* Company posts fifth consecutive year of record earnings per share at $1.40 * Loans increase by $330 million or 25% with organic growth of 13% * Asset quality remains strong with net charge-offs at 0.14% of average loans * Fourth quarter net income rises to $4.9 million, an increase of 12% over 2006
ST. LOUIS , Jan. 29, 2008 (PRIME NEWSWIRE) -- Enterprise Financial Services Corp (Nasdaq:EFSC), the parent company of Enterprise Bank & Trust, announced today that fourth quarter net income rose to $4.9 million, an increase of 12% from the $4.4 million reported in the same quarter of 2006. Net income for the year was $17.6 million, a 14% increase over 2006 results. Earnings per fully diluted share for 2007 were $1.40, up 3% over the prior year.
EFSC's CEO, Kevin Eichner, said, "Our Company posted solid results for 2007 despite facing some stiff macroeconomic headwinds. We are particularly pleased with the 25% growth in our banking franchise while maintaining strong asset quality at a time when many in our industry are struggling on both fronts. After a slow start in the first half of 2007, our team delivered net organic loan and deposit growth of 13% for the year -- a number consistent with our long range objectives and one which should compare favorably to peers."
Banking Line of Business
Banking net interest income increased $2.5 million, or 17%, in the fourth quarter of 2007 versus the same period in 2006. For the year ended December 31, 2007, banking net interest income increased $11.2 million, or 21%, driven by exceptionally strong organic loan growth in the fourth quarter, and $172 million, or 13%, for the full year. Including the acquisition of Clayco Bancshares (Great American Bank) in February of 2007, portfolio loans increased $330 million or 25%.
Commercial and industrial loan growth was particularly robust, increasing $59 million for the quarter ended December 31, 2007 and $123 million for the full year period. Commercial real estate loans decreased $13 million for the quarter, but increased $115 million for the full year period. The company continues to benefit in this environment from its relatively low exposure to the residential housing market with only 12% of its loan portfolio in that sector.
Total deposits grew by $139 million, or 10%, during the quarter. For the year, total deposits grew $270 million, or 21%, with $125 million attributable to the acquisition of Clayco. Excluding the impact of Clayco and brokered deposits, core deposits grew $155 million, or 13%. The Company continued to maintain its core funding base and favorable deposit mix with 18% of deposits in demand deposit accounts and only 7% in brokered deposits at year end.
The tax-equivalent net interest rate margin for the fourth quarter decreased 7 basis points to 3.80% from the third quarter of 2007 and decreased 18 basis points from the fourth quarter of 2006. The decline from third quarter was primarily due to a less favorable earning asset mix and the reduced benefit of free funds resulting from declining interest rates. The Company is slightly asset sensitive, but was able to largely offset lower asset yields due to declines in the prime rate by aggressively cutting deposit costs. The net interest rate spread has been stable to rising over the last several quarters. For the year ended December 31, 2007, the tax-equivalent net interest rate margin was 3.83% versus 4.01% in the prior year. Approximately 5 basis points of the decline was attributable to higher average levels of nonperforming loans in 2007 versus the prior year.
Chairman and CEO of Enterprise's banking line of business, Peter Benoist, commented, "We anticipate further rate decreases in 2008 that will require significant attention to maintain our net interest rate margin at adequate levels. We will continue to reduce the cost of our short term and maturing funding sources to respond to the impact of falling interest rates, while maintaining a competitive position within our market niche. Of course, the rapidity and severity of those rate cuts will have some impact on our ability to mitigate the effects of these cuts in the short-term."
The provision for loan losses was $2.5 million for the fourth quarter of 2007 compared with $350,000 in the fourth quarter of 2006. During the fourth quarter, the Company recorded net charge-offs of $611,000 compared to net charge-offs of $1.2 million during the same period of 2006. The increase in the provision for loan losses between the fourth quarter of 2007 and the fourth quarter of 2006 was due to stronger loan growth, an increase in nonperforming loans during the quarter of $4.2 million (versus $149,000 in the fourth quarter of 2006), and adverse risk rating changes primarily in the residential builder portfolio as a result of the Company's standard credit reviews.
Nonperforming loans rose to $12.7 million, or 0.77% of loans, a level similar to that at the end of the second quarter. The increase in nonperforming loans in the fourth quarter was primarily the result of three credits, the two largest of which related to a residential builder in Kansas City totaling $2.2 million and a single-family rehab builder in Kansas City totaling $1.6 million. The Company believes it is adequately reserved on these two credits. Nonperforming loans at year end consisted of 19 relationships, nearly all of which were related to the soft residential housing markets in St. Louis and Kansas City.
Benoist commented further, "Based on what we currently see, the majority of the exposure in our loan portfolio continues to be concentrated in the residential housing segment in our two markets. Eighty-five percent of our nonperforming assets relate to this segment, although it represents just 12% of our total loan portfolio. We expect our nonperforming assets to increase modestly through the third quarter of 2008 as we work through this exposure, and our charge-offs to increase proportionately, but for both to remain at very manageable levels for the year as a whole."
Deposit service charges for the fourth quarter and year to date were higher than the prior year primarily due to the acquisitions of Great American Bank in February 2007 and NorthStar Bank in July 2006.
During the fourth quarter, the Company realized approximately $664,000 of gains on the sale of certain state tax credits to its clients as part of a new fee initiative designed to augment our wealth management and banking lines of business. In the fourth quarter, the Company signed an agreement through which it purchases the rights to receive ten-year streams of state tax credits at agreed upon discount rates and then re-sells them to its clients for a profit. At December 31, 2007, the Company had $23 million in "Other Assets" representing the present value of these streams on qualifying projects. Carrying costs for these assets will reduce reported net interest rate margin by approximately ten to eleven basis points in 2008 based on anticipated volumes. Management believes the economic benefits to the company of this new source of fee income will outweigh the effects of the decline in reported margin.
"This is a business that my partner, Peter Benoist, helped to pioneer in the late 1980s with Mark Twain Bancshares (now part of U.S. Bancorp) and one in which our specialized expertise can be leveraged to the benefit of our shareholders and clients," commented Eichner.
Also, during the fourth quarter, the Company elected to sell a portion of its agency investment portfolio that was maturing in the next year and reinvest the proceeds in securities with an expected life of three to five years. As a result, the Company recognized $233,000 of pre-tax gains.
Remaining increases in Other Income for the quarter versus the prior year relate to higher volumes of fees associated with treasury management, debit cards, merchant processing and other products.
Wealth Management Line of Business
Wealth Management revenue was up $273,000, or 7% in the fourth quarter of 2007 versus the same quarter in 2006 due to stronger revenues from Millennium Brokerage Group LLC ("Millennium".)
For the year ended December 31, 2007, Wealth Management revenue increased $171,000 or 1%. Revenues from Trust during 2007 were up $453,000 or 6%. Assets under administration were $1.7 billion at December 31, 2007, a 4% increase over one year ago. Despite a 29% growth in paid premium sales over 2006, net revenues from Millennium during 2007 were down 3% from the prior year as the gross margin on those increased sales fell from 39% to 29% due to a less favorable carrier mix and higher payouts to direct producers.
For the year ended December 31, 2007, pre-tax profits from the Wealth Management segment were $3.5 million, down from $3.8 million in 2006. Trust pre-tax profits were up $121,000, or 9%, while Millennium's pre-tax profits of $2.0 million were down $500,000 from 2006. On January 7, 2008, the Company announced that effective December 31, 2007, it had acquired the remaining 40% minority interest of Millennium bringing EFSC's ownership to 100%.
Eichner commented, "After doubling in revenues and more than tripling in profits in 2006, our fee businesses leveled off in 2007. Much of the year was devoted to restructuring Millennium and our Trust operations to better position these entities for an increasingly competitive environment. Depending on the state of the economy and the performance of the equity markets, we expect wealth management earnings to be flat to down slightly in 2008 due primarily to the effects of the Millennium compensation re-design. We are targeting a resumption of higher earnings growth rates in subsequent years as we again experience the benefits of the proven operational leverage that can be generated by our trust and life insurance units. The impact of our tax credit business was a nice plus in 2007 and should contribute incrementally to our fee income ratio in the years ahead as we strive to shift the balance of our revenues and profits between banking and fee-based businesses."
Other Business Results
During the fourth quarter, Enterprise Bank & Trust opened a loan production office in central Phoenix, Arizona. The Company had previously announced its intent to enter the Phoenix market, initially with a loan production office and subsequently through an application to establish a new Arizona state bank charter. The Company's Arizona CEO, Jack Barry, is actively recruiting additional team members and local investors/directors to serve the planned de novo bank. The LPO is now generating some excellent new credits. The Arizona charter application is expected to be filed in the first quarter with an initial location in the rapidly growing West Valley area of Phoenix.
For the year, the Company's efficiency ratio remained at 61%, flat with 2006. Noninterest expenses increased $8.1 million, or 20%, to $49.5 million. Approximately, $2.8 million of this increase was due to the acquisition of Great American Bank and $2.5 million was related to the full year impact of NorthStar Bank. The remainder of the increase was primarily connected with expenses associated with supporting the Company's organic growth rates.
Eichner concluded, "As we look to 2008 and beyond, we continue to execute against our strategy which has proven to be resilient and effective. We are focused on asset quality and banking margins as we continue to grow our franchise, now in three markets with our expansion to Phoenix. Although we see 2008 as a bit of a re-set year for wealth management for a number of reasons, we remain committed to our core mission of guiding our clients to a lifetime of financial success while continuing to build shareholder value."
Enterprise Financial operates commercial banking and wealth management businesses in metropolitan St. Louis and Kansas City and a commercial loan production office in Phoenix, Arizona with an intent to open a state de novo bank charter in 2008. The Company is primarily focused on serving the needs of privately held businesses, their owner families, executives and professionals.
Please refer to the Consolidated Financial Summary attached for more details.
Readers should note that in addition to the historical information contained herein, this press release contains forward-looking statements, which 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, burdens imposed by federal and state regulations of banks, credit risk, exposure to local and national economic conditions, risks associated with rapid increase or decrease in prevailing interest rates, effects of mergers and acquisitions, effects of critical accounting policies and judgments, legal and regulatory developments and competition from banks and other financial institutions, as well as other risk factors described in Enterprise Financial's 2006 Annual Report on Form 10-K. 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.
ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY
(unaudited)
(In thousands, except For the Quarter For the Twelve Months
per share data) Ended Ended
Dec 31, Dec 31, Dec 31, Dec 31,
INCOME STATEMENTS 2007 2006 2007 2006
-------- -------- -------- --------
Total interest income $ 31,916 $ 26,966 $122,517 $ 94,418
Total interest expense 15,713 12,927 61,465 43,141
-------- -------- -------- --------
Net interest income 16,203 14,039 61,052 51,277
Provision for loan losses 2,450 350 4,615 2,127
-------- -------- -------- --------
Net interest income
after provision for
loan losses 13,753 13,689 56,437 49,150
NONINTEREST INCOME
Wealth Management
revenue 4,064 3,791 13,980 13,809
Deposit service charges 926 592 3,228 2,228
(Loss) gain on sale of
other real estate (43) 2 (48) 2
Gain on sale of securities 233 -- 233 --
Other income 1,050 277 2,280 877
-------- -------- -------- --------
Total noninterest
income 6,230 4,662 19,673 16,916
NONINTEREST EXPENSE
Salaries and benefits 7,583 6,849 29,555 25,247
Occupancy 1,003 1,009 3,901 2,966
Furniture and equipment 384 222 1,439 1,028
Other 4,113 3,748 14,621 12,153
-------- -------- -------- --------
Total noninterest
expense 13,083 11,828 49,516 41,394
Minority interest in net
income of consolidated
subsidiary -- (48) -- (875)
-------- -------- -------- --------
Income before income tax 6,900 6,475 26,594 23,797
Income taxes 1,994 2,084 9,016 8,325
-------- -------- -------- --------
Net income $ 4,906 $ 4,391 $ 17,578 $ 15,472
======== ======== ======== ========
Basic earnings per share $ 0.40 $ 0.38 $ 1.44 $ 1.41
Diluted earnings per
share $ 0.39 $ 0.37 $ 1.40 $ 1.36
Return on average assets 1.04% 1.14% 1.00% 1.12%
Return on average equity 11.28% 13.24% 10.89% 13.69%
Efficiency ratio 58.32% 63.25% 61.34% 60.70%
Noninterest expense to
average assets 2.77% 3.08% 2.82% 2.99%
YIELDS (fully tax equivalent)
Loans 7.65% 7.95% 7.88% 7.71%
Securities 4.87% 4.21% 4.58% 4.06%
Federal funds sold 4.23% 5.43% 4.78% 5.00%
Yield on earning assets 7.42% 7.57% 7.63% 7.33%
Interest bearing deposits 4.10% 4.32% 4.35% 3.94%
Subordinated debt 7.24% 7.37% 7.21% 7.16%
Borrowed funds 4.54% 4.61% 4.86% 4.78%
Cost of paying liabilities 4.26% 4.42% 4.50% 4.09%
Net interest spread 3.16% 3.15% 3.13% 3.24%
Net interest rate margin 3.80% 3.98% 3.83% 4.01%
ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (cont.)
(unaudited)
(In thousands)
Dec 31, Sep 30, Jun 30, Mar 31, Dec 31,
BALANCE 2007 2007 2007 2007 2006
SHEETS ---------- ---------- ---------- ---------- ----------
ASSETS
Cash and
due from
banks $ 76,265 $ 47,593 $ 45,081 $ 41,846 $ 41,558
Federal funds
sold 75,665 2,585 2,059 6,992 7,066
Interest-
bearing
deposits 1,719 1,100 1,021 1,144 1,669
Debt and equity
investments 83,333 122,204 111,617 119,056 111,210
Loans held for
sale 3,420 1,117 3,840 4,650 2,602
Portfolio
loans 1,641,432 1,558,885 1,500,512 1,492,460 1,311,723
Less allowance
for loan
losses 21,593 19,754 19,703 19,220 16,988
---------- ---------- ---------- ---------- ----------
Net loans 1,619,839 1,539,131 1,480,809 1,473,240 1,294,735
---------- ---------- ---------- ---------- ----------
Other real
estate 2,963 857 441 1,064 1,500
Premises and
equipment, net 22,223 22,487 22,801 22,777 17,050
Goodwill 57,177 55,661 54,841 55,284 29,983
Core deposit
intangible 3,330 3,511 3,693 3,886 2,153
Other amortizing
intangibles 2,723 2,952 3,180 3,408 3,636
Other assets 50,461 29,061 23,929 23,276 22,425
---------- ---------- ---------- ---------- ----------
Total assets $1,999,118 $1,828,259 $1,753,312 $1,756,623 $1,535,587
========== ========== ========== ========== ==========
LIABILITIES
AND SHAREHOLDERS'
EQUITY
Non-interest
bearing
deposits $ 278,313 $ 212,903 $ 215,771 $ 214,965 $ 234,849
Interest
bearing
deposits 1,306,699 1,233,532 1,212,353 1,231,139 1,080,659
---------- ---------- ---------- ---------- ----------
Total
deposits 1,585,012 1,446,435 1,428,124 1,446,104 1,315,508
Subordinated
debentures 56,807 56,807 56,807 56,807 35,054
FHLB advances 152,901 131,746 88,192 75,387 26,995
Federal funds
purchased -- -- -- -- --
Other borrowings 16,680 10,613 7,593 12,786 13,757
Other
liabilities 14,569 13,415 9,527 6,837 11,279
---------- ---------- ---------- ---------- ----------
Total
liabilities 1,825,969 1,659,016 1,590,243 1,597,921 1,402,593
Shareholders'
equity 173,149 169,243 163,069 158,702 132,994
---------- ---------- ---------- ---------- ----------
Total
liabilities
and
shareholders'
equity $1,999,118 $1,828,259 $1,753,312 $1,756,623 $1,535,587
========== ========== ========== ========== ==========
ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (cont.)
(unaudited)
(In thousands,
except per
share data) For the Quarter Ended
Dec 31, Sep 30, Jun 30, Mar 31, Dec 31,
2007 2007 2007 2007 2006
---------- ---------- ---------- ---------- ----------
EARNINGS
SUMMARY
Net
interest
income $ 16,203 $ 15,805 $ 15,125 $ 13,921 $ 14,039
Provision
for loan
losses 2,450 600 715 850 350
Wealth
Mangement
revenue 4,064 3,495 3,458 2,963 3,791
Noninterest
income 2,166 1,143 1,448 934 871
Noninterest
expense 13,083 12,202 12,370 11,861 11,828
Minority
interest
in net
income of
consolidated
subsidiary -- -- 157 (157) (48)
Income
before
income
tax 6,900 7,641 7,103 4,950 6,475
Net
income 4,906 4,999 4,515 3,158 4,391
Diluted
earnings
per
share $ 0.39 $ 0.40 $ 0.36 $ 0.26 $ 0.37
Return on
average
equity 11.28% 11.85% 11.20% 8.92% 13.24%
Net
interest
rate
margin
(fully tax
equivalized) 3.80% 3.87% 3.81% 3.86% 3.98%
Efficiency
ratio 58.32% 59.69% 61.75% 66.57% 63.25%
MARKET DATA
Book value
per
share $ 13.96 $ 13.66 $ 13.20 $ 12.86 $ 11.52
Tangible
book
value
per
share $ 8.86 $ 8.65 $ 8.20 $ 8.03 $ 8.42
Market
value
per
share $ 23.81 $ 24.34 $ 24.86 $ 28.00 $ 32.58
Period
end
common
shares
outstanding 12,406 12,388 12,354 12,340 11,540
Average
basic
common
shares 12,387 12,380 12,346 11,835 11,491
Average
diluted
common
shares 12,676 12,652 12,692 12,198 11,892
ASSET
QUALITY
Net
charge-
offs $ 611 $ 549 $ 232 $ 628 $ 1,167
Non-
performing
loans $ 12,720 $ 8,542 $ 12,661 $ 9,855 $ 6,363
Non-
performing
loans to
total loans 0.77% 0.55% 0.84% 0.66% 0.49%
Nonperforming
assets to
total assets 0.78% 0.51% 0.75% 0.62% 0.51%
Allowance
for loan
losses to
total loans 1.32% 1.27% 1.31% 1.29% 1.30%
Net charge-
offs to
average
loans
(annualized) 0.15% 0.14% 0.06% 0.19% 0.37%
CAPITAL
Average
equity to
average
assets 9.21% 9.40% 9.22% 8.96% 8.65%
Tier 1
capital
to risk-
weighted
assets 9.32% 9.85% 9.82% 9.50% 9.63%
Total
capital
to risk-
weighted
assets 10.54% 11.05% 11.09% 10.85% 10.87%
Tangible
equity
to
tangible
assets 5.68% 6.07% 5.99% 5.67% 6.48%
AVERAGE
BALANCES
Portfolio
loans $1,583,325 $1,526,259 $1,492,573 $1,365,340 $1,265,000
Earning
assets 1,719,825 1,645,697 1,622,139 1,487,193 1,426,341
Total
assets 1,873,915 1,780,239 1,754,297 1,601,266 1,521,640
Deposits 1,511,476 1,453,497 1,426,002 1,327,177 1,301,686
Shareholders'
equity 172,563 167,310 161,663 143,514 131,621
LOAN
PORTFOLIO
Commercial
and
indust-
rial $ 476,184 $ 416,715 $ 391,237 $ 379,147 $ 352,914
Commercial
real
estate 690,868 703,772 681,735 671,709 576,172
Construction
real
estate 266,111 252,476 247,722 251,184 196,851
Residential
real
estate 170,510 155,489 149,182 157,473 150,244
Consumer
and other 37,759 30,433 30,636 32,947 35,542
---------- ---------- ---------- ---------- ----------
Total
loan
port-
folio $1,641,432 $1,558,885 $1,500,512 $1,492,460 $1,311,723
DEPOSIT
PORTFOLIO
Noninterest-
bearing
accounts $ 278,313 $ 212,903 $ 215,771 $ 214,965 $ 234,849
Interest-
bearing
transaction
accounts 131,141 120,069 128,808 123,848 111,725
Money
market and
savings
accounts 682,920 596,226 552,678 582,231 556,947
Certificates
of
deposit 492,638 517,237 530,867 525,060 411,987
---------- ---------- ---------- ---------- ----------
Total
deposit
port-
folio $1,585,012 $1,446,435 $1,428,124 $1,446,104 $1,315,508
ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (cont.)
(unaudited)
(In thousands)
For the Quarter Ended
Dec 31, Sep 30, Jun 30, Mar 31, Dec 31,
2007 2007 2007 2007 2006
---------- ---------- ---------- ---------- ----------
YIELDS
(fully
tax
equivalent)
Loans 7.65% 7.96% 7.98% 7.94% 7.95%
Securities 4.87% 4.67% 4.50% 4.31% 4.21%
Federal
funds
sold 4.23% 5.53% 5.49% 5.51% 5.43%
Yield on
earning
assets 7.42% 7.73% 7.72% 7.66% 7.57%
Interest
bearing
deposits 4.10% 4.44% 4.47% 4.42% 4.32%
Borrowed
funds 4.54% 5.00% 5.04% 4.99% 4.61%
Subordinated
debt 7.24% 7.20% 7.19% 7.21% 7.37%
Cost of
paying
liabilities 4.26% 4.59% 4.63% 4.55% 4.42%
Net
interest
spread 3.16% 3.14% 3.09% 3.11% 3.15%
Net
interest
rate
margin 3.80% 3.87% 3.81% 3.86% 3.98%
WEALTH
MANAGEMENT
Trust
Assets
under
manage-
ment $1,098,110 $1,106,214 $1,111,042 $1,047,700 $1,042,146
Trust
Assets
under
admini-
stration 1,696,303 1,734,761 1,742,426 1,659,573 1,634,834