EFSC earnings: Deposit growth offsets higher credit costs

EFSC earnings improved from the previous quarter as strong loan and deposit growth lifted interest income, helping absorb higher credit costs. Enterprise Financial Services Corp reported net income of $42.4 million, or $1.14 per diluted share, for the third quarter of 2026 in results released on October 21. Profit remained below the year-earlier level as provisions increased and nonperforming assets rose.

Key Takeaways

• Deposits grew $624.4 million and loans increased $452.3 million during the quarter, while net interest margin held at 4.30%.
• Credit provisions rose to $18.1 million despite a sequential decline in the annualized net charge-off rate.
• The quarterly dividend increased to $0.36 per share, while management signaled a potentially less aggressive buyback pace.

Table of Contents

• EFSC earnings improve sequentially, but trail 2025
• Balance-sheet growth supports a stable margin
• Credit deterioration remains the main constraint
• Capital declines as shareholder distributions continue
• Conclusion

EFSC earnings improve sequentially, but trail 2025

The company’s third-quarter 2026 results announcement showed net income increasing $1.5 million from the second quarter but declining $2.8 million from a year earlier. Diluted earnings per share compared with $1.09 in the second quarter and $1.19 in the third quarter of 2025.

Adjusted diluted EPS, a non-GAAP measure, was $1.17, compared with $1.13 in the preceding quarter and $1.20 a year earlier. Pre-provision net revenue, also a non-GAAP measure, increased $6.4 million sequentially to $74.6 million, primarily reflecting higher net interest income.

Operating expenses fell $1.1 million from the second quarter to $114.7 million, mainly because of lower employee compensation. Higher loan-workout and legal expenses provided a partial offset. Noninterest income slipped to $13.2 million, with weaker tax credit income and losses on other real estate owned weighing on results.

Balance-sheet growth supports a stable margin

Net interest income increased $5.9 million sequentially to $174.6 million. Enterprise attributed the increase to organic loan growth and one additional day in the quarter. The tax-equivalent net interest margin remained at 4.30%, seven basis points above the year-earlier level.

Deposits reached $15.1 billion at September 30, while loans totaled $12.3 billion. Construction and land development, life insurance premium financing and investor-owned commercial real estate together accounted for $310 million of net loan growth.

Noninterest-bearing deposits represented 33% of total deposits, and the loan-to-deposit ratio was 82%. Total deposit costs increased just one basis point sequentially to 1.54%, allowing the bank to expand interest income without a narrower quarterly margin.

Chief Executive Officer James Lally said management expected mid- to high-single-digit loan growth for the remainder of 2026, moderating to mid-single-digit growth in early 2027. Those expectations are guidance rather than completed lending.

Credit deterioration remains the main constraint

The provision for credit losses rose to $18.1 million from $14.2 million in the preceding quarter and $8.4 million a year earlier. Nonperforming assets increased to 1.03% of total assets, compared with 0.92% at June 30.

Net charge-offs were approximately $11 million, equivalent to an annualized 36 basis points of average loans, down from 46 basis points in the second quarter. The lower charge-off rate therefore did not translate into a lower provision: higher nonperforming loans and loan growth also contributed to reserve needs.

Management identified a $7 million charge-off tied to a St. Louis private club that ceased operations. It also discussed progress on Southern California foreclosed properties, with more than half their value under contract, although court processes remained.

Chief Banking Officer Douglas Bauche said monetization of the Laguna portfolio was likely to begin in the first quarter of 2027. That timetable remains an expectation, not a completed disposal.

Capital declines as shareholder distributions continue

Tangible common equity to tangible assets fell to 8.13% from 9.04%, while tangible book value per share declined to $39.45 from $42.30. Management attributed the deterioration to changes in accumulated other comprehensive income. Both measures are non-GAAP.

Enterprise returned $46.5 million to shareholders during the quarter, including $34 million of share repurchases and $12.5 million of common dividends. The board increased the fourth-quarter common dividend by $0.01 to $0.36 per share.

Chief Financial Officer Keene Turner said the company expected some fourth-quarter repurchases, but potentially at a less assertive pace with tangible capital near the bottom of management’s target range.

Conclusion

EFSC earnings showed stronger underlying revenue generation, but rising nonperforming assets continued to limit the benefit. The next reporting checkpoint is the fourth quarter, when investors can assess credit-resolution progress and the pace of capital returns. The declared $0.36 common dividend is scheduled for payment on December 31, 2026.

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