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Enterprise Financial Services Corp (NASDAQ:EFSC)
Q2 2019 Earnings Call
Jul 23, 2019, 3:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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.

James B. Lally -- President and Chief Executive Officer

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 two 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'm 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 a very solid quarter.

If you turn to slide three, you'll see our financial scorecard. Net expenses related to Trinity, our EPS grew by 3% when compared to the same quarter a year ago. As important, we were 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 rates -- interest rate environments. Our diversified business model, combined with superior balance sheet management, aids greatly in achieving these results.

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'm 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 organic basis.

Slide four 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'm 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 on what makes us successful. As it relates to our operational excellence is about being better tomorrow than we are today. We have made the necessary investments 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.

Scott R. Goodman -- President of Enterprise Bank & Trust

Thank you, Jim.

Loans, which are displayed on slide number five, 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 number six, 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 number seven 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. There was also 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 number eight, specialized lending, which represents EVL, life insurance premiums 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 2.5 times 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 modest growth from the [Indecipherable] 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-seven figures. Given some of the market swings and weather-related stress, we are taking a measured but opportunistic approach to the -- 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 a 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 pay downs related to the sale of finance 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've focused so far on evaluating the current book and maintaining existing relationships, which are consistent with our overall approach. We're actively meeting 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 a 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 number nine 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've been able to offset some of this impact. And so during Q2, we've brought on some large new balances from existing commercial clients and on-boarded a number of new professional service company relationships with attractive non-interest 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 review of our financial results.

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Thanks, Scott. And good afternoon, everyone. My comments will be on slide 10, where we have an earnings per share roll forward from the linked quarter. The role is pretty extensive, given that the first -- this is the first full quarter we have Trinity. We had a third of a quarter in the first quarter and clearly Trinity impacts the comparability of results. Nonetheless, we've continued 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 was 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 were just under $18 million. These expenses, while planned, have obviously impacted our reported results and the rest of my comments will 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 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. It's 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 had 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 non-interest 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 the diluted share count in the second quarter compared to the first. Incremental accretion was slightly lower and we provided for additional long growth and each of those was about $0.01 of -- per share of impact.

And turning to slide 11, we essentially have the same changes and the same trend from the prior year-to-date period. Given the overwhelming impacts are 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 -- or 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 a 1 basis point from the first quarter.

The linked quarter increase in the net interest income is driven by having full quarter of Trinity's operations and that added approximately $10 million to the second quarter, and that was about $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 purchase 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've 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 balanced across a variety of businesses and loan categories. The yield on the loan portfolio extended 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 yield 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 that have increasing yield over the past several quarters as rates have risen. Within that, we have approximately $600 million directly indexed to 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 I sit today, our modeling suggests falling rates would create only a modest headwind as we translate our loan and balance sheet growth in 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 we believe all that is 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. Non-performers were up to $19.8 million or 39 basis points of total loans in the quarter and that was from 0.19% at the end of March. The majority of the increase was related to two non-accrual 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 non-performing 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 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, non-interest 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 25% growth in this area over 2018 levels. Overall, we continue to expect a high single-digit fee income growth in 2019 pre-Trinity due primarily to the opportunities as we talked about on state tax credits, as well as card services.

Turning to slide 15, non-interest 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 and intangible. The core efficiency ratio was 53% and improved a 1 point in the linked quarter and is up a 1 point from the prior year. Now that 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 non-interest expenses will range from $37 million to $39 million. This level of non-interest expense is in line with our original forecasts 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 non-deductible merger-related item. 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. 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 non-interest expenses toward the top end or maybe just slightly outside of the $37 million to $39 million.

In summary, we -- 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 a combination 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.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll take our first question from Jeff Rulis of D.A. Davidson and Company.

Jeff Rulis -- D.A. Davidson and Company -- Analyst

Thanks. Good afternoon.

James B. Lally -- President and Chief Executive Officer

Hey, Jeff. How are you?

Jeff Rulis -- D.A. Davidson and Company -- Analyst

Good, thank you. 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. 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 sort of change on that front?

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Yeah. I think we gave essentially level guidance and 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 for the second quarter. So not as much run rate investment 2Q to 3Q, but it'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.

Jeff Rulis -- D.A. Davidson and Company -- Analyst

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 downright environment. Could you kind of range down if we're -- I don't know if that is inclusive of your budget in terms of what you assume for rate cuts in this yield curve expectations, but if you could just walk us through in a little more detail on the margin discussion?

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Yeah. So we've -- we sensitize a number of yield curve scenarios, so all of this has a variety of Fed cuts and changes to, call it, the five 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 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 the additional opportunities for rate cuts on the deposit side that we talked about, we expect about 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.

Jeff Rulis -- D.A. Davidson and Company -- Analyst

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

James B. Lally -- President and Chief Executive Officer

Yeah, 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. A challenge we come about is the fact that there still is a little of a mismatch relative to expectations between what's reasonable on 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 is what we are interested.

Jeff Rulis -- D.A. Davidson and Company -- Analyst

Got it. And that sort of doubles for the conversations. I guess, I'd know where you're leaning, but KC, St. Louis, if you found something in market there, are those discussions still ongoing?

James B. Lally -- President and Chief Executive Officer

Yes.

Jeff Rulis -- D.A. Davidson and Company -- Analyst

All right. Thank you.

James B. Lally -- President and Chief Executive Officer

You bet. Thank you.

Operator

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

Andrew Liesch -- Sandler O'Neill -- Analyst

Hey, guys. Good afternoon.

James B. Lally -- President and Chief Executive Officer

Hi, Andrew.

Andrew Liesch -- Sandler O'Neill -- Analyst

Hi. Can you just talk a little bit about the repricing dynamics of the variable rate loans, looks like about 60% of the loan portfolio? How much of that is tied to LIBOR, how much is three-month's LIBOR, one-month's LIBOR? Just trying to get a sense of that repricing.

Keene S. Turner -- Executive Vice President and Chief Financial Officer

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

Andrew Liesch -- Sandler O'Neill -- Analyst

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

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Yeah. 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.

Andrew Liesch -- Sandler O'Neill -- Analyst

Okay.

Keene S. Turner -- Executive Vice President and Chief Financial Officer

I would just add, it's Keene, that from a process standpoint, as we go through anything that's being renewed or extended and if it does not have a floor we're implementing for.

Andrew Liesch -- Sandler O'Neill -- Analyst

Got you. Yeah. And then on the Enterprise Value Lending product, I'm just kind of curious of what are you seeing in that from an underwriting standpoint? Are -- is there any weakening out there, given where we are in the cycle from some other competitors to win deals? Yeah. Thank you.

Scott R. Goodman -- President of Enterprise Bank & Trust

Yeah. So it is competitive. We are seeing competition from, say, non-bank unit tranche would probably be the most aggressive lenders. Sometimes you get a local bank that kind of tries to jump in and puts 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're staying in that 2.5 times 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 which -- that group sees a large -- 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.

Andrew Liesch -- Sandler O'Neill -- Analyst

Got you. Okay, thank you. That's -- it's all very helpful. I'll step back.

James B. Lally -- President and Chief Executive Officer

Thanks Andrew.

Operator

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

Nathan Race -- Piper Jaffray -- Analyst

Hey, guys. Good afternoon.

James B. Lally -- President and Chief Executive Officer

Hey, Nate. Good afternoon.

Nathan Race -- Piper Jaffray -- Analyst

Wanted 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 that 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.

James B. Lally -- President and Chief Executive Officer

Yeah, Nate. This is Jim. So it's a balancing act, for sure. And so as we said in the past, a 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 doing -- 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 pin ourselves into a corner.

Nathan Race -- Piper Jaffray -- Analyst

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

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Yeah. I guess, I would even just characterize I think sort of post end of 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 that 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% and 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 wherever, we try to look at all that stuff, but it may flip around a little bit more than normal.

Nathan Race -- Piper Jaffray -- Analyst

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?

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Yeah. 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 that's indexed and it also allows us the talking point to go to the other $800 million that's exception-priced and and go get some dollars there. So we're targeting to defend that 5 bps, if that's what our forecast is for margin compression. I just don't know that we're going to cash 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 that'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.

Nathan Race -- Piper Jaffray -- Analyst

Understood. It's great to hear. And then maybe just lastly for Scott or Jim. Just curious to maybe get some additional color on those four credits that moved to non-accrual in the quarter. Maybe by portfolio geography and kind of what gives you the comfort that guys see -- that you guys don't see any losses within those four in particular?

Scott R. Goodman -- President of Enterprise Bank & Trust

Sure. Sure. Well, the first two are easy. They were basically 90-day past dues, which sometimes, and they're both in St. Louis. When you're in the middle of a restructure, you kind of use a maturity as a negotiating factor and those 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 at the manufacturer service company are 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 law standpoint, we feel pretty secure with those.

Nathan Race -- Piper Jaffray -- Analyst

Okay, great. I appreciate all the color. Congrats on a great quarter, guys.

James B. Lally -- President and Chief Executive Officer

Thank you.

Operator

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

Michael Perito -- KBW -- Analyst

Hey. Good afternoon, guys. Thanks for taking my questions.

James B. Lally -- President and Chief Executive Officer

You bet, Mike. How are you?

Michael Perito -- KBW -- Analyst

I'm good. How are you?

James B. Lally -- President and Chief Executive Officer

Good. Thanks.

Michael Perito -- KBW -- Analyst

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?

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Yeah. Let me dig through my notebook here, Mike. My apologies. Yeah. That's a good number. And I think what you're maybe pointing to is 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 wealth management revenue stream for the year. But fortunately, the combination of the two has been good for us.

Michael Perito -- KBW -- Analyst

Yeah. 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 five -- four or five quarters here. And I'm just curious, what kind of can get that moving again? Is it just opportunity on the Trinity side or there are 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 would be helpful.

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Yeah. I think some of the decline has to do with the markets, obviously, but we -- 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 in growing 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've been doing it well for a while.

Michael Perito -- KBW -- Analyst

Okay. Switching gears a little bit, Keene just on the liquidity position, as we think about kind of the cash investment portfolio moving forward in our models, I mean, is it fair to -- as we look at, 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 liquidity profile going forward, depending -- obviously, depending on how strong growth is? Just what are your thoughts there?

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Yeah. I think I feel much more confident that as a proportion of the assets, I like the size of the investment portfolio. I think there's some definite benefits there. I think the cash, maybe it's 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 there's usually a one-day lag on sort of how you're managing that or what you might be projecting for that day. So 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 or lower on loan to deposit and a 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.

Michael Perito -- KBW -- Analyst

So I guess to -- just to summarize, I mean, the cash position is probably a little high, but the bond book north of 1 point -- or 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?

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Yeah. I would think that like always we're going to continue to reinvest and we'll just look at where it makes sense that 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.

Michael Perito -- KBW -- Analyst

Okay, thank you. And then just lastly, Jim, we got the Trinity deal on-board now. I was wondering just kind of a generic question, 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 are kind of mixing together? What a couple of the biggest opportunities you are -- you think are down there that could help you maybe exceed kind of the base case stuff that you've communicated to us as it relates to the transaction?

James B. Lally -- President and Chief Executive Officer

Yeah. I'd say this. A couple of things. One, Trinity was relatively young in regards to their penetration in Albuquerque and they had 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 extremely well, our treasury platform to do well in Albuquerque. I'd say it's true the lab in Los Alamos continue 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 on the mortgage side as well as acquiring household accounts with that. So I think those are the two spots where 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.

Michael Perito -- KBW -- Analyst

Perfect. Thank you guys for taking my questions. Appreciate it.

James B. Lally -- President and Chief Executive Officer

Thank you.

Operator

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

Brian Martin -- Janney Montgomery Scott LLC -- Analyst

Hey, guys.

James B. Lally -- President and Chief Executive Officer

Hi, Brian.

Brian Martin -- Janney Montgomery Scott LLC -- Analyst

Hey. Just a couple things from me. Just the -- Keene, just -- maybe I missed some of it when you were talking about, but the -- on the deposit side -- 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 -- that was $2.5 billion that we're tied to LIBOR, maybe I missed that, but just going back to the repricing on the loans and deposits.

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Yeah. We have about $3 billion of loans on -- that are tied to variable rates, $2.5 billion are LIBOR-based, $400 million are prime and the delta of some other indices across a variety. And then on the deposit side, there's $3 billion in 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 with -- within that that are -- have moved and will continue to move as those benchmark rates go down.

Brian Martin -- Janney Montgomery Scott LLC -- Analyst

Okay. And with LIBOR, I mean, I guess if you've 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 the rates actually go down?

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Yeah. 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 those deposits and have 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, there are 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.

Brian Martin -- Janney Montgomery Scott LLC -- Analyst

Yeah. I got you. Okay. And then just on the loan growth, maybe it's for Scott or whomever, but just seemed 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?

Scott R. Goodman -- President of Enterprise Bank & Trust

Sure. I think as I said in the comments, I think that what you saw in Q2 was what I kind of telegraphed in Q1 relative to building 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 just -- there's a lot of of urban core development, industrial, multifamily, office is 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 can really 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 kinds 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, yeah, I'm feeling good about the way things look from a loan standpoint right now.

Brian Martin -- Janney Montgomery Scott LLC -- Analyst

Okay. And then New Mexico, the flat or the smallest decline this quarter. I guess, how do you see the debt portfolio trending? I guess, maybe you, I guess, expect to see that resume growth next quarter.

James B. Lally -- President and Chief Executive Officer

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 runoff mode. And so no matter -- we can originate pretty robustly and we have been, but that -- those are just going to create some 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.

Scott R. Goodman -- President of Enterprise Bank & Trust

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.

Brian Martin -- Janney Montgomery Scott LLC -- Analyst

Okay. Yeah, that's helpful. And the last one could maybe just on credit. I know someone asked earlier, but just outside of the four credits you've already discussed, is there anything else that's -- 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 as kind of similar to what you said last quarter, you're just not seeing much out there still?

Scott R. Goodman -- President of Enterprise Bank & Trust

Yeah. I mean, from a -- 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 you'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 -- but the portfolio right now, I think other than hopefully the explanation I gave on the few credits is in pretty good shape.

Brian Martin -- Janney Montgomery Scott LLC -- Analyst

Okay. All right. Thanks for taking the questions, guys.

James B. Lally -- President and Chief Executive Officer

You're welcome. Thanks, Brian.

Operator

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

James B. Lally -- President and Chief Executive Officer

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.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

James B. Lally -- President and Chief Executive Officer

Scott R. Goodman -- President of Enterprise Bank & Trust

Keene S. Turner -- Executive Vice President and Chief Financial Officer

Jeff Rulis -- D.A. Davidson and Company -- Analyst

Andrew Liesch -- Sandler O'Neill -- Analyst

Nathan Race -- Piper Jaffray -- Analyst

Michael Perito -- KBW -- Analyst

Brian Martin -- Janney Montgomery Scott LLC -- Analyst

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