ENTERPRISE FINL(EFSCP) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Enterprise Financial Services Corp as of March 31, 2025, and for the three months then ended, including Balance Sheets, Statements of Income, Comprehensive Income, Stockholders' Equity, and Cash Flows, along with accompanying notes Condensed Consolidated Balance Sheets As of March 31, 2025, total assets increased slightly to $15.68 billion from $15.60 billion at year-end 2024, driven by increases in loans and securities, funded by a rise in FHLB advances, while total deposits saw a minor decrease and stockholders' equity grew to $1.87 billion Condensed Consolidated Balance Sheet Highlights | ($ in thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $15,676,594 | $15,596,431 | | Total loans, net | $11,155,819 | $11,082,405 | | Total securities | $3,024,350 | $2,791,205 | | Total Liabilities | $13,808,521 | $13,772,429 | | Total deposits | $13,034,230 | $13,146,492 | | FHLB advances | $205,000 | $— | | Total Stockholders' Equity | $1,868,073 | $1,824,002 | Condensed Consolidated Statements of Income For the three months ended March 31, 2025, net income rose to $50.0 million from $40.4 million in the prior-year period, driven by higher net interest income of $147.5 million and a significant positive swing in noninterest income, primarily from tax credit activities, with diluted earnings per share increasing to $1.31 from $1.05 year-over-year Q1 2025 Income Statement Summary | ($ in thousands, except per share data) | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :--- | :--- | :--- | | Net interest income | $147,516 | $137,728 | | Provision for credit losses | $5,184 | $5,756 | | Total noninterest income | $18,483 | $12,158 | | Total noninterest expense | $99,783 | $93,501 | | Net income | $49,961 | $40,401 | | Net income available to common stockholders | $49,023 | $39,463 | | Diluted earnings per common share | $1.31 | $1.05 | Condensed Consolidated Statements of Cash Flows For the first three months of 2025, the company experienced a net decrease in cash and cash equivalents of $282.5 million, with net cash provided by operating activities of $40.0 million, net cash used in investing activities of $365.7 million, and net cash provided by financing activities of $43.2 million Summary of Cash Flows (Three months ended March 31) | ($ in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $40,022 | $29,889 | | Net cash used in investing activities | ($365,743) | ($180,502) | | Net cash provided by financing activities | $43,221 | $87,004 | | Net decrease in cash and cash equivalents | ($282,500) | ($63,609) | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures supporting the financial statements, covering the investment portfolio, loan portfolio and credit quality, off-balance sheet commitments, use of derivatives for hedging, and a significant subsequent event involving a branch acquisition - The loan portfolio grew to $11.3 billion, primarily in commercial and industrial (C&I) and commercial real estate (CRE) loans[42] - Nonperforming loans increased significantly to $109.9 million from $42.7 million at year-end, largely due to two borrowing relationships that filed for bankruptcy amid a business dispute between partners, though the company expects to collect the full balance due to strong collateral and guarantees[50] - Subsequent to quarter-end, on April 28, 2025, the Bank agreed to acquire twelve branches from First Interstate Bank, including approximately $740 million in deposits and $200 million in loans, with the transaction expected to close in the early fourth quarter of 2025[97] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for Q1 2025, highlighting an increase in net income driven by higher net interest income and a positive swing in noninterest income, covering loan and deposit trends, credit quality, liquidity, and capital resources, including a significant increase in nonperforming loans due to a specific client relationship and details of a pending branch acquisition Executive Summary Q1 2025 net income was $50.0 million, with diluted EPS of $1.31, pre-provision net revenue (PPNR) of $66.1 million, and a stable net interest margin (NIM) of 4.15%, while total loans grew by an annualized 3% to $11.3 billion, deposits decreased slightly to $13.0 billion, and asset quality saw an increase in nonperforming assets to 0.72% of total assets, primarily due to a single, well-collateralized relationship Key Performance Indicators (Q1 2025) | Metric | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Net Income ($ thousands) | $49,961 | $48,834 | $40,401 | | Diluted EPS | $1.31 | $1.28 | $1.05 | | Return on average assets | 1.30% | 1.27% | 1.12% | | Net interest margin (tax equivalent) | 4.15% | 4.13% | 4.13% | | Nonperforming loans to total loans | 0.97% | 0.38% | 0.32% | | ACL on loans to total loans | 1.27% | 1.23% | 1.23% | - On April 28, 2025, the Bank entered into an agreement to acquire 12 branches from First Interstate Bank, which is expected to close in the early fourth quarter of 2025[110] Results of Operations Net interest income increased to $150.0 million (tax-equivalent) in Q1 2025, driven by loan growth and lower deposit costs, while noninterest income rose to $18.5 million due to tax credit income, and noninterest expense was stable compared to the linked quarter at $99.8 million but up 7% year-over-year due to higher compensation and deposit costs - Net interest income (tax-equivalent) increased by $10.2 million year-over-year, reflecting organic loan growth and proactive management of deposit costs amid falling short-term interest rates[117] - Noninterest income increased by $6.3 million from the prior year quarter, primarily due to a $4.8 million positive swing in tax credit income[122] - Noninterest expense increased by $6.3 million year-over-year, driven by annual merit increases and higher deposit servicing costs related to balance growth[124] Summary Balance Sheet Analysis Total assets grew to $15.7 billion, with loans increasing by $78.4 million to $11.3 billion and investment securities rising by $233.1 million, while total deposits decreased by $112.3 million to $13.0 billion, with a decline in noninterest-bearing accounts, and nonperforming loans rose sharply to $109.9 million due to a specific commercial real estate relationship - The loan portfolio is diversified, with C&I loans at $4.7 billion and total CRE loans at $5.0 billion, including specialized lending areas such as SBA, sponsor finance, and life insurance premium financing[132][133] - The provision for credit losses was $5.2 million for Q1 2025, reflecting changes in economic forecasts, qualitative factors, and loan growth, with the quarter seeing net recoveries of $1.1 million[137] - The increase in nonperforming loans was primarily due to seven CRE loans totaling $68.4 million to two related entities that filed for bankruptcy, which the company believes are well-secured with loan-to-value ratios ranging from 39% to 79% and include substantial personal guarantees[142] Liquidity and Capital Resources The company maintains a strong liquidity position with total available sources of $6.2 billion as of March 31, 2025, including borrowing capacity from the FHLB and Federal Reserve, while stockholders' equity increased by $44.1 million during the quarter to $1.9 billion, driven by net income, and the company and bank remain 'well-capitalized' under regulatory standards, with a Common Equity Tier 1 ratio of 11.8% Available Liquidity Sources (March 31, 2025) | Source | Amount ($ in thousands) | | :--- | :--- | | Federal Reserve borrowing capacity | $2,866,151 | | FHLB borrowing capacity | $1,144,110 | | Unpledged securities | $1,550,891 | | Federal funds lines | $140,000 | | Cash and interest-bearing deposits | $481,670 | | Total | $6,207,822 | Regulatory Capital Ratios (EFSC) | Ratio | March 31, 2025 | Minimum with CCB | | :--- | :--- | :--- | | Common Equity Tier 1 Capital | 11.8% | 7.0% | | Tier 1 Capital | 13.1% | 8.5% | | Total Capital | 14.7% | 10.5% | | Leverage Ratio | 11.0% | N/A | - During Q1 2025, stockholders' equity increased due to $50.0 million in net income, partially offset by $11.3 million in dividends and $10.6 million in common stock repurchases[152] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk to optimize net interest income, with simulation modeling as of March 31, 2025, indicating that a 100 basis point parallel upward shift in rates would increase net interest income by 3.1% over 12 months, while a 100 basis point downward shift would decrease it by 2.5%, and the company utilizes derivative contracts to hedge cash flows on floating rate loans and debt Interest Rate Shock Impact on Net Interest Income | Rate Shock | Annual % change in net interest income | | :--- | :--- | | + 300 bp | 8.9% | | + 200 bp | 6.0% | | + 100 bp | 3.1% | | - 100 bp | (2.5)% | | - 200 bp | (6.5)% | | - 300 bp | (8.1)% | - The company had $6.8 billion in variable rate loans at March 31, 2025, with $4.7 billion having an interest rate floor[174] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2025, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[178] - No changes were made during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[179] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reports that it is not party to any legal proceedings that would have a material adverse effect on its business, financial condition, or results of operations - Management believes there are no pending or threatened legal proceedings that would materially and adversely affect the company[181] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2024 have occurred[183] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2025, the company repurchased a total of 191,739 shares of its common stock at a weighted-average price of $55.28 per share under its publicly announced repurchase program Share Repurchase Activity (Q1 2025) | Period | Total shares purchased | Weighted-average price paid per share | | :--- | :--- | :--- | | January 2025 | 101,739 | $55.24 | | February 2025 | — | — | | March 2025 | 90,000 | $55.34 | | Total | 191,739 | $55.28 |