Enterprise Financial(EFSC) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported earnings of $1.28 per diluted share for Q4 2024, a decrease from$ 1.32 in the linked quarter but an increase from $1.16 in Q4 2023 [5] - Adjusted return on assets was 1.31% and pre-provision return on assets was 1.80%, with net interest margin remaining above 4% [6][8] - The tangible common equity to tangible assets ratio was 9.05% at quarter-end, with an adjusted return on tangible common equity of 14.05% for Q4 [16] Business Line Data and Key Metrics Changes - Overall loan growth was around 3% for the year, with Q4 growth of$ 140 million or 5% annualized, driven by increases in general C&I, construction, and life insurance premium finance segments [28][30] - Life insurance premium finance grew $158 million or 16.5% for the year, while SBA loans increased by$ 25 million or 7.9% annualized in Q4 [30][31] - The sponsor finance business experienced a net reduction in the loan portfolio of roughly 10% due to slowed originations [32] Market Data and Key Metrics Changes - The Midwest region grew modestly to $3.2 billion in Q4, while the Southwestern markets saw strong growth of$ 104 million in Q4 and $218 million for the full year, a 13.9% increase [33][35] - California's loan balances slipped$ 85 million during the quarter, attributed to timing on larger line paydowns [36] - Deposits increased by $681 million in Q4 and$ 970 million or 8% year-over-year, primarily from core client deposits [37][38] Company Strategy and Development Direction - The company focuses on diversification across various markets and business lines, avoiding reliance on any single market for success [9] - The strategy includes a client-centric approach, emphasizing holistic solutions and relationship management [10] - The company plans to leverage market disruptions and continue talent acquisition to enhance growth and profitability [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving mid to high-single-digit balance sheet growth in 2025, supported by strong deposit growth and a quality deposit base [14][25] - The overall economic outlook for clients is positive, with expectations for sound C&I growth in 2025 [24][25] - Management remains cautious about loan demand but anticipates slight increases without compromising credit and pricing disciplines [12][21] Other Important Information - The company increased its dividend by $0.01 per share for Q1 2025 to$ 0.29 per share and repurchased $11 million in common stock during the quarter [17][68] - Non-performing loans to total loans and non-performing assets to total assets showed slight increases but remained at modest levels [18][61] Q&A Session Summary Question: Margin outlook and impact of rate cuts - Management indicated that the expectation for net interest margin around 4% includes a reset of the SBA portfolio and does not account for further rate cuts [75][79] Question: Non-interest-bearing deposits sustainability - Management noted that the increase in non-interest-bearing deposits is typically seasonal and may decrease in Q1, but they remain confident in the ability to grow deposits [89][90] Question: Credit quality and monitoring of specific loans - Management confirmed that credit quality remains strong, with net charge-offs at 16 basis points and non-performing assets at 30 basis points, indicating no significant early warning signs [92][93] Question: Loan growth outlook - Management expressed confidence in achieving mid-single-digit loan growth, supported by market opportunities and a selective approach to lending [100][101] Question: Capital management and regulatory ratios - Management targets CET1, Tier 1, and total capital ratios of 10%, 12%, and 14% respectively, and is currently managing capital levels prudently [110][112]