Document


 

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, 2016.
 
 
 
[   ]
 
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 July 25, 2016, the Registrant had 20,018,101 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)
June 30, 2016
 
December 31, 2015
Assets
 
 
 
Cash and due from banks
$
50,370

 
$
47,935

Federal funds sold
317

 
91

Interest-bearing deposits (including $1,870 and $1,320 pledged as collateral)
59,609

 
46,131

Total cash and cash equivalents
110,296

 
94,157

Interest-bearing deposits greater than 90 days
1,000

 
1,000

Securities available for sale
478,514

 
451,770

Securities held to maturity
42,514

 
43,714

Loans held for sale
9,669

 
6,598

Portfolio loans
2,883,909

 
2,750,737

Less: Allowance for loan losses
35,498

 
33,441

Portfolio loans, net
2,848,411

 
2,717,296

Purchased credit impaired loans, net of the allowance for loan losses ($8,551 and $10,175, respectively)
47,978

 
64,583

Total loans, net
2,896,389

 
2,781,879

Other real estate
4,901

 
8,366

Other investments, at cost
17,403

 
17,455

Fixed assets, net
14,512

 
14,842

Accrued interest receivable
8,123

 
8,399

State tax credits held for sale, including $4,774 and $5,941 carried at fair value, respectively
44,918

 
45,850

Goodwill
30,334

 
30,334

Intangible assets, net
2,589

 
3,075

Other assets
100,503

 
101,044

Total assets
$
3,761,665

 
$
3,608,483

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Demand deposits
$
753,173

 
$
717,460

Interest-bearing transaction accounts
628,505

 
564,420

Money market accounts
1,019,304

 
1,053,662

Savings
105,224

 
92,861

Certificates of deposit:
 
 
 
Brokered
166,507

 
39,573

Other
355,523

 
316,615

Total deposits
3,028,236

 
2,784,591

Subordinated debentures
56,807

 
56,807

Federal Home Loan Bank advances
78,000

 
110,000

Other borrowings
200,362

 
270,326

Accrued interest payable
625

 
629

Other liabilities
26,006

 
35,301

Total liabilities
3,390,036

 
3,257,654

 
 
 
 
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; 20,234,235 and 20,093,119 shares issued, respectively
202

 
201

Treasury stock, at cost; 255,018 and 76,000 shares, respectively
(6,454
)
 
(1,743
)
Additional paid in capital
211,227

 
210,589

Retained earnings
161,137

 
141,564

Accumulated other comprehensive income
5,517

 
218

Total shareholders' equity
371,629

 
350,829

Total liabilities and shareholders' equity
$
3,761,665

 
$
3,608,483

See accompanying notes to 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)
2016
 
2015
 
2016
 
2015
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
34,183

 
$
29,875

 
$
66,791

 
$
59,483

Interest on debt securities:
 
 
 
 
 
 
 
Taxable
2,397

 
2,117

 
4,784

 
4,258

Nontaxable
328

 
285

 
660

 
582

Interest on interest-bearing deposits
58

 
38

 
119

 
85

Dividends on equity securities
67

 
37

 
139

 
95

Total interest income
37,033

 
32,352


72,493


64,503

Interest expense:
 
 
 
 
 
 
 
Interest-bearing transaction accounts
329

 
279

 
635

 
556

Money market accounts
1,013

 
672

 
2,019

 
1,314

Savings accounts
63

 
54

 
123

 
104

Certificates of deposit
1,183

 
1,594

 
2,202

 
3,185

Subordinated debentures
361

 
308

 
709

 
610

Federal Home Loan Bank advances
191

 
24

 
373

 
73

Notes payable and other borrowings
110

 
141

 
221

 
336

Total interest expense
3,250

 
3,072


6,282


6,178

Net interest income
33,783

 
29,280

 
66,211

 
58,325

Provision for portfolio loan losses
716

 
2,150

 
1,549

 
3,730

Provision reversal for purchased credit impaired loan losses
(336
)
 
—

 
(409
)
 
(3,270
)
Net interest income after provision for loan losses
33,403

 
27,130


65,071


57,865

Noninterest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
2,188

 
1,998

 
4,231

 
3,854

Wealth management revenue
1,644

 
1,778

 
3,306

 
3,518

Other service charges and fee income
952

 
840

 
1,820

 
1,593

Gain on state tax credits, net
153

 
74

 
671

 
748

Gain on sale of other real estate
706

 
9

 
828

 
29

Gain on sale of investment securities
—

 
—

 
—

 
23

Change in FDIC loss share receivable
—

 
(945
)
 
—

 
(3,209
)
Miscellaneous income
1,406

 
2,052

 
2,198

 
2,833

Total noninterest income
7,049

 
5,806


13,054


9,389

Noninterest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
12,660

 
11,274

 
25,307

 
22,787

Occupancy
1,609

 
1,621

 
3,292

 
3,315

Data processing
1,187

 
1,127

 
2,291

 
2,157

FDIC and other insurance
738

 
665

 
1,461

 
1,391

Professional fees
719

 
854

 
1,403

 
1,826

Loan legal and other real estate expense
353

 
548

 
710

 
826

FDIC clawback
—

 
50

 
—

 
462

Other
4,087

 
3,319

 
7,651

 
6,644

Total noninterest expense
21,353

 
19,458


42,115


39,408

 
 
 
 
 
 
 
 
Income before income tax expense
19,099

 
13,478


36,010


27,846

Income tax expense
6,747

 
4,762

 
12,633

 
9,784

Net income
$
12,352

 
$
8,716


$
23,377


$
18,062

 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
Basic
$
0.62

 
$
0.44

 
$
1.17

 
$
0.91

Diluted
0.61

 
0.43

 
1.16

 
0.90

See accompanying notes to 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)
2016
 
2015
 
2016
 
2015
Net income
$
12,352

 
$
8,716

 
$
23,377

 
$
18,062

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 $986 and $(1,322), and for six months of $3,290 and $(277), respectively
1,588

 
(2,130
)
 
5,299

 
(418
)
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 six months of $0 and $9, respectively
—

 
—

 
—

 
(14
)
Total other comprehensive income (loss)
1,588

 
(2,130
)
 
5,299

 
(432
)
Total comprehensive income
$
13,940

 
$
6,586

 
$
28,676

 
$
17,630


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, 2016
 
$
—

 
$
201

 
$
(1,743
)
 
$
210,589

 
$
141,564

 
$
218

 
$
350,829

Net income
 
—

 
—

 
—

 
—

 
23,377

 
—

 
23,377

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
5,299

 
5,299

Cash dividends paid on common shares, $0.19 per share
 
—

 
—

 
—

 
—

 
(3,804
)
 


 
(3,804
)
Repurchase of common shares
 
—

 
—

 
(4,711
)
 
—

 
—

 
—

 
(4,711
)
Issuance under equity compensation plans, 141,116 shares, net
 
—

 
1

 
—

 
(1,812
)
 
—

 
—

 
(1,811
)
Share-based compensation
 
—

 
—

 
—

 
1,626

 
—

 
—

 
1,626

Excess tax benefit related to equity compensation plans
 
—

 
—

 
—

 
824

 
—

 
—

 
824

Balance June 30, 2016
 
$
—

 
$
202

 
$
(6,454
)
 
$
211,227

 
$
161,137

 
$
5,517

 
$
371,629

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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
 
—

 
—

 
—

 
—

 
18,062

 
—

 
18,062

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(432
)
 
(432
)
Cash dividends paid on common shares, $0.1125 per share
 
—

 
—

 
—

 
—

 
(2,252
)
 
—

 
(2,252
)
Issuance under equity compensation plans, 109,500 shares, net
 
—

 
1

 
—

 
(1,081
)
 
—

 
—

 
(1,080
)
Share-based compensation
 
—

 
—

 
—

 
1,738

 
—

 
—

 
1,738

Excess tax benefit related to equity compensation plans
 
—

 
—

 
—

 
153

 
—

 
—

 
153

Balance June 30, 2015
 
$
—

 
$
200

 
$
(1,743
)
 
$
208,541

 
$
124,183

 
$
1,249

 
$
332,430


See accompanying notes to consolidated financial statements.

4


ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Six months ended June 30,
(in thousands)
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
23,377

 
$
18,062

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation
1,070

 
1,009

Provision for loan losses
1,140

 
460

Deferred income taxes
3,509

 
2,803

Net amortization of debt securities
1,513

 
1,661

Amortization of intangible assets
486

 
569

Gain on sale of investment securities
—

 
(23
)
Mortgage loans originated for sale
(70,018
)
 
(69,434
)
Proceeds from mortgage loans sold
67,278

 
68,252

Gain on sale of other real estate
(828
)
 
(29
)
Gain on state tax credits, net
(671
)
 
(748
)
Excess tax benefit of share-based compensation
(824
)
 
(153
)
Share-based compensation
1,626

 
1,738

Valuation adjustment on other real estate
1

 
82

Net accretion of loan discount and indemnification asset
(5,692
)
 
(3,382
)
Changes in:
 
 
 
Accrued interest receivable
276

 
36

Accrued interest payable
(4
)
 
(23
)
Other assets
(5,284
)
 
(2,601
)
Other liabilities
(9,295
)
 
196

Net cash provided by (used in) operating activities
7,660

 
18,475

Cash flows from investing activities:
 
 
 
Net increase in loans
(112,500
)
 
(99,282
)
Net cash proceeds received from FDIC loss share receivable
—

 
1,574

Proceeds from the sale of securities, available for sale
—

 
41,069

Proceeds from the paydown or maturity of securities, available for sale
29,398

 
25,813

Proceeds from the paydown or maturity of securities, held to maturity
1,145

 
1,078

Proceeds from the redemption of other investments
34,314

 
25,746

Proceeds from the sale of state tax credits held for sale
3,952

 
4,489

Proceeds from the sale of other real estate
6,355

 
3,723

Payments for the purchase/origination of:
 
 
 
Available for sale debt and equity securities
(49,012
)
 
(74,069
)
Other investments
(34,263
)
 
(19,641
)
State tax credits held for sale
(2,349
)
 
(3,425
)
Fixed assets
(740
)
 
(983
)
Net cash provided by (used in) investing activities
(123,700
)
 
(93,908
)
Cash flows from financing activities:
 
 
 
Net increase in noninterest-bearing deposit accounts
35,713

 
15,328

Net increase in interest-bearing deposit accounts
207,932

 
184,721

Proceeds from Federal Home Loan Bank advances
981,000

 
531,900

Repayments of Federal Home Loan Bank advances
(1,013,000
)
 
(602,900
)
Repayments of notes payable
—

 
(600
)
Net decrease in other borrowings
(69,964
)
 
(50,737
)
Cash dividends paid on common stock
(3,804
)
 
(2,252
)
Excess tax benefit of share-based compensation
824

 
153

Payments for the repurchase of common stock
(4,711
)
 
—

Issuance of common stock, net
(1,811
)
 
(1,080
)
Net cash provided by (used in) financing activities
132,179

 
74,533

Net increase (decrease) in cash and cash equivalents
16,139

 
(900
)
Cash and cash equivalents, beginning of period
94,157

 
100,696

Cash and cash equivalents, end of period
$
110,296

 
$
99,796

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
6,286

 
$
6,201

Income taxes
19,124

 
6,517

Noncash transactions:
 
 
 
Transfer to other real estate owned in settlement of loans
$
2,683

 
$
5,998

Sales of other real estate financed
140

 
—


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 six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2016. 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, 2015.

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 2016, the Company changed its presentation of certificates of deposit on the Condensed Consolidated Balance Sheets to separate brokered deposit sources from other sources.  The corresponding prior period balances were reclassified to conform to the current year presentation. 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 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.

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)
2016
 
2015
 
2016
 
2015
Net income as reported
$
12,352

 
$
8,716

 
$
23,377

 
$
18,062

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
20,003

 
19,978

 
20,002

 
19,958

Additional dilutive common stock equivalents
213

 
190

 
224

 
211

Weighted average diluted common shares outstanding
20,216

 
20,168

 
20,226

 
20,169

 
 
 
 
 
 
 
 
Basic earnings per common share:
$
0.62

 
$
0.44

 
$
1.17

 
$
0.91

Diluted earnings per common share:
$
0.61

 
$
0.43

 
$
1.16

 
$
0.90


For the three and six months ended June 30, 2016 and 2015, the amount of common stock equivalents excluded from the earnings per share calculations because their effect was anti-dilutive was zero, and 0.2 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:
 
 
June 30, 2016
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
    Obligations of U.S. Government-sponsored enterprises
$
98,064

 
$
1,622

 
$
—

 
$
99,686

    Obligations of states and political subdivisions
37,468

 
1,804

 
(307
)
 
38,965

    Agency mortgage-backed securities
333,549

 
6,587

 
(273
)
 
339,863

          Total securities available for sale
$
469,081

 
$
10,013

 
$
(580
)
 
$
478,514

Held to maturity securities:
 
 
 
 
 
 
 
    Obligations of states and political subdivisions
$
14,795

 
$
471

 
$
(3
)
 
$
15,263

    Agency mortgage-backed securities
27,719

 
855

 
—

 
28,574

          Total securities held to maturity
$
42,514

 
$
1,326


$
(3
)

$
43,837


 
December 31, 2015
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
    Obligations of U.S. Government-sponsored enterprises
$
98,699

 
$
309

 
$
—

 
$
99,008

    Obligations of states and political subdivisions
40,700

 
1,343

 
(342
)
 
41,701

    Agency mortgage-backed securities
311,516

 
2,046

 
(2,501
)
 
311,061

          Total securities available for sale
$
450,915

 
$
3,698

 
$
(2,843
)
 
$
451,770

Held to maturity securities:
 
 
 
 
 
 
 
   Obligations of states and political subdivisions
$
14,831

 
$
63

 
$
(50
)
 
$
14,844

   Agency mortgage-backed securities
28,883

 
—

 
(286
)
 
28,597

          Total securities held to maturity
$
43,714

 
$
63

 
$
(336
)
 
$
43,441


At June 30, 2016, and December 31, 2015, 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 $336.8 million and $334.4 million at June 30, 2016, and December 31, 2015, 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 at June 30, 2016, 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.
 

8


 
Available for sale
 
Held to maturity
(in thousands)
Amortized Cost
 
Estimated Fair Value
 
Amortized Cost
 
Estimated Fair Value
Due in one year or less
$
52,681

 
$
53,030

 
$
—

 
$
—

Due after one year through five years
70,311

 
72,722

 
7,365

 
7,569

Due after five years through ten years
9,009

 
9,607

 
7,430

 
7,694

Due after ten years
3,531

 
3,292

 
—

 
—

Agency mortgage-backed securities
333,549

 
339,863

 
27,719

 
28,574

 
$
469,081

 
$
478,514


$
42,514


$
43,837



The following table represents a summary of investment securities that had an unrealized loss:
 
 
June 30, 2016
Less than 12 months
 
12 months or more
 
Total
(in thousands)
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Obligations of states and political subdivisions
$
—

 
$
—

 
$
3,141

 
$
310

 
$
3,141

 
$
310

Agency mortgage-backed securities
904

 
5

 
19,910

 
268

 
20,814

 
273

 
$
904

 
$
5


$
23,051


$
578


$
23,955


$
583

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 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 states and political subdivisions
$
2,199

 
$
12

 
$
9,395

 
$
380

 
$
11,594

 
$
392

Agency mortgage-backed securities
189,229

 
2,050

 
21,020

 
737

 
210,249

 
2,787

 
$
191,428

 
$
2,062


$
30,415


$
1,117


$
221,843


$
3,179



The unrealized losses at both June 30, 2016, and December 31, 2015, 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 June 30, 2016, 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)
2016
 
2015
 
2016
 
2015
Gross gains realized
$
—

 
$
—

 
$
—

 
$
63

Gross losses realized
—

 
—

 
—

 
(40
)
Proceeds from sales
—

 
—

 
—

 
41,069




9


NOTE 4 - PORTFOLIO LOANS

Below is a summary of Portfolio loans by category at June 30, 2016 and December 31, 2015:
 
(in thousands)
June 30, 2016
 
December 31, 2015
Commercial and industrial
$
1,540,457

 
$
1,484,327

Real estate:
 
 
 
    Commercial - investor owned
466,713

 
428,064

    Commercial - owner occupied
332,639

 
342,959

    Construction and land development
171,778

 
161,061

    Residential
211,155

 
196,498

Total real estate loans
1,182,285

 
1,128,582

Consumer and other
161,417

 
137,537

Portfolio loans
2,884,159

 
2,750,446

Unearned loan fees, net
(250
)
 
291

    Portfolio loans, including unearned loan fees
$
2,883,909

 
$
2,750,737




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, 2016, and at December 31, 2015, 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, 2015
$
22,056

 
$
3,484

 
$
2,969

 
$
1,704

 
$
1,796

 
$
1,432

 
$
33,441

Provision (provision reversal) charged to expense
1,120

 
(116
)
 
80

 
(65
)
 
11

 
(197
)
 
833

Losses charged off
(68
)
 
—

 
—

 
—

 
—

 
(5
)
 
(73
)
Recoveries
53

 
7

 
68

 
6

 
34

 
4

 
172

Balance at March 31, 2016
$
23,161

 
$
3,375


$
3,117


$
1,645


$
1,841


$
1,234


$
34,373

Provision (provision reversal) charged to expense
302

 
(27
)
 
(541
)
 
(434
)
 
(80
)
 
1,496

 
716

Losses charged off
(157
)
 
—

 
—

 
—

 
—

 
(6
)
 
(163
)
Recoveries
502

 
8

 
15

 
8

 
36

 
3

 
572

Balance at June 30, 2016
$
23,808

 
$
3,356


$
2,591


$
1,219


$
1,797


$
2,727


$
35,498


(in thousands)
Commercial and industrial
 
CRE - investor owned
 
CRE -
owner occupied
 
Construction and land development
 
Residential real estate
 
Consumer and other
 
Total
Balance June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses - Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
2,716

 
$
—

 
$
—

 
$
31

 
$
3

 
$
1,927

 
$
4,677

Collectively evaluated for impairment
21,092

 
3,356

 
2,591

 
1,188

 
1,794

 
800

 
30,821

Total
$
23,808

 
$
3,356


$
2,591


$
1,219


$
1,797


$
2,727


$
35,498

Loans - Ending balance:
 
 
 
 
 
 
 

 
 
 
 
 
 
Individually evaluated for impairment
$
5,019

 
$
248

 
$
1,704

 
$
2,576

 
$
670

 
$
4,571

 
$
14,788

Collectively evaluated for impairment
1,535,438

 
466,465

 
330,935

 
169,202

 
210,485

 
156,596

 
2,869,121

Total
$
1,540,457

 
$
466,713


$
332,639


$
171,778


$
211,155


$
161,167


$
2,883,909

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses - Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
1,953

 
$
—

 
$
6

 
$
369

 
$
7

 
$
—

 
$
2,335

Collectively evaluated for impairment
20,103

 
3,484

 
2,963

 
1,335

 
1,789

 
1,432

 
31,106

Total
$
22,056

 
$
3,484


$
2,969


$
1,704


$
1,796


$
1,432


$
33,441

Loans - Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
4,514

 
$
921

 
$
1,962

 
$
2,800

 
$
681

 
$
—

 
$
10,878

Collectively evaluated for impairment
1,479,813

 
427,143

 
340,997

 
158,261

 
195,817

 
137,828

 
2,739,859

Total
$
1,484,327

 
$
428,064


$
342,959


$
161,061


$
196,498


$
137,828


$
2,750,737


A summary of Portfolio loans individually evaluated for impairment by category at June 30, 2016 and December 31, 2015, is as follows:


11


 
June 30, 2016
(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
$
4,840

 
$
134

 
$
4,700

 
$
4,834

 
$
2,716

 
$
4,873

Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - investor owned
—

 
249

 
—

 
249

 
—

 
250

    Commercial - owner occupied
—

 
—

 
—

 
—

 
—

 
—

    Construction and land development
3,481

 
2,970

 
367

 
3,337

 
31

 
2,646

    Residential
670

 
642

 
65

 
707

 
3

 
679

Consumer and other
4,571

 
—

 
4,580

 
4,580

 
1,927

 
4,628

Total
$
13,562

 
$
3,995


$
9,712


$
13,707


$
4,677


$
13,076


 
December 31, 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
$
5,554

 
$
509

 
$
4,204

 
$
4,713

 
$
1,953

 
$
6,970

Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - investor owned
927

 
927

 
—

 
927

 
—

 
970

    Commercial - owner occupied
329

 
85

 
113

 
198

 
6

 
301

    Construction and land development
4,349

 
2,914

 
530

 
3,444

 
369

 
3,001

    Residential
705

 
637

 
68

 
705

 
7

 
682

Consumer and other
—

 
—

 
—

 
—

 
—

 
—

Total
$
11,864

 
$
5,072


$
4,915


$
9,987


$
2,335


$
11,924


The following table presents details for past due and impaired loans:
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Total interest income that would have been recognized under original terms
$
329

 
$
229

 
$
477

 
$
544

Total cash received and recognized as interest income on non-accrual loans
44

 
98

 
50

 
125

Total interest income recognized on impaired loans
25

 
14

 
31

 
27


There were no loans over 90 days past due and still accruing interest at June 30, 2016 or December 31, 2015.

The recorded investment in impaired Portfolio loans by category at June 30, 2016 and December 31, 2015, is as follows:
 

12


 
June 30, 2016
(in thousands)
Non-accrual
 
Restructured
 
Loans over 90 days past due and still accruing interest
 
Total
Commercial and industrial
$
2,524

 
$
2,310

 
$
—

 
$
4,834

Real estate:
 
 
 
 
 
 
 
    Commercial - investor owned
249

 
—

 
—

 
249

    Commercial - owner occupied
—

 
—

 
—

 
—

    Construction and land development
3,317

 
20

 
—

 
3,337

    Residential
707

 
—

 
—

 
707

Consumer and other
4,580

 
—

 
—

 
4,580

       Total
$
11,377

 
$
2,330


$
—


$
13,707


 
December 31, 2015
(in thousands)
Non-accrual
 
Restructured
 
Loans over 90 days past due and still accruing interest
 
Total
Commercial and industrial
$
4,406

 
$
307

 
$
—

 
$
4,713

Real estate:
 
 
 
 
 
 
 
    Commercial - investor owned
927

 
—

 
—

 
927

    Commercial - owner occupied
198

 
—

 
—

 
198

    Construction and land development
3,444

 
—

 
—

 
3,444

    Residential
705

 
—

 
—

 
705

Consumer and other
—

 
—

 
—

 
—

       Total
$
9,680

 
$
307

 
$
—

 
$
9,987


The recorded investment by category for the Portfolio loans that have been restructured during the three and six months ended June 30, 2016 and 2015, is as follows:

 
Three months ended June 30, 2016
 
Three months ended June 30, 2015
(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
1

 
$
2,300

 
$
2,300

 
—

 
$
—

 
$
—

Real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial - investor owned
—

 
—

 
—

 
—

 
—

 
—

Commercial - owner occupied
—

 
—

 
—

 
—

 
—

 
—

Construction and land development
1

 
20

 
20

 
—

 
—

 
—

Residential
—

 
—

 
—

 
—

 
—

 
—

Consumer and other
—

 
—

 
—

 
—

 
—

 
—

Total
2

 
$
2,320

 
$
2,320

 
—

 
$
—

 
$
—



13


 
Six months ended June 30, 2016
 
Six months ended June 30, 2015
(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

 
$
2,341

 
$
2,341

 
—

 
$
—

 
$
—

Real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial - investor owned
1

 
248

 
248

 
—

 
—

 
—

Commercial - owner occupied
—

 
—

 
—

 
—

 
—

 
—

Construction and land development
1

 
20

 
20

 
—

 
—

 
—

Residential
—

 
—

 
—

 
—

 
—

 
—

Consumer and other
—

 
—

 
—

 
—

 
—

 
—

Total
4

 
$
2,609

 
$
2,609

 
—

 
$
—

 
$
—


The restructured loans resulted from deferral of principal and extending the term to maturity. As of June 30, 2016, the Company had $1.2 million specific reserves allocated to loans that have been restructured. There were no Portfolio loans restructured that subsequently defaulted during the six months ended June 30, 2016 or 2015.

The aging of the recorded investment in past due Portfolio loans by portfolio class and category at June 30, 2016 and December 31, 2015 is shown below.

 
June 30, 2016
(in thousands)
30-89 Days
 Past Due
 
90 or More
Days
Past Due
 
Total
Past Due
 
Current
 
Total
    Commercial and industrial
$
83

 
$
2,407

 
$
2,490

 
$
1,537,967

 
$
1,540,457

    Real estate:
 
 
 
 
 
 
 
 
 
       Commercial - investor owned
—

 
—

 
—

 
466,713

 
466,713