EFSC - Earnings call transcript Q2 2021 | Enterprise Financial Services Corp

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Operator

Good day, and welcome to the EFSC Earnings Call. At this time, I would like to turn the call over to President and CEO, Mr. Jim Lally. Please go ahead.

Jim Lally

Thank you, Victoria, and good morning, and welcome to our second quarter earnings call. you listening. of all appreciate taking time I And company's Operating Chief this morning & Officer; Turner, our is Keene Trust. Bank Financial Enterprise Scott President joining Goodman, me and of Officer and Chief

like XX-Q this would and copy reasons and forward-looking Slide X-K X our found yesterday. SEC a turn release of on I begin, most results website the of we to everyone were call quarter. of highlights can on presentation vary why to the financial the presentation Forward-Looking may accompanying to XX-K actual titled Form and Statements Please statements recent that X remind morning. Slide and for from any our refer second the we that the for be on make Please Before furnished

$X.XX was reflected for and an earnings tangible of earnings on average $X.XX for quarter XX.X%. our the record common a equity respectively. to level return and prior per quarter, outstanding share. quarter $X.XX our diluted linked in This Second company, year's This produced favorably compared of of

solid loan During annualized we experienced from an XX% $XXX quarter. net million paydowns organic the or on Loans, and deposit linked basis the of quarter, PPP growth. grew

more detail of in our provide the with a of during by X% quality X(a) Focus, to the success. Compared asset driven to comments. an nice specialized Deposits to remiss markets mainly high around approximately growth the higher quarter, our to several came and statistics activity tax million this example a quarter release supported execution to category. be More I a Nevada. about continue features performed a in our the Southwest did commercial mention in An level during the be of Vegas, much Midwestern details The importantly, though, invest regions $XX just have improvement complemented the I $XXX linked this increase in who led million will ago. Southern the Keene the deposit of second increasing GDP team stellar the the pleased of office growth and growth. different LIPF businesses. resume increase saw program to sponsor in finance, credit from Las of our needs be This reflective of our our by is transaction too amid the his lift a dividend of very markets higher-growth and and the the during provide Seacoast will this, markets just year by are I we continue modest from quarter. repurchase to our this continued at our wanted performance at will would remain of credit specialty allowance about These than banking compared that Not continued strength in we SBA teams. announced credit recent not have slightly California. year this if performance the the quarter. will out fundamentals that open saw we stellar. these the focus and high growth and stock are but but discipline improvements On Scott local every ago, note, business. price both operating and mature of team more around more by maintain second only much matching to posture we consistent comment a to since a

acquisition last announcement. we of after than all closed First Choice on In I'm Bancorp this, our to X happy that addition to less of week, the report months

and market, this about quarter discussed calls. our Southern during progress we'll in discuss there call, expansion our we are excited we extremely in first California As future the

Turning area cultural us to a focus integration and First of for see for Choice the key is X, Slide the of year. you that the systems will remainder of

Our our markets opportunities improve the specialized to within to now and on our executing loan Scott over of detail Scott? the I to much who like business. will PPP the also our deposit Goodman, the opportunities workforce leveraging growth, and businesses. includes focus and would more further and call provide growth performance turn on our

Scott Goodman

Jim, you, everybody. morning, good and Thank

organic $XXX areas, us activity. This Slide fiscal to XX% allowing headwinds annualized still year exist and our #X, X. in growth. clients turn pipeline into different to detail a economic geographies as that the and channels. been of across numerous are in is activity million we model quarter overall, out Overall, is of owner But loan improved specialty actively business and #X Jim, all this loan on Slide for solid this some heard our reflects broken to net the optimistic building further of and you you specialty If execution and from companies successful positioning units from generally on growing had now PPP. posted lines are growth or growth this business And activity business their lean that translating while benefiting fully steadily

out on obstacles leveled closer credit, of the these cash this well utilizing more forgiveness Following on normalized lines in QX. prolonged And period successive lines buildup COVID-related PPP are declines demand a general should average of of businesses quarterly in With the and book. us balances diminishing, underway in reserves C&I move loan behavior actively for more and working to capital purposes. a eventually usage their investment

Louis new states. headwinds. many client impact areas. and that over in both continued million and either our momentum being of City from Affordable last and carried be business of more and owners. in largest the on in through of referral In XX% had performed sides Midwestern of general C&I quarter or grow lending of it to SBA pace Kansas received most the markets year, growth standpoint, Sponsor credit million economically also and proven other and activity finance, year-to-date. increased COVID of growing creating clients, during geographic induced $XX up continue and quarter across the SBA and growth of these CRE net and business favorable positioned finance Both SBA lines Both programs quarter. annualized retain be opportunities implemented an awareness business political growth St. post aisle obstacles from benefits as steady with sources have The and are both expanded better loans are and bases continue performance well the exceedingly The specialty well are the quarter. relationship-based private Our increased we high-value sponsor equity multiples to activity. Capital the both tax of immune lending willing near-term the creating to showed number purchase network. deal with of is in by base have elevated to this a in for revenue. and of markets, life have requests to extremely of growing markets, robust the Consistent to deals, of of in resulting outpacing activity XXXX. positioned full well our some aforementioned been and finance flow also business premium that particular, to the $XX somewhat From businesses are volumes programs, choice in inflows relationships insurance already markets continued the year bank sponsor sellers and housing from a with seeing the these impacted the well approach higher the many trajectories to us be of senior the the sponsor improved our loan has

relationships reposition the successfully private also C&I beginning to to real highly better estate portfolio the selective New and of valued continue businesses We growth retention a our brand through target Mexico to in small low-cost base there. also of while submarkets. nurturing and New profitable in Mexico phase deposits the midsized operating commercial loan proven We're

in posted year-over-year. over Turning strong quarter to Arizona activity Arizona. and now QX of grown another XX% has loan

includes CRE business of acquisition, a New development. refi and mix C&I,

Some organic such believe well Las architectural as a Southern examples relationships and commercial the long-term and company and provide with We for loan Phoenix, growth. consistent neighborhood as franchise on service Vegas multifamily, operator. estate opportunities an that include strong as local retail and solid regional economies side real California self-storage

quarter. $XXX We're we're which attributable closing opening deposit #X. the deposits Specialty development. as new consistently and on to steady in well as net segments, funding up are relationship increase Moving for were Slide to accounts side. is more the the Total million outlined The growth

of As deposit and property homeowners our a component which have reminder, have These the these and category helped higher Seacoast to third-party specialties escrow, management have which high were businesses, community integration. level also mostly acquired commercial a to mix noninterest-bearing base. merger through this the of accounts, push include associations, total in at a perform XX% and since continued

to Keene over I'd hand comments. like for to call Keene? the Now Turner his

Keene Turner

as shows quarter net My our earnings second quarter, Scott, X $X.XX The company. of credit an our to that second earnings in begin reflects the Thanks, in trend costs. on per is first levels. performance in moderately reported share to predominantly I'm represented Slide performance increased contributed from well quarter. morning. second earnings the it share driven net the per share the for the and per to comments higher for $X.XX through by good pleased efforts compared share, revenue operating We to which quarter. and We increased level record diluted $XX increase million million $XX income which a per our lower $X.XX quarter were revenue, as extremely to accelerate pre-pandemic

an earnings we loan see brings of benefit us balance recently both Seacoast the announced from and additional First organic sheet continue the accelerated, Our has to growth. opportunity accelerate acquisition growth The to and Choice acquisition.

liquidity Net $XX.X Turning XX. the $XX.X into the additional million to accelerated quarter. of compared interest first deployment from and the was growth Slide loan investment Net income in to interest million portfolio. income

near-term PPP perform and in of fundamentals or in some and pieces To loan continued recognized excluding XX% the we're any the stable quarter, trends the While continued has as the from of from linked as of growth quarterly changes the forgiveness, encouraged in includes last interest the Overall, We of provides rate interest X.XX%. $X replacing current the income. either start expected run once performance, to modestly the PPP. the expected. income exclusive trended sequential million upward been end, don't Most quarter in loan to with importantly, income PPP and PPP, amount which net the net on loan have Slide we quarter, and remained income each interest for inclusive both components essentially XX X is margin decreased moving pleased a on has again. that build loan see us, fee robust yield margin quarters. which net for to liquidity benefit liquidity loans. interest in continue of net We're to clarity both of principally yield,

has total The achieve the time. the interest or consistently X negative pandemic. of nonperforming million credit we $X.X a assets of our forecast to ability quality totaled level was more caused this away combined which The losses increasingly our quarter. second which resulted and that a in quarter. rate basis reflects position acceptable at loan points of at also charge-offs to grow over June be end we'll optimistic decrease be the the outside income slight provision We've improvement of as Slide of performance low provision quarter slight we're experienced fourth macroeconomic the and $XXX XX and the June continued X.X% continue million stable remains pieces Net with points at of in allowance of a of end our were in from growth stable Although level increase uncertain, depicts March. in the XX. under portfolio to at of asset of XX for portfolio move our charge-offs level loans further the allowance XX growth annualized, of basis or XX, Slight start and third net the able coverage June continued a relatively of to compared last ratio. million as X.XX% the credit to in a moving $X the loans

ratio guaranteed excluding was to X.XX%. allowance the loans, However, loan

PPP is the to due an posed continue come a that We the to and strong risk impact to to small like allowance COVID-XX when potential businesses prudent programs end. government believe maintaining continued support

private the was in economic levels to Moving million allowance performance. our quarter and equity also second first estate distribution while forward, contributed categories led by sale all addition XX, the forecasted be service income Slide from the the also tax activity credit to services card reported continue quarter. to income $XX.X levels gain Elevated quarter bolstered in the fee-based credit as rebounded charges compared on first by and in the impacted provisioning to strength, we that across On metrics strong other and quarter-over-quarter quarter a the million and will level. $XX.X real of a

merger of the the this of expenses $XX.X offset the XX to million, quarter First management excluding increase in which was lower and was costs Seacoast. second in Turning payroll Choice, related compared $X at the partially million of the due in were taxes to on million expenses Slide quarter. fee-based quarter. and Most million $X in $XX.X charges, in to to operating This increase specifically to period. to in compared related first first the services higher level income card in compensation Merger seasonally core improving businesses, quarter by declined is higher reflective cash first our the

costs few over merger as we However, Choice, through integration. with of periods First increase work will next the the closing

are book to to our a decision value Our share our on grew equity basis capital share shares our sheet repurchase plan. $XX.XX we profile and or common through The balance earnings XX, XX% metrics tangible recently tangible announced average our XX%. Slide annualized in per return supported share on shown strength excess of per of an repurchase on

an During And our average to we over capital through repurchases. the continue at repurchased share quarter, of manage shares XXX,XXX opportunistically price position we $XX.

a rate that continue is as reflect to dividend flexible sustain forward. be $X.XX and sheet strong ability our announced affords and these also we said, optimism retention share increasing We All third capital earnings. and increase in our With the to balance quarter. per our in continue position, in the our all to high, us and our to opportunity nimble expand move actions

our $X business first million strategy, $XX pre-provision as a average executed of We in assets, a performance generated an quarter. on increase the this is financial results X.X% are from robust model, M&A as revenue the have million, nearly on our well net successfully which or We reflected and of quarter.

Choice the our fueled company's further is sheet balance Seacoast First forward, it growth while grow Looking in capability, the our to the largest following on and closely the and providing ability merger history, strategically scale EPS. Commerce

hard worked joining lending structure. a the cost coming stable in foundation company low strategies, for differentiated a with diversity the and create efficient have We'll operating and to deposit sustainable We working our performance. expect an questions. sources, going base quarter the income further integration now expand today. First for the it on And of and call the on period to open we're to second Choice line on strong Thanks for analyst be

Operator

instructions]. [Operator

Our first Davidson. question comes with from Jeff Rulis D.A.

Unidentified Analyst

I'm was and were Clark, in loan for the is production versus provide Rulis. on if new name Jeff some more what color on My wondering filling just I could yields you well? in flat going How it total production portfolio? the it for portfolio because holding with new does existing like this the look to yields are looks it, like but up is

Keene Turner

The Yes. new actually the a is question. yield. appreciate maintain stable I and loan to us helping are This Keene, yields

above. slightly actually they're So

you sponsor when had those which second the we finance, at and quarter, in yielding growth typically namely saying that the segments. caveat higher by I'll SBA look in are Now categories

least a specialties. that with heavily areas a improvement life have shift bit, in continued insurance we loan the growth also as see way, continue it bounce we current are quarter would and able to if to to a production yield expand and modest heavily other caveat forward as those I we proportionately at continue little cost production lower that The to weighted if the to can deposits categories. modestly benefit in expect So the we'll to start loan that additional DDA seeing be of see with moving yield around that more in in would relates slightly be we

So of what loan anything I but trending the that defend way, don't ability it's some yield does to depend either on expect categories in.

Unidentified Analyst

currently? And what the typical for portfolio is then for yield clarification, just the SBA

Keene Turner

was I at over looking for this going with circle that. We'll you that. to point. X% Sorry, I on was it's muted. I'm have back say to actually

Operator

from comes question next KBW. Our DelMonte with Damon

Damon DelMonte

the is question would just than deal can had for at quarter, you Choice to least third little look could closed, a my expected, expense first earlier quarterly later the it that I perspective, in on give my First what So we Keene, rate? be model thought given a I

Keene Turner

Damon. question, Good Yes.

expenses forecast it's $XX million in around about Choice is and million cost pre the in then for So $XX First savings. XXXX, XXXX

full So $XX you're that going quarter to million, third we get almost of taking obviously, quarter quarter. a With start in costs here the out. that then fourth said, and will

over is rate a So million over be quarter $XX little going and of just some 'XX first bit that in. run phasing to

it this that to normal would So Enterprise savings growth I on in million enough the you cost offset be underlying versus expect $XX how color expect I quarter don't much rate get base. will have But next. we'll the exact expense

Damon DelMonte

it. Got

then of technical And Okay. a kind just question.

I like you this was distribution if noninterest that think a quarter. Was recorded that? was PE that much And other was there mentioned had in that how income? so,

Keene Turner

correct. that point one $X.X of we would to that a That's but think that, around million. level bit time, more And We or over little typically have one that of was the year, in that something that's at in quarters. expect I occur the larger course some one was

contributed it rebound for here to quarter income second strong a a in credit the along revenue. with certainly fee the tax So

Operator

from James. Raymond Long Our with David question next comes

David Long

And loans more to traditional wanted bit a seeing Are pricing you about And that? and reacting you struggling in lot grow are to line commercial see right to the talk little are them as talk you I increasing banks can about of just as there. competitive your a how that? pressures now? you industrial dynamics

Scott Goodman

This can that I take one. is Scott.

been think sector. the in it's C&I competitive I

it and C&I but growth moving And St. an competitive, And new pretty we've particular, so deep extremely think I typically say Louis I seen I there's there. when is City, net in some event. would opportunities that for relationships We've grown Kansas is consistently. relationships don't it's markets more know competitive.

helped PPP that behind is us some more of that think good I us. now front of particular to a number businesses forgiveness in those operating other are I -- think, those in clients, opportunities, introduce some of

question was think I your on pricing. more

pricing as though. I low We I seen relationship-based there's think is about seeing lower take we're go. much as I've that a approach, to it. know don't

and working business So the to deposit long-term sticky capital term debt, time the we'll relationships. profitable also produce but the can get provide going and fee the a business, we over we're that lines

if not kind that So sure but I'm answers seeing. what that's we're question, of exactly your

David Long

just get part, additional okay. on some that's -- there was talk what for, I for looking then to I gears to M&A color And and second. No, about just a that so shift want

to the about With you, soon deal maybe in ideal add what an the be now, closed Choice the can you you'd market? you ahead now? talk of the feel where be critical -- And by First acquisition the candidate integration even And maybe how like would mass? back do M&A like geography,

Jim Lally

Dave, near well. seeing of this is Seacoast our focus this year. the really job term something a certainly, Like doing We're getting Jim. We've with First is benefits I well. said, integrated done Choice good

building few say, and take our that process are calls, focus. a select is things opportunity. let's there will and there being approach a of process, select that understanding previous okay, timing few is take we our nature. that I've would we be there we closer keen we the relationships a that approach said That are like it an in extent look. And So certainly as said, companies would to stop And and interest sales that a was which

geography, makes current As we closer to I is, what to it said markets sense. our always relates think

businesses best look. can that started. the really, -- growing we we that extent would out we've from certainly, the there, build to to so the and but fit continue culture the And finding it's And

can market what certainly that we shown we sense on need to build to we've So a have. we if but makes to, new go

Operator

Martin take Montgomery. We'll Brian our from with next question Janney

Brian Martin

talked Jim, Scott? whoever, give about team the I little of if out bit or about you don't of little color Vegas bit Maybe, lift Keene, talk a know Las maybe could on there the you a just

Jim Lally

Scott, handle you one, that would. Scott, if

Scott Goodman

us I connection hired a Hi, think out and very real commercial from we years XX all range pretty really for they we and market a did what just private overlap sure. is very Seacoast Choice local to a to Jim team liked with CRE. think up X via what -- model. growth our we Their This They we competitor, and both good profile of regional the see ours of commercial bankers seasoned and really look And Vegas to between that to reached Southwestern on market And from X. mentioned, it Brian. and their we Yes, they someone XX First C&I focus grow. for as it's leader. team estate, markets. a with that we there, and in watched a experience Seacoast with similar is our attractive business, And was of

So about we're excited it.

Brian Martin

you. Got

case? sounds maybe utilization one Scott, can a term. up the much here, in your expectation bit there stabilized the on mentioned, sounds Okay. It that's Or it And that in just you it see think, that I then the near like of pick like is the change more, you second kind guess, half? I

Scott Goodman

Yes, think the a And with, especially at their at start You And quarters I on just it signal pretty positive declines forgiveness lines balances. we're Brian, leveled to that credit seeing PPP. -- combine cash looked out. guess larger many I much so I of I after again, on successive of companies use think as

So loan me and through is run in going system that to demand. the eventually tells liquidity continued should result

business economy. from the think about owners there there's certainly I optimism

I are think which chain, supply term. and the headwinds shorter be labor should

C&I was headed signal that So be just direction. in a right it the will to me

Brian Martin

Got you.

were things much maybe that's for And quarter. X helpful. Keene, expected then margin pretty X in or the this Keene. think you just just quarter, No, core the I as Okay. said

that that loan and of holding just are closing your the on yields the of next about of how thinking couple with kind about you commentary kind quarters up over Just front? transaction hopefully

Keene Turner

Yes.

of any would absent quarter. I a there think the basis couple margin comment drift underlying part growth lower a was my points theoretically of

growth. to were and certainly SBA to that like continue there they'll we're some continue be core going optimism look other there's specialties to get strong. And I think

And Choice, when I announced margin believed that well the points forma So underlying First pro XX NIM. impact we stable points. basis think core to still we bodes is for then XX and basis on

when that's points it's probably to early and the basis third So see probably when difference when quarter. sequentially, here the it's a closing full early high from you'll XX closed in level, you've in the then XQ sequentially, quarter, given won't third be notable XQ quarter, got it

So continue of that would excess loan really my And cash simply expect I interest not be been we'll just moving net do to margin. we're side. because the yield on that generally overall pressure be margin expectation happens on -- any defense seeing with have and solid whatever the holding forward despite deposit up, has

Brian Martin

Okay. level the frame loan you are yield up when you that loan that yield you core I core considering core off the of, build guess, added just today what with Keene, And then Seacoast? gets

Keene Turner

We X.X%. loan the around yield ex Yes. is PPP --

it in X bps PPP. from so So that's or got

Brian Martin

you. Got

Okay.

the last some one income. helpful. you the about And given I that, That's about private -- [absent] with on moving you a level? think equity distribution, with to is in with the the you reasonable about just the general? But kind I this continuing in moving it taxes? this me, mortgage. got a swap of you little know a Can fee Keene you there think realistic CDE just But I some there's color maybe elevated of talked give CDE should what's mean private the Or parts then we did and And XQ frame just but just all on you've just up do other for seasonality do just expect you other parts Can the you've Okay. was fees. some in consider distributions got equity and quarter any an level level know how stuff?

Keene Turner

Yes.

in relates I'll I distribution of equity private think dollars it's probably the it at least middle say particularly heavy what couple that's a XX, a would is pretty million I the call quarter to with there. as strong.

seasonal would activity of think the a XQ, performance that's I expect kind level. in about driving then we way that up bit And another it credit from I think it little from strong would XQ. tax

the way the we're of that's to of So we're with year. you mentioned a little that speak, the generally see during the in businesses happy then increased are to some I'm bit it. performance and Certainly, businesses episodic, the starting about that activity thinking other so

Operator

Andrew from next Piper We'll Liesch take with our Sandler. question

Andrew Liesch

One encouraged specialty deposit funding was that growth drove pipeline that side. things how point the the more And especially of on about you for this I coming quarter, does was Anything that? specifically in? the look can to

Scott Goodman

Scott. Andrew, that is one. I can this take

channels. escrow, it's seen HOA, that pretty we're And property third-party business really think encouraged management really I'll those what what we've since by you the integrated X I we call steady. main business, been there, if seeing and at we're look all and commercial lines growth consistently equally from

have of companies. we lot relationships there's cash some really the larger good the in HOA and with obviously So, of a system, still

our to there. So get we're share continuing fair

business was on other have folks able that that able bring fairly with and that that business when new platforms been escrow, their they've to we the convert we way really plan. new we're relationships a Third-party a business of board, done plan. brand brought is couple their them really that There on in to bank Seacoast, and execute

So me, fund. shows to optimism the steady there's there, it's cost The pipeline reason no low why and fairly can't continue. there's of that

about that feel term. good So I long we think

Andrew Liesch

there Got of it. businesses? these any Is seasonality any in

Scott Goodman

major terms minor of just swings. say say it's nothing management. to but summer just would in there's related the in activity, I I HOA more less And would property seasonality

Andrew Liesch

Okay.

guess are the just funding could here? there these at deposit -- eventually you there mix there the if that over if holistic -- of here can So are improve I I to replace is like are going at Like how rest any growth look base, non-relationship is approach continue of funding time? looking the low-yielding the funding accounts

Jim Lally

Keene think comment. I Yes,

Keene Turner

on Yes. -- I funding certainly, they we're off was some that would brokered brokered wholesale ourselves things of the just like were contractual, has lower. CDs, lot reliance There's that. become certainly, because that a weaning say, on sources working

can increasing rates this help stabilize So rates I with will increase. to less and us be is view allow the and more disciplined aggressive as it that deposit think our much base

forward might we on pricing gives whereas high in more to be sensitive side as deposit what broader economy confidence So to because the move I have to enough with keep just this deposit, we the to loan think growth of a basis ability been up deposit growth loan we more confidence robust improves. more on also our a expect us and as generate

Operator

D.A. our question [Operator with Davidson. from Rulis Jeff We'll next take Instructions].

Unidentified Analyst

Clark, on again. provide happened these pandemic increases there detail I million. this was the like more $X that appreciate wondering if could it. related? It I Were nonperforming was any you loan quarter. just looks

Doug Bauche

bucket. Yes. here much is Doug particular That that, saw loan I closed in Chief and that million really included full activity. out you the credit subsequently would rode a Credit has a days was $X of there that portion that beyond early Otherwise, ag-related increase in was And XX wasn't due been tell status. to paid just nonperforming really past a loan Clark, related this and loans July. there in was off to nonperforming we going nonperforming the Officer. in Bauche,

Unidentified Analyst

had for of then income? offhand? just gain, real to that miscellaneous amount the you in my is Awesome. other in estate you on sort figure And guys was, Great other have the terms I that that hear. dollar Do of thing

Keene Turner

Yes. It's be might so believe, million, less $X.XX than I $X

Operator

any remarks. I'll turn over you. this concludes or That back Lally closing Jim today's Mr. to Thank additional question-and-answer session. for

Jim Lally

support again and look and to our day. I us for great all Victoria, the talking quarter. to you today a forward third all of at company. thank you, you continued your Thank of Have the end of joining

Operator

your for This concludes today's call. disconnect. and now you participation you may Thank

Enterprise Financial Services (EFSC) 27 Jul 212021 Q2 Earnings call transcript