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Enterprise Financial Reports Third Quarter 2019 Results

ST. LOUIS--(BUSINESS WIRE)--

Third Quarter Highlights

  • Net income of $29.1 million, $1.08 per diluted share
  • Net interest margin (tax equivalent) of 3.81%
  • Return on average assets (“ROAA”) of 1.60%
  • Loans increased $78.5 million, or 6% annualized
  • Deposits increased $65.0 million, or 5% annualized
  • Repurchase of 302,756 shares at an average price of $39.03 per share

Enterprise Financial Services Corp (EFSC) (the “Company” or “EFSC”) reported net income of $29.1 million for the quarter ended September 30, 2019, an increase of $10.6 million compared to the linked second quarter (“linked quarter”) and an increase of $6.6 million from the prior year quarter. Earnings per diluted share (“EPS”) were $1.08 for the current quarter, compared to $0.68 and $0.97 for the linked and prior year quarters, respectively. Merger-related expenses from the Trinity Capital Corporation (“Trinity”) acquisition reduced net income by $0.4 million pretax ($0.3 million after tax), or $0.01 per diluted share in the current quarter compared to $10.3 million pretax ($8.0 million after tax), or $0.30 per diluted share in the linked quarter. The increase in EPS for the current quarter, compared to the prior year quarter, was positively impacted by the Trinity acquisition. The year-over-year comparison of EPS is also impacted by a tax benefit recognized in the prior year quarter that did not occur in the current year period. Net interest margin, on a tax equivalent basis, in the current quarter was 3.81%, compared to 3.86% in the linked quarter and 3.78% in the prior year quarter.

The Company’s Board of Directors approved a quarterly dividend of $0.17 per common share, an increase from $0.16 for the prior quarter, payable on December 31, 2019 to shareholders of record as of December 16, 2019.

Jim Lally, EFSC’s President and Chief Executive Officer, commented, “I am pleased with our results in the third quarter of 2019. We generated balanced loan growth, expanded the deposit portfolio with a focus on non-interest bearing deposits and grew operating revenue. We have continued to deliver strong shareholder returns through solid earnings and by actively managing our capital position. In the third quarter we repurchased approximately $12 million of outstanding shares and approved an increased dividend of $0.17 for the fourth quarter. Our return on average tangible common equity1 has increased to 19% due to our strong earnings profile and prudent capital management. Despite the challenging interest rate environment, we have increased net interest income through balance sheet growth which we believe leaves us well-positioned as we enter the fourth quarter.”

1 Return on average tangible common equity is a non-GAAP measure. Refer to discussion and reconciliation of these measures in the accompanying financial tables.

Net Interest Income

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 the third quarter increased $1.3 million to $63.0 million from $61.7 million in the linked quarter, and increased $15.0 million from the prior year period. The increase from the linked quarter was primarily due to incremental accretion on non-core acquired loans while the increase from the prior year period was primarily due to the Trinity acquisition and organic growth. Net interest margin, on a tax equivalent basis, was 3.81% for the third quarter, compared to 3.86% in the linked quarter, and 3.78% in the third quarter of 2018.

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

 

Quarter ended

($ in thousands)

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

Net interest income

$

63,046

 

 

$

61,715

 

 

$

52,343

 

 

$

50,593

 

 

$

48,093

 

Less: Incremental accretion income2

2,140

 

 

910

 

 

1,157

 

 

2,109

 

 

535

 

Core net interest income3

$

60,906

 

 

$

60,805

 

 

$

51,186

 

 

$

48,484

 

 

$

47,558

 

 

 

 

 

 

 

 

 

 

 

Net interest margin (tax equivalent)

3.81

%

 

3.86

%

 

3.87

%

 

3.94

%

 

3.78

%

Core net interest margin3 (tax equivalent)

3.69

 

 

3.80

 

 

3.79

 

 

3.77

 

 

3.74

 

 

 

 

 

 

 

 

 

 

 

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 Sheets

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.

 

Quarter ended

 

September 30, 2019

 

June 30, 2019

 

September 30, 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*

$

5,178,009

 

 

$

69,193

 

 

5.30

%

 

$

5,095,181

 

 

$

68,830

 

 

5.42

%

 

$

4,252,525

 

 

$

54,968

 

 

5.13

%

Debt and equity investments*

1,312,860

 

 

9,610

 

 

2.90

 

 

1,246,529

 

 

9,152

 

 

2.95

 

 

755,129

 

 

5,154

 

 

2.71

 

Short-term investments

113,214

 

 

572

 

 

2.00

 

 

111,291

 

 

703

 

 

2.53

 

 

64,919

 

 

306

 

 

1.87

 

Total earning assets

6,604,083

 

 

79,375

 

 

4.77

 

 

6,453,001

 

 

78,685

 

 

4.89

 

 

5,072,573

 

 

60,428

 

 

4.73

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-earning assets

618,274

 

 

 

 

 

 

604,604

 

 

 

 

 

 

398,931

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

7,222,357

 

 

 

 

 

 

$

7,057,605

 

 

 

 

 

 

$

5,471,504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction accounts

$

1,356,328

 

 

$

2,048

 

 

0.60

%

 

$

1,384,090

 

 

$

2,134

 

 

0.62

%

 

$

758,621

 

 

$

799

 

 

0.42

%

Money market accounts

1,639,603

 

 

6,959

 

 

1.68

 

 

1,576,333

 

 

6,996

 

 

1.78

 

 

1,523,822

 

 

5,423

 

 

1.41

 

Savings

548,109

 

 

232

 

 

0.17

 

 

562,503

 

 

231

 

 

0.16

 

 

208,057

 

 

157

 

 

0.30

 

Certificates of deposit

820,943

 

 

3,970

 

 

1.92

 

 

815,138

 

 

3,758

 

 

1.85

 

 

678,214

 

 

2,878

 

 

1.68

 

Total interest-bearing deposits

4,364,983

 

 

13,209

 

 

1.20

 

 

4,338,064

 

 

13,119

 

 

1.21

 

 

3,168,714

 

 

9,257

 

 

1.16

 

Subordinated debentures

141,136

 

 

1,956

 

 

5.50

 

 

141,059

 

 

1,958

 

 

5.57

 

 

118,134

 

 

1,483

 

 

4.98

 

FHLB advances

378,207

 

 

2,203

 

 

2.31

 

 

263,384

 

 

1,696

 

 

2.58

 

 

311,522

 

 

1,729

 

 

2.20

 

Other borrowed funds

193,055

 

 

664

 

 

1.36

 

 

204,375

 

 

713

 

 

1.40

 

 

160,151

 

 

195

 

 

0.48

 

Total interest-bearing liabilities

5,077,381

 

 

18,032

 

 

1.41

 

 

4,946,882

 

 

17,486

 

 

1.42

 

 

3,758,521

 

 

12,664

 

 

1.34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

1,232,360

 

 

 

 

 

 

1,244,008

 

 

 

 

 

 

1,086,809

 

 

 

 

 

Other liabilities

68,642

 

 

 

 

 

 

53,609

 

 

 

 

 

 

39,409

 

 

 

 

 

Total liabilities

6,378,383

 

 

 

 

 

 

6,244,499

 

 

 

 

 

 

4,884,739

 

 

 

 

 

Shareholders' equity

843,974

 

 

 

 

 

 

813,106

 

 

 

 

 

 

586,765

 

 

 

 

 

Total liabilities and shareholders' equity

$

7,222,357

 

 

 

 

 

 

$

7,057,605

 

 

 

 

 

 

$

5,471,504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core net interest income3

 

 

61,343

 

 

 

 

 

 

61,199

 

 

 

 

 

 

47,764

 

 

 

Core net interest margin3

 

 

 

 

3.69

%

 

 

 

 

 

3.80

%

 

 

 

 

 

3.74

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incremental accretion on non-core acquired loans

 

 

2,140

 

 

 

 

 

 

910

 

 

 

 

 

 

535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net interest income

 

 

$

63,483

 

 

 

 

 

 

$

62,109

 

 

 

 

 

 

$

48,299

 

 

 

Net interest margin

 

 

 

 

3.81

%

 

 

 

 

 

3.86

%

 

 

 

 

 

3.78

%

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

Net interest margin decreased five basis points from the linked quarter to 3.81% during the current quarter primarily due to a 12 basis point decrease in yield on the loan portfolio. This is a result of the decline of both the one month LIBOR and Prime interest rates during the third quarter, which impacted the underlying interest rates of the Company’s loan portfolio, 60% of which is priced to variable interest rate indices. The interest rate trend is also indicative of the prices obtained on newly originated loans in the quarter, which carried a weighted average interest rate of 4.66%. In addition, the second quarter of 2019 included purchase accounting adjustments which added two basis points to the overall net interest margin, which did not reoccur during the third quarter of 2019. Finally, the overall mix of interest-earning assets also negatively impacted net interest margin due to a larger investment portfolio.

The Company responded to interest rate trends by reducing the cost of certain managed money market and interest-bearing transaction accounts. This effort improved the cost of money market accounts by 10 basis points over the linked quarter. Conversely, certificates of deposit retention was robust in the quarter, and carried a corresponding headwind to overall net interest margin, as did the overall mix of funding from the FHLB and other relatively higher cost sources.

The Company manages its balance sheet 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)

September 30,
2019

 

June 30,
2019

 

Trinityb

 

Legacy
EFSCb

 

Consolidated

 

December 31,
2018

 

September 30,
2018

C&I - general

$

1,174,569

 

 

$

1,103,908

 

 

$

65,122

 

 

$

1,063,633

 

 

$

1,128,755

 

 

$

995,491

 

 

$

969,898

 

CRE investor owned - general

1,281,332

 

 

1,235,596

 

 

304,615

 

 

878,856

 

 

1,183,471

 

 

862,423

 

 

846,322

 

CRE owner occupied - general

566,219

 

 

591,401

 

 

91,758

 

 

484,268

 

 

576,026

 

 

496,835

 

 

482,146

 

Enterprise value lendinga

417,521

 

 

445,981

 

 

 

 

439,500

 

 

439,500

 

 

465,992

 

 

442,439

 

Life insurance premium financinga

468,051

 

 

465,777

 

 

 

 

440,693

 

 

440,693

 

 

417,950

 

 

378,826

 

Residential real estate - general

386,174

 

 

409,200

 

 

137,487

 

 

295,069

 

 

432,556

 

 

304,671

 

 

314,315

 

Construction and land development - general

403,590

 

 

376,597

 

 

70,251

 

 

274,956

 

 

345,207

 

 

310,832

 

 

312,617

 

Tax creditsa

265,626

 

 

268,405

 

 

 

 

235,454

 

 

235,454

 

 

262,735

 

 

256,666

 

Agriculture

136,249

 

 

131,671

 

 

 

 

126,088

 

 

126,088

 

 

136,188

 

 

138,005

 

Consumer and other - general

128,683

 

 

120,961

 

 

12,835

 

 

96,492

 

 

109,327

 

 

96,884

 

 

126,196

 

Total Loans

$

5,228,014

 

 

$

5,149,497

 

 

$

682,068

 

 

$

4,335,009

 

 

$

5,017,077

 

 

$

4,350,001

 

 

$

4,267,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loan yield

5.47

%

 

5.49

%

 

 

 

 

 

5.50

%

 

5.44

%

 

5.18

%

Total C&I loans to total loans

44

%

 

44

%

 

 

 

 

 

44

%

 

49

%

 

48

%

Variable interest rate loans to total loans

60

%

 

60

%

 

 

 

 

 

60

%

 

62

%

 

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 $5.2 billion at September 30, 2019, increasing $78.5 million, or 6% annualized, compared to the linked quarter. On a year-over-year basis, loans increased $960.6 million primarily due to the Trinity acquisition along with organic growth. We expect loan growth in 2019 to be a high single digit percentage, excluding Trinity acquired loans.

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)

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

Nonperforming loans

$

15,569

 

 

$

19,842

 

 

$

9,607

 

 

$

16,745

 

 

$

17,044

 

Other real estate

8,498

 

 

10,531

 

 

6,804

 

 

469

 

 

408

 

Nonperforming assets

$

24,067

 

 

$

30,373

 

 

$

16,411

 

 

$

17,214

 

 

$

17,452

 

 

 

 

 

 

 

 

 

 

 

Nonperforming loans to total loans

0.30

%

 

0.39

%

 

0.19

%

 

0.38

%

 

0.40

%

Nonperforming assets to total assets

0.33

 

 

0.42

 

 

0.24

 

 

0.30

 

 

0.32

 

Allowance for loan losses to total loans

0.85

 

 

0.85

 

 

0.86

 

 

1.00

 

 

1.04

 

Net charge-offs

$

1,070

 

 

$

970

 

 

$

1,826

 

 

$

2,822

 

 

$

2,447

 

Nonperforming loans decreased $4.3 million to $15.6 million at September 30, 2019 from $19.8 million at June 30, 2019 primarily due to two loans totaling $4.0 million that were 90 days past due and still accruing interest at June 30, 2019 being current at September 30, 2019. The past-due status of these loans at June 30, 2019 was administrative in nature. Nonaccrual loan additions of $4.3 million in the current quarter primarily consisted of three relationships and were offset by paydowns of $3.1 million and charge-offs of $1.5 million. Other real estate decreased during the quarter ended September 30, 2019 primarily due to sales of three properties totaling $2.1 million.

The Company recorded a provision for loan losses of $1.8 million compared to $1.7 million for the linked quarter and $2.3 million for the prior year quarter, respectively. The provision is reflective of loan growth during the period. The decrease in the ratio of allowance for loan losses to total loans in 2019, from 1.00% at the end of 2018 to 0.85% in the current quarter, is primarily due to the acquisition of Trinity loans that were recorded at fair value and did not have a corresponding allowance for loan losses. In addition, the level of specific reserves in 2019 decreased due to two relationships that were charged off. The Company recorded a credit mark on the Trinity loan portfolio of $24.4 million as of the acquisition date.

Deposits

The following table presents deposits broken out by type for the most recent five quarters:

 

 

 

Quarter ended

 

 

 

 

 

March 31, 2019

 

 

 

 

($ in thousands)

September 30,
2019

 

June 30,
2019

 

Trinitya

 

Legacy
EFSCa

 

Consolidated

 

December 31,
2018

 

September 30,
2018

Noninterest-bearing accounts

$

1,295,450

 

 

$

1,181,577

 

 

$

169,344

 

 

$

1,017,164

 

 

$

1,186,508

 

 

$

1,100,718

 

 

$

1,062,126

 

Interest-bearing transaction accounts

1,307,855

 

 

1,392,586

 

 

401,257

 

 

988,569

 

 

1,389,826

 

 

1,037,684

 

 

743,351

 

Money market and savings accounts

2,201,052

 

 

2,162,605

 

 

390,192

 

 

1,765,839

 

 

2,156,031

 

 

1,765,154

 

 

1,730,762

 

Brokered certificates of deposit

209,754

 

 

213,138

 

 

 

 

180,788

 

 

180,788

 

 

198,981

 

 

202,323

 

Other certificates of deposit

610,269

 

 

609,432

 

 

133,556

 

 

490,404

 

 

623,960

 

 

485,448

 

 

471,914

 

Total deposit portfolio

$

5,624,380

 

 

$

5,559,338

 

 

$

1,094,349

 

 

$

4,442,764

 

 

$

5,537,113

 

 

$

4,587,985

 

 

$

4,210,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits to total deposits

23.0

%

 

21.3

%

 

15.5

%

 

22.9

%

 

21.4

%

 

24.0

%

 

25.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Total deposits at September 30, 2019 were $5.6 billion, an increase of $65.0 million from June 30, 2019, and an increase of $1.4 billion from September 30, 2018. The increase over the prior year period is primarily due to the Trinity acquisition.

Core deposits, defined as total deposits excluding certificates of deposits, were $4.8 billion at September 30, 2019, an increase of $67.6 million from the linked quarter. Noninterest-bearing deposits were $1.3 billion at September 30, 2019, an increase of $113.9 million compared to June 30, 2019, and an increase of $233.3 million compared to September 30, 2018. The total cost of deposits was 0.94% for the current and linked quarters and 0.86% in the prior year quarter.

Noninterest Income

Total noninterest income for the quarter ended September 30, 2019 was $13.6 million, an increase of $1.6 million, or 13% from the linked quarter, and an increase of $5.2 million, or 61% from the prior year quarter. Loan workout efforts resulted in $1.0 million of income during the third quarter, and was reported in other non-interest income. Tax credit income of $1.2 million in the current quarter increased $0.7 million and $1.0 million over the linked and prior year quarters, respectively. A gain on the sale of investment securities of $0.3 million was recognized in the third quarter of 2019. The increase from the prior year quarter was also driven by contributions from Trinity of $2.4 million.

The Company expects growth in noninterest income of a high single digit percentage for 2019 over 2018 levels, exclusive of the impact of the Trinity acquisition.

Noninterest Expenses

Noninterest expenses were $38.2 million for the quarter ended September 30, 2019, compared to $49.1 million for the quarter ended June 30, 2019, and $29.9 million for the quarter ended September 30, 2018. The decrease from the linked quarter was primarily due to a decline in merger-related expenses following the acquisition of Trinity. Merger-related expenses in the quarter decreased $9.9 million from the linked quarter. The Company expects its noninterest expense to range between $37 million and $39 million during the fourth quarter.

The Company’s core efficiency ratio4 was 51.7% for the quarter ended September 30, 2019, compared to 53.3% for the linked quarter and 52.2% for the prior year period, and reflects continued growth in net interest income and noninterest income, along with continued improvement in core noninterest expense over the linked quarter.

4 Core efficiency ratio is a non-GAAP measure. Refer to discussion and reconciliation of this measure in the accompanying financial tables.

Income Taxes

The Company’s effective tax rate was 20% for the quarter ended September 30, 2019 compared to 20% and 7% for the linked quarter and prior year quarter, respectively. The low rate for the prior year quarter resulted from a non-recurring reduction of income tax expense of $2.7 million from a tax planning election.

The Company expects its effective tax rate for the full year of 2019 to be approximately 20%.

Capital

The following table presents various EFSC capital ratios:

 

Quarter ended

Percent

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

Total risk-based capital to risk-weighted assets

12.72

%

 

12.62

%

 

12.86

%

 

13.02

%

 

12.94

%

Tier 1 capital to risk weighted assets

11.17

 

 

11.06

 

 

11.25

 

 

11.14

 

 

11.03

 

Common equity tier 1 capital to risk-weighted assets

9.64

 

 

9.51

 

 

9.64

 

 

9.79

 

 

9.66

 

Tangible common equity to tangible assets5

8.54

 

 

8.43

 

 

8.35

 

 

8.66

 

 

8.54

 

 

 

 

 

 

 

 

 

 

 

5 Tangible common equity to tangible assets is a non-GAAP measure. Refer to discussion and reconciliation of this measure in the accompanying financial tables.

Capital ratios for the current quarter are subject to, among other things, completion and filing of the Company’s regulatory reports and ongoing regulatory review.

Use of Non-GAAP Financial Measures

The Company’s accounting and reporting policies conform to generally accepted accounting principles in the United States (“GAAP”) and the prevailing practices in the banking industry. However, the Company provides other financial measures, such as adjusted EPS, core net interest income, core net interest margin, tangible common equity, core efficiency ratios, ROATCE, adjusted ROAA, adjusted ROAE, and adjusted ROATCE, and the tangible common equity ratio, in this release 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 GAAP.

The Company considers its adjusted EPS, core net interest income, core net interest margin, core efficiency ratio, adjusted ROAA, adjusted ROAE, ROATCE, adjusted ROATCE, and the tangible common equity ratio, collectively “core performance measures,” presented in this earnings release and the included tables as important measures of financial performance, even though they are non-GAAP measures, as they provide supplemental information by which to evaluate the impact of non-core acquired loans, which were acquired from the FDIC and previously covered by shared-loss agreements, and the related income and expenses, the impact of certain non-comparable items, and the Company’s operating performance on an ongoing basis. Core performance measures include contractual interest on non-core acquired loans, but exclude incremental accretion on these loans. Core performance measures also exclude expenses directly related to non-core acquired loans. Core performance measures also exclude certain other income and expense items, such as merger related expenses, facilities charges, and the gain or loss on sale of investment securities, the Company believes to be not indicative of or useful to measure the Company’s operating performance on an ongoing basis. The attached tables contain a reconciliation of these core performance measures to the GAAP measures. The Company believes that the tangible common equity ratio provides useful information to investors about the Company’s capital strength even though it is considered to be a non-GAAP financial measure and is not part of the regulatory capital requirements to which the Company is subject.

The Company believes these non-GAAP measures and ratios, when taken together with the corresponding 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 operating results and related trends and when 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 GAAP. In the attached tables, 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 measures for the periods indicated.

Conference Call and Webcast Information

The Company will host a conference call and webcast at 2:30 p.m. Central time on Tuesday, October 22, 2019. During the call, management will review the third quarter of 2019 results and related matters. This press release as well as a related slide presentation will be accessible on the Company’s website at www.enterprisebank.com under “Investor Relations” prior to the scheduled broadcast of the conference call. The call can be accessed via this same website page, or via telephone at 1-800-367-2403 (Conference ID #8577165). A recorded replay of the conference call will be available on the website two hours after the call’s completion. Visit http://bit.ly/EFSC3Q2019earnings and register to receive a dial in number, passcode, and pin number. The replay will be available for approximately two weeks following the conference call.

About Enterprise

Enterprise Financial Services Corp (EFSC), with approximately $7 billion in assets, is a financial holding company headquartered in Clayton, Missouri. Enterprise Bank & Trust, a Missouri state-chartered trust company with banking powers and a wholly-owned subsidiary of EFSC, operates 34 branch offices in Arizona, Kansas, Missouri and New Mexico. Enterprise Bank & Trust offers a range of business and personal banking services and wealth management services. Enterprise Trust, a division of Enterprise Bank & Trust, provides financial planning, estate planning, investment management and trust services to businesses, individuals, institutions, retirement plans and non-profit organizations. Additional information is available at www.enterprisebank.com.

Enterprise Financial Services Corp’s common stock is traded on the Nasdaq Stock Market under the symbol “EFSC.” Please visit our website at www.enterprisebank.com to see our regularly posted material information.

Forward-looking Statements

Readers should note that, in addition to the historical information contained herein, this press release 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. Such forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company including, without limitation, plans, strategies and goals, and statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, shareholder value creation and the impact of the acquisition of Trinity and its wholly-owned subsidiary, Los Alamos National Bank, and other acquisitions.

Forward-looking statements include, but are not limited to, statements about the Company’s plans, expectations, and projections of future financial and operating results, as well as statements regarding the Company’s plans, objectives, expectations or consequences of announced transactions. The Company uses words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “could,” “continue,” and “intend”, and variations of such words and similar expressions, in this release to identify such forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those contemplated from such statements. Factors that could cause or contribute to such differences include, but are not limited to, the Company’s ability to efficiently integrate acquisitions, including the Trinity acquisition, into its operations, retain the customers of these businesses and grow the acquired operations, as well as 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 in the banking industry, competition from banks and other financial institutions, the Company’s 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 policies and practices or accounting standards, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the Current Expected Credit Loss (“CECL”) model, which will change how we estimate credit losses and may increase the required level of our allowance for credit losses after adoption on January 1, 2020, uncertainty regarding the future of LIBOR, as well as other risk factors described in the Company’s 2018 Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission (the “SEC”). Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events unless required under the federal securities laws.

ENTERPRISE FINANCIAL SERVICES CORP

CONSOLIDATED FINANCIAL SUMMARY (unaudited)

 

 

Quarter ended

 

Nine Months ended

(in thousands, except per share data)

Sep 30,
2019

 

Jun 30,
2019

 

Mar 31,
2019

 

Dec 31,
2018

 

Sep 30,
2018

 

Sep 30,
2019

 

Sep 30,
2018

EARNINGS SUMMARY

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

$

63,046

 

 

$

61,715

 

 

$

52,343

 

 

$

50,593

 

 

$

48,093

 

 

$

177,104

 

 

$

141,312

 

Provision for loan losses

 

1,833

 

 

 

1,722

 

 

 

1,476

 

 

 

2,120

 

 

 

2,263

 

 

 

5,031

 

 

 

4,524

 

Noninterest income

 

13,564

 

 

 

11,964

 

 

 

9,230

 

 

 

10,702

 

 

 

8,410

 

 

 

34,758

 

 

 

27,645

 

Noninterest expense

 

38,239

 

 

 

49,054

 

 

 

39,838

 

 

 

30,747

 

 

 

29,922

 

 

 

127,131

 

 

 

88,284

 

Income before income tax expense

 

36,538

 

 

 

22,903

 

 

 

20,259

 

 

 

28,428

 

 

 

24,318

 

 

 

79,700

 

 

 

76,149

 

Income tax expense

 

7,469

 

 

 

4,479

 

 

 

4,103

 

 

 

4,899

 

 

 

1,802

 

 

 

16,051

 

 

 

10,461

 

Net income

$

29,069

 

 

$

18,424

 

 

$

16,156

 

 

$

23,529

 

 

$

22,516

 

 

$

63,649

 

 

$

65,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

$

1.08

 

 

$

0.68

 

 

$

0.67

 

 

$

1.02

 

 

$

0.97

 

 

$

2.45

 

 

$

2.81

 

Return on average assets

 

1.60

%

 

 

1.05

%

 

 

1.10

%

 

 

1.69

%

 

 

1.63

%

 

 

1.26

%

 

 

1.62

%

Return on average common equity

 

13.66

 

 

 

9.09

 

 

 

9.89

 

 

 

15.61

 

 

 

15.22

 

 

 

11.00

 

 

15.41

Return on average tangible common equity1

 

19.08

 

 

 

12.92

 

 

 

12.93

 

 

 

19.79

 

 

 

19.42

 

 

 

15.16

 

 

19.85

Net interest margin (tax equivalent)

 

3.81

 

 

 

3.86

 

 

 

3.87

 

 

 

3.94

 

 

 

3.78

 

 

 

3.85

 

 

3.78

Core net interest margin (tax equivalent)1

 

3.69

 

 

 

3.80

 

 

 

3.79

 

 

 

3.77

 

 

 

3.74

 

 

 

3.76

 

 

3.74

Efficiency ratio

 

49.91

 

 

 

66.58

 

 

 

64.70

 

 

 

50.16

 

 

 

52.96

 

 

 

60.01

 

 

52.25

Core efficiency ratio1

 

51.73

 

 

 

53.30

 

 

 

54.06

 

 

 

49.77

 

 

 

52.23

 

 

 

52.96

 

 

52.86

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

7,346,791

 

 

$

7,181,855

 

 

$

6,932,757

 

 

$

5,645,662

 

 

$

5,517,539

 

 

 

 

 

Total average assets

 

7,222,357

 

 

 

7,057,605

 

 

 

5,956,086

 

 

 

5,518,740

 

 

 

5,471,504

 

 

$

6,509,888

 

 

$

5,409,404

 

Total deposits

 

5,624,380

 

 

 

5,559,338

 

 

 

5,537,113

 

 

 

4,587,985

 

 

 

4,210,476

 

 

 

 

 

Total average deposits

 

5,597,343

 

 

 

5,582,072

 

 

 

4,699,490

 

 

 

4,434,634

 

 

 

4,255,523

 

 

 

5,143,219

 

 

 

4,203,861

 

Period end common shares outstanding

 

26,613

 

 

 

26,906

 

 

 

26,878

 

 

 

22,812

 

 

 

23,092

 

 

 

 

 

Dividends per common share

$

0.16

 

 

$

0.15

 

 

$

0.14

 

 

$

0.13

 

 

$

0.12

 

 

$

0.45

 

 

$

0.34

 

Tangible book value per common share1

$

22.82

 

 

$

21.74

 

 

$

20.80

 

 

$

20.95

 

 

$

19.94

 

 

 

 

 

Tangible common equity to tangible assets1

 

8.54

%

 

 

8.43

%

 

 

8.35

%

 

 

8.66

%

 

 

8.54

%

 

 

 

 

Total risk-based capital to risk-weighted assets

 

12.72

 

 

 

12.62

 

 

 

12.86

 

 

 

13.02

 

 

 

12.94

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1Refer to Reconciliations of Non-GAAP Financial Measures table for a reconciliation of these measures to GAAP.

...

ENTERPRISE FINANCIAL SERVICES CORP

CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)

 

 

Quarter ended

 

Nine Months ended

($ in thousands, except per share data)

Sep 30,
2019

 

Jun 30,
2019

 

Mar 31,
2019

 

Dec 31,
2018

 

Sep 30,
2018

 

Sep 30,
2019

 

Sep 30,
2018

INCOME STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest income

$

81,078

 

 

$

79,201

 

 

$

67,617

 

 

$

64,002

 

 

$

60,757

 

 

$

227,896

 

 

$

173,800

 

Total interest expense

18,032

 

 

17,486

 

 

15,274

 

 

13,409

 

 

12,664

 

 

50,792

 

 

32,488

 

Net interest income

63,046

 

 

61,715

 

 

52,343

 

 

50,593

 

 

48,093

 

 

177,104

 

 

141,312

 

Provision for loan losses

1,833

 

 

1,722

 

 

1,476

 

 

2,120

 

 

2,263

 

 

5,031

 

 

4,524

 

Net interest income after provision for loan losses

61,213

 

 

59,993

 

 

50,867

 

 

48,473

 

 

45,830

 

 

172,073

 

 

136,788

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposit service charges

3,246

 

 

3,366

 

 

2,935

 

 

2,894

 

 

2,997

 

 

9,547

 

 

8,855

 

Wealth management revenue

2,661

 

 

2,661

 

 

1,992

 

 

1,974

 

 

2,012

 

 

7,314

 

 

6,267

 

Card services revenue

2,494

 

 

2,461

 

 

1,790

 

 

1,760

 

 

1,760

 

 

6,745

 

 

4,926

 

Tax credit income

1,238

 

 

572

 

 

158

 

 

2,312

 

 

192

 

 

1,968

 

 

508

 

Gain on sale of investment securities

337

 

 

 

 

 

 

 

 

 

 

337

 

 

9

 

Other income

3,588

 

 

2,904

 

 

2,355

 

 

1,762

 

 

1,449

 

 

8,847

 

 

7,080

 

Total noninterest income

13,564

 

 

11,964

 

 

9,230

 

 

10,702

 

 

8,410

 

 

34,758

 

 

27,645

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

20,845

 

 

20,687

 

 

19,352

 

 

16,669

 

 

16,297

 

 

60,884

 

 

49,370

 

Occupancy

3,179

 

 

3,188

 

 

2,637

 

 

2,408

 

 

2,394

 

 

9,004

 

 

7,142

 

Merger-related expenses

393

 

 

10,306

 

 

7,270

 

 

1,271

 

 

 

 

17,969

 

 

 

Other

13,822

 

 

14,873

 

 

10,579

 

 

10,399

 

 

11,231

 

 

39,274

 

 

31,772

 

Total noninterest expense

38,239