KBRA Affirms Ratings for Enterprise Financial Services Corp; Revises Outlook to Negative

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, the preferred stock rating of BBB-, and the short-term debt rating of K2 for Clayton, Missouri-based Enterprise Financial Services Corp (NASDAQ: EFSC) (“Enterprise” or “the company”). Additionally, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for the subsidiary bank, Enterprise Bank & Trust. The Outlook for all long-term ratings is revised to Negative from Stable.

Key Credit Considerations

The revision of the Outlook to Negative from Stable reflects deterioration in EFSC’s asset quality and profitability relative to historical performance and similarly rated peers. Historically strong earnings, supported by an above-average NIM and efficient operating model, have been pressured by higher credit costs and operating expenses over the past year, with ROA declining to ~1% YTD through 3Q26 compared to ~1.25% in 2024-2025. While EFSC's underlying spread income has demonstrated resilience through varying interest rate environments, a sustained recovery in profitability will depend partly on normalization of credit costs and improved operating efficiency.

EFSC’s loan portfolio is concentrated in commercial loans (~95% of total) though exposures are diversified across geographies, industries, and specialty lending verticals. Asset quality has weakened considerably over the past year, with NPAs rising to 1.47% of loans plus OREO as of 3Q26 and annualized NCOs of ~0.42% over the past four quarters comparing unfavorably to similarly rated peers. A significant portion of NPAs relates to Southern California OREO that management expects to resolve with minimal losses, potentially improving reported credit metrics but with resolution timing somewhat uncertain and dependent, in part, on legal proceedings. Management has responded by reducing growth in underperforming areas, including Southern California CRE and Sponsor Finance, which may also improve asset quality over time. However, recent losses across several unrelated commercial relationships and a broader increase in classified loan balances suggest that credit normalization may be uneven.

EFSC's differentiated deposit franchise and strong liquidity profile support the ratings, partially offsetting weaker profitability and asset quality. At 3Q26, loans were 82% of deposits, comparing favorably to the peer median. Specialty deposit verticals contribute to a diversified and historically stable funding base, while deposit growth has outpaced loan growth in recent years, strengthening core funding metrics relative to peers. Although all-in deposit costs, including noninterest deposit expenses which behave similarly to interest expenses, are somewhat above peer levels, substantial on-balance-sheet liquidity and contingent borrowing capacity provide flexibility to manage funding needs under a variety of market conditions.

Capitalization is somewhat constrained for current ratings in light of EFSC's commercially concentrated loan portfolio and recent asset quality weakness. As of 3Q26, TCE and CET1 ratios of 8.1% and 11.1%, respectively, are below similarly rated peer medians (based on latest available reported earnings, including 2Q26 and 3Q26), while regulatory leverage and total capital ratios are broadly in line with peers. Management has historically maintained buffers above longstanding capital targets, although the capacity to support balance sheet growth and shareholder distributions while preserving these cushions has become a more important consideration.

Rating Sensitivities

A rating upgrade is unlikely in the near term. The Outlook could be revised to Stable if profitability and asset quality demonstrate sustained improvement toward historical levels and similarly rated peers, accompanied by stabilization of capital ratios and preservation of adequate capital buffers. Conversely, ratings could be downgraded if profitability and asset quality fail to improve meaningfully over the Outlook horizon, or if deterioration in capitalization materially reduces financial flexibility. A significant weakening in funding or liquidity could also pressure the ratings.

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