Peter Benoist - President and Chief Executive Officer Scott Goodman - President, Enterprise Bank and Trust Keene Turner - Executive Vice President and Chief Financial Officer.

Jeffrey Rulis - D.A. Davidson & Co. Christopher McGratty - Keefe Bruyette & Woods Andrew Liesch - Sandler O'Neill and Partners Brian Martin - FIG Partners LLC. Daniel E. Cardenas - Raymond James & Associates, Inc..

Good day and welcome to the Enterprise Financial Services Corp Earnings Call Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Peter Benoist. Please go ahead, sir..

Thank you, Kevin, and good afternoon, everyone. Thank you for joining our Second Quarter Conference Call. Joining me on the call today are Scott Goodman, the President of our Bank; and Keene Turner, our Chief Financial Officer. I’d like to remind our listeners that during this call, we will be making forward looking statements.

Actual results may differ materially from results contemplated in our forward statements, as a result of various important factors including those described in our 2014 Annual Report on Form 10-K and in subsequent Filings with the SEC.

Forward looking statements speak only as of today Thursday, July 23, 2015, and the company undertakes no obligation to update them in light of new information or future events.

I would also like to remind you that you can find a copy of our second quarter press release which includes reconsolidations of non-GAAP financial measures referred to in this conference call in the investor relations section of our website. Our second quarter results exhibited continued strong performance in our core fundaments.

Our reported earnings of $0.43 per diluted share represented a 19% increase over prior year earnings and importantly core net income represented just under 90% of reported earnings.

Loans rebounded nicely in the quarter, increasing $107 million or 18% on an annualized basis, lead by strong growth in commercial and industrial loans which increased $70 million or 22% annualized.

We experienced strong demand in our enterprise value lending or senior debt and life insurance premium finance specialty segments as well as general commercial and industrial loan categories. Additionally our portfolio loan yields increased two basis points on a linked quarter basis.

Core deposits excluding certificates of deposit increased 3.4% or 13.6% on an annualized basis as we saw good success in our targeted deposit calling strategies initiated during the first quarter.

At the same time, our overall cost in interest bearing deposits decreased two basis points linked quarter contributing to our ability to hold our core net interest margins constant on a quarter-to-quarter basis and to expand core margins five basis points year-over-year.

Continual management focus on improving core performance has resulted in increases in core revenue of 5% and 9% linked quarter and year-over-year. At the same time, total expenses for the company declined 2.5% in the linked quarter and have decreased 4.8% from the year ago period.

The company’s core efficiency ratio has improved materially from 64.5% in the one year ago period to 57.6% in the second quarter.

The combination of strong loan growth, disciplined pricing, effective debt refinance and tight expense management has resulted in improvement building core operating performance producing our core return on average assets and average tangible common equity of 0.93% and 10.4% respectively for the quarter.

From a capital perspective, we ended the quarter with a tangible common equity ratio of 8.94% and the Board of Directors again increased our quarterly stock dividend from $0.06 to $0.07 per diluted share.

We’re pleased not only with the company’s strong performance in the quarter, but with the continued solid momentum that has been generated over the last several quarters. We attracted additional talent in both our St.

Louis and Kansas City markets during the quarter as our client centered relationship based business model continues to be an attractive alternative. While market competition remains intense, we are finding not our approach of selling client solutions as appose to just competing on price is resonating well with our clients and with our prospects.

I would like to turn it over now to Scott Goodman to give you more color on the markets, the competition, asset quality trends and our pipelines.

Scott?.

Thank you, Peter. As you heard from Peter, loan growth for the second quarter was healthy with balances of $107 million. As you can see on Slide number 3, this represents a trailing 12 month growth rate of 13%.

The increase was spread across all of our geographical regions and generally reflect elevated origination activity complemented by some expected seasonal rebound in several niche lending sectors.

All major areas of the portfolio experienced growth for the quarter including commercial real estate, construction and development, consumer and residential with the largest increase coming from the C&I segment of the business.

As Slide number 4 shows, C&I contributed $17 million or 65% of our increase for the period and continues on our strong growth trajectory of 18% over a year ago. The components of our growth are broken down by segments on Slide number 5.

The largest increase of $47 million came from enterprise value lending or EVL which is our senior debt product for structured private equity relationships within M&A space. Deal activity accelerated in the second quarter following a typically quiet first quarter for M&A. Our EVL teams in St.

Louis and Kansas City has continued to expand the relationships with private equity sponsors of small and mid-sized portfolio companies. In the Enterprise Bank and Trust brands has gained traction in this space. In addition to our core market at St.

Louis, Kansas city and Phoenix we are leveraging sponsor relationships that would take us into other markets such as Indianapolis, Minneapolis, Charlotte, Nashville, Cleveland, and Dallas and while competition is elevated into sector, we continue to garner risk based pricing for these deals with coupons generally in the 50 to 100 basis points above the general C&I.

We’ve also experienced high origination levels in the general C&I and commercial real estate sectors leading to healthy growth for the quarter. Steady and prescriptive calling efforts by our sales team on targeted high value businesses and top tier real estate investors have been successful.

In several larger new relationships with well established middle market companies in St. Louis and Kansas City were landed in the quarter. This is complemented by continued high activity calling of smaller businesses by our business banking team, which has opened over 200 new relationships year-to-date.

As I mentioned earlier, we experienced strong performance from all markets in the quarter shown on Slide number 6, the largest portion of growth came from Kansas City, which continues its upward trend in loans.

Success there is attributable to focus calling by specialty teams centered around EVL and commercial real estate, together with traction from new talent added over the last 18 months. St. Louis performance was characterized by growth in EVL and life insurance premium finance combined with healthy originations of general C&I and investor CRE.

In Arizona, our originations were steady for the quarter and pay off declined with balanced new business in EVL, C&I and CRE. Deposits as shown on Slide number 7 are up over the prior and linked quarter and we are focused on executing strategies designed specifically to improve both cost and levels of overall core funding.

In general, increases are coming from new relationships as well as several deposits, specific programs. DDA as a percent of overall deposits has declined a modest 2% over the past year.

The more recent impact of our strategies has come from programs targeting deposit rich business types and have generally included interest bearing options as we position for elevated focus for depositors on these features.

We expect product structure and pricing options combined with continued focus on DDA for new relationship activity to have a positive impact on our cost of funds over time. The competitive environment remains robust with respect to both talent and clients.

A steady, consistent and targeted communication process is critical to success in both of these areas. We continue to recruit opportunistically in all markets and have added experienced commercial RM and business banking talent in both St. Louis and Kansas City during the quarter.

Competition for new business is in intact and requires equally a defense to offense to grow the portfolio. Despite these pressures, payoff levels have remained in line with expectations and we are steady with the first quarter.

Those fixed rate loans have already cycled through the low rate environment and we continue to take a proactive approach in managing future maturities.

Our prescriptive relationship review process also provides for ongoing in-depth discussions with our most profitable relationships creating better communication between our clients and bankers, less price sensitivity and fewer surprises relative to loan payoff.

Performance in the fee income area was solid for the quarter with core non-interest income up 15% from Q1. Our core fee businesses are steady and Keene will break this down more specifically for the quarter in his comments. A portion of the increase does relate to fees and the deployment of our existing new market tax credit allocation.

Furthermore in June of this year, Enterprise Financial CDE, our commercial development entity was selected by the CDFI Fund of U.S. Treasury to receive an additional $65 million in allocation of new market tax credits.

In this competitive process, we were one of only 76 CDEs nationally to obtaining an award in this round and $65 million represents the third highest allocation in the nation. This is the fourth allocation of new market credits for our Enterprise Financial CDE in the past five years for a total of $183 million.

This program will continue to be a powerful source of fee income and a key differentiator in attracting new relationships to the bank by providing much needed capital to businesses in low continuity. Credit quality overall remains in good shape with all of our key indicators at better than peer level and charge offs backed down for the quarter.

Non-performing loans at 69 basis points represent a slight tick up for the prior quarter and mainly reflects the addition of three credits, two C&I deals and one commercial real estate. These are not related by industry and have been monitored through our lot process with well defined work out strategy.

At this point now I would like to hand it off to our CFO, Keene Turner for the financial review..

Thank you, Scott. For the second quarter, we continued to build on our earnings momentum and trends for the last several quarters and our financial performance for 2015 continued to improve. Our 2015 return on average assets is 1.11% and our return on average tangible common equity is 12.5%.

Results for the second quarter were favorable both on a reported and core basis, Slide 8 depicts the adjustments from $0.43 of diluted earnings per share to our core results of $0.38 of diluted earnings per share.

Accelerations on purchase credit impaired loans contributed $0.05 per share to overall EPS, but we are focused primarily on continued progress on our financial priorities which relate to core performance trends. Slide number 9 demonstrates the drivers of the changes in our core earnings per share in the linked quarter.

Net interest income dollars grew and contributed an additional $0.02 per share, while non-interest income contributed an additional $0.03. Expenses were stable in the quarter and we continue to provide sufficient levels for credit losses despite favorable asset quality measures.

Our core performance further advanced our return on average assets to 93 basis points, year-to-date we are at 91 basis points of return on average assets, a meaningful improvement from 77 basis points for the 2014 year-to-date period. Portfolio loan growth resumed this quarter and returned to our expected 10% year-to-date pace.

As you heard from Scott, EVL contributed materially to the loan growth for the quarter. It also aided the continue defense of our 3.4% core net interest margin, which is depicted on Slide 10.

Loan growth, stable net interest margin in one additional day during the quarter supported a $0.7 million or 11% annualized growth in net interest income in the linked quarter. The results in core net interest income was $26.3 million.

I think it is worthy to note that our margin performance over came a headwind of four basis points from acceleration affecting the contractual cash flows on purchase credit impaired loans, which are included in core net interest income and margin.

To reiterate, the mix of our loan growth expanded the yield on portfolio loans by two basis points this quarter to 4.17%. However, we maintained our modestly asset sensitive interest rate risk profile as 62% of our loans remain variable rate. Low type drove the yield improvement not the mix between fixed variable or extensions of duration.

Our average duration of portfolio loans remains at three years. Our strong growth continues to accelerate our earnings power. I typically focus on quarterly trends in my comments, but I want to point out that core net interest income is $2 million higher than it was in the second quarter of 2014.

This revenue growth has enhanced the run rate of core net interest income on an equivalent of $0.25 per diluted share on an annual basis. Slide 11, depicts credit trends during the quarter. We provide a $2.1 million to the allowance during the quarter resulting primarily from loan growth of $107 million.

As a result, our provision level increased in the linked quarter and correspondingly drove a one basis point increase in the level of allowance to total loans, which was 1.25% at June, 30. This increase reflects trends in overall credit factors including peer coverage trend and our overall desire to preserve a high quality balance sheet.

To that end our level of non-performing assets, loans, and covers there of all remain favorable to peers and we continue to be focused on providing prudently for risk while our loan portfolio grows. We are comfortable with the levels of our non-performing loans and coverage and our overall asset quality performance.

Slide 12, depicts an increase in core non-interest income of $0.9 million in the linked quarter despite that the second quarter and the third quarter fee income is usually seasonally lower due to our tax credit brokerage business being seasonally strong during the first and fourth quarter of each year.

This increase was primarily due to items included in miscellaneous income, fee from tax credit allocation, fees for selling swaps to customers, and some improved levels of income in both our mortgage and card services businesses. Tax credit allocation fees will remain unpredictable from quarter-to-quarter, due to the nature of the business.

However, we are optimistic that we will continue to see positive trends in the later business given interest rates and continued progress in cross selling efforts.

On the next Slide, we demonstrate our five quarter trend in operating expenses which were essentially stable at $19 million for the quarter, combined with strong net interest income and strength in non-interest income, our core efficiency ratio declined below 60% to 58% for the quarter.

I will point out again that our continued performance of expenses toward the lower end of our guidance has been driven largely by reductions in professional fees and loan legal expenses.

We are extremely pleased that our core efficiency has declined below 50%, and we are especially encouraged that we have accomplished this principally by driving near double digit revenue growth. That does not mean that there hasn’t been hard work to reduce cost and redeployment to support that revenue growth.

We’re certainly proud of the accomplishment specifically our ability to rapidly improve our efficiency and operating leverage mostly through revenue. Nonetheless, we expect to continue to maintain this trend during 2015, as we target quarterly total expenses to be between $19 million and $21 million.

Slide 14 demonstrates the continued progress to consistently grow EPS, specifically when compared to the second quarter of 2014, we have grown core EPS by 23%. It reflects the summary of all our efforts and we continue to have it as our principal focus.

I’ll remind you of our financial priorities on Slide 15 and our progress on each of them compared to the prior year. Our steady growth in net interest income dollars has been and remains our top priority.

Our efforts of expanded core net interest income by 9% from the prior year and we were able to enhance core net interest margins despite continued headwinds from run-off of purchase credit impaired loans and the challenging interest rate environment.

Our expectation for growth and portfolio of loans of at least 10% also remains unchanged and is expected to drive favorable trends in net interest income dollars.

As always we intend to continue to take care of the balance sheet by maintaining our credit standards with low levels of problem loans and prudent allowance coverage levels, preserving an asset sensitive interest rate risk profile as we continue to increase both the amount of net interest income, we expect to earn over the next 12 to 24 months and the amount we own as interest rates increase.

Continuing to execute and further develop deposit gathering strategies while managing capital levels over the long-term. It is hard to believe we have already reported results for the first half of 2015, we are certainly proud of our demonstrated trends in increasing return.

We have maintained focus on serving the needs of our customers, stay true to our business model and translated both to growing our profitability. We’re also pleased with our ability to deliver significant growth in core EPS as a foundation for delivering long-term shareholder returns.

We are committed to building both with incremental progress achieved each period to be accumulated over the long-term. We believe this focus on further enhancing the value of our franchise and business model we’ll continue to drive value as we execute on our strategy. Thank you for your interest in our company and for joining us today.

At this time, we will open the line for questions..

[Operator Instructions] We will take our first question from Jeff Rulis with D.A. Davidson. Your line is now open..

Thanks, good afternoon..

Hi Jeff..

Peter a question on you mentioned bringing over some talent in the quarter, I don’t know if you could itemize that in number of vendors and are there a specific lending focus those individuals?.

Yes Jeff we have brought on a commercial lender in Kansas City, we have brought on two here in St. Louis, I think the Kansas City hire was in mid quarter and the St. Louis hire toward the end of the quarter..

Great. Okay. And I guess trying to revisit the loan growth guidance, Keene mentioned you are kind of sticking to the 10% thing is kind of year-to-date you are pushing that number is there some expectation for run-off in Q4, I guess the pipeline sounds like it’s fairly positive into Q3.

Maybe you could just wrap more color around your guidance versus the already year-to-date performance?.

I guess I would say I think we were expecting to be a little bit more stable as we move through the end of the year depending on when we get pay off and when we actually get some deals closed, it does vary quarter-to-quarter, I don’t think we expect to see quite as much as disparity between the quarter as you have saw in first versus second.

I would expect it to be a little bit more steady going into third and then we typically have a slightly stronger fourth quarter based on our history..

Okay. I will step back, thanks..

Thanks Jeff..

Thank you..

We will take our next question from Chris McGratty with KBW. Your line is now open..

Hey good afternoon everybody..

Hi Chris..

Peter maybe a question on capital for you, you got the buyback and you guys are generating quite a bit of capital despite pretty good growth, what is the thought process on the two million share buyback at this point?.

Well I think on one I just wanted to have it in place from a board perspective, we did not have it in place. So positioning it I think was sort of issue number one which we did last quarter.

There is no near-term plan necessarily to exercise on it because our growth rates are pretty good right now and I think our expectation is that core growth will continue to be pretty good as we've indicated.

So I would say it is more positioning move from our perspective than any immediate capital move in terms of how we are thinking about it, obviously as you do know we increased the dividend price in the last two quarters too. So I think in that context we feel pretty good about our capital position..

Okay that is helpful and just on just given the loss share; you are seeing some of your peers kind of terminate them, what is the thought process kind of at this point?.

I think we said this before, we certainly are aware what’s going on and we have interest if it makes sense to us economically. So I think you may be seen a shift in posture in the FDIC and I think we’ve seen institutions being able to do it that under terms that are advantageous both to the FDIC and the institution and I think no different.

So we would be looking at it that way and those deals are at least from a non-single family perspective will be out of coverage in the third quarter of next year. So we certainly are motivated to do something there to make sense..

Okay.

Last question more on the - if you can as well on the positioning for higher rates, I think you talked about 62% of the book floats, I guess I’m a little bit surprised by the modest sensitivity to rates comment, I guess how to presume you guys, maybe this is a conservatism on your behalf, I’m interested in kind of how you guys are thinking about the margin kind of going forward, thanks..

Well I guess that is really a couple of different questions, so in terms of margin I think we still expect there will be a little bit of headwind that is principally driven by the underlying contractual cash flows on the PCI book. So we had overcame four basis points this quarter, we overcame five basis points in the first quarter.

So we’ve mitigated effectively nine basis points of margin compression year-to-date. In terms of asset sensitivity, I think what we are really looking at is driving improved earnings in all interest rate scenarios. So we want to get it now and later to the extent possible.

So that is the reason for the positioning on modest asset sensitivity and I would also say two in how that works itself out and positions itself the percentage has decreased or stayed relatively stable since we did the restructure at the end of the year.

But that is principally due to the fact that we have also driven our expectations for base net interest income up during those periods as well given the strong loan growth we've had..

Okay. Thanks a lot..

Sure..

We will take our next question from Andrew Liesch with Sandler O'Neill and Partners. Your line is now open..

Hey guys, just following upon on the capital question with the dividend, like in this phrase if there is a like a payout ratio that you target or if it maybe this $0.07 level, what is the right number?.

I think the dividend has become part of our overall capital management strategy as we continue to drive earnings I think you will see us continue to revaluate that periodically, we declared $0.07 for the third quarter and we will continue to look at it as we move, I also wouldn’t say we necessarily have a target payout ratio, but it is certainly a component along with the share repurchase program we referenced earlier that will utilize to flow or manage our capital build as market conditions persist..

Okay.

And then just on the higher provision, it certainly sounded like you guys planning on building of - parking away reserve, but are you seeing anything in your markets that might concern you?.

I’ll take that one Andrew. No I will say there is no major trends of signals that are concerning the addition of a non-performers who are this quarter varied by industry and markets. So and the answer is no, no major signals..

Very good. Thank you so much..

Thanks Andrew..

Thank you..

We will take our next question from Brian Martin with FIG Partners. Your line is now open..

Hey guys..

Hi Brian..

So maybe Keene could you just talk a little bit about the expenses and it sounds like you brought these guys, you brought them down and cut those stable here but in the collection cost and there is other ones that you kind of pulled from don’t seem to be available anymore and you’re growing the bank and investing in the franchise, I guess the kind of the way to think about the expenses longer term as far as the growth rate, sustainable growth rate for the core bank is it kind of a 2% to 3% type of level is a bit more less than that?.

I guess I would say absent any professional fees or loan legal I think we expect them to trend towards the bottom of our guidance.

We do have plans to make investment overtime to continue our growth rate but I would prefer the next two to three to four quarter I think we’d expect them to stay where they are our recruiting efforts I think we continue to be in the market and trying to meet the right people and our expense targets went necessarily preclude us from making the right investment at least in terms of acquiring talents.

So hopefully that gives you some color there..

Yes okay.

As far as just the funding cost and loan to deposit ratios kind of back up a little bit this quarter, again, any pressure that that’s going to create on funding or the loan grow, you are looking at the second half of the year was probably, how the impact?.

I think we are very comfortable with where we are we certainly have become much more focused on deposit gathering, we tend to have a trend of gathering deposits more gradually, where our loans tend to growth pretty precipitously in one quarter and then maybe ease off the next. So we tend to look at both on average and where we’re going.

So I don’t really have a concern I think we are encouraged by the fact that our growth in the deposits actually blended down our coast of deposits and our overall cost of funds. I think we are feeling of added and there is really no concern other real discussion about what improvement that mighty to our loan growth..

And as far as you guys have talked about the last couple of quarter, the potential for M&A and I guess is that something you are still kind of looking out on your more or less opportunities, I know you kind of at least identify that the targets that might fit to, I think it was pretty limited but any more update on M&A and its potential in so forth..

I wouldn’t say that there is really any shift in our posture there I think we continue to say that anything that would on a long term basis, would meaningfully accelerate any of our financial priorities would be something we would look at very carefully.

And be very intentional about, but otherwise, we are not really seeing any increased or decreased level of interest or activity right now. The environment remains about the same..

Okay. Prefect. Thanks very much..

Thanks, Brian..

And we’ll take our next question from Daniel Cardenas with Raymond James. Your line is now open..

Hey, guys, good afternoon..

Hi, Dan..

So just kind of following-up on the M&A question, I mean is the preference for you guys more on acquiring individuals and teams or would it be more on acquiring organizations?.

Hey Dan its Peter, obviously if you heard our comments, we’re really focused on core fundaments here in that contextual, acquiring talent is something we are very interested in and we are very focused on and as you said our preference that’s to acquire talent.

We are firm believers in our growth, we have talked a lot about opportunities in the marketplace relative to institutions that would have the kind of culture and capabilities that we have and it’s just know the field is limited let’s put it that way from a target perspective.

So we do think the right strategy is to continue to hone in on trying to bring talent on the platform and growing the book organically..

And what’s the market like for talent right now, are you seeing a lot of opportunities to talk to focus or does that ebb and flow?.

It’s a long-term process for the right people, some of the focuses that we have dialogued with, we’ve had dialogue and continue to have dialogue for extended periods of time and it’s a question of really being there at the right time at the right place.

So there is really, specific answer to that other than making sure we’ve communicating with the folks that we think could do exceptionally well in our platform and they are aware of our interest and when the right time occurs we’ re the alternative for them and we find with that in of strategy that works pretty well for us..

And then last question, is there any geography that you guys have a preference in expanding that talent basis..

I’ll Scott comment - I would say if Phoenix is a market that from a talent perspective, we would like to have more success, I would put it that way if you said what are we really focusing in on but we’re not making a distinction by market relative our ability to attract talent..

I would just add that I think our approach is more perspective than it has been in the past in terms of ongoing conversations that are necessary.

The talent that we added in this quarter for example, our elevated in Kansas City over the last few years, with the growth we've had there has really opened up some discussions that wouldn’t have been there in the past and so the talent we brought on there, their experience bankers and you are seeing some of the traction that we’re gaining in that market because of that.

Same issue in St. Louis, we’ve hand the elevated profile here, we have the attention of all the talents that we want, we’ve been opportunistic because there has been some consolidation in St.

Louis, so the bankers that we attracted here came from institutions that changed that were acquired or had leadership changes and we had positioned ourselves with those discussions to take advantage of that..

Okay. Great. Great, thanks guys..

Thank you, Dan..

[Operator Instructions] We’ll take our next question from [indiscernible] with Private Bank Investor. Your line is now open..

Hi good afternoon. I just wanted to circle back on the discussion about the loan loss provision, you clearly have indicated that the provision on the quarter was nothing to do with the rising problem loan it was more due to loan growth.

So my question is that rate of provisioning consistent with what we might see in the next couple of quarters based on your loan growth expectations for the year? Is that provisioning rate a good way to look at if you book another $100 million or $150 million worth of loans is that a good way to look at it against those good loans..

[Eric] (ph), I think I wouldn’t necessarily want to give you exact forward guidance on provisioning because there is obviously lot more factors that go into it than just a pure coverage percentage but I will say that over the last two years, we had a very similar level of allowance to our total loans within a couple of basis points and so the lot of factors that have been moving around behind that.

Some of that is dependent on the type of growth and also other movements in the portfolio and obviously the level of charge-offs. But I would point you to the history and say we would likely not to make a dramatic shift in the course of the next couple of quarters..

Okay. That’s fine.

Let me ask you just another question related to that, if the composition of your growth were even more tilted towards the EVL type of products compared to a broadened variety commercial or commercial real estate loans, does that type of credit entail establishing a little bit larger reserve against that generally against that type of loans?.

I guess that with any portfolio that we continue to put material growth into we tend to look at more conservatively because growth is one of the factors that we consider when we are looking at our allowance and how much investment we’re making in it.

So each one is different by segment and we don’t necessarily in terms of the way we look at the loan portfolio categories breakout that separately from C&I, but the presence of the level of growth that we have had is certainly a risk factor that we tend to look at more conservatively when we evaluate and provide for our losses..

Okay. Thanks very much..

You’re welcome. End of Q&A.

And it appears we have no further questions at this time, so I will turn it back to our speakers for any additional or closing remarks..

We appreciate that Kevin. No we don’t have any further remarks other than just to say again thank you for your interest in Enterprise and for joining us this afternoon. And we look forward to joining again next quarter. Thanks very much..

This does conclude today’s teleconference. You may now disconnect. Thank you and have a great day..