Enterprise Financial Services Corp Q3 FY2025 earnings call

• The third quarter was a solid quarter with loan growth at 6% annualized and deposit growth outpacing loan growth. - The acquisition of 10 branches in Arizona and 2 in the Kansas City area garnered approximately $650 million of well-priced deposits and $300 million in loans. - Provision for loan losses increased due to a $22 million increase in nonperforming assets and net charge-offs, but expected to work through issues and see NPAs return to historical levels. - Recapture of transferable solar tax credits caused noise in the income statement, but covered by insurance. - Earned $1.19 per diluted share, with return on average assets of 1.11% and pre-provision ROAA of 1.61%. - Net interest income and margin expanded, sixth consecutive quarter of net interest income growth. - Strong growth in Southwest markets like Dallas and Las Vegas. - Deposit growth exceptional, with DDA at 32% and growth from all regions year-over-year. - Focus on cultural integration of new associates and clients from branch acquisition, and momentum in regions and specialty verticals.

In the third quarter of 2025, Enterprise Financial Services Corp saw loan growth return to an annualized level of 6%. Deposit growth continued well above this level. Net interest income improved by $5.5 million compared to the previous quarter, and the net interest margin improved by 2 basis points to 4.23%. On an annualized basis, loan growth was 6% or $174 million net of $22 million of guaranteed loans sold. Deposit growth was exceptional, with net of brokered CDs, deposits growing by $240 million. Nonperforming assets increased by $22 million in the quarter, with the largest component being a $12 million life insurance premium loan and 7 commercial real estate loans in Southern California.

• Increased the dividend by $0.01 per share for the fourth quarter of 2025 to $0.32 per share. - Expect NPAs to return to historical levels over the next few quarters. - Confidence in clients' momentum with rate cuts and trade policy clarity, onboarding of new clients and loan production possibly maintaining or accelerating. - Branch acquisition expected to be 5 basis points accretive to net interest margin in the fourth quarter.

• Nonperforming assets increase with uncertainty in resolution of life insurance premium loan litigation and Southern California commercial real estate loans due to bankruptcy. - Volatility in trade tariffs with China affecting C&I clients. - Recapture of solar tax credits causing noise in the income statement.

Q: Jeff Rulis asked about the workout process for credit relationships, especially the timeline for resolution of Southern California credits and the life insurance premium finance loan.

A: Douglas Bauche said the Southern California real estate loan resolution timing is uncertain due to secondary bankruptcy filing but moving through foreclosure processes; the life insurance premium finance loan may involve litigation with uncertain timing but cash surrender value covers principal.\nQ: Jeff Rulis asked about NDFI exposure in the portfolio.

A: Douglas Bauche said the portfolio includes approximately $260 - $270 million in balances across private lending entities with strict credit underwriting and monitoring.\nQ: Damon Del Monte asked about expense outlook, especially from the branch deal.

A: Keene Turner said third quarter adjusted run rate expenses were ~$107 million, fourth quarter expected ~$111 - $113 million, with full year branch acquisition expenses ~$18 million run rate.\nQ: Damon Del Monte asked about fee income expectations, especially tax-related items.

A: Keene Turner said fourth quarter fee income expected to be between second and third quarter levels, affected by rate cuts and activity but SBA loan sales possibly limited.\nQ: Nathan Race asked about management priorities regarding M&A and share repurchases.

A: James Lally said priority is growth, then buybacks, with M&A considered if it fits to improve the balance sheet.\nQ: Brian Martin asked about specialty deposits' drivers and costs.

A: James Lally said specialty deposits driven by investment in people, systems, and expertise, with lower costs and expected continued rapid growth.