Enterprise Financial Reports Third Quarter 2016 Results

Reported Highlights
  • Net income of $0.59 per diluted share, decreased 3% over the linked quarter, and increased 23% compared to the third quarter of 2015
  • Return on average assets of 1.23% in the quarter
  • Portfolio loans grew 21% on an annualized basis, and 17% from the prior year period
  • Announcement of definitive agreement to acquire Jefferson County Bancshares, Inc.

Core Highlights 1
  • Core net income of $0.49 per diluted share, same as the linked quarter, and increased 11% compared to the third quarter of 2015
  • Core net interest income increased 4% in the linked quarter, and 16% from the prior year period
  • Core efficiency ratio of 52.8% for the quarter

ST. LOUIS, Oct. 24, 2016 (GLOBE NEWSWIRE) -- Enterprise Financial Services Corp (NASDAQ:EFSC) (the "Company") reported net income of $11.8 million for the quarter ended September 30, 2016, a decrease of $0.5 million, or 4%, as compared to the linked second quarter.  Net income per diluted share was $0.59 for the quarter ended September 30, 2016, a decrease of $0.02 compared to $0.61 per diluted share for the linked second quarter.  The decrease from the linked quarter primarily resulted from lower contribution from Purchased credit impaired ("PCI) loans.  Third quarter 2016 net income increased 22% from $9.7 million for the prior year period, and diluted earnings per share increased $0.11, or 23%, from $0.48 reported a year ago.  The increase in net income over the prior year was largely due to an increase in net interest income from strong loan growth, and an increase in other noninterest income.

On a core basis 1, the Company reported net income of $9.9 million, or $0.49 per diluted share, for the quarter ended September 30, 2016, compared to $9.9 million, or $0.49 per diluted share, in the linked second quarter.  Third quarter 2016 core net income increased 12% from $8.9 million for the prior year period, and diluted core earnings per share grew 11% from $0.44 for the prior year period.  The increase in the year over year results was due to higher levels of net interest income from continued growth in earning asset balances, partially offset by higher provision for portfolio loan losses.  Core net income for the quarter excludes the impact of PCI loan balances in excess of the contractual interest and merger related expenses of $0.3 million. 

On October 10, 2016, the Company entered into a definitive merger agreement to acquire Jefferson County Bancshares, Inc. ("JCB") headquartered in Jefferson County, Missouri.  JCB is the parent holding company of Eagle Bank and Trust Company of Missouri.  The transaction is anticipated to close in early 2017, and is subject to normal and customary closing conditions, including but not limited to, regulatory approval and approval by JCB shareholders.  The merger with JCB is expected to accelerate the Company's St. Louis market expansion and add valuable scale and operating leverage to this market.  The Company believes that JCB's commercial and retail customer bases are complementary to EFSC's existing product sets.

The Company's Board of Directors approved the Company's quarterly dividend of $0.11 per common share, payable on December 30, 2016 to shareholders of record as of December 15, 2016.

Peter Benoist, EFSC's chief executive officer, commented, "Enterprise's momentum continued through the third quarter, with reported net income and EPS rising 22% and 23%, respectively, over the prior year period. Profitability measures remain strong with a 1.23% return on average assets and 13.64% return on average tangible common equity for the quarter."

"Earnings per share from our core banking operations rose 11% from a year ago, driven by a combination of robust loan growth, margin expansion and effective expense management. We're especially pleased by the broad-based nature of our loan growth, extending across diverse C&I, CRE and specialized lending categories."

"Third quarter core earnings per share also matched our record-level second quarter performance, despite a higher provision expense. We bumped up the provision to keep pace with our 21% annualized loan growth rate during the quarter and to reflect the shift in one relationship to a nonperforming status. Credit quality measures remain very favorable in all portfolio segments."

Benoist added, "We are delighted to cap off a successful quarter with a definitive agreement to acquire the $1 billion Jefferson County Bancshares, Inc. and its Eagle Bank and Trust subsidiary.  JCB is a high quality organization that will mesh well with Enterprise, adding a substantial core deposit base and distribution platform to our already strong position in the St. Louis market.  We look forward to welcoming JCB to our team."

Net Interest Income

Net interest income in the third quarter remained stable from the linked second quarter, and increased $3.8 million from the prior year period due to strong growth in portfolio loan balances and increases in net interest margin discussed below.  Net interest margin, on a fully tax equivalent basis, was 3.80% for the third quarter, compared to 3.93% in the linked second quarter, and 3.77% in the third quarter of 2015.

The yield on Portfolio loans improved to 4.25% in the third quarter, an increase of five basis points from the linked second quarter, and nine basis points from the prior year quarter.  The increase was primarily due to an increase in loan fee revenue.  In the third quarter of 2016, the yield on PCI loans was 23.07%, compared to 30.07% in the linked quarter, and 19.41% in the prior year period.

The cost of interest-bearing liabilities increased two basis points to 0.52% in the third quarter of 2016 from 0.50% in the linked second quarter, but was one basis point lower than 0.53% in the third quarter of 2015.  The increase from the linked quarter was due to a shift in the composition of deposits, and the decrease from the prior year period was primarily from lower rates on time deposit balances and a more favorable funding mix.

Core net interest margin 1, defined as the net interest margin (fully tax equivalent), including contractual interest on PCI loans but excluding the incremental accretion on these loans, was as follows:
  For the Quarter ended
($ in thousands) September 30,  2016   June 30,  2016   March 31,  2016   December 31,  2015   September 30,  2015
Core net interest margin 1 3.54 %   3.52 %   3.54 %   3.50 %   3.41 %
Core net interest income 1 31,534     30,212     29,594     28,667     27,087  
                             

Core net interest income 1 increased 4% compared to the linked quarter, and 16% compared to the prior year period due to strong portfolio loan growth and improvement in net interest margin.  Core net interest income increased by $1.3 million to $31.5 million when compared to the linked quarter, and Core net interest margin 1 increased two basis points to 3.54% primarily from the aforementioned increase in portfolio loan yield.  Core net interest margin expanded 13 basis points from the prior year quarter, primarily due to loan growth improving the earning asset mix, lower funding costs, and the aforementioned increase in the yield on portfolio loans.  The Company continues to manage its balance sheet to grow core net interest income and expects to maintain core net interest margin over the coming quarters; however, pressure on funding costs and continued reductions in PCI loan balances could negate the expected trends in core net interest margin.

Portfolio Loans

Portfolio loans increased to $3.0 billion at September 30, 2016, increasing $154 million, or 21% on an annualized basis, when compared to the linked quarter.  On a year over year basis, portfolio loans increased $436 million, or 17%.  The Company expects continued loan growth in the fourth quarter of 2016, and loan growth, excluding the acquisition of JCB, at or above 10% for 2017.

During the quarter ended September 30, 2016, the Company grew loans in all categories with the exception of Tax credits and Consumer and other.  Commercial and industrial ("C&I") loans increased $58 million during the third quarter of 2016 over the linked second quarter and represented 53% of the Company's loan portfolio at September 30, 2016.  C&I loans remain the Company's primary focus resulting in growth of $233 million, or 17%, since September 30, 2015.

The Company continues to focus on originating high-quality C&I relationships, as they typically have variable interest rates and allow for cross selling opportunities involving other banking products.  The Company's specialized lending products, particularly enterprise value lending and life insurance premium finance, have contributed to the growth in the C&I category.  C&I loan growth also supports management's efforts to maintain the Company's asset sensitive interest rate risk position.  At September 30, 2016 and June 30, 2016, 64% of portfolio loans had variable interest rates, as compared to 62% at September 30, 2015.

The following table presents Portfolio loans with selected specialized lending detail for the most recent five quarters:
  At the Quarter ended
(in thousands) September 30,  2016   June 30,  2016   March 31,  2016   December 31,  2015   September 30,  2015
Enterprise value lending $ 394,923     $ 353,915     $ 359,862     $ 350,266     $ 283,205  
C&I - general 755,829     737,904     759,330     732,186     689,274  
Life insurance premium financing 298,845     295,643     272,450     265,184     247,736  
Tax credits 149,218     152,995     153,338     136,691     145,207  
CRE, Construction, and land development 1,044,827     971,130     948,859     932,084     902,100  
Residential 233,960     211,155     202,255     196,498     188,985  
Consumer and other 160,103     161,167     136,522     137,828     145,649  
Portfolio loans $ 3,037,705     $ 2,883,909     $ 2,832,616     $ 2,750,737     $ 2,602,156  
                   
                   

PCI Loans

PCI loans totaled $47.4 million at September 30, 2016, a decrease of $9.1 million, or 64% on an annualized basis, from the linked second quarter, and $36.3 million, or 43%, from the prior year period, primarily as a result of principal paydowns and accelerated loan payoffs.

PCI loans contributed $2.0 million of net earnings in the third quarter of 2016, compared to $2.8 million in the linked second quarter, and $0.8 million in the prior year period.  At September 30, 2016, the remaining accretable yield on the portfolio was estimated to be $16 million and the non-accretable difference was approximately $21 million.  Accelerated cash flows and other incremental accretion from PCI loans was $2.3 million for the quarter ended September 30, 2016, $3.6 million for the linked quarter, $8.7 million for the nine months ended September 30, 2016, and $2.9 million for the prior year quarter.  The Company estimates 2016 income from accelerated cash flows and other incremental accretion to be between $10 million and $12 million.

Asset Quality for Portfolio Loans and Other Real Estate

The following table presents the categories of nonperforming assets and related ratios for the most recent five quarters:
  For the Quarter ended
(in thousands) September 30,  2016   June 30,  2016   March 31,  2016   December 31,  2015   September 30,  2015
Nonperforming loans $ 19,942     $ 12,813     $ 9,513     $ 9,100     $ 9,123  
Other real estate from originated loans 2,719     2,741     2,813     3,218     1,575  
Other real estate from PCI loans 240     2,160     7,067     5,148      
Nonperforming assets $ 22,901     $ 17,714     $ 19,393     $ 17,466     $ 10,698  
Nonperforming loans to portfolio loans 0.66 %   0.44 %   0.34 %   0.33 %   0.35 %
Nonperforming assets to total assets 0.59 %   0.47 %   0.52 %   0.48 %   0.30 %
Net charge-offs (recoveries) $ 1,038     $ (409 )   $ (99 )   $ (647 )   $ 113  
                                       

At September 30, 2016, Nonperforming loans were 0.66% of portfolio loans, and Nonperforming assets were 0.59% of total assets.  Nonperforming loans increased 56% to $19.9 million at September 30, 2016, from $12.8 million at June 30, 2016, and increased 119% from $9.1 million at September 30, 2015.  During the quarter ended September 30, 2016, there was one $10.8 million C&I relationship added to nonperforming loans, $2.1 million of charge-offs, $1.1 million of other principal reductions, and $0.5 million assets transferred to performing.

The Company's allowance for loan losses was 1.23% of loans at September 30, 2016, representing 188% of nonperforming loans, as compared to 1.23% at June 30, 2016, representing 277% of nonperforming loans, and 1.24% at September 30, 2015, representing 354% of nonperforming loans.

The Company reported provision for loan loss of $3.0 million compared to $0.7 million in the linked quarter and $0.6 million in the prior year period.  The provision is reflective of growth in the portfolio, maintaining a prudent credit risk posture, as well as reflecting specific reserves on the single relationship added to Nonperforming loans.  Additionally, we experienced net charge-offs of 14 basis points, annualized, during the quarter for the first time since the third quarter of 2015.  The increase in net charge-offs resulted primarily from one relationship.

Deposits

Total deposits at September 30, 2016 were $3.1 billion, an increase of $96.6 million, or 13% on an annualized basis, from June 30, 2016, and $311 million, or 11%, from September 30, 2015.  Core deposits, defined as total deposits excluding time deposits, were $2.6 billion at September 30, 2016, an increase of $131 million, or 21% on an annualized basis, from the linked quarter, and $280 million, or 12%, when compared to the prior year period.  The overall positive trends in deposits reflect enhanced deposit gathering efforts in both commercial and business banking.

Noninterest-bearing deposits increased $9.0 million compared to June 30, 2016, and increased $70.4 million compared to the quarter ended September 30, 2015.  The composition of Noninterest-bearing deposits remained relatively stable at 24% of total deposits at September 30, 2016, compared to June 30, 2016 and September 30, 2015.  The total cost of deposits increased one basis point to 0.37% compared to 0.36% at June 30, 2016, and declined two basis points since September 30, 2015.

Noninterest Income

Deposit service charges for the third quarter of 2016 of $2.2 million grew 1% when compared to the linked quarter, and grew 8% when compared to the prior year quarter, due primarily to growth in customer relationships.  Wealth management revenues for the third quarter of 2016 of $1.7 million grew 3% when compared to the linked second quarter, and decreased $0.1 million, when compared to the prior year period.

Trust assets under management were $930 million at September 30, 2016, an increase of $32.6 million, or 4%, when compared to June 30, 2016, and an increase of $81.4 million, or 10%, when compared to the prior year period.  The increase from the linked quarter and the prior year quarter was primarily due to market appreciation.

Gains from state tax credit brokerage activities were $0.2 million for the third quarter of 2016 and for the linked second quarter, and $0.3 million in the third quarter of 2015.  Sales of state tax credits can vary by quarter, but generally occur in the first and fourth quarters of the year depending on client demand and availability of the tax credits.

Other noninterest income increased 27% to $3.0 million compared to the linked quarter, and increased 66% from the prior year period.  The increase from the linked and prior year quarter was primarily due to fees earned from certain recoveries, swap fee income, and fee income from card products.

Noninterest Expenses

Noninterest expenses were $20.8 million for the quarter ended September 30, 2016, compared to $21.4 million for the quarter ended June 30, 2016, and $19.9 million for the quarter ended September 30, 2015.  Core noninterest expenses 1 were $20.2 million for the quarter ended September 30, 2016, compared to $20.4 million for the linked quarter, and $19.3 million for the prior year period.  The decrease from the linked quarter was due to lower employee-related expenses and professional fees.  The increase from the prior year period was primarily due to an increase in Employee compensation and benefits from the addition of client service personnel to facilitate growth.

The Company's Core efficiency ratio 1 declined to 52.8% for the quarter ended September 30, 2016, compared to 56.3% for the linked quarter, and 58.6% for the prior year period, and reflects overall expense management, in light of enhanced revenue growth trends.   

The Company anticipates total noninterest expenses to be between $19.5 million and $21.5 million for the fourth quarter of 2016.

Other Business Results

During the quarter ended September 30, 2016, the Company repurchased 6,700 common shares at $26.50 per share under its publicly announced plan.  The plan allows for repurchase of up to two million common shares, representing approximately 10% of the Company's currently outstanding shares.

The total risk based capital ratio 1 was 12.01% at September 30, 2016, compared to 12.16% at June 30, 2016, and 12.55% at September 30, 2015.  The Company's Common equity tier 1 capital ratio 1 was 9.33% at September 30, 2016, compared to 9.38% at June 30, 2016, and 9.59% at September 30, 2015.  The tangible common equity ratio 1 was 8.99% at September 30, 2016, versus 9.08% at June 30, 2016, and 8.90% at September 30, 2015.

The decrease in the tangible common equity ratio as compared to the linked quarter is due to asset growth out-pacing earnings growth and a slight decline in the net realized gain on the investment portfolio.  Capital ratios for the current quarter are based on the Basel III regulatory capital framework as applied to the Company's current businesses and operations, and are subject to, among other things, completion and filing of the Company's regulatory reports and ongoing regulatory review and implementation guidance.  The attached tables contain a reconciliation of these ratios to U.S. GAAP financial measures.

The Company's effective tax rate was 34.8% for the quarter ended September 30, 2016 compared to 35.3% for the quarter ended June 30, 2016, and 32.7% for the quarter ended September 30, 2015.  The increase over the prior year period resulted from a state income tax benefit from prior year tax refunds recorded in the third quarter of 2015.

Use of Non-GAAP Financial Measures 1

The Company's accounting and reporting policies conform to generally accepted accounting principles in the United States ("GAAP") and the prevailing practices in the banking industry. However, the Company provides other financial measures, such as Core net income and net interest margin, and other Core performance measures, regulatory capital ratios, and the tangible common equity ratio, in this release that are considered "non-GAAP financial measures." Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position, or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.

The Company considers its Core performance measures presented in this earnings release and the included tables as important measures of financial performance, even though they are non-GAAP measures, as they provide supplemental information by which to evaluate the impact of PCI loans and related income and expenses, the impact of certain non-comparable items, and the Company's operating performance on an ongoing basis.  Core performance measures include contractual interest on PCI loans, but exclude incremental accretion on these loans.  Core performance measures also exclude the Change in FDIC receivable, Gain or loss on sale of other real estate from PCI loans, and expenses directly related to PCI loans and other assets formerly covered under FDIC loss share agreements.  Core performance measures also exclude certain other income and expense items, such as executive separation costs, merger related expenses, and the gain or loss on sale of investment securities, the Company believes to be not indicative of or useful to measure the Company's operating performance on an ongoing basis.  The attached tables contain a reconciliation of these Core performance measures to the GAAP measures.  The Company believes that the tangible common equity ratio provides useful information to investors about the Company's capital strength even though it is considered to be a non-GAAP financial measure and is not part of the regulatory capital requirements to which the Company is subject.

The Company believes these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding the Company's performance and capital strength. The Company's management uses, and believes that investors benefit from referring to, these non-GAAP measures and ratios in assessing the Company's operating results and related trends and when forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP.  In the attached tables, the Company has provided a reconciliation of, where applicable, the most comparable GAAP financial measures and ratios to the non-GAAP financial measures and ratios, or a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.

The Company will host a conference call and webcast at 2:30 p.m. Central time on Tuesday, October 25, 2016.  During the call, management will review the third quarter of 2016 results and related matters.  This press release as well as a related slide presentation will be accessible on the Company's website at www.enterprisebank.com under "Investor Relations" beginning prior to the scheduled broadcast of the conference call.  The call can be accessed via this same website page, or via telephone at 1-800-533-7954 (Conference ID #3853518.)  A recorded replay of the conference call will be available on the website two hours after the call's completion.  Visit http://bit.ly/EFSC3Qearnings and register to receive a dial in number, passcode, and pin number.   The replay will be available for approximately two weeks following the conference call.

Enterprise Financial Services Corp operates commercial banking and wealth management businesses in metropolitan St. Louis, Kansas City, and Phoenix.  The Company is primarily focused on serving the needs of privately held businesses, their owner families, executives and professionals.

Forward-looking Statements

Readers should note that, in addition to the historical information contained herein, this press release contains "forward-looking statements" within the meaning of, and intended to be covered by, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include, but are not limited to, statements about the Company's plans, expectations, and projections of future financial and operating results, as well as statements regarding the Company's plans, objectives, expectations or consequences of announced transactions (including the Company's announced, pending merger with Jefferson County Bancshares, Inc.).  The Company uses words such as "may," "might," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "could," "continue," "anticipate," and "intend", and variations of such words and similar expressions, in this communication to identify such forward-looking statements.  Forward-looking statements 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, the Company's ability to efficiently integrate acquisitions into its operations, retain the customers of these businesses and grow the acquired operations, credit risk, changes in the appraised valuation of real estate securing impaired loans, outcomes of litigation and other contingencies, exposure to general and local economic conditions, risks associated with rapid increases or decreases in prevailing interest rates, consolidation in the banking industry, competition from banks and other financial institutions, the Company's ability to attract and retain relationship officers and other key personnel, burdens imposed by federal and state regulation, changes in regulatory requirements, changes in accounting regulation or standards applicable to banks, as well as other risk factors described in the Company's 2015 Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission.  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 unless required under the federal securities laws.

Additional Information About the Merger and Where to Find It

In connection with the proposed merger transaction, the Company will file with the Securities and Exchange Commission (the "SEC") a Registration Statement on Form S-4 that will include a Proxy Statement of JCB, and a Prospectus of the Company, as well as other relevant documents concerning the proposed transaction. Shareholders are urged to read the Registration Statement and the Proxy Statement/Prospectus regarding the merger when it becomes available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information.

A free copy of the Proxy Statement/Prospectus, as well as other filings containing information about the Company and JCB, may be obtained once filed at the SEC's website www.sec.gov. The Company and JCB and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of JCB in connection with the proposed merger. Information about the directors and executive officers of the Company is set forth in the proxy statement for the Company's 2016 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 16, 2016. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement/Prospectus regarding the proposed merger when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph.

1 A non-GAAP measure.  Refer to discussion & reconciliation of these measures in the accompanying financial tables.
ENTERPRISE FINANCIAL SERVICES CORP CONSOLIDATED FINANCIAL SUMMARY (unaudited)
 
  For the Quarter ended   For the Nine Months ended
(in thousands, except per share data) Sep 30,  2016   Jun 30,  2016   Mar 31,  2016   Dec 31,  2015   Sep 30,  2015   Sep 30,  2016   Sep 30,  2015
EARNINGS SUMMARY                          
Net interest income $ 33,830     $ 33,783     $ 32,428     $ 32,079     $ 30,006     $ 100,041     $ 88,331  
Provision for loan losses - portfolio loans 3,038     716     833     543     599     4,587     4,329  
Provision reversal for loan losses - purchased credit impaired loans (1,194 )   (336 )   (73 )   (917 )   (227 )   (1,603 )   (3,497 )
Noninterest income 6,976     7,049     6,005     6,557     4,729     20,030     14,118  
Noninterest expense 20,814     21,353     20,762     22,886     19,932     62,929     59,340  
Income before income tax expense 18,148     19,099     16,911     16,124     14,431     54,158     42,277  
Income tax expense 6,316     6,747     5,886     5,445     4,722     18,949     14,506  
Net income $ 11,832     $ 12,352     $ 11,025     $ 10,679     $ 9,709     $ 35,209     $ 27,771  
                           
Diluted earnings per share $ 0.59     $ 0.61     $ 0.54     $ 0.52     $ 0.48     $ 1.74     $ 1.37  
Return on average assets 1.23 %   1.33 %   1.22 %   1.20 %   1.13 %   1.26 %   1.11 %
Return on average common equity 12.46 %   13.57 %   12.46 %   12.14 %   11.38 %   12.83 %   11.24 %
Return on average tangible common equity 13.64 %   14.91 %   13.74 %   13.43 %   12.65 %   14.10 %   12.53 %
Net interest margin (fully tax equivalent) 3.80 %   3.93 %   3.87 %   3.91 %   3.77 %   3.87 %   3.84 %
Efficiency ratio 51.01 %   52.29 %   54.02 %   59.23 %   57.38 %   52.41 %   57.92 %
                           
CORE PERFORMANCE SUMMARY (NON-GAAP) 1                    
Net interest income $ 31,534     $ 30,212     $ 29,594     $ 28,667     $ 27,087     $ 91,340     $ 78,951  
Provision for loan losses 3,038     716     833     543     599     4,587     4,329  
Noninterest income 6,828     6,105     6,005     7,056     5,939     18,938     18,519  
Noninterest expense 20,242     20,446     20,435     20,027     19,347     61,123     57,445  
Income before income tax expense 15,082     15,155     14,331     15,153     13,080     44,568     35,696  
Income tax expense 5,142     5,237     4,897     5,073     4,204     15,276     11,985  
Net income $ 9,940     $ 9,918     $ 9,434     $ 10,080     $ 8,876     $ 29,292     $ 23,711  
                           
Diluted earnings per share $ 0.49     $ 0.49     $ 0.47     $ 0.49     $ 0.44     $ 1.45     $ 1.17  
Return on average assets 1.04 %   1.07 %   1.04 %   1.13 %   1.03 %   1.05 %   0.95 %
Return on average common equity 10.47 %   10.89 %   10.66 %   11.46 %   10.41 %   10.67 %   9.59 %
Return on average tangible common equity 11.46 %   11.98 %   11.76 %   12.68 %   11.56 %   11.73 %   10.70 %
Net interest margin (fully tax equivalent) 3.54 %   3.52 %   3.54 %   3.50 %   3.41 %   3.53 %   3.44 %
Efficiency ratio 52.77 %   56.30 %   57.40 %   56.06 %   58.58 %   55.43 %   58.94 %
                           
1 Refer to Reconciliations of Non-GAAP Financial Measures table for a reconciliation of these measures to GAAP.

 
ENTERPRISE FINANCIAL SERVICES CORP CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
 
  For the Quarter ended   For the Nine Months ended
(in thousands, except per share data) Sep 30,  2016   Jun 30,  2016   Mar 31,  2016   Dec 31,  2015   Sep 30,  2015   Sep 30,  2016   Sep 30,  2015
INCOME STATEMENTS                          
NET INTEREST INCOME                          
Total interest income $ 37,293     $ 37,033     $ 35,460     $ 35,096     $ 33,180     $ 109,786     $ 97,683  
Total interest expense 3,463     3,250     3,032     3,017     3,174     9,745     9,352  
Net interest income 33,830     33,783     32,428     32,079     30,006     100,041     88,331  
Provision for portfolio loans 3,038     716     833     543     599     4,587     4,329  
Provision reversal for purchased credit impaired loans (1,194 )   (336 )   (73 )   (917 )   (227 )   (1,603 )   (3,497 )
Net interest income after provision for loan losses 31,986     33,403     31,668     32,453     29,634     97,057     87,499  
                           
NONINTEREST INCOME                          
Deposit service charges 2,200     2,188     2,043     2,025     2,044     6,431     5,898  
Wealth management revenue 1,694     1,644     1,662     1,716     1,773     5,000     5,291  
State tax credit activity, net 228     153     518     1,651     321     899     1,069  
Gain (loss) on sale of other real estate (226 )   706     122     81     32     602     61  
Gain on sale of investment securities 86                     86     23  
Change in FDIC loss share receivable             (580 )   (1,241 )       (4,450 )
Other income 2,994     2,358     1,660     1,664     1,800     7,012     6,226  
Total noninterest income 6,976     7,049     6,005     6,557     4,729     20,030     14,118  
                           
NONINTEREST EXPENSE                          
Employee compensation and benefits 12,091     12,660     12,647     11,833     11,475     37,398     34,262  
Occupancy 1,705     1,609     1,683     1,653     1,605     4,997     4,920  
FDIC clawback                 298         760  
FDIC loss share termination             2,436              
Other 7,018     7,084     6,432     6,964     6,554     20,534     19,398  
Total noninterest expense 20,814     21,353     20,762     22,886     19,932     62,929     59,340  
                           
Income before income tax expense 18,148     19,099     16,911     16,124     14,431     54,158     42,277  
Income tax expense 6,316     6,747     5,886     5,445     4,722     18,949     14,506  
Net income $ 11,832     $ 12,352     $ 11,025     $ 10,679     $ 9,709     $ 35,209     $ 27,771  
                           
Basic earnings per share $ 0.59     $ 0.62     $ 0.55     $ 0.53     $ 0.49     $ 1.76     $ 1.39  
Diluted earnings per share 0.59     0.61     0.54     0.52     0.48     1.74     1.37  

 
ENTERPRISE FINANCIAL SERVICES CORP CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
 
  At the Quarter ended
(in thousands) Sep 30,  2016   Jun 30,  2016   Mar 31,  2016   Dec 31,  2015   Sep 30,  2015
BALANCE SHEETS                  
ASSETS                  
Cash and due from banks $ 56,789     $ 50,370     $ 56,251     $ 47,935     $ 46,775  
Interest-earning deposits 63,690     60,926     50,982     47,222     81,115  
Debt and equity investments 540,429     538,431     524,320     512,939     530,577  
Loans held for sale 7,663     9,669     6,409     6,598     4,275  
                   
Portfolio loans 3,037,705     2,883,909     2,832,616     2,750,737     2,602,156  
Less:  Allowance for loan losses 37,498     35,498     34,373     33,441     32,251  
Portfolio loans, net 3,000,207     2,848,411     2,798,243     2,717,296     2,569,905  
Purchased credit impaired loans, net of the allowance for loan losses 41,016     47,978     53,908     64,583     72,397  
Total loans, net 3,041,223     2,896,389     2,852,151     2,781,879     2,642,302  
                   
Other real estate 1 2,959     4,901     9,880     8,366     1,575  
Other real estate covered under FDIC loss share 1                 6,795  
Fixed assets, net 14,498     14,512     14,812     14,842     14,395  
State tax credits, held for sale 44,180     44,918     45,305     45,850     48,207  
FDIC loss share receivable                 8,619  
Goodwill 30,334     30,334     30,334     30,334     30,334  
Intangible assets, net 2,357     2,589     2,832     3,075     3,323  
Other assets 105,522     108,626     116,629     109,443     98,249  
Total assets $ 3,909,644     $ 3,761,665     $ 3,709,905     $ 3,608,483     $ 3,516,541  
                   
LIABILITIES AND SHAREHOLDERS' EQUITY                  
Noninterest-bearing deposits $ 762,155     $ 753,173     $ 719,652     $ 717,460     $ 691,758  
Interest-bearing deposits 2,362,670     2,275,063     2,212,094     2,067,131     2,122,205  
Total deposits 3,124,825     3,028,236     2,931,746     2,784,591     2,813,963  
Subordinated debentures 56,807     56,807     56,807     56,807     56,807  
Federal Home Loan Bank advances 129,000     78,000     130,500     110,000     75,000  
Other borrowings 190,022     200,362     193,788     270,326     194,684  
Other liabilities 27,892     26,631     37,680     35,930     32,524  
Total liabilities 3,528,546     3,390,036     3,350,521     3,257,654     3,172,978  
Shareholders' equity 381,098     371,629     359,384     350,829     343,563  
Total liabilities and shareholders' equity $ 3,909,644     $ 3,761,665     $ 3,709,905     $ 3,608,483     $ 3,516,541  
                   
1Due to termination of the Company's loss share agreements with the FDIC in the fourth quarter of 2015, Other real estate covered under FDIC loss share was reclassified to Other real estate.

 
ENTERPRISE FINANCIAL SERVICES CORP CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
 
  For the Quarter ended
(in thousands) Sep 30,  2016   Jun 30,  2016   Mar 31,  2016   Dec 31,  2015   Sep 30,  2015
LOAN PORTFOLIO                  
Commercial and industrial $ 1,598,815     $ 1,540,457     $ 1,544,980     $ 1,484,327     $ 1,365,422  
Commercial real estate 855,971     799,352     773,535     771,023     750,001  
Construction real estate 188,856     171,778     175,324     161,061     152,099  
Residential real estate 233,960     211,155     202,255     196,498     188,985  
Consumer and other 160,103     161,167     136,522     137,828     145,649  
Total portfolio loans 3,037,705     2,883,909     2,832,616     2,750,737     2,602,156  
Purchased credit impaired loans 47,449     56,529     63,477     74,758     83,736  
Total loans $ 3,085,154     $ 2,940,438     $ 2,896,093     $ 2,825,495     $ 2,685,892  
                   
DEPOSIT PORTFOLIO                  
Noninterest-bearing accounts $ 762,155     $ 753,173     $ 719,652     $ 717,460     $ 691,758  
Interest-bearing transaction accounts 633,100     628,505     589,635     564,420     529,052  
Money market and savings accounts 1,241,725     1,124,528     1,161,610     1,146,523     1,136,557  
Brokered certificates of deposit 137,592     166,507     157,939     39,573     86,147  
Other certificates of deposit 350,253     355,523     302,910     316,615     370,449  
Total deposit portfolio $ 3,124,825     $ 3,028,236     $ 2,931,746     $ 2,784,591     $ 2,813,963  
                   
AVERAGE BALANCES                  
Portfolio loans $ 2,947,949     $ 2,868,430     $ 2,777,456     $ 2,631,256     $ 2,540,948  
Purchased credit impaired loans 53,198     59,110     69,031     77,485     85,155  
Loans held for sale 10,224     6,102     4,563     5,495     4,255  
Debt and equity investments 527,516     528,120     514,687     521,679     475,180  
Interest-earning assets 3,589,080     3,506,801     3,413,792     3,304,827     3,201,181  
Total assets 3,814,918     3,734,192     3,641,308     3,528,423     3,416,716  
Deposits 3,069,156     2,931,888     2,811,209     2,832,313     2,788,245  
Shareholders' equity 377,861     366,132     355,980     348,908     338,368  
Tangible common equity 345,061     333,093     322,698     315,380     304,583  
                   
YIELDS (fully tax equivalent)                  
Portfolio loans 4.25 %   4.20 %   4.19 %   4.16 %   4.16 %
Purchased credit impaired loans 23.07 %   30.07 %   22.67 %   24.79 %   19.41 %
Total loans 4.58 %   4.72 %   4.64 %   4.75 %   4.66 %
Debt and equity investments 2.25 %   2.28 %   2.34 %   2.27 %   2.23 %
Interest-earning assets 4.18 %   4.30 %   4.23 %   4.27 %   4.17 %
Interest-bearing deposits 0.49 %   0.47 %   0.46 %   0.48 %   0.50 %
Total deposits 0.37 %   0.36 %   0.34 %   0.36 %   0.39 %
Subordinated debentures 2.59 %   2.56 %   2.47 %   2.26 %   2.19 %
Borrowed funds 0.32 %   0.35 %   0.31 %   0.24 %   0.28 %
Cost of paying liabilities 0.52 %   0.50 %   0.48 %   0.50 %   0.53 %
Net interest margin 3.80 %   3.93 %   3.87 %   3.91 %   3.77 %

 
ENTERPRISE FINANCIAL SERVICES CORP CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
 
  For the Quarter ended
(in thousands, except per share data) Sep 30,  2016   Jun 30,  2016   Mar 31,  2016   Dec 31,  2015   Sep 30,  2015
ASSET QUALITY                  
Net charge-offs (recoveries) 1 $ 1,038     $ (409 )   $ (99 )   $ (647 )   $ 113  
Nonperforming loans 1 19,942     12,813     9,513     9,100     9,123  
Classified assets 101,545     87,532     73,194     67,761     62,679  
Nonperforming loans to total loans 1 0.66 %   0.44 %   0.34 %   0.33 %   0.35 %
Nonperforming assets to total assets 2 0.59 %   0.47 %   0.52 %   0.48 %   0.30 %
Allowance for loan losses to total loans 1 1.23 %   1.23 %   1.21 %   1.22 %   1.24 %
Allowance for loan losses to nonperforming loans 1 188.0 %   277.0 %   361.3 %   367.5 %   353.5 %
Net charge-offs (recoveries) to average loans (annualized) 1 0.14 %   (0.06 )%   (0.01 )%   (0.10 )%   0.02 %
                   
WEALTH MANAGEMENT                  
Trust assets under management $ 929,946     $ 897,322     $ 878,236     $ 872,877     $ 848,515  
Trust assets under administration 1,535,033     1,490,389     1,470,974     1,477,917     1,436,372  
                   
MARKET DATA                  
Book value per common share $ 19.07     $ 18.60     $ 17.98     $ 17.53     $ 17.21  
Tangible book value per common share $ 17.43     $ 16.95     $ 16.32     $ 15.86     $ 15.53  
Market value per share $ 31.25     $ 27.89     $ 27.04     $ 28.35     $ 25.17  
Period end common shares outstanding 19,988     19,979     19,993     20,017     19,959  
Average basic common shares 19,997     20,003     20,004     20,007     19,995  
Average diluted common shares 20,224     20,216     20,233     20,386     20,261  
                   
CAPITAL                  
Total risk-based capital to risk-weighted assets 12.01 %   12.16 %   12.02 %   11.85 %   12.55 %
Tier 1 capital to risk-weighted assets 10.82 %   10.92 %   10.77 %   10.61 %   11.30 %
Common equity tier 1 capital to risk-weighted assets 9.33 %   9.38 %   9.20 %   9.05 %   9.59 %
Tangible common equity to tangible assets 8.99 %   9.08 %   8.87 %   8.88 %   8.90 %
                   
1 Portfolio loans only
2 Excludes Other real estate covered under FDIC loss share agreements, except for inclusion in total assets.  Beginning with the quarter ended December 31, 2015, Other real estate covered by FDIC loss share agreements is zero due to termination of the agreements.

 
ENTERPRISE FINANCIAL SERVICES CORP RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
 
  For the Quarter ended   For the Nine Months ended
(in thousands) Sep 30,  2016   Jun 30,  2016   Mar 31,  2016   Dec 31,  2015   Sep 30,  2015   Sep 30,  2016   Sep 30,  2015
CORE PERFORMANCE MEASURES        
Net interest income $ 33,830     $ 33,783     $ 32,428     $ 32,079     $ 30,006     $ 100,041     $ 88,331  
Less: Incremental accretion income 2,296     3,571     2,834     3,412     2,919     8,701     9,380  
Core net interest income 31,534     30,212     29,594     28,667     27,087     91,340     78,951  
                           
Total noninterest income 6,976     7,049     6,005     6,557     4,729     20,030     14,118  
Less: Change in FDIC loss share receivable             (580 )   (1,241 )       (4,450 )
Less: Gain (loss) on sale of other real estate from PCI loans (225 )   705         81     31     480     26  
Less: Gain on sale of investment securities 86                     86     23  
Less: Other income from PCI assets 287     239                 526      
Core noninterest income 6,828     6,105     6,005     7,056     5,939     18,938     18,519  
                           
Total core revenue 38,362     36,317     35,599     35,723     33,026     110,278     97,470  
                           
Provision for portfolio loans 3,038     716     833     543     599     4,587     4,329  
                           
Total noninterest expense 20,814     21,353     20,762     22,886     19,932     62,929     59,340  
Less: FDIC clawback                 298         760  
Less: FDIC loss share termination             2,436              
Less: Other expenses related to PCI loans 270     325     327     423     287     922     1,135  
Less: Executive severance     332                 332      
Less: Merger related expenses 302                     302      
Less: Other non-core expenses     250                 250      
Core noninterest expense 20,242     20,446     20,435     20,027     19,347     61,123     57,445  
                           
Core income before income tax expense 15,082     15,155     14,331     15,153     13,080     44,568     35,696  
Core income tax expense 1 5,142     5,237     4,897     5,073     4,204     15,276     11,985  
Core net income $ 9,940     $ 9,918     $ 9,434     $ 10,080     $ 8,876     $ 29,292     $ 23,711  
                           
Core diluted earnings per share $ 0.49     $ 0.49     $ 0.47     $ 0.49     $ 0.44     $ 1.45     $ 1.17  
Core return on average assets 1.04 %   1.07 %   1.04 %   1.13 %   1.03 %   1.05 %   0.95 %
Core return on average common equity 10.47 %   10.89 %   10.66 %   11.46 %   10.41 %   10.67 %   9.59 %
Core return on average tangible common equity 11.46 %   11.98 %   11.76 %   12.68 %   11.56 %   11.73 %   10.70 %
Core efficiency ratio 52.77 %   56.30 %   57.40 %   56.06 %   58.58 %   55.43 %   58.94 %
                           
NET INTEREST MARGIN TO CORE NET INTEREST MARGIN (FULLY TAX EQUIVALENT)        
Net interest income $ 34,263     $ 34,227     $ 32,887     $ 32,546     $ 30,437     $ 101,377     $ 89,595  
Less: Incremental accretion income 2,296     3,571     2,834     3,412     2,919     8,701     9,380  
Core net interest income $ 31,967     $ 30,656     $ 30,053     $ 29,134     $ 27,518     $ 92,676     $ 80,215  
                           
Average earning assets $ 3,589,080     $ 3,506,801     $ 3,413,792     $ 3,304,827     $ 3,201,181     $ 3,503,538     $ 3,115,658  
Reported net interest margin 3.80 %   3.93 %   3.87 %   3.91 %   3.77 %   3.87 %   3.84 %
Core net interest margin 3.54 %   3.52 %   3.54 %   3.50 %   3.41 %   3.53 %   3.44 %
                           
1Non-core income tax expense calculated at 38.3% of non-core pretax income.

  At the Quarter ended
(in thousands) Sep 30,  2016   Jun 30,  2016   Mar 31,  2016   Dec 31,  2015   Sep 30,  2015
REGULATORY CAPITAL TO RISK-WEIGHTED ASSETS
Shareholders' equity $ 381,098     $ 371,629     $ 359,384     $ 350,829     $ 343,563  
Less: Goodwill 30,334     30,334     30,334     30,334     30,334  
Less: Intangible assets, net of deferred tax liabilities 873     958     1,048     759     820  
Less: Unrealized gains 4,668     5,517     3,929     218     2,973  
Plus: Other 24     23     23     35     35  
Common equity tier 1 capital 345,247     334,843     324,096     319,553     309,471  
Plus: Qualifying trust preferred securities 55,100     55,100     55,100     55,100     55,100  
Plus: Other 35     35     35     23     23  
Tier 1 capital 400,382     389,978     379,231     374,676     364,594  
Plus: Tier 2 capital 44,006     44,124     44,017     43,691     40,385  
Total risk-based capital $ 444,388     $ 434,102     $ 423,248     $ 418,367     $ 404,979  
                   
Total risk-weighted assets $ 3,699,757     $ 3,570,437     $ 3,521,433     $ 3,530,521     $ 3,227,605  
                   
Common equity tier 1 capital to risk-weighted assets 9.33 %   9.38 %   9.20 %   9.05 %   9.59 %
Tier 1 capital to risk-weighted assets 10.82 %   10.92 %   10.77 %   10.61 %   11.30 %
Total risk-based capital to risk-weighted assets 12.01 %   12.16 %   12.02 %   11.85 %   12.55 %
                   
SHAREHOLDERS' EQUITY TO TANGIBLE COMMON EQUITY AND TOTAL ASSETS TO TANGIBLE ASSETS
Shareholders' equity $ 381,098     $ 371,629     $ 359,384     $ 350,829     $ 343,563  
Less: Goodwill 30,334     30,334     30,334     30,334     30,334  
Less: Intangible assets 2,357     2,589     2,832     3,075     3,323  
Tangible common equity $ 348,407     $ 338,706     $ 326,218     $ 317,420     $ 309,906  
                   
Total assets $ 3,909,644     $ 3,761,665     $ 3,709,905     $ 3,608,483     $ 3,516,541  
Less: Goodwill 30,334     30,334     30,334     30,334     30,334  
Less: Intangible assets 2,357     2,589     2,832     3,075     3,323  
Tangible assets $ 3,876,953     $ 3,728,742     $ 3,676,739     $ 3,575,074     $ 3,482,884  
                   
Tangible common equity to tangible assets 8.99 %   9.08 %   8.87 %   8.88 %   8.90 %
For more information contact:Jerry Mueller, Senior Vice President (314) 512-7251Ann Marie Mayuga, AMM Communications (314) 485-9499

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