Enterprise Financial(US:EFSC)2023-10-24 21:00Financial 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]