Second Quarter Results

Net income of $45.4 million, or $1.19 per diluted common share, compared to $1.05 in the linked quarter and $1.29 in the prior year quarter
Net interest margin of 4.19%, quarterly increase of 6 basis points
Net interest income of $140.5 million, quarterly increase of $2.8 million
Total loans of $11.0 billion, quarterly decrease of $28.5 million
Total deposits of $12.3 billion, quarterly increase of $28.7 million
Return on Average Assets ("ROAA") of 1.25%, compared to 1.12% and 1.44% in the linked and prior year quarters, respectively
Return on Average Tangible Common Equity ("ROATCE")¹ of 13.77%, compared to 12.31% and 16.53% in the linked and prior year quarters, respectively
Tangible common equity to tangible assets¹ of 9.18%, an increase of 17 basis points and 53 basis points from the linked and prior year quarters, respectively
Tangible book value per share¹ of $35.02, annualized increase of 10%
Repurchased 225,135 shares and increased quarterly dividend $0.01 to $0.27 per common share for the third quarter 2024

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 was very pleased with our second quarter results, including our strong asset quality and the growth in operating revenue, customer deposits, and tangible common equity. We had a return on average assets of 1.25% and a return on tangible common equity of 13.8%. These returns increased our tangible book value per share by 10% on an annualized basis this quarter. Over the past 10 years, we have produced a compounded annual growth rate of 10% on our tangible book value per share. With the strength of our balance sheet and our solid return profile, we opportunistically repurchased over $8 million of common stock and announced another increase to our quarterly dividend."

Highlights

Earnings - Net income in the second quarter 2024 was $45.4 million, an increase of $5.0 million and a decrease of $3.7 million compared to the linked and prior year quarters, respectively. Earnings per share ("EPS") was $1.19 per diluted common share for the second quarter 2024, compared to $1.05 and $1.29 per diluted common share for the linked and prior year quarters, respectively. Adjusted diluted earnings per share¹ was $1.21 for the second quarter 2024, compared to $1.07 for the linked quarter.

Pre-provision net revenue ("PPNR")¹ - PPNR of $63.3 million in the second quarter 2024 increased $5.9 million and decreased $5.7 million from the linked and prior year quarters, respectively. The increase from the linked quarter was primarily due to higher noninterest income, primarily tax credit income, and higher net interest income that benefited from higher average loan balances and expanding yields on earning assets. These increases were partially offset by an increase in deposit interest expense. The decrease compared to the prior year quarter was primarily due to the higher interest rate environment that increased deposit interest expense and the cost of variable deposit services costs, which are influenced by current market rates.

Net interest income and net interest margin ("NIM") - Net interest income of $140.5 million for the second quarter 2024 increased $2.8 million and decreased $0.2 million from the linked and prior year quarters, respectively. Compared to the linked quarter, net interest income for the second quarter 2024 increased due to an expanded net interest spread and higher average loan and interest-earning asset balances. NIM was 4.19% for the second quarter 2024, compared to 4.13% and 4.49% for the linked and prior year quarters, respectively. The total cost of deposits of 2.16% for the second quarter 2024 increased 3 basis points and 70 basis points from the linked and prior year quarters, respectively.

Noninterest income - Noninterest income of $15.5 million for the second quarter 2024 increased $3.3 million and $1.2 million from the linked and prior year quarters, respectively. The increase from the linked and prior year quarters was primarily due to an increase in tax credit income on higher activity that was partially offset by an increase in market interest rates that decreased the fair value of certain tax credits.

Noninterest expense - Noninterest expense of $94.0 million for the second quarter 2024 increased $0.5 million and $8.1 million from the linked and prior year quarters, respectively. The increase from the linked quarter was primarily driven by higher variable deposit servicing costs and expenses related to the core system conversion, partially offset by a decrease in employee compensation and the FDIC special assessment. The increase from the prior year quarter was primarily due to variable deposit servicing costs and employee compensation.

Loans - Loans totaled $11.0 billion at June 30, 2024, a decrease of $28.5 million from the linked quarter and an increase of $487.4 million from the prior year quarter. Average loans totaled $11.0 billion for the quarter ended June 30, 2024, compared to $10.9 billion and $10.3 billion for the linked and prior year quarters, respectively.

Asset quality - The allowance for credit losses to total loans was 1.27% at June 30, 2024, compared to 1.23% at March 31, 2024 and 1.34% at June 30, 2023. The ratio of nonperforming assets to total assets was 0.33% at June 30, 2024, compared to 0.30% and 0.12% at March 31, 2024 and June 30, 2023, respectively. The provision for credit losses recorded in the second quarter 2024 was $4.8 million, compared to $5.8 million and $6.3 million for the linked and prior year quarters, respectively.

Deposits - Total deposits increased $28.7 million from March 31, 2024 to $12.3 billion at June 30, 2024, despite a decrease of $164.1 million in brokered certificates of deposit. Excluding brokered certificates of deposits, deposits increased $192.8 million. Average deposits were $12.3 billion, $12.2 billion and $11.4 billion for the current, linked and prior year quarters, respectively. At June 30, 2024, noninterest-bearing deposit accounts totaled $3.9 billion, or 32.0% of total deposits, and the loan to deposit ratio was 89.6%.

Liquidity - The total available on- and off-balance-sheet liquidity was approximately $5.6 billion at June 30, 2024. On-balance-sheet liquidity consisted of cash of $392.8 million and $1.2 billion in unpledged investment securities at June 30, 2024. Off-balance-sheet liquidity consisted of $1.2 billion available through the Federal Home Loan Bank, $2.6 billion available 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 $1.8 billion and the tangible common equity to tangible assets ratio² was 9.18% at June 30, 2024, compared to 9.01% at March 31, 2024. Enterprise Bank & Trust remains "well-capitalized," with a common equity tier 1 ratio of 12.4% and a total risk-based capital ratio of 13.5% at June 30, 2024. The Company's common equity tier 1 ratio and total risk-based capital ratio were 11.7% and 14.6%, respectively, at June 30, 2024.

The Company's board of directors approved a quarterly dividend of $0.27 per common share, payable on September 30, 2024 to shareholders of record as of September 16, 2024. 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, 2024 to (but excluding) September 15, 2024. The dividend will be payable on September 15, 2024 and will be paid on September 16, 2024 to holders of record of Series A Preferred Stock as of August 30, 2024.

Net Interest Income and NIM

Average Balance Sheets

The following table presents, for the periods indicated, certain information related to the 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.

	Quarter ended
	June 30, 2024						March 31, 2024						June 30, 2023
($ 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^{1, 2}	$	10,962,488	$	189,346	6.95	%	$	10,927,932	$	186,703	6.87	%	$	10,284,873	$	170,314	6.64	%
Securities²		2,396,519		19,956	3.35			2,400,571		19,491	3.27			2,297,995		17,550	3.06
Interest-earning deposits		325,452		4,389	5.42			268,068		3,569	5.35			173,785		2,095	4.84
Total interest-earning assets		13,684,459		213,691	6.28			13,596,571		209,763	6.20			12,756,653		189,959	5.97

Noninterest-earning assets		961,922						959,548						915,332

Total assets	$	14,646,381					$	14,556,119					$	13,671,985

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand accounts	$	2,950,827	$	18,801	2.56	%	$	2,924,276	$	18,612	2.56	%	$	2,509,805	$	10,120	1.62	%
Money market accounts		3,434,712		31,926	3.74			3,401,802		31,357	3.71			2,920,079		20,499	2.82
Savings accounts		573,115		335	0.24			587,113		303	0.21			686,973		227	0.13
Certificates of deposit		1,412,263		15,312	4.36			1,341,990		14,201	4.26			1,219,500		10,526	3.46
Total interest-bearing deposits		8,370,917		66,374	3.19			8,255,181		64,473	3.14			7,336,357		41,372	2.26
Subordinated debentures and notes		156,188		2,684	6.91			156,046		2,484	6.40			155,632		2,431	6.27
FHLB advances		40,308		561	5.60			73,791		1,029	5.61			98,912		1,279	5.19
Securities sold under agreements to repurchase		158,969		1,401	3.54			204,898		1,804	3.54			162,606		704	1.74
Other borrowings		36,203		95	1.06			42,736		205	1.93			133,770		1,419	4.25
Total interest-bearing liabilities		8,762,585		71,115	3.26			8,732,652		69,995	3.22			7,887,277		47,205	2.40

Noninterest-bearing liabilities:
Demand deposits		3,973,336						3,925,522						4,051,456
Other liabilities		162,220						159,247						111,915
Total liabilities		12,898,141						12,817,421						12,050,648
Shareholders' equity		1,748,240						1,738,698						1,621,337
Total liabilities and shareholders' equity	$	14,646,381					$	14,556,119					$	13,671,985

Total net interest income			$	142,576					$	139,768					$	142,754
Net interest margin					4.19	%					4.13	%					4.49	%

¹ Average balances include nonaccrual loans. Interest income includes loan fees of $2.2 million, $2.4 million, and $3.7 million for the three months ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively.
² Non-taxable income is presented on a fully tax-equivalent basis using a tax rate of approximately 25%. The tax-equivalent adjustments were $2.1 million, $2.0 million, and $2.1 million for the three months ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively.

Net interest income of $140.5 million for the second quarter 2024 increased $2.8 million and decreased $0.2 million from the linked and prior year quarters, respectively. Net interest income on a tax equivalent basis was $142.6 million, $139.8 million and $142.8 million for the current, linked and prior year quarters, respectively. The increase from the linked quarter was primarily due to an expansion of the loan portfolio and securities yields, and to a lesser extent, an increase in average earning assets. This was partially offset by an increase in both the cost and average balance of interest-bearing deposits. The decrease from the prior year quarter reflects higher interest expense on the deposit portfolio and continued remixing into higher cost deposit categories.

Interest income increased $3.9 million during the second quarter 2024. Interest on loans benefited from a $34.6 million increase in average loan balances compared to the linked quarter, as well as an 8 basis point increase in yield. The average interest rate of new loan originations in the second quarter 2024 was 8.07%, an increase of 23 basis points from the linked quarter. Interest on cash accounts increased $0.8 million from the linked quarter due to a $57.4 million increase in average balances, and interest on securities increased $0.5 million due to an 8 basis point increase in yield.

Interest expense increased $1.1 million in the second quarter 2024 primarily due to an increase in interest expense on certificates of deposit that includes brokered amounts. Average certificates of deposit increased $70.3 million and the cost increased 10 basis points in the second quarter 2024. The average cost of interest-bearing deposits was 3.19%, an increase of 5 basis points compared to the linked quarter. The total cost of deposits, including noninterest-bearing demand accounts, was 2.16% during the second quarter 2024, compared to 2.13% in the linked quarter. While the total cost of deposits increased over the linked quarter, the monthly cost of total deposits has been stable since March 2024.

NIM, on a tax equivalent basis, was 4.19% in the second quarter 2024, an increase of 6 basis points from the linked quarter and a decrease of 30 basis points from the prior year quarter. For the month of June 2024, the loan portfolio yield was 6.92% and the cost of total deposits was 2.17%.

Investments

	At
	June 30, 2024					March 31, 2024					June 30, 2023
($ in thousands)	Carrying Value		Net Unrealized Loss			Carrying Value		Net Unrealized Loss			Carrying Value		Net Unrealized Loss
Available-for-sale (AFS)	$	1,615,930	$	(172,734	)	$	1,611,883	$	(165,586	)	$	1,550,375	$	(179,857	)
Held-to-maturity (HTM)		772,648		(69,442	)		758,017		(63,593	)		723,959		(71,673	)
Total	$	2,388,578	$	(242,176	)	$	2,369,900	$	(229,179	)	$	2,274,334	$	(251,530	)

Investment securities totaled $2.4 billion at June 30, 2024, an increase of $18.7 million from the linked quarter. Investment purchases in the second quarter 2024 had a weighted average, tax equivalent yield of 5.43%. The tangible common equity to tangible assets ratio adjusted for unrealized losses on held-to-maturity securities³ was 8.82% at June 30, 2024, compared to 8.68% at March 31, 2024.

Loans

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

	At
($ in thousands)	June 30, 2024			March 31, 2024			December 31, 2023			September 30, 2023			June 30, 2023
C&I	$	2,107,097		$	2,263,817		$	2,186,203		$	2,020,303		$	2,029,370
CRE investor owned		2,308,926			2,280,990			2,291,660			2,260,220			2,290,701
CRE owner occupied		1,313,742			1,279,929			1,262,264			1,255,885			1,208,675
SBA loans*		1,269,145			1,274,780			1,281,632			1,309,497			1,327,667
Sponsor finance*		865,883			865,180			872,264			888,000			879,491
Life insurance premium financing*		996,154			1,003,597			956,162			928,486			912,274
Tax credits*		738,249			718,383			734,594			683,580			609,137
Residential real estate		339,889			354,615			359,957			364,618			354,588
Construction and land development		791,780			726,742			670,567			639,555			599,375
Other		269,142			260,459			268,815			266,676			301,345
Total loans	$	11,000,007		$	11,028,492		$	10,884,118		$	10,616,820		$	10,512,623

Quarterly loan yield		6.95	%		6.87	%		6.87	%		6.80	%		6.64	%
Variable interest rate loans to total loans		61	%		61	%		61	%		61	%		62	%

*Specialty loan category

Loans totaled $11.0 billion at June 30, 2024, a decrease of $28.5 million compared to the linked quarter. During the current quarter, C&I loans and residential real estate loans decreased $156.7 million and $14.7 million, respectively, while construction loans and CRE loans increased $65.0 million and $61.7 million, respectively. Loan origination activity and advances on lines of credit were strong during the second quarter 2024, but were offset by paydowns and maturities in the current quarter that were at the highest quarterly level in the past five quarters. Average line utilization was approximately 46% for the quarter ended June 30, 2024, compared to 44% and 45% for the linked and prior year quarters, respectively.

Asset Quality

The following table presents the categories of nonperforming assets and related ratios for the most recent five quarters:

	At
($ in thousands)	June 30, 2024			March 31, 2024			December 31, 2023			September 30, 2023			June 30, 2023
Nonperforming loans*	$	39,384		$	35,642		$	43,728		$	48,932		$	16,112
Other		8,746			8,466			5,736			6,933			—
Nonperforming assets*	$	48,130		$	44,108		$	49,464		$	55,865		$	16,112

Nonperforming loans to total loans		0.36	%		0.32	%		0.40	%		0.46	%		0.15	%
Nonperforming assets to total assets		0.33	%		0.30	%		0.34	%		0.40	%		0.12	%
Allowance for credit losses to total loans		1.27	%		1.23	%		1.24	%		1.34	%		1.34	%
Quarterly net charge-offs	$	605		$	5,864		$	28,479		$	6,856		$	2,973

*Guaranteed balances excluded	$	12,933		$	9,630		$	10,682		$	5,974		$	6,666

Nonperforming assets increased $4.0 million during the second quarter 2024 and increased $32.0 million from the prior year quarter. The increase in nonperforming assets in the current quarter was primarily related to the addition of an agricultural relationship that moved into nonperforming status during the period, partially offset by a reduction from charge-offs and repayments. Included in nonperforming loans is $1.3 million of loans that are 90 days past due and accruing interest. The Company anticipates full repayment of these loans. The increase in nonperforming assets from the prior year quarter was primarily due to a $27.1 million increase in real estate loans and an $8.7 million increase in OREO and other repossessed assets, partially offset by a $2.9 million decrease in C&I loans. Annualized net charge-offs totaled 2 basis points of average loans in the second quarter 2024, compared to 22 basis points in the linked quarter and 12 basis point in the prior year quarter.

The provision for credit losses totaled $4.8 million in the second quarter 2024, compared to $5.8 million and $6.3 million in the linked and prior year quarters, respectively. The provision for credit losses in the second quarter 2024 was primarily related to an increase in reserves on individually evaluated loans and updates to qualitative factors used in the allowance calculation.

Deposits

The following table presents deposits broken out by type for the most recent five quarters:

	At
($ in thousands)	June 30, 2024			March 31, 2024			December 31, 2023			September 30, 2023			June 30, 2023
Noninterest-bearing demand accounts	$	3,928,308		$	3,805,334		$	3,958,743		$	3,852,486		$	3,880,561
Interest-bearing demand accounts		2,951,899			2,956,282			2,950,259			2,749,598			2,629,339
Money market and savings accounts		4,039,626			4,006,702			3,994,455			3,837,145			3,577,856
Brokered certificates of deposit		494,870			659,005			482,759			695,551			893,808
Other certificates of deposit		867,680			826,378			790,155			775,127			638,296
Total deposit portfolio	$	12,282,383		$	12,253,701		$	12,176,371		$	11,909,907		$	11,619,860

Noninterest-bearing deposits to total deposits		32.0	%		31.1	%		32.5	%		32.3	%		33.4	%
Quarterly cost of deposits		2.16	%		2.13	%		2.03	%		1.84	%		1.46	%

Total deposits at June 30, 2024 were $12.3 billion, an increase of $28.7 million and $662.5 million from the linked and prior year quarters, respectively. Excluding brokered certificates of deposits, total deposits increased $192.8 million and $1.1 billion, from the linked and prior year quarters, respectively. Reciprocal deposits, which are placed through third party programs to provide FDIC insurance on larger deposit relationships, totaled $1.2 billion at June 30, 2024, compared to $1.1 billion at March 31, 2024.

Total estimated insured deposits⁴, which includes collateralized deposits, reciprocal accounts and accounts that qualify for pass-through insurance, totaled $8.7 billion, or 71% of total deposits, at both June 30, 2024 and March 31, 2024.

Noninterest Income

The following table presents a comparative summary of the major components of noninterest income for the periods indicated:

	Linked quarter comparison										Prior year comparison
	Quarter ended										Quarter ended
($ in thousands)	June 30, 2024		March 31, 2024			Increase (decrease)					June 30, 2023		Increase (decrease)
Deposit service charges	$	4,542	$	4,423		$	119		3	%	$	3,910	$	632		16	%
Wealth management revenue		2,590		2,544			46		2	%		2,472		118		5	%
Card services revenue		2,497		2,412			85		4	%		2,464		33		1	%
Tax credit income (loss)		1,874		(2,190	)		4,064		186	%		368		1,506		409	%
Other income		3,991		4,969			(978	)	(20	)%		5,076		(1,085	)	(21	)%
Total noninterest income	$	15,494	$	12,158		$	3,336		27	%	$	14,290	$	1,204

Enterprise Financial Reports Second Quarter 2024 Results