KBRA Affirms Ratings for Enterprise Financial Services Corp
15 Oct 2025 | New York
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 Stable.
Key Credit Considerations
The ratings are supported by EFSC’s robust profitability performance headlined by an average ROA of ~1.25% since the GFC. The company’s earnings strength is supported by above average NIM bolstered by a higher yielding (6.6% at 2Q25), higher-risk loan portfolio and an efficient expense structure which benefits from low branch density and national specialty lending and deposit verticals. These strengths help to offset a relatively low noninterest income contribution (~12% of operating revenue). KBRA expects EFSC to generate ROA >1% despite downward pressure on NIM in an easing interest rate environment.
The company's acquisition of 12 bank branches in Arizona (10) and Kansas (2) from First Interstate BancSystem, Inc. (NASDAQ: FIBK) added ~$645 million in deposits and ~$300 million in loans, providing EFSC with an enhanced footprint within targeted markets, particularly in Arizona. The transaction closed on October 10, 2025 and is credit neutral in KBRA's view, with relatively low execution risk compared to a whole bank acquisition.
The company’s loan portfolio is concentrated in commercial lending, which represents >90% of total loans, with meaningful exposures in sponsor finance, SBA lending, tax credit finance, and life insurance premium finance. KBRA notes EFSC’s good credit performance historically, while also acknowledging episodic rises in NCOs and NPAs in recent periods that reflect some of the inherent risks of the company’s commercial lending strategy.
Funding is primarily comprised of core deposits sourced through client relationships, both in market and nationally via specialty deposit verticals. Adjusting for credits paid to specialty deposit clients, all-in deposit costs track slightly above the peer average but are stable and well diversified by geography and type. Funding has been enhanced in recent years by an improved loan-to-deposit ratio (86% at 2Q25). KBRA views total liquidity, both on balance sheet and contingent sources, as ample.
EFSC’s core capitalization has been managed prudently relative to the company’s risk profile, in KBRA’s view. The CET1 ratio is expected to decline to ~11% following the close of the FIBK branch acquisition, which is at the lower end of the peer range. However, we expect the CET1 ratio to rebuild toward the midpoint of the company’s historical 11%-12% operating range through retention of earnings.
Rating Sensitivities
A rating upgrade is not likely in the near term. Over the longer term, positive rating momentum could result from higher fee income contributions and capital ratios that align more closely with higher rated peers, while sustaining solid earnings and asset quality. Conversely, meaningful deterioration in asset quality and/or profitability in conjunction with more aggressive financial management could result in negative rating action.
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