UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q



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

For the quarterly period ended ~~June~~September 30, 2019.



☐		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

ENTERPRISE FINANCIAL SERVICES CORP

Incorporated in the State of Delaware

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

Address: 150 North Meramec

Clayton, MO 63105

Telephone: (314) 725-5500

___________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Securities registered pursuant to Section 12(b) of the Act:



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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	☒	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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ☐ No ☒

As of ~~July 24,~~October 23, 2019, the Registrant had ~~26,881,832~~26,518,924 shares of outstanding common stock, $0.01 par value per share.

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

TABLE OF CONTENTS



		Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets (Unaudited)		1

Condensed Consolidated Statements of Operations (Unaudited)		2

Condensed Consolidated Statements of Comprehensive Income (Unaudited)		3

Condensed Consolidated Statements of Shareholders’ 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		32

Item 3. Quantitative and Qualitative Disclosures About Market Risk		53

Item 4. Controls and Procedures		54

PART II - OTHER INFORMATION

Item 1. Legal Proceedings		54

Item 1A. Risk Factors		55

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		56

Item 3. Defaults Upon Senior Securities		56

Item 4. Mine Safety Disclosures		56

Item 5. Other Information		56

Item 6. Exhibits		5758

Signatures		5960

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)	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Assets
Cash and due from banks	$	106,835		$	91,511		$	153,730		$	91,511
Federal funds sold	2,744			1,714			2,829			1,714
Interest-earning deposits (including $14,195 and $1,305 pledged as collateral, respectively)	79,821			103,327
Interest-earning deposits (including $17,785 and $1,305 pledged as collateral, respectively)							99,943			103,327
Total cash and cash equivalents	189,400			196,552			256,502			196,552
Interest-earning deposits greater than 90 days	2,750			3,185			3,975			3,185
Securities available for sale	1,223,052			721,369			1,247,333			721,369
Securities held to maturity, at cost	62,725			65,679			60,786			65,679
Loans held for sale	1,437			392			6,281			392
Loans	5,149,497			4,350,001			5,228,014			4,350,001
Less: Allowance for loan losses	43,822			43,476			44,555			43,476
Loans, net	5,105,675			4,306,525			5,183,459			4,306,525
Other real estate	10,531			469
Other investments, at cost	42,990			26,654			46,867			26,654
Fixed assets, net	58,888			32,109			59,216			32,109
Operating lease right-of-use asset	14,164			—
Accrued interest receivable	27,008			16,069
State tax credits held for sale, at cost	37,294			37,587
Goodwill	211,251			117,345			211,251			117,345
Intangible assets, net	29,201			8,553			27,626			8,553
Bank-owned life insurance	101,416			73,233
Other assets	64,073			39,941			243,495			167,299
Total assets	$	7,181,855		$	5,645,662		$	7,346,791		$	5,645,662

Liabilities and Shareholders' Equity
Demand deposits	$	1,181,577		$	1,100,718		$	1,295,450		$	1,100,718
Interest-bearing transaction accounts	1,392,586			1,037,684			1,307,855			1,037,684
Money market accounts	1,611,766			1,565,729			1,652,394			1,565,729
Savings	550,839			199,425			548,658			199,425
Certificates of deposit:
Brokered	213,138			198,981			209,754			198,981
Other	609,432			485,448			610,269			485,448
Total deposits	5,559,338			4,587,985			5,624,380			4,587,985
Subordinated debentures and notes (net of debt issuance cost of $940 and $1,005, respectively)	141,100			118,156
Subordinated debentures and notes (net of debt issuance cost of $907 and $1,005, respectively)							141,179			118,156
Federal Home Loan Bank advances	389,446			70,000			461,426			70,000
Other borrowings	160,961			221,450			162,920			221,450
Notes payable	37,143			2,000			36,714			2,000
Operating lease liability	14,815			—
Accrued interest payable	2,701			1,977
Other liabilities	50,850			40,290			74,077			42,267
Total liabilities	6,356,354			5,041,858			$	6,500,696		$	5,041,858

Commitments and contingent liabilities (Note 7)

Shareholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 0 shares issued and outstanding	—			—			—			—
Common stock, $0.01 par value; 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		)
Common stock, $0.01 par value; 45,000,000 shares authorized; 28,042,628 and 23,938,994 shares issued, respectively							280			239
Treasury stock, at cost; 1,429,861 and 1,127,105 shares, respectively							(54,472		)	(42,655		)
Additional paid in capital	523,454			350,936			524,916			350,936
Retained earnings	331,348			304,566			356,160			304,566
Accumulated other comprehensive income (loss)	13,074			(9,282		)	19,211			(9,282		)
Total shareholders' equity	825,501			603,804			846,095			603,804
Total liabilities and shareholders' equity	$	7,181,855		$	5,645,662		$	7,346,791		$	5,645,662

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)


	Three months ended June 30,						Six months ended June 30,				Three months ended September 30,				Nine months ended September 30,
(in thousands, except per share data)	2019			2018			2019		2018		2019		2018		2019		2018
Interest income:
Interest and fees on loans	$	69,628		$	52,948		$	130,653	$	103,398	$	71,214	$	55,383	$	201,867	$	158,781
Interest on debt securities:
Taxable	7,757			4,228			13,232		8,215		8,004		4,482		21,236		12,697
Nontaxable	861			271			1,308		553		969		263		2,277		816
Interest on interest-bearing deposits	703			231			1,150		471		572		306		1,722		777
Dividends on equity securities	252			201			475		406		319		323		794		729
Total interest income	79,201			57,879			146,818		113,043		81,078		60,757		227,896		173,800
Interest expense:
Interest-bearing transaction accounts	2,134			817			3,924		1,623		2,048		799		5,972		2,422
Money market accounts	6,996			4,445			13,511		7,798		6,959		5,423		20,470		13,221
Savings accounts	231			147			414		272		232		157		646		429
Certificates of deposit	3,758			2,338			7,090		4,237		3,970		2,878		11,060		7,115
Subordinated debentures and notes	1,958			1,454			3,606		2,822		1,956		1,483		5,562		4,305
Federal Home Loan Bank advances	1,696			1,448			3,094		2,706		2,203		1,729		5,297		4,435
Notes payable and other borrowings	713			182			1,121		366		664		195		1,785		561
Total interest expense	17,486			10,831			32,760		19,824		18,032		12,664		50,792		32,488
Net interest income	61,715			47,048			114,058		93,219		63,046		48,093		177,104		141,312
Provision for loan losses	1,722			390			3,198		2,261		1,833		2,263		5,031		4,524
Net interest income after provision for loan losses	59,993			46,658			110,860		90,958		61,213		45,830		172,073		136,788
Noninterest income:
Service charges on deposit accounts	3,366			3,007			6,301		5,858		3,246		2,997		9,547		8,855
Wealth management revenue	2,661			2,141			4,653		4,255		2,661		2,012		7,314		6,267
Card services revenue	2,461			1,650			4,251		3,166		2,494		1,760		6,745		4,926
Gain (loss) on sale of other real estate	(18		)	—			48		—
Tax credit income	572			64			730		316		1,238		192		1,968		508
Gain on sale of investment securities											337		—		337		9
Miscellaneous income	2,922			2,831			5,211		5,640		3,588		1,449		8,847		7,080
Total noninterest income	11,964			9,693			21,194		19,235		13,564		8,410		34,758		27,645
Noninterest expense:
Employee compensation and benefits	20,687			16,582			40,039		33,073		20,845		16,297		60,884		49,370
Occupancy	3,188			2,342			5,825		4,748		3,179		2,394		9,004		7,142
Data processing	2,458			1,533			4,364		3,000		2,051		1,634		6,415		4,634
Professional fees	1,037			747			1,783		1,596		1,064		1,023		2,847		2,619
FDIC and other insurance	815			920			1,663		1,837
Loan legal and other real estate expense	818			(23		)	1,300		276
Merger related expenses	10,306			—			17,576		—		393		—		17,969		—
Other	9,745			7,118			16,342		13,832		10,707		8,574		30,012		24,519
Total noninterest expense	49,054			29,219			88,892		58,362		38,239		29,922		127,131		88,284

Income before income tax expense	22,903			27,132			43,162		51,831		36,538		24,318		79,700		76,149
Income tax expense	4,479			4,881			8,582		8,659		7,469		1,802		16,051		10,461
Net income	$	18,424		$	22,251		$	34,580	$	43,172	$	29,069	$	22,516	$	63,649	$	65,688

Earnings per common share
Basic	$	0.69		$	0.96		$	1.36	$	1.87	$	1.09	$	0.97	$	2.46	$	2.84
Diluted	0.68			0.95			1.36		1.85		1.08		0.97		2.45		2.81

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)


	Three months ended June 30,						Six months ended June 30,						Three months ended September 30,						Nine months ended September 30,
(in thousands)	2019			2018			2019			2018			2019			2018			2019			2018
Net income	$	18,424		$	22,251		$	34,580		$	43,172		$	29,069		$	22,516		$	63,649		$	65,688
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities arising during the period, net of income tax expense (benefit) for three months of $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		)	—
Unrealized gains (losses) on investment securities arising during the period, net of income tax expense (benefit) for three months of $2,306 and $(1,328), and for nine months of $10,293 and $(3,926), respectively													7,028			(4,047		)	31,377			(11,968		)
Reclassification adjustment for realized gains on sale of securities available for sale included in net income, net of income tax expense for three months of $83 and $0, and for nine months of $11 and $2, respectively													(254		)	—			(34		)	(7		)
Unrealized loss on cash flow hedges arising during the 2019 periods, net of income tax benefit for three months of $219 and for nine months of $947													(669		)	—			(2,886		)	—
Reclassification of loss on cash flow hedge arising during the 2019 periods, net of income tax benefit for three months of $10 and for nine months of $12													32			—			36			—
Total other comprehensive income (loss)	11,584			(1,017		)	22,356			(7,928		)	6,137			(4,047		)	28,493			(11,975		)
Total comprehensive income	$	30,008		$	21,234		$	56,936		$	35,244		$	35,206		$	18,469		$	92,142		$	53,713

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)


(in thousands, except per share data)	Common Stock		Treasury Stock			Additional paid in capital			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity			Common Stock		Treasury Stock			Additional paid in capital			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
Balance at 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
Net income	—		—			—			18,424			—			18,424			—		—			—			29,069			—			29,069
Other comprehensive income	—		—			—			—			11,584			11,584			—		—			—			—			6,137			6,137
Total comprehensive income	—		—			—			18,424			11,584			30,008			—		—			—			29,069			6,137			35,206
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
Cash dividends paid on common shares, $0.16 per share																		—		—			—			(4,257		)	—			(4,257		)
Repurchase of common shares																		—		(11,817		)	—			—			—			(11,817		)
Issuance under equity compensation plans, 9,382 shares, net																		—		—			353			—			—			353
Share-based compensation	—		—			986			—			—			986			—		—			1,109			—			—			1,109
Balance at June 30, 2019	$	280	$	(42,655	)	$	523,454		$	331,348		$	13,074		$	825,501
Balance at September 30, 2019																		$	280	$	(54,472	)	$	524,916		$	356,160		$	19,211		$	846,095

Balance at December 31, 2018	$	239	$	(42,655	)	$	350,936		$	304,566		$	(9,282	)	$	603,804		$	239	$	(42,655	)	$	350,936		$	304,566		$	(9,282	)	$	603,804
Net income	—		—			—			34,580			—			34,580			—		—			—			63,649			—			63,649
Other comprehensive income	—		—			—			—			22,356			22,356			—		—			—			—			28,493			28,493
Total comprehensive income	—		—			—			34,580			22,356			56,936			—		—			—			63,649			28,493			92,142
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		)
Cash dividends paid on common shares, $0.45 per share																		—		—			—			(12,055		)	—			(12,055		)
Repurchase of common shares																		—		(11,817		)	—			—			—			(11,817		)
Issuance under equity compensation plans, 112,812 shares, net																		1		—			(881		)	—			—			(880		)
Share-based compensation	—		—			1,907			—			—			1,907			—		—			3,016			—			—			3,016
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 June 30, 2019	$	280	$	(42,655	)	$	523,454		$	331,348		$	13,074		$	825,501
Balance at September 30, 2019																		$	280	$	(54,472	)	$	524,916		$	356,160		$	19,211		$	846,095

(in thousands, except per share data)	Common Stock		Treasury Stock			Additional paid in capital			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity			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
Balance at June 30, 2018																		$	239	$	(26,326	)	$	348,471		$	264,280		$	(12,580	)	$	574,084
Net income	—		—			—			22,251			—			22,251			—		—			—			22,516			—			22,516
Other comprehensive loss	—		—			—			—			(1,017		)	(1,017		)	—		—			—			—			(4,047		)	(4,047		)
Total comprehensive income (loss)	—		—			—			22,251			(1,017		)	21,234			—		—			—			22,516			(4,047		)	18,469
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		)
Cash dividends paid on common shares, $0.12 per share																		—		—			—			(2,780		)	—			(2,780		)
Repurchase of common shares																		—		(3,782		)	—			—			—			(3,782		)
Issuance under equity compensation plans, 18,592 shares, net																		—		—			(77		)	—			—			(77		)
Share-based compensation	—		—			913			—			—			913			—		—			923			—			—			923
Balance at June 30, 2018	$	239	$	(26,326	)	$	348,471		$	264,280		$	(12,580	)	$	574,084
Reclassification adjustment for change in accounting policies																		—		—			—			834			(834		)	—
Balance at September 30, 2018																		$	239	$	(30,108	)	$	349,317		$	284,016		$	(16,627	)	$	586,837

Balance at December 31, 2017	$	238	$	(23,268	)	$	350,061		$	225,360		$	(3,818	)	$	548,573		$	238	$	(23,268	)	$	350,061		$	225,360		$	(3,818	)	$	548,573
Net income	—		—			—			43,172			—			43,172			—		—			—			65,688			—			65,688
Other comprehensive loss	—		—			—			—			(7,928		)	(7,928		)	—		—			—			—			(11,975		)	(11,975		)
Total comprehensive income (loss)	—		—			—			43,172			(7,928		)	35,244			—		—			—			65,688			(11,975		)	53,713
Cash dividends paid on common shares, $0.22 per share	—		—			—			(5,086		)	—			(5,086		)
Cash dividends paid on common shares, $0.34 per share																		—		—			—			(7,866		)	—			(7,866		)
Repurchase of common shares	—		(3,058		)	—			—			—			(3,058		)	—		(6,840		)	—			—			—			(6,840		)
Issuance under equity compensation plans, 119,557 shares, net	1		—			(3,221		)	—			—			(3,220		)
Issuance under equity compensation plans, 138,149 shares, net																		1		—			(3,298		)	—			—			(3,297		)
Share-based compensation	—		—			1,631			—			—			1,631			—		—			2,554			—			—			2,554
Reclassification adjustment for change in accounting policies	—		—			—			834			(834		)	—			—		—			—			834			(834		)	—
Balance at June 30, 2018	$	239	$	(26,326	)	$	348,471		$	264,280		$	(12,580	)	$	574,084
Balance at September 30, 2018																		$	239	$	(30,108	)	$	349,317		$	284,016		$	(16,627	)	$	586,837

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)


	Six months ended June 30,						Nine months ended September 30,
(in thousands, except share data)	2019			2018			2019			2018
Cash flows from operating activities:
Net income	$	34,580		$	43,172		$	63,649		$	65,688
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	2,743			1,707			4,187			2,622
Provision for loan losses	3,198			2,261			5,031			4,524
Deferred income taxes	3,813			3,156			4,777			2,822
Net amortization of debt securities	1,189			956			2,009			1,338
Amortization of intangible assets	2,418			1,288			3,993			1,908
Loss (gain) on sale of investment securities	292			(9		)
Gain on sale of investment securities							(45		)	(9		)
Mortgage loans originated for sale	(11,645		)	(25,064		)	(39,260		)	(30,136		)
Proceeds from mortgage loans sold	10,629			27,070			33,503			32,839
Gain on sale of other real estate	(48		)	—			(59		)	(13		)
Gain on state tax credits, net	(107		)	(316		)	(469		)	(508		)
Share-based compensation	1,907			1,631			3,016			2,554
Accretion of loan discount	(4,702		)	(793		)	(8,101		)	(1,253		)
Changes in:
Accrued interest receivable	(6,942		)	(3,739		)	(1,031		)	(5,811		)
Accrued interest payable	354			154			560			703
Other assets	(9,697		)	(809		)	1,270			(16,309		)
Other liabilities	(7,415		)	1,203			(6,460		)	(1,093		)
Net cash provided by operating activities	20,567			51,868			66,570			59,866
Cash flows from investing activities:
Acquisition cash purchase price, net of cash and cash equivalents acquired	(23,377		)	—			(23,377		)	—
Increase in loans	(121,115		)	(178,386		)	(197,514		)	(172,449		)
Proceeds from the sale of securities, available for sale	263,298			1,451
Proceeds from the paydown or maturity of securities, available for sale	58,229			40,743
Proceeds from the paydown or maturity of securities, held to maturity	2,864			3,239
Proceeds from the redemption of other investments	31,138			22,728
Proceeds from the sale of state tax credits held for sale	2,252			1,940
Proceeds from the sale of other real estate	2,281			—
Proceeds received from:
Sale of debt securities, available for sale							314,189			1,451
Paydown or maturity of debt securities, available for sale							95,386			61,881
Paydown or maturity of debt securities, held to maturity							4,760			4,988
Redemption of other investments							43,034			30,593
Sale of state tax credits held for sale							3,978			3,056
Sale of other real estate							4,380			467
Payments for the purchase of:
Available for sale debt securities	(363,900		)	(62,055		)	(467,695		)	(108,121		)
Other investments	(43,589		)	(33,719		)	(61,226		)	(44,597		)
State tax credits held for sale	(1,852		)	(4,636		)	(9,666		)	(4,704		)
Fixed assets, net	(2,236		)	(1,915		)	(4,008		)	(2,369		)
Net cash used in investing activities	(196,007		)	(210,610		)	(297,759		)	(229,804		)
Cash flows from financing activities:
Net decrease in noninterest-bearing deposit accounts	(88,219		)	(72,938		)
Net increase (decrease) in noninterest-bearing deposit accounts							25,653			(61,781		)
Net increase (decrease) in interest-bearing deposit accounts	(21,615		)	164,436			(70,446		)	115,843
Proceeds from Federal Home Loan Bank advances	962,000			907,500			1,352,000			1,142,500
Repayments of Federal Home Loan Bank advances	(649,500		)	(718,500		)	(967,500		)	(914,000		)
Proceeds from notes payable	40,000			—			41,000			—
Repayments of notes payable	(4,857		)	—			(6,286		)	—
Net decrease in other borrowings	(60,490		)	(86,458		)	(58,530		)	(91,879		)
Cash dividends paid on common stock	(7,798		)	(5,086		)	(12,055		)	(7,866		)
Payments for the repurchase of common stock	—			(3,058		)	(11,817		)	(6,840		)
Payments for the issuance of equity instruments, net	(1,233		)	(3,220		)	(880		)	(3,297		)
Net cash provided by financing activities	168,288			182,676			291,139			172,680
Net increase in cash and cash equivalents	(7,152		)	23,934			59,950			2,742
Cash and cash equivalents, beginning of period	196,552			153,323			196,552			153,323
Cash and cash equivalents, end of period	$	189,400		$	177,257		$	256,502		$	156,065
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	32,036		$	19,670		$	49,862		$	31,785
Income taxes	11,915			780			12,955			8,492
Noncash transactions:
Transfer to other real estate owned in settlement of loans	$	7,783		$	—		$	7,964		$	—
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,” “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~~nine months ended ~~June~~September 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~~utilizes third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. The results of operations of the acquired business are included in the Company’s consolidated financial statements from the date of acquisition. ~~Merger related~~Merger-related costs are costs the Company incurs to effect a business combination. The Company presents ~~merger related~~merger-related expenses as a separate component of ~~Noninterest~~noninterest expenses on the Condensed Consolidated Statements of Operations. ~~Merger related~~Merger-related expenses include costs directly related to merger or acquisition activity and include legal and professional fees, system consolidation and conversion costs, gain or loss on sale of investment securities incurred through repositioning the acquired investment portfolio, and compensation costs such as severance and retention incentives for employees impacted by acquisition activity. The Company accounts for merger-related costs as expenses in the periods in which the costs are incurred and the services are received.

Revenue

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

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

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

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

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

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

Leases

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

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

Derivative Instruments and Hedging Activities

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

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

The 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. 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"~~(“ARRC”) has proposed that the Secured Overnight Funding Rate ~~("SOFR"~~(“SOFR”) replace LIBOR. ARRC has proposed ~~that~~ the transition to SOFR from LIBOR ~~will take place by~~until the end of 2021. The Company has material contracts indexed to LIBOR. Industry organizations are currently working on the transition plan. The Company is monitoring this activity and evaluating the risks involved.

NOTE 2 - ACQUISITION

Acquisition of Trinity Capital Corporation.

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

Trinity shareholders received cash consideration of $1.84 per share of Trinity common stock and 0.1972 shares of EFSC common stock per share of Trinity common stock with cash in lieu of fractional shares. Aggregate consideration at closing was 4.0 million shares of EFSC common stock and $37.3 million cash paid to Trinity shareholders. Based on EFSC’s closing stock price of $43.07 on March 7, 2019, the overall transaction had a value of $209.2 million. The Company recognized ~~$17.6~~$18.0 million and $1.3 million of ~~merger related~~merger-related costs recorded in noninterest expense in the statement of operations for the ~~six~~nine months ended ~~June~~September 30, 2019, and the year ended December 31, 2018, respectively.

The acquisition of Trinity has been accounted for as a business combination using the acquisition method of accounting which requires assets acquired and liabilities assumed to be recognized at fair value as of the 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 $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 Trinity		Adjustments				As Recorded by EFSC
Assets acquired:
Cash and cash equivalents	$	13,899	$	—			$	13,899
Interest-earning deposits greater than 90 days	100		—				100
Securities	428,715		(619		)	(a)	428,096
Loans	705,057		(20,743		)	(b)	684,314
Other real estate	5,284		(772		)	(c)	4,512
Other investments	6,673		—				6,673
Fixed assets	27,586		(300		)	(d)	27,286
Accrued interest receivable	3,997		—				3,997
Intangible assets	—		23,066			(e)	23,066
Deferred tax assets	10,708		(1,057		)	(f)	9,651
Other assets	35,045		(5,008		)	(g)	30,037
Total assets acquired	$	1,237,064	$	(5,433	)		$	1,231,631

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

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

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

Goodwill							$	93,906

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


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


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


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


(e)	Record the core deposit intangible asset on the acquired core deposit accounts. Amount to be amortized using a sum of years digits method over a useful life of 10 years.


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


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


(h)	Fair value adjustment to time deposits.


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


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


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

The following table provides the unaudited pro forma information for the results of operations for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, as if the acquisition had occurred on January 1, 2018. The pro forma results combine the historical results of Trinity with the Company’s Consolidated Statements of Income, adjusted for the

impact of the application of the acquisition method of accounting including loan discount accretion, intangible assets amortization, and deposit and trust preferred securities premium accretion, net of taxes. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2018. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions. Only the ~~acquisition related~~acquisition-related expenses that have been incurred as of ~~June~~September 30, 2019 are included in net income in the table below.


	Pro Forma				Pro Forma
	Six months ended June 30,				Nine months ended September 30,
(in thousands, except per share data)	2019		2018		2019		2018
Total revenues (net interest income plus noninterest income)	$	144,915	$	140,612	$	221,055	$	211,004
Net income	48,987		33,616		78,055		59,473
Diluted earnings per common share	1.65		1.23		3.00		2.18

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,				Three months ended September 30,				Nine months ended September 30,
(in thousands, except per share data)	2019		2018		2019		2018		2019		2018		2019		2018
Net income as reported	$	18,424	$	22,251	$	34,580	$	43,172	$	29,069	$	22,516	$	63,649	$	65,688

Weighted average common shares outstanding	26,887		23,124		25,415		23,119		26,778		23,148		25,878		23,129
Additional dilutive common stock equivalents	53		194		73		213		90		181		98		211
Weighted average diluted common shares outstanding	26,940		23,318		25,488		23,332		26,868		23,329		25,976		23,340

Basic earnings per common share:	$	0.69	$	0.96	$	1.36	$	1.87	$	1.09	$	0.97	$	2.46	$	2.84
Diluted earnings per common share:	0.68		0.95		$	1.36	$	1.85	1.08		0.97		$	2.45	$	2.81

For the three and ~~six~~nine months ended ~~June~~September 30, 2019 ~~there were approximately 130,000 and 99,000, respectively,~~ common stock equivalents of approximately 21,000 and 26,000, respectively, were excluded from the earnings per share calculations because their effect would have been anti-dilutive. For the comparable periods in 2018, the amounts were immaterial.

NOTE 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									September 30, 2019
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		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	$	9,949	$	84	$	—		$	10,033
Obligations of states and political subdivisions	114,173		4,523		—			118,696		164,263		6,298		(248		)	170,313
Agency mortgage-backed securities	911,770		14,122		(1,845		)	924,047		917,102		18,021		(1,012		)	934,111
U.S. Treasury bills	9,966		239		—			10,205		9,969		278		—			10,247
Corporate debt securities	116,434		3,519		—			119,953		116,355		6,274		—			122,629
Total securities available for sale	$	1,202,341	$	22,556	$	(1,845	)	$	1,223,052	$	1,217,638	$	30,955	$	(1,260	)	$	1,247,333
Held to maturity securities:
Obligations of states and political subdivisions	$	12,474	$	160	$	(1	)	$	12,633	$	12,468	$	167	$	—		$	12,635
Agency mortgage-backed securities	50,251		251		(74		)	50,428		48,318		670		—			48,988
Total securities held to maturity	$	62,725	$	411	$	(75	)	$	63,061	$	60,786	$	837	$	—		$	61,623



	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 ~~June~~September 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 ~~$460.7~~$416.0 million and $433.7 million at ~~June~~September 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 ~~June~~September 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				Available for sale				Held to maturity
(in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	1,571	$	1,579	$	—	$	—	$	1,079	$	1,086	$	—	$	—
Due after one year through five years	67,794		68,369		3,883		3,931		27,564		28,081		3,879		3,929
Due after five years through ten years	127,156		131,019		8,591		8,702		127,062		133,705		8,589		8,706
Due after ten years	94,050		98,038		—		—		144,831		150,350		—		—
Agency mortgage-backed securities	911,770		924,047		50,251		50,428		917,102		934,111		48,318		48,988
	$	1,202,341	$	1,223,052	$	62,725	$	63,061	$	1,217,638	$	1,247,333	$	60,786	$	61,623

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


	June 30, 2019												September 30, 2019
	Less than 12 months				12 months or more				Total				Less than 12 months				12 months or more				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of states and political subdivisions	386		1		839		—		1,225		1		$	36,066	$	248	$	—	$	—	$	36,066	$	248
Agency mortgage-backed securities	17,122		300		178,017		1,619		195,139		1,919		124,823		352		55,333		660		180,156		1,012
	$	17,508	$	301	$	178,856	$	1,619	$	196,364	$	1,920	$	160,889	$	600	$	55,333	$	660	$	216,222	$	1,260

	December 31, 2018												December 31, 2018
	Less than 12 months				12 months or more				Total				Less than 12 months				12 months or more				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		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	$	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		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		87,357		2,211		389,770		11,285		477,127		13,496
U.S. Treasury bills	—		—		9,925		37		9,925		37		—		—		9,925		37		9,925		37
	$	110,081	$	2,548	$	492,727	$	12,610	$	602,808	$	15,158	$	110,081	$	2,548	$	492,727	$	12,610	$	602,808	$	15,158

The unrealized losses at both ~~June~~September 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 ~~June~~September 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) 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)	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Loans accounted for at amortized cost	$	5,046,182	$	4,303,600	$	5,132,391	$	4,303,600
Loans accounted for as PCI	103,315		46,401		95,623		46,401
Total loans	$	5,149,497	$	4,350,001	$	5,228,014	$	4,350,001

At ~~June~~September 30, 2019, loans acquired in the Trinity acquisition included ~~$600~~$562.4 million accounted for at amortized cost and ~~$68~~$62.2 million accounted for as PCI. These loans were recorded at fair value with no allowance for loan losses.

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

(in thousands)

June 30, 2019 December 31, 2018
Allowance for loans accounted for at amortized cost $ 42,935
$ 42,295
Allowance for loans accounted for as PCI 887
1,181
Total allowance for loan losses $ 43,822
$ 43,476

~~The following tables are not applicable to PCI loans.~~



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

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


(in thousands)	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Commercial and industrial	$	2,248,571		$	2,121,008		$	2,287,722		$	2,121,008
Real estate:
Commercial - investor owned	1,198,308			843,728			1,247,691			843,728
Commercial - owner occupied	678,046			604,498			660,433			604,498
Construction and land development	396,370			330,097			425,639			330,097
Residential	395,828			298,944			374,162			298,944
Total real estate loans	2,668,552			2,077,267			2,707,925			2,077,267
Consumer and other	131,041			107,351			139,090			107,351
Loans, before unearned loan fees	5,048,164			4,305,626			5,134,737			4,305,626
Unearned loan fees, net	(1,982		)	(2,026		)	(2,346		)	(2,026		)
Loans, including unearned loan fees	$	5,046,182		$	4,303,600		$	5,132,391		$	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 ~~June~~September 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			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		$	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			1,445			769			(431		)	(252		)	(288		)	233			1,476
Losses charged off	(1,853		)	(120		)	(36		)	(45		)	(67		)	(129		)	(2,250		)	(1,853		)	(120		)	(36		)	(45		)	(67		)	(129		)	(2,250		)
Recoveries	29			7			2			9			364			13			424			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		$	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			1,781			364			591			(216		)	(345		)	(215		)	1,960
Losses charged off	(1,380		)	(431		)	—			—			(26		)	(53		)	(1,890		)	(1,380		)	(431		)	—			—			(26		)	(53		)	(1,890		)
Recoveries	32			52			6			489			124			217			920			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		$	29,093		$	5,324		$	4,371		$	1,972		$	1,378		$	797		$	42,935
Provision (provision reversal) for loan losses																						867			333			419			(88		)	193			109			1,833
Losses charged off																						(1,295		)	—			(22		)	—			(255		)	(86		)	(1,658		)
Recoveries																						209			11			3			260			65			40			588
Balance at September 30, 2019																						$	28,874		$	5,668		$	4,771		$	2,144		$	1,381		$	860		$	43,698


(in thousands)	Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Consumer and other		Total		Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Consumer and other		Total
Balance June 30, 2019
Balance September 30, 2019
Allowance for loan losses - Ending balance:	Allowance for loan losses - Ending balance:														Allowance for loan losses - Ending balance:
Individually evaluated for impairment	$	2,402	$	165	$	9	$	—	$	23	$	—	$	2,599	$	2,023	$	258	$	—	$	—	$	116	$	11	$	2,408
Collectively evaluated for impairment	26,691		5,159		4,362		1,972		1,355		797		40,336		26,851		5,410		4,771		2,144		1,265		849		41,290
Total	$	29,093	$	5,324	$	4,371	$	1,972	$	1,378	$	797	$	42,935	$	28,874	$	5,668	$	4,771	$	2,144	$	1,381	$	860	$	43,698
Loans - Ending balance:
Individually evaluated for impairment	$	15,112	$	1,284	$	1,629	$	—	$	3,060	$	—	$	21,085	$	11,433	$	2,637	$	1,423	$	—	$	1,267	$	11	$	16,771
Collectively evaluated for impairment	2,233,459		1,197,024		676,417		396,370		392,768		129,059		5,025,097		2,276,289		1,245,054		659,010		425,639		372,895		136,733		5,115,620
Total	$	2,248,571	$	1,198,308	$	678,046	$	396,370	$	395,828	$	129,059	$	5,046,182	$	2,287,722	$	1,247,691	$	660,433	$	425,639	$	374,162	$	136,744	$	5,132,391

Balance December 31, 2018
Allowance for loan losses - Ending balance:	Allowance for loan losses - Ending balance:														Allowance for loan losses - Ending balance:
Individually evaluated for impairment	$	4,266	$	—	$	109	$	—	$	52	$	26	$	4,453	$	4,266	$	—	$	109	$	—	$	52	$	26	$	4,453
Collectively evaluated for impairment	24,773		4,683		4,130		1,987		1,564		705		37,842		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	$	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	$	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		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	$	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 ~~June~~September 30, 2019 and December 31, 2018, and the income recognized on impaired loans is as follows:

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
Commercial and industrial $ 28,835
$ 6,826
$ 8,286
$ 15,112
$ 2,402
$ 16,728
Real estate:
    Commercial - investor owned 1,948
459
825
1,284
165
1,460
    Commercial - owner occupied 405
231
155
386
9
393
    Construction and land development —
—
—
—
—
—
    Residential 3,069
2,928
132
3,060
23
1,869
Consumer and other —
—
—
—
—
—
Total $ 34,257
$ 10,444

$ 9,398

$ 19,842

$ 2,599

$ 20,450



	September 30, 2019
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and industrial	$	24,233	$	1,096	$	10,337	$	11,433	$	2,023	$	12,429
Real estate:
Commercial - investor owned	3,312		1,135		1,502		2,637		258		2,525
Commercial - owner occupied	245		221		—		221		—		27
Construction and land development	—		—		—		—		—		—
Residential	1,388		1,021		246		1,267		116		1,782
Consumer and other	1		—		11		11		11		11
Total	$	29,179	$	3,473	$	12,096	$	15,569	$	2,408	$	16,774



	December 31, 2018
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and industrial	$	21,893	$	3,294	$	9,656	$	12,950	$	4,266	$	13,827
Real estate:
Commercial - investor owned	553		398		—		398		—		277
Commercial - owner occupied	847		472		336		808		109		691
Construction and land development	—		—		—		—		—		—
Residential	2,425		1,659		618		2,277		52		778
Consumer and other	329		—		312		312		26		—
Total	$	26,047	$	5,823	$	10,922	$	16,745	$	4,453	$	15,573


	Three months ended June 30,				Six months ended June 30,				Three months ended September 30,				Nine months ended September 30,
(in thousands)	2019		2018		2019		2018		2019		2018		2019		2018
Total interest income that would have been recognized under original terms	$	210	$	467	$	647	$	1,001	$	247	$	614	$	893	$	1,615
Total cash received and recognized as interest income on non-accrual loans	123		78		185		89		77		68		262		157
Total interest income recognized on accruing, impaired loans	110		13		113		23
Total interest income recognized on accruing impaired loans									3		110		115		133

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


	June 30, 2019								September 30, 2019
(in thousands)	Non-accrual		Restructured, accruing		Loans over 90 days past due and still accruing interest		Total		Non-accrual		Restructured, accruing		Loans over 90 days past due and still accruing interest		Total
Commercial and industrial	$	11,009	$	104	$	3,999	$	15,112	$	11,409	$	—	$	24	$	11,433
Real estate:
Commercial - investor owned	1,284		—		—		1,284		2,637		—		—		2,637
Commercial - owner occupied	386		—		—		386		221		—		—		221
Construction and land development	—		—		—		—		—		—		—		—
Residential	2,980		80		—		3,060		1,162		79		26		1,267
Consumer and other	—		—		—		—		1		—		10		11
Total	$	15,659	$	184	$	3,999	$	19,842	$	15,430	$	79	$	60	$	15,569



	December 31, 2018
(in thousands)	Non-accrual		Restructured, accruing		Total
Commercial and industrial	$	12,805	$	145	$	12,950
Real estate:
Commercial - investor owned	398		—		398
Commercial - owner occupied	808		—		808
Construction and land development	—		—		—
Residential	2,197		80		2,277
Consumer and other	312		—		312
Total	$	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 at December 31, 2018.

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



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

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



	September 30, 2019					September 30, 2018
(in thousands, except for number of loans)	Number of loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial	—	$	—	$	—	1	$	187	$	187
Real estate:
Commercial - owner occupied	1	188		188		—	—		—
Residential	2	332		332		—	—		—
Total	3	$	520	$	520	1	$	187	$	187

As of ~~June~~September 30, 2019, the Company had ~~$1.0~~$0.6 million in specific reserves allocated to restructured loans totaling ~~$3.5~~$3.3 million.

Restructured loans that subsequently defaulted during the three ~~and six~~ months ended ~~June~~September 30, 2019 included ~~one~~1 commercial and industrial loan with a recorded balance of ~~$272,000.~~$0.1 million. Restructured loans that subsequently defaulted for the nine months ended September 30, 2019 included 2 commercial and industrial loans with an aggregate recorded balance of $0.4 million. There were no troubled debt restructured loans that subsequently defaulted during the three and ~~six~~nine months ended ~~June~~September 30, 2018.

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


	June 30, 2019										September 30, 2019
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total		30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	6,682	$	12,562	$	19,244	$	2,229,327	$	2,248,571	$	6,913	$	7,314	$	14,227	$	2,273,495	$	2,287,722
Real estate:
Commercial - investor owned	1,647		1,096		2,743		1,195,565		1,198,308		2,408		2,000		4,408		1,243,283		1,247,691
Commercial - owner occupied	415		155		570		677,476		678,046		1,166		—		1,166		659,267		660,433
Construction and land development	41		—		41		396,329		396,370		62		—		62		425,577		425,639
Residential	1,147		2,649		3,796		392,032		395,828		2,098		1,183		3,281		370,881		374,162
Consumer and other	131		—		131		128,928		129,059		107		—		107		136,637		136,744
Total	$	10,063	$	16,462	$	26,525	$	5,019,657	$	5,046,182	$	12,754	$	10,497	$	23,251	$	5,109,140	$	5,132,391



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

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, payment experience, credit documentation, and current economic factors among other factors. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:


•	Grades 1, 2, and 3 – Includes loans to borrowers with a continuous record of strong earnings, sound balance sheet condition and capitalization, ample liquidity with solid cash flow, and whose management team has experience and depth within their industry.


•	Grade 4 – Includes loans to borrowers with positive trends in profitability, satisfactory capitalization and balance sheet condition, and sufficient liquidity and cash flow.


•	Grade 5 – Includes loans to borrowers that may display fluctuating trends in sales, profitability, capitalization, liquidity, and cash flow.


•	Grade 6 – Includes loans to borrowers where an adverse change or perceived weakness has occurred, but may be correctable in the near future. Alternatively, this rating category may also include circumstances where the borrower is starting to reverse a negative trend or condition, or has recently been upgraded from a 7, 8, or 9 rating.


•	Grade 7 – Watch credits are borrowers that have experienced financial setback of a nature that is not determined to be severe or influence ‘ongoing concern’ expectations. Although possible, no loss is anticipated, due to strong collateral and/or guarantor support.


•	Grade 8 – Substandard credits include those borrowers characterized by significant losses and sustained downward trends in balance sheet condition, liquidity, and cash flow. Repayment reliance may have shifted to secondary sources. Collateral exposure may exist and additional reserves may be warranted.


•	Grade 9 – Doubtful credits include borrowers that may show deteriorating trends that are unlikely to be corrected. Collateral values may appear insufficient for full recovery, therefore requiring a partial charge-off, or debt renegotiation with the borrower. The borrower may have declared bankruptcy or bankruptcy is likely in the near term. All doubtful rated credits will be on non-accrual.

The recorded investment by risk category of the loans by portfolio class and category at ~~June~~September 30, 2019, which is based upon the most recent analysis performed, and December 31, 2018, is as follows:


	June 30, 2019								September 30, 2019
(in thousands)	Pass (1-6)		Watch (7)		Classified (8 & 9)		Total		Pass (1-6)		Watch (7)		Classified (8 & 9)		Total
Commercial and industrial	$	2,035,655	$	142,288	$	70,628	$	2,248,571	$	2,091,433	$	120,930	$	75,359	$	2,287,722
Real estate:
Commercial - investor owned	1,175,396		19,884		3,028		1,198,308		1,226,499		17,552		3,640		1,247,691
Commercial - owner occupied	648,403		26,463		3,180		678,046		625,365		28,763		6,305		660,433
Construction and land development	390,532		5,774		64		396,370		418,357		7,179		103		425,639
Residential	387,610		3,011		5,207		395,828		368,241		3,333		2,588		374,162
Consumer and other	129,059		—		—		129,059		136,738		—		6		136,744
Total	$	4,766,655	$	197,420	$	82,107	$	5,046,182	$	4,866,633	$	177,757	$	88,001	$	5,132,391



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

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


	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
(in thousands)	Weighted- Average Risk Rating¹	Recorded Investment PCI Loans		Weighted- Average Risk Rating¹	Recorded Investment PCI Loans		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	5.77	$	15,773	6.09	$	2,159
Real estate:
Commercial - investor owned	6.94	41,988		7.19	23,939		7.04	39,329		7.19	23,939
Commercial - owner occupied	6.68	22,616		7.39	9,669		6.58	20,435		7.39	9,669
Construction and land development	5.74	8,187		6.03	4,548		5.75	7,847		6.03	4,548
Residential	6.29	13,372		6.40	6,082		6.31	12,011		6.40	6,082
Total real estate loans		86,163			44,238			79,622			44,238
Consumer and other	5.11	243		2.18	4		5.54	228		2.18	4
Total		$	103,315		$	46,401		$	95,623		$	46,401
¹Risk ratings are based on the borrower’s contractual obligation, which is not reflective of the purchase discount.	¹Risk ratings are based on the borrower’s contractual obligation, which is not reflective of the purchase discount.						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 ~~June~~September 30, 2019 and December 31, 2018, is shown below:


	June 30, 2019										September 30, 2019
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total		30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	1,525	$	—	$	1,525	$	15,384	$	16,909	$	922	$	532	$	1,454	$	14,319	$	15,773
Real estate:
Commercial - investor owned	1,317		1,917		3,234		38,754		41,988		—		2,115		2,115		37,214		39,329
Commercial - owner occupied	—		1,381		1,381		21,235		22,616		—		1,023		1,023		19,412		20,435
Construction and land development	70		154		224		7,963		8,187		14		217		231		7,616		7,847
Residential	226		235		461		12,911		13,372		703		833		1,536		10,475		12,011
Consumer and other	—		—		—		243		243		—		35		35		193		228
Total	$	3,138	$	3,687	$	6,825	$	96,490	$	103,315	$	1,639	$	4,755	$	6,394	$	89,229	$	95,623



	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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018.


(in thousands)	Contractual Cashflows			Non-accretable Difference			Accretable Yield			Carrying Amount			Contractual Cashflows			Non-accretable Difference			Accretable Yield			Carrying Amount
Balance December 31, 2018	$	73,157		$	15,299		$	12,638		$	45,220		$	73,157		$	15,299		$	12,638		$	45,220
Acquisitions	111,963			13,542			30,238			68,183			111,963			13,542			30,238			68,183
Principal reductions and interest payments	(19,285		)	—			—			(19,285		)	(33,548		)	—			—			(33,548		)
Accretion of loan discount	—			—			(4,645		)	4,645			—			—			(8,014		)	8,014
Changes in contractual and expected cash flows due to remeasurement	7,725			(2,057		)	627			9,155			10,490			(2,057		)	(86		)	12,633
Reductions due to disposals	(8,709		)	(3,224		)	5			(5,490		)	(9,121		)	(3,345		)	(40		)	(5,736		)
Balance June 30, 2019	$	164,851		$	23,560		$	38,863		$	102,428
Balance September 30, 2019													$	152,941		$	23,439		$	34,736		$	94,766

Balance December 31, 2017	$	112,710		$	29,005		$	13,964		$	69,741		$	112,710		$	29,005		$	13,964		$	69,741
Principal reductions and interest payments	(22,667		)	—			—			(22,667		)	(38,165		)	—			—			(38,165		)
Accretion of loan discount	—			—			(3,400		)	3,400			—			—			(5,118		)	5,118
Changes in contractual and expected cash flows due to remeasurement	3,281			(8,771		)	4,124			7,928			4,341			(8,939		)	3,179			10,101
Balance June 30, 2018	$	93,324		$	20,234		$	14,688		$	58,402
Balance September 30, 2018													$	78,886		$	20,066		$	12,025		$	46,795

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

NOTE 6 - LEASES

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			For the six months ended			For the three months ended		For the nine months ended
(in thousands)	June 30, 2019						September 30, 2019
Operating lease cost	$	807		$	1,613		$	821	$	2,434
Short-term lease cost	73			134			81		215
Less: sublease income	$	(184	)	$	(272	)
Total lease cost	$	696		$	1,475		$	902	$	2,649

Payments on operating leases included in the measurement of lease liabilities during the ~~six~~nine months ended ~~June~~September 30, 2019 totaled ~~$1.6~~$2.4 million. Right-of-use assets obtained in exchange for lease obligations totaled $0.4 million during the nine months ended September 30, 2019.

Supplemental balance sheet information related to leases was as follows:


	As of			As of
(in thousands)	June 30, 2019			September 30, 2019
Operating lease right-of-use assets	$	14,164
Operating lease liabilities	14,815
Operating lease right-of-use assets, included in other assets				$	13,849
Operating lease liabilities, included in other liabilities				14,440

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

Maturities of operating lease liabilities were as follows:


(in thousands)
Year	Amount		Amount
2019	$	1,618	$	818
2020	3,246		3,329
2021	3,272		3,355
2022	2,709		2,795
2023	2,106		2,191
Thereafter	3,143		3,143
Total operating lease liabilities, payments	16,094		15,631
Less: present value adjustment	1,279		1,191
Operating lease liabilities	$	14,815	$	14,440

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

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

NOTE 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 ~~June~~September 30, 2019, the amount of unadvanced commitments on impaired loans was insignificant.

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


(in thousands)	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Commitments to extend credit	$	1,393,782	$	1,344,687	$	1,426,131	$	1,344,687
Letters of credit	52,060		44,665		51,375		44,665

Off-Balance Sheet Credit Risk

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments usually have fixed expiration dates or other termination clauses, may have significant usage restrictions, and may require payment of a fee. Of the total commitments to extend credit at ~~June~~September 30, 2019, and December 31, 2018, approximately ~~$134.3~~$128.4 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 ~~June~~September 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 ~~June~~September 30, 2019, the approximate remaining terms of standby letters of credit range from 1 month to 5 years.

Contingencies

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 the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional ~~$0.4~~$0.5 million will be reclassified as ~~a decrease~~an increase to interest expense.

Non-designated Hedges

Derivatives not designated as hedges are not considered speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in 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 ~~June~~September 30, 2019 and December 31, 2018.


	Derivative Assets										Derivative Liabilities						Derivative Assets										Derivative Liabilities
	June 30, 2019					December 31, 2018					June 30, 2019			December 31, 2018			September 30, 2019					December 31, 2018					September 30, 2019			December 31, 2018
(in thousands)	Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives Designated as Hedging Instruments
Interest rate swap	$	61,962	Other Assets	$	—	$	—	Other Assets	$	—	Other Liabilities	$	2,939	Other Liabilities	$	—	$	185,886	Other Assets	$	—	$	—	Other Assets	$	—	Other Liabilities	$	3,785	Other Liabilities	$	—
Total				$	—				$	—		$	2,939		$	—				$	—				$	—		$	3,785		$	—

Derivatives not Designated as Hedging Instruments
Interest rate swap	$	609,454	Other Assets	$	10,511	$	494,567	Other Assets	$	2,217	Other Liabilities	$	11,386	Other Liabilities	$	2,217	$	628,864	Other Assets	$	13,561	$	494,567	Other Assets	$	2,217	Other Liabilities	$	14,666	Other Liabilities	$	2,217
Foreign exchange forward contracts	613		Other Assets	613		806		Other Assets	806		Other Liabilities	613		Other Liabilities	806		—		Other Assets	—		806		Other Assets	806		Other Liabilities	—		Other Liabilities	806
Total				$	11,124				$	3,023		$	11,999		$	3,023				$	13,561				$	3,023		$	14,666		$	3,023

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

Amount of 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) Three months ended June 30, 2019 Three months ended June 30, 2019
Derivatives in Cash Flow Hedging Relationships
Interest rate swap $ (1,675 ) Interest Expense $ (6 )
Total $ (1,675 ) $ (6 )

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 )



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

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


As of June 30, 2019
As of September 30, 2019													As of September 30, 2019
							Gross Amounts Not Offset in the Statement of Financial Position												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		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	$	13,561	$	—	$	13,561	$	22	$	—	$	13,539

Liabilities:
Interest rate swap	$	14,325	$	—	$	14,325	$	97	$	13,982	$	246	$	18,451	$	—	$	18,451	$	22	$	17,785	$	644
Securities sold under agreements to repurchase	160,961		—		160,961		—		160,961		—		162,920		—		162,920		—		162,920		—
																									As of December 31, 2018
							Gross Amounts Not Offset in the Statement of Financial Position												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		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	$	2,217	$	—	$	2,217	$	—	$	—	$	2,217

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

As of ~~June~~September 30, 2019, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was ~~$14.3~~$18.5 million. Further, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of ~~$14.2~~$17.8 million.

NOTE 9 - FAIR VALUE MEASUREMENTS

The following table summarizes financial instruments measured at fair value on a recurring basis as of ~~June~~September 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								September 30, 2019
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value		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	$	—	$	10,033	$	—	$	10,033
Obligations of states and political subdivisions	—		118,696		—		118,696		—		170,313		—		170,313
Agency mortgage-backed securities	—		924,047		—		924,047		—		934,111		—		934,111
U.S. Treasury bills	—		10,205		—		10,205		—		10,247		—		10,247
Corporate debt securities	—		119,953				119,953		—		122,629				122,629
Total securities available for sale	—		1,223,052		—		1,223,052		—		1,247,333		—		1,247,333
Other investments	145		—		—		145		164		—		—		164
Derivatives	—		11,124		—		11,124		—		13,561		—		13,561
Total assets	$	145	$	1,234,176	$	—	$	1,234,321	$	164	$	1,260,894	$	—	$	1,261,058

Liabilities
Derivatives	$	—	$	14,938	$	—	$	14,938	$	—	$	18,451	$	—	$	18,451
Total liabilities	$	—	$	14,938	$	—	$	14,938	$	—	$	18,451	$	—	$	18,451



	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

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 ~~June~~September 30, 2019 and 2018.


	State tax credits held for sale										State tax credits held for sale
	Three months ended June 30,					Six months ended June 30,					Three months ended September 30,					Nine months ended September 30,
(in thousands)	2019		2018			2019		2018			2019		2018			2019		2018
Beginning balance	$	—	$	350		$	—	$	400		$	—	$	299		$	—	$	400
Total gains:
Included in earnings	—		3			—		6			—		7			—		13
Purchases, sales, issuances and settlements:
Sales	—		(54		)	—		(107		)	—		(135		)	—		(242		)
Ending balance	$	—	$	299		$	—	$	299		$	—	$	171		$	—	$	171

Change in unrealized gains (losses) relating to assets still held at the reporting date	$	—	$	(13	)	$	—	$	(26	)
Change in unrealized losses relating to assets still held at the reporting date											$	—	$	(34	)	$	—	$	(60	)

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.



	(1)		(1)		(1)		(1)						(1)		(1)		(1)		(1)
(in thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total losses for the three months ended June 30, 2019		Total losses for the six months ended June 30, 2019		Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total losses for the three months ended September 30, 2019		Total losses for the nine months ended September 30, 2019
Impaired loans	$	1,054	$	—	$	—	$	1,054	$	1,199	$	1,199	$	1,589	$	—	$	—	$	1,589	$	118	$	1,532
Total	$	1,054	$	—	$	—	$	1,054	$	1,199	$	1,199	$	1,589	$	—	$	—	$	1,589	$	118	$	1,532

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

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


	June 30, 2019				December 31, 2018				September 30, 2019				December 31, 2018
(in thousands)	Carrying Amount		Estimated fair value		Carrying Amount		Estimated fair value		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	$	153,730	$	153,730	$	91,511	$	91,511
Federal funds sold	2,744		2,744		1,714		1,714		2,829		2,829		1,714		1,714
Interest-bearing deposits	82,571		82,571		106,512		106,512		103,918		103,918		106,512		106,512
Securities available for sale	1,223,052		1,223,052		721,369		721,369		1,247,333		1,247,333		721,369		721,369
Securities held to maturity	62,725		63,061		65,679		63,934		60,786		61,623		65,679		63,934
Other investments, at cost	42,990		42,990		26,654		26,654		46,867		46,867		26,654		26,654
Loans held for sale	1,437		1,437		392		392		6,281		6,281		392		392
Derivative financial instruments	11,124		11,124		3,023		3,023		13,561		13,561		3,023		3,023
Portfolio loans, net	5,105,675		5,049,215		4,306,525		4,253,239		5,183,459		5,123,351		4,306,525		4,253,239
State tax credits, held for sale	37,294		39,037		37,587		39,169		43,808		46,981		37,587		39,169
Accrued interest receivable	27,008		27,008		16,069		16,069		21,097		21,097		16,069		16,069

Balance sheet liabilities
Deposits	5,559,338		5,536,456		4,587,985		4,583,047		5,624,380		5,604,045		4,587,985		4,583,047
Subordinated debentures and notes	141,100		132,301		118,156		106,316		141,179		131,603		118,156		106,316
Federal Home Loan Bank advances	389,446		389,471		70,000		70,000		461,426		464,033		70,000		70,000
Other borrowings	198,104		197,988		223,450		223,260
Other borrowings and notes payable									199,634		199,539		223,450		223,260
Derivative financial instruments	14,938		14,938		3,023		3,023		18,451		18,451		3,023		3,023
Accrued interest payable	2,701		2,701		1,977		1,977		2,907		2,907		1,977		1,977

For information regarding the methods and assumptions used to estimate the fair value of each class of financial instruments ~~for which it is practical to estimate such value,~~ refer to Note 18 – Fair Value Measurements 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.

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


	Estimated Fair Value Measurement at Reporting Date Using						Balance at June 30, 2019		Estimated Fair Value Measurement at Reporting Date Using						Balance at September 30, 2019
(in thousands)	Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity	$	—	$	63,031	$	—	$	63,031	$	—	$	61,623	$	—	$	61,623
Portfolio loans, net	—		—		5,049,215		5,049,215		—		—		5,123,351		5,123,351
State tax credits, held for sale	—		—		39,037		39,037		—		—		46,981		46,981
Financial Liabilities:
Deposits	4,736,768		—		799,688		5,536,456		4,804,357		—		799,688		5,604,045
Subordinated debentures and notes	—		132,301		—		132,301		—		131,603		—		131,603
Federal Home Loan Bank advances	—		389,471		—		389,471		—		464,033		—		464,033
Other borrowings	—		197,988		—		197,988
Other borrowings and notes payable									—		199,539		—		199,539

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

NOTE 10 - GOODWILL AND INTANGIBLE ASSETS

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

The table below presents a summary of intangible assets:


	Six months ended			Nine months ended
(in thousands)	June 30, 2019			September 30, 2019
Gross core deposit intangible balance, beginning of period	$	20,574
Additions	23,066
Gross core deposit intangible, beginning of period				$	20,574
Additions from acquisition				23,066
Gross core deposit intangible, end of period	43,640			43,640
Accumulated amortization	(14,439		)	(16,014		)
Core deposit intangible, net, end of year	$	29,201
Core deposit intangible, net, end of period				$	27,626

Amortization expense on the core deposit ~~intangibles~~intangible was $1.6 million and $0.6 million for the quarters ended ~~June~~September 30, 2019 and 2018, and ~~$2.4~~$4.0 million and ~~$1.3~~$1.9 million for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, respectively. The core deposit intangibles are being amortized over a 10 year period.

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


Year	Core Deposit Intangible		Core Deposit Intangible (in thousands)
2019	$	3,125	$	1,550
2020	5,608		5,608
2021	4,814		4,814
2022	4,085		4,085
2023	3,456		3,456
After 2023	8,113		8,113
	$	29,201	$	27,626

NOTE 11 - SUBORDINATED DEBENTURES

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


	Amount						Maturity Date	Call Date	Interest Rate	Amount						Maturity Date	Call Date	Interest Rate
(in thousands)	June 30, 2019			December 31, 2018			Maturity Date	Call Date	Interest Rate	September 30, 2019			December 31, 2018			Maturity Date	Call Date	Interest Rate
EFSC Clayco Statutory Trust I	$	3,196		$	3,196		December 17, 2033	December 17, 2008	Floats @ 3MO LIBOR + 2.85%	$	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%	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%	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%	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%	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%	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%	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%	4,124			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%	7,920			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%	4,375			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%	5,189			—			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%	10,293			—			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%	7,502			—			December 15, 2036	September 15, 2011	Floats @ 3MO LIBOR + 1.65%
Total junior subordinated debentures	92,040			69,161						92,086			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%	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	(940		)	(1,005		)				(907		)	(1,005		)
Total fixed-to-floating rate subordinated notes	49,060			48,995						49,093			48,995

Total subordinated debentures and notes	$	141,100		$	118,156					$	141,179		$	118,156

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

As part of the acquisition of Trinity, the Company acquired additional junior subordinated debentures issued by unconsolidated statutory trusts with a par value of $26.8 million. The Company has assigned a ~~preliminary~~ fair value of $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 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, implemented a model validation process, selected portfolio segmentations and loss methodologies, and is continuing to refine forecast inputs ~~document, test~~ and ~~evaluate~~documentation of the ~~loss forecasting models to determine~~end-to-end process. While the impact ~~that~~of adopting this standard has not been fully determined, the Company will recognize a cumulative effect adjustment to the allowance and retained earnings upon adoption. The Company expects to finalize quantifying the anticipated impact of the adoption of this standard ~~will have~~ on the Company’s financial ~~statements.~~statements during the fourth quarter of 2019.

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~~policies and practices or accounting standards, ~~applicable to banks;~~including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the Current Expected Credit Loss (“CECL”) model, which will change how we estimate credit losses and may increase the required level of our allowance for credit losses after adoption on January 1, 2020; uncertainty regarding the future of LIBOR; 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,~~and other reports filed with the Securities and Exchange Commission, 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 ~~six~~nine 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~~nine months ended ~~June~~September 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 from this date forward and are excluded from preceding periods. See “Item 1, Note 2 – Acquisitions” for 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
Interest-earning deposits greater than 90 days	100
Securities	428,096
Loans	684,314
Other real estate	4,512
Other investments	6,673
Fixed assets	27,286
Accrued interest receivable	3,997
Intangible assets	23,066
Deferred tax assets	9,651
Other assets	30,037
Total assets acquired	$	1,231,631

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

Net assets acquired	$	115,254

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

Goodwill	$	93,906

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


(in thousands, except per share data)	At or for the Three Months ended						For the Six Months ended						At or for the three months ended						For the nine months ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
EARNINGS
Total interest income	$	79,201		$	57,879		$	146,818		$	113,043		$	81,078		$	60,757		$	227,896		$	173,800
Total interest expense	17,486			10,831			32,760			19,824			18,032			12,664			50,792			32,488
Net interest income	61,715			47,048			114,058			93,219			63,046			48,093			177,104			141,312
Provision for portfolio loans	1,722			390			3,198			2,261			1,833			2,263			5,031			4,524
Net interest income after provision for loan losses	59,993			46,658			110,860			90,958			61,213			45,830			172,073			136,788
Total noninterest income	11,964			9,693			21,194			19,235			13,564			8,410			34,758			27,645
Total noninterest expense	49,054			29,219			88,892			58,362			38,239			29,922			127,131			88,284
Income before income tax expense	22,903			27,132			43,162			51,831			36,538			24,318			79,700			76,149
Income tax expense	4,479			4,881			8,582			8,659			7,469			1,802			16,051			10,461
Net income	$	18,424		$	22,251		$	34,580		$	43,172		$	29,069		$	22,516		$	63,649		$	65,688

Basic earnings per share	$	0.69		$	0.96		$	1.36		$	1.87		$	1.09		$	0.97		$	2.46		$	2.84
Diluted earnings per share	0.68			0.95			1.36			1.85			1.08			0.97			2.45			2.81

Return on average assets	1.05		%	1.65		%	1.07		%	1.62		%	1.60		%	1.63		%	1.26		%	1.62		%
Return on average common equity	9.09			15.70			9.45		%	15.51		%	13.66			15.22			11.00			15.41
Return on average tangible common equity¹	12.92			20.23			12.93		%	20.08		%	19.08			19.42			15.16			19.85
Net interest margin (tax equivalent)	3.86			3.77			3.87		%	3.79		%	3.81			3.78			3.85			3.78
Core net interest margin¹	3.80			3.75			3.80		%	3.74		%	3.69			3.74			3.76			3.74
Efficiency ratio	66.58			51.50			65.72		%	51.90		%	49.91			52.96			60.01			52.25
Core efficiency ratio¹	53.30			52.36			53.65		%	53.18		%	51.73			52.23			52.96			52.86
Book value per common share	$	30.68		$	24.81								$	31.79		$	25.41
Tangible book value per common share¹	21.74			19.32									22.82			19.94

ASSET QUALITY
Net charge-offs	$	970		$	641		$	2,796		$	415		$	1,070		$	2,447		$	3,866		$	2,862
Nonperforming loans	19,842			14,801									15,569			17,044
Classified assets	91,715			74,001									93,984			73,704
Nonperforming loans to total loans	0.39		%	0.35		%							0.30		%	0.40		%
Nonperforming assets to total assets	0.42			0.28									0.33			0.32
Allowance for loan losses to total loans	0.85			1.04									0.85			1.04
Net charge-offs to average loans (annualized)	0.08			0.06			0.12		%	0.02		%	0.08			0.23			0.11		%	0.09		%

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

For the ~~six~~three and nine months ended ~~June~~September 30, 2019 compared to the ~~six~~three and nine months ended ~~June~~September 30, 2018, the Company ~~noted~~notes the following trends:

•

~~The Company reported~~

For the three and nine months ended September 30, 2019, the Company had net income of $29.1 million and $63.6 million, respectively, compared to $22.5 million and $65.7 million in the prior year periods. Earnings per diluted share for the three and nine months ended September 30, 2019, were $1.08 and $2.45 per diluted share, respectively, and $0.97 and $2.81 per diluted share, for the same periods in 2018. 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 equity~~¹ ~~(“ROATCE”) were 1.07%, 9.45%, and~~

~~12.93%, respectively~~earnings per share for the ~~six~~first nine months ~~ended June 30, 2019. The impact~~of 2019 were impacted from $18.0 million pretax ($14.0 million after tax), of merger-related expenses ~~reduced ROAA, ROAE, and ROATCE~~¹ ~~by 0.42%, 3.75% and 5.13%, respectively. Excluding merger-related expenses, the adjusted ROAA,~~¹ ~~adjusted ROAE,~~¹ ~~and adjusted ROATCE~~¹ ~~were 1.50%, 13.19%, and 18.05%, respectively for the six months ended June 30, 2019.~~

Net interest income for the first six months of 2019 increased $20.8 million or 22%, from the prior year period. The acquisition of Trinity along with loan growth and higher rates supported the increase in interest income overcompared to the prior year period.

•

~~Net interest margin for~~Excluding the ~~first six months~~impact of ~~2019 increased eight basis points to 3.87% when compared to~~merger-related expenses, the ~~prior year period of 3.79%. Core net interest margin,~~adjusted return on average assets¹, adjusted return on average common equity¹, and adjusted return on average tangible common equity¹ ~~which excludes incremental accretion on non-core acquired loans, increased six basis points to 3.80%~~were 1.54%, 13.42%, and 18.50%, respectively, for the ~~first six~~nine months ended September 30, 2019.

Net interest income for the three and nine months ended September 30, 2019 increased $15.0 million and $35.8 million over the prior year periods. The acquisition of Trinity along with organic loan growth and an expanded investment portfolio supported the increase in net interest income over the prior year periods.


•	The net interest margin for both the three and nine months ended September 30, 2019 ~~from~~expanded over the prior year ~~period,~~periods, primarily due to the impact of interest rate increases on portfolio loans out-pacing the increase in deposit and borrowing costs ~~aided by~~and the addition of Trinity’s ~~relatively~~ lower-cost deposit portfolio. Core net interest margin,

•

~~Noninterest income~~¹ which excludes incremental accretion on non-core acquired loans, increased two basis points to 3.76% for the first ~~six~~nine months of 2019 ~~increased $2.0 million or 10%, compared to~~from the prior year period, ~~due~~and decreased five basis points to ~~contributions~~3.69% for the three months ended September 30, 2019 from ~~Trinity~~the prior year period. The decline in core net interest margin during the third quarter of ~~approximately $2.9 million,~~2019 over the prior year period was primarily ~~related to wealth management and card services revenue~~. ~~The increase from Trinity was partially offset~~caused by the reduction in short-term rates during the three months ended September 30, 2019. Additionally, the overall mix of ~~nonrecurring revenue received in the prior year period.~~interest-earning assets negatively impacted net interest margin due to a larger investment portfolio.

Noninterest ~~expense was $88.9 million~~income for the ~~six~~three and nine months ended ~~June~~September 30, 2019 increased $5.2 million and $7.1 million, respectively, compared to ~~$58.4 million for the comparable period in 2018. The increase from~~ the prior year ~~period~~periods due to contributions from Trinity of approximately $2.4 million and $5.3 million, respectively, primarily related to wealth management and card services revenue. Tax credit income also contributed to the increase in both periods.

Noninterest expense for the three and nine months ended September 30, 2019 increased $8.3 million and $38.8 million, respectively, compared to the prior year periods. The increase for the three months ended September 30, 2019 reflects the ongoing operating expenses from the Trinity acquisition, including planned cost savings from the transaction. The increase in the first nine months of 2019 was primarily due to merger-related expenses of ~~$17.6~~$18.0 million and increased operating expenses ~~since~~following the closing of the Trinity acquisition, most notably in employee compensation and benefits.

Balance sheet highlights:

•

Loans – Total loans increased to ~~$5.1~~$5.2 billion at ~~June~~September 30, 2019, increasing ~~$799~~$878.0 million when compared to December 31, 2018. The increase is primarily attributable to the acquisition of Trinity along with growth in the commercial and industrial (“C&I”), commercial real estate (“CRE”), and life insurance premium finance categories, partially offset by paydowns outpacing growth in the other categories.

•

Deposits – Total deposits at ~~June~~September 30, 2019 were $5.6 billion, an increase of ~~$971 million,~~$1.0 billion, from December 31, 2018. The increase is primarily attributable to the acquisition of Trinity. Core deposits, defined as total deposits excluding time deposits, were ~~$4.7~~$4.8 billion at ~~June~~September 30, 2019, an increase of ~~$833~~$900.8 million, or ~~21%~~23% when compared to December 31, 2018. The ratio of noninterest-bearing deposits to total deposits was relatively stable at 23% at September 30, 2019, compared to 24% at December 31, 2018.


•	Asset quality – Nonperforming loans were ~~$19.8~~$15.6 million at ~~June~~September 30, 2019, compared to $16.7 million at December 31, 2018. Nonperforming loans represented ~~0.39%~~0.30% and ~~0.19%~~0.38% of total loans at ~~June~~September 30, 2019 and December 31, 2018, respectively.

~~Provision~~The provision for loan losses was ~~$3.2~~$1.8 million and $5.0 million for the ~~six~~three and nine months ended ~~June~~September 30, 2019, respectively, compared to $2.3 million and $4.5 million for the ~~six months ended June 30, 2018 due to loan growth and charge-off in 2019.~~prior year periods, respectively. See “Item 1, Note 5 – Portfolio Loans, and Provision and Allowance for Loan Losses” inof this ~~section~~Quarterly Report on Form 10-Q for more information.


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

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

RESULTS OF OPERATIONS

Net Interest Income

Average Balance Sheet

The following tables present, for the periods indicated, certain information related to our average interest-earning assets and interest-bearing liabilities, as well as, the corresponding interest rates earned and paid, all on a tax equivalent basis. Non-core acquired loans noted in the table below were acquired from the FDIC and were previously covered by shared-loss agreements.


	Three months ended June 30,												Three months ended September 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)	$	5,056,172	$	68,093	5.40	%	$	4,162,720	$	51,783	4.99	%	$	5,140,946	$	68,309	5.27	%	$	4,196,242	$	54,086	5.11	%
Tax-exempt portfolio loans (2)	26,821		453		6.77		35,117		474		5.41		26,364		482		7.25		34,392		483		5.57
Non-core acquired loans - contractual	12,188		284		9.35		26,179		517		7.92		10,699		402		14.91		21,891		399		7.23
Non-core acquired loans - incremental accretion			910		29.95				291		4.46				2,140		79.36				535		9.70
Total loans	5,095,181		69,740		5.49		4,224,016		53,065		5.04		5,178,009		71,333		5.47		4,252,525		55,503		5.18
Taxable investments in debt and equity securities	1,120,526		8,009		2.87		703,185		4,429		2.53
Non-taxable investments in debt and equity securities (2)	126,003		1,143		3.64		40,349		360		3.58
Taxable debt and equity investments													1,169,753		8,323		2.82		715,846		4,805		2.66
Non-taxable debt and equity investments (2)													143,107		1,287		3.57		39,283		349		3.52
Short-term investments	111,291		703		2.53		56,057		231		1.65		113,214		572		2.00		64,919		306		1.87
Total securities and short-term investments	1,357,820		9,855		2.91		799,591		5,020		2.52		1,426,074		10,182		2.83		820,048		5,460		2.64
Total interest-earning assets	6,453,001		79,595		4.95		5,023,607		58,085		4.64		6,604,083		81,515		4.90		5,072,573		60,963		4.77
Noninterest-earning assets	604,604						391,544						618,274						398,931
Total assets	$	7,057,605					$	5,415,151					$	7,222,357					$	5,471,504

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	1,384,090	$	2,134	0.62	%	$	823,650	$	817	0.40	%	$	1,356,328	$	2,048	0.60	%	$	758,621	$	799	0.42	%
Money market accounts	1,576,333		6,996		1.78		1,494,194		4,445		1.19		1,639,603		6,959		1.68		1,523,822		5,423		1.41
Savings	562,503		231		0.16		208,662		147		0.28		548,109		232		0.17		208,057		157		0.30
Certificates of deposit	815,138		3,758		1.85		633,897		2,338		1.48		820,943		3,970		1.92		678,214		2,878		1.68
Total interest-bearing deposits	4,338,064		13,119		1.21		3,160,403		7,747		0.98		4,364,983		13,209		1.20		3,168,714		9,257		1.16
Subordinated debentures	141,059		1,958		5.57		118,124		1,454		4.94		141,136		1,956		5.50		118,134		1,483		4.98
FHLB advances	263,384		1,696		2.58		294,643		1,448		1.97		378,207		2,203		2.31		311,522		1,729		2.20
Other borrowed funds	204,375		713		1.40		167,661		182		0.44		193,055		664		1.36		160,151		195		0.48
Total interest-bearing liabilities	4,946,882		17,486		1.42		3,740,831		10,831		1.16		5,077,381		18,032		1.41		3,758,521		12,664		1.34
Noninterest bearing liabilities:
Demand deposits	1,244,008						1,069,888						1,232,360						1,086,809
Other liabilities	53,609						35,877						68,642						39,409
Total liabilities	6,244,499						4,846,596						6,378,383						4,884,739
Shareholders' equity	813,106						568,555						843,974						586,765
Total liabilities & shareholders' equity	$	7,057,605					$	5,415,151					$	7,222,357					$	5,471,504
Net interest income			$	62,109					$	47,254					$	63,483					$	48,299
Net interest spread					3.53	%					3.48	%					3.49	%					3.43	%
Net interest margin					3.86	%					3.77	%					3.81	%					3.78	%
Core net interest margin (3)					3.80	%					3.75	%					3.69	%					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 ~~$0.9~~$1.3 million and $1.0 million for the three months ended ~~June~~September 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 $0.4 million and $0.2 million for the three months ended ~~June~~September 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												Nine months ended September 30, 2019
	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)	$	4,763,916	$	127,320	5.39	%	$	4,117,928	$	100,675	4.93	%	$	4,890,974	$	195,628	5.35	%	$	4,144,319	$	154,760	4.99	%
Tax-exempt portfolio loans (2)	27,418		878		6.46		36,156		963		5.37		27,063		1,359		6.71		35,561		1,446		5.44
Non-core acquired loans - contractual	13,564		605		8.99		27,644		942		6.87		12,598		1,009		10.71		25,705		1,342		6.98
Non-core acquired loans - incremental accretion			2,067		30.74				1,057		7.71				4,207		44.66				1,592		8.28
Total loans	4,804,898		130,870		5.49		4,181,728		103,637		5.00		4,930,635		202,203		5.48		4,205,585		159,140		5.06
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
Taxable debt and equity investments													1,041,874		22,030		2.83		705,894		13,426		2.54
Non-taxable debt and equity investments (2)													111,758		3,025		3.62		40,576		1,084		3.57
Short-term investments	106,752		1,150		2.17		62,651		471		1.52		108,930		1,722		2.11		63,416		777		1.64
Total securities and short-term investments	1,179,450		16,594		2.84		804,719		9,827		2.46		1,262,562		26,777		2.84		809,886		15,287		2.52
Total interest-earning assets	5,984,348		147,464		4.97		4,986,447		113,464		4.59		6,193,197		228,980		4.94		5,015,471		174,427		4.65
Noninterest-earning assets	525,540						391,392						556,791						393,933
Total assets	$	6,509,888					$	5,377,839					$	6,749,988					$	5,409,404

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	1,231,537	$	3,924	0.64	%	$	843,172	$	1,623	0.39	%	$	1,273,591	$	5,972	0.63	%	$	814,679	$	2,422	0.40	%
Money market accounts	1,549,255		13,511		1.76		1,442,910		7,798		1.09		1,579,702		20,470		1.73		1,470,177		13,221		1.20
Savings	431,843		414		0.19		205,276		272		0.27		471,024		646		0.18		206,213		429		0.28
Certificates of deposit	763,988		7,090		1.87		618,900		4,237		1.38		783,182		11,060		1.89		638,889		7,115		1.49
Total interest-bearing deposits	3,976,623		24,939		1.26		3,110,258		13,930		0.90		4,107,499		38,148		1.24		3,129,958		23,187		0.99
Subordinated debentures	132,653		3,606		5.48		118,117		2,822		4.82		135,512		5,562		5.49		118,123		4,305		4.87
FHLB advances	239,535		3,094		2.60		298,573		2,706		1.83		286,267		5,297		2.47		302,937		4,435		1.96
Other borrowed funds	203,292		1,121		1.11		187,442		366		0.39		199,842		1,785		1.19		178,245		561		0.42
Total interest-bearing liabilities	4,552,103		32,760		1.45		3,714,390		19,824		1.08		4,729,120		50,792		1.44		3,729,263		32,488		1.16
Noninterest bearing liabilities:
Demand deposits	1,166,595						1,067,343						1,188,758						1,073,903
Other liabilities	52,994						34,755						58,267						36,323
Total liabilities	5,771,692						4,816,488						5,976,145						4,839,489
Shareholders' equity	738,196						561,351						773,843						569,915
Total liabilities & shareholders' equity	$	6,509,888					$	5,377,839					$	6,749,988					$	5,409,404
Net interest income			$	114,704					$	93,640					$	178,188					$	141,939
Net interest spread					3.52	%					3.51	%					3.50	%					3.49	%
Net interest margin					3.87	%					3.79	%					3.85	%					3.78	%
Core net interest margin (3)					3.80	%					3.74	%					3.76	%					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~~$3.4 million and ~~$1.9~~$2.9 million for the ~~six~~nine months ended ~~June~~September 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~~$1.1 million and ~~$0.4~~$0.6 million for the ~~six~~nine months ended ~~June~~September 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 June 30,									Six months ended June 30,									Three months ended September 30,									Nine months ended September 30,
	Increase (decrease) due to									Increase (decrease) due to									Increase (decrease) due to									Increase (decrease) due to
(in thousands)	Volume(1)			Rate(2)			Net			Volume(1)			Rate(2)			Net			Volume(1)			Rate(2)			Net			Volume(1)			Rate(2)			Net
Interest earned on:
Taxable loans	$	11,795		$	4,515		$	16,310		$	16,717		$	9,928		$	26,645		$	12,487		$	1,736		$	14,223		$	29,304		$	11,564		$	40,868
Tax-exempt loans (3)	(126		)	105			(21		)	(259		)	174			(85		)	(128		)	127			(1		)	(387		)	300			(87		)
Non-core acquired loans	(617		)	1,003			386			(1,418		)	2,091			673			(698		)	2,306			1,608			(2,135		)	4,417			2,282
Taxable investments in debt and equity securities	2,919			661			3,580			3,747			1,339			5,086
Non-taxable investments in debt and equity securities (3)	777			6			783			990			12			1,002
Taxable debt and equity investments																			3,213			305			3,518			6,968			1,636			8,604
Non-taxable debt and equity investments (3)																			933			5			938			1,927			14			1,941
Short-term investments	306			166			472			421			258			679			244			22			266			673			272			945
Total interest-earning assets	$	15,054		$	6,456		$	21,510		$	20,198		$	13,802		$	34,000		$	16,051		$	4,501		$	20,552		$	36,350		$	18,203		$	54,553

Interest paid on:
Interest-bearing transaction accounts	$	728		$	589		$	1,317		$	950		$	1,351		$	2,301		$	809		$	440		$	1,249		$	1,753		$	1,797		$	3,550
Money market accounts	255			2,296			2,551			613			5,100			5,713			436			1,100			1,536			1,048			6,201			7,249
Savings	166			(82		)	84			234			(92		)	142			167			(92		)	75			402			(185		)	217
Certificates of deposit	758			662			1,420			1,133			1,720			2,853			650			442			1,092			1,804			2,141			3,945
Subordinated debentures	304			200			504			370			414			784			308			165			473			677			580			1,257
FHLB advances	(166		)	414			248			(607		)	995			388			385			89			474			(255		)	1,117			862
Borrowed funds	48			483			531			33			722			755			47			422			469			76			1,148			1,224
Total interest-bearing liabilities	2,093			4,562			6,655			2,726			10,210			12,936			2,802			2,566			5,368			5,505			12,799			18,304
Net interest income	$	12,961		$	1,894		$	14,855		$	17,472		$	3,592		$	21,064		$	13,249		$	1,935		$	15,184		$	30,845		$	5,404		$	36,249

(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) for the three and ~~six~~nine months ended ~~June~~September 30, 2019 increased 31% and ~~22%~~26%, respectively, over the prior year periods primarily from higher loan and investment volumes. Loan and investment volumes benefited from the Trinity acquisition and organic growth in the loan portfolio. AnIn addition to an increase in interest rates in the ~~current year~~current-year periods that positively impacted net interest income, incremental accretion on non-core acquired loans also contributed to the ~~increases~~increase. The increase in ~~net interest income.~~incremental accretion was due to successful loan workouts on several non-core acquired loans.

The tax-equivalent net interest margin was ~~3.86%~~3.81% and ~~3.87%~~3.85% for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to ~~3.77% and 3.79%~~3.78% in both the prior year periods. The net interest margin ~~increases~~ benefited from the impact of interest rate increases on the Company's asset sensitive balance ~~sheet. Specifically,~~sheet and the incremental accretion on non-core acquired loans. While the overall yield on ~~taxable portfolio loans~~interest-earning assets increased ~~41 basis points and 46 basis points for the three and six months ended June 30,~~in 2019 ~~respectively, compared to~~over the prior year periods, ~~due to the effect of rising~~short-term interest rates onat September 30, 2019 have declined from September 30, 2018. An increase in the ~~variable-rate loan~~investment portfolio ~~higher rates on newly originated~~in 2019 over 2018 has contributed to growth in net interest income, but the shift in earning assets between loans and ~~purchase accounting accretion on~~investments has also reduced the ~~Trinity acquired portfolio.~~net interest margin. Total investments were 22% of average interest earning assets for the three months ended September 30, 2019, compared to 16% in the prior year period. Partially offsetting the increase from earning assets was the cost of total interest-bearing liabilities that increased 26seven basis points and 3728 basis points for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to the prior year 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~~Deposit pricing adjustments typically lag market movements in interest ~~margin also benefited from~~rates. While short-term interest rates have declined in 2019, the impact of ~~a full quarter of funding costs on Trinity deposits and was partially constrained from the increase~~these declines has not yet been reflected in the ~~average investment portfolio resulting from the Trinity acquisition.~~

cost of deposits. The Company manages its balance sheet to defend against pressures on core net interest margin, 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 $3has $3.5 billion in money market and interest-bearing deposit accounts which experienced an increase in yield over the 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 federal funds rate and other indices.

¹~~A non-GAAP measure. A reconciliation has been included~~The Company manages its balance sheet to defend against pressures on core net interest margin, which could be negatively impacted by continued competition for deposits, current interest rate conditions, and downward movement in ~~this MD&A section under the caption “Use of Non-GAAP Financial Measures.”~~short-term rates.

Noninterest Income

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


	2019 compared to 2018																			2019 compared to 2018
	Three months ended June 30,										Six months ended June 30,									Three months ended September 30,								Nine months ended September 30,
(in thousands)	2019			2018		Increase (decrease)					2019		2018		Increase (decrease)					2019		2018		Increase (decrease)				2019		2018		Increase (decrease)
Service charges on deposit accounts	$	3,366		$	3,007	$	359		12	%	$	6,301	$	5,858	$	443		8	%	$	3,246	$	2,997	$	249	8	%	$	9,547	$	8,855	$	692	8	%
Wealth management revenue	2,661			2,141		520			24	%	4,653		4,255		398			9	%	2,661		2,012		649		32	%	7,314		6,267		1,047		17	%
Card services revenue	2,461			1,650		811			49	%	4,251		3,166		1,085			34	%	2,494		1,760		734		42	%	6,745		4,926		1,819		37	%
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	%	1,238		192		1,046		545	%	1,968		508		1,460		287	%
Gain on sale of investment securities																				337		—		337		NM		337		9		328		3,644	%
Miscellaneous income	2,922			2,831		91			3	%	5,211		5,640		(429		)	(8	)%	3,588		1,449		2,139		148	%	8,847		7,080		1,767		25	%
Total noninterest income	$	11,964		$	9,693	$	2,271		23	%	$	21,194	$	19,235	$	1,959		10	%	$	13,564	$	8,410	$	5,154	61	%	$	34,758	$	27,645	$	7,113	26	%

NM - Not meaningful

Noninterest income increased ~~$2.3~~$5.2 million, or ~~23%~~61%, and ~~$2.0~~$7.1 million, or ~~10%~~26%, for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to the same periods in 2018. Both periods in 2019 benefited from the Trinity acquisition that comprised most of the increases over the prior year periods. Trinity’s noninterest income sources will primarily increase the Company’s wealth management and card services revenue, and other income to a ~~lessor~~lesser extent. The acquisition of Trinity initially added $406 million of additional assets under management. The Company’s tax credit income has increased in 2019 over 2018 due to stronger activity in the current year.

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

Noninterest Expense

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

2019 compared to 2018
Three months ended 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.”



	2019 compared to 2018
	Three months ended September 30,											Nine months ended September 30,
(in thousands)	2019			2018			Increase (decrease)					2019			2018			Increase (decrease)
Employee compensation and benefits	$	20,845		$	16,297		$	4,548		28	%	$	60,884		$	49,370		$	11,514		23	%
Occupancy	3,179			2,394			785			33	%	9,004			7,142			1,862			26	%
Data processing	2,051			1,634			417			26	%	6,415			4,634			1,781			38	%
Professional fees	1,064			1,023			41			4	%	2,847			2,619			228			9	%
Merger related expenses	393			—			393			—	%	17,969			—			17,969			—	%
Other	10,707			8,574			2,133			25	%	30,012			24,519			5,493			22	%
Total noninterest expense	$	38,239		$	29,922		$	8,317		28	%	$	127,131		$	88,284		$	38,847		44	%

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

Noninterest expense increased ~~$19.8~~$8.3 million, or ~~68%~~28%, and ~~$30.5~~$38.8 million, or ~~52%~~44%, for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to the same periods in 2018. The increase from the prior year periods were impacted by merger-related expenses of ~~$10.3~~$0.4 million and ~~$17.6~~$18.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively. In addition, increased operating expenses from the Trinity acquisition, most notably in employee compensation and benefits, will be included in the Company’s ongoing expense ~~run-rate, although at~~run-rate. The three-month period ended September 30, 2019 incorporates a ~~reduced amount after implementation~~majority of the cost-saving measures from the acquisition. The Company expects its noninterest expense to range between $37 million and $39 million in ~~each of~~ the ~~third and~~ fourth ~~quarters~~quarter of 2019.

~~The Company’s core efficiency ratio~~¹ ~~was 53.3% and 53.7% for the three and six months ended June 30, 2019, respectively, compared to 52.4% and 53.2% for the prior year periods.~~ Efficiency improvements ~~are expected to occur~~that have resulted in net interest income and noninterest income growth exceeding the ~~second half of 2019 resulting~~growth in noninterest expense, excluding merger expenses, have resulted in continued improvements to the Company’s efficiency ratio.

Income Taxes

The Company’s effective tax rate was ~~19.6%~~20.4% and ~~19.9%~~20.1% for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to ~~18.0%~~7.4% and ~~16.7%~~13.7% for the same periods in 2018. ~~Excess~~Reduced excess tax benefits from the vesting of stock-based compensation ~~were more favorable in the prior year periods. Nondeductible~~and nondeductible merger-related expenses in 2019 contributed to the increase in the effective tax rate in 2019. Additionally, tax credit investments ~~resulted~~and a tax benefit recognized in ~~additional~~the third quarter of 2018 upon the finalization of the 2017 tax ~~benefits in~~return benefited the prior year periods. ~~The Company is currently evaluating tax credit investment opportunities which, if executed, could have a positive impact in 2019.~~

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

Summary Balance Sheet

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


(in thousands)	June 30, 2019		December 31, 2018		Increase (decrease)					September 30, 2019		December 31, 2018		Increase (decrease)
Total cash and cash equivalents	$	189,400	$	196,552	$	(7,152	)	(4	)%	$	256,502	$	196,552	$	59,950	31	%
Securities	1,285,777		787,048		498,729			63		1,308,119		787,048		521,071		66
Loans held for investment	5,149,497		4,350,001		799,496			18		5,228,014		4,350,001		878,013		20
Total assets	7,181,855		5,645,662		1,536,193			27		7,346,791		5,645,662		1,701,129		30
Deposits	5,559,338		4,587,985		971,353			21		5,624,380		4,587,985		1,036,395		23
Total liabilities	6,356,354		5,041,858		1,314,496			26		6,500,696		5,041,858		1,458,838		29
Total shareholders’ equity	825,501		603,804		221,697			37		846,095		603,804		242,291		40

Assets

Loans by Type

The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector; however, a substantial portion of the portfolio, including the C&I category, is secured by real estate. The ability of the Company’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:


(in thousands)	June 30, 2019		December 31, 2018		Increase (decrease)				September 30, 2019		December 31, 2018		Increase (decrease)
Commercial and industrial	$	2,265,480	$	2,123,167	$	142,313	7	%	$	2,303,495	$	2,123,167	$	180,328	8	%
Commercial real estate - investor owned	1,240,296		867,667		372,629		43		1,287,020		867,667		419,353		48
Commercial real estate - owner occupied	700,662		614,167		86,495		14		680,868		614,167		66,701		11
Construction and land development	404,557		334,645		69,912		21		433,486		334,645		98,841		30
Residential real estate	409,200		305,026		104,174		34		386,173		305,026		81,147		27
Consumer and other	129,302		105,329		23,973		23		136,972		105,329		31,643		30
Loans held for investment	$	5,149,497	$	4,350,001	$	799,496	18	%	$	5,228,014	$	4,350,001	$	878,013	20	%

Loans grew ~~by $799~~$878 million to $~~5.1~~5.2 billion at ~~June~~September 30, 2019, when compared to December 31, 2018. The increase is primarily attributable to the acquisition of Trinity along with growth in the C&I, CRE, and life insurance premium finance categories, partially offset by paydowns outpacing growth in the other categories. We expect continued loan growth in 2019 and 2020 to be ~~a high single digit percentage,~~6-8% excluding Trinity acquired loans.

The following table illustrates portfolio loan growth with selected specialized lending detail:


(in thousands)	June 30, 2019		December 31, 2018		Increase (decrease)					September 30, 2019		December 31, 2018		Increase (decrease)
C&I - general	$	1,103,908	$	995,491	$	108,417		11	%	$	1,174,569	$	995,491	$	179,078		18	%
CRE investor owned - general	1,235,596		862,423		373,173			43		1,281,332		862,423		418,909			49
CRE owner occupied - general	591,401		496,835		94,566			19		566,219		496,835		69,384			14
Enterprise value lending¹	445,981		465,992		(20,011		)	(4	)	417,521		465,992		(48,471		)	(10	)
Life insurance premium financing¹	465,777		417,950		47,827			11		468,051		417,950		50,101			12
Residential real estate - general	409,200		304,671		104,529			34		386,174		304,671		81,503			27
Construction and land development - general	376,597		310,832		65,765			21		403,590		310,832		92,758			30
Tax credits¹	268,405		262,735		5,670			2		265,626		262,735		2,891			1
Agriculture¹	131,671		136,188		(4,517		)	(3	)	136,249		136,188		61			—
Consumer and other - general	120,961		96,884		24,077			25		128,683		96,884		31,799			33
Total loans	$	5,149,497	$	4,350,001	$	799,496		18	%	$	5,228,014	$	4,350,001	$	878,013		20	%

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

Specialized lending products, especially ~~Enterprise~~enterprise value lending, life insurance premium financing, and tax credits, consist of primarily C&I ~~loans, and have contributed significantly to the Company’s loan growth.~~loans. These loans are sourced through relationships developed with estate planning firms and private equity funds, and are not bound geographically by our 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.

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 June 30,						Six months ended June 30,						Three months ended September 30,						Nine months ended September 30,
(in thousands)	2019			2018			2019			2018			2019			2018			2019			2018
Allowance at beginning of period, for portfolio loans	$	41,945		$	40,263		$	42,295		$	38,166		$	42,935		$	42,007		$	42,295		$	38,166
Loans charged off:
Commercial and industrial	(1,380		)	(956		)	(3,233		)	(1,688		)	(1,295		)	(2,405		)	(4,528		)	(4,093		)
Real estate:
Commercial	(431		)	—			(587		)	—			(22		)	(22		)	(609		)	(22		)
Construction and land development	—			—			(45		)	—			—			—			(45		)	—
Residential	(26		)	(38		)	(93		)	(292		)	(255		)	(122		)	(348		)	(414		)
Consumer and other	(53		)	(33		)	(182		)	(82		)	(86		)	(46		)	(268		)	(128		)
Total loans charged off	(1,890		)	(1,027		)	(4,140		)	(2,062		)	(1,658		)	(2,595		)	(5,798		)	(4,657		)
Recoveries of loans previously charged off:
Commercial and industrial	32			118			61			1,074			209			2			270			1,076
Real estate:
Commercial	58			13			67			25			14			12			81			37
Construction and land development	489			168			498			374			260			21			758			395
Residential	124			59			488			132			65			88			553			220
Consumer and other	217			28			230			42			40			25			270			67
Total recoveries of loans	920			386			1,344			1,647			588			148			1,932			1,795
Net loan charge-offs	(970		)	(641		)	(2,796		)	(415		)	(1,070		)	(2,447		)	(3,866		)	(2,862		)
Provision for loan losses	1,960			2,385			3,436			4,256			1,833			2,332			5,269			6,588
Allowance at end of period, for portfolio loans	$	42,935		$	42,007		$	42,935		$	42,007		$	43,698		$	41,892		$	43,698		$	41,892

Allowance at beginning of period, for purchased credit impaired loans	$	1,150		$	4,387		$	1,181		$	4,411		$	886		$	2,363		$	1,181		$	4,411
Loans charged off	—			—			—			—			—			—			—			—
Recoveries of loans	—			—			—			—			—			—			—			—
Net loan charge-offs	—			—			—			—			—			—			—			—
Provision reversal for purchased credit impaired loan losses													—			(69		)	(238		)	(2,064		)
Other	(25		)	(29		)	(56		)	(53		)	(29		)	—			(86		)	(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	$	887		$	2,363		$	887		$	2,363		$	857		$	2,294		$	857		$	2,294

Total allowance at end of period	$	43,822		$	44,370		$	43,822		$	44,370		$	44,555		$	44,186		$	44,555		$	44,186

Portfolio loans, average	$	5,082,013		$	4,196,875		$	4,790,688		$	4,152,882		$	5,164,409		$	4,230,090		$	4,916,631		$	4,178,900
Total loans, average	5,095,181			4,224,016			4,804,898			4,181,728			5,178,009			4,252,525			4,930,635			4,205,585
Total loans, ending	5,149,497			4,275,761									5,228,014			4,267,430
Net charge-offs to average loans	0.08		%	0.06		%	0.12		%	0.02		%	0.08		%	0.23		%	0.11		%	0.09		%
Allowance for loan losses to total loans	0.85		%	1.04		%	0.85		%	1.04		%	0.85		%	1.04		%	0.85		%	1.04		%

The provision for loan losses ~~on portfolio loans~~ for the three and ~~six~~nine months ended ~~June~~September 30, 2019 was ~~$1.7~~$1.8 million and ~~$3.2~~$5.0 million, respectively, compared to ~~$0.4~~$2.3 million and ~~$2.3~~$4.5 million for same periods in ~~2018.~~2018, respectively. The provision is reflective of loan growth and charge-offs in the period.

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

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

Nonperforming assets

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


(in thousands)	June 30, 2019			December 31, 2018			June 30, 2018			September 30, 2019			December 31, 2018			September 30, 2018
Non-accrual loans	$	15,659		$	16,520		$	14,168		$	15,430		$	16,520		$	14,935
Loans past due 90 days or more and still accruing interest	3,999			—			—			60			—			1,289
Restructured loans	184			225			633			79			225			820
Total nonperforming loans	19,842			16,745			14,801			15,569			16,745			17,044
Other real estate	10,531			469			454			8,498			469			408
Total nonperforming assets	$	30,373		$	17,214		$	15,255		$	24,067		$	17,214		$	17,452

Total assets	$	7,181,855		$	5,645,662		$	5,509,924		$	7,346,791		$	5,645,662		$	5,517,539
Total loans	5,046,182			4,350,001			4,275,761			5,132,391			4,350,001			4,267,430
Total loans plus other real estate	5,160,028			4,350,470			4,276,215			5,236,512			4,350,470			4,267,430
Nonperforming loans to total loans	0.39		%	0.38		%	0.35		%	0.30		%	0.38		%	0.40		%
Nonperforming assets to total assets	0.42			0.30			0.28			0.33			0.30			0.32
Allowance for loan losses to nonperforming loans	221			260			300			286		%	260		%	259		%

Nonperforming loans ~~increased $3.1~~decreased $1.2 million to ~~$19.8~~$15.6 million at ~~June~~September 30, 2019 from $16.7 million at December 31, ~~2018~~2018. Net charge-offs in 2019, that contributed to the decline in nonperforming loans, are comprised primarily ~~due to~~of two loan relationships identified as nonperforming loans ~~90 days past due and still accruing interest~~at the end of ~~$4.0 million.~~2018. The ~~addition~~charge-off of these loans did not ~~result in any additional~~significantly impact the provision for loan losses, as the credits ~~are well secured and~~were specifically reserved at the ~~Company expects a positive resolution in the third quarter.~~end of 2018.

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

Nonperforming loans

Nonperforming loans exclude PCI loans that are accounted for on a pool ~~basis as the pools are considered to be performing.~~basis. See Item 1, Note 5 – Loans for more information on these loans.

Nonperforming loans based on loan type were as follows:


(in thousands)	June 30, 2019		December 31, 2018		June 30, 2018		September 30, 2019		December 31, 2018		September 30, 2018
Commercial and industrial	$	15,112	$	12,950	$	11,227	$	11,433	$	12,950	$	12,197
Commercial real estate	1,670		1,206		1,153		2,858		1,206		2,058
Construction and land development	—		—		435		—		—		—
Residential real estate	3,060		2,277		1,669		1,267		2,277		2,477
Consumer and other	—		312		317		11		312		312
Total	$	19,842	$	16,745	$	14,801	$	15,569	$	16,745	$	17,044

The following table summarizes the changes in nonperforming loans:


	Six months ended June 30,						Nine months ended September 30,
(in thousands)	2019			2018			2019			2018
Nonperforming loans beginning of period	$	16,745		$	15,687		$	16,745		$	15,687
Additions to nonaccrual loans	10,605			2,101			14,861			6,966
Additions to restructured loans	—			85			—			274
Charge-offs	(3,965		)	(1,997		)	(5,470		)	(4,546		)
Other principal reductions	(5,136		)	(1,075		)	(8,221		)	(2,426		)
Moved to other real estate	(1,732		)	—			(1,732		)	(200		)
Moved to performing	(674		)	—			(674		)	—
Loans past due 90 days or more and still accruing interest							60			1,289
Nonperforming loans end of period	$	19,842		$	14,801		$	15,569		$	17,044

Other real estate

Other real estate was ~~$10.5~~$8.5 million at ~~June~~September 30, 2019 compared to ~~$0.5~~$0.4 million at ~~June~~September 30, 2018.

The following table summarizes the changes in other real estate:


	Six months ended June 30,						Nine months ended September 30,
(in thousands)	2019			2018			2019			2018
Other real estate beginning of period	$	469		$	498		$	469		$	498
Additions and expenses capitalized to prepare property for sale	7,783			—			7,964			408
Additions from acquisition	4,512			—			4,512			—
Writedowns in value	—			(44		)	(126		)	(44		)
Sales	(2,233		)	—			(4,321		)	(454		)
Other real estate end of period	$	10,531		$	454		$	8,498		$	408

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

Liabilities

Liabilities totaled ~~$6.4~~$6.5 billion at ~~June~~September 30, 2019, compared to $5.0 billion at December 31, 2018. The increase in liabilities was due to ~~$971 million~~$1.0 billion of growth in total deposits primarily attributable to the acquisition of Trinity and a ~~$319~~$391.4 million increase in Federal Home Loan Bank (“FHLB”) advances, partially offset by a decrease of ~~$25~~$23.8 million in other ~~borrowings.~~

borrowings and notes payable. The increase in Federal Home Loan Bank advances supported the increase in the investment portfolio, the reduction in higher-cost other borrowings and the Company’s share repurchase plan.

Deposits


(in thousands)	June 30, 2019			December 31, 2018			Increase (decrease)				September 30, 2019			December 31, 2018			Increase (decrease)
Demand deposits	$	1,181,577		$	1,100,718		$	80,859	7.3	%	$	1,295,450		$	1,100,718		$	194,732	18	%
Interest-bearing transaction accounts	1,392,586			1,037,684			354,902		34.2	%	1,307,855			1,037,684			270,171		26	%
Money market accounts	1,611,766			1,565,729			46,037		2.9	%	1,652,394			1,565,729			86,665		6	%
Savings	550,839			199,425			351,414		176.2	%	548,658			199,425			349,233		175	%
Certificates of deposit:
Brokered	213,138			198,981			14,157		7.1	%	209,754			198,981			10,773		5	%
Other	609,432			485,448			123,984		25.5	%	610,269			485,448			124,821		26	%
Total deposits	$	5,559,338		$	4,587,985		$	971,353	21.2	%	$	5,624,380		$	4,587,985		$	1,036,395	23	%

Non-time deposits / total deposits	85		%	85		%					85		%	85		%
Demand deposits / total deposits	21		%	24		%					23		%	24		%

Total deposits at ~~June~~September 30, 2019 were $5.6 billion, an increase of ~~21%~~23%, from December 31, 2018. The increase is due to the acquisition of Trinity, partially offset by ~~normal seasonal reductions with some of our corporate clients.~~a decline in interest-bearing deposits. Noninterest bearing deposits as a percentage of total deposits was ~~21%~~23% at ~~June~~September 30, 2019 compared to 24% at December 31, 2018. The deposit portfolio acquired with Trinity had a lower percentage of ~~noninterest bearing~~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 ~~$825.5~~$846.1 million at ~~June~~September 30, 2019, an increase of ~~$221.7~~$242.3 million from December 31, 2018. Significant activity during the ~~six~~nine months ended ~~June~~September 30, 2019 was as follows:

issuance of approximately 4.0 million shares of common stock for the Trinity acquisition reflecting approximately $171.9 million of consideration,

net income of ~~$34.6~~$63.6 million,

net increase in fair value of securities and cash flow hedges of ~~$22.4~~$28.5 million,

dividends paid on common shares of ~~$7.8~~$12.1 million, ~~and~~

issuance under equity compensation plans of $1.2 ~~million.~~million, and

~~Subsequent to June 30, 2019, the Company has repurchased approximately 32,000 shares, pursuant to the publicly announced program.~~share repurchases of $11.8 million.

Liquidity and Capital Resources

Liquidity

The objective of liquidity management is to ensure we have the ability to generate sufficient cash or cash equivalents in a timely and cost-effective manner to meet our commitments as they become due. Typical demands on liquidity are run-off from demand deposits, maturing time deposits which are not renewed, and fundings under credit commitments

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

Additionally, liquidity is provided from sales of the securities portfolio, fed fund lines with correspondent banks, borrowings from the Federal Reserve and the FHLB, the ability to acquire large and brokered deposits, and the ability to sell loan participations to other banks. These alternatives are an important part of our liquidity plan and provide flexibility and efficient execution of the asset-liability management strategy.

The Bank’s 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 measuring the amount of liquid versus non-liquid assets and liabilities. Our liquidity 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.

Parent Company liquidity

The parent company’s liquidity is managed to provide the funds necessary to pay dividends to shareholders, service debt, invest in subsidiaries as necessary, and satisfy other operating requirements. The parent company’s primary funding sources to meet its liquidity requirements are dividends and payments from the Bank and proceeds from the issuance of equity (i.e. stock option exercises, stock offerings). ~~$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 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 ~~June~~September 30, 2019, there ~~were no~~was $1 million outstanding ~~balances~~ under the Revolving Agreement.

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

As of ~~June~~September 30, 2019, the Company had $92 million of outstanding subordinated debentures as part of ~~thirteen~~13 statutory trusts which includes $23 million acquired in the Trinity acquisition. These 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 $9$6 million, along with the Company’s other available funding sources, will be sufficient to meet all projected cash needs for the remainder of 2019.

Bank liquidity

The Bank has a variety of funding sources available to increase financial flexibility. In addition to amounts currently borrowed, at ~~June~~September 30, 2019, the Bank had borrowing capacity of ~~$350~~$532 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~~$90 million, and $296 million of unsecured credit through the American Financial Exchange.

Investment securities are another important tool in managing the Bank’s liquidity objectives. Securities totaled $1$1.3 billion at ~~June~~September 30, 2019, and included ~~$461~~$416 million pledged as collateral for deposits of public institutions, treasury,

loan notes, and other requirements. The remaining ~~$825~~$893 million could be pledged or sold to enhance liquidity, if necessary.

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 ~~$1.4~~$1.5 billion in unused commitments as of ~~June~~September 30, 2019. The nature of these commitments is such that the likelihood of funding them in the aggregate at any one time is low.

Capital Resources

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 ~~June~~September 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 ~~June~~September 30, 2019.

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


(in thousands)	June 30, 2019			December 31, 2018			Well Capitalized Minimum %		September 30, 2019			December 31, 2018			Well Capitalized Minimum %		Minimum Capital Requirement Including Capital Conservation Buffer
Total capital to risk-weighted assets	12.44		%	12.26		%	10.00	%	12.53		%	12.26		%	10.00	%	10.50	%
Tier 1 capital to risk-weighted assets	11.70			11.38			8.00		11.79			11.38			8.00		8.50
Common equity tier 1 capital to risk-weighted assets	11.70			11.37			6.50		11.79			11.37			6.50		7.00
Leverage ratio (Tier 1 capital to average assets)	10.23			10.52			5.00		10.38			10.52			5.00		4.00
Total risk-based capital	$	749,411		$	611,197				$	765,025		$	611,197
Tier 1 capital	705,084			567,296					719,965			567,296
Common equity tier 1 capital	705,027			567,239					719,908			567,239

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


(in thousands)	June 30, 2019			December 31, 2018			Well Capitalized Minimum %	September 30, 2019			December 31, 2018			Well Capitalized Minimum %	Minimum Capital Requirement Including Capital Conservation Buffer
Total capital to risk-weighted assets	12.62		%	13.02		%	N/A	12.72		%	13.02		%	N/A	10.50	%
Tier 1 capital to risk-weighted assets	11.06			11.14			N/A	11.17			11.14			N/A	8.50
Common equity tier 1 capital to risk-weighted assets	9.51			9.79			N/A	9.64			9.79			N/A	7.00
Leverage ratio (Tier 1 capital to average assets)	9.81			10.29			N/A	9.83			10.29			N/A	4.00
Tangible common equity to tangible assets¹	8.43			8.66			N/A	8.54			8.66			N/A
Total risk-based capital	$	763,312		$	650,859			$	779,655		$	650,859
Tier 1 capital	668,985			556,958				684,595			556,958
Common equity tier 1 capital	575,328			489,301				590,938			489,301

¹ Not a required regulatory capital ratio	¹ Not a required regulatory capital ratio							¹ Not a required regulatory capital ratio

The Company believes the tangible common equity ratio is an important measure of capital strength, even though it is considered a non-GAAP 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’s accounting and reporting policies conform to generally accepted accounting principles in the United States (“GAAP”) and the prevailing practices in the banking industry. However, the Company provides other financial measures, such as net interest margin, efficiency ratios, return on average assets, return on average equity, and the tangible common equity ratio, in this report that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position, or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.

The Company considers its core net interest margin, core efficiency ratio, return on average assets, return on average equity, and return on average tangible common equity, collectively “core performance measures,” presented in this report and the included tables as important measures of financial performance, even though they are non-GAAP measures, as they provide supplemental information by which to evaluate the impact of non-core acquired loans, which were acquired from the FDIC and previously covered by loss share agreements, and the related income and expenses, the impact of certain non-comparable items, and the Company’s operating performance on an ongoing basis. Core performance measures include contractual interest on non-core acquired loans, but exclude incremental accretion on these loans. Core performance measures also exclude expenses directly related to non-core acquired loans. Core performance measures also exclude certain other income and expense items, such as merger-related expenses, and the gain or loss on sale of investment securities, the Company believes to be not indicative of or useful to measure the Company’s operating performance on an ongoing basis. The attached tables contain a reconciliation of these core performance measures to the GAAP measures. The Company believes that the tangible common equity ratio provides useful information to investors about the Company’s capital strength even though it is considered to be a non-GAAP financial measure and is not part of the regulatory capital requirements to which the Company is subject.

The Company believes these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding the Company’s performance and capital strength. The Company’s management uses, and believes 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


	For the Three Months ended									For the Six Months ended						For the three months ended						For the nine months ended
(in thousands)	June 30, 2019			March 31, 2019			June 30, 2018			June 30, 2019			June 30, 2018			September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net interest income	$	61,715		$	52,343		$	47,048		$	114,058		$	93,219		$	63,046		$	48,093		$	177,104		$	141,312
Less: Incremental accretion income	910			1,157			291			2,067			1,057			2,140			535			4,207			1,592
Core net interest income	60,805			51,186			46,757			111,991			92,162			60,906			47,558			172,897			139,720

Total noninterest income	11,964			9,230			9,693			21,194			19,235			13,564			8,410			34,758			27,645
Less: Gain on sale of investment securities	—			—			—			—			9			337			—			337			9
Less: Other income from non-core acquired assets	2			365			18			367			1,031			1,001			7			1,368			1,038
Less: Other non-core income	266			—			649			266			649			—			—			266			649
Core noninterest income	11,696			8,865			9,026			20,561			17,546			12,226			8,403			32,787			25,949

Total core revenue	72,501			60,051			55,783			132,552			109,708			73,132			55,961			205,684			165,669

Total noninterest expense	49,054			39,838			29,219			88,892			58,362			38,239			29,922			127,131			88,284
Less: Other expenses related to non-core acquired loans	103			103			(229		)	206			(215		)	18			12			224			(203		)
Less: Merger related expenses	10,306			7,270			—			17,576			—			393			—			17,969			—
Less: Facilities disposal charge	—			—			239			—			239			—			—			—			239
Less: Non-recurring excise tax																—			682			—			682
Core noninterest expense	38,645			32,465			29,209			71,110			58,338			37,828			29,228			108,938			87,566

Core efficiency ratio	53.30		%	54.06		%	52.36		%	53.65		%	53.18		%	51.73		%	52.23		%	52.96		%	52.86		%

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

Three months ended June 30, Six months ended June 30,
(in thousands) 2019 2018 2019 2018
Net interest income $ 62,109
$ 47,254
$ 114,704
$ 93,640
Less: Incremental accretion income 910
291
2,067
1,057
Core net interest income, tax equivalent $ 61,199
$ 46,963
$ 112,637
$ 92,583

Average earning assets $ 6,453,005
$ 5,023,607
$ 5,984,348
$ 4,986,447
Reported net interest margin 3.86 % 3.77 % 3.87 % 3.79 %
Core net interest margin 3.80 % 3.75 % 3.80 % 3.74 %



	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2019			2018			2019			2018
Net interest income	$	63,483		$	48,299		$	178,187		$	141,939
Less: Incremental accretion income	2,140			535			4,207			1,592
Core net interest income, tax equivalent	$	61,343		$	47,764		$	173,980		$	140,347

Average earning assets	$	6,604,083		$	5,072,573		$	6,193,197		$	5,015,471
Reported net interest margin	3.81		%	3.78		%	3.85		%	3.78		%
Core net interest margin	3.69		%	3.74		%	3.76		%	3.74		%

Tangible ~~common equity ratio~~Common Equity Ratio


(in thousands)	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Total shareholders' equity	$	825,501		$	603,804		$	846,095		$	603,804
Less: Goodwill	211,251			117,345			211,251			117,345
Less: Intangible assets	29,201			8,553			27,626			8,553
Tangible common equity	$	585,049		$	477,906		$	607,218		$	477,906

Total assets	$	7,181,855		$	5,645,662		$	7,346,791		$	5,645,662
Less: Goodwill	211,251			117,345			211,251			117,345
Less: Intangible assets	29,201			8,553
Less: Intangible assets, net							27,626			8,553
Tangible assets	$	6,941,403		$	5,519,764		$	7,107,914		$	5,519,764

Tangible common equity to tangible assets	8.43		%	8.66		%	8.54		%	8.66		%

Average Shareholders’ Equity and Average Tangible Common Equity


	For the Quarter ended						Three months ended September 30,				Nine months ended September 30,
($ in thousands, except per share data)	Jun 30, 2019		Mar 31, 2019		Jun 30, 2018
(in thousands)							2019		2018		2019		2018
Average shareholder’s equity	$	813,106	$	662,454	$	568,555	$	843,974	$	586,765	$	773,843	$	569,915
Less: Average goodwill	211,251		141,422		117,345		211,251		117,345		188,231		117,345
Less: Average intangible assets	29,965		14,472		10,074
Less: Average intangible assets, net							28,392		9,445		24,327		10,074
Average tangible common equity	571,890		506,560		441,136		$	604,331	$	459,975	$	561,285	$	442,496

Impact of Merger Related Expenses

For the three months ended
($ in thousands, except per share data) Jun 30,
2019 Mar 31,
2019 Jun 30,
2018
Net income - GAAP $ 18,424
$ 16,156
$ 22,251
Merger-related expenses 10,306
7,270
—
Related tax effect (2,331 ) (1,535 ) —
Adjusted net income - Non-GAAP $ 26,399
$ 21,891
$ 22,251

Average assets $ 7,057,605
$ 5,956,086
$ 5,415,151
ROAA - GAAP net income 1.05 % 1.10 % 1.65 %
ROAA - Adjusted net income 1.50
1.49
1.65

Average shareholder’s equity $ 813,106
$ 662,454
$ 568,555
ROAE - GAAP net income 9.09 % 9.89 % 15.70 %
ROAE - Adjusted net income 13.02
13.40
15.70

Average tangible common equity $ 571,890
$ 506,560
$ 441,136
ROATCE - GAAP net income 12.92 % 12.93 % 20.23 %
ROATCE - Adjusted net income 18.52
17.53
20.23



	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2019			2018			2019			2018
Net income - GAAP	$	29,069		$	22,516		$	63,649		$	65,688
Merger-related expenses	393			—			17,969			—
Related tax effect	(97		)	—			(3,963		)	—
Adjusted net income - Non-GAAP	$	29,365		$	22,516		$	77,655		$	65,688

Average assets	$	7,222.357		$	5,471.504		$	6,749,988		$	5,409,404
ROAA - GAAP net income	1.60		%	1.63		%	1.26		%	1.62		%
ROAA - Adjusted net income	1.61			1.63			1.54			1.62

Average shareholder’s equity	$	843,974		$	586,765		$	773,843		$	569,915
ROAE - GAAP net income	13.66		%	15.22		%	11.00		%	15.41		%
ROAE - Adjusted net income	13.80			15.22			13.42			15.41

Average tangible common equity	$	604,331		$	459,975		$	561,285		$	442,496
ROATCE - GAAP net income	19.08		%	19.42		%	15.16		%	19.85		%
ROATCE - Adjusted net income	19.28			19.42			18.50			19.85

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.~~modeling (due to the current level of interest rates, the 300 basis point downward shock scenario is not shown in the table below.) 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):~~

income:



Rate Shock	Annual % change in net interest income
+ 300 bp	~~8.2%~~6.0%
+ 200 bp	~~5.5%~~4.1%
+ 100 bp	~~2.8%~~2.3%
- 100 bp	~~(4.2)~~(3.8)%
- 200 bp	~~(9.4)~~(7.6)%

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~~September 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~~September 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 ~~June~~September 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 ~~June~~September 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 and 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~~To date, the Company has received notice that all three former Trinity/LANB officers have each individually settled ~~her~~their 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 filed a motion to reconsider which was subsequently heard and denied. The Company will next seek to prove up its damages at trial which is anticipated to occur in the ~~fourth~~first quarter of ~~2019.~~2020. 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, 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

~~None~~



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

(a) In May 2015, the Company’s board of directors authorized the repurchase of up to two million shares of the Company’s common stock. The repurchases may be made in open market or privately negotiated transactions and the stock repurchase program will remain in effect until fully utilized or until modified, superseded or terminated. The timing and exact amount of common stock repurchases will depend on a number of factors including, among others, market and general economic conditions, economic capital and regulatory capital considerations, alternative uses of capital, the potential impact on our credit ratings, and contractual and regulatory limitations.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

~~None~~Douglas N. Bauche Amended and Restated Executive Employment Agreement

On October 24, 2019, the Company entered into an Amended and Restated Executive Employment Agreement with Douglas N. Bauche. Mr. Bauche is employed as the Chief Credit Officer & St. Louis President of the Company. Under the Amended and Restated Employment Agreement, Mr. Bauche will receive an annual base salary of $293,733 to be reviewed at least annually by the Company, and annual targeted incentives of 35% of the applicable salary for the year under the Company’s long-term and short-term incentive plans. Mr. Bauche will also participate in standard benefits offered to employees generally and under terms of plans pursuant to which benefits are provided.

The foregoing description of the Executive Employment Agreement is qualified in its entirety by reference to the full and complete copy of the Executive Employment Agreement listed as Exhibit 10.1 of this quarterly report.

Nicole M. Iannacone Executive Employment Agreement

On October 24, 2019, the Company entered into an Executive Employment Agreement with Nicole M. Iannacone. Ms. Iannacone is employed as the EVP, Chief Risk Officer and General Counsel of the Company. Under the Employment Agreement, Ms. Iannacone will receive an annual base salary of $253,399 to be reviewed at least annually by the Company, and annual targeted incentives of 35% of the applicable salary for the year under the Company’s long-term and short-term incentive plans. Ms. Iannacone will also participate in standard benefits offered to employees generally and under terms of plans pursuant to which benefits are provided.

Mark G. Ponder Executive Employment Agreement

On October 24, 2019, the Company entered into an Executive Employment Agreement with Mark G. Ponder. Mr. Ponder is employed as the Chief Administrative Officer of the Company. Under the Employment Agreement, Mr. Ponder will receive an annual base salary of $252,840 to be reviewed at least annually by the Company, and annual targeted incentives of 35% of the applicable salary for the year under the Company’s long-term and short-term incentive plans. Mr. Ponder will also participate in standard benefits offered to employees generally and under terms of plans pursuant to which benefits are provided.

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.~~Registrant (incorporated herein by reference to Exhibit 3.8 to Registrant’s Quarterly Report on Form 10-Q filed on July 26, 2019 (File No. 001-15373)).


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


*10.1	Amended and Restated Executive Employment Agreement dated as of October 24, 2019 by and between Enterprise Financial Services Corp and Douglas N. Bauche (filed herewith).


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


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


*31.1	Chief Executive Officer’s 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

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF XBRL Taxonomy Extension Definitions 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 ~~July 26,~~October 25, 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

5960



	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)	Three months ended June 30, 2019				Three months ended June 30, 2019
Derivatives in Cash Flow Hedging Relationships
Interest rate swap	$	(1,675	)	Interest Expense	$	(6	)
Total	$	(1,675	)		$	(6	)