10-Q 1 a2016930-10q.htm 10-Q 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 September 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 October 19, 2016, the Registrant had 20,011,401 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, 2016
 
December 31, 2015
Assets
 
 
 
Cash and due from banks
$
56,789

 
$
47,935

Federal funds sold
488

 
91

Interest-bearing deposits (including $1,870 and $1,320 pledged as collateral)
61,222

 
46,131

Total cash and cash equivalents
118,499

 
94,157

Interest-bearing deposits greater than 90 days
1,980

 
1,000

Securities available for sale
479,609

 
451,770

Securities held to maturity
41,031

 
43,714

Loans held for sale
7,663

 
6,598

Portfolio loans
3,037,705

 
2,750,737

Less: Allowance for loan losses
37,498

 
33,441

Portfolio loans, net
3,000,207

 
2,717,296

Purchased credit impaired loans, net of the allowance for loan losses ($6,433 and $10,175, respectively)
41,016

 
64,583

Total loans, net
3,041,223

 
2,781,879

Other real estate
2,959

 
8,366

Other investments, at cost
19,789

 
17,455

Fixed assets, net
14,498

 
14,842

Accrued interest receivable
8,526

 
8,399

State tax credits held for sale, including $4,801 and $5,941 carried at fair value, respectively
44,180

 
45,850

Goodwill
30,334

 
30,334

Intangible assets, net
2,357

 
3,075

Other assets
96,996

 
101,044

Total assets
$
3,909,644

 
$
3,608,483

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Demand deposits
$
762,155

 
$
717,460

Interest-bearing transaction accounts
633,100

 
564,420

Money market accounts
1,131,997

 
1,053,662

Savings
109,728

 
92,861

Certificates of deposit:
 
 
 
Brokered
137,592

 
39,573

Other
350,253

 
316,615

Total deposits
3,124,825

 
2,784,591

Subordinated debentures
56,807

 
56,807

Federal Home Loan Bank advances
129,000

 
110,000

Other borrowings
190,022

 
270,326

Accrued interest payable
648

 
629

Other liabilities
27,244

 
35,301

Total liabilities
3,528,546

 
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; 20,249,711 and 20,093,119 shares issued, respectively
203

 
201

Treasury stock, at cost; 261,718 and 76,000 shares, respectively
(6,632
)
 
(1,743
)
Additional paid in capital
212,091

 
210,589

Retained earnings
170,768

 
141,564

Accumulated other comprehensive income
4,668

 
218

Total shareholders' equity
381,098

 
350,829

Total liabilities and shareholders' equity
$
3,909,644

 
$
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 September 30,
 
Nine months ended September 30,
(in thousands, except per share data)
2016
 
2015
 
2016
 
2015
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
34,442

 
$
30,626

 
$
101,233

 
$
90,109

Interest on debt securities:
 
 
 
 
 
 
 
Taxable
2,410

 
2,176

 
7,194

 
6,434

Nontaxable
322

 
298

 
982

 
880

Interest on interest-bearing deposits
67

 
68

 
186

 
153

Dividends on equity securities
52

 
12

 
191

 
107

Total interest income
37,293

 
33,180


109,786


97,683

Interest expense:
 
 
 
 
 
 
 
Interest-bearing transaction accounts
332

 
293

 
967

 
849

Money market accounts
1,143

 
822

 
3,162

 
2,136

Savings accounts
68

 
58

 
191

 
162

Certificates of deposit
1,319

 
1,543

 
3,521

 
4,728

Subordinated debentures
369

 
314

 
1,078

 
924

Federal Home Loan Bank advances
126

 
9

 
499

 
82

Notes payable and other borrowings
106

 
135

 
327

 
471

Total interest expense
3,463

 
3,174


9,745


9,352

Net interest income
33,830

 
30,006

 
100,041

 
88,331

Provision for portfolio loan losses
3,038

 
599

 
4,587

 
4,329

Provision reversal for purchased credit impaired loan losses
(1,194
)
 
(227
)
 
(1,603
)
 
(3,497
)
Net interest income after provision for loan losses
31,986

 
29,634


97,057


87,499

Noninterest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
2,200

 
2,044

 
6,431

 
5,898

Wealth management revenue
1,694

 
1,773

 
5,000

 
5,291

Other service charges and fee income
1,007

 
871

 
2,827

 
2,464

Gain on state tax credits, net
228

 
321

 
899

 
1,069

Gain (loss) on sale of other real estate
(226
)
 
32

 
602

 
61

Gain on sale of investment securities
86

 

 
86

 
23

Change in FDIC loss share receivable

 
(1,241
)
 

 
(4,450
)
Miscellaneous income
1,987

 
929

 
4,185

 
3,762

Total noninterest income
6,976

 
4,729


20,030


14,118

Noninterest expense:
 
 
 
 
 
 
 
Employee compensation and benefits
12,091

 
11,475

 
37,398

 
34,262

Occupancy
1,705

 
1,605

 
4,997

 
4,920

Data processing
1,150

 
1,138

 
3,441

 
3,295

FDIC and other insurance
780

 
654

 
2,241

 
2,045

Professional fees
757

 
800

 
2,160

 
2,626

Loan legal and other real estate expense
416

 
530

 
1,126

 
1,356

FDIC clawback

 
298

 

 
760

Other
3,915

 
3,432

 
11,566

 
10,076

Total noninterest expense
20,814

 
19,932


62,929


59,340

 
 
 
 
 
 
 
 
Income before income tax expense
18,148

 
14,431


54,158


42,277

Income tax expense
6,316

 
4,722

 
18,949

 
14,506

Net income
$
11,832

 
$
9,709


$
35,209


$
27,771

 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
Basic
$
0.59

 
$
0.49

 
$
1.76

 
$
1.39

Diluted
0.59

 
0.48

 
1.74

 
1.37

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)
2016
 
2015
 
2016
 
2015
Net income
$
11,832

 
$
9,709

 
$
35,209

 
$
27,771

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 $(494) and $1,070, and for nine months of $2,795 and $793, respectively
(796
)
 
1,724

 
4,503

 
1,306

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 $33 and $0, and for nine months of $33 and $9, respectively
(53
)
 

 
(53
)
 
(14
)
Total other comprehensive income (loss)
(849
)
 
1,724

 
4,450

 
1,292

Total comprehensive income
$
10,983

 
$
11,433

 
$
39,659

 
$
29,063


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

 

 

 

 
35,209

 

 
35,209

Other comprehensive income

 

 

 

 

 
4,450

 
4,450

Cash dividends paid on common shares, $0.30 per share

 

 

 

 
(6,005
)
 

 
(6,005
)
Repurchase of common shares

 

 
(4,889
)
 

 

 

 
(4,889
)
Issuance under equity compensation plans, 156,592 shares, net

 
2

 

 
(1,652
)
 

 

 
(1,650
)
Share-based compensation

 

 

 
2,410

 

 

 
2,410

Excess tax benefit related to equity compensation plans

 

 

 
744

 

 

 
744

Balance September 30, 2016
$

 
$
203

 
$
(6,632
)
 
$
212,091

 
$
170,768

 
$
4,668

 
$
381,098

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 income

 

 

 

 

 
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


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)
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
35,209

 
$
27,771

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation
1,628

 
1,510

Provision for loan losses
2,984

 
832

Deferred income taxes
3,881

 
1,937

Net amortization of debt securities
2,350

 
2,473

Amortization of intangible assets
718

 
842

Gain on sale of investment securities
(86
)
 
(23
)
Mortgage loans originated for sale
(117,975
)
 
(95,744
)
Proceeds from mortgage loans sold
117,639

 
95,814

Gain on sale of other real estate
(602
)
 
(61
)
Gain on state tax credits, net
(899
)
 
(1,069
)
Excess tax benefit of share-based compensation
(744
)
 
(156
)
Share-based compensation
2,410

 
2,588

Valuation adjustment on other real estate
1

 
82

Net accretion of loan discount and indemnification asset
(8,165
)
 
(4,894
)
Changes in:
 
 
 
Accrued interest receivable
(127
)
 
(703
)
Accrued interest payable
19

 
(63
)
Other assets
(2,101
)
 
4,851

Other liabilities
(8,057
)
 
4,024

Net cash provided by operating activities
28,083

 
40,011

Cash flows from investing activities:
 
 
 
Net increase in loans
(256,706
)
 
(152,970
)
Net cash proceeds received from FDIC loss share receivable

 
1,725

Proceeds from the sale of securities, available for sale
2,493

 
41,069

Proceeds from the paydown or maturity of securities, available for sale
46,017

 
40,230

Proceeds from the paydown or maturity of securities, held to maturity
2,592

 
1,848

Proceeds from the redemption of other investments
44,968

 
29,362

Proceeds from the sale of state tax credits held for sale
4,918

 
5,353

Proceeds from the sale of other real estate
8,072

 
5,662

Payments for the purchase/origination of:
 
 
 
Available for sale debt and equity securities
(71,309
)
 
(150,934
)
Other investments
(48,283
)
 
(23,931
)
State tax credits held for sale
(2,349
)
 
(14,004
)
Fixed assets
(1,284
)
 
(1,152
)
Net cash used in investing activities
(270,871
)
 
(217,742
)
Cash flows from financing activities:
 
 
 
Net increase in noninterest-bearing deposit accounts
44,695

 
48,828

Net increase in interest-bearing deposit accounts
295,539

 
273,625

Proceeds from Federal Home Loan Bank advances
1,309,000

 
635,900

Repayments of Federal Home Loan Bank advances
(1,290,000
)
 
(704,900
)
Repayments of notes payable

 
(900
)
Net decrease in other borrowings
(80,304
)
 
(44,299
)
Cash dividends paid on common stock
(6,005
)
 
(3,654
)
Excess tax benefit of share-based compensation
744

 
156

Payments for the repurchase of common stock
(4,889
)
 

Issuance of common stock, net
(1,650
)
 
(831
)
Net cash provided by financing activities
267,130

 
203,925

Net increase in cash and cash equivalents
24,342

 
26,194

Cash and cash equivalents, beginning of period
94,157

 
100,696

Cash and cash equivalents, end of period
$
118,499

 
$
126,890

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
9,726

 
$
9,415

Income taxes
19,868

 
8,763

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

 
$
6,604

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 nine months ended September 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 September 30,
 
Nine months ended September 30,
(in thousands, except per share data)
2016
 
2015
 
2016
 
2015
Net income as reported
$
11,832

 
$
9,709

 
$
35,209

 
$
27,771

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
19,997

 
19,995

 
20,002

 
19,970

Additional dilutive common stock equivalents
227

 
266

 
229

 
266

Weighted average diluted common shares outstanding
20,224

 
20,261

 
20,231

 
20,236

 
 
 
 
 
 
 
 
Basic earnings per common share:
$
0.59

 
$
0.49

 
$
1.76

 
$
1.39

Diluted earnings per common share:
$
0.59

 
$
0.48

 
$
1.74

 
$
1.37


For the three and nine months ended September 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 0.1 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, 2016
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
    Obligations of U.S. Government-sponsored enterprises
$
97,745

 
$
1,313

 
$

 
$
99,058

    Obligations of states and political subdivisions
37,132

 
1,511

 
(307
)
 
38,336

    Agency mortgage-backed securities
336,693

 
5,826

 
(304
)
 
342,215

          Total securities available for sale
$
471,570

 
$
8,650

 
$
(611
)
 
$
479,609

Held to maturity securities:
 
 
 
 
 
 
 
    Obligations of states and political subdivisions
$
14,777

 
$
359

 
$
(2
)
 
$
15,134

    Agency mortgage-backed securities
26,254

 
830

 

 
27,084

          Total securities held to maturity
$
41,031

 
$
1,189


$
(2
)

$
42,218


 
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 September 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 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 $321.5 million and $334.4 million at September 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 September 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
$
52,384

 
$
52,637

 
$

 
$

Due after one year through five years
70,128

 
72,153

 
8,189

 
8,356

Due after five years through ten years
8,836

 
9,328

 
6,588

 
6,778

Due after ten years
3,529

 
3,276

 

 

Agency mortgage-backed securities
336,693

 
342,215

 
26,254

 
27,084

 
$
471,570

 
$
479,609


$
41,031


$
42,218



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

 
$

 
$
3,566

 
$
309

 
$
3,566

 
$
309

Agency mortgage-backed securities
6,654

 
11

 
13,379

 
293

 
20,033

 
304

 
$
6,654

 
$
11


$
16,945


$
602


$
23,599


$
613

 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 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 September 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 September 30,
 
Nine months ended September 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Gross gains realized
$
86

 
$

 
$
86

 
$
63

Gross losses realized

 

 

 
(40
)
Proceeds from sales
2,493

 

 
2,493

 
41,069



9



NOTE 4 - PORTFOLIO LOANS

Below is a summary of Portfolio loans by category at September 30, 2016 and December 31, 2015:
 
(in thousands)
September 30, 2016
 
December 31, 2015
Commercial and industrial
$
1,598,815

 
$
1,484,327

Real estate:
 
 
 
    Commercial - investor owned
515,055

 
428,064

    Commercial - owner occupied
340,916

 
342,959

    Construction and land development
188,856

 
161,061

    Residential
233,960

 
196,498

Total real estate loans
1,278,787

 
1,128,582

Consumer and other
160,535

 
137,537

Portfolio loans
3,038,137

 
2,750,446

Unearned loan fees, net
(432
)
 
291

    Portfolio loans, including unearned loan fees
$
3,037,705

 
$
2,750,737


A summary of the 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, 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) for loan losses
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) for loan losses
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

Provision (provision reversal) for loan losses
3,575

 
10

 
94

 
(730
)
 
168

 
(79
)
 
3,038

Losses charged off
(2,044
)
 

 

 

 
(25
)
 
(4
)
 
(2,073
)
Recoveries
69

 
8

 
17

 
913

 
26

 
2

 
1,035

Balance at September 30, 2016
$
25,408

 
$
3,374


$
2,702


$
1,402


$
1,966


$
2,646


$
37,498


10



(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, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses - Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
3,785

 
$

 
$

 
$
158

 
$
3

 
$
1,855

 
$
5,801

Collectively evaluated for impairment
21,623

 
3,374

 
2,702

 
1,244

 
1,963

 
791

 
31,697

Total
$
25,408

 
$
3,374


$
2,702


$
1,402


$
1,966


$
2,646


$
37,498

Loans - Ending balance:
 
 
 
 
 
 
 

 
 
 
 
 
 
Individually evaluated for impairment
$
13,414

 
$
252

 
$
1,666

 
$
1,907

 
$
124

 
$
4,499

 
$
21,862

Collectively evaluated for impairment
1,585,401

 
514,803

 
339,250

 
186,949

 
233,836

 
155,604

 
3,015,843

Total
$
1,598,815

 
$
515,055


$
340,916


$
188,856


$
233,960


$
160,103


$
3,037,705

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30, 2016 and December 31, 2015, is as follows:

 
September 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
$
14,895

 
$
136

 
$
13,134

 
$
13,270

 
$
3,785

 
$
15,666

Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - investor owned
252

 
253

 

 
253

 

 
250

    Commercial - owner occupied

 

 

 

 

 

    Construction and land development
1,907

 
1,920

 
358

 
2,278

 
158

 
2,403

    Residential
149

 
65

 
64

 
129

 
3

 
652

Consumer and other
4,499

 

 
4,508

 
4,508

 
1,855

 
4,598

Total
$
21,702

 
$
2,374


$
18,064


$
20,438


$
5,801


$
23,569


 
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




11



The following table presents details for past due and impaired loans:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Total interest income that would have been recognized under original terms
$
226

 
$
369

 
$
703

 
$
913

Total cash received and recognized as interest income on non-accrual loans
203

 
81

 
253

 
206

Total interest income recognized on impaired loans
32

 
4

 
63

 
31


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

The recorded investment in impaired Portfolio loans by category at September 30, 2016 and December 31, 2015, is as follows: 
 
September 30, 2016
(in thousands)
Non-accrual
 
Restructured
 
Loans over 90 days past due and still accruing interest
 
Total
Commercial and industrial
$
10,959

 
$
2,311

 
$

 
$
13,270

Real estate:
 
 
 
 
 
 
 
    Commercial - investor owned
253

 

 

 
253

    Commercial - owner occupied

 

 

 

    Construction and land development
2,258

 
20

 

 
2,278

    Residential
129

 

 

 
129

Consumer and other
4,508

 

 

 
4,508

       Total
$
18,107

 
$
2,331


$


$
20,438


 
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 nine months ended September 30, 2016 and 2015, is as follows:


12



 
Three months ended September 30, 2016
 
Three months ended September 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

 
$

 
$

 

 
$

 
$

Real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial - investor owned

 

 

 

 

 

Commercial - owner occupied

 

 

 

 

 

Construction and land development

 

 

 

 

 

Residential

 

 

 

 

 

Consumer and other

 

 

 

 

 

Total

 
$

 
$

 

 
$

 
$


 
Nine months ended September 30, 2016
 
Nine months ended September 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 September 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 three and nine months ended September 30, 2016 or 2015.

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