ENTERPRISE FINANCIAL SERVICES CORP 10-K

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Enterprise Financial Services Corp and Subsidiaries Page Number Report of Independent Registered Public Accounting Firm, PCAOB ID 34 61 Consolidated Balance Sheets at December 31, 2024 and 2023 64 Consolidated Statements of Income for the years ended December 31, 2024, 2023, and 2022 65 Consolidated Statements of Comprehensive Income for the years ended December 31, 2024, 2023, and 2022 66 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2024, 2023, and 2022 67 Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023, and 2022 68 Notes to Consolidated Financial Statements 70 60 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Enterprise Financial Services Corp 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, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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 28, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. 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 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 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 The Company utilizes a discounted cash flow (“DCF”) method to measure the Allowance for Credit Losses (“ACL”) on loans collectively evaluated that are sub-segmented by credit risk levels. The DCF method incorporates assumptions for probability of default, loss given default, prepayments and curtailments over the contractual term of the loans. In determining the probability of default, the Company utilized a regression analysis to determine certain economic factors that are relevant loss drivers in the portfolio segments based on historical or peer evaluations. Additionally, the Company applies qualitative adjustments to address risks not directly captured in the quantitative reserve; including to address macroeconomic uncertainty by weighting the forecasted baseline, upside, and downside economic factors. 61 We identified the ACL on loans as a critical audit matter because of the complexity of the Company’s model and the significant assumptions used by management. Auditing the ACL on loans required a high degree of auditor judgment and an increased extent of effort, including the need to involve credit specialists when performing audit procedures to evaluate the reasonableness of management’s models and assumptions. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s ACL on loans included the following, among others: • We tested the design and operating effectiveness of management’s controls covering the key data, assumptions, and judgments impacting the ACL on loans. • We evaluated the appropriateness of the Company’s accounting policies, methodologies, and elections involved in determining the ACL on loans. • We involved credit specialists to assist us in evaluating the Company’s development of the ACL model, including the selection of and calibration to economic factors. • 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. /s/ Deloitte & Touche LLP St. Louis, Missouri February 28, 2025 We have served as the Company’s auditor since 2010. 62 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Enterprise Financial Services Corp Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Enterprise Financial Services Corp and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, 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, 2024, of the Company and our report dated February 28, 2025, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP St. Louis, Missouri February 28, 2025 63 ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES Consolidated Balance Sheets As of December 31, 2024 and 2023 December 31, ($ in thousands, except share data) 2024 2023 Assets Cash and due from banks $ 270,975 $ 193,275 Federal funds sold 5,706 2,880 Interest-earning deposits 487,489 236,874 Total cash and cash equivalents 764,170 433,029 Interest-earning deposits greater than 90 days 1,881 3,856 Securities available-for-sale 1,862,270 1,618,273 Securities held-to-maturity, net 928,935 750,434 Loans held-for-sale 110 359 Loans 11,220,355 10,884,118 Allowance for credit losses on loans ( 137,950 ) ( 134,771 ) Total loans, net 11,082,405 10,749,347 Other investments 72,784 66,195 Fixed assets, net 45,009 42,681 Goodwill 365,164 365,164 Intangible assets, net 8,484 12,318 Other assets 465,219 476,934 Total assets $ 15,596,431 $ 14,518,590 Liabilities and Shareholders' equity Noninterest-bearing demand accounts $ 4,484,072 $ 3,958,743 Interest-bearing demand accounts 3,175,292 2,950,259 Money market accounts 3,564,063 3,399,280 Savings accounts 553,461 595,175 Certificates of deposit: Brokered 484,588 482,759 Customer 885,016 790,155 Total deposits 13,146,492 12,176,371 Subordinated debentures and notes 156,551 155,984 Other borrowings 280,821 297,829 Other liabilities 188,565 172,338 Total liabilities 13,772,429 12,802,522 Commitments and contingent liabilities (Note 17) Shareholders' equity: Preferred stock, $ 0.01 par value; 5,000,000 shares authorized; 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 shares authorized; 36,987,728 and 37,416,028 shares issued and outstanding, respectively 370 374 Additional paid-in capital 990,733 995,208 Retained earnings 877,629 749,513 Accumulated other comprehensive loss, net ( 116,718 ) ( 101,015 ) Total shareholders' equity 1,824,002 1,716,068 Total liabilities and shareholders' equity $ 15,596,431 $ 14,518,590 The accompanying notes are an integral part of these Consolidated Financial Statements. 64 ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 2024, 2023, and 2022 Year ended December 31, ($ in thousands, except per share data) 2024 2023 2022 Interest income: Loans $ 754,930 $ 687,852 $ 456,007 Debt securities: Taxable 51,352 39,510 28,267 Nontaxable 24,036 22,717 18,838 Interest-earning deposits 18,918 13,430 10,599 Dividends on equity securities 1,815 1,410 1,371 Total interest income 851,051 764,919 515,082 Interest expense: Deposits 264,608 183,723 30,158 Subordinated debentures and notes 10,497 9,781 9,166 FHLB advances 1,691 2,752 599 Other borrowings 6,159 6,071 1,256 Total interest expense 282,955 202,327 41,179 Net interest income 568,096 562,592 473,903 Provision (benefit) for credit losses 21,508 36,605 ( 611 ) Net interest income after provision (benefit) for credit losses 546,588 525,987 474,514 Noninterest income: Deposit service charges 18,344 16,559 18,326 Wealth management revenue 10,452 10,030 10,010 Card services revenue 9,966 10,028 11,551 Tax credit income 8,954 9,196 2,558 Other income 21,987 22,912 16,717 Total noninterest income 69,703 68,725 59,162 Noninterest expense: Employee compensation and benefits 182,713 164,566 147,029 Deposit costs 88,645 72,293 31,082 Occupancy 17,231 16,526 17,640 Data processing 19,671 15,196 13,513 Professional fees 6,257 5,719 7,079 Other expense 70,530 73,886 57,873 Total noninterest expense 385,047 348,186 274,216 Income before income tax expense 231,244 246,526 259,460 Income tax expense 45,978 52,467 56,417 Net income $ 185,266 $ 194,059 $ 203,043 Preferred stock dividends 3,750 3,750 4,041 Net income available to common shareholders $ 181,516 $ 190,309 $ 199,002 Earnings per common share Basic $ 4.86 $ 5.09 $ 5.32 Diluted 4.83 5.07 5.31 The accompanying notes are an integral part of these Consolidated Financial Statements. 65 ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Years ended December 31, 2024, 2023, and 2022 Year ended December 31, ($ in thousands) 2024 2023 2022 Net income $ 185,266 $ 194,059 $ 203,043 Other comprehensive income (loss), net of tax: Change in unrealized gain (loss) on available-for-sale securities ( 9,288 ) 32,155 ( 149,623 ) Reclassification of gain on the sale of available-for-sale securities — ( 450 ) — Reclassification of gain on held-to-maturity securities ( 2,492 ) ( 2,605 ) ( 2,696 ) Change in unrealized gain (loss) on cash flow hedges ( 5,226 ) ( 491 ) 2,798 Reclassification of loss on cash flow hedges 1,303 708 412 Total other comprehensive income (loss), net ( 15,703 ) 29,317 ( 149,109 ) Total comprehensive income $ 169,563 $ 223,376 $ 53,934 The accompanying notes are an integral part of these Consolidated Financial Statements. 66 ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES Consolidated Statements of Shareholders’ Equity Years ended December 31, 2024, 2023, and 2022 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, 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 — — — — — — — ( 149,109 ) ( 149,109 ) Common stock dividends ($ 0.90 per share) — — — — — — ( 33,602 ) — ( 33,602 ) Preferred stock dividends ($ 53.89 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 Net income — $ — — $ — $ — $ — $ 194,059 $ — $ 194,059 Other comprehensive income — — — — — — — 29,317 29,317 Common stock dividends ($ 1.00 per share) — — — — — — ( 37,368 ) — ( 37,368 ) Preferred stock dividends ($ 50.00 per share) — — — — — — ( 3,750 ) — ( 3,750 ) Issuance under equity compensation plans, net — — 163 1 — 2,402 ( 1,002 ) — 1,401 Share-based compensation — — — — — 10,146 — — 10,146 Balance December 31, 2023 75 $ 71,988 37,416 $ 374 $ — $ 995,208 $ 749,513 $ ( 101,015 ) $ 1,716,068 Net income — $ — — $ — $ — $ — $ 185,266 $ — $ 185,266 Other comprehensive loss — — — — — — — ( 15,703 ) ( 15,703 ) Common stock dividends ($ 1.06 per share) — — — — — — ( 39,550 ) — ( 39,550 ) Preferred stock dividends ($ 50.00 per share) — — — — — — ( 3,750 ) — ( 3,750 ) Repurchase of common stock — — ( 627 ) ( 6 ) — ( 16,800 ) ( 12,835 ) — ( 29,641 ) Issuance under equity compensation plans, net — — 199 2 — 1,453 ( 1,015 ) — 440 Share-based compensation — — — — — 10,872 — — 10,872 Balance December 31, 2024 75 $ 71,988 36,988 $ 370 $ — $ 990,733 $ 877,629 $ ( 116,718 ) $ 1,824,002 The accompanying notes are an integral part of these Consolidated Financial Statements. 67 ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2024, 2023, and 2022 Year ended December 31, ($ in thousands) 2024 2023 2022 Cash flows from operating activities: Net income $ 185,266 $ 194,059 $ 203,043 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 5,149 5,090 5,573 Provision (benefit) for credit losses 21,508 36,605 ( 611 ) Deferred income taxes ( 3,521 ) 2,380 2,194 Net amortization of discount/premiums on debt securities 4,090 3,998 5,639 Net amortization on loans 1,858 3,775 266 Amortization of intangible assets 3,834 4,601 5,367 Amortization of servicing assets 1,091 1,648 3,066 Mortgage loans originated-for-sale ( 23,412 ) ( 19,610 ) ( 67,470 ) Proceeds from mortgage loans sold 23,791 20,585 73,014 Net loss (gain) on: Sale of investment securities — ( 601 ) — Sale of SBA loans ( 1,415 ) ( 2,015 ) — Sale of other real estate ( 3,089 ) ( 187 ) 93 Sale of fixed assets — ( 46 ) ( 54 ) Sale of state tax credits ( 1,971 ) ( 904 ) ( 1,506 ) Share-based compensation 10,872 10,146 8,006 Net changes in other assets and liabilities 23,349 8,714 ( 19,980 ) Net cash provided by operating activities 247,400 268,238 216,640 Cash flows from investing activities: Net increase in loans ( 398,223 ) ( 1,238,276 ) ( 722,677 ) Proceeds received from: Sale of debt securities, available-for-sale — 40,393 — Paydown or maturity of debt securities, available-for-sale 316,874 233,105 238,909 Paydown or maturity of debt securities, held-to-maturity 6,794 9,135 11,913 Redemption of other investments 68,678 92,879 12,989 Sale of SBA loans 25,090 44,975 — Sale of state tax credits held for sale 10,405 4,592 20,645 Sale of other real estate 11,485 457 2,517 Sale of fixed assets — 357 1,699 Settlement of bank-owned life insurance policies 1,125 1,155 534 Payments for the purchase of: Available-for-sale debt securities ( 563,600 ) ( 318,797 ) ( 728,247 ) Held-to-maturity debt securities ( 191,346 ) ( 56,365 ) ( 182,004 ) Other investments ( 73,871 ) ( 114,746 ) ( 19,286 ) State tax credits held for sale ( 2,807 ) ( 90 ) ( 18,846 ) Fixed assets ( 7,475 ) ( 6,556 ) ( 1,930 ) Net cash used in investing activities ( 796,871 ) ( 1,307,782 ) ( 1,383,784 ) 68 Year ended December 31, ($ in thousands) 2024 2023 2022 Cash flows from financing activities: Net increase (decrease) in noninterest-bearing deposit accounts $ 525,329 $ ( 683,989 ) $ 64,296 Net increase (decrease) in interest-bearing deposit accounts 444,792 2,031,210 ( 578,945 ) Net increase (decrease) in short term FHLB advances, net — ( 100,000 ) 100,000 Repayments of long-term FHLB advances — — ( 50,000 ) Repayments of notes payable ( 11,429 ) ( 5,714 ) ( 5,714 ) Net decrease in other borrowings ( 5,579 ) ( 20,576 ) ( 24,030 ) Cash dividends paid on common stock ( 39,550 ) ( 37,368 ) ( 33,602 ) Cash dividends paid on preferred stock ( 3,750 ) ( 3,750 ) ( 4,041 ) Common stock repurchased ( 29,641 ) — ( 32,923 ) Other 440 1,401 1,773 Net cash provided by (used in) financing activities 880,612 1,181,214 ( 563,186 ) Net (decrease) increase in cash and cash equivalents 331,141 141,670 ( 1,730,330 ) Cash and cash equivalents, beginning of period 433,029 291,359 2,021,689 Cash and cash equivalents, end of period $ 764,170 $ 433,029 $ 291,359 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 284,361 $ 195,392 $ 40,736 Income taxes 28,143 50,117 46,009 Noncash investing and financing transactions: Transfer to other real estate owned in settlement of loans $ 6,559 $ 6,933 $ — Right-of-use assets obtained in exchange for lease obligations 2,039 15,640 9,512 Transfer of loans from fixed assets for building sale and leaseback — 1,460 — Transfer of securities from available for sale to held to maturity — — 116,927 Leasehold improvement allowance in other assets — 2,483 — Transfer to investment securities in settlement of loans 10,448 — — The accompanying notes are an integral part of these Consolidated Financial Statements. 69 ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies used by the Company in the preparation of the consolidated financial statements are summarized below. Business and Consolidation Enterprise is a financial holding company that provides a full range of banking and wealth management services to individuals and corporate customers primarily located in Arizona, California, Florida, Kansas, Missouri, Nevada, and New Mexico, and SBA loan and deposit productions offices throughout the country through its banking subsidiary, Enterprise Bank & Trust. All intercompany accounts and transactions have been eliminated. 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. Use of Estimates The consolidated financial statements of the Company have been prepared in conformity with GAAP. In preparing the consolidated financial statements, management is required to make estimates and assumptions, which significantly affect the reported amounts in the consolidated financial statements. Such estimates include the valuation of loans, goodwill, intangible assets, and other long-lived assets, along with assumptions used in the calculation of income taxes, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. Cash Flow Information For purposes of reporting cash flows, the Company considers cash and due from banks, interest-bearing deposits and federal funds sold that mature within 90 days to be cash and cash equivalents. Cash balances include deposits in transit and drafts in the process of collection. The Federal Reserve is authorized to establish reserve requirements on depository institutions. In 2020, the Federal Reserve reduced the reserve requirement to zero percent. As such, cash balances at the Federal Reserve at December 31, 2024 and 2023 were not subject to a reserve requirement. Recent Accounting Pronouncements 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 adoption of ASU 2022-03 did not have a material effect on the consolidated financial statements. FASB ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method . ASU 2023-02 was issued in March 2023 to allow reporting entities to consistently account for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits. If certain conditions are met, a reporting entity may elect to account for its tax equity investments by using the proportional amortization method regardless of the program from which it receives income tax credits, instead of only low- 70 income-housing tax credit (“LIHTC”) structures. This amendment also eliminates certain LIHTC-specific guidance aligning the accounting with other equity investments in tax credit structures. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The adoption of ASU 2023-02 did not have a material effect on the consolidated financial statements. FASB ASU 2023-07, Improvements to Reportable Segment Disclosures . ASU 2023-07 was issued in November 2023 to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment disclosures. The amendments in this update require annual and interim disclosures on significant segment expenses that are regularly provided to the chief operating decision maker and require annual and interim disclosures on “other segment items” that comprise the difference between segment revenue less segment expense compared to the reported measure of segment profit or loss. In addition, the amendments will require all annual disclosures that are currently required to be reported on an interim basis and requires disclosure of the title and position of the chief operating decision maker and how that position uses the information to assess segment performance and the allocation of resources. ASU 2023-07 also requires entities that have a single reportable segment, such as the Company, to provide all disclosures required in this update and the existing segment disclosures in Topic 280. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of ASU 2023-07 did not have a material effect on the consolidated financial statements. FASB ASU 2023-09, Income Tax Disclosures . ASU 2023-09 was issued in December 2023 to require annual disclosures on specific categories in the income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. Annual disclosures are required on income taxes paid, including the amounts paid for federal, state and foreign taxes and the amount paid in individual jurisdictions if the amount is equal to or greater than 5% of total income taxes paid (net of refunds received). Additional annual disclosures are required on pre-tax income from continuing operations and income tax expense, disaggregated by domestic and foreign amounts. The amendments in this update are effective for fiscal years beginning after December 15, 2024. The Company is evaluating the accounting and disclosure requirements of ASU 2023-09 and does not expect them to have a material effect on the consolidated financial statements. Investments The Company has classified all investments in debt securities as either 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 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. 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 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. For available-for-sale securities in a loss position, the Company evaluates whether the decline in fair value below amortized cost resulted from a credit loss or other factors. Losses attributed to credit are recognized through an ACL on available-for-sale securities, limited to the amount that the fair value of securities is less than the amortized cost basis. In assessing credit loss, the Company considers, among other things, (1) the extent to which fair value is less than the amortized cost basis, (2) adverse conditions specific to the security or industry, (3) historical payment patterns, (4) the likelihood of future payments, and (5) changes to the rating of a security by a rating agency. 71 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 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. Dividend and interest income is recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Loans Held-for-Sale and Servicing Assets 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. 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 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. For the years ended December 31, 2024 and 2023, all SBA7(a) loans are considered held-for-investment; however, as the Company makes the determination to sell the loans, they will be moved into the held-for-sale category. 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, 2024, the Company was servicing SBA loans that had been sold and has recorded a related servicing asset of $ 2.3 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 held-for-sale loans are reported net of direct origination fees and costs in the Company’s Consolidated Statements of Income. Loans Loans are reported at the principal balance outstanding, net of unearned fees, costs, and premiums or discounts on acquired loans. Loan origination fees, direct origination costs, and premiums or discounts resulting from acquired loans are deferred and recognized over the lives of the related loans as a yield adjustment using the interest method. Interest on loans is accrued to income based on the principal balance outstanding. The recognition of interest income is typically discontinued when a loan becomes 90 days past due or a significant deterioration in the borrower’s credit has occurred which, in management’s judgment, negatively impacts the collectibility of the loan. Unpaid interest on such loans is reversed at the time the loan becomes uncollectible and subsequent interest payments received are generally applied to principal if any doubt exists as to the collectibility of such principal. Loans that have not been restructured are returned to accrual status when management believes full collectibility of principal and interest is expected. Non-accrual loans that have been restructured will remain in a non-accrual status until the borrower has made at least six months of consecutive contractual payments. The Company has elected to present the accrued interest receivable balance separate from amortized cost basis, to exclude accrued interest receivable balances from the tabular disclosures, and not to estimate an ACL on accrued interest receivable as these amounts are timely written off as a credit loss expense. Accrued interest receivable totaled $ 52.4 million and $ 66.7 million at December 31, 2024 and 2023, respectively, and were reported in Other Assets on the consolidated balance sheets. 72 Acquired Loans 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. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. 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. 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 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. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on non-accrual status immediately, rather than delaying such action until the loans become 90 days past due. Previously accrued and uncollected interest on such loans is reversed. Income is recorded only to the extent a determination has been made that the principal balance of the loan is collectible and the interest payments are subsequently received in cash, or for a restructured loan, the borrower has made six consecutive contractual payments. If collectibility of the principal is in doubt, payments received are applied to loan principal. Loans past due 90 days or more but still accruing interest are also generally included in nonperforming loans. Loans past due 90 days or more but still accruing are classified as such where the underlying loans are both well secured (the collateral value covers principal and accrued interest) and in the process of collection. Allowance for Credit Losses on Loans 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 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. Credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. The ACL on loans is measured on a collective basis when similar risk characteristics exist. The Company has identified the following portfolio segments: C&I – C&I loans consist of loans to small and medium-sized businesses in a wide variety of industries. These loans are generally collateralized by inventory, accounts receivable, equipment, real estate and other commercial assets, and may be supported by other credit enhancements such as personal guarantees. Risk arises primarily due to a difference between expected and actual cash flows of the borrower. 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. Included within C&I are revolving loans supported by borrowing bases that fluctuate depending on the amount of underlying collateral. A portion of C&I loans consists of sponsor finance, which are loans with senior debt exposure to private equity backed companies. CRE – CRE loans include various types of loans for which the Company holds real property as collateral. Commercial real estate lending activity is typically restricted to owner-occupied properties or to investor properties 73 that are owned by customers with a current banking relationship. The primary risks of CRE loans include the borrower’s inability to pay, material decreases in the value of the real estate being held as collateral and significant increases in interest rates, which may make the real estate mortgage loan unprofitable. Real estate loans may be more adversely affected by conditions in the real estate markets and in the general economy. Construction and Land Development – The Company originates loans to finance construction projects including 1-4 family residences, multifamily residences, commercial office, and industrial projects. Construction loans are generally collateralized by first liens on the real estate and have floating interest rates. Construction loans are considered to have higher risks due to construction completion and timing risk, and the ultimate repayment being sensitive to interest rate changes, governmental regulation of real property and the availability of long-term financing. Additionally, economic conditions may impact the Company’s ability to recover its investment in construction loans. Adverse economic conditions may negatively impact the real estate market which could affect the borrowers’ ability to complete and sell the project. Additionally, the fair value of the underlying collateral may fluctuate as market conditions change. Residential Real Estate – The Company originates loans to finance one- to four-family residences, secured by both first and second liens. Repayment of these loans is dependent on the borrowers’ ability to pay and the fair value of the underlying collateral. Residential loans with a second lien are inherently riskier due to the junior lien position. Agricultural – Agricultural loans are generally secured with equipment, livestock, crops or other non-real property and at times the underlying real property. Agricultural loans are primarily included as a component of CRE and C&I loans. As of December 31, 2023, the Company has ceased originating new agricultural credit relationships. Consumer – The Company provides a broad range of consumer loans to customers, including personal lines of credit, credit cards, recreational vehicles, yachts and automobile loans. Repayment of these loans is dependent on the borrowers’ ability to pay and the fair value of the underlying collateral. Consumer loans are included as a component of Other loans. The Company utilizes a DCF method to measure the ACL on loans collectively evaluated that are sub-segmented by credit risk levels. The DCF method incorporates assumptions for probability of default, loss given default, prepayments and curtailments over the contractual term of the loans. 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 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 the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. The Company uses a one-year reasonable and supportable forecast that considers baseline, upside and downside economic scenarios. For periods beyond the forecast period, the Company reverts to historical loss rates on a straight-line basis over a one-year period. Loans that do not share risk characteristics are evaluated on an individual basis. 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. 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. 74 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 and the amounts are deemed uncollectible. Other Real Estate and Repossessed Assets 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 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. These estimates involve significant uncertainties and judgments. As a result, fair value estimates may not be realizable in a current sale or settlement of the other real estate. 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. Repossessed assets represent property, other than real estate, that is acquired through repossession and is initially recorded at estimated fair value on the date of acquisition, less costs to sell. Subsequent to repossession, the assets are carried at the lower of cost or fair value, less estimated costs to sell. Fixed Assets Buildings, leasehold improvements, furniture, fixtures, and equipment are stated at cost less accumulated depreciation. All categories are computed using the straight-line method over their respective estimated useful lives. Furniture, fixtures and equipment is depreciated over three to ten years and buildings and leasehold improvements over ten to forty years , based upon estimated lives or lease obligation periods. State Tax Credits The Company has purchased the rights to receive 10-year streams of state tax credits at agreed upon discount rates and sells such tax credits to its clients and others. State tax credits are accounted for at cost. 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 Income. Cash Surrender Value of Life Insurance The Company has purchased bank-owned life insurance policies on certain bank officers. Bank-owned life insurance is recorded at its cash surrender value. Changes in the cash surrender values, including death benefits in excess of the carrying amount, are included in noninterest income. Federal Home Loan Bank Stock The Bank, as a member of the FHLB, is required to maintain an investment in the capital stock of the FHLB. The stock is redeemable at par by the FHLB, and is, therefore, carried at cost and periodically evaluated for impairment. The Company records FHLB dividends in interest income. Goodwill and Other Intangible Assets 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 as of December 31, 2024. 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 75 a quantitative impairment test is completed. The quantitative impairment test calculates the fair value of the reporting unit and compares it with its carrying amount, including goodwill. If the carrying amount of goodwill exceeds its implied fair market value, an impairment loss is recognized. That loss is equal to the carrying amount of goodwill that is in excess of its implied fair market value. Core deposit intangibles are amortized using an accelerated method over an estimated useful life of approximately 10 years. Impairment of Long-Lived Assets Long-lived assets, such as fixed assets and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale are presented separately in the appropriate asset and liability sections of the balance sheet. Derivative Financial Instruments and Hedging Activities The Company uses derivative financial instruments to assist in managing interest rate sensitivity and to modify the repricing, maturity and option characteristics of certain assets and liabilities. In addition, the Company also offers an interest rate hedge program that includes interest rate swaps to assist its customers in managing their interest rate risk profile. 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. Fair value represents the payment the Company would receive or pay if the item were sold or bought in a current transaction. The accounting for changes in fair value (gains or losses) of a hedged item is dependent on whether the related derivative is designated and qualifies for “hedge accounting.” The Company assigns derivatives to one of these categories at the purchase date: 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 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, 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. These non-designated derivatives are intended to provide interest rate protection on net interest income or noninterest income but do not meet hedge accounting treatment. Customer accommodation interest rate swap contracts are not designated as hedging instruments. Changes in the fair value of these instruments are recorded in interest income or noninterest income in the consolidated statements of income depending on the underlying hedged item. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The need for deferred tax asset valuation allowances is based on a more-likely-than-not 76 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 following possible sources of taxable income are considered: future reversal patterns of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences, taxable income in prior carryback years and the availability of qualified tax planning strategies. The assessment regarding whether a valuation allowance is required or should be adjusted depends on all available positive and negative factors including, but not limited to, nature, frequency, and severity of recent losses, duration of available carryforward periods, experience with tax attributes expiring unused and near and medium term financial outlook. Because of the complexity of tax laws and regulations, interpretation can be difficult and subject to legal judgment given specific facts and circumstances. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions regarding the estimated amounts of accrued taxes. Share-Based Compensation Share-based compensation is recognized as an expense for stock options, restricted stock awards, performance stock units, and restricted stock units granted to employees and directors in return for service. Equity classified awards are measured at the grant date fair value using either an observable market value or a valuation methodology, and are recognized over the requisite service period on a straight-line basis. Forfeitures are recorded as they occur. A description of the Company’s share-based employee compensation plan is included in “Note 15 - Shareholders’ Equity and Compensation Plans.” Deposit Verticals The Company offers a deposit vertical platform to customers in certain industries, primarily community associations, property management, and legal industry and escrow services. These customers will typically receive an earnings credit rate on average collected balances that is used to offset their cost of maintaining the deposit accounts. Earnings credits, otherwise referred to as Deposit costs, are reflected as a component of non-interest expense in the Consolidated Statement of Income. Acquisitions and Divestitures Acquisitions and business combinations are accounted for using the acquisition method of accounting. The assets and liabilities of the acquired entities have been recorded at their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets. The purchase price allocation process requires an estimation of the fair values of the assets acquired and the liabilities assumed. When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the Company includes an estimate of the acquisition-date fair value as part of the cost of the combination. To determine the fair values, the Company relies on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. The results of operations of the acquired business are included in the Company’s consolidated financial statements from the date of acquisition. Merger-related expenses include costs directly related to merger or acquisition activity and include legal and professional fees, system consolidation and conversion costs, and compensation costs such as severance and retention incentives for employees impacted by acquisition activity. The Company accounts for merger-related expenses in the periods in which the costs are incurred and the services are received. For divestitures, the Company measures an asset (disposal group) classified as held-for-sale at the lower of its carrying value at the date the asset is initially classified as held-for-sale or its fair value less costs to sell. The Company reports the results of operations of an entity or group of components that either has been disposed of or held-for-sale as discontinued operations only if the disposal of that component represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. Any incremental direct costs incurred to transact the sale are allocated against the gain or loss on the sale. These costs include items such as legal fees, title transfer fees, broker fees, etc. Any goodwill and intangible assets 77 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. Basic and Diluted Earnings Per Common Share Basic earnings per common share data is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. 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 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 Income. Share Repurchases The Company periodically adopts share repurchase plans that authorize open market repurchases of common stock. Shares acquired through the repurchase plan are classified as treasury stock or the shares are immediately retired upon settlement, depending on plan authorization. When shares are retired, the excess of repurchase price over par is allocated between additional paid in capital and retained earnings. The amount allocated to additional paid in capital is limited to the pro rata portion of additional paid in capital at the time of repurchase. Reclassifications Certain amounts, including deposit costs and other noninterest expense, reported in prior periods in the “Consolidated Statements of Income,” and “Note 20 – Supplemental Financial Information,” have been reclassified to conform to the current presentation. The reclassifications had no effect on net income or shareholders’ equity. NOTE 2 - EARNINGS PER SHARE Basic earnings per common share data is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method. The following table presents a summary of per common share data and amounts for the periods indicated. Year ended December 31, (in thousands, except per share data) 2024 2023 2022 Net income available to common shareholders $ 181,516 $ 190,309 $ 199,002 Weighted average common shares outstanding 37,357 37,370 37,381 Additional dilutive common stock equivalents 210 137 119 Weighted average diluted common shares outstanding 37,567 37,507 37,500 Basic earnings per common share $ 4.86 $ 5.09 $ 5.32 Diluted earnings per common share $ 4.83 $ 5.07 $ 5.31 For 2024, 2023, and 2022, common stock equivalents of approximately 434,000 , 419,000 and 224,000 , respectively, were excluded from the earnings per share calculation because their effect would have been anti-dilutive. 78 NOTE 3 - INVESTMENTS The following table presents the amortized cost, gross unrealized gains and losses, allowance for credit losses and fair value of securities available-for-sale and held-to-maturity: December 31, 2024 ($ in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-sale securities: Obligations of U.S. Government-sponsored enterprises $ 290,329 $ 69 $ ( 14,358 ) $ 276,040 Obligations of states and political subdivisions 492,896 12 ( 83,711 ) 409,197 Agency mortgage-backed securities 1,090,495 1,072 ( 64,173 ) 1,027,394 Corporate debt securities 21,198 — ( 452 ) 20,746 U.S. Treasury Bills 130,565 34 ( 1,706 ) 128,893 Total securities available-for-sale $ 2,025,483 $ 1,187 $ ( 164,400 ) $ 1,862,270 Held-to-maturity securities: Obligations of states and political subdivisions $ 759,059 $ 2,366 $ ( 60,351 ) $ 701,074 Agency mortgage-backed securities 47,912 — ( 5,004 ) 42,908 Corporate debt securities 122,221 269 ( 7,601 ) 114,889 Total securities held-to-maturity $ 929,192 $ 2,635 $ ( 72,956 ) $ 858,871 Allowance for credit losses ( 257 ) Total securities held-to-maturity, net $ 928,935 December 31, 2023 ($ in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-sale securities: Obligations of U.S. Government-sponsored enterprises $ 316,511 $ 303 $ ( 20,368 ) $ 296,446 Obligations of states and political subdivisions 500,881 57 ( 68,767 ) 432,171 Agency mortgage-backed securities 758,283 1,181 ( 59,083 ) 700,381 Corporate debt securities 8,750 — ( 1,176 ) 7,574 U.S. Treasury Bills 184,709 62 ( 3,070 ) 181,701 Total securities available-for-sale $ 1,769,134 $ 1,603 $ ( 152,464 ) $ 1,618,273 Held-to-maturity securities: Obligations of states and political subdivisions $ 575,699 $ 7,078 $ ( 47,461 ) $ 535,316 Agency mortgage-backed securities 52,100 — ( 5,424 ) 46,676 Corporate debt securities 123,420 216 ( 8,981 ) 114,655 Total securities held-to-maturity $ 751,219 $ 7,294 $ ( 61,866 ) $ 696,647 Allowance for credit losses ( 785 ) Total securities held-to-maturity, net $ 750,434 The Company believes the held-to-maturity category is consistent with the Company’s intent for these securities. The Company did not transfer any securities from available-for-sale to held-to-maturity in 2024 or 2023. The balance of held-to-maturity securities in the “Amortized Cost” column in the table above includes a cumulative net unamortized, unrealized gain of $ 10.8 million and $ 14.1 million at December 31, 2024 and 2023, respectively. Such amounts are amortized over the remaining life of the securities. 79 At December 31, 2024 and 2023, there were no holdings of securities of any one issuer in an amount greater than 10 % of shareholders’ equity, other than the U.S. Government agencies and sponsored enterprises. The agency mortgage-backed securities are all issued by U.S. Government agencies and sponsored enterprises. Securities of $ 1.5 billion and $ 1.6 billion at December 31, 2024 and December 31, 2023, respectively, were pledged as collateral to secure deposits of public institutions and for other purposes as required by law or contract provisions, in addition to collateral securing borrowing bases with the FHLB and the Federal Reserve Bank. The amortized cost and estimated fair value of debt securities at December 31, 2024, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The weighted average life of the mortgage-backed securities is approximately five years . Available-for-sale Held-to-maturity ($ in thousands) Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Due in one year or less $ 109,113 $ 108,614 $ 6,408 $ 6,374 Due after one year through five years 283,377 271,322 123,019 115,700 Due after five years through ten years 211,912 183,490 194,514 189,364 Due after ten years 330,586 271,450 557,339 504,525 Agency mortgage-backed securities 1,090,495 1,027,394 47,912 42,908 $ 2,025,483 $ 1,862,270 $ 929,192 $ 858,871 There were 830 and 753 available-for-sale securities in an unrealized loss position as of December 31, 2024 and 2023, respectively, included in the following tables: December 31, 2024 Less than 12 months 12 months or more Total ($ in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Obligations of U.S. Government-sponsored enterprises $ 21,044 $ 132 $ 234,191 $ 14,226 $ 255,235 $ 14,358 Obligations of states and political subdivisions 3,117 143 403,767 83,568 406,884 83,711 Agency mortgage-backed securities 423,600 6,763 478,790 57,410 902,390 64,173 Corporate debt securities 1,956 44 8,342 408 10,298 452 U.S. Treasury Bills 11,708 23 54,177 1,683 65,885 1,706 $ 461,425 $ 7,105 $ 1,179,267 $ 157,295 $ 1,640,692 $ 164,400 December 31, 2023 Less than 12 months 12 months or more Total ($ in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Obligations of U.S. Government-sponsored enterprises $ 25,886 $ 85 $ 247,027 $ 20,283 $ 272,913 $ 20,368 Obligations of states and political subdivisions 1,168 163 428,171 68,604 429,339 68,767 Agency mortgage-backed securities 58,249 417 540,032 58,666 598,281 59,083 Corporate debt securities — — 7,574 1,176 7,574 1,176 U.S. Treasury Bills 41,857 49 103,588 3,021 145,445 3,070 $ 127,160 $ 714 $ 1,326,392 $ 151,750 $ 1,453,552 $ 152,464 80 The unrealized losses at both December 31, 2024 and 2023, were primarily attributable to changes in market interest rates since the securities were purchased. In 2023, an allowance for credit losses on available-for-sale investment securities was established through a provision for credit losses of $ 4.2 million. A debt security of $ 4.2 million was subsequently charged-off against that allowance. At both December 31, 2024 and 2023, there was no ACL on available-for-sale securities outstanding. Accrued interest receivable on held-to-maturity debt securities totaled $ 8.6 million and $ 6.5 million at December 31, 2024 and 2023, respectively, and is excluded from the estimate of expected credit losses. The estimate of expected credit losses considers historical credit loss information adjusted for current conditions and reasonable and supportable forecasts. At December 31, 2024 and 2023, the ACL on held-to-maturity securities was $ 0.3 million and $ 0.8 million, respectively. The proceeds, gross gains and losses realized from sales of available-for-sale investment securities were as follows: Twelve months ended ($ in thousands) December 31, 2024 December 31, 2023 December 31, 2022 Gross gains realized $ — $ 601 $ — Proceeds from sales — 40,393 — Other Investments At December 31, 2024 and 2023, other investments totaled $ 72.8 million and $ 66.2 million, respectively. 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 $ 8.7 million, and $ 7.8 million at December 31, 2024 and 2023, respectively, is recorded at cost, which represents redemption value, and is included in other investments in the consolidated balance sheets. The remaining amounts in other investments primarily include various investments in SBICs, CDFIs, and the Company’s investment in unconsolidated trusts used to issue preferred securities to third parties, see “Note 10 – Subordinated Debentures and Notes.” 81 NOTE 4 - LOANS The following table presents a summary of loans by category: ($ in thousands) December 31, 2024 December 31, 2023 Commercial and industrial $ 4,720,428 $ 4,674,056 Real estate loans: Commercial - investor owned 2,607,755 2,452,402 Commercial - owner occupied 2,359,956 2,344,117 Construction and land development 892,563 760,122 Residential 358,923 371,995 Total real estate loans 6,219,197 5,928,636 Other 281,193 285,653 Loans, before unearned loan fees 11,220,818 10,888,345 Unearned loan fees, net ( 463 ) ( 4,227 ) Loans, including unearned loan fees $ 11,220,355 $ 10,884,118 The loan balance includes a net premium on acquired loans of $ 7.8 million and $ 9.6 million at December 31, 2024 and 2023, respectively. At December 31, 2024 and 2023, loans of $ 5.7 billion and $ 4.8 billion, respectively, were pledged to the FHLB and the Federal Reserve. The Company had no consumer mortgage loans secured by residential real estate in process of foreclosure as of December 31, 2024. Consumer mortgage loans secured by residential real estate in process of foreclosure totaled $ 1.0 million at December 31, 2023. Loans to executive officers and directors, or to entities in which such individuals had beneficial interests as a shareholder, officer, or director were immaterial and $ 0.1 million for the years ended December 31, 2024 and 2023, 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. 82 A summary of the activity, by loan category, in the allowance for credit losses on loans for 2022, 2023, and 2024 is as follows: ($ in thousands) Commercial and industrial CRE - investor owned CRE - owner occupied Construction and land development Residential real estate Other Total 2022 Allowance for credit losses on loans: Balance, beginning of year $ 63,825 $ 35,877 $ 17,560 $ 14,536 $ 7,927 $ 5,316 $ 145,041 Provision (benefit) for credit losses ( 6,121 ) 46 4,867 ( 3,145 ) 540 ( 397 ) ( 4,210 ) Charge-offs ( 6,082 ) ( 478 ) ( 395 ) — ( 2,068 ) ( 370 ) ( 9,393 ) Recoveries 2,213 746 720 53 1,529 233 5,494 Balance, end of year $ 53,835 $ 36,191 $ 22,752 $ 11,444 $ 7,928 $ 4,782 $ 136,932 2023 Allowance for credit losses on loans: Balance, beginning of year $ 53,835 $ 36,191 $ 22,752 $ 11,444 $ 7,928 $ 4,782 $ 136,932 Provision (benefit) for credit losses 38,308 ( 335 ) 523 ( 1,300 ) ( 2,109 ) 796 35,883 Charge-offs ( 36,302 ) ( 4,869 ) — ( 9 ) ( 656 ) ( 1,379 ) ( 43,215 ) Recoveries 3,045 293 130 63 979 661 5,171 Balance, end of year $ 58,886 $ 31,280 $ 23,405 $ 10,198 $ 6,142 $ 4,860 $ 134,771 2024 Allowance for credit losses on loans: Balance, beginning of year $ 58,886 $ 31,280 $ 23,405 $ 10,198 $ 6,142 $ 4,860 $ 134,771 Provision (benefit) for credit losses 14,770 3,502 ( 60 ) 2,764 128 ( 475 ) 20,629 Charge-offs ( 13,073 ) ( 700 ) ( 3,074 ) ( 3,224 ) ( 878 ) ( 925 ) ( 21,874 ) Recoveries 2,648 135 129 99 1,142 271 4,424 Balance, end of year $ 63,231 $ 34,217 $ 20,400 $ 9,837 $ 6,534 $ 3,731 $ 137,950 The Company recorded a provision for credit losses on loans of $ 20.6 million and $ 35.9 million for the years ended December 31, 2024 and 2023, respectively. An additional provision for credit losses of $ 0.9 million and $ 0.7 million was recorded in 2024 and 2023, respectively, for securities, unfunded commitments and accrued interest on nonaccrual loans. The CECL methodology incorporates various economic scenarios. The Company utilizes three forecasts in the model; Moody’s baseline, a stronger near-term growth upside and a moderate downside forecast. The Company weights these scenarios at 40 %, 30 %, and 30 %, respectively, which added approximately $ 14.8 million to the ACL over the baseline model at December 31, 2024. The forecasts at the end of 2024 incorporate an expectation that the federal funds rate will continue to fall in 2025. The Company has also recognized various risks posed by loans in certain segments, including the commercial office sector, by allocating additional reserves to those segments. Some of the key risks to the forecasts that could result in future provision for credit losses are market reactions to the Federal Reserve policy actions that could push the economy into a recession, persistently higher inflation (including the impact of tariffs), tightening in the credit markets, and further weakness in the financial system. In addition to the CECL methodology, the Company incorporates qualitative adjustments into the ACL on loans to capture credit risks inherent within the loan portfolio that are not captured in the DCF model. Included in these risks are 1) changes in lending policies and procedures, 2) actual and expected changes in business and economic conditions, 3) changes in the nature and volume of the portfolio, 4) changes in lending management, 5) changes in volume and the severity of past due loans, 6) changes in the quality of the loan review system, 7) changes in the value of underlying collateral, 8) the existence and effect of concentrations of credit and 9) other factors such as the regulatory, legal and competitive environments and events such as natural disasters and pandemics. At December 31, 2024, the ACL on loans included a qualitative adjustment of $ 44.3 million. Of this amount, $ 14.5 million was allocated to Sponsor Finance loans due to their unsecured nature. 83 Gross charge-offs by loan class and year of origination is presented in the following table: December 31, 2024 Term Loans by Origination Year ($ in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Converted to Term Loans Revolving Loans Total Commercial and industrial $ 312 $ 2,646 $ 3,043 $ 35 $ 166 $ 772 $ 2,205 $ 3,589 $ 12,768 Real estate: Commercial - investor owned — — — 252 — 448 — — 700 Commercial - owner occupied — — 41 475 10 2,548 — — 3,074 Construction and land development — — — — 3,224 — — — 3,224 Residential — — 166 15 — 471 202 24 878 Other 4 17 — 58 — 79 103 1 262 Total charge-offs by origination year $ 316 $ 2,663 $ 3,250 $ 835 $ 3,400 $ 4,318 $ 2,510 $ 3,614 $ 20,906 Total gross charge-offs by performing status 968 Total gross charge-offs $ 21,874 December 31, 2023 Term Loans by Origination Year ($ in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Converted to Term Loans Revolving Loans Total Commercial and industrial $ 600 $ 2,999 $ 1,940 $ 2,539 $ — $ — $ 12,533 $ 15,178 $ 35,789 Real estate: Commercial - investor owned — — 170 — 4,692 7 — — 4,869 Construction and land development — — — — — 9 — — 9 Residential — — — — — 480 176 — 656 Other — 3 459 — — 319 12 — 793 Total charge-offs by origination year $ 600 $ 3,002 $ 2,569 $ 2,539 $ 4,692 $ 815 $ 12,721 $ 15,178 $ 42,116 Total gross charge-offs by performing status 1,099 Total gross charge-offs $ 43,215 The following tables present the recorded investment in nonperforming loans by category, excluding government guaranteed balances: 84 December 31, 2024 ($ in thousands) Non-accrual Loans over 90 days past due and still accruing interest Total nonperforming loans Nonaccrual loans with no allowance Commercial and industrial $ 15,810 $ 11 $ 15,821 $ 4,279 Real estate: Commercial - investor owned 14,186 — 14,186 2,106 Commercial - owner occupied 10,910 — 10,910 8,235 Construction and land development 1,503 — 1,503 1,503 Residential 258 — 258 — Other — 9 9 — Total $ 42,667 $ 20 $ 42,687 $ 16,123 December 31, 2023 ($ in thousands) Non-accrual Loans over 90 days past due and still accruing interest Total nonperforming loans Nonaccrual loans with no allowance Commercial and industrial $ 7,641 $ 115 $ 7,756 $ 6,179 Real estate: Commercial - investor owned 20,404 — 20,404 19,466 Commercial - owner occupied 12,972 363 13,335 9,010 Construction and land development 1,205 64 1,269 464 Residential 959 — 959 959 Other — 5 5 — Total $ 43,181 $ 547 $ 43,728 $ 36,078 The nonperforming loan balances at December 31, 2024 and December 31, 2023 exclude government guaranteed balances of $ 22.0 million and $ 10.7 million, respectively. Interest income recognized on nonaccrual loans was immaterial in the years ending December 31, 2024, 2023, and 2022. Collateral-dependent nonperforming loans by class of loan is presented as of the dates indicated: December 31, 2024 Type of Collateral ($ in thousands) Commercial Real Estate Residential Real Estate Blanket Lien Other Commercial and industrial $ — $ — $ 4,279 $ 3,495 Real estate: Commercial - investor owned 14,136 — — — Commercial - owner occupied 7,521 482 486 — Total $ 21,657 $ 482 $ 4,765 $ 3,495 85 December 31, 2023 Type of Collateral ($ in thousands) Commercial Real Estate Residential Real Estate Blanket Lien Other Commercial and industrial $ 527 $ 1,864 $ 344 $ 3,445 Real estate: Commercial - investor owned 19,467 — — — Commercial - owner occupied 5,904 1,638 1,831 — Construction and land development 528 741 — — Residential — 959 — — Total $ 26,426 $ 5,202 $ 2,175 $ 3,445 The aging of the recorded investment in past due loans by class and category is presented as of the dates indicated. December 31, 2024 ($ in thousands) 30-89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Commercial and industrial $ 1,948 $ 12,228 $ 14,176 $ 4,706,252 $ 4,720,428 Real estate: Commercial - investor owned 1,377 14,333 15,710 2,592,045 2,607,755 Commercial - owner occupied 10,542 18,591 29,133 2,330,823 2,359,956 Construction and land development 101 5,620 5,721 886,842 892,563 Residential 2,833 258 3,091 355,832 358,923 Other 34 9 43 281,150 281,193 Loans, before unearned loan fees $ 16,835 $ 51,039 $ 67,874 $ 11,152,944 11,220,818 Unearned loan fees, net ( 463 ) Total $ 11,220,355 December 31, 2023 ($ in thousands) 30-89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Commercial and industrial $ 3,445 $ 9,037 $ 12,482 $ 4,661,574 $ 4,674,056 Real estate: Commercial - investor owned 1,905 18,395 20,300 2,432,102 2,452,402 Commercial - owner occupied 8,409 14,142 22,551 2,321,566 2,344,117 Construction and land development 770 1,908 2,678 757,444 760,122 Residential 1,620 959 2,579 369,416 371,995 Other 82 4 86 285,567 285,653 Loans, before unearned loan fees $ 16,231 $ 44,445 $ 60,676 $ 10,827,669 10,888,345 Unearned loan fees, net ( 4,227 ) Total $ 10,884,118 The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default and loss given default model to determine the allowance for credit losses. 86 An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. The effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance. The most common concession the Company provides to borrowers experiencing financial difficulty is a term extension. In limited circumstances, the Company may modify loans by providing principal forgiveness or an interest rate reduction. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. In some cases, the Company will modify a loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as an interest rate reduction or principal forgiveness, may be granted. The following tables show the recorded investment at the end of the dates listed for loans modified to borrowers experiencing financial difficulty, disaggregated by loan class and type of concession granted: Term Extension Payment Delay Total Twelve months ended Twelve months ended Twelve months ended ($ in thousands) December 31, 2024 Percent of Total Loan Class December 31, 2024 Percent of Total Loan Class December 31, 2024 Percent of Total Loan Class Commercial and industrial $ 43,094 0.91 % $ 567 0.01 % $ 43,661 0.92 % Real estate: Commercial - investor owned 256 0.01 % — — % 256 0.01 % Commercial - owner occupied 12,890 0.54 % — — % 12,890 0.54 % Residential 69 0.02 % — — % 69 0.02 % Total $ 56,309 0.50 % $ 567 0.01 % $ 56,876 0.51 % Term Extension Twelve months ended ($ in thousands) December 31, 2023 Percent of Total Loan Class Commercial and industrial $ 39,437 0.84 % Real estate: Commercial - investor owned 9,411 0.38 % Commercial - owner occupied 94 — % Construction and land development 1,137 0.15 % Residential 7,601 2.04 % Other 4 — % Total $ 57,684 The Company had $ 3.3 million in commitments to lend additional funds to borrowers experiencing financial difficulty included in the previous table at December 31, 2024. There were $ 6.6 million and $ 0.7 million of loans modified to borrowers experiencing financial difficulty that were also included in nonperforming loans, excluding government guaranteed balances, as of December 31, 2024 and December 31, 2023, respectively. 87 The following tables summarize the financial impacts of loan modifications made to borrowers experiencing financial difficulty and outstanding at the date indicated: Weighted Average Term Extension (in months) Amount of Payment Delay Twelve months ended Twelve months ended ($ in thousands) December 31, 2024 December 31, 2024 Commercial and industrial 6 $ 85 Real estate: Commercial - investor owned 12 — Commercial - owner occupied 22 — Residential 24 — Weighted Average Term Extension (in months) Twelve months ended December 31, 2023 Commercial and industrial 5 Real estate: Commercial - investor owned 4 Commercial - owner occupied 3 Construction and land development 7 Residential 3 Other 48 The following tables show the aging of the recorded investment in modified loans in the last 12 months by class at the date indicated: December 31, 2024 ($ in thousands) Current 30-89 Days Past Due 90 or More Days Past Due Total Commercial and industrial $ 42,243 $ 567 $ 851 $ 43,661 Real estate: Commercial - investor owned 256 — — 256 Commercial - owner occupied 11,972 — 918 12,890 Residential 69 — — 69 Total $ 54,540 $ 567 $ 1,769 $ 56,876 88 December 31, 2023 ($ in thousands) Current 30-89 Days Past Due 90 or More Days Past Due Total Commercial and industrial $ 39,187 $ 250 $ — $ 39,437 Real estate: Commercial - investor owned 9,411 — — 9,411 Commercial - owner occupied — 94 — 94 Construction and land development 1,137 — — 1,137 Residential 7,527 74 — 7,601 Other — 4 — 4 Total $ 57,262 $ 422 $ — $ 57,684 The following table summarizes loans that experienced a default during the twelve months ended December 31, 2024, subsequent to being granted a modification in the preceding twelve months. All of these loans were charged-off during the preceding period. Default is defined as movement to nonperforming status, foreclosure or charge-off. Term Extension Twelve months ended ($ in thousands) December 31, 2024 Percent of Total Loan Class Commercial and industrial $ 1,000 0.02 % Other 4 NM Total $ 1,004 There were no loans that experienced a default during the twelve months ended December 31, 2023 subsequent to being granted a modification in the preceding twelve months. As of December 31, 2024 and December 31, 2023, the Company allocated an immaterial amount in specific reserves to loans that have been restructured. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, payment experience, credit documentation, and current economic factors among other factors. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings: • Grades 1, 2, and 3 – Includes loans to borrowers with a continuous record of strong earnings, sound balance sheet condition and capitalization, ample liquidity with solid cash flow, and whose management team has experience and depth within their industry. • Grade 4 – Includes loans to borrowers with positive trends in profitability, satisfactory capitalization and balance sheet condition, and sufficient liquidity and cash flow. • Grade 5 – Includes loans to borrowers that may display fluctuating trends in sales, profitability, capitalization, liquidity, and cash flow. • Grade 6 – Includes loans to borrowers where an adverse change or perceived weakness has occurred, but may be correctable in the near future. Alternatively, this rating category may also include circumstances where the borrower is starting to reverse a negative trend or condition, or has recently been upgraded from a 7, 8, or 9 rating. • Grade 7 – 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. 89 • Grade 8 – Substandard credits include those borrowers characterized by significant losses and sustained downward trends in balance sheet condition, liquidity, and cash flow. Repayment reliance may have shifted to secondary sources. Collateral exposure may exist and additional reserves may be warranted. • Grade 9 – Doubtful credits include borrowers that may show deteriorating trends that are unlikely to be corrected. Collateral values may appear insufficient for full recovery, therefore requiring a partial charge-off, or debt renegotiation with the borrower. The borrower may have declared bankruptcy or bankruptcy is likely in the near term. All doubtful rated credits will be on non-accrual. 90 The recorded investment by risk category of the loans by class and year of origination is presented in the following tables as of the dates indicated: December 31, 2024 Term Loans by Origination Year ($ in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Converted to Term Loans Revolving Loans Total Commercial and industrial Pass (1-6) $ 1,477,552 $ 958,327 $ 607,626 $ 172,201 $ 117,845 $ 69,236 $ 87,059 $ 942,991 $ 4,432,837 Special Mention (7) 32,479 40,804 4,982 2,373 796 64 14,783 55,100 151,381 Classified (8-9) 29,999 868 9,271 — 142 809 9,681 20,791 71,561 Total Commercial and industrial $ 1,540,030 $ 999,999 $ 621,879 $ 174,574 $ 118,783 $ 70,109 $ 111,523 $ 1,018,882 $ 4,655,779 Commercial real estate-investor owned Pass (1-6) $ 587,403 $ 402,899 $ 479,131 $ 374,155 $ 266,044 $ 281,232 $ 4,566 $ 48,808 $ 2,444,238 Special Mention (7) 12,195 4,901 — 43,506 2,389 9,623 31,321 1,999 105,934 Classified (8-9) 256 — 821 20,274 13,564 4,702 — — 39,617 Total Commercial real estate-investor owned $ 599,854 $ 407,800 $ 479,952 $ 437,935 $ 281,997 $ 295,557 $ 35,887 $ 50,807 $ 2,589,789 Commercial real estate-owner occupied Pass (1-6) $ 420,774 $ 329,001 $ 437,731 $ 408,210 $ 246,024 $ 352,095 $ 890 $ 29,239 $ 2,223,964 Special Mention (7) 6,914 10,764 5,323 12,324 8,426 18,389 — — 62,140 Classified (8-9) 13,794 3,727 4,063 6,452 3,765 22,319 — 250 54,370 Total Commercial real estate-owner occupied $ 441,482 $ 343,492 $ 447,117 $ 426,986 $ 258,215 $ 392,803 $ 890 $ 29,489 $ 2,340,474 Construction real estate Pass (1-6) $ 404,286 $ 211,573 $ 198,278 $ 38,131 $ 6,110 $ 3,823 $ 9,513 $ 5,338 $ 877,052 Special Mention (7) 11,250 33 49 294 — 223 — — 11,849 Classified (8-9) — — 1,573 — — 585 — — 2,158 Total Construction real estate $ 415,536 $ 211,606 $ 199,900 $ 38,425 $ 6,110 $ 4,631 $ 9,513 $ 5,338 $ 891,059 Residential real estate Pass (1-6) $ 46,454 $ 37,371 $ 35,082 $ 27,784 $ 22,350 $ 78,113 $ 5,880 $ 79,284 $ 332,318 Special Mention (7) 1,539 26 239 — — 1,435 — 887 4,126 Classified (8-9) — 2,979 107 11,976 5,538 1,572 — — 22,172 Total residential real estate $ 47,993 $ 40,376 $ 35,428 $ 39,760 $ 27,888 $ 81,120 $ 5,880 $ 80,171 $ 358,616 Other Pass (1-6) $ 31,286 $ 6,058 $ 50,351 $ 55,844 $ 49,519 $ 31,061 $ 44 $ 40,578 $ 264,741 Special Mention (7) — 2,326 — — — 1,780 — 7,660 11,766 Classified (8-9) — — — — — 5 — — 5 Total Other $ 31,286 $ 8,384 $ 50,351 $ 55,844 $ 49,519 $ 32,846 $ 44 $ 48,238 $ 276,512 Total loans classified by risk category $ 3,076,181 $ 2,011,657 $ 1,834,627 $ 1,173,524 $ 742,512 $ 877,066 $ 163,737 $ 1,232,925 $ 11,112,229 Total loans classified by performing status 108,126 Total loans $ 11,220,355 91 December 31, 2023 Term Loans by Origination Year ($ in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Converted to Term Loans Revolving Loans Total Commercial and industrial Pass (1-6) $ 1,567,738 $ 1,052,462 $ 345,292 $ 194,972 $ 123,425 $ 71,205 $ 12,163 $ 1,108,233 $ 4,475,490 Special Mention (7) 52,523 6,845 8,597 544 453 242 272 19,590 89,066 Classified (8-9) 12,824 19,306 1,833 812 339 363 508 45,830 81,815 Total Commercial and industrial $ 1,633,085 $ 1,078,613 $ 355,722 $ 196,328 $ 124,217 $ 71,810 $ 12,943 $ 1,173,653 $ 4,646,371 Commercial real estate-investor owned Pass (1-6) $ 495,131 $ 544,223 $ 492,974 $ 323,175 $ 165,343 $ 236,914 $ 5,222 $ 51,413 $ 2,314,395 Special Mention (7) 3,626 22,725 51,851 1,657 164 5,526 — — 85,549 Classified (8-9) 9,411 1,034 43 15,838 2,831 4,919 48 — 34,124 Total Commercial real estate-investor owned $ 508,168 $ 567,982 $ 544,868 $ 340,670 $ 168,338 $ 247,359 $ 5,270 $ 51,413 $ 2,434,068 Commercial real estate-owner occupied Pass (1-6) $ 407,901 $ 486,701 $ 489,589 $ 301,399 $ 183,872 $ 313,474 $ 5,083 $ 30,036 $ 2,218,055 Special Mention (7) 13,739 2,521 4,652 10,492 5,439 15,833 — 1,493 54,169 Classified (8-9) 3,389 3,413 2,247 3,181 8,878 24,857 5,056 — 51,021 Total Commercial real estate-owner occupied $ 425,029 $ 492,635 $ 496,488 $ 315,072 $ 198,189 $ 354,164 $ 10,139 $ 31,529 $ 2,323,245 Construction real estate Pass (1-6) $ 292,689 $ 325,010 $ 96,426 $ 30,956 $ 1,413 $ 3,408 $ 10 $ 3,700 $ 753,612 Special Mention (7) 42 2,958 1,046 210 123 114 — — 4,493 Classified (8-9) 1,137 704 — — 13 466 — — 2,320 Total Construction real estate $ 293,868 $ 328,672 $ 97,472 $ 31,166 $ 1,549 $ 3,988 $ 10 $ 3,700 $ 760,425 Residential real estate Pass (1-6) $ 59,259 $ 41,956 $ 51,436 $ 30,713 $ 17,793 $ 77,327 $ 1,464 $ 78,351 $ 358,299 Special Mention (7) 322 — — — 75 1,801 — 614 2,812 Classified (8-9) 127 1,073 69 — 30 1,492 74 7,500 10,365 Total residential real estate $ 59,708 $ 43,029 $ 51,505 $ 30,713 $ 17,898 $ 80,620 $ 1,538 $ 86,465 $ 371,476 Other Pass (1-6) $ 10,071 $ 55,923 $ 67,766 $ 53,569 $ 9,382 $ 19,657 $ 7 $ 28,464 $ 244,839 Special Mention (7) — — 14,472 — — — — 11,645 26,117 Classified (8-9) — — — — — 8 — — 8 Total Other $ 10,071 $ 55,923 $ 82,238 $ 53,569 $ 9,382 $ 19,665 $ 7 $ 40,109 $ 270,964 Total loans classified by risk category $ 2,929,929 $ 2,566,854 $ 1,628,293 $ 967,518 $ 519,573 $ 777,606 $ 29,907 $ 1,386,869 $ 10,806,549 Total loans classified by performing status 77,569 Total loans $ 10,884,118 92 In the tables above, loan originations in 2024 and 2023 with a classification of “special mention” or “classified” primarily represent renewals or modifications initially underwritten and originated in prior years. For certain loans the Company evaluates credit quality based on the aging status. The following tables present the recorded investment in loans based on payment activity as of the dates indicated: December 31, 2024 ($ in thousands) Performing Non Performing Total Commercial and industrial $ 60,899 $ 11 $ 60,910 Real estate: Commercial - investor owned 17,175 — 17,175 Commercial - owner occupied 27,349 — 27,349 Residential 647 — 647 Other 2,036 9 2,045 Total $ 108,106 $ 20 $ 108,126 December 31, 2023 ($ in thousands) Performing Non Performing Total Commercial and industrial $ 26,076 $ 112 $ 26,188 Real estate: Commercial - investor owned 17,885 — 17,885 Commercial - owner occupied 28,373 — 28,373 Residential 712 — 712 Other 4,406 5 4,411 Total $ 77,452 $ 117 $ 77,569 93 NOTE 5 - LEASES Lessee Arrangements The Company has banking and limited-service facilities, data centers, and certain equipment under lease agreements. Most of the leases expire between 2025 and 2029 and include one or more renewal options for up to 5 years. Six leases expire between 2030 and 2034. All leases are classified as operating leases. For the year ended December 31, ($ in thousands) 2024 2023 Operating lease cost $ 5,757 $ 5,628 Short-term lease cost 402 491 Total lease cost $ 6,159 $ 6,119 Payments on operating leases included in the measurement of lease liabilities during the twelve months ended December 31, 2024 and 2023 totaled $ 5.6 million and $ 5.5 million, respectively. Right-of-use assets obtained in exchange for lease obligations totaled $ 2.0 million and $ 15.6 million during the twelve months ended December 31, 2024 and 2023, respectively. The additions in 2024 and 2023 were primarily from lease renewals. Supplemental balance sheet information related to leases is as follows: ($ in thousands) December 31, 2024 December 31, 2023 Operating lease right-of-use assets, included in other assets $ 22,759 $ 25,406 Operating lease liabilities, included in other liabilities 26,150 28,635 Operating leases Weighted average remaining lease term 6 years 7 years Weighted average discount rate 4.0 % 3.9 % Maturities of operating lease liabilities are as follows: ($ in thousands) Year Amount 2025 $ 6,158 2026 6,104 2027 4,850 2028 3,420 2029 2,267 Thereafter 7,061 Total operating lease liabilities, payments 29,860 Less: present value adjustment 3,710 Operating lease liabilities $ 26,150 Lessor Arrangements The Company leases office space to a third party through an operating lease. This lease has remaining lease terms of 18 months. Lessor income was $ 1.9 million and $ 1.8 million for the twelve months ended December 31, 2024, and 2023, respectively. 94 NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s loans and borrowings. The Company does not enter into derivative financial instruments for trading purposes. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. For hedges of the Company’s variable-rate loans, interest rate swaps designated as cash flow hedges involve the receipt of fixed amounts and the Company making variable rate payments. The Company has executed cash flow hedges to reduce a portion of variability in cash flows on the Company’s prime based loan portfolio. Select terms of the hedges are as follows: ($ in thousands) Notional Fixed Rate Effective Date Maturity Date $ 50,000 6.56 % January 25, 2023 February 1, 2027 $ 100,000 6.63 % December 20, 2022 January 1, 2028 $ 100,000 6.66 % April 1, 2025 April 1, 2030 The Company executed a prime based interest rate collar in the fourth quarter of 2022 with a notional amount of $ 100.0 million. The collar includes a cap of 8.14 % and a floor of 5.25 %. The collar matures on October 1, 2029. The Company also executed a 1-month SOFR based interest rate collar in the fourth quarter of 2024 with a notional amount of $ 50.0 million. The collar includes a cap of 4.21 % and a floor of 3.23 %. The collar matures on November 1, 2029. These transactions are commonly referred to as zero cost collars, which 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. For hedges of the variable-rate liabilities, interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company has executed a series of cash flow hedges to fix the effective interest rate for payments due on $ 32.1 million of junior subordinated debentures to a weighted-average-fixed rate o f 2.64 %. Select terms of the hedges are as follows: ($ in thousands) Notional Fixed Rate Maturity Date $ 18,558 2.64 % March 15, 2026 $ 13,506 2.64 % March 17, 2026 95 The gain or loss on derivatives designated and qualified as cash flow hedges of interest rate risk are recorded in accumulated other comprehensive income and subsequently reclassified into interest income or expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income or expense as interest payments are paid on the Company’s variable-rate loans and debt. During the next twelve months, the Company estimates $ 0.6 million will be reclassified as a decrease to interest expense and $ 1.2 million will be reclassified as a decrease to interest income. Non-designated Hedges Derivatives not designated as hedges are not considered speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings as a component of other noninterest income. The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of December 31st of the year presented. Notional Amount Derivative Assets Derivative Liabilities ($ in thousands) 2024 2023 2024 2023 2024 2023 Derivatives designated as hedging instruments Interest rate swaps $ 282,064 $ 211,962 $ 649 $ 1,389 $ 3,139 $ 233 Interest rate collars 150,000 100,000 — 514 1,056 — Total $ 432,064 $ 311,962 $ 649 $ 1,903 $ 4,195 $ 233 Derivatives not designated as hedging instruments Interest rate swaps $ 854,171 $ 779,152 $ 14,495 $ 15,886 $ 14,497 $ 15,951 Derivative assets are classified on the Balance Sheet in other assets. Derivative liabilities are classified on the Balance Sheet in other liabilities. 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. The fair value table above provides the location that financial assets and liabilities are presented on the Balance Sheet. 96 As of December 31, 2024 Gross Amounts Not Offset in the Statement of Financial Position ($ in thousands) Gross Amounts Recognized Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets presented in the Statement of Financial Position Financial Instruments Fair Value Collateral Posted Net Amount Assets: Interest rate swaps $ 15,144 $ — $ 15,144 $ 4,975 $ 9,710 $ 459 Liabilities: Interest rate swaps $ 17,636 $ — $ 17,636 $ 4,975 $ — $ 12,661 Interest rate collars 1,056 — 1,056 — — 1,056 Securities sold under agreements to repurchase 244,618 — 244,618 — 244,618 — As of December 31, 2023 Gross Amounts Not Offset in the Statement of Financial Position ($ in thousands) Gross Amounts Recognized Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets presented in the Statement of Financial Position Financial Instruments Fair Value Collateral Posted Net Amount Assets: Interest rate swaps $ 17,275 $ — $ 17,275 $ 1,105 $ 16,170 $ — Interest rate collar 514 — 514 — — 514 Liabilities: Interest rate swaps $ 16,184 $ — $ 16,184 $ 1,105 $ — $ 15,079 Securities sold under agreements to repurchase 250,197 — 250,197 — 250,197 — As of December 31, 2024, the fair value of counterparty derivatives in a net liability position, which includes accrued interest, related to these agreements was $ 14.0 million. The company has minimum collateral posting thresholds with certain 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 is as follows: December 31, ($ in thousands) 2024 2023 Land $ 11,716 $ 11,716 Buildings and leasehold improvements 54,552 50,720 Furniture, fixtures and equipment 23,634 21,526 89,902 83,962 Less accumulated depreciation and amortization 44,893 41,281 Total fixed assets $ 45,009 $ 42,681 97 Depreciation and amortization of fixed assets included in noninterest expense amounted to $ 5.1 million, $ 5.1 million , $ 5.6 million in 2024, 2023, and 2022, respectively. In 2023, the Company completed an asset sale-leaseback on a branch location in the Kansas City market and recorded a gain of $ 0.1 million. NOTE 8 - GOODWILL AND INTANGIBLE ASSETS The Company’s goodwill was $ 365.2 million for the years ending December 31, 2024 and 2023, respectively. The table below presents a summary of intangible assets: ($ in thousands) Years ended December 31, 2024 2023 Core deposit intangible, net, beginning of year $ 12,318 $ 16,919 Amortization ( 3,834 ) ( 4,601 ) Core deposit intangible, net, end of year $ 8,484 $ 12,318 Amortization expense on the core deposit intangibles was $ 3.8 million, $ 4.6 million, and $ 5.4 million for the years ended December 31, 2024, 2023, and 2022, respectively. The core deposit intangibles are being amortized over a 10 -year period. The following table reflects the amortization schedule for the core deposit intangible at December 31, 2024. Year Core Deposit Intangible ($ in thousands) 2025 $ 3,068 2026 2,301 2027 1,535 2028 953 2029 396 After 2029 231 $ 8,484 NOTE 9 - DEPOSITS Following is a summary of certificates of deposit maturities at December 31, 2024: ($ in thousands) Brokered Customer Total Less than 1 year $ 379,370 $ 843,232 $ 1,222,602 Greater than 1 year and less than 2 years 105,218 30,478 135,696 Greater than 2 years and less than 3 years — 3,587 3,587 Greater than 3 years and less than 4 years — 2,445 2,445 Greater than 4 years and less than 5 years — 1,225 1,225 Greater than 5 years — 4,049 4,049 $ 484,588 $ 885,016 $ 1,369,604 Certificates of deposit balances over the FDIC insurance limit of $250,000 were $ 268.2 million and $ 234.6 million as of December 31, 2024 and 2023, respectively. 98 At December 31, 2024 and 2023, deposit accounts of executive officers and directors, or to entities in which such individuals had beneficial interests as a shareholder, officer, or director totaled $ 0.9 million and $ 2.6 million, respectively. The Company is a participant in certain networks that offer deposit placement services on a reciprocal basis that qualify large deposits for FDIC insurance. The Company had $ 96.6 million and $ 91.7 million of certificates of deposits, and $ 1.2 billion and $ 1.1 billion of demand deposits in these reciprocal accounts at December 31, 2024 and 2023, respectively. At December 31, 2024 and 2023, overdraft deposits of $ 17.2 million and $ 1.6 million, respectively, were reclassified to loans. 99 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 ($ in thousands) 2024 2023 EFSC Clayco Statutory Trust I $ 3,196 $ 3,196 December 17, 2033 December 17, 2008 Floats @ 3 month term SOFR + 3.11 % EFSC Capital Trust II 5,155 5,155 June 17, 2034 June 17, 2009 Floats @ 3 month term SOFR + 2.91 % EFSC Statutory Trust III 11,341 11,341 December 15, 2034 December 15, 2009 Floats @ 3 month term SOFR + 2.23 % EFSC Clayco Statutory Trust II 4,124 4,124 September 15, 2035 September 15, 2010 Floats @ 3 month term SOFR + 2.09 % EFSC Statutory Trust IV 10,310 10,310 December 15, 2035 December 15, 2010 Floats @ 3 month term SOFR + 1.70 % EFSC Statutory Trust V 4,124 4,124 September 15, 2036 September 15, 2011 Floats @ 3 month term SOFR + 1.86 % EFSC Capital Trust VI 14,433 14,433 March 30, 2037 March 30, 2012 Floats @ 3 month term SOFR + 1.86 % EFSC Capital Trust VII 4,124 4,124 December 15, 2037 December 15, 2012 Floats @ 3 month term SOFR + 2.51 % JEFFCO Stat Trust I 7,732 7,732 February 22, 2031 February 22, 2011 Fixed @ 10.20 % JEFFCO Stat Trust II (2) 4,658 4,604 March 17, 2034 March 17, 2009 Floats @ 3 month term SOFR + 3.01 % Trinity Capital Trust III (2) 5,539 5,473 September 8, 2034 September 8, 2009 Floats @ 3 month term SOFR + 2.96 % Trinity Capital Trust IV 10,310 10,310 November 23, 2035 August 23, 2010 Fixed @ 6.88 % Trinity Capital Trust V (2) 8,358 8,195 December 15, 2036 September 15, 2011 Floats @ 3 month term SOFR + 1.91 % Total junior subordinated debentures 93,404 93,121 5.75 % Fixed-to-floating rate subordinated notes 63,250 63,250 June 1, 2030 June 1, 2025 Fixed @ 5.75 % until June 1, 2025, then floats @ Benchmark rate (3 month term SOFR) + 5.66 % Debt issuance costs ( 103 ) ( 387 ) Total fixed-to-floating rate subordinated notes 63,147 62,863 Total subordinated debentures and notes $ 156,551 $ 155,984 (1) Callable each quarter after initial call date. (2) Purchase accounting adjustments are reflected in the balance and also impact the effective interest rate. The Company has 13 unconsolidated statutory business trusts. These trusts issued preferred securities that were sold to third parties. The sole purpose of the trusts was to invest the proceeds in junior subordinated debentures of the Company that have terms identical to the trust preferred securities. The subordinated debentures, which are the sole assets of the trusts, are subordinate and junior in right of payment to all present and future senior and subordinated indebtedness and certain other financial conditions of the Company. The Company fully and unconditionally guarantees each trust’s securities obligations. Under current regulations, the trust preferred securities are included in tier 1 capital for regulatory capital purposes, subject to certain limitations. The trust preferred securities are redeemable in whole or in part on or after their respective call dates. Mandatory redemption dates may be shortened if certain conditions are met. 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 Income. The Company’s investment in these trusts of $ 2.9 million at December 31, 2024 and 2023 is included in other investments in the consolidated balance sheets. The Company has fixed the interest rate on a portion of its junior subordinated debentures through a 100 series of interest rate swaps. For further discussion of the interest rate swaps and the corresponding terms, see “Note 6 – Derivative Financial Instruments.” On May 21, 2020, EFSC issued $ 63.3 million of 5.75 % fixed-to-floating rate subordinated notes due in 2030 in a public offering (the “2030 Notes”). From and including the date of issuance to, but excluding, June 1, 2025, the 2030 Notes will bear interest at a rate equal to 5.75 % per annum, payable semiannually in arrears on each June 1 and December 1. From and including June 1, 2025 to, but excluding, the maturity date or the date of earlier redemption, the 2030 Notes will bear interest at a floating rate per annum equal to a benchmark rate (which is expected to be three-month term SOFR (as defined in the Indenture, dated May 21, 2020, between EFSC and U.S. Bank National Association, as trustee, and subsequent First Supplemental Indenture)), plus 566.0 basis points, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, commencing on September 1, 2025. Notwithstanding the foregoing, in event that the benchmark rate is less than zero, then the benchmark rate shall be deemed to be zero. The Company’s obligation to make payments of principal and interest on the notes is subordinate and junior in right of payment to all of its senior debt. Current regulatory guidance allows for this subordinated debt to be treated as tier 2 regulatory capital for the first five years of its term, subject to certain limitations, and then phased out of tier 2 capital pro rata over the next five years. NOTE 11 - FEDERAL HOME LOAN BANK ADVANCES FHLB advances are collateralized by 1-4 family residential real estate loans, business loans, and certain commercial real estate loans. At December 31, 2024 and 2023, the unpaid principal of the loans pledged to the FHLB of Des Moines was $ 2.6 billion and $ 1.9 billion, respectively. The loans are pledged to the secured line of credit to maintain the borrowing base, which had availability of approximately $ 1.3 billion and $ 1.0 billion at December 31, 2024 and 2023, respectively. The Company did not have any FHLB advances at December 31, 2024 or 2023. NOTE 12 - OTHER BORROWINGS Securities Sold Under Agreement to Repurchase The Company enters into sales of securities under agreements to repurchase. The agreements are transacted with deposit customers and are utilized as an overnight investment product. The amounts received under these agreements represent short-term borrowings and are reflected as a liability in the Consolidated Balance Sheets. The securities underlying these agreements are included in investment securities in the Consolidated Balance Sheets. The Company has no control over the market value of the securities, which fluctuates due to market conditions. 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. A summary of securities sold under agreements to repurchase is as follows: December 31, ($ in thousands) 2024 2023 Securities sold under agreement to repurchase $ 244,618 $ 250,197 Average balance during the year 164,959 168,745 Maximum balance outstanding at any month-end during the year 244,618 250,197 Average interest rate during the year 3.44 % 2.16 % Average interest rate at the year ended 3.09 % 3.56 % 101 Federal Reserve Line The Bank also has a line with the Federal Reserve Bank of St. Louis which provides additional liquidity. As of December 31, 2024 and 2023, $ 2.8 billion and $ 2.5 billion, respectively, was available under this line. This line was secured by a pledge of certain eligible loans and securities aggregating $ 3.2 billion and $ 2.9 billion, at December 31, 2024 and 2023, respectively. Included in the line at December 31, 2023 was $ 215.0 million related to the Bank Term Funding program that ended on March 11, 2024. There were no amounts drawn on the Federal Reserve line of credit as of December 31, 2024 or 2023. Other Borrowings The Company had $ 36.2 million of borrowings from various entities related to New Market Tax Credit investments at December 31, 2024 and 2023. These notes have remaining terms that range from 24 - 29 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 had a one-year term that matured on February 22, 2025, allowed for borrowings up to $ 25 million, and had an interest rate of one-month Term SOFR plus 185 basis points until February 2025. A fee of 0.40 % annually was assessed against the unused commitment. The proceeds could be used for general corporate purposes. The Revolving Agreement was subject to ongoing compliance with a number of customary affirmative and negative covenants as well as specified financial covenants. The revolving credit line was not accessed in 2024 or 2023. Term Loan 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 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. The term loan agreement matured in February 2024 and was not renewed. A summary of the Term Loan is as follows: December 31, ($ in thousands) 2024 2023 Term Loan $ — $ 11,429 Average balance during the year 1,624 14,959 Maximum balance outstanding at any month-end 11,429 17,143 Weighted average interest rate during the year 6.78 % 6.44 % Average interest rate at December 31 — % 6.70 % NOTE 13 - LITIGATION AND OTHER CONTINGENCIES The Company, from time to time, is a party to various legal proceedings arising out of its businesses. Management believes there are no such legal proceedings pending or threatened against the Company in the ordinary course of business, directly, indirectly, or in the aggregate that, if determined adversely, would have a material adverse effect on the business, consolidated financial condition, results of operations or cash flows of the Company. NOTE 14 - REGULATORY CAPITAL Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum ratios (set forth in the following table) of total, tier 1, and common equity tier 1 capital to risk-weighted assets, and of tier 1 capital to average assets. Management believes, as of December 31, 2024 and 2023, that the Company met all capital adequacy requirements to which it is subject. 102 As of December 31, 2024 and 2023, 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 following table. In addition, the Company must maintain an additional CCB above the regulatory minimum ratio requirements. The CCB is designed to insulate banks from periods of stress and impose constraints on dividends, share repurchases and discretionary bonus payments when capital levels fall below prescribed levels. The capital ratios are presented in the following table: December 31, 2024 2023 EFSC Bank EFSC Bank To Be Well-Capitalized Minimum Ratio with CCB Common Equity Tier 1 Capital to Risk Weighted Assets 11.8 % 12.4 % 11.3 % 12.2 % 6.5 % 7.0 % Tier 1 Capital to Risk Weighted Assets 13.1 % 12.4 % 12.7 % 12.2 % 8.0 % 8.5 % Total Capital to Risk Weighted Assets 14.6 % 13.4 % 14.2 % 13.2 % 10.0 % 10.5 % Leverage Ratio (Tier 1 Capital to Average Assets) 11.1 % 10.5 % 11.0 % 10.6 % 5.0 % N/A 103 NOTE 15 - SHAREHOLDERS’ EQUITY AND COMPENSATION PLANS Shareholders’ Equity Common Stock At December 31, 2024 and 2023, the Company has reserved the following shares of its authorized but unissued common stock for possible future issuance in connection with the following: December 31, 2024 2023 Outstanding performance units (maximum issuance) 363,070 273,202 Outstanding RSU’s 297,122 290,141 Outstanding options 510,812 333,608 2018 Stock Incentive Plan 290,841 732,427 Non-Management Director Plan 104,145 130,162 2018 Employee Stock Purchase Plan 399,289 447,655 Total 1,965,279 2,207,195 Common Stock Repurchase Plan 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, 2024, there were 1,373,222 shares available for repurchase under the plan. Preferred Stock The Company has 5,000,000 shares of authorized preferred stock with a par value of $ 0.01 with 75,000 shares issued and outstanding at the end of 2024 and 2023. The Board of Directors has the right to set for each series of preferred stock, subject to the laws of the State of Delaware, the dividend rate, conversion and redemption terms, voting rights and liquidation preferences, among others. In the fourth quarter 2021, the Company issued and sold 3,000,000 depositary shares, each representing 1/40th interest in a share of the Company’s 5 % Noncumulative, Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), totaling $ 72.0 million, net of issuance costs. The depositary shares trade under the ticker “EFSCP”. The Series A Preferred Stock may be redeemed at the Company’s option, subject to prior regulatory approval, in whole or in part on any dividend payment date on or after December 15, 2026 or within 90 days following a regulatory capital event, as defined in the offering documents. If any Series A Preferred Stock are redeemed, a proportionate number of depositary shares will also be redeemed. Dividends 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. 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. Quarterly dividends have been declared and paid in all periods since the preferred stock was issued. 104 Dividends on the Company’s capital stock are prohibited under the terms of the junior subordinated debenture agreements, see “Note 10 – Subordinated Debentures and Notes,” 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. At December 31, 2024, the Company was not in default on any of the junior subordinated debenture issuances or preferred stock. Accumulated Other Comprehensive Income (Loss) 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 Gain (Loss) on Cash Flow Hedges Total 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 ) Net change 31,705 ( 2,605 ) 217 29,317 Balance, December 31, 2023 $ ( 112,844 ) $ 10,580 $ 1,249 $ ( 101,015 ) Net change ( 9,288 ) ( 2,492 ) ( 3,923 ) ( 15,703 ) Balance, December 31, 2024 $ ( 122,132 ) $ 8,088 $ ( 2,674 ) $ ( 116,718 ) The following table presents the pre-tax and after-tax changes in the components of other comprehensive income: 2024 2023 2022 ($ 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 securities $ ( 12,351 ) $ ( 3,063 ) $ ( 9,288 ) $ 42,988 $ 10,833 $ 32,155 $ ( 200,030 ) $ ( 50,407 ) $ ( 149,623 ) Reclassification of gain on sale of available-for-sale securities (a) — — — ( 601 ) ( 151 ) ( 450 ) — — — Reclassification of gain on held-to-maturity securities (a) ( 3,314 ) ( 822 ) ( 2,492 ) ( 3,483 ) ( 878 ) ( 2,605 ) ( 3,605 ) ( 909 ) ( 2,696 ) Change in unrealized gain (loss) on cash flow hedges ( 6,949 ) ( 1,723 ) ( 5,226 ) ( 656 ) ( 165 ) ( 491 ) 3,741 943 2,798 Reclassification of loss on cash flow hedges (b) 1,731 428 1,303 945 237 708 551 139 412 Total other comprehensive income (loss) $ ( 20,883 ) $ ( 5,180 ) $ ( 15,703 ) $ 39,193 $ 9,876 $ 29,317 $ ( 199,343 ) $ ( 50,234 ) $ ( 149,109 ) (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. 105 Compensation Plans The Company has adopted share-based compensation plans to reward and provide long-term incentive for directors and key employees of the Company. These plans provide for the granting of stock, stock options, stock-settled stock appreciation rights, and restricted stock units (“RSUs”), and may contain performance terms for key employees as designated by the Company’s Board of Directors upon the recommendation of the Compensation Committee of the Board. The Company uses authorized and unissued shares to satisfy share award exercises. The total excess income tax benefit for share-based compensation arrangements was immaterial for the year ended December 31, 2024, and $ 0.3 million and $ 0.1 million for the years ended December 31, 2023, and 2022, respectively. At December 31, 2024, there was $ 14.0 million of total unrecognized compensation cost related to unvested share-based compensation awards. The cost is expected to be recognized over a weighted-average term of approximately one year . The following table summarizes share-based compensation expense: For the year ended December 31, ($ in thousands) 2024 2023 2022 Performance stock units $ 2,898 $ 2,879 $ 2,391 Restricted stock units 5,341 5,014 4,156 Stock options 2,110 1,609 916 Employee stock purchase plan 523 644 543 Total share-based compensation expense $ 10,872 $ 10,146 $ 8,006 Performance Stock Units The Company has entered into long-term incentive agreements with certain key employees. These awards are conditioned on certain performance criteria and market criteria measured against a group of peer banks over a three-year period for each grant. The awards contain minimum (threshold), target, and maximum (exceptional) performance levels. In the event of a change in control, as defined in the plan, the awards will vest at least at the target level. The amount of the awards is determined at the end of the three-year vesting and performance period. The fair value of performance units issued upon vesting in 2024, 2023, and 2022 were $ 2.6 million, $ 1.6 million, and $ 0.5 million, respectively. Information related to the outstanding grants at December 31, 2024 is shown below: ($ in thousands, except per share data) 2022 - 2024 Cycle 2023 - 2025 Cycle 2024 - 2026 Cycle Shares issuable at target 41,765 56,424 83,346 Maximum shares issuable 83,530 112,848 166,692 Unrecognized compensation cost $ 92 $ 767 $ 2,156 Weighted average grant date fair value (per share) $ 51.91 $ 62.19 $ 38.84 Maximum Shares Issuable Weighted Average Grant Date Fair Value Outstanding at December 31, 2023 273,202 $ 54.82 Granted 166,692 38.84 Vested (issued 64,582 shares) ( 76,824 ) 47.16 Outstanding at December 31, 2024 363,070 $ 49.10 106 Restricted Stock Units The Company awards nonvested stock, in the form of RSUs to employees. RSUs generally are subject to continued employment and generally vest ratably over three to five years . Vesting is accelerated upon a change in control or the employee meeting certain retirement criteria. RSUs do not carry voting or dividend rights until vested. Sales of the units are restricted prior to vesting. Various information related to the RSUs is shown below. At or for the year ended December 31, ($ in thousands except per unit data) 2024 2023 2022 Total fair value of awards vesting during the year $ 4,919 $ 3,894 $ 3,888 Unrecognized compensation cost 8,328 8,438 8,507 Expected years to recognize unearned compensation 1.5 years 1.7 years 2.0 years Weighted average grant date fair value per unit $ 41.52 $ 50.46 $ 47.96 A summary of the status of the Company’s RSU awards as of December 31, 2024 and changes during the year then ended is presented below. Shares Weighted Average Grant Date Fair Value Outstanding at December 31, 2023 290,141 $ 48.69 Granted 140,359 41.52 Vested ( 116,886 ) 47.22 Forfeited ( 16,492 ) 45.22 Outstanding at December 31, 2024 297,122 $ 46.07 Stock Options In determining compensation cost for stock options, the Black-Scholes option-pricing model is used to estimate the fair value on date of grant. The model utilizes several assumptions in its calculations. The risk-free rate for periods within the contractual life of the option is based on the U.S. 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 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. The dividend yield is determined by annualizing the dividend rate as a percentage of the Company's stock price. The following weighted average assumptions were used for grants issued during the years ended December 31, 2024, 2023, and 2022. Weighted Average For the year ended December 31, 2024 2023 2022 Risk Free Interest Rate 4.27 % 4.09 % 1.95 % Expected Dividend Yield 2.53 % 1.84 % 1.74 % Expected Volatility 35.79 % 34.74 % 34.54 % Expected Term (years) 6.2 6.3 6.2 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 . 107 Following is a summary of stock option activity for 2024. Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Outstanding at December 31, 2023 333,608 $ 49.11 Granted 204,853 39.50 Exercised ( 12,433 ) 45.58 Forfeited ( 15,216 ) 45.84 Outstanding at December 31, 2024 510,812 $ 45.43 8.0 years Exercisable at December 31, 2024 140,375 $ 46.02 6.6 years The intrinsic value of options exercised totaled $ 0.7 million and $ 0.1 million in 2024 and 2023, respectively. The intrinsic value of options outstanding, expected to vest, and exercisable totaled $ 5.6 million, $ 5.6 million, and $ 1.5 million, respectively, in 2024. In 2023, the intrinsic value of options outstanding and expected to vest totaled $ 1.5 million, and the intrinsic value of options exercisable was immaterial. Employee Stock Purchase Plan The Company’s Employee Stock Purchase Plan (“ESPP”) provides its eligible employees with an opportunity to purchase common stock through accumulated payroll contributions. The ESPP provides for shares to be purchased at 85 % of the lesser of the stock price at the enrollment date or the exercise date. The maximum number of shares of common stock available for sale under the ESPP is 750,000 . In 2024, 2023, and 2022, employees purchased 48,366 , 68,286 , and 55,123 shares, respectively, and there are 399,289 remaining shares available under the ESPP at December 31, 2024. Stock Plan for Non-Management Directors The Company has adopted a Stock Plan for Non-Management Directors, which provides for issuing up to 400,000 shares of common stock to non-management directors as compensation. At December 31, 2024, there were 79,900 shares of stock available for grant under the Stock Plan for Non-Management Directors, exclusive of 24,245 shares to be issued upon deferral release. Various information related to the Director Plan is shown below. At or for the year ended December 31, 2024 2023 2022 Shares granted 28,993 27,016 23,343 Weighted average grant date fair value $ 41.10 $ 41.31 $ 42.17 401(k) Plan The Company has a 401(k) savings plan which covers substantially all full-time employees over the age of 21 and matches 100% of the first 6 % of employee contributions. The amount charged to expense for the Company’s contributions to the plan was $ 7.1 million, $ 6.5 million and $ 5.8 million for 2024, 2023, and 2022, respectively. Deferred Compensation Plan 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. At December 31, 2024, the Company had a liability of $ 4.2 million related to the deferred compensation plan. 108 NOTE 16 - INCOME TAXES The components of income tax expense (benefit) for the years ended December 31, are as follows: Year ended December 31, ($ in thousands) 2024 2023 2022 Current: Federal $ 41,477 $ 40,471 $ 42,718 State and local 8,022 9,616 11,505 Total current 49,499 50,087 54,223 Deferred: Federal ( 2,535 ) 283 1,853 State and local ( 986 ) 2,097 341 Total deferred ( 3,521 ) 2,380 2,194 Total income tax expense $ 45,978 $ 52,467 $ 56,417 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, ($ in thousands) 2024 2023 2022 Income tax expense at statutory rate $ 48,561 $ 51,770 $ 54,487 Increase (reduction) in income tax resulting from: Tax-exempt interest income, net ( 5,124 ) ( 4,942 ) ( 4,351 ) State and local income taxes, net 7,334 9,445 9,767 Bank-owned life insurance ( 892 ) ( 888 ) ( 545 ) Non-deductible expenses 1,524 2,059 926 Tax benefit of low-income housing tax credit ("LIHTC") investments, net 285 ( 56 ) ( 195 ) Excess tax benefits 28 ( 251 ) ( 68 ) Federal tax credits ( 5,619 ) ( 4,364 ) ( 3,661 ) Other, net ( 119 ) ( 306 ) 57 Total income tax expense $ 45,978 $ 52,467 $ 56,417 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 immaterial for the years ended December 31, 2024 and December 31, 2023, and $ 0.2 million for the year ended December 31, 2022. As of December 31, 2024 and 2023, the carrying value of the investments related to low-income housing tax credits was $ 16.7 million and $ 17.2 million, respectively. No impairment losses have been recognized from forfeiture or ineligibility of tax credits or other circumstances during the life of any of the investments. 109 A net deferred income tax asset of $ 85.4 million and $ 76.7 million is included in other assets in the consolidated balance sheets at December 31, 2024 and 2023, respectively. The tax effect of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities is as follows: Year ended December 31, ($ in thousands) 2024 2023 Deferred tax assets: Allowance for loan losses $ 34,212 $ 33,423 Loans held-for-sale 3,304 4,463 Other real estate 39 — Deferred compensation 5,209 4,746 Accrued compensation 6,265 6,047 Unrealized losses on securities, net 38,734 33,687 Net operating losses and tax credits 5,299 5,544 Lease liability accrual 6,485 7,101 Other investments 5,587 5,341 Research and experimental expenses 1,473 1,944 Fixed assets 2,802 2,341 Deferred expenses 3,021 1,158 Other deferred tax assets 3,248 3,665 Total deferred tax assets 115,678 109,460 Deferred tax liabilities: Acquired loans 1,922 2,388 Intangible assets 8,756 8,576 Right of use asset 5,644 6,301 Other investments 10,233 11,834 Other deferred tax liabilities 951 841 Total deferred tax liabilities 27,506 29,940 Net deferred tax asset before valuation allowance 88,172 79,520 Less: valuation allowance 2,812 2,812 Net deferred tax asset $ 85,360 $ 76,708 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. Tax credit carryforwards originated in years 2010-2015 and will expire in the years between 2030-2035. 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. The company determined it was more likely than not that some of the acquired net operating loss and tax credit assets would not be realized and has recognized a valuation allowance of $ 2.8 million at December 31, 2024 and 2023, respectively. The Company and its subsidiaries file income tax returns in the federal jurisdiction and in thirty-one states and localities. The Company is no longer subject to federal, state or local income tax audits by tax authorities for years before 2019, with the exception of 2016 and 2017 being open years by state taxing authorities. Net operating losses generated prior to 2016 that are utilized going forward would still be subject to examination. As of December 31, 2024, the gross amount of unrecognized tax benefits was $ 5.0 million and the total amount of net unrecognized tax benefits that would impact the effective tax rate, if recognized, was $ 4.0 million compared to $ 2.4 million and $ 2.2 million as of December 31, 2023 and 2022, respectively. The Company believes it is 110 reasonably possible the gross amount of unrecognized benefits will be reduced by approximately $ 0.3 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 California, Missouri, and Texas, 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 $ 2.1 million as of 2024, $ 1.0 million as of 2023, and $ 0.6 million as of 2022. The activity in the gross liability for unrecognized tax benefits was as follows: ($ in thousands) 2024 2023 2022 Balance at beginning of year $ 3,077 $ 2,724 $ 2,697 Additions based on tax positions related to the current year 1,212 727 683 Additions for tax positions of prior years 1,128 24 47 Settlements for tax positions of prior years — — ( 82 ) Settlements or lapse of statute of limitations ( 401 ) ( 398 ) ( 621 ) Balance at end of year $ 5,016 $ 3,077 $ 2,724 NOTE 17 - COMMITMENTS AND CONTINGENT LIABILITIES Long-term Lease Commitments See “Note 5 – Leases” in this report for information regarding the Company’s long-term lease commitments. Off-balance-Sheet Commitments The Company issues financial instruments in the normal course of the business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company’s extent of involvement and maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is not more than the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets. The contractual amounts of off-balance-sheet financial instruments are as follows: ($ in thousands) December 31, 2024 December 31, 2023 Commitments to extend credit $ 3,001,565 $ 2,937,760 Letters of credit 137,926 107,082 Tax credits 1,801 3,514 Limited partnership commitments 39,278 32,548 There was an insignificant amount of unadvanced commitments on impaired loans at December 31, 2024 and December 31, 2023. Other liabilities include an allowance for credit losses on unadvanced commitments of $ 6.1 million and $ 6.6 million at December 31, 2024 and 2023, respectively. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments usually have fixed expiration dates or other termination clauses, may have significant usage restrictions, and may require payment of a fee. Of the total commitments to extend credit at December 31, 2024, and December 31, 2023, $ 156.5 million and $ 191.6 million, respectively, represent fixed rate loan commitments. Since certain of the commitments may expire without being drawn upon or may be revoked, the 111 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 amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, premises and equipment, and real estate. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit are issued to support contractual obligations of the Company’s customers. The credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers. The approximate remaining term of letters of credit range from one month to 3 years at December 31, 2024. 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 The fair value of an asset or liability is the exchange price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: • Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. • Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. • Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. 112 Fair value on a recurring basis 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, 2024 ($ in thousands) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Assets Securities available-for-sale Obligations of U.S. Government-sponsored enterprises $ — $ 276,040 $ — $ 276,040 Obligations of states and political subdivisions — 409,197 — 409,197 Agency mortgage-backed securities — 1,027,394 — 1,027,394 Corporate debt securities — 20,746 — 20,746 U.S. Treasury Bills — 128,893 — 128,893 Total securities available-for-sale — 1,862,270 — 1,862,270 Other investments — 2,983 — 2,983 Derivatives — 15,144 — 15,144 Total assets $ — $ 1,880,397 $ — $ 1,880,397 Liabilities Derivatives $ — $ 18,692 $ — $ 18,692 Total liabilities $ — $ 18,692 $ — $ 18,692 December 31, 2023 ($ in thousands) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Assets Securities available-for-sale Obligations of U.S. Government-sponsored enterprises $ — $ 296,446 $ — $ 296,446 Obligations of states and political subdivisions — 432,171 — 432,171 Agency mortgage-backed securities — 700,381 — 700,381 Corporate debt securities — 181,701 — 181,701 U.S. Treasury Bills — 7,574 — 7,574 Total securities available-for-sale — 1,618,273 — 1,618,273 Other investments — 2,941 — 2,941 Derivative financial instruments — 17,789 — 17,789 Total assets $ — $ 1,639,003 $ — $ 1,639,003 Liabilities Derivative financial instruments $ — $ 16,184 $ — $ 16,184 Total liabilities $ — $ 16,184 $ — $ 16,184 • Securities available-for-sale . Fair values for available-for-sale securities are based upon dealer quotes, market spreads, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions at the security level. Changes in fair value are recognized through accumulated other comprehensive income. 113 • Derivatives . Derivatives are reported at fair value utilizing Level 2 inputs. The Company obtains counterparty quotations to value its interest rate swaps and caps. In addition, the Company validates the counterparty quotations with third-party valuation sources. Derivatives with negative fair values are included in Other liabilities in the consolidated balance sheets. Derivatives with positive fair value are included in Other assets in the consolidated balance sheets. Changes in the fair value of client-related derivative instruments are recognized through net income. For the years ended December 31, 2024 and 2023, the gains and losses substantially offset each other due to the Company’s hedging of the client swaps with other bank counterparties. Fair value on a non-recurring basis Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; 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). • 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 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. These assets are initially reported at fair value, less cost to sell, and subsequently at the lower of cost or fair value, less cost to sell. Fair value is based on third party appraisals of each property and the Company’s judgment of other relevant market conditions. These are considered Level 3 inputs. The following tables present financial instruments and non-financial assets still held as of the reporting date measured at fair value on a non-recurring basis. December 31, 2024 (1) (1) (1) (1) ($ in thousands) Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Individually-evaluated loans $ 15,370 $ — $ — $ 15,370 Other real estate 3,955 — — 3,955 Total $ 19,325 $ — $ — $ 19,325 114 December 31, 2023 (1) (1) (1) (1) ($ in thousands) Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Individually-evaluated loans $ 5,138 $ — $ — $ 5,138 Other real estate 5,736 — — 5,736 Total $ 10,874 $ — $ — $ 10,874 (1) The amounts represent balances measured at fair value during the period and still held as of the reporting date. Carrying amount and fair value Following is a summary of the carrying amounts and fair values of the Company’s financial instruments on the consolidated balance sheets at December 31, 2024 and 2023. This summary excludes certain financial assets and liabilities for which carrying value approximates fair value and financial instruments that are recorded at fair value on a recurring basis disclosed above. Financial instruments for which carrying values approximate fair value include cash and due from banks, federal funds sold, interest bearing deposits, accrued interest receivable/payable, demand, savings and money market deposits. December 31, 2024 December 31, 2023 ($ in thousands) Carrying Amount Estimated fair value Level Carrying Amount Estimated fair value Level Balance sheet assets Securities held-to-maturity, net $ 928,935 $ 858,871 Level 2 $ 750,434 $ 696,647 Level 2 Other investments 69,801 69,801 Level 2 63,255 63,255 Level 2 Loans held-for-sale 110 110 Level 2 359 359 Level 2 Loans, net 11,082,405 10,983,459 Level 3 10,749,347 10,392,551 Level 3 State tax credits, held-for-sale 14,663 15,518 Level 3 22,115 23,897 Level 3 Servicing asset 2,256 3,570 Level 2 2,861 3,799 Level 2 Balance sheet liabilities Certificates of deposit $ 1,369,604 $ 1,364,377 Level 3 $ 1,272,914 $ 1,265,905 Level 3 Subordinated debentures and notes 156,551 155,102 Level 2 155,984 154,354 Level 2 Other borrowings 280,821 258,461 Level 2 297,829 274,658 Level 2 Limitations Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Such estimates include the valuation of loans, goodwill, intangible assets, and other long-lived assets, along with assumptions used in the calculation of income taxes, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using 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 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 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 115 and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates. NOTE 19 - PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS Condensed Balance Sheets December 31, ($ in thousands) 2024 2023 Assets Cash $ 123,956 $ 100,418 Investment in Bank 1,824,550 1,748,260 Investment in nonbank subsidiaries 8,717 11,267 Other assets 26,664 27,701 Total assets $ 1,983,887 $ 1,887,646 Liabilities and Shareholders’ Equity Subordinated debentures and notes $ 156,551 $ 155,984 Notes payable — 11,429 Accounts payable and other liabilities 3,334 4,165 Shareholders' equity 1,824,002 1,716,068 Total liabilities and shareholders' equity $ 1,983,887 $ 1,887,646 Condensed Statements of Income Year ended December 31, ($ in thousands) 2024 2023 2022 Income: Dividends from Bank $ 115,000 $ 45,000 $ 75,000 Dividends from nonbank subsidiaries 720 4,875 1,700 Other 3,959 7,736 1,086 Total income 119,679 57,611 77,786 Expenses: Interest expense 10,671 10,856 9,825 Other expenses 9,246 8,774 8,580 Total expenses 19,917 19,630 18,405 Income before taxes and equity in undistributed earnings of subsidiaries 99,762 37,981 59,381 Income tax benefit 3,530 2,520 3,585 Net income before equity in undistributed earnings of subsidiaries 103,292 40,501 62,966 Equity in undistributed earnings of subsidiaries 81,974 153,558 140,077 Net income $ 185,266 $ 194,059 $ 203,043 116 Condensed Statements of Cash Flows Year ended December 31, ($ in thousands) 2024 2023 2022 Cash flows from operating activities: Net income $ 185,266 $ 194,059 $ 203,043 Adjustments to reconcile net income to net cash provided by operating activities: Share-based compensation 1,675 4,439 8,006 Net income of subsidiaries ( 197,694 ) ( 203,433 ) ( 216,777 ) Dividends from subsidiaries 115,720 49,875 76,700 Other, net ( 1,020 ) ( 421 ) 6,102 Net cash provided by operating activities 103,947 44,519 77,074 Cash flows from investing activities: Cash proceeds from subsidiaries 2,188 — — Purchases of other investments ( 1,216 ) ( 1,002 ) ( 2,187 ) Proceeds from distributions on other investments 2,549 3,314 3,878 Net cash provided by investing activities 3,521 2,312 1,691 Cash flows from financing activities: Repayment of long-term debt ( 11,429 ) ( 5,714 ) ( 5,714 ) Dividends paid on common stock ( 39,550 ) ( 37,368 ) ( 33,602 ) Repurchase of common stock ( 29,641 ) — ( 32,923 ) Dividends paid on preferred stock ( 3,750 ) ( 3,750 ) ( 4,041 ) Other 440 1,401 1,773 Net cash used in financing activities ( 83,930 ) ( 45,431 ) ( 74,507 ) Net increase in cash and cash equivalents 23,538 1,400 4,258 Cash and cash equivalents, beginning of year 100,418 99,018 94,760 Cash and cash equivalents, end of year $ 123,956 $ 100,418 $ 99,018 117 NOTE 20 - SUPPLEMENTAL FINANCIAL INFORMATION The following table presents other income and other expense components, including items that 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) 2024 2023 2022 Other income: Bank-owned life insurance $ 3,737 $ 3,688 $ 3,324 Community development fees 2,440 4,037 5,304 Net gain (loss) on sales of other real estate owned 3,089 187 ( 93 ) Other income 12,721 15,000 8,182 Total other noninterest income $ 21,987 $ 22,912 $ 16,717 Other expense: Amortization of intangibles $ 3,834 $ 4,601 $ 5,367 Banking expenses 8,409 8,110 7,212 FDIC and other insurance 13,161 13,164 7,098 Loan, legal expenses 8,749 8,639 6,943 Other professional services 6,671 7,040 5,399 Other expenses 29,706 32,332 25,854 Total other noninterest expenses $ 70,530 $ 73,886 $ 57,873 NOTE 21 - SEGMENT REPORTING The Company has determined it has one operating and reportable segment. The economic characteristics, including the nature, the type or class of customer, and the nature of the regulatory environment of the products, services and business lines of the Company are all similar. The Company provides a full range of banking services, including mortgage, tax credit brokerage, wealth management and traditional banking services, to individuals and corporate customers. Refer to “Item 8. Note 1 – Summary of Significant Accounting Policies” for the accounting policies of the Company. The Company’s chief operating decision maker (“CODM”) is the chief executive officer. The operating results that are regularly reviewed by the CODM are the consolidated results of the Company. The CODM uses the consolidated results of the Company in deciding whether to reinvest profits into the segment or into other parts of the entity, such as for acquisitions or to pay dividends. The CODM assesses performance for the segment and decides how to allocate resources based on net income, reported on the income statement as consolidated net income. The CODM is provided with the consolidated financial statement package on a monthly basis. The Company considered the following factors, among others, in determining significant segment expenses: the magnitude of the expense item and its relevance to the segment’s performance, the variability and volatility of the expense item, and whether the expenses are used by the CODM. The Company’s significant segment revenues and expenses that are regularly provided to the CODM, including the Company’s profit or loss, have been included within the primary financial statements and notes thereto. Refer to “Item 8. Consolidated Financial Statements” and “Item 8. Note 20 - Supplemental Financial Information” for these figures. 118 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.