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EF

ENTERPRISE FINANCIAL SERVICES CORP (EFSC)·Q3 2025 Earnings Summary

Executive Summary

  • EFSC delivered mixed Q3: net interest income and NIM expanded, but EPS fell to $1.19 and PPNR declined; deposit and loan growth remained solid, and tangible capital strengthened .
  • EPS and revenue missed Street: EPS $1.19 vs $1.29 consensus; revenue $166.7M vs $181.3M consensus; Q2 had been a beat, showing variability in quarterly performance. Noninterest income included a $30.1M insured solar tax credit recapture gross-up that netted to zero on net income (non-GAAP adjustments highlighted) .
  • Asset quality metrics deteriorated: NPAs/Assets rose to 0.83% (from 0.71%), provision increased to $8.4M; management reiterated high certainty of collection on Southern California CRE and the $12M life insurance premium finance loan .
  • Strategic catalysts: completion of 10 AZ + 2 KS branch acquisition (deposit-rich), dividend raised to $0.32; CFO guided margin resilience with short-rate cuts, and expenses step-up from branch integration .

What Went Well and What Went Wrong

What Went Well

  • Net interest income rose to $158.3M (+$5.5M q/q; +$14.8M y/y), and NIM increased to 4.23%; CEO: “This was the sixth consecutive quarter that we saw net interest income growth” .
  • Core funding momentum: deposits grew $250.6M q/q (ex-brokered +$240.5M), with DDA stable at ~32%; deposit verticals added $189M q/q; loan-to-deposit ratio at ~85% .
  • Capital and book value: tangible common equity/tangible assets rose to 9.60%; TBV/share increased to $41.58; CET1 at 12.0% (record high per CFO) .

What Went Wrong

  • Earnings softness: diluted EPS fell to $1.19 from $1.36 q/q due to higher provision ($8.4M) and noninterest expense ($109.8M) despite NII strength .
  • Asset quality pressure: NPAs/Assets climbed to 0.83%; NPLs/Loans to 1.10%; net charge-offs rose to $4.1M; drivers included a $12M life insurance premium finance loan and sponsor finance credits .
  • Operating cost uptick: noninterest expense increased $4.1M q/q, led by deposit costs (+$2.4M) and higher legal/loan workout expenses; core efficiency ratio worsened to 61.0% .

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Net Interest Income ($M)$143.5 $152.8 $158.3
Noninterest Income ($M)$21.4 $20.6 $46.6 (incl. $30.1M insurance)
Provision for Credit Losses ($M)$4.1 $3.5 $8.4
Noninterest Expense ($M)$98.0 $105.7 $109.8
Net Income ($M)$50.6 $51.4 $45.2
Diluted EPS ($)$1.32 $1.36 $1.19
Adjusted Diluted EPS ($)$1.29 $1.37 $1.20
NIM (tax-equivalent, %)4.17% 4.21% 4.23%
ROAA (%)1.36% 1.30% 1.11%
ROATCE (%)14.55% 13.84% 11.56%
Core Efficiency Ratio (%)58.4% 59.3% 61.0%
Cost of Deposits (%)2.18% 1.82% 1.80%
Total Loans ($B)$11.08 $11.41 $11.58
Total Deposits ($B)$12.47 $13.32 $13.57

Segment (Loan) Mix ($M):

CategoryQ3 2024Q2 2025Q3 2025
C&I$2,145 $2,317 $2,321
CRE Investor-Owned$2,347 $2,548 $2,627
CRE Owner-Occupied$1,323 $1,282 $1,297
SBA Loans$1,273 $1,249 $1,258
Sponsor Finance$819 $771 $774
Life Insurance Premium Financing$1,030 $1,156 $1,152
Tax Credits$724 $708 $781
Residential Real Estate$346 $357 $359
Construction & Land$797 $773 $784
Other$276 $248 $231
Total Loans$11,080 $11,409 $11,583

KPIs and Asset Quality:

KPIQ3 2024Q2 2025Q3 2025
Noninterest-Bearing Deposits / Total31.6% 32.5% 32.3%
Loan-to-Deposit Ratio85% (approx, per Q3 slide) 86% 85%
NPAs / Assets (%)0.22% 0.71% 0.83%
NPLs / Loans (%)0.26% 0.93% 1.10%
Net Charge-offs (annualized, %)0.14% 0.02% 0.14%
ACL / Loans (%)1.26% 1.27% 1.29%
ACL / Loans ex-guaranteed (%)1.38% 1.38% 1.40%
CET1 Ratio (%)11.9% 11.9% 12.0%
TCE / TA (%)9.50% 9.42% 9.60%

Notes:

  • Q3 noninterest income includes $30.1M anticipated insurance proceeds recorded in Other Income with an equal tax expense (net-zero to net income) tied to a $24.1M solar tax credit recapture event (non-GAAP adjusted EPS provided) .
  • Q3 SBA loan sales: $22.2M guaranteed sold; gain ~$1.1M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per Common ShareQ4 2025$0.31 $0.32 Raised
Net Interest Margin SensitivityForward (per 25bp cut)Not disclosed-3 to -5 bps per 25bp Fed cut; branch acquisition +5 bps accretive to NIM (Q4) New framework
Noninterest Expense Run-RateQ4 2025~$107M base in Q3 ~$111–$113M (incl. ~$4.5M branch run-rate; ~$2.5M one-time integration) Raised (integration)
EPS/ROA Trajectory2026 viewNot disclosedAim to defend ~4.20% NIM through 2026 under Moody’s baseline; pre-tax income growth with mid-single-digit loan/deposit growth Narrative clarity
NPAs ResolutionNext few quartersElevatedExpect reversion to historical levels post resolution of $12M LIPF and $68.4M SoCal CRE relationships Maintained confidence

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Q3 2025 Current PeriodTrend
Interest Rate/MarginNIM expansion with deposit repricing; NIM 4.15%–4.21% NIM 4.23%; -3–5 bps per 25bp cut; branch deal +5 bps Defending margin despite cuts
Deposit VerticalsGrowing balances; deposit costs via ECR; +$0.9M q/q in Q1 Verticals +$189M q/q; deposit costs +$2.4M q/q Strong growth; cost impact manageable
Asset QualityNPAs up on SoCal CRE; expect full collection; ACL ~1.27% NPAs to 0.83%; life insurance premium finance loan moved to NPA; ACL 1.29% (1.40% ex-guaranteed) Temporarily higher; collection confidence
Tax Credits/Noninterest IncomeVariable; strong Q4 seasonality; Q1 tax credits $2.6M Q3 recapture event offset by insurance; excluding item, fee income down Volatile; insured risk mitigates
Branch Acquisition (M&A)Announced 10 AZ & 2 KS branches Completed; ~$650M deposits, ~$300M loans; integration in Q4 Accretive funding; integration costs
Regional GrowthSouthwest momentum (Dallas, Las Vegas) Continued; balanced loan growth (CRE investor, C&I, tax credits) Positive

Management Commentary

  • CEO: “Net interest income improved by $5.5 million… net interest margin improved by two basis points, 4.23%. This was the sixth consecutive quarter that we saw net interest income growth.”
  • CEO on deposits: “Net of brokered CDs, we were able to grow deposits by $240 million… DDA remained at 32%.”
  • CEO on NPAs: “These two issues… account for nearly 60% of our NPAs… I’m confident that we will see the ratio of NPAs to total assets return to more historical levels in the quarters to come.”
  • CFO on tax credit recapture: “The recapture is recorded in tax expense, while the insurance recovery is included in non-interest income… gross up … $30.1 million during the quarter… no impact on net income for the third quarter.”
  • CFO on margin outlook: “We are slightly asset sensitive… expect a quarter point reduction… to reduce NIM by three to five basis points… branch acquisition is expected to be five basis points accretive.”

Q&A Highlights

  • Credit resolution timelines: management expects legal processes on SoCal CRE and the $12M LIPF to conclude over coming quarters; full principal collection expected due to collateral and guarantees .
  • Margin path with rate cuts: despite asset sensitivity, branch deal offsets short-rate pressure; aim to hold near ~4.20% NIM through 2026 under Moody’s baseline .
  • Expense guide: Q4 run-rate ~$111–$113M with ~$4.5M branch operating and ~$2.5M one-time integration costs .
  • Fee income outlook: Q4 total fee income expected between Q2 (high watermark) and Q3 (baseline); SBA gain-on-sale optionality subject to funding environment .
  • Capital priorities: focus on organic growth; buybacks on the table; M&A opportunistic and fit-driven .

Estimates Context

MetricPeriodConsensus*Actual*
Primary EPS ($)Q3 20241.1381.29
Primary EPS ($)Q2 20251.20751.37
Primary EPS ($)Q3 20251.2941.20
Revenue ($)Q3 2024$158.31M$157.54M
Revenue ($)Q2 2025$165.99M$167.69M
Revenue ($)Q3 2025$181.26M$166.65M

Interpretation:

  • Q3 2025: EPS miss (−$0.09 vs consensus), revenue miss (−$14.6M); Q2 was a beat on both, highlighting quarterly volatility tied to provision/expense and fee line variability.
  • Consensus depth: 5 EPS estimates and 4 revenue estimates for Q3 2025 underpin the miss context.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • NII/NIM expansion amid rate cuts reinforces pricing discipline; branch acquisition should further support margin and funding mix .
  • Near-term EPS pressure is driven by higher provision and expense; Q4 expenses step up with integration but normalize thereafter; expect margin defense to limit downside .
  • Asset quality risks are concentrated and well-collateralized; management’s confidence in full recovery tempers credit concerns; watch for bankruptcy/foreclosure milestones over coming quarters .
  • Fee income remains variable; Q4 likely rebounds from Q3 baseline but below Q2 peak; SBA sale optionality contingent on market conditions .
  • Capital remains strong (CET1 ~12%, TCE/TA ~9.6%); dividend increased; buybacks are a lever if organic/M&A deployment slows .
  • Tactical focus: continue monitoring deposit vertical cost dynamics (ECR), NIM sensitivity to incremental Fed cuts, and credit workout progress—key drivers of 2026 EPS trajectory .
  • Medium-term: diversified geographies and specialty businesses (SBA, LIPF, tax credits) plus branch acquisition should sustain mid-single-digit balance sheet growth and stable ROA/ROTCE profile .