%, 9.45%, and

12.93%, respectively for the ~~three~~six months ended March 31, 2019, compared to $20.9 million, or $0.90 per diluted share, for the same period in 2018. The earnings per share decrease of $0.23 primarily resulted from $7.3 million pretax ($5.7 million after tax), or $0.24 per diluted share, of merger-related expenses. The issuance of shares related to the merger increased

~~average diluted shares outstanding by 1,064,000 for the quarter ended March 31, 2019. The Company realized growth in its core net interest margin~~¹ of five basis points to 3.79% in the current quarter compared to 3.74% in the prior year quarter. Return on average assets (“ROAA”), return on average common equity (“ROAE”), and return on average tangible common equity¹ ~~(“ROATCE”) were 1.10%, 9.89%, and 12.93%, respectively in the first quarter of~~June 30, 2019. The impact of merger-related expenses reduced ROAA, ROAE, and ROATCE¹ by ~~0.39%~~0.42%, ~~3.51%~~3.75% and ~~4.60%~~5.13%, respectively. Excluding merger-related expenses, the adjusted ROAA,¹ adjusted ROAE,¹ and adjusted ROATCE¹ were ~~1.49%~~1.50%, ~~13.40%~~13.19%, and ~~17.53%~~18.05%, respectively for the ~~first quarter of~~six months ended June 30, 2019.

Net interest income for the first ~~three~~six months of 2019 increased ~~$6.2~~$20.8 million or ~~13%~~22%, from the prior year period. ~~Loan~~The acquisition of Trinity along with loan growth and higher rates supported the increase in interest income over the prior year ~~period along with the acquisition of Trinity contributing $3.0 million.~~period.

•

Net interest margin for the first ~~three~~six months of 2019 increased ~~seven~~eight basis points to 3.87% when compared to the prior year period of ~~3.80%~~3.79%. Core net interest margin,¹ which excludes incremental accretion on non-core acquired loans, increased ~~five~~six basis points to ~~3.79%~~3.80% for the first ~~three~~six months of 2019 from the prior year period, primarily due to the impact of interest rate increases on portfolio loans out-pacing the increase in deposit and borrowing ~~costs.~~costs aided by Trinity’s relatively lower-cost deposit portfolio.


•	Noninterest income for the first six months of 2019 increased $2.0 million or 10%, compared to the prior year period due to contributions from Trinity of approximately $2.9 million, primarily related to wealth management and card services revenue. The increase from Trinity was partially offset by the reduction of nonrecurring revenue received in the prior year period.

Noninterest income for the first three months of 2019 decreased $0.3 million or (3)%, compared to the prior year period primarily due to income on the non-core acquired portfolio that was not repeated in the current quarter, partially offset by organic growth in card services and contributions from Trinity of approximately $0.6 million, primarily related to wealth management and card services revenue.

Noninterest expense was ~~$39.8~~$88.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019, compared to ~~$29.1~~$58.4 million for the comparable period in 2018. The increase from the prior year period was primarily due to merger-related expenses of ~~$7.3~~$17.6 million and increased operating expenses since the closing of the Trinity acquisition, most notably in employee compensation and ~~benefits, and data processing.~~benefits.

Balance sheet highlights:

•

Loans – Total loans increased to $5.1 billion at June 30, 2019, increasing $799 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 June 30, 2019 were $5.6 billion, an increase of $971 million, from December 31, 2018. The increase is primarily attributable to the acquisition of Trinity. Core deposits, defined as total deposits excluding time deposits, were $4.7 billion at June 30, 2019, an increase of $833 million, or 21% when compared to December 31, 2018.


•	Asset quality – Nonperforming loans were $19.8 million at June 30, 2019, compared to $16.7 million at December 31, 2018. Nonperforming loans represented 0.39% and 0.19% of total loans at June 30, 2019 and December 31, 2018, respectively.

~~Loans~~ ~~– Total loans increased to $5.0 billion at March 31, 2019, increasing $667~~Provision for loan losses was $3.2 million ~~when compared to December 31, 2018. The increase is primarily attributable to~~for 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 March 31, 2019 were $5.5 billion, an increase of $949 million, from December 31, 2018. The increase is primarily attributable to the acquisition of Trinity, partially offset by normal seasonal reductions with some of our corporate clients. Core deposits, defined as total deposits excluding time deposits, were $4.7 billion at March 31, 2019, an increase of $829 million, or 21% when compared to December 31, 2018.

~~Asset quality~~ ~~– Nonperforming loans were $9.6 million at March 31,~~six months ended June 30, 2019, compared to ~~$16.7 million at December 31, 2018. Nonperforming loans represented 0.19% and 0.38% of total loans at March 31, 2019 and December 31, 2018, respectively.~~

~~Provision for portfolio loan losses was $1.5~~$2.3 million for the ~~three~~six months ended ~~March 31, 2019, compared~~June 30, 2018 due to ~~$1.9 million for the three months ended March 31, 2018.~~loan growth and charge-off in 2019. See “Item 1, Note 5 – Portfolio Loans, and Provision and Allowance for Loan Losses” in this section for more information.

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.~~ 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. ~~Averages for~~Non-core acquired loans noted in the ~~three months ended March 31, 2019 only reflect~~table below were acquired from the ~~Trinity acquired balances effective as of March 8, 2019, which increased average earning assets $283 million.~~FDIC and were previously covered by shared-loss agreements.


	Three months ended March 31,														Three months ended June 30,
	2019							2018							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)	$	4,468,412		$	59,227	5.38	%	$	4,072,639		$	48,891	4.87	%	$	5,056,172	$	68,093	5.40	%	$	4,162,720	$	51,783	4.99	%
Tax-exempt portfolio loans (2)	28,021			424		6.14		37,206			489		5.33		26,821		453		6.77		35,117		474		5.41
Non-core acquired loans - contractual	14,954			322		8.73		29,125			426		5.93		12,188		284		9.35		26,179		517		7.92
Non-core acquired loans - incremental accretion				1,157		31.37					766		10.67				910		29.95				291		4.46
Total loans	4,511,387			61,130		5.50		4,138,970			50,572		4.96		5,095,181		69,740		5.49		4,224,016		53,065		5.04
Taxable investments in debt and equity securities	831,627			5,698		2.78		698,459			4,192		2.43		1,120,526		8,009		2.87		703,185		4,429		2.53
Non-taxable investments in debt and equity securities (2)	65,309			594		3.69		42,128			375		3.61		126,003		1,143		3.64		40,349		360		3.58
Short-term investments	102,166			447		1.77		69,318			240		1.40		111,291		703		2.53		56,057		231		1.65
Total securities and short-term investments	999,102			6,739		2.74		809,905			4,807		2.41		1,357,820		9,855		2.91		799,591		5,020		2.52
Total interest-earning assets	5,510,489			67,869		4.99		4,948,875			55,379		4.54		6,453,001		79,595		4.95		5,023,607		58,085		4.64
Noninterest-earning assets:
Cash and due from banks	80,991							88,630
Other assets	408,195							346,376
Allowance for loan losses	(43,589		)					(43,769		)
Noninterest-earning assets															604,604						391,544
Total assets	$	5,956,086						$	5,340,112						$	7,057,605					$	5,415,151

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	1,077,289		$	1,790	0.67	%	$	862,912		$	806	0.38	%	$	1,384,090	$	2,134	0.62	%	$	823,650	$	817	0.40	%
Money market accounts	1,521,878			6,515		1.74		1,391,055			3,353		0.98		1,576,333		6,996		1.78		1,494,194		4,445		1.19
Savings	299,731			183		0.25		201,852			125		0.25		562,503		231		0.16		208,662		147		0.28
Certificates of deposit	712,269			3,332		1.90		603,736			1,899		1.28		815,138		3,758		1.85		633,897		2,338		1.48
Total interest-bearing deposits	3,611,167			11,820		1.33		3,059,555			6,183		0.82		4,338,064		13,119		1.21		3,160,403		7,747		0.98
Subordinated debentures	124,154			1,648		5.38		118,110			1,368		4.70		141,059		1,958		5.57		118,124		1,454		4.94
FHLB advances	215,420			1,398		2.63		302,548			1,258		1.69		263,384		1,696		2.58		294,643		1,448		1.97
Other borrowed funds	202,197			408		0.82		207,442			184		0.36		204,375		713		1.40		167,661		182		0.44
Total interest-bearing liabilities	4,152,938			15,274		1.49		3,687,655			8,993		0.99		4,946,882		17,486		1.42		3,740,831		10,831		1.16
Noninterest bearing liabilities:
Demand deposits	1,088,323							1,064,771							1,244,008						1,069,888
Other liabilities	52,371							33,620							53,609						35,877
Total liabilities	5,293,632							4,786,046							6,244,499						4,846,596
Shareholders' equity	662,454							554,066							813,106						568,555
Total liabilities & shareholders' equity	$	5,956,086						$	5,340,112						$	7,057,605					$	5,415,151
Net interest income				$	52,595						$	46,386					$	62,109					$	47,254
Net interest spread						3.50	%						3.55	%					3.53	%					3.48	%
Net interest margin						3.87	%						3.80	%					3.86	%					3.77	%
Core net interest margin (3)						3.79	%						3.74	%					3.80	%					3.75	%


(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 ~~$1.1~~$0.9 million and $1.0 million for the three months ended ~~March 31,~~June 30, 2019 and 2018 respectively.


(2)	Non-taxable income is presented on a tax-equivalent basis using a 24.7% tax rate in 2019 and 2018. The tax-equivalent adjustments were ~~$0.3~~$0.4 million and $0.2 million for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively.


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



	Six months ended June 30, 2019
	2019						2018
(in thousands)	Average Balance		Interest Income/Expense		Average Yield/ Rate		Average Balance		Interest Income/Expense		Average Yield/ Rate
Assets
Interest-earning assets:
Taxable portfolio loans (1)	$	4,763,916	$	127,320	5.39	%	$	4,117,928	$	100,675	4.93	%
Tax-exempt portfolio loans (2)	27,418		878		6.46		36,156		963		5.37
Non-core acquired loans - contractual	13,564		605		8.99		27,644		942		6.87
Non-core acquired loans - incremental accretion			2,067		30.74				1,057		7.71
Total loans	4,804,898		130,870		5.49		4,181,728		103,637		5.00
Taxable investments in debt and equity securities	976,875		13,707		2.83		700,835		8,621		2.48
Non-taxable investments in debt and equity securities (2)	95,823		1,737		3.66		41,233		735		3.59
Short-term investments	106,752		1,150		2.17		62,651		471		1.52
Total securities and short-term investments	1,179,450		16,594		2.84		804,719		9,827		2.46
Total interest-earning assets	5,984,348		147,464		4.97		4,986,447		113,464		4.59
Noninterest-earning assets	525,540						391,392
Total assets	$	6,509,888					$	5,377,839

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	1,231,537	$	3,924	0.64	%	$	843,172	$	1,623	0.39	%
Money market accounts	1,549,255		13,511		1.76		1,442,910		7,798		1.09
Savings	431,843		414		0.19		205,276		272		0.27
Certificates of deposit	763,988		7,090		1.87		618,900		4,237		1.38
Total interest-bearing deposits	3,976,623		24,939		1.26		3,110,258		13,930		0.90
Subordinated debentures	132,653		3,606		5.48		118,117		2,822		4.82
FHLB advances	239,535		3,094		2.60		298,573		2,706		1.83
Other borrowed funds	203,292		1,121		1.11		187,442		366		0.39
Total interest-bearing liabilities	4,552,103		32,760		1.45		3,714,390		19,824		1.08
Noninterest bearing liabilities:
Demand deposits	1,166,595						1,067,343
Other liabilities	52,994						34,755
Total liabilities	5,771,692						4,816,488
Shareholders' equity	738,196						561,351
Total liabilities & shareholders' equity	$	6,509,888					$	5,377,839
Net interest income			$	114,704					$	93,640
Net interest spread					3.52	%					3.51	%
Net interest margin					3.87	%					3.79	%
Core net interest margin (3)					3.80	%					3.74	%


(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 $2.1 million and $1.9 million for the six months ended June 30, 2019 and 2018 respectively.


(2)	Non-taxable income is presented on a fully tax-equivalent basis using a 24.7% tax rate in 2019 and 2018. The tax-equivalent adjustments were $0.6 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively.


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

Rate/Volume

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


	2019 compared to 2018								2019 compared to 2018
	Three months ended March 31,								Three months ended June 30,									Six months ended June 30,
	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
Interest earned on:
Taxable loans	$	4,975		$	5,361	$	10,336		$	11,795		$	4,515		$	16,310		$	16,717		$	9,928		$	26,645
Tax-exempt loans (3)	(132		)	67		(65		)	(126		)	105			(21		)	(259		)	174			(85		)
Non-core acquired loans	(790		)	1,077		287			(617		)	1,003			386			(1,418		)	2,091			673
Taxable investments in debt and equity securities	858			648		1,506			2,919			661			3,580			3,747			1,339			5,086
Non-taxable investments in debt and equity securities (3)	211			8		219			777			6			783			990			12			1,002
Short-term investments	133			74		207			306			166			472			421			258			679
Total interest-earning assets	$	5,255		$	7,235	$	12,490		$	15,054		$	6,456		$	21,510		$	20,198		$	13,802		$	34,000

Interest paid on:
Interest-bearing transaction accounts	$	242		$	742	$	984		$	728		$	589		$	1,317		$	950		$	1,351		$	2,301
Money market accounts	342			2,820		3,162			255			2,296			2,551			613			5,100			5,713
Savings	58			—		58			166			(82		)	84			234			(92		)	142
Certificates of deposit	388			1,045		1,433			758			662			1,420			1,133			1,720			2,853
Subordinated debentures	73			207		280			304			200			504			370			414			784
FHLB advances	(431		)	571		140			(166		)	414			248			(607		)	995			388
Borrowed funds	(5		)	229		224			48			483			531			33			722			755
Total interest-bearing liabilities	667			5,614		6,281			2,093			4,562			6,655			2,726			10,210			12,936
Net interest income	$	4,588		$	1,621	$	6,209		$	12,961		$	1,894		$	14,855		$	17,472		$	3,592		$	21,064

(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 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) ~~was $52.6 million~~ for the three and six months ended ~~March 31,~~June 30, 2019 ~~compared~~increased 31% and 22%, 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. An increase in rates in the current year periods also contributed to ~~$46.4 million for~~ the ~~same period of 2018, an increase of $6.2 million, or 13%.~~ increases in net interest income.

The tax-equivalent net interest margin was 3.86% and 3.87% for the ~~first quarter of~~three and six months ended June 30, 2019, respectively, compared to ~~3.80%~~3.77% and 3.79% in ~~the first quarter of 2018. Loan growth and higher rates supported the $6.2 million increase in interest income over~~ the prior year ~~period along with the acquisition of Trinity which contributed $3.0 million.~~periods. The ~~yield on taxable portfolio loans increased 51 basis points~~margin increases benefited from ~~the prior year period to 5.38% for the three months ended March 31, 2019, due to increasing interest rates on the existing variable-rate loan portfolio and higher rates on newly originated loans.~~

~~Core net interest margin~~¹ ~~increased five basis points to 3.79% during the current quarter compared to 3.74% for the prior year period. This increase was primarily due to~~ the impact of interest rate increases on the Company's asset sensitive balance sheet. Specifically, the yield on taxable portfolio loans increased 5141 basis points and 46 basis points for the three and six months ended June 30, 2019, respectively, compared to ~~5.38% from 4.87%~~the prior year periods due to the effect of rising interest rates on the ~~existing~~ variable-rate loan portfolio, ~~and~~ higher rates on newly originated ~~loans. The~~loans, and purchase accounting accretion on the Trinity acquired portfolio. Partially offsetting the increase from earning assets was the cost of total interest-bearing liabilities that increased 5026 basis points ~~to 1.49%~~and 37 basis points for the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2019, ~~from 0.99% for~~respectively, compared to the prior year ~~quarter.~~periods. The increase in the interest rate paid on deposits reflects market interest rate trends, as the Company continues to defend existing and attract new core deposit relationships. The net interest margin also benefited from the impact of a full quarter of funding costs on Trinity deposits and was partially constrained from the increase in the average investment portfolio resulting from the Trinity acquisition.

The Company ~~continues to manage~~manages its balance sheet to ~~grow net interest income and expects to maintain~~defend against pressures on core net interest margin,¹ which could be negatively impacted by continued competition for deposits, a persistent flat yield curve, and potential downward movement in short-term rates. We have approximately $3 billion in money market and interest-bearing deposit accounts which experienced an increase in yield over the ~~coming quarters; however, pressure on funding costs could negate~~past several quarters as interest rates have risen. Within those categories, we have approximately $600 million directly indexed to federal funds. In addition, there are other wholesale and brokered funds that have and will continue to adjust with the ~~expected trends in core net interest margin.~~federal funds rate and other indices.

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

Noninterest Income

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


										2019 compared to 2018
	Three months ended March 31,									Three months ended June 30,										Six months ended June 30,
(in thousands)	2019		2018		Increase (decrease)					2019			2018		Increase (decrease)					2019		2018		Increase (decrease)
Service charges on deposit accounts	$	2,935	$	2,851	$	84		3	%	$	3,366		$	3,007	$	359		12	%	$	6,301	$	5,858	$	443		8	%
Wealth management revenue	1,992		2,114		(122		)	(6	)%	2,661			2,141		520			24	%	4,653		4,255		398			9	%
Card services revenue	1,790		1,516		274			18	%	2,461			1,650		811			49	%	4,251		3,166		1,085			34	%
Gain on sale of other real estate	66		—		66			NM
Tax credit activity, net	158		252		(94		)	(37	)%
Gain on sale of investment securities	—		—		—			NM
Gain (loss) on sale of other real estate										(18		)	—		(18		)	NM		48		—		48			NM
Tax credit income										572			64		508			794	%	730		316		414			131	%
Miscellaneous income	2,289		2,809		(520		)	(19	)%	2,922			2,831		91			3	%	5,211		5,640		(429		)	(8	)%
Total noninterest income	$	9,230	$	9,542	$	(312	)	(3	)%	$	11,964		$	9,693	$	2,271		23	%	$	21,194	$	19,235	$	1,959		10	%

(1) A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”
NM - Not meaningful										NM - Not meaningful

Noninterest income ~~decreased $0.3~~increased $2.3 million, or ~~3% in~~23%, and $2.0 million, or 10%, for the ~~first~~ three and six months ofended June 30, 2019, respectively, compared to the same ~~period~~periods in 2018. ~~During~~Both periods in 2019 benefited from the ~~three months ended March 31, 2019, reductions in wealth management and in other~~Trinity acquisition that comprised most of the increases over the prior year periods. Trinity’s noninterest income onsources will primarily increase the ~~non-core acquired portfolio which was not repeated in the current quarter were offset by contributions from Trinity of approximately $0.6 million, primarily related to~~Company’s wealth management and card services ~~revenue.~~revenue, and other income to a lessor extent. The acquisition of Trinity initially added $406 million of additional assets under management.

The Company expects full-year growth in noninterest income of a high single digit percentage for 2019 over 2018 levels, 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 June 30,											Six months ended June 30,
(in thousands)	2019			2018			Increase (decrease)
Employee compensation and benefits	$	20,687		$	16,582		$	4,105		25	%	$	40,039		$	33,073		$	6,966		21	%
Occupancy	3,188			2,342			846			36	%	5,825			4,748			1,077			23	%
Data processing	2,458			1,533			925			60	%	4,364			3,000			1,364			45	%
Professional fees	1,037			747			290			39	%	1,783			1,596			187			12	%
FDIC and other insurance	815			920			(105		)	(11	)%	1,663			1,837			(174		)	(9	)%
Loan legal and other real estate expense	818			(23		)	841			(3,657	)%	1,300			276			1,024			371	%
Merger related expenses	10,306			—			10,306			—	%	17,576			—			17,576			—	%
Other	9,745			7,118			2,627			37	%	16,342			13,832			2,510			18	%
Total noninterest expense	$	49,054		$	29,219		$	19,835		68	%	$	88,892		$	58,362		$	30,530		52	%

Efficiency ratio	66.58		%	51.50		%	15.08		%			65.72		%	51.90		%	13.82		%
Core efficiency ratio¹	53.30		%	52.36		%	0.94		%			53.65		%	53.18		%	0.47		%
¹A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”

Three months ended March 31,
(in thousands) 2019 2018 Increase (decrease)
Employee compensation and benefits $ 19,352
$ 16,491
$ 2,861
17 %
Occupancy 2,637
2,406
231
10 %
Data processing 1,906
1,467
439
30 %
Professional fees 746
849
(103 ) (12 )%
FDIC and other insurance 848
917
(69 ) (8 )%
Loan legal and other real estate expense 482
299
183
61 %
Merger related expenses 7,270
—
7,270
— %
Other 6,597
6,714
(117 ) (2 )%
Total noninterest expense $ 39,838
$ 29,143
$ 10,695
37 %

Efficiency ratio 64.70 % 52.31 % 12.39 % 24 %
Core efficiency ratio¹
54.06 % 54.02 % 0.04 % — %
¹A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”

Noninterest expense ~~was~~ ~~$39.8~~increased $19.8 million, or 68%, and $30.5 million, or 52%, for the three and six months ended ~~March 31,~~June 30, 2019, respectively, compared to ~~$29.1 million~~ ~~for~~ the ~~three~~ ~~months ended March 31,~~same periods in 2018. The increase from the prior year ~~period was primarily due to~~periods were impacted by merger-related expenses of ~~$7.3~~$10.3 million and $17.6 million for the three and six months ended June 30, 2019, respectively. In addition, increased operating expenses ~~since the closing of~~from the Trinity acquisition, most notably in employee compensation and benefits, will be included in the Company’s ongoing expense run-rate, although at a reduced amount after implementation of cost-saving measures from the acquisition. The Company expects its noninterest expense to range between $37 million and ~~data processing.~~$39 million in each of the third and fourth quarters of 2019.

The Company’s core efficiency ratio¹ ~~remained consistent at 54.1%~~ was 53.3% and 53.7% for the three and six months ended ~~March 31,~~June 30, 2019, respectively, compared to ~~54.0%~~52.4% and 53.2% for the prior year period even with the increase in operating expenses occurring since the acquisition of Trinity. These elevated expenses are expected to continue through the second quarter until the LANB systems are converted.periods. Efficiency improvements are expected to occur in the second half of 2019 resulting in ~~expense growth at a rate of 35% - 45% of projected revenue growth for 2019, and~~ continued improvements to the Company’s efficiency ratio.

Income Taxes

~~The Company’s income tax expense for the three months ended March 31, 2019, which includes both federal and state taxes, was $4.1 million compared to $3.8 million for the prior year period in 2018.~~ The Company’s effective tax rate was ~~20.3%~~19.6% and 19.9% for the three and six months ended ~~March 31,~~June 30, 2019, respectively, compared to ~~15.3%~~18.0% and 16.7% for the same ~~period~~periods in ~~2018 due to several components.~~2018. Excess tax benefits from the vesting of stock-based compensation were more favorable in the prior year ~~quarter due to variability in cost basis of vesting awards. The nondeductible~~periods. Nondeductible merger-related expenses in 2019 contributed to the ~~current quarter increased income~~increase in the effective tax ~~expense. Finally, timing of purchases of~~rate in 2019. Additionally, tax credit investments resulted in additional tax benefits in the prior year ~~quarter.~~periods. The Company is currently evaluating ~~additional~~ tax credit investment opportunities which, ~~are expected to~~if executed, could have a positive impact in 2019.

The Company expects its effective tax rate for the ~~remainder~~full year of 2019 to be approximately 18% - 20%. The low end of the range assumes tax planning strategies are executed to achieve that result.

Summary Balance Sheet

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


(in thousands)	March 31, 2019		December 31, 2018		Increase (decrease)				June 30, 2019		December 31, 2018		Increase (decrease)
Total cash and cash equivalents	$	221,482	$	196,552	$	24,930	12.7	%	$	189,400	$	196,552	$	(7,152	)	(4	)%
Securities	1,163,553		787,048		376,505		47.8	%	1,285,777		787,048		498,729			63
Loans held for investment	5,017,077		4,190,845		826,232		19.7	%	5,149,497		4,350,001		799,496			18
Total assets	6,932,757		5,645,662		1,287,095		22.8	%	7,181,855		5,645,662		1,536,193			27
Deposits	5,537,113		4,587,985		949,128		20.7	%	5,559,338		4,587,985		971,353			21
Total liabilities	6,134,922		5,041,858		1,093,064		21.7	%	6,356,354		5,041,858		1,314,496			26
Total shareholders’ equity	797,835		603,804		194,031		32.1	%	825,501		603,804		221,697			37

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 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 loan portfolio:

Loans grew by ~~$667~~$799 million to$~~5.0~~5.1 billion at ~~March 31,~~June 30, 2019, when compared toDecember 31, ~~2018~~.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 to be a high single digit percentage, excluding Trinity acquired 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 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. 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 loan growth, coupled with typically fixed-rate CRE lending, supports management’s efforts to maintain a flexible asset sensitive interest rate risk position. C&I loans increased $104 million during the first three months of 2019 and represented 44% of the Company’s loan portfolio at March 31, 2019. We expect continued loan growth in 2019 to be a high single digit percentage, excluding acquired loans.

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 March 31,						Three months ended June 30,						Six months ended June 30,
(in thousands)	2019			2018			2019			2018			2019			2018
Allowance at beginning of period, for portfolio loans	$	42,295		$	38,166		$	41,945		$	40,263		$	42,295		$	38,166
Loans charged off:
Commercial and industrial	(1,853		)	(732		)	(1,380		)	(956		)	(3,233		)	(1,688		)
Real estate:
Commercial	(156		)	—			(431		)	—			(587		)	—
Construction and land development	(45		)	—			—			—			(45		)	—
Residential	(67		)	(254		)	(26		)	(38		)	(93		)	(292		)
Consumer and other	(129		)	(49		)	(53		)	(33		)	(182		)	(82		)
Total loans charged off	(2,250		)	(1,035		)	(1,890		)	(1,027		)	(4,140		)	(2,062		)
Recoveries of loans previously charged off:
Commercial and industrial	29			956			32			118			61			1,074
Real estate:
Commercial	9			12			58			13			67			25
Construction and land development	9			206			489			168			498			374
Residential	364			73			124			59			488			132
Consumer and other	13			14			217			28			230			42
Total recoveries of loans	424			1,261			920			386			1,344			1,647
Net loan charge-offs	(1,826		)	226			(970		)	(641		)	(2,796		)	(415		)
Provision for loan losses	1,476			1,871			1,960			2,385			3,436			4,256
Allowance at end of period, for portfolio loans	$	41,945		$	40,263		$	42,935		$	42,007		$	42,935		$	42,007

Allowance at beginning of period, for purchased credit impaired loans	$	1,181		$	4,411		$	1,150		$	4,387		$	1,181		$	4,411
Loans charged off	—			—			—			—			—			—
Recoveries of loans	—			—			—			—			—			—
Net loan charge-offs	—			—			—			—			—			—
Other	(31		)	(24		)	(25		)	(29		)	(56		)	(53		)
Provision reversal for purchased credit impaired loan losses							$	(238	)	$	(1,995	)	$	(238	)	$	(1,995	)
Allowance at end of period, for purchased credit impaired loans	$	1,150		$	4,387		$	887		$	2,363		$	887		$	2,363

Total allowance at end of period	$	43,095		$	44,650		$	43,822		$	44,370		$	43,822		$	44,370

Portfolio loans, average	$	4,496,125		$	4,108,400		$	5,082,013		$	4,196,875		$	4,790,688		$	4,152,882
Total loans, average	4,511,079			4,137,525			5,095,181			4,224,016			4,804,898			4,181,728
Total loans, ending	5,017,077			4,190,845			5,149,497			4,275,761
Net charge-offs (recoveries) to average loans	0.16		%	(0.02		)%
Net charge-offs to average loans							0.08		%	0.06		%	0.12		%	0.02		%
Allowance for loan losses to total loans	0.86		%	1.07		%	0.85		%	1.04		%	0.85		%	1.04		%

The provision for loan losses on portfolio loans for the three and sixmonths ended ~~March 31,~~June 30, 2019was ~~$1.5~~$1.7 million and $3.2 million, respectively, compared to ~~$1.9~~$0.4 million and $2.3 million for same ~~period~~periods in 2018. The provision is reflective of loan growth and charge-offs in the ~~period and maintaining a prudent credit risk posture.~~period.

The allowance for loan losses ~~on portfolio loans~~ was ~~0.86%~~0.85% of ~~portfolio~~ loans at ~~March 31,~~June 30, 2019, compared to ~~1.07%~~1.04% at ~~March 31,~~June 30, 2018. The decrease in the ratio of allowance for loan losses to total loans was primarily due to the

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 increased $3.1 million to $19.8 million at June 30, 2019 from $16.7 million at December 31, 2018 primarily due to two loans 90 days past due and still accruing interest of $4.0 million. The addition of these loans did not result in any additional provision for loan losses, as the credits are well secured and the Company expects a positive resolution in the third quarter.

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.

Nonperforming loans exclude PCI loans that are accounted for on a pool basis as the pools are considered to be performing. See Item 1, Note 5 – 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 ~~$6.8~~$10.5 million at ~~March 31,~~June 30, 2019 compared to $0.5 million at ~~March 31,~~June 30, 2018.

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

Liabilities totaled ~~$6.1~~$6.4 billion at ~~March 31,~~June 30, 2019, compared to $5.0 billion at December 31, 2018. The increase in liabilities was due to ~~$949~~$971 million of growth in total deposits primarily attributable to the acquisition of Trinity and a ~~$110~~$319 million increase in Federal Home Loan Bank advances, partially offset by a decrease of ~~$39~~$25 million in other borrowings.

Total deposits at ~~March 31,~~June 30, 2019 were ~~$5.5~~$5.6 billion, an increase of 21%, from December 31, 2018. The increase is ~~primarily attributable~~due to the acquisition of Trinity, partially offset by normal seasonal reductions with some of our corporate clients. ~~The composition of our noninterest~~Noninterest bearing deposits ~~declined to 21%~~as a percentage of total deposits was 21% at ~~March 31,~~June 30, 2019 compared to 24% at December 31, 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’ Equity

Shareholders’ equity totaled ~~$797.8~~$825.5 million at ~~March 31,~~June 30, 2019, an increase of ~~$194.0~~$221.7 million from December 31, 2018. Significant activity during the ~~three~~six months ended ~~March 31,~~June 30, 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

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 Asset-Liability Management Committee oversees our liquidity position, the parameters of which are approved by the Bank’s Board of Directors.Our liquidity position is monitored monthly by ~~producing a liquidity report, which measures~~measuring the amount of liquid versus non-liquid assets and liabilities. Ourliquidity management framework includes measurement of several key elements, such as the loan to deposit ratio, a liquidity ratio, and a dependency ratio. The Company’s liquidity framework also incorporates contingency planning to assess the nature and volatility of funding sources and to determine alternatives to these sources. While core deposits and loan and investment repayments are principal sources of liquidity, funding diversification is another key element of liquidity management and is achieved by strategically varying depositor types, terms, funding markets, and instruments.

The parent company’s liquidity is managed to provide the funds necessary to pay dividends to shareholders, service debt, invest in subsidiaries as necessary, and satisfy other operating requirements. The parent company’s primary funding sources to meet its liquidity requirements are dividends and payments from the Bank and proceeds from the issuance of equity (i.e. stock option exercises, stock offerings). ~~$10~~$20 million of dividends have been paid to the parent company from the Bank in 2019. Another source of funding for the parent company includes the issuance of subordinated debentures and other debt instruments.

The Company has an effective shelf registration statement on Form S-3 registering up to $100 million of common stock, preferred stock, debt securities, and various other securities, including combinations of such securities. The Company’s ability to offer securities pursuant to the registration statement depends on market conditions and the Company’s continuing eligibility to use the Form S-3 under rules of the SEC.

On November 1, 2016, the Company issued $50 million aggregate principal amount of 4.75% fixed-to-floating rate subordinated notes with a maturity date of November 1, 2026, which initially bear an annual interest rate of 4.75%, with interest payable semiannually. Beginning November 1, 2021, the interest rate resets quarterly to the three-month LIBOR rate plus a spread of 338.7 basis points, payable quarterly.

The Company has a senior unsecured revolving credit agreement (the “Revolving Agreement”) with another bank allowing for borrowings up to $25 million ~~which is renewed through~~that matures in February 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 ~~March 31,~~June 30, 2019, there were no outstanding balances under the Revolving Agreement.

The Company has a five-year term note for $40 million ~~issued~~that matures in March ~~2019.~~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 ~~March 31,~~June 30, 2019, the Company had $92 million of outstanding subordinated debentures as part of thirteen ~~Trust Preferred Securities Pools~~statutory trusts which includes ~~$22~~$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 $7$9 million, along with the Company’s other available funding sources, will be sufficient to meet all projected cash needs for the remainder of 2019.

The Bank has a variety of funding sources available to increase financial flexibility. In addition to amounts currently borrowed, at ~~March 31,~~June 30, 2019, the Bank had borrowing capacity of ~~$500~~$350 million from the FHLB of Des Moines under blanket loan pledges, and has an additional $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 million, and ~~$276~~$296 million of unsecured credit through the American Financial Exchange.

~~Total~~Investment securities ~~available for sale of~~are another important tool in managing the Bank’s liquidity objectives. Securities totaled $1 billion at ~~March 31,~~June 30, 2019, and included ~~$443~~$461 million ~~of securities that were~~ pledged as collateral for deposits of public institutions, treasury,

loan notes, and other requirements. The remaining ~~$656~~$825 million could be pledged or sold to enhance liquidity, if necessary. ~~In addition, $53 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 various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company’s liquidity. The Bank has ~~$1.5~~$1.4 billion in unused commitments as of ~~March 31,~~June 30, 2019. ~~While this commitment level would exhaust the majority of the Company’s current liquidity resources, the~~The nature of these commitments is such that the likelihood of funding them in the aggregate at any one time is low.

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 ~~March 31,~~June 30, 2019, and December 31, 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 ~~March 31,~~June 30, 2019. ~~The Company adopted the Regulatory Capital Framework (“Basel III”) in 2015, and has implemented the necessary processes and procedures to comply.~~

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

The following table summarizes the 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 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 performance and capital strength. The Company’s management uses, and believes that investors benefit from referring to, these non-GAAP measures and ratios in assessing the Company’s operating results and related trends and when forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP. 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

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

For the Quarter ended

Critical Accounting Policies

The impact and any associated risks related to the Company’s critical accounting policies on business operations are described throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect our reported and expected financial results. For a detailed description on the application of these and other accounting policies, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The disclosures set forth in this item are qualified by the section captioned “Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995” included in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report and other cautionary statements set forth elsewhere in this report.

Interest Rate Risk

Our interest rate risk management practices are aimed at optimizing net interest income, while guarding against deterioration that could be caused by certain interest rate scenarios. Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. We attempt to maintain interest-earning assets, comprised primarily of both loans and investments, and interest-bearing liabilities, comprised primarily of deposits, maturing or repricing in similar time horizons in order to minimize or eliminate any impact from market interest rate changes. In order to measure earnings sensitivity to changing rates, the Company uses an earnings simulation model.

The Company determines the sensitivity of its short-term future earnings to a hypothetical plus or minus 100 to 300 basis point parallel rate shock through the use of simulation modeling. The simulation of earnings includes the modeling of the balance sheet as an ongoing entity. Future business assumptions involving administered rate products, prepayments for future rate-sensitive balances, and the reinvestment of maturing assets and liabilities are included. These items are then modeled to project net interest income based on a hypothetical change in interest rates. The resulting net interest income for the next 12-month period is compared to the net interest income amount calculated using flat rates. This difference represents the Company’s earnings sensitivity to a plus or minus 100 basis points parallel rate shock.

The following table summarizes the expected impact of interest rate shocks on net interest income (due to the current level of interest rates, the 300 basis point downward shock scenario is not shown):



Rate Shock	Annual % change in net interest income
+ 300 bp	~~7.5%~~8.2%
+ 200 bp	~~5.1%~~5.5%
+ 100 bp	~~2.6%~~2.8%
- 100 bp	~~(4.7)~~(4.2)%
- 200 bp	~~(13.1)~~(9.4)%

In addition to the rate shocks shown in the table above, the Company models net interest income under various dynamic

interest rate scenarios. Generally, positive changes in rates result in higher levels of net interest income, while scenarios based on declining rates, particularly those involving decreases in long-term rates, result in reduced net interest income.

At June 30, 2019, models resulting in a steeper yield curve through a reduction in short-term rates over a 12-month horizon, as well as those based on stable short-term and modestly lower long-term rates, all result in a marginal decrease to net interest income over a one-year forecast.

At June 30, 2019, the Company had $2.5 billion in variable rate loans that are based on LIBOR and $0.4 million that are based on Prime. Approximately 80% of the LIBOR based loans are indexed to one-month LIBOR.

The Company occasionally uses interest rate derivative financial instruments as an asset/liability management tool to hedge mismatches in interest rate exposure indicated by the net interest income simulation described above. They are used to modify the Company’s exposures to interest rate fluctuations and provide more stable spreads between loan yields and the rate on their funding sources.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15, as of ~~March 31,~~June 30, 2019. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on that evaluation, the CEO and CFO concluded the Company’s disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2019 to provide reasonable assurance of the achievement of the objectives described above.

Changes to Internal Controls

There were no changes during the period covered by this Quarterly Report on Form 10-Q in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, those controls.

PART II - OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

In connection with its acquisition of Trinity/LANB, the Company, as successor-in-interest to Trinity, is a party to certain consolidated proceedings pending in the First Judicial Circuit Court for the State of New Mexico, styled Trinity Capital Corporation, et al v. Atlantic Specialty Ins. Co., et al. The lawsuit seeks declaratory relief, defense costs, and damages related to claims for bad faith breach of insurance contracts and violations of New Mexico insurance statutes. The insurance coverage at issue in the lawsuit relates to regulatory proceedings commenced by the OCC against LANB and the SEC against Trinity following an OCC bank examination in 2012. At the time, Trinity had in place a ~~Director~~director and ~~Officer~~officer insurance policy that included coverage for the cost of defending against certain regulatory proceedings. Coverage was denied by the insurance company based on an alleged failure to give timely notice of a claim. Former Trinity/LANB officers, William Enloe, Jill Cook and Mark Pierce, also filed suits against the insurance company and Trinity/LANB which have been consolidated in the proceeding. The claims of William Enloe against Trinity/LANB relate to an alleged failure to provide timely notice to the insurance company. The claims of Jill Cook and Mark Pierce relate to indemnification and alleged wrongful termination. The officers’ claims against Trinity/LANB have been stayed pending resolution of the claims against the insurance company. In November 2018, Jill Cook settled her claims with the insurance company.

In December 2018, the Court granted summary judgment in favor of Trinity/LANB finding that they had delivered timely notice to the insurance company as a matter of law. The insurance company ~~has~~ filed a motion to reconsider ~~this ruling~~ which ~~is expected to be~~was subsequently heard ~~and/or ruled on during the second quarter of 2019.~~and denied. The ~~Company intends to vigorously defend the summary judgment ruling. If successful, the~~ Company will next seek to prove up its damages at trial which is ~~scheduled for November~~anticipated to occur in the fourthquarter of 2019. The Company also plans to vigorously defend itself against the officers’ claims. Due to the complex nature of this lawsuit, the outcome and timing of ultimate resolution and recovery by the Company is uncertain.

In addition, 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.

ITEM 1A: RISK FACTORS

For information regarding risk factors affecting the Company, please see the cautionary language regarding forward-looking statements in the introduction to Item 2 of Part I of this Report on Form 10-Q, and Part I, Item 1A of our Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2018, which is supplemented by the additional risk factor set forth below. There have been no material changes to the risk factors described in such Annual Report on Form 10-K.

Increased regulatory oversight, uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the results of our operations.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offering Rate (“LIBOR”), announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. The announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Efforts in the United States to identify a set of alternative U.S. dollar reference interest rates include proposals by the ARRC of the Federal Reserve Board and the Federal Reserve Bank of New York. Uncertainty as to the nature of alternative reference rates and as to potential changes in other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans, and to a lesser extent securities in our portfolio, and may impact the availability and cost of hedging instruments and borrowings, including the rates we pay on our subordinated debentures. The Company has material contracts that are indexed to LIBOR. If LIBOR rates are no longer available, any successor or replacement interest rates may perform differently and we may incur significant costs to transition both our borrowing arrangements and the loan agreements with our customers from LIBOR, which may have an adverse effect on our results of operations. The impact of alternatives to LIBOR on the valuations, pricing and operation of our financial instruments is not yet known.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Issuer Purchases of Equity Securities~~

None

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

None

ITEM 6: EXHIBITS


Exhibit No.	Description

Registrant hereby agrees to furnish to the Commission, upon request, the instruments defining the rights of holders of each issue of long-term debt of Registrant and its consolidated subsidiaries.


2.1	Agreement and Plan of Merger, among Enterprise Financial Services Corp, Enterprise Bank & Trust, Trinity Capital Corporation and Los Alamos National Bank, dated November 1, 2018 (incorporated herein by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on November 2, 2018 (File No. 001-15373)).


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)).


3.3	Amendment to the Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the period ending September 30, 1999 (File No. 001-15373)).


3.4	Amendment to the Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-K filed on April 30, 2002 (File No. 001-15373)).


3.5	Amendment to the Certificate of Incorporation of Registrant (incorporated herein by reference to Appendix A to Registrant's Proxy Statement on Form 14-A filed on November 20, 2008 (File No. 001-15373)).


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)).


3.7	Amendment to the Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ending June 30, 2014 (File No. 001-15373)).


*3.8	Amendment to the Certificate of Incorporation of Registrant.


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)).


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


*31.2	Chief Financial 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.SCH	XBRL Taxonomy Extension Schema Document


101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

* Filed herewith

** Furnished herewith. Notwithstanding any incorporation of this Quarterly Statement on Form 10-Q in any other filing by the Registrant, Exhibits furnished herewith and designated with two (**) shall not be deemed incorporated by reference to any other filing unless specifically otherwise set forth herein or therein.

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF XBRL Taxonomy Extension Definitions Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Clayton, State of Missouri on the day of ~~April 30,~~July 26, 2019.



	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

5559



~~[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~~



	For the three months ended
(in thousands)	March 31, 2019
Operating lease cost	$	806
Short-term lease cost	35
Less: sublease income	$	(88	)
Total lease cost	$	753


	Derivative Assets								Derivative Liabilities						Derivative Assets										Derivative Liabilities
	As of March 31, 2019					As of December 31, 2018			As of March 31, 2019			As of December 31, 2018			June 30, 2019					December 31, 2018					June 30, 2019			December 31, 2018
(in thousands)	Notional Amount		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		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
Derivatives Designated as Hedging Instruments															Derivatives Designated as Hedging Instruments
Interest rate swap	$	61,962	Other Assets	$	—	Other Assets	$	—	Other Liabilities	$	1,264	Other Liabilities	$	—	$	61,962	Other Assets	$	—	$	—	Other Assets	$	—	Other Liabilities	$	2,939	Other Liabilities	$	—
Total				$	—		$	—		$	1,264		$	—				$	—				$	—		$	2,939		$	—

Derivatives not designated as hedging instruments
Derivatives not Designated as Hedging Instruments															Derivatives not Designated as Hedging Instruments
Interest rate swap	$	523,017	Other Assets	$	5,277	Other Assets	$	2,217	Other Liabilities	$	5,277	Other Liabilities	$	2,217	$	609,454	Other Assets	$	10,511	$	494,567	Other Assets	$	2,217	Other Liabilities	$	11,386	Other Liabilities	$	2,217
Foreign exchange forward contracts	1,426		Other Assets	1,426		Other Assets	806		Other Liabilities	1,426		Other Liabilities	806		613		Other Assets	613		806		Other Assets	806		Other Liabilities	613		Other Liabilities	806
Total				$	6,703		$	3,023		$	6,703		$	3,023				$	11,124				$	3,023		$	11,999		$	3,023


Derivatives in Subtopic 815-20 Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative			Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
							Amount of Gain or (Loss) Recognized in OCI on Derivative			Location of Gain or (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
(in thousands)	March 31, 2019				March 31, 2019		Three months ended June 30, 2019				Three months ended June 30, 2019
Derivatives in Cash Flow Hedging Relationships
Interest rate swap	$	(1,264	)	Interest Expense	$	—	$	(1,675	)	Interest Expense	$	(6	)
Total	$	(1,264	)		$	—	$	(1,675	)		$	(6	)


	At the quarter ended
(in thousands)	March 31, 2019		December 31, 2018		Increase (decrease)					June 30, 2019		December 31, 2018		Increase (decrease)
C&I - general	$	1,128,755	$	995,491	$	133,264		13.4	%	$	1,103,908	$	995,491	$	108,417		11	%
CRE investor owned - general	1,183,471		862,423		321,048			37.2	%	1,235,596		862,423		373,173			43
CRE owner occupied - general	576,026		496,835		79,191			15.9	%	591,401		496,835		94,566			19
Enterprise value lending¹	439,500		465,992		(26,492		)	(5.7	)%	445,981		465,992		(20,011		)	(4	)
Life insurance premium financing¹	440,693		417,950		22,743			5.4	%	465,777		417,950		47,827			11
Residential real estate - general	432,556		304,671		127,885			42.0	%	409,200		304,671		104,529			34
Construction and land development - general	345,207		310,832		34,375			11.1	%	376,597		310,832		65,765			21
Tax credits¹	235,454		262,735		(27,281		)	(10.4	)%	268,405		262,735		5,670			2
Agriculture¹	126,088		136,188		(10,100		)	(7.4	)%	131,671		136,188		(4,517		)	(3	)
Consumer and other - general	109,327		96,884		12,443			12.8	%	120,961		96,884		24,077			25
Total loans	$	5,017,077	$	4,350,001	$	667,076		15.3	%	$	5,149,497	$	4,350,001	$	799,496		18	%

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.


	For the Quarter ended						For the Quarter ended
($ in thousands, except per share data)	Mar 31, 2019		Dec 31, 2018		Mar 31, 2018		Jun 30, 2019		Mar 31, 2019		Jun 30, 2018
Average shareholder’s equity	$	662,454	$	597,864	$	554,066	$	813,106	$	662,454	$	568,555
Less: Average goodwill	141,422		117,345		117,345		211,251		141,422		117,345
Less: Average intangible assets	14,472		8,841		10,715		29,965		14,472		10,074
Average tangible common equity	506,560		471,678		426,006		571,890		506,560		441,136