[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q) [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides key identification details for Enterprise Financial Services Corp, including its incorporation state, IRS Employer ID, address, and primary contact number, also listing registered securities and confirming SEC filing compliance as a large accelerated filer - Registrant: ENTERPRISE FINANCIAL SERVICES CORP, incorporated in Delaware[2](index=2&type=chunk) Title of each class | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $0.01 per share | EFSC | Nasdaq Global Select Market | | Depositary Shares, each representing a 1/40th interest in a share of 5.00% Fixed Rate Non Cumulative Perpetual Preferred Stock, Series A | EFSCP | Nasdaq Global Select Market | - The registrant is a Large accelerated filer and is not a shell company[4](index=4&type=chunk) - As of July 30, 2025, the Registrant had **36,987,916** shares of outstanding common stock, **$0.01** par value per share[4](index=4&type=chunk) [Table of Contents](index=3&type=section&id=TABLE%20OF%20CONTENTS) [PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section outlines the financial information presented in the report, including condensed consolidated financial statements, management's discussion and analysis, quantitative and qualitative disclosures about market risk, and controls and procedures [PART II - OTHER INFORMATION](index=3&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers other non-financial information such as legal proceedings, risk factors, unregistered sales of equity securities, defaults upon senior securities, mine safety disclosures, other information, and a list of exhibits [Glossary of Acronyms, Abbreviations and Entities](index=4&type=section&id=Glossary%20of%20Acronyms%20and%20Abbreviations) [Acronyms and Abbreviations](index=4&type=section&id=Acronyms%20and%20Abbreviations) This section provides a glossary of acronyms and abbreviations used throughout the Form 10-Q, particularly in the financial statements and Management's Discussion and Analysis, to ensure clarity and consistency in terminology Table | ACL | Allowance for Credit Losses | Federal Reserve | Board of Governors of the Federal Reserve System | | :-- | :------------------------ | :-------------- | :--------------------------------------------- | | ASU | Accounting Standards Update | FHLB | Federal Home Loan Bank | | Bank | Enterprise Bank & Trust | GAAP | Generally Accepted Accounting Principles (United States) | | C&I | Commercial and Industrial | GDP | Gross Domestic Product | | CCB | Capital Conservation Buffer | NIM | Net Interest Margin | | CECL | Current Expected Credit Loss | NM | Not meaningful | | Company, Enterprise, We, Us or Our | Enterprise Financial Services Corp and Subsidiaries | OREO | Other real estate owned | | CRE | Commercial Real Estate | PPNR | Pre-provision net revenue | | EFSC | Enterprise Financial Services Corp | SBA | Small Business Administration | | FASB | Financial Accounting Standards Board | SEC | Securities and Exchange Commission | | FDIC | Federal Deposit Insurance Corporation | SOFR | Secured Overnight Financing Rate | [PART I - ITEM 1 - FINANCIAL STATEMENTS](index=5&type=section&id=PART%20I%20-%20ITEM%201%20-%20FINANCIAL%20STATEMENTS) [Condensed Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) The Condensed Consolidated Balance Sheets provide a snapshot of the Company's financial position as of June 30, 2025, compared to December 31, 2024, showing increases in total assets, loans, and deposits, alongside a rise in stockholders' equity Condensed Consolidated Balance Sheets Highlights ($ in thousands) (Unaudited) | | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total assets | $16,076,299 | $15,596,431 | | Total loans, net | $11,263,707 | $11,082,405 | | Total deposits | $13,317,359 | $13,146,492 | | Total liabilities | $14,153,400 | $13,772,429 | | Total stockholders' equity | $1,922,899 | $1,824,002 | - Total assets increased by **$479.9 million** (**3%**) from December 31, 2024, to June 30, 2025, primarily driven by increases in investment securities and loans[11](index=11&type=chunk) - Total deposits increased by **$170.9 million** (**1%**) from December 31, 2024, to June 30, 2025[11](index=11&type=chunk) [Condensed Consolidated Statements of Income (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Unaudited)) The Condensed Consolidated Statements of Income show improved financial performance for the three and six months ended June 30, 2025, with increases in net interest income, noninterest income, and net income available to common stockholders compared to the prior year Key Income Statement Data (in thousands, except per share data) (Unaudited) | | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $218,967 | $211,644 | $430,747 | $419,367 | | Total interest expense | $66,205 | $71,115 | $130,469 | $141,110 | | Net interest income | $152,762 | $140,529 | $300,278 | $278,257 | | Provision for credit losses | $3,470 | $4,819 | $8,654 | $10,575 | | Total noninterest income | $20,604 | $15,494 | $39,087 | $27,652 | | Total noninterest expense | $105,702 | $94,017 | $205,485 | $187,518 | | Net income | $51,384 | $45,446 | $101,345 | $85,847 | | Net income available to common stockholders | $50,447 | $44,509 | $99,470 | $83,972 | | Basic earnings per common share | $1.36 | $1.19 | $2.69 | $2.24 | | Diluted earnings per common share | $1.36 | $1.19 | $2.67 | $2.24 | - Net interest income increased by **$12.2 million** (**8.7%**) for the three months ended June 30, 2025, compared to the same period in 2024, and by **$22.0 million** (**7.9%**) for the six months ended June 30, 2025, compared to the same period in 2024[13](index=13&type=chunk) - Net income available to common stockholders increased by **$5.9 million** (**13.3%**) for the three months ended June 30, 2025, and by **$15.5 million** (**18.4%**) for the six months ended June 30, 2025, compared to the respective prior year periods[13](index=13&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) The Condensed Consolidated Statements of Comprehensive Income show a significant positive shift in other comprehensive income (loss) for the three and six months ended June 30, 2025, primarily driven by changes in unrealized gains on available-for-sale securities, leading to a substantial increase in total comprehensive income Comprehensive Income Highlights ($ in thousands) (Unaudited) | | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $51,384 | $45,446 | $101,345 | $85,847 | | Change in unrealized gain (loss) on available-for-sale securities | $11,348 | $(5,375) | $24,233 | $(16,448) | | Total other comprehensive income (loss), net of tax | $12,406 | $(6,748) | $27,733 | $(21,124) | | Total comprehensive income | $63,790 | $38,698 | $129,078 | $64,723 | - Total comprehensive income increased significantly, from **$38.7 million** to **$63.8 million** for the three months ended June 30, 2025, and from **$64.7 million** to **$129.1 million** for the six months ended June 30, 2025, primarily due to a positive change in unrealized gains on available-for-sale securities[15](index=15&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20(Unaudited)) The Condensed Consolidated Statements of Stockholders' Equity detail the changes in equity components for the three and six months ended June 30, 2025 and 2024, reflecting increases driven by net income and other comprehensive income, partially offset by dividends and stock repurchases Stockholders' Equity Changes ($ in thousands) (Unaudited) | | Balance at Dec 31, 2024 | Net Income | Other Comprehensive Income | Common Stock Dividends | Preferred Stock Dividends | Repurchase of Common Stock | Stock-based Compensation | Balance at June 30, 2025 | | :--------------- | :---------------------- | :--------- | :------------------------- | :--------------------- | :------------------------ | :------------------------- | :----------------------- | :----------------------- | | Total Stockholders' Equity | $1,824,002 | $101,345 | $27,733 | $(21,798) | $(1,875) | $(10,630) | $6,192 | $1,922,899 | - Total stockholders' equity increased from **$1.82 billion** at December 31, 2024, to **$1.92 billion** at June 30, 2025, primarily due to net income of **$101.3 million** and other comprehensive income of **$27.7 million**[17](index=17&type=chunk) - Common stock dividends paid for the six months ended June 30, 2025, totaled **$21.8 million** (**$0.59** per share), and preferred stock dividends totaled **$1.9 million** (**$25.00** per share)[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) The Condensed Consolidated Statements of Cash Flows show a net decrease in cash and cash equivalents for the six months ended June 30, 2025, primarily due to significant cash used in investing activities, partially offset by cash provided by operating and financing activities Cash Flow Summary ($ in thousands) (Unaudited) | | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $101,309 | $106,397 | | Net cash used in investing activities | $(732,273) | $(180,571) | | Net cash provided by financing activities | $358,314 | $33,920 | | Net decrease in cash and cash equivalents | $(272,650) | $(40,254) | | Cash and cash equivalents, end of period | $491,520 | $392,775 | - Net cash used in investing activities significantly increased to **$732.3 million** for the six months ended June 30, 2025, from **$180.6 million** in the prior year, largely due to increased purchases of available-for-sale and held-to-maturity debt securities and bank-owned life insurance[20](index=20&type=chunk) - Net cash provided by financing activities increased substantially to **$358.3 million** for the six months ended June 30, 2025, from **$33.9 million** in the prior year, driven by a net increase in interest-bearing deposit accounts and FHLB advances[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes provide detailed disclosures and explanations for the condensed consolidated financial statements, covering significant accounting policies, earnings per share, investments, loans, commitments, derivatives, fair value measurements, stockholders' equity, supplemental financial information, segment reporting, subordinated notes, and other borrowings [NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=NOTE%201%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - Enterprise is a financial holding company providing banking and wealth management services primarily in Arizona, California, Florida, Kansas, Missouri, Nevada, and New Mexico, through its subsidiary Enterprise Bank & Trust[24](index=24&type=chunk) - The Company announced a pending acquisition of twelve branches from First Interstate Bank, including approximately **$705 million** in deposits and **$300 million** in loans, expected to close in Q4 2025, expanding its presence in Arizona and Kansas[28](index=28&type=chunk)[112](index=112&type=chunk) - Recent accounting pronouncements, ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Expense Disaggregation Disclosures), are being evaluated but are not expected to have a material effect on the consolidated financial statements[29](index=29&type=chunk)[30](index=30&type=chunk) [NOTE 2 - EARNINGS PER SHARE](index=12&type=section&id=NOTE%202%20-%20EARNINGS%20PER%20SHARE) Earnings Per Common Share Data (in thousands, except per share data) (Unaudited) | | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income available to common stockholders | $50,447 | $44,509 | $99,470 | $83,972 | | Basic earnings per common share | $1.36 | $1.19 | $2.69 | $2.24 | | Diluted earnings per common share | $1.36 | $1.19 | $2.67 | $2.24 | - Basic and diluted EPS increased from **$1.19** to **$1.36** for the three months ended June 30, 2025, and from **$2.24** to **$2.69** (basic) / **$2.67** (diluted) for the six months ended June 30, 2025, compared to the prior year periods[33](index=33&type=chunk) [NOTE 3 - INVESTMENTS](index=13&type=section&id=NOTE%203%20-%20INVESTMENTS) Securities Available-for-Sale and Held-to-Maturity ($ in thousands) (June 30, 2025) (Unaudited) | | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :-------------------------------------- | :------------- | :--------------------- | :---------------------- | :--------- | | **Available-for-sale securities:** | | | | | | Obligations of U.S. Government-sponsored enterprises | $252,037 | $125 | $(9,792) | $242,370 | | Obligations of states and political subdivisions | $547,277 | $257 | $(83,482) | $464,052 | | Agency mortgage-backed securities | $1,395,601 | $8,368 | $(45,459) | $1,358,510 | | U.S. Treasury bills | $116,992 | $11 | $(948) | $116,055 | | Corporate debt securities | $23,698 | $81 | $(255) | $23,524 | | **Total securities available-for-sale** | **$2,335,605** | **$8,842** | **$(139,936)** | **$2,204,511** | | **Held-to-maturity securities:** | | | | | | Obligations of states and political subdivisions | $928,973 | $2,372 | $(68,867) | $862,478 | | Agency mortgage-backed securities | $45,922 | — | $(3,866) | $42,056 | | Corporate debt securities | $116,638 | $297 | $(5,080) | $111,855 | | **Total securities held-to-maturity** | **$1,091,533** | **$2,669** | **$(77,813)** | **$1,016,389** | - Unrealized losses on available-for-sale securities were **$139.9 million** at June 30, 2025, and on held-to-maturity securities were **$77.8 million**, primarily due to changes in market interest rates[34](index=34&type=chunk)[37](index=37&type=chunk) - The Company sold **$9.5 million** of available-for-sale securities during the six months ended June 30, 2025, for a gain of **$0.1 million**[39](index=39&type=chunk) - Other investments increased to **$88.6 million** at June 30, 2025, from **$72.8 million** at December 31, 2024, primarily due to an increase in FHLB capital stock[40](index=40&type=chunk) [NOTE 4 - LOANS](index=15&type=section&id=NOTE%204%20-%20LOANS) Loan Portfolio Summary by Category ($ in thousands) (Unaudited) | | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Commercial and industrial | $4,875,484 | $4,720,428 | | Total real estate loans | $6,278,003 | $6,219,197 | | Other | $257,161 | $281,193 | | Total loans, including unearned loan fees | $11,408,840 | $11,220,355 | - Total loans increased by **$188.5 million** (**1.7%**) from December 31, 2024, to June 30, 2025, primarily driven by commercial and industrial loans[41](index=41&type=chunk) - The Allowance for Credit Losses (ACL) on loans increased to **$145.1 million** at June 30, 2025, from **$137.9 million** at December 31, 2024, with a qualitative adjustment of **$40.6 million**, including **$19.6 million** for sponsor finance loans[45](index=45&type=chunk)[47](index=47&type=chunk) - Nonperforming loans significantly increased to **$105.8 million** at June 30, 2025, from **$42.7 million** at December 31, 2024, largely due to two borrowing relationships in commercial real estate that filed for bankruptcy, though the loans are well secured[50](index=50&type=chunk)[146](index=146&type=chunk) - The Company categorizes loans into risk categories (Pass, Special Mention, Classified) based on borrower financial health and economic factors, with 'Pass' loans representing the majority of the portfolio[62](index=62&type=chunk)[63](index=63&type=chunk)[66](index=66&type=chunk) [NOTE 5 - COMMITMENTS AND CONTINGENT LIABILITIES](index=29&type=section&id=NOTE%205%20-%20COMMITMENTS%20AND%20CONTINGENT%20LIABILITIES) Off-Balance Sheet Financial Instruments ($ in thousands) (Unaudited) | | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Commitments to extend credit | $2,836,709 | $3,001,565 | | Letters of credit | $104,868 | $137,926 | - Commitments to extend credit decreased by **$164.9 million** from December 31, 2024, to June 30, 2025, with **$160.2 million** representing fixed rate loan commitments at June 30, 2025[72](index=72&type=chunk)[73](index=73&type=chunk) - Management believes there are no pending or threatened legal proceedings that would have a material adverse effect on the Company's financial condition or operations[75](index=75&type=chunk) [NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS](index=30&type=section&id=NOTE%206%20-%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) - The Company uses derivative financial instruments, primarily interest rate swaps and collars, to manage interest rate risk and stabilize interest income and expense, not for trading purposes[76](index=76&type=chunk)[77](index=77&type=chunk) - Cash flow hedges include interest rate swaps for variable-rate loans (notional **$250 million**) and variable-rate liabilities (notional **$32.1 million**), and interest rate collars for prime-based and SOFR-based loans (total notional **$150 million**)[78](index=78&type=chunk)[79](index=79&type=chunk) Fair Value of Derivative Financial Instruments ($ in thousands) (June 30, 2025) (Unaudited) | | Notional Amount | Derivative Assets | Derivative Liabilities | | :------------------------------------ | :-------------- | :---------------- | :--------------------- | | Derivatives designated as hedging instruments | $432,064 | $2,856 | $21 | | Derivatives not designated as hedging instruments | $789,324 | $11,006 | $11,016 | [NOTE 7 - FAIR VALUE MEASUREMENTS](index=33&type=section&id=NOTE%207%20-%20FAIR%20VALUE%20MEASUREMENTS) Financial Instruments Measured at Fair Value ($ in thousands) (June 30, 2025) (Unaudited) | | Total Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------------------- | :--------------- | :------ | :------ | :------ | | **Assets:** | | | | | | Securities available-for-sale | $2,204,511 | $— | $2,204,511 | $— | | Other investments | $3,078 | $— | $3,078 | $— | | Derivative financial instruments | $13,862 | $— | $13,862 | $— | | **Total assets** | **$2,221,451** | **$—** | **$2,221,451** | **$—** | | **Liabilities:** | | | | | | Derivative financial instruments | $11,037 | $— | $11,037 | $— | | **Total liabilities** | **$11,037** | **$—** | **$11,037** | **$—** | Nonrecurring Fair Value Measurements ($ in thousands) (June 30, 2025) (Unaudited) | | Total Fair Value | Level 1 | Level 2 | Level 3 | | :----------------------- | :--------------- | :------ | :------ | :------ | | Individually-evaluated loans | $900 | $— | $— | $900 | | Other real estate | $7,821 | $— | $— | $7,821 | | Total | $8,721 | $— | $— | $8,721 | - The majority of financial instruments measured at fair value on a recurring basis, including available-for-sale securities and derivatives, are classified as Level 2, indicating valuation based on significant observable inputs[86](index=86&type=chunk) [NOTE 8 - STOCKHOLDERS' EQUITY](index=35&type=section&id=NOTE%208%20-%20STOCKHOLDERS%27%20EQUITY) Changes in Accumulated Other Comprehensive Income (Loss) ($ in thousands) (Six months ended June 30, 2025) (Unaudited) | | Net Unrealized Gain (Loss) on Available-for-Sale Debt Securities | Unamortized Gain on Held-to-Maturity Securities | Net Unrealized Gain (Loss) on Cash Flow Hedges | Total | | :--------------- | :------------------------------------------------ | :------------------------------------ | :------------------------------------ | :------ | | Balance, December 31, 2024 | $(122,132) | $8,088 | $(2,674) | $(116,718) | | Net change | $24,153 | $(1,219) | $4,799 | $27,733 | | Balance, June 30, 2025 | $(97,979) | $6,869 | $2,125 | $(88,985) | - Accumulated other comprehensive loss improved by **$27.7 million** for the six months ended June 30, 2025, primarily due to a **$24.2 million** increase in unrealized gains on available-for-sale securities and a **$4.8 million** increase in unrealized gains on cash flow hedges[90](index=90&type=chunk) [NOTE 9 - SUPPLEMENTAL FINANCIAL INFORMATION](index=37&type=section&id=NOTE%209%20-%20SUPPLEMENTAL%20FINANCIAL%20INFORMATION) Other Income Components ($ in thousands) (Unaudited) | | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Bank-owned life insurance | $2,561 | $855 | $3,432 | $1,719 | | Community development fees | $1,426 | $381 | $2,133 | $966 | | Gain on SBA loan sales | $1,153 | $— | $3,048 | $1,415 | | Other income | $3,289 | $2,755 | $6,215 | $4,860 | | Total other noninterest income | $8,429 | $3,991 | $14,828 | $8,960 | Other Expense Components ($ in thousands) (Unaudited) | | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Amortization of intangibles | $753 | $944 | $1,608 | $1,991 | | Banking expenses | $2,362 | $2,003 | $4,325 | $3,809 | | FDIC and other insurance | $3,429 | $3,135 | $6,577 | $6,742 | | Loan, legal expenses | $3,244 | $2,316 | $5,435 | $4,424 | | Outside services | $1,424 | $1,535 | $2,515 | $3,199 | | Other expenses | $7,754 | $7,020 | $15,291 | $14,650 | | Total other noninterest expenses | $18,966 | $16,953 | $35,751 | $34,815 | [NOTE 10 - SEGMENT REPORTING](index=37&type=section&id=NOTE%2010%20-%20SEGMENT%20REPORTING) - The Company operates as a single operating and reportable segment, offering a full range of banking and wealth management services to individuals and corporate customers[94](index=94&type=chunk) - The Chief Executive Officer, as the chief operating decision maker, reviews consolidated results and allocates resources based on consolidated net income[95](index=95&type=chunk) [NOTE 11 - SUBORDINATED NOTES](index=38&type=section&id=NOTE%2011%20-%20SUBORDINATED%20NOTES) - The Company issued **$63.3 million** of **5.75%** fixed-to-floating rate subordinated notes due in 2030. Beginning June 1, 2025, the interest rate converted to a floating rate of three-month term SOFR plus **566.0** basis points (**9.98%** at June 30, 2025)[97](index=97&type=chunk) - The Company gave notice in July 2025 for full redemption of the 2030 notes on September 1, 2025[97](index=97&type=chunk) [NOTE 12 - OTHER BORROWINGS](index=38&type=section&id=NOTE%2012%20-%20OTHER%20BORROWINGS) - The Company has a senior unsecured revolving credit commitment of up to **$25 million**, renewed in Q2 2025, maturing February 21, 2026, with an interest rate of one-month Term SOFR plus **185** basis points. This line was not accessed in 2025 or 2024[98](index=98&type=chunk) - A Term Loan commitment allows a **$63.3 million** unsecured draw through June 30, 2026, specifically for redeeming the 2030 Notes, with an interest rate of one-month Term SOFR plus **250** basis points upon advance[99](index=99&type=chunk) [ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=39&type=section&id=ITEM%202%3A%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) [Forward Looking Statements](index=39&type=section&id=Forward%20Looking%20Statements) This section provides a cautionary statement regarding forward-looking statements, highlighting that actual results may differ materially due to various risks and uncertainties, and advises readers not to place undue reliance on these statements - Forward-looking statements are based on management's current expectations and beliefs, inherently subject to risks and uncertainties, and actual results could differ materially[101](index=101&type=chunk) - Key risk factors include integration of acquisitions, credit risk, economic conditions (inflation, unemployment), interest rate fluctuations, liquidity, competition, regulatory burdens, and geopolitical matters[102](index=102&type=chunk) [Introduction](index=40&type=section&id=Introduction) This introduction outlines the scope of the Management's Discussion and Analysis, focusing on significant changes in financial condition during the first six months of 2025 compared to December 31, 2024, and results of operations for the three and six months ended June 30, 2025, relative to prior periods - The discussion covers financial condition changes from December 31, 2024, to June 30, 2025, and results of operations for Q2 2025 compared to Q1 2025 (linked quarter) and H1 2025 compared to H1 2024 (prior year-to-date)[104](index=104&type=chunk) [Critical Accounting Policies and Estimates](index=40&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section emphasizes the importance of critical accounting policies and estimates, such as the valuation of loans and goodwill, which require significant management judgment and are subject to change based on evolving economic conditions and actual experience - Critical accounting policies involve difficult, subjective, and complex judgments, with estimates based on current circumstances that may change over time[105](index=105&type=chunk) - Estimates, including those for loans, goodwill, intangible assets, and income taxes, are continuously evaluated, and actual results could differ significantly from these estimates[107](index=107&type=chunk) [Allowance for Credit Losses](index=41&type=section&id=Allowance%20for%20Credit%20Losses) The Allowance for Credit Losses (ACL) is a valuation account for expected losses on funded loans, unfunded loans, and held-to-maturity securities, determined using a probability of default and loss given default model that incorporates historical data, current conditions, and weighted economic forecasts (baseline, upside, downside) - The ACL is estimated using historical loss information adjusted for current and forecasted economic conditions, including unemployment, GDP changes, and real estate prices[108](index=108&type=chunk) - The Company uses a weighted average of Moody's baseline (**40%**), stronger near-term growth upside (**30%**), and moderate downside (**30%**) scenarios for its CECL model[46](index=46&type=chunk) - At June 30, 2025, the ACL on loans was **$145.1 million**. Hypothetically, using only the upside scenario would decrease ACL by **$28.2 million**, while only the downside scenario would increase it by **$43.0 million**[108](index=108&type=chunk) [Executive Summary](index=42&type=section&id=Executive%20Summary) The executive summary highlights key financial performance and balance sheet changes for Q2 2025 and H1 2025, including increased PPNR, net interest income, and noninterest income, alongside growth in loans and deposits, and a pending branch acquisition Key Financial Performance Highlights ($ in thousands, except per share data) (Unaudited) | | Q2 2025 | Q1 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | :------ | | Net interest income | $152,762 | $147,516 | $140,529 | $300,278 | $278,257 | | Net income available to common stockholders | $50,447 | $49,023 | $44,509 | $99,470 | $83,972 | | Diluted earnings per common share | $1.36 | $1.31 | $1.19 | $2.67 | $2.24 | | Return on average assets | 1.30 % | 1.30 % | 1.25 % | 1.30 % | 1.18 % | | Net interest margin (tax equivalent) | 4.21 % | 4.15 % | 4.19 % | 4.18 % | 4.16 % | | Efficiency ratio | 60.97 % | 60.11 % | 60.26 % | 60.55 % | 61.30 % | | Nonperforming loans to total loans | 0.93 % | 0.97 % | 0.36 % | | | - Pre-provision net revenue (PPNR) increased by **$2.0 million** from Q1 2025 and **$13.6 million** from H1 2024, driven by higher net interest income from loan growth and securities portfolio investment[111](index=111&type=chunk) - Total loans increased by **$188.5 million** (**2%**) to **$11.4 billion** at June 30, 2025, compared to December 31, 2024[111](index=111&type=chunk) - Total deposits increased by **$170.9 million** (**1%**) to **$13.3 billion** at June 30, 2025, with noninterest-bearing deposits representing **32%** of the total[111](index=111&type=chunk) - A pending acquisition of twelve branches from First Interstate Bank, including approximately **$705 million** in deposits and **$300 million** in loans, is expected to close in Q4 2025[112](index=112&type=chunk) - Nonperforming assets to total assets increased to **0.71%** at June 30, 2025, from **0.30%** at December 31, 2024[113](index=113&type=chunk) [RESULTS OF OPERATIONS](index=45&type=section&id=RESULTS%20OF%20OPERATIONS) This section details the Company's operational performance, focusing on net interest income, noninterest income, noninterest expense, and income taxes, providing comparative analysis for the current quarter and year-to-date periods against prior periods [Net Interest Income and Net Interest Margin](index=45&type=section&id=Net%20Interest%20Income%20and%20Net%20Interest%20Margin) Net Interest Income and Margin (Tax Equivalent) (Unaudited) | | Three months ended June 30, 2025 | Three months ended March 31, 2025 | Three months ended June 30, 2024 | | :-------------------- | :------------------------------- | :-------------------------------- | :------------------------------- | | Net interest income | $155,500 | $149,991 | $142,576 | | Net interest margin | 4.21 % | 4.15 % | 4.19 % | | | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net interest income | $305,491 | $282,344 | | Net interest margin | 4.18 % | 4.16 % | - Net interest income (tax equivalent) increased by **$5.5 million** from the linked quarter and **$23.1 million** from the prior year-to-date period, driven by organic loan growth and securities portfolio investment, partially offset by increased wholesale borrowings[119](index=119&type=chunk) - Net interest margin (tax equivalent) was **4.21%** in Q2 2025, up **6** basis points from Q1 2025, and **4.18%** for H1 2025, up **2** basis points from H1 2024[124](index=124&type=chunk) - Interest expense decreased **$10.6 million** over the prior year-to-date period due to a **43** basis point decline in the average cost of interest-bearing deposits and a **56** basis point decline in money market accounts, despite deposit portfolio growth[123](index=123&type=chunk) [Noninterest Income](index=49&type=section&id=Noninterest%20Income) Noninterest Income Summary ($ in thousands) (Unaudited) | | Q2 2025 | Q1 2025 | Change (QoQ) | H1 2025 | H1 2024 | Change (YoY) | | :----------------------- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Deposit service charges | $4,940 | $4,420 | $520 (12%) | $9,360 | $8,965 | $395 (4%) | | Tax credit income (loss) | $2,207 | $2,610 | $(403) (-15%) | $4,817 | $(316) | $5,133 (1624%) | | Other income | $8,429 | $6,399 | $2,030 (32%) | $14,828 | $8,960 | $5,868 (65%) | | Total noninterest income | $20,604 | $18,483 | $2,121 (11%) | $39,087 | $27,652 | $11,435 (41%) | - Total noninterest income increased by **$2.1 million** (**11%**) from the linked quarter, primarily due to higher BOLI income (**$1.7 million**) and community development investment income (**$0.7 million**)[126](index=126&type=chunk) - For the six months ended June 30, 2025, total noninterest income increased by **$11.4 million** (**41%**) from the prior year-to-date period, largely due to a **$5.1 million** increase in tax credit income and a **$5.9 million** increase in other income, including a **$1.6 million** increase in gain on SBA loan sales[127](index=127&type=chunk) [Noninterest Expense](index=50&type=section&id=Noninterest%20Expense) Noninterest Expense Summary ($ in thousands) (Unaudited) | | Q2 2025 | Q1 2025 | Change (QoQ) | H1 2025 | H1 2024 | Change (YoY) | | :-------------------------- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Employee compensation and benefits | $50,164 | $48,208 | $1,956 (4%) | $98,372 | $89,786 | $8,586 (10%) | | Deposit costs | $24,765 | $23,823 | $942 (4%) | $48,588 | $41,983 | $6,605 (16%) | | Professional fees | $2,029 | $1,728 | $301 (17%) | $3,757 | $2,733 | $1,024 (37%) | | Other expense | $18,966 | $16,785 | $2,181 (13%) | $35,751 | $34,815 | $936 (3%) | | Total noninterest expense | $105,702 | $99,783 | $5,919 (6%) | $205,485 | $187,518 | $17,967 (10%) | - Total noninterest expense increased by **$5.9 million** (**6%**) from the linked quarter, primarily due to higher employee compensation and benefits, increased deposit costs, and higher loan and legal expenses related to loan workouts[129](index=129&type=chunk) - For the first six months of 2025, total noninterest expense increased by **$18.0 million** (**10%**) from the prior year-to-date period, mainly due to growth in the associate base, merit increases, and a **$6.6 million** increase in deposit costs[130](index=130&type=chunk) [Income Taxes](index=50&type=section&id=Income%20Taxes) - The Company's effective tax rate was **20.0%** for Q2 2025 and **19.1%** for H1 2025, compared to **18.1%** (linked quarter) and **20.4%** (prior year-to-date), benefiting from tax credit opportunities[131](index=131&type=chunk) [Summary Balance Sheet](index=51&type=section&id=Summary%20Balance%20Sheet) The summary balance sheet shows an increase in total assets driven by growth in investment securities and loans, partially offset by a decrease in cash, while liabilities increased due to FHLB advances and deposits Summary Balance Sheet Changes ($ in thousands) (December 31, 2024 to June 30, 2025) (Unaudited) | | June 30, 2025 | December 31, 2024 | Increase (decrease) | % Change | | :----------------------- | :------------ | :---------------- | :------------------ | :------- | | Cash and cash equivalents | $491,520 | $764,170 | $(272,650) | (36)% | | Securities | $3,295,749 | $2,791,205 | $504,544 | 18 % | | Loans | $11,408,840 | $11,220,355 | $188,485 | 2 % | | Total Assets | $16,076,299 | $15,596,431 | $479,868 | 3 % | | Deposits | $13,317,359 | $13,146,492 | $170,867 | 1 % | | Total Liabilities | $14,153,400 | $13,772,429 | $380,971 | 3 % | | Stockholders' equity | $1,922,899 | $1,824,002 | $98,897 | 5 % | - Total assets increased by **$479.9 million** (**3%**) to **$16.1 billion** at June 30, 2025, primarily due to a **$504.5 million** increase in investment securities and a **$188.5 million** increase in loans[132](index=132&type=chunk) - Total liabilities increased by **$381.0 million** (**3%**) to **$14.2 billion**, mainly due to a **$294.0 million** increase in FHLB advances and a **$170.9 million** increase in deposits[132](index=132&type=chunk) [Investment Securities](index=51&type=section&id=Investment%20Securities) The investment securities portfolio grew significantly, comprising both available-for-sale and held-to-maturity securities, with a notable increase in agency mortgage-backed securities and obligations of states and political subdivisions, while net unrealized losses decreased Investment Securities Carrying Value ($ in thousands) (Unaudited) | | June 30, 2025 | % of Total | December 31, 2024 | % of Total | | :-------------------------------------- | :------------ | :--------- | :---------------- | :--------- | | Obligations of U.S. Government sponsored enterprises | $242,370 | 7.4 % | $276,040 | 9.9 % | | Obligations of states and political subdivisions | $1,393,025 | 42.3 % | $1,168,256 | 41.9 % | | Agency mortgage-backed securities | $1,404,432 | 42.6 % | $1,075,306 | 38.5 % | | Total | $3,296,044 | 100.0 % | $2,791,462 | 100.0 % | - Investment securities increased by **$504.5 million** (**18%**) to **$3.3 billion** at June 30, 2025, representing **21%** of total assets[133](index=133&type=chunk) Net Unrealized Losses on Securities ($ in thousands) (Unaudited) | | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Available-for-sale securities | $(131,094) | $(163,212) | | Held-to-maturity securities | $(75,144) | $(70,321) | | Total | $(206,238) | $(233,533) | - Net unrealized losses on the total investment portfolio decreased from **$233.5 million** at December 31, 2024, to **$206.2 million** at June 30, 2025[135](index=135&type=chunk) [Loans by Type](index=52&type=section&id=Loans%20by%20Type) The Company's loan portfolio is diversified, with an overall increase driven by commercial and industrial (C&I) and commercial real estate (CRE) investor-owned loans, while construction and land development loans decreased. Specialized lending areas like life insurance premium financing also saw growth Loan Portfolio Composition by Type ($ in thousands) (Unaudited) | | June 30, 2025 | December 31, 2024 | Increase (decrease) | % Change | | :-------------------------------- | :------------ | :---------------- | :------------------ | :------- | | Commercial and industrial | $4,870,268 | $4,716,689 | $153,579 | 3 % | | Commercial real estate - investor owned | $2,739,915 | $2,606,964 | $132,951 | 5 % | | Construction and land development | $844,497 | $891,059 | $(46,562) | (5)% | | Total loans | $11,408,840 | $11,220,355 | $188,485 | 2 % | Additional Loan Categories ($ in thousands) (Unaudited) | | June 30, 2025 | December 31, 2024 | Increase (decrease) | % Change | | :-------------------------- | :------------ | :---------------- | :------------------ | :------- | | SBA Loans | $1,249,225 | $1,298,007 | $(48,782) | (4)% | | Sponsor finance | $771,280 | $782,722 | $(11,442) | (1)% | | Life insurance premium financing | $1,155,623 | $1,114,299 | $41,324 | 4 % | | Tax credits | $708,401 | $760,229 | $(51,828) | (7)% | - The Company sold **$55.7 million** of the guaranteed portion of SBA 7(a) loans during the six months ended June 30, 2025, recognizing a gain on sale of **$3.0 million**[138](index=138&type=chunk) [Provision and Allowance for Credit Losses](index=53&type=section&id=Provision%20and%20Allowance%20for%20Credit%20Losses) The provision for credit losses decreased for both the quarter and six months ended June 30, 2025, primarily reflecting changes in loan growth and economic forecasts. The Allowance for Credit Losses (ACL) on loans increased, maintaining a strong coverage ratio relative to total loans Provision for Credit Losses ($ in thousands) (Unaudited) | | Q2 2025 | Q1 2025 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Provision for credit losses on loans | $2,819 | $3,935 | $6,754 | $11,162 | | Provision for credit losses (Total) | $3,470 | $5,184 | $8,654 | $10,575 | - The total provision for credit losses decreased by **$1.7 million** from the linked quarter and **$1.9 million** from the prior year-to-date period[140](index=140&type=chunk) Allowance for Credit Losses on Loans Allocation ($ in thousands) (Unaudited) | | June 30, 2025 Allowance | % of Total Loans | December 31, 2024 Allowance | % of Total Loans | | :-------------------------- | :---------------------- | :--------------- | :-------------------------- | :--------------- | | Commercial and industrial | $72,081 | 42.7 % | $63,231 | 42.1 % | | Real estate: Commercial | $47,832 | 44.5 % | $54,617 | 44.3 % | | Total | $145,133 | 100.0 % | $137,950 | 100.0 % | - The ACL on loans was **1.27%** of total loans at June 30, 2025, up from **1.23%** at December 31, 2024. Excluding guaranteed loans, the ratio was **1.38%**[141](index=141&type=chunk) Net Charge-offs (Recoveries) to Average Loans (Annualized) (Unaudited) | | Q2 2025 | Q1 2025 | H1 2025 | H1 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | | Commercial and industrial | (0.04)% | (0.08)% | (0.06)% | 0.18 % | | Total | 0.02 % | (0.04)% | (0.01)% | 0.12 % | [Nonperforming assets](index=55&type=section&id=Nonperforming%20assets) Nonperforming assets significantly increased at June 30, 2025, primarily due to a rise in nonaccrual loans and loans past due 90 days or more, largely driven by specific commercial real estate relationships, although these loans are considered well-secured Nonperforming Assets Summary ($ in thousands) (Unaudited) | | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :---------------- | | Nonaccrual loans | $56,752 | $42,667 | | Loans past due 90 days or more and still accruing interest | $49,055 | $20 | | Total nonperforming loans | $105,807 | $42,687 | | Other real estate | $8,221 | $3,955 | | Total nonperforming assets | $114,028 | $46,642 | | Nonperforming loans to total loans | 0.93 % | 0.38 % | | Nonperforming assets to total assets | 0.71 % | 0.30 % | - Nonperforming loans increased by **$63.1 million** (**148%**) from December 31, 2024, to June 30, 2025, primarily due to seven commercial real estate loans to two relationships in Southern California that filed for bankruptcy, totaling **$68.4 million**[146](index=146&type=chunk) - Despite the increase, these commercial real estate loans are well-secured by properties with loan-to-value ratios ranging from **39%** to **79%** and substantial personal guarantees[146](index=146&type=chunk) Changes in Nonperforming Loans ($ in thousands) (Six months ended June 30, 2025) (Unaudited) | | Amount | | :-------------------------------- | :----- | | Nonperforming loans, beginning of period | $42,687 | | Additions to nonperforming loans | $86,695 | | Charge-offs | $(5,082) | | Principal payments | $(9,586) | | Moved to other real estate | $(8,405) | | Moved to performing | $(502) | | Nonperforming loans, end of period | $105,807 | [Deposits](index=57&type=section&id=Deposits) Total deposits increased, driven by a significant rise in brokered certificates of deposit and growth in deposit verticals, while noninterest-bearing demand accounts decreased. The overall cost of deposits remained stable or slightly decreased Deposits by Type ($ in thousands) (Unaudited) | | June 30, 2025 | December 31, 2024 | Increase (decrease) | % Change | | :-------------------------- | :------------ | :---------------- | :------------------ | :------- | | Noninterest-bearing demand accounts | $4,322,332 | $4,484,072 | $(161,740) | (4)% | | Interest-bearing demand accounts | $3,184,670 | $3,175,292 | $9,378 | — % | | Money market accounts | $3,676,197 | $3,564,063 | $112,134 | 3 % | | Brokered Certificates of deposit | $752,422 | $484,588 | $267,834 | 55 % | | Customer Certificates of deposit | $848,903 | $885,016 | $(36,113) | (4)% | | Total deposits | $13,317,359 | $13,146,492 | $170,867 | 1 % | | Noninterest-bearing deposits / total deposits | 32 % | 34 % | | | - Total deposits increased by **$170.9 million** (**1%**) to **$13.3 billion** at June 30, 2025, with brokered certificates of deposit increasing by **$267.8 million**[148](index=148&type=chunk) - Noninterest-bearing demand accounts decreased by **$161.7 million** (**4%**), and their proportion of total deposits fell from **34%** to **32%**[148](index=148&type=chunk) - The total cost of deposits was **1.82%** for Q2 2025 and H1 2025, compared to **1.83%** (linked quarter) and **2.15%** (prior year-to-date period)[151](index=151&type=chunk) [Stockholders' Equity](index=58&type=section&id=Stockholders%27%20Equity) Stockholders' equity increased by $98.9 million during the first six months of 2025, primarily driven by net income and an increase in the fair value of securities and cash flow hedges, partially offset by dividends and common stock repurchases - Stockholders' equity totaled **$1.9 billion** at June 30, 2025, an increase of **$98.9 million** from December 31, 2024[152](index=152&type=chunk) - Increase from net income of **$101.3 million**[155](index=155&type=chunk) - Increase in fair value of securities and cash flow hedges of **$27.7 million**[155](index=155&type=chunk) - Decrease from dividends paid on common and preferred stock of **$23.7 million**[155](index=155&type=chunk) - Decrease from common stock repurchases of **$10.6 million**[155](index=155&type=chunk) [Liquidity and Capital Resources](index=58&type=section&id=Liquidity%20and%20Capital%20Resources) The Company maintains robust liquidity and capital resources, with significant borrowing capacity and strong regulatory capital ratios exceeding 'well-capitalized' levels, ensuring financial flexibility and stability [Liquidity](index=58&type=section&id=Liquidity) - Liquidity is managed to ensure sufficient cash to meet commitments, with funds available from core deposits, loan/security repayments, and lines of credit from FHLB, Federal Reserve, and correspondent banks[152](index=152&type=chunk)[153](index=153&type=chunk) Available On- and Off-Balance Sheet Liquidity Sources ($ in thousands) (June 30, 2025) (Unaudited) | | Amount | | :-------------------------------- | :------- | | Federal Reserve borrowing capacity | $3,161,125 | | FHLB borrowing capacity | $1,087,454 | | Unpledged securities | $1,633,867 | | Federal funds lines (8 correspondent banks) | $160,000 | | Cash and interest-bearing deposits | $491,520 | | Holding Company line of credit | $25,000 | | Total | $6,558,966 | - The Company has **$2.9 billion** in unused commitments to extend credit as of June 30, 2025, which are managed through risk management processes[159](index=159&type=chunk) [Capital Resources](index=60&type=section&id=Capital%20Resources) - The Company and its Bank affiliate exceeded all regulatory capital requirements to be categorized as 'well capitalized' at June 30, 2025, and December 31, 2024[164](index=164&type=chunk) Capital Ratios (June 30, 2025) (Unaudited) | | EFSC | Bank | To Be Well Capitalized | Minimum Ratio with CCB | | :----------------------------------------- | :--- | :--- | :--------------------- | :--------------------- | | Common Equity Tier 1 Capital to Risk Weighted Assets | 11.9 % | 12.5 % | 6.5 % | 7.0 % | | Tier 1 Capital to Risk Weighted Assets | 13.2 % | 12.5 % | 8.0 % | 8.5 % | | Total Capital to Risk Weighted Assets | 14.7 % | 13.6 % | 10.0 % | 10.5 % | | Leverage Ratio (Tier 1 Capital to Average Assets) | 11.1 % | 10.5 % | 5.0 % | N/A | | Tangible common equity to tangible assets | 9.42 % | | | | [Use of Non-GAAP Financial Measures](index=61&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) - The Company provides non-GAAP financial measures, such as tangible common equity and core efficiency ratio, to offer supplemental information for evaluating operating performance and capital strength, excluding certain non-comparable items[167](index=167&type=chunk)[168](index=168&type=chunk) Core Efficiency Ratio (Non-GAAP) ($ in thousands) (Unaudited) | | Q2 2025 | Q1 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------ | :------ | :------ | :------ | :------ | :------ | | Core revenue (non-GAAP) | $176,048 | $168,345 | $158,070 | $344,393 | $309,998 | | Core noninterest expense (non-GAAP) | $104,431 | $98,928 | $91,823 | $203,359 | $183,302 | | Core efficiency ratio (non-GAAP) | 59.32 % | 58.77 % | 58.09 % | 59.05 % | 59.13 % | Tangible Common Equity and Related Ratios (Non-GAAP) (in thousands, except per share data) (Unaudited) | | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------------------ | :------------ | :------------- | :------------ | | Tangible common equity (non-GAAP) | $1,478,871 | $1,423,293 | $1,307,794 | | Tangible book value per common share (non-GAAP) | $40.02 | $38.54 | $35.02 | | Tangible common equity to tangible assets (non-GAAP) | 9.42 % | 9.30 % | 9.18 % | ACL on Loans to Total Loans Adjusted for Guaranteed Loans (Non-GAAP) ($ in thousands) (Unaudited) | | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------- | :------------ | | Total adjusted loans (non-GAAP) | $10,495,722 | $10,356,112 | $10,076,213 | | ACL on loans to total adjusted loans | 1.38 % | 1.38 % | 1.38 % | Pre-Provision Net Revenue (PPNR) (Non-GAAP) ($ in thousands) (Unaudited) | | Q2 2025 | Q1 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--------------- | :------ | :------ | :------ | :------ | :------ | | PPNR (non-GAAP) | $68,126 | $66,087 | $63,256 | $134,213 | $120,618 | [ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=64&type=section&id=ITEM%203%3A%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) [Interest Rate Risk](index=64&type=section&id=Interest%20Rate%20Risk) The Company actively manages interest rate risk to optimize net interest income and mitigate the impact of market rate changes, using simulation modeling and derivative instruments to hedge exposures and stabilize spreads - Interest rate risk management aims to optimize net interest income by maintaining similar repricing horizons for interest-earning assets and interest-bearing liabilities[177](index=177&type=chunk) Expected Impact of Interest Rate Shocks on Net Interest Income (June 30, 2025) (Unaudited) | Rate Shock | Annual % change in net interest income | | :--------- | :------------------------------------- | | + 300 bp | 10.2% | | + 200 bp | 6.9% | | + 100 bp | 3.6% | | - 100 bp | (3.3)% | | - 200 bp | (6.5)% | | - 300 bp | (9.2)% | - The Company uses interest rate derivative instruments, including **$400.0 million** in notional value for floating rate loans and **$32.1 million** for floating rate debt, to hedge interest rate risk[179](index=179&type=chunk) - At June 30, 2025, the Company had **$6.8 billion** in variable rate loans, with **$4.7 billion** having an interest rate floor, and nearly all of those loans were at or above the floor[179](index=179&type=chunk) [ITEM 4: CONTROLS AND PROCEDURES](index=66&type=section&id=ITEM%204%3A%20CONTROLS%20AND%20PROCEDURES) [Evaluation of Disclosure Controls and Procedures](index=66&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and CFO evaluated the effectiveness of the Company's disclosure controls and procedures as of June 30, 2025, concluding they were effective in providing reasonable assurance for timely and accurate disclosure of required information - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[184](index=184&type=chunk) [Changes to Internal Controls](index=66&type=section&id=Changes%20to%20Internal%20Controls) There were no material changes to the Company's internal controls over financial reporting during the quarter ended June 30, 2025 - No material changes occurred in the Company's internal controls over financial reporting during the period covered by this Quarterly Report on Form 10-Q[185](index=185&type=chunk) [PART II - OTHER INFORMATION](index=66&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [ITEM 1: LEGAL PROCEEDINGS](index=66&type=section&id=ITEM%201%3A%20LEGAL%20PROCEEDINGS) Management believes there are no pending or threatened legal proceedings that would have a material adverse effect on the Company's business, financial condition, results of operations, or cash flows - Management believes no legal proceedings pending or threatened would have a material adverse effect on the Company's business or financial results[187](index=187&type=chunk) [ITEM 1A: RISK FACTORS](index=66&type=section&id=ITEM%201A%3A%20RISK%20FACTORS) There have been no material changes to the risk factors previously described in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2024[189](index=189&type=chunk) [ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=66&type=section&id=ITEM%202%3A%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) There were no unregistered sales of equity securities or use of proceeds to report during the period - None[190](index=190&type=chunk) [ITEM 3: DEFAULTS UPON SENIOR SECURITIES](index=66&type=section&id=ITEM%203%3A%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) There were no defaults upon senior securities to report during the period - None[192](index=192&type=chunk) [ITEM 4: MINE SAFETY DISCLOSURES](index=66&type=section&id=ITEM%204%3A%20MINE%20SAFETY%20DISCLOSURES) Mine safety disclosures are not applicable to the Company - Not applicable[194](index=194&type=chunk) [ITEM 5: OTHER INFORMATION](index=67&type=section&id=ITEM%205%3A%20OTHER%20INFORMATION) No officer or director adopted or terminated any Rule 10b5-1(c) trading arrangements for the Company's common stock during the quarter ended June 30, 2025 - No officer or director adopted or terminated any Rule 10b5-1(c) trading arrangements for common stock during Q2 2025[196](index=196&type=chunk) [ITEM 6: EXHIBITS](index=68&type=section&id=ITEM%206%3A%20EXHIBITS) This section lists all exhibits filed with the Form 10-Q, including various amendments to the Certificate of Incorporation, Bylaws, certifications from the CEO and CFO, and XBRL-related documents - The exhibits include Certificate of Incorporation amendments, Certificate of Designations for Preferred Stock, Amended and Restated Bylaws, CEO and CFO certifications (Rule 13(a)-14(a) and 18 U.S.C. § 1350), and XBRL taxonomy documents[199](index=199&type=chunk)[201](index=201&type=chunk) [SIGNATURES](index=70&type=section&id=SIGNATURES) The report is duly signed on behalf of Enterprise Financial Services Corp by its Chief Executive Officer, James B. Lally, and Chief Financial Officer, Keene S. Turner, as of August 1, 2025 - The report is signed by James B. Lally, Chief Executive Officer, and Keene S. Turner, Chief Financial Officer, on August 1, 2025[203](index=203&type=chunk)[204](index=204&type=chunk)

Group 1 - The banking sector company Enterprise Financial Services Corp (EFSC) shows consistent growth in key areas, particularly in its balance sheet [1] - Crude Value Insights provides an investment service focused on oil and natural gas, emphasizing cash flow and companies that generate it, which leads to value and growth prospects [1] Group 2 - Subscribers to Crude Value Insights benefit from a 50+ stock model account, in-depth cash flow analyses of exploration and production (E&P) firms, and live chat discussions about the sector [2] - A two-week free trial is available for new subscribers to explore the oil and gas investment opportunities [3]

Company Overview - Enterprise Financial Services (EFSC) is based in Clayton and operates in the Finance sector, with a year-to-date share price change of -2.15% [3] - The company currently pays a dividend of $0.30 per share, resulting in a dividend yield of 2.17%, which is lower than the Banks - Midwest industry's yield of 3.07% and the S&P 500's yield of 1.48% [3] Dividend Performance - The current annualized dividend of EFSC is $1.20, reflecting a 13.2% increase from the previous year [4] - Over the past five years, EFSC has increased its dividend four times, achieving an average annual increase of 11.88% [4] - The company's current payout ratio is 23%, indicating that it paid out 23% of its trailing 12-month earnings per share as dividends [4] Earnings Growth Expectations - For the fiscal year, EFSC anticipates solid earnings growth, with the Zacks Consensus Estimate for 2025 at $5.34 per share, representing a 9.43% increase from the previous year [5] Investment Appeal - EFSC is considered an attractive dividend play and a compelling investment opportunity, currently holding a Zacks Rank of 2 (Buy) [6]

Core Viewpoint - Enterprise Financial Services Corp (EFSC) reported strong and consistent performance in Q2 2025, continuing a multiyear trend driven by a diversified business model targeting higher growth markets [4]. Group 1: Company Overview - The earnings call featured key participants including James Brian Lally (President, CEO & Director), Keene S. Turner (Senior EVP & CFO), and Scott R. Goodman (President) [2]. - The company emphasized its strategic focus on leveraging a diversified business model to achieve growth [4]. Group 2: Financial Performance - The second quarter results reflect a continuation of the company's intentional strategy aimed at capitalizing on various high-growth markets [4].

Financial Data and Key Metrics Changes - The company reported earnings per share of $1.36 for the second quarter, an increase from $1.31 in the previous quarter and $1.19 year-over-year [4][23] - Adjusted return on assets was 1.31% and pre-provision ROAA was 1.72% [5] - Net interest income increased by $5.2 million to $153 million, with net interest margin expanding by six basis points to 4.21% [5][27] - Year-over-year core deposit base grew by nearly $800 million, maintaining a loan-to-deposit ratio of 86% [8][9] - Tangible book value per common share increased to $40.2, reflecting a 15% annualized quarterly increase [9] Business Line Data and Key Metrics Changes - Loan growth for the quarter was $110 million, with a 4% annualized growth rate, driven primarily by C&I loans and investor-owned commercial real estate [6][13] - SBA loan production remained stable, with a decision to sell $25 million of SBA loans contributing $1.2 million in fee income [8][16] - Life insurance premium finance balances increased by 16% year-over-year, while tax credit balances rose by $30 million [17] Market Data and Key Metrics Changes - All geographic markets showed loan growth, with notable contributions from the Midwest and Southwest regions [18][19] - Client deposits grew by $73 million in the quarter, with a year-over-year increase of approximately 7% [19][20] - Specialty deposit verticals grew by $63 million for the quarter and $552 million or 18% year-over-year [20][21] Company Strategy and Development Direction - The company focuses on a diversified business model that capitalizes on higher growth markets while maintaining pricing discipline [4][5] - The strategic acquisition of a branch from First Interstate Bank is expected to enhance growth opportunities in 2025 and 2026 [9][10] - Management emphasizes a relationship-oriented approach to capitalize on additional opportunities while balancing quality and pricing [10][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued loan growth, anticipating a pickup in the second half of 2025 due to pent-up demand and improved economic clarity [11][58] - The company expects to navigate economic uncertainties while leveraging opportunities from ongoing M&A activity in the market [12][86] - Management remains focused on achieving loan and deposit goals while maintaining asset quality [10][29] Other Important Information - The company increased its dividend by $0.01 to $0.31 per share for 2025 [10][35] - Non-performing assets remained stable, with a slight decrease in non-performing loans [10][30] - The company is well-capitalized, with a tangible common equity ratio of 9.42% and a common equity Tier 1 ratio of 11.9% [9][34] Q&A Session Summary Question: Expectations for fee income in the second half of the year - Management expects fee income to be similar to the first quarter, with potential contributions from SBA sales and other line items [39][40] Question: Outlook on expenses and merit increases - Management indicated that the current expense levels are expected to grow, influenced by merit increases and legal expenses related to non-performing loans [42][44] Question: Capital levels and branch acquisition impact - Management confirmed that the branch acquisition will normalize capital levels and support growth, with plans to call subordinated debt in the near term [49][50] Question: Margin outlook and potential pressures - Management anticipates stable margins moving forward, with some near-term pressures due to securities purchases and floating rate debt [53][56] Question: Loan growth expectations for the second half of the year - Management expects loan growth to pick up, potentially reaching 5-7% as economic conditions improve [58][59] Question: Commentary on SBA loan sales strategy - Management is exploring SBA loan sales as a strategy to solidify fee income, with expectations for some level of gains in the upcoming quarters [80][81] Question: M&A activity and strategic priorities - Management emphasized the importance of onboarding new clients from the branch acquisition before considering further M&A opportunities [85][86]

Financial Data and Key Metrics Changes - The company reported earnings per share of $1.36 for Q2 2025, an increase from $1.31 in the previous quarter and $1.19 year-over-year [4][23] - Adjusted return on assets was 1.31% and pre-provision ROAA was 1.72% [5] - Net interest income increased by $5.2 million to $153 million, with net interest margin expanding by six basis points to 4.21% [5][27] - Tangible common equity to tangible assets ratio was 9.42%, with a return on tangible common equity of 13.96% [9][34] - Non-interest income increased by $2.1 million to $21 million, driven by bank-owned life insurance and community development income [31] Business Line Data and Key Metrics Changes - Loan growth for the quarter was $110 million, with a year-over-year increase of approximately 4% [6][13] - The largest portion of loan growth came from commercial and industrial (C&I) loans, with new loan originations up 23% year-over-year [13][14] - Life insurance premium finance balances increased by $160 million or 16% year-over-year [17] - Specialty deposit verticals grew by $63 million for the quarter and $552 million or 18% year-over-year [20][21] Market Data and Key Metrics Changes - All geographic markets showed loan growth, with notable contributions from the Midwest and Southwest regions [18][19] - Client deposits grew by $73 million in the quarter and $778 million or roughly 7% year-over-year [19][20] - The company maintained a total loan to deposit ratio of 86% [7] Company Strategy and Development Direction - The company focuses on a diversified business model that capitalizes on higher growth markets while maintaining pricing discipline [4][5] - The strategic acquisition of a branch from First Interstate Bank is expected to enhance growth opportunities [10][35] - The management anticipates that ongoing economic improvements and M&A disruptions will lead to strong financial performance in the coming quarters [12] Management's Comments on Operating Environment and Future Outlook - Management noted that most clients are performing well, with sales and profits in line with 2024 expectations [11] - There is optimism for loan growth to exceed 4% in the latter half of 2025 due to pent-up demand and improved economic clarity [12][60] - The company is prepared to guide clients through economic uncertainties while taking advantage of M&A opportunities [12] Other Important Information - The company increased its dividend by $0.01 to $0.31 per share for 2025 [10][35] - Non-performing assets remained stable at 71 basis points of total assets, with a focus on managing credit quality [30] Q&A Session Summary Question: Expectations for fee income in the second half of the year - Management expects fee income to be similar to the first quarter, with potential contributions from SBA sales and other line items [39][40] Question: Outlook on expense levels - Management indicated that the current expense levels are expected to grow, influenced by merit increases and legal expenses related to non-performing loans [42][43] Question: Capital levels and branch acquisition impact - The branch acquisition is expected to normalize capital levels, with a focus on supporting growth and evaluating dividend policies [49][50] Question: Margin outlook for the next quarters - Management is optimistic about maintaining stable margins, with potential growth in net interest income dollars [54][56] Question: Loan growth expectations for the back half of the year - Management anticipates loan growth to increase to 5-7% in the latter half of the year due to improved economic conditions [60] Question: Team integration in Texas and growth strategy - A new team in Texas has begun operations without non-compete restrictions, focusing on low to mid-sized C&I businesses [75] Question: SBA loan sales strategy - The company is exploring SBA loan sales as a strategy to solidify fee income, with expectations for some level of gain in the third quarter [80]

Earnings Performance - Net income reached $51.4 million, an increase of $1.4 million, resulting in an EPS of $1.36[7] - Net interest income increased to $152.8 million, up by $5.2 million, with a net interest margin (NIM) of 4.21%[7] - Pre-provision net revenue (PPNR) amounted to $68.1 million, reflecting a $2.0 million increase[7] - Adjusted return on average assets (ROAA) stood at 1.31%, compared to 1.29% previously[7] Loans and Deposits - Total loans amounted to $11.4 billion, an increase of $110.1 million[10] - Total deposits reached $13.3 billion, up by $283.1 million, or an increase of $72.9 million excluding brokered CDs[10] - Noninterest-bearing deposits accounted for 32% of total deposits[10] Asset Quality - Nonperforming loans represented 0.93% of total loans[8] - Nonperforming assets accounted for 0.71% of total assets[11] - The allowance coverage ratio was 1.27%, or 1.38% when adjusted for guaranteed loans[11] Capital and Dividends - The CET1 ratio was 11.9%, compared to 11.8% in the previous quarter[7] - Tangible common equity to tangible assets ratio was 9.42%, compared to 9.30%[7] - Tangible book value per common share increased to $40.02, compared to $38.54[7] - A quarterly common stock dividend of $0.30 per share was declared for the second quarter of 2025, representing a $0.01 increase[7]

Core Insights - Enterprise Financial Services (EFSC) reported revenue of $173.37 million for the quarter ended June 2025, marking an 11.1% year-over-year increase and a 6.23% surprise over the Zacks Consensus Estimate of $163.2 million [1] - The earnings per share (EPS) for the same period was $1.37, compared to $1.21 a year ago, resulting in a 14.17% surprise over the consensus EPS estimate of $1.20 [1] Financial Performance Metrics - Net Interest Margin was reported at 4.2%, slightly above the average estimate of 4.1% based on two analysts [4] - The Efficiency Ratio was 61%, compared to the estimated 59.9% by two analysts [4] - Total Noninterest Income reached $20.6 million, exceeding the estimated $16.3 million by two analysts [4] Stock Performance - Shares of Enterprise Financial Services have returned +0.3% over the past month, while the Zacks S&P 500 composite increased by +4.9% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Group 1: Earnings Performance - Enterprise Financial Services (EFSC) reported quarterly earnings of $1.37 per share, exceeding the Zacks Consensus Estimate of $1.2 per share, and up from $1.21 per share a year ago, representing an earnings surprise of +14.17% [1] - The company has surpassed consensus EPS estimates for four consecutive quarters [2] - EFSC posted revenues of $173.37 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 6.23%, compared to year-ago revenues of $156.02 million [2] Group 2: Stock Performance and Outlook - EFSC shares have declined approximately 0.9% since the beginning of the year, while the S&P 500 has gained 8.6% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters [4] - The current consensus EPS estimate for the next quarter is $1.24 on revenues of $165.7 million, and for the current fiscal year, it is $5.14 on revenues of $670.15 million [7] Group 3: Industry Context - The Zacks Industry Rank indicates that the Banks - Midwest sector is currently in the top 20% of over 250 Zacks industries, suggesting a favorable environment for stocks in this category [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact EFSC's stock performance [5] - The unfavorable estimate revisions trend prior to the earnings release has resulted in a Zacks Rank 4 (Sell) for EFSC, indicating expected underperformance in the near future [6]

Core Insights - Enterprise Financial Services (EFSC) reported strong Q2 2025 results, with adjusted earnings per share of $1.37, exceeding the consensus estimate of $1.21, and GAAP revenue of $173.4 million, surpassing the forecast of $165.99 million [1][5][12] Financial Performance - Non-GAAP EPS increased by 13.2% year-over-year from $1.21 in Q2 2024 [2] - GAAP revenue rose by 11.2% from $156.0 million in Q2 2024 [2] - Net interest income was $152.8 million, reflecting an 8.8% increase from $140.5 million in Q2 2024 [2] - Total loans reached $11.4 billion, a 3.6% increase from $11.0 billion in the previous year [2] - Total deposits grew to $13.3 billion, up 8.1% from $12.3 billion in Q2 2024 [2] - Tangible book value per common share increased by 14.3% to $40.02 from $35.02 in Q2 2024 [2] Business Strategy - The company focuses on relationship-driven commercial banking, specializing in niche markets often overlooked by larger banks [3] - Growth strategy includes expanding geographic footprint through targeted acquisitions and building deep client relationships [4] - Emphasis on maintaining a stable deposit base, strong capital levels, and investing in technology for improved service delivery [4] Recent Developments - The company announced an increase in the quarterly dividend to $0.31 per share, effective Q3 2025 [10][13] - Plans to acquire branch locations from First Interstate Bank, expected to close in Q4 2025, which will add approximately $740 million in deposits and $200 million in loans [10] - SBA lending remains a significant source of fee income, with $24.4 million in SBA loan sales completed [11] Asset Quality and Risk Management - Nonperforming loans increased to $105.8 million, approximately 0.93% of total loans, with management confident in eventual collection [8] - The allowance for credit losses remained at 1.27% of total loans, indicating cautious credit risk practices [8] - Capital levels are strong, with a tangible common equity ratio of 9.42% and regulatory capital ratios exceeding required minimums [9] Outlook - Management anticipates modest pressure on net interest margin, with potential quarterly declines of up to five basis points [12] - The expected acquisition is projected to contribute to deposit and loan growth, with mid-single-digit EPS accretion anticipated in fiscal 2026 [12]