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 operating leverage by 2.5% over the same 12 month period.

This continued operational improvement reflects our ability to connect a front-end sales process with the investments that we have made in technology and talent in the back-end of our business. As I stated in previous calls we remain intentional in growing our core deposit franchise.

During 2017 we grew our deposit base by 29%, 5% net of the JCB acquisition. More importantly DDA, net of JCB grew just over 10% improving the ratio of DDA to total deposits of 27% which is a slight improvement over the previous four quarters. Slide 5 shares our focus for 2018. I'm very excited about the opportunity that this year brings us.

Over the next 12 months we will continue to focus on sustained core growth trends and maintain our focus on long-term strategic development. These two goals define the strength of our strategy and will ultimately drive long-term value of our company.

Growth of the net new relationships and maximizing return on dollars invested in new products and processes will ultimately drive continued earnings growth for our company. Our third major initiative is to focus on areas where we can get better. Our sales process and culture have been the hallmarks of our company since we were founded 30 years ago.

Despite our success we can get better here. Over the next year we will examine and improve our sales process and refresh our message in order to further differentiate us from our competition and allow us the opportunity to continue to grow our share of our respective markets.

To provide more color on our deposit and loan growth as well as the right perspective as to how we are performing in our markets and our niches I will now hand the call off to Scott Goodman, President of our bank..

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 multiples, so generally fewer deals make it through pricing hurdles in their due diligence process. The other issue which I have mentioned in prior calls relates to timing issues associated with a slowed political process in approving new funds under the Federal SBIC structure.

Many of our sponsors are rolling out their next rounds and are soft pedaling on acquisition process as they experience these delays. Near-term the deal pipeline looks to be building from recent activity developing late in Q4.

We continue to add new sponsors to our base through referrals and co-investment introductions and the new fund roll outs by many of our client sponsors will ultimately lead to additional senior debt opportunities. In general we remain optimistic about the EVL business and its ongoing prospects for growth.

The life insurance premium finance business had a seasonally strong quarter growing by roughly 10% in Q4 and posting 19% overall growth for the year. Performance here reflects timing issues relating to an uptick in policy renewals and premium payments as well as several new policies financed.

Despite tightening margins and heightened competition from a few larger players, our emphasis on experience, longevity, and consistency in this business with key advisor partners continues to result in a steady flow of opportunities referred to our team.

The tax credit lending business also posted a strong quarter up 46 million in the period and 91 million or 63% for the year. The growth in this segment is attributable to the financing of several new markets tax credit funds with established partners in this business.

The resulting capital from these funds are ultimately redeployed into various privately held businesses and history would show that this leads to future opportunities for lending, depository, treasury or other fee based services as we are introduced into these companies.

We continue to generate a steady flow and mix of new general C&I opportunities across our markets. Larger Q4 deals include a management buyout in the financial services sector, refinancing and new equipment in a large medical practice, and expanded working capital in a growing transportation related business.

In the CRE sector our teams are active and originations reflect a few large projects with strong and experienced investors as well as increased development activity particularly in the Arizona and Kansas City markets.

While we have been vigorous in defending all relationships, growth of the CRE book has been slower than planned as we have maintained certain structural and pricing related disciplines on more transactional lending opportunities here.

However, we continue to pursue and grow where full relationships exist with the right investors, the right developers, and the right deal structures in all three of our markets. As represented on slide number 9 all business units posted solid double-digit loan growth for the year.

In the quarter specialized lending was basically level with strong performance in life insurance premium and some growth in aircraft finance offsetting the aforementioned reduction in the EVL book. St. Louis grew by 37 million in the quarter, 7% annualized and 45% year-over-year inclusive of the JCB acquired portfolio.

Q4 origination activity was steady and balanced between C&I and CRE growth with new and existing clients. This was muted somewhat by several larger payouts related to relationships involving classified loans or competitive situations where we opted to back away from unacceptable structure or pricing terms.

Kansas City grew by 11% year-over-year and 23 million or 14% annualized in Q4. Activity in the quarter included a large new C&I client as well as several new CRE loans in the expanding urban core of the region.

The KC team continues to gain momentum and pipelines are benefiting from new talent, steady economic growth, and traction in our brand in this market. In Arizona we also experienced double-digit loan growth in 2017 as well as a strong Q4.

While CRE is an important component of our strategy here we have also intentionally prioritized C&I balance in the portfolio. Q4 shows new C&I loans within industry such as storage, medical services, and veterinary along with CRE and development lending to establish investors in our portfolio.

Deposit balances summarized on slide number 10 were up 29% for the year inclusive of JCB and 5% excluding the acquired deposits. Furthermore non-interest bearing DTA has also grown and is up as a percent of total deposit of 27%.

Organic growth is attributable to our performance in the C&I commercial and business banking lines of business which incorporate a relationship approach and emphasizes the sales process and value of core deposits.

Our branch and commercial teams have done a terrific job of servicing existing and integrating new JCB clients and this is evidenced in our ability to grow both the number and dollar amount of non-interest bearing accounts since the acquisition. At this point I would like to hand it off to our CFO, Keene Turner for his comments..

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 EPS was incredibly strong at $0.77 per share resulting in a 1.37% return on average assets and nearly $0.17 -- 17% return on tangible common equity.

Compared to the linked quarter there were a couple of items that were a bit of a gross up and included non-interest expense which increased $0.04 per share and is principally offset in the income tax line item which improved by $0.05 per share from a tax credit investment that I will discuss more in a few slides.

Provision for loan losses was $0.02 per share more than the third quarter and revenue of $0.10 to $0.12 per share split between $0.08 of non-interest income and another $0.04 of net interest income from the link quarter on which I will elaborate further in slide 14. Core net interest income increased by $0.8 million to $44.9 million for the quarter.

Net interest margin declined modestly in the quarter but remained at 3.73%. Absent an isolated item the quarter's results were essentially flat. That item is that during the quarter we serve as a banking partner for a significant customer sale with some large deposit balances on our books for several days.

We earned net interest income on those dollars but not at a 3% plus margin and so was dilutive in the quarter. Generally we expected to maintain core net interest margin around 3.75% with continued growth in net interest income dollars.

We knew we would experience an increase in deposit and funding costs which increased four and six basis points respectively.

On the asset side of the balance sheet portfolio of loan yield was limited to two basis points of improvement before the impact of the December interest rate increase while the yield and size of the investment portfolio increased three basis points at approximately $30 million.

In the spirit of reflecting on the full year and because it impacts our views going forward the balance sheet and specifically deposit cost performed far better than we had projected. We had indicated that a parallel shift of 100 basis points would increase net interest income around 2.5% or approximately 10 basis points.

In fact fourth quarter core net interest margin expanded nearly 30 basis points for the full 2017 where the impact was 20 basis points. Additionally it should be noted that the curve flattened and was not a parallel shift.

Going forward we're forecasting core net interest margin to be stable, adjusted a couple basis point downward for the impact of income tax reform. That said we generally expect interest rate increases to be able to offset the increase in deposit and liability costs.

Given our growth expectations we expect to translate that to meaningful growth in core net interest income dollars. To that end for 2018 we expect portfolio loan growth will be 7% to 9%. We are encouraged as some of the initiatives that Jim and Scott discussed will garner a steadier growth during 2018 as compared to 2017.

Provided we're successful this will bode well for our financial performance as it will provide balances on which to earn earlier in the year in the form of net interest income dollars. In slide 15 we will move to our credit metrics for 2017.

High level trends are favorable compared to a year ago with some variability throughout 2017 due to small balances particularly leveled of non-performers and classified loans. We compare favorably to peers and coverages for those levels.

Provision for the quarter reflected our continued posture of prudence which we think results in high quality of earnings and returns. As it relates to charge offs for the fourth quarter we carefully examined anything that had a specific reserve in addition to our normal process.

We believe that we tend to be conservative as it relates to credit and charge offs in particular, nonetheless we took a slightly harder look given the implications as it related to deferred tax asset re-measurements that occurred this quarter.

Thus charge off trends compared unfavorably to the third quarter which had eight basis points of net charge offs compared to 33 basis points in the fourth quarter. The provision in the quarter was $3.2 million to cover growth along with some replenishment of net charge off as it impacts general reserves.

As a result we believe we are well positioned to move into 2018 with relatively few problems that are significantly reserved to charge down. Additionally we expect credit events when they do occur to remain isolated. We believe our credit performance is consistent with the commercial loan portfolio and in particular one with $2 billion of C&I loans.

Nonetheless we strive for earnings of the highest quality providing for both growth and any increases in impaired reserves or charge offs that do occur.

On slide 16, fourth quarter non-interest income was seasonally strong driven by state tax credit sales of $2.2 million in the quarter combined with strong fee income from customer interest rates swap activity, continued progress and service charges, and while core fee income topped $11 million to end the year.

I will note that tax reform did drive slightly more tax credit sales into the fourth quarter but we do expect first quarter 2018 to contain some level of state tax credit sale at around a penny per share. Operating expenses on slide 17 totaled $28.1 million for the fourth quarter.

Generally sequential expenses were in line with expectations with the exception of other expenses as we had the opportunity to invest in a historic tax credit project that delivered us 2017 credit.

Therefore we amortize $0.9 million of this investment and other in the quarter while we reported an offsetting benefit of $1 million in the income tax expense line item. All things considered core efficiency dipped to 50% due to continued strong revenue performance.

In each of the last two quarters we've become even more prescriptive with our income tax management particularly with respect to investments and tax credits. We expect to continue this activity and thus we've included additional amortization in our expectations for 2018 expenses as well as our effective income tax rate.

I'd be remiss if, I'm sorry, thus our expense guidance for 2018 will start from the current quarter to which we expect employer payroll taxes will seasonally increase by approximately $1 million. I would be remiss if I didn't point out that we expect to continue to enhance our value propositions through our associates and communities throughout 2018.

This will likely result in additional expenses for training, compensation, retention, and/or charitable items. Timing of those items will likely begin to impact the second quarter and the remainder of 2018.

We haven't yet identified all the specifics but we continue to actively engage associates and ensure we're competitive with other companies and announce initiatives resulting from tax reform. All that said we still expect that marginal efficiency will range from 35% to 45% on revenue growth.

To be even clearer the starting point of all that is estimated at a high $28 million range of non-interest expense for the first quarter. Again this level of expense compared to our recent run rate is reflective of additional benefits in the income tax line item from credit not just tax reform. We'll move on to that on slide 18.

This slide is new for the quarter given we had a number of moving pieces for taxes including DTA re-measurement. I mentioned earlier that we drove the effective tax rate down with some additional investments late in the year for which we had not planned on doing so.

Thus the fourth quarter rate benefited from an additional 1 million of credits improving the rate 4% to 28%, that's in comparison to the incremental statutory rate of 38% which includes Missouri State income tax net of federal benefits. Thus tax reform for 2018 will be extremely beneficial to our earnings going forward.

The incremental statutory rate declined to just under 25% for us.

We continue to benefit from permanent item in addition to the tax planning initiatives we've undertaken so we expect the effective tax rate to be 17% to 19% in 2018 with the first quarter coming in slightly lighter around 15% due to the expected seasonal benefits of share based payments.

Thereafter the effective tax rate will increase 2% to 3% on a quarterly basis which is 19% to 21% each quarter. I hope this commentary and the additional information on the slide is helpful in understanding the impact on our financials in upcoming periods.

With that I will conclude my remarks on slide 19 where we illustrate our quarterly EPS progression. Our results for the fourth quarter of 2017 were the strongest in our history at $0.77 per share by a significant margin.

We believe that's why it speaks for itself but is a direct result of holding ourselves accountable for establishing a successful plan and managing to that plan in the years leading up to and including 2017.

We believe that the fourth quarter and all of our 2017 results reflect our ability to effectively manage the business including seeking opportunities as they arise to manage income taxes, capital, credit, and the balance sheet profile in order to maximize the contribution of our business development and successful M&A efforts.

These results are modest in the short term but the leveraging effect they drive in subsequent periods enhances our ability to grow profits and value for our shareholders. Our focus remains on continued core EPS growth as well as improving returns from already high level as we move into 2018. That concludes our prepared remarks.

We sincerely appreciate your interest in our company and for joining us today. At this time we will open the line for questions..

[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..