Enterprise Financial Services Corp Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: Strong Q4 results with net income of $49 million, adjusted EPS $1.32. Net interest income expanded, deposit growth improved liquidity.
• Talent Investments: Investments in relationship managers paying off with deposit growth and client relationships.
• Diversification: Focus on diversification across markets and businesses, not relying on one sector. Client-centric approach with holistic solutions.
• Loan and Deposit Pipelines: Teams building strong pipelines, mix of C&I and CRE encouraging. Balance sheet well-positioned with strong capital levels.
• Credit Quality: Credit quality and profile strong and stable, NPLs and NPAs at modest levels, allowance for credit losses 1.34% of unguaranteed loans.

Segment Performance

• Net Income: Earned $1.28 per diluted share in Q4 2024, compared to $1.32 in the linked quarter and $1.16 in Q4 2023. Adjusted return on assets was 1.31%, pre-provision return on assets was 1.80%.
• Net Interest Income: $146.4 million in Q4 2024, up $2.9 million from the linked quarter. Loan income declined due to lower rates, but investment securities income increased.
• Deposits: Client deposits increased by $677 million in Q4, the fifth consecutive quarter of growth. Non-interest-bearing deposits were significant, with DDA to total deposits at over 34%.
• Loans: Overall loan growth around 3% in 2024, with Q4 growth of $140 million (5% annualized). Growth in general C&I, construction, life insurance premium finance, SBA; sponsor finance had a net reduction. Geographic regions: Midwest had modest growth, Southwest was strong, California had slips but positive prospects.

Guidance

• 2025 Outlook: Expect mid to high-single-digit balance sheet growth. Confident in loan and deposit pipelines. CRE has ample growth room.
• Dividend and Repurchases: Increased dividend by $0.01 per share to $0.29 for Q1 2025, repurchased $11 million in common stock.

Risks

• Interest Rate Impact: Further rate cuts could pressure net interest margin, but management expects to manage through it.
• Credit Risks: Some relationships being monitored, but overall credit quality remains strong and reserves are sufficient.

Question and Answer

• Q: On margin expectations A: Keene expects to hold margin above 4% even with a couple of rate cuts, managing deposit costs and curve slope.
• Q: On expenses A: Core conversion costs expected to be minimal, expenses likely to be level to modestly growing in 2025.
• Q: On deposit growth and loan relationships A: Deposit growth strong, with community associations and property management having specialized relationships, not primarily loan-focused.