ENTERPRISE FINANCIAL SERVICES CORP Q4 FY2024 earnings call

• Strong financial performance in Q4 2024 with $1.28 per diluted share earnings, adjusted ROA 1.31%, and pre-provision ROA 1.80%.
• Diversified business model drove net interest income expansion, with net interest margin remaining above 4%.
• Talent investments in relationship managers paid off with $677 million client deposit growth in Q4, fifth growth in six quarters.
• Loan demand ticked up in Q4, expected slight elevation but maintaining credit and pricing disciplines.
• Strong capital levels: tangible common equity to tangible assets ratio 9.05%, adjusted return on tangible common equity 14.05% in Q4.
• Increased dividend by $0.01 to $0.29 for Q1 2025 and repurchased $11 million in stock.
• Credit quality strong and stable, NPLs and NPAs at modest levels, allowance for credit losses 1.34% of unguaranteed loans.

In the fourth quarter, Enterprise Financial Services Corp. earned $1.28 per diluted share, with an adjusted return on assets of 1.31% and pre-provision return on assets of 1.80%. Net interest income expanded due to a diversified business model, with net interest margin remaining above 4%. Client deposits increased by $677 million in the quarter, the fifth growth in six quarters, with the quarterly cost of deposits at 2% and DDA to total deposits over 34%. Loan growth was $140 million or 5% annualized in Q4, including a $27 million decline in the agricultural portfolio. Specialty lending segments saw growth: life insurance premium finance grew $158 million (16.5%) in 2024, SBA grew $25 million (7.9%) annualized, and sponsor finance had a net reduction but 15% three-year compound growth. Geographically, the Midwest grew modestly, the Southwest had $104 million Q4 growth, and California saw a slip due to paydowns and weaker credits but has future growth confidence.

• Expect mid to high-single-digit balance sheet growth in 2025, with teams having built loan and deposit pipelines and CRE opportunities.
• Net interest margin expected to be around 4.10% after balance sheet reset, can hold above 4% even with rate cuts if deposit costs managed well.
• Core conversion expenses likely in run rate, expenses roughly level to modestly growing in 2025.

• Interest rate changes: Further rate cuts could pressure net interest margin, but modeling shows manageable impact.
• Credit risks: Some non-performers ticked up, but adequately reserved and expected to resolve.
• Market disruption: M&A disruption helped in talent acquisition, but pace may moderate.

Q: On margin and expense post conversion A: Keene Turner discussed margin expectations around 4.10%, noting the reset of the SBA portfolio and remixing of deposits, with core conversion expenses in run rate and expenses roughly level.

Q: On non-interest-bearing deposits and credit A: Jim Lally mentioned DDA seasonality in deposits, and Doug Baude noted non-performers were two relationships with resolution paths, credit quality back to historical norms.

Q: On loan growth and M&A A: Jim Lally said mid-single-digit loan growth is achievable in 2025, with M&A not a high priority in 2025.

Q: On capital and deposit verticals A: Keene Turner mentioned capital targets of 10%, 12%, and 14% on CET1, Tier 1, and total, while Scott Goodman discussed deposit verticals' geography and lack of heavy lending focus on those verticals