* Second quarter net income of $386,000 includes $1.1 million of expense for special FDIC assessment * After deducting preferred stock dividend, Company reports net loss of $0.02 per fully diluted share * Pre-tax, pre-provision operating earnings of $8.1 million, up 6% over first quarter * Net charge-offs 1.03% annualized compared to 1.39% in first quarter * Non-performing loans remain flat at 2.58% of total loans compared to first quarter * Core deposits grow 8% and loans outstanding increase 3% over prior year period
ST. LOUIS, July 21, 2009 (GLOBE NEWSWIRE) -- Enterprise Financial Services Corp (Nasdaq:EFSC) earned net income of $386,000 for the quarter ended June 30, 2009 compared to $3.5 million for the prior year period. After deducting dividends on preferred stock, the Company reported a net loss of $0.02 per fully diluted share for the second quarter of 2009 compared to net income of $0.27 per share for the second quarter of 2008.
Second quarter results included a $1.1 million special assessment from the FDIC as part of its industry-wide program to bolster the insurance fund. During the quarter, the Company recorded $602,000 related to dividends on preferred stock purchased in late 2008 by the U.S. Treasury as part of its Capital Purchase Program. These dividends do not reduce the Company's net income, but are deducted in the calculation of earnings per share. Also during the second quarter, the Company set aside $8.0 million in loan loss provision representing 161% of net charge-offs. By comparison, loan loss provision for the second quarter 2008 was $3.2 million.
Excluding the special FDIC assessment, the Company's pre-tax, pre-provision operating earnings for the second quarter of 2009 were $8.1 million, up 6% versus the first quarter of 2009 and 5% lower than in the comparable period in 2008. The decline in year-over-year pre-tax, pre-provision operating earnings was attributable to higher loan-related legal expenses incurred in the second quarter of 2009.
Pre-tax, pre-provision operating earnings figures, which are non-GAAP (Generally Accepted Accounting Principles) financial measures, are presented because the Company believes adjusting its results to exclude loan loss provision expenses, impairment charges, special FDIC assessments and extraordinary gains or losses provides shareholders with a more comparable basis for evaluating period-to-period operating results. A schedule reconciling GAAP (loss) income before income tax to pre-tax, pre-provision operating earnings is provided in the attached tables.
Peter Benoist, President and CEO, commented, "Enterprise's reported results improved in the second quarter, posting a modest net profit that was impacted significantly by the FDIC special assessment. On a per-share basis, we reported a $0.02 loss after giving effect to the preferred stock dividend. The quarter's results reflected several favorable trends. Our provision expense was roughly half the level recorded in each of the prior two quarters. Net charge-offs were lower and we continued to build our allowance for loan losses. Core deposits increased and our net interest margin widened in the quarter. Our operating earnings continued to grow."
"At the same time, however," Benoist continued, "the economic environment remains stressed and we continue to be cautious and disciplined. Non-performing assets remain elevated compared to our historical standards and won't be resolved quickly."
Banking Line of Business
Deposits and liquidity
Total deposits rose $90 million, or 5%, from a year ago. On a linked quarter basis, deposits increased slightly, by 1%.
Core deposits at June 30, 2009 increased $108 million, or 8%, over June 30, 2008. On a linked quarter basis, core deposits rose $35 million, or 2%. At June 30, 2009, core deposits, which include all deposits other than brokered CDs, represented 87% of total deposits.
The Company increased its investment portfolio by $45.5 million during the second quarter of 2009, thereby improving its on-balance sheet liquidity.
Loans
Portfolio loans increased $56 million, or 3%, from a year ago. On a linked quarter basis, portfolio loans decreased $59 million, or 3%, as many clients are paying down borrowings to strengthen their balance sheets.
The Bank continues to pursue prudent lending opportunities to support local economic activity, with new loan approvals of $85 million during the second quarter. In the six months since the U.S. Treasury invested $35 million in EFSC preferred stock under the Capital Purchase Program, Enterprise has approved over $161 million in new loans.
Asset Quality
Non-performing loans totaled $49.2 million, or 2.58% of total loans at June 30, 2009, a $1.3 million decrease from March 31, 2009. The percentage of non-performing loans remained relatively flat due to the slight decline in total loans quarter-to-quarter. Non-performing loans were $13.2 million, or 0.71% of total loans, at June 30, 2008. Non-performing loans were $29.7 million, or 1.50% of total loans, at December 31, 2008.
Loans 30-90 days past due, excluding non-performing loans, represented 0.55% of loans at June 30, 2009, an improvement from the 0.94% level at March 31, 2009.
Non-performing loans (NPL) comprised the following industry segments as indicated below (in millions):
June 30, 2009 March 31, 2009 Dec 31, 2008
------------ ------------ ------------
% of % of % of
NPL Total NPL Total NPL Total
----- ----- ----- ----- ----- -----
Commercial Real Estate $23.4 47.5% $29.2 57.8% $16.1 54.2%
Residential
Construction/Land 39.7%
Acquisition
and Development 23.6 48.0% 16.9 33.5% 11.8
Commercial and Industrial 2.2 4.5% 4.4 8.7% 1.7 5.7%
Other -- -- 0.1 0.4%
----- ----- ----- ----- ----- -----
$49.2 100.0% $50.5 100.0% $29.7 100.0%
===== ===== ===== ===== ===== =====
The $49.2 million in non-performing loans is comprised of roughly 40 relationships. The largest of these, as reported over the past few quarters, is an approximately $7 million loan secured by a medical office building. Six relationships comprise more than 50% of non-performing loans. Of the Company's non-performing loans, 64% are located in the Kansas City market, which has encountered a more difficult residential construction and sales environment.
Other real estate at June 30, 2009 totaled $16.1 million, a $2.8 million increase from March 31, 2009. Other real estate added in the second quarter totaled $11.3 million, comprised largely of a $2.0 million residence, a $2.5 million commercial lot and several smaller residential lots and commercial properties. The Company sold $8.5 million in Other real estate in the second quarter at a negligible loss of $2,000 compared to recorded values.
Total non-performing assets were $65.3 million, or 2.95% of total assets at June 30, 2009, compared to 2.86% at March 31, 2009 and 1.92% at December 31, 2008.
Provision for loan losses was $8.0 million in the second quarter of 2009 compared to $15.1 million in the first quarter of 2009 and $3.2 million in the second quarter of 2008. The lower loan loss provision in the second quarter compared to first quarter is due to lower loan volumes and a leveling off of non-performing loans. Provision expense covered 161% of net charge-offs in the second quarter as the Company continued to build loan loss reserves to 2.24% of portfolio loans at June 30, 2009 over its 2.02% level at March 31, 2009. By comparison, loan loss reserves represented 1.58% of portfolio loans at December 31, 2008.
Net charge-offs in the second quarter were $5.0 million, an annualized rate of 1.03% of average loans. The majority of charge-offs in the quarter were attributable to write-downs on impaired assets and foreclosed real estate, with approximately 50% of the charge-offs related to residential real estate, 40% related to commercial real estate and 10% related to commercial and industrial loans.
By comparison, net charge-offs in the first quarter of 2009 were $6.8 million, or 1.39% annualized. Net charge-offs for the prior year second quarter were $1.4 million, or 0.32% annualized.
Net interest income
Net interest income in the banking segment increased $1.1 million, or 6%, in the second quarter of 2009 versus the comparable period in 2008. On a linked quarter basis, the increase in net interest income was 4%.
Net interest margin was 3.41% in the second quarter of 2009 compared to 3.56% in the second quarter of 2008 and 3.32% in the first quarter of 2009. The increase in the second quarter net interest margin compared to the first quarter was largely a result of a twelve basis point increase in loan yields and continuing repricing of CDs at lower rates.
Wealth Management Line of Business
Fee income from the Wealth Management line of business, including results from state tax credit brokerage activities, totaled $2.4 million for the second quarter of 2009, an 11% decline compared to the same period in 2008. On a linked quarter basis, Wealth Management revenues decreased 27%, largely due to higher first quarter revenue at MBG resulting from its completion of several large insurance cases.
Trust
Fee income from Trust declined 27% from the second quarter of 2008 to the second quarter of 2009. Revenue declines were largely attributable to lower asset values due to client turnover and adverse financial markets. Compared to the first quarter of 2009, Trust revenues declined only 2%.
Millennium Brokerage Group
MBG revenues in the second quarter of 2009 were essentially flat compared to the second quarter of 2008. On a linked quarter basis, MBG revenues declined 48% due to the large insurance cases closed during the first quarter of 2009.
State tax credit brokerage
For the second quarter of 2009, the Company recorded a $109,000 gain from state tax credit activities compared to a $46,000 loss in the first quarter of 2009 and a $29,000 loss in the second quarter of 2008. State tax credit revenues include unrealized gains and losses on certain tax credit assets carried at fair value and related interest rate caps used to hedge against changes in the fair value of the state tax credits.
Other Business Results
Non-interest income for the second quarter of 2009 was $4.8 million, an 8% increase compared to $4.4 million for the second quarter of 2008. Included in the 2009 period results were $636,000 in securities gains and $325,000 in other income.
Total non-interest expenses for the second quarter of 2009 were $15.3 million, 20% higher than the comparable 2008 period. During the second quarter, the Company accrued a $1.1 million expense for the FDIC special assessment to be paid in the third quarter. Employee compensation and benefit expenses were 10% lower year-over-year, due to stringent personnel expense-containment efforts. However, these expense reductions were more than offset by the FDIC special assessment, higher occupancy costs resulting from an additional Trust office and significantly higher legal expenses related to non-performing asset management and resolution activities.
Reflecting those higher non-interest expense items, the Company's efficiency ratio in the second quarter of 2009 was 68.7% compared to 59.9% in the second quarter of 2008.
The income tax benefit for the second quarter of 2009 was $1.4 million, representing a 138.5% effective tax rate relative to the loss before income tax of $1.0 million. During the second quarter of 2009, the Company concluded that minor changes in the Company's estimated pre-tax results and changes in projected permanent items produced significant variability in the estimated annual effective tax rate. As a result, the Company began using the actual effective tax rate for the year-to-date period as a basis for determining the income tax benefit, which increased the amount of income tax benefit recognized during the second quarter of 2009.
Enterprise Financial operates commercial banking and wealth management businesses in metropolitan St. Louis and Kansas City and a loan production office in Phoenix. Enterprise is primarily focused on serving the needs of privately held businesses, their owner families, executives and professionals.
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. We use the words "expect" and "intend" and variations of such words and similar expressions in this communication to identify such forward-looking 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 2008 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 For the
per share data) Quarter Ended Six Months Ended
Jun 30, Jun 30, Jun 30, Jun 30,
INCOME STATEMENTS 2009 2008 2009 2008
-------- -------- -------- --------
NET INTEREST INCOME
Total interest income $ 27,758 $ 29,283 $ 55,084 $ 59,531
Total interest expense 10,260 12,481 20,735 26,589
-------- -------- -------- --------
Net interest income 17,498 16,802 34,349 32,942
Provision for loan losses 8,000 3,200 23,100 5,525
-------- -------- -------- --------
Net interest income after
provision for loan losses 9,498 13,602 11,249 27,417
NONINTEREST INCOME
Wealth Management revenue 2,249 2,682 5,520 5,266
Deposit service charges 1,249 1,202 2,544 2,139
Sale of other real estate (2) 351 57 342
State tax credit activity, net 109 (29) 63 984
Sale of securities 636 73 952 73
Sales of branch/charter -- (19) -- 560
Other income 575 184 576 616
-------- -------- -------- --------
Total noninterest income 4,816 4,444 9,712 9,980
NONINTEREST EXPENSE
Salaries and benefits 7,255 7,575 14,345 15,914
Occupancy 1,261 977 2,428 2,060
Furniture and equipment 359 355 723 719
Goodwill impairment charge -- -- 45,377 --
Other 6,443 3,816 11,952 7,863
-------- -------- -------- --------
Total noninterest expense 15,318 12,723 74,825 26,556
Minority interest in net income
of consolidated subsidiary -- -- -- --
(Loss) income before income tax (1,004) 5,323 (53,864) 10,841
Income tax (benefit) expense (1,390) 1,823 (3,633) 3,778
-------- -------- -------- --------
Net income (loss) 386 3,500 (50,231) 7,063
Dividends on preferred stock (602) -- (1,201) --
-------- -------- -------- --------
Net (loss) income available
to common shareholders $ (216) $ 3,500 $(51,432) $ 7,063
======== ======== ======== ========
Basic (loss) earnings
per share $ (0.02) $ 0.28 $ (4.01) $ 0.57
Diluted (loss) earnings
per share $ (0.02) $ 0.27 $ (4.01) $ 0.56
Return on average assets (0.04%) 0.67% (4.61%) 0.70%
Return on average common equity (0.64%) 7.77% (64.40%) 7.95%
Efficiency ratio 68.65% 59.88% 169.82% 61.87%
Noninterest expense
to average assets 2.77% 2.43% 6.71% 2.62%
YIELDS (fully tax equivalent)
Loans 5.53% 6.30% 5.47% 6.60%
Securities 3.62% 4.60% 3.96% 4.71%
Federal funds sold 0.61% 1.85% 0.63% 2.88%
Yield on earning assets 5.37% 6.17% 5.35% 6.46%
Interest-bearing deposits 2.03% 2.78% 2.08% 3.11%
Subordinated debt 6.19% 5.66% 6.31% 6.18%
Borrowed funds 2.48% 3.44% 2.28% 3.60%
Cost of paying liabilities 2.28% 2.97% 2.31% 3.29%
Net interest spread 3.09% 3.20% 3.04% 3.17%
Net interest rate margin 3.41% 3.56% 3.36% 3.60%
RECONCILATION OF PRE-TAX (LOSS) INCOME TO PRE-TAX OPERATING
EARNINGS BEFORE PROVISION
For the Quarter Ended
(All amounts in thousands, Jun 30, Mar 31, Jun 30,
except per share data) 2009 2009 2008
-------------------------- -------- -------- --------
U.S. GAAP (loss) income before
income tax $ (1,004) $(52,860) $ 5,323
Goodwill impairment charge -- 45,377 --
Sale of Kansas City nonstrategic
branch/charter -- -- (19)
FDIC special assessment (included in
Other noninterest expense) 1,100 -- --
-------- -------- --------
Operating earnings (loss)
before income tax 96 (7,483) 5,304
Provision for loan losses 8,000 15,100 3,200
-------- -------- --------
Operating earnings before income taxes
and provision for loan losses $ 8,096 $ 7,617 $ 8,504
======== ======== ========
ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (cont.)
(unaudited)
(In thousands)
BALANCE Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
SHEETS 2009 2009 2008 2008 2008
---------- ---------- ---------- ---------- ----------
ASSETS
Cash and
due from
banks $ 41,490 $ 41,875 $ 25,626 $ 38,641 $ 67,661
Federal
funds sold 4,252 3,310 2,637 1,718 15,630
Interest
-bearing
deposits 2,893 5,852 14,384 2,178 349
Debt and
equity
invest
-ments 169,309 123,773 108,315 113,932 120,072
Loans held
for sale 2,004 2,659 2,632 520 1,666
Portfolio
loans 1,905,340 1,963,975 1,977,175 1,942,600 1,849,415
Less
allowance
for loan
losses 42,635 39,612 31,309 25,662 24,011
---------- ---------- ---------- ---------- ----------
Net loans 1,862,705 1,924,363 1,945,866 1,916,938 1,825,404
---------- ---------- ---------- ---------- ----------
Other real
estate 16,053 13,251 13,868 11,285 9,294
Premises
and
equipment,
net 23,872 24,608 25,158 25,166 25,238
State tax
credits,
held for
sale 42,609 43,474 39,142 37,751 37,882
Goodwill 3,134 3,134 48,512 51,312 57,910
Core
deposit
intangible 1,874 1,997 2,126 2,256 2,729
Other
amortizing
intang
-ibles 1,081 1,230 1,378 2,090 2,301
Other
assets 43,653 41,177 40,530 32,614 31,582
---------- ---------- ---------- ---------- ----------
Total
assets $2,214,929 $2,230,703 $2,270,174 $2,236,401 $2,197,718
========== ========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest
-bearing
deposits 238,139 238,449 247,361 225,013 240,148
Interest
-bearing
deposits 1,521,125 1,507,110 1,545,423 1,463,040 1,429,598
---------- ---------- ---------- ---------- ----------
Total
deposits 1,759,264 1,745,559 1,792,784 1,688,053 1,669,746
Subordinated
debentures 85,081 85,081 85,081 59,307 56,807
FHLB
advances 139,520 119,939 119,957 222,926 203,043
Federal
funds
purchased 21,650 74,400 19,400 36,600 1,081
Other
borrowings 33,824 31,767 26,760 36,632 71,805
Other
liabil
-ities 9,366 7,073 8,404 7,924 12,335
---------- ---------- ---------- ---------- ----------
Total
liabil
-ities 2,048,705 2,063,819 2,052,386 2,051,442 2,014,817
Share
-holders'
equity 166,224 166,884 217,788 184,959 182,901
---------- ---------- ---------- ---------- ----------
Total
liabil
-ities
and share
-holders'
equity $2,214,929 $2,230,703 $2,270,174 $2,236,401 $2,197,718
========== ========== ========== ========== ==========
ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (cont.)
(unaudited)
(In thousands,
except per
share data) For the Quarter Ended
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2009 2009 2008 2008 2008
---------- ---------- ---------- ---------- ----------
EARNINGS SUMMARY
Net
interest
income $ 17,498 $ 16,851 $ 17,200 $ 16,584 $ 16,802
Provision
for loan
losses 8,000 15,100 14,125 2,825 3,200
Wealth
Mangement
revenue 2,249 3,271 2,943 2,640 2,682
Noninterest
income 2,567 1,625 4,707 5,001 1,762
Noninterest
expense 15,318 59,507 17,817 19,133 12,723
Minority
interest
in net
income of
consol
-idated
subsidiary -- -- -- -- --
(Loss)
income
before
income tax (1,004) (52,860) (7,092) 2,267 5,323
Net income
(loss) 386 (50,617) (3,952) 1,319 3,500
Net (loss)
income
available
to common
share
-holders (216) (51,216) (4,031) 1,319 3,500
Diluted
(loss)
earnings
per share $ (0.02) $ (3.99) $ (0.32) $ 0.10 $ 0.27
Return on
average
common
equity (0.64%) (111.00%) (8.60%) 2.81% 7.77%
Net
interest
rate
margin
(fully tax
equivalent) 3.41% 3.32% 3.37% 3.34% 3.56%
Efficiency
ratio 68.65% 273.63% 71.70% 78.98% 59.88%
MARKET DATA
Book value
per common
share $ 10.53 $ 10.58 $ 14.58 $ 14.57 $ 14.45
Tangible
book value
per common
share $ 10.05 $ 10.08 $ 10.52 $ 10.19 $ 9.48
Market
value per
share $ 9.09 $ 9.76 $ 15.24 $ 22.56 $ 18.85
Period end
common
shares
outstanding 12,834 12,833 12,801 12,694 12,654
Average
basic
common
shares 12,833 12,828 12,702 12,664 12,545
Average
diluted
common
shares 12,833 12,828 12,702 12,817 12,760
ASSET QUALITY
Net charge
-offs $ 4,977 $ 6,797 $ 8,478 $ 1,123 $ 1,439
Nonper
-forming
loans $ 49,188 $ 50,458 $ 29,662 $ 23,546 $ 13,180
Nonper
-forming
loans to
total
loans 2.58% 2.57% 1.50% 1.21% 0.71%
Nonper
-forming
assets to
total
assets 2.95% 2.86% 1.92% 1.56% 1.02%
Allowance
for loan
losses to
total
loans 2.24% 2.02% 1.58% 1.32% 1.30%
Net charge
-offs to
average
loans
(annua
-lized) 1.03% 1.39% 1.73% 0.24% 0.32%
CAPITAL
Average
common
equity to
average
assets 6.09% 8.22% 8.30% 8.55% 8.62%
Tier 1
capital to
risk
-weighted
assets 8.47% 8.22% 8.89% 8.83% 8.76%
Total
capital to
risk
-weighted
assets 13.13% 12.75% 12.81% 10.18% 9.96%
Tangible
common
equity to
tangible
assets 5.84% 5.82% 6.07% 5.93% 5.62%
AVERAGE BALANCES
Portfolio
loans $1,940,411 $1,980,871 $1,947,690 $1,881,428 $1,790,491
Earning
assets 2,095,328 2,105,599 2,071,560 2,005,635 1,922,309
Total
assets 2,220,257 2,275,196 2,246,772 2,184,804 2,102,582
Deposits 1,748,637 1,716,291 1,739,525 1,645,396 1,600,805
Share
-holders'
equity 166,371 218,247 190,874 186,848 181,274
LOAN PORTFOLIO
Commercial
and
indus
-trial $ 558,146 $ 545,110 $ 556,210 $ 539,924 $ 510,377
Commercial
real estate 782,323 815,971 829,476 845,221 835,688
Construction
real estate 307,482 328,594 337,550 313,262 284,556
Residential
real estate 234,391 246,057 228,772 218,642 193,630
Consumer
and other 22,998 28,243 25,167 25,550 25,164
---------- ---------- ---------- ---------- ----------
Total loan
port
-folio $1,905,340 $1,963,975 $1,977,175 $1,942,599 $1,849,415
DEPOSIT PORTFOLIO
Noninterest
-bearing
accounts $ 238,139 $ 238,449 $ 247,361 $ 225,013 $ 240,148
Interest
-bearing
transaction
accounts 129,680 129,389 126,644 118,614 134,659
Money market
and savings
accounts 619,686 630,744 710,712 664,436 680,635
Certificates
of deposit 771,759 746,977 708,067 679,990 614,304
---------- ---------- ---------- ---------- ----------
Total
deposit
port
-folio $1,759,264 $1,745,559 $1,792,784 $1,688,053 $1,669,746
ENTERPRISE FINANCIAL SERVICES CORP
CONSOLIDATED FINANCIAL SUMMARY (cont.)
(unaudited)
(In thousands) For the Quarter Ended
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2009 2009 2008 2008 2008
---------- ---------- ---------- ---------- ----------
YIELDS
(fully tax
equivalent)
Loans 5.53% 5.41% 5.74% 5.94% 6.30%
Securities 3.62% 4.44% 4.70% 4.75% 4.60%
Federal
funds sold 0.61% 0.64% 1.59% 2.12% 1.85%
Yield on
earning
assets 5.37% 5.33% 5.67% 5.86% 6.17%
Interest
-bearing
deposits 2.03% 2.13% 2.47% 2.72% 2.78%
Subordinated
debt 6.19% 6.43% 6.04% 5.63% 5.66%
Borrowed
funds 2.48% 2.11% 2.67% 2.98% 3.44%
Cost of
paying
liabilities 2.28% 2.33% 2.62% 2.85% 2.97%
Net interest
spread 3.09% 3.00% 3.05% 3.01% 3.20%
Net interest
rate margin 3.41% 3.32% 3.37% 3.34% 3.56%
WEALTH MANAGEMENT
Trust
Assets
under
manage
-ment $ 691,927 $ 681,839 $ 790,646 $ 930,100 $ 986,717
Trust
Assets
under
admin
-istration 1,113,466 1,084,830 1,220,733 1,453,476 1,532,559