EFSC-2011.6.30-10Q


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
 
FORM 10-Q
 
[X]
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2011.
 
 
 
[   ]
 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to ______
 
 
 
 
 
Commission file number 001-15373
 
ENTERPRISE FINANCIAL SERVICES CORP

 
Incorporated in the State of Delaware
I.R.S. Employer Identification # 43-1706259
Address: 150 North Meramec
Clayton, MO 63105
Telephone: (314) 725-5500
___________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X]  No [   ] 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files ). Yes [X]  No [   ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
Accelerated filer R
  Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 

 
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act
Yes [   ]  No [X]
 
As of August 1, 2011, the Registrant had 17,739,325 shares of outstanding common stock.
 
This document is also available through our website at http://www.enterprisebank.com.

 




ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
 
Page
PART I - FINANCIAL INFORMATION
 
 
 
 
Item 1.  Financial Statements
 
 
 
Condensed Consolidated Balance Sheets (Unaudited)
 
 
Condensed Consolidated Statements of Operations (Unaudited)
 
 
Condensed Consolidated Statements of Shareholder’s Equity (Unaudited)
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4. Controls and Procedures
 
 
PART II - OTHER INFORMATION
 
 
 
 
Item 1.  Legal Proceedings
 
 
 
Item 1A.  Risk Factors
 
 
 
Item 6. Exhibits
 
 
Signatures
 
 
Certifications
 



PART 1 – ITEM 1 – FINANCIAL STATEMENTS
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share data)
June 30, 2011
 
December 31, 2010
Assets
 
 
 
Cash and due from banks
$
22,806

 
$
23,413

Federal funds sold
1,321

 
3,153

Interest-bearing deposits (including $1,520 pledged as collateral)
173,925

 
267,102

                  Total cash and cash equivalents
198,052

 
293,668

Interest-bearing deposits greater than 90 days
1,751

 
1,751

Securities available for sale
472,270

 
361,546

Mortgage loans held for sale
1,688

 
5,640

Portfolio loans not covered under FDIC loss share
1,826,228

 
1,766,351

Portfolio loans covered under FDIC loss share at fair value
180,253

 
126,711

   Less: Allowance for loan losses
42,157

 
42,759

                  Portfolio loans, net
1,964,324

 
1,850,303

Other real estate not covered under FDIC loss share
20,978

 
25,373

Other real estate covered under FDIC loss share
21,812

 
10,835

Other investments, at cost
14,720

 
12,278

Fixed assets, net
19,488

 
20,499

Accrued interest receivable
7,790

 
7,464

State tax credits, held for sale, including $29,247 and $31,576
carried at fair value, respectively
57,058

 
61,148

FDIC loss share receivable
92,511

 
88,292

Goodwill
3,879

 
2,064

Intangibles, net
1,791

 
1,223

Other assets
57,320

 
63,756

Total assets
$
2,935,432

 
$
2,805,840

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Demand deposits
$
473,688

 
$
366,086

Interest-bearing transaction accounts
212,431

 
204,687

Money market accounts
949,552

 
855,522

Savings
10,587

 
10,181

Certificates of deposit:
 
 
 
$100 and over
574,369

 
543,898

Other
190,650

 
317,347

Total deposits
2,411,277

 
2,297,721

Subordinated debentures
85,081

 
85,081

Federal Home Loan Bank advances
102,000

 
107,300

Other borrowings
87,774

 
119,333

Accrued interest payable
1,477

 
1,488

Other liabilities
10,839

 
11,569

Total liabilities
2,698,448

 
2,622,492

 
 
 
 
Shareholders' equity:
 
 
 
Preferred stock, $0.01 par value;
5,000,000 shares authorized; 35,000 shares issued and outstanding
32,900

 
32,519

Common stock, $0.01 par value; 30,000,000 shares authorized; 17,814,718 and 14,965,401 shares issued, respectively
178

 
150

Treasury stock, at cost; 76,000 shares
(1,743
)
 
(1,743
)
Additional paid in capital
168,340

 
133,673

Retained earnings
33,315

 
19,322

Accumulated other comprehensive income (loss)
3,994

 
(573
)
Total shareholders' equity
236,984

 
183,348

Total liabilities and shareholders' equity
$
2,935,432

 
$
2,805,840

See accompanying notes to condensed consolidated financial statements.

1


ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
(In thousands, except per share data)
2011
 
2010
 
2011
 
2010
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
36,420

 
$
24,655

 
$
68,081

 
$
49,899

Interest on debt securities:
 
 
 
 
 
 
 
Taxable
3,243

 
1,830

 
5,813

 
3,680

Nontaxable
155

 
39

 
265

 
50

Interest on federal funds sold
—

 
1

 
1

 
9

Interest on interest-bearing deposits
113

 
102

 
261

 
182

Dividends on equity securities
97

 
83

 
170

 
165

Total interest income
40,028

 
26,710

 
74,591

 
53,985

Interest expense:
 
 
 
 
 
 
 
Interest-bearing transaction accounts
206

 
236

 
395

 
455

Money market accounts
2,124

 
1,454

 
4,206

 
2,847

Savings
9

 
9

 
18

 
17

Certificates of deposit:
 
 
 
 
 
 
 
$100 and over
2,305

 
2,474

 
4,662

 
5,324

Other
800

 
1,534

 
1,853

 
3,319

Subordinated debentures
1,126

 
1,239

 
2,247

 
2,469

Federal Home Loan Bank advances
888

 
1,099

 
1,788

 
2,207

Notes payable and other borrowings
97

 
63

 
211

 
122

Total interest expense
7,555

 
8,108

 
15,380

 
16,760

Net interest income
32,473

 
18,602

 
59,211

 
37,225

Provision for loan losses
4,575

 
8,960

 
8,175

 
22,760

Net interest income after provision for loan losses
27,898

 
9,642

 
51,036

 
14,465

Noninterest income:
 
 
 
 
 
 
 
Wealth Management revenue
1,658

 
1,302

 
3,341

 
2,599

Service charges on deposit accounts
1,194

 
1,212

 
2,331

 
2,386

Other service charges and fee income
331

 
237

 
641

 
515

Gain on sale of other real estate
99

 
302

 
522

 
290

Gain on state tax credits, net
987

 
851

 
1,142

 
1,369

Gain on sale of investment securities
506

 
525

 
680

 
1,082

Miscellaneous income
351

 
612

 
1,432

 
856

Total noninterest income
5,126

 
5,041

 
10,089

 
9,097

Noninterest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
8,265

 
7,035

 
16,953

 
13,633

Occupancy
1,141

 
1,097

 
2,280

 
2,270

Furniture and equipment
431

 
325

 
785

 
694

Data processing
604

 
554

 
1,230

 
1,132

FDIC and other insurance
1,133

 
1,019

 
2,355

 
2,066

Loan legal and other real estate expense
3,255

 
1,669

 
5,691

 
2,941

Other
3,195

 
2,447

 
6,195

 
5,065

Total noninterest expense
18,024

 
14,146

 
35,489

 
27,801

 
 
 
 
 
 
 
 
Income (loss) before income tax expense (benefit)
15,000

 
537

 
25,636

 
(4,239
)
Income tax expense (benefit)
5,118

 
(200
)
 
8,675

 
(1,962
)
Net income (loss)
$
9,882

 
$
737

 
$
16,961

 
$
(2,277
)
 
 
 
 
 
 
 
 
Net income (loss) available to common shareholders
$
9,252

 
$
122

 
$
15,705

 
$
(3,504
)
 
 
 
 
 
 
 
 
Earnings (loss) per common share
 
 
 
 
 
 
 
Basic
$
0.54

 
$
0.01

 
$
1.01

 
$
(0.24
)
Diluted
0.52

 
0.01

 
0.96

 
(0.24
)

See accompanying notes to condensed consolidated financial statements.

2


ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
 
(in thousands, except per share data)
 
Preferred Stock
 
Common Stock
 
Treasury Stock
 
Additional paid in capital
 
Retained earnings
 
Accumulated
other
comprehensive income (loss)
 
Total
shareholders' equity
Balance January 1, 2011
 
$
32,519

 
$
150

 
$
(1,743
)
 
$
133,673

 
$
19,322

 
$
(573
)
 
$
183,348

Net income
 
—

 
—

 
—

 
—

 
16,961

 
—

 
16,961

Change in fair value of available for sale securities, net of tax
 
—

 
—

 
—

 
—

 
—

 
5,058

 
5,058

Reclassification adjustment for realized gain on sale of securities included in net income, net of tax
 
—

 
—

 
—

 
—

 
—

 
(435
)
 
(435
)
Reclassification of cash flow hedge, net of tax
 
—

 
—

 
—

 
—

 
—

 
(56
)
 
(56
)
Total comprehensive income
 
 

 
 
 
 
 
 
 
 
 
 
 
21,528

Cash dividends paid on common shares, $0.105 per share
 
—

 
—

 
—

 
—

 
(1,712
)
 
—

 
(1,712
)
Cash dividends paid on preferred stock
 
—

 
—

 
—

 
—

 
(875
)
 
—

 
(875
)
Preferred stock accretion of discount
 
381

 
—

 
—

 
—

 
(381
)
 
—

 
—

Issuance under equity compensation plans, net, 105,417 shares
 
—

 
1

 
—

 
1,312

 
—

 
—

 
1,313

Issuance under public stock offering 2,743,900 shares
 
—

 
27

 
—

 
32,593

 
—

 
—

 
32,620

Share-based compensation
 
—

 
—

 
—

 
748

 
—

 
—

 
748

Excess tax expense related to equity compensation plans
 
—

 
—

 
—

 
14

 
—

 
—

 
14

Balance June 30, 2011
 
$
32,900

 
$
178

 
$
(1,743
)
 
$
168,340

 
$
33,315

 
$
3,994

 
$
236,984


(in thousands, except per share data)
 
Preferred Stock
 
Common Stock
 
Treasury Stock
 
Additional paid in capital
 
Retained earnings
 
Accumulated
other
comprehensive income (loss)
 
Total
shareholders' equity
Balance January 1, 2010
 
$
31,802

 
$
130

 
$
(1,743
)
 
$
117,000

 
$
15,790

 
$
933

 
$
163,912

Net loss
 
—

 
—

 
—

 
—

 
(2,277
)
 
—

 
(2,277
)
Change in fair value of available for sale securities, net of tax
 
—

 
—

 
—

 
—

 
—

 
2,515

 
2,515

Reclassification adjustment for realized gain on sale of securities included in net income, net of tax
 
—

 
—

 
—

 
—

 
—

 
(693
)
 
(693
)
Reclassification of cash flow hedge, net of tax
 
—

 
—

 
—

 
—

 
—

 
(79
)
 
(79
)
Total comprehensive loss
 
 

 
 
 
 
 
 
 
 
 
 
 
(534
)
Cash dividends paid on common shares, $0.105 per share
 
—

 
—

 
—

 
—

 
(1,561
)
 
—

 
(1,561
)
Cash dividends paid on preferred stock
 
—

 
—

 
—

 
—

 
(875
)
 
—

 
(875
)
Preferred stock accretion of discount
 
352

 
—

 
—

 
—

 
(352
)
 
—

 
—

Issuance under equity compensation plans, net, 39,482 shares
 
—

 
—

 
—

 
365

 
—

 
—

 
365

Issuance under private stock offering 1,931,610 shares
 
—

 
19

 
—

 
14,863

 
—

 
—

 
14,882

Share-based compensation
 
—

 
—

 
—

 
943

 
—

 
—

 
943

Excess tax benefit related to equity compensation plans
 
—

 
—

 
—

 
(260
)
 
—

 
—

 
(260
)
Balance June 30, 2010
 
$
32,154

 
$
149

 
$
(1,743
)
 
$
132,911

 
$
10,725

 
$
2,676

 
$
176,872


See accompanying notes to condensed consolidated financial statements.

3


ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Six months ended June 30,
(in thousands)
2011
 
2010
Cash flows from operating activities:
 
 
 
Net income (loss)
$
16,961

 
$
(2,277
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
 
 
 
Depreciation
1,387

 
1,548

Provision for loan losses
8,175

 
22,760

Deferred income taxes
4,683

 
(4,738
)
Net amortization of debt securities
2,490

 
1,605

Amortization of intangible assets
265

 
220

Gain on sale of investment securities
(680
)
 
(1,082
)
Mortgage loans originated for sale
(29,554
)
 
(31,531
)
Proceeds from mortgage loans sold
33,374

 
33,082

Gain loss on sale of other real estate
(522
)
 
(290
)
Gain on state tax credits, net
(1,142
)
 
(1,369
)
Excess tax (benefit) expense of share-based compensation
(14
)
 
260

Share-based compensation
748

 
1,144

Valuation adjustment on other real estate
2,643

 
1,579

Net accretion of loan discount and indemnification asset
(14,964
)
 
(782
)
Changes in:
 
 
 
Accrued interest receivable
36

 
488

Accrued interest payable
(50
)
 
(574
)
Prepaid FDIC insurance
1,744

 
1,505

Other assets
(1,439
)
 
(459
)
Other liabilities
(1,181
)
 
1,940

Net cash provided by operating activities
22,960

 
23,029

 
 
 
 
Cash flows from investing activities:
 
 
 
Cash received from sale of Millennium Brokerage Group
—

 
4,000

Cash received from acquisition of Legacy Bank
8,926

 
—

Net (increase) decrease in loans
(48,536
)
 
29,922

Net cash proceeds received from FDIC loss share receivable
22,673

 
4,793

Proceeds from the sale of debt and equity securities, available for sale
35,423

 
95,081

Proceeds from the maturity of debt and equity securities, available for sale
62,840

 
49,853

Proceeds from the redemption of other investments
422

 
1,640

Proceeds from the sale of state tax credits held for sale
4,057

 
4,513

Proceeds from the sale of other real estate
12,897

 
8,033

Payments for the purchase/origination of:
 
 
 
Available for sale debt and equity securities
(194,254
)
 
(120,110
)
Other investments
(895
)
 
(1,511
)
Bank owned life insurance
—

 
(20,000
)
State tax credits held for sale
—

 
(10,779
)
Fixed assets
(309
)
 
(276
)
Net cash (used in) provided by investing activities
(96,756
)
 
45,159

 
 
 
 
Cash flows from financing activities:
 
 
 
Net increase in noninterest-bearing deposit accounts
77,751

 
3,961

Net decrease in interest-bearing deposit accounts
(77,815
)
 
(123,555
)
Repayments of Federal Home Loan Bank advances
(21,556
)
 
(5,000
)
Net (decrease) increase in other borrowings
(31,559
)
 
17,342

Cash dividends paid on common stock
(1,712
)
 
(1,561
)
Excess tax benefit (expense) benefit of share-based compensation
14

 
(260
)
Cash dividends paid on preferred stock
(876
)
 
(875
)
Issuance of common stock
32,620

 
14,882

Proceeds from the issuance of equity instruments
1,313

 
—

Net cash used in financing activities
(21,820
)
 
(95,066
)
Net decrease in cash and cash equivalents
(95,616
)
 
(26,878
)
Cash and cash equivalents, beginning of period
293,668

 
106,966

Cash and cash equivalents, end of period
$
198,052

 
$
80,088

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
15,392

 
$
17,334

Income taxes
9,337

 
1,313

Noncash transactions:
 
 
 
Transfer to other real estate owned in settlement of loans
$
14,686

 
$
17,051

Sales of other real estate financed
1,562

 
7,513

See accompanying notes to condensed consolidated financial statements.

4


ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
The significant accounting policies used by Enterprise Financial Services Corp (the “Company” or “Enterprise”) in the preparation of the condensed consolidated financial statements are summarized below:
 
Business and Consolidation

Enterprise is a financial holding company that provides a full range of banking and wealth management services to individuals and corporate customers located in the St. Louis, Kansas City and Phoenix metropolitan markets through its banking subsidiary, Enterprise Bank & Trust (the “Bank”).
 
On January 7, 2011, the Bank entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) and acquired certain assets and assumed certain liabilities of Legacy Bank, a full service community bank that was headquartered in Scottsdale, Arizona. For more information on this transaction, see Note 3 - Acquisitions in this report.

On June 24, 2011, the Bank entered into a purchase and assumption agreement with BankLiberty of Liberty, Missouri. Pursuant to the agreement, the Bank expects to purchase certain furniture and equipment, leasehold improvements and assume certain deposit liabilities associated with the BankLiberty branch located at 11401 Olive Boulevard, in the St. Louis suburb of Creve Coeur, Missouri. See Note 3 - Acquisitions for more information.

Operating results for the six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2011. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Basis of Financial Statement Presentation

The condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and footnotes required by U.S. GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Approximately $4.8 million in changes to Other Assets in the Consolidated Statement of Cash Flows as of June 30, 2010 have been reclassified from Operating Activities to Investing Activities to conform with the 2011presentation. This reclassification did not result in any changes to previously reported net income or stockholders' equity.
 

5


NOTE 2 - EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per common share data is calculated by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and the if-converted method for convertible securities related to the issuance of trust preferred securities.


6


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

 
Three months ended June 30,
 
Six months ended June 30,
(in thousands, except per share data)
2011
 
2010
 
2011
 
2010
Net income (loss) as reported
$
9,882

 
$
737

 
$
16,961

 
$
(2,277
)
Preferred stock dividend
(438
)
 
(436
)
 
(875
)
 
(875
)
Accretion of preferred stock discount
(192
)
 
(179
)
 
(381
)
 
(352
)
Net income (loss) available to common shareholders
$
9,252

 
$
122

 
$
15,705

 
$
(3,504
)
 
 
 
 
 
 
 
 
Impact of assumed conversions
 
 
 
 
 
 
 
Interest on 9% convertible trust preferred securities, net of income tax
371

 
—

 
742

 
—

Net income (loss) available to common shareholders and assumed conversions
$
9,623

 
$
122

 
$
16,447

 
$
(3,504
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
17,140

 
14,853

 
15,601

 
14,637

Incremental shares from assumed conversions of convertible trust preferred securities
1,439

 
—

 
1,439

 
—

Additional dilutive common stock equivalents
23

 
2

 
20

 
—

Diluted common shares outstanding
18,602

 
14,855

 
17,060

 
14,637

 
 
 
 
 
 
 
 
Basic earnings (loss) per common share:
$
0.54

 
$
0.01

 
$
1.01

 
$
(0.24
)
Diluted earnings (loss) per common share:
$
0.52

 
$
0.01

 
$
0.96

 
$
(0.24
)

For the three months ended June 30, 2011 and 2010, there were 0.5 million and 2.2 million of weighted average common stock equivalents excluded from the per share calculations because their effect was anti-dilutive. For the six months ended June 30, 2011 and 2010, there were 0.6 million and 2.3 million of weighted average common stock equivalents excluded from the per share calculations because their effect was anti-dilutive. In addition, at June 30, 2011 and 2010, the Company had outstanding warrants issued to the United States Treasury under the U.S. Treasury Capital Purchase Program to purchase 0.3 million shares of common stock which were excluded from the per common share calculation because their effect was also anti-dilutive.
 
NOTE 3 - ACQUISITIONS
 
Acquisition of Legacy Bank
 
On January 7, 2011, the Bank entered into a purchase and assumption agreement with the FDIC and acquired certain assets and assumed certain liabilities of Legacy Bank (“Legacy”), a full service community bank that was headquartered in Scottsdale, Arizona. The acquisition consisted of tangible assets with estimated fair values of approximately $128.6 million and tangible liabilities with estimated fair values of approximately $130.4 million. The Bank acquired the assets at a discount of 7.6% and approximately $43.5 million of the deposits were assumed at a premium of 1%. The Bank also acquired approximately $55.6 million of discretionary and $13.6 million of non-discretionary trust assets.
 
As part of the acquisition, the Company provided the FDIC with a Value Appreciation Instrument (“VAI”) whereby 372,500 units were awarded to the FDIC at an exercise price of $10.63 per unit. The units were exercisable at any time from January 14, 2011 until January 6, 2012. The FDIC exercised the units on January 20, 2011 at a settlement price of $11.8444 per unit. A cash payment of $452,364 was made to the FDIC on January 21, 2011.
 

7


In connection with the acquisition, the Bank also entered into a loss share agreement whereby the FDIC will reimburse the Bank for 80% of all losses incurred on certain loans and other real estate covered under the agreement (“Covered Assets”). The loss share agreement is subject to the servicing procedures as specified in the agreement with the FDIC.

The reimbursable losses from the FDIC are based on the book value of the Covered Assets as determined by the FDIC as of the date of the acquisition. A majority of these loans were valued based on the liquidation value of the underlying collateral because the future cash flows are primarily based on the liquidation of underlying collateral. The expected reimbursements under the loss share agreement were recorded as a FDIC loss share receivable at their estimated fair value.
 
The loans and other real estate acquired are recorded at estimated fair value. As such, there was no allowance for credit losses established related to the acquired loans at January 7, 2011 and no carryover of the related allowance from Legacy. The loans are accounted for in accordance with guidance for certain loans acquired in a transfer, when the loans have evidence of credit deterioration and it is probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments. The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges and an adjustment in accretable yield, which will have a positive impact on interest income.
 
The table below summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available.
 
(in thousands)
Amount
Cash and cash equivalents
$
8,926

Securities available for sale
9,569

Other investments
1,969

Portfolio loans
73,214

Other real estate
8,612

FDIC loss share receivable
24,963

Goodwill
1,815

Other assets
1,299

Total deposits
(113,620
)
Federal Home Loan Bank Advances
(16,256
)
Other liabilities
(491
)

Management concluded that it is impracticable to present pro forma financial results due to the lack of documentation and objective information about significant estimates and management’s intent in prior periods.

Acquisition of BankLiberty branch

On June 24, 2011, the Bank entered into a purchase and assumption agreement with BankLiberty in Liberty, Missouri. Pursuant to the agreement, the Bank expects to purchase certain furniture and equipment, leasehold improvements and assume certain deposit liabilities associated with the BankLiberty branch located at 11401 Olive Boulevard, in the St. Louis suburb of Creve Coeur, Missouri. Enterprise expects to pay $150,000 for the personal property in the branch and a deposit premium of 0.75% of certain deposit liabilities at closing. In conjunction with the purchase and assumption agreement, the Bank also will execute a full-service sublease on approximately 6,556 square feet at the above address. Enterprise expects to operate the location as a full-service branch of the Bank, subject to regulatory approval, beginning in the fourth quarter of 2011.



8


NOTE 4 - INVESTMENTS
 
The following table presents the amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale:
 
 
June 30, 2011
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
UnrealizedLosses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
    Obligations of U.S. Government sponsored enterprises
$
33,181

 
$
166

 
$
(44
)
 
$
33,303

    Obligations of states and political subdivisions
27,630

 
565

 
(483
)
 
27,712

    Residential mortgage-backed securities
405,292

 
6,147

 
(184
)
 
411,255

 
$
466,103

 
$
6,878

 
$
(711
)
 
$
472,270

 
 
 
 
 
 
 
 
 
December 31, 2010
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
UnrealizedLosses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
    Obligations of U.S. Government agencies
$
444

 
$
9

 
$
—

 
$
453

    Obligations of U.S. Government sponsored enterprises
32,880

 
9

 
(770
)
 
32,119

    Obligations of states and political subdivisions
18,486

 
45

 
(855
)
 
17,676

    Residential mortgage-backed securities
310,636

 
2,656

 
(1,994
)
 
311,298

 
$
362,446

 
$
2,719

 
$
(3,619
)
 
$
361,546


At June 30, 2011 and December 31, 2010, 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 residential mortgage-backed securities are all issued by U.S. government sponsored enterprises. Available for sale securities having a carrying value of $216.9 million and $249.6 million at June 30, 2011 and December 31, 2010, respectively, were pledged as collateral to secure deposits of public institutions and for other purposes as required by law or contract provisions.
 
The amortized cost and estimated fair value of debt securities classified as available for sale at June 30, 2011, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The weighted average life of the mortgage-backed securities is approximately 4 years.
 
(in thousands)
Amortized Cost
 
Estimated Fair Value
Due in one year or less
$
30,813

 
$
30,982

Due after one year through five years
10,558

 
10,641

Due after five years through ten years
15,190

 
15,425

Due after ten years
4,250

 
3,967

Mortgage-backed securities
405,292

 
411,255

 
$
466,103

 
$
472,270



9


The following table represents a summary of available-for-sale investment securities that had an unrealized loss:
 
 
June 30, 2011
 
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
$
2,950

 
$
44

 
$
—

 
$
—

 
$
2,950

 
$
44

Obligations of the state and political subdivisions
4,090

 
77

 
2,994

 
406

 
7,084

 
483

Residential mortgage-backed securities
46,943

 
184

 
—

 
—

 
46,943

 
184

 
$
53,983

 
$
305

 
$
2,994

 
$
406

 
$
56,977

 
$
711

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2010
 
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
$
27,100

 
$
770

 
$
—

 
$
—

 
$
27,100

 
$
770

Obligations of the state and political subdivisions
11,329

 
420

 
2,965

 
435

 
14,294

 
855

Residential mortgage-backed securities
133,893

 
1,994

 
—

 
—

 
133,893

 
1,994

 
$
172,322

 
$
3,184

 
$
2,965

 
$
435

 
$
175,287

 
$
3,619


The unrealized losses at both June 30, 2011 and December 31, 2010, were attributable to changes in market interest rates since the securities were purchased. Management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis. This analysis requires management to consider various factors, which include (1) the present value of the cash flows expected to be collected compared to the amortized cost of the security, (2) duration and magnitude of the decline in value, (3) the financial condition of the issuer or issuers, (4) structure of the security and (5) the intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in market value. At June 30, 2011, management performed its quarterly analysis of all securities with an unrealized loss and concluded no individual securities were other-than-temporarily impaired.
 
The gross gains and gross losses realized from sales of available-for-sale investment securities were as follows:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2011
 
2010
 
2011
 
2010
Gross gains realized
$
506

 
$
525

 
$
680

 
$
1,082

Gross losses realized
—

 
—

 
—

 
—

Proceeds from sales
30,123

 
14,436

 
35,423

 
95,081


NOTE 5 - GOODWILL AND INTANGIBLE ASSETS
 
Goodwill is tested for impairment annually and more frequently if events or changes in circumstances indicate that the asset might be impaired.
 
Below is a summary of the goodwill in the Banking segment.
 
(in thousands)
Goodwill
Balance at January 1, 2011
$
2,064

    Goodwill from purchase of Legacy Bank
1,815

Balance at June 30, 2011
$
3,879



10


The table below summarizes the changes to core deposit intangible asset balances in the Banking segment.
 
(in thousands)
Core Deposit Intangible
Balance at January 1, 2011
$
1,223

    Intangibles from purchase of Legacy Bank
833

    Amortization expense
(265
)
Balance at June 30, 2011
$
1,791


The following table reflects the expected amortization schedule for the core deposit intangibles.
 
Year
Core Deposit Intangible
2011
$
244

2012
432

2013
355

2014
278

2015
201

After 2015
281

 
$
1,791




11



NOTE 6 - PORTFOLIO LOANS
 
Below is a summary of loans by category at June 30, 2011 and December 31, 2010:
 
 
June 30, 2011
(in thousands)
Portfolio
Loans not
Covered
under FDIC loss share
 
Portfolio
Loans
Covered
under FDIC loss share
 
Total
Real Estate Loans:
 
 
 
 
 
    Construction and land development
$
158,128

 
$
31,006

 
$
189,134

    Commercial real estate - Investor Owned
455,438

 
46,251

 
501,689

    Commercial real estate - Owner Occupied
334,118

 
44,398

 
378,516

    Residential real estate
176,782

 
43,194

 
219,976

Total real estate loans
$
1,124,466

 
$
164,849

 
$
1,289,315

    Commercial and industrial
688,354

 
14,934

 
703,288

    Consumer & other
13,360

 
470

 
13,830

    Portfolio Loans
$
1,826,180

 
$
180,253

 
$
2,006,433

Unearned loan costs, net
48

 
—

 
48

    Portfolio loans, including unearned loan costs
$
1,826,228

 
$
180,253

 
$
2,006,481

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2010
(in thousands)
Portfolio
Loans not
Covered
under FDIC loss share
 
Portfolio
Loans
Covered
under FDIC loss share
 
Total
Real Estate Loans:
 
 
 
 
 
    Construction and land development
$
190,285

 
$
32,748

 
$
223,033

    Commercial real estate - Investor Owned
444,724

 
42,136

 
486,860

    Commercial real estate - Owner Occupied
331,544

 
31,084

 
362,628

    Residential real estate
189,484

 
10,201

 
199,685

    Other real estate loans
712,177

 
72,280

 
784,457

Total real estate loans
$
1,156,037

 
$
116,169

 
$
1,272,206

    Commercial and industrial
593,938

 
10,036

 
603,974

    Consumer & other
16,308

 
506

 
16,814

    Portfolio Loans
$
1,766,283

 
$
126,711

 
$
1,892,994

Unearned loan costs, net
68

 
—

 
68

    Portfolio loans, including unearned loan costs
$
1,766,351

 
$
126,711

 
$
1,893,062


The Company grants commercial, residential, and consumer loans primarily in the St. Louis, Kansas City and Phoenix metropolitan areas. The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector; however, a substantial portion of the portfolio is concentrated in and secured by real estate. The ability of the Company’s borrowers to honor their contractual obligations is partially dependent upon the local economy and its effect on the real estate market.
 

12


A summary of the year-to-date activity in the allowance for loan losses and the recorded investment in loans by portfolio class and category based on impairment method through June 30, 2011 and at December 31, 2010 is as follows:
 
(in thousands)
Commercial & Industrial
 
Commercial
Real Estate
Owner Occupied
 
Commercial
Real Estate
Investor Owned
 
Construction Real Estate
 
Residential Real Estate
 
Consumer & Other
 
Unallocated
 
Portfolio
loans covered
under FDIC loss share
 
Total
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2010
$
12,727

 
$
5,060

 
$
5,629

 
$
8,407

 
$
5,485

 
$
93

 
$
5,358

 
$
—

 
$
42,759

Provision charged to expense
(62
)
 
691

 
1,524

 
2,964

 
(361
)
 
9

 
(1,165
)
 
—

 
3,600

Losses charged off
400

 
378

 
360

 
2,716

 
111

 
—

 
—

 
—

 
3,965

Recoveries
125

 
—

 
15

 
178

 
89

 
21

 
—

 
—

 
428

Balance at March 31, 2011
$
12,390

 
$
5,373

 
$
6,808

 
$
8,833

 
$
5,102

 
$
123

 
$
4,193

 
$
—

 
$
42,822

Provision charged to expense
421

 
(105
)
 
234

 
2,736

 
785

 
(81
)
 
309

 
276

 
4,575

Losses charged off
504

 
11

 
544

 
4,120

 
495

 
5

 
—

 
276

 
5,955

Recoveries
16

 
274

 
263

 
93

 
56

 
13

 
—

 
—

 
715

Balance at June 30, 2011
$
12,323

 
$
5,531

 
$
6,761

 
$
7,542

 
$
5,448

 
$
50

 
$
4,502

 
$
—

 
$
42,157

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance June 30, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses - Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
2,695

 
$
337

 
$
1,754

 
$
3,518

 
$
2,165

 
$
—

 
$
—

 
$
—

 
$
10,469

Collectively evaluated for impairment
9,628

 
5,194

 
5,007

 
4,024

 
3,283

 
50

 
4,502

 
—

 
31,688

Loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
$
12,323

 
$
5,531

 
$
6,761

 
$
7,542

 
$
5,448

 
$
50

 
$
4,502

 
$
—

 
$
42,157

Loans - Ending Balance:
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
5,082

 
$
1,917

 
$
8,998

 
$
17,845

 
$
9,276

 
$
—

 
$
—

 
$
—

 
$
43,118

Collectively evaluated for impairment
683,272

 
332,201

 
446,440

 
140,283

 
167,506

 
13,408

 
—

 
12,606

 
1,795,716

Loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

 
—

 
167,647

 
167,647

Total
$
688,354

 
$
334,118

 
$
455,438

 
$
158,128

 
$
176,782

 
$
13,408

 
$
—

 
$
180,253

 
$
2,006,481



13



(in thousands)
Commercial & Industrial
 
Commercial
Real Estate
Owner Occupied
 
Commercial
Real Estate
Investor Owned
 
Construction Real Estate
 
Residential Real Estate
 
Consumer & Other
 
Unallocated
 
Portfolio
loans covered
under FDIC loss share
 
Total
Balance at December 31, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses - Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
4,434

 
$
219

 
$
1,457

 
$
650

 
$
2,368

 
$
—

 
$
—

 
$
—

 
$
9,128

Collectively evaluated for impairment
8,293

 
4,841

 
4,172

 
7,757

 
3,117

 
93

 
5,358

 
—

 
33,631

Loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
$
12,727

 
$
5,060

 
$
5,629

 
$
5,407

 
$
5,485

 
$
93

 
$
5,358

 
$
—

 
$
42,759

Loans - Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
11,276

 
$
2,024

 
$
10,935

 
$
9,934

 
$
12,188

 
$
—

 
$
—

 
$
—

 
$
46,357

Collectively evaluated for impairment
582,662

 
329,520

 
433,789

 
180,351

 
177,296

 
16,376

 
—

 
3,837

 
1,723,831

Loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

 
—

 
122,874

 
122,874

Total
$
593,938

 
$
331,544

 
$
444,724

 
$
190,285

 
$
189,484

 
$
16,376

 
$
—

 
$
126,711

 
$
1,893,062












14


A summary of loans individually evaluated for impairment by category at June 30, 2011 and December 31, 2010 is as follows:
 

 
June 30, 2011
(in thousands)
Unpaid
Contractual
Principal Balance
 
Recorded
Investment
With No Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded Investment
 
Related Allowance
 
Average
Recorded Investment
Commercial & Industrial
$
5,082

 
$
142

 
$
4,940

 
$
5,082

 
$
2,695

 
$
7,465

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - Owner Occupied
2,100

 
805

 
1,112

 
1,917

 
337

 
1,682

    Commercial - Investor Owned
14,689

 
694

 
8,304

 
8,998

 
1,754

 
9,883

    Construction
24,935

 
2,277

 
15,568

 
17,845

 
3,518

 
17,074

    Residential
9,694

 
1,873

 
7,403

 
9,276

 
2,165

 
9,664

Consumer & Other
—

 
—

 
—

 
—

 
—

 
1

Total
$
56,500

 
$
5,791

 
$
37,327

 
$
43,118

 
$
10,469

 
$
45,769


 
December 31, 2010
(in thousands)
Unpaid
Contractual
Principal Balance
 
Recorded
Investment
With No Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded Investment
 
Related Allowance
 
Average
Recorded Investment
Commercial & Industrial
$
11,591

 
$
412

 
$
10,864

 
$
11,276

 
$
4,434

 
$
5,848

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - Owner Occupied
2,668

 
1,044

 
980

 
2,024

 
219

 
3,890

    Commercial - Investor Owned
15,024

 
1,960

 
8,975

 
10,935

 
1,457

 
15,122

    Construction
13,391

 
5,388

 
4,546

 
9,934

 
650

 
16,898

    Residential
12,390

 
2,650

 
9,538

 
12,188