Enterprise Financial Services Corp - 10-Q quarterly report FY2021 Q2

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2021.


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

For the transition period from ______ to ______

Commission file number 001-15373

ENTERPRISE FINANCIAL SERVICES CORP

Incorporated in the State of Delaware

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

Address: 150 North Meramec

Clayton, MO 63105

Telephone: (314) 725-5500

___________________

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

EFSC

Nasdaq Global Select Market

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Yes ☐ No ☒

As of July 28, 2021, the Registrant had 38,624,599 shares of outstanding common stock, $0.01 par value per share.

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

TABLE OF CONTENTS


						Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets (Unaudited)						1

Condensed Consolidated Statements of Operations (Unaudited)						2

Condensed Consolidated Statements of Comprehensive Income (Unaudited)						3

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)						4

Condensed Consolidated Statements of Cash Flows (Unaudited)						5

Notes to Condensed Consolidated Financial Statements (Unaudited)						6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						27

Item 3. Quantitative and Qualitative Disclosures About Market Risk						48

Item 4. Controls and Procedures						50

PART II - OTHER INFORMATION

Item 1. Legal Proceedings						50

Item 1A. Risk Factors						50

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						51

Item 3. Defaults Upon Senior Securities						51

Item 4. Mine Safety Disclosures						51

Item 5. Other Information						51

Item 6. Exhibits						51

Signatures						53

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

FHLB

Federal Home Loan Bank

ASU

Accounting Standards Update

GAAP

Generally Accepted Accounting Principles (United States)

Bank

Enterprise Bank & Trust

LIBOR

London Interbank Offered Rate

C&I

Commercial and Industrial

MD&A

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

CECL

Current Expected Credit Loss

NIM

Net Interest Margin

Company

Enterprise Financial Services Corp

PCD

Purchased Credit Deteriorated

CRE

Commercial Real Estate

PPP

Paycheck Protection Program

EFSC

Enterprise Financial Services Corp

SBA

Small Business Administration

Enterprise

Enterprise Financial Services Corp

Seacoast

Seacoast Commerce Banc Holdings

FASB

Financial Accounting Standards Board

SEC

Securities and Exchange Commission

PART 1 - ITEM 1 - FINANCIAL STATEMENTS

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)


(in thousands, except share and per share data)	June 30, 2021		December 31, 2020
Assets
Cash and due from banks	$	126,789	$	99,760
Federal funds sold	115		1,519
Interest-earning deposits (including $23,825 and $36,525 pledged as collateral, respectively)	882,087		436,424
Total cash and cash equivalents	1,008,991		537,703
Interest-earning deposits greater than 90 days	7,758		7,626
Securities available-for-sale	1,084,223		912,429
Securities held-to-maturity, net	450,665		487,610
Loans held-for-sale	5,763		13,564
Loans	7,226,267		7,224,935
Allowance for credit losses on loans	(128,185)		(136,671)
Total loans, net	7,098,082		7,088,264


Other investments	50,959		48,764
Fixed assets, net	50,972		53,169




Goodwill	260,567		260,567
Intangible assets, net	20,358		23,084

Other assets	308,655		318,791
Total assets	$	10,346,993	$	9,751,571

Liabilities and Shareholders' Equity
Noninterest-bearing deposit accounts	$	3,111,581	$	2,711,828
Interest-bearing transaction accounts	2,013,129		1,768,497
Money market accounts	2,278,306		2,327,066
Savings accounts	722,154		627,903
Certificates of deposit:
Brokered	50,209		50,209
Other	464,125		499,886
Total deposits	8,639,504		7,985,389
Subordinated debentures and notes	203,940		203,637
FHLB advances	50,000		50,000
Other borrowings	208,795		271,081
Notes payable	25,714		30,000


Other liabilities	100,739		132,489
Total liabilities	$	9,228,692	$	8,672,596

Commitments and contingent liabilities (Note 5)

Shareholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 0 shares issued and outstanding	—		—
Common stock, $0.01 par value; 45,000,000 shares authorized; 33,165,056 and 33,190,306 shares issued, respectively	330		332
Treasury stock, at cost; 1,980,093 shares	(73,528)		(73,528)
Additional paid in capital	688,945		697,839
Retained earnings	474,282		417,212
Accumulated other comprehensive income	28,272		37,120
Total shareholders' equity	1,118,301		1,078,975
Total liabilities and shareholders' equity	$	10,346,993	$	9,751,571

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)


	Three months ended June 30,				Six months ended June 30,
(in thousands, except per share data)	2021		2020		2021		2020
Interest income:
Interest and fees on loans	$	79,064	$	64,478	$	156,037	$	131,647
Interest on debt securities:
Taxable	4,318		6,587		8,858		14,144
Nontaxable	3,394		1,812		6,473		3,301

Interest on interest-earning deposits	237		87		426		387
Dividends on equity securities	388		227		567		400
Total interest income	87,401		73,191		172,361		149,879
Interest expense:




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


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


Miscellaneous income	5,481		3,014		9,749		6,495
Total noninterest income	16,204		9,960		27,494		23,368
Noninterest expense:
Employee compensation and benefits	28,132		22,389		57,694		44,074
Occupancy	3,529		3,185		7,280		6,532
Data processing	2,850		2,144		5,740		4,226
Professional fees	1,300		1,287		2,288		2,149


Merger-related expenses	1,949		—		5,091		—
Other	14,696		8,907		27,247		19,604
Total noninterest expense	52,456		37,912		105,340		76,585

Income before income tax expense	48,155		18,290		85,638		34,129
Income tax expense	9,750		3,656		17,307		6,627
Net income	$	38,405	$	14,634	$	68,331	$	27,502

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

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)	2021		2020		2021		2020
Net income	$	38,405	$	14,634	$	68,331	$	27,502
Other comprehensive income (loss), after-tax:
Change in unrealized gain (loss) on available-for-sale debt securities	2,850		10,984		(8,070)		21,548
Reclassification adjustment for realized gain on sale of available-for-sale debt securities	—		—		—		(3)
Reclassification of gain on held-to-maturity securities	(837)		(329)		(1,986)		(485)
Change in unrealized gain (loss) on cash flow hedges arising during the period	(205)		(1,177)		642		(6,357)
Reclassification of loss on cash flow hedges	287		234		566		357
Total other comprehensive income (loss), after-tax	2,095		9,712		(8,848)		15,060
Comprehensive income	$	40,500	$	24,346	$	59,483	$	42,562

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)


Three and six months ended June 30, 2021
(in thousands, except per share data)	Common Stock		Treasury Stock		Additional paid in capital		Retained earnings		Accumulated other comprehensive income (loss)		Total shareholders’ equity
Balance at March 31, 2021	$	332	$	(73,528)	$	698,005	$	441,511	$	26,177	$	1,092,497
Net income	—		—		—		38,405		—		38,405





Other comprehensive income	—		—		—		—		2,095		2,095

Cash dividends paid on common shares, $0.18 per share	—		—		—		(5,634)		—		(5,634)
Repurchase of common shares	(2)		—		(11,831)		—		—		(11,833)
Issuance under equity compensation plans, 44,364 shares, net	—		—		1,263		—		—		1,263

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




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

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





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

Cash dividends paid on common shares, $0.36 per share	—		—		—		(11,261)		—		(11,261)
Repurchase of common shares	(2)		—		(11,831)		—		—		(11,833)
Issuance under equity compensation plans, 93,334 shares, net	—		—		154		—		—		154

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




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

Three and six months ended June 30, 2020
(in thousands, except per share data)	Common Stock		Treasury Stock		Additional paid in capital		Retained earnings		Accumulated other comprehensive income (loss)		Total shareholders’ equity
Balance at March 31, 2020	$	281	$	(73,528)	$	525,838	$	370,748	$	23,097	$	846,436
Net income	—		—		—		14,634		—		14,634

Other comprehensive income	—		—		—		—		9,712		9,712

Cash dividends paid on common shares, $0.18 per share	—		—		—		(4,715)		—		(4,715)




Issuance under equity compensation plans, 35,485 shares, net	—		—		827		—		—		827

Share-based compensation	—		—		1,069		—		—		1,069



Balance at June 30, 2020	$	281	$	(73,528)	$	527,734	$	380,667	$	32,809	$	867,963

Balance at December 31, 2019	$	281	$	(58,181)	$	526,599	$	380,737	$	17,749	$	867,185
Net income	—		—		—		27,502		—		27,502

Other comprehensive income	—		—		—		—		15,060		15,060

Cash dividends paid on common shares, $0.36 per share	—		—		—		(9,458)		—		(9,458)
Repurchase of common shares	—		(15,347)		—		—		—		(15,347)



Issuance under equity compensation plans, 109,000 shares, net	—		—		(894)		—		—		(894)

Share-based compensation	—		—		2,029		—		—		2,029


Reclassification for the adoption of ASU 2016-13 (CECL)	—		—		—		(18,114)		—		(18,114)
Balance at June 30, 2020	$	281	$	(73,528)	$	527,734	$	380,667	$	32,809	$	867,963

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Six months ended June 30,
(in thousands, except share data)	2021		2020
Cash flows from operating activities:
Net income	$	68,331	$	27,502
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	3,044		3,048
Provision (benefit) for credit losses	(2,623)		41,855
Deferred income taxes	4,025		(4,937)
Net amortization of debt securities	3,926		2,756
Amortization of intangible assets	2,726		2,880

Mortgage loans originated-for-sale	(87,299)		(94,536)
Proceeds from mortgage loans sold	94,327		84,799
Loss (gain) on:
Sale of investment securities	—		(4)
Sale of other real estate	(596)		5

Sale of state tax credits	(96)		(211)

Share-based compensation	2,783		2,029

Net accretion of loan discount	(1,386)		(4,049)


Changes in other assets and liabilities, net	(22,167)		(2,277)







Net cash provided by operating activities	64,995		58,860
Cash flows from investing activities:

Net increase in loans	(9,370)		(815,437)


Proceeds received from:
Sale of debt securities, available-for-sale	—		207
Paydown or maturity of debt securities, available-for-sale	131,948		140,218
Paydown or maturity of debt securities, held-to-maturity	32,698		8,711
Redemption of other investments	2,213		25,978
Sale of state tax credits held for sale	4,262		1,924
Sale of other real estate	5,542		609
Settlement of bank-owned life insurance policies	—		974
Payments for the purchase of:
Available-for-sale debt securities	(316,743)		(152,082)
Other investments	(4,729)		(38,527)

State tax credits held for sale	(3,285)		(3,730)
Fixed assets, net	(847)		(1,532)
Net cash used in investing activities	(158,311)		(832,687)
Cash flows from financing activities:
Net increase in noninterest-bearing deposit accounts	399,753		638,520
Net increase in interest-bearing deposit accounts	254,362		290,036

Proceeds from FHLB advances, net	—		27,700


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



Proceeds from issuance of subordinated debentures, net	—		61,953
Net decrease in other borrowings	(62,285)		(34,355)
Cash dividends paid on common stock	(11,261)		(9,458)



Payments for the repurchase of common stock	(11,833)		(15,347)


Payments for the issuance of equity instruments, net	154		(894)


Net cash provided by financing activities	564,604		955,298
Net increase in cash and cash equivalents	471,288		181,471
Cash and cash equivalents, beginning of period	537,703		167,256
Cash and cash equivalents, end of period	$	1,008,991	$	348,727
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	11,897	$	20,574
Income taxes	34,571		30
Noncash transactions:
Transfer to other real estate owned in settlement of loans	$	3,227	$	—
Sales of other real estate financed	228		48
Right-of-use assets obtained in exchange for lease obligations	—		200


Transfer of securities from available for sale to held to maturity	—		163,592

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies used by Enterprise Financial Services Corp (the “Company,” “EFSC,” or “Enterprise”) in the preparation of the condensed consolidated financial statements are summarized below:

Business and Consolidation

Enterprise is a financial holding company that provides a full range of banking and wealth management services to individuals and corporate customers primarily located in Arizona, California, Kansas, Missouri, Nevada, and New Mexico through its banking subsidiary, Enterprise Bank & Trust.

Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2021. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.

Basis of Financial Statement Presentation

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

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated.

In the opinion of management, the consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the statements of financial position, results of operations, and cash flow for the interim periods.

Recent Accounting Pronouncements

FASB ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In March 2020, the FASB issued “Reference Rate Reform (Topic 848)” which provides optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance is effective for contract modifications as of March 12, 2020 through December 31, 2022. The Company is actively working to amend and address impacted contracts to allow for a replacement index. Additionally, the Company is currently evaluating the optional expedients and exceptions and has not yet determined the impact this standard may have on its consolidated financial statements.

NOTE 2 - EARNINGS PER SHARE

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

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


	Three months ended June 30,				Six months ended June 30,
(in thousands, except per share data)	2021		2020		2021		2020
Net income as reported	$	38,405	$	14,634	$	68,331	$	27,502








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

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

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

For the three and six months ended June 30, 2021 common stock equivalents of approximately 154,000 and 133,000, respectively, were excluded from the earnings per share calculations because their effect would have been anti-dilutive. Comparatively, there were 157,000 and 147,000 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, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale securities:
Obligations of U.S. Government-sponsored enterprises	$	99,490	$	93	$	(329)	$	99,254
Obligations of states and political subdivisions	475,710		6,328		(1,193)		480,845
Agency mortgage-backed securities	464,288		14,393		(1,302)		477,379
U.S. Treasury bills	10,985		361		—		11,346
Corporate debt securities	14,750		649		—		15,399
Total securities available for sale	$	1,065,223	$	21,824	$	(2,824)	$	1,084,223
Held-to-maturity securities:

Obligations of states and political subdivisions	$	240,163	$	1,845	$	(763)	$	241,245
Agency mortgage-backed securities	84,544		1,403		(268)		85,679
Corporate debt securities	126,407		5,694		—		132,101
Total securities held-to-maturity	$	451,114	$	8,942	$	(1,031)	$	459,025
Allowance for credit losses	(449)
Total securities held-to-maturity, net	$	450,665


	December 31, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale securities:
Obligations of U.S. Government-sponsored enterprises	$	14,978	$	186	$	(3)	$	15,161
Obligations of states and political subdivisions	335,271		8,994		(33)		344,232
Agency mortgage-backed securities	506,703		20,190		(321)		526,572
U.S. Treasury Bills	10,980		486		—		11,466
Corporate debt securities	14,750		248		—		14,998
Total securities available for sale	$	882,682	$	30,104	$	(357)	$	912,429
Held-to-maturity securities:

Obligations of states and political subdivisions	$	248,324	$	2,814	$	—	$	251,138
Agency mortgage-backed securities	112,742		2,295		(496)		114,541
Corporate debt securities	126,993		8,851		—		135,844
Total securities held to maturity	$	488,059	$	13,960	$	(496)	$	501,523
Less: Allowance for credit losses	449
Total securities held-to-maturity, net	$	487,610

At June 30, 2021 and December 31, 2020, there were no holdings of securities of any one issuer in an amount greater than 10% of shareholders’ equity, other than U.S. Government agencies and sponsored enterprises. The agency mortgage-backed securities are all issued by U.S. Government agencies and sponsored enterprises. Securities having a fair value of $489.4 million and $525.8 million at June 30, 2021 and December 31, 2020, respectively, were pledged as collateral to secure deposits of public institutions and for other purposes as required by law or contract provisions.

The amortized cost and estimated fair value of debt securities at June 30, 2021, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The weighted average life of the mortgage-backed securities is approximately 4 years.


	Available for sale				Held to maturity
(in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	11,345	$	11,435	$	—	$	—
Due after one year through five years	70,321		70,640		12,469		12,839
Due after five years through ten years	65,658		66,316		137,489		143,056
Due after ten years	453,611		458,453		216,612		217,451
Agency mortgage-backed securities	464,288		477,379		84,544		85,679

	$	1,065,223	$	1,084,223	$	451,114	$	459,025

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


	June 30, 2021
	Less than 12 months				12 months or more				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government-sponsored enterprises	$	76,671	$	329	$	—	$	—	$	76,671	$	329
Obligations of states and political subdivisions	$	142,099	$	1,193	$	—	$	—	$	142,099	$	1,193
Agency mortgage-backed securities	116,819		1,301		74		1		116,893		1,302


	$	335,589	$	2,823	$	74	$	1	$	335,663	$	2,824


	December 31, 2020
	Less than 12 months				12 months or more				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government-sponsored enterprises	$	4,997	$	3	$	—	$	—	$	4,997	$	3
Obligations of states and political subdivisions	$	4,079	$	33	$	—	$	—	$	4,079	$	33
Agency mortgage-backed securities	65,986		321		—		—		65,986		321


	$	75,062	$	357	$	—	$	—	$	75,062	$	357

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

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

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

Other Investments

At June 30, 2021 and December 31, 2020, other investments totaled $51.0 million and $48.8 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 $10.8 million at June 30, 2021 and December 31, 2020, respectively, is recorded at cost, which represents redemption value, and is included in other investments in the consolidated balance sheets. The remaining amounts in other investments primarily include various investments in SBICs, CDFIs, private equity investments, and the Company’s investment in unconsolidated trusts used to issue preferred securities to third parties.

NOTE 4 - LOANS

The following table presents a summary of loans by category:


(in thousands)	June 30, 2021		December 31, 2020
Commercial and industrial	$	2,943,048	$	3,100,299
Real estate:
Commercial - investor owned	1,646,021		1,589,419
Commercial - owner occupied	1,554,727		1,498,408
Construction and land development	556,776		546,686
Residential	305,497		319,179
Total real estate loans	4,063,021		3,953,692
Other	235,431		187,083
Loans, before unearned loan fees	7,241,500		7,241,074
Unearned loan fees, net	(15,233)		(16,139)
Loans, including unearned loan fees	$	7,226,267	$	7,224,935

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

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

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

Accrued interest receivable totaled $24.6 million at June 30, 2021 and was reported in Other Assets on the consolidated balance sheets.

A summary of the activity in the ACL on loans by category for the three and six months ended June 30, 2021 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 (benefit) 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 (benefit) 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

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

A summary of the activity in the ACL on loans by category for the three and six months ended June 30, 2020 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, 2020	$	45,981	$	19,892	$	9,477	$	9,895	$	5,395	$	1,547	$	92,187
Provision for credit losses	7,168		2,599		1,600		6,038		744		242		18,391
Charge-offs	(3,303)		(224)		—		—		(32)		(105)		(3,664)
Recoveries	293		2,752		11		29		226		45		3,356
Balance at June 30, 2020	50,139		25,019		11,088		15,962		6,333		1,729		110,270


(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, 2019	$	27,455	$	5,935	$	4,873	$	2,611	$	1,280	$	1,134	$	43,288
CECL adoption	6,494		10,726		2,598		5,183		3,470		(84)		28,387
PCD loans immediately charged off	—		(5)		(57)		(217)		(1,401)		—		(1,680)
Balance at January 1, 2020	$	33,949	$	16,656	$	7,414	$	7,577	$	3,349	$	1,050	$	69,995
Provision for credit losses	18,759		5,823		3,594		8,347		2,755		808		40,086
Charge-offs	(3,366)		(226)		—		(31)		(154)		(191)		(3,968)
Recoveries	797		2,766		80		69		383		62		4,157
Balance at June 30, 2020	$	50,139	$	25,019	$	11,088	$	15,962	$	6,333	$	1,729	$	110,270

The CECL methodology incorporates various economic scenarios. The Company utilizes three forecasts in the model: Moody’s baseline, a stronger near-term growth upside and a moderate recession downside forecast. The Company weights these scenarios at 70%, 5%, and 25%, respectively, which added approximately $12.9 million to the ACL over the baseline model. These forecasts incorporate an accommodative monetary policy and the current and anticipated impact of government stimulus. The Company has also recognized the risk posed by loans that have received multiple deferrals of principal and interest payments, loans in the hospitality sector, and loans with other specific identified risks by allocating additional reserves to those segments. Some of the key risks to the forecasts that could result in future provision for credit losses are additional shutdowns and self-quarantines if another significant wave of COVID hits, the vaccination process stalls, small-business bankruptcies occur at higher levels, or unemployment increases.

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


	June 30, 2021
(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	$	19,082	$	2,965	$	2,797	$	24,844	$	10,215
Real estate:
Commercial - investor owned	7,359		—		—		7,359		441
Commercial - owner occupied	5,885		—		—		5,885		1,616
Construction and land development	100		—		—		100		100
Residential	3,961		77		—		4,038		2,695
Other	16		—		10		26		—
Total	$	36,403	$	3,042	$	2,807	$	42,252	$	15,067


	December 31, 2020
(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	$	18,158	$	3,482	$	130	$	21,770	$	8,316
Real estate:
Commercial - investor owned	9,579		—		—		9,579		716
Commercial - owner occupied	2,940		—		—		2,940		6,024

Residential	4,112		77		—		4,189		—
Other	29		—		—		29		3,190
Total	$	34,818	$	3,559	$	130	$	38,507	$	18,246

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

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

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


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

Residential	100		3,984		—		—
Other	—		—		—		15
Total	$	24,949	$	3,984	$	4,252	$	15


	December 31, 2020
	Type of Collateral
(in thousands)	Commercial Real Estate		Residential Real Estate		Blanket Lien		Other
Commercial and industrial	$	8,316	$	—	$	394	$	—
Real estate:
Commercial - investor owned	9,579		—		—		—
Commercial - owner occupied	2,940		—		—		—

Residential	—		4,135		—		—
Other	—		—		—		17
Total	$	20,835	$	4,135	$	394	$	17

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


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



Residential		2	155		155

Total		3	$	3,886	$	3,886

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

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

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


	June 30, 2021
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	8,245	$	15,247	$	23,492	$	2,907,313	$	2,930,805
Real estate:
Commercial - investor owned	1,065		6,700		7,765		1,638,256		1,646,021
Commercial - owner occupied	4,710		512		5,222		1,549,505		1,554,727
Construction and land development	65		100		165		556,611		556,776
Residential	461		1,925		2,386		303,111		305,497
Other	62		25		87		232,354		232,441
Total	$	14,608	$	24,509	$	39,117	$	7,187,150	$	7,226,267


	December 31, 2020
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	8,652	$	12,928	$	21,580	$	3,067,415	$	3,088,995
Real estate:
Commercial - investor owned	734		9,301		10,035		1,579,384		1,589,419
Commercial - owner occupied	328		4,647		4,975		1,493,433		1,498,408
Construction and land development	13		—		13		546,673		546,686
Residential	2,071		2,118		4,189		314,990		319,179
Other	1,731		50		1,781		180,467		182,248
Total	$	13,529	$	29,044	$	42,573	$	7,182,362	$	7,224,935

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

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

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

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

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

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

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

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

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


	June 30, 2021
	Term Loans by Origination Year
(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Converted to Term Loans		Revolving Loans		Total
Commercial and industrial
Pass (1-6)	$	731,143	$	649,462	$	384,160	$	183,888	$	117,020	$	76,679	$	8,765	$	564,593	$	2,715,710
Watch (7)	31,131		33,339		13,864		8,671		4,163		12,402		7,628		58,428		169,626
Classified (8-9)	7,365		2,049		8,451		2,592		3,254		880		2,018		15,487		42,096
Total Commercial and industrial	$	769,639	$	684,850	$	406,475	$	195,151	$	124,437	$	89,961	$	18,411	$	638,508	$	2,927,432

Commercial real estate-investor owned
Pass (1-6)	$	249,960	$	421,836	$	327,290	$	169,832	$	111,808	$	227,018	$	3,690	$	38,687	$	1,550,121
Watch (7)	9,126		27,342		13,822		7,144		—		19,381		—		—		76,815
Classified (8-9)	—		6,012		429		6,651		—		2,684		—		—		15,776
Total Commercial real estate-investor owned	$	259,086	$	455,190	$	341,541	$	183,627	$	111,808	$	249,083	$	3,690	$	38,687	$	1,642,712

Commercial real estate-owner occupied
Pass (1-6)	$	213,157	$	398,971	$	240,316	$	181,078	$	142,757	$	229,030	$	—	$	41,902	$	1,447,211
Watch (7)	8,794		7,884		1,651		15,452		5,917		9,605		—		1,349		50,652
Classified (8-9)	1,085		895		11,363		6,112		4,660		8,231		88		63		32,497
Total Commercial real estate-owner occupied	$	223,036	$	407,750	$	253,330	$	202,642	$	153,334	$	246,866	$	88	$	43,314	$	1,530,360

Construction real estate
Pass (1-6)	$	174,256	$	133,328	$	116,620	$	39,332	$	7,784	$	13,490	$	195	$	20,974	$	505,979
Watch (7)	28,003		4,926		—		1,216		11,215		2,423		—		—		47,783
Classified (8-9)	—		54		—		427		—		26		—		100		607
Total Construction real estate	$	202,259	$	138,308	$	116,620	$	40,975	$	18,999	$	15,939	$	195	$	21,074	$	554,369

Residential real estate
Pass (1-6)	$	38,535	$	49,198	$	21,357	$	13,139	$	11,177	$	99,035	$	171	$	62,095	$	294,707
Watch (7)	33		276		719		342		—		2,691		—		400		4,461
Classified (8-9)	569		706		575		77		13		3,408		—		74		5,422
Total residential real estate	$	39,137	$	50,180	$	22,651	$	13,558	$	11,190	$	105,134	$	171	$	62,569	$	304,590

Other
Pass (1-6)	$	86,875	$	54,771	$	19,687	$	24,583	$	8,414	$	20,903	$	—	$	13,144	$	228,377
Watch (7)	—		—		—		5		—		2,539		—		135		2,679
Classified (8-9)	—		—		14		16		—		21		—		2		53
Total Other	$	86,875	$	54,771	$	19,701	$	24,604	$	8,414	$	23,463	$	—	$	13,281	$	231,109


	December 31, 2020
	Term Loans by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Converted to Term Loans		Revolving Loans		Total
Commercial and industrial
Pass (1-6)	$	1,402,276	$	454,729	$	262,258	$	132,832	$	25,057	$	58,315	$	14,118	$	527,170	$	2,876,755
Watch (7)	44,922		15,369		9,585		7,509		19,613		110		—		60,448		157,556
Classified (8-9)	6,602		9,219		3,115		3,964		4,490		1,080		1,281		22,432		52,183
Total Commercial and industrial	$	1,453,800	$	479,317	$	274,958	$	144,305	$	49,160	$	59,505	$	15,399	$	610,050	$	3,086,494

Commercial real estate-investor owned
Pass (1-6)	$	481,867	$	338,843	$	189,305	$	131,718	$	138,288	$	161,439	$	6,509	$	32,058	$	1,480,027
Watch (7)	32,308		19,722		6,656		—		9,647		17,370		—		—		85,703
Classified (8-9)	—		5,278		8,716		5,830		1,245		2,620		—		—		23,689
Total Commercial real estate-investor owned	$	514,175	$	363,843	$	204,677	$	137,548	$	149,180	$	181,429	$	6,509	$	32,058	$	1,589,419

Commercial real estate-owner occupied
Pass (1-6)	$	419,142	$	287,001	$	215,181	$	179,382	$	104,470	$	167,456	$	2,672	$	45,323	$	1,420,627
Watch (7)	13,657		5,257		3,113		6,198		4,338		8,460		1,776		941		43,740
Classified (8-9)	2,420		7,427		5,822		6,140		1,309		10,860		—		63		34,041
Total Commercial real estate-owner occupied	$	435,219	$	299,685	$	224,116	$	191,720	$	110,117	$	186,776	$	4,448	$	46,327	$	1,498,408

Construction real estate
Pass (1-6)	$	223,069	$	156,360	$	45,460	$	18,579	$	11,539	$	9,144	$	—	$	28,880	$	493,031
Watch (7)	2,544		86		34,179		11,632		—		2,499		—		—		50,940
Classified (8-9)	56		2,124		503		1		—		31		—		—		2,715
Total Construction real estate	$	225,669	$	158,570	$	80,142	$	30,212	$	11,539	$	11,674	$	—	$	28,880	$	546,686

Residential real estate
Pass (1-6)	$	57,059	$	27,907	$	17,718	$	17,138	$	27,443	$	92,657	$	1,172	$	66,902	$	307,996
Watch (7)	210		840		526		—		514		1,603		287		511		4,491
Classified (8-9)	571		733		121		14		898		3,181		—		253		5,771
Total residential real estate	$	57,840	$	29,480	$	18,365	$	17,152	$	28,855	$	97,441	$	1,459	$	67,666	$	318,258

Other
Pass (1-6)	$	43,526	$	28,195	$	30,074	$	9,646	$	5,641	$	17,027	$	—	$	40,779	$	174,888
Watch (7)	—		1		8		—		—		2,637		—		1		2,647
Classified (8-9)	—		18		19		13		—		17		8		4		79
Total Other	$	43,526	$	28,214	$	30,101	$	9,659	$	5,641	$	19,681	$	8	$	40,784	$	177,614

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

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

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


	June 30, 2021
(in thousands)	Performing		Non Performing		Total
Commercial and industrial	$	3,370	$	3	$	3,373
Real estate:
Commercial - investor owned	3,309		—		3,309
Commercial - owner occupied	24,367		—		24,367
Construction and land development	2,407		—		2,407
Residential	907		—		907
Other	1,322		10		1,332
Total	$	35,682	$	13	$	35,695


	December 31, 2020
(in thousands)	Performing		Non Performing		Total
Commercial and industrial	$	2,502	$	—	$	2,502
Real estate:



Residential	921		—		921
Other	4,612		21		4,633
Total	$	8,035	$	21	$	8,056

NOTE 5 - COMMITMENTS AND CONTINGENCIES

The Company issues financial instruments with off balance sheet risk in the normal course of the business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

The Company’s extent of involvement and maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets.

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


(in thousands)	June 30, 2021		December 31, 2020
Commitments to extend credit	$	1,982,555	$	1,946,068
Letters of credit	55,571		50,971

Off-Balance Sheet Credit Risk

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments usually have fixed expiration dates or other termination clauses, may have significant usage restrictions, and may require payment of a fee. Of the total commitments to extend credit at June 30, 2021, and December 31, 2020, approximately $167.3 million and $160.6 million, respectively, represent fixed rate loan commitments. Since certain of the commitments may expire without being drawn upon or may be revoked, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, premises and equipment, and real estate. Other liabilities includes $5.4 million and $5.7 million for estimated losses attributable to the unadvanced commitments at June 30, 2021, and December 31, 2020, respectively.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance or payment of a customer to a third party. These standby letters of credit are issued to support contractual obligations of the Company’s customers. The credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers. As of June 30, 2021, the approximate remaining terms of standby letters of credit range from 1 month to 3 years.

Contingencies

The Company and its subsidiaries are, from time to time, parties to various legal proceedings arising out of their businesses. Management believes there are no such proceedings pending or threatened against the Company or its subsidiaries which, if determined adversely, would have a material adverse effect on the business, consolidated financial condition, results of operations or cash flows of the Company or any of its subsidiaries.

NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings. The Company does not enter into derivative financial instruments for trading purposes.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. These derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The Company has executed a series of cash flow hedges to fix the effective interest rate for payments due on $62.0 million of LIBOR-based junior subordinated debentures to a weighted-average-fixed rate 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

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are paid on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $1.5 million will be reclassified as an increase to interest expense.

Non-designated Hedges

Derivatives not designated as hedges are not considered speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives 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
(in thousands)	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Derivatives Designated as Hedging Instruments:
Interest rate swap	$	61,962	$	61,962	$	—	$	—	$	4,379	$	5,987


Derivatives not Designated as Hedging Instruments:
Interest rate swap	$	983,018	$	1,026,016	$	19,809	$	28,703	$	19,846	$	28,980



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

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


As of June 30, 2021
							Gross Amounts Not Offset in the Statement of Financial Position
(in thousands)	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments		Fair Value Collateral Posted		Net Amount
Assets:
Interest rate swap	$	19,809	$	—	$	19,809	$	570	$	—	$	19,239

Liabilities:
Interest rate swap	$	24,225	$	—	$	24,225	$	570	$	23,312	$	343
Securities sold under agreements to repurchase	208,795		—		208,795		—		208,795		—

As of December 31, 2020
							Gross Amounts Not Offset in the Statement of Financial Position
(in thousands)	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments		Fair Value Collateral Posted		Net Amount
Assets:
Interest rate swap	$	28,703	$	—	$	28,703	$	2	$	—	$	28,701

Liabilities:
Interest rate swap	$	34,967	$	—	$	34,967	$	2	$	34,903	$	62
Securities sold under agreements to repurchase	271,081		—		271,081		—		271,081		—

As of June 30, 2021, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $25.0 million. Further, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $23.3 million.

NOTE 7 - FAIR VALUE MEASUREMENTS

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


	June 30, 2021
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Securities available for sale
Obligations of U.S. Government-sponsored enterprises	$	—	$	99,254	$	—	$	99,254
Obligations of states and political subdivisions	—		480,845		—		480,845
Agency mortgage-backed securities	—		477,379		—		477,379
U.S. Treasury bills	—		11,346		—		11,346
Corporate debt securities	—		15,399		—		15,399
Total securities available for sale	—		1,084,223		—		1,084,223



Derivatives	—		19,809		—		19,809
Total assets	$	—	$	1,104,032	$	—	$	1,104,032

Liabilities
Derivatives	$	—	$	24,225	$	—	$	24,225
Total liabilities	$	—	$	24,225	$	—	$	24,225


	December 31, 2020
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Securities available for sale
Obligations of U.S. Government-sponsored enterprises	$	—	$	15,161	$	—	$	15,161
Obligations of states and political subdivisions	—		344,232		—		344,232
Residential mortgage-backed securities	—		526,572		—		526,572
Corporate debt securities	—		14,998		—		14,998
U.S. Treasury bills	—		11,466		—		11,466
Total securities available-for-sale	—		912,429		—		912,429



Derivative financial instruments	—		28,703		—		28,703
Total assets	$	—	$	941,132	$	—	$	941,132

Liabilities
Derivatives	$	—	$	34,967	$	—	$	34,967
Total liabilities	$	—	$	34,967	$	—	$	34,967

From time to time, the Company measures certain assets at fair value on a nonrecurring basis. These include assets measured at the lower of cost or fair value that were recognized at fair value below cost at the end of the period. At June 30, 2021, no assets were measured on a nonrecurring basis.

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


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




Securities held-to-maturity, net	$	450,665	$	470,099	Level 2	$	487,610	$	501,523	Level 2
Other investments	50,959		50,959		Level 2	48,764		48,764		Level 2
Loans held for sale	5,763		5,763		Level 2	13,564		13,564		Level 2

Loans, net	7,098,082		7,093,710		Level 3	7,088,264		7,067,562		Level 3
State tax credits, held for sale	34,710		38,629		Level 3	36,853		39,925		Level 3


Balance sheet liabilities
Certificates of deposit	$	514,334	$	515,877	Level 3	$	550,095	$	553,946	Level 3
Subordinated debentures and notes	203,940		193,136		Level 2	203,637		192,889		Level 2
FHLB advances	50,000		51,591		Level 2	50,000		51,871		Level 2
Other borrowings and notes payable	234,509		234,509		Level 2	301,081		301,081		Level 2

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

NOTE 8 - SHAREHOLDERS’ EQUITY AND COMPENSATION PLANS

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
(in thousands)	Net Unrealized Gain on Available-for-Sale Debt Securities		Unamortized Gain (Loss) on Held-to-Maturity Securities		Net Unrealized Gain (Loss) on Cash Flow Hedges		Total
Balance, March 31, 2021	$	11,400	$	18,159	$	(3,382)	$	26,177
Net change	$	2,850	$	(837)	$	82	$	2,095

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

Balance, March 31, 2020	$	25,538	$	4,778	$	(7,219)	$	23,097
Net change	$	10,984	$	(329)	$	(943)	$	9,712
Transfer from available-for-sale to held-to-maturity	(8,650)		8,650		—		—
Balance, June 30, 2020	$	27,872	$	13,099	$	(8,162)	$	32,809

Six months ended
(in thousands)	Net Unrealized Gain (Loss) on Available-for-Sale Debt Securities		Unamortized Gain (Loss) on Held-to-Maturity Securities		Net Unrealized Gain (Loss) on Cash Flow Hedges		Total
Balance, December 31, 2020	$	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

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

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


	Three months ended June 30,
	2021						2020
(in thousands)	Pre-tax		Tax effect		After-tax		Pre-tax		Tax effect		After-tax
Change in unrealized gain on available-for-sale debt securities	$	3,795	$	945	$	2,850	$	14,587	$	3,603	$	10,984

Reclassification of gain on held-to-maturity securities(b)	(1,115)		(278)		(837)		(437)		(108)		(329)
Change in unrealized loss on cash flow hedges arising during the period	(273)		(68)		(205)		(1,563)		(386)		(1,177)
Reclassification of loss on cash flow hedges(b)	382		95		287		311		77		234
Total other comprehensive income	$	2,789	$	694	$	2,095	$	12,898	$	3,186	$	9,712

	Six months ended June 30,
	2021						2020
(in thousands)	Pre-tax		Tax effect		After-tax		Pre-tax		Tax effect		After-tax
Change in unrealized gain (loss) on available-for-sale debt securities	$	(10,746)	$	(2,676)	$	(8,070)	$	28,616	$	7,068	$	21,548
Reclassification adjustment for realized gain on sale of available-for-sale debt securities(a)	—		—		—		(4)		(1)		(3)
Reclassification of gain on held-to-maturity securities(b)	(2,644)		(658)		(1,986)		(644)		(159)		(485)
Change in unrealized gain (loss) on cash flow hedges arising during the period	855		213		642		(8,442)		(2,085)		(6,357)
Reclassification of loss on cash flow hedges(b)	754		188		566		474		117		357
Total other comprehensive income	$	(11,781)	$	(2,933)	$	(8,848)	$	20,000	$	4,940	$	15,060

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

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

Compensation Plans

Employee Stock Options

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

Various information related to the stock options is shown below.


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

NOTE 9 - SUBSEQUENT EVENT

On July 21, 2021 the Company completed its previously-announced merger with First Choice Bancorp (“FCBP”), the holding company of First Choice Bank (“First Choice”) pursuant to the Agreement and Plan of Merger, dated April 26, 2021. FCBP merged with and into EFSC, and First Choice subsequently merged with and into the Bank (with EFSC and the Bank as the surviving entities). As of June 30, 2021, First Choice had approximately $2.4 billion in assets, $2.0 billion in loans and $1.9 billion in deposits.

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

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

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

RESULTS OF OPERATIONS

Forward Looking Statements

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

Given the ongoing and dynamic nature of the COVID-19 pandemic, the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects remain uncertain. Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause or contribute to such differences include, but are not limited to: our ability to efficiently consummate and integrate acquisitions, including the FCBP acquisition, into our operations, retain the customers of these businesses and grow the acquired operations; credit risk; changes in the appraised valuation of real estate securing impaired loans; our ability to recover our investment in loans; fluctuations in the fair value of collateral underlying loans; outcomes of litigation and other contingencies; exposure to general and local economic conditions; risks associated with rapid increases or decreases in prevailing interest rates; changes in business prospects that could impact goodwill estimates and assumptions; consolidation within the banking industry; competition from banks and other financial institutions; our ability to attract and retain relationship officers and other key personnel; burdens imposed by federal and state regulation; changes in regulatory requirements; changes in accounting policies and practices or accounting standards, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as CECL model, which has changed how we estimate credit losses; uncertainty regarding the future of LIBOR; natural disasters, war or terrorist activities, or pandemics, or the outbreak of COVID-19 or similar outbreaks, and their effects on economic and business environments in which we operate; increased unemployment rates and defaults as a result of the economic disruptions caused by COVID-19; the impact of governmental orders issued in response to COVID-19; and other risks discussed under the caption “Risk Factors” under Part 1, Item 1A of our 2020 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.

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

Introduction

The following discussion describes the significant changes to the financial condition of the Company that have occurred during the first six months of 2021 compared to the financial condition as of December 31, 2020. In addition, this discussion summarizes the significant factors affecting the results of operations of the Company for the three months ended June 30, 2021, compared to the linked first quarter (“linked quarter”) in 2021 and the results of operations, liquidity and cash flows for the six months ended June 30, 2021 compared to the same period in 2020. In light of the nature of the Company’s business, which is not seasonal, the Company’s management believes that the comparison to the linked quarter is the most relevant to understand the financial results from management’s perspective. For purposes of the Quarterly Report on Form 10-Q, the Company is presenting a comparison to the corresponding year-to-date period in 2020. This discussion should be read in conjunction with the accompanying condensed consolidated financial statements included in this report and our Annual Report on Form 10-K for the year ended December 31, 2020.

Critical Accounting Policies

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

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

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

Allowance for Credit Losses

Utilizing the CECL methodology, the Company maintains separate allowances for funded loans, unfunded loans, and held-to-maturity securities, collectively the ACL. The ACL is a valuation account to adjust the cost basis to the amount expected to be collected, based on management’s estimate of experience, current conditions, and reasonable and supportable forecasts. For purposes of determining the allowance for funded and unfunded loans, the portfolios are segregated into pools that share similar risk characteristics that are then further segregated by credit grades. Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the

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

Executive Summary

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

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


(in thousands, except per share data)	At or for the three months ended									At or for the six months ended
	June 30, 2021			March 31, 2021			June 30, 2020			June 30, 2021			June 30, 2020
EARNINGS
Total interest income	$	87,401		$	84,960		$	73,191		$	172,361		$	149,879
Total interest expense	5,663			5,837			7,358			11,500			20,678
Net interest income	81,738			79,123			65,833			160,861			129,201
Provision for credit losses	(2,669)			46			19,591			(2,623)			41,855
Net interest income after provision for credit losses	84,407			79,077			46,242			163,484			87,346
Total noninterest income	16,204			11,290			9,960			27,494			23,368
Total noninterest expense	52,456			52,884			37,912			105,340			76,585
Income before income tax expense	48,155			37,483			18,290			85,638			34,129
Income tax expense	9,750			7,557			3,656			17,307			6,627
Net income	$	38,405		$	29,926		$	14,634		$	68,331		$	27,502

Basic earnings per share	$	1.23		$	0.96		$	0.56		$	2.19		$	1.04
Diluted earnings per share	$	1.23		0.96			$	0.56		$	2.18		$	1.04

Return on average assets	1.50		%	1.22		%	0.72		%	1.36		%	0.71		%
Return on average common equity	13.79		%	11.07			6.78		%	12.45		%	6.38		%
Return on average tangible common equity1	18.44		%	14.92			9.28		%	16.71		%	8.76		%
Net interest margin (tax equivalent)	3.46		%	3.50			3.53		%	3.48		%	3.65		%

Efficiency ratio	53.56		%	58.49			50.02		%	55.93		%	50.20		%
Core efficiency ratio1	51.86		%	55.02			50.66		%	53.38		%	50.94		%
Book value per common share	$	35.86		$	34.95		$	33.13
Tangible book value per common share1	$	26.85		25.92			$	24.22

ASSET QUALITY
Net charge-offs	$	869		$	5,647		$	309		$	6,516		$	1,491
Nonperforming loans	42,252			36,659			41,473
Classified assets	100,063			114,713			96,678
Nonperforming loans to total loans	0.58		%	0.50		%	0.68		%
Nonperforming assets to total assets	0.44		%	0.42			0.55		%
ACL on loans to total loans	1.77		%	1.80			1.80		%
Net charge-offs to average loans (annualized)	0.05		%	0.32			0.02		%	0.18		%	0.05		%

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

Financial results and other notable items include:

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


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


Average PPP loans outstanding, net	664,375			692,161			678,268			634,632
PPP average loan size	171			220			196			224
PPP interest and fee income	7,940			8,475			16,415			4,083
PPP deferred fees	12,243			16,676			12,243			22,414
PPP average yield	4.79		%	4.97		%	4.88		%	1.29		%

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

•Pre-provision net revenue1 (“PPNR”) of $47.4 million in the second quarter 2021 increased $6.8 million from the linked quarter PPNR of $40.7 million. PPNR for the six months ended June 30, 2021 of $88.1 million increased $12.1 million from $76.0 million in the prior year period. The increase from the linked quarter was primarily due to a stronger noninterest income and an increase in net interest income. The increase for the six months ended June 30, 2021 compared to the prior year period was primarily from the Seacoast acquisition that was completed in the fourth quarter 2020 and income from PPP that started in the second quarter 2020.

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

•Net interest income of $81.7 million for the second quarter 2021 increased $2.6 million, or 3.3%, from the linked quarter, primarily due to higher loan and investment volumes. Net interest margin (“NIM”) was 3.46% for the second quarter 2021, compared to 3.50% for the linked quarter. Net interest income was $160.9 million for the six months ended June 30, 2021, compared to $129.2 million in the prior year period. NIM was 3.48% for the six months ended June 30, 2021, compared to 3.53% for the prior year period. Net interest income in 2021 increased over the prior year due to the Seacoast acquisition and PPP loan fees and interest. NIM for the six months ended June 30, 2021, declined from the prior year period primarily due to a lower rate environment and an increase in cash on the balance sheet.

•Noninterest income of $16.2 million for the second quarter 2021 increased $4.9 million from the linked quarter, primarily due to higher tax credit activity. For the six months ended June 30, 2021, noninterest income was $27.5 million, compared to $23.4 million in the prior year period. The increase was primarily due to the Seacoast acquisition, income on private equity investments and higher gains on mortgage sales, offset by a decline in tax credit and swap fee income.

Balance sheet highlights:

•Loans – Total loans were $7.2 billion at both June 30, 2021 and December 31, 2020. PPP loans declined $302.0 million during the first half of 2021 due to higher loan forgiveness and the end of the statutory deadline for new PPP originations. Excluding PPP, loans increased $303.3 million in the first half of 2021, primarily due to specialty lending.

•Deposits – Total deposits increased $654.1 million, or 8.1%, to $8.6 billion at June 30, 2021 from $8.0 billion at December 31, 2020. Deposits from PPP loans and the low-rate environment has contributed to the increase during the first half of 2021. Specialty deposits increased $316.4 million in 2021 primarily due to community associations and sponsor finance. Noninterest deposit accounts represented 36.0% of total deposits and the loan to deposit ratio was 83.6% at June 30, 2021.

•Asset quality – The allowance for credit losses on loans to total loans was 1.77% at June 30, 2021, compared to 1.80% at December 31, 2020. Nonperforming assets to total assets was 0.44% at June 30, 2021 compared to 0.42% at December 31, 2020. The decline in the allowance to total loans ratio in the first half of 2021 was primarily due to net loan charge-offs of $6.5 million, improved credit metrics, and continued improvement in economic forecasts.

•Shareholders’ equity – Total shareholders’ equity was $1.1 billion at both June 30, 2021 and December 31, 2020, and the tangible common equity to tangible assets ratio2 was 8.32% and 8.40%, respectively. The Company and the Bank’s regulatory capital ratios exceeded the “well-capitalized” level at June 30, 2021.

The Company has 1,748,363 shares available for repurchase under its common stock repurchase authorization. The Company repurchased 251,637 shares totaling $11.8 million in the first half of 2021.

The Company’s Board of Directors approved a quarterly dividend of $0.19 per common share, payable on September 30, 2021 to shareholders of record as of September 15, 2021, an increase of $0.01 from the prior dividend.

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.

RESULTS OF OPERATIONS

Net Interest Income

Average Balance Sheet

The following tables present, for the periods indicated, certain information related to our average interest-earning assets and interest-bearing liabilities, as well as the corresponding interest rates earned and paid, all on a tax equivalent basis.


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


Total loans	7,306,471		79,162		4.35		7,192,776		77,073		4.35
Taxable debt and equity investments	856,439		4,706		2.20		849,123		4,719		2.25
Non-taxable debt and equity investments (2)	646,143		4,520		2.81		568,182		4,099		2.93
Short-term investments	806,928		237		0.12		679,659		189		0.11
Total securities and short-term investments	2,309,510		9,463		1.64		2,096,964		9,007		1.74
Total interest-earning assets	9,615,981		88,625		3.70		9,289,740		86,080		3.76
Noninterest-earning assets	665,363						650,312



Total assets	$	10,281,344					$	9,940,052

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	1,985,811	$	336	0.07	%	$	1,887,059	$	328	0.07	%
Money market accounts	2,344,871		988		0.17		2,350,592		975		0.17
Savings	718,193		52		0.03		654,662		48		0.03
Certificates of deposit	522,633		1,091		0.84		537,166		1,312		0.99
Total interest-bearing deposits	5,571,508		2,467		0.18		5,429,479		2,663		0.20
Subordinated debentures	203,849		2,847		5.60		203,694		2,819		5.61
FHLB advances	50,000		197		1.58		50,000		195		1.58
Securities sold under agreements to repurchase	209,062		58		0.11		231,527		60		0.11
Other borrowed funds	27,147		94		1.39		28,650		100		1.42
Total interest-bearing liabilities	6,061,566		5,663		0.37		5,943,350		5,837		0.40
Noninterest bearing liabilities:
Demand deposits	3,008,703						2,777,900
Other liabilities	94,106						122,321
Total liabilities	9,164,375						8,843,571
Shareholders' equity	1,116,969						1,096,481
Total liabilities & shareholders' equity	$	10,281,344					$	9,940,052
Net interest income			$	82,962					$	80,243
Net interest spread					3.33	%					3.36	%
Net interest margin					3.46	%					3.50	%

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

(2)Interest income and yields have been adjusted to reflect a tax-equivalent basis.


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


Total loans	7,249,938		156,234		4.35		5,692,159		131,878		4.66
Taxable debt and equity investments	852,802		9,425		2.23		1,096,703		14,544		2.67
Non-taxable debt and equity investments (2)	607,377		8,619		2.86		257,707		4,384		3.42
Short-term investments	743,645		426		0.12		134,758		387		0.58
Total securities and short-term investments	2,203,824		18,470		1.69		1,489,168		19,315		2.61
Total interest-earning assets	9,453,762		174,704		3.73		7,181,327		151,193		4.23
Noninterest-earning assets	657,879						579,577
Cash and due from banks	115,699						92,341
Other assets	676,096						573,806
Allowance for loan losses	(133,916)						(86,570)
Total assets	$	10,111,641					$	7,760,904

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	1,936,707	$	664	0.07	%	$	1,431,311	$	1,581	0.22	%
Money market accounts	2,347,716		1,963		0.17		1,876,482		5,735		0.61
Savings	686,603		100		0.03		566,549		188		0.07
Certificates of deposit	529,860		2,403		0.91		755,871		6,767		1.80
Total interest-bearing deposits	5,500,886		5,130		0.19		4,630,213		14,271		0.62
Subordinated debentures	203,772		5,666		5.61		155,303		4,235		5.48
FHLB advances	50,000		392		1.58		235,842		1,350		1.15
Securities sold under agreements to repurchase	220,233		118		0.11		197,002		419		0.43
Other borrowed funds	27,894		194		1.40		33,556		403		2.42
Total interest-bearing liabilities	6,002,785		11,500		0.39		5,251,916		20,678		0.79
Noninterest bearing liabilities:
Demand deposits	2,893,939						1,564,513
Other liabilities	108,135						77,876
Total liabilities	9,004,859						6,894,305
Shareholders' equity	1,106,782						866,599
Total liabilities & shareholders' equity	$	10,111,641					$	7,760,904
Net interest income			$	163,204					$	130,515
Net interest spread					3.34	%					3.44	%
Net interest margin					3.48	%					3.65	%

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

(2)Interest income and yields have been adjusted to reflect a tax-equivalent basis.

Rate/Volume

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


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

Taxable debt and equity investments	56		(69)		(13)			(2,944)		(2,175)		(5,119)
Non-taxable debt and equity investments (3)	586		(165)		421			5,056		(821)		4,235
Short-term investments	32		16		48			558		(519)		39
Total interest-earning assets	$	2,765	$	(220)	$	2,545		$	36,400	$	(12,889)	$	23,511

Interest paid on:
Interest-bearing transaction accounts	$	8	$	—	$	8		$	425	$	(1,342)	$	(917)
Money market accounts	13		—		13			1,164		(4,936)		(3,772)
Savings	4		—		4			34		(122)		(88)
Certificates of deposit	(34)		(187)		(221)			(1,650)		(2,714)		(4,364)
Subordinated debentures	11		17		28			1,335		96		1,431
FHLB advances	1		1		2			(1,332)		374		(958)
Securities sold under agreements to repurchase	(2)		—		(2)			44		(345)		(301)
Other borrowings	(4)		(2)		(6)			(60)		(149)		(209)
Total interest-bearing liabilities	(3)		(171)		(174)			(40)		(9,138)		(9,178)
Net interest income	$	2,768	$	(49)	$	2,719		$	36,440	$	(3,751)	$	32,689

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

During the six months ended June 30, 2021, tax equivalent net interest income increased $32.7 million from the six months ended June 30, 2020, primarily due to the Seacoast acquisition and income from PPP loans that began originating in the second quarter 2020. These increases were partially offset by a decline in the yield on earning assets from 4.23% in the first half of 2020 to 3.73% in the first half of 2021. The decline in yield was due to the Federal Open Markets Committee reduction of the target federal funds rate by 150 basis points in the first quarter of 2020.

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

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

NIM was 3.48% for the six months ended June 30, 2021, a 17 basis point decrease compared to 3.65% in the prior year period. NIM was impacted by the decline in short-term rates as approximately 60% of the loan portfolio (excluding PPP) has variable rates, with most indexed to one-month LIBOR. LIBOR has declined significantly over the past year in conjunction with the decrease in the target federal funds rate discussed above. Higher levels of low-yielding, short-term investments also contributed to the decline in NIM, as the average balance increased $608.9 million.

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
	Quarter ended								Six months ended
(in thousands)	June 30, 2021		March 31, 2021		Increase (decrease)				June 30, 2021		June 30, 2020		Increase (decrease)
Deposit service charges	$	3,862	$	3,084	$	778	25	%	$	6,946	$	5,759	$	1,187	21	%
Wealth management revenue	2,516		2,483		33		1	%	4,999		4,827		172		4	%
Card services revenue	2,975		2,496		479		19	%	5,471		4,472		999		22	%

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



Miscellaneous income	5,481		4,268		1,213		28	%	9,749		6,495		3,254		50	%

Total noninterest income	$	16,204	$	11,290	$	4,914	44	%	$	27,494	$	23,368	$	4,126	18	%

Total noninterest income for the first quarter 2021 was $16.2 million, an increase of $4.9 million from the linked quarter. The increase from the linked quarter was primarily due to tax credit income, along with a private equity fund distribution and gain on sale of other real estate reported in miscellaneous income. Deposit service charges and card services revenue increased over the linked quarter due to improving activity levels.

Noninterest income for the six months ended June 30, 2021, increased $4.1 million compared to the prior year period due to the Seacoast acquisition ($2.7 million), private equity income ($2.5 million), card fee income ($1.0 million) and gains on the sale of other real estate owned ($0.6 million). These increases were offset by a decrease in tax credit income of $1.5 million and a decline in customer swap fee income of $1.4 million.

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
	Quarter ended											Six months ended
(in thousands)	June 30, 2021			March 31, 2021			Increase (decrease)					June 30, 2021			June 30, 2020			Increase (decrease)
Employee compensation and benefits	$	28,132		$	29,562		$	(1,430)		(5)	%	$	57,694		$	44,074		$	13,620		31	%
Occupancy	3,529			3,751			(222)			(6)	%	7,280			6,532			748			11	%
Data processing	2,850			2,890			(40)			(1)	%	5,740			4,226			1,514			36	%
Professional fees	1,300			988			312			32	%	2,288			2,149			139			6	%






Merger-related expenses	1,949			3,142			(1,193)			(38)	%	5,091			—			5,091			—	%
Other	14,696			12,551			2,145			17	%	27,247			19,604			7,643			39	%
Total noninterest expense	$	52,456		$	52,884		$	(428)		(1)	%	$	105,340		$	76,585		$	28,755		38	%

Efficiency ratio	53.56		%	58.49		%	(4.93)		%			55.93		%	50.20		%	5.73		%
Core efficiency ratio1	51.86		%	55.02		%	(3.16)		%			53.38		%	50.94		%	0.92		%

1 Core efficiency ratio is a non-GAAP measure. Refer to discussion and reconciliation of this measure in the accompanying financial tables.

Noninterest expense was $52.5 million for the second quarter 2021, compared to $52.9 million for the linked quarter. Employee compensation and benefits expense declined $1.4 million from the linked quarter due to seasonally higher payroll taxes in the first quarter. Merger-related expenses also declined and were $1.9 million and $3.1 million in the current and linked quarter, respectively. These decreases were offset by a $2.1 million increase in Other expense, primarily attributed to higher customer deposit and card servicing costs due to higher volumes.

Noninterest expense was $105.3 million for the six months ended June 30, 2021, compared to $76.6 million for the prior year period. The increase from the prior year was primarily due to the Seacoast acquisition ($21.4 million) and merger-related expenses ($5.1 million).

Income Taxes

The Company’s effective tax rate was 20.2% for both the first and second quarter of 2021 and 20.2% and 19.4% for the six months ended June 30, 2021 and 2020, respectively. The increase in the effective tax rate in the first half of 2021 over the comparable period in 2020 was partially due to higher state tax expense from the Company’s expanded geographic footprint.

Summary Balance Sheet


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

Assets

Loans by Type

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

The following table summarizes the composition of the Company’s loan portfolio:


(in thousands)	June 30, 2021		December 31, 2020		Increase (decrease)
Commercial and industrial	$	2,930,805	$	3,088,995	$	(158,190)	(5)	%
Commercial real estate - investor owned	1,646,021		1,589,419		56,602		4	%
Commercial real estate - owner occupied	1,554,727		1,498,408		56,319		4	%
Construction and land development	556,776		546,686		10,090		2	%
Residential real estate	305,497		319,179		(13,682)		(4)	%
Other	232,441		182,248		50,193		28	%
Loans held for investment	$	7,226,267	$	7,224,935	$	1,332	—	%

The following table illustrates the change in loans:



(in thousands)	June 30, 2021		December 31, 2020		Increase (decrease)
C&I	$	1,116,229	$	1,103,060	$	13,169	1	%
CRE investor owned	1,467,243		1,420,905		46,338		3	%
CRE owner occupied	789,220		825,846		(36,626)		(4)	%
SBA Loans*	1,010,727		895,930		114,797		13	%
Sponsor finance*	463,744		396,487		67,257		17	%
Life insurance premium financing*	564,366		534,092		30,274		6	%
Tax credits*	423,258		382,602		40,656		11	%
SBA PPP loans	396,660		698,645		(301,985)		(43)	%
Residential real estate	302,007		318,091		(16,084)		(5)	%
Construction and land development	467,586		474,399		(6,813)		(1)	%
Other	225,227		174,878		50,349		29	%
Total loans	$	7,226,267	$	7,224,935	$	1,332	—	%

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

Loans totaled $7.2 billion at both June 30, 2021, and December 31, 2020. PPP loans declined $302.0 million in the first half of 2021, as PPP forgiveness by the SBA accelerated and the deadline for new originations passed during the second quarter 2021. Specialty loans, particularly SBA and sponsor finance loans, increased in the first half of 2021. At June 30, 2021, line draw utilization was 38.9% compared to 38.1% at December 31, 2020.

Specialty lending products, especially sponsor finance, life insurance premium financing, and tax credits, consist primarily of C&I loans. These loans are sourced through relationships developed with estate planning firms and private equity funds and are not bound geographically by our four markets. These specialized loan products offer opportunities to expand and diversify geographically by entering new markets. The Company continues to focus on originating high-quality C&I relationships, as they typically have variable interest rates and allow for cross selling

opportunities involving other banking products. Life insurance premium financing and tax credits are typically lower risk products due to the high collateral value securing the loans.

SBA loans are also generated on a national basis, and primarily consist of loans collateralized by first lien, owner-occupied real estate properties. These loans typically have a 75% guarantee from the SBA. Occasionally, the Company may sell the guaranteed portion of the loan and retain servicing rights. At June 30, 2021, the Company was servicing $275.8 million of SBA loans sold to third parties. Guaranteed portions of SBA loans totaled $686.4 million at June 30, 2021.

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

Provision and Allowance for Credit Losses

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


	Three months ended				Six months ended June 30,
(in thousands)	June 30, 2021		March 31, 2021			2021		2020
Allowance, at beginning of period	$	131,527	$	136,671		$	136,671	$	43,288

CECL adoption	—		—			—		28,387
PCD loans immediately charged-off	—		—			—		(1,680)
Allowance at beginning of period, adjusted for adoption of CECL	131,527		136,671			136,671		69,995

Provision (benefit) for credit losses	(2,473)		503			(1,970)		40,086
Charge-offs:
Commercial and industrial	(1,451)		(3,739)			(5,190)		(3,366)
Real estate:
Commercial	(216)		(2,400)			(2,616)		(226)
Construction and land development	—		—			—		(31)
Residential	(44)		(271)			(315)		(154)
Other	(121)		(64)			(185)		(191)
Total charge-offs	(1,832)		(6,474)			(8,306)		(3,968)
Recoveries:
Commercial and industrial	700		327			1,027		797
Real estate:
Commercial	49		43			92		2,846
Construction and land development	32		235			267		69
Residential	161		143			304		383
Other	21		79			100		62
Total recoveries	963		827			1,790		4,157
Net (charge-offs) recoveries	(869)		(5,647)			(6,516)		189

Allowance, at end of period	$	128,185	$	131,527		$	128,185	$	110,270

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


	Quarter ended				Six months ended June 30,
(in thousands)	June 30, 2021		March 31, 2021		2021		2020
Provision (benefit) for loan losses	$	(2,473)	$	503	$	(1,970)	$	40,086

Provision (benefit) for off-balance sheet commitments	38		(370)		(332)		2,055
Provision for held-to-maturity securities	—		—		—		342
Accrued interest	(234)		(87)		(321)		(628)
Provision (benefit) for credit losses	$	(2,669)	$	46	$	(2,623)	$	41,855

The following table summarizes the allocation of the ACL:


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

The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date. The Company also records reversals of interest on nonaccrual loans and interest recoveries directly through the provision of credit losses.

The provision for credit losses was a benefit of $2.7 million for both the second quarter 2021 and the first six months of 2021, compared to an expense of $46 thousand for the linked quarter and an expense of $41.9 million in the first half of 2020. Gross charge-offs of $1.8 million in the quarter primarily consisted of one retail loan that had previously defaulted and was fully reserved for in a prior period. During the first half of 2020, gross charge-offs totaled $8.3 million. The Company’s strong asset quality metrics and strengthening customer credit risk profiles, along with an improvement in the economic forecast, particularly GDP and unemployment, led to a decline in the allowance for credit losses in the second quarter 2021. Conversely, the Company was at the in the middle of the pandemic at June 30, 2020 when economic forecasts were severely constrained, which led to the provision expense of $41.9 million.

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

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

Nonperforming assets

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


(in thousands)	June 30, 2021			December 31, 2020
Nonaccrual loans	$	36,403		$	34,818
Loans past due 90 days or more and still accruing interest	2,807			130
Troubled debt restructurings	3,042			3,559
Total nonperforming loans	42,252			38,507
Other real estate	3,612			5,330

Total nonperforming assets	$	45,864		$	43,837

Total assets	$	10,346,993		$	9,751,571
Total loans	7,226,267			7,224,935

Nonperforming loans to total loans	0.58		%	0.53		%

Nonperforming assets to total assets	0.44		%	0.45		%

ACL on loans to nonperforming loans	303		%	355		%

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

Nonperforming loans

Nonperforming loans based on loan type were as follows:



(in thousands)	June 30, 2021		December 31, 2020
Commercial and industrial	$	24,844	$	21,770
Commercial real estate	13,244		12,519
Construction and land development	100		—
Residential real estate	4,038		4,189
Other	26		29
Total	$	42,252	$	38,507

The following table summarizes the changes in nonperforming loans:


	Six months ended
(in thousands)	June 30, 2021



Nonperforming loans, beginning of period	$	38,507
Additions to nonaccrual loans	16,058


Charge-offs	(8,306)
Other principal reductions	(3,765)
Moved to other real estate	(1,937)
Moved to performing	(983)
Change in loans past due 90 days or more and still accruing interest	2,678
Nonperforming loans, end of period	$	42,252

Other real estate

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

The following table summarizes the changes in other real estate:


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



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

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

Deposits


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

Core deposits / total deposits	94		%	93		%
Demand deposits / total deposits	36		%	34		%

Core deposits, defined as total deposits excluding certificates of deposits, were $8.1 billion at June 30, 2021, an increase of $689.9 million from December 31, 2020. The increase was primarily from noninterest-bearing and interest-bearing deposits, that have increased due to elevated deposits from customers who received PPP loans and customers who have retained excess liquidity due to the low yield of alternative short-term investments. Noninterest-bearing deposits were $3.1 billion at June 30, 2021, or 36.0% of total deposits. The Company has a specialty deposit portfolio focusing on property management, community associations, and escrow industries, in addition to deposits related to its specialty lending products. These deposits totaled $1.4 billion at June 30, 2021 and $1.1 billion at December 31, 2020.

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

Shareholders’ Equity

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

•increase from net income of $68.3 million,

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

•decrease from shares repurchased of $11.8 million, and

•decrease from dividends paid on common shares of $11.3 million.

Liquidity and Capital Resources

Liquidity

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

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

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

Liquidity from asset categories is provided through cash and interest-bearing deposits with other banks, which totaled $1.0 billion at June 30, 2021, compared to $545.3 million at December 31, 2020. The low interest rate environment, coupled with an uncertain outlook and government stimulus, such as the PPP, have increased liquidity for the banking industry, including the Company. Investment securities are another important tool to the Company’s liquidity objectives. Securities totaled $1.5 billion at June 30, 2021, and included $489 million pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements. The remaining $1.1 billion could be pledged or sold to enhance liquidity, if necessary.

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

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

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

Capital Resources

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

Quantitative measures established by regulation to ensure capital adequacy require EFSC and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total, Tier 1, and common equity tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. To be categorized as “well capitalized”, banks must maintain minimum total risk-based (10%), Tier 1 risk-based (8%), common equity tier 1 risk-based (6.5%), and Tier 1 leverage ratios (5%). As of June 30, 2021, and December 31, 2020, EFSC and the Bank met all capital adequacy requirements to which they are subject and exceeded the amounts required to be “well capitalized”.

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


(in thousands)	June 30, 2021			December 31, 2020			Minimum Capital Requirement to be considered “Well Capitalized” Including Capital Conservation Buffer
Total capital to risk-weighted assets	14.9		%	14.9		%	10.5	%
Tier 1 capital to risk-weighted assets	12.3		%	12.1		%	8.5	%
Common equity tier 1 capital to risk-weighted assets	11.1		%	10.9		%	7.0	%
Leverage ratio (Tier 1 capital to average assets)	9.4		%	10.0		%	4.0	%
Tangible common equity to tangible assets1	8.3		%	8.4		%
Total risk-based capital	$	1,140,433		$	1,094,601
Tier 1 capital	937,840			889,527
Common equity tier 1 capital	844,188			795,873

1 Not a required regulatory capital ratio

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


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

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

The Company believes the tangible common equity ratio is an important measure of capital strength, even though it is considered a non-GAAP measure. A reconciliation has been included in this section under the caption “Use of Non-GAAP Financial Measures.”

Use of Non-GAAP Financial Measures:

The Company’s accounting and reporting policies conform to generally accepted accounting principles in the United States (“GAAP”) and the prevailing practices in the banking industry. However, the Company provides other financial measures, such as tangible common equity, PPNR, PPNR ROAA, financial metrics adjusted for PPP impact, core efficiency ratio, and the tangible common equity ratio, in this release that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position, or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.

The Company considers its tangible common equity, PPNR, PPNR ROAA, financial metrics adjusted for PPP impact, core efficiency ratio, and the tangible common equity ratio, collectively “core performance measures,” presented in this earnings release and the included tables as important measures of financial performance, even though they are non-GAAP measures, as they provide supplemental information by which to evaluate the impact of certain non-comparable items, and the Company’s operating performance on an ongoing basis. Core performance measures exclude certain other income and expense items, such as merger-related expenses, facilities charges, and the gain or loss on sale of investment securities, the Company believes to be not indicative of or useful to measure the Company’s operating performance on an ongoing basis. The attached tables contain a reconciliation of these core performance measures to the GAAP measures. The Company believes that the tangible common equity ratio provides useful information to investors about the Company’s capital strength even though it is considered to be a non-GAAP financial measure and is not part of the regulatory capital requirements to which the Company is subject.

The Company believes these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding the Company’s performance and capital strength. The Company’s management uses, and believes that investors benefit from referring to, these non-GAAP measures and ratios in assessing the Company’s operating results and related trends and when forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP. In the attached tables, the Company has provided a reconciliation of, where applicable, the most comparable GAAP financial measures and ratios to the non-GAAP financial measures and ratios, or a reconciliation of the non-GAAP calculation of the financial measures for the periods indicated.

Core Performance Measures


	Three months ended						Six months ended
(in thousands)	June 30, 2021			March 31, 2021			June 30, 2020			June 30, 2021			June 30, 2020
Net interest income	$	81,738		$	79,123		$	65,833		$	160,861		$	129,201
Less: Incremental accretion income	—			—			719			—			1,992
Core net interest income	81,738			79,123			65,114			160,861			127,209

Total noninterest income	16,204			11,290			9,960			27,494			23,368


Less: Gain on sale of investment securities	—			—			—			—			4
Less: Gain on sale of other real estate	549			—			—			549			—

Less: Other non-core income	—						265			—			265
Core noninterest income	15,655			11,290			9,695			26,945			23,099

Total core revenue	97,393			90,413			74,809			187,806			150,308



Total noninterest expense	52,456			52,884			37,912			105,340			76,585

Less: Other expenses related to non-core acquired loans	—			—			12			—			24


Less: Merger related expenses	1,949			3,142			—			5,091			—



Core noninterest expense	50,507			49,742			37,900			100,249			76,561













Core efficiency ratio	51.86		%	55.02		%	50.66		%	53.38		%	50.94		%

Tangible Common Equity Ratio


(in thousands)	June 30, 2021			December 31, 2020
Total shareholders' equity	$	1,118,301		$	1,078,975
Less: Goodwill	260,567			260,567
Less: Intangible assets	20,358			23,084
Tangible common equity	$	837,376		$	795,324

Total assets	$	10,346,993		$	9,751,571
Less: Goodwill	260,567			260,567
Less: Intangible assets, net	20,358			23,084
Tangible assets	$	10,066,068		$	9,467,920

Tangible common equity to tangible assets	8.32		%	8.40		%

Average Shareholders’ Equity and Average Tangible Common Equity


	For the three months ended
(in thousands)	June 30, 2021		March 31, 2021		June 30, 2020
Average shareholder’s equity	$	1,116,969	$	1,096,481	$	868,163
Less: Average goodwill	260,567		260,567		210,344
Less: Average intangible assets, net	20,997		22,346		23,873
Average tangible common equity	$	835,405	$	813,568	$	633,946

Critical Accounting Policies

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

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

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

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

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

The following table summarizes the expected impact of interest rate shocks on net interest income:


Rate Shock1			Annual % change in net interest income
+ 300 bp			15.2%
+ 200 bp			8.9%
+ 100 bp			3.0%



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

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

The Company occasionally uses interest rate derivative financial instruments as an asset/liability management tool to hedge mismatches in interest rate exposure indicated by the net interest income simulation described above. They are used to modify the Company’s exposures to interest rate fluctuations and provide more stable spreads between loan yields and the rate on their funding sources. At June 30, 2021, the Company had $62.0 million in derivative contracts used to manage interest rate risk. Derivative financial instruments are also discussed in “Item 1. Note 6 – Derivative Financial Instruments.”

At June 30, 2021, the Company had $4.1 billion in variable rate loans including $2.6 billion based on LIBOR and $1.4 billion based on Prime. Approximately 88% of the LIBOR based loans are indexed to one-month LIBOR. Of the total variable rate loans, $1.7 billion, or 24%, had a rate floor of which approximately $1.7 billion, or 93%, were currently priced at the floor.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15, as of June 30, 2021. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on that evaluation, the CEO and CFO concluded the Company’s disclosure controls and procedures were effective as of June 30, 2021 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 Report on Form 10-Q, and Part I, Item 1A of our Report on Form 10-K for the fiscal year ended December 31, 2020. There have been no material changes to the risk factors described in such Annual Report on Form 10-K.

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



Period	Total number of shares purchased (a)	Weighted-average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
April 1, 2021 through April 30, 2021	—	—		—	2,000,000
May 1, 2021 through May 31, 2021	12,348	48.01		12,348	1,987,652
June 1, 2021 through June 30, 2021	239,289	46.97		239,289	1,748,363
Total	251,637	$	47.02	251,637	1,748,363

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

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

The forgoing summary of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, a copy of which is filed as Exhibit 3.9 hereto.

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 Certificate of Designations of Registrant for Fixed Rate Cumulative Perpetual Preferred Stock, Series A, dated December 17, 2008 (incorporated herein by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K filed on December 23, 2008 (File No. 001-15373)).

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

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

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

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

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

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

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

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

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

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

101.SCH Inline XBRL Taxonomy Extension Schema Document.

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF Inline XBRL Taxonomy Extension Definitions Linkbase Document.

104 The cover page of Enterprise Financial Services Corp’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, 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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Clayton, State of Missouri, on the day of July 30, 2021.


			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

Enterprise Financial Services Corp - 10-Q quarterly report FY2021 Q2

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