Enterprise Financial Services Corporation

earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I will now turn the call over to Jim Lally, President and CEO. Please go ahead.

Good morning and thank you all very much for joining us for our 2025 third quarter earnings call. Joining me this morning is King Turner, our company's Chief Financial Officer and Chief Operating Officer, and Doug Bauke, our company's Chief Banking Officer. Before we begin, I would like to remind everybody on the call that a copy of the release and accompanying presentation can be found on our website. The presentation and earnings release were furnished on SEC Form 8K yesterday. Please refer to slide two of the presentation titled forward-looking statements and our most recent 10 K and 10 Q for reasons why actual results may vary from any forward-looking statements that we make today. The third quarter was another very solid quarter for our company. As we expected, we saw loan growth return to an annualized level of 6% while deposit growth continued well above this level. This was a continuation of our intentional strategy to lean into our diversified geography and national businesses that allows for our team to focus on the business that fits us the best versus settling for transactional business that achieves certain growth targets. In addition to this, we spent considerable time on the recent closing and systems conversion for the acquisition of 10 branches in Arizona and two in the Kansas City area. As a reminder, this acquisition garnered us approximately $650 million of well-priced deposits and $300 million in loans, but more importantly enhances an already strong presence in two strong markets for us. We did experience an increase in provision for loan losses in the quarter, primarily due to a $22 million increase in non-performing assets and net charge-offs. Doug will provide much more detail in his comments, but I feel good about our ability to work through these issues and expect our NPAs to return to historical levels over the next few quarters. The recapture of transferable solar tax credits in the quarter caused some noise in our income statement. This investment was a component of our income tax mitigation strategy and is not related to our tax credit loan and fee businesses. Keene will provide details on this and walk you through the accounting treatment in his comments. But I want to reiterate that this project is covered by insurance. With that said, we earned $1.19 per diluted share in the quarter compared to $1.36 in the linked quarter and $1.32 in the third quarter of 2024. This level of performance produced a return on average assets of 1.11% in the current quarter and a pre-provision ROAA of 1.61%. Net interest income and net interest margin both saw expansion in the quarter. Net interest income improved by $5.5 million when compared to the previous quarter, and net interest margin improved by two basis points, 4.23%. This was the sixth consecutive quarter that we saw net interest income growth. These results reflect our continued focus on pricing discipline on both sides of the balance sheet, combined with overall steady growth. We continue to improve on striking the correct balance of providing a strategic consultative experience for our clients with appropriate growth. I am confident that this model will continue to provide for our ability to grow NII for the foreseeable future. On an annualized basis, loan growth in the quarter was 6% or $174 million, net of $22 million of guaranteed loans that were sold during the quarter resulting in a gain of $1.1 million. We continue to see really good progress in our Southwest markets with high quality growth coming from newer markets like Dallas and Las Vegas. Overall, we originated loans in the quarter at a rate of 6.98%, which continues to be accretive to the overall portfolio yield. Deposit growth in the quarter was exceptional. Net of brokered CDs, we were able to grow deposits by $240 million. As impressive was the fact that DDA remained at 32%. While our national verticals provided for much of this growth in the quarter, we have experienced deposit growth from all of our regions year over year and would expect to see our typical fourth quarter swell from these markets to finish the year strong. Our ability to continue to grow deposits gives us plenty of liquidity to fund future loan growth while keeping our loan to deposit ratio at an appropriate level for our company. Our well-positioned balance sheet continues to be a strength for our company. Capital levels at quarter end remain stable and strong, with our tangible common equity to tangible assets ratio of 9.60%, yielding a return on tangible common equity of 11.56%. This return profile is a continued expansion of our tangible book value for common share, which increased over 15% on an annualized quarterly basis. This level of compounding of tangible book value per share far exceeds our 10-year CAGR of just over 10%. Given the strength of our earnings and our confidence in our ability to continue to perform at a high level, we increased the dividend by $0.01 per share for the fourth quarter of 2025 to $0.32 per share. Our asset quality statistics moved slightly higher in the quarter when compared to the link quarter. Non-performing assets increased by $22 million, with the largest component of this being a $12 million life insurance premium loan that is adequately collateralized and just needs to work through the collection process to be resolved. I do not expect any loss of principle on this loan. When accounting for this and the previously disclosed seven commercial real estate loans in Southern California, these two issues, both of which have high certainty of collection, account for nearly 60% of our NPAs. This is why I'm confident that we will see the ratio of NPAs to total assets return to more historical levels in the quarters to come. I want to be clear that we have never had any exposure to the private lending business identified in regulatory filings by two other regional lenders and articles in various publications. As stated in our October 16th 8K and previously discussed in our first quarter earnings call, the seven real estate loans in Southern California totaling $68.4 million that are directly secured by priority first mortgages on the real properties owned by the single purpose entity borrowers. We have commenced foreclosure proceedings with respect to the real property and expect to collect the full balance on these loans. We will spend the remainder of the year focused on the cultural integration of our new associates who recently joined through our branch acquisition, along with our new clients acquired in the same deal. Additionally, we'll be focused on continuing the strong momentum we have in our regions and specialty verticals, making sure that we enter 2026 with a great deal of confidence and momentum. Before turning the call over to Doug, I want to briefly comment on what we are hearing from our clients. Last quarter, I mentioned that the impetus for our clients' confidence was the passing of the one big beautiful bill, the downward trajectory of short-term interest rates, and further clarity of U.S. trade policy. With the September rate cut behind us and several more on the horizon, we are seeing our clients move forward with more confidence than what we had seen in several previous quarters, despite continued uncertainty with some larger trading partners. With that said, I can see our onboarding of new clients and loan production maintaining its current level or possibly accelerating slightly from here. We operate in very good markets, many of which continue to have disruption due to M&A. We've invested in many new associates who are embracing our value-added solutions-based approach, and our balance sheet and deposit generating capability has us positioned well to profitably fund the opportunities that will be presented. I'm excited for how 2025 will end and the momentum that we will carry into the new year. With that, I would like to turn the call over to Doug Bauke. Doug?

Thank you, Jim, and good morning, everyone. Over the past couple of months, I've spent considerable time in our major geographic markets, and I continue to be encouraged by both the quality and volume of new relationship opportunities we are seeing. Our brand continues to gain traction in our newer markets of North Texas and Southern Nevada, led by our bankers that are well-entrenched and connected to those communities, and we continue to capitalize on the strong economic growth throughout our Southwest region. As Jim mentioned, the September rate reduction and further forecasted easing has seemed to spur some cautious optimism among business owners and real estate investors. Discussions with architects, contractors, and developers indicate that their new project pipelines are beginning to build momentum heading into 2026. While volatility continues around trade tariffs with China, our CNI clients have largely navigated this challenging period successfully by adjusting supply chains and pricing to maintain operating margins. On the lending side, loans increased in the quarter $174 million, net of $22 million in SBA loan sales. We continue to prioritize full relationship wins with disciplined structure and pricing. Sector growth in the quarter is broken down on slide five and was well balanced between investor-owned CRE of $79 million, CNI of $31 million, including SBA owner-occupied commercial real estate and sponsored finance, and $73 million in our tax credit lending niche. Growth in the tax credit sector was largely related to scheduled fundings on existing affordable housing tax credit bridge loans. New CNI originations were solid and consistent with the linked quarter as we provided senior debt to both existing and new operating companies across our business lines. However, strong originations were somewhat muted by the exit of a quick service food franchise client in our Midwest region, $22 million in SBA loan sales, and a reduction in commercial line of credit usage between the end of June and September, As it appears, our clients are working through some of the excess inventory purchases they made in prior periods when tariff and supply chain concerns were more pronounced. Within the specialty lending business lines, SBA production was stable with the prior quarter and in line with expectations. Sponsored finance origination slowed in the quarter as we continue our fewer but better approach. while we remain disciplined and committed to this space. Originations in this segment were equally offset by payoffs resulting from sponsors exiting portfolio company investments. LIPF originations were seasonally modest with a strong pipeline of activity heading into the historically strong final quarter of the year. This sector continues to perform well on a risk-adjusted basis and has experienced a 12% year over year growth rate. Moving to the geographic markets shown on slide six, we posted growth in our Midwest and Southwest regions while we continued to hold serve in our California markets. Growth in our major geographies came from the funding of a market leading employee owned electrical contractor, a privately held distributor of high voltage electrical components, a manufacturer of high precision metal parts, and several new commercial real estate loans with established developers for the acquisition or refinance of industrial and multifamily projects. Turning to deposits on slide seven, excluding the addition of $10 million of brokered CDs, client deposit balances grew by $241 million in the linked quarter and are up $822 million or roughly 7% year over year. Non-interest-bearing accounts increased $65 million in the quarter and represent just over 32% of total deposits. Within the geographic market shown on slide 8, we are posting solid customer deposit growth on a year-over-year basis across all regions. Growth has continued to come from our holistic approach to new business development, which rewards full banking relationships. rather than transactional lending or high-cost idle cash balances. Our specialty deposit verticals posted strong results, up $189 million for the quarter and $681 million or 22% year-over-year. Our specialty deposits consisting of property management, community associations, and legal industry escrow and trust services are broken out on slide nine. Deposits in the community association and property management specialties totaled roughly $1.5 billion each, while deposits residing within the escrow division reached $844 million. These businesses provide a diverse, growing, and overall favorable cost-adjusted source of funding that continues to complement our geographic base. Turning to slide 10, you'll see that our deposit base is intentionally well balanced across our core commercial, business and consumer banking, and specialty deposit channels at 37%, 33%, and 30% of total customer deposits respectively. With deposit clients deeply rooted in treasury management and lending relationships, we're encouraged by our ability to rationally adjust pricing in the current rate environment while continuing to grow balances across the channels. I'd also like to provide some commentary on asset quality. As Jim noted earlier, non-performing assets increased $22 million to 83 basis points from 71 basis points in the linked quarter. The increase in the quarter is largely centered around a $12 million life insurance premium finance loan that is 100% principal secured by cash value life insurance. We are in the process of liquidating the policy with the life insurance carrier, and we expect full principal collection. Other notable additions to non-accrual in the quarter included a $6.2 million sponsored finance credit, which was charged down by $3.75 million in the quarter, with the remaining $2.5 million book balance expected to be satisfied via the sale of business assets. A $2 million single-family residential real estate loan in Santa Monica and two smaller commercial real estate secured loans totaling $2.5 million in aggregate. On October 16th, we filed a Form 8K reiterating our position relative to the previously reported seven commercial real estate secured non-performing loans totaling $68.4 million in the aggregate to seven special purpose entities in Southern California. Our recent foreclosure attempt on October 15th was temporarily stalled due to a second bankruptcy filing. However, we remain confident in our security position and ability to collect the balance of these loans in full. With the satisfaction of the $12 million life insurance premium finance loan and $68 million in aforementioned seven commercial real estate loans, we expect our non-performing assets to return to our favorable historical norms in the coming quarter. Now, I'll turn the call over to King Turner for his comments.