UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q

[X] |  | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2013.
[ ] |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______
|  | Commission file number 001-15373

ENTERPRISE FINANCIAL SERVICES CORP
Incorporated in the State of Delaware
I.R.S. Employer Identification # 43-1706259
Address: 150 North Meramec
Clayton, MO 63105
Telephone: (314) 725-5500
___________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files ). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o | Accelerated filer R | Non-accelerated filer o | Smaller reporting company o
|  | (Do not check if a smaller reporting company) |

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes [ ] No [X]
As of October 31, 2013, the Registrant had 19,276,365 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 | 29
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 48
Item 4. Controls and Procedures | 49
PART II - OTHER INFORMATION |
Item 1. Legal Proceedings | 49
Item 1A. Risk Factors | 50
Item 6. Exhibits | 51
Signatures | 52

PART 1 – ITEM 1 – FINANCIAL STATEMENTS
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share and per share data) | September 30, 2013 |  | December 31, 2012
Assets |  |  |
Cash and due from banks | $ | 35,238 |  |  | $ | 21,906 |
Federal funds sold | 111 |  |  | 51 |
Interest-bearing deposits (including $730 and $3,270 pledged as collateral) | 65,891 |  |  | 94,413 |
Total cash and cash equivalents | 101,240 |  |  | 116,370 |
Interest-bearing deposits greater than 90 days | 5,300 |  |  | 1,000 |
Securities available for sale | 453,046 |  |  | 640,212 |
Loans held for sale | 12,967 |  |  | 11,792 |
Portfolio loans not covered under FDIC loss share | 2,110,825 |  |  | 2,106,039 |
Less: Allowance for loan losses | 26,599 |  |  | 34,330 |
Portfolio loans not covered under FDIC loss share, net | 2,084,226 |  |  | 2,071,709 |
Portfolio loans covered under FDIC loss share, net of the allowance for loan losses ($13,632 and $11,547, respectively) | 145,180 |  |  | 189,571 |
Portfolio loans, net | 2,229,406 |  |  | 2,261,280 |
Other real estate not covered under FDIC loss share | 10,278 |  |  | 9,327 |
Other real estate covered under FDIC loss share | 17,847 |  |  | 17,173 |
Other investments, at cost | 15,485 |  |  | 14,294 |
Fixed assets, net | 19,048 |  |  | 21,121 |
Accrued interest receivable | 7,897 |  |  | 8,497 |
State tax credits, held for sale, including $20,139 and $23,020 carried at fair value, respectively | 55,810 |  |  | 61,284 |
FDIC loss share receivable | 40,054 |  |  | 61,475 |
Goodwill | 30,334 |  |  | 30,334 |
Intangibles, net | 6,136 |  |  | 7,406 |
Other assets | 103,214 |  |  | 64,221 |
Total assets | $ | 3,108,062 |  |  | $ | 3,325,786 |
Liabilities and Shareholders' Equity |  |  |
Demand deposits | $ | 619,562 |  |  | $ | 686,805 |
Interest-bearing transaction accounts | 213,708 |  |  | 272,753 |
Money market accounts | 903,561 |  |  | 1,036,125 |
Savings | 88,443 |  |  | 83,458 |
Certificates of deposit: |  |  |
$100 and over | 462,971 |  |  | 396,896 |
Other | 159,672 |  |  | 182,814 |
Total deposits | 2,447,917 |  |  | 2,658,851 |
Subordinated debentures | 63,081 |  |  | 85,081 |
Federal Home Loan Bank advances | 120,000 |  |  | 80,000 |
Other borrowings | 167,365 |  |  | 233,370 |
Notes payable | 10,800 |  |  | 11,700 |
Accrued interest payable | 885 |  |  | 1,282 |
Other liabilities | 20,274 |  |  | 19,757 |
Total liabilities | 2,830,322 |  |  | 3,090,041 |
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; 19,352,365 and 18,088,152 shares issued, respectively | 194 |  |  | 181 |
Treasury stock, at cost; 76,000 shares | (1,743 | ) |  | (1,743 | )
Additional paid in capital | 198,493 |  |  | 173,299 |
Retained earnings | 82,777 |  |  | 56,218 |
Accumulated other comprehensive (loss) income | (1,981 | ) |  | 7,790 |
Total shareholders' equity | 277,740 |  |  | 235,745 |
Total liabilities and shareholders' equity | $ | 3,108,062 |  |  | $ | 3,325,786 |

See accompanying notes to condensed consolidated financial statements.
1

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

| Three months ended September 30, |  | Nine months ended September 30,
(In thousands, except per share data) | 2013 |  | 2012 |  | 2013 |  | 2012
Interest income: |  |  |  |  |  |  |
Interest and fees on loans | $ | 34,396 |  |  | $ | 39,886 |  |  | $ | 109,330 |  |  | $ | 111,519 |
Interest on debt securities: |  |  |  |  |  |  |
Taxable | 2,043 |  |  | 2,628 |  |  | 6,210 |  |  | 7,440 |
Nontaxable | 301 |  |  | 264 |  |  | 907 |  |  | 734 |
Interest on interest-bearing deposits | 37 |  |  | 53 |  |  | 130 |  |  | 195 |
Dividends on equity securities | 106 |  |  | 43 |  |  | 277 |  |  | 230 |
Total interest income | 36,883 |  |  | 42,874 |  |  | 116,854 |  |  | 120,118 |
Interest expense: |  |  |  |  |  |  |
Interest-bearing transaction accounts | 99 |  |  | 182 |  |  | 360 |  |  | 566 |
Money market accounts | 714 |  |  | 1,024 |  |  | 2,348 |  |  | 3,694 |
Savings | 56 |  |  | 68 |  |  | 171 |  |  | 209 |
Certificates of deposit: |  |  |  |  |  |  |
$100 and over | 1,326 |  |  | 1,691 |  |  | 4,207 |  |  | 5,500 |
Other | 439 |  |  | 597 |  |  | 1,385 |  |  | 2,103 |
Subordinated debentures | 679 |  |  | 982 |  |  | 2,580 |  |  | 3,111 |
Federal Home Loan Bank advances | 757 |  |  | 721 |  |  | 2,221 |  |  | 2,327 |
Notes payable and other borrowings | 239 |  |  | 125 |  |  | 801 |  |  | 362 |
Total interest expense | 4,309 |  |  | 5,390 |  |  | 14,073 |  |  | 17,872 |
Net interest income | 32,574 |  |  | 37,484 |  |  | 102,781 |  |  | 102,246 |
Provision for loan losses not covered under FDIC loss share | (652 | ) |  | 1,048 |  |  | (3,094 | ) |  | 2,841 |
Provision for loan losses covered under FDIC loss share | 2,811 |  |  | 10,889 |  |  | 2,789 |  |  | 13,380 |
Net interest income after provision for loan losses | 30,415 |  |  | 25,547 |  |  | 103,086 |  |  | 86,025 |
Noninterest income: |  |  |  |  |  |  |
Wealth Management revenue | 1,698 |  |  | 1,825 |  |  | 5,419 |  |  | 5,525 |
Service charges on deposit accounts | 1,768 |  |  | 1,456 |  |  | 5,025 |  |  | 4,199 |
Other service charges and fee income | 722 |  |  | 676 |  |  | 2,030 |  |  | 1,848 |
Gain on sale of other real estate | 472 |  |  | 739 |  |  | 1,562 |  |  | 3,152 |
Gain on state tax credits, net | 308 |  |  | 256 |  |  | 1,214 |  |  | 1,180 |
Gain on sale of investment securities | 611 |  |  | — |  |  | 1,295 |  |  | 1,156 |
Change in FDIC loss share receivable | (2,849 | ) |  | 1,912 |  |  | (13,647 | ) |  | (6,738 | )
Miscellaneous income | 986 |  |  | 968 |  |  | 2,055 |  |  | 2,338 |
Total noninterest income | 3,716 |  |  | 7,832 |  |  | 4,953 |  |  | 12,660 |
Noninterest expense: |  |  |  |  |  |  |
Employee compensation and benefits | 10,777 |  |  | 11,441 |  |  | 33,006 |  |  | 32,956 |
Occupancy | 1,333 |  |  | 1,399 |  |  | 4,098 |  |  | 4,162 |
Furniture and equipment | 356 |  |  | 384 |  |  | 1,200 |  |  | 1,234 |
Data processing | 1,143 |  |  | 881 |  |  | 3,000 |  |  | 2,530 |
FDIC and other insurance | 900 |  |  | 862 |  |  | 2,592 |  |  | 2,658 |
Loan legal and other real estate expense | 1,247 |  |  | 1,187 |  |  | 3,355 |  |  | 5,216 |
Professional fees | 1,041 |  |  | 1,288 |  |  | 3,394 |  |  | 3,640 |
Other | 4,443 |  |  | 3,840 |  |  | 12,491 |  |  | 11,664 |
Total noninterest expense | 21,240 |  |  | 21,282 |  |  | 63,136 |  |  | 64,060 |
Income before income tax expense | 12,891 |  |  | 12,097 |  |  | 44,903 |  |  | 34,625 |
Income tax expense | 4,481 |  |  | 4,167 |  |  | 15,420 |  |  | 11,744 |
Net income | $ | 8,410 |  |  | $ | 7,930 |  |  | $ | 29,483 |  |  | $ | 22,881 |
Net income available to common shareholders | $ | 8,410 |  |  | $ | 7,282 |  |  | $ | 29,483 |  |  | $ | 20,948 |
Earnings per common share |  |  |  |  |  |  |
Basic | $ | 0.45 |  |  | $ | 0.41 |  |  | $ | 1.61 |  |  | $ | 1.17 |
Diluted | 0.44 |  |  | 0.39 |  |  | 1.55 |  |  | 1.14 |

See accompanying notes to condensed consolidated financial statements.
2

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

| Three months ended September 30, |  | Nine months ended September 30,
(in thousands) | 2013 |  | 2012 |  | 2013 |  | 2012
Net income | $ | 8,410 |  |  | $ | 7,930 |  |  | $ | 29,483 |  |  | $ | 22,881 |
Other comprehensive income, net of tax: |  |  |  |  |  |  |
Unrealized gain/(loss) on investment securities arising during the period, net of income tax expense/(benefit) for three months of $598 and $1,828, and for nine months of ($5,716) and $3,926, respectively | 939 |  |  | 3,248 |  |  | (8,981 | ) |  | 6,526 |
Less reclassification adjustment for realized gain on sale of securities included in net income, net of income tax expense for three months of $238 and $0, and for nine months of $505 and $416, respectively | (373 | ) |  | — |  |  | (790 | ) |  | (740 | )
Total other comprehensive income (loss) | 566 |  |  | 3,248 |  |  | (9,771 | ) |  | 5,786 |
Total comprehensive income | $ | 8,976 |  |  | $ | 11,178 |  |  | $ | 19,712 |  |  | $ | 28,667 |

See accompanying notes to condensed consolidated financial statements.
3

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(in thousands, except per share data) |  | Preferred Stock |  | Common Stock |  | Treasury Stock |  | Additional paid in capital |  | Retained earnings |  | Accumulated other comprehensive income (loss) |  | Total shareholders' equity
Balance January 1, 2013 |  | $ | — |  |  | $ | 181 |  |  | $ | (1,743 | ) |  | $ | 173,299 |  |  | $ | 56,218 |  |  | $ | 7,790 |  |  | $ | 235,745 |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | 29,483 |  |  | — |  |  | 29,483 |
Other comprehensive loss |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (9,771 | ) |  | (9,771 | )
Cash dividends paid on common shares, $0.1575 per share |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,924 | ) |  | — |  |  | (2,924 | )
Repurchase of common stock warrants |  | — |  |  | — |  |  | — |  |  | (1,006 | ) |  | — |  |  | — |  |  | (1,006 | )
Issuance under equity compensation plans, 87,743 shares |  | — |  |  | 1 |  |  | — |  |  | 2,550 |  |  | — |  |  | — |  |  | 2,551 |
Trust preferred securities conversion 1,176,470 shares |  | — |  |  | 12 |  |  | — |  |  | 20,431 |  |  | — |  |  | — |  |  | 20,443 |
Share-based compensation |  | — |  |  | — |  |  | — |  |  | 3,136 |  |  | — |  |  | — |  |  | 3,136 |
Excess tax benefit related to equity compensation plans |  | — |  |  | — |  |  | — |  |  | 83 |  |  | — |  |  | — |  |  | 83 |
Balance September 30, 2013 |  | $ | — |  |  | $ | 194 |  |  | $ | (1,743 | ) |  | $ | 198,493 |  |  | $ | 82,777 |  |  | $ | (1,981 | ) |  | $ | 277,740 |

(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, 2012 |  | $ | 33,293 |  |  | $ | 178 |  |  | $ | (1,743 | ) |  | $ | 169,138 |  |  | $ | 35,097 |  |  | $ | 3,602 |  |  | $ | 239,565 |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | 22,881 |  |  | — |  |  | 22,881 |
Other comprehensive income |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,786 |  |  | 5,786 |
Cash dividends paid on common shares, $0.1575 per share |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,813 | ) |  | — |  |  | (2,813 | )
Cash dividends paid on preferred stock |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,312 | ) |  | — |  |  | (1,312 | )
Preferred stock accretion of discount |  | 621 |  |  | — |  |  | — |  |  | — |  |  | (621 | ) |  | — |  |  | — |
Issuance under equity compensation plans, 189,848 shares |  | — |  |  | 2 |  |  | — |  |  | 1,530 |  |  | — |  |  | — |  |  | 1,532 |
Share-based compensation |  | — |  |  | — |  |  | — |  |  | 1,791 |  |  | — |  |  | — |  |  | 1,791 |
Excess tax benefit related to equity compensation plans |  | — |  |  | — |  |  | — |  |  | 86 |  |  | — |  |  | — |  |  | 86 |
Balance September 30, 2012 |  | $ | 33,914 |  |  | $ | 180 |  |  | $ | (1,743 | ) |  | $ | 172,545 |  |  | $ | 53,232 |  |  | $ | 9,388 |  |  | $ | 267,516 |

See accompanying notes to condensed consolidated financial statements.
4

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)

| Nine months ended September 30,
(in thousands) | 2013 |  | 2012
Cash flows from operating activities: |  |  |
Net income | $ | 29,483 |  |  | $ | 22,881 |
Adjustments to reconcile net income to net cash provided by operating activities |  |  |
Depreciation | 1,936 |  |  | 1,944 |
Provision for loan losses | (305 | ) |  | 16,221 |
Deferred income taxes | 180 |  |  | (1,982 | )
Net amortization of debt securities | 4,579 |  |  | 5,839 |
Amortization of intangible assets | 1,540 |  |  | 1,440 |
Gain on sale of investment securities | (1,295 | ) |  | (1,156 | )
Mortgage loans originated for sale | (64,463 | ) |  | (71,085 | )
Proceeds from mortgage loans sold | 70,884 |  |  | 68,987 |
Gain on sale of other real estate | (1,562 | ) |  | (3,152 | )
Gain on state tax credits, net | (1,214 | ) |  | (1,180 | )
Share-based compensation | 3,136 |  |  | 1,791 |
Valuation adjustment on other real estate | 962 |  |  | 2,201 |
Net accretion of loan discount and indemnification asset | (13,853 | ) |  | (18,754 | )
Changes in: |  |  |
Accrued interest receivable | 600 |  |  | (1,288 | )
Accrued interest payable | (397 | ) |  | (385 | )
Prepaid FDIC insurance | 2,607 |  |  | 1,837 |
Other assets | (21,322 | ) |  | 1,212 |
Other liabilities | 516 |  |  | 12,567 |
Net cash provided by operating activities | 12,012 |  |  | 37,938 |
Cash flows from investing activities: |  |  |
Net decrease (increase) in loans | 36,955 |  |  | (10,478 | )
Net cash proceeds received from FDIC loss share receivable | 9,654 |  |  | 85,173 |
Proceeds from the sale of debt and equity securities, available for sale | 159,604 |  |  | 110,876 |
Proceeds from the maturity of debt and equity securities, available for sale | 69,017 |  |  | 91,498 |
Proceeds from the redemption of other investments | 26,695 |  |  | 6,296 |
Proceeds from the sale of state tax credits held for sale | 8,126 |  |  | 4,408 |
Proceeds from the sale of other real estate | 15,303 |  |  | 44,273 |
Payments for the purchase/origination of: |  |  |
Available for sale debt and equity securities | (60,732 | ) |  | (214,935 | )
Other investments | (28,143 | ) |  | (8,138 | )
Bank owned life insurance | (20,000 | ) |  | — |
State tax credits held for sale | (1,365 | ) |  | (18,577 | )
Fixed assets | (1,122 | ) |  | (4,433 | )
Net cash provided by investing activities | 213,992 |  |  | 85,963 |
Cash flows from financing activities: |  |  |
Net (decrease) increase in noninterest-bearing deposit accounts | (67,242 | ) |  | 35,591 |
Net decrease in interest-bearing deposit accounts | (143,691 | ) |  | (276,011 | )
Proceeds from Federal Home Loan Bank advances | 743,000 |  |  | 157,500 |
Repayments of Federal Home Loan Bank advances | (703,000 | ) |  | (133,500 | )
Repayments of notes payable | (900 | ) |  | — |
Repayments of subordinated debt | (2,000 | ) |  | — |
Net decrease in other borrowings | (66,005 | ) |  | (7,440 | )
Cash dividends paid on common stock | (2,924 | ) |  | (2,813 | )
Excess tax benefit of share-based compensation | 83 |  |  | 86 |
Payment for the repurchase of common stock warrants | (1,006 | ) |  | — |
Cash dividends paid on preferred stock | — |  |  | (1,312 | )
Proceeds from the issuance of equity instruments | 2,551 |  |  | 1,530 |
Net cash used by financing activities | (241,134 | ) |  | (226,369 | )
Net decrease in cash and cash equivalents | (15,130 | ) |  | (102,468 | )
Cash and cash equivalents, beginning of period | 116,370 |  |  | 188,143 |
Cash and cash equivalents, end of period | $ | 101,240 |  |  | $ | 85,675 |
Supplemental disclosures of cash flow information: |  |  |
Cash paid during the period for: |  |  |
Interest | $ | 14,470 |  |  | $ | 17,487 |
Income taxes | 24,348 |  |  | 10,953 |
Noncash transactions: |  |  |
Transfer to other real estate owned in settlement of loans | 21,116 |  |  | 19,799 |
Sales of other real estate financed | 5,564 |  |  | 5,264 |
Issuance of common stock from Trust Preferred Securities conversion | 20,443 |  |  | — |

See accompanying notes to condensed consolidated financial statements.
5

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used by Enterprise Financial Services Corp (the “Company” or “Enterprise”) in the preparation of the condensed consolidated financial statements are summarized below:
Business and Consolidation
Enterprise is a financial holding company that provides a full range of banking and wealth management services to individuals and corporate customers located in the St. Louis, Kansas City and Phoenix metropolitan markets through its banking subsidiary, Enterprise Bank & Trust (the “Bank”).
Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2013. 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, 2012.
Basis of Financial Statement Presentation
The condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and footnotes required by U.S. GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
The Company has adopted the new accounting guidance surrounding comprehensive income by presenting a separate Statement of Comprehensive Income. The Statement of Comprehensive Income includes the amount and the related tax impact that have been reclassified from accumulated other comprehensive income to net income. The reclassification adjustment for unrealized gain on sale of securities included in net income has been recorded through the gain on sale of investment securities line item, within noninterest income, in the Company's Condensed Consolidated Statements of Operations.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per common share data is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Common shares outstanding include common stock and restricted stock awards where recipients have satisfied the vesting terms. Diluted earnings per common share gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and the if-converted method for convertible trust preferred securities.
6

The following table presents a summary of per common share data and amounts for the periods indicated.

| Three months ended September 30, |  | Nine months ended September 30,
(in thousands, except per share data) | 2013 |  | 2012 |  | 2013 |  | 2012
Net income as reported | $ | 8,410 |  |  | $ | 7,930 |  |  | $ | 29,483 |  |  | $ | 22,881 |
Preferred stock dividend | — |  |  | (436 | ) |  | — |  |  | (1,312 | )
Accretion of preferred stock discount | — |  |  | (212 | ) |  | — |  |  | (621 | )
Net income available to common shareholders | $ | 8,410 |  |  | $ | 7,282 |  |  | $ | 29,483 |  |  | $ | 20,948 |
Impact of assumed conversions |  |  |  |  |  |  |
Interest on 9% convertible trust preferred securities, net of income tax | 217 |  |  | 371 |  |  | 926 |  |  | 1,113 |
Net income available to common shareholders and assumed conversions | $ | 8,627 |  |  | $ | 7,653 |  |  | $ | 30,409 |  |  | $ | 22,061 |
Weighted average common shares outstanding | 18,779 |  |  | 17,876 |  |  | 18,288 |  |  | 17,829 |
Incremental shares from assumed conversions of convertible trust preferred securities | 851 |  |  | 1,439 |  |  | 1,241 |  |  | 1,439 |
Additional dilutive common stock equivalents | 200 |  |  | 100 |  |  | 153 |  |  | 34 |
Weighted average diluted common shares outstanding | 19,830 |  |  | 19,415 |  |  | 19,682 |  |  | 19,302 |
Basic earnings per common share: | $ | 0.45 |  |  | $ | 0.41 |  |  | $ | 1.61 |  |  | $ | 1.17 |
Diluted earnings per common share: | $ | 0.44 |  |  | $ | 0.39 |  |  | $ | 1.55 |  |  | $ | 1.14 |

For the three months ended September 30, 2013 and 2012, the amount of common stock equivalents that were excluded from the earnings per share calculations because their effect was anti-dilutive was 474,267, and 1.0 million common stock equivalents (including 324,074 common stock warrants), respectively. For the nine months ended September 30, 2013 and 2012, the amount of common stock equivalents that were excluded from the earnings per share calculations because their effect was anti-dilutive was 488,318 (including 9,497 average common stock warrants), and 1.0 million common stock equivalents (including 324,074 common stock warrants), respectively.
7

NOTE 3 - INVESTMENTS
The following table presents the amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale:

| September 30, 2013
(in thousands) | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
Available for sale securities: |  |  |  |  |  |  |
Obligations of U.S. Government-sponsored enterprises | $ | 93,680 |  |  | $ | 599 |  |  | $ | (305 | ) |  | $ | 93,974 |
Obligations of states and political subdivisions | 51,702 |  |  | 1,079 |  |  | (1,588 | ) |  | 51,193 |
Residential mortgage-backed securities | 310,907 |  |  | 3,127 |  |  | (6,155 | ) |  | 307,879 |
| $ | 456,289 |  |  | $ | 4,805 |  |  | $ | (8,048 | ) |  | $ | 453,046 |
| December 31, 2012
(in thousands) | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
Available for sale securities: |  |  |  |  |  |  |
Obligations of U.S. Government-sponsored enterprises | $ | 149,039 |  |  | $ | 3,329 |  |  | $ | — |  |  | $ | 152,368 |
Obligations of states and political subdivisions | 51,202 |  |  | 2,279 |  |  | (478 | ) |  | 53,003 |
Residential mortgage-backed securities | 427,221 |  |  | 7,884 |  |  | (264 | ) |  | 434,841 |
| $ | 627,462 |  |  | $ | 13,492 |  |  | $ | (742 | ) |  | $ | 640,212 |

At September 30, 2013, and December 31, 2012, there were no holdings of securities of any one issuer in an amount greater than 10% of shareholders’ equity, other than the U.S. government agencies and sponsored enterprises. The residential mortgage-backed securities are all issued by U.S. government sponsored enterprises. Available for sale securities having a fair value of $227.5 million and $359.3 million at September 30, 2013, and December 31, 2012, respectively, were pledged as collateral to secure deposits of public institutions and for other purposes as required by law or contract provisions.
The amortized cost and estimated fair value of debt securities classified as available for sale at September 30, 2013, 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 5 years.

(in thousands) | Amortized Cost |  | Estimated Fair Value
Due in one year or less | $ | 885 |  |  | $ | 892 |
Due after one year through five years | 107,062 |  |  | 107,703 |
Due after five years through ten years | 23,333 |  |  | 23,516 |
Due after ten years | 14,102 |  |  | 13,056 |
Mortgage-backed securities | 310,907 |  |  | 307,879 |
| $ | 456,289 |  |  | $ | 453,046 |

8

The following table represents a summary of available-for-sale investment securities that had an unrealized loss:

| September 30, 2013
Less than 12 months |  | 12 months or more |  | Total
(in thousands) | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
Obligations of U.S. Government-sponsored enterprises | $ | 30,355 |  |  | $ | 305 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,355 |  |  | $ | 305 |
Obligations of states and political subdivisions | $ | 20,306 |  |  | $ | 1,230 |  |  | $ | 3,042 |  |  | $ | 358 |  |  | $ | 23,348 |  |  | $ | 1,588 |
Residential mortgage-backed securities | 188,849 |  |  | 5,692 |  |  | 8,779 |  |  | 463 |  |  | 197,628 |  |  | 6,155 |
| $ | 239,510 |  |  | $ | 7,227 |  |  | $ | 11,821 |  |  | $ | 821 |  |  | $ | 251,331 |  |  | $ | 8,048 |
| December 31, 2012
Less than 12 months |  | 12 months or more |  | Total
(in thousands) | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
Obligations of states and political subdivisions | 6,434 |  |  | 122 |  |  | 3,389 |  |  | 356 |  |  | 9,823 |  |  | 478 |
Residential mortgage-backed securities | 40,471 |  |  | 143 |  |  | 11,266 |  |  | 121 |  |  | 51,737 |  |  | 264 |
| $ | 46,905 |  |  | $ | 265 |  |  | $ | 14,655 |  |  | $ | 477 |  |  | $ | 61,560 |  |  | $ | 742 |

The unrealized losses at both September 30, 2013, and December 31, 2012, were primarily attributable to changes in market interest rates since the securities were purchased. Management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis. This analysis requires management to consider various factors, which include (1) the present value of the cash flows expected to be collected compared to the amortized cost of the security, (2) duration and magnitude of the decline in value, (3) the financial condition of the issuer or issuers, (4) structure of the security and (5) the intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in market value. At September 30, 2013, management performed its quarterly analysis of all securities with an unrealized loss and concluded no individual securities were other-than-temporarily impaired.
The gross gains and gross losses realized from sales of available-for-sale investment securities were as follows:

| Three months ended September 30, |  | Nine months ended September 30,
(in thousands) | 2013 |  | 2012 |  | 2013 |  | 2012
Gross gains realized | $ | 611 |  |  | $ | — |  |  | $ | 1,477 |  |  | $ | 1,399 |
Gross losses realized | — |  |  | — |  |  | (182 | ) |  | (243 | )
Proceeds from sales | 36,710 |  |  | — |  |  | 159,604 |  |  | 110,876 |

9

NOTE 4 - PORTFOLIO LOANS NOT COVERED BY LOSS SHARE ("Non-covered")
Below is a summary of Non-covered loans by category at September 30, 2013, and December 31, 2012:

(in thousands) | September 30, 2013 |  | December 31, 2012
Real Estate Loans: |  |  |
Construction and Land Development | $ | 114,608 |  |  | $ | 160,911 |
Commercial real estate - Investor Owned | 451,102 |  |  | 486,467 |
Commercial real estate - Owner Occupied | 350,653 |  |  | 333,242 |
Residential real estate | 150,320 |  |  | 145,558 |
Total real estate loans | $ | 1,066,683 |  |  | $ | 1,126,178 |
Commercial and industrial | 1,007,398 |  |  | 962,884 |
Consumer & other | 35,862 |  |  | 16,966 |
Portfolio Loans | $ | 2,109,943 |  |  | $ | 2,106,028 |
Unearned loan costs, net | 882 |  |  | 11 |
Portfolio loans, including unearned loan costs | $ | 2,110,825 |  |  | $ | 2,106,039 |

The Company grants commercial, residential, and consumer loans primarily in the St. Louis, Kansas City and Phoenix metropolitan areas. The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector; however, a substantial portion of the portfolio is concentrated in and secured by real estate. The ability of the Company’s borrowers to honor their contractual obligations is partially dependent upon the local economy and its effect on the real estate market.
10

A summary of the year-to-date activity in the allowance for loan losses and the recorded investment in Non-covered loans by portfolio class and category based on impairment method through September 30, 2013, and at December 31, 2012, is as follows:

(in thousands) | Commercial & Industrial |  | Commercial Real Estate Owner Occupied |  | Commercial Real Estate Investor Owned |  | Construction and Land Development |  | Residential Real Estate |  | Consumer & Other |  | Qualitative Adjustment |  | Total
Allowance for Loan Losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2012 | $ | 10,064 |  |  | $ | 4,192 |  |  | $ | 10,403 |  |  | $ | 5,239 |  |  | $ | 2,026 |  |  | $ | 31 |  |  | $ | 2,375 |  |  | $ | 34,330 |
Provision charged to expense | 120 |  |  | 179 |  |  | 953 |  |  | (127 | ) |  | 675 |  |  | 46 |  |  | 7 |  |  | 1,853 |
Losses charged off | (206 | ) |  | (312 | ) |  | (3,052 | ) |  | (190 | ) |  | (986 | ) |  | (34 | ) |  | — |  |  | (4,780 | )
Recoveries | 298 |  |  | 5 |  |  | 336 |  |  | 14 |  |  | 396 |  |  | — |  |  | — |  |  | 1,049 |
Balance at March 31, 2013 | $ | 10,276 |  |  | $ | 4,064 |  |  | $ | 8,640 |  |  | $ | 4,936 |  |  | $ | 2,111 |  |  | $ | 43 |  |  | $ | 2,382 |  |  | $ | 32,452 |
Provision charged to expense | (320 | ) |  | (139 | ) |  | (2,273 | ) |  | (998 | ) |  | (299 | ) |  | 1 |  |  | (267 | ) |  | (4,295 | )
Losses charged off | (400 | ) |  | (32 | ) |  | (176 | ) |  | (144 | ) |  | — |  |  | — |  |  | — |  |  | (752 | )
Recoveries | 118 |  |  | 17 |  |  | 24 |  |  | 21 |  |  | 34 |  |  | — |  |  | — |  |  | 214 |
Balance at June 30, 2013 | $ | 9,674 |  |  | $ | 3,910 |  |  | $ | 6,215 |  |  | $ | 3,815 |  |  | $ | 1,846 |  |  | $ | 44 |  |  | $ | 2,115 |  |  | $ | 27,619 |
Provision charged to expense | 117 |  |  | (233 | ) |  | (276 | ) |  | (1,291 | ) |  | (612 | ) |  | 19 |  |  | 1,624 |  |  | (652 | )
Losses charged off | (1,817 | ) |  | (56 | ) |  | (504 | ) |  | (85 | ) |  | (52 | ) |  | — |  |  | — |  |  | (2,514 | )
Recoveries | 906 |  |  | 14 |  |  | 360 |  |  | 385 |  |  | 481 |  |  | — |  |  | — |  |  | 2,146 |
Balance at September 30, 2013 | $ | 8,880 |  |  | $ | 3,635 |  |  | $ | 5,795 |  |  | $ | 2,824 |  |  | $ | 1,663 |  |  | $ | 63 |  |  | $ | 3,739 |  |  | $ | 26,599 |

(in thousands) | Commercial & Industrial |  | Commercial Real Estate Owner Occupied |  | Commercial Real Estate Investor Owned |  | Construction and Land Development |  | Residential Real Estate |  | Consumer & Other |  | Qualitative Adjustment |  | Total
Balance September 30, 2013 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for Loan Losses - Ending Balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 2,610 |  |  | $ | — |  |  | $ | 973 |  |  | $ | 712 |  |  | $ | 11 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,306 |
Collectively evaluated for impairment | 6,270 |  |  | 3,635 |  |  | 4,822 |  |  | 2,112 |  |  | 1,652 |  |  | 63 |  |  | 3,739 |  |  | 22,293 |
Total | $ | 8,880 |  |  | $ | 3,635 |  |  | $ | 5,795 |  |  | $ | 2,824 |  |  | $ | 1,663 |  |  | $ | 63 |  |  | $ | 3,739 |  |  | $ | 26,599 |
Loans - Ending Balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 5,974 |  |  | $ | 191 |  |  | $ | 10,830 |  |  | $ | 6,499 |  |  | $ | 675 |  |  | $ | — |  |  | $ | — |  |  | $ | 24,169 |
Collectively evaluated for impairment | 1,001,424 |  |  | 350,462 |  |  | 440,272 |  |  | 108,109 |  |  | 149,645 |  |  | 36,744 |  |  | — |  |  | 2,086,656 |
Total | $ | 1,007,398 |  |  | $ | 350,653 |  |  | $ | 451,102 |  |  | $ | 114,608 |  |  | $ | 150,320 |  |  | $ | 36,744 |  |  | $ | — |  |  | $ | 2,110,825 |
Balance at December 31, 2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for Loan Losses - Ending Balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 3,446 |  |  | $ | 339 |  |  | $ | 3,400 |  |  | $ | 732 |  |  | $ | 259 |  |  | $ | — |  |  | $ | — |  |  | $ | 8,176 |
Collectively evaluated for impairment | 6,618 |  |  | 3,853 |  |  | 7,003 |  |  | 4,507 |  |  | 1,767 |  |  | 31 |  |  | 2,375 |  |  | 26,154 |
Total | $ | 10,064 |  |  | $ | 4,192 |  |  | $ | 10,403 |  |  | $ | 5,239 |  |  | $ | 2,026 |  |  | $ | 31 |  |  | $ | 2,375 |  |  | $ | 34,330 |
Loans - Ending Balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 8,934 |  |  | $ | 5,772 |  |  | $ | 16,762 |  |  | $ | 4,695 |  |  | $ | 2,564 |  |  | $ | — |  |  | $ | — |  |  | $ | 38,727 |
Collectively evaluated for impairment | 953,950 |  |  | 327,470 |  |  | 469,705 |  |  | 156,216 |  |  | 142,994 |  |  | 16,977 |  |  | — |  |  | 2,067,312 |
Total | $ | 962,884 |  |  | $ | 333,242 |  |  | $ | 486,467 |  |  | $ | 160,911 |  |  | $ | 145,558 |  |  | $ | 16,977 |  |  | $ | — |  |  | $ | 2,106,039 |

11

A summary of Non-covered loans individually evaluated for impairment by category at September 30, 2013, and December 31, 2012, is as follows:

| September 30, 2013
(in thousands) | Unpaid Contractual Principal Balance |  | Recorded Investment With No Allowance |  | Recorded Investment With Allowance |  | Total Recorded Investment |  | Related Allowance |  | Average Recorded Investment
Commercial & Industrial | $ | 6,333 |  |  | $ | 1,441 |  |  | $ | 4,642 |  |  | $ | 6,083 |  |  | $ | 2,610 |  |  | $ | 7,379 |
Real Estate: |  |  |  |  |  |  |  |  |  |  |
Commercial - Owner Occupied | 191 |  |  | 195 |  |  | — |  |  | 195 |  |  | — |  |  | 2,381 |
Commercial - Investor Owned | 11,969 |  |  | 4,960 |  |  | 6,158 |  |  | 11,118 |  |  | 973 |  |  | 12,346 |
Construction and Land Development | 7,206 |  |  | 4,278 |  |  | 2,389 |  |  | 6,667 |  |  | 712 |  |  | 5,165 |
Residential | 700 |  |  | 460 |  |  | 227 |  |  | 687 |  |  | 11 |  |  | 2,361 |
Consumer & Other | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 26,399 |  |  | $ | 11,334 |  |  | $ | 13,416 |  |  | $ | 24,750 |  |  | $ | 4,306 |  |  | $ | 29,632 |

| December 31, 2012
(in thousands) | Unpaid Contractual Principal Balance |  | Recorded Investment With No Allowance |  | Recorded Investment With Allowance |  | Total Recorded Investment |  | Related Allowance |  | Average Recorded Investment
Commercial & Industrial | $ | 9,005 |  |  | $ | 96 |  |  | $ | 8,838 |  |  | $ | 8,934 |  |  | $ | 3,446 |  |  | $ | 6,379 |
Real Estate: |  |  |  |  |  |  |  |  |  |  |
Commercial - Owner Occupied | 6,726 |  |  | 2,178 |  |  | 3,594 |  |  | 5,772 |  |  | 339 |  |  | 7,985 |
Commercial - Investor Owned | 19,864 |  |  | 185 |  |  | 16,577 |  |  | 16,762 |  |  | 3,400 |  |  | 10,500 |
Construction and Land Development | 6,491 |  |  | 1,560 |  |  | 3,135 |  |  | 4,695 |  |  | 732 |  |  | 10,259 |
Residential | 3,132 |  |  | 1,626 |  |  | 938 |  |  | 2,564 |  |  | 259 |  |  | 4,368 |
Consumer & Other | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 45,218 |  |  | $ | 5,645 |  |  | $ | 33,082 |  |  | $ | 38,727 |  |  | $ | 8,176 |  |  | $ | 39,491 |

There were no loans over 90 days past due and still accruing interest at September 30, 2013. If interest on impaired loans would have been accrued based upon the original contractual terms, such income would have been $410,000 and $1.5 million for the three and nine months ended September 30, 2013, respectively. The cash amount collected and recognized as interest income on impaired loans was $4,000 and $28,000 for the three and nine months ended September 30, 2013, respectively. There was no interest income recognized on impaired loans continuing to accrue interest for the three and nine months ended September 30, 2013, respectively. At September 30, 2013, there were $1.7 million of unadvanced commitments on impaired loans. Other liabilities include approximately $241,000 for estimated losses attributable to the unadvanced commitments on impaired loans.
12

The recorded investment in non-accrual, restructured, and 90 days past due and still accruing interest Non-covered loans by category at September 30, 2013, and December 31, 2012, is as follows:

| September 30, 2013
(in thousands) | Non-accrual |  | Restructured |  | Loans over 90 days past due and still accruing interest |  | Total
Commercial & Industrial | $ | 6,083 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,083 |
Real Estate: |  |  |  |  |  |  |
Commercial - Investor Owned | 11,118 |  |  | — |  |  | — |  |  | 11,118 |
Commercial - Owner Occupied | 195 |  |  | — |  |  | — |  |  | 195 |
Construction and Land Development | 6,667 |  |  | — |  |  | — |  |  | 6,667 |
Residential | 687 |  |  | — |  |  | — |  |  | 687 |
Consumer & Other | — |  |  | — |  |  | — |  |  | — |
Total | $ | 24,750 |  |  | $ | — |  |  | $ | — |  |  | $ | 24,750 |

| December 31, 2012
(in thousands) | Non-accrual |  | Restructured |  | Loans over 90 days past due and still accruing interest |  | Total
Commercial & Industrial | $ | 8,929 |  |  | $ | 5 |  |  | $ | — |  |  | $ | 8,934 |
Real Estate: |  |  |  |  |  |  |
Commercial - Investor Owned | 16,762 |  |  | — |  |  | — |  |  | 16,762 |
Commercial - Owner Occupied | 5,772 |  |  | — |  |  | — |  |  | 5,772 |
Construction and Land Development | 3,260 |  |  | 1,435 |  |  | — |  |  | 4,695 |
Residential | 2,564 |  |  | — |  |  | — |  |  | 2,564 |
Consumer & Other | — |  |  | — |  |  | — |  |  | — |
Total | $ | 37,287 |  |  | $ | 1,440 |  |  | $ | — |  |  | $ | 38,727 |

There were no Non-covered loans that have been restructured and subsequently defaulted in the nine months ended September 30, 2013.
13

The aging of the recorded investment in past due Non-covered loans by portfolio class and category at September 30, 2013, and December 31, 2012, is shown below.

| September 30, 2013
(in thousands) | 30-89 Days Past Due |  | 90 or More Days Past Due |  | Total Past Due |  | Current |  | Total
Commercial & Industrial | $ | 445 |  |  | $ | 1,337 |  |  | $ | 1,782 |  |  | $ | 1,005,616 |  |  | $ | 1,007,398 |
Real Estate: |  |  |  |  |  |  |  |  |
Commercial - Owner Occupied | 442 |  |  | 190 |  |  | 632 |  |  | 350,021 |  |  | 350,653 |
Commercial - Investor Owned | 1,025 |  |  | 6,842 |  |  | 7,867 |  |  | 443,235 |  |  | 451,102 |
Construction and Land Development | — |  |  | 2,210 |  |  | 2,210 |  |  | 112,398 |  |  | 114,608 |
Residential | — |  |  | 320 |  |  | 320 |  |  | 150,000 |  |  | 150,320 |
Consumer & Other | 3 |  |  | — |  |  | 3 |  |  | 36,741 |  |  | 36,744 |
Total | $ | 1,915 |  |  | $ | 10,899 |  |  | $ | 12,814 |  |  | $ | 2,098,011 |  |  | $ | 2,110,825 |

| December 31, 2012
(in thousands) | 30-89 Days Past Due |  | 90 or More Days Past Due |  | Total Past Due |  | Current |  | Total
Commercial & Industrial | $ | 14 |  |  | $ | — |  |  | $ | 14 |  |  | $ | 962,870 |  |  | $ | 962,884 |
Real Estate: |  |  |  |  |  |  |  |  |
Commercial - Owner Occupied | 1,352 |  |  | 2,081 |  |  | 3,433 |  |  | 329,809 |  |  | 333,242 |
Commercial - Investor Owned | — |  |  | 4,045 |  |  | 4,045 |  |  | 482,422 |  |  | 486,467 |
Construction and Land Development | 1,201 |  |  | 1,559 |  |  | 2,760 |  |  | 158,151 |  |  | 160,911 |
Residential | 616 |  |  | 593 |  |  | 1,209 |  |  | 144,349 |  |  | 145,558 |
Consumer & Other | 34 |  |  | — |  |  | 34 |  |  | 16,943 |  |  | 16,977 |
Total | $ | 3,217 |  |  | $ | 8,278 |  |  | $ | 11,495 |  |  | $ | 2,094,544 |  |  | $ | 2,106,039 |

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, historical 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- These grades include 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- This grade includes loans to borrowers with positive trends in profitability, satisfactory capitalization and balance sheet condition, and sufficient liquidity and cash flow.

• | Grade 5- This grade includes loans to borrowers that may display fluctuating trends in sales, profitability, capitalization, liquidity, and cash flow.

• | Grade 6- This grade 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. Borrowers within this category are expected to turnaround within a 12-month period of time. Although possible, no loss is anticipated, due to strong collateral and/or guarantor support.

14

• | Grade 8- Substandard credits will include those borrowers that are 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 Non-covered loans by portfolio class and category at September 30, 2013, which is based upon the most recent analysis performed, and December 31, 2012 is as follows:

| September 30, 2013
(in thousands) | Pass (1-6) |  | Watch (7) |  | Substandard (8) |  | Doubtful (9) |  | Total
Commercial & Industrial | $ | 948,844 |  |  | $ | 35,321 |  |  | $ | 22,858 |  |  | $ | 375 |  |  | $ | 1,007,398 |
Real Estate: |  |  |  |  |  |  |  |  |
Commercial - Owner Occupied | 315,715 |  |  | 20,862 |  |  | 14,076 |  |  | — |  |  | 350,653 |
Commercial - Investor Owned | 381,553 |  |  | 43,654 |  |  | 25,895 |  |  | — |  |  | 451,102 |
Construction and Land Development | 81,799 |  |  | 17,385 |  |  | 14,951 |  |  | 473 |  |  | 114,608 |
Residential | 135,455 |  |  | 7,282 |  |  | 7,583 |  |  | — |  |  | 150,320 |
Consumer & Other | 36,740 |  |  | 4 |  |  | — |  |  | — |  |  | 36,744 |
Total | $ | 1,900,106 |  |  | $ | 124,508 |  |  | $ | 85,363 |  |  | $ | 848 |  |  | $ | 2,110,825 |

| December 31, 2012
(in thousands) | Pass (1-6) |  | Watch (7) |  | Substandard (8) |  | Doubtful (9) |  | Total
Commercial & Industrial | $ | 912,766 |  |  | $ | 29,524 |  |  | $ | 18,546 |  |  | $ | 2,048 |  |  | $ | 962,884 |
Real Estate: |  |  |  |  |  |  |  |  |
Commercial - Owner Occupied | 290,850 |  |  | 26,336 |  |  | 15,898 |  |  | 158 |  |  | 333,242 |
Commercial - Investor Owned | 389,886 |  |  | 64,707 |  |  | 31,874 |  |  | — |  |  | 486,467 |
Construction and Land Development | 124,857 |  |  | 9,543 |  |  | 26,012 |  |  | 499 |  |  | 160,911 |
Residential | 130,159 |  |  | 5,921 |  |  | 9,478 |  |  | — |  |  | 145,558 |
Consumer & Other | 16,972 |  |  | 5 |  |  | — |  |  | — |  |  | 16,977 |
Total | $ | 1,865,490 |  |  | $ | 136,036 |  |  | $ | 101,808 |  |  | $ | 2,705 |  |  | $ | 2,106,039 |

NOTE 5 - PORTFOLIO LOANS COVERED BY LOSS SHARE ("Covered loans")
Below is a summary of Covered loans by category at September 30, 2013, and December 31, 2012:

| September 30, 2013 |  | December 31, 2012
(in thousands) | Weighted- Average Risk Rating | Recorded Investment Covered Loans |  | Weighted- Average Risk Rating | Recorded Investment Covered Loans
Real Estate Loans: |  |  |  |  |
Construction and Land Development | 6.96 |  | $15,332 |  |  | 7.06 |  | $30,537 |
Commercial real estate - Investor Owned | 6.54 | 51,842 |  |  | 6.08 | 57,602 |
Commercial real estate - Owner Occupied | 6.87 | 43,252 |  |  | 6.65 | 47,140 |
Residential real estate | 5.95 | 37,446 |  |  | 5.68 | 42,531 |
Total real estate loans |  |  | $147,872 |  |  |  |  | $177,810 |
Commercial and industrial | 6.99 | 9,095 |  |  | 6.57 | 22,034 |
Consumer & other | 6.43 | 1,845 |  |  | 4.19 | 1,274 |
Portfolio Loans |  |  | $158,812 |  |  |  |  | $201,118 |

15

The aging of the recorded investment in past due Covered loans by portfolio class and category at September 30, 2013, and December 31, 2012, is shown below.

| September 30, 2013
(in thousands) | 30-89 Days Past Due |  | 90 or More Days Past Due |  | Total Past Due |  | Current |  | Total
Commercial & Industrial | $ | 1,642 |  |  | $ | 1,166 |  |  | $ | 2,808 |  |  | $ | 6,287 |  |  | $ | 9,095 |
Real Estate: |  |  |  |  |  |  |  |  |
Commercial - Owner Occupied | 3,323 |  |  | 5,024 |  |  | 8,347 |  |  | 34,905 |  |  | 43,252 |
Commercial - Investor Owned | 1,653 |  |  | 4,465 |  |  | 6,118 |  |  | 45,724 |  |  | 51,842 |
Construction and Land Development | — |  |  | 3,886 |  |  | 3,886 |  |  | 11,446 |  |  | 15,332 |
Residential | 673 |  |  | 6,591 |  |  | 7,264 |  |  | 30,182 |  |  | 37,446 |
Consumer & Other | — |  |  | — |  |  | — |  |  | 1,845 |  |  | 1,845 |
Total | $ | 7,291 |  |  | $ | 21,132 |  |  | $ | 28,423 |  |  | $ | 130,389 |  |  | $ | 158,812 |

| December 31, 2012
(in thousands) | 30-89 Days Past Due |  | 90 or More Days Past Due |  | Total Past Due |  | Current |  | Total
Commercial & Industrial | $ | 319 |  |  | $ | 3,925 |  |  | $ | 4,244 |  |  | $ | 17,790 |  |  | $ | 22,034 |
Real Estate: |  |  |  |  |  |  |  |  |
Commercial - Owner Occupied | 887 |  |  | 5,144 |  |  | 6,031 |  |  | 41,109 |  |  | 47,140 |
Commercial - Investor Owned | 308 |  |  | 665 |  |  | 973 |  |  | 56,629 |  |  | 57,602 |
Construction and Land Development | 36 |  |  | 13,532 |  |  | 13,568 |  |  | 16,969 |  |  | 30,537 |
Residential | 1,232 |  |  | 2,907 |  |  | 4,139 |  |  | 38,392 |  |  | 42,531 |
Consumer & Other | 1 |  |  | 2 |  |  | 3 |  |  | 1,271 |  |  | 1,274 |
Total | $ | 2,783 |  |  | $ | 26,175 |  |  | $ | 28,958 |  |  | $ | 172,160 |  |  | $ | 201,118 |

16

The following table is a rollforward of Covered loans, net of the allowance for loan losses, for the nine months ended September 30, 2013 and 2012.

(In thousands) | Contractual Cashflows |  | Less: Non-accretable Difference |  | Less: Accretable Yield |  | Carrying Amount
Balance January 1, 2013 | $ | 386,966 |  |  | $ | 118,627 |  |  | $ | 78,768 |  |  | $ | 189,571 |
Principal reductions and interest payments | (37,421 | ) |  | — |  |  | — |  |  | (37,421 | )
Accretion of loan discount | — |  |  | — |  |  | (19,987 | ) |  | 19,987 |
Changes in contractual and expected cash flows due to remeasurement | 9,216 |  |  | (10,858 | ) |  | 14,233 |  |  | 5,841 |
Reductions due to disposals | (68,953 | ) |  | (23,867 | ) |  | (12,288 | ) |  | (32,798 | )
Balance September 30, 2013 | $ | 289,808 |  |  | $ | 83,902 |  |  | $ | 60,726 |  |  | $ | 145,180 |
Balance January 1, 2012 | $ | 618,791 |  |  | $ | 256,481 |  |  | $ | 63,335 |  |  | $ | 298,975 |
Principal reductions and interest payments | (68,783 | ) |  | — |  |  | — |  |  | (68,783 | )
Accretion of loan discount | — |  |  | — |  |  | (22,231 | ) |  | 22,231 |
Changes in contractual and expected cash flows due to remeasurement | 1,671 |  |  | (67,401 | ) |  | 67,178 |  |  | 1,894 |
Reductions due to disposals | (107,669 | ) |  | (50,846 | ) |  | (12,837 | ) |  | (43,986 | )
Balance September 30, 2012 | $ | 444,010 |  |  | $ | 138,234 |  |  | $ | 95,445 |  |  | $ | 210,331 |

The accretable yield is accreted into interest income over the estimated life of the acquired loans using the effective
yield method.
A summary of activity in the FDIC loss share receivable for the nine months ended September 30, 2013 is as follows:

(In thousands) | September 30, 2013
Balance at beginning of period | $ | 61,475 |
Adjustments not reflected in income: |
Cash received from the FDIC for covered assets | (9,654 | )
FDIC reimbursable losses, net | 1,880 |
Adjustments reflected in income: |
Amortization, net | (9,574 | )
Loan impairment (recapture) | 2,205 |
Reductions for payments on covered assets in excess of expected cash flows | (6,278 | )
Balance at end of period | $ | 40,054 |

Due to continued favorable projections in the expected cash flows of its Covered loans, the Company continues to anticipate that it will be required to pay the FDIC at the end of one of the loss share agreements. Accordingly, a liability of $1.4 million has been recorded at September 30, 2013. As part of the remeasurement process, the Company recorded a $62,000 adjustment to increase the liability through Other noninterest expense during the quarter ended September 30, 2013. The liability will continue to be adjusted as part of the quarterly remeasurement process through the end of the loss share agreement.
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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 under commitments to extend credit and standby letters of credit in the event of nonperformance by the other party to the financial instrument 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 September 30, 2013, there were $1.7 million of unadvanced commitments on impaired loans compared to $775,000 at December 31, 2012. Other liabilities include approximately $241,000 and $124,000 at September 30, 2013 and December 31, 2012 for estimated losses attributable to the unadvanced commitments on impaired loans.
The contractual amounts of off-balance-sheet financial instruments as of September 30, 2013, and December 31, 2012, are as follows:

(in thousands) | September 30, 2013 |  | December 31, 2012
Commitments to extend credit | $ | 769,704 |  |  | $ | 722,325 |
Standby letters of credit | 43,452 |  |  | 42,561 |

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 September 30, 2013, and December 31, 2012, approximately $38.6 million and $50.7 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. The type of collateral held varies, but may include accounts receivable, inventory, premises and equipment, and real estate.
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 terms of standby letters of credit range from 6 months to 5 years at September 30, 2013.
Contingencies
The Company and its subsidiaries are, from time to time, parties to various legal proceedings arising out of their businesses. Although we are not able to predict the outcome of such actions, management believes that 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.
Distinctive Notes
The Bank, along with other co-defendants, had been named as a defendant in lawsuits filed by persons alleging to be clients of the Bank’s Trust division who invested in promissory notes (the "Distinctive Notes") issued by Distinctive
18

Properties (UK) Limited (“Distinctive Properties”), a company involved in the purchase and development of real estate in the United Kingdom.
Rosemann, et al. v. Martin Sigillito, et al.
In a lawsuit filed in United States District Court for the Eastern District of Missouri, the plaintiffs alleged that the investments in the Distinctive Notes were part of a multi-million dollar Ponzi scheme. Plaintiffs alleged to hold such promissory notes in accounts with the Trust division and that, among other things, the Bank was negligent and breached its contracts. Plaintiffs also alleged that the Bank violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Plaintiffs, in the aggregate, were seeking damages from defendants, including the Bank, in excess of $44.0 million as well as their costs and attorneys’ fees and trebled damages under RICO.
The case was stayed while criminal proceedings against Sigillito were completed. After a four week trial, Sigillito was found guilty of 20 counts of wire fraud, mail fraud, conspiracy, and money laundering. Following the verdict, the judge lifted the stay and set the case for a four week jury trial starting August 26, 2013. Discovery concluded on April 16, 2013 and dispositive motions were filed. On July 9, 2013 the judge dismissed all counts related to RICO, as well as the Company's negligence. The Court denied the plaintiffs' motion to reconsider the dismissal. The claims that remained pending against the Company were the breach of contract claims asserted by 41 plaintiffs who held IRA accounts with the Company. On September 24, 2013, the Company reached a confidential settlement with the Plaintiffs. The settlement did not have a material impact on the Company's financial statements.
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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 or speculative purposes.
Interest rate swap contracts involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. The Company enters into interest rate swap contracts on behalf of its clients and also utilizes such contracts to reduce or eliminate the exposure to changes in the cash flows or fair value of hedged assets or liabilities due to changes in interest rates. Interest rate option contracts consist of caps and provide for the transfer or reduction of interest rate risk in exchange for a fee. Foreign exchange forward contracts are agreements between two parties to exchange a specified amount of one currency for another currency at a specified foreign exchange rate on a future date. The Company enters into foreign exchange forward contracts with its clients and enters into an offsetting foreign exchange contract with established financial institution counterparties.
All derivative financial instruments, whether designated as hedges or not, are recorded on the consolidated balance sheet at fair value within Other assets or Other liabilities. The accounting for changes in the fair value of a derivative in the consolidated statement of operations depends on whether the contract has been designated as a hedge and qualifies for hedge accounting. At September 30, 2013, and December 31, 2012, the Company did not have any derivatives designated as cash flow or fair value hedges.
Using derivative instruments means assuming counterparty credit risk. Counterparty credit risk relates to the loss the Company could incur if a counterparty were to default on a derivative contract. Notional amounts of derivative financial instruments do not represent credit risk, and are not recorded in the consolidated balance sheet. They are used merely to express the volume of this activity. The overall credit risk and exposure to individual counterparties is monitored. The Company does not anticipate nonperformance by any counterparties. The amount of counterparty credit exposure is the unrealized gains, if any, on such derivative contracts along with the value of foreign exchange forward contracts. At September 30, 2013 and December 31, 2012, the Company had $1.1 million and $1.7 million of counterparty credit exposure on derivatives, respectively. At September 30, 2013, and December 31, 2012, the Company had pledged cash of $730,000 and $3.3 million, respectively, as collateral in connection with our interest rate swap agreements.
Risk Management Instruments. The Company enters into certain derivative contracts to economically hedge state tax credits and certain loans.

• | Economic hedge of state tax credits. In November 2008, the Company paid $2.1 million to enter into a series of interest rate caps in order to economically hedge changes in fair value of the state tax credits held for sale. In February 2010, the Company paid $751,000 for an additional series of interest rate caps. See Note 8—Fair Value Measurements for further discussion of the fair value of the state tax credits.

The table below summarizes the notional amounts and fair values of the derivative instruments used to manage risk.

|  |  | Asset Derivatives (Other Assets) |  | Liability Derivatives (Other Liabilities)
Notional Amount |  | Fair Value |  | Fair Value
(in thousands) | September 30, 2013 |  | December 31, 2012 |  | September 30, 2013 |  | December 31, 2012 |  | September 30, 2013 |  | December 31, 2012
Non-designated hedging instruments |  |  |  |  |  |  |  |  |  |  |
Interest rate cap contracts | $ | 34,050 |  |  | $ | 49,050 |  |  | $ | 14 |  |  | $ | 13 |  |  | $ | — |  |  | $ | — |

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The following table shows the location and amount of gains and losses related to derivatives used for risk management purposes that were recorded in the condensed consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012.

| Location of Gain or (Loss) Recognized in Operations on Derivative | Amount of Gain or (Loss) Recognized in Operations on Derivative |  | Amount of Gain or (Loss) Recognized in Operations on Derivative
Three months ended September 30, |  | Nine months ended September 30,
(in thousands) | 2013 |  | 2012 |  | 2013 |  | 2012
Non-designated hedging instruments |  |  |  |  |  |  |  |
Interest rate cap contracts | Gain on state tax credits, net | $ | (9 | ) |  | $ | (14 | ) |  | $ | 1 |  |  | $ | (79 | )

Client-Related Derivative Instruments. As an accommodation to certain customers, the Company enters into interest rate swaps to economically hedge changes in fair value of certain loans. 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) | September 30, 2013 |  | December 31, 2012 |  | September 30, 2013 |  | December 31, 2012 |  | September 30, 2013 |  | December 31, 2012
Non-designated hedging instruments |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contracts | $ | 139,223 |  |  | $ | 126,962 |  |  | $ | 1,114 |  |  | $ | 1,741 |  |  | $ | 1,114 |  |  | $ | 1,979 |

Changes in the fair value of client-related derivative instruments are recognized currently in operations. The following table shows the location and amount of gains and losses recorded in the condensed consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012.

| Location of Gain or (Loss) Recognized in Operations on Derivative | Amount of Gain or (Loss) Recognized in Operations on Derivative |  | Amount of Gain or (Loss) Recognized in Operations on Derivative
Three months ended September 30, |  | Nine months ended September 30,
(in thousands) | 2013 |  | 2012 |  | 2013 |  | 2012
Non-designated hedging instruments |  |  |  |  |  |  |  |
Interest rate swap contracts | Interest and fees on loans | $ | (32 | ) |  | $ | (103 | ) |  | $ | (205 | ) |  | $ | (354 | )

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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 September 30, 2013, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.

| September 30, 2013
(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 | $ | — |  |  | $ | 93,974 |  |  | $ | — |  |  | $ | 93,974 |
Obligations of states and political subdivisions | — |  |  | 48,151 |  |  | 3,042 |  |  | 51,193 |
Residential mortgage-backed securities | — |  |  | 307,879 |  |  | — |  |  | 307,879 |
Total securities available for sale | $ | — |  |  | $ | 450,004 |  |  | $ | 3,042 |  |  | $ | 453,046 |
State tax credits held for sale | — |  |  | — |  |  | 20,139 |  |  | 20,139 |
Derivative financial instruments | — |  |  | 1,128 |  |  | — |  |  | 1,128 |
Total assets | $ | — |  |  | $ | 451,132 |  |  | $ | 23,181 |  |  | $ | 474,313 |
Liabilities |  |  |  |  |  |  |  |  |
Derivative financial instruments | $ | — |  |  | $ | 1,114 |  |  | $ | — |  |  | $ | 1,114 |
Total liabilities | $ | — |  |  | $ | 1,114 |  |  | $ | — |  |  | $ | 1,114 |

• | Securities available for sale. Securities classified as available for sale are reported at fair value utilizing Level 2 and Level 3 inputs. The Company obtains fair value measurements from an independent pricing service. 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 September 30, 2013, 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.

• | Portfolio Loans. Certain fixed rate portfolio loans are accounted for as trading instruments and reported at fair value. Fair value on these loans is determined using a third party valuation model with observable Level 2 market data inputs.

• | State tax credits held for sale. At September 30, 2013, of the $55.8 million of state tax credits held for sale on the condensed consolidated balance sheet, approximately $20.1 million were carried at fair value. The remaining $35.7 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 from 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 observable 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
22

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.

23

Level 3 financial instruments
The following table presents the changes in Level 3 financial instruments measured at fair value on a recurring basis for the periods ended September 30, 2013 and 2012, respectively.

• | Purchases, sales, issuances and settlements, net. There were no Level 3 purchases during the quarter ended September 30, 2013 or 2012.

• | Transfers in and/or out of Level 3. The transfer out of Level 3 during the period ended March 31, 2012 was related to a mortgage-backed security purchased in the fourth quarter of 2011 which was originally priced using Level 3 assumptions. In the first quarter of 2012, a third party pricing service, utilizing Level 2 assumptions, became available as more data was available on the new security.

| Securities available for sale, at fair value
Three months ended September 30, |  | Nine months ended September 30,
(in thousands) | 2013 |  | 2012 |  | 2013 |  | 2012
Beginning balance | $ | 3,039 |  |  | $ | 3,042 |  |  | $ | 3,049 |  |  | $ | 6,763 |
Total (losses) gains: |  |  |  |  |  |  |
Included in other comprehensive income | 3 |  |  | 5 |  |  | (7 | ) |  | 20 |
Purchases, sales, issuances and settlements: |  |  |  |  |  |  |
Purchases | — |  |  | — |  |  | — |  |  | — |
Transfer in and/or out of Level 3 | — |  |  | — |  |  | — |  |  | (3,736 | )
Ending balance | $ | 3,042 |  |  | $ | 3,047 |  |  | $ | 3,042 |  |  | $ | 3,047 |
Change in unrealized (losses) gains relating to assets still held at the reporting date | $ | 3 |  |  | $ | 5 |  |  | $ | (7 | ) |  | $ | 20 |

| State tax credits held for sale
Three months ended September 30, |  | Nine months ended September 30,
(in thousands) | 2013 |  | 2012 |  | 2013 |  | 2012
Beginning balance | $ | 19,822 |  |  | $ | 24,836 |  |  | $ | 23,020 |  |  | $ | 26,350 |
Total gains: |  |  |  |  |  |  |
Included in earnings | 317 |  |  | 264 |  |  | 422 |  |  | 994 |
Purchases, sales, issuances and settlements: |  |  |  |  |  |  |
Sales | — |  |  | (31 | ) |  | (3,303 | ) |  | (2,275 | )
Ending balance | $ | 20,139 |  |  | $ | 25,069 |  |  | $ | 20,139 |  |  | $ | 25,069 |
Change in unrealized gains relating to assets still held at the reporting date | $ | 317 |  |  | $ | 257 |  |  | $ | (456 | ) |  | $ | 439 |

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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 September 30, 2013:

| (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 (losses) gains for the three months ended September 30, 2013 |  | Total (losses) gains for the nine months ended September 30, 2013
Impaired loans | $ | 3,172 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,172 |  |  | $ | (2,514 | ) |  | $ | (8,046 | )
Other real estate | 7,528 |  |  | — |  |  | — |  |  | 7,528 |  |  | (207 | ) |  | (961 | )
Total | $ | 10,700 |  |  | $ | — |  |  | $ | — |  |  | $ | 10,700 |  |  | $ | (2,721 | ) |  | $ | (9,007 | )

(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 or by determining the net present value of future cash flows. Fair values for collateral dependent impaired loans are obtained from current appraisals by qualified licensed appraisers or independent valuation specialists. Fair values of impaired loans that are not collateral dependent are determined by using a discounted cash flow model to determine the net present value of future cash flows. Other real estate owned is adjusted to fair value upon foreclosure of the loan collateral. 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.
Following is a summary of the carrying amounts and fair values of the Company’s financial instruments on the consolidated balance sheets at September 30, 2013, and December 31, 2012.

| September 30, 2013 |  | December 31, 2012
(in thousands) | Carrying Amount |  | Estimated fair value |  | Carrying Amount |  | Estimated fair value
Balance sheet assets |  |  |  |  |  |  |
Cash and due from banks | $ | 35,238 |  |  | $ | 35,238 |  |  | $ | 21,906 |  |  | $ | 21,906 |
Federal funds sold | 111 |  |  | 111 |  |  | 51 |  |  | 51 |
Interest-bearing deposits | 71,191 |  |  | 71,191 |  |  | 95,413 |  |  | 95,413 |
Securities available for sale | 453,046 |  |  | 453,046 |  |  | 640,212 |  |  | 640,212 |
Other investments, at cost | 15,485 |  |  | 15,485 |  |  | 14,294 |  |  | 14,294 |
Loans held for sale | 12,967 |  |  | 12,967 |  |  | 11,792 |  |  | 11,792 |
Derivative financial instruments | 1,128 |  |  | 1,128 |  |  | 1,754 |  |  | 1,754 |
Portfolio loans, net | 2,229,406 |  |  | 2,229,411 |  |  | 2,261,280 |  |  | 2,267,038 |
State tax credits, held for sale | 55,810 |  |  | 60,937 |  |  | 61,284 |  |  | 66,822 |
Accrued interest receivable | 7,897 |  |  | 7,897 |  |  | 8,497 |  |  | 8,497 |
Balance sheet liabilities |  |  |  |  |  |  |
Deposits | 2,447,917 |  |  | 2,453,970 |  |  | 2,658,851 |  |  | 2,669,113 |
Subordinated debentures | 63,081 |  |  | 40,474 |  |  | 85,081 |  |  | 65,840 |
Federal Home Loan Bank advances | 120,000 |  |  | 126,234 |  |  | 80,000 |  |  | 89,301 |
Other borrowings | 178,165 |  |  | 178,228 |  |  | 245,070 |  |  | 245,224 |
Derivative financial instruments | 1,114 |  |  | 1,114 |  |  | 1,979 |  |  | 1,979 |
Accrued interest payable | 885 |  |  | 885 |  |  | 1,282 |  |  | 1,282 |

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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 20–Fair Value Measurements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
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 September 30, 2013, and December 31, 2012:

| Estimated Fair Value Measurement at Reporting Date Using |  | Balance at September 30, 2013
(in thousands) | Level 1 |  | Level 2 |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |
Portfolio loans, net | $ | — |  |  | $ | — |  |  | $ | 2,229,411 |  |  | $ | 2,229,411 |
State tax credits, held for sale | $ | — |  |  | $ | — |  |  | $ | 40,798 |  |  | $ | 40,798 |
Financial Liabilities: |  |  |  |  |  |  |
Deposits | 1,825,274 |  |  | — |  |  | 628,696 |  |  | 2,453,970 |
Subordinated debentures | — |  |  | 40,474 |  |  | — |  |  | 40,474 |
Federal Home Loan Bank advances | — |  |  | 126,234 |  |  | — |  |  | 126,234 |
Other borrowings | — |  |  | 178,228 |  |  | — |  |  | 178,228 |
| Estimated Fair Value Measurement at Reporting Date Using |  | Balance at December 31, 2012
(in thousands) | Level 1 |  | Level 2 |  | Level 3 |
Financial Assets: |  |  |  |  |  |  |
Portfolio loans, net | $ | — |  |  | $ | — |  |  | $ | 2,266,834 |  |  | $ | 2,266,834 |
State tax credits, held for sale | $ | — |  |  | $ | — |  |  | $ | 43,802 |  |  | $ | 43,802 |
Financial Liabilities: |  |  |  |  |  |  |
Deposits | 2,079,141 |  |  | — |  |  | 589,972 |  |  | 2,669,113 |
Subordinated debentures | — |  |  | 65,840 |  |  | — |  |  | 65,840 |
Federal Home Loan Bank advances | — |  |  | 89,301 |  |  | — |  |  | 89,301 |
Other borrowings | — |  |  | 245,224 |  |  | — |  |  | 245,224 |

NOTE 9 - SEGMENT REPORTING
The Company has two primary operating segments, Banking and Wealth Management, which are delineated by the products and services that each segment offers. The segments are evaluated separately on their individual performance, as well as their contribution to the Company as a whole.
The Banking operating segment consists of a full-service commercial bank, with locations in St. Louis, Kansas City, and Phoenix. The majority of the Company’s assets and income result from the Banking segment. All banking locations have the same product and service offerings, have similar types and classes of customers and utilize similar service delivery methods. Pricing guidelines and operating policies for products and services are the same across all regions.
The Banking operating segment also includes activities surrounding the assets acquired under FDIC loss share agreements.
The Wealth Management operating segment includes the Trust division of the Bank and the state tax credit brokerage activities. The Trust division provides estate planning, investment management, and retirement planning as well as strategic planning and management succession issues. State tax credits are part of a fee initiative designed to augment the Company’s Wealth Management segment and Banking lines of business.
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The Company's Corporate and Intercompany activities represent the elimination of items between segments as well as Corporate related items that management feels are not allocable to either of the two respective segments.
The financial information for each business segment reflects that information which is specifically identifiable or which is allocated based on an internal allocation method. There were no material intersegment revenues among the two segments. Management periodically makes changes to methods of assigning costs and income to its business segments to better reflect operating results. When appropriate, these changes are reflected in prior year information presented below.
Following are the financial results for the Company’s operating segments.

(in thousands) | Banking |  | Wealth Management |  | Corporate and Intercompany |  | Total
| Three months ended September 30,
Income Statement Information | 2013
Net interest income (expense) | $ | 33,476 |  |  | $ | (166 | ) |  | $ | (736 | ) |  | $ | 32,574 |
Provision for loan losses | 2,159 |  |  | — |  |  | — |  |  | 2,159 |
Noninterest income | 1,684 |  |  | 2,006 |  |  | 26 |  |  | 3,716 |
Noninterest expense | 17,898 |  |  | 1,809 |  |  | 1,533 |  |  | 21,240 |
Income (loss) before income tax expense (benefit) | 15,103 |  |  | 31 |  |  | (2,243 | ) |  | 12,891 |
| 2012
Net interest income (expense) | $ | 38,627 |  |  | $ | (252 | ) |  | $ | (891 | ) |  | $ | 37,484 |
Provision for loan losses | 11,937 |  |  | — |  |  | — |  |  | 11,937 |
Noninterest income | 5,418 |  |  | 2,088 |  |  | 326 |  |  | 7,832 |
Noninterest expense | 18,063 |  |  | 1,968 |  |  | 1,251 |  |  | 21,282 |
Income (loss) before income tax expense (benefit) | 14,045 |  |  | (132 | ) |  | (1,816 | ) |  | 12,097 |
| Nine months ended September 30,
Income Statement Information | 2013
Net interest income (expense) | $ | 105,738 |  |  | $ | (292 | ) |  | $ | (2,665 | ) |  | $ | 102,781 |
Provision for loan losses | (305 | ) |  | — |  |  | — |  |  | (305 | )
Noninterest income | (1,758 | ) |  | 6,611 |  |  | 100 |  |  | 4,953 |
Noninterest expense | 53,137 |  |  | 5,644 |  |  | 4,355 |  |  | 63,136 |
Income (loss) before income tax expense (benefit) | 51,148 |  |  | 675 |  |  | (6,920 | ) |  | 44,903 |
| 2012
Net interest income (expense) | $ | 105,646 |  |  | $ | (566 | ) |  | $ | (2,834 | ) |  | $ | 102,246 |
Provision for loan losses | 16,221 |  |  | — |  |  | — |  |  | 16,221 |
Noninterest income | 5,571 |  |  | 6,718 |  |  | 371 |  |  | 12,660 |
Noninterest expense | 54,424 |  |  | 5,761 |  |  | 3,875 |  |  | 64,060 |
Income (loss) before income tax expense (benefit) | 40,572 |  |  | 391 |  |  | (6,338 | ) |  | 34,625 |
Balance Sheet Information | September 30, 2013 |  | December 31, 2012
Total assets: |  |  |
Banking | $ | 2,994,008 |  |  | $ | 3,195,096 |
Wealth Management | 96,943 |  |  | 112,020 |
Corporate and Intercompany | 17,111 |  |  | 18,670 |
Total | 3,108,062 |  |  | 3,325,786 |

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NOTE 10 - BRANCH SALE
On July 3, 2013 the Company entered into an agreement to sell two of its Kansas City branches to another financial institution. The agreement calls for the sale of substantially all of the deposits at these branches, as well as specified loans and other assets. The Company expects to record a gain upon completion of the transaction primarily attributed to a premium on the deposits that will be sold. Regulatory approval for the transaction occurred in the third quarter of 2013 and the sale is expected to be completed in the fourth quarter of 2013.
The following table summarizes the primary balance sheet amounts relative to the branches to be sold:

(in thousands) |  |
Assets |  |
Cash and cash equivalents |  | $ | 805 |
Loans |  | 7,696 |
Other assets |  | 1,206 |
Liabilities |  |
Deposits |  | $ | 81,298 |

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
Introduction
The following discussion describes the significant changes to the financial condition of the Company that have occurred during the first nine months of 2013 compared to the financial condition as of December 31, 2012. In addition, this discussion summarizes the significant factors affecting the results of operations, liquidity and cash flows of the Company for the three and nine months ended September 30, 2013, compared to the same period in 2012. This discussion should be read in conjunction with the accompanying consolidated financial statements included in this report and our Annual Report on Form 10-K for the year ended December 31, 2012.
Executive Summary
The Company reported net income of $8.4 million for the three months ended September 30, 2013, compared to net income of $7.9 million for the same period in 2012. The Company reported diluted earnings per share of $0.44, compared to $0.39 for the prior year period.
Net income for the nine months ended September 30, 2013 was $29.5 million compared to net income of $22.9 million for the same period in 2012. The Company reported diluted earnings per share of $1.55, compared to $1.14 for the prior year period.
Below are highlights of our Banking and Wealth Management segments. For more information on our segments, see Note 9 –Segment Reporting.
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Banking Segment

• | Loans - Portfolio loans totaled $2.3 billion at September 30, 2013, up $21.2 million, or 1% when compared to June 30, 2013 and up $61.0 million, or 3% from September 30, 2012. The Company expects to show 2-3% loan growth over December 31, 2012 by the end of 2013. Loans covered under FDIC shared loss agreements ("Covered loans") were $158.8 million at September 30, 2013, a decrease of $11.1 million or 7% from June 30, 2013 and a decrease of $62.6 million or 28% from September 30, 2012.

Portfolio loans excluding covered loans ("Noncovered loans") were up slightly when compared to June 30, 2013 amounts. The increase was primarily due to Commercial & Industrial loans, which increased $44.5 million or 5%, offset by Construction Real Estate loans which decreased $33.3 million or 23%. Noncovered loans increased $123.7 million or 6%, from September 30, 2012. Commercial and Industrial loans drove the increase and were up $127.0 million or 14%.
See Note 4 – Portfolio Loans Not Covered by Loss Share and Note 5 – Portfolio Loans Covered by Loss Share for more information.

• | Deposits – Total deposits at September 30, 2013 were $2.4 billion, an increase of $79.7 million, or 3% from June 30, 2013 and a decrease of $103.0 million, or 4%, from September 30, 2012. The increase in deposits from the linked quarter applied primarily to our certificates of deposits as the Company sought incremental liquidity at relatively low interest rates. The year over year decrease in deposits was largely comprised of reductions in interest-bearing and money market deposits as the Company continued to manage down its cost of funds and focus on retention of noninterest-bearing accounts.

• | Asset quality – Nonperforming loans were $24.2 million at September 30, 2013, compared to $25.9 million at June 30, 2013 and $32.1 million at September 30, 2012. Nonperforming loans represented 1.14% of total Noncovered loans at September 30, 2013 versus 1.25% at June 30, 2013 and 1.61% at September 30, 2012. Excluding non-accrual loans and Covered loans, portfolio loans that were 30-89 days delinquent at September 30, 2013 remained at very low levels, representing 0.09% of the portfolio compared to 0.27% at June 30, 2013 and 0.07% at September 30, 2012.

Provision for loan losses not covered under FDIC loss share was a benefit of $0.7 million in the third quarter of 2013, compared to a benefit of $4.3 million in the linked quarter and an expense of $1.0 million in the third quarter of 2012. See Note 4 – Portfolio Loans Not Covered by Loss Share and Provision and Allowance for Loan Losses and Nonperforming Assets in this section for more information.

• | Interest rate margin – T he net interest rate margin was 4.71% for the third quarter of 2013, compared to 4.75% for the second quarter of 2013 and 5.21% in the third quarter of 2012. See Net Interest Income in this section for more information.

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• | Covered loans and other assets covered under FDIC shared loss agreements - The following table illustrates the net revenue contribution of covered assets for the most recent five quarters.

| For the Quarter ended
(in thousands) | September 30, 2013 |  | June 30, 2013 |  | March 31, 2013 |  | December 31, 2012 |  | September 30, 2012
Accretion income | $ | 6,252 |  |  | $ | 6,623 |  |  | $ | 7,112 |  |  | $ | 7,442 |  |  | $ | 7,995 |
Accelerated cash flows | 4,309 |  |  | 4,689 |  |  | 7,209 |  |  | 9,778 |  |  | 7,446 |
Other | 219 |  |  | 59 |  |  | 324 |  |  | 419 |  |  | 103 |
Total interest income | 10,780 |  |  | 11,371 |  |  | 14,645 |  |  | 17,639 |  |  | 15,544 |
Provision for loan losses | (2,811 | ) |  | 2,278 |  |  | (2,256 | ) |  | (653 | ) |  | (10,889 | )
Gain on sale of other real estate | 168 |  |  | 116 |  |  | 689 |  |  | 105 |  |  | 34 |
Change in FDIC loss share receivable | (2,849 | ) |  | (6,713 | ) |  | (4,085 | ) |  | (8,131 | ) |  | 1,912 |
Change in FDIC clawback liability | (62 | ) |  | (449 | ) |  | (304 | ) |  | (575 | ) |  | — |
Pre-tax net revenue | $ | 5,226 |  |  | $ | 6,603 |  |  | $ | 8,689 |  |  | $ | 8,385 |  |  | $ | 6,601 |

Our current projection of average Covered loans is $153.4 million and $115.3 million for the years ended December 31, 2013 and 2014, respectively.
Wealth Management Segment
Fee income from the Wealth Management segment includes Wealth Management revenue and income from state tax credit brokerage activities. Wealth Management revenue was $1.7 million in the third quarter of 2013, a decrease of $80,000, or 4%, over the linked second quarter and a decrease of $127,000, or 7%, over the period ended September 30, 2012. See Noninterest Income in this section for more information.
Net Interest Income
Three months ended September 30, 2013 and 2012
Net interest income (on a tax equivalent basis) was $33.1 million for the three months ended September 30, 2013 compared to $37.9 million for the same period of 2012, a decrease of $4.8 million, or 13%. Total interest income decreased $5.9 million and total interest expense decreased $1.1 million.
Average interest-earning assets decreased $100.7 million, or 3%, to $2.8 billion for the quarter ended September 30, 2013 from $2.9 billion for the quarter ended September 30, 2012. Average loans increased $57.2 million, or 3%, to $2.25 billion for the quarter ended September 30, 2013, from $2.19 billion for the quarter ended September 30, 2012. Noncovered loans increased $127.9 million while Covered loans decreased $70.7 million. Average securities decreased $140.3 million or 23%, while short-term investments decreased $17.6 million or 19% from the third quarter of 2012. Interest income on earning assets decreased $3.7 million from a volume perspective primarily due to lower volume on Covered loans and decreased $2.2 million from a rate perspective primarily due to lower rates on Noncovered loans for a net decrease of $5.9 million versus the third quarter of 2012. Refer to Rate/Volume section for more information regarding our net interest income.
For the quarter ended September 30, 2013, average interest-bearing liabilities decreased $100.3 million, or 4%, to $2.2 billion compared to $2.3 billion for the quarter ended September 30, 2012. The decrease resulted from a $182.7 million decrease in average interest-bearing deposits, partially offset by a $94.5 million increase in borrowed funds from customer repurchase agreements and Federal Home Loan Bank (FHLB) advances. The decrease in average interest-bearing deposits is due to a $59.5 million decrease in certificates of deposit, a $73.1 million decrease in average money market accounts and savings accounts, and a $50.1 million decrease in interest-bearing transaction accounts. For the
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third quarter of 2013, interest expense on interest-bearing liabilities decreased $1.0 million due to declining rates and $119,000 due to the impact of lower volumes, for a total decrease of $1.1 million versus the third quarter of 2012.
The tax-equivalent net interest rate margin was 4.71% for the third quarter of 2013, compared to 4.75% for the second quarter of 2013 and 5.21% in the third quarter of 2012. Covered loans yielded 26.31% in the third quarter of 2013, compared to 26.51% in the third quarter of 2012.
The Core net interest margin, defined as the Net interest margin (fully tax equivalent), including contractual interest on Covered loans, but excluding the incremental accretion on these loans, for the quarters ended September 30, 2013 and 2012 is as follows:

| Three months ended September 30,
| 2013 |  | 2012
Core net interest margin | 3.54 | % |  | 3.57 | %

The Core net interest margin decline was due to lower loan yields partially offset by an improved earning asset mix and lower deposit and overall funding costs. Continued pressure on loan yields and liquidity is expected to result in a slightly lower Core net interest margin over the next two quarters. Included in this MD&A under the caption "Use of Non-GAAP Financial Measures" is a reconciliation of net interest margin to Core net interest margin. The Average Balance Sheet and Rate/Volume sections following contain additional information regarding our net interest income.
Nine months ended September 30, 2013 and 2012
Net interest income (on a tax equivalent basis) was $104.4 million for the nine months ended September 30, 2013 compared to $103.3 million for the same period of 2012, an increase of $1.0 million, or 1%. Total interest income decreased $2.8 million and total interest expense decreased $3.8 million.
Average interest-earning assets decreased $9.1 million, relatively flat when compared to the nine months ended September 30, 2012. Average loans increased $85.7 million, or 4%, to $2.3 billion for the nine months ended September 30, 2013, from $2.2 billion for the nine months ended September 30, 2012. Noncovered loans increased $165.2 million while Covered loans decreased $79.5 million. Average securities decreased $66.3 million or 11%, while short-term investments decreased $28.5 million or 26% from the same period of 2012. Interest income on earning assets decreased $8.4 million primarily due to lower volume on Covered loans and increased $5.7 million primarily due to higher yields on Covered loans, for a net increase of $2.8 million versus the same period of 2012. See Rate/Volume section below for more information regarding our net interest income.
For the nine months ended September 30, 2013, average interest-bearing liabilities decreased $105.4 million, or 4%, to $2.2 billion compared to $2.4 billion for the nine months ended September 30, 2012. The decrease resulted from a $219.4 million decrease in average interest-bearing deposits, partially offset by a $118.2 million increase in borrowed funds from customer repurchase agreements and FHLB advances. The decrease in average interest-bearing deposits is primarily due to a $139.4 million decrease in certificates of deposit, and a $62.0 million decrease in average money market accounts and savings accounts. For the nine months ended September 30, 2013, interest expense on interest-bearing liabilities decreased $3.1 million due to declining rates and $650,000 due to the impact of lower volumes, for a total decrease of $3.8 million versus the same period of 2012.
The tax-equivalent net interest rate margin was 4.86% for the nine months ended September 30, 2013, compared to 4.79% in the same period of 2012. Covered loans yielded 28.10% for the nine months ended September 30, 2013, compared to 19.95% in the same period 2012.
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The Core net interest margin for the nine months ended September 30, 2013 and 2012 is as follows:

| Nine months ended September 30,
| 2013 |  | 2012
Core net interest margin | 3.55 | % |  | 3.59 | %

The Core net interest margin decline was due to lower loan yields partially offset by an improved earning asset mix and lower deposit and overall funding costs. Included in this MD&A under the caption "Use of Non-GAAP Financial Measures" is a reconciliation of net interest margin to Core net interest margin. The Average Balance Sheet and Rate/Volume sections following contain additional information regarding our net interest income.
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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 September 30,
| 2013 |  | 2012
(in thousands) | Average Balance |  | Interest Income/Expense |  | Average Yield/ Rate |  | Average Balance |  | Interest Income/Expense |  | Average Yield/ Rate
Assets |  |  |  |  |  |  |  |  |  |  |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |
Taxable loans (1) | $ | 2,036,572 |  |  | $ | 23,092 |  |  | 4.50 | % |  | $ | 1,918,419 |  |  | $ | 23,907 |  |  | 4.96 | %
Tax-exempt loans (2) | 46,846 |  |  | 857 |  |  | 7.26 |  |  | 37,138 |  |  | 680 |  |  | 7.28 |
Covered loans (3) | 162,569 |  |  | 10,781 |  |  | 26.31 |  |  | 233,272 |  |  | 15,544 |  |  | 26.51 |
Total loans | 2,245,987 |  |  | 34,730 |  |  | 6.13 |  |  | 2,188,829 |  |  | 40,131 |  |  | 7.29 |
Taxable investments in debt and equity securities | 425,983 |  |  | 2,149 |  |  | 2.00 |  |  | 574,968 |  |  | 2,671 |  |  | 1.85 |
Non-taxable investments in debt and equity securities (2) | 44,605 |  |  | 493 |  |  | 4.38 |  |  | 35,874 |  |  | 412 |  |  | 4.57 |
Short-term investments | 72,739 |  |  | 37 |  |  | 0.20 |  |  | 90,297 |  |  | 53 |  |  | 0.23 |
Total securities and short-term investments | 543,327 |  |  | 2,679 |  |  | 1.96 |  |  | 701,139 |  |  | 3,136 |  |  | 1.78 |
Total interest-earning assets | 2,789,314 |  |  | 37,409 |  |  | 5.32 |  |  | 2,889,968 |  |  | 43,267 |  |  | 5.96 |
Noninterest-earning assets: |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks | 16,897 |  |  |  |  |  |  | 17,435 |  |  |  |  |
Other assets | 284,413 |  |  |  |  |  |  | 318,400 |  |  |  |  |
Allowance for loan losses | (39,065 | ) |  |  |  |  |  | (37,804 | ) |  |  |  |
Total assets | $ | 3,051,559 |  |  |  |  |  |  | $ | 3,187,999 |  |  |  |  |
Liabilities and Shareholders' Equity |  |  |  |  |  |  |  |  |  |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |
Interest-bearing transaction accounts | $ | 209,398 |  |  | $ | 99 |  |  | 0.19 | % |  | $ | 259,488 |  |  | $ | 182 |  |  | 0.28 | %
Money market accounts | 894,552 |  |  | 714 |  |  | 0.32 |  |  | 982,375 |  |  | 1,024 |  |  | 0.41 |
Savings | 89,715 |  |  | 56 |  |  | 0.25 |  |  | 74,961 |  |  | 68 |  |  | 0.36 |
Certificates of deposit | 579,586 |  |  | 1,765 |  |  | 1.21 |  |  | 639,084 |  |  | 2,288 |  |  | 1.42 |
Total interest-bearing deposits | 1,773,251 |  |  | 2,634 |  |  | 0.59 |  |  | 1,955,908 |  |  | 3,562 |  |  | 0.72 |
Subordinated debentures | 72,864 |  |  | 679 |  |  | 3.70 |  |  | 85,081 |  |  | 982 |  |  | 4.59 |
Borrowed funds | 320,507 |  |  | 995 |  |  | 1.23 |  |  | 225,963 |  |  | 846 |  |  | 1.49 |
Total interest-bearing liabilities | 2,166,622 |  |  | 4,308 |  |  | 0.79 |  |  | 2,266,952 |  |  | 5,390 |  |  | 0.95 |
Noninterest bearing liabilities: |  |  |  |  |  |  |  |  |  |  |
Demand deposits | 607,257 |  |  |  |  |  |  | 642,598 |  |  |  |  |
Other liabilities | 14,889 |  |  |  |  |  |  | 15,086 |  |  |  |  |
Total liabilities | 2,788,768 |  |  |  |  |  |  | 2,924,636 |  |  |  |  |
Shareholders' equity | 262,791 |  |  |  |  |  |  | 263,363 |  |  |  |  |
Total liabilities & shareholders' equity | $ | 3,051,559 |  |  |  |  |  |  | $ | 3,187,999 |  |  |  |  |
Net interest income |  |  | $ | 33,101 |  |  |  |  |  |  | $ | 37,877 |  |  |
Net interest spread |  |  |  |  | 4.53 | % |  |  |  |  |  | 5.01 | %
Net interest rate margin (4) |  |  |  |  | 4.71 |  |  |  |  |  |  | 5.21 |

(1) | Average balances include non-accrual loans. The income on such loans is included in interest but is recognized only upon receipt. Loan fees, net of amortization of deferred loan origination fees and costs, included in interest income are approximately $282,000 and $340,000 for the three months ended September 30, 2013 and 2012, respectively.

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(2) | Non-taxable income is presented on a fully tax-equivalent basis using a 39% tax rate in 2013 and 36% tax rate in 2012. The tax-equivalent adjustments were $527,000 and $393,000 for the three months ended September 30, 2013 and 2012, respectively.

(3) | Covered loans are loans covered under FDIC shared-loss agreements.

(4) | Net interest income divided by average total interest-earning assets.

| Nine months ended September 30,
| 2013 |  | 2012
(in thousands) | Average Balance |  | Interest Income/Expense |  | Average Yield/ Rate |  | Average Balance |  | Interest Income/Expense |  | Average Yield/ Rate
Assets |  |  |  |  |  |  |  |  |  |  |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |
Taxable loans (1) | $ | 2,048,503 |  |  | $ | 70,963 |  |  | 4.63 | % |  | $ | 1,897,482 |  |  | $ | 72,319 |  |  | 5.09 | %
Tax-exempt loans (2) | 47,041 |  |  | 2,574 |  |  | 7.32 |  |  | 32,857 |  |  | 1,841 |  |  | 7.48 |
Covered loans (3) | 175,100 |  |  | 36,796 |  |  | 28.10 |  |  | 254,568 |  |  | 38,022 |  |  | 19.95 |
Total loans | 2,270,644 |  |  | 110,333 |  |  | 6.50 |  |  | 2,184,907 |  |  | 112,182 |  |  | 6.86 |
Taxable investments in debt and equity securities | 477,409 |  |  | 6,487 |  |  | 1.82 |  |  | 554,898 |  |  | 7,670 |  |  | 1.85 |
Non-taxable investments in debt and equity securities (2) | 44,115 |  |  | 1,486 |  |  | 4.50 |  |  | 32,902 |  |  | 1,146 |  |  | 4.65 |
Short-term investments | 81,836 |  |  | 130 |  |  | 0.21 |  |  | 110,364 |  |  | 195 |  |  | 0.24 |
Total securities and short-term investments | 603,360 |  |  | 8,103 |  |  | 1.80 |  |  | 698,164 |  |  | 9,011 |  |  | 1.72 |
Total interest-earning assets | 2,874,004 |  |  | 118,436 |  |  | 5.51 |  |  | 2,883,071 |  |  | 121,193 |  |  | 5.62 |
Noninterest-earning assets: |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks | 17,575 |  |  |  |  |  |  | 16,037 |  |  |  |  |
Other assets | 274,085 |  |  |  |  |  |  | 361,824 |  |  |  |  |
Allowance for loan losses | (43,593 | ) |  |  |  |  |  | (38,104 | ) |  |  |  |
Total assets | $ | 3,122,071 |  |  |  |  |  |  | $ | 3,222,828 |  |  |  |  |
Liabilities and Shareholders' Equity |  |  |  |  |  |  |  |  |  |  |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |
Interest-bearing transaction accounts | $ | 238,400 |  |  | $ | 360 |  |  | 0.20 | % |  | $ | 256,505 |  |  | $ | 566 |  |  | 0.29 | %
Money market accounts | 939,127 |  |  | 2,348 |  |  | 0.33 |  |  | 1,024,359 |  |  | 3,694 |  |  | 0.48 |
Savings | 89,664 |  |  | 171 |  |  | 0.25 |  |  | 66,386 |  |  | 209 |  |  | 0.42 |
Certificates of deposit | 561,796 |  |  | 5,593 |  |  | 1.33 |  |  | 701,168 |  |  | 7,603 |  |  | 1.45 |
Total interest-bearing deposits | 1,828,987 |  |  | 8,472 |  |  | 0.62 |  |  | 2,048,418 |  |  | 12,072 |  |  | 0.79 |
Subordinated debentures | 80,920 |  |  | 2,580 |  |  | 4.26 |  |  | 85,081 |  |  | 3,111 |  |  | 4.88 |
Borrowed funds | 336,063 |  |  | 3,021 |  |  | 1.20 |  |  | 217,841 |  |  | 2,689 |  |  | 1.65 |
Total interest-bearing liabilities | 2,245,970 |  |  | 14,073 |  |  | 0.84 |  |  | 2,351,340 |  |  | 17,872 |  |  | 1.02 |
Noninterest bearing liabilities: |  |  |  |  |  |  |  |  |  |  |
Demand deposits | 610,894 |  |  |  |  |  |  | 609,357 |  |  |  |  |
Other liabilities | 14,205 |  |  |  |  |  |  | 8,828 |  |  |  |  |
Total liabilities | 2,871,069 |  |  |  |  |  |  | 2,969,525 |  |  |  |  |
Shareholders' equity | 251,002 |  |  |  |  |  |  | 253,303 |  |  |  |  |
Total liabilities & shareholders' equity | $ | 3,122,071 |  |  |  |  |  |  | $ | 3,222,828 |  |  |  |  |
Net interest income |  |  | $ | 104,363 |  |  |  |  |  |  | $ | 103,321 |  |  |
Net interest spread |  |  |  |  | 4.67 | % |  |  |  |  |  | 4.60 | %
Net interest rate margin (4) |  |  |  |  | 4.86 |  |  |  |  |  |  | 4.79 |

(1) | Average balances include non-accrual loans. The income on such loans is included in interest but is recognized only upon receipt. Loan fees, net of amortization of deferred loan origination fees and costs, included in interest income are approximately $1,154,000 and $1,040,000 for the nine months ended September 30, 2013 and 2012, respectively.

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(2) | Non-taxable income is presented on a fully tax-equivalent basis using a 39% tax rate in 2013 and 36% tax rate in 2012. The tax-equivalent adjustments were $1,582,000 and $1,075,000 for the nine months ended September 30, 2013 and 2012, respectively.

(3) | Covered loans are loans covered under FDIC shared-loss agreements.

(4) | Net interest income divided by average total interest-earning assets.

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.

| 2013 compared to 2012
Three months ended September 30, |  | Nine months ended September 30,
Increase (decrease) due to |  | Increase (decrease) due to
(in thousands) | Volume(1) |  | Rate(2) |  | Net |  | Volume(1) |  | Rate(2) |  | Net
Interest earned on: |  |  |  |  |  |  |  |  |  |  |
Taxable loans | $ | 1,448 |  |  | $ | (2,263 | ) |  | $ | (815 | ) |  | $ | 5,476 |  |  | $ | (6,832 | ) |  | $ | (1,356 | )
Tax-exempt loans (3) | 179 |  |  | (2 | ) |  | 177 |  |  | 775 |  |  | (42 | ) |  | 733 |
Covered loans | (4,648 | ) |  | (115 | ) |  | (4,763 | ) |  | (13,971 | ) |  | 12,745 |  |  | (1,226 | )
Taxable investments in debt and equity securities | (732 | ) |  | 210 |  |  | (522 | ) |  | (1,061 | ) |  | (122 | ) |  | (1,183 | )
Non-taxable investments in debt and equity securities (3) | 98 |  |  | (17 | ) |  | 81 |  |  | 378 |  |  | (38 | ) |  | 340 |
Short-term investments | (9 | ) |  | (7 | ) |  | (16 | ) |  | (46 | ) |  | (19 | ) |  | (65 | )
Total interest-earning assets | $ | (3,664 | ) |  | $ | (2,194 | ) |  | $ | (5,858 | ) |  | $ | (8,449 | ) |  | $ | 5,692 |  |  | $ | (2,757 | )
Interest paid on: |  |  |  |  |  |  |  |  |  |  |
Interest-bearing transaction accounts | $ | (31 | ) |  | $ | (52 | ) |  | $ | (83 | ) |  | $ | (38 | ) |  | $ | (168 | ) |  | $ | (206 | )
Money market accounts | (85 | ) |  | (225 | ) |  | (310 | ) |  | (288 | ) |  | (1,058 | ) |  | (1,346 | )
Savings | 11 |  |  | (23 | ) |  | (12 | ) |  | 59 |  |  | (97 | ) |  | (38 | )
Certificates of deposit | (199 | ) |  | (324 | ) |  | (523 | ) |  | (1,428 | ) |  | (582 | ) |  | (2,010 | )
Subordinated debentures | (128 | ) |  | (175 | ) |  | (303 | ) |  | (148 | ) |  | (383 | ) |  | (531 | )
Borrowed funds | 313 |  |  | (164 | ) |  | 149 |  |  | 1,193 |  |  | (861 | ) |  | 332 |
Total interest-bearing liabilities | (119 | ) |  | (963 | ) |  | (1,082 | ) |  | (650 | ) |  | (3,149 | ) |  | (3,799 | )
Net interest income | $ | (3,545 | ) |  | $ | (1,231 | ) |  | $ | (4,776 | ) |  | $ | (7,799 | ) |  | $ | 8,841 |  |  | $ | 1,042 |

(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 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.
Provision and Allowance for Loan Losses
The provision for loan losses not covered under FDIC loss share agreements for the three and nine months ended September 30, 2013 was a $0.7 million benefit and a $3.1 million benefit, respectively compared to expense of $1.0 million and $2.8 million for the comparable 2012 periods. The reversal of loan loss provision in the third quarter of 2013 was due to fewer risk rating downgrades, and continued favorable loss migration statistics.
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For Covered loans, the Company remeasures contractual and expected cash flows on a quarterly basis. 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. The provision for loan losses on Covered loans for the three and nine months ended September 30, 2013 was $2.8 million compared to $10.9 million and $13.4 million for the comparable 2012 periods.
The allowance for loan losses on Non-Covered loans was 1.26% of total loans at September 30, 2013, compared to 1.33% at June 30, 2013, and 1.72% at September 30, 2012. Management believes that the allowance for loan losses is adequate to absorb inherent losses in the loan portfolio.
Net charge-offs for Non-Covered loans in the third quarter of 2013 were $0.4 million, representing an annualized rate of 0.07% of average loans, compared to net charge-offs of $3.1 million, an annualized rate of 0.64% of average loans, in the third quarter of 2012.
For the nine months ended September 30, 2013, net charge-offs for Non-Covered loans were $4.6 million, representing an annualized rate of 0.30% of average loans compared to net charge-offs of $6.6 million, representing an annualized rate of 0.45% for the same period in 2012. Approximately 73% of the net charge-offs for the nine months ended September 30, 2013 were related to Commercial Real Estate loans, 3% were related to Residential Real Estate Loans, and 24% were related to Commercial & Industrial loans.
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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 September 30, |  | Nine months ended September 30,
(in thousands) | 2013 |  | 2012 |  | 2013 |  | 2012
Allowance at beginning of period, for loans not covered under FDIC loss share | $ | 27,619 |  |  | $ | 36,304 |  |  | $ | 34,330 |  |  | $ | 37,989 |
Loans charged off: |  |  |  |  |  |  |
Commercial and industrial | (1,817 | ) |  | (1,479 | ) |  | (2,423 | ) |  | (2,470 | )
Real estate: |  |  |  |  |  |  |
Commercial | (560 | ) |  | (1,264 | ) |  | (4,132 | ) |  | (3,042 | )
Construction and Land Development | (85 | ) |  | (949 | ) |  | (419 | ) |  | (2,307 | )
Residential | (52 | ) |  | (282 | ) |  | (1,038 | ) |  | (860 | )
Consumer and other | — |  |  | — |  |  | (34 | ) |  | — |
Total loans charged off | (2,514 | ) |  | (3,974 | ) |  | (8,046 | ) |  | (8,679 | )
Recoveries of loans previously charged off: |  |  |  |  |  |  |
Commercial and industrial | 906 |  |  | 142 |  |  | 1,322 |  |  | 441 |
Real estate: |  |  |  |  |  |  |
Commercial | 374 |  |  | 15 |  |  | 756 |  |  | 52 |
Construction and Land Development | 385 |  |  | 15 |  |  | 420 |  |  | 264 |
Residential | 481 |  |  | 672 |  |  | 911 |  |  | 1,312 |
Consumer and other | — |  |  | — |  |  | — |  |  | 2 |
Total recoveries of loans | 2,146 |  |  | 844 |  |  | 3,409 |  |  | 2,071 |
Net loan chargeoffs | (368 | ) |  | (3,130 | ) |  | (4,637 | ) |  | (6,608 | )
Provision for loan losses | (652 | ) |  | 1,048 |  |  | (3,094 | ) |  | 2,841 |
Allowance at end of period, for loans not covered under FDIC loss share | $ | 26,599 |  |  | $ | 34,222 |  |  | $ | 26,599 |  |  | $ | 34,222 |
Allowance at beginning of period, for loans covered under FDIC loss share | $ | 11,045 |  |  | $ | 1,889 |  |  | $ | 11,547 |  |  | $ | 1,635 |
Loans charged off | (16 | ) |  | (1,627 | ) |  | (273 | ) |  | (3,689 | )
Recoveries of loans | 26 |  |  | 10 |  |  | 101 |  |  | 16 |
Other | (234 | ) |  | (59 | ) |  | (532 | ) |  | (240 | )
Net loan chargeoffs | (224 | ) |  | (1,676 | ) |  | (704 | ) |  | (3,913 | )
Provision for loan losses | 2,811 |  |  | 10,889 |  |  | 2,789 |  |  | 13,380 |
Allowance at end of period, for loans covered under FDIC loss share | $ | 13,632 |  |  | $ | 11,102 |  |  | $ | 13,632 |  |  | $ | 11,102 |
Total Allowance at end of period | $ | 40,231 |  |  | $ | 45,324 |  |  | $ | 40,231 |  |  | $ | 45,324 |
Excludes loans covered under FDIC loss share |  |  |  |  |  |  |
Average loans | $ | 2,076,765 |  |  | $ | 1,955,557 |  |  | $ | 2,090,194 |  |  | $ | 1,930,339 |
Total portfolio loans | 2,110,825 |  |  | 1,987,166 |  |  | 2,110,825 |  |  | 1,987,166 |
Net chargeoffs to average loans | 0.07 | % |  | 0.64 | % |  | 0.30 | % |  | 0.46 | %
Allowance for loan losses to loans | 1.26 |  |  | 1.72 |  |  | 1.26 |  |  | 1.72 |

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

(in thousands) | September 30, 2013 |  | December 31, 2012 |  | September 30, 2012
Non-accrual loans | $ | 24,169 |  |  | $ | 37,287 |  |  | $ | 27,346 |
Loans past due 90 days or more and still accruing interest | — |  |  | — |  |  | — |
Restructured loans | — |  |  | 1,440 |  |  | 4,712 |
Total nonperforming loans | 24,169 |  |  | 38,727 |  |  | 32,058 |
Foreclosed property (1) | 10,278 |  |  | 9,327 |  |  | 12,549 |
Total nonperforming assets (1) | $ | 34,447 |  |  | $ | 48,054 |  |  | $ | 44,607 |
Excludes assets covered under FDIC loss share |  |  |  |  |
Total assets (1) | $ | 3,108,062 |  |  | $ | 3,325,786 |  |  | $ | 3,193,692 |
Total portfolio loans | 2,110,825 |  |  | 2,106,039 |  |  | 1,987,166 |
Total loans plus foreclosed property | 2,121,103 |  |  | 2,115,366 |  |  | 1,999,715 |
Nonperforming loans to total loans | 1.15 | % |  | 1.84 | % |  | 1.61 | %
Nonperforming assets to total loans plus foreclosed property | 1.62 |  |  | 2.27 |  |  | 2.23 |
Nonperforming assets to total assets (1) | 1.11 |  |  | 1.44 |  |  | 1.40 |
Allowance for loans not covered under FDIC loss share to nonperforming loans | 110 | % |  | 89 | % |  | 107 | %

(1) | Excludes assets covered under FDIC shared-loss agreements, except for their inclusion in total assets.

Nonperforming loans
Nonperforming loans exclude Covered loans that are accounted for on a pool basis, as the pools are considered to be performing. See Note 5 – Portfolio Loans Covered by Loss Share for more information on these loans.
Nonperforming loans at September 30, 2013 were $24.2 million, a decrease from $25.9 million at June 30, 2013, and $32.1 million at September 30, 2012. The nonperforming loans are comprised of approximately 21 relationships,with the largest from a $4.3 million Commercial and Industrial loan. The top five relationships comprise 63% of the nonperforming loans. Approximately 31% of nonperforming loans were located in the St. Louis market, 35% were located in the Kansas City market, and 34% were located in the Arizona market. At September 30, 2013, there were no performing restructured loans that have been excluded from the nonperforming loan amounts.
Nonperforming loans represented 1.14% of Noncovered loans at September 30, 2013, versus 1.25% at June 30, 2013 and 1.61% at September 30, 2012.
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Nonperforming loans based on Call Report codes were as follows:

(in thousands) | September 30, 2013 |  | December 31, 2012 |  | September 30, 2012
Construction and Land Development | $ | 6,499 |  |  | $ | 4,695 |  |  | $ | 10,095 |
Commercial Real Estate | 11,021 |  |  | 22,534 |  |  | 15,231 |
Residential Real Estate | 675 |  |  | 2,564 |  |  | 3,883 |
Commercial & Industrial | 5,974 |  |  | 8,934 |  |  | 2,849 |
Consumer & Other | — |  |  | — |  |  | — |
Total | $ | 24,169 |  |  | $ | 38,727 |  |  | $ | 32,058 |

The following table summarizes the changes in nonperforming loans by quarter.

| 2013 |  | 2012
(in thousands) | 3rd Qtr |  | 2nd Qtr |  | 1st Qtr |  | Year to date |  | Year to date
Nonperforming loans beginning of period | $ | 25,948 |  |  | $ | 32,222 |  |  | $ | 38,727 |  |  | $ | 38,727 |  |  | $ | 41,622 |
Additions to nonaccrual loans | 9,765 |  |  | 3,393 |  |  | 4,590 |  |  | 17,748 |  |  | 22,519 |
Additions to restructured loans | — |  |  | — |  |  | — |  |  | — |  |  | 5,023 |
Chargeoffs | (2,514 | ) |  | (752 | ) |  | (4,780 | ) |  | (8,046 | ) |  | (8,679 | )
Other principal reductions | (3,650 | ) |  | (2,664 | ) |  | (6,115 | ) |  | (12,429 | ) |  | (18,006 | )
Moved to Other real estate | (5,257 | ) |  | (2,179 | ) |  | (225 | ) |  | (7,661 | ) |  | (9,363 | )
Moved to performing | (123 | ) |  | (2,229 | ) |  | (1,818 | ) |  | (4,170 | ) |  | (303 | )
Loans past due 90 days or more and still accruing interest | — |  |  | (1,843 | ) |  | 1,843 |  |  | — |  |  | (755 | )
Nonperforming loans end of period | $ | 24,169 |  |  | $ | 25,948 |  |  | $ | 32,222 |  |  | $ | 24,169 |  |  | $ | 32,058 |

Other real estate
Other real estate at September 30, 2013, was $28.1 million, compared to $25.4 million at June 30, 2013, and $31.4 million at September 30, 2012. Approximately 63% of total Other real estate, or $17.8 million, is covered by FDIC loss share agreements.
The following table summarizes the changes in Other real estate.

| 2013 |  | 2012
(in thousands) | 3rd Qtr |  | 2nd Qtr |  | 1st Qtr |  | Year to date |  | Year to date
Other real estate beginning of period | $ | 25,363 |  |  | $ | 24,807 |  |  | $ | 26,500 |  |  | $ | 26,500 |  |  | $ | 53,688 |
Additions and expenses capitalized to prepare property for sale | 5,257 |  |  | 2,179 |  |  | 225 |  |  | 7,661 |  |  | 10,413 |
Additions from FDIC assisted transactions | 4,951 |  |  | 5,135 |  |  | 3,369 |  |  | 13,455 |  |  | 9,386 |
Writedowns in value | (741 | ) |  | (977 | ) |  | (1,080 | ) |  | (2,798 | ) |  | (3,684 | )
Sales | (6,705 | ) |  | (5,781 | ) |  | (4,207 | ) |  | (16,693 | ) |  | (38,444 | )
Other real estate end of period | $ | 28,125 |  |  | $ | 25,363 |  |  | $ | 24,807 |  |  | $ | 28,125 |  |  | $ | 31,359 |

At September 30, 2013, Other real estate was comprised of 63 properties, with the largest being a $2.6 million residential lot in the Kansas City region.
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The writedowns in fair value were recorded in Loan legal and other real estate expense or are charged-off existing loan balances based on current market activity shown in the appraisals. In addition, for the nine months ended September 30, 2013, the Company realized a net gain of $1.6 million on the sale of other real estate and recorded these gains as part of Noninterest income.
Noninterest Income
Noninterest income decreased $4.1 million in the third quarter of 2013 compared to the third quarter of 2012. The decrease is primarily due to a decrease in income related to changes in the FDIC Loss Share Receivable partially offset by gains on the sale of investment securities.
For the nine months ended September 30, 2013, Noninterest income decreased $7.7 million, or 61%, from the same period in 2012. The decrease is primarily due to decreases in income related to changes in the FDIC Loss Share Receivable and lower gains on the sale of other real estate partially offset by higher service charges on deposit accounts.

• | Wealth Management revenue – For the quarter ended September 30, 2013, Wealth Management revenue from the Trust division decreased $127,000, or 7%, compared to the same period in 2012. Year-to-date, Trust revenues decreased $106,000, or 2%, over the same period in 2012. The decrease in Wealth Management revenue was primarily due to non-recurring revenue in the prior year period, as well as the termination of some less profitable account relationships. Assets under administration were $1.7 billion at September 30, 2013, a 6% increase from September 30, 2012. Assets under management were $789.5 million at September 30, 2013, a 7% decrease from September 30, 2012.

• | Service charges and other fee income – For the three and nine months ended September 30, 2013, service charges and other fee income increased $358,000 and $1.0 million compared to the same periods in 2012, primarily due to increased revenue from higher sales of treasury management services, including better pricing and improved collections.

• | Sale of Other real estate – For the quarter ended September 30, 2013, we sold $6.7 million of Other real estate for a gain of $472,000, which included a gain of $304,000 from Other real estate not covered by loss share agreements and a gain of $168,000 from Other real estate covered by loss share agreements. Year-to-date through September 30, 2013, we have sold $16.7 million of Other real estate for a gain of $1.6 million which included a gain of $588,000 from Other real estate not covered by loss share agreements and a gain of $974,000 from Other real estate covered by loss share agreements. For the quarter ended September 30, 2012 we sold $11.6 million of Other real estate for a gain of $739,000 which included a gain of $705,000 from Other real estate not covered by loss share agreements and a gain of $34,000 from Other real estate covered by loss share agreements. For the year-to-date period in 2012, we sold $38.4 million of Other real estate for a net gain of $3.2 million which included a gain of $1.2 million from Other real estate not covered by loss share agreements and a gain of $2.0 million from Other real estate covered by loss share agreements.

• | State tax credit brokerage activities – For the quarter ended September 30, 2013, the Company recorded a gain of $308,000 compared to a gain of $256,000 in the third quarter of 2012. The slight increase is due to mark-to-market adjustments on those tax credits held at fair value as a result of decreases in the discount rate used in our internal valuation model. For both the year-to-date 2013 and 2012 periods the Company recorded a gain of $1.2 million. For more information on the fair value treatment of the state tax credits, see Note 8 – Fair Value Measurements.

• | Sale of investment securities – During the first nine months of 2013, the Company realized approximately $159.6 million of proceeds on the sale of investment securities, generating a net gain of $1.3 million, compared to $110.9 million of proceeds on the sale of investment securities, generating a net gain of $1.2 million during the first nine months of 2012.

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• | Change in FDIC loss share receivable – Income related to changes in the FDIC loss share receivable decreased $4.8 million during the third quarter of 2013 compared to the same period in 2012. The decrease in income related to the FDIC loss share receivable was primarily due to lower credit losses in the current quarter. During the third quarter of 2013 the change in FDIC loss share receivable was comprised of $1.3 million of negative accretion from accelerated cash flows, $2.2 million of income related to the provision for loan losses on Covered loans, and $3.7 million of negative base accretion. During the third quarter of 2012 the change in FDIC loss share receivable was comprised of $2.6 million of negative accretion from accelerated cash flows, $8.7 million of income related to the provision for loan losses on Covered loans, and $4.2 million of negative base accretion.

Noninterest Expense
Noninterest expenses were $21.2 million in the third quarter of 2013, a decrease of $42,000, relatively flat with the same quarter of 2012. The decrease over the prior year period was primarily due to a decrease in salaries and benefits costs of $664,000 due to lower salaries from decreased variable compensation costs partially offset by increases in loan data processing expenses of $262,000 and a $443,000 non-cash expense related to the conversion of $20.0 million of our trust preferred securities to shares of common stock.
The Company's efficiency ratio, which measures noninterest expense as a percentage of total revenue, was 58.5% for the quarter ended September 30, 2013 compared to 47.0% for the prior year period. Year-to-date through September 30, 2013 the Company's efficiency ratio was 58.6% compared to 55.8% for the same period in 2012. The increase in the efficiency ratio compared to the prior year quarter and for the year-to-date period was primarily due to decreased revenue from assets under FDIC loss share agreements, as well as reduced noninterest income due to the change in FDIC receivable during the current period.
Income Before Income Tax Expense
Income before income tax expense on the Company's Core Bank and Covered assets for the three and nine months ended September 30, 2013 and 2012 were as follows:

(In thousands) | Three months ended September 30, |  | Nine months ended September 30,
2013 |  | 2012 |  | 2013 |  | 2012
Income before income tax expense |  |  |  |  |  |  |
Core Bank | $ | 10,190 |  |  | $ | 8,444 |  |  | $ | 30,417 |  |  | $ | 23,739 |
Covered assets | 2,701 |  |  | 3,653 |  |  | 14,486 |  |  | 10,886 |
Total | $ | 12,891 |  |  | $ | 12,097 |  |  | $ | 44,903 |  |  | $ | 34,625 |

Income before income tax expense for the Core Bank represents results without direct income and expenses related to Covered assets, as well as an internal estimate of associated asset funding costs.
Income Taxes
For the quarter ended September 30, 2013, the Company’s income tax expense, which includes both federal and state taxes, was $4.5 million compared to $4.2 million for the same period in 2012. The combined federal and state effective income tax rates were relatively consistent at 34.8% and 34.4% for the quarters ended September 30, 2013, and 2012, respectively.
For the nine months ended September 30, 2013, the Company’s income tax expense was $15.4 million compared to $11.7 million for the same period in 2012. The combined federal and state effective income tax rates were 34.3% and 33.9% for the nine months ended September 30, 2013, and 2012, respectively. The Company expects its effective tax rate for the year ended December 31, 2013 to be slightly less than its effective tax rate for the nine months ended September 30, 2013, due to changes in state tax legislation.
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Liquidity and Capital Resources
Liquidity management
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, the Federal Reserve Bank 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. Management believes our current level of cash at the holding company of approximately $7.0 million will be sufficient to meet all projected cash needs for at least the next year.
On September 16, 2011, the Company filed a shelf registration statement on Form S-3 registering up to $40.0 million of common stock, preferred stock, debt securities, and various other securities, including combinations of such securities. The registration statement became effective on September 29, 2011. The Company's ability to offer securities pursuant to the registration statement depends on market conditions and the Company's continuing eligibility to use the Form S-3 under rules of the Securities and Exchange Commission.
On November 6, 2012, the parent company entered into a $12.0 million unsecured term loan agreement ("Term Loan") with another bank with proceeds used to redeem the Company's preferred stock held by the U.S. Treasury. The loan has a maturity date of November 6, 2015 and will be repaid in quarterly installments of $300,000, with a balloon payment at maturity. The outstanding balance under the Term Loan was $10.8 million and $11.7 million at September 30, 2013, and December 31, 2012, respectively. The Term Loan pays interest based on LIBOR plus a spread determined by the Company's outstanding balance under the Term Loan agreement. The Term Loan is subject to ongoing compliance with a number of customary affirmative and negative covenants as well as specified financial covenants. The Company was in compliance with all relevant covenants under the Term Loan at September 30, 2013.
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As of September 30, 2013, the Company had $62.6 million of outstanding subordinated debentures as part of nine trust preferred securities pools. On August 15, 2013 the Company converted $20.0 million of trust preferred securities with a 9% interest rate from EFSC Capital Trust VIII to shares of common stock at the election of one of the holders. As a result of the transaction, the Company reduced its long-term debt by $20.0 million and issued an aggregated of 1.2 million shares of common stock. The Company issued 25,060 shares of additional common stock as inducement for the holder's election. The inducement resulted in a $443,000, one-time, non-cash expense recorded in Other noninterest expense during the third quarter of 2013.
The trust preferred securities are classified as debt but are currently included in regulatory capital and the related interest expense is tax-deductible. Regulations recently finalized by the Federal Reserve Board to implement the Basel III regulatory capital reforms allow our currently outstanding trust preferred securities to retain their Tier 1 capital status.
On January 9, 2013, the Company repurchased warrants issued by the U.S. Treasury as part of the Capital Purchase Program. The repurchase price was approximately $1.0 million.
Bank liquidity
The Bank has a variety of funding sources available to increase financial flexibility. In addition to amounts currently borrowed, at September 30, 2013, the Bank could borrow an additional $155.5 million from the FHLB of Des Moines under blanket loan pledges and has an additional $612.8 million available from the Federal Reserve Bank under a pledged loan agreement. The Bank has unsecured federal funds lines with four correspondent banks totaling $45.0 million.
Of the $453.0 million of the securities available for sale at September 30, 2013, $227.5 million was pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements. The remaining $225.5 million could be pledged or sold to enhance liquidity, if necessary.
The Bank belongs to the Certificate of Deposit Account Registry Service, or CDARS, which allows us to provide our customers with access to additional levels of FDIC insurance coverage on their deposits. The Company considers the reciprocal deposits placed through the CDARS program as core funding and does not report the balances as brokered sources in its internal or external financial reports. As of September 30, 2013, the Bank had $45.2 million of reciprocal CDARS money market sweep balances and $10.2 million of reciprocal certificates of deposits outstanding. In addition to the reciprocal deposits available through CDARS, the Company has access to the “one-way buy” program, which allows the Company to bid on the excess deposits of other CDARS member banks. The Company will report any outstanding “one-way buy” funds as brokered funds in its internal and external financial reports. At September 30, 2013, we had no outstanding “one-way buy” deposits.
In addition, the Bank has the ability to sell certificates of deposit through various national or regional brokerage firms, if needed. Given the tightening liquidity trends on the Company's balance sheet over the past year, continued reductions in deposit costs are limited as the Company continues to increase deposit balances to fund expected loan growth.
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 $813.2 million in unused commitments as of September 30, 2013. The nature of these commitments is such that the likelihood of funding them in the aggregate at any one time is low.
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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 Bank’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 and 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 (6%) and Tier 1 leverage ratios (5%). As of September 30, 2013, and December 31, 2012, the Company and the Bank met all capital adequacy requirements to which they are subject.
The Company continues to exceed regulatory standards and met the definition of “well-capitalized” (the highest category) at September 30, 2013, and December 31, 2012.
The following table summarizes the Company’s various capital ratios at the dates indicated:

(Dollars in thousands) | September 30, 2013 |  | December 31, 2012
Tier 1 capital to risk weighted assets | 12.29 | % |  | 10.88 | %
Total capital to risk weighted assets | 13.57 | % |  | 12.30 | %
Tier 1 common equity to risk weighted assets | 9.86 | % |  | 7.70 | %
Leverage ratio (Tier 1 capital to average assets) | 10.06 | % |  | 8.36 | %
Tangible common equity to tangible assets | 7.85 | % |  | 6.02 | %
Tier 1 capital | $ | 303,406 |  |  | $ | 268,870 |
Total risk-based capital | $ | 334,878 |  |  | $ | 303,951 |

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 Tier 1 common equity 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 that are 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 that 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.
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The Company believes the tangible common equity and Tier 1 common equity 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.
Tangible common equity ratio

(In thousands) | September 30, 2013 |  | December 31, 2012
Total shareholders' equity | $ | 277,740 |  |  | $ | 235,745 |
Less: Goodwill | (30,334 | ) |  | (30,334 | )
Less: Intangible assets | (6,136 | ) |  | (7,406 | )
Tangible common equity | $ | 241,270 |  |  | $ | 198,005 |
Total assets | $ | 3,108,062 |  |  | $ | 3,325,786 |
Less: Goodwill | (30,334 | ) |  | (30,334 | )
Less: Intangible assets | (6,136 | ) |  | (7,406 | )
Tangible assets | $ | 3,071,592 |  |  | $ | 3,288,046 |
Tangible common equity to tangible assets | 7.85 | % |  | 6.02 | %

Tier 1 common equity ratio

(In thousands) | September 30, 2013 |  | December 31, 2012
Total shareholders' equity | $ | 277,740 |  |  | $ | 235,745 |
Less: Goodwill | (30,334 | ) |  | (30,334 | )
Less: Intangible assets | (6,136 | ) |  | (7,406 | )
Plus (Less): Unrealized losses (gains) | 1,981 |  |  | (7,790 | )
Plus: Qualifying trust preferred securities | 60,100 |  |  | 78,600 |
Other | 55 |  |  | 55 |
Tier 1 capital | $ | 303,406 |  |  | $ | 268,870 |
Less: Qualifying trust preferred securities | (60,100 | ) |  | (78,600 | )
Tier 1 common equity | $ | 243,306 |  |  | $ | 190,270 |
Total risk weighted assets determined in accordance with prescribed regulatory requirements | 2,468,525 |  |  | 2,471,668 |
Tier 1 common equity to risk weighted assets | 9.86 | % |  | 7.70 | %

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The Company believes that Core net interest margin is an important measure of our financial performance, even though it is a non-GAAP financial measure, because it provides supplemental information by which to evaluate the impact of excess Covered loan accretion on the Company's net interest margin and the Company's operating performance on an ongoing basis, excluding such impact. 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

(In thousands) | Three months ended September 30, |  | Nine months ended September 30,
2013 |  | 2012 |  | 2013 |  | 2012
Net interest income (fully tax equivalent) | $ | 33,101 |  |  | $ | 37,877 |  |  | $ | 104,363 |  |  | $ | 103,321 |
Less: Incremental accretion income | (8,178 | ) |  | (11,911 | ) |  | (28,032 | ) |  | (25,758 | )
Core net interest income | $ | 24,923 |  |  | $ | 25,966 |  |  | $ | 76,331 |  |  | $ | 77,563 |
Average earning assets | $ | 2,789,314 |  |  | $ | 2,889,968 |  |  | $ | 2,874,004 |  |  | $ | 2,883,071 |
Reported net interest margin | 4.71 | % |  | 5.21 | % |  | 4.86 | % |  | 4.79 | %
Core net interest margin | 3.54 | % |  | 3.57 | % |  | 3.55 | % |  | 3.59 | %

Critical Accounting Policies
The impact and any associated risks related to the Company’s critical accounting policies on business operations are discussed 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 discussion 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, 2012.
New Accounting Standards
FASB ASU 2011-11, "Disclosures about Offsetting Assets and Liabilities" In December 2011, the FASB issued ASU 2011-11 which requires entities with financial instruments and derivatives that are either offset on the balance sheet or subject to a master netting or similar arrangement to disclose the following information separately for assets and liabilities in a tabular format:

• | Gross amounts of recognized assets and liabilities

• | Offsetting amounts that determine the net amount presented in the balance sheet

• | Amounts subject to an enforceable master netting arrangement that were not already included in the disclosure required above, including

◦ | Amounts related to recognized financial instruments and other derivative instruments if either (a) management makes an accounting election not to offset the amounts, or (b) the amounts do not meet the right of setoff conditions in ASC 210-30-45, Balance Sheet: Offsetting, or in ASC 815-10-45, Derivatives and Hedging

◦ | Amounts related to financial collateral

• | Net amounts after deducting the amounts in (4) from the amounts in (3) above

In addition to the tabular disclosure described above, entities are required to provide a description of the setoff rights associated with assets and liabilities subject to an enforceable master netting arrangement. This ASU was effective for the years beginning on or after January 1, 2013, and interim periods within those annual periods. The guidance must be applied retrospectively for any period presented that begins before an entity's date of initial application. This ASU did not have a material impact on the Company's consolidated financial statements as it does not have any material assets or liabilities that are offset as discussed in the standard.
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FASB ASU 2012-06, "Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution" In October 2012, the FASB issued ASU 2012-06, which addresses diversity in practice regarding the subsequent measurement of an indemnification asset in a government-assisted acquisition of a financial institution that includes a loss-sharing agreement. The amendments are effective for interim and annual reporting periods beginning on or after December 15, 2012 with early adoption permitted. The adoption of this accounting pronouncement had no impact on the Company’s financial statements as the Company was already accounting for the indemnification asset in accordance with such principles.
FASB ASU 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities" On January 31, 2013, the FASB issued ASU 2013-01 which provides scope clarifications related to the previously issued ASU 2011-11. These ASU's provide new requirements for disclosures about instruments and transactions eligible for offset in the statement of financial position, as well as instruments and transactions subject to an agreement similar to a master netting arrangement. The amendments in these updates are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. This ASU did not have a material impact on the Company's consolidated financial statements as it does not have any material assets or liabilities that are offset as discussed in the standard.
FASB ASU 2013-02, "Comprehensive Income (Topic 220)" In February 2013, the FASB issued ASU 2013-02 requiring new disclosures about reclassifications from accumulated other comprehensive loss to net income. These disclosures may be presented on the face of the statements or in the notes to the consolidated financial statements. This ASU is effective for fiscal years beginning after December 15, 2012. This ASU did not have a material impact on the consolidated financial statements. We have adopted this ASU and revised our disclosures, as seen in the Statement of Comprehensive Income and in Note 1 - Summary of Significant Accounting Policies.
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.
Market risk arises to the Company from exposure to changes in interest rates and other relevant market rate or price risk. The Company faces market risk in the form of interest rate risk through transactions other than trading activities. Market risk from these activities, in the form of interest rate risk, is measured and managed through a number of methods. The Company uses financial modeling techniques to measure interest rate risk. These techniques measure the sensitivity of future earnings due to changing interest rate environments. Guidelines established by the Bank’s Asset/Liability Management Committee and approved by the Bank’s Board of Directors are used to monitor exposure of earnings at risk. General interest rate movements are used to develop sensitivity as the Company feels it has no primary exposure to a specific point on the yield curve. These limits are based on the Company’s exposure to a 100 to 400 basis point parallel rate shock through the use of simulation modeling.
Interest rate simulations for September 30, 2013, demonstrate that a rising rate environment will have a positive impact on net interest income.
The following table represents the Company’s estimated interest rate sensitivity and periodic and cumulative gap positions calculated as of September 30, 2013.

(in thousands) | Year 1 |  | Year 2 |  | Year 3 |  | Year 4 |  | Year 5 |  | Beyond 5 years or no stated maturity |  | Total
Interest-Earning Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale | $ | 41,975 |  |  | $ | 41,774 |  |  | $ | 42,702 |  |  | $ | 117,910 |  |  | $ | 48,761 |  |  | $ | 159,924 |  |  | $ | 453,046 |
Other investments | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 15,485 |  |  | 15,485 |
Interest-bearing deposits | 71,191 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 71,191 |
Federal funds sold | 111 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 111 |
Portfolio loans (1) | 1,640,983 |  |  | 213,702 |  |  | 203,504 |  |  | 105,182 |  |  | 91,632 |  |  | 14,634 |  |  | 2,269,637 |
Loans held for sale | 12,967 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 12,967 |
Total interest-earning assets | $ | 1,767,227 |  |  | $ | 255,476 |  |  | $ | 246,206 |  |  | $ | 223,092 |  |  | $ | 140,393 |  |  | $ | 190,043 |  |  | $ | 2,822,437 |
Interest-Bearing Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Savings, NOW and Money market deposits | $ | 1,205,712 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,205,712 |
Certificates of deposit | 385,579 |  |  | 87,592 |  |  | 137,538 |  |  | 10,096 |  |  | 1,759 |  |  | 79 |  |  | 622,643 |
Subordinated debentures | 63,081 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 63,081 |
Other borrowings | 203,555 |  |  | 13,810 |  |  | 10,800 |  |  | 20,000 |  |  | 50,000 |  |  | — |  |  | 298,165 |
Total interest-bearing liabilities | $ | 1,857,927 |  |  | $ | 101,402 |  |  | $ | 148,338 |  |  | $ | 30,096 |  |  | $ | 51,759 |  |  | $ | 79 |  |  | $ | 2,189,601 |
Interest-sensitivity GAP |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
GAP by period | $ | (90,700 | ) |  | $ | 154,074 |  |  | $ | 97,868 |  |  | $ | 192,996 |  |  | $ | 88,634 |  |  | $ | 189,964 |  |  | $ | 632,836 |
Cumulative GAP | $ | (90,700 | ) |  | $ | 63,374 |  |  | $ | 161,242 |  |  | $ | 354,238 |  |  | $ | 442,872 |  |  | $ | 632,836 |  |  | $ | 632,836 |
Ratio of interest-earning assets to interest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Periodic | 0.95 |  |  | 2.52 |  |  | 1.66 |  |  | 7.41 |  |  | 2.71 |  |  | 2,405.61 |  |  | 1.29 |
Cumulative GAP as of September 30, 2013 | 0.95 |  |  | 1.03 |  |  | 1.08 |  |  | 1.17 |  |  | 1.20 |  |  | 1.29 |  |  | 1.29 |

(1) | Adjusted for the impact of the interest rate swaps.

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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 Principal Financial Officer (PFO), 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 September 30, 2013. 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 PFO concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2013 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
The following information supplements the discussion in Part I, Item 3 “Legal Proceedings” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and as updated by the Company's Quarterly Report on Form 10-Q for the quarters ended March 31, 2013, June 30, 2013, and September 30, 2013:
Distinctive Notes
The Bank, along with other co-defendants, had been named as a defendant in lawsuits filed by persons alleging to be clients of the Bank’s Trust division who invested in promissory notes (the "Distinctive Notes") issued by Distinctive Properties (UK) Limited (“Distinctive Properties”), a company involved in the purchase and development of real estate in the United Kingdom.
Rosemann, et al. v. Martin Sigillito, et al.
In a lawsuit filed in United States District Court for the Eastern District of Missouri, the plaintiffs alleged that the investments in the Distinctive Notes were part of a multi-million dollar Ponzi scheme. Plaintiffs alleged to hold such promissory notes in accounts with the Trust division and that, among other things, the Bank was negligent and breached its contracts. Plaintiffs also alleged that the Bank violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Plaintiffs, in the aggregate, were seeking damages from defendants, including the Bank, in excess of $44.0 million as well as their costs and attorneys’ fees and trebled damages under RICO.
The case was stayed while criminal proceedings against Sigillito were completed. After a four week trial, Sigillito was found guilty of 20 counts of wire fraud, mail fraud, conspiracy, and money laundering. Following the verdict, the judge lifted the stay and set the case for a four week jury trial starting August 26, 2013. Discovery concluded on April 16, 2013 and dispositive motions were filed. On July 9, 2013 the judge dismissed all counts related to RICO, as well as the Company's negligence. The Court denied the plaintiffs' motion to reconsider the dismissal. The claims that remained pending against the Company were the breach of contract claims asserted by 41 plaintiffs. On September 24, 2013, the Company reached a confidential settlement with the Plaintiffs. The settlement did not have a material impact on the Company's financial statements.
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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, 2012. The following is a discussion of material changes to the risk factors described in such Annual Report on Form 10-K.
The Federal Reserve has adopted new capital requirements for financial institutions that may require us to retain or raise additional capital or and/or reduce dividends.
On July 2, 2013, the Federal Reserve adopted final rules that, when effective will increase regulatory capital requirements, implement changes required by the Dodd-Frank Act and implement portions of the Basel III regulatory capital reforms. In the future, the capital requirements for bank holding companies may require us to retain or raise additional capital, restrict our ability to pay dividends and repurchase shares of our common stock, restrict our ability to provide certain forms of discretionary executive compensation and/or require other changes to our strategic plans. While we believe our current capital levels would be adequate under the new rules, the impact of these rules cannot yet be fully understood. The rules could restrict our ability to grow and implement our future business strategies, which could have an adverse impact on our results of operations.
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ITEM 6: EXHIBITS

Exhibit Number |  | 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 |  | Executive Employment Agreement - Keene S. Turner
*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 |  | Principal 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 |  | Principal 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 September 30, 2013, is formatted in XBRL interactive data files: (i) Consolidated Balance Sheet at September 30, 2013 and December 31, 2012; (ii) Consolidated Statement of Income for the three and nine months ended September 30, 2013 and 2012; (iii) Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2013 and 2012; (iv) Consolidated Statement of Changes in Equity for the nine months ended September 30, 2013 and 2012; (v) Consolidated Statement of Cash Flows for the nine months ended September 30, 2013 and 2012; 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.
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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 o f November 12, 2013.

| ENTERPRISE FINANCIAL SERVICES CORP
| By: | /s/ Peter F. Benoist |
|  | Peter F. Benoist |
|  | Chief Executive Officer |
| By: | /s/ Frank H. Sanfilippo |
|  | Frank H. Sanfilippo |
|  | Chief Operating Officer (Principal Financial Officer) |

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