Good day and welcome to the Enterprise Financial Services Corp Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to the company's CEO, Jim Lally. Please go ahead.

Thank you, Justin. And thank you all very much for joining us and welcome to our fourth quarter earnings call. Joining me this afternoon is Scott Goodman, President of our Bank; and Keene Turner, our Company’s Chief Financial Officer. Before we begin, I would like to remind everybody on the call that a copy of the release and an 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 and 10-Q for reasons why actual results may vary from any forward-looking statements that we make today. 2017 was a transformational year for our company. In addition to closing and integrating the largest acquisition in our company's history and completing our CEO succession we were able to post record core results for our company and have positioned Enterprise well for 2018. Slide 3 is a reminder of where we were focused in 2017. We were intentionally focused on a very few but very important items that allowed us to achieve the record performance that will be highlighted throughout this call. On slide 4 we share our financial highlights for the fourth quarter when compared to the fourth quarter in 2016. Growth in earnings per share for the quarter -- fourth quarter of 2017 when compared to 2016 was 31%. Our relationship oriented sales culture and the efficiencies realized from the JCB acquisition fueled our ability to improve net interest income dollars by 40%. This strategy coupled with the benefits of several interest rate increases aided in the improvement of our net interest margin year-over-year of 29 basis points. In addition to this we maintained a high quality credit profile and were able to improve our…

Thank you Jim. Well as the loan growth which is outlined on slide number 6, 2017 was a solid year characterized by strong organic and acquired execution and ending in a 30% increase in our overall portfolio. I'm particularly proud of our organization's ability to manage the successful integration of the acquired JCB associate and client base while also cultivating and converting a robust sales process that provided for 9% growth in organic loans. As slide number 7 shows, our focus on C&I business remained strong with 18% year-over-year loan growth and double-digit annualized growth continuing in Q4. Turning to slide number 8, growth for the year was spread throughout the portfolio with heavy influence from the JCB acquisition most notable in the real estate book and continuing increases in the general C&I and specialty categories most heavily impacted by our legacy markets and business lines. For the quarter results were mixed but performance in the life insurance premium finance and tax credit books helping to offset some softness in the enterprise value lending or EVL portfolio and the acquired JCB commercial base. Our EVL business declined by 48 million in the quarter. This reduction reflects an opportunistic shift by many of our fund clients to sell portfolio companies during the quarter in a market with escalating purchase multiples. It is also characteristic of the disciplined nature of our chosen private equity sponsor base. Given the average deal size of 4 million to 4.5 million and up to 12 million to 14 million on a larger side of the portfolio the pay downs represent just a handful of deals. Thus we are optimistic for resuming our growth trends as we continue to see steady deal flow opportunity from our established sponsor relationships. Countering the deal flow has been expanding valuation…

Thanks Scott. I'll begin with a full year recap beginning on slide number 11. We reported $2.07 of earnings per share for 2017 which included $0.20 per share of earnings from non-core acquired assets, $0.18 per share of merger charges from the acquisition of Jefferson County Bancshares, and $0.52 per share of re-measurement of our net deferred tax assets. For more comparable measures we will turn to slide number 12 where we roll forward the drivers of growth and core earnings per share. Record core EPS of $2.58 for 2017 resulted in a full year return on average assets of 1.20% and a corresponding 14.5% return on tangible common equity. As the chart depicts core earnings per share grew 27% or $0.55 per share as we invested $0.38 per share in our expense base which included the pre and post cost savings run rate for JCB, from it we added $0.88 per share of revenue which is a 43% incremental efficiency ratio, $0.10 per share was growth in non-interest income, and $0.78 per share of net interest income. Income taxes were also favorable by $0.17 per share to the prior year, this was driven significantly by our execution of a number of income tax initiatives as well as changes in the reporting rules for share based compensation except the effective tax rate declined 4 percentage points to 30% for 2017. Finally provision for loan losses on portfolio loans increased $0.12 per share which includes providing for growth and the abatement of recoveries as compared to prior periods. We couldn't be more pleased with 2017 continued organic growth, strong balance sheet performance, expense discipline, and successful M&A efforts led to superior results in growing momentum as we enter 2018. To that end slide 13 depicts a seasonally strong fourth quarter. Core…

[Operator Instructions]. Our first question today comes from Michael Perito with KBW.

Hey, good afternoon everybody.

How are you doing Mike?

Good, thank you. Few questions from me, I wanted to just a couple quick clarification questions I guess for Keene. So if I heard you correct I just want to make sure I am receiving this correctly, the expense growth is 35% to 45% of your anticipated revenue growth in 2018 starting off an upper $28 million kind of quarterly run rate?

Yes, that's correct.

And then the step up from the fourth quarter to the first quarter is $1 million give or take of additional payroll expenses that you mentioned in the prepared remarks and then beyond that there will be increases based on what you see competitively going on in the market?

Yeah and also continued investments in the business. I think we'd expect trend wise for our continued investment in the business to be similar to prior years and that's I think last call I said it was about 4% to 6%, from there if we're able to manage it effectively that hopefully we will get a little bit of a flattish effect from the million dollar step up from Q1 to Q2 but that's all predicated on how competitive things get with salaries and other programs.

Yeah and then I also want to ask on the margin so, I mean it sounds like the low 3.70's is where you hope to hold the core margin. I thought that the comment on kind of competitive dynamics was interesting, I don't know if I misrepresented that comment but are you starting to already see kind of more of your competitors being a bit more aggressive on pricing with the tax reform being passed in late December or is that just something you kind of anticipate seeing over the course of 2018?

Michael this is Scott Goodman, I will take that one. I think -- I don't know that I've seen any change in behavior specifically around competition and tax reform. I think what we see is continued aggressive pricing particularly on CRE deals, I think that's where we see it the most because generally that's small and large competitors. C&I certainly remains competitive but I think the what I call the crazy stuff is generally on CRE.

Okay, and then just one last one from me maybe for Jim, just I mean you look for the year on a operating basis if you adjust for some of DTA and stuff it looked like you did about again for the second year in a row about 125 or 130 ROA, if you just do some simple math and factor in that tax rate that Keene said even there's obviously a couple other moving parts but that puts you in kind of like a 140 plus number, a lot of capital you guys will be generating, curious what your thoughts are as you guys start to accumulate capital here, I mean can you maybe just give us some thoughts on what the Board is thinking in terms of how you are going to best manage that kind of higher capital generation and building capital ratios as we move through the next couple of years?

Sure, couple of things we're going to do is sort of wait and see and make sure that all comes to realization relative to the economic growth that might occur in our markets relative to tax reform and things of that nature. But as it grows M&A becomes interesting for us. We'll be disciplined and prudent relative to that as we have in the past and then as we do our normal capital plan and we'll look at other opportunities to manage it appropriately.

Okay, actually just one more for Scott just in terms of the loan growth outlook to 7% to 9% does that kind of take into consideration a base case economic growth assumption that's basically similar to what you guys have been seeing and I guess do you -- have you started to hear from any clients that activity could pick up post tax reform here, is that something you are starting to hear and could that potentially kind of drive up that 7% to 9% or is that already kind of factored into that 7% to 9%?

Yeah, I think the 7% to 9% is a base case scenario. I think we are not looking at tax reform as something that's going to substantially accelerate what we see out there. We're listening to conversations. I think generally what I see companies doing is not making large investment decisions based only on tax reform. I think we're hopeful that it could help us later in the year but at this point it is a base case scenario.

Great, well thanks as always guys, appreciate you taking my questions.

Our next question comes from Andrew Liesch with Sandler O'Neill.

Good afternoon guys.

Hi Andrew.

Just wanted to look at the fee income for a second here. The state tax credit brokerage and the sales there obviously accelerated here in the fourth quarter, seems like you have some here in the first but what's your outlook for that business going forward now, will it be fewer gains on a full year basis now?

Tax reform we don't expect to have at least the near-term impact on state tax credit. Really just the cash deductibility we think drove a little bit of that timing for people buying credit and being able to deduct them in 2017 versus the ones that lingered into 2018. But I think that some of the parts is generally equal going forward and I think we might expect maybe a little bit more of a reversion to the historical norm where you get maybe 400,000 to 600,000 in the first quarter and the remainder in the fourth. But again just kind of given the change to the rule it was prudent for those buyers to get them in 2017 versus 2018.

Right, okay, understood. And then on fee income in general to get that 5% to 7% growth are there any initiatives or businesses you're looking to enter or expand, was curious like what's the overarching driver of that growth guidance?

Yeah, this is Jim. What this is, is about taking a look at the businesses that allow us to leverage better. If you look at our wealth business and our mortgage business it is about experiential for our clients but then at cards and treasury managements and the swap fees, things of that nature allow us to grow that business as we garner more market share and onboard more clients onto our platform.

Okay, and then just one question around credit, just the rise in non-performers, any detail you can provide around these, what industries they are in, are they in related industries, just kind of curious what your outlook for credit is as well?

Sure, well I will just start by saying I think we believe credit quality remains in excellent shape overall, classifieds are down 20% in the quarter. NPLs they're at 37 basis points remain muted and I think these levels compare very well relative to peers. The NPL additions in the quarter those were in our watch process. Majority of that is three credits. There is a St. Louis CRE deal, there's a C&I client in Kansas City, and then one residential real estate loan, so there's nothing systemic that I see and I think overall we remain favorable on credit.

Alright, great, thank you so much.

Thanks Andrew.

And next will be Nathan Race with Piper Jaffray.

Hey guys, good afternoon. Just following up on the credit discussion, any additional color you guys can provide on the charge offs that were incurred this quarter and kind of the outlook for charge offs as we go through 2018?

I will take that one Nathan, it is Scott. I think we've approached charge offs the way we've always had. It reflects the continuation of our process I think maybe taking in certainly a little bit more aggressive posture towards the end of the year for clean up. The charge offs in the quarter I think 3.3 million basically 2 million of that was one C&I services company, 13 year client that kind of just hit the wall. So, again I don't see anything systemic there. We've always dealt with issues proactively and taken our lumps upfront and posted recoveries as we learn them.

Got it, that's helpful Scott. And just staying on you for a second, any color just around the pipeline for hires as we go through 2018. Obviously you had a pretty active 2Q and 3Q, just curious kind of how activities went in the fourth quarter and how that kind of pipeline shakes out as we head into 2018?

Yeah, good question. It was an active year in 2017. I think I've highlighted the additions specifically in Kansas City and I don't think we've seen the traction yet from them. I think it was seven or eight hires from -- all from larger banks in that market. I think we still feel very good about what that's going to do for us longer term. We've been opportunistic in all markets. We will consider -- we will continue to do that in all markets and in particular we're having conversations with bankers that as we've seen if M&A continues to accelerate I think that will provide opportunities for us to continue to pick up experienced talent in all markets.

Yeah, thank you for that and then switch over to core margins and Keene just kind of thinking about deposit base and deposit cost as go through 2018 as well, if I think I heard you correctly you mentioned that you still expect some margin expansion with each fed rate hike but just curious if you see that impact diminishing at all given the potential for some increased deposit cost relative to the last fee rate hikes?

Nathan I'm glad you asked that question because I think what I said is we -- and if I misspoke I apologize. I think what we said is we expect that rate hikes would create pressure to move funding costs and that generally they would be offsetting. So, with the impact of tax reform as Mike indicated that put's margin from 3.73 on a normalized basis to 3.70 and our outlook would be to keep it affectively flat from there and use the capital and the balance sheet to continue to grow and expand that interest income dollars.

Got it, that makes sense. I appreciate all the color guys.

Thank you Nathan.

And next will be Jeff Rulis with D.A. Davidson.

Thanks, good afternoon. Keene I wanted to follow up a little bit and engage with expense guidance. I guess if you kind of hit the midpoint of growth on loans and fee income as you've guided to and then a pretty stable core margin, I think it would achieve about 8.5% revenue growth. Could we take just 40% of that and be in the 3% to 3.5% Operating expense growth, is that in the ballpark of budget?

Yeah, I guess I would say if that's where we get to on a revenue basis that's how we would manage to arrive at things. We've been thoughtful about how we've deployed and continue to invest in the business so we didn't necessarily get the results from the revenue growth we would be slower to deploy expenses. So I think those would be self management, self mitigating. So if you're driving to 8.5% or 9% revenue growth rate I think you could expect us to manage it accordingly and optimally to the lower end of that range or the higher end of the range depending on how aggressively we're able to achieve those revenue growth targets.

Okay, thanks and then Jim I was hoping to get some specifics follow up on that capital question, maybe take an optional way and say M&A those opportunities don't develop, I guess internally then with a pretty low dividend payout ratio versus potentially buybacks how would you prioritize those two options if that were -- you were limited to that?

Yeah, good question. So you have taken a big chip off the table haven't you. But anyhow, so different -- so that we have a choice between buybacks and dividends we have to take a look and see relative to overall capital plan the overall impact of that. I'll turn it to Keene at this point in time because we haven't had a chance really to debate that internally here and get his thoughts.

So I would say this Jeff our recent activity and planning would suggest that the better use of that capital is share buybacks. But that's given a price and given a performance target. I think we're sensitive to the fact that over the long course of history we're 20 days into tax reform and that's a relatively short-term item. So we're always sensitive to pushing up something that seems to me to be somewhat permanent in terms of the dividend payout ratio not knowing what's coming down the pipe and that from a relatively simple process we could be back where we started and then the battle with the heavier payout ratio. So I think our priorities would be growth leverage to the capital, M&A leverage to the capital, share repurchases if they make sense and then there may be some level of dividend that plays into that that we're certainly cautious about the permanence of those increases.

Okay, appreciate it.

[Operator Instructions]. Next to Brian Martin with FIG Partners.

Hey guys, hey could you guys I don't know who best to talk about it but just the putting the chip back on the table as far as M&A goes can you just talk a little bit about opportunities you're seeing out there today and maybe I guess would you look to get bigger in all markets, are there -- just where our discussion is at today, just a little bit more color around the M&A outlook?

Brian, I mean just the efforts relates to our philosophy again on that. So what we're looking to do relative to our M&A strategy, all markets are on the table for sure but more likely closer to home as I said in previous calls and we're looking to really improve our depository franchise through M&A to do that. So, certainly can't comment on specific discussions at this time but we're looking at franchises that complement what we do well. So obviously size is important relative to where we stand today versus where we were a few years ago and it makes the list some finite number in our markets.

And Brian this is Keene, I will just clarify when Jim says all market he mean St. Louis, Kansas City, Arizona and when he means close to home he means more likely in St. Louis where our growth rate is maybe a little bit slower.

Yes, Okay, got you. Okay, and then I think one of you guys talked about the Kansas City operation and the people you've hired. I mean, I guess what the production they have put on or maybe lack of it in the near term, I don't if it was pay offs or what was kind of driving that but I guess what is -- can you just talk a little bit about the Kansas City market and kind of your expectations for these folks or just is that market grow little bit more than maybe the other ones in 2018 if the production follows these folks that you brought on board, is that kind of the plan. I don't know if that CRE payoffs were a little bit heavier there or just getting up to speed for these guys?

Yeah Brian, I would say first one I think Kansas City did post double digit growth for the year end of the quarter so I think they did well. What I meant is I still don't think when you bring talent on, it's a good six months to a year in many cases especially with C&I before you really start seeing traction. So, I think there's only upside there from what this talent can bring to us. If you remember several of those were replacements for senior bankers that we moved out to the Arizona market. So I think having seven or eight bankers all coming from different banks with different portfolios I think there's tremendous opportunity there. And I would tell you I think the organic growth in the Kansas City market particularly for Midwestern city is encouraging and some of the development that we're doing is in the urban core there. I think there's job growth so I am very optimistic about what we can accomplish in Kansas City.

Okay, and just in general payoffs versus originations how have those been trending, I guess have the payoffs been pretty consistent, have they been a little bit higher in a given quarter, just what can you give any color on that?

I would say probably the only anomaly that stands out is what we saw in EVL in Q4. I think originations continue at a steady pace and the payoffs I think we're generally seeing more transactional payoff but we're not losing relationships. That I think I mentioned that's really where the CRE impact has been and where theory growth has not been as robust as we might expect. Some of the competition rationalizes a little bit.

Yeah, okay and then I think one of you guys talked about the core, I guess this maybe just a lone initiatives you have going into 2018. Maybe I missed what those were but I guess did you highlight certain initiatives that you have got on -- I guess you're targeting for 2018 on the loan side?

Brian this is Jim, we're not going to change the core that we call on. Still going to be that same tightly held business that was that we've been so successful with. What we're going to work on is improving our message. To know what a successful opportunity looks like for us and replicated in our sales channels as opposed to allowing each relationship meter to figure out what success looks like. So it has become more prescriptive in our coaching, more prescriptive in our targeting so that we can utilize our resources more effectively.

Okay, alright I think that's most maybe just one last one Jim just on the M&A side which I respect the not getting to deep on the ones you're looking at but as far the number -- the discussions, are the discussions greater today or less today or just no change relative to what you've been over the last six to 12 months?

Yes, no change.

No change, okay. Alright, nice quarter guys, I appreciate it. Thank you.

And that does conclude the question-and-answer session. I will now turn the conference back over to you for any additional remarks.

Well, again thank you all for joining us today. We're very proud of our results. Look forward to a great 2018 and we will speak to you soon. Thank you.

Well thank you and that does conclude today's conference call. We do thank you for your participation today.