Third Quarter Results

Net income of $50.6 million, or $1.32 per diluted common share, compared to $1.19 in the linked quarter and $1.17 in the prior year quarter
Net interest margin of 4.17%, quarterly decrease of 2 basis points
Net interest income of $143.5 million, quarterly increase of $2.9 million
Total loans of $11.1 billion, quarterly increase of $79.9 million
Total deposits of $12.5 billion, quarterly increase of $182.9 million
Return on Average Assets ("ROAA") of 1.36%, compared to 1.25% and 1.26% in the linked and prior year quarters, respectively
Return on Average Tangible Common Equity ("ROATCE")¹ of 14.55%, compared to 13.77% and 14.49% in the linked and prior year quarters, respectively
Tangible common equity to tangible assets¹ of 9.50%, an increase of 32 basis points and 99 basis points from the linked and prior year quarters, respectively
Tangible book value per share¹ of $37.26, annualized quarterly increase of 25%
Repurchased 195,114 shares and increased quarterly dividend $0.01 to $0.28 per common share for the fourth 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 third quarter earnings, "We are proud of our third quarter results, with a stable net interest margin, expansion in net interest income and an 11% increase in diluted earnings per share over the linked quarter. Our consistent return profile increased tangible book value per share 25% on an annualized basis from the linked quarter, and 20% over the prior year's third quarter. With the strength of our balance sheet and capital position as a foundation, I believe we are well positioned to continue executing on the opportunities within our markets."

Highlights

Earnings - Net income in the third quarter 2024 was $50.6 million, an increase of $5.1 million and $5.9 million compared to the linked and prior year quarters, respectively. Earnings per diluted common share for the third quarter 2024 was $1.32, compared to $1.19 and $1.17 for the linked and prior year quarters, respectively. Adjusted diluted earnings per common share¹ was $1.29 for the third quarter 2024, compared to $1.21 and $1.17 for the linked and prior year quarters, respectively.

Pre-provision net revenue ("PPNR")¹ - PPNR of $65.1 million in the third quarter 2024 increased $1.8 million from the linked quarter and was relatively stable with the prior year quarter. The increase from the linked quarter was primarily due to higher noninterest income from sales of other real estate owned, and higher net interest income that benefited from an increase in average earning assets. The increase in operating revenue was partially offset by an increase in noninterest expense, primarily variable deposit services costs and employee compensation and benefits.

Net interest income and net interest margin ("NIM") - Net interest income of $143.5 million for the third quarter 2024 increased $2.9 million and $1.8 million from the linked and prior year quarters, respectively. Compared to the linked quarter, net interest income for the third quarter 2024 increased primarily due to higher interest-earning asset balances and an additional day in the quarter. NIM was 4.17% for the third quarter 2024, compared to 4.19% and 4.33% for the linked and prior year quarters, respectively. The total cost of deposits of 2.18% for the third quarter 2024 increased 2 basis points and 34 basis points from the linked and prior year quarters, respectively.

Noninterest income - Noninterest income of $21.4 million for the third quarter 2024 increased $5.9 million and $9.3 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, a net gain on the sale of other real estate owned and an increase in income on community development investments.

Noninterest expense - Noninterest expense of $98.0 million for the third quarter 2024 increased $4.0 million and $9.4 million from the linked and prior year quarters, respectively. The increase from the linked and prior year quarters was primarily driven by higher employee compensation and variable deposit servicing costs. The Company continues to have success in recruiting new relationship managers and in deposit generation from existing relationships, both of which have contributed to an increase in average deposit balances. The increase from the prior year quarter was also affected by expenses related to the core system conversion.

Loans - Loans totaled $11.1 billion at September 30, 2024, an increase of $79.9 million from the linked quarter and an increase of $463.1 million from the prior year quarter. Average loans totaled $11.0 billion for both the current and linked quarter and $10.5 billion in the prior year quarter.

Asset quality - The allowance for credit losses to total loans was 1.26% at September 30, 2024, compared to 1.27% at June 30, 2024 and 1.34% at September 30, 2023. The ratio of nonperforming assets to total assets was 0.22% at September 30, 2024, compared to 0.33% and 0.40% at June 30, 2024 and September 30, 2023, respectively. The provision for credit losses recorded in the third quarter 2024 was $4.1 million, compared to $4.8 million and $8.0 million for the linked and prior year quarters, respectively.

Deposits - Deposits totaled $12.5 billion at September 30, 2024, an increase of $182.9 million from the linked quarter. Excluding brokered certificates of deposits, deposits increased $196.9 million. Average deposits were $12.5 billion, $12.3 billion and $11.9 billion for the current, linked and prior year quarters, respectively. At September 30, 2024, noninterest-bearing deposit accounts totaled $3.9 billion, or 31.6% of total deposits, and the loan to deposit ratio was 88.9%.

Liquidity - The total available on- and off-balance-sheet liquidity was approximately $5.8 billion at September 30, 2024. On-balance-sheet liquidity consisted of cash of $426.4 million and $1.4 billion in unpledged investment securities at September 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 9.50% at September 30, 2024, compared to 9.18% at June 30, 2024. Enterprise Bank & Trust remains "well-capitalized," with a common equity tier 1 ratio of 12.5% and a total risk-based capital ratio of 13.6% at September 30, 2024. The Company's common equity tier 1 ratio and total risk-based capital ratio were 11.9% and 14.8%, respectively, at September 30, 2024.

The Company's board of directors approved a quarterly dividend of $0.28 per common share, payable on December 31, 2024 to shareholders of record as of December 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) September 15, 2024 to (but excluding) December 15, 2024. The dividend will be payable on December 15, 2024 and will be paid on December 16, 2024 to holders of record of Series A Preferred Stock as of November 29, 2024.

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¹ ROATCE, tangible common equity to tangible assets, tangible book value per share, adjusted diluted earnings per share and PPNR are non-GAAP measures. Please refer to discussion and reconciliation of these measures in the accompanying financial tables.

² Tangible common equity to tangible assets ratio is a non-GAAP measure. Please refer to discussion and reconciliation of this measure in the accompanying financial tables.

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
	September 30, 2024						June 30, 2024						September 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}	$	10,971,575	$	191,638	6.95	%	$	10,962,488	$	189,346	6.95	%	$	10,521,966	$	180,382	6.80	%
Securities²		2,503,124		21,404	3.40			2,396,519		19,956	3.35			2,302,850		18,076	3.11
Interest-earning deposits		402,932		5,348	5.28			325,452		4,389	5.42			335,771		4,509	5.33
Total interest-earning assets		13,877,631		218,390	6.26			13,684,459		213,691	6.28			13,160,587		202,967	6.12

Noninterest-earning assets		971,824						961,922						908,273

Total assets	$	14,849,455					$	14,646,381					$	14,068,860

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand accounts	$	3,018,309	$	20,002	2.64	%	$	2,950,827	$	18,801	2.56	%	$	2,672,084	$	13,701	2.03	%
Money market accounts		3,551,492		33,493	3.75			3,434,712		31,926	3.74			3,079,221		26,427	3.40
Savings accounts		561,466		345	0.24			573,115		335	0.24			646,187		250	0.15
Certificates of deposit		1,368,339		14,928	4.34			1,412,263		15,312	4.36			1,519,119		14,976	3.91
Total interest-bearing deposits		8,499,606		68,768	3.22			8,370,917		66,374	3.19			7,916,611		55,354	2.77
Subordinated debentures and notes		156,329		2,695	6.86			156,188		2,684	6.91			155,769		2,466	6.28
FHLB advances		4,565		59	5.14			40,308		561	5.60			10,326		141	5.42
Securities sold under agreements to repurchase		140,255		1,217	3.45			158,969		1,401	3.54			146,893		969	2.61
Other borrowings		36,226		96	1.05			36,203		95	1.06			50,571		337	2.66
Total interest-bearing liabilities		8,836,981		72,835	3.28			8,762,585		71,115	3.26			8,280,170		59,267	2.84

Noninterest-bearing liabilities:
Demand deposits		4,046,480						3,973,336						4,005,923
Other liabilities		161,625						162,220						134,162
Total liabilities		13,045,086						12,898,141						12,420,255
Shareholders' equity		1,804,369						1,748,240						1,648,605
Total liabilities and shareholders' equity	$	14,849,455					$	14,646,381					$	14,068,860

Total net interest income			$	145,555					$	142,576					$	143,700
Net interest margin					4.17	%					4.19	%					4.33	%

¹ Average balances include nonaccrual loans. Interest income includes net loan fees of $2.6 million, $2.2 million, and $3.3 million for the three months ended September 30, 2024, June 30, 2024, and September 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 for each of the three months ended September 30, 2024, June 30, 2024, and September 30, 2023, respectively.

Net interest income of $143.5 million for the third quarter 2024 increased $2.9 million and $1.8 million from the linked and prior year quarters, respectively. Net interest income on a tax equivalent basis was $145.6 million, $142.6 million and $143.7 million for the current, linked and prior year quarters, respectively. The increase from the linked and prior quarters reflects the benefit of higher yields combined with organic growth. In late September 2024 the Federal Reserve reduced the federal funds target rate by 50 basis points. In response, since the Company maintains an asset-sensitive balance sheet, deposit pricing has been adjusted to partially mitigate the impact on income from the repricing of variable rate loans.

Interest income increased $4.7 million during the third quarter 2024 due to increases in all interest earning categories, including loans, securities and interest earning cash accounts. Interest income increased primarily due to an increase in average balances compared to the linked quarter. Continued success in deposit generation has increased liquidity, which has been primarily deployed into the securities portfolio.

The average interest rate of new loan originations in the third quarter 2024 was 7.84%, a decrease of 23 basis points from the linked quarter. Investment purchases in the third quarter 2024 had a weighted average, tax equivalent yield of 4.97%.

Interest expense increased $1.7 million in the third quarter 2024 primarily due to an increase in deposit interest expense, partially offset by a decline in interest expense on borrowings. The average cost of interest-bearing deposits was 3.22%, an increase of 3 basis points compared to the linked quarter. The total cost of deposits, including noninterest-bearing demand accounts, was 2.18% during the third quarter 2024, compared to 2.16% in the linked quarter.

NIM, on a tax equivalent basis, was 4.17% in the third quarter 2024, a decrease of 2 basis points from the linked quarter and a decrease of 16 basis points from the prior year quarter. For the month of September 2024, the loan portfolio yield was 6.90% and the cost of total deposits was 2.18%.

Investments

	At
	September 30, 2024					June 30, 2024					September 30, 2023
($ in thousands)	Carrying Value		Net Unrealized Loss			Carrying Value		Net Unrealized Loss			Carrying Value		Net Unrealized Loss
Available-for-sale (AFS)	$	1,786,793	$	(122,158	)	$	1,615,930	$	(172,734	)	$	1,487,104	$	(235,013	)
Held-to-maturity (HTM)		851,647		(46,351	)		772,648		(69,442	)		730,655		(108,780	)
Total	$	2,638,440	$	(168,509	)	$	2,388,578	$	(242,176	)	$	2,217,759	$	(343,793	)

Investment securities totaled $2.6 billion at September 30, 2024, an increase of $249.9 million from the linked quarter. The tangible common equity to tangible assets ratio adjusted for unrealized losses on held-to-maturity securities³ was 9.26% at September 30, 2024, compared to 8.82% at June 30, 2024.

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³ The tangible common equity to tangible assets ratio adjusted for unrealized losses on held-to-maturity securities is a non-GAAP measure. Refer to discussion and reconciliation of this measure in the accompanying financial tables.

Loans

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

	At
($ in thousands)	September 30, 2024			June 30, 2024			March 31, 2024			December 31, 2023			September 30, 2023
C&I	$	2,145,286		$	2,107,097		$	2,263,817		$	2,186,203		$	2,020,303
CRE investor owned		2,346,575			2,308,926			2,280,990			2,291,660			2,260,220
CRE owner occupied		1,322,714			1,313,742			1,279,929			1,262,264			1,255,885
SBA loans*		1,272,679			1,269,145			1,274,780			1,281,632			1,309,497
Sponsor finance*		819,079			865,883			865,180			872,264			888,000
Life insurance premium financing*		1,030,273			996,154			1,003,597			956,162			928,486
Tax credits*		724,441			738,249			718,383			734,594			683,580
Residential real estate		346,460			339,889			354,615			359,957			364,618
Construction and land development		796,586			791,780			726,742			670,567			639,555
Other		275,799			269,142			260,459			268,815			266,676
Total loans	$	11,079,892		$	11,000,007		$	11,028,492		$	10,884,118		$	10,616,820

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

*Specialty loan category

Loans totaled $11.1 billion at September 30, 2024, an increase of $79.9 million compared to the linked quarter. During the current quarter, C&I loans and CRE loans increased $38.2 million and $46.6 million, respectively. Average line utilization was approximately 44% for the quarter ended September 30, 2024, compared to 46% and 41% 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)	September 30, 2024			June 30, 2024			March 31, 2024			December 31, 2023			September 30, 2023
Nonperforming loans*	$	28,376		$	39,384		$	35,642		$	43,728		$	48,932
Other		4,516			8,746			8,466			5,736			6,933
Nonperforming assets*	$	32,892		$	48,130		$	44,108		$	49,464		$	55,865

Nonperforming loans to total loans		0.26	%		0.36	%		0.32	%		0.40	%		0.46	%
Nonperforming assets to total assets		0.22	%		0.33	%		0.30	%		0.34	%		0.40	%
Allowance for credit losses	$	139,778		$	139,464		$	135,498		$	134,771		$	142,133
Allowance for credit losses to total loans		1.26	%		1.27	%		1.23	%		1.24	%		1.34	%
Quarterly net charge-offs	$	3,850		$	605		$	5,864		$	28,479		$	6,856

*Guaranteed balances excluded	$	11,899		$	12,933		$	9,630		$	10,682		$	5,974

Nonperforming assets decreased $15.2 million and $23.0 million from the linked and prior year quarters, respectively. The decrease in nonperforming assets in the current quarter was primarily related to the sale of other real estate owned, the positive resolution on several loans, principal repayments and charge-offs in the quarter. Annualized net charge-offs totaled 14 basis points of average loans in the third quarter 2024, compared to 2 basis points in the linked quarter and 26 basis point in the prior year quarter.

The provision for credit losses totaled $4.1 million in the third quarter 2024, compared to $4.8 million and $8.0 million in the linked and prior year quarters, respectively. The provision for credit losses in the third quarter 2024 was primarily related to charge-offs 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)	September 30, 2024			June 30, 2024			March 31, 2024			December 31, 2023			September 30, 2023
Noninterest-bearing demand accounts	$	3,934,245		$	3,928,308		$	3,805,334		$	3,958,743		$	3,852,486
Interest-bearing demand accounts		3,048,981			2,951,899			2,956,282			2,950,259			2,749,598
Money market and savings accounts		4,121,543			4,039,626			4,006,702			3,994,455			3,837,145
Brokered certificates of deposit		480,934			494,870			659,005			482,759			695,551
Other certificates of deposit		879,619			867,680			826,378			790,155			775,127
Total deposit portfolio	$	12,465,322		$	12,282,383		$	12,253,701		$	12,176,371		$	11,909,907

Noninterest-bearing deposits to total deposits		31.6	%		32.0	%		31.1	%		32.5	%		32.3	%
Quarterly cost of deposits		2.18	%		2.16	%		2.13	%		2.03	%		1.84	%

Total deposits at September 30, 2024 were $12.5 billion, an increase of $182.9 million and $555.4 million from the linked and prior year quarters, respectively. Excluding brokered certificates of deposits, total deposits increased $196.9 million and $770.0 million, 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 both September 30, 2024 and June 30, 2024.

Total estimated insured deposits,⁴ which includes collateralized deposits, reciprocal accounts and accounts that qualify for pass-through insurance, totaled $8.8 billion, or 70% of total deposits, at September 30, 2024 compared to $8.7 billion, or 71% of total deposits, at June 30, 2024.

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⁴ Estimated insured deposits is a non-GAAP measure. Refer to discussion and reconciliation of this measure in the accompanying financial tables.

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)	September 30, 2024		June 30, 2024		Increase (decrease)				September 30, 2023			Increase (decrease)
Deposit service charges	$	4,649	$	4,542	$	107	2	%	$	4,187		$	462		11	%
Wealth management revenue		2,599		2,590		9	—	%		2,614			(15	)	(1	)%
Card services revenue		2,573		2,497		76	3	%		2,560			13		1	%
Tax credit income (loss)		3,252		1,874		1,378	74	%		(2,673	)		5,925		222	%
Other income		8,347		3,991		4,356	109	%		5,397			2,950		55	%
Total noninterest income	$	21,420	$	15,494	$	5,926	38	%	$	12,085		$	9,335		77	%

Total noninterest income was $21.4 million for the third quarter 2024, an increase of $5.9 million and $9.3 million from the linked and prior year quarter, respectively. The increase from the linked and prior year quarters was primarily due to an increase in tax credit income from a positive change in credits carried at fair value, and a net gain on the sale of other real estate that is included in Other income. Tax credit income varies based on transaction volumes and fair value changes on credits carried at fair value.

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

	Linked quarter comparison									Prior year comparison
	Quarter ended									Quarter ended
($ in thousands)	September 30, 2024		June 30, 2024		Increase (decrease)					September 30, 2023		Increase (decrease)
Gain on sales of other real estate owned	$	3,159	$	—	$	3,159		100	%	$	—	$	3,159		100	%
BOLI		1,123		855		268		31	%		822		301		37	%
Community development investments		1,177		381		796		209	%		338		839		248	%
Private equity fund distributions		614		411		203		49	%		181		433		239	%
Servicing fees		539		594		(55	)	(9	)%		701		(162	)	(23	)%
Swap fees		17		217		(200	)	(92	)%		54		(37	)	(69	)%
Gain on SBA loan sales		—		—		—		—	%		1,514		(1,514	)	(100	)%
Miscellaneous income		1,718		1,533		185		12	%		1,787		(69	)	(4	)%
Total other income	$

Enterprise Financial Reports Third Quarter 2024 Results