Management’s Discussion and Analysis of Financial Condition and Results of Operations
Board or Board of Directors
Enterprise Financial Services Corp Board of Directors
MSA
Metropolitan Statistical Area
Commercial and Industrial
Not meaningful
CCB
Capital Conservation Buffer
OCC
Office of the Comptroller of the Currency
CDFI
Community Development Financial Institution
OREO
Other Real Estate Owned
CECL
Current Expected Credit Loss
PCD
Purchased Credit Deteriorated
CET1
Common Equity Tier 1 Capital
PPNR
Pre-provision Net Revenue
CFPB
Consumer Financial Protection Bureau
PSL
Purchased Seasoned Loan
Company or Enterprise
Enterprise Financial Services Corp and Subsidiaries
ROAA
Return on Average Assets
CRA
Community Reinvestment Act
RSU
Restricted Stock Award
CRE
Commercial Real Estate
SBA
U.S. Small Business Administration
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
SBIC
Small Business Investment Company
EFSC
Enterprise Financial Services Corp
SEC
Securities and Exchange Commission
FASB
Financial Accounting Standards Board
SOFR
Secured Overnight Financing Rate
FDIC
Federal Deposit Insurance Corporation
We, Us, Our
Enterprise Financial Services Corp and Subsidiaries
PART 1
ITEM 1: BUSINESS
Forward-Looking Information
Some of the information in this Annual Report on Form 10-K may contain “forward-looking statements” within the meaning of and intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company, and include, without limitation, statements about the Company’s plans, strategies, goals, objectives, expectations, or consequences of statements about the future performance, operations, products and services of the Company, as well as statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, products and services, stockholder value creation and the impact of acquisitions. Forward-looking statements typically are identified with use of terms such as “may,” “might,” “will, “would,” “should,” “expect,” “plan,” “anticipate,” “outlook,” “forecast,” “project,” “pro forma”, “pipeline,” “believe,” “estimate,” “predict,” “intend,” “potential,” “could,” “continue,” and the negative and other variations of these terms and similar words, although some forward-looking statements may be expressed differently. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made. Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those anticipated in the forward-looking statements and future results could differ materially from historical performance. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation: the Company’s ability to efficiently integrate acquisitions into its operations, retain the clients of these businesses and grow the acquired operations, the Company’s ability to collect insurance proceeds from claims made related to tax recapture events, credit risk, changes in the appraised valuation of real estate securing impaired loans, outcomes of litigation and other contingencies, exposure to general and local economic and market conditions, high unemployment rates, higher inflation and its impacts (including U.S. federal government measures to address higher inflation), U.S. fiscal debt, budget and tax matters (including the effect of a prolonged U.S. federal government shutdown), and any slowdown in global economic growth, risks associated with rapid increases or decreases in prevailing interest rates, our ability to attract and retain deposits and access to other sources of liquidity, consolidation in the banking industry, competition from banks and other financial institutions, the Company’s ability to attract and retain relationship officers and other key personnel, burdens imposed by federal and state regulation, changes in legislative or regulatory requirements, as well as current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including rules and regulations relating to bank products and financial services, changes in accounting policies and practices or accounting standards, natural disasters (such as wildfires and earthquakes), terrorist activities, war and geopolitical matters (including the war in Israel and potential for a broader regional conflict, and the war in Ukraine and the imposition of additional sanctions and export controls in connection therewith), or pandemics, and their effects on economic and business environments in which we operate, including the related disruption to the financial market and other economic activity; and other risks discussed under the caption “Risk Factors” in Item 1A of this Annual Report on Form 10-K, all of which could cause actual results to differ from those set forth in the forward-looking statements. The Company cautions that the preceding list is not exhaustive of all possible risk factors and other factors could also adversely affect the Company’s results.
Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s analysis and expectations only as of the date of such statements. Forward-looking statements speak only as of the date they are made, and the Company does not intend, and undertakes no obligation, to publicly revise or update forward-looking statements after the date of this report, whether as a result of new information, future events or otherwise, except as required by federal securities law. You should understand that it is not possible to predict or identify all risk factors. Readers should carefully review all disclosures we file from time to time with the SEC which are available on the Company’s website at www.enterprisebank.com under “Investor Relations.”
General Development and Description of Our Business
Enterprise Financial Services Corp, headquartered in Clayton, Missouri, is a financial holding company incorporated under Delaware law in December 1994. EFSC is the holding company for Enterprise Bank & Trust, a full-service financial institution offering banking and wealth management services to individuals and corporate clients primarily located in Arizona, California, Florida, Kansas, Missouri, Nevada, and New Mexico, in addition to loan and deposit production offices throughout the United States. Our executive offices are located at 150 North Meramec Avenue, Clayton, Missouri 63105, and our telephone number is (314) 725-5500.
Our stated mission is “Guiding people to a lifetime of financial success.” We have established an accompanying corporate vision, “To be a company where our associates are proud to work, that delivers ease of navigation to our clients and value to our investors, while helping our communities flourish.” These tenets are fundamental to our business strategies and operations.
Our business objective is to generate attractive stockholder returns by providing comprehensive financial services primarily to privately-held businesses, their owner families, and other success-minded individuals. To achieve these objectives we have developed a business strategy that leverages a focused and relationship-oriented distribution and sales approach, with an emphasis on niche businesses, while maintaining prudent credit and interest rate risk management, opportunities for fee income, appropriate supporting technology, and controlling expenses. We believe this strategy allows us to maximize organic growth opportunities, which we supplement and enhance through disciplined growth through acquisition.
As described in greater detail below, the Company offers a broad range of business and personal banking services, including wealth management services. Lending services include C&I, CRE, real estate construction and development, residential real estate, SBA, and consumer loan products. A wide variety of deposit products, along with a complete suite of treasury management and international trade services, complement our lending capabilities.
Building long-term client relationships – Our growth strategy is first and foremost client relationship driven. We continuously seek to add clients who fit our target market of businesses, business owners, professionals, and associated relationships. Those relationships are maintained, cultivated, and expanded over time by experienced banking officers and other trained professionals. We fund loan growth primarily with core deposits from our business and professional clients in addition to consumers in our branch market areas. This is supplemented by borrowing or other deposit sources, including advances from the FHLB and brokered certificates of deposits.
Specialized lending and product niches – We have focused our lending activities in specialty markets where we believe our expertise and experience as a commercial lender provides advantages over other competitors. In addition, we have developed expertise in certain product niches. These specialty niche activities focus on the following areas:
• SBA 7(a) . We have a team of experienced bankers in production offices across the country that originate loans through the SBA 7(a) program. These loans are primarily owner-occupied, CRE loans secured by a first lien. These loans predominantly have a 75% portion guaranteed by the SBA. By focusing on this specific product type, we have developed an expertise that differentiates us based upon speed and reliability of execution.
• Life Insurance Premium Finance . We specialize in financing whole life insurance premiums utilized in high net worth estate planning through relationships with boutique estate planners throughout the country.
• Sponsor Finance . We support mid-market company mergers and acquisitions in many domestic markets. We market directly to targeted private equity firms, principally SBICs, and provide primarily senior debt financing to the portfolio companies. In addition, the Company has both financing and depository relationships with the sponsors of the portfolio companies.
• Tax Credit Related Lending . We are a secured lender on affordable housing projects funded through the use of federal and state low income housing tax credits. In addition, we provide leveraged and other loans on projects funded through the U.S. Department of the Treasury Community Development Financial Institution (“Treasury CDFI”) New Markets Tax Credit (“NMTC”) Program. In 2024 and 2025, we were awarded $50.0 million and $80.0 million, respectively, in NMTC allocations from the Treasury CDFI. These were our seventh and eighth NMTC allocations, respectively, and brings the total amount of these allocations to $433.0 million. We will continue to participate in the application process for future awards, as well as serve as a secured lender to other allocatees.
• Tax Credit Brokerage . We have a minority ownership in a partnership that acquires, invests and sells, state low income housing tax credits. We lend to the partnership and receive interest income and fee income as projects close or credits are sold.
Deposit verticals – In addition to commercial operating accounts for our C&I clients, we offer deposit vertical accounts to clients in certain industries with complex account needs. Our focus areas include community associations, property management, legal industry and escrow services. These accounts are primarily demand accounts and have a low overall interest cost. Clients in our deposit vertical products will typically receive an earnings credit that is used to offset the cost of maintaining the deposit accounts. Payments made by the Company through the application of the earnings credit is reflected as a component of noninterest expense in the Consolidated Statement of Income.
Fee income business – We offer a broad range of treasury management products and services that benefit businesses ranging from large national clients to local businesses. Customized solutions and special product bundles are available to clients of all sizes. In response to ever increasing needs for data/information security and functional efficiency, we continue to offer cash management systems that employ mobile technology and fraud detection/mitigation services. We offer a wide range of fiduciary, investment management, and financial advisory services. We also offer client hedging products, international banking, card services and tax credit businesses that generate fee income. The Company also invests in certain private equity and SBIC investments that generate additional fee income.
Use of technology – Clients access our products and services both in physical branch locations as well as remotely. We offer online, device applications, text and voice banking in addition to a variety of “on site” hardware and software solutions, such as remote deposit capture. These portals facilitate access to the commercial and consumer products we offer such as internet banking, mobile banking, cash management products, remote deposit capture, positive pay services, fraud detection and prevention, automated payables, check image, and statement and document imaging. Additional service offerings currently supported by the Bank include controlled disbursements, repurchase agreements, and sweep investment accounts. Our cash management suite of products blends technology and personal service, which we believe often creates a competitive advantage over our competition. Technology products are also extensively utilized within the organization by associates in all lines of business including operations and support, customer service, and financial reporting for internal management purposes and for external compliance.
Maintaining asset quality – We monitor asset quality through formal, ongoing, multiple-level reviews of loans in each market and specialized lending niche. These reviews are overseen by the Bank’s credit administration department. In addition, the loan portfolio is subject to ongoing monitoring by a loan review function that reports directly to the Bank’s Board of Directors or its committees.
Expense management – We manage expenses carefully through detailed budgeting and expense approval processes. Our success is gauged through the measurement of the “efficiency ratio.” The efficiency ratio is equal to noninterest expense divided by total revenue (tax-equivalent net interest income plus noninterest income).
Growth through Acquisitions – Disciplined strategic acquisitions have contributed significantly to the Company’s growth and expansion. In 2025, the Company expanded its presence in Arizona and Kansas City through an acquisition of 12 former First Interstate Bank branches (the “Branch Acquisition”) that added $292.0 million in loans and $609.5 million in deposits as of December 31, 2025.
Competition
The Company and its subsidiaries operate in highly competitive markets. Our geographic markets are served by multiple large financial and bank holding companies with substantial capital resources and lending capacity. We face competition not only from other financial holding companies and commercial banks, but also from credit unions, investment managers, insurers, brokerage firms, private credit, financial technology companies, and other providers of financial services and products. Strong competition for deposit and loan products affects the rates of those products, as well as the terms on which they are offered to clients.
Supervision and Regulation
The Company is a financial holding company registered under the BHCA and is subject to regulation, supervision and examination by the Federal Reserve. The Bank is a Missouri trust company with banking powers and is subject to supervision and regulation by the Missouri Division of Finance. In addition, as a Federal Reserve non-member bank, the Bank is subject to supervision and regulation by the FDIC.
The Company has more than $10 billion in assets and therefore is subject to examination by the CFPB.
The Company has securities registered with the SEC under the Securities Exchange Act of 1934, as amended. The Company’s common stock is listed on the Nasdaq Global Select Market. The Company also has depositary shares, each representing a 1/40th interest in a share of the Company’s 5%, noncumulative perpetual preferred stock (“Series A Preferred Stock”), listed on the Nasdaq Global Select Market. Accordingly, the Company is subject to both SEC and Nasdaq listing standards.
The following is a summary description of the relevant laws, rules, and regulations governing banks and financial holding companies, including the Company. The description of, and references to, the statutes and regulations below are brief summaries and do not purport to be complete. The descriptions are qualified in their entirety by reference to the related statutes and regulations.
The regulatory and supervisory structure establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of depositors, the deposit insurance fund and the banking system as a whole, rather than for the protection of stockholders or creditors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies concerning the establishment of deposit insurance assessment fees, classification of assets and establishment of adequate credit loss reserves for regulatory purposes. If federal or state regulatory authorities were to take the position that the Company has violated any law or commitment or engaged in any unsafe or unsound practice, formal or informal corrective or enforcement actions could be taken against the Company and institution-affiliated parties (such as directors, officers, and agents). These enforcement actions could include an imposition of civil monetary penalties and could directly affect not only the Company and institution-affiliated parties but also the Company’s counterparties, stockholders, and creditors and its commitments, arrangements, or other dealings.
Various legislation is from time to time introduced in Congress and state legislatures where we operate. Such legislation may change applicable statutes and the operating environment in substantial and unpredictable ways. We cannot determine the ultimate effect that future legislation or implementing regulations would have on our financial condition or our results of operations or the results of operations of any of our subsidiaries.
The Dodd-Frank Act is a comprehensive legislative act that contains a set of provisions designed to govern the practices and oversight of financial institutions and other participants in the financial markets. The Dodd-Frank Act made extensive changes in the regulation of financial institutions and their holding companies, including modifications made by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.
Financial Holding Company
As a financial holding company, the Company is subject to regulation and examination by the Federal Reserve, and is required to file periodic reports of its operations and such additional information as the Federal Reserve may require. In order to remain a financial holding company, the Company must continue to be considered well-managed and well-capitalized by the Federal Reserve, and the Bank must continue to be considered well-managed and well-capitalized by the FDIC, and have at least a “satisfactory” rating under the CRA. See “Liquidity and Capital Resources” in the MD&A for more information on our capital adequacy, and “Bank Subsidiary - CRA” below for more information on the CRA.
Acquisitions: Under amendments to the BHCA promulgated by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and the Dodd-Frank Act, the Company may acquire banks outside of its home State of Missouri, subject to specified limits and may establish new branches in other States to the same extent as banks chartered in those States. With certain limited exceptions, the BHCA requires every financial holding company or bank holding company to obtain the prior approval of the Federal Reserve and possibly other government authorities before (i) acquiring substantially all the assets of any bank, (ii) acquiring direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, it would own or control more than 5% of the voting shares of such bank (unless it already owns or controls the majority of such shares), or (iii) merging or consolidating with another bank holding company. Additionally, the BHCA provides that the Federal Reserve may not approve any of these transactions if it would result in or tend to create a monopoly, substantially lessen competition, or otherwise function as a restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve also is required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. The Federal Reserve’s consideration of financial resources generally focuses on capital adequacy, which is described below.
Change in Bank Control: Subject to various exceptions, the BHCA and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control” of a bank or financial holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of a company or controls a majority of the board of directors. In certain circumstances, control is rebuttably presumed to exist if a person or company acquires 10% or more, but less than 25%, of any class of voting securities of a company. The regulations provide a procedure for challenging rebuttable presumptions of control.
Permitted Activities: The BHCA has generally prohibited a bank holding company from engaging in activities other than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect control of any company engaged in any activities other than those determined by the Federal Reserve to be closely related to banking or managing or controlling banks as to be a proper incident thereto. Provisions of the Gramm-Leach-Bliley Act have expanded the permissible activities of a bank holding company that qualifies as a financial holding company. Under the regulations implementing the Gramm-Leach-Bliley Act, a financial holding company may engage in additional activities that are financial in nature or incidental or complementary to financial activities. Those activities include, among other activities, certain insurance, advisory and securities activities.
Support of Bank Subsidiary: Under Federal Reserve policy, the Company is expected to act as a source of financial and managerial strength for the Bank and to commit capital and financial resources to support the Bank. The Dodd-Frank Act codified this longstanding policy by adopting a provision requiring, among other things, that bank holding companies serve as a source of strength for a subsidiary depository institution. Such financial and managerial support from the Company may be required at times when, without this legal requirement, the Company may not be inclined to provide it.
Capital Adequacy: The Company is subject to capital requirements and standards established by the Federal Reserve (“Basel III Capital Rules”) that are applied on a consolidated basis. These requirements are substantially similar to those required of the Bank (summarized below).
Under the Basel III Capital Rules, capital instruments such as trust preferred securities and cumulative preferred shares have been phased out of tier 1 capital for banking organizations that had $15 billion or more in total consolidated assets as of December 31, 2009, and have grandfathered as tier 1 capital such instruments issued by smaller entities prior to May 19, 2010 (provided they do not exceed 25% of tier 1 capital). At December 31, 2025, the Company had $93.6 million of trust preferred securities that are grandfathered under this provision. However, if the Company has total assets of $15 billion and acquires another bank, the trust preferred securities will no longer qualify as tier 1 instruments (but may be included in tier 2 capital).
Dividend Restrictions and Stock Repurchases: From time to time the Company may engage in stock repurchases. The Federal Reserve requires that bank and financial holding companies, where certain conditions are triggered, provide prior notice to, consult with, and in certain circumstances seek the approval of, the Federal Reserve or reserve bank staff prior to purchasing or redeeming its equity securities.
Under Federal Reserve policies, financial holding companies may pay cash dividends on common stock only out of income available over the past year if prospective earnings retention is consistent with the organization’s expected future needs and financial condition and if the organization is not in danger of failing to meet its minimum regulatory capital requirements. Federal Reserve policy also provides that financial holding companies should not pay a level of cash dividends that undermines the financial holding company’s ability to serve as a source of strength to its banking subsidiaries.
Dividends, repurchases and redemptions on the Company’s capital stock (common and preferred) are prohibited under the terms of the junior subordinated debenture agreements (see “Item 8. Note 11 – Debt”) if the Company is in continuous default on its payment obligations, has elected to defer interest payments or extends the interest payment period. Furthermore, unless dividends on all outstanding shares of the Series A Preferred Stock for the most recently completed dividend period have been paid or declared, dividends on, and repurchases of, common stock are prohibited.
Incentive Compensation: Federal banking agencies have issued guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. In accordance with the Dodd-Frank Act, the federal banking agencies prohibit incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions (generally institutions, like us, that have over $1 billion in assets) and are deemed to be excessive, or that may lead to material losses.
The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk- management control or governance processes, pose a risk to the organization’s safety and soundness, and the organization is not taking prompt and effective measures to correct the deficiencies.
The scope and content of the U.S. banking regulators’ policies on executive compensation may continue to evolve in the near future. It cannot be determined at this time whether compliance with such policies will adversely affect the Company’s ability to hire, retain, and motivate its key employees.
Bank Subsidiary
The Bank is subject to extensive federal and state regulatory oversight. The various regulatory authorities regulate or monitor all areas of the banking operations, including security devices and procedures, adequacy of capitalization and loss reserves, loans, investments, borrowings, deposits, mergers, issuance of securities, payment of dividends, interest rates payable on deposits, interest rates and fees chargeable on loans, establishment of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff training to carry on safe lending and deposit gathering practices. The Bank must maintain certain capital ratios and is subject to limitations on aggregate investments in real estate, bank premises, low-income housing projects, and furniture and fixtures. In connection with their supervision and regulation responsibilities, the Bank is subject to periodic examination by the FDIC and Missouri Division of Finance.
Capital Adequacy: The Bank is required to comply with the FDIC’s capital adequacy standards for insured banks. The FDIC has issued risk-based capital and leverage capital guidelines for measuring capital adequacy, and all applicable capital standards must be satisfied for the Bank to be considered in compliance with regulatory capital requirements.
Prompt Corrective Action: The Bank’s capital categories are determined for the purpose of applying the “prompt corrective action” rules described below and may be taken into consideration by banking regulators in evaluating proposals for expansion or new activities. They are not necessarily an accurate representation of a bank’s overall financial condition or prospects for other purposes. A failure to meet the capital guidelines could subject the Bank to a variety of enforcement actions under those rules, including the issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on taking brokered deposits, and other restrictions on its business. As described below, the FDIC also can impose other substantial restrictions on banks that fail to meet applicable capital requirements.
Federal law establishes a system of prompt corrective action to resolve the problems of undercapitalized banks. Under this system, the FDIC has established five capital categories (“well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.") Federal and state bank regulators are authorized and required to take various mandatory supervisory and other discretionary actions with respect to banks in the three undercapitalized categories. The severity of any such actions taken will depend upon the capital category in which a bank is placed. Generally, subject to a narrow exception, current federal law requires the FDIC to appoint a receiver or conservator for a bank that is critically undercapitalized.
The following table summarizes the prompt corrective action categories:
Prompt Corrective Action Category
Total Risk-Based Capital
Tier 1 Risk-Based Capital
Common Equity Tier 1 Risk-Based Capital
Tier 1 Leverage Ratio
Well-capitalized
Adequately capitalized
Undercapitalized
Significantly undercapitalized
Critically undercapitalized
Tangible equity / Total assets ≤ 2.0%
In addition to the minimum capital ratios noted in the table above, the Basel III Capital Rules require the maintenance of a CCB consisting of CET1 capital in an amount equal to 2.5% of risk weighted assets to avoid restrictions on the ability to make capital distributions and to pay certain discretionary bonus payments to executive officers. The CCB effectively increases the minimum CET1 capital, tier 1 capital, and total capital ratios for U.S. banking organizations to 7.0%, 8.5%, and 10.5%, respectively.
A bank that becomes “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized” is required to submit an acceptable capital restoration plan to the FDIC. The capital restoration plan will not be accepted by the regulators unless each company having control of the undercapitalized bank guarantees the bank subsidiary’s compliance with the capital restoration plan up to a certain specified amount. The aggregate liability of the holding company of an undercapitalized bank is limited to the lesser of 5% of the institution’s assets at the time it became undercapitalized or the amount necessary to cause the institution to be “adequately capitalized.” An “undercapitalized” bank also is generally prohibited from increasing its average total assets, making acquisitions, establishing new branches, or engaging in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the FDIC. Also, the FDIC may treat an “undercapitalized” bank as being “significantly undercapitalized” if it determines that those actions are necessary to carry out the purpose of the law.
The prompt corrective action regulations do not apply to financial holding companies, such as EFSC. However, the Federal Reserve is authorized to take appropriate action at the financial holding company level, based upon the undercapitalized status of the financial holding company's depository institution subsidiaries. In certain instances, relating to an undercapitalized depository institution subsidiary, the financial holding company would be required to guarantee the performance of the undercapitalized subsidiary’s capital restoration plan and might be liable for civil money damages for failure to fulfill its commitments on that guarantee. Furthermore, in the event of the bankruptcy of the financial holding company, the guarantee would take priority over the financial holding company's general unsecured creditors, as described in “Support of Bank Subsidiary” above.
All of the Bank’s capital ratios were at levels that qualify it to be “well-capitalized” for regulatory purposes as of December 31, 2025 (see “Item 8. Note 13 – Regulatory Capital”).
FDIC Insurance of Certain Accounts and Regulation by the FDIC: The Bank’s deposits are insured under the Federal Deposit Insurance Act (the "FDIA") up to the maximum applicable limits and are subject to deposit insurance assessments designed to tie what banks pay for deposit insurance to the risks they pose. Under the FDIC’s assessment system for determining payments to the Deposit Insurance Fund (the "DIF"), large insured depository institutions ("IDIs") with more than $10 billion in assets, like the Bank, are assessed pursuant to a complex methodology that seeks to capture both the probability that an individual large IDI will fail and the magnitude of the impact on the DIF if such a failure occurs. The assessment base of a large IDI is its total assets less tangible equity.
In November 2023, the FDIC finalized a rule that imposes special assessments to recover the losses to the DIF resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the FDIA in connection with the receiverships of Silicon Valley Bank and Signature Bank. The special assessments were collected at an annual rate of approximately 13.4 basis points per year (3.36 basis points per quarter) over eight quarters in 2024 and 2025. The first assessment period began January 1, 2024. Because the estimated loss pursuant to the systemic risk determination will be periodically adjusted, the FDIC retains the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis. In December 2025, the FDIC approved an interim final rule reducing the special assessment rate for the eighth and final collection quarter from 3.36 basis points to 2.97 basis points to minimize amounts collected in excess of the total estimated loss.
CFPB: The Dodd-Frank Act centralized responsibility for consumer financial protection including implementing, examining and enforcing compliance with federal consumer financial laws with the CFPB. Depository institutions with more than $10 billion in assets, such as the Bank, are subject to examination by the CFPB.
The CFPB has broad rule-making authority for a wide range of federal consumer protection laws that apply to all banks, including the authority to prohibit unfair, deceptive or abusive acts and practices. In addition, the Dodd-Frank Act enhanced the regulation of mortgage banking and gave to the CFPB oversight of many of the core laws which regulate the mortgage industry and the authority to implement mortgage regulations. Any new regulations adopted by the CFPB may significantly impact consumer mortgage lending and servicing.
The Bank is also subject to other laws and regulations intended to protect consumers in transactions with depository institutions, as well as other laws or regulations affecting clients of financial institutions generally. While the list set forth herein is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement and Procedures Act, the Fair Credit Reporting Act and the Federal Trade Commission Act, among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with clients when taking deposits or making loans to such clients. The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing client relations.
The Bank’s consumer-oriented activities are also subject to various states and local consumer protection laws analogous, and in addition, to those listed above which among other things, impose obligations relating to marketing, origination, servicing and collection activities in our consumer business. Failure to comply with these laws and regulations could give rise to regulatory sanctions, client rescission rights, action by state and local attorneys general, and civil or criminal liability.
UDAP and UDAAP: Banking regulatory agencies have increasingly used a general consumer protection statute to address “unethical” or otherwise “bad” business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law. The law of choice for enforcement against such business practices has been Section 5 of the Federal Trade Commission Act - the primary federal law that prohibits unfair or deceptive acts or practices and unfair methods of competition in or affecting commerce (“UDAP” or “FTC Act”). “Unjustified consumer injury” is the principal focus of the FTC Act. Moreover, the UDAP provisions have been expanded under the Dodd-Frank Act to apply to “unfair, deceptive or abusive acts or practices” (“UDAAP”), which has been delegated to the CFPB for supervision. The CFPB has brought a variety of enforcement actions for violations of UDAAP provisions and CFPB guidance continues to evolve.
Mortgage Reform: The CFPB has adopted final rules implementing minimum standards for the origination of residential mortgages, including standards regarding a customer’s ability to repay, restricting variable-rate lending by requiring the ability to repay variable-rate loans be determined by using the maximum rate that could apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions. The Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB.
Dividends by the Bank Subsidiary: The Bank is a legal entity that is separate and distinct from EFSC. Statutory and regulatory limitations apply to the Bank's payment of dividends to EFSC. Under Missouri law, the Bank may pay dividends to the Company only from a portion of its undivided profits and may not pay dividends if its capital is impaired. As an insured depository institution, federal law prohibits the Bank from making any capital distributions, including the payment of a cash dividend, if it is “undercapitalized” or after making the distribution would become undercapitalized. If the FDIC believes the Bank is engaged in, or about to engage in, an unsafe or unsound practice, the FDIC may require, after notice and hearing, that the Bank cease and desist from that practice. The FDIC has indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. The FDIC has issued policy statements providing that insured banks generally should pay dividends only from their current operating earnings. The Bank’s payment of dividends also could be affected or limited by other factors, such as events or circumstances which would lead the FDIC to require that it maintain capital in excess of regulatory guidelines.
Transactions with Affiliates and Insiders: The Bank is subject to the provisions of Regulation W promulgated by the Federal Reserve, which encompasses Sections 23A and 23B of the Federal Reserve Act. Regulation W places limits and conditions on the amount of loans or extensions of credit to, investments in, or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Regulation W also prohibits, among other things, an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies. Federal law also places restrictions on the Bank’s ability to extend credit to its executive officers, directors, principal stockholders and their related interests. These extensions of credit must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated third parties; and must not involve more than the normal risk of repayment or present other unfavorable features.
CRA: The CRA requires that, in connection with examinations of financial institutions within its jurisdiction, the FDIC is required to evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those institutions. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, but depository institutions may only receive CRA credit for certain types of lending and for lending, investments and services that support community development, as defined in the CRA regulations. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. If the Bank fails to maintain at least a "satisfactory" rating under the CRA, it would be subject to restrictions on certain new activities and acquisitions. Additionally, federal banking agencies may take compliance with fair lending laws and practices, including CRA into account when regulating and supervising other activities. The Bank has a satisfactory rating under CRA.
Prior to 2023, the last significant interagency revision to the CRA regulations occurred in 1995. In May 2022, federal bank regulatory agencies jointly issued a proposal to strengthen and modernize regulations implementing the CRA to better achieve the purposes of the law. On October 24, 2023, the Federal Reserve, the FDIC, and the OCC (collectively, the “Agencies”) issued a final rule amending the Agencies’ CRA regulations with the objective to strengthen the achievement of the core purpose of the statute, and adapt to changes in the banking industry, including the expanded role of mobile and online banking. However, on July 16, 2025, due to litigation, the Agencies issued a joint notice of proposed rulemaking to rescind the 2023 CRA final rule and replace it with the 1995 CRA regulations that existed prior to the 2023 CRA final rule.
Privacy and Cybersecurity Regulations: Our businesses are subject to numerous laws and regulations relating to the privacy of information regarding clients, employees and others. These include, but are not limited to, the Gramm-Leach-Bliley Act, MO Rev Stat § 362.422 and the California Consumer Privacy Act of 2018. Generally, privacy laws impose obligations with regard to the collection, use and disclosure of personal information and require public disclosure of privacy practices. Some privacy laws offer individuals certain rights about how their personal information is processed, provide for significant penalties for non-compliance, and, under certain circumstances, impose requirements for transfers of personal data across national borders. Under federal law and state laws, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. These provisions also provide that, except for certain limited exceptions, a financial institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure.
Anti-Money Laundering, Anti-Terrorism and Sanctions: The Bank Secrecy Act (the "BSA") requires all financial institutions, including banks, to, among other things, establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism. It includes a variety of recordkeeping and reporting requirements (such as cash and suspicious activity reporting) as well as due diligence/know-your-customer documentation requirements. In June 2024, the United States Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued a proposed rule that would amend the anti-money laundering/countering the financing of terrorism (“AML/CFT”) program requirements for all financial institutions subject to the BSA with AML/CFT program obligations, including the Bank. The proposed rule would, among other things, require that (i) financial institutions have a risk assessment process to identify, evaluate, and document the financial institution’s money laundering, terrorist financing, and other illicit activity risks, and (ii) the risk assessment process must be updated on a periodic basis, including when certain material changes occur in the financial institution’s products, services, customer base, intermediaries, and geographic footprint. In July 2024, the OCC, the Federal Reserve, and the FDIC each proposed rules to amend their respective BSA compliance program rules to align with FinCEN’s June 2024 proposed rule. In December 2025, FinCEN issued a final rule to extend the effective date of the proposed rule from January 1, 2026 to January 1, 2028.
USA PATRIOT Act: The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) further augments and strengthens the requirements set forth in the BSA and requires each financial institution to: (i) establish an anti-money laundering program; (ii) establish due diligence policies, procedures and controls with respect to its private banking accounts and correspondent banking accounts involving foreign individuals and certain foreign banks; (iii) implement certain due diligence policies, procedures and controls with regard to correspondent accounts in the United States for, or on behalf of, a foreign bank that does not have a physical presence in any country; and (iv) eliminates civil liability for persons who file suspicious activity reports. In addition, the USA PATRIOT Act contains a provision encouraging cooperation among financial institutions, regulatory authorities and law enforcement authorities with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities. The USA PATRIOT Act includes provisions providing the government with the power to investigate terrorism, including expanded government access to bank account records.
CRE Lending: The Bank’s lending operations may be subject to enhanced scrutiny by federal banking regulators based on its concentration of CRE loans. CRE loans generally include land development, construction loans, and loans secured by multifamily property, and non-farm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property. Guidance from the federal banking regulators on the risk posed by CRE lending concentrations prescribes guidelines for its examiners to help identify institutions that are potentially exposed to significant CRE risk. These guidelines include concentrations in certain types of CRE that may warrant greater supervisory scrutiny: total reported loans for construction, land development, and other land represent 100% or more of the institutions total capital; or total CRE loans represent 300% or more of the institution’s total capital, and the outstanding balance of the institution’s CRE loan portfolio has increased by 50% or more in the prior 36 months.
Volcker Rule: On December 10, 2013, the federal regulators adopted final regulations to implement the proprietary trading and private fund prohibitions of the Volcker Rule under the Dodd-Frank Act. Under the final regulations, banking entities are generally prohibited, subject to significant exceptions, from: (i) short-term proprietary trading as principal in securities and other financial instruments, and (ii) sponsoring or acquiring or retaining an ownership interest in private equity and hedge funds. Revisions to the Volcker Rule in 2019, that become effective in 2020, simplified and streamlined the compliance requirements for banks that do not have significant trading activities. In 2020, the OCC, Federal Reserve, FDIC, SEC and Commodity Futures Trading Commission finalized further amendments to the Volcker Rule. The amendments include new exclusions from the Volcker Rule’s general prohibitions on banking entities investing in and sponsoring private equity funds, hedge funds, and certain other investment vehicles (collectively “covered funds”). The amendments in the final rule, which became effective on October 1, 2020, clarify and expand permissible banking activities and relationships under the Volcker Rule.
Interchange Income: The Durbin Amendment to the Dodd-Frank Act capped debit card interchange fees for banks with over $10 billion in assets. Interchange fees are paid to banks by merchants for processing transactions. The Durbin Amendment cap for a single debit card transaction is 21 cents plus 5 basis points multiplied by the amount of the transaction. In addition, an issuer may receive up to 1 cent per transaction for fraud prevention. The Durbin Amendment cap became effective for the Bank on July 1, 2022 and resulted in a reduction in interchange income earned by the Bank. In October 2023, the Federal Reserve issued a proposed rule to lower the interchange fee cap to a level that the Federal Reserve believes is reasonable and proportional to the cost incurred by card issuers. Under the proposal, the base cap would decrease from 21 cents to 14.4 cents and from 5 basis points to 4 basis points. In addition, the fraud-prevention adjustment would increase from 1 cent to 1.3 cents. In January 2024, the Federal Reserve announced it would extend the comment period from February 2024 to May 2024. We will continue to monitor for final rulemaking and will evaluate the impact of any changes.
Governmental Policies
The operations of the Company and its subsidiaries are affected not only by general economic conditions, but also by the policies of various regulatory authorities. In particular, the Federal Reserve regulates monetary policy and interest rates in order to influence general economic conditions. These policies have a significant influence on overall growth and distribution of loans, investments and deposits and affect interest rates charged on loans or paid for deposits. Federal Reserve monetary policies have had a significant effect on the operating results of all financial institutions in the past and may continue to do so in the future.
Human Capital Management
We focus on creating an inclusive and transparent culture that celebrates teamwork and recognizes associates at all levels. We expect and encourage participation and collaboration, and understand we need each other to be successful. We value accountability because it is essential to our success, and we accept our responsibility to hold ourselves and others accountable for meeting stockholder commitments and achieving exceptional standards of performance. We also believe in supporting our associates to prioritize their wellness.
Attracting and Retaining Talent. Our goal is to offer careers to our associates; not just jobs. At December 31, 2025, we employed 1,370 regular full-time and 48 part-time associates. We also employ seasonal/temporary associates and occasionally hire independent contractors for specific projects that require a highly specialized skill set or to provide additional resources during peak times, as needed.
Our performance measures and compensation determinations are designed to ensure the proper balance of risk and reward. Performance evaluations facilitate our ongoing assessment of associates’ skills and improvements as needed. We use annual talent reviews to identify high-performing associates and future potential leaders, provide insight into critical development needs and retention risks, and identify business-critical talent needs, including anticipated workforce planning challenges. Additionally, we have established succession plans to ensure continuation of essential roles and operations.
We are committed to offering a competitive total compensation package that is consistent with our principles and aligned with the Company’s financial performance. We regularly compare compensation and benefits with peer companies and market data, making adjustments to compensation as needed to ensure we remain competitive.
In addition to base salary, approximately 68% of associates are eligible to participate in the Company’s Short Term Incentive Plan (“STIP”) program. Our STIP program is designed to align compensation with an associate’s performance in a given year. The program sets a performance level of short-term incentive awards that an associate is eligible to earn. The STIP target is defined as a percentage of base salary based on the associate’s grade level as determined by our Human Resources department.
As of January 1, 2026, our minimum wage is $17 per hour. The current minimum wage was instituted to maintain a competitive total rewards package that attracts and retains top talent. The determination for our minimum wage was made after extensive research, including reviewing the current market landscape both inside and outside of banking and financial services, and with feedback from leadership. Currently, 99% of our associates earn more than the minimum wage.
We also offer a wide array of benefits for our associates and their families including 401(k), paid time off, parental leave, medical, dental and vision benefits as well as life insurance and short-term disability for all full-time associates. Our wellness program offers financial rewards to associates who adopt healthy habits and participate in wellness education and health screenings. Annual health screenings for associates and spouses/domestic partners enrolled in our medical plans are provided to all associates at no charge.
Associate Feedback . We conduct associate surveys to ensure we understand what is important to our associates. The adoption of a volunteer time-off policy and improvements to internal communication processes are examples of changes that have been made in response to survey results. Our efforts are being recognized. For the past eight years, the Bank has been included in the “Best Banks to Work for” by American Banker magazine for our dedication to employee satisfaction. In 2025, we were ranked sixth among similar financial institutions with more than $10 billion in assets.
Belonging & Inclusion . We believe diversity of thought and experiences helps us build better teams and improve our client experience, results in better outcomes, and empowers our associates to make more meaningful contributions within our company and communities.
Our Belonging & Inclusion Council is a management committee which provides information, ideas and insights from a variety of diverse perspectives to help us foster an inclusive environment for our associates and the communities we serve. In addition, we have several associate development programs that help to create a more inclusive environment by giving associates and other individuals of all backgrounds additional opportunities to succeed and contribute. These programs include:
• Career Acceleration Program - This trainee program introduces participants to the foundations of credit and commercial banking, while allowing them to experience a wide range of assignments by rotating through the various product partners and operational areas of the Company. Upon successful completion of the program, the associate is placed in a role that aligns with their strengths and talents and helps meet the needs of our organization.
• Gateway to a Banking Career - This program provides training for jobs as tellers and customer service representatives, job interview practice and job placement assistance. It is a joint effort with two other St. Louis-based financial institutions. Upon successful completion of the program, participants receive a small stipend and are guaranteed an interview with one of the program sponsors.
• Business Resource Groups - These groups, which are open to all associates, bring together associates with a shared identity, interest or goal to create community and opportunities for improvement and engagement.
Focusing on a Safe and Healthy Workplace . We value our associates and are committed to providing a safe and healthy workplace. Our formal Health & Safety (“HS”) Policy mandates all tasks be conducted in a safe and efficient manner and comply with all local, state, and federal safety and health regulations, and addresses special safety concerns. Our HS Policy encompasses all facilities and operations and addresses on-site emergencies, injuries and illnesses, evacuation procedures, cell phone usage and general safety rules.
Additionally, our Business Continuity Plan is an important component in helping maintain the health and safety of our associates and clients.
Available Information
Various reports provided to the SEC, including our annual reports, quarterly reports, current reports, proxy statements, and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website at www.enterprisebank.com under the “Investor Relations” link. These reports are made available as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our filings with the SEC are also available on the SEC’s website at www.sec.gov. All website addresses given in this document are for information only and are not intended to be an active link or to incorporate any website information into this document.
ITEM 1A: RISK FACTORS
An investment in our common or depositary stock is subject to risks inherent to our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. The value of our common and depositary stock could decline due to any of these risks, and you could lose all or part of your investment.
Risks Relating to General Economic and Market Conditions
An economic downturn could adversely affect our financial condition, results of operations or cash flows.
Recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations and profitability. If the communities in which we operate do not grow, or if prevailing economic conditions locally or nationally are unfavorable, our business may not succeed. Unpredictable economic conditions may have an adverse effect on the quality of our loan portfolio and our financial performance. Adverse changes in the economies in our market areas may have a material adverse effect on our financial condition, results of operations or cash flows. We bear increased risk of unfavorable local economic conditions. Moreover, we cannot give any assurance we will benefit from any market growth or favorable economic conditions in our primary market areas even if they do occur.
We face potential risk from changes in governmental monetary and fiscal policies.
Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the U.S. government and its agencies. The Federal Reserve’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve affect the levels of bank loans, investments, and deposits through its control over the issuance of U.S. government securities, its regulation of the discount rate applicable to member banks, and its influence over reserve requirements to which member banks are subject. Trade policy, including tariffs and potential trade wars, may affect our clients and the communities in which we operate in unpredictable ways, which could negatively affect our result of operations or cash flows. We cannot predict the nature or impact of future changes in monetary and fiscal policies.
Adverse developments affecting the banking industry, and resulting media coverage, could eroded client confidence
in the banking system and could have a material effect on our operations and/or stock price.
The high-profile bank failures of early 2023 highlighted the uncertainty and concern around advances in technology that increase the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns. In the event there is concern about the financial stability of the banking industry, there is a risk that clients may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could affect our liquidity, cost of funding, loan funding capacity, net interest margin, capital and results of operations.
Legal, Regulatory and Tax Risks
SBA lending is an important part of our business. Our SBA lending program is dependent upon the U.S. federal government, and we face specific risks associated with originating SBA loans.
Our SBA lending program is dependent upon the U.S. federal government. As an approved participant in the SBA Preferred Lender’s Program (a “Preferred Lender”), we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions or impose enforcement actions, including revocation of the Preferred Lender status. If we lose our status as a Preferred Lender, we may lose some or all of our clients to lenders who are Preferred Lenders, and as a result we could experience a material adverse effect to our financial results. Any changes to the SBA program, including but not limited to, changes to the level of guarantee provided by the federal government on SBA loans, changes to
program-specific rules impacting volume eligibility under the guaranty program, as well as changes to the program amounts authorized by Congress, may also have a material adverse effect on our business. In addition, any default by the U.S. government on its obligations or any prolonged government shutdown could, among other things, impede our ability to originate SBA loans or sell such loans in the secondary market, which could materially adversely affect our business, results of operations, and financial condition. When we originate SBA loans, we incur credit risk on the non-guaranteed portion of the loans, and if a client defaults on a loan, we share any loss and recovery related to the loan pro-rata with the SBA. If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the way the loan was originated, funded, or serviced by us, the SBA may seek recovery of the principal loss related to the deficiency.
Changes in government regulation and supervision may increase our costs or impact our ability to operate in certain lines of business.
Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, rather than stockholders. Because our business is highly regulated, the laws, rules, regulations and supervisory guidance and policies applicable to us are subject to regular modification and change, including as a result of changes in U.S. presidential administrations that have different regulatory agendas, and could result in an adverse impact on our results of operations.
We are subject to numerous laws designed to protect consumers, including the CRA and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The CFPB, the U.S. Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil monetary penalties; injunctive relief; and restrictions on mergers and acquisitions activity, expansion, and new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition, results of operations and future prospects.
We are subject to compliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations, and failure to comply with these laws could lead to a wide variety of sanctions.
The Bank Secrecy Act, the USA PATRIOT Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports when appropriate. In addition to other bank regulatory agencies, the federal Financial Crimes Enforcement Network of the Department of the Treasury is authorized to impose significant civil money penalties for violations of those requirements and engages in coordinated enforcement efforts with the state and federal banking regulators, as well as the U.S. Department of Justice, CFPB, Drug Enforcement Administration, and Internal Revenue Service. We are also subject to compliance with the rules enforced by the Office of Foreign Assets Control of the Department of the Treasury regarding, among other things, the prohibition of transacting business with, and the need to freeze assets of, certain persons and organizations identified as a threat to the national security, foreign policy or economy of the United States. If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including any acquisition plans. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations and future prospects.
If the Company or the Bank incur losses that erode its capital, it may become subject to enhanced regulation or supervisory action.
Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions, the Missouri Division of Finance, the Federal Reserve, and the FDIC have the authority to compel or restrict certain actions if the Company’s or the Bank’s capital should fall below adequate capital standards. Among other matters, the corrective actions include but are not limited to requiring affirmative action to correct any conditions resulting from any violation or practice; directing an increase in capital and the maintenance of specific minimum capital ratios; restricting the Bank’s operations; limiting the interest rate the Bank may pay on brokered deposits; restricting the amount of distributions and dividends and payment of interest on its trust preferred securities; requiring the Bank to enter into informal or formal enforcement orders, including memoranda of understanding, written agreements and consent or cease and desist orders to take corrective action and enjoin unsafe and unsound practices; removing officers and directors and assessing civil monetary penalties; and taking possession of and closing and liquidating the Bank. These actions may limit the ability of the Bank or Company to execute its business plan and thus can lead to an adverse impact on the results of operations or financial position.
Financial Risks
Our business is subject to interest rate risk and variations in interest rates may negatively affect our financial performance.
A substantial portion of our income is derived from the differential or “spread” between the interest earned on loans, investment securities, and other interest-earning assets, and the interest and/or earnings credit paid on deposits, borrowings, and other interest-bearing liabilities. Because of the differences in the maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates may not produce equivalent changes in income earned on interest-earning assets and expense paid on interest-bearing liabilities. Our assets and liabilities may react differently to changes in overall interest rates or conditions. Significant fluctuations in market interest rates could materially and adversely affect not only our net interest spread, but also our asset quality and loan origination volume, deposits, funding availability, and/or net income.
Our ACL may not be adequate to cover actual loan losses.
We maintain an ACL, which is a reserve established through a provision for credit losses charged to expense, that represents management’s estimate of probable losses within the existing loan portfolio. The allowance, in the judgment of management, is sufficient to reserve for estimated credit losses and risks inherent in the loan portfolio. We continue to monitor the adequacy of our loan credit allowance and may need to increase it if economic conditions or other factors deteriorate. In addition, bank regulatory agencies periodically review our ACL and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments that can differ somewhat from those of our own management. In addition, if charge-offs in future periods exceed the ACL (i.e., if the ACL is inadequate), we may need additional credit loss provisions to increase the allowance for loan losses. Additional provisions to increase the ACL, should they become necessary, would result in a decrease in net income and a reduction in capital, and may have a material adverse effect on our financial condition and results of operations.
We may not be able to maintain our historical rate of growth or profitability, which could have a material adverse effect on our ability to successfully implement our business strategy.
Successful growth requires that we follow adequate loan underwriting standards, balance loan and deposit growth without increasing interest rate risk or compressing our net interest margin, maintain adequate capital at all times, produce investment performance results competitive with our peers and benchmarks, further diversify our revenue sources, meet the expectations of our clients and hire and retain qualified employees. If we do not manage our growth successfully, then our business, results of operations or financial condition may be adversely affected.
We may incur impairments to goodwill.
As of December 31, 2025, we had $417 million recorded as goodwill. We evaluate our goodwill for impairment at least annually. Significant negative industry or economic trends, including a sustained decrease in the market price of our common stock, or reduced future cash flows or disruptions to our business, could result in impairments to goodwill. Our valuation methodology for assessing impairment requires management to make judgments and
assumptions based on experience and to rely on projections of future operating performance. We operate in competitive environments and projections of future operating results and cash flows may vary significantly from actual results. If our analysis results in impairment to goodwill, we would be required to record an impairment charge to earnings in our financial statements during the period in which such impairment is determined to exist. Any such change could have a material adverse effect on our results of operations and stock price.
Declines in asset values may result in impairment charges and adversely impact the value of our investments and our financial performance and capital.
We hold an investment portfolio that includes, but is not limited to, municipal bonds, corporate debt securities, government securities and agency mortgage-backed securities. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in respect to the securities, defaults by the issuer or with respect to the underlying securities, changes in market interest rates and/or spread, and instability and other factors impacting the capital markets. Any of these factors, among others, could cause realized or unrealized losses in future periods and declines in other comprehensive income (loss), which could have a material adverse effect on our business, results of operations, financial condition and future prospects. The process for determining the impairment of a security often requires complex, subjective judgments about whether there has been significant deterioration in the financial condition of the issuer, whether management has the intent or ability to hold a security for a period of time sufficient to allow for any anticipated recovery in fair value, the future financial performance and liquidity of the issuer and any collateral underlying the security and other relevant factors.
We invest in mortgage-backed obligations and such obligations have been, and are likely to continue to be, impacted by market dislocations, declining home values and prepayment risk, which may lead to volatility in cash flow and market risk and declines in the value of our investment portfolio.
Our investment portfolio includes mortgage-backed obligations primarily secured by pools of mortgages on single-family residences. The value of mortgage-backed obligations in our investment portfolio may fluctuate for several reasons, including (i) delinquencies and defaults on the mortgages underlying such obligations, due in part to high unemployment rates, (ii) falling home prices, (iii) lack of a liquid market for such obligations, and (iv) uncertainties in respect of government-sponsored enterprises such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, which guarantee such obligations. If the value of homes were to materially decline, the fair value of the mortgage-backed obligations in which we invest may also decline. Any such decline in the fair value of mortgage-backed obligations, or perceived market uncertainty about their fair value, could adversely affect our financial position and results of operations. In addition, when we acquire a mortgage-backed security, we anticipate the underlying mortgages will prepay at a projected rate, thereby generating an expected yield. Prepayment rates generally increase as interest rates fall and decrease when rates rise, but changes in prepayment rates are difficult to predict. At the time of purchase, some of our mortgage-backed securities had a higher interest rate than prevailing market rates, resulting in a premium purchase price. In accordance with applicable accounting standards, we amortize the premium over the expected life of the mortgage-backed security. If the mortgage loans securing the mortgage-backed security prepay more rapidly than anticipated, we would have to amortize the premium on an accelerated basis, which would thereby adversely affect our profitability.
Credit and Liquidity Risks
Our loan and deposit portfolios are in certain markets which could result in increased concentration risk.
A majority of our loans are to businesses and individuals in the St. Louis, Kansas City, Phoenix, Los Alamos, Albuquerque, Santa Fe, Los Angeles, San Diego, Dallas, and Las Vegas metropolitan areas. These loans are funded by deposits in the same metropolitan areas, in addition to our national deposit verticals. The regional economic conditions in areas where we conduct our business have an impact on the demand for our products and services as well as the ability of our clients to repay loans, the value of the collateral securing loans, and the stability of our deposit funding sources. Consequently, a decline in local economic conditions may adversely affect our earnings. The proportion of our deposit account balances that exceed FDIC insurance limits may also expose the Company to enhanced liquidity risk in times of financial distress.
There are material risks involved in commercial lending that could adversely affect our business.
Our business plan calls for continued efforts to increase our assets invested in commercial loans. Our commercial loans include loans secured by real estate (commercial property, construction and land and multi-family residential property). Commercial loans generally involve a higher degree of credit risk than residential mortgage loans due, in part, to their larger average size and less marketable collateral. In addition, unlike residential mortgage loans, commercial loans generally depend on the cash flow of the borrower’s business to service the debt. Adverse economic conditions or other factors affecting our target markets may have a greater adverse effect on us than on other financial institutions that have a more diversified client base. Increases in nonperforming commercial loans could result in operating losses, impaired liquidity and erosion of our capital, and could have a material adverse effect on our financial condition and results of operations. Credit market tightening could adversely affect our commercial borrowers through declines in their business activities and adversely impact their overall liquidity through the diminished availability of other borrowing sources or otherwise.
The ability of our borrowers to repay their loans may be adversely affected by an increase in market interest rates which could result in increased credit losses. These increased credit losses, where the Bank has retained credit exposure, could decrease our assets, net income and available cash.
The loans we make to our borrowers often bear interest at a variable interest rate. When market interest rates increase, the amount of revenue borrowers need to service their debt also increases. Some borrowers may be unable to make their debt service payments. As a result, an increase in market interest rates may increase the risk of loan default. An increase in nonperforming loans could result in a net loss of earnings from these loans, an increase in the provision for credit losses, and an increase in loan charge-offs, all of these factors could impact allowance, earnings and/or capital levels.
Our loan portfolio includes loans secured by real estate, which could result in increased credit risk.
A portion of our portfolio is secured by real estate, and thus we face a high degree of risk from a downturn in our real estate markets. If real estate values decline in our markets, our ability to recover on defaulted loans for which the primary reliance for repayment is on the real estate collateral by foreclosing and selling that real estate would then be diminished, and we would be more likely to suffer losses on defaulted loans.
Additionally, the state-specific foreclosure laws of the jurisdictions in which our real estate collateral is located may hinder our ability to timely or fully recover on defaulted loans secured by property in certain states. For example, some states in which our collateral is located are judicial foreclosure states. In judicial foreclosure states, all foreclosures must be processed through the court system. Due to this process, it may take up to a year or longer to foreclose on real estate collateral located in those states. Our ability to recover on defaulted loans secured by property in those states may be delayed and our recovery efforts are lengthened due to this process. In addition, some states have anti-deficiency statutes with regards to certain types of residential mortgage loans. Our ability to recover on defaulted loans secured by residential mortgages in anti-deficiency statute states may be limited to the fair value of the real estate securing the loan at the time of foreclosure.
Our C&I loans and sponsor finance loans are underwritten based primarily on cash flow, profitability and enterprise value of the client and are not fully covered by the value of tangible assets or collateral of the client. Consequently, if any of these transactions becomes nonperforming, we could experience significant losses.
Cash flow lending involves lending money to a client based primarily on the expected cash flow, profitability and enterprise value of a client, with the value of any tangible assets as secondary protection. In some cases, these loans may have more leverage than traditional bank debt. In the case of our senior cash flow loans, we generally take a lien on substantially all of a client’s assets, but the value of those assets is typically substantially less than the amount of money we advance to the client under a cash flow transaction. In addition, some of our cash flow loans may be viewed as stretch loans, meaning they may be at leverage multiples that exceed traditional accepted bank lending standards for senior cash flow loans. Thus, if a cash flow transaction becomes nonperforming, our primary recourse to recover some or all of the principal of our loan or other debt product would be to force the sale of all or part of the company as a going concern. Additionally, we may obtain equity ownership in a borrower as a means to recover some or all of the principal of our loan. The risks inherent in cash flow lending include, among other things:
• reduced use of or demand for the client’s products or services and, thus, reduced cash flow of the client to service the loan and other debt product as well as reduced value of the client as a going concern;
• inability of the client to manage working capital, which could result in lower cash flow;
• inaccurate or fraudulent reporting of our client’s positions or financial statements; and
• our client’s poor management of their business.
Additionally, many of our clients use the proceeds of our cash flow transactions to make acquisitions. Poorly executed or poorly conceived acquisitions can burden management, systems and the operations of the existing business, causing a decline in both the client’s cash flow and the value of its business as a going concern. In addition, many acquisitions involve new management teams taking over day-to-day operations of a business. These new management teams may fail to execute at the same level as the former management team, which could reduce the cash flow of the client available to service the loan or other debt product, as well as reduce the value of the client as a going concern.
Widespread financial difficulties or downgrades in the financial strength or credit ratings of life insurance providers could lessen the value of the collateral securing our life insurance premium finance loans and impair our financial condition and liquidity.
One of the specialized products we offer is financing whole life insurance premiums utilized in high net worth estate planning. These loans are primarily secured by the insurance policies financed by the loans, i.e., the obligations of the life insurance providers under those policies. Nationally Recognized Statistical Rating Organizations (“NRSROs”) such as Standard & Poor’s, Moody’s and A.M. Best evaluate the life insurance providers that are the payors on the life insurance policies that we finance. The value of our collateral could be materially impaired in the event there are widespread financial difficulties among life insurance providers or the NRSROs downgrade the financial strength ratings or credit ratings of the life insurance providers, indicating the NRSROs’ opinion is the life insurance provider’s ability to meet policyholder obligations is impaired, or the ability of the life insurance provider to meet the terms of its debt obligations is impaired. The value of our collateral is also subject to the risk a life insurance provider could become insolvent. In particular, if one or more large nationwide life insurance providers were to fail, the value of our portfolio could be significantly negatively impacted. A significant downgrade in the value of the collateral supporting our premium finance business could impair our ability to create liquidity for this business, which, in turn, could negatively impact our ability to expand.
Our construction and land development loans are based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate and we may be exposed to more losses on these projects than on other loans.
Construction, land acquisition and development lending involves additional risks because funds are advanced based upon the projected value of the project, which is inherently uncertain prior to the project’s completion. Because of the uncertainties inherent in estimating construction costs, as well as the fair value of the completed project and the effects of governmental regulation of real property and the general effects of the national and local economies, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of the completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project. If we are forced to foreclose on a project prior to or at completion due to a default, there can be no assurance we will be able to recover all of the unpaid balance of, and accrued interest on, the loan or the related foreclosure, sale and holding costs. In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time. If any of these events occur, our financial condition, results of operations and cash flows could be materially and adversely affected.
We are subject to environmental risks associated with owning real estate or collateral.
When a borrower defaults on a loan secured by real property, we may purchase the property in foreclosure or accept a deed to the property surrendered by the borrower. We may also take over the management of commercial properties whose owners have defaulted on loans. We may also own and lease premises where branches and other facilities are located. While we have lending, foreclosure and facilities guidelines intended to exclude properties with an unreasonable risk of contamination, hazardous substances could exist on some of the properties we may own, manage or occupy. We face the risk that environmental laws could force us to clean up the properties at our expense. The cost of cleaning up or paying damages and penalties associated with environmental problems could increase our operating expenses. It may cost more to clean a property than the property is worth. We could also be liable for pollution generated by a borrower’s operations if we take a role in managing those operations after a default. The Company may also find it difficult or impossible to sell these properties.
We may be obligated to indemnify certain counterparties in financing transactions we enter into pursuant to the New Markets Tax Credit Program.
We participate in and have previously been an “Allocatee” of the New Markets Tax Credit Program of the Treasury CDFI. Through this program, we provide our allocation to certain projects, which in turn for an equity investment from an investor in the project generate federal tax credits to those investors. This equity, coupled with any debt or equity from the project sponsor is in turn invested in a certified community development entity for a period of at least seven years. Community development entities must use this capital to make loans to, or other investments in, qualified businesses in low-income communities in accordance with New Markets Tax Credit Program criteria. Investors receive an overall tax credit equal to 39% of their qualified equity investment, credited at a rate of five percent in each of the first three years and six percent in each of the final four years. However, after the exhaustion of all cure periods and remedies, the entire credit is subject to recapture if the certified community development entity fails to maintain its certified status, or if substantially all of the equity investment proceeds associated with the tax credits we allocate are no longer continuously invested in a qualified business that meets the New Markets Tax Credit Program criteria, or if the equity investment is redeemed prior to the end of the minimum seven-year term. As part of these financing transactions, we as the parent to Enterprise Financial CDE, LLC, provide customary indemnities to the tax credit investors, which require us to indemnify and hold harmless the investors in the event a credit recapture event occurs, unless the recapture is a result of action or inaction of the investor. No assurance can be given that these counterparties will not call upon us to discharge these obligations in the circumstances under which they are owed. If this were to occur, the amount we may be required to pay a bank investor could be substantial and could have an adverse effect on our results of operations and financial condition.
If we fail to comply with requirements of the federal New Markets Tax Credit program, the Treasury CDFI could seek any remedies available under its Allocation Agreement with us, and we could suffer significant reputational harm and be subject to greater scrutiny from banking regulators.
Because we have been designated as an “Allocatee” under the New Markets Tax Credit Program, we are required to provide allocation fund qualifying projects under the New Markets Tax Credit Program, and we are responsible for monitoring those projects, ensuring their ongoing compliance with the requirements of the New Markets Tax Credit Program and satisfying the various recordkeeping and reporting requirements under the New Markets Tax Credit Program. If we default in our obligations under the New Markets Tax Credit Program, the U.S. Department of the Treasury may revoke our participation in any other CDFI Fund programs, reallocate the New Market Tax Credits that were originally allocated to us, and take any other remedial actions that it is empowered to take under the Allocation Agreement they have entered into with us with respect to the New Markets Tax Credit Program, with the full range of such remedies being unknown. If we were to default under the New Markets Tax Credit Program, we could suffer negative publicity in the communities in which we operate, and we could face greater scrutiny from federal and state bank regulators, especially with regard to our compliance with the CRA. These developments could have an adverse effect on our reputation, business, and financial condition.
Liquidity risk could impair our ability to fund operations and meet debt coverage obligations, and jeopardize our financial condition.
Liquidity is essential to our business. We are a holding company and depend on our subsidiaries for liquidity needs, including debt coverage requirements. An inability to raise funds through deposits, borrowings, the sale of
investment securities and other sources could have a substantial material adverse effect on our liquidity. Our access to funding sources in amounts that are adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity sources include, but are not limited to, a decrease in the level of our business activity due to a market downturn, our failure to remain well-capitalized, or adverse regulatory action against us. Our ability to acquire deposits or to borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole.
Our utilization of brokered deposits could adversely affect our liquidity and results of operations.
Since our inception, we have utilized both brokered and non-brokered deposits as a source of funds to support our growing loan demand and other liquidity needs. As a bank regulatory supervisory matter, reliance upon brokered deposits as a significant source of funding is discouraged. Brokered deposits may not be as stable as other types of deposits, and, in the future, those depositors may not renew their deposits when they mature, or we may have to pay a higher rate of interest to keep those deposits or may have to replace them with other deposits or with funds from other sources. Additionally, if the Bank ceases to be categorized as “well-capitalized” for bank regulatory purposes, it would not be able to accept, renew or roll over brokered deposits without a waiver from the FDIC. Our inability to maintain or replace these brokered deposits as they mature could adversely affect our liquidity and results of operations. Further, paying higher interest rates to maintain or replace these deposits could adversely affect our net interest margin and results of operations.
By engaging in derivative transactions, we are exposed to additional credit and market risk in our banking business.
We use interest rate swaps to help manage our interest rate risk in our banking business from recorded financial assets and liabilities when they can be demonstrated to effectively hedge a designated asset or liability and the asset or liability exposes us to interest rate risk or risks inherent in client related derivatives. We may use other derivative financial instruments to help manage other economic risks, such as liquidity and credit risk, including exposures that arise from business activities that result in the receipt or payment of future known or uncertain cash amounts, the value of which are determined by interest rates. We also have derivatives that result from a service we provide to certain qualifying clients approved through our credit process and therefore, these derivatives are not used to manage interest rate risk in our assets or liabilities. We do not enter into derivative financial instruments for trading purposes. Hedging interest rate risk is a complex process, requiring sophisticated models and routine monitoring. As a result of interest rate fluctuations, hedged assets and liabilities will appreciate or depreciate in market value. The effect of this unrealized appreciation or depreciation will generally be offset by income or loss on the derivative instruments that are linked to the hedged assets and liabilities. By engaging in derivative transactions, we are exposed to credit and market risk. If the counterparty fails to perform, credit risk exists to the extent of the fair value gain in the derivative. Market risk exists to the extent that interest rates change in ways that are significantly different from what we expected when we entered into the derivative transaction. The existence of credit and market risk associated with our derivative instruments could adversely affect our net interest income and, therefore, could have a material adverse effect on our business, financial condition, results of operations and future prospects.
Competitive and Reputational Risks
The loss of any of our executive officers or other key employees, or the inability to recruit highly skilled and other key employees, may adversely affect our operations.
We believe our growth and continued success will depend in large part on our executive team and other key employees. The loss of any of our executive officers or other key employees, the failure to successfully transition key roles, or the inability to hire, train, retain, and manage qualified personnel, could have a material adverse effect on our business strategy, financial condition, results of operations and cash flows.
We face significant competition.
The financial services industry, including, but not limited to, commercial banking, mortgage banking, consumer lending, and home equity lending, is highly competitive, and we encounter strong competition for deposits, loans, and other financial services in all of our market areas in each of our lines of business. Our principal competitors
include other commercial banks, savings banks, savings and loan associations, mutual funds, money market funds, finance companies, trust companies, technology companies, insurers, credit unions, and mortgage companies among others. Many of our non-bank competitors are not subject to the same degree of regulation as us and have advantages over us in providing certain services. Many of our competitors are significantly larger than we are and have greater access to capital and other resources. Also, our ability to compete effectively in our business is dependent on our ability to adapt successfully to regulatory and technological changes within the banking and financial services industry, generally. If we are unable to compete effectively, we will lose market share and our income from loans and other products may diminish.
Our ability to compete successfully depends on a number of factors, including, among other things:
• the ability to develop, maintain, and build upon long-term client relationships based on top quality service and high ethical standards;
• the scope, relevance, and pricing of products and services, including technological innovations to those products and services, offered to meet client needs and demands;
• the rate at which we introduce new products and services relative to our competitors;
• client satisfaction with our level of service; and/or
• industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position, and could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.
Technology is continually changing and we must effectively implement new innovations in providing services to our clients.
The financial services sector is rapidly evolving due to technological innovations, with breakthroughs in areas like artificial intelligence, cloud computing, and other emerging technologies continuously producing new products and services to better serve their clients. In addition to better serving clients, the effective use of technology increases our efficiency and enables us to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our clients using innovative methods, processes and technology to provide products and services that will satisfy client demands for convenience as well as to add efficiencies in our operations as we continue to grow and expand our market areas. Many national vendors provide turn-key services to community banks, such as Internet banking and remote deposit capture, that allow smaller banks to compete with institutions that have substantially greater resources to invest in technological improvements. However, we may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients.
Costs and levels of deposits are affected by competition that could increase our funding costs or liquidity risk.
We rely on bank deposits to be a low cost and stable source of funding. We compete with banks and other financial services companies for deposits. If our competitors raise the rates they pay on deposits, our funding costs may increase, either because we raise our rates to avoid losing deposits or because we lose deposits and must rely on more expensive sources of funding. Higher funding costs could reduce our net interest margin and net interest income and could have a material adverse effect on our business, financial condition and results of operations.
Acquisition Risks
We have engaged in and may continue to engage in expansion through acquisitions, and these acquisitions present a number of risks related both to the acquisition transactions and to the integration of the acquired businesses.
The acquisition of other financial services companies or assets, such as the Branch Acquisition we completed in 2025, present risks to us in addition to those presented by the nature of the business acquired. Our earnings, financial condition, and prospects after a merger or acquisition depend in part on our ability to successfully integrate the operations of the acquired company. We may be unable to integrate operations successfully or to achieve expected results or cost savings.
Acquiring other banks or businesses involves various risks commonly associated with acquisitions, including, among other things:
• potential exposure to unknown or contingent liabilities of the target company;
• exposure to potential asset quality issues of the target company;
• difficulty and expense of integrating the operations and personnel of the target company;
• potential disruption to our business;
• potential diversion of our management’s time and attention;
• the possible loss of key employees and clients of the target company;
• difficulty in estimating the value of the target company;
• payment of a premium over book and market values that may dilute our tangible book value and earnings per share in the short- and long-term;
• inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits; and/or
• potential changes in banking or tax laws or regulations that may affect the target company.
We periodically evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial services companies. As a result, merger or acquisition discussions and, in some cases, negotiations may take place, and future mergers or acquisitions involving cash, debt or equity securities may occur at any time. In addition to the risks noted above, potential acquisitions may incur additional costs for diligence or break-up fees, even if the transaction is not consummated.
We may be unable to successfully integrate new business lines into our existing operations.
From time to time, we may implement other new lines of business or offer new products or services within existing lines of business. There can be substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. Although we continue to expend substantial managerial, operating and financial resources as our business grows, we may be unable to successfully continue the integration of new business lines, and price and profitability targets may not prove feasible. External factors such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations.
As we expand outside our current markets, we may encounter additional risks that may adversely affect us.
We are headquartered in Missouri, but have branch locations in the Kansas City, Phoenix, Tucson, Los Angeles, and San Diego metropolitan areas, as well as Northern New Mexico, Florida and Nevada. Over time, we may acquire or open locations in other parts of the United States as well. In the course of these expansion activities, we may encounter significant risks, including unfamiliarity with the characteristics and business dynamics of new markets, increased marketing and administrative expenses and operational difficulties arising from our efforts to attract business in new markets, manage operations in noncontiguous geographic markets, comply with local laws and regulations and effectively and consistently manage personnel and business outside of the State of Missouri. If we are unable to manage these risks, our operations may be materially and adversely affected.
Technology and Cybersecurity Risks
A failure in or breach, or the inability to recognize a potential breach of our operational or security systems, or those of our third party service providers, including as a result of cyber-attacks, may cause industry-wide operational disruptions that could materially affect our business, result in unintentional disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and adversely impact our earnings.
Information security, including cybersecurity, is a high priority for us. Recent highly publicized material events have highlighted the importance of cybersecurity, including cyberattacks against other financial institutions, governmental agencies, and other organizations that resulted in the compromise of personal and/or confidential information, the theft or destruction of corporate information, and demands for ransom payments to release corporate information encrypted by “ransomware.” A successful cyberattack could materially and adversely affect the Bank’s reputation and/or impair its ability to provide services to its clients. As risks associated with cybersecurity threats have and continue to evolve and become more sophisticated, including as a result of artificial intelligence, we have expended, and may in the future expend, significant resources to implement technologies and various response and recovery plans and procedures as part of our information security program. Additionally, we face the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate our business activities, including exchanges, clearing agents, clearing houses or other financial intermediaries. Such parties could also be the source of an attack on, or breach of, our operational systems. Any material failures, interruptions or security breaches in our information systems could damage our reputation, result in a loss of client business, result in a violation of privacy or other laws, or expose us to civil litigation, regulatory fines or losses not covered by insurance.
We rely on third-party vendors to provide key components of our business infrastructure.
We rely heavily on third-party service providers for much of our communications, information, operating and financial control systems technology, including relationship management, mobile banking, general ledger, investment, deposit, loan servicing and loan origination systems. While we have selected these third-party vendors carefully and perform ongoing monitoring, we do not control their actions. Any problems caused by these third parties, including as a result of inadequate or interrupted service, could materially affect our ability to successfully deliver products and services to our clients and otherwise conduct our business. Financial or operational difficulties of a third-party vendor could also hurt our operations if those difficulties interfere with the vendor’s ability to serve us, and replacing these third-party vendors could result in significant delay and expense. Accordingly, use of such third parties creates an unavoidable inherent risk to our business operations as well as reputational risk.
Risks Relating to Our Common Stock and Depositary Shares
The price of our common stock and depositary shares may be volatile or may decline.
The trading price of our common stock and depositary shares may fluctuate widely as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations could make it more difficult for you to resell your common stock or depositary shares when you want and at prices you find attractive.
Our stock price and the price of our depositary shares can fluctuate significantly in response to a variety of factors including, among other things:
• actual or anticipated quarterly fluctuations in our operating results and financial condition;
• changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts;
• reputation;
• failure to meet analysts’ revenue or earnings estimates;
• speculation in the press or investment community;
• strategic actions by us or our competitors, such as acquisitions or restructurings;
• actions by institutional stockholders;
• fluctuations in the stock prices and operating results of our competitors;
• general market conditions and, in particular, developments related to market conditions for the financial services industry;
• proposed or adopted regulatory changes or developments;
• anticipated or pending investigations, proceedings or litigation that involve or affect us; and/or
• domestic and international economic factors unrelated to our performance.
The stock market and, in particular, the market for financial institution stocks, has historically experienced significant volatility. As a result, the market price of our common stock and depositary shares may be volatile. In addition, the trading volume in our common stock and depositary shares may fluctuate more than usual and cause significant price variations to occur. The trading price of the shares of our common stock and our depositary shares and the value of our other securities will depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales of our equity or equity related securities, and other factors identified in this annual report and our other reports. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength or operating results. A significant decline in our stock or depositary share prices could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation.
The trading volume in our common stock and depositary shares is less than that of other larger financial institutions.
Although our common stock and depositary shares are listed for trading on the Nasdaq Global Select Market, trading volume may be less than that of other, larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock or depositary shares at any given time, a factor over which we have no control. During any period of lower trading volume of our common stock or depositary shares, significant sales of shares of our common stock or depositary shares or the expectation of these sales could cause our common stock or depositary shares price to fall.
An investment in our common stock or depositary shares is not insured and you could lose the value of your entire investment.
An investment in our common stock or depositary shares is not a savings account, deposit or other obligation of our bank subsidiary, any non-bank subsidiary or any other bank, and such investment is not insured or guaranteed by the FDIC or any other governmental agency. As a result, if you acquire our common stock or depositary shares, you may lose some or all of your investment.
Our ability to pay dividends is limited by various statutes and regulations and depends primarily on the Bank’s ability to distribute funds to us and is also limited by various statutes and regulations.
We depend on payments from the Bank, including dividends, management fees and payments under tax sharing agreements, for substantially all of our liquidity requirements. Federal and state regulations limit the amount of dividends and the amount of payments the Bank may make to us under tax sharing agreements. In certain circumstances, the Missouri Division of Finance, FDIC, or Federal Reserve Board could restrict or prohibit the Bank from distributing dividends or making other payments to us. In the event the Bank was restricted from paying dividends to us or making payments under the tax sharing agreement, we may not be able to service our debt, pay our other obligations or pay dividends on our common stock or preferred stock. If we are unable or determine not to pay dividends on our outstanding equity securities, the market price of such securities could be materially adversely affected.
There can be no assurance of any future dividends on our common stock or our depositary shares.
Holders of our common stock and depositary shares are entitled to receive dividends only when, as and if declared by the Board of Directors. Although we have historically paid cash dividends, we are not required to do so.
Our outstanding preferred stock and debt securities, including debt securities related to our trust preferred securities, restrict our ability to pay dividends on our capital stock.
We have outstanding preferred stock and subordinated debentures issued to statutory trust subsidiaries, which have issued and sold preferred securities in the Trusts to investors. These instruments prohibit the payment of dividends on our common stock in certain situations. See “Item 1. Business – Supervision and Regulation - Financial Holding Company - Dividend Restrictions and Stock Repurchases” for additional information.
Moreover, any other financing agreements that we enter into in the future may limit our ability to pay cash dividends on our capital stock, including the common stock. In the event that our existing or future financing agreements restrict our ability to pay dividends in cash on the common stock, we may be unable to pay dividends in cash on the common stock unless we can refinance amounts outstanding under those agreements. In addition, if we are unable or determine not to pay interest on our preferred stock or subordinated debentures, the market price of our common stock could be materially or adversely affected.
Anti-takeover provisions could negatively impact our stockholders.
Provisions of Delaware law and of our certificate of incorporation, as amended, and bylaws, as well as various provisions of federal and Missouri state law applicable to bank and bank holding companies, could make it more difficult for a third party to acquire control of us or have the effect of discouraging a third party from attempting to acquire control of us. We are subject to Section 203 of the Delaware General Corporation Law, which would make it more difficult for another party to acquire us without the approval of our Board of Directors. Additionally, our certificate of incorporation, as amended, authorizes our Board of Directors to issue preferred stock which could be issued as a defensive measure in response to a takeover proposal. In the event of a proposed merger, tender offer or other attempt to gain control of the Company, our Board of Directors would have the ability to readily issue available shares of preferred stock as a method of discouraging, delaying or preventing a change in control of the Company. Such issuance could occur regardless of whether our stockholders favorably view the merger, tender offer or other attempt to gain control of the Company. These and other provisions could make it more difficult for a third party to acquire us even if an acquisition might be in the best interests of our stockholders. Although we did not issue any additional shares of our authorized preferred stock in the current year, there can be no assurance that the Company will not do so in the future.
General Risk Factors
Climate change may materially adversely affect our business and results of operations.
Severe weather events may cause operational disruptions and damage to both our properties and properties securing our loans. Losses resulting from these disasters and severe weather events may make it more difficult for borrowers to timely repay their loans. If these events occur, we may experience a decrease in the value of our loan portfolio and our revenue, and may incur additional operational expenses, each of which could have a material adverse effect on our financial condition and results of operations.
The risks associated with climate change, and the legislative and regulatory responses, are evolving, making them difficult to assess due to limited data and other uncertainties. We could experience increased expenses resulting from strategic planning, litigation, and technology and market changes, and reputational harm as a result of public sentiment, regulatory scrutiny, and reduced investor and stakeholder confidence due to our response to climate change and our climate change strategy, which, in turn, could have a material negative impact on our business, results of operations, and financial condition.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 1C: CYBERSECURITY
Governance
Our Information Security (“IS”) Program consists of policies, procedures and guidelines to ensure the security, availability and confidentiality of client information. The IS Program is led by our Chief Information Security Officer (“CISO”) under the direction of the Chief Administrative Officer and is subject to additional management oversight by our Operations Technology Committee. The CISO has over 20 years of experience in cybersecurity and is a licensed attorney in both Missouri and Illinois. He currently holds multiple professional security certifications that include ISC2 Certified Information System Security Professional and Certified Cloud Security Professional, ISACA Certified Information Security Manager and EC-Council Certified Ethical Hacker. The Chief Administrative Officer is a licensed CPA in the state of Missouri. Prior to his appointment as Chief Administrative Officer, he served at Enterprise in senior finance roles within the Company, including Senior Vice President and Controller, and Chief Financial Officer of the Bank. The Operations Technology Committee is a management committee with overall responsibility for monitoring the systems, policies and procedures for our loan, deposit and wealth management business operations. This includes the framework used to identify and prevent cyberattacks or breaches. The Operations Technology Committee chair reports committee activities into the Risk Committee of the Board. Additionally, the CISO is a member of this committee, as well as the Risk Oversight, Sustainability and Disclosure Committees, and advises these committees on risks and opportunities related to information security, including data privacy.
The Risk Committee of the Board oversees the IS Program in the following ways: (a) monitors and oversees the Company’s business and information technology operations necessary for its business plan, including projected growth, technology capacity, planning, operational execution, product development and management capacity, (b) reviews the Company’s framework to prevent, detect, and respond to cyberattacks or breaches, as well as identifying areas of concern regarding possible vulnerabilities and best practices to secure points of vulnerability, and reviews policies pertaining to information security and cyber threats, taking into account the potential for external threats, internal threats, and threats arising from transactions with trusted third parties and vendors, and (c) reviews the Company’s incident response, business continuity and disaster recovery planning and preparedness including processes, policies and procedures that are related to preparing for recovery or continuation of technology infrastructure which are vital to the Company. As part of the Board’s oversight, the Board receives quarterly IS reports and updates from the Chief Information Officer (“CIO”) and CISO. At least annually, our Board also receives IS reports from the CISO which summarize new and emerging cybersecurity trends, trends in type, frequency and origination of attacks, and the effectiveness of our IS Program in mitigating cybersecurity threats. In the event of an information security incident, our Incident Response Plan clarifies the steps for escalation according to the severity of the attack.
The IS team is staffed primarily with internal associates and we utilize third party service providers for extended coverage. We hire IS team members that have industry relevant information security or technology certifications and knowledge to implement and oversee the procedures and processes of our IS Program and to adequately manage and enforce our IS policies, procedures and guidelines. Further, management involved in the cybersecurity process possess the necessary skills and expertise to adequately manage and enforce our IS policies, procedures and guidelines.
While all vendors are subject to our vendor management due diligence process, those with access to our data and data centers are subject to more rigorous initial and more frequent ongoing due diligence. This includes reviews of Service Organization Control 2 reports, information security policies, vulnerability and penetration tests, human resource policies such as background checks and training, and business continuity plans.
We may face cybersecurity risks in connection with our normal business that could have a material adverse effect on our business strategy, results of operations, financial condition, or reputation. Although such risks have not materially affected us, we have experienced, and may continue to experience, cyber incidents during our normal course of business. For further discussion about these risks, see “Item 1A. Risk Factors - Technology and Cybersecurity Risks.”
Risk Management and Strategy
As part of the ongoing maintenance and development of our IS Program, we assess the various risks associated with the unauthorized access or loss of client information and the quality of security controls as prescribed by the Federal Financial Institutions Examinations Council and the National Institute of Standards and Technology Cybersecurity Framework. Our IS risk assessments are prepared in conjunction with our ERM framework, and the results are used to develop strategies to minimize risk to information assets.
Our systems are monitored 24/7 for cybersecurity threats, and we utilize a variety of tools to reduce the risk of data breaches. We maintain an Incident Response Plan which outlines the steps to be taken in the event of an information security incident, which could include a potential or actual data breach. The plan identifies a designated team, including associates and third-party experts responsible for the response, and summarizes the steps, including escalation protocol, for determining whether a breach has occurred and the nature and scope of the breach (if applicable). The plan also summarizes protocol for notifying impacted persons, which may include clients, as well as other applicable agencies or persons, including law enforcement and regulatory authorities.
The Incident Response Plan is led by our CISO, who is also a member of the Disclosure Committee . The Disclosure Committee is a cross-functional management group that is tasked with ensuring that external disclosures subject to SEC rules and regulations are accurate, complete, and timely. Members of the Disclosure Committee include leadership from accounting, credit, information security, information technology, legal, and operations. In conjunction with the working process of the Incident Response Plan, members of the Disclosure Committee evaluate cybersecurity incidents to determine whether disclosure is required.
At least annually, we conduct a third-party information security penetration audit focusing on internal and external network security protocols, as well as internally managed ad hoc testing as needed. Simulations and tabletop testing of our business continuity and Incident Response Plans are performed on a routine basis to test and assist with our associates’ familiarity and preparedness for a security event. Any gaps or improvement areas identified by routine testing are addressed in a timely manner to help improve future security testing.
The processes and controls related to data security are regularly tested by the IS department and Internal Audit. Additional internal security assessments may be performed at the request of the CISO, CIO, the Director of Internal Audit, Management or our Board. Audit and assessment results are presented to the Board, as well as the following committees: management’s Operations Technology Committee and the Audit and Risk Committees of the Board.
At least annually, the IS Program, including its effectiveness, is reviewed by the Board or a committee thereof. Annually, all associates participate in mandatory training on data privacy provisions and policies, including information security and its importance with respect to client and associate privacy.
All associates (including both full-time and part-time associates) are required to participate in monthly firmwide phishing tests.
ITEM 2: PROPERTIES
Our executive offices are located at 150 North Meramec Avenue, Clayton, Missouri, 63105. As of December 31, 2025, we utilized banking locations and administrative offices throughout our market areas of Arizona, California, Florida, Kansas, Missouri, Nevada, and New Mexico. Additionally, the Company has a limited network of loan production offices and deposit production offices in various other states. We own or lease our facilities and believe all of our properties are in good condition to meet our business needs.
ITEM 3: LEGAL PROCEEDINGS
The Company is, from time to time, a party to various legal proceedings arising out of its businesses. Management believes there are no such legal proceedings pending or threatened against the Company in the ordinary course of business, directly, indirectly, or in the aggregate that, if determined adversely, would have a material adverse effect on the business, consolidated financial condition, results of operations or cash flows of the Company.
For more information on our legal proceedings, see “Item 8. Note 12 – Litigation and Other Contingencies” in this Annual Report on Form 10-K.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Our Common Stock
The Company’s common stock trades on the Nasdaq Global Select Market under the symbol “EFSC.” As of February 25, 2026, the Company had 1,422 registered stockholders of common stock. The number of holders of record does not represent the actual number of beneficial owners of our common stock because securities dealers and others frequently hold shares in “street name” for the benefit of individual owners who have the right to vote shares.
Dividends
The Company paid quarterly cash dividends on common stock in each of 2025, 2024 and 2023 and anticipates continuing to pay comparable dividends. Total dividends paid per common share were $1.22 in 2025, $1.06 in 2024 and $1.00 in 2023. However, we have no obligation to pay dividends and we may change our dividend policy at any time without notice to our stockholders.
Our ability to pay dividends is substantially dependent upon the ability of our subsidiaries to pay cash dividends to us. Information on regulatory restrictions on our ability to pay dividends is set forth in “Part I, Item 1. Business - Supervision and Regulation - Financial Holding Company - Dividend Restrictions and Stock Repurchases.” The amount of dividends, if any, that may be declared by the Company also depends on many other factors, including future earnings, bank regulatory capital requirements and business conditions as they affect the Company and its subsidiaries. As a result, no assurance can be given that dividends will be paid in the future with respect to our common stock.
Recent Sales of Unregistered Securities and Use of Proceeds
None.
Issuer Purchases of Equity Securities
Period
Total number of shares purchased
Weighted-average price paid per share
Total number of shares purchased as part of publicly announced plans or programs (a)
Maximum number of shares that may yet be purchased under the plans or programs (a)
October 1, 2025 through October 31, 2025
November 1, 2025 through November 30, 2025
December 1, 2025 through December 31, 2025
Total
(a) In May 2022, the Company’s Board of Directors authorized the repurchase of up to two million shares of the Company’s common stock. The repurchases may be made from time to time in the open market or through privately negotiated transactions.
Stock Performance Graph
The following graph compares the cumulative total stockholder return on the Company’s common stock from December 31, 2020 through December 31, 2025. The graph compares the Company’s common stock with the Nasdaq Composite Index (U.S. companies) and the S&P Regional Banks Select Industry Index.
The graph assumes an investment of $100.00 in the Company’s common stock and each index at the respective closing price on December 31, 2020 and reinvestment of all quarterly dividends. The investment is measured as of each subsequent fiscal year end. There is no assurance the Company’s common stock performance will continue in the future with the same or similar results as shown in the graph.
Period ending December 31,
Index
Enterprise Financial Services Corp
Nasdaq Composite Index
S&P Regional Banks Select Industry Index
*Source: S&P Global Market Intelligence. Used with permission. All rights reserved.
ITEM 6: [RESERVED]
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The objective of this section is to provide an overview of the results of operations and financial condition of the Company by focusing on changes in certain key measures from year to year. It should be read in conjunction with the Consolidated Financial Statements and related Notes contained in “Item 8. Financial Statements and Supplementary Data,” and other financial data presented elsewhere in this report, particularly the information regarding the Company’s business operations described in Item 1. A detailed discussion comparing 2024 and 2023 results is incorporated herein by reference to Item 7 of the Company’s 2024 Annual Report on Form 10-K filed on February 28, 2025.
Executive Summary
The Company offers a broad range of business and personal banking services including wealth management. Lending services include C&I, CRE, real estate construction and development, residential real estate, specialty, and consumer loans. A wide variety of deposit products and a complete suite of treasury management and international trade services complement our lending capabilities. The Company’s results of operations are also affected by prevailing economic conditions, competition, government policies and other actions of regulatory agencies.
The Company’s financial condition, operating results and liquidity in 2025 continued to be impacted by monetary policy actions. The Federal Reserve decreased the target federal funds rate 75 basis points in 2025, following a 100 basis point decrease in 2024. This follows the period of 2022 to 2023 when the Federal Reserve increased the target federal funds rate 525 basis points.
Financial Performance Highlights
Below are highlights of our financial performance for the years ended December 31, 2025, 2024 and 2023.
($ in thousands, except per share data)
At or for the year ended December 31,
EARNINGS
Total interest income
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Total noninterest income
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
Preferred dividends
Net income available to common stockholders
Basic earnings per common share
Diluted earnings per common share
Return on average assets
Adjusted return on average assets 1
Return on average common equity
Adjusted return on average common equity 1
Return on average tangible common equity 1
Adjusted return on average tangible common equity 1
Net interest margin (tax-equivalent)
Efficiency ratio
Core efficiency ratio 1
Common dividend payout ratio 2
Book value per common share
Tangible book value per common share 1
Average common equity to average assets
Tangible common equity to tangible assets 1
ASSET QUALITY
Net charge-offs
Nonperforming loans
Nonaccrual loans
Nonperforming assets
Classified assets
Total assets
Total loans
Classified assets to total assets
Nonperforming loans to total loans
Nonperforming assets to total assets
ACL on loans to total loans
Net charge-offs to average loans
1 Non-GAAP measures. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”
2 Dividends per common share divided by diluted earnings per common share.
2025 Financial Highlights
During 2025, we noted the following significant developments:
• The Company had a return on average assets of 1.24%. This drove a 11.0% increase in tangible book value per share in 2025.
• Dividends paid in 2025 of $1.22 per share increased $0.16 per share, or 15%, compared to $1.06 per share in 2024.
• The Company repurchased 258,739 shares of its common stock at a weighted-average share price of $54.60.
• The Bank acquired 12 branches from First Interstate Bank, including certain deposits and loans, and the owned real estate and fixed and other assets associated with the 12 branches. The Company acquired $609 million in deposits, and certain, mostly commercially-oriented loans with outstanding balances of approximately $292 million as of December 31, 2025. The transaction added 10 branches in Arizona and two branches in Kansas City, and expands the Company’s presence in those markets.
• A solar provider from which the Company had purchased $24.1 million of transferrable solar tax credits declared bankruptcy. The bankrupt solar provider indirectly owned, through a complex structure of multiple entities, the solar projects generating the tax credits that the Company purchased. As part of the bankruptcy, the bankrupt solar provider sold and transferred equity interests in certain of those entities. As a result of this transfer, the $24.1 million of solar tax credits purchased by the Company were recaptured. The Company previously purchased an insurance policy to insure against recapture risk and anticipates proceeds from the insurance policy to cover the $24.1 million of recaptured tax credits and approximately $8.0 million of incremental tax liability attributable to the anticipated insurance proceeds from the insured recaptured credits.
• The Company redeemed $63.3 million of subordinated debt that had a floating rate of three-month Term SOFR plus a spread of 5.66%. The redemption was funded through the issuance of a $63.3 million senior note at a rate of one-month Term SOFR plus a spread of 2.50%.
The Company noted the following trends during 2025:
• The Company reported net income of $201.4 million, or $5.31 per diluted share for 2025, compared to $185.3 million, or $4.83 per diluted share for 2024. PPNR 1 for 2025 was $274.7 million, compared to $255.2 million in 2024. PPNR ROAA 1 for 2025 and 2024 was 1.70% and 1.72%, respectively. The increase in PPNR 1 was primarily due to higher net interest income that benefited from an organic increase in average interest-earning asset balances and liquidity provided through the Branch Acquisition, and lower rates paid on interest-bearing liabilities. These increases were partially offset by an increase in noninterest expense due to the Branch Acquisition, merit increases, higher headcount and higher deposit costs from growth in the deposit verticals.
• Net interest income was $626.7 million, an increase of $58.6 million over the prior year. NIM increased to 4.21% in 2025, from 4.16% in 2024, primarily due to higher average loan and securities balances, higher yields on the securities portfolio, and lower short-term interest rates that decreased deposit interest expense. Average loans and securities increased $472.6 million and $753.8 million, respectively, compared to 2024. While the decline in market interest rates reduced the yield on loans 28 basis points, the yield on securities increased 51 basis points compared to 2024. The total cost of deposits was 1.77% in 2025 compared to 2.12% in 2024.
1 PPNR, PPNR ROAA, and the core efficiency ratio are non-GAAP measures. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”
• Noninterest income was $113.1 million, an increase of $43.4 million from $69.7 million in 2024. Noninterest income in 2025 includes $32.1 million of anticipated insurance proceeds from a pending claim related to a recapture event during the third quarter 2025 with respect to a $24.1 million solar tax credit. There is an offsetting amount of $32.1 million in income tax expense related to the solar tax credit recapture.
• Noninterest expense was $429.8 million in 2025, a 12% increase from $385.0 million in 2024. The increase in noninterest expense was primarily from higher deposit costs due to an increase in average deposit vertical balances, an increase in compensation due an expanded associate base and the onboarding of the associates from the fourth quarter 2025 Branch Acquisition, along with other expenses related to the Branch Acquisition. The increase was partially offset by a $4.9 million decline in core conversion expenses due to the completion of the core implementation in the fourth quarter 2024. The core efficiency ratio 1 was 59.3% in 2025, compared to 58.4% in 2024.
2024 Financial Highlights
During 2024, noted the following significant developments:
• The Company had a return on average assets of 1.25%. This drove a 10.1% increase in tangible book value per share in 2024.
• Dividends paid in 2024 of $1.06 per share increased $0.06 per share, or 6%, compared to $1.00 per share in 2023.
• The Company repurchased 626,778 of its common shares at a weighted-average share price of $46.95.
• In the fourth quarter 2024, the Company successfully completed the conversion of its legacy core system into a new core banking platform.
RESULTS OF OPERATIONS
Net Interest Income
Average Balance Sheet
The following table presents, for the periods indicated, certain information related to our average interest-earning assets and interest-bearing liabilities, as well as, the corresponding interest rates earned and paid, all on a tax-equivalent basis. Average balances are presented on a daily average basis.
Year ended December 31,
($ in thousands)
Average Balance
Interest
Income/Expense
Average
Yield/
Rate
Average Balance
Interest
Income/Expense
Average
Yield/
Rate
Average Balance
Interest
Income/Expense
Average
Yield/
Rate
Assets
Interest-earning assets:
Loans 1, 2
Taxable securities
Non-taxable securities 2
Total securities
Interest-earning deposits
Total interest-earning assets
Noninterest-earning assets
Total assets
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing demand accounts
Money market accounts
Savings accounts
Certificates of deposit
Total interest-bearing deposits
Subordinated debentures and notes
FHLB advances
Securities sold under agreements to repurchase
Other borrowings
Total interest-bearing liabilities
Noninterest-bearing liabilities:
Demand deposits
Other liabilities
Total liabilities
Stockholders' equity
Total liabilities & stockholders’ equity
Net interest income
Net interest spread
Net interest margin
1 Average balances include nonaccrual loans. Interest income includes loan fees of $7.0 million, $9.6 million, and $13.8 million for the years ended December 31, 2025, 2024, and 2023 respectively.
2 Non-taxable income is presented on a fully tax-equivalent basis using a tax rate of approximately 25%. The tax-equivalent adjustments were $11.7 million, $8.4 million, and $8.1 million for the years ended December 31, 2025, 2024, and 2023, respectively.
Rate/Volume
The following table sets forth, on a tax-equivalent basis for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in yield/rates and volume.
2025 compared to 2024
2024 compared to 2023
Increase (decrease) due to
Increase (decrease) due to
($ in thousands)
Volume 1
Rate 2
Net
Volume 1
Rate 2
Net
Interest earned on:
Loans
Taxable securities
Non-taxable securities 3
Interest-earning deposits
Total interest-earning assets
Interest paid on:
Interest-bearing demand accounts
Money market accounts
Savings accounts
Certificates of deposit
Subordinated debentures and notes
FHLB advances
Securities sold under agreements to repurchase
Other borrowed funds
Total interest-bearing liabilities
Net interest income
1 Change in volume multiplied by yield/rate of prior period.
2 Change in yield/rate multiplied by volume of prior period.
3 Nontaxable income is presented on a fully tax-equivalent basis using a tax rate of approximately 25%.
NOTE: The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Net interest income (on a tax-equivalent basis) was $638.5 million for 2025, compared to $576.5 million for 2024, an increase of $61.9 million. The increase in net interest income in 2025 was primarily due to higher average interest-earning asset balances and a decrease in the average rates paid on interest-bearing liabilities.
Total tax-equivalent interest income of $900.1 million increased $40.6 million in 2025 primarily due to a $42.2 million increase in interest income from investment securities. Higher interest income on investment securities was primarily due to a $753.8 million increase in average securities balances and a 51 basis point increase in yield on investment securities. Average securities represented 22% and 18% of earnings assets for 2025 and 2024, respectively. Average loan balances increased $472.6 million during the year primarily from organic loan growth and the Branch Acquisition, partially offset by a 28 basis point decrease in loan yield resulting in a $0.2 million decrease in loan interest income.
Overall, average interest-earning assets increased $1.3 billion, or 9%, to $15.1 billion for the year ended December 31, 2025. Excess liquidity provided through the Branch Acquisition was deployed into the securities portfolio and other interest-earning assets. Volume growth of the balance sheet drove an increase in interest income on earning assets of $62.8 million, partially offset by a decrease of $22.1 million in yield on interest-earning assets in 2025 compared to 2024.
Total interest expense decreased $21.3 million in 2025 primarily due to decreased rates paid on interest-bearing liabilities. The decrease in deposit interest expense reflects lower rates paid on deposits, partially offset by successful marketing efforts and acquired deposits in connection with the Branch Acquisition that increased average deposit balances. Total average interest-bearing deposits increased to $9.1 billion, an increase of $643.8 million, or 8%, in 2025 over the average for 2024. Average noninterest-bearing deposits increased $483.4 million, or 12%, in 2025 compared to the average for 2024. Average noninterest-bearing deposits represented 33% of total average deposits in 2025, compared to 32% in 2024. Overall, average interest-bearing liabilities increased $722.9 million, or 8%, for the year ended December 31, 2025 as compared to the prior year end. The increase in the average balance of interest-bearing liabilities increased interest expense in 2025 by $23.4 million, which was partially offset by the decrease in the average cost of interest-bearing liabilities that decreased interest expense $44.7 million in 2025.
The tax-equivalent net interest margin was 4.21% for 2025, compared to 4.16% for 2024. The primary driver of the increase in net interest margin from 2024 to 2025 was lower interest expense on the deposit portfolio. Since September 2024, the Federal Reserve has reduced the federal funds target rate 175 basis points. As of December 31, 2025, variable-rate loans comprised approximately 60% of total loans. The earning-asset yield decreased 26 basis points to 5.94% in 2025, compared to 6.20% in 2024. Comparatively, the cost of interest-bearing liabilities decreased 47 basis points to 2.73%, from 3.20% in 2024.
Noninterest Income
The following table presents a comparative summary of the major components of noninterest income for each of the years in the three-year period ended December 31, 2025:
Year ended December 31,
Change from
($ in thousands)
Deposit service charges
Wealth management revenue
Card services revenue
Tax credit income
Anticipated insurance recoveries
Other income
Total noninterest income
Noninterest income increased $43.4 million, or 62%, in 2025 compared to 2024. The increase in noninterest income was primarily due to $32.1 million of anticipated insurance proceeds from a third quarter 2025 pending claim related to a recapture event with respect to a solar tax credit that the Company purchased and applied to prior taxable periods. Excluding this item, noninterest income increased primarily due to an $11.5 million increase in other income. Other income increased primarily due to higher BOLI income ($3.7 million), an increase in gains on the sale of SBA loans ($2.8 million), and an increase in net gain on OREO ($3.2 million). Private equity and community development income are not consistent sources of income and fluctuate based on distributions and earnings from the underlying funds. In 2025, the Company sold the guaranteed portion of SBA 7(a) loans of $78.2 million for a gain of $4.2 million, compared to $23.1 million and $1.4 million, respectively, in 2024.
Noninterest Expense
The following table presents a comparative summary of the components of noninterest expense:
Year ended December 31,
Change from
($ in thousands)
Employee compensation and benefits
Deposit costs
Occupancy
Data processing
Professional fees
Other expenses
Total noninterest expense
Efficiency ratio
Core efficiency ratio 1
1 A non-GAAP measure. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”
Noninterest expense increased $44.8 million, or 12%, in 2025 compared to 2024. The increase was attributed primarily to an increase in compensation and benefits due to annual merit increases, an expanded associate base, the onboarding of the associates from the Branch Acquisition, and the recruitment of new relationship bankers. The total cost of the Branch Acquisition in noninterest expense was $3.7 million in 2025. The increase from 2024 was also primarily due to a $14.6 million increase in deposit costs due to an increase in average deposit vertical balances. For certain deposit accounts in the Company’s deposit verticals, clients receive an earnings credit allowance on average collected balances that may be used to offset expenses associated with the client’s activities for managing the accounts. These costs are reflected in noninterest expense as deposit costs. Average balances in the deposit verticals were approximately $3.8 billion and $3.1 billion, resulting in an average deposit vertical cost of 2.75% and 2.82% for 2025 and 2024, respectively.
Income Taxes
As part of the normal, ongoing review of state tax apportionment, the Company's state statutory tax rate was increased in the fourth quarter. Due to the increase, the Company’s blended federal and state tax rate was approximately 25.1% in 2025, compared to 24.8% in 2024. Included in tax expense during 2025 was $24.1 million in recaptured tax credits as discussed above and approximately $8.0 million of incremental tax liability attributable to the anticipated insurance proceeds from the insured recaptured credits. Excluding the impact of the recaptured tax credits and related insurance proceeds, the adjusted effective tax rate 2 for 2025, after adjusting for permanent tax differences such as tax exempt income and tax credits, is approximately 20.0% compared to 19.9% in 2024. See “Item 8. Note 15 – Income Taxes” for additional information.
2 A djusted effective tax rate is a non-GAAP measure. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”
FINANCIAL CONDITION
Summary Balance Sheet
($ in thousands)
December 31,
% Increase (Decrease)
Cash and cash equivalents
Securities
Loans
Assets
Deposits
Liabilities
Stockholders’ equity
The table below represents the summary balance sheet shown as a percentage of account class (total assets, total liabilities or total stockholders’ equity), as applicable:
December 31,
Cash and cash equivalents to total assets
Securities to total assets
Loans to total assets
Deposits to total liabilities
Assets
Loans by Type
The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector other than those noted in the table of loans by NAICS code below; however, a substantial portion of the portfolio, including the C&I category, is secured by real estate. The ability of the Company’s borrowers to honor their contractual obligations is partially dependent upon the local economy and its effect on the real estate market. Included in total loans at December 31, 2025 are $292.0 million of loans from the Branch Acquisition.
The following table sets forth the composition of the loan portfolio by type of loans:
December 31,
($ in thousands)
CRE - investor owned
CRE - owner occupied
Construction and land development
Residential real estate
Consumer
Total loans
(1) Certain loans were reclassified from Consumer and into other categories in 2025. Prior period amounts were not adjusted.
December 31,
CRE - investor owned
CRE - owner occupied
Construction and land development
Residential real estate
Consumer
Total loans
C&I loans are made based on the borrower’s ability to generate cash flows for repayment from income sources, general credit strength, experience, and character, even though such loans may also be secured by real estate or other assets. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations.
The Company continues to focus on originating high-quality C&I loan relationships as they allow for cross selling opportunities involving other banking products. Our specialized products, especially sponsor finance, life insurance premium financing, and tax credit lending, consist of primarily C&I loans, and have contributed significantly to the Company’s C&I loan growth. These loans are sourced through relationships developed with wealth and estate planning firms, private equity funds and tax credit specialists and are not bound geographically to our markets. As a result, these specialized loan products offer opportunities to expand and diversify our overall geographic concentration by entering into new markets. C&I also represents loans to state and political subdivisions, loans to nondepository financial institutions, and loans to purchase, or are fully secured by, investment securities.
Real estate loans place an emphasis on the estimated cash flows from the operation of the property and/or the underlying collateral value.
• Our CRE loans, including investor-owned and owner-occupied categories, primarily represent commercial property loans on which the primary source of repayment is income from the property for investor-owned and the operating business for owner-occupied. These loans are principally underwritten based on the cash flow coverage of the property, the Company’s loan to value guidelines, and generally require either the limited or full guaranty of principal sponsors of the credit. The Company also maintains standards for amortization and maturity terms. CRE loans also represent owner-occupied C&I loans for which the primary source of repayment is dependent on sources other than the underlying collateral. In an effort to mitigate credit risk, the Company routinely reviews its loan portfolio for various concentrations. Annually, management prepares an assessment of credit risk in the various loan portfolios, with a significant portion of the commercial loan portfolio subject to review. These reviews consider the Company’s collateral position as well as exposure to a given industry sector. The Company performs site visits as part of the underwriting process, in addition to stress tests for vacancy, rental and interest rates on certain property types. The Company believes that the loan portfolio is sufficiently diversified to provide protection from deterioration in any particular industry, geography or devaluation of a specific collateral type.
• Construction and land development loans relating primarily to residential and commercial properties, represent financing secured by real estate under development for eventual sale or undeveloped ground. At December 31, 2025, $378.5 million of these loans include the use of interest reserves and follow standard underwriting guidelines. Construction projects are monitored by the loan officer and a centralized independent loan disbursement function.
• Residential real estate loans include residential mortgages, which are loans that, due to size or other attributes, do not qualify for conventional home mortgages available-for-sale in the secondary market, second mortgages, home equity lines and conventional mortgages that are part of a broad banking relationship with the Company. Residential mortgage loans are usually limited to a maximum of 80% of collateral value at origination.
Consumer loans represent loans to individuals. Credit risk is managed by thoroughly reviewing the creditworthiness of the borrowers prior to origination and thereafter.
The following table presents a breakdown of loans by NAICS code at the periods indicated:
December 31,
($ in thousands)
Outstanding Balance
Outstanding Balance
Accommodation and food services
Administrative and support and waste management and remediation services
Agriculture, forestry, fishing and hunting 1
Arts, entertainment, and recreation
Construction
Educational services
Finance and insurance
Health care and social assistance
Information
Management of companies and enterprises
Manufacturing
Mining, quarrying, and oil and gas extraction
Other services (except public administration)
Professional, scientific, and technical services
Public administration
Real estate and rental and leasing
Retail trade
Transportation and warehousing
Utilities
Wholesale trade
Other
Total loans
1 Includes $40.6 million and $54.2 million in animal production at December 31, 2025, and 2024, respectively and $53.4 million and $69.4 million in crop production at December 31, 2025, and 2024, respectively.
At December 31, 2025 and 2024, the Company had an agricultural loan portfolio of $69.3 million and $121.8 million, respectively. The Company continues to wind down this portfolio over time as the loans mature or pay down. The Company does not intend to enter into new agricultural loans.
The following table presents a breakdown of C&I loans by size at the periods indicated:
December 31,
($ in thousands)
Number of Loans
Outstanding Balance
Average Balance
Number of Loans
Outstanding Balance
Average Balance
<$2 million
$2-5 million
$5-10 million
>$10 million
Total
The following table presents a breakdown of CRE loans (investor owned and owner occupied) by size at the periods indicated:
December 31,
($ in thousands)
Number of Loans
Outstanding Balance
Average Balance
Number of Loans
Outstanding Balance
Average Balance
<$2 million
$2-5 million
$5-10 million
>$10 million
Total
The Company had $574.8 million and $513.7 million of investor owned office real estate loans as of December 31, 2025 and 2024, respectively. The Company also had $399.0 million and $322.5 million of multifamily CRE loans as of December 31, 2025 and 2024, respectively.
The following table presents a breakdown of construction loans by size at the periods indicated:
December 31,
($ in thousands)
Number of Loans
Outstanding Balance
Average Balance
Number of Loans
Outstanding Balance
Average Balance
<$2 million
$2-5 million
$5-10 million
>$10 million
Total
The following table presents a breakdown of residential loans by size at the periods indicated:
December 31,
($ in thousands)
Number of Loans
Outstanding Balance
Average Balance
Number of Loans
Outstanding Balance
Average Balance
<$2 million
$2-5 million
$5-10 million
Total
The following table presents a breakdown of consumer loans by size at the periods indicated:
December 31,
($ in thousands)
Number of Loans
Outstanding Balance
Average Balance
Number of Loans
Outstanding Balance
Average Balance
<$2 million
$2-5 million
$5-10 million
>$10 million
Total
(1) Certain loans were reclassified from Consumer and into other categories in 2025. Prior period amounts were not adjusted.
The following table presents a breakdown of total loans by geographic region at the periods indicated:
December 31,
($ in thousands)
Midwest
Southwest
West
Specialty and Consumer loans
Total
The following table presents a breakdown of total loans by MSA, excluding specialty and consumer loans, at the periods indicated:
December 31,
($ in thousands)
St. Louis, MO-IL MSA
Los Angeles-Long Beach-Santa Ana, CA MSA
Phoenix-Mesa-Chandler, AZ MSA
Kansas City, MO-KS MSA
San Diego-Carlsbad-San Marcos, CA MSA
Dallas-Fort Worth-Arlington, TX MSA
Albuquerque, NM MSA
Santa Fe, NM MSA
Las Vegas-Paradise, NV MSA
Tucson-Nogales, AZ MSA
All other MSAs
Specialty and Consumer loans
Total
Loan guarantees, primarily on SBA 7(a) loans, totaled $960.1 million and $947.7 million at December 31, 2025 and 2024, respectively.
The following table sets forth additional information on certain categories of loans that are included in total loans above at the periods indicated:
($ in thousands)
December 31, 2025
December 31, 2024
Increase (decrease)
SBA loans
Sponsor finance
Life insurance premium finance
Tax credits
The sponsor finance portfolio is primarily comprised of loans in the manufacturing and wholesale trade sectors. It includes mid-market company mergers and acquisitions, targeted private equity firms, principally SBICs, and senior debt financing to portfolio companies.
The life insurance premium finance category specializes in financing whole life insurance premiums utilized in high net worth estate planning, through relationships with boutique estate planners throughout the United States.
The tax credit portfolio includes tax credit-related lending on affordable housing projects funded through the use of
federal and state low income housing tax credits. In addition, we provide leveraged and other loans on projects funded through the CDFI New Markets Tax Credit Program. This portfolio also includes tax credit brokerage through 10-year streams of state tax credits from affordable housing development funds. The tax credits are sold to clients and other individuals for tax planning purposes.
SBA loans are originated under the SBA 7(a) program and are primarily owner-occupied, CRE loans secured by a 1st lien. These loans predominantly have a 75% portion guaranteed by the SBA.
Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2025, no significant concentrations exceeding 10% of total loans existed in the Company’s loan portfolio, except as described above.
The following table presents the maturity distribution of loans at December 31, 2025 categorized by fixed or variable interest rates, net of unearned loan fees:
($ in thousands)
Due in One
Year or Less (1)
After One Through Five Years
After Five Through Fifteen Years
After
Fifteen Years
Total
Percent of
Total Loans
Fixed rate loans
Real estate:
Commercial
Construction and land development
Residential
Consumer
Total
Variable rate loans
Real estate:
Commercial
Construction and land development
Residential
Consumer
Total
Total loans
Real estate:
Commercial
Construction and land development
Residential
Consumer
Total
(1) Includes loans with no stated maturity and overdraft lines of credit.
The majority of variable rate loans are based on the prime rate or SOFR. At December 31, 2025, $4.8 billion or 68% of variable rate loans were subject to an interest rate floor. Most variable rate loan originations have one-to three-year maturities. Management monitors this mix as part of its interest rate risk management. The Company has also entered into interest rate hedges to reduce the cash flow impact of changes in interest rates on the variable rate loan portfolio. These hedges, which include interest rate swaps and collars, had a notional amount of $400.0 million at both December 31, 2025 and 2024. See “Interest Rate Risk” of this MD&A section for additional information.
Provision and ACL
The following table presents the components of the provision for credit losses for the periods indicated:
December 31,
($ in thousands)
Provision for credit losses on loans
Benefit for off-balance sheet commitments
Benefit for held-to-maturity securities
Charge-offs of accrued interest
Provision for credit losses
The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the ACL on loans at a level consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date. The Company also records reversals of interest on nonaccrual loans and interest recoveries directly through the provision of credit losses.
The CECL methodology requires economic forecasts to be factored into determining estimated losses. As a result, CECL is designed to typically require a higher level of provision at the start of an economic downturn. The increase in the provision for credit losses in 2025 was primarily due to loan growth, net charge-offs and the increase in nonperforming loans. The higher provision for credit losses in 2024 was also primarily due to loan growth, net charge-offs and the increase in nonperforming loans.
To the extent the Company does not recognize charge-offs and economic forecasts improve in future periods, the Company could recognize a reversal of provision for credit losses. Conversely, if economic conditions and the Company’s forecast worsens, the Company could recognize elevated levels of provision for credit losses. The provision is also reflective of charge-offs in the period.
The following table summarizes the allocation of the ACL on loans:
December 31,
($ in thousands)
Amount
Percent of loans in each category to total loans
Amount
Percent of loans in each category to total loans
Real estate:
Commercial
Construction and land development
Residential
Consumer
Total allowance
The ACL on loans was 1.19% of total loans at December 31, 2025, compared to 1.23%, and 1.24%, at December 31, 2024 and 2023, respectively. The decrease in the allowance to total loans ratio in 2025 compared to 2024 was primarily due to an improvement in the economic forecast, a reduction in qualitative reserves, and net loan charge-offs of $24.3 million. The Company adopted a new accounting standard in the current quarter that resulted in the $3.3 million credit mark on the acquired loan portfolio from the Branch Acquisition being added directly to the ACL in purchase accounting and no provision for credit losses was recognized on the acquired loans.
The following table is a summary of net charge-offs (recoveries) to average loans for the periods indicated:
December 31,
($ in thousands)
Net Charge-offs (Recoveries)
Average Loans (1)
Net Charge-offs (Recoveries)/Average Loans
Net Charge-offs (Recoveries)
Average Loans (1)
Net Charge-offs (Recoveries)/Average Loans
Real estate:
Commercial
Construction and land development
Residential
Consumer
Total
(1) Excludes loans held for sale.
See “Critical Accounting Policies and Estimates” of this MD&A section for more information on the ACL methodology.
Nonperforming loans and assets
See “Item 8. Note 1 – Summary of Significant Accounting Policies” for more information on nonaccrual loans and OREO. The following table presents the categories of nonperforming assets and other ratios, excluding government guaranteed portions, as of the dates indicated.
December 31,
($ in thousands)
Nonaccrual loans
Loans past due 90 days or more and still accruing interest
Total nonperforming loans
OREO
Total nonperforming assets
Total assets
Total loans
Total ACL on loans
ACL on loans to nonaccrual loans
ACL on loans to nonperforming loans
ACL on loans to total loans
Nonaccrual loans to total loans
Nonperforming loans to total loans
Nonperforming assets to total assets
Nonperforming loans based on loan type were as follows:
December 31, 2025
December 31, 2024
($ in thousands)
Amount
Percent
Number of loans
Amount
Percent
Number of loans
CRE
Construction and land development
Residential real estate
Consumer
Total
The following table summarizes the changes in nonperforming loans:
Year ended December 31,
($ in thousands)
Nonperforming loans, beginning of period
Additions to nonaccrual loans
Charge-offs
Principal payments
Moved to OREO
Nonperforming loans, end of period
Nonperforming loans at December 31, 2025 increased $40.1 million, or 94%, when compared to December 31, 2024. The addition to nonperforming loans during 2025 was primarily related to seven real estate loans to special purpose entities (each an “SPE Borrower”) affiliated with two commercial banking relationships in Southern California that share some common ownership. Litigation resulting from a business dispute between the owners of the entities resulted in all of the SPE Borrowers filing bankruptcy in the first quarter 2025, which was subsequently dismissed. In the fourth quarter 2025, the Company foreclosed on six of the seven properties serving as collateral for the loans. The six properties were transferred to OREO at fair market value, less selling costs. Based on each individual property’s fair value, a net charge-off of $4.0 million and a gain on transfer of $6.2 million was recorded. The seventh property with a book value of $4.0 million was foreclosed on in the first quarter of 2026. The following table provides a summary of the six properties foreclosed in 2025 by collateral type:
($ in thousands)
Fair market value, less selling costs
Carrying value (1)
Charge-off
Gain
CRE - investor owned:
Multifamily
Mixed use
Total CRE - investor owned
Residential real estate:
Duplex
Condominiums
Total residential real estate
Total
(1) Includes accrued interest.
Other than these foreclosures, the increase in nonperforming loans during 2025 was driven primarily by net charge-offs of $24.3 million and a relationship with two loans totaling $28.0 million that went on nonaccrual. These loans are well-secured with real estate collateral and the Company expects to collect the full value of the outstanding loans. Subsequent to December 31, 2025, $17.5 million in nonperforming loans were fully paid off in the first quarter of 2026.
OREO
The following table summarizes the changes in OREO:
Year ended December 31,
($ in thousands)
OREO, beginning of period
Additions
Changes in valuation allowance
Sales
OREO, end of period
Investment Securities
At December 31, 2025, our portfolio of investment securities was $3.7 billion, or 22% of total assets, compared to $2.8 billion, or 18% of total assets as of December 31, 2024. The portfolio is comprised of both available-for-sale and held-to-maturity securities.
The table below sets forth the carrying value of investment securities, excluding the ACL:
December 31,
($ in thousands)
Amount
Amount
Obligations of U.S. Government sponsored enterprises
Obligations of states and political subdivisions
Agency mortgage-backed securities
U.S. Treasury Bills
Corporate debt securities
Total
The ACL on held-to-maturity debt securities was $0.1 million and $0.3 million at December 31, 2025 and 2024, respectively. The Company had no debt securities classified as trading at December 31, 2025 or December 31, 2024.
The following table summarizes contractual maturity and tax-equivalent yields on the investment portfolio at December 31, 2025:
Within 1 year
1 to 5 years
5 to 10 years
Over 10 years
Total
($ in thousands)
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Obligations of U.S. Government-sponsored enterprises
Obligations of states and political subdivisions
Agency mortgage-backed securities
U.S. Treasury Bills
Corporate debt securities
Total
Yields on tax-exempt securities are computed on a taxable equivalent basis using a tax rate of 25.1%. Actual maturities can differ from contractual maturities, as borrowers may have the right to call or repay obligations with or without prepayment penalties.
The following table details the balance of FHLB capital stock and other investments. Other investments consist primarily of common stock investments related to our trust preferred securities, community development funds, and investments in private equity funds, primarily SBICs. These investments do not have a stated maturity.
December 31,
($ in thousands)
Amount
Amount
FHLB capital stock
Other investments
Total
Deposits
The following table shows the breakdown of deposits by type:
December 31,
$ Increase (decrease)
% Increase (decrease)
($ in thousands)
Noninterest-bearing demand accounts
Interest-bearing demand accounts
Money market accounts
Savings accounts
Certificates of deposit:
Brokered
Customer
Total deposits
Noninterest-bearing deposits / Total deposits
Total deposits increased $1.5 billion primarily due to organic deposit growth, as well as $609.5 million of deposits from the Branch Acquisition. Brokered certificates of deposit increased $237.4 million, to $722.0 million at December 31, 2025. Brokered certificates of deposit are used for term liquidity purposes in place of FHLB borrowings. The brokered certificates of deposit balance has a weighted average cost of 3.98% and a weighted average remaining term of six months at December 31, 2025. The Company has a deposit vertical portfolio focusing primarily on property management, community associations, and legal industry and escrow services. These deposits totaled $3.8 billion and $3.4 billion at the end of 2025 and 2024, respectively.
The following table shows the average balance and average rate of the Company’s deposits by type:
Year ended December 31,
($ in thousands)
Average Balance
Average Rate Paid
Average Balance
Average Rate Paid
Average Balance
Average Rate Paid
Noninterest-bearing demand accounts
Interest-bearing demand accounts
Money market accounts
Savings accounts
Certificates of deposit:
Brokered
Customer
Total interest-bearing deposits
Total average deposits
Average total deposits were $13.6 billion for the year ended December 31, 2025, an increase of $1.1 billion, or 9%, from December 31, 2024. The increase in 2025 was primarily due to acquired deposits related to the Branch Acquisition, and organic growth in noninterest-bearing demand accounts, interest-bearing demand accounts, and money market accounts.
The following table sets forth the maturities of estimated uninsured certificates of deposit as of December 31, 2025. Uninsured deposits are amounts estimated to exceed the FDIC deposit insurance limit and are not subject to any federal or state insurance program.
($ in thousands)
Total
Three months or less
Over three through six months
Over six through twelve months
Over twelve months
Total
Estimated uninsured deposits totaled $5.1 billion, including $289.9 million of certificates of deposit, as of December 31, 2025, and $4.5 billion as of December 31, 2024. Estimated uninsured deposits include $0.4 billion and $0.5 billion of balances that are collateralized or secured with third party insurance at December 31, 2025 and 2024, respectively.
Stockholders’ equity
Stockholders’ equity totaled $2.0 billion at December 31, 2025, an increase of $215.4 million, or 12%, from December 31, 2024.
Significant activity during the year ended December 31, 2025 included the following:
• Increase from net income of $201.4 million;
• Net increase in fair value of available-for-sale securities and cash flow hedges of $62.1 million;
• Decrease from dividends paid on common stock of $45.1 million and preferred stock of $3.8 million; and
• Decrease from common stock repurchases of $14.1 million, pursuant to the Company’s publicly-announced stock repurchase program.
Liquidity and Capital Resources
Liquidity
The objective of liquidity management is to ensure we have the ability to generate sufficient cash or cash equivalents in a timely and cost-effective manner to meet our commitments as they become due. Typical demands on liquidity are changes in deposit levels, maturing time deposits which are not renewed, and fundings under credit commitments to clients. Funds are available from a number of sources, such as the core deposit base and loan and security repayments and maturities.
Liquidity is provided from lines of credit with the FHLB, the Federal Reserve, and correspondent banks; the ability to acquire large and brokered deposits; sales of the securities portfolio; and the ability to sell loan participations to other banks and loans on the secondary market. These alternatives are an important part of our liquidity plan and provide flexibility and efficient execution of the asset-liability management strategy.
The Company’s Asset-Liability Management Committee oversees our liquidity position, the parameters of which are approved by the Bank’s Board of Directors. Our liquidity position is monitored daily. Our liquidity management framework includes measurement of several key elements, such as a loan to deposit ratio, a liquidity ratio, and a dependency ratio. The Company’s liquidity framework also incorporates contingency planning to assess the nature and volatility of funding sources and to determine alternatives to these sources. While core deposits and loan and investment repayments are principal sources of liquidity, funding diversification is another key element of liquidity management and is achieved by strategically varying depositor types, terms, funding markets, and instruments.
Liquidity from assets is available primarily from cash balances and the investment portfolio. Cash and interest-bearing deposits with other banks totaled $681.9 million at December 31, 2025, compared to $764.2 million at December 31, 2024. The decrease in cash balances during 2025 is due to the deployment of liquidity into the investment portfolio. Investment securities are an important tool to the Company’s liquidity objectives. Securities totaled $3.7 billion at December 31, 2025, and included $1.7 billion pledged as collateral for deposits of public institutions, treasury, loan notes, and other requirements. The remaining $2.0 billion could be pledged or sold to enhance liquidity, if necessary.
Available on- and off-balance sheet liquidity sources include the following items:
($ in thousands)
December 31, 2025
Federal Reserve borrowing capacity
FHLB borrowing capacity
Unpledged securities
Federal funds lines ( eight correspondent banks)
Cash and interest-bearing deposits
Holding company line of credit
Total
The Company also has a portfolio of SBA guaranteed loans, a portion of which could be sold in the secondary market to generate earnings and liquidity. The guaranteed portion of SBA loans totaling $78.2 million and $23.1 million were sold during 2025 and 2024, respectively.
Liability funding sources are available to increase financial flexibility. In addition to amounts borrowed at December 31, 2025, the Company could borrow an additional $1.6 billion from the FHLB of Des Moines as of December 31, 2025 under blanket loan pledges and has additional real estate loans that could be pledged. The Company also has $3.0 billion available from the Federal Reserve under a pledged loan agreement. The Company also has unsecured federal funds lines with eight correspondent banks totaling $135 million as of December 31, 2025.
In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company’s various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company’s liquidity. The Company has $3.0 billion in unused commitments to extend credit as of December 31, 2025. While this commitment level would exhaust the majority the Company’s current liquidity resources, the nature of these commitments is such that the likelihood of funding them in the aggregate at any one time is low.
At the holding company level, our primary funding sources are dividends and payments from the Bank and proceeds from the issuance of equity (i.e. stock option exercises, stock offerings) and debt instruments. The main use of this liquidity is to provide the funds necessary to pay dividends to stockholders, service debt, invest in subsidiaries as necessary, repurchase common stock and satisfy other operating requirements. In 2025, the holding company maintained a revolving line of credit for an aggregate amount up to $25 million, all of which was available at December 31, 2025. The line of credit has a one-year term that was renewed in February 2026, has an interest rate of one-month Term SOFR plus 185 basis points, and the annual unused commitment fee was 0.40%. The proceeds can be used for general corporate purposes.
Strong capital ratios, credit quality and core earnings are essential to retaining cost-effective access to the wholesale funding markets. Deterioration in any of these factors could have a negative impact on the Company’s ability to access these funding sources and, as a result, these factors are monitored on an ongoing basis as part of the liquidity management process. The Bank is subject to regulations and, among other things, may be limited in its ability to pay dividends or transfer funds to the parent company. Accordingly, consolidated cash flows as presented in the consolidated statements of cash flows may not represent cash immediately available for the payment of cash dividends to the Company’s stockholders or for other cash needs.
Through the normal course of operations, the Company has entered into certain contractual obligations and other commitments. Such obligations relate to funding operations through deposits or debt issuances, as well as leases for premises and equipment. As a financial services provider, the Company routinely enters into commitments to extend credit. While contractual obligations represent future cash requirements of the Company, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans made by the Company. The Company also enters into derivative contracts under which the Company either receives cash from or pays cash to counterparties depending on changes in interest rates. Derivative contracts are carried at fair value on the Consolidated Balance Sheet with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of the balance sheet date. The fair value of these contracts changes daily as market interest rates change. For additional information on the Company’s contractual obligations and commitments, see the following footnotes in Item 8: “Note 6 – Leases,” “Note 7 – Derivative Financial Instruments,” “Note 11 – Debt,” and “Note 16 – Commitments and Contingent Liabilities.”
Capital Resources
The Company and the Bank are subject to various regulatory capital requirements administered by the state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements and results of operations of the Company. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its bank affiliate must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The banking affiliate’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and tier 1 capital to risk-weighted assets, and of tier 1 capital to average assets. To be categorized as “well-capitalized”, banks must maintain minimum capital ratios as noted in the table below. As of December 31, 2025, and December 31, 2024, the Company and the Bank met all capital adequacy requirements to which they are subject.
The Company and the Bank met the definition of “well-capitalized” at each of December 31, 2025 and 2024. Refer to “Item 8. Note 13 – Regulatory Capital” for a summary of our risk-based capital and leverage ratios. The following table summarizes the Company’s and Bank’s capital ratios:
December 31, 2025
December 31, 2024
($ in thousands)
EFSC
Bank
EFSC
Bank
To Be Well-Capitalized
Minimum Ratio
with CCB
CET1 Capital to Risk Weighted Assets
Tier 1 Capital to Risk Weighted Assets
Total Capital to Risk Weighted Assets
Leverage Ratio (Tier 1 Capital to Average Assets)
Tangible common equity to tangible assets 1
CET1 capital
Tier 1 capital
Total risk-based capital
1 Not a required regulatory capital ratio
At December 31, 2024, total regulatory capital included $63.3 million of subordinated debentures that were issued in 2020 at a fixed rate of 5.75%. Beginning June 1, 2025, the subordinated debentures bore interest at a floating rate per annum equal to a benchmark rate of three-month term SOFR (as defined in the Indenture, dated May 21, 2020, between the Company and U.S. Bank National Association, as trustee, and subsequent First Supplemental Indenture), plus 566 basis points. On September 2, 2025, the Company redeemed the 2030 Notes funded through the issuance of a $63.3 million senior note at a rate of one-month Term SOFR plus a spread of 250 basis points. Prior to being redeemed, the 2030 Notes bore interest at a floating rate then equal to 9.98% per annum, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year.
The Company believes the tangible common equity and regulatory capital ratios are important measures of capital strength. The tangible common equity to tangible assets ratio is considered a non-GAAP measure. The tables included in this MD&A section under the caption “Use of Non-GAAP Financial Measures” reconcile these ratios to U.S. GAAP.
Risk Management
Market risk arises from exposure to changes in interest rates and other relevant market rate or price risk. The Company faces market risk in the form of interest rate risk through transactions other than trading activities. Market risk from these activities, in the form of interest rate risk, is measured and managed through a number of methods. The Company uses financial modeling techniques to measure interest rate risk. These techniques measure the sensitivity of future earnings due to changing interest rate environments. Guidelines established by the Bank’s Asset/Liability Management Committee and approved by the Bank’s Board of Directors are used to monitor exposure of earnings at risk. General interest rate movements are used to develop sensitivity as management believes it has no primary exposure to a specific point on the yield curve. These limits are based on the Company’s exposure to immediate and sustained parallel rate movements, either upward or downward. The Company does not have any direct market risk from commodity exposures.
Interest Rate Risk
Our interest rate risk management practices are aimed at optimizing net interest income, while guarding against deterioration that could be caused by certain interest rate scenarios. Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. We attempt to maintain interest-earning assets, comprised primarily of both loans and investments, and interest-bearing liabilities, comprised primarily of deposits, maturing or repricing in similar time horizons in order to manage any impact from market interest rate changes according to our risk tolerance. The Company uses an earnings simulation model to measure earnings sensitivity to changing rates.
The Company determines the sensitivity of its short-term future earnings to a hypothetical plus or minus 100 to 300 basis point parallel rate shock through the use of simulation modeling. The simulation of earnings includes the modeling of the balance sheet as an ongoing entity. Future business assumptions involving administered rate products, prepayments for future rate-sensitive balances, and the reinvestment of maturing assets and liabilities are included. These items are then modeled to project net interest income based on a hypothetical change in interest rates. The resulting net interest income for the next 12-month period is compared to the net interest income amount calculated using flat rates. This difference represents the Company’s earnings sensitivity to a positive or negative parallel rate shock.
The following table summarizes the projected impact of interest rate shocks on net interest income:
Annual % change
in net interest income
At December 31,
Rate Shock
In addition to the rate shocks shown in the table above, the Company models net interest income under various dynamic interest rate scenarios. In general, changes in interest rates are positively correlated with changes in net interest income.
The Company occasionally uses interest rate derivative instruments as an asset/liability management tool to hedge mismatches in interest rate exposure indicated by the net interest income simulation described above. They are used to modify the Company’s exposures to interest rate fluctuations and provide more stable spreads between loan yields and the rate on their funding sources. At December 31, 2025, the Company had derivative contracts to manage interest rate risk, including $400.0 million in notional value on derivatives to hedge the cash flows on floating rate loans and $32.1 million in notional value on derivatives on floating rate debt. Derivative financial instruments are discussed in “Item 8. Note 7 – Derivative Financial Instruments.”
The Company had $7.0 billion in variable rate loans as of December 31, 2025. Of these loans, $4.8 billion have an interest rate floor and nearly all of those loans were at or above the floor. Variable rate loans include $2.7 billion indexed to the prime rate, $3.5 billion are indexed to SOFR, and $0.8 billion indexed to other rates.
Changes in interest rates will also have an effect on noninterest expense. Certain deposit accounts receive an earnings credit that provides a reimbursement for costs clients incur on the accounts. As interest rates increase, the amount available for reimbursement also increases, resulting in an increase to noninterest expense. Conversely, a decrease in interest rates would reduce the amount available for reimbursement and decrease noninterest expense.
Critical Accounting Policies and Estimates
The following accounting policies are considered most critical to the understanding of the Company’s financial condition and results of operations. These critical accounting policies require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on experience. In the event different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected. The impact and any associated risks related to our critical accounting policies on our business operations are described throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see “Item 8. Note 1 – Summary of Significant Accounting Policies.”
The Company has prepared all of the consolidated financial information in this report in accordance with GAAP. The Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using loss experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. There can be no assurances that actual results will not differ from those estimates.
ACL
The Company maintains separate allowances for funded loans, unfunded loans, and held-to-maturity securities, collectively referred to as the ACL. The ACL is a valuation account to adjust the cost basis to the amount expected to be collected, based on management’s experience, current conditions, and reasonable and supportable forecasts. For purposes of determining the allowance for funded and unfunded loans, the portfolios are segregated into pools that share similar risk characteristics that are then further segregated by credit grades. Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. The Company estimates the amount of the allowance based on loan loss experience, adjusted for current and forecasted economic conditions, including unemployment, changes in GDP, and commercial and residential real estate prices. The Company’s forecast of economic conditions uses internal and external information and considers a weighted average of a baseline, upside, and downside scenarios. Because economic conditions can change and are difficult to predict, the anticipated amount of estimated loan defaults and losses, and therefore the adequacy of the allowance, could change significantly and have a direct impact on the Company’s credit costs. The Company’s ACL on loans was $140.0 million at December 31, 2025 based on the weighting of the different economic scenarios. As a hypothetical example, if the Company had only used the upside scenario, the allowance would have decreased $29.8 million. Conversely, the allowance would have increased $46.9 million using only the downside scenario.
Income Taxes
Management uses certain assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax assets and liabilities and income tax expense. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance may be established. We consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change. A valuation allowance for deferred tax assets may be required in the future if the amounts of taxes recoverable through loss carry backs decline, if we project lower levels of future taxable income, or we project lower levels of tax planning strategies. Such valuation allowance would be established through a charge to income tax expense that would adversely affect our operating results.
Effects of New Accounting Pronouncements
See “Item 8. Note 1 – Summary of Significant Accounting Policies – Recent Accounting Pronouncements” for information on recent accounting pronouncements and their impact, if any, on our consolidated financial statements.
Use of Non-GAAP Financial Measures
The Company’s accounting and reporting policies conform to U.S. GAAP and the prevailing practices in the banking industry. However, the Company provides other financial measures, such as adjusted return on average assets, adjusted return on average common equity, return on average tangible common equity, adjusted return on average tangible common equity, tangible book value per common share, tangible common equity to tangible assets, pre-provision net revenue, pre-provision net revenue return on average assets, core efficiency ratio, and adjusted effective tax rate, in this report that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position, or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.
The Company considers its adjusted return on average assets, adjusted return on average common equity, return on average tangible common equity, adjusted return on average tangible common equity, tangible book value per common share, tangible common equity to tangible assets, pre-provision net revenue, pre-provision net revenue return on average assets, core efficiency ratio, and adjusted effective tax rate, collectively “core performance measures,” presented in this report as important measures of financial performance, even though they are non-GAAP measures, as they provide supplemental information by which to evaluate the impact of certain non-comparable items, and the Company’s operating performance on an ongoing basis. Core performance measures exclude certain other income and expense items, such as acquisition costs, core conversion expenses, FDIC special assessment, net gain or loss on OREO, and net gain or loss on the sale of investment securities, that the Company believes to be not indicative of or useful to measure the Company’s operating performance on an ongoing basis. The attached tables contain a reconciliation of these core performance measures to the GAAP measures. The Company believes that tangible common equity to tangible assets provides useful information to investors about the Company’s capital strength even though it is considered to be a non-GAAP financial measure and is not part of the regulatory capital requirements to which the Company is subject.
The Company believes these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding the Company’s performance and capital strength. The Company’s management uses, and believes investors benefit from referring to, these non-GAAP measures and ratios in assessing the Company’s operating results and related trends and when forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP. In the following tables, the Company has provided a reconciliation of, where applicable, the most comparable GAAP financial measures and ratios to the non-GAAP financial measures and ratios, or a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.
Reconciliations of Non-GAAP Financial Measures
Pre-Provision Net Revenue (PPNR) and Pre-Provision Net Revenue Return on Average Assets (PPNR ROAA)
Year ended December 31,
($ in thousands)
Net interest income (GAAP)
Noninterest income (GAAP)
FDIC special assessment
Core conversion expense
Acquisition costs
Less net gain on sale of investment securities
Less net gain on OREO
Less insurance recoveries 1
Less noninterest expense (GAAP)
PPNR (non-GAAP)
Average assets
PPNR ROAA (non-GAAP)
1 Represents anticipated proceeds from a pending insurance claim related to a third quarter 2025 solar tax credit recapture event.
Tangible Common Equity, Tangible Book Value per Common Share, and Tangible Common Equity to Tangible Assets
At December 31,
(in thousands, except per share data)
Stockholders' equity (GAAP)
Less preferred stock
Less goodwill
Less intangible assets
Tangible common equity (non-GAAP)
Common shares outstanding
Tangible book value per share (non-GAAP)
Total assets (GAAP)
Less goodwill
Less intangible assets
Tangible assets (non-GAAP)
Tangible common equity to tangible assets (non-GAAP)
Adjusted Return on Average Common Equity, Return on Average Tangible Common Equity (ROATCE) and Adjusted Return on Average Assets (ROAA)
Year ended December 31,
($ in thousands)
Average stockholder’s equity (GAAP)
Less average preferred stock
Less average goodwill
Less average intangible assets
Average tangible common equity (non-GAAP)
Net income (GAAP)
FDIC special assessment (after tax)
Core conversion expense (after tax)
Acquisition costs (after tax)
Less net gain on sale of investment securities (after tax)
Less net gain on OREO (after tax)
Net income adjusted (non-GAAP)
Less preferred stock dividends
Net income available to common stockholders adjusted (non-GAAP)
Return on average common equity (GAAP)
Adjusted return on average common equity (non-GAAP)
ROATCE (non-GAAP)
Adjusted ROATCE (non-GAAP)
Average assets
Return on average assets (GAAP)
Adjusted return on average assets (non-GAAP)
Core Efficiency Ratio
Year ended December 31,
($ in thousands)
Net interest income (GAAP)
Tax-equivalent adjustment
Net interest income - FTE (non-GAAP)
Noninterest income (GAAP)
Less insurance recoveries 1
Less net gain on sale of investment securities
Less net gain on OREO
Core revenue (non-GAAP)
Noninterest expense (GAAP)
Less amortization on intangibles
Less core conversion expense
Less FDIC special assessment
Less acquisition costs
Core noninterest expense (non-GAAP)
Core efficiency ratio (non-GAAP)
1 Represents anticipated proceeds from a pending insurance claim related to a third quarter 2025 solar tax credit recapture event.
Adjusted Effective Tax Rate
Year ended December 31,
($ in thousands)
Income before income tax expense (GAAP)
Less insurance recoveries 1
Adjusted income before income tax expense (non-GAAP)
Income tax expense (GAAP)
Less tax credit recapture and tax applied to insurance recoveries 1
Adjusted income tax expense (non-GAAP)
Effective tax rate (GAAP)
Adjusted effective tax rate (non-GAAP)
1 Represents $32.1 million of anticipated proceeds from a pending insurance claim related to a third quarter 2025 solar tax credit recapture event included in noninterest income, and $24.1 million of tax liability related to the anticipated recapture plus approximately $8.0 million of estimated tax liability related to the anticipated proceeds from the pending insurance claim included in income tax expense.
