U.S. Markets closed

Enterprise Financial Reports Fourth Quarter and Full Year 2019 Results

2019 Highlights

  • Net income of $92.7 million, or $3.55 per diluted share
  • Return on average assets of 1.35%
  • Acquisition and integration of Trinity Capital Corporation ("Trinity")
  • Repurchase of 396,737 shares at an average price of $39.13 per share

Fourth Quarter Highlights

  • Net income of $29.1 million, or $1.09 per diluted share
  • Return on average assets of 1.58%
  • Loans increased $86.3 million, or 7% annualized
  • Deposits increased $146.6 million, or 10% annualized

 

Enterprise Financial Services Corp (Nasdaq: EFSC) (the "Company" or "EFSC") reported net income of $92.7 million, or $3.55 per diluted share, for the year ended December 31, 2019, compared to $89.2 million, or $3.83 per diluted share for the prior year period. Merger-related expenses from the Trinity acquisition reduced net income by $18.0 million pretax ($14.0 million after tax), or $0.53 per diluted share.

The Company recorded net income of $29.1 million for both the third and fourth quarters of 2019, or earnings per share of $1.08 and $1.09, respectively. Seasonally strong sales of tax credits in the fourth quarter offset the decline in incremental accretion income from the linked third quarter ("linked quarter").

Dividends paid in 2019 of $0.62 per share increased $0.15 per share, or 32%, compared to $0.47 per share in 2018. The Company’s Board of Directors approved the Company’s quarterly dividend of $0.18 per common share for the first quarter of 2020, an increase from $0.17 for the prior quarter, payable on March 31, 2020 to shareholders of record as of March 16, 2020.

Jim Lally, EFSC’s President and Chief Executive Officer, commented, "We are pleased with another solid quarter of financial performance to close 2019. We achieved strong growth in both loans and deposits during the fourth quarter. On an annualized basis, loans grew 7% and deposits grew 10%. Given the current interest rate environment, I am pleased that our business fundamentals continued to generate robust earnings with a 1.6% return on average assets and a 19% return on average tangible common equity1."

Lally added, "2019 was a pivotal year, as we expanded our geographic presence into New Mexico with the acquisition and integration of Trinity, organically grew the balance sheet with quality loan and deposit relationships and strategically managed our capital position to provide a high return to our shareholders. Our continued success reflects the resolve of our associates to serve the customers and communities within our market areas."

The Company closed its acquisition of Trinity on March 8, 2019. The results of operations of Trinity are included in our consolidated results from this date forward and are excluded from preceding periods.

Net Interest Income

For 2019, net interest income totaled $238.7 million, an increase of $46.8 million, or 24%, compared to $191.9 million in the prior year. Net interest margin, on a fully tax equivalent basis, was 3.80% for 2019 compared to 3.82% for the prior year. The increase in net interest income was primarily due to the Trinity acquisition and organic growth.

Net interest income for the fourth quarter of 2019 totaled $61.6 million, a decrease of $1.4 million, from the linked quarter. Interest rates continued to decline during the fourth quarter. Portfolio loan growth, combined with the Company’s ability to modestly reprice deposits, helped to deliver a consistent level of core net interest income1 of $61.0 million for both the third and fourth quarter. The impact of lower interest rates on loan yields was offset by an increase in average loans, a decrease in the cost of interest-bearing liabilities and growth in noninterest-bearing deposits that resulted in a reduction in wholesale borrowings.

Core net interest income and core net interest margin noted in the table below exclude incremental accretion on non-core acquired loans.

 

Quarter ended

 

Year ended

($ in thousands)

December 31,
2019

 

September 30,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

Net interest income

$

61,613

 

 

$

63,046

 

 

$

50,593

 

 

$

238,717

 

 

$

191,905

 

Less: Incremental accretion income2

576

 

 

2,140

 

 

2,109

 

 

4,783

 

 

3,701

 

Core net interest income3

$

61,037

 

 

$

60,906

 

 

$

48,484

 

 

$

233,934

 

 

$

188,204

 

 

 

 

 

 

 

 

 

 

 

Net interest margin (fully tax equivalent)

3.68

%

 

3.81

%

 

3.94

%

 

3.80

%

 

3.82

%

Core net interest margin3 (fully tax equivalent)

3.64

%

 

3.69

%

 

3.77

%

 

3.73

%

 

3.75

%

2 Represents incremental accretion income on non-core acquired loans which were acquired from the FDIC and previously covered by shared-loss agreements.

3 Core net interest income and core net interest margin are non-GAAP measures. Refer to discussion and reconciliation of these measures in the accompanying financial tables.

Average Balance Sheet

The following tables present, 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.

 

 

Quarter ended

 

December 31, 2019

 

September 30, 2019

 

December 31, 2018

($ in thousands)

Average
Balance

 

Interest
Income/
Expense

 

Average
Yield/
Rate

 

Average
Balance

 

Interest
Income/
Expense

 

Average
Yield/
Rate

 

Average
Balance

 

Interest
Income/
Expense

 

Average
Yield/
Rate

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, excluding incremental accretion*

$

5,279,500

 

 

$

67,085

 

 

5.04

%

 

$

5,178,009

 

 

$

69,193

 

 

5.30

%

 

$

4,272,132

 

 

$

56,431

 

 

5.24

%

Investments in debt and equity securities*

1,322,017

 

 

9,699

 

 

2.91

 

 

1,312,860

 

 

9,610

 

 

2.90

 

 

769,461

 

 

5,291

 

 

2.73

 

Short-term investments

102,989

 

 

406

 

 

1.56

 

 

113,214

 

 

572

 

 

2.00

 

 

76,726

 

 

364

 

 

1.88

 

Total earning assets

6,704,506

 

 

77,190

 

 

4.57

 

 

6,604,083

 

 

79,375

 

 

4.77

 

 

5,118,319

 

 

62,086

 

 

4.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-earning assets

617,990

 

 

 

 

 

 

618,274

 

 

 

 

 

 

400,421

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

7,322,496

 

 

 

 

 

 

$

7,222,357

 

 

 

 

 

 

$

5,518,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction accounts

$

1,325,363

 

 

$

1,620

 

 

0.48

%

 

$

1,356,328

 

 

$

2,048

 

 

0.60

%

 

$

864,175

 

 

$

1,221

 

 

0.56

%

Money market accounts

1,693,357

 

 

5,797

 

 

1.36

 

 

1,639,603

 

 

6,959

 

 

1.68

 

 

1,541,832

 

 

6,140

 

 

1.58

 

Savings

543,571

 

 

195

 

 

0.14

 

 

548,109

 

 

232

 

 

0.17

 

 

206,503

 

 

168

 

 

0.32

 

Certificates of deposit

846,253

 

 

4,096

 

 

1.92

 

 

820,943

 

 

3,970

 

 

1.92

 

 

696,803

 

 

3,053

 

 

1.74

 

Total interest-bearing deposits

4,408,544

 

 

11,708

 

 

1.05

 

 

4,364,983

 

 

13,209

 

 

1.20

 

 

3,309,313

 

 

10,582

 

 

1.27

 

Subordinated debentures

141,217

 

 

1,945

 

 

5.46

 

 

141,136

 

 

1,956

 

 

5.50

 

 

118,146

 

 

1,493

 

 

5.01

 

FHLB advances

291,057

 

 

1,371

 

 

1.87

 

 

378,207

 

 

2,203

 

 

2.31

 

 

178,185

 

 

1,121

 

 

2.50

 

Securities sold under agreements to repurchase

170,481

 

 

308

 

 

0.72

 

 

155,238

 

 

327

 

 

0.84

 

 

151,031

 

 

205

 

 

0.54

 

Other borrowings

36,220

 

 

293

 

 

3.21

 

 

37,817

 

 

337

 

 

3.54

 

 

1,391

 

 

8

 

 

2.28

 

Total interest-bearing liabilities

5,047,519

 

 

15,625

 

 

1.23

 

 

5,077,381

 

 

18,032

 

 

1.41

 

 

3,758,066

 

 

13,409

 

 

1.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

1,347,748

 

 

 

 

 

 

1,232,360

 

 

 

 

 

 

1,125,321

 

 

 

 

 

Other liabilities

67,555

 

 

 

 

 

 

68,642

 

 

 

 

 

 

37,489

 

 

 

 

 

Total liabilities

6,462,822

 

 

 

 

 

 

6,378,383

 

 

 

 

 

 

4,920,876

 

 

 

 

 

Shareholders' equity

859,674

 

 

 

 

 

 

843,974

 

 

 

 

 

 

597,864

 

 

 

 

 

Total liabilities and shareholders' equity

$

7,322,496

 

 

 

 

 

 

$

7,222,357

 

 

 

 

 

 

$

5,518,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core net interest income1

 

 

61,565

 

 

 

 

 

 

61,343

 

 

 

 

 

 

48,677

 

 

 

Core net interest margin1

 

 

 

 

3.64

%

 

 

 

 

 

3.69

%

 

 

 

 

 

3.77

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incremental accretion on non-core acquired loans

 

 

576

 

 

 

 

 

 

2,140

 

 

 

 

 

 

2,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net interest income

 

 

$

62,141

 

 

 

 

 

 

$

63,483

 

 

 

 

 

 

$

50,786

 

 

 

Net interest margin

 

 

 

 

3.68

%

 

 

 

 

 

3.81

%

 

 

 

 

 

3.94

%

* Non-taxable income is presented on a fully tax-equivalent basis using a 24.7% tax rate. The tax-equivalent adjustments were $0.5 million for the three months ended December 31, 2019, $0.4 million for the three months ended September 30, 2019, and $0.2 million for the three months ended December 31, 2018.

The core net interest margin1 decreased five basis points to 3.64% during the fourth quarter 2019 primarily due to a 26-basis point decrease in loan yields. This is a result of the decline of both the one-month LIBOR and Prime interest rates during the fourth quarter, which impacted the underlying interest rates of the Company’s loan portfolio, 59% of which is priced to variable interest rate indices. In response, the Company was successful in lowering the cost of interest-bearing transaction accounts and money market accounts by 12 basis points and 32 basis points, respectively, in the fourth quarter to partially offset the decrease in margin from the lower loan yield. Additionally, seasonal growth in noninterest-bearing deposits in the fourth quarter reduced the use of higher-cost wholesale borrowings.

The Company manages its balance sheet in part to defend against pressures on core net interest margin, which could be negatively impacted by continued competition for deposits, current interest rate conditions, and downward movement in short-term rates.

Loans

The following table presents total loans for the most recent five quarters.

 

Quarter ended

 

 

 

 

 

 

 

March 31, 2019

 

 

($ in thousands)

Dec 31,
2019

 

Sept 30,
2019

 

June 30,
2019

 

Trinityb

 

Legacy
EFSCb

 

Consolidated

 

Dec 31,
2018

C&I - general

$

1,186,667

 

 

$

1,174,569

 

 

$

1,103,908

 

 

$

65,122

 

 

$

1,063,633

 

 

$

1,128,755

 

 

$

995,491

 

CRE investor owned - general

1,290,258

 

 

1,281,332

 

 

1,235,596

 

 

304,615

 

 

878,856

 

 

1,183,471

 

 

862,423

 

CRE owner occupied - general

582,579

 

 

566,219

 

 

591,401

 

 

91,758

 

 

484,268

 

 

576,026

 

 

496,835

 

Enterprise value lendinga

428,896

 

 

417,521

 

 

445,981

 

 

 

 

439,500

 

 

439,500

 

 

465,992

 

Life insurance premium financinga

472,822

 

 

468,051

 

 

465,777

 

 

 

 

440,693

 

 

440,693

 

 

417,950

 

Residential real estate - general

366,261

 

 

386,174

 

 

409,200

 

 

137,487

 

 

295,069

 

 

432,556

 

 

304,671

 

Construction and land development - general

428,681

 

 

403,590

 

 

376,597

 

 

70,251

 

 

274,956

 

 

345,207

 

 

310,832

 

Tax creditsa

294,210

 

 

265,626

 

 

268,405

 

 

 

 

235,454

 

 

235,454

 

 

262,735

 

Agriculture

139,873

 

 

136,249

 

 

131,671

 

 

 

 

126,088

 

 

126,088

 

 

136,188

 

Consumer and other - general

124,090

 

 

128,683

 

 

120,961

 

 

12,835

 

 

96,492

 

 

109,327

 

 

96,884

 

Total Loans

$

5,314,337

 

 

$

5,228,014

 

 

$

5,149,497

 

 

$

682,068

 

 

$

4,335,009

 

 

$

5,017,077

 

 

$

4,350,001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loan yield

5.08

%

 

5.47

%

 

5.49

%

 

 

 

 

 

5.50

%

 

5.44

%

Total C&I loans to total loans

44

%

 

44

%

 

44

%

 

 

 

 

 

44

%

 

49

%

Variable interest rate loans to total loans

59

%

 

60

%

 

60

%

 

 

 

 

 

60

%

 

62

%

 

Certain prior period amounts have been reclassified among the categories to conform to the current period presentation

a Specialized categories may include a mix of C&I, CRE, Construction and land development, or Consumer and other loans.

b Amounts reported are as of March 31, 2019 and are separately shown attributable to the Trinity loan portfolio and related operations acquired on March 8, 2019, and the Company’s pre-Trinity acquisition loan portfolio and related operations.

Loans totaled $5.3 billion at December 31, 2019, increasing $86.3 million, or 7% annualized, compared to the linked quarter. In 2019, loans increased $964.3 million primarily due to the Trinity acquisition and organic growth, or 7% excluding loans attributed to New Mexico. We expect loan growth in 2020 to be 6-8%.

The Company continues to focus on originating high-quality C&I relationships, as they typically have variable interest rates and allow for cross selling opportunities involving other banking products. C&I loan growth, coupled with fixed-rate CRE lending, supports management’s efforts to maintain a flexible asset sensitive interest rate risk position.

Asset Quality

The following table presents the categories of nonperforming assets and related ratios for the most recent five quarters.

 

Quarter ended

($ in thousands)

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

Nonperforming loans

$

26,425

 

 

$

15,569

 

 

$

19,842

 

 

$

9,607

 

 

$

16,745

 

Other real estate

6,344

 

 

8,498

 

 

10,531

 

 

6,804

 

 

469

 

Nonperforming assets

$

32,769

 

 

$

24,067

 

 

$

30,373

 

 

$

16,411

 

 

$

17,214

 

 

 

 

 

 

 

 

 

 

 

Nonperforming loans to total loans

0.50

%

 

0.30

%

 

0.39

%

 

0.19

%

 

0.38

%

Nonperforming assets to total assets

0.45

 

 

0.33

 

 

0.42

 

 

0.24

 

 

0.30

 

Allowance for loan losses to total loans

0.81

 

 

0.85

 

 

0.85

 

 

0.86

 

 

1.00

 

Net charge-offs

$

2,544

 

 

$

1,070

 

 

$

970

 

 

$

1,826

 

 

$

2,822

 

 

Nonperforming assets increased $8.7 million to $32.8 million at December 31, 2019 from $24.1 million at September 30, 2019. The increase was primarily from the addition of a $12.9 million nonaccrual loan, partially offset by a $2.2 million decrease in other nonaccrual loans and a $2.2 million decrease in other real estate. The addition of the $12.9 million nonaccrual loan did not significantly impact the provision for loan losses, as the reserve coverage on the loan had been primarily recorded in prior periods.

The Company recorded a provision for loan losses of $6.4 million in 2019, compared to $6.6 million in the prior year. In the fourth quarter 2019, the provision for loan losses was $1.3 million compared to $1.8 million in the linked quarter. Net charge-offs to average loans totaled 0.13% for both 2019 and 2018. The decrease in the ratio of allowance for loan losses to total loans to 0.81% at December 31, 2019, from 0.85% at September 30, 2019, was due to a 24% decrease in substandard loans and net charge-offs of $2.5 million.

Deposits

The following table presents total deposits for the most recent five quarters.