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Enterprise Financial Reports Second Quarter 2017 Results

Reported Second Quarter Highlights

  • Net income of $0.50 per diluted share
  • Return on average assets of 0.96%
  • Completed systems conversion of Jefferson County Bancshares, Inc. ("JCB")

Second Quarter Core Highlights1

  • Net income of $0.56 per diluted share
  • Return on average assets of 1.06%
  • Net interest margin expanded 13 basis points to 3.76%
  • Efficiency ratio decreased to 54.5%

ST. LOUIS, July 24, 2017 (GLOBE NEWSWIRE) -- Enterprise Financial Services Corp (NASDAQ:EFSC) (the “Company”) reported net income of $12.0 million for the quarter ended June 30, 2017, a decrease of $0.4 million, or 4% and 3%, as compared to the linked first quarter and prior year quarter, respectively. Net income per diluted share was $0.50 for the quarter ended June 30, 2017, a decrease of $0.06 and $0.11, compared to $0.56 and $0.61 per diluted share for the linked first quarter and prior year period, respectively. The decrease primarily resulted from merger related expenses from the acquisition of JCB along with an increase in provision for loan losses.

On a core basis1, the Company reported net income of $13.2 million, or $0.56 per diluted share, for the quarter ended June 30, 2017, compared to $13.1 million, or $0.59 per diluted share, in the linked first quarter. Second quarter 2017 core net income increased 33% from $9.9 million for the prior year period, and diluted core earnings per share grew 14% from $0.49 for the prior year period. The diluted earnings per share increase of $0.07 was primarily due to higher levels of core net interest income from continued growth in earning asset balances combined with 24 basis points of core net interest margin expansion. The earnings per share contribution from this growth was partially offset by a higher provision for portfolio loan losses. The Company recorded a provision for portfolio loan losses of $3.6 million in the second quarter, primarily resulting from a chargeoff on a single C&I relationship. Additionally, the acquisition of JCB contributed to the growth of both linked-quarter and year-over-year core net income.

The Company's Board of Directors approved the Company’s quarterly dividend of $0.11 per common share, payable on September 29, 2017 to shareholders of record as of September 15, 2017.

Jim Lally, EFSC’s President and Chief Executive Officer, commented, "The second quarter was highlighted by 42% growth in our core net interest income over the prior year, as well as core net interest margin expansion. Core return on average assets was 1.06% for the second quarter and stands at 1.11% for the first half of the year. Additionally, the successful conversion of Jefferson County Bancshares’ systems during the quarter demonstrates the talent of our associates, and in my view, this has been an outstanding acquisition and integration."

Lally added, "We have seen continued growth from our Specialty Lending, Kansas City, and Arizona markets, and despite continued competitive pressures in St. Louis, we are comfortable with our ability to leverage our market position to achieve our stated growth objectives. Our performance year-to-date highlights both the importance of our diversified business model and also the strength we have built in our core earnings in recent years."

Net Interest Income

Net interest income in the second quarter increased $7.0 million from the linked first quarter, and $11.9 million from the prior year period due to a full quarter impact of the acquisition of JCB, strong growth in portfolio loan balances funded principally with core deposits and an increase in core net interest margin discussed below. Net interest margin, on a fully tax equivalent basis, was 3.98% for the second quarter, compared to 3.73% in the linked first quarter, and 3.93% in the second quarter of 2016. Net interest margin increased primarily from the impact of higher interest rates on our asset sensitive balance sheet.

The yield on Portfolio loans improved to 4.63% in the second quarter, an increase of 18 basis points from the linked first quarter, and 43 basis points from the prior year quarter. The increase was primarily due to the effect of increasing interest rates on our variable rate loan portfolio. The cost of total deposits was limited to a two basis point increase in the linked quarter and a five basis point increase from the prior year quarter. The cost of interest-bearing liabilities increased four basis points to 0.69% in the second quarter of 2017 from 0.65% in the linked first quarter, and is 19 basis points higher than 0.50% in the second quarter of 2016. The increases were due to the issuance of $50 million of subordinated debt issued November 1, 2016, the acquisition of JCB, and the impact of rising interest rates on the Company's borrowed funds.

Core net interest margin1, (fully tax equivalent), excludes incremental accretion on non-core acquired loans. See the table below for a quarterly comparison.

For the Quarter ended
($ in thousands)June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
June 30,
2016
Core net interest income1 43,049 37,567 32,175 31,534 30,212
Core net interest margin13.76% 3.63% 3.44% 3.54% 3.52%

Core net interest income1 increased by $5.5 million to $43.0 million, or 15% compared to the linked quarter, and increased $12.8 million, or 42%, compared to the prior year period due to strong portfolio loan growth funded by core deposits and from the acquisition of JCB. Core net interest margin1 increased 13 basis points to 3.76% from the linked quarter primarily from the aforementioned increase in portfolio loan yield as well as controlled deposit costs. Core net interest margin expanded 24 basis points from the prior year quarter, primarily due to loan growth improving the earning asset mix, combined with increased yield on portfolio loans out-pacing the increase to borrowing costs. Core net interest margin also increased modestly compared to both periods as a result of JCB purchase accounting adjustments. The Company continues to manage its balance sheet to grow core net interest income and expects to maintain core net interest margin over the coming quarters; however, pressure on funding costs could negate the expected trends in core net interest margin.

Portfolio Loans

Note: Non-core acquired loans were those acquired from the FDIC and were previously covered by shared-loss agreements. These loans continue to be accounted for as purchased credit impaired loans. Approximately $48 million of loans in JCB's portfolio are also accounted for as purchased credit impaired loans. However, all loans acquired from JCB are included in portfolio loans.

The following table presents Portfolio loans with selected specialized lending detail for the most recent five quarters:

At the Quarter ended
March 31, 2017
($ in thousands)June 30,
2017
JCB Legacy
Enterprise
Consolidated Dec 31,
2016
Sept 30,
2016
June 30,
2016
Enterprise value lending$433,766 $ $429,957 $429,957 $388,798 $394,923 $353,915
C&I - general894,787 79,021 810,781 889,802 794,451 755,829 737,904
Life insurance premium financing317,848 312,335 312,335 305,779 298,845 295,643
Tax credits149,941 141,770 141,770 143,686 149,218 152,995
CRE, construction, and land development 1,563,131 465,736 1,074,908 1,540,644 1,089,498 1,044,827 971,130
Residential real estate348,678 121,232 239,080 360,312 240,760 233,960 211,155
Consumer and other150,812 12,420 165,732 178,152 155,420 160,103 161,167
Portfolio loans$ 3,858,963 $ 678,409 $ 3,174,563 $ 3,852,972 $ 3,118,392 $ 3,037,705 $ 2,883,909
Portfolio loan yield4.63% 4.45% 4.24% 4.25% 4.20%

Portfolio loans were $3.9 billion at June 30, 2017, increasing $6 million when compared to the linked quarter. On a year over year basis, portfolio loans increased $975 million, of which $297 million was organic loan growth and $678 million was from the acquisition of JCB, principally in the CRE, construction, and land development, and residential real estate categories. The Company expects continued loan growth, excluding the acquisition of JCB, at or above 10% for 2017.

The Company continues to focus on originating high-quality Commercial and Industrial ("C&I") relationships, as they typically have variable interest rates and allow for cross selling opportunities involving other banking products. C&I loans increased $22 million during the second quarter of 2017 from the linked first quarter and represented 47% of the Company's loan portfolio at June 30, 2017.

Since June 30, 2016, C&I loans have grown organically by $177 million, or 11%. C&I loan growth supports management's efforts to maintain the Company's asset sensitive interest rate risk position. At June 30, 2017, 57% of Portfolio loans had variable interest rates, as compared to 56% at March 31, 2017 and 64% at June 30, 2016. The change to prior year is due to the acquisition of JCB; however, the Company remains modestly asset sensitive to interest rate increases.

Non-Core Acquired Loans

Non-core acquired loans totaled $35.8 million at June 30, 2017, a decrease of $2.3 million, or 24% on an annualized basis, from the linked first quarter, and $20.7 million, or 37%, from the prior year period, primarily as a result of principal payments and loan payoffs.

Non-core acquired loans contributed $1.7 million of net earnings in the second quarter of 2017, compared to $0.7 million in the linked first quarter. At June 30, 2017, the remaining accretable yield on the portfolio was estimated to be $12 million and the non-accretable difference was approximately $16 million. Accelerated cash flows and other incremental accretion from Purchase Credit Impaired ("PCI") loans was $2.6 million for the quarter ended June 30, 2017, $1.1 million for the linked quarter, and $3.6 million for the prior year quarter. The Company estimates 2017 income from accelerated cash flows and other incremental accretion to be between $6 million and $8 million.

Asset Quality: The following table presents the categories of nonperforming assets and related ratios for the most recent five quarters:

For the Quarter ended
($ in thousands)June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
June 30,
2016
Nonperforming loans$13,081 $13,847 $14,905 $19,942 $12,813
Other real estate529 2,925 980 2,959 4,901
Nonperforming assets$ 13,610 $ 16,772 $15,885 $22,901 $ 17,714
Nonperforming loans to portfolio loans0.34% 0.36% 0.48% 0.66% 0.44%
Nonperforming assets to total assets0.27% 0.33% 0.39% 0.59% 0.47%
Allowance for portfolio loan losses to portfolio loans 0.96% 1.03% 1.20% 1.23% 1.23%
Net charge-offs (recoveries)$6,104 $(56) $897 $1,038 $(409)

At June 30, 2017, nonperforming loans were 0.34% of Portfolio loans, and nonperforming assets were 0.27% of total assets. Nonperforming loans decreased 6% to $13.1 million at June 30, 2017, from $13.8 million at March 31, 2017, and increased 2% from $12.8 million at June 30, 2016. Other real estate balances decreased $2.4 million due to the sale of multiple properties. During the quarter ended June 30, 2017, non-performing loan activity included 14 new relationships representing $6.1 million, $0.3 million in advances, and $0.9 million of other principal reductions. Additionally, there was a $5.6 million charge off on a single relationship.

The Company recorded provision for portfolio loan losses of $3.6 million compared to $1.5 million in the linked quarter and $0.7 million in the prior year period. The provision is reflective of the previously mentioned chargeoff and reserve increase on a single nonperforming relationship, growth in the portfolio, and maintaining a prudent credit risk posture. The allowance for portfolio loan losses to portfolio loans was 0.96% at June 30, 2017, or 1.14% on a proforma basis excluding the acquisition of JCB.

Deposits
The following table presents deposits broken out by type:

At the Quarter ended
March 31, 2017
($ in thousands)June 30,
2017
JCB Legacy
Enterprise
Consolidated June 30,
2016
Noninterest-bearing accounts1,019,064 168,775 868,226 1,037,001 753,173
Interest-bearing transaction accounts803,104 96,207 748,568 844,775 628,505
Money market and savings accounts1,506,001 371,000 1,172,737 1,543,737 1,124,528
Brokered certificates of deposit133,606 145,436 145,436 166,507
Other certificates of deposit459,476 138,012 322,659 460,671 355,523
Total deposit portfolio$3,921,251 $773,994 $3,257,626 $4,031,620 $3,028,236

Total deposits at June 30, 2017 were $3.9 billion, a decrease of $110 million, or 3% from March 31, 2017, and an increase of $0.9 billion, or 29%, from June 30, 2016. Of the increase, $774 million is attributed to the acquisition of JCB. Core deposits, defined as total deposits excluding time deposits, were $3.3 billion at June 30, 2017, a decrease of $97.3 million, or 3% from the linked quarter, and an increase of $822 million, or 33%, when compared to the prior year period. The overall positive trends from the prior year in deposits reflect continued progress across our business lines, expected seasonality, and the acquisition of JCB. The decrease in the current quarter was primarily due to several large clients deploying portions of their excess liquidity as well as seasonal declines across all regions.

Noninterest-bearing deposits decreased $18 million compared to March 31, 2017, and increased $266 million compared to June 30, 2016. The composition of noninterest-bearing deposits remained relatively stable at 26% of total deposits at June 30, 2017, compared to March 31, 2017 and June 30, 2016. The total cost of deposits expanded two basis points to 0.41% compared to 0.39% at March 31, 2017, and increased five basis points since June 30, 2016.

Noninterest Income

Total noninterest income was $7.9 million for the quarter ended June 30, 2017. Deposit service charges for the second quarter of 2017 of $2.8 million grew 12% when compared to the linked quarter, and grew 29% when compared to the prior year quarter, due primarily to the acquisition of JCB and growth in client base. Wealth management revenues for the second quarter of 2017 of $2.1 million grew 12% when compared to the linked first quarter, and a 25% increase when compared to the prior year period, also due to the JCB acquisition and addition of new clients.

Trust assets under management were $1.3 billion at June 30, 2017, an increase of $50 million, or 4%, when compared to March 31, 2017, and an increase of $383 million, or 43%, when compared to the prior year period. The increase from the linked quarter was primarily due to market appreciation and new customers.

Other noninterest income increased 27% to $3.0 million compared to the linked quarter, and increased 29% from the prior year period. The increase from the linked and prior year quarter was primarily due to fees earned from card products and swap fee income.

Noninterest Expenses

Noninterest expenses were $32.7 million for the quarter ended June 30, 2017, compared to $26.7 million for the quarter ended March 31, 2017, and $21.4 million for the quarter ended June 30, 2016. Noninterest expenses for the quarter included $4.5 million of merger related expenses compared to $1.7 million in the linked first quarter. Core noninterest expenses1 were $27.8 million for the quarter ended June 30, 2017, compared to $24.9 million for the linked quarter, and $20.4 million for the prior year period. The increase from the linked quarter was primarily due to adding a full quarter of the expense base of JCB.

The Company's Core efficiency ratio1 decreased to 54.5% for the quarter ended June 30, 2017, compared to 56.0% for the linked quarter, and 56.3% for the prior year period, and reflects continuing efforts to leverage its expense base. The conversion of JCB's core systems was completed late in the second quarter. As a result of eliminating the duplicate systems, the Company expects to achieve additional cost savings from the JCB transaction throughout 2017. The Company anticipates core expenses, which exclude merger related costs, to be between $25 and $28 million per quarter for the rest of 2017.

Income Taxes

The Company's effective tax rate was 31.7% for the quarter ended June 30, 2017 compared to 29.2% for the quarter ended March 31, 2017, and 35.3% for the quarter ended June 30, 2016. The increase in the quarter resulted primarily from lower excess tax benefits from equity compensation awards due to a new accounting standard adopted this year. Under the new accounting standard, such benefits are recorded discretely within income tax expense rather than directly to shareholders' equity.

Capital

The total risk based capital ratio1 was 12.83% at June 30, 2017, compared to 12.76% at March 31, 2017, and 12.16% at June 30, 2016. The Company's Common equity tier 1 capital ratio1 was 9.33% at June 30, 2017, compared to 9.20% at March 31, 2017, and 9.38% at June 30, 2016. The tangible common equity ratio1 was 8.56% at June 30, 2017, versus 8.28% at March 31, 2017, and 9.08% at June 30, 2016.

Capital ratios for the current quarter are based on the Basel III regulatory capital framework as applied to the Company’s current businesses and operations, and are subject to, among other things, completion and filing of the Company’s regulatory reports and ongoing regulatory review and implementation guidance. The attached tables contain a reconciliation of these ratios to U.S. GAAP financial measures.

Use of Non-GAAP Financial Measures1

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 income and net interest margin, and other Core performance measures, regulatory capital ratios, and the tangible 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 considers its Core performance measures presented in this earnings release and the included tables as important measures of financial performance, even though they are non-GAAP measures, as they provide supplemental information by which to evaluate the impact of non-core acquired loans and related income and expenses, the impact of certain non-comparable items, and the Company's operating performance on an ongoing basis. Core performance measures include contractual interest on non-core acquired loans, but exclude incremental accretion on these loans. Core performance measures also exclude the gain or loss on sale of other real estate from non-core acquired loans, and expenses directly related to non-core acquired loans and other assets formerly covered under FDIC loss share agreements. Core performance measures also exclude certain other income and expense items, such as executive separation costs, merger related expenses, facilities charges, and the gain or loss on sale of investment securities, the Company believes to be not indicative of or useful to measure the Company's operating performance on an ongoing basis. The attached tables contain a reconciliation of these Core performance measures to the GAAP measures. The Company believes that the tangible common equity ratio provides useful information to investors about the Company's capital strength even though it is considered to be a non-GAAP financial measure and is not part of the regulatory capital requirements to which the Company is subject.

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 attached tables, 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 and webcast at 2:30 p.m. Central time on Tuesday, July 25, 2017. During the call, management will review the second quarter of 2017 results and related matters. This press release as well as a related slide presentation will be accessible on the Company's website at www.enterprisebank.com under “Investor Relations” beginning prior to the scheduled broadcast of the conference call. The call can be accessed via this same website page, or via telephone at 1-888-428-9505 (Conference ID #4746699.) A recorded replay of the conference call will be available on the website two hours after the call's completion. Visit http://bit.ly/EFSC2QEarnings and register to receive a dial in number, passcode, and pin number. 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.

Forward-looking Statements

Readers should note that, in addition to the historical information contained herein, this press release contains "forward-looking statements" within the meaning of, and intended to be covered by, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements about the Company's plans, expectations, and projections of future financial and operating results, as well as statements regarding the Company's plans, objectives, expectations or consequences of announced transactions. The Company uses words such as "may," "might," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "could," "continue," "anticipate," and “intend”, and variations of such words and similar expressions, in this communication to identify such forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those contemplated from such statements. Factors that could cause or contribute to such differences include, but are not limited to, the Company's ability to efficiently integrate acquisitions into its operations, retain the customers of these businesses and grow the acquired operations, as well as 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, the Company's 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 2016 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.

1 A non-GAAP measure. Refer to discussion & reconciliation of these measures in the accompanying financial tables.

ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited)
For the Quarter ended For the Six Months ended
($ in thousands, except per share data)Jun 30,
2017
Mar 31,
2017
Dec 31,
2016
Sep 30,
2016
Jun 30,
2016
Jun 30,
2017
Jun 30,
2016
EARNINGS SUMMARY
Net interest income$45,633 $38,642 $35,454 $33,830 $33,783 $84,275 $66,211
Provision for portfolio loan losses3,623 1,533 964 3,038 716 5,156 1,549
Provision reversal for purchased credit impaired loan losses (207) (148) (343) (1,194) (336) (355) (409)
Noninterest income7,934 6,976 9,029 6,976 7,049 14,910 13,054
Noninterest expense32,651 26,736 23,181 20,814 21,353 59,387 42,115
Income before income tax expense17,500 17,497 20,681 18,148 19,099 34,997 36,010
Income tax expense5,545 5,106 7,053 6,316 6,747 10,651 12,633
Net income$11,955 $12,391 $13,628 $11,832 $12,352 $24,346 $23,377
Diluted earnings per share$0.50 $0.56 $0.67 $0.59 $0.61 $1.06 $1.16
Return on average assets0.96% 1.10% 1.36% 1.23% 1.33% 1.02% 1.27%
Return on average common equity8.78% 10.65% 14.04% 12.46% 13.57% 9.64% 13.02%
Return on average tangible common equity11.49% 12.96% 15.33% 13.64% 14.91% 12.20% 14.34%
Net interest margin (fully tax equivalent)3.98% 3.73% 3.79% 3.80% 3.93% 3.86% 3.90%
Efficiency ratio60.95% 58.61% 52.11% 51.01% 52.29% 59.87% 53.13%
CORE PERFORMANCE SUMMARY (NON-GAAP)1
Net interest income$43,049 $37,567 $32,175 $31,534 $30,212 $80,616 $59,806
Provision for portfolio loan losses3,623 1,533 964 3,038 716 5,156 1,549
Noninterest income7,934 6,976 7,849 6,828 6,105 14,910 12,110
Noninterest expense27,798 24,946 21,094 20,242 20,446 52,744 40,881
Income before income tax expense19,562 18,064 17,966 15,082 15,155 37,626 29,486
Income tax expense6,329 4,916 6,021 5,142 5,237 11,245 10,134
Net income$13,233 $13,148 $11,945 $9,940 $9,918 $26,381 $19,352
Diluted earnings per share$0.56 $0.59 $0.59 $0.49 $0.49 $1.15 $0.96
Return on average assets1.06% 1.17% 1.19% 1.04% 1.07% 1.11% 1.06%
Return on average common equity9.72% 11.29% 12.31% 10.47% 10.89% 10.44% 10.78%
Return on average tangible common equity12.72% 13.75% 13.44% 11.46% 11.98% 13.22% 11.87%
Net interest margin (fully tax equivalent)3.76% 3.63% 3.44% 3.54% 3.52% 3.70% 3.53%
Efficiency ratio54.52% 56.01% 52.70% 52.77% 56.30% 55.21% 56.85%
1 Refer to Reconciliations of Non-GAAP Financial Measures table for a reconciliation of these measures to GAAP.


ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
For the Quarter ended For the Six Months ended
($ in thousands, except per share data)Jun 30,
2017
Mar 31,
2017
Dec 31,
2016
Sep 30,
2016
Jun 30,
2016
Jun 30,
2017
Jun 30,
2016
INCOME STATEMENTS
NET INTEREST INCOME
Total interest income$51,542 $43,740 $39,438 $37,293 $37,033 $95,282 $72,493
Total interest expense5,909 5,098 3,984 3,463 3,250 11,007 6,282
Net interest income45,633 38,642 35,454 33,830 33,783 84,275 66,211
Provision for portfolio loan losses3,623 1,533 964 3,038 716 5,156 1,549
Provision reversal for purchased credit impaired loans (207) (148) (343) (1,194) (336) (355) (409)
Net interest income after provision for loan losses42,217 37,257 34,833 31,986 33,403 79,474 65,071
NONINTEREST INCOME
Deposit service charges2,816 2,510 2,184 2,200 2,188 5,326 4,231
Wealth management revenue2,054 1,833 1,729 1,694 1,644 3,887 3,306
State tax credit activity, net9 246 1,748 228 153 255 671
Gain (loss) on sale of other real estate17 1,235 (226) 706 17 828
Gain on sale of investment securities 86
Other income3,038 2,387 2,133 2,994 2,358 5,425 4,018
Total noninterest income7,934 6,976 9,029 6,976 7,049 14,910 13,054
NONINTEREST EXPENSE
Employee compensation and benefits15,798 15,208 12,448 12,091 12,660 31,656 25,307
Occupancy2,265 1,929 1,892 1,705 1,609 4,208 3,292
Merger related expenses4,480 1,667 6,147
Other10,108 7,932 8,841 7,018 7,084 17,376 13,516
Total noninterest expense32,651 26,736 23,181 20,814 21,353 59,387 42,115
Income before income tax expense17,500 17,497 20,681 18,148 19,099 34,997 36,010
Income tax expense5,545 5,106 7,053 6,316 6,747 10,651 12,633
Net income$11,955 $12,391 $13,628 $11,832 $12,352 $24,346 $23,377
Basic earnings per share$0.51 $0.57 $0.68 $0.59 $0.62 $1.07 $1.17
Diluted earnings per share0.50 0.56 0.67 0.59 0.61 1.06 1.16


ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
At the Quarter ended
($ in thousands)Jun 30,
2017
Mar 31,
2017
Dec 31,
2016
Sep 30,
2016
Jun 30,
2016
BALANCE SHEETS
ASSETS
Cash and due from banks$77,815 $73,387 $54,288 $56,789 $50,370
Interest-earning deposits41,419 138,309 145,494 63,690 60,926
Debt and equity investments727,975 697,143 556,100 540,429 538,431
Loans held for sale4,285 5,380 9,562 7,663 9,669
Portfolio loans3,858,962 3,852,972 3,118,392 3,037,705 2,883,909
Less: Allowance for loan losses36,673 39,148 37,565 37,498 35,498
Portfolio loans, net3,822,289 3,813,824 3,080,827 3,000,207 2,848,411
Non-core acquired loans, net of the allowance for loan losses 30,682 32,615 33,925 41,016 47,978
Total loans, net3,852,971 3,846,439 3,114,752 3,041,223 2,896,389
Other real estate529 2,925 980 2,959 4,901
Fixed assets, net33,987 34,291 14,910 14,498 14,512
State tax credits, held for sale35,247 35,431 38,071 44,180 44,918
Goodwill116,186 113,886 30,334 30,334 30,334
Intangible assets, net12,458 11,758 2,151 2,357 2,589
Other assets135,824 147,277 114,686 105,522 108,626
Total assets$5,038,696 $5,106,226 $4,081,328 $3,909,644 $3,761,665
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits$1,019,064 $1,037,001 $866,756 $762,155 $753,173
Interest-bearing deposits2,902,187 2,994,619 2,366,605 2,362,670 2,275,063
Total deposits3,921,251 4,031,620 3,233,361 3,124,825 3,028,236
Subordinated debentures118,080 118,067 105,540 56,807 56,807
Federal Home Loan Bank advances200,992 151,115 129,000 78,000
Other borrowings217,180 235,052 276,980 190,022 200,362
Other liabilities32,440 32,451 78,349 27,892 26,631
Total liabilities4,489,943 4,568,305 3,694,230 3,528,546 3,390,036
Shareholders' equity548,753 537,921 387,098 381,098 371,629
Total liabilities and shareholders' equity$5,038,696 $5,106,226 $4,081,328 $3,909,644 $3,761,665


ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
For the Quarter ended
($ in thousands)Jun 30,
2017
Mar 31,
2017
Dec 31,
2016
Sep 30,
2016
Jun 30,
2016
LOAN PORTFOLIO
Commercial and industrial$1,796,342 $1,773,864 $1,632,714 $1,598,815 $1,540,457
Commercial real estate1,275,771 1,243,479 894,956 855,971 799,352
Construction real estate287,360 297,165 194,542 188,856 171,778
Residential real estate348,678 360,312 240,760 233,960 211,155
Consumer and other150,812 178,152 155,420 160,103 161,167
Total portfolio loans3,858,963 3,852,972 3,118,392 3,037,705 2,883,909
Non-core acquired loans35,807 38,092 39,769 47,449 56,529
Total loans$3,894,770 $3,891,064 $3,158,161 $3,085,154 $2,940,438
DEPOSIT PORTFOLIO
Noninterest-bearing accounts$1,019,064 $1,037,001 $866,756 $762,155 $753,173
Interest-bearing transaction accounts 803,104 844,775 731,539 633,100 628,505
Money market and savings accounts1,506,001 1,543,737 1,161,907 1,241,725 1,124,528
Brokered certificates of deposit133,606 145,436 117,145 137,592 166,507
Other certificates of deposit459,476 460,671 356,014 350,253 355,523
Total deposit portfolio$3,921,251 $4,031,620 $3,233,361 $3,124,825 $3,028,236
AVERAGE BALANCES
Portfolio loans$3,839,266 $3,504,910 $3,067,124 $2,947,949 $2,868,430
Non-core acquired loans36,767 39,287 42,804 53,198 59,110
Loans held for sale4,994 6,547 6,273 10,224 6,102
Debt and equity investments667,781 637,226 527,601 527,516 528,120
Interest-earning assets4,641,198 4,259,198 3,767,272 3,589,080 3,506,801
Total assets5,017,213 4,573,588 3,993,132 3,814,918 3,734,192
Deposits3,909,600 3,568,759 3,242,561 3,069,156 2,931,888
Shareholders' equity546,282 472,077 386,147 377,861 366,132
Tangible common equity417,239 387,728 353,563 345,061 333,093
YIELDS (fully tax equivalent)
Portfolio loans4.63% 4.45% 4.24% 4.25% 4.20%
Non-core acquired loans34.79% 17.24% 37.07% 23.07% 30.07%
Total loans4.92% 4.59% 4.69% 4.58% 4.72%
Debt and equity investments2.51% 2.49% 2.22% 2.25% 2.28%
Interest-earning assets4.49% 4.21% 4.21% 4.18% 4.30%
Interest-bearing deposits0.55% 0.53% 0.49% 0.49% 0.47%
Total deposits0.41% 0.39% 0.37% 0.37% 0.36%
Subordinated debentures4.37% 4.19% 3.64% 2.59% 2.56%
Borrowed funds0.64% 0.49% 0.27% 0.32% 0.35%
Cost of paying liabilities0.69% 0.65% 0.58% 0.52% 0.50%
Net interest margin3.98% 3.73% 3.79% 3.80% 3.93%


ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
For the Quarter ended
(in thousands, except % and per share data)Jun 30,
2017
Mar 31,
2017
Dec 31,
2016
Sep 30,
2016
Jun 30,
2016
ASSET QUALITY
Net charge-offs (recoveries)1$6,104 $(56) $897 $1,038 $(409)
Nonperforming loans113,081 13,847 14,905 19,942 12,813
Classified assets93,795 86,879 93,452 101,545 87,532
Nonperforming loans to total loans10.34% 0.36% 0.48% 0.66% 0.44%
Nonperforming assets to total assets20.27% 0.33% 0.39% 0.59% 0.47%
Allowance for loan losses to total loans10.96% 1.03% 1.20% 1.23% 1.23%
Allowance for loan losses to nonperforming loans1280.4% 282.7% 252.0% 188.0% 277.0%
Net charge-offs (recoveries) to average loans (annualized)1 0.64% (0.01)% 0.12% 0.14% (0.06)%
WEALTH MANAGEMENT
Trust assets under management$1,279,836 $1,229,383 $1,033,577 $929,946 $897,322
Trust assets under administration2,024,958 1,875,424 1,652,471 1,535,033 1,490,389
MARKET DATA
Book value per common share$23.37 $22.95 $19.31 $19.07 $18.60
Tangible book value per common share$18.01 $17.59 $17.69 $17.43 $16.95
Market value per share$40.80 $42.40 $43.00 $31.25 $27.89
Period end common shares outstanding23,485 23,438 20,045 19,988 19,979
Average basic common shares23,475 21,928 20,009 19,997 20,003
Average diluted common shares23,732 22,309 20,309 20,224 20,216
CAPITAL
Total risk-based capital to risk-weighted assets12.83% 12.76% 13.48% 12.01% 12.16%
Tier 1 capital to risk-weighted assets10.81% 10.68% 10.99% 10.82% 10.92%
Common equity tier 1 capital to risk-weighted assets9.33% 9.20% 9.52% 9.33% 9.38%
Tangible common equity to tangible assets8.56% 8.28% 8.76% 8.99% 9.08%
1 Excludes loans accounted for as Purchased credit impaired loans
2 Excludes non-core acquired loans and related assets, except for inclusion in total assets.


ENTERPRISE FINANCIAL SERVICES CORP
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
For the Quarter ended For the Six Months ended
($ in thousands, except per share data)Jun 30,
2017
Mar 31,
2017
Dec 31,
2016
Sep 30,
2016
Jun 30,
2016
Jun 30,
2017
Jun 30,
2016
CORE PERFORMANCE MEASURES
Net interest income$45,633 $38,642 $35,454 $33,830 $33,783 $84,275 $66,211
Less: Incremental accretion income2,584 1,075 3,279 2,296 3,571 3,659 6,405
Core net interest income43,049 37,567 32,175 31,534 30,212 80,616 59,806
Total noninterest income7,934 6,976 9,029 6,976 7,049 14,910 13,054
Less: Gain (loss) on sale of other real estate from non-core acquired loans 1,085 (225) 705 705
Less: Other income from non-core acquired assets 95 287 239 239
Less: Gain on sale of investment securities 86
Core noninterest income7,934 6,976 7,849 6,828 6,105 14,910 12,110
Total core revenue50,983 44,543 40,024 38,362 36,317 95,526 71,916
Provision for portfolio loan losses3,623 1,533 964 3,038 716 5,156 1,549
Total noninterest expense32,651 26,736 23,181 20,814 21,353 59,387 42,115
Less: Other expenses related to non-core acquired loans(16) 123 172 270 325 107 652
Less: Executive severance 332 332
Less: Facilities disposal389 1,040 389
Less: Merger related expenses4,480 1,667 1,084 302 6,147
Less: Other non-core expenses (209) 250 250
Core noninterest expense27,798 24,946 21,094 20,242 20,446 52,744 40,881
Core income before income tax expense19,562 18,064 17,966 15,082 15,155 37,626 29,486
Core income tax expense16,329 4,916 6,021 5,142 5,237 11,245 10,134
Core net income$13,233 $13,148 $11,945 $9,940 $9,918 $26,381 $19,352
Core diluted earnings per share$0.56 $0.59 $0.59 $0.49 $0.49 $1.15 $0.96
Core return on average assets1.06% 1.17% 1.19% 1.04% 1.07% 1.11% 1.06%
Core return on average common equity9.72% 11.29% 12.31% 10.47% 10.89% 10.44% 10.78%
Core return on average tangible common equity12.72% 13.75% 13.44% 11.46% 11.98% 13.22% 11.87%
Core efficiency ratio54.52% 56.01% 52.70% 52.77% 56.30% 55.21% 56.85%
NET INTEREST MARGIN TO CORE NET INTEREST MARGIN (FULLY TAX EQUIVALENT)
Net interest income$46,096 $39,147 $35,884 $34,263 $34,227 $85,243 $67,114
Less: Incremental accretion income2,584 1,075 3,279 2,296 3,571 3,659 6,405
Core net interest income$43,512 $38,072 $32,605 $31,967 $30,656 $81,584 $60,709
Average earning assets$4,641,198 $4,259,198 $3,767,272 $3,589,080 $3,506,801 $4,451,253 $3,460,296
Reported net interest margin3.98% 3.73% 3.79% 3.80% 3.93% 3.86% 3.90%
Core net interest margin3.76% 3.63% 3.44% 3.54% 3.52% 3.70% 3.53%
1Non-core income tax expense calculated at 38% of non-core pretax income plus an estimate of taxes payable related to non-deductible JCB acquisition costs.


At the Quarter ended
($ in thousands)Jun 30,
2017
Mar 31,
2017
Dec 31,
2016
Sep 30,
2016
Jun 30,
2016
REGULATORY CAPITAL TO RISK-WEIGHTED ASSETS
Shareholders' equity$548,753 $537,921 $387,098 $381,098 $371,629
Less: Goodwill116,186 113,886 30,334 30,334 30,334
Less: Intangible assets, net of deferred tax liabilities 6,179 5,832 800 873 958
Less: Unrealized gains (losses)329 (1,174) (1,741) 4,668 5,517
Plus: Other12 12 24 24 23
Common equity tier 1 capital426,071 419,389 357,729 345,247 334,843
Plus: Qualifying trust preferred securities67,600 67,600 55,100 55,100 55,100
Plus: Other48 48 36 35 35
Tier 1 capital493,719 487,037 412,865 400,382 389,978
Plus: Tier 2 capital91,874 94,700 93,484 44,006 44,124
Total risk-based capital$585,593 $581,737 $506,349 $444,388 $434,102
Total risk-weighted assets$4,565,832 $4,557,860 $3,757,161 $3,699,757 $3,570,437
Common equity tier 1 capital to risk-weighted assets9.33% 9.20% 9.52% 9.33% 9.38%
Tier 1 capital to risk-weighted assets10.81% 10.69% 10.99% 10.82% 10.92%
Total risk-based capital to risk-weighted assets12.83% 12.76% 13.48% 12.01% 12.16%
SHAREHOLDERS' EQUITY TO TANGIBLE COMMON EQUITY AND TOTAL ASSETS TO TANGIBLE ASSETS
Shareholders' equity$548,753 $537,921 $387,098 $381,098 $371,629
Less: Goodwill116,186 113,886 30,334 30,334 30,334
Less: Intangible assets12,458 11,758 2,151 2,357 2,589
Tangible common equity$420,109 $412,277 $354,613 $348,407 $338,706
Total assets$5,038,696 $5,106,226 $4,081,328 $3,909,644 $3,761,665
Less: Goodwill116,186 113,886 30,334 30,334 30,334
Less: Intangible assets12,458 11,758 2,151 2,357 2,589
Tangible assets$4,910,052 $4,980,582 $4,048,843 $3,876,953 $3,728,742
Tangible common equity to tangible assets8.56% 8.28% 8.76% 8.99% 9.08%


For more information contact: Investor Relations: Keene Turner, Executive Vice President and CFO (314) 512-7233 Media: Karen Loiterstein, Senior Vice President (314) 512-7141

Source: Enterprise Financial