2014.9.30-10Q


 

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, 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 October 29, 2014, the Registrant had 19,785,022 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)
September 30, 2014
 
December 31, 2013
Assets
 
 
 
Cash and due from banks
$
54,113

 
$
19,573

Federal funds sold
36

 
76

Interest-bearing deposits (including $980 and $990 pledged as collateral)
69,663

 
190,920

                  Total cash and cash equivalents
123,812

 
210,569

Interest-bearing deposits greater than 90 days
5,300

 
5,300

Securities available for sale
456,584

 
434,587

Loans held for sale
4,899

 
1,834

Portfolio loans
2,294,905

 
2,137,313

   Less: Allowance for loan losses
28,800

 
27,289

Portfolio loans, net
2,266,105

 
2,110,024

Purchase credit impaired loans, net of the allowance for loan losses ($15,544 and $15,438, respectively)
98,318

 
125,100

                  Total loans, net
2,364,423

 
2,235,124

Other real estate not covered under FDIC loss share
2,261

 
7,576

Other real estate covered under FDIC loss share
8,826

 
15,676

Other investments, at cost
15,291

 
12,605

Fixed assets, net
18,054

 
18,180

Accrued interest receivable
7,526

 
7,303

State tax credits, held for sale, including $15,131 and $16,491 carried at fair value, respectively
45,631

 
48,457

FDIC loss share receivable
22,039

 
34,319

Goodwill
30,334

 
30,334

Intangible assets, net
4,453

 
5,418

Other assets
100,157

 
102,915

Total assets
$
3,209,590

 
$
3,170,197

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Demand deposits
$
695,804

 
$
653,686

Interest-bearing transaction accounts
438,205

 
219,802

Money market accounts
736,840

 
948,884

Savings
80,521

 
79,666

Certificates of deposit:
 
 
 
$100 and over
426,593

 
475,544

Other
131,801

 
157,371

Total deposits
2,509,764

 
2,534,953

Subordinated debentures
56,807

 
62,581

Federal Home Loan Bank advances
120,000

 
50,000

Other borrowings
181,122

 
203,831

Notes payable
6,000

 
10,500

Accrued interest payable
854

 
957

Other liabilities
26,289

 
27,670

Total liabilities
2,900,836

 
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; 19,861,022 and 19,399,709 shares issued, respectively
199

 
194

Treasury stock, at cost; 76,000 shares
(1,743
)
 
(1,743
)
Additional paid in capital
207,079

 
200,258

Retained earnings
103,452

 
85,376

Accumulated other comprehensive loss
(233
)
 
(4,380
)
Total shareholders' equity
308,754

 
279,705

Total liabilities and shareholders' equity
$
3,209,590

 
$
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 September 30,
 
Nine months ended September 30,
(In thousands, except per share data)
2014
 
2013
 
2014
 
2013
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
28,395

 
$
34,396

 
$
89,582

 
$
109,330

Interest on debt securities:
 
 
 
 
 
 
 
Taxable
2,190

 
2,043

 
6,545

 
6,210

Nontaxable
298

 
301

 
896

 
907

Interest on interest-bearing deposits
43

 
37

 
145

 
130

Dividends on equity securities
110

 
106

 
201

 
277

Total interest income
31,036

 
36,883

 
97,369

 
116,854

Interest expense:
 
 
 
 
 
 
 
Interest-bearing transaction accounts
163

 
99

 
385

 
360

Money market accounts
653

 
714

 
2,095

 
2,348

Savings
52

 
56

 
151

 
171

Certificates of deposit:
 
 
 
 
 
 
 
$100 and over
1,335

 
1,326

 
3,997

 
4,207

Other
406

 
439

 
1,249

 
1,385

Subordinated debentures
306

 
679

 
1,016

 
2,580

Federal Home Loan Bank advances
490

 
757

 
1,345

 
2,221

Notes payable and other borrowings
187

 
239

 
579

 
801

Total interest expense
3,592

 
4,309

 
10,817

 
14,073

Net interest income
27,444

 
32,574

 
86,552

 
102,781

Provision for portfolio loan losses
66

 
(652
)
 
2,441

 
(3,094
)
Provision for purchase credit impaired loan losses
(1,877
)
 
2,811

 
957

 
2,789

Net interest income after provision for loan losses
29,255

 
30,415

 
83,154

 
103,086

Noninterest income:
 
 
 
 
 
 
 
Wealth Management revenue
1,754

 
1,698

 
5,191

 
5,419

Service charges on deposit accounts
1,812

 
1,768

 
5,317

 
5,025

Other service charges and fee income
849

 
722

 
2,188

 
2,030

Gain on sale of other real estate
114

 
472

 
1,514

 
1,562

Gain on state tax credits, net
156

 
308

 
860

 
1,214

Gain on sale of investment securities
—

 
611

 
—

 
1,295

Change in FDIC loss share receivable
(2,374
)
 
(2,849
)
 
(7,526
)
 
(13,647
)
Miscellaneous income
2,141

 
986

 
4,235

 
2,055

Total noninterest income
4,452

 
3,716

 
11,779

 
4,953

Noninterest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
11,913

 
10,777

 
35,882

 
33,006

Occupancy
1,683

 
1,689

 
4,998

 
5,298

Data processing
1,045

 
1,143

 
3,296

 
3,000

FDIC and other insurance
710

 
900

 
2,170

 
2,592

Loan legal and other real estate expense
811

 
1,247

 
2,985

 
3,355

Professional fees
710

 
1,041

 
2,569

 
3,394

FDIC clawback
1,028

 
62

 
1,060

 
815

Other
3,221

 
4,149

 
9,708

 
10,979

Total noninterest expense
21,121

 
21,008

 
62,668

 
62,439

 
 
 
 
 
 
 
 
Income before income tax expense
12,586

 
13,123

 
32,265

 
45,600

Income tax expense
4,388

 
4,713

 
11,059

 
16,117

Net income
$
8,198

 
$
8,410

 
$
21,206

 
$
29,483

 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
Basic
$
0.41

 
$
0.45

 
$
1.07

 
$
1.61

Diluted
0.41

 
0.44

 
1.07

 
1.55

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 September 30,
 
Nine months ended September 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Net income
$
8,198

 
$
8,410

 
$
21,206

 
$
29,483

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 $(505), and $598, and for nine months of $2,574 and ($5,716), respectively.
(812
)
 
939

 
4,147

 
(8,981
)
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 $238, and for the nine months of $0, and $505, respectively.
—

 
(373
)
 
—

 
(790
)
Total other comprehensive income (loss)
(812
)
 
566

 
4,147

 
(9,771
)
Total comprehensive income
$
7,386

 
$
8,976

 
$
25,353

 
$
19,712


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
 
—

 
—

 
—

 
—

 
21,206

 
—

 
21,206

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
4,147

 
4,147

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

 
—

 
—

 
—

 
(3,130
)
 
—

 
(3,130
)
Issuance under equity compensation plans, 173,461 shares
 
—

 
2

 
—

 
(484
)
 
—

 
—

 
(482
)
Trust preferred securities conversion 287,852 shares
 
—

 
3

 
—

 
4,999

 
—

 
—

 
5,002

Share-based compensation
 
—

 
—

 
—

 
2,205

 
—

 
—

 
2,205

Excess tax benefit related to equity compensation plans
 
—

 
—

 
—

 
101

 
—

 
—

 
101

Balance September 30, 2014
 
$
—

 
$
199

 
$
(1,743
)
 
$
207,079

 
$
103,452

 
$
(233
)
 
$
308,754


(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


See accompanying notes to condensed consolidated financial statements.

4


ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Nine months ended September 30,
(in thousands)
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
21,206

 
$
29,483

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation
1,681

 
1,936

Provision for loan losses
3,398

 
(305
)
Deferred income taxes
6,458

 
180

Net amortization of debt securities
2,885

 
4,579

Amortization of intangible assets
965

 
1,540

Gain on sale of investment securities
—

 
(1,295
)
Mortgage loans originated for sale
(52,475
)
 
(64,463
)
Proceeds from mortgage loans sold
49,811

 
70,884

Gain on sale of other real estate
(1,514
)
 
(1,562
)
Gain on state tax credits, net
(860
)
 
(1,214
)
Excess tax benefit of share-based compensation
(101
)
 
—

Share-based compensation
2,205

 
3,136

Valuation adjustment on other real estate
618

 
962

Net accretion of loan discount and indemnification asset
731

 
(13,853
)
Changes in:
 
 
 
Accrued interest receivable
(223
)
 
600

Accrued interest payable
(103
)
 
(397
)
Prepaid FDIC insurance
—

 
2,607

Other assets
(2,984
)
 
(21,322
)
Other liabilities
(1,381
)
 
516

Net cash provided by operating activities
30,317

 
12,012

Cash flows from investing activities:
 
 
 
Net (increase) decrease in loans
(133,782
)
 
36,955

Net cash proceeds received from FDIC loss share receivable
6,487

 
9,654

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

 
159,604

Proceeds from the maturity of debt and equity securities, available for sale
35,503

 
69,017

Proceeds from the redemption of other investments
18,637

 
26,695

Proceeds from the sale of state tax credits held for sale
4,099

 
8,126

Proceeds from the sale of other real estate
14,435

 
15,303

Payments for the purchase/origination of:
 
 
 
Available for sale debt and equity securities
(53,664
)
 
(60,732
)
Other investments
(21,324
)
 
(28,143
)
Bank owned life insurance
—

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

 
(1,365
)
Fixed assets
(1,556
)
 
(1,122
)
Net cash (used in) provided by investing activities
(131,165
)
 
213,992

Cash flows from financing activities:
 
 
 
Net increase/(decrease) in noninterest-bearing deposit accounts
42,118

 
(67,242
)
Net decrease in interest-bearing deposit accounts
(67,307
)
 
(143,691
)
Proceeds from Federal Home Loan Bank advances
799,600

 
743,000

Repayments of Federal Home Loan Bank advances
(729,600
)
 
(703,000
)
Repayments of notes payable
(4,500
)
 
(900
)
Repayments of subordinated debentures
—

 
(2,000
)
Net decrease in other borrowings
(22,709
)
 
(66,005
)
Cash dividends paid on common stock
(3,130
)
 
(2,924
)
Excess tax benefit of share-based compensation
101

 
83

Payments for the repurchase of common stock warrants
—

 
(1,006
)
Employee stock issuances, net
(482
)
 
2,551

Net cash provided by (used in) financing activities
14,091

 
(241,134
)
Net decrease in cash and cash equivalents
(86,757
)
 
(15,130
)
Cash and cash equivalents, beginning of period
210,569

 
116,370

Cash and cash equivalents, end of period
$
123,812

 
$
101,240

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
10,920

 
$
14,470

Income taxes
8,998

 
24,348

Noncash transactions:
 
 
 
Transfer to other real estate owned in settlement of loans
7,468

 
21,116

Sales of other real estate financed
5,102

 
5,564

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

 
20,443

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 nine months ended September 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. 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 September 30,
 
Nine months ended September 30,
(in thousands, except per share data)
2014
 
2013
 
2014
 
2013
Net income as reported
$
8,198

 
$
8,410

 
$
21,206

 
$
29,483

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

 
217

 
66

 
926

Net income available to common shareholders and assumed conversions
$
8,198

 
$
8,627

 
$
21,272

 
$
30,409

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
19,838

 
18,779

 
19,729

 
18,288

Incremental shares from assumed conversions of convertible trust preferred securities
—

 
851

 
76

 
1,241

Additional dilutive common stock equivalents
142

 
200

 
165

 
153

Weighted average diluted common shares outstanding
19,980

 
19,830

 
19,970

 
19,682

 
 
 
 
 
 
 
 
Basic earnings per common share:
$
0.41

 
$
0.45

 
$
1.07

 
$
1.61

Diluted earnings per common share:
$
0.41

 
$
0.44

 
$
1.07

 
$
1.55


For the three months ended September 30, 2014 and 2013, the amount of common stock equivalents excluded from the earnings per share calculations because their effect was anti-dilutive was 289,286, and 474,267 common stock equivalents, respectively. For the nine months ended September 30, 2014 and 2013, the amount of common stock equivalents excluded from the earnings per share calculations because their effect was anti-dilutive was 289,407, and 488,318 common stock equivalents (including 9,497 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:
 
 
September 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
$
91,823

 
$
638

 
$
(189
)
 
$
92,272

    Obligations of states and political subdivisions
49,064

 
1,576

 
(699
)
 
49,941

    Agency mortgage-backed securities
315,951

 
3,099

 
(4,679
)
 
314,371

 
$
456,838

 
$
5,313

 
$
(5,567
)
 
$
456,584

 
 
 
 
 
 
 
 
 
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 September 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 $255.9 million and $270.1 million at September 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 September 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
$
3,181

 
$
3,227

Due after one year through five years
109,044

 
110,116

Due after five years through ten years
21,833

 
22,352

Due after ten years
6,829

 
6,518

Mortgage-backed securities
315,951

 
314,371

 
$
456,838

 
$
456,584



8


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

 
September 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
$
5,454

 
$
7

 
$
24,813

 
$
182

 
$
30,267

 
$
189

Obligations of states and political subdivisions
$
1,092

 
$
18

 
$
14,143

 
$
681

 
$
15,235

 
$
699

Agency mortgage-backed securities
29,404

 
139

 
136,333

 
4,540

 
165,737

 
4,679

 
$
35,950

 
$
164

 
$
175,289

 
$
5,403

 
$
211,239

 
$
5,567

 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 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 September 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 September 30,
 
Nine months ended September 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Gross gains realized
$
—

 
$
611

 
$
—

 
$
1,477

Gross losses realized
—

 
—

 
—

 
(182
)
Proceeds from sales
—

 
36,710

 
—

 
159,604



9


NOTE 4 - PORTFOLIO LOANS


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

(in thousands)
September 30, 2014
 
December 31, 2013
Real Estate Loans:
 
 
 
    Construction and land development
$
123,888

 
$
117,032

    Commercial real estate - Investor owned
391,791

 
437,688

    Commercial real estate - Owner occupied
366,724

 
341,631

    Residential real estate
187,594

 
158,527

Total real estate loans
$
1,069,997

 
$
1,054,878

    Commercial and industrial
1,172,015

 
1,041,576

    Consumer and other
51,816

 
39,838

    Portfolio loans
$
2,293,828

 
$
2,136,292

Unearned loan costs, net
1,077

 
1,021

    Portfolio loans, including unearned loan costs
$
2,294,905

 
$
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 September 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

Provision charged to expense
169

 
(245
)
 
(101
)
 
321

 
(110
)
 
32

 
66

Losses charged off
(215
)
 
(50
)
 
—

 
(600
)
 
—

 
—

 
(865
)
Recoveries
880

 
8

 
23

 
35

 
230

 
1

 
1,177

Balance at
September 30, 2014
$
15,909

 
$
3,734

 
$
4,252

 
$
1,911

 
$
2,647

 
$
347

 
$
28,800


11


(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 September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses - Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
404

 
$
293

 
$
—

 
$
364

 
$
17

 
$
—

 
$
1,078

Collectively evaluated for impairment
15,505

 
3,441

 
4,252

 
1,547

 
2,630

 
347

 
27,722

Total
$
15,909

 
$
3,734

 
$
4,252

 
$
1,911

 
$
2,647

 
$
347

 
$
28,800

Loans - Ending Balance:
 
 
 
 
 
 
 

 
 
 
 
 
 
Individually evaluated for impairment
$
3,198

 
$
4,820

 
$
5,164

 
$
6,455

 
$
386

 
$
—

 
$
20,023

Collectively evaluated for impairment
1,168,817

 
361,904

 
386,627

 
117,433

 
187,208

 
52,893

 
2,274,882

Total
$
1,172,015

 
$
366,724

 
$
391,791

 
$
123,888

 
$
187,594

 
$
52,893

 
$
2,294,905

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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


12


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

 
September 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
$
4,512

 
$
3,198

 
$
—

 
$
3,198

 
$
404

 
$
4,037

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - Owner Occupied
4,876

 
773

 
1,891

 
2,664

 
293

 
1,388

    Commercial - Investor Owned
5,164

 
—

 
5,164

 
5,164

 
—

 
4,138

    Construction and Land Development
7,550

 
430

 
6,026

 
6,456

 
364

 
7,565

    Residential
386

 
200

 
185

 
385

 
17

 
495

Consumer & Other
—

 
—

 
—

 
—

 
—

 
519

Total
$
22,488

 
$
4,601

 
$
13,266

 
$
17,867

 
$
1,078

 
$
18,142


 
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



The following table presents details for past due and impaired loans:
 
September 30, 2014
 
September 30, 2013
(in thousands)
Three months ended
 
Nine months ended
 
Three months ended
 
Nine months ended
Total interest income that would have been recognized under original terms
$
246

 
$
927

 
$
410

 
$
1,454

Total cash received and recognized as interest income on non-accrual loans
51

 
83

 
4

 
28

Total interest income recognized on impaired loans
11

 
27

 
4

 
33


There was one loan for $0.3 million over 90 days past due and still accruing interest at September 30, 2014. At September 30, 2014, there were no unadvanced commitments on impaired loans.


13


The recorded investment in impaired Portfolio loans by category at September 30, 2014, and December 31, 2013, is as follows:
 
 
September 30, 2014
(in thousands)
Non-accrual
 
Restructured
 
Loans over 90 days past due and still accruing interest
 
Total
Commercial & Industrial
$
3,221

 
$
—

 
$
340

 
$
3,561

Real Estate:
 
 
 
 
 
 
 
    Commercial - Investor Owned
4,755

 
587

 
—

 
5,342

    Commercial - Owner Occupied
2,192

 
777

 
—

 
2,969

    Construction and Land Development
6,849

 
—

 
—

 
6,849

    Residential
401

 
—

 
—

 
401

Consumer & Other
—

 
—

 
—

 
—

       Total
$
17,418

 
$
1,364

 
$
340

 
$
19,122


 
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 nine months ended September 30, 2014 and 2013, is as follows:

 
Three months ended September 30, 2014
 
Three months ended September 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
2

 
$
658

 
$
658

 
—

 
$
—

 
$
—

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
     Commercial - Owner Occupied
1

 
357

 
357

 
—

 
—

 
—

     Commercial - Investor Owned
—

 
—

 
—

 
—

 
—

 
—

    Construction and Land Development
1

 
2,827

 
2,827

 
—

 
—

 
—

     Residential
—

 
—

 
—

 
—

 
—

 
—

Consumer & Other
—

 
—

 
—

 
—

 
—

 
—

  Total
4

 
$
3,842

 
$
3,842

 
—

 
$
—

 
$
—



14


 
Nine months ended September 30, 2014
 
Nine months ended September 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
2

 
$
658

 
$
658

 
1

 
$
5

 
$
5

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
     Commercial - Owner Occupied
3

 
1,649

 
1,399

 
—

 
—

 
—

     Commercial - Investor Owned
1

 
603

 
603

 
—

 
—

 
—

    Construction and Land Development
1

 
2,827

 
2,827

 
—

 
—

 
—

     Residential
1

 
125

 
125

 
—

 
—

 
—

Consumer & Other
—

 
—

 
—

 
—

 
—

 
—

  Total
8

 
$
5,862

 
$