Enterprise Financial Services Corp Q1 FY2024 earnings call

Jim Lally highlighted the first quarter's sound performance, noting net interest income was flat despite challenges, loan growth was moderated but on pace for mid-single loan growth, and deposits remained flat with a slight increase in brokered CDs. Scott Goodman discussed loan growth breakdown by sector, with C&I, owner-occupied real estate, life insurance premium finance, and construction development driving growth, and deposit growth including seasonal outflows and strong specialty deposit business growth. Keene Turner detailed earnings per share, net interest income changes, credit trends showing stable non-performing assets, fee income seasonality, and expense details such as seasonal bonus accruals and core conversion-related expenses.

For the first quarter, the company earned net income of $40.4 million or $1.05 per diluted share. Net interest income was essentially flat at just under $140 million, with a net interest margin of 4.13%. Loan growth totaled $144 million, pushing loans to $11 billion, with growth led by C&I, LIPF, and construction lending. Total deposits remained flat at $12.3 billion, with the loan-to-deposit ratio at 90%. Capital levels were stable, with a TCE to TA ratio of 9.01% and tangible book value per common share at $34.21, an annualized increase of 4%.

The company expects mid-single digit loan growth for the year, with loan growth funded by client deposits. Net interest margin is anticipated to drift around 5 basis points per quarter on the existing balance sheet, with margin leveling around 4% by year-end if there are no rate cuts. In the event of rate cuts, each quarter point reduction in Fed funds is expected to result in margin loss and impact net interest income. The dividend was increased by $0.01 per share, and modest common stock repurchases have begun.

Interest rate fluctuations could impact net interest income and margin. Loan growth may be affected by lower demand in specific areas like investor-owned commercial real estate. The agricultural portfolio runoff of approximately $100 million by year-end could act as a headwind, and economic uncertainty poses risks to credit quality.

Q: Jeff Rulis asked about loan growth guidance and ag portfolio runoff.

A: Jim Lally stated mid-single loan growth includes the ag portfolio runoff, with an expected $100 million runoff by year-end.

Q: Andrew Liesch inquired about margin trends and seasonal expenses.

A: Keene Turner discussed margin drift expectations and seasonal expense impacts including bonus accruals and core conversion costs.

Q: Damon DelMonte asked about tax credit income volatility and provision levels.

A: Keene Turner explained the rate impact on tax credit income and provided an outlook on the provision level considering economic factors.

Q: Brian Martin asked about margin pickup, credit trends, and fee income components.

A: Keene Turner and Doug Bauche discussed margin pickup from loan re-pricing, credit trends in classified and criticized loans, and fee income components including SBA gains and tax credit impacts