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Section 1: 10-Q

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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 March 31, 2019.
 
 
 
[   ]
 
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 every Interactive Data File required to be submitted 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 such files). Yes [X]  No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [X]
 
 
 
Accelerated filer [ ]
Non-accelerated filer [ ]
 
 
 
Smaller reporting company [ ]
 
 
 
 
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. [ ]
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 April 26, 2019, the Registrant had 26,880,408 shares of outstanding common stock, $0.01 par value per share.

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 3. Defaults Upon Senior Securities
 
 
 
Item 4. Mine Safety Disclosures
 
 
 
Item 5. Other Information
 
 
 
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)
March 31, 2019
 
December 31, 2018
Assets
 
 
 
Cash and due from banks
$
85,578

 
$
91,511

Federal funds sold
1,934

 
1,714

Interest-earning deposits (including $6,665 and $1,305 pledged as collateral, respectively)
133,970

 
103,327

Total cash and cash equivalents
221,482

 
196,552

Interest-earning deposits greater than 90 days
3,485

 
3,185

Securities available for sale
1,099,185

 
721,369

Securities held to maturity, at cost
64,368

 
65,679

Loans held for sale
654

 
392

Loans
5,017,077

 
4,350,001

Less: Allowance for loan losses
43,095

 
43,476

Loans, net
4,973,982

 
4,306,525

Other real estate
6,804

 
469

Other investments, at cost
34,860

 
26,654

Fixed assets, net
60,301

 
32,109

Operating lease right-of-use asset
14,858

 

Accrued interest receivable
26,276

 
16,069

State tax credits held for sale, at cost
37,215

 
37,587

Goodwill
207,632

 
117,345

Intangible assets, net
31,048

 
8,553

Other assets
150,607

 
113,174

Total assets
$
6,932,757

 
$
5,645,662

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Demand deposits
$
1,186,508

 
$
1,100,718

Interest-bearing transaction accounts
1,389,826

 
1,037,684

Money market accounts
1,580,291

 
1,565,729

Savings
575,740

 
199,425

Certificates of deposit:
 
 
 
Brokered
180,788

 
198,981

Other
623,960

 
485,448

Total deposits
5,537,113

 
4,587,985

Subordinated debentures and notes (net of debt issuance cost of $972 and $1,005, respectively)
140,668

 
118,156

Federal Home Loan Bank advances
180,466

 
70,000

Other borrowings
172,171

 
221,450

Notes payable
40,000

 
2,000

Operating lease liability
15,462

 

Accrued interest payable
3,231

 
1,977

Other liabilities
45,811

 
40,290

Total liabilities
6,134,922

 
5,041,858

 
 
 
 
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; 28,004,905 and 23,938,994 shares issued, respectively
280

 
239

Treasury stock, at cost; 1,127,105 shares
(42,655
)
 
(42,655
)
Additional paid in capital
521,761

 
350,936

Retained earnings
316,959

 
304,566

Accumulated other comprehensive income (loss)
1,490

 
(9,282
)
Total shareholders' equity
797,835

 
603,804

Total liabilities and shareholders' equity
$
6,932,757

 
$
5,645,662

The accompanying notes are an integral part of these consolidated financial statements.

1



ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
 
Three months ended
March 31,
(in thousands, except per share data)
2019
 
2018
Interest income:
 
 
 
Interest and fees on loans
$
61,025

 
$
50,450

Interest on debt securities:
 
 
 
Taxable
5,475

 
3,987

Nontaxable
447

 
282

Interest on interest-bearing deposits
447

 
240

Dividends on equity securities
223

 
205

Total interest income
67,617

 
55,164

Interest expense:
 
 
 
Interest-bearing transaction accounts
1,790

 
806

Money market accounts
6,515

 
3,353

Savings accounts
183

 
125

Certificates of deposit
3,332

 
1,899

Subordinated debentures and notes
1,648

 
1,368

Federal Home Loan Bank advances
1,398

 
1,258

Notes payable and other borrowings
408

 
184

Total interest expense
15,274

 
8,993

Net interest income
52,343

 
46,171

Provision for loan losses
1,476

 
1,871

Net interest income after provision for loan losses
50,867

 
44,300

Noninterest income:
 
 
 
Service charges on deposit accounts
2,935

 
2,851

Wealth management revenue
1,992

 
2,114

Card services revenue
1,790

 
1,516

Gain on sale of other real estate
66

 

Tax credit activity, net
158

 
252

Miscellaneous income
2,289

 
2,809

Total noninterest income
9,230

 
9,542

Noninterest expense:
 
 
 
Employee compensation and benefits
19,352

 
16,491

Occupancy
2,637

 
2,406

Data processing
1,906

 
1,467

Professional fees
746

 
849

FDIC and other insurance
848

 
917

Loan legal and other real estate expense
482

 
299

Merger related expenses
7,270

 

Other
6,597

 
6,714

Total noninterest expense
39,838

 
29,143

 
 
 
 
Income before income tax expense
20,259

 
24,699

Income tax expense
4,103

 
3,778

Net income
$
16,156

 
$
20,921

 
 
 
 
Earnings per common share
 
 
 
Basic
$
0.68

 
$
0.91

Diluted
0.67

 
0.90

The accompanying notes are an integral part of these consolidated financial statements.

2




ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 
Three months ended
March 31,
(in thousands)
2019
 
2018
Net income
$
16,156

 
$
20,921

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 $3,774 and $(2,265), respectively
11,504

 
(6,904
)
Less: Reclassification adjustment for realized gains (losses) on sale of securities available for sale included in net income, net of income tax expense (benefit) for three months of ($72) and $2, respectively
220

 
(7
)
Unrealized loss on cash flow hedges arising during the period, net of income tax benefit of $312
(952
)
 

Total other comprehensive income (loss)
10,772

 
(6,911
)
Total comprehensive income
$
26,928

 
$
14,010


The accompanying notes are an integral part of these consolidated financial statements.


3



ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
(in thousands, except per share data)
Common Stock
 
Treasury Stock
 
Additional paid in capital
 
Retained earnings
 
Accumulated
other
comprehensive income (loss)
 
Total
shareholders’ equity
Balance at December 31, 2018
$
239

 
$
(42,655
)
 
$
350,936

 
$
304,566

 
$
(9,282
)
 
$
603,804

Net income

 

 

 
16,156

 

 
16,156

Other comprehensive income

 

 

 

 
10,772

 
10,772

Total comprehensive income

 

 

 
16,156

 
10,772

 
26,928

Cash dividends paid on common shares, $0.14 per share

 

 

 
(3,763
)
 

 
(3,763
)
Issuance under equity compensation plans, 75,089 shares, net
1

 

 
(1,941
)
 

 

 
(1,940
)
Share-based compensation

 

 
921

 

 

 
921

Shares issued in connection with acquisition of Trinity Capital Corporation, 3,990,822 shares
40

 

 
171,845

 

 

 
171,885

Balance at March 31, 2019
$
280

 
$
(42,655
)
 
$
521,761

 
$
316,959

 
$
1,490

 
$
797,835

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands, except per share data)
Common Stock
 
Treasury Stock
 
Additional paid in capital
 
Retained earnings
 
Accumulated
other
comprehensive income (loss)
 
Total
shareholders’ equity
Balance at December 31, 2017
$
238

 
$
(23,268
)
 
$
350,061

 
$
225,360

 
$
(3,818
)
 
$
548,573

Net income

 

 

 
20,921

 

 
20,921

Other comprehensive loss

 

 

 

 
(6,911
)
 
(6,911
)
Total comprehensive income (loss)

 

 

 
20,921

 
(6,911
)
 
14,010

Cash dividends paid on common shares, $0.11 per share

 

 

 
(2,542
)
 

 
(2,542
)
Repurchase of common shares

 
(3,058
)
 

 

 

 
(3,058
)
Issuance under equity compensation plans, 86,598 shares, net
1

 

 
(2,687
)
 

 

 
(2,686
)
Share-based compensation

 

 
718

 

 

 
718

Reclassification adjustment for change in accounting policies

 

 

 
834

 
(834
)
 

Balance at March 31, 2018
$
239

 
$
(26,326
)
 
$
348,092

 
$
244,573

 
$
(11,563
)
 
$
555,015


The accompanying notes are an integral part of these consolidated financial statements.

4



ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Three months ended March 31,
(in thousands, except share data)
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
16,156

 
$
20,921

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation
1,162

 
849

Provision for loan losses
1,476

 
1,870

Deferred income taxes
2,727

 
2,290

Net amortization of debt securities
407

 
533

Amortization of intangible assets
838

 
656

Loss (gain) on sale of investment securities
292

 
(9
)
Mortgage loans originated for sale
(4,087
)
 
(12,389
)
Proceeds from mortgage loans sold
3,825

 
13,917

Gain on sale of other real estate
(66
)
 

Gain on state tax credits, net
(158
)
 
(252
)
Share-based compensation
921

 
718

Net accretion of loan discount
(596
)
 
(467
)
Changes in:
 
 
 
Accrued interest receivable
(6,210
)
 
(3,209
)
Accrued interest payable
884

 
315

Other assets
(104
)
 
(888
)
Other liabilities
(1,755
)
 
(2,640
)
Net cash provided by operating activities
15,712

 
22,215

Cash flows from investing activities:
 
 
 
Acquisition cash purchase price, net of cash and cash equivalents acquired
(23,376
)
 

Net decrease (increase) in loans
13,855

 
(93,125
)
Proceeds from the sale of securities, available for sale
259,420

 
1,451

Proceeds from the paydown or maturity of securities, available for sale
27,684

 
19,683

Proceeds from the paydown or maturity of securities, held to maturity
1,269

 
1,639

Proceeds from the redemption of other investments
11,744

 
13,514

Proceeds from the sale of state tax credits held for sale
2,381

 
1,356

Proceeds from the sale of other real estate
66

 

Payments for the purchase/origination of:
 
 
 
Available for sale debt securities
(221,711
)
 
(40,313
)
Other investments
(14,977
)
 
(17,864
)
State tax credits held for sale
(1,852
)
 

Fixed assets, net
(1,268
)
 
(370
)
Net cash provided by (used in) investing activities
53,235

 
(114,029
)
Cash flows from financing activities:
 
 
 
Net decrease in noninterest-bearing deposit accounts
(83,290
)
 
(22,202
)
Net (increase) decrease in interest-bearing deposit accounts
(48,770
)
 
147,165

Proceeds from Federal Home Loan Bank advances
364,525

 
484,500

Repayments of Federal Home Loan Bank advances
(259,500
)
 
(432,500
)
Proceeds from notes payable
40,000

 

Repayments of notes payable
(2,000
)
 

Net decrease in other borrowings
(49,279
)
 
(87,085
)
Cash dividends paid on common stock
(3,763
)
 
(2,542
)
Payments for the repurchase of common stock

 
(3,058
)
Payments for the issuance of equity instruments, net
(1,940
)
 
(2,686
)
Net cash (used in) provided by financing activities
(44,017
)
 
81,592

Net increase (decrease) in cash and cash equivalents
24,930

 
(10,222
)
Cash and cash equivalents, beginning of period
196,552

 
153,323

Cash and cash equivalents, end of period
$
221,482

 
$
143,101

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
14,020

 
$
8,677

Income taxes

 
685

Noncash transactions:
 
 
 
Transfer to other real estate owned in settlement of loans
$
1,372

 
$

Common shares issued in connection with acquisition
171,885

 


The accompanying notes are an integral part of these 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 Arizona, Kansas, Missouri, and New Mexico markets through its banking subsidiary, Enterprise Bank & Trust (the “Bank”).

Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2019. 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, 2018, as filed with the Securities and Exchange Commission.

Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated.

In the opinion of management, the consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the statements of financial position, results of operations, and cash flow for the interim periods.

Recently Adopted Accounting Pronouncements

During the first quarter of 2019, the Company adopted Accounting Standards Update (“ASU”) 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.” ASU 2017-08 shortens the amortization period of certain callable debt securities held at a premium to the earliest call date. The adoption of this update did not have a material effect on the Company's consolidated financial statements.

The Company adopted ASU 2016-02 “Leases (Topic 842)” using the optional transition method effective on January 1, 2019. ASU 2016-02 requires organizations that lease assets to recognize the assets and liabilities for the rights and obligations created by leases. The Company recorded $15.5 million for right-to-use assets and $16.2 million for lease liabilities related to operating leases. The Company elected the practical expedients package which eliminates (1) the need to reassess whether any expired or existing contracts are or contain a lease, (2) the need to reassess the lease classification, and (3) the need to reassess initial direct costs for any existing leases. The Company also elected an accounting policy to not recognize assets and liabilities on leases 12 months or less, and an accounting policy for equipment and real estate leases to not separate nonlease components because the impact was immaterial.

Acquisitions

Acquisitions and business combinations are accounted for using the acquisition method of accounting. The assets and liabilities of the acquired entities have been recorded at their estimated fair values at the date of acquisition. Goodwill

6



represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets. 

The purchase price allocation process requires an estimation of the fair values of the assets acquired and the liabilities assumed. When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the Company includes an estimate of the acquisition-date fair value as part of the cost of the combination. To determine the fair values, the Company relies on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. The results of operations of the acquired business are included in the Company’s consolidated financial statements from the date of acquisition. Merger related costs are costs the Company incurs to effect a business combination. The Company presents merger related expenses as a separate component of Noninterest expenses on the Condensed Consolidated Statements of Operations.  Merger related expenses include costs directly related to merger or acquisition activity and include legal and professional fees, system consolidation and conversion costs, gain or loss on sale of investment securities incurred through repositioning the acquired investment portfolio, and compensation costs such as severance and retention incentives for employees impacted by acquisition activity. The Company accounts for merger-related costs as expenses in the periods in which the costs are incurred and the services are received.

Revenue

The Company’s revenues are primarily composed of interest income on financial instruments, including investment securities, which are excluded from the scope of the new guidance. Certain other noninterest income from loans, investment securities and derivative financial instruments is also excluded from this guidance. Service charges on deposit accounts, wealth management revenue, card services revenue, and gain on sale of other real estate are within the scope of the guidance; however, there were no accounting policy changes as the Company’s policies were consistent with the new guidance. Other noninterest income sources of revenue are considered immaterial. Implementation of this guidance did not change current business practices or have any changes to the Company’s consolidated financial statements.
Descriptions of our revenue-generating activities within the scope of this guidance, which are presented in our income statement as components of noninterest income are as follows:
Service charges on deposit accounts - represents fees generated from a variety of deposit products and services provided to customers under a day-to-day contract. These fees are recognized on a daily or monthly basis.
Wealth management revenue - represents monthly fees earned from directing, holding, and managing customers’ assets. Revenue is recognized over regular intervals, either monthly or quarterly.
Card services revenue - represents revenue earned from merchant, debit and credit cards as incurred and includes a contra revenue account for rebates.
Gain on sale of other real estate - represents income recognized at delivery of control of a property at the time of a real estate closing.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets on our consolidated balance sheet. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made prior to commencement and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We account for the lease and non-lease components as a single lease component.


7



Assumptions and judgments are used in applying ASC 842 and may include (1) the decision framework for identifying a lease, (2) the accounting policy election for equipment and real estate leases to not separate nonlease components, and (3) the discount rate for determining the initial present value of the lease payments which is based on information available at the commencement date for determining the lease term and assessing if optional periods are reasonably likely to be exercised. For the calculation at January 1, 2019, the discount rate was based on the remaining lease terms.

Derivative Instruments and Hedging Activities
 
FASB ASC 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting.

The Company does not offset derivative asset and liability positions. However, the Company's exposure to the credit risk of its derivative financial instruments is generally mitigated by master netting agreements with its counterparties. 

The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Funding Rate ("SOFR") replace USD-LIBOR. ARRC has proposed that the transition to SOFR from USD-LIBOR will take place by the end of 2021. The Company has material contracts that are indexed to USD-LIBOR. Industry organizations are currently working on the transition plan. The Company is currently monitoring this activity and evaluating the risks involved.


8



NOTE 2 - ACQUISITION

Acquisition of Trinity Capital Corporation.
On March 8, 2019, the Company closed its acquisition of 100% of Trinity Capital Corporation (“Trinity”) and its wholly-owned subsidiary, Los Alamos National Bank (“LANB”). Trinity operated six full-service retail and commercial banking offices in Los Alamos, Santa Fe, and Albuquerque, New Mexico.

Trinity shareholders received cash consideration in an amount of $1.84 per share of Trinity common stock and 0.1972 shares of EFSC common stock per share of Trinity common stock with cash in lieu of fractional shares. Aggregate consideration at closing was 4.0 million shares of EFSC common stock and $37.3 million cash paid to Trinity shareholders. Based on EFSC’s closing stock price of $43.07 on March 7, 2019, the overall transaction had a value of $209.2 million. The Company also recognized $7.3 million and $1.3 million of merger related costs that were recorded in noninterest expense in the statement of operations for the three months ended March 31, 2019, and year ended December 31, 2018, respectively.

The acquisition of Trinity has been accounted for as a business combination using the acquisition method of accounting which requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date. The estimates of fair value are preliminary and subject to refinement as the Company completes its evaluation of the acquired assets and liabilities. Goodwill of $90.3 million arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of Trinity into Enterprise. The goodwill is assigned as part of the Company’s Banking reporting unit. None of the goodwill recognized is expected to be deductible for income tax purposes.
  

9



The following table presents the assets acquired and liabilities assumed of Trinity as of March 8, 2019. The following information is presented on a provisional basis based upon all information available to the Company at the present time and is subject to change, and such changes could be material. The Company continues to review the underlying assumptions and valuation techniques utilized to calculate the fair value of certain definite-lived intangibles, loans, goodwill and deferred income taxes. Additional adjustments may be recorded during the allocation period specified by ASC 805 as additional information becomes known.

(in thousands)
As Recorded by TCC
 
Adjustments
 
As Recorded by EFSC
Assets acquired:
 
 
 
 
 
Cash and cash equivalents
$
13,899

 
$

 
$
13,899

Interest-earning deposits greater than 90 days
100

 

 
100

Securities
428,715

 
(414
)
(a)
428,301

Loans, net
705,057

 
(21,493
)
(b)
683,564

Other real estate
5,284

 
(321
)
(c)
4,963

Other investments
6,673

 

 
6,673

Fixed assets, net
27,586

 
500

(d)
28,086

Accrued interest receivable
3,997

 

 
3,997

Intangible assets

 
23,333

(e)
23,333

Deferred tax assets
10,708

 
2

(f)
10,710

Other assets
35,045

 
(2,947
)
(g)
32,098

Total assets acquired
$
1,237,064

 
$
(1,340
)
 
$
1,235,724

 
 
 
 
 
 
Liabilities assumed:
 
 
 
 
 
Deposits
$
1,081,151

 
$
36

(h)
$
1,081,187

Subordinated debentures
26,806

 
(4,325
)
(i)
22,481

Federal Home Loan Bank advances
6,800

 
171

(j)
6,971

Accrued interest payable
370

 

 
370

Other liabilities
5,842

 

 
5,842

Total liabilities assumed
$
1,120,969

 
$
(4,118
)
 
$
1,116,851

 
 
 
 
 
 
Net assets acquired
$
116,095

 
$
2,778

 
$
118,873

 
 
 
 
 
 
Consideration paid:
 
 
 
 
 
Cash
 
 
 
 
$
37,276

Common stock
 
 
 
 
171,884

Total consideration paid
 
 
 
 
$
209,160

 
 
 
 
 
 
Goodwill
 
 
 
 
$
90,287


(a)
Fair value adjustments of the securities portfolio as of the acquisition date.
(b)
Fair value adjustments based on the Company’s evaluation of the acquired loan portfolio, write-off of net deferred loan costs and elimination of the allowance for loan losses recorded by Trinity.
(c)
Fair value adjustment based on the Company’s evaluation of the acquired OREO portfolio.
(d)
Fair value adjustments based on the Company’s evaluation of the acquired premises and equipment.
(e)
Recording of the core deposit intangible asset on the acquired core deposit accounts.  Amount to be amortized using a sum of years digits method over a useful life of 10 years.
(f)
Adjustment for deferred taxes at the acquisition date.
(g)
Fair value adjustment of other assets at the acquisition date.
(h)
Fair value adjustment to time deposits.
(i)
Fair value adjustment to the trust preferred securities at the acquisition date.
(j)
Fair value adjustment to the Federal Home Loan Bank borrowings.

10




The following table provides the unaudited pro forma information for the results of operations for the three months ended March 31, 2019 and 2018, as if the acquisition had occurred on January 1, 2018. The pro forma results combine the historical results of Trinity with the Company’s Consolidated Statements of Income, adjusted for the impact of the application of the acquisition method of accounting including loan discount accretion, intangible assets amortization, and deposit and trust preferred securities premium accretion, net of taxes. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2018. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions. Only the acquisition related expenses that have been incurred as of March 31, 2019 are included in net income in the table below. 

 
Pro Forma
 
Three months ended March 31,
(in thousands, except per share data)
2019
 
2018
Total revenues (net interest income plus noninterest income)
$
71,983

 
$
68,874

Net income
23,100

 
15,009

Diluted earnings per common share
0.82

 
0.55



NOTE 3 - 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
March 31,
(in thousands, except per share data)
2019
 
2018
Net income as reported
$
16,156

 
$
20,921

 
 
 
 
Weighted average common shares outstanding
23,927

 
23,115

Additional dilutive common stock equivalents
156

 
172

Weighted average diluted common shares outstanding
24,083

 
23,287

 
 
 
 
Basic earnings per common share:
$
0.68

 
$
0.91

Diluted earnings per common share:
0.67

 
0.90


For the three months ended March 31, 2019 and 2018, there were 122,270 and 0, respectively, common stock equivalents excluded from the earnings per share calculations because their effect would have been anti-dilutive.

11



NOTE 4 - 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:
 
 
March 31, 2019
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
Obligations of U.S. Government-sponsored enterprises
$
54,128

 
$

 
$
(347
)
 
$
53,781

Obligations of states and political subdivisions
114,770

 
2,218

 
(3
)
 
116,985

Agency mortgage-backed securities
895,899

 
6,461

 
(4,816
)
 
897,544

U.S. Treasury bills
9,964

 
113

 

 
10,077

Corporate debt securities
20,768

 
30

 

 
20,798

          Total securities available for sale
$
1,095,529

 
$
8,822

 
$
(5,166
)
 
$
1,099,185

Held to maturity securities:
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
12,490

 
$
91

 
$
(20
)
 
$
12,561

Agency mortgage-backed securities
51,878

 
11

 
(303
)
 
51,586

          Total securities held to maturity
$
64,368

 
$
102


$
(323
)

$
64,147


 
December 31, 2018
(in thousands)
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
Available for sale securities:
 
 
 
 
 
 
 
    Obligations of U.S. Government-sponsored enterprises
$
99,926

 
$

 
$
(1,428
)
 
$
98,498

    Obligations of states and political subdivisions
26,566

 
327

 
(83
)
 
26,810

    Agency mortgage-backed securities
596,825

 
1,160

 
(11,849
)
 
586,136

U.S. Treasury Bills
$
9,962

 
$

 
$
(37
)
 
$
9,925

          Total securities available for sale
$
733,279

 
$
1,487

 
$
(13,397
)
 
$
721,369

Held to maturity securities:
 
 
 
 
 
 
 
   Obligations of states and political subdivisions
$
12,506

 
$
16

 
$
(114
)
 
$
12,408

   Agency mortgage-backed securities
53,173

 

 
(1,647
)
 
51,526

          Total securities held to maturity
$
65,679

 
$
16

 
$
(1,761
)
 
$
63,934


At March 31, 2019, and December 31, 2018, 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 agencies and sponsored enterprises. Securities having a fair value of $478.8 million and $433.7 million at March 31, 2019, and December 31, 2018, respectively, were pledged as collateral to secure deposits of public institutions and for other purposes as required by law or contract provisions.


12



The amortized cost and estimated fair value of debt securities at March 31, 2019, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The weighted average life of the mortgage-backed securities is approximately 4 years.
 
 
Available for sale
 
Held to maturity
(in thousands)
Amortized Cost
 
Estimated Fair Value
 
Amortized Cost
 
Estimated Fair Value
Due in one year or less
$
1,876

 
$
1,888

 
$

 
$

Due after one year through five years
67,451

 
67,377

 
2,534

 
2,546

Due after five years through ten years
31,819

 
32,135

 
9,957

 
10,015

Due after ten years
98,484

 
100,241

 

 

Agency mortgage-backed securities
895,899

 
897,544

 
51,877

 
51,586

 
$
1,095,529

 
$
1,099,185


$
64,368


$
64,147



The following table represents a summary of investment securities that had an unrealized loss:
 
 
March 31, 2019
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
$
19,854

 
$
95

 
$
29,796

 
$
252

 
$
49,650

 
$
347

Obligations of states and political subdivisions
680

 
10

 
2,949

 
13

 
3,629

 
23

Agency mortgage-backed securities
47,506

 
685

 
326,319

 
4,434

 
373,825

 
5,119

 
$
68,040

 
$
790


$
359,064


$
4,699


$
427,104


$
5,489

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
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
$
19,622

 
$
322

 
$
78,876

 
$
1,106

 
$
98,498

 
$
1,428

Obligations of states and political subdivisions
3,102

 
15

 
14,156

 
182

 
17,258

 
197

Agency mortgage-backed securities
87,357

 
2,211

 
389,770

 
11,285

 
477,127

 
13,496

U.S. Treasury bills

 

 
9,925

 
37

 
9,925

 
37

 
$
110,081

 
$
2,548


$
492,727


$
12,610


$
602,808


$
15,158


The unrealized losses at both March 31, 2019, and December 31, 2018, 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 March 31, 2019, management performed its quarterly analysis of all securities with an unrealized loss and concluded no individual securities were other-than-temporarily impaired.


13



NOTE 5 - LOANS

The loan portfolio is comprised of loans originated by the Company and loans acquired in connection with the Company’s acquisitions. These loans are accounted for using the guidance in the Accounting Standards Codification (ASC) section 310-30 and 310-20. Loans accounted for using ASC 310-30 are sometimes referred to as purchased credit impaired (“PCI”) loans.
 
The table below shows the loan portfolio composition including carrying value categorized by loans accounted for at amortized cost, which includes our originated loans, and by loans accounted for as PCI.

(in thousands)

March 31, 2019
 
December 31, 2018
Loans accounted for at amortized cost
$
4,894,574

 
$
4,303,600

Loans accounted for as PCI
122,503

 
46,401

Total loans
$
5,017,077

 
$
4,350,001


At March 31, 2019, loans acquired in the Trinity acquisition included $602 million accounted for at amortized cost and $80 million accounted for as PCI. These loans were recorded at fair value with no allowance for loan losses.

The table below shows the composition of the allowance for loan losses:
(in thousands)

March 31, 2019
 
December 31, 2018
Allowance for loans accounted for at amortized cost
$
41,945

 
$
42,295

Allowance for loans accounted for as PCI
1,150

 
1,181

Total allowance for loan losses
$
43,095

 
$
43,476


The following tables refer to loans accounted for at amortized cost.

Below is a summary of loans by category at March 31, 2019 and December 31, 2018:
 
(in thousands)
March 31, 2019
 
December 31, 2018
Commercial and industrial
$
2,209,437

 
$
2,121,008

Real estate:
 
 
 
Commercial - investor owned
1,144,868

 
843,728

Commercial - owner occupied
647,198

 
604,498

Construction and land development
358,884

 
330,097

Residential
416,731

 
298,944

Total real estate loans
2,567,681

 
2,077,267

Consumer and other
119,368

 
107,351

Loans, before unearned loan fees
4,896,486

 
4,305,626

Unearned loan fees, net
(1,912
)
 
(2,026
)
Loans, including unearned loan fees
$
4,894,574

 
$
4,303,600



14



A summary of the activity in the allowance for loan losses and the recorded investment in loans by class and category based on impairment methodology through March 31, 2019, and at December 31, 2018, 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, 2018
$
29,039

 
$
4,683

 
$
4,239

 
$
1,987

 
$
1,616

 
$
731

 
$
42,295

Provision (provision reversal) for loan losses
1,445

 
769

 
(431
)
 
(252
)
 
(288
)
 
233

 
1,476

Losses charged off
(1,853
)
 
(120
)
 
(36
)
 
(45
)
 
(67
)
 
(129
)
 
(2,250
)
Recoveries
29

 
7

 
2

 
9

 
364

 
13

 
424

Balance at March 31, 2019
$
28,660

 
$
5,339


$
3,774


$
1,699


$
1,625


$
848


$
41,945

(in thousands)
Commercial and industrial
 
CRE - investor owned
 
CRE -
owner occupied
 
Construction and land development
 
Residential real estate
 
Consumer and other
 
Total
Balance March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses - Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
2,199

 
$
596

 
$
119

 
$

 
$

 
$

 
$
2,914

Collectively evaluated for impairment
26,461

 
4,743

 
3,655

 
1,699

 
1,625

 
848

 
39,031

Total
$
28,660

 
$
5,339


$
3,774


$
1,699


$
1,625


$
848


$
41,945

Loans - Ending balance:
 
 
 
 
 
 
 

 
 
 
 
 
 
Individually evaluated for impairment
$
7,205

 
$
1,527

 
$
2,296

 
$

 
$
408

 
$

 
$
11,436

Collectively evaluated for impairment
2,202,232

 
1,143,341

 
644,902

 
358,884

 
416,323

 
117,456

 
4,883,138

Total
$
2,209,437

 
$
1,144,868


$
647,198


$
358,884


$
416,731


$
117,456


$
4,894,574

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses - Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
4,266

 
$

 
$
109

 
$

 
$
52

 
$
26

 
$
4,453

Collectively evaluated for impairment
24,773

 
4,683

 
4,130

 
1,987

 
1,564

 
705

 
37,842

Total
$
29,039

 
$
4,683


$
4,239


$
1,987


$
1,616


$
731


$
42,295

Loans - Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
12,950

 
$
398

 
$
2,135

 
$

 
$
2,277

 
$
311

 
$
18,071

Collectively evaluated for impairment
2,108,058

 
843,330

 
602,363

 
330,097

 
296,667

 
105,014

 
4,285,529

Total
$
2,121,008

 
$
843,728


$
604,498


$
330,097


$
298,944


$
105,325


$
4,303,600


A summary of nonperforming loans individually evaluated for impairment by category at March 31, 2019 and December 31, 2018, and the income recognized on impaired loans is as follows:

 
March 31, 2019
(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
$
9,515

 
$
2,168

 
$
5,037

 
$
7,205

 
$
2,199

 
$
7,855

Real estate:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - investor owned
1,555

 
271

 
1,256

 
1,527

 
596

 
1,527

    Commercial - owner occupied
484

 
467

 

 
467

 

 
471

    Construction and land development

 

 

 

 

 

    Residential
409

 
408

 

 
408

 

 
408

Consumer and other

 

 

 

 

 

Total
$
11,963

 
$
3,314


$
6,293


$
9,607


$
2,795


$
10,261



15



 
December 31, 2018
(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
$
21,893

 
$
3,294

 
$
9,656

 
$
12,950

 
$
4,266

 
$
13,827

Real estate:
 
 
 
 
 
 
 
 
 
 
 
    Commercial - investor owned
553

 
398

 

 
398

 

 
277

    Commercial - owner occupied
847

 
472

 
336

 
808

 
109

 
691

    Construction and land development

 

 

 

 

 

    Residential
2,425

 
1,659

 
618

 
2,277

 
52

 
778

Consumer and other
329

 

 
312

 
312

 
26

 

Total
$
26,047

 
$
5,823


$
10,922


$
16,745


$
4,453


$
15,573


 
Three months ended March 31,
(in thousands)
2019
 
2018
Total interest income that would have been recognized under original terms
$
436

 
$
534

Total cash received and recognized as interest income on non-accrual loans
62

 
11

Total interest income recognized on accruing, impaired loans
3

 
11


The recorded investment in nonperforming loans by category at March 31, 2019 and December 31, 2018, is as follows: 
 
March 31, 2019
(in thousands)
Non-accrual
 
Restructured, not on non-accrual
 
Total
Commercial and industrial
$
7,094

 
$
111

 
$
7,205

Real estate:
 
 
 
 
 
    Commercial - investor owned
1,527

 

 
1,527

    Commercial - owner occupied
467

 

 
467

    Construction and land development

 

 

    Residential
328

 
80

 
408

Consumer and other

 

 

       Total
$
9,416

 
$
191


$
9,607


 
December 31, 2018
(in thousands)
Non-accrual
 
Restructured, not on non-accrual
 
Total
Commercial and industrial
$
12,805

 
$
145

 
$
12,950

Real estate:
 
 
 
 
 
    Commercial - investor owned
398

 

 
398

    Commercial - owner occupied
808

 

 
808

    Construction and land development

 

 

    Residential
2,197

 
80

 
2,277

Consumer and other
312

 

 
312

       Total
$
16,520

 
$
225

 
$
16,745


There were no loans over 90 days past due and still accruing interest at March 31, 2019 and December 31, 2018.

16




There were no portfolio loans restructured during the three months ended March 31, 2019 and 2018.

As of March 31, 2019, the Company had $1.2 million in specific reserves allocated to $4.7 million of loans that have been restructured. During the three months ended March 31, 2019 and 2018, there were no troubled debt restructurings that subsequently defaulted.

The aging of the recorded investment in past due loans by portfolio class and category at March 31, 2019 and December 31, 2018, is shown below.

 
March 31, 2019
(in thousands)
30-89 Days
 Past Due
 
90 or More
Days
Past Due
 
Total
Past Due
 
Current
 
Total
Commercial and industrial
$
22,062

 
$
5,816

 
$
27,878

 
$
2,181,559

 
$
2,209,437

Real estate:
 
 
 
 
 
 
 
 
 
Commercial - investor owned

 
1,527

 
1,527

 
1,143,341

 
1,144,868

Commercial - owner occupied
708

 
229

 
937

 
646,261

 
647,198

Construction and land development
98

 

 
98

 
358,786

 
358,884

Residential
4,945

 
328

 
5,273

 
411,458

 
416,731

Consumer and other
69

 

 
69

 
117,387

 
117,456

Total
$
27,882

 
$
7,900


$
35,782


$
4,858,792


$
4,894,574


 
December 31, 2018
(in thousands)
30-89 Days
 Past Due
 
90 or More
Days
Past Due
 
Total
Past Due
 
Current
 
Total
Commercial and industrial
$
66

 
$
10,257

 
$
10,323

 
$
2,110,685

 
$
2,121,008

Real estate:
 
 
 
 
 
 
 
 
 
Commercial - investor owned
529

 
127

 
656

 
843,072

 
843,728

Commercial - owner occupied
292

 
565

 
857

 
603,641

 
604,498

Construction and land development
6

 

 
6

 
330,091

 
330,097

Residential
709

 
897

 
1,606

 
297,338

 
298,944

Consumer and other

 
312

 
312

 
105,013

 
105,325

Total
$
1,602

 
$
12,158


$
13,760


$
4,289,840


$
4,303,600


The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, payment experience, credit documentation, and current economic factors among other factors. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:
Grades 1, 2, and 3 Includes loans to borrowers with a continuous record of strong earnings, sound balance sheet condition and capitalization, ample liquidity with solid cash flow, and whose management team has experience and depth within their industry.
Grade 4 Includes loans to borrowers with positive trends in profitability, satisfactory capitalization and balance sheet condition, and sufficient liquidity and cash flow.
Grade 5 Includes loans to borrowers that may display fluctuating trends in sales, profitability, capitalization, liquidity, and cash flow.
Grade 6 Includes loans to borrowers where an adverse change or perceived weakness has occurred, but may be correctable in the near future. Alternatively, this rating category may also include circumstances where the

17



borrower is starting to reverse a negative trend or condition, or has recently been upgraded from a 7, 8, or 9 rating.
Grade 7 – Watch credits are borrowers that have experienced financial setback of a nature that is not determined to be severe or influence ‘ongoing concern’ expectations. Although possible, no loss is anticipated, due to strong collateral and/or guarantor support.
Grade 8Substandard credits include those borrowers characterized by significant losses and sustained downward trends in balance sheet condition, liquidity, and cash flow. Repayment reliance may have shifted to secondary sources. Collateral exposure may exist and additional reserves may be warranted.
Grade 9Doubtful credits include borrowers that may show deteriorating trends that are unlikely to be corrected. Collateral values may appear insufficient for full recovery, therefore requiring a partial charge-off, or debt renegotiation with the borrower. The borrower may have declared bankruptcy or bankruptcy is likely in the near term. All doubtful rated credits will be on non-accrual.
The recorded investment by risk category of the loans by portfolio class and category at March 31, 2019, which is based upon the most recent analysis performed, and December 31, 2018, is as follows:
 
March 31, 2019
(in thousands)
Pass (1-6)
 
Watch (7)
 
Classified (8 & 9)
 
Total
Commercial and industrial
$
1,991,293

 
$
157,408

 
$
60,736

 
$
2,209,437

Real estate:
 
 
 
 
 
 
 
Commercial - investor owned
1,124,030

 
17,088

 
3,750

 
1,144,868

Commercial - owner occupied
608,773

 
36,052

 
2,373

 
647,198

Construction and land development
354,835

 
3,984

 
65

 
358,884

Residential
409,032

 
1,996

 
5,703

 
416,731

Consumer and other
117,451

 
5

 

 
117,456

Total