Enterprise Financial(EFSC) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements detail the company's financial position, performance, and cash flows for the periods ended June 30, 2024 Condensed Consolidated Balance Sheets Total assets grew to $14.62 billion, driven by loan growth, while shareholders' equity increased to $1.76 billion Condensed Consolidated Balance Sheet Highlights (Unaudited) | ($ in thousands) | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $14,615,666 | $14,518,590 | | Total cash and cash equivalents | $392,775 | $433,029 | | Total loans, net | $10,860,543 | $10,749,347 | | Total Liabilities | $12,860,393 | $12,802,522 | | Total deposits | $12,282,383 | $12,176,371 | | Total Shareholders' Equity | $1,755,273 | $1,716,068 | Condensed Consolidated Statements of Income Net income for Q2 2024 was $45.4 million, a decrease from the prior year primarily due to higher interest expense on deposits Income Statement Summary (Unaudited) | ($ in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $140,529 | $140,692 | $278,257 | $280,221 | | Provision for credit losses | $4,819 | $6,339 | $10,575 | $10,522 | | Noninterest Income | $15,494 | $14,290 | $27,652 | $31,188 | | Noninterest Expense | $94,017 | $85,956 | $187,518 | $166,939 | | Net Income | $45,446 | $49,127 | $85,847 | $104,865 | Earnings Per Share (Unaudited) | | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Basic EPS | $1.19 | $1.29 | $2.24 | $2.76 | | Diluted EPS | $1.19 | $1.29 | $2.24 | $2.75 | Condensed Consolidated Statements of Comprehensive Income Total comprehensive income for Q2 2024 was $38.7 million, impacted by unrealized losses on available-for-sale securities Comprehensive Income Summary (Unaudited) | ($ in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $45,446 | $49,127 | $85,847 | $104,865 | | Total other comprehensive income (loss) | ($6,748) | ($17,490) | ($21,124) | $6,867 | | Total Comprehensive Income | $38,698 | $31,637 | $64,723 | $111,732 | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity grew to $1.76 billion, driven by net income but partially offset by dividends and stock repurchases - Key changes in shareholders' equity for the six months ended June 30, 2024 include: - Net Income: +$85.8 million - Other Comprehensive Loss: -$21.1 million - Common & Preferred Dividends: -$21.0 million - Common Stock Repurchases: -$8.6 million[11] Condensed Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $40.3 million in the first half of 2024 due to cash used in investing activities Cash Flow Summary for Six Months Ended June 30 (Unaudited) | ($ in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $106,397 | $139,786 | | Net cash used in investing activities | ($180,571) | ($804,207) | | Net cash provided by financing activities | $33,920 | $695,085 | | Net (decrease) increase in cash | ($40,254) | $30,664 | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies, portfolio compositions, credit loss allowances, and fair value measurements - The company adopted ASU 2022-03 and ASU 2023-02, which did not have a material effect on the consolidated financial statements[40][350] - At June 30, 2024, the Allowance for Credit Losses (ACL) on held-to-maturity securities was $0.3 million[19][45] - The ACL on loans was $139.5 million at June 30, 2024, up from $134.8 million at year-end 2023, including a qualitative adjustment of approximately $42.2 million[22][23] - The company uses derivative financial instruments, primarily interest rate swaps, to manage interest rate risk and does not use them for trading purposes[67][95] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial performance, focusing on net interest margin pressure, loan growth, and strong asset quality Executive Summary The company reported net income of $45.4 million for Q2 2024, supported by loan growth and a stable linked-quarter Net Interest Margin Q2 2024 Financial Highlights | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Net Income ($ thousands) | $45,446 | $40,401 | $49,127 | | Diluted EPS | $1.19 | $1.05 | $1.29 | | Net Interest Margin (tax equiv.) | 4.19% | 4.13% | 4.49% | | Return on average assets | 1.25% | 1.12% | 1.44% | - Total loans grew by $115.9 million (1.06%) to $11.0 billion at June 30, 2024, compared to year-end 2023[155] - Total deposits increased by $106.0 million to $12.3 billion at June 30, 2024, from December 31, 2023[156] - The board of directors declared a quarterly dividend of $0.27 per common share[130] Results of Operations Net interest income increased from the linked quarter due to loan growth, while noninterest income was boosted by tax credit income Net Interest Margin (Tax Equivalent) | Period | NIM | | :--- | :--- | | Q2 2024 | 4.19% | | Q1 2024 | 4.13% | | Q2 2023 | 4.49% | | YTD 2024 | 4.16% | | YTD 2023 | 4.60% | - Noninterest income increased by $3.3 million from the linked quarter, primarily due to a $4.1 million increase in tax credit income[165][190] - Noninterest expense for the first six months of 2024 increased by $20.6 million year-over-year, mainly due to a $12.3 million increase in variable deposit costs and higher employee compensation[168] Financial Condition Total assets grew to $14.6 billion, supported by loan and deposit growth, while asset quality remained strong Loan Portfolio Composition ($ in thousands) | Loan Type | June 30, 2024 | Dec 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Commercial and industrial | $4,619,448 | $4,672,559 | ($53,111) | | Construction and land development | $893,672 | $760,425 | $133,247 | | Total loans | $11,000,007 | $10,884,118 | $115,889 | Asset Quality Ratios | Ratio | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Nonperforming assets to total assets | 0.33% | 0.34% | | ACL on loans to total loans | 1.27% | 1.24% | | Nonperforming loans to total loans | 0.36% | 0.40% | - Total deposits increased by $106.0 million to $12.3 billion, with noninterest-bearing deposits comprising 32% of the total[213] Liquidity and Capital Resources The company maintains a robust liquidity position with $5.6 billion in available sources and capital ratios that exceed regulatory standards Available Liquidity Sources as of June 30, 2024 ($ in thousands) | Source | Amount | | :--- | :--- | | Federal Reserve Bank borrowing capacity | $2,610,652 | | FHLB borrowing capacity | $1,230,978 | | Unpledged securities | $1,162,838 | | Federal funds lines | $140,000 | | Cash and interest-bearing deposits | $392,775 | | Holding Company line of credit | $25,000 | | Total | $5,562,243 | Regulatory Capital Ratios | Ratio | June 30, 2024 | Well-Capitalized Minimum | | :--- | :--- | :--- | | Common Equity Tier 1 Capital | 11.7% | 6.5% | | Tier 1 Capital | 13.0% | 8.0% | | Total Capital | 14.6% | 10.0% | | Leverage Ratio | 11.1% | 5.0% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with simulations indicating moderate sensitivity of net interest income to rate changes Interest Rate Shock Impact on Net Interest Income (Next 12 Months) | Rate Shock | Annual % Change in Net Interest Income | | :--- | :--- | | +300 bp | 11.1% | | +200 bp | 7.5% | | +100 bp | 3.8% | | -100 bp | (3.9)% | | -200 bp | (8.1)% | | -300 bp | (12.4)% | - The company is managing the cessation of LIBOR by transitioning to SOFR as the replacement index for the majority of its variable rate loans[261] - At June 30, 2024, the company had $6.7 billion in variable-rate loans, of which $3.1 billion were indexed to SOFR and $2.8 billion to the prime rate[288] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[264] - No material changes were made to the company's internal controls over financial reporting during the quarter[265] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any legal proceedings expected to have a material adverse effect on its financial condition - Management believes there are no pending or threatened legal proceedings that would have a material adverse effect on the company's business or financial condition[292][293] Item 1A. Risk Factors No material changes have been identified in the risk factors previously disclosed in the 2023 Annual Report on Form 10-K - No material changes have occurred in the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2023[339] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 225,135 shares of common stock for approximately $8.6 million during the second quarter of 2024 Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Weighted-Average Price Paid per Share | | :--- | :--- | :--- | | April 2024 | 36,214 | $37.89 | | May 2024 | 29,323 | $38.00 | | June 2024 | 159,598 | $38.13 | | Total | 225,135 | $38.07 | Item 6. Exhibits This section lists all filed exhibits, including Sarbanes-Oxley certifications and Inline XBRL financial data - The exhibits filed with this report include CEO and CFO certifications under Rule 13(a)-14(a) and Section 906 of the Sarbanes-Oxley Act, as well as Inline XBRL documents[272]