Enterprise Financial Reports Second Quarter 2019 Results

Company Release - 7/22/2019 5:18 PM ET

Second Quarter Highlights

  • Net income of $18.4 million, $0.68 per diluted share, or $0.981 excluding merger-related expenses
  • Net interest margin (tax equivalent) 3.86%, stable with the first quarter’s margin of 3.87%
  • Return on average assets (“ROAA”) of 1.05%
  • Loans increased $132 million, or 11% annualized
  • Merger-related expenses of $10.3 million, pretax, reduced diluted earnings per share and ROAA by $0.30 and 0.45%, respectively

ST. LOUIS--(BUSINESS WIRE)-- Enterprise Financial Services Corp(Nasdaq: EFSC) (the “Company” or “EFSC”) reported net income of $18.4 million for the quarter ended June 30, 2019, an increase of $2.3 million compared to the linked first quarter (“linked quarter”) and a decrease of $3.8 million from the prior year quarter. Earnings per diluted share (“EPS”) was $0.68 for the current quarter, compared to $0.67 and $0.95 for the linked and prior year quarters, respectively. Merger-related expenses from the Trinity Capital Corporation (“Trinity”) acquisition reduced net income by $10.3 million pretax ($8.0 million after tax), or $0.30 per diluted share in the current quarter. Net interest margin, on a tax equivalent basis, in the current quarter was 3.86%, compared to 3.87% in the linked quarter and 3.77% in the prior year quarter. Core net interest margin,1 on a tax equivalent basis, expanded slightly in the current quarter to 3.80%, as compared to 3.79% in the linked quarter and 3.75% in the prior year quarter.

ROAA, return on average common equity (“ROAE”) and return on average tangible common equity (“ROATCE”) were 1.05%, 9.09%, and 12.92%, respectively in the second quarter of 2019. The impact of merger related expenses reduced ROAA, ROAE, and ROATCE by 0.45%, 3.93% and 5.60%, respectively. Excluding merger-related expenses, the adjusted ROAA, adjusted ROAE, and adjusted ROATCE were 1.50%, 13.02%, and 18.52%, respectively for the second quarter of 2019.1

The Company’s Board of Directors approved a quarterly dividend of $0.16 per common share, an increase from $0.15 for the prior quarter, payable on September 27, 2019 to shareholders of record as of September 13, 2019.

Jim Lally, EFSC’s President and Chief Executive Officer, commented, “The core fundamentals of our Company remain strong and are reflected in our financial results for the period. The second quarter results were highlighted by strong loan growth in our specialized lending and commercial real estate portfolios, and included the first full quarter of Trinity’s operations. We are excited to have successfully completed the primary system integration of Trinity in the second quarter and look forward to the continued revenue generation and cost saving opportunities from the transaction.”

Mr. Lally continued, “The realized growth in our net interest income combined with our operating leverage puts us in a solid position as we move forward. Although the interest rate environment has been challenging in recent months, we have managed our balance sheet to provide a stable margin over the last several quarters. I expect we will continue to deliver strong financial results based on the depth and strength of our relationship managers, our disciplined credit culture and our geographic diversification.”

1 Adjusted EPS, core net interest margin, ROATCE, adjusted ROAA, adjusted ROAE and adjusted ROATCE are non-GAAP measures. 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 second quarter increased $9.4 million to $61.7 million from $52.3 million in the linked quarter, and increased $14.7 million from the prior year period. The increase is primarily due to the inclusion of Trinity for the entire second quarter. Net interest margin, on a tax equivalent basis, was 3.86% for the second quarter, compared to 3.87% in the linked quarter, and 3.77% in the second quarter of 2018.

Quarterly core net interest income and core net interest margin noted in the table below exclude incremental accretion on non-core acquired loans, which were acquired from the FDIC and previously covered by loss share agreements.

 

For the Quarter ended

($ in thousands)

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

June 30,
2018

Net interest income

$

61,715

 

 

$

52,343

 

 

$

50,593

 

 

$

48,093

 

 

$

47,048

 

Less: Incremental accretion income

910

 

 

1,157

 

 

2,109

 

 

535

 

 

291

 

Core net interest income2

$

60,805

 

 

$

51,186

 

 

$

48,484

 

 

$

47,558

 

 

$

46,757

 

 

 

 

 

 

 

 

 

 

 

Net interest margin (tax equivalent)

3.86

%

 

3.87

%

 

3.94

%

 

3.78

%

 

3.77

%

Core net interest margin,2 (tax equivalent)

3.80

%

 

3.79

%

 

3.77

%

 

3.74

%

 

3.75

%

2 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. Averages for the quarter ended March 31, 2019 only reflect the Trinity acquired balances effective as of March 8, 2019.

 

For the Quarter ended

 

June 30, 2019

 

March 31, 2019

 

June 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*

$

5,095,181

 

 

$

68,830

 

 

5.42

%

 

$

4,511,387

 

 

$

59,973

 

 

5.39

%

 

$

4,224,016

 

 

$

52,774

 

 

5.01

%

Investments in debt and equity securities*

1,246,529

 

 

9,152

 

 

2.95

 

 

896,936

 

 

6,292

 

 

2.84

 

 

743,534

 

 

4,789

 

 

2.58

 

Short-term investments

111,291

 

 

703

 

 

2.53

 

 

102,166

 

 

447

 

 

1.77

 

 

56,057

 

 

231

 

 

1.65

 

Total earning assets

6,453,001

 

 

78,685

 

 

4.89

 

 

5,510,489

 

 

66,712

 

 

4.91

 

 

5,023,607

 

 

57,794

 

 

4.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-earning assets

604,604

 

 

 

 

 

 

445,597

 

 

 

 

 

 

391,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

7,057,605

 

 

 

 

 

 

$

5,956,086

 

 

 

 

 

 

$

5,415,151

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction accounts

$

1,384,090

 

 

$

2,134

 

 

0.62

%

 

$

1,077,289

 

 

$

1,790

 

 

0.67

%

 

$

823,650

 

 

$

817

 

 

0.40

%

Money market accounts

1,576,333

 

 

6,996

 

 

1.78

 

 

1,521,878

 

 

6,515

 

 

1.74

 

 

1,494,194

 

 

4,445

 

 

1.19

 

Savings

562,503

 

 

231

 

 

0.16

 

 

299,731

 

 

183

 

 

0.25

 

 

208,662

 

 

147

 

 

0.28

 

Certificates of deposit

815,138

 

 

3,758

 

 

1.85

 

 

712,269

 

 

3,332

 

 

1.90

 

 

633,897

 

 

2,338

 

 

1.48

 

Total interest-bearing deposits

4,338,064

 

 

13,119

 

 

1.21

 

 

3,611,167

 

 

11,820

 

 

1.33

 

 

3,160,403

 

 

7,747

 

 

0.98

 

Subordinated debentures

141,059

 

 

1,958

 

 

5.57

 

 

124,154

 

 

1,648

 

 

5.38

 

 

118,124

 

 

1,454

 

 

4.94

 

FHLB advances

263,384

 

 

1,696

 

 

2.58

 

 

215,420

 

 

1,398

 

 

2.63

 

 

294,643

 

 

1,448

 

 

1.97

 

Other borrowed funds

204,375

 

 

713

 

 

1.40

 

 

202,197

 

 

408

 

 

0.82

 

 

167,661

 

 

182

 

 

0.44

 

Total interest-bearing liabilities

4,946,882

 

 

17,486

 

 

1.42

 

 

4,152,938

 

 

15,274

 

 

1.49

 

 

3,740,831

 

 

10,831

 

 

1.16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

1,244,008

 

 

 

 

 

 

1,088,323

 

 

 

 

 

 

1,069,888

 

 

 

 

 

Other liabilities

53,609

 

 

 

 

 

 

52,371

 

 

 

 

 

 

35,877

 

 

 

 

 

Total liabilities

6,244,499

 

 

 

 

 

 

5,293,632

 

 

 

 

 

 

4,846,596

 

 

 

 

 

Shareholders' equity

813,106

 

 

 

 

 

 

662,454

 

 

 

 

 

 

568,555

 

 

 

 

 

Total liabilities and shareholders' equity

$

7,057,605

 

 

 

 

 

 

$

5,956,086

 

 

 

 

 

 

$

5,415,151

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core net interest income2

 

 

61,199

 

 

 

 

 

 

51,438

 

 

 

 

 

 

46,963

 

 

 

Core net interest margin2

 

 

 

 

3.80

%

 

 

 

 

 

3.79

%

 

 

 

 

 

3.75

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incremental accretion on non-core acquired loans

 

 

910

 

 

 

 

 

 

1,157

 

 

 

 

 

 

291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net interest income

 

 

$

62,109

 

 

 

 

 

 

$

52,595

 

 

 

 

 

 

$

47,254

 

 

 

Net interest margin

 

 

 

 

3.86

%

 

 

 

 

 

3.87

%

 

 

 

 

 

3.77

%

* 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 the three months ended June 30, 2019, $0.3 million for the three months ended March 31, 2019, and $0.2 million for the three months ended June 30, 2018.

2 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 one basis point from the linked quarter to 3.86% during the current quarter. Core net interest margin2 increased one basis point from the linked-quarter to 3.80% during the current quarter. Net interest margin and core net interest margin benefited from the impact of a full quarter of funding costs on Trinity deposits and was partially constrained from the increase in the average investment portfolio resulting from the Trinity acquisition. The yield on loans, excluding incremental accretion on non-core acquired loans, increased three basis points to 5.42% from 5.39%, while the yield on securities increased 11 basis points to 2.95% from 2.84%. The cost of interest-bearing deposits decreased 12 basis points from the linked quarter to 1.21% primarily due to the relatively lower cost of Trinity acquired deposits. The cost of total interest-bearing liabilities decreased seven basis points to 1.42% for the quarter ended June 30, 2019 from 1.49% for the linked quarter.

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, a persistent flat yield curve, and potential downward movement in short-term rates.

Loans

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

 

At the Quarter ended

 

 

 

March 31, 2019

 

 

($ in thousands)

June 30, 2019

 

Trinityb

 

Legacy EFSCb

 

Consolidated

 

December 31, 2018

 

September 30, 2018

 

June 30, 2018

C&I - general

$

1,103,908

 

 

$

65,122

 

 

$

1,063,633

 

 

$

1,128,755

 

 

$

995,491

 

 

$

969,898

 

 

$

992,311

 

CRE investor owned - general

1,235,596

 

 

304,615

 

 

878,856

 

 

1,183,471

 

 

862,423

 

 

846,322

 

 

841,587

 

CRE owner occupied - general

591,401

 

 

91,758

 

 

484,268

 

 

576,026

 

 

496,835

 

 

482,146

 

 

498,834

 

Enterprise value lendinga

445,981

 

 

 

 

439,500

 

 

439,500

 

 

465,992

 

 

442,439