U.S. Markets closed

Enterprise Financial Services Corp (EFSC) Q1 2019 Earnings Call Transcript

Motley Fool Transcribers, The Motley Fool
Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Enterprise Financial Services Corp  (NASDAQ: EFSC)
Q1 2019 Earnings Call
April 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. Please go ahead sir.

James B. Lally -- President and Chief Executive Officer

Ryan, thank you. And good afternoon and thank you all very much for joining us. I would like to welcome you to our 2019 first quarter earnings call. Joining me this afternoon is Keene Turner, our Company's Chief Financial Officer and Chief Operating Officer; and Scott Goodman, President of Enterprise Bank & Trust.

Before we begin, I would like to remind everyone on the call that a copy of the release and accompanying presentation can be found on our website. The presentation and earnings release were furnished on SEC Form 8-K yesterday. Please refer to Slide 2 of the presentation titled Forward-Looking Statements, and our most recent 10-K for reasons why actual results may vary from any forward-looking statements that we make today.

We've had a very solid first quarter highlighted by the completion of the merger with Trinity Capital Corporation and its wholly owned subsidiary Los Alamos National Bank. As we discussed on previous calls, this market gives us the opportunity to further build out our southwestern presence, while adding a significant valuable core deposit base.

You would -- please turn to Slide 3 where you'll find our financial scorecard. You will notice that our earnings per share declined by 26% from the $0.90 that we posted one year ago. Keene will get into the details related to this, but the majority of this decline had to do with merger-related expenses that we incurred during the quarter. Drilling deeper into the details of the quarter, net income growth in dollars improved by 13% year-over-year due to the quality loan growth and improvement of our net interest margin. We're especially pleased with our ability to expand core net interest margin despite continued rate pressure on deposit that exists within the industry. Scott will provide more granular detail about our loan and deposit results in the first quarter, along with our confidence in meeting our growth numbers for the remainder of the year.

Our diversified loan portfolio both in terms of geography and types of loans has reached a very enviable quality. Compared to a year ago, we were able to reduce our non-performing loans by 18 basis points. Furthermore, we stack up very well when comparing our credit statistics to our peers. As previously mentioned, we closed on the merger with LANB, the impact of which increased our deposit levels by 29% year-over-year.

Slide 4 list our focus for the remainder of 2019. At the top of the list is the integration of LANB into enterprise. Much of the cultural integration began an announcement and will continue for the foreseeable future. The system integration is scheduled for later this quarter and we are confident in our ability to accomplish this in a seamless client-focused manner. Second on the list is our focus on achieving our organic loan and deposit growth goals. Despite the lack of growth in Q1, we feel good about our ability to achieve our targets for the remainder of the year. Finally, we will remain focused on doing the right things each and every day to improve our sales and operational processes. This culture of continuous improvement has taken hold throughout our Company and is a significant reason why we have achieved the results that we have.

I would now like to turn the call over to Scott Goodman, who'll provide more color on our markets and lines of business.

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

Thank you, Jim. As shown on Slide number 5, the addition of the Trinity portfolio contribute $682 million of loans to the book, pushing loan growth of 20 % year-over-year. Net of the acquired loans, the organic portfolio is basically level for the quarter.

Slide number 6 illustrates continued momentum in C&I lending with 9% annual growth in the organic portfolio and 12% with the addition of Trinity. For the quarter, we experienced solid C&I growth within the geographic markets. However, this was offset by larger pay downs in the commercial real estate portfolio, along with seasonality and event-driven reductions in the specialty loan segment.

The business segment changes are itemized on Slide number 7, along with a breakdown showing how the Trinity loan portfolio folds into the legacy book. As we have previously discussed, Trinity's loan strategy was primarily focused on commercial and residential real estate, along with some general C&I lending to private businesses within their footprint. Within our specialty business segment, life insurance premium finance posted solid growth as momentum from Q4 carried over through the increased policies and several new opportunities to refinance deals, which were referred from our existing client base.

The EVL or Enterprise Value lending book declined by $26 million from the sale of several portfolio companies combined with a slow quarter for new originations. Following a busy Q4, many of the sponsors were active rebuilding deal pipelines while others were finalizing their next round of capital. In general, activity in this sector remains solid and we're seeing a good flow of new opportunities already in Q2.

Within the tax credit portfolio, the decline there was mainly the result of a pool of credits and a leveraged fund, which were sold to investors during the quarter. This is typical in lifecycle of certain tax credit funds. Our pipeline of other tax credit opportunities within the affordable housing and new market programs is solid and should result in continued growth in this sector as we move through the year.

Along with specialized lending, the geographic business units are broken out on Slide number 8. St. Louis had decent origination activity in the quarter but was most heavily impacted by higher than average levels of loan payoffs and pay downs related to the sale of real estate, sale of several operating businesses, as well as the successful resolution of some problem C&I loans.

In Kansas City, we experienced growth in both New C&I loans as well as investor real estate. New relationships include M&A financing for a larger contractor and the refi of season multi-family complex, as well as a large new multi-use construction project for an existing client.

Arizona grew its C&I portfolio through a number of new relationships in the service, fabrication, and entertainment industries. However, this was mostly offset by two large payoffs relating to the sale of property and a permanent market takeout. In general, while the lack of organic growth in the quarter is a bit disappointing, I am encouraged by the outlook for the remainder of 2019. Our refreshed sales process focused on higher levels of C&I calling continues to on-board new relationships and grow the existing book.

Credit quality and loan yields are solid as we remain disciplined relative to loan pricing and structure, particularly in the more competitive and transactional investor CRE categories. And loan activity and pipelines heading into Q2 are strengthening across the board.

Deposit growth, it's profiled on Slide number 9, and shows the impact of the Trinity acquisition, pushing total deposits to over $5.5 billion mark. The additional acquired deposits are beneficial to the overall mix and cost of the legacy portfolio with DDA and low cost savings accounts comprising nearly 90% of the total. Organic deposits were up roughly 4% over the same period last year. Balances declined seasonally from the prior quarter, but fundamentals remain solid. The trend in new account -- net new account activity continues in a positive direction as inflows in the new accounts was nearly double that of closed accounts in the quarter. As rates have risen over the past year, we have seen depositors in the organic portfolio transition more dollars into interest bearing accounts. We have been able to retain a significant amount of these deposits at acceptable rates. And more importantly, we continue to expand our base of deposit relationships overall.

Now, I'd like to turn it over to Keene for a review of our financial results.

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

Thanks, Scott. We reported net income of $16.2 million or $0.67 per share on a revenue of $61.6 million for the first quarter. The return on average assets was 1.1% and the return on average tangible common equity was 13%. The completion of Trinity acquisition in the quarter added $7.3 million of pre-tax merger expenses and contribute to the linked quarter decline in earnings per share and return.

In addition since the acquisition closed March 8, less than a month of earnings benefit is included this quarter. I'll discuss the specific drivers of the quarterly changes in EPS momentarily. Additionally we previously communicated that we estimated 8% earnings accretion in 2020 from Trinity with the tangible book value earn-back of approximately three years using both crossover and simple methods. As we update our model post-acquisition, we continue to feel comfortable with the original guidance. We also believe that the fourth quarter of 2019 will generally reflect fully phased-in cost. While the first quarter was seasonally softer and fees and expenses were encouraged by the fundamentals of the business, especially with stable core net interest margin, efficiency and credit metrics all under the microscope.

The breakdown of change in earnings per share for the first quarter compared to the linked fourth quarter is presented on Slide 10. The largest impact of the quarter was $0.24 in merger-related expenses that reduced EPS by $0.20 per share compared to the linked quarter. Additionally, the shares issued as consideration for Trinity affected the diluted share count by over 1 million shares in the first quarter or around $0.04 on earnings per share. And the income tax rate was impacted by several items, including non-deductible merger expenses that I'll detail further.

Our other results declined seasonally by $0.07 per share net principally within fee income as the fourth quarter of 2018 included $2 million more of state tax credit sales in the current quarter. We'll dig into the remainder of the first quarter as we proceed through the detailed components.

On Slide 11, we present our net interest income and core net interest margin trends. Over the past year, core net interest income has expanded by 13% to $51.2 million, and the core net interest margin expanded 5 basis points. On a linked quarter basis, core net interest income increased $2.7 million and the core net interest margin increased 2 basis points.

Reported net interest margin was 3.87% and reflects the trend in our core net interest margin, along with more stable accretion from non-core acquired assets, which was $1 million higher in the linked fourth quarter. The linked quarter increase in net interest income was driven by the addition of Trinity, which added approximately $3 million, while net interest income from legacy enterprise declined modestly as our fourth quarter growth was unable to outpace two fewer days along with net interest margin expansion.

One day represents approximately $0.5 million, and by our estimate core net interest income declined by less than that amount pre-merger. As Scott mentioned, in addition to $680 million of loans added from Trinity, we had continued success in C&I lending. We also grew the life insurance premium finance portfolio, which sold 9% of the loan portfolio. While the growth in these areas was offset by a decrease principally in real estate-related categories, we still feel confident about our opportunities for the remainder of the year. We had a strong fourth quarter, and when that happens it's typical for us to see a slower start to the next period as the pipeline is restored.

The yield on the loan portfolio expanded to 5.50% and despite the acquisition, variable rate and C&I loans to total loans only decreased modestly. We're still finalizing our purchase accounting evaluation and we recorded preliminary fair value marks during the quarter. This added 2 basis points to loan yield and 1 basis point to overall net interest margin. The impact of Trinity on net interest margin as we previously stated is generally neutral, due to the higher mix of investment securities offset by Trinity stable low cost deposit base.

Maybe said differently, we're also pleased that despite the lower loan to deposit ratio, our core margin held steady. Remixing between investments and loans moving forward provides the opportunity to maintain stable net interest margin despite current interest rate conditions. I probably can't emphasize enough how pleased we are with the last several quarters net interest margin performance and where we are positioned today. We remain focused on enhancing our earnings by defending our net interest margin, while growing loans and deposits in the upcoming quarters.

Slide 12 highlights our credit quality trends. Non-performing loans declined in both dollars and as a proportion of the balance sheet to 0.19% of total loans from 0.38% at the end of December. Several relationships had principal reductions in the quarter and one loan charge off of $1.8 million that was fully reserved in prior periods was charged off. It's worth noting that most of the movement into OREO in the first quarter was merger-related.

Provision expense was $1.5 million in the quarter compared to $2.1 million in the fourth quarter. That was primarily a function of the balance sheet trends in the legacy enterprise portfolio and the decline in non-performing loans.

Let's turn to the non-interest income on Slide 13. Non-interest income declined $1.5 million from the linked quarter, primarily from lower state tax credit activity, which is seasonally strongest in the fourth quarter. We also experienced some seasonal weakness reflective of underlying transaction volume and day counts in some of our typically more stable businesses. These trends were outpaced by approximately $600,000 in non-interest income from Trinity in the quarter. Nonetheless, we continue to expect high-single-digit growth in 2019 fee income from legacy enterprise, due to -- primarily due to opportunities in state tax credits and card services. In addition, Trinity's current fee income stream will help strengthen and diversify us in this area, and we expect our card services and Treasury platforms will be beneficial to the client base over the long-term.

Turning to slide 14, non-interest expenses were $39.8 million, including $7.3 million in merger-related expenses. As we continue to work through contract terminations, we expect that our announced one-time estimate is accurate. Approximately $2 million of the operating expenses in the first quarter for a run rate Trinity expenses since March 8. Employee compensation and benefits increased $2.7 million from the linked quarter, which includes $1.2 million from Trinity.

Stepping back, legacy expenses would have declined below $30 million in the quarter before Trinity and $1 million of seasonal payroll taxes. This is principally due to some of the timing of run out of amortization on tax credit investments, which we see in the effective tax rate. Despite the higher relative Trinity operating expenses, the efficiency ratio was comparable to the prior year quarter at 54%. We expect expenses will continue to be at an elevated amount until after the conversion of Trinity system, which is currently planned for the second quarter.

After conversion, the full run rate of efficiencies, including elimination of duplicate system costs, will begin to be realized and we will expect further leveraging of our expenses and improvement in the efficiency ratio. I noted earlier but we included an exhibit on the income tax rate compared to prior periods. This is on next slide 15. The current quarter effective tax rate was 21%, including 130 basis points to the non-deductible merger expenses. Excess tax benefits were similar to full year 2018 but were unfavorable to the prior year quarter, which included a fairly significant tax rate benefit. Our effective tax rate for the first quarter after those two items is at the top end of our projection due to the timing of tax credit investments, which I noted in my expense comments.

In 2018, we had been amortizing and recognizing benefits for historic tax credit and other tax credit investments, and we expect those items will positively benefit 2019 at some point. However, the timing of our investments has caused some noise in each of these line items, particularly in this quarter as we are currently evaluating investment opportunities. When we do execute on those investments, we expect that both non-interest expenses and income taxes will both be proportionately effective with a modest benefit to net income.

I apologize that there is such a deep dive here, but I want to make sure that (ph) the North in those lines didn't overshadow the strong start to the year. Overall, we're extremely pleased with the direction of the company and the outlook on our financial results. We expect the trend that we have mapped to this point on Slide 16 will resume due to our demonstrated ability to integrate previous acquisitions as well as achieve further operating leverage from the expansion into Mexico.

We're also confident that we're doing the right things in our core business and that our organic growth for 2019 will deliver further balance sheet growth while keeping a prudent credit and interest rate risk profile.

We appreciate your continued support and for your time today. And now, we'll take questions.

Questions and Answers:

Operator

Thank you. (Operator Instruction). Our first question today will come from Michael Perito with KBW. Please go ahead.

Michael Perito -- KBW -- Analyst

Hey. Good afternoon, guys.

James B. Lally -- President and Chief Executive Officer

How are you doing, Mike?

Michael Perito -- KBW -- Analyst

Good, thank you. One hit on a few things. I just want to start with a more factual question. Keene, what the go-forward murder charge is? What else can we expect in future quarters? My guess is there'll be some next quarter with the conversion. Is there anything expected after that?

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

There may be a little bit that trickles into Q3. I think we've got a little bit more than half to go yet in terms of charges simply because most of the items relate to duplicate systems that we have to buy out the contract for, but much of the employee related and severance items has been accounted for as well as the legal and advisory fees. So, I think, most of that you'll see in the second quarter. There may be a little bit of it that leads into the third quarter, but we'll obviously highlight that and back it out as we move forward, and we'll have a much clearer sense of that if there's going to be anything in the third quarter when we report next quarter.

Michael Perito -- KBW -- Analyst

All right. So probably another $7 million to $8 million in the second quarter and then transfer a small amount in addition to the end of third quarter give or take?

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

Yeah. Yeah. I will say that, that's our best guess in terms of timing and amount at this point.

Michael Perito -- KBW -- Analyst

Okay, thank you. And then, if we take that out of the equation for a second here, can you give us maybe a little bit more thoughts and/or color on the trajectory of the expense run rate this year, I mean, so you're at $32.5 million give or take. If we back out the merger charges in the quarter, obviously that doesn't incorporate a full quarter's worth of Trinity. Can you -- I guess, can you just confirm a few numbers? I mean, as Trinity running about $9.5 million on a quarterly basis? And will that pretty much fully flow-in in the second quarter before seeing that step down from the 36% cost saves over the back half of the year?

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

Yeah, I don't think you're going to see that full $9.5 million. I think you'll see -- we've got a little bit of room in our number because of the employer payroll taxes that are essentially exhausted. So, that run rate got a little bit of room, so that probably accounts for normal growth. Trinity at $9.5 million is probably pretty full. Most of the senior team left, and so we get a little bit of that, but the rest of it's pretty duplicative. So, I'm going to call that minus $1 million.

And then, fully phased-in cost savings are $3 million. So I think you'll get that in the fourth quarter. And then, offsetting those items is intangible amortization, which is about $1 million a quarter. So, just -- I'm going to walk you through real quick. 30 -- just call our current run rate ,$30 million, plus $9 million for Trinity, minus $3 million for cost savings, so you're at $36 million and then whatever growth is, plus intangible amortization of $1 million. So $37 million, $38 million later in the year.

Michael Perito -- KBW -- Analyst

Extremely helpful, thank you.

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

You are welcome.

Michael Perito -- KBW -- Analyst

And then just lastly, maybe for Jim or Scott, just on the growth side, I think obviously with the strong fourth quarter and I think seasonally you guys are a bit stronger in the back half of the year anyway. But just more curious how Trinity impacts the overall growth trajectory of the company. It doesn't seem like it was necessarily a big asset growth story when brought on, I think that's an opportunity you guys see. But could you guys provide any thoughts about how near-term maybe the growth impact from Trinity will look like, and then longer term what you hope it can become once you kind of build out the team over there a little bit further?

James B. Lally -- President and Chief Executive Officer

Hi, Mike, this is Jim. I'll handle that. So, I would say this, in the near-term, we hadn't budgeted much growth if at all from Trinity. Longer-term, now we're spending more time in the markets, especially Albuquerque. We believe there is a a significant hole in the market that we can fill relative to development and some C&I in the marketplace, but we're still devising that plan before we can put a number out there. But I feel confident that I'll be part of our growth story in the future.

Michael Perito -- KBW -- Analyst

Okay. And then, from a personal standpoint, I mean, what do you guys think needs to be done over there? Is it upgrading talent or is it just adding more people? Well, what are your thoughts there on the lending side?

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

I'm very pleased with our leadership -- current leadership that we inherited in the market, and they've jumped in with both feet and are working very well with the legacy company. As we grow and as we look into the market, I'm sure there's some talent that fits into us, but we really like the team that we've put in place down there.

Michael Perito -- KBW -- Analyst

Okay. Helpful guys. Thank you for taking my questions. Appreciate it.

Operator

Thank you. (Operator Instruction) We'll take our next question from Nathan Race with Piper Jaffray. Please go ahead.

Nathan Race -- Piper Jaffray -- Analyst

Hi, guys. Good afternoon. (multiple speakers) on the income, and I'm starting on the same quarter. I think Trinity was running somewhere between 2 to 2.5 per quarter. And you guys are just a shade under 9, so it's just as simple as going to begin, maybe just a little north of 10 going forward on a quarterly basis, and obviously fourth you will be impacted from a seasonal tax credit increase. I just want to make sure we're going to think about the run rate accurately?

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

Yeah. I think that's fair, Nate. I mean, I think it really is just adding the two together. I do think relative to the current quarter, we're optimistic that the tax credit line has a little bit of upside to it over the next several quarters in addition to the strong fourth quarter, but we owe that to you to prove that out. So, more to come on that, but we expect the second quarter from a tax credit perspective will look a little bit more robust.

Nathan Race -- Piper Jaffray -- Analyst

Okay. Got it. That's helpful. Just perhaps thinking about credit costs going forward, charge-offs were fairly well behaved compared to what we saw in the last couple of quarters of 2018. So just curious, with the larger balance sheet and maybe give us some churn within the acquired book as those loans renew, just how we should think about maybe the all-in provision over the next few quarters?

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

Yeah. Nate, we've been, I think, fairly prudent in terms of making sure that we provide for growth and then items that migrate and ultimately charged off, we provide for that as well. So, maybe when you step back outside of purchase accounting, coverage is around 1% given the nature of the portfolio. So, I would expect on legacy and growth that varies by segment, but you at least be able to kind of maintain that coverage moving forward. And if there's churn out of any acquired books, you're going to have some items that come through net interest income, but then you'll get an offset in the provision. So, those should be balancing if there's any payoffs and relative accretion from a credit perspective there.

Nathan Race -- Piper Jaffray -- Analyst

Okay, got it. And if I could just ask one more along those lines in terms of your last comment, in terms of accretion income going forward. I know it's tough to predict just given unpredictability around payoffs and so forth, but just any thoughts on what we was expected in terms of the quarterly accretion income?

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

Yeah, the current quarter was pretty good in terms of what we thought. So I think that was a little over $1.5 million, so that's $0.03 to $0.04. And I think that level we expect is fairly stable. So from the non-core acquired book, I think we've seen some stability. So, $1.1 million, $1.2 million, we have that big, I'll say, that larger item in the fourth quarter where you had about $2 million of accretion, and that was allowance reversal. And there's only about $1 million of that allowance that can get reversed. The rest of it is going to come through, we would expect much more smoothly. Now, I know as soon as I say that I'm going to be wrong, but that's what our predict -- that's what our estimate is.

Nathan Race -- Piper Jaffray -- Analyst

And that does not include the impact of Trinity going forward as opposed to...?

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

Trinity will continue to be maybe a basis point or two, as we see it on a quarterly run rate. I think when we announced, we had a fairly low interest rate mark. The book was fairly well price, rates have moved around quite a bit. But much of the margin improvement at Trinity was coming from the investment portfolio sales. So that's already been achieved, and then the remainder we're finalizing the purchase marks, but you had a basis point this quarter. I'd expect that to be similar and core margin trend from here.

Nathan Race -- Piper Jaffray -- Analyst

Right. Got it. I'll step back for now. I appreciate the color.

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

Thanks, Nate.

Operator

Thank you. We will take our next question from Jeff Rulis with D.A. Davidson. Please go ahead.

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

Thanks. Good afternoon.

James B. Lally -- President and Chief Executive Officer

Hi, Jeff.

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

Question on the -- I guess, Keene, you mentioned that you'd expect most of the costs, (ph) either all cost saves to be achieved by Q4. Is that a change? I can't remember if there was a tailwind to 2020, but just wanted to confirm that once we hit Q4, no additional cost saves in 2020.

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

Yeah. I'm not going to say no, we're absolutely none, but Q4 should be fairly reflective of the run rate give or take. So, there's still some things that system-wise, ancillary systems and really that can be ongoing that get worked through. But I don't expect that or anticipate that that'll deliver any meaningful run rate changes for purposes of enterprises earnings, these are in 4Q '19 or 1Q 2020.

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

And then, sorry to -- on the margin, I think pretty clear on the core (ph) 3.79% and talking about maintaining some stability there. But then the accretion -- so what I gathered was, the the full quarter Trinity is a rounding error on the added basis points, he had about 8 basis points in total on accretion. Do you expect that figure that add to margin to be roughly similar or drifting down over time?

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

I think we expect it to be fairly similar at least call it for the remainder of the year. That's a pretty heavily marked portfolio and there's a lot of discount there still. So, I think those numbers will be relatively stable, call it for lack of a better rounding number $1 million. And I think that when you take that in, you have like 2% in terms of net interest income as you bring Trinity in there, you're talking about less than 2%,1% and 1.5% so it's getting down to be a fairly insignificant number, but it is adding 5, 6, 7 basis points between reported and core margin.

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

Okay. All right. And then, maybe I don't know one for maybe Scott. Just on the credit side, the properties brought over in the acquisition you'd expect any comment on those and would you see a resolution in relative quick order on those or how is the positioning there?

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

Yeah, I think -- know certainly from a -- I don't want you sort of distressed real estate or a problem credit -- purchase credit impaired loans. Our team has a strong history in working those out dating back to the FDIC deal. Our diligence teams are very good at understanding and marking those credits, and we're already seeing those credits move in the second quarter. So, I don't know that it's a fire sale, but we certainly have a mark to a point where we think we can exit them, and that is really the important piece of moving forward that. If there are credits that slip out of the portfolio loan book that need you know our resolution group's attention we want them to have the time and energy and effort to stand there. So certainly anything that we think is not a viable long-term client will work to resolve fairly quickly.

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

And Jeff, maybe I could just add. Given the types of properties, they're not going to act any differently than properties that we would have worked out of -- in other markets as well. And I think we're seeing the current environment pretty conducive to working out of loans a little faster. So, I wouldn't see any -- these acting any differently than anything in our other portfolios.

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

That's it.

Operator

Thank you. (Operator Instructions) And we'll take our next question from Andrew Liesch with Sandler O'Neill. Please go ahead.

Andrew Liesch -- Sandler O'Neill -- Analyst

Hey, guys. Just a follow-up question for me just on the securities book from Trinity, has there been any repositioning of that, have you completed the sale that you're expecting to have that book and have reinvested it into your own securities or is there still more of that, that's expected?

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

The answer is yes and yes. So we've repositioned most of it. There are a couple of securities that are being unwound from pledging arrangements and things like that. So that's a -- it's a much less simple process and then we think -- you think it is. But the majority of that's already been redeployed and so you're seeing those result in our run rate from a repositioning and from a yield perspective. There's a, I'll say a handful, more to do, but those will offer some modest yield improvement moving forward. But it's nothing that is immeasurable or it is measurable. So we'll -- we generally achieve the income targets that we were expecting from that redeployment and that we announced, but it was more of a challenge to do so, given what happened with rates.

Andrew Liesch -- Sandler O'Neill -- Analyst

Okay. And then, the securities book in general just the size of it, would you expect it to stay near this level or drift lower as you -- to play cash flows into loans?

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

Yeah. I think some of that really depends on what happens with deposits. So, we don't typically (inaudible) up the balance sheet for securities. But we certainly like our newly found loan to deposit ratio. And I think we would look given that there are times when it's more difficult to find securities that we like, and the yields that we like, and the structure we like. Well it'll probably be more lumpy moving forward, will enough when we have that opportunity, because we know it might get away from us. So, I think generally the same size, maybe a little bit bigger. Just because I think there's still some stuff tied up in cash now. But then over time certainly the deal model would allow the portfolio to shrink. But I'm optimistic that we're going to have success growing deposits and that we'll be able to keep -- you know keep that portfolio a little bit bigger because of that.

Andrew Liesch -- Sandler O'Neill -- Analyst

Okay. That's very helpful. Thanks.

Operator

Next question will come from Brian Martin with FIG Partners. Please go ahead.

Brian Martin -- FIG Partners -- Analyst

Hey, guys. I guess came just one -- just a follow up on the last question on securities. I wanted to ask the same thing, but just the size of that portfolio relative to assets over time given where you've historically run, I mean, where do you expect to run that over time as you kind of I guess go forward?

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

Yeah, I would tell you, I sleep a lot better at night with that 18% than 14%. It makes life a little bit easier. I do think it depends on what is available from an investment perspective and what excess liquidity we have. So, right now, the investment environment is not outstanding. And so, we probably would let it shrink if we have strong loan demand. But if there's some things that we think that we like in the portfolio and we have the liquidity to do it, we probably would add those because we know that the market has been fairly turbulent from investing an indefinite portfolio over the last two to three years. So, I know that's not an answer that you're looking for. You're looking for a percentage, so I'm going to say, it's going to be somewhere between 17% and 19% profitability for 2019.

Brian Martin -- FIG Partners -- Analyst

Okay. All right. That's helpful. Thanks, Keene. And just the comment you made about the tax credits in that impact and fees being maybe a little bit more robust in the second quarter. I guess, does that take away from time when you look at the historic trends in the fourth quarter being what they typically are. I mean, I guess just as it kind of flow to different quarters or is it just a pickup in these quarters and still expect to kind of the strength in the fourth quarter we typically see?

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

Yeah. I think what we said on the fourth quarter call, Brian, is that we expect that the tax credit business to expand for us by about 25%.

Brian Martin -- FIG Partners -- Analyst

Right.

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

So you're still going to have -- they're going to be fourth quarter weighted, particularly this year, but we expect that you'll get some (technical difficulty) in the third quarter activity that is stronger than what we saw on my first quarter. Right, in prior year, we've seen that number, 0 or $50,000 or something like that.

Brian Martin -- FIG Partners -- Analyst

Okay. Got you. That's helpful. And just the last two things, Keene. Just on the remixing here, and just kind of I guess, how much of that was in within securities portfolio, I guess a lot of that's not in the margin given the timing of when the changes you made, the sales posture as far as -- go head.

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

Yeah, I would say, it is in the margin because even if we weren't able to sell the security right away, it got revalued to the current yield at March 8. So, if there was a theory that was yielding (inaudible) and we were able to redeploy -- sell it and redeployed it through 2018. You might have 15 days of that instead of 21 days or whatever the time period was, but I don't anticipate that there's a material change from the portfolio moving forward.

Brian Martin -- FIG Partners -- Analyst

Got it.

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

Particularly when you look at the total net interest income dollars that you'll get on a full run rate with Trinity and enterprise like in 2Q or 3Q.

Brian Martin -- FIG Partners -- Analyst

Yeah. Okay, that's helpful. And just the last one was just on the tax. I think you talked about in your prepared remarks some tax things you're thinking about doing. Can you just -- can you give any color on what you're thinking about on the tax side or how we think about that over the balance of the year? I guess, is that just going to be lumpy and will just kind of wait and see?

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

Yeah, I would tell you that the number -- the impact on net income is negligible, right? So we think about it, even if we are able to be highly successful executing on tax investment, it's probably a penny a quarter net, but you really see it coming through the rate. So that might be the difference -- two points of difference in the effective tax rate, but you're also going to get the offsetting amortization in expenses. So, when that happens, very likely depending on whether you model it and or model it out, you'll have a $0.5 million miss, but you'll make it back up in income tax expense and we'll point that out. But given we don't have anything that we've executed on in first quarter, I'd say that that's more likely a second half item that we would avail ourselves versus the second quarter item.

Brian Martin -- FIG Partners -- Analyst

Okay. And the kind of -- there has been the rates, kind of to think about it from an effective standpoint for 2Q, it's more than this 18% type of range, is that kind of what you said?

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

Our rate for the year we said was 18% to 20%. We're a little outside of that because as a non-deductible expenses. But the other thing that's having a (ph) clear deposit into that range is the tax credit investment. We're getting currently like a 1% benefit from the tax credit investments we have. And you saw last year we had about 450 basis point benefit. So there's some room in the middle of that for us to improve the rate.

Brian Martin -- FIG Partners -- Analyst

I got you. Okay, that's all I had. I appreciate it, guys. Thanks.

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

Thanks, Brian.

Operator

Thank you. Our next question will come from (ph) Gareth Revilege, who is a private investor.

Unidentified Participant -- -- Analyst

Hi, good afternoon. I just want to follow up about a comment you made about the loan growth -- excuse me, the deposit growth. I just wanted to get a sense that, I think you quoted a number of about 4%, I don't have slide deck open in front of me. But can you give us a little bit of color as to that growth, is it more of like customer acquisition in the last 12 months or is it more like a legacy base. I mean obviously some of it's probably just ordinary interest accrual that guests are just showing up. But can you give us a little bit of a sense of where some of that growth is coming from?

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

Yeah, sure. This is Scott.I think, most of the growth is coming from new relationships and some additions to existing clients as I mentioned. If you look at dollars flowing into new accounts versus about dollars flowing out of closed accounts or about double you know flowing into new accounts versus going out. The only thing that's muting that is just we see some balances from existing accounts moving to higher rate options. We're retaining that when it works for our rate structure and we're letting you know some of it go to higher rate options. But the key there is we're keeping a relationship.

Unidentified Participant -- -- Analyst

Okay. Thanks. Thanks for the color. Appreciate it.

Operator

Thank you. Our next question will come from Nathan Race with Piper Jaffray. Please go ahead.

Nathan Race -- Piper Jaffray -- Analyst

Hi. Just a follow-up question on capital and just curious about the appetite to continue to tap the share buyback that's out there at this point for the next couple of quarters?

James B. Lally -- President and Chief Executive Officer

Yeah Nate, this is Jim. I think we've been balanced in the previous year to 18 months and utilizing our internal growth in M&A, and we've increased our dividend as well as continued buyback. So what we'll do is continue looking at all four avenues to appropriately utilize the capital that we're building. So the share price you have out there the share repurchase program either will stay intact that makes sense will will act upon it.

Unidentified Participant -- -- Analyst

And can you just remind us what the remaining authorizations that's out there? Do you have an idea?

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

I think we have just under 1 million shares still available.

Nathan Race -- Piper Jaffray -- Analyst

That's helpful. Thanks again, guys.

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

Welcome. Thanks, Nate.

Operator

Thank you. (Operator Instructions) It appears there are no more questions at this time. I will turn the conference back over to our speakers.

James B. Lally -- President and Chief Executive Officer

Ryan, thanks again and thank you all for joining us this afternoon. We appreciate your interest in our company and look forward to speaking to all of you again next quarter. Have a great day.

Operator

Ladies and gentlemen, thank you for joining today's conference call. The call has now concluded. Please disconnect your lines and have a great day.

Duration: 44 minutes

Call participants:

James B. Lally -- President and Chief Executive Officer

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

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

Michael Perito -- KBW -- Analyst

Nathan Race -- Piper Jaffray -- Analyst

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

Andrew Liesch -- Sandler O'Neill -- Analyst

Brian Martin -- FIG Partners -- Analyst

Unidentified Participant -- -- Analyst

More EFSC analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

More From The Motley Fool

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.