Enterprise Financial Services Corporation

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Enterprise Financial Services Corporation fourth quarter 2025 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 and the number one on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the conference over to Jim Lally, President and CEO. Please go ahead.

Good morning, and thank you all very much for joining us, and welcome to our 2025 Fourth Quarter Earnings Call. Joining me this morning is King Turner, EFSC's Chief Financial Officer and Chief Operating Officer, and Doug Bauke, Chief Banking Officer of Enterprise Bank and Trust. Before we begin, I would like to remind everybody in the call that a copy of the release and the company 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 for our most recent 10K and 10Q for reasons why actual results may vary from any forward looking statements that we make today. Our financial highlights begin on slide three. I am pleased with our results for the fourth quarter and for all of 2025. For the quarter, we earned $1.45 per diluted share, which compares favorably to the $1.19 that we earned in the linked quarter and $1.28 in the fourth quarter of 2024. These results produced a return on average assets of 1.27% and a pre-provision return on average assets of 1.74%. We discussed in our last earnings call, we closed on the branch purchase in Arizona and Kansas early in the fourth quarter. Earnings from this complemented our relationship oriented business model, helping drive expansion of net interest income for the quarter to $168 million, which was a quarterly increase of $10 million when compared to the link quarter and $22 million compared to the fourth quarter of 2024. Margin two improved slightly to 4.26% driven by disciplined loan and deposit pricing throughout both books of business. Our ability to hold our margin at this level illustrates the quality of our deposit base and the relationship or is it loan portfolio. The ability to continue to expand our net interest income along with widening our net interest margin to the extent that we have reflects the strength of the franchise we are building and remain positioned to produce high-quality earnings for years to come. As important, the branch purchase accelerated our strategy in two of our higher growth markets by several years. Since the closing, I've spent time with our new team and our new clients and feel even better about how this fits into our overall strategy and the impact that this expansion will have on our long-term performance. A strength of our company is our well-positioned balance sheet, which provides for great flexibility when it comes to capital management. We came into 2025 with a goal of growing our balance sheet at a mid-to-high single-digit pace. With our organic growth complemented by the aforementioned branch purchase, we were able to exceed this goal, growing our balance sheet by 11%. Capital levels at quarter end were stable and strong. with our tangible common equity to tangible assets ratio at 9.07%. As impressive was our 14.02% return on tangible common equity for the fourth quarter. Because of the branch purchase, we expected some dilution to tangible book value, but due to our strong earnings during the quarter, tangible book value per share was relatively stable at $41.37. This represents an 11% increase in tangible book value per share growth for the year. Because of our confidence to continue to produce high quality earnings at the pace that we are, we increased our dividends by one cent per share to 32 cents for the fourth quarter and repurchased 67,000 shares at an average price of $52.64. Loan growth for the quarter was $217 million and was largely attributed to the acquired loans that came with the branch acquisition. Further reducing our loan balances in the quarter was the movement of approximately $70 million of Southern California commercial real estate loans into OREO. I will provide an update on our progress with these properties later in my comments. Deposit growth and the quality of the deposit base continues to be a significant differentiator for our company. In the fourth quarter, we saw deposits grow by $1 billion. $400 million of which came from new and existing clients, with the remaining approximately $600 million coming from the branch purchase. The cost and composition of the deposit base continues to improve and has aided in the consistency of earnings and profitability. The quarterly cost of deposits decreased to 1.64%, and our level of DDA to total deposits improved to 33.4%. It should be noted that we have maintained our DDAs at over 30% of total deposits for the last four years. Finally, liquidity remains strong as evidenced by our loan-to-deposit ratio of 81%. There were several moving parts with respect to credit in the quarter. The most important movement occurred with a real estate associate of the seven real estate loans in Southern California that we discussed on last quarter's earnings call. With a favorable verdict handed down by the bankruptcy courts during the quarter, we were able to take six of these properties into OREO with a seventh to follow shortly. Like we assumed, interest in these properties has been high with purchase sale agreements on several of the properties expected to be received in the very near future. Further improvement to our overall credit metrics is a high priority. I can see a clear path for the elevated level of NPAs and OREO to reduce significantly in the next couple of quarters to more historical levels. Doug will comment on the specifics related to all of this in his comments. Slide five summarizes our performance for all of 2025. For the year, we earned $201 million of net income for $5.31 of diluted earnings per common share. We leverage capital advantageously to expand in two key markets while growing tangible book value per share by 11%. Other uses of capital include an increase in our annual dividend by $0.16 per share to $1.22 and repurchasing just over 258,000 shares at an average price of $54.60. You will hear much more about these and other financial highlights in King's comments. Slide six illustrates where we are focused as we turn the page into a new year. Like I stated previously, I can see a clear path to improve credit statistics in the next quarter or two. Nonetheless, this is a key focus for us in 2026. The level of NPAs is not compatible with the quality company we've built, and improvement to more historical levels will be accomplished. The same time, we will continue to grow the balance sheet with a quality and consistency that we've displayed for many years, serving our existing clients' needs while adding new ones that appreciate our consultative approach and willing to give up a few basis points on both loans and deposits to experience this. And finally, like many of our clients, we will continue to find more ways to automate mundane, non-value added tasks, utilizing the investments we have made in technology over the last few years in order to enhance productivity and efficiency within our business. Before handing the call over to Doug, I would like to share with you what I'm hearing from our clients throughout our markets and national business lines. For the most part, our clients remain optimistic about the economy and how their businesses will perform in 2026. In particular, clients that are developers, contractors, subcontractors, and suppliers to companies in and around power generation and the data center industries are expecting particularly good and long runs ahead. This obviously trickles down to manufacturers and service businesses too that support these industries. Industries and companies that serve infrastructure improvements throughout our markets too should see many opportunities. This includes water projects, utility work and highway and road construction. Furthermore, there is a keen focus by our client base to further improve productivity and efficiencies. I cannot help thinking that this will come with investments in technology, robotics and other machine learning capabilities, the expense of which will be partially offset by the favorable tax treatment that such investments now receive. The agility and resilience that our client base continues to show has been quite remarkable. I would expect this to continue in 2026 and beyond. We are pleased with results for the fourth quarter and the entirety of 2025 and look forward to what lies ahead in 2026. Our company is positioned extremely well to continue to execute on our strategic plan and drive long-term shareholder value. Our diversified relationship oriented model has compounded tangible book value per share at a rate of over 11% for the last 14 years, and I see this continuing for many years to come. With that, I would like to turn the call over to Doug Bauke. Doug?

Thank you, Jim, and good morning, everyone. The fourth quarter, as Jim just described, was full of activity. The completion of our branch acquisition and onboarding of new clients and associates has gone exceptionally well. The feedback that I continue to receive from our new partners has been overwhelmingly positive. We also successfully completed foreclosure of the previously highlighted Southern California real estate portfolio and are now one very important step closer to substantially reducing our non-performing assets. And certainly not to be overlooked, we continue to expand the balance sheet through the attraction of new organic commercial relationships, and are positioned with momentum heading into the new year. Slide seven demonstrates the diversity and growth of our loan portfolio across all asset classes. Asset categories representing credit to commercial and industrial businesses, including C&I, CRE owner occupied, SBA and sponsored finance combined are just over 50% of our portfolio, while investor owned CRE life insurance and tax credit lending largely round out the balance of the portfolio at 24%, 10% and 7% respectively. Loans grew $217 million in the quarter and $580 million for the year. Organic growth in the quarter and LTM from our CNI, investor-owned CRE and life insurance premium finance lines were offset by contraction in our sponsor finance and construction and land development segments as sponsors monetize portfolio companies and developers completed and sold a number of industrial and mixed-use construction projects. Additionally, reported organic growth at $288 million for the year was muted by our sale of $78 million in SBA guaranteed debt the movement of the aforementioned $70 million in real estate loans to OREO, and our election to exit several loan participations that no longer met our return thresholds. Adjusted for those three items alone, organic loan growth for 2025 was in line with our mid-single-digit expectations. Slide 8 displays our loan portfolio balances and growth across our geographic footprint and specialty lines. Specialty lending and all three of our geographic markets contributed to positive loan growth during the year, and our portfolio remains favorably balanced. Within the specialty lending business lines, our SBA 7A owner-occupied CRE production topped $250 million in originations for the year and is poised to expand as we continue to head into a more favorable interest rate environment in 2026. Additionally, Growth in other low credit risk categories of life insurance, premium finance, and tax credit finance outpaced contraction in sponsor finance. Our momentum in the Southwest continues. Growth in the Southwest outpaced all other markets and was driven by expansion of quality CNI and CRE relationships throughout Arizona, New Mexico, Northern Texas, and Southern Nevada, including the relationships added in the branch acquisition. Turning your attention to slide nine, deposits grew $1 billion in the quarter and approximately 11% or 1.5 billion year-over-year, inclusive of the $609 million in branch-acquired deposits in our Arizona and Kansas City markets. Organically generated deposit growth for the year was right in line with our expectations at 6.5% or $854 million. For the quarter, organic deposit growth was seasonally strong at $432 million with non-interest bearing deposits representing 63% or 274 million of growth during the period. Similar to our legacy deposit portfolio, the $609 million in acquired branch deposits are favorably mixed with nearly 35% or $213 million and non-interest bearing commercial transaction accounts. Strong deposit generation and favorable mix provide us opportunity to control the cost of interest bearing deposits and defend our net interest margin in this down rate environment. Slide 10 depicts the dispersion of our deposit base across the Midwest, Southwest, West, and our deposit verticals. A core strength of our business model continues to be our ability to execute our deposit strategies with balanced growth coming from new relationships, deepening of wallet share with existing clients, acquisition of attractive deposit franchises, and leveraging our differentiated deposit verticals. In our Midwest region, in particular, deposit balances have grown steadily and are approaching $7 billion in aggregate. As our average client relationship duration continues to lengthen, We find we are regularly rewarded with greater share of wallet and ancillary products, including private banking, commercial card, and merchant services. The breakdown of our deposit verticals is reflected on slide 11. Community association and property management largely contributed to our deposit vertical growth in 2025, while we exited higher yielding deposits within our legal industry and escrow services segments. We've redirected our efforts in the legal industry and escrow services area, and our pipeline of more favorably mixed and priced deposits is gaining traction. These three businesses continue to provide a diverse, growing, and overall favorable cost-adjusted source of funding that complements our geographic base. Turning to slide 12, you'll see that our deposit base is intentionally well-balanced across our core commercial, business and consumer banking, and specialty deposit channels. With a recent branch acquisition, our core commercial business and consumer banking and specialty deposits are 39%, 33%, and 28% of total customer deposits, respectively. I'd also like to provide some commentary on asset quality. As Jim noted earlier, we see a clear path to reducing our elevated non-performing assets and 95 basis points to our more historically normalized level of 35 to 40 basis points over the next quarter or two. To bridge that path, let me say that we are actively negotiating PSAs on five of the six properties in Southern California that we moved into OREO in December. With final execution of these PSAs and sale of the related OREO assets, we would realize proceeds at or above our carrying value. Furthermore, we continue to chip away and make good progress on a number of other specific non-performing loans. The combination of these successful resolutions alone will reduce NPAs in half without charge or write-down. Keene will discuss some of our asset quality metrics, but it is worth noting that our reported 21 basis points of net charge-offs for the full year includes three basis points related to two of the loans in the Southern California relationship. On a net basis, we did not take a loss on the foreclosure of the six properties that we took possession of in the fourth quarter. Excluding those loans for that reason, our adjusted net charge-offs were 18 basis points for 2025. Now, I'll turn the call over to King Turner for his comments.