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Enterprise Financial Reports Third Quarter 2021 Results

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Third Quarter Results

  • Closed the acquisition of First Choice Bancorp ("FCBP"), adding approximately $2.3 billion in assets and approximately $1.9 billion in both loans and deposits

  • Net income of $13.9 million, $0.38 per diluted share, including merger and branch closure expenses

  • Net interest margin (tax equivalent) of 3.40%

  • Pre-provision return on average assets1 of 1.81%

  • Increased quarterly dividend 5% to $0.20 per share for fourth quarter

  • Repurchased 470,412 shares at an average price of $45.15 per share

  • Closure and consolidation of 5 branch locations

ST. LOUIS, October 25, 2021--(BUSINESS WIRE)--Enterprise Financial Services Corp (Nasdaq: EFSC) (the "Company" or "EFSC") reported net income of $13.9 million for the third quarter 2021, a decrease of $24.5 million compared to the linked second quarter ("linked quarter") and a decrease of $4.0 million from the prior year quarter. Earnings per diluted share ("EPS") was $0.38 for the third quarter 2021, compared to $1.23 and $0.68 for the linked and prior year quarters, respectively. Excluding merger-related, branch closure expenses and the FCBP CECL double count charge, adjusted EPS2, adjusted ROAA2, and adjusted ROATCE2 for the third quarter 2021 were $1.27, 1.51% and 18.15%, respectively.

Net income and earnings per share in the current quarter were impacted by the following items:

($ in thousands, except per share data)

Net Income (pretax)

EPS

Merger-related expenses

$

(14,671)

$

(0.31)

FCBP CECL double count

(25,353)

(0.51)

Branch closure expenses

(3,441)

(0.07)

Jim Lally, EFSC’s President and Chief Executive Officer, commented, "Our third quarter results included a record pre-provision net revenue1 of $56 million, or 1.81% of average assets. Our results were bolstered by the acquisition of FCBP that closed during the quarter, furthering our commercial banking capabilities in the Southern California market. This augments our Southwest presence, and when combined with our specialty loan and deposit business lines, supports our overall growth initiatives. Additionally, we recently received a $60.0 million allocation from the New Market Tax Credit program that will enable us to continue supporting our communities through our CDE, while also enhancing our tax credit lending specialty. I am pleased with our financial results and the actions we have taken this quarter to strengthen our franchise."

1 PPNR and PPNR return on average assets are a non-GAAP measure. Refer to discussion and reconciliation of these measures in the accompanying financial tables.

2 Adjusted EPS, adjusted ROAA, and adjusted ROATCE are non-GAAP measures. Refer to discussion and reconciliation of these measures in the accompanying financial tables.

Highlights

The Company closed its acquisition of FCBP on July 21, 2021. The results of operations of FCBP are included in our consolidated results from this date forward and are excluded from preceding periods. Comparisons to the prior year are also impacted by the acquisition of Seacoast Commerce Banc Holdings ("Seacoast"), which closed in the fourth quarter 2020.

Included in the current quarter results are the following contributions from the FCBP and Seacoast acquisitions:

($ in thousands)

FCBP

Seacoast

Net interest income

$

16,696

$

14,065

Noninterest income

1,424

741

Noninterest expense

6,964

10,129

Pretax net income (excluding CECL double count)

11,156

4,901

  • Earnings - Net income in the third quarter 2021 was $13.9 million, a decrease of $24.5 million compared to the linked quarter and a decrease of $4.0 million from the prior year quarter. EPS was $0.38 per diluted share for the third quarter 2021, compared to $1.23 and $0.68 per diluted share for the linked and prior year quarters, respectively. Merger-related expenses, CECL double-count and branch closure expenses collectively reduced pre-tax net income $43.5 million, or $0.89 per diluted share.

  • Pre-provision net revenue1 ("PPNR") - PPNR of $56.1 million in the third quarter 2021 increased $8.7 million and $18.1 million from the linked and prior year quarters, respectively. The increases were primarily due to the positive contribution from the FCBP and Seacoast acquisitions.

  • Net interest income and net interest margin ("NIM") - Net interest income of $97.3 million for the third quarter 2021 increased $15.5 million and $33.9 million from the linked quarter and prior year quarter, respectively. NIM was 3.40% for the third quarter 2021, compared to 3.46% and 3.29% for the linked quarter and prior year quarter, respectively. The underlying base NIM was relatively stable in the period, excluding the impact of certain items discussed below.

  • Noninterest income - Noninterest income of $17.6 million for the third quarter 2021 increased $1.4 million and $5.0 million from the linked quarter and prior year quarter, respectively. The increases were primarily due to tax credit revenue and deposit service charge income from the FCBP and Seacoast acquisitions.

  • Loans - Total loans increased $1.9 billion from the linked quarter to $9.1 billion as of September 30, 2021. The acquisition of FCBP added $1.9 billion of loans, while legacy PPP loans declined $164 million. Excluding PPP and FCBP, loans grew $110.6 million, or 6%, on an annualized basis from the linked quarter. Average loans totaled $8.7 billion for the quarter ended September 30, 2021 compared to $7.3 billion and $6.1 billion for the linked and prior year quarters, respectively.

PPP details:

Quarter ended

($ in thousands, except per share data)

Sep 30,
2021

Jun 30,
2021

Mar 31,
2021

Dec 31,
2020

Sep 30,
2020

PPP loans outstanding, net of deferred fees

$

438,959

$

396,660

$

737,660

$

698,645

$

819,100

Average PPP loans outstanding, net

489,104

664,375

692,161

806,697

813,244

PPP average loan size

210

171

220

187

216

PPP interest and fee income

6,048

7,940

8,475

10,261

5,226

PPP deferred fees

7,428

12,243

16,676

11,304

19,522

PPP average yield

4.91

%

4.79

%

4.97

%

5.06

%

2.56

%

Quarter ended

Sep 30,
2021

Jun 30,
2021

Mar 31,
2021

Dec 31,
2020

Sep 30,
2020

Financial Metrics:

As Reported

Excluding PPP*

As Reported

Excluding PPP*

As Reported

Excluding PPP*

As Reported

Excluding PPP*

As Reported

Excluding PPP*

EPS

$

0.38

$

0.25

$

1.23

$

1.04

$

0.96

$

0.75

$

1.00

$

0.73

$

0.68

$

0.53

ROAA

0.45

%

0.31

%

1.50

%

1.35

%

1.22

%

1.03

%

1.26

%

1.01

%

0.86

%

0.74

%

PPNR ROAA*

1.81

%

1.68

%

1.85

%

1.65

%

1.66

%

1.41

%

2.07

%

1.78

%

1.81

%

1.73

%

Tangible common equity/tangible assets*

8.40

%

8.71

%

8.32

%

8.66

%

8.18

%

8.84

%

8.40

%

9.07

%

7.99

%

8.89

%

Leverage ratio

9.7

%

10.2

%

9.4

%

10.0

%

9.5

%

10.2

%

10.0

%

11.0

%

9.2

%

10.2

%

NIM

3.40

%

3.33

%

3.46

%

3.36

%

3.50

%

3.39

%

3.66

%

3.52

%

3.29

%

3.37

%

Allowance for credit losses/loans

1.67

%

1.94

%

1.77

%

2.09

%

1.80

%

2.22

%

1.89

%

2.31

%

2.01

%

2.32

%

* 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 to total loans was 1.67% at September 30, 2021, compared to 1.77% at June 30, 2021 and 2.01% at September 30, 2020. The allowance for credit losses on the acquired FCBP loan portfolio was approximately 1.57%, which primarily contributed to the reduction of the ratio of the allowance for credit losses to total loans at September 30, 2021 as compared to the prior periods presented. Nonperforming assets to total assets was 0.35% at September 30, 2021 compared to 0.44% and 0.53% at June 30, 2021 and September 30, 2020, respectively.

  • Deposits - Total deposits increased $2.2 billion from the linked quarter to $10.8 billion as of September 30, 2021, primarily due to the addition of FCBP deposits of $1.9 billion. Average deposits totaled $10.3 billion for the quarter ended September 30, 2021 compared to $8.6 billion and $6.7 billion for the linked and prior year quarters, respectively. Noninterest-bearing deposit accounts represented 40.4% of total deposits, and the loan to deposit ratio was 84.2% at September 30, 2021.

  • Capital - Total shareholders’ equity was $1.4 billion and the tangible common equity to tangible assets ratio3 was 8.4% at September 30, 2021, compared to 8.3% at June 30, 2021. The Bank’s regulatory capital ratios remain "well-capitalized," with a common equity tier 1 ratio of 12.3% and a total risk-based capital ratio of 13.4% as of September 30, 2021. The Company’s common equity tier 1 ratio and total risk-based capital ratio was 11.2% and 14.5%, respectively, at September 30, 2021.

    The Company issued 7,808,459 shares totaling $343.7 million in the third quarter 2021 as merger consideration in connection with the FCBP acquisition.

    The Company has 1,277,951 shares available for repurchase under its common stock repurchase authorization. The Company repurchased 470,412 shares totaling $21.2 million in the third quarter 2021 for an average price of $45.15 per share. Total shares repurchased year-to-date total 722,049 at an average price of $45.80.

    The Company intends to redeem its $50.0 million fixed-to-floating subordinated debentures on the first call date of November 1, 2021.

    The Company’s Board of Directors unanimously approved a quarterly dividend of $0.20 per common share, payable on December 31, 2021 to shareholders of record as of December 15, 2021, an increase of $0.01, or 5.0%, compared to the third quarter.

    3 Tangible common equity to tangible assets ratio is a non-GAAP measure. Refer to discussion and reconciliation of this measure in the accompanying financial tables.

  • Liquidity - The Company maintains a high level of both on-balance-sheet and off-balance-sheet liquidity. At September 30, 2021, on-balance-sheet liquidity consisted of cash and unpledged investment securities of $1.2 billion. Off-balance-sheet liquidity totaled $1.8 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 at the holding company and has an effective shelf registration statement on file with the U.S. Securities and Exchange Commission allowing for the issuance of various forms of equity and debt securities.

  • Branch Consolidation - As part of the integration of FCBP, the Company commenced the process to close three branch locations in California. A lease and fixed asset impairment charge of $0.4 million was recognized and reported in merger expenses. The Company expects to realize annual cost savings of approximately $0.8 million. Additionally, the Company has also commenced the process to close two branches in St. Louis and consolidate the operations and customers of these branches with other nearby locations. An impairment charge of $3.4 million on these branches was recognized in the third quarter 2021 for buildings, leases and fixed assets. The Company expects to realize annual cost savings of approximately $1.5 million on these two branches. These branch closures are reflective of current trends in the industry and traffic as a result of technology adoption and other business climate trends.

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

September 30, 2021

June 30, 2021

September 30, 2020

($ 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*

$

8,666,353

$

94,465

4.32

%

$

7,306,471

$

79,162

4.35

%

$

6,112,715

$

62,751

4.08

%

Debt and equity investments*

1,594,938

9,583

2.38

1,502,582

9,226

2.46

1,361,515

8,761

2.56

Short-term investments

1,251,988

480

0.15

806,928

237

0.12

295,854

113

0.15

Total interest-earning assets

11,513,279

104,528

3.60

9,615,981

88,625

3.70

7,770,084

71,625

3.67

Noninterest-earning assets

821,279

665,363

571,884

Total assets

$

12,334,558

$

10,281,344

$

8,341,968

Liabilities and Shareholders’ Equity

Interest-bearing liabilities:

Interest-bearing transaction accounts

$

2,228,466

$

459

0.08

%

$

1,985,811

$

336

0.07

%

$

1,529,097

$

255

0.07

%

Money market accounts

2,675,405

1,294

0.19

2,344,871

988

0.17

1,981,026

1,003

0.20

Savings

747,927

61

0.03

718,193

52

0.03

605,475

45

0.03

Certificates of deposit

604,594

927

0.61

522,633

1,091

0.84

630,076

2,409

1.52

Total interest-bearing deposits

6,256,392

2,741

0.17

5,571,508

2,467

0.18

4,745,674

3,712

0.31

Subordinated debentures

204,011

2,855

5.55

203,849

2,847

5.60

...

203,438

2,826

5.53

FHLB advances

89,457

211

0.94

50,000

197

1.58

250,000

...

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