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Enterprise Financial Reports Third Quarter 2014 Results

  • Net income of $8.2 million, or $0.41 per diluted share, up 14%, over the linked second quarter
  • Core net interest income grows 6% on an annualized basis when compared to the linked second quarter
  • Portfolio loans grow 8% on an annualized basis over the linked second quarter and 9% over the prior year period
  • Commercial and Industrial ("C&I") loans grow $37 million over the linked second quarter and 16% over the prior year period

ST. LOUIS, Oct. 23, 2014 (GLOBE NEWSWIRE) -- Enterprise Financial Services Corp (Nasdaq:EFSC) (the "Company") reported net income of $8.2 million for the quarter ended September 30, 2014, an increase of $1.0 million, or 14%, as compared to the linked second quarter. Net income per diluted share also increased 14% to $0.41 for the quarter ended September 30, 2014, compared to $0.36 per diluted share for the linked second quarter. The linked quarter increase in net income was due to robust portfolio loan growth driving an 6% annualized increase in core net interest income, as well as reduced provision from loan losses from continued strong credit quality and increased fee income from a $0.9 million closing fee recorded in the quarter. Third quarter 2014 net income was 3% lower than the $8.4 million reported in the prior year period and diluted earnings per share were 7% lower than the $0.44 reported a year ago. The year over year decrease in net income and diluted earnings per share was primarily due to a $2.5 million reduction in net revenue from purchase credit impaired ("PCI") loans due to declining balances and lower accelerated cash flows from these loans. Excluding the impact of PCI loans, core pretax income increased 5% in the third quarter of 2014 compared to the prior year period.

Peter Benoist, President and CEO, commented, "During the third quarter, Enterprise continued the earnings momentum we established early in the year, with reported net income increasing 14% over the second quarter and 40% higher than the first quarter. Our core banking operations, exclusive of loss share, are driving the earnings growth and represented 87% of the earnings we reported for the quarter.

Continuing solid loan growth produced higher core net interest income again in the third quarter, as loan yields and core net interest margin remained stable. Total loans increased at an 8% annual rate during the quarter, while C&I loans grew 13% annualized. Loan growth was broad-based, with gains in each market and in specialized lending programs. The three distinct geographic markets, along with specialized lending capabilities that reach beyond those markets, are providing multiple paths to asset growth for Enterprise."

Banking Segment

Net Interest Income

Net interest income in the third quarter decreased $1.3 million from the linked second quarter primarily due to lower balances of PCI loans and lower accelerated cash flows related to these loans. The net interest margin was 3.75% for the third quarter, compared to 4.04% in the linked second quarter. Offsetting the decline in PCI loan yield was a decrease in average interest earning assets of approximately $18 million associated with certain interest earning deposits. Core net interest income increased 6% on an annualized basis compared to the linked second quarter as our loan portfolio grew 8% on an annualized basis while loan and deposit yields remained relatively stable.

Net interest income decreased $5.1 million from the prior year period due to lower balances of PCI loans, lower accelerated cash flows on PCI loans, and lower interest rates on newly originated loans. These items were partially offset by lower interest expense primarily related to the payoff of debt with higher interest rates including $30.0 million of FHLB borrowings at a weighted average interest rate of 4.09% and $25 million of trust preferred securities at a 9% interest rate. The net interest margin decreased 96 basis points from 4.71% in the third quarter of 2013, however core net interest income increased modestly compared to the prior year, as portfolio loan growth of 9% and lower costs of interest bearing liabilities outweighed lower loan yields on portfolio loans.

In the third quarter of 2014, the yield on PCI loans was 14.67%, as compared to 26.31% in the prior year period. Excluding the accelerated cash flow impacts, the yield on PCI loans was 13.0% in the third quarter of 2014 compared to 13.4% in the linked quarter and 15.8% in the prior year period.

The cost of interest-bearing deposits was 0.58% in the third quarter of 2014, consistent with the linked second quarter and 1 basis point lower than the third quarter of 2013. The cost of interest-bearing liabilities was 0.64% in the quarter, declining 1 basis point from the linked quarter and 15 basis points from the third quarter of 2013. The reduction from the prior year period was primarily due to initiatives in the second half of 2013 and into 2014 to lower the cost of funds including the aforementioned prepayment of $30.0 FHLB borrowings combined with the conversion of $25.0 million trust preferred securities to common equity.

Core net interest margin, defined as the net interest margin (fully tax equivalent), including contractual interest on PCI loans but excluding the incremental accretion on these loans, was as follows:

For the Quarter ended
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
Core net interest margin 3.41% 3.41% 3.44% 3.54% 3.54%

Core net interest margin remained stable when compared to the linked quarter. The Company's margin was aided by loan prepayment fees during the quarter totaling 2 basis points, as well as a 1 basis point reduction in the cost of interest bearing liabilities and the aforementioned reduction of $18 million in average interest earning assets. This was offset by lower balances of PCI loans, which have higher contractual interest rates than portfolio loans.

Core net interest margin declined 13 basis points from the prior year quarter primarily due to a 14 basis point decline from lower balances of PCI loans. Pressure on loan yields and continued reductions in PCI loan balances could lead to a further decline in Core net interest margin throughout the remainder of 2014 and 2015. The Company considers its Core net interest margin to be an important measure of our financial performance, even though it is a non-GAAP financial measure, because it provides supplemental information by which to evaluate the impact of PCI loan accretion on the Company's net interest income and margin and the Company's operating performance on an ongoing basis. The attached tables contain a reconciliation of Core net interest margin to net interest margin.

Portfolio loans

Portfolio loans totaled $2.3 billion at September 30, 2014, increasing $43.8 million, or 8% annualized, compared to the linked quarter. On a year over year basis, portfolio loans increased $184 million, or 9%. The Company expects to achieve approximately 10% annualized portfolio loan growth for the forseeable future.

Commercial and Industrial ("C&I") loans increased $36.9 million during the third quarter of 2014 compared to the linked second quarter of 2014. C&I loans represented 51% of the Company's loan portfolio at September 30, 2014, up slightly from 50% reported at June 30, 2014. C&I loans increased $165 million, or 16%, since September 30, 2013 and have more than offset the $43 million decline in Commercial real estate loans during the same period. We continue to focus on originating high-quality C&I relationships as they typically have variable interest rates and allow for cross selling opportunities involving other banking products. Our specialized market segments, encompassing life insurance premium finance, enterprise value lending, tax credit lending, and asset based lending have contributed to the growth in the C&I category. C&I loan growth also supports our efforts to maintain the Company's asset sensitive interest rate risk position. At September 30, 2014, 63% of our portfolio loans had variable interest rates.

Purchase credit impaired loans and other real estate covered under FDIC loss share agreements

PCI loans (formerly referred to as Portfolio Loans covered under FDIC loss share or Covered loans) totaled $114 million at September 30, 2014, a decrease of $4.6 million, or 4%, from the linked second quarter, and $45.0 million, or 28%, from the prior year, primarily as a result of principal paydowns and accelerated loan payoffs.

Other real estate covered under FDIC loss share agreements at September 30, 2014 was $8.8 million, a 31% decrease from $12.8 million at June 30, 2014. During the third quarter of 2014, the Company sold $4.3 million of other real estate covered under FDIC loss share agreements, resulting in an immaterial loss.

The Company remeasures expected cash flows on PCI loans on a quarterly basis. When the remeasurement process results in a decrease in expected cash flows due to an increase in expected credit losses, impairment is recorded through the provision for loan losses. Similarly, when expected credit losses decrease in the remeasurement process, prior recorded impairment is reversed before the yield is increased prospectively. Concurrently, the FDIC loss share receivable is adjusted to reflect anticipated future cash to be received from the FDIC. In the third quarter of 2014 a provision reversal of $1.9 million was recorded as the remeasurement process resulted in higher overall estimated cash flows. The provision reversal was approximately 80% offset through noninterest income by a decrease in the FDIC loss share receivable. These higher estimated cash flows also resulted in an increase of $1.0 million clawback liability recorded as noninterest expense during the quarter.

Actual cash collections in excess of expected cash flows that represent accelerated loan payoffs result in the recognition of income, but also generally result in a decrease in the FDIC loss share receivable. These cash flows are, by their nature, unpredictable and can vary significantly period to period. Actual cash collections in excess of expected cash flows from loan payoffs in the third quarter resulted in accelerated discount income of $0.5 million, which was partially offset by a decrease in the FDIC loss share receivable.

The following table illustrates the financial contribution of PCI loans and other real estate covered under FDIC loss share agreements for the most recent five quarters:

For the Quarter ended
(in thousands) income/(expense) September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
Accretion income $ 3,722 $ 4,041 $ 4,560 $ 5,332 $ 6,252
Accelerated cash flows 473 2,285 3,916 4,111 4,309
Other 84 90 176 229 219
Total interest income 4,279 6,416 8,652 9,672 10,780
Provision reversal/(Provision) for loan losses 1,877 470 (3,304) (2,185) (2,811)
Gain /(loss) on sale of other real estate (45) 164 131 97 168
Change in FDIC loss share receivable (2,374) (2,742) (2,410) (4,526) (2,849)
Change in FDIC clawback liability (1,028) (142) 110 (136) (62)
Other expenses and estimated funding costs 1,044 1,182 1,237 1,949 2,525
Covered assets income before income tax expense $ 1,665 $ 2,984 $ 1,942 $ 973 $ 2,701

At September 30, 2014 the remaining accretable yield on the portfolio was estimated to be $37 million and the non-accretable difference was approximately $73 million. Absent significant cash flow accelerations or pool impairment, the Company currently estimates that income before tax expense on Covered assets will be approximately $6 to $8 million in 2015.

Asset quality for portfolio loans and other real estate

Nonperforming loans were $18.2 million at September 30, 2014, a 6% decrease from $19.3 million at June 30, 2014, and a 25% decline from $24.2 million at September 30, 2013. There were $1.6 million of additions to non-performing loans during the quarter, which were offset by $0.8 million of charge-offs and $1.8 million of other principal reductions. The additions to nonperforming loans were comprised of three relationships, the largest of which was a $0.8 million relationship with both C&I and Commercial real estate loans in the Kansas City region, which were deemed by management to be well secured at September 30, 2014.

Nonperforming loans remain at low levels, representing 0.79% of portfolio loans at September 30, 2014, versus 0.86% of portfolio loans at June 30, 2014, and 1.14% at September 30, 2013. The Company's allowance for loan losses was 1.25% of loans at September 30, 2014, representing 158% of nonperforming loans, as compared to 1.26% of portfolio loans at June 30, 2014, representing 147% of nonperforming loans, and 1.26% of portfolio loans at September 30, 2013, representing 110% of nonperforming loans.

Nonperforming loans, by portfolio class at September 30, 2014, were as follows:

(in millions) Total portfolio Nonperforming % NPL
Construction, Real Estate/Land
Acquisition & Development $ 124 $ 6.5 5.25%
Commercial Real Estate - Investor Owned 392 5.2 1.33%
Commercial Real Estate - Owner Occupied 367 2.6 0.71%
Residential Real Estate 187 0.4 0.21%
Commercial & Industrial 1,172 3.5 0.30%
Consumer & Other 53 —%
Total $ 2,295 $ 18.2 0.79%

Other real estate totaled $2.3 million at September 30, 2014, a decrease of $5.4 million from June 30, 2014. At September 30, 2013, other real estate totaled $10.3 million. During the third quarter of 2014, the Company sold $5.3 million of other real estate, resulting in a pre-tax gain of $0.3 million.

Nonperforming assets as a percentage of total assets were 0.64% at September 30, 2014, compared to 0.85% at June 30, 2014 and 1.11% at September 30, 2013. Nonperforming assets as a percentage of total assets continue a downward trend to pre-recession levels.

The Company recorded net recoveries in the third quarter of 2014 of $0.3 million, compared to net charge-offs of $0.8 million, an annualized rate of 0.15% to average loans, in the linked second quarter. Net charge-offs were $0.4 million, an annualized rate of 0.07%, in the third quarter of 2013. For the nine months ended September 30, 2014 net charge-offs were $0.9 million, representing an annualized rate of 0.06%, as compared to $4.6 million, or 0.30% of average loans in the prior year period.

Provision for loan losses was $0.1 million in the third quarter of 2014 compared to $1.3 million in the second quarter of 2014 and a $0.7 million benefit in the third quarter of 2013. The continued low levels of provision resulted from strong credit metrics, including a continued trend of reduced loss rates in our quarterly loss migration analysis.

Deposits

Total deposits at September 30, 2014 were $2.5 billion, an increase of $44.3 million, or 2%, from June 30, 2014, and $61.8 million, or 3%, from September 30, 2013. The increase in deposits from the linked and prior year quarters was seen primarily in noninterest-bearing deposits and was primarily due to the increase in an individual deposit account from a significant customer transaction close to quarter end. The significant increase in interest-bearing transaction accounts and corresponding decrease in money market accounts is due to a product change during the year.

Noninterest-bearing deposits increased $20.5 million compared to June 30, 2014 and increased $76.2 million over September 30, 2013, although a portion of the September 30, 2014 non-interest bearing deposit balance increase represented a temporary increase from a significant customer transaction. Average noninterest-bearing deposits increased $42 million, or 7% compared to the linked quarter. The composition of noninterest-bearing deposits increased to 28% of total deposits at September 30, 2014, compared to 24% at September 30, 2013. The total cost of deposits has declined 2 basis points since September 30, 2013.

Wealth Management Segment

Fee income attributable to the Wealth Management segment includes Wealth Management revenue and income from state tax credit brokerage activities. In the third quarter of 2014, Wealth Management revenues were $1.8 million, flat when compared to the linked second quarter, and an increase of 3% from the prior year period.

Trust assets under management were $857 million at September 30, 2014, a decrease of $33 million when compared to the linked period ended June 30, 2014, and an increase of $68 million, or 9%, when compared to the prior year period ended September 30, 2013. The decrease in Trust assets under management as compared to the linked quarter was due to market depreciation. The increase over the prior year is due to market appreciation as well as the growth in new customers.

Trust assets under administration were $1.5 billion at September 30, 2014, a decrease of $37 million when compared to the linked period ended June 30, 2014, and a decrease of $268 million when compared to the prior year period ended September 30, 2013. The decrease in Trust assets under administration from the linked period was due to market depreciation during the quarter. The decrease as compared to the prior year resulted from the loss of large custody relationships in the fourth quarter of 2013.

Gains from state tax credit brokerage activities, net of fair value marks on tax credit assets and related interest rate derivatives, were $0.2 million for the third quarter of 2014, flat when compared to the linked second quarter and slightly below the $0.3 million recorded in the third quarter of 2013. Sales of state tax credits can vary by quarter, but generally occur in the first and fourth quarters of the year depending on client demand and availability of the tax credits.

Noninterest Expenses

Noninterest expenses were $21.1 million for the quarter ended September 30, 2014, compared to $20.4 million for the quarter ended June 30, 2014 and $21.0 million for the quarter ended September 30, 2013. Noninterest expenses have increased when compared to the linked quarter primarily due to increased FDIC clawback expense from continued lower loss rates on our PCI loans as well as severance costs from efficiency initiatives during the quarter. Noninterest expenses were relatively stable when compared to the prior year period as lower professional fees and loan, legal and other real estate expense from improved credit quality, were offset by additional FDIC clawback and severance expenses as previously described.

The Company's efficiency ratio was 66.2% for the quarter ended September 30, 2014, compared to 63.6% for the quarter ended June 30, 2014 and 57.9% for the prior year period.

The Company continuously examines its operations for opportunities to prudently reduce expenses and also deploy technology to boost productivity. The Company anticipates noninterest expenses to be between $19 million and $21 million per quarter for the foreseeable future.

Other Business Results

The tangible common equity ratio was 8.63% at September 30, 2014 versus 8.49% at June 30, 2014 and 7.85% at September 30, 2013. The total risk based capital ratio was 13.73% at September 30, 2014 compared to 13.63% at June 30, 2014 and 13.57% at September 30, 2013. The Company's Tier 1 common equity ratio was 10.39% at September 30, 2014 compared to 10.25% at June 30, 2014 and 9.86% at September 30, 2013. The tangible common equity ratio, total risk based capital ratio and Tier 1 common equity ratios increased as compared to the linked quarter and were up significantly from the prior year period. The significant increase in risk based capital, tangible common equity, and Tier 1 common equity as compared to the prior year quarter was due to an increase in capital from net income and the conversion of $25 million of trust preferred securities to equity. The Company believes that the tangible common equity and the Tier 1 common equity ratios provide useful information to investors about the Company's capital strength even though they are considered to be non-GAAP financial measures and are not part of the regulatory capital requirements to which the Company is subject. The attached tables contain a reconciliation of these ratios to U.S. GAAP financial measures.

During the third quarter of 2014, the Company recorded a $0.9 million closing fee associated with the payoff of a Commercial Real Estate loan. The closing fee is recorded in Other Noninterest Income.

The Company's effective tax rate was 34.9% for the quarter ended September 30, 2014 compared to 33.9% for the quarter ended June 30, 2014 and 35.9% for the prior year period. The tax rate has remained relatively consistent with the linked quarter and prior year period with fluctuations primarily due to changes in state tax rates.

Use of Non-GAAP Financial Measures

The Company's accounting and reporting policies conform to generally accepted accounting principles in the United States ("GAAP") and the prevailing practices in the banking industry. However, the Company provides other financial measures, such as Core net interest margin, tangible common equity ratio and Tier 1 common equity ratio, in this release that are considered "non-GAAP financial measures." Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.

The Company believes these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding the Company's performance and capital strength. The Company's management uses, and believes that investors benefit from referring to, these non-GAAP measures and ratios in assessing the Company's operating results and related trends and when forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP. In the tables below, the Company has provided a reconciliation of, where applicable, the most comparable GAAP financial measures and ratios to the non-GAAP financial measures and ratios, or a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.

The Company will host a conference call at 2:30 p.m. Central time on Thursday, October 23, 2014. During the call, management will review the third quarter 2014 results and related matters. The call will be accessible on Enterprise Financial Services Corp's home page, at www.enterprisebank.com under "Investor Relations" and by telephone at 1-888-430-8709 (Conference ID #3215905.) Recorded replays of the conference call will be available on the website beginning two hours after the call's completion. The replay will be available for approximately two weeks following the conference call.

Enterprise Financial Services Corp operates commercial banking and wealth management businesses in metropolitan St. Louis, Kansas City, and Phoenix. The Company is primarily focused on serving the needs of privately held businesses, their owner families, executives and professionals.

Readers should note that in addition to the historical information contained herein, this press release contains forward-looking statements, including but not limited to statements about the Company's plans, expectations and projections of future financial and operating results, which are inherently subject to risks and uncertainties that could cause actual results to differ materially from those contemplated from such statements. We use the words "expect" and "intend" and variations of such words and similar expressions in this communication to identify such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, credit risk, changes in the appraised valuation of real estate securing impaired loans, outcomes of litigation and other contingencies, exposure to general and local economic conditions, risks associated with rapid increases or decreases in prevailing interest rates, consolidation in the banking industry, competition from banks and other financial institutions, our ability to attract and retain relationship officers and other key personnel, burdens imposed by federal and state regulation, changes in regulatory requirements, changes in accounting regulation or standards applicable to banks, as well as other risk factors described in the Company's 2013 Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events unless required under the federal securities laws.

ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited)
For the Quarter ended For the Nine Months ended
Sep 30, June 30, March 31, Dec 31, Sep 30, Sep 30, Sep 30,
(in thousands, except per share data) 2014 2014 2014 2013 2013 2014 2013
INCOME STATEMENTS
NET INTEREST INCOME
Total interest income $ 31,036 $ 32,309 $ 34,024 $ 36,435 $ 36,883 $ 97,369 $ 116,854
Total interest expense 3,592 3,567 3,658 4,064 4,309 10,817 14,073
Net interest income 27,444 28,742 30,366 32,371 32,574 86,552 102,781
Provision for portfolio loans 66 1,348 1,027 2,452 (652) 2,441 (3,094)
Provision for purchase credit impaired loans (1,877) (470) 3,304 2,185 2,811 957 2,789
Net interest income after provision for loan losses 29,255 27,864 26,035 27,734 30,415 83,154 103,086
NONINTEREST INCOME
Wealth Management revenue 1,754 1,715 1,722 1,699 1,698 5,191 5,419
Deposit service charges 1,812 1,767 1,738 1,800 1,768 5,317 5,025
Gain on sale of other real estate 114 717 683 1,801 472 1,514 1,562
State tax credit activity, net 156 207 497 1,289 308 860 1,214
Gain on sale of investment securities -- -- -- -- 611 -- 1,295
Change in FDIC loss share receivable (2,374) (2,742) (2,410) (4,526) (2,849) (7,526) (13,647)
Other income 2,990 1,741 1,692 2,883 1,708 6,423 4,085
Total noninterest income 4,452 3,405 3,922 4,946 3,716 11,779 4,953
NONINTEREST EXPENSE
Employee compensation and benefits 11,913 11,853 12,116 14,272 10,777 35,882 33,006
Occupancy 1,683 1,675 1,640 1,979 1,689 4,998 5,298
FDIC clawback 1,028 143 -111 136 62 1,060 815
FHLB prepayment penalty -- -- -- 2,590 -- -- --
Other* 6,497 6,774 7,457 9,222 8,480 20,728 23,320
Total noninterest expenses* 21,121 20,445 21,102 28,199 21,008 62,668 62,439
Income before income tax expense* 12,586 10,824 8,855 4,481 13,123 32,265 45,600
Income tax expense* 4,388 3,664 3,007 860 4,713 11,059 16,117
Net income $ 8,198 $ 7,160 $ 5,848 $ 3,621 $ 8,410 $ 21,206 $ 29,483
Basic earnings per share $0.41 $0.36 $0.30 $0.19 $0.45 $1.07 $1.61
Diluted earnings per share $0.41 $0.36 $0.30 $0.18 $0.44 $1.07 $1.55
Return on average assets 1.02% 0.92% 0.77% 0.46% 1.09% 0.91% 1.26%
Return on average common equity 10.62% 9.65% 8.26% 5.07% 12.70% 9.54% 15.70%
Efficiency ratio* 66.22% 63.60% 61.54% 75.57% 57.89% 63.73% 57.89%
Noninterest expenses to average assets* 2.63% 2.62% 2.77% 3.56% 2.73% 2.68% 2.67%
YIELDS (fully tax equivalent)
Portfolio loans 4.22% 4.23% 4.36% 4.59% 4.56% 4.27% 4.69%
Purchase credit impaired loans 14.67% 20.84% 26.09% 25.66% 26.31% 20.78% 28.10%
Total loans 4.73% 5.11% 5.64% 5.97% 6.13% 5.15% 6.50%
Securities 2.31% 2.32% 2.45% 2.32% 2.23% 2.36% 2.04%
Interest-earning assets 4.24% 4.53% 4.91% 5.11% 5.32% 4.55% 5.51%
Interest-bearing deposits 0.58% 0.58% 0.58% 0.57% 0.59% 0.58% 0.62%
Total deposits 0.42% 0.43% 0.44% 0.42% 0.44% 0.43% 0.46%
Subordinated debentures 2.14% 2.14% 2.69% 2.78% 3.70% 2.33% 4.26%
Borrowed funds 0.76% 0.77% 0.97% 1.36% 1.23% 0.82% 1.20%
Cost of paying liabilities 0.64% 0.65% 0.68% 0.73% 0.79% 0.66% 0.84%
Net interest margin 3.75% 4.04% 4.39% 4.55% 4.71% 4.05% 4.85%
* Results and corresponding ratios for the quarter and nine month periods ended September 30, 2013 have been reclassified to reflect the adoption of ASU 2014-1 "Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects."
ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
For the Quarter ended
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
(in thousands) 2014 2014 2014 2013 2013
BALANCE SHEETS
ASSETS
Cash and due from banks $ 54,113 $ 32,993 $ 35,260 $ 19,573 $ 35,238
Interest-earning deposits 74,999 94,736 107,691 196,296 71,302
Debt and equity investments 471,875 464,159 471,003 447,192 468,531
Loans held for sale 4,899 5,375 1,901 1,834 12,967
Portfolio loans 2,294,905 2,251,102 2,173,988 2,137,313 2,110,825
Less: Allowance for loan losses 28,800 28,422 27,905 27,289 26,599
Portfolio loans, net 2,266,105 2,222,680 2,146,083 2,110,024 2,084,226
Purchase credit impaired loans, net of the allowance for loan losses 98,318 100,965 110,159 125,100 145,180
Total loans, net 2,364,423 2,323,645 2,256,242 2,235,124 2,229,406
Other real estate not covered under FDIC loss share 2,261 7,613 10,001 7,576 10,278
Other real estate covered under FDIC loss share 8,826 12,821 14,898 15,676 17,847
Fixed assets, net 18,054 17,930 18,028 18,180 19,048
State tax credits, held for sale 45,631 45,529 45,660 48,457 55,810
FDIC loss share receivable 22,039 25,508 29,781 34,319 40,054
Goodwill 30,334 30,334 30,334 30,334 30,334
Intangible assets, net 4,453 4,767 5,092 5,418 6,136
Other assets 107,683 110,031 114,060 110,218 111,111
Total assets $ 3,209,590 $ 3,175,441 $ 3,139,951 $ 3,170,197 $ 3,108,062
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $ 695,804 $ 675,301 $ 612,715 $ 653,686 $ 619,562
Interest-bearing deposits 1,813,960 1,790,149 1,839,403 1,881,267 1,828,355
Total deposits 2,509,764 2,465,450 2,452,118 2,534,953 2,447,917
Subordinated debentures 56,807 56,807 56,807 62,581 63,081
Federal Home Loan Bank advances 120,000 153,600 130,000 50,000 120,000
Other borrowings 187,122 172,243 190,318 214,331 178,165
Other liabilities 27,143 25,777 19,259 28,627 21,159
Total liabilities 2,900,836 2,873,877 2,848,502 2,890,492 2,830,322
Shareholders' equity 308,754 301,564 291,449 279,705 277,740
Total liabilities and shareholders' equity $ 3,209,590 $ 3,175,441 $ 3,139,951 $ 3,170,197 $ 3,108,062
ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
For the Quarter ended
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
(in thousands, except per share data) 2014 2014 2014 2013 2013
EARNINGS SUMMARY
Net interest income $ 27,444 $ 28,742 $ 30,366 $ 32,371 $ 32,574
Provision for loan losses - portfolio loans 66 1,348 1,027 2,452 (652)
Provision for loan losses - purchase credit impaired loans (1,877) (470) 3,304 2,185 2,811
Wealth Management revenue 1,754 1,715 1,722 1,699 1,698
Noninterest income 2,698 1,690 2,200 3,247 2,018
Noninterest expense1 21,121 20,445 21,102 28,199 21,008
Net income 8,198 7,160 5,848 3,621 8,410
Diluted earnings per share $0.41 $0.36 $0.30 $0.18 $0.44
Return on average common equity 10.62% 9.65% 8.26% 5.07% 12.70%
Net interest rate margin (fully tax equivalent) 3.75% 4.04% 4.39% 4.55% 4.71%
Efficiency ratio1 66.22% 63.60% 61.54% 75.57% 57.89%
Core Bank income before income tax expense1 10,921 7,840 6,913 3,508 10,422
Covered assets income before income tax expense 1,665 2,984 1,942 973 2,701
Income before income tax expense1 12,586 10,824 8,855 4,481 13,123
MARKET DATA
Book value per common share $15.61 $15.26 $14.79 $14.47 $14.41
Tangible book value per common share $13.85 $13.48 $12.99 $12.62 $12.52
Market value per share $16.72 $18.06 $20.07 $20.42 $16.90
Period end common shares outstanding 19,785 19,765 19,706 19,324 19,276
Average basic common shares 19,838 19,824 19,521 19,388 18,779
Average diluted common shares 19,980 19,963 19,949 19,629 19,830
ASSET QUALITY
Net charge-offs $ (311) $ 831 $ 411 $ 1,763 $ 368
Nonperforming loans 18,212 19,287 15,508 20,840 24,168
Classified Assets 83,816 85,445 80,108 86,020 96,388
Nonperforming loans to total loans 0.79% 0.86% 0.71% 0.98% 1.14%
Nonperforming assets to total assets2 0.64% 0.85% 0.81% 0.90% 1.11%
Allowance for loan losses to total loans 1.25% 1.26% 1.28% 1.28% 1.26%
Net charge-offs to average loans (annualized) -0.05% 0.15% 0.08% 0.33% 0.07%
CAPITAL
Tier 1 capital to risk-weighted assets 12.48% 12.38% 12.39% 12.52% 12.29%
Total capital to risk-weighted assets 13.73% 13.63% 13.65% 13.78% 13.57%
Tier 1 common equity to risk-weighted assets 10.39% 10.25% 10.22% 10.08% 9.86%
Tangible common equity to tangible assets 8.63% 8.49% 8.25% 7.78% 7.85%
AVERAGE BALANCES
Portfolio loans $ 2,280,377 $ 2,225,670 $ 2,143,449 $ 2,120,929 $ 2,076,681
Purchase credit impaired loans 115,709 123,476 134,466 149,559 162,569
Loans held for sale 5,400 3,735 1,978 8,233 6,737
Interest earning assets 2,943,070 2,895,982 2,848,514 2,880,991 2,789,313
Total assets 3,180,359 3,126,511 3,084,720 3,139,789 3,051,559
Deposits 2,437,444 2,411,217 2,466,260 2,493,819 2,380,507
Shareholders' equity 306,307 297,615 287,181 283,154 262,791
1 Results and corresponding ratios for the quarter ended September 30, 2013 has been reclassified to reflect the adoption of ASU 2014-1 "Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects."
2 Excludes ORE covered by FDIC shared-loss arrangements, except for inclusion in total assets.
ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
For the Quarter ended
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
(in thousands) 2014 2014 2014 2013 2013
LOAN PORTFOLIO
Commercial and industrial $ 1,172,015 $ 1,135,069 $ 1,060,368 $ 1,041,576 $ 1,007,398
Commercial real estate 758,515 755,471 784,077 779,319 801,755
Construction real estate 123,888 137,043 121,869 117,032 114,608
Residential real estate 187,594 173,964 160,195 158,527 150,320
Consumer and other 52,893 49,555 47,479 40,859 36,744
Total portfolio loans 2,294,905 2,251,102 2,173,988 2,137,313 2,110,825
Purchase credit impaired loans 113,862 118,504 128,672 140,538 158,812
Total loans $ 2,408,767 $ 2,369,606 $ 2,302,660 $ 2,277,851 $ 2,269,637
DEPOSIT PORTFOLIO
Noninterest-bearing accounts $ 695,804 $ 675,301 $ 612,715 $ 653,686 $ 619,562
Interest-bearing transaction accounts 438,205 235,142 221,816 219,802 213,708
Money market and savings accounts 817,361 956,887 1,004,836 1,028,550 992,004
Certificates of deposit 558,394 598,120 612,751 632,915 622,643
Total deposit portfolio $ 2,509,764 $ 2,465,450 $ 2,452,118 $ 2,534,953 $ 2,447,917
YIELDS (fully tax equivalent)
Portfolio loans 4.22% 4.23% 4.36% 4.59% 4.56%
Purchase credit impaired loans 14.67% 20.84% 26.09% 25.66% 26.31%
Total portfolio loans 4.73% 5.11% 5.64% 5.97% 6.13%
Securities 2.31% 2.32% 2.45% 2.32% 2.23%
Interest-earning assets 4.24% 4.53% 4.91% 5.11% 5.32%
Interest-bearing deposits 0.58% 0.58% 0.58% 0.57% 0.59%
Total deposits 0.42% 0.43% 0.44% 0.42% 0.44%
Subordinated debentures 2.14% 2.14% 2.69% 2.78% 3.70%
Borrowed funds 0.76% 0.77% 0.97% 1.36% 1.23%
Cost of paying liabilities 0.64% 0.65% 0.68% 0.73% 0.79%
Net interest margin 3.75% 4.04% 4.39% 4.55% 4.71%
WEALTH MANAGEMENT
Trust Assets under management $ 857,071 $ 890,430 $ 881,047 $ 829,500 $ 789,524
Trust Assets under administration 1,462,830 1,500,033 1,481,913 1,438,213 1,730,847
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
At the Quarter ended
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
(In thousands) 2014 2014 2014 2013 2013
TIER 1 COMMON EQUITY TO RISK-WEIGHTED ASSETS
Shareholders' equity $ 308,754 $ 301,564 $ 291,449 $ 279,705 $ 277,740
Less: Goodwill (30,334) (30,334) (30,334) (30,334) (30,334)
Less: Intangible assets (4,453) (4,767) (5,092) (5,418) (6,136)
Plus (Less): Unrealized losses (unrealized gains) 233 (579) 2,623 4,380 1,981
Plus: Qualifying trust preferred securities 55,100 55,100 55,100 60,100 60,100
Other 56 56 55 57 55
Tier 1 capital 329,356 321,040 313,801 308,490 303,406
Less: Qualifying trust preferred securities (55,100) (55,100) (55,100) (60,100) (60,100)
Tier 1 common equity $ 274,256 $ 265,940 $ 258,701 $ 248,390 $ 243,306
Total risk-weighted assets $ 2,639,339 $ 2,594,016 $ 2,531,899 $ 2,463,605 $ 2,468,525
Tier 1 common equity to risk-weighted assets 10.39% 10.25% 10.22% 10.08% 9.86%
SHAREHOLDERS' EQUITY TO TANGIBLE COMMON EQUITY AND TOTAL ASSETS TO TANGIBLE ASSETS
Shareholders' equity $ 308,754 $ 301,564 $ 291,449 $ 279,705 $ 277,740
Less: Goodwill (30,334) (30,334) (30,334) (30,334) (30,334)
Less: Intangible assets (4,453) (4,767) (5,092) (5,418) (6,136)
Tangible common equity $ 273,967 $ 266,463 $ 256,023 $ 243,953 $ 241,270
Total assets $ 3,209,590 $ 3,175,441 $ 3,139,951 $ 3,170,197 $ 3,108,062
Less: Goodwill (30,334) (30,334) (30,334) (30,334) (30,334)
Less: Intangible assets (4,453) (4,767) (5,092) (5,418) (6,136)
Tangible assets $ 3,174,801 $ 3,140,340 $ 3,104,525 $ 3,134,445 $ 3,071,592
Tangible common equity to tangible assets 8.63% 8.49% 8.25% 7.78% 7.85%
At the Quarter ended
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2014 2014 2014 2013 2013
NET INTEREST MARGIN TO CORE NET INTEREST MARGIN
Net interest income (fully tax equivalent) $ 27,843 $ 29,133 $ 30,803 $ 33,011 $ 33,101
Less: Incremental accretion income (2,579) (4,539) (6,664) (7,315) (8,178)
Core net interest income $ 25,264 $ 24,594 $ 24,139 $ 25,696 $ 24,923
Average earning assets $ 2,943,070 $ 2,895,982 $ 2,848,514 $ 2,880,991 $ 2,789,314
Reported net interest margin 3.75% 4.04% 4.39% 4.55% 4.71%
Core net interest margin 3.41% 3.41% 3.44% 3.54% 3.54%

CONTACT: Jerry Mueller, Senior Vice President (314) 512-7251 Ann Marie Mayuga, AMM Communications (314) 485-9499Source: Enterprise Financial