Enterprise Financial Services Corp. :EFSC-US: Earnings Analysis: Q2, 2017 By the Numbers : August 1, 2017

Enterprise Financial Services Corp. reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Enterprise Financial Services Corp. – QCR Holdings, Inc., UMB Financial Corporation, Commerce Bancshares, Inc., Great Southern Bancorp, Inc., West Bancorporation, Inc., MidWestOne Financial Group, Inc. and Hawthorn Bancshares, Inc. (QCRH-US, UMBF-US, CBSH-US, GSBC-US, WTBA-US, MOFG-US and HWBK-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 53.57 million, Net Earnings of USD 11.96 million.
  • Net interest income margins widened from 82.74% to 85.19% compared to the same period last year.
  • Net loan assets changed 33.03% compared to same period last year and 0.17% from previous period, total deposits changed 29.49% compared to same period last year and -2.74% from previous period.
  • Year-on-year change in operating cash flow of 233.62% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline from worsening in operating margins as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 53.57 45.62 44.48 40.81 40.83
Revenue Growth (%YOY) 31.19 18.69 15.13 16.43 16.38
Earnings (mil) 11.96 12.39 13.63 11.83 12.35
Earnings Growth (%YOY) -3.21 12.39 27.61 21.87 41.72
Net Margin (%) 22.32 27.16 30.64 29 30.25
EPS 0.5 0.56 0.67 0.59 0.61
Return on Equity (%) 2.2 2.68 3.55 3.14 3.38
Return on Assets (%) 0.94 1.08 1.36 1.23 1.32

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Market Share Versus Profits

Revenues History
Earnings History

EFSC-US‘s change in revenue this period compared to the same period last year of 31.19% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that EFSC-US is holding onto its market share. Also, for comparison purposes, revenues changed by 17.43% and earnings by -3.52% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

{arg3)’s earnings declined year-on-year because of the increases in loan loss provisions. Its net interest income after provisions margins went from 81.81% to 78.81%. The fall in earnings would have been worse were it not for the fact that the company’s net interest income margins improved, from 82.74% to 85.19%. For comparison, net interest income margins were 84.71% and net interest income after provisions margins 81.67% in the immediate last period.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (Qtr YOY)
Total Deposits Growth Rate History (Qtr YOY)

EFSC-US‘s improvement in net interest income margins came in spite of relative drops in the levels of net loan assets and total deposits. On an absolute basis, net loan assets changed 33.03% compared to the same period last year and 0.17% from the previous period. Total deposits changed 29.49% compared to the same period last year and -2.74% from the previous period.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

EFSC-US‘s change in operating cash flow of 233.62% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Contraction of operating margins from 46.77% to 41.03% and (2) One-time items that contributed to a decrease in pretax margins from 46.77% to 32.67%

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

Access our Ratings and Scores for Enterprise Financial Services Corp.

Company Profile

Enterprise Financial Services Corp. engages in the provision of business and personal banking services, and wealth management services. It also offers lending services which include commercial and industrial commercial real estate; real estate construction and development; residential real estate; and consumer loans. The company was founded by Kevin C. Eichner, Fred H. Eller, and Ronald E. Henges on May 9, 1988 and is headquartered in Clayton, MO.

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