Good day and welcome to the Enterprise Financial Services Corp’s Second Quarter Earnings Call. Today’s conference is being recorded. I’d now like to turn the conference over to Jim Lally, President and CEO. Please go ahead sir.

Thank you. And thank you very much and welcome to our second quarter call. We appreciate all of you taking time to listen in. Joining me this afternoon is Scott Goodman, President of our Bank and Keene Turner, our Company’s Chief Financial Officer. Before we being I would like to remind everybody on the call that a copy of the release and an accompanied presentation can be found on our website. The presentation and earnings release were furnished on SEC Form 8-K earlier today. Please refer to Slide 2 of the 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. Please turn to Slide 3. On a reported basis, diluted earnings per share of $0.50 represented a very strong quarter for our company. When adjusted for the conversion of JCB. From just about every perspective this integration was near flawless and demonstrates the considerable depth of talent that we have in our organization. We're pleased with the associate engagement and performance thus far and we are increasingly excited about the future of our combined companies. Welcoming in more than 35,000 clients into our Enterprise Bank & Trust family is no small feat. By all accounts our team and key partners exhibited superior execution and attention to detail during this process. Nonetheless, our continued focus remains sustained core growth trend in all of our markets. Our growth in Kansas City, Arizona and specialty lending, contributed to C&I growth in the quarter. And our pipelines are poised to deliver a strong 2017. However, a slow first half and a higher provision in the quarter has not dampened our financial performance, which delivered strong returns in that quarter and year-to-date. Our financial scorecard is on Slide…

Thank you Jim. And characterizing our loan activity for the quarter, we were focused on a few primary objectives. One, successfully integrate and protect the newly acquired JCB relationships. Two, remain strategic and disciplined in the face of elevated competitive pressures when evaluating new and existing loan requests. And three, continue to develop a pipeline of opportunities consistent with these objectives and our growth trajectory. In aggregate, while loan balances were essentially flat for the quarter, as shown on Slide Number 5, we do feel very good about our execution of these key priorities. Addressing our first priority, we are fully integrated to JCB branch, business banking and commercial associates into our sales channels. Not surprisingly, pressure from local competitors for the JCB client base have ramped up significantly since our announcement. However, our marketing and sales teams have been extremely focused on a well-designed program with communication and client retention activities which have enabled us to maintain steady loan and deposit balances from the JCB portfolio to date. Moving to Slide Number 6, C&I loans were up slightly for the quarter and our trailing four-quarter growth rate remained solid at 17%. There were contributions from all specialty lines, as well as general C&I and CRE as outlined on Slide Number 7. Following a very strong first quarter and Enterprise Value Lending, origination activity was lower in Q2, as sponsors digested some of these new platform companies. We also saw a higher number of portfolio companies sales this quarter, which isn’t normal but somewhat lumpy part of this business. Overall, we continue to expand our base of sponsored relationships in new and existing markets. More of our sponsor partners are currently active in raising new funds, as well, which will provide ongoing senior debt opportunities for us. Life insurance premium…

Thanks Scott. Second quarter results were seasonally strong and reflective of our enhanced earning power in addition to the quality of our balance sheet. Slide Number 10 reconciles $0.50 of reported earnings per share to $0.56 of core earnings per share. Overall, we had a solid quarter and results were slightly positive to where we expected to be both on a reported and core basis. We had $0.12 per share of merger charges, which were mitigated slightly by a strong contribution from non-core acquired assets of $0.07 per share. Core net interest income and margin expanded nicely whether the credit blip still delivering a strong, core return on average assets of 1.06% and we achieved some modest gains, and core efficiency and operating leverage. Slide 11 depicts there’s changes in our core earnings per share from the linked quarter. As noted, the higher provision for loan losses was $0.05 per share, the income tax difference of $0.04 per share with a linked quarter headwind, with Q1 having stronger benefit from the new accounting standard. Noninterest expense increased $0.03 per share, but we experienced $0.09 per share revenue expansion split between $0.01 of non-interest income and $0.08 of net interest income in the linked quarter, which I'll walk through on Slide 12. Core net interest income increased to $43 million for the second quarter, compared to the linked first quarter at the $5.4 million increase of which the full quarter impact of the JCB acquisition with approximately $4.5 million. Of that amount, $0.2 million was from purchase accounting finalization, which will not reoccur in future quarters. I don't want the dollar volume of growth from the acquisition to overshadow the strength of the performance of the balance sheet of which we were optimistic and performed even better than we anticipated. First,…

Thank you. [Operator Instructions] And we will take our first question from Jeff Rulis with D.A. Davidson.

Thanks, good afternoon.

Hi Jeff.

I’ll follow-up on the – I guess is it possible to back out any runoff that you had in the JCB portfolios, both loan and deposit in the quarter? Is that a way to break that out, I guess, legacy business and JCB?

Hi Jeff this is Scott. Yes, I alluded to it, but I think you can just – you could assume both the deposits and loan balances are level with first quarter.

Okay, so the deposits on the – were largely the legacy – tough to kind of its combined company, but I guess, it was really on the Enterprise legacy platform, if you will.

Right. I mean, we've blended all those teams together. So we're really looking at it as one sales team, as one sales force, but I think just if you're looking at retention at this point, we will retain both the deposit and the loan book.

And as you said, the deposits – sorry, go ahead.

Yes, no, both deposit and loans.

Got it, okay. And then the – so the deposit side you said largely timing based end-of-period stuff going on?

Yes, the quarter movement was really a couple of larger depositors from a timing perspective. They move the large chunks of money in and out. It's operating cash for them if they keep in short-term interest-bearing accounts, and it was really more of a timing issue. They've been long-term clients.

And Scott you mentioned the competition on the loan growth is or loan side is pretty intense, I guess, maybe matching that with the sustained guidance of 10% largely going to come in the second half of the year. I guess, what gives on that competition that makes you confident that growth, net growth is going to pick up here?

Well, I think, competition is really from a couple perspectives. One, it was really intense in St. Louis around the JCB portfolio as you can image anytime you do an acquisition you’ve got competition with a magnifying glass on all of the JCB competitors. So I think we have weathered a lot of that storm. We have circled around to all of those clients in many cases more than once. So I think we feel good about weathering that competitive storm. I think more globally we’re still seeing long-term fixed rates particularly from local and small banks on the CRE side. As I said we backed away from what I’ll call some real estate transactions with long-term seven, ten year fixed rates. And we’re really used that time to rebuild the pipeline with existing clients that are doing some new things. EVL portfolio had an extremely strong first quarter, so really second quarter rebuilding the pipeline there. And I think we would expect a typical seasonal strong second half for both EVL and life insurance as well.

Got it. And then maybe one last just a housekeeping item for maybe Keene that did something change in the tangible book value calculation quarter to quarter? I couldn’t quite get to the 18.01. Is there anything artificially in that?

We had some – we’ll grab that answer I think just off the top of my head. We do a little bit of finalization for goodwill moves a little bit. I’m not – hopefully, we don’t have any other slippage there, but we did finalize the purchase accounting in the second quarter and there were a couple of adjustments to goodwill and CDI. So those may be driving it. But we’ll take a look through it for you Jeff and we’ll swing back with you on that.

Great, thank you.

Thank you. We’ll take our next question from Andrew Liesch with Sandler O’Neill.

Hey, guys.

Yeah, hi, Andrew.

Good afternoon.

Good afternoon. A question on the margin, 3.98 reported. Just curious if you know offhand what – how much of that is just accretion from JCB?

Yeah, so, Andrew the way we’re thinking about and – so JCB’s in core and reported but…

Right.

The way we’re thinking about at least purchase accounting impact, I mentioned that $50 million that yielding 7.5. So if you assume that that’s maybe like a 3% premium. So what you know a market rate loan yield would be – our portfolio loan yield like 4.63, something like that. That’s about $1.5 million a year, so that’s like 3 basis points. And then you had the catch up that I talked about from the last quarter when we finalized the purchase accounting that’s another two bps. So if you’re looking at 13 basis points in margin expansion sequentially, you’ve got basically 8 basis points what I would call core and then you’ve got JCB contributing essentially 5 basis points on top of that, but that 3 basis points we expect to be repeatable, the duration of that more, that 50 million is longer than just one quarter and that will keep pushing out for the next six, seven, eight quarters.

Okay. And then just on the expense guidance, just like maybe it’s closer to $28 million this quarter than as the cost saves come in declines a little bit for the fourth quarter, but then was with some of this spending that you plan on doing the investing maybe doesn’t get quite down to $25 million. Is that how you guys are looking at it?

Yeah, I would say, doesn’t quite get down to twenty six, so we’re at 28 minus two, so 26 have gotten to be the floor and then a little bit of reinvestment from there. So you’re at let’s call mid 26-ish is pretty…

Okay. And then one last quick question on credit just how the classifieds were up. Anything worth highlighting in there anything of note that make you be giving you any concern?

The addition to classified nothing abnormal, several C&I credits, but I think overall classifieds the total loans are down. If you like the trends pretty good if you look at the wash through of the large charge-off, non-performers are down, OREOs down, delinquencies 5 basis points. So I think, overall, we feel pretty good about credit metrics in general.

Okay, thanks. I’ll step back.

Thanks, Andrew.

[Operator Instructions] We’ll take a question from Michael Perito with KBW.

Hey, good afternoon guys. Thanks for the time.

Good afternoon.

Maybe a quick clarification question on the loan growth. Are you guys saying that you still expect the – because I thought I might have heard it both ways. Are you saying you still expect kind of the full-year organic growth rate to be about 10%? Or are you saying that you expect to achieve that level just quarterly plus or minus in the back half of the year?

Yeah, I think, what we’re saying is our guidance was off of the December 31, 2016 portfolio loan balances. So we still expect that when you look at those underlying balance of $3.1 billion that you’re essentially at 10% growth by the end of 2017.

Okay, that makes sense. Thanks. And then just on the non-interest income kind of go forward, any color you can provide kind of as we think about the growth rate there maybe near-term with some opportunities I would think maybe to add some stuff on the JCB side and just maybe obviously still stuff on the legacy side that’s growing. Just any thoughts there Keene on what you guys are expecting?

Yeah, I would say that when I look at the legacy growth underlying, I don’t know that we’ve quite got our hands around what we think is the opportunity yet from JCB, but when you look at the legacy enterprise you’ve had wealth management now, 100,000 of fee income growth on a – sequentially each quarter, card services is putting in another 100,000, swaps are probably going to be a little bit unstable, but they’ve been a nice contributor over the last couple of quarters, another 100,000. So you’d enterprise legacy expand by about $0.5 million linked quarter because we overcame some of the seasonal declines in CDE and tax credit brokerage. So you know even if you’re able to get somewhere between 300,000 and 500,000 and repeat those efforts and card and wealth are among maybe those five businesses and have three out of the five of those hit. I think we’d be looking for a strong year there and I think that’s what our plan would essentially call for. And then you’ll add in some of the seasonal strength as we start selling tax credits here late in the third quarter and early fourth and into 2018. So we’re pretty optimistic. And then at that point I think we’ll have a little bit more of a sense for what the opportunity with the JCB clients is.

Okay. And then maybe just a couple credit questions. Just on in terms of the reserve, I mean, just on a dollar basis, I guess, Keene, do you kind of expect the reserve to build from these levels from – going forward now. And secondly, can you just maybe I know you mentioned it briefly, but can you just remind us maybe some – as far as you can some of the specifics about that one C&I credit in the quarter that you guys charged off.

Yeah, so, the quick roll forward of the allowance was $39.1 million. We had a $3.6 million provision and then the $6 million of charge-offs so you’re down at $36.7 million. And then with that charge-off, it drove additional about $2 million into the migration, and we had essentially factored that into the substantial build and what we consider to be the qualitative portion of the reserve because that came in a portfolio that has performed extremely well, but it experienced growth. And so I think it speaks to how we’ve attempted to prudently provide over the last let’s call 2.5 or 3 years despite extremely strong credit performance. When you look at the $6 million of charge-offs year-to-date and you look at other period of gross charge-offs, it’s in line. We just haven’t had the recoveries. Essentially, we’re running out of recoveries from a credit perspective. So I would say that going forward, I don’t know that there’s going to be a necessarily any reaction to just kind of knee-jerk and put additional reserves in there. The portfolio’s still relatively clean. Our posture is still always to try to reserve what we think is prudent, and I think it shows that with the credit size and being able to deal with it, it was already mostly on the balance sheet despite sequential quarters of bad news. And so it was a $9-ish million credit. We had about 50% reserve at the end of the first quarter. We charged-off $5.6 million on that, and we’re still sitting with a $0.5 million reserve. So you’ve got it written down about $3.5 million at this point. So if it got any worse, it’s not going to ruin a quarter again but, at the same time, I think we expected it to work out over the longer term, but we couldn’t sit here and just have it the growth of stuff and reserve for a longer duration work out.

And what was the, I guess, the type of credit like in terms of like the industry? Or can you give us any details like that?

Yeah, this is Scott. I can maybe give a little more. It is a credit that I talked about in the past. It’s a C&I credit. It’s a digital marketing space. It’s handled out of our EVL group just due to the cash flow nature, but it actually originated through the acquisition of one of our C&I clients, whose owner then became the CEO of the combined entity, which was why we opted to stay in the credit. The new ownership made some major changes in strategy and talent that did not work out and subsequently, large clients left, talent left and it turned down pretty quick. The pipeline is rebuilding. They’ve got new leadership, EBITDA trends are positive, but just given the uncertain time line and wide range of valuation, I think in the industry, we opted to take our lumps now. Believe me, it’s not the type of loss on significant credits that we are accustomed to, and we’ve done some -- a lot of soul-searching on this one. I would point out a couple of things. One, the participation in a large EVL deal we are not seeking out, and we are not doing. Again, it was a legacy client of ours, which we opted to stay in. And two, it did not – even though it was EVL in nature, it did not originate through our EVL channel. So it’s not typical of the other types of credits that we have in our EVL niche right now. But certainly, lessons learned.

Helpful, thanks for all the color guys. I appreciate it.

You’re welcome. Thanks Mike.

Thank you. We’ll next go to Peyton Green with Piper Jaffray. Mr. Green…

Yes, good afternoon. Thank you for taking my questions. I was wondering maybe, Keene, if you could talk about or Jim if you could talk a little bit about the competitive pressure in achieving 10% organic loan growth less the acquired loans. So what will that take in terms of new yields on loans of the margin for you over the second half of the year? And are you in a position to get the volume that you want at the level that you want?

Yeah, Peyton, this is Jim. So certainly we’ve looked at the near-term pipeline, and we feel comfortable that the volume and the pricing’s commensurate to what we’re used to. Scott did mention that we did have some special pricing that we’ve utilized in some areas and some key areas to help out in that regard, but nothing that’s going to dash margin long-term.

Yeah…

Go ahead.

And I would just say, Peyton, that’s part of the reason why we had such extensive growth in net interest income because of the margin expansion, but it’s the reason why we’re maybe a little bit more conservative in terms of what the expansion’s going to be going forward. When you look at certain categories and loans, we new additions, help the pricing, help the portfolio loan yields and then there’s others where it’s more competitive and it’s probably in the areas that you think when we study it. So a little bit of our expectation has that growth built in and also the fact that we’re going to need develop some additional funding for those loans moving forward. But we still feel good about where we’re positioned, and it’s gotten -- and Jim talked about the pipelines are strong, and our expectations have that essentially included from when we think about the margin outlook on a core basis.

I just add one last thing, it’s across all geographies and specialties as well that we’re seeing some nice growth opportunities.

Okay. And then maybe just as a follow up in thinking about, really pushing about $250 million in loan growth over the back half of the year. How lumpy would you expect it to be based on your pipeline?

Well, I think, you’re going to see the typical seasonality on EVL and life insurance, which is going to be weighted probably more towards Q4 than Q3. I think the regional stuff is just harder to say. The visibility is there, but the timing of closings is sometimes a moving target. So I’d say the regional stuff is more equally weighted and the specialty niche is probably more towards the back half.

Okay, and then you mentioned a prominent hire in Kansas City, maybe your outlook for the opportunity at Kansas City at the margin.

Yes. He was the C&I leader for a larger bank team up there. I think we’re seeing certainly some disruption from a couple of the acquisitions that were announced over the last year or so and some client opportunities there. We’re also seeing opportunities from the three new talent additions that we’ve added this year from their prior portfolios at larger institutions. And we kind of feel like some of the long time local players up there who are expanding westward and making taking their eye off the ball the local market a little bit, we’ll take advantage of that as well.

Okay, great. Thank you very much for taking my questions.

Thanks, Peyton.

Thank you. [Operator Instructions] We’ll take a question from Brian Martin with FIG Partners.

Hey, guys.

Hey, Brian.

Hey, Brian.

Is there any increase this quarter in payoffs in the loans? I guess, is there anything unusual that contributed at all? I know it sounded like there were payoffs in there. So I just don’t know if you’d characterize them as higher or lower than they have been in past quarters?

Yeah, I would say it’s just more typical. There were payoffs. We had payoffs mostly I would say the larger payoffs were real estate related due to the sales and secondary market. Some that we lost to competition easily long term fixed rate products, but I wouldn’t say that was the major reason for level loan balances. It was just more of the origination activity and the teams primarily in St. Louis been focused on retention of the JCB portfolios.

Okay, that’s helpful. And then just, Keene, you comment – maybe I didn’t hear it correctly on the core margin. What is the starting core margin? I guess, is it -- I guess, what was it for the quarter? Was there some adjustment you made? I thought I heard something, but maybe I missed?

No, you didn’t mishear. It wasn’t overly that I can say the core margin was 3.76. I mean, you know, the non-recurring item I’d drive that to 3.75 or 3.74. So we generally feel good about 3.75, 3.76 being stable with potential upside going forward depending on where new loans come on and how much deposit gathering we’re able to do.

Got you. And then just what have you seen on the way funding cost pressures? Have there been – have you seen an uptick in that, I guess, just kind of given kind of your outlook for a little bit stronger growth in the second half. I guess it sounds like that’s baked in, but what type of trends are you seeing on people asking for better rates these days? Has it increased? Has it kind of been about stable?

Yeah, certainly, there’s been more activity around it. We’ve certainly gotten more prescriptive and sensitive to particularly with our expectations for growth. That being said, you see our ability to manage it within a couple of basis points over a shorter-term period. I think it’s more about attracting the new business, and when we start to see growth, those rates are going to have to be higher, and those will blend into the existing base. So really depends on where it is and the advantage we have is we got at least two physical markets here in Kansas City where we have the opportunity to look at pricing and move where there is the lowest cost and opportunity there, and we manage it closely. But certainly, there’s a lot more dialogue around it, but we don’t see the individual, the banks in the market with the big buying power moving just yet. And so we feel at least comfortable that there’s several more quarters for us to be able to continue to gather at potential existing rates.

Okay, thanks. And it sounds like the guys in St. Louis are back to playing offense, if you will, versus defense what they were last quarter. Is that fair as you kind of go into the third quarter?

That’s well said, Brian.

Yeah, okay. All right, and then maybe just on the fees, Keene, I guess, you have a full quarter with the guys from JCB. I mean, is there anything unusual in the fee line? I guess, you called out a couple of items on the expense side, but just on the fee side and that other item, if you will, was there anything -- is that a pretty clean number to think about going forward? Or is that get adjusted for anything?

To my knowledge everything is pretty clean. It doesn’t only we think it has any material other real estate gains in there. So it’s about as clean as it gets. You’ve got $1.5 million of JCB on top of legacy enterprise, which is growing slightly as indicated. So, I think, it’s a pretty decent run rate moving forward.

Okay, nothing, I mean, the tax credits being light this quarter doesn’t, I guess, kind of change the normal trajectory of what we see in the back half or, I guess, particularly fourth quarter?

No, I think, you can look to history there to see what you might expect us to get over time.

Okay, all right, I think, that’s all I have. Thanks for taking the questions guys.

You’re welcome, Brian.

Okay, that concludes today’s question-and-answer session. At this time, we will turn the conference back to Jim Lally for closing remarks.

Thank you and thank you everybody for joining us today and your interest on our company. We look forward to speaking with you all again at our third quarter call. So have a great evening. Thank you.

That concludes today’s conference and thank you for your participation.