Enterprise Financial(EFSC) - 2025 Q1 - Quarterly Results

First Quarter 2025 Financial Highlights Enterprise Financial Services Corp (EFSC) reported strong Q1 2025 financial results, driven by expanded net interest income and margin, alongside strategic branch acquisitions and robust capital management Overview Enterprise Financial Services Corp (EFSC) reported a strong start to 2025, with net income of $50.0 million, or $1.31 per diluted share, driven by proactive balance sheet management leading to an expansion in both net interest income ($147.5 million) and net interest margin (4.15%), achieving a 1.30% ROAA and a 14.02% ROATCE - The President and CEO highlighted a positive start to 2025, attributing the success to proactive management of the balance sheet and deposit costs, which led to expanded net interest income and NIM, with a key strategic move being the announced acquisition of 12 branches from First Interstate Bank to accelerate growth in Arizona and Kansas[1] Q1 2025 Key Performance Indicators | Metric | Q1 2025 | Change from Linked Qtr (Q4 2024) | Change from Prior Year Qtr (Q1 2024) | | :--- | :--- | :--- | :--- | | Net Income | $50.0 million | +$1.1 million | +$9.6 million | | Diluted EPS | $1.31 | +$0.03 | +$0.26 | | Net Interest Income | $147.5 million | +$1.1 million | +$9.8 million | | Net Interest Margin (NIM) | 4.15% | +2 bps | +2 bps | | Total Loans | $11.3 billion | +$78.4 million | +$270.3 million | | Total Deposits | $13.0 billion | -$112.3 million | +$780.5 million | | ROAA | 1.30% | +3 bps | +18 bps | | ROATCE | 14.02% | +39 bps | +171 bps | | Tangible Book Value/Share | $38.54 | +$1.27 | +$4.33 | - Pre-provision net revenue (PPNR) was $66.1 million, a decrease of $3.4 million from the linked quarter due to seasonally lower tax credit income and higher payroll-related expenses, but PPNR increased by $8.7 million year-over-year, driven by higher net interest income[4] Key Business and Capital Activities The company announced a significant branch acquisition agreement with First Interstate Bank to purchase 12 branches, strengthening its presence in Arizona and Kansas, while capital management activities included returning capital to shareholders through dividends and stock repurchases, with the quarterly dividend increased to $0.30 per share - EFSC signed a purchase and assumption agreement to acquire 10 branches in Arizona and two in Kansas from First Interstate Bank, with the transaction expected to close by early Q4 2025, subject to regulatory approval[5] - The company returned $21.3 million to stockholders in Q1 2025, consisting of $10.6 million in common stock repurchases and $10.7 million in common dividends[3] - The Board of Directors increased the quarterly common stock dividend by $0.01 to $0.30 per share for the second quarter of 2025[3][6] - The company's capital position remains strong, with Enterprise Bank & Trust being "well-capitalized," and the tangible common equity to tangible assets ratio improved to 9.30% at March 31, 2025, up from 9.05% at December 31, 2024[6] Detailed Financial Analysis This section provides an in-depth analysis of key financial components, including net interest income, loan and deposit trends, asset quality, and capital position, highlighting drivers of performance and changes from prior periods Net Interest Income and Net Interest Margin (NIM) Net interest income rose to $147.5 million, and the tax-equivalent Net Interest Margin (NIM) expanded by 2 basis points to 4.15% compared to the linked quarter, driven by organic loan growth and a 17 basis point sequential decrease in the total cost of deposits to 1.83%, which more than offset a decline in asset yields caused by lower short-term interest rates Net Interest Income and Margin Performance | Metric | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Net Interest Income | $147.5M | $146.4M | $137.7M | | Net Interest Margin (TE) | 4.15% | 4.13% | 4.13% | | Total Cost of Deposits | 1.83% | 2.00% | 2.13% | - The increase in NII from both linked and prior year quarters was attributed to organic loan growth, investments in the securities portfolio, and proactive management of deposit costs in response to a 100 basis point reduction in the federal funds target rate since September 2024[10] - Interest expense decreased by $4.7 million from the linked quarter, primarily due to a 19 basis point decline in the average cost of interest-bearing deposits[12] Investments The investment securities portfolio grew by $233.1 million from the linked quarter to a total of $3.0 billion at March 31, 2025, with the tangible common equity to tangible assets ratio, when adjusted for unrealized losses on held-to-maturity securities, standing at 8.94%, an improvement from 8.71% in the previous quarter Investment Securities Portfolio (at March 31, 2025) | Category | Carrying Value | Amortized Cost | Net Unrealized Loss | | :--- | :--- | :--- | :--- | | Available-for-sale (AFS) | $1,862,270 | $1,990,068 | $(146,184) | | Held-to-maturity (HTM) | $928,935 | $1,034,282 | $(74,228) | | Total | $2,791,205 | $3,024,350 | $(220,412) | Loans Total loans reached $11.3 billion, marking a $78.4 million increase (3% annualized) from the previous quarter, with growth led by the C&I portfolio, where new loan production of $846.5 million outpaced repayment activity, and the portfolio's rate structure remained stable, with 61% of loans being variable rate Loan Portfolio Composition | Loan Category | Balance at Mar 31, 2025 | Balance at Dec 31, 2024 | | :--- | :--- | :--- | | C&I | $2,198.8M | $2,139.0M | | CRE investor owned | $2,487.4M | $2,405.4M | | CRE owner occupied | $1,292.2M | $1,305.0M | | SBA loans | $1,283.1M | $1,298.0M | | Total Loans | $11,298.8M | $11,220.4M | - Loan growth was driven by originations and advances of $846.5 million, which exceeded repayments of $768.1 million, with growth partially offset by $31.3 million in SBA loan sales[16] - The loan portfolio consists of 39% fixed-rate loans and 61% variable-rate loans, and after adjusting for interest rate hedges, variable-rate loans constitute 56% of the total portfolio[16] Asset Quality Asset quality metrics saw a significant increase in nonperforming assets (NPAs), which rose to $113.2 million or 0.72% of total assets, up from 0.30% in the linked quarter, primarily driven by seven well-secured commercial real estate loans to two related borrowing relationships in Southern California that filed for bankruptcy due to a partner dispute, yet the company reported net recoveries for the quarter and maintained an allowance for credit losses to total loans at 1.27% Asset Quality Ratios | Metric | Mar 31, 2025 | Dec 31, 2024 | Mar 31, 2024 | | :--- | :--- | :--- | :--- | | Nonperforming Assets | $113.2M | $46.6M | $44.1M | | Nonperforming Assets to Total Assets | 0.72% | 0.30% | 0.30% | | Allowance for Credit Losses to Total Loans | 1.27% | 1.23% | 1.23% | | Quarterly Net Charge-offs (Recoveries) | $(1.1M) | $7.1M | $5.9M | - The increase in NPAs is largely attributed to two borrowing relationships with a common general partner, involving seven loans totaling $68.4 million, where the entities filed for bankruptcy due to a business dispute[5][17] - The company expects to collect the full balance of these nonperforming loans as they are well-secured by real estate with loan-to-value ratios ranging from 39% to 79% and include substantial personal guarantees, consequently, no individual reserves were placed on these loans[17][18] - The provision for credit losses was $5.2 million for the quarter, primarily related to changes in default assumptions, economic forecasts, and loan growth[18] Deposits Total deposits decreased by $112.3 million to $13.0 billion at quarter-end, a change primarily attributed to a seasonal decline in noninterest-bearing commercial deposits used for tax and bonus payments, but despite the quarterly drop, deposits grew by $780.5 million year-over-year, with noninterest-bearing deposits constituting 33% of the total deposit portfolio Deposit Portfolio Composition | Deposit Type | Balance at Mar 31, 2025 | Balance at Dec 31, 2024 | | :--- | :--- | :--- | | Noninterest-bearing demand | $4,285.1M | $4,484.1M | | Interest-bearing demand | $3,193.9M | $3,175.3M | | Money market and savings | $4,167.4M | $4,117.5M | | Certificates of deposit | $1,387.9M | $1,369.6M | | Total Deposits | $13,034.2M | $13,146.5M | - The quarterly decrease was mainly in noninterest-bearing commercial deposits, which typically decline early in the year, and excluding brokered CDs, deposits decreased by $169.8 million from the linked quarter[19] - The loan-to-deposit ratio was 87% at March 31, 2025[5] Noninterest Income Total noninterest income was $18.5 million, a $2.1 million decrease from the linked quarter but a $6.3 million increase year-over-year, with the sequential decline driven by a seasonal drop in tax credit income, partially offset by a $1.9 million gain on the sale of SBA loans, and the year-over-year increase primarily due to improved fair value on certain tax credits Noninterest Income Components | Component | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Deposit service charges | $4.4M | $4.7M | $4.4M | | Wealth management revenue | $2.7M | $2.7M | $2.5M | | Tax credit income (loss) | $2.6M | $6.0M | $(2.2M) | | Other income | $6.4M | $4.7M | $5.0M | | Total Noninterest Income | $18.5M | $20.6M | $12.2M | - The decrease from the linked quarter was mainly due to a seasonal decline in tax credit income, which is typically highest in the fourth quarter[21] - Other income increased from both linked and prior year quarters, primarily driven by a $1.9 million gain on the sale of the guaranteed portion of SBA loans in Q1 2025[23] Noninterest Expense Noninterest expense was $99.8 million, nearly flat compared to the linked quarter but up $6.3 million year-over-year, with the sequential stability due to a $2.0 million increase in employee compensation (from seasonal payroll tax resets and merit increases) being offset by a $1.9 million decline in core conversion costs following project completion in Q4 2024, resulting in a core efficiency ratio of 58.8% Noninterest Expense Components | Component | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Employee compensation & benefits | $48.2M | $46.2M | $45.3M | | Deposit costs | $23.8M | $22.9M | $20.3M | | Core conversion expense | $0 | $1.9M | $0.4M | | Other expense | $23.3M | $24.2M | $22.7M | | Total Noninterest Expense | $99.8M | $99.5M | $93.5M | - Employee compensation increased by $2.0 million from the linked quarter due to the reset of payroll taxes, paid time-off accruals, and annual merit increases[25] - Core conversion expenses were eliminated in Q1 2025 following the completion of the core migration in Q4 2024[25] Income Taxes The effective tax rate for the first quarter was 18.1%, a notable decrease from 19.5% in the linked quarter and 20.2% in the prior year quarter, attributed to the successful deployment of tax credit opportunities as part of the company's tax planning strategy - The effective tax rate was 18.1% in Q1 2025, compared to 19.5% in Q4 2024 and 20.2% in Q1 2024[26] - The decrease in the effective tax rate was driven by tax credit opportunities utilized in the company's tax planning strategy[26] Capital Capital levels remained robust, with total equity increasing by $44.1 million to $1.9 billion, and all regulatory capital ratios exceeded "well-capitalized" benchmarks, with the Common Equity Tier 1 ratio at 11.8%, while tangible book value per common share increased to $38.54, and the company repurchased 191,739 shares during the quarter Key Capital Ratios | Ratio | Mar 31, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total risk-based capital | 14.7% | 14.6% | | Common equity tier 1 capital | 11.8% | 11.8% | | Tangible common equity to tangible assets | 9.30% | 9.05% | - Tangible book value per common share was $38.54 at March 31, 2025, up from $37.27 at December 31, 2024[28] - The company repurchased 191,739 shares for $55.28 in the first quarter and has 1,181,483 shares remaining under its repurchase plan[28] Consolidated Financial Statements and Reconciliations This section presents unaudited consolidated financial statements, including income statements, balance sheets, and detailed portfolio data, along with reconciliations of non-GAAP financial measures Consolidated Financial Summary This section provides a five-quarter unaudited summary of the company's key financial results, including earnings, performance ratios, per-share data, and key balance sheet metrics - The table presents a consolidated financial summary for the five quarters ending March 31, 2025, covering earnings, performance ratios (ROAA, ROATCE, etc.), and capital ratios[42] Consolidated Income Statements This section contains the detailed unaudited consolidated income statements for the five quarters ending March 31, 2025, showing the components of net interest income, noninterest income, and noninterest expense - The table provides detailed line items for the consolidated income statements over the last five quarters, from interest income down to net income available to common stockholders[44] Consolidated Balance Sheet This section presents the detailed unaudited consolidated balance sheets as of the end of the last five quarters, detailing assets, liabilities, and stockholders' equity - The table provides detailed line items for the consolidated balance sheet over the last five quarters, including assets like loans and investments, and liabilities like deposits and borrowings[46] Portfolio Details and Average Balances This section offers a more granular look at the loan and deposit portfolios by category for the last five quarters, and also includes average balances for key assets and liabilities, and the corresponding tax-equivalent yields - The tables provide a five-quarter breakdown of the loan portfolio (e.g., Commercial and industrial, Commercial real estate) and the deposit portfolio (e.g., Noninterest-bearing, Money market)[48] - Average balances and tax-equivalent yields for loans, securities, deposits, and other interest-bearing liabilities are presented for the last five quarters[48] Asset Quality and Other Metrics This section provides a five-quarter summary of key asset quality data, including net charge-offs, nonperforming loans, and allowance ratios, and also includes data on wealth management assets and per-share metrics - The tables detail asset quality trends over five quarters, including nonperforming loans to total loans and allowance for credit losses to nonperforming loans[50] Reconciliation of Non-GAAP Financial Measures This section provides detailed reconciliations for the non-GAAP financial measures used in the report, such as Core Efficiency Ratio, Tangible Common Equity, ROATCE, and PPNR, to their most directly comparable GAAP measures for the last five quarters - Provides a detailed reconciliation of the Core Efficiency Ratio by adjusting GAAP revenue and expenses for specific items like tax-equivalent adjustments and core conversion costs[52] - Reconciles stockholders' equity (GAAP) to tangible common equity (non-GAAP) by deducting preferred stock, goodwill, and intangible assets, which is then used to calculate tangible book value per share[52] - Shows the calculation of adjusted net income and its use in determining non-GAAP performance ratios like adjusted ROATCE and adjusted diluted EPS[53] Other Information This section provides important supplementary information, including the rationale for using non-GAAP financial measures, details for the Q1 2025 earnings conference call, and a cautionary statement regarding forward-looking information Use of Non-GAAP Financial Measures The company explains its use of non-GAAP financial measures, such as PPNR, ROATCE, and tangible common equity ratios, as management believes these core performance measures provide supplemental information to evaluate operating performance by excluding certain non-comparable items - The company uses non-GAAP measures to provide supplemental information to investors for evaluating operating performance on an ongoing basis[30][31] Conference Call and Webcast Information The company will host a conference call and webcast on Tuesday, April 29, 2025, at 10:00 a.m. Central Time to review the first quarter 2025 results, with access details provided via the company's investor relations website and a toll-free number - A conference call to discuss Q1 2025 results is scheduled for April 29, 2025, at 10:00 a.m. Central Time[33] Forward-Looking Statements This section contains the standard "safe harbor" disclosure, cautioning readers that the press release includes forward-looking statements based on current management expectations, which are subject to numerous risks and uncertainties, and actual results could differ materially from those anticipated - The report contains forward-looking statements regarding revenue, growth, and financial performance, which are subject to risks and uncertainties[36] - Key risk factors include the ability to integrate acquisitions, credit risk, interest rate changes, economic conditions, and regulatory changes[37]