Enterprise Profit Falls as Credit Costs Climb
Net interest margin widened to 4.30% as asset yields improved.
Enterprise Financial Services (EFSC) reported a decline in second-quarter profit as higher credit losses and weaker fee income outweighed growth in net interest income. The bank holding company’s net income fell to $40.9 million, down $10.5 million from a year earlier.
The results marked a turn in the bank’s earnings trajectory as two newly identified problem loans drove charge-offs higher. Return on average assets fell to 0.95% from 1.30% a year earlier, while return on average tangible common equity declined to 10.39% from 13.84%.
Diluted earnings fell to $1.09 a share from $1.30 in the linked quarter and $1.36 a year earlier. Pre-provision net revenue decreased $2.2 million sequentially to $68.2 million, primarily because of lower noninterest income, and remained roughly even with the year-earlier period.
Net interest income rose to $168.7 million, up $2.6 million sequentially and $16 million from a year earlier. The linked-quarter increase reflected improved pricing as average loans remained essentially flat, with loan yields rising 5 basis points and securities yields gaining 8 basis points. Enterprise also sold about $179 million of lower-yielding securities and reinvested the proceeds at 5.20%, a repositioning that is expected to add $3.5 million in annual net interest income.
Period-end loans increased $199.6 million sequentially to $11.9 billion as $1 billion of production exceeded repayments. Growth was concentrated in specialty lending and commercial real estate, while commercial-and-industrial balances declined. Deposits slipped $21.8 million from the prior quarter to $14.5 billion, though the share of noninterest-bearing deposits increased to 33.9%.
Credit costs absorbed more of those lending gains. Provision expense nearly doubled sequentially to $14.2 million, while net charge-offs rose to $13.6 million from $4.4 million. Most of the losses came from an $8.3 million Texas commercial-and-industrial relationship and a $5.2 million sponsor-finance account. Nonperforming assets increased to $160.4 million, or 0.92% of assets.
Noninterest income fell 29% sequentially to $13.5 million, pressured by tax-credit losses, the securities sale and the absence of gains on Small Business Administration loan sales. Noninterest expense rose 1% to $115.7 million, and the core efficiency ratio worsened for a second consecutive comparison point to 61.1%.
Enterprise issued $175 million of subordinated notes, lifting its total risk-based capital ratio to 15.0%. The company also repurchased $22.9 million of shares and paid $12.3 million in dividends. Its board expanded the repurchase authorization by 2 million shares and raised the next quarterly dividend to $0.35 a share.