10-Q


 

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, 2015.
 
 
 
[   ]
 
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 [ ] (Do not check if a smaller reporting company)
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 26, 2015, the Registrant had 20,023,376 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 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
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, 2015
 
December 31, 2014
Assets
 
 
 
Cash and due from banks
$
46,775

 
$
42,903

Federal funds sold
45

 
35

Interest-bearing deposits (including $1,580 and $980 pledged as collateral)
80,070

 
57,758

                  Total cash and cash equivalents
126,890

 
100,696

Interest-bearing deposits greater than 90 days
1,000

 
5,300

Securities available for sale
470,496

 
400,146

Securities held to maturity
44,175

 
45,985

Loans held for sale
4,275

 
4,033

Portfolio loans
2,602,156

 
2,433,916

   Less: Allowance for loan losses
32,251

 
30,185

Portfolio loans, net
2,569,905

 
2,403,731

Purchase credit impaired loans, net of the allowance for loan losses ($11,339 and $15,410, respectively)
72,397

 
83,693

                  Total loans, net
2,642,302

 
2,487,424

Other real estate not covered under FDIC loss share
1,575

 
1,896

Other real estate covered under FDIC loss share
6,795

 
5,944

Other investments, at cost
15,906

 
17,037

Fixed assets, net
14,395

 
14,753

Accrued interest receivable
8,660

 
7,956

State tax credits held for sale, including $10,089 and $11,689 carried at fair value, respectively
48,207

 
38,309

FDIC loss share receivable
8,619

 
15,866

Goodwill
30,334

 
30,334

Intangible assets, net
3,323

 
4,164

Other assets
89,589

 
97,160

Total assets
$
3,516,541

 
$
3,277,003

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Demand deposits
$
691,758

 
$
642,930

Interest-bearing transaction accounts
529,052

 
508,941

Money market accounts
1,045,699

 
755,569

Savings
90,858

 
78,718

Certificates of deposit:
 
 
 
$100 and over
353,488

 
377,544

Other
103,108

 
127,808

Total deposits
2,813,963

 
2,491,510

Subordinated debentures
56,807

 
56,807

Federal Home Loan Bank advances
75,000

 
144,000

Other borrowings
189,884

 
234,183

Notes payable
4,800

 
5,700

Accrued interest payable
780

 
843

Other liabilities
31,744

 
27,719

Total liabilities
3,172,978

 
2,960,762

 
 
 
 
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; 20,035,165 and 19,913,519 shares issued, respectively
200

 
199

Treasury stock, at cost; 76,000 shares
(1,743
)
 
(1,743
)
Additional paid in capital
209,643

 
207,731

Retained earnings
132,490

 
108,373

Accumulated other comprehensive income
2,973

 
1,681

Total shareholders' equity
343,563

 
316,241

Total liabilities and shareholders' equity
$
3,516,541

 
$
3,277,003

See accompanying notes to 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)
2015
 
2014
 
2015
 
2014
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
30,626

 
$
28,395

 
$
90,109

 
$
89,582

Interest on debt securities:
 
 
 
 
 
 
 
Taxable
2,176

 
2,190

 
6,434

 
6,545

Nontaxable
298

 
298

 
880

 
896

Interest on interest-bearing deposits
68

 
43

 
153

 
145

Dividends on equity securities
12

 
110

 
107

 
201

Total interest income
33,180

 
31,036

 
97,683

 
97,369

Interest expense:
 
 
 
 
 
 
 
Interest-bearing transaction accounts
293

 
163

 
849

 
385

Money market accounts
822

 
653

 
2,136

 
2,095

Savings accounts
58

 
52

 
162

 
151

Certificates of deposit:
 
 
 
 
 
 
 
$100 and over
1,195

 
1,335

 
3,654

 
3,997

Other
348

 
406

 
1,074

 
1,249

Subordinated debentures
314

 
306

 
924

 
1,016

Federal Home Loan Bank advances
9

 
490

 
82

 
1,345

Notes payable and other borrowings
135

 
187

 
471

 
579

Total interest expense
3,174

 
3,592

 
9,352

 
10,817

Net interest income
30,006

 
27,444

 
88,331

 
86,552

Provision for portfolio loan losses
599

 
66

 
4,329

 
2,441

Provision (provision reversal) for purchase credit impaired loan losses
(227
)
 
(1,877
)
 
(3,497
)
 
957

Net interest income after provision for loan losses
29,634

 
29,255

 
87,499

 
83,154

Noninterest income:
 
 
 
 
 
 
 
Wealth management revenue
1,773

 
1,754

 
5,291

 
5,191

Service charges on deposit accounts
2,044

 
1,812

 
5,898

 
5,317

Other service charges and fee income
871

 
849

 
2,464

 
2,188

Gain on sale of other real estate
32

 
114

 
61

 
1,514

Gain on state tax credits, net
321

 
156

 
1,069

 
860

Gain on sale of investment securities
—

 
—

 
23

 
—

Change in FDIC loss share receivable
(1,241
)
 
(2,374
)
 
(4,450
)
 
(7,526
)
Miscellaneous income
929

 
2,141

 
3,762

 
4,235

Total noninterest income
4,729

 
4,452

 
14,118

 
11,779

Noninterest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
11,475

 
11,913

 
34,262

 
35,882

Occupancy
1,605

 
1,683

 
4,920

 
4,998

Data processing
1,138

 
1,045

 
3,295

 
3,296

FDIC and other insurance
654

 
710

 
2,045

 
2,170

Loan legal and other real estate expense
530

 
811

 
1,356

 
2,985

Professional fees
800

 
710

 
2,626

 
2,569

FDIC clawback
298

 
1,028

 
760

 
1,060

Other
3,432

 
3,221

 
10,076

 
9,708

Total noninterest expense
19,932

 
21,121

 
59,340

 
62,668

 
 
 
 
 
 
 
 
Income before income tax expense
14,431

 
12,586

 
42,277

 
32,265

Income tax expense
4,722

 
4,388

 
14,506

 
11,059

Net income
$
9,709

 
$
8,198

 
$
27,771

 
$
21,206

 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
Basic
$
0.49

 
$
0.41

 
$
1.39

 
$
1.07

Diluted
0.48

 
0.41

 
1.37

 
1.07

See accompanying notes to 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)
2015
 
2014
 
2015
 
2014
Net income
$
9,709

 
$
8,198

 
$
27,771

 
$
21,206

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on investment securities arising during the period, net of income tax expense/benefit for three months of $1,070 and $(505), and for nine months of $793 and $2,574, respectively
1,724

 
(812
)
 
1,306

 
4,147

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 nine months of $9 and $0, respectively
—

 
—

 
(14
)
 
—

Total other comprehensive income (loss)
1,724

 
(812
)
 
1,292

 
4,147

Total comprehensive income
$
11,433

 
$
7,386

 
$
29,063

 
$
25,353


See accompanying notes to 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, 2015
 
$
—

 
$
199

 
$
(1,743
)
 
$
207,731

 
$
108,373

 
$
1,681

 
$
316,241

Net income
 
—

 
—

 
—

 
—

 
27,771

 
—

 
27,771

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
1,292

 
1,292

Cash dividends paid on common shares, $0.183 per share
 
—

 
—

 
—

 
—

 
(3,654
)
 
—

 
(3,654
)
Issuance under equity compensation plans, 121,646 shares, net
 
—

 
1

 
—

 
(832
)
 
—

 
—

 
(831
)
Share-based compensation
 
—

 
—

 
—

 
2,588

 
—

 
—

 
2,588

Excess tax benefit related to equity compensation plans
 
—

 
—

 
—

 
156

 
—

 
—

 
156

Balance September 30, 2015
 
$
—

 
$
200

 
$
(1,743
)
 
$
209,643

 
$
132,490

 
$
2,973

 
$
343,563

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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, net
 
—

 
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


See accompanying notes to consolidated financial statements.

4


ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Nine months ended September 30,
(in thousands)
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
27,771

 
$
21,206

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation
1,510

 
1,681

Provision for loan losses
832

 
3,398

Deferred income taxes
1,937

 
6,458

Net amortization of debt securities
2,473

 
2,885

Amortization of intangible assets
842

 
965

Gain on sale of investment securities
(23
)
 
—

Mortgage loans originated for sale
(95,744
)
 
(52,475
)
Proceeds from mortgage loans sold
95,814

 
49,811

Gain on sale of other real estate
(61
)
 
(1,514
)
Gain on state tax credits, net
(1,069
)
 
(860
)
Excess tax benefit of share-based compensation
(156
)
 
(101
)
Share-based compensation
2,588

 
2,205

Valuation adjustment on other real estate
82

 
618

Net accretion of loan discount and indemnification asset
(4,894
)
 
731

Changes in:
 
 
 
Accrued interest receivable
(703
)
 
(223
)
Accrued interest payable
(63
)
 
(103
)
Other assets
4,851

 
(2,984
)
Other liabilities
4,024

 
(1,381
)
Net cash provided by operating activities
40,011

 
30,317

Cash flows from investing activities:
 
 
 
Net increase in loans
(152,970
)
 
(133,782
)
Net cash proceeds received from FDIC loss share receivable
1,725

 
6,487

Proceeds from the sale of securities, available for sale
41,069

 
—

Proceeds from the paydown or maturity of securities, available for sale
40,230

 
35,503

Proceeds from the paydown or maturity of securities, held to maturity
1,848

 
—

Proceeds from the redemption of other investments
29,362

 
18,637

Proceeds from the sale of state tax credits held for sale
5,353

 
4,099

Proceeds from the sale of other real estate
5,662

 
14,435

Payments for the purchase/origination of:
 
 
 
Securities, available for sale
(150,934
)
 
(53,664
)
Other investments
(23,931
)
 
(21,324
)
State tax credits held for sale
(14,004
)
 
—

Fixed assets
(1,152
)
 
(1,556
)
Net cash used in investing activities
(217,742
)
 
(131,165
)
Cash flows from financing activities:
 
 
 
Net increase in noninterest-bearing deposit accounts
48,828

 
42,118

Net increase (decrease) in interest-bearing deposit accounts
273,625

 
(67,307
)
Proceeds from Federal Home Loan Bank advances
635,900

 
799,600

Repayments of Federal Home Loan Bank advances
(704,900
)
 
(729,600
)
Repayments of notes payable
(900
)
 
(4,500
)
Net decrease in other borrowings
(44,299
)
 
(22,709
)
Cash dividends paid on common stock
(3,654
)
 
(3,130
)
Excess tax benefit of share-based compensation
156

 
101

Issuance of common stock, net
(831
)
 
(482
)
Net cash provided by financing activities
203,925

 
14,091

Net increase (decrease) in cash and cash equivalents
26,194

 
(86,757
)
Cash and cash equivalents, beginning of period
100,696

 
210,569

Cash and cash equivalents, end of period
$
126,890

 
$
123,812

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
9,415

 
$
10,920

Income taxes
8,763

 
8,998

Noncash transactions:
 
 
 
Transfer to other real estate owned in settlement of loans
$
6,604

 
$
7,468

Sales of other real estate financed
—

 
5,102

Issuance of common stock from Trust Preferred Securities conversion
—

 
5,002


See accompanying notes to 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, 2015 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2015. 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, 2014.

Basis of Financial Statement Presentation

The condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the 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.


6


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)
2015
 
2014
 
2015
 
2014
Net income as reported
$
9,709

 
$
8,198

 
$
27,771

 
$
21,206

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

 
—

 
—

 
66

Net income available to common shareholders and assumed conversions
$
9,709

 
$
8,198

 
$
27,771

 
$
21,272

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
19,995

 
19,838

 
19,970

 
19,729

Incremental shares from assumed conversions of convertible trust preferred securities
—

 
—

 
—

 
76

Additional dilutive common stock equivalents
266

 
142

 
266

 
165

Weighted average diluted common shares outstanding
$
20,261

 
$
19,980

 
$
20,236

 
$
19,970

 
 
 
 
 
 
 
 
Basic earnings per common share:
$
0.49

 
$
0.41

 
$
1.39

 
$
1.07

Diluted earnings per common share:
$
0.48

 
$
0.41

 
$
1.37

 
$
1.07


For the three and nine months ended September 30, 2015 and 2014, the amount of common stock equivalents excluded from the earnings per share calculations because their effect was anti-dilutive was 0.1 million, and 0.3 million common stock equivalents, 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 and held to maturity:
 
 
September 30, 2015
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
    Obligations of U.S. Government-sponsored enterprises
$
99,015

 
$
1,298

 
$
—

 
$
100,313

    Obligations of states and political subdivisions
40,740

 
1,219

 
(380
)
 
41,579

    Agency mortgage-backed securities
325,417

 
3,983

 
(796
)
 
328,604

          Total securities available for sale
$
465,172

 
$
6,500

 
$
(1,176
)
 
$
470,496

Held to maturity securities:
 
 
 
 
 
 
 
    Obligations of states and political subdivisions
$
14,848

 
$
7

 
$
(212
)
 
$
14,643

    Agency mortgage-backed securities
29,327

 
131

 
—

 
29,458

          Total securities held to maturity
$
44,175

 
$
138

 
$
(212
)
 
$
44,101


 
December 31, 2014
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
    Obligations of U.S. Government-sponsored enterprises
$
91,355

 
$
624

 
$
(153
)
 
$
91,826

    Obligations of states and political subdivisions
33,997

 
1,300

 
(416
)
 
34,881

    Agency mortgage-backed securities
271,430

 
3,577

 
(1,568
)
 
273,439

          Total securities available for sale
$
396,782

 
$
5,501

 
$
(2,137
)
 
$
400,146

Held to maturity securities:
 
 
 
 
 
 
 
   Obligations of states and political subdivisions
$
14,900

 
$
—

 
$
(325
)
 
$
14,575

   Agency mortgage-backed securities
31,085

 
150

 
(15
)
 
31,220

          Total securities held to maturity
$
45,985

 
$
150

 
$
(340
)
 
$
45,795


At September 30, 2015, and December 31, 2014, 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 agency mortgage-backed securities are all issued by U.S. Government-sponsored enterprises. Available for sale securities having a fair value of $260.0 million and $315.8 million at September 30, 2015, and December 31, 2014, respectively, were pledged as collateral to secure deposits of public institutions and for other purposes as required by law or contract provisions.








 

8


The amortized cost and estimated fair value of debt securities at September 30, 2015, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The weighted average life of the mortgage-backed securities is approximately 4 years.
 
 
Available for sale
 
Held to maturity
(in thousands)
Amortized Cost
 
Estimated Fair Value
 
Amortized Cost
 
Estimated Fair Value
Due in one year or less
$
3,091

 
$
3,115

 
$
—

 
$
—

Due after one year through five years
115,027

 
116,882

 
2,662

 
2,648

Due after five years through ten years
16,987

 
17,524

 
10,319

 
10,158

Due after ten years
4,650

 
4,371

 
1,867

 
1,837

Mortgage-backed securities
325,417

 
328,604

 
29,327

 
29,458

 
$
465,172

 
$
470,496

 
$
44,175

 
$
44,101



The following table represents a summary of investment securities that had an unrealized loss:
 
 
September 30, 2015
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
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Obligations of states and political subdivisions
15,757

 
249

 
3,563

 
343

 
19,320

 
592

Agency mortgage-backed securities
58,913

 
273

 
21,138

 
523

 
80,051

 
796

 
$
74,670

 
$
522

 
$
24,701

 
$
866

 
$
99,371

 
$
1,388

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 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
$
5,399

 
$
10

 
$
24,852

 
$
143

 
$
30,251

 
$
153

Obligations of states and political subdivisions
16,827

 
343

 
5,349

 
398

 
22,176

 
741

Agency mortgage-backed securities
26,367

 
56

 
97,054

 
1,527

 
123,421

 
1,583

 
$
48,593

 
$
409

 
$
127,255

 
$
2,068

 
$
175,848

 
$
2,477



The unrealized losses at both September 30, 2015, and December 31, 2014, 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 among other considerations (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 the Company would be required to sell the security before its anticipated recovery in market value. At September 30, 2015, management performed its quarterly analysis of all securities with an unrealized loss and concluded no individual securities were other-than-temporarily impaired.


9


 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)
2015
 
2014
 
2015
 
2014
Gross gains realized
$
—

 
$
—

 
$
63

 
$
—

Gross losses realized
—

 
—

 
(40
)
 
—

Proceeds from sales
—

 
—

 
41,069

 
—



 
NOTE 4 - PORTFOLIO LOANS

Below is a summary of Portfolio loans by category at September 30, 2015 and December 31, 2014:
 
(in thousands)
September 30, 2015
 
December 31, 2014
Commercial and industrial
$
1,371,095

 
$
1,270,259

Real estate loans:
 
 
 
    Commercial - investor owned
424,090

 
413,026

    Commercial - owner occupied
354,178

 
357,503

    Construction and land development
152,979

 
144,773

    Residential
188,985

 
185,252

Total real estate loans
1,120,232

 
1,100,554

Consumer and other
109,853

 
62,208

Portfolio loans
2,601,180

 
2,433,021

Unearned loan fees, net
976

 
895

    Portfolio loans, including unearned loan costs
$
2,602,156

 
$
2,433,916




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, 2015, and at December 31, 2014, is as follows:

(in thousands)
Commercial and industrial
 
CRE - investor owned
 
CRE -
owner occupied
 
Construction and land development
 
Residential real estate
 
Consumer and other
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at
December 31, 2014
$
17,004

 
$
4,598

 
$
3,625

 
$
1,720

 
$
2,830

 
$
408

 
$
30,185

Provision charged to expense
823

 
(12
)
 
(175
)
 
914

 
74

 
(44
)
 
1,580

Losses charged off
(1,484
)
 
—

 
—

 
—

 
(1,073
)
 
(11
)
 
(2,568
)
Recoveries
769

 
29

 
127

 
60

 
26

 
80

 
1,091

Balance at
March 31, 2015
$
17,112

 
$
4,615

 
$
3,577

 
$
2,694

 
$
1,857

 
$
433

 
$
30,288

Provision charged to expense
2,927

 
(519
)
 
(347
)
 
(91
)
 
100

 
80

 
2,150

Losses charged off
(1,578
)
 
(664
)
 
—

 
(350
)
 
—

 
(4
)
 
(2,596
)
Recoveries
420

 
13

 
1,287

 
115

 
87

 
1

 
1,923

Balance at
June 30, 2015
$
18,881

 
$
3,445

 
$
4,517

 
$
2,368

 
$
2,044

 
$
510

 
$
31,765

Provision charged to expense
1,501

 
788

 
(1,340
)
 
(660
)
 
40

 
270

 
599

Losses charged off
(572
)
 
—

 
—

 
—

 
(240
)
 
(9
)
 
(821
)
Recoveries
389

 
16

 
68

 
125

 
108

 
2

 
708

Balance at
September 30, 2015
$
20,199

 
$
4,249

 
$
3,245

 
$
1,833

 
$
1,952

 
$
773

 
$
32,251



11


(in thousands)
Commercial and industrial
 
CRE - investor owned
 
CRE -
owner occupied
 
Construction and land development
 
Residential real estate
 
Consumer and other
 
Total
Balance September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses - Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
1,802

 
$
—

 
$
—

 
$
403

 
$
—

 
$
—

 
$
2,205

Collectively evaluated for impairment
18,397

 
4,249

 
3,245

 
1,430

 
1,952

 
773

 
30,046

Total
$
20,199

 
$
4,249

 
$
3,245

 
$
1,833

 
$
1,952

 
$
773

 
$
32,251

Loans - Ending balance:
 
 
 
 
 
 
 

 
 
 
 
 
 
Individually evaluated for impairment
$
2,975

 
$
2,954

 
$
2,248

 
$
2,823

 
$
714

 
$
—

 
$
11,714

Collectively evaluated for impairment
1,368,120

 
421,136

 
351,930

 
150,156

 
188,271

 
110,829

 
2,590,442

Total
$
1,371,095

 
$
424,090

 
$
354,178

 
$
152,979

 
$
188,985

 
$
110,829

 
$
2,602,156

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses - Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
704

 
$
—

 
$
286

 
$
352

 
$
1,052

 
$
—

 
$
2,394

Collectively evaluated for impairment
16,300

 
4,598

 
3,339

 
1,368

 
1,778

 
408

 
27,791

Total
$
17,004

 
$
4,598

 
$
3,625

 
$
1,720

 
$
2,830

 
$
408

 
$
30,185

Loans - Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
5,998

 
$
5,036

 
$
3,384

 
$
6,866

 
$
3,082

 
$
—

 
$
24,366

Collectively evaluated for impairment
1,264,261

 
407,990

 
354,119

 
137,907

 
182,170

 
63,103

 
2,409,550

Total
$
1,270,259

 
$
413,026

 
$
357,503

 
$
144,773

 
$
185,252

 
$
63,103

 
$
2,433,916


A summary of Portfolio loans individually evaluated for impairment by category at September 30, 2015 and December 31, 2014, is as follows:

 
September 30, 2015
(in thousands)
Unpaid
Contractual
Principal Balance
 
Recorded
Investment
With No Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded Investment
 
Related Allowance
 
Average
Recorded Investment
Commercial and industrial
$
3,702

 
$
658

 
$
2,433

 
$
3,091

 
$
1,802

 
$
5,696

Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - investor owned
3,047

 
2,437

 
—

 
2,437

 
—

 
1,294

    Commercial - owner occupied
321

 
240

 
—

 
240

 
—

 
967

    Construction and land development
3,728

 
2,862

 
542

 
3,404

 
403

 
5,934

    Residential
714

 
735

 
—

 
735

 
—

 
2,450

Consumer and other
—

 
—

 
—

 
—

 
—

 
—

Total
$
11,512

 
$
6,932

 
$
2,975

 
$
9,907

 
$
2,205

 
$
16,341



12


 
December 31, 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 and industrial
$
8,042

 
$
2,609

 
$
3,464

 
$
6,073

 
$
704

 
$
4,136

Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - investor owned
5,036

 
—

 
5,187

 
5,187

 
—

 
4,375

    Commercial - owner occupied
1,376

 
770

 
519

 
1,289

 
286

 
1,281

    Construction and land development
7,961

 
419

 
6,929

 
7,348

 
352

 
7,280

    Residential
3,082

 
2,943

 
150

 
3,093

 
1,052

 
954

Consumer and other
—

 
—

 
—

 
—

 
—

 
581

Total
$
25,497

 
$
6,741

 
$
16,249

 
$
22,990

 
$
2,394

 
$
18,607


The following table presents details for past due and impaired loans:

 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2015
 
2014
 
2015
 
2014
Total interest income that would have been recognized under original terms
$
369

 
$
246

 
$
913

 
$
927

Total cash received and recognized as interest income on non-accrual loans
81

 
51

 
206

 
83

Total interest income recognized on impaired loans
4

 
11

 
31

 
27

 
 
 
 
 
 
 
 

There were no loans over 90 days past due and still accruing interest at September 30, 2015 or December 31, 2014. At September 30, 2015, there were $0.3 million unadvanced commitments on impaired loans. Other liabilities include approximately $0.2 million for estimated losses attributable to the unadvanced commitments.

The recorded investment in impaired Portfolio loans by category at September 30, 2015 and December 31, 2014, is as follows:
 
 
September 30, 2015
(in thousands)
Non-accrual
 
Restructured
 
Loans over 90 days past due and still accruing interest
 
Total
Commercial and industrial
$
3,091

 
$
—

 
$
—

 
$
3,091

Real estate loans:
 
 
 
 
 
 
 
    Commercial - investor owned
2,437

 
—

 
—

 
2,437

    Commercial - owner occupied
240

 
—

 
—

 
240

    Construction and land development
3,404

 
—

 
—

 
3,404

    Residential
735

 
—

 
—

 
735

Consumer and other
—

 
—

 
—

 
—

       Total
$
9,907

 
$
—

 
$
—

 
$
9,907



13


 
December 31, 2014
(in thousands)
Non-accrual
 
Restructured
 
Loans over 90 days past due and still accruing interest
 
Total
Commercial and industrial
$
6,073

 
$
—

 
$
—

 
$
6,073

Real estate loans:
 
 
 
 
 
 
 
    Commercial - investor owned
4,597

 
590

 
—

 
5,187

    Commercial - owner occupied
519

 
770

 
—

 
1,289

    Construction and land development
7,348

 
—

 
—

 
7,348

    Residential
3,093

 
—

 
—

 
3,093

Consumer and other
—

 
—

 
—

 
—

       Total
$
21,630

 
$
1,360

 
$
—

 
$
22,990


The recorded investment by category for the Portfolio loans that have been restructured during the three and nine months ended September 30, 2015 and 2014, is as follows:
 
Three months ended September 30, 2015
 
Three months ended September 30, 2014
(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 and industrial
—

 
$
—

 
$
—

 
2

 
$
658

 
$
658

Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
     Commercial - investor owned
—

 
—

 
—

 
—

 
—

 
—

     Commercial - owner occupied
—

 
—

 
—

 
1

 
357

 
357

     Construction and land development
—

 
—

 
—

 
1

 
2,827

 
2,827

     Residential
—

 
—

 
—

 
—

 
—

 
—

Consumer and other
—

 
—

 
—

 
—

 
—

 
—

  Total
—

 
$
—

 
$
—

 
4

 
$
3,842

 
$
3,842


 
Nine months ended September 30, 2015
 
Nine months ended September 30, 2014
(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 and industrial
—

 
$
—