• Earnings Per Share (EPS): $1.31 for Q1 2025, up from $1.28 in the previous quarter and $1.05 in Q1 2024.
• Adjusted Return on Assets (ROAA): 1.29% for the quarter.
• Pre-Provision ROAA: 1.71% for the quarter.
• Net Interest Income (NII): Increased by $1.1 million compared to the previous quarter.
• Net Interest Margin: Started the year at 4.15%.
• Loan Growth: 3% or $78 million for the quarter.
• Cost of Deposits: Reduced to 1.83%, a 17 basis point drop in the quarter.
• Tangible Common Equity to Tangible Assets Ratio: 9.30% at quarter end.
• Return on Tangible Common Equity: 14% for the first quarter.
• Tangible Book Value Per Common Share: $38.54, an annualized quarterly increase of 14%.
• Dividend Increase: $0.01 per share increase to $0.30 per share for Q2 2025.
• Share Repurchases: $11 million returned to shareholders through repurchases.
• Branch Acquisition: Announced acquisition of 12 branches from First Interstate Bank, with $740 million in deposits and $200 million in loans.
• Non-Performing Assets (NPAs): Increased due to loans in Southern California, expected to be resolved favorably.
• Net Recovery: $1.1 million compared to net charge-offs of $7.1 million in the previous quarter.
• Allowance for Credit Losses: 1.27% of total loans, or 1.38% when adjusting for government guaranteed loans.
• Noninterest Income: $18 million, including a $1.9 million gain on the sale of SBA loans.
• Noninterest Expense: $99.8 million, with a core efficiency ratio of 58.8%.

• Warning! GuruFocus has detected 3 Warning Sign with EFSC.

Release Date: April 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Enterprise Financial Services Corp (NASDAQ:EFSC) reported strong financial results for Q1 2025, with earnings per diluted share of $1.31, up from $1.28 in the previous quarter and $1.05 in Q1 2024.
• The company announced the strategic acquisition of 12 branches from First Interstate Bank, which is expected to enhance their presence in the Arizona market and contribute to future growth.
• Net interest income and net interest margin both saw expansion, with NII increasing by $1.1 million compared to the previous quarter.
• Loan growth was reported at 3% for the quarter, with active production across all markets and businesses.
• The company increased its dividend by $0.01 per share for Q2 2025 and returned $11 million to shareholders through share repurchases.

Negative Points

• Non-performing assets increased due to several loans linked through common ownership in Southern California, although the company expects full repayment.
• There was a seasonal decline in deposits due to outflows from commercial-oriented accounts, although this was partially offset by growth in national deposit verticals.
• The provision for credit losses decreased, but non-performing loans increased due to relationships in bankruptcy.
• The company anticipates modest erosion of net interest margin during 2025 due to variability in interest rates.
• The acquisition of branches will leverage tangible common equity by approximately 100 basis points, impacting capital ratios.

Q & A Highlights

Q: Can you provide details on the terms of the branch acquisition deal? A: Keene Turner, Senior Executive Vice President and Chief Financial Officer, explained that the deal involves an assumption, bringing on roughly net $450 million of cash. This will be invested in securities at a 5% rate, with the expectation that the deal will come on at a similar to slightly improved margin. The expenses are expected to be in the low 50% range, modeled conservatively for mid-single-digit EPS accretion, improving as securities are lent out over time.

Q: What are the expectations for pro forma capital levels post-acquisition, and how might this affect buyback or M&A appetite? A: Keene Turner stated that pro forma capital is expected to be right at their targets. They did not execute the call on their sub debt due to equity market valuations but have a senior piece lined up if needed. This allows them to be modestly offensive with share repurchases in the next couple of quarters, given the low risk-weighted assets and leverage ratio.

Q: Is there any industry exposure from the loans brought over in the Arizona acquisition, specifically dairy exposure? A: James Lally, President and CEO, confirmed that they are not picking up any dairy exposure in this transaction, as they had the opportunity to select attractive assets.

Q: How quickly can you earn back the book value dilution from the branch acquisition? A: Keene Turner indicated that the earn-back period depends on how quickly they lend out the acquired assets. The assumptions are conservative, and the earn-back is closer to three years, similar to full bank M&A, rather than five years typical for share repurchases.

Q: What is the outlook for net interest margin (NIM) and net interest income (NII) given the expected rate cuts? A: Keene Turner noted that they expect a slight decline in NIM, potentially 5 basis points sequentially, but overall, NIM is expected to remain stable even with 75 basis points of Fed fund cuts. NII dollars are expected to grow quarterly, supported by stable margin and proactive steps taken on the investment portfolio.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.