2014.6.30-10Q


 

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, 2014.
 
 
 
[   ]
 
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 [ ]
Accelerated filer [X]
  Non-accelerated filer [ ]
Smaller reporting company [ ]
 
 
(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 July 25, 2014, the Registrant had 19,773,427 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)
 
 
Condensed Consolidated Statements of Operations (Unaudited)
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
 
Condensed Consolidated Statements of Shareholders' 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
 
 
 
 




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, 2014
 
December 31, 2013
Assets
 
 
 
Cash and due from banks
$
32,993

 
$
19,573

Federal funds sold
44

 
76

Interest-bearing deposits (including $1,250 and $990 pledged as collateral)
89,392

 
190,920

                  Total cash and cash equivalents
122,429

 
210,569

Interest-bearing deposits greater than 90 days
5,300

 
5,300

Securities available for sale
448,049

 
434,587

Loans held for sale
5,375

 
1,834

Portfolio loans
2,251,102

 
2,137,313

   Less: Allowance for loan losses
28,422

 
27,289

Portfolio loans, net
2,222,680

 
2,110,024

Purchase credit impaired loans, net of the allowance for loan losses ($17,539 and $15,438, respectively)
100,965

 
125,100

                  Total loans, net
2,323,645

 
2,235,124

Other real estate not covered under FDIC loss share
7,613

 
7,576

Other real estate covered under FDIC loss share
12,821

 
15,676

Other investments, at cost
16,110

 
12,605

Fixed assets, net
17,930

 
18,180

Accrued interest receivable
7,009

 
7,303

State tax credits, held for sale, including $14,985 and $16,491 carried at fair value, respectively
45,529

 
48,457

FDIC loss share receivable
25,508

 
34,319

Goodwill
30,334

 
30,334

Intangible assets, net
4,767

 
5,418

Other assets
103,022

 
102,915

Total assets
$
3,175,441

 
$
3,170,197

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Demand deposits
$
675,301

 
$
653,686

Interest-bearing transaction accounts
235,142

 
219,802

Money market accounts
872,681

 
948,884

Savings
84,206

 
79,666

Certificates of deposit:
 
 
 
$100 and over
454,328

 
475,544

Other
143,792

 
157,371

Total deposits
2,465,450

 
2,534,953

Subordinated debentures
56,807

 
62,581

Federal Home Loan Bank advances
153,600

 
50,000

Other borrowings
165,943

 
203,831

Notes payable
6,300

 
10,500

Accrued interest payable
862

 
957

Other liabilities
24,915

 
27,670

Total liabilities
2,873,877

 
2,890,492

 
 
 
 
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; 19,840,568 and 19,399,709 shares issued, respectively
198

 
194

Treasury stock, at cost; 76,000 shares
(1,743
)
 
(1,743
)
Additional paid in capital
206,232

 
200,258

Retained earnings
96,298

 
85,376

Accumulated other comprehensive income (loss)
579

 
(4,380
)
Total shareholders' equity
301,564

 
279,705

Total liabilities and shareholders' equity
$
3,175,441

 
$
3,170,197

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)
2014
 
2013
 
2014
 
2013
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
29,743

 
$
35,585

 
$
61,187

 
$
74,934

Interest on debt securities:
 
 
 
 
 
 
 
Taxable
2,189

 
2,054

 
4,355

 
4,167

Nontaxable
299

 
305

 
598

 
606

Interest on interest-bearing deposits
36

 
46

 
102

 
93

Dividends on equity securities
42

 
71

 
91

 
171

Total interest income
32,309

 
38,061

 
66,333

 
79,971

Interest expense:
 
 
 
 
 
 
 
Interest-bearing transaction accounts
110

 
123

 
222

 
261

Money market accounts
700

 
752

 
1,442

 
1,634

Savings
50

 
56

 
99

 
115

Certificates of deposit:
 
 
 
 
 
 
 
$100 and over
1,336

 
1,429

 
2,662

 
2,881

Other
419

 
460

 
843

 
946

Subordinated debentures
303

 
949

 
710

 
1,901

Federal Home Loan Bank advances
456

 
730

 
855

 
1,464

Notes payable and other borrowings
193

 
254

 
392

 
562

Total interest expense
3,567

 
4,753

 
7,225

 
9,764

Net interest income
28,742

 
33,308

 
59,108

 
70,207

Provision for portfolio loan losses
1,348

 
(4,295
)
 
2,375

 
(2,442
)
Provision for purchase credit impaired loan losses
(470
)
 
(2,278
)
 
2,834

 
(22
)
Net interest income after provision for loan losses
27,864

 
39,881

 
53,899

 
72,671

Noninterest income:
 
 
 
 
 
 
 
Wealth Management revenue
1,715

 
1,778

 
3,437

 
3,721

Service charges on deposit accounts
1,767

 
1,724

 
3,505

 
3,257

Other service charges and fee income
702

 
661

 
1,339

 
1,308

Gain on sale of other real estate
717

 
362

 
1,400

 
1,090

Gain on state tax credits, net
207

 
39

 
704

 
906

Gain on sale of investment securities
—

 
—

 
—

 
684

Change in FDIC loss share receivable
(2,742
)
 
(6,713
)
 
(5,152
)
 
(10,798
)
Miscellaneous income
1,039

 
472

 
2,094

 
1,069

Total noninterest income
3,405

 
(1,677
)
 
7,327

 
1,237

Noninterest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
11,853

 
10,766

 
23,969

 
22,229

Occupancy
1,675

 
1,693

 
3,315

 
3,609

Data processing
1,125

 
936

 
2,251

 
1,857

FDIC and other insurance
761

 
833

 
1,460

 
1,692

Loan legal and other real estate expense
1,040

 
2,075

 
2,174

 
2,108

Professional fees
592

 
928

 
1,859

 
2,353

Other
3,399

 
3,916

 
6,519

 
7,584

Total noninterest expense
20,445

 
21,147

 
41,547

 
41,432

 
 
 
 
 
 
 
 
Income before income tax expense
10,824

 
17,057

 
19,679

 
32,476

Income tax expense
3,664

 
6,024

 
6,671

 
11,403

Net income
$
7,160

 
$
11,033

 
$
13,008

 
$
21,073

 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
Basic
$
0.36

 
$
0.61

 
$
0.66

 
$
1.17

Diluted
0.36

 
0.58

 
0.66

 
1.11

See accompanying notes to condensed consolidated financial statements.

2



ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Net income
$
7,160

 
$
11,033

 
$
13,008

 
$
21,073

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gain/(loss) on investment securities available for sale arising during the period, net of income tax expense/(benefit) for three months of $1,988, and $(5,155), and for six months of $3,079 and ($6,314), respectively.
3,202

 
(8,098
)
 
4,959

 
(9,920
)
Less reclassification adjustment for realized gains
on sale of securities available for sale included in net income, net of income tax expense for three months of $0, and $0, and for the six months of $0, and $267, respectively.
—

 
—

 
—

 
(417
)
Total other comprehensive income (loss)
3,202

 
(8,098
)
 
4,959

 
(10,337
)
Total comprehensive income
$
10,362

 
$
2,935

 
$
17,967

 
$
10,736


See accompanying notes to condensed consolidated financial statements.


3


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, 2014
 
$
—

 
$
194

 
$
(1,743
)
 
$
200,258

 
$
85,376

 
$
(4,380
)
 
$
279,705

Net income
 
—

 
—

 
—

 
—

 
13,008

 
—

 
13,008

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
4,959

 
4,959

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

 
—

 
—

 
—

 
(2,086
)
 
—

 
(2,086
)
Issuance under equity compensation plans, 153,007 shares
 
—

 
1

 
—

 
(650
)
 
—

 
—

 
(649
)
Trust preferred securities conversion 287,852 shares
 
—

 
3

 
—

 
4,999

 
—

 
—

 
5,002

Share-based compensation
 
—

 
—

 
—

 
1,524

 
—

 
—

 
1,524

Excess tax benefit related to equity compensation plans
 
—

 
—

 
—

 
101

 
—

 
—

 
101

Balance June 30, 2014
 
$
—

 
$
198

 
$
(1,743
)
 
$
206,232

 
$
96,298

 
$
579

 
$
301,564


(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
 
—

 
—

 
—

 
—

 
21,073

 
—

 
21,073

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(10,337
)
 
(10,337
)
Cash dividends paid on common shares, $0.105 per share
 
—

 
—

 
—

 
—

 
(1,904
)
 
—

 
(1,904
)
Repurchase of common stock warrants
 
—

 
—

 
—

 
(1,006
)
 
—

 
—

 
(1,006
)
Issuance under equity compensation plans, 211,314 shares
 
—

 
2

 
—

 
2,262

 
—

 
—

 
2,264

Share-based compensation
 
—

 
—

 
—

 
1,788

 
—

 
—

 
1,788

Excess tax benefit related to equity compensation plans
 
—

 
—

 
—

 
52

 
—

 
—

 
52

Balance June 30, 2013
 
$
—

 
$
183

 
$
(1,743
)
 
$
176,395

 
$
75,387

 
$
(2,547
)
 
$
247,675


See accompanying notes to condensed consolidated financial statements.

4


ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Six months ended June 30,
(in thousands)
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
13,008

 
$
21,073

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation
1,077

 
1,360

Provision for loan losses
5,209

 
(2,464
)
Deferred income taxes
3,257

 
1,267

Net amortization of debt securities
1,910

 
3,299

Amortization of intangible assets
651

 
930

Gain on sale of investment securities
—

 
(684
)
Mortgage loans originated for sale
(31,543
)
 
(34,645
)
Proceeds from mortgage loans sold
28,184

 
39,474

Gain on sale of other real estate
(1,400
)
 
(1,090
)
Gain on state tax credits, net
(704
)
 
(906
)
Excess tax benefit of share-based compensation
(101
)
 
—

Share-based compensation
1,524

 
1,788

Valuation adjustment on other real estate
590

 
754

Net accretion of loan discount and indemnification asset
(5,818
)
 
(8,725
)
Changes in:
 
 
 
Accrued interest receivable
294

 
(737
)
Accrued interest payable
(95
)
 
(238
)
Prepaid FDIC insurance
—

 
2,607

Other assets
(8,250
)
 
(11,002
)
Other liabilities
(2,754
)
 
(5,683
)
Net cash provided by operating activities
5,039

 
6,378

Cash flows from investing activities:
 
 
 
Net (increase) decrease in loans
(87,491
)
 
65,771

Net cash proceeds received from FDIC loss share receivable
4,212

 
7,442

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

 
122,894

Proceeds from the maturity of debt and equity securities, available for sale
22,519

 
50,468

Proceeds from the redemption of other investments
8,409

 
15,689

Proceeds from the sale of state tax credits held for sale
3,639

 
8,126

Proceeds from the sale of other real estate
8,754

 
9,925

Payments for the purchase/origination of:
 
 
 
Available for sale debt and equity securities
(29,853
)
 
(23,700
)
Other investments
(11,914
)
 
(20,858
)
Bank owned life insurance
—

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

 
(1,365
)
Fixed assets
(828
)
 
(834
)
Net cash (used in) provided by investing activities
(82,553
)
 
213,558

Cash flows from financing activities:
 
 
 
Net increase/(decrease) in noninterest-bearing deposit accounts
21,614

 
(68,527
)
Net decrease in interest-bearing deposit accounts
(91,118
)
 
(222,091
)
Proceeds from Federal Home Loan Bank advances
278,600

 
459,000

Repayments of Federal Home Loan Bank advances
(175,000
)
 
(348,000
)
Repayments of notes payable
(4,200
)
 
(600
)
Repayments of subordinated debentures
—

 
(2,000
)
Net decrease in other borrowings
(37,888
)
 
(55,158
)
Cash dividends paid on common stock
(2,086
)
 
(1,904
)
Excess tax benefit of share-based compensation
101

 
52

Payments for the repurchase of common stock warrants
—

 
(1,006
)
Employee stock issuances, net
(649
)
 
2,264

Net cash used by financing activities
(10,626
)
 
(237,970
)
Net (decrease) increase in cash and cash equivalents
(88,140
)
 
(18,034
)
Cash and cash equivalents, beginning of period
210,569

 
116,370

Cash and cash equivalents, end of period
$
122,429

 
$
98,336

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
7,320

 
$
10,002

Income taxes
8,498

 
16,936

Noncash transactions:
 
 
 
Transfer to other real estate owned in settlement of loans
6,158

 
10,908

Sales of other real estate financed
1,107

 
2,881

Issuance of common stock from Trust Preferred Securities conversion
5,002

 
—

See accompanying notes to condensed consolidated financial statements.

5


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 six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2014. 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, 2013.

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.

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.


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)
2014
 
2013
 
2014
 
2013
Net income as reported
$
7,160

 
$
11,033

 
$
13,008

 
$
21,073

 
 
 
 
 
 
 
 
Impact of assumed conversions
 
 
 
 
 
 
 
Interest on 9% convertible trust preferred securities, net of income tax
—

 
354

 
66

 
709

Net income available to common shareholders and assumed conversions
$
7,160

 
$
11,387

 
$
13,074

 
$
21,782

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
19,824

 
18,119

 
19,673

 
18,052

Incremental shares from assumed conversions of convertible trust preferred securities
—

 
1,439

 
115

 
1,439

Additional dilutive common stock equivalents
139

 
153

 
168

 
115

Weighted average diluted common shares outstanding
19,963

 
19,711

 
19,956

 
19,606

 
 
 
 
 
 
 
 
Basic earnings per common share:
$
0.36

 
$
0.61

 
$
0.66

 
$
1.17

Diluted earnings per common share:
$
0.36

 
$
0.58

 
$
0.66

 
$
1.11


For the three months ended June 30, 2014 and 2013, the amount of common stock equivalents that were excluded from the earnings per share calculations because their effect was anti-dilutive was 289,469, and 551,667 common stock equivalents, respectively. For the six months ended June 30, 2014 and 2013, the amount of common stock equivalents that were excluded from the earnings per share calculations because their effect was anti-dilutive was 286,469, and 547,356 common stock equivalents (including 14,324 common stock warrants), respectively.

7


NOTE 3 - INVESTMENTS

The following table presents the amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale:
 
 
June 30, 2014
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
    Obligations of U.S. Government-sponsored enterprises
$
92,289

 
$
806

 
$
(124
)
 
$
92,971

    Obligations of states and political subdivisions
49,301

 
1,474

 
(842
)
 
49,933

    Agency mortgage-backed securities
305,396

 
3,852

 
(4,103
)
 
305,145

 
$
446,986

 
$
6,132

 
$
(5,069
)
 
$
448,049

 
 
 
 
 
 
 
 
 
December 31, 2013
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
    Obligations of U.S. Government-sponsored enterprises
$
93,218

 
$
700

 
$
(388
)
 
$
93,530

    Obligations of states and political subdivisions
49,721

 
983

 
(1,761
)
 
48,943

    Agency mortgage-backed securities
298,623

 
2,675

 
(9,184
)
 
292,114

 
$
441,562

 
$
4,358

 
$
(11,333
)
 
$
434,587


At June 30, 2014, and December 31, 2013, 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 $244.6 million and $270.1 million at June 30, 2014, and December 31, 2013, 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, 2014, 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
$
2,214

 
$
2,248

Due after one year through five years
108,727

 
110,065

Due after five years through ten years
22,425

 
22,767

Due after ten years
8,224

 
7,824

Mortgage-backed securities
305,396

 
305,145

 
$
446,986

 
$
448,049



8


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

 
June 30, 2014
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
$
—

 
$
—

 
$
24,870

 
$
124

 
$
24,870

 
$
124

Obligations of states and political subdivisions
$
1,180

 
$
3

 
$
17,047

 
$
839

 
$
18,227

 
$
842

Agency mortgage-backed securities
4,152

 
11

 
136,626

 
4,092

 
140,778

 
4,103

 
$
5,332

 
$
14

 
$
178,543

 
$
5,055

 
$
183,875

 
$
5,069

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 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
$
30,221

 
$
388

 
$
—

 
$
—

 
$
30,221

 
$
388

Obligations of states and political subdivisions
17,141

 
952

 
7,168

 
809

 
24,309

 
1,761

Agency mortgage-backed securities
159,999

 
7,338

 
21,437

 
1,846

 
181,436

 
9,184

 
$
207,361

 
$
8,678

 
$
28,605

 
$
2,655

 
$
235,966

 
$
11,333


The unrealized losses at both June 30, 2014, and December 31, 2013, 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 June 30, 2014, 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)
2014
 
2013
 
2014
 
2013
Gross gains realized
$
—

 
$
—

 
$
—

 
$
866

Gross losses realized
—

 
—

 
—

 
(182
)
Proceeds from sales
—

 
—

 
—

 
122,894



9


NOTE 4 - PORTFOLIO LOANS


Below is a summary of Portfolio loans by category at June 30, 2014, and December 31, 2013:

(in thousands)
June 30, 2014
 
December 31, 2013
Real Estate Loans:
 
 
 
    Construction and land development
$
137,043

 
$
117,032

    Commercial real estate - Investor owned
386,088

 
437,688

    Commercial real estate - Owner occupied
369,383

 
341,631

    Residential real estate
173,964

 
158,527

Total real estate loans
$
1,066,478

 
$
1,054,878

    Commercial and industrial
1,135,069

 
1,041,576

    Consumer and other
48,476

 
39,838

    Portfolio loans
$
2,250,023

 
$
2,136,292

Unearned loan costs, net
1,079

 
1,021

    Portfolio loans, including unearned loan costs
$
2,251,102

 
$
2,137,313


The Company grants commercial, real estate, 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.
 

10



A summary of the year-to-date activity in the allowance for loan losses and the recorded investment in Portfolio loans by class and category based on impairment method through June 30, 2014, and at December 31, 2013, 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
 
Total
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at
December 31, 2013
$
12,246

 
$
4,096

 
$
6,600

 
$
2,136

 
$
2,019

 
$
192

 
$
27,289

Provision charged to expense
899

 
589

 
(9
)
 
(532
)
 
16

 
64

 
1,027

Losses charged off
(474
)
 
(336
)
 
(250
)
 
(305
)
 
—

 
(4
)
 
(1,369
)
Recoveries
187

 
8

 
34

 
688

 
41

 
—

 
958

Balance at
March 31, 2014
$
12,858

 
$
4,357

 
$
6,375

 
$
1,987

 
$
2,076

 
$
252

 
$
27,905

Provision charged to expense
3,068

 
(262
)
 
(2,064
)
 
132

 
412

 
62

 
1,348

Losses charged off
(1,005
)
 
(88
)
 
—

 
—

 
—

 
—

 
(1,093
)
Recoveries
154

 
14

 
19

 
36

 
39

 
—

 
262

Balance at
June 30, 2014
$
15,075

 
$
4,021

 
$
4,330

 
$
2,155

 
$
2,527

 
$
314

 
$
28,422

(in thousands)
Commercial & Industrial
 
Commercial
Real Estate
Owner Occupied
 
Commercial
Real Estate
Investor Owned
 
Construction and Land Development
 
Residential Real Estate
 
Consumer & Other
 
Total
Balance June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses - Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
1,178

 
$
298

 
$
—

 
$
375

 
$
10

 
$
—

 
$
1,861

Collectively evaluated for impairment
13,897

 
3,723

 
4,330

 
1,780

 
2,517

 
314

 
26,561

Total
$
15,075

 
$
4,021

 
$
4,330

 
$
2,155

 
$
2,527

 
$
314

 
$
28,422

Loans - Ending Balance:
 
 
 
 
 
 
 

 
 
 
 
 
 
Individually evaluated for impairment
$
4,649

 
$
4,276

 
$
5,174

 
$
7,422

 
$
544

 
$
—

 
$
22,065

Collectively evaluated for impairment
1,130,420

 
365,107

 
380,914

 
129,621

 
173,420

 
49,555

 
2,229,037

Total
$
1,135,069

 
$
369,383

 
$
386,088

 
$
137,043

 
$
173,964

 
$
49,555

 
$
2,251,102

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses - Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
736

 
$
107

 
$
—

 
$
703

 
$
4

 
$
—

 
$
1,550

Collectively evaluated for impairment
11,510

 
3,989

 
6,600

 
1,433

 
2,015

 
192

 
25,739

Total
$
12,246

 
$
4,096

 
$
6,600

 
$
2,136

 
$
2,019

 
$
192

 
$
27,289

Loans - Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
3,380

 
$
606

 
$
6,811

 
$
9,484

 
$
559

 
$
—

 
$
20,840

Collectively evaluated for impairment
1,038,196

 
341,025

 
430,877

 
107,548

 
157,968

 
40,859

 
2,116,473

Total
$
1,041,576

 
$
341,631

 
$
437,688

 
$
117,032

 
$
158,527

 
$
40,859

 
$
2,137,313


11


A summary of Portfolio loans individually evaluated for impairment by category at June 30, 2014, and December 31, 2013, is as follows:

 
June 30, 2014
(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
$
6,229

 
$
4,059

 
$
—

 
$
4,059

 
$
933

 
$
4,315

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - Owner Occupied
3,315

 
778

 
1,310

 
2,088

 
298

 
1,229

    Commercial - Investor Owned
5,174

 
—

 
5,174

 
5,174

 
—

 
3,623

    Construction and Land Development
7,917

 
441

 
6,981

 
7,422

 
375

 
7,902

    Residential
545

 
31

 
513

 
544

 
10

 
540

Consumer & Other
—

 
—

 
—

 
—

 
—

 
391

Total
$
23,180

 
$
5,309

 
$
13,978

 
$
19,287

 
$
1,616

 
$
18,000


 
December 31, 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
$
4,377

 
$
—

 
$
3,384

 
$
3,384

 
$
736

 
$
6,574

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - Owner Occupied
606

 
201

 
421

 
622

 
107

 
1,868

    Commercial - Investor Owned
8,033

 
7,190

 
—

 
7,190

 
—

 
11,348

    Construction and Land Development
10,668

 
7,383

 
2,419

 
9,802

 
703

 
5,770

    Residential
559

 
348

 
221

 
569

 
4

 
1,930

Consumer & Other
—

 
—

 
—

 
—

 
—

 
—

Total
$
24,243

 
$
15,122

 
$
6,445

 
$
21,567

 
$
1,550

 
$
27,490



There were no loans over 90 days past due and still accruing interest at June 30, 2014. If interest on impaired loans would have been accrued based upon the original contractual terms, such income would have been $0.4 million and $0.7 million for the three and six months ended June 30, 2014, respectively. The cash amount collected and recognized as interest income on impaired loans was $9,200 and $32,000 for the three and six months ended June 30, 2014, respectively. There was $6,000 and $15,000 of interest income recognized on impaired loans continuing to accrue interest for the three and six months ended June 30, 2014 and $29,000 of interest income for the six months ended June 30, 2013. There was no interest income recognized on impaired loans continuing to accrue interest for the three months ended June 30, 2013. At June 30, 2014, there were no unadvanced commitments on impaired loans. Other liabilities include approximately $0.2 million for estimated losses attributable to the unadvanced commitments.


12


The recorded investment in impaired Portfolio loans by category at June 30, 2014, and December 31, 2013, is as follows:
 
 
June 30, 2014
(in thousands)
Non-accrual
 
Restructured
 
Loans over 90 days past due and still accruing interest
 
Total
Commercial & Industrial
$
4,103

 
$
—

 
$
—

 
$
4,103

Real Estate:
 
 
 
 
 
 
 
    Commercial - Investor Owned
4,693

 
597

 
—

 
5,290

    Commercial - Owner Occupied
1,559

 
780

 
—

 
2,339

    Construction and Land Development
7,919

 
—

 
—

 
7,919

    Residential
431

 
125

 
—

 
556

Consumer & Other
—

 
—

 
—

 
—

       Total
$
18,705

 
$
1,502

 
$
—

 
$
20,207


 
December 31, 2013
(in thousands)
Non-accrual
 
Restructured
 
Loans over 90 days past due and still accruing interest
 
Total
Commercial & Industrial
$
3,384

 
$
—

 
$
—

 
$
3,384

Real Estate:
 
 
 
 
 
 
 
    Commercial - Investor Owned
6,511

 
678

 
—

 
7,189

    Commercial - Owner Occupied
622

 
—

 
—

 
622

    Construction and Land Development
9,802

 
—

 
—

 
9,802

    Residential
569

 
—

 
—

 
569

Consumer & Other
—

 
—

 
—

 
—

       Total
$
20,888

 
$
678

 
$
—

 
$
21,566


The recorded investment by category for the Portfolio loans that have been restructured during the three and six months ended June 30, 2014 and 2013, is as follows:

 
Three months ended June 30, 2014
 
Three months ended June 30, 2013
(in thousands, except for number of loans)
Number of Loans
 
Pre-Modification Outstanding
Recorded Balance
 
Post-Modification Outstanding
Recorded Balance
 
Number of Loans
 
Pre-Modification Outstanding
Recorded Balance
 
Post-Modification Outstanding
Recorded Balance
Commercial & Industrial
—

 
$
—

 
$
—

 
—

 
$
—

 
$
—

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
     Commercial - Owner Occupied
—

 
—

 
—

 
—

 
—

 
—

     Commercial - Investor Owned
1

 
603

 
603

 
—

 
—

 
—

    Construction and Land Development
—

 
—

 
—

 
—

 
—

 
—

     Residential
1

 
125

 
125

 
—

 
—

 
—

Consumer & Other
—

 
—

 
—

 
—

 
—

 
—

  Total
2

 
$
728

 
$
728

 
—

 
$
—

 
$
—



13


 
Six months ended June 30, 2014
 
Six months ended June 30, 2013
(in thousands, except for number of loans)
Number of Loans
 
Pre-Modification Outstanding
Recorded Balance
 
Post-Modification Outstanding
Recorded Balance
 
Number of Loans
 
Pre-Modification Outstanding
Recorded Balance
 
Post-Modification Outstanding
Recorded Balance
Commercial & Industrial
—

 
$
—

 
$
—

 
1

 
$
5

 
$
—

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
     Commercial - Owner Occupied
2

 
1,292

 
1,042

 
—

 
—

 
—

     Commercial - Investor Owned
1

 
603

 
603

 
—

 
—

 
—

    Construction and Land Development
—

 
—

 
—

 
—

 
—

 
—

     Residential
1

 
125

 
125

 
—

 
—

 
—

Consumer & Other
—

 
—

 
—

 
—

 
—

 
—

  Total
4

 
$
2,020

 
$
1,770

 
1

 
$
5

 
$
—


The restructured Portfolio loans resulted from interest rate concessions and changing the terms of the loans. As of June 30, 2014, the Company allocated $0.3 million of specific reserves to the loans that have been restructured.

There were no Portfolio loans that have been restructured and subsequently defaulted in the six months ended June 30, 2014 and 2013.

The aging of the recorded investment in past due Portfolio loans by portfolio class and category at June 30, 2014, and December 31, 2013, is shown below.

 
June 30, 2014
(in thousands)
30-89 Days
 Past Due
 
90 or More
Days
Past Due
 
Total
Past Due
 
Current
 
Total
    Commercial & Industrial
$
1,155

 
$
—

 
$
1,155

 
$
1,133,914

 
$
1,135,069

    Real Estate:
 
 
 
 
 
 
 
 
 
       Commercial - Owner Occupied
335

 
1,155

 
1,490

 
367,893

 
369,383

       Commercial - Investor Owned
—

 
4,577

 
4,577

 
381,511

 
386,088

       Construction and Land Development
—

 
5,956

 
5,956

 
131,087

 
137,043

       Residential
600

 
201

 
801

 
173,163

 
173,964

    Consumer & Other
—

 
—

 
—

 
49,555

 
49,555

          Total
$
2,090

 
$
11,889

 
$
13,979

 
$
2,237,123

 
$
2,251