Market Overview

Enterprise Financial Reports Second Quarter 2018 Results

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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%

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%."

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.

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.

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.

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 %
 

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.

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.

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.

     

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.
 
     

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
 
   

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
 
   

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 %
 
   

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.
     

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.
 
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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