Good day, and welcome to the EFSC earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jim Lally, President and CEO. Sir, you may begin..

Thanks, Jonathan, and thank you all very much for joining us, and welcome to our second quarter 2019 earnings call. Joining me this afternoon is Scott Goodman, President of Enterprise Bank & Trust; and Keene Turner, EFSC's Chief Financial Officer and Chief Operating Officer.

Before we begin, I would like to remind everybody on the call that a copy of the release and accompanying presentation can be found on our website. The presentation and earnings release were furnished on SEC Form 8-K yesterday.

Please refer to Slide 2 of this presentation, titled Forward-looking Statements, and our most recent 10-K and 10-Q for reasons why actual results may vary from any forward-looking statements that we make today.I am very pleased with our second quarter results, and 2019 is shaping up to be a very good year for Enterprise Financial Services Corp.

On a diluted basis, we earned $0.68 for the quarter, returning 1.05% on our expanded asset base. Excluding the expenses for the conversion of Trinity during the quarter, we earned $0.98 per diluted share and our ROAA was 1.50%.We converted the Trinity Corp operating system back in May and furthered our cultural integration of these two companies.

And from my seat, these two companies have come together very well, and every day, we learn more about the future growth opportunities that Northern New Mexico provides for our company.

Scott will provide much more in the way of details on this region as well as others, and Keene will provide granular financial data on our very solid quarter.If you turn to Slide 3, you will see our financial scorecard. Netting the expenses related to Trinity, our EPS grew by 3% when compared to the same quarter a year ago.

As important, we are able to increase net interest income dollars by 31% when compared to a year ago. Our expanded balance sheet, coupled with our ability to defend and grow our net interest margin, contributed to this. As I stated in our press release, we have been preparing ourselves to thrive in various interest rate environments.

Our diversified business model, combined with superior balance sheet management, aided greatly in achieving this result.Our stable net interest margin over the last several quarters is evidence of this hard work, and I expect this will continue due to the strength of our relationship managers, our disciplined credit culture and our geographic and business diversification.

Keene will provide more details later in the call, but we did see a very minor uptick in our NPLs in the quarter, but I am not alarmed or worried that this is a start of a trend. The related credits are either well secured or have been resolved as we sit here today. We continue to see further improvement in our operating leverage.

We continue to drive revenue growth and reinvest in our businesses. Additionally, we will be opportunistic in improving our team wherever we can. Finally but most important, we saw our deposit base expand by 31% since last year.

Much of this is due to the closing of Trinity, but net of this, we did see this grow by 5% on an organic basis.Slide 4 lists where we are focused. As I stated earlier, I'm very pleased with the integration of Trinity, but know that this continues far past the systems.

We remain diligent and humble about this work and know that it happens every day with each client and associate encounter. Organic growth has been the hallmark of our company for our entire 31 years. I am pleased with the growth that we saw during the quarter and feel confident about the guidance we have provided for the rest of the year.

This is due to our further refinement of our sales process and keen focus are what makes us successful. As it relates to our operational excellence, it is about being better tomorrow than we are today.

We have made the necessary investment in systems and people to do so.I would now like to turn the call over to Scott Goodman, who will provide much more detail about our businesses and our regions..

Thank you, Jim. Loans, which are displayed on Slide 5, grew by $132 million in the quarter or 10.6% annualized, reflecting successful execution of the building pipelines that we discussed last quarter. We experienced growth in most categories, including C&I, commercial real estate, construction development and consumer.

And inclusive of the Trinity loan book, total loans grew by 20% year-over-year.Moving on to Slide 6. C&I loans were up $38 million in Q2 with growth spread across all business units.

The increase reflects steady execution in the specialized banking units and a rebound in demand for working capital from commercial clients.Loan details on Slide 7 breaks this down by the changes in the business segments. The largest increases in Q2 are reflected within the investor CRE, construction and life insurance premium categories.

Investor CRE and construction represent deepening of larger investor relationships as well as opportunities to finance owner-occupied expansions and participate in the urban core redevelopment within Kansas City and St. Louis.Life insurance premium finance had a better than typical Q2 with several new originations and some moderating payoffs.

This business remains well positioned for additional growth approaching the more seasonally strong second half.

The results are roughly $23 million of internal classification changes which inflated the tax credit growth and, alternatively, negatively impacted the general C&I category simply from a reporting standpoint.Moving to the business units on Slide 8.

Specialized lending, which represents EVL, life insurance premium and aircraft finance, did experience growth in what is typically a seasonally slow quarter.

In addition to the previously mentioned strong quarter for life insurance, EVL was up modestly with new originations and increases in existing senior debt outpacing payoffs from the sale of portfolio companies. We remain disciplined on credit structures in this specialty.

We have senior leverage generally around a 2.5x or lower and pricing tied to risk on a grid basis with premiums of 1% to 2% over what we see in general C&I.Aircraft finance balances were down in the quarter, mainly due to the timing of equipment sales by our dealer clients.

The pipeline for new aircraft financing is steady, and fee income generated from this dealer financing continues to grow.Focusing now on the geographic markets. Loan growth was most prominent in St. Louis and Kansas City this quarter. St. Louis growth was primarily centered around new CRE and improved usage of lines by existing clients.

Notable originations include repositioning of an office building in downtown St. Louis for a large national professional services company, financing of land for a new mixed-use development within the central corridor and a number of single-user credit tenant properties.

We also saw a modest growth from the life-backed loan portfolio, and we expect to see a continued ramp-up in this activity as we move through the year.The ag book also grew by mid-7 figures. Given some of the market swings and weather-related stress, we are taking a measured but opportunistic approach to growth in this sector.

Our experienced team has targeted historically successful and well-capitalized farm operators with robust risk management frameworks. We are taking a proactive approach to monitoring this book but so far see no material signs of weakness.Kansas City had a particularly strong quarter, growing $53 million or roughly 29% on an annualized basis.

The growth included several large new office, industrial and multi-use property acquisitions with existing commercial real estate clients. These opportunities were developed by taking a very targeted approach over time on key investors and developers and then being positioned as the strategic partner as these projects came online.

There was also decent C&I activity in KC during the quarter with higher overall line usage as well as some new equipment purchase financing.Arizona growth for the second quarter was $5 million, which fell short of our high expectations there.

Originations show a good mix of C&I, CRE and residential but were offset by a few larger paydowns related to the sale of financed properties by investors.

We remain optimistic with sales activity and solid economic growth in this market as well as the potential to pick up new talent and new clients from some competitive disruption occurring there.In New Mexico, we focus so far on evaluating the current book and maintaining existing relationships which are consistent with our overall approach.

We're actively leading with key clients and also believe there are some attractive opportunities to expand existing relationships with our now larger loan capacity. Longer term, Albuquerque represents a market in which our C&I capabilities can be leveraged to attract the new and expanded client base.

Loan pipelines overall in the book are solid, and we remain confident that we are on a pace that is consistent with high single-digit loan growth.Turning now to Slide 9 on deposit trends.

Typical seasonal runoff patterns by commercial clients were more than offset by inflows from new and existing relationships as we grew overall deposits modestly in the quarter. Overall deposits are up 31% from the prior year and 5% organically, excluding the impact of Trinity.

During Q2, we typically see heavier uses of cash by businesses for things like tax payments and bonuses. However, as we continue to prioritize deposits within our sales process as well as expand consumer accounts through M&A, we have been able to offset some of this impact.

And so during Q2, we brought on some large new balances from existing commercial clients and onboarded a number of new professional service company relationships with attractive noninterest-bearing balances.

The legal service specialty deposit business is also building successfully, and we've added new accounts in this niche as well.In New Mexico, during the quarter, as you heard from Jim, we successfully integrated the Trinity systems with our existing platform, and our associates have done a tremendous job with the operational and client service aspects of this event.

The branch teams and the commercial personnel are stable, and we continue to see normal activity flow and new business opportunities. Deposit balances there remain intact.

And beyond the aforementioned seasonality, we're very pleased with the behavior of the portfolio.Now I'd like to turn things over to Keene Turner for a review of our financial results..

Thanks, Scott, and good afternoon, everyone. My comments begin on Slide 10, where we have an earnings per share roll forward from the linked quarter. The roll is pretty extensive given that the first -- this is the first full quarter we have Trinity.

We had 1/3 of a quarter in the first quarter, and clearly, Trinity impacts the comparability of the results.

Nonetheless, we continue to produce organic growth, as Scott mentioned, that has also positively benefited our financial results, and overall fundamentals are stable and improving.Net income was $18.4 million in the second quarter, and that was $0.68 per diluted share, and that resulted in a return on assets of 1.05%.

Capital is strong at 8.4% tangible common equity, and we did our fifth consecutive dividend increase to $0.16.

We remain positioned given the capital levels for continued capital flexibility to support both our organic growth plans as well as opportunistically manage capital through additional M&A or via share repurchases.Merger-related expenses of $10.3 million or $0.30 a share were recognized in the second quarter.

Year-to-date, total merger expenses are just under $18 million. These expenses, while planned, have obviously impacted our reported results.

And the rest of my comments, we'll try to sanitize the results a little bit so we can share the underlying fundamentals.With the majority of the merger expenses behind us and the core system integration complete, we will begin to realize the full benefit of the cost synergies from Trinity beginning in the third quarter, and that's sooner than we had previously communicated.

Excluding the impacts during the quarter, the second quarter return on average assets was 1.50%, and return on tangible common equity was nearly 19%.More specifically in the quarter, revenue was $74 million, and that's an increase of $12 million from the first quarter, to about $0.41 a share on the revenue line, and expenses are up about $0.21 a share linked quarter.

So of that, the largest impact is $0.32 increase from growth in net interest income. Having brought Trinity's earning assets and low-cost deposit base for the full quarter contributed a large part of this increase. And as Scott has noted, we had a good quarter for loan generation that also benefited net interest income.

And most importantly, at this point, net interest margin was stable.The increase in noninterest expense and merger costs reduced EPS by $0.31 per share in the quarter. The majority of the merger expenses are behind us, and so the impact to earnings in the upcoming quarter should be around $1 million. Tax rate impact was similar to last quarter.

And again, we had some merger-related items that kept us at the top end of our range. And the 4 million shares issued for Trinity affected diluted share count in the second quarter compared to the first.

Incremental accretion was slightly lower, and we provided for additional loan growth, and each of those was about $0.01 of -- per share of impact.And turning to Slide 11. We've got -- we essentially have the same changes and the same trend from the prior year-to-date period.

Given the overwhelming impact of Trinity related, it's worth reiterating here that we are generally ahead of schedule and therefore, ahead of plan as it relates to Trinity and the phasing and the scaling that we expect to achieve through the transaction.

We'll dig in the remainder of the second quarter as we proceed through the detailed components that follow.Our net interest income and core net interest margin is presented on -- are presented on Slide 12.

We were pleased to see that core margin expanded slightly to 3.80% from 3.79% in the first quarter, particularly given what happened to LIBOR during the latter half of the quarter. Over the past year, core net interest income has expanded by 30% to about $61 million, and core net interest margin is up 5 basis points in that period.

Reported margin was 3.86%, and that was only off 1 basis point from the first quarter.The linked quarter increase in the net interest income is driven by having a full quarter of Trinity's operations, and that added approximately $10 million to the second quarter, and that was about a $7 million increase compared to the first quarter.

Net interest income also benefited from the additional day count. And as previously noted, the addition of Trinity was essentially neutral to core net interest margin. We added approximately $600 million of fixed-rate loans, $400 million of investment securities and $1 billion of low-cost granular funding.

Prior to closing, Trinity net interest margin was around 3.5%.Within the New Mexico loan portfolio, there's approximately $70 million of purchased credit impaired loans that are yielding 6.75%. These loans did not materially impact the first quarter, but they did contribute approximately 2 basis points to second quarter margin and loan yield.

Additionally, there's another 1 to 2 basis points of purchase accounting finalization that we recorded in the current quarter that won't continue.In addition, loan growth in the quarter increased average loans in the period to $5.1 billion, which, as you heard from Scott, was down across a variety of businesses and loan categories.

The yield on the loan portfolio expanded modestly to 5.42%. The larger average size of the portfolio and increase in fixed-rate loans, mostly from Trinity, helped stabilize the impact of decrease in LIBOR during the quarter. It's worth noting that the yield on the loan portfolio acquired was around 5.05%.

New loan originations were slightly lower than existing portfolio yields at just under 5.10% and with fixed-rate loans coming in lower than variable-rate loans, which is what we typically see.On the funding side, the cost of deposits decreased to 94 basis points from 102 basis points in the linked quarter.

This reflects the full quarter effect from the impressive cost of funds that joined us from Trinity. With the potential for reductions in the federal funds rate in the near term, we believe the actions we've taken to position our balance sheet over the last few years will benefit us.

In addition, with the acquisition of Trinity this year and Jefferson County Bancshares two years ago, we have diversified our deposit base and increased our level of fixed-rate loans.

The expansion of both the size and duration of the investment portfolio will also be beneficial in a declining rate environment.Given the interest rate environment, we're also prepared to rapidly respond with pricing adjustments in our deposit portfolio.

We have nearly $3 billion in average money market and interest-bearing deposit accounts with an increasing yield over the past several quarters as rates have risen. Within that, we have approximately $600 million directly indexed with fed funds that will move in conjunction with any fed rate changes.

We have another estimated $800 million of deposits that are exception-priced, directly managed or in premium commercial interest-bearing accounts that we intend to continue to manage for changes in interest rates.

In addition, there are other wholesale and brokered funds that have and will continue to move along with the fed funds rate and other indices.We're comfortable that we've positioned ourselves well to manage and defend net interest margin for the interest-rate environment.

As it sits today, our modeling suggests falling rates would create only a modest headwind as we translate our loans and balance sheet growth into earnings per share. That means that we still expect to generally benefit from the forecasted mid- to high single-digit loan growth.

That said, enhancing our earnings by growing net interest income dollars remains our priority through a continued focus on expanding and generating new client relationships and with all that supported by a well-positioned balance sheet.Sorry for the deep dive there.

I just thought that was pertinent for the quarter, and we'll wrap up briefly with comments on the rest of the income statement. Page 13 highlights our credit quality trends. Nonperformers were up to $19.8 million or 39 basis points of total loans in the quarter. That was from 0.19% at the end of March.

The majority of the increase was related to two nonaccrual loans that were well secured, and we didn't provide any additional specific reserves on those during the quarter, given our comfort level. We also had two loans that were 90 days past due in accruing interest that were included in nonperforming loans.

Both those loan relationships have been resolved already as we sit here today in the third quarter, and those total about $4 million.The increase in OREO in the quarter was related to a PCI loan that was part of the Jefferson County Bancshares acquisition in 2017.

The addition of this property was partially offset by a few sales that occurred in the quarter, and there was no additional allowance or charge on that loan as it was well marked originally in purchase accounting.Provision expense was $1.7 million in the quarter, and that's up $200,000 from the first quarter.

The increase in the quarter was due to loan growth, and the level of our allowance continues to reflect stable asset quality across all of our lending platforms.On the next slide, which is number 14, noninterest income increased $2.7 million in the linked quarter, primarily from a full quarter of Trinity, and that's really driven by wealth and card services income.

Tax credit activity, as we had indicated, has begun to gain some traction as we spoke about in the last couple of quarters, and it added about $0.5 million to fee income during the second quarter. Our pipeline of tax credit activity is strong, and we expect to achieve a 25% growth in this area over 2018 levels.

Overall, we continue to expect the high single-digit fee income growth in 2019 from Trinity due primarily to the opportunities as we talked about in state tax credits as well as card services.Turning to Slide 15, noninterest expenses were $49 million in the quarter, and that included $10.3 million in merger-related expenses.

The majority of the merger-related expenses in the quarter were termination charges related to core operating systems. Approximately $8 million of the operating expenses in the second quarter were run rate Trinity, including $1 million of amortization from core deposit intangibles.

The core efficiency ratio was 53% and improved 1 point in the linked quarter and is up 1 point from the prior year. Now the Trinity conversion is complete, we expect further leveraging of our expenses and improvement in the efficiency ratio.

And looking forward ahead -- or ahead to the third and fourth quarters, we expect noninterest expenses will range from $37 million to $39 million. This level of noninterest expense is in line with our original forecast of cost savings inclusive of Trinity.Moving to Slide 16.

The current quarter and year-to-date effective tax rate was 20%, including approximately 1% added from nondeductible merger-related items. We're still estimating the top end of the full tax year rate will be approximately 20% with the opportunity to reduce it further with some tax credit investments we're reviewing.

If that's the case, you'll get a lower tax rate, and the low end of that range for the year will be 18%.

But that will have a corresponding increase in noninterest expense toward the top end or maybe just slightly outside of the $37 million to $39 million.In summary, our results for the second quarter reflect another successful quarter for the company.

We continue to strive to perform at a high level and drive long-term value creation by focusing on customer relationships, associates, shareholders and prudent financial decisions. This quarter is the culmination of both organic and M&A efforts, and we appreciate your continued support and for joining us today.

And we'll take questions from analysts at this time..

[Operator Instructions]. We'll take our first question from Jeff Rulis of D.A. Davidson & Co..

So on the cost savings, it sounds like we've kind of accelerated a little bit on the original assumption on cost saves and amount. And Keene, could you just kind of remind us, I guess, will all of these largely be collected in Q3? And if not, kind of lay out what's sort of changed on that front..

Yes. I think we gave essentially level guidance in expense guidance that's really down from, call it, $39 million here in the second quarter. So I think we expect that we'll have a fairly clean fourth quarter run rate.

So the guidance we gave of $37 million to $39 million has a little bit of an intersection of continuing cost decreases and run rate decreases from Trinity, offset by additional investments that we have planned in the business and people as we grow the business.

And I would say that, that -- if you draw a straight line through that, that's similar to the second quarter. So not as much run rate investment 2Q to 3Q, but there's a little bit of cost savings coming out.

I would maybe just characterize it and say that, generally, June for us was a pretty clean quarter, and we could identify the things that we know are coming out here in the next couple of months, and we feel pretty good about it.

So I think we're ahead in terms of timing, which means that we're a little bit ahead in terms of what I think the phase and efficiency ratio will be and where we'll end up the year..

Got it. And then just I guess the margin guidance, I wanted to make sure I caught you on where we're discussing -- you mentioned only modest headwinds in a down rate environment.

Could you kind of range bound it for -- I don't know if that is inclusive of your budget in terms of what you assume for rate cuts and I guess yield curve expectations, but if you could just walk us through in a little bit more detail on the margin discussion..

Yes. So we've synthesized a number of yield curve scenarios. So all of this has a variety of fed cuts and changes to, call it, the 5 and 10 year Treasury rate.

But within a relative sensitivity, our -- we're -- our expectation and our characterization of modest is that on a static basis over the next 12 months, it's an estimate of about a 1% headwind in terms of net interest income.

So if our expectation is to grow high single digits and we're not able to be effective on any of these additional opportunities for rate cuts on the deposit side that we talked about, we expect about a 1% headwind which is around 5 basis points of margin.

So I think we feel pretty good about that, and I also think we feel pretty good about the opportunities that we outlined in terms of what we know is going to move if the fed moves and what we know is moving along with LIBOR and other indices, but then also what we can do on the deposit front given really how much commercial deposits we have and how we've managed those as rates have risen..

And maybe one last one for Jim. Just given the added visibility in the Southwest footprint, have you seen any increase in the inbound sort of potential M&A partners in that region? I guess that's question one. And question two would be just be broad-based, footprint-wide M&A discussions..

Yes. Jeff, so I would tell you that over the last couple of years, we haven't waned in terms of our efforts to meet with companies both in our current markets and certainly in the Southwest.

I think the challenge we come about is the fact that there still is a little bit of a mismatch relative to expectations between what's reasonable in the buyers versus sellers side, but I think that's coming closer together.

You know the market as well as anybody, there are a few really good organizations out there that would fit, and we're interested in several, but we have to make sure it's the right fit. But I think it's safe to say in our current markets and toward the Southwest, we're interested..

Got it. And that sort of doubles for the conversation that -- I guess I know where you're leaning, but KC, St.

Louis, if you found something in market there, those discussions still ongoing?.

Yes..

We'll take our next question from Andrew Liesch of Sandler O'Neill..

Could you just talk a little bit about the repricing dynamics of the variable-rate loans? It looks like about 60% of the loan portfolio. How much of that is tied to LIBOR, how much is 3-month LIBOR, 1-month LIBOR? Just trying to get a sense of that repricing..

Yes. We've got about -- of the $3 billion, about $2.5 billion of that is LIBOR, about $400 million prime and then you have another $200 million of other. And then within LIBOR, most of that is going to be 1-month LIBOR, and then there might be a little bit that's 3-month LIBOR. But you have most of it tied to shorter duration LIBOR indices.

So hopefully, that's helpful..

Okay. Shorter duration on that. I mean, are there floors there or -- I'm just trying to get a sense..

Yes. So I would say we have a very large number of floors, but those tend to be with smaller borrowers. So you've got close to $600 million of that book with floors. There's about $200 million of that, that's on the floor. And it's across a variety of indices. And then for the ones that are above the floor, that relative delta is 50 to 100 basis points..

And I would just add, Keene, that from a process standpoint, as we go through anything that's either renewed or extended, and if it's a time to have a floor, we're implementing floors, just as a process standpoint..

Yes.

And then on the enterprise value lending product, I'm just kind of curious, what are you seeing in that from an underwriting standpoint? Is there any weakening out there, given where we are in the cycle, from some other competitors to win deals?.

Yes. So it is competitive. We are seeing competition from, say, nonbanking, the tranche would probably be the most aggressive lenders. Sometimes you get a local bank that kind of tries to jump in and put an aggressive structure out there. But as you can see from the way we are growing EVL, we're not putting the pedal down.

We're remaining disciplined on structure. We are staying in that 2.5x or so senior, and we're putting it on pricing grids so that as it is leveraged, we're getting paid for the risk. We're seeing -- still seeing a lot of portfolio companies sell.

And I think that group sees a very large number of deals across its desk and says no to many, many more than they say yes to. So probably the best way I can just say that we're still bullish on the sector, but we're growing it just within our own credit parameters..

We'll take our next question from Nathan Race of Piper Jaffray..

I want to maybe start on capital. I think as the -- I appreciate that you guys raised the dividend for 3Q. So just curious on what the appetite for share repurchases are through the back half of this year.

And I guess based on Jim's commentary around the pricing disparity between buyers and sellers still at this point, just curious on how you guys see capital accreting over the back half of this year and into 2020.

I think given where the dividend stands today, I think capital levels on a TCE basis would exceed your 8% to 9% target maybe as we move through 2020..

Yes. Nate, this is Jim. So it's a balancing act, for sure. And so as we've said in the past, the priority would be to support growth and then obviously tick down through M&A, and then you see our dividend strategy and then the share repurchases.

And so it's a matter of balancing it throughout on a continuing basis and know if you have something on the hook relative to M&As so you can keep some powder dry.

And it's something certainly that Keene and the team look at often and check in frequently to make sure that we're not committed to one strategy to a point that we paint ourselves into a corner..

Understood.

And perhaps, Keene, could you speak to just the appetite on share repurchases in 3Q and 4Q of this year?.

Yes. I guess I would even just characterize I think sort of post end of the second quarter, up until today, I think we bought back about 30,000 shares under some plans we have in place. So there's an appetite there, and we've got some price parameters. And obviously, there's a variety of factors that affect what we can do and when we can do it.

But that's just something that we can -- we have in place all the time.

And I think we'll look at -- I think as Jim mentioned, we'll look at our potential M&A prospects, and then I think we have to look at ourselves and say, "Do we want to take the shares out if some of that doesn't look like it's coming to fruition?" And as we get closer to 9%, then I think that reflects what we've done historically.

So that is our appetite, and I think it is our desire not to go over 9%.I'm going to add one caveat, that with a much larger investment portfolio and yields and rates moving around, the portfolio does have an impact on the level of TCE on a quarterly basis, as you saw this quarter.

So that's something that, depending on what happens close to a quarter end or whatever, we try to look at all that stuff, but it may slip around a little bit more than normal..

Okay. Understood. That's helpful. And just going back to the core NIM outlook, I appreciate your comments earlier, particularly in terms of what you guys have in terms of levers to pull on the deposit side of things with relationships that are more or less indexed to the short end of the curve.

So I guess assuming we get a July rate cut, any sense or can you kind of frame up where you expect the core NIM to traject into 3Q at this point?.

Yes. I think when -- our most near-term projection is probably that we'll lose the -- several basis points, and then we'll either be able to recover from there with deposit cuts or -- I'm not sure we're going to be able to time it in such a way that we head that off.

Because right now, we've got LIBOR down, and actually, for us, a rate cut helps because it allows us to get some relief on the $600 million of index, and it also allows us a talking point to go to the other $800 million of exception price and go get some dollars there.

So we're targeting to defend that 5 bps if that's what our forecast is from margin compression. I just don't know that we're going to capture it all here in the next quarter.So you might see a little bit of slippage before it stabilizes or gets better.

I would say we're really happy, and we've been incredibly pleased with the way margins performed over the last year. We've got that 5 basis points in our pocket, and I think it's a victory, and we'll be earning at a really high level given where cost savings are going in the third and fourth quarter and into 2020 if we can pull all that off..

Understood. That's great to hear.

And then maybe just lastly for Scott or Jim, just curious, maybe give some additional color on those four credits that moved to nonaccrual in the quarter, maybe by portfolio, geography and kind of what gives you the comfort that you guys don't see any losses within those four in particular?.

Sure, sure. Well, the first two are easy. They were basically 90 days past dues, which sometimes -- and they're both in St. Louis. When you're in the middle of a restructure, you kind of use the maturity as a negotiating factor and those have cleared up shortly after the quarter end and are current.

So the other two, which are about $8 million roughly total, one is a -- has been a classified credit for a while, kind of working through the negotiation process, it's a manufacturer service company. We're well secured with finished goods, receivables and equipment. And the other one is a single-family property in a very attractive area.

So I think from a loss standpoint, we feel pretty secure with those..

We'll take our next question from Michael Perito of KBW..

I wanted to start on the wealth management.

Can you just remind us, I think Trinity contributed about $600,000, $700,000 a quarter, is that a ballpark accurate figure for the Trinity wealth management fees that came over?.

Yes. Let me dig through my notebook here. My apologies. Yes, that's a good number, and I think what you're maybe pointing to is we had a little bit of weakness in underlying enterprise wealth management fees that, that's outstripping. So we're actually seeing some good growth there on the Trinity side.

Overall, the numbers are decent, but we had, had higher hopes for our own sort of wealth management revenue stream for the year. But fortunately, the combination of the two has been good for us..

Yes. I kind of want to just dig into that a little deeper, because obviously, in 2017, you had really strong wealth growth. It kind of flattened out a little bit over the last 4 or 5 quarters here.

And I'm just curious, what kind of can get that moving again? Is it just opportunity on the Trinity side or are there other things that are being looked at on the legacy -- in the St. Louis and Kansas City markets where there are growth opportunities? Or just any color there will be helpful..

Yes. I think some of the decline had to do with the markets, obviously, but a more ardent focus on sales in that area. We did bring on a new head of private banking in the last quarter, and we believe that's a connector, if you will, between commercial and wealth. Mike, you know us well, it's one of the things that we focus on doing few things well.

And we're getting to wealth now, and we'll certainly apply the same sales disciplines that have improved and grown the commercial bank there. We're putting some talent in place that will help us. And obviously, we're going to learn from our partners in New Mexico because they have been doing it well for a while..

Okay. And then switching gears a little bit.

Keene, just on the liquidity position, as we think about kind of the cash and investment portfolio moving forward in our models, I mean, is it fair to -- as we look at them, I'm just pulling it up here again quickly, bear with me for a second, but I think the cash balances at the end of the second quarter settled in a little over $190 million and then the investment book a little over $1.3 billion.

I mean, was there any movement post quarter or anything that inflated that into quarter end? Or are those decent numbers to use for the liquidity profile going forward, depending -- obviously depending on how strong growth is? Just what are your thoughts there?.

Yes. I feel much more confident that the proportion of the assets, I like the size of the investment portfolio, I think there's some definite benefits there. I think the cash may be a tinge high. I think we're typically used to seeing that at $85 million, $90 million.

Some of that just depends on how much cash kind of comes in the last day and maybe you're going to get a 1-day lag and sort of how you're managing that or what you might be projecting for that day.But that last comment isn't going to materially impact how you think about the liquidity position.

I think we like the revised liquidity position of the company.

I mean, I think I was looking back over some of the historical numbers and the net interest margin we're at, the ROA we're at, with 8 percentage points better, are lower on loan to deposit and bigger investment portfolio, for us, feels a lot better and gives us a lot of opportunity going forward. So we're proud of that and we like that..

So I guess just to summarize, I mean, the cash position is probably a little high, but the bond book, north of 1 point -- well, I guess, just the securities portfolio in general, north of $1.3 billion, it sounds like that's a decent number.

If you hit the growth that you expect, like you don't expect much degradation in that figure?.

Yes, I would think that like always, we're going to continue to reinvest and we'll just look at where it makes sense. It may ebb and flow quarter-to-quarter depending on what cash flows look like, but I would think that, that's a good number overall..

Okay. And then just lastly, Jim, you got the Trinity deal on board.

Now I was wondering, just kind of a generic question, but I was wondering if you could just give us an update, now that you've seen a little bit more of the Trinity deal and how the two franchises kind of mixing together, what -- a couple of the biggest opportunities you are -- do you think are down there that could help you maybe exceed kind of the base case stuff that you communicated to us as it relates to the transaction?.

I'd say this. A couple of things. One, Trinity was relatively young in regards to their penetration in Albuquerque, and they -- and a smaller balance sheet, obviously, and really catered mostly to the CRE market.

And as Scott alluded to in his comments, we believe that there's an opportunity for our C&I platform to do particularly well, our treasury platform to do well in Albuquerque. I'd say this, too.

The lab in Los Alamos continues to expand as well, and there's not enough housing either in Santa Fe or Los Alamos to accommodate the growing population there, because when people retire from the lab, they don't leave the market. They stay.

And given our foothold relative to the community in that area, we feel good about continued growth, both in the mortgage side as well as acquiring household accounts with that.

So I think those are the two spots we're focused, and certainly becoming a bigger part of overall communities, in the communities over there, with our focus on very influential community groups as well..

[Operator Instructions]. We'll take our next question from Brian Martin of Janney Montgomery Scott LLC..

Just a couple of things for me. Just the -- Keene, just -- maybe I missed some of it when you were talking about it, but on the deposit side, that the repricing opportunities on the deposit side, if rates decline, can you just run back through that? I think you said on the loan side, it was -- I thought it was $2.5 billion that were tied to LIBOR.

Maybe I missed that, but just run back through the repricing on the loans and deposits..

Yes. We had about $3 billion of loans on -- that are flagged at variable rates. $2.5 billion are LIBOR-based, $400 million are prime and the delta from other indices across a variety. And then on the deposit side, there's $3 billion of money market and interest-bearing deposit accounts.

$600 million of that is directly indexed to fed funds, and then another $800 million are exception priced, directly managed or in premium interest-bearing accounts that we are -- that we're attacking.

And then there's some other sources that are more closely related to wholesale or brokered within that, that -- or have moved and will continue to move as those benchmark rates go down..

Okay.

And with LIBOR, I mean, I guess, have you already been, I guess, active with calling some of these customers given what's already happened with LIBOR? Or is that something you're going to wait to address until, I guess, rates actually go down?.

Yes. I would say that I think on the way up, LIBOR wasn't the indicator that caused customers to have discussions with us. It was fed funds and that's what gets the headlines and that's what business customers read, and I think that's the catalyst for us being able to have that conversation back.

And so as much as we want to make those changes, we're prepared and we're ready, but we haven't been able to execute there.

There's also a competitive set out there that we can try to be ahead of the curve as much as we want, but we want to do this in a way that also retains the deposits and has the customer still feeling good about their relationship with Enterprise. So it's a delicate balance, but we're ready. We've been getting ready.

We've been having all those discussions internally. The names are on a sheet. They're assigned. They're all the things that you need to do. And we're working on it and we have internal targets. And I think as I indicated on one of the earlier responses, we know what we're trying to defend.

So we're ready, but it may be a timing issue and it shouldn't be that big of an issue..

Yes. I got you. Okay. And then just on the loan growth, and maybe it's for Scott or whomever, but just it seems like you feel very confident on the loan growth.

Just kind of wondering if you can give a little bit more color behind that, whether in the back half of the year, just kind of whether it be geographically or by segment, kind of where you're seeing the best pipelines today or just kind of where the biggest opportunity is to capitalize..

Sure. I think as I said in the comments, I think what you saw in Q2 was what I had kind of telegraphed in Q1 relative to building the pipelines. And I think now looking ahead, the pipelines are still solid in many of the same ways that I think that you saw in Q2.

In Kansas City, there's a lot of urban core development, industrial, multifamily, offices kind of coming back. And then you've got some competitive changes in Kansas City as well as Arizona that are creating opportunities for C&I relationships.

I mean, that's when you're going to go after C&I, when something major changes with account officers or management teams or sales of banks, and I think that's what we're seeing, is those kind of opportunities there.And then on the specialty side, I think Q3, Q4 is typically a little stronger for both life insurance and EVL, and I don't see any reason at this point why we wouldn't see some of that same -- those same factors.

In life insurance, I think we've just seen fewer payoffs this year. Last year, with the tax code changes, we saw some early payoffs and we just haven't seen that repeat itself this year. So yes, I'm feeling good about the way things look from a loan standpoint right now..

Okay. And then New Mexico, the flatter or the smallest decline this quarter.

I guess how do you see that portfolio trending? I guess maybe -- I guess do you expect to see that resume growth next quarter?.

I would say, Brian, overall, we have pretty modest growth expectations in that portfolio. There was a number of loan categories that we would -- that were considered by Trinity in run-off mode and so no matter -- we can originate pretty robustly and we have been, but that -- those are just going to create some net headwinds.

So you may not see a lot of traction there on a net basis for a little while despite the fact that we continue to collect and gather new relationships, particularly in Santa Fe and Albuquerque..

And Brian, I would just say we're in evaluation mode out there, right? We're meeting with clients. And I think there will be some opportunities actually to probably grow because of the expanded checkbook with really good clients. And then there are going to be some which maybe they were stretching for growth and don't necessarily fit.

So as we wade through that, I think we'll get a better handle on what we can grow from the existing book..

Okay. Yes, it's helpful. And the last one for me, which is on credit.

I know someone asked earlier, but just outside of the four credits you've already discussed, I mean, is there anything else that -- yes, I guess, is there any areas you guys are staying away from or any other concerns just in general from a macro perspective that you would comment on or share? Is it kind of similar to what you said last quarter, you're just not seeing much out there still?.

Yes. I mean, from our existing portfolio, it's monitoring heavily those spaces that we know are in stress. I mean, we monitor the EVL book very closely on a monthly basis. We're watching -- as I mentioned, we're watching ag closer. We think that our structures have sheltered us so far, but we'll see.

And then we're staying away from other areas that we think are probably overheated. On the real estate side, I think multifamily is overheated in some markets. So we're just trying to be very selective in terms of how we approach certain segments.

And the portfolio right now, I think other than hopefully the explanation I gave on the few credits, is in pretty good shape..

[Operator Instructions]. At this time, there are no further questions in the queue..

Well, Jonathan, thanks for hosting the call, and thank you all for joining us in the support of our company. Look forward to speaking to all of you again next quarter, if not sooner. So thanks, and have a great day..

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect..