[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's total assets grew to $14.03 billion as of September 30, 2023, a 7.4% increase from year-end 2022, driven by a 9.0% rise in total loans. Net income for the nine months ended September 30, 2023, was $149.5 million, up from $143.0 million in the prior-year period, primarily due to higher net interest income. Total deposits increased by 10.0% to $11.91 billion, with a notable shift from noninterest-bearing accounts to interest-bearing accounts. Shareholders' equity increased to $1.61 billion [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2023, total assets reached $14.03 billion, an increase from $13.05 billion at December 31, 2022. This growth was primarily fueled by an increase in total loans, net, which rose to $10.47 billion from $9.60 billion. Total deposits grew to $11.91 billion from $10.83 billion, while total liabilities increased to $12.41 billion. Shareholders' equity also saw an increase, reaching $1.61 billion Condensed Consolidated Balance Sheet Highlights (Unaudited) (in thousands) | (in thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$14,025,042** | **$13,054,172** | | Total cash and cash equivalents | $370,698 | $291,359 | | Total loans, net | $10,474,687 | $9,600,206 | | **Total Liabilities** | **$12,413,162** | **$11,531,909** | | Total deposits | $11,909,907 | $10,829,150 | | **Total Shareholders' Equity** | **$1,611,880** | **$1,522,263** | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For the third quarter of 2023, net income was $44.7 million, a decrease from $50.2 million in the same period of 2022. For the nine months ended September 30, 2023, net income increased to $149.5 million from $143.0 million year-over-year. The year-to-date improvement was driven by a significant rise in net interest income to $421.9 million, which offset a higher provision for credit losses and increased noninterest expenses. Diluted EPS for the nine-month period was $3.91, compared to $3.73 in the prior year Income Statement Summary (Unaudited) (in thousands, except per share data) | (in thousands, except per share data) | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $141,639 | $124,290 | $421,860 | $335,068 | | Provision for credit losses | $8,030 | $676 | $18,552 | $(2,734) | | Total noninterest income | $12,085 | $9,454 | $43,273 | $42,289 | | Total noninterest expense | $88,644 | $68,843 | $255,583 | $197,067 | | **Net income** | **$44,665** | **$50,200** | **$149,530** | **$143,042** | | **Diluted EPS** | **$1.17** | **$1.32** | **$3.91** | **$3.73** | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2023, net cash provided by operating activities was $189.3 million. Net cash used in investing activities was $918.7 million, primarily due to a net increase in loans. Net cash provided by financing activities was $808.8 million, largely driven by a net increase in interest-bearing deposits. This resulted in a net increase in cash and cash equivalents of $79.3 million for the period Cash Flow Summary for Nine Months Ended September 30 (Unaudited) (in thousands) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $189,252 | $187,857 | | Net cash used in investing activities | $(918,698) | $(912,124) | | Net cash provided by (used in) financing activities | $808,785 | $(552,546) | | **Net increase (decrease) in cash and cash equivalents** | **$79,339** | **$(1,276,813)** | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies, investment portfolio composition, loan portfolio credit quality, and derivative activities. Key details include a diversified loan portfolio of $10.6 billion with an Allowance for Credit Losses (ACL) of $142.1 million. Nonperforming loans increased significantly to $48.9 million. The investment portfolio totaled $2.2 billion, with unrealized losses primarily driven by interest rate changes. The company uses derivatives to hedge interest rate risk on its loans and debt - The company adopted ASU 2022-02, which eliminates guidance on troubled debt restructurings and enhances vintage disclosures, without a material effect on the financial statements[30](index=30&type=chunk) Loan Portfolio Composition (in thousands) | (in thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Commercial and industrial | $4,449,129 | $3,859,964 | | Real estate (Total) | $5,886,315 | $5,635,473 | | Other | $286,953 | $248,990 | | **Total Loans** | **$10,616,820** | **$9,737,138** | Allowance for Credit Losses (ACL) on Loans Activity (Nine Months Ended Sep 30, 2023) (in thousands) | (in thousands) | Amount | | :--- | :--- | | Balance at December 31, 2022 | $136,932 | | Provision for credit losses | $14,766 | | Charge-offs | $(13,451) | | Recoveries | $3,886 | | **Balance at September 30, 2023** | **$142,133** | - Nonperforming loans (excluding government guaranteed balances) increased to **$48.9 million** at September 30, 2023, from **$10.0 million** at December 31, 2022[53](index=53&type=chunk) - The company has off-balance-sheet commitments to extend credit totaling **$3.13 billion** as of September 30, 2023[73](index=73&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 9.0% loan growth in the first nine months of 2023 to strength in C&I and specialty lending. Net interest margin (NIM) for Q3 2023 was 4.33%, a 16 basis point decrease from the linked quarter due to rising deposit costs, but up 86 basis points year-over-year. Nonperforming assets rose to 0.40% of total assets, driven by specific commercial loan downgrades. The company maintains a strong liquidity position with $4.7 billion in available sources and capital ratios exceeding 'well-capitalized' levels. A key risk highlighted is the potential for eroded customer confidence in the banking system following recent industry events [Executive Summary](index=38&type=section&id=Executive%20Summary) The company reported net income of $44.7 million for Q3 2023, with diluted EPS of $1.17. For the nine months ended September 30, 2023, net income was $149.5 million. Key balance sheet movements include a 9.0% increase in total loans to $10.6 billion and a 10.0% increase in total deposits to $11.9 billion since year-end 2022. Asset quality metrics showed an increase in nonperforming assets to 0.40% of total assets. The tangible common equity to tangible assets ratio stood at 8.51% Key Performance Metrics | Metric | Q3 2023 | Q2 2023 | Q3 2022 | | :--- | :--- | :--- | :--- | | Diluted EPS | $1.17 | $1.29 | $1.32 | | Return on average assets | 1.26% | 1.44% | 1.51% | | Net interest margin (tax equivalent) | 4.33% | 4.49% | 4.10% | | Nonperforming assets to total assets | 0.40% | 0.12% | 0.14% | | ACL on loans to total loans | 1.34% | 1.34% | 1.50% | - Total loans grew by **$879.7 million** (9.0%) to **$10.6 billion** at September 30, 2023, compared to December 31, 2022[111](index=111&type=chunk) - Total deposits increased by **$1.1 billion** to **$11.9 billion** at September 30, 2023, from year-end 2022. Noninterest deposit accounts represented **32.3%** of total deposits[111](index=111&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) Net interest income for Q3 2023 was $141.6 million, a slight increase from the linked quarter, with a tax-equivalent NIM of 4.33%. The NIM compression was due to a 51 basis point increase in the cost of interest-bearing deposits, which outpaced the 16 basis point rise in loan yields. Noninterest income fell to $12.1 million, mainly from a loss in tax credit activities. Noninterest expense rose to $88.6 million, driven by a $4.0 million increase in deposit costs related to specialized deposit businesses Net Interest Income and Margin Analysis (in thousands) | Metric | Q3 2023 | Q2 2023 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income (in thousands) | $141,639 | $140,692 | $421,860 | $335,068 | | Net Interest Margin (tax equivalent) | 4.33% | 4.49% | 4.50% | 3.64% | | Total Cost of Deposits | 1.84% | 1.46% | 1.42% | 0.18% | - Noninterest income decreased by **$2.2 million** from the linked quarter to **$12.1 million**, primarily due to a **$3.0 million** decrease in tax credit income (loss), partially offset by a **$1.5 million** gain on sale of SBA loans[127](index=127&type=chunk)[128](index=128&type=chunk) - Noninterest expense increased by **$2.7 million** from the linked quarter to **$88.6 million**, mainly due to a **$4.0 million** increase in deposit costs associated with specialized deposit businesses[132](index=132&type=chunk) [Financial Condition](index=46&type=section&id=Financial%20Condition) Total assets grew by $970.9 million to $14.0 billion since year-end 2022, driven by an $879.7 million (9%) increase in loans, particularly in C&I and specialty lending. Deposits increased by $1.1 billion, with a notable shift from noninterest-bearing demand accounts (down $790 million) to interest-bearing accounts like money market and CDs. Nonperforming loans increased to $48.9 million from $10.0 million at year-end, primarily due to additions in commercial and industrial and commercial real estate loans. Estimated uninsured/uncollateralized deposits decreased to 29% of total deposits from 55% at year-end 2022 - Total loans increased by **$879.7 million** (9%) to **$10.6 billion** since Dec 31, 2022, driven by growth in C&I (**$589 million**), sponsor finance (**$253 million**), and life insurance premium financing (**$111 million**)[142](index=142&type=chunk) - The Allowance for Credit Losses (ACL) on loans to total loans ratio was **1.34%** at Sep 30, 2023, down from **1.41%** at Dec 31, 2022, due to improved economic forecasts and charge-offs of impaired loans[149](index=149&type=chunk) Nonperforming Assets (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Nonaccrual loans | $48,746 | $9,766 | | **Total nonperforming loans** | **$48,932** | **$9,981** | | **Total nonperforming assets** | **$55,865** | **$10,250** | | Nonperforming assets to total assets | 0.40% | 0.08% | - Total deposits grew **$1.08 billion** since year-end 2022, with a significant mix shift: noninterest-bearing demand deposits fell by **$790 million**, while interest-bearing demand, money market, and CD accounts grew[155](index=155&type=chunk) - Estimated uninsured/uncollateralized deposits decreased to **$3.4 billion** (**29%** of total deposits) at Sep 30, 2023, from **$5.9 billion** (**55%**) at Dec 31, 2022, largely due to increased use of reciprocal deposit programs[159](index=159&type=chunk) [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with total available sources of $4.7 billion as of September 30, 2023, including borrowing capacity from the Federal Reserve and FHLB, and unpledged securities. Shareholders' equity increased by $89.6 million since year-end 2022 to $1.6 billion, driven by net income. All regulatory capital ratios for both the company and its bank subsidiary significantly exceed the 'well-capitalized' thresholds, with a Common Equity Tier 1 (CET1) ratio of 11.2% for the company Available Liquidity Sources (September 30, 2023) (in thousands) | (in thousands) | Amount | | :--- | :--- | | Federal Reserve Bank borrowing capacity | $2,491,087 | | FHLB borrowing capacity | $945,086 | | Unpledged securities | $790,887 | | Federal funds lines | $120,000 | | Cash and interest-bearing deposits | $370,698 | | **Total** | **$4,742,758** | Regulatory Capital Ratios (September 30, 2023) | Ratio | EFSC | Bank | To Be Well Capitalized | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 Capital | 11.2% | 12.1% | 6.5% | | Tier 1 Capital | 12.6% | 12.1% | 8.0% | | Total Capital | 14.1% | 13.1% | 10.0% | | Leverage Ratio | 10.9% | 10.5% | 5.0% | - The Tangible Common Equity to Tangible Assets ratio (non-GAAP) was **8.51%** at September 30, 2023, compared to **8.43%** at December 31, 2022[181](index=181&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=58&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages interest rate risk to optimize net interest income. As of September 30, 2023, simulation modeling indicates that a +100 basis point parallel rate shock would increase net interest income by 3.0% over the next 12 months, while a -100 basis point shock would decrease it by 3.2%. The company has transitioned from LIBOR to SOFR for new variable-rate loans and uses interest rate derivatives to hedge its exposure. The investment portfolio's unrealized losses of $343.8 million are primarily due to changes in interest rates Interest Rate Shock Impact on Net Interest Income (Sep 30, 2023) | Rate Shock | Annual % change in net interest income | | :--- | :--- | | +300 bp | 9.1% | | +200 bp | 6.1% | | +100 bp | 3.0% | | -100 bp | (3.2)% | | -200 bp | (6.6)% | | -300 bp | (10.0)% | - The company is managing the phase-out of LIBOR by selecting SOFR as the replacement index and ceased issuing new LIBOR-based contracts in December 2021[189](index=189&type=chunk) - At September 30, 2023, the company had **$6.5 billion** in variable rate loans, of which **$2.6 billion** were indexed to SOFR and **$277.5 million** remained indexed to LIBOR[190](index=190&type=chunk) [Controls and Procedures](index=60&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation as of September 30, 2023, the company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective. There were no material changes to the company's internal controls over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2023[195](index=195&type=chunk) - No changes were made during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[196](index=196&type=chunk) [PART II - OTHER INFORMATION](index=60&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings) The company and its subsidiaries are involved in various legal proceedings incidental to their business. Management believes that none of these proceedings, if determined adversely, would have a material adverse effect on the company's financial condition or results of operations - Management believes there are no pending or threatened legal proceedings that would have a material adverse effect on the Company's business, financial condition, or results of operations[198](index=198&type=chunk) [Risk Factors](index=60&type=section&id=Item%201A.%20Risk%20Factors) The company highlights a significant risk factor concerning adverse developments in the banking industry, such as recent high-profile bank failures. These events have eroded customer confidence, leading to market volatility and potential negative impacts on the company's liquidity, funding costs, and stock price. The speed of information dissemination through technology and social media can exacerbate these concerns - A key risk factor is that recent high-profile bank failures have eroded customer confidence in the banking system, which could materially impact the Company's operations, liquidity, cost of funding, and stock price[201](index=201&type=chunk)[202](index=202&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=61&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) There were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the period - None[204](index=204&type=chunk)

Financial Data and Key Metrics Changes - The company reported net income of $44.7 million or $1.17 per diluted share, with a return on average assets (ROAA) of 1.26% and a pre-provision net revenue (PPNR) ROAA of 1.84% [23] - Net interest income increased by over $900,000 in the quarter, continuing a trend since the beginning of 2022, with a net interest margin of 4.33% [26][51] - Total outstanding loans at the end of the quarter reached $10.6 billion, reflecting a loan growth of $104 million during the quarter [28] Business Line Data and Key Metrics Changes - Life insurance premium finance grew nearly 19% year-over-year, while Sponsor Finance experienced modest growth due to seasonal softness [2] - The specialized businesses grew by 15% annualized for the quarter and 19% year-over-year, with Practice Finance unit growing by approximately $70 million year-to-date [5] - The construction category rose as projects resumed momentum post-COVID, with existing projects moving forward despite a slowdown in new development loan requests [12] Market Data and Key Metrics Changes - Client deposits grew by $290 million in the quarter, with net client deposits increasing by $488 million, reflecting a successful sales plan [10][29] - The Midwest region saw client balances increase by $125 million, while the Southwest region experienced a loan growth of 26% year-over-year [6][7] - Southern California's portfolio grew by 9.3% year-over-year, following a strategic shift away from higher-risk lending [8] Company Strategy and Development Direction - The company aims to continue funding loan growth with client deposits and improve shareholder value through strategic execution [34] - The management emphasizes diversification in its business model to avoid dependence on any single market or asset class [22] - The focus remains on maintaining a stable deposit base while expanding specialized deposits, particularly in property management and third-party escrow [44] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth, citing strong backlogs and consistent sales volumes among manufacturing distribution clients [35] - The company anticipates a slower 2024 for commercial real estate projects but expects demand in industrial and housing sectors to stabilize [36][37] - Management noted that credit metrics have normalized, with a slight increase in non-performing loans but still at relatively low levels [31][62] Other Important Information - The company was awarded a $60 million new markets tax credit allocation, which will help attract new clients and projects [39] - The provision for credit loss increased due to net charge-offs and loan growth, with non-interest expenses rising to $89 million [48][66] - The tangible common equity ratio was 8.5% at the end of the quarter, reflecting a stable capital position [56] Q&A Session Summary Question: What is the strategy regarding the deposit base impacted by variable deposit costs? - Management clarified that the strategy blends well with the overall deposit base, focusing on stability and long-term client relationships [72][73] Question: What is the outlook for fee income regarding the tax credit line item? - Management expects a rebound in fee income in the fourth quarter, with stabilization in rates potentially aiding this recovery [81] Question: How does the company view the trends in non-performing loans? - Management indicated that the increase in non-performing loans is primarily due to a few specific credits, with overall levels remaining low compared to historical averages [62][99] Question: What are the expectations for SBA loan sales in the future? - Management noted that while SBA loan sales may occur, the focus will be on maintaining a healthy funding profile and managing growth effectively [107] Question: How does the company anticipate managing non-interest expenses moving forward? - Management emphasized a disciplined approach to managing expenses, particularly in light of inflationary pressures, while continuing to invest in key areas [110]

Some of the information in this report may contain "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. Such forward-looking statements may include projections based on management's current expectations and beliefs concerning future developments and their potential effects on the Company including, without limitation, plans, strategies and goals, and statements about the Company's expectations reg ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2023. ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission file number 001-15373 ENTERPRISE FINANCIAL SERVICES CORP Incorporated in the State of Delaware I.R.S. Employer Identification # 43-1706259 Addr ...

Enterprise Financial Services Corp (NASDAQ:EFSC) Q2 2023 Earnings Conference Call July 25, 2023 11:00 AM ET Company Participants Jim Lally - President & Chief Executive Officer Scott Goodman - President, Enterprise Bank & Trust Keene Turner - Chief Financial Officer & Chief Operating Officer Conference Call Participants Jeff Rulis - D.A. Davidson Damon DelMonte - KBW Andrew Liesch - Piper Sandler Brian Martin - Janney Operator Hello, and welcome to the Enterprise Financial Services Corp. Second Quarter 2023 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2023. ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission file number 001-15373 ENTERPRISE FINANCIAL SERVICES CORP Incorporated in the State of Delaware I.R.S. Employer Identification # 43-1706259 Add ...

Enterprise Financial Services Corp (NASDAQ:EFSC) Q1 2023 Earnings Conference Call April 25, 2023 11:00 AM ET Company Participants Jim Lally - President and Chief Executive Officer Scott Goodman - President, Enterprise Bank & Trust Keene Turner - Chief Financial Officer and Chief Operating Officer Conference Call Participants Jeff Rulis - D.A. Davidson Andrew Liesch - Piper Sandler Damon DelMonte - KBW Brian Martin - Janney Operator Good morning. My name is David, and I'll be your conference operator today. ...

Acquisitions - The Company closed its acquisition of First Choice on July 21, 2021, which operated eight branches with total assets of $2.3 billion, enhancing its presence in California [32]. - The acquisition of Seacoast was completed on November 12, 2020, with total assets of $1.3 billion, improving the Company's commercial and specialty lending capabilities [34]. Business Strategy - The Company's business strategy focuses on generating attractive shareholder returns through comprehensive financial services primarily for privately-held businesses and their owners [23]. - The Company emphasizes a relationship-oriented approach to client acquisition, targeting businesses, business owners, and professionals [25]. - The Company offers a wide range of lending services, including C&I, CRE, and SBA loans, supported by a variety of deposit products [24]. - The Company has developed expertise in specialized lending niches, such as SBA 7(a) loans, life insurance premium financing, and tax credit-related lending [26]. - The Company utilizes technology to enhance client access to products and services, including online banking and mobile applications [29]. Regulatory Compliance - The Company is subject to regulation by the Federal Reserve and the FDIC, ensuring compliance with banking standards [36]. - The Company is subject to extensive federal and state regulatory oversight, including capital adequacy standards established by the FDIC [59]. - As of December 31, 2022, all of the Bank's capital ratios qualified it to be "well-capitalized" for regulatory purposes [66]. - The Basel III Capital Rules require a Common Equity Tier 1 (CET1) capital ratio of 7.0% to avoid restrictions on capital distributions [64]. - The Company had $93.0 million of trust preferred securities that are grandfathered under Basel III provisions as of December 31, 2022 [50]. - The Dodd-Frank Act centralized consumer financial protection responsibilities with the Consumer Financial Protection Bureau (CFPB), impacting institutions with over $10 billion in assets [67]. - The Company must maintain certain capital ratios and is subject to limitations on aggregate investments in real estate and other areas [59]. - The Federal Reserve requires prior approval for stock repurchase plans under certain conditions [51]. - The Company must comply with incentive compensation policies to ensure they do not encourage excessive risk-taking [54]. Employee Information - The Bank employs 1,074 regular full-time and 53 part-time associates, with additional seasonal and temporary staff as needed [82]. - The Bank's minimum wage was raised to $17 per hour as of January 1, 2023, with 96% of associates earning above this minimum [86]. - Approximately 60% of associates are eligible for the Company's Short Term Incentive Plan (STIP), which aligns compensation with performance [85]. Financial Regulations - The Durbin Amendment, effective July 1, 2022, capped debit card interchange fees at 21 cents plus 5 basis points, resulting in reduced interchange income for the Bank [79]. - The Community Reinvestment Act (CRA) requires the Bank to meet the credit needs of local communities, and the Bank has an outstanding rating under CRA [74]. - The Bank's payment of dividends is restricted by Missouri law and federal regulations, particularly if the Bank is deemed undercapitalized [72]. - The Volcker Rule prohibits certain proprietary trading and investment activities, with amendments effective October 1, 2020, clarifying permissible banking activities [78]. - The Bank's lending operations face enhanced scrutiny due to its concentration in commercial real estate loans, with specific guidelines for risk assessment [77]. Recognition and Impact - The Company has been recognized as one of the "Best Banks to Work for" by American Banker magazine for five consecutive years, ranking fifth among similar institutions in 2022 [88]. - The Bank's operations are influenced by Federal Reserve monetary policies, which affect loan growth, investments, and interest rates [80].

Enterprise Financial Services Corp (NASDAQ:EFSC) Q4 2022 Earnings Conference Call January 24, 2022 11:00 AM ET Company Participants Jim Lally - President & Chief Executive Officer Scott Goodman - President, Enterprise Bank & Trust Keene Turner - Chief Financial Officer & Chief Operating Officer Conference Call Participants Jeff Rulis - D.A. Davidson Damon DelMonte - KBW Brian Martin - Janney Montgomery Operator [Call starts abruptly] At this time, I would like to welcome everyone to the Enterprise Financial ...

[PART I - FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the specified periods [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%28Unaudited%29) As of September 30, 2022, total assets decreased to $13.0 billion from $13.5 billion at year-end 2021, primarily due to a $1.28 billion reduction in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$12,994,787** | **$13,537,358** | | Total cash and cash equivalents | $744,876 | $2,021,689 | | Total loans, net | $9,214,415 | $8,872,601 | | **Total Liabilities** | **$11,548,569** | **$12,008,242** | | Total deposits | $11,057,594 | $11,343,799 | | **Total Shareholders' Equity** | **$1,446,218** | **$1,529,116** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20%28Unaudited%29) For Q3 2022, net income surged to $50.2 million from $13.9 million in Q3 2021, driven by increased net interest income Key Operational Results (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $124,290 | $97,273 | $335,068 | $258,134 | | Provision (benefit) for credit losses | $676 | $19,668 | $(2,734) | $17,045 | | Total Noninterest Income | $9,454 | $17,619 | $42,289 | $45,113 | | Total Noninterest Expense | $68,843 | $76,885 | $197,067 | $182,225 | | **Net Income** | **$50,200** | **$13,913** | **$143,042** | **$82,244** | | **Diluted EPS** | **$1.32** | **$0.38** | **$3.73** | **$2.48** | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Unaudited%29) Comprehensive income for Q3 2022 was $5.5 million, nearly flat, while the nine-month period recorded a $28.9 million comprehensive loss Comprehensive Income (Loss) Summary (in thousands) | Period | Net Income | Total other comprehensive loss, after-tax | Comprehensive income (loss) | | :--- | :--- | :--- | :--- | | **Three Months Ended Sep 30, 2022** | $50,200 | $(44,710) | $5,490 | | **Nine Months Ended Sep 30, 2022** | $143,042 | $(171,968) | $(28,926) | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity%20%28Unaudited%29) Total shareholders' equity decreased from $1.53 billion at year-end 2021 to $1.45 billion at September 30, 2022, primarily due to other comprehensive loss and stock repurchases - For the nine months ended September 30, 2022, total shareholders' equity decreased by **$82.9 million**. Key changes included **+$143.0 million** from net income, **-$172.0 million** from other comprehensive loss, **-$32.9 million** from stock repurchases, and **-$27.8 million** from dividends[19](index=19&type=chunk)[207](index=207&type=chunk) - In the second quarter of 2022, the company retired **1,980,093 shares** of treasury stock, which reduced additional paid-in capital by **$27.7 million** and retained earnings by **$45.8 million**[122](index=122&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29) For the nine months ended September 30, 2022, cash and cash equivalents decreased by $1.28 billion due to investing and financing activities Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Category | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $187,857 | $105,630 | | Net cash (used in) provided by investing activities | $(912,124) | $13,432 | | Net cash (used in) provided by financing activities | $(552,546) | $732,522 | | **Net (decrease) increase in cash and cash equivalents** | **$(1,276,813)** | **$851,584** | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) The notes detail accounting policies, loan portfolio composition, and credit loss allowances, with nonperforming loans significantly decreasing Loan Portfolio Composition (in thousands) | Loan Category | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Commercial and industrial | $3,710,012 | $3,396,590 | | Commercial real estate - investor owned | $2,286,458 | $2,141,143 | | Commercial real estate - owner occupied | $2,152,189 | $2,035,785 | | Construction and land development | $583,649 | $734,073 | | **Total Loans** | **$9,354,987** | **$9,017,642** | - The Allowance for Credit Losses (ACL) on loans was **$140.6 million** at September 30, 2022, down from **$145.0 million** at December 31, 2021, including a **$40.8 million** qualitative adjustment[59](index=59&type=chunk)[62](index=62&type=chunk) - Nonperforming loans decreased to **$18.2 million** at September 30, 2022, from **$28.0 million** at December 31, 2021[64](index=64&type=chunk) - Off-balance-sheet commitments to extend credit increased to **$2.91 billion** at September 30, 2022, from **$2.48 billion** at year-end 2021[91](index=91&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition and results, highlighting loan growth, deposit management, improved credit quality, and the impact of acquisitions [Executive Summary](index=38&type=section&id=Executive%20Summary) The company reported strong Q3 2022 earnings with **$50.2 million** net income, expanded net interest margin, and improved asset quality Q3 2022 Financial Highlights | Metric | Q3 2022 | Q2 2022 (Linked) | | :--- | :--- | :--- | | Net Income (in thousands) | $50,200 | $45,149 | | Diluted EPS | $1.32 | $1.19 | | Net Interest Margin | 4.10% | 3.55% | | Return on Average Assets | 1.51% | 1.34% | - Paycheck Protection Program (PPP) loans outstanding declined to **$13.2 million** at September 30, 2022, from **$272.0 million** at year-end 2021[148](index=148&type=chunk)[188](index=188&type=chunk) - Excluding PPP loans, total loans grew by **$596.1 million**, or **7%**, year-to-date from December 31, 2021[152](index=152&type=chunk) [Results of Operations](index=41&type=section&id=RESULTS%20OF%20OPERATIONS) Net interest income for Q3 2022 was **$124.3 million**, driven by higher loan balances and expanding yields, while noninterest income decreased - Net interest margin (NIM) increased to **4.10%** in Q3 2022 from **3.55%** in the linked quarter, due to higher yields on loans and investments[170](index=170&type=chunk) - Noninterest income decreased by **$4.7 million** from the linked quarter, mainly due to a **$4.8 million** drop in tax credit income and a **$0.9 million** decline in card services revenue[173](index=173&type=chunk) - Noninterest expense increased by **$3.4 million** from the linked quarter, driven by higher employee compensation and **$1.8 million** in variable deposit costs[180](index=180&type=chunk) [Financial Condition](index=46&type=section&id=Financial%20Condition) Total assets decreased to **$13.0 billion** as cash was deployed into loan growth, while deposits decreased due to strategic shifts Balance Sheet Changes (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $12,994,787 | $13,537,358 | $(542,571) | | Loans (excluding PPP) | $9,341,822 | $8,921,989 | $419,833 | | Deposits | $11,057,594 | $11,343,799 | $(286,205) | - Specialty loan categories, including sponsor finance and life insurance premium financing, saw significant growth of **28%** and **21%** respectively since year-end 2021[188](index=188&type=chunk) - Nonperforming assets decreased to **$18.5 million** from **$31.5 million** at year-end 2021, improving the ratio to total assets to **0.14%** from **0.23%**[155](index=155&type=chunk)[200](index=200&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with substantial borrowing capacity, and all capital ratios exceed regulatory requirements - The company has substantial available liquidity, including an additional **$832 million** from the FHLB and **$1.4 billion** from the Federal Reserve Bank[213](index=213&type=chunk) Regulatory Capital Ratios (EFSC) | Ratio | September 30, 2022 | Well-Capitalized Minimum | | :--- | :--- | :--- | | Common Equity Tier 1 | 11.0% | 6.5% | | Tier 1 Capital | 12.6% | 8.0% | | Total Capital | 14.2% | 10.0% | | Leverage Ratio | 10.4% | 5.0% | - The tangible common equity to tangible assets ratio, a non-GAAP measure, was **7.86%** at September 30, 2022, down from **8.13%** at December 31, 2021, primarily due to a decrease in accumulated other comprehensive income[156](index=156&type=chunk)[230](index=230&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages interest rate risk using earnings simulations and is transitioning **$1.6 billion** in loans from LIBOR Interest Rate Shock Impact on Net Interest Income | Rate Shock | Annual % change in net interest income | | :--- | :--- | | +300 bp | 13.5% | | +200 bp | 9.0% | | +100 bp | 4.4% | | -100 bp | (5.7)% | | -200 bp | (13.9)% | - The company is managing its transition away from LIBOR, with **$1.6 billion** in loans, **$118 million** in borrowings, and **$660.9 million** (notional) in derivatives indexed to LIBOR[242](index=242&type=chunk) [Controls and Procedures](index=58&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[248](index=248&type=chunk) - No material changes were made to internal controls over financial reporting during the quarter ended September 30, 2022[249](index=249&type=chunk) [PART II - OTHER INFORMATION](index=58&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=58&type=section&id=Item%201.%20Legal%20Proceedings) Management believes no pending legal proceedings would have a material adverse effect on the company's financial condition - Management believes there are no pending or threatened legal proceedings that would have a material adverse effect on the company's business, financial condition, or results of operations[251](index=251&type=chunk) [Risk Factors](index=58&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors described in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021[253](index=253&type=chunk) [Other Required Disclosures (Items 2, 3, 4, 5 & 6)](index=58&type=section&id=Other%20Items) This section covers standard disclosures, reporting no unregistered equity sales, defaults, or other material information - The company reported no unregistered sales of equity securities, defaults upon senior securities, or other material information for the period[254](index=254&type=chunk)[255](index=255&type=chunk)[259](index=259&type=chunk) - Mine safety disclosures are not applicable to the company[256](index=256&type=chunk)[257](index=257&type=chunk)