Enterprise Financial Services (NASDAQ:EFSC) reported third-quarter net income of $42 million, or $1.14 per diluted share, as strong loan and deposit growth and stable net interest margin were offset by elevated credit costs.
The company’s earnings compared with $1.09 per diluted share in the second quarter and $1.19 per diluted share in the third quarter of 2025. Adjusted earnings per share were $1.17, up from $1.13 in the prior quarter, according to CFO and COO Keene Turner.
Pre-provision earnings rose $6 million sequentially to $75 million, aided by higher net interest income and lower non-interest expense. However, Enterprise recorded an $18.1 million provision for credit losses during the quarter, reflecting loan growth, increased non-performing loans and $11 million in net charge-offs.
Loan, deposit growth supports net interest income
Net interest income increased $5.9 million from the prior quarter to $175 million, while net interest margin held steady at 4.30%. Management attributed the result to higher loan and investment balances, a steeper yield curve and comparatively stable deposit costs.
Total loans reached $12.3 billion after increasing approximately $453 million, or nearly 4%, during the quarter. Chief Banking Officer Doug Bauche said gross loan originations and advances totaled $1.3 billion, exceeding $800 million in repayments.
- Core commercial and industrial loans rose $79 million to $2.7 billion.
- Investor-owned commercial real estate loans increased $138 million to more than $3 billion.
- Life insurance premium finance balances grew $100 million to $1.4 billion.
- SBA 7(a) owner-occupied real estate financing ended the quarter at $1.25 billion.
Management said loan pipelines support mid- to high-single-digit growth for the remainder of 2026, followed by mid-single-digit growth in the early part of 2027. Bauche said growth has been diversified across the company’s geographic markets and national lending platforms, though competition for business remains strong and credit spreads have compressed.
Total deposits climbed $624 million, or 4.3% from the second quarter, to $15.1 billion. Non-interest-bearing demand deposits totaled $5 billion, representing 33% of bank deposits. The loan-to-deposit ratio was 82%.
Deposit growth was led by Enterprise’s community banking markets, which accounted for 80% of quarterly growth, while specialty deposit verticals contributed $123 million. The total cost of deposits was 1.54% in the quarter, with management emphasizing disciplined pricing across its funding base.
Credit costs remain elevated
Enterprise’s third-quarter results continued to be affected by problem credits and non-performing assets. Net charge-offs were $11 million, or 36 basis points of average loans on an annualized basis, down from 46 basis points in the second quarter but above management’s previously stated expectation of a 15- to 20-basis-point run rate for the remainder of 2026.
Management said the charge-offs included a roughly $7 million loss on a loan to a private club in the St. Louis market that ceased operations in August. The company also recorded an approximately $2.6 million write-down on a Southern California hotel that it moved into other real estate owned, or OREO.
The ratio of non-performing assets to total assets increased 11 basis points from the prior quarter. Turner said additions included $18 million in agricultural loans, an $8 million commercial real estate relationship and a $4 million C&I relationship.
During the question-and-answer session, management said it expects to exit certain non-performing agricultural and owner-occupied real estate credits in the fourth quarter. It also reported progress in efforts to sell Southern California OREO properties, though it said court proceedings affect timing. Bauche said sales related to the Laguna portfolio could begin to be monetized in the first quarter of 2027.
The company said $150 million of its $183 million in non-performing assets, net of government guarantees, were secured by real estate. Management said those properties have largely undergone recent appraisals and are backed by tangible collateral.
Margin outlook, expense actions and capital management
Turner said the company expects net interest margin to rise by a couple of basis points in the fourth quarter following the latest federal funds rate increase. Enterprise estimates that a 25-basis-point rate move would affect quarterly net interest income by roughly $1 million to $2 million under its parallel-rate shock simulations.
The company added $150 million of loan hedges during the third quarter to help stabilize interest-rate risk. Turner said Enterprise expects continued loan growth, favorable earning-asset mix and funding-cost discipline to support net interest income and margin over the next several quarters.
Non-interest expense declined about $1 million from the second quarter to $115 million, including a $2.5 million reduction in employee compensation and benefits. The core efficiency ratio improved to 58.9% from 61.1% in the linked quarter, primarily due to higher net interest income.
Management also said it is streamlining operations, exiting subscale business banking activities in markets where it lacks density and ending its mortgage origination business. Separately, Turner said the company is seeking to change its participation in the state tax credit business to remove volatility from non-interest income while remaining an active lender in the sector.
Enterprise repurchased 526,000 common shares for approximately $34 million during the quarter and raised its quarterly dividend by $0.01 to $0.36 per share. Its tangible common equity-to-tangible-assets ratio declined to 8.13% from 9.04%, primarily due to changes in the fair value of securities and cash-flow hedges associated with interest-rate movements.
Turner said the company expects to remain active in share repurchases, although it may be less aggressive while capital sits at the lower end of its target range. Year to date, Enterprise returned about $122 million to shareholders through buybacks and dividends.
About Enterprise Financial Services (NASDAQ:EFSC)
Enterprise Financial Services Corp. is a financial holding company headquartered in Clayton, Missouri. Its principal subsidiary, Enterprise Bank & Trust, provides banking and financial services to businesses, professionals, institutions and individuals.
The company offers commercial and small-business lending, deposit accounts, treasury management, private banking, wealth management, trust and estate services, and other financial solutions. Its commercial banking capabilities include financing for working capital, equipment, real estate and business expansion.
Enterprise Bank & Trust serves customers through banking markets that include St.
