Good day and welcome to the Enterprise Financial Services Corp. Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Peter Benoist. Please go ahead, sir.

Thank you very much. Good afternoon everyone and thank you for taking the time to join us on our fourth quarter earnings call. I'm joined on the call by Jim Lally, President of Enterprise Financial and Scott Goodman, President of Enterprise Bank and Keene Turner, our CFO. We've continued a webcast format for this earnings call and refer you to our corporate website for a copy of the accompanying presentation, which will be the subject of the call. The presentation and earnings release were furnished on SEC Form 8-K yesterday. Please refer to Slide 2 of the presentation entitled forward-looking statements and our most recent 10-K and 10-Q for reasons why actual results may vary from any forward-looking statements we make today. Before I turn the call over to Jim and the team to review our fourth quarter and full year 2016 results, just a couple of brief comments. We believe that over the last several years we've been successful in executing a longer-term strategy that has resulted in consecutive years of solid sustainable quality growth, both in terms of the balance sheet and earnings. In addition to the strategy, we've remained laser focused on improving year after year on the core fundamentals of the business. Growth in net interest income dollars, defending net interest margins was strong pricing disciplines, continual improvement in core operating leverage and maintaining a high-quality credit profile. This approach has served us and our shareholders well and we expect the same as we enter 2017 as noted on Slide 3. In addition, to remaining focused on the core business, the anticipated first quarter closing of the Jefferson County Bancshares transaction, which JCB shareholders recently approved, gives us additional strong momentum to continue this level of financial performance as we look beyond the current year. Finally, I can assure you that this management team is strongly committed and wholly capable of delivering sustained long-term value to our shareholders. And with that, I'll turn the call over to Jim.

Thank you, Peter. Our financial scorecard is presented on Slide 4. We finished the year very strong as shown by the 20% increase in core EPS compared to the fourth quarter of 2015. I am especially proud of the team's focus, considering the terrific work that has gone into the ongoing integration planning related to our announced merger with Jefferson County Bancshares. These results are a product of state loan and deposit growth throughout the year, combined with steadfast margin defense and our continued focus on operating leverage. Core net interest dollars earned grew 12% compared to the same quarter in 2015. Had we not completed the $50 million sub debt raised during the quarter, net interest margin would have been slightly positive compared to last year's fourth quarter. Credit metrics remain very solid. Non-performers improved from the third quarter of 2016 and are favorable to peer, but are increased slightly from an extremely low level reported at the end of 2015. We continue to show the ability to positively leverage our fixed expense base as our efficiency ratio declined 3% compared to a year ago. Finally, we're very proud of our continued ability to fund our robust loan growth with core deposits. Our focus in this area, coupled with our relationship approach is the key to the success. It should be noted that nearly -- of the nearly $450 million in deposit growth, $150 million of this was in DDA. Turning to Slide 5, you can see that our loan growth was 13% over last year. Just as we discussed on our third quarter call, some of the growth typically seen in the fourth quarter was pulled forward into the third. Despite this, the portfolio still grew $80 million or 10% on an annualized basis. Slide 6 shows the continued growth in our C&I book. Year-over-year we experienced a 10% growth in the sector. Competition for this type of business is significant. So we feel very good about this growth. Slide 7 provides granularity about our loan growth. C&I and CRE contributed equally to the $367 million of growth. Within the C&I sector EVL life insurance premium finance accounted for slightly more than 50% of this. Our disciplined approach to CRE is paying off in all of our markets. As we have previously discussed, we target top-tier owners and developers and have taken advantage of opportunities that cannot be fulfilled by many of our competitors due to size and complexity. I would now like to turn over to Scott Goodman who will provide more color as it relates to our markets as well as our growth and deposits and fee income.

Thanks Jim. The loan growth trends are summarized by business units on Slide number eight. It was a successful year across the Board with all units posting double-digit growth for 2016. In Q4, St. Louis led the way with the majority of our growth for that quarter emanating from the market. That activity was very varied, but general C&I was most prevalent, including a mix of new relationships in the financial services, construction and distribution business. We were also busy helping existing clients in the hospitality, printing and communication industries with expansions, acquisitions and recapitalizations. Our stable talent base and steady calling activity continue to produce consistent origination opportunities in St. Louis. Kansas City posted 10.5% growth for the year. Q4 originations were weighted in commercial real estate, mainly with existing clients undertaking expansion and acquisition projects for office, industrial and distribution purposes. New loans were more heavily offset by several larger paydowns on existing credit facilities, somewhat muting net growth for the quarter. Development in Kansas City continues to accelerate particularly around healthcare, the urban core and intermodal and logistics industries. To capitalize on the increased investment and elevated business activity within the urban areas of Kansas City, Missouri, we completed the relocation of our Plaza branch during the quarter, opening a new location in the popular Crossroads Arts District. This branch will serve the district's growing concentration of private businesses. It reflects a more efficient and technology forward design and is located directly on the newly expanded Kansas City streetcar line. Arizona had a strong year, posting nearly 19% increase in the loan book year-over-year, including solid growth in Q4. Most of the activity in the fourth quarter was associated with commercial real estate and related construction financing. We continue to focus our CRE sales efforts around broadening…

Thanks Scott. 2016 financial results reflect continued execution and steady progress on our priorities. Slide 11 in the slide deck demonstrates the drivers of the changes in our core earnings per share from 2015 to 2016. During the year, we expanded our core earnings power by $0.37, more than 20% compared to last year to $2.03 per diluted share. The improvement in our core earnings was in my view high quality, as we outpaced the investments in our business with revenue growth. Additionally, the strength of the balance sheet was retained while focus on prudent credit management and provisioning was maintained. As depicted on the slide, our earnings improved by $0.51 per share alone from continued well-funded earning asset growth. Additionally, steady revenue gains and fee income, most notably through treasury and deposit service charges adds another $0.04 per share for the year. I don't want to gloss over the fact that asset quality results were again favorable, resulting in a stable year-over-year provision level as continued superior asset quality results meant that we predominantly provided for growth. And finally, we continue to invest in our associates and our business to facilitate current and future growth. That said, growth in core EPS was sustained despite a $0.16 per share investment in our operating expenses. And then the last, given the strong trajectory of our revenue, we improved core efficiency by 3% to 55% for the full year 2016. Additionally, on Slide 12, we summarized some of the 2016 performance highlights. We grew tangible common equity by 12% while we increased dividends to shareholders by 56%. We were able to do so as we elevated our core return on average assets to 1.09% with 22% core EPS growth. I'll point out that $0.46 per share of earnings came from PCI assets…

[Operator instructions] And we'll take our first question from Jeff Rulis. Please go ahead. Your line is open.

Thanks. Good afternoon.

Hi Jeff.

It sounds like the -- with the shareholder approval that the Jefferson County closing, sounds like a February event. Is that safe to say?

Yeah, I guess we expected to be within the timeframe that we set. I think we said at first quarter closing and we feel pretty good about that. Obviously, the shareholder approval that Peter mentioned the step in the right direction, we have no reason to believe otherwise.

Okay. Do you happen to have the year and loan to deposit totals for that, for Jefferson County?

You know what, those will be filed in a couple weeks in the call report. I would say that I don't if they're materially different than what they were at the end of the third quarter. They had a nice quarter, but we don't want to get into maybe too much detail there.

Right. And then do you have an updated TCE level post-close?

Yes, I still think that we thought the deal initially was a 100 basis points diluted to TCE. So TCE down just slightly because of the investment portfolio mark-to-market. I don't have their purchase accounting layered in yet for the updates, but I still expect to be about 100 basis points dilutive for leveraging on TCE.

And then maybe one last one on the -- just on the margin, you talked about core one basis point improvement if we exclude the sub debt year-over-year on margin. What was the basis point impact on the sub debt in the quarter, just to kind of track that?

Jeff, that was seven basis points. So little bit of interesting timing for us. We have typically seasonally higher deposit levels in the fourth quarter. So ordinarily, we would've had the liquidity coming in and in a normal quarter, we might have been able to deploy or pay down some borrowings more so than we were able to with the sub debt coming on because of the deposit level and some of the other funding level. So it was probably a little bit more dilutive to the quarter than we would look at it on a longer-term basis.

Got you. So seven basis points due to the loan but kind of hamstrung the efforts. So I guess three basis points other core compression.

Yeah, that was predominantly the additional liquidity on the balance sheet. If you look at the averages particularly early in the quarter, we had some significant deposits that we are working on, wins from fine activities and we held that on the balance sheet. So it diluted margin a little bit, but I think we'll take deposit balances all day long in an attempt to win that business and continue to fund our balance sheet. So a little bit of a temporary blip there in terms of diluted margin, but not necessarily earning dollars, not dollars significant dollars on those kinds of deposits.

Okay. Thank you.

Thanks Jeff.

And we'll take our next question from Michael Perito. Please go ahead. Your line is open.

Hey. Good afternoon, guys.

Hi Mike.

Hello.

Wanted to start off on the non-interest income, a couple kind of outlook type questions. I think in the past the discussion was maybe mid high single digit kind of legacy growth rate on the fee income side. Just starting I guess simply on the high level, is that something you guys still feel? Is sounds like there is still some momentum on the treasury management side etcetera. So I was just curious if there is any updated thoughts there?

Yeah, I think the thinking is the same. I think the treasury management revenue has been relatively highly correlated with our growth in C&I and so you see that year after year typically in the high single digits. We've been making some progress in the other categories as well, maybe a little bit more lumpy. Mortgage has been a contributor at times as we noted in prior quarters and you see that comparison to the third quarter. Card services is another one that we're seeing some traction and then we look at it as relatively stable in wealth management although we're optimistic for some improvement with the market activity as well as some customer acquisition late in the year. So yes, I think that's the right way to think about it Mike. That's the way we think about it and then the tax credit is a little bit lumpy, but some of the activity is going to happen sometime mostly in the fourth and third quarters.

I guess just in terms of the annual tax credit activity in the -- actually you remind us if there is any kind of -- is there any sense or maybe the better way to ask if there is -- is this something that can potentially grow just, are you guys trying to put more incremental dollars there or how should we be kind of thinking about that business line going forward.

So that business historically has been relatively stable. I think there is -- one of the factors that's holding that down a little bit is there was some fair value elections a number of years ago that as those roll off and are replaced with cost method investments, we had some opportunity for some outside. Additionally, as we expand the size of the balance sheet and then we have some capacity to if we so desire, buy some more tax credits there, but I don't know that we're signaling anything there. I would expect relatively similar results for the upcoming year and then perhaps thereafter I think we start to get some of that fair value option stuff abates and you get some of those gains coming back through the P&L real time.

Okay. And just last question on the fee side, can you remind us what you guys are expecting to kind of bring over? I think if I look in the third quarter, they were doing about $1.5 million non-interest income at Jefferson County. Obviously are there -- it's hard to tell exactly what will really carryover not, is there just any initial thoughts on what's the contribution there and is there anything specific that you think could be a nice close-up growth opportunity as well on that side?

So specifically, your question Mike the $6 million run rate on noninterest income is about the way we're thinking about it. I think the transaction generally we're thinking about at least initially more high-level. So trying to make sure that we get to the 3.5% accretion for '17, which is about $0.07 and then the 7.5% accretion in 2018. I think we highlighted that we think there is a lot of opportunity with that base. So we think the treasury management capabilities we have pairs nicely. Going over there, we think mortgage and welfare opportunities also, but we've not quantified anything specifically. I think it would be a good win to have our base grow at the level that we just discussed for 2017 and then to bring them on and really hit the ground running for 2018 and really try to retain that full $6 million.

Okay. And then one last one for me, just you guys maintained the $10 plus loan growth outlook, but obviously as you mentioned in prepared remarks, had a really strong deposit growth year this past year. It sounds like there has been some builds on the executive team to focus on this and some new initiatives going on. As we think about total balance sheet growth in 2017, obviously, you add in the loans from -- the assets etcetera from JCB, but more on the legacy side. Is it I guess, how should -- any kind of leading thoughts you can provide in terms of -- is this something where the initial expectation here, it sounds like deposit growth could maybe be a bit stronger than loan growth next year or any other kind of color you could offer on that topic?

Yeah, I guess in my guide, I think when we think about even the loan growth at 10%, we kind of think about the total asset balance sheet growth at 10%. If we were able to get stronger deposit funding, we might let the investment portfolio shrink a little bit because that would help some of the other liquidity measures. But I think we would like to see that happen and be more steady for a few quarters. The other X factor is Eagle's balance sheet coming in here and what we're going to do with that. We've got some good plans there, but there might be some opportunities or some challenges depending on what actually happens in the market and the environment. So I guess I would say as always, I think about the investment portfolio in proportion to our base balance sheet similarly and if we're able to have additional deposit growth and we think about what opportunities we have to do that or to drive additional profitability.

All right. Thanks Keene, appreciate it.

Thanks Mike.

[Operator instructions] And we'll go next to Brian Martin. Please go ahead.

Hey guys.

Hi Brian.

Hi Brian.

Maybe just one question, just can you talk about just the credit and how low charge-offs and problem assets have been and I guess do you feel like there is still more opportunity from a credit leverage standpoint as you go forward? I guess is there anything that's even signaling some caution out there on credit?

I'll let Scott comment a little bit more specifically on credit. I'll just comment on the credit leverage. Credit has contributed to our profitability just to the extent that we're operating from a low base of known problem assets will say, we think that that helps going forward because obviously we don't have to continue to provide for that. I don't expect that you'll see a benefit quote unquote "from a lot of leverage." We've done I think to the extent possible maintained our coverage of portfolio loans over an extended period of time despite the fact that we've had really prolonged low net charge-offs as I highlighted in my comments. So maybe Scott had a little bit of color on the portfolio and what's in there itself.

Yeah hi Brian. Obviously, we made some progress maybe after a small blip last quarter, made some progress this quarter and had positive change in nonperforming loans and in OREO and that really relates to three larger credits all of which have been in our process for a while and all which I referenced on this call in the past that's two multifamily properties. One is in the Ferguson area here in St. Louis and one is the EVL credit, which I referenced/last call, which was the largest edition NPL last quarter. So positive progress on all of those credits, but overall Brian, I think we continue to feel good about the fundamentals of the portfolio and there's no really overarching trends or issues that I think are going to jeopardize continued strong performance.

Okay. All right. That's helpful and just maybe one, maybe a question for Keene or whomever, but you talked about the expense. So just in general, it sound like they may pick up a bit in the second half of the year versus the first half? Is there any initiatives or is that just part of the transaction you're referring to or is it that I misread what you said there?

Well those are our base expenses and so there is always initiatives. I think what you've seen and what we highlighted when you look back over the year, you saw the $0.16 investment we made to drive $0.55 of revenue growth right. So we have that in the plan maybe not necessarily to that magnitude, but I think similarly to last year midyear, we kind of came out and moved the expense guidance up $0.5 million to the top and we'll likely do that again. But we're comfortable with our range for the next quarter and I would expect the base expenses to move up just slightly from there, but the reality is but the time we get there, we'll have to be giving you some more detailed pro forma guidance with Eagle in the fold. So we're obviously excited about that.

Okay. Understood. Okay. And then maybe just the last one or two, just the loan growth for next year, I guess when you guys kind of think about this quarter maybe being the general C&I bucket being a little bit stronger, just in aggregate when you think about 2017 to kind of look at the geographies? And then kind of the specialty niches, are there areas you're more optimistic about or I guess do you expect similar type of growth by geography or by bucket if you will in '17 versus '16 or is there other areas that are maybe slowing down that you don't want to grow as much?

Well, Brian, I'll just start by saying, I think we've intentionally developed the number of the specialty is really to complement the core CRE and C&I so that we do have multiple levers to pull as the markets change or the competition changes so that we can maintain credit quality and yield by changing those levers. I think you saw in the fourth quarter that EVL and life-insurance were a little softer maybe than we experienced in prior fourth quarters. I don't think those are fundamental changes in the market. I think with life insurance, we've seen a couple of competitors with some pricing pressure that we've seen come in and out of the market before. And on EVL, I think you just saw generally the data we're getting on M&A is that transaction volume was soft the second half. As we talked to our sponsors in that market, deals are still out there. Just, premium deals are harder to find. So we're also adding more sponsors to our pool there. So I think the benefit there is CRE, which we really emphasized in the fourth quarter was a strategy where we're talking to investors that we've talked to for a long time and we're able to take advantage of other banks that are heavy on CRE and are backing out of the market and now we can do those types of loans on a favorable basis. So I don't know if that answers your question. I think we're still going to pull the levers as we see changes in those markets, but fundamentally, I think the specialty businesses that we've done in the past will continue to grow and I think Keene gave you the guidance that we're confident with.

Okay. I got you. Perfect. Thanks Scott and just maybe the last two things and I'll hop off was the, Keene you mentioned this, maybe I just missed it was the benefit, the margin benefit as a result of the recent rate increase. Just what that was and then just the last one was just on M&A, obviously, you guys will get -- hopefully get the deal closed during the first quarter and move on. But just big picture, I guess are you still looking, opportunistically looking for additional M&A or are you maybe just kind of has anything changed following the transaction and hopefully the consummation this quarter, but just kind of the outlook in general on M&A.

I'll hit the margin quickly. I think we're optimistic about the impact of rate. I think I give you some perspective on what proportion of the portfolio, the fact that we think it's going to be a handful of basis points over the next couple of quarters. Our models were locked in to get guidance that's less than five basis points because it seems very precise and scientific. But we feel good about getting back to maybe the level we were at pre sub-debt offering than purchase accounting, we'll play into that and we'll have a new run rate. But we're optimistic about the impact on portfolio rates provided that we don't expect to see a lot of impact on the deposit side of the business.

And then Brian, this is Jim. I'll handle the M&A side. I think just like JCB, when opportunity came our way that added value was complementary to what we're doing and was a cultural fit, we would certainly be interested in. So the answer is yes. Those three criteria were part of the opportunity. We look at it very closely.

Okay. All right. That's all I had guys. Thanks, and nice quarter.

Thank you.

And we'll go next to Peyton Green. Please go ahead. Your line open.

Yes. Thank you. Good afternoon. I was just wondering if you could tell me maybe a little bit about the 10% loan growth guidance. Does that have embedded any improvement in your core C&I customers' desire to borrow money or is that still really dependent on market share mining for the most part?

Yeah Peyton, there is no change in strategy there. I think we continue to rely upon our community banking model for the calling and pulling that business away from the competition and the pipelines of opportunities there continue to be there. I think what we're seeing in Arizona and Kansas City is accelerated development, particularly in the urban core and Kansas City and is generally in the Arizona market. So we will certainly take advantage of that as it relates to our clients that are participating in that expansion and the specialty businesses is I think again we'll continue to stick to our knitting there, but we're continuing to expand and add sponsors in our EVL business and also expand our referral sources in the life insurance business. So no change to the model. Just disciplined calling and strong fundamentals.

Okay. So if the economy picked up, that could be -- that could drive upside to it?

Right.

Yes.

Right.

Okay. But none is factored into the core 10% plus. Okay. And then for the acquisition, so you got shareholder approval, what approvals are you waiting on?

Yes, I guess I would say this, we don't necessarily want to get into those detailed, but there are a few and we're trying to track them down. So we feel good about getting this close as we've announced and moving toward conversion and we'll let you guys know when that happens.

Okay. And the conversion, if you can remind me again about the timing of the conversion and is there any risk to that date if it closes towards the end of the quarter relative to the middle of the quarter?

We expect to convert midyear and right now we're not anticipating the conversion date would move significantly or if at all.

Okay. Great. Thank you very much for taking my questions.

Thanks Peyton.

[Operator instructions] And we'll take a follow-up question from Michael Perito. Please go ahead. Your line is open.

Hey guys. Thanks. Just a quick follow-up for you Keene, I was looking through this slide deck from the JCB acquisition and it seems like this share count of $3.3 million was based on obviously your old share price. You guys have gone up considerably since then. I was just curious if there is any material change in kind of the stock process on the shares issues as it relates to the JCB acquisition?

No, at the time, we felt confident about issuing, getting that certainty of the shareholders getting the dilution fixed getting and the earn-back that we fixed, but we all benefit from a better banking environment and presumably what we're buying is more valuable. So to your point, the cash portion of the deal is fixed and so that helps mute the overall price appreciation. But what we're buying we think is probably more valuable going forward as well. So we feel pretty comfortable about it and I try not to second-guess myself too much on that one.

Okay. I just wanted to clarify. Thanks.

Thanks Mike.

And at this time, it appears we have no further questions.

Well with that, this is Peter, I would just like to say thank you all for your time today and thanks for your interest in the company and we look forward to talking to you next quarter. Thanks a lot.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.