10-Q 1 a2012930-10q.htm QUARTERLY REPORT 2012.9.30-10Q


 

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, 2012.
 
 
 
[   ]
 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to ______
 
 
 
 
 
Commission file number 001-15373
 
ENTERPRISE FINANCIAL SERVICES CORP

 
Incorporated in the State of Delaware
I.R.S. Employer Identification # 43-1706259
Address: 150 North Meramec
Clayton, MO 63105
Telephone: (314) 725-5500
___________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X]  No [   ] 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files ). Yes [X]  No [   ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
Accelerated filer R
  Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 

 Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act
Yes [   ]  No [X]
 
As of October 30, 2012, the Registrant had 17,963,888 shares of outstanding common stock.
 
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, 2012
 
December 31, 2011
Assets
 
 
 
Cash and due from banks
$
28,964

 
$
20,791

Federal funds sold
30

 
143

Interest-bearing deposits (including $3,800 and $2,650 pledged as collateral)
56,681

 
167,209

                  Total cash and cash equivalents
85,675

 
188,143

Interest-bearing deposits greater than 90 days
1,000

 
1,502

Securities available for sale
610,357

 
593,182

Mortgage loans held for sale
8,245

 
6,494

Portfolio loans not covered under FDIC loss share
1,987,166

 
1,897,074

   Less: Allowance for loan losses
34,222

 
37,989

Portfolio loans not covered under FDIC loss share, net
1,952,944

 
1,859,085

Portfolio loans covered under FDIC loss share, net of the allowance for loan losses ($11,102 and $1,635, respectively)
210,331

 
298,975

                  Portfolio loans, net
2,163,275

 
2,158,060

Other real estate not covered under FDIC loss share
12,549

 
17,217

Other real estate covered under FDIC loss share
18,810

 
36,471

Other investments, at cost
16,362

 
14,527

Fixed assets, net
21,469

 
18,986

Accrued interest receivable
10,481

 
9,193

State tax credits, held for sale, including $25,069 and $26,350 carried at fair value, respectively
65,873

 
50,446

FDIC loss share receivable
75,851

 
184,554

Goodwill
30,334

 
30,334

Intangibles, net
7,846

 
9,285

Other assets
65,565

 
59,385

Total assets
$
3,193,692

 
$
3,377,779

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Demand deposits
$
621,070

 
$
585,479

Interest-bearing transaction accounts
259,902

 
253,504

Money market accounts
975,216

 
1,084,304

Savings
81,552

 
51,145

Certificates of deposit:
 
 
 
$100 and over
420,672

 
550,535

Other
192,521

 
266,386

Total deposits
2,550,933

 
2,791,353

Subordinated debentures
85,081

 
85,081

Federal Home Loan Bank advances
126,000

 
102,000

Other borrowings
147,104

 
154,545

Accrued interest payable
1,377

 
1,762

Other liabilities
15,681

 
3,473

Total liabilities
2,926,176

 
3,138,214

 
 
 
 
Shareholders' equity:
 
 
 
Preferred stock, $0.01 par value;
5,000,000 shares authorized; 35,000 shares issued and outstanding
33,914

 
33,293

Common stock, $0.01 par value; 30,000,000 shares authorized; 18,039,710 and 17,849,862 shares issued, respectively
180

 
178

Treasury stock, at cost; 76,000 shares
(1,743
)
 
(1,743
)
Additional paid in capital
172,545

 
169,138

Retained earnings
53,232

 
35,097

Accumulated other comprehensive income
9,388

 
3,602

Total shareholders' equity
267,516

 
239,565

Total liabilities and shareholders' equity
$
3,193,692

 
$
3,377,779

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)
2012
 
2011
 
2012
 
2011
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
39,886

 
$
30,983

 
$
111,519

 
$
93,565

Interest on debt securities:
 
 
 
 
 
 
 
Taxable
2,628

 
2,853

 
7,440

 
8,666

Nontaxable
264

 
184

 
734

 
449

Interest on federal funds sold

 

 

 
1

Interest on interest-bearing deposits
53

 
166

 
195

 
427

Dividends on equity securities
43

 
99

 
230

 
269

Total interest income
42,874

 
34,285

 
120,118

 
103,377

Interest expense:
 
 
 
 
 
 
 
Interest-bearing transaction accounts
182

 
211

 
566

 
606

Money market accounts
1,024

 
2,004

 
3,694

 
6,210

Savings
68

 
35

 
209

 
53

Certificates of deposit:
 
 
 
 
 
 
 
$100 and over
1,691

 
2,297

 
5,500

 
6,959

Other
597

 
855

 
2,103

 
2,708

Subordinated debentures
982

 
1,128

 
3,111

 
3,375

Federal Home Loan Bank advances
721

 
881

 
2,327

 
2,669

Notes payable and other borrowings
125

 
105

 
362

 
316

Total interest expense
5,390

 
7,516

 
17,872

 
22,896

Net interest income
37,484

 
26,769

 
102,246

 
80,481

Provision for loan losses not covered under FDIC loss share
1,048

 
5,400

 
2,841

 
13,300

Provision for loan losses covered under FDIC loss share
10,889

 
2,672

 
13,380

 
2,947

Net interest income after provision for loan losses
25,547

 
18,697

 
86,025

 
64,234

Noninterest income:
 
 
 
 
 
 
 
Wealth Management revenue
1,825

 
1,832

 
5,525

 
5,173

Service charges on deposit accounts
1,456

 
1,332

 
4,199

 
3,663

Other service charges and fee income
676

 
464

 
1,848

 
1,105

Gain on sale of other real estate
739

 
517

 
3,152

 
1,039

Gain on state tax credits, net
256

 
1,368

 
1,180

 
2,510

Gain on sale of investment securities

 
768

 
1,156

 
1,448

Change in FDIC loss share receivable
1,912

 
1,513

 
(6,738
)
 
1,148

Miscellaneous income
968

 
932

 
2,338

 
1,821

Total noninterest income
7,832

 
8,726

 
12,660

 
17,907

Noninterest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
11,441

 
9,329

 
32,956

 
26,282

Occupancy
1,399

 
1,306

 
4,162

 
3,586

Furniture and equipment
384

 
431

 
1,234

 
1,216

Data processing
881

 
642

 
2,530

 
1,872

FDIC and other insurance
862

 
828

 
2,658

 
3,183

Loan legal and other real estate expense
1,187

 
1,576

 
5,216

 
7,267

Other
5,128

 
4,190

 
15,304

 
10,885

Total noninterest expense
21,282

 
18,302

 
64,060

 
54,291

 
 
 
 
 
 
 
 
Income before income tax expense
12,097

 
9,121

 
34,625

 
27,850

Income tax expense
4,167

 
3,289

 
11,744

 
9,633

Net income
$
7,930

 
$
5,832

 
$
22,881

 
$
18,217

 
 
 
 
 
 
 
 
Net income available to common shareholders
$
7,282

 
$
5,200

 
$
20,948

 
$
16,329

 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
Basic
$
0.41

 
$
0.29

 
$
1.17

 
$
1.00

Diluted
0.39

 
0.29

 
1.14

 
0.98

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)
2012
 
2011
 
2012
 
2011
Net income
$
7,930

 
$
5,832

 
$
22,881

 
$
18,217

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Unrealized gain (loss) on investment securities
arising during the period, net of tax
3,248

 
(261
)
 
6,526

 
6,302

Less reclassification adjustment for realized gain
on sale of securities included in net income, net of tax

 
(491
)
 
(740
)
 
(926
)
Reclassification of cash flow hedge, net of tax

 
(28
)
 

 
(85
)
Total other comprehensive income (loss)
3,248

 
(780
)
 
5,786

 
5,291

Total comprehensive income
$
11,178

 
$
5,052

 
$
28,667

 
$
23,508


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, 2012
 
$
33,293

 
$
178

 
$
(1,743
)
 
$
169,138

 
$
35,097

 
$
3,602

 
$
239,565

Net income
 

 

 

 

 
22,881

 

 
22,881

Change in fair value of available for sale securities, net of tax
 

 

 

 

 

 
6,526

 
6,526

Reclassification adjustment for realized gain on sale of securities included in net income, net of tax
 

 

 

 

 

 
(740
)
 
(740
)
Total comprehensive income
 
 

 
 
 
 
 
 
 
 
 
 
 
28,667

Cash dividends paid on common shares, $0.1575 per share
 

 

 

 

 
(2,813
)
 

 
(2,813
)
Cash dividends paid on preferred stock
 

 

 

 

 
(1,312
)
 

 
(1,312
)
Preferred stock accretion of discount
 
621

 

 

 

 
(621
)
 

 

Issuance under equity compensation plans, net, 189,848 shares
 

 
2

 

 
1,530

 

 

 
1,532

Share-based compensation
 

 

 

 
1,791

 

 

 
1,791

Excess tax benefit related to equity compensation plans
 

 

 

 
86

 

 

 
86

Balance September 30, 2012
 
$
33,914

 
$
180

 
$
(1,743
)
 
$
172,545

 
$
53,232

 
$
9,388

 
$
267,516


(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, 2011
 
$
32,519

 
$
150

 
$
(1,743
)
 
$
133,673

 
$
15,775

 
$
(573
)
 
$
179,801

Net income
 

 

 

 

 
18,217

 

 
18,217

Change in fair value of available for sale securities, net of tax
 

 

 

 

 

 
6,302

 
6,302

Reclassification adjustment for realized gain on sale of securities included in net income, net of tax
 

 

 

 

 

 
(926
)
 
(926
)
Reclassification of cash flow hedge, net of tax
 

 

 

 

 

 
(85
)
 
(85
)
Total comprehensive income
 
 

 
 
 
 
 
 
 
 
 
 
 
23,508

Cash dividends paid on common shares, $0.1575 per share
 

 

 

 

 
(2,644
)
 

 
(2,644
)
Cash dividends paid on preferred stock
 

 

 

 

 
(1,313
)
 

 
(1,313
)
Preferred stock accretion of discount
 
575

 

 

 

 
(575
)
 

 

Issuance under equity compensation plans, net, 109,812 shares
 

 
1

 

 
1,368

 

 

 
1,369

Issuance under public stock offering 2,743,900 shares
 

 
27

 

 
32,581

 

 

 
32,608

Share-based compensation
 

 

 

 
1,120

 

 

 
1,120

Excess tax benefit related to equity compensation plans
 

 

 

 
22

 

 

 
22

Balance September 30, 2011
 
$
33,094

 
$
178

 
$
(1,743
)
 
$
168,764

 
$
29,460

 
$
4,718

 
$
234,471


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)
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income
$
22,881

 
$
18,217

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation
1,944

 
2,057

Provision for loan losses
16,221

 
16,247

Deferred income taxes
(1,982
)
 
5,091

Net amortization of debt securities
5,839

 
3,983

Amortization of intangible assets
1,440

 
490

Gain on sale of investment securities
(1,156
)
 
(1,448
)
Mortgage loans originated for sale
(71,085
)
 
(48,772
)
Proceeds from mortgage loans sold
68,987

 
49,147

Gain on sale of other real estate
(3,152
)
 
(1,039
)
Gain on state tax credits, net
(1,180
)
 
(2,510
)
Excess tax benefit of share-based compensation
(86
)
 
(22
)
Share-based compensation
1,791

 
1,120

Valuation adjustment on other real estate
2,201

 
3,261

Net accretion of loan discount and indemnification asset
(18,754
)
 
(10,964
)
Changes in:
 
 
 
Accrued interest receivable
(1,288
)
 
165

Accrued interest payable
(385
)
 
(501
)
Prepaid FDIC insurance
1,837

 
2,336

Other assets
1,298

 
(6,294
)
Other liabilities
12,567

 
(5,558
)
Net cash provided by operating activities
37,938

 
25,006

Cash flows from investing activities:
 
 
 
Cash received from acquisition of Legacy Bank

 
8,926

Cash received from acquisition of The First National Bank of Olathe

 
112,778

Net increase in loans
(10,478
)
 
(84,022
)
Net cash proceeds received from FDIC loss share receivable
85,173

 
35,932

Proceeds from the sale of debt and equity securities, available for sale
110,876

 
84,456

Proceeds from the maturity of debt and equity securities, available for sale
91,498

 
122,934

Proceeds from the redemption of other investments
6,296

 
5,774

Proceeds from the sale of state tax credits held for sale
4,408

 
8,045

Proceeds from the sale of other real estate
44,273

 
27,429

Payments for the purchase/origination of:
 
 
 
Available for sale debt and equity securities
(214,935
)
 
(255,210
)
Other investments
(8,138
)
 
(1,361
)
State tax credits held for sale
(18,577
)
 

Fixed assets
(4,433
)
 
(416
)
Net cash provided by investing activities
85,963

 
65,265

Cash flows from financing activities:
 
 
 
Net increase in noninterest-bearing deposit accounts
35,591

 
101,351

Net decrease in interest-bearing deposit accounts
(276,011
)
 
(204,372
)
Proceeds from Federal Home Loan Bank advances
157,500

 

Repayments of Federal Home Loan Bank advances
(133,500
)
 
(23,254
)
Net decrease in other borrowings
(7,440
)
 
(20,332
)
Cash dividends paid on common stock
(2,813
)
 
(2,645
)
Excess tax benefit of share-based compensation
86

 
22

Cash dividends paid on preferred stock
(1,312
)
 
(1,313
)
Issuance of common stock

 
32,608

Proceeds from the issuance of equity instruments
1,530

 
1,369

Net cash used in financing activities
(226,369
)
 
(116,566
)
Net decrease in cash and cash equivalents
(102,468
)
 
(26,295
)
Cash and cash equivalents, beginning of period
188,143

 
293,668

Cash and cash equivalents, end of period
$
85,675

 
$
267,373

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
17,487

 
$
23,442

Income taxes
10,953

 
16,871

Noncash transactions:
 
 
 
Transfer to other real estate owned in settlement of loans
$
19,799

 
$
20,287

Sales of other real estate financed
5,264

 
2,135

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, 2012 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2012. 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, 2011.

Basis of Financial Statement Presentation

The condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and footnotes required by U.S. GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain 2011 amounts in the consolidated financial statements have been reclassified to conform to the 2012 presentation. These reclassifications have no effect on Net income or Shareholders' equity as previously reported.

 
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 securities related to the issuance of 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)
2012
 
2011
 
2012
 
2011
Net income as reported
$
7,930

 
$
5,832

 
$
22,881

 
$
18,217

Preferred stock dividend
(436
)
 
(437
)
 
(1,312
)
 
(1,313
)
Accretion of preferred stock discount
(212
)
 
(195
)
 
(621
)
 
(575
)
Net income available to common shareholders
$
7,282

 
$
5,200

 
$
20,948

 
$
16,329

 
 
 
 
 
 
 
 
Impact of assumed conversions
 
 
 
 
 
 
 
Interest on 9% convertible trust preferred securities, net of income tax
371

 
371

 
1,113

 
1,113

Net income available to common shareholders and assumed conversions
$
7,653

 
$
5,571

 
$
22,061

 
$
17,442

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
17,876

 
17,741

 
17,829

 
16,322

Incremental shares from assumed conversions of convertible trust preferred securities
1,439

 
1,439

 
1,439

 
1,439

Additional dilutive common stock equivalents
100

 
22

 
34

 
20

Weighted average diluted common shares outstanding
19,415

 
19,202

 
19,302

 
17,781

 
 
 
 
 
 
 
 
Basic earnings per common share:
$
0.41

 
$
0.29

 
$
1.17

 
$
1.00

Diluted earnings per common share:
$
0.39

 
$
0.29

 
$
1.14

 
$
0.98


For the three months ended September 30, 2012 and 2011, the amount of common stock equivalents that were excluded from the earnings per share calculations because their effect was anti-dilutive was 1.0 million (including 324,074 common stock warrants) and 744,632 common stock equivalents (including 324,074 common stock warrants), respectively. For the nine months ended September 30, 2012 and 2011, the amount of common stock equivalents that were excluded from the earnings per share calculations because their effect was anti-dilutive was 1.0 million (including 324,074 common stock warrants) and 888,821 (including 324,074 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, 2012
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
    Obligations of U.S. Government sponsored enterprises
$
124,721

 
$
3,284

 
$

 
$
128,005

    Obligations of states and political subdivisions
43,720

 
2,429

 
(360
)
 
45,789

    Residential mortgage-backed securities
426,992

 
9,773

 
(202
)
 
436,563

 
$
595,433

 
$
15,486

 
$
(562
)
 
$
610,357

 
 
 
 
 
 
 
 
 
December 31, 2011
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
    Obligations of U.S. Government sponsored enterprises
$
126,305

 
$
678

 
$
(66
)
 
$
126,917

    Obligations of states and political subdivisions
38,489

 
1,729

 
(381
)
 
39,837

    Residential mortgage-backed securities
422,761

 
5,269

 
(1,602
)
 
426,428

 
$
587,555

 
$
7,676

 
$
(2,049
)
 
$
593,182


At September 30, 2012, and December 31, 2011, 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 $271.8 million and $287.8 million at September 30, 2012, and December 31, 2011, 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, 2012, 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 3 years.
 
(in thousands)
Amortized Cost
 
Estimated Fair Value
Due in one year or less
$
2,299

 
$
2,325

Due after one year through five years
118,719

 
122,152

Due after five years through ten years
42,958

 
45,014

Due after ten years
4,465

 
4,303

Mortgage-backed securities
426,992

 
436,563

 
$
595,433

 
$
610,357



8



The following table represents a summary of available-for-sale investment securities that had an unrealized loss:
 
 
September 30, 2012
Less than 12 months
 
12 months or more
 
Total
(in thousands)
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Obligations of the state and political subdivisions
$
540

 
$
2

 
$
3,388

 
$
358

 
$
3,928

 
$
360

Residential mortgage-backed securities
16,764

 
71

 
9,161

 
131

 
25,925

 
202

 
$
17,304

 
$
73

 
$
12,549

 
$
489

 
$
29,853

 
$
562

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
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
$
23,389

 
$
66

 
$

 
$

 
$
23,389

 
$
66

Obligations of the state and political subdivisions
1,503

 
8

 
3,027

 
373

 
4,530

 
381

Residential mortgage-backed securities
86,954

 
1,598

 
4,203

 
4

 
91,157

 
1,602

 
$
111,846

 
$
1,672

 
$
7,230

 
$
377

 
$
119,076

 
$
2,049


The unrealized losses at both September 30, 2012, and December 31, 2011, 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, 2012, 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)
2012
 
2011
 
2012
 
2011
Gross gains realized
$

 
$
768

 
$
1,399

 
$
1,448

Gross losses realized

 

 
(243
)
 

Proceeds from sales

 
49,033

 
110,876

 
84,456




9



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

Below is a summary of Non-covered loans by category at September 30, 2012, and December 31, 2011:
 
(in thousands)
September 30, 2012
 
December 31, 2011
Real Estate Loans:
 
 
 
    Construction and Land Development
$
146,236

 
$
140,147

    Commercial real estate - Investor Owned
476,501

 
477,154

    Commercial real estate - Owner Occupied
325,379

 
334,416

    Residential real estate
146,940

 
171,034

Total real estate loans
$
1,095,056

 
$
1,122,751

    Commercial and industrial
880,394

 
763,202

    Consumer & other
11,694

 
11,459

    Portfolio Loans
$
1,987,144

 
$
1,897,412

Unearned loan costs, net
22

 
(338
)
    Portfolio loans, including unearned loan costs
$
1,987,166

 
$
1,897,074


The Company grants commercial, residential, and consumer loans primarily in the St. Louis, Kansas City and Phoenix metropolitan areas. The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector; however, a substantial portion of the portfolio is concentrated in and secured by real estate. The ability of the Company’s borrowers to honor their contractual obligations is partially dependent upon the local economy and its effect on the real estate market.
 

10




A summary of the year-to-date activity in the allowance for loan losses and the recorded investment in Non-covered loans by portfolio class and category based on impairment method through September 30, 2012, and at December 31, 2011, is as follows:
(in thousands)
Commercial & Industrial
 
Commercial
Real Estate
Owner Occupied
 
Commercial
Real Estate
Investor Owned
 
Construction and Land Development
 
Residential Real Estate
 
Consumer & Other
 
Qualitative Adjustment
 
Total
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at
December 31, 2011
$
11,945

 
$
6,297

 
$
6,751

 
$
5,847

 
$
3,931

 
$
14

 
$
3,204

 
$
37,989

Provision charged to expense
929

 
1,231

 
216

 
269

 
(555
)
 

 
(372
)
 
1,718

Losses charged off
(585
)
 
(746
)
 
(185
)
 
(856
)
 
(362
)
 

 

 
(2,734
)
Recoveries
96

 
2

 
15

 
152

 
356

 
2

 

 
623

Balance at
March 31, 2012
$
12,385

 
$
6,784

 
$
6,797

 
$
5,412

 
$
3,370

 
$
16

 
$
2,832

 
$
37,596

Provision charged to expense
(3,201
)
 
(744
)
 
3,518

 
442

 
(189
)
 
3

 
246

 
75

Losses charged off
(406
)
 
(739
)
 
(108
)
 
(502
)
 
(216
)
 

 

 
(1,971
)
Recoveries
203

 
5

 
15

 
97

 
284

 

 

 
604

Balance at
June 30, 2012
$
8,981

 
$
5,306

 
$
10,222

 
$
5,449

 
$
3,249

 
$
19

 
$
3,078

 
$
36,304

Provision charged to expense
(204
)
 
(738
)
 
604

 
2,551

 
(1,202
)
 
4

 
33

 
1,048

Losses charged off
(1,479
)
 
(625
)
 
(639
)
 
(949
)
 
(282
)
 

 

 
(3,974
)
Recoveries
142

 
1

 
14

 
15

 
672

 

 

 
844

Balance at
September 30, 2012
$
7,440

 
$
3,944

 
$
10,201

 
$
7,066

 
$
2,437

 
$
23

 
$
3,111

 
$
34,222

(in thousands)
Commercial & Industrial
 
Commercial
Real Estate
Owner Occupied
 
Commercial
Real Estate
Investor Owned
 
Construction and Land Development
 
Residential Real Estate
 
Consumer & Other
 
Qualitative Adjustment
 
Total
Balance September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses - Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
1,165

 
$
379

 
$
2,199

 
$
2,538

 
$
506

 
$

 
$

 
$
6,787

Collectively evaluated for impairment
6,275

 
3,565

 
8,002

 
4,528

 
1,931

 
23

 
3,111

 
27,435

Total
$
7,440

 
$
3,944

 
$
10,201

 
$
7,066

 
$
2,437

 
$
23

 
$
3,111

 
$
34,222

Loans - Ending Balance:
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
2,849

 
$
5,584

 
$
9,647

 
$
10,095

 
$
3,883

 
$

 
$

 
$
32,058

Collectively evaluated for impairment
877,545

 
319,795

 
466,854

 
136,141

 
143,057

 
11,716

 

 
1,955,108

Total
$
880,394

 
$
325,379

 
$
476,501

 
$
146,236

 
$
146,940

 
$
11,716

 
$

 
$
1,987,166

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses - Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
3,214

 
$
1,377

 
$
2,315

 
$
2,927

 
$
896

 
$

 
$

 
$
10,729

Collectively evaluated for impairment
8,731

 
4,920

 
4,436

 
2,920

 
3,035

 
14

 
3,204

 
27,260

Total
$
11,945

 
$
6,297

 
$
6,751

 
$
5,847

 
$
3,931

 
$
14

 
$
3,204

 
$
37,989

Loans - Ending Balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
5,634

 
$
4,572

 
$
11,127

 
$
14,767

 
$
5,522

 
$

 
$

 
$
41,622

Collectively evaluated for impairment
757,568

 
329,844

 
466,027

 
125,380

 
165,512

 
11,121

 

 
1,855,452

Total
$
763,202

 
$
334,416

 
$
477,154

 
$
140,147

 
$
171,034

 
$
11,121

 
$

 
$
1,897,074


11



A summary of Non-covered loans individually evaluated for impairment by category at September 30, 2012, and December 31, 2011, is as follows: 

 
September 30, 2012
(in thousands)
Unpaid
Contractual
Principal Balance
 
Recorded
Investment
With No Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded Investment
 
Related Allowance
 
Average
Recorded Investment
Commercial & Industrial
$
4,081

 
$
291

 
$
2,558

 
$
2,849

 
$
1,165

 
$
6,322

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - Owner Occupied
6,154

 
2,875

 
2,709

 
5,584

 
379

 
8,653

    Commercial - Investor Owned
14,053

 
1,865

 
7,782

 
9,647

 
2,199

 
9,793

    Construction and Land Development
13,192

 
748

 
9,347

 
10,095

 
2,538

 
11,295

    Residential
4,164

 
1,705

 
2,178

 
3,883

 
506

 
4,800

Consumer & Other

 

 

 

 

 

Total
$
41,644

 
$
7,484

 
$
24,574

 
$
32,058

 
$
6,787

 
$
40,863


 
December 31, 2011
(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
$
7,517

 
$
128

 
$
5,506

 
$
5,634

 
$
3,214

 
$
6,571

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - Owner Occupied
5,099

 

 
4,572

 
4,572

 
1,377

 
2,711

    Commercial - Investor Owned
15,676

 
914

 
10,213

 
11,127

 
2,315

 
10,562

    Construction and Land Development
19,685

 
1,628

 
13,139

 
14,767

 
2,927

 
16,114

    Residential
6,465

 
2,211

 
3,311

 
5,522

 
896

 
9,588

Consumer & Other

 

 

 

 

 

Total
$
54,442

 
$
4,881

 
$
36,741

 
$
41,622

 
$
10,729

 
$
45,546



There were no loans over 90 days past due and still accruing interest at September 30, 2012. If interest on impaired loans would have been accrued based upon the original contractual terms, such income would have been $708,000 and $2.2 million for the three and nine months ended September 30, 2012, respectively. The cash amount collected and recognized as interest income on impaired loans was $120,000 and $361,000 for the three and nine months ended September 30, 2012, respectively. The amount recognized as interest income on impaired loans continuing to accrue interest was $174,000 and $412,000 for the three and nine months ended September 30, 2012, respectively. At September 30, 2012, there were $543,000 of unadvanced commitments on impaired loans. Other Liabilities include approximately $98,000 for estimated losses attributable to the unadvanced commitments on impaired loans.


12



The recorded investment in impaired Non-covered loans by category at September 30, 2012, and December 31, 2011, is as follows:
 
 
September 30, 2012
(in thousands)
Non-accrual
 
Restructured
 
Loans over 90 days past due and still accruing interest
 
Total
Commercial & Industrial
$
2,849

 
$

 
$

 
$
2,849

Real Estate:
 
 
 
 
 
 
 
    Commercial - Investor Owned
9,647

 

 

 
9,647

    Commercial - Owner Occupied
5,377

 
207

 

 
5,584

    Construction and Land Development
7,286

 
2,809

 

 
10,095

    Residential
2,187

 
1,696

 

 
3,883

Consumer & Other

 

 

 

       Total
$
27,346

 
$
4,712

 
$

 
$
32,058


 
December 31, 2011
(in thousands)
Non-accrual
 
Restructured
 
Loans over 90 days past due and still accruing interest
 
Total
Commercial & Industrial
$
4,475

 
$
1,159

 
$

 
$
5,634

Real Estate:
 
 
 
 
 
 
 
    Commercial - Investor Owned
6,647

 
4,480

 

 
11,127

    Commercial - Owner Occupied
4,129

 
443

 

 
4,572

    Construction and Land Development
10,335

 
3,677

 
755

 
14,767

    Residential
5,299

 
223

 

 
5,522

Consumer & Other

 

 

 

       Total
$
30,885

 
$
9,982

 
$
755

 
$
41,622



The recorded investment by category for the Non-covered loans that have been restructured for the three and nine months ended September 30, 2012, is as follows:

 
Three months ended September 30, 2012
 
Nine months ended September 30, 2012
(in thousands, except for number of loans)
Number of Loans
 
Pre-Modification Outstanding
Recorded Balance
 
Post-Modification Outstanding
Recorded Balance
 
Number of Loans
 
Pre-Modification Outstanding
Recorded Balance
 
Post-Modification Outstanding
Recorded Balance
Commercial & Industrial
1

 
$
150

 
$

 

 
$

 
$

Real Estate:
 
 
 
 
 
 
 
 
 
 
 
     Commercial - Owner Occupied
1

 
207

 
207

 
1