Enterprise Financial Services Corp Q3 FY2024 earnings call

• Financial performance was strong: EPS was $1.32, net income was $50.6 million, adjusted return on assets was 1.32%, and pre-provision return on assets was 1.74%.
• Net interest income increased $2.9 million to $143.5 million, with net interest margin at 4.7% due to stable deposit base and appropriate pricing.
• Loan growth was $80 million, but impacted by client wait-and-see mindset; deposit growth was a bright spot, with $200 million growth in two consecutive quarters.
• Credit quality was strong: Nonperforming assets decreased $15.2 million, NPLs to total loans and NPAs to total assets at lowest levels in a year.
• Core conversion was completed smoothly, and the company continues to pursue projects to improve client experience and efficiency.
• Recruiting efforts are paying off, with new RMs and teams added, especially in Western markets and specialized businesses; clients are having more strategic conversations about expansion, succession, and acquisitions.

For the third quarter, Enterprise Financial Services Corporation earned net income of $50.6 million or $1.32 per diluted share. Net interest income increased $2.9 million to $143.5 million, with a stable net interest margin at 4.7%. Loans grew by $80 million or 3% during the quarter, including a $46 million decline in the agricultural portfolio. Deposit growth was a bright spot, with customer deposits growing close to $200 million for the second quarter in a row. In terms of segment contribution: Loans had net growth of $80 million, with C&I and commercial real estate relatively balanced; Specialty lending saw life insurance premium finance grow $34 million, sponsored finance decline $47 million, and tax credit portfolio down modestly due to seasonality; Deposits grew nearly $183 million, with geographic regions and verticals contributing to growth.

• Net interest margin is expected to compress moving forward, with the fourth quarter likely seeing margin declination due to seasonal deposit growth; expecting net interest margin to drift into the high 3% range in 2025.
• Tax credit income is likely to be lower in the short term due to 10-year SOFR impact, but expects $10 million annualized in the long run.
• Provisioning will remain prudent, with reserve level maintained at mid-120 range, and provisioning function of loan growth and credit quality.

• Interest rate decline may lead to net interest margin compression.
• Client wait-and-see mindset may continue to impact loan growth.
• Specialty lending areas face competitive and environmental factors, such as sponsor finance challenges.
• Tax credit income is sensitive to interest rate fluctuations.
• Risks associated with core conversion post-project execution.

Q: Ryan Payne asked about the makeup of net charge-offs.

A: Doug Bauche said charge-offs were largely concentrated in one multifamily acquired loan in Southern California.

Q: Andrew Liesch asked about agricultural loan balance and hiring regions.

A: Keene Turner said agricultural loans were reduced by about $50 million to $140 million, and hiring is predominant in Western markets.

Q: Damon DelMonte asked about net interest margin, fee income, and provisioning.

A: Keene Turner responded on net interest margin compression, tax credit income shortfall, and prudent provisioning.

Q: Brian Martin asked about deposit-related expenses and NII outlook.

A: Keene Turner answered on deposit expense reduction due to rate cuts and NII outlook considering loan growth and rate changes