Enterprise Financial Services Corporation

Good day, everyone, and welcome to Enterprise Financial Services Corp. First Quarter 2026 Earnings Conference Call. Please note that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during that time, please press star and then one on your telephone keypad. Thank you. I'd now like to hand the call over to Jim Lally, President and CEO. Please go ahead.

Thank you all very much for joining us this morning, and welcome to our 2026 First 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 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 10K for reasons why actual results may vary from any forward-looking statements that we make today. Our financial scorecard begins on slide three. The solid financial performance that we've generated over the past several years continued into the first quarter of 2026. For the quarter, we earned $1.30 for diluted share compared to a seasonally strong $1.45 in the lean quarter and $1.31 in the first quarter of 2025. This level of performance produced a return on assets of 1.16% and a pre-provision ROAA of 1.65%. I would characterize our performance in the quarter as solid and on plan. Net interest income was relatively stable when compared to the link quarter at $166 million, while net interest margin expanded two basis points to 4.28%. This reflects both better seasonal performance in our deposit balances and net interest margin expansion resulting from our relationship-oriented business model, where our clients receive value-added service from our teams in return for a few extra basis points when it comes to loan and deposit pricing. Our well-positioned balance sheet continues to be the strength of our company, as it provides for great flexibility with respect to capital planning. Capital levels at quarter end remain stable and strong, with total stockholders' equity at $2 billion and a tangible common equity-tangible assets ratio of 9%. At this level of TCE, we were able to produce a return on tangible common equity of 12.53%. Our strong return profile allowed our tangible book value per share to remain level at $41.38, despite the fact that we utilized approximately $27 million of capital to repurchase 483,000 shares at an average price of $56.13. In addition to this, given the strength of our earnings and our confidence in our continued execution, we increased the dividend by one cent per share for the second quarter of 2026 to 34 cents per share. Turning to slide four, you will see that loans dipped slightly in the quarter. Three things led to this slight decrease. The first is that several significant closings that we expected to see in Q1 have slid into the second quarter and have closed or will close in the coming weeks. The second reason for this decline was a $100 million pay down in our low-income housing tax credit portfolio. These paydowns happen annually and are the proceeds from successful sales that occurred in the fourth quarter of 2025. Another positive from these payoffs is the fact that the majority of these loans were made in 2021 and 2022, and the fixed rates earned on these loans are lower than what we can earn on this cash in our investment portfolio today. The final contributor was the sale of $25 million of SBA loans in the quarter, which produced a gain of $1.4 million. Doug will provide much more color on the performance of our markets and businesses in his comments. Our diversified deposit base continues to be a differentiator for us. We did experience a typical first quarter deposit outflows due to our heavy concentration of commercial oriented accounts. We've worked extremely hard to blunt this trend through growth of our national deposit verticals as well as through market and business diversification within both the commercial bank and our more granular business banking and consumer relationships. The composition of deposits also remained stable as our percentage of DDA to total deposits remained at 33%. These trends were aided by a continued reduction in the overall cost of deposits to 1.52%, a 12 basis points drop in the quarter and 31 basis points when compared to the first quarter of 2025. It was on our 2025 first quarter earnings call that we first spoke of the seven Southern California loans that ultimately landed in OREO. Our contention a year ago was that we would favorably work through these loans without a loss. Today, I'm pleased to report that we continue to make progress on this and currently have four of these properties under contract representing total OREO balances of $46 million with great progress on the other three properties being made. I would expect to report positive further progress in the remaining quarters of 2026. Additionally, the remainder of the portfolio continues to perform as expected. Keene will make additional comments about asset quality and provision expense in his comments. Turning to slide five, you will see our priorities for 2026. We made significant strides in asset quality improvement during the quarter, and I'm confident that this will continue throughout 2026, highlighted by the expected sale of the seven Southern California properties that are currently in OREO. I'm still bullish on overall mid-single digit balance sheet growth for the year. Our ability to produce well-priced, diversified deposits has been proven over the last several years, and I have a great degree of confidence that this will continue throughout 2026. However, the longer that uncertainty is the byproduct of the conflict in Iran, borrower sentiments may be cautious which could impact future loan growth. Over the last few weeks, I've had the opportunity to visit with many clients representing a diverse array of businesses and industries. They continue to perform well, but their confidence to make large investments in capital expenditures or to think about any type of strategic hires or M&A is truly day to day. Like I stated on previous calls, entrepreneurs need to be able to see 90 to 120 days into the future to confidently make these strategic decisions. and the recent volatility in the current environment could have an impact. Obviously, a quick resolution or stabilization of the current state changes this immediately. Finally, like many of our clients, we too are focused on efficiency gains through automation and expansion of our existing technology framework. This is a daily opportunity for our company, and we are excited about the progress we are making. Overall, I'm very pleased with our results for the first quarter of 2026. We are positioned extremely well for just about any environment. We have wonderful markets, a growing diversified deposit base, and an extremely strong balance sheet. We have used these tools to grow tangible book value per share over 10% annually for the last 14 years and are in great shape to accomplish this again in 2026. With that, I would like to turn the call over to Doug Bauke. Doug?

Thank you, Jim, and good morning, everyone. Turning to slide six, you'll see the breakdown of our loan portfolio by asset class. Successful attraction and onboarding of new clients across our footprint drove $97 million in Q1 loan growth in our core CNI and owner-occupied real estate portfolios and $21 million in loan growth from our life insurance premium finance division. Those advancements, however, were largely offset by the anticipated $101 million reduction in our low-income housing tax credit portfolio via the successful completion of affordable housing projects and sale of state tax credits. The weighted average fixed coupon on the $101 million in tax credit loans paid off in the quarter was 3.29%, providing us the opportunity for redeployment of that capital at higher earning yields in the current environment. Furthermore, as Jim mentioned, we executed on the sale of $25 million of SBA-guaranteed loans in the quarter. The sponsor finance portfolio declined $33 million in the quarter, as payoffs from the sale of sponsor-owned portfolio companies exceeded new originations. Overall, I am pleased with the mix and breadth of our loan funding pipeline, and I remain cautiously optimistic about our ability to achieve our loan growth objectives for the year. The elevated geopolitical risks, Iran conflict, and market complexities may, however, result in our organic growth being more uneven over the next couple of quarters. Slide seven demonstrates the continued strong diversity of our loan portfolio across our geographic markets and specialty business lines. The specialty lending portfolio at just over $4 billion, inclusive of tax credit lending, sponsor finance, SBA and life insurance premium finance has remained relatively flat year over year. However, our core geographic markets in the Midwest and Southwest have delivered 6% and 25% year over year growth rates respectively, which includes loans acquired in the branch acquisition that closed in the fourth quarter. In the West region, our investments in new talent in 2025 in Southern California are showing positive momentum. Leveraging market disruption, we are experiencing a growing pipeline of quality CRE and CNI holistic relationship opportunities that will translate to solid organic growth during the year. Turning to deposits on slides eight and nine, reductions in the quarter within the core geographic portfolio reflect anticipated seasonal outflows in client balances of $272 million, mainly associated with distributions bonuses, and tax payments. A material portion of this reduction was offset by continued growth within the national deposit verticals, which grew by $187 million, or roughly 20% annualized in Q1. On a year-over-year basis, total client deposits excluding brokered funds are up 10%. The national deposit verticals profiled on slide 10 continue to provide differentiated and attractive sources of funding, while also diversifying our overall deposit base and somewhat softening the seasonality of our other channels. With over $4 billion in deposits across our property management, community association, and legal and escrow businesses, the average earnings credit is an attractive 2.59%, considering no incremental expenses in branches or branch personnel. Lastly, slide 11 profiles the mix of our core deposit base, which continues to be well diversified and highly relationship oriented. With just over 33% of these accounts being non-interest bearing and 80% of them using some form of treasury management or online banking, they offer operational stability and a solid base from which to expand other fee generating revenue streams, including card and merchant services. Now, I'll turn the call over to King Turner for his comments.