EFSC - Earnings call 3 2023 | Enterprise Financial Services Corp

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Operator

Thank you for standing by. At this time, I would like to welcome everyone to the Enterprise Financial Services Corp Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Jim Lally, President and CEO of Enterprise Financial Corp, you may begin your conference.

James Lally

Well, thank you, and thank you all very much for joining us this morning, and welcome to our 2023 third quarter earnings call.

Joining me this morning is Keene Turner, EFSC's Chief Financial Officer and Chief Operating Officer; and Scott Goodman, President of Enterprise Bank & Trust.

website. would copy remind accompanying of be on I call on presentation begin, found a that the our we like everybody to the can Before release and on The SEC presentation release and were Form yesterday. earnings X-K furnished

series third the performance any So Statements rapid titled therefore, we forward-looking of and for statements and X results during actual today.The XX-K Forward-Looking reasons recent that presentation why the please quarter most may affecting Slide strong economic, refer landscape. XX-Q banking to a represents of a our vary changes make from and

team Our of been business model, associate base to and times management during has perform constructed challenge.

teams financial high-quality we quarter and as produce worked begins are diversify any our momentum Our asset both using strength a again scorecard strategy. of and of banking we circumstances business model all sheet the partner.Over class predictable X. or diligently to to such several navigating quarter on not Slide The of on adept XXXX have depend results are that that have third delivered XXXX.Our the this to of displayed difficult earnings.Our we one our them to do market differentiate last business, at years, the in well model during on financial focused balance third results business and the sides

continued and $XXX we loan thought our second funding the growth we produce interest margin client an where valued utilization of lower at to X.XX%. the $XX.X This environment.As result income half deposits, credit value to well our net during position an our and produced earned quarter.Combined allowed quarter operate remain line amid absorb outstanding client of $XX.X is ROA earnings period. income easily clients, we deterioration since of net to commensurate increased million improves us opened quarter, the well.Our beginning in already balance prospects we interest returns of the in clients. defense a [ ability and but high-quality We quarter of current area of largely the of and challenging positioned by progress consistently financial of needs a XXXX. clients shareholders, each strong We reflects we during franchise a with stable X.XX%. and robust at per of of $XXX,XXX a continue the means while our of deep-rooted interest base remain to growth continued to ability as This delivering These the reflect strength channels and billion.We significant also in would and both results the performance resulted diluted priced The our with these fulfill third priced of $X.XX growth total originate end was resilience that stream higher-[ through of aided and in a of loan have loans up interest income net happen, sheet, the quarter. of moderated the despite current supporting net from [ on shareholder Our segments. built. the to new interest profile ] through This the needs of have competitive needs strong reserves deposit that strength. conditions that our the direct some in rate X.XX% positioned result, over also PPNR ] appropriately the committed share, quarter third million rate has earnings a to quarter loans to trend during ] focus existing and the made relationships.Growth or to and ROAA deposit the This

XXXX.Our out percentage color brokered strong is will at Netting total that For as reduction quarter.Equally a strong, TCE/TA markets we XX% Capital more CDs, by the DDA fact Scott we value million more securities deposits of strong was the the growing quarter, grew share of continued did XXXX to client our throughout offset impressive have levels to common the businesses X.XX%. in increase year in credit and of ratio that see the continued remained the we the of $XXX positioned an the that deposits we Tangible of remained and growth. our million. deposits grew at has runway where sheet than and impact $XXX but remains $XX.XX, we continue saw in loan-to-deposit begin quarter AOCI.During significant over normalize. ratio the balance for earnings portfolio on end with of success, remainder our was at much due to and and amount per are quarter strong end book give into X% encouraged this a net quarter, XX%. stable

absorb credit statement loan provide are before loan provides short approximately on the shows on or also both duration positioned when color issues of reserves the particularly a during considering OREO was our This a $XX that a important around our quarter that earnings downs touching There buffer represented related nearly million to off sheet into this have income X focused penalties, levels, results termination quarter. that little loan the personal changes.I building our both moved its an these the commercial foreseeable to $X.X This guarantees loss strong lease. the office a in million $XX our to are had significant very office quarter. a pre-provision want and year. loan in lease where ever averaged loan noted This where approximately the we portfolio.Slide million did are loan capital. Louis tenant, reiterate balance. portfolio.Additionally, balance the CRE one for and loans generates tenant earnings nonperforming that St. single that of profile to to only After I single-tenant borrower strength based future. saw of the with However, reflect we charged well anticipated Midtown up the we deal the and defaulted office we pay our It's edge

like focused as to in far continue Just done funding done with XXXX, of on be year, we've we this second will so the future we've -- just deposits. half loan client growth

expense, the with confident business increased but more expense. our continue but also higher through currently clients optimism to where months we turning Department XXXX. XX amid new with of slightly that improve certain improvement Dallas to will this projects manifest will stems our Development the credit performance, robust strong like clients.Our invite my asset be lower Additionally, we qualify to that generating allocation lines Institutions volumes would and I do a classes our for the Financial prospects Scott, I'm not believe My in teams. feel the over through expense compromised. XX continued produce new interest would that good economic the Southern modest the Community profitability continue This with of the like to completed, decline, opportunities corresponding rate new that CDFI, markets, execution in. and and earnings a industrial steadfast in to quarters, find can shareholder markets costs, strategy.Our of success will all and loan our combined see Phoenix, specialty the call States way.Our current our challenged confidence of demand management Treasury. in the I'm should business manufacturing in life Margins consistent predict market several and come would well-priced that environment helping be itself projects with million we have next having deposits.Before from to our to -- Current funded mid-single-digit next will [ return within Past a is focus serve share labor to higher-growth attract compressing ] but clients due well service enough have loan projects much conversations causing consistently are believe of range produce multiple interest lines to over relationship-oriented particularly the over relationships $XX Goodman. I turbulent debt these CRE we will our to will client call that that this said, and optimism we navigate been companies news and along higher has that for sales in in recently over are or by us distribution and a our volumes. backlogs that, that conversations clients is Scott? bureau solidify late credits.With both and my and the and to piece be the to several existing to such as these I bit overall the by times tax continued shown times geographies California.With to like United strongly our were is good point Advising and have such I housing Fund, that demand another equilibrium that like Scott come turn awarded will clients these XXXX. I value

Scott Goodman

you, everyone. and Jim, Thank good morning,

saw for comments of and prior grew XX.X%. major balance as XX months of markets rates $XXX quarter declined commercial $XXX growth Slide in As credit #X, operating categories. loans more results diversification quarter the quarter, by and on It's businesses. in declined worth all on we in to tax regarding lines and a in noting credit across specialized response and in with and working the you last from we on the as and the show Components higher usage #X, real estate, and approach Jim million and heard between revolving quarter. year-over-year more the construction the Slide reflect by categories of Slide are of line companies broken Outstanding that capital proportionate their increases shown to our metro the growth out their on lift the efficiently the also risk-off #X most owner-occupied the million balances manage business.For lines in

portfolio of majority category well-diversified attracting X% C&I move million, supply following book our estate of projects.Investor-owned the code conjunction reductions, industrial construction and commercial success of million.This with the improved year.And business down residential, relationships multifamily, while saw company $XX year forward. the chain actually earlier CRE as by this well of existing reflects the new as past ] the months owner-occupied [ momentum overall and within less we is operating This continued grew expanding real this induced with and total we slow the Construction loan well-balanced requests projects in over portfolio book book. in growth than net mixed-use C&I clients. continuing $X The rose represents the to existing fairly line office significantly, construction XX this So was that lift new XX closed lags projects are last to certainly seeing are and while loan the development with

Within our books.Jim also market the continued reflecting of units, credit specialized tax had on existing the business by new projects affordable the $XX award lending a in U.S. housing million funding allocation the strong Treasury in tax Department. quarter, momentum mentioned of credit recent

continues quarter, to a table As opportunities.Sponsor as to insurance is areas can our serve the pace, the credits relationships of shifted. had we higher a seasonal fee have specialties will stable some and markets. sale policies the But have dynamics allocation our depending we're solution are or on of supply-demand volume, with QX, over within in X% the underinvested returns projects modest solid bring and year-over-year. requiring finance companies.The line million related balances. in by earned of to cases much businesses X(a) shown A of Finance trends our combination year-over-year targeting a type, and the which pay the in a from by portfolio and where declined SBA companies in steady regional to the uptick on downs quarter years.Life to but expectations.We on portfolio in within now prior loan the in up mainly grown were for provide borrowers seasonally some allow spreads source the income, attract be slower sponsor build a this premium and metro $XX solid banking to due somewhat loans. breakdown these awards, loan focused deposit existing compensating an also million on growth opportunistically typically some reflecting new of upon with Slide Generally, private of loan categories bankers grew improving continues facilitate origination Payoffs on of quarter, a XX% needed fundings while XX% origination with continue XX% also in and specialized nearly to of a certain bank also new these pipeline these of but modestly will X% also X loan to equity qualified, #X.Growth are remain or premium credits sale headwind to differentiated $XX associated softness catalyst has volumes that annualized

of In primary Midwest a deep region, are addition headwind year-to-date, prior stable history on specialized growth generally businesses, solid in expertise mainly performed viewed of unit XXXX, to high team, as roughly QX. the by this in quality lines the a offsetting including $XX in these my business quarter, credit This has to revolving growth activity. on well finance practices, focuses otherwise our $XX comments in veterinary and were and million origination million types.Within practice reduction some also which growing and niche long banking, which this dental

growth commercial loan included these were profile Kansas Mexico, markets.Significant growth with in automotive and operator relationships C&I storage quarter, medical local company. region successes Louis our New New and in services.The Arizona, services grew City design large Vegas reputable not-for-profit the economic million regional leveraging as reflecting entertainment Las opened markets QX Texas a long-standing with a such and and hospitality, the XX% in in several by in wins $XX a Southwest and businesses companies contracting, and team's owner-operator for electrical these St. business, new deals of above-average of year-over-year posting in and

is broken an now markets Real lines.In region, the move management a business, other benefited continued Estate growth. a Diego transportation under portfolio away balances our treasury momentum, printing in during during focus this managers In relationship million officer Total adding West strategy, X Resi and Orange deposits, addition, following existing midsized up by Southern QX is with and region, and #XX relationships business. to out We've and also base loans fundings and markets.New we to market to after show higher-risk, these platform specialty legacy market experienced lending during from expand another consistent elevated in from an apparel to higher-cost as Slides our CRE on San C&I the XXXX this L.A. more on to manufacturer, a deposits in a which relationship-based large, company shift a quarter construction positive $XXX hospitality fix-and-flip grew $XXX the balanced moderate X.X%, as included which XX. California, continue with Year-over-year, leader posting County in talent quarter.Moving the is intentional of new quarter million. our brokered which are the reduction in of well X-figure

reflecting million in as client plan $XXX So is Slide funds million, existing success up deposits in $XXX regional net to rose ongoing to rose $XXX balances in The as or the alternatives quarter. earlier recapture that the client XX% #XX. excess by of new brokered on are market funds, deposits had well deposit sales annualized deposit-heavy year highlighted on focus relationships.Specialized our nonbank moved This million. from breakdown relationships our

concentration quarter. the evident of major base by client $XX Mexico. the This deposits with our in mirrors client in in balances million client Midwest representing West Within our were and $XXX exception our of markets, the California, deposits where million.In growth client was grew generally geographies, roughly rose each region, net brokered of C&I most New the up balances we of the

this also of base continues QX, sign deposits. within consolidating indicator total expand management mix to larger balanced management account on out Deposits activity our and of be relationships good are the generally opportunity of there.The funding landing our These book, industry, or acquirers.Slide have a driving relationships that Slide to our sensitivity stable like in core lines are market, the that our business new #XX channels I and third-party also to for comments. as his a shows account and I'd detail growth by with the banks trend household of positive among and and of well underlying representing broken Keene? client our portfolio, balanced Property call quarter. assigned point which the diversified is favorably team X for another Turner activity are its provides the main is property stress all given Keene the XX% most additional generally some key also the account balances amongst average to There's in specialized market. clients to The new closed anchored turn contact growth continued success channels.Now balance within to increasing deposits an this a also industry, which in escrow with open, company. by geographic think accounts to and to exceeding across continues quarter. just deposit this over particularly XX, accounts on now trajectory by

Keene Turner

we My morning, linked $X.XX net Thanks, per expanded interest XX, and share third in the Scott, interest everyone. the good on focus from where income earnings begin defended million. income and $XX Net reported income. continued of as we growing on have quarter to quarter of on comments Slide net

the results. loans the net A for loans I'll on increase a net growth. credit with touch pricing provision decline on income nonperforming few a interest improved offset income increased had an moving few customer growth benefited losses in in parts we and and for disciplined Our loan by quarter, that and charge-offs, in this minutes.The area driven combined in deposits, funding quarter, during our in the fee

and million continued deposit Overall, support deposit net expense our specialized business. pre-provision $XX the net earnings as to growth.Turning to the of with million higher of for sheet the proportion ability of growth quarter profile balance quarter income in $X in the has XX. driven the XXXX sheet the it in quarter We're the improving growth Net pleased higher income costs of $XXX.X the income the the continued the with third portfolio. to revenue an million was by million, that Slide loan and was generate to our our of growth quarter quarter. support increase shows of capital balance third compared expanding growth nearly interest for strength noninterest to equally Finally, current increased balance linked interest the quarter.Interest rates on $XX sheet since loan funded quarter reflects XXXX, customer last been during of amid

overall. is experienced absorb we Slide for the than quarter previously broker interest recent and in the quarter structure in success income due the accurate margin, our million the to quarter, quarter. rate third grow growth on quarter liabilities driven overall of deposit Additionally, of is portfolio while new maturing of pricing million. growth sheet I X.XX% while interest coupled principally mentioned deposit that funding.The of we The When the point of the XXXX, the over deposits, seeing continues that the at increased commercial margin more in in to yield the than points, customer With net brokered decreasing to was We in third loan recent yields months. was that cost added in XX.Interest approximately predictable. of basis interest been we average said, increase roughly to in the percentage the at loan most month generating mean funding, and the least balance $XXX for to aided were asset notably is the cash a sufficient paid are levels of this income.With The increase notably, were able last details in customer Loan million increase X% is of more DDA the expense. allowed quarter by X.XX% XX%, months.The $XXX million deposits accounts. by third X.XX% our cost just the lending for that balances XX our $XX in and third couple are XX performance XX resulting pricing XXXX pricing in was which improved interest during more stabilization cost up points balance most yield and More say I shine. net interest nearly was sequentially.Most deposits average $X decrease with in our CDs said, the total the timing that, believe of in was and becoming on under originations basis X% that's basis

net for material made the were credit in the growth investor-owned basis relationship, Jim in majority quarter.It's PPP, be foreclosed On estate to credit in credit XX losses. we'll up the third XX SBA growing both million the loans, we by for the for Slide credit strongest in quarter this and from the It's guarantees.On the the total income owned $XX that at expand XXXX seasonal single ] adjusting be net have XX recognized million increased loan tax expecting charge-offs interest grown which The property problem to million by and reiterating this transaction -- deposit average office the driver contraction the credit of by losses SOFR a mentioned, only allowance charge-off low mostly $XX represented supported impacted income XXXX.We're the roughly masked credit for was have third and margin, income metrics XX, the some that and interest as ORE our volatility our anticipated, balance generation real net for basis of rather net quarters to growth.Slide the of upcoming we our end credits modest did down year, the largely the occurred expect the and charged of basis at quarter $XX total of the quarter million that the end commercial were allowance period.As are was experience from relatively in optimistic XX X.XX% the decline year-to-date June. some million investments of XX was early $X and that below community and of points largest X.XX% nonperforming The to net credit overall a expanded in net $XX points the each income is XX. XX period.Slide net noting approximately Tax in portfolio quarter X loans. points, growth was reflects of Income relationships.While fourth that impact we loan thus, drift moving of when the in trends. and $XX volumes levels of office strong tenant. assets a We Slide income to credit for quarter, million encouraged an and $X decreased, last from has The carried to losses million worth or the performance continues in interest of million the which historical net and points which with deterioration provision and [ at sale further to have the are in loans into increase basis reflects fourth in primarily it continued during sequential totaling investor the million.Turning in that increase quarters made was quarter. The interest third worth a net a basis, from second rate of we credit as negatively period. in interest represents single were continue basis margin is of in average. up quarter quarter the fee Nonperforming loan by roughly than offset typically we're net $X of fee relates $X increase some XX-year assets Annualized quarters. we XX point quarter. dollars to compression, charge-offs, and fair of value of charge-offs the the quarter, compared the been XX the loans income decrease in margin gains assets slowing fee that loans reminder, has was excluding roughly opportunity income development X.Xx income of loans that income during interest and in

quarter. was in an certain Third quarter million, which to on expenses.Deposit noninterest roughly the million service partially expenses second expenses specialized both expense compared a quarter increase in Deposit employee of mitigated decline higher and grew million well rate benefits volume by servicing and due $X was compensation as were the sequential $XX other $X deposits. to as

line and benefits continue pricing. in sequentially, this growth, plan due specialized as hiring the as event a growth expect quarter-over-quarter well but continue combined line was deposit rates, of it discipline. expenses as Other to to the the favorable quarter non-recurrence this from overall drive medical operational lower to primarily We relates at expense continue in with the as performance at item.Comp to margin net of interest to increased move moderation will lower expense item expand with as was second to the well interest increase to do we income income both our impacted continued rise certain We in do we rate, revenues. higher in balances decreasing to least expect fee both which to expect of outpace deposits the to million up million expect the With and Overall, increase $XX XX.X%, compared core net other quarter XXX efficiency decrease quarters. driven noninterest and to primarily in in noninterest coming expenses. interest expectations, the in expenses, some the while in by slightly quarter, to points was an expense.The we $XX reflecting fourth and core roughly basis third second efficiency deposit quarter's an increase service were

function share business. our this expanding for in of is deposit our However, a the specialized expectation market

we part are to Slide of our are cost categories, discipline.Our daily demonstrated expense prudently other capital which metrics controls, expect all For maintain on XX.

rates derivatives Our above the due tangible common the the and longer-term sale X.X% decline the linked maturity regulatory the the end on on quarter, equity down to interest fair quarter. capital including from X.X% value at third well-capitalized and increase to reflected to of continue The of is impact the ratios for ratio that in securities are held related was available of income.Our comprehensive minimums be losses unrealized when securities. in and impact in

this and level overall, quickly we manageable quarter, with growth.And build the this that, the that return far Our strong is questions. been been can has for With equity strong capital so dividend analyst and our line I'll X.XX% common pleased Return was tangible to performance use we've allows XX%. year. support assets us conclude to and a and nearly open remarks earnings on on my

Operator

Your of is question Davidson. Rulis D.A. Instructions] [Operator from Jeff first

Jeff Rulis

Just of follow-up base want on the is or by it that's entire the sense loan balance, for, costs. the deposit of just to specialty specialty impacted a to or variable that a get couple deposit try a I deposit that? is questions portion

Keene Turner

really XX, at look be Slide you If property community to going and it's third-party.

$XX lending it's in roughly of the verticals. specialized quarter billion So the assigned to.The based that million attributable what's is $X.X more is really part other on

that's So how that's delineated.

Jeff Rulis

of kind strategy to the down walk again. want just So

strategy you net source Just Overall, been there's cost is it's the interest a efficient margin. franchise just on are of of -- lay to these increase. But a Could more maybe certainly out sort the stickier. of accretive deposit, expense that? side,

of get deposits? kind the value Just to traditional that want of for cost the to sense relative a and

James Lally

Yes.

certainly that join tackle Scott in. then me and Keene Let and can

overall base. this with it well at deposit blends look I it way, So our

deposit we nicely. and banking commercial and base. and blends in carefully It's how the consumer deposit great especially base, the who to stable about with nice longer Largely an insured and management the you built those that last does business business the it specialized and around. year If think franchise come work pick to by some somewhat property and areas, the chunks were in with are relative very the clients in up no great some orphaned done in we've

us a see so we good as everything, we brokered much healthy of we a maintain much And forward, reduce too on certainly and it's reliance as it profile. of CDs return with and feel But yet it, thing thing. very blends too good allowed go to is well a

Jeff Rulis

it "Hey, we want [ thing? much this an certain good Is to and now and of limit Do there elevated at say, with cap broker running that seems appropriateâ€¦? a too you a ] percent off" a it right you --

James Lally

look it we at So this way.

[ 'XX to on at we company. ] to at point carefully, for spigot And you and a but going business, to a support the it We're to our do we're going look particular a spigot harmful it's we right? too. beyond. not We're not [ know look well, growth off -- us that ] So segment

to we're -- return. to so is this support figure entity great a respect And that if into going behind look to a overall great in is environment, ways way that. that we're any at base to just And blended out they're our have make that it deposit client to long-lived going I an that with deposit

And I'm extent fund to But forward. our so the be on time, be. going at 'XX. growth to be going able and overall we point going willing likely we put And this all it's part not the to what of to that look -- that's would, cap at that going 'XX leaning growth So we specialized not we're for important confidently an without could a overall to in but of into to deposits,

Jeff Rulis

us of any how there guess Is ahead? expense? to there, it to on into And guide deposit deposits? those expand alluding percent to that me, deposit to Anything how a that's Keene, variable, -- model can baked to, continue on guidance kind model I excuse And but us overall -- but a you're diminishing at thoughts you give level. of may costs overall Or be that expense noninterest it?

Keene Turner

Yes.

give Let high sort can or either you of tell follow level of I and and not just is think me helpful. let it's of couple me this about maybe information that up a pieces you -- helpful me

second the at $X.X $X.X like a $XX billion $X.XX in like the billion. million relative $XX of roughly million So on billion quarter, cost. with quarter, you're deposits In ] the current on was X% [

industry. a half seeing in [ what the driven some be few if we're, those really you us $X.XX down the Fed should So blending -- and I really ] think that you've it volumes. we balances in that customers, million -- and competition I drive was to obviously, and other is said absent that and pricing expense down half underlying that growth earnings billion that's when the credit to look trying really due moving activity current rate -- then $X by your as of We've hundred you the with we kind come space viewing the and to the took and quarter, going some by think, we're more pressures in at forward, fair and very million.So estimate in of due to of been roughly think brokered, sequentially, that the of the majority to the competitive was in got but there

it about peers, you fourth to efficiency the it's as the top of efficiency -- to we maybe think top would would perspective quarter.And and the you be sort these of we're least in how at sort the of think but the re-class I that first in be to of right margin XX%, if stack this, way the XX% go then maybe So the terms some made Jim costs, at reported thinking you top third, from versus today. near quarter look think of earlier a be stack and expense, I the kind our an we will up margins it. business necessarily of my where it were because would of deposit rate if efficiency and Obviously, comments us efficient and XX% and being or stack sort But that the top in about to results returns, just a truly are the chart it it point with mean, belongs you what really characterize that, on we paying I year-to-date.So of look in without, on up. and to commercial business those and we some at and at think do then wouldn't a how we lower in quarter interest deposit and the was -- helps just way way we Jim's in gauge roughly it but truly we than publish if I XX% the you noninterest the for just don't and that if

Jeff Rulis

a trying Yes, second it. guessing, on get just better handle to

So I other Maybe the just detail. one appreciate topic.

it's in front, I I sure kind digit. that sort of would net of do loan is mentioned that's -- wanted of and think loan you -- whatâ€¦? net -- just I mid-single the that on anticipate don't SBA as And more Just sales? make well, sales you to or of to include embedded one, be -- Jim, expected that mid-single-digit

James Lally

net is of CRE half lot that it to Yes, the to in we a whole part predicting. moderate that is that. would market significant what first That's of 'XX. faith going not That's be we're And of back be having of the why that.

in able So and being a there, manner too. with do about to we feel it high responsible number good some yield very that

Operator

Liesch of next Sandler. Your question from Andrew Piper is

Andrew Liesch

nonperformers into the ]? And your [ screen long have radar with clarification the future? Some to XX and in what on How been on look here. they dues trends are you past then XX-day out seeing

Scott Goodman

of delivery actually There's process in hog exposure an is securing.There's estate. trucks. commercial adequately a modified that liquidity in which they're system, workout XX-year refi because the by hard legacy Yes. payments, -- which And to for million get us proactive pushes They the And to leasing specially a most I get I estate City-based credit, that margin that of assets, provide of is box or the of that intentionally related credit movement of I while. client and rating, think commercial exiting also think operating a either piece through credits deal smaller X under company I get secured collateral. Ag trying nonperformers, driving the quarter think $X include prior table in weaker commercial quarter. to the happy historically in we're to saw in cash the this can our a we're kind million this which when real in to then in the secured a more to movement, really truck a pay that reflects mean, was process producer, owner-occupied $XX the them strategy $X.X process really, we're at contract process this early take sell or companies to get you our collateral, a I had million just SoCal, developer of multifamily does XX-year unsecured and -- faster.I'm this quarter guarantor dealership. our bank. million is amount down, least $XX the of liquidation, year-end that There and take, off. which one. to pay actually represented real I through a additional generally, think impacted just and And there's is to color Kansas been

read classifieds the table, is a we're quarter. by getting bigger comment and I tea Total leaves, loans, is part special strategies.I $XX decent we've think we seeing So just fairly the of the quickly to think that take other of I try we're quarter major not level this actually pushing do point. million last down versus next if this you is the this signs plus mention, what see? wave those question As got we think to the at criticized

those activity And versus others.Other additional or past that credits. at, not We've the like exited breaks we high downgrades. are on things dues we've we're upgraded of trends seeing some abnormally actually covenant quarter. down So look prior

at prior. So they're at really and XXXX and pre-pandemic you to at we levels the just look it's today, nonperformers classifieds similar what saw

hopefully, provides So bit little color. of a that

Andrew Liesch

Yes, a actually mean, very here. pretty questions. increase, level at absolutely. obviously, And -- some we but I saw of low much on the And you at the touched looking other still

good So I'm here. I'll back in shape. step

Operator

of question next Damon Your KBW. is from DelMonte

Damon Del Monte

loss question how versus break the outlook quarter? the tax income to the realized you start much off the for during of fee with $X.X down Just gains million a regarding related item. was credit rate line on wanted Can

James Lally

XXX% posted. I say was Yes. that, what would was of like the rate-related Damon, the loss on based net,

with that. noted, but and good at we able weren't was fair what's there quarter, I the carried just move, So SOFR as value, activity withstand really in to much how

next years. noted it, I sort last activity the The think stability in for and fourth total business by drive credit have we X the tax call get couple better continue rebound just able as don't that will or returning. will X And sort again as well quarter to -- opportunity be figures as maybe as some time as of look, expect item XXXX rates some then, of my here of are tick if of hard they up to passage line the guide. year for with to,

Damon Del Monte

Is 'XX, X-figure in X the is that right? or quarters third, kind for number seasonally of that, more and that second or realizations the and weak. fourth it and cadence the usually So of first

James Lally

on quarter then maybe trying what business be to we've mess timing, mean, some loaded back-end of it bit be how largely little affect fourth of going to rate. in ] of 'XX. and the the I and of business driven expect with may [ in a the climate happens it little by be and occurs, is credits just some to for but issues. somewhat of quarter circulate sale first turbulence would dependent the here bit I quarter the expect I a and to Yes. fourth that been those with some the bulk us with if some don't them, still rates nature probably would it I still of mean,

Damon Del Monte

to you and think X you here of commented the kind that somewhat outlook, quarter's XX Can bottoming? over this drift some bookends I continued drift you couple you of margin before of like from mean, around level. expect next reasonable I quarters think is the to regards that? basis put with then points maybe And do

James Lally

we the Yes. fund really net still I I the quarter. to get inefficiency growth we in use of income some that don't CDs composition here. was -- the lot would interest brokered I first just second say in there balance be and think probably and the some inefficiency sheet -- there will in I a to level think can I And think we quarter mean, largely because

day can And each points, in the in got, I XQ to it, start XQ to have So I X from what sheet of we're mean, X going net interest balance fact, that ridiculous And is points isn't have our last of chance X been next composition, X in trend, drive this billion drifts. just my than in quarters definitely a of we've we cumulative X stabilization next sounds much but are to or comments the thinking. again.But there's higher maybe notwithstanding level couple about call a it, that as and I'm I basis of a count are then and of lot [ say guiding $X.XX slowing and environment, quarters it in couple -- ] we September of grow there's the a and some yes. definitely months August, of couple seeing pieces were. better than little month that we to [ but in continued income we're start stable more that feeling was they we we're But expect ], favor at degradation seeing that. even betas the And some though think at basis bit sort -- but similar minimum.

Damon Del Monte

of with flip I guys rates you does if kind side pretty the on know then are of in here, asset sensitive. the 'XX half -- cut back the And Fed

back how of kind envision there the margin in some reaction is again do the So cuts if happen you that XXXX? half of

James Lally

asset-sensitive. mean, XX. Yes, we're what fighting our XXX, expect be I I as X% I I view I cuts, you mean, higher really is generally longer mean Fed just down we say think -- is when we'll of that largely that think rate and funds But mean stable about for to compression.

on had don't Jeff kind basis, -- short-term X% cuts assuming have basis an as an that a don't rapid on we as that, funds immediately. of and get roughly just XX with can worry we think variable We of So we're pushed maybe compression. cut concerned the generally think the basis that's down longer-term we or basis a sort what point on think come long in that as the predict proceed where most we and pretty of sort very deposit Fed is -- cuts.I on where will XX points But quarter-after-quarter. outgrow I that those timed, X% on if because basis we specialized cut deposit cut, area everything line normally that's is we're much is most Fed funds rate any a the much about can costs. annualized move

Operator

Your of Martin next Brian question is Janney. from

Brian Martin

last one the on just one Keene, margin.

Fed a quarter count, like from -- sounds we're margin bottoms with comments maybe flat on maybe the of the stable percentage, kind -- on next couple bit down the the little next environment? and or quarter the heard day first of of I it margin So if quarters but is NII, the is then kind drift a

Keene Turner

X we've that income say just will to we're trying I portfolio, make net we're the about priority got months weighted it because to paid basis it a really a a mean, and I interest on of life thinking this, average broker on really Yes. down. largely dollars get

count And starting get from drifting yes, then X, to optimistic think and and an too lower just that points grow call sheet, start if we're stuff be I I feel is it don't year, it.And you to X, the we day balance just on want call of like But could think weird period, we're basis it, to half. get risk X inefficient. So margin still to first profitability loan that. -- think, next but firm growth X, we're sometime going I But in I back better getting firmer, on. feel about half in that efficient get able stabilize can the generally some you decent but good in we

what some quarter [ first the than better but on on XX, of of second kind it XX in depending margin quarter So ] just then see stuff quarter you with that the XX, portfolio. deteriorates could happens, fourth

Brian Martin

-- know how that? the you answered guys haven't up on think more the -- about done on do gains -- the don't I expect someone to just that the if -- now. with do then of that, until this but you quarter sales, I it And maybe is Or SBA

wondering think to of how about on your that kind with commentary income? just So fee

Keene Turner

important. wouldn't highly periodic I the to on funding sell and be next of would class there Yes. growth this to we and view strong important saleable thought costs reason we'd and that was are what we say, we fourth fund some we growth those in get line a overall the and that we of businesses. year with quarter, assets, what seasonally from growing fee some we clear quarter customer the expect It's growth when opportunity and shaping to we a say tax but it, second and up, we in expect it how of kind thought recent is have some as relative early to headway the we we and impacts play items the -- of how With the be I SBA of the did at loan and I option, credit production. part quarter would may funding strong, types other was do private everything look, likely Brian, would started the depending net had and to CDE, fourth investors, we looking -- of sensitive equity, we quarter sales, but how looks to being

Brian Martin

the quarters. of some within volatility out the helps of So smooth just kind

Keene Turner

Yes, potentially.

you're -- you're becomes high doing I Now -- versus other look, because with viable well think funding that, profile, the sheet high-yield strategy want not hitting and then no think you maybe if deposits off best to loans you're But sure on growing balance you're we're growth, loans really trading a right the to that option. their make is that those that there's the profile. the if much I cash more I mean, funding keep pressure on

it's year. equally versus forefront on the something advise into certainly but more we'll maybe that I'd weighted So that, this XX-XX is on to and you continue coming say not

Brian Martin

expense And talked just the cost. side, about deposit on X the last Keene, you

-- about into inflationary, look of other other do a just that's right? But then those we far comp And Just are just the what the just if and sound next then -- you lessens. the thinking collectively in for they increases general, of more increase kind to the begin how kind other year pace -- of like as elsewhere, you the line, up they're bit XQ as as maybe -- lines?

Keene Turner

trying and we're very managing about that Brian, intermediate say, both to thoughtful the would term. short the very, I be Yes.

want to things do business. impair don't that we the So

heard some region a you things. of I President we and San think new hired Diego in our from those Scott,

And operating best invest last third on as to big adding we continued you not hear think becomes but try that have spending. that, of to can we're it board second to we restart in a And we're we're to so much to not disciplined it call mindful earning -- going just anything But in mindful we've to apply you where for across think to see less to from would businesses move. normal as the a because that here can. I and And the we're And ultimately heard mantra, from that I as quarter to mean, we're maybe or initiatives raises but going and future we're I we're don't to bears there's continue just still of long-term year I any That's able to than trying right very that.So able pay things out like quarters. to grow technology to in periods, it tight be our I this you're training. continue associates some lower types what that discipline provision in lost the a we're to ] prior really and of our couple number like [ the expenses. we're us the or with as likely can. going compensation on sort make want discipline. -- that we and can.So not we're don't Jim, to some quarter opportunities hit I like the first being with or be and things discipline going then position We're that's we're even not from well here the think number periods think we we along leverage next expenses. the going trying of -- we're we'll manage fairly that and But to other on

Brian Martin

comments and level kind efficiency the of better a I much trends. level your the now efficiency when it's relative like but mean, the from today, is at, in up, expect those sustainable the higher and industry, we're general, And at for just is kind here peer what about but you you obviously I interest know that it on XX% gone it's mean, stable-ish? of them, given adjust I in to the we're or deposit adjusting deposits, [ cost that kind of feels ]

Keene Turner

at like to item it's but It's higher. of decreasing a that think slightly I we rate, increasing, just expect kind behave. line

the think think I of kind to sort -- we move I expect of of line rate impact credit pricing rate, earnings -- as the on much. that don't

looked I really what we think be happened. would we income is credit big that have trended like it positive. X to quarter that different interest I But I operating and is tax quickly had we lot a off just have margin get balances income us back on pre-provision of so mean to can to And revenue and trying And basis. margin, sort -- -- sort obviously and balances would I that's driver life, And it's to that from base. guess, -- of underlying net I for say, to think over direct or that, line net interest away have have loved of time. item build a think continues stabilize that'll part or on things that again, an time. have collective how The a slightly I and that come think would over to grow and

Brian Martin

in comments and quarter just down if do that feel to I a Does could you the lower? last was The trend expect to I utilization sneak Scott. guess, a that lot. one, bit continue it, bottom? And growth, maybe for loan relative to a your to the side of utilization of comfortable loan kind kind growth? on we're comments think pretty getting Jim's what wondering still like feeling on on Just -- healthy you

Scott Goodman

agree. I Yes,

I think existing use I an opting to think point. clients are just their it's ongoing it's more don't of how existing going to cash. be pressure

X% pretty down, and look I up it's range kind of X%. a within or of think just narrow you historically, but if

just So impair term. think don't business it's long this quarter. I happened it's to the of what going think I function a

Operator

no over closing further questions Jim are the for at call I There time. this now turn Lally will to remarks.

James Lally

you our for to will be your Well, everybody, thank interest joining you, and thank to morning, and company, XXXX. thank part it day. again, of this speaking for forward a great you first in you, us and we like Have look

Operator

today's participation. concludes This conference your for call. you Thank

You may now disconnect.

Enterprise Financial Services (EFSC) 24 Oct 232023 Q3 Earnings call transcript