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. Please go ahead, sir.

Thank you, Todd. And good afternoon and welcome to our fourth quarter earnings call. I appreciate all of you taking time to listen in. Joining me today on the call 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 this morning. Please refer to Slide 2 of the presentation titled Forward-Looking Statements and our most recent 10-K and 10-Q for reasons why actual results may vary from any forward-looking statements that we make today.2019 was a pivotal year for Enterprise Financial Services Corp. We expanded our geographic presence into New Mexico with the acquisition and integration of Trinity Capital. We organically grew the balance sheet, quality loan and deposit growth, and strategically managed our capital to provide a high return for our shareholders. The following are just some of the highlights.During the year, we earned a net income of $93 million or $3.55 per diluted share. We organically grew our loan portfolio by 7.5%. As I stated previously, we had a successful integration of Trinity Capital, our company's largest acquisition. Outstanding attention to net interest margin and expense control, which contributed to an ROAA of 1.55%, excluding merger costs.The fourth quarter was equally spectacular as we posted record earnings per diluted share of $1.09. The quarter was highlighted by solid growth in loans and deposits. When annualized, these results were 7% and 10%, respectively. We further scaled our investment in technology and people, which drove an attractive ROA of 1.58% and ROATCE of 19%. Scott and Keene will provide much more…

Thank you, Jim, and good afternoon. Turning your attention first to Slide number 5. Loan growth for the year was $964 million or 22%, inclusive of the loans attributable to the Trinity acquisition. Net of Trinity at 12/31, loan growth was in line with expectations as balances increased $324 million or roughly 7.5% in 2019.Q4 was also solid with 800 -- or I'm sorry $86 million of loan growth or approximately 7% annualized. The improvement from Q3 is mainly due to higher line usage from C&I clients, seasonal upswings in specialty lending, funding on commercial real estate development loans, and lower levels of pay-offs.As slide number 6 shows, we continue to emphasize C&I lending in our business model with solid growth posted for the year and for Q4. C&I loans are up 11% year-over-year in this category, and 8% net of Trinity.Breaking this down by category on Slide number 7. We experienced growth for the year of 2019 in nearly all business units. The large increase in investor commercial real estate is primarily attributable to the integration of the Trinity book as is the growth in residential real estate.Net of Trinity, growth was more equally balanced between general C&I and CRE.We continue to place strategic emphasis on adding and growing C&I relationships, which can be retained over time and deepened through our proven model of best-in-class client satisfaction. Commercial real estate and related construction and development loan growth remains focused on our core geographies and leverages our relationship philosophy of aligning ourselves with key investors or developers where we can be a significant strategic partner.Within the specialized categories, loan balances for enterprise value lending or EVL declined by $37 million in the year, due mainly to higher levels of pay-downs associated with the sale of platform companies by our private…

Thanks Scott. Fourth quarter results were solid and represented a strong finish to 2019. We'll refer to Slide 10, where we show the full year changes in EPS. Net income was $93 million in 2019 or $3.55 per share, compared to $3.83 in 2018. Revenue was $288 million, an increase of 25% from the prior year. The increase in the operating revenue reflects the combination of our organic growth and the Trinity acquisition that increased earnings per share by $0.81. Non-interest expense reduced EPS by $0.43 with a net add of $0.38 per share or approximately 10% to 2018 level.In addition, merger related costs of $18 million reduced EPS by $0.47 that will not reoccur. Our tax rate in 2019 was higher than 2018 primarily due to certain tax planning opportunities that were only available to us in the prior period. The net result is that we continue to operate the business in an efficient and effective manner and we utilize the strength and diversity of our business model to continue to add to our earnings power. In 2019 that was approximately 10%.To summarize, our return on average assets for 2019 was 1.35% and our return on average tangible common equity was 16%. Excluding merger-related items our return on assets improved to 1.55% and we delivered an 18.5% return on tangible common equity. During the year, we demonstrated our capital flexibility. We leveraged $37 million with the cash portion of Trinity. We returned $17 million or $0.62 per share in dividends to our shareholders and we repurchased over $15 million of common stock.Combined with the capital utilized to support our organic growth, we leveraged our return to shareholders by a total of approximately $115 million of capital and our tangible common equity ratio still increased from the prior year to…

(Operator Instructions] We'll take our first question from Jeff Rulis of D.A. Davidson.

I guess a couple of questions for Scott on the -- could you remind us just with the aircraft finance book, the size of that again?

Right now, I believe it's roughly in the 80 million to 90 million range. I'll remind you on that sector, a majority of the business is with aircraft dealers and who take aircraft in on a trade. And we floor plan it, it's really a fee driven business. We also occasionally finance aircraft for owner operators who use the aircraft in their business, that's a little less of a strategy. But in the fourth quarter, we did get some growth out of doing some aircraft that remained on the books. So -- but overall, we really view this as a fee business.

And your comments on the New Mexico market, I think sort of longer-term hope of growth, short-term some expected runoff. I guess the trade over point of when could you expect some more near term compression out of that book or is that largely flushed out by year-end?

And you're talking deposits I assume, right?

Well, it's really on the loan book. That's what I thought when you were on that slide that you were referring more to the loan side, running some to non-market out-of-market CRE, out of the…

Right. Yes, they had used the strategy for loan growth, which was doing some of that non end market single tenant CRE and also more aggressive on the portfolio residential. And so yes, I think what you're seeing is a little bit of a trade off of leveraging funding into more of our core strategies, getting their clients more used to what we can do for them. So, I think from here on now, I would expect it’s primarily going to be stabilized in growth. A good number of their clients can leverage our larger balance sheet and we have already got new transactions in the pipeline for good long-term clients from that bank.

And Keene, you mentioned the fee income growth overall. I guess, if you were to look into that tax credit income line, I think it exceeded expectations in '19. Any thoughts on that specific line item for 2020?

Yes, I think we expect a similar trend. I think we said it was going to be 20% to 25% growth from '18 and '19. I think certainly we're targeting a 20% growth on a larger base in '19 to '20. So, we've got some good momentum there. I think the only [indiscernible]that’s going to be a little bit lumpy throughout next year. So, first quarter will be not as robust as the fourth quarter, but I think we've also made some strides in getting some fee income into the earlier quarters in '19, like third quarter and second quarter. So, we're optimistic that over time as we re-ladder that business and we'll be able to make it a little bit more repeatable. But overall for the year, I think, we expect a similar kind of 20-ish percent growth rate there.

And last one for me, Keene. Just on the -- I think on the provision or the CECL update you mentioned on the Q3 call that you might be able to provide a little more color. I think you mentioned that -- I think if we were to just double the PCI loan loss allowance currently and then I think the other comment that you made was that might be moderated by kind of a short-term C&I book overall. So, any thoughts on the provision relative to the CECL day one accounting?

Yes. So, there's a lot there. Let me try to give you some color and then I’ll give you guys a chance to follow up. So right now, our estimate for CECL adoption is that it would increase the allowance by 50% to 65%, and that's reflective of a pretty decent amount of loans that were purchased. So, what you reflected as the PCI and the day two, that’s going to lever about 25 basis points to 30 basis points of tangible capital. And then, obviously, there will be some loans that based on the way the standards are written will likely take out a full accounting, so you are going to get a little bit of an elevated number of classifieds and some more noise in non-accrual or non-performing loans, so just be prepared for that. And then I think moving forward from a path-rated loan origination perspective, I don't think much changes in terms of the world for us. I think you're looking at back of the envelope about 1% on new loans and then the rest would be how it migrates, maybe a little bit better, maybe a little bit more stringent depending on what the complexion of growth looks like, but I think that's a pretty good starting point.

[Operator Instructions]. We will take our next question from Michael Perito of KBW.

I want to start on the $13 million credit. I realize you're probably somewhat limited with what you can say, but I was curious if you can maybe just give us some broader parameters about what that credit was, what line of business it was housed in, where it was? And maybe just a little bit more color about what kind of went negative to drive the downgrade in the quarter?

Sure. This is Scott. I can help you with that. I think as Keene had said, it was in the C&I portfolio. It's a long-term St. Louis based client in the manufacturing industry. And they had been negatively impacted by kind of a few concurrent issues mainly with stress related to revenue tied to the oil and gas industry along with kind of simultaneously a management dispute and ownership transition. So, I think bottom-line is, we’ve had this in our workout group now for probably 18 month or so. Feel very well secured on the credit. And I think we’re just now in a position at year-end where we’re already reserved at proper levels and could go ahead and apply the payments principle. And have identified several viable options, I think the collection that can happen in the short run.

And when you say you guys are secured, is the collateral primarily real estate?

It's a combination. It's a combination of equipment real estate and receivables. But part collateral makes up of the base.

Okay. And then just, with regards to obviously some of the management cessation stuff would be unique, but it did sound like there were some broader environmental things that might have negatively impacted. And two, is there any other slivers of the loan portfolio that could have similar stresses and is that something that's being looked at or not quite so?

Yes. As it relates to this particular credit, no. I mean if you look at -- the revenue stress was really related to what you saw happening in the oil and gas over the last few years, and that's not an area that we aggressively went into. We don't have any material concentration there.

Okay. And then more broadly, if we take a step back, just the credit outlook remain pretty steady, Jim, Scott. I mean any just updated broader thoughts. I know you made some comments in your prepared remarks, which is maybe give a little more specific for us and any areas of concern where you're pulling back? Or does it generally still feel like a pretty safe environment to be kind of grow on the loan book at the targeted rate that you guys are putting out?

So -- Mike, this is Jim. I'd say, we feel very good about the areas that we're in currently. I think in the past calls we have talked about certain sectors, certain sectors of multifamily or certain sectors of senior living that if they're not already a key client of ours, we're not looking for new ones necessarily there. But as relates to any particular industry, or what have you, will be business as usual for us.

I would just add, we feel good about the fundamentals of the book, classifies are actually down, as we feel good about where our charge-off levels in past few years ended up. So, all-in-all I don't think there are any systemic issues.

Great, helpful. And maybe move on to a couple other items I want to hit. Keene on expenses, I think the near term guidance was 37 million to 39 million, you guys are a little over the midpoint of fourth quarter. As you think about the first quarter, I mean, my guess is there's some seasonal items that could drive that number higher. Is that a fair way to think about it? And then as we move out beyond the first quarter, maybe just a broader question, I mean how should we think about expenses growth for Enterprise moving forward? I mean, you guys have obviously done a great job, holding the efficient ratio steady for almost three years now, but still very much in a growth mode. I mean, is it a 4% or 5% number, is it a 2% or 3% number, how do you guys kind of think about it as you completed the budget for 2020?

Yes, I think if you look at from a run rate perspective Mike, I think it's a pretty modest low-single-digit number. I think if you look at from a merger math number, just like the revenue line item, that’s going to be a higher number. But I think our current range for 2020 I think we moved that range up $1 million, so I think we'd be at more like 38 million to 40 million. Certainly in the first quarter, you get a little bit of seasonality with typically the way employer payroll taxes work, and some other items. But then I think you would expect the expense line items behave like it has in prior years. So, I think we've had a lot of success in kind of having a flat first and second quarter. And then to the extent that we're able to get out and execute on our plans, I think you see a little bit of an uptick, and you'll probably start to move up towards that $40 million part of the range as you range through that 2020. So that's how we think about it.Now, with the overlay that we're going to really work hard and try to be thoughtful and we're positioned in 2020, we try to really get some growth early on here. Hopefully, we've stabilized NIM and we can get some revenue expansion, what I'll say is in the first half of the year, and that will allow us to maintain generally the efficiency ratio moving forward. So, I think if you can grow the loan book, manage NIM effectively, and hold marginal efficiency at 50%, I think we will be set up for pretty decencies out in the ‘20. So, that's where we've got our sight set.

Very helpful, thank you. And then just last one from me and I will step back. Jim on capital. You guys have been pretty balanced in your approach there. I expect that’s kind of short answer, but just any updated thoughts with 2020 on kind of the beginning onset here of how you're planning to deploy capital, which obviously can accumulate quite quickly even when your returns are?

I think we said in the past, Mike, obviously growth is our number one objective. And certainly, there's an opportunity to improve our company to M&A, we would look at it seriously. And then we've been -- I guess we've done very well in terms of some buybacks. And then recently, we improved our dividend. But I think it’s a combination of four levers like we've used in the past and be opportunistic as those come about.

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

Heard most of my questions already but just want to focus on the loan growth guidance for next year. I mean how do you -- if you look into it where the pipeline is right now and it sounded like maybe pay-offs were a little bit lighter in this fourth quarter compared to previous quarters. Also like maybe you try to get some growth here in the first quarter. Like first quarter sometimes are tended to be a little bit tougher for you guys and for the industry. So how do you feel about growth like playing out throughout 2020? Will it be heavier in the first part of the year compared to previous years?

Well, I'll try to jump in there. So I would say this, we feel good about the momentum that was carried over from ‘19 into ‘20. As you know our portfolio is something that is related to funding. It's really -- we have great visibility, maybe 65 to 70 days out. So, I can't really comment about second half of '20. But certainly feel very good about the guidance we provided and where we stand today relative to the first quarter.

[Operator instructions]. We'll take our next question from Brian Martin with Janney Montgomery.

Can you guys give any thought on just kind of the New Mexico as far as kind of what your outlook is in -- you gave -- you certainly gave a little bit of color on that. But just how you're thinking about that in the growth in maybe in 2020 I guess relative to what the pay downs you've seen or the kind of intentional decline thus far?

So Brian, this is Keene. I think just stepping back certainly we had a bit of a transitional years, you convert systems and things like that and I think we ended the year in a good spot. I think from an overall perspective, I think what you heard from Scott is first and foremost depend on what we've got on the deposit front there. And then I think that we've spent enough time planning and looking at what the opportunities are to have some modest growth in that region in 2020. I think we had modest net growth with the complexion of that portfolio. I think we would overall be in good shape. But I would just step back and reflect the way we've built our company. It's diversified by region, it's diversified by specialties and how we set out the year in the plan, usually doesn't wrap up the way it culminates. But we typically get there because some things are stronger than we anticipated and some things maybe not as strong. So, I think we have a lot of optimism there particularly in Albuquerque and I think it's relatively stable in Los Alamos and Santa Fe and I think that if we're able to sit here a year from now and say that, that had low single-digit growth, I think would be pretty pleased with that and I think that wouldn't see our expectations and we have great momentum moving into ‘21.

Okay, and it sounds like the pipeline is in pretty good shape. If you're -- it sounds like you're a little bit more optimistic that growth is earlier on or at least that better quarter to start the year versus maybe what you had a year ago. Is that fair to say by your comments?

Yes, I think if you're talking overall portfolio, I think that's a fair comment.

And then just some housekeeping on the buyback, what remains in the buyback. And I guess would you think about increasing the authorization or I guess where does that stand today?

Yes, so I think we've got Brian about 300,000 shares left. Certainly we're getting kind of down to the end on that. But that's just something that we'll look at in the upcoming cycle here as we transition from our budgets to our capital plan. So, there's ample shares there for us to execute here in the near term. And, moving forward from there then we're hopeful that we'll find some balance of M&A and buyback to manage our capital in the upcoming year.

Okay. And any changes on M&A, just kind of the pipeline there, just the discussions how that’s faring these days.

There is a significant change there. No, I think some of we talked about before that there are certainly a lot of companies out there that are looking at their long-term plan. And I think they see teaming up with a company as likely that’s going independent. And so we've had conversations, like we've had in the past with several businesses in all of our regions. Brian, I apologize. I misread a number. We've got about 550,000 shares that are on the repurchase. I just want to make sure that’s corrected.

Yes, no problem. Okay. And then Keene you say just as it relates to the two things, the accretion and then the NIM outlook. The accretion, any -- what remains on that as far as how to think about modeling that?

Yes, I would think of you got to 3.64 and 3.68 core and reported margin. I think we're at a point where we're going to have to look at when we adopt CECL whether we want to continue to break those out or just describe what's happening in the reported NIM. But somewhere in the middle of that. I think it's core NIM plus a penny or somewhere as a midpoint of those two numbers where you can feel pretty good. But just to know that our outlook is to try to stabilize essentially both of those and grow net interest income dollars from there. So we'll probably be at a point where at a penny a quarter of non-core acquired. It may move the needle at any given point in time during the year if there's an acceleration and a payoff based on how CECL gets applied. But it's probably not much of a magnitude as it was in 2019 even.

Yes, got you. Okay. And then last one with just the swap income. I think you said it was at a pretty high level this quarter. I guess, is that given the rate environment maybe stabilizing here. I guess, is that something you continue to expect to grow or is that…?

Yes, I think we'll continue to emphasize to use the swaps in this environment. And I think it might be a little lumpy quarter-to-quarter just based on the type of transactions that we're doing. But I think our sales force understands swaps. And I think it'll be a valuable tool for us going forward.

Okay. And then that FDIC that comes back in second quarter. Is that what we should think about there?

Yes, I think for first quarter, you'll still get a little bit of the current level where we're at. And, you'll have your seasonal payroll. And I think that'll help the transition from 1Q to 2Q, when you resume the normal premium.

Thank you. And we have no further questions in queue.

Okay, well, thank you all for joining us this afternoon. Look forward to speaking to you all again in the first quarter. Have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.