Enterprise Financial Reports Second Quarter 2020 Results

Company Release - 7/20/2020 4:02 PM ET

Second Quarter Results

  • Net income of $14.6 million, $0.56 per diluted share, including the impact of provision for credit losses of $0.56 per share
  • Net interest margin (tax equivalent) of 3.53%
  • Return on average assets of 0.72%
  • Maintained dividend of $0.18 per share for third quarter 

 

ST. LOUIS, Mo.--(BUSINESS WIRE)-- Enterprise Financial Services Corp(Nasdaq: EFSC) (the “Company” or “EFSC”) reported net income of $14.6 million for the second quarter 2020, an increase of $1.8 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 $0.56 for the second quarter 2020, compared to $0.48 and $0.68 for the linked and prior year quarters, respectively. Net income and EPS in the current quarter increased from the linked quarter primarily due to interest income on the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans and a reduction in provision for credit losses partially offset by a reduction in tax credit income. The decrease in net income and EPS from the prior year quarter was primarily due to an increase in provision for credit losses partially offset by merger-related expenses incurred in the prior year period.

The provision for credit losses was $19.6 million for the second quarter 2020, compared to $22.3 million for the linked quarter and $1.7 million for the prior year quarter. The decline in the underlying economic forecast used for estimating the allowance for credit losses was the primary driver of both the first and second quarter provision for credit losses. For the second quarter 2020, the forecast model reflected continued deterioration in unemployment, GDP, and the CRE index while extending the estimated recovery period.

Jim Lally, EFSC’s President and Chief Executive Officer, commented, “We are operating in a challenging environment and remain committed to the health and well-being of our employees and customers. We have diligently worked with our customers on PPP and loan structuring and continue to be a supportive financial partner for our customers and communities. As we continue to focus on the Company’s long-term success, we believe the strength of our pre-provision earnings creates a strong foundation for that success. We increased our reserve build through the allowance for credit losses and strengthened our overall capital position during the period while generating $0.56 of earnings per diluted share.”

Highlights

  • Earnings - Net income in the second quarter 2020 was $14.6 million, and EPS was $0.56 per diluted share.
  • Pre-tax pre-provision income1 (“PTPP”) - PTPP of $37.9 million in the second quarter 2020, decreased $0.2 million and increased $13.3 million from the linked-quarter and prior year quarter, respectively.
  • Net interest income and net interest margin - Net interest income of $65.8 million for the second quarter 2020, increased $2.5 million and $4.1 million, from the linked quarter and prior year quarter, respectively. Net interest margin (“NIM”) was 3.53% for the second quarter 2020, compared to 3.79% and 3.86% for the linked quarter and prior year quarter, respectively.
  • Loans - Total loans grew $682.5 million, or 12.5%, from the linked quarter to $6.1 billion as of June 30, 2020. Year-over-year, loans grew $990.6 million, or 19.2%, from $5.1 billion as of June 30, 2019. PPP loans primarily contributed to growth in the loan portfolio during the current quarter. As of June 30, 2020, loan modifications comprised 11% of the loan portfolio.

    PPP details:

 

Quarter ended

($ in thousands, except per share data)

June 30, 2020

PPP loans outstanding, net of unearned fees

$

807,814

 

Average PPP loans outstanding, net

634,632

 

PPP average loan size

224

 

PPP interest and fee income

4,083

 

PPP unearned fees

22,414

 

PPP average yield

2.59

%

 

Financial Metrics:

As Reported

 

Excluding PPP*

 

EPS

$

0.56

 

 

$

0.44

 

 

ROAA

0.72

%

 

0.62

%

 

PTPP ROAA

1.87

%

 

1.81

%

 

Tangible common equity/tangible assets*

7.81

%

 

8.67

%

 

Leverage ratio

9.16

%

 

9.96

%

 

NIM (tax equivalent)

3.53

%

 

3.62

%

 

Allowance for credit losses on loans/loans

1.80

%

 

2.07

%

 

 

 

 

 

 

* Non-GAAP measures. Refer to discussion and reconciliation of these measures in the accompanying financial tables. Calculations not adjusted for increase in average deposits or increase in deposit expense, as applicable.

  • Asset quality - The allowance for credit losses on loans to total loans increased to 1.80% at June 30, 2020 from 1.69% and 0.85% at March 31, 2020 and June 30, 2019, respectively. Nonperforming assets to total assets was 0.55% at June 30, 2020 compared to 0.56% and 0.42% at March 31, 2020 and June 30, 2019, respectively.
  • Deposits - Total deposits grew $709.7 million, or 11.8%, from the linked quarter to $6.7 billion as of June 30, 2020. Year-over-year, deposits grew $1.1 billion, or 20.5%, from $5.6 billion as of June 30, 2019. Deposits attributable to PPP loan fundings primarily contributed to the growth in deposits during the current quarter. Noninterest deposit accounts represented 29.3% of total deposits at June 30, 2020, and the loan to deposit ratio was 91.6%.
  • Subordinated Notes - In the second quarter 2020, the Company issued $63.3 million of 5.75% fixed-to-floating rate subordinated notes due in 2030 for general corporate purposes and to bolster capital. The notes are callable starting in June 2025 and are included in tier 2 capital.
  • Capital - Total shareholders’ equity was $868.0 million and the tangible common equity to tangible assets ratio was 7.81% at June 30, 2020, which compares with 8.42% at March 31, 2020. Balance sheet growth from the PPP was the primary cause of the decline in the tangible common equity to tangible assets ratio. Bank regulatory capital ratios remain “well-capitalized,” with a common equity tier 1 ratio of 11.75% and a total risk-based capital ratio of 13.00%. The Company’s common equity tier 1 ratio and total risk-based capital ratio was 9.91% and 14.40%, respectively, at June 30, 2020.

    The Company suspended its repurchase of shares through the share repurchase plan in March 2020. There are 95,907 shares available for repurchase under the existing authorization.

    The Company’s Board of Directors approved a quarterly dividend of $0.18 per common share, payable on September 30, 2020 to shareholders of record as of September 15, 2020.
  • Liquidity - The Company maintains a high level of both on-balance-sheet and off-balance-sheet liquidity. At June 30, 2020, on-balance-sheet liquidity consisted of cash and unpledged investment securities of $1.0 billion. Off-balance-sheet liquidity totaled $1.5 billion through the Federal Home Loan Bank, Federal Reserve and correspondent bank lines. The Company also has an unused $25 million revolving line of credit and maintains a shelf registration allowing for the issuance of various forms of equity and debt securities. The $63.3 million subordinated debt issuance in the second quarter 2020 has also enhanced the holding company’s liquidity position.

1 PTPP is a non-GAAP measure. Refer to discussion and reconciliation of these measures in the accompanying financial tables.

Net Interest Income

Average Balance Sheets

The following table presents, for the periods indicated, certain information related to our average interest-earning assets and interest-bearing liabilities, as well as, the corresponding interest rates earned and paid, all on a tax-equivalent basis.

 

Quarter ended

 

June 30, 2020

 

March 31, 2020

 

June 30, 2019

($ 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*

$

6,032,076

 

 

$

63,869

 

 

4.26

%

 

$

5,352,243

 

 

$

66,017

 

 

4.96

%

 

$

5,095,181

 

 

$

68,830

 

 

5.42

%

Debt and equity investments*

1,361,853

 

 

9,220

 

 

2.72

 

 

1,346,968

 

 

9,708

 

 

2.90

 

 

1,246,529

 

 

9,152

 

 

2.93

 

Short-term investments

177,267

 

 

87

 

 

0.20

 

 

92,248

 

 

300

 

 

1.31

 

 

111,291

 

 

703

 

 

2.53

 

Total earning assets

7,571,196

 

 

73,176

 

 

3.89

 

 

6,791,459

 

 

76,025

 

 

4.50

 

 

6,453,001

 

 

78,685

 

 

4.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-earning assets

587,008

 

 

 

 

 

 

572,146

 

 

 

 

 

 

604,604

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

8,158,204

 

 

 

 

 

 

$

7,363,605

 

 

 

 

 

 

$

7,057,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction accounts

$

1,487,467