Enterprise Financial Services Corp (NASDAQ: NASDAQ:EFSC) reported a robust financial performance in the third quarter of 2023, with a net income of $44.7 million or $1.17 per diluted share. The company saw significant loan growth and an increase in net interest income, alongside a promising performance in their specialized business units. The company remains optimistic about future growth prospects and the strength of its business model.
Key takeaways from the call include:
- The company reported a net income of $44.7 million or $1.17 per diluted share, with an ROAA of 1.26% and a PPNR ROAA of 1.84%.
- Loan growth reached $104 million, bringing total outstanding loans to $10.6 billion.
- The company was awarded a $60 million new markets tax credit allocation by the CDFI.
- Specialized business units, such as tax credit lending and life insurance premium finance, saw significant growth.
- Despite a reduction in revolving lines in the Midwest region, the company opened new relationships in Kansas City and St. Louis.
- The company saw growth in client deposits in all major markets except New Mexico, with deposits growing by $290 million in the quarter.
- The company's core efficiency was 56.2%, an increase of 220 basis points compared to the previous quarter.
During the call, Enterprise Financial Services Corp reported growth in specialized businesses, with a 15% annualized growth for the quarter and 19% year-over-year. The Practice Finance unit also performed well, growing by $70 million year-to-date, including $23 million in Q3.
The company reported a decrease in fee income by $2 million, primarily due to a decline in tax credit income. However, they expect fee income from tax credits to rebound in the fourth quarter and could reach seven or eight figures in 2024, depending on rate stability.
The company's tangible common equity ratio was 8.5% at the end of the third quarter, down from 8.6% in the previous quarter, mainly due to the impact of longer-term interest rates on the fair value of securities and derivatives. Despite this, the company's regulatory capital ratios remain above well-capitalized minimums.
Looking ahead, the company plans to continue expanding its deposit costs but at a diminishing level. They expect the majority of the expense to be driven by volumes. They also discussed their proactive approach in working out non-performing loans and did not anticipate a larger wave of economic challenges.
In terms of future strategies, the company plans to invest in associates, technology, and training while maintaining discipline in spending. They expect the efficiency ratio to slightly increase but at a decreasing rate. They also anticipate healthy loan growth and do not foresee loan utilization as a long-term issue.
The call concluded with company representatives expressing gratitude to participants and stating they look forward to the next call in early 2025.
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