UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, ~~2022.~~2023.


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

For the transition period ~~from��~~from ______ to ______

Commission file number 001-15373

ENTERPRISE FINANCIAL SERVICES CORP

Incorporated in the State of Delaware

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

Address: 150 North Meramec

Clayton, MO 63105

Telephone: (314) 725-5500

___________________

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

EFSC

Nasdaq Global Select Market

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

EFSCP

Nasdaq Global Select Market

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☒

As of ~~July 27, 2022,~~August 2, 2023, the Registrant had ~~37,219,597~~37,384,124 shares of outstanding common stock, $0.01 par value per share.

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

TABLE OF CONTENTS


						Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets (Unaudited)						1

Condensed Consolidated Statements of ~~Operations~~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)						6

Notes to Condensed Consolidated Financial Statements (Unaudited)						7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						2930

Item 3. Quantitative and Qualitative Disclosures About Market Risk						4952

Item 4. Controls and Procedures						5154

PART II - OTHER INFORMATION

Item 1. Legal Proceedings						5154

Item 1A. Risk Factors						5154

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						5255

Item 3. Defaults Upon Senior Securities						5255

Item 4. Mine Safety Disclosures						5255

Item 5. Other Information						5255

Item 6. Exhibits						5257

Signatures						5559

Glossary of Acronyms, Abbreviations and Entities

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

ACL

Allowance for Credit Losses

FASB

Financial Accounting Standards Board

ASU

Accounting Standards Update

~~FCBP~~FHLB

~~First Choice Bancorp~~Federal Home Loan Bank

Bank

Enterprise Bank & Trust

~~FHLB~~

~~Federal Home Loan Bank~~

~~C&I~~

~~Commercial and Industrial~~

GAAP

Generally Accepted Accounting Principles (United States)

~~CCB~~C&I

~~Capital Conservation Buffer~~Commercial and Industrial

LIBOR

London Interbank Offered Rate

CCB

Capital Conservation Buffer

NIM

Net Interest Margin

CECL

Current Expected Credit Loss

~~NIM~~PPP

~~Net Interest Margin~~Paycheck Protection Program

Company

Enterprise Financial Services Corp

~~PPP~~SBA

~~Paycheck Protection Program~~Small Business Administration

CRE

Commercial Real Estate

~~SBA~~SEC

~~Small Business Administration~~Securities and Exchange Commission

EFSC

Enterprise Financial Services Corp

~~SEC~~SOFR

~~Securities and Exchange Commission~~Secured Overnight Financing Rate

Enterprise

Enterprise Financial Services Corp

PART 1I - ITEM 1 - FINANCIAL STATEMENTS

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)


(in thousands, except share and per share data)	(in thousands, except share and per share data)	June 30, 2022		December 31, 2021		(in thousands, except share and per share data)	June 30, 2023		December 31, 2022
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	271,763	$	209,177	Cash and due from banks	$	202,702	$	229,580
Federal funds sold	Federal funds sold	1,398		1,356		Federal funds sold	962		1,753
Interest-earning deposits (including $135 and $14,595 pledged as collateral, respectively)		671,643		1,811,156
Interest-earning deposits						Interest-earning deposits	118,359		60,026
Total cash and cash equivalents	Total cash and cash equivalents	944,804		2,021,689		Total cash and cash equivalents	322,023		291,359
Interest-earning deposits greater than 90 days	Interest-earning deposits greater than 90 days	7,302		6,996		Interest-earning deposits greater than 90 days	6,007		8,029
Securities available-for-sale	Securities available-for-sale	1,493,277		1,366,006		Securities available-for-sale	1,550,375		1,535,807
Securities held-to-maturity, net	Securities held-to-maturity, net	617,767		429,681		Securities held-to-maturity, net	723,959		709,915
Loans held-for-sale	Loans held-for-sale	4,615		6,389		Loans held-for-sale	551		1,228
Loans	Loans	9,269,176		9,017,642		Loans	10,512,623		9,737,138
Allowance for credit losses on loans	Allowance for credit losses on loans	(140,546)		(145,041)		Allowance for credit losses on loans	(141,319)		(136,932)
Total loans, net	Total loans, net	9,128,630		8,872,601		Total loans, net	10,371,304		9,600,206

Other investments	Other investments	61,274		59,896		Other investments	66,487		63,790
Fixed assets, net	Fixed assets, net	46,028		47,915		Fixed assets, net	41,988		42,985

Goodwill	Goodwill	365,164		365,164		Goodwill	365,164		365,164
Intangible assets, net	Intangible assets, net	19,528		22,286		Intangible assets, net	14,544		16,919

Other assets	Other assets	396,117		338,735		Other assets	408,752		418,770
Total assets	Total assets	$	13,084,506	$	13,537,358	Total assets	$	13,871,154	$	13,054,172

Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity					Liabilities and Shareholders' Equity
Noninterest-bearing demand accounts	Noninterest-bearing demand accounts	$	4,746,478	$	4,578,436	Noninterest-bearing demand accounts	$	3,880,561	$	4,642,732
Interest-bearing demand accounts	Interest-bearing demand accounts	2,197,957		2,465,884		Interest-bearing demand accounts	2,629,339		2,256,295
Money market accounts	Money market accounts	2,726,024		2,890,976		Money market accounts	2,913,018		2,655,159
Savings accounts	Savings accounts	836,958		800,210		Savings accounts	664,838		744,256
Certificates of deposit:	Certificates of deposit:					Certificates of deposit:
Brokered	Brokered	129,064		128,970		Brokered	893,808		118,968
Other	Other	456,137		479,323		Other	638,296		411,740
Total deposits	Total deposits	11,092,618		11,343,799		Total deposits	11,619,860		10,829,150
Subordinated debentures and notes	Subordinated debentures and notes	155,164		154,899		Subordinated debentures and notes	155,706		155,433
FHLB advances	FHLB advances	50,000		50,000		FHLB advances	150,000		100,000
Other borrowings	Other borrowings	226,695		353,863		Other borrowings	199,390		324,119

Other liabilities	Other liabilities	112,617		105,681		Other liabilities	127,965		123,207
Total liabilities	Total liabilities	$	11,637,094	$	12,008,242	Total liabilities	$	12,252,921	$	11,531,909

Commitments and contingent liabilities (Note 5)	Commitments and contingent liabilities (Note 5)	0		0		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)		71,988		71,988
Common stock, $0.01 par value; 75,000,000 shares authorized; 37,205,524 shares issued and outstanding and 39,799,615 shares issued, respectively		372		398
Treasury stock, at cost; 1,980,093 shares		—		(73,528)
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 75,000 shares issued and outstanding ($1,000 per share liquidation preference)						Preferred stock, $0.01 par value; 5,000,000 shares authorized; 75,000 shares issued and outstanding ($1,000 per share liquidation preference)	71,988		71,988
Common stock, $0.01 par value; 75,000,000 shares authorized; 37,359,527 and 37,253,292 shares issued and outstanding, respectively						Common stock, $0.01 par value; 75,000,000 shares authorized; 37,359,527 and 37,253,292 shares issued and outstanding, respectively	374		373

Additional paid in capital	Additional paid in capital	976,684		1,018,799		Additional paid in capital	988,355		982,660
Retained earnings	Retained earnings	506,849		492,682		Retained earnings	680,981		597,574
Accumulated other comprehensive (loss) income		(108,481)		18,777
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(123,465)		(130,332)
Total shareholders' equity	Total shareholders' equity	1,447,412		1,529,116		Total shareholders' equity	1,618,233		1,522,263
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	13,084,506	$	13,537,358	Total liabilities and shareholders' equity	$	13,871,154	$	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 ~~Operations~~Income (Unaudited)


		Three months ended June 30,				Six months ended June 30,					Three months ended June 30,				Six months ended June 30,
(in thousands, except per share data)	(in thousands, except per share data)	2022		2021		2022		2021		(in thousands, except per share data)	2023		2022		2023		2022
Interest income:	Interest income:									Interest income:
Loans	Loans	$	102,153	$	79,064	$	198,276	$	156,037	Loans	$	170,159	$	102,153	$	322,765	$	198,276
Debt securities:	Debt securities:									Debt securities:
Taxable	Taxable	6,553		4,318		11,904		8,858		Taxable	9,619		6,553		18,905		11,904
Nontaxable	Nontaxable	4,526		3,394		8,468		6,473		Nontaxable	5,659		4,526		11,256		8,468

Interest-earning deposits	Interest-earning deposits	2,495		237		3,312		426		Interest-earning deposits	2,095		2,495		3,290		3,312
Dividends on equity securities	Dividends on equity securities	342		388		690		567		Dividends on equity securities	365		342		714		690
Total interest income	Total interest income	116,069		87,401		222,650		172,361		Total interest income	187,897		116,069		356,930		222,650
Interest expense:	Interest expense:									Interest expense:

Deposits	Deposits	3,850		2,467		6,709		5,130		Deposits	41,372		3,850		66,033		6,709
Subordinated debentures and notes	Subordinated debentures and notes	2,257		2,847		4,477		5,666		Subordinated debentures and notes	2,431		2,257		4,840		4,477
FHLB advances	FHLB advances	197		197		392		392		FHLB advances	1,279		197		2,611		392
Other borrowings	Other borrowings	152		152		294		312		Other borrowings	2,123		152		3,225		294
Total interest expense	Total interest expense	6,456		5,663		11,872		11,500		Total interest expense	47,205		6,456		76,709		11,872
Net interest income	Net interest income	109,613		81,738		210,778		160,861		Net interest income	140,692		109,613		280,221		210,778
Provision (benefit) for credit losses	Provision (benefit) for credit losses	658		(2,669)		(3,410)		(2,623)		Provision (benefit) for credit losses	6,339		658		10,522		(3,410)
Net interest income after provision (benefit) for credit losses	Net interest income after provision (benefit) for credit losses	108,955		84,407		214,188		163,484		Net interest income after provision (benefit) for credit losses	134,353		108,955		269,699		214,188
Noninterest income:	Noninterest income:									Noninterest income:
Deposit service charges	Deposit service charges	4,749		3,862		8,912		6,946		Deposit service charges	3,910		4,749		8,038		8,912
Wealth management revenue	Wealth management revenue	2,533		2,516		5,155		4,999		Wealth management revenue	2,472		2,533		4,988		5,155
Card services revenue	Card services revenue	3,514		2,975		6,554		5,471		Card services revenue	2,464		3,514		4,802		6,554

Tax credit income	Tax credit income	1,186		1,370		3,794		329		Tax credit income	368		1,186		2,181		3,794

Other income	Other income	2,212		5,481		8,420		9,749		Other income	5,076		2,212		11,179		8,420
Total noninterest income	Total noninterest income	14,194		16,204		32,835		27,494		Total noninterest income	14,290		14,194		31,188		32,835
Noninterest expense:	Noninterest expense:									Noninterest expense:
Employee compensation and benefits	Employee compensation and benefits	36,028		28,132		71,855		57,694		Employee compensation and benefits	41,641		36,028		84,144		71,855
Occupancy	Occupancy	4,309		3,529		8,895		7,280		Occupancy	3,954		4,309		8,015		8,895
Data processing	Data processing	3,111		2,850		6,371		5,740		Data processing	3,661		3,111		7,371		6,371
Professional fees	Professional fees	1,542		1,300		2,719		2,288		Professional fees	1,566		1,542		3,197		2,719

Merger-related expenses		—		1,949		—		5,091

Other expense	Other expense	20,434		14,696		38,384		27,247		Other expense	35,134		20,434		64,212		38,384
Total noninterest expense	Total noninterest expense	65,424		52,456		128,224		105,340		Total noninterest expense	85,956		65,424		166,939		128,224

Income before income tax expense	Income before income tax expense	57,725		48,155		118,799		85,638		Income before income tax expense	62,687		57,725		133,948		118,799
Income tax expense	Income tax expense	12,576		9,750		25,957		17,307		Income tax expense	13,560		12,576		29,083		25,957
Net income	Net income	$	45,149	$	38,405	$	92,842	$	68,331	Net income	$	49,127	$	45,149	$	104,865	$	92,842
Dividends on preferred stock	Dividends on preferred stock	938		—		2,167		—		Dividends on preferred stock	937		938		1,875		2,167
Net income available to common shareholders	Net income available to common shareholders	$	44,211	$	38,405	$	90,675	$	68,331	Net income available to common shareholders	$	48,190	$	44,211	$	102,990	$	90,675

Earnings per common share	Earnings per common share									Earnings per common share
Basic	Basic	$	1.19	$	1.23	$	2.42	$	2.19	Basic	$	1.29	$	1.19	$	2.76	$	2.42
Diluted	Diluted	1.19		1.23		2.41		2.18		Diluted	1.29		1.19		2.75		2.41

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three months ended June 30, Six months ended June 30,
(in thousands) 2022 2021 2022 2021
Net income $ 45,149 $ 38,405 $ 92,842 $ 68,331
Other comprehensive income (loss), after-tax:
Change in unrealized gain (loss) on available-for-sale securities (49,242) 2,850 (128,595) (8,070)
Reclassification of gain on held-to-maturity securities (701) (837) (1,405) (1,986)
Change in unrealized gain (loss) on cash flow hedges arising during the period 535 (205) 2,286 642
Reclassification of loss on cash flow hedges 187 287 456 566
Total other comprehensive income (loss), after-tax (49,221) 2,095 (127,258) (8,848)
Comprehensive income (loss) $ (4,072) $ 40,500 $ (34,416) $ 59,483


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2023		2022		2023		2022
Net income	$	49,127	$	45,149	$	104,865	$	92,842
Other comprehensive income (loss), after-tax:
Change in unrealized gain (loss) on available-for-sale securities	(13,677)		(49,242)		10,301		(128,595)
Reclassification of gain on sale of available-for-sale securities	—		—		(285)		—
Reclassification of gain on held-to-maturity securities	(686)		(701)		(1,324)		(1,405)
Change in unrealized gain (loss) on cash flow hedges	(3,338)		535		(2,063)		2,286
Reclassification of loss on cash flow hedges	211		187		238		456
Total other comprehensive income (loss), after-tax	(17,490)		(49,221)		6,867		(127,258)
Comprehensive income (loss)	$	31,637	$	(4,072)	$	111,732	$	(34,416)

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

Three and six months ended June 30, 2022
Preferred Stock Common Stock
(in thousands, except per share data) Shares Amount Shares Amount Treasury Stock Additional Paid in Capital Retained Earnings Accumulated
Other
Comprehensive Income (Loss) Total
Shareholders’ Equity
Balance at March 31, 2022 75 $ 71,988 37,516 $ 395 $ (73,528) $ 1,010,446 $ 523,136 $ (59,260) $ 1,473,177
Net income — — — — — — 45,149 — 45,149
Other comprehensive loss — — — — — — — (49,221) (49,221)
Common stock dividends ($0.22 per share) — — — — — — (8,185) — (8,185)
Preferred stock dividends ($12.50 per share) — — — — — (938) — (938)
Repurchase of common stock — — (349) (3) — (9,410) (6,536) — (15,949)
Issuance under equity compensation plans, net — — 39 — — 1,266 (7) — 1,259
Share-based compensation — — — — — 2,120 — — 2,120
Retirement of treasury stock (1,980 shares) — — — (20) 73,528 (27,738) (45,770) — —
Balance at June 30, 2022 75 $ 71,988 37,206 $ 372 $ — $ 976,684 $ 506,849 $ (108,481) $ 1,447,412
Balance at December 31, 2021 75 $ 71,988 37,820 $ 398 $ (73,528) $ 1,018,799 $ 492,682 $ 18,777 $ 1,529,116
Net income — — — — — — 92,842 — 92,842
Other comprehensive loss — — — — — — — (127,258) (127,258)
Common stock dividends ($0.43 per share) — — — — — — (16,100) — (16,100)
Preferred stock dividends ($28.889 per share) — — — — — — (2,167) — (2,167)
Repurchase of common stock — — (700) (7) — (18,867) (14,049) — (32,923)
Issuance under equity compensation plans, net — — 86 1 — 684 (589) — 96
Share-based compensation — — — — — 3,806 — — 3,806
Retirement of treasury stock (1,980 shares) — — — (20) 73,528 (27,738) (45,770) — —
Balance at June 30, 2022 75 $ 71,988 37,206 $ 372 $ — $ 976,684 $ 506,849 $ (108,481) $ 1,447,412


Three and six months ended June 30, 2023
	Preferred Stock			Common Stock
(in thousands, except per share data)	Shares	Amount		Shares	Amount		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at March 31, 2023	75	$	71,988	37,311	$	373	$	984,281	$	642,153	$	(105,975)	$	1,592,820
Net income	—	—		—	—		—		49,127		—		49,127





Other comprehensive income	—	—		—	—		—		—		(17,490)		(17,490)

Common stock dividends ($0.25 per share)	—	—		—	—		—		(9,340)		—		(9,340)
Preferred stock dividends ($12.50 per share)	—	—		—	—		—		(937)		—		(937)

Issuance under equity compensation plans, net	—	—		48	1		1,409		(22)		—		1,388

Share-based compensation	—	—		—	—		2,665		—		—		2,665





Balance at June 30, 2023	75	$	71,988	37,359	$	374	$	988,355	$	680,981	$	(123,465)	$	1,618,233

Balance December 31, 2022	75	$	71,988	37,253	$	373	$	982,660	$	597,574	$	(130,332)	$	1,522,263
Net income	—	—		—	—		—		104,865		—		104,865





Other comprehensive loss	—	—		—	—		—		—		6,867		6,867

Common stock dividends ($0.50 per share)	—	—		—	—		—		(18,668)		—		(18,668)
Preferred stock dividends ($25.00 per share)	—	—		—	—		—		(1,875)		—		(1,875)

Issuance under equity compensation plans, net	—	—		106	1		561		(915)		—		(353)

Share-based compensation	—	—		—	—		5,134		—		—		5,134





Balance at June 30, 2023	75	$	71,988	37,359	$	374	$	988,355	$	680,981	$	(123,465)	$	1,618,233


Three and six months ended June 30, 2021
Three and six months ended June 30, 2022																	Three and six months ended June 30, 2022
		Common Stock														Preferred Stock			Common Stock
(in thousands, except per share data)	(in thousands, except per share data)		Shares	Amount		Treasury Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity			(in thousands, except per share data)	Shares	Amount		Shares	Amount		Treasury Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at March 31, 2021			31,259	$	332	$	(73,528)	$	698,005	$	441,511	$	26,177	$	1,092,497
Balance at March 31, 2022																	Balance at March 31, 2022	75	$	71,988	37,516	$	395	$	(73,528)	$	1,010,446	$	523,136	$	(59,260)	$	1,473,177
Net income	Net income			—		—		—		38,405		—		38,405			Net income	—	—		—	—		—		—		45,149		—		45,149

Other comprehensive loss	Other comprehensive loss			—		—		—		—		2,095		2,095			Other comprehensive loss	—	—		—	—		—		—		—		(49,221)		(49,221)

Common stock dividends ($0.18 per share)				—		—		—		(5,634)		—		(5,634)
Common stock dividends ($0.22 per share)																	Common stock dividends ($0.22 per share)	—	—		—	—		—		—		(8,185)		—		(8,185)
Preferred stock dividends ($12.50 per share)																	Preferred stock dividends ($12.50 per share)	—	—			—		—		—		(938)		—		(938)
Repurchase of common stock	Repurchase of common stock		(252)	(2)		—		(11,831)		—		—		(11,833)			Repurchase of common stock	—	—		(349)	(3)		—		(9,410)		(6,536)		—		(15,949)

Issuance under equity compensation plans, net	Issuance under equity compensation plans, net		45	—		—		1,263		—		—		1,263			Issuance under equity compensation plans, net	—	—		39	—		—		1,266		(7)		—		1,259

Share-based compensation	Share-based compensation			—		—		1,508		—		—		1,508			Share-based compensation	—	—		—	—		—		2,120		—		—		2,120

Retirement of treasury stock (1,980 shares)																	Retirement of treasury stock (1,980 shares)		—			(20)		73,528		(27,738)		(45,770)		—		—
Balance at June 30, 2022																	Balance at June 30, 2022	75	$	71,988	37,206	$	372	$	—	$	976,684	$	506,849	$	(108,481)	$	1,447,412

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

Balance at December 31, 2020			31,210	$	332	$	(73,528)	$	697,839	$	417,212	$	37,120	$	1,078,975
Balance December 31, 2021																	Balance December 31, 2021	75	$	71,988	37,820	$	398	$	(73,528)	$	1,018,799	$	492,682	$	18,777	$	1,529,116
Net income	Net income			—		—		—		68,331		—		68,331			Net income		—		—	—		—		—		92,842		—		92,842

Other comprehensive income	Other comprehensive income			—		—		—		—		(8,848)		(8,848)			Other comprehensive income		—		—	—		—		—		—		(127,258)		(127,258)

Common stock dividends ($0.36 per share)				—		—		—		(11,261)		—		(11,261)
Common stock dividends ($0.43 per share)																	Common stock dividends ($0.43 per share)		—		—	—		—		—		(16,100)		—		(16,100)
Preferred stock dividends ($28.889 per share)																	Preferred stock dividends ($28.889 per share)		—			—		—		—		(2,167)		—		(2,167)
Repurchase of common stock	Repurchase of common stock		(252)	(2)		—		(11,831)		—		—		(11,833)			Repurchase of common stock		—		(700)	(7)		—		(18,867)		(14,049)		—		(32,923)

Issuance under equity compensation plans, net	Issuance under equity compensation plans, net		94	—		—		154		—		—		154			Issuance under equity compensation plans, net		—		86	1		—		684		(589)		—		96

Share-based compensation	Share-based compensation			—		—		2,783		—		—		2,783			Share-based compensation		—		—	—		—		3,806		—		—		3,806

Balance at June 30, 2021			31,052	$	330	$	(73,528)	$	688,945	$	474,282	$	28,272	$	1,118,301
Retirement of treasury stock (1,980 shares)																	Retirement of treasury stock (1,980 shares)		—			(20)		73,528		(27,738)		(45,770)		—		—
Balance June 30, 2022																	Balance June 30, 2022	75	$	71,988	37,206	$	372	$	—	$	976,684	$	506,849	$	(108,481)	$	1,447,412

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


		Six months ended June 30,					Six months ended June 30,
(in thousands, except share data)		2022		2021
(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	$	92,842	$	68,331	Net income	$	104,865	$	92,842
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	2,891		3,044		Depreciation	2,547		2,891
Benefit for credit losses		(3,410)		(2,623)
Provision (benefit) for credit losses						Provision (benefit) for credit losses	10,522		(3,410)
Deferred income taxes	Deferred income taxes	4,644		4,025		Deferred income taxes	776		4,644
Net amortization of debt securities		3,157		3,926
Net accretion on loan discount/premiums		(633)		(1,386)
Net amortization of discount/premiums on debt securities						Net amortization of discount/premiums on debt securities	2,039		3,157
Net amortization on loan discount/premiums						Net amortization on loan discount/premiums	2,108		(633)
Amortization of intangible assets	Amortization of intangible assets	2,758		2,726		Amortization of intangible assets	2,375		2,758
Amortization of servicing assets	Amortization of servicing assets	1,693		234		Amortization of servicing assets	1,006		1,693
Mortgage loans originated-for-sale	Mortgage loans originated-for-sale	(43,352)		(87,299)		Mortgage loans originated-for-sale	(9,578)		(43,352)
Proceeds from mortgage loans sold	Proceeds from mortgage loans sold	44,789		94,327		Proceeds from mortgage loans sold	10,279		44,789
Loss (gain) on:	Loss (gain) on:					Loss (gain) on:

Sale of investment securities						Sale of investment securities	(381)		—
Sale of SBA loans						Sale of SBA loans	(501)		—
Sale of other real estate	Sale of other real estate	71		(596)		Sale of other real estate	(188)		71

Sale of fixed assets						Sale of fixed assets	10		—
Sale of state tax credits	Sale of state tax credits	(41)		(96)		Sale of state tax credits	(215)		(41)

Share-based compensation	Share-based compensation	3,806		2,783		Share-based compensation	5,134		3,806

Changes in other assets and liabilities, net		5,534		(22,401)
Net change in other assets and liabilities						Net change in other assets and liabilities	8,988		5,534

Net cash provided by operating activities	Net cash provided by operating activities	114,749		64,995		Net cash provided by operating activities	139,786		114,749
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Net increase in loans	Net increase in loans	(251,381)		(9,370)		Net increase in loans	(789,370)		(251,381)

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		—
Paydown or maturity of debt securities, available-for-sale	Paydown or maturity of debt securities, available-for-sale	127,119		131,948		Paydown or maturity of debt securities, available-for-sale	119,794		127,119
Paydown or maturity of debt securities, held-to-maturity	Paydown or maturity of debt securities, held-to-maturity	8,671		32,698		Paydown or maturity of debt securities, held-to-maturity	3,623		8,671
Redemption of other investments	Redemption of other investments	3,376		2,213		Redemption of other investments	75,843		3,376
Sale of SBA loans						Sale of SBA loans	9,502		—
Sale of state tax credits held for sale	Sale of state tax credits held for sale	3,641		4,262		Sale of state tax credits held for sale	1,225		3,641
Sale of other real estate	Sale of other real estate	1,834		5,542		Sale of other real estate	457		1,834
Sale of fixed assets						Sale of fixed assets	43		—
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	(544,909)		(316,743)		Available-for-sale debt securities	(154,787)		(544,909)
Held-to-maturity debt securities	Held-to-maturity debt securities	(83,283)		—		Held-to-maturity debt securities	(21,146)		(83,283)
Other investments	Other investments	(19,437)		(4,729)		Other investments	(76,454)		(19,437)

State tax credits held for sale	State tax credits held for sale	(7,352)		(3,285)		State tax credits held for sale	(75)		(7,352)
Fixed assets	Fixed assets	(1,004)		(847)		Fixed assets	(1,603)		(1,004)
Net cash used in investing activities	Net cash used in investing activities	(762,191)		(158,311)		Net cash used in investing activities	(804,207)		(762,191)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in noninterest-bearing deposit accounts		168,042		399,753
Net (decrease) increase in interest-bearing deposit accounts		(419,223)		254,362
Net (decrease) increase in noninterest-bearing deposit accounts						Net (decrease) increase in noninterest-bearing deposit accounts	(762,171)		168,042
Net increase (decrease) in interest-bearing deposit accounts						Net increase (decrease) in interest-bearing deposit accounts	1,552,881		(419,223)

Net increase in FHLB advances						Net increase in FHLB advances	50,000		—

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

Net decrease in other borrowings	Net decrease in other borrowings	(124,311)		(62,285)		Net decrease in other borrowings	(121,872)		(124,311)

Repurchase of common stock	Repurchase of common stock	(32,923)		(11,833)		Repurchase of common stock	—		(32,923)
Cash dividends paid on common stock	Cash dividends paid on common stock	(16,100)		(11,261)		Cash dividends paid on common stock	(18,668)		(16,100)
Cash dividends paid on preferred stock	Cash dividends paid on preferred stock	(2,167)		—		Cash dividends paid on preferred stock	(1,875)		(2,167)
Other	Other	96		154		Other	(353)		96

Net cash (used in) provided by financing activities		(429,443)		564,604
Net (decrease) increase in cash and cash equivalents		(1,076,885)		471,288
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	695,085		(429,443)
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	30,664		(1,076,885)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	2,021,689		537,703		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	$	944,804	$	1,008,991	Cash and cash equivalents, end of period	$	322,023	$	944,804
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	$	11,873	$	11,897	Interest	$	74,691	$	11,873
Income taxes	Income taxes	14,889		34,571		Income taxes	21,703		14,889
Noncash investing and financing transactions:	Noncash investing and financing transactions:					Noncash investing and financing transactions:
Transfer to other real estate owned in settlement of loans		$	—	$	3,227
Sales of other real estate financed		—		228

Right-of-use assets obtained in exchange for lease obligations	Right-of-use assets obtained in exchange for lease obligations	4,178		—		Right-of-use assets obtained in exchange for lease obligations	3,137		4,178

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 six months ended June 30, ~~2022~~2023 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, ~~2022. For further information, refer to~~2023. 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, ~~2021,~~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, ~~2021.~~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 ~~provided~~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, ~~that~~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.

~~FASB~~ In December 2022, ASU ~~2022-02,~~ ~~Financial Instruments–Credit Losses~~2022-06 Reference Rate Reform (Topic ~~326); Troubled Debt Restructurings and Vintage Disclosures.ASU 2022-02~~848): Deferral of the Sunset date of Topic 848 was issued, ~~in March~~which extends the sunset date from December 31, 2022 ~~and eliminates the accounting guidance on troubled debt restructurings for creditors in ASC 310-40 and amends the guidance on “vintage disclosures”~~ to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. The amendments in this update will

~~be effective for fiscal years beginning after~~ December ~~15, 2022 for entities that have adopted the amendments in ASU 2016-13,~~ ~~Financial Instruments–Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. The Company is evaluating the accounting and disclosure requirements of ASU 2022-02 and does not expect them to have a material effect on the consolidated financial statements.~~31, 2024.

FASB ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale ~~Restrictions~~Restrictions.. ASU 2022-03 was issued in June 2022 to (1) to clarify the guidance in Topic 820, Fair Value Measurement,, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company ~~is evaluating~~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.

~~Acquisitions~~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 ~~Divestitures~~

~~Acquisitions and business combinations~~other income tax benefits. If certain conditions are ~~accounted~~met, a reporting entity may elect to account for its tax equity investments by using the ~~acquisition~~proportional amortization method ~~of accounting. The assets and liabilities~~regardless of the ~~acquired entities~~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 ~~been recorded at their estimated fair values at~~a material effect on the ~~date of acquisition. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets.~~

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

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

statements.

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

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

NOTE 2 - EARNINGS PER SHARE

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

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


		Three months ended June 30,				Six months ended June 30,					Three months ended June 30,				Six months ended June 30,
(in thousands, except per share data)	(in thousands, except per share data)	2022		2021		2022		2021		(in thousands, except per share data)	2023		2022		2023		2022
Net income available to common shareholders	Net income available to common shareholders	$	44,211	$	38,405	$	90,675	$	68,331	Net income available to common shareholders	$	48,190	$	44,211	$	102,990	$	90,675

Weighted average common shares outstanding	Weighted average common shares outstanding	37,243		31,265		37,514		31,256		Weighted average common shares outstanding	37,347		37,243		37,326		37,514

Additional dilutive common stock equivalents	Additional dilutive common stock equivalents	39		47		58		49		Additional dilutive common stock equivalents	148		39		185		58
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	37,282		31,312		37,572		31,305		Weighted average diluted common shares outstanding	37,495		37,282		37,511		37,572

Basic earnings per common share:	Basic earnings per common share:	$	1.19	$	1.23	$	2.42	$	2.19	Basic earnings per common share:	$	1.29	$	1.19	$	2.76	$	2.42
Diluted earnings per common share:	Diluted earnings per common share:	1.19		1.23		$	2.41	$	2.18	Diluted earnings per common share:	1.29		1.19		$	2.75	$	2.41

For the three and six months ended June 30, ~~2022~~2023, common stock equivalents of approximately ~~363,000~~462,000 and ~~319,000,~~411,000, respectively, were excluded from the earnings per share calculations because their effect would have been anti-dilutive. Comparatively, there were ~~154,000~~363,000 and ~~133,000~~319,000 common stock equivalents excluded in the prior year periods, respectively.

NOTE 3 - INVESTMENTS

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


		June 30, 2022						June 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	$	250,833	$	—	$	(19,160)		$	231,673	Obligations of U.S. Government-sponsored enterprises	$	300,450	$	12	$	(27,320)	$	273,142
Obligations of states and political subdivisions	Obligations of states and political subdivisions	510,047		21		(93,233)			416,835		Obligations of states and political subdivisions	502,171		39		(79,842)		422,368
Agency mortgage-backed securities	Agency mortgage-backed securities	686,957		34		(50,203)			636,788		Agency mortgage-backed securities	717,605		144		(67,007)		650,742
U.S. Treasury bills	U.S. Treasury bills	196,825		35		(2,232)			194,628		U.S. Treasury bills	201,256		—		(4,605)		196,651
Corporate debt securities	Corporate debt securities	13,750		37		(434)			13,353		Corporate debt securities	8,750		—		(1,278)		7,472
Total securities available for sale	Total securities available for sale	$	1,658,412	$	127	$	(165,262)		$	1,493,277	Total securities available for sale	$	1,730,232	$	195	$	(180,052)	$	1,550,375
Held-to-maturity securities:	Held-to-maturity securities:										Held-to-maturity securities:

Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	433,212	$	57	$	(65,422)		$	367,847	Obligations of states and political subdivisions	$	546,025	$	3,168	$	(57,023)	$	492,170
Agency mortgage-backed securities	Agency mortgage-backed securities	60,042		—		(4,763)			55,279		Agency mortgage-backed securities	54,768		—		(6,232)		48,536
Corporate debt securities	Corporate debt securities	125,220		136		(10,907)			114,449		Corporate debt securities	124,024		189		(11,775)		112,438
Total securities held-to-maturity	Total securities held-to-maturity	$	618,474	$	193	$	(81,092)		$	537,575	Total securities held-to-maturity	$	724,817	$	3,357	$	(75,030)	$	653,144
Allowance for credit losses	Allowance for credit losses	(707)									Allowance for credit losses	(858)
Total securities held-to-maturity, net	Total securities held-to-maturity, net	$	617,767								Total securities held-to-maturity, net	$	723,959


		December 31, 2021									December 31, 2022
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:
Obligations of U.S. Government-sponsored enterprises	Obligations of U.S. Government-sponsored enterprises	$	175,409	$	3	$	(1,901)	$	173,511	Obligations of U.S. Government-sponsored enterprises	$	266,090	$	—	$	(28,305)	$	237,785
Obligations of states and political subdivisions	Obligations of states and political subdivisions	571,587		5,907		(2,410)		575,084		Obligations of states and political subdivisions	507,842		27		(90,425)		417,444
Agency mortgage-backed securities	Agency mortgage-backed securities	509,243		8,485		(3,869)		513,859		Agency mortgage-backed securities	727,931		453		(68,980)		659,404
U.S. Treasury Bills	U.S. Treasury Bills	90,971		220		(21)		91,170		U.S. Treasury Bills	213,441		1		(4,908)		208,534
Corporate debt securities	Corporate debt securities	11,750		632		—		12,382		Corporate debt securities	13,750		—		(1,110)		12,640
Total securities available for sale	Total securities available for sale	$	1,358,960	$	15,247	$	(8,201)	$	1,366,006	Total securities available for sale	$	1,729,054	$	481	$	(193,728)	$	1,535,807
Held-to-maturity securities:	Held-to-maturity securities:									Held-to-maturity securities:

Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	236,379	$	1,794	$	(730)	$	237,443	Obligations of states and political subdivisions	$	529,012	$	2,321	$	(65,347)	$	465,986
Agency mortgage-backed securities	Agency mortgage-backed securities	68,105		940		(666)		68,379		Agency mortgage-backed securities	57,018		—		(6,416)		50,602
Corporate debt securities	Corporate debt securities	125,811		3,039		—		128,850		Corporate debt securities	124,620		163		(12,854)		111,929
Total securities held to maturity	Total securities held to maturity	$	430,295	$	5,773	$	(1,396)	$	434,672	Total securities held to maturity	$	710,650	$	2,484	$	(84,617)	$	628,517
Allowance for credit losses	Allowance for credit losses	(614)								Allowance for credit losses	(735)
Total securities held-to-maturity, net	Total securities held-to-maturity, net	$	429,681							Total securities held-to-maturity, net	$	709,915

During the six months ended June 30, 2022, the Company transferred $116.9 million of securities from available-for-sale to held-to-maturity. The Company believes the held-to-maturity category is consistent with the Company’s intent for these securities. The transfer of securities was made at fair value at the time of transfer. The unamortized portion of the unrealized holding gain at the time of transfer is retained in accumulated other comprehensive income and in the carrying value of held-to-maturity securities. The balance of held-to-maturity securities in the “Amortized Cost” column in the table above includes a cumulative net unamortized unrealized gain of ~~$19.4~~$15.9 million and ~~$21.0~~$17.6 million at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Such amounts are amortized over the remaining life of the securities.

At June 30, ~~2022~~2023 and December 31, ~~2021,~~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 ~~$680.1 million~~$1.6 billion and ~~$752.7~~$734.5 million at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, were pledged as collateral to secure deposits of public institutions and for other purposes as required by law or contract ~~provisions.~~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 June 30, ~~2022,~~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 5five 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	$	99,932	$	99,696	$	890	$	891	Due in one year or less	$	103,168	$	102,696	$	1,220	$	1,218
Due after one year through five years	Due after one year through five years	318,870		301,463		24,065		23,081		Due after one year through five years	367,426		340,209		60,531		55,811
Due after five years through ten years	Due after five years through ten years	64,599		59,319		156,468		143,490		Due after five years through ten years	99,210		88,070		187,374		176,372
Due after ten years	Due after ten years	488,054		396,011		377,009		314,834		Due after ten years	442,823		368,658		420,924		371,207
Agency mortgage-backed securities	Agency mortgage-backed securities	686,957		636,788		60,042		55,279		Agency mortgage-backed securities	717,605		650,742		54,768		48,536

		$	1,658,412	$	1,493,277	$	618,474	$	537,575		$	1,730,232	$	1,550,375	$	724,817	$	653,144

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


		June 30, 2022													June 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	$	210,225	$	17,108	$	21,448	$	2,052	$	231,673	$	19,160	Obligations of U.S. Government-sponsored enterprises	$	48,444	$	1,048	$	221,131	$	26,272	$	269,575	$	27,320
Obligations of states and political subdivisions	Obligations of states and political subdivisions	389,067		86,331		22,140		6,902		411,207		93,233		Obligations of states and political subdivisions	2,324		191		417,374		79,651		419,698		79,842
Agency mortgage-backed securities	Agency mortgage-backed securities	581,194		41,640		49,116		8,563		630,310		50,203		Agency mortgage-backed securities	151,797		5,165		473,248		61,842		625,045		67,007
U.S. Treasury bills	U.S. Treasury bills	187,738		2,232		—		—		187,738		2,232		U.S. Treasury bills	118,732		1,231		77,919		3,374		196,651		4,605
Corporate debt securities	Corporate debt securities	11,316		434		—		—		11,316		434		Corporate debt securities	1,807		193		5,665		1,085		7,472		1,278
		$	1,379,540	$	147,745	$	92,704	$	17,517	$	1,472,244	$	165,262		$	323,104	$	7,828	$	1,195,337	$	172,224	$	1,518,441	$	180,052

		December 31, 2021													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	$	163,634	$	1,775	$	4,874	$	126	$	168,508	$	1,901	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	242,188		2,361		1,776		49		243,964		2,410		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	259,047		3,685		6,467		184		265,514		3,869		Agency mortgage-backed securities	334,431		20,038		281,321		48,942		615,752		68,980
U.S. Treasury bills	U.S. Treasury bills	60,961		21		—		—		60,961		21		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
															$	722,676	$	45,806	$	756,002	$	147,922	$	1,478,678	$	193,728
		$	725,830	$	7,842	$	13,117	$	359	$	738,947	$	8,201

The unrealized losses at both June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were attributable primarily to changes in market interest rates after the securities were purchased. In 2023, the Company established an allowance for credit losses on available-for-sale investment securities through a provision for credit losses of $5.0 million and subsequently charged-off 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 June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had ~~not~~no allowance recorded ~~an ACL~~ on available-for-sale securities.

Accrued interest receivable on held-to-maturity debt securities totaled ~~$4.4~~$6.1 million and ~~$3.4~~$5.8 million at June 30, ~~2022~~2023 and December 31, ~~2021,~~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 ~~$0.7~~$0.9 million at June 30, ~~2022~~2023 and ~~$0.6~~$0.7 million at December 31, ~~2021.~~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 June 30, ~~2022 or 2021.~~2023 nor during the three and six months ended June 30, 2022.

Other Investments

At June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, other investments totaled ~~$61.3~~$66.5 million and ~~$59.9~~$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 ~~$12.0 million and $12.1~~$16.0 million at June 30, ~~2022~~2023 and $14.0 million at December 31, ~~2021, respectively,~~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.

NOTE 4 - LOANS

The following table presents a summary of loans by category:


(in thousands)	(in thousands)	June 30, 2022		December 31, 2021		(in thousands)	June 30, 2023		December 31, 2022
Commercial and industrial	Commercial and industrial	$	3,597,225	$	3,396,590	Commercial and industrial	$	4,360,862	$	3,859,964
Real estate:	Real estate:					Real estate:
Commercial - investor owned	Commercial - investor owned	2,173,640		2,141,143		Commercial - investor owned	2,465,654		2,357,820
Commercial - owner occupied	Commercial - owner occupied	2,120,735		2,035,785		Commercial - owner occupied	2,336,639		2,270,551
Construction and land development	Construction and land development	724,163		734,073		Construction and land development	671,573		611,565
Residential	Residential	413,727		454,052		Residential	368,867		395,537
Total real estate loans	Total real estate loans	5,432,265		5,365,053		Total real estate loans	5,842,733		5,635,473
Other	Other	246,298		265,137		Other	315,214		248,990
Loans, before unearned loan fees	Loans, before unearned loan fees	9,275,788		9,026,780		Loans, before unearned loan fees	10,518,809		9,744,427
Unearned loan fees, net	Unearned loan fees, net	(6,612)		(9,138)		Unearned loan fees, net	(6,186)		(7,289)
Loans, including unearned loan fees	Loans, including unearned loan fees	$	9,269,176	$	9,017,642	Loans, including unearned loan fees	$	10,512,623	$	9,737,138

~~PPP loans totaled $49.7 million at June 30, 2022, or $49.2 million net of deferred fees of $0.5 million.~~ The loan balance at June 30, 2023 and December 31, 2022, includes a net premium on acquired loans of ~~$12.6 million.~~$9.7 million and $11.9 million, respectively. At June 30, 2023 and December 31, 2022, loans of ~~$2.7~~$3.6 billion ~~were pledged to FHLB~~ and ~~the Federal Reserve Bank.~~

PPP loans totaled $276.2 million at December 31, 2021, or $272.0 million net of deferred fees of $4.2 million. The loan balance includes a net premium on acquired loans of $11.9 million at December 31, 2021. At December 31, 2021, loans of $2.5$2.8 billion, respectively, were pledged to FHLB and the Federal Reserve Bank.

Accrued interest receivable totaled ~~$30.0~~$45.9 million and ~~$30.6~~$48.1 million at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and was reported in “Other Assets” on the consolidated balance sheets.

SBA 7(a) guaranteed loans sold during the six months ended June 30, 2023 totaled $8.8 million, resulting in a gain on sale of $0.5 million. There were no SBA loan sales during three months ended June 30, 2023 or the three and six months ended June 30, 2022.

A summary of the activity in the ACL on loans by category for the three and six months ended June 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 March 31, 2022		$	60,975	$	36,194	$	17,038	$	12,983	$	7,109	$	4,913	$	139,212
Balance at March 31, 2023																Balance at March 31, 2023	$	59,149	$	36,266	$	22,328	$	8,889	$	6,997	$	4,666	$	138,295
Provision (benefit) for credit losses	Provision (benefit) for credit losses	4,562		(2,680)		(1,066)		183		307		(147)		1,159		Provision (benefit) for credit losses	3,857		(2,420)		299		3,898		618		(255)		5,997
Charge-offs	Charge-offs	(97)		(200)		(25)		—		(418)		(88)		(828)		Charge-offs	(3,289)		(7)		—		—		(421)		(251)		(3,968)
Recoveries	Recoveries	206		24		209		14		480		70		1,003		Recoveries	601		37		73		8		227		49		995
Balance at June 30, 2022		$	65,646	$	33,338	$	16,156	$	13,180	$	7,478	$	4,748	$	140,546
Balance at June 30, 2023																Balance at June 30, 2023	$	60,318	$	33,876	$	22,700	$	12,795	$	7,421	$	4,209	$	141,319

(in thousands) Commercial and industrial CRE - investor owned CRE -
owner occupied Construction and land development Residential real estate Other Total
Allowance for credit losses on loans:
Balance at December 31, 2021 $ 63,825 $ 35,877 $ 17,560 $ 14,536 $ 7,927 $ 5,316 $ 145,041
Provision (benefit) for credit losses 3,081 (2,559) (1,648) (1,391) (149) (483) (3,149)
Charge-offs (2,256) (200) (205) — (1,305) (174) (4,140)
Recoveries 996 220 449 35 1,005 89 2,794
Balance at June 30, 2022 $ 65,646 $ 33,338 $ 16,156 $ 13,180 $ 7,478 $ 4,748 $ 140,546



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

Provision (benefit) for credit losses	8,940		(2,198)		(141)		1,320		(533)		(292)		7,096
Charge-offs	(3,996)		(177)		—		(9)		(523)		(443)		(5,148)
Recoveries	1,539		60		89		40		549		162		2,439
Balance at June 30, 2023	$	60,318	$	33,876	$	22,700	$	12,795	$	7,421	$	4,209	$	141,319


(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 March 31, 2022	$	60,975	$	36,194	$	17,038	$	12,983	$	7,109	$	4,913	$	139,212

Provision (benefit) for credit losses	4,562		(2,680)		(1,066)		183		307		(147)		1,159
Charge-offs	(97)		(200)		(25)		—		(418)		(88)		(828)
Recoveries	206		24		209		14		480		70		1,003
Balance at June 30, 2022	$	65,646	$	33,338	$	16,156	$	13,180	$	7,478	$	4,748	$	140,546



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



Balance at December 31, 2021	$	63,825	$	35,877	$	17,560	$	14,536	$	7,927	$	5,316	$	145,041

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

The ACL on sponsor finance loans, which is included in the categories above, represented ~~$20.5~~$22.1 million and ~~$18.2~~$16.1 million, respectively, as of June 30, ~~2022~~2023 and December 31, ~~2021.~~

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

(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 March 31, 2021 $ 55,941 $ 33,105 $ 20,219 $ 14,557 $ 4,305 $ 3,400 $ 131,527
Provision for credit losses (1,839) 2,859 (4,449) (2,957) 255 3,658 (2,473)
Charge-offs (1,451) — (216) — (44) (121) (1,832)
Recoveries 700 39 10 32 161 21 963
Balance at June 30, 2021 $ 53,351 $ 36,003 $ 15,564 $ 11,632 $ 4,677 $ 6,958 $ 128,185

(in thousands) Commercial and industrial CRE - investor owned CRE -
owner occupied Construction and land development Residential real estate Other Total
Allowance for credit losses on loans:
Balance at December 31, 2020 $ 58,812 $ 32,062 $ 17,012 $ 21,413 $ 4,585 $ 2,787 $ 136,671
Provision for credit losses (1,298) 6,240 (1,223) (10,048) 103 4,256 (1,970)
Charge-offs (5,190) (2,372) (244) — (315) (185) (8,306)
Recoveries 1,027 73 19 267 304 100 1,790��
Balance at June 30, 2021 $ 53,351 $ 36,003 $ 15,564 $ 11,632 $ 4,677 $ 6,958 $ 128,185
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 ~~$13.6~~$14.3 million to the ACL over the baseline ~~model.~~model at June 30, 2023. These forecasts incorporate an expectation that ~~government stimulus will decline,~~ the Federal Reserve will ~~wind down its treasury~~continue quantitative tightening and ~~mortgage-backed securities portfolio and continue raising~~that the terminal range of the federal funds rate will be 5.00% to 5.25% and that the ~~pandemic will begin to slowly recede, that the Russia-Ukraine military conflict will have a limited disruption on the economy and the risk~~recent bank failures are not an indication of a ~~period of stagflation.~~broader problem in the industry. The Company has also recognized ~~the risk~~various risks posed by loans ~~that have received multiple deferrals of principal and interest payments,~~in certain segments, including the ~~hospitality~~commercial office 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 ~~additional shutdowns~~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 ~~self-quarantines from another significant wave of COVID-19, continued or worsening supply-chain disruptions, labor shortages and declines~~further weakness in ~~job growth, or a tightening of~~the financial ~~market conditions.~~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) model. Included in these risks are 1) changes in lending policies and procedures, 2) actual and expected changes in business and economic conditions, 3) changes in the nature and volume of the portfolio, 4) changes in lending management, 5) changes in volume and the severity of past due loans, 6) changes in the quality of the loan review system, 7) changes in the value of underlying collateral, 8) the existence and effect of concentrations of credit and 9) other factors such as the regulatory, legal and competitive environments and events such as natural disasters and pandemics. At June 30, ~~2022,~~2023, the ACL on loans included a qualitative adjustment of approximately ~~$40.8~~$39.7 million. Of this amount, approximately ~~$7.3~~$13.8 million was allocated to sponsor finance loans due to their mostly unsecured nature.

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


	June 30, 2023
	Term Loans by Origination Year
(in thousands)	2022		2021		Prior		Revolving Loans Converted to Term Loans		Revolving Loans		Total
Commercial and industrial	$	3	$	—	$	—	$	—	$	3,824	$	3,827
Real estate:
Commercial - investor owned	—		170		7		—		—		177

Construction and land development	—		—		9		—		—		9
Residential	—		—		478		45		—		523
Other	—		129		3		—		—		132
Total current-period gross charge-offs by risk rating	$	3	$	299	$	497	$	45	$	3,824	$	4,668
Total current-period gross charge-offs by performing status											480
Total current-period gross charge-offs											$	5,148

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


		June 30, 2022											June 30, 2023
(in thousands)	(in thousands)	Nonaccrual		Restructured, accruing		Loans over 90 days past due and still accruing interest		Total nonperforming loans		Nonaccrual loans with no allowance		(in thousands)	Nonaccrual		Loans over 90 days past due and still accruing interest		Total nonperforming loans		Nonaccrual loans with no allowance
Commercial and industrial	Commercial and industrial	$	16,323	$	—	$	3	$	16,326	$	2,113	Commercial and industrial	$	9,558	$	687	$	10,245	$	4,480
Real estate:	Real estate:											Real estate:
Commercial - investor owned	Commercial - investor owned	1,150		—		—		1,150		1,150		Commercial - investor owned	2,766		—		2,766		—
Commercial - owner occupied	Commercial - owner occupied	1,212		—		—		1,212		1,212		Commercial - owner occupied	1,386		—		1,386		—

Construction and land development												Construction and land development	742		—		742		742
Residential	Residential	776		74		—		850		776		Residential	959		—		959		959
Other	Other	1		—		21		22		—		Other	—		14		14		—
Total	Total	$	19,462	$	74	$	24	$	19,560	$	5,251	Total	$	15,411	$	701	$	16,112	$	6,181


		December 31, 2021											December 31, 2022
(in thousands)	(in thousands)	Nonaccrual		Restructured, accruing		Loans over 90 days past due and still accruing interest		Total nonperforming loans		Nonaccrual loans with no allowance		(in thousands)	Nonaccrual		Restructured, accruing		Loans over 90 days past due and still accruing interest		Total nonperforming loans		Nonaccrual loans with no allowance
Commercial and industrial	Commercial and industrial	$	17,052	$	2,783	$	1,703	$	21,538	$	5,685	Commercial and industrial	$	4,373	$	—	$	70	$	4,443	$	1,047
Real estate:	Real estate:											Real estate:
Commercial - investor owned	Commercial - investor owned	1,575		—		—		1,575		168		Commercial - investor owned	3,023		—		—		3,023		—
Commercial - owner occupied	Commercial - owner occupied	2,839		—		—		2,839		2,550		Commercial - owner occupied	1,177		—		—		1,177		—

Construction and land development												Construction and land development	1,192		—		—		1,192		1,192
Residential	Residential	1,971		76		1		2,048		1,348		Residential	—		73		—		73		—
Other	Other	12		—		12		24		—		Other	1		—		72		73		—
Total	Total	$	23,449	$	2,859	$	1,716	$	28,024	$	9,751	Total	$	9,766	$	73	$	142	$	9,981	$	2,239

The ~~total~~ nonperforming loan balances at both June 30, ~~2022~~2023 and December 31, ~~2021~~2022 exclude government guaranteed balances of ~~$6.1 million and $6.5 million, respectively.~~$6.7 million.

No material interest income was recognized on nonaccrual loans during the three ~~and~~or six months ended June 30, ~~2022~~2023 or ~~2021.~~2022.

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


		June 30, 2022						June 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	$	4,271	$	37	$	5,676		Commercial and industrial	$	—	$	—	$	5,972
Real estate:	Real estate:								Real estate:
Commercial - investor owned	Commercial - investor owned	1,193		1,150		—			Commercial - investor owned	1,055		774		—
Commercial - owner occupied	Commercial - owner occupied	—		19		—			Commercial - owner occupied	1,386		—		—

Construction and land development									Construction and land development			742
Residential	Residential	—		850		—			Residential	—		959		—

Total	Total	$	5,464	$	2,056	$	5,676		Total	$	2,441	$	2,475	$	5,972


	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.


	June 30, 2023
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	12,386	$	3,473	$	15,859	$	4,345,003	$	4,360,862
Real estate:
Commercial - investor owned	—		1,711		1,711		2,463,943		2,465,654
Commercial - owner occupied	19,476		4,078		23,554		2,313,085		2,336,639
Construction and land development	—		—		—		671,573		671,573
Residential	271		959		1,230		367,637		368,867
Other	27		14		41		315,173		315,214
Loans, before unearned loan fees	$	32,160	$	10,235	$	42,395	$	10,476,414	$	10,518,809
Unearned loan fees, net									(6,186)
Total									$	10,512,623

1415


		December 31, 2021
		Type of Collateral						December 31, 2022
(in thousands)	(in thousands)	Commercial Real Estate		Residential Real Estate		Blanket Lien			(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	Commercial and industrial	$	4,271	$	209	$	9,312		Commercial and industrial	$	555	$	2,373	$	2,928	$	3,857,036	$	3,859,964
Real estate:	Real estate:								Real estate:
Commercial - investor owned	Commercial - investor owned	169		1,200		—			Commercial - investor owned	—		1,135		1,135		2,356,685		2,357,820
Commercial - owner occupied	Commercial - owner occupied	2,807		32		—			Commercial - owner occupied	8,628		164		8,792		2,261,759		2,270,551

Construction and land development									Construction and land development	9		1,192		1,201		610,364		611,565
Residential	Residential	—		2,048		—			Residential	1,227		—		1,227		394,310		395,537

Other									Other	18		72		90		248,900		248,990
Loans, before unearned loan fees									Loans, before unearned loan fees	$	10,437	$	4,936	$	15,373	$	9,729,054	$	9,744,427
Unearned loan fees, net									Unearned loan fees, net									(7,289)
Total	Total	$	7,247	$	3,489	$	9,312		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
	Three months ended				Six months ended
(in thousands)	June 30, 2023		Percent of Total Loan Class		June 30, 2023		Percent of Total Loan Class
Commercial and industrial	$	6,533	0.15	%	$	27,690	0.63	%
Real estate:

Commercial - owner occupied	95		—	%	95		—	%
Construction and land development	396		0.06	%	1,138		0.17	%
Residential	74		0.02	%	74		0.02	%
Total	$	7,098			$	28,997

The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty:


	Weighted Average Term Extension (in months)
	Three months ended	Six months ended
	June 30, 2023	June 30, 2023
Commercial and industrial	5	6
Real estate:

Commercial - owner occupied	3	3
Construction and land development	6	8
Residential	5	5

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


	June 30, 2023
(in thousands)	Current		90 or More Days Past Due		Total
Commercial and industrial	$	27,029	$	661	$	27,690
Real estate:

Commercial - owner occupied	95		—		95
Construction and land development	1,138		—		1,138
Residential	74		—		74

Total	$	28,336	$	661	$	28,997

As of June 30, 2023, commercial and industrial loans totaling $0.7 million experienced a default subsequent to being granted a term extension modification in the prior twelve months. Default is defined as movement to nonperforming status, foreclosure or charge-off.

There were no loans restructured during the three or six months ended June 30, 2022, and no troubled debt restructurings subsequently defaulted during the three or ~~2021.~~six months ended June 30, 2022.

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

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

June 30, 2022
(in thousands) 30-89 Days
Past Due 90 or More
Days
Past Due Total
Past Due Current Total
Commercial and industrial $ 10,960 $ 5,227 $ 16,187 $ 3,580,514 $ 3,596,701
Real estate:
Commercial - investor owned 5,856 — 5,856 2,167,784 2,173,640
Commercial - owner occupied 6,052 199 6,251 2,114,484 2,120,735
Construction and land development — — — 724,163 724,163
Residential 578 454 1,032 412,695 413,727
Other 22 21 43 240,167 240,210
Total $ 23,468 $ 5,901 $ 29,369 $ 9,239,807 $ 9,269,176

December 31, 2021
(in thousands) 30-89 Days
Past Due 90 or More
Days
Past Due Total
Past Due Current Total
Commercial and industrial $ 24,447 $ 14,158 $ 38,605 $ 3,353,770 $ 3,392,375
Real estate:
Commercial - investor owned 3,880 — 3,880 2,137,263 2,141,143
Commercial - owner occupied 10,070 289 10,359 2,025,426 2,035,785
Construction and land development 24 — 24 734,049 734,073
Residential 3,181 1,305 4,486 449,566 454,052
Other 37 11 48 260,166 260,214
Total $ 41,639 $ 15,763 $ 57,402 $ 8,960,240 $ 9,017,642

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, payment experience, credit documentation, ~~and~~ current economic factors ~~among~~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 ~~also~~ include circumstances where the borrower is starting to reverse a negative trend or condition, or has recently been upgraded from a 7, 8, or 9 rating.

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

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

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

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:


		June 30, 2022																			June 30, 2023
		Term Loans by Origination Year																			Term Loans by Origination Year
(in thousands)	(in thousands)	2022		2021		2020		2019		2018		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)	$	772,231	$	871,166	$	365,734	$	215,249	$	81,055	$	116,448	$	2,756	$	953,568	$	3,378,207	Pass (1-6)	$	970,780	$	1,190,136	$	403,954	$	279,051	$	135,720	$	90,012	$	14,163	$	1,052,233	$	4,136,049
Watch (7)		25,384		16,809		18,519		2,121		8,315		10,578		360		76,292		158,378
Special Mention (7)																				Special Mention (7)	13,250		19,004		15,944		12,909		852		11,595		353		64,652		138,559
Classified (8-9)	Classified (8-9)	6,131		12,518		4,440		3,839		1,350		284		121		13,065		41,748		Classified (8-9)	6,477		9,567		5,415		1,373		23		394		173		30,456		53,878
Total Commercial and industrial	Total Commercial and industrial	$	803,746	$	900,493	$	388,693	$	221,209	$	90,720	$	127,310	$	3,237	$	1,042,925	$	3,578,333	Total Commercial and industrial	$	990,507	$	1,218,707	$	425,313	$	293,333	$	136,595	$	102,001	$	14,689	$	1,147,341	$	4,328,486

Commercial real estate-investor owned	Commercial real estate-investor owned																			Commercial real estate-investor owned
Pass (1-6)	Pass (1-6)	$	329,489	$	599,145	$	398,097	$	283,247	$	142,431	$	264,598	$	595	$	49,606	$	2,067,208	Pass (1-6)	$	271,496	$	618,992	$	571,395	$	363,098	$	205,959	$	263,606	$	5,762	$	52,553	$	2,352,861
Watch (7)		18,755		14,058		30,767		10,811		78		14,338		—		—		88,807
Special Mention (7)																				Special Mention (7)	8,343		25,842		16,774		12,184		10,824		13,125		—		—		87,092
Classified (8-9)	Classified (8-9)	2,317		—		198		824		333		5,292		50		—		9,014		Classified (8-9)	—		1,809		—		462		636		4,506		48		—		7,461
Total Commercial real estate-investor owned	Total Commercial real estate-investor owned	$	350,561	$	613,203	$	429,062	$	294,882	$	142,842	$	284,228	$	645	$	49,606	$	2,165,029	Total Commercial real estate-investor owned	$	279,839	$	646,643	$	588,169	$	375,744	$	217,419	$	281,237	$	5,810	$	52,553	$	2,447,414

Commercial real estate-owner occupied	Commercial real estate-owner occupied																			Commercial real estate-owner occupied
Pass (1-6)	Pass (1-6)	$	280,474	$	571,629	$	399,477	$	251,344	$	136,528	$	307,517	$	—	$	53,056	$	2,000,025	Pass (1-6)	$	252,316	$	514,007	$	514,350	$	335,271	$	198,183	$	346,366	$	4,074	$	27,122	$	2,191,689
Watch (7)		3,272		9,596		14,412		4,590		13,986		9,145		—		800		55,801
Special Mention (7)																				Special Mention (7)	10,742		10,906		4,072		19,242		6,093		15,582		4,962		2,496		74,095
Classified (8-9)	Classified (8-9)	977		128		568		10,379		15,975		13,650		—		94		41,771		Classified (8-9)	—		1,643		2,287		5,009		8,811		23,625		95		500		41,970
Total Commercial real estate-owner occupied	Total Commercial real estate-owner occupied	$	284,723	$	581,353	$	414,457	$	266,313	$	166,489	$	330,312	$	—	$	53,950	$	2,097,597	Total Commercial real estate-owner occupied	$	263,058	$	526,556	$	520,709	$	359,522	$	213,087	$	385,573	$	9,131	$	30,118	$	2,307,754

Construction real estate	Construction real estate																			Construction real estate
Pass (1-6)	Pass (1-6)	$	169,592	$	310,168	$	144,451	$	32,339	$	23,588	$	12,255	$	—	$	8,460	$	700,853	Pass (1-6)	$	204,763	$	294,359	$	113,358	$	46,209	$	2,524	$	3,598	$	—	$	2,359	$	667,170
Watch (7)		16,431		—		501		—		1,181		2,236		—		—		20,349
Special Mention (7)																				Special Mention (7)	—		2,165		—		242		126		247		—		—		2,780
Classified (8-9)	Classified (8-9)	—		—		—		12		413		17		—		—		442		Classified (8-9)	1,138		—		—		—		13		472		—		—		1,623
Total Construction real estate	Total Construction real estate	$	186,023	$	310,168	$	144,952	$	32,351	$	25,182	$	14,508	$	—	$	8,460	$	721,644	Total Construction real estate	$	205,901	$	296,524	$	113,358	$	46,451	$	2,663	$	4,317	$	—	$	2,359	$	671,573

Residential real estate	Residential real estate																			Residential real estate
Pass (1-6)	Pass (1-6)	$	30,367	$	89,475	$	59,283	$	23,991	$	11,825	$	97,936	$	518	$	92,605	$	406,000	Pass (1-6)	$	28,768	$	46,813	$	54,408	$	33,718	$	20,151	$	88,833	$	1,472	$	81,766	$	355,929
Watch (7)		116		856		—		81		357		1,363		—		24		2,797
Special Mention (7)																				Special Mention (7)	44		282		—		—		76		1,137		—		7,549		9,088
Classified (8-9)	Classified (8-9)	159		402		—		56		795		1,425		—		6		2,843		Classified (8-9)	—		1,077		72		—		49		1,850		74		—		3,122
Total residential real estate	Total residential real estate	$	30,642	$	90,733	$	59,283	$	24,128	$	12,977	$	100,724	$	518	$	92,635	$	411,640	Total residential real estate	$	28,812	$	48,172	$	54,480	$	33,718	$	20,276	$	91,820	$	1,546	$	89,315	$	368,139

Other	Other																			Other
Pass (1-6)	Pass (1-6)	$	4,150	$	96,456	$	63,634	$	20,203	$	21,965	$	19,695	$	—	$	10,978	$	237,081	Pass (1-6)	$	7,650	$	59,071	$	87,218	$	54,644	$	9,748	$	23,914	$	—	$	58,773	$	301,018
Watch (7)		—		—		—		—		2		2,341		—		—		2,343
Special Mention (7)																				Special Mention (7)	—		—		—		—		—		—		—		—		—
Classified (8-9)	Classified (8-9)	—		—		—		7		7		13		—		1		28		Classified (8-9)	—		—		—		—		—		10		—		1		11
Total Other	Total Other	$	4,150	$	96,456	$	63,634	$	20,210	$	21,974	$	22,049	$	—	$	10,979	$	239,452	Total Other	$	7,650	$	59,071	$	87,218	$	54,644	$	9,748	$	23,924	$	—	$	58,774	$	301,029

Total loans classified by risk category	Total loans classified by risk category	$	1,659,845	$	2,592,406	$	1,500,081	$	859,093	$	460,184	$	879,131	$	4,400	$	1,258,555	$	9,213,695	Total loans classified by risk category	$	1,775,767	$	2,795,673	$	1,789,247	$	1,163,412	$	599,788	$	888,872	$	31,176	$	1,380,460	$	10,424,395
Total loans classified by performing status	Total loans classified by performing status																	55,481		Total loans classified by performing status																	88,228
Total loans	Total loans																	$	9,269,176	Total loans																	$	10,512,623

1719


		December 31, 2021																			December 31, 2022
		Term Loans by Origination Year																			Term Loans by Origination Year
(in thousands)	(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Converted to Term Loans		Revolving Loans		Total		(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Converted to Term Loans		Revolving Loans		Total
Commercial and industrial	Commercial and industrial																			Commercial and industrial
Pass (1-6)	Pass (1-6)	$	1,180,601	$	477,374	$	317,869	$	132,851	$	116,738	$	82,846	$	11,648	$	854,102	$	3,174,029	Pass (1-6)	$	1,403,381	$	635,275	$	332,740	$	172,127	$	62,729	$	66,152	$	8,388	$	964,592	$	3,645,384
Watch (7)		35,005		17,502		9,404		9,880		12,217		10,979		4,037		53,595		152,619
Special Mention (7)																				Special Mention (7)	37,048		10,836		13,858		423		7,995		4,102		—		72,944		147,206
Classified (8-9)	Classified (8-9)	14,917		3,530		3,840		1,689		2,988		813		787		10,996		39,560		Classified (8-9)	16,176		4,457		1,627		24		166		183		—		21,349		43,982
Total Commercial and industrial	Total Commercial and industrial	$	1,230,523	$	498,406	$	331,113	$	144,420	$	131,943	$	94,638	$	16,472	$	918,693	$	3,366,208	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	Commercial real estate-investor owned																			Commercial real estate-investor owned
Pass (1-6)	Pass (1-6)	$	651,740	$	476,946	$	346,245	$	146,107	$	112,043	$	217,808	$	3,625	$	68,236	$	2,022,750	Pass (1-6)	$	667,107	$	584,644	$	392,402	$	240,033	$	115,530	$	202,661	$	1,457	$	53,051	$	2,256,885
Watch (7)		16,871		35,908		32,755		1,003		502		17,478		300		2,062		106,879
Special Mention (7)																				Special Mention (7)	18,844		5,751		23,502		11,605		—		13,063		—		—		72,765
Classified (8-9)	Classified (8-9)	1,376		3,135		835		817		1,159		4,141		—		50		11,513		Classified (8-9)	1,823		—		465		953		193		6,092		49		—		9,575
Total Commercial real estate-investor owned	Total Commercial real estate-investor owned	$	669,987	$	515,989	$	379,835	$	147,927	$	113,704	$	239,427	$	3,925	$	70,348	$	2,141,142	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	Commercial real estate-owner occupied																			Commercial real estate-owner occupied
Pass (1-6)	Pass (1-6)	$	604,975	$	423,263	$	278,830	$	164,210	$	140,515	$	235,973	$	250	$	48,349	$	1,896,365	Pass (1-6)	$	539,610	$	555,690	$	362,150	$	232,335	$	123,095	$	270,613	$	—	$	57,308	$	2,140,801
Watch (7)		12,825		13,585		4,301		16,774		10,274		15,764		—		300		73,823
Special Mention (7)																				Special Mention (7)	11,164		3,801		16,856		4,455		13,043		9,009		—		800		59,128
Classified (8-9)	Classified (8-9)	2,048		556		9,181		17,016		6,432		6,959		—		—		42,192		Classified (8-9)	—		1,572		3,483		8,910		15,873		11,387		—		—		41,225
Total Commercial real estate-owner occupied	Total Commercial real estate-owner occupied	$	619,848	$	437,404	$	292,312	$	198,000	$	157,221	$	258,696	$	250	$	48,649	$	2,012,380	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	Construction real estate																			Construction real estate
Pass (1-6)	Pass (1-6)	$	310,140	$	229,396	$	70,531	$	35,936	$	14,860	$	7,180	$	568	$	2,992	$	671,603	Pass (1-6)	$	290,146	$	232,998	$	53,129	$	2,909	$	2,061	$	8,480	$	—	$	1,769	$	591,492
Watch (7)		28,947		15,348		60		1,199		11,068		2,330		—		—		58,952
Special Mention (7)																				Special Mention (7)	17,331		—		681		146		111		106		—		—		18,375
Classified (8-9)	Classified (8-9)	—		—		387		419		—		22		—		—		828		Classified (8-9)	1,192		—		—		14		471		21		—		—		1,698
Total Construction real estate	Total Construction real estate	$	339,087	$	244,744	$	70,978	$	37,554	$	25,928	$	9,532	$	568	$	2,992	$	731,383	Total Construction real estate	$	308,669	$	232,998	$	53,810	$	3,069	$	2,643	$	8,607	$	—	$	1,769	$	611,565

Residential real estate	Residential real estate																			Residential real estate
Pass (1-6)	Pass (1-6)	$	116,352	$	66,481	$	21,356	$	14,841	$	24,778	$	103,840	$	9,980	$	87,146	$	444,774	Pass (1-6)	$	63,317	$	60,910	$	48,796	$	20,943	$	11,259	$	88,795	$	579	$	96,304	$	390,903
Watch (7)		2,425		2		622		1,157		248		1,305		—		79		5,838
Special Mention (7)																				Special Mention (7)	331		—		—		79		352		781		—		—		1,543
Classified (8-9)	Classified (8-9)	414		169		554		—		12		2,024		—		—		3,173		Classified (8-9)	121		73		—		53		1,102		994		—		5		2,348
Total residential real estate	Total residential real estate	$	119,191	$	66,652	$	22,532	$	15,998	$	25,038	$	107,169	$	9,980	$	87,225	$	453,785	Total residential real estate	$	63,769	$	60,983	$	48,796	$	21,075	$	12,713	$	90,570	$	579	$	96,309	$	394,794

Other	Other																			Other
Pass (1-6)	Pass (1-6)	$	108,209	$	68,806	$	22,684	$	23,145	$	6,924	$	13,832	$	1,500	$	9,166	$	254,266	Pass (1-6)	$	38,753	$	88,613	$	56,252	$	10,556	$	20,508	$	10,796	$	—	$	9,536	$	235,014
Watch (7)		—		—		—		4		—		2,440		—		1		2,445
Special Mention (7)																				Special Mention (7)	—		—		—		—		—		—		—		—		—
Classified (8-9)	Classified (8-9)	—		—		10		10		—		16		—		2		38		Classified (8-9)	—		—		—		4		3		11		3		4		25
Total Other	Total Other	$	108,209	$	68,806	$	22,694	$	23,159	$	6,924	$	16,288	$	1,500	$	9,169	$	256,749	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	Total loans classified by risk category	$	3,086,845	$	1,832,001	$	1,119,464	$	567,058	$	460,758	$	725,750	$	32,695	$	1,137,076	$	8,961,647	Total loans classified by 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	Total loans classified by performing status																	55,995		Total loans classified by performing status																	78,789
Total loans	Total loans																	$	9,017,642	Total loans																	$	9,737,138

1820

In the tables above, loan originations in ~~2022~~2023 and ~~2021~~2022 with a classification of ~~watch~~“special mention” or ~~classified~~“classified” primarily represent renewals or modifications initially underwritten and originated in prior years.

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

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

June 30, 2022
(in thousands) Performing Non Performing Total
Commercial and industrial $ 18,365 $ 3 $ 18,368
Real estate:
Commercial - investor owned 8,611 — 8,611
Commercial - owner occupied 23,138 — 23,138
Construction and land development 2,519 — 2,519
Residential 2,087 — 2,087
Other 737 21 758
Total $ 55,457 $ 24 $ 55,481


		December 31, 2021							June 30, 2023
(in thousands)	(in thousands)	Performing		Non Performing		Total		(in thousands)	Performing		Non Performing		Total
Commercial and industrial	Commercial and industrial	$	26,166	$	1	$	26,167	Commercial and industrial	$	32,351	$	25	$	32,376
Real estate:	Real estate:							Real estate:
Commercial - investor owned	Commercial - investor owned	1		—		1		Commercial - investor owned	18,240		—		18,240
Commercial - owner occupied	Commercial - owner occupied	23,405		—		23,405		Commercial - owner occupied	28,885		—		28,885
Construction and land development		2,690		—		2,690

Residential	Residential	267		—		267		Residential	728		—		728
Other	Other	3,453		12		3,465		Other	7,985		14		7,999
Total	Total	$	55,982	$	13	$	55,995	Total	$	88,189	$	39	$	88,228


	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 ~~the business of meeting the financing needs of its customers.~~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)	June 30, 2022		December 31, 2021		(in thousands)	June 30, 2023		December 31, 2022
Commitments to extend credit	Commitments to extend credit	$	2,619,588	$	2,481,173	Commitments to extend credit	$	3,042,564	$	3,113,966
Letters of credit	Letters of credit	66,739		77,314		Letters of credit	104,449		68,544

Off-Balance Sheet Credit Risk

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments usually have fixed expiration dates or other termination clauses, may have significant usage restrictions, and may require payment of a fee. Of the total commitments to extend credit at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, approximately ~~$257.5~~$253.0 million and ~~$238.7~~$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 ~~$8.1~~$10.3 million and ~~$7.6~~$12.1 million for estimated losses attributable to the unadvanced commitments at June 30, ~~2022~~2023 and December 31, ~~2021,~~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 June 30, ~~2022,~~2023, the approximate remaining terms of standby letters of credit range from 1 month to 1110 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. ~~Interest~~

For hedges of 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

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.

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 ~~$0.3~~$1.5 million will be reclassified as a decrease to interest ~~expense.~~expense and $2.9 million will be reclassified as a decrease to interest 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.

The table below presents the fair value of the Company’s derivative financial instruments:


		Notional Amount				Derivative Assets				Derivative Liabilities					Notional Amount				Derivative Assets				Derivative Liabilities
(in thousands)	(in thousands)	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021		(in thousands)	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022		June 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	$	61,962	$	61,962	$	755	$	—	$	—	$	2,911	Interest rate swap	$	211,962	$	161,962	$	2,305	$	2,348	$	2,916	$	921

Interest rate collar														Interest rate collar	100,000		100,000		—		—		449		48
Total														Total					$	2,305	$	2,348	$	3,365	$	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	$	901,995	$	918,698	$	12,559	$	12,869	$	12,589	$	12,883	Interest rate swap	$	744,102	$	687,902	$	20,805	$	20,610	$	20,807	$	20,612

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

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


As of June 30, 2022
As of June 30, 2023														As of June 30, 2023
																					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
Assets:														Assets:
Interest rate swap														Interest rate swap	$	23,110	$	—	$	23,110	$	3,534	$	19,576	$	—
Interest rate collar														Interest rate collar	—		—		—		—		—		—

Liabilities:														Liabilities:
Interest rate swap														Interest rate swap	$	23,723	$	—	$	23,723	$	3,534	$	—	$	20,189
Interest rate collar														Interest rate collar	449		—		449		—		—		449
Securities sold under agreements to repurchase														Securities sold under agreements to repurchase	148,901		—		148,901		—		148,901		—

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	$	13,314	$	—	$	13,314	$	373	$	12,773	$	168	Interest rate swap	$	22,958	$	—	$	22,958	$	—	$	9,010	$	13,948

Liabilities:	Liabilities:													Liabilities:
Interest rate swap	Interest rate swap	$	12,589	$	—	$	12,589	$	373	$	—	$	12,216	Interest rate swap	$	21,533	$	—	$	21,533	$	—	$	—	$	21,533
Interest rate collar														Interest rate collar	48		—		48		—		—		48
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	206,695		—		206,695		—		206,695		—		Securities sold under agreements to repurchase	270,773		—		270,773		—		270,773		—

As of December 31, 2021
								Gross Amounts Not Offset in the Statement of Financial Position
(in thousands)		Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments		Fair Value Collateral Received/ Pledged		Net Amount
Assets:
Interest rate swap		$	12,869	$	—	$	12,869	$	1,033	$	—	$	11,836

Liabilities:
Interest rate swap		$	15,794	$	—	$	15,794	$	1,033	$	14,031	$	730
Securities sold under agreements to repurchase		331,006		—		331,006		—		331,006		—

2224

As of June 30, ~~2022,~~2023, the fair value of derivatives in a net liability position was ~~$12.6~~$21.3 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 ~~that were~~ in a net asset position as noted in the tables above.

NOTE 7 - FAIR VALUE MEASUREMENTS

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


		June 30, 2022									June 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	$	—	$	231,673	$	—	$	231,673	Obligations of U.S. Government-sponsored enterprises	$	—	$	273,142	$	—	$	273,142
Obligations of states and political subdivisions	Obligations of states and political subdivisions	—		416,835		—		416,835		Obligations of states and political subdivisions	—		422,368		—		422,368
Agency mortgage-backed securities	Agency mortgage-backed securities	—		636,788		—		636,788		Agency mortgage-backed securities	—		650,742		—		650,742
U.S. Treasury bills	U.S. Treasury bills	—		194,628		—		194,628		U.S. Treasury bills	—		196,651		—		196,651
Corporate debt securities	Corporate debt securities	—		13,353		—		13,353		Corporate debt securities	—		7,472		—		7,472
Total securities available for sale	Total securities available for sale	—		1,493,277		—		1,493,277		Total securities available for sale	—		1,550,375		—		1,550,375

Other investments	Other investments	—		2,734		—		2,734		Other investments	—		2,772		—		2,772

Derivatives	Derivatives	—		13,314		—		13,314		Derivatives	—		23,110		—		23,110
Total assets	Total assets	$	—	$	1,509,325	$	—	$	1,509,325	Total assets	$	—	$	1,576,257	$	—	$	1,576,257

Liabilities	Liabilities									Liabilities
Derivatives	Derivatives	$	—	$	12,589	$	—	$	12,589	Derivatives	$	—	$	24,172	$	—	$	24,172
Total liabilities	Total liabilities	$	—	$	12,589	$	—	$	12,589	Total liabilities	$	—	$	24,172	$	—	$	24,172


		December 31, 2021									December 31, 2022
(in thousands)	(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value		(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets	Assets									Assets
Securities available for sale	Securities available for sale									Securities available for sale
Obligations of U.S. Government-sponsored enterprises	Obligations of U.S. Government-sponsored enterprises	$	—	$	173,511	$	—	$	173,511	Obligations of U.S. Government-sponsored enterprises	$	—	$	237,785	$	—	$	237,785
Obligations of states and political subdivisions	Obligations of states and political subdivisions	—		575,084		—		575,084		Obligations of states and political subdivisions	—		417,444		—		417,444
Residential mortgage-backed securities	Residential mortgage-backed securities	—		513,859		—		513,859		Residential mortgage-backed securities	—		659,404		—		659,404
U.S. Treasury bills	U.S. Treasury bills	—		91,170		—		91,170		U.S. Treasury bills	—		208,534		—		208,534
Corporate debt securities	Corporate debt securities	—		12,382		—		12,382		Corporate debt securities	—		12,640		—		12,640
Total securities available-for-sale	Total securities available-for-sale	—		1,366,006		—		1,366,006		Total securities available-for-sale	—		1,535,807		—		1,535,807

Other investments	Other investments	—		3,012		—		3,012		Other investments	—		2,667		—		2,667

Derivative financial instruments	Derivative financial instruments	—		12,869		—		12,869		Derivative financial instruments	—		22,958		—		22,958
Total assets	Total assets	$	—	$	1,381,887	$	—	$	1,381,887	Total assets	$	—	$	1,561,432	$	—	$	1,561,432

Liabilities	Liabilities									Liabilities
Derivatives	Derivatives	$	—	$	15,794	$	—	$	15,794	Derivatives	$	—	$	21,581	$	—	$	21,581
Total liabilities	Total liabilities	$	—	$	15,794	$	—	$	15,794	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.

June 30, 2022
(in thousands) Total Fair Value Quoted Prices in Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Other real estate $ 280 $ — $ — $ 280
Loan servicing asset 3,413 — 3,413 —
Total $ 3,693 $ — $ 3,413 $ 280




	June 30, 2023
(in thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total losses for the three and six months ended June 30, 2023
Nonaccrual loans	$	3,624	$	—	$	—	$	3,624	$	3,254


		December 31, 2021									December 31, 2022
(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)
Nonaccrual loans		$	6,406	$	—	$	—	$	6,406

Other real estate	Other real estate	632		—		—		632		Other real estate	269		—		—		269
Loan servicing asset	Loan servicing asset	3,146		—		3,146		—		Loan servicing asset	1,027				1,027		—
Total	Total	$	10,184	$	—	$	3,146	$	7,038	Total	$	1,296	$	—	$	1,027	$	269

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

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

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


		June 30, 2022					December 31, 2021						June 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	$	617,767	$	537,575	Level 2	$	429,681	$	434,672	Level 2	Securities held-to-maturity, net	$	723,959	$	653,144	Level 2	$	709,915	$	628,517	Level 2
Other investments	Other investments	58,540		58,540		Level 2	56,884		56,884		Level 2	Other investments	63,715		63,715		Level 2	61,123		61,123		Level 2
Loans held for sale	Loans held for sale	4,615		4,615		Level 2	6,389		6,389		Level 2	Loans held for sale	551		551		Level 2	1,228		1,228		Level 2

Loans, net	Loans, net	9,128,630		9,008,274		Level 3	8,872,601		8,869,891		Level 3	Loans, net	10,371,304		$	10,120,441	Level 3	9,600,206		9,328,844		Level 3
State tax credits, held for sale	State tax credits, held for sale	31,746		34,168		Level 3	27,994		30,686		Level 3	State tax credits, held for sale	26,765		28,337		Level 3	27,700		28,880		Level 3

Servicing asset	Servicing asset	5,022		5,127		Level 2	6,714		6,714		Level 2	Servicing asset	2,829		3,920		Level 2	3,648		3,905		Level 2

Balance sheet liabilities	Balance sheet liabilities											Balance sheet liabilities
Certificates of deposit	Certificates of deposit	$	585,201	$	571,337	Level 3	$	608,293	$	606,177	Level 3	Certificates of deposit	$	1,532,104	$	1,503,334	Level 3	$	530,708	$	512,229	Level 3
Subordinated debentures and notes	Subordinated debentures and notes	155,164		154,453		Level 2	154,899		155,972		Level 2	Subordinated debentures and notes	155,706		153,490		Level 2	155,433		152,679		Level 2
FHLB advances	FHLB advances	50,000		49,977		Level 2	50,000		51,527		Level 2	FHLB advances	150,000		150,000		Level 2	100,000		100,004		Level 2
Other borrowings and notes payable		226,695		226,695		Level 2	353,863		353,863		Level 2
Other borrowings												Other borrowings	199,390		175,201		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, ~~2021,~~2022, as filed with the SEC.

NOTE 8 - SHAREHOLDERS’ EQUITY

~~Share Repurchases/Retirement~~

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

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

Shareholders’ Equity

Accumulated Other Comprehensive Income (Loss)

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


Three months ended	Three months ended									Three months ended
(in thousands)	(in thousands)	Net Unrealized Gain (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 Securities		Unamortized Gain (Loss) on Held-to-Maturity Securities		Net Unrealized Gain (Loss) on Cash Flow Hedges		Total
Balance, March 31, 2023										Balance, March 31, 2023	$	(120,856)	$	12,547	$	2,334	$	(105,975)
Net change										Net change	$	(13,677)	$	(686)	$	(3,127)	$	(17,490)

Balance, June 30, 2023										Balance, June 30, 2023	$	(134,533)	$	11,861	$	(793)	$	(123,465)

Balance, March 31, 2022	Balance, March 31, 2022	$	(74,279)	$	15,177	$	(158)	$	(59,260)	Balance, March 31, 2022	$	(74,279)	$	15,177	$	(158)	$	(59,260)
Net change	Net change	$	(49,242)	$	(701)	$	722	$	(49,221)	Net change	$	(49,242)	$	(701)	$	722	$	(49,221)

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

Balance, March 31, 2021		$	11,400	$	18,159	$	(3,382)	$	26,177
Six months ended										Six months ended
(in thousands)										(in thousands)	Net Unrealized Gain (Loss) on Available-for-Sale Debt Securities		Unamortized Gain (Loss) on Held-to-Maturity Securities		Net Unrealized Gain (Loss) on Cash Flow Hedges		Total
Balance, December 31, 2022										Balance, December 31, 2022	$	(144,549)	$	13,185	$	1,032	$	(130,332)
Net change	Net change	$	2,850	$	(837)	$	82	$	2,095	Net change	10,016		(1,324)		(1,825)		6,867

Balance, June 30, 2021		$	14,250	$	17,322	$	(3,300)	$	28,272
Balance, June 30, 2023										Balance, June 30, 2023	$	(134,533)	$	11,861	$	(793)	$	(123,465)

Six months ended
(in thousands)		Net Unrealized Gain (Loss) on Available-for-Sale Debt Securities		Unamortized Gain (Loss) on Held-to-Maturity Securities		Net Unrealized Gain (Loss) on Cash Flow Hedges		Total
Balance, December 31, 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	(128,595)		(1,405)		2,742		(127,258)		Net change	$	(128,595)	$	(1,405)	$	2,742	$	(127,258)
Transfer from available-for-sale to held-to-maturity	Transfer from available-for-sale to held-to-maturity	$	(197)	$	197	$	—	$	—	Transfer from available-for-sale to held-to-maturity	$	(197)	$	197	$	—	$	—
Balance, June 30, 2022	Balance, June 30, 2022	$	(123,521)	$	14,476	$	564	$	(108,481)	Balance, June 30, 2022	$	(123,521)	$	14,476	$	564	$	(108,481)

Balance, December 31, 2020		$	22,320	$	19,308	$	(4,508)	$	37,120
Net change		$	(8,070)	$	(1,986)	$	1,208	$	(8,848)

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

2627

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

Three months ended June 30,
2022 2021
(in thousands) Pre-tax Tax effect After-tax Pre-tax Tax effect After-tax
Change in unrealized gain (loss) on available-for-sale debt securities $ (65,832) $ (16,590) $ (49,242) $ 3,795 $ 945 $ 2,850
Reclassification of gain on held-to-maturity securities(a)
(937) (236) (701) (1,115) (278) (837)
Change in unrealized gain (loss) on cash flow hedges arising during the period 715 180 535 (273) (68) (205)
Reclassification of loss on cash flow hedges(a)
250 63 187 382 95 287
Total other comprehensive income (loss) $ (65,804) $ (16,583) $ (49,221) $ 2,789 $ 694 $ 2,095
Six months ended June 30,
2022 2021
(in thousands) Pre-tax Tax effect After-tax Pre-tax Tax effect After-tax
Change in unrealized loss on available-for-sale debt securities $ (171,918) $ (43,323) $ (128,595) $ (10,746) $ (2,676) $ (8,070)
Reclassification of gain on held-to-maturity securities(a)
(1,879) (474) (1,405) (2,644) (658) (1,986)
Change in unrealized gain on cash flow hedges arising during the period 3,056 770 2,286 855 213 642
Reclassification of loss on cash flow hedges(a)
609 153 456 754 188 566
Total other comprehensive loss $ (170,132) $ (42,874) $ (127,258) $ (11,781) $ (2,933) $ (8,848)
(a)The pre-tax amount is reported in interest income/expense in the Consolidated Statements of Operations


	Three months ended June 30,
	2023						2022
(in thousands)	Pre-tax		Tax effect		After-tax		Pre-tax		Tax effect		After-tax
Change in unrealized loss on available-for-sale securities	$	(18,285)	$	(4,608)	$	(13,677)	$	(65,832)	$	(16,590)	$	(49,242)

Reclassification of gain on held-to-maturity securities(a)	(918)		(232)		(686)		(937)		(236)		(701)
Change in unrealized gain (loss) on cash flow hedges	(4,463)		(1,125)		(3,338)		715		180		535
Reclassification of loss on cash flow hedges(b)	282		71		211		250		63		187
Total other comprehensive loss	$	(23,384)	$	(5,894)	$	(17,490)	$	(65,804)	$	(16,583)	$	(49,221)

	Six months ended June 30,
	2023						2022
(in thousands)	Pre-tax		Tax effect		After-tax		Pre-tax		Tax effect		After-tax
Change in unrealized gain (loss) on available-for-sale securities	$	13,771	$	3,470	$	10,301	$	(171,918)	$	(43,323)	$	(128,595)
Reclassification of gain on sale of available-for-sale securities(a)	(381)		(96)		(285)		—		—		—
Reclassification of gain on held-to-maturity securities(a)	(1,770)		(446)		(1,324)		(1,879)		(474)		(1,405)
Change in unrealized gain (loss) on cash flow hedges	(2,758)		(695)		(2,063)		3,056		770		2,286
Reclassification of loss on cash flow hedges(b)	318		80		238		609		153		456
Total other comprehensive income (loss)	$	9,180	$	2,313	$	6,867	$	(170,132)	$	(42,874)	$	(127,258)

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

2728

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 June 30,				Six months ended June 30,					Three months ended June 30,				Six months ended June 30,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022		2023		2022
Other income:	Other income:									Other income:
Bank-owned life insurance	Bank-owned life insurance	$	748	$	728	$	1,782	$	1,452	Bank-owned life insurance	$	797	$	748	$	1,588	$	1,782
Private equity fund distribution		240		2,015		428		2,565

Community development fees										Community development fees	2,077		193		$	2,672	$	2,359

Other income	Other income	1,224		2,738		6,210		5,732		Other income	2,202		1,271		6,919		4,279
Total other noninterest income	Total other noninterest income	$	2,212	$	5,481	$	8,420	$	9,749	Total other noninterest income	$	5,076	$	2,212	$	11,179	$	8,420

Other expense:	Other expense:									Other expense:
Amortization of intangibles	Amortization of intangibles	$	1,328	$	1,312	$	2,758	$	2,727	Amortization of intangibles	$	1,136	$	1,328	$	2,375	$	2,758
Banking expense	Banking expense	1,911		1,536		3,412		2,730		Banking expense	2,292		1,911		4,140		3,412
Deposit costs	Deposit costs	5,905		3,441		10,165		5,783		Deposit costs	16,980		5,905		29,700		10,165
FDIC and other insurance	FDIC and other insurance	1,623		1,368		3,478		2,331		FDIC and other insurance	2,620		1,623		5,192		3,478
Loan, legal expenses	Loan, legal expenses	2,502		1,727		4,235		3,310		Loan, legal expenses	1,886		2,502		3,790		4,235

Outside services	Outside services	1,366		1,251		2,628		2,488		Outside services	1,612		1,366		3,157		2,628
Other expense	Other expense	5,799		4,061		11,708		7,878		Other expense	8,608		5,799		15,858		11,708
Total other noninterest expense	Total other noninterest expense	$	20,434	$	14,696	$	38,384	$	27,247	Total other noninterest expense	$	35,134	$	20,434	$	64,212	$	38,384

2829

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

RESULTS OF OPERATIONS

Forward Looking Statements

This Quarterly Report on Form 10-Q contains information and statements that are considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company, and include, without limitation, statements about the Company’s plans, strategies, goals, objectives, expectations, or consequences of statements about the future performance, operations, products and services of the Company and its subsidiaries, as well as statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, products and services, shareholder value creation and the impact of ~~the FCBP acquisition and other~~ acquisitions. Forward-looking statements are typically identified with the use of terms such as “may,” “might,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “could,” “continue,” “intend,” and the negative and other variations of these terms and similar words and expressions, although some forward-looking statements may be expressed differently. Forward-looking statements are inherently subject to risks and uncertainties and our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. You should be aware that our actual results could differ materially from those contained in the forward-looking statements.

Given the ongoing and dynamic nature of the COVID-19 pandemic, the ultimate extent of the impacts on our business, financial position, results of operations, liquidity and prospects remain uncertain. Continued deterioration in general business and economic conditions, including the tight labor market, supply chain disruptions, inflationary pressures, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. Changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. While there is no assurance that any list of risks and uncertainties or risk factors is complete, ~~other~~ 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 ~~including the FCBP acquisition,~~ into our operations, retain the customers of these businesses and grow the acquired operations; credit risk; changes in the appraised valuation of real estate securing impaired loans; our ability to recover our investment in loans; fluctuations in the fair value of collateral underlying loans; outcomes of litigation and other contingencies; exposure to general and local economic 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 Ukraine and the imposition of additional sanctions and export controls in connection therewith), or pandemics, including the COVID-19 pandemic, and their effects on economic and business environments in which we operate, including the ongoing disruption to the financial market and other economic activity caused by the ~~continuing~~ COVID-19 pandemic; and other risks discussed under the caption “Risk Factors” under Part 1,I, Item 1A of our ~~2021~~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.”

Introduction

The following discussion describes the significant changes to the financial condition of the Company that have occurred during the first six months of ~~2022~~2023 compared to the financial condition as of December 31, ~~2021.~~2022. In addition, this discussion summarizes the significant factors affecting the results of operations of the Company for the threemonths ended June 30, ~~2022,~~2023, compared to the linked first quarter of 2023 (“linked quarter”) ~~in 2022~~ and the results of operations, liquidity and cash flows for the six months ended June 30, ~~2022~~2023 compared to the same period in ~~2021.~~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 ~~2021.~~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, ~~2021.~~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, ~~2021.~~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.

Allowance for Credit Losses

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

and supportable forecasts. For purposes of determining the allowance for funded and unfunded loans, the portfolios are segregated into pools that share similar risk characteristics ~~that~~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 ~~$140.5~~$141.3 million at June 30, ~~2022~~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 ~~$3.2~~$28.9 million. Conversely, the allowance would have increased ~~$48.4~~$47.9 million using only the downside scenario.

3132

Executive Summary

~~The Company closed its acquisition of FCBP on July 21, 2021. The results of operations of FCBP are included in our results from this date forward.~~

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


(in thousands, except per share data)	(in thousands, except per share data)	Three months ended									At or for the six months ended						(in thousands, except per share data)	Three months ended									Six months ended
		June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021				June 30, 2023			March 31, 2023			June 30, 2022			June 30, 2023			June 30, 2022
EARNINGS	EARNINGS																EARNINGS
Total interest income	Total interest income	$	116,069		$	106,581		$	87,401		$	222,650		$	172,361		Total interest income	$	187,897		$	169,033		$	116,069		$	356,930		$	222,650
Total interest expense	Total interest expense	6,456			5,416			5,663			11,872			11,500			Total interest expense	47,205			29,504			6,456			76,709			11,872
Net interest income	Net interest income	109,613			101,165			81,738			210,778			160,861			Net interest income	140,692			139,529			109,613			280,221			210,778
Provision (benefit) for credit losses	Provision (benefit) for credit losses	658			(4,068)			(2,669)			(3,410)			(2,623)			Provision (benefit) for credit losses	6,339			4,183			658			10,522			(3,410)
Net interest income after provision (benefit) for credit losses	Net interest income after provision (benefit) for credit losses	108,955			105,233			84,407			214,188			163,484			Net interest income after provision (benefit) for credit losses	134,353			135,346			108,955			269,699			214,188
Total noninterest income	Total noninterest income	14,194			18,641			16,204			32,835			27,494			Total noninterest income	14,290			16,898			14,194			31,188			32,835
Total noninterest expense	Total noninterest expense	65,424			62,800			52,456			128,224			105,340			Total noninterest expense	85,956			80,983			65,424			166,939			128,224
Income before income tax expense	Income before income tax expense	57,725			61,074			48,155			118,799			85,638			Income before income tax expense	62,687			71,261			57,725			133,948			118,799
Income tax expense	Income tax expense	12,576			13,381			9,750			25,957			17,307			Income tax expense	13,560			15,523			12,576			29,083			25,957
Net income	Net income	$	45,149		$	47,693		$	38,405		$	92,842		$	68,331		Net income	$	49,127		$	55,738		$	45,149		$	104,865		$	92,842
Preferred stock dividends	Preferred stock dividends	938			1,229			—			2,167			—			Preferred stock dividends	937			938			938			1,875			2,167
Net income available to common shareholders	Net income available to common shareholders	$	44,211		$	46,464		$	38,405		$	90,675		$	68,331		Net income available to common shareholders	$	48,190		$	54,800		$	44,211		$	102,990		$	90,675

Basic earnings per share	Basic earnings per share	$	1.19		$	1.23		$	1.23		$	2.42		$	2.19		Basic earnings per share	$	1.29		$	1.47		$	1.19		$	2.76		$	2.42
Diluted earnings per share	Diluted earnings per share	$	1.19		$	1.23		$	1.23		$	2.41		$	2.18		Diluted earnings per share	$	1.29		$	1.46		$	1.19		$	2.75		$	2.41

Return on average assets	Return on average assets	1.34		%	1.42		%	1.50		%	1.38		%	1.36		%	Return on average assets	1.44		%	1.72		%	1.34		%	1.58		%	1.38		%
Return on average common equity	Return on average common equity	12.65		%	12.87		%	13.79		%	12.76		%	12.45		%	Return on average common equity	12.48		%	14.85		%	12.65		%	13.64		%	12.76		%
Return on average tangible common equity1	Return on average tangible common equity1	17.44		%	17.49		%	18.44		%	17.46		%	16.71		%	Return on average tangible common equity1	16.53		%	19.93		%	17.44		%	18.18		%	17.46		%
Net interest margin (tax equivalent)	Net interest margin (tax equivalent)	3.55		%	3.28		%	3.46		%	3.41		%	3.48		%	Net interest margin (tax equivalent)	4.49		%	4.71		%	3.55		%	4.60		%	3.41		%

Efficiency ratio	Efficiency ratio	52.84		%	52.42		%	53.56		%	52.63		%	55.93		%	Efficiency ratio	55.46		%	51.77		%	52.84		%	53.61		%	52.63		%
Core efficiency ratio1	Core efficiency ratio1	52.81		%	52.43		%	51.86		%	52.62		%	53.38		%	Core efficiency ratio1	54.04		%	50.47		%	51.03		%	52.25		%	50.82		%
Book value per common share	Book value per common share	$	36.97		$	37.35		$	35.86								Book value per common share	$	41.39		$	40.76		$	36.97
Tangible book value per common share1	Tangible book value per common share1	$	26.63		$	27.06		$	26.85								Tangible book value per common share1	$	31.23		$	30.55		$	26.63

ASSET QUALITY	ASSET QUALITY																ASSET QUALITY
Net charge-offs (recoveries)	Net charge-offs (recoveries)	$	(175)		$	1,521		$	869		$	1,346		$	6,516		Net charge-offs (recoveries)	$	2,973		$	(264)		$	(175)		$	2,709		$	1,346
Nonperforming loans	Nonperforming loans	19,560			21,160			42,252									Nonperforming loans	16,112			11,972			19,560
Classified assets	Classified assets	96,801			93,199			100,063									Classified assets	108,065			110,384			96,801
Nonperforming loans to total loans	Nonperforming loans to total loans	0.21		%	0.23		%	0.58		%							Nonperforming loans to total loans	0.15		%	0.12		%	0.21		%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.16		%	0.17		%	0.44		%							Nonperforming assets to total assets	0.12		%	0.09		%	0.16		%
ACL on loans to total loans	ACL on loans to total loans	1.52		%	1.54		%	1.77		%							ACL on loans to total loans	1.34		%	1.38		%	1.52		%
Net charge-offs (recoveries) to average loans (annualized)	Net charge-offs (recoveries) to average loans (annualized)	(0.01)		%	0.07		%	0.05		%	0.03		%	0.18		%	Net charge-offs (recoveries) to average loans (annualized)	0.12		%	(0.01)		%	(0.01)		%	0.05		%	0.03		%

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

3233

Financial results and other notable items include:

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

Quarter ended At or for the six months ended
(in thousands) June 30, 2022 March 31, 2022 Jun 30,
2021 June 30, 2022 June 30, 2021
PPP loans outstanding, net of deferred fees $ 49,175 $ 134,084 $ 396,660 $ 49,175 $ 396,660
Average PPP loans outstanding, net 89,152 194,382 664,375 141,476 678,268
PPP interest and fee income recognized 1,557 2,858 7,940 4,415 16,415
PPP deferred fees remaining 524 1,851 12,243 524 12,243
PPP average yield 7.01 % 5.96 % 4.79 % 6.29 % 4.88 %

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

•~~Pre-provision net revenue~~PPNR1 ~~(“PPNR”)~~ of ~~$58.4~~$68.9 million infor the second quarter ~~2022 increased $1.4 million from the linked quarter PPNR of $57.0 million. PPNR of $115.4~~2023 and $143.9 million for the six months ended June 30, ~~2022~~2023, decreased $6.0 million and increased ~~$27.3~~$28.4 million, from ~~$88.1 million in~~ the linked quarter and prior ~~year period.~~year-to-date period, respectively. The ~~increase~~decrease from the linked quarter was primarily due to ~~an increase in net interest income from an increase in market interest rates, partially offset by~~ a ~~decline~~decrease in noninterest income and an increase in noninterest expense. The increase from the prior ~~year quarter~~year-to-date period was primarily due to ~~the acquisition of FCBP~~an increase in ~~the third quarter 2021,~~net interest income, partially offset by ~~a decline~~an increase in ~~PPP income.~~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 ~~$109.6~~$140.7 million for the second quarter 2022 increased $8.4 million from $101.2 million in the linked quarter. Net interest margin (“NIM”) was 3.55% for the second quarter 2022, compared to 3.28% for the linked quarter. Net interest income2023 and ~~NIM benefited from an increase in market interest rates, organic loan growth and a reallocation of excess liquidity into the investment portfolio. Net interest income of $210.8~~$280.2 million for the six months ended June 30, ~~2022~~2023, increased ~~$49.9~~$1.2 million and $69.4 million from ~~$160.9 million~~the linked and prior year-to-date period, respectively. The NIM was 4.49% for the second quarter 2023 and 4.60% for the six months ended June 30, 2023, compared to 4.71% and 3.41% for the linked and prior year-to-date period, respectively. Net interest income benefited from higher average loan and investment balances and expanding yields on earning assets, partially offset by higher deposit interest expense. NIM decreased 22 basis points from the linked quarter, primarily due to an increase in deposit interest expense. NIM increased 119 basis points from the prior ~~year period. The~~ year-to-date ~~increase over the prior year was~~period, primarily due ~~primarily~~ to ~~the acquisition of FCBP,~~ an increase in market interest rates and organic growth in ~~the loan and investment portfolios, partially offset by a decline in PPP income.~~earning assets.

•Noninterest income of ~~$14.2~~$14.3 million for the second quarter ~~2022 decreased $4.4 million from $18.6 million in the linked quarter. A decline in tax credit income from a seasonally strong linked quarter~~2023 and ~~a decline in other income were the primary drivers of the linked quarter decrease. Noninterest income of $32.8~~$31.2 million for the six months ended June 30, ~~2022 increased $5.3~~2023, decreased $2.6 million and $1.6 million from ~~$27.5 million~~the linked quarter and prior year-to-date period, respectively. The decline from the linked quarter was primarily due to decreases in tax credit income and gains on the sale of investment securities and SBA loans. The decline from the prior ~~year period. The~~ year-to-date ~~increase over the prior~~ period was primarily due to a decrease in card services revenue and tax credit income, partially offset by an increase in other income. The Durbin Amendment cap on debit card income has decreased card services revenue since July 1, 2022.

•Noninterest expense of $86.0 million for the second quarter 2023 and $166.9 million for the six months ended June 30, 2023, increased $5.0 million and $38.7 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 ~~noninterest income~~variable deposit costs and operational losses. The increase from the ~~FCBP acquisition and higher tax credit income~~prior year-to-date period was due to ~~a low volume quarter in the prior year.~~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 ~~$251.5~~$775.5 million, or 8.0%, to ~~$9.3~~$10.5 billion at June 30, ~~2022,~~2023, compared to ~~$9.0~~$9.7 billion at December 31, 2021. PPP loans declined $222.8 million. Excluding PPP, loans grew $474.3 million, or 11%, on an annualized basis from December 31, 2021. Loan growth was well-distributed between the geographic regions and the specialty lending niches.2022. Average loans totaled $10.3 billion for the six months ended June 30, 2023 compared to $9.1 billion for the six months ended June 30, ~~2022 compared to $7.3 billion for the six months ended June 30, 2021.~~2022.

•Deposits – Total deposits ~~decreased $251.2~~increased $790.7 million, to ~~$11.1~~$11.6 billion at June 30, ~~2022~~2023 from ~~$11.3~~$10.8 billion at December 31, ~~2021. The decline in~~2022. Total estimated insured deposits, ~~was concentrated in interest-bearing demand~~which includes collateralized deposits, reciprocal deposits and ~~money market~~ accounts that ~~were not relationship-based and reflects a shift in our deposit mix aligned with our disciplined focus on relationship-based, lower-cost deposits.~~qualify for pass through insurance, totaled $8.3 billion at June 30, 2023, compared to $4.9 billion at December 31, 2022. Average deposits totaled $11.2 billion for the six months ended June 30, 2023, compared to $11.5 billion for the six months ended June 30, ~~2022, compared to $8.4 billion for the six months ended June 30, 2021.~~2022. Noninterest deposit accounts represented ~~42.8%~~33.4% of total deposits and the loan to deposit ratio was ~~83.6%~~90.5% at June 30, ~~2022.~~2023.

•Asset quality – The allowance for credit losses on loans to total loans was ~~1.52%~~1.34% at June 30, ~~2022,~~2023, compared to ~~1.61%~~1.41% at December 31, ~~2021.~~2022. Nonperforming assets to total assets was ~~0.16%~~0.12% at June 30, ~~2022~~2023 compared to ~~0.23%~~0.08% at December 31, ~~2021. Due to the improvement in~~2022. A provision for credit ~~quality~~losses of $6.3 million and ~~macroeconomic forecasts, a provision benefit of $3.4~~$10.5 million was recorded in the ~~first~~second quarter of 2023 and the six months ~~of 2022, compared~~ended June 30, 2023, respectively. This compares to $4.2 million in the linked quarter and a ~~provision~~ benefit of ~~$2.6~~$3.4 million in the comparable prior year period. ~~Loan growth and the provision benefit in the first six months of 2022 contributed to the decline in the ratio of allowance for credit losses to total loans.~~

•Shareholders’ equity – Total shareholders’ equity was ~~$1.45~~$1.62 billion at June 30, ~~2022,~~2023, compared to ~~$1.53~~$1.52 billion at December 31, ~~2021,~~2022, and the tangible common equity to tangible assets ratio2 was ~~7.80%~~8.65% at June 30, ~~2022~~2023 compared to ~~8.13%~~8.43% at December 31, 2021. The decline in the tangible common equity ratio was primarily due to a $127.3 million decrease in accumulated other comprehensive income, mainly from a decrease in the fair value of the available-for-sale investment portfolio.2022. The Company and the Bank’s regulatory capital ratios exceeded the “well-capitalized” level at June 30, ~~2022. In June 2022, the Company retired 1,980,093 shares of treasury stock and returned them to authorized and unissued shares.~~2023.

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

The Company’s Board of Directors approved a quarterly dividend of ~~$0.23~~$0.25 per common share, payable on September ~~30, 2022~~29, 2023 to shareholders of record as of September 15, ~~2022, an increase of $0.01, or 5.0%, compared to the second quarter 2022.~~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) June 15, ~~2022~~2023 to (but excluding) September 15, ~~2022.~~2023. The dividend will be payable on September 15, ~~2022~~2023 to shareholders of record on August 31, ~~2022.~~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.

3435

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 June 30,						Three months ended March 31,						Three months ended June 30,							Three months ended June 30,						Three months ended March 31,						Three months ended June 30,
		2022						2022						2021							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	$	9,109,131	$	102,328	4.51	%	$	9,005,875	$	96,301	4.34	%	$	7,306,471	$	79,162	4.35	%	Total loans1, 2	$	10,284,873	$	170,314	6.64	%	$	9,795,045	$	152,762	6.33	%	$	9,109,131	$	102,328	4.51	%
Taxable securities	Taxable securities	1,209,498		6,894		2.29		1,151,743		5,699		2.01		856,439		4,706		2.20		Taxable securities	1,328,891		9,984		3.01		1,322,978		9,635		2.95		1,209,498		6,894		2.29
Non-taxable securities2	Non-taxable securities2	858,621		6,050		2.83		772,226		5,270		2.77		646,143		4,520		2.81		Non-taxable securities2	969,104		7,566		3.13		965,473		7,482		3.14		858,621		6,050		2.83
Total securities	Total securities	2,068,119		12,944		2.51		1,923,969		10,969		2.31		1,502,582		9,226		2.46		Total securities	2,297,995		17,550		3.06		2,288,451		17,117		3.03		2,068,119		12,944		2.51
Interest-earning deposits	Interest-earning deposits	1,401,961		2,496		0.71		1,781,272		817		0.19		806,928		237		0.12		Interest-earning deposits	173,785		2,095		4.84		106,254		1,195		4.56		1,401,961		2,496		0.71
Total interest-earning assets	Total interest-earning assets	12,579,211		117,768		3.76		12,711,116		108,087		3.45		9,615,981		88,625		3.70		Total interest-earning assets	12,756,653		189,959		5.97		12,189,750		171,074		5.69		12,579,211		117,768		3.76
Noninterest-earning assets	Noninterest-earning assets	949,263						902,887						665,363						Noninterest-earning assets	915,332						941,445						949,263

Total assets	Total assets	$	13,528,474					$	13,614,003					$	10,281,344					Total assets	$	13,671,985					$	13,131,195					$	13,528,474

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	$	2,329,431	$	659	0.11	%	$	2,505,319	$	536	0.09	%	$	1,985,811	$	336	0.07	%	Interest-bearing demand accounts	$	2,509,805	$	10,120	1.62	%	$	2,201,910	$	5,907	1.09	%	$	2,329,431	$	659	0.11	%
Money market accounts	Money market accounts	2,767,595		2,270		0.33		2,872,302		1,460		0.21		2,344,871		988		0.17		Money market accounts	2,920,079		20,499		2.82		2,826,836		15,471		2.22		2,767,595		2,270		0.33
Savings		854,860		70		0.03		817,431		66		0.03		718,193		52		0.03
Savings accounts																				Savings accounts	686,973		227		0.13		732,256		230		0.13		854,860		70		0.03
Certificates of deposit	Certificates of deposit	591,091		851		0.58		607,133		797		0.53		522,633		1,091		0.84		Certificates of deposit	1,219,500		10,526		3.46		670,521		3,053		1.85		591,091		851		0.58
Total interest-bearing deposits	Total interest-bearing deposits	6,542,977		3,850		0.24		6,802,185		2,859		0.17		5,571,508		2,467		0.18		Total interest-bearing deposits	7,336,357		41,372		2.26		6,431,523		24,661		1.56		6,542,977		3,850		0.24
Subordinated debentures		155,092		2,257		5.84		154,959		2,220		5.81		203,849		2,847		5.60
Subordinated debentures and notes																				Subordinated debentures and notes	155,632		2,431		6.27		155,497		2,409		6.28		155,092		2,257		5.84
FHLB advances	FHLB advances	50,000		197		1.58		50,000		195		1.58		50,000		197		1.58		FHLB advances	98,912		1,279		5.19		110,928		1,332		4.87		50,000		197		1.58
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	202,537		41		0.08		262,252		60		0.09		209,062		58		0.11		Securities sold under agreements to repurchase	162,606		704		1.74		215,604		749		1.41		202,537		41		0.08
Other borrowed funds		21,413		111		2.08		22,841		82		1.46		27,147		94		1.39
Other borrowings																				Other borrowings	133,770		1,419		4.25		53,885		353		2.66		21,413		111		2.08
Total interest-bearing liabilities	Total interest-bearing liabilities	6,972,019		6,456		0.37		7,292,237		5,416		0.30		6,061,566		5,663		0.37		Total interest-bearing liabilities	7,887,277		47,205		2.40		6,967,437		29,504		1.72		6,972,019		6,456		0.37
Noninterest bearing liabilities:	Noninterest bearing liabilities:																			Noninterest bearing liabilities:
Demand deposits	Demand deposits	4,987,455						4,692,027						3,008,703						Demand deposits	4,051,456						4,481,966						4,987,455
Other liabilities	Other liabilities	94,733						93,518						94,106						Other liabilities	111,915						113,341						94,733
Total liabilities	Total liabilities	12,054,207						12,077,782						9,164,375						Total liabilities	12,050,648						11,562,744						12,054,207
Shareholders' equity	Shareholders' equity	1,474,267						1,536,221						1,116,969						Shareholders' equity	1,621,337						1,568,451						1,474,267
Total liabilities & shareholders' equity	Total liabilities & shareholders' equity	$	13,528,474					$	13,614,003					$	10,281,344					Total liabilities & shareholders' equity	$	13,671,985					$	13,131,195					$	13,528,474
Net interest income	Net interest income			$	111,312					$	102,671					$	82,962			Net interest income			$	142,754					$	141,570					$	111,312
Net interest spread	Net interest spread					3.39	%					3.15	%					3.33	%	Net interest spread					3.57	%					3.97	%					3.39	%
Net interest margin	Net interest margin					3.55	%					3.28	%					3.46	%	Net interest margin					4.49	%					4.71	%					3.55	%

1 Average balances include nonaccrual loans. Interest income includes loan fees of $3.7 million, $3.7 million, and $4.2 million for the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, respectively.																				1 Average balances include nonaccrual loans. Interest income includes loan fees of $3.7 million, $3.7 million, and $4.2 million for the three months ended June 30, 2023, March 31, 2023, and June 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, $2.0 million, and $1.7 million for the three months ended June 30, 2023, March 31, 2023, and June 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, $2.0 million, and $1.7 million for the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, respectively.

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

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

3536


		Six months ended June 30,													Six months ended June 30,
		2022						2021							2023						2022
(in thousands)	(in thousands)	Average Balance		Interest Income/Expense		Average Yield/ Rate		Average Balance		Interest Income/Expense		Average Yield/ Rate		(in thousands)	Average Balance		Interest Income/Expense		Average Yield/ Rate		Average Balance		Interest Income/Expense		Average Yield/ Rate
Assets	Assets													Assets
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:

Total loans1, 2	Total loans1, 2	$	9,057,788	$	198,629	4.42	%	$	7,249,938	$	156,234	4.35	%	Total loans1, 2	$	10,041,312	$	323,076	6.49	%	$	9,057,788	$	198,629	4.42	%
Taxable securities	Taxable securities	1,180,780		12,593		2.15		852,802		9,425		2.23		Taxable securities	1,325,951		19,619		2.98		1,180,780		12,593		2.15
Non-taxable securities2	Non-taxable securities2	815,662		11,320		2.80		607,377		8,619		2.86		Non-taxable securities2	967,298		15,048		3.14		815,662		11,320		2.80
Total securities	Total securities	1,996,442		23,913		2.42		1,460,179		18,044		2.49		Total securities	2,293,249		34,667		3.05		1,996,442		23,913		2.42
Interest-earning deposits	Interest-earning deposits	1,590,569		3,313		0.42		743,645		426		0.12		Interest-earning deposits	140,206		3,290		4.73		1,590,569		3,313		0.42
Total interest-earning assets	Total interest-earning assets	12,644,799		225,855		3.60		9,453,762		174,704		3.73		Total interest-earning assets	12,474,767		361,033		5.84		12,644,799		225,855		3.60
Noninterest-earning assets	Noninterest-earning assets	926,203						657,879						Noninterest-earning assets	928,317						926,203

Total assets	Total assets	$	13,571,002					$	10,111,641					Total assets	$	13,403,084					$	13,571,002

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	$	2,416,889	$	1,194	0.10	%	$	1,936,707	$	664	0.07	%	Interest-bearing demand accounts	$	2,356,708	$	16,027	1.37	%	$	2,416,889	$	1,194	0.10	%
Money market accounts	Money market accounts	2,819,659		3,730		0.27		2,347,716		1,963		0.17		Money market accounts	2,873,715		35,970		2.52		2,819,659		3,730		0.27
Savings		836,249		137		0.03		686,603		100		0.03
Savings accounts														Savings accounts	709,490		457		0.13		836,249		137		0.03
Certificates of deposit	Certificates of deposit	599,067		1,648		0.55		529,860		2,403		0.91		Certificates of deposit	946,527		13,579		2.89		599,067		1,648		0.55
Total interest-bearing deposits	Total interest-bearing deposits	6,671,864		6,709		0.20		5,500,886		5,130		0.19		Total interest-bearing deposits	6,886,440		66,033		1.93		6,671,864		6,709		0.20
Subordinated debentures		155,026		4,477		5.82		203,772		5,666		5.61
Subordinated debentures and notes														Subordinated debentures and notes	155,565		4,840		6.27		155,026		4,477		5.82
FHLB advances	FHLB advances	50,000		392		1.58		50,000		392		1.58		FHLB advances	104,887		2,611		5.02		50,000		392		1.58
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	232,229		101		0.09		220,233		118		0.11		Securities sold under agreements to repurchase	188,958		1,453		1.55		232,229		101		0.09
Other borrowed funds		22,123		193		1.76		27,894		194		1.40
Other borrowings														Other borrowings	94,048		1,772		3.80		22,123		193		1.76
Total interest-bearing liabilities	Total interest-bearing liabilities	7,131,242		11,872		0.34		6,002,785		11,500		0.39		Total interest-bearing liabilities	7,429,898		76,709		2.08		7,131,242		11,872		0.34
Noninterest bearing liabilities:	Noninterest bearing liabilities:													Noninterest bearing liabilities:
Demand deposits	Demand deposits	4,840,558						2,893,939						Demand deposits	4,265,521						4,840,558
Other liabilities	Other liabilities	94,129						108,135						Other liabilities	112,625						94,129
Total liabilities	Total liabilities	12,065,929						9,004,859						Total liabilities	11,808,044						12,065,929
Shareholders' equity	Shareholders' equity	1,505,073						1,106,782						Shareholders' equity	1,595,040						1,505,073
Total liabilities & shareholders' equity	Total liabilities & shareholders' equity	$	13,571,002					$	10,111,641					Total liabilities & shareholders' equity	$	13,403,084					$	13,571,002
Net interest income	Net interest income			$	213,983					$	163,204			Net interest income			$	284,324					$	213,983
Net interest spread	Net interest spread					3.26	%					3.34	%	Net interest spread					3.76	%					3.26	%
Net interest margin	Net interest margin					3.41	%					3.48	%	Net interest margin					4.60	%					3.41	%

1 Average balances include nonaccrual loans. Interest income includes loan fees of $7.4 million and $9.3 million for the six months ended June 30, 2023 and 2022, respectively.														1 Average balances include nonaccrual loans. Interest income includes loan fees of $7.4 million and $9.3 million for the six months ended June 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 $4.1 million and $3.2 million for the six months ended June 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 $4.1 million and $3.2 million for the six months ended June 30, 2023 and 2022, respectively.

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

2 Non-taxable income is presented on a fully tax-equivalent basis using a 25.2% tax rate. The tax-equivalent adjustments were $3.2 million and $2.3 million for the six months ended June 30, 2022 and June 30, 2021, respectively.

3637

Rate/Volume

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


		Three months ended June 30, 2022						Six months ended June 30, 2022			Three months ended June 30, 2023								Six months ended June 30, 2023
		compared to						compared to			compared to								compared to
		Three months ended March 31, 2022						Six months ended June 30, 2021			Three months ended March 31, 2023								Six months ended June 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)	1,381		4,646		6,027			39,603			2,792		42,395		Loans(3)	$	8,758	$	8,794	$	17,552	23,504		100,943		124,447
Taxable securities	Taxable securities	316		879		1,195			3,509			(341)		3,168		Taxable securities	62		287		349		1,693		5,333		7,026
Non-taxable securities(3)	Non-taxable securities(3)	653		127		780			2,895			(194)		2,701		Non-taxable securities(3)	71		13		84		2,258		1,470		3,728
Interest-earning deposits	Interest-earning deposits	(213)		1,892		1,679			871			2,016		2,887		Interest-earning deposits	821		79		900		(5,551)		5,528		(23)
Total interest-earning assets	Total interest-earning assets	$	2,137	$	7,544	$	9,681		$	46,878		$	4,273	$	51,151	Total interest-earning assets	$	9,712	$	9,173	$	18,885	$	21,904	$	113,274	$	135,178

Interest paid on:	Interest paid on:															Interest paid on:
Interest-bearing demand accounts	Interest-bearing demand accounts	$	(30)	$	153	$	123		$	191		$	339	$	530	Interest-bearing demand accounts	$	941	$	3,272	$	4,213	$	(31)	$	14,864	$	14,833
Money market accounts	Money market accounts	(55)		865		810			454			1,313		1,767		Money market accounts	547		4,481		5,028		73		32,167		32,240
Savings		4		—		4			24			13		37
Savings accounts																Savings accounts	(3)		—		(3)		(24)		344		320
Certificates of deposit	Certificates of deposit	(21)		75		54			283			(1,038)		(755)		Certificates of deposit	3,623		3,850		7,473		1,443		10,488		11,931
Subordinated debentures		5		32		37			(1,401)			212		(1,189)
Subordinated debentures and notes																Subordinated debentures and notes	10		12		22		16		347		363
FHLB advances	FHLB advances	—		2		2			—			—		—		FHLB advances	(143)		90		(53)		744		1,475		2,219
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	(12)		(7)		(19)			6			(23)		(17)		Securities sold under agreements to repurchase	(204)		159		(45)		(23)		1,375		1,352
Other borrowings	Other borrowings	(5)		34		29			(44)			43		(1)		Other borrowings	759		307		1,066		1,163		416		1,579
Total interest-bearing liabilities	Total interest-bearing liabilities	(114)		1,154		1,040			(487)			859		372		Total interest-bearing liabilities	5,530		12,171		17,701		3,361		61,476		64,837
Net interest income	Net interest income	$	2,251	$	6,390	$	8,641		$	47,365		$	3,414	$	50,779	Net interest income	$	4,182	$	(2,998)	$	1,184	$	18,543	$	51,798	$	70,341

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

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

(3) Nontaxable income is presented on a tax equivalent basis.

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

Net interest income (on a tax equivalent basis) of ~~$111.3~~$142.8 million for the ~~three months~~quarter ended June 30, 2022 increased $8.6 million, from $102.7 million in the linked quarter. The increase in net interest income from the linked quarter was primarily due to an increase in the earning asset yield from an increase in market interest rates that was further enhanced by a stronger earning asset mix. The Federal Open Markets Committee increased the target federal funds rate by 125 basis points in the second quarter of 2022. Net interest income has benefited from interest rate increases due to the asset-sensitive position of the balance sheet. The Company also continued to redeploy part of its excess liquidity into the investment portfolio during the second quarter, increasing investments $244.2 million over the linked quarter, when excluding mark-to-market fluctuations.

Net interest income (on a tax equivalent basis) for the six months ended June 30, 2022 of $214.0 million increased $50.8 million, over $163.2 million in the prior year period. The year-to-date increase over the prior year was primarily due to the FCBP acquisition2023 and an increase in market interest rates, including a 150 basis point increase in the target federal funds rate during the first six months of 2022. Organic growth in the loan portfolio and the continued increase in the investment portfolio has also benefited net interest income.

The current quarter and year-to-date increases in net interest income were partially offset by a decline in PPP income. PPP income in the second quarter 2022 was $1.6 million, compared to $2.9 million in the linked quarter. PPP income was $4.4$284.3 million for the six months ended June 30, ~~2022,~~2023, increased $1.2 million and $70.3 million, from the linked quarter and prior year-to-date period respectively. The increase from the linked quarter and the prior 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 second quarter 2023 was 4.99%, an increase of 47 basis points, compared to ~~$16.4~~the linked quarter. The effective federal funds rate for the first six months of 2023 was 4.76%, an increase of 431 basis points, compared to first six months of 2022.

Compared to the linked quarter, interest income increased $18.9 million, primarily due to a $17.6 million increase in loan interest income from continued loan growth and higher loan yields. Interest on securities and interest-earning cash balances increased $1.3 million from the linked quarter, primarily due to an increase in on-balance sheet liquidity and an increase in average investments. On-balance sheet liquidity increased as the Company maintained a higher level of cash due to the uncertainty surrounding the Federal government’s debt ceiling. Interest on loans benefited from a 31 basis point increase in yield and a $490.0 million increase in average loans compared to the linked quarter. The average interest rate of new loan originations in the ~~comparable~~second quarter 2023 was 7.60%.

Year-to-date, interest income increased $134.3 million over the prior year ~~period.~~period due to a $124.5 million increase in loan interest and a $9.8 million increase in interest on securities and interest earning cash. Loan yields in the first six

3738

months of 2023 increased 207 basis points to 6.49%, compared to 4.42% in the prior year period. Average loans increased $983.5 million, or 10.9% over the prior year period. Average securities increased $296.8 million, or 14.9% over the prior year period.

~~NIM~~Compared to the linked quarter, interest expense increased $17.7 million primarily due to a $16.7 million increase in deposit interest expense and a $1.0 million increase in interest expense on other borrowings. The increase in interest expense reflects a shift in the deposit mix from demand deposits and interest-bearing demand deposits to money market accounts and certificates of deposit, as well as higher rates paid on deposits. The average cost of interest-bearing deposits was ~~3.55% for the second quarter 2022,~~2.26%, an increase of 2770 basis points ~~from 3.28% in~~over the linked quarter. The increase ~~in NIM from the linked quarter~~ was primarily due to higher ~~yields~~rates paid on ~~loans, investments~~certificates of deposit and ~~interest-earning deposits~~commercial money market accounts, which increased 161 basis points and 60 basis points, respectively, in addition to a higher average certificate of deposit balance. The increase in interest expense on other borrowings was primarily from higher average borrowings to increase on-balance-sheet liquidity due to anthe uncertain impact of the Federal government debt ceiling debate.

Year-to-date, interest expense increased $64.8 million over the prior year period, primarily due to a $59.3 million increase in ~~market~~deposit interest ~~rates,~~expense and a $5.5 million increase on borrowed funds. The cost of interest bearing deposits increased 173 basis points year-over-year, while the cost of total interest bearing liabilities increased 174 basis points during the same period.

The total cost of deposits, including noninterest-bearing demand accounts, was 1.46% during the ~~125 basis point increase~~second quarter 2023 and 1.19% in the ~~federal funds rate. The average loan yield~~first six months of 2023, compared to 0.92% and 0.12% in the linked quarter and prior year-to-date period, respectively.

NIM, on a tax equivalent basis, was ~~4.51%~~4.49% in the second quarter ~~2022,~~2023 and 4.60% for the first six months of 2023, a decrease of 22 basis points and an increase of 17 basis points from 4.34% in the linked quarter. The average loan yield increased due to the repricing of variable-rate loans and the origination of new loans at an average rate of 4.71% (as of June 30, 2022). Approximately 20% of the variable-rate loan portfolio reprices on the first day of each quarter and did not increase with the current quarter’s rate movement, but these loan rates will reset early in the third quarter 2022.~~The average investment yield was 2.51%, an increase of 20~~119 basis points from the linked ~~quarter. The investment yield increased due to the purchase of new investments at higher yields due to the expansion of the investment portfolio~~quarter and the ~~reinvestment of cash flows. Investments purchased in the second quarter 2022 had a tax equivalent average yield of 2.99%.~~

~~NIM was 3.41% for the six months ended June 30, 2022, a decrease of seven basis points, from 3.48% in the~~ prior ~~year period. The decrease in NIM over the prior year~~year-to-date period, ~~was primarily due to excess liquidity from deposit growth and PPP that increased the ratio of interest-earning deposits to interest earning assets.~~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								Six months ended									Quarter ended								Six months ended
(in thousands)	(in thousands)	June 30, 2022		March 31, 2022		Increase (decrease)				June 30, 2022		June 30, 2021		Increase (decrease)				(in thousands)	June 30, 2023		March 31, 2023		Increase (decrease)				June 30, 2023		June 30, 2022		Increase (decrease)
Deposit service charges	Deposit service charges	$	4,749	$	4,163	$	586	14	%	$	8,912	$	6,946	$	1,966	28	%	Deposit service charges	$	3,910	$	4,128	$	(218)	(5)	%	$	8,038	$	8,912	$	(874)	(10)	%
Wealth management revenue	Wealth management revenue	2,533		2,622		(89)		(3)	%	5,155		4,999		156		3	%	Wealth management revenue	2,472		2,516		(44)		(2)	%	4,988		5,155		(167)		(3)	%
Card services revenue	Card services revenue	3,514		3,040		474		16	%	6,554		5,471		1,083		20	%	Card services revenue	2,464		2,338		126		5	%	4,802		6,554		(1,752)		(27)	%
Tax credit income	Tax credit income	1,186		2,608		(1,422)		(55)	%	3,794		329		3,465		1,053	%	Tax credit income	368		1,813		(1,445)		(80)	%	2,181		3,794		(1,613)		(43)	%

Other income	Other income	2,212		6,208		(3,996)		(64)	%	8,420		9,749		(1,329)		(14)	%	Other income	5,076		6,103		(1,027)		(17)	%	11,179		8,420		2,759		33	%

Total noninterest income	Total noninterest income	$	14,194	$	18,641	$	(4,447)	(24)	%	$	32,835	$	27,494	$	5,341	19	%	Total noninterest income	$	14,290	$	16,898	$	(2,608)	(15)	%	$	31,188	$	32,835	$	(1,647)	(5)	%

Total noninterest income for the second quarter ~~2022~~2023 was ~~$14.2~~$14.3 million, a ~~decrease of $4.4 million from $18.6 million in the linked quarter. The~~ decrease from the linked quarter of $2.6 million which was primarily due to decreases in tax credit income and other income. Tax credit income is typically ~~higher~~highest in the fourth ~~and first~~ quarter of each year and ~~experiences a seasonal decline during the second~~will vary in other periods based on transaction volumes and ~~third quarters. Certain tax credit investment projects are~~fair value changes on credits carried at fair value. ~~Rising interest rates also reduced tax credit~~The decrease in other income was primarily due to gains on the ~~impact on tax credit projects carried at fair value. An increase in interest rates will increase the discount rate used in the fair value~~sale of ~~these investments, resulting in a lower fair value. Future rate increases may result in fair value changes that will lower tax credit income.~~

~~Other income in the current quarter included a combined $0.3 million of income from community development investments~~investment securities and ~~swap income. This compares to $2.2 million of fees from community development investments and $1.2 million of swap income~~SBA loans in the linked ~~quarter. Income from community development investments and customer swap fees are~~quarter that did not ~~consistent sources and will vary among periods.~~reoccur in the second quarter 2023.

Total noninterest income for the six months ended June 30, ~~2022~~2023 was ~~$32.8~~$31.2 million, ~~an increase of $5.3 million~~a decrease from ~~$27.5 million in~~ the prior year ~~period. The increase~~period of $1.6 million which was primarily due to decreases in tax credit income ~~deposit service charges, and card services. Tax credit project activity~~ and card services revenue. Lower transaction volumes ~~have been stronger in 2022 compared~~led to the ~~same period~~decrease in ~~2021.~~tax credit income while the Durbin Amendment cap on debit card income

has limited card services revenue since July 1, 2022. The ~~FCBP acquisition also contributed $2.9 million to the overall noninterest income~~ increase in ~~2022~~other income for the first six months of 2023, compared to the prior year period, ~~primarily in deposit service charges. Other income in the first six months of 2022 decreased~~is primarily due to ~~lower~~gains on the sale of investments and SBA loans and a higher level of income on community development and private equity fund ~~distributions and lower mortgage banking revenue due to a decline in activity.~~

investments.

Noninterest Expense

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


		Linked quarter comparison											Prior year comparison												Linked quarter comparison											Prior year comparison
		Quarter ended											Six months ended												Quarter ended											Six months ended
(in thousands)	(in thousands)	June 30, 2022			March 31, 2022			Increase (decrease)					June 30, 2022			June 30, 2021			Increase (decrease)					(in thousands)	June 30, 2023			March 31, 2023			Increase (decrease)					June 30, 2023			June 30, 2022			Increase (decrease)
Employee compensation and benefits	Employee compensation and benefits	$	36,028		$	35,827		$	201		1	%	$	71,855		$	57,694		$	14,161		25	%	Employee compensation and benefits	$	41,641		$	42,503		$	(862)		(2)	%	$	84,144		$	71,855		$	12,289		17	%
Occupancy	Occupancy	4,309			4,586			(277)			(6)	%	8,895			7,280			1,615			22	%	Occupancy	3,954			4,061			(107)			(3)	%	8,015			8,895			(880)			(10)	%
Data processing	Data processing	3,111			3,260			(149)			(5)	%	6,371			5,740			631			11	%	Data processing	3,661			3,710			(49)			(1)	%	7,371			6,371			1,000			16	%
Professional fees	Professional fees	1,542			1,177			365			31	%	2,719			2,288			431			19	%	Professional fees	1,566			1,631			(65)			(4)	%	3,197			2,719			478			18	%
Deposit costs																								Deposit costs	16,980			12,720			4,260			33	%	29,700			10,165			19,535			192	%

Merger-related expenses		—			—			—			—	%	—			5,091			(5,091)			(100)	%

Other expense	Other expense	20,434			17,950			2,484			14	%	38,384			27,247			11,137			41	%	Other expense	18,154			16,358			1,796			11	%	34,512			28,219			6,293			22	%
Total noninterest expense	Total noninterest expense	$	65,424		$	62,800		$	2,624		4	%	$	128,224		$	105,340		$	22,884		22	%	Total noninterest expense	$	85,956		$	80,983		$	4,973		6	%	$	166,939		$	128,224		$	38,715		30	%

Efficiency ratio	Efficiency ratio	52.84		%	52.42		%	0.42		%			52.63		%	55.93		%	(3.30)		%			Efficiency ratio	55.46		%	51.77		%	3.69		%			53.61		%	52.63		%	0.98		%
Core efficiency ratio1	Core efficiency ratio1	52.81		%	52.43		%	0.38		%			52.62		%	53.38		%	(0.57)		%			Core efficiency ratio1	54.04		%	50.47		%	3.57		%			52.25		%	50.82		%	1.43		%

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

Noninterest expense was ~~$65.4~~$86.0 million for the second quarter ~~2022,~~2023, an increase of ~~$2.6~~$5.0 million from ~~$62.8~~$81.0 million in the linked quarter. Employee compensation and benefits ~~increased $0.2~~decreased $0.9 million from the linked quarter ~~which included~~due to a ~~$1.2~~$2.8 million decrease in benefits, primarily employer payroll taxes and 401(k) expense that are seasonally higher in the first quarter each year. The decrease in benefits was partially offset by a $1.9 million increase in ~~ongoing~~salaries and variable compensation ~~expense~~due to a full quarter of merit increases that ~~was offset~~became effective on March 1, 2023, and an expanded associate base. Deposit costs relate to certain specialized deposit businesses that are impacted by ~~a $1.2 million decline in payroll taxes. The compensation trend in the linked quarter was primarily driven by performance-based incentive accruals. Other expense and professional fees~~higher interest rates as well as increasing average balances. Deposit costs increased ~~$2.7~~$4.3 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. The linked quarter deposit costs were also lower due to the expiration of certain earnings credits that were forfeited. Other expense increased $1.8 million from the linked quarter, primarily related to a ~~$1.6~~$1.5 million increase in ~~deposit costs and~~operational losses.

Total noninterest expense of $166.9 million for the first six months of 2023 increased $38.7 million from the prior year period, primarily related to a ~~$0.8~~$19.5 million increase in ~~loan~~variable deposit costs, a $12.3 million increase in compensation and ~~legal expenses due to growth~~benefits and a $7.0 million net increase in ~~the loan portfolio.~~occupancy and other expenses.

~~Noninterest expense~~In May 2023, the FDIC issued a Notice of ~~$128.2~~Proposed Rulemaking which would implement a special assessment to recover the cost associated with protecting uninsured depositors following the closure of several FDIC insured banks. 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 for the six months ended June 30, 2022, increased $22.9 million, from $105.3 million in the prior year period. The increase was primarily due to the FCBP acquisition that added $12.8 million in noninterest expense, an increase in employee compensation and benefits from merit increases in 2021, and higher deposit servicing costs. Certain deposit specialty accounts receive an earnings credit that pays costs used to service the customer. These costs are recorded as noninterest expense and will ~~fluctuate with~~be recognized when the amount of the underlying deposit balances and the related earnings credit rate. Excluding FCBP, these costs increased $3.3 million to $10.2 million in the six months ended June 30, 2022, compared to $5.8 million in the prior year period. The increase was primarily due to continued success in generating new customer activity in the deposit specialties. Offsetting these increases was a decline of $5.1 million in merger expenses that were recognized in the prior year on the acquisitions of Seacoast Commerce Banc Holdings and FCBP.rule is finalized.

Income Taxes

The Company’s effective tax rate was ~~21.8 %~~21.6% for the second quarter ~~2022, compared to 21.9% in the linked quarter. The tax rate was relatively stable in the second quarter 2022 compared to the linked quarter. The effective tax rate was 21.8%~~2023 and ~~20.2%~~21.7% for the six months ended June 30, ~~2022~~2023. This compares to the linked quarter and ~~2021, respectively. The Company’s~~prior year-to-date effective tax ~~for the first half~~rate of 2022 rate has increased over the prior year period due to growth of pre-tax income and the further expansion and diversification of the Company’s geographic footprint which has affected state tax apportionment.21.8%.

3940

Summary Balance Sheet


(in thousands)	(in thousands)	June 30, 2022		December 31, 2021		Increase (decrease)				(in thousands)	June 30, 2023		December 31, 2022		Increase (decrease)
Total cash and cash equivalents	Total cash and cash equivalents	$	944,804	$	2,021,689	$	(1,076,885)	(53)	%			Total cash and cash equivalents	$	322,023	$	291,359	$	30,664	11	%
Securities		2,111,044		1,795,687		315,357		18	%
Loans (excluding PPP)		9,220,001		8,745,684		474,317		5	%
PPP loans, net		49,175		271,958		(222,783)		(82)	%
Securities, net												Securities, net	2,274,334		2,245,722		28,612		1	%
Total loans												Total loans	10,512,623		9,737,138		775,485		8	%
Total assets	Total assets	13,084,506		13,537,358		(452,852)		(3)	%			Total assets	13,871,154		13,054,172		816,982		6	%
Deposits	Deposits	11,092,618		11,343,799		(251,181)		(2)	%			Deposits	11,619,860		10,829,150		790,710		7	%
Total liabilities	Total liabilities	11,637,094		12,008,242		(371,148)		(3)	%			Total liabilities	12,252,921		11,531,909		721,012		6	%
Total shareholders’ equity	Total shareholders’ equity	1,447,412		1,529,116		(81,704)		(5)	%			Total shareholders’ equity	1,618,233		1,522,263		95,970		6	%

Total assets were ~~$13.1~~$13.9 billion at June 30, ~~2022, a decrease~~2023, an increase of ~~$425.9~~$817.0 million from December 31, ~~2021.~~2022. Cash and cash equivalents ~~declined $1.1 billion, primarily~~increased as the Company retained a higher level due to ~~organic~~uncertainty on the Federal government debt ceiling, while loan ~~growth, the deployment of excess liquidity into the investment portfolio and managed outflows in the deposit portfolio. New loan~~ production ~~and an increase in line utilization~~ increased the loan portfolio ~~net~~and reinvestment of ~~PPP.~~cash flows and an improvement in the unrealized loss on available for sale investments increased the value of the securities portfolio. Total liabilities of ~~$11.6~~$12.3 billion, ~~decreased $371.1~~increased $721.0 million from December 31, ~~2021.~~2022. A $790.7 million increase in deposits, partially offset by a $74.7 million net decrease in ~~deposits~~FHLB advances and other borrowings, was ~~primarily driven~~the primary driver of the increase in total liabilities.

Investments

At June 30, 2023, investment securities were $2.3 billion, or 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:


	June 30, 2023				December 31, 2022
($ in thousands)	Amount		%		Amount		%
Obligations of U.S. Government sponsored enterprises	$	273,142	12.0	%	$	237,785	10.6	%
Obligations of states and political subdivisions	968,393		42.6	%	946,456		42.1	%
Agency mortgage-backed securities	705,510		31.0	%	716,422		31.9	%
U.S. Treasury Bills	196,651		8.6	%	208,534		9.3	%
Corporate debt securities	131,496		5.8	%	137,260		6.1	%


Total	$	2,275,192	100.0	%	$	2,246,457	100.0	%


Net Unrealized Losses
($ in thousands)	June 30, 2023		December 31, 2022
Available-for-sale securities	$	(179,857)	$	(193,247)
Held-to-maturity securities	(71,673)		(82,133)
Total	$	(251,530)	$	(275,380)

Investment securities increased $28.7 million from the ~~Company’s focus~~prior year end, primarily due to reinvestment of portfolio cash flows and a decrease in the unrealized loss on ~~relationship-based, low-cost accounts that resulted~~available-for-sale securities. Investment purchases in ~~certain deposit account outflows.~~the quarter had a weighted average, tax equivalent yield of 5.1%. 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 5.3 years at June 30, 2023. Due to the shorter duration of the loan portfolio of approximately 3 years, 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 $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 ~~summarizes~~sets forth the composition of the ~~Company’s~~ loan ~~portfolio:~~portfolio by type of loans


(in thousands)	(in thousands)	June 30, 2022		December 31, 2021		Increase (decrease)				(in thousands)	June 30, 2023		December 31, 2022		Increase (decrease)
Commercial and industrial	Commercial and industrial	$	3,596,701	$	3,392,375	$	204,326	6	%			Commercial and industrial	$	4,360,862	$	3,859,882	$	500,980	13	%
Commercial real estate - investor owned	Commercial real estate - investor owned	2,173,640		2,141,143		32,497		2	%			Commercial real estate - investor owned	2,465,654		2,357,820		107,834		5	%
Commercial real estate - owner occupied	Commercial real estate - owner occupied	2,120,735		2,035,785		84,950		4	%			Commercial real estate - owner occupied	2,336,639		2,270,551		66,088		3	%
Construction and land development	Construction and land development	724,163		734,073		(9,910)		(1)	%			Construction and land development	671,573		611,565		60,008		10	%
Residential real estate	Residential real estate	413,727		454,052		(40,325)		(9)	%			Residential real estate	368,867		395,537		(26,670)		(7)	%
Other	Other	240,210		260,214		(20,004)		(8)	%			Other	309,028		241,783		67,245		28	%
Loans held for investment		$	9,269,176	$	9,017,642	$	251,534	3	%
Total Loans												Total Loans	$	10,512,623	$	9,737,138	$	775,485	8	%

The following table ~~illustrates the change in loans:~~provides additional information on select specialty lending detail:


(in thousands)	(in thousands)	June 30, 2022		December 31, 2021		Increase (decrease)				(in thousands)	June 30, 2023		December 31, 2022		Increase (decrease)
C&I	C&I	$	1,702,081	$	1,538,155	$	163,926	11	%			C&I	$	2,029,370	$	1,904,654	$	124,716	7	%
CRE investor owned	CRE investor owned	1,977,806		1,955,087		22,719		1	%			CRE investor owned	2,290,701		2,176,424		114,277		5	%
CRE owner occupied	CRE owner occupied	1,118,895		1,112,463		6,432		1	%			CRE owner occupied	1,208,675		1,174,094		34,581		3	%
SBA Loans*	SBA Loans*	1,284,279		1,241,449		42,830		3	%			SBA Loans*	1,327,667		1,312,378		15,289		1	%
Sponsor finance*	Sponsor finance*	647,180		508,469		138,711		27	%			Sponsor finance*	879,491		635,061		244,430		38	%
Life insurance premium financing*	Life insurance premium financing*	688,035		593,562		94,473		16	%			Life insurance premium financing*	912,274		817,115		95,159		12	%
Tax credits*	Tax credits*	550,662		486,881		63,781		13	%			Tax credits*	609,137		559,605		49,532		9	%
SBA PPP loans	SBA PPP loans	49,175		271,958		(222,783)		(82)	%			SBA PPP loans	5,173		7,272		(2,099)		(29)	%
Residential real estate	Residential real estate	391,867		430,985		(39,118)		(9)	%			Residential real estate	354,588		379,924		(25,336)		(7)	%
Construction and land development	Construction and land development	626,577		625,526		1,051		—	%			Construction and land development	599,375		534,753		64,622		12	%
Other	Other	232,619		253,107		(20,488)		(8)	%			Other	296,172		235,858		60,314		26	%
Total loans	Total loans	$	9,269,176	$	9,017,642	$	251,534	3	%			Total loans	$	10,512,623	$	9,737,138	$	775,485	8	%

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

Loans totaled ~~$9.3~~$10.5 billion at June 30, ~~2022~~2023 compared to ~~$9.0~~$9.7 billion at December 31, ~~2021. PPP~~2022. The increase was driven primarily by C&I, CRE investor owned, construction and specialty loans. The increase in specialty loans ~~declined $222.8 million to $49.2 million from continued PPP forgiveness by the SBA. All specialty loan categories increased~~was primarily in the ~~first six months of 2022, particularly~~ sponsor finance ~~loans.~~and life insurance areas. Average line draw utilization was ~~41.9%~~44.6% for the ~~first six months~~second quarter of ~~2022,~~2023, compared to ~~38.5%~~41.8% for the full year of ~~2021.~~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. ~~However, the guarantee was temporarily increased to 90% for loans issued between December 27, 2020 and September 30, 2021 as part of the Economic Aid Act. Occasionally, the~~The Company may sell the guaranteed portion of the loan and retain servicing ~~rights.~~rights, and in the first quarter 2023, SBA loans totaling $8.8 million were sold.

Provision and Allowance for Credit Losses

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


		Quarter ended				Six months ended June 30,					Quarter ended				Six months ended
(in thousands)	(in thousands)	June 30, 2022		March 31, 2022		2022		2021		(in thousands)	June 30, 2023		March 31, 2023			June 30, 2023		June 30, 2022
Provision (benefit) for credit losses on loans	Provision (benefit) for credit losses on loans	$	1,159	$	(4,308)	$	(3,149)	$	(1,970)	Provision (benefit) for credit losses on loans	$	5,997	$	1,099		$	7,096	$	(3,149)

Provision for available-for-sale securities										Provision for available-for-sale securities	250		4,826			5,076		—
Provision (benefit) for off-balance sheet commitments	Provision (benefit) for off-balance sheet commitments	(212)		725		513		(332)		Provision (benefit) for off-balance sheet commitments	75		(1,914)			(1,839)		513
Provision (benefit) for held-to-maturity securities	Provision (benefit) for held-to-maturity securities	149		(56)		93		—		Provision (benefit) for held-to-maturity securities	(14)		137			123		93
Recovery of accrued interest		(438)		(429)		(867)		(321)
Charge-offs (recoveries) of accrued interest										Charge-offs (recoveries) of accrued interest	31		35			66		(867)
Provision (benefit) for credit losses	Provision (benefit) for credit losses	$	658	$	(4,068)	$	(3,410)	$	(2,623)	Provision (benefit) for credit losses	$	6,339	$	4,183		$	10,522	$	(3,410)

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 ~~$0.7~~$6.3 million ~~was recognized~~ for the second quarter ~~2022, compared to a benefit of $4.1~~2023 and $10.5 million for the linked quarter. While asset quality metrics have remained strong, loan growth and a weakening economic forecast used to calculate the allowance resulted in a provision expense in the second quarter 2022. For the six months ended June 30, ~~2022~~2023, increased $2.2 million and ~~2021,~~$13.9 million from the linked quarter and prior year-to-date period, respectively. The provision in the second quarter 2023 was primarily related to loan growth, net charge-offs, and a change in forecasted economic factors. The provision in the linked quarter was primarily related to the impairment of an available-for-sale investment security and loan growth, partially offset by a decrease in the reserve on unfunded commitments. The provision for credit losses on the available-for-sale investment security was related to a subordinated debt security in a publicly-traded bank that failed in the first quarter of 2023. The provision for credit losses in the first six months of 2023 was primarily due to loan growth and a decline in forecasted economic factors. The provision benefit ~~was recognized of $3.4 million and $2.6 million, respectively. The net provision benefits during those periods~~in the prior year-to-date period, was primarily ~~the result of improved~~due to an improvement in economic ~~forecasts as the economy strengthened and recovered from the COVID-19 pandemic.~~factors.

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


		June 30, 2022				December 31, 2021				June 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	$	65,646	38.8	%	$	63,825	37.6	%		Commercial and industrial	$	60,318	41.5	%	$	53,835	39.6	%
Real estate:	Real estate:										Real estate:
Commercial	Commercial	49,494		46.3	%	53,437		46.3	%		Commercial	56,576		45.7	%	58,943		47.5	%
Construction and land development	Construction and land development	13,180		7.8	%	14,536		8.1	%		Construction and land development	12,795		6.4	%	11,444		6.3	%
Residential	Residential	7,478		4.5	%	7,927		5.1	%		Residential	7,421		3.5	%	7,928		4.1	%
Other	Other	4,748		2.6	%	5,316		2.9	%		Other	4,209		2.9	%	4,782		2.5	%
Total	Total	$140,546		100.0	%	$145,041		100.0	%		Total	$141,319		100.0	%	$136,932		100.0	%

The ACL on loans was ~~1.52%~~1.34% of loans at June 30, ~~2022,~~2023, compared to ~~1.61%~~1.41% of loans at December 31, ~~2021. Loan growth, net charge-offs and the net provision benefit in 2022 drove the~~2022. The decrease in the ACL on loans is due to ~~total loans ratio.~~a continued positive trend in asset quality. Excluding guaranteed loans, the ACL to total loans was ~~1.69%~~1.48% at June 30, ~~2022,~~2023, compared to ~~1.84%~~1.56% at December 31, ~~2021.~~2022.

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


		Quarter ended														Quarter ended
		June 30, 2022						March 31, 2022						June 30, 2023						March 31, 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	$	(109)	$	3,478,438	(0.01)	%	$	1,369	$	3,389,243	0.16	%		Commercial and industrial	$	2,688	$	4,222,236		0.26	%	$	(231)	$	3,873,175	(0.02)	%
Real estate:	Real estate:														Real estate:
Commercial	Commercial	(8)		4,239,384		—	%	(256)		4,202,934		(0.02)	%		Commercial	(103)		4,727,171			(0.01)	%	131		4,631,183		0.01	%
Construction and land development	Construction and land development	(14)		754,106		(0.01)	%	(21)		738,329		(0.01)	%		Construction and land development	(8)		693,251			—	%	(23)		678,493		(0.01)	%
Residential	Residential	(62)		391,013		(0.06)	%	362		415,786		0.35	%		Residential	194		358,917			0.22	%	(220)		353,104		(0.25)	%
Other	Other	18		244,131		0.03	%	67		256,033		0.11	%		Other	202		282,750			0.29	%	79		258,670		0.12	%
Total	Total	$	(175)	$	9,107,072	(0.01)	%	$	1,521	$	9,002,325	0.07	%		Total	$	2,973	$	10,284,325		0.12	%	$	(264)	$	9,794,625	(0.01)	%

(1) Excludes loans held for sale.

(2)Annualized.

4244

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

~~(1)~~ ~~Excludes loans held for sale.~~



	Six months ended
	June 30, 2023						June 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	$	2,457	$	4,051,506	0.12	%	$	1,260	$	3,432,543	0.07	%
Real estate:
Commercial	28		4,678,103		—	%	(264)		4,221,415		(0.01)	%
Construction and land development	(31)		685,034		(0.01)	%	(35)		748,233		(0.01)	%
Residential	(26)		355,409		(0.01)	%	300		402,748		0.15	%
Other	281		270,776		0.21	%	85		250,049		0.07	%
Total	$	2,709	$	10,040,828	0.05	%	$	1,346	$	9,054,988	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)	June 30, 2022			December 31, 2021			(in thousands)	June 30, 2023			December 31, 2022
Nonaccrual loans	Nonaccrual loans	$	19,462		$	23,449		Nonaccrual loans	$	15,411		$	9,766
Loans past due 90 days or more and still accruing interest	Loans past due 90 days or more and still accruing interest	24			1,716			Loans past due 90 days or more and still accruing interest	701			142
Troubled debt restructurings	Troubled debt restructurings	74			2,859			Troubled debt restructurings	—			73
Total nonperforming loans	Total nonperforming loans	19,560			28,024			Total nonperforming loans	16,112			9,981
Other real estate		955			3,493
Other								Other	—			269

Total nonperforming assets	Total nonperforming assets	$	20,515		$	31,517		Total nonperforming assets	$	16,112		$	10,250

Total assets	Total assets	$	13,084,506		$	13,537,358		Total assets	$	13,871,154		$	13,054,172
Total loans	Total loans	9,269,176			9,017,642			Total loans	10,512,623			9,737,138

Total allowance for credit losses	Total allowance for credit losses	140,546			145,041			Total allowance for credit losses	141,319			136,932

ACL to nonaccrual loans	ACL to nonaccrual loans	722		%	619		%	ACL to nonaccrual loans	917		%	1,402		%
ACL to nonperforming loans	ACL to nonperforming loans	719		%	518		%	ACL to nonperforming loans	877		%	1,372		%
ACL to total loans	ACL to total loans	1.52		%	1.61		%	ACL to total loans	1.34		%	1.41		%
Nonaccrual loans to total loans	Nonaccrual loans to total loans	0.21		%	0.26		%	Nonaccrual loans to total loans	0.15		%	0.10		%
Nonperforming loans to total loans	Nonperforming loans to total loans	0.21		%	0.31		%	Nonperforming loans to total loans	0.15		%	0.10		%

Nonperforming assets to total assets	Nonperforming assets to total assets	0.16		%	0.23		%	Nonperforming assets to total assets	0.12		%	0.08		%

4345

Nonperforming loans based on loan type were as follows:


(in thousands)	(in thousands)	June 30, 2022		December 31, 2021		(in thousands)	June 30, 2023		December 31, 2022
Commercial and industrial	Commercial and industrial	$	16,326	$	21,538	Commercial and industrial	$	10,245	$	4,443
Commercial real estate	Commercial real estate	2,362		4,414		Commercial real estate	4,152		4,200

Construction and land development						Construction and land development	742		1,192
Residential real estate	Residential real estate	850		2,048		Residential real estate	959		73
Other	Other	22		24		Other	14		73
Total	Total	$	19,560	$	28,024	Total	$	16,112	$	9,981

The following table summarizes the changes in nonperforming loans:

Six months ended

(in thousands)

June 30, ~~2022~~2023

Nonperforming loans, beginning of period

~~28,024~~9,981

Additions ~~to nonaccrual loans~~

~~2,707~~17,705

Charge-offs

~~(4,140)~~(5,148)

Principal payments

~~(7,031)~~(6,426)

Nonperforming loans, end of period

~~19,560~~16,112

Deposits


(in thousands)	(in thousands)	June 30, 2022			December 31, 2021			Increase (decrease)				(in thousands)	June 30, 2023			December 31, 2022			Increase (decrease)
Noninterest-bearing demand accounts	Noninterest-bearing demand accounts	$	4,746,478		$	4,578,436		$	168,042	4	%	Noninterest-bearing demand accounts	$	3,880,561		$	4,642,732		$	(762,171)	(16)	%
Interest-bearing demand accounts	Interest-bearing demand accounts	2,197,957			2,465,884			(267,927)		(11)	%	Interest-bearing demand accounts	2,629,339			2,256,295			373,044		17	%
Money market accounts	Money market accounts	2,726,024			2,890,976			(164,952)		(6)	%	Money market accounts	2,913,018			2,655,159			257,859		10	%
Savings accounts	Savings accounts	836,958			800,210			36,748		5	%	Savings accounts	664,838			744,256			(79,418)		(11)	%
Certificates of deposit:	Certificates of deposit:											Certificates of deposit:
Brokered	Brokered	129,064			128,970			94		—	%	Brokered	893,808			118,968			774,840		651	%
Other	Other	456,137			479,323			(23,186)		(5)	%	Other	638,296			411,740			226,556		55	%
Total deposits	Total deposits	$	11,092,618		$	11,343,799		$	(251,181)	(2)	%	Total deposits	$	11,619,860		$	10,829,150		$	790,710	7	%

Demand deposits / total deposits	Demand deposits / total deposits	43		%	40		%					Demand deposits / total deposits	33		%	43		%

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

Three months ended
June 30, 2022 March 31, 2022 June 30, 2021
(in thousands) Average Balance Average Rate Paid Average Balance Average Rate Paid Average Balance Average Rate Paid
Noninterest-bearing deposit accounts $ 4,987,455 — % $ 4,692,027 — % $ 3,008,703 — %
Interest-bearing demand accounts 2,329,431 0.11 2,505,319 0.09 1,985,811 0.07
Money market accounts 2,767,595 0.33 2,872,302 0.21 2,344,871 0.17
Savings accounts 854,860 0.03 817,431 0.03 718,193 0.03
Certificates of deposit 591,091 0.58 607,133 0.53 522,633 0.84
Total interest-bearing deposits $ 6,542,977 0.24 $ 6,802,185 0.17 $ 5,571,508 0.18
Total average deposits $ 11,530,432 0.13 $ 11,494,212 0.10 $ 8,580,211 0.12


	Quarter ended
	June 30, 2023				March 31, 2023				June 30, 2022
(in thousands)	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid
Noninterest-bearing deposit accounts	$	4,051,456	—	%	$	4,481,966	—	%	$	4,987,455	—	%

Interest-bearing demand accounts	2,509,805		1.62		2,201,910		1.09		2,329,431		0.11
Money market accounts	2,920,079		2.82		2,826,836		2.22		2,767,595		0.33
Savings accounts	686,973		0.13		732,256		0.13		854,860		0.03
Certificates of deposit	1,219,500		3.46		670,521		1.85		591,091		0.58
Total interest-bearing deposits	$	7,336,357	2.26		$	6,431,523	1.56		$	6,542,977	0.24

Total average deposits	$	11,387,813	1.46		$	10,913,489	0.92		$	11,530,432	0.13

4446

~~Core~~



	Six months ended
	June 30, 2023				June 30, 2022
(in thousands)	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid
Noninterest-bearing deposit accounts	$	4,265,521	—	%	$	4,840,558	—	%

Interest-bearing demand accounts	2,356,708		1.37		2,416,889		0.10
Money market accounts	2,873,715		2.52		2,819,659		0.27
Savings accounts	709,490		0.13		836,249		0.03
Certificates of deposit	946,527		2.89		599,067		0.55
Total interest-bearing deposits	$	6,886,440	1.93		$	6,671,864	0.20

Total average deposits	$	11,151,961	1.19		$	11,512,422	0.12

Total deposits ~~defined as total deposits~~ excluding brokered certificates of deposits, were ~~$10.5~~$10.7 billion at June 30, ~~2022, a decrease~~2023, an increase of ~~$228.1~~$15.9 million from December 31, ~~2021.~~2022. The ~~decrease was primarily~~mix of the deposit portfolio shifted from noninterest-bearing demand deposits to higher yielding categories in ~~interest-bearing transaction and money market accounts that declined $430.0 million~~the current year due to the ~~managed run-off~~competitive rate environment. Brokered certificates of ~~certain interest-rate sensitive, large balance accounts. This reflects~~deposit increased $774.8 million, to $893.8 million at June 30, 2023. Brokered certificates of deposit were used as a shift in our deposit mix aligned with our disciplined focus on relationship-based, lower-cost deposits. Noninterest-bearing deposit accounts increased $168.0 million from December 31, 2021, principally duestable funding source to support loan growth in ~~the specialty deposit group.~~2023. This strategy helped preserve wholesale borrowing capacity and liquidity measures. 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 ~~$2.4~~$2.9 billion at June 30, ~~2022~~2023 and ~~$2.2~~$2.5 billion at December 31, ~~2021.~~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 $926.6 million at June 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 June 30, 2023, estimated uninsured/uncollateralized deposits totaled $3.3 billion, or 28% 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 ~~0.13%~~1.46% for the current quarter, compared to ~~0.10%~~0.92% for the linked quarter. For the year-to-date period in 2023, the total cost of deposits was 1.19%, compared to 0.12% in the prior year period.

Shareholders’ Equity

Shareholders’ equity totaled ~~$1.4~~$1.6 billion at June 30, ~~2022, a decrease~~2023, an increase of ~~$81.7~~$96.0 million from December 31, ~~2021.~~2022. Significant activity during the first sixmonths of ~~2022~~2023 was as follows:

•increase from net income of ~~$92.8~~$104.9 million,

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

•~~decrease from shares repurchased of $32.9~~$6.9 million, and

•decrease from dividends paid on common and preferred stock of ~~$18.3~~$20.5 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 ~~$952.1~~$322.0 million at June 30, ~~2022~~2023 and ~~$2.0 billion~~$291.4 million at December 31, ~~2021. The low~~2022. Recent increases in short term interest ~~rate environment, coupled with an uncertain outlook~~rates, a tightening of monetary policy by the Federal Reserve and ~~government stimulus, such as~~recent bank failures has led to competitive pricing pressures and a reduction of deposits in the ~~PPP, has increased~~industry. To enhance liquidity, ~~within~~ the ~~banking industry, including the Company. The~~ Company ~~continued to redeploy part~~reduced reinvestment of ~~its excess liquidity into the~~ investment portfolio cash flows for a short period during the six months ended June 30, ~~2022.Investment~~2023. However, investment securities are ~~another~~an important tool to the Company’s liquidity ~~objectives. Securities totaled $2.0 billion at June 30,~~

~~2022,~~objectives and ~~included $680 million pledged~~reinvestment of cash flows resumed as ~~collateral for deposits of public institutions, treasury, loan notes, and other requirements. The remaining $1.3 billion could be pledged or sold to enhance liquidity, if necessary.~~the market stabilized.

~~Liability~~Available on- and off-balance sheet liquidity ~~funding~~ sources ~~are available to increase financial flexibility. In addition to amounts borrowed, at June 30, 2022,~~include the Company could borrow an additional $778 million from the FHLB of Des Moines under blanket loan pledges, and has an additional $1.4 billion available from the Federal Reserve Bank under a pledged loan agreement. following items:


(in thousands)	June 30, 2023
Federal Reserve Bank borrowing capacity	$	2,613,164
FHLB borrowing capacity	764,108
Unpledged securities	647,281
Federal funds lines (7 correspondent banks)	140,000
Cash and interest-bearing deposits	322,023
Holding Company line of credit	25,000
Total	$	4,511,576

The Company also has ~~unsecured federal funds lines with six correspondent banks totaling $90 million.~~a portfolio of SBA guaranteed loans, a portion of which could be sold in the secondary market to generate earnings and liquidity.

In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company’s various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company’s liquidity. The Company has ~~$2.7~~$3.1 billion in unused commitments to extend credit as of June 30, ~~2022. While this commitment level would exhaust the majority the Company’s current liquidity resources,~~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 iswas available at June 30, ~~2022.~~2023. The line of credit has a one-year term and was renewed in February ~~2022~~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 of operations through deposits or debt issuances, as well as leases for premises and equipment. As a financial services provider, the Company routinely enters into commitments to extend credit. While contractual obligations represent future cash requirements of the Company, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans made by the Company. The Company also enters into derivative contracts under which the Company either receives cash from or pays cash to counterparties depending on changes in interest rates. Derivative contracts are carried at fair value on the consolidated balance sheet with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of the balance sheet date. The fair value of these contracts changes daily as market interest rates change.

Capital Resources

The Company and the Bank are subject to various regulatory capital requirements administered by ~~the~~ Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial

statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its bank affiliate must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The banking affiliate’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total, Tier 1, and common equity tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. To be categorized as “well capitalized”, banks must maintain minimum total risk-based (10%), Tier 1 risk-based (8%), common equity tier 1 risk-based (6.5%), and Tier 1 leverage ratios (5%). 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 June 30, ~~2022,~~2023, and December 31, ~~2021,~~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:


		June 30, 2022						December 31, 2021											June 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	10.9		%	12.0		%	11.3		%	12.5		%	6.5	%	7.0	%	Common Equity Tier 1 Capital to Risk Weighted Assets	11.1	%	12.0	%	11.1	%	12.1	%	6.5	%	7.0	%
Tier 1 Capital to Risk Weighted Assets	Tier 1 Capital to Risk Weighted Assets	12.5		%	12.1		%	13.0		%	12.5		%	8.0	%	8.5	%	Tier 1 Capital to Risk Weighted Assets	12.5	%	12.0	%	12.6	%	12.1	%	8.0	%	8.5	%
Total Capital to Risk Weighted Assets	Total Capital to Risk Weighted Assets	14.2		%	13.1		%	14.7		%	13.5		%	10.0	%	10.5	%	Total Capital to Risk Weighted Assets	14.1	%	13.0	%	14.2	%	13.1	%	10.0	%	10.5	%
Leverage Ratio (Tier 1 Capital to Average Assets)	Leverage Ratio (Tier 1 Capital to Average Assets)	9.8		%	9.4		%	9.7		%	9.3		%	5.0	%	4.0	%	Leverage Ratio (Tier 1 Capital to Average Assets)	11.0	%	10.5	%	10.9	%	10.5	%	5.0	%	N/A
Tangible common equity to tangible assets1	Tangible common equity to tangible assets1	7.8		%				8.1		%								Tangible common equity to tangible assets1	8.65	%			8.43	%
Common equity tier 1 capital		$	1,130,152		$	1,242,083		$	1,091,823		$	1,201,340
Tier 1 capital		1,295,791			1,242,134			1,257,462			1,201,391
Total risk-based capital		1,469,579			1,352,672			1,423,036			1,303,715

1 Not a required regulatory capital ratio

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 ~~release~~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 ~~earnings release~~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 Six months ended
(in thousands) June 30,
2022 March 31,
2022 June 30,
2021 June 30,
2022 June 30,
2021
Net interest income 109,613 101,165 81,738 210,778 160,861
Noninterest income 14,194 18,641 16,204 32,835 27,494
Less gain (loss) on sale of other real estate (90) 19 549 (71) 549
Core noninterest income 14,284 18,622 15,655 32,906 26,945
Total core revenue 123,897 119,787 97,393 243,684 187,806
Noninterest expense 65,424 62,800 52,456 128,224 105,340
Less merger-related expenses — — 1,949 — 5,091
Core noninterest expense 65,424 62,800 50,507 128,224 100,249
Core efficiency ratio 52.81 % 52.43 % 51.86 % 52.62 % 53.38 %
Efficiency Ratio


	Quarter ended									Six months ended
(in thousands)	June 30, 2023			March 31, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Net interest income (GAAP)	$	140,692		$	139,529		$	109,613		$	280,221		$	210,778
Tax-equivalent adjustment	2,062			2,041			1,699			4,103			3,205
Net interest income - FTE (non-GAAP)	$	142,754		$	141,570		$	111,312		$	284,324		$	213,983
Noninterest income (GAAP)	14,290			16,898			14,194			31,188			32,835
Less gain on sale of investment securities	—			381			—			381			—
Less gain on sale of other real estate owned	97			90			(90)			187			(71)
Core revenue (non-GAAP)	$	156,947		$	157,997		$	125,596		$	314,944		$	246,889

Noninterest expense (GAAP)	$	85,956		$	80,983		$	65,424		$	166,939		$	128,224
Less amortization on intangibles	1,136			1,239			1,328			2,375			2,758


Core noninterest expense (non-GAAP)	$	84,820		$	79,744		$	64,096		$	164,564		$	125,466

Core efficiency ratio (non-GAAP)	54.04		%	50.47		%	51.03		%	52.25		%	50.82		%

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


(in thousands)	(in thousands)	June 30, 2022			December 31, 2021			(in thousands)	June 30, 2023			March 31, 2023			December 31, 2022
Shareholders' equity		$	1,447,412		$	1,529,116
Shareholders' equity (GAAP)								Shareholders' equity (GAAP)	$	1,618,233		$	1,592,820		$	1,522,263
Less preferred stock	Less preferred stock	71,988			71,988			Less preferred stock	71,988			71,988			71,988
Less goodwill	Less goodwill	365,164			365,164			Less goodwill	365,164			365,164			365,164
Less intangible assets	Less intangible assets	19,528			22,286			Less intangible assets	14,544			15,680			16,919
Tangible common equity		$	990,732		$	1,069,678
Tangible common equity (non-GAAP)								Tangible common equity (non-GAAP)	$	1,166,537		$	1,139,988		$	1,068,192

Total assets		$	13,084,506		$	13,537,358
Common shares outstanding								Common shares outstanding	37,359			37,311			37,253
Tangible book value per share (non-GAAP)								Tangible book value per share (non-GAAP)	$	31.23		$	30.55		$	28.67

Total assets (GAAP)								Total assets (GAAP)	$	13,871,154		$	13,325,982		$	13,054,172
Less goodwill	Less goodwill	365,164			365,164			Less goodwill	365,164			365,164			365,164
Less intangible assets, net	Less intangible assets, net	19,528			22,286			Less intangible assets, net	14,544			15,680			16,919
Tangible assets		$	12,699,814		$	13,149,908
Tangible assets (non-GAAP)								Tangible assets (non-GAAP)	$	13,491,446		$	12,945,138		$	12,672,089

Tangible common equity to tangible assets		7.80		%	8.13		%
Tangible common equity to tangible assets (non-GAAP)								Tangible common equity to tangible assets (non-GAAP)	8.65		%	8.81		%	8.43		%

4851

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


		For the three months ended						Quarter ended								Six months ended
(in thousands)	(in thousands)	June 30, 2022		March 31, 2022		June 30, 2021			(in thousands)	June 30, 2023			March 31, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Average shareholder’s equity		$	1,474,267	$	1,536,221	$	1,116,969
Average shareholder’s equity (GAAP)									Average shareholder’s equity (GAAP)	$	1,621,337		$	1,568,451		$	1,474,267		$	1,595,040		$	1,505,073
Less average preferred stock	Less average preferred stock	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		260,567			Less average goodwill	365,164			365,164			365,164			365,164			365,164
Less average intangible assets	Less average intangible assets	20,175		21,540		20,997			Less average intangible assets	15,094			16,247			20,175			15,667			20,854
Average tangible common equity		$	1,016,940	$	1,077,529	$	835,405
Average tangible common equity (non-GAAP)									Average tangible common equity (non-GAAP)	$	1,169,091		$	1,115,052		$	1,016,940		$	1,142,221		$	1,047,067

Net income available to common shareholders (GAAP)									Net income available to common shareholders (GAAP)	$	48,190		$	54,800		$	44,211		$	102,990		$	90,675
Return on average tangible common equity									Return on average tangible common equity	16.53		%	19.93		%	17.44		%	18.18		%	17.46		%

~~PPNR~~Pre-Provision Net Revenue (PPNR)

Quarter ended Six months ended
(in thousands) Jun 30,
2022 Mar 31,
2022 Jun 30,
2021 Jun 30,
2022 Jun 30,
2021
Net interest income $ 109,613 $ 101,165 $ 81,738 $ 210,778 $ 160,861
Noninterest income 14,194 18,641 16,204 32,835 27,494
Less noninterest expense 65,424 62,800 52,456 128,224 105,340
Merger-related expenses — — 1,949 — 5,091
PPNR $ 58,383 $ 57,006 $ 47,435 $ 115,389 $ 88,106


	Quarter ended				Six months ended
(in thousands)	June 30, 2023		March 31, 2023			June 30, 2022		June 30, 2023		June 30, 2022
Net interest income	$	140,692	$	139,529		$	109,613	$	280,221	$	210,778
Noninterest income	14,290		16,898			14,194		31,188		32,835
Less gain on sale of investment securities	—		381			—		381		—
Less gain (loss) on sale of other real estate owned	97		90			(90)		187		(71)
Less noninterest expense	85,956		80,983			65,424		166,939		128,224


PPNR (non-GAAP)	$	68,929	$	74,973		$	58,473	$	143,902	$	115,460

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 1I 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 ~~an earnings~~a simulation model to measure ~~earnings~~the sensitivity to changing ~~rates.~~rates on earnings.

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

4952

The following table summarizes the expected impact of interest rate shocks on net interest income at June 30, ~~2022:~~2023:


Rate Shock			Annual % change in net interest income
+ 300 bp			~~17.4%~~7.0%
+ 200 bp			~~11.6%~~4.7%
+ 100 bp			~~5.8%~~2.4%
- 100 bp			~~(8.4)~~(2.7)%
- 200 bp			~~(14.6)~~(5.9)%
- 300 bp			(9.6)%

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 June 30, ~~2022,~~2023, the Company had ~~$62.0 million in~~ derivative contracts ~~used~~ to manage interest rate ~~risk.~~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 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.~~2023 will be based on a “synthetic” methodology. LIBOR ~~is the most liquid and common interest rate index in the world and~~ is commonly referenced in financial instruments. The Federal Reserve’s Alternative Reference Rates Committee has proposed that SOFR replace LIBOR. The Company expects to select a replacement index and provide customer notification in early 2023, prior toWith the cessation of LIBOR, the ~~USD LIBOR settings. While a~~Company has selected term SOFR as the replacement index ~~has not yet been selected,~~for the majority of its variable rate loans and began providing customer notifications in early 2023. The Company ceased using LIBOR and ICE swap rates in new contracts and began issuing SOFR based loans in December 2021.

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

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

The Company had ~~$5.9~~$6.5 billion in variable rate loans at June 30, ~~2022.~~2023. Of these loans, ~~$3.5~~$4.1 billion have an interest rate floor and ~~89%~~nearly all of those loans were at or above the floor. Variable rate loans include $2.9 billion indexed to the prime rate, $2.4 billion indexed to SOFR, $171.0 million indexed to LIBOR, and $958.0 million indexed to other rates.

~~The Company maintains an~~At June 30, 2023, the Company’s available-for-sale and held-to-maturity investment securities ~~portfolio that~~ totaled ~~$1.5~~$1.6 billion ~~at June 30, 2022. This portfolio consists~~and $724.0 million, respectively. These portfolios consist primarily of fixed-rate securities that are subject to changes in market value due to changes in interest rates. At June 30, ~~2022,~~2023, net unrealized losses were $179.9 million and $71.7 million on the available-for-sale and held-to-maturity investment ~~portfolio had a net unrealized loss of $165.3 million.~~

portfolios, respectively.

5053

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15, as of June 30, ~~2022.~~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 June 30, ~~2022~~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, ~~2021. There have been no material changes to~~2022, which is supplemented by the additional risk ~~factors described in such Annual Report on Form 10-K for the fiscal year ended December 31, 2021.~~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

Period Total number of shares purchased (a) Weighted-average price paid per share Total number of shares purchased as part of publicly announced plans or programs Maximum number of shares that may yet be purchased under the plans or programs
April 1, 2022 through April 30, 2022 344,666 $ 45.67 344,666 4,717
May 1, 2022 through May 31, 2022 4,717 44.30 4,717 2,000,000
June 1, 2022 through June 30, 2022 — — — 2,000,000
Total 349,383 $ 45.65 349,383 2,000,000
(a) In April 2021, the Company’s board of directors authorized the repurchase of up to two million shares of the Company’s common stock. As of May 2022, this plan was depleted. In May 2022, the Company’s board of directors authorized the repurchase of up to two million shares of the Company’s common stock. The repurchases may be made from time to time in the open market or through privately negotiated transactions.
None.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

~~None.~~Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Amendment to James B. Lally’s Executive Employment Agreement

On August 4, 2023, Enterprise Financial Services Corp (the “Company”) entered into an amendment (the “Lally Amendment”) to its employment agreement, dated May 2, 2017, with James B. Lally, the Company’s President and Chief Executive Officer and Enterprise Bank & Trust’s (the “Bank’s”) Chairman and Chief Executive Officer. The Lally Amendment was approved by the Board of Directors of the Company (the “Board”) upon the recommendation of the Compensation Committee of the Board. The Lally Amendment provides that if Mr. Lally is terminated without cause or if he voluntarily terminates his employment for good reason outside of the context of a change in control, Mr. Lally’s severance benefits would be paid over the course of two (2) years. The Lally Amendment further provides that if Mr. Lally is terminated without cause or if he voluntarily terminates his employment for good reason in connection with a change in control (a “Change in Control Termination”), Mr. Lally will be entitled to (i) a lump sum cash payment equal to thirty-six (36) months of base salary, (ii) a lump sum cash payment equal to three (3) times the greater of (x) the average of the actual cash bonuses paid to Mr. Lally under the Company’s short-term incentive plan (the “STIP”) with respect to the two (2) fiscal years preceding the date of Mr. Lally’s termination of employment, and (y) the cash target incentive under the STIP for the year of Mr. Lally’s termination of employment as though all “target levels” of performance for such year are completely achieved, (iii) a pro-rated short-term incentive award for the year in which Mr. Lally’s termination of employment occurs, (iv) continued medical benefits for a period of eighteen (18) months following Mr. Lally’s termination of employment, and (v) a lump sum cash payment equal to the value of an additional eighteen (18) months of continuation of medical benefits. In addition, if Mr. Lally experiences a Change in Control Termination, his performance-based equity awards will vest at the greater of target level or the level that corresponds to the Company’s actual performance as of the date of Mr. Lally’s termination of employment. The Lally Amendment further expands the geographic scope of Mr. Lally’s non-competition covenant to reflect the expansion of the Company’s operating territory since his original employment agreement was executed.

Amendment to Keene S. Turner’s Executive Employment Agreement

On August 4, 2023, the Company entered into an amendment (the “Turner Amendment”) to its employment agreement, originally dated September 13, 2013 and amended effective February 27, 2015 and October 29, 2015, with Keene S. Turner, the Senior Executive Vice President, Chief Financial Officer of the Company and the Bank. Among other things, the Turner Amendment provides that if Mr. Turner is terminated without cause or if he voluntarily terminates his employment for good reason and such termination does not constitute a Change in Control Termination, in addition to the benefits to which he is currently entitled under his employment agreement, Mr. Turner would also be entitled to one (1) year of continued medical benefits. The Turner Amendment further provides that if Mr. Turner experiences a Change in Control Termination, the bonus portion of his cash severance payment will be calculated based on the greater of (x) the average of the actual cash bonuses paid to Mr. Turner under the STIP with respect to the two (2) fiscal years preceding the date of his termination of employment, and (y) the cash target incentive under the STIP for the year of his termination of employment as though all “target levels” of

performance for such year are completely achieved, and in addition to the benefits to which he is currently entitled under his employment agreement, Mr. Turner would be entitled to two (2) years of continued medical benefits. In addition, if Mr. Turner experiences a Change in Control Termination, his performance-based equity awards will vest at the greater of target level or the level that corresponds to the Company’s actual performance as of the date of Mr. Turner’s termination of employment. The Turner Amendment further expands the geographic scope of Mr. Turner’s non-competition covenant to reflect the expansion of the Company’s operating territory since his original employment agreement was executed. In the event that any payments Mr. Turner would receive in connection with a change in control would constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (“Section 280G”), the Turner Amendment provides that such payments will be reduced to the extent that such reduction would cause Mr. Turner’s net after-tax benefit to be greater than the net after-tax benefit he would have received had the Company paid the full amount of the transaction payments.

Amendment to Scott R. Goodman’s Executive Employment Agreement

On August 4, 2023, the Company entered into an amendment (the “Goodman Amendment”) to its employment agreement, originally dated January 1, 2005 and amended effective December 31, 2008 and October 11, 2013, with Scott R. Goodman, the Senior Executive Vice President of the Company and President of the Bank. Among other things, the Goodman Amendment provides that if Mr. Goodman is terminated without cause or if he voluntarily terminates his employment for good reason and such termination does not constitute a Change in Control Termination, Mr. Goodman’s severance benefits would be paid over the course of one (1) year, and in addition to the benefits to which he is currently entitled under his employment agreement, Mr. Goodman would also be entitled to one (1) year of continued medical benefits. The Goodman Amendment provides that if Mr. Goodman experiences a Change in Control Termination, the bonus portion of his cash severance payment will be calculated based on the greater of (x) the average of the actual cash bonuses paid to Mr. Goodman under the STIP with respect to the two (2) fiscal years preceding the date of his termination of employment, and (y) the cash target incentive under the STIP for the year of his termination of employment as though all “target levels” of performance for such year are completely achieved, and in addition to the benefits to which he is currently entitled under his employment agreement, Mr. Goodman will also be entitled to two (2) years of continued medical benefits. In addition, if Mr. Goodman experiences a Change in Control Termination, his performance-based equity awards will vest at the greater of target level or the level that corresponds to the Company’s actual performance as of the date of Mr. Goodman’s termination of employment. The Goodman Amendment further expands the geographic scope of Mr. Goodman’s non-competition covenant to reflect the expansion of the Company’s operating territory since his original employment agreement was executed. In the event that any payments Mr. Goodman would receive in connection with a change in control would constitute “parachute payments” within the meaning of Section 280G, the Goodman Amendment provides that such payments will be reduced to the extent that such reduction would cause Mr. Goodman’s net after-tax benefit to be greater than the net after-tax benefit he would have received had the Company paid the full amount of the transaction payments.

Amendment to Douglas N. Bauche’s Executive Employment Agreement

On August 4, 2023, the Company entered into an amendment (the “Bauche Amendment”) to its employment agreement, originally dated October 24, 2019, with Douglas N. Bauche, the Senior Executive Vice President, Chief Credit Officer of the Company and the Bank. Among other things, the Bauche Amendment provides that if Mr. Bauche experiences a Change in Control Termination, he will be entitled to (i) a lump sum cash payment equal to twenty-four (24) months of base salary, (ii) a lump sum cash payment equal to two (2) times the greater of (x) the average of the actual cash bonuses paid to Mr. Bauche under the STIP with respect to the two (2) fiscal years preceding the date of his termination of employment, and (y) the cash target incentive under the STIP for the year of his termination of employment as though all “target levels” of performance for such year are completely achieved, (iii) a pro-rated short-term incentive award for the year in which Mr. Bauche’s termination of employment occurs, and (iv) continued medical benefits for twenty-four (24) months following Mr. Bauche’s termination of employment. In addition, if Mr. Bauche experiences a Change in Control Termination, his performance-based equity awards will vest at the greater of target level or the level that corresponds to the Company’s actual performance as of the date of Mr. Bauche’s termination of employment. The Bauche Amendment further expands the geographic scope of Mr. Bauche’s non-competition covenant to reflect the expansion of the Company’s operating territory since his original employment agreement was executed.

Amendment to Nicole M. Iannacone’s Executive Employment Agreement

On August 4, 2023, the Company entered into an amendment (the “Iannacone Amendment”) to its employment agreement, originally dated October 24, 2019, with Nicole M. Iannacone, the Senior Executive Vice President, Chief Legal Officer and Corporate Secretary of the Company and the Bank. Among other things, the Iannacone Amendment provides that if Ms. Iannacone experiences a Change in Control Termination, she will be entitled to (i) a lump sum cash payment equal to twenty-four (24) months of base salary, (ii) a lump sum cash payment equal to two (2) times the greater of (x) the average of the actual cash bonuses paid to Ms. Iannacone under the STIP with respect to the two (2) fiscal years preceding the date of her termination of employment, and (y) the cash target incentive under the STIP for the year of her termination of employment as though all “target levels” of performance for such year are completely achieved, (iii) a pro-rated short-term incentive award for

the year in which Ms. Iannacone’s termination of employment occurs, and (iv) continued medical benefits for twenty-four (24) months following Ms. Iannacone’s termination of employment. In addition, if Ms. Iannacone experiences a Change in Control Termination, her performance-based equity awards will vest at the greater of target level or the level that corresponds to the Company’s actual performance as of the date of Ms. Iannacone’s termination of employment. The Iannacone Amendment further expands the geographic scope of Ms. Iannacone’s non-competition covenant to reflect the expansion of the Company’s operating territory since her original employment agreement was executed.

The foregoing descriptions of the material terms of the foregoing amended employment agreements do not purport to be complete and are qualified in their entirety be reference to the relevant exhibits. Copies of the amendments for each of Messrs. Lally, Turner, Goodman, Bauche and Iannacone are attached as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 respectively.

ITEM 6: EXHIBITS

Exhibit No. Description

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

~~2.2~~ Agreement and Plan of Merger, dated August 20, 2020, by and among Enterprise Financial Services Corp, Enterprise Bank & Trust, Seacoast Commerce Banc Holdings and Seacoast Commerce Bank (incorporated herein by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on August 21, 2020 (File No. 001-15373)).

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

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

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

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

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

3.6 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.

*10.1 First Amendment to Executive Employment Agreement, by and between the Company and James B. Lally, dated as of August 4 , 2023 .

*10.2 Third Amendment to Executive Employment Agreement, by and between the Company and Keene S. Turner, dated as of August 4 , 2023 .

*10.3 Third Amendment to Executive Employment Agreement, by and between the Company and Scott R. Goodman, dated as of August 4 , 2023 .

*10.4 First Amendment to Executive Employment Agreement, by and between the Company and Douglas N. Bauche, dated as of August 4 , 2023 .

*10.5 First Amendment to Executive Employment Agreement, by and between the Company and Nicole M. Iannacone, dated as of August 4 , 2023 .

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

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

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

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

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

101.SCH Inline XBRL Taxonomy Extension Schema Document.

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF Inline XBRL Taxonomy Extension Definitions Linkbase Document.

104 The cover page of Enterprise Financial Services Corp’s Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2022,~~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.

5458

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Clayton, State of Missouri, on the day of ~~July 29, 2022.~~August 4, 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

5559



Period	Total number of shares purchased (a)	Weighted-average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
April 1, 2022 through April 30, 2022	344,666	$	45.67	344,666	4,717
May 1, 2022 through May 31, 2022	4,717	44.30		4,717	2,000,000
June 1, 2022 through June 30, 2022	—	—		—	2,000,000
Total	349,383	$	45.65	349,383	2,000,000

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