Enterprise Financial Reports Second Quarter 2023 Results

Jim Lally, President and Chief Executive Officer of Enterprise Financial Services Corp (Nasdaq: EFSC) (the “Company” or “EFSC”), said today upon the release of EFSC’s second quarter earnings, “I am pleased with our strong financial performance in the second quarter and our associates continued commitment to our customers and communities. We had significant loan growth across our geographic regions and business lines, building on the momentum from the first quarter. This increase in average loans has helped accelerate interest income to mitigate the effect of rising deposit interest expense. We remain focused on executing our strategic initiatives, including a focus on customer engagement and onboarding to support deposit growth and operational efficiencies.”

Highlights

• Earnings - Net income in the second quarter 2023 was $49.1 million, a decrease of $6.6 million, compared to the linked quarter and an increase of $4.0 million from the prior year quarter. Earnings per share (“EPS”) was $1.29 per diluted common share for the second quarter 2023, compared to $1.46 and $1.19 per diluted common share for the linked and prior year quarters, respectively.

• Pre-provision net revenue² (“PPNR”) - PPNR of $68.9 million in the second quarter 2023 decreased $6.0 million from the linked quarter and increased $10.5 million from the prior year quarter.

• Net interest income and net interest margin (“NIM”) - Net interest income of $140.7 million for the second quarter 2023 increased $1.2 million and $31.1 million from the linked and prior year quarters, respectively. NIM was 4.49% for the second quarter 2023, compared to 4.71% and 3.55% for the linked and prior year quarters, respectively. Net interest income and NIM benefited from higher average loan and investment balances combined with expanding yields on earning assets. NIM decreased 22 basis points from the linked quarter, primarily due to the increase in deposit interest expense.

• Noninterest income - Noninterest income of $14.3 million for the second quarter 2023 decreased $2.6 million and increased $0.1 million from the linked quarter and the prior year quarter, respectively. The decline from the linked quarter was primarily due to decreases in tax credit income and in gains on the sale of investment securities and SBA loans.

• Noninterest expense - Noninterest expense of $86.0 million for the second quarter 2023 increased $5.0 million and $20.5 million from the linked quarter and the prior year quarter, respectively. The increase from both the linked and prior year quarters was primarily due to an increase in variable deposit costs and operational losses. An increase in employee compensation also contributed to the increase from the prior year quarter.

• Loans - Loans totaled $10.5 billion at June 30, 2023, an increase of $500.7 million, or 20.1% on an annualized basis, from the linked quarter and an increase of $1.2 billion from the prior year period. Average loans totaled $10.3 billion for the quarter ended June 30, 2023, compared to $9.8 billion and $9.1 billion for the linked and prior year quarters, respectively.

• Asset quality - The allowance for credit losses to total loans was 1.34% at June 30, 2023, compared to 1.38% at March 31, 2023 and 1.52% at June 30, 2022. Nonperforming assets to total assets was 0.12% at June 30, 2023, compared to 0.09% and 0.16% at March 31, 2023 and June 30, 2022, respectively. The provision for credit losses of $6.3 million recorded in the second quarter 2023 was primarily related to loan growth, net charge-offs and a change in economic factors.

• Deposits - Total deposits increased $465.2 million from the linked quarter to $11.6 billion as of June 30, 2023. Total estimated insured deposits, which includes collateralized deposits and accounts that qualify for pass through insurance, totaled $8.3 billion at June 30, 2023. Average deposits totaled $11.4 billion for the quarter ended June 30, 2023, compared to $10.9 billion and $11.5 billion for the linked and prior year quarters, respectively. At June 30, 2023, noninterest-bearing deposit accounts totaled $3.9 billion, or 33.4% of total deposits, and the loan to deposit ratio was 90.5%.

• Liquidity - The Company’s total available on- and off-balance-sheet liquidity was approximately $4.5 billion at June 30, 2023. On-balance-sheet liquidity consisted of cash of $322.0 million and unpledged investment securities with a fair value of $647.3 million at June 30, 2023. Off-balance-sheet liquidity consisted of $764.1 million available through the Federal Home Loan Bank, $2.6 billion through the Federal Reserve and $140.0 million through correspondent bank lines. The Company also has an unused $25.0 million revolving line of credit and maintains a shelf registration allowing for the issuance of various forms of equity and debt securities.

• Capital - Total shareholders’ equity was $1.6 billion and the tangible common equity to tangible assets ratio³ was 8.65% at June 30, 2023, compared to 8.81% at March 31, 2023. The tangible common equity to tangible assets ratio, adjusted for unrealized losses on held-to-maturity securities,³ was 8.25% at June 30, 2023 and 8.43% at March 31, 2023. Enterprise Bank & Trust remains “well-capitalized,” with a common equity tier 1 ratio of 12.0% and a total risk-based capital ratio of 13.0% as of June 30, 2023. The Company’s common equity tier 1 ratio and total risk-based capital ratio was 11.1% and 14.1%, respectively, at June 30, 2023.

The Company’s Board of Directors approved a quarterly dividend of $0.25 per common share, payable on September 29, 2023 to shareholders of record as of September 15, 2023. The board of directors also declared a cash dividend of $12.50 per share of Series A Preferred Stock (or $0.3125 per depositary share) representing a 5% per annum rate for the period commencing (and including) June 15, 2023 to (but excluding) September 15, 2023. The dividend will be payable on September 15, 2023 to holders of record of Series A Preferred Stock as of August 31, 2023.

Net Interest Income and NIM
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 average interest rates earned and paid, all on a tax-equivalent basis.