ENTERPRISE FINANCIAL SERVICES CORPEFSC
ENTERPRISE FINANCIAL SERVICES CORP Income Taxes Disclosure
INCOME TAXES
The following table presents the components of income tax expense (benefit) for the years ended December 31:
| Year ended December 31, | |||||||||||||||||
| ($ in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 63,474 | $ | 41,477 | $ | 40,471 | |||||||||||
| State and local | 13,283 | 8,022 | 9,616 | ||||||||||||||
| Total current | 76,757 | 49,499 | 50,087 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 4,981 | (2,535) | 283 | ||||||||||||||
| State and local | 605 | (986) | 2,097 | ||||||||||||||
| Total deferred | 5,586 | (3,521) | 2,380 | ||||||||||||||
| Total income tax expense | $ | 82,343 | $ | 45,978 | $ | 52,467 | |||||||||||
The following table presents a reconciliation by rate and amount of expected income tax expense computed by applying the statutory federal income tax rate to income before income taxes reflected in the Consolidated Statements of Income to the effective income tax expense:
| Year ended December 31, | |||||||||||||||||||||||
| Amount | Rate | Amount | Amount | ||||||||||||||||||||
| ($ in thousands) | 2025 | 2024 | 2023 | ||||||||||||||||||||
| Income tax expense at federal statutory rate | $ | 59,581 | 21.0 | % | $ | 48,561 | $ | 51,770 | |||||||||||||||
| Increase (decrease) in income tax resulting from: | |||||||||||||||||||||||
State and local income taxes, net (1) | 11,326 | 4.0 | % | 7,334 | 9,445 | ||||||||||||||||||
| Federal tax credits: | |||||||||||||||||||||||
| New Markets Tax Credits | (3,958) | (1.4) | % | — | — | ||||||||||||||||||
| Low-income housing tax credits (“LIHTC”) | (1,764) | (0.6) | % | 285 | (56) | ||||||||||||||||||
| Other federal tax credits | (1,611) | (0.6) | % | (5,619) | (4,364) | ||||||||||||||||||
| Total federal tax credits | (7,333) | (2.6) | % | (5,334) | (4,420) | ||||||||||||||||||
| ITC recapture | 24,148 | 8.5 | % | — | — | ||||||||||||||||||
| Nontaxable or nondeductible items: | |||||||||||||||||||||||
| Tax-exempt interest income, net | (7,137) | (2.5) | % | (5,124) | (4,942) | ||||||||||||||||||
| Bank-owned life insurance | (1,558) | (0.6) | % | (892) | (888) | ||||||||||||||||||
| Non-deductible expenses | 3,152 | 1.1 | % | 1,524 | 2,059 | ||||||||||||||||||
| Excess tax benefits | (623) | (0.2) | % | 28 | (251) | ||||||||||||||||||
| Total nontaxable or nondeductible items | (6,166) | (2.2) | % | (4,464) | (4,022) | ||||||||||||||||||
| Other, net | 787 | 0.3 | % | (119) | (306) | ||||||||||||||||||
| Total income tax expense | $ | 82,343 | 29.0 | % | $ | 45,978 | $ | 52,467 | |||||||||||||||
(1) State taxes in California made up the majority (greater than 50 percent) of the tax effect in this category.
As of December 31, 2025 and 2024, the carrying value of the investments related to low-income housing tax credits was $19.9 million and $16.7 million, respectively. No impairment losses have been recognized from forfeiture or ineligibility of tax credits or other circumstances during the life of any of the LIHTC investments.
The following table presents the components of income taxes paid disaggregated by jurisdiction for the year ended December 31:
| ($ in thousands) | 2025 | ||||
| Federal | $ | 71,051 | |||
| State and local: | |||||
| California | 6,932 | ||||
| All other state and local | 4,888 | ||||
| Total state and local | 11,820 | ||||
| Total income taxes paid | $ | 82,871 | |||
A net deferred income tax asset of $59.3 million and $85.4 million is included in other assets in the Consolidated Balance Sheets at December 31, 2025 and 2024, respectively. The following table presents the tax effect of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities for the periods indicated:
| Year ended December 31, | |||||||||||
| ($ in thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Allowance for loan losses | $ | 34,325 | $ | 34,212 | |||||||
| Loans held-for-sale | 2,633 | 3,304 | |||||||||
| OREO | — | 39 | |||||||||
| Deferred compensation | 6,413 | 5,209 | |||||||||
| Accrued compensation | 6,897 | 6,265 | |||||||||
| Unrealized losses on securities, net | 18,437 | 38,734 | |||||||||
| Net operating losses and tax credits | 5,042 | 5,299 | |||||||||
| Lease liability accrual | 6,812 | 6,485 | |||||||||
| Other investments | 11,216 | 5,587 | |||||||||
| Research and experimental expenses | — | 1,473 | |||||||||
| Fixed assets | — | 2,802 | |||||||||
| Deferred expenses | 2,610 | 3,021 | |||||||||
| Other deferred tax assets | 4,165 | 3,248 | |||||||||
| Total deferred tax assets | 98,550 | 115,678 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Acquired loans | 1,490 | 1,922 | |||||||||
| Intangible assets | 8,880 | 8,756 | |||||||||
| Right of use asset | 6,032 | 5,644 | |||||||||
| Anticipated insurance proceeds | 8,060 | — | |||||||||
| Other investments | 10,901 | 10,233 | |||||||||
| Other deferred tax liabilities | 1,049 | 951 | |||||||||
| Total deferred tax liabilities | 36,412 | 27,506 | |||||||||
| Net deferred tax asset before valuation allowance | 62,138 | 88,172 | |||||||||
| Less: valuation allowance | 2,812 | 2,812 | |||||||||
| Net deferred tax asset | $ | 59,326 | $ | 85,360 | |||||||
As part of an acquisition in 2019, the Company acquired net operating loss, tax credit, and capital loss deferred tax assets. Net operating losses originated in the years 2012, 2014-2017, and 2019 and will expire in the years between 2032-2037. Tax credit carryforwards originated in years 2010-2015 and will expire in the years between 2030-2035.
A valuation allowance is provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. The company determined it was more likely than not that some of the acquired net operating loss and tax credit assets would not be realized and has recognized a valuation allowance of $2.8 million at December 31, 2025 and 2024, respectively.
The Company and its subsidiaries file income tax returns in the federal jurisdiction and in 31 states and localities. The Company is no longer subject to federal, state or local income tax audits by tax authorities for years before 2020, with the exception of 2016 and 2017 being open years by state taxing authorities. Net operating losses generated prior to 2016 that are utilized going forward would still be subject to examination.
As of December 31, 2025, the gross amount of unrecognized tax benefits was $6.0 million and the total amount of net unrecognized tax benefits that would impact the effective tax rate, if recognized, was $4.7 million compared to $4.0 million and $2.4 million as of December 31, 2024 and 2023, respectively. The Company is under audit by the state of California, Minnesota, and Missouri, and while the Company has concluded it has adequately provided for uncertain tax positions, the outcome of such audits are always uncertain and could result in additional tax expense.
The Company recognizes gross interest and penalties related to uncertain tax positions in income tax expense and classifies such interest and penalties in the liability for unrecognized tax benefits. The amount accrued for interest and penalties was $3.1 million as of 2025, $2.1 million as of 2024, and $1.0 million as of 2023.
The following table summarizes the activity in the gross liability for unrecognized tax benefits for the periods presented:
| ($ in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance at beginning of year | $ | 5,016 | $ | 3,077 | $ | 2,724 | |||||||||||
| Additions based on tax positions related to the current year | 1,347 | 1,212 | 727 | ||||||||||||||
| Additions for tax positions of prior years | — | 1,128 | 24 | ||||||||||||||
| Settlements or lapse of statute of limitations | (338) | (401) | (398) | ||||||||||||||
| Balance at end of year | $ | 6,025 | $ | 5,016 | $ | 3,077 | |||||||||||
During 2025, 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 has a receivable of $32.1 million related to the pending insurance claim included in “Other assets” in the Consolidated Balance Sheets as of December 31, 2025, and the anticipated proceeds from the insurance policy and increased tax liability are included in “Noninterest Income” and “Income Tax Expense,” respectively, in the Consolidated Statements of Income for the year ended December 31, 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 19, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 22, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 26, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.