Enterprise Financial Services Corp - 10-Q quarterly report FY2016 Q1

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, 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 April 25, 2016, the Registrant had 20,021,499 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)		1

Condensed Consolidated Statements of Operations (Unaudited)		2

Condensed Consolidated Statements of Comprehensive Income (Unaudited)		3

Condensed Consolidated Statements of Shareholders' Equity (Unaudited)		4

Condensed Consolidated Statements of Cash Flows (Unaudited)		5

Notes to Condensed Consolidated Financial Statements (Unaudited)		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25

Item 3. Quantitative and Qualitative Disclosures About Market Risk		46

Item 4. Controls and Procedures		47

PART II - OTHER INFORMATION

Item 1. Legal Proceedings		47

Item 1A. Risk Factors		47

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		48

Item 5. Other Information		48

Item 6. Exhibits		49

Signatures		50

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, 2016			December 31, 2015
Assets
Cash and due from banks	$	56,251		$	47,935
Federal funds sold	193			91
Interest-bearing deposits (including $1,870 and $1,320 pledged as collateral)	49,789			46,131
Total cash and cash equivalents	106,233			94,157
Interest-bearing deposits greater than 90 days	1,000			1,000
Securities available for sale	461,832			451,770
Securities held to maturity	43,257			43,714
Loans held for sale	6,409			6,598
Portfolio loans	2,832,616			2,750,737
Less: Allowance for loan losses	34,373			33,441
Portfolio loans, net	2,798,243			2,717,296
Purchased credit impaired loans, net of the allowance for loan losses ($9,569 and $10,175, respectively)	53,908			64,583
Total loans, net	2,852,151			2,781,879
Other real estate	9,880			8,366
Other investments, at cost	19,231			17,455
Fixed assets, net	14,812			14,842
Accrued interest receivable	8,797			8,399
State tax credits held for sale, including $4,733 and $5,941 carried at fair value, respectively	45,305			45,850
Goodwill	30,334			30,334
Intangible assets, net	2,832			3,075
Other assets	107,832			101,044
Total assets	$	3,709,905		$	3,608,483

Liabilities and Shareholders' Equity
Demand deposits	$	719,652		$	717,460
Interest-bearing transaction accounts	589,635			564,420
Money market accounts	1,061,407			1,053,662
Savings	100,203			92,861
Certificates of deposit:
Brokered	157,939			39,573
Other	302,910			316,615
Total deposits	2,931,746			2,784,591
Subordinated debentures	56,807			56,807
Federal Home Loan Bank advances	130,500			110,000
Other borrowings	193,788			270,326
Accrued interest payable	542			629
Other liabilities	37,138			35,301
Total liabilities	3,350,521			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; 20,229,129 and 20,093,119 shares issued, respectively	202			201
Treasury stock, at cost; 236,100 and 76,000 shares, respectively	(5,954		)	(1,743		)
Additional paid in capital	210,420			210,589
Retained earnings	150,787			141,564
Accumulated other comprehensive income	3,929			218
Total shareholders' equity	359,384			350,829
Total liabilities and shareholders' equity	$	3,709,905		$	3,608,483

See accompanying notes to consolidated financial statements.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)



	Three months ended March 31,
(in thousands, except per share data)	2016			2015
Interest income:
Interest and fees on loans	$	32,608		$	29,608
Interest on debt securities:
Taxable	2,387			2,141
Nontaxable	332			297
Interest on interest-bearing deposits	61			47
Dividends on equity securities	72			58
Total interest income	35,460			32,151
Interest expense:
Interest-bearing transaction accounts	306			277
Money market accounts	1,006			642
Savings accounts	60			50
Certificates of deposit	1,019			1,591
Subordinated debentures	348			302
Federal Home Loan Bank advances	182			49
Notes payable and other borrowings	111			195
Total interest expense	3,032			3,106
Net interest income	32,428			29,045
Provision for portfolio loan losses	833			1,580
Provision reversal for purchased credit impaired loan losses	(73		)	(3,270		)
Net interest income after provision for loan losses	31,668			30,735
Noninterest income:
Service charges on deposit accounts	2,043			1,856
Wealth management revenue	1,662			1,740
Other service charges and fee income	868			753
Gain on state tax credits, net	518			674
Gain on sale of other real estate	122			20
Gain on sale of investment securities	—			23
Change in FDIC loss share receivable	—			(2,264		)
Miscellaneous income	792			781
Total noninterest income	6,005			3,583
Noninterest expense:
Employee compensation and benefits	12,647			11,513
Occupancy	1,683			1,694
Data processing	1,104			1,030
FDIC and other insurance	723			726
Professional fees	684			972
Loan legal and other real estate expense	357			278
FDIC clawback	—			412
Other	3,564			3,325
Total noninterest expense	20,762			19,950

Income before income tax expense	16,911			14,368
Income tax expense	5,886			5,022
Net income	$	11,025		$	9,346

Earnings per common share
Basic	$	0.55		$	0.47
Diluted	0.54			0.46

See accompanying notes to consolidated financial statements.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)



	Three months ended March 31,
(in thousands)	2016		2015
Net income	$	11,025	$	9,346
Other comprehensive income, net of tax:
Unrealized gains on investment securities arising during the period, net of income tax expense for three months of $2,304 and $1,045, respectively	3,711		1,712
Less: Reclassification adjustment for realized gains on sale of securities available for sale included in net income, net of income tax expense for three months of $0, and $9, respectively	—		(14		)
Total other comprehensive income	3,711		1,698
Total comprehensive income	$	14,736	$	11,044

See accompanying notes to consolidated financial statements.

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		Total shareholders' equity
Balance January 1, 2016	$	—	$	201	$	(1,743	)	$	210,589		$	141,564		$	218	$	350,829
Net income	—		—		—			—			11,025			—		11,025
Other comprehensive income	—		—		—			—			—			3,711		3,711
Cash dividends paid on common shares, $0.09 per share	—		—		—			—			(1,802		)	—		(1,802		)
Repurchase of common shares	—		—		(4,211		)	—			—			—		(4,211		)
Issuance under equity compensation plans, 136,010 shares, net	—		1		—			(1,746		)	—			—		(1,745		)
Share-based compensation	—		—		—			794			—			—		794
Excess tax benefit related to equity compensation plans	—		—		—			783			—			—		783
Balance March 31, 2016	$	—	$	202	$	(5,954	)	$	210,420		$	150,787		$	3,929	$	359,384

(in thousands, except per share data)	Preferred Stock		Common Stock		Treasury Stock			Additional paid in capital			Retained earnings			Accumulated other comprehensive income		Total shareholders' equity
Balance January 1, 2015	$	—	$	199	$	(1,743	)	$	207,731		$	108,373		$	1,681	$	316,241
Net income	—		—		—			—			9,346			—		9,346
Other comprehensive income	—		—		—			—			—			1,698		1,698
Cash dividends paid on common shares, $0.0525 per share	—		—		—			—			(1,051		)	—		(1,051		)
Issuance under equity compensation plans, 97,936 shares, net	—		1		—			(1,047		)	—			—		(1,046		)
Share-based compensation	—		—		—			768			—			—		768
Excess tax benefit related to equity compensation plans	—		—		—			153			—			—		153
Balance March 31, 2015	$	—	$	200	$	(1,743	)	$	207,605		$	116,668		$	3,379	$	326,109

See accompanying notes to consolidated financial statements.

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)



	Three months ended March 31,
(in thousands)	2016			2015
Cash flows from operating activities:
Net income	$	11,025		$	9,346
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	535			489
Provision for loan losses	760			(1,690		)
Deferred income taxes	1,343			(152		)
Net amortization of debt securities	721			851
Amortization of intangible assets	243			284
Gain on sale of investment securities	—			(23		)
Mortgage loans originated for sale	(29,287		)	(31,603		)
Proceeds from mortgage loans sold	29,606			27,767
Gain on sale of other real estate	(122		)	(20		)
Gain on state tax credits, net	(518		)	(674		)
Excess tax benefit of share-based compensation	(783		)	(153		)
Share-based compensation	794			768
Valuation adjustment on other real estate	1			41
Net accretion of loan discount and indemnification asset	(2,249		)	(1,390		)
Changes in:
Accrued interest receivable	(398		)	(104		)
Accrued interest payable	(87		)	2
Other assets	(9,303		)	(1,666		)
Other liabilities	1,837			(3,681		)
Net cash provided (used) by operating activities	4,118			(1,608		)
Cash flows from investing activities:
Net decrease (increase) in loans	(71,324		)	3,443
Net cash proceeds received from FDIC loss share receivable	—			1,395
Proceeds from the sale of securities, available for sale	—			41,069
Proceeds from the paydown or maturity of securities, available for sale	12,894			10,715
Proceeds from the paydown or maturity of securities, held to maturity	431			515
Proceeds from the redemption of other investments	17,653			19,593
Proceeds from the sale of state tax credits held for sale	3,412			4,066
Proceeds from the sale of other real estate	671			2,896
Payments for the purchase/origination of:
Available for sale debt and equity securities	(17,637		)	(59,869		)
Other investments	(19,430		)	(9,975		)
State tax credits held for sale	(2,349		)	(3,112		)
Fixed assets	(505		)	(648		)
Net cash provided (used) in investing activities	(76,184		)	10,088
Cash flows from financing activities:
Net increase in noninterest-bearing deposit accounts	2,192			38,066
Net increase in interest-bearing deposit accounts	144,963			145,054
Proceeds from Federal Home Loan Bank advances	509,000			302,000
Repayments of Federal Home Loan Bank advances	(488,500		)	(440,000		)
Net decrease in other borrowings	(76,538		)	(53,019		)
Cash dividends paid on common stock	(1,802		)	(1,051		)
Excess tax benefit of share-based compensation	783			153
Payments for the repurchase of common stock	(4,211		)	—
Issuance of common stock, net	(1,745		)	(1,046		)
Net cash provided (used) by financing activities	84,142			(9,843		)
Net increase (decrease) in cash and cash equivalents	12,076			(1,363		)
Cash and cash equivalents, beginning of period	94,157			100,696
Cash and cash equivalents, end of period	$	106,233		$	99,333
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	3,119		$	3,105
Income taxes	14,084			3,500
Noncash transactions:
Transfer to other real estate owned in settlement of loans	$	2,683		$	890
Sales of other real estate financed	140			—

See accompanying notes to consolidated financial statements.

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 months ended March 31, 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.

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.

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)	2016		2015
Net income as reported	$	11,025	$	9,346

Weighted average common shares outstanding	20,004		19,934
Additional dilutive common stock equivalents	229		223
Weighted average diluted common shares outstanding	20,233		20,157

Basic earnings per common share:	$	0.55	$	0.47
Diluted earnings per common share:	$	0.54	$	0.46

For the three months ended March 31, 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 0.3 million common stock equivalents, respectively.

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:



	March 31, 2016
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale securities:
Obligations of U.S. Government-sponsored enterprises	$	98,382	$	1,413	$	—		$	99,795
Obligations of states and political subdivisions	39,437		1,404		(322		)	40,519
Agency mortgage-backed securities	317,146		4,821		(449		)	321,518
Total securities available for sale	$	454,965	$	7,638	$	(771	)	$	461,832
Held to maturity securities:
Obligations of states and political subdivisions	$	14,813	$	168	$	(24	)	$	14,957
Agency mortgage-backed securities	28,444		452		—			28,896
Total securities held to maturity	$	43,257	$	620	$	(24	)	$	43,853



	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 March 31, 2016, and December 31, 2015, there were no holdings of securities of any one issuer in an amount greater than 10% of shareholders’ equity, other than the U.S. Government agencies and sponsored enterprises. The agency mortgage-backed securities are all issued by U.S. Government-sponsored enterprises. Available for sale securities having a fair value of $271.1 million and $334.4 million at March 31, 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 March 31, 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.



	Available for sale				Held to maturity
(in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	27,884	$	28,031	$	—	$	—
Due after one year through five years	96,110		98,303		5,233		5,279
Due after five years through ten years	10,291		10,710		9,580		9,678
Due after ten years	3,534		3,270		—		—
Agency mortgage-backed securities	317,146		321,518		28,444		28,896
	$	454,965	$	461,832	$	43,257	$	43,853

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



	March 31, 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	$	3,302	$	14	$	3,680	$	332	$	6,982	$	346
Agency mortgage-backed securities	335		—		51,133		449		51,468		449
	$	3,637	$	14	$	54,813	$	781	$	58,450	$	795

	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 March 31, 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 March 31, 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 March 31,
(in thousands)	2016		2015
Gross gains realized	$	—	$	63
Gross losses realized	—		(40		)
Proceeds from sales	—		41,069

NOTE 4 - PORTFOLIO LOANS

Below is a summary of Portfolio loans by category at March 31, 2016 and December 31, 2015:



(in thousands)	March 31, 2016		December 31, 2015
Commercial and industrial	$	1,544,980	$	1,484,327
Real estate:
Commercial - investor owned	439,355		428,064
Commercial - owner occupied	334,180		342,959
Construction and land development	175,324		161,061
Residential	202,255		196,498
Total real estate loans	1,151,114		1,128,582
Consumer and other	136,358		137,537
Portfolio loans	2,832,452		2,750,446
Unearned loan fees, net	164		291
Portfolio loans, including unearned loan fees	$	2,832,616	$	2,750,737

A summary of the year-to-date activity in the allowance for loan losses and the recorded investment in Portfolio loans by class and category based on impairment method through March 31, 2016, and at December 31, 2015, is as follows:



(in thousands)	Commercial and industrial			CRE - investor owned			CRE - owner occupied		Construction and land development			Residential real estate		Consumer and other			Total
Allowance for loan losses:
Balance at December 31, 2015	$	22,056		$	3,484		$	2,969	$	1,704		$	1,796	$	1,432		$	33,441
Provision (provision reversal) charged to expense	1,120			(116		)	80		(65		)	11		(197		)	833
Losses charged off	(68		)	—			—		—			—		(5		)	(73		)
Recoveries	53			7			68		6			34		4			172
Balance at March 31, 2016	$	23,161		$	3,375		$	3,117	$	1,645		$	1,841	$	1,234		$	34,373



(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, 2016
Allowance for loan losses - Ending balance:
Individually evaluated for impairment	$	2,042	$	—	$	28	$	298	$	4	$	—	$	2,372
Collectively evaluated for impairment	21,119		3,375		3,089		1,347		1,837		1,234		32,001
Total	$	23,161	$	3,375	$	3,117	$	1,645	$	1,841	$	1,234	$	34,373
Loans - Ending balance:
Individually evaluated for impairment	$	5,209	$	894	$	1,820	$	2,652	$	679	$	—	$	11,254
Collectively evaluated for impairment	1,539,771		438,461		332,360		172,672		201,576		136,522		2,821,362
Total	$	1,544,980	$	439,355	$	334,180	$	175,324	$	202,255	$	136,522	$	2,832,616

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 March 31, 2016 and December 31, 2015, is as follows:



	March 31, 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	$	6,683	$	1,362	$	4,444	$	5,806	$	2,042	$	7,182
Real estate loans:
Commercial - investor owned	896		648		248		896		—		908
Commercial - owner occupied	86		86		—		86		28		79
Construction and land development	4,259		2,975		379		3,354		298		2,747
Residential	709		644		65		709		4		680
Consumer and other	—		—		—		—		—		—
Total	$	12,633	$	5,715	$	5,136	$	10,851	$	2,372	$	11,596



	December 31, 2015
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and industrial	$	5,554	$	509	$	4,204	$	4,713	$	1,953	$	6,970
Real estate loans:
Commercial - investor owned	927		927		—		927		—		970
Commercial - owner occupied	329		85		113		198		6		301
Construction and land development	4,349		2,914		530		3,444		369		3,001
Residential	705		637		68		705		7		682
Consumer and other	—		—		—		—		—		—
Total	$	11,864	$	5,072	$	4,915	$	9,987	$	2,335	$	11,924

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



	Three months ended March 31,
(in thousands)	2016		2015
Total interest income that would have been recognized under original terms	$	148	$	315
Total cash received and recognized as interest income on non-accrual loans	6		27
Total interest income recognized on impaired loans	6		13

There were no loans over 90 days past due and still accruing interest at March 31, 2016 or December 31, 2015. At March 31, 2016, there were no unadvanced commitments on impaired loans.

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



	March 31, 2016
(in thousands)	Non-accrual		Restructured		Loans over 90 days past due and still accruing interest		Total
Commercial and industrial	$	5,516	$	290	$	—	$	5,806
Real estate:
Commercial - investor owned	896		—		—		896
Commercial - owner occupied	86		—		—		86
Construction and land development	3,354		—		—		3,354
Residential	709		—		—		709
Consumer and other	—		—		—		—
Total	$	10,561	$	290	$	—	$	10,851



	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 Company restructured two Portfolio loans with a recorded balance of $0.3 million during the three months ended March 31, 2016, and none during the three months ended March 31, 2015. The restructured loans primarily resulted from interest rate concessions and changing the terms of the loans. As of March 31, 2016, the Company had $0.2 million specific reserves allocated to loans that have been restructured. There were no Portfolio loans restructured that subsequently defaulted during the three months ended March 31, 2016 or 2015.

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



	March 31, 2016
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	865	$	716	$	1,581	$	1,543,399	$	1,544,980
Real estate:
Commercial - investor owned	3,990		—		3,990		435,365		439,355
Commercial - owner occupied	—		79		79		334,101		334,180
Construction and land development	—		2,273		2,273		173,051		175,324
Residential	161		614		775		201,480		202,255
Consumer and other	15		—		15		136,507		136,522
Total	$	5,031	$	3,682	$	8,713	$	2,823,903	$	2,832,616



	December 31, 2015
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	505	$	888	$	1,393	$	1,482,934	$	1,484,327
Real estate:
Commercial - investor owned	464		—		464		427,600		428,064
Commercial - owner occupied	94		184		278		342,681		342,959
Construction and land development	384		2,273		2,657		158,404		161,061
Residential	70		681		751		195,747		196,498
Consumer and other	20		—		20		137,808		137,828
Total	$	1,537	$	4,026	$	5,563	$	2,745,174	$	2,750,737

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 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 8 – Substandard credits will 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 9 – Doubtful 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 Portfolio loans by portfolio class and category at March 31, 2016, which is based upon the most recent analysis performed, and December 31, 2015 is as follows:



	March 31, 2016
(in thousands)	Pass (1-6)		Watch (7)		Substandard (8)		Doubtful (9)		Total
Commercial and industrial	$	1,403,863	$	99,432	$	41,685	$	—	$	1,544,980
Real estate:
Commercial - investor owned	418,870		15,748		4,737		—		439,355
Commercial - owner occupied	301,626		28,748		3,806		—		334,180
Construction and land development	164,813		6,402		4,109		—		175,324
Residential	193,681		5,569		3,005		—		202,255
Consumer and other	129,833		717		5,972		—		136,522
Total	$	2,612,686	$	156,616	$	63,314	$	—	$	2,832,616



	December 31, 2015
(in thousands)	Pass (1-6)		Watch (7)		Substandard (8)		Doubtful (9)		Total
Commercial and industrial	$	1,356,864	$	90,370	$	37,093	$	—	$	1,484,327
Real estate:
Commercial - investor owned	403,820		18,868		5,376		—		428,064
Commercial - owner occupied	314,791		24,727		3,441		—		342,959
Construction and land development	146,601		10,114		4,346		—		161,061
Residential	188,269		5,138		3,091		—		196,498
Consumer and other	131,060		721		6,047		—		137,828
Total	$	2,541,405	$	149,938	$	59,394	$	—	$	2,750,737

NOTE 5 - PURCHASED CREDIT IMPAIRED ("PCI") LOANS

Below is a summary of PCI loans by category at March 31, 2016 and December 31, 2015:



	March 31, 2016			December 31, 2015
(in thousands)	Weighted- Average Risk Rating¹	Recorded Investment PCI Loans		Weighted- Average Risk Rating¹	Recorded Investment PCI Loans
Commercial and industrial	6.63	$	3,768	6.70	$	3,863
Real estate:
Commercial - investor owned	7.07	20,449		6.98	25,272
Commercial - owner occupied	6.12	15,880		6.30	19,414
Construction and land development	6.10	6,149		6.28	6,838
Residential	5.45	17,032		5.44	19,287
Total real estate loans		59,510			70,811
Consumer and other	5.89	199		1.89	84
Purchased credit impaired loans		$	63,477		$	74,758
¹Risk ratings are based on the borrower's contractual obligation, which is not reflective of the purchase discount.

The aging of the recorded investment in past due PCI loans by portfolio class and category at March 31, 2016 and December 31, 2015 is shown below:



	March 31, 2016
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	—	$	—	$	—	$	3,768	$	3,768
Real estate:
Commercial - investor owned	1,453		1,102		2,555		17,894		20,449
Commercial - owner occupied	—		—		—		15,880		15,880
Construction and land development	—		—		—		6,149		6,149
Residential	479		28		507		16,525		17,032
Consumer and other	—		—		—		199		199
Total	$	1,932	$	1,130	$	3,062	$	60,415	$	63,477



	December 31, 2015
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	—	$	—	$	—	$	3,863	$	3,863
Real estate:
Commercial - investor owned	2,342		3,661		6,003		19,269		25,272
Commercial - owner occupied	731		—		731		18,683		19,414
Construction and land development	—		—		—		6,838		6,838
Residential	1,594		130		1,724		17,563		19,287
Consumer and other	4		—		4		80		84
Total	$	4,671	$	3,791	$	8,462	$	66,296	$	74,758

The following table is a rollforward of PCI loans, net of the allowance for loan losses, for the three months ended March 31, 2016 and 2015.



(in thousands)	Contractual Cashflows			Non-accretable Difference			Accretable Yield			Carrying Amount
Balance January 1, 2016	$	116,689		$	26,765		$	25,341		$	64,583
Principal reductions and interest payments	(5,965		)	—			—			(5,965		)
Accretion of loan discount	—			—			(1,845		)	1,845
Changes in contractual and expected cash flows due to remeasurement	4,012			2,375			(1,032		)	2,669
Reductions due to disposals	(12,869		)	(2,127		)	(1,518		)	(9,224		)
Balance March 31, 2016	$	101,867		$	27,013		$	20,946		$	53,908

Balance January 1, 2015	$	178,145		$	65,719		$	28,733		$	83,693
Principal reductions and interest payments	(6,148		)	—			—			(6,148		)
Accretion of loan discount	—			—			(3,088		)	3,088
Changes in contractual and expected cash flows due to remeasurement	(12,159		)	(26,187		)	8,517			5,511
Reductions due to disposals	(5,623		)	(1,709		)	(933		)	(2,981		)
Balance March 31, 2015	$	154,215		$	37,823		$	33,229		$	83,163

The accretable yield is recognized in interest income over the estimated life of the acquired loans using the effective yield method. Outstanding customer balances on PCI loans were $85.1 million and $98.6 million as of March 31, 2016, and December 31, 2015, respectively.

NOTE 6 - COMMITMENTS AND CONTINGENCIES

The Company issues financial instruments with off balance sheet risk in the normal course of the business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

The Company’s extent of involvement and maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets. At March 31, 2016, there were no unadvanced commitments on impaired loans.

The contractual amounts of off-balance-sheet financial instruments as of March 31, 2016, and December 31, 2015, are as follows:



(in thousands)	March 31, 2016		December 31, 2015
Commitments to extend credit	$	997,131	$	1,140,028
Standby letters of credit	71,526		54,648

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments usually have fixed expiration dates or other termination clauses, may have significant usage restrictions, and may require payment of a fee. Of the total commitments to extend credit at March 31, 2016, and December 31, 2015, approximately $98 million and $94 million, respectively, represent fixed rate loan commitments. Since certain of the commitments may expire without being drawn upon or may be revoked, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, premises and equipment, and real estate. Other liabilities include $0.3 million for estimated losses attributable to the unadvanced commitments at March 31, 2016 and December 31, 2015.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are issued to support contractual obligations of the Company’s customers. The credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers. The approximate remaining term of standby letters of credit range from 1 month to 2 years 11 months at March 31, 2016.

Contingencies

The Company and its subsidiaries are, from time to time, parties to various legal proceedings arising out of their businesses. Management believes there are no such proceedings pending or threatened against the Company or its subsidiaries which, if determined adversely, would have a material adverse effect on the business, consolidated financial condition, results of operations or cash flows of the Company or any of its subsidiaries.

NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS

The Company is a party to various derivative financial instruments that are used in the normal course of business to meet the needs of its clients and as part of its risk management activities. These instruments include interest rate swaps and option contracts and foreign exchange forward contracts. The Company does not enter into derivative financial instruments for trading purposes.

Risk Management Instruments. The Company enters into interest rate caps in order to economically hedge changes in fair value of State tax credits held for sale. See Note 8 – Fair Value Measurements for further discussion on the fair value of state tax credits. The notional amount of the derivative instruments used to manage risk was $3.5 million at March 31, 2016 and December 31, 2015.

Client-Related Derivative Instruments. The Company enters into interest rate swaps to allow customers to hedge changes in fair value of certain loans while maintaining a variable rate loan on its own books. The Company also enters into foreign exchange forward contracts with clients, and enters into offsetting foreign exchange forward contracts with established financial institution counterparties. The table below summarizes the notional amounts and fair values of the client-related derivative instruments:



					Asset Derivatives (Other Assets)				Liability Derivatives (Other Liabilities)
	Notional Amount				Fair Value				Fair Value
(in thousands)	March 31, 2016		December 31, 2015		March 31, 2016		December 31, 2015		March 31, 2016		December 31, 2015
Non-designated hedging instruments
Interest rate swap contracts	$	150,028	$	153,630	$	2,012	$	1,155	$	2,012	$	1,155
Foreign exchange forward contracts	6,976		—		6,976		—		6,976		—

Changes in the fair value of client-related derivative instruments are recognized currently in operations. For the three months ended March 31, 2016 and 2015, the gains and losses offset each other due to the Company's hedging of the client swaps with other bank counterparties.

NOTE 8 - FAIR VALUE MEASUREMENTS

Below is a description of certain assets and liabilities measured at fair value.

The following table summarizes financial instruments measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:



	March 31, 2016
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Securities available for sale
Obligations of U.S. Government-sponsored enterprises	$	—	$	99,795	$	—	$	99,795
Obligations of states and political subdivisions	—		37,434		3,085		40,519
Residential mortgage-backed securities	—		321,518		—		321,518
Total securities available for sale	$	—	$	458,747	$	3,085	$	461,832
State tax credits held for sale	—		—		4,733		4,733
Derivative financial instruments	—		8,988		—		8,988
Total assets	$	—	$	467,735	$	7,818	$	475,553

Liabilities
Derivative financial instruments	$	—	$	8,988	$	—	$	8,988
Total liabilities	$	—	$	8,988	$	—	$	8,988



	December 31, 2015
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Securities available for sale
Obligations of U.S. Government-sponsored enterprises	$	—	$	99,008	$	—	$	99,008
Obligations of states and political subdivisions	—		38,624		3,077		41,701
Residential mortgage-backed securities	—		311,061		—		311,061
Total securities available for sale	$	—	$	448,693	$	3,077	$	451,770
State tax credits held for sale	—		—		5,941		5,941
Derivative financial instruments	—		1,155		—		1,155
Total assets	$	—	$	449,848	$	9,018	$	458,866

Liabilities
Derivative financial instruments	$	—	$	1,155	$	—	$	1,155
Total liabilities	$	—	$	1,155	$	—	$	1,155

•

Securities available for sale. Securities classified as available for sale are reported at fair value utilizing Level 2 and Level 3 inputs. Fair values for Level 2 securities are based upon dealer quotes, market spreads, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions at the security level. At March 31, 2016, Level 3 securities available for sale consist primarily of three Auction Rate Securities that are valued based on the securities' estimated cash flows, yields of comparable securities, and live trading levels.


•	State tax credits held for sale. At March 31, 2016, of the $45.3 million of state tax credits held for sale on the condensed consolidated balance sheet, approximately $4.7 million were carried at fair value. The remaining $40.6 million of state tax credits were accounted for at cost.

The Company is not aware of an active market that exists for the 10-year streams of state tax credit financial instruments. However, the Company’s principal market for these tax credits consists of Missouri state residents

who buy these credits and local and regional accounting firms who broker them. As such, the Company employed a discounted cash flow analysis (income approach) to determine the fair value.

The fair value measurement is calculated using an internal valuation model with market data including discounted cash flows based upon the terms and conditions of the tax credits. If the underlying project remains in compliance with the various federal and state rules governing the tax credit program, each project will generate about 10 years of tax credits. The inputs to the discounted cash flow calculation include: the amount of tax credits generated each year, the anticipated sale price of the tax credit, the timing of the sale and a discount rate. The discount rate is estimated using the LIBOR swap curve at a point equal to the remaining life in years of credits plus a 205 basis point spread. With the exception of the discount rate, the other inputs to the fair value calculation are observable and readily available. The discount rate is considered a Level 3 input because it is an “unobservable input” and is based on the Company’s assumptions. An increase in the discount rate utilized would generally result in a lower estimated fair value of the tax credits. Alternatively, a decrease in the discount rate utilized would generally result in a higher estimated fair value of the tax credits. Given the significance of this input to the fair value calculation, the state tax credit assets are reported as Level 3 assets.

•

Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The Company obtains counterparty quotations to value its interest rate swaps and caps. In addition, the Company validates the counterparty quotations with third party valuation sources. Derivatives with negative fair values are included in Other liabilities in the consolidated balance sheets. Derivatives with positive fair value are included in Other assets in the consolidated balance sheets.

Level 3 financial instruments

The following table presents the changes in Level 3 financial instruments measured at fair value on a recurring basis as of March 31, 2016 and 2015.


•	Purchases, sales, issuances and settlements. There were no Level 3 purchases during the quarter ended March 31, 2016 or 2015.


•	Transfers in and/or out of Level 3. There were no Level 3 transfers during the quarter ended March 31, 2016 and 2015.



	Securities available for sale, at fair value
	Three months ended March 31,
(in thousands)	2016		2015
Beginning balance	$	3,077	$	3,059
Total gains:
Included in other comprehensive income	8		12
Purchases, sales, issuances and settlements:
Purchases	—		—
Ending balance	$	3,085	$	3,071

Change in unrealized gains relating to assets still held at the reporting date	$	8	$	12



	State tax credits held for sale
	Three months ended March 31,
(in thousands)	2016			2015
Beginning balance	$	5,941		$	3,059
Total gains:
Included in earnings	76			12
Purchases, sales, issuances and settlements:
Sales	(1,284		)	—
Ending balance	$	4,733		$	3,071

Change in unrealized gains (losses) relating to assets still held at the reporting date	$	(305	)	$	12

From time to time, the Company measures certain assets at fair value on a nonrecurring basis. These include assets that are measured at the lower of cost or fair value that were recognized at fair value below cost at the end of the period. The following table presents financial instruments and non-financial assets measured at fair value on a non-recurring basis as of March 31, 2016.



	(1)		(1)		(1)		(1)
(in thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total gains (losses) for the three months ended March 31, 2016
Impaired loans	$	108	$	—	$	—	$	108	$	(74	)
Other real estate	49		—		—		49		(1		)
Total	$	157	$	—	$	—	$	157	$	(75	)

(1) The amounts represent only balances measured at fair value during the period and still held as of the reporting date.

Impaired loans are reported at the fair value of the underlying collateral for collateral dependent loans. Fair values for impaired loans are obtained from current appraisals by qualified licensed appraisers or independent valuation specialists. Other real estate owned is adjusted to fair value upon foreclosure of the underlying loan. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value less costs to sell. Fair value of other real estate is based upon the current appraised values of the properties as determined by qualified licensed appraisers and the Company’s judgment of other relevant market conditions. Certain state tax credits are reported at cost.

Following is a summary of the carrying amounts and fair values of the Company’s financial instruments on the consolidated balance sheets at March 31, 2016 and December 31, 2015.



	March 31, 2016				December 31, 2015
(in thousands)	Carrying Amount		Estimated fair value		Carrying Amount		Estimated fair value
Balance sheet assets
Cash and due from banks	$	56,251	$	56,251	$	47,935	$	47,935
Federal funds sold	193		193		91		91
Interest-bearing deposits	50,789		50,789		47,131		47,131
Securities available for sale	461,832		461,832		451,770		451,770
Securities held to maturity	43,257		43,853		43,714		43,441
Other investments, at cost	19,231		19,231		17,455		17,455
Loans held for sale	6,409		6,409		6,598		6,598
Derivative financial instruments	8,988		8,988		1,155		1,155
Portfolio loans, net	2,852,151		2,855,923		2,781,879		2,782,704
State tax credits, held for sale	45,305		49,180		45,850		49,588
Accrued interest receivable	8,797		8,797		8,399		8,399

Balance sheet liabilities
Deposits	2,931,746		2,933,105		2,784,591		2,784,654
Subordinated debentures	56,807		35,599		56,807		35,432
Federal Home Loan Bank advances	130,500		130,496		110,000		109,994
Other borrowings	193,788		193,761		270,326		270,286
Derivative financial instruments	8,988		8,988		1,155		1,155
Accrued interest payable	542		542		629		629

For information regarding the methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practical to estimate such value, refer to Note 19 – Fair Value Measurements in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

The following table presents the level in the fair value hierarchy for the estimated fair values of only the Company’s financial instruments that are not already presented on the condensed consolidated balance sheets at fair value at March 31, 2016, and December 31, 2015.



	Estimated Fair Value Measurement at Reporting Date Using						Balance at March 31, 2016
(in thousands)	Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity	$	—	$	43,853	$	—	$	43,853
Portfolio loans, net	—		—		2,855,923		2,855,923
State tax credits, held for sale	—		—		44,447		44,447
Financial Liabilities:
Deposits	2,470,897		—		462,208		2,933,105
Subordinated debentures	—		35,599		—		35,599
Federal Home Loan Bank advances	—		130,496		—		130,496
Other borrowings	—		193,761		—		193,761

	Estimated Fair Value Measurement at Reporting Date Using						Balance at December 31, 2015
(in thousands)	Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity	$	—	$	43,441	$	—	$	43,441
Portfolio loans, net	—		—		2,782,704		2,782,704
State tax credits, held for sale	—		—		43,647		43,647
Financial Liabilities:
Deposits	2,428,403		—		356,251		2,784,654
Subordinated debentures	—		35,432		—		35,432
Federal Home Loan Bank advances	—		109,994		—		109,994
Other borrowings	—		270,286		—		270,286

NOTE 9 - NEW AUTHORITATIVE ACCOUNTING GUIDANCE

FASB ASU 2014-09, "Revenue from Contracts with Customers" In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”. The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The new guidance was originally effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of this guidance to annual reporting periods beginning after December 15, 2017 for public companies, and permits early adoption on a limited basis. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial statements, nor decided upon the method of adoption. Entities have the option of using either a full retrospective or modified approach to adopt ASU 2014-09.

FASB ASU 2016-01 "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU 2016-01 requires equity investments to be measured at fair value through earnings, and eliminates the available-for-sale classification for equity securities with readily determinable fair values. For financial liabilities where the fair value option has been elected, changes in fair value due to instrument-specific credit risk must be recognized in other comprehensive income. When measuring the fair value of financial instruments at amortized cost, the exit price must be used for disclosure purposes. The ASU also requires that financial assets and liabilities be presented separately in the notes to the financial statements. This ASU becomes effective for the Company in the first quarter of 2018. Early adoption is permitted. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial statements.

FASB ASU 2016-02 "Leases (Topic 842)" In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" which requires organizations that lease assets ("lessees") to recognize the assets and liabilities for the rights and obligations created by leases with terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee remains dependent on its classification as a finance or operating lease. The criteria for determining whether a lease is a finance or operating lease has not been significantly changed by this ASU. The ASU also requires additional disclosure of the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. The guidance becomes effective for periods beginning after December 15, 2018. Early adoption will be permitted. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its consolidated balance sheets.

FASB ASU 2016-09 "Compensation-Stock Compensation (Topic 718)" In March 2016, the FASB issued ASU No. 2016-09, "Compensation-Stock Compensation (Topic 718)" which impacts accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 requires all excess tax benefits and tax deficiencies to be recognized in the income statement as income tax expense (or benefit.) The tax effects of exercised or vested awards must be treated as discrete items in the reporting period in which they occur, regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits will be classified with other income tax cash flows as an operating activity, and cash paid by an employer when withholding shares for tax liabilities should be classified as a financing activity. The guidance becomes effective for annual periods beginning after December 15, 2017, and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial statements.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

Some of the information in this report contains “forward-looking statements” within the meaning of and intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically are identified with use of terms such as “may,” “might,” “will, ”should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “could,” “continue” and the negative of these terms and similar words, although some forward-looking statements are expressed differently. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including, but not limited to: credit risk; changes in the appraised valuation of real estate securing impaired loans; outcomes of litigation and other contingencies; exposure to general and local economic conditions; risks associated with rapid increases or decreases in prevailing interest rates; consolidation within the banking industry; competition from banks and other financial institutions; our ability to attract and retain relationship officers and other key personnel; burdens imposed by federal and state regulation; changes in regulatory requirements; changes in accounting regulation or standards applicable to banks; and other risks discussed under the caption “Risk Factors” of our most recently filed Form 10-K and within this Form 10-Q, all of which could cause the Company’s actual results to differ from those set forth in the forward-looking statements.

Readers are cautioned not to place undue reliance on our forward-looking statements, which reflect management’s analysis and expectations only as of the date of such statements. Forward-looking statements speak only as of the date they are made, and the Company does not intend, and undertakes no obligation, to publicly revise or update forward-looking statements after the date of this report, whether as a result of new information, future events or otherwise, except as required by federal securities law. You should understand that it is not possible to predict or identify all risk factors. Readers should carefully review all disclosures we file from time to time with the Securities and Exchange Commission which are available on our website at www.enterprisebank.com under "Investor Relations."

Introduction

The following discussion describes the significant changes to the financial condition of the Company that have occurred during the first three months of 2016 compared to the financial condition as of December 31, 2015. In addition, this discussion summarizes the significant factors affecting the results of operations, liquidity and cash flows of the Company for the three months ended March 31, 2016, compared to the same periods in 2015. This discussion should be read in conjunction with the accompanying condensed consolidated financial statements included in this report and our Annual Report on Form 10-K for the year ended December 31, 2015.

Executive Summary

Below are highlights of our financial performance for the quarter ended March 31, 2016, as compared to the linked quarter ended December 31, 2015, and prior year quarter ended March 31, 2015.



(in thousands, except per share data)	For the Three Months ended and At
	March 31, 2016			December 31, 2015			March 31, 2015
EARNINGS
Total interest income	$	35,460		$	35,096		$	32,151
Total interest expense	3,032			3,017			3,106
Net interest income	32,428			32,079			29,045
Provision for portfolio loans	833			543			1,580
Provision reversal for purchased credit impaired loans	(73		)	(917		)	(3,270		)
Net interest income after provision for loan losses	31,668			32,453			30,735
Total noninterest income	6,005			6,557			3,583
Total noninterest expense	20,762			22,886			19,950
Income before income tax expense	16,911			16,124			14,368
Income tax expense	5,886			5,445			5,022
Net income	$	11,025		$	10,679		$	9,346

Basic earnings per share	$	0.55		$	0.53		$	0.47
Diluted earnings per share	0.54			0.52			0.46

Return on average assets	1.22		%	1.20		%	1.16		%
Return on average common equity	12.46		%	12.14		%	11.78		%
Return on average tangible common equity	13.74		%	13.43		%	13.19		%
Net interest margin (fully tax equivalent)	3.87		%	3.91		%	3.92		%
Efficiency ratio	54.02		%	59.23		%	61.14		%

ASSET QUALITY(1)
Net charge-offs (recoveries)	$	(99	)	$	(647	)	$	1,478
Nonperforming loans	9,513			9,100			15,143
Classified assets	73,194			67,761			63,001
Nonperforming loans to portfolio loans	0.34		%	0.33		%	0.62		%
Nonperforming assets to total assets (2)	0.52		%	0.48		%	0.52		%
Allowance for loan losses to portfolio loans	1.21		%	1.22		%	1.24		%
Net charge-offs (recoveries) to average loans (annualized)	(0.01		)%	(0.10		)%	0.25		%

(1) Excludes PCI loans and related assets, except for their inclusion in total assets.
(2) Other real estate from PCI loans included in Nonperforming assets beginning with the period ended December 31, 2015 due to termination of FDIC loss share agreements.

Below are highlights of the Company's Core performance measures, which we believe are important measures of financial performance, but are non-GAAP measures. Core performance measures include contractual interest on PCI loans, but exclude incremental accretion on these loans, and exclude the Change in the FDIC receivable, gain or loss on the sale of other real estate from PCI loans, and certain other income and expense items the Company believes are not indicative of or useful to measure the Company's operating performance on an ongoing basis. A reconciliation of Core performance measures has been included in this MD&A section under the caption "Use of Non-GAAP Financial Measures".



	For the Three Months ended
(in thousands)	March 31, 2016			December 31, 2015			March 31, 2015
CORE PERFORMANCE MEASURES(1)
Net interest income	$	29,594		$	28,667		$	25,587
Provision for portfolio loans	833			543			1,580
Noninterest income	6,005			7,056			5,839
Noninterest expense	20,435			20,027			19,068
Income before income tax expense	14,331			15,153			10,778
Income tax expense	4,897			5,073			3,647
Net income	$	9,434		$	10,080		$	7,131

Earnings per share	$	0.47		$	0.49		$	0.35
Return on average assets	1.04		%	1.13		%	0.88		%
Return on average common equity	10.66		%	11.46		%	8.99		%
Return on average tangible common equity	11.76		%	12.68		%	10.06		%
Net interest margin (fully tax equivalent)	3.54		%	3.50		%	3.46		%
Efficiency ratio	57.40		%	56.06		%	60.67		%

(1) A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption "Use of Non-GAAP Financial Measures."

During the three months ended March 31, 2016, the Company noted the following trends:

•

The Company reported net income of $11.0 million, or $0.54 per share, for the three months ended March 31, 2016, compared to $10.7 million, or $0.52 per share, in the linked fourth quarter, and $9.3 million, or $0.46 per share, for the same period in 2015. The increase in net income over the prior year period was largely due to an increase in net interest income from strong loan growth, and a decrease in the Change in FDIC receivable due to termination of the Company's loss share agreements with the FDIC in the fourth quarter of 2015.

•

On a core basis¹, net income was $9.4 million, or $0.47 per share, for the three months ended March 31, 2016, compared to $10.1 million, or $0.49 per share, in the linked quarter, and $7.1 million, or $0.35 per share, in the prior year period. The increase over the prior year was primarily due to increases in earning asset balances, driving growth in core net interest income, and a decrease in provision for losses on portfolio loans, offset by an increase in noninterest expense.


•	Net interest income for the first three months of 2016 increased $3.4 million, or 12%, from the prior year quarter due to strong portfolio loan growth during the year, offset slightly by a decline in accelerations from PCI loans. On a core basis¹, net interest income increased $4.0 million, or 16%, when compared to the prior year period.

•

The Core net interest margin¹, for the first three months of 2016, defined as Net interest margin (fully tax equivalent), including contractual interest on PCI loans, but excluding the incremental accretion on these loans, increased eight basis points from the prior year period primarily due to managed reductions in funding costs combined with an improved earning asset mix, and an increase in the yield on portfolio loans.


•	Noninterest income for the first three months of 2016 increased 68% compared to the prior year period largely due to a decrease in the Change in FDIC receivable due to the aforementioned termination of the Company's loss share agreements. Core noninterest income¹ declined slightly from the linked quarter and

increased slightly from the prior year quarter primarily due to seasonal fluctuations in tax credit sales and gains on sales of other real estate.

•

Noninterest expense increased 4% from the prior year period, and the Company's efficiency ratio improved to 54.0% from 61.1% when compared to the prior year. The increase was largely due to an increase in Employee compensation and benefits, which also drove an increase in Core noninterest expense¹ of 7% when compared to the prior year. However, the Core efficiency ratio¹ improved to 57.4% from 60.7% when compared to the prior year period due to revenue growth resulting from investments in revenue producers, as well as improved operating leverage.

Other highlights:


•	The Company's Board approved an increase in the Company’s quarterly cash dividend to $0.10 per common share for the second quarter of 2016 from $0.09, payable on June 30, 2016 to shareholders of record as of the close of business on June 15, 2016.

•

The Company repurchased 160,100 shares at $26.30 per share pursuant to its publicly announced program during the quarter ended March 31, 2016. The Company's Board authorized the repurchase plan in May of 2015, which allows the Company to repurchase up to two million common shares, representing approximately 10% of the Company’s currently outstanding shares. Shares may be bought back in open market or privately negotiated transactions over an indeterminate time period based on market and business conditions.

Balance sheet highlights:

•

Loans – Loans totaled $2.9 billion at March 31, 2016, including $63.5 million of PCI loans. Portfolio loans increased $81.9 million, or 3%, from December 31, 2015. Commercial and industrial loans increased $60.7 million, or 4%, Consumer and other loans decreased $1.3 million, or 1%, Construction loans and Residential real estate loans increased $20.0 million, or 6%, and Commercial real estate increased $2.5 million. See Item 1, Note 4 – Portfolio Loans for more information.


•	Deposits – Total deposits at March 31, 2016 were $2.9 billion, an increase of $147.2 million, or 5%, from December 31, 2015, largely due to an increase in brokered certificates of deposit to fund significant loan growth in the quarter.


•	Asset quality – Nonperforming loans were $9.5 million at March 31, 2016, compared to $9.1 million at December 31, 2015. Nonperforming loans represented 0.34% of portfolio loans at March 31, 2016 versus 0.33% at December 31, 2015. There were no portfolio loans that were over 90 days delinquent and still accruing at March 31, 2016 or December 31, 2015.

Provision for portfolio loan losses was $0.8 million for the three months ended March 31, 2016, compared to $1.6 million for the three months ended March 31, 2015. See Item 1, Note 4 – Portfolio Loans, and Provision and Allowance for Loan Losses in this section for more information.

RESULTS OF OPERATIONS

Net Interest Income

Average Balance Sheet

The following table presents, for the periods indicated, certain information related to our average interest-earning assets and interest-bearing liabilities, as well as, the corresponding interest rates earned and paid, all on a tax equivalent basis.



	Three months ended March 31,
	2016							2015
(in thousands)	Average Balance			Interest Income/Expense		Average Yield/ Rate		Average Balance			Interest Income/Expense		Average Yield/ Rate
Assets
Interest-earning assets:
Taxable portfolio loans (1)	$	2,741,188		$	28,310	4.15	%	$	2,391,117		$	24,227	4.11	%
Tax-exempt portfolio loans (2)	40,832			660		6.50		38,405			624		6.59
Purchased credit impaired loans	69,031			3,891		22.67		97,201			4,997		20.85
Total loans	2,851,051			32,861		4.64		2,526,723			29,848		4.79
Taxable investments in debt and equity securities	465,291			2,459		2.13		418,812			2,199		2.13
Non-taxable investments in debt and equity securities (2)	49,396			538		4.38		42,968			479		4.52
Short-term investments	48,054			61		0.51		59,312			47		0.32
Total securities and short-term investments	562,741			3,058		2.19		521,092			2,725		2.12
Total interest-earning assets	3,413,792			35,919		4.23		3,047,815			32,573		4.33
Noninterest-earning assets:
Cash and due from banks	54,996							48,232
Other assets	216,366							218,347
Allowance for loan losses	(43,846		)					(46,025		)
Total assets	$	3,641,308						$	3,268,369

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	551,684		$	306	0.22	%	$	484,724		$	277	0.23	%
Money market accounts	1,064,616			1,006		0.38		843,245			642		0.31
Savings	96,067			60		0.25		81,408			50		0.25
Certificates of deposit	384,092			1,019		1.07		526,489			1,591		1.23
Total interest-bearing deposits	2,096,459			2,391		0.46		1,935,866			2,560		0.54
Subordinated debentures	56,807			348		2.46		56,807			302		2.16
Other borrowed funds	382,448			293		0.31		274,022			244		0.36
Total interest-bearing liabilities	2,535,714			3,032		0.48		2,266,695			3,106		0.56
Noninterest bearing liabilities:
Demand deposits	714,750							655,095
Other liabilities	34,864							24,807
Total liabilities	3,285,328							2,946,597
Shareholders' equity	355,980							321,772
Total liabilities & shareholders' equity	$	3,641,308						$	3,268,369
Net interest income				$	32,887						$	29,467
Net interest spread						3.75	%						3.77	%
Net interest margin						3.87	%						3.92	%


(1)	Average balances include non-accrual loans. Loan fees, net of amortization of deferred loan origination fees and costs, included in interest income are approximately $0.4 million and $0.4 million for the three months ended March 31, 2016 and 2015 respectively.


(2)	Non-taxable income is presented on a fully tax-equivalent basis using a 38% tax rate in 2015 and 2014. The tax-equivalent adjustments were $0.5 million and $0.4 million for the three months ended March 31, 2016 and 2015.

Rate/Volume

The following table sets forth, on a tax-equivalent basis for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in yield/rates and volume.



	2016 compared to 2015
	Three months ended March 31,
	Increase (decrease) due to
(in thousands)	Volume(1)			Rate(2)			Net
Interest earned on:
Taxable portfolio loans	$	3,801		$	282		$	4,083
Tax-exempt portfolio loans (3)	43			(7		)	36
Purchased credit impaired loans	(1,526		)	420			(1,106		)
Taxable investments in debt and equity securities	264			(4		)	260
Non-taxable investments in debt and equity securities (3)	74			(15		)	59
Short-term investments	(10		)	24			14
Total interest-earning assets	$	2,646		$	700		$	3,346

Interest paid on:
Interest-bearing transaction accounts	$	39		$	(10	)	$	29
Money market accounts	194			170			364
Savings	10			—			10
Certificates of deposit	(387		)	(185		)	(572		)
Subordinated debentures	—			46			46
Borrowed funds	88			(39		)	49
Total interest-bearing liabilities	(56		)	(18		)	(74		)
Net interest income	$	2,702		$	718		$	3,420
(1) Change in volume multiplied by yield/rate of prior period.
(2) Change in yield/rate multiplied by volume of prior period.
(3) Nontaxable income is presented on a fully-tax equivalent basis using the combined statutory federal and state income tax rate in effect for each tax year.
NOTE: The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.

Net interest income (on a tax equivalent basis) was $32.9 million for the three months ended March 31, 2016, compared to $29.5 million for the same period of 2015, an increase of $3.4 million, or 12%. Total interest income increased $3.3 million and total interest expense decreased $0.1 million. The tax-equivalent net interest margin was 3.87% for the first quarter of 2016, compared to 3.91% for the fourth quarter of 2016, and 3.92% in the first quarter of 2015. The yield on taxable portfolio loans increased 4 basis points from the prior year period to 4.15% for the three months ended March 31, 2016. The increase was due to an increase in yields on variable rate loans, aided by the Federal Reserve's raise in the targeted Fed Funds rate of 25 basis points, to a range of 0.25% to 0.50%, in December 2015. The run-off of higher yielding PCI loans continues to negatively impact net interest margin leading to a $1.5 million decrease in interest income due to volume.

Core net interest margin¹ was 3.54% for the three months ended March 31, 2016, compared to 3.46% for the prior year period. Core net interest margin¹ increased eight basis points from the prior year quarter primarily due to loan growth improving the earning asset mix, lower funding costs, and the aforementioned increase in the yield on portfolio loans. The Company continues to manage its balance sheet to grow core net interest income and expects to maintain or improve core net interest margin over the coming quarters; however, pressure on funding costs and continued reductions in PCI loan balances could negate the expected trends in core net interest margin.

Purchased Credit Impaired "PCI" Contribution

The following table illustrates the non-core contribution of PCI loans and related assets for the periods indicated.



	For the Three Months ended
(in thousands)	March 31, 2016			March 31, 2015
Accelerated cash flows and other incremental accretion	$	2,834		$	3,458
Provision reversal for PCI loan losses	73			3,270
Loss on sale of other real estate	—			(15		)
Change in FDIC loss share receivable	—			(2,264		)
Change in FDIC clawback liability	—			(412		)
Other expenses	(327		)	(470		)
PCI assets income before income tax expense	$	2,580		$	3,567

Accelerated cash flows and other incremental accretion consists of the interest income on PCI loans in excess of contractual interest on the loans. The contractual amount of interest is included in the Company's core results. At March 31, 2016, the remaining accretable yield on the portfolio was estimated to be $21 million and the non-accretable difference was approximately $27 million. Absent cash flow accelerations or pool impairment, the Company currently estimates average PCI loan balances for 2016 to be approximately $60 million.

In the fourth quarter of 2015, the Company incurred a $2.4 million charge to terminate all existing loss share agreements with the FDIC. As of March 31, 2016, the entire charge has been earned back through accretion from early repayment of PCI loans, loan recoveries, and provision reversal, all no longer shared with the FDIC.

Noninterest Income

The following table presents a comparative summary of the major components of noninterest income for the periods indicated.



	Three months ended March 31,
(in thousands)	2016		2015			Increase (decrease)
Service charges on deposit accounts	$	2,043	$	1,856		$	187		10	%
Wealth management revenue	1,662		1,740			(78		)	(4	)%
Other service charges and fee income	868		753			115			15	%
Gain on state tax credits, net	518		674			(156		)	(23	)%
Gain on sale of other real estate	122		35			87			249	%
Miscellaneous income	792		781			11			1	%
Core noninterest income(1)	6,005		5,839			166			3	%
Loss on sale of other real estate from PCI loans	—		(15		)	15			(100	)%
Gain on sale of investment securities	—		23			(23		)	(100	)%
Change in FDIC loss share receivable	—		(2,264		)	2,264			(100	)%
Total noninterest income	$	6,005	$	3,583		$	2,422		68	%
(1) A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption "Use of Non-GAAP Financial Measures."

Noninterest income increased $2.4 million, or 68% in the first three months of 2016 compared to the first three months of 2015. Core noninterest income¹ grew 3% in the first three months of 2016 due to an increase in charges on deposit accounts, and fee income from swaps, card products, and mortgages. Gain on state tax credits decreased $0.2 million from the prior year period, as sales depend on client demand and availability of tax credits.

Noninterest Expense

The following table presents a comparative summary of the major components of noninterest expense for the periods indicated.



	Three months ended March 31,
(in thousands)	2016		2015		Increase (decrease)
Core expenses (1):
Employee compensation and benefits - core	$	12,465	$	11,250	$	1,215		11	%
Occupancy - core	1,657		1,667		(10		)	(1	)%
Data processing - core	1,089		1,001		88			9	%
FDIC and other insurance	723		726		(3		)	—	%
Professional fees	684		972		(288		)	(30	)%
Loan, legal and other real estate expense - core	254		131		123			94	%
Other - core	3,563		3,321		242			7	%
Core noninterest expense(1)	20,435		19,068		1,367			7	%
FDIC clawback	—		412		(412		)	(100	)%
Other expenses related to PCI loans	327		470		(143		)	(30	)%
Total noninterest expense	$	20,762	$	19,950	$	812		4	%
(1) A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption "Use of Non-GAAP Financial Measures."

Noninterest expenses were $20.8 million for the three months ended March 31, 2016, compared to $20.0 million for the three months ended March 31, 2015. Core noninterest expenses¹, which exclude certain items and expenses directly related to PCI loans and related assets increased $1.4 million to $20.4 million for the three months ended March 31, 2016, from $19.1 million for the prior year period. The increase was largely due to an increase in Employee compensation and benefits from the addition of client service personnel to accommodate growth.

The Company's Core efficiency ratio¹ was 57.4% for the three months ended March 31, 2016, compared to 60.7% for the prior year, and reflects overall expense management and revenue growth trends. Core efficiency ratio is a non-GAAP measure. A reconciliation of Core efficiency ratio has been included in this MD&A section under the caption "Use of Non-GAAP Financial Measures".

The Company anticipates total noninterest expenses to be between $19 million and $21 million per quarter for 2016.

Income Taxes

The Company's income tax expense for the three months ended March 31, 2016, which includes both federal and state taxes, was $5.9 million, compared to $5.0 million for the same period of 2015. The combined federal and state effective income tax rates for the three months ended March 31, 2016 were 34.8%, compared to 35.0% for the same period of 2015.

Summary Balance Sheet



(in thousands)	March 31, 2016		December 31, 2015		Increase (decrease)
Total cash and cash equivalents	$	106,233	$	94,157	12,076		12.8	%
Securities	505,089		495,484		9,605		1.9	%
Portfolio loans	2,832,616		2,750,737		81,879		3.0	%
Purchased credit impaired loans	63,477		74,758		(11,281	)	(15.1	)%
Total assets	3,709,905		3,608,483		101,422		2.8	%
Deposits	2,931,746		2,784,591		147,155		5.3	%
Total liabilities	3,350,521		3,257,654		92,867		2.9	%
Total shareholders' equity	359,384		350,829		8,555		2.4	%

Assets

Loans by Type

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 secured by real estate, including loans classified as C&I loans. 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. The following table summarizes the composition of the Company's loan portfolio:



(in thousands)	March 31, 2016		December 31, 2015		Increase (decrease)
Commercial and industrial	$	1,544,980	$	1,484,327	$	60,653		4.1	%
Commercial real estate - investor owned	439,355		428,064		11,291			2.6	%
Commercial real estate - owner occupied	334,180		342,959		(8,779		)	(2.6	)%
Construction and land development	175,324		161,061		14,263			8.9	%
Residential real estate	202,255		196,498		5,757			2.9	%
Consumer and other	136,522		137,828		(1,306		)	(0.9	)%
Portfolio loans	2,832,616		2,750,737		81,879			3.0	%
Purchased credit impaired loans	63,477		74,758		(11,281		)	(15.1	)%
Total loans	$	2,896,093	$	2,825,495	$	70,598		2.5	%

Portfolio loans grew by $81.9 million to $2.8 billion at March 31, 2016 when compared to December 31, 2015. PCI loans totaled $63.5 million at March 31, 2016, a decrease of $11.3 million, or 15%, from December 31, 2015, primarily as a result of principal paydowns and accelerated loan payoffs.

The following table illustrates loan growth with selected specialized lending detail:



(in thousands)	March 31, 2016		December 31, 2015		Increase (decrease)
Enterprise value lending	$	359,862	$	350,266	$	9,596		2.7	%
C&I - general	759,330		732,186		27,144			3.7	%
Life insurance premium financing	272,450		265,184		7,266			2.7	%
Tax credits	153,338		136,691		16,647			12.2	%
CRE, Construction, and land development	948,859		932,084		16,775			1.8	%
Residential	202,255		196,498		5,757			2.9	%
Other	136,522		137,828		(1,306		)	(0.9	)%
Portfolio loans	$	2,832,616	$	2,750,737	$	81,879		3.0	%

Our specialty lending products, especially Enterprise value lending, Life insurance premium financing, and Tax credits, consists of primarily C&I loans, and have contributed significantly to the Company's loan growth. These loans are sourced through relationships developed with estate planning firms and private equity funds, and are not bound geographically by our traditional three markets. These specialized loan products offer opportunities to expand and diversify geographically by entering into new markets. The Company continues to focus on originating high-quality C&I relationships as they typically have variable interest rates and allow for cross selling opportunities involving other banking products. C&I loan growth also supports our efforts to maintain the Company's asset sensitive interest rate risk position. The Company continues to expect loan growth at or above 10% for 2016.

Provision and Allowance for Loan Losses

The following table summarizes changes in the allowance for loan losses arising from loans charged off and recoveries on loans previously charged off, by loan category, and additions to the allowance charged to expense.



	Three months ended March 31,
(in thousands)	2016			2015
Allowance at beginning of period, for portfolio loans	$	33,441		$	30,185
Loans charged off:
Commercial and industrial	(68		)	(1,484		)
Real estate:
Commercial	—			—
Construction and land development	—			—
Residential	—			(1,073		)
Consumer and other	(5		)	(11		)
Total loans charged off	(73		)	(2,568		)
Recoveries of loans previously charged off:
Commercial and industrial	53			769
Real estate:
Commercial	75			156
Construction and land development	6			60
Residential	34			26
Consumer and other	4			80
Total recoveries of loans	172			1,091
Net loan recoveries (chargeoffs)	99			(1,477		)
Provision for portfolio loan losses	833			1,580
Allowance at end of period, for portfolio loans	$	34,373		$	30,288

Allowance at beginning of period, for purchased credit impaired loans	$	10,175		$	15,410
Loans charged off	(488		)	3
Other	(45		)	(518		)
Net loan chargeoffs	(533		)	(515		)
Provision reversal for PCI loan losses	(73		)	(3,270		)
Allowance at end of period, for purchased credit impaired loans	$	9,569		$	11,625

Total allowance at end of period	$	43,942		$	41,913

Portfolio loans, average	$	2,777,456		$	2,425,962
Portfolio loans, ending	2,832,616			2,435,559
Net chargeoffs to average portfolio loans	(0.01		)%	0.25		%
Allowance for portfolio loan losses to loans	1.21			1.24

The provision for loan losses on portfolio loans for the three months ended March 31, 2016 was $0.8 million, compared to $1.6 million for the comparable 2015 period. The provision for loan losses for the three month period ended March 31, 2016 was primarily to provide for first quarter loan growth.

For PCI loans, the Company remeasures contractual and expected cash flows periodically. When the remeasurement process results in a decrease in expected cash flows, typically due to an increase in expected credit losses, impairment is recorded through provision for loan losses. Similarly, when expected credit losses decrease in the remeasurement process, prior recorded impairment is reversed before the yield is increased prospectively. There was $0.1 million of provision reversal for loan losses on PCI loans for the three months ended March 31, 2016, compared to provision reversal of $3.3 million for the comparable 2015 period.

The allowance for loan losses on portfolio loans was 1.21% of total loans at March 31, 2016 compared to 1.24% at March 31, 2015. Management believes the allowance for loan losses is adequate to absorb inherent losses in the loan portfolio and coverage trends reflect relatively steady improvements in credit quality measures and classified loan levels. The reduction in the ratio of allowance for loan losses to total loans over the prior year period is due to lower levels of nonperforming loans, as well as continued improvement in loss migration results.

Nonperforming assets

The following table presents the categories of nonperforming assets and other ratios as of the dates indicated.



(in thousands)	March 31, 2016			December 31, 2015			March 31, 2015
Non-accrual loans	$	9,226		$	8,797		$	13,805
Restructured loans	287			303			1,338
Total nonperforming loans (1)	9,513			9,100			15,143
Other real estate from originated loans	2,813			3,218			—
Other real estate from acquired loans	7,067			5,148			2,024
Total nonperforming assets (1) (2)	$	19,393		$	17,466		$	17,167


Total assets	$	3,709,905		$	3,608,483		$	3,275,295
Portfolio loans	2,832,616			2,750,737			2,435,559
Portfolio loans plus other real estate	2,842,496			2,759,103			2,437,583
Nonperforming loans to portfolio loans (1)	0.34		%	0.33		%	0.62		%
Nonperforming assets to total loans plus other real estate (1) (2)	0.68			0.63			0.70
Nonperforming assets to total assets (1) (2)	0.52			0.48			0.52
Allowance for portfolio loans to nonperforming loans (1)	361		%	367		%	200		%
(1) Excludes PCI loans, except for their inclusion in total assets.
(2) Other real estate from PCI loans included in Nonperforming assets beginning with the year ended December 31, 2015 due to termination of all existing FDIC loss share agreements.

Nonperforming loans

Nonperforming loans exclude PCI loans that are accounted for on a pool basis, as the pools are considered to be performing. See Item 1, Note 5 – Purchased Credit Impaired Loans for more information on these loans.

Nonperforming loans based on loan type were as follows:



(in thousands)	March 31, 2016		December 31, 2015		March 31, 2015
Commercial and industrial	$	5,209	$	4,514	$	4,250
Commercial real estate	973		1,105		1,872
Construction and land development	2,652		2,800		6,366
Residential real estate	679		681		2,655
Consumer and other	—		—		—
Total	$	9,513	$	9,100	$	15,143

The following table summarizes the changes in nonperforming loans:



	Three months ended March 31,
(in thousands)	2016			2015
Nonperforming loans beginning of period	$	9,100		$	22,244
Additions to nonaccrual loans	2,933			9,796
Additions to restructured loans	—			—
Chargeoffs	(35		)	(2,556		)
Other principal reductions	(2,202		)	(13,891		)
Moved to other real estate	(283		)	(450		)
Moved to performing	—			—
Loans past due 90 days or more and still accruing interest	—			—
Nonperforming loans end of period	$	9,513		$	15,143

Nonperforming loans at March 31, 2016 decreased by $5.6 million, or 37%,when compared to March 31, 2015.

Other real estate

Other real estate at March 31, 2016, was $9.9 million, compared to $5.6 million at March 31, 2015.

The following table summarizes the changes in Other real estate:



	Three months ended March 31,
(in thousands)	2016			2015
Other real estate beginning of period	$	8,366		$	7,840
Additions and expenses capitalized to prepare property for sale	2,203			890
Writedowns in value	—			(224		)
Sales	(689		)	(2,922		)
Other real estate end of period	$	9,880		$	5,584

The writedowns in fair value were recorded in Loan legal and other real estate expense based on current market activity shown in the appraisals. In the three months ended March 31, 2016, the Company realized a net gain of $0.1 million on the sale of other real estate and recorded these gains as part of Noninterest income.

Liabilities

Liabilities totaled $3.4 billion at March 31, 2016, compared to $3.3 billion at December 31, 2015. The increase in liabilities was largely due to a $147 million increase in total deposits, offset by a decrease of $77 million in other borrowings.

Deposits



(in thousands)	March 31, 2016			December 31, 2015			Increase (decrease)
Demand deposits	$	719,652		$	717,460		2,192		0.3	%
Interest-bearing transaction accounts	589,635			564,420			25,215		4.5	%
Money market accounts	1,061,407			1,053,662			7,745		0.7	%
Savings	100,203			92,861			7,342		7.9	%
Certificates of deposit:
Brokered	157,939			39,573			118,366		299.1	%
Other	302,910			316,615			(13,705	)	(4.3	)%
Total deposits	$	2,931,746		$	2,784,591		147,155		5.3	%

Non-time deposits / total deposits	84		%	87		%
Demand deposits / total deposits	25		%	26		%

Total deposits at March 31, 2016 were $2.9 billion, an increase of $147 million, or 5.3%, from December 31, 2015. The increase in deposits within our brokered certificates of deposit was to provide for significant loan growth in the quarter. The composition of our noninterest bearing deposits remained relatively stable at 25% of total deposits at March 31, 2016 compared to December 31, 2015. Lower rates on time deposit balances and a change in composition modestly improved deposit costs during the first three months of 2016 to 0.34%, as compared to 0.36% in the linked quarter, and 0.40% for the prior year period.

Core deposits, defined as total deposits excluding time deposits, were $2.5 billion at March 31, 2016, an increase of $42 million, or 7% on an annualized basis, from the linked quarter, and $362 million, or 17%, when compared to the prior year period.

Shareholders' Equity

Shareholders' equity totaled $359 million at March 31, 2016, a decrease of $8.6 million from December 31, 2015. Significant activity during the three months ended March 31, 2016:


•	Net income of $11.0 million,


•	Other comprehensive income of $3.7 million from the change in unrealized gains on investment securities,


•	Repurchase of 160,100 common shares for $4.2 million,


•	Dividends paid on common shares of $1.8 million.

Liquidity and Capital Resources

Liquidity

The objective of liquidity management is to ensure we have the ability to generate sufficient cash or cash equivalents in a timely and cost-effective manner to meet our commitments as they become due. Typical demands on liquidity are run-off from demand deposits, maturing time deposits which are not renewed, and fundings under credit commitments to customers. Funds are available from a number of sources, such as from the core deposit base and from loans and securities repayments and maturities.

Additionally, liquidity is provided from sales of the securities portfolio, fed fund lines with correspondent banks, borrowings from the Federal Reserve and the FHLB, the ability to acquire large and brokered deposits, and the ability to sell loan participations to other banks. These alternatives are an important part of our liquidity plan and provide flexibility and efficient execution of the asset-liability management strategy.

The Bank's Asset-Liability Management Committee oversees our liquidity position, the parameters of which are approved by the Bank's Board of Directors. Our liquidity position is monitored monthly by producing a liquidity report, which measures the amount of liquid versus non-liquid assets and liabilities. Our liquidity management framework includes measurement of several key elements, such as the loan to deposit ratio, a liquidity ratio, and a dependency ratio. The Company's liquidity framework also incorporates contingency planning to assess the nature and volatility of funding sources and to determine alternatives to these sources. While core deposits and loan and investment repayments are principal sources of liquidity, funding diversification is another key element of liquidity management and is achieved by strategically varying depositor types, terms, funding markets, and instruments.

Parent Company liquidity

The parent company's liquidity is managed to provide the funds necessary to pay dividends to shareholders, service debt, invest in subsidiaries as necessary, and satisfy other operating requirements. The parent company's primary funding sources to meet its liquidity requirements are dividends and payments from the Bank and proceeds from the issuance of equity (i.e. stock option exercises, stock offerings). Another source of funding for the parent company includes the issuance of subordinated debentures and other debt instruments.

The parent company currently has a senior unsecured revolving credit agreement ("Revolving Agreement") with another bank allowing for borrowings up to $20 million. As of March 31, 2016, there are no outstanding balances under the Revolving Agreement. Additionally, the Company received a dividend from the Bank of $2.5 million in the quarter as part of the Company's ongoing capital management. Management believes the current level of cash at the holding company of $10.1 million will be sufficient to meet projected cash needs for at least the next year.

As of March 31, 2016, the Company had $56.8 million of outstanding subordinated debentures as part of eight Trust Preferred Securities Pools. These securities are classified as debt but are included in regulatory capital and the related interest expense is tax-deductible, which makes them an attractive source of funding.

Bank liquidity

The Bank has a variety of funding sources available to increase financial flexibility. In addition to amounts currently borrowed, at March 31, 2016 the Bank has borrowing capacity of $233.5 million from the FHLB of Des Moines under blanket loan pledges, and has an additional $847.3 million available from the Federal Reserve Bank under a pledged loan agreement. The Bank has unsecured federal funds lines with five correspondent banks totaling $60.0 million.

Investment securities are another important tool to the Bank's liquidity objectives. Of the $461.8 million of the securities available for sale at March 31, 2016, $271.1 million was pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements. The remaining $190.8 million could be pledged or sold to enhance liquidity, if necessary.

In the normal course of business, the Bank enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Bank's various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company's liquidity. The Bank has $1.1 billion in unused commitments as of March 31, 2016. While this commitment level would exhaust the majority the Company's current liquidity resources, the nature of these commitments is such that the likelihood of funding them in the aggregate at any one time is low.

Capital Resources

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its bank affiliate must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The banking affiliate’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total, Tier 1, and Common equity tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. To be categorized as “well capitalized”, banks must maintain minimum total risk-based (10%), Tier 1 risk-based (8%), Common equity tier 1 risk-based (6.5%), and Tier 1 leverage ratios (5%). As of March 31, 2016, and December 31, 2015, the Company and the Bank met all capital adequacy requirements to which they are subject.

The Bank continues to exceed regulatory standards and met the definition of “well-capitalized” (the highest category) at March 31, 2016. The Company adopted the Regulatory Capital Framework (Basel III) in 2015, and has implemented the necessary processes and procedures to comply.

The following table summarizes the Company's various capital ratios at the dates indicated:



(in thousands)	March 31, 2016			December 31, 2015
Total capital to risk-weighted assets	12.02		%	11.85		%
Tier 1 capital to risk-weighted assets	10.77		%	10.61		%
Common equity tier 1 capital to risk-weighted assets	9.20		%	9.05		%
Leverage ratio (Tier 1 capital to average assets)	10.51		%	10.71		%
Tangible common equity to tangible assets¹	8.87		%	8.88		%
Tier 1 capital	$	379,231		$	374,676
Total risk-based capital	423,248			418,367

¹ Not a required regulatory capital ratio

The Company believes the tangible common equity ratio and the common equity tier 1 capital ratio are important measures of capital strength even though they are considered to be non-GAAP measures. The tables further within MD&A reconcile these ratios to U.S. GAAP.

Use of Non-GAAP Financial Measures:

The Company's accounting and reporting policies conform to generally accepted accounting principles ("GAAP") in the U.S. and the prevailing practices in the banking industry. However, the Company provides other financial measures, such as Core net interest margin, tangible common equity ratio and common equity tier 1 capital ratio, in this filing that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position or cash flows that exclude (or include) amounts included in (or excluded from) the most directly comparable measure calculated and presented in accordance with U.S. GAAP.

The Company believes these non-GAAP financial measures and ratios, when taken together with the corresponding U.S. GAAP measures and ratios, provide meaningful supplemental information regarding the Company's performance and capital strength. The Company's management uses, and believes investors benefit from referring to, these non-

GAAP measures and ratios in assessing the Company's financial and operating results and related trends and when planning and forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with U.S. GAAP. The Company has provided a reconciliation of, where applicable, the most comparable GAAP financial measures and ratios to the non-GAAP financial measures and ratios, or a reconciliation of the non-GAAP calculation of the financial measure.

The Company believes the tangible common equity and common equity tier 1 capital ratios are important financial measures of capital strength even though they are considered to be non-GAAP measures and provide useful information about the Company's capital adequacy. The tables below contain reconciliations of these ratios to the most comparable measure under U.S. GAAP.

Core Performance Measures



	For the Quarter ended
(in thousands)	March 31, 2016			December 31, 2015			March 31, 2015
CORE PERFORMANCE MEASURES
Net interest income	$	32,428		$	32,079		$	29,045
Less: Incremental accretion income	2,834			3,412			3,458
Core net interest income	29,594			28,667			25,587

Total noninterest income	6,005			6,557			3,583
Less: Change in FDIC loss share receivable	—			(580		)	(2,264		)
Less: Gain (loss) on sale of other real estate from PCI loans	—			81			(15		)
Less: Gain on sale of investment securities	—			—			23
Core noninterest income	6,005			7,056			5,839

Total core revenue	35,599			35,723			31,426

Provision for portfolio loans	833			543			1,580

Total noninterest expense	20,762			22,886			19,950
Less: FDIC clawback	—			—			412
Less: Other expenses related to PCI loans	327			423			470
Less: FDIC loss share termination	—			2,436			—
Core noninterest expense	20,435			20,027			19,068

Core income before income tax expense	14,331			15,153			10,778

Total income tax expense	5,886			5,445			5,022
Less: Income tax expense of PCI assets	989			372			1,375
Core income tax expense	4,897			5,073			3,647
Core net income	$	9,434		$	10,080		$	7,131

Core earnings per share	$	0.47		$	0.49		$	0.35
Core efficiency ratio	57.40		%	56.06		%	60.67		%
Core return on average assets	1.04		%	1.13		%	0.88		%
Core return on average common equity	10.66		%	11.46		%	8.99		%
Core return on average tangible common equity	11.76		%	12.68		%	10.06		%

The Company believes Core performance measures are important measures of financial performance, even though they are non-GAAP. Core performance measures include contractual interest on PCI loans, but exclude incremental accretion on these loans, and exclude the Change in the FDIC receivable, gain or loss on the sale of other real estate from PCI loans, and certain other income and expense items the Company believes are not indicative of or useful to measure the Company's operating performance on an ongoing basis. The table below reconciles Core net interest margin to the most comparable number under U.S. GAAP.

Net Interest Margin to Core Net Interest Margin



	Three months ended March 31,
(in thousands)	2016			2015
Net interest income (fully tax equivalent)	$	32,887		$	29,467
Less: Incremental accretion income	2,834			3,458
Core net interest income (fully tax equivalent)	$	30,053		$	26,009

Average earning assets	$	3,413,792		$	3,047,815
Reported net interest margin (fully tax equivalent)	3.87		%	3.92		%
Core net interest margin (fully tax equivalent)	3.54		%	3.46		%

Tangible common equity ratio



(in thousands)	March 31, 2016			December 31, 2015
Total shareholders' equity	$	359,384		$	350,829
Less: Goodwill	30,334			30,334
Less: Intangible assets	2,832			3,075
Tangible common equity	$	326,218		$	317,420

Total assets	$	3,709,905		$	3,608,483
Less: Goodwill	30,334			30,334
Less: Intangible assets	2,832			3,075
Tangible assets	$	3,676,739		$	3,575,074

Tangible common equity to tangible assets	8.87		%	8.88		%

Common equity tier 1 ratio



(in thousands)	March 31, 2016			December 31, 2015
Total shareholders' equity	$	359,384		$	350,829
Less: Goodwill	30,334			30,334
Less: Intangible assets, net of deferred tax liabilities	1,048			759
Less: Unrealized gains	3,929			218
Plus: Qualifying trust preferred securities	55,100			55,100
Plus: Other	58			58
Total tier 1 capital	379,231			374,676
Less: Qualifying trust preferred securities	55,100			55,100
Less: Other	35			23
Common equity tier 1 capital	$	324,096		$	319,553

Total risk-weighted assets determined in accordance with prescribed regulatory requirements	$	3,521,433		$	3,530,521

Common equity tier 1 capital to risk-weighted assets	9.20		%	9.05		%

Critical Accounting Policies

The impact and any associated risks related to the Company's critical accounting policies on business operations are described throughout "Management's Discussion and Analysis of Financial Condition and Results of Operations," where such policies affect our reported and expected financial results. For a detailed description on the application of these and other accounting policies, see the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The disclosures set forth in this item are qualified by the section captioned “Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995” included in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report and other cautionary statements set forth elsewhere in this report.

Interest Rate Risk

Our interest rate risk management practices are aimed at optimizing net interest income, while guarding against deterioration that could be caused by certain interest rate scenarios. Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. We attempt to maintain interest-earning assets, comprised primarily of both loans and investments, and interest-bearing liabilities, comprised primarily of deposits, maturing or repricing in similar time horizons in order to minimize or eliminate any impact from market interest rate changes. In order to measure earnings sensitivity to changing rates, the Company uses an earnings simulation model.

The Company determines the sensitivity of its short-term future earnings to a hypothetical plus or minus 100 to 300 basis point parallel rate shock through the use of simulation modeling. The simulation of earnings includes the modeling of the balance sheet as an ongoing entity. Future business assumptions involving administered rate products, prepayments for future rate-sensitive balances, and the reinvestment of maturing assets and liabilities are included. These items are then modeled to project net interest income based on a hypothetical change in interest rates. The resulting net interest income for the next 12-month period is compared to the net interest income amount calculated using flat rates. This difference represents the Company's earnings sensitivity to a plus or minus 100 basis points parallel rate shock.

The following table summarizes the expected impact of interest rate shocks on net interest income (due to the current level of interest rates, the 200 and 300 basis point downward shock scenarios are not shown):



Rate Shock		Annual % change in net interest income
+ 300 bp		4.9%
+ 200 bp		3.4%
+ 100 bp		1.7%
- 100 bp		-3.1%

The Company occasionally uses interest rate derivative financial instruments as an asset/liability management tool to hedge mismatches in interest rate exposure indicated by the net interest income simulation described above. They are used to modify the Company's exposures to interest rate fluctuations and provide more stable spreads between loan yields and the rate on their funding sources. At March 31, 2016, the Company had $3.5 million in notional amount of outstanding interest rate caps, to help manage interest rate risk.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15, as of March 31, 2016. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on that evaluation, the CEO and CFO concluded the Company’s disclosure controls and procedures were effective as of March 31, 2016 to provide reasonable assurance of the achievement of the objectives described above.

Changes to Internal Controls

There were no changes during the period covered by this Quarterly Report on Form 10-Q in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, those controls.

PART II - OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

ITEM 1A: RISK FACTORS

For information regarding risk factors affecting the Company, please see the cautionary language regarding forward-looking statements in the introduction to Item 2 of Part I of this Report on Form 10-Q, and Part I, Item 1A of our Report on Form 10-K for the fiscal year ended December 31, 2015. There have been no material changes to the risk factors described in such Annual Report on Form 10-K.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information on repurchases by the Company of its common stock in each month of the quarter ended March 31, 2016.



Period	Total number of shares purchased (a)	Weighted-average price paid per share		Total number of shares purchased as part of publicly announces plans or programs	Maximum number of shares that may yet be purchased under the plans or programs (b)
January 1, 2016 through January 31, 2016	160,100	$	26.30	160,100	1,839,900
February 1, 2016 through February 29, 2016	2,211	27.74		—	1,839,900
March 1, 2016 through March 31, 2016	—	—		—	1,839,900
Total	162,311	$	26.32	160,100

(a) Includes 2,211 shares of the Company’s common stock shares withheld to satisfy tax withholding obligations upon the vesting of awards of restricted stock. These shares were purchased pursuant to the terms of the applicable plan and not pursuant to a publicly announced repurchase plan or program.

(b) In May 2015, the Company’s board of directors authorized the repurchase of up to two million shares of the Company’s common stock. The repurchases may be made in open market or privately negotiated transactions and the repurchase program will remain in effect until fully utilized or until modified, superseded or terminated. The timing and exact amount of common stock repurchases will depend on a number of factors including, among others, market and general economic conditions, economic capital and regulatory capital considerations, alternative uses of capital, the potential impact on our credit ratings, and contractual and regulatory limitations.

ITEM 5. OTHER INFORMATION

Item 5.02: Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers' Compensatory Arrangements of Certain Officers.

Entry Into or Amendment of Material Compensatory Plan, Contract or Arrangement

As previously disclosed, Steven P. Marsh, Executive Vice President, Chairman and Chief Credit Officer of Enterprise Bank & Trust (the "Bank") will retire as a full time executive and shift his role to non-executive chairman of the Bank's board of directors, effective April 30, 2016. In connection with his retirement, the Company and Mr. Marsh entered into a retirement and consulting agreement, effective as of May 1, 2016 (the “Consulting Agreement”).

The Consulting Agreement provides, among other things, that Mr. Marsh will provide certain transition, business development, strategic plan implementation and other services for a period beginning on May 1, 2016 and ending on April 30, 2017 (the “Consulting Period”). In exchange for these services, the Company will pay Mr. Marsh $10,000 per month during the Consulting Period and Mr. Marsh will be entitled to receive restricted stock unit award with a fair market value of $50,000 which will vest at the end of the Consulting Period.

The foregoing description of the Consulting Agreement is qualified in its entirety by reference to the full and complete copy of the Consulting Agreement listed as Exhibit 10.1 of this quarterly report.

ITEM 6: EXHIBITS



Exhibit No.		Description
		Registrant hereby agrees to furnish to the Commission, upon request, the instruments defining the rights of holders of each issue of long-term debt of Registrant and its consolidated subsidiaries.

10.1		Retirement and Consulting Agreement by and between Registrant and Stephen P. Marsh

*12.1		Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends.

*31.1		Chief Executive Officer's Certification required by Rule 13(a)-14(a).

*31.2		Chief Financial Officer's Certification required by Rule 13(a)-14(a).

**32.1		Chief Executive Officer Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to section § 906 of the Sarbanes-Oxley Act of 2002.

**32.2		Chief Financial Officer Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to section § 906 of the Sarbanes-Oxley Act of 2002.

101		Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2016, is formatted in XBRL interactive data files: (i) Consolidated Balance Sheet at March 31, 2016 and December 31, 2015; (ii) Consolidated Statement of Income for the three months ended March 31, 2016 and 2015; (iii) Consolidated Statement of Comprehensive Income for the three months ended March 31, 2016 and 2015; (iv) Consolidated Statement of Changes in Equity for the three months ended March 31, 2016 and 2015; (v) Consolidated Statement of Cash Flows for the three months ended March 31, 2016 and 2015; and (vi) Notes to Financial Statements.

* Filed herewith

** Furnished herewith. Notwithstanding any incorporation of this Quarterly Statement on Form 10-Q in any other filing by the Registrant, Exhibits furnished herewith and designated with two (**) shall not be deemed incorporated by reference to any other filing unless specifically otherwise set forth herein or therein.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Clayton, State of Missouri on the day of April 29, 2016.



	ENTERPRISE FINANCIAL SERVICES CORP

	By:	/s/ Peter F. Benoist
		Peter F. Benoist
		Chief Executive Officer

	By:	/s/ Keene S. Turner
		Keene S. Turner
		Chief Financial Officer

Enterprise Financial Services Corp - 10-Q quarterly report FY2016 Q1

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