Enterprise Financial Services (NASDAQ:EFSC) executives highlighted improved profitability, balance sheet expansion and progress on resolving a long-running Southern California real estate credit issue during the company’s fourth-quarter 2025 earnings call.
Quarterly results and balance sheet growth
President and CEO Jim Lally said the company earned $1.45 per diluted share in the fourth quarter, up from $1.19 in the prior quarter and $1.28 in the fourth quarter of 2024. The quarter produced a 1.27% return on average assets and a 1.74% pre-provision return on average assets.
Lally said the company closed a branch purchase in Arizona and Kansas early in the fourth quarter, describing the transaction as accelerating the firm’s strategy in two higher-growth markets “by several years.” The deal contributed to balance sheet expansion; the company said it entered 2025 targeting mid- to high-single-digit growth but ultimately grew the balance sheet by 11%, aided by both organic growth and the branch purchase.
Full-year 2025 performance and capital actions
For 2025, Enterprise reported $201 million of net income, or $5.31 per diluted share. Management also pointed to shareholder returns and capital deployment during the year, including:
- An increase in the annual dividend by $0.16 per share to $1.22
- Repurchasing just over 258,000 shares at an average price of $54.60
- Tangible book value per share growth of 11% for the year, ending the fourth quarter at $41.37
Lally said the company increased its dividend by $0.01 per share to $0.32 for the fourth quarter and repurchased 67,000 shares at an average price of $52.64. CFO and COO Keene Turner later said the company increased the quarterly dividend again by $0.01 to $0.33 per share for the first quarter of 2026.
Capital levels “were stable and strong,” Lally said, with tangible common equity to tangible assets at 9.07% at quarter end. Turner reported tangible common equity of 9.1% (down from 9.6% in the linked quarter) and a common equity tier 1 ratio of 11.6%. Turner said the branch acquisition was modestly dilutive to tangible book value per share, but that was offset by fourth-quarter earnings and improvement in the fair value of the securities portfolio.
Loans, deposits, and margin outlook
Chief Banking Officer Doug Bauche said fourth-quarter loan growth of $217 million and full-year loan growth of $580 million reflected both acquired loans and organic activity. He noted that reported organic growth for 2025 was muted by several items, including a $78 million sale of SBA guaranteed debt, the movement of approximately $70 million of Southern California commercial real estate loans into other real estate owned (OREO), and exiting certain loan participations that no longer met return thresholds. Adjusted for those items, Bauche said organic loan growth was in line with mid-single-digit expectations.
On specialty lending, Bauche said SBA 7(a) owner-occupied CRE production topped $250 million in originations for the year and is “poised to expand” as the company expects a more favorable interest rate environment in 2026. He also cited momentum in the Southwest, with growth driven by C&I and CRE relationships across Arizona, New Mexico, Northern Texas and Southern Nevada, including relationships added through the branch acquisition.
Deposits grew $1 billion in the fourth quarter and approximately 11%, or $1.5 billion, year over year. Bauche said year-over-year growth included $609 million of acquired deposits, while organic deposit growth was 6.5%, or $854 million, for the year. He said fourth-quarter organic growth was $432 million, with non-interest-bearing deposits accounting for 63% of that growth. Lally said deposit cost declined to 1.64% in the quarter and DDA to total deposits improved to 33.4%, noting the company has maintained DDAs above 30% of total deposits for four years. Liquidity remained “strong,” with a loan-to-deposit ratio of 81%.
Turner said the company expects net interest margin run rate in 2026 to be roughly 4.2%. He cautioned that, relative to the fourth quarter, the company expects some additional loan repricing from periodic and longer-term resets and “some additional attrition of deposit balances during the first quarter.” During Q&A, Turner said he expected the margin to step down modestly from the fourth quarter and then “hang” around 4.2%, adding that management believes the balance sheet composition and funding mix are positioned to limit the impact of rate changes.
Credit: Southern California OREO and NPA reduction path
Credit quality and elevated non-performing assets were a major topic. Lally said the company made progress on seven Southern California real estate loans discussed on the prior quarter’s call. With a favorable bankruptcy court verdict during the quarter, the company took six properties into OREO, with the seventh expected to follow.
During Q&A, Bauche said the company filed foreclosures in October, but a bankruptcy filing delayed the process. He said a mid-December ruling recognized the October 15 foreclosure process as legitimate, enabling the company to take six of seven properties into OREO. The seventh property did not transfer because an unrelated third party outbid the bank in October; Bauche said that property will need to be refiled in the first week of February. Bauche said the company was actively negotiating purchase and sale agreements and was optimistic that by the end of the second quarter it would see “some resolution.”
Bauche also discussed two loans totaling $28 million that migrated to non-accrual in the fourth quarter: a retail center in Riverside, California with approximately $22 million to $23 million in debt and a $6 million loan secured by a residential property in San Diego. He said the bank believes both are well secured based on appraisals and that he expects “very little loss content.”
Turner reported fourth-quarter net charge-offs of $20.7 million, up from $4.1 million in the linked quarter, and a provision for credit losses of $9.2 million, up from $8.4 million. Non-performing assets increased $29 million to 95 basis points of total assets versus 83 basis points in the linked quarter. He said the company remains “well reserved,” with an allowance for credit losses of 1.19% of total loans (or 1.29% when adjusting for government-guaranteed loans). Bauche said management sees a path to reduce NPAs from 95 basis points to a more historical 35-40 basis points over the next quarter or two and noted the company was actively negotiating PSAs on five of the six Southern California OREO properties, expecting proceeds at or above carrying value.
Fees, expenses, and items affecting comparability
Turner said fourth-quarter net income was $55 million and that adjusted earnings per share were $1.36 excluding certain non-recurring items. He said pre-provision earnings rose more than $9 million from the linked quarter to $75 million due primarily to net interest income expansion and a seasonal increase in tax credit income.
Non-interest income was $25.4 million, down $23.2 million sequentially, but Turner said that excluding a tax credit recapture in the linked quarter, non-interest income increased $9 million due to OREO gains and seasonally stronger tax credit income. SBA loan sale gains were lower because the company did not sell production in the fourth quarter; Turner said management may continue selling SBA loans in coming quarters depending on growth plans and activity levels. In Q&A, he said he expects SBA gain-on-sale revenue to grow modestly in 2026 and characterized the tax credit line as likely to be roughly flat, around $7 million to $7.5 million, though volatile.
Non-interest expense rose to $115 million, up $4.7 million from the linked quarter. Turner attributed the increase to the acquired branch footprint’s run-rate expenses and one-time acquisition costs, partially offset by seasonally lower employee benefits and a reversal of a portion of the FDIC special assessment previously recorded. The core efficiency ratio was 58.3%.
Looking to 2026, management reiterated priorities including improving credit metrics, growing the balance sheet with a focus on core deposits, and using technology investments to improve productivity and efficiency. Lally also said M&A is “a very low priority,” emphasizing execution, credit improvement, organic growth, and integration of the 2025 branch acquisition.
About Enterprise Financial Services (NASDAQ:EFSC)
Enterprise Financial Services Corp. (NASDAQ: EFSC) is a bank holding company headquartered in Clayton, Missouri, operating through its primary subsidiary, Enterprise Bank & Trust. The company provides a comprehensive range of banking and financial services to individuals, small- and mid-sized businesses, and institutional clients. Its capabilities encompass deposit products, lending solutions, mortgage banking, and treasury management, supported by a full suite of digital banking tools and personalized client service.
In its commercial banking segment, Enterprise Bank & Trust offers lines of credit, equipment financing, commercial real estate loans, construction lending and agriculture lending.
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