What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-25 · 302 added, 365 removed, 1350 unchanged (33% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets at December 31, 2022 and 2021 61

Consolidated Statements of Operations for the years ended December 31, 2021, 2020, and 2019 65

Consolidated Statements of Income for the years ended December 31, 2022, 2021, and 2020 62

Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021, and 2020 63

5 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Enterprise Financial Services Corp and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

We have audited the accompanying consolidated balance sheets of Enterprise Financial Services Corp and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2023 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principles

As discussed in Note 1 to the financial statements, on January 1, 2020, the Company adopted ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” applicable to financial assets measured at amortized cost including loan receivables and held to maturity debt securities.

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

4 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses — Refer to Note 1 to the financial statements

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses on Loans — Refer to Note 1 to the financial statements

Critical Audit Matter Description

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We assessed the reasonableness of the Company’s qualitative methodology, tested key calculations utilized within the qualitative estimate and agreed underlying data within the calculation to source documents.

Acquisition of First Choice Bancorp (“FCB”) – Valuation of Loans – Refer to Note 2 to the financial statements

Critical Audit Matter Description

On July 21, 2021, the Company closed its acquisition of 100% of First Choice Bancorp and its wholly-owned subsidiary, First Choice Bank.

The value of the transaction consideration was approximately $346 million.

The acquisition of FCB has been accounted for as a business combination using the acquisition method of accounting which requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date.

Goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations into the Company.

Given that the fair value determination of net assets, specifically the credit assumptions related to the acquired loan balance, required management to make significant estimates and assumptions related to the associated credit risk, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s determination of the credit risk associated with these loans included the following, among others:

• We tested the design and operating effectiveness of controls over the valuation of the acquired loans, including management’s controls over the determination of credit risk.

• With the assistance of our fair value specialists, we obtained an understanding and evaluated the reasonableness of the Company’s valuation methodology and assumptions.

• We compared the accuracy of the Company’s fair value pricing to the pricing independently developed by our fair value specialists.

/s/ Deloitte & Touche LLP

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 25, 2022, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of accounting standard update (ASU) 2016-13 “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” .

Basis for Opinion

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As of December 31, 2022 and 2021

($ in thousands, except per share data) December 31, 2021 December 31, 2020

($ in thousands, except per share data) 2022 2021

Cash and due from banks $ 229,580 $ 209,177

1 unchanged sentence

Interest-earning deposits (including $ — and $ 14,595 pledged as collateral, respectively)

60,026 1,811,156

Total cash and cash equivalents 291,359 2,021,689

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5,000,000 shares authorized;

75,000 and 0 shares issued and outstanding, respectively ($1,000 per share liquidation preference) 71,988 —

75,000 shares issued and outstanding, respectively ($ 1,000 per share liquidation preference)

71,988 71,988

Common stock, $ 0.01 par value;

75,000,000 and 45,000,000 shares authorized;

39,799,615 and 33,190,306 shares issued, respectively 398 332

75,000,000 shares authorized;

37,253,292 shares issued and outstanding and 39,799,615 shares issued, respectively

Treasury stock, at cost;

1,980,093 shares ( 73,528 ) ( 73,528 )

— and 1,980,093 shares, respectively

Additional paid-in capital 982,660 1,018,799

Retained earnings 597,574 492,682

Accumulated other comprehensive income 18,777 37,120

Accumulated other comprehensive (loss) income, net ( 130,332 ) 18,777

Total shareholders' equity 1,522,263 1,529,116

2 unchanged sentences

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Consolidated Statements of Operations

Consolidated Statements of Income

Years ended December 31, 2022, 2021, and 2020

16 unchanged sentences

Net interest income 473,903 360,194 270,001

Provision for credit losses 13,385 65,398 6,372

Net interest income after provision for credit losses 346,809 204,603 232,345

Provision (benefit) for credit losses ( 611 ) 13,385 65,398

Net interest income after provision (benefit) for credit losses 474,514 346,809 204,603

Noninterest income:

3 unchanged sentences

Tax credit income 2,558 8,028 6,611

Miscellaneous income 22,148 16,962 11,896

Other income 16,717 22,148 16,962

Total noninterest income 59,162 67,743 54,503

6 unchanged sentences

Merger-related expenses — 22,082 4,174

Other 62,675 44,250 41,831

Other expenses 88,955 62,675 44,250

Total noninterest expense 274,216 245,919 167,159

2 unchanged sentences

Net income $ 203,043 $ 133,055 $ 74,384

Dividends on preferred stock 4,041 — —

Net income available to common shareholders $ 199,002 $ 133,055 $ 74,384

Earnings per common share

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Other comprehensive income (loss), net of tax:

Change in unrealized gain (loss) on available-for-sale debt securities ( 17,049 ) 23,944 29,189

Reclassification adjustment for realized (gain) loss on the sale of available-for-sale debt securities — ( 317 ) 37

Change in unrealized gain (loss) on available-for-sale securities ( 149,623 ) ( 17,049 ) 23,944

Reclassification of gain on the sale of available-for-sale securities — — ( 317 )

Reclassification of gain on held-to-maturity securities ( 2,696 ) ( 3,624 ) ( 1,910 )

Change in unrealized gain (loss) on cash flow hedges arising during the period 1,161 ( 5,947 ) ( 2,262 )

Change in unrealized gain (loss) on cash flow hedges 2,798 1,161 ( 5,947 )

Reclassification of loss on cash flow hedges 412 1,169 3,601

Other comprehensive income (loss), net ( 18,343 ) 19,371 27,031

Total other comprehensive income (loss), net ( 149,109 ) ( 18,343 ) 19,371

Total comprehensive income $ 53,934 $ 114,712 $ 93,755

3 unchanged sentences

Years ended December 31, 2022, 2021, and 2020

($ in thousands, except per share data) Preferred Stock Common Stock Treasury Stock Additional paid in capital Retained earnings Accumulated

comprehensive income (loss) Total

shareholders’ equity

Preferred Common

(in thousands, except per share data) Shares Amount Shares Amount Treasury Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity

Balance December 31, 2019 — $ — 26,543 $ 281 $ ( 58,181 ) $ 526,599 $ 380,737 $ 17,749 $ 867,185

Net income — $ — — $ — $ — $ — $ 74,384 $ — $ 74,384

Other comprehensive loss, net — — — — — 27,031 27,031

Cash dividends paid on common shares, $0.62 per share — — — — ( 16,568 ) — ( 16,568 )

Repurchase of common shares, 396,737 shares — — ( 15,526 ) — — — ( 15,526 )

Issuance under equity compensation plans, 137,271 shares, net — 2 — ( 214 ) — — ( 212 )

Shares issued in connection with acquisition of Trinity Capital Corporation, 3,990,822 shares 40 — 171,845 — — 171,885

Other comprehensive income — — — — — — — 19,371 19,371

Common stock dividends ($ 0.72 per share)

— — — — — — ( 19,795 ) — ( 19,795 )

Repurchase of common stock — — ( 456 ) — ( 15,347 ) — — — ( 15,347 )

Issuance under equity compensation plans, net — — 146 1 — 77 — — 78

Shares issued in connection with acquisition of Seacoast Commerce Banc Holdings 4,977 50 — 166,985 — — 167,035

Share-based compensation — — — — — 4,178 — — 4,178

Reclassification for the adoption of ASU 2016-13 (CECL) — — — — — — ( 18,114 ) — ( 18,114 )

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

Net income — $ — — $ — $ — $ — $ 133,055 $ — $ 133,055

Other comprehensive income, net — — — — — 19,371 19,371

Cash dividends paid on common shares, $0.72 per share — — — — ( 19,795 ) — ( 19,795 )

Repurchase of common shares, 456,251 shares — — ( 15,347 ) — — — ( 15,347 )

Issuance under equity compensation plans, 146,005 shares, net — 1 — 77 — — 78

Shares issued in connection with acquisition of Seacoast Commerce Banc Holdings, 4,977,214 shares — 50 — 166,985 — — 167,035

Other comprehensive loss — — — — — — — ( 18,343 ) ( 18,343 )

Common stock dividends ($ 0.75 per share)

— — — — — — ( 26,153 ) — ( 26,153 )

Repurchase of common stock — — ( 1,300 ) ( 12 ) — ( 30,518 ) ( 30,059 ) — ( 60,589 )

Issuance under equity compensation plans, net — — 132 — — 2,549 ( 663 ) — 1,886

Shares issued in connection with acquisition of First Choice Bancorp, net (gross issuance 7,808 shares)

— — 7,777 78 — 342,912 ( 710 ) — 342,280

Preferred stock issuance, net of $ 3,012 issuance cost

75 71,988 — — — — — — 71,988

Share-based compensation — — — — — 6,017 — — $ 6,017

Reclassification for the adoption of ASU 2016-13 (CECL) — — — ( 18,114 ) — ( 18,114 )

Balance December 31, 2021 75 $ 71,988 37,819 $ 398 $ ( 73,528 ) $ 1,018,799 $ 492,682 $ 18,777 $ 1,529,116

Net income — $ — — $ — $ — $ — $ 203,043 $ — $ 203,043

Other comprehensive loss, net — — — — — ( 18,343 ) ( 18,343 )

Cash dividends paid on common shares, $0.75 per share — — — — ( 26,153 ) — ( 26,153 )

Repurchase of common shares, 1,299,527 shares — ( 12 ) — ( 30,518 ) ( 30,059 ) — ( 60,589 )

Issuance under equity compensation plans, 131,564 shares, net — — — 2,549 ( 663 ) — 1,886

Shares issued in connection with acquisition of First Choice Bancorp, 7,777,272 shares, net (gross issuance 7,808,459 shares) — 78 — 342,912 ( 710 ) — 342,280

Preferred stock issuance, net of $3,012 issuance cost 71,988 — — — — — 71,988

Other comprehensive loss — — — — — — — ( 149,109 ) ( 149,109 )

Common stock dividends ($ 0.90 per share)

— — — — — — ( 33,602 ) — ( 33,602 )

Preferred stock dividends ($ 53.889 per share)

— — — — — ( 4,041 ) ( 4,041 )

Repurchase of common stock — — ( 700 ) ( 7 ) — ( 18,867 ) ( 14,049 ) — ( 32,923 )

Issuance under equity compensation plans, net — — 134 2 — 2,460 ( 689 ) — 1,773

Share-based compensation — — — — — 8,006 — — 8,006

Retirement of treasury stock ( 1,980 shares)

— — — ( 20 ) 73,528 ( 27,738 ) ( 45,770 ) — —

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

9 unchanged sentences

Depreciation 5,573 6,147 6,152

Provision for credit losses 13,385 65,398 6,372

Provision (benefit) for credit losses ( 611 ) 13,385 65,398

Deferred income taxes 2,194 545 ( 12,578 )

Net amortization of debt securities 5,639 7,343 6,745

Net accretion of loan discount ( 1,140 ) ( 7,767 ) ( 10,494 )

Net amortization (accretion) on loans 266 ( 1,140 ) ( 7,767 )

Amortization of intangible assets 5,367 5,690 5,673

3 unchanged sentences

Loss (gain) on:

Sale of investment securities — ( 421 ) 49

Sale of other real estate ( 931 ) 13 ( 113 )

Sale of state tax credits ( 2,220 ) ( 2,016 ) ( 2,549 )

Investment securities — — ( 421 )

Other real estate 93 ( 931 ) 13

Fixed assets ( 54 ) — —

State tax credits ( 1,506 ) ( 2,220 ) ( 2,016 )

Asset impairment — 3,441 —

3 unchanged sentences

Cash flows from investing activities:

Acquisition cash purchase price, net of cash and cash equivalents acquired 212,642 62,114 ( 23,377 )

Net decrease (increase) in loans 138,455 ( 700,096 ) ( 284,235 )

Proceeds from acquisitions, net — 212,642 62,114

Net (increase) decrease in loans ( 722,677 ) 138,455 ( 700,096 )

Proceeds received from:

5 unchanged sentences

Sale of other real estate 2,517 5,915 652

Sale of fixed assets 1,699 — —

Settlement of bank-owned life insurance policies 534 — 1,993

1 unchanged sentence

Available-for-sale debt securities ( 728,247 ) ( 779,481 ) ( 452,541 )

Held-to-maturity debt securities ( 182,004 ) — —

Other investments ( 19,286 ) ( 9,564 ) ( 50,421 )

6 unchanged sentences

Net increase in noninterest-bearing deposit accounts $ 64,296 $ 869,203 $ 627,756

Net increase in interest-bearing deposit accounts 648,778 505,604 44,300

Net (decrease) increase in interest-bearing deposit accounts ( 578,945 ) 648,778 505,604

Proceeds from the issuance of subordinated notes — — 61,953

Payments for the redemption of subordinated notes — ( 50,000 ) —

Proceeds (repayments) from short-term FHLB advances, net ( 160,000 ) ( 172,300 ) 95,500

Proceeds from long-term FHLB advances — — 50,000

Net increase (decrease) in short term FHLB advances, net 100,000 ( 160,000 ) ( 172,300 )

Repayments of long-term FHLB advances ( 50,000 ) — —

Repayment of PPPLF advances — — ( 86,096 )

Proceeds from notes payable — — 41,000

Repayments of notes payable ( 5,714 ) ( 7,143 ) ( 4,286 )

Net increase in other borrowings 59,925 40,195 9,436

Cash dividends paid on common stock ( 26,153 ) ( 19,795 ) ( 16,568 )

Net (decrease) increase in other borrowings ( 24,030 ) 59,925 40,195

Dividends paid on common stock ( 33,602 ) ( 26,153 ) ( 19,795 )

Repurchase of common stock ( 32,923 ) ( 60,589 ) ( 15,347 )

Dividends paid on preferred stock ( 4,041 ) — —

Proceeds from issuance of preferred stock, net — 71,988 —

Other, net 1,773 516 78

Net cash provided by financing activities 1,346,525 937,762 256,767

Net increase (decrease) in cash and cash equivalents 1,483,986 370,447 ( 29,296 )

Net cash (used in) provided by financing activities ( 563,186 ) 1,346,525 937,762

Net (decrease) increase in cash and cash equivalents ( 1,730,330 ) 1,483,986 370,447

Cash and cash equivalents, beginning of period 2,021,689 537,703 167,256

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All intercompany accounts and transactions have been eliminated.

The Company and its banking subsidiary are subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory agencies.

The Company and its banking subsidiary are subject to the regulations of various federal and state agencies and undergo periodic examinations by those regulatory agencies.

The Company has one operating segment.

12 unchanged sentences

Recent Accounting Pronouncements

ASU 2021-01, Reference Rate Reform (Topic 848):

FASB ASU 2021-01, Reference Rate Reform (Topic 848):

Scope (ASU 2021-01) .

ASU 2021-01 was issued in January 2021 and provided optional expedients and exceptions in ASC 848 to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

ASU 2021-01 was issued in January 2021 and provides optional expedients and exceptions in ASC 848 to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendment only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

1 unchanged sentence

The amendments in this update were effective immediately upon issuance and did not have a material effect on the consolidated financial statements.

In December 2022, ASU 2022-06 Reference Rate Reform (Topic 848):

Deferral of the Sunset date of Topic 848 was issued, which extends the sunset date from December 31, 2022 to December 31, 2024.

FASB ASU 2022-02, Financial Instruments–Credit Losses (Topic 326);

Troubled Debt Restructurings and Vintage Disclosures.

ASU 2022-02 was issued in March 2022 and eliminates the accounting guidance on troubled debt restructurings for creditors in ASC 310-40 and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination.

The ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan

refinancings and restructurings for borrowers experiencing financial difficulty.

The amendments in this update will be effective for fiscal years beginning after December 15, 2022 for entities that have adopted the amendments in ASU 2016-13, Financial Instruments–Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments .

The Company is evaluating the accounting and disclosure requirements of ASU 2022-02 and does not expect them to have a material effect on the consolidated financial statements.

FASB ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions .

ASU 2022-03 was issued in June 2022 to (1) clarify the guidance in Topic 820, Fair Value Measurement , when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) amend a related illustrative example, and (3) introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820.

The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.

The Company has evaluated the accounting and disclosure requirements of ASU 2022-03 and does not expect them to have a material effect on the consolidated financial statements.

The Company has classified all investments in debt securities as available-for-sale or held-to-maturity.

Securities classified as available-for-sale are carried at fair value.

Unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported as a net amount in a separate component of

shareholders’ equity until realized.

Unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported as a net amount as a separate component of shareholders’ equity until realized.

All previous fair value adjustments included in the separate component of shareholders’ equity are reversed upon sale.

Securities classified as held-to-maturity are carried at amortized cost and adjusted for amortization of premiums and accretion of discounts.

Prior to the adoption of ASU 2016-13 on January 1, 2020, declines in the fair value of securities below their cost deemed to be other-than-temporary were reflected in operations as realized losses.

In estimating other-than-temporary impairment losses, management evaluated investment securities for other-than-temporary declines in fair value on a quarterly basis.

This analysis required management to consider various factors, which included (1) the present value of the cash flows expected to be collected compared to the amortized cost of the security, (2) duration and magnitude of the decline in value, (3) the financial condition of the issuer or issuers, (4) structure of the security, and (5) the intent to sell the security or whether it’s more likely than not the Company would be required to sell the security before its anticipated recovery in market value.

An ACL on held-to-maturity securities is deducted from the amortized cost basis of the securities to reflect the expected amount to be collected.

When it is determined that a security will not be collected, the balance is written-off through the allowance.

When it is determined a security will not be collected, the balance is written-off through the allowance.

In evaluating the need for an ACL, securities with similar risk characteristics are grouped and an estimate of expected cash flows is determined using loss experience, adjusted for current and reasonable and supportable forecasts of economic conditions.

3 unchanged sentences

The Company has elected to exclude accrued interest receivable balances from the estimate of the ACL as these amounts are timely written off as a credit loss expense.

Adjustments to the ACL on held-to-maturity and available-for-sale securities are recognized as a component of the provision for credit losses in the Consolidated Statements of Operations.

Adjustments to the ACL on held-to-maturity and available-for-sale securities are recognized as a component of the provision for credit losses in the Consolidated Statements of Income.

Premiums and discounts are amortized or accreted over the expected lives of the respective securities as an adjustment to yield using the interest method.

2 unchanged sentences

Loans Held-for-Sale and Servicing Assets

The Company provides long-term financing of one-to-four-family residential real estate by originating fixed and variable rate loans.

The Company provides long-term financing of 1-4 family residential real estate by originating fixed and variable rate loans.

Long-term fixed and variable rate loans are usually sold into the secondary market with limited recourse.

Upon receipt of an application for a real estate loan, the Company determines whether the loan will be sold into the secondary market or retained in the Company’s loan portfolio.

The interest rates on the loans sold are locked with the buyer and the Company bears no interest rate risk related to these loans.

The interest rates on the loans sold are locked with

the buyer and the Company bears no interest rate risk related to these loans.

Mortgage loans held-for-sale are carried at the lower of cost or fair value, which is determined on a specific identification method.

The Company does not retain servicing on these loans.

The Company also originates SBA7(a) loans that generally provide for a guarantee of 75% up to a maximum amount.

The Company also originates SBA 7(a) loans that generally provide for a guarantee of 75% of the loan, up to a maximum amount.

The guaranteed portion of the loan can be sold in an active secondary market.

2 unchanged sentences

Sales of SBA guaranteed loans are executed on a servicing retained basis, and the Company retains the rights and obligations to service the loans.

At December 31, 2021, the Company was servicing SBA loans that had been sold and has

recorded a related servicing asset of $ 6.7 million.

At December 31, 2022, the Company was servicing SBA loans that had been sold and has recorded a related servicing asset of $ 3.6 million.

The servicing asset is accounted for under the amortization method and is evaluated for impairment.

Amortization of the servicing asset is recorded as a reduction to servicing income.

Gains on the sale of loans held-for-sale are reported net of direct origination fees and costs in the Company’s Consolidated Statements of Operations.

Gains on the sale of held-for-sale loans are reported net of direct origination fees and costs in the Company’s Consolidated Statements of Income.

Loans are reported at the principal balance outstanding, net of unearned fees, costs, and premiums or discounts on acquired loans.

8 unchanged sentences

Acquired Loans

Prior to the adoption of ASU 2016-13 on January 1, 2020, PCI loans were acquired in a business combination or transaction, had evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable.

PCI loans were initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance.

The difference between the undiscounted cash flows expected at acquisition and the investment in the loans, or the “accretable yield,” was recognized as interest income on a level-yield method over the life of the loans.

Contractually required payments for interest and principal that exceeded the undiscounted cash flows expected at acquisition, or the “nonaccretable difference,” were not recognized as a yield adjustment or as a loss accrual or a valuation allowance.

The Company aggregated individual loans with common risk characteristics into pools of loans.

Increases in expected cash flows subsequent to the initial investment were recognized prospectively through adjustment of the yield on the loans over their remaining lives.

Decreases in expected cash flows due to an inability to collect contractual cash flows were recognized as impairment through the provision for loan losses account.

Any allowance for loan loss on these pools reflected only losses incurred after the acquisition.

Disposals of loans, including sales of loans, paydowns, payments in full or foreclosures resulted in the removal or reduction of the loan from the loan pool.

Subsequent to the adoption of ASU 2016-13, acquired loans are separated into two categories based on the credit risk characteristics of the underlying borrowers as either PCD, for loans which have experienced more than insignificant credit deterioration since origination, or loans with no credit deterioration (non-PCD).

Acquired loans are separated into two categories based on the credit risk characteristics of the underlying borrowers as either PCD, for loans which have experienced more than insignificant credit deterioration since origination, or loans with no credit deterioration (non-PCD).

At the date of acquisition, an ACL on PCD loans is determined and added to the amortized cost basis of the individual loans.

1 unchanged sentence

The ACL on PCD loans is recorded in the acquisition accounting and no provision for credit losses is recognized at the acquisition date.

Subsequent changes

to the ACL are recorded through provision expense.

Subsequent changes to the ACL are recorded through provision expense.

For non-PCD loans, an ACL is established immediately after the acquisition through a charge to the provision for credit losses.

The ACL for both PCD and non-PCD is determined by pooling loans with similar risk characteristics and using the approach discussed below under “Allowance for Credit Losses on Loans”.

Impaired Loans

Loans are considered “impaired” when it becomes probable that the Company will be unable to collect all amounts due according to the loan’s contractual terms.

Non-accrual loans, loans past due greater than 90 days and still accruing, unless adequately secured and in the process of collection, and restructured loans qualify as “impaired loans.” Restructured loans involve the granting of a concession on the terms of a loan to a borrower experiencing financial difficulty.

Concessions may be granted in various forms, including changes in payment schedule or interest rate.

When measuring impairment, the expected future cash flows of an impaired loan are discounted at the loan’s effective interest rate at origination.

Alternatively, impairment can be measured by reference to an observable market price, if one exists, or the fair value of the collateral for a collateral-dependent loan.

Loans and leases, which are deemed uncollectible, are charged off to the allowance for credit losses, while recoveries of amounts previously charged off are credited to the allowance for credit losses.

The ACL for both PCD and non-PCD is determined by pooling loans with similar risk characteristics and using the approach described below under “Allowance for Credit Losses on Loans”.

Non-accrual Loans

Loans are generally placed on non-accrual status when contractually past due 90 days or more as to interest or principal payments.

7 unchanged sentences

The ACL on loans is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected.

Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Loans are charged-off against the allowance when management deems the loan uncollectible.

Management estimates the allowance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

7 unchanged sentences

However, the recoverability of these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans.

The fair value of the

collateral securing these loans may fluctuate as market conditions change.

The fair value of the collateral securing these loans may fluctuate as market conditions change.

Included within C&I are revolving loans supported by borrowing bases that fluctuate depending on the amount of underlying collateral.

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In determining the probability of default, the Company utilized regression analysis to determine certain economic factors that are relevant loss drivers in the portfolio segments based on historical or peer evaluations.

National unemployment is a loss driver used in nearly all portfolios, except Consumer and first lien Residential Real Estate.

The annual percentage change in gross domestic product is also used in C&I, Construction, Agricultural first lien Residential Real Estate, and Consumer portfolios.

The annual percentage change in a commercial real estate index, national house price index and national retail sales are used in the CRE, second lien Residential Real Estate and Consumer portfolios, respectively.

National unemployment is a loss driver used in all portfolios.

The annual percentage change in gross domestic product is used in Construction, Agricultural, and Consumer portfolios.

The annual percentage change in a commercial real estate index, national house price index and national retail sales are used in the CRE, Residential Real Estate and C&I portfolios, respectively.

The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

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Loans evaluated individually are not also included in the collective evaluation.

When management determines foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

When management determines foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs.

Other individually-evaluated loans may be remeasured using a discounted cash flow method if appropriate.

Non-accrual loans, loans past due greater than 90 days and still accruing, unless adequately secured and in the process of collection, and restructured loans are evaluated individually.

Loan Charge-Offs

Loans are charged-off when the primary and secondary sources of repayment (cash flow, collateral, guarantors, etc.) are less than their carrying value.

Loans are charged-off when the primary and secondary sources of repayment (cash flow, collateral, guarantors, etc.) are less than their carrying value and the amounts are deemed uncollectible.

Other Real Estate

Other real estate represents property acquired through foreclosure or deeded to the Company in lieu of foreclosure on loans on which the borrowers have defaulted on the payment of principal or interest.

Other real estate is recorded on an individual asset basis at the lower of cost or fair value less estimated costs to sell.

Other real estate is initially recorded at fair value less cost to sell and subsequently at the lower of cost or fair value less estimated costs to sell.

The fair value of other real estate is based upon estimates of future cash flows, market value of similar assets, if available, or independent appraisals.

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As a result, fair value estimates may not be realizable in a current sale or settlement of the other real estate.

Subsequent reductions in fair value are expensed within noninterest expense.

Gains, losses and writedowns resulting from the writedown or sale of other real estate are credited or charged to earnings.

Gains and losses resulting from the sale of other real estate are credited or charged to current period earnings.

Costs of maintaining and operating other real estate are expensed as incurred, and expenditures to complete or improve other real estate properties are capitalized if the expenditures are expected to be recovered upon ultimate sale of the property.

Costs of maintaining and operating other real estate are expensed as incurred, and expenditures to complete or improve

other real estate properties are capitalized if the expenditures are expected to be recovered upon ultimate sale of the property.

Buildings, leasehold improvements, furniture, fixtures, and equipment are stated at cost less accumulated depreciation.

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The Company is also a minority partner in a joint venture, accounted for as an equity method investment, that purchases state income tax credits for resale to customers.

Income from both the sale of state tax credits and earnings from the joint venture are reported as tax credit income in the Consolidated Statements of Operations.

Income from both the sale of state tax credits and earnings from the joint venture are reported as tax credit income in the Consolidated Statements of Income.

Cash Surrender Value of Life Insurance

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The Company tests goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate the Company may not be able to recover the respective asset’s carrying amount.

The Company’s annual test for impairment was performed in the fourth quarter of December 31, 2021.

The Company’s annual test for impairment was performed in the fourth quarter of 2022.

Such tests involve the use of estimates and assumptions.

Potential impairments to goodwill must first be identified by performing a qualitative assessment which evaluates relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit

is less than its carrying amount.

If this test indicates it is more likely than not that goodwill has been impaired, then a quantitative impairment test is completed.

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In order to eliminate the interest rate risk associated with offering these products, the Company enters into derivative contracts with third parties to offset the customer contracts.

The Company does not enter into derivative financial instruments for trading purposes.

Derivative instruments are required to be measured at fair value and recognized as either assets or liabilities in the consolidated financial statements.

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cash flow hedge, fair value hedge, or non-designated hedges as part of a customer interest-rate swap product.

An assessment of the expected and ongoing hedge effectiveness of any derivative designated a fair value hedge or cash flow hedge is performed as required by the accounting standards.

An assessment of the expected and ongoing hedge effectiveness of any derivative designated a fair value hedge or cash flow hedge is performed as required by the applicable accounting standards.

Derivatives are included in other assets and other liabilities in the consolidated balance sheets.

The fair value amounts recognized for derivative instruments and the fair value amounts recognized for the right to reclaim or obligation to return cash collateral are not offset when represented under a master netting arrangement.

Generally, the only derivative instruments used by the Company have been interest rate swaps, forward currency contracts, and interest rate caps.

Generally, the only derivative instruments used by the Company have been interest rate swaps, collars, forward currency contracts, and interest rate caps.

Certain derivative financial instruments are not designated as cash flow or as fair value hedges for accounting purposes.

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The need for deferred tax asset valuation allowances is based on a more-likely-than-not standard.

The ability to realize deferred tax assets depends on the ability to generate sufficient positive taxable

income within the carryback or carryforward periods provided for in the laws for each applicable taxing jurisdiction.

The ability to realize deferred tax assets depends on the ability to generate sufficient positive taxable income within the carryback or carryforward periods provided for in the laws for each applicable taxing jurisdiction.

The following possible sources of taxable income are considered:

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Any incremental direct costs incurred to transact the sale are allocated against the gain or loss on the sale.

These costs would include items such as legal fees, title transfer fees, broker fees, etc.

These costs include items such as legal fees, title transfer fees, broker fees, etc.

Any goodwill and intangible assets associated with the portion of the reporting unit to be disposed of is included in the carrying amount of the business in determining the gain or loss on the sale.

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Common shares outstanding include common stock and restricted stock awards where recipients have satisfied the vesting terms.

Diluted earnings per common share gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method.

Diluted earnings per common share gives effect to all potential dilutive common shares outstanding during the period using the treasury stock method.

Consolidated Statement of Comprehensive Income

The Consolidated Statement of Comprehensive Income includes the amount and the related tax impact that have been reclassified from accumulated other comprehensive income to net income.

The classification adjustment for unrealized loss/gain on sale of securities included in net income has been recorded through the gain on sale of investment securities line item, within noninterest income, in the Company’s Consolidated Statements of Operations.

Share Repurchases

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The reclassifications had no effect on net income or shareholders’ equity.

NOTE 2 - ACQUISITIONS

The acquisition noted below has been accounted for as a business combination using the acquisition method of accounting which requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date.

Goodwill arising from the acquisitions consist largely of the synergies and economies of scale expected from combining the operations into Enterprise.

None of the goodwill recognized is expected to be deductible for income tax purposes.

Acquisition of First Choice Bancorp

On July 21, 2021, the Company closed its acquisition of 100% of First Choice and its wholly-owned subsidiary, FCB, which operated eight full-service branches in California.

First Choice shareholders received 0.6603 shares of EFSC common stock for each First Choice common share and cash in lieu of any fractional shares.

In connection with the merger, Enterprise issued approximately 7.8 million shares of EFSC Common Stock valued at $ 44.01 per share, which was the closing price of Enterprise common stock on July 21, 2021.

The value of the transaction consideration was approximately $ 346 million, which includes approximately $ 2.1 million payable to holders of First Choice stock options.

For the year ended December 31, 2021, the Company recognized $ 18.8 million of merger-related costs recorded in noninterest expense in the statement of operations related to the First Choice acquisition.

The following tables present the assets acquired and liabilities assumed.

The consideration exchanged, assets acquired and liabilities assumed of First Choice were recorded at estimated fair value on the date of acquisition.

Fair values are considered preliminary until final fair values are determined, or the measurement period has passed, which is no later than one year from the date of acquisition.

(in thousands) As Recorded by First Choice Adjustments As Recorded by EFSC

Assets acquired:

Cash and cash equivalents $ 214,794 $ — $ 214,794

Securities 34,533 ( 44 ) (a) 34,489

Loans 1,937,635 5,508 (b) 1,943,143

Allowance ( 19,626 ) 12,620 (b) ( 7,006 )

Other investments 19,178 138 (c) 19,316

Fixed assets 1,869 ( 870 ) (c) 999

Accrued interest receivable 7,131 20 (c) 7,151

Goodwill 73,425 ( 73,425 ) (d) —

Intangible assets 4,517 375 (e) 4,892

Deferred tax assets 7,558 ( 1,943 ) (c) 5,615

Other assets 23,024 1,645 (c) 24,669

Total assets acquired $ 2,304,038 $ ( 55,976 ) $ 2,248,062

Liabilities assumed:

Deposits $ 1,840,716 $ ( 287 ) (c) $ 1,840,429

FHLB advances 160,000 — 160,000

Accrued interest payable 124 — 124

Other liabilities 8,464 ( 2,160 ) (c) 6,304

Total liabilities assumed $ 2,009,304 $ ( 2,447 ) $ 2,006,857

Net assets acquired $ 294,734 $ ( 53,529 ) $ 241,205

Consideration paid:

Common stock 1

Total consideration paid $ 345,802

Goodwill $ 104,597

1 Common stock consideration was $ 342,280 , net of $ 1,370 for shares withheld on the settlement of share-based awards of FCBP employees.

(a) Fair value adjustments based on the Company’s evaluation of the acquired securities portfolio.

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

(d) Adjustment to eliminate goodwill.

(e) Eliminate acquired intangibles and record the core deposit intangible asset on the acquired core deposit accounts.

Amount to be amortized using a sum-of-years digits method over a useful life of 10 years.

The following table provides the unaudited pro forma information for the results of operations for the twelve months ended December 31, 2021 and 2020, as if the acquisition had occurred on January 1, 2020.

The pro forma results combine the historical results of FCBP with the Company’s Consolidated Statements of Income, adjusted for the impact of the application of the acquisition method of accounting including amortization and accretion of fair value adjustments.

The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2020.

assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions.

Only the acquisition-related expenses that have been incurred as of December 31, 2021 are included in net income in the table below.

Twelve months ended December 31,

(in thousands, except per share data) 2021 2020

Total revenues (net interest income plus noninterest income) $ 488,280 $ 420,487

Net income 188,416 67,275

Diluted earnings per common share 4.86 1.94

For the year ended December 31, 2021, total revenue and pre-tax net income from FCBP of $ 40.5 million and $ 25.9 million (excluding the provision for credit losses of $ 25.4 million on the acquired loan portfolio and unfunded loan commitments) were included in the Company’s consolidated results.

NOTE 2 - EARNINGS PER SHARE

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Total securities held-to-maturity, net $ 429,681

During 2020, the Company transferred securities with a book value of $ 331.0 million and fair value of $ 352.6 million from available-for-sale to held-to-maturity.

The Company believes the held-to-maturity category is more consistent with the Company’s intent for these securities.

During 2022, the Company transferred $ 116.7 million of securities from available-for-sale to held-to-maturity.

The Company believes the held-to-maturity category is consistent with the Company’s intent for these securities.

The transfer of securities was made at fair value at the time of transfer.

The unamortized portion of the unrealized holding gain at the time of transfer is retained in accumulated other comprehensive income and in the carrying value of held-to-maturity securities.

Accordingly, the

balance of held-to-maturity securities in the “Amortized cost” column in the table above includes a net unamortized unrealized gain of $ 21.0 million and $ 25.6 million at December 31, 2021 and 2020, respectively.

The balance of held-to-maturity securities in the “Amortized Cost” column in the

table above includes a cumulative net unamortized, unrealized gain of $ 17.6 million and $ 21.0 million at December 31, 2022 and 2021, respectively.

Such amounts are amortized over the remaining life of the securities.

In January 2022, the Company transferred securities with a book value of $116.7 million from available-for-sale to held-to-maturity.

At December 31, 2022, and 2021, there were no holdings of securities of any one issuer in an amount greater than 10 % of shareholders’ equity, other than the U.S.

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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 5 years.

Available-for-sale Held-to-maturity

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Agency mortgage-backed securities 334,431 20,038 281,321 48,942 615,752 68,980

Corporate debt securities 12,640 1,110 — — 12,640 1,110

Treasury Bills 198,688 4,908 — — 198,688 4,908

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Agency mortgage-backed securities 259,047 3,685 6,467 184 265,514 3,869

Treasury Bills 60,961 21 — — 60,961 21

$ 725,830 $ 7,842 $ 13,117 $ 359 $ 738,947 $ 8,201

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Gross gains realized $ — $ — $ 421

Gross losses realized — — ( 449 )

Proceeds from sales — 27,135 20,221

The Company sold $ 28.4 million of available-for-sale securities in January 2023 for a gain of $ 0.4 million.

Other Investments

At December 31, 2022, and 2021, other investments totaled $ 63.8 million and $ 59.9 million, respectively.

As a member of the FHLB system administered by the Federal Housing Finance Agency, the Bank is required to maintain a minimum investment in capital stock with the FHLB consisting of membership stock and activity-based stock.

As a member of the FHLB, 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 $ 14.0 million, and $ 12.1 million at December 31, 2022, and 2021, respectively, is recorded at cost, which represents redemption value, and is included in other investments in the consolidated balance sheets.

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NOTE 4 - LOANS

Below is a summary of loans by category at December 31, 2021 and 2020:

Below is a summary of loans by category:

($ in thousands) December 31, 2022 December 31, 2021

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PPP loans totaled $ 276.2 million at December 31, 2021, or $ 272.0 million net of unearned fees of $ 4.2 million.

The loan balance includes a net premium on acquired loans of $ 11.9 million and $ 16.1 million at December 31, 2021 and 2020, respectively.

The loan balance includes a net premium on acquired loans of $ 11.9 million at both December 31, 2022 and 2021.

At December 31, 2022 loans of $ 2.8 billion were pledged to the FHLB and the Federal Reserve.

Loans to executive officers and directors, or to entities in which such individuals had beneficial interests as a shareholder, officer, or director totaled $ 5.7 million for each year ended December 31, 2021 and 2020.

Loans to executive officers and directors, or to entities in which such individuals had beneficial interests as a shareholder, officer, or director totaled $ 0.1 million and $ 5.7 million for the year ended December 31, 2022 and 2021, respectively.

Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did not involve more than the normal risk of collectibility.

A summary of the activity, by loan category, in the allowance for loan losses for 2019, excluding the allowance on PCI loans, and the ACL on loans for 2020 and 2021 is as follows:

A summary of the activity, by loan category, in the allowance for credit losses on loans for 2020, 2021, and 2022 is as follows:

($ in thousands) Commercial and industrial CRE - investor owned CRE - owner occupied Construction and land development Residential real estate Other Total

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Provision for loan losses 28,373 11,037 7,845 13,438 674 2,012 63,379

Initial allowance on acquired PCD loans 23 2,026 1,427 45 3 — 3,524

Charge-offs ( 5,381 ) ( 498 ) ( 30 ) ( 31 ) ( 408 ) ( 391 ) ( 6,739 )

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Allowance for loan losses:

Balance at December 31, 2019 $ 27,296 $ 5,935 $ 4,873 $ 2,472 $ 1,280 $ 711 $ 42,567

PCI allowance at December 31, 2019 159 — — 139 — 423 721

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, beginning of year $ 58,812 $ 32,062 $ 17,012 $ 21,413 $ 4,585 $ 2,787 $ 136,671

Provision for loan losses 28,373 11,037 7,845 13,438 674 2,012 63,379

Provision (benefit) for loan losses 14,361 568 ( 550 ) ( 7,365 ) 3,900 2,079 12,993

Initial allowance on acquired PCD loans 1,077 3,651 1,504 37 — 737 7,006

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Provision (benefit) for loan losses ( 6,121 ) 46 4,867 ( 3,145 ) 540 ( 397 ) ( 4,210 )

Initial allowance on acquired PCD loans 1,077 3,651 1,504 37 — 737 7,006

Charge-offs ( 6,082 ) ( 478 ) ( 395 ) — ( 2,068 ) ( 370 ) ( 9,393 )

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Balance, end of year $ 53,835 $ 36,191 $ 22,752 $ 11,444 $ 7,928 $ 4,782 $ 136,932

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

On January 1, 2020, the Company adopted the CECL methodology which added $ 28.4 million to the ACL on loans.

Upon adoption, $ 1.7 million of nonaccrual PCD loans with individual outstanding balances of less than $ 100,000 were immediately charged-off.

Under the CECL method, the Company recorded $ 13.0 million and $ 63.4 million in provision for credit losses on loans for the years ended December 31, 2021 and 2020, respectively.

The Company recorded a provision benefit of $ 4.2 million and a provision for credit losses on loans of $ 13.0 million for the years ended December 31, 2022 and 2021, respectively.

An additional provision for credit losses of $ 3.6 million and $ 0.4 million was recorded in 2022 and 2021, respectively, for HTM securities, unfunded commitments and the recapture of accrued interest on nonaccrual loans.

In 2019, a $ 6.7 million provision for loan losses (excluding the allowance release on PCI loans) was recorded under the incurred loss method.

Acquisition-related provision expense of $ 25.4 million and $ 8.6 million in 2021 and 2020, respectively, was included in the provision for credit losses.

Acquisition-related provision expense of $ 25.4 million in 2021 was included in the provision for credit losses.

This expense, commonly referred to as the “CECL double-count”, is recognized when a loan portfolio is acquired.

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Moody’s baseline, a stronger near-term growth upside and a moderate recession downside forecast.

The Company weights these scenarios at 40%, 30%, and 30%, respectively, which added approximately $ 17.5 million to the ACL over the baseline model.

These forecasts incorporate an expectation that government stimulus will decline, the Federal Reserve will wind down quantitative easing and begin raising the federal funds rate, and that the

pandemic will begin to slowly recede.

The Company has also recognized the risk posed by loans that have received multiple deferrals of principal and interest payments, including the hospitality sector, by allocating additional reserves to those segments.

Some of the key risks to the forecasts that could result in future provision for credit losses are additional shutdowns and self-quarantines from another significant wave of COVID, continued or worsening supply-chain issues, labor supply and job growth worsens, or financial market conditions tighten.

The Company weights these scenarios at 40%, 30%, and 30%, respectively, which added approximately $ 12.3 million to the ACL over the baseline model at December 31, 2022.

These forecasts at the end of 2022 incorporate an expectation that the Federal Reserve will continue quantitative tightening and raise the federal funds rate further into 2023, and that the pandemic will continue to recede and be less disruptive to global supply chains and labor markets.

The Company has also recognized various risks posed by loans in certain segments, including the hospitality and commercial office sectors, by allocating additional reserves to those segments.

Some of the key risks to the forecasts that could result in future provision for credit losses are market reactions to the Federal Reserve policy actions that could push the economy into a recession, persistently higher inflation, continued or worsening supply-chain issues, labor supply and job growth worsens, or financial market conditions tighten more than expected.

In addition to the CECL methodology, the Company incorporates qualitative adjustments into the ACL on loans to capture credit risks inherent within the loan portfolio that are not captured in the DCF model.

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Commercial - owner occupied 1,177 — — 1,177 —

Construction and land development 1,192 — — 1,192 1,192

Residential — 73 — 73 —

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Total $ 23,449 $ 2,859 $ 1,716 $ 28,024 $ 9,751

Interest income recognized on nonaccrual loans was immaterial in the years ending December 31, 2020, 2021 and 2022.

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

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Commercial - owner occupied 1,177 — —

Construction and land development — 1,192 —

Residential — 73 —

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Type of Collateral

(in thousands) Commercial Real Estate Residential Real Estate Blanket Lien Other

(in thousands) Commercial Real Estate Residential Real Estate Blanket Lien

Commercial and industrial $ 4,271 $ 209 $ 9,312

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Residential — 2,048 —

Other — — — 17

Total $ 7,247 $ 3,489 $ 9,312

The recorded investment by category for loans restructured during the years ended December 31, 2021 and 2020 is as follows:

Year ended December 31, 2021 Year ended December 31, 2020

No loans were restructured during the year ended 2022.

The recorded investment by category for loans restructured during the year ended December 31, 2021 is as follows:

Year ended December 31, 2021

($ in thousands, except for number of loans) Number of Loans Pre-Modification Outstanding

Recorded Balance Post-Modification Outstanding

Recorded Balance Number of Loans Pre-Modification Outstanding

Recorded Balance Post-Modification Outstanding

Recorded Balance

Commercial and industrial — $ — $ — 3 $ 7,447 $ 7,447

Residential 1 221 221

Total 1 $ 221 $ 221 6 $ 7,819 $ 7,819

Restructured loans primarily resulted from interest rate concessions.

As of December 31, 2022, the Company allocated an immaterial amount in specific reserves to loans that have been restructured.

No restructured loans subsequently defaulted during the year ended December 31, 2022.

Loans restructured that subsequently defaulted during the year ended December 31, 2021 are as follows:

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Residential 1 $ 148

There were no restructured loans that subsequently defaulted during the year ended December 31, 2020.

In response to the COVID-19 pandemic, the Company 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 December 31, 2021, substantially all of these loans have returned to a current payment status.

The aging of the recorded investment in past due loans by class and category at December 31, 2021 and 2020 is shown below:

The aging of the recorded investment in past due loans by class and category is shown below:

December 31, 2022

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Other 18 72 90 248,900 248,990

Loans, before unearned loan fees 10,437 4,936 15,373 9,729,054 9,744,427

Unearned loan fees, net — — — ( 7,289 ) ( 7,289 )

Total $ 10,437 $ 4,936 $ 15,373 $ 9,721,765 $ 9,737,138

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Other 37 11 48 265,089 265,137

Loans, before unearned loan fees 41,639 15,763 57,402 8,969,378 9,026,780

Unearned loan fees, net — — — ( 9,138 ) ( 9,138 )

Total $ 41,639 $ 15,763 $ 57,402 $ 8,960,240 $ 9,017,642

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, and current economic factors among other factors.

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.

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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.

• Grade 7 – Special Mention credits are borrowers that have experienced financial setback of a nature that is not determined to be severe or influence ‘ongoing concern’ expectations.

Although possible, no loss is anticipated, due to strong collateral and/or guarantor support.

• Grade 8 – Substandard credits will include those borrowers characterized by significant losses and sustained downward trends in balance sheet condition, liquidity, and cash flow.

• 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.

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Pass (1-6) $ 1,403,381 $ 635,275 $ 332,740 $ 172,127 $ 62,729 $ 66,152 $ 8,388 $ 964,592 $ 3,645,384

Watch (7) 35,005 17,502 9,404 9,880 12,217 10,979 4,037 53,595 152,619

Special Mention (7) 37,048 10,836 13,858 423 7,995 4,102 — 72,944 147,206

Classified (8-9) 16,176 4,457 1,627 24 166 183 — 21,349 43,982

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Pass (1-6) $ 667,107 $ 584,644 $ 392,402 $ 240,033 $ 115,530 $ 202,661 $ 1,457 $ 53,051 $ 2,256,885

Watch (7) 16,871 35,908 32,755 1,003 502 17,478 300 2,062 106,879

Special Mention (7) 18,844 5,751 23,502 11,605 — 13,063 — — 72,765

Classified (8-9) 1,823 — 465 953 193 6,092 49 — 9,575

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Pass (1-6) $ 539,610 $ 555,690 $ 362,150 $ 232,335 $ 123,095 $ 270,613 $ — $ 57,308 $ 2,140,801

Watch (7) 12,825 13,585 4,301 16,774 10,274 15,764 — 300 73,823

Special Mention (7) 11,164 3,801 16,856 4,455 13,043 9,009 — 800 59,128

Classified (8-9) — 1,572 3,483 8,910 15,873 11,387 — — 41,225

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Pass (1-6) $ 290,146 $ 232,998 $ 53,129 $ 2,909 $ 2,061 $ 8,480 $ — $ 1,769 $ 591,492

Watch (7) 28,947 15,348 60 1,199 11,068 2,330 — — 58,952

Special Mention (7) 17,331 — 681 146 111 106 — — 18,375

Classified (8-9) 1,192 — — 14 471 21 — — 1,698

2 unchanged sentences

Pass (1-6) $ 63,317 $ 60,910 $ 48,796 $ 20,943 $ 11,259 $ 88,795 $ 579 $ 96,304 $ 390,903

Watch (7) 2,425 2 622 1,157 248 1,305 — 79 5,838

Special Mention (7) 331 — — 79 352 781 — — 1,543

Classified (8-9) 121 73 — 53 1,102 994 — 5 2,348

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Pass (1-6) $ 38,753 $ 88,613 $ 56,252 $ 10,556 $ 20,508 $ 10,796 $ — $ 9,536 $ 235,014

Watch (7) — — — 4 — 2,440 — 1 2,445

Special Mention (7) — — — — — — — — —

Classified (8-9) — — — 4 3 11 3 4 25

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Pass (1-6) $ 1,180,601 $ 477,374 $ 317,869 $ 132,851 $ 116,738 $ 82,846 $ 11,648 $ 854,102 $ 3,174,029

Watch (7) 44,922 15,369 9,585 7,509 19,613 110 — 60,448 157,556

Special Mention (7) 35,005 17,502 9,404 9,880 12,217 10,979 4,037 53,595 152,619

Classified (8-9) 14,917 3,530 3,840 1,689 2,988 813 787 10,996 39,560

2 unchanged sentences

Pass (1-6) $ 651,740 $ 476,946 $ 346,245 $ 146,107 $ 112,043 $ 217,808 $ 3,625 $ 68,236 $ 2,022,750

Watch (7) 32,308 19,722 6,656 — 9,647 17,370 — — 85,703

Special Mention (7) 16,871 35,908 32,755 1,003 502 17,478 300 2,062 106,879

Classified (8-9) 1,376 3,135 835 817 1,159 4,141 — 50 11,513

2 unchanged sentences

Pass (1-6) $ 604,975 $ 423,263 $ 278,830 $ 164,210 $ 140,515 $ 235,973 $ 250 $ 48,349 $ 1,896,365

Watch (7) 13,657 5,257 3,113 6,198 4,338 8,460 1,776 941 43,740

Special Mention (7) 12,825 13,585 4,301 16,774 10,274 15,764 — 300 73,823

Classified (8-9) 2,048 556 9,181 17,016 6,432 6,959 — — 42,192

2 unchanged sentences

Pass (1-6) $ 310,140 $ 229,396 $ 70,531 $ 35,936 $ 14,860 $ 7,180 $ 568 $ 2,992 $ 671,603

Watch (7) 2,544 86 34,179 11,632 — 2,499 — — 50,940

Special Mention (7) 28,947 15,348 60 1,199 11,068 2,330 — — 58,952

Classified (8-9) — — 387 419 — 22 — — 828

2 unchanged sentences

Pass (1-6) $ 116,352 $ 66,481 $ 21,356 $ 14,841 $ 24,778 $ 103,840 $ 9,980 $ 87,146 $ 444,774

Watch (7) 210 840 526 — 514 1,603 287 511 4,491

Special Mention (7) 2,425 2 622 1,157 248 1,305 — 79 5,838

Classified (8-9) 414 169 554 — 12 2,024 — — 3,173

1 unchanged sentence

Pass (1-6) $ 108,209 $ 68,806 $ 22,684 $ 23,145 $ 6,924 $ 13,832 $ 1,500 $ 9,166 $ 254,266

Watch (7) — 1 8 — — 2,637 — 1 2,647

Special Mention (7) — — — 4 — 2,440 — 1 2,445

Classified (8-9) — — 10 10 — 16 — 2 38

3 unchanged sentences

Total loans $ 9,017,642

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 present the recorded investment on loans based on aging status:

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

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

December 31, 2022

10 unchanged sentences

Commercial and industrial $ 26,166 $ 1 $ 26,167

Commercial - investor owned 1 — 1

Commercial - owner occupied 23,405 — 23,405

Construction and land development 2,690 — 2,690

Residential 267 — 267

1 unchanged sentence

Total $ 55,982 $ 13 $ 55,995

The Company has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.

The carrying amount of those loans is as follows:

($ in thousands) At July 21, 2021

Par value of acquired loans $ 180,440

Allowance for credit losses ( 7,006 )

Non-credit discount ( 6,428 )

Purchase price of acquired loans $ 167,006

NOTE 5 - LEASES

The Company has banking and limited-service facilities, datacenters, and certain equipment lea sed under agreements.

The Company has banking and limited-service facilities, data centers, and certain equipment under lease agreements.

Most of the leases expire between 2023 and 2028 and include one or more renewal options for up to 5 years.

One lease expires in 2031.

One lease expires in 2030 and another in 2031.

All leases are classified as operating leases.

For the twelve months ended

($ in thousands) December 31, 2021 December 31, 2020

For the year ended December 31,

($ in thousands) 2022 2021

Operating lease cost $ 5,868 $ 4,877

3 unchanged sentences

Right-of-use assets obtained in exchange for lease obligations totaled $ 9.5 million and $ 5.7 million during the twelve months ended December 31, 2022 and 2021, respectively.

The additions in 2021 and 2020 were primarily from the First Choice acquisition and Seacoast acquisition, respectively.

The additions in 2022 were primarily from lease renewals.

The additions in 2021 were primarily from the First Choice acquisition.

In 2021, an impairment of $ 1.1 million was recognized on right-of-use assets concurrent with the announced closure of certain leased locations.

13 unchanged sentences

Operating lease liabilities $ 18,038

Lessor income was $ 1.9 million and $ 1.8 million during the twelve months ended December 31, 2021, and 2020, respectively.

Lessor income was $ 1.9 million for each of the twelve months en ded December 31, 2022, and 2021.

NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS

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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.

The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements.

To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy to fix certain variable cash flows without exchange of the underlying notional amount.

For hedges of the Company’s variable-rate loans, interest rate swaps designated as cash flow hedges involve the receipt of fixed amounts and the Company making variable rate payments.

In the fourth quarter 2022, the Company executed a cash flow hedge to reduce a portion of variability in cash flows on the Company’s prime based loan portfolio.

The interest rate swap has a notional value of $ 100.0 million, that effectively fixes the interest rate at 6.63 % for the notional amount and has a maturity date of January 1, 2028.

In January 2023, the Company entered into another hedge on the prime based loan portfolio with a notional value of $ 50.0 million, that effectively fixes the interest rate at 6.56 % for the notional amount and has a maturity date of February 1, 2027.

In addition, the Company executed a prime based interest rate collar in the fourth quarter 2022 with a notional amount of $ 100.0 million.

The collar includes a cap of 8.14 % and a floor of 5.25 %.

This transaction, commonly referred to as a zero cost collar, involves the Company selling an interest rate cap where payments will be made when the index exceeds the cap rate, and the purchase of a floor where payments will be received if the index falls below the floor.

The collar matures on October 1, 2029.

Interest rate swaps designated as cash flow hedges of variable rate debt involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements.

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 %.

6 unchanged sentences

$ 13,506 2.64 % March 17, 2026

For derivatives designated and qualified 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 an additional $ 1.3 million will be reclassified as an increase to interest expense.

Concurrently with the repayment of $ 200 million of variable-rate FHLB advances in the fourth quarter of 2020, the Company terminated two interest rate swaps with a notional value of $ 200.0 million.

A loss of $ 3.2 million was recognized on the termination of the swaps.

For derivatives designated and qualified 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 income or expense in the same period(s) during which the hedged transaction affects earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income or expense as interest payments are paid on the hedged items.

During the next twelve months, the Company estimates an additional $ 1.5 million will be reclassified as a decrease to interest expense and $ 1.3 million will be reclassified as a decrease to interest income.

Non-designated Hedges

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The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.

Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.

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 as well as their classification on the Balance Sheet as of December 31, 2021 and December 31, 2020.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet.

Notional Amount Derivative Assets Derivative Liabilities

2 unchanged sentences

Interest rate swaps $ 161,962 $ 61,962 $ 2,348 $ — $ 921 $ 2,911

Interest rate collar 100,000 — — — 48 —

Total $ 2,348 $ — $ 969 $ 2,911

Derivatives not designated as hedging instruments

Interest rate swaps $ 687,902 $ 918,698 $ 20,610 $ 12,869 $ 20,612 $ 12,883

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments subject to offsetting as of December 31, 2021 and December 31, 2020.

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments subject to offsetting.

The gross amounts of assets or liabilities can be reconciled to the tabular disclosure of fair value.

6 unchanged sentences

Interest rate swaps $ 21,533 $ — $ 21,533 $ — $ — $ 21,533

Interest rate collar 48 — 48 — — 48

Securities sold under agreements to repurchase 270,773 — 270,773 — 270,773 —

1 unchanged sentence

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

($ 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

Interest rate swaps $ 12,869 $ — $ 12,869 $ 1,033 $ — $ 11,836

2 unchanged sentences

As of December 31, 2022, 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 $ 20.7 million.

Further, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $ 14.0 million.

The company has minimum collateral posting thresholds with certain of its derivative counterparties and posts collateral related to derivatives in a net liability position.

The Company has received cash collateral from counterparties on derivatives that were in a net asset position as noted in the tables above.

NOTE 7 - FIXED ASSETS

A summary of fixed assets at December 31, 2021 and 2020, is as follows:

A summary of fixed assets is as follows:

($ in thousands) 2022 2021

23 unchanged sentences

Core deposit intangible, net, end of year $ 16,919 $ 22,286

Amortization expense on the core deposit intangibles was $ 5.7 million for the each of the years ended December 31, 2021 and 2020, and $ 5.5 million for the year ended December 31, 2019.

Amortization expense on the core deposit intangibles was $ 5.4 million for the year ended December 31, 2022 and $ 5.7 million for each of the years ended December 31, 2021 and 2020.

The core deposit intangibles are being amortized over a 10 -year period.

14 unchanged sentences

At December 31, 2022, deposit accounts of executive officers and directors, or to entities in which such individuals had beneficial interests as a shareholder, officer, or director totaled $ 1.1 million.

The Company is a participant in the Promontory Interfinancial Network, a network that offers deposit placement services such as CDARS and ICS, which offers products that qualify large deposits for FDIC insurance.

At December 31, 2021, the Company had $ 22.0 million of CDARS deposits and $ 118.2 million of ICS deposits.

The Company is a participant in certain networks that offer deposit placement services on a reciprocal basis that qualify large deposits for FDIC insurance.

At December 31, 2022, the Company had $ 10.6 million of certificates of deposits and $ 195.1 million of demand deposits in these reciprocal accounts.

At December 31, 2022 and 2021, overdraft deposits of $ 3.2 million and $ 1.3 million, respectively, were reclassified to loans.

NOTE 11 - SUBORDINATED DEBENTURES

The amounts and terms of each issuance of the Company’s subordinated debentures at December 31, 2021 and 2020 were as follows:

NOTE 10 - SUBORDINATED DEBENTURES AND NOTES

The following table summarizes the Company’s subordinated debentures at December 31:

Amount Maturity Date Initial Call Date (1) Interest Rate

16 unchanged sentences

June 1, 2025, then floats @ Benchmark rate (3 month term SOFR) + 5.66 %

4.75% Fixed-to-floating rate subordinated notes — 50,000 November 1, 2026 November 1, 2021 Fixed @ 4.75% until

November 1, 2021, then floats @ 3MO LIBOR + 3.387%

Debt issuance costs ( 654 ) ( 904 )

12 unchanged sentences

The securities are classified as subordinated debentures in the Company’s consolidated balance sheets.

Interest on the subordinated debentures held by the trusts is recorded as interest expense in the Company’s consolidated statements of operations.

Interest on the subordinated debentures held by the trusts is recorded as interest expense in the Company’s Consolidated Statements of Income.

The Company’s investment of $ 2.9 million at December 31, 2022, in these trusts is included in other investments in the consolidated balance sheets.

3 unchanged sentences

The notes initially bore a fixed annual interest rate of 4.75 %, with interest payable semiannually in arrears on May 1 and November 1 of each year, commencing May 1, 2017.

On November 1, 2021, the Company redeemed the $50.0 million of subordinated debentures at par.

On November 1, 2021, the Company redeemed the

$ 50.0 million of subordinated debentures at par.

A loss of $ 0.7 million on the redemption was recognized for the write-off of unamortized debt issuance costs.

8 unchanged sentences

FHLB advances are collateralized by 1-4 family residential real estate loans, business loans, and certain commercial real estate loans.

At December 31, 2021 and 2020, the carrying value of the loans pledged to the FHLB of Des Moines was $ 1.4 billion at both periods.

At December 31, 2022 and 2021, the carrying value of the loans pledged to the FHLB of Des Moines was $ 1.4 billion.

The secured line of credit had availability of approximately $ 752.1 million at December 31, 2022.

The following table summarizes the type, maturity, and rate of the Company’s FHLB advances at December 31:

($ in thousands) Term Outstanding Balance Weighted Rate Outstanding Balance Weighted Rate

Non-amortizing fixed advance Greater than 1 year $ 50,000 1.56 % $ 50,000 1.56 %

In August 2019, the Company entered into agreements totaling $ 50 million for convertible advances with a weighted average rate of 1.56 % that mature in 2024 and are currently puttable by the FHLB.

At December 31, 2021, the Company used $ 60.0 million of collateral value to secure confirming letters of credit for public unit deposits and industrial development bonds.

The following table summarizes the Company’s FHLB advances at December 31:

($ in thousands) Outstanding Balance Weighted Rate Outstanding Balance Weighted Rate

Non-amortizing fixed advance $ 100,000 4.57 % $ 50,000 1.56 %

At December 31, 2022, the Company had advances of $ 50 million with a one-week maturity and $ 50 million in overnight funds.

In August 2019, the Company entered into agreements totaling $ 50 million for convertible advances with a weighted average rate of 1.56 % and maturity dates in August 2024 that were called during 2022.

NOTE 12 - OTHER BORROWINGS

6 unchanged sentences

However, the Company is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price.

The Company manages this risk by maintaining an unpledged securities

portfolio that it believes is sufficient to cover a decline in the market value of the securities sold under agreements to repurchase.

The Company manages this risk by maintaining an unpledged securities portfolio that it believes is sufficient to cover a decline in the market value of the securities sold under agreements to repurchase.

A summary of securities sold under agreements to repurchase is as follows:

11 unchanged sentences

There were no amounts drawn on the Federal Reserve line of credit as of December 31, 2022.

Federal Reserve PPPLF

The Company acquired $ 86.1 million of Federal Reserve PPPLF funds from the Seacoast acquisition which were paid off in November 2020.

Other Borrowings

The Bank has $ 36.2 million of borrowings from various entities related to New Market Tax Credit investments.

These notes have varying terms that range from 26 - 31 years.

These notes have an interest rate of 1.0 % and are generally interest only for the first 7 years.

Revolving Credit Line

In February 2016, the Company entered into a senior unsecured revolving credit agreement (the “Revolving Agreement”) with another bank.

The Revolving Agreement has a one-year term, maturing on February 22, 2022.

It allows for borrowings up to $ 25 million.

The interest rate is the one-month LIBOR plus 125 basis points.

The Revolving Agreement has a one-year term, maturing on February 22, 2023, allows for borrowings up to $ 25 million, and had an interest rate of one-month LIBOR plus 125 basis points until February 2022.

In February 2022, the Revolving Agreement was renewed for a one-year term and the interest rate was amended to one-month Term SOFR plus 136 basis points.

The proceeds can be used for general corporate purposes.

The Revolving Agreement is subject to ongoing compliance with a number of customary affirmative and negative covenants as well as specified financial covenants.

In February 2022, the Revolving Agreement was renewed for a one-year term and the interest rate was amended to one-month Term SOFR plus 136 basis points.

The revolving credit line was not accessed in 2022 or 2021.

In February 2019, the Company entered into a five year , $ 40.0 million unsecured term loan agreement (the “Term Loan”) with another bank with the proceeds primarily used to fund the company’s cash portion of an acquisition in 2019.

The interest rate is one-month LIBOR plus 125 basis points.

The interest rate was one-month LIBOR plus 125 basis points until February 2022.

In February 2022, the interest rate on the Term Loan was amended to one-month Term SOFR plus 136 basis points.

13 unchanged sentences

As of December 31, 2022 and 2021, the Bank was categorized as “well-capitalized” under the regulatory framework for prompt corrective action.

To be categorized as “well-capitalized” the Bank must maintain minimum total risk-based capital, tier 1 risk-based capital, common equity tier 1 risk-based capital, and tier 1 leverage ratios as set forth in the table.

In addition, the Company must maintain an additional CCB above the regulatory minimum ratio requirements.

13 unchanged sentences

Outstanding RSU’s 269,868 181,657

Outstanding options and appreciation rights 112,927 —

Outstanding options 222,032 112,927

2018 Stock Incentive Plan 342,157 670,326

4 unchanged sentences

In April 2021, the Company’s board of directors authorized the repurchase of up to two million shares of the Company’s common stock.

As of May 2022, this plan was depleted.

In May 2022, the Company’s board of directors authorized the repurchase of up to two million shares of the Company’s common stock.

The repurchases may be made in open market or privately negotiated transactions and the stock repurchase program will remain in effect until fully utilized or until modified, superseded or terminated.

At December 31, 2021, there were 700,473 shares available for repurchase under the plan.

At December 31, 2022, there were two million shares available for repurchase under the plan.

Preferred Stock

5 unchanged sentences

If any Series A Preferred Stock are redeemed, a proportionate number of depositary shares will also be redeemed.

Dividends, when and if declared by the board of directors, are payable, quarterly in arrears, on March 15, June 15, September 15 and December 15 of each year.

If dividends on the Series A Preferred stock have not been declared or paid in six quarterly periods, whether or not consecutive, the number of directors on the board will automatically be increased by two and the holders of the Series A preferred stock will be entitled to vote for the additional directors.

The Company’s ability to pay dividends to its shareholders is generally dependent upon the payment of dividends by the Bank to the parent company.

The Bank cannot pay dividends to the extent it would be deemed undercapitalized by the FDIC after making such dividend.

Preferred stock dividends, when and if declared by the board of directors, are payable, quarterly in arrears, on March 15, June 15, September 15 and December 15 of each year.

Dividends on the Company’s capital stock are prohibited under the terms of the junior subordinated debenture agreements, see “Note 10 – Subordinated Debentures,” if the Company is in continuous default on its payment obligations to the capital trusts, has elected to defer interest payments on the debentures or extends the interest payment period.

Furthermore, unless dividends on all outstanding shares of the Series A Preferred Stock for the most recently completed dividend period have been paid or declared, dividends on, and repurchases of, common stock is prohibited.

Furthermore, unless dividends on all outstanding shares of the Series A Preferred Stock for the

most recently completed dividend period have been paid or declared, dividends on, and repurchases of, common stock is prohibited.

At December 31, 2022, the Company was not in default on any of the junior subordinated debenture issuances or preferred stock.

1 unchanged sentence

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

($ in thousands) Net Unrealized Gain (Loss) on Available-for-Sale Debt Securities Unamortized Gain (Loss) on Held-to-Maturity Securities Net Unrealized Loss on Cash Flow Hedges Total

($ in thousands) Net Unrealized Gain (Loss) on Available-for-Sale Debt Securities Unamortized Gain (Loss) on Held-to-Maturity Securities Net Unrealized Gain (Loss) on Cash Flow Hedges Total

Balance, December 31, 2019 $ 14,977 $ 4,934 $ ( 2,162 ) $ 17,749

3 unchanged sentences

Net change ( 17,049 ) ( 3,624 ) 2,330 ( 18,343 )

Transfer from available-for-sale to held-to-maturity ( 16,284 ) 16,284 — —

Balance, December 31, 2021 $ 5,271 $ 15,684 $ ( 2,178 ) $ 18,777

Net change ( 149,623 ) ( 2,696 ) 3,210 ( 149,109 )

Transfer from available-for-sale to held-to-maturity ( 197 ) $ 197 $ — $ —

Balance, December 31, 2022 $ ( 144,549 ) $ 13,185 $ 1,032 $ ( 130,332 )

2 unchanged sentences

($ in thousands) Pre-tax Tax effect After-tax Pre-tax Tax effect After-tax Pre-tax Tax effect After-tax

Change in unrealized gain (loss) on available-for-sale debt securities $ ( 22,701 ) $ ( 5,652 ) $ ( 17,049 ) $ 31,798 $ 7,854 $ 23,944 $ 38,764 $ 9,575 $ 29,189

Reclassification adjustment for realized (gain) loss on sale of available-for-sale debt securities(a) — — — ( 421 ) ( 104 ) ( 317 ) 49 12 37

Change in unrealized gain (loss) on available-for-sale securities $ ( 200,030 ) $ ( 50,407 ) $ ( 149,623 ) $ ( 22,701 ) $ ( 5,652 ) $ ( 17,049 ) $ 31,798 $ 7,854 $ 23,944

Reclassification of gain on sale of available-for-sale securities(a) — — — — — — ( 421 ) ( 104 ) ( 317 )

Reclassification of gain on held-to-maturity securities(b) ( 3,605 ) ( 909 ) ( 2,696 ) ( 4,672 ) ( 1,048 ) ( 3,624 ) ( 2,537 ) ( 627 ) ( 1,910 )

Change in unrealized gain (loss) on cash flow hedges arising during the period(b) 1,533 372 1,161 ( 7,898 ) ( 1,951 ) ( 5,947 ) ( 3,004 ) ( 742 ) ( 2,262 )

Change in unrealized gain (loss) on cash flow hedges 3,741 943 2,798 1,533 372 1,161 ( 7,898 ) ( 1,951 ) ( 5,947 )

Reclassification of loss on cash flow hedges(b) 551 139 412 1,543 374 1,169 4,782 1,181 3,601

Total other comprehensive income (loss) $ ( 199,343 ) $ ( 50,234 ) $ ( 149,109 ) $ ( 24,297 ) $ ( 5,954 ) $ ( 18,343 ) $ 25,724 $ 6,353 $ 19,371

(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, except for a $3.2 million termination fee in 2020 recognized in noninterest expense.

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

(b) The pre-tax amount is reported in interest income/expense in the Consolidated Statements of Income, except for a $ 3.2 million termination fee in 2020 recognized in noninterest expense.

Compensation Plans

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Treasury yield in effect at the time of the grant.

The expected term of options granted is based on the option's vesting schedule and expected exercise patterns and represent the period of time that options granted are expected to be outstanding.

The expected term of options granted is based on the option's vesting schedule and expected exercise patterns and represent the period of time options granted are expected to be outstanding.

The expected volatility is based on the historical volatility of the Company's stock and expected term of the option.

6 unchanged sentences

Expected Term (years) 6.2

Stock options have been granted to key employees with exercise prices equal to the market price of the Company’s common stock at the date of grant and 10 -year contractual terms.

Non-qualified stock options have been granted to key employees with exercise prices equal to the market price of the Company’s common stock at the date of grant and 10 -year contractual terms.

Stock options have a vesting schedule of three to five years .

4 unchanged sentences

Outstanding at December 31, 2021 112,927 $ 43.80

Granted 118,604 43.80 9.2 years

Granted 120,707 48.24

Exercised ( 1,445 ) 43.81

Forfeited ( 10,157 ) 45.81

1 unchanged sentence

Exercisable at December 31, 2022 18,196 $ 43.80 8.2 years

The intrinsic value of options exercised totaled $ 0.1 million in 2022.

There were no options exercised in 2021 or 2020.

Employee Stock Purchase Plan

2 unchanged sentences

The maximum number of shares of common stock available for sale under the ESPP is 750,000 .

In 2021, 2020, and 2019, employees purchased 64,826 , 58,195 , and 41,116 shares, respectively.

In 2022, 2021, and 2020, employees purchased 55,123 , 64,826 , and 58,195 shares, respectively, and there are 515,941 remaining shares available under the ESPP at December 31, 2022.

Stock Plan for Non-Management Directors

The Company has adopted a Stock Plan for Non-Management Directors, which provides for issuing up to 200,000 shares of common stock to non-management directors as compensation in lieu of cash.

The Company has adopted a Stock Plan for Non-Management Directors, which provides for issuing up to 200,000 shares of common stock to non-management directors as compensation.

At December 31, 2022, there were 35,909 shares of stock available for grant under the Stock Plan for Non-Management Directors, exclusive of 19,969 shares to be issued upon deferral release.

6 unchanged sentences

Deferred Compensation Plan

The Company’s Nonqualified Deferred Compensation Plan permits certain executives to participate and defer up to 25 % of their base salary and/or up to 100 % of their eligible bonus for a plan year.

The Company has a nonqualified deferred compensation plan that permits certain executives to participate and defer up to 25 % of their base salary and/or up to 100 % of their eligible bonus for a plan year.

Participants make an irrevocable election when they elect to participate for a plan year to receive the vested account balance following their retirement date, or at a future date not less than five years after the beginning of the plan year.

11 unchanged sentences

Total income tax expense $ 56,417 $ 35,578 $ 17,563

A reconciliation of expected income tax expense, computed by applying the statutory federal income tax rate in 2021, 2020, and 2019 to income before income taxes and the amounts reflected in the consolidated statements of operations is as follows:

A reconciliation of expected income tax expense, computed by applying the statutory federal income tax rate to income before income taxes reflected in the Consolidated Statements of Income is as follows:

Year ended December 31,

4 unchanged sentences

State and local income taxes, net 9,767 4,936 3,254

Bank-owned life insurance, net ( 713 ) ( 778 ) ( 628 )

Bank-owned life insurance ( 545 ) ( 713 ) ( 778 )

Non-deductible expenses 926 1,090 637

5 unchanged sentences

Total income tax expense $ 56,417 $ 35,578 $ 17,563

The net amount recognized as a component of tax expense for tax credits, other tax benefits, and amortization from LIHTC investments recognized per the table above was $ 0.1 million for the year ended December 31, 2021.

The net amount recognized as a benefit component of income tax expense per the table above was $ 0.4 million for the year ended December 31, 2020, and $ 0.3 million for the year ended December 31, 2019.

The net amount recognized as a component of tax expense for tax credits, other tax benefits, and amortization from LIHTC investments recognized per the table above was $ 0.2 million, $ 0.1 million and $ 0.4 million for the years ended December 31, 2022, 2021, and 2020 respectively.

As of December 31, 2022 and 2021, the carrying value of the investments related to low-income housing tax credits was $ 7.3 million and $ 7.6 million, respectively.

10 unchanged sentences

Accrued compensation 6,294 5,881

Unrealized losses on securities, net 44,094 —

Net operating losses and tax credits 5,829 6,061

Lease liability accrual 4,545 3,747

Other investments 4,293 3,169

Other deferred tax assets 6,463 5,594

2 unchanged sentences

Acquired loans 2,212 1,709

Unrealized gains on securities 6,171 12,189

Unrealized gains on securities, net — 6,171

Intangible assets 8,676 8,789

Right of use asset 4,374 3,670

Other investments 7,530 5,646

Other deferred tax liabilities 1,065 1,277

3 unchanged sentences

Net deferred tax asset $ 88,961 $ 40,890

As part of the Trinity Capital Corporation acquisition in 2019, the company acquired net operating loss, tax credit, and capital loss deferred tax assets.

As part of an acquisition in 2019, the company acquired net operating loss, tax credit, and capital loss deferred tax assets.

Net operating losses originated in the years 2012, 2014-2017, and 2019 and will expire in the years between 2032-2037.

1 unchanged sentence

A valuation allowance is provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized.

In 2019, as part of the Trinity Capital Corporation acquisition, the company acquired net operating loss, tax credit, and capital loss deferred tax assets.

The company determined it was more likely than not that some of the assets would not be realized.

As such, the company has a valuation allowance recorded of $ 2.8 million and $ 2.9 million as of December 31, 2021 and 2020, respectively.

The Company and its subsidiaries file income tax returns in the federal jurisdiction and in thirty states.

The company determined it was more likely than not that some of the acquired note operating loss and tax credit assets would not be realized and has recognized a valuation allowance of $ 2.8 million at both December 31, 2022 and 2021, respectively.

The Company and its subsidiaries file income tax returns in the federal jurisdiction and in thirty-one states.

The Company is no longer subject to federal, state or local income tax audits by tax authorities for years before 2017, with the exception of 2016 being an open year by one state taxing authority.

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As of December 31, 2021 and 2020, the total amount of the net unrecognized tax benefits that would impact the effective tax rate, if recognized, was $ 2.5 million and $ 3.1 million, respectively.

The Company believes it is reasonably possible the gross amount of unrecognized benefits will be reduced by approximately $ 0.4 million as a result of a lapse of statute of limitations in the next 12 months.

The Company believes it is reasonably possible the gross amount of unrecognized benefits will be reduced by approximately $ 0.4 million as a result of a

lapse of statute of limitations in the next 12 months.

The Company is under audit by the state of Missouri, and while the Company has concluded it has adequately provided for uncertain tax positions, the outcome of such audits are always uncertain and could result in additional tax expense, though immaterial.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and classifies such interest and penalties in the liability for unrecognized tax benefits.

The amount accrued for interest and penalties was $ 0.5 million as of December 31, 2021, $ 0.9 million for 2020 and was not significant for 2019.

The amount accrued for interest and penalties was $ 0.6 million as of December 31, 2022, $ 0.5 million for 2021, and $ 0.9 million for 2020.

The activity in the gross liability for unrecognized tax benefits was as follows:

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Letters of credit 68,544 77,314

State tax credits 18,118 24,473

Tax credits 4,075 18,118

Limited partnership commitments 35,090 21,553

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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 December 31, 2021, and December 31, 2020, $ 238.7 million and $ 160.6 million, respectively, represent fixed rate loan commitments.

Of the total commitments to extend credit at

December 31, 2022, and December 31, 2021, $ 246.5 million and $ 238.7 million, respectively, represent fixed rate loan commitments.

Since certain of the commitments may expire without being drawn upon or may be revoked, the total commitment amounts do not necessarily represent future cash obligations.

The Company evaluates each

customer’s credit worthiness on a case-by-case basis.

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.

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The credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers.

The approximate remaining term of letters of credit range from 1 month to 11 years at December 31, 2021.

The Company also has off-balance sheet commitments for purchases of state tax credits and commitments for various capital raises for SBICs .

The approximate remaining term of letters of credit range from one month to 11 years at December 31, 2022.

The Company also has off-balance sheet commitments for purchases of tax credits and commitments for various capital raises for limited partnership investments .

NOTE 18 - FAIR VALUE MEASUREMENTS

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Fair value on a recurring basis

The following table summarizes financial instruments measured at fair value on a recurring basis as of December 31, 2021 and 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.

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.

December 31, 2022

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Total securities available-for-sale — 1,366,006 — 1,366,006

Other investments — 3,012 — 3,012

Derivative financial instruments — 12,869 — 12,869

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that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

• Impaired loans .

On a quarterly basis, fair value adjustments are recorded as necessary on impaired loans to account for (1) partial write-downs based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value.

• Individually-evaluated loans .

On a quarterly basis, fair value adjustments are recorded as necessary on loans that no longer exhibit risk characteristics similar to other loans to account for (1) partial write-downs based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value.

In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable.

In addition, the Company may adjust the valuations based on other relevant market conditions or information.

Accordingly, fair value estimates, including those obtained from real estate brokers or other third-party consultants, for collateral-dependent impaired loans are classified in Level 3 of the valuation hierarchy.

Accordingly, fair value estimates, including those obtained from real estate brokers or other third-party consultants, for collateral-dependent loans are classified in Level 3 of the valuation hierarchy.

Fair value estimates on individually-evaluated loans utilizing a discounted cash flow approach are also classified as Level 3.

• Other real estate.

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Market-based cash flow modeling and discounting models specific to the SBA industry are provided by a third-party valuation service and are considered Level 2 inputs.

The following table presents financial instruments and non-financial assets measured at fair value on a non-recurring basis as of December 31, 2021 and 2020.

The following tables present financial instruments and non-financial assets measured at fair value on a non-recurring basis.

December 31, 2022

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(Level 2) Significant

(Level 3) Total losses for the year ended

December 31, 2021

Impaired loans $ 6,406 $ — $ — $ 6,406 $ 3,500

Other real estate 269 — — 269

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(Level 2) Significant

(Level 3) Total losses for the year ended

December 31, 2020

Impaired loans $ 6,406 $ — $ — $ 6,406

Other real estate 632 — — 632

Loan servicing asset 3,146 3,146 —

Total $ 10,184 $ — $ 3,146 $ 7,038

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These estimates and assumptions are based on management’s best estimates and judgment.

Management evaluates its estimates and assumptions on an ongoing basis using experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances.

Management evaluates its estimates and assumptions on an ongoing basis using experience and other factors, including the current economic environment.

Such estimates and assumptions are adjusted when facts and circumstances dictate.

Changing real estate values, illiquid credit markets, volatile equity markets, and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions.

Changing real estate values, illiquid credit markets, volatile equity markets, and changes in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions.

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 statements in future periods.

In addition, these estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.

Fair value estimates are based on existing on-balance and off-balance-sheet financial instruments without attempting to estimate the value of

anticipated future business and the value of assets and liabilities that are not considered financial instruments.

In addition, these estimates do not reflect any premium or discount that could result from offering for sale the Company’s entire holdings of a particular financial instrument at one time.

Fair value estimates are based on existing on-balance and off-balance-sheet financial instruments without

attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates.

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Total liabilities and shareholders' equity $ 1,699,463 $ 1,711,705

Condensed Statements of Operations

Condensed Statements of Income

Year ended December 31,

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Net income $ 203,043 $ 133,055 $ 74,384

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Share-based compensation 8,006 6,017 4,178

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Payments for the redemption of subordinated notes — ( 50,000 ) —

Proceeds from notes payable — — 1,000

Repayments of notes payable — — ( 3,000 )

Proceeds from issuance of long-term debt — — 40,000

Repayment of long-term debt ( 5,714 ) ( 7,143 ) ( 4,286 )

Cash dividends paid ( 26,153 ) ( 19,795 ) ( 16,569 )

Dividends paid on common stock ( 33,602 ) ( 26,153 ) ( 19,795 )

Payments for the repurchase of common stock ( 32,923 ) ( 60,589 ) ( 15,347 )

Proceeds from issuance of preferred stock — 71,988 —

Dividends paid on preferred stock ( 4,041 ) — —

Other 1,773 516 78

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NOTE 20 - SUPPLEMENTAL FINANCIAL INFORMATION

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

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

Year ended December 31,

($ in thousands) 2022 2021 2020

Miscellaneous income:

Other income:

Community development fees $ 5,304 $ 5,491 $ 3,353

Other miscellaneous income 16,657 13,609 11,007

Total miscellaneous income $ 22,148 $ 16,962 $ 11,896

Bank-owned life insurance 3,324 2,938 3,194

Other income 8,089 13,719 10,415

Total other noninterest income $ 16,717 $ 22,148 $ 16,962

Other expense:

Amortization expense $ 5,691 $ 5,673 $ 5,543

Amortization of intangibles $ 5,367 $ 5,691 $ 5,673

Banking expenses 7,212 6,123 4,921

Customer analysis expense 12,104 1,246 —

Deposit costs 31,082 14,211 1,410

FDIC and other insurance 7,098 5,789 3,897

Loan, legal expenses 6,943 7,130 4,003

Meals and entertainment 1,253 742 3,670

Outside services 5,399 4,992 4,961

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data