Enterprise Financial Services Corporation

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.

Well, thank you, Shelby, and good morning and welcome to our fourth quarter earnings call. I appreciate all of you taking time to listen in. Joining me this morning is King Turner, our company's Chief Financial Officer and Chief Operating Officer. Scott Goodman, President of Enterprise Bank and Trust, and Doug Bauchee, Chief Credit Officer. 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 released were furnished on SEC form 8K yesterday. Please refer to slide two of the presentation titled Forward-Looking Statements and our most recent 10K and 10Q for reasons why actual results may vary from any forward-looking statements that we make this morning. We're very excited to present the results of a very fulfilling year for our company. Slide three provides the financial highlights of the quarter. As I reflect on the year and what we faced with respect to the COVID-19 pandemic, we were certainly forced to alter our plan, but our company never lost its focus. We achieved several critical milestones that positively impacted our company. Just in the fourth quarter, we closed on the acquisition of Seacoast, adding to our arsenal a preeminent SBA lender and specialty deposit generator to further diversify our funding base and enhance our earnings profile. We supported our customers in navigating the PPP forgiveness process, and we continue to effectively operate and communicate with our associates in a virtual environment. For the quarter, EFSC earned $28.9 million which was an increase of $11 million compared to our 2020 third quarter and in line with what we reported for the fourth quarter of 2019. On a fully diluted basis, we earned $1 per share for the fourth quarter compared to 68 cents and $1.09 for the late and prior year quarters respectively. Pre-provision net revenue of $47.5 million for the quarter represented a return of 2.07% on average assets. That same metric was also nearly 2% for all of 2020, an accomplishment of which we are very proud. The team will provide much more granular details of our financial performance for both the fourth quarter and all of 2020. The composition and diversification of our loans and deposits exhibits ongoing transformation of our balance sheet that started with the acquisition of JCB in early 2017, continued with the combination with Trinity in 2019, and most recently the addition of Seacoast during the fourth quarter of 2020. These strategic additions combined with the continued growth within our markets and our specialty businesses represents a business model that produces higher quality earnings and while at the same time reducing the risk related to concentration of a particular market or asset class. Amid growing and expanding the earnings profile, we have strategically built a more durable, diverse deposit base that we expect will support our ability to continue these positive trends in the years to come. We believe that withhold deposits at December 31st of $8 billion, of which 34% is non-interest-bearing, The resulting 90% loan-to-deposit ratio affords us ample runway to continue to expand and grow the balance sheet, earnings per share, and profitability for the foreseeable future. Scott's comments will provide much more color on how we perform in our businesses and will receive great opportunities in 2021. Asset quality has held up nicely. Compared to the end of the third quarter, we saw improvement to the ratios of both non-performing assets to total assets and non-performing loans to total loans. Our allowance coverage ratio remains strong at 2.31% of unguaranteed loans. I will spend a little more time on this in his comments, but I just want to say that we are encouraged by what we are seeing, but believe that we want to see how the latest round of fiscal stimulus impacts asset classes related to travel and hospitality before we declare that we are totally through the impact of the pandemic. Capital management was a key focus for us in 2020. Our sub-debt raise earlier in the year, combined with our strong earnings, allowed us to continue paying our 18 cents per share quarterly dividend, while growing TCE and tangible book value per share throughout the year. Our capital posture, combined with our earnings profile, provided the confidence for us to be able to add Seacoast during 2020. Now, in speaking of Seacoast, the integration is going extremely well. And as I stated before, it is an even better company than we initially thought when we engaged them earlier in 2020. The calendar has turned and our teams are aggressively working their plans to accomplish our 2021 goals. I am optimistic about the prospects for the year as the success of the vaccine rollout and additional fiscal stimulus should provide for economic stability and growth towards the second half of the year. Turning to the slide four, you can see that our focus will be integrating Seacoast into enterprise, executing our asset growth objectives both in terms of amounts and quality, executing well in the current round of PPP, not only to expand the relationships of our client base, but to use this to acquire new clients and to seek ways to permanently change how we operate to deliver superior client experience while improving our overall efficiencies. I would now like to turn the call over to Scott, who will provide much more color on our markets and specialty businesses. Scott?

Thank you, Jim. Good morning, everybody. Loans at year end are highlighted on slide number five in total $7.2 billion, representing a 36% increase from the prior year. Growth of $1.1 billion in the quarter is most heavily impacted by the addition of the Seacoast book, combined with a reduction of $206 million in Triple P balances and organic growth of $81 million. Focusing my comments on the legacy core business, net growth in the quarter underscores a healthy base of diverse business units that continue a solid level of gross production held back mainly by the ongoing external headwinds. We carried forward the momentum in production that I described last quarter with total originations more than double Q3 and 50% above the same quarter a year ago. The impact of this production continues to be muted by excess liquidity being used to further reduce working capital lines and short-term borrowings, as well as reductions in commercial real estate related to the sale of properties and refinancings into the permanent market. Slide six. breaks out the loan book by business line, showing the changes in the quarter and highlighting the impact of Seacoast, which now adds further diversity to the mix. Aside from the Seacoast impact and despite the headwinds, we were able to achieve net growth in most categories with stronger performance in the investor CRE, sponsor finance, formerly known as EVL, life insurance premium finance, and tax credit business lines. Within our business units that are highlighted on slide 7, specialty lending now represents $1.9 billion of our total loans, or roughly 30% of the non-PPP loan book. In addition to the SBA loans from Seacoast, we saw the typical seasonal uptick in life insurance premium volumes, as well as elevated closings in the sponsor finance area. This production has resulted from a ramp-up in capital deployment by our sponsor partners, and additional opportunities that we earn through our support of their portfolio companies via the Triple P and the Main Street stimulus programs. It's worth noting that we were able to successfully close on roughly $250 million of Main Street lending program loans in Q4, resulting in $2.5 million of origination fees and over $100 million of non-interest-bearing deposits. And although most of the loan outstandings are participated out to the set under this program, we were able to use this to reduce our risk on several existing credits and as a conduit to establish new C&I relationships that will provide longer revenue streams with a number of desirable companies in our existing markets. The life insurance premium finance and tax credit businesses have shown resilience in the current environment with steady production and growth throughout the year. With roughly $30 million of growth in Q4, these businesses continue to perform well with a stable outlook. Looking forward, adding a high-performing SBA platform into our current mix of successful specialty loan verticals further bolsters specialized lending as a significant contributor to our growth engine with a favorable risk-return profile. Within our geographic markets, St. Louis growth this quarter benefited from expanded relationships with several significant clients in the construction, equipment financing, mortgage, and tax credit businesses. Arizona closed a number of new commercial real estate deals for acquisition and refinancing, including several with new investor relationships. And in New Mexico, we are beginning to see some early signs of traction with our business model. as we onboarded a couple of new mid-sized CNI businesses in the construction and remodeling industries. Overall, general CNI monthly production within the geographies is continuing to trend up, and our conversation with business owners reflect general optimism and willingness to invest in their businesses. The PPP loan portfolio, which is profiled on slide number eight, of $699 million, includes the combination of Seacoast Triple P with the legacy Enterprise Triple P loans. Quarter over quarter, the legacy Enterprise Triple P balances have declined by $206 million as we began moving through the forgiveness process mid-quarter. So far, in general, we're seeing most of these applications successfully 100% forgiven, with an immaterial dollar amount of partial unforgiving balances remaining. No applications over 2 million have yet been decision by the SBA. We continue to leverage our efforts in originating Triple P for over 700 new clients across our footprint and have been able to successfully cross-sell at least three new products to two-thirds of these new companies. We are now participating in the next round of Triple P to further support our existing business clients and to continue to use this proactively to find new client opportunities. The deposit rate, shown on slide nine, expanded by nearly $1.1 billion in the quarter with the addition of Seacoast. This also includes roughly $250 million of organic growth from the legacy EB&T portfolio. The addition of a specialized, sticky, and low-cost deposit portfolio from Seacoast has allowed us to be more proactive with the legacy book, moving out higher-cost funds or lowering rates on non-relationship balances. We also continue to have success onboarding new business operating accounts and expanding existing relationships with non-interest bearing accounts now increased to 34% of total balances. With that, now I'd like to hand it over to our Chief Credit Officer, Doug Bowke, for his discussion on credit. Doug?