* Second quarter net income of $386,000 includes $1.1 million of    expense for special FDIC assessment  * After deducting preferred stock dividend, Company reports net loss    of $0.02 per fully diluted share  * Pre-tax, pre-provision operating earnings of $8.1 million, up 6%    over first quarter  * Net charge-offs 1.03% annualized compared to 1.39% in first quarter  * Non-performing loans remain flat at 2.58% of total loans compared    to first quarter  * Core deposits grow 8% and loans outstanding increase 3% over prior    year period 

ST. LOUIS, July 21, 2009 (GLOBE NEWSWIRE) -- Enterprise Financial Services Corp (Nasdaq:EFSC) earned net income of $386,000 for the quarter ended June 30, 2009 compared to $3.5 million for the prior year period. After deducting dividends on preferred stock, the Company reported a net loss of $0.02 per fully diluted share for the second quarter of 2009 compared to net income of $0.27 per share for the second quarter of 2008.

Second quarter results included a $1.1 million special assessment from the FDIC as part of its industry-wide program to bolster the insurance fund. During the quarter, the Company recorded $602,000 related to dividends on preferred stock purchased in late 2008 by the U.S. Treasury as part of its Capital Purchase Program. These dividends do not reduce the Company's net income, but are deducted in the calculation of earnings per share. Also during the second quarter, the Company set aside $8.0 million in loan loss provision representing 161% of net charge-offs. By comparison, loan loss provision for the second quarter 2008 was $3.2 million.

Excluding the special FDIC assessment, the Company's pre-tax, pre-provision operating earnings for the second quarter of 2009 were $8.1 million, up 6% versus the first quarter of 2009 and 5% lower than in the comparable period in 2008. The decline in year-over-year pre-tax, pre-provision operating earnings was attributable to higher loan-related legal expenses incurred in the second quarter of 2009.

Pre-tax, pre-provision operating earnings figures, which are non-GAAP (Generally Accepted Accounting Principles) financial measures, are presented because the Company believes adjusting its results to exclude loan loss provision expenses, impairment charges, special FDIC assessments and extraordinary gains or losses provides shareholders with a more comparable basis for evaluating period-to-period operating results. A schedule reconciling GAAP (loss) income before income tax to pre-tax, pre-provision operating earnings is provided in the attached tables.

Peter Benoist, President and CEO, commented, "Enterprise's reported results improved in the second quarter, posting a modest net profit that was impacted significantly by the FDIC special assessment. On a per-share basis, we reported a $0.02 loss after giving effect to the preferred stock dividend. The quarter's results reflected several favorable trends. Our provision expense was roughly half the level recorded in each of the prior two quarters. Net charge-offs were lower and we continued to build our allowance for loan losses. Core deposits increased and our net interest margin widened in the quarter. Our operating earnings continued to grow."

"At the same time, however," Benoist continued, "the economic environment remains stressed and we continue to be cautious and disciplined. Non-performing assets remain elevated compared to our historical standards and won't be resolved quickly."

Banking Line of Business

Deposits and liquidity

Total deposits rose $90 million, or 5%, from a year ago. On a linked quarter basis, deposits increased slightly, by 1%.

Core deposits at June 30, 2009 increased $108 million, or 8%, over June 30, 2008. On a linked quarter basis, core deposits rose $35 million, or 2%. At June 30, 2009, core deposits, which include all deposits other than brokered CDs, represented 87% of total deposits.

The Company increased its investment portfolio by $45.5 million during the second quarter of 2009, thereby improving its on-balance sheet liquidity.

Loans

Portfolio loans increased $56 million, or 3%, from a year ago. On a linked quarter basis, portfolio loans decreased $59 million, or 3%, as many clients are paying down borrowings to strengthen their balance sheets.

The Bank continues to pursue prudent lending opportunities to support local economic activity, with new loan approvals of $85 million during the second quarter. In the six months since the U.S. Treasury invested $35 million in EFSC preferred stock under the Capital Purchase Program, Enterprise has approved over $161 million in new loans.

Asset Quality

Non-performing loans totaled $49.2 million, or 2.58% of total loans at June 30, 2009, a $1.3 million decrease from March 31, 2009. The percentage of non-performing loans remained relatively flat due to the slight decline in total loans quarter-to-quarter. Non-performing loans were $13.2 million, or 0.71% of total loans, at June 30, 2008. Non-performing loans were $29.7 million, or 1.50% of total loans, at December 31, 2008.

Loans 30-90 days past due, excluding non-performing loans, represented 0.55% of loans at June 30, 2009, an improvement from the 0.94% level at March 31, 2009.

Non-performing loans (NPL) comprised the following industry segments as indicated below (in millions):

                              June 30, 2009  March 31, 2009  Dec 31, 2008                             ------------   ------------   ------------                                    % of           % of           % of                              NPL   Total    NPL   Total    NPL   Total                             -----  -----   -----  -----   -----  -----  Commercial Real Estate     $23.4   47.5%  $29.2   57.8%  $16.1   54.2%  Residential   Construction/Land                                               39.7%   Acquisition    and Development           23.6   48.0%   16.9   33.5%   11.8  Commercial and Industrial    2.2    4.5%    4.4    8.7%    1.7    5.7%  Other                         --     --                    0.1    0.4%                             -----  -----   -----  -----   -----  -----                             $49.2  100.0%  $50.5  100.0%  $29.7  100.0%                             =====  =====   =====  =====   =====  ===== 

The $49.2 million in non-performing loans is comprised of roughly 40 relationships. The largest of these, as reported over the past few quarters, is an approximately $7 million loan secured by a medical office building. Six relationships comprise more than 50% of non-performing loans. Of the Company's non-performing loans, 64% are located in the Kansas City market, which has encountered a more difficult residential construction and sales environment.

Other real estate at June 30, 2009 totaled $16.1 million, a $2.8 million increase from March 31, 2009. Other real estate added in the second quarter totaled $11.3 million, comprised largely of a $2.0 million residence, a $2.5 million commercial lot and several smaller residential lots and commercial properties. The Company sold $8.5 million in Other real estate in the second quarter at a negligible loss of $2,000 compared to recorded values.

Total non-performing assets were $65.3 million, or 2.95% of total assets at June 30, 2009, compared to 2.86% at March 31, 2009 and 1.92% at December 31, 2008.

Provision for loan losses was $8.0 million in the second quarter of 2009 compared to $15.1 million in the first quarter of 2009 and $3.2 million in the second quarter of 2008. The lower loan loss provision in the second quarter compared to first quarter is due to lower loan volumes and a leveling off of non-performing loans. Provision expense covered 161% of net charge-offs in the second quarter as the Company continued to build loan loss reserves to 2.24% of portfolio loans at June 30, 2009 over its 2.02% level at March 31, 2009. By comparison, loan loss reserves represented 1.58% of portfolio loans at December 31, 2008.

Net charge-offs in the second quarter were $5.0 million, an annualized rate of 1.03% of average loans. The majority of charge-offs in the quarter were attributable to write-downs on impaired assets and foreclosed real estate, with approximately 50% of the charge-offs related to residential real estate, 40% related to commercial real estate and 10% related to commercial and industrial loans.

By comparison, net charge-offs in the first quarter of 2009 were $6.8 million, or 1.39% annualized. Net charge-offs for the prior year second quarter were $1.4 million, or 0.32% annualized.

Net interest income

Net interest income in the banking segment increased $1.1 million, or 6%, in the second quarter of 2009 versus the comparable period in 2008. On a linked quarter basis, the increase in net interest income was 4%.

Net interest margin was 3.41% in the second quarter of 2009 compared to 3.56% in the second quarter of 2008 and 3.32% in the first quarter of 2009. The increase in the second quarter net interest margin compared to the first quarter was largely a result of a twelve basis point increase in loan yields and continuing repricing of CDs at lower rates.

Wealth Management Line of Business

Fee income from the Wealth Management line of business, including results from state tax credit brokerage activities, totaled $2.4 million for the second quarter of 2009, an 11% decline compared to the same period in 2008. On a linked quarter basis, Wealth Management revenues decreased 27%, largely due to higher first quarter revenue at MBG resulting from its completion of several large insurance cases.