ENTERPRISE FINANCIAL SERVICES CORP

Previous wording

The following discussion describes the significant changes to the financial condition of the Company that have occurred during the first six months of 2024 compared to the financial condition as of December 31, 2023. In addition, this discussion summarizes the significant factors affecting the results of operations of the Company for the three months ended June 30, 2024, compared to the linked first quarter of 2024 (“linked quarter”) and the results of operations, liquidity and cash flows for the six months ended June 30, 2024 compared to the same period in 2023 (“prior year-to-date period”). In light of the nature of the Company’s business, the Company’s management believes that the comparison to the linked quarter is the most relevant to understand the financial results from management’s perspective. For purposes of the Quarterly Report on Form 10-Q, the Company is presenting a comparison to the corresponding prior year-to-date period. This discussion should be read in conjunction with the accompanying condensed consolidated financial statements included in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

The following discussion describes the significant changes to the financial condition of the Company that have occurred during the first nine months of 2024 compared to the financial condition as of December 31, 2023. In addition, this discussion summarizes the significant factors affecting the results of operations of the Company for the three months ended September 30, 2024, compared to the linked second quarter of 2024 (“linked quarter”) and the results of operations, liquidity and cash flows for the nine months ended September 30, 2024 compared to the same period in 2023 (“prior year-to-date period”). In light of the nature of the Company’s business, the Company’s management believes that the comparison to the linked quarter is the most relevant to understand the financial results from management’s perspective. For purposes of the Quarterly Report on Form 10-Q, the Company is presenting a comparison to the corresponding prior year-to-date period. This discussion should be read in conjunction with the accompanying condensed consolidated financial statements included in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

The Company maintains separate allowances for funded loans, unfunded loans, and held-to-maturity securities, collectively referred to as the ACL. The ACL is a valuation account to adjust the cost basis to the amount expected to be collected, based on management’s experience, current conditions, and reasonable and supportable forecasts. For purposes of determining the allowance for funded and unfunded loans, the portfolios are segregated into pools that share similar risk characteristics and are then further segregated by credit grades. Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. The Company estimates the amount of the allowance based on loan loss experience, adjusted for current and forecasted economic conditions, including unemployment, changes in GDP, and commercial and residential real estate prices. The Company’s forecast of economic conditions uses internal and external information and considers a weighted average of a baseline, upside, and downside scenarios. Because economic conditions can change and are difficult to predict, the anticipated amount of estimated loan defaults and losses, and therefore the adequacy of the allowance, could change significantly and have a direct impact on the Company’s credit costs. The Company’s allowance for credit losses on loans was $139.5 million at June 30, 2024 based on the weighting of the different economic scenarios. As a hypothetical example, if the Company had only used the upside scenario, the allowance would have decreased $27.8 million. Conversely, the allowance would have increased $47.3 million using only the downside scenario.

Current wording

The Company maintains separate allowances for funded loans, unfunded loans, and held-to-maturity securities, collectively referred to as the ACL. The ACL is a valuation account to adjust the cost basis to the amount expected to be collected, based on management’s experience, current conditions, and reasonable and supportable forecasts. For purposes of determining the allowance for funded and unfunded loans, the portfolios are segregated into pools that share similar risk characteristics and are then further segregated by credit grades. Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. The Company estimates the amount of the allowance based on loan loss experience, adjusted for current and forecasted economic conditions, including unemployment, changes in GDP, and commercial and residential real estate prices. The Company’s forecast of economic conditions uses internal and external information and considers a weighted average of a baseline, upside, and downside scenarios. Because economic conditions can change and are difficult to predict, the anticipated amount of estimated loan defaults and losses, and therefore the adequacy of the allowance, could change significantly and have a direct impact on the Company’s credit costs. The Company’s allowance for credit losses on loans was $139.8 million at September 30, 2024 based on the weighting of the different economic scenarios. As a hypothetical example, if the Company had only used the upside scenario, the allowance would have decreased $26.5 million. Conversely, the allowance would have increased $45.8 million using only the downside scenario.

Previous wording

•PPNR 1 of $63.3 million for the second quarter 2024 and $120.6 million for the six months ended June 30, 2024 increased $5.9 million and decreased $23.3 million from the linked quarter and prior year-to-date period, respectively. The increase from the linked quarter was primarily due to higher noninterest income, primarily tax credit income, and higher net interest income that benefited from higher average loan balances and expanding yields on earning assets. These increases were partially offset by an increase in deposit interest expense. The decrease compared to the prior year-to-date period was primarily due to the higher interest rate environment that increased deposit interest expense and the cost of variable deposit services charges, which are influenced by current market rates.

Current wording

•PPNR 1 of $65.1 million for the third quarter 2024 and $185.7 million for the nine months ended September 30, 2024 increased $1.8 million and decreased $23.3 million from the linked quarter and prior year-to-date period, respectively. The increase from the linked quarter was primarily due to higher noninterest income and higher net interest income that benefited from an increase in average earning assets. The increase in noninterest income was primarily from tax credit income, a net gain on the sale of other real estate owned and an increase in income on community development investments. The increase in operating revenue was partially offset by an increase in noninterest expense, primarily deposit services costs and employee compensation and benefits. The decrease compared to the prior year-to-date period was primarily due to the higher interest rate environment that increased deposit interest expense and the cost of deposit services charges, as well as an increase in employee compensation and benefits.

Previous wording

•Net interest income of $140.5 million for the second quarter 2024 and $278.3 million for the six months ended June 30, 2024 increased $2.8 million and decreased $2.0 million from the linked and prior year-to-date period, respectively. The NIM was 4.19% for the second quarter 2024 and 4.16% for the six months ended June 30, 2024, compared to 4.13% and 4.60% for the linked and prior year-to-date period, respectively. Compared to the linked quarter, net interest income increased due to higher average loan and interest-earning asset balances, along with an increase in the earning-asset yield that expanded more than the cost of interest-bearing liabilities. The decrease from the prior year-to-date period reflects higher interest expense on the deposit portfolio, as lagged deposit rates have increased, partially offset by the benefit of higher market interest rates on interest-earning assets and organic growth.

Current wording

•Net interest income of $143.5 million for the third quarter 2024 and $421.7 million for the nine months ended September 30, 2024 increased $2.9 million and decreased $0.1 million from the linked and prior year-to-date period, respectively. The NIM was 4.17% for both the third quarter 2024 and the nine months ended September 30, 2024, compared to 4.19% and 4.50% for the linked and prior year-to-date period, respectively. Compared to the linked quarter, the increase in net interest income reflects the benefit of organic growth and an additional day in the quarter. The decrease from the prior year-to-date period reflects higher interest expense on the deposit portfolio, as lagged deposit rates have increased, partially offset by the benefit of higher market interest rates. In late September 2024, the Federal Reserve reduced the federal funds target rate by 50 basis points. In response, the Company has adjusted deposit pricing to partially mitigate the impact on income from the repricing of variable rate loans.

Previous wording

•Noninterest expense of $94.0 million for the second quarter 2024 and $187.5 million for the six months ended June 30, 2024 increased $0.5 million and increased $20.6 million from the linked quarter and prior year-to-date period, respectively. The increase from the linked quarter was primarily driven by higher variable deposit costs ($1.4 million) and expenses related to the core system conversion ($0.9 million), partially offset by a decrease in employee compensation ($0.7 million) and the FDIC special assessment ($0.6 million). The increase from the prior year-to-date period was primarily due to variable deposit servicing costs ($12.3 million) and employee compensation ($5.6 million).

Current wording

•Noninterest expense of $98.0 million for the third quarter 2024 and $285.5 million for the nine months ended September 30, 2024 increased $4.0 million and $29.9 million from the linked quarter and prior year-to-date period, respectively. The increase from the linked quarter was primarily driven by higher deposit costs ($2.1 million), employee compensation ($0.8 million) and expenses related to the core system conversion ($0.1 million). The increase from the prior year-to-date period was primarily due to deposit servicing costs ($15.1 million) employee compensation ($10.2 million), and expenses related to the core system conversion ($3.0 million).

Previous wording

•Loans – Total loans increased $115.9 million, or 1.06%, to $11.0 billion at June 30, 2024, compared to $10.9 billion at December 31, 2023. Average loans totaled $10.9 billion for the six months ended June 30, 2024 compared to $10.0 billion for the six months ended June 30, 2023.

Current wording

•Loans – Total loans increased $195.8 million, or 1.80%, to $11.1 billion at September 30, 2024, compared to $10.9 billion at December 31, 2023. Average loans totaled $11.0 billion for the nine months ended September 30, 2024 compared to $10.2 billion for the nine months ended September 30, 2023.

Previous wording

•Deposits – Total deposits increased $106.0 million, to $12.3 billion at June 30, 2024 from $12.2 billion at December 31, 2023. Total estimated insured deposits 1, which includes collateralized deposits, reciprocal deposits and accounts that qualify for pass through insurance, totaled $8.7 billion at June 30, 2024, compared to $8.3 billion at December 31, 2023. Average deposits totaled $12.3 billion for the six months ended June 30, 2024 compared to $11.2 billion for the prior year-to-date period. Noninterest-bearing deposit accounts represented 32.0% of total deposits and the loan to deposit ratio was 89.6% at June 30, 2024, compared to 32.5% and 89.4%, respectively, at December 31, 2023.

Current wording

•Deposits – Total deposits increased $289.0 million, to $12.5 billion at September 30, 2024 from $12.2 billion at December 31, 2023. Total estimated insured deposits 1, which includes collateralized deposits, reciprocal deposits and accounts that qualify for pass through insurance, totaled $8.8 billion at September 30, 2024, compared to $8.3 billion at December 31, 2023. Average deposits totaled $12.4 billion for the nine months ended September 30, 2024 compared to $11.4 billion for the prior year-to-date period. Noninterest-bearing deposit accounts represented 31.6% of total deposits and the loan to deposit ratio was 88.9% at September 30, 2024, compared to 32.5% and 89.4%, respectively, at December 31, 2023.

Previous wording

•Asset quality – The allowance for credit losses on loans to total loans was 1.27% at June 30, 2024, compared to 1.24% at December 31, 2023 The ratio of nonperforming assets to total assets was 0.33% at June 30, 2024 compared to 0.34% at December 31, 2023. A provision for credit losses of $4.8 million and $10.6 million was recorded in the second quarter of 2024 and the six months ended June 30, 2024, respectively. This compares to $5.8 million in the linked quarter and $10.5 million in the prior year-to-date period.

Current wording

•Asset quality – The allowance for credit losses on loans to total loans was 1.26% at September 30, 2024, compared to 1.24% at December 31, 2023. The ratio of nonperforming assets to total assets was 0.22% at September 30, 2024 compared to 0.34% at December 31, 2023. A provision for credit losses of $4.1 million and $14.7 million was recorded in the third quarter of 2024 and the nine months ended September 30, 2024, respectively. This compares to $4.8 million in the linked quarter and $18.6 million in the prior year-to-date period.

Previous wording

•Shareholders’ equity– Total shareholders’ equity was $1.76 billion at June 30, 2024, compared to $1.72 billion at December 31, 2023, and the tangible common equity to tangible assets ratio 2 was 9.18% at June 30, 2024 compared to 8.96% at December 31, 2023. The Company and the Bank’s regulatory capital ratios exceeded the “well-capitalized” levels at June 30, 2024.

Current wording

•Shareholders’ equity– Total shareholders’ equity was $1.83 billion at September 30, 2024, compared to $1.72 billion at December 31, 2023, and the tangible common equity to tangible assets ratio 2 was 9.50% at September 30, 2024 compared to 8.96% at December 31, 2023. The Company and the Bank’s regulatory capital ratios exceeded the “well-capitalized” levels at September 30, 2024.

Previous wording

The Company’s board of directors approved a quarterly dividend of $0.27 per common share, payable on September 30, 2024 to shareholders of record as of September 16, 2024. The board of directors also declared a cash dividend of $12.50 per share of Series A Preferred Stock (or $0.3125 per depositary share) representing a 5% per annum rate for the period commencing (and including) June 15, 2024 to (but excluding) September 15, 2024. The dividend will be payable on September 15, 2024 and will be paid on September 16, 2024 to holders of record of Series A Preferred Stock as of August 30, 2024.

Current wording

The Company’s board of directors approved a quarterly dividend of $0.28 per common share, payable on December 31, 2024 to shareholders of record as of December 16, 2024. The board of directors also declared a cash dividend of $12.50 per share of Series A Preferred Stock (or $0.3125 per depositary share) representing a 5% per annum rate for the period commencing (and including) September 15, 2024 to (but excluding) December 15, 2024. The dividend will be payable on December 15, 2024 and will be paid on December 16, 2024 to holders of record of Series A Preferred Stock as of November 29, 2024.

Previous wording

Net interest income on a tax equivalent basis of $142.6 million for the quarter ended June 30, 2024 and $282.3 million for the six months ended June 30, 2024, increased $2.8 million and decreased $2.0 million from the linked and prior year-to-date period, respectively. The decrease from the linked quarter was primarily due to an expansion of the loan portfolio and securities yields, and to a lesser extent, an increase in average earning assets. This increase was partially offset by an increase in cost and average interest-bearing deposit balances. The decrease from the prior year-to-date period reflects higher interest expense on the deposit portfolio, as lagged deposit rates have increased. The effective federal funds rate for both the linked and current quarter was 5.33%. The effective federal funds rate for the first six months of 2024 was 5.33%, an increase of 57 basis points compared to the prior year-to-date period.

Current wording

Net interest income on a tax equivalent basis of $145.6 million for the quarter ended September 30, 2024 and $427.9 million for the nine months ended September 30, 2024, increased $3.0 million and decreased $0.1 million from the linked and prior year-to-date period, respectively. The increase from the linked quarter was primarily due to higher interest-earning asset balances and an extra day in the quarter. This increase was partially offset by an increase in cost and average interest-bearing deposit balances. The decrease from the prior year-to-date period reflects higher interest expense on the deposit portfolio, as lagged deposit rates have increased. The effective federal funds rate for the current quarter was 5.27%, a decrease of 6 basis points compared to the linked quarter. The effective federal funds rate for the first nine months of 2024 was 5.31%, an increase of 38 basis points compared to the prior year-to-date period.

Previous wording

Compared to the linked quarter, tax equivalent interest income increased $3.9 million primarily due to a $34.6 million increase in average loan balances, as well as an 8 basis point increase in yield. The average interest rate of new loan originations in the second quarter 2024 was 8.07%, an increase of 23 basis points from the linked quarter. Interest on cash accounts increased $0.8 million from the linked quarter due to a $57.4 million increase in average balances, and interest on securities increased $0.5 million due to an 8 basis point increase in yield.

Current wording

Compared to the linked quarter, tax equivalent interest income increased $4.7 million primarily due to a $193.2 million increase in all average interest earning balances, including loans, securities and interest-earning cash accounts. Interest on securities increased $1.4 million from the linked quarter due to a $77.5 million increase in average balances, and a 5 basis point increase in yield.

Previous wording

Tax equivalent interest income increased $62.4 million over the prior year-to-date period due to a $53.0 million increase in loan interest and a $9.4 million increase in interest on securities and interest earning cash. Loan yields in the first six months of 2024 increased 42 basis points to 6.91%, compared to 6.49% in the prior year-to-date period.

Current wording

Tax equivalent interest income increased $77.8 million over the prior year-to-date period due to a $64.2 million increase in loan interest and a $13.6 million increase in interest on securities and interest-earning cash. Loan yields in the first nine months of 2024 increased 32 basis points to 6.92%, compared to 6.60% in the prior year-to-date period. Average loans increased $750.8 million, or 7.36% over the prior year-to-date period. Average securities increased $137.2 million, or 6.0% over the prior year-to-date period.

Previous wording

Compared to the linked quarter, interest expense increased $1.1 million primarily due to an increase in interest expense on certificates of deposit that includes brokered amounts. Average certificates of deposit increased $70.3 million and the cost increased 10 basis points in the second quarter 2024. The average cost of interest-bearing deposits was 3.19%, an increase of 5 basis points compared to the linked quarter. The total cost of deposits, including noninterest-bearing demand accounts, was 2.16% during the second quarter 2024, compared to 2.13% in the linked quarter. While the total cost of deposits increased over the linked quarter, the monthly cost of total deposits has been stable since March 2024.

Current wording

Compared to the linked quarter, interest expense increased $1.7 million primarily due to an increase in interest expense on money market accounts. Average money market balances increased $116.8 million in the third quarter 2024. The average cost of interest-bearing deposits was 3.22%, an increase of 3 basis points compared to the linked quarter. The total cost of deposits, including noninterest-bearing demand accounts, was 2.18% during the third quarter 2024, compared to 2.16% in the linked quarter. While the total cost of deposits increased over the linked quarter, the monthly cost of total deposits has been relatively stable since March 2024.

Previous wording

Interest expense increased $64.4 million over the prior year-to-date period, primarily due to the higher rate environment and organic growth in deposit balances. The average cost of interest-bearing deposits increased 124 basis points year-over-year. The total cost of deposits, including noninterest-bearing demand accounts, was 2.15% during the six months ended June 30, 2024, compared to 1.19% during the prior year-to-date period.

Current wording

Interest expense increased $78.0 million over the prior year-to-date period, primarily due to the higher rate environment and organic growth in deposit balances. The average cost of interest-bearing deposits increased 94 basis points year-over-year. The total cost of deposits, including noninterest-bearing demand accounts, was 2.16% during the nine months ended September 30, 2024, compared to 1.42% during the prior year-to-date period.

Previous wording

NIM, on a tax equivalent basis, was 4.19% in the second quarter 2024 and 4.16% for the first six months of 2024, an increase of 6 basis points and a decrease of 44 basis points from the linked and prior year-to-date period, respectively.

Current wording

NIM, on a tax equivalent basis, was 4.17% in the third quarter 2024 and the first nine months of 2024, a decrease of 2 basis points and 33 basis points from the linked and prior year-to-date period, respectively.

Previous wording

Total noninterest income for the second quarter 2024 was $15.5 million, an increase of $3.3 million from the linked quarter primarily due to an increase in tax credit income. Tax credit income is typically highest in the fourth quarter of each year and will vary in other periods based on transaction volumes and fair value changes on credits carried at fair value. The decrease in other income from the linked quarter was primarily driven by gains on the sale of SBA loans that were recognized in the linked quarter.

Current wording

Total noninterest income for the third quarter 2024 was $21.4 million, an increase of $5.9 million from the linked quarter. The increase from the linked quarter was primarily due to an increase in tax credit income from a positive change in credits carried at fair value, and a net gain on the sale of other real estate owned that is included in Other income. Tax credit income varies based on transaction volumes and fair value changes on credits carried at fair value.

Previous wording

Total noninterest income for the six months ended June 30, 2024 was $27.7 million, a decrease from the prior year-to-date period of $3.5 million which was primarily due to decreases in tax credit income and other income. The increase in market interest rates used as a discount rate in the fair value of certain tax credits was higher in the six months ended June 30, 2024, compared to the prior year-to-date period. This resulted in a larger reduction in fair value during 2024 compared to the prior year. The decrease in other income for the six months ended June 30, 2024, compared to the prior year-to-date period, is primarily due to a lower level of income on community development investments which are not a consistent source of income and fluctuate based on distributions from the underlying funds.

Current wording

Total noninterest income for the nine months ended September 30, 2024 was $49.1 million, an increase from the prior year-to-date period of $5.8 million which was primarily due to increases in tax credit income ($3.4 million), deposit service charges ($1.4 million), and other income ($0.7 million). Other income for the nine months ended September 30, 2024 increased compared to the prior year-to-date period primarily due to a net gain on the sale of other real estate owned ($3.0 million), partially offset by a lower level of income on community development investments ($0.9 million) which are not a consistent source of income and fluctuate based on distributions from the underlying funds.

Previous wording

Noninterest expense was $94.0 million for the second quarter 2024, an increase of $0.5 million from $93.5 million in the linked quarter. Employee compensation and benefits decreased $0.7 million from the linked quarter primarily due to employer payroll taxes that are seasonally higher in the first quarter each year and a decline in self-insured medical claims. Deposit costs relate to certain specialized deposit businesses that receive an earnings credit allowance for deposit related expenses that are impacted by interest rates and average balances. Deposit costs increased $1.4 million from the linked quarter primarily due to the expiration of unused allowances that reduced expense in the first quarter and growth in deposits. Expenses related to the core system conversion increased $0.9 million from the linked quarter due to the continued progress on the project and are included in the data processing line item.

Current wording

Noninterest expense was $98.0 million for the third quarter 2024, an increase of $4.0 million from $94.0 million in the linked quarter. Employee compensation and benefits increased $0.8 million from the linked quarter primarily due to an increase in the number of work days in the quarter and the success in recruiting new relationship bankers. Deposit costs relate to certain deposit accounts that receive an earnings credit allowance for expenses related to the maintenance of the deposit accounts. These expenses are impacted by interest rates and average balances. Deposit costs increased $2.1 million from the linked quarter primarily due to an increase of $151.6 million in average deposit vertical balances from the linked quarter. Expenses related to the core system conversion included in Data processing for the current and linked quarters were $1.4 million and $1.3 million, respectively, due to the continued progress on the project.

Previous wording

Total noninterest expense of $187.5 million for the first six months of 2024 increased $20.6 million from the prior year-to-date period, primarily due to an increase in the associate base, merit increases throughout 2023 and 2024, and a $12.3 million increase in variable deposit costs due to higher earnings credit rates and average balances.

Current wording

Total noninterest expense of $285.5 million for the first nine months of 2024 increased $29.9 million from the prior year-to-date period, primarily due to an increase in the associate base, merit increases throughout 2023 and 2024, and a $15.1 million increase in variable deposit costs due to higher earnings credit rates and average balances.

Previous wording

The Company’s effective tax rate was 20.5% for the second quarter 2024 and 20.4% for the six months ended June 30, 2024. This compares to the linked quarter and prior year-to-date effective tax rate of 20.2% and 21.7%, respectively. The decrease from the prior year-to-date effective tax rate was driven by tax credit opportunities the Company has deployed as part of its tax planning strategy.

Current wording

The Company’s effective tax rate was 19.4% for the third quarter 2024 and 20.0% for the nine months ended September 30, 2024. This compares to the linked quarter and prior year-to-date effective tax rate of 20.5% and 21.7%, respectively. The decreases from the linked and prior year-to-date effective tax rates were driven by tax credit opportunities the Company has deployed as part of its tax planning strategy.

Previous wording

Total assets were $14.6 billion at June 30, 2024, an increase of $97.1 million from December 31, 2023 primarily due to a $115.9 million increase in loans. Total liabilities of $12.9 billion increased $57.9 million from December 31, 2023 primarily due to a $106.0 million increase in deposits.

Current wording

Total assets were $15.0 billion at September 30, 2024, an increase of $435.5 million from December 31, 2023 primarily due to a $195.8 million increase in loans and a $269.7 million increase in investment securities. Total liabilities of $13.1 billion increased $319.6 million from December 31, 2023 primarily due to a $289.0 million increase in deposits.

Previous wording

Investment securities were $2.4 billion, or 16% of total assets, at both June 30, 2024 and December 31, 2023. The portfolio is comprised of both available-for-sale and held-to-maturity securities.

Current wording

Investment securities were $2.6 billion or 18% of total assets at September 30, 2024. At December 31, 2023, investment securities were $2.4 billion or 16% of total assets. The portfolio is comprised of both available-for-sale and held-to-maturity securities.

Previous wording

Investment purchases in the second quarter 2024 had a weighted average, tax equivalent yield of 5.43%. The average duration of the investment portfolio was 5.1 years at June 30, 2024. The Company leverages the investment portfolio to lengthen the overall duration of the balance sheet, primarily using high-quality municipal securities. The expected cash flow from pay downs, maturities and interest over the next 12 months is approximately $375.3 million.

Current wording

Investment purchases in the third quarter 2024 had a weighted average, tax equivalent yield of 4.97%. The average duration of the investment portfolio was 4.9 years at September 30, 2024. The Company leverages the investment portfolio to lengthen the overall duration of the balance sheet, primarily using high-quality municipal securities. The expected cash flow from pay downs, maturities and interest over the next 12 months is approximately $434.5 million.

Previous wording

Loans totaled $11.0 billion at June 30, 2024 compared to $10.9 billion at December 31, 2023. The increase was primarily due to an increase of $133.2 million in construction loans, offset by a decrease in C&I loans of $53.1 million. Average revolving line draw utilization was 46% for the second quarter 2024, compared to 43% for the year ended December 31, 2023.

Current wording

Loans totaled $11.1 billion at September 30, 2024 compared to $10.9 billion at December 31, 2023. The increase was primarily due to an increase of $135.9 million in construction loans and an increase of $111.6 million in CRE loans, partially offset by a decrease in C&I loans of $44.1 million. Average revolving line draw utilization was 44% for the third quarter 2024, compared to 43% for the year ended December 31, 2023.

Previous wording

The following table provides additional information on certain categories of specialty loans that are included in total loans above:

Current wording

The following table provides additional information on certain categories of loans that are included in total loans above:

Previous wording

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

Current wording

These lending categories, including sponsor finance, life insurance premium financing, and tax credits, consist primarily of C&I loans. Sponsor finance and life insurance premium financing loans are sourced through relationships developed with private equity funds and estate planning firms and are not bound geographically by our markets. These loan products offer opportunities to expand and diversify geographically by entering new markets. The Company continues to focus on originating high-quality C&I relationships, as they typically have variable interest rates and allow for cross selling opportunities involving other banking products. Life insurance premium financing and tax credits are typically lower risk products due to the high collateral value securing the loans.

Previous wording

A provision for credit losses of $4.8 million for the second quarter 2024 and $10.6 million for the six months ended June 30, 2024, decreased $0.9 million and increased $0.1 million from the linked quarter and prior year-to-date period, respectively. The provision for credit losses in the second quarter 2024 was primarily related to an increase in reserves on individually evaluated loans, and updates to qualitative factors used in the allowance calculation. The provision for credit losses for the six months ended June 30, 2024 was stable with the prior year-to-date period. However, the provision for credit losses on loans in 2024 included an increase of $4.2 million due to higher charge-offs when compared to the prior year-to-date period. This was partially offset by a $5.1 million decrease in the provision for available-for-sale securities related to the impairment of an available-for-sale investment security in the prior year-to-date period.

Current wording

A provision for credit losses of $4.1 million for the third quarter 2024 and $14.7 million for the nine months ended September 30, 2024, decreased $0.7 million and $3.9 million from the linked quarter and prior year-to-date period, respectively. The provision for credit losses in the third quarter 2024 was primarily related to charge-offs and updates to qualitative factors used in the allowance calculation.The provision for credit losses for the nine months ended September 30, 2024 declined primarily due to a $5.1 million decrease in the provision for available-for-sale securities related to the impairment of an investment security in the prior year-to-date period.

Previous wording

The ACL on loans was 1.27% of total loans at June 30, 2024, compared to 1.24% of loans at December 31, 2023. The increase in the ratio of ACL on loans to total loans is primarily due to the increase in reserves on impaired loans. Excluding guaranteed loans, the ACL on loans to total loans was 1.38%4 at June 30, 2024, compared to 1.35% at December 31, 2023.

Current wording

The ACL on loans was 1.26% of total loans at September 30, 2024, compared to 1.24% of loans at December 31, 2023. The decrease in the ratio of ACL on loans to total loans is primarily due to loan growth and charge-offs. Excluding guaranteed loans, the ACL on loans to total loans was 1.38%4 at September 30, 2024, compared to 1.35% at December 31, 2023.

Previous wording

Nonperforming loans at June 30, 2024 decreased $4.3 million, or 10%, when compared to December 31, 2023. The decrease in nonperforming loans during the six months ended June 30, 2024 was primarily due to gross charge-offs of $9.4 million and principal payments of $6.2 million, offset by additions of $13.6 million.

Current wording

Nonperforming loans at September 30, 2024 decreased $15.4 million, or 35%, when compared to December 31, 2023. The decrease in nonperforming loans during the nine months ended September 30, 2024 was primarily due to gross charge-offs and the positive resolution and repayment of certain nonperforming loans.

Previous wording

Total deposits excluding brokered certificates of deposits, were $11.8 billion at June 30, 2024, an increase of $93.9 million from December 31, 2023. Brokered certificates of deposit at June 30, 2024 increased $12.1 million from December 31, 2023 and continue to be used as a stable funding source. The Company has deposit verticals focusing on property management, community associations, and escrow industries, in addition to deposits related to its specialty lending products. These deposits increased to $3.0 billion at June 30, 2024 from $2.8 billion at December 31, 2023 due to continued success at generating organic deposit growth.

Current wording

Total deposits excluding brokered certificates of deposits were $12.0 billion at September 30, 2024, an increase of $290.8 million from December 31, 2023. The Company has deposit verticals focusing on property management, community associations, and escrow industries. These deposits increased to $3.1 billion at September 30, 2024 from $2.8 billion at December 31, 2023 due to continued success at generating organic deposit growth.

Previous wording

At June 30, 2024, estimated uninsured/uncollateralized deposits totaled $3.6 billion, or 29% of total deposits, compared to $3.8 billion, or 31% of total deposits, at December 31, 2023.

Current wording

At September 30, 2024, estimated uninsured/uncollateralized deposits totaled $3.7 billion, or 30% of total deposits, compared to $3.8 billion, or 31% of total deposits, at December 31, 2023.

Previous wording

The total cost of deposits was 2.16% for the current quarter, compared to 2.13% for the linked quarter. For the six months ended June 30, 2024, the total cost of deposits was 2.15%, compared to 1.19% in the prior year-to-date period.

Current wording

The total cost of deposits was 2.18% for the current quarter, compared to 2.16% for the linked quarter. For the nine months ended September 30, 2024, the total cost of deposits was 2.16%, compared to 1.42% in the prior year-to-date period.

Previous wording

Shareholders’ equity totaled $1.8 billion at June 30, 2024, an increase of $39.2 million from December 31, 2023. Significant activity during the first six months of 2024 was as follows:

Current wording

Shareholders’ equity totaled $1.8 billion at September 30, 2024, an increase of $115.9 million from December 31, 2023. Significant activity during the first nine months of 2024 was as follows:

Previous wording

•Increase from net income of $85.8 million,

Current wording

•Increase from net income of $136.4 million,

Previous wording

•Decrease in fair value of securities and cash flow hedges of $21.1 million, and

Current wording

•Increase in fair value of securities and cash flow hedges of $22.2 million,

Previous wording

•Decrease from dividends paid on common and preferred stock of $21.0 million.

Current wording

•Decrease from dividends paid on common and preferred stock of $32.0 million, and

Previous wording

•Decrease from common stock repurchases of $8.6 million

Current wording

•Decrease from common stock repurchases of $18.4 million.

Previous wording

Liquidity from assets is available primarily from cash balances and the investment portfolio. Cash and interest-bearing deposits with other banks totaled $392.8 million at June 30, 2024 and $433.0 million at December 31, 2023. Investment securities are another important tool in liquidity planning. Securities totaled $2.4 billion at both June 30, 2024 and December 31, 2023, and included $1.2 billion and $1.6 billion at June 30, 2024 and December 31, 2023, respectively, pledged as collateral for deposits of public institutions, loan notes and other requirements. The unpledged portion of the securities portfolio could be pledged or sold to enhance liquidity, if necessary. The Company also has a portfolio of SBA guaranteed loans, a portion of which could be sold in the secondary market to generate earnings and liquidity.

Current wording

Liquidity from assets is available primarily from cash balances and the investment portfolio. Cash and interest-bearing deposits with other banks totaled $426.4 million at September 30, 2024 and $433.0 million at December 31, 2023. Investment securities are another important tool in liquidity planning. Securities totaled $2.6 billion and $2.4 billion at September 30, 2024 and December 31, 2023, respectively and included $1.2 billion and $1.6 billion at September 30, 2024 and December 31, 2023, respectively, pledged as collateral for deposits of public institutions, loan notes and other requirements. The unpledged portion of the securities portfolio could be pledged or sold to enhance liquidity, if necessary. The Company also has a portfolio of SBA guaranteed loans, a portion of which could be sold in the secondary market to generate earnings and liquidity.

Previous wording

Liability liquidity funding sources are available to increase financial flexibility. In addition to amounts borrowed at June 30, 2024, the Company could borrow an additional $1.2 billion from the FHLB of Des Moines under blanket loan pledges and has additional real estate loans that could be pledged. In the first half of 2024, the Company pledged additional loans to the FHLB to increase the borrowing capacity by $279.1 million. The Company also has $2.6 billion available from the Federal Reserve Bank under a pledged loan agreement. In the first quarter 2024, the Federal Reserve Bank borrowing capacity declined due to the expiration of the Bank Term Funding Program on March 11, 2024. The Company also has unsecured federal funds lines with seven correspondent banks totaling $140 million.

Current wording

Liability liquidity funding sources are available to increase financial flexibility. In addition to amounts borrowed at September 30, 2024, the Company could borrow an additional $1.2 billion from the FHLB of Des Moines under blanket loan pledges and has additional real estate loans that could be pledged. In the first nine months of 2024, the Company pledged additional loans to the FHLB to increase the borrowing capacity by $334.6 million. The Company also has $2.6 billion available from the Federal Reserve Bank under a pledged loan agreement. In the first quarter 2024, the Federal Reserve Bank borrowing capacity declined due to the expiration of the Bank Term Funding Program on March 11, 2024. The Company also has unsecured federal funds lines with seven correspondent banks totaling $140 million.