Enterprise Financial Services (EFSC)

Regional banking company Enterprise Financial Services (NASDAQ:EFSC) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 24.3% year on year to $204.9 million. Its non-GAAP profit of $1.20 per share was 7.3% below analysts’ consensus estimates.

Company Overview

Starting as a single bank in Missouri in 1988 and expanding through strategic growth, Enterprise Financial Services (NASDAQ:EFSC) is a financial holding company that offers banking, lending, and wealth management services to businesses and individuals across seven states.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Enterprise Financial Services competes with regional banks like UMB Financial (NASDAQ:UMBF), Commerce Bancshares (NASDAQ:CBSH), and First Midwest Bancorp (NASDAQ:FMBI), as well as larger national institutions in its specialty lending niches.

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees. Over the last five years, Enterprise Financial Services grew its revenue at an incredible 18.5% compounded annual growth rate. Its growth beat the average banking company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Enterprise Financial Services’s annualized revenue growth of 7% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Enterprise Financial Services reported robust year-on-year revenue growth of 24.3%, and its $204.9 million of revenue topped Wall Street estimates by 17.3%.

Net interest income made up 87% of the company’s total revenue during the last five years, meaning Enterprise Financial Services barely relies on non-interest income to drive its overall growth.

Our experience and research show the market cares primarily about a bank’s net interest income growth as non-interest income is considered a lower-quality and non-recurring revenue source.

Topline growth alone doesn't tell the complete story - the profitability of that growth shapes actual earnings impact. Banks track this dynamic through efficiency ratios, which compare non-interest expenses such as personnel, rent, IT, and marketing costs to total revenue streams.

Investors focus on efficiency ratio changes rather than absolute levels, understanding that expense structures vary by revenue mix. Counterintuitively, lower efficiency ratios indicate better performance since they represent lower costs relative to revenue.

Over the last five years, Enterprise Financial Services’s efficiency ratio has increased by 7.8 percentage points, going from 58% to 58.6%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

Enterprise Financial Services’s efficiency ratio came in at 53.6% this quarter, beating analysts’ expectations by 658.3 basis points (100 basis points = 1 percentage point). This result was 5.9 percentage points better than the same quarter last year.

For the next 12 months, Wall Street expects Enterprise Financial Services to become less profitable as it anticipates an efficiency ratio of 60.6%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Enterprise Financial Services’s EPS grew at an astounding 15.4% compounded annual growth rate over the last five years. However, this performance was lower than its 18.5% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Enterprise Financial Services, its two-year annual EPS declines of 2.8% mark a reversal from its (seemingly) healthy five-year trend. These shorter-term results weren’t ideal, but given it was successful in other measures of financial health, we’re hopeful Enterprise Financial Services can return to earnings growth in the future.

In Q3, Enterprise Financial Services reported adjusted EPS of $1.20, down from $1.29 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Enterprise Financial Services’s full-year EPS of $5.20 to grow 3.1%.

Banks profit by intermediating between depositors and borrowers, making them fundamentally balance sheet-driven enterprises. Market participants emphasize balance sheet quality and sustained book value growth when evaluating these institutions.

Because of this, tangible book value per share (TBVPS) emerges as the critical performance benchmark. By excluding intangible assets with uncertain liquidation values, this metric captures real, liquid net worth per share. Other (and more commonly known) per-share metrics like EPS can sometimes be murky due to M&A or accounting rules allowing for loan losses to be spread out.

Enterprise Financial Services’s TBVPS grew at an incredible 10.9% annual clip over the last five years. TBVPS growth has also accelerated recently, growing by 15.7% annually over the last two years from $31.06 to $41.58 per share.

Over the next 12 months, Consensus estimates call for Enterprise Financial Services’s TBVPS to grow by 5.7% to $43.96, mediocre growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Enterprise Financial Services has averaged a Tier 1 capital ratio of 11.7%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, Enterprise Financial Services has averaged an ROE of 11.5%, impressive for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This shows Enterprise Financial Services has a strong competitive moat.

We were impressed by how significantly Enterprise Financial Services blew past analysts’ revenue expectations this quarter. We were also happy its tangible book value per share narrowly outperformed Wall Street’s estimates. On the other hand, its EPS missed. Zooming out, we think this was a mixed quarter. The stock remained flat at $54.92 immediately following the results.

Updated: December 4, 2025 at 11:29 PM EST

Before making an investment decision, investors should account for Enterprise Financial Services’s business fundamentals and valuation in addition to what happened in the latest quarter.

Enterprise Financial Services isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its declining net interest margin shows its loan book is becoming less profitable. And while the company’s TBVPS growth was exceptional over the last five years, the downside is its anticipated efficiency ratio over the next year signals its day-to-day expenses will rise.

Enterprise Financial Services’s P/B ratio based on the next 12 months is 1.1x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $64.50 on the company (compared to the current share price of $55.76).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.