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Enterprise Financial Services Corp (NASDAQ:EFSC)
Q4 2019 Earnings Call
Jan 21, 2020, 3:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the EFSC Earnings Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Jim Lally, President and CEO. Please go ahead, sir.

James B. Lally -- President & Chief Executive Officer

Thank you, Todd. And good afternoon and welcome to our fourth quarter earnings call. I appreciate all of you taking time to listen in. Joining me today on the call is Keene Turner, our company's Chief Financial Officer and Chief Operating Officer; and Scott Goodman, President of Enterprise Bank & Trust.

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 release were furnished on SEC Form 8-K this morning. 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.

2019 was a pivotal year for Enterprise Financial Services Corp. We expanded our geographic presence into New Mexico with the acquisition of integrate -- an integration of Trinity Capital. We organically grew the balance sheet, quality loan and deposit growth and strategically managed our capital to provide a high return for our shareholders.

The following are just some of the highlights. During the year, we earned a net income of $93 million or $3.55 per diluted share. We organically grew our loan portfolio by 7.5%. As I stated previously, we had a successful integration of Trinity Capital, our company's largest acquisition. Outstanding attention to net interest margin and expense control, which contributed to an ROAA of 1.55% excluding merger cost. The fourth quarter was equally spectacular as we posted record earnings per diluted share of $1.09. The quarter was highlighted by solid growth in loans and deposits when annualized, these results were 7% and 10% respectively. We further scaled our investment in technology and people, which drove an attractive ROAA of 1.58% and ROATCE of 19%. Scott and Keene will provide much more details on the solid results.

Our financial scorecard can be found on Slide 3. Compared to a year ago, we were able to grow our earnings per share by 7%. Contributing to these strong results was our ability to grow net interest income dollars by 22%, despite the compression of our core net interest margin, which fell by 13 basis points. Certainly the growth attributable to the Trinity merger helped, but our leadership team was assertive and prudent in pricing loans and deposits during a very turbulent year. Credit quality remains a hallmark of our company, despite a modest uptick in NPLs compared to last year, at 50 basis points we still compare favorably to our peer group. Additionally, we are not worried that this is a trend as much of this represents one credit that we feel we resolve given the relative reserve provided in previous quarters.

As I have mentioned on previous calls, we constantly strive to incrementally improve our business. This is evidenced by our strong operating leverage. This has become a way of life at Enterprise and I'm positive that we will continue to improve in this area during 2020. Finally, several years ago we set out to improve the cost and composition of our deposit base. The Trinity merger has certainly enhanced this and can be seen by the impressive increase of 26% in this space when compared to last year.

Slide 4 reminds you as to where we are focused. As I stated previously, the integration of Trinity to date has been successful. We are well positioned in our market and our newest market to serve these communities well, and continue to find ways to enhance our already strong business. After a slow start in 2019, we finished the year with three strong growth quarters. This growth was achieved while not compromising credit or pricing disciplines. Our efforts to improve our sales and operational processes are working. We will continue to further leverage our investment in these areas to improve its already strong results in the coming years.

As it relates to our 2020 focus, achieving our organic loan and deposit goals is paramount. This will be done through further refinement of our sales process and require all regions and business lines to contribute. Finally, we will heighten our focus on continuous improvement in all the other facets of our business both on the front and the back ends.

I would now like to turn the call over to Scott Goodman, President of Enterprise Bank & Trust, who will provide much more detail about our company and about our business lines.

Scott R. Goodman -- President, Enterprise Bank & Trust

Thank you, Jim, and good afternoon. Turning your attention first to Slide number 5. Loan growth for the year was $964 million or 22%, inclusive of the loans attributable to the Trinity acquisition. Net of Trinity at 12/31, loan growth was in line with expectations as balances increased $324 million or roughly 7.5% in 2019. Q4 was also solid with 800 -- or I'm sorry, $86 million of loan growth or approximately 7% annualized. The improvement from Q3 is mainly due to higher line usage from C&I clients, seasonal upswings in specialty lending, funding on commercial real estate development loans and lower levels of payoffs.

As Slide number 6 shows, we continue to emphasize C&I lending in our business model with solid growth posted for the year and for Q4. C&I loans are up 11% year-over-year in this category and 8% net of Trinity. Breaking this down by category on Slide number 5 -- I'm sorry, Slide number 7. We experienced growth for the year 2019 in nearly all business units. The large increase in investor commercial real estate is primarily attributable to the integration of the Trinity book as is the growth in residential real estate. Net of Trinity, growth was more equally balanced between general C&I and CRE. We continue to play strategic emphasis on adding and growing C&I relationships, which can be retained over time and deepened through our proven model of best-in-class client satisfaction.

Commercial real estate and related construction and development loan growth remains focused on our core geographies and leverages our relationship philosophy of aligning ourselves with key investors or developers where we can be a significant strategic partner. Within the specialized categories, loan balances for enterprise value lending or EVL declined by $37 million in the year, due mainly to higher levels of paydowns associated with the sale of platform companies by our private equity sponsor clients. Originations were also modestly down early in 2019 compared to prior years.

We rebounded in Q4 with growth in this sector, aided by typical seasonal activity and lower payoffs. We have seen more diverse competition in this segment from local community banks as well as non-banks, resulting in some credit terms which fall outside of our risk profile. We believe that is particularly important to maintain disciplined credit standards in this segment, including focus on firms using the SBIC based model and proven partners with solid track records.

The tax credit business grew by nearly 12% or $31 million for the year, bolstered by Q4 momentum in the LIPF sector. This reflects the ramp up of activity with long-term key partners through experienced experts and who continue to expand affordable housing programs in states where demand for this product is strong.

Life insurance premium finance posted a strong year with $55 million of growth. Seasonally, we saw more activity a bit earlier in the year during Q3, reducing net growth in the fourth quarter. Earnings for premiums on existing policies came in as expected during Q4 but growth was also slightly offset by a large payoff.

Within our business units shown on Slide number 8. All loan portfolios outside of the legacy Trinity book in New Mexico posted growth for 2019. For Q4, specialized lending posted the majority of its growth in this quarter based on the aforementioned factors as well as elevated activity in aircraft finance and seasonal upswings. The St. Louis market grew by $151 million or roughly 6.5% for the year, including $43 million in the quarter. Q4 origination activity was strong and included a good mix of C&I and CRE opportunities with both new and existing clients. Larger fundings relate to new relationships in the ag space and commercial real estate investment as well as new borrowing requests from several clients in the packaging and power equipment distribution industries. The elevated payoffs that we had experienced earlier during 2019 in St. Louis also diminished this past quarter.

Kansas City closed out a record year for loan growth with a solid quarter. Loans grew by $97 million or 13.5% year-over-year and $31 million or 15.7% annualized in Q4. Originations were solid in Kansas City as well, including a large new relationship with a retail and distribution company in the food industry as well as new CRE loans for acquisition and expansion in both the investor and owner operator categories.

As I've mentioned previously, we've been able to capitalize on competitive disruption and our growing brand in the Kansas City market to attract numerous experienced bankers to our team over the past few years. Growth is a reflection of this investment in talent and their ability to operate successfully on our platform.

Arizona also had a good year in 2019 posting loan growth of $38 million or nearly 11%, including a small increase of $4 million in Q4, following a robust third quarter. Most of the activity in this quarter was around commercial real estate investors and construction fundings. We will continue to leverage key client relationships in Arizona by lending into expansion and construction opportunities which support a higher growth economic environment in this market. And while CRE is an important component of our strategy here, we also intentionally prioritize C&I balance in that portfolio, which has been a meaningful portion of our growth in Arizona for 2019 as well as the focus of our talent and new relationship development process going forward.

For 2020, work in New Mexico will be centered around retention of the high value deposit base we acquired as well as development of loans growth strategy that better aligns this region with our core competencies and leverages the dynamics of the business community in this region.

In the short run this has resulted in modest an intentional runoff of the loan portfolio here, mainly in transactional, out of market commercial real estate and portfolio residential. On the flip side, we're seeing opportunities to increase business with the majority of the other borrowers mainly in Albuquerque and Santa Fe as they get comfortable with the Enterprise story and understand our elevated capabilities around credit capacity, specialized lending expertise and treasury management.

Deposit growth which is summarized on Slide number 9, was 26% year-over-year inclusive of the Trinity book and a more modest 3.5% organically net of Trinity at 12/31. This lower than historical organic growth mainly -- mainly reflects the addition of over $1 billion of low cost funds in New Mexico, which provided a solid cushion to enable our teams in the other markets to more proactively manage our deposit costs and focus on high-value deposit relationships rather than just growth in dollar balances.

Keene will provide more detail on just how this manifested itself within our financial performance. That said, we did grow core deposits by $140 million or 12% annualized in Q4, representing continued strong execution in core deposit inflows from the commercial and business banking lines. The emphasis from our teams on new relationships and lower cost transaction type accounts is positively impacting mix as DDA remains at 23% of total deposits. Deposit inflows associated with new accounts, continue to outpace those of closed accounts, and the average rate of the new funds is coming in below that of the outgoing balances.

At this point, now I'd like to hand it off to our CFO, Keene Turner for his comments.

Keene S. Turner -- Executive Vice President & Chief Financial Officer

Thanks, Scott. Our fourth quarter results were solid and represents a strong finish to 2019. We'll refer to Slide 10, where we show the full-year changes in EPS. Net income was $93 million in 2019 or $3.55 per share compared to $3.83 in 2018. Revenue was $288 million, an increase of 25% from the prior year. The increase in the operating revenue reflects the combination of our organic growth and the Trinity acquisition that increased earnings per share by $0.81. Noninterest expense from -- reduced EPS by $0.43 with a net add of $0.38 per share or approximately 10% to 2018 level. In addition, merger related costs of $18 million reduced EPS by $0.47 that will not reoccur.

Our tax rate in 2019 was higher than 2018, primarily due to certain tax planning opportunities that were only available to us in the prior period. The net result is that we continue to operate the business in an efficient and effective manner, and we utilize the strength and diversity of our business model to continue to add to our earnings power. In 2019 that was approximately 10%.

To summarize, our return on average assets for 2019 was 1.35% and our return on average tangible common equity was 16%. Excluding merger related items, our return on assets improved to 1.55% and we delivered an 18.5% return on tangible common equity. During the year we demonstrated our capital flexibility. We leveraged $37 million with the cash portion of Trinity. We returned $17 million or $0.62 per share in dividends to our shareholders, and we repurchased over $15 million of common stock. Combined with the capital utilized to support our organic growth, we leveraged our return to shareholders by a total of approximately $115 million of capital and our tangible common equity ratio still increased from the prior year to 8.9%. This not only demonstrates the capital optionality that we expect to continue to maintain, but it also demonstrates the high quality return profile we have built over an extended horizon.

Turning to Slide 11. In the fourth quarter, we reported net income of $29 million or $1.09 per diluted share. Our results were reflective -- were relatively stable with the linked quarter with a return on average assets at 1.6% and our return on average tangible common equity of 19%. Worth noting, our fourth quarter performance was largely from the core business lines whereas the third quarter included some gains from our non-core acquired assets that reduced the quarterly comparison by $0.04 per share.

Growth in our earning assets and focused approach on managing deposit cost neutralized the impact of the decline in LIBOR on earnings per share. Tax credit income was seasonally strong driving a $0.03 per share improvement in noninterest income. Noninterest expense included a writedown of an ORE property in the fourth quarter resulting in $0.01 decreased from an EPS and noninterest expense. And our share repurchase from the third and fourth quarters combined with a slightly lower tax rate improved EPS by about $0.01 per share. The other items, provision for loan losses and merger related expenses combined to increase EPS by $0.02 as we did not recognize any merger-related expenses in the fourth quarter.

Turning to net interest income on Slide 11. On the core basis, net interest income was stable with the linked-quarter at $61 million. Core net interest margin was 3.64%, a decline of 5 basis points in the linked-quarter. Lower yields from the 25 basis point decline in one-month LIBOR were offset by lower customer and wholesale funding costs that typically lag rate moves on the loan side. We actively manage our deposit rates to reduce the overall cost of funding, while being mindful of maintaining our customer relationships. This resulted in a 12 basis point decline in the yield on transaction accounts and a 32 basis point decline in money market yields from the third quarter. Our total cost of deposits was 81 basis points, down 13 basis points from the linked-quarter. We also benefited from a seasonal inflow of deposits in the fourth quarter as Scott noted, and reduced our wholesale borrowings in the associated higher cost bonds accordingly.

I'd point out that we typically do see some deposit outflows in the first quarter as commercial clients make tax payments and year-end distributions. Nonetheless, we're encouraged by our ability to maintain our earnings power despite continued pressure on our loan yield. As LIBOR rates have continued to decline since year-end, there may be some slight compression in margin in the first quarter. However, in general, we expect margin to stabilize in 2020 as an additional material movement in interest rates. Our focus is to continue to expand net interest income dollars by delivering quality loan and deposit growth. With the momentum from the third and fourth quarter we believe that we're well positioned to deliver high quality results for shareholders in the upcoming year.

Turning to Slide 12 and our credit trends. Loan growth of $86 million and 19 basis points of net charge-offs resulted in a provision for loan losses of $1.3 million. While net charge-offs increase and improvement in substandard and classified loans reduced the overall provision requirement, our nonperforming loan level did increase during the quarter due to one $13 million loan that was placed on nonaccrual. This did not significantly impact the provision for loan losses when it went to nonaccrual as the reserve has been primarily established in prior periods. That reserve is approximately 10% of the balance noted. This reflects our posture in the current credit environment to aggressively manage and push out credits such a weakness and have management teams that are unable to resolve them.

On Slide 13. Noninterest income increased $0.8 million from the linked-quarter from another strong quarter in tax credit income. The majority of the income in the fourth quarter was through the brokerage of on-balance sheet Missouri state tax credits. Swap fees from transactions with our loan customers were $0.8 million, the best quarter we've had ever with this product. It's worth noting the linked-quarter had approximately $1.4 million from non-core acquired loan workout income and gains on investment sales that somewhat masked the current quarter growth in noninterest income. We also realized approximately $0.1 million of annual tax planning fees from our wealth division in the third quarter that contributed to the linked-quarter decline. 2020 is expected to have similar fee income growth in the high single-digits from -- as we experienced from 2017 to 2018.

Operating expenses on Slide 14 were $38.4 million for the fourth quarter and in line with our forecast. As I previously mentioned expenses included $0.8 million from the revaluation of an ORE property, and we did not incur any merger related expenses in the current quarter. We did benefit from a reduced assessment due to the FDIC credit that will also have a small benefit moving forward into the next quarter. Core efficiency resulted at around 51%, down 1% from the linked-quarter.

We'll wrap up on the final slide. 2019 was a record year for us across a number of fronts. We strategically grew the balance sheet by 30% to $7.3 billion to end the year. We improved our liquidity position with a lower cost deposit base, while maintaining our already strong return profile. We utilized our capital flexibility to translate our return on assets to returns for our shareholders. The acquisition of Trinity will benefit -- benefit us for the full year of 2020, and we are well positioned to execute on our strategic initiatives.

With that, we'll now open the line for analyst questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll take our first question from Jeff Rulis of D.A. Davidson.

Jeff Rulis -- D.A. Davidson and Company -- Analyst

Thanks, good afternoon.

James B. Lally -- President & Chief Executive Officer

Hi, Jeff. How are you?

Jeff Rulis -- D.A. Davidson and Company -- Analyst

Doing fine. Thanks, Jim. The -- I guess a couple of questions for Scott on the -- could you remind us just with the aircraft finance book, the size of that again?

Scott R. Goodman -- President, Enterprise Bank & Trust

Right now, I believe it's roughly in the $90 million -- $80 million to $90 million range. It -- I'll remind you on that sector. A majority of the business is with aircraft dealers and who take aircraft in on-trade and we floor plan it. It's really a fee driven business. We also or occasionally finance aircraft for owner operators who use the aircraft in their business, that's a little less of the strategy. But in the fourth quarter, we did get some growth out of doing some aircraft that remained on the books. So -- but overall we really view that -- this as a fee business.

Jeff Rulis -- D.A. Davidson and Company -- Analyst

And your comments on the New Mexico market is sort of longer term hope for growth. In short-term, some expected run-off. I guess the trade over point of when could you expect some more near term compression out of that book or is that largely flushed out in the -- by year-end?

Scott R. Goodman -- President, Enterprise Bank & Trust

You're talking deposits, I assume, right?

Jeff Rulis -- D.A. Davidson and Company -- Analyst

Well, really on the loan book. That's what I thought when you were on that slide that you're referring more to the loan side, running some to non-market -- out of market CRE out of the...

Scott R. Goodman -- President, Enterprise Bank & Trust

I'm sorry, right. Right. Yes, they had used the strategy for loan growth, which was doing some of that non-end market, single-tenant CRE and also more aggressive on the portfolio residential. And so, yes, I think what you're seeing is a little bit of a trade-off of leveraging funding into more of our core strategies, getting their clients more used to what we can do for them. So I think from here on out, I would expect it's primarily going to be stabilized in growth. A good number of their clients can leverage our larger balance sheet and we've already got new transactions in the pipeline for good long-term clients from that bank.

Jeff Rulis -- D.A. Davidson and Company -- Analyst

Okay. Thanks. And Keene you mentioned the fee income growth overall, I guess if you were to look into that tax credit income line, I think it exceeded expectations in '19. Any thoughts on that specific line item for 2020?

Keene S. Turner -- Executive Vice President & Chief Financial Officer

Yes. I think we expect a similar trend. I think we said it was going to be 20% to 25% growth from '18 and '19. I think certainly we're targeting a 20% growth on a larger base in '19 to '20. So we've got some good momentum there. I think the only -- but for is that's going to be a little bit lumpy throughout next year. So first quarter will be not as robust as the fourth quarter, but I think we've also made some strides in getting some fee income into the earlier quarters in '19 like third quarter and second quarter. So we're optimistic that over time as we ladder of that business and we'll be able to make it a little bit more repeatable. But overall for the year, I think we expect a similar kind of 20%-ish growth rate there.

Jeff Rulis -- D.A. Davidson and Company -- Analyst

Thanks. And last one for me. Keene, just on the -- I think on the provision or the CECL update you mentioned on the Q3 call that you might be able to provide a little more color. I think you mentioned that I think -- if we were to just double the PCI loan loss allowance currently, and then I think the other comment that you made was that might be moderated by kind of a short-term C&I book overall. So, any thoughts on the provision relative to the CECL day one accounting?

Keene S. Turner -- Executive Vice President & Chief Financial Officer

Yes. So there's a lot there. Let me try to give you some color and then I'll give you guys a chance to follow-up. So right now, our estimate for CECL adoption is that it would increase the allowance by 50% to 65% and that's reflective of a pretty decent amount of loans that were purchased. So what you reflected as the PCI and the day two that's going to lever about 25 to 30 basis points of tangible capital. And then obviously there'll be some loans that based on the way the standards are written will likely take out a full accounting, so you're going to get a little bit of an elevated number of classifieds and some more noise in nonaccrual or non-performing loans. So just be prepared for that.

And then I think moving forward from a path rated loan origination perspective, I don't think much changes in terms of the world for us. I think you're looking at, back of the envelope about 1% on new loans and then the rest would be how it migrates, maybe a little bit better, maybe a little bit more stringent depending on what the complexion of growth looks like, but I think that's a pretty good starting point.

Jeff Rulis -- D.A. Davidson and Company -- Analyst

Okay. All right. Thank you.

Keene S. Turner -- Executive Vice President & Chief Financial Officer

You're welcome.

Operator

[Operator Instructions] We'll take our next question from Michael Perito, KBW.

Michael Perito -- Keefe Bruyette & Woods -- Analyst

Hey. Good afternoon guys. Happy New Year.

James B. Lally -- President & Chief Executive Officer

Same to you. Thanks, Mike.

Michael Perito -- Keefe Bruyette & Woods -- Analyst

Thanks for taking the questions. I want to start on the $30 million credit. I realize you're probably somewhat limited in what you can say, but I was curious if you could maybe just give us some broader parameters about what that credit was? What line of business it was housing? Where it was and maybe just a little bit more color about what kind of went negative to drive the downgrade in the quarter?

Scott R. Goodman -- President, Enterprise Bank & Trust

Sure. This is Scott, I can help you with that. I think it's Keene that said it was in the C&I portfolio, it's a long-term St. Louis based client in the manufacturing industry. And they've been negatively impacted by kind of a few concurrent issues, mainly with stress related to revenue tied to the oil and gas industry, along with kind of simultaneously a management dispute, an ownership transition. So I think bottom line is we -- we've had this in our workout group now for probably 18 months or so, and feel very well secured on the credit. And I think we just felt in a position at year-end where we were already reserved at proper levels and could go out and apply their payments to principal, and as identified several viable options I think for collection that can happen in the short run.

Michael Perito -- Keefe Bruyette & Woods -- Analyst

And when you say you guys are secured is to collateral primarily real estate?

Scott R. Goodman -- President, Enterprise Bank & Trust

It's a combination. It's a combination of equipment, real estate and receivables. But hard collateral makes up the majority of the base.

Michael Perito -- Keefe Bruyette & Woods -- Analyst

Okay. And then just -- with regards to obviously some of the management succession stuff would be unique, but it did sound like there were some broader environmental things that might have negatively impacted them. Two, is there any other slivers of the loan portfolio that could have similar stresses. And is that something that's being looked at or not quite so?

Scott R. Goodman -- President, Enterprise Bank & Trust

Yes. As it relates to this particular credit, no. I mean if you look at the -- the revenue stress was really related to what you saw happening in oil and gas over the last few years and that's not an area that we aggressively lend into. We don't have any material concentrations there.

Michael Perito -- Keefe Bruyette & Woods -- Analyst

Okay. And then more broadly if we take a step back, does the credit outlook remain pretty steady. Jim, Scott, I mean any just updated broader thoughts. I know you made some comments in your prepared remarks, but just maybe get a little bit more specific for us and any areas of concern where you're pulling back or does it generally still feel like a pretty safe environment to be kind of growing the loan book at the targeted rates that you guys are putting out?

James B. Lally -- President & Chief Executive Officer

So, my guess, this is Jim. I'd say we feel very good about the areas that we're in currently. I think in past calls, we've talked about certain sectors of multifamily or certain sectors of senior living that if they're not already a key client of ours, we're not looking for new ones necessarily there. But as it relates to any particular industry or what have you will be business as usual for us.

Scott R. Goodman -- President, Enterprise Bank & Trust

I would just add, we feel good about the fundamentals of the book. Classifieds were actually down. I think we feel good about where charge-off levels and past dues ended up. So all in all, I don't think there are any systemic issues.

Michael Perito -- Keefe Bruyette & Woods -- Analyst

Great. Helpful. And maybe we'll move on to a couple of other items I want to hit. Keene on expenses, I think the near-term guidance was 37% to 39%. And you guys are a little over the midpoint of the fourth quarter. As we think about the first quarter, I mean, my guess is there some seasonal items that could drive that number higher. Is that a fair way to think about it? And then as we move out beyond the first quarter, maybe just a broader question, I mean how should we think about expense growth for Enterprise moving forward? I mean you guys have obviously done a great job pulling the efficiency ratio steady for almost three years now, but still very much in a growth mode. I mean is it a 4%, 5% number, is it a 2%, 3% number. How do you guys kind of think about it as you completed the budget for 2020?

Keene S. Turner -- Executive Vice President & Chief Financial Officer

Yes. I think if you look at from a run rate perspective Mike, I think it's a pretty modest low single-digit number. I think if you look at from a merger math number, just like the revenue line items it's going to be a higher number. But, I think our current range for 2020, I think we'd move that range up $1 million bucks. So I think we'd be at more like 38% to 40%. Certainly in the first quarter, you get a little bit of seasonality with typically the way employer payroll taxes work and some other items. But then I think you would expect the expense line item to behave like it has in prior years. So I think we've had a lot of success in kind of having a flat first and second quarter and then to the extent that we're able to get out and execute on our plans. I think you see a little bit of an uptick and you'll probably start to move up toward the -- that $40 million part of the range as you range throughout 2020. So that's how we think about it.

Now with the overlay that we're going to really work hard and try to be thoughtful and we're positioned in 2020 to try to really get some growth early on here. Hopefully we've stabilized NIM and we can get some revenue expansion, what I'll say is in the first half of the year and that will allow us to maintain generally the efficiency ratio moving forward. So I think if you can grow the loan book, managing them effectively and hold marginal efficiency at 50%, I think we'll be set up for a pretty decent 2020. So that's where we've got our sight set.

Michael Perito -- Keefe Bruyette & Woods -- Analyst

Got it. Very helpful. Thank you. And then just last one from me, and I'll step back. Just Jim, on capital. You guys have been pretty balanced in your approach there. I expect that kind of just a short answer, but just any updated thoughts for 2020 on kind of at the beginning onset here of how you're planning to deploy capital which obviously could accumulate quite quickly, given where your returns are?

James B. Lally -- President & Chief Executive Officer

Yes. I think we said in the past, Mike, we're -- obviously growth is our number one objective. And certainly if there is an opportunity to improve our company through M&A, we would look at it seriously. And then we've been, I guess, we've done very well in terms of some buybacks and then recently we improved our dividend, but I think it's a combination of the four levers like we've used in the past and be opportunistic as those come about.

Michael Perito -- Keefe Bruyette & Woods -- Analyst

Got it. Helpful. Thank you guys for taking my questions. I appreciate it.

James B. Lally -- President & Chief Executive Officer

Thank you.

Operator

Thank you. We'll take our next question from Andrew Liesch of Piper Sandler.

Andrew Liesch -- Piper Sandler -- Analyst

Good afternoon, guys.

James B. Lally -- President & Chief Executive Officer

Hi, Andrew.

Andrew Liesch -- Piper Sandler -- Analyst

Hi. You covered most of my questions already, but just wanted to focus on the loan growth guidance for next year. I mean how do you -- if you can see like where the pipeline is right now, and it sounded like maybe payoffs were a little bit lighter in this fourth quarter compared to previous quarters. There also like you're going to try to get some growth here in the first quarter, like first quarter sometimes tend to be a little bit tougher for you guys or for the industry. So how do you feel about growth like playing out throughout 2020? Will it be heavier in the first part of the year compared to previous years?

James B. Lally -- President & Chief Executive Officer

Well, I'll try to jump in there. So I would say this, we feel good about the momentum that was carried over from '19 into '20. As you know, our portfolio is something that as it relates to fundings really we have great visibility maybe 65, 70 days out. So I can't really comment about second half of '20, but certainly feel very good about the guidance we provided and where we stand today relative to the first quarter.

Andrew Liesch -- Piper Sandler -- Analyst

Okay. That's helpful. And you've already have covered all my other questions, so I will step back.

James B. Lally -- President & Chief Executive Officer

You bet. Thank you.

Scott R. Goodman -- President, Enterprise Bank & Trust

Right. Thanks Andrew.

Operator

[Operator Instructions] We'll take our next question from Brian Martin of Janney Montgomery.

Brian Martin -- Janney Montgomery Scott -- Analyst

Hey guys. Good afternoon.

James B. Lally -- President & Chief Executive Officer

Hi Brian. How are you?

Brian Martin -- Janney Montgomery Scott -- Analyst

Good. Thanks. Hey, can you guys give any thought on just kind of the New Mexico as far as kind of what your outlook is and you gave -- started to give a little bit of color on that but just how you're thinking about that in the growth in -- or maybe in 2020, I guess relative to what the paydowns you've seen or kind of the intentional decline thus far?

Keene S. Turner -- Executive Vice President & Chief Financial Officer

So, Brian, this is Keene, I think just stepping back. Certainly, we had a bit of a transitional year as you convert systems and things like that, and I think we ended the year at a good spot. I think from an overall perspective, I think what you heard from Scott is first and foremost, defend what we've got on the deposit front there and then I think that we've spent enough time planning and looking at what the opportunities are to have some modest growth in that region in 2020. I think we had modest net growth with the complexion of that portfolio. I think we would overall be in good shape.

But I would just step back and reflect that the way we've built our company, it's diversified by region that's diversified by specialties and how we set out the year in the plan usually doesn't wrap up the way it culminates, but we typically get there because something stronger than we anticipated and somethings maybe not as strong. So I think we have a lot of optimism there particularly in Albuquerque and I think it's relatively stable in Los Alamos and Santa Fe, and I think that -- if we're able to sit here a year from now and say that that had low single-digit growth, I think we'd be pretty, pretty pleased with that. And I think that wouldn't see our expectations and we have great momentum moving into '21.

Brian Martin -- Janney Montgomery Scott -- Analyst

Okay. And it sounds like the pipeline is in pretty good shape. If you're, -- it sounds like you're a little bit more optimistic your growth is earlier on, or at least better quarter to start the year versus maybe what you had a year ago. Is that fair to say by your comments?

Scott R. Goodman -- President, Enterprise Bank & Trust

Yes. I think if you're talking overall portfolio, I think that's a fair comment.

Brian Martin -- Janney Montgomery Scott -- Analyst

Okay. All right. And then just some housekeeping. On the buyback, what remains in the buyback. And I guess would do you think about increasing the authorization or I guess where does that stand today?

James B. Lally -- President & Chief Executive Officer

Yes. So I think we've got, Brian, about 300,000 shares left. Certainly we're getting kind of down to the end on that, but that's just something that we'll look at in the upcoming cycle here as we transition from our budget to our capital plan. So there is ample shares there for us to execute here in the near-term and moving forward from there. Then we're hopeful that we'll find some balance of M&A and buyback to manage our capital in the upcoming year.

Brian Martin -- Janney Montgomery Scott -- Analyst

Okay. And any changes on M&A just kind of the pipeline there, just the discussions how that's faring these days?

James B. Lally -- President & Chief Executive Officer

You know there is any significant change there. No, I think it's similar. We talked about before that there are certainly a lot of companies out there that are looking at their long-term plan, and I think they see teaming up with the company as likely as going independent. And so we've had conversations like we've had in the past with several businesses in all of our regions.

Brian Martin -- Janney Montgomery Scott -- Analyst

Okay. Right and...

James B. Lally -- President & Chief Executive Officer

Brian, I apologize, I misread a number. We've got about 550,000 shares there on the repurchase. I just want to make sure that's a practice.

Brian Martin -- Janney Montgomery Scott -- Analyst

Yes. No problem. Okay and then Keene you said just as it relates to the two things, the accretion and then the NIM outlook. The accretion any -- what remains on that as far as how to think about modeling that?

Keene S. Turner -- Executive Vice President & Chief Financial Officer

Yes. I would think so you've got a 3.64% and 3.68% core and reported margin. I think we're at a point where we're going to have to look at when we adopt CECL whether we want to continue to break those out or just describe what's happening in the reported NIM, but somewhere in the middle of that, I think it's core NIM plus $0.01 or somewhere in -- as a midpoint of those two numbers, where you can feel pretty good, but just know that our outlook is try to stabilize essentially both of those and grow net interest income dollars from there. So we're probably going to be at a point where at $0.01 a quarter of non-core acquired. It may move the needle at any given point in time during the year if there is an acceleration and a payoff based on how CECL gets applied, but it's probably not that much of a magnitude as it was in 2019 even.

Brian Martin -- Janney Montgomery Scott -- Analyst

Yes. Got you. Okay. And then last one was just a swap income, I think you said it was at a pretty high level this quarter. I guess is that given the rate environment maybe stabilizing here. I guess is that something you continue to expect to grow or is that?

Keene S. Turner -- Executive Vice President & Chief Financial Officer

Yes. I think we'll continue to emphasize use of swaps in this environment and I think it's -- it might be a little lumpy quarter-to-quarter just based upon the type of transactions that we're doing, but I think our sales force understands swaps and I think it will be a valuable tool for us going forward.

Brian Martin -- Janney Montgomery Scott -- Analyst

Okay. And then that FDIC that comes back in the second quarter, is that what we should think about there?

James B. Lally -- President & Chief Executive Officer

Yes. I think for first quarter you'll still get a little bit of the current level where we're at and you'll have your seasonal payroll and then I think that'll help the transition from 1Q to 2Q when you resume the normal premium.

Brian Martin -- Janney Montgomery Scott -- Analyst

Got you. Okay. Thanks guys.

James B. Lally -- President & Chief Executive Officer

Thank you, Brian.

Operator

Thank you. And we have no further questions in queue.

James B. Lally -- President & Chief Executive Officer

Okay. Well, thank you all for joining us this afternoon. Look forward to speaking to you all again in the first quarter. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

James B. Lally -- President & Chief Executive Officer

Scott R. Goodman -- President, Enterprise Bank & Trust

Keene S. Turner -- Executive Vice President & Chief Financial Officer

Jeff Rulis -- D.A. Davidson and Company -- Analyst

Michael Perito -- Keefe Bruyette & Woods -- Analyst

Andrew Liesch -- Piper Sandler -- Analyst

Brian Martin -- Janney Montgomery Scott -- Analyst

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