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 30, ~~2021.~~2022.


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

For the transition period ~~from~~ 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

___________________

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

Depositary Shares, each representing a 1/40th interest in a share of 5.00% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A

EFSCP

Nasdaq Global Select Market

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 (or for such shorter period that the registrant was required to file such reports), 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 ☐

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.

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 not 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 ~~28, 2021,~~27, 2022, the Registrant had ~~38,624,599~~37,219,597 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)						56

Notes to Condensed Consolidated Financial Statements (Unaudited)						67

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						2729

Item 3. Quantitative and Qualitative Disclosures About Market Risk						4849

Item 4. Controls and Procedures						5051

PART II - OTHER INFORMATION

Item 1. Legal Proceedings						5051

Item 1A. Risk Factors						5051

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						5152

Item 3. Defaults Upon Senior Securities						5152

Item 4. Mine Safety Disclosures						5152

Item 5. Other Information						5152

Item 6. Exhibits						5152

Signatures						5355

Glossary of Acronyms, Abbreviations and Entities

The acronyms and abbreviations identified below are used in various sections of this Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Item 2 and the Condensed Consolidated Financial Statements and the Notes to Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.

ACL

Allowance for Credit Losses

FASB

Financial Accounting Standards Board

ASU

Accounting Standards Update

FCBP

First Choice Bancorp

Bank

Enterprise Bank & Trust

FHLB

Federal Home Loan Bank

~~ASU~~C&I

~~Accounting Standards Update~~Commercial and Industrial

GAAP

Generally Accepted Accounting Principles (United States)

~~Bank~~CCB

~~Enterprise Bank & Trust~~Capital Conservation Buffer

LIBOR

London Interbank Offered Rate

~~C&I~~

~~Commercial and Industrial~~

~~MD&A~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

CECL

Current Expected Credit Loss

NIM

Net Interest Margin

Company

Enterprise Financial Services Corp

~~PCD~~PPP

~~Purchased Credit Deteriorated~~Paycheck Protection Program

CRE

Commercial Real Estate

~~PPP~~SBA

~~Paycheck Protection Program~~Small Business Administration

EFSC

Enterprise Financial Services Corp

~~SBA~~SEC

~~Small Business Administration~~Securities and Exchange Commission

Enterprise

Enterprise Financial Services Corp

~~Seacoast~~

~~Seacoast Commerce Banc Holdings~~

~~FASB~~

~~Financial Accounting Standards Board~~

~~SEC~~

~~Securities and Exchange Commission~~

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)	(in thousands, except share and per share data)	June 30, 2021		December 31, 2020		(in thousands, except share and per share data)	June 30, 2022		December 31, 2021
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	126,789	$	99,760	Cash and due from banks	$	271,763	$	209,177
Federal funds sold	Federal funds sold	115		1,519		Federal funds sold	1,398		1,356
Interest-earning deposits (including $23,825 and $36,525 pledged as collateral, respectively)		882,087		436,424
Interest-earning deposits (including $135 and $14,595 pledged as collateral, respectively)						Interest-earning deposits (including $135 and $14,595 pledged as collateral, respectively)	671,643		1,811,156
Total cash and cash equivalents	Total cash and cash equivalents	1,008,991		537,703		Total cash and cash equivalents	944,804		2,021,689
Interest-earning deposits greater than 90 days	Interest-earning deposits greater than 90 days	7,758		7,626		Interest-earning deposits greater than 90 days	7,302		6,996
Securities available-for-sale	Securities available-for-sale	1,084,223		912,429		Securities available-for-sale	1,493,277		1,366,006
Securities held-to-maturity, net	Securities held-to-maturity, net	450,665		487,610		Securities held-to-maturity, net	617,767		429,681
Loans held-for-sale	Loans held-for-sale	5,763		13,564		Loans held-for-sale	4,615		6,389
Loans	Loans	7,226,267		7,224,935		Loans	9,269,176		9,017,642
Allowance for credit losses on loans	Allowance for credit losses on loans	(128,185)		(136,671)		Allowance for credit losses on loans	(140,546)		(145,041)
Total loans, net	Total loans, net	7,098,082		7,088,264		Total loans, net	9,128,630		8,872,601

Other investments	Other investments	50,959		48,764		Other investments	61,274		59,896
Fixed assets, net	Fixed assets, net	50,972		53,169		Fixed assets, net	46,028		47,915

Goodwill	Goodwill	260,567		260,567		Goodwill	365,164		365,164
Intangible assets, net	Intangible assets, net	20,358		23,084		Intangible assets, net	19,528		22,286

Other assets	Other assets	308,655		318,791		Other assets	396,117		338,735
Total assets	Total assets	$	10,346,993	$	9,751,571	Total assets	$	13,084,506	$	13,537,358

Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity					Liabilities and Shareholders' Equity
Noninterest-bearing deposit accounts		$	3,111,581	$	2,711,828
Interest-bearing transaction accounts		2,013,129		1,768,497
Noninterest-bearing demand accounts						Noninterest-bearing demand accounts	$	4,746,478	$	4,578,436
Interest-bearing demand accounts						Interest-bearing demand accounts	2,197,957		2,465,884
Money market accounts	Money market accounts	2,278,306		2,327,066		Money market accounts	2,726,024		2,890,976
Savings accounts	Savings accounts	722,154		627,903		Savings accounts	836,958		800,210
Certificates of deposit:	Certificates of deposit:					Certificates of deposit:
Brokered	Brokered	50,209		50,209		Brokered	129,064		128,970
Other	Other	464,125		499,886		Other	456,137		479,323
Total deposits	Total deposits	8,639,504		7,985,389		Total deposits	11,092,618		11,343,799
Subordinated debentures and notes	Subordinated debentures and notes	203,940		203,637		Subordinated debentures and notes	155,164		154,899
FHLB advances	FHLB advances	50,000		50,000		FHLB advances	50,000		50,000
Other borrowings	Other borrowings	208,795		271,081		Other borrowings	226,695		353,863
Notes payable		25,714		30,000

Other liabilities	Other liabilities	100,739		132,489		Other liabilities	112,617		105,681
Total liabilities	Total liabilities	$	9,228,692	$	8,672,596	Total liabilities	$	11,637,094	$	12,008,242

Commitments and contingent liabilities (Note 5)	Commitments and contingent liabilities (Note 5)					Commitments and contingent liabilities (Note 5)	0		0

Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 0 shares issued and outstanding		0		0
Common stock, $0.01 par value; 45,000,000 shares authorized; 33,165,056 and 33,190,306 shares issued, respectively		330		332
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 75,000 shares issued and outstanding ($1,000 per share liquidation preference)						Preferred stock, $0.01 par value; 5,000,000 shares authorized; 75,000 shares issued and outstanding ($1,000 per share liquidation preference)	71,988		71,988
Common stock, $0.01 par value; 75,000,000 shares authorized; 37,205,524 shares issued and outstanding and 39,799,615 shares issued, respectively						Common stock, $0.01 par value; 75,000,000 shares authorized; 37,205,524 shares issued and outstanding and 39,799,615 shares issued, respectively	372		398
Treasury stock, at cost; 1,980,093 shares	Treasury stock, at cost; 1,980,093 shares	(73,528)		(73,528)		Treasury stock, at cost; 1,980,093 shares	—		(73,528)
Additional paid in capital	Additional paid in capital	688,945		697,839		Additional paid in capital	976,684		1,018,799
Retained earnings	Retained earnings	474,282		417,212		Retained earnings	506,849		492,682
Accumulated other comprehensive income		28,272		37,120
Accumulated other comprehensive (loss) income						Accumulated other comprehensive (loss) income	(108,481)		18,777
Total shareholders' equity	Total shareholders' equity	1,118,301		1,078,975		Total shareholders' equity	1,447,412		1,529,116
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	10,346,993	$	9,751,571	Total liabilities and shareholders' equity	$	13,084,506	$	13,537,358

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 June 30,				Six months ended June 30,
(in thousands, except per share data)	(in thousands, except per share data)	2021		2020		2021		2020		(in thousands, except per share data)	2022		2021		2022		2021
Interest income:	Interest income:									Interest income:
Interest and fees on loans		$	79,064	$	64,478	$	156,037	$	131,647
Interest on debt securities:
Loans										Loans	$	102,153	$	79,064	$	198,276	$	156,037
Debt securities:										Debt securities:
Taxable	Taxable	4,318		6,587		8,858		14,144		Taxable	6,553		4,318		11,904		8,858
Nontaxable	Nontaxable	3,394		1,812		6,473		3,301		Nontaxable	4,526		3,394		8,468		6,473

Interest on interest-earning deposits		237		87		426		387
Interest-earning deposits										Interest-earning deposits	2,495		237		3,312		426
Dividends on equity securities	Dividends on equity securities	388		227		567		400		Dividends on equity securities	342		388		690		567
Total interest income	Total interest income	87,401		73,191		172,361		149,879		Total interest income	116,069		87,401		222,650		172,361
Interest expense:	Interest expense:									Interest expense:

Deposits	Deposits	2,467		4,383		5,130		14,271		Deposits	3,850		2,467		6,709		5,130
Subordinated debentures and notes	Subordinated debentures and notes	2,847		2,316		5,666		4,235		Subordinated debentures and notes	2,257		2,847		4,477		5,666
FHLB advances	FHLB advances	197		455		392		1,350		FHLB advances	197		197		392		392
Notes payable and other borrowings		152		204		312		822
Other borrowings										Other borrowings	152		152		294		312
Total interest expense	Total interest expense	5,663		7,358		11,500		20,678		Total interest expense	6,456		5,663		11,872		11,500
Net interest income	Net interest income	81,738		65,833		160,861		129,201		Net interest income	109,613		81,738		210,778		160,861
Provision (benefit) for credit losses	Provision (benefit) for credit losses	(2,669)		19,591		(2,623)		41,855		Provision (benefit) for credit losses	658		(2,669)		(3,410)		(2,623)
Net interest income after provision for credit losses		84,407		46,242		163,484		87,346
Net interest income after provision (benefit) for credit losses										Net interest income after provision (benefit) for credit losses	108,955		84,407		214,188		163,484
Noninterest income:	Noninterest income:									Noninterest income:
Deposit service charges	Deposit service charges	3,862		2,616		6,946		5,759		Deposit service charges	4,749		3,862		8,912		6,946
Wealth management revenue	Wealth management revenue	2,516		2,326		4,999		4,827		Wealth management revenue	2,533		2,516		5,155		4,999
Card services revenue	Card services revenue	2,975		2,225		5,471		4,472		Card services revenue	3,514		2,975		6,554		5,471

Tax credit income (expense)		1,370		(221)		329		1,815
Tax credit income										Tax credit income	1,186		1,370		3,794		329

Miscellaneous income		5,481		3,014		9,749		6,495
Other income										Other income	2,212		5,481		8,420		9,749
Total noninterest income	Total noninterest income	16,204		9,960		27,494		23,368		Total noninterest income	14,194		16,204		32,835		27,494
Noninterest expense:	Noninterest expense:									Noninterest expense:
Employee compensation and benefits	Employee compensation and benefits	28,132		22,389		57,694		44,074		Employee compensation and benefits	36,028		28,132		71,855		57,694
Occupancy	Occupancy	3,529		3,185		7,280		6,532		Occupancy	4,309		3,529		8,895		7,280
Data processing	Data processing	2,850		2,144		5,740		4,226		Data processing	3,111		2,850		6,371		5,740
Professional fees	Professional fees	1,300		1,287		2,288		2,149		Professional fees	1,542		1,300		2,719		2,288

Merger-related expenses	Merger-related expenses	1,949		0		5,091		0		Merger-related expenses	—		1,949		—		5,091
Other		14,696		8,907		27,247		19,604
Other expense										Other expense	20,434		14,696		38,384		27,247
Total noninterest expense	Total noninterest expense	52,456		37,912		105,340		76,585		Total noninterest expense	65,424		52,456		128,224		105,340

Income before income tax expense	Income before income tax expense	48,155		18,290		85,638		34,129		Income before income tax expense	57,725		48,155		118,799		85,638
Income tax expense	Income tax expense	9,750		3,656		17,307		6,627		Income tax expense	12,576		9,750		25,957		17,307
Net income	Net income	$	38,405	$	14,634	$	68,331	$	27,502	Net income	$	45,149	$	38,405	$	92,842	$	68,331
Dividends on preferred stock										Dividends on preferred stock	938		—		2,167		—
Net income available to common shareholders										Net income available to common shareholders	$	44,211	$	38,405	$	90,675	$	68,331

Earnings per common share	Earnings per common share									Earnings per common share
Basic	Basic	$	1.23	$	0.56	$	2.19	$	1.04	Basic	$	1.19	$	1.23	$	2.42	$	2.19
Diluted	Diluted	1.23		0.56		2.18		1.04		Diluted	1.19		1.23		2.41		2.18

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 June 30,				Six months ended June 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021		2022		2021
Net income	Net income	$	38,405	$	14,634	$	68,331	$	27,502	Net income	$	45,149	$	38,405	$	92,842	$	68,331
Other comprehensive income (loss), after-tax:	Other comprehensive income (loss), after-tax:									Other comprehensive income (loss), after-tax:
Change in unrealized gain (loss) on available-for-sale debt securities		2,850		10,984		(8,070)		21,548
Reclassification adjustment for realized gain on sale of available-for-sale debt securities		0		0		0		(3)
Change in unrealized gain (loss) on available-for-sale securities										Change in unrealized gain (loss) on available-for-sale securities	(49,242)		2,850		(128,595)		(8,070)

Reclassification of gain on held-to-maturity securities	Reclassification of gain on held-to-maturity securities	(837)		(329)		(1,986)		(485)		Reclassification of gain on held-to-maturity securities	(701)		(837)		(1,405)		(1,986)
Change in unrealized gain (loss) on cash flow hedges arising during the period	Change in unrealized gain (loss) on cash flow hedges arising during the period	(205)		(1,177)		642		(6,357)		Change in unrealized gain (loss) on cash flow hedges arising during the period	535		(205)		2,286		642
Reclassification of loss on cash flow hedges	Reclassification of loss on cash flow hedges	287		234		566		357		Reclassification of loss on cash flow hedges	187		287		456		566
Total other comprehensive income (loss), after-tax	Total other comprehensive income (loss), after-tax	2,095		9,712		(8,848)		15,060		Total other comprehensive income (loss), after-tax	(49,221)		2,095		(127,258)		(8,848)
Comprehensive income		$	40,500	$	24,346	$	59,483	$	42,562
Comprehensive income (loss)										Comprehensive income (loss)	$	(4,072)	$	40,500	$	(34,416)	$	59,483

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)

Three and six months ended June 30, 2021
(in thousands, except per share data) Common Stock Treasury Stock Additional paid in capital Retained earnings Accumulated
other
comprehensive income (loss) Total
shareholders’ equity
Balance at March 31, 2021 $ 332 $ (73,528) $ 698,005 $ 441,511 $ 26,177 $ 1,092,497
Net income 0 0 0 38,405 0 38,405
Other comprehensive income 0 0 0 0 2,095 2,095
Cash dividends paid on common shares, $0.18 per share 0 0 0 (5,634) 0 (5,634)
Repurchase of common shares (2) 0 (11,831) 0 0 (11,833)
Issuance under equity compensation plans, 44,364 shares, net 0 0 1,263 0 0 1,263
Share-based compensation 0 0 1,508 0 0 1,508
Balance at June 30, 2021 $ 330 $ (73,528) $ 688,945 $ 474,282 $ 28,272 $ 1,118,301
Balance at December 31, 2020 $ 332 $ (73,528) $ 697,839 $ 417,212 $ 37,120 $ 1,078,975
Net income 0 0 0 68,331 0 68,331
Other comprehensive loss 0 0 0 0 (8,848) (8,848)
Cash dividends paid on common shares, $0.36 per share 0 0 0 (11,261) 0 (11,261)
Repurchase of common shares (2) 0 (11,831) 0 0 (11,833)
Issuance under equity compensation plans, 93,334 shares, net 0 0 154 0 0 154
Share-based compensation 0 0 2,783 0 0 2,783
Balance at June 30, 2021 $ 330 $ (73,528) $ 688,945 $ 474,282 $ 28,272 $ 1,118,301
Three and six months ended June 30, 2020
(in thousands, except per share data) Common Stock Treasury Stock Additional paid in capital Retained earnings Accumulated
other
comprehensive income (loss) Total
shareholders’ equity
Balance at March 31, 2020 $ 281 $ (73,528) $ 525,838 $ 370,748 $ 23,097 $ 846,436
Net income 0 0 0 14,634 0 14,634
Other comprehensive income 0 0 0 0 9,712 9,712
Cash dividends paid on common shares, $0.18 per share 0 0 0 (4,715) 0 (4,715)
Issuance under equity compensation plans, 35,485 shares, net 0 0 827 0 0 827
Share-based compensation 0 0 1,069 0 0 1,069
Balance at June 30, 2020 $ 281 $ (73,528) $ 527,734 $ 380,667 $ 32,809 $ 867,963
Balance at December 31, 2019 $ 281 $ (58,181) $ 526,599 $ 380,737 $ 17,749 $ 867,185
Net income 0 0 0 27,502 0 27,502
Other comprehensive income 0 0 0 0 15,060 15,060
Cash dividends paid on common shares, $0.36 per share 0 0 0 (9,458) 0 (9,458)
Repurchase of common shares 0 (15,347) 0 0 0 (15,347)
Issuance under equity compensation plans, 109,000 shares, net 0 0 (894) 0 0 (894)
Share-based compensation 0 0 2,029 0 0 2,029
Reclassification for the adoption of ASU 2016-13 (CECL) — — — (18,114) — (18,114)
Balance at June 30, 2020 $ 281 $ (73,528) $ 527,734 $ 380,667 $ 32,809 $ 867,963


Three and six months ended June 30, 2022
	Preferred Stock			Common Stock
(in thousands, except per share data)	Shares	Amount		Shares	Amount		Treasury Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at March 31, 2022	75	$	71,988	37,516	$	395	$	(73,528)	$	1,010,446	$	523,136	$	(59,260)	$	1,473,177
Net income	—	—		—	—		—		—		45,149		—		45,149





Other comprehensive loss	—	—		—	—		—		—		—		(49,221)		(49,221)

Common stock dividends ($0.22 per share)	—	—		—	—		—		—		(8,185)		—		(8,185)
Preferred stock dividends ($12.50 per share)	—			—	—		—		—		(938)		—		(938)
Repurchase of common stock	—	—		(349)	(3)		—		(9,410)		(6,536)		—		(15,949)
Issuance under equity compensation plans, net	—	—		39	—		—		1,266		(7)		—		1,259

Share-based compensation	—	—		—	—		—		2,120		—		—		2,120
Retirement of treasury stock (1,980 shares)	—	—		—	(20)		73,528		(27,738)		(45,770)		—		—




Balance at June 30, 2022	75	$	71,988	37,206	$	372	$	—	$	976,684	$	506,849	$	(108,481)	$	1,447,412

Balance at December 31, 2021	75	$	71,988	37,820	$	398	$	(73,528)	$	1,018,799	$	492,682	$	18,777	$	1,529,116
Net income	—	—		—	—		—		—		92,842		—		92,842





Other comprehensive loss	—	—		—	—		—		—		—		(127,258)		(127,258)

Common stock dividends ($0.43 per share)	—	—		—	—		—		—		(16,100)		—		(16,100)
Preferred stock dividends ($28.889 per share)	—	—		—	—		—		—		(2,167)		—		(2,167)
Repurchase of common stock	—	—		(700)	(7)		—		(18,867)		(14,049)		—		(32,923)
Issuance under equity compensation plans, net	—	—		86	1		—		684		(589)		—		96

Share-based compensation	—	—		—	—		—		3,806		—		—		3,806
Retirement of treasury stock (1,980 shares)	—	—		—	(20)		73,528		(27,738)		(45,770)		—		—




Balance at June 30, 2022	75	$	71,988	37,206	$	372	$	—	$	976,684	$	506,849	$	(108,481)	$	1,447,412

~~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,
(in thousands, except share data) 2021 2020
Cash flows from operating activities:
Net income $ 68,331 $ 27,502
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation 3,044 3,048
Provision (benefit) for credit losses (2,623) 41,855
Deferred income taxes 4,025 (4,937)
Net amortization of debt securities 3,926 2,756
Amortization of intangible assets 2,726 2,880
Mortgage loans originated-for-sale (87,299) (94,536)
Proceeds from mortgage loans sold 94,327 84,799
Loss (gain) on:
Sale of investment securities 0 (4)
Sale of other real estate (596) 5
Sale of state tax credits (96) (211)
Share-based compensation 2,783 2,029
Net accretion of loan discount (1,386) (4,049)
Changes in other assets and liabilities, net (22,167) (2,277)
Net cash provided by operating activities 64,995 58,860
Cash flows from investing activities:
Net increase in loans (9,370) (815,437)
Proceeds received from:
Sale of debt securities, available-for-sale 0 207
Paydown or maturity of debt securities, available-for-sale 131,948 140,218
Paydown or maturity of debt securities, held-to-maturity 32,698 8,711
Redemption of other investments 2,213 25,978
Sale of state tax credits held for sale 4,262 1,924
Sale of other real estate 5,542 609
Settlement of bank-owned life insurance policies 0 974
Payments for the purchase of:
Available-for-sale debt securities (316,743) (152,082)
Other investments (4,729) (38,527)
State tax credits held for sale (3,285) (3,730)
Fixed assets, net (847) (1,532)
Net cash used in investing activities (158,311) (832,687)
Cash flows from financing activities:
Net increase in noninterest-bearing deposit accounts 399,753 638,520
Net increase in interest-bearing deposit accounts 254,362 290,036
Proceeds from FHLB advances, net 0 27,700
Repayments of notes payable (4,286) (2,857)
Proceeds from issuance of subordinated debentures, net 0 61,953
Net decrease in other borrowings (62,285) (34,355)
Cash dividends paid on common stock (11,261) (9,458)
Payments for the repurchase of common stock (11,833) (15,347)
Payments for the issuance of equity instruments, net 154 (894)
Net cash provided by financing activities 564,604 955,298
Net increase in cash and cash equivalents 471,288 181,471
Cash and cash equivalents, beginning of period 537,703 167,256
Cash and cash equivalents, end of period $ 1,008,991 $ 348,727
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 11,897 $ 20,574
Income taxes 34,571 30
Noncash transactions:
Transfer to other real estate owned in settlement of loans $ 3,227 $ 0
Sales of other real estate financed 228 48
Right-of-use assets obtained in exchange for lease obligations 0 200
Transfer of securities from available for sale to held to maturity 0 163,592


Three and six months ended June 30, 2021
	Common Stock
(in thousands, except per share data)		Shares	Amount		Treasury Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at March 31, 2021		31,259	$	332	$	(73,528)	$	698,005	$	441,511	$	26,177	$	1,092,497
Net income			—		—		—		38,405		—		38,405

Other comprehensive loss			—		—		—		—		2,095		2,095

Common stock dividends ($0.18 per share)			—		—		—		(5,634)		—		(5,634)
Repurchase of common stock		(252)	(2)		—		(11,831)		—		—		(11,833)



Issuance under equity compensation plans, net		45	—		—		1,263		—		—		1,263

Share-based compensation			—		—		1,508		—		—		1,508



Balance at June 30, 2021		31,052	$	330	$	(73,528)	$	688,945	$	474,282	$	28,272	$	1,118,301

Balance at December 31, 2020		31,210	$	332	$	(73,528)	$	697,839	$	417,212	$	37,120	$	1,078,975
Net income			—		—		—		68,331		—		68,331

Other comprehensive income			—		—		—		—		(8,848)		(8,848)

Common stock dividends ($0.36 per share)			—		—		—		(11,261)		—		(11,261)
Repurchase of common stock		(252)	(2)		—		(11,831)		—		—		(11,833)



Issuance under equity compensation plans, net		94	—		—		154		—		—		154

Share-based compensation			—		—		2,783		—		—		2,783



Balance at June 30, 2021		31,052	$	330	$	(73,528)	$	688,945	$	474,282	$	28,272	$	1,118,301

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,
(in thousands, except share data)	2022		2021
Cash flows from operating activities:
Net income	$	92,842	$	68,331
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	2,891		3,044
Benefit for credit losses	(3,410)		(2,623)
Deferred income taxes	4,644		4,025
Net amortization of debt securities	3,157		3,926
Net accretion on loan discount/premiums	(633)		(1,386)
Amortization of intangible assets	2,758		2,726
Amortization of servicing assets	1,693		234
Mortgage loans originated-for-sale	(43,352)		(87,299)
Proceeds from mortgage loans sold	44,789		94,327
Loss (gain) on:

Sale of other real estate	71		(596)

Sale of state tax credits	(41)		(96)


Share-based compensation	3,806		2,783




Changes in other assets and liabilities, net	5,534		(22,401)







Net cash provided by operating activities	114,749		64,995
Cash flows from investing activities:

Net increase in loans	(251,381)		(9,370)


Proceeds received from:

Paydown or maturity of debt securities, available-for-sale	127,119		131,948
Paydown or maturity of debt securities, held-to-maturity	8,671		32,698
Redemption of other investments	3,376		2,213
Sale of state tax credits held for sale	3,641		4,262
Sale of other real estate	1,834		5,542
Settlement of bank-owned life insurance policies	534		—
Payments for the purchase of:
Available-for-sale debt securities	(544,909)		(316,743)
Held-to-maturity debt securities	(83,283)		—
Other investments	(19,437)		(4,729)

State tax credits held for sale	(7,352)		(3,285)
Fixed assets	(1,004)		(847)
Net cash used in investing activities	(762,191)		(158,311)
Cash flows from financing activities:
Net increase in noninterest-bearing deposit accounts	168,042		399,753
Net (decrease) increase in interest-bearing deposit accounts	(419,223)		254,362




Repayments of notes payable	(2,857)		(4,286)




Net decrease in other borrowings	(124,311)		(62,285)



Repurchase of common stock	(32,923)		(11,833)
Cash dividends paid on common stock	(16,100)		(11,261)
Cash dividends paid on preferred stock	(2,167)		—
Other	96		154



Net cash (used in) provided by financing activities	(429,443)		564,604
Net (decrease) increase in cash and cash equivalents	(1,076,885)		471,288
Cash and cash equivalents, beginning of period	2,021,689		537,703
Cash and cash equivalents, end of period	$	944,804	$	1,008,991
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	11,873	$	11,897
Income taxes	14,889		34,571
Noncash investing and financing transactions:
Transfer to other real estate owned in settlement of loans	$	—	$	3,227
Sales of other real estate financed	—		228
Right-of-use assets obtained in exchange for lease obligations	4,178		—


Transfer of securities from available-for-sale to held-to-maturity	116,927		—

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 primarily located in Arizona, California, Kansas, Missouri, Nevada, and New Mexico through its banking subsidiary, Enterprise Bank & Trust.

Operating results for the three and six months ended June 30, ~~2021~~2022 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, ~~2021.~~2022. 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, ~~2020,~~2021, as filed with the SEC.

Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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.

Recent Accounting Pronouncements

FASB ASU ~~2020-04, “Reference~~2021-01, Reference Rate Reform (Topic 848): ~~Facilitation of the Effects of Reference Rate Reform on Financial Reporting.~~” ~~In March 2020, the FASB issued~~ ~~“Reference Rate Reform (Topic 848)”~~ ~~which~~Scope (ASU 2021-01). ~~provides~~ASU 2021-01 was issued in January 2021 and provided optional expedients and exceptions ~~for~~in ASC 848 to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendment only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance is effective for contract modifications as of March 12, 2020 through December 31, 2022. The Company is actively working to amend and address impacted contracts to allow for a replacement index. Additionally, the Company is currently evaluating the optional expedients and exceptions provided by the amendments will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this update were effective immediately upon issuance and did not ~~yet determined~~have a material effect on the ~~impact this standard may have on its~~ consolidated financial statements.

FASB ASU 2022-02, Financial Instruments–Credit Losses (Topic 326); Troubled Debt Restructurings and Vintage Disclosures.ASU 2022-02 was issued in March 2022 and eliminates the accounting guidance on troubled debt restructurings for creditors in ASC 310-40 and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. The amendments in this update will

be effective for fiscal years beginning after December 15, 2022 for entities that have adopted the amendments in ASU 2016-13, Financial Instruments–Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. The Company is evaluating the accounting and disclosure requirements of ASU 2022-02 and does not expect them to have a material effect on the consolidated financial statements.

FASB ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 was issued in June 2022 to (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is evaluating the accounting and disclosure requirements of ASU 2022-03 and does not expect them to have a material effect on the consolidated financial statements.

Acquisitions and Divestitures

Acquisitions and business combinations are accounted for using the acquisition method of accounting. The assets and liabilities of the acquired entities have been recorded at their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets.

The purchase price allocation process requires an estimation of the fair values of the assets acquired and the liabilities assumed. When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the Company includes an estimate of the acquisition-date fair value as part of the cost of the combination. To determine the fair values, the Company relies on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. Fair values are considered preliminary until final fair values are determined, or the measurement period has passed, which is no later than one year from the date of acquisition.

The results of operations of the acquired business are included in the Company’s consolidated financial statements from the date of acquisition. Merger-related expenses include costs directly related to merger or acquisition activity and include legal and professional fees, system consolidation and conversion costs, and compensation costs such as severance and retention incentives for employees impacted by acquisition activity. The Company accounts for merger-related expenses in the periods in which the costs are incurred and the services are received.

For divestitures, the Company measures an asset (disposal group) classified as held-for-sale at the lower of its carrying value at the date the asset is initially classified as held-for-sale or its fair value less costs to sell. The Company reports the results of operations of an entity or group of components that either has been disposed of or held-for-sale as discontinued operations only if the disposal of that component represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.

Any incremental direct costs incurred to transact the sale are allocated against the gain or loss on the sale. These costs typically include items such as legal fees, title transfer fees, broker fees, etc. Any goodwill and intangible assets associated with the portion of the reporting unit to be disposed of is included in the carrying amount of the business in determining the gain or loss on the sale.

NOTE 2 - EARNINGS PER SHARE

Basic earnings per common share data is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method.

The following table presents a summary of per common share data and amounts for the periods indicated.


		Three months ended June 30,				Six months ended June 30,					Three months ended June 30,				Six months ended June 30,
(in thousands, except per share data)	(in thousands, except per share data)	2021		2020		2021		2020		(in thousands, except per share data)	2022		2021		2022		2021
Net income as reported		$	38,405	$	14,634	$	68,331	$	27,502
Net income available to common shareholders										Net income available to common shareholders	$	44,211	$	38,405	$	90,675	$	68,331

Weighted average common shares outstanding	Weighted average common shares outstanding	31,265		26,180		31,256		26,325		Weighted average common shares outstanding	37,243		31,265		37,514		31,256

Additional dilutive common stock equivalents	Additional dilutive common stock equivalents	47		15		49		29		Additional dilutive common stock equivalents	39		47		58		49
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	31,312		26,195		31,305		26,354		Weighted average diluted common shares outstanding	37,282		31,312		37,572		31,305

Basic earnings per common share:	Basic earnings per common share:	$	1.23	$	0.56	$	2.19	$	1.04	Basic earnings per common share:	$	1.19	$	1.23	$	2.42	$	2.19
Diluted earnings per common share:	Diluted earnings per common share:	1.23		0.56		$	2.18	$	1.04	Diluted earnings per common share:	1.19		1.23		$	2.41	$	2.18

For the three and six months ended June 30, ~~2021~~2022 common stock equivalents of approximately ~~154,000~~363,000 and ~~133,000,~~319,000, respectively, were excluded from the earnings per share calculations because their effect would have been anti-dilutive. Comparatively, there were ~~157,000~~154,000 and ~~147,000~~133,000 common stock equivalents excluded in the prior year ~~periods.~~periods, respectively.

NOTE 3 - INVESTMENTS

The following tables present the amortized cost, gross unrealized gains and losses, allowance for credit losses and fair value of securities available for sale and held to maturity:


		June 30, 2021						June 30, 2022
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale securities:	Available-for-sale securities:										Available-for-sale securities:
Obligations of U.S. Government-sponsored enterprises	Obligations of U.S. Government-sponsored enterprises	$	99,490	$	93	$	(329)		$	99,254	Obligations of U.S. Government-sponsored enterprises	$	250,833	$	—	$	(19,160)	$	231,673
Obligations of states and political subdivisions	Obligations of states and political subdivisions	475,710		6,328		(1,193)			480,845		Obligations of states and political subdivisions	510,047		21		(93,233)		416,835
Agency mortgage-backed securities	Agency mortgage-backed securities	464,288		14,393		(1,302)			477,379		Agency mortgage-backed securities	686,957		34		(50,203)		636,788
U.S. Treasury bills	U.S. Treasury bills	10,985		361		0			11,346		U.S. Treasury bills	196,825		35		(2,232)		194,628
Corporate debt securities	Corporate debt securities	14,750		649		0			15,399		Corporate debt securities	13,750		37		(434)		13,353
Total securities available for sale	Total securities available for sale	$	1,065,223	$	21,824	$	(2,824)		$	1,084,223	Total securities available for sale	$	1,658,412	$	127	$	(165,262)	$	1,493,277
Held-to-maturity securities:	Held-to-maturity securities:										Held-to-maturity securities:

Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	240,163	$	1,845	$	(763)		$	241,245	Obligations of states and political subdivisions	$	433,212	$	57	$	(65,422)	$	367,847
Agency mortgage-backed securities	Agency mortgage-backed securities	84,544		1,403		(268)			85,679		Agency mortgage-backed securities	60,042		—		(4,763)		55,279
Corporate debt securities	Corporate debt securities	126,407		5,694		0			132,101		Corporate debt securities	125,220		136		(10,907)		114,449
Total securities held-to-maturity	Total securities held-to-maturity	$	451,114	$	8,942	$	(1,031)		$	459,025	Total securities held-to-maturity	$	618,474	$	193	$	(81,092)	$	537,575
Allowance for credit losses	Allowance for credit losses	(449)									Allowance for credit losses	(707)
Total securities held-to-maturity, net	Total securities held-to-maturity, net	$	450,665								Total securities held-to-maturity, net	$	617,767


		December 31, 2020									December 31, 2021
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:
Obligations of U.S. Government-sponsored enterprises	Obligations of U.S. Government-sponsored enterprises	$	14,978	$	186	$	(3)	$	15,161	Obligations of U.S. Government-sponsored enterprises	$	175,409	$	3	$	(1,901)	$	173,511
Obligations of states and political subdivisions	Obligations of states and political subdivisions	335,271		8,994		(33)		344,232		Obligations of states and political subdivisions	571,587		5,907		(2,410)		575,084
Agency mortgage-backed securities	Agency mortgage-backed securities	506,703		20,190		(321)		526,572		Agency mortgage-backed securities	509,243		8,485		(3,869)		513,859
U.S. Treasury Bills	U.S. Treasury Bills	10,980		486		0		11,466		U.S. Treasury Bills	90,971		220		(21)		91,170
Corporate debt securities	Corporate debt securities	14,750		248		0		14,998		Corporate debt securities	11,750		632		—		12,382
Total securities available for sale	Total securities available for sale	$	882,682	$	30,104	$	(357)	$	912,429	Total securities available for sale	$	1,358,960	$	15,247	$	(8,201)	$	1,366,006
Held-to-maturity securities:	Held-to-maturity securities:									Held-to-maturity securities:

Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	248,324	$	2,814	$	0	$	251,138	Obligations of states and political subdivisions	$	236,379	$	1,794	$	(730)	$	237,443
Agency mortgage-backed securities	Agency mortgage-backed securities	112,742		2,295		(496)		114,541		Agency mortgage-backed securities	68,105		940		(666)		68,379
Corporate debt securities	Corporate debt securities	126,993		8,851		0		135,844		Corporate debt securities	125,811		3,039		—		128,850
Total securities held to maturity	Total securities held to maturity	$	488,059	$	13,960	$	(496)	$	501,523	Total securities held to maturity	$	430,295	$	5,773	$	(1,396)	$	434,672
Less: Allowance for credit losses		449
Allowance for credit losses										Allowance for credit losses	(614)
Total securities held-to-maturity, net	Total securities held-to-maturity, net	$	487,610							Total securities held-to-maturity, net	$	429,681

During the six months ended June 30, 2022, the Company transferred $116.9 million of securities from available-for-sale to held-to-maturity. The Company believes the held-to-maturity category is consistent with the Company’s intent for these securities. The transfer of securities was made at fair value at the time of transfer. The unamortized portion of the unrealized holding gain at the time of transfer is retained in accumulated other comprehensive income and in the carrying value of held-to-maturity securities. The balance of held-to-maturity securities in the “Amortized Cost” column in the table above includes a cumulative net unamortized unrealized gain of $19.4 million and $21.0 million at June 30, 2022 and December 31, 2021, respectively. Such amounts are amortized over the remaining life of the securities.

At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 ~~$489.4~~$680.1 million and ~~$525.8~~$752.7 million at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 30, ~~2021,~~2022, 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 45 years.


		Available for sale				Held to maturity					Available for sale				Held to maturity
(in thousands)	(in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		(in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	Due in one year or less	$	11,345	$	11,435	$	0	$	0	Due in one year or less	$	99,932	$	99,696	$	890	$	891
Due after one year through five years	Due after one year through five years	70,321		70,640		12,469		12,839		Due after one year through five years	318,870		301,463		24,065		23,081
Due after five years through ten years	Due after five years through ten years	65,658		66,316		137,489		143,056		Due after five years through ten years	64,599		59,319		156,468		143,490
Due after ten years	Due after ten years	453,611		458,453		216,612		217,451		Due after ten years	488,054		396,011		377,009		314,834
Agency mortgage-backed securities	Agency mortgage-backed securities	464,288		477,379		84,544		85,679		Agency mortgage-backed securities	686,957		636,788		60,042		55,279

		$	1,065,223	$	1,084,223	$	451,114	$	459,025		$	1,658,412	$	1,493,277	$	618,474	$	537,575

810

The following tables presents a summary of available-for-sale investment securities in an unrealized loss position:


		June 30, 2021													June 30, 2022
		Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
(in thousands)	(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government-sponsored enterprises	Obligations of U.S. Government-sponsored enterprises	$	76,671	$	329	$	0	$	0	$	76,671	$	329	Obligations of U.S. Government-sponsored enterprises	$	210,225	$	17,108	$	21,448	$	2,052	$	231,673	$	19,160
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	142,099	$	1,193	$	0	$	0	$	142,099	$	1,193	Obligations of states and political subdivisions	389,067		86,331		22,140		6,902		411,207		93,233
Agency mortgage-backed securities	Agency mortgage-backed securities	116,819		1,301		74		1		116,893		1,302		Agency mortgage-backed securities	581,194		41,640		49,116		8,563		630,310		50,203

U.S. Treasury bills														U.S. Treasury bills	187,738		2,232		—		—		187,738		2,232
Corporate debt securities														Corporate debt securities	11,316		434		—		—		11,316		434
		$	335,589	$	2,823	$	74	$	1	$	335,663	$	2,824		$	1,379,540	$	147,745	$	92,704	$	17,517	$	1,472,244	$	165,262

		December 31, 2020													December 31, 2021
		Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
(in thousands)	(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government-sponsored enterprises	Obligations of U.S. Government-sponsored enterprises	$	4,997	$	3	$	0	$	0	$	4,997	$	3	Obligations of U.S. Government-sponsored enterprises	$	163,634	$	1,775	$	4,874	$	126	$	168,508	$	1,901
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	4,079	$	33	$	0	$	0	$	4,079	$	33	Obligations of states and political subdivisions	242,188		2,361		1,776		49		243,964		2,410
Agency mortgage-backed securities	Agency mortgage-backed securities	65,986		321		0		0		65,986		321		Agency mortgage-backed securities	259,047		3,685		6,467		184		265,514		3,869
U.S. Treasury bills														U.S. Treasury bills	60,961		21		—		—		60,961		21

															$	725,830	$	7,842	$	13,117	$	359	$	738,947	$	8,201
		$	75,062	$	357	$	0	$	0	$	75,062	$	357

The unrealized losses at both June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were attributable primarily ~~attributable~~ to changes in market interest rates after the securities were purchased. At each of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had not recorded an ACL on available-for-sale securities.

Accrued interest receivable on held-to-maturity debt securities totaled ~~$3.5~~$4.4 million and $3.4 million at June 30, 2022 and December 31 2021, respectively, and is excluded from the estimate of expected credit losses. The estimate of expected credit losses considers historical credit loss information adjusted for current conditions and reasonable and supportable forecasts. ~~At June 30, 2021, the~~The ACL on held-to-maturity securities was ~~$0.4 million.~~$0.7 million at June 30, 2022 and $0.6 million at December 31, 2021.

~~During the three and six months ended June 30, 2021, there~~There were no ~~sales of available-for-sale investment securities. Proceeds from~~ sales of available-for-sale investment securities during the ~~six~~three months ended June 30, ~~2020 were immaterial.~~2022 or 2021.

Other Investments

At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, other investments totaled ~~$51.0~~$61.3 million and ~~$48.8~~$59.9 million, respectively. As a member of the FHLB system administered by the Federal Housing Finance Agency, the Bank is required to maintain a minimum investment in capital stock with the FHLB consisting of membership stock and activity-based stock. The FHLB capital stock of $12.0 million and ~~$10.8~~$12.1 million at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, is recorded at cost, which represents redemption value, and is included in other investments in the consolidated balance sheets. The remaining amounts in other investments primarily include ~~various~~ investments in SBICs, CDFIs, private equity investments, and the Company’s investment in unconsolidated trusts used to issue trust preferred securities to third parties.

911

NOTE 4 - LOANS

The following table presents a summary of loans by category:


(in thousands)	(in thousands)	June 30, 2021		December 31, 2020		(in thousands)	June 30, 2022		December 31, 2021
Commercial and industrial	Commercial and industrial	$	2,943,048	$	3,100,299	Commercial and industrial	$	3,597,225	$	3,396,590
Real estate:	Real estate:					Real estate:
Commercial - investor owned	Commercial - investor owned	1,646,021		1,589,419		Commercial - investor owned	2,173,640		2,141,143
Commercial - owner occupied	Commercial - owner occupied	1,554,727		1,498,408		Commercial - owner occupied	2,120,735		2,035,785
Construction and land development	Construction and land development	556,776		546,686		Construction and land development	724,163		734,073
Residential	Residential	305,497		319,179		Residential	413,727		454,052
Total real estate loans	Total real estate loans	4,063,021		3,953,692		Total real estate loans	5,432,265		5,365,053
Other	Other	235,431		187,083		Other	246,298		265,137
Loans, before unearned loan fees	Loans, before unearned loan fees	7,241,500		7,241,074		Loans, before unearned loan fees	9,275,788		9,026,780
Unearned loan fees, net	Unearned loan fees, net	(15,233)		(16,139)		Unearned loan fees, net	(6,612)		(9,138)
Loans, including unearned loan fees	Loans, including unearned loan fees	$	7,226,267	$	7,224,935	Loans, including unearned loan fees	$	9,269,176	$	9,017,642

PPP loans totaled ~~$408.9~~$49.7 million at June 30, ~~2021,~~2022, or ~~$396.7~~$49.2 million net of deferred fees of ~~$12.2~~$0.5 million. The loan balance at June 30, ~~2021 also~~2022 includes a net premium on acquired loans of ~~$20.6~~$12.6 million. At June 30, ~~2021~~2022, loans of ~~$2.8~~$2.7 billion were pledged to FHLB and the Federal Reserve Bank.

PPP loans totaled ~~$709.9~~$276.2 million at December 31, ~~2020,~~2021, or ~~$698.6~~$272.0 million net of ~~unearned~~deferred fees of ~~$11.3~~$4.2 million. The loan balance includes a net premium on acquired loans of ~~$16.1~~$11.9 million at December 31, ~~2020.~~2021. At December 31, ~~2020~~2021, loans of $2.5 billion were pledged to FHLB and the Federal Reserve Bank.

The Company has elected to present the accrued interest receivable balance separate from amortized cost basis, to exclude accrued interest receivable balances from the tabular disclosures, and not to estimate an ACL on accrued interest receivable as these amounts are timely written off as a credit loss expense.

Accrued interest receivable totaled ~~$24.6~~$30.0 million and $30.6 million at June 30, 2022 and December 31, 2021, respectively, and was reported in ~~Other Assets~~“Other Assets” on the consolidated balance sheets.

A summary of the activity in the ACL on loans by category for the three and six months ended June 30, ~~2021~~2022 is as follows:


(in thousands)	(in thousands)	Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Other		Total		(in thousands)	Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Other		Total
Allowance for credit losses on loans:	Allowance for credit losses on loans:															Allowance for credit losses on loans:

Balance at March 31, 2021		$	55,941	$	33,105	$	20,219	$	14,557	$	4,305	$	3,400	$	131,527
Balance at March 31, 2022																Balance at March 31, 2022	$	60,975	$	36,194	$	17,038	$	12,983	$	7,109	$	4,913	$	139,212
Provision (benefit) for credit losses	Provision (benefit) for credit losses	(1,839)		2,859		(4,449)		(2,957)		255		3,658		(2,473)		Provision (benefit) for credit losses	4,562		(2,680)		(1,066)		183		307		(147)		1,159
Charge-offs	Charge-offs	(1,451)		0		(216)		0		(44)		(121)		(1,832)		Charge-offs	(97)		(200)		(25)		—		(418)		(88)		(828)
Recoveries	Recoveries	700		39		10		32		161		21		963		Recoveries	206		24		209		14		480		70		1,003
Balance at June 30, 2021		$	53,351	$	36,003	$	15,564	$	11,632	$	4,677	$	6,958	$	128,185
Balance at June 30, 2022																Balance at June 30, 2022	$	65,646	$	33,338	$	16,156	$	13,180	$	7,478	$	4,748	$	140,546



(in thousands)	Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Other		Total
Allowance for credit losses on loans:
Balance at December 31, 2021	$	63,825	$	35,877	$	17,560	$	14,536	$	7,927	$	5,316	$	145,041

Provision (benefit) for credit losses	3,081		(2,559)		(1,648)		(1,391)		(149)		(483)		(3,149)
Charge-offs	(2,256)		(200)		(205)		—		(1,305)		(174)		(4,140)
Recoveries	996		220		449		35		1,005		89		2,794
Balance at June 30, 2022	$	65,646	$	33,338	$	16,156	$	13,180	$	7,478	$	4,748	$	140,546

1012

(in thousands) Commercial and industrial CRE - investor owned CRE -
owner occupied Construction and land development Residential real estate Other Total
Allowance for credit losses on loans:
Balance at December 31, 2020 $ 58,812 $ 32,062 $ 17,012 $ 21,413 $ 4,585 $ 2,787 $ 136,671
Provision (benefit) for credit losses (1,298) 6,240 (1,223) (10,048) 103 4,256 (1,970)
Charge-offs (5,190) (2,372) (244) 0 (315) (185) (8,306)
Recoveries 1,027 73 19 267 304 100 1,790
Balance at June 30, 2021 $ 53,351 $ 36,003 $ 15,564 $ 11,632 $ 4,677 $ 6,958 $ 128,185

The ACL on sponsor finance loans, which is included in the categories above, represented ~~$20.1~~$20.5 million and ~~$19.0~~$18.2 million, respectively, as of June 30, ~~2021~~2022 and December ~~30, 2020.~~31, 2021.

A summary of the activity in the ACL on loans by category for the three and six months ended June 30, ~~2020~~2021 is as follows:


(in thousands)	(in thousands)	Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Other		Total		(in thousands)	Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Other		Total
Allowance for credit losses on loans:	Allowance for credit losses on loans:															Allowance for credit losses on loans:

Balance at March 31, 2020		$	45,981	$	19,892	$	9,477	$	9,895	$	5,395	$	1,547	$	92,187
Balance at March 31, 2021																Balance at March 31, 2021	$	55,941	$	33,105	$	20,219	$	14,557	$	4,305	$	3,400	$	131,527
Provision for credit losses	Provision for credit losses	7,168		2,599		1,600		6,038		744		242		18,391		Provision for credit losses	(1,839)		2,859		(4,449)		(2,957)		255		3,658		(2,473)
Charge-offs	Charge-offs	(3,303)		(224)		0		0		(32)		(105)		(3,664)		Charge-offs	(1,451)		—		(216)		—		(44)		(121)		(1,832)
Recoveries	Recoveries	293		2,752		11		29		226		45		3,356		Recoveries	700		39		10		32		161		21		963
Balance at June 30, 2020		50,139		25,019		11,088		15,962		6,333		1,729		110,270
Balance at June 30, 2021																Balance at June 30, 2021	$	53,351	$	36,003	$	15,564	$	11,632	$	4,677	$	6,958	$	128,185


(in thousands)	(in thousands)	Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Other		Total		(in thousands)	Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Other		Total
Allowance for credit losses on loans:	Allowance for credit losses on loans:															Allowance for credit losses on loans:
Balance at December 31, 2019		$	27,455	$	5,935	$	4,873	$	2,611	$	1,280	$	1,134	$	43,288
CECL adoption		6,494		10,726		2,598		5,183		3,470		(84)		28,387
PCD loans immediately charged off		0		(5)		(57)		(217)		(1,401)		0		(1,680)
Balance at January 1, 2020		$	33,949	$	16,656	$	7,414	$	7,577	$	3,349	$	1,050	$	69,995
Balance at December 31, 2020																Balance at December 31, 2020	$	58,812	$	32,062	$	17,012	$	21,413	$	4,585	$	2,787	$	136,671

Provision for credit losses	Provision for credit losses	18,759		5,823		3,594		8,347		2,755		808		40,086		Provision for credit losses	(1,298)		6,240		(1,223)		(10,048)		103		4,256		(1,970)
Charge-offs	Charge-offs	(3,366)		(226)		0		(31)		(154)		(191)		(3,968)		Charge-offs	(5,190)		(2,372)		(244)		—		(315)		(185)		(8,306)
Recoveries	Recoveries	797		2,766		80		69		383		62		4,157		Recoveries	1,027		73		19		267		304		100		1,790��
Balance at June 30, 2020		$	50,139	$	25,019	$	11,088	$	15,962	$	6,333	$	1,729	$	110,270
Balance at June 30, 2021																Balance at June 30, 2021	$	53,351	$	36,003	$	15,564	$	11,632	$	4,677	$	6,958	$	128,185

The CECL methodology incorporates various economic scenarios. The Company utilizes three forecasts in the model: Moody’s baseline, a stronger near-term growth upside and a moderate recession downside forecast. The Company weights these scenarios at ~~70%~~40%, 5%30%, and ~~25%~~30%, respectively, which added approximately ~~$12.9~~$13.6 million to the ACL over the baseline model. These forecasts incorporate an ~~accommodative monetary policy~~expectation that government stimulus will decline, the Federal Reserve will wind down its treasury and mortgage-backed securities portfolio and continue raising the federal funds rate, that the pandemic will begin to slowly recede, that the Russia-Ukraine military conflict will have a limited disruption on the economy and the ~~current and anticipated impact~~risk of ~~government stimulus.~~a period of stagflation. The Company has also recognized the risk posed by loans that have received multiple deferrals of principal and interest payments, ~~loans in~~including the hospitality sector, ~~and loans with other specific identified risks~~ by allocating additional reserves to those segments. Some of the key risks to the forecasts that could result in future provision for credit losses are additional shutdowns and self-quarantines iffrom another significant wave of ~~COVID hits,~~COVID-19, continued or worsening supply-chain disruptions, labor shortages and declines in job growth, or a tightening of financial market conditions.

In addition to the ~~vaccination process stalls, small-business bankruptcies occur at higher levels, or unemployment increases.~~CECL methodology, the Company incorporates qualitative adjustments into the ACL on loans to capture credit risks inherent within the loan portfolio that are not captured in the discounted cash flow (DCF) model. Included in these risks are 1) changes in lending policies and procedures, 2) actual and expected changes in business and economic conditions, 3) changes in the nature and volume of the portfolio, 4) changes in lending management, 5) changes in volume and the severity of past due loans, 6) changes in the quality of the loan review system, 7) changes in the value of underlying collateral, 8) the existence and effect of concentrations of credit and 9) other factors such as the regulatory, legal and competitive environments and events such as natural disasters and pandemics.At June 30, 2022, the ACL on loans included a qualitative adjustment of approximately $40.8 million. Of this amount, approximately $7.3 million was allocated to sponsor finance loans due to their unsecured nature.

1113

The following tables present the recorded investment in nonperforming loans by category:


		June 30, 2021											June 30, 2022
(in thousands)	(in thousands)	Nonaccrual		Restructured, accruing		Loans over 90 days past due and still accruing interest		Total nonperforming loans		Nonaccrual loans with no allowance		(in thousands)	Nonaccrual		Restructured, accruing		Loans over 90 days past due and still accruing interest		Total nonperforming loans		Nonaccrual loans with no allowance
Commercial and industrial	Commercial and industrial	$	19,082	$	2,965	$	2,797	$	24,844	$	10,215	Commercial and industrial	$	16,323	$	—	$	3	$	16,326	$	2,113
Real estate:	Real estate:											Real estate:
Commercial - investor owned	Commercial - investor owned	7,359		0		0		7,359		441		Commercial - investor owned	1,150		—		—		1,150		1,150
Commercial - owner occupied	Commercial - owner occupied	5,885		0		0		5,885		1,616		Commercial - owner occupied	1,212		—		—		1,212		1,212
Construction and land development		100		0		0		100		100

Residential	Residential	3,961		77		0		4,038		2,695		Residential	776		74		—		850		776
Other	Other	16		0		10		26		0		Other	1		—		21		22		—
Total	Total	$	36,403	$	3,042	$	2,807	$	42,252	$	15,067	Total	$	19,462	$	74	$	24	$	19,560	$	5,251


		December 31, 2020											December 31, 2021
(in thousands)	(in thousands)	Nonaccrual		Restructured, accruing		Loans over 90 days past due and still accruing interest		Total nonperforming loans		Nonaccrual loans with no allowance		(in thousands)	Nonaccrual		Restructured, accruing		Loans over 90 days past due and still accruing interest		Total nonperforming loans		Nonaccrual loans with no allowance
Commercial and industrial	Commercial and industrial	$	18,158	$	3,482	$	130	$	21,770	$	8,316	Commercial and industrial	$	17,052	$	2,783	$	1,703	$	21,538	$	5,685
Real estate:	Real estate:											Real estate:
Commercial - investor owned	Commercial - investor owned	9,579		0		0		9,579		716		Commercial - investor owned	1,575		—		—		1,575		168
Commercial - owner occupied	Commercial - owner occupied	2,940		0		0		2,940		6,024		Commercial - owner occupied	2,839		—		—		2,839		2,550

Residential	Residential	4,112		77		0		4,189		0		Residential	1,971		76		1		2,048		1,348
Other	Other	29		0		0		29		3,190		Other	12		—		12		24		—
Total	Total	$	34,818	$	3,559	$	130	$	38,507	$	18,246	Total	$	23,449	$	2,859	$	1,716	$	28,024	$	9,751

The total nonperforming loan balances at June ~~31, 2021~~30, 2022 and December 31, ~~2020~~2021 exclude government guaranteed balances of ~~$3.9~~$6.1 million ~~for each period.~~and $6.5 million, respectively.

No interest income was recognized on nonaccrual loans during the three and six months ended June 30, ~~2021~~2022 or ~~2020.~~2021.

The amortized cost basis of collateral-dependent nonperforming loans by class of loan is presented ~~for~~as of the ~~periods~~dates indicated:


		June 30, 2021									June 30, 2022
		Type of Collateral									Type of Collateral
(in thousands)	(in thousands)	Commercial Real Estate		Residential Real Estate		Blanket Lien		Other		(in thousands)	Commercial Real Estate		Residential Real Estate		Blanket Lien
Commercial and industrial	Commercial and industrial	$	11,941	$	0	$	4,252	$	0	Commercial and industrial	$	4,271	$	37	$	5,676
Real estate:	Real estate:									Real estate:
Commercial - investor owned	Commercial - investor owned	7,141		0		0		0		Commercial - investor owned	1,193		1,150		—
Commercial - owner occupied	Commercial - owner occupied	5,767		0		0		0		Commercial - owner occupied	—		19		—

Residential	Residential	100		3,984		0		0		Residential	—		850		—
Other		0		0		0		15

Total	Total	$	24,949	$	3,984	$	4,252	$	15	Total	$	5,464	$	2,056	$	5,676

1214


		December 31, 2020									December 31, 2021
		Type of Collateral									Type of Collateral
(in thousands)	(in thousands)	Commercial Real Estate		Residential Real Estate		Blanket Lien		Other		(in thousands)	Commercial Real Estate		Residential Real Estate		Blanket Lien
Commercial and industrial	Commercial and industrial	$	8,316	$	0	$	394	$	0	Commercial and industrial	$	4,271	$	209	$	9,312
Real estate:	Real estate:									Real estate:
Commercial - investor owned	Commercial - investor owned	9,579		0		0		0		Commercial - investor owned	169		1,200		—
Commercial - owner occupied	Commercial - owner occupied	2,940		0		0		0		Commercial - owner occupied	2,807		32		—

Residential	Residential	0		4,135		0		0		Residential	—		2,048		—
Other		0		0		0		17

Total	Total	$	20,835	$	4,135	$	394	$	17	Total	$	7,247	$	3,489	$	9,312

There were no loans restructured during the three ~~and~~or six months ended June 30, ~~2021~~2022 or ~~the three months ended June 30, 2020. The recorded investment by category for troubled debt restructurings that occurred during the six months ended June 30, 2020 are as follows:~~

June 30, 2020
(in thousands, except for number of loans) Number of loans Pre-Modification Outstanding Recorded Balance Post-Modification Outstanding Recorded Balance
Commercial and industrial 1 $ 3,731 $ 3,731
Real estate:
Residential 2 155 155
Total 3 $ 3,886 $ 3,886
2021.

No troubled debt restructurings subsequently defaulted during the three ~~and~~or six months ended June 30, ~~2021~~2022 or ~~2020.~~

In response to the COVID-19 pandemic, the Company has implemented short-term deferral programs allowing customers to primarily defer payments for up to 90 days. Deferrals under the CARES Act or interagency guidance are not included above as troubled debt restructurings. As of June 30, 2021, $8.5 million loans remain in a deferral status. Interest of $4.1 million has been deferred and will be collected upon final maturity.2021.

The aging of the recorded investment in past due loans by class is presented ~~for~~as of the ~~periods~~dates indicated.


		June 30, 2021											June 30, 2022
(in thousands)	(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total		(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	Commercial and industrial	$	8,245	$	15,247	$	23,492	$	2,907,313	$	2,930,805	Commercial and industrial	$	10,960	$	5,227	$	16,187	$	3,580,514	$	3,596,701
Real estate:	Real estate:											Real estate:
Commercial - investor owned	Commercial - investor owned	1,065		6,700		7,765		1,638,256		1,646,021		Commercial - investor owned	5,856		—		5,856		2,167,784		2,173,640
Commercial - owner occupied	Commercial - owner occupied	4,710		512		5,222		1,549,505		1,554,727		Commercial - owner occupied	6,052		199		6,251		2,114,484		2,120,735
Construction and land development	Construction and land development	65		100		165		556,611		556,776		Construction and land development	—		—		—		724,163		724,163
Residential	Residential	461		1,925		2,386		303,111		305,497		Residential	578		454		1,032		412,695		413,727
Other	Other	62		25		87		232,354		232,441		Other	22		21		43		240,167		240,210
Total	Total	$	14,608	$	24,509	$	39,117	$	7,187,150	$	7,226,267	Total	$	23,468	$	5,901	$	29,369	$	9,239,807	$	9,269,176


		December 31, 2020											December 31, 2021
(in thousands)	(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total		(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	Commercial and industrial	$	8,652	$	12,928	$	21,580	$	3,067,415	$	3,088,995	Commercial and industrial	$	24,447	$	14,158	$	38,605	$	3,353,770	$	3,392,375
Real estate:	Real estate:											Real estate:
Commercial - investor owned	Commercial - investor owned	734		9,301		10,035		1,579,384		1,589,419		Commercial - investor owned	3,880		—		3,880		2,137,263		2,141,143
Commercial - owner occupied	Commercial - owner occupied	328		4,647		4,975		1,493,433		1,498,408		Commercial - owner occupied	10,070		289		10,359		2,025,426		2,035,785
Construction and land development	Construction and land development	13		0		13		546,673		546,686		Construction and land development	24		—		24		734,049		734,073
Residential	Residential	2,071		2,118		4,189		314,990		319,179		Residential	3,181		1,305		4,486		449,566		454,052
Other	Other	1,731		50		1,781		180,467		182,248		Other	37		11		48		260,166		260,214
Total	Total	$	13,529	$	29,044	$	42,573	$	7,182,362	$	7,224,935	Total	$	41,639	$	15,763	$	57,402	$	8,960,240	$	9,017,642

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 at this time, 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 nonaccrual.

1516

The recorded investment by risk category of loans by class and year of origination is presented in the following tables as of the dates indicated:


		June 30, 2021																			June 30, 2022
		Term Loans by Origination Year																			Term Loans by Origination Year
(in thousands)	(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Converted to Term Loans		Revolving Loans		Total		(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Converted to Term Loans		Revolving Loans		Total
Commercial and industrial	Commercial and industrial																			Commercial and industrial
Pass (1-6)	Pass (1-6)	$	731,143	$	649,462	$	384,160	$	183,888	$	117,020	$	76,679	$	8,765	$	564,593	$	2,715,710	Pass (1-6)	$	772,231	$	871,166	$	365,734	$	215,249	$	81,055	$	116,448	$	2,756	$	953,568	$	3,378,207
Watch (7)	Watch (7)	31,131		33,339		13,864		8,671		4,163		12,402		7,628		58,428		169,626		Watch (7)	25,384		16,809		18,519		2,121		8,315		10,578		360		76,292		158,378
Classified (8-9)	Classified (8-9)	7,365		2,049		8,451		2,592		3,254		880		2,018		15,487		42,096		Classified (8-9)	6,131		12,518		4,440		3,839		1,350		284		121		13,065		41,748
Total Commercial and industrial	Total Commercial and industrial	$	769,639	$	684,850	$	406,475	$	195,151	$	124,437	$	89,961	$	18,411	$	638,508	$	2,927,432	Total Commercial and industrial	$	803,746	$	900,493	$	388,693	$	221,209	$	90,720	$	127,310	$	3,237	$	1,042,925	$	3,578,333

Commercial real estate-investor owned	Commercial real estate-investor owned																			Commercial real estate-investor owned
Pass (1-6)	Pass (1-6)	$	249,960	$	421,836	$	327,290	$	169,832	$	111,808	$	227,018	$	3,690	$	38,687	$	1,550,121	Pass (1-6)	$	329,489	$	599,145	$	398,097	$	283,247	$	142,431	$	264,598	$	595	$	49,606	$	2,067,208
Watch (7)	Watch (7)	9,126		27,342		13,822		7,144		0		19,381		0		0		76,815		Watch (7)	18,755		14,058		30,767		10,811		78		14,338		—		—		88,807
Classified (8-9)	Classified (8-9)	0		6,012		429		6,651		0		2,684		0		0		15,776		Classified (8-9)	2,317		—		198		824		333		5,292		50		—		9,014
Total Commercial real estate-investor owned	Total Commercial real estate-investor owned	$	259,086	$	455,190	$	341,541	$	183,627	$	111,808	$	249,083	$	3,690	$	38,687	$	1,642,712	Total Commercial real estate-investor owned	$	350,561	$	613,203	$	429,062	$	294,882	$	142,842	$	284,228	$	645	$	49,606	$	2,165,029

Commercial real estate-owner occupied	Commercial real estate-owner occupied																			Commercial real estate-owner occupied
Pass (1-6)	Pass (1-6)	$	213,157	$	398,971	$	240,316	$	181,078	$	142,757	$	229,030	$	0	$	41,902	$	1,447,211	Pass (1-6)	$	280,474	$	571,629	$	399,477	$	251,344	$	136,528	$	307,517	$	—	$	53,056	$	2,000,025
Watch (7)	Watch (7)	8,794		7,884		1,651		15,452		5,917		9,605		0		1,349		50,652		Watch (7)	3,272		9,596		14,412		4,590		13,986		9,145		—		800		55,801
Classified (8-9)	Classified (8-9)	1,085		895		11,363		6,112		4,660		8,231		88		63		32,497		Classified (8-9)	977		128		568		10,379		15,975		13,650		—		94		41,771
Total Commercial real estate-owner occupied	Total Commercial real estate-owner occupied	$	223,036	$	407,750	$	253,330	$	202,642	$	153,334	$	246,866	$	88	$	43,314	$	1,530,360	Total Commercial real estate-owner occupied	$	284,723	$	581,353	$	414,457	$	266,313	$	166,489	$	330,312	$	—	$	53,950	$	2,097,597

Construction real estate	Construction real estate																			Construction real estate
Pass (1-6)	Pass (1-6)	$	174,256	$	133,328	$	116,620	$	39,332	$	7,784	$	13,490	$	195	$	20,974	$	505,979	Pass (1-6)	$	169,592	$	310,168	$	144,451	$	32,339	$	23,588	$	12,255	$	—	$	8,460	$	700,853
Watch (7)	Watch (7)	28,003		4,926		0		1,216		11,215		2,423		0		0		47,783		Watch (7)	16,431		—		501		—		1,181		2,236		—		—		20,349
Classified (8-9)	Classified (8-9)	0		54		0		427		0		26		0		100		607		Classified (8-9)	—		—		—		12		413		17		—		—		442
Total Construction real estate	Total Construction real estate	$	202,259	$	138,308	$	116,620	$	40,975	$	18,999	$	15,939	$	195	$	21,074	$	554,369	Total Construction real estate	$	186,023	$	310,168	$	144,952	$	32,351	$	25,182	$	14,508	$	—	$	8,460	$	721,644

Residential real estate	Residential real estate																			Residential real estate
Pass (1-6)	Pass (1-6)	$	38,535	$	49,198	$	21,357	$	13,139	$	11,177	$	99,035	$	171	$	62,095	$	294,707	Pass (1-6)	$	30,367	$	89,475	$	59,283	$	23,991	$	11,825	$	97,936	$	518	$	92,605	$	406,000
Watch (7)	Watch (7)	33		276		719		342		0		2,691		0		400		4,461		Watch (7)	116		856		—		81		357		1,363		—		24		2,797
Classified (8-9)	Classified (8-9)	569		706		575		77		13		3,408		0		74		5,422		Classified (8-9)	159		402		—		56		795		1,425		—		6		2,843
Total residential real estate	Total residential real estate	$	39,137	$	50,180	$	22,651	$	13,558	$	11,190	$	105,134	$	171	$	62,569	$	304,590	Total residential real estate	$	30,642	$	90,733	$	59,283	$	24,128	$	12,977	$	100,724	$	518	$	92,635	$	411,640

Other	Other																			Other
Pass (1-6)	Pass (1-6)	$	86,875	$	54,771	$	19,687	$	24,583	$	8,414	$	20,903	$	0	$	13,144	$	228,377	Pass (1-6)	$	4,150	$	96,456	$	63,634	$	20,203	$	21,965	$	19,695	$	—	$	10,978	$	237,081
Watch (7)	Watch (7)	0		0		0		5		0		2,539		0		135		2,679		Watch (7)	—		—		—		—		2		2,341		—		—		2,343
Classified (8-9)	Classified (8-9)	0		0		14		16		0		21		0		2		53		Classified (8-9)	—		—		—		7		7		13		—		1		28
Total Other	Total Other	$	86,875	$	54,771	$	19,701	$	24,604	$	8,414	$	23,463	$	0	$	13,281	$	231,109	Total Other	$	4,150	$	96,456	$	63,634	$	20,210	$	21,974	$	22,049	$	—	$	10,979	$	239,452

Total loans classified by risk category																				Total loans classified by risk category	$	1,659,845	$	2,592,406	$	1,500,081	$	859,093	$	460,184	$	879,131	$	4,400	$	1,258,555	$	9,213,695
Total loans classified by performing status																				Total loans classified by performing status																	55,481
Total loans																				Total loans																	$	9,269,176

1617


		December 31, 2020																			December 31, 2021
		Term Loans by Origination Year																			Term Loans by Origination Year
(in thousands)	(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Converted to Term Loans		Revolving Loans		Total		(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Converted to Term Loans		Revolving Loans		Total
Commercial and industrial	Commercial and industrial																			Commercial and industrial
Pass (1-6)	Pass (1-6)	$	1,402,276	$	454,729	$	262,258	$	132,832	$	25,057	$	58,315	$	14,118	$	527,170	$	2,876,755	Pass (1-6)	$	1,180,601	$	477,374	$	317,869	$	132,851	$	116,738	$	82,846	$	11,648	$	854,102	$	3,174,029
Watch (7)	Watch (7)	44,922		15,369		9,585		7,509		19,613		110		0		60,448		157,556		Watch (7)	35,005		17,502		9,404		9,880		12,217		10,979		4,037		53,595		152,619
Classified (8-9)	Classified (8-9)	6,602		9,219		3,115		3,964		4,490		1,080		1,281		22,432		52,183		Classified (8-9)	14,917		3,530		3,840		1,689		2,988		813		787		10,996		39,560
Total Commercial and industrial	Total Commercial and industrial	$	1,453,800	$	479,317	$	274,958	$	144,305	$	49,160	$	59,505	$	15,399	$	610,050	$	3,086,494	Total Commercial and industrial	$	1,230,523	$	498,406	$	331,113	$	144,420	$	131,943	$	94,638	$	16,472	$	918,693	$	3,366,208

Commercial real estate-investor owned	Commercial real estate-investor owned																			Commercial real estate-investor owned
Pass (1-6)	Pass (1-6)	$	481,867	$	338,843	$	189,305	$	131,718	$	138,288	$	161,439	$	6,509	$	32,058	$	1,480,027	Pass (1-6)	$	651,740	$	476,946	$	346,245	$	146,107	$	112,043	$	217,808	$	3,625	$	68,236	$	2,022,750
Watch (7)	Watch (7)	32,308		19,722		6,656		0		9,647		17,370		0		0		85,703		Watch (7)	16,871		35,908		32,755		1,003		502		17,478		300		2,062		106,879
Classified (8-9)	Classified (8-9)	0		5,278		8,716		5,830		1,245		2,620		0		0		23,689		Classified (8-9)	1,376		3,135		835		817		1,159		4,141		—		50		11,513
Total Commercial real estate-investor owned	Total Commercial real estate-investor owned	$	514,175	$	363,843	$	204,677	$	137,548	$	149,180	$	181,429	$	6,509	$	32,058	$	1,589,419	Total Commercial real estate-investor owned	$	669,987	$	515,989	$	379,835	$	147,927	$	113,704	$	239,427	$	3,925	$	70,348	$	2,141,142

Commercial real estate-owner occupied	Commercial real estate-owner occupied																			Commercial real estate-owner occupied
Pass (1-6)	Pass (1-6)	$	419,142	$	287,001	$	215,181	$	179,382	$	104,470	$	167,456	$	2,672	$	45,323	$	1,420,627	Pass (1-6)	$	604,975	$	423,263	$	278,830	$	164,210	$	140,515	$	235,973	$	250	$	48,349	$	1,896,365
Watch (7)	Watch (7)	13,657		5,257		3,113		6,198		4,338		8,460		1,776		941		43,740		Watch (7)	12,825		13,585		4,301		16,774		10,274		15,764		—		300		73,823
Classified (8-9)	Classified (8-9)	2,420		7,427		5,822		6,140		1,309		10,860		0		63		34,041		Classified (8-9)	2,048		556		9,181		17,016		6,432		6,959		—		—		42,192
Total Commercial real estate-owner occupied	Total Commercial real estate-owner occupied	$	435,219	$	299,685	$	224,116	$	191,720	$	110,117	$	186,776	$	4,448	$	46,327	$	1,498,408	Total Commercial real estate-owner occupied	$	619,848	$	437,404	$	292,312	$	198,000	$	157,221	$	258,696	$	250	$	48,649	$	2,012,380

Construction real estate	Construction real estate																			Construction real estate
Pass (1-6)	Pass (1-6)	$	223,069	$	156,360	$	45,460	$	18,579	$	11,539	$	9,144	$	0	$	28,880	$	493,031	Pass (1-6)	$	310,140	$	229,396	$	70,531	$	35,936	$	14,860	$	7,180	$	568	$	2,992	$	671,603
Watch (7)	Watch (7)	2,544		86		34,179		11,632		0		2,499		0		0		50,940		Watch (7)	28,947		15,348		60		1,199		11,068		2,330		—		—		58,952
Classified (8-9)	Classified (8-9)	56		2,124		503		1		0		31		0		0		2,715		Classified (8-9)	—		—		387		419		—		22		—		—		828
Total Construction real estate	Total Construction real estate	$	225,669	$	158,570	$	80,142	$	30,212	$	11,539	$	11,674	$	0	$	28,880	$	546,686	Total Construction real estate	$	339,087	$	244,744	$	70,978	$	37,554	$	25,928	$	9,532	$	568	$	2,992	$	731,383

Residential real estate	Residential real estate																			Residential real estate
Pass (1-6)	Pass (1-6)	$	57,059	$	27,907	$	17,718	$	17,138	$	27,443	$	92,657	$	1,172	$	66,902	$	307,996	Pass (1-6)	$	116,352	$	66,481	$	21,356	$	14,841	$	24,778	$	103,840	$	9,980	$	87,146	$	444,774
Watch (7)	Watch (7)	210		840		526		0		514		1,603		287		511		4,491		Watch (7)	2,425		2		622		1,157		248		1,305		—		79		5,838
Classified (8-9)	Classified (8-9)	571		733		121		14		898		3,181		0		253		5,771		Classified (8-9)	414		169		554		—		12		2,024		—		—		3,173
Total residential real estate	Total residential real estate	$	57,840	$	29,480	$	18,365	$	17,152	$	28,855	$	97,441	$	1,459	$	67,666	$	318,258	Total residential real estate	$	119,191	$	66,652	$	22,532	$	15,998	$	25,038	$	107,169	$	9,980	$	87,225	$	453,785

Other	Other																			Other
Pass (1-6)	Pass (1-6)	$	43,526	$	28,195	$	30,074	$	9,646	$	5,641	$	17,027	$	0	$	40,779	$	174,888	Pass (1-6)	$	108,209	$	68,806	$	22,684	$	23,145	$	6,924	$	13,832	$	1,500	$	9,166	$	254,266
Watch (7)	Watch (7)	0		1		8		0		0		2,637		0		1		2,647		Watch (7)	—		—		—		4		—		2,440		—		1		2,445
Classified (8-9)	Classified (8-9)	0		18		19		13		0		17		8		4		79		Classified (8-9)	—		—		10		10		—		16		—		2		38
Total Other	Total Other	$	43,526	$	28,214	$	30,101	$	9,659	$	5,641	$	19,681	$	8	$	40,784	$	177,614	Total Other	$	108,209	$	68,806	$	22,694	$	23,159	$	6,924	$	16,288	$	1,500	$	9,169	$	256,749

Total loans classified by risk category																				Total loans classified by risk category	$	3,086,845	$	1,832,001	$	1,119,464	$	567,058	$	460,758	$	725,750	$	32,695	$	1,137,076	$	8,961,647
Total loans classified by performing status																				Total loans classified by performing status																	55,995
Total loans																				Total loans																	$	9,017,642

In the tables above, loan originations in ~~2021~~2022 and ~~2020~~2021 with a classification of watch or classified primarily represent renewals or modifications initially underwritten and originated in prior years.

For certain loans, primarily credit cards, the Company evaluates credit quality based on the aging status.

The following tables ~~presents~~present the recorded investment on loans based on payment activity as of the ~~periods~~dates indicated:


		June 30, 2021							June 30, 2022
(in thousands)	(in thousands)	Performing		Non Performing		Total		(in thousands)	Performing		Non Performing		Total
Commercial and industrial	Commercial and industrial	$	3,370	$	3	$	3,373	Commercial and industrial	$	18,365	$	3	$	18,368
Real estate:	Real estate:							Real estate:
Commercial - investor owned	Commercial - investor owned	3,309		0		3,309		Commercial - investor owned	8,611		—		8,611
Commercial - owner occupied	Commercial - owner occupied	24,367		0		24,367		Commercial - owner occupied	23,138		—		23,138
Construction and land development	Construction and land development	2,407		0		2,407		Construction and land development	2,519		—		2,519
Residential	Residential	907		0		907		Residential	2,087		—		2,087
Other	Other	1,322		10		1,332		Other	737		21		758
Total	Total	$	35,682	$	13	$	35,695	Total	$	55,457	$	24	$	55,481


		December 31, 2020							December 31, 2021
(in thousands)	(in thousands)	Performing		Non Performing		Total		(in thousands)	Performing		Non Performing		Total
Commercial and industrial	Commercial and industrial	$	2,502	$	0	$	2,502	Commercial and industrial	$	26,166	$	1	$	26,167
Real estate:	Real estate:							Real estate:

Commercial - investor owned								Commercial - investor owned	1		—		1
Commercial - owner occupied								Commercial - owner occupied	23,405		—		23,405
Construction and land development								Construction and land development	2,690		—		2,690
Residential	Residential	921		0		921		Residential	267		—		267
Other	Other	4,612		21		4,633		Other	3,453		12		3,465
Total	Total	$	8,035	$	21	$	8,056	Total	$	55,982	$	13	$	55,995

NOTE 5 - 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.

The contractual amounts of off-balance-sheet financial instruments are as follows:


(in thousands)	(in thousands)	June 30, 2021		December 31, 2020		(in thousands)	June 30, 2022		December 31, 2021
Commitments to extend credit	Commitments to extend credit	$	1,982,555	$	1,946,068	Commitments to extend credit	$	2,619,588	$	2,481,173
Letters of credit	Letters of credit	55,571		50,971		Letters of credit	66,739		77,314

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 30, ~~2021,~~2022 and December 31, ~~2020,~~2021, approximately ~~$167.3~~$257.5 million and ~~$160.6~~$238.7 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 ~~$5.4~~$8.1 million and ~~$5.7~~$7.6 million for estimated losses attributable to the unadvanced commitments at June 30, ~~2021,~~2022 and December 31, ~~2020,~~2021, respectively.

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 30, ~~2021,~~2022, the approximate remaining terms of standby letters of credit range from 1 month to 311 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 6 - DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

The Company is exposed to certain ~~risk~~risks 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. These derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The Company has executed a series of cash flow hedges to fix the effective interest rate for payments due on $62.0 million of LIBOR-based junior subordinated debentures to a weighted-average-fixed rate ofof 2.62%.

Select terms of the hedges are as follows:


$ in thousands
(in thousands)					(in thousands)
Notional	Notional	Fixed Rate		Maturity Date	Notional	Fixed Rate		Maturity Date
$	15,465	2.60	%	March 15, 2024	15,465	2.60	%	March 15, 2024
$	14,433	2.60	%	March 30, 2024	14,433	2.60	%	March 30, 2024
$	18,558	2.64	%	March 15, 2026	18,558	2.64	%	March 15, 2026
$	13,506	2.64	%	March 17, 2026	13,506	2.64	%	March 17, 2026

~~For~~The gain or loss on derivatives designated and ~~that qualify~~qualified as cash flow hedges of interest rate risk ~~the gain or loss on the derivative is~~are 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 ~~$1.5~~$0.3 million will be reclassified as ~~an increase~~a decrease 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 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:


		Notional Amount				Derivative Assets				Derivative Liabilities					Notional Amount				Derivative Assets				Derivative Liabilities
(in thousands)	(in thousands)	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020		(in thousands)	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Derivatives Designated as Hedging Instruments:	Derivatives Designated as Hedging Instruments:													Derivatives Designated as Hedging Instruments:
Interest rate swap	Interest rate swap	$	61,962	$	61,962	$	0	$	0	$	4,379	$	5,987	Interest rate swap	$	61,962	$	61,962	$	755	$	—	$	—	$	2,911

Derivatives not Designated as Hedging Instruments:	Derivatives not Designated as Hedging Instruments:													Derivatives not Designated as Hedging Instruments:
Interest rate swap	Interest rate swap	$	983,018	$	1,026,016	$	19,809	$	28,703	$	19,846	$	28,980	Interest rate swap	$	901,995	$	918,698	$	12,559	$	12,869	$	12,589	$	12,883

Derivative assets are classified on the balance sheet in other assets. Derivative liabilities are classified on the balance sheet in other liabilities.	Derivative assets are classified on the balance sheet in other assets. Derivative liabilities are classified on the balance sheet in other liabilities.													Derivative assets are classified on the balance sheet in other assets. Derivative liabilities are classified on the balance sheet in other liabilities.

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. The gross amounts of assets or liabilities can be reconciled to the tabular disclosure of fair value. The fair value table above provides the location that financial assets and liabilities are presented on the Balance Sheet.


As of June 30, 2021
As of June 30, 2022														As of June 30, 2022
								Gross Amounts Not Offset in the Statement of Financial Position													Gross Amounts Not Offset in the Statement of Financial Position
(in thousands)	(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		(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 Received/ Pledged		Net Amount
Assets:	Assets:													Assets:
Interest rate swap	Interest rate swap	$	19,809	$	0	$	19,809	$	570	$	0	$	19,239	Interest rate swap	$	13,314	$	—	$	13,314	$	373	$	12,773	$	168

Liabilities:	Liabilities:													Liabilities:
Interest rate swap	Interest rate swap	$	24,225	$	0	$	24,225	$	570	$	23,312	$	343	Interest rate swap	$	12,589	$	—	$	12,589	$	373	$	—	$	12,216
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	208,795		0		208,795		0		208,795		0		Securities sold under agreements to repurchase	206,695		—		206,695		—		206,695		—

As of December 31, 2020
As of December 31, 2021														As of December 31, 2021
								Gross Amounts Not Offset in the Statement of Financial Position													Gross Amounts Not Offset in the Statement of Financial Position
(in thousands)	(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		(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 Received/ Pledged		Net Amount
Assets:	Assets:													Assets:
Interest rate swap	Interest rate swap	$	28,703	$	0	$	28,703	$	2	$	0	$	28,701	Interest rate swap	$	12,869	$	—	$	12,869	$	1,033	$	—	$	11,836

Liabilities:	Liabilities:													Liabilities:
Interest rate swap	Interest rate swap	$	34,967	$	0	$	34,967	$	2	$	34,903	$	62	Interest rate swap	$	15,794	$	—	$	15,794	$	1,033	$	14,031	$	730
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	271,081		0		271,081		0		271,081		0		Securities sold under agreements to repurchase	331,006		—		331,006		—		331,006		—

As of June 30, ~~2021,~~2022, the fair value of derivatives in a net liability position was $12.6 million, which includes accrued interest but excludes any adjustment for nonperformance ~~risk, related to these agreements was $25.0 million~~. ~~Further, the~~risk. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and posts collateral related to derivatives in a net liability position. Furthermore, the Company has ~~posted~~received cash collateral ~~of $23.3 million.~~from derivative counterparties on contracts that were in a net asset position as noted in the tables above.

NOTE 7 - FAIR VALUE MEASUREMENTS

The following table summarizes financial instruments measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


		June 30, 2021									June 30, 2022
(in thousands)	(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		(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	Assets									Assets
Securities available for sale	Securities available for sale									Securities available for sale
Obligations of U.S. Government-sponsored enterprises	Obligations of U.S. Government-sponsored enterprises	$	0	$	99,254	$	0	$	99,254	Obligations of U.S. Government-sponsored enterprises	$	—	$	231,673	$	—	$	231,673
Obligations of states and political subdivisions	Obligations of states and political subdivisions	0		480,845		0		480,845		Obligations of states and political subdivisions	—		416,835		—		416,835
Agency mortgage-backed securities	Agency mortgage-backed securities	0		477,379		0		477,379		Agency mortgage-backed securities	—		636,788		—		636,788
U.S. Treasury bills	U.S. Treasury bills	0		11,346		0		11,346		U.S. Treasury bills	—		194,628		—		194,628
Corporate debt securities	Corporate debt securities	0		15,399		0		15,399		Corporate debt securities	—		13,353		—		13,353
Total securities available for sale	Total securities available for sale	0		1,084,223		0		1,084,223		Total securities available for sale	—		1,493,277		—		1,493,277

Other investments										Other investments	—		2,734		—		2,734

Derivatives	Derivatives	0		19,809		0		19,809		Derivatives	—		13,314		—		13,314
Total assets	Total assets	$	0	$	1,104,032	$	0	$	1,104,032	Total assets	$	—	$	1,509,325	$	—	$	1,509,325

Liabilities	Liabilities									Liabilities
Derivatives	Derivatives	$	0	$	24,225	$	0	$	24,225	Derivatives	$	—	$	12,589	$	—	$	12,589
Total liabilities	Total liabilities	$	0	$	24,225	$	0	$	24,225	Total liabilities	$	—	$	12,589	$	—	$	12,589


		December 31, 2020									December 31, 2021
(in thousands)	(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		(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	Assets									Assets
Securities available for sale	Securities available for sale									Securities available for sale
Obligations of U.S. Government-sponsored enterprises	Obligations of U.S. Government-sponsored enterprises	$	0	$	15,161	$	0	$	15,161	Obligations of U.S. Government-sponsored enterprises	$	—	$	173,511	$	—	$	173,511
Obligations of states and political subdivisions	Obligations of states and political subdivisions	0		344,232		0		344,232		Obligations of states and political subdivisions	—		575,084		—		575,084
Residential mortgage-backed securities	Residential mortgage-backed securities	0		526,572		0		526,572		Residential mortgage-backed securities	—		513,859		—		513,859
U.S. Treasury bills										U.S. Treasury bills	—		91,170		—		91,170
Corporate debt securities	Corporate debt securities	0		14,998		0		14,998		Corporate debt securities	—		12,382		—		12,382
U.S. Treasury bills		0		11,466		0		11,466
Total securities available-for-sale	Total securities available-for-sale	0		912,429		0		912,429		Total securities available-for-sale	—		1,366,006		—		1,366,006

Other investments										Other investments	—		3,012		—		3,012

Derivative financial instruments	Derivative financial instruments	0		28,703		0		28,703		Derivative financial instruments	—		12,869		—		12,869
Total assets	Total assets	$	0	$	941,132	$	0	$	941,132	Total assets	$	—	$	1,381,887	$	—	$	1,381,887

Liabilities	Liabilities									Liabilities
Derivatives	Derivatives	$	0	$	34,967	$	0	$	34,967	Derivatives	$	—	$	15,794	$	—	$	15,794
Total liabilities	Total liabilities	$	0	$	34,967	$	0	$	34,967	Total liabilities	$	—	$	15,794	$	—	$	15,794

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. ~~At June 30, 2021, no~~The amounts reported in the following tables include balances measured at fair value during the reporting period and still held as of the reporting date.




	June 30, 2022
(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)

Other real estate	$	280	$	—	$	—	$	280
Loan servicing asset	3,413		—		3,413		—
Total	$	3,693	$	—	$	3,413	$	280


	December 31, 2021
(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)
Nonaccrual loans	$	6,406	$	—	$	—	$	6,406
Other real estate	632		—		—		632
Loan servicing asset	3,146		—		3,146		—
Total	$	10,184	$	—	$	3,146	$	7,038

The following table presents the losses recorded in earnings in relation to assets ~~were~~ measured on a nonrecurring ~~basis.~~basis and still held as of the reporting date.




	Three months ended				Six months ended
(in thousands)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Nonaccrual loans	$	—	$	—	$	(1,781)	$	(1,742)
Other real estate	(40)		—		(161)		—
Loan servicing asset	(276)		—		(120)		—
Total	$	(316)	$	—	$	(2,062)	$	(1,742)

2224

Following is a summary of the carrying amounts and fair values of certain financial instruments:


		June 30, 2021					December 31, 2020						June 30, 2022					December 31, 2021
(in thousands)	(in thousands)	Carrying Amount		Estimated fair value		Level	Carrying Amount		Estimated fair value		Level	(in thousands)	Carrying Amount		Estimated fair value		Level	Carrying Amount		Estimated fair value		Level
Balance sheet assets	Balance sheet assets											Balance sheet assets

Securities held-to-maturity, net	Securities held-to-maturity, net	$	450,665	$	470,099	Level 2	$	487,610	$	501,523	Level 2	Securities held-to-maturity, net	$	617,767	$	537,575	Level 2	$	429,681	$	434,672	Level 2
Other investments	Other investments	50,959		50,959		Level 2	48,764		48,764		Level 2	Other investments	58,540		58,540		Level 2	56,884		56,884		Level 2
Loans held for sale	Loans held for sale	5,763		5,763		Level 2	13,564		13,564		Level 2	Loans held for sale	4,615		4,615		Level 2	6,389		6,389		Level 2

Loans, net	Loans, net	7,098,082		7,093,710		Level 3	7,088,264		7,067,562		Level 3	Loans, net	9,128,630		9,008,274		Level 3	8,872,601		8,869,891		Level 3
State tax credits, held for sale	State tax credits, held for sale	34,710		38,629		Level 3	36,853		39,925		Level 3	State tax credits, held for sale	31,746		34,168		Level 3	27,994		30,686		Level 3

Servicing asset												Servicing asset	5,022		5,127		Level 2	6,714		6,714		Level 2

Balance sheet liabilities	Balance sheet liabilities											Balance sheet liabilities
Certificates of deposit	Certificates of deposit	$	514,334	$	515,877	Level 3	$	550,095	$	553,946	Level 3	Certificates of deposit	$	585,201	$	571,337	Level 3	$	608,293	$	606,177	Level 3
Subordinated debentures and notes	Subordinated debentures and notes	203,940		193,136		Level 2	203,637		192,889		Level 2	Subordinated debentures and notes	155,164		154,453		Level 2	154,899		155,972		Level 2
FHLB advances	FHLB advances	50,000		51,591		Level 2	50,000		51,871		Level 2	FHLB advances	50,000		49,977		Level 2	50,000		51,527		Level 2
Other borrowings and notes payable	Other borrowings and notes payable	234,509		234,509		Level 2	301,081		301,081		Level 2	Other borrowings and notes payable	226,695		226,695		Level 2	353,863		353,863		Level 2

For information regarding the methods and assumptions used to estimate the fair value of each class of financial instruments refer to Note 19 – Fair Value Measurements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, as filed with the SEC.

2325

NOTE 8 - SHAREHOLDERS’ EQUITY ~~AND COMPENSATION PLANS~~

Share Repurchases/Retirement

The Company periodically adopts share repurchase plans that authorize open market repurchases of common stock. Shares acquired through the repurchase plan are classified as treasury stock or the shares are immediately retired upon settlement, depending on plan authorization. When shares are retired, the excess of repurchase price over par is allocated between additional paid in capital and retained earnings. The amount allocated to additional paid in capital is limited to the pro rata portion of additional paid in capital at the time of repurchase.

In the second quarter 2022, the Company retired 1,980,093 shares of treasury stock. The transaction decreased additional paid in capital by $27.7 million and retained earnings by $45.8 million.

Shareholders’ Equity

Accumulated Other Comprehensive Income (Loss)

The following tables present the changes in accumulated other comprehensive income after-tax by component:


Three months ended	Three months ended									Three months ended
(in thousands)	(in thousands)	Net Unrealized Gain on Available-for-Sale Debt Securities		Unamortized Gain (Loss) on Held-to-Maturity Securities		Net Unrealized Gain (Loss) on Cash Flow Hedges		Total		(in thousands)	Net Unrealized Gain (Loss) on Available-for-Sale Securities		Unamortized Gain (Loss) on Held-to-Maturity Securities		Net Unrealized Gain (Loss) on Cash Flow Hedges		Total
Balance, March 31, 2022										Balance, March 31, 2022	$	(74,279)	$	15,177	$	(158)	$	(59,260)
Net change										Net change	$	(49,242)	$	(701)	$	722	$	(49,221)

Balance, June 30, 2022										Balance, June 30, 2022	$	(123,521)	$	14,476	$	564	$	(108,481)

Balance, March 31, 2021	Balance, March 31, 2021	$	11,400	$	18,159	$	(3,382)	$	26,177	Balance, March 31, 2021	$	11,400	$	18,159	$	(3,382)	$	26,177
Net change	Net change	$	2,850	$	(837)	$	82	$	2,095	Net change	$	2,850	$	(837)	$	82	$	2,095

Balance, June 30, 2021	Balance, June 30, 2021	$	14,250	$	17,322	$	(3,300)	$	28,272	Balance, June 30, 2021	$	14,250	$	17,322	$	(3,300)	$	28,272

Balance, March 31, 2020		$	25,538	$	4,778	$	(7,219)	$	23,097
Six months ended										Six months ended
(in thousands)										(in thousands)	Net Unrealized Gain (Loss) on Available-for-Sale Debt Securities		Unamortized Gain (Loss) on Held-to-Maturity Securities		Net Unrealized Gain (Loss) on Cash Flow Hedges		Total
Balance, December 31, 2021										Balance, December 31, 2021	$	5,271	$	15,684	$	(2,178)	$	18,777
Net change	Net change	$	10,984	$	(329)	$	(943)	$	9,712	Net change	(128,595)		(1,405)		2,742		(127,258)
Transfer from available-for-sale to held-to-maturity	Transfer from available-for-sale to held-to-maturity	(8,650)		8,650		0		0		Transfer from available-for-sale to held-to-maturity	$	(197)	$	197	$	—	$	—
Balance, June 30, 2020		$	27,872	$	13,099	$	(8,162)	$	32,809
Balance, June 30, 2022										Balance, June 30, 2022	$	(123,521)	$	14,476	$	564	$	(108,481)

Six months ended
(in thousands)		Net Unrealized Gain (Loss) on Available-for-Sale Debt Securities		Unamortized Gain (Loss) on Held-to-Maturity Securities		Net Unrealized Gain (Loss) on Cash Flow Hedges		Total
Balance, December 31, 2020	Balance, December 31, 2020	$	22,320	$	19,308	$	(4,508)	$	37,120	Balance, December 31, 2020	$	22,320	$	19,308	$	(4,508)	$	37,120
Net change	Net change	$	(8,070)	$	(1,986)	$	1,208	$	(8,848)	Net change	$	(8,070)	$	(1,986)	$	1,208	$	(8,848)

Balance, June 30, 2021	Balance, June 30, 2021	$	14,250	$	17,322	$	(3,300)	$	28,272	Balance, June 30, 2021	$	14,250	$	17,322	$	(3,300)	$	28,272

Balance, December 31, 2019		$	14,977	$	4,934	$	(2,162)	$	17,749
Net change		$	21,545	$	(485)	$	(6,000)	$	15,060
Transfer from available-for-sale to held-to-maturity		$	(8,650)	$	8,650	$	0	$	0
Balance, June 30, 2020		$	27,872	$	13,099	$	(8,162)	$	32,809

2426

The following tables present the pre-tax and after-tax changes in the components of other comprehensive income:

Three months ended June 30,
2021 2020
(in thousands) Pre-tax Tax effect After-tax Pre-tax Tax effect After-tax
Change in unrealized gain on available-for-sale debt securities $ 3,795 $ 945 $ 2,850 $ 14,587 $ 3,603 $ 10,984
Reclassification of gain on held-to-maturity securities(b)
(1,115) (278) (837) (437) (108) (329)
Change in unrealized loss on cash flow hedges arising during the period (273) (68) (205) (1,563) (386) (1,177)
Reclassification of loss on cash flow hedges(b)
382 95 287 311 77 234
Total other comprehensive income $ 2,789 $ 694 $ 2,095 $ 12,898 $ 3,186 $ 9,712
Six months ended June 30,
2021 2020
(in thousands) Pre-tax Tax effect After-tax Pre-tax Tax effect After-tax
Change in unrealized gain (loss) on available-for-sale debt securities $ (10,746) $ (2,676) $ (8,070) $ 28,616 $ 7,068 $ 21,548
Reclassification adjustment for realized gain on sale of available-for-sale debt securities(a)
0 0 0 (4) (1) (3)
Reclassification of gain on held-to-maturity securities(b)
(2,644) (658) (1,986) (644) (159) (485)
Change in unrealized gain (loss) on cash flow hedges arising during the period 855 213 642 (8,442) (2,085) (6,357)
Reclassification of loss on cash flow hedges(b)
754 188 566 474 117 357
Total other comprehensive income $ (11,781) $ (2,933) $ (8,848) $ 20,000 $ 4,940 $ 15,060

~~(a)The pre-tax amount is reported in noninterest income/expense in the Consolidated Statements of Operations~~

~~(b)The pre-tax amount is reported in interest income/expense in the Consolidated Statements of Operations~~

~~Compensation Plans~~

~~Employee Stock Options~~

~~During the six months ended June 30, 2021, employee stock options were granted under the Amended and Restated 2018 Stock Incentive Plan.~~

~~Various information related to the stock options is shown below.~~

Employee Stock Options Weighted Average Life Weighted Average Price Shares Exercisable Weighted Average Exercise Price
Options Outstanding, December 31, 2020 0
Options granted 111,804 $ 43.81 0 $ 0
Options forfeited (1,500)
Options Outstanding, June 30, 2021 110,304 9.7


	Three months ended June 30,
	2022						2021
(in thousands)	Pre-tax		Tax effect		After-tax		Pre-tax		Tax effect		After-tax
Change in unrealized gain (loss) on available-for-sale debt securities	$	(65,832)	$	(16,590)	$	(49,242)	$	3,795	$	945	$	2,850

Reclassification of gain on held-to-maturity securities(a)	(937)		(236)		(701)		(1,115)		(278)		(837)
Change in unrealized gain (loss) on cash flow hedges arising during the period	715		180		535		(273)		(68)		(205)
Reclassification of loss on cash flow hedges(a)	250		63		187		382		95		287
Total other comprehensive income (loss)	$	(65,804)	$	(16,583)	$	(49,221)	$	2,789	$	694	$	2,095

	Six months ended June 30,
	2022						2021
(in thousands)	Pre-tax		Tax effect		After-tax		Pre-tax		Tax effect		After-tax
Change in unrealized loss on available-for-sale debt securities	$	(171,918)	$	(43,323)	$	(128,595)	$	(10,746)	$	(2,676)	$	(8,070)

Reclassification of gain on held-to-maturity securities(a)	(1,879)		(474)		(1,405)		(2,644)		(658)		(1,986)
Change in unrealized gain on cash flow hedges arising during the period	3,056		770		2,286		855		213		642
Reclassification of loss on cash flow hedges(a)	609		153		456		754		188		566
Total other comprehensive loss	$	(170,132)	$	(42,874)	$	(127,258)	$	(11,781)	$	(2,933)	$	(8,848)


(a)The pre-tax amount is reported in interest income/expense in the Consolidated Statements of Operations

NOTE 9 - ~~SUBSEQUENT EVENT~~SUPPLEMENTAL FINANCIAL INFORMATION

~~On July 21, 2021~~The following table presents miscellaneous income and other expense components that exceed one percent of the ~~Company completed its previously-announced merger with First Choice Bancorp (“FCBP”),~~aggregate of total interest income and other income in one or more of the holding company of First Choice Bank (“First Choice”) pursuant to the Agreement and Plan of Merger, dated April 26, 2021. FCBP merged with and into EFSC, and First Choice subsequently merged with and into the Bank (with EFSC and the Bank as the surviving entities). As of June 30, 2021, First Choice had approximately $2.4 billion in assets, $2.0 billion in loans and $1.9 billion in deposits.periods indicated:

In connection with the merger, the Company issued approximately 7.8 million shares of Enterprise common stock valued at $44.01 per share, the closing price of Enterprise common stock on July 21, 2021. The value of the consideration was approximately $346 million.

Effective as of July 28, 2021, EFSC further amended its certificate of incorporation to increase the number of authorized shares of common stock from 45,000,000 shares to 75,000,000 (the “Amendment”). As previously disclosed on Form 8-K filed with the SEC on July 20, 2021, the stockholders of EFSC approved the Amendment at a special meeting of stockholders held on July 20, 2021.


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2022		2021		2022		2021
Other income:
Bank-owned life insurance	$	748	$	728	$	1,782	$	1,452
Private equity fund distribution	240		2,015		428		2,565


Other income	1,224		2,738		6,210		5,732
Total other noninterest income	$	2,212	$	5,481	$	8,420	$	9,749

Other expense:
Amortization of intangibles	$	1,328	$	1,312	$	2,758	$	2,727
Banking expense	1,911		1,536		3,412		2,730
Deposit costs	5,905		3,441		10,165		5,783
FDIC and other insurance	1,623		1,368		3,478		2,331
Loan, legal expenses	2,502		1,727		4,235		3,310

Outside services	1,366		1,251		2,628		2,488
Other expense	5,799		4,061		11,708		7,878
Total other noninterest expense	$	20,434	$	14,696	$	38,384	$	27,247

2628

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

RESULTS OF OPERATIONS

Forward Looking Statements

This Quarterly Report on Form 10-Q contains information and statements that are considered “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. Such forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company, and include, without limitation, statements about the Company’s plans, strategies, goals, objectives, expectations, or consequences of statements about the future performance, operations, products and services of the Company and its subsidiaries, as well as statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, products and services, shareholder value creation and the impact of the FCBP acquisition and other acquisitions. Forward-looking statements are typically identified with the use of terms such as “may,” “might,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “could,” “continue,” “intend,” and the negative and other variations of these terms and similar words and expressions, although some forward-looking statements may be expressed differently. Forward-looking statements are inherently subject to risks and uncertainties and 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.

Given the ongoing and dynamic nature of the COVID-19 pandemic, the ultimate extent of the impacts on our business, financial position, results of operations, liquidity and prospects remain uncertain. Continued deterioration in general business and economic conditions, including ~~further increases in unemployment rates,~~the tight labor market, supply chain disruptions, inflationary pressures, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. ~~In addition, changes~~Changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. ~~Other~~While there is no assurance that any list of risks and uncertainties or risk factors is complete, other important factors that could cause ~~or contribute~~actual results to ~~such differences~~differ materially from those in the forward-looking statements include ~~but are not limited to:~~the following, without limitation: our ability to efficiently ~~consummate and~~ integrate acquisitions, including the FCBP acquisition, into our operations, retain the customers of these businesses and grow the acquired operations; credit risk; changes in the appraised valuation of real estate securing impaired loans; our ability to recover our investment in loans; fluctuations in the fair value of collateral underlying loans; outcomes of litigation and other contingencies; exposure to general and local economic ~~conditions;~~and market conditions, high unemployment rates, higher inflation and its impacts, U.S. fiscal debt, budget and tax matters, and any slowdown in global economic growth; risks associated with rapid increases or decreases in prevailing interest rates; changes in business prospects that could impact goodwill estimates and assumptions; consolidation within the banking industry; competition from banks and other financial institutions; ~~our~~the ability to attract and retain relationship officers and other key personnel; burdens imposed by federal and state regulation; changes in legislative or regulatory ~~requirements;~~requirements, as well as current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including rules and regulations relating to bank products and financial services; changes in accounting policies and practices or accounting ~~standards, including ASU 2016-13 (Topic 326), “Measurement~~standards; changes in the method of ~~Credit Losses on Financial Instruments,” commonly referenced as CECL model, which has changed how we estimate credit losses; uncertainty regarding~~determining LIBOR and the ~~future~~phase-out of LIBOR; natural ~~disasters, war or~~disasters; terrorist activities, war and geopolitical matters (including the war in Ukraine and the imposition of additional sanctions and export controls in connection therewith), or pandemics, orincluding the ~~outbreak of~~ COVID-19 ~~or similar outbreaks,~~pandemic, and their effects on economic and business environments in which we ~~operate; increased unemployment rates~~operate, including the ongoing disruption to the financial market and ~~defaults as a result of the~~other economic ~~disruptions~~activity caused by ~~COVID-19;~~ the ~~impact of governmental orders issued in response to COVID-19;~~continuing COVID-19 pandemic; and other risks discussed under the caption “Risk Factors” under Part 1, Item 1A of our ~~2020~~2021 Annual Report on Form 10-K, and other reports filed with the SEC, all of which could cause the Company’s actual results to differ from those set forth in the forward-looking statements. The Company cautions that the preceding list is not exhaustive of all possible risk factors and other factors could also adversely affect the Company’s results.

Readers are cautioned not to place undue reliance on 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 SEC 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 months of ~~2021~~2022 compared to the financial condition as of December 31, ~~2020.~~2021. In addition, this discussion summarizes the significant factors affecting the results of operations of the Company for the three months ended June 30, ~~2021,~~2022, compared to the linked first quarter (“linked quarter”) in ~~2021~~2022 and the results of operations, liquidity and cash flows for the six months ended June 30, ~~2021~~2022 compared to the same period in ~~2020.~~2021. In light of the nature of the Company’s business, which is not seasonal, the Company’s management believes that the comparison to the linked quarter is the most relevant to understand the financial results from management’s perspective. For purposes of the Quarterly Report on Form 10-Q, the Company is presenting a comparison to the corresponding year-to-date period in ~~2020.~~2021. 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, ~~2020.~~2021.

Critical Accounting Policies and Estimates

The Company’s critical accounting policies are considered important to the understanding of the Company’s financial condition and results of operations. These accounting policies require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on actual experience. If different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected.

A full description of our critical accounting policies and the impact and any associated risks related to those policies on our business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

The Company has prepared the consolidated financial information in this report in accordance with GAAP. The Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include the valuation of loans, goodwill, intangible assets, and other long-lived assets, along with assumptions used in the calculation of income taxes, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using loss experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. ~~The three months ended June 30, 2021 continued to be characterized by heightened uncertainty due to the COVID-19 pandemic which could impact estimates and assumptions made by management.~~ As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statement in future periods. There can be no assurances that actual results will not differ from those estimates.

Allowance for Credit Losses

Utilizing the CECL methodology, the Company maintains separate allowances for funded loans, unfunded loans, and held-to-maturity securities, collectively the ACL. The ACL is a valuation account to adjust the cost basis to the amount expected to be collected, based on management’s estimate of experience, current conditions, and reasonable

and supportable forecasts. For purposes of determining the allowance for funded and unfunded loans, the portfolios are segregated into pools that share similar risk characteristics that are then further segregated by credit grades. Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the

collective evaluation. The Company estimates the amount of the allowance based on loan loss experience, adjusted for current and forecasted economic conditions, including unemployment, changes in GDP, and commercial and residential real estate prices. The Company’s forecast of economic conditions uses internal and external information and considers a weighted average of a baseline, upside, and downside scenarios. Because economic conditions can change and are difficult to predict, the anticipated amount of estimated loan defaults and losses, and therefore the adequacy of the allowance, could change significantly and have a direct impact on the Company’s credit costs. The Company’s allowance for credit losses on loans was ~~$128.2~~$140.5 million at June 30, ~~2021~~2022 based on the weighting of the different economic scenarios. As a hypothetical example, if the Company had only used the upside scenario, the allowance would have decreased ~~$19.1~~$3.2 million. Conversely, the allowance would have increased ~~$40.0~~$48.4 million using only the downside scenario.

2931

Executive Summary

The Company closed its acquisition of ~~Seacoast~~FCBP on ~~November 12, 2020.~~July 21, 2021. The results of operations of ~~Seacoast~~FCBP are included in our results from this date ~~forward, which may affect certain comparisons to the six months ended June 30, 2020.~~forward.

Below are highlights of the Company’s financial performance for the periods indicated.

(in thousands, except per share data) At or for the three months ended At or for the six months ended
June 30,
2021 March 31,
2021 June 30,
2020 June 30,
2021 June 30,
2020
EARNINGS
Total interest income $ 87,401 $ 84,960 $ 73,191 $ 172,361 $ 149,879
Total interest expense 5,663 5,837 7,358 11,500 20,678
Net interest income 81,738 79,123 65,833 160,861 129,201
Provision for credit losses (2,669) 46 19,591 (2,623) 41,855
Net interest income after provision for credit losses 84,407 79,077 46,242 163,484 87,346
Total noninterest income 16,204 11,290 9,960 27,494 23,368
Total noninterest expense 52,456 52,884 37,912 105,340 76,585
Income before income tax expense 48,155 37,483 18,290 85,638 34,129
Income tax expense 9,750 7,557 3,656 17,307 6,627
Net income $ 38,405 $ 29,926 $ 14,634 $ 68,331 $ 27,502
Basic earnings per share $ 1.23 $ 0.96 $ 0.56 $ 2.19 $ 1.04
Diluted earnings per share $ 1.23 0.96 $ 0.56 $ 2.18 $ 1.04
Return on average assets 1.50 % 1.22 % 0.72 % 1.36 % 0.71 %
Return on average common equity 13.79 % 11.07 6.78 % 12.45 % 6.38 %
Return on average tangible common equity1
18.44 % 14.92 9.28 % 16.71 % 8.76 %
Net interest margin (tax equivalent) 3.46 % 3.50 3.53 % 3.48 % 3.65 %
Efficiency ratio 53.56 % 58.49 50.02 % 55.93 % 50.20 %
Core efficiency ratio1
51.86 % 55.02 50.66 % 53.38 % 50.94 %
Book value per common share $ 35.86 $ 34.95 $ 33.13
Tangible book value per common share1
$ 26.85 25.92 $ 24.22
ASSET QUALITY
Net charge-offs $ 869 $ 5,647 $ 309 $ 6,516 $ 1,491
Nonperforming loans 42,252 36,659 41,473
Classified assets 100,063 114,713 96,678
Nonperforming loans to total loans 0.58 % 0.50 % 0.68 %
Nonperforming assets to total assets 0.44 % 0.42 0.55 %
ACL on loans to total loans 1.77 % 1.80 1.80 %
Net charge-offs to average loans (annualized) 0.05 % 0.32 0.02 % 0.18 % 0.05 %
(1) A non-GAAP measure. A reconciliation has been included in this section under the caption “Use of Non-GAAP Financial Measures.”


(in thousands, except per share data)	Three months ended									At or for the six months ended
	June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
EARNINGS
Total interest income	$	116,069		$	106,581		$	87,401		$	222,650		$	172,361
Total interest expense	6,456			5,416			5,663			11,872			11,500
Net interest income	109,613			101,165			81,738			210,778			160,861
Provision (benefit) for credit losses	658			(4,068)			(2,669)			(3,410)			(2,623)
Net interest income after provision (benefit) for credit losses	108,955			105,233			84,407			214,188			163,484
Total noninterest income	14,194			18,641			16,204			32,835			27,494
Total noninterest expense	65,424			62,800			52,456			128,224			105,340
Income before income tax expense	57,725			61,074			48,155			118,799			85,638
Income tax expense	12,576			13,381			9,750			25,957			17,307
Net income	$	45,149		$	47,693		$	38,405		$	92,842		$	68,331
Preferred stock dividends	938			1,229			—			2,167			—
Net income available to common shareholders	$	44,211		$	46,464		$	38,405		$	90,675		$	68,331

Basic earnings per share	$	1.19		$	1.23		$	1.23		$	2.42		$	2.19
Diluted earnings per share	$	1.19		$	1.23		$	1.23		$	2.41		$	2.18

Return on average assets	1.34		%	1.42		%	1.50		%	1.38		%	1.36		%
Return on average common equity	12.65		%	12.87		%	13.79		%	12.76		%	12.45		%
Return on average tangible common equity1	17.44		%	17.49		%	18.44		%	17.46		%	16.71		%
Net interest margin (tax equivalent)	3.55		%	3.28		%	3.46		%	3.41		%	3.48		%

Efficiency ratio	52.84		%	52.42		%	53.56		%	52.63		%	55.93		%
Core efficiency ratio1	52.81		%	52.43		%	51.86		%	52.62		%	53.38		%
Book value per common share	$	36.97		$	37.35		$	35.86
Tangible book value per common share1	$	26.63		$	27.06		$	26.85

ASSET QUALITY
Net charge-offs (recoveries)	$	(175)		$	1,521		$	869		$	1,346		$	6,516
Nonperforming loans	19,560			21,160			42,252
Classified assets	96,801			93,199			100,063
Nonperforming loans to total loans	0.21		%	0.23		%	0.58		%
Nonperforming assets to total assets	0.16		%	0.17		%	0.44		%
ACL on loans to total loans	1.52		%	1.54		%	1.77		%
Net charge-offs (recoveries) to average loans (annualized)	(0.01)		%	0.07		%	0.05		%	0.03		%	0.18		%

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

Financial results and other notable items include:

•The Company was active in continuing to support its customers in the PPP. Details of ~~the~~ PPP loans are noted in the following table:


		At or for the three months ended						At or for the six months ended							Quarter ended									At or for the six months ended
(in thousands)	(in thousands)	June 30, 2021			March 31, 2021			June 30, 2021			June 30, 2020			(in thousands)	June 30, 2022			March 31, 2022			Jun 30, 2021			June 30, 2022			June 30, 2021
PPP loans outstanding, net of deferred fees	PPP loans outstanding, net of deferred fees	$	396,660		$	737,660		$	396,660		$	807,814		PPP loans outstanding, net of deferred fees	$	49,175		$	134,084		$	396,660		$	49,175		$	396,660

Average PPP loans outstanding, net	Average PPP loans outstanding, net	664,375			692,161			678,268			634,632			Average PPP loans outstanding, net	89,152			194,382			664,375			141,476			678,268
PPP average loan size		171			220			196			224
PPP interest and fee income		7,940			8,475			16,415			4,083
PPP deferred fees		12,243			16,676			12,243			22,414
PPP interest and fee income recognized														PPP interest and fee income recognized	1,557			2,858			7,940			4,415			16,415
PPP deferred fees remaining														PPP deferred fees remaining	524			1,851			12,243			524			12,243
PPP average yield	PPP average yield	4.79		%	4.97		%	4.88		%	1.29		%	PPP average yield	7.01		%	5.96		%	4.79		%	6.29		%	4.88		%

PPP has impacted the Company’s financial metrics in all periods since the Company began participating in April 2020. Loan and deposit growth, earnings per share, and return on assets all increased due to the PPP. Conversely, the allowance coverage ratio, the leverage ratio and the ratio of tangible common equity to tangible assets all decreased. The net interest margin has benefited in quarters where loan forgiveness has been approved by the SBA and related loan fees have been accelerated into income. Since the PPP loans are guaranteed by the SBA, CET1, Tier 1 and total risk-based capital are not impacted by ~~the~~ PPP loan balances.

•Pre-provision net revenue1 (“PPNR”) of ~~$47.4~~$58.4 million in the second quarter ~~2021~~2022 increased ~~$6.8~~$1.4 million from the linked quarter PPNR of ~~$40.7~~$57.0 million. PPNR of $115.4 million for the six months ended June 30, ~~2021 of $88.1 million~~2022 increased ~~$12.1~~$27.3 million from ~~$76.0~~$88.1 million in the prior year period. The increase from the linked quarter was primarily due to an increase in net interest income from an increase in market interest rates, partially offset by a ~~stronger~~decline in noninterest income and an increase in ~~net interest income.~~noninterest expense. The increase ~~for the six months ended June 30, 2021 compared to~~from the prior year ~~period~~quarter was primarily ~~from~~due to the ~~Seacoast~~ acquisition ~~that was completed~~of FCBP in the ~~fourth~~third quarter ~~2020 and income from~~2021, partially offset by a decline in PPP ~~that started in the second quarter 2020.~~income.

1 PPNR is a non-GAAP measure. Refer to discussion and reconciliation of these measures in the accompanying financial tables.

•Net interest income of ~~$81.7~~$109.6 million for the second quarter ~~2021~~2022 increased ~~$2.6~~$8.4 million ~~or 3.3%,~~ from $101.2 million in the linked ~~quarter, primarily due to higher loan and investment volumes.~~quarter. Net interest margin (“NIM”) was ~~3.46%~~3.55% for the second quarter ~~2021,~~2022, compared to ~~3.50%~~3.28% for the linked quarter. Net interest income ~~was $160.9~~and NIM benefited from an increase in market interest rates, organic loan growth and a reallocation of excess liquidity into the investment portfolio. Net interest income of $210.8 million for the six months ended June 30, ~~2021, compared to $129.2~~2022 increased $49.9 million from $160.9 million in the prior year period. ~~NIM was 3.48% for the six months ended June 30, 2021, compared to 3.53% for the prior year period.Net interest income in 2021 increased~~The year-to-date increase over the prior year was due primarily to the ~~Seacoast~~ acquisition ~~and PPP loan fees and interest. NIM for the six months ended June 30, 2021, declined from the prior year period primarily due to a lower rate environment and~~of FCBP, an increase in ~~cash on~~market interest rates, and growth in the ~~balance sheet.~~loan and investment portfolios, partially offset by a decline in PPP income.

•Noninterest income of ~~$16.2~~$14.2 million for the second quarter ~~2021 increased $4.9~~2022 decreased $4.4 million from $18.6 million in the linked quarter. A decline in tax credit income from a seasonally strong linked quarter and a decline in other income were the primary drivers of the linked quarter ~~primarily due to higher tax credit activity. For~~decrease. Noninterest income of $32.8 million for the six months ended June 30, ~~2021, noninterest income was~~2022 increased $5.3 million from $27.5 ~~million, compared to $23.4~~ million in the prior year period.The year-to-date increase over the prior period was due primarily to an increase in noninterest income from the FCBP acquisition and higher tax credit income due to a low volume quarter in the ~~Seacoast acquisition, income on private equity investments and higher gains on mortgage sales, offset by a decline in tax credit and swap fee income.~~prior year.

Balance sheet highlights:

•Loans – Total loans ~~were $7.2~~increased $251.5 million to $9.3 billion at ~~both~~ June 30, ~~2021 and~~2022, compared to $9.0 billion at December 31, ~~2020.~~2021. PPP loans declined ~~$302.0 million during the first half of 2021 due to higher loan forgiveness and the end of the statutory deadline for new PPP originations.~~$222.8 million. Excluding PPP, loans ~~increased $303.3~~grew $474.3 million, inor 11%, on an annualized basis from December 31, 2021. Loan growth was well-distributed between the ~~first half of 2021, primarily due~~geographic regions and the specialty lending niches. Average loans totaled $9.1 billion for the six months ended June 30, 2022 compared to ~~specialty lending.~~$7.3 billion for the six months ended June 30, 2021.

3133

•Deposits – Total deposits ~~increased $654.1~~decreased $251.2 million, ~~or 8.1%,~~ to ~~$8.6~~$11.1 billion at June 30, ~~2021~~2022 from ~~$8.0~~$11.3 billion at December 31, ~~2020. Deposits from PPP loans~~2021. The decline in deposits was concentrated in interest-bearing demand and money market accounts that were not relationship-based and reflects a shift in our deposit mix aligned with our disciplined focus on relationship-based, lower-cost deposits. Average deposits totaled $11.5 billion for the ~~low-rate environment has contributed~~six months ended June 30, 2022, compared to $8.4 billion for the ~~increase during the first half of~~six months ended June 30, 2021. ~~Specialty deposits increased $316.4 million in 2021 primarily due to community associations and sponsor finance.~~ Noninterest deposit accounts represented ~~36.0%~~42.8% of total deposits and the loan to deposit ratio was 83.6% at June 30, ~~2021.~~2022.

•Asset quality – The allowance for credit losses on loans to total loans was ~~1.77%~~1.52% at June 30, ~~2021,~~2022, compared to ~~1.80%~~1.61% at December 31, ~~2020.~~2021. Nonperforming assets to total assets was ~~0.44%~~0.16% at June 30, ~~2021~~2022 compared to ~~0.42%~~0.23% at December 31, ~~2020. The~~2021. Due to the improvement in credit quality and macroeconomic forecasts, a provision benefit of $3.4 million was recorded in the first six months of 2022, compared to a provision benefit of $2.6 million in the comparable prior year period. Loan growth and the provision benefit in the first six months of 2022 contributed to the decline in the ratio of allowance for credit losses to total ~~loans ratio in the first half of 2021 was primarily due to net loan charge-offs of $6.5 million, improved credit metrics, and continued improvement in economic forecasts.~~loans.

•Shareholders’ equity – Total shareholders’ equity was ~~$1.1~~$1.45 billion at ~~both~~ June 30, ~~2021 and~~2022, compared to $1.53 billion at December 31, ~~2020,~~2021, and the tangible common equity to tangible assets ratio2 was ~~8.32% and 8.40%, respectively.~~7.80% at June 30, 2022 compared to 8.13% at December 31, 2021. The decline in the tangible common equity ratio was primarily due to a $127.3 million decrease in accumulated other comprehensive income, mainly from a decrease in the fair value of the available-for-sale investment portfolio. The Company and the Bank’s regulatory capital ratios exceeded the “well-capitalized” level at June 30, ~~2021.~~2022. In June 2022, the Company retired 1,980,093 shares of treasury stock and returned them to authorized and unissued shares.

The Company ~~has 1,748,363 shares available for repurchase under its common stock repurchase authorization. The Company~~ repurchased ~~251,637~~700,473 shares totaling ~~$11.8~~$32.9 million in the first ~~half~~six months of 2022 for an average price of $47.00 per share. The shares acquired in 2022 complete the share repurchase plan authorized by the Board of Directors on April 29, 2021. On May 4, 2022, the Board of Directors approved a new plan that authorized the repurchase of up to 2,000,000 shares of common stock. No shares have been repurchased under the recently-approved plan.

The Company’s Board of Directors approved a quarterly dividend of ~~$0.19~~$0.23 per common share, payable on September 30, ~~2021~~2022 to shareholders of record as of September 15, ~~2021,~~2022, an increase of $0.01, ~~from~~or 5.0%, compared to the ~~prior dividend.~~second quarter 2022. The Board of Directors also declared a cash dividend of $12.50 per share of Series A Preferred Stock (or $0.3125 per depositary share) representing a 5% per annum rate for the period commencing (and including) June 15, 2022 to (but excluding) September 15, 2022. The dividend will be payable on September 15, 2022 to shareholders of record on August 31, 2022.

2 Tangible common equity to tangible assets ratio is a non-GAAP measure. Refer to discussion and reconciliation of these measures in the accompanying financial tables.

3234

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.


		Three months ended June 30,						Three months ended March 31,						Three months ended June 30,				Three months ended March 31,						Three months ended June 30,
		2021						2021						2022				2022						2021
(in thousands)	(in thousands)	Average Balance		Interest Income/Expense		Average Yield/ Rate		Average Balance		Interest Income/Expense		Average Yield/ Rate			(in thousands)	Average Balance		Interest Income/Expense		Average Yield/ Rate		Average Balance		Interest Income/Expense		Average Yield/ Rate		Average Balance		Interest Income/Expense		Average Yield/ Rate
Assets	Assets														Assets
Interest-earning assets:	Interest-earning assets:														Interest-earning assets:
Taxable loans (1)		$	7,272,209	$	78,769	4.34	%	$	7,157,961	$	76,674	4.34	%
Tax-exempt loans (2)		34,262		393		4.60		34,815		399		4.65

Total loans		7,306,471		79,162		4.35		7,192,776		77,073		4.35
Taxable debt and equity investments		856,439		4,706		2.20		849,123		4,719		2.25
Non-taxable debt and equity investments (2)		646,143		4,520		2.81		568,182		4,099		2.93
Short-term investments		806,928		237		0.12		679,659		189		0.11
Total securities and short-term investments		2,309,510		9,463		1.64		2,096,964		9,007		1.74

Total loans1, 2															Total loans1, 2	$	9,109,131	$	102,328	4.51	%	$	9,005,875	$	96,301	4.34	%	$	7,306,471	$	79,162	4.35	%
Taxable securities															Taxable securities	1,209,498		6,894		2.29		1,151,743		5,699		2.01		856,439		4,706		2.20
Non-taxable securities2															Non-taxable securities2	858,621		6,050		2.83		772,226		5,270		2.77		646,143		4,520		2.81
Total securities															Total securities	2,068,119		12,944		2.51		1,923,969		10,969		2.31		1,502,582		9,226		2.46
Interest-earning deposits															Interest-earning deposits	1,401,961		2,496		0.71		1,781,272		817		0.19		806,928		237		0.12
Total interest-earning assets	Total interest-earning assets	9,615,981		88,625		3.70		9,289,740		86,080		3.76			Total interest-earning assets	12,579,211		117,768		3.76		12,711,116		108,087		3.45		9,615,981		88,625		3.70
Noninterest-earning assets	Noninterest-earning assets	665,363						650,312							Noninterest-earning assets	949,263						902,887						665,363

Total assets	Total assets	$	10,281,344					$	9,940,052						Total assets	$	13,528,474					$	13,614,003					$	10,281,344

Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity														Liabilities and Shareholders' Equity
Interest-bearing liabilities:	Interest-bearing liabilities:														Interest-bearing liabilities:
Interest-bearing transaction accounts		$	1,985,811	$	336	0.07	%	$	1,887,059	$	328	0.07	%
Interest-bearing demand accounts															Interest-bearing demand accounts	$	2,329,431	$	659	0.11	%	$	2,505,319	$	536	0.09	%	$	1,985,811	$	336	0.07	%
Money market accounts	Money market accounts	2,344,871		988		0.17		2,350,592		975		0.17			Money market accounts	2,767,595		2,270		0.33		2,872,302		1,460		0.21		2,344,871		988		0.17
Savings	Savings	718,193		52		0.03		654,662		48		0.03			Savings	854,860		70		0.03		817,431		66		0.03		718,193		52		0.03
Certificates of deposit	Certificates of deposit	522,633		1,091		0.84		537,166		1,312		0.99			Certificates of deposit	591,091		851		0.58		607,133		797		0.53		522,633		1,091		0.84
Total interest-bearing deposits	Total interest-bearing deposits	5,571,508		2,467		0.18		5,429,479		2,663		0.20			Total interest-bearing deposits	6,542,977		3,850		0.24		6,802,185		2,859		0.17		5,571,508		2,467		0.18
Subordinated debentures	Subordinated debentures	203,849		2,847		5.60		203,694		2,819		5.61			Subordinated debentures	155,092		2,257		5.84		154,959		2,220		5.81		203,849		2,847		5.60
FHLB advances	FHLB advances	50,000		197		1.58		50,000		195		1.58			FHLB advances	50,000		197		1.58		50,000		195		1.58		50,000		197		1.58
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	209,062		58		0.11		231,527		60		0.11			Securities sold under agreements to repurchase	202,537		41		0.08		262,252		60		0.09		209,062		58		0.11
Other borrowed funds	Other borrowed funds	27,147		94		1.39		28,650		100		1.42			Other borrowed funds	21,413		111		2.08		22,841		82		1.46		27,147		94		1.39
Total interest-bearing liabilities	Total interest-bearing liabilities	6,061,566		5,663		0.37		5,943,350		5,837		0.40			Total interest-bearing liabilities	6,972,019		6,456		0.37		7,292,237		5,416		0.30		6,061,566		5,663		0.37
Noninterest bearing liabilities:	Noninterest bearing liabilities:														Noninterest bearing liabilities:
Demand deposits	Demand deposits	3,008,703						2,777,900							Demand deposits	4,987,455						4,692,027						3,008,703
Other liabilities	Other liabilities	94,106						122,321							Other liabilities	94,733						93,518						94,106
Total liabilities	Total liabilities	9,164,375						8,843,571							Total liabilities	12,054,207						12,077,782						9,164,375
Shareholders' equity	Shareholders' equity	1,116,969						1,096,481							Shareholders' equity	1,474,267						1,536,221						1,116,969
Total liabilities & shareholders' equity	Total liabilities & shareholders' equity	$	10,281,344					$	9,940,052						Total liabilities & shareholders' equity	$	13,528,474					$	13,614,003					$	10,281,344
Net interest income	Net interest income			$	82,962					$	80,243				Net interest income			$	111,312					$	102,671					$	82,962
Net interest spread	Net interest spread					3.33	%					3.36	%		Net interest spread					3.39	%					3.15	%					3.33	%
Net interest margin	Net interest margin					3.46	%					3.50	%		Net interest margin					3.55	%					3.28	%					3.46	%

~~(1)~~1Average balances include nonaccrual loans. Interest income includes loan fees of ~~$7.6~~$4.2 million, $5.2 million, and ~~$8.1~~$7.6 million for the three months ended June 30, ~~2021~~2022, March 31, 2022, and ~~December 31, 2020,~~June 30, 2021, respectively.

~~(2)~~2~~Interest~~ Non-taxable income is presented on a fully tax-equivalent basis using a 25.2% tax rate. The tax-equivalent adjustments were $1.7 million, $1.5 million, and ~~yields have been adjusted to reflect a tax-equivalent basis.~~$1.2 million for the three months ended June 30, 2022, March 31, 2022, and June 30, 2021, respectively.

3335


		Six months ended June 30,													Six months ended June 30,
		2021						2020							2022						2021
(in thousands)	(in thousands)	Average Balance		Interest Income/Expense		Average Yield/ Rate		Average Balance		Interest Income/Expense		Average Yield/ Rate		(in thousands)	Average Balance		Interest Income/Expense		Average Yield/ Rate		Average Balance		Interest Income/Expense		Average Yield/ Rate
Assets	Assets													Assets
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Taxable loans (1)		$	7,215,401	$	155,442	4.34	%	$	5,655,140	$	130,940	4.66	%
Tax-exempt loans (2)		34,537		792		4.62		37,019		938		5.10

Total loans		7,249,938		156,234		4.35		5,692,159		131,878		4.66
Taxable debt and equity investments		852,802		9,425		2.23		1,096,703		14,544		2.67
Non-taxable debt and equity investments (2)		607,377		8,619		2.86		257,707		4,384		3.42
Short-term investments		743,645		426		0.12		134,758		387		0.58
Total securities and short-term investments		2,203,824		18,470		1.69		1,489,168		19,315		2.61

Total loans1, 2														Total loans1, 2	$	9,057,788	$	198,629	4.42	%	$	7,249,938	$	156,234	4.35	%
Taxable securities														Taxable securities	1,180,780		12,593		2.15		852,802		9,425		2.23
Non-taxable securities2														Non-taxable securities2	815,662		11,320		2.80		607,377		8,619		2.86
Total securities														Total securities	1,996,442		23,913		2.42		1,460,179		18,044		2.49
Interest-earning deposits														Interest-earning deposits	1,590,569		3,313		0.42		743,645		426		0.12
Total interest-earning assets	Total interest-earning assets	9,453,762		174,704		3.73		7,181,327		151,193		4.23		Total interest-earning assets	12,644,799		225,855		3.60		9,453,762		174,704		3.73
Noninterest-earning assets	Noninterest-earning assets	657,879						579,577						Noninterest-earning assets	926,203						657,879
Cash and due from banks		115,699						92,341
Other assets		676,096						573,806
Allowance for loan losses		(133,916)						(86,570)

Total assets	Total assets	$	10,111,641					$	7,760,904					Total assets	$	13,571,002					$	10,111,641

Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity													Liabilities and Shareholders' Equity
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Interest-bearing transaction accounts		$	1,936,707	$	664	0.07	%	$	1,431,311	$	1,581	0.22	%
Interest-bearing demand accounts														Interest-bearing demand accounts	$	2,416,889	$	1,194	0.10	%	$	1,936,707	$	664	0.07	%
Money market accounts	Money market accounts	2,347,716		1,963		0.17		1,876,482		5,735		0.61		Money market accounts	2,819,659		3,730		0.27		2,347,716		1,963		0.17
Savings	Savings	686,603		100		0.03		566,549		188		0.07		Savings	836,249		137		0.03		686,603		100		0.03
Certificates of deposit	Certificates of deposit	529,860		2,403		0.91		755,871		6,767		1.80		Certificates of deposit	599,067		1,648		0.55		529,860		2,403		0.91
Total interest-bearing deposits	Total interest-bearing deposits	5,500,886		5,130		0.19		4,630,213		14,271		0.62		Total interest-bearing deposits	6,671,864		6,709		0.20		5,500,886		5,130		0.19
Subordinated debentures	Subordinated debentures	203,772		5,666		5.61		155,303		4,235		5.48		Subordinated debentures	155,026		4,477		5.82		203,772		5,666		5.61
FHLB advances	FHLB advances	50,000		392		1.58		235,842		1,350		1.15		FHLB advances	50,000		392		1.58		50,000		392		1.58
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	220,233		118		0.11		197,002		419		0.43		Securities sold under agreements to repurchase	232,229		101		0.09		220,233		118		0.11
Other borrowed funds	Other borrowed funds	27,894		194		1.40		33,556		403		2.42		Other borrowed funds	22,123		193		1.76		27,894		194		1.40
Total interest-bearing liabilities	Total interest-bearing liabilities	6,002,785		11,500		0.39		5,251,916		20,678		0.79		Total interest-bearing liabilities	7,131,242		11,872		0.34		6,002,785		11,500		0.39
Noninterest bearing liabilities:	Noninterest bearing liabilities:													Noninterest bearing liabilities:
Demand deposits	Demand deposits	2,893,939						1,564,513						Demand deposits	4,840,558						2,893,939
Other liabilities	Other liabilities	108,135						77,876						Other liabilities	94,129						108,135
Total liabilities	Total liabilities	9,004,859						6,894,305						Total liabilities	12,065,929						9,004,859
Shareholders' equity	Shareholders' equity	1,106,782						866,599						Shareholders' equity	1,505,073						1,106,782
Total liabilities & shareholders' equity	Total liabilities & shareholders' equity	$	10,111,641					$	7,760,904					Total liabilities & shareholders' equity	$	13,571,002					$	10,111,641
Net interest income	Net interest income			$	163,204					$	130,515			Net interest income			$	213,983					$	163,204
Net interest spread	Net interest spread					3.34	%					3.44	%	Net interest spread					3.26	%					3.34	%
Net interest margin	Net interest margin					3.48	%					3.65	%	Net interest margin					3.41	%					3.48	%

~~(1)~~1Average balances include nonaccrual loans. Interest income includes loan fees of ~~$15.6~~$9.3 million and ~~$4.9~~$15.6 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~June 30, 2021, respectively.

~~(2)~~2~~Interest~~ Non-taxable income is presented on a fully tax-equivalent basis using a 25.2% tax rate. The tax-equivalent adjustments were $3.2 million and ~~yields have been adjusted to reflect a tax-equivalent basis.~~$2.3 million for the six months ended June 30, 2022 and June 30, 2021, respectively.

3436

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.


		Three months ended June 30, 2021						Six months ended June 30, 2021			Three months ended June 30, 2022										Six months ended June 30, 2022
		compared to						compared to			compared to										compared to
		Three months ended March 31, 2021						Six months ended June 30, 2020			Three months ended March 31, 2022										Six months ended June 30, 2021
		Increase (decrease) due to						Increase (decrease) due to			Increase (decrease) due to										Increase (decrease) due to
(in thousands)	(in thousands)	Volume(1)		Rate(2)		Net			Volume(1)			Rate(2)		Net		(in thousands)	Volume(1)		Rate(2)		Net		Volume(1)		Rate(2)		Net
Interest earned on:	Interest earned on:															Interest earned on:
Taxable loans		$	2,095	$	—	$	2,095		$	33,792		$	(9,290)	$	24,502
Tax-exempt loans (3)		(4)		(2)		(6)			(62)			(84)		(146)

Taxable debt and equity investments		56		(69)		(13)			(2,944)			(2,175)		(5,119)
Non-taxable debt and equity investments (3)		586		(165)		421			5,056			(821)		4,235
Short-term investments		32		16		48			558			(519)		39

Loans(3)																Loans(3)	1,381		4,646		6,027		39,603		2,792		42,395
Taxable securities																Taxable securities	316		879		1,195		3,509		(341)		3,168
Non-taxable securities(3)																Non-taxable securities(3)	653		127		780		2,895		(194)		2,701
Interest-earning deposits																Interest-earning deposits	(213)		1,892		1,679		871		2,016		2,887
Total interest-earning assets	Total interest-earning assets	$	2,765	$	(220)	$	2,545		$	36,400		$	(12,889)	$	23,511	Total interest-earning assets	$	2,137	$	7,544	$	9,681	$	46,878	$	4,273	$	51,151

Interest paid on:	Interest paid on:															Interest paid on:
Interest-bearing transaction accounts		$	8	$	—	$	8		$	425		$	(1,342)	$	(917)
Interest-bearing demand accounts																Interest-bearing demand accounts	$	(30)	$	153	$	123	$	191	$	339	$	530
Money market accounts	Money market accounts	13		—		13			1,164			(4,936)		(3,772)		Money market accounts	(55)		865		810		454		1,313		1,767
Savings	Savings	4		—		4			34			(122)		(88)		Savings	4		—		4		24		13		37
Certificates of deposit	Certificates of deposit	(34)		(187)		(221)			(1,650)			(2,714)		(4,364)		Certificates of deposit	(21)		75		54		283		(1,038)		(755)
Subordinated debentures	Subordinated debentures	11		17		28			1,335			96		1,431		Subordinated debentures	5		32		37		(1,401)		212		(1,189)
FHLB advances	FHLB advances	1		1		2			(1,332)			374		(958)		FHLB advances	—		2		2		—		—		—
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	(2)		—		(2)			44			(345)		(301)		Securities sold under agreements to repurchase	(12)		(7)		(19)		6		(23)		(17)
Other borrowings	Other borrowings	(4)		(2)		(6)			(60)			(149)		(209)		Other borrowings	(5)		34		29		(44)		43		(1)
Total interest-bearing liabilities	Total interest-bearing liabilities	(3)		(171)		(174)			(40)			(9,138)		(9,178)		Total interest-bearing liabilities	(114)		1,154		1,040		(487)		859		372
Net interest income	Net interest income	$	2,768	$	(49)	$	2,719		$	36,440		$	(3,751)	$	32,689	Net interest income	$	2,251	$	6,390	$	8,641	$	47,365	$	3,414	$	50,779

(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.

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) of $111.3 million for the three months ended June 30, 2022 increased $8.6 million, from $102.7 million in the linked quarter. The increase in net interest income from the linked quarter was primarily due to an increase in the earning asset yield from an increase in market interest rates that was further enhanced by a stronger earning asset mix. The Federal Open Markets Committee increased the target federal funds rate by 125 basis points in the second quarter of 2022. Net interest income has benefited from interest rate increases due to the asset-sensitive position of the balance sheet. The Company also continued to redeploy part of its excess liquidity into the investment portfolio during the second quarter, increasing investments $244.2 million over the linked quarter, when excluding mark-to-market fluctuations.

Net interest income (on a tax equivalent basis) for the three months ended June 30, 2021 increased $2.7 million, or 3%, over the linked quarter prior primarily due to higher volumes on loans and investments. While PPP loans decreased in the current quarter, forgiveness of these loans by the SBA accelerates deferred loan fees into income that benefits net interest income.~~In addition, the reduction in PPP loans that bear a 1% interest rate have mostly been replaced with loans at a higher yield.~~

~~During the~~ six months ended June 30, ~~2021, tax equivalent net interest income~~2022 of $214.0 million increased ~~$32.7~~$50.8 million, ~~from~~over $163.2 million in the ~~six months ended June 30, 2020,~~prior year period. The year-to-date increase over the prior year was primarily due to the ~~Seacoast~~FCBP acquisition and ~~income from PPP loans that began originating~~an increase in market interest rates, including a 150 basis point increase in the ~~second~~target federal funds rate during the first six months of 2022. Organic growth in the loan portfolio and the continued increase in the investment portfolio has also benefited net interest income.

The current quarter ~~2020. These~~and year-to-date increases in net interest income were partially offset by a decline in ~~the yield on earning assets from 4.23%~~PPP income. PPP income in the first half of 2020 to 3.73% in the first half of 2021. The decline in yield was due to the Federal Open Markets Committee reduction of the target federal funds rate by 150 basis points in the first quarter of 2020.

~~NIM was 3.46% for~~ the second quarter 2022 was $1.6 million, compared to ~~3.50%~~$2.9 million in the linked quarter. ~~NIM decreased four basis points from the linked quarter to 3.46% during the current quarter primarily due to a six-basis point decrease in earning asset yields. The decrease in the earning asset yield~~PPP income was ~~primarily due to higher levels of cash related to payoffs of PPP loans and deposit growth (5 basis points), and lower yields on investment securities (1 basis point), partially~~

~~offset by loans (1 basis point) and lower cost of funds (1 basis point).The cost of interest-bearing liabilities declined two basis points from the linked quarter, primarily due to lower rates on time deposits.~~

~~NIM was 3.48%~~$4.4 million for the six months ended June 30, ~~2021, a~~2022, compared to $16.4 million in the comparable prior year period.

NIM was 3.55% for the second quarter 2022, an increase of 27 basis points from 3.28% in the linked quarter. The increase in NIM from the linked quarter was primarily due to higher yields on loans, investments and interest-earning deposits due to an increase in market interest rates, including the 125 basis point increase in the federal funds rate. The average loan yield was 4.51% in the second quarter 2022, an increase of 17 basis ~~point~~points from 4.34% in the linked quarter. The average loan yield increased due to the repricing of variable-rate loans and the origination of new loans at an average rate of 4.71% (as of June 30, 2022). Approximately 20% of the variable-rate loan portfolio reprices on the first day of each quarter and did not increase with the current quarter’s rate movement, but these loan rates will reset early in the third quarter 2022.The average investment yield was 2.51%, an increase of 20 basis points from the linked quarter. The investment yield increased due to the purchase of new investments at higher yields due to the expansion of the investment portfolio and the reinvestment of cash flows. Investments purchased in the second quarter 2022 had a tax equivalent average yield of 2.99%.

NIM was 3.41% for the six months ended June 30, 2022, a decrease ~~compared to 3.65%~~of seven basis points, from 3.48% in the prior year period. ~~NIM was impacted by the decline~~The decrease in ~~short-term rates as approximately 60% of the loan portfolio (excluding PPP) has variable rates, with most indexed to one-month LIBOR. LIBOR has declined significantly~~NIM over the ~~past~~prior year ~~in conjunction with~~period was primarily due to excess liquidity from deposit growth and PPP that increased the ~~decrease in the target federal funds rate discussed above. Higher levels~~ratio of ~~low-yielding, short-term investments also contributed~~interest-earning deposits to ~~the decline in NIM, as the average balance increased $608.9 million.~~interest earning assets.

Noninterest Income

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


		Linked quarter comparison								Prior year comparison									Linked quarter comparison								Prior year comparison
		Quarter ended								Six months ended									Quarter ended								Six months ended
(in thousands)	(in thousands)	June 30, 2021		March 31, 2021		Increase (decrease)				June 30, 2021		June 30, 2020		Increase (decrease)				(in thousands)	June 30, 2022		March 31, 2022		Increase (decrease)				June 30, 2022		June 30, 2021		Increase (decrease)
Deposit service charges	Deposit service charges	$	3,862	$	3,084	$	778	25	%	$	6,946	$	5,759	$	1,187	21	%	Deposit service charges	$	4,749	$	4,163	$	586	14	%	$	8,912	$	6,946	$	1,966	28	%
Wealth management revenue	Wealth management revenue	2,516		2,483		33		1	%	4,999		4,827		172		4	%	Wealth management revenue	2,533		2,622		(89)		(3)	%	5,155		4,999		156		3	%
Card services revenue	Card services revenue	2,975		2,496		479		19	%	5,471		4,472		999		22	%	Card services revenue	3,514		3,040		474		16	%	6,554		5,471		1,083		20	%
Tax credit income																		Tax credit income	1,186		2,608		(1,422)		(55)	%	3,794		329		3,465		1,053	%

Tax credit income (expense)		1,370		(1,041)		2,411		(232)	%	329		1,815		(1,486)		(82)	%

Miscellaneous income		5,481		4,268		1,213		28	%	9,749		6,495		3,254		50	%
Other income																		Other income	2,212		6,208		(3,996)		(64)	%	8,420		9,749		(1,329)		(14)	%

Total noninterest income	Total noninterest income	$	16,204	$	11,290	$	4,914	44	%	$	27,494	$	23,368	$	4,126	18	%	Total noninterest income	$	14,194	$	18,641	$	(4,447)	(24)	%	$	32,835	$	27,494	$	5,341	19	%

Total noninterest income for the ~~first~~second quarter ~~2021~~2022 was ~~$16.2~~$14.2 million, ~~an increase~~a decrease of ~~$4.9~~$4.4 million from $18.6 million in the linked quarter. The ~~increase~~decrease from the linked quarter was primarily due to decreases in tax credit and other income. Tax credit income is typically higher in the fourth and first quarter of each year and experiences a seasonal decline during the second and third quarters. Certain tax credit investment projects are carried at fair value. Rising interest rates also reduced tax credit income along with a private equity fund distribution and gain on sale of other real estate reported in miscellaneous income. Deposit service charges and card services revenue increased over the linked quarter due to ~~improving activity levels.~~the impact on tax credit projects carried at fair value. An increase in interest rates will increase the discount rate used in the fair value of these investments, resulting in a lower fair value. Future rate increases may result in fair value changes that will lower tax credit income.

~~Noninterest~~Other income in the current quarter included a combined $0.3 million of income from community development investments and swap income. This compares to $2.2 million of fees from community development investments and $1.2 million of swap income in the linked quarter. Income from community development investments and customer swap fees are not consistent sources and will vary among periods.

Total noninterest income for the six months ended June 30, ~~2021, increased $4.1~~2022 was $32.8 million, an increase of $5.3 million from $27.5 million in the prior year period. The increase was primarily due to tax credit income, deposit service charges, and card services. Tax credit project activity and card services volumes have been stronger in 2022 compared to the same period in 2021. The FCBP acquisition also contributed $2.9 million to the overall noninterest income increase in 2022 compared to the prior year period, primarily in deposit service charges. Other income in the first six months of 2022 decreased primarily due to ~~the Seacoast acquisition ($2.7 million),~~lower private equity ~~income ($2.5 million), card fee income ($1.0 million)~~fund distributions and ~~gains on the sale of other real estate owned ($0.6 million). These increases were offset by a decrease in tax credit income of $1.5 million and~~lower mortgage banking revenue due to a decline in ~~customer swap fee income of $1.4 million.~~activity.

3638

Noninterest Expense

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


		Linked quarter comparison											Prior year comparison												Linked quarter comparison											Prior year comparison
		Quarter ended											Six months ended												Quarter ended											Six months ended
(in thousands)	(in thousands)	June 30, 2021			March 31, 2021			Increase (decrease)					June 30, 2021			June 30, 2020			Increase (decrease)					(in thousands)	June 30, 2022			March 31, 2022			Increase (decrease)					June 30, 2022			June 30, 2021			Increase (decrease)
Employee compensation and benefits	Employee compensation and benefits	$	28,132		$	29,562		$	(1,430)		(5)	%	$	57,694		$	44,074		$	13,620		31	%	Employee compensation and benefits	$	36,028		$	35,827		$	201		1	%	$	71,855		$	57,694		$	14,161		25	%
Occupancy	Occupancy	3,529			3,751			(222)			(6)	%	7,280			6,532			748			11	%	Occupancy	4,309			4,586			(277)			(6)	%	8,895			7,280			1,615			22	%
Data processing	Data processing	2,850			2,890			(40)			(1)	%	5,740			4,226			1,514			36	%	Data processing	3,111			3,260			(149)			(5)	%	6,371			5,740			631			11	%
Professional fees	Professional fees	1,300			988			312			32	%	2,288			2,149			139			6	%	Professional fees	1,542			1,177			365			31	%	2,719			2,288			431			19	%

Merger-related expenses	Merger-related expenses	1,949			3,142			(1,193)			(38)	%	5,091			—			5,091			—	%	Merger-related expenses	—			—			—			—	%	—			5,091			(5,091)			(100)	%
Other		14,696			12,551			2,145			17	%	27,247			19,604			7,643			39	%
Other expense																								Other expense	20,434			17,950			2,484			14	%	38,384			27,247			11,137			41	%
Total noninterest expense	Total noninterest expense	$	52,456		$	52,884		$	(428)		(1)	%	$	105,340		$	76,585		$	28,755		38	%	Total noninterest expense	$	65,424		$	62,800		$	2,624		4	%	$	128,224		$	105,340		$	22,884		22	%

Efficiency ratio	Efficiency ratio	53.56		%	58.49		%	(4.93)		%			55.93		%	50.20		%	5.73		%			Efficiency ratio	52.84		%	52.42		%	0.42		%			52.63		%	55.93		%	(3.30)		%
Core efficiency ratio1	Core efficiency ratio1	51.86		%	55.02		%	(3.16)		%			53.38		%	50.94		%	0.92		%			Core efficiency ratio1	52.81		%	52.43		%	0.38		%			52.62		%	53.38		%	(0.57)		%

1 Core efficiency ratio is a non-GAAP measure. Refer to discussion and reconciliation of this measure in the accompanying financial tables.	1 Core efficiency ratio is a non-GAAP measure. Refer to discussion and reconciliation of this measure in the accompanying financial tables.																							1 Core efficiency ratio is a non-GAAP measure. Refer to discussion and reconciliation of this measure in the accompanying financial tables.
NM - Not meaningful																								NM - Not meaningful

Noninterest expense was ~~$52.5~~$65.4 million for the second quarter ~~2021, compared to $52.9~~2022, an increase of $2.6 million ~~for~~from $62.8 million in the linked quarter. Employee compensation and benefits ~~expense declined $1.4~~increased $0.2 million from the linked quarter, ~~due to seasonally higher payroll taxes~~which included a $1.2 million increase in ~~the first quarter. Merger-related expenses also declined and were $1.9 million and $3.1 million in the current and linked quarter, respectively. These decreases were~~ongoing compensation expense that was offset by a ~~$2.1~~$1.2 million decline in payroll taxes. The compensation trend in the linked quarter was primarily driven by performance-based incentive accruals. Other expense and professional fees increased $2.7 million from the linked quarter primarily due to a $1.6 million increase in ~~Other expense, primarily attributed to higher customer~~ deposit costs and ~~card servicing costs~~a $0.8 million increase in loan and legal expenses due to ~~higher volumes.~~

growth in the loan portfolio.

Noninterest expense ~~was $105.3~~of $128.2 million for the six months ended June 30, ~~2021, compared to $76.6~~2022, increased $22.9 million, ~~for~~from $105.3 million in the prior year period.The increase ~~from the prior year~~ was primarily due to the FCBP acquisition that added $12.8 million in noninterest expense, an increase in employee compensation and benefits from merit increases in 2021, and higher deposit servicing costs. Certain deposit specialty accounts receive an earnings credit that pays costs used to service the customer. These costs are recorded as noninterest expense and will fluctuate with the amount of the underlying deposit balances and the related earnings credit rate. Excluding FCBP, these costs increased $3.3 million to $10.2 million in the six months ended June 30, 2022, compared to $5.8 million in the prior year period. The increase was primarily due to continued success in generating new customer activity in the deposit specialties. Offsetting these increases was a decline of $5.1 million in merger expenses that were recognized in the prior year on the acquisitions of Seacoast ~~acquisition ($21.4 million)~~Commerce Banc Holdings and ~~merger-related expenses ($5.1 million).~~FCBP.

Income Taxes

The Company’s effective tax rate was ~~20.2%~~21.8 % for ~~both~~ the ~~first and~~ second quarter ~~of 2021~~2022, compared to 21.9% in the linked quarter. The tax rate was relatively stable in the second quarter 2022 compared to the linked quarter. The effective tax rate was 21.8% and 20.2% ~~and 19.4%~~ for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~increase in the~~Company’s effective tax ~~rate in~~for the first half of ~~2021~~2022 rate has increased over the ~~comparable~~prior year period ~~in 2020 was partially~~ due to ~~higher~~growth of pre-tax income and the further expansion and diversification of the Company’s geographic footprint which has affected state tax ~~expense from the Company’s expanded geographic footprint.~~

~~Summary Balance Sheet~~

(in thousands) June 30,
2021 December 31,
2020 Increase (decrease)
Total cash and cash equivalents $ 1,008,991 $ 537,703 $ 471,288 88 %
Securities 1,534,888 1,400,039 134,849 10 %
Loans (excluding PPP) 6,829,606 6,551,121 278,485 4 %
PPP loans, net 396,660 698,645 (301,985) (43) %
Total assets 10,346,993 9,751,571 595,422 6 %
Deposits 8,639,504 7,985,389 654,115 8 %
Total liabilities 9,228,692 8,672,596 556,096 6 %
Total shareholders’ equity 1,118,301 1,078,975 39,326 4 %
apportionment.

3739

~~Assets~~Summary Balance Sheet


(in thousands)	June 30, 2022		December 31, 2021		Increase (decrease)
Total cash and cash equivalents	$	944,804	$	2,021,689	$	(1,076,885)	(53)	%
Securities	2,111,044		1,795,687		315,357		18	%
Loans (excluding PPP)	9,220,001		8,745,684		474,317		5	%
PPP loans, net	49,175		271,958		(222,783)		(82)	%
Total assets	13,084,506		13,537,358		(452,852)		(3)	%
Deposits	11,092,618		11,343,799		(251,181)		(2)	%
Total liabilities	11,637,094		12,008,242		(371,148)		(3)	%
Total shareholders’ equity	1,447,412		1,529,116		(81,704)		(5)	%

Total assets were $13.1 billion at June 30, 2022, a decrease of $425.9 million from December 31, 2021. Cash and cash equivalents declined $1.1 billion, primarily due to organic loan growth, the deployment of excess liquidity into the investment portfolio and managed outflows in the deposit portfolio. New loan production and an increase in line utilization increased the loan portfolio, net of PPP. Total liabilities of $11.6 billion, decreased $371.1 million from December 31, 2021. A decrease in deposits was primarily driven from the Company’s focus on relationship-based, low-cost accounts that resulted in certain deposit account outflows.

Loans by Type

The Company has a diversified loan portfolio, with no 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)	(in thousands)	June 30, 2021		December 31, 2020		Increase (decrease)				(in thousands)	June 30, 2022		December 31, 2021		Increase (decrease)
Commercial and industrial	Commercial and industrial	$	2,930,805	$	3,088,995	$	(158,190)	(5)	%			Commercial and industrial	$	3,596,701	$	3,392,375	$	204,326	6	%
Commercial real estate - investor owned	Commercial real estate - investor owned	1,646,021		1,589,419		56,602		4	%			Commercial real estate - investor owned	2,173,640		2,141,143		32,497		2	%
Commercial real estate - owner occupied	Commercial real estate - owner occupied	1,554,727		1,498,408		56,319		4	%			Commercial real estate - owner occupied	2,120,735		2,035,785		84,950		4	%
Construction and land development	Construction and land development	556,776		546,686		10,090		2	%			Construction and land development	724,163		734,073		(9,910)		(1)	%
Residential real estate	Residential real estate	305,497		319,179		(13,682)		(4)	%			Residential real estate	413,727		454,052		(40,325)		(9)	%
Other	Other	232,441		182,248		50,193		28	%			Other	240,210		260,214		(20,004)		(8)	%
Loans held for investment	Loans held for investment	$	7,226,267	$	7,224,935	$	1,332	—	%			Loans held for investment	$	9,269,176	$	9,017,642	$	251,534	3	%

The following table illustrates the change in loans:


(in thousands)	(in thousands)	June 30, 2021		December 31, 2020		Increase (decrease)				(in thousands)	June 30, 2022		December 31, 2021		Increase (decrease)
C&I	C&I	$	1,116,229	$	1,103,060	$	13,169	1	%			C&I	$	1,702,081	$	1,538,155	$	163,926	11	%
CRE investor owned	CRE investor owned	1,467,243		1,420,905		46,338		3	%			CRE investor owned	1,977,806		1,955,087		22,719		1	%
CRE owner occupied	CRE owner occupied	789,220		825,846		(36,626)		(4)	%			CRE owner occupied	1,118,895		1,112,463		6,432		1	%
SBA Loans*	SBA Loans*	1,010,727		895,930		114,797		13	%			SBA Loans*	1,284,279		1,241,449		42,830		3	%
Sponsor finance*	Sponsor finance*	463,744		396,487		67,257		17	%			Sponsor finance*	647,180		508,469		138,711		27	%
Life insurance premium financing*	Life insurance premium financing*	564,366		534,092		30,274		6	%			Life insurance premium financing*	688,035		593,562		94,473		16	%
Tax credits*	Tax credits*	423,258		382,602		40,656		11	%			Tax credits*	550,662		486,881		63,781		13	%
SBA PPP loans	SBA PPP loans	396,660		698,645		(301,985)		(43)	%			SBA PPP loans	49,175		271,958		(222,783)		(82)	%
Residential real estate	Residential real estate	302,007		318,091		(16,084)		(5)	%			Residential real estate	391,867		430,985		(39,118)		(9)	%
Construction and land development	Construction and land development	467,586		474,399		(6,813)		(1)	%			Construction and land development	626,577		625,526		1,051		—	%
Other	Other	225,227		174,878		50,349		29	%			Other	232,619		253,107		(20,488)		(8)	%
Total loans	Total loans	$	7,226,267	$	7,224,935	$	1,332	—	%			Total loans	$	9,269,176	$	9,017,642	$	251,534	3	%

Note: Certain prior period amounts have been reclassified among the categories to conform to the current period presentation.

*Specialty loan category	*Specialty loan category											*Specialty loan category

Loans totaled ~~$7.2~~$9.3 billion at ~~both~~ June 30, ~~2021, and~~2022 compared to $9.0 billion at December 31, ~~2020.~~2021. PPP loans declined ~~$302.0~~$222.8 million ~~in the first half of 2021, as~~to $49.2 million from continued PPP forgiveness by the ~~SBA accelerated and the deadline for new originations passed during the second quarter 2021. Specialty loans, particularly SBA and sponsor finance loans,~~SBA. All specialty loan categories increased in the first ~~half~~six months of ~~2021. At June 30, 2021,~~2022, particularly sponsor finance loans. Average line draw utilization was ~~38.9%~~41.9% for the first six months of 2022, compared to ~~38.1% at December 31, 2020.~~38.5% for the full year of 2021.

Specialty lending products, ~~especially~~including sponsor finance, life insurance premium financing, and tax credits, consist primarily of C&I 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 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. Life insurance premium financing and tax credits are typically lower risk products due to the high collateral value securing the loans.

SBA loans are also generated on a national basis, and primarily consist of loans collateralized by first lien, owner-occupied real estate properties. These loans ~~typically~~predominantly have a 75% guarantee from the SBA. However, the guarantee was temporarily increased to 90% for loans issued between December 27, 2020 and September 30, 2021 as part of the Economic Aid Act. Occasionally, the Company may sell the guaranteed portion of the loan and retain servicing rights. ~~At June 30, 2021, the Company was servicing $275.8 million of SBA loans sold to third parties. Guaranteed portions of SBA loans totaled $686.4 million at June 30, 2021.~~

In response to the COVID-19 pandemic, the Company provided short-term payment deferrals to certain customers in 2020, primarily for 90 days or less. As of June 30, 2021, only $8.5 million of these loans remain in deferral status.

Provision and Allowance for Credit Losses

The adoption of CECL on January 1, 2020 increased the ACL on loans by $28.4 million, or 65%, and the allowance for unfunded commitments by $2.4 million. These increases were primarily offset in retained earnings and did not impact the consolidated statement of operations. The following table summarizes changes in the ACL on loans arising from CECL adoption; loan charge-offs and recoveries by loan category, and additions to the allowance charged to expense.

Three months ended Six months ended June 30,
(in thousands) June 30, 2021 March 31, 2021 2021 2020
Allowance, at beginning of period $ 131,527 $ 136,671 $ 136,671 $ 43,288
CECL adoption — — — 28,387
PCD loans immediately charged-off — — — (1,680)
Allowance at beginning of period, adjusted for adoption of CECL 131,527 136,671 136,671 69,995
Provision (benefit) for credit losses (2,473) 503 (1,970) 40,086
Charge-offs:
Commercial and industrial (1,451) (3,739) (5,190) (3,366)
Real estate:
Commercial (216) (2,400) (2,616) (226)
Construction and land development — — — (31)
Residential (44) (271) (315) (154)
Other (121) (64) (185) (191)
Total charge-offs (1,832) (6,474) (8,306) (3,968)
Recoveries:
Commercial and industrial 700 327 1,027 797
Real estate:
Commercial 49 43 92 2,846
Construction and land development 32 235 267 69
Residential 161 143 304 383
Other 21 79 100 62
Total recoveries 963 827 1,790 4,157
Net (charge-offs) recoveries (869) (5,647) (6,516) 189
Allowance, at end of period $ 128,185 $ 131,527 $ 128,185 $ 110,270

The following table presents the components of the provision for credit losses:

Quarter ended Six months ended June 30,
(in thousands) June 30, 2021 March 31, 2021 2021 2020
Provision (benefit) for loan losses $ (2,473) $ 503 $ (1,970) $ 40,086
Provision (benefit) for off-balance sheet commitments 38 (370) (332) 2,055
Provision for held-to-maturity securities — — — 342
Accrued interest (234) (87) (321) (628)
Provision (benefit) for credit losses $ (2,669) $ 46 $ (2,623) $ 41,855

~~The following table summarizes the allocation of the ACL:~~

June 30, 2021 December 31, 2020
(in thousands) Allowance Percent Allowance Percent
Commercial and industrial $ 53,351 41.6 % $ 58,812 43.0 %
Real estate:
Commercial 51,567 40.2 % 49,074 35.9 %
Construction and land development 11,632 9.1 % 21,413 15.7 %
Residential 4,677 3.7 % 4,585 3.4 %
Other 6,958 5.4 % 2,787 2.0 %
Total $128,185 100.0 % $136,671 100.0 %


	Quarter ended				Six months ended June 30,
(in thousands)	June 30, 2022		March 31, 2022		2022		2021
Provision (benefit) for credit losses on loans	$	1,159	$	(4,308)	$	(3,149)	$	(1,970)
Provision (benefit) for off-balance sheet commitments	(212)		725		513		(332)
Provision (benefit) for held-to-maturity securities	149		(56)		93		—
Recovery of accrued interest	(438)		(429)		(867)		(321)
Provision (benefit) for credit losses	$	658	$	(4,068)	$	(3,410)	$	(2,623)

The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management’s assessment of expected losses in the loan

portfolio at the balance sheet date. The Company also records reversals of interest on nonaccrual loans and interest recoveries directly through the provision of credit losses.

~~The~~A provision for credit losses of $0.7 million was recognized for the second quarter 2022, compared to a benefit of ~~$2.7~~$4.1 million ~~for both the second quarter 2021 and the first six months of 2021, compared to an expense of $46 thousand~~ for the linked quarter and an expense of $41.9 million in the first half of 2020. Gross charge-offs of $1.8 million in the quarter primarily consisted of one retail loan that had previously defaulted and was fully reserved for in a prior period. During the first half of 2020, gross charge-offs totaled $8.3 million.~~The Company’s strong~~quarter. While asset quality metrics have remained strong, loan growth and ~~strengthening customer credit risk profiles, along with an improvement in the~~a weakening economic forecast ~~particularly GDP and unemployment, led~~used to ~~a decline in~~calculate the allowance ~~for credit losses~~resulted in a provision expense in the second quarter ~~2021.~~2022. For the six months ended June 30, 2022 and 2021, a provision benefit was recognized of $3.4 million and $2.6 million, respectively. The net provision benefits during those periods was primarily the result of improved economic forecasts as the economy strengthened and recovered from the COVID-19 pandemic.

~~Conversely,~~

The following table summarizes the ~~Company was at the in the middle~~allocation of the ~~pandemic~~ACL:


	June 30, 2022				December 31, 2021
(in thousands)	Allowance		Percent of loans in each category to total loans		Allowance		Percent of loans in each category to total loans
Commercial and industrial	$	65,646	38.8	%	$	63,825	37.6	%
Real estate:
Commercial	49,494		46.3	%	53,437		46.3	%
Construction and land development	13,180		7.8	%	14,536		8.1	%
Residential	7,478		4.5	%	7,927		5.1	%
Other	4,748		2.6	%	5,316		2.9	%
Total	$140,546		100.0	%	$145,041		100.0	%

The ACL on loans was 1.52% of loans at June 30, ~~2020 when economic forecasts were severely constrained, which led~~2022, compared to 1.61% of loans at December 31, 2021. Loan growth, net charge-offs and the net provision ~~expense~~benefit in 2022 drove the decrease in the ACL to total loans ratio. Excluding guaranteed loans, the ACL to total loans was 1.69% at June 30, 2022, compared to 1.84% at December 31, 2021.

The following table is a summary of ~~$41.9 million.~~net charge-offs (recoveries) to average loans for the periods indicated:


	Quarter ended
	June 30, 2022						March 31, 2022
(in thousands)	Net Charge-offs (Recoveries)		Average Loans(1)		Net Charge-offs (Recoveries)/Average Loans		Net Charge-offs (Recoveries)		Average Loans(1)		Net Charge-offs (Recoveries)/Average Loans
Commercial and industrial	$	(109)	$	3,478,438	(0.01)	%	$	1,369	$	3,389,243	0.16	%
Real estate:
Commercial	(8)		4,239,384		—	%	(256)		4,202,934		(0.02)	%
Construction and land development	(14)		754,106		(0.01)	%	(21)		738,329		(0.01)	%
Residential	(62)		391,013		(0.06)	%	362		415,786		0.35	%
Other	18		244,131		0.03	%	67		256,033		0.11	%
Total	$	(175)	$	9,107,072	(0.01)	%	$	1,521	$	9,002,325	0.07	%

(1) Excludes loans held for sale.


	Six months ended
	June 30, 2022						June 30, 2021
(in thousands)	Net Charge-offs (Recoveries)		Average Loans(1)		Net Charge-offs (Recoveries)/Average Loans		Net Charge-offs (Recoveries)		Average Loans(1)		Net Charge-offs (Recoveries)/Average Loans
Commercial and industrial	$	1,260	$	3,432,543	0.07	%	$	4,163	$	3,026,452	0.28	%
Real estate:
Commercial	(264)		4,221,415		(0.01)	%	2,523		3,129,044		0.16	%
Construction and land development	(35)		748,233		(0.01)	%	(267)		549,322		(0.10)	%
Residential	300		402,748		0.15	%	12		307,788		0.01	%
Other	85		250,049		0.07	%	85		229,457		0.07	%
Total	$	1,346	$	9,054,988	0.03	%	$	6,516	$	7,242,063	0.18	%

(1) Excludes loans held for sale.

To the extent the Company does not recognize charge-offs and economic forecasts improve in future periods, the Company could recognize ~~further~~ provision reversals. Conversely, if economic conditions and the Company’s forecast worsens, the Company could recognize elevated levels of provision for credit losses. The provision is also reflective of charge-offs in the period.

~~The ACL on loans was 1.77% of loans at June 30, 2021, compared to 1.80% at March 31, 2021 and 1.89% at December 31, 2020.~~

Nonperforming assets

The following table presents the categories of nonperforming assets and other ratios, excluding government guaranteed portions, as of the dates indicated.


(in thousands)	(in thousands)	June 30, 2021			December 31, 2020			(in thousands)	June 30, 2022			December 31, 2021
Nonaccrual loans	Nonaccrual loans	$	36,403		$	34,818		Nonaccrual loans	$	19,462		$	23,449
Loans past due 90 days or more and still accruing interest	Loans past due 90 days or more and still accruing interest	2,807			130			Loans past due 90 days or more and still accruing interest	24			1,716
Troubled debt restructurings	Troubled debt restructurings	3,042			3,559			Troubled debt restructurings	74			2,859
Total nonperforming loans	Total nonperforming loans	42,252			38,507			Total nonperforming loans	19,560			28,024
Other real estate	Other real estate	3,612			5,330			Other real estate	955			3,493

Total nonperforming assets	Total nonperforming assets	$	45,864		$	43,837		Total nonperforming assets	$	20,515		$	31,517

Total assets	Total assets	$	10,346,993		$	9,751,571		Total assets	$	13,084,506		$	13,537,358
Total loans	Total loans	7,226,267			7,224,935			Total loans	9,269,176			9,017,642

Total allowance for credit losses								Total allowance for credit losses	140,546			145,041

ACL to nonaccrual loans								ACL to nonaccrual loans	722		%	619		%
ACL to nonperforming loans								ACL to nonperforming loans	719		%	518		%
ACL to total loans								ACL to total loans	1.52		%	1.61		%
Nonaccrual loans to total loans								Nonaccrual loans to total loans	0.21		%	0.26		%
Nonperforming loans to total loans	Nonperforming loans to total loans	0.58		%	0.53		%	Nonperforming loans to total loans	0.21		%	0.31		%

Nonperforming assets to total assets	Nonperforming assets to total assets	0.44		%	0.45		%	Nonperforming assets to total assets	0.16		%	0.23		%

ACL on loans to nonperforming loans		303		%	355		%

Nonperforming loans increased $3.8 million to $42.3 million at June 30, 2021 from $38.5 million at December 31, 2020. Other real estate decreased during the first half of 2021 due to six property sales totaling $4.9 million, including one commercial property of $3.6 million, partially offset by four additions totaling $3.2 million.

~~Nonperforming loans~~

Nonperforming loans based on loan type were as follows:


(in thousands)	(in thousands)	June 30, 2021		December 31, 2020		(in thousands)	June 30, 2022		December 31, 2021
Commercial and industrial	Commercial and industrial	$	24,844	$	21,770	Commercial and industrial	$	16,326	$	21,538
Commercial real estate	Commercial real estate	13,244		12,519		Commercial real estate	2,362		4,414
Construction and land development		100		—

Residential real estate	Residential real estate	4,038		4,189		Residential real estate	850		2,048
Other	Other	26		29		Other	22		24
Total	Total	$	42,252	$	38,507	Total	$	19,560	$	28,024

The following table summarizes the changes in nonperforming loans:

Six months ended

(in thousands)

June 30, ~~2021~~2022

Nonperforming loans, beginning of period

~~38,507~~28,024

Additions to nonaccrual loans

~~16,058~~2,707

Charge-offs

~~(8,306)~~(4,140)

~~Other principal reductions~~Principal payments

~~(3,765)~~(7,031)

~~Moved to other real estate~~

~~(1,937)~~

~~Moved to performing~~

~~(983)~~

~~Change in loans past due 90 days or more and still accruing interest~~

~~2,678~~

Nonperforming loans, end of period

~~42,252~~19,560

~~Other real estate~~Deposits

~~Other real estate was $3.6 million at June 30, 2021 compared to $5.3 million at December 31, 2020.~~


(in thousands)	June 30, 2022			December 31, 2021			Increase (decrease)
Noninterest-bearing demand accounts	$	4,746,478		$	4,578,436		$	168,042	4	%
Interest-bearing demand accounts	2,197,957			2,465,884			(267,927)		(11)	%
Money market accounts	2,726,024			2,890,976			(164,952)		(6)	%
Savings accounts	836,958			800,210			36,748		5	%
Certificates of deposit:
Brokered	129,064			128,970			94		—	%
Other	456,137			479,323			(23,186)		(5)	%
Total deposits	$	11,092,618		$	11,343,799		$	(251,181)	(2)	%


Demand deposits / total deposits	43		%	40		%

The following table ~~summarizes~~shows the ~~changes in other real estate:~~average balance and average rate of the Company’s deposits by type:


	~~Six months ended~~
~~(in thousands)~~	~~June 30, 2021~~
~~Other real estate beginning of period~~	$	~~5,330~~
~~Additions and expenses capitalized to prepare property for sale~~	~~3,227~~



~~Sales~~	~~(4,945)~~
~~Other real estate end of period~~	$	~~3,612~~


	Three months ended
	June 30, 2022				March 31, 2022				June 30, 2021
(in thousands)	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid
Noninterest-bearing deposit accounts	$	4,987,455	—	%	$	4,692,027	—	%	$	3,008,703	—	%

Interest-bearing demand accounts	2,329,431		0.11		2,505,319		0.09		1,985,811		0.07
Money market accounts	2,767,595		0.33		2,872,302		0.21		2,344,871		0.17
Savings accounts	854,860		0.03		817,431		0.03		718,193		0.03
Certificates of deposit	591,091		0.58		607,133		0.53		522,633		0.84
Total interest-bearing deposits	$	6,542,977	0.24		$	6,802,185	0.17		$	5,571,508	0.18

Total average deposits	$	11,530,432	0.13		$	11,494,212	0.10		$	8,580,211	0.12

~~Gains and losses are recognized in noninterest income as a component of Miscellaneous income.~~

~~Deposits~~

(in thousands) June 30,
2021 December 31,
2020 Increase (decrease)
Noninterest-bearing deposit accounts $ 3,111,581 $ 2,711,828 $ 399,753 15 %
Interest-bearing transaction accounts 2,013,129 1,768,497 244,632 14 %
Money market accounts 2,278,306 2,327,066 (48,760) (2) %
Savings accounts 722,154 627,903 94,251 15 %
Certificates of deposit:
Brokered 50,209 50,209 — — %
Other 464,125 499,886 (35,761) (7) %
Total deposits $ 8,639,504 $ 7,985,389 $ 654,115 8 %
Core deposits / total deposits 94 % 93 %
Demand deposits / total deposits 36 % 34 %

Core deposits, defined as total deposits excluding certificates of deposits, were ~~$8.1~~$10.5 billion at June 30, ~~2021, an increase~~2022, a decrease of ~~$689.9~~$228.1 million from December 31, ~~2020.~~2021. The ~~increase~~decrease was primarily ~~from noninterest-bearing~~in interest-bearing transaction and ~~interest-bearing deposits,~~money market accounts that ~~have increased due to elevated deposits from customers who received PPP loans and customers who have retained excess liquidity~~declined $430.0 million due to the ~~low yield~~managed run-off of ~~alternative short-term investments.~~certain interest-rate sensitive, large balance accounts. This reflects a shift in our deposit mix aligned with our disciplined focus on relationship-based, lower-cost deposits. Noninterest-bearing ~~deposits were $3.1 billion at June 30,~~deposit accounts increased $168.0 million from December 31, 2021, ~~or 36.0% of total deposits.~~principally due to growth in the specialty deposit group. The Company has a specialty deposit portfolio focusing on property management, community associations, and escrow industries, in addition to deposits related to its specialty lending products. These deposits totaled ~~$1.4~~$2.4 billion at June 30, ~~2021~~2022 and ~~$1.1~~$2.2 billion at December 31, ~~2020.~~2021.

As rates increase, deposit balances may decline or the composition of the deposit portfolio may shift to higher-yielding deposit products, such as money market accounts or certificates of deposit.

The total cost of deposits was ~~0.12%~~0.13% for the current quarter, compared to ~~0.13%~~0.10% for the linked quarter.

Shareholders’ Equity

Shareholders’ equity totaled ~~$1.1~~$1.4 billion at June 30, ~~2021, an increase~~2022, a decrease of ~~$39.3~~$81.7 million from December 31, ~~2020.~~2021. Significant activity during the first six months of ~~2021~~2022 was as follows:

•increase from net income of ~~$68.3~~$92.8 million,

•net decrease in fair value of securities and cash flow hedges of ~~$8.8~~$127.3 million,

•decrease from shares repurchased of ~~$11.8~~$32.9 million, and

•decrease from dividends paid on common ~~shares~~and preferred stock of ~~$11.3~~$18.3 million.

Liquidity and Capital Resources

Liquidity

The objective of liquidity management is to ensure we have the ability to generate sufficient cash or cash equivalents in a timely and cost-effective manner to meet our commitments as they become due. Typical demands on liquidity are changes in deposit levels, maturing time deposits which are not renewed, and fundings under credit commitments to customers. Funds are available from a number of sources, such as the core deposit base and ~~loans~~loan and ~~securities~~security repayments and maturities.

Additionally, liquidity is provided from lines of credit with the FHLB, the Federal Reserve, and correspondent banks; the ability to acquire large and brokered deposits, sales of the securities portfolio, and the ability to sell loan participations to other banks. These alternatives are an important part of our liquidity plan and provide flexibility and efficient execution of the asset-liability management strategy. ~~The company also has a high-quality investment portfolio that has been structured to provide a continuous flow of cash payments.~~

The Company’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 daily. 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.

Liquidity from ~~asset categories~~assets is ~~provided through~~available primarily from cash balances and the investment portfolio. Cash and interest-bearing deposits with other banks ~~which~~ totaled ~~$1.0 billion~~$952.1 million at June 30, ~~2021, compared to $545.3 million~~2022 and $2.0 billion at December 31, ~~2020.~~2021. The low interest rate environment, coupled with an uncertain outlook and government stimulus, such as the PPP, ~~have~~has increased liquidity ~~for~~within the banking industry, including the Company. The Company continued to redeploy part of its excess liquidity into the investment portfolio during the six months ended June 30, 2022.Investment securities are another important tool to the Company’s liquidity objectives. Securities totaled ~~$1.5~~$2.0 billion at June 30, ~~2021,~~

2022, and included ~~$489~~$680 million pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements. The remaining ~~$1.1~~$1.3 billion could be pledged or sold to enhance liquidity, if necessary.

Liability liquidity funding sources are available to increase financial flexibility. In addition to amounts ~~currently~~ borrowed, at June 30, ~~2021,~~2022, the ~~Bank~~Company could borrow an additional ~~$1.0 billion~~$778 million from the FHLB of Des Moines under blanket loan pledges, and has an additional ~~$835 million~~$1.4 billion available from the Federal Reserve Bank under a pledged loan agreement. The ~~Bank~~Company has unsecured federal funds lines with six correspondent banks totaling $90 million.

In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company’s various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company’s liquidity. The Company has ~~$2.0~~$2.7 billion in unused commitments to extend credit as of June 30, ~~2021. The~~2022. While this commitment level would exhaust the majority the Company’s current liquidity resources, the nature of these commitments is such that the likelihood of funding them in the aggregate at any one time is low.

At the holding company level, ~~our~~the primary funding sources are dividends and payments from the Bank and proceeds from the issuance of equity (i.e. stock option exercises, stock offerings) and debt instruments. The main use of this liquidity is to provide the funds necessary to pay dividends to shareholders, service debt, invest in subsidiaries as necessary, and satisfy other operating requirements. The holding company maintains a revolving line of credit for an aggregate amount up to $25 million, all of which is available at June 30, ~~2021.~~2022. The line of credit has a one-year term and ~~matures~~was renewed in February ~~2022.~~2022 for an additional one-year term. The proceeds can be used for general corporate purposes.

The Company has an effective automatic shelf registration statement on Form S-3 allowing for the issuance of various forms of equity and debt securities. The Company’s ability to offer securities pursuant to the registration

statement depends on market conditions and the Company’s continuing eligibility to use the Form S-3 under rules of the SEC.

Strong capital ratios, credit quality and core earnings are essential to retaining cost-effective access to the wholesale funding markets. Deterioration in any of these factors could have a negative impact on the Company’s ability to access these funding sources and, as a result, these factors are monitored on an ongoing basis as part of the liquidity management process. The Bank is subject to regulations and, among other things, may be limited in its ability to pay dividends or transfer funds to the parent company. Accordingly, consolidated cash flows as presented in the consolidated statements of cash flows may not represent cash immediately available for the payment of cash dividends to the Company’s shareholders or for other cash needs.

Through the normal course of operations, the Company has entered into certain contractual obligations and other commitments. Such obligations relate to funding of operations through deposits or debt issuances, as well as leases for premises and equipment. As a financial services provider, the Company routinely enters into commitments to extend credit. While contractual obligations represent future cash requirements of the Company, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans made by the Company. The Company also enters into derivative contracts under which the Company either receives cash from or pays cash to counterparties depending on changes in interest rates. Derivative contracts are carried at fair value on the consolidated balance sheet with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of the balance sheet date. The fair value of these contracts changes daily as market interest rates change.

Capital Resources

~~EFSC~~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 ~~EFSC~~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 30, ~~2021,~~2022, and December 31, ~~2020, EFSC~~2021, the Company and the Bank met all capital adequacy requirements to which they are subject and exceeded the amounts required to be “well capitalized”.

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

(in thousands) June 30,
2021 December 31, 2020 Minimum Capital Requirement to be considered “Well Capitalized” Including Capital Conservation Buffer
Total capital to risk-weighted assets 14.9 % 14.9 % 10.5 %
Tier 1 capital to risk-weighted assets 12.3 % 12.1 % 8.5 %
Common equity tier 1 capital to risk-weighted assets 11.1 % 10.9 % 7.0 %
Leverage ratio (Tier 1 capital to average assets) 9.4 % 10.0 % 4.0 %
Tangible common equity to tangible assets1
8.3 % 8.4 %
Total risk-based capital $ 1,140,433 $ 1,094,601
Tier 1 capital 937,840 889,527
Common equity tier 1 capital 844,188 795,873
1 Not a required regulatory capital ratio
ratios:

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

(in thousands) June 30,
2021 December 31, 2020 Well Capitalized Minimum % Minimum Capital Requirement to be considered “Well Capitalized” Including Capital Conservation Buffer
Total capital to risk-weighted assets 13.4 % 13.7 % 10.0 % 10.5 %
Tier 1 capital to risk-weighted assets 12.3 % 12.5 % 8.0 % 8.5 %
Common equity tier 1 capital to risk-weighted assets 12.3 % 12.5 % 6.5 % 7.0 %
Leverage ratio (Tier 1 capital to average assets) 9.3 % 10.3 % 5.0 % 4.0 %
Total risk-based capital $ 1,020,956 $ 1,004,839
Tier 1 capital 931,614 913,169
Common equity tier 1 capital 931,561 913,116

In March 2020, the U.S. banking agencies issued an interim final rule that provides banking organizations that implement CECL before the end of 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital followed by a three-year transition period. The Company adopted CECL on January 1, 2020. For additional information regarding the adoption of CECL, see “Item 1. Note 1 – Summary of Significant Accounting Policies.” The Company has elected the transition provisions provided by the U.S. banking agencies’ rule. Accordingly, the regulatory capital effects resulting from adoption of the CECL methodology will not be fully reflected in the Company’s regulatory capital until January 1, 2025. Based on the Company’s regulatory capital position as of June 30, 2021, the estimated impact of adopting CECL would reduce the Common Equity Tier 1 Capital ratio by approximately 43 basis points. The actual impact of adopting CECL on the regulatory capital ratios may change as the final impact is not determined until the end of the second year of the transition period.


	June 30, 2022						December 31, 2021
(in thousands)	EFSC			Bank			EFSC			Bank			To Be Well-Capitalized		Minimum Ratio with CCB
Common Equity Tier 1 Capital to Risk Weighted Assets	10.9		%	12.0		%	11.3		%	12.5		%	6.5	%	7.0	%
Tier 1 Capital to Risk Weighted Assets	12.5		%	12.1		%	13.0		%	12.5		%	8.0	%	8.5	%
Total Capital to Risk Weighted Assets	14.2		%	13.1		%	14.7		%	13.5		%	10.0	%	10.5	%
Leverage Ratio (Tier 1 Capital to Average Assets)	9.8		%	9.4		%	9.7		%	9.3		%	5.0	%	4.0	%
Tangible common equity to tangible assets1	7.8		%				8.1		%
Common equity tier 1 capital	$	1,130,152		$	1,242,083		$	1,091,823		$	1,201,340
Tier 1 capital	1,295,791			1,242,134			1,257,462			1,201,391
Total risk-based capital	1,469,579			1,352,672			1,423,036			1,303,715

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 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 tangible common equity, PPNR, ~~PPNR ROAA, financial metrics adjusted for PPP impact,~~ core efficiency ratio, and the tangible common equity ratio, in this release 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 tangible common equity, PPNR, ~~PPNR ROAA, financial metrics adjusted for PPP impact,~~ core efficiency ratio, and the tangible common equity ratio, collectively “core performance measures,” presented in this earnings release and the included tables as important measures of financial performance, even though they are non-GAAP measures, as they provide supplemental information by which to evaluate the impact of certain non-comparable items, and the Company’s operating performance on an ongoing basis. Core performance measures exclude certain other income and expense items, such as merger-related expenses, facilities charges, and the gain or loss on sale of investment securities, 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 attached 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 measures for the periods indicated.

Core Performance Measures

Three months ended Six months ended
(in thousands) June 30,
2021 March 31,
2021 June 30,
2020 June 30,
2021 June 30,
2020
Net interest income $ 81,738 $ 79,123 $ 65,833 $ 160,861 $ 129,201
Less: Incremental accretion income — — 719 — 1,992
Core net interest income 81,738 79,123 65,114 160,861 127,209
Total noninterest income 16,204 11,290 9,960 27,494 23,368
Less: Gain on sale of investment securities — — — — 4
Less: Gain on sale of other real estate 549 — — 549 —
Less: Other non-core income — 265 — 265
Core noninterest income 15,655 11,290 9,695 26,945 23,099
Total core revenue 97,393 90,413 74,809 187,806 150,308
Total noninterest expense 52,456 52,884 37,912 105,340 76,585
Less: Other expenses related to non-core acquired loans — — 12 — 24
Less: Merger related expenses 1,949 3,142 — 5,091 —
Core noninterest expense 50,507 49,742 37,900 100,249 76,561
Core efficiency ratio 51.86 % 55.02 % 50.66 % 53.38 % 50.94 %


	Three months ended				Six months ended
(in thousands)	June 30, 2022		March 31, 2022		June 30, 2021		June 30, 2022		June 30, 2021


Net interest income	109,613		101,165		81,738		210,778		160,861

Noninterest income	14,194		18,641		16,204		32,835		27,494



Less gain (loss) on sale of other real estate	(90)		19		549		(71)		549


Core noninterest income	14,284		18,622		15,655		32,906		26,945

Total core revenue	123,897		119,787		97,393		243,684		187,806



Noninterest expense	65,424		62,800		52,456		128,224		105,340




Less merger-related expenses	—		—		1,949		—		5,091



Core noninterest expense	65,424		62,800		50,507		128,224		100,249













Core efficiency ratio	52.81	%	52.43	%	51.86	%	52.62	%	53.38	%

Tangible Common Equity Ratio


(in thousands)	(in thousands)	June 30, 2021			December 31, 2020			(in thousands)	June 30, 2022			December 31, 2021
Total shareholders' equity		$	1,118,301		$	1,078,975
Less: Goodwill		260,567			260,567
Less: Intangible assets		20,358			23,084
Shareholders' equity								Shareholders' equity	$	1,447,412		$	1,529,116
Less preferred stock								Less preferred stock	71,988			71,988
Less goodwill								Less goodwill	365,164			365,164
Less intangible assets								Less intangible assets	19,528			22,286
Tangible common equity	Tangible common equity	$	837,376		$	795,324		Tangible common equity	$	990,732		$	1,069,678

Total assets	Total assets	$	10,346,993		$	9,751,571		Total assets	$	13,084,506		$	13,537,358
Less: Goodwill		260,567			260,567
Less: Intangible assets, net		20,358			23,084
Less goodwill								Less goodwill	365,164			365,164
Less intangible assets, net								Less intangible assets, net	19,528			22,286
Tangible assets	Tangible assets	$	10,066,068		$	9,467,920		Tangible assets	$	12,699,814		$	13,149,908

Tangible common equity to tangible assets	Tangible common equity to tangible assets	8.32		%	8.40		%	Tangible common equity to tangible assets	7.80		%	8.13		%

Average Shareholders’ Equity and Average Tangible Common Equity


		For the three months ended						For the three months ended
(in thousands)	(in thousands)	June 30, 2021		March 31, 2021		June 30, 2020			(in thousands)	June 30, 2022		March 31, 2022		June 30, 2021
Average shareholder’s equity	Average shareholder’s equity	$	1,116,969	$	1,096,481	$	868,163		Average shareholder’s equity	$	1,474,267	$	1,536,221	$	1,116,969
Less: Average goodwill		260,567		260,567		210,344
Less: Average intangible assets, net		20,997		22,346		23,873
Less average preferred stock									Less average preferred stock	71,988		71,988		—
Less average goodwill									Less average goodwill	365,164		365,164		260,567
Less average intangible assets									Less average intangible assets	20,175		21,540		20,997
Average tangible common equity	Average tangible common equity	$	835,405	$	813,568	$	633,946		Average tangible common equity	$	1,016,940	$	1,077,529	$	835,405

~~Critical Accounting Policies~~PPNR


	Quarter ended				Six months ended
(in thousands)	Jun 30, 2022		Mar 31, 2022			Jun 30, 2021		Jun 30, 2022		Jun 30, 2021

Net interest income	$	109,613	$	101,165		$	81,738	$	210,778	$	160,861
Noninterest income	14,194		18,641			16,204		32,835		27,494
Less noninterest expense	65,424		62,800			52,456		128,224		105,340

Merger-related expenses	—		—			1,949		—		5,091
PPNR	$	58,383	$	57,006		$	47,435	$	115,389	$	88,106

~~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, 2020.

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~~cautionary language regarding forward-looking statements in the ~~Private Securities Litigation Reform Act of 1995” included in~~introduction to Item 2 – ~~Management’s Discussion and Analysis~~ of ~~Financial Condition and Results of Operations~~Part 1 of this ~~report~~Quarterly Report on Form 10-Q 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~~manage any impact from market interest rate ~~changes. In order~~changes according to our risk tolerances. The Company uses an earnings simulation model to measure earnings sensitivity to changing ~~rates, the Company uses an earnings simulation model.~~rates.

The Company determines the sensitivity of its short-term future earnings to a hypothetical plus or minus 100 to 300 basis point parallel rate shock through the use of simulation modeling. The simulation of earnings includes the

modeling of the balance sheet as an ongoing entity. Future business assumptions involving administered rate products, prepayments for future rate-sensitive balances, and the reinvestment of maturing assets and liabilities are included. These items are then modeled to project net interest income based on a hypothetical change in interest rates. The resulting net interest income for the next 12-month period is compared to the net interest income amount calculated using flat rates. The ~~Company uses an~~difference represents the Company’s earning ~~sensitivity model to track earnings~~ sensitivity to a positive or negative 100 basis points parallel rate shock.

The following table summarizes the expected impact of interest rate shocks on net interest ~~income:~~income at June 30, 2022:


Rate Shock1			Annual % change in net interest income
+ 300 bp			~~15.2%~~17.4%
+ 200 bp			~~8.9%~~11.6%
+ 100 bp			~~3.0%~~5.8%
- 100 bp			(8.4)%
- 200 bp			(14.6)%



1 ~~Due to the current levels of interest rates, the downward shock scenarios are not shown.~~

In addition to the rate shocks shown in the table above, the Company models net interest income under various dynamic interest rate scenarios. In general, changes in interest rates are positively correlated with changes in net interest income.

The 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. At June 30, ~~2021,~~2022, the Company had $62.0 million in derivative contracts used to manage interest rate risk. Derivative financial instruments are also discussed in “Item 1. Note 6 – Derivative Financial Instruments.”

AtThe FCA has announced that the most common USD LIBOR settings (overnight, 1-month. 3-month, 6-month and 12-month) will cease publication after June 30, ~~2021,~~2023. LIBOR is the most liquid and common interest rate index in the world and is commonly referenced in financial instruments. The Federal Reserve’s Alternative Reference Rates Committee has proposed that SOFR replace LIBOR. The Company expects to select a replacement index and provide customer notification in early 2023, prior to the cessation of the USD LIBOR settings. While a replacement index has not yet been selected, the Company ceased using LIBOR and ICE swap rates in new contracts and began issuing SOFR based loans in December 2021.

We have exposure to LIBOR in various financial contracts. Instruments that may be impacted include loans, securities, debt instruments and derivatives, among other financial contracts indexed to LIBOR. We also have loans that are indirectly linked to LIBOR through reference to the ICE swap rate. We have an internal working group composed of members from legal, credit, finance, operations, risk and audit to monitor developments, develop policies and procedures, assess the impact to the Company, consider relevant options and to determine an appropriate replacement index for affected contracts that expire after the expected discontinuation of LIBOR on June 30, 2023. We are actively working to amend and address impacted contracts to allow for a replacement index. However, amending certain contracts indexed to LIBOR may require consent from the counterparties which could be difficult and costly to obtain in certain circumstances. As of June 30, 2022, the Company’s financial contracts indexed to LIBOR included $1.9 billion in loans (including $560 million indirectly linked to LIBOR through reference to an ICE swap rate), $119 million in borrowings, and $768 million (notional) in derivatives.

In addition, LIBOR is used in the Company’s analysis of the fair value of tax credits and may be referenced in other financial contracts not included in the discussion above.

The Company had ~~$4.1~~$5.9 billion in variable rate loans ~~including $2.6~~at June 30, 2022. Of these loans, $3.5 billion ~~based on LIBOR and $1.4 billion based on Prime. Approximately 88% of the LIBOR based loans are indexed to one-month LIBOR. Of the total variable rate loans, $1.7 billion, or 24%, had a~~have an interest rate floor and 89% of ~~which approximately $1.7 billion,~~those loans were at or ~~93%, were currently priced at~~above the floor.

The Company maintains an available-for-sale investment securities portfolio that totaled $1.5 billion at June 30, 2022. This portfolio consists primarily of fixed-rate securities that are subject to changes in market value due to changes in interest rates. At June 30, 2022, the available-for-sale investment portfolio had a net unrealized loss of $165.3 million.

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 30, ~~2021.~~2022. 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 30, ~~2021~~2022 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

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 legal proceedings pending or threatened against the Company or its subsidiaries, 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 Quarterly Report on Form 10-Q, and Part I, Item 1A of our Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021. There have been no material changes to the risk factors described in such Annual Report on Form ~~10-K.~~10-K for the fiscal year ended December 31, 2021.

5051

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

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
April 1, 2021 through April 30, 2021 — — — 2,000,000
May 1, 2021 through May 31, 2021 12,348 48.01 12,348 1,987,652
June 1, 2021 through June 30, 2021 239,289 46.97 239,289 1,748,363
Total 251,637 $ 47.02 251,637 1,748,363
(a) In April 2021, 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 from time to time in the open market or through privately negotiated transactions.



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
April 1, 2022 through April 30, 2022	344,666	$	45.67	344,666	4,717
May 1, 2022 through May 31, 2022	4,717	44.30		4,717	2,000,000
June 1, 2022 through June 30, 2022	—	—		—	2,000,000
Total	349,383	$	45.65	349,383	2,000,000

(a) In April 2021, the Company’s board of directors authorized the repurchase of up to two million shares of the Company’s common stock. As of May 2022, this plan was depleted. In May 2022, the Company’s board of directors authorized the repurchase of up to two million shares of the Company’s common stock. The repurchases may be made from time to time in the open market or through privately negotiated transactions.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

~~The forgoing summary of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, a copy of which is filed as Exhibit 3.9 hereto.~~None.

ITEM 6: EXHIBITS

Exhibit No. Description

2.1 Agreement and Plan of Merger, dated April 26, 2021, by and among Enterprise Financial Services Corp, Enterprise Bank & Trust, First Choice Bancorp and First Choice Bank (incorporated herein by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on April 26, 2021 (File No. 001-15373)).

2.2 Agreement and Plan of Merger, dated August 20, 2020, by and among Enterprise Financial Services Corp, Enterprise Bank & Trust, Seacoast Commerce Banc Holdings and Seacoast Commerce Bank (incorporated herein by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on August 21, 2020 (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)).

3.6Amendment 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)).

3.7 Amendment to the Certificate of Incorporation of 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)).

3.8 Amendment to Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit 3.9 to Registrant's Quarterly Report on Form 10-Q filed on July 30, 2021 (File No. 001-15373)).

3.9 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~~3.10 ~~Amendment to the~~ Certificate of ~~Incorporation~~Elimination of ~~Registrant~~Registrant’s Certificate of Designation, Preferences, and Rights of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, dated November 9, 2021 (incorporated herein by reference to Exhibit 3.1 to ~~the Registrant's Quarterly~~Registrant’s Current Report on Form ~~10-Q for the period ending June 30, 2014~~8-K filed on November 9, 2021 (File No. 001-15373)).

~~3.8~~3.11 ~~Amendment to the~~ Certificate of ~~Incorporation~~Designation of Registrant of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, dated November 16, 2021 (incorporated herein by reference to Exhibit ~~3.8~~3.1 to Registrant’s ~~Quarterly~~Current Report on Form ~~10-Q~~8-K filed on ~~July 26, 2019~~November 17, 2021 (File No. 001-15373)).

*3.9 ~~Amendment to Certificate of Incorporation of Registrant, dated July~~ 28 ~~, 2021.~~

~~3.10~~3.12 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)).

4.1 Long-term borrowing instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company undertakes to furnish copies of such instruments to the Securities and Exchange Commission upon request.

*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 Inline XBRL Taxonomy Extension Schema Document.

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF Inline XBRL Taxonomy Extension Definitions Linkbase Document.

104 The cover page of Enterprise Financial Services Corp’s Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2021,~~2022, formatted in Inline XBRL (contained in Exhibit 101).

* 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.

5254

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 ~~30, 2021.~~29, 2022.


			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

5355


	June 30, 2020
(in thousands, except for number of loans)		Number of loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial		1	$	3,731	$	3,731
Real estate:



Residential		2	155		155

Total		3	$	3,886	$	3,886


	Employee Stock Options	Weighted Average Life	Weighted Average Price		Shares Exercisable	Weighted Average Exercise Price
Options Outstanding, December 31, 2020	0
Options granted	111,804		$	43.81	0	$	0
Options forfeited	(1,500)
Options Outstanding, June 30, 2021	110,304	9.7