Enterprise Financial Services Group, Inc.

Thank you. Pricilla.

And I would like to add my welcome to all of you to the third quarter EFSC earnings call. I would like to remind you all listeners that during this call we'll be making forward looking statements, actual results may differ materially from the results contemplated in our forward looking statements as a result of various important factors including those described in our 2012 annual report on Form 10-K and in subsequent filings with the SEC.

Forward looking statements speak only as of today Thursday October 24, 2013 and the company undertakes no obligation to update them in light of new information or future events.

I'd also like to remind you that you can find a copy of our third quarter press release which includes reconciliations of non-GAAP financial measures referred to in this conference call in the investor relations section of our website.

I am joined today by Keene Turner, our newly appointed Chief Financial Officer who joins us from National Penn Bancshares, where he was formerly Executive Vice President and Chief Accounting Officer. He replaces Frank Sanfilippo who is also with us today and has assumed his new responsibility as Chief Operating Officer for the company.

In addition Steve Marsh, Chairman of Enterprise Bank and Trust and our Chief Credit Officer is also with us.

I am pleased to announce another strong quarter for the company with fully diluted earnings per share of $0.44, which compares to $0.39 in the year ago quarter. For the 9 month period ended September 30 of this year, the company earned $1.55 per share.

This is a 36% increase over prior year period earnings of $1.14 per share.

Core loan growth were -- rebounded in the quarter increasing 2% on a linked quarter basis and 6% year-over-year. More importantly commercial and industrial loans which were the company's bread and butter increased 5% during the quarter and are up 14% year-over-year.

Core net interest margins declined a modest 2 basis points linked quarter and have only shown 3 basis points erosion since the third quarter of last year.

We continue to maintain our credit disciplines around pricing and structure in the face of significant competitive pressures. Steve Marsh will comment further on credit in a moment, but we are pleased with the continued positive trends in asset quality.

Non-performing loans and classified assets continue to improve, resulting in another negative loan loss provision.

Finally our capital mix improved materially with the conversion of $20 million in trust preferred securities during the quarter bringing our tangible common equity ratio to 7.85%. Let me now turn it over to Steve to give you some additional color on our loan portfolio, our trends and our asset quality.

Steve?

My comments are related to the organic portfolio. As Peter mentioned at September 30th organic loans totaled $2.1 billion, are up $32 million, 2% for the quarter.

Year-over-year loans were up $123 million or 6%. We're especially encouraged by the growth in C&I loans which were up $44 million or 5% in the quarter.

Looking at the last 12 months, C&I loans were up $127 million or 14% as Peter mentioned.

We especially value C&I growth because our credit experience has been better in the C&I portfolio versus commercial real-estate. C&I loan relationships provide opportunity for deeper relationships as those customers tend to have more products and more relationships with us.

We have found that a C&I base is also less price sensitive at the time of renewal. So we value C&I growth very much.

In the third quarter net growth was strongest in the St. Louis region.

St. Louis and Kansas City both enjoyed significant new relationships, especially in our lending niches, enterprise value lending, insurance premium finance and commercial finance or asset based lending all had good growth.

The Kansas City region was growth -- net growth was hampered by large pay-offs from commercial real-estate.

Loan growth would have been stronger but we continue to see very strong competition in the commercial real estate, especially at renewal time. Pipeline remains strong including opportunities in traditional C&I and our niches and in commercial real estate which we remain open to do new commercial real estate deals.

Looking at the year overall we expect loan growth to be in the 2% or 3% range overall.

Turning to loan quality at the end of the quarter non-performing loans were $24.2 million, this is down 7% on a linked quarter basis and down 25% on a year-over-year basis. Non-performing loans represented 1.4% of the loan portfolio at quarter end.

Even though real estate markets have improved our non-performing loans continue to be concentrated in the CRE investment category and land acquisition and development.

Other real estate owned was up slightly to $10.3 million or up $2.1 million. During the quarter we sold $3.1 million in real estate at a small gain of $304,000, which I think confirms our conservative values at real estate holding values.

We work aggressively -- we have worked aggressively to reduce the OREO portfolio over the last year.

Nonperforming assets were 1.1% at September 30, this is compared to 1.4% September 30, 2012. Likewise the net charge-offs were good -- we enjoyed a good quarter on net charge-offs, especially good progress in recovering previously charged-off loans.

Net charge-offs were just $368,000 in the quarter annually that’s a rate of about 7 basis points.

The provision was a net benefit of $652,000. The benefit was in line with our improved credit metrics which we’ve talked about as well as lower levels of downgrades during the quarter.

The allowance for loan losses still covers a 110% of our nonperforming loans.

As Peter mentioned the big takeaways were improved credit quality, good C&I loan growth although I would comment the pricing pressure continues to be strong in all markets especially in the commercial real estate area.

And now I would like to turn it over to our new CFO, Keene Turner to review the numbers in more details.

Thank you Steve and good afternoon everyone. I want to start by saying it’s a pleasure to join the Enterprise team and also to be here today to share my thoughts on this solid quarter in which we delivered $0.44 of earnings per diluted share.

Net interest income on a core basis was stable in the quarter at $25 million with net interest margin at 3.54%, down only 2 basis points from the second quarter. Net interest income and margin were maintained through improvement in the mix of assets as non-covered loan grew by 6% on an annualized basis and we were still able to improve the overall cost of deposits and funding.

I would add interest bearing deposit cost decreased 4 basis points to 59 basis points in the third quarter and the overall cost of funding improved 7 basis points to 79 basis points.

During the quarter we converted $20 million of subordinated debentures with a 9% coupon to common stock which helped to both reduce the cost of funding and increase tangible common equity. The conversion inducement necessary to complete this transaction cost us approximately $400,000 during the quarter or $0.02 per common share.

Nonetheless the transaction was accretive to tangible book value which now stands at $12.52 per share.

Additionally on the funding side of the balance sheet maturing FHLB advances were replaced by deposits primarily certificates of deposit. The deposits were raised through CD offerings to our customers and also through broker deposit sources.

We continue to be focused on managing the cost of our funding base while also positioning the balance sheet for growth.

Turning to covered assets, the yield on covered loans was 15.8% excluding accelerated cash flows from prepayments which is consistent with 15.3% in the linked quarter. Accretion income related to accelerated cash flows was $4.3 million in the third quarter versus $4.7 million in the second quarter.

However there were partial offsets to both of these values within non-interest income.

On a pretax basis the net revenue contribution of covered assets was $5.2 million for the third quarter compared to $6.6 million in the second quarter. At September 30, we still had approximately $60 million of accretable yield to recognize over the remaining life of the portfolio.

Our current projection of average covered loan balances is a $153 million for 2013 and a $115 million for 2014. The average year to date covered loan balance at the end of the third quarter was a $175 million.

The estimated balance changes each quarter when we reforecast the cash flow.

The latest quarterly forecast for the covered assets caused us to recognize impairment which we reported through $2.8 million provision for loan losses covered under FDIC loss share agreements. However, 80% of this expense in the quarter was offset within non-interest income given our loss sharing agreements with the FDIC.

The change in the loss share receivable which is part of noninterest income was also a negative $2.8 million for the third quarter and is comprised of 3 pieces. One, is negative accretion of $1.3 million related to the accelerated cash flows previously united.

Two, $2.2 million of accretion related to provision for loan losses on covered loans also previously noted. And finally three the negative base accretion of $3.7 million.

The negative basic accretion adjusts the indemnification assets downward over their respective lives and matches the expected reimbursement of losses from the FDIC under the loss share agreement.

Although the results of the third quarter were largely unaffected by adjustments the claw back liability of the FDIC, this measurement contributes to the variability of the contribution of covered assets as they resolve.

Additionally I would like reiterate that as we get closer to the expiration of the loss sharing arrangement with the FDIC, we anticipate results on a quarterly basis will continue to be uneven. That being said when you put all the pieces together the covered assets that continue to perform significantly better than expected and continue to bolster capital levels in support of our plans for growth.

On that note, tangible common equity to tangible assets increased nearly a 100 basis points during the quarter to 7.85% while the Tier 1 common ratio expanded to 9.87%. The previously mentioned conversion of subordinated debentures to common stock contributed meaningfully to both measures in addition to being accretive to tangible book value per share.

In terms of our capital goals this means that the stated of 7% TCE ratio has been achieved well ahead of schedule.

In the last quarter we outlined earnings contribution of covered assets in the core bank on a pre-tax basis in our 10-Q. This quarter we have included that information in the earnings release.

To that point our pretax earnings for the third quarter continue to be strong on a core basis at $10.2 million which is approximately 80% of reported pretax earnings.

Although a lower benefit from the provision for loan losses during the third quarter led to a linked quarter reduction, the overall contribution of core bank to total pretax income has demonstrated continued improvement both in absolute dollars of earnings and in proportion to reported pretax earnings over the last several quarters.

We have also managed expense levels well on a quarterly basis and we remain focused on continuing to do so as we execute our strategy. To that end we continue to be focused on growing earnings of the core bank while maximizing the profitability of covered assets.

Thank you again for joining us today. And at this time, we will open the lines for any questions.

A question on the, I guess the loan growth guidance of 2% to 3% for the full year I guess implies a pickup in Q4. I guess is that sort of predicated on an absence of payoffs or an increase in demand, maybe if you could provide some color there?

The pipelines Jeff continue to be good we expect payoffs, the rate of payoffs to slowdown a little bit. But really the growth is going to be from the pipeline.

We are encouraged by the niches that we have seen in the last quarter are strong in the pipeline for the upcoming quarter. And we do have a couple of real-estate deals in there that should give us some volumes too.

And some of that production, is it -- would that align with the -- your comments sort of by market that St. Louis remains strong and absent some payoffs in Kansas City is that consistent with what you are seeing so far this quarter?

Yes. And I think pipelines have -- we've seen a little bit better more usage on the pipelines as well would be another reason for growth in the quarter.

And then on the wealth management strategy, you made a comment in there about sort of culling some less profitable customers. I guess the read through on that is that would you expect to grow that line item or is it just a more efficient as in the cost associated would be lower?

Jeff this is Peter, a couple of comments; one, in terms of your first it relates to both the Arizona market where we really have thinned what I will call the unprofitable business there. And I think in that context will improve margins and have improved margins in the business.

We've done a little bit of that in St. Louis too just as it relates to unprofitable business smaller accounts.

So there has been some weeding going on. Our intent clearly is to grow the business and we will grow the business.

I think as you know this is not a business that you grow quickly on an organic basis, but our expectation is to continue to invest in the business and grow it.

Peter with your capital now approaching almost 8% and with your growth commentary, how should we be thinking about kind of net balance sheet growth going forward in terms of the investment portfolio would you -- is there a point where you guys would consider doing another deal. Can you help us on this side of the balance sheet?

Thanks.

Yes, I think the first goal is to get our capital levels to where they are, so let’s start there, we feel good about that. The whole question of acquisitions is an industry wide question so it’s not one that we are not aware of, but I think as I have said in the past and I think it’s still our view.

To the extent there are opportunities to grow franchise values as opposed to assets we continue to have interest.

Having said that, our focus is core growth and organic growth, I think when you really look under the covers in terms of double digit growth rates in C&I we would expect that to continue. And I think as Steve pointed out earlier as our base firms because I think we indicated in the last quarter and what we are firming again in this quarter, we have been less aggressive on the CRE side primarily because of pricing that we have seen in our markets.

And to the extent a lot of those renewals and maturities have occurred, Steve indicated they have in our base firms, we think we will see core growth pick up a little bit from where it has been. So I think in that respect our focus continues to be core, we I think pretty well understand that our primary market of St.

Louis will continue I think to be strong. Kansas City, I think we have seen 2 quarters of strong loan growth there and that’s net loan growth which is really encouraging.

And then our other expectation is Arizona as the economy continues to improve there. I think Steve would agree our pipelines are getting stronger in Arizona, I think we’re seeing more opportunity in Arizona and we would expect our growth rate there to accelerate a little bit too.

Okay, on the accretable yield you guys cite in the release $60 million that’s left. What’s the balance of the non-accretable yield bucket that could potentially flow into that portfolio, I think the credit mark?

We’re looking it up.

It’s around $84 million.

Okay. And the adjusted that you guys -- can you walk through the adjustments you guys are making?

You're said 80% in the release of reported earnings come from the core bank. I guess, what are you backing out Frank or Peter on the -- in terms of that table on the second page of your release.

Are you backing out the accelerated piece, are you backing out the whole pretax earnings of $5.3 million or, help me with that please.

It’s the revenue that we report in the table in the earnings release. And then we have some expenses associated with carrying those loans and managing those loans as well.

So the table on the second page shows pretax net revenue of $5226, that’s the adjustment you’re -- that's the table I should we looking at?

Yes, and then there is expenses to kind of net down about number that we report as the piece of it.

Okay. Last one, when does the -- when do the loss shares expire?

Well, the last loss share is 10 years from…

All right, so when are the first of the loss shares expire?

Yes, the last is 2021. First of the loss shares is ’14.

I was curious did Gorman & Gorman help out at all this quarter on the revenue side?

It was the revenue side. Yes, a slight add on the revenue side.

Okay, but really more pick up next year then.

Yes, I think we’ve indicated pretty much pretty consistently. We don’t see much impact in ’13 and we haven’t seen much impact in ’13, we do expect it in ’14.

Okay, got you. And where do you think the reserve ratio might level out?

I mean it’s falling here for the few quarters and as you’re adding some more C&I I was kind of curious how you’re thinking about the allowance?

Yes, we look at risk ratings, we look at trends, we look at the industry, we look at peer group. So we don’t really manage to one number there.

Steve, maybe you could just talk a little bit about the inflows in the quarter. I mean, they were up a little bit.

I think you commented a little bit in the release. What was I think it contrary to everything else getting better, I guess, I know it’s a small number maybe the way to think about it.

But what was driving the inflows in non-accruals?

In both the non-performers. So it’s true we’re operating off a kind of a low base already.

So there were 4 deals -- they were driven primarily by 4 deals, they are split between the Kansas City region and the St. Louis region.

As we mentioned the write up the largest was $3 million, they were all real-estate deals. So that was kind of a little bit more the detail on the non-performers.

And that’s completely unrelated, all 4 deals are completely unrelated so.

Okay, just a couple of other housekeeping questions. The loan yields were down the non-core loan yields are down pretty substantially in the quarter.

Are you beginning to see some stabilization there in those loan yields on the new business?

Did you say non-core or core?

On the core loans I guess kind of legacy stuff.

We hope that the rate slows down. We are amazed that the banking industry has forgotten the credit crisis that was only a couple of months ago, but so competition remains price remains fierce.

I hate to make predictions about where the rates are going on rates and loans we haven’t renewed yet but the competition is still the fierce on that.

Okay, so you would still expect to see some that kind of comment in the release about the core margin that sort of pressures out on the core margins?

That is absolutely correct, on the core margin, right.

Okay, all right. And then there was -- was it a decline in other fee income in the quarter, just kind of that line item, the specific line other fee income.

Is there anything unusual in that line item this quarter? I guess it was an increase in the last quarter.

A little bit of swapping and BOLI income in there that in comparison from Q2 to Q3 that’s driving that up.

Okay, all right. And last 2 things.

In the release you guys talked a little bit about some on the salary and the expense side, about some reduced headcount; where was the reduced headcount? Where did you guys trim the staff?

I am not aware of our reference stated in the release, but having said that I suspect, it would relate to some branch closures that we’ve done.

Yes, I guess that was the last thing -- and then I guess the last thing on the charge offs in the quarter, being a low level; what was it, I guess, were the recoveries just that elevated or gross charge offs lower, kind of what was the mix there relative to what’s been trending?

Yes, we did have good recoveries in the quarter. The gross level of charge offs, was down as well.

About $2.5 million recovery?

Yes, we had a strong quarter in recoveries that was really a big part of it.

And so the recoveries are $2.5 million, what were the gross charge offs in the quarter?

Yes, it was $2.5million and $2 million. $2.5 million of charge offs, $2 million to recoveries for the net of the $368 million.

Yes on the Gorman question before, Peter. Can you remind us what the expectations on revenues are for next year, that you disclosed?

I don’t think we have indicated that Chris.

Okay, should we be thinking it’s a – I guess we can make our own assumptions, should we expect a material impact to the fee income line or are we reading too much into it?

I think you may be and I think it’s a little early.

I may have missed this. I apologize if you have said this already.

But could you tell me how the level of pay downs and payoffs were this quarter, are they slowing versus the previous quarter?

Yes, really not much of a change.

Yes, Dan, I think the differential is gross origination. They were up in the quarter.

I think we were 370 or so.

And then maybe if you could give me the loan footings for Kansas City.

550.

Is that down from last quarter?

It’s about the same.

And between the 2 markets, is there a stark difference in competitive factors, is St. Louis more competitive or about as competitive as Kansas City?

No, I think Kansas City is probably a little bit more competitive than St. Louis.

The other issue we have was we have a little bit higher real estate concentration in Kansas City so the payoffs hit them harder than they do St. Louis, just as a percentage.

But I think the Kansas City market is probably a little bit more competitive than St. Louis.

And then last question, as I look at the loan mix, I mean, very nice portion in C&I, what’s -- as you will look at it optimally, I mean how high do you want that C&I portfolio to be or what percentage of total loans do you want that to be?

Yes, I don’t know, if you look at it in terms of a total percentage. We obviously look at granularity as it relates on the risk within the C&I segment, and we do manage at a limit level there, based on certain segments of risk.

So that’s more the way we look at it. That be hard for me to say, you know a maximum percentage of C&I.

I will say that we are not looking to trim the commercial real estate portfolio down from what it is right now. We'd be happy to add good quality, well-priced, well-structured commercial real estate deals.

So we have made good progress in adding C&I, that’s where our growth has been but we are not afraid to do CNR, CRE deals if they are well underwritten. What we have just seen, not only cheaper prices, but longer interest rate proposals, people are doing 7 year deals and even 10 year deals.

That’s really where we get, where we lose in CRE deals.

Okay, well just as a wrap, we feel good about the quarter. We welcome Keene to the team.

I think he is going to be a great addition for those that may want to know Frank is very excited about his new assignment. I think that’s going to work out well.

I am not going to talk about baseball on this call. So unless anybody has any other question, we thank you for your interest, and we will see you next quarter.