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 ~~March 31,~~September 30, 2023.


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

For the transition period from ______ to ______

Commission file number 001-15373

ENTERPRISE FINANCIAL SERVICES CORP

Incorporated in the State of Delaware

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

Address: 150 North Meramec

Clayton, MO 63105

Telephone: (314) 725-5500

___________________

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 ~~April 26,~~October 25, 2023, the Registrant had ~~37,312,368~~37,385,651 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 Income (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						2730

Item 3. Quantitative and Qualitative Disclosures About Market Risk						4653

Item 4. Controls and Procedures						4855

PART II - OTHER INFORMATION

Item 1. Legal Proceedings						4855

Item 1A. Risk Factors						4855

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities						4956

Item 3. Defaults Upon Senior Securities						4956

Item 4. Mine Safety Disclosures						4956

Item 5. Other Information						4956

Item 6. Exhibits						4956

Signatures						5258

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

FHLB

Federal Home Loan Bank

Bank

Enterprise Bank & Trust

GAAP

Generally Accepted Accounting Principles (United States)

C&I

Commercial and Industrial

LIBOR

London Interbank Offered Rate

CCB

Capital Conservation Buffer

NIM

Net Interest Margin

~~CDFI~~

~~Community Development Financial Institution~~

~~PPP~~

~~Paycheck Protection Program~~

CECL

Current Expected Credit Loss

~~SBA~~OREO

~~Small Business Administration~~Other Real Estate Owned

Company

Enterprise Financial Services Corp

~~SBIC~~PPP

~~Small Business Investment Company~~Paycheck Protection Program

CRE

Commercial Real Estate

SBA

Small Business Administration

EFSC

Enterprise Financial Services Corp

SEC

Securities and Exchange Commission

~~EFSC~~Enterprise

Enterprise Financial Services Corp

SOFR

Secured Overnight Financing Rate

~~Enterprise~~

~~Enterprise Financial Services Corp~~

PART I - 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)	March 31, 2023		December 31, 2022		(in thousands, except share and per share data)	September 30, 2023		December 31, 2022
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	210,813	$	229,580	Cash and due from banks	$	190,806	$	229,580
Federal funds sold	Federal funds sold	2,749		1,753		Federal funds sold	1,699		1,753
Interest-earning deposits	Interest-earning deposits	71,521		60,026		Interest-earning deposits	178,193		60,026
Total cash and cash equivalents	Total cash and cash equivalents	285,083		291,359		Total cash and cash equivalents	370,698		291,359
Interest-earning deposits greater than 90 days	Interest-earning deposits greater than 90 days	6,971		8,029		Interest-earning deposits greater than 90 days	4,353		8,029
Securities available-for-sale	Securities available-for-sale	1,555,109		1,535,807		Securities available-for-sale	1,487,104		1,535,807
Securities held-to-maturity, net	Securities held-to-maturity, net	720,694		709,915		Securities held-to-maturity, net	730,655		709,915
Loans held-for-sale	Loans held-for-sale	261		1,228		Loans held-for-sale	212		1,228
Loans	Loans	10,011,918		9,737,138		Loans	10,616,820		9,737,138
Allowance for credit losses on loans	Allowance for credit losses on loans	(138,295)		(136,932)		Allowance for credit losses on loans	(142,133)		(136,932)
Total loans, net	Total loans, net	9,873,623		9,600,206		Total loans, net	10,474,687		9,600,206

Other investments	Other investments	62,943		63,790		Other investments	61,819		63,790
Fixed assets, net	Fixed assets, net	42,340		42,985		Fixed assets, net	41,268		42,985

Goodwill	Goodwill	365,164		365,164		Goodwill	365,164		365,164
Intangible assets, net	Intangible assets, net	15,680		16,919		Intangible assets, net	13,425		16,919

Other assets	Other assets	398,114		418,770		Other assets	475,657		418,770
Total assets	Total assets	$	13,325,982	$	13,054,172	Total assets	$	14,025,042	$	13,054,172

Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity					Liabilities and Shareholders' Equity
Noninterest-bearing demand accounts	Noninterest-bearing demand accounts	$	4,192,523	$	4,642,732	Noninterest-bearing demand accounts	$	3,852,486	$	4,642,732
Interest-bearing demand accounts	Interest-bearing demand accounts	2,395,901		2,256,295		Interest-bearing demand accounts	2,749,598		2,256,295
Money market accounts	Money market accounts	2,959,868		2,655,159		Money market accounts	3,211,302		2,655,159
Savings accounts	Savings accounts	712,671		744,256		Savings accounts	625,843		744,256
Certificates of deposit:	Certificates of deposit:					Certificates of deposit:
Brokered	Brokered	369,505		118,968		Brokered	695,551		118,968
Other	Other	524,168		411,740		Other	775,127		411,740
Total deposits	Total deposits	11,154,636		10,829,150		Total deposits	11,909,907		10,829,150
Subordinated debentures and notes	Subordinated debentures and notes	155,569		155,433		Subordinated debentures and notes	155,844		155,433
FHLB advances	FHLB advances	100,000		100,000		FHLB advances	—		100,000
Other borrowings	Other borrowings	213,489		324,119		Other borrowings	182,372		324,119

Other liabilities	Other liabilities	109,468		123,207		Other liabilities	165,039		123,207
Total liabilities	Total liabilities	$	11,733,162	$	11,531,909	Total liabilities	$	12,413,162	$	11,531,909

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

Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
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		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; 37,310,770 shares issued and outstanding and 37,253,292 shares issued, respectively		373		373
Common stock, $0.01 par value; 75,000,000 shares authorized; 37,385,177 and 37,253,292 shares issued and outstanding, respectively						Common stock, $0.01 par value; 75,000,000 shares authorized; 37,385,177 and 37,253,292 shares issued and outstanding, respectively	374		373

Additional paid in capital	Additional paid in capital	984,281		982,660		Additional paid in capital	992,044		982,660
Retained earnings	Retained earnings	642,153		597,574		Retained earnings	715,303		597,574
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(105,975)		(130,332)		Accumulated other comprehensive loss	(167,829)		(130,332)
Total shareholders' equity	Total shareholders' equity	1,592,820		1,522,263		Total shareholders' equity	1,611,880		1,522,263
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	13,325,982	$	13,054,172	Total liabilities and shareholders' equity	$	14,025,042	$	13,054,172

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)


		Three months ended March 31,				Three months ended September 30,				Nine months ended September 30,
(in thousands, except per share data)	(in thousands, except per share data)	2023		2022			(in thousands, except per share data)	2023		2022		2023		2022
Interest income:	Interest income:						Interest income:
Loans	Loans	$	152,606	$	96,123		Loans	$	180,241	$	118,465	$	503,006	$	316,741
Debt securities:	Debt securities:						Debt securities:
Taxable	Taxable	9,286		5,351			Taxable	10,141		7,766		29,046		19,670
Nontaxable	Nontaxable	5,597		3,942			Nontaxable	5,700		4,976		16,956		13,444

Interest-earning deposits	Interest-earning deposits	1,195		817			Interest-earning deposits	4,509		4,190		7,799		7,502
Dividends on equity securities	Dividends on equity securities	349		348			Dividends on equity securities	315		298		1,029		988
Total interest income	Total interest income	169,033		106,581			Total interest income	200,906		135,695		557,836		358,345
Interest expense:	Interest expense:						Interest expense:

Deposits	Deposits	24,661		2,859			Deposits	55,354		8,687		121,387		15,396
Subordinated debentures and notes	Subordinated debentures and notes	2,409		2,220			Subordinated debentures and notes	2,466		2,313		7,306		6,790
FHLB advances	FHLB advances	1,332		195			FHLB advances	141		103		2,752		495
Other borrowings	Other borrowings	1,102		142			Other borrowings	1,306		302		4,531		596
Total interest expense	Total interest expense	29,504		5,416			Total interest expense	59,267		11,405		135,976		23,277
Net interest income	Net interest income	139,529		101,165			Net interest income	141,639		124,290		421,860		335,068
Provision (benefit) for credit losses	Provision (benefit) for credit losses	4,183		(4,068)			Provision (benefit) for credit losses	8,030		676		18,552		(2,734)
Net interest income after provision (benefit) for credit losses	Net interest income after provision (benefit) for credit losses	135,346		105,233			Net interest income after provision (benefit) for credit losses	133,609		123,614		403,308		337,802
Noninterest income:	Noninterest income:						Noninterest income:
Deposit service charges	Deposit service charges	4,128		4,163			Deposit service charges	4,187		4,951		12,225		13,863
Wealth management revenue	Wealth management revenue	2,516		2,622			Wealth management revenue	2,614		2,432		7,602		7,587
Card services revenue	Card services revenue	2,338		3,040			Card services revenue	2,560		2,652		7,362		9,206

Tax credit income		1,813		2,608
Tax credit income (loss)							Tax credit income (loss)	(2,673)		(3,625)		(492)		169

Other income	Other income	6,103		6,208			Other income	5,397		3,044		16,576		11,464
Total noninterest income	Total noninterest income	16,898		18,641			Total noninterest income	12,085		9,454		43,273		42,289
Noninterest expense:	Noninterest expense:						Noninterest expense:
Employee compensation and benefits	Employee compensation and benefits	42,503		35,827			Employee compensation and benefits	40,771		36,999		124,915		108,854
Occupancy	Occupancy	4,061		4,586			Occupancy	4,198		4,497		12,213		13,392
Data processing	Data processing	3,710		3,260			Data processing	3,830		3,543		11,201		9,914
Professional fees	Professional fees	1,631		1,177			Professional fees	1,407		1,597		4,604		4,316

Other expense	Other expense	29,078		17,950			Other expense	38,438		22,207		102,650		60,591
Total noninterest expense	Total noninterest expense	80,983		62,800			Total noninterest expense	88,644		68,843		255,583		197,067

Income before income tax expense	Income before income tax expense	71,261		61,074			Income before income tax expense	57,050		64,225		190,998		183,024
Income tax expense	Income tax expense	15,523		13,381			Income tax expense	12,385		14,025		41,468		39,982
Net income	Net income	$	55,738	$	47,693		Net income	$	44,665	$	50,200	$	149,530	$	143,042
Dividends on preferred stock	Dividends on preferred stock	938		1,229			Dividends on preferred stock	938		937		2,813		3,104
Net income available to common shareholders	Net income available to common shareholders	$	54,800	$	46,464		Net income available to common shareholders	$	43,727	$	49,263	$	146,717	$	139,938

Earnings per common share	Earnings per common share						Earnings per common share
Basic	Basic	$	1.47	$	1.23		Basic	$	1.17	$	1.32	$	3.93	$	3.74
Diluted	Diluted	1.46		1.23			Diluted	1.17		1.32		3.91		3.73

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three months ended March 31,
(in thousands) 2023 2022
Net income $ 55,738 $ 47,693
Other comprehensive income (loss), after-tax:
Change in unrealized gain (loss) on available-for-sale securities 23,978 (79,353)
Reclassification adjustment for realized gain on sale of available-for-sale debt securities (285) —
Reclassification of gain on held-to-maturity securities (638) (704)
Change in unrealized gain on cash flow hedges 1,275 1,751
Reclassification of loss on cash flow hedges 27 269
Total other comprehensive income (loss), after-tax 24,357 (78,037)
Comprehensive income (loss) $ 80,095 $ (30,344)


	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2023		2022		2023		2022
Net income	$	44,665	$	50,200	$	149,530	$	143,042
Other comprehensive income (loss), after-tax:
Change in unrealized loss on available-for-sale securities	(41,257)		(45,283)		(30,956)		(173,878)
Reclassification of gain on sale of available-for-sale securities	—		—		(285)		—
Reclassification of gain on held-to-maturity securities	(647)		(647)		(1,971)		(2,052)
Change in unrealized gain (loss) on cash flow hedges	(2,684)		1,165		(4,747)		3,451
Reclassification of loss on cash flow hedges	224		55		462		511
Total other comprehensive loss, after-tax	(44,364)		(44,710)		(37,497)		(171,968)
Comprehensive income (loss)	$	301	$	5,490	$	112,033	$	(28,926)

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 months ended March 31, 2023
Three and nine months ended September 30, 2023																Three and nine months ended September 30, 2023
		Preferred Stock			Common Stock												Preferred Stock			Common Stock
(in thousands, except per share data)	(in thousands, except per share data)	Shares	Amount		Shares	Amount		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity		(in thousands, except per share data)	Shares	Amount		Shares	Amount		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance at December 31, 2022		75	$	71,988	37,253	$	373	$	982,660	$	597,574	$	(130,332)	$	1,522,263
Balance at June 30, 2023																Balance at June 30, 2023	75	$	71,988	37,359	$	374	$	988,355	$	680,981	$	(123,465)	$	1,618,233
Net income	Net income	—	—		—	—		—		55,738		—		55,738		Net income	—	—		—	—		—		44,665		—		44,665

Other comprehensive income		—	—		—	—		—		—		24,357		24,357
Other comprehensive loss																Other comprehensive loss	—	—		—	—		—		—		(44,364)		(44,364)

Common stock dividends ($0.25 per share)	Common stock dividends ($0.25 per share)	—	—		—	—		—		(9,328)		—		(9,328)		Common stock dividends ($0.25 per share)	—	—		—	—		—		(9,346)		—		(9,346)
Preferred stock dividends ($12.50 per share)	Preferred stock dividends ($12.50 per share)	—	—		—	—		—		(938)		—		(938)		Preferred stock dividends ($12.50 per share)	—	—		—	—		—		(938)		—		(938)

Issuance under equity compensation plans, net	Issuance under equity compensation plans, net	—	—		58	—		(848)		(893)		—		(1,741)		Issuance under equity compensation plans, net	—	—		26	—		1,014		(59)		—		955

Share-based compensation	Share-based compensation	—	—		—	—		2,469		—		—		2,469		Share-based compensation	—	—		—	—		2,675		—		—		2,675

Balance at March 31, 2023		75	$	71,988	37,311	$	373	$	984,281	$	642,153	$	(105,975)	$	1,592,820
Balance at September 30, 2023																Balance at September 30, 2023	75	$	71,988	37,385	$	374	$	992,044	$	715,303	$	(167,829)	$	1,611,880

Balance December 31, 2022																Balance December 31, 2022	75	$	71,988	37,253	$	373	$	982,660	$	597,574	$	(130,332)	$	1,522,263
Net income																Net income	—	—		—	—		—		149,530		—		149,530

Other comprehensive loss																Other comprehensive loss	—	—		—	—		—		—		(37,497)		(37,497)

Common stock dividends ($0.75 per share)																Common stock dividends ($0.75 per share)	—	—		—	—		—		(28,014)		—		(28,014)
Preferred stock dividends ($37.50 per share)																Preferred stock dividends ($37.50 per share)	—	—		—	—		—		(2,813)		—		(2,813)

Issuance under equity compensation plans, net																Issuance under equity compensation plans, net	—	—		132	1		1,575		(974)		—		602

Share-based compensation																Share-based compensation	—	—		—	—		7,809		—		—		7,809

Balance at September 30, 2023																Balance at September 30, 2023	75	$	71,988	37,385	$	374	$	992,044	$	715,303	$	(167,829)	$	1,611,880

Three months ended March 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 December 31, 2021 75 $ 71,988 37,819 $ 398 $ (73,528) $ 1,018,799 $ 492,682 $ 18,777 $ 1,529,116
Net income — — — — — — 47,693 — 47,693
Other comprehensive loss — — — — — — — (78,037) (78,037)
Cash dividends paid on common shares ($0.21 per share) — — — — — — (7,915) — (7,915)
Cash dividends paid on preferred shares ($16.389 per share) — — — — — (1,229) — (1,229)
Repurchase of common stock — — (351) (4) — (9,457) (7,513) — (16,974)
Issuance under equity compensation plans, net — — 48 1 — (582) (582) — (1,163)
Share-based compensation — — — — — 1,686 — — 1,686
Balance at March 31, 2022 75 $ 71,988 37,516 $ 395 $ (73,528) $ 1,010,446 $ 523,136 $ (59,260) $ 1,473,177


Three and nine months ended September 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 June 30, 2022	75	$	71,988	37,206	$	372	$	—	$	976,684	$	506,849	$	(108,481)	$	1,447,412
Net income	—	—		—	—		—		—		50,200		—		50,200

Other comprehensive loss	—	—		—	—		—		—		—		(44,710)		(44,710)
Common stock dividends ($0.23 per share)	—	—		—	—		—		—		(8,562)		—		(8,562)
Preferred stock dividends ($12.50 per share)	—	—		—	—		—		—		(937)		—		(937)




Issuance under equity compensation plans, net	—	—		17	—		—		737		(44)		—		693

Share-based compensation	—	—		—	—		—		2,122		—		—		2,122



Balance at September 30, 2022	75	$	71,988	37,223	$	372	$	—	$	979,543	$	547,506	$	(153,191)	$	1,446,218

Balance December 31, 2021	75	$	71,988	37,820	$	398	$	(73,528)	$	1,018,799	$	492,682	$	18,777	$	1,529,116
Net income	—	—		—	—		—		—		143,042		—		143,042

Other comprehensive loss	—	—		—	—		—		—		—		(171,968)		(171,968)

Common stock dividends ($0.66 per share)	—	—		—	—		—		—		(24,662)		—		(24,662)
Preferred stock dividends ($41.389 per share)	—	—		—	—		—		—		(3,104)		—		(3,104)
Repurchase of common stock	—	—		(700)	(7)		—		(18,867)		(14,049)		—		(32,923)



Issuance under equity compensation plans, net	—	—		103	1		—		1,421		(633)		—		789

Share-based compensation	—	—		—	—		—		5,928		—		—		5,928


Retirement of treasury stock (1,980 shares)	—	—		—	(20)		73,528		(27,738)		(45,770)		—		—
Balance September 30, 2022	75	$	71,988	37,223	$	372	$	—	$	979,543	$	547,506	$	(153,191)	$	1,446,218

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


		Three months ended March 31,					Nine months ended September 30,
(in thousands, except share data)		2023		2022
(in thousands)						(in thousands)	2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	55,738	$	47,693	Net income	$	149,530	$	143,042
Adjustments to reconcile net income to net cash provided by operating activities	Adjustments to reconcile net income to net cash provided by operating activities					Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	Depreciation	1,274		1,472		Depreciation	3,818		4,268
Provision (benefit) for credit losses	Provision (benefit) for credit losses	4,183		(4,068)		Provision (benefit) for credit losses	18,552		(2,734)
Deferred income taxes	Deferred income taxes	2,517		5,248		Deferred income taxes	(103)		1,796
Net amortization of discount/premiums on debt securities	Net amortization of discount/premiums on debt securities	1,070		1,625		Net amortization of discount/premiums on debt securities	2,996		4,488
Net amortization on loan discount/premiums	Net amortization on loan discount/premiums	1,606		429		Net amortization on loan discount/premiums	3,819		(289)
Amortization of intangible assets	Amortization of intangible assets	1,239		1,429		Amortization of intangible assets	3,493		4,068
Amortization of servicing assets	Amortization of servicing assets	493		648		Amortization of servicing assets	1,307		2,195
Mortgage loans originated-for-sale	Mortgage loans originated-for-sale	(2,918)		(27,811)		Mortgage loans originated-for-sale	(14,560)		(57,281)
Proceeds from mortgage loans sold	Proceeds from mortgage loans sold	3,884		29,636		Proceeds from mortgage loans sold	15,648		63,266
Gain on:
Loss (gain) on:						Loss (gain) on:
Sale of investment securities	Sale of investment securities	(381)		—		Sale of investment securities	(381)		—
Sale of SBA loans	Sale of SBA loans	(501)		—		Sale of SBA loans	(2,015)		—
Sale of other real estate	Sale of other real estate	(90)		(19)		Sale of other real estate	(187)		93

Sale of fixed assets						Sale of fixed assets	10		(44)
Sale of state tax credits	Sale of state tax credits	(91)		(9)		Sale of state tax credits	(215)		(154)

Share-based compensation	Share-based compensation	2,469		1,686		Share-based compensation	7,809		5,928

Net change in other assets and liabilities	Net change in other assets and liabilities	(1,316)		(8,076)		Net change in other assets and liabilities	(269)		19,215

Net cash provided by operating activities	Net cash provided by operating activities	69,176		49,883		Net cash provided by operating activities	189,252		187,857
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Net increase in loans	Net increase in loans	(285,158)		(39,536)		Net increase in loans	(943,905)		(337,863)

Proceeds received from:	Proceeds received from:					Proceeds received from:
Sale of debt securities, available-for-sale	Sale of debt securities, available-for-sale	28,741		—		Sale of debt securities, available-for-sale	28,741		—
Paydown or maturity of debt securities, available-for-sale	Paydown or maturity of debt securities, available-for-sale	65,725		63,506		Paydown or maturity of debt securities, available-for-sale	171,923		183,230
Paydown or maturity of debt securities, held-to-maturity	Paydown or maturity of debt securities, held-to-maturity	2,037		5,097		Paydown or maturity of debt securities, held-to-maturity	5,086		10,819
Redemption of other investments	Redemption of other investments	41,109		1,248		Redemption of other investments	88,863		8,304
Sale of SBA loans	Sale of SBA loans	9,502		—		Sale of SBA loans	44,975		—
Sale of state tax credits held for sale	Sale of state tax credits held for sale	504		261		Sale of state tax credits held for sale	1,225		8,406
Sale of other real estate	Sale of other real estate	360		1,419		Sale of other real estate	457		2,517
Sale of fixed assets	Sale of fixed assets	43		—		Sale of fixed assets	83		1,489
Settlement of bank-owned life insurance policies	Settlement of bank-owned life insurance policies	—		534		Settlement of bank-owned life insurance policies	—		534
Payments for the purchase of:	Payments for the purchase of:					Payments for the purchase of:
Available-for-sale debt securities	Available-for-sale debt securities	(86,737)		(313,875)		Available-for-sale debt securities	(198,962)		(635,733)
Held-to-maturity debt securities	Held-to-maturity debt securities	(14,602)		(1,120)		Held-to-maturity debt securities	(30,893)		(115,697)
Other investments	Other investments	(39,123)		(8,154)		Other investments	(84,023)		(17,963)

State tax credits held for sale	State tax credits held for sale	(21)		(7,212)		State tax credits held for sale	(75)		(18,846)
Fixed assets	Fixed assets	(681)		(457)		Fixed assets	(2,193)		(1,321)
Net cash used in investing activities	Net cash used in investing activities	(278,301)		(298,289)		Net cash used in investing activities	(918,698)		(912,124)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net (decrease) increase in noninterest-bearing deposit accounts	Net (decrease) increase in noninterest-bearing deposit accounts	(450,209)		302,607		Net (decrease) increase in noninterest-bearing deposit accounts	(790,246)		64,103
Net increase in interest-bearing deposit accounts		775,695		57,729

Net increase (decrease) in interest-bearing deposit accounts						Net increase (decrease) in interest-bearing deposit accounts	1,871,003		(350,308)
Repayments of long-term FHLB advances						Repayments of long-term FHLB advances	—		(50,000)
Net decrease in FHLB advances						Net decrease in FHLB advances	(100,000)		—

Repayments of notes payable	Repayments of notes payable	(1,429)		(1,429)		Repayments of notes payable	(4,286)		(4,286)

Net decrease in other borrowings	Net decrease in other borrowings	(109,201)		(123,589)		Net decrease in other borrowings	(137,461)		(152,155)

Repurchase of common stock	Repurchase of common stock	—		(16,974)		Repurchase of common stock	—		(32,923)
Cash dividends paid on common stock	Cash dividends paid on common stock	(9,328)		(7,915)		Cash dividends paid on common stock	(28,014)		(24,662)
Cash dividends paid on preferred stock	Cash dividends paid on preferred stock	(938)		(1,229)		Cash dividends paid on preferred stock	(2,813)		(3,104)
Other	Other	(1,741)		(1,163)		Other	602		789

Net cash provided by financing activities		202,849		208,037
Net decrease in cash and cash equivalents		(6,276)		(40,369)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	808,785		(552,546)
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	79,339		(1,276,813)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	291,359		2,021,689		Cash and cash equivalents, beginning of period	291,359		2,021,689
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	285,083	$	1,981,320	Cash and cash equivalents, end of period	$	370,698	$	744,876
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	27,486	$	4,725	Interest	$	129,205	$	22,517
Income taxes	Income taxes	—		979		Income taxes	34,013		30,505
Noncash investing and financing transactions:	Noncash investing and financing transactions:					Noncash investing and financing transactions:

Transfer to other bank owned assets in settlement of loans						Transfer to other bank owned assets in settlement of loans	$	6,933	$	—

Right-of-use assets obtained in exchange for lease obligations	Right-of-use assets obtained in exchange for lease obligations	564		4,178		Right-of-use assets obtained in exchange for lease obligations	6,001		9,072

Transfer of securities from available-for-sale to held-to-maturity	Transfer of securities from available-for-sale to held-to-maturity	—		116,927		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 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, Florida, Kansas, Missouri, Nevada, and New Mexico through its banking subsidiary, Enterprise Bank & Trust.

Operating results for the three and nine months ended ~~March 31,~~September 30, 2023 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2023. ~~For further information, refer to~~These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, 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 pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the ~~instructions~~Company believes that the disclosures made are adequate to ~~Form 10-Q and Rule 10-01 of Regulation S-X.~~make the information presented not misleading. 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, 2022.

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

On January 1, 2023, the Company adopted 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 charge-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 adoption of this update did not have a material effect on the Company’s consolidated financial statements.

FASB ASU 2021-01, Reference Rate Reform (Topic 848): Scope (ASU 2021-01). ASU 2021-01 was issued in January 2021 and provides optional expedients and exceptions in ASC 848 to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendment only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The 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, where an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this update were effective immediately upon issuance and did not have a material effect on the consolidated financial

statements. In December 2022, ASU 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset date of Topic 848 was issued, which extends the sunset date from December 31, 2022 to December 31, 2024.

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

FASB ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. ASU 2023-02 was issued in March 2023 to allow reporting entities to consistently account for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits. If certain conditions are met, a reporting entity may elect to account for its tax equity investments by using the proportional amortization method regardless of the program from which it receives income tax credits, instead of only low-income-housing tax credit (“LIHTC”) structures. This amendment also eliminates certain LIHTC-specific guidance aligning the accounting with other equity investments in tax credit structures. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is evaluating the accounting and disclosure requirements of ASU 2023-02 and does not expect them to have a material effect on the consolidated financial statements.

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 March 31,				Three months ended September 30,				Nine months ended September 30,
(in thousands, except per share data)	(in thousands, except per share data)	2023		2022			(in thousands, except per share data)	2023		2022		2023		2022
Net income available to common shareholders	Net income available to common shareholders	$	54,800	$	46,464		Net income available to common shareholders	$	43,727	$	49,263	$	146,717	$	139,938

Weighted average common shares outstanding	Weighted average common shares outstanding	37,305		37,788			Weighted average common shares outstanding	37,405		37,241		37,353		37,422

Additional dilutive common stock equivalents	Additional dilutive common stock equivalents	182		70			Additional dilutive common stock equivalents	115		106		140		96
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	37,487		37,858			Weighted average diluted common shares outstanding	37,520		37,347		37,493		37,518

Basic earnings per common share:	Basic earnings per common share:	$	1.47	$	1.23		Basic earnings per common share:	$	1.17	$	1.32	$	3.93	$	3.74
Diluted earnings per common share:	Diluted earnings per common share:	1.46		1.23			Diluted earnings per common share:	1.17		1.32		$	3.91	$	3.73

For the three and nine months ended ~~March 31,~~September 30, 2023, ~~and 2022,~~ common stock equivalents of approximately ~~311,000~~440,000 and ~~276,000,~~430,000, respectively, were excluded from the earnings per share calculations because their effect would have been anti-dilutive. Comparatively, there were 218,000 common stock equivalents excluded in both the three and nine months ended September 30, 2022.

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:


		March 31, 2023						September 30, 2023
(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	$	289,560	$	95	$	(23,950)		$	265,705	Obligations of U.S. Government-sponsored enterprises	$	308,181	$	—	$	(28,724)	$	279,457
Obligations of states and political subdivisions	Obligations of states and political subdivisions	503,883		53		(73,243)			430,693		Obligations of states and political subdivisions	501,515		8		(114,089)		387,434
Agency mortgage-backed securities	Agency mortgage-backed securities	710,642		557		(60,748)			650,451		Agency mortgage-backed securities	713,896		—		(85,926)		627,970
U.S. Treasury bills	U.S. Treasury bills	203,596		22		(3,515)			200,103		U.S. Treasury bills	189,775		—		(4,984)		184,791
Corporate debt securities	Corporate debt securities	9,000		—		(843)			8,157		Corporate debt securities	8,750		—		(1,298)		7,452
Total securities available for sale	Total securities available for sale	$	1,716,681	$	727	$	(162,299)		$	1,555,109	Total securities available for sale	$	1,722,117	$	8	$	(235,021)	$	1,487,104
Held-to-maturity securities:	Held-to-maturity securities:										Held-to-maturity securities:

Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	541,345	$	5,133	$	(54,232)		$	492,246	Obligations of states and political subdivisions	$	554,459	$	68	$	(87,975)	$	466,552
Agency mortgage-backed securities	Agency mortgage-backed securities	55,897		—		(5,566)			50,331		Agency mortgage-backed securities	53,259		—		(7,477)		45,782
Corporate debt securities	Corporate debt securities	124,324		176		(10,524)			113,976		Corporate debt securities	123,722		202		(13,598)		110,326
Total securities held-to-maturity	Total securities held-to-maturity	$	721,566	$	5,309	$	(70,322)		$	656,553	Total securities held-to-maturity	$	731,440	$	270	$	(109,050)	$	622,660
Allowance for credit losses	Allowance for credit losses	(872)									Allowance for credit losses	(785)
Total securities held-to-maturity, net	Total securities held-to-maturity, net	$	720,694								Total securities held-to-maturity, net	$	730,655


	December 31, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale securities:
Obligations of U.S. Government-sponsored enterprises	$	266,090	$	—	$	(28,305)	$	237,785
Obligations of states and political subdivisions	507,842		27		(90,425)		417,444
Agency mortgage-backed securities	727,931		453		(68,980)		659,404
U.S. Treasury Bills	213,441		1		(4,908)		208,534
Corporate debt securities	13,750		—		(1,110)		12,640
Total securities available for sale	$	1,729,054	$	481	$	(193,728)	$	1,535,807
Held-to-maturity securities:

Obligations of states and political subdivisions	$	529,012	$	2,321	$	(65,347)	$	465,986
Agency mortgage-backed securities	57,018		—		(6,416)		50,602
Corporate debt securities	124,620		163		(12,854)		111,929
Total securities held to maturity	$	710,650	$	2,484	$	(84,617)	$	628,517
Allowance for credit losses	(735)
Total securities held-to-maturity, net	$	709,915

The balance of held-to-maturity securities in the “Amortized Cost” column in the table above includes a cumulative net unamortized unrealized gain of ~~$16.8~~$15.0 million and $17.6 million at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively. Such amounts are amortized over the remaining life of the securities.

At ~~March 31,~~September 30, 2023 and December 31, 2022, 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 ~~$1.8~~$1.4 billion and $734.5 million at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively, were pledged as collateral to secure deposits of public institutions and for other purposes as required by law or contract provisions, in addition to collateral securing borrowing bases with the FHLB and the Federal Reserve.

The amortized cost and estimated fair value of debt securities at ~~March 31,~~September 30, 2023, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The weighted average life of the mortgage-backed securities is approximately 6five 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	$	97,485	$	97,369	$	720	$	720	Due in one year or less	$	104,552	$	103,752	$	1,220	$	1,213
Due after one year through five years	Due after one year through five years	370,543		347,074		50,396		47,082		Due after one year through five years	361,488		334,362		65,625		60,259
Due after five years through ten years	Due after five years through ten years	70,480		64,238		187,914		177,985		Due after five years through ten years	103,873		87,087		194,325		176,400
Due after ten years	Due after ten years	467,531		395,977		426,639		380,435		Due after ten years	438,308		333,933		417,011		339,006
Agency mortgage-backed securities	Agency mortgage-backed securities	710,642		650,451		55,897		50,331		Agency mortgage-backed securities	713,896		627,970		53,259		45,782

		$	1,716,681	$	1,555,109	$	721,566	$	656,553		$	1,722,117	$	1,487,104	$	731,440	$	622,660

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


		March 31, 2023													September 30, 2023
		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	$	31,351	$	671	$	224,294	$	23,279	$	255,645	$	23,950	Obligations of U.S. Government-sponsored enterprises	$	43,940	$	800	$	235,517	$	27,924	$	279,457	$	28,724
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1,954		165		424,582		73,078		426,536		73,243		Obligations of states and political subdivisions	3,687		467		383,239		113,622		386,926		114,089
Agency mortgage-backed securities	Agency mortgage-backed securities	198,052		6,861		407,782		53,887		605,834		60,748		Agency mortgage-backed securities	102,488		3,210		523,672		82,716		626,160		85,926
U.S. Treasury bills	U.S. Treasury bills	150,570		2,153		23,795		1,362		174,365		3,515		U.S. Treasury bills	76,579		173		108,212		4,811		184,791		4,984
Corporate debt securities	Corporate debt securities	3,664		336		4,243		507		7,907		843		Corporate debt securities	—		—		7,452		1,298		7,452		1,298
		$	385,591	$	10,186	$	1,084,696	$	152,113	$	1,470,287	$	162,299		$	226,694	$	4,650	$	1,258,092	$	230,371	$	1,484,786	$	235,021

		December 31, 2022													December 31, 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	$	73,738	$	6,249	$	163,047	$	22,056	$	236,785	$	28,305	Obligations of U.S. Government-sponsored enterprises	$	73,738	$	6,249	$	163,047	$	22,056	$	236,785	$	28,305
Obligations of states and political subdivisions	Obligations of states and political subdivisions	103,179		13,501		311,634		76,924		414,813		90,425		Obligations of states and political subdivisions	103,179		13,501		311,634		76,924		414,813		90,425
Agency mortgage-backed securities	Agency mortgage-backed securities	334,431		20,038		281,321		48,942		615,752		68,980		Agency mortgage-backed securities	334,431		20,038		281,321		48,942		615,752		68,980
U.S. Treasury bills	U.S. Treasury bills	198,688		4,908		—		—		198,688		4,908		U.S. Treasury bills	198,688		4,908		—		—		198,688		4,908
Corporate debt securities	Corporate debt securities	12,640		1,110		—		—		12,640		1,110		Corporate debt securities	12,640		1,110		—		—		12,640		1,110
		$	722,676	$	45,806	$	756,002	$	147,922	$	1,478,678	$	193,728		$	722,676	$	45,806	$	756,002	$	147,922	$	1,478,678	$	193,728

The unrealized losses at both ~~March 31,~~September 30, 2023 and December 31, 2022 were attributable primarily to changes in market interest rates after the securities were purchased. In ~~March~~ 2023, the Company established an allowance for credit losses on available-for-sale investment securities through a provision for credit losses of ~~$4.8~~$5.0 million and subsequently charged-off ~~$4.8 million.~~a $5.0 million investment. The charge-off related to the impairment of a debt security from a bank that

failed in 2023. At each of ~~March 31,~~September 30, 2023 and December 31, 2022, the Company had no allowance recorded on available-for-sale securities.

Accrued interest receivable on held-to-maturity debt securities totaled ~~$6.6~~$6.7 million and $5.8 million at ~~March 31,~~September 30, 2023 and December 31, 2022, 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. The ACL on held-to-maturity securities was ~~$0.9~~$0.8 million at ~~March 31,~~September 30, 2023 and $0.7 million at December 31, 2022.

The Company sold $28.4 million of available-for-sale securities in January 2023 for a gain of $0.4 million. There were no sales of available-for-sale ~~investment~~ securities ~~during~~in the three months ended ~~March 31,~~September 30, 2023 nor during the three and nine months ended September 30, 2022.

Other Investments

At ~~March 31,~~September 30, 2023 and December 31, 2022, other investments totaled ~~$62.9~~$61.8 million and $63.8 million, respectively. As a member of the FHLB system administered by the Federal Housing Finance Agency, the Bank is required to maintain a minimum investment in capital stock with the FHLB consisting of membership stock and activity-based stock. The FHLB capital stock of $10.0 million at September 30, 2023 and $14.0 million at ~~both March 31, 2023 and~~ December 31, 2022 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 investments in ~~SBICs, CDFIs,~~Small Business Investment Companies, Community Development Financial Institutions, private equity investments, and the Company’s investment in unconsolidated trusts used to issue trust preferred securities to third parties.

1011

NOTE 4 - LOANS

The following table presents a summary of loans by category:


(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022
Commercial and industrial	Commercial and industrial	$	4,032,189	$	3,859,964	Commercial and industrial	$	4,449,129	$	3,859,964
Real estate:	Real estate:					Real estate:
Commercial - investor owned	Commercial - investor owned	2,418,079		2,357,820		Commercial - investor owned	2,425,821		2,357,820
Commercial - owner occupied	Commercial - owner occupied	2,281,223		2,270,551		Commercial - owner occupied	2,361,370		2,270,551
Construction and land development	Construction and land development	663,264		611,565		Construction and land development	723,138		611,565
Residential	Residential	364,059		395,537		Residential	375,986		395,537
Total real estate loans	Total real estate loans	5,726,625		5,635,473		Total real estate loans	5,886,315		5,635,473
Other	Other	260,001		248,990		Other	286,953		248,990
Loans, before unearned loan fees	Loans, before unearned loan fees	10,018,815		9,744,427		Loans, before unearned loan fees	10,622,397		9,744,427
Unearned loan fees, net	Unearned loan fees, net	(6,897)		(7,289)		Unearned loan fees, net	(5,577)		(7,289)
Loans, including unearned loan fees	Loans, including unearned loan fees	$	10,011,918	$	9,737,138	Loans, including unearned loan fees	$	10,616,820	$	9,737,138

The loan balance at ~~March 31,~~September 30, 2023 and December 31, 2022, includes a net premium on acquired loans of ~~$10.3~~$9.1 million and $11.9 million, respectively. At ~~March 31,~~September 30, 2023 and December 31, 2022, loans of ~~$3.4~~$3.9 billion and $2.8 billion, respectively, were pledged to FHLB and the Federal Reserve Bank.

Accrued interest receivable totaled ~~$44.7~~$64.5 million and $48.1 million at ~~March 31,~~September 30, 2023 and December 31, 2022, respectively, and was reported in “Other Assets” on the consolidated balance sheets.

SBA 7(a) guaranteed loans sold during the three and nine months ended ~~March 31,~~September 30, 2023 totaled ~~$8.8~~$33.3 million ~~resulting in a~~and $42.1 million, respectively. A gain on sale of ~~$0.5 million.~~$1.5 million and $2.0 million was recognized for the three and nine months ended September 30, 2023, respectively. There were no SBA loan sales during ~~the same period~~2022.

Consumer mortgage loans secured by residential real estate in process of foreclosure totaled $1.0 million at September 30, 2023. There were no consumer mortgage loans secured by residential real estate in process of foreclosure at December 31, 2022.

A summary of the activity in the ACL on loans by category for the three and nine months ended ~~March 31,~~September 30, 2023 and 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 December 31, 2022		$	53,835	$	36,191	$	22,752	$	11,444	$	7,928	$	4,782	$	136,932
Provision (benefit) for credit losses		5,083		222		(440)		(2,578)		(1,151)		(37)		1,099
Charge-offs		(707)		(170)		—		(9)		(102)		(192)		(1,180)
Recoveries		938		23		16		32		322		113		1,444
Balance at March 31, 2023		$	59,149	$	36,266	$	22,328	$	8,889	$	6,997	$	4,666	$	138,295

Balance at June 30, 2023																Balance at June 30, 2023	$	60,318	$	33,876	$	22,700	$	12,795	$	7,421	$	4,209	$	141,319

Provision (benefit) for credit losses																Provision (benefit) for credit losses	3,914		2,851		2,705		(1,662)		(939)		801		7,670
Charge-offs																Charge-offs	(2,794)		(4,692)		—		—		(131)		(686)		(8,303)
Recoveries																Recoveries	1,038		27		28		14		271		69		1,447
Balance at September 30, 2023																Balance at September 30, 2023	$	62,476	$	32,062	$	25,433	$	11,147	$	6,622	$	4,393	$	142,133


(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, 2022																Balance at December 31, 2022	$	53,835	$	36,191	$	22,752	$	11,444	$	7,928	$	4,782	$	136,932

Balance at December 31, 2021		$	63,825	$	35,877	$	17,560	$	14,536	$	7,927	$	5,316	$	145,041
Provision (benefit) for credit losses	Provision (benefit) for credit losses	(1,481)		121		(582)		(1,574)		(456)		(336)		(4,308)		Provision (benefit) for credit losses	12,854		653		2,564		(342)		(1,472)		509		14,766
Charge-offs	Charge-offs	(2,159)		—		(180)		—		(887)		(86)		(3,312)		Charge-offs	(6,790)		(4,869)		—		(9)		(654)		(1,129)		(13,451)
Recoveries	Recoveries	790		196		240		21		525		19		1,791		Recoveries	2,577		87		117		54		820		231		3,886
Balance at March 31, 2022		$	60,975	$	36,194	$	17,038	$	12,983	$	7,109	$	4,913	$	139,212

Balance at September 30, 2023																Balance at September 30, 2023	$	62,476	$	32,062	$	25,433	$	11,147	$	6,622	$	4,393	$	142,133


(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 June 30, 2022	$	65,646	$	33,338	$	16,156	$	13,180	$	7,478	$	4,748	$	140,546
Provision for credit losses	4,202		71		224		(3,987)		99		(105)		504
Charge-offs	(1,320)		—		(190)		—		(401)		(88)		(1,999)
Recoveries	640		225		232		10		365		49		1,521
Balance at September 30, 2022	$	69,168	$	33,634	$	16,422	$	9,203	$	7,541	$	4,604	$	140,572



(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	7,283		(2,488)		(1,424)		(5,378)		(50)		(588)		(2,645)
Charge-offs	(3,576)		(200)		(395)		—		(1,706)		(262)		(6,139)
Recoveries	1,636		445		681		45		1,370		138		4,315
Balance at September 30, 2022	$	69,168	$	33,634	$	16,422	$	9,203	$	7,541	$	4,604	$	140,572

The ACL on sponsor finance loans, which is included in the categories above, represented ~~$21.0~~$21.7 million and $16.1 million, respectively, as of ~~March 31,~~September 30, 2023 and December 31, 2022.

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 40%, 30%, and 30%, respectively, which added approximately ~~$14.2~~$12.9 million to the ACL over the baseline model at ~~March 31,~~September 30, 2023. These forecasts incorporate an expectation that the Federal Reserve will continue quantitative tightening and ~~raise~~that the federal funds rate has peaked at the range of 5.25% to ~~5.00% to 5.25%~~5.50% and will begin falling in ~~2023 and~~the latter half of 2024. It is also assumed that the ~~recent~~ bank failures ~~are~~in early 2023 were not an indication of a broader problem in the industry. The Company has also recognized various risks posed by loans in certain segments, including the ~~hospitality and~~ commercial office ~~sectors,~~sector, by allocating additional reserves to those segments. Some of the key risks to the forecasts that could result in future provision for credit losses are market reactions to the Federal Reserve policy actions that could push the economy into a recession, persistently higher inflation, tightening in the credit markets, and further weakness in the financial system.

In addition to the CECL methodology, the Company incorporates qualitative adjustments into the ACL on loans to capture credit risks inherent within the loan portfolio that are not captured in the ~~discounted cash flow (DCF)~~CECL 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 ~~March 31,~~September 30, 2023, the ACL on loans included a qualitative adjustment of approximately ~~$43.2~~$39.3 million. Of this amount, approximately $13.8 million was allocated to sponsor finance loans due to their mostly unsecured nature.

The ~~current-period~~current year-to-date gross charge-offs by loan class and year of origination is presented in the following table:

March 31, 2023
Term Loans by Origination Year
(in thousands) 2022 2021 Prior Revolving Loans Total
Commercial and industrial $ 1 $ — $ — $ 570 $ 571
Real estate:
Commercial - investor owned — 170 — — 170
Construction and land development — — 9 — 9
Residential — — 102 — 102
Other — — 3 — 3
Total current-period gross charge-offs by risk rating $ 1 $ 170 $ 114 $ 570 $ 855
Total current-period gross charge-offs by performing status 325
Total current-period gross charge-offs $ 1,180


	September 30, 2023
	Term Loans by Origination Year
(in thousands)	2022		2021		2019		Prior		Revolving Loans Converted to Term Loans		Revolving Loans		Total
Commercial and industrial	$	4	$	105	$	—	$	—	$	4,915	$	1,494	$	6,518
Real estate:
Commercial - investor owned	—		170		4,692		7		—		—		4,869

Construction and land development	—		—		—		9		—		—		9
Residential	—		—		—		478		176		—		654
Other	—		457		—		236		12		—		705
Total current-period gross charge-offs by risk rating	$	4	$	732	$	4,692	$	730	$	5,103	$	1,494	$	12,755
Total current-period gross charge-offs by performing status													696
Total current-period gross charge-offs													$	13,451

The following tables present the recorded investment in nonperforming loans by ~~category:~~category, excluding government guaranteed balances:


		March 31, 2023						September 30, 2023
(in thousands)	(in thousands)	Nonaccrual		Loans over 90 days past due and still accruing interest		Total nonperforming loans			Nonaccrual loans with no allowance		(in thousands)	Nonaccrual		Loans over 90 days past due and still accruing interest		Total nonperforming loans		Nonaccrual loans with no allowance
Commercial and industrial	Commercial and industrial	$	5,252	$	73	$	5,325		$	1,002	Commercial and industrial	$	11,913	$	145	$	12,058	$	3,087
Real estate:	Real estate:										Real estate:
Commercial - investor owned	Commercial - investor owned	3,887		—		3,887			—		Commercial - investor owned	20,427		—		20,427		16,254
Commercial - owner occupied	Commercial - owner occupied	1,547		—		1,547			—		Commercial - owner occupied	14,705		—		14,705		9,186
Construction and land development	Construction and land development	1,201		—		1,201			1,201		Construction and land development	741		—		741		741

Residential											Residential	959		—		959		959
Other	Other	—		12		12			—		Other	1		41		42		—
Total	Total	$	11,887	$	85	$	11,972		$	2,203	Total	$	48,746	$	186	$	48,932	$	30,227


	December 31, 2022
(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	$	4,373	$	—	$	70	$	4,443	$	1,047
Real estate:
Commercial - investor owned	3,023		—		—		3,023		—
Commercial - owner occupied	1,177		—		—		1,177		—
Construction and land development	1,192		—		—		1,192		1,192
Residential	—		73		—		73		—
Other	1		—		72		73		—
Total	$	9,766	$	73	$	142	$	9,981	$	2,239

The nonperforming loan balances at ~~March 31,~~September 30, 2023 and December 31, 2022 exclude government guaranteed balances of ~~$6.8~~$6.0 million and $6.7 million, respectively.

No material interest income was recognized on nonaccrual loans during the three or nine months ended ~~March 31,~~September 30, 2023 or 2022.

Collateral-dependent nonperforming loans by class of loan is presented as of the dates indicated:


		March 31, 2023						September 30, 2023
		Type of Collateral						Type of Collateral
(in thousands)	(in thousands)	Commercial Real Estate		Residential Real Estate		Blanket Lien			(in thousands)	Commercial Real Estate		Residential Real Estate		Blanket Lien
Commercial and industrial	Commercial and industrial	$	—	$	950	$	1,002		Commercial and industrial	$	875	$	1,864	$	3,017
Real estate:	Real estate:								Real estate:
Commercial - investor owned	Commercial - investor owned	2,177		773		—			Commercial - investor owned	19,490		—		—
Commercial - owner occupied	Commercial - owner occupied	1,547		—		—			Commercial - owner occupied	4,815		—		5,735
Construction and land development	Construction and land development			1,201					Construction and land development			741
Residential	Residential	—		—		—			Residential	—		959		—

Total	Total	$	3,724	$	2,924	$	1,002		Total	$	25,180	$	3,564	$	8,752


	December 31, 2022
	Type of Collateral
(in thousands)	Commercial Real Estate		Residential Real Estate		Blanket Lien
Commercial and industrial	$	—	$	—	$	1,047
Real estate:
Commercial - investor owned	2,238		785		—
Commercial - owner occupied	1,177		—		—
Construction and land development	—		1,192		—
Residential	—		73		—

Total	$	3,415	$	2,050	$	1,047

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


		March 31, 2023											September 30, 2023
(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	$	3,244	$	1,894	$	5,138	$	4,027,051	$	4,032,189	Commercial and industrial	$	15,723	$	7,929	$	23,652	$	4,425,477	$	4,449,129
Real estate:	Real estate:											Real estate:
Commercial - investor owned	Commercial - investor owned	2,086		1,098		3,184		2,414,895		2,418,079		Commercial - investor owned	16,287		937		17,224		2,408,597		2,425,821
Commercial - owner occupied	Commercial - owner occupied	2,780		4,084		6,864		2,274,359		2,281,223		Commercial - owner occupied	5,338		13,052		18,390		2,342,980		2,361,370
Construction and land development	Construction and land development	396		—		396		662,868		663,264		Construction and land development	1,737		—		1,737		721,401		723,138
Residential	Residential	2,414		—		2,414		361,645		364,059		Residential	446		959		1,405		374,581		375,986
Other	Other	151		12		163		259,838		260,001		Other	109		41		150		286,803		286,953
Loans, before unearned loan fees	Loans, before unearned loan fees	$	11,071	$	7,088	$	18,159	$	10,000,656	$	10,018,815	Loans, before unearned loan fees	$	39,640	$	22,918	$	62,558	$	10,559,839	$	10,622,397
Unearned loan fees, net	Unearned loan fees, net									(6,897)		Unearned loan fees, net									(5,577)
Total	Total									$	10,011,918	Total									$	10,616,820


	December 31, 2022
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	555	$	2,373	$	2,928	$	3,857,036	$	3,859,964
Real estate:
Commercial - investor owned	—		1,135		1,135		2,356,685		2,357,820
Commercial - owner occupied	8,628		164		8,792		2,261,759		2,270,551
Construction and land development	9		1,192		1,201		610,364		611,565
Residential	1,227		—		1,227		394,310		395,537
Other	18		72		90		248,900		248,990
Loans, before unearned loan fees	$	10,437	$	4,936	$	15,373	$	9,729,054	$	9,744,427
Unearned loan fees, net									(7,289)
Total									$	9,737,138

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses.

An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. The effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance.

The most common concession the Company provides to borrowers experiencing financial difficulty is a term extension. In limited circumstances, the Company may modify loans by providing principal forgiveness or an interest rate reduction. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as an interest rate reduction or principal forgiveness, may be granted.

The following table shows the recorded investment at the end of the reporting period for loans modified to borrowers experiencing financial difficulty, disaggregated by loan class and type of concession granted:


							Term Extension
		Term Extension					Three months ended				Nine months ended
(in thousands)	(in thousands)	March 31, 2023		% of Total Class of Financing Receivable		(in thousands)	September 30, 2023		Percent of Total Loan Class		September 30, 2023		Percent of Total Loan Class
Commercial and industrial	Commercial and industrial	$	22,818	0.57	%	Commercial and industrial	$	66	—	%	$	26,033	0.59	%
Real estate:	Real estate:					Real estate:

Commercial - investor owned						Commercial - investor owned	1,000		0.04	%	1,000		0.04	%
Commercial - owner occupied						Commercial - owner occupied	—		—	%	94		—	%
Construction and land development	Construction and land development	1,201		0.18	%	Construction and land development	—		—	%	1,137		0.16	%

Residential						Residential	28		0.01	%	102		0.03	%
Total	Total	$	24,019			Total	$	1,094			$	28,366

The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty and outstanding at the date indicated:


	Weighted Average Term Extension (in months)
	Three months ended	Nine months ended
	September 30, 2023	September 30, 2023
Commercial and industrial	4	9
Real estate:
Commercial - investor owned	3	3
Commercial - owner occupied	—	5
Construction and land development	—	10
Residential	60	22

The following table shows the aging of the recorded investment in modified loans by class:


	September 30, 2023
(in thousands)	Current		30-89 Days Past Due		90 or More Days Past Due		Total
Commercial and industrial	$	25,483	$	550	$	—	$	26,033
Real estate:
Commercial - investor owned	—		1,000				1,000
Commercial - owner occupied	94		—		—		94
Construction and land development	741		396		—		1,137
Residential	102		—		—		102

Total	$	26,420	$	1,946	$	—	$	28,366

As of September 30, 2023, no loans experienced a default subsequent to being granted a term ~~extensions were for 2-12 months, and all loans were current under~~extension modification in the ~~modified terms.~~prior twelve months. Default is defined as movement to nonperforming status, foreclosure or charge-off.

There were no loans restructured during the three or nine months ended ~~March 31,~~September 30, 2022, and no troubled debt restructurings subsequently defaulted during the three or nine months ended ~~March 31,~~September 30, 2022.

1517

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, current economic factors and 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 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 – Special Mention credits are borrowers that 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.

1618

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


		March 31, 2023																			September 30, 2023
		Term Loans by Origination Year																			Term Loans by Origination Year
(in thousands)	(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Converted to Term Loans		Revolving Loans		Total		(in thousands)	2023		2022		2021		2020		2019		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)	$	446,623	$	1,294,156	$	487,289	$	296,880	$	163,807	$	107,963	$	9,928	$	1,003,625	$	3,810,271	Pass (1-6)	$	1,302,163	$	1,135,119	$	368,613	$	214,946	$	132,515	$	79,373	$	12,078	$	986,762	$	4,231,569
Special Mention (7)	Special Mention (7)	11,145		21,894		17,320		13,862		477		11,766		—		68,846		145,310		Special Mention (7)	15,824		1,966		15,127		11,500		781		11,356		200		29,541		86,295
Classified (8-9)	Classified (8-9)	5,570		10,929		5,569		1,497		23		452		175		27,903		52,118		Classified (8-9)	15,146		19,079		2,054		836		22		420		2,477		48,811		88,845
Total Commercial and industrial	Total Commercial and industrial	$	463,338	$	1,326,979	$	510,178	$	312,239	$	164,307	$	120,181	$	10,103	$	1,100,374	$	4,007,699	Total Commercial and industrial	$	1,333,133	$	1,156,164	$	385,794	$	227,282	$	133,318	$	91,149	$	14,755	$	1,065,114	$	4,406,709

Commercial real estate-investor owned	Commercial real estate-investor owned																			Commercial real estate-investor owned
Pass (1-6)	Pass (1-6)	$	133,638	$	649,170	$	571,133	$	385,909	$	217,109	$	293,114	$	1,701	$	60,720	$	2,312,494	Pass (1-6)	$	370,443	$	588,862	$	555,012	$	350,266	$	175,231	$	243,016	$	3,891	$	51,604	$	2,338,325
Special Mention (7)	Special Mention (7)	—		26,002		5,241		23,260		10,952		12,909		—		—		78,364		Special Mention (7)	8,591		19,202		787		2,272		2,051		11,615		—		—		44,518
Classified (8-9)	Classified (8-9)	—		1,809		—		462		639		5,845		49		—		8,804		Classified (8-9)	1,000		1,034		—		15,254		2,832		4,459		48		—		24,627
Total Commercial real estate-investor owned	Total Commercial real estate-investor owned	$	133,638	$	676,981	$	576,374	$	409,631	$	228,700	$	311,868	$	1,750	$	60,720	$	2,399,662	Total Commercial real estate-investor owned	$	380,034	$	609,098	$	555,799	$	367,792	$	180,114	$	259,090	$	3,939	$	51,604	$	2,407,470

Commercial real estate-owner occupied	Commercial real estate-owner occupied																			Commercial real estate-owner occupied
Pass (1-6)	Pass (1-6)	$	113,180	$	520,215	$	527,516	$	348,955	$	205,503	$	371,027	$	—	$	57,489	$	2,143,885	Pass (1-6)	$	358,503	$	504,665	$	504,496	$	318,273	$	194,614	$	328,339	$	3,985	$	29,511	$	2,242,386
Special Mention (7)	Special Mention (7)	9,608		5,946		4,862		19,644		4,459		13,660		4,962		300		63,441		Special Mention (7)	6,867		2,395		4,390		12,103		4,613		14,364		—		1,428		46,160
Classified (8-9)	Classified (8-9)	—		—		2,214		5,025		9,412		27,511		—		595		44,757		Classified (8-9)	2,924		2,381		2,284		1,891		8,844		26,067		5,057		2,199		51,647
Total Commercial real estate-owner occupied	Total Commercial real estate-owner occupied	$	122,788	$	526,161	$	534,592	$	373,624	$	219,374	$	412,198	$	4,962	$	58,384	$	2,252,083	Total Commercial real estate-owner occupied	$	368,294	$	509,441	$	511,170	$	332,267	$	208,071	$	368,770	$	9,042	$	33,138	$	2,340,193

Construction real estate	Construction real estate																			Construction real estate
Pass (1-6)	Pass (1-6)	$	106,759	$	288,291	$	198,719	$	51,005	$	2,931	$	10,045	$	—	$	1,637	$	659,387	Pass (1-6)	$	249,482	$	314,888	$	116,471	$	30,626	$	2,288	$	3,541	$	—	$	2,287	$	719,583
Special Mention (7)	Special Mention (7)	—		1,284		—		146		145		217		—		—		1,792		Special Mention (7)	—		1,863		—		253		—		125		—		—		2,241
Classified (8-9)	Classified (8-9)	1,201		396		—		—		13		475		—		—		2,085		Classified (8-9)	1,138		352		—		—		13		469		—		—		1,972
Total Construction real estate	Total Construction real estate	$	107,960	$	289,971	$	198,719	$	51,151	$	3,089	$	10,737	$	—	$	1,637	$	663,264	Total Construction real estate	$	250,620	$	317,103	$	116,471	$	30,879	$	2,301	$	4,135	$	—	$	2,287	$	723,796

Residential real estate	Residential real estate																			Residential real estate
Pass (1-6)	Pass (1-6)	$	9,606	$	50,504	$	54,407	$	37,471	$	20,438	$	94,722	$	774	$	91,520	$	359,442	Pass (1-6)	$	50,727	$	43,430	$	52,312	$	31,857	$	19,385	$	81,476	$	1,335	$	82,571	$	363,093
Special Mention (7)	Special Mention (7)	—		329		—		—		77		1,119		—		—		1,525		Special Mention (7)	173		252		—		—		75		1,448		—		—		1,948
Classified (8-9)	Classified (8-9)	—		119		72		—		51		2,039		—		75		2,356		Classified (8-9)	28		1,075		71		—		30		1,582		74		7,500		10,360
Total residential real estate	Total residential real estate	$	9,606	$	50,952	$	54,479	$	37,471	$	20,566	$	97,880	$	774	$	91,595	$	363,323	Total residential real estate	$	50,928	$	44,757	$	52,383	$	31,857	$	19,490	$	84,506	$	1,409	$	90,071	$	375,401

Other	Other																			Other
Pass (1-6)	Pass (1-6)	$	960	$	60,165	$	85,417	$	55,789	$	9,973	$	26,899	$	—	$	6,833	$	246,036	Pass (1-6)	$	4,350	$	56,435	$	84,634	$	53,756	$	9,541	$	23,851	$	—	$	37,660	$	270,227
Special Mention (7)	Special Mention (7)	—		—		—		—		—		—		—		—		—		Special Mention (7)	—		—		—		—		—		83		—		1		84
Classified (8-9)	Classified (8-9)	—		—		—		—		2		12		—		—		14		Classified (8-9)	—		—		—		—		—		8		—		1		9
Total Other	Total Other	$	960	$	60,165	$	85,417	$	55,789	$	9,975	$	26,911	$	—	$	6,833	$	246,050	Total Other	$	4,350	$	56,435	$	84,634	$	53,756	$	9,541	$	23,942	$	—	$	37,662	$	270,320

Total loans classified by risk category	Total loans classified by risk category	$	838,290	$	2,931,209	$	1,959,759	$	1,239,905	$	646,011	$	979,775	$	17,589	$	1,319,543	$	9,932,081	Total loans classified by risk category	$	2,387,359	$	2,692,998	$	1,706,251	$	1,043,833	$	552,835	$	831,592	$	29,145	$	1,279,876	$	10,523,889
Total loans classified by performing status	Total loans classified by performing status																	79,837		Total loans classified by performing status																	92,931
Total loans	Total loans																	$	10,011,918	Total loans																	$	10,616,820

1719


	December 31, 2022
	Term Loans by Origination Year
(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Converted to Term Loans		Revolving Loans		Total
Commercial and industrial
Pass (1-6)	$	1,403,381	$	635,275	$	332,740	$	172,127	$	62,729	$	66,152	$	8,388	$	964,592	$	3,645,384
Special Mention (7)	37,048		10,836		13,858		423		7,995		4,102		—		72,944		147,206
Classified (8-9)	16,176		4,457		1,627		24		166		183		—		21,349		43,982
Total Commercial and industrial	$	1,456,605	$	650,568	$	348,225	$	172,574	$	70,890	$	70,437	$	8,388	$	1,058,885	$	3,836,572

Commercial real estate-investor owned
Pass (1-6)	$	667,107	$	584,644	$	392,402	$	240,033	$	115,530	$	202,661	$	1,457	$	53,051	$	2,256,885
Special Mention (7)	18,844		5,751		23,502		11,605		—		13,063		—		—		72,765
Classified (8-9)	1,823		—		465		953		193		6,092		49		—		9,575
Total Commercial real estate-investor owned	$	687,774	$	590,395	$	416,369	$	252,591	$	115,723	$	221,816	$	1,506	$	53,051	$	2,339,225

Commercial real estate-owner occupied
Pass (1-6)	$	539,610	$	555,690	$	362,150	$	232,335	$	123,095	$	270,613	$	—	$	57,308	$	2,140,801
Special Mention (7)	11,164		3,801		16,856		4,455		13,043		9,009		—		800		59,128
Classified (8-9)	—		1,572		3,483		8,910		15,873		11,387		—		—		41,225
Total Commercial real estate-owner occupied	$	550,774	$	561,063	$	382,489	$	245,700	$	152,011	$	291,009	$	—	$	58,108	$	2,241,154

Construction real estate
Pass (1-6)	$	290,146	$	232,998	$	53,129	$	2,909	$	2,061	$	8,480	$	—	$	1,769	$	591,492
Special Mention (7)	17,331		—		681		146		111		106		—		—		18,375
Classified (8-9)	1,192		—		—		14		471		21		—		—		1,698
Total Construction real estate	$	308,669	$	232,998	$	53,810	$	3,069	$	2,643	$	8,607	$	—	$	1,769	$	611,565

Residential real estate
Pass (1-6)	$	63,317	$	60,910	$	48,796	$	20,943	$	11,259	$	88,795	$	579	$	96,304	$	390,903
Special Mention (7)	331		—		—		79		352		781		—		—		1,543
Classified (8-9)	121		73		—		53		1,102		994		—		5		2,348
Total residential real estate	$	63,769	$	60,983	$	48,796	$	21,075	$	12,713	$	90,570	$	579	$	96,309	$	394,794

Other
Pass (1-6)	$	38,753	$	88,613	$	56,252	$	10,556	$	20,508	$	10,796	$	—	$	9,536	$	235,014
Special Mention (7)	—		—		—		—		—		—		—		—		—
Classified (8-9)	—		—		—		4		3		11		3		4		25
Total Other	$	38,753	$	88,613	$	56,252	$	10,560	$	20,511	$	10,807	$	3	$	9,540	$	235,039

Total loans classified by risk category	$	3,106,344	$	2,184,620	$	1,305,941	$	705,569	$	374,491	$	693,246	$	10,476	$	1,277,662	$	9,658,349
Total loans classified by performing status																	78,789
Total loans																	$	9,737,138

1820

In the tables above, loan originations in 2023 and 2022 with a classification of “special mention” or “classified” primarily represent renewals or modifications initially underwritten and originated in prior years.

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

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


		March 31, 2023							September 30, 2023
(in thousands)	(in thousands)	Performing		Non Performing		Total		(in thousands)	Performing		Non Performing		Total
Commercial and industrial	Commercial and industrial	$	24,417	$	73	$	24,490	Commercial and industrial	$	41,685	$	141	$	41,826
Real estate:	Real estate:							Real estate:
Commercial - investor owned	Commercial - investor owned	18,417		—		18,417		Commercial - investor owned	18,063		—		18,063
Commercial - owner occupied	Commercial - owner occupied	29,140		—		29,140		Commercial - owner occupied	28,629		—		28,629

Residential	Residential	736		—		736		Residential	719		—		719
Other	Other	7,042		12		7,054		Other	3,653		41		3,694
Total	Total	$	79,752	$	85	$	79,837	Total	$	92,749	$	182	$	92,931


	December 31, 2022
(in thousands)	Performing		Non Performing		Total
Commercial and industrial	$	23,240	$	70	$	23,310
Real estate:
Commercial - investor owned	18,595		—		18,595
Commercial - owner occupied	29,397		—		29,397

Residential	743		—		743
Other	6,672		72		6,744
Total	$	78,647	$	142	$	78,789

NOTE 5 - COMMITMENTS AND ~~CONTINGENCIES~~CONTINGENT LIABILITIES

The Company issues financial instruments with off balance sheet risk in the normal course of business. 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)	March 31, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022
Commitments to extend credit	Commitments to extend credit	$	3,053,927	$	3,113,966	Commitments to extend credit	$	3,134,567	$	3,113,966
Letters of credit	Letters of credit	94,361		68,544		Letters of credit	105,652		68,544

1921

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 ~~March 31,~~September 30, 2023 and December 31, 2022, approximately ~~$249.7~~$219.7 million and $246.5 million, respectively, represent fixed rate loan commitments. Since certain of the commitments may expire without being drawn upon or may be revoked, the total commitment amounts do not necessarily represent future cash 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 ~~$10.2~~$9.8 million and $12.1 million for estimated losses attributable to the unadvanced commitments at ~~March 31,~~September 30, 2023 and December 31, 2022, 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 ~~March 31,~~September 30, 2023, the approximate remaining terms of standby letters of credit range from 1 month to 10 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 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 income and 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.

For hedges of ~~the Company’s~~ variable-rate loans, interest rate swaps designated as cash flow hedges involve the receipt of fixed amounts and the Company making variable rate payments. In the fourth quarter 2022, the Company executed a cash flow hedge to reduce a portion of variability in cash flows on the Company’s prime based loan portfolio. The interest rate swap has a notional value of $100.0 million, that effectively fixes the interest rate at 6.63% for the notional amount and has a maturity date of January 1, 2028. In January 2023, the Company entered into another

2022

~~into another~~ hedge on the prime based loan portfolio with a notional value of $50.0 million, that effectively fixes the interest rate at 6.56% for the notional amount and has a maturity date of February 1, 2027.

In addition, the Company executed a prime based interest rate collar in the fourth quarter 2022 with a notional amount of $100.0 million. The collar includes a cap of 8.14% and a floor of 5.25%. This transaction, commonly referred to as a zero cost collar, involves the Company selling an interest rate cap where payments will be made when the index exceeds the cap rate, and the purchase of a floor where payments will be received if the index falls below the floor. The collar matures on October 1, 2029.

~~Interest~~For hedges of the variable-rate liabilities, interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. ~~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 of 2.62%.

Select terms of the hedges are as follows:


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

The gain or loss on derivatives designated and qualified as cash flow hedges of interest rate risk are recorded in accumulated other comprehensive income and subsequently reclassified into interest income or expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income or expense as interest payments are paid on the Company’s variable-rate loans and debt. During the next twelve months, the Company estimates an additional ~~$1.8~~$1.4 million will be reclassified as a decrease to interest ~~income~~expense and ~~$1.3~~$2.9 million will be reclassified as a decrease to interest ~~expense.~~income.

Non-designated Hedges

Derivatives not designated as hedges are not considered speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings as a component of other noninterest income.

2123

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)	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Derivatives Designated as Hedging Instruments:	Derivatives Designated as Hedging Instruments:													Derivatives Designated as Hedging Instruments:
Interest rate swap	Interest rate swap	$	211,962	$	161,962	$	2,455	$	2,348	$	86	$	921	Interest rate swap	$	211,962	$	161,962	$	2,181	$	2,348	$	4,971	$	921
Interest rate collar	Interest rate collar	100,000		100,000		751		—		—		48		Interest rate collar	100,000		100,000		—		—		1,559		48
Total	Total					$	3,206	$	2,348	$	86	$	969	Total					$	2,181	$	2,348	$	6,530	$	969

Derivatives not Designated as Hedging Instruments:	Derivatives not Designated as Hedging Instruments:													Derivatives not Designated as Hedging Instruments:
Interest rate swap	Interest rate swap	$	705,097	$	687,902	$	16,769	$	20,610	$	16,772	$	20,612	Interest rate swap	$	772,498	$	687,902	$	23,763	$	20,610	$	23,764	$	20,612

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments 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 financial assets and liabilities are presented on the Balance Sheet.


As of March 31, 2023
As of September 30, 2023														As of September 30, 2023
								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 Received/ Pledged		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	$	19,224	$	—	$	19,224	$	(1,290)	$	17,934	$	—	Interest rate swap	$	25,944	$	—	$	25,944	$	6,538	$	19,406	$	—
Interest rate collar	Interest rate collar	751		—		751		—		—		751		Interest rate collar	—		—		—		—		—		—

Liabilities:	Liabilities:													Liabilities:
Interest rate swap	Interest rate swap	$	16,858	$	—	$	16,858	$	(1,290)	$	—	$	15,568	Interest rate swap	$	28,735	$	—	$	28,735	$	6,538	$	—	$	22,197
Interest rate collar														Interest rate collar	1,559		—		1,559		—		—		1,559
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	161,573		—		161,573		—		161,573		—		Securities sold under agreements to repurchase	133,312		—		133,312		—		133,312		—

As of December 31, 2022	As of December 31, 2022													As of December 31, 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 Received/ Pledged		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	$	22,958	$	—	$	22,958	$	—	$	9,010	$	13,948	Interest rate swap	$	22,958	$	—	$	22,958	$	—	$	9,010	$	13,948

Liabilities:	Liabilities:													Liabilities:
Interest rate swap	Interest rate swap	$	21,533	$	—	$	21,533	$	—	$	—	$	21,533	Interest rate swap	$	21,533	$	—	$	21,533	$	—	$	—	$	21,533
Interest rate collar	Interest rate collar	48		—		48		—		—		48		Interest rate collar	48		—		48		—		—		48
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	270,773		—		270,773		—		270,773		—		Securities sold under agreements to repurchase	270,773		—		270,773		—		270,773		—

2224

As of ~~March 31,~~September 30, 2023, the fair value of derivatives in a net liability position was ~~$16.1~~$24.5 million, which includes accrued interest but excludes any adjustment for nonperformance 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 received cash collateral from derivative counterparties on contracts 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:


		March 31, 2023									September 30, 2023
(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	$	—	$	265,705	$	—	$	265,705	Obligations of U.S. Government-sponsored enterprises	$	—	$	279,457	$	—	$	279,457
Obligations of states and political subdivisions	Obligations of states and political subdivisions	—		430,693		—		430,693		Obligations of states and political subdivisions	—		387,434		—		387,434
Agency mortgage-backed securities	Agency mortgage-backed securities	—		650,451		—		650,451		Agency mortgage-backed securities	—		627,970		—		627,970
U.S. Treasury bills	U.S. Treasury bills	—		200,103		—		200,103		U.S. Treasury bills	—		184,791		—		184,791
Corporate debt securities	Corporate debt securities	—		8,157		—		8,157		Corporate debt securities	—		7,452		—		7,452
Total securities available for sale	Total securities available for sale	—		1,555,109		—		1,555,109		Total securities available for sale	—		1,487,104		—		1,487,104

Other investments	Other investments	—		2,770		—		2,770		Other investments	—		2,696		—		2,696

Derivatives	Derivatives	—		19,975		—		19,975		Derivatives	—		25,944		—		25,944
Total assets	Total assets	$	—	$	1,577,854	$	—	$	1,577,854	Total assets	$	—	$	1,515,744	$	—	$	1,515,744

Liabilities	Liabilities									Liabilities
Derivatives	Derivatives	$	—	$	16,858	$	—	$	16,858	Derivatives	$	—	$	30,294	$	—	$	30,294
Total liabilities	Total liabilities	$	—	$	16,858	$	—	$	16,858	Total liabilities	$	—	$	30,294	$	—	$	30,294


	December 31, 2022
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Securities available for sale
Obligations of U.S. Government-sponsored enterprises	$	—	$	237,785	$	—	$	237,785
Obligations of states and political subdivisions	—		417,444		—		417,444
Residential mortgage-backed securities	—		659,404		—		659,404
U.S. Treasury bills	—		208,534		—		208,534
Corporate debt securities	—		12,640		—		12,640
Total securities available-for-sale	—		1,535,807		—		1,535,807

Other investments	—		2,667		—		2,667

Derivative financial instruments	—		22,958		—		22,958
Total assets	$	—	$	1,561,432	$	—	$	1,561,432

Liabilities
Derivatives	$	—	$	21,581	$	—	$	21,581
Total liabilities	$	—	$	21,581	$	—	$	21,581

2325

From time to time, the Company measures certain assets at fair value on a nonrecurring basis. These include assets measured at the lower of cost or fair value that were recognized at fair value below cost at the end of the period. The amounts reported in the following tables include balances measured at fair value during the reporting period and still held as of the reporting date.


		March 31, 2023					September 30, 2023
(in thousands)	(in thousands)	Total Fair Value	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	(in thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Individually-evaluated loans						Individually-evaluated loans	$	2,243	$	—	$	—	$	2,243
Other real estate						Other real estate	$	5,736	$	—	$	—	$	5,736

Total						Total	$	7,979	$	—	$	—	$	7,979

Loan servicing asset		1,004	—	1,004	—


	December 31, 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	269		—		—		269
Loan servicing asset	1,027				1,027		—
Total	$	1,296	$	—	$	1,027	$	269

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


		March 31, 2023					December 31, 2022						September 30, 2023					December 31, 2022
(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	$	720,694	$	656,553	Level 2	$	709,915	$	628,517	Level 2	Securities held-to-maturity, net	$	730,655	$	622,660	Level 2	$	709,915	$	628,517	Level 2
Other investments	Other investments	60,173		60,173		Level 2	61,123		61,123		Level 2	Other investments	59,123		59,123		Level 2	61,123		61,123		Level 2
Loans held for sale	Loans held for sale	261		261		Level 2	1,228		1,228		Level 2	Loans held for sale	212		212		Level 2	1,228		1,228		Level 2

Loans, net	Loans, net	9,873,623		$	9,587,197	Level 3	9,600,206		9,328,844		Level 3	Loans, net	10,474,687		$	10,244,122	Level 3	9,600,206		9,328,844		Level 3
State tax credits, held for sale	State tax credits, held for sale	27,308		28,933		Level 3	27,700		28,880		Level 3	State tax credits, held for sale	26,765		27,529		Level 3	27,700		28,880		Level 3

Servicing asset	Servicing asset	3,343		4,342		Level 2	3,648		3,905		Level 2	Servicing asset	3,202		4,058		Level 2	3,648		3,905		Level 2

Balance sheet liabilities	Balance sheet liabilities											Balance sheet liabilities
Certificates of deposit	Certificates of deposit	$	893,673	$	877,954	Level 3	$	530,708	$	512,229	Level 3	Certificates of deposit	$	1,470,678	$	1,456,118	Level 3	$	530,708	$	512,229	Level 3
Subordinated debentures and notes	Subordinated debentures and notes	155,569		150,559		Level 2	155,433		152,679		Level 2	Subordinated debentures and notes	155,844		153,975		Level 2	155,433		152,679		Level 2
FHLB advances	FHLB advances	100,000		100,000		Level 2	100,000		100,004		Level 2	FHLB advances	—		—		Level 2	100,000		100,004		Level 2
Other borrowings	Other borrowings	213,489		213,489		Level 2	324,119		324,119		Level 2	Other borrowings	182,372		157,173		Level 2	324,119		324,119		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, 2022, as filed with the SEC.

2426

NOTE 8 - SHAREHOLDERS’ EQUITY

Shareholders’ Equity

Accumulated Other Comprehensive Income (Loss)

The following ~~table~~tables present the changes in accumulated other comprehensive income (loss) after-tax by component:


Three months ended	Three months ended									Three months ended
(in thousands)										(in thousands)	Net Unrealized Loss on Available-for-Sale Securities		Unamortized Gain (Loss) on Held-to-Maturity Securities		Net Unrealized Gain (Loss) on Cash Flow Hedges		Total
Balance, June 30, 2023										Balance, June 30, 2023	$	(134,533)	$	11,861	$	(793)	$	(123,465)
Net change										Net change	(41,257)		(647)		(2,460)		(44,364)

Balance, September 30, 2023										Balance, September 30, 2023	$	(175,790)	$	11,214	$	(3,253)	$	(167,829)

Balance, June 30, 2022										Balance, June 30, 2022	$	(123,521)	$	14,476	$	564	$	(108,481)
Net change										Net change	(45,283)		(647)		1,220		(44,710)

Balance, September 30, 2022										Balance, September 30, 2022	$	(168,804)	$	13,829	$	1,784	$	(153,191)

Nine months ended										Nine months ended
(in thousands)	(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		(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, 2022	Balance, December 31, 2022	$	(144,549)	$	13,185	$	1,032	$	(130,332)	Balance, December 31, 2022	$	(144,549)	$	13,185	$	1,032	$	(130,332)
Net change	Net change	$	23,693	$	(638)	$	1,302	$	24,357	Net change	(31,241)		(1,971)		(4,285)		(37,497)

Balance, March 31, 2023		$	(120,856)	$	12,547	$	2,334	$	(105,975)
Balance, September 30, 2023										Balance, September 30, 2023	$	(175,790)	$	11,214	$	(3,253)	$	(167,829)

Balance, December 31, 2021	Balance, December 31, 2021	$	5,271	$	15,684	$	(2,178)	$	18,777	Balance, December 31, 2021	$	5,271	$	15,684	$	(2,178)	$	18,777
Net change	Net change	$	(79,353)	$	(704)	$	2,020	$	(78,037)	Net change	(173,878)		(2,052)		3,962		(171,968)
Transfer from available-for-sale to held-to-maturity	Transfer from available-for-sale to held-to-maturity	(197)		197		—		—		Transfer from available-for-sale to held-to-maturity	(197)		197		—		—
Balance, March 31, 2022		$	(74,279)	$	15,177	$	(158)	$	(59,260)

Balance, September 30, 2022										Balance, September 30, 2022	$	(168,804)	$	13,829	$	1,784	$	(153,191)

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


		Three months ended March 31,																Three months ended September 30,
		2023								2022								2023						2022
(in thousands)	(in thousands)	Pre-tax			Tax effect			After-tax		Pre-tax		Tax effect			After-tax		(in thousands)	Pre-tax		Tax effect		After-tax		Pre-tax		Tax effect		After-tax
Change in unrealized gain (loss) on available-for-sale securities		$	32,056		$	8,078		$	23,978	$	(106,087)	$	(26,734)		$	(79,353)
Reclassification of gain on sale of available-for-sale securities(a)		(381)			(96)			(285)		—		—			—
Change in unrealized loss on available-for-sale securities																	Change in unrealized loss on available-for-sale securities	$	(55,156)	$	(13,899)	$	(41,257)	$	(60,539)	$	(15,256)	$	(45,283)

Reclassification of gain on held-to-maturity securities~~(b)~~(a)	Reclassification of gain on held-to-maturity securities~~(b)~~(a)	(852)			(214)			(638)		(941)		(237)			(704)		Reclassification of gain on held-to-maturity securities~~(b)~~(a)	(865)		(218)		(647)		(865)		(218)		(647)
Change in unrealized gain on cash flow hedges		1,705			430			1,275		2,341		590			1,751
Change in unrealized gain (loss) on cash flow hedges																	Change in unrealized gain (loss) on cash flow hedges	(3,588)		(904)		(2,684)		1,557		392		1,165
Reclassification of loss on cash flow hedges(b)	Reclassification of loss on cash flow hedges(b)	36			9			27		359		90			269		Reclassification of loss on cash flow hedges(b)	299		75		224		73		18		55
Total other comprehensive income (loss)		$	32,564		$	8,207		$	24,357	$	(104,328)	$	(26,291)		$	(78,037)
Total other comprehensive loss																	Total other comprehensive loss	$	(59,310)	$	(14,946)	$	(44,364)	$	(59,774)	$	(15,064)	$	(44,710)

				Nine months ended September 30,
							2023							2022
(in thousands)																	(in thousands)	Pre-tax		Tax effect		After-tax		Pre-tax		Tax effect		After-tax
Change in unrealized loss on available-for-sale securities																	Change in unrealized loss on available-for-sale securities	$	(41,385)	$	(10,429)	$	(30,956)	$	(232,457)	$	(58,579)	$	(173,878)
Reclassification of gain on sale of available-for-sale securities(a)																	Reclassification of gain on sale of available-for-sale securities(a)	(381)		(96)		(285)		—		—		—
Reclassification of gain on held-to-maturity securities(a)																	Reclassification of gain on held-to-maturity securities(a)	(2,635)		(664)		(1,971)		(2,743)		(691)		(2,052)
Change in unrealized gain (loss) on cash flow hedges																	Change in unrealized gain (loss) on cash flow hedges	(6,346)		(1,599)		(4,747)		4,615		1,164		3,451
Reclassification of loss on cash flow hedges(b)																	Reclassification of loss on cash flow hedges(b)	616		154		462		682		171		511
Total other comprehensive loss																	Total other comprehensive loss	$	(50,131)	$	(12,634)	$	(37,497)	$	(229,903)	$	(57,935)	$	(171,968)

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

2528

NOTE 9 - SUPPLEMENTAL FINANCIAL INFORMATION

The following table presents miscellaneous income and other expense components that primarily exceed one percent of the aggregate of total interest income and other income in one or more of the periods indicated:


		Three months ended March 31,				Three months ended September 30,				Nine months ended September 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022
Other income:	Other income:						Other income:
Bank-owned life insurance	Bank-owned life insurance	$	791	$	1,034		Bank-owned life insurance	$	822	$	769	$	2,410	$	2,551

Community development fees	Community development fees	595		2,166			Community development fees	338		170		3,010		2,529

Gain on sale of SBA loans							Gain on sale of SBA loans	1,514		—		2,015		—
Other income	Other income	4,717		3,008			Other income	2,723		2,105		9,141		6,384
Total other noninterest income	Total other noninterest income	$	6,103	$	6,208		Total other noninterest income	$	5,397	$	3,044	$	16,576	$	11,464

Other expense:	Other expense:						Other expense:
Amortization of intangibles	Amortization of intangibles	$	1,239	$	1,430		Amortization of intangibles	$	1,119	$	1,310	$	3,493	$	4,068
Banking expense	Banking expense	1,848		1,501			Banking expense	1,863		1,958		6,003		5,370
Deposit costs	Deposit costs	12,720		4,260			Deposit costs	20,987		7,661		50,687		17,826
FDIC and other insurance	FDIC and other insurance	2,572		1,855			FDIC and other insurance	2,868		2,022		8,060		5,500
Loan, legal expenses	Loan, legal expenses	1,904		1,733			Loan, legal expenses	2,132		1,768		5,922		6,003

Outside services	Outside services	1,545		1,262			Outside services	1,704		1,332		4,861		3,960
Other expense	Other expense	7,250		5,909			Other expense	7,765		6,156		23,624		17,864
Total other noninterest expense	Total other noninterest expense	$	29,078	$	17,950		Total other noninterest expense	$	38,438	$	22,207	$	102,650	$	60,591

2629

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 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.

While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation: our ability to efficiently integrate acquisitions into our operations, retain the customers of these businesses and grow the acquired operations; credit risk; changes in the appraised valuation of real estate securing impaired loans; 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 and market conditions, including risk of recession, high unemployment rates, higher inflation and its impacts (including U.S. federal government measures to address higher inflation), 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; 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, 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; changes in the method of determining LIBOR and the phase-out of LIBOR; natural disasters; terrorist activities, war and geopolitical matters (including the war in Israel and potential for a broader regional conflict and the war in Ukraine and the imposition of additional sanctions and export controls in connection therewith), or pandemics, ~~including the COVID-19 pandemic,~~or other health emergencies, and their effects on economic and business environments in which we operate, including the ~~ongoing~~related disruption to the financial market and other economic ~~activity caused by the COVID-19 pandemic;~~activity; and other risks discussed under the caption “Risk Factors” under Part I, Item 1A of our 2022 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.”

2730

Introduction

The following discussion describes the significant changes to the financial condition of the Company that have occurred during the first ~~three~~nine months of 2023 compared to the financial condition as of December 31, 2022. In addition, this discussion summarizes the significant factors affecting the results of operations of the Company for the three months ended ~~March 31,~~September 30, 2023, compared to the linked ~~fourth~~second quarter of 2023 (“linked quarter”) ~~in 2022~~ and the results of operations, liquidity and cash flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 compared to the same period in 2022 (“prior year quarter”). 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 2022. 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, 2022.

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, 2022.

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. 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.

2831

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 and 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 ~~$138.3~~$142.1 million at ~~March 31,~~September 30, 2023 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 ~~$24.2~~$27.4 million. Conversely, the allowance would have increased ~~$43.2~~$44.5 million using only the downside scenario.

2932

Executive Summary

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

(in thousands, except per share data) Three months ended
March 31,
2023 December 31,
2022 March 31,
2022
EARNINGS
Total interest income $ 169,033 $ 156,737 $ 106,581
Total interest expense 29,504 17,902 5,416
Net interest income 139,529 138,835 101,165
Provision (benefit) for credit losses 4,183 2,123 (4,068)
Net interest income after provision (benefit) for credit losses 135,346 136,712 105,233
Total noninterest income 16,898 16,873 18,641
Total noninterest expense 80,983 77,149 62,800
Income before income tax expense 71,261 76,436 61,074
Income tax expense 15,523 16,435 13,381
Net income $ 55,738 $ 60,001 $ 47,693
Preferred stock dividends 938 937 1,229
Net income available to common shareholders $ 54,800 $ 59,064 $ 46,464
Basic earnings per share $ 1.47 $ 1.59 $ 1.23
Diluted earnings per share $ 1.46 $ 1.58 $ 1.23
Return on average assets 1.72 % 1.83 % 1.42 %
Return on average common equity 14.85 % 16.52 % 12.87 %
Return on average tangible common equity1
19.93 % 22.62 % 17.49 %
Net interest margin (tax equivalent) 4.71 % 4.66 % 3.28 %
Efficiency ratio 51.77 % 49.55 % 52.42 %
Core efficiency ratio1
50.47 % 48.10 % 50.60 %
Book value per common share $ 40.76 $ 38.93 $ 37.35
Tangible book value per common share1
$ 30.55 $ 28.67 $ 27.06
ASSET QUALITY
Net charge-offs (recoveries) $ (264) $ 2,075 $ 1,521
Nonperforming loans 11,972 9,981 21,160
Classified assets 110,384 99,122 93,199
Nonperforming loans to total loans 0.12 % 0.10 % 0.23 %
Nonperforming assets to total assets 0.09 % 0.08 % 0.17 %
ACL on loans to total loans 1.38 % 1.41 % 1.54 %
Net charge-offs (recoveries) to average loans (annualized) (0.01) % 0.09 % 0.07 %
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									Nine months ended
	September 30, 2023			June 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
EARNINGS
Total interest income	$	200,906		$	187,897		$	135,695		$	557,836		$	358,345
Total interest expense	59,267			47,205			11,405			135,976			23,277
Net interest income	141,639			140,692			124,290			421,860			335,068
Provision (benefit) for credit losses	8,030			6,339			676			18,552			(2,734)
Net interest income after provision (benefit) for credit losses	133,609			134,353			123,614			403,308			337,802
Total noninterest income	12,085			14,290			9,454			43,273			42,289
Total noninterest expense	88,644			85,956			68,843			255,583			197,067
Income before income tax expense	57,050			62,687			64,225			190,998			183,024
Income tax expense	12,385			13,560			14,025			41,468			39,982
Net income	$	44,665		$	49,127		$	50,200		$	149,530		$	143,042
Preferred stock dividends	938			937			937			2,813			3,104
Net income available to common shareholders	$	43,727		$	48,190		$	49,263		$	146,717		$	139,938

Basic earnings per share	$	1.17		$	1.29		$	1.32		$	3.93		$	3.74
Diluted earnings per share	$	1.17		$	1.29		$	1.32		$	3.91		$	3.73

Return on average assets	1.26		%	1.44		%	1.51		%	1.47		%	1.42		%
Return on average common equity	11.00		%	12.48		%	13.74		%	12.73		%	13.09		%
Return on average tangible common equity1	14.49		%	16.53		%	18.82		%	16.90		%	17.92		%
Net interest margin (tax equivalent)	4.33		%	4.49		%	4.10		%	4.50		%	3.64		%

Efficiency ratio	57.66		%	55.46		%	51.47		%	54.95		%	52.22		%
Core efficiency ratio1	56.18		%	54.04		%	49.80		%	53.55		%	50.46		%
Book value per common share	$	41.19		$	41.39		$	36.92
Tangible book value per common share1	$	31.06		$	31.23		$	26.62

ASSET QUALITY
Net charge-offs	$	6,856		$	2,973		$	478		$	9,565		$	1,824
Nonperforming loans	48,932			16,112			18,184
Classified assets	184,393			108,065			98,078
Nonperforming loans to total loans	0.46		%	0.15		%	0.19		%
Nonperforming assets to total assets	0.40		%	0.12		%	0.14		%
ACL on loans to total loans	1.34		%	1.34		%	1.50		%
Net charge-offs to average loans (annualized)	0.26		%	0.12		%	0.02		%	0.13		%	0.03		%

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

3033

Financial results and other notable items include:

•PPNR1 of ~~$75.0~~$65.1 million infor the ~~first~~third quarter 2023 and $209.0 million for the nine months ended September 30, 2023, decreased ~~$3.6~~$3.8 million and increased $28.6 million, from the linked quarter ~~PPNR of $78.6 million~~ and ~~increased $18.0 million from $57.0 million in the~~ prior ~~year period.~~year-to-date period, respectively. The decrease from the linked quarter was primarily due to a ~~seasonal~~decrease in noninterest income and an increase in noninterest ~~expense, partially offset by an increase in net interest income.~~expense. The increase ~~compared to~~from the prior ~~year quarter~~year-to-date period was primarily due to an increase in net interest income, partially offset by an increase in noninterest expense.

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

•Net interest income of ~~$139.5~~$141.6 million for the ~~first~~third quarter 2023 and $421.9 million for the nine months ended September 30, 2023, increased ~~$0.7~~$0.9 million and ~~$38.4~~$86.8 million from the linked and prior ~~year quarters,~~year-to-date period, respectively. The NIM was ~~4.71%~~4.33% for the ~~first~~third quarter 2023 and 4.50% for the nine months ended September 30, 2023, compared to ~~4.66%~~4.49% and ~~3.28%~~3.64% for the linked and prior ~~year quarters,~~year-to-date period, respectively. Net interest income ~~and NIM~~ benefited from higher average loan and investment balances and expanding yields on earning assets, partially offset by higher deposit ~~costs~~interest expense. NIM decreased 16 basis points from the linked quarter, primarily due to an increase in deposit interest expense. NIM increased 86 basis points from the prior year-to-date period, primarily due to an increase in market interest rates and ~~a decline~~organic growth in ~~average interest-earning cash.~~earning assets.

•Noninterest income of ~~$16.9~~$12.1 million for the ~~first~~third quarter 2023 ~~was stable compared to~~and $43.3 million for the nine months ended September 30, 2023, decreased $2.2 million from the linked quarter and ~~decreased $1.7~~increased $1.0 million from the prior ~~year quarter.~~year-to-date period. The decline from the ~~prior year~~linked quarter was primarily due to a decrease in ~~customer swap fee~~tax credit and community development income, partially offset by a gain on the sale of SBA loans. The increase from the prior year-to-date period was primarily due to an increase in the sale of assets (SBA loans, securities, and OREO) and other miscellaneous income, partially offset by a decline in deposit service charges and card services ~~revenue and tax credit income. Lower transaction volumes led to the decrease in customer swap fee income and tax credit income, and the~~revenue. The Durbin Amendment cap on debit card income has ~~limited~~decreased card services revenue since July 1, 2022.

•Noninterest expense of $88.6 million for the third quarter 2023 and $255.6 million for the nine months ended September 30, 2023, increased $2.7 million and $58.5 million from the linked quarter and prior year-to-date period, respectively. The increase from the linked quarter was primarily due to an increase in variable deposit costs. The increase from the prior year-to-date period was due to deposit costs, employee compensation and benefits due to merit increases and headcount, and other expense primarily due to FDIC assessments and operational losses.

Balance sheet highlights:

•Loans – Total loans increased ~~$274.8~~$879.7 million, or ~~11.4%~~9.0%, to ~~$10.0~~$10.6 billion at ~~March 31,~~September 30, 2023, compared to $9.7 billion at December 31, 2022. Average loans totaled ~~$9.8~~$10.2 billion for the ~~quarter~~nine months ended ~~March 31,~~September 30, 2023 compared to ~~$9.4~~$9.1 billion infor the ~~fourth quarter~~nine months ended September 30, 2022.

•Deposits – Total deposits increased ~~$325.5 million,~~$1.1 billion, to ~~$11.2~~$11.9 billion at ~~March 31,~~September 30, 2023 from $10.8 billion at December 31, 2022. Total estimated insured deposits, which includes collateralized deposits, reciprocal deposits and accounts that qualify for pass through insurance, totaled ~~$7.7~~$8.5 billion at ~~March 31,~~September 30, 2023, compared to $4.9 billion at December ~~31,2022.~~31, 2022. Average deposits totaled ~~$10.9~~$11.4 billion for both the ~~quarter~~nine months ended ~~March 31,~~September 30, 2023 ~~compared to $11.0 billion for the fourth quarter~~and 2022. Noninterest deposit accounts represented ~~37.6%~~32.3% of total deposits and the loan to deposit ratio was ~~89.8%~~89.1% at ~~March 31, 2023.~~September 30, 2023, compared to 42.0% and 84.6%, respectively, for the comparable prior year period.

•Asset quality – The allowance for credit losses on loans to total loans was ~~1.38%~~1.34% at ~~March 31,~~September 30, 2023, compared to 1.41% at December 31, 2022. Nonperforming assets to total assets was ~~0.09%~~0.40% at ~~March 31,~~September 30, 2023 compared to 0.08% at December 31, 2022. A provision for credit losses of ~~$4.2~~$8.0 million and $18.6 million was recorded in the ~~first~~third quarter of 2023 ~~compared~~and the nine months ended September 30, 2023,

respectively. This compares to ~~$2.1~~$6.3 million in the linked quarter and a ~~provision~~ benefit of ~~$4.1~~$2.7 million in the comparable prior year period. The provision for credit losses of $4.2 million recorded in the first quarter 2023 was primarily related to the credit impairment of an investment security in subordinated debt of a failed bank and loan growth, partially offset by a decrease in the reserve for unfunded commitments.

•Shareholders’ equity – Total shareholders’ equity was ~~$1.59~~$1.61 billion at ~~March 31,~~September 30, 2023, compared to $1.52 billion at December 31, 2022, and the tangible common equity to tangible assets ratio2 was ~~8.8%~~8.51% at ~~March 31,~~September 30, 2023 compared to ~~8.4%~~8.43% at December 31, 2022. The Company and the Bank’s regulatory capital ratios exceeded the “well-capitalized” level at ~~March 31,~~September 30, 2023.

The Company’s Board of Directors approved a quarterly dividend of $0.25 per common share, payable on ~~June 30,~~December 29, 2023 to shareholders of record as of ~~June~~December 15, 2023. 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) ~~March~~September 15, 2023 to (but excluding) ~~June~~December 15, 2023. The dividend will be payable on ~~June~~December 15, 2023 to shareholders of record on ~~May 31,~~November 30, 2023.

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.

3235

RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

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 March 31,						Three months ended December 31,						Three months ended March 31,							Three months ended September 30,						Three months ended June 30,						Three months ended September 30,
		2023						2022						2022							2023						2023						2022
(in thousands)	(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		(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:

Total loans1, 2	Total loans1, 2	$	9,795,045	$	152,762	6.33	%	$	9,423,984	$	139,432	5.87	%	$	9,005,875	$	96,301	4.34	%	Total loans1, 2	$	10,521,966	$	180,382	6.80	%	$	10,284,873	$	170,314	6.64	%	$	9,230,738	$	118,642	5.10	%
Taxable securities	Taxable securities	1,322,978		9,635		2.95		1,256,470		8,980		2.84		1,151,743		5,699		2.01		Taxable securities	1,330,828		10,456		3.12		1,328,891		9,984		3.01		1,294,470		8,064		2.27
Non-taxable securities2	Non-taxable securities2	965,473		7,482		3.14		947,741		7,211		3.03		772,226		5,270		2.77		Non-taxable securities2	972,022		7,620		3.11		969,104		7,566		3.13		907,785		6,653		2.84
Total securities	Total securities	2,288,451		17,117		3.03		2,204,211		16,191		2.91		1,923,969		10,969		2.31		Total securities	2,302,850		18,076		3.11		2,297,995		17,550		3.06		2,202,255		14,717		2.65
Interest-earning deposits	Interest-earning deposits	106,254		1,195		4.56		367,100		3,097		3.35		1,781,272		817		0.19		Interest-earning deposits	335,771		4,509		5.33		173,785		2,095		4.84		765,258		4,190		2.17
Total interest-earning assets	Total interest-earning assets	12,189,750		171,074		5.69		11,995,295		158,720		5.25		12,711,116		108,087		3.45		Total interest-earning assets	13,160,587		202,967		6.12		12,756,653		189,959		5.97		12,198,251		137,549		4.47
Noninterest-earning assets	Noninterest-earning assets	941,445						991,273						902,887						Noninterest-earning assets	908,273						915,332						959,870

Total assets	Total assets	$	13,131,195					$	12,986,568					$	13,614,003					Total assets	$	14,068,860					$	13,671,985					$	13,158,121

Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity																			Liabilities and Shareholders' Equity
Interest-bearing liabilities:	Interest-bearing liabilities:																			Interest-bearing liabilities:
Interest-bearing demand accounts	Interest-bearing demand accounts	$	2,201,910	$	5,907	1.09	%	$	2,242,268	$	4,136	0.73	%	$	2,505,319	$	536	0.09	%	Interest-bearing demand accounts	$	2,672,084	$	13,701	2.03	%	$	2,509,805	$	10,120	1.62	%	$	2,200,619	$	1,707	0.31	%
Money market accounts	Money market accounts	2,826,836		15,471		2.22		2,696,417		9,509		1.40		2,872,302		1,460		0.21		Money market accounts	3,079,221		26,427		3.40		2,920,079		20,499		2.82		2,791,822		6,067		0.86
Savings		732,256		230		0.13		775,488		100		0.05		817,431		66		0.03
Savings accounts																				Savings accounts	646,187		250		0.15		686,973		227		0.13		828,747		69		0.03
Certificates of deposit	Certificates of deposit	670,521		3,053		1.85		524,938		1,017		0.77		607,133		797		0.53		Certificates of deposit	1,519,119		14,976		3.91		1,219,500		10,526		3.46		554,987		844		0.60
Total interest-bearing deposits	Total interest-bearing deposits	6,431,523		24,661		1.56		6,239,111		14,762		0.94		6,802,185		2,859		0.17		Total interest-bearing deposits	7,916,611		55,354		2.77		7,336,357		41,372		2.26		6,376,175		8,687		0.54
Subordinated debentures		155,497		2,409		6.28		155,359		2,376		6.07		154,959		2,220		5.81
Subordinated debentures and notes																				Subordinated debentures and notes	155,769		2,466		6.28		155,632		2,431		6.27		155,225		2,313		5.91
FHLB advances	FHLB advances	110,928		1,332		4.87		8,864		104		4.65		50,000		195		1.58		FHLB advances	10,326		141		5.42		98,912		1,279		5.19		25,543		103		1.60
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	215,604		749		1.41		182,362		282		0.61		262,252		60		0.09		Securities sold under agreements to repurchase	146,893		969		2.61		162,606		704		1.74		198,027		123		0.25
Other borrowed funds		53,885		353		2.66		26,993		378		5.56		22,841		82		1.46
Other borrowings																				Other borrowings	50,571		337		2.66		133,770		1,419		4.25		19,984		179		3.53
Total interest-bearing liabilities	Total interest-bearing liabilities	6,967,437		29,504		1.72		6,612,689		17,902		1.07		7,292,237		5,416		0.30		Total interest-bearing liabilities	8,280,170		59,267		2.84		7,887,277		47,205		2.40		6,774,954		11,405		0.67
Noninterest bearing liabilities:	Noninterest bearing liabilities:																			Noninterest bearing liabilities:
Demand deposits	Demand deposits	4,481,966						4,763,503						4,692,027						Demand deposits	4,005,923						4,051,456						4,778,720
Other liabilities	Other liabilities	113,341						119,784						93,518						Other liabilities	134,162						111,915						109,943
Total liabilities	Total liabilities	11,562,744						11,495,976						12,077,782						Total liabilities	12,420,255						12,050,648						11,663,617
Shareholders' equity	Shareholders' equity	1,568,451						1,490,592						1,536,221						Shareholders' equity	1,648,605						1,621,337						1,494,504
Total liabilities & shareholders' equity	Total liabilities & shareholders' equity	$	13,131,195					$	12,986,568					$	13,614,003					Total liabilities & shareholders' equity	$	14,068,860					$	13,671,985					$	13,158,121
Net interest income	Net interest income			$	141,570					$	140,818					$	102,671			Net interest income			$	143,700					$	142,754					$	126,144
Net interest spread	Net interest spread					3.97	%					4.18	%					3.15	%	Net interest spread					3.28	%					3.57	%					3.80	%
Net interest margin	Net interest margin					4.71	%					4.66	%					3.28	%	Net interest margin					4.33	%					4.49	%					4.10	%

1 Average balances include nonaccrual loans. Interest income includes loan fees of $3.7 million, $3.7 million, and $5.2 million for the three months ended March 31, 2023, December 31, 2022, and March 31, 2022, respectively.
2 Non-taxable income is presented on a fully tax-equivalent basis using a 25.2% tax rate. The tax-equivalent adjustments were $2.0 million, $2.0 million, and $1.5 million for the three months ended March 31, 2023, December 31, 2022, and March 31, 2022, respectively.
1 Average balances include nonaccrual loans. Interest income includes loan fees of $3.3 million, $3.7 million, and $3.6 million for the three months ended September 30, 2023, June 30, 2023, and September 30, 2022, respectively.																				1 Average balances include nonaccrual loans. Interest income includes loan fees of $3.3 million, $3.7 million, and $3.6 million for the three months ended September 30, 2023, June 30, 2023, and September 30, 2022, respectively.
2 Non-taxable income is presented on a fully tax-equivalent basis using a 25.2% tax rate. The tax-equivalent adjustments were $2.1 million, $2.1 million, and $1.9 million for the three months ended September 30, 2023, June 30, 2023, and September 30, 2022, respectively.																				2 Non-taxable income is presented on a fully tax-equivalent basis using a 25.2% tax rate. The tax-equivalent adjustments were $2.1 million, $2.1 million, and $1.9 million for the three months ended September 30, 2023, June 30, 2023, and September 30, 2022, respectively.



	Nine months ended September 30,
	2023						2022
(in thousands)	Average Balance		Interest Income/Expense		Average Yield/ Rate		Average Balance		Interest Income/Expense		Average Yield/ Rate
Assets
Interest-earning assets:




Total loans1, 2	$	10,203,291	$	503,458	6.60	%	$	9,116,072	$	317,271	4.65	%
Taxable securities	1,327,595		30,075		3.03		1,219,093		20,658		2.27
Non-taxable securities2	968,890		22,668		3.13		846,707		17,973		2.84
Total securities	2,296,485		52,743		3.07		2,065,800		38,631		2.50
Interest-earning deposits	206,110		7,799		5.06		1,312,442		7,502		0.76
Total interest-earning assets	12,705,886		564,000		5.93		12,494,314		363,404		3.89
Noninterest-earning assets	921,562						937,549



Total assets	$	13,627,448					$	13,431,863

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand accounts	$	2,462,988	$	29,728	1.61	%	$	2,344,007	$	2,902	0.17	%
Money market accounts	2,942,970		62,397		2.83		2,810,278		9,797		0.47
Savings accounts	688,157		707		0.14		833,721		205		0.03
Certificates of deposit	1,139,489		28,555		3.35		584,213		2,492		0.57
Total interest-bearing deposits	7,233,604		121,387		2.24		6,572,219		15,396		0.31
Subordinated debentures and notes	155,633		7,306		6.28		155,093		6,790		5.85
FHLB advances	73,020		2,752		5.04		41,758		495		1.58
Securities sold under agreements to repurchase	174,783		2,422		1.85		220,703		224		0.14
Other borrowings	79,396		2,109		3.55		21,402		372		2.32
Total interest-bearing liabilities	7,716,436		135,976		2.36		7,011,175		23,277		0.44
Noninterest bearing liabilities:
Demand deposits	4,178,038						4,819,718
Other liabilities	119,883						99,458
Total liabilities	12,014,357						11,930,351
Shareholders' equity	1,613,091						1,501,512
Total liabilities & shareholders' equity	$	13,627,448					$	13,431,863
Net interest income			$	428,024					$	340,127
Net interest spread					3.57	%					3.45	%
Net interest margin					4.50	%					3.64	%


1 Average balances include nonaccrual loans. Interest income includes loan fees of $10.7 million and $13.0 million for the nine months ended September 30, 2023 and 2022, respectively.
2 Non-taxable income is presented on a fully tax-equivalent basis using a 25.2% tax rate. The tax-equivalent adjustments were $6.2 million and $5.1 million for the nine months ended September 30, 2023 and 2022, respectively.

3337

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 March 31, 2023						Three months ended March 31, 2023							Three months ended September 30, 2023						Nine months ended September 30, 2023
		compared to						compared to							compared to						compared to
		Three months ended December 31, 2022						Three months ended March 31, 2022							Three months ended June 30, 2023						Nine months ended September 30, 2022
		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:

Loans(3)	Loans(3)	$	4,538	$	8,792	$	13,330	9,112		47,349		56,461		Loans(3)	$	4,815	$	5,253	$	10,068	41,448		144,739		186,187
Taxable securities	Taxable securities	378		277		655		950		2,986		3,936		Taxable securities	18		454		472		1,968		7,449		9,417
Non-taxable securities(3)	Non-taxable securities(3)	87		183		270		1,441		770		2,211		Non-taxable securities(3)	49		5		54		2,749		1,946		4,695
Interest-earning deposits	Interest-earning deposits	(2,713)		812		(1,901)		(1,493)		1,872		379		Interest-earning deposits	2,177		237		2,414		(10,960)		11,257		297
Total interest-earning assets	Total interest-earning assets	$	2,290	$	10,064	$	12,354	$	10,010	$	52,977	$	62,987	Total interest-earning assets	$	7,059	$	5,949	$	13,008	$	35,205	$	165,391	$	200,596

Interest paid on:	Interest paid on:													Interest paid on:
Interest-bearing demand accounts	Interest-bearing demand accounts	$	(78)	$	1,849	$	1,771	$	(75)	$	5,446	$	5,371	Interest-bearing demand accounts	$	729	$	2,852	$	3,581	$	154	$	26,672	$	26,826
Money market accounts	Money market accounts	454		5,507		5,961		(24)		14,035		14,011		Money market accounts	1,242		4,686		5,928		485		52,115		52,600
Savings		(6)		137		131		(7)		171		164
Savings accounts														Savings accounts	(13)		36		23		(42)		544		502
Certificates of deposit	Certificates of deposit	336		1,700		2,036		91		2,165		2,256		Certificates of deposit	2,910		1,540		4,450		4,253		21,810		26,063
Subordinated debentures		1		32		33		8		181		189
Subordinated debentures and notes														Subordinated debentures and notes	12		23		35		24		492		516
FHLB advances	FHLB advances	1,223		5		1,228		419		718		1,137		FHLB advances	(1,193)		55		(1,138)		577		1,680		2,257
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	57		410		467		(12)		701		689		Securities sold under agreements to repurchase	(73)		338		265		(57)		2,255		2,198
Other borrowings	Other borrowings	237		(262)		(25)		169		102		271		Other borrowings	(672)		(410)		(1,082)		1,453		284		1,737
Total interest-bearing liabilities	Total interest-bearing liabilities	2,224		9,378		11,602		569		23,519		24,088		Total interest-bearing liabilities	2,942		9,120		12,062		6,847		105,852		112,699
Net interest income	Net interest income	$	66	$	686	$	752	$	9,441	$	29,458	$	38,899	Net interest income	$	4,117	$	(3,171)	$	946	$	28,358	$	59,539	$	87,897

(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~~for the third quarter 2023 and the nine months ended September 30, 2023 was $141.6 million and $421.9 million, respectively, an increase of $0.9 million and $86.8 million compared to the linked quarter and prior year period, respectively. Net interest income on a tax equivalent ~~basis)~~basis of ~~$141.6~~$143.7 million for the quarter ended ~~March 31,~~September 30, 2023 and $428.0 million for the nine months ended September 30, 2023, increased ~~$0.8~~$0.9 million and $87.9 million, from ~~$140.8 million in~~ the linked ~~quarter. Compared to the~~quarter and prior ~~year, net interest income increased $38.9 million, from $102.7 million in the first quarter 2022.~~year-to-date period respectively. The increase from the linked quarter and the prior ~~year quarters~~year-to-date period reflects the benefit of higher market interest rates on the Company’s asset sensitive balance sheet combined with organic growth. The effective federal funds rate for the ~~first~~third quarter 2023 was ~~4.52%~~5.26%, an increase of 8727 basis points, compared to the linked ~~quarter, and a 440~~quarter. The effective federal funds rate for the first nine months of 2023 was 4.93%, an increase of 389 basis ~~point increase over the prior year quarter.~~points, compared to first nine months of 2022.

~~Compared~~Interest income increased $13.0 million during the third quarter 2023 primarily due to ~~the linked quarter,~~an increase of $10.1 million in loan interest income ~~increased $12.4~~and a $2.4 million ~~due to higher interest earned on a larger loan base resulting in a $13.3 million sequential expansion. This~~ increase ~~was partially offset by a $1.9 million decrease~~ in interest on cash ~~balances.~~accounts. Loan interest income has increased from continued loan growth and higher loan yields. Interest on loans benefited from a 4616 basis point increase in yield and a ~~$371.1~~$237.1 million increase in average loans, compared to the linked quarter. The average interest rate of new loan originations in the ~~first~~third quarter 2023 was ~~6.53%~~7.89%. ~~The~~Interest on cash accounts increased due to a 49 basis point increase in yield ~~on interest-earning cash deposits increased 121 basis points~~and a $162.0 million increase in ~~the quarter but was offset by a $260.8 million decrease in the~~ average ~~balance which reduced interest income in the first quarter 2023.~~balances.

~~Compared to~~Year-to-date, interest income increased $199.5 million over the prior year ~~quarter, the~~period due to a $186.3 million increase in loan interest and a $13.2 million increase in interest ~~income of $63.0 million was also primarily due to higher~~on securities and interest earned on a larger loan base, partially offset by a decline in interest earned on cash balances. The prior year quarter included $2.9 million of interest and fee income on loans from the Paycheck Protection Program that was mostly wound downearning cash. Loan yields in the ~~fourth quarter 2022.~~first

3438

nine months of 2023 increased 195 basis points to 6.60%, compared to 4.65% in the prior year period. Average loans increased $1.1 billion, or 12% over the prior year period. Average securities increased $230.7 million, or 11% over the prior year period. Average interest-earning deposits declined $1.1 billion in the first nine months of 2023 compared to the prior year period. However, a 430 basis point increase in yield to 5.06% in 2023 more than offset the interest income impact of the decreased balance.

~~Compared to the linked quarter, interest~~Interest expense increased ~~$11.6~~$12.1 million in the third quarter 2023 primarily due to a ~~$9.9~~$14.0 million increase in deposit interest ~~expense and~~expense. This increase was partially offset by a ~~$1.2~~$1.1 million ~~increase~~decrease in interest expense on ~~FHLB~~other borrowings. The increase in deposit interest expense reflects a shift in the deposit mix from demand deposits ~~and~~to interest-bearing ~~demand~~ deposits, toparticularly money market accounts and certificates of deposit, as well as higher rates paid on deposits and an increased use of FHLB borrowings. This deposit shift principally occurred during March following turmoil in the banking markets. The interest-bearing liability rate was 1.72% an increase of 65 basis points compared to the linked quarter.deposits. The average cost of interest-bearing deposits was ~~1.56%~~2.77%, an increase of 6251 basis points over the linked quarter. The increase in rate was primarily due to higher rates paid on commercial money market accounts, certificates of deposit and interest-bearing demand accounts, which increased 8258 basis points, 45 basis points, and 41 basis points, respectively. The total cost of deposits, including noninterest-bearing demand accounts, was 1.84% during the third quarter 2023, compared to ~~2.22%~~1.46% in the ~~current~~linked quarter. The decrease in interest expense on other borrowings was primarily due to a decline in average borrowings, which were reduced due to the increase in liquidity from the growth in core deposits.

~~Compared to~~Year-to-date, interest expense increased $112.7 million over the prior year ~~quarter, interest expense increased $24.1 million~~period, primarily due to ana $106.0 million increase in ~~the cost of~~deposit interest ~~bearing liabilities.~~expense and a $6.7 million increase on borrowed funds. The cost of interest bearing deposits increased ~~139~~193 basis points year-over-year, while the cost of total interest bearing liabilities increased ~~142~~192 basis points during the same period.

The total cost of deposits, including noninterest-bearing demand accounts, was ~~0.92% during~~1.42% in the first ~~quarter~~nine months of 2023, compared to ~~0.53% and 0.10%~~0.18% in the ~~linked and~~ prior ~~year quarters, respectively.~~year-to-date period.

NIM, on a tax equivalent basis, was ~~4.71%~~4.33% in the ~~first~~third quarter 2023 and 4.50% for the first nine months of 2023, a decrease of 16 basis points and an increase of ~~five~~86 basis points from the linked quarter and ~~an increase of 143 basis points from~~ the prior ~~year quarter. Since the first quarter 2022, NIM has expanded four consecutive quarters.~~year-to-date period, respectively.

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								Quarter ended							Quarter ended								Nine months ended
(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		Increase (decrease)				March 31, 2022		Increase (decrease)				(in thousands)	September 30, 2023		June 30, 2023		Increase (decrease)				September 30, 2023		September 30, 2022		Increase (decrease)
Deposit service charges	Deposit service charges	$	4,128	$	4,463	$	(335)	(8)	%	$	4,163	$	(35)	(1)	%	Deposit service charges	$	4,187	$	3,910	$	277	7	%	$	12,225	$	13,863	$	(1,638)	(12)	%
Wealth management revenue	Wealth management revenue	2,516		2,423		93		4	%	2,622		(106)		(4)	%	Wealth management revenue	2,614		2,472		142		6	%	7,602		7,587		15		—	%
Card services revenue	Card services revenue	2,338		2,345		(7)		—	%	3,040		(702)		(23)	%	Card services revenue	2,560		2,464		96		4	%	7,362		9,206		(1,844)		(20)	%
Tax credit income		1,813		2,389		(576)		(24)	%	2,608		(795)		(30)	%
Tax credit income (loss)																Tax credit income (loss)	(2,673)		368		(3,041)		(826)	%	(492)		169		(661)		(391)	%

Other income	Other income	6,103		5,253		850		16	%	6,208		(105)		(2)	%	Other income	5,397		5,076		321		6	%	16,576		11,464		5,112		45	%

Total noninterest income	Total noninterest income	$	16,898	$	16,873	$	25	—	%	$	18,641	$	(1,743)	(9)	%	Total noninterest income	$	12,085	$	14,290	$	(2,205)	(15)	%	$	43,273	$	42,289	$	984	2	%

Total noninterest income for the ~~first~~third quarter 2023 was ~~$16.9~~$12.1 million, ~~stable with~~a $2.2 million decrease from the linked quarter, and a decrease of $1.7 million from the prior year quarter. Noninterest income in the first quarter 2023 included an increase in other income and wealth management revenue that was offsets by a decrease in deposit service charges and tax credit income. Other income increased primarily due to a gain on the sale of SBA loans and a gain on the sale of investment securities. In the first quarter 2023, SBA loans totaling $8.8 million were sold and $28.4 million of lower-yielding investment securities were solddecrease in January 2023 at a gain and the proceeds were reinvested at a higher yield. Other income in the current and linked quarters also included $2.3 million and $3.2 million, respectively, of income from community development investments and private equitytax credit income. Income from these investments will vary among periods. Deposit service charges declined in the first quarter 2023 as the earnings credit rate used by customers to offset treasury management fees increased. Tax credit income is typically highest in the fourth quarter ~~when~~of each year and will vary in other periods based on transaction volumes ~~peak.~~and fair value changes on credits carried at fair value. The increase in other income of $0.3 million was primarily due to a $1.5 million gain on the sale of SBA loans, partially offset by a decline in income from community development investments.

~~The decrease~~Total noninterest income for the nine months ended September 30, 2023 was $43.3 million, an increase from the prior year ~~quarter~~period of $1.0 million which was primarily due to ~~decreases~~a $5.1 million increase in ~~tax credit~~other income, ~~and card services revenue. Lower transaction volumes led to the decrease in tax credit income while the Durbin Amendment cap on~~partially offset

3539

by a decline in deposit service charges and card services revenue. The Durbin Amendment cap on debit card income has limited card services revenue since July 1, 2022. ~~Other~~The increase in other income inwas primarily due to the ~~prior year quarter included $1.2 million~~sale of assets (SBA loans, securities, and OREO), income from private equity investments and loan and swap fee income, compared to $0.3 million in the first quarter 2023. Swap fee income is generated from customer hedging activities and was higher in the prior year quarter when market rates started to increase.fees.

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											Quarter ended										Quarter ended											Nine months ended
(in thousands)	(in thousands)	March 31, 2023			December 31, 2022			Increase (decrease)						March 31, 2022			Increase (decrease)					(in thousands)	September 30, 2023			June 30, 2023			Increase (decrease)					September 30, 2023			September 30, 2022			Increase (decrease)
Employee compensation and benefits	Employee compensation and benefits	$	42,503		$	38,175		$	4,328		11	%		$	35,827		$	6,676		19	%	Employee compensation and benefits	$	40,771		$	41,641		$	(870)		(2)	%	$	124,915		$	108,854		$	16,061		15	%
Occupancy	Occupancy	4,061			4,248			(187)			(4)	%		4,586			(525)			(11)	%	Occupancy	4,198			3,954			244			6	%	12,213			13,392			(1,179)			(9)	%
Data processing	Data processing	3,710			3,599			111			3	%		3,260			450			14	%	Data processing	3,830			3,661			169			5	%	11,201			9,914			1,287			13	%
Professional fees	Professional fees	1,631			2,763			(1,132)			(41)	%		1,177			454			39	%	Professional fees	1,407			1,566			(159)			(10)	%	4,604			4,316			288			7	%
Deposit costs	Deposit costs	12,720			13,256			(536)			(4)	%		4,260			8,460			199	%	Deposit costs	20,987			16,980			4,007			24	%	50,688			7,661			43,027			562	%

Other expense	Other expense	16,358			15,108			1,250			8	%		13,690			2,668			19	%	Other expense	17,451			18,154			(703)			(4)	%	51,962			52,930			(968)			(2)	%
Total noninterest expense	Total noninterest expense	$	80,983		$	77,149		$	3,834		5	%		$	62,800		$	18,183		29	%	Total noninterest expense	$	88,644		$	85,956		$	2,688		3	%	$	255,583		$	197,067		$	58,516		30	%

Efficiency ratio	Efficiency ratio	51.77		%	49.55		%	2.22		%				52.42		%	(0.65)		%			Efficiency ratio	57.66		%	55.46		%	2.20		%			54.95		%	52.22		%	2.73		%
Core efficiency ratio1	Core efficiency ratio1	50.47		%	48.10		%	2.37		%				50.60		%	(0.13)		%			Core efficiency ratio1	56.18		%	54.04		%	2.14		%			53.55		%	50.46		%	3.09		%

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.

Noninterest expense was ~~$81.0~~$88.6 million for the ~~first~~third quarter 2023, an increase of ~~$3.8~~$2.7 million from ~~$77.1~~$86.0 million in the linked quarter. Employee compensation and benefits ~~increased $4.3~~decreased $0.9 million from the linked quarter primarily due to a $3.4 million increase in employer payroll taxes and 401(k) matches that are seasonally higher in the first quarter each year, and a $3.3 million increase in salaries due to annual merit increases that became effectivelower claims on March 1, 2023 and an increase in the associate base. These increases were partially offset by a $3.8 million decline in variable compensation that is typically higher in the fourth quarter each year. Deposit costs declined slightly from the linked quarter primarily due to higher year-end settlements that occurred in the linked quarter.self-insured medical policies. Deposit costs relate to certain specialized deposit businesses that are impacted by higher interest rates as well as increasing average balances. Deposit costs increased $4.0 million from the linked quarter primarily due to higher average balances and an increase in expenses related to the earnings credit earned on these accounts. Other expense decreased $0.7 million from the linked quarter, primarily due to a $0.9 million decrease in operational losses.

~~The increase in~~Total noninterest expense of ~~$18.2~~$255.6 million for the first nine months of 2023 increased $58.5 million from the prior year ~~quarter was~~period, primarily ~~an increase in the~~

~~associate base, merit increases throughout 2022 and 2023, and an~~related to a $43.0 million increase in variable deposit ~~costs.~~costs, and a $16.1 million increase in compensation and benefits.

In May 2023, the FDIC issued a Notice of Proposed Rulemaking which would implement a special assessment to recover the cost associated with protecting uninsured depositors following the closure of FDIC insured banks earlier in 2023. The FDIC is proposing to collect a special assessment at an annual rate of approximately 12.5 basis points over eight quarterly assessment periods. As proposed, the estimated impact of the special assessment is approximately $2.2 million and will be recognized when the rule is finalized.

Income Taxes

The Company’s effective tax rate was ~~21.8%~~21.7% for both the third quarter 2023 and the nine months ended September 30, 2023. This compares to an effective tax rate of 21.6% and 21.9% for the ~~first~~linked quarter ~~2023, relatively stable with the linked~~ and prior ~~year quarters effective tax rates of 21.5% and 21.9%.~~year-to-date period, respectively.

3640

Summary Balance Sheet


(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		Increase (decrease)				(in thousands)	September 30, 2023		December 31, 2022		Increase (decrease)
Total cash and cash equivalents	Total cash and cash equivalents	$	285,083	$	291,359	$	(6,276)	(2)	%			Total cash and cash equivalents	$	370,698	$	291,359	$	79,339	27	%
Securities, net	Securities, net	2,275,803		2,245,722		30,081		1	%			Securities, net	2,217,759		2,245,722		(27,963)		(1)	%
Total loans	Total loans	10,011,918		9,737,138		274,780		3	%			Total loans	10,616,820		9,737,138		879,682		9	%
Total assets	Total assets	13,325,982		13,054,172		271,810		2	%			Total assets	14,025,042		13,054,172		970,870		7	%
Deposits	Deposits	11,154,636		10,829,150		325,486		3	%			Deposits	11,909,907		10,829,150		1,080,757		10	%
Total liabilities	Total liabilities	11,733,162		11,531,909		201,253		2	%			Total liabilities	12,413,162		11,531,909		881,253		8	%
Total shareholders’ equity	Total shareholders’ equity	1,592,820		1,522,263		70,557		5	%			Total shareholders’ equity	1,611,880		1,522,263		89,617		6	%

Total assets were ~~$13.3~~$14.0 billion at ~~March 31,~~September 30, 2023, an increase of ~~$271.8~~$970.9 million from December 31, 2022. Cash and cash equivalents ~~were relatively stable,~~increased due to deposit growth exceeding loan growth, while loan production increased the loan ~~portfolio and~~portfolio. Securities decreased primarily due to an ~~improvement~~decrease in the ~~unrealized loss on~~fair value of available for sale investments, ~~increased~~partially offset by an increase in securities primarily due to the ~~value~~reinvestment of ~~the securities portfolio.~~cash flows. Total liabilities of ~~$11.7~~$12.4 billion, increased ~~$201.3~~$881.3 million from December 31, 2022. A ~~$325.5 million~~$1.1 billion increase in deposits, partially offset by a ~~$107.8~~$241.7 million net decrease in ~~securities sold under agreements to repurchase,~~FHLB advances and other borrowings, was the primary driver of the increase in total liabilities.

Investments

At ~~March 31,~~September 30, 2023, investment securities were ~~$2.3~~$2.2 billion, or ~~17%~~16%, of total assets, which is comparable to the Company’s historical percentage dating back to 2019. At December 31, 2022, investment securities were $2.2 billion, or 17%, of total assets.

The table below sets forth the carrying value of investment securities, excluding the allowance for credit losses:


		March 31, 2023				December 31, 2022				September 30, 2023				December 31, 2022
($ in thousands)	($ in thousands)	Amount		%		Amount		%			($ in thousands)	Amount		%		Amount		%
Obligations of U.S. Government sponsored enterprises	Obligations of U.S. Government sponsored enterprises	$	265,705	11.7	%	$	237,785	10.6	%		Obligations of U.S. Government sponsored enterprises	$	279,457	12.6	%	$	237,785	10.6	%
Obligations of states and political subdivisions	Obligations of states and political subdivisions	972,038		42.7	%	946,456		42.1	%		Obligations of states and political subdivisions	941,893		42.5	%	946,456		42.1	%
Agency mortgage-backed securities	Agency mortgage-backed securities	706,348		31.0	%	716,422		31.9	%		Agency mortgage-backed securities	681,229		30.7	%	716,422		31.9	%
U.S. Treasury Bills	U.S. Treasury Bills	200,103		8.8	%	208,534		9.3	%		U.S. Treasury Bills	184,791		8.3	%	208,534		9.3	%
Corporate debt securities	Corporate debt securities	132,481		5.8	%	137,260		6.1	%		Corporate debt securities	131,174		5.9	%	137,260		6.1	%

Total	Total	$	2,276,675	100.0	%	$	2,246,457	100.0	%		Total	$	2,218,544	100.0	%	$	2,246,457	100.0	%


Net Unrealized Losses	Net Unrealized Losses					Net Unrealized Losses
($ in thousands)	($ in thousands)	March 31, 2023		December 31, 2022		($ in thousands)	September 30, 2023		December 31, 2022
Available-for-sale securities	Available-for-sale securities	$	(161,572)	$	(193,247)	Available-for-sale securities	$	(235,013)	$	(193,247)
Held-to-maturity securities	Held-to-maturity securities	(65,013)		(82,133)		Held-to-maturity securities	(108,780)		(82,133)
Total	Total	$	(226,585)	$	(275,380)	Total	$	(343,793)	$	(275,380)

Investment securities ~~increased $30.1~~decreased $27.9 million from the ~~linked quarter,~~prior year end, primarily due to a ~~$31.7 million~~ decrease in the ~~unrealized loss on~~fair value of the available-for-sale ~~securities.~~securities, partially offset by an increase from the reinvestment of portfolio cash flows. Investment purchases in ~~the quarter~~2023 had a weighted average, tax equivalent yield of ~~4.79%~~5.0%. In January 2023, $28.4 million of available-for-sale investment securities with a tax equivalent yield of 4.0% were sold at a net gain of $0.4 million and were reinvested in securities with a 4.5% yield.

The average duration of the investment portfolio was ~~5.5~~5.6 years at ~~March 31,~~September 30, 2023. ~~Due to the shorter duration of the loan portfolio of approximately 3 years, the~~The Company leverages the investment portfolio to lengthen the overall

duration of the balance sheet, primarily using high-quality municipal securities. The expected cash flow from pay downs, maturities and interest over the next 12 months is approximately ~~$262~~$270 million.

Loans by Type

The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector; however, a substantial portion of the portfolio, including the C&I category, is secured by real estate. The ability of the Company’s borrowers to honor their contractual obligations is partially dependent upon the local economy and its effect on the real estate market.

The following table sets forth the composition of the loan portfolio by type of loans


(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		Increase (decrease)				(in thousands)	September 30, 2023		December 31, 2022		Increase (decrease)
Commercial and industrial	Commercial and industrial	$	4,032,189	$	3,859,882	$	172,307	4	%			Commercial and industrial	$	4,448,535	$	3,859,882	$	588,653	15	%
Commercial real estate - investor owned	Commercial real estate - investor owned	2,418,079		2,357,820		60,259		3	%			Commercial real estate - investor owned	2,425,533		2,357,820		67,713		3	%
Commercial real estate - owner occupied	Commercial real estate - owner occupied	2,281,223		2,270,551		10,672		—	%			Commercial real estate - owner occupied	2,368,822		2,270,551		98,271		4	%
Construction and land development	Construction and land development	663,264		611,565		51,699		8	%			Construction and land development	723,796		611,565		112,231		18	%
Residential real estate	Residential real estate	364,059		395,537		(31,478)		(8)	%			Residential real estate	376,120		395,537		(19,417)		(5)	%
Other	Other	253,104		241,783		11,321		5	%			Other	274,014		241,783		32,231		13	%
Total Loans	Total Loans	$	10,011,918	$	9,737,138	$	274,780	3	%			Total Loans	$	10,616,820	$	9,737,138	$	879,682	9	%

The following table provides additional information on select specialty lending detail:


(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		Increase (decrease)				(in thousands)	September 30, 2023		December 31, 2022		Increase (decrease)
C&I	C&I	$	2,005,539	$	1,904,654	$	100,885	5	%			C&I	$	2,020,303	$	1,904,654	$	115,649	6	%
CRE investor owned	CRE investor owned	2,239,932		2,176,424		63,508		3	%			CRE investor owned	2,260,220		2,176,424		83,796		4	%
CRE owner occupied	CRE owner occupied	1,173,985		1,174,094		(109)		—	%			CRE owner occupied	1,255,885		1,174,094		81,791		7	%
SBA Loans*	SBA Loans*	1,315,732		1,312,378		3,354		—	%			SBA Loans*	1,309,497		1,312,378		(2,881)		—	%
Sponsor finance*	Sponsor finance*	677,529		635,061		42,468		7	%			Sponsor finance*	888,000		635,061		252,939		40	%
Life insurance premium financing*	Life insurance premium financing*	859,910		817,115		42,795		5	%			Life insurance premium financing*	928,486		817,115		111,371		14	%
Tax credits*	Tax credits*	547,513		559,605		(12,092)		(2)	%			Tax credits*	683,580		559,605		123,975		22	%
SBA PPP loans	SBA PPP loans	5,438		7,272		(1,834)		(25)	%			SBA PPP loans	4,940		7,272		(2,332)		(32)	%
Residential real estate	Residential real estate	348,726		379,924		(31,198)		(8)	%			Residential real estate	364,618		379,924		(15,306)		(4)	%
Construction and land development	Construction and land development	590,509		534,753		55,756		10	%			Construction and land development	639,555		534,753		104,802		20	%
Other	Other	247,105		235,858		11,247		5	%			Other	261,736		235,858		25,878		11	%
Total loans	Total loans	$	10,011,918	$	9,737,138	$	274,780	3	%			Total loans	$	10,616,820	$	9,737,138	$	879,682	9	%

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

Loans totaled ~~$10.0~~$10.6 billion at ~~March 31,~~September 30, 2023 compared to $9.7 billion at December 31, 2022. The increase was driven primarily by C&I, CRE investor owned, construction and specialty loans. The increase in specialty loans was primarily in the sponsor finance and life insurance ~~areas and each of the Company’s geographic regions increased loans during the quarter.~~areas. Average line draw utilization was ~~42.4%~~42.7% for the first ~~quarter~~nine months of 2023, compared to 41.8% for the full year of 2022.

Specialty lending products, 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 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 predominantly have a 75% guarantee from the SBA. The Company may sell the guaranteed portion of the loan and retain servicing rights, and in the first ~~quarter~~nine months of 2023, SBA loans totaling ~~$8.8~~$42.1 million were sold.

Provision and Allowance for Credit Losses

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


		Quarter ended						Quarter ended						Nine months ended
(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		March 31, 2022			(in thousands)	September 30, 2023		June 30, 2023			September 30, 2023		September 30, 2022
Provision (benefit) for credit losses on loans	Provision (benefit) for credit losses on loans	$	1,099	$	(1,565)	$	(4,308)		Provision (benefit) for credit losses on loans	$	7,670	$	5,997		$	14,766	$	(2,645)

Provision for available-for-sale securities	Provision for available-for-sale securities	4,826		—		—			Provision for available-for-sale securities	—		250			5,076		—
Provision (benefit) for off-balance sheet commitments	Provision (benefit) for off-balance sheet commitments	(1,914)		3,609		725			Provision (benefit) for off-balance sheet commitments	(447)		75			(2,286)		853
Provision (benefit) for held-to-maturity securities	Provision (benefit) for held-to-maturity securities	137		46		(56)			Provision (benefit) for held-to-maturity securities	(73)		(14)			50		75
Charge-offs (recoveries) of accrued interest	Charge-offs (recoveries) of accrued interest	35		33		(429)			Charge-offs (recoveries) of accrued interest	880		31			946		(1,017)
Provision (benefit) for credit losses	Provision (benefit) for credit losses	$	4,183	$	2,123	$	(4,068)		Provision (benefit) for credit losses	$	8,030	$	6,339		$	18,552	$	(2,734)

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. A provision for credit losses on both available-for-sale and held-to-maturity investment securities is recognized in certain circumstances. The Company also records reversals of interest on nonaccrual loans and interest recoveries directly through the provision of credit losses.

A provision for credit losses of ~~$4.2~~$8.0 million ~~was recognized~~ for the ~~first~~third quarter 2023 ~~compared to $2.1~~and $18.6 million infor the nine months ended September 30, 2023, increased $1.7 million and $21.3 million from the linked quarter and ~~a provision benefit of $4.1 million in the~~ prior ~~year quarter.~~year-to-date period, respectively. The provision in the ~~first~~third quarter 2023 was primarily related net charge-offs, an increase in nonperforming loans and loan growth, partially offset by an improvement in forecasted economic factors. The provision in the linked quarter was primarily related to loan growth, and to a lesser extent, net charge-offs. The provision for credit losses in the first nine months of 2023 was primarily due to loan growth, net charge-offs and the increase in nonperforming loans. The provision for credit losses in 2023 also included the impact of the impairment of an available-for-sale investment ~~security and loan growth, partially offset by a decrease in the reserve on unfunded commitments.~~security. The ~~provision for credit losses on the~~ available-for-sale investment ~~security~~impairment was related to a subordinated debt security in a publicly-traded bank that failed in the first quarter of 2023. The provision benefit in the prior year-to-date period, was primarily due to an improvement in economic factors and the recovery of accrued interest on nonperforming loans.

The following table summarizes the allocation of the ACL on loans:


		March 31, 2023				December 31, 2022				September 30, 2023				December 31, 2022
(in thousands)	(in thousands)	Allowance		Percent of loans in each category to total loans		Allowance		Percent of loans in each category to total loans			(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	Commercial and industrial	$	59,149	40.3	%	$	53,835	39.6	%		Commercial and industrial	$	62,476	41.9	%	$	53,835	39.6	%
Real estate:	Real estate:										Real estate:
Commercial	Commercial	58,594		46.9	%	58,943		47.5	%		Commercial	57,495		45.2	%	58,943		47.5	%
Construction and land development	Construction and land development	8,889		6.6	%	11,444		6.3	%		Construction and land development	11,147		6.8	%	11,444		6.3	%
Residential	Residential	6,997		3.7	%	7,928		4.1	%		Residential	6,622		3.5	%	7,928		4.1	%
Other	Other	4,666		2.5	%	4,782		2.5	%		Other	4,393		2.6	%	4,782		2.5	%
Total	Total	$138,295		100.0	%	$136,932		100.0	%		Total	$142,133		100.0	%	$136,932		100.0	%

The ACL on loans was ~~1.38%~~1.34% of loans at ~~March 31,~~September 30, 2023, compared to 1.41% of loans at December 31, 2022. ~~Loan growth, changes~~The decrease in the ACL on loans is due to improvement in the economic ~~metrics,~~forecast and ~~a continued positive trend~~the charge-off of impaired loans, partially offset by the increase in ~~asset quality.~~nonperforming loans. Excluding guaranteed loans, the ACL to total loans was ~~1.53%~~1.47% at ~~March 31,~~September 30, 2023, compared to 1.56% at December 31, 2022.

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


		Quarter ended														Quarter ended
		March 31, 2023						December 31, 2022						September 30, 2023						June 30, 2023
(in thousands)	(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			(in thousands)	Net Charge-offs (Recoveries)		Average Loans(1)			Net Charge-offs (Recoveries)/Average Loans(2)		Net Charge-offs (Recoveries)		Average Loans(1)		Net Charge-offs (Recoveries)/Average Loans(2)
Commercial and industrial	Commercial and industrial	$	(231)	$	3,873,175	(0.02)	%	$	1,929	$	3,739,843	0.20	%		Commercial and industrial	$	1,756	$	4,357,144		0.16	%	$	2,688	$	4,222,236	0.26	%
Real estate:	Real estate:														Real estate:
Commercial	Commercial	131		4,631,183		0.01	%	(62)		4,457,612		(0.01)	%		Commercial	4,637		4,752,047			0.39	%	(103)		4,727,171		(0.01)	%
Construction and land development	Construction and land development	(23)		678,493		(0.01)	%	(8)		632,766		(0.01)	%		Construction and land development	(14)		723,653			(0.01)	%	(8)		693,251		—	%
Residential	Residential	(220)		353,104		(0.25)	%	203		365,576		0.22	%		Residential	(140)		369,648			(0.15)	%	194		358,917		0.22	%
Other	Other	79		258,670		0.12	%	13		227,276		0.02	%		Other	617		318,790			0.77	%	202		282,750		0.29	%
Total	Total	$	(264)	$	9,794,625	(0.01)	%	$	2,075	$	9,423,073	0.09	%		Total	$	6,856	$	10,521,282		0.26	%	$	2,973	$	10,284,325	0.12	%

(1) Excludes loans held for sale.

(2)Annualized.



	Nine months ended
	September 30, 2023						September 30, 2022
(in thousands)	Net Charge-offs (Recoveries)		Average Loans(1)		Net Charge-offs (Recoveries)/Average Loans(2)		Net Charge-offs (Recoveries)		Average Loans(1)		Net Charge-offs (Recoveries)/Average Loans(2)
Commercial and industrial	$	4,213	$	4,153,634	0.14	%	$	1,940	$	3,496,364	0.07	%
Real estate:
Commercial	4,665		4,697,142		0.13	%	(531)		4,279,682		(0.02)	%
Construction and land development	(45)		706,615		(0.01)	%	(45)		703,236		(0.01)	%
Residential	(166)		358,391		(0.06)	%	336		388,920		0.12	%
Other	898		286,957		0.42	%	124		245,378		0.07	%
Total	$	9,565	$	10,202,739	0.13	%	$	1,824	$	9,113,580	0.03	%
(1) Excludes loans held for sale.
(2)Annualized.

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

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)	March 31, 2023			December 31, 2022			(in thousands)	September 30, 2023			December 31, 2022
Nonaccrual loans	Nonaccrual loans	$	11,887		$	9,766		Nonaccrual loans	$	48,746		$	9,766
Loans past due 90 days or more and still accruing interest	Loans past due 90 days or more and still accruing interest	85			142			Loans past due 90 days or more and still accruing interest	186			142
Troubled debt restructurings	Troubled debt restructurings	—			73			Troubled debt restructurings	—			73
Total nonperforming loans	Total nonperforming loans	11,972			9,981			Total nonperforming loans	48,932			9,981
Other	Other	250			269			Other	6,933			269

Total nonperforming assets	Total nonperforming assets	$	12,222		$	10,250		Total nonperforming assets	$	55,865		$	10,250

Total assets	Total assets	$	13,325,982		$	13,054,172		Total assets	$	14,025,042		$	13,054,172
Total loans	Total loans	10,011,918			9,737,138			Total loans	10,616,820			9,737,138

Total allowance for credit losses	Total allowance for credit losses	138,295			136,932			Total allowance for credit losses	142,133			136,932

ACL to nonaccrual loans	ACL to nonaccrual loans	1,163		%	1,402		%	ACL to nonaccrual loans	292		%	1,402		%
ACL to nonperforming loans	ACL to nonperforming loans	1,155		%	1,372		%	ACL to nonperforming loans	290		%	1,372		%
ACL to total loans	ACL to total loans	1.38		%	1.41		%	ACL to total loans	1.34		%	1.41		%
Nonaccrual loans to total loans	Nonaccrual loans to total loans	0.12		%	0.10		%	Nonaccrual loans to total loans	0.46		%	0.10		%
Nonperforming loans to total loans	Nonperforming loans to total loans	0.12		%	0.10		%	Nonperforming loans to total loans	0.46		%	0.10		%

Nonperforming assets to total assets	Nonperforming assets to total assets	0.09		%	0.08		%	Nonperforming assets to total assets	0.40		%	0.08		%

4045

Nonperforming loans based on loan type were as follows:


(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022
Commercial and industrial	Commercial and industrial	$	5,325	$	4,443	Commercial and industrial	$	12,058	$	4,443
Commercial real estate	Commercial real estate	5,434		4,200		Commercial real estate	35,132		4,200
Construction and land development	Construction and land development	1,201		1,192		Construction and land development	741		1,192
Residential real estate	Residential real estate	—		73		Residential real estate	959		73
Other	Other	12		73		Other	42		73
Total	Total	$	11,972	$	9,981	Total	$	48,932	$	9,981

The following table summarizes the changes in nonperforming loans:

~~Three~~Nine months ended

(in thousands)

~~March 31,~~September 30, 2023

Nonperforming loans, beginning of period

9,981

Additions

~~6,137~~74,568

Charge-offs

~~(1,180)~~(13,451)

Principal payments

~~(2,966)~~(16,430)

Moved to other real estate

(5,736)

Nonperforming loans, end of period

~~11,972~~48,932

Deposits


(in thousands)	(in thousands)	March 31, 2023			December 31, 2022			Increase (decrease)				(in thousands)	September 30, 2023			December 31, 2022			Increase (decrease)
Noninterest-bearing demand accounts	Noninterest-bearing demand accounts	$	4,192,523		$	4,642,732		$	(450,209)	(10)	%	Noninterest-bearing demand accounts	$	3,852,486		$	4,642,732		$	(790,246)	(17)	%
Interest-bearing demand accounts	Interest-bearing demand accounts	2,395,901			2,256,295			139,606		6	%	Interest-bearing demand accounts	2,749,598			2,256,295			493,303		22	%
Money market accounts	Money market accounts	2,959,868			2,655,159			304,709		11	%	Money market accounts	3,211,302			2,655,159			556,143		21	%
Savings accounts	Savings accounts	712,671			744,256			(31,585)		(4)	%	Savings accounts	625,843			744,256			(118,413)		(16)	%
Certificates of deposit:	Certificates of deposit:											Certificates of deposit:
Brokered	Brokered	369,505			118,968			250,537		211	%	Brokered	695,551			118,968			576,583		485	%
Other	Other	524,168			411,740			112,428		27	%	Other	775,127			411,740			363,387		88	%
Total deposits	Total deposits	$	11,154,636		$	10,829,150		$	325,486	3	%	Total deposits	$	11,909,907		$	10,829,150		$	1,080,757	10	%

Demand deposits / total deposits	Demand deposits / total deposits	38		%	43		%					Demand deposits / total deposits	32		%	43		%

The following table shows the average balance and average rate of the Company’s deposits by type:

Three months ended
March 31, 2023 December 31, 2022 March 31, 2022
(in thousands) Average Balance Average Rate Paid Average Balance Average Rate Paid Average Balance Average Rate Paid
Noninterest-bearing deposit accounts $ 4,481,966 — % $ 4,763,503 — % $ 4,692,027 — %
Interest-bearing demand accounts 2,201,910 1.09 2,242,268 0.73 2,505,319 0.09
Money market accounts 2,826,836 2.22 2,696,417 1.40 2,872,302 0.21
Savings accounts 732,256 0.13 775,488 0.05 817,431 0.03
Certificates of deposit 670,521 1.85 524,938 0.77 607,133 0.53
Total interest-bearing deposits $ 6,431,523 1.56 $ 6,239,111 0.94 $ 6,802,185 0.17
Total average deposits $ 10,913,489 0.92 $ 11,002,614 0.53 $ 11,494,212 0.10


	Quarter ended
	September 30, 2023				June 30, 2023				September 30, 2022
(in thousands)	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid
Noninterest-bearing deposit accounts	$	4,005,923	—	%	$	4,051,456	—	%	$	4,778,720	—	%

Interest-bearing demand accounts	2,672,084		2.03		2,509,805		1.62		2,200,619		0.31
Money market accounts	3,079,221		3.40		2,920,079		2.82		2,791,822		0.86
Savings accounts	646,187		0.15		686,973		0.13		828,747		0.03
Certificates of deposit	1,519,119		3.91		1,219,500		3.46		554,987		0.60
Total interest-bearing deposits	$	7,916,611	2.77		$	7,336,357	2.26		$	6,376,175	0.54

Total average deposits	$	11,922,534	1.84		$	11,387,813	1.46		$	11,154,895	0.31



	Nine months ended
	September 30, 2023				September 30, 2022
(in thousands)	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid
Noninterest-bearing deposit accounts	$	4,178,038	—	%	$	4,819,718	—	%

Interest-bearing demand accounts	2,462,988		1.61		2,344,007		0.17
Money market accounts	2,942,970		2.83		2,810,278		0.47
Savings accounts	688,157		0.14		833,721		0.03
Certificates of deposit	1,139,489		3.35		584,213		0.57
Total interest-bearing deposits	$	7,233,604	2.24		$	6,572,219	0.31

Total average deposits	$	11,411,642	1.42		$	11,391,937	0.18

Total deposits excluding brokered certificates of deposits, were ~~$10.8~~$11.2 billion at ~~March 31,~~September 30, 2023, an increase of ~~$74.9~~$504.2 million from December 31, 2022. The mix of the deposit portfolio shifted from noninterest-bearing demand deposits to higher yielding categories in the current ~~quarter~~year due to the competitive rate environment. Brokered certificates of deposit increased ~~$250.5~~$576.6 million, to ~~$369.5~~$695.6 million at ~~March 31,~~September 30, 2023. Brokered certificates of deposit were used ~~for term liquidity purposes in place of FHLB borrowings~~as a stable funding source to support loan growth in the first half of 2023. This strategy helped preserve wholesale borrowing capacity and liquidity measures. As customer deposits increased in the third quarter ~~2023.~~2023, brokered certificates of deposit declined $198.3 million in the current quarter. 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 ~~$2.8~~$3.2 billion at ~~March 31,~~September 30, 2023 and $2.5 billion at December 31, 2022.

To provide customers a deposit product with enhanced FDIC insurance, the Company participates in several programs through third parties that provide full FDIC insurance on deposit amounts by exchanging or reciprocating larger depository relationships with other member banks. Total reciprocal deposits were ~~$486.7 million~~$1.1 billion at ~~March 31,~~September 30, 2023, compared to $205.8 million at December 31, 2022. The Company considers reciprocal accounts as customer-related deposits due to the customer relationship that generated the transaction.

At ~~March 31,~~September 30, 2023, estimated ~~uninsured~~uninsured/uncollateralized deposits totaled $3.4 billion, or 29% of total deposits, compared to $5.9 billion, or 55% of total deposits, at December 31, 2022. The decrease in estimated uninsured deposits was the result of an increase in reciprocal deposits and accounts that qualify for pass-through insurance.

As rates increase, deposit balances may decline or the composition of the deposit portfolio may continue to shift to higher-yielding deposit products, such as money market accounts or certificates of deposit. The total cost of deposits was ~~0.92%~~1.84% for the current quarter, compared to ~~0.53%~~1.46% for the linked quarter. For the year-to-date period in 2023, the total cost of deposits was 1.42%, compared to 0.18% in the prior year period.

Shareholders’ Equity

Shareholders’ equity totaled $1.6 billion at ~~March 31,~~September 30, 2023, an increase of ~~$70.6~~$89.6 million from December 31, 2022. Significant activity during the first ~~three~~nine months of 2023 was as follows:

•increase from net income of ~~$55.7~~$149.5 million,

•net ~~increase~~decrease in fair value of securities and cash flow hedges of ~~$24.4~~$37.5 million, and

•decrease from dividends paid on common and preferred stock of ~~$10.3~~$30.8 million.

Liquidity and Capital Resources

Liquidity

The objective of liquidity management is to ensure we have the ability to generate sufficient cash or cash equivalents in a timely and cost-effective manner to meet our commitments as they become due. Typical demands on liquidity are 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 loan and 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 loans or 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. To the extent that other banks tighten their lending capacity, this may impact our ability to sell loan participations.

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 assets is available primarily from cash balances and the investment portfolio. Cash and interest-bearing deposits with other banks totaled ~~$285.1~~$370.7 million at ~~March 31,~~September 30, 2023 and $291.4 million at December 31, 2022. Recent increases in short term interest rates, a tightening of monetary policy by the Federal Reserve and ~~recent~~ bank failures ~~has~~in early 2023 have led to competitive pricing pressures and a reduction of deposits in the industry. To enhance liquidity, the Company reduced ~~its~~ reinvestment of investment portfolio cash flows for a short period during the ~~three~~nine months ended ~~March 31, 2023 compared to prior quarters.~~September 30, 2023. However, investment securities are an important tool to the Company’s

liquidity ~~objectives.~~objectives and reinvestment of cash flows resumed as the market stabilized.

Available on- and off-balance sheet liquidity sources include the following items:


(in thousands)	~~March 31,~~September 30, 2023
Federal Reserve Bank borrowing capacity	$	~~2,668,163~~2,491,087
FHLB borrowing capacity	~~824,053~~945,086
Unpledged securities	~~449,440~~790,887
Federal funds lines (7(6 correspondent banks)	~~140,000~~120,000
Cash and interest-bearing deposits	~~285,083~~370,698
Holding Company line of credit	25,000
Total	$	~~4,391,739~~4,742,758

The Company also has a portfolio of SBA guaranteed loans, a portion of which could be sold in the secondary market to generate earnings and liquidity. SBA loans totaling $42.1 million were sold during 2023.

In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company’s various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company’s liquidity. The Company has ~~$3.1~~$3.2 billion in unused commitments to extend credit as of ~~March 31,~~September 30, 2023. However, 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, 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 was available at ~~March 31,~~September 30, 2023. The line of credit has a one-year term and was renewed in February 2023 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 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

The Company and the Bank are subject to various regulatory capital requirements administered by ~~Federal~~federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its bank affiliate must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The banking affiliate’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total, Tier 1, and common equity tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. To be categorized as “well capitalized”, banks must maintain minimum total risk-based (10%), Tier 1 risk-based (8%), common equity tier 1 risk-based (6.5%), and Tier 1 leverage ratios (5%). In addition, the Company must maintain an additional CCB above the regulatory minimum ratio requirements. The CCB is designed to insulate banks from periods of stress and impose constraints on dividends, share repurchases and discretionary bonus payments when capital levels fall below prescribed levels. As of ~~March 31,~~September 30, 2023, and December 31, 2022, 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 the Company’s various capital ratios:


		March 31, 2023				December 31, 2022									September 30, 2023				December 31, 2022
(in thousands)	(in thousands)	EFSC		Bank		EFSC		Bank		To Be Well-Capitalized		Minimum Ratio with CCB		(in thousands)	EFSC		Bank		EFSC		Bank		To Be Well-Capitalized		Minimum Ratio with CCB
Common Equity Tier 1 Capital to Risk Weighted Assets	Common Equity Tier 1 Capital to Risk Weighted Assets	11.2	%	12.0	%	11.1	%	12.1	%	6.5	%	7.0	%	Common Equity Tier 1 Capital to Risk Weighted Assets	11.2	%	12.1	%	11.1	%	12.1	%	6.5	%	7.0	%
Tier 1 Capital to Risk Weighted Assets	Tier 1 Capital to Risk Weighted Assets	12.6	%	12.0	%	12.6	%	12.1	%	8.0	%	8.5	%	Tier 1 Capital to Risk Weighted Assets	12.6	%	12.1	%	12.6	%	12.1	%	8.0	%	8.5	%
Total Capital to Risk Weighted Assets	Total Capital to Risk Weighted Assets	14.3	%	13.1	%	14.2	%	13.1	%	10.0	%	10.5	%	Total Capital to Risk Weighted Assets	14.1	%	13.1	%	14.2	%	13.1	%	10.0	%	10.5	%
Leverage Ratio (Tier 1 Capital to Average Assets)	Leverage Ratio (Tier 1 Capital to Average Assets)	11.1	%	10.6	%	10.9	%	10.5	%	5.0	%	N/A		Leverage Ratio (Tier 1 Capital to Average Assets)	10.9	%	10.5	%	10.9	%	10.5	%	5.0	%	N/A
Tangible common equity to tangible assets1	Tangible common equity to tangible assets1	8.8	%			8.4	%							Tangible common equity to tangible assets1	8.51	%			8.43	%

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

The Company believes the tangible common equity ratio is an important measure of capital strength, even though it is considered a non-GAAP measure. A reconciliation has been included in this 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, core efficiency ratio, and the tangible common equity ratio, in this report that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position, or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.

The Company considers its tangible common equity, PPNR, core efficiency ratio, and the tangible common equity ratio, collectively “core performance measures,” presented in this report and the included tables as important measures of financial performance, even though they are non-GAAP measures, as they provide supplemental information by which to evaluate the impact of 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, that 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
(in thousands) March 31,
2023 December 31,
2022 March 31,
2022
Net interest income (GAAP) $ 139,529 $ 138,835 $ 101,165
Tax-equivalent adjustment 2,041 1,983 1,506
Net interest income - FTE (non-GAAP) $ 141,570 $ 140,818 $ 102,671
Noninterest income (GAAP) 16,898 16,873 18,641
Less gain on sale of investment securities 381 — —
Less gain on sale of other real estate owned 90 — 19
Core revenue (non-GAAP) $ 157,997 $ 157,691 $ 121,293
Noninterest expense (GAAP) $ 80,983 $ 77,149 $ 62,800
Less amortization on intangibles 1,239 1,299 1,430
Core noninterest expense (non-GAAP) $ 79,744 $ 75,850 $ 61,370
Core efficiency ratio (non-GAAP) 50.47 % 48.10 % 50.60 %
Efficiency Ratio


	Quarter ended									Nine months ended
(in thousands)	September 30, 2023			June 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
Net interest income (GAAP)	$	141,639		$	140,692		$	124,290		$	421,860		$	335,068
Tax-equivalent adjustment	2,061			2,062			1,854			6,164			5,059
Net interest income - FTE (non-GAAP)	$	143,700		$	142,754		$	126,144		$	428,024		$	340,127
Noninterest income (GAAP)	12,085			14,290			9,454			43,273			42,289
Less gain on sale of investment securities	—			—			—			381			—
Less gain (loss) on sale of other real estate owned	—			97			(22)			187			(93)
Core revenue (non-GAAP)	$	155,785		$	156,947		$	135,620		$	470,729		$	382,509

Noninterest expense (GAAP)	$	88,644		$	85,956		$	68,843		$	255,583		$	197,067
Less amortization on intangibles	1,118			1,136			1,310			3,493			4,068


Core noninterest expense (non-GAAP)	$	87,526		$	84,820		$	67,533		$	252,090		$	192,999

Core efficiency ratio (non-GAAP)	56.18		%	54.04		%	49.80		%	53.55		%	50.46		%

4551

Tangible Common Equity, Tangible Book Value per Share, and Tangible Common Equity Ratio


(in thousands)	(in thousands)	March 31, 2023			December 31, 2022			(in thousands)	September 30, 2023			December 31, 2022
Shareholders' equity (GAAP)	Shareholders' equity (GAAP)	$	1,592,820		$	1,522,263		Shareholders' equity (GAAP)	$	1,611,880		$	1,522,263
Less preferred stock	Less preferred stock	71,988			71,988			Less preferred stock	71,988			71,988
Less goodwill	Less goodwill	365,164			365,164			Less goodwill	365,164			365,164
Less intangible assets	Less intangible assets	15,680			16,919			Less intangible assets	13,425			16,919
Tangible common equity (non-GAAP)	Tangible common equity (non-GAAP)	$	1,139,988		$	1,068,192		Tangible common equity (non-GAAP)	$	1,161,303		$	1,068,192

Common shares outstanding	Common shares outstanding	37,311			37,253			Common shares outstanding	37,385			37,253
Tangible book value per share (non-GAAP)	Tangible book value per share (non-GAAP)	$	30.55		$	28.67		Tangible book value per share (non-GAAP)	$	31.06		$	28.67

Total assets (GAAP)	Total assets (GAAP)	$	13,325,982		$	13,054,172		Total assets (GAAP)	$	14,025,042		$	13,054,172
Less goodwill	Less goodwill	365,164			365,164			Less goodwill	365,164			365,164
Less intangible assets, net	Less intangible assets, net	15,680			16,919			Less intangible assets, net	13,425			16,919
Tangible assets (non-GAAP)	Tangible assets (non-GAAP)	$	12,945,138		$	12,672,089		Tangible assets (non-GAAP)	$	13,646,453		$	12,672,089

Tangible common equity to tangible assets (non-GAAP)	Tangible common equity to tangible assets (non-GAAP)	8.81		%	8.43		%	Tangible common equity to tangible assets (non-GAAP)	8.51		%	8.43		%

~~Average Shareholders’ Equity and~~Return on Average Tangible Common Equity (ROATCE)


		For the three months ended						Quarter ended								Nine months ended
(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		March 31, 2022			(in thousands)	September 30, 2023			June 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
Average shareholder’s equity (GAAP)	Average shareholder’s equity (GAAP)	$	1,568,451	$	1,490,592	$	1,536,221		Average shareholder’s equity (GAAP)	$	1,648,605		$	1,621,337		$	1,494,504		$	1,613,091		$	1,501,512
Less average preferred stock	Less average preferred stock	71,988		71,988		71,988			Less average preferred stock	71,988			71,988			71,988			71,988			71,988
Less average goodwill	Less average goodwill	365,164		365,164		365,164			Less average goodwill	365,164			365,164			365,164			365,164			365,164
Less average intangible assets	Less average intangible assets	16,247		17,544		21,540			Less average intangible assets	13,967			15,094			18,857			15,094			20,181
Average tangible common equity (non-GAAP)	Average tangible common equity (non-GAAP)	$	1,115,052	$	1,035,896	$	1,077,529		Average tangible common equity (non-GAAP)	$	1,197,486		$	1,169,091		$	1,038,495		$	1,160,845		$	1,044,179

Net income available to common shareholders (GAAP)									Net income available to common shareholders (GAAP)	$	43,727		$	48,190		$	49,263		$	146,717		$	139,938
Return on average tangible common equity									Return on average tangible common equity	14.49		%	16.53		%	18.82		%	16.90		%	17.92		%

~~PPNR~~

Quarter ended
(in thousands) Mar 31,
2023 Dec 31,
2022 Mar 31,
2022
CALCULATION OF PRE-PROVISION NET REVENUE (PPNR)
Net interest income $ 139,529 $ 138,835 $ 101,165
Noninterest income 16,898 16,873 18,641
Less gain on sale of investment securities 381 — —
Less gain on sale of other real estate owned 90 — 19
Less noninterest expense 80,983 77,149 62,800
PPNR (non-GAAP) $ 74,973 $ 78,559 $ 56,987
Pre-Provision Net Revenue (PPNR)


	Quarter ended				Nine months ended
(in thousands)	September 30, 2023		June 30, 2023			September 30, 2022		September 30, 2023		September 30, 2022
Net interest income	$	141,639	$	140,692		$	124,290	$	421,860	$	335,068
Noninterest income	12,085		14,290			9,454		43,273		42,289
Less gain on sale of investment securities	—		—			—		381		—
Less gain (loss) on sale of other real estate owned	—		97			(22)		187		(93)
Less noninterest expense	88,644		85,956			68,843		255,583		197,067


PPNR (non-GAAP)	$	65,080	$	68,929		$	64,923	$	208,982	$	180,383

Calculation of Estimated Insured Deposits


	Quarter ended
(in thousands)	September 30, 2023
Estimated uninsured deposits per Call Report	$	3,886,299
Collateralized/affiliate deposits	(455,553)
Accrued interest on deposits	(6,231)
Adjusted uninsured/uncollateralized deposits	3,424,515
Estimated insured/collateralized deposits	8,485,392
Total deposits	$	11,909,907

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The disclosures set forth in this item are qualified by 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 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 manage any impact from market interest rate changes according to our risk tolerances. The Company uses a simulation model to measure the sensitivity to changing rates on earnings and economic value of equity (“EVE”). EVE is a longer term measure of interest rate risk and is based on the discounted cash flow or market value of each asset and liability category on the balance sheet.earnings.

The Company determines the sensitivity of its short-term future earnings ~~and EVE~~ to a hypothetical plus or minus 100 to 300 basis point parallel rate shock through the use of simulation modeling. The simulation 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 ~~and EVE~~ based on a hypothetical change in interest rates. The resulting net interest income for the next 12-month period ~~and the EVE~~ is compared to the baseline amounts calculated using flat rates. The difference represents the Company’s 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 ~~and EVE~~ at ~~March 31,~~September 30, 2023:

Rate Shock Annual % change
in net interest income Percentage change in economic value of equity
+ 300 bp 9.8% 6.6%
+ 200 bp 6.6% 4.7%
+ 100 bp 3.3% 2.5%
- 100 bp (3.5)% (3.9)%
- 200 bp (7.8)% (9.3)%
- 300 bp (12.4)% (16.8)%


Rate Shock			Annual % change in net interest income
+ 300 bp			9.1%
+ 200 bp			6.1%
+ 100 bp			3.0%
- 100 bp			(3.2)%
- 200 bp			(6.6)%
- 300 bp			(10.0)%

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 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 ~~March 31,~~September 30, 2023, the Company had derivative contracts to manage interest rate risk, including $250.0 million in notional value on derivatives to hedge the cash flows on floating rate loans and $62.0 million in notional value on derivative on floating rate debt. Derivative financial instruments are also discussed in “Item 1. Note 6 – Derivative Financial Instruments.”

The ~~FCA~~Financial Conduct Authority has announced that the most common USD LIBOR settings (overnight, 1-month. 3-month, 6-month and 12-month) will cease publication after September 30, 2024. However, LIBOR rates published after June 30, 2023 will be based on a “synthetic” methodology. LIBOR is commonly referenced in financial instruments. With the cessation of LIBOR, the Company has selected term SOFR as the replacement index for the majority of its variable rate loans and began providing customer notifications in early 2023. The Company ceased using LIBOR and ~~ICE~~International Exchange, Inc. 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, debt instruments and derivatives, among other financial contracts indexed to LIBOR. 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 from the replacement index for affected contracts that expire after the expected discontinuation of representative LIBOR on June 30, 2023. 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 March 31, 2023, the Company’s financial contracts indexed to LIBOR included $375.8 million in loans, $74.9 million in borrowings, and $546.2 million (notional) in derivatives.

~~In addition, LIBOR may be referenced in other financial contracts not included in the discussion above.~~

The Company had ~~$6.3~~$6.5 billion in variable rate loans at ~~March 31,~~September 30, 2023. Of these loans, ~~$3.7~~$4.1 billion have an interest rate floor and nearly all of those loans were at or above the floor. ~~$375.8 million in variable~~Variable rate loans ~~are indexed to LIBOR, $3.0~~include $2.8 billion ~~are~~ indexed to the prime rate, ~~$2.2~~$2.6 billion ~~are~~ indexed to SOFR, $277.5 million indexed to LIBOR, and ~~$726.8~~$797.0 million ~~are~~ indexed to other rates.

At ~~March 31,~~September 30, 2023, the Company’s available-for-sale and held-to-maturity investment securities totaled ~~$1.6~~$1.5 billion and ~~$720.7~~$730.7 million, respectively. These portfolios ~~consists~~consist primarily of fixed-rate securities that are subject to changes in market value due to changes in interest rates. At ~~March 31,~~September 30, 2023, net unrealized losses were ~~$161.6~~$235.0 million and ~~$65.0~~$108.8 million on the available-for-sale and held-to-maturity investment portfolios, respectively.

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)~~(the “CEO”) and the Chief Financial Officer ~~(CFO)~~(the “CFO”), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15, as of ~~March 31,~~September 30, 2023. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on that evaluation, the CEO and CFO concluded the Company’s disclosure controls and procedures were effective as of ~~March 31,~~September 30, 2023 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, 2022, ~~which is~~and supplemented by the additional risk factor set forth below.

Adverse developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system and could have a material effect on the Company’s operations and/or stock price.

The recent high-profile bank failures involving Silicon Valley Bank and Signature Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact our liquidity, cost of funding, loan funding capacity, net interest margin, capital and results of operations. In connection with high-profile bank failures, uncertainty and concern has been, and may be in the future, compounded by advances in technology that increase the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring

that depositors of recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly. In addition, the banking operating environment and public trading prices of banking institutions can be highly correlated, in particular during times of stress, which could adversely impact the trading prices of our common stock and potentially our results of operations. For more information on the Company's liquidity position, please see the “Deposits” and “Liquidity and Capital Resources” sections of Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES, ~~AND~~ USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

None.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

~~None.~~During the quarter ended September 30, 2023, no officer or director of the company adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities of the company’s common stock that is intended to satisfy the affirmative defense conditions of Securities Exchange Act Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement as defined in 17 CFR § 229.408(c).

ITEM 6: EXHIBITS

Exhibit No. Description

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

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

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

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

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

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

3.7 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)).

3.10 Certificate of Elimination of 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 Registrant’s Current Report on Form 8-K filed on November 9, 2021 (File No. 001-15373)).

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

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 ~~March 31,~~September 30, 2023, 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.

5157

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Clayton, State of Missouri, on the day of ~~April 28,~~October 27, 2023.


			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

5258


Three months ended March 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 December 31, 2021	75	$	71,988	37,819	$	398	$	(73,528)	$	1,018,799	$	492,682	$	18,777	$	1,529,116
Net income	—	—		—	—		—		—		47,693		—		47,693

Other comprehensive loss	—	—		—	—		—		—		—		(78,037)		(78,037)
Cash dividends paid on common shares ($0.21 per share)	—	—		—	—		—		—		(7,915)		—		(7,915)
Cash dividends paid on preferred shares ($16.389 per share)	—	—			—		—		—		(1,229)		—		(1,229)
Repurchase of common stock	—	—		(351)	(4)		—		(9,457)		(7,513)		—		(16,974)



Issuance under equity compensation plans, net	—	—		48	1		—		(582)		(582)		—		(1,163)

Share-based compensation	—	—		—	—		—		1,686		—		—		1,686



Balance at March 31, 2022	75	$	71,988	37,516	$	395	$	(73,528)	$	1,010,446	$	523,136	$	(59,260)	$	1,473,177


	Quarter ended
(in thousands)	Mar 31, 2023		Dec 31, 2022		Mar 31, 2022
CALCULATION OF PRE-PROVISION NET REVENUE (PPNR)
Net interest income	$	139,529	$	138,835	$	101,165
Noninterest income	16,898		16,873		18,641
Less gain on sale of investment securities	381		—		—
Less gain on sale of other real estate owned	90		—		19
Less noninterest expense	80,983		77,149		62,800


PPNR (non-GAAP)	$	74,973	$	78,559	$	56,987


Rate Shock	Annual % change in net interest income	Percentage change in economic value of equity
+ 300 bp	9.8%	6.6%
+ 200 bp	6.6%	4.7%
+ 100 bp	3.3%	2.5%
- 100 bp	(3.5)%	(3.9)%
- 200 bp	(7.8)%	(9.3)%
- 300 bp	(12.4)%	(16.8)%