Enterprise Financial Services Corporation

and welcome to the EFSC Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jim Lally, President and CEO. Please go ahead.

Thank you, Christina, and good morning, and welcome to our first quarter earnings call. I appreciate all of you taking time to listen in. Joining me this morning is King Turner, our company's Chief Financial and Chief Operating Officer. and Scott Goodman, President of Enterprise Bank and Trust. Before we begin, I would like to remind everyone on the call that a copy of the release and accompanying presentation can be found on our website. The presentation and earnings release were furnished on SEC form 8K yesterday. Please refer to slide two of the presentation titled Forward Looking Statements and our most recent 10K and 10Q for reasons why actual results may vary from any forward looking statements that we make this morning. Please turn to slide three for our financial highlights for the first quarter. On our fourth quarter earnings call, I commented that the expected momentum we had leaving 2021 would continue to 2022. Our results for the first quarter of 2022 show this to be true. For the quarter, EFSC earned $48 million, or $1.23 per diluted share. This compared to $1.33 and 96 cents per diluted share for the linked and prior year quarters respectively. This level of performance produced a return on average assets of 1.42%, just slightly less than the 1.52% that we posted for the fourth quarter of 2021. As you know, the fourth quarter typically has the benefit of the peak of non-interest revenue and 2021 was no different. On a pre-provision basis, we earned $57 million for the quarter yielding a robust PPNR ROAA of 1.7% and a ROATCE of 17.5%. EFSC posted another solid growth quarter for both loans and deposits. Net of PPP loans grew at an annualized rate of 8%. Scott will provide much more detail about where we saw opportunities and where we experienced headwinds, but I will comment that we remain disciplined with respect to pricing and credit, likely to the detriment of a few additional basis points of growth in the quarter. Nonetheless, I'm confident about our ability to improve on this level of performance as we progress through the remainder of 2022. The quarter also provided continued significant deposit growth for our company. We are becoming increasingly comfortable with the diversified channels of deposit generation that we have added to our company over the last five years. Just in the last year, we have been able to grow our overall deposit base by 40% through organic growth and M&A while both improving our DDA to total deposit ratio to 42% and lowering our overall cost of deposits to 10 basis points. This combination of an asset base that is interest rate sensitive combined with a diversified well-priced deposit base will bode well over the next several quarters given the expected interest rate environment. Credit quality remained very solid as evidenced by the statistics on this page. As I've mentioned in the past, we do not take this for granted and have worked incredibly hard to build a more diverse and resilient portfolio. Due to the improvement in our credit quality and macroeconomic forecasts, a provision benefit of $4 million was recorded in the first quarter of 2022. Our capital position remains strong. At 3-31-22, we had total shareholders' equity of $1.5 billion and the TCE to total assets ratio of 7.6% compared to 8.1% at 12-31-21. During the quarter, we repurchased 351,000 shares and increased the quarterly dividend 5% to 22 cents per share. Stepping back and looking at the last several quarters, you begin to see the cadence of consistency that we've worked hard to establish. This includes solid loan growth in the high single digits, confidence in our multifaceted reliable and low-cost deposit generation capabilities, a top quartile return profile, a high-quality diversified loan portfolio, and a flexible and efficient capital base. Moving on to slide four, you will see where we remain focused for the remainder of 2022. As we progress to the second quarter, we have our teams keenly focused on their loan, deposit, and net new relationship goals for 2022. We designed the business in a diversified way to rely on multiple markets and businesses such that we can focus our efforts on the families and businesses that truly value our relationship and solution-oriented model versus garnering growth at any cost. like with past new markets tax credit allocations we are leveraging this to garner new relationships we have found this especially true when we enter new markets where the use of the program is not as prolific or to differentiate ourselves in a very crowded commercial real estate business i'm excited to share with you that i'm already seeing new opportunities added to our pipeline using this tool as it relates to our affordable housing business we are seeing growth and existing in new markets that should build on our 2021 performance which was a record year in terms of closings. We have made significant progress in expanding our profile to attract new talent. We've invested more heavily in talent for current and new specialty businesses, along with bolstering our teams in higher growth markets. Our recent recruiting efforts in the Orange County and LA markets complement our existing team and will introduce us to more middle market operating businesses. The four most recent hires came from four different organizations, and have hit the ground running. In his comments, Scott will provide a little more detail around the most recent trends we are seeing in these markets. However, the progress in early signs are positive, and I'm excited to continue to expand our profile throughout Southern California and the Southwest. Additionally, in the fourth quarter of 2021, we were able to onboard a professional practice finance team. With a national focus, this group has come out of the gates very well in 2022, meeting the shared high expectations. We have also bolstered our already high-performing Phoenix team with three new ads, each coming out of different organizations. Finally, we recently announced the opening of a new commercial office in North Texas. We were able to land a proven leader and will build around his 30-year career in this very attractive market. We are eager to make these investments and we are confident that these new associates and teams will add to our current and expected level of growth. With that, I will now turn the call over to Scott Goodman. Scott?

Thank you, Jim, and good morning, everybody. As Jim had mentioned, we're out of the gates well in 2022 with loan growth for the quarter of 176 million net at triple P, or 8% annualized, as represented on slide number five. In general, the specialty business units continue to perform well with additional growth contributed from the commercial real estate activity in the southwestern region driven in large part by Arizona. The loan details by segment are outlined on slides number six and seven. On a TTM basis, organic loan growth net of triple P and net of the recent first choice acquisition is 770 million or 12%. with nearly all key areas of the loan portfolio showing increases. As you heard from Jim, we've remained disciplined in our pricing philosophies relating to the fixed rate portion of our business, as competitive pressures push spreads well below our targets. And while this did dampen some growth in the investor CRE book over the past year, we see longer-term value in maintaining consistency and transparency in our loan process, both with clients and with our sales teams. That said, we've been able to lean into other channels that were more immune to the environmental headwinds and competitive pressures to provide the growth and improve returns, proving the fundamental benefit of our diversified revenue model. In recent calls, I've talked about the robust activity in our sponsor finance business being driven by a strong M&A market and the deep relationships that we've nurtured with our private equity partners through the years in this line of business. As a result, Sponsor Finance posted record growth of $133 million in the quarter. This does not signal any changes to our strategy as our approach to credit structure, to pricing with our targeted sponsors remains consistent. Although the net growth may vary quarter to quarter based on seasonality and the timing of portfolio company sales, the production activity remains strong in this business. Solid growth in life insurance premium finance mainly reflects several new clients as well as seasonal premium payments on existing policies. As the aggregate portfolio has steadily built a funding tail on its annual premiums, that naturally adds elevated quarterly growth momentum. The tax credit business also continues to perform well with new fundings related to the expansion of affordable housing programs across multiple states. In the SBA business, production remains solid and consistent with prior Q1 levels, but payoffs and paydowns have risen somewhat due to competitive pressures from non-SBA lenders. We're executing plans to proactively address improved retention of the well-seasoned loans, as well as continuing to recruit new originators to boost production in higher growth markets. Aggregate portfolio trends in specialty lending along with the local markets are outlined on slide number eight. In addition to the aforementioned specialties, we've also added a small experience team of experts located in California dedicated to the professional practice space. This group focuses on lending to dental, veterinary, and small medical practices and is off to a nice start, adding 18 million of growth in the quarter. The Southwest region, which includes Arizona and Las Vegas, continues to post strong growth in Q1 of 70 million and has grown 182 million or 42% year over year. Larger originations during the quarter have been composed of new CRE acquisition and development deals for existing relationships for which we can leverage our proven ability to perform and obtain targeted yields. In St. Louis, the portfolio is up approximately 2% yearly year, but declined slightly during the quarter. St. Louis includes a large base of C&I clients whose working capital borrowing needs have been suppressed by the larger cash balances and continued supply chain obstacles. After a slight uptick at fiscal year end, average line usage leveled off during Q1 at around 40% of total commitments. Fundamental sales indicators, though, remain positive, with healthy new origination levels, additional new relationships, and a four-quarter low in terms of payoffs. And I expect that as liquidity continues to work its way through the system, that these activities will ultimately result in better net growth in the market. Kansas City loans were up $21 million in the quarter, or 10.8% annualized, with a balanced mix of new CNI, and CRE loans into various industries, including logistics, food service, broadcasting, and metal fabrication. In general, the Kansas City team is producing steady originations. In New Mexico, we've experienced a decline in loan balances over the past year. As a reminder, we entered New Mexico market through the LANB acquisition into three primary submarkets of Los Alamos, Santa Fe and Albuquerque. The primary value driver was and continues to be the low-cost and well-diversified deposit book, which is primarily concentrated in Los Alamos and Santa Fe. We've successfully grown this deposit base while maintaining its low-cost profile, as well as developed some nice commercial relationships in these communities. Albuquerque, however, makes up the predominant share of loan balances for New Mexico and with a heavy commercial real estate portfolio. Our goal in Albuquerque has been to maximize retention of loans that fit the enterprise bank and trust client profile while developing a CNI strategy similar to our other markets. Certainly the COVID and related economic factors have impacted our ability to achieve these goals as quickly as expected, but we also felt that a leadership change was necessary here to better position us going forward. This change was made during the quarter with the promotion of an existing high performer as well as repositioning this region under the leadership of our senior team in Arizona. Our expectation here is to slow the runoff near term and build a well-balanced relationship-based loan portfolio with modest but steady growth potential over time. We continue to execute our integration plans for the legacy first choice and Seacoast Commerce local commercial loan books in Southern California. As I discussed last quarter, the primary objectives were to retain and deepen key client relationships, maintain a steady production process, and expand our talent base to support the expansion of our C&I strategy into this market. In Q4, I also set the expectation that near-term we would see some pressure on net growth extending from a portion of the legacy bank book, which was focused on shorter duration CRE bridge lending and residential fix and flip loans. We did continue to experience this pressure in Q1. However, we are getting traction on our longer term objectives and the quarterly trends are positive. Relative to the loan portfolio here, originations were up in Southern California by 25% over Q4. while payoffs declined by 46% over the same period. Our loan pipeline has also been building nicely, including both opportunities to expand exposure with legacy clients, as well as new CRE and CNI relationships. On the talent front, we are also making solid progress. In addition to the relocation of a long-term proven senior leader within the enterprise organization to integrate the commercial team in LA and Orange County, We've also recruited four new CNI-focused relationship managers from several in-market competitors. We expect these experienced bankers to help expand our reach into the networks and the COIs necessary to introduce CNI growth into the region. Expanding a bit on Jim's remarks, in a challenging environment for talent, our new ads in the existing markets of Southern California and Phoenix, as well as the new team in North Texas provide solid opportunities to leverage the higher economic growth profile of these metro areas and support the attractiveness of our business model to these experienced commercial bankers. Finally, touching on deposits from slide number nine, total deposit balances ending Q1 were up $360 million from Q4, to $11.7 billion, driven by ongoing liquidity within our commercial client base. Steady consumer savings levels also continued, particularly in New Mexico, and continued growth of specialty deposit lines. The specialized deposit teams for community associations and the third-party escrow business also produced steady new accounts for key existing relationships, as well as onboarded several new relationships in the court. In general, new accounts continue to outpace closed accounts, and we're well prepared to maintain a disciplined approach to pricing both new and existing balances. For now, we have not experienced significant attrition of balances due to rate for our relationships, but we continue to watch this closely through further Fed interest rate moves, albeit with a disciplined and relationship-focused approach. Now I'd like to turn the call over to Kane Turner for further comments.