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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2004

For the transition period from              to             

Commission file number: 001-15373

ENTERPRISE FINANCIAL SERVICES CORP

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: 314-725-5500

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities and Exchange Act of 1934).    Yes  x    No  ¨

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock as of April 28, 2004:

Common Stock, $.01 par value—9,677,475 shares outstanding

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ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

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PART I - Item 1

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

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ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Consolidated Statements of Operations (unaudited)

See accompanying notes to consolidated financial statements.

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ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (unaudited)

See accompanying notes to consolidated financial statements.

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ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

See accompanying notes to consolidated financial statements.

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ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The accompanying consolidated financial statements of Enterprise Financial Services Corp and subsidiaries (the “Company”) are unaudited and should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation of the results of operations for the interim periods presented herein have been included. Operating results for the three month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2004. The consolidated financial statements include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated.

Certain amounts in the consolidated financial statements for the year ended December 31, 2003 have been reclassified to conform to the 2004 presentation. Such reclassifications had no effect on previously reported consolidated net income or shareholders’ equity.

(2) Earnings Per Share

Basic earnings per share data is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share gives effect to the increase in the average shares outstanding which would have resulted from the exercise of dilutive stock options and warrants. The components of basic and diluted earnings per share for the three months ended March 31, 2004 and 2003 are as follows:

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(3) Segment Disclosure

Management segregates the Company into three distinct businesses for evaluation purposes. The three segments are Banking, Wealth Management and Corporate. The segments are evaluated separately on their individual performance, as well as, their contribution to the Company as a whole.

The majority of the Company’s assets and income result from the Banking segment. The Bank consists of three banking branches and an operations center in the St. Louis County area and two banking branches in the Kansas City region. The products and services offered by the banking branches include a broad range of commercial and personal banking services, including certificates of deposit, individual retirement and other time deposit accounts, checking and other demand deposit accounts, interest checking accounts, savings accounts and money market accounts. Loans include commercial, financial, real estate construction and development, commercial and residential real estate, consumer and installment loans. Other financial services include mortgage banking, debit and credit cards, automatic teller machines, internet account access, safe deposit boxes, and treasury management services.

Wealth Management provides fee-based personal and corporate financial consulting and trust services. Personal financial consulting includes estate planning, investment management, and retirement planning. Corporate consulting services are focused in the areas of retirement plans, management compensation and management succession issues.

The Corporate, Intercompany, and Reclassifications segment includes the holding company, merchant banking investments, and subordinated debentures. The Company incurs general corporate expenses and owns Enterprise Bank & Trust.

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The following are the financial results and balance sheet information for the Company’s operating segments as of March 31, 2004 and December 31, 2003, and for the three month periods ended March 31, 2004 and 2003 (unaudited):

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(4) Derivative Instruments and Hedging Activities

The Company utilizes interest rate swap derivatives as one method to manage some of its interest rate risks from recorded financial assets and liabilities. These derivatives are utilized when they can be demonstrated to effectively hedge a designated asset or liability and such asset or liability exposes the Bank to interest rate risk.

The Bank accounts for its derivatives under Statement of Financial Accounting Standards (SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities and SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. These Standards require recognition of all derivatives as either assets or liabilities in the balance sheet and require measurement of those instruments at fair value through adjustments to either the other comprehensive income, current earnings, or both, as appropriate.

The decision to enter into an interest rate swap is made after considering the asset/liability mix of the Bank, the desired asset/liability sensitivity and by interest rate levels. Prior to entering into a hedge transaction, the Bank formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective for undertaking the various hedge transactions.

The following is a summary of the Company’s accounting policies for derivative instruments and its activities under SFAS No. 149 and SFAS No. 133.

Cash Flow Hedges – The Bank enters into interest rate swap agreements to convert floating-rate loan assets to fixed rates. The swap agreements provide for the Bank to pay a variable rate of interest equivalent to the prime rate and to receive a fixed rate of interest. Under the swap agreements the Bank is to pay or receive interest quarterly. Amounts to be paid or received under these swap agreements are accounted for on an accrual basis and recognized as interest income of the related asset. The net cash flows related to cash flow hedges increased interest income on loans by $321,000 and $396,000 during the three months ended March 31, 2004 and 2003, respectively.

Cash flow hedges are accounted for at fair value. The effective portion of the change in the cash flow hedge’s gain or loss is reported as a component of other comprehensive income net of taxes. The ineffective portion of the change in the cash flow hedge’s gain or loss is recorded in earnings on each quarterly measurement date. At March 31, 2004 and December 31, 2003, $575,000 and $544,000, respectively, in deferred gains, net of tax, related to cash flow hedges were recorded in accumulated other comprehensive income. All cash flow hedges were effective; therefore, no gain or loss was recorded in earnings.

The maximum term over which the Bank is hedging its exposure to the variability of future cash flows is approximately 2 years.

Fair Value Hedges - The Bank enters into interest rate swap agreements with the objective of converting the fixed interest rate on brokered CDs to a variable interest rate. The swap agreements provide for the Bank to pay a variable rate of interest based on a spread to the three-month London Interbank Offered Rate (LIBOR) and to receive a fixed rate of interest equal to that of the brokered CD (hedged instrument.) Under the swap agreements the Bank is to pay or receive interest semiannually. Amounts to be paid or received under these swap agreements are accounted for on an accrual basis and recognized as interest income or expense of the related liability. The net cash flows related to fair value hedges decreased interest expense on certificates of deposit by $177,000 and $98,000 during the three months ended March 31, 2004 and 2003, respectively.

Fair value hedges are accounted for at fair value. The swaps qualify for the “shortcut method” under SFAS No. 133. Based on this shortcut method, no ineffectiveness is assumed. As a result, changes in the fair value of the swaps directly offset changes in the fair value of the underlying hedged item (i.e., brokered CDs). All changes in fair value are measured on a quarterly basis.

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The maturity dates, notional amounts, interest rates paid and received and fair value of our interest rate swap agreements as of March 31, 2004 were as follows:

(5) New Accounting Standards

In December 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, a revision to FASB Interpretation No. 46, Consolidation of Variable Interest Entities issued in January 2003. This Interpretation is intended to achieve more consistent application of consolidation policies to variable interest entities and, thus to improve comparability between enterprises engaged in similar activities even if some of those activities are conducted through variable interest entities. The provisions of this Interpretation are effective for financial statements issued for fiscal years ending after December 15, 2003. The Company has two statutory and business trusts that were formed for the sole purpose of issuing trust preferred securities. The Company implemented FASB Interpretation No. 46, as amended, which resulted in the deconsolidation of our two statutory and business trusts. The implementation of this Interpretation had no material effect on the Company’s consolidated financial position or results of operations.

In July 2003, the Board of Governors of the Federal Reserve System issued a supervisory letter instructing bank holding companies to continue to include the trust preferred securities in their Tier I capital for regulatory capital purposes, subject to applicable limits, until notice is given to the contrary. The Federal Reserve intends to review the regulatory implications of any accounting treatment changes and, if necessary or warranted, provide further appropriate guidance. There can be no assurance that the Federal Reserve will continue to allow bank holding companies to include trust preferred securities in their Tier I capital for regulatory capital purposes.

FASB Statement No. 150, Accounting for Certain Financial Instruments with Character of both Liabilities and Equity, was issued in May 2003. This Statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement also includes required disclosures for financial instruments within its scope. For the Company, the Statement was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the Statement will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Company currently does not have any financial instruments that are within the scope of this Statement.

In January 2004, the Derivatives Implementation Group of the Financial Accounting Standards Board issued preliminary guidance on Statement 133 Implementation Issue No. G25 (DIG Issue G25). DIG Issue G25 clarifies the FASB’s position on the ability of entities to hedge the variability in interest receipts or overall changes in cash flows on a group of prime-rate based loans. DIG Issue G25 indicates that an entity is unable to hedge variability in interest receipts as the prime-rate is not considered a benchmark interest rate. In addition, an entity is unable to hedge overall changes in cash flows as credit risk is not considered in the interest rate swap hedging instrument. The effective date of DIG Issue G25 is the first day of the first fiscal quarter beginning after the cleared guidance is posted and should be applied to all hedging relationships as of the effective date. If a pre-existing cash flow hedging relationship has identified the hedged transactions in a manner inconsistent with the guidance in DIG Issue G25, the hedging relationship must be de-designated at the effective date. Any derivative gains or losses in other comprehensive income related to the

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de-designated hedging relationships should be accounted for under paragraphs 31 and 32 of Statement 133. The Company has pre-existing cash flow hedging relationships in a manner inconsistent with the guidance in DIG Issue G25. Pending the outcome of DIG Issue G25, the Company may be required to de-designate these specific hedging relationships and accrete the gain into income over the remaining lives of the respective hedging relationships. The public comment period on DIG Issue G25 ended on March 25, 2004, and the FASB is currently evaluating the public comment letters received in conjunction with this issue. Consequently, the Company is currently awaiting guidance from the FASB on DIG Issue G25 and is presently unable to determine its overall impact on the consolidated financial statements or results of operations.

In March 2004, the SEC issued Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments, or SAB 105, which addresses the application of generally accepted accounting principles to loan commitments accounted for as derivative instruments. SAB 105 is effective for all mortgage loan commitments that are accounted for as derivative instruments that are entered into after March 31, 2004. The Company has evaluated the requirements of SAB 105 and does not believe its implementation will have a material impact on the consolidated financial statements or results of operations.

(6) Sale of Southeast Kansas Branches

On December 30, 2002, the Company signed an Asset Purchase Agreement to sell its Humboldt, Chanute and Iola, Kansas branches (“Southeast Kansas branches”) to Emprise Financial Corporation based in Wichita, Kansas. Assets of $28.6 million and deposits of $48.9 million associated with these branches are shown as “held for sale” on the Company’s balance sheet at March 31, 2003. The sale was subject to the satisfaction of customary conditions, including regulatory approvals, and closed on April 4, 2003. The Southeast Kansas branches are included in the Banking segment for 2003.

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(7) Stock Option Plans

The Company applies the intrinsic-value-based method of accounting proscribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, issued in March 2000, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an Amendment of FASB Statement No. 123. The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding and unvested awards in each period.

(8) Disclosures about Financial Instruments

The Bank issues financial instruments with off balance sheet risk in the normal course of the business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the consolidated balance sheets.

The Bank’s extent of involvement and maximum potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets. At March 31, 2004 and December 31, 2003, no amounts have been accrued for any estimated losses for these financial instruments.

The contractual amount of off-balance-sheet financial instruments as of March 31, 2004 and December 31, 2003 is as follows:

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Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, premises and equipment, and real estate.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support contractual obligations of the Bank’s customers. The credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers. The approximate remaining terms of standby letters of credit range from 1 month to 5 years at March 31, 2004.

Item 2: Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Readers should note that in addition to the historical information contained herein, some of the information in this report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements typically are identified with use of terms such as “may,” “will,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. You should be aware that the Company’s actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including burdens imposed by federal and state regulation of banks, credit risk, exposure to local economic conditions, risks associated with rapid increase or decrease in prevailing interest rates, critical accounting policies and competition from banks and other financial institutions, all of which could cause the Company’s actual results to differ from those set forth in the forward-looking statements.

Introduction

This discussion summarizes the significant factors affecting the consolidated financial condition, results of operations, liquidity and cash flows of the Company for the three month period ended March 31, 2004 compared to the three month period ended March 31, 2003 and the year ended December 31, 2003. This discussion should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Financial Condition

Total assets at March 31, 2004 were $964 million, an increase of $56 million, or 6%, over total assets of $908 million at December 31, 2003. Loans and leases, net of unearned loan fees, were $831 million, an increase of $47 million, or 6%, over total loans and leases of $784 million at December 31, 2003. The increase in loans is attributed to the success of the efforts of the Company’s relationship officers. Federal funds sold, interest-bearing deposits and investment securities were $94 million at March 31, 2004 and $84 million at December 31, 2003.

Total deposits at March 31, 2004 were $861 million, an increase of $65 million, or 8%, over total deposits of $796 million at December 31, 2003. Certificates of deposits were $238 million, an increase of $41 million, or 21%, over certificates of deposits at December 31, 2003. The Bank executed $34 million of brokered certificates of deposit in the first quarter of 2004.

Total shareholders’ equity at March 31, 2004 was $67 million, an increase of $2 million, or 3%, over total shareholders’ equity of $65 million at December 31, 2003. The increase in equity is due to net income of $1.5 million for the three months ended March 31, 2004, the exercise of incentive stock options by employees, less dividends paid to shareholders, and an increase in accumulated other comprehensive income.

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Results of Operations

Net income was $1.5 million for the three month period ended March 31, 2004, an increase of 35% compared to net income of $1.1 million for the same period in 2003. The increase in net income for the three months ended March 31, 2004 is attributable to an increase in net interest income and a decrease in provision for loan losses partially offset by a reduction in noninterest income and an increase in noninterest expense. Basic earnings per share for the three month period ended March 31, 2004 and 2003 were $0.16 and $0.12, respectively. Fully diluted earnings per share for the three month periods ended March 31, 2004 and 2003 were $0.15 and $0.12, respectively.

Net Interest Income

Net interest income (on a tax equivalent basis) was $8.5 million, or 3.88%, of average interest-earning assets, for the three months ended March 31, 2004, compared to $8.2 million, or 4.08%, of average interest-earning assets, for the same period in 2003. The $357,000 increase in net interest income for the three months ended March 31, 2004 as compared to the same period in 2003 was the result of an increase in average interest-earning assets and a decrease in the interest rates on average interest-bearing liabilities partially offset by a decrease in interest rates of average interest-earning assets and an increase in average interest-bearing liabilities.

Average interest-earning assets for the three months ended March 31, 2004 were $882 million, a $72 million, or 9% increase over $810 million, during the same period in 2003. The increase in average interest-earning assets is attributable to successful business development efforts of the Company’s relationship officers.

The yield on average interest-earning assets decreased to 5.05% for the three month period ended March 31, 2004 compared to 5.51% for the three month period ended March 31, 2004. The decrease in asset yield was primarily due to a 25 basis point decrease in the prime rate in June of 2003 and a general decrease in the average yield on new fixed rate loans and investment securities.

Average interest-bearing liabilities increased to $686 million for the three months ended March 31, 2004 from $648 million for the same period in 2003. The cost of interest-bearing liabilities decreased to 1.50% for the three months ended March 31, 2004 compared to 1.78% for the same period in 2003. This decrease is attributed mainly to declines in market interest rates for all sources of funding and continued repricing on maturing certificates of deposit at lower rates. Average demand deposits increased $18 million, or 13%, to $163 million for the three months ended March 31, 2004 from $145 million for the same period in 2003. The increase in demand deposit accounts, money market accounts and savings accounts is attributed to the Company’s relationship officers and new marketing and advertising programs implemented at the beginning of the year.

Average certificates of deposits increased to $213 million at March 31, 2004 from $181 million for the quarter ended March 31, 2003. This increase is due to the issuance of brokered certificates of deposit and a special CD retention marketing program. Growth in our customer certificates of deposit has been difficult given the product’s relative unattractiveness compared to money market and other more liquid products in the current interest rate environment. Borrowed funds consist primarily of advances from the Federal Home Loan Bank and decreased from the prior year due to maturities.

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The following table sets forth, on a tax-equivalent basis, certain information relating to the Company’s average balance sheet and reflects the average yield earned on interest-earning assets, the average cost of interest-bearing liabilities and the resulting net interest spread and net interest rate margin for the three month periods ended March 31, 2004 and 2003,