EX-99.1 2 ex991financialstatementsan.htm EARNINGS RELEASE Exhibit


EXHIBIT 99.1
enterprisefinancialservicesc.jpg
ENTERPRISE FINANCIAL REPORTS SECOND QUARTER 2018 RESULTS

Reported Second Quarter Highlights
Net income of $22.3 million, or $0.95 per diluted share
Return on average assets of 1.65%
Portfolio loans grew $90 million, or 9% annualized

Second Quarter Core Highlights1 
Net income of $20.0 million, or $0.86 per diluted share
Return on average assets of 1.48%
Core net interest margin stable at 3.75%


St. Louis, Mo. July 23, 2018 – Enterprise Financial Services Corp (NASDAQ: EFSC) (the “Company” or "EFSC") reported net income of $22.3 million for the quarter ended June 30, 2018, an increase of $1.3 million, and $10.3 million as compared to the linked first quarter and prior year quarter, respectively. Net income per diluted share was $0.95 for the quarter ended June 30, 2018, an increase of 5% and 90%, compared to $0.90 and $0.50 per diluted share for the linked first quarter and prior year period, respectively.

The increase in net income and earnings per share compared to the linked first quarter was primarily due to increased earnings on non-core acquired assets, partially offset by an increase in income tax expense, as the linked first quarter had a lower tax rate due to additional tax benefits from the vesting of employee stock awards.

Core Results1 

On a core basis1, net income totaled $20.0 million, or $0.86 per diluted share, for the quarter ended June 30, 2018, compared to $19.6 million, or $0.84 per diluted share, in the linked first quarter primarily due to an increase in earning assets, a stable net interest margin, and an increase in fee income. Second quarter 2018 diluted core earnings per share1 grew 54% from $0.56 for the prior year period. The Company's core earnings per share1 increase of $0.30 per share over the prior year continues to be driven by revenue growth, which expanded $4.8 million, or 9% while discipline limited expense growth to 5%. Thus, marginal efficiency was 29%. Additionally, the provision for loan losses declined by $1.2 million due to favorable credit trends. The income tax rate declined to 17% from 32% due to the combination of 2017 federal income tax reform and the Company's tax planning initiatives. The Company's core efficiency ratio1 improved to 52.4% for the quarter ended June 30, 2018, compared to 54.5% for the prior year period.

The Company's Board of Directors approved an additional one cent per common share increase in the Company’s quarterly dividend to $0.12 per common share from $0.11 for the third quarter of 2018, payable on September 28, 2018, to shareholders of record as of September 14, 2018.

Jim Lally, EFSC’s President and Chief Executive Officer, commented, “Second quarter results reflect the continued momentum we have established in our business. Portfolio loan growth of 9% was diversified across geographic markets as well as our specialty lending products. At the same time, profitability levels remained at a high level with return on average assets of 1.65% and return on tangible equity exceeding 20%.”


1 A non-GAAP measure. Refer to discussion & reconciliation of these measures in the accompanying financial tables.
1



Lally added, “Our confidence in our performance and outlook allows us to increase our dividend to 12 cents per share, as we remain proactive in managing capital levels to support both growth and returns. As we move to the second half of the year, we remain focused on continued growth in both loans and core deposits.”

Net Interest Income

Net interest income for the second quarter increased to $47.0 million from the linked first quarter of $46.2 million, and increased $1.4 million from the prior year period. Net interest margin, on a fully tax equivalent basis, was 3.77% for the second quarter, compared to 3.80% in the linked first quarter, and 3.98% in the second quarter of 2017.

Core net interest income1 expanded by $1.4 million during the linked quarter due to an increase in average earning assets totaling $75 million, driven by portfolio loan growth. The earnings from asset growth combined with a relatively stable core net interest margin1 increased core net interest income1 for the quarter.

Core net interest margin1, excludes incremental accretion on non-core acquired loans. See the table below for a quarterly comparison.

 
For the Quarter ended
($ in thousands)
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
June 30,
2017
Core net interest income1
$
46,757

 
$
45,405

 
$
44,901

 
$
44,069

 
$
43,049

Core net interest margin1, (fully tax equivalent)
3.75
%
 
3.74
%
 
3.73
%
 
3.75
%
 
3.76
%

Core net interest margin1 remained relatively stable at 3.75% from the prior year quarter and linked quarter. Specifically, the yield on portfolio loans increased 36 basis points to 4.99% from 4.63% due to increasing interest rates on the existing variable-rate loan portfolio and higher rates on newly originated loans. The cost of total deposits increased 32 basis points from the prior year quarter and was 0.73% for the quarter ended June 30, 2018. The increase in the interest rate paid on deposits reflects market interest rate trends, as the Company continues to defend and attract new core deposit relationships. Additionally, the cost of total interest-bearing liabilities increased 47 basis points to 1.16% from 0.69% in the second quarter of 2017.

The Company continues to manage its balance sheet to grow core net interest income1 and expects to maintain core net interest margin1 over the coming quarters as growth in loan yields balance rising deposit prices. However, pressure on funding costs could hinder the expected trends in core net interest margin1.


1 A non-GAAP measure. Refer to discussion & reconciliation of these measures in the accompanying financial tables.
2



Portfolio Loans

The following table presents portfolio loans with selected specialized lending detail for the most recent five quarters:
 
At the Quarter ended
($ in thousands)
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
June 30,
2017
C&I - general
$
990,153

 
$
945,682

 
$
936,588

 
$
905,296

 
$
905,096

CRE investor owned - general
836,516

 
836,499

 
801,156

 
771,348

 
746,705

CRE owner occupied - general
493,589

 
471,417

 
468,151

 
467,154

 
449,493

Enterprise value lendinga
442,877

 
439,352

 
407,644

 
455,983

 
433,766

Life insurance premium financinga
358,787

 
365,377

 
364,876

 
330,957

 
317,848

Residential real estate - general
318,841

 
328,966

 
342,140

 
341,311

 
348,288

Construction and land development - general
286,482

 
293,938

 
294,123

 
300,697

 
284,352

Tax creditsa
260,595

 
244,088

 
234,835

 
188,498

 
149,941

Agriculture loansa
127,849

 
118,862

 
91,031

 
90,768

 
82,571

Consumer and other - general
136,647

 
117,901

 
126,115

 
144,489

 
140,903

Portfolio loans
$
4,252,336

 
$
4,162,082

 
$
4,066,659

 
$
3,996,501

 
$
3,858,963

 
 
 
 
 
 
 
 
 
 
Portfolio loan yield
4.99
%
 
4.87
%
 
4.71
%
 
4.69
%
 
4.63
%
Total C&I loans to portfolio loans
48
%
 
48
%
 
47
%
 
47
%
 
47
%
Variable interest rate loans to portfolio loans
60
%
 
59
%
 
58
%
 
57
%
 
57
%
 
Certain prior period amounts have been reclassified among the categories to conform to the current period presentation.
aSpecialized categories may include a mix of C&I, CRE, Construction and land development, or Consumer and other loans.

Portfolio loans were $4.3 billion at June 30, 2018, increasing $90 million, or 9% annualized, when compared to the linked quarter. On a year-over-year basis, portfolio loans increased $393 million, or 10%. Given performance through June 30, 2018, we expect total 2018 portfolio loan growth to be a high single digit percentage.

The Company continues to focus on originating high-quality Commercial and Industrial ("C&I") relationships, as they typically have variable interest rates and allow for cross selling opportunities involving other banking products. C&I loans increased $56 million during the second quarter of 2018 from the linked first quarter and represented 48% of the Company's loan portfolio at June 30, 2018. C&I loan growth supports management's efforts to maintain the Company's asset sensitive interest rate risk position.

Non-Core Acquired Loans

Non-core acquired loans were those acquired from the FDIC and were previously covered by shared-loss agreements. These loans continue to be accounted for as Purchased Credit Impaired ("PCI") loans. Non-core acquired loans totaled $23.4 million at June 30, 2018, a decrease of $5.3 million, or 19% from the linked first quarter, and $12.4 million, or 35%, from the prior year period, primarily as a result of principal payments and loan payoffs. At June 30, 2018, the remaining accretable yield on the portfolio was estimated to be $11 million and the non-accretable difference was approximately $10 million.

The Company estimates 2018 pre-tax income from accelerated cash flows and other incremental accretion to be between $2 million and $3 million. Additionally, year-to-date pretax income from non-core acquired assets includes a $2.0 million provision for loan loss reversal as well as $1.0 million of other income from non-core acquired assets.

1 A non-GAAP measure. Refer to discussion & reconciliation of these measures in the accompanying financial tables.
3




Asset Quality: The following table presents the categories of nonperforming assets and related ratios for the most recent five quarters:
 
For the Quarter ended
($ in thousands)
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
June 30,
2017
Nonperforming loans
$
14,801

 
$
15,582

 
$
15,687

 
$
8,985

 
$
13,081

Other real estate
454

 
455

 
498

 
491

 
529

Nonperforming assets
$
15,255

 
$
16,037

 
$
16,185

 
$
9,476

 
$
13,610

Nonperforming loans to total loans a
0.35
%
 
0.38
%
 
0.39
%
 
0.23
%
 
0.34
%
Nonperforming assets to total assets
0.28
%
 
0.30
%
 
0.31
%
 
0.18
%
 
0.27
%
Allowance for portfolio loan losses to total loans a
1.00
%
 
0.98
%
 
0.95
%
 
0.97
%
 
0.96
%
Net charge-offs (recoveries)
$
641

 
$
(226
)
 
$
3,313

 
$
803

 
$
6,104

a Excludes loans accounted for as PCI loans

The Company recorded a provision for portfolio loan losses of $2.4 million compared to $1.9 million in the linked quarter and $3.6 million in the prior year period. The provision for the second quarter is reflective of the growth in portfolio loan balances and maintaining a prudent credit risk posture.

Deposits

The following table presents deposits broken out by type:
 
At the Quarter ended
($ in thousands)
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
June 30,
2017
Noninterest-bearing accounts
$
1,050,969

 
$
1,101,705

 
$
1,123,907

 
$
1,047,910

 
$
1,019,064

Interest-bearing transaction accounts
754,819

 
875,880

 
915,653

 
814,338

 
803,104

Money market and savings accounts
1,768,793

 
1,655,488

 
1,538,081

 
1,579,767

 
1,506,001

Brokered certificates of deposit
224,192

 
201,082

 
115,306

 
170,701

 
133,606

Other certificates of deposit
449,139

 
447,222

 
463,467

 
446,495

 
459,476

Total deposit portfolio
$
4,247,912

 
$
4,281,377

 
$
4,156,414

 
$
4,059,211

 
$
3,921,251

 
 
 
 
 
 
 
 
 
 
Noninterest-bearing deposits to total deposits
25
%
 
26
%
 
27
%
 
26
%
 
26
%

Total deposits at June 30, 2018 were $4.2 billion, a decrease of $33 million, or 3% annualized, from March 31, 2018, but an increase of $327 million from June 30, 2017. Average deposit balances for the quarter ended June 30, 2018, increased $106 million from the linked quarter and $321 million compared to the prior year period resulting in higher interest expense on deposits for the current quarter.

Core deposits, defined as total deposits excluding certificates of deposits, were $3.6 billion at June 30, 2018, a decrease of $58 million, or 6% annualized, from the linked quarter, but an increase of $246 million when compared to the prior year period. The Company continues to experience a shift in deposit behaviors as customers allocate more cash to higher rate accounts along with normal seasonal fluctuations with some of our corporate clients.

Noninterest-bearing deposits decreased $51 million compared to March 31, 2018, but increased $32 million compared to June 30, 2017. The total cost of deposits increased 12 basis points and totaled 0.73% compared to 0.61% at March 31, 2018, and also increased 32 basis points since June 30, 2017. As previously indicated, the cost of deposits reflects interest rate conditions for existing clients as well as rates for new customer acquisition.


1 A non-GAAP measure. Refer to discussion & reconciliation of these measures in the accompanying financial tables.
4



Noninterest Income

Total noninterest income for the quarter ended June 30, 2018 was $9.7 million, an increase of $0.2 million, or 2% from the linked first quarter, and an increase of $1.8 million, or 22%, from the prior year quarter. The sequential change was driven by higher income from bank-owned life insurance proceeds, deposit service charges, and card services. Other income in the second quarter includes a $0.6 million gain from the sale of an equity partnership while the sequential first quarter included a $1.0 million gain from non-core acquired assets.
Core noninterest income1 for the quarter ended June 30, 2018 was $9.0 million, an increase of $0.5 million, or 6% from the linked first quarter, primarily due to the aforementioned death benefit proceeds on an insurance policy and increases in card services revenue and deposit service charges.
The Company expects growth in core fee income of 5% - 7% for 2018 over 2017 levels.
Noninterest Expenses

Noninterest expenses were $29.2 million for the quarter ended June 30, 2018, compared to $29.1 million for the quarter ended March 31, 2018, and $32.7 million for the quarter ended June 30, 2017. Noninterest expenses for the quarter ended June 30, 2017 included $4.5 million of merger related expenses. Core noninterest expenses1 were $29.2 million for the quarter ended June 30, 2018, compared to $29.1 million for the linked quarter, and $27.8 million for the prior year period. The increase from the linked quarter was due to continued hiring activity to support anticipated growth partially offset by seasonally lower payroll tax expenses. Core expenses1 increased over the prior year period due to increases in Employee compensation and benefits from investments in revenue producing personnel and $0.8 million of tax credit amortization.
 
The Company's core efficiency ratio1 was 52.4% for the quarter ended June 30, 2018, compared to 54.0% for the linked quarter and 54.5% for the prior year period. The decrease in the linked quarter is reflective of higher income and holding noninterest expense steady.

The Company expects to continue to invest in revenue producing associates and other infrastructure that supports additional growth. These investments are expected to result in expense growth, at a rate of 35% - 45% of projected revenue growth for 2018, resulting in continued improvements to the Company's efficiency ratio.

Income Taxes

The Company's effective tax rate was 18% for the quarter ended June 30, 2018 compared to 15% for the quarter ended March 31, 2018, and 32% for the quarter ended June 30, 2017. The linked first quarter included additional tax benefits recognized from the vesting of employee stock awards.

The Company expects its effective tax rate for the remainder of 2018 to be approximately 18% - 20%.

Capital

The following table presents various capital ratios:
 
At the Quarter ended
Percent
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
Total risk-based capital to risk-weighted assets
12.60
%
 
12.41
%
 
12.21
%
 
12.33
%
 
12.84
%
Common equity tier 1 capital to risk-weighted assets
9.32
%
 
9.07
%
 
8.88
%
 
8.93
%
 
9.34
%
Tangible common equity to tangible assets
8.30
%
 
8.13
%
 
8.14
%
 
8.18
%
 
8.56
%


1 A non-GAAP measure. Refer to discussion & reconciliation of these measures in the accompanying financial tables.
5



Capital ratios for the current quarter are based on the Basel III regulatory capital framework as applied to the Company’s current businesses and operations, and are subject to, among other things, completion and filing of the Company’s regulatory reports and ongoing regulatory review and implementation guidance. The attached tables contain a reconciliation of these ratios to U.S. GAAP financial measures.

For more information contact:
Investor Relations: Keene Turner, Executive Vice President and CFO (314) 512-7233
Media: Karen Loiterstein, Senior Vice President (314) 512-7141

Use of Non-GAAP Financial Measures1 

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 core net income and net interest margin, and other core performance measures, regulatory capital ratios, 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 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 and 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 the gain or loss on sale of other real estate from non-core acquired loans, and expenses directly related to non-core acquired loans and other assets formerly covered under FDIC loss share agreements. Core performance measures also exclude certain other income and expense items, such as executive separation costs, merger related expenses, facilities charges, deferred tax asset revaluation, 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 measure 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, July 24, 2018. During the call, management will review the second quarter of 2018 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” beginning prior to the scheduled broadcast of the conference call. The call can be accessed via this same website page, or via telephone at 1-855-719-5007 (Conference ID #8099056.) A recorded replay of the conference call will be available on the website two hours after the call's completion. Visit http://bit.ly/EFSC2Q2018earnings 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.


1 A non-GAAP measure. Refer to discussion & reconciliation of these measures in the accompanying financial tables.
6



Enterprise Financial Services Corp operates commercial banking and wealth management businesses in metropolitan St. Louis, Kansas City, and Phoenix. The Company is primarily focused on serving the needs of privately held businesses, their owner families, executives and professionals.

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. 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 communication 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 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 regulation or standards applicable to banks, as well as other risk factors described in the Company's 2017 Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission. 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.


1 A non-GAAP measure. Refer to discussion & reconciliation of these measures in the accompanying financial tables.
7



ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited)
 
For the Quarter ended
 
For the Six Months ended
($ in thousands, except per share data)
Jun 30,
2018
 
Mar 31,
2018
 
Dec 31,
2017
 
Sep 30,
2017
 
Jun 30,
2017
 
Jun 30,
2018
 
Jun 30,
2017
EARNINGS SUMMARY
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
47,048

 
$
46,171

 
$
47,404

 
$
45,625

 
$
45,633

 
$
93,219

 
$
84,275

Provision for portfolio loan losses
2,385

 
1,871

 
3,186

 
2,422

 
3,623

 
4,256

 
5,156

Provision reversal for purchased credit impaired loan losses
(1,995
)
 

 
(279
)
 

 
(207
)
 
(1,995
)
 
(355
)
Noninterest income
9,693

 
9,542

 
11,112

 
8,372

 
7,934

 
19,235

 
14,910

Noninterest expense
29,219

 
29,143

 
28,260

 
27,404

 
32,651

 
58,362

 
59,387

Income before income tax expense
27,132


24,699


27,349


24,171


17,500


51,831

 
34,997

Income tax expense1
4,881

 
3,778

 
19,820

 
7,856

 
5,545

 
8,659

 
10,651

Net income1
$
22,251

 
$
20,921


$
7,529


$
16,315


$
11,955


$
43,172


$
24,346

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.95

 
$
0.90

 
$
0.32

 
$
0.69

 
$
0.50

 
$
1.85

 
$
1.06

Return on average assets
1.65
%
 
1.59
%
 
0.57
%
 
1.27
%
 
0.96
%
 
1.62
%
 
1.02
%
Return on average common equity
15.70
%
 
15.31
%
 
5.37
%
 
11.69
%
 
8.78
%
 
15.51
%
 
9.64
%
Return on average tangible common equity
20.23
%
 
19.92
%
 
6.99
%
 
15.23
%
 
11.49
%
 
20.08
%
 
12.20
%
Net interest margin (fully tax equivalent)
3.77
%
 
3.80
%
 
3.93
%
 
3.88
%
 
3.98
%
 
3.79
%
 
3.86
%
Efficiency ratio
51.50
%
 
52.31
%
 
48.29
%
 
50.75
%
 
60.95
%
 
51.90
%
 
59.87
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CORE PERFORMANCE SUMMARY (NON-GAAP)2
 
 
 
 
 
 
 
 
 
 
Net interest income
$
46,757

 
$
45,405

 
$
44,901

 
$
44,069

 
$
43,049

 
$
92,162

 
$
80,616

Provision for portfolio loan losses
2,385

 
1,871

 
3,186

 
2,422

 
3,623

 
4,256

 
5,156

Noninterest income
9,026

 
8,520

 
11,118

 
8,350

 
7,934

 
17,546

 
14,910

Noninterest expense
29,209

 
29,129

 
28,146

 
27,070

 
27,798

 
58,338

 
52,744

Income before income tax expense
24,189

 
22,925


24,687


22,927


19,562


47,114


37,626

Income tax expense
4,145

 
3,340

 
6,692

 
7,391

 
6,329

 
7,485

 
11,245

Net income
$
20,044

 
$
19,585


$
17,995


$
15,536


$
13,233


$
39,629


$
26,381

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.86

 
$
0.84

 
$
0.77

 
$
0.66

 
$
0.56

 
$
1.70

 
$
1.15

Return on average assets
1.48
%
 
1.49
%
 
1.37
%
 
1.21
%
 
1.06
%
 
1.49
%
 
1.11
%
Return on average common equity
14.14
%
 
14.34
%
 
12.84
%
 
11.13
%
 
9.72
%
 
14.24
%
 
10.44
%
Return on average tangible common equity
18.22
%
 
18.64
%
 
16.71
%
 
14.50
%
 
12.72
%
 
18.43
%
 
13.22
%
Net interest margin (fully tax equivalent)
3.75
%
 
3.74
%
 
3.73
%
 
3.75
%
 
3.76
%
 
3.74
%
 
3.70
%
Efficiency ratio
52.36
%
 
54.02
%
 
50.24
%
 
51.64
%
 
54.52
%
 
53.18
%
 
55.21
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1 Includes $12.1 million ($0.52 per share) deferred tax asset revaluation charge for the quarter ended December 31, 2017 due to U.S. corporate income tax reform.
 
 
 
 
2 Refer to Reconciliations of Non-GAAP Financial Measures table for a reconciliation of these measures to GAAP.




8



ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
 
For the Quarter ended
 
For the Six Months ended
($ in thousands, except per share data)
Jun 30,
2018
 
Mar 31,
2018
 
Dec 31,
2017
 
Sep 30,
2017
 
Jun 30,
2017
 
Jun 30,
2018
 
Jun 30,
2017
INCOME STATEMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
NET INTEREST INCOME
 
 
 
 
 
 
 
 
 
 
 
 
 
Total interest income
$
57,879

 
$
55,164

 
$
54,789

 
$
52,468

 
$
51,542

 
$
113,043

 
$
95,282

Total interest expense
10,831

 
8,993

 
7,385

 
6,843

 
5,909

 
19,824

 
11,007

Net interest income
47,048

 
46,171


47,404


45,625


45,633

 
93,219

 
84,275

Provision for portfolio loan losses
2,385

 
1,871

 
3,186

 
2,422

 
3,623

 
4,256

 
5,156

Provision reversal for purchased credit impaired loan losses
(1,995
)
 

 
(279
)
 

 
(207
)
 
(1,995
)
 
(355
)
Net interest income after provision for loan losses
46,658

 
44,300


44,497


43,203


42,217

 
90,958

 
79,474

 
 
 
 
 
 
 
 
 
 
 
 
 
 
NONINTEREST INCOME
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposit service charges
3,007

 
2,851

 
2,897

 
2,820

 
2,816

 
5,858

 
5,326

Wealth management revenue
2,141

 
2,114

 
2,153

 
2,062

 
2,054

 
4,255

 
3,887

Card services revenue
1,650

 
1,516

 
1,545

 
1,459

 
1,392

 
3,166

 
2,429

State tax credit activity, net
64

 
252

 
2,249

 
77

 
9

 
316

 
255

Gain on sale of other real estate

 

 
76

 

 
17

 

 
17

Gain on sale of investment securities

 
9

 

 
22

 

 
9

 

Other income
2,831

 
2,800

 
2,192

 
1,932

 
1,646

 
5,631

 
2,996

Total noninterest income
9,693

 
9,542


11,112


8,372


7,934

 
19,235

 
14,910

 
 
 
 
 
 
 
 
 
 
 
 
 
 
NONINTEREST EXPENSE
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
16,582

 
16,491

 
15,292

 
15,090

 
15,798

 
33,073

 
31,006

Occupancy
2,342

 
2,406

 
2,429

 
2,434

 
2,265

 
4,748

 
4,194

Merger related expenses

 

 

 
315

 
4,480

 

 
6,147

Other
10,295

 
10,246

 
10,539

 
9,565

 
10,108

 
20,541

 
18,040

Total noninterest expense
29,219

 
29,143


28,260


27,404


32,651

 
58,362

 
59,387

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income tax expense
27,132

 
24,699


27,349


24,171


17,500

 
51,831

 
34,997

Income tax expense
4,881

 
3,778

 
19,820

 
7,856

 
5,545

 
8,659

 
10,651

Net income
$
22,251

 
$
20,921


$
7,529


$
16,315


$
11,955

 
$
43,172

 
$
24,346

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
0.96

 
$
0.91

 
$
0.33

 
$
0.70

 
$
0.51

 
$
1.87

 
$
1.07

Diluted earnings per share
0.95

 
0.90

 
0.32

 
0.69

 
0.50

 
1.85

 
1.06




9



ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
    
 
At the Quarter ended
($ in thousands)
Jun 30,
2018
 
Mar 31,
2018
 
Dec 31,
2017
 
Sep 30,
2017
 
Jun 30,
2017
BALANCE SHEETS
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
91,851

 
$
81,604

 
$
91,084

 
$
76,777

 
$
77,815

Interest-earning deposits
87,586

 
63,897

 
64,884

 
108,976

 
41,419

Debt and equity investments
756,203

 
752,114

 
741,792

 
708,725

 
727,975

Loans held for sale
1,388

 
1,748

 
3,155

 
6,411

 
4,285

 
 
 
 
 
 
 
 
 
 
Portfolio loans
4,252,336

 
4,162,082

 
4,066,659

 
3,996,501

 
3,858,962

   Less: Allowance for loan losses
42,007

 
40,263

 
38,166

 
38,292

 
36,673

Portfolio loans, net
4,210,329

 
4,121,819

 
4,028,493

 
3,958,209

 
3,822,289

Non-core acquired loans, net of the allowance for loan losses
21,062

 
24,376

 
25,980

 
29,258

 
30,682

Total loans, net
4,231,391

 
4,146,195

 
4,054,473

 
3,987,467

 
3,852,971

 
 
 
 
 
 
 
 
 
 
Other real estate
454

 
455

 
498

 
491

 
529

Fixed assets, net
32,814

 
32,127

 
32,618

 
32,803

 
33,987

State tax credits, held for sale
46,481

 
42,364

 
43,468

 
35,291

 
35,247

Goodwill
117,345

 
117,345

 
117,345

 
117,345

 
116,186

Intangible assets, net
9,768

 
10,399

 
11,056

 
11,745

 
12,458

Other assets
134,643

 
134,854

 
128,852

 
145,457

 
135,824

Total assets
$
5,509,924

 
$
5,383,102

 
$
5,289,225

 
$
5,231,488

 
$
5,038,696

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Noninterest-bearing deposits
$
1,050,969

 
$
1,101,705

 
$
1,123,907

 
$
1,047,910

 
$
1,019,064

Interest-bearing deposits
3,196,943

 
3,179,672

 
3,032,507

 
3,011,301

 
2,902,187

Total deposits
4,247,912

 
4,281,377

 
4,156,414

 
4,059,211

 
3,921,251

Subordinated debentures
118,131

 
118,118

 
118,105

 
118,093

 
118,080

Federal Home Loan Bank advances
361,534

 
224,624

 
172,743

 
248,868

 
200,992

Other borrowings
167,216

 
166,589

 
253,674

 
209,104

 
217,180

Other liabilities
41,047

 
37,379

 
39,716

 
49,876

 
32,440

Total liabilities
4,935,840

 
4,828,087

 
4,740,652

 
4,685,152

 
4,489,943

Shareholders' equity
574,084

 
555,015

 
548,573

 
546,336

 
548,753

Total liabilities and shareholders' equity
$
5,509,924

 
$
5,383,102

 
$
5,289,225

 
$
5,231,488

 
$
5,038,696





10



ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
 
For the Quarter ended
($ in thousands)
Jun 30,
2018
 
Mar 31,
2018
 
Dec 31,
2017
 
Sep 30,
2017
 
Jun 30,
2017
LOAN PORTFOLIO
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
2,038,400

 
$
1,982,086

 
$
1,919,145

 
$
1,861,935

 
$
1,796,342

Commercial real estate
1,445,981

 
1,413,897

 
1,363,605

 
1,332,111

 
1,275,771

Construction real estate
302,514

 
309,227

 
305,468

 
306,410

 
287,360

Residential real estate
319,208

 
329,337

 
342,518

 
341,695

 
348,678

Consumer and other
146,233

 
127,535

 
135,923

 
154,350

 
150,812

Total portfolio loans
4,252,336

 
4,162,082

 
4,066,659

 
3,996,501

 
3,858,963

Non-core acquired loans
23,425

 
28,763

 
30,391

 
34,157

 
35,807

Total loans
$
4,275,761

 
$
4,190,845


$
4,097,050


$
4,030,658


$
3,894,770

 
 
 
 
 
 
 
 
 
 
DEPOSIT PORTFOLIO
 
 
 
 
 
 
 
 
 
Noninterest-bearing accounts
$
1,050,969

 
$
1,101,705

 
$
1,123,907

 
$
1,047,910

 
$
1,019,064

Interest-bearing transaction accounts
754,819

 
875,880

 
915,653

 
814,338

 
803,104

Money market and savings accounts
1,768,793

 
1,655,488

 
1,538,081

 
1,579,767

 
1,506,001

Brokered certificates of deposit
224,192

 
201,082

 
115,306

 
170,701

 
133,606

Other certificates of deposit
449,139

 
447,222

 
463,467

 
446,495

 
459,476

Total deposit portfolio
$
4,247,912

 
$
4,281,377


$
4,156,414


$
4,059,211


$
3,921,251

 
 
 
 
 
 
 
 
 
 
AVERAGE BALANCES
 
 
 
 
 
 
 
 
 
Portfolio loans
$
4,196,875

 
$
4,108,400

 
$
3,990,233

 
$
3,899,493

 
$
3,839,266

Non-core acquired loans
26,179

 
29,125

 
31,957

 
35,120

 
36,767

Loans held for sale
962

 
1,445

 
3,599

 
5,144

 
4,994

Debt and equity investments
743,534

 
740,587

 
708,481

 
711,056

 
667,781

Interest-earning assets
5,023,607

 
4,948,875

 
4,826,271

 
4,712,672

 
4,641,198

Total assets
5,415,151

 
5,340,112

 
5,226,183

 
5,095,494

 
5,017,213

Deposits
4,230,291

 
4,124,326

 
4,115,377

 
3,932,038

 
3,909,600

Shareholders' equity
568,555

 
554,066

 
555,994

 
553,713

 
546,282

Tangible common equity
441,136

 
426,006

 
427,258

 
425,056

 
417,239

 
 
 
 
 
 
 
 
 
 
YIELDS (fully tax equivalent)
 
 
 
 
 
 
 
 
 
Portfolio loans
4.99
%
 
4.87
%
 
4.71
%
 
4.69
%
 
4.63
%
Non-core acquired loans
12.37
%
 
16.60
%
 
37.53
%
 
23.82
%
 
34.79
%
Total loans
5.04
%
 
4.96
%
 
4.97
%
 
4.86
%
 
4.92
%
Debt and equity investments
2.58
%
 
2.50
%
 
2.52
%
 
2.49
%
 
2.51
%
Interest-earning assets
4.64
%
 
4.54
%
 
4.54
%
 
4.45
%
 
4.49
%
Interest-bearing deposits
0.98
%
 
0.82
%
 
0.69
%
 
0.62
%
 
0.55
%
Total deposits
0.73
%
 
0.61
%
 
0.50
%
 
0.46
%
 
0.41
%
Subordinated debentures
4.94
%
 
4.70
%
 
4.46
%
 
4.42
%
 
4.37
%
Borrowed funds
1.41
%
 
1.15
%
 
0.84
%
 
0.85
%
 
0.64
%
Cost of paying liabilities
1.16
%
 
0.99
%
 
0.84
%
 
0.78
%
 
0.69
%
Net interest margin
3.77
%
 
3.80
%
 
3.93
%
 
3.88
%
 
3.98
%


11



ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
 
For the Quarter ended
(in thousands, except % and per share data)
Jun 30,
2018
 
Mar 31,
2018
 
Dec 31,
2017
 
Sep 30,
2017
 
Jun 30,
2017
ASSET QUALITY
 
 
 
 
 
 
 
 
 
Net charge-offs (recoveries)1
$
641

 
$
(226
)
 
$
3,313

 
$
803

 
$
6,104

Nonperforming loans1
14,801

 
15,582

 
15,687

 
8,985

 
13,081

Classified assets
74,001

 
77,195

 
73,239

 
80,757

 
93,795

Nonperforming loans to total loans1
0.35
%
 
0.38
 %
 
0.39
%
 
0.23
%
 
0.34
%
Nonperforming assets to total assets2
0.28
%
 
0.30
 %
 
0.31
%
 
0.18
%
 
0.27
%
Allowance for loan losses to total loans1
1.00
%
 
0.98
 %
 
0.95
%
 
0.97
%
 
0.96
%
Allowance for loan losses to nonperforming loans1
283.8
%
 
258.4
 %
 
243.3
%
 
426.2
%
 
280.4
%
Net charge-offs (recoveries) to average loans (annualized)1
0.06
%
 
(0.02
)%
 
0.33
%
 
0.08
%
 
0.64
%
 
 
 
 
 
 
 
 
 
 
WEALTH MANAGEMENT
 
 
 
 
 
 
 
 
 
Trust assets under management
$
1,337,030

 
$
1,319,259

 
$
1,330,227

 
$
1,319,123

 
$
1,279,836

Trust assets under administration
2,148,094

 
2,151,697

 
2,169,946

 
2,102,800

 
2,024,958

 
 
 
 
 
 
 
 
 
 
MARKET DATA
 
 
 
 
 
 
 
 
 
Book value per common share
$
24.81

 
$
24.02

 
$
23.76

 
$
23.69

 
$
23.37

Tangible book value per common share
$
19.32

 
$
18.49

 
$
18.20

 
$
18.09

 
$
17.89

Market value per share
$
53.95

 
$
46.90

 
$
45.15

 
$
42.35

 
$
40.80

Period end common shares outstanding
23,141

 
23,111

 
23,089

 
23,063

 
23,485

Average basic common shares
23,124

 
23,115

 
23,069

 
23,324

 
23,475

Average diluted common shares
23,318

 
23,287

 
23,342

 
23,574

 
23,732

 
 
 
 
 
 
 
 
 
 
CAPITAL
 
 
 
 
 
 
 
 
 
Total risk-based capital to risk-weighted assets
12.60
%
 
12.41
 %
 
12.21
%
 
12.33
%
 
12.84
%
Tier 1 capital to risk-weighted assets
10.68
%
 
10.46
 %
 
10.29
%
 
10.36
%
 
10.82
%
Common equity tier 1 capital to risk-weighted assets
9.32
%
 
9.07
 %
 
8.88
%
 
8.93
%
 
9.34
%
Tangible common equity to tangible assets
8.30
%
 
8.13
 %
 
8.14
%
 
8.18
%
 
8.56
%
 
 
 
 
 
 
 
 
 
 
1 Excludes loans accounted for as PCI loans.
2 Excludes PCI loans and related assets, except for inclusion in total assets.


12



ENTERPRISE FINANCIAL SERVICES CORP
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
 
For the Quarter ended
 
For the Six Months ended
($ in thousands, except per share data)
Jun 30,
2018
 
Mar 31,
2018
 
Dec 31,
2017
 
Sep 30,
2017
 
Jun 30,
2017
 
Jun 30,
2018
 
Jun 30,
2017
CORE PERFORMANCE MEASURES
 
 
 
 
Net interest income
$
47,048

 
$
46,171

 
$
47,404

 
$
45,625

 
$
45,633

 
$
93,219

 
$
84,275

Less: Incremental accretion income
291

 
766

 
2,503

 
1,556

 
2,584

 
1,057

 
3,659

Core net interest income
46,757

 
45,405

 
44,901

 
44,069

 
43,049

 
92,162

 
80,616

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total noninterest income
9,693

 
9,542

 
11,112

 
8,372

 
7,934

 
19,235

 
14,910

Less: Other income from non-core acquired assets
18

 
1,013

 
(6
)
 

 

 
1,031

 

Less: Gain on sale of investment securities

 
9

 

 
22

 

 
9

 

Less: Other non-core income
649

 

 

 

 

 
649

 

Core noninterest income
9,026

 
8,520

 
11,118

 
8,350

 
7,934

 
17,546

 
14,910

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total core revenue
55,783

 
53,925

 
56,019

 
52,419

 
50,983

 
109,708

 
95,526

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for portfolio loan losses
2,385

 
1,871

 
3,186

 
2,422

 
3,623

 
4,256

 
5,156

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total noninterest expense
29,219

 
29,143

 
28,260

 
27,404

 
32,651

 
58,362

 
59,387

Less: Other expenses related to non-core acquired loans
(229
)
 
14

 
114

 
19

 
(16
)
 
(215
)
 
107

Less: Facilities disposal
239

 

 

 

 
389

 
239

 
389

Less: Merger related expenses

 

 

 
315

 
4,480

 

 
6,147

Core noninterest expense
29,209

 
29,129


28,146


27,070


27,798


58,338


52,744

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core income before income tax expense
24,189

 
22,925

 
24,687

 
22,927

 
19,562

 
47,114

 
37,626

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total income tax expense
4,881

 
3,778

 
19,820

 
7,856

 
5,545

 
8,659

 
10,651

Less: income tax expense from deferred tax asset revaluation1

 

 
12,117

 

 

 

 

Less: Other non-core income tax expense2
736

 
438

 
1,011

 
465

 
(784
)
 
1,174

 
(594
)
Core income tax expense
4,145

 
3,340

 
6,692

 
7,391

 
6,329

 
7,485

 
11,245

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core net income
$
20,044

 
$
19,585


$
17,995


$
15,536


$
13,233


$
39,629


$
26,381

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core diluted earnings per share
$
0.86

 
$
0.84

 
$
0.77

 
$
0.66

 
$
0.56

 
$
1.70

 
$
1.15

Core return on average assets
1.48
%
 
1.49
%
 
1.37
%
 
1.21
%
 
1.06
%
 
1.49
%
 
1.11
%
Core return on average common equity
14.14
%
 
14.34
%
 
12.84
%
 
11.13
%
 
9.72
%
 
14.24
%
 
10.44
%
Core return on average tangible common equity
18.22
%
 
18.64
%
 
16.71
%
 
14.50
%
 
12.72
%
 
18.43
%
 
13.22
%
Core efficiency ratio
52.36
%
 
54.02
%
 
50.24
%
 
51.64
%
 
54.52
%
 
53.18
%
 
55.21
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1 Deferred tax asset revaluation associated with U.S. corporate income tax reform.
 
 
 
 
2 Other non-core income tax expense calculated at 24.7% of non-core pretax income for 2018. For 2017, the calculation is 38.0% of non-core pretax income plus an estimate of taxes payable related to non-deductible JCB acquisition costs.


13



NET INTEREST MARGIN TO CORE NET INTEREST MARGIN (FULLY TAX EQUIVALENT)
 
 
 
 
 
For the Quarter ended
 
For the Six Months ended
($ in thousands)
Jun 30,
2018
 
Mar 31,
2018
 
Dec 31,
2017
 
Sep 30,
2017
 
Jun 30,
2017
 
Jun 30,
2018
 
Jun 30,
2017
Net interest income
$
47,254

 
$
46,386

 
$
47,824

 
$
46,047

 
$
46,096

 
$
93,640

 
$
85,243

Less: Incremental accretion income
291

 
766

 
2,503

 
1,556

 
2,584

 
1,057

 
3,659

Core net interest income
$
46,963

 
$
45,620

 
$
45,321

 
$
44,491

 
$
43,512

 
$
92,583

 
$
81,584

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average earning assets
$
5,023,607

 
$
4,948,875

 
$
4,826,271

 
$
4,712,672

 
$
4,641,198

 
$
4,986,447

 
$
4,451,253

Reported net interest margin
3.77
%
 
3.80
%
 
3.93
%
 
3.88
%
 
3.98
%
 
3.79
%
 
3.86
%
Core net interest margin
3.75
%
 
3.74
%
 
3.73
%
 
3.75
%
 
3.76
%
 
3.74
%
 
3.70
%


 
At the Quarter ended
($ in thousands)
Jun 30,
2018
 
Mar 31,
2018
 
Dec 31,
2017
 
Sep 30,
2017
 
Jun 30,
2017
REGULATORY CAPITAL TO RISK-WEIGHTED ASSETS
Shareholders' equity
$
574,084

 
$
555,015

 
$
548,573

 
$
546,336

 
$
548,753

Less: Goodwill
117,345

 
117,345

 
117,345

 
117,345

 
116,186

Less: Intangible assets, net of deferred tax liabilities
7,355

 
7,831

 
6,661

 
5,825

 
6,179

Less: Unrealized gains (losses)
(12,580
)
 
(11,563
)
 
(3,818
)
 
(489
)
 
329

Plus: Other

 

 
12

 
12

 
12

Common equity tier 1 capital
461,964

 
441,402


428,397


423,667


426,071

Plus: Qualifying trust preferred securities
67,600

 
67,600

 
67,600

 
67,600

 
67,600

Plus: Other
60

 
60

 
48

 
48

 
48

Tier 1 capital
529,624

 
509,062


496,045


491,315


493,719

Plus: Tier 2 capital
94,795

 
95,075

 
93,002

 
93,616

 
91,874

Total risk-based capital
$
624,419

 
$
604,137


$
589,047


$
584,931


$
585,593

 
 
 
 
 
 
 
 
 
 
Total risk-weighted assets
$
4,956,820

 
$
4,867,491

 
$
4,822,695

 
$
4,743,393

 
$
4,562,322

 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital to risk-weighted assets
9.32
%
 
9.07
%

8.88
%

8.93
%

9.34
%
Tier 1 capital to risk-weighted assets
10.68
%
 
10.46
%

10.29
%

10.36
%

10.82
%
Total risk-based capital to risk-weighted assets
12.60
%
 
12.41
%

12.21
%

12.33
%

12.84
%
 
 
 
 
 
 
 
 
 
 
SHAREHOLDERS' EQUITY TO TANGIBLE COMMON EQUITY AND TOTAL ASSETS TO TANGIBLE ASSETS
Shareholders' equity
$
574,084

 
$
555,015

 
$
548,573

 
$
546,336

 
$
548,753

Less: Goodwill
117,345

 
117,345

 
117,345

 
117,345

 
116,186

Less: Intangible assets
9,768

 
10,399

 
11,056

 
11,745

 
12,458

Tangible common equity
$
446,971

 
$
427,271

 
$
420,172

 
$
417,246

 
$
420,109

 
 
 
 
 
 
 
 
 
 
Total assets
$
5,509,924

 
$
5,383,102

 
$
5,289,225

 
$
5,231,488

 
$
5,038,696

Less: Goodwill
117,345

 
117,345

 
117,345

 
117,345

 
116,186

Less: Intangible assets
9,768

 
10,399

 
11,056

 
11,745

 
12,458

Tangible assets
$
5,382,811

 
$
5,255,358

 
$
5,160,824

 
$
5,102,398

 
$
4,910,052

 
 
 
 
 
 
 
 
 
 
Tangible common equity to tangible assets
8.30
%
 
8.13
%

8.14
%

8.18
%

8.56
%



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