Enterprise Financial Services Corp (EFSC) 2016 Q4 法說會逐字稿

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, Present 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 lease were furnished on SEC form 8-K yesterday. Please refer to slide 2 of the presentation and 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 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 have 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 have 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 with strong pricing disciplines, continuing 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 Bank's shares 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 will 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'm 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 Bank shares. 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 margins would have been slightly positive compared to last year's fourth quarter.

Credit metrics remain very solid. Nonperformers 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 a robust loan growth with core deposits. Our focus in this area, coupled with our relationship approach, is the key to this success. It should be noted that nearly -- of the nearly $450 million in deposit growth, $150 million of this was in DBA.

Turning to slide 5 you can see that our loan growth was 13% over last year. Just as we discussed in 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. Side 6 shows the continued growth in our CNI 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.

Side 7 provides granularity about our loan growth. CNI and CRE contributed equally to the $367 million of growth. Within the CNI sector, EVL and 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 in deposits and fee income.

Thanks, Jim. The loan growth trends are summarized by business unit on slide number 8. 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 varied but general CNI was most prevalent, including a mix of new relationships in the financial services, construction, and distribution businesses. 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 our relationships with a defined group of seasoned developers and investors. More significant originations in the quarter include acquisition and repositioning of office space for committed tenants and expansion of owner occupied space.

We also announced the appointment and relocation of one of our senior Kansas City bankers, Jeff Friesen, to the position of Regional President in Arizona. This follows a number of recent additions to our Arizona sales team in the areas of mortgage, business banking, commercial real estate, and CNI. Jeff will work alongside the Chairman and current market leader, Jack Barry, to build upon a momentum and strong growth opportunities in that market. The move capitalizes on our ability to recruit and backfill with experienced talent in our Midwestern markets and enables us to fill a key leadership position internally. In Kansas City we have filled Jeff's position with an experienced senior vice president recruited from a local competitor.

The specialty lending unit posted growth of nearly 16% for the year, well-balanced between our primary areas of life insurance premium finance and senior debt. We experienced a typical ramp-up of fundings on existing policies and life insurance. However, the origination of new policies trailed off a bit in Q4 following a strong Q3. We also absorbed a couple larger payoffs of existing policies as well in Q4. We are weathering some pricing competition in this product from several larger banks which we have seen come in and out of the market in the past.

Net growth in EVL book for Q4 was softer than what we have experienced in prior years. M&A transaction momentum overall appears to have tapered off in the second half of 2016, likely a factor of some caution by investors due to continued elevated multiples and fewer deals on the market overall. Our investor clients remain disciplined but optimistic as they continue to raise capital and actively pursue new opportunities. We also continue to expand our qualified investor list with new relationships in the Dallas and Southern California markets.

Deposit growth, which is outlined on slide number 9, has been solid with balances growing by 16% year over year. This growth has been steady and consistent with a continued emphasis on low-cost relationship-based deposits. We have woven deposits tightly into our sales process through various practices which impact visibility, sales force behavior, and incentives. With increased interest rates upon us and more competition focused on funding, creating sustainable growth and a low cost profile for deposits is a key strategic focus for a Company.

As I've said before, there are no silver bullets for deposits. So as we continue to reinforce our strong deposit culture, we recently created a new director of deposits position within our Company. This senior position was filled by a long-tenured, high-performing associate that will be responsible for overseeing the development of several deposit-focused specialties as well as promoting and aligning our deposit products, pricing, incentives, and distribution strategies throughout the Company.

Turning now to slide number 10, core fee income grew to $7.8 million in quarter, representing roughly 14% growth over the prior quarter and 10% year over year. The increase over linked quarter performance is due mainly to the tax credit brokerage business which experienced a typical seasonal upswing in Q4. Growth for the year can be attributed to continued increases in deposit service charges and card service revenue with steady performance in the wealth, mortgage, and tax credit services.

Treasury management continues to be a strong contributor growing revenue through its focus on expanding product set with existing clients and rolling its services into virtually every new CNI relationship. We have placed an emphasis on deepening existing client relationships through both business and commercial product lines. Now I'll hand it off to Keene Turner for a more detailed review of the financial performance.

Thanks, Scott. 2016 financial results reflect continued execution and steady progress in our priorities. Side 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, added 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 predominately 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 and our operating expenses. Nonetheless, 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 1.09% with 22% core EPS growth. I will point out that $0.46 per share of earnings came from PCI assets during the year which drove reported return on assets to 1.29%. And excluding deal charges, the return on average assets was in excess of 130 basis points. Additionally, our shareholders experience returns on common equity nearly 1.5 times the peer group while EFSC stock appreciated more than 50% during 2016.

As is typical with Enterprise, our fourth-quarter performance accelerated, ending the year strong. Scott and Jim discussed the growth we experienced on the balance sheet and our quarterly financial results reflected the same seasonally strong performance. We reported $0.67 per common share compared to $0.59 per share in the [link] third quarter.

Slide 13 depicts the comparative changes in core EPS from the prior quarter. Most notably on the revenue side, seasonal tax credit sales improved non-interest income in core EPS by $0.04 per share despite the fact that certain of our other businesses were seasonably lighter. Provision for loan losses also represented a measurable improvement compared to the third quarter as we'll discuss in more depth in a few slides. Credit trends improved as we closed out the year adding $0.07 per share. Operating expenses were at the top side of our guidance representing $0.03 per share difference from the prior quarter. And finally, net interest income improved by $0.02 per share in the link quarter.

Let's turn to slide 14 for more details there. Our sustained growth and core net interest income has been the key driver of our successful transformation of core earnings power over the past three years. Core net interest income increased to $32.2 million for the fourth quarter and totaled $124 million for 2016, a $16 million increase or 15% growth. Core net interest margin, however, declined 10 basis points in the link quarter to 3.44% and was 3.51% for the full year. Our view is that we defended core net interest margin well over an extended period of time; however, the $50 million subordinated debt issuance in the quarter impacted net interest margin by about 7 basis points. Additionally, we experienced stronger than anticipated and typically seasonal liquidity transit drove the remainder of the 3 basis points of margin decline in the quarter.

Nonetheless, asset growth was strong. Portfolio yields were stable. Deposit costs remain well-controlled and it's safe to say that we believe underlying fundamentals suggest we will continue to successfully grow net interest income while defending net interest margin in the periods to come. We expect our 2017 portfolio loan growth at or above 10% while we remain modestly asset sensitive with our interest-rate risk profile.

For some additional color there are approximately $2 billion or about 63% of the loan portfolio is a variable rate and we expect about two-thirds of that will experience some sort of impact from interest rate repricing in the near term. So, again, we always pursue net interest income growth in dollars but we are optimistic that not only will we be able to continue to have improving fundamentals for core net interest margin but we are also hopeful that the interest rate environment will cooperate and asset yield headwinds are a phenomenon that we only experienced last year.

On slide 15 credit metrics supported our strong profitability again this quarter and for 2016. As I noted earlier, we experienced annualized net charge-offs of 12 basis points in the fourth quarter with $80 million of loan growth. Long-term net charge-off trends continued to be favorable as is the level of nonperforming loans and assets. For some perspective, net charge-offs for the year were 5 basis points, they were 6 basis points last year and 7 for the 2014 period. However, we continue to prudently provide for credit losses that may be inherent in the portfolio but our low net charge-offs and strong asset quality over a prolonged period caused a reduction of the allowance to portfolio loans to 1.20% at December 31. The resulting provision for the quarter was $1 million and the allowance to nonperforming loans was in excess of 250% to end the year.

On the next slide 16, operating expense trends have contributed to our continued progression of core earnings. Operating expenses increased slightly to $21 million during the fourth quarter, impacting results by an additional $0.03 per share, as I noted earlier. I would characterize the trend as generally related to incentives and an even better close to another great year as the bulk of the increase was in compensation and benefits as well as some other category items.

Nonetheless, strong revenue for the fourth quarter improved core efficiency to 53%. We expect to continue to maintain this discipline throughout 2017 as we target total quarterly non-interest expenses to be between $19.5 million and $21.5 million in the first several quarters and then expanding modestly thereafter. This is, of course, excluding Jefferson County Bank shares acquisition, as is all of our guidance on the call today.

We remain committed to further building profits and returns over time and we've demonstrated our ability to do so over the last three years. Slide 17 illustrates the gradual momentum and improvement we have made from focusing on the key drivers of profitability and executing on our strategy and plan to improve each of them cumulatively. During that period we have grown core EPS by over 110%, expanding core return on average assets from 70 basis points to nearly 120 basis points and delivering a 13.5% return on average tangible common equity.

We believe our focus on not only driving growth but driving profitable growth will continue to expand both earnings and value for our shareholders as we further position EFSC for the future. As a result, we will continue to do our best to serve customers and shareholders in a superior way to achieve both. We always appreciate your interest in our Company and for joining us today. And at this time we will open the line for your questions.

(Operator Instructions)

Jeff Rulis.

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

Yes. I guess we expect it to be within the timeframe that we said. I think we said a first quarter closing and we feel pretty good about that. Obviously the shareholder approval that Peter mentioned is a step in the right direction. And we have no reason to believe otherwise.

Do you happen to have the year-end loan to deposit totals for that -- for Jefferson County?

Those will be filed in a couple of weeks in the call report. I would say that I don't know that they are 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 too much detail there.

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

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

And then maybe one last one on the -- just on the margin you talked about core 1 basis point improvement if you exclude the sub-debt year-over-year on margin. What was the basis point impact on the sub-debt in the quarter just to track that one?

Jeff, that was 7 basis points. So a little bit of an interesting timing for us. We typically see seasonably higher deposit levels in the fourth quarter. So ordinarily we would have 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 levels and some of the other funding levels. 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 7 basis points do to it alone hamstrung the efforts. I guess 3 basis points other in core compressions.

Yes. 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 were working on, wins from some client 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 diluting margin but not necessarily earning dollars -- not significant dollars on those kinds of deposits.

Okay. Thank you.

Thanks, Jeff.

Michael [Perito].

Good afternoon, guys. I wanted to start 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 legacy growth rate on the fee income side. It's just starting simply on the high level. Is that something you guys still feel? It sound like there is still some momentum on the treasury management side, et cetera. So I'm just curious if there is any updated thoughts there.

I think the thinking is the same. I think the treasury management revenue has been relatively highly correlated with our growth in CNI. So you see that year after your typically in the high single digits. We have 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 have noted in prior quarters. And you see that comparison to the third quarter. The card services is another one that we are seeing some traction. And then we look at it as relatively stable in wealth management, although we are optimistic for some improvement with the market activity as well as some customer acquisition late in the year.

So, yes, I think that is the right way to think about it, Mike. That is the way that we think about it. And then the tax credit is a little bit lumpy but the some of the activity is going to happen sometime mostly in the fourth and third quarters.

In terms of the annual tax code activity, can you remind us if there is any -- do you have any sense or maybe the better way to ask it is is there something that can potentially grow -- are you guys trying to put more incremental dollars there? Or how should we be thinking about that business line going forward?

So that business historically has been relatively stable. I think there's one of the factors that is holding that down a little bit is there were some fair value elections a number of years ago that as those roll off and are replaced with cost method investments you have some opportunity for some upside. Additionally as we expand the size of the balance sheet and we have some capacity to, if we so desire, buy some more tax credits there. But I don't know that we are 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 kind of stuff abates and you get some of those gains coming back through the P&L real-time.

Okay. And just one last question on the C side, can you remind us what you guys are expecting to bring over? I think if I looked in the third quarter they were doing about $1.5 million of noninterest income at Jefferson County. Obviously it is hard to tell exactly what will really carryover not -- any initial thoughts what the contribution there? And is there anything specific that you think could be the nicest growth opportunity as well on that side?

So specifically to your question, Mike, the $6 million run rate on non-interest income is about the way we are thinking about it. I think the transaction generally we are thinking about it at least initially more high-level -- so trying to make sure that we get to the 3.5% accretion for 2017, which is about $0.07, and then the 7.5% accretion in 2018. I think we highlighted that we think there's a lot of opportunity with that base. We think the treasury management capabilities we have pairs nicely going over there.

We think mortgage and wealth are opportunities also. But we have 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 the full $6 million.

Okay. One last one for me -- you guys maintained the 10% plus loan growth outlook. But obviously, as you mentioned in prepared remarks, had really strong deposit growth year. This past year it sounds like there's been some build on the executive team to focus on this and some new initiatives going on. As we think about kind of total balance sheet growth in 2017, obviously you're adding in loans from the -- I mean the assets and et cetera from JCB -- but more on the legacy side. Any kind of leading thought you can provide in terms of -- is there something where initial expectation here -- it sounds like deposit growth could possibly be a bit stronger that loan growth next year or any other kind of color you could offer on that topic?

Mike, I think when we think about even the loan growth at 10%, you can 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 would like to see that happen and be more steady for a few quarters.

The other X factor is Eagle's a balance sheet coming in here and what we are 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 in 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 are able to have additional deposit growth and we will think about what opportunities we have to do that or to drive additional profitability.

All right. Thanks, Keene. Appreciate it.

Thanks, Mike.

(Operator Instructions)

Brian Martin.

Maybe just one question.

Keene, you talked about the credit and hello charge-offs and problem assets with that? Do you feel like there's still more opportunity from a credit leverage standpoint as you go forward? Is there anything that's even signaling some caution out there on credit?

I will let Scott comment a little bit more specifically on credit. I will just comment on the credit leverage. Credit has contributed to our profitability to the extent that we are operating from a low base of known problem assets, we'll 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 will see us benefit quote/unquote from a lot of leverage. We have done, to the extent possible, maintained our coverage of portfolio loans over an extended period of time despite the fact that we have had really prolonged low net charge-offs, as I highlighted in my comments. Maybe Scott can add a little bit of the color on the portfolio and what's in there itself.

Hi, Brian. Obviously we have made some progress maybe after a small blip last quarter and made some progress this quarter. And had positive change in nonperforming loans and REO and that really relates to three larger credits, all of which have been in our process for a while and all of which I referenced on this call in the past.

It is 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 addition in MPLs 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 is no really overarching trends or issues that I think are going to jeopardize continued strong performance.

Okay. Alright that is helpful. And just maybe a question -- I don't know if it's for Keene or whomever -- but you talked about the expenses just in general. It sounds like they may tick 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 are referring to, or did I misread what you said there?

Those are our base expenses. And so there is always initiatives. I think what you have 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 similarly to last year, midyear we kind of came out and moved the expense guidance up $0.5 million to the top and will likely do that again.

But we are comfortable with our range for the next quarter. And I would expected the base expenses to move up just slightly from there. But the reality is, by the time we get there we will have to be giving you some more details pro forma guidance with Eagle in the fold. So we are obviously excited about that.

Okay. Understood. And then maybe just the last one or two -- just the loan growth for next year. When you guys think about at least this quarter maybe being the general C&I bucket being a little bit stronger, just in aggregate when you think about 2017 and look at the geographies and then the specialty niches, are there areas you are more optimistic about? Or do you expect similar type of growth by geography or by buckets, if you will, in 2017 versus 2016? Or is there other areas that are maybe slowing down that you don't want to grow as much?

Brian, I would just start by saying I think we have intentionally developed a number of specialties really to complement the core CRE and CNI so that we do have multiple levers to kind of 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're seeing a couple of competitors with some pricing pressure that we have seen come in and out of the market before. So and on EVL I think you just saw generally the data we are getting on M&A is that transition volume was soft the second half.

As we talk to our sponsors in that market, the deals are still out there. It's just the premium deals are harder to find. So we are 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 are talking to investors that we have talked to for a long time and we are 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 are still going to pull the levers as we see changes in those markets. But fundamentally I think the specialty businesses that we have done in the past will continue to grow and I think Keene gave you the guidance that we are confident in.

Okay. I got you. Perfect. Thanks, Scott. And maybe the last two things and I will hop off was the -- Keene, you mentioned this and 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 the last one was just on M&A, obviously you guys will hopefully get the deal closed here in the first quarter and move on but just, big picture -- I guess are you still looking -- opportunistically looking for additional M&A? Or has anything changed following the transaction or hopefully the consummation this quarter, but just kind of the outlook in general on M&A?

I will hit the margin quickly. I think we're optimistic about the impact of rates. I think I gave you some perspective on what proportion of the portfolio it effects. We say it is going to be a handful of basis points over the next couple of quarters. I'm always reluctant to give guidance that is less than 5 basis points because it seems very precise and scientific.

But we feel good about getting back to maybe the level that we were at pre sub-debt offering and then purchase accounting will play into that and we will 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.

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

Alright. That is all that I had, guys. Thanks and nice quarter.

Thank you.

[Peyton Green].

Thank you. Good afternoon. I was 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 CNI customers' desire to borrow money? Or is that still really dependent on market share mining for the most part?

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 has accelerated development, particularly in the urban core in Kansas City and just 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 business is I think, again, we will continue to stick to our netting 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 changes to the model. Just disciplined calling and strong fundamentals.

Okay. So if the economy picked up that could be -- that could drive upside.

That could be upside. Right.

But none is factored into the core kind of 10% plus guidance.

No.

Okay. And then for the acquisition -- so you've got shareholder approval, what approvals are you waiting on?

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

Okay. And the conversion -- if you can remind me again of 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 are 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)

Michael Perito.

Thanks. Just a quick follow-up for you, Keene. I was looking through the slide deck from the JCB acquisition. And it seems like the share count, the 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 thought process on the shares issued 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 to be fixed, getting the earn back to be fixed. But we all benefit from better banking environment and presumably what we are 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 are buying we think is probably more value going forward as well. So we still feel pretty comfortable about it. And I try not to second-guess myself too much on that one. (laughter)

Totally get it. I just wanted to clarify. Thanks.

Thanks, Mike.

And t this time it appears we have no further questions.

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 concludes today's program. Thank you for your participation.