Edgar Filing: ENTERPRISE FINANCIAL SERVICES CORP

2013.9.30-10Q

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 September 30, 2013.

[ ]		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 October 31, 2013, the Registrant had 19,276,365 shares of outstanding common stock, $0.01 par value.

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

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

TABLE OF CONTENTS



		Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets (Unaudited)		1

Condensed Consolidated Statements of Operations (Unaudited)		2

Condensed Consolidated Statements of Comprehensive Income (Unaudited)		3

Condensed Consolidated Statements of Shareholders' Equity (Unaudited)		4

Condensed Consolidated Statements of Cash Flows (Unaudited)		5

Notes to Condensed Consolidated Financial Statements (Unaudited)		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29

Item 3. Quantitative and Qualitative Disclosures About Market Risk		48

Item 4. Controls and Procedures		49

PART II - OTHER INFORMATION

Item 1. Legal Proceedings		49

Item 1A. Risk Factors		50

Item 6. Exhibits		51

Signatures		52

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)	September 30, 2013			December 31, 2012
Assets
Cash and due from banks	$	35,238		$	21,906
Federal funds sold	111			51
Interest-bearing deposits (including $730 and $3,270 pledged as collateral)	65,891			94,413
Total cash and cash equivalents	101,240			116,370
Interest-bearing deposits greater than 90 days	5,300			1,000
Securities available for sale	453,046			640,212
Loans held for sale	12,967			11,792
Portfolio loans not covered under FDIC loss share	2,110,825			2,106,039
Less: Allowance for loan losses	26,599			34,330
Portfolio loans not covered under FDIC loss share, net	2,084,226			2,071,709
Portfolio loans covered under FDIC loss share, net of the allowance for loan losses ($13,632 and $11,547, respectively)	145,180			189,571
Portfolio loans, net	2,229,406			2,261,280
Other real estate not covered under FDIC loss share	10,278			9,327
Other real estate covered under FDIC loss share	17,847			17,173
Other investments, at cost	15,485			14,294
Fixed assets, net	19,048			21,121
Accrued interest receivable	7,897			8,497
State tax credits, held for sale, including $20,139 and $23,020 carried at fair value, respectively	55,810			61,284
FDIC loss share receivable	40,054			61,475
Goodwill	30,334			30,334
Intangibles, net	6,136			7,406
Other assets	103,214			64,221
Total assets	$	3,108,062		$	3,325,786

Liabilities and Shareholders' Equity
Demand deposits	$	619,562		$	686,805
Interest-bearing transaction accounts	213,708			272,753
Money market accounts	903,561			1,036,125
Savings	88,443			83,458
Certificates of deposit:
$100 and over	462,971			396,896
Other	159,672			182,814
Total deposits	2,447,917			2,658,851
Subordinated debentures	63,081			85,081
Federal Home Loan Bank advances	120,000			80,000
Other borrowings	167,365			233,370
Notes payable	10,800			11,700
Accrued interest payable	885			1,282
Other liabilities	20,274			19,757
Total liabilities	2,830,322			3,090,041

Shareholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 0 shares issued and outstanding	—			—
Common stock, $0.01 par value; 30,000,000 shares authorized; 19,352,365 and 18,088,152 shares issued, respectively	194			181
Treasury stock, at cost; 76,000 shares	(1,743		)	(1,743		)
Additional paid in capital	198,493			173,299
Retained earnings	82,777			56,218
Accumulated other comprehensive (loss) income	(1,981		)	7,790
Total shareholders' equity	277,740			235,745
Total liabilities and shareholders' equity	$	3,108,062		$	3,325,786

See accompanying notes to condensed consolidated financial statements.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)



	Three months ended September 30,					Nine months ended September 30,
(In thousands, except per share data)	2013			2012		2013			2012
Interest income:
Interest and fees on loans	$	34,396		$	39,886	$	109,330		$	111,519
Interest on debt securities:
Taxable	2,043			2,628		6,210			7,440
Nontaxable	301			264		907			734
Interest on interest-bearing deposits	37			53		130			195
Dividends on equity securities	106			43		277			230
Total interest income	36,883			42,874		116,854			120,118
Interest expense:
Interest-bearing transaction accounts	99			182		360			566
Money market accounts	714			1,024		2,348			3,694
Savings	56			68		171			209
Certificates of deposit:
$100 and over	1,326			1,691		4,207			5,500
Other	439			597		1,385			2,103
Subordinated debentures	679			982		2,580			3,111
Federal Home Loan Bank advances	757			721		2,221			2,327
Notes payable and other borrowings	239			125		801			362
Total interest expense	4,309			5,390		14,073			17,872
Net interest income	32,574			37,484		102,781			102,246
Provision for loan losses not covered under FDIC loss share	(652		)	1,048		(3,094		)	2,841
Provision for loan losses covered under FDIC loss share	2,811			10,889		2,789			13,380
Net interest income after provision for loan losses	30,415			25,547		103,086			86,025
Noninterest income:
Wealth Management revenue	1,698			1,825		5,419			5,525
Service charges on deposit accounts	1,768			1,456		5,025			4,199
Other service charges and fee income	722			676		2,030			1,848
Gain on sale of other real estate	472			739		1,562			3,152
Gain on state tax credits, net	308			256		1,214			1,180
Gain on sale of investment securities	611			—		1,295			1,156
Change in FDIC loss share receivable	(2,849		)	1,912		(13,647		)	(6,738		)
Miscellaneous income	986			968		2,055			2,338
Total noninterest income	3,716			7,832		4,953			12,660
Noninterest expense:
Employee compensation and benefits	10,777			11,441		33,006			32,956
Occupancy	1,333			1,399		4,098			4,162
Furniture and equipment	356			384		1,200			1,234
Data processing	1,143			881		3,000			2,530
FDIC and other insurance	900			862		2,592			2,658
Loan legal and other real estate expense	1,247			1,187		3,355			5,216
Professional fees	1,041			1,288		3,394			3,640
Other	4,443			3,840		12,491			11,664
Total noninterest expense	21,240			21,282		63,136			64,060

Income before income tax expense	12,891			12,097		44,903			34,625
Income tax expense	4,481			4,167		15,420			11,744
Net income	$	8,410		$	7,930	$	29,483		$	22,881

Net income available to common shareholders	$	8,410		$	7,282	$	29,483		$	20,948

Earnings per common share
Basic	$	0.45		$	0.41	$	1.61		$	1.17
Diluted	0.44			0.39		1.55			1.14

See accompanying notes to condensed consolidated financial statements.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)



	Three months ended September 30,					Nine months ended September 30,
(in thousands)	2013			2012		2013			2012
Net income	$	8,410		$	7,930	$	29,483		$	22,881
Other comprehensive income, net of tax:
Unrealized gain/(loss) on investment securities arising during the period, net of income tax expense/(benefit) for three months of $598 and $1,828, and for nine months of ($5,716) and $3,926, respectively	939			3,248		(8,981		)	6,526
Less reclassification adjustment for realized gain on sale of securities included in net income, net of income tax expense for three months of $238 and $0, and for nine months of $505 and $416, respectively	(373		)	—		(790		)	(740		)
Total other comprehensive income (loss)	566			3,248		(9,771		)	5,786
Total comprehensive income	$	8,976		$	11,178	$	19,712		$	28,667

See accompanying notes to condensed consolidated financial statements.

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, 2013	$	—	$	181	$	(1,743	)	$	173,299		$	56,218		$	7,790		$	235,745
Net income	—		—		—			—			29,483			—			29,483
Other comprehensive loss	—		—		—			—			—			(9,771		)	(9,771		)
Cash dividends paid on common shares, $0.1575 per share	—		—		—			—			(2,924		)	—			(2,924		)
Repurchase of common stock warrants	—		—		—			(1,006		)	—			—			(1,006		)
Issuance under equity compensation plans, 87,743 shares	—		1		—			2,550			—			—			2,551
Trust preferred securities conversion 1,176,470 shares	—		12		—			20,431			—			—			20,443
Share-based compensation	—		—		—			3,136			—			—			3,136
Excess tax benefit related to equity compensation plans	—		—		—			83			—			—			83
Balance September 30, 2013	$	—	$	194	$	(1,743	)	$	198,493		$	82,777		$	(1,981	)	$	277,740



(in thousands, except per share data)	Preferred Stock		Common Stock		Treasury Stock			Additional paid in capital		Retained earnings			Accumulated other comprehensive income		Total shareholders' equity
Balance January 1, 2012	$	33,293	$	178	$	(1,743	)	$	169,138	$	35,097		$	3,602	$	239,565
Net income	—		—		—			—		22,881			—		22,881
Other comprehensive income	—		—		—			—		—			5,786		5,786
Cash dividends paid on common shares, $0.1575 per share	—		—		—			—		(2,813		)	—		(2,813		)
Cash dividends paid on preferred stock	—		—		—			—		(1,312		)	—		(1,312		)
Preferred stock accretion of discount	621		—		—			—		(621		)	—		—
Issuance under equity compensation plans, 189,848 shares	—		2		—			1,530		—			—		1,532
Share-based compensation	—		—		—			1,791		—			—		1,791
Excess tax benefit related to equity compensation plans	—		—		—			86		—			—		86
Balance September 30, 2012	$	33,914	$	180	$	(1,743	)	$	172,545	$	53,232		$	9,388	$	267,516

See accompanying notes to condensed consolidated financial statements.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)



	Nine months ended September 30,
(in thousands)	2013			2012
Cash flows from operating activities:
Net income	$	29,483		$	22,881
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	1,936			1,944
Provision for loan losses	(305		)	16,221
Deferred income taxes	180			(1,982		)
Net amortization of debt securities	4,579			5,839
Amortization of intangible assets	1,540			1,440
Gain on sale of investment securities	(1,295		)	(1,156		)
Mortgage loans originated for sale	(64,463		)	(71,085		)
Proceeds from mortgage loans sold	70,884			68,987
Gain on sale of other real estate	(1,562		)	(3,152		)
Gain on state tax credits, net	(1,214		)	(1,180		)
Share-based compensation	3,136			1,791
Valuation adjustment on other real estate	962			2,201
Net accretion of loan discount and indemnification asset	(13,853		)	(18,754		)
Changes in:
Accrued interest receivable	600			(1,288		)
Accrued interest payable	(397		)	(385		)
Prepaid FDIC insurance	2,607			1,837
Other assets	(21,322		)	1,212
Other liabilities	516			12,567
Net cash provided by operating activities	12,012			37,938
Cash flows from investing activities:
Net decrease (increase) in loans	36,955			(10,478		)
Net cash proceeds received from FDIC loss share receivable	9,654			85,173
Proceeds from the sale of debt and equity securities, available for sale	159,604			110,876
Proceeds from the maturity of debt and equity securities, available for sale	69,017			91,498
Proceeds from the redemption of other investments	26,695			6,296
Proceeds from the sale of state tax credits held for sale	8,126			4,408
Proceeds from the sale of other real estate	15,303			44,273
Payments for the purchase/origination of:
Available for sale debt and equity securities	(60,732		)	(214,935		)
Other investments	(28,143		)	(8,138		)
Bank owned life insurance	(20,000		)	—
State tax credits held for sale	(1,365		)	(18,577		)
Fixed assets	(1,122		)	(4,433		)
Net cash provided by investing activities	213,992			85,963
Cash flows from financing activities:
Net (decrease) increase in noninterest-bearing deposit accounts	(67,242		)	35,591
Net decrease in interest-bearing deposit accounts	(143,691		)	(276,011		)
Proceeds from Federal Home Loan Bank advances	743,000			157,500
Repayments of Federal Home Loan Bank advances	(703,000		)	(133,500		)
Repayments of notes payable	(900		)	—
Repayments of subordinated debt	(2,000		)	—
Net decrease in other borrowings	(66,005		)	(7,440		)
Cash dividends paid on common stock	(2,924		)	(2,813		)
Excess tax benefit of share-based compensation	83			86
Payment for the repurchase of common stock warrants	(1,006		)	—
Cash dividends paid on preferred stock	—			(1,312		)
Proceeds from the issuance of equity instruments	2,551			1,530
Net cash used by financing activities	(241,134		)	(226,369		)
Net decrease in cash and cash equivalents	(15,130		)	(102,468		)
Cash and cash equivalents, beginning of period	116,370			188,143
Cash and cash equivalents, end of period	$	101,240		$	85,675
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	14,470		$	17,487
Income taxes	24,348			10,953
Noncash transactions:
Transfer to other real estate owned in settlement of loans	21,116			19,799
Sales of other real estate financed	5,564			5,264
Issuance of common stock from Trust Preferred Securities conversion	20,443			—

See accompanying notes to condensed consolidated financial statements.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies used by Enterprise Financial Services Corp (the “Company” 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”).

Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2013. 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, 2012.

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.

The Company has adopted the new accounting guidance surrounding comprehensive income by presenting a separate Statement of Comprehensive Income. The 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 reclassification adjustment for unrealized 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 Condensed Consolidated Statements of Operations.

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. Common shares outstanding include common stock and restricted stock awards where recipients have satisfied the vesting terms. Diluted earnings per common share gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and the if-converted method for convertible trust preferred securities.

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



	Three months ended September 30,					Nine months ended September 30,
(in thousands, except per share data)	2013		2012			2013		2012
Net income as reported	$	8,410	$	7,930		$	29,483	$	22,881
Preferred stock dividend	—		(436		)	—		(1,312		)
Accretion of preferred stock discount	—		(212		)	—		(621		)
Net income available to common shareholders	$	8,410	$	7,282		$	29,483	$	20,948

Impact of assumed conversions
Interest on 9% convertible trust preferred securities, net of income tax	217		371			926		1,113
Net income available to common shareholders and assumed conversions	$	8,627	$	7,653		$	30,409	$	22,061

Weighted average common shares outstanding	18,779		17,876			18,288		17,829
Incremental shares from assumed conversions of convertible trust preferred securities	851		1,439			1,241		1,439
Additional dilutive common stock equivalents	200		100			153		34
Weighted average diluted common shares outstanding	19,830		19,415			19,682		19,302

Basic earnings per common share:	$	0.45	$	0.41		$	1.61	$	1.17
Diluted earnings per common share:	$	0.44	$	0.39		$	1.55	$	1.14

For the three months ended September 30, 2013 and 2012, the amount of common stock equivalents that were excluded from the earnings per share calculations because their effect was anti-dilutive was 474,267, and 1.0 million common stock equivalents (including 324,074 common stock warrants), respectively. For the nine months ended September 30, 2013 and 2012, the amount of common stock equivalents that were excluded from the earnings per share calculations because their effect was anti-dilutive was 488,318 (including 9,497 average common stock warrants), and 1.0 million common stock equivalents (including 324,074 common stock warrants), respectively.

NOTE 3 - INVESTMENTS

The following table presents the amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale:



	September 30, 2013
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale securities:
Obligations of U.S. Government-sponsored enterprises	$	93,680	$	599	$	(305	)	$	93,974
Obligations of states and political subdivisions	51,702		1,079		(1,588		)	51,193
Residential mortgage-backed securities	310,907		3,127		(6,155		)	307,879
	$	456,289	$	4,805	$	(8,048	)	$	453,046

	December 31, 2012
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale securities:
Obligations of U.S. Government-sponsored enterprises	$	149,039	$	3,329	$	—		$	152,368
Obligations of states and political subdivisions	51,202		2,279		(478		)	53,003
Residential mortgage-backed securities	427,221		7,884		(264		)	434,841
	$	627,462	$	13,492	$	(742	)	$	640,212

At September 30, 2013, and December 31, 2012, 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 fair value of $227.5 million and $359.3 million at September 30, 2013, and December 31, 2012, 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 September 30, 2013, 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 5 years.



(in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	885	$	892
Due after one year through five years	107,062		107,703
Due after five years through ten years	23,333		23,516
Due after ten years	14,102		13,056
Mortgage-backed securities	310,907		307,879
	$	456,289	$	453,046

The following table represents a summary of available-for-sale investment securities that had an unrealized loss:



	September 30, 2013
	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	$	30,355	$	305	$	—	$	—	$	30,355	$	305
Obligations of states and political subdivisions	$	20,306	$	1,230	$	3,042	$	358	$	23,348	$	1,588
Residential mortgage-backed securities	188,849		5,692		8,779		463		197,628		6,155
	$	239,510	$	7,227	$	11,821	$	821	$	251,331	$	8,048

	December 31, 2012
	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 states and political subdivisions	6,434		122		3,389		356		9,823		478
Residential mortgage-backed securities	40,471		143		11,266		121		51,737		264
	$	46,905	$	265	$	14,655	$	477	$	61,560	$	742

The unrealized losses at both September 30, 2013, and December 31, 2012, were primarily 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 September 30, 2013, 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 September 30,				Nine months ended September 30,
(in thousands)	2013		2012		2013			2012
Gross gains realized	$	611	$	—	$	1,477		$	1,399
Gross losses realized	—		—		(182		)	(243		)
Proceeds from sales	36,710		—		159,604			110,876

NOTE 4 - PORTFOLIO LOANS NOT COVERED BY LOSS SHARE ("Non-covered")

Below is a summary of Non-covered loans by category at September 30, 2013, and December 31, 2012:



(in thousands)	September 30, 2013		December 31, 2012
Real Estate Loans:
Construction and Land Development	$	114,608	$	160,911
Commercial real estate - Investor Owned	451,102		486,467
Commercial real estate - Owner Occupied	350,653		333,242
Residential real estate	150,320		145,558
Total real estate loans	$	1,066,683	$	1,126,178
Commercial and industrial	1,007,398		962,884
Consumer & other	35,862		16,966
Portfolio Loans	$	2,109,943	$	2,106,028
Unearned loan costs, net	882		11
Portfolio loans, including unearned loan costs	$	2,110,825	$	2,106,039

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.

A summary of the year-to-date activity in the allowance for loan losses and the recorded investment in Non-covered loans by portfolio class and category based on impairment method through September 30, 2013, and at December 31, 2012, is as follows:



(in thousands)	Commercial & Industrial			Commercial Real Estate Owner Occupied			Commercial Real Estate Investor Owned			Construction and Land Development			Residential Real Estate			Consumer & Other			Qualitative Adjustment			Total
Allowance for Loan Losses:
Balance at December 31, 2012	$	10,064		$	4,192		$	10,403		$	5,239		$	2,026		$	31		$	2,375		$	34,330
Provision charged to expense	120			179			953			(127		)	675			46			7			1,853
Losses charged off	(206		)	(312		)	(3,052		)	(190		)	(986		)	(34		)	—			(4,780		)
Recoveries	298			5			336			14			396			—			—			1,049
Balance at March 31, 2013	$	10,276		$	4,064		$	8,640		$	4,936		$	2,111		$	43		$	2,382		$	32,452
Provision charged to expense	(320		)	(139		)	(2,273		)	(998		)	(299		)	1			(267		)	(4,295		)
Losses charged off	(400		)	(32		)	(176		)	(144		)	—			—			—			(752		)
Recoveries	118			17			24			21			34			—			—			214
Balance at June 30, 2013	$	9,674		$	3,910		$	6,215		$	3,815		$	1,846		$	44		$	2,115		$	27,619
Provision charged to expense	117			(233		)	(276		)	(1,291		)	(612		)	19			1,624			(652		)
Losses charged off	(1,817		)	(56		)	(504		)	(85		)	(52		)	—			—			(2,514		)
Recoveries	906			14			360			385			481			—			—			2,146
Balance at September 30, 2013	$	8,880		$	3,635		$	5,795		$	2,824		$	1,663		$	63		$	3,739		$	26,599



(in thousands)	Commercial & Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Investor Owned		Construction and Land Development		Residential Real Estate		Consumer & Other		Qualitative Adjustment		Total
Balance September 30, 2013
Allowance for Loan Losses - Ending Balance:
Individually evaluated for impairment	$	2,610	$	—	$	973	$	712	$	11	$	—	$	—	$	4,306
Collectively evaluated for impairment	6,270		3,635		4,822		2,112		1,652		63		3,739		22,293
Total	$	8,880	$	3,635	$	5,795	$	2,824	$	1,663	$	63	$	3,739	$	26,599
Loans - Ending Balance:
Individually evaluated for impairment	$	5,974	$	191	$	10,830	$	6,499	$	675	$	—	$	—	$	24,169
Collectively evaluated for impairment	1,001,424		350,462		440,272		108,109		149,645		36,744		—		2,086,656
Total	$	1,007,398	$	350,653	$	451,102	$	114,608	$	150,320	$	36,744	$	—	$	2,110,825

Balance at December 31, 2012
Allowance for Loan Losses - Ending Balance:
Individually evaluated for impairment	$	3,446	$	339	$	3,400	$	732	$	259	$	—	$	—	$	8,176
Collectively evaluated for impairment	6,618		3,853		7,003		4,507		1,767		31		2,375		26,154
Total	$	10,064	$	4,192	$	10,403	$	5,239	$	2,026	$	31	$	2,375	$	34,330
Loans - Ending Balance:
Individually evaluated for impairment	$	8,934	$	5,772	$	16,762	$	4,695	$	2,564	$	—	$	—	$	38,727
Collectively evaluated for impairment	953,950		327,470		469,705		156,216		142,994		16,977		—		2,067,312
Total	$	962,884	$	333,242	$	486,467	$	160,911	$	145,558	$	16,977	$	—	$	2,106,039

A summary of Non-covered loans individually evaluated for impairment by category at September 30, 2013, and December 31, 2012, is as follows:



	September 30, 2013
(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	$	6,333	$	1,441	$	4,642	$	6,083	$	2,610	$	7,379
Real Estate:
Commercial - Owner Occupied	191		195		—		195		—		2,381
Commercial - Investor Owned	11,969		4,960		6,158		11,118		973		12,346
Construction and Land Development	7,206		4,278		2,389		6,667		712		5,165
Residential	700		460		227		687		11		2,361
Consumer & Other	—		—		—		—		—		—
Total	$	26,399	$	11,334	$	13,416	$	24,750	$	4,306	$	29,632



	December 31, 2012
(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	$	9,005	$	96	$	8,838	$	8,934	$	3,446	$	6,379
Real Estate:
Commercial - Owner Occupied	6,726		2,178		3,594		5,772		339		7,985
Commercial - Investor Owned	19,864		185		16,577		16,762		3,400		10,500
Construction and Land Development	6,491		1,560		3,135		4,695		732		10,259
Residential	3,132		1,626		938		2,564		259		4,368
Consumer & Other	—		—		—		—		—		—
Total	$	45,218	$	5,645	$	33,082	$	38,727	$	8,176	$	39,491

There were no loans over 90 days past due and still accruing interest at September 30, 2013. If interest on impaired loans would have been accrued based upon the original contractual terms, such income would have been $410,000 and $1.5 million for the three and nine months ended September 30, 2013, respectively. The cash amount collected and recognized as interest income on impaired loans was $4,000 and $28,000 for the three and nine months ended September 30, 2013, respectively. There was no interest income recognized on impaired loans continuing to accrue interest for the three and nine months ended September 30, 2013, respectively. At September 30, 2013, there were $1.7 million of unadvanced commitments on impaired loans. Other liabilities include approximately $241,000 for estimated losses attributable to the unadvanced commitments on impaired loans.

The recorded investment in non-accrual, restructured, and 90 days past due and still accruing interest Non-covered loans by category at September 30, 2013, and December 31, 2012, is as follows:



	September 30, 2013
(in thousands)	Non-accrual		Restructured		Loans over 90 days past due and still accruing interest		Total
Commercial & Industrial	$	6,083	$	—	$	—	$	6,083
Real Estate:
Commercial - Investor Owned	11,118		—		—		11,118
Commercial - Owner Occupied	195		—		—		195
Construction and Land Development	6,667		—		—		6,667
Residential	687		—		—		687
Consumer & Other	—		—		—		—
Total	$	24,750	$	—	$	—	$	24,750



	December 31, 2012
(in thousands)	Non-accrual		Restructured		Loans over 90 days past due and still accruing interest		Total
Commercial & Industrial	$	8,929	$	5	$	—	$	8,934
Real Estate:
Commercial - Investor Owned	16,762		—		—		16,762
Commercial - Owner Occupied	5,772		—		—		5,772
Construction and Land Development	3,260		1,435		—		4,695
Residential	2,564		—		—		2,564
Consumer & Other	—		—		—		—
Total	$	37,287	$	1,440	$	—	$	38,727

There were no Non-covered loans that have been restructured and subsequently defaulted in the nine months ended September 30, 2013.

The aging of the recorded investment in past due Non-covered loans by portfolio class and category at September 30, 2013, and December 31, 2012, is shown below.



	September 30, 2013
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial & Industrial	$	445	$	1,337	$	1,782	$	1,005,616	$	1,007,398
Real Estate:
Commercial - Owner Occupied	442		190		632		350,021		350,653
Commercial - Investor Owned	1,025		6,842		7,867		443,235		451,102
Construction and Land Development	—		2,210		2,210		112,398		114,608
Residential	—		320		320		150,000		150,320
Consumer & Other	3		—		3		36,741		36,744
Total	$	1,915	$	10,899	$	12,814	$	2,098,011	$	2,110,825



	December 31, 2012
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current			Total
Commercial & Industrial	$	14	$	—	$	14	$	962,870	<