Atlantic Capital Bancshares (ACBI) 27 Apr 182018 Q1 Earnings call transcript

Good morning. My name is Devon, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2018 Earnings Conference Call. All lines have been on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator like Gray the Fleming. now Chief over Risk Officer, to would call turn to I Mr. Fleming, may you begin your conference.

Thank for Corporate Executive. joining General Banking today thank Financial Oakes, Chief you, Services morning. Officer; and Rich Chief and results me Oglesby, Officer; Williams, our to you, With discuss Kurt Patrick Doug Executive Executive; Financial us Devon, this are everyone, Shreiner, our

release actual differ disclaimer dealing results with wish and in is of equally encourage that As caution release available disclaimer This information. the Capital made may a applies you the reminder, be to call. review section I forward-looking the Investor earnings to We the during in we’ll statements our materially. that this earnings website. statements this to Atlantic you Relations forward-looking in making call

earnings addition, including found In those our and about to discussions may references over I’ll be to measures our CEO, include And some measures. filings Doug in our non-GAAP Information financial Williams. turn the may release. reconciliation SEC with call GAAP that, to measures, in

double-digit but banking double-digit annualized and loans loan corporate year-over-year. and to net banking the continued everyone. throughout of percentage in initiatives our the These soft a corporate growth solid Gray, quarter, in activities, quarters. anticipate of occurred from in $X the per good and share share. – $X.XX improvement operating million Federal double morning demand into in teams the solid grew first expense or at income prior were the yesterday, loan After reported year. and XXXX higher severance yields business a you, quarter, Thank prior market quarter or close seasonally we next income business cost-reduction per of of and first percentage during growth According undertaken of Reserve million core our the diluted for diluted calculate XXXX, Atlantic data, – Capital loan excluding $X.XX and benefit at and $X.X quarter results results We solid reflect the net

demand over the growth loan year. expect and strengthen We balance the and of to accelerate

set our efficiency better our for throughout deposit The future increases from course to federal initiatives yields While highs of and in productivity funds growth apparent the and fourth solid the stage effect loan from and deposit two were five grew changes over net designed margin was is as rise changes from of seasonal enhanced margin relationship-based last effect should earlier clients rate result announced from our in initial this deposits year-over-year. company. the first quarters expansions. continue. results the The more and cost-reduction Capital deposits year, to average further visible cost. The We were evident in core at business well-established becoming believe increase of the become of cumulative years and initiatives a this pace year. These management will corporate and of over these year increases quarter at third Atlantic total rate last and and in last in interest quarter the the at we anticipate outpaced declined trends the year-end,

the financial the outlook the Oakes Pat will the Pat? about Now return for I review you. year. with comments will of some details for Then rest

Thank morning, everyone. good you, Doug, and

equivalent net an The interest our for tax the fourth X.XX%, basis margin quarter quarter. margin. with start was of points from me XX Let increase the

month in rate yields higher loan and higher LIBOR. the and the Funds from from yields quarter, funding costs. during investment benefited one we offset XX basis As increases increased Loan by points the Fed

billion and million to $XXX LIBOR tied in prime. month have loans of tied loans We one $X approximately to

taxes lower including to a tax investments less impact tax slower municipal bank The benefit to continue and rate in to increased from So equivalent yields basis days to points X we mortgage expect yield quarter, securities negative in on X.XX% on the due of the yield. any the and prepayments rates. by from two increases higher further offset

interest-bearing deposits increased basis of basis costs. in pressure XX experience continue as to point we quarter, cost on Our X points deposit to the

As quarters. at we on next growing to faster our continue deposit a focused the might cost deposits deposits see pricing, few over on and increasing pressure of pace increase

pace increase result, losses was rates. a NIM at in quarter. provision to with to in we As $XXX,XXX moderate additional The in $XXX,XXX the expand for a expect fourth loan the quarter compared our more each first

assets basis income points March quarter. totaled increase $X.X $X an $XXX,XXX the increase as million, quarter to quarter. fourth points, million, first strong recovery of $XXX,XXX basis charge-offs as were XX Non-interest X and were of non-performing XX. charge-offs compared totaled $XXX,XXX included an total quarter. from of to $XXX,XXX the net Credit quality remains the net assets a SBA The of fourth net fourth income from in annualized of

As added we I quarter, last this SBA the revenue are of team. trust quarter to from to our the and company, with part from results mentioned pleased replace have bankers first sale additional in lose we anticipate the

to million. and expect trust the sale the quarter, company to approximately We in result in late gain $X.X a close of second

expense $XXX,XXX income, expense is quarter. accounted we loss business. losing from employee trust benefited first for the fourth quarter, January. In savings and strategic a of – $X.X actions Salaries the as the $XX.X decrease, in in of the addition to from approximately discussed from will $XXX,XXX benefit a which of million expense we of the and we million the $X.X decrease totaled in Non-interest exiting million quarterly addition have to

million quarter and taxes. payroll seasonally $X.X severance salaries expense, higher in benefits first along included The with

than professional expenses compared We the first fourth in in and in a high other quarter lower quarter. from decrease normal benefited the to also fees, expense the unusually non-interest

during sale cost grew billion Trust of volatility along December our second fourth growth in from included of deposits Please levels. and our the some decreased quarter to held million write-down $XX banking expenses headquarters. the $XX C&I and at first nice with note, ORE loans Total of were increase quarter throughout from closed expect also Atlanta expense franchise the SBA $XX in in XX, previously the average as million $XXX,XXX Total moving seasonal from and including an normalized quarter First we Company, the the the investment a in corporate XX, first business. the branch. loans quarter our Atlanta that deposits additional quarter million, for of $X.XX of lines March more a temporary decreased

it back over turn I’ll Now Doug. to

Thank you, Pat.

of value performance. and continuing service by and Our teammates for clients, objective to to XXXX for shareholders our build a is culture develop purpose,

focus Tennessee for one, leverage our decisions the Our Atlanta several and Last year we on made in efficiency; improve the efficiency. of are: our businesses; invest realize two, model; designed business to realignment year businesses. of the four, benefits three, priorities high-growth our

reduced We businesses culture and opportunities. are to We’ve building non-strategic disciplined capital of the underperforming dollars redeploy to expense expense and exiting better and cost are in management.

decisions As I mentioned first periods. will the and in effect in results, is these subsequent visible become apparent earlier, of more quarter our

our bankers thresholds opportunity and XX Our those business Atlanta-based legacy to the become Atlanta over thresholds quite these of productivity. clear, leverage The bankers and successful more of added meaningful results. future couple and is reaching businesses last model will profitable. are cross operating maximize now as they years new apparent is our in in distinctive, We’ve

was businesses, The and been Some such as have and pace fiscal SBA payments of added months management. quick of treasury finance, team XXXX, for on is of of processor our #X are in for these a high-growth SBA, Georgia XXXX. six in in year those ACH these franchise setting national were and in payments the company. the We our rest top dollars payback bankers lent the bankers XX first investments

small we’ve and last ACE this of year, technology for successfully rollout companion, – exploring the introduced our of opportunities the broader treasury, capability. service I’m we’re banking ACE geography for enhance corporate capabilities of its business. ACE couple treasury ACE our We’re weeks, will management Last next businesses in also business we making infrastructure. investments sorry, In new for thousands innovative platform. generation banking for across for and enabling begun experience business for the small online business

reoriented and bankers couple hiring are Over offices, and months. added divesting new And closing capabilities We’ve service the significantly of our have franchise last markets over last they leaders introducing in approaching promotions. years, restructured these nine new productivity. and and Tennessee business and of bankers, XX new new thresholds by we the

have is an on objective modest outsized built to our will effect commercial and trends Even markets. grow our Our deposit branches those positive scale results. business Tennessee in reversal reported our of in a in

All economic a in are markets developments great occurring geographic of environment. these in favorable

XXX,XXX $XX,XXX markets – for capacity in are billion businesses markets average are investments they opportunities. them Act household has urban and There domestic Atlanta over new approximately more over address Tennessee three an of with Jobs December of over Tax markets, over outlook $XXX passed $XXX Cuts these and in managers, those the new for for for to and years, Our a population billion, bank next in the both in owners deposits. expansion. X.X markets income of improved help core considering X%. gross than and there exceeding $XX,XXX and five growth business and investment estimated capacity The We’ll in household be income product million projected the have

and the progress loan revenue of average into toward higher loan growth digits expansion, expense single earnings XX% high and translate and and margin disciplined improved growth than translate or see future growth. this or As margin and deposit expect in X% into year efficiency interest resulting we of should XXXX. in interest loan progresses, on solid year this return we our management, expansion, growth. ratio the next, net psychology should average increases in steady better will Core assets With rate in and and deposit better should less loan net demand

happy address be we’ll questions. Now to your

first Please of from Scouten Instructions] [Operator Sandler Stephen with the ahead. line go Your comes question O’Neill.

is line open. Your

pay around this maybe not curious quarters. bit morning? seeing the of this think you’re quarter, give you whether so guys. little are us production look last levels a around what I’m How like see especially year, far? the just growth. you at numbers if can based Question, you Hi, full of growth relative couple Doug, could some I Tennessee you for the in or is loan – kind down what within and to doing some this that on you CRE point, mean, net

get the Yes, me numbers front of in let me.

in was $XX of existing had we fundings loan million. the We quarter $XXX million. about of commitments and first payoffs million, just over under had production $XX New

– the or from up kind be will how air for is neutral And as you still I that year, detract slightly the of do see that some full about Okay. the where something you that in could whether mean think that’s piece, net to Tennessee growth growth? still

the we good. digits and will for course net be Tennessee. waited. see the we loan in In business contraction second I Tennessee. estate over hope the waited. in in on, we’ll real anticipate growth think, refinancing churn. quarter to We in quarter, high-single is the some high also the hope balances of as the have quarter, the and again, were loan for seem look level The see and the we refinancing growth in and but that year. a back be we quarter will saw decelerating some average our pipelines should the business related growth the In churn beginning And the year, to quarter growth related large seem growth year the second the the in better. loan went to expect continued of that a and corporate strong. production net back have to first the in in in second year But We The growth repayments we’ll think be That

Have your do competed any mean, on of, reform? that folks income maybe view? some And Okay. the in you changed tax wise. terms competition pricing being, you of are models or loans trends feeling pricing get already the of kind in people changes have post away loan how is seen pricing their additional I that

we that. that from period other tax transcripts any see don’t calls competition haven’t are intense really other additional reporting seen of the that. and a markets. We has I’ve competitive banks The operated pricing of bill. noticeable, from the in post trends are very deterioration noticed for time. We some These in been earnings well-established, considerable

is there. wouldn’t I pricing inflection say last the seen real point and think that in potential quarter. competition any we’ve I But

And for one one just Okay. maybe last me.

seeing to the you did in been with like the four look months. point have expense Just it some dislocation at given making of and this got the announced we’ve you advantage, team more kind on of more and initiatives the you Atlanta what three Do do months deal, CNS really over XX or guys look MSA, last you are to acquisitions lift-outs think talent, just continued was the ago, would or focused one-off take deals much efficient? that you you

on are, we course, improving of Well, our focused performance.

on We’re really continue ourselves our with opportunity pursue merger now, going focused great very we on And but and doing to bankers us both clients. improving right be for disruption there be focused But performance. is to a we’re that. opportunistically to

Okay.

it So would be large-scale to plans try but open do necessarily something... to not to any

I consolidation. you we to to good think this That’s very clients that to the as benefit we’ll add, people again the of mentioned those to aggressively. want say we’ll ready that opportunities hire, be it doing of we develop. doing and if we as and real best we be want that that see out if from benefited be before see we’ll benefit way is it we’ll that we one And opportunistic, good be comes

Fantastic, guys. it. thanks for the Appreciate time,

next of Brady ahead. the Your from go comes Gailey question KBW. line with Please

line open. Your is

Hi, guys. on Brady. Michael for is [ph] This actually

So members Are quarter. team the hire still the all the or you fees to team? you all that to with additional nice all expected SBA are you saw confident as of boost size in a SBA looking

first income it’ll added In banker. and Atlanta this going to In see add forward should quarter continue positive be quarter. Shreiner. have saw new quarter, you for this another similar this the We’ve two quarter. be this what Yes, business business very we that is Kurt the you bankers us, expectation to second we’ll

initiatives all Great, past were two branches the pipeline? you on expense that’s know in successful And this planning helpful. Chattanooga Was and are that I any consolidating quarter. there additional

Yes.

any did consolidate think is don’t did beside here. one I I close point, trust see think branches initiatives expense At the we growth of sale point, other going So to our you’re in company. significant another of the this branch. on into revenue this the or at focus Tennessee

Yes, sense. that is then, it taxes? That that the breakout, some lastly, just expenses impact $X.X severance higher the just And of wordings. payroll your makes to just does million or include clarify

No, just that’s severance.

Great.

question comes ahead. line with Jennifer SunTrust. Demba go Please the Your from of next

line Your is open.

the quantify better you. the get first personnel run we Good could idea of you Thank morning. Pat, on seasonal rate the cost so can impact for be? quarter a did us in of kind what

Sure. It’s roughly about $XXX,XXX.

else severance other there the cost? anything unusual Okay. expenses And is in the than

the was related to had branch down closed a and We got right-off. wrote had a the further. already That we we ORE and property new appraisal it on

only saw clean anything the low that would quarter I a is probably pretty besides come for quarter note Right, that. now the for quarter. the it higher, – bit, it’s was fees thing But typical professional you besides quite down

Okay.

see good to second and second it’s a what should in or think a impact? you the do the we – expect So more going quarter be third think still what you’ll going quarter a run forward should that rate quarter in we of rate you of run

just which impact rent is the expense and Atlanta quarter trust in sale whenever that. from will And there’s lot the of close to the quarter, be company, we expenses moving occur obviously, of Yes, do – base. probably second some the so we’re the the also additional problem our moving a which later is it’s going with noise headquarters, some expenses around expense,

it going in little second it was third $XX fall bit a can’t is it’s but hoping quarter actually second quarter, below the quarter. So tough. we – to get I might million, probably

this in you level? at of XXX, is there. average ROA happen What to we’ll about? talking are aiming XXX-ish, about with needs you frame Doug, Okay. tax the more that running the question. you year. All to X% goal time next said for reform to think up At do kind right. get industry ROA point, And One you be what

all of benefit help its And is average haven’t case get those with our effect of timeframe, course, the margin aware median really same. – respect rate tried quantify It’s earnings. which and XX% profitability, are, and in expense us expansion, it’s but of about will loan or tax the net there. reduction, on growth, we management I industry to tight earnings to industry profitability the deposit the things to more it’s

you on you’re headquarters, question, Can you from sorry. one and going just of square move – guys more coming cost both kind Can elaborate I’m ongoing? where and the it footage the with to one-time and associated

we’re Yes, – we’re so actually locations the but on ongoing to going cost three more is actually basically consolidating be into space, different because significantly one. we’re not taking

going I the So through this be same. all get the to think, of are we about materially expenses once

basis it’ll foot lower. be square per a On

more just obviously, little and move that we’re that’s to think going big. to expense for right with rent the the come you a of two, where expenses Right. or so I have moving stuff of bit, month double moving, would along did move some a this

You shouldn’t it expect a overall, a so. occupancy lower expense and material might increase be little

Right.

And your you Okay. ground are floor branch or? that building new to moving

Yes.

are. We

right. Okay. so Thank All much. you

of comes Steven ahead. Please Comery the question next Your line with Gabelli. from go

is Your open. line

Thanks Hi, get the end the much guys. loan for we my was variable wondering update could question. on if quarter? how I at maybe an of of book taking rate is the

to about And commented two-thirds that’s to I LIBOR, earlier, so tied one Roger. million-ish tied no another Yes, there billionish, prime. $XXX think, almost to is month that’s that’s floors numbers left right, those it’s

I point. So this pure just at think flooding rate

that. was the get and if strength growth. of And this I apologize for I kind loan just if could qualitative kind the we Okay. to of maybe geography of Doug, does. spoke maybe, Wonder wondering missed in then, I effects you feel a

Tennessee did shrink? like versus did the in much how much So Atlanta quarter how grow

Tennessee quarter. good had in a Yes, Atlanta We in growth businesses. growth I good in – and the our the national shrank businesses bit mean, the

C&I real estate the owner-occupied categories. in focused really and We’re

be parts I all just to sure expense. I then, want the have on And Okay. non-interest moving

$X.X the losing then, there benefit is trust though, payroll see is in from from you we there And taxes So won’t $XXX,XXX just that is the the quarter million about. change third right? severance, until the there talked business,

be the small but see the third benefit full will second in in that’s You’ll benefit quarter, a the quarter, correct.

Thanks. good. very Okay, had. That���s all I

Your next Please from Bush from line NAB go of the comes ahead. Nancy question Research.

is Your open. line

now And you kind going that’s Good stuff that just can what us pricing about talked on core relationships you’re focusing all morning, and their clients growth. those relationship-based deposits? Doug, on? with you gentlemen. And the kind expand tell core of having conversations deposit and of how to about

some very Yes, it’s operating It A a the and really corporate steady, up that demand we And expansion but others. this lot which shows deposits, of true – strength in is balances, of our relatively I of business. corporate strong up growth in of and core national time so true of trend low-cost. in the resilient. it’s in activity double-digits. got, capabilities. low shows competitive to And And exactly strong businesses treasury got relationship-based we’re payroll shows think we’ve businesses, markets it’s that our in and very it in And Georgia, of it we’ve we’ve is Over on increase local our aggressive is expand I increase very Tennessee, deposits. of think it continue some trends and management calling well-established business, we in up in our fees, what quarter-to-quarter want.

Atlanta everybody they in the saying this, and yesterday, think core are that is at after pretty your And deposits. market point. much competitors said heard going may you have One of this aggressively Atlanta I

mean, So protect conversations? you I on play what has these to to that just it defense – desk? how this? Is happened what do

We pricing more in and activity. retail small implemented particular, primarily in focused on business we’ve – Tennessee, some aggressive are promotions

the to it. think technology I competitive to those have effort we in I We I a of opportunities the respect, sustain to focus our corporate have we distinctive is frankly, think think a our are and And really alert a competition treasury in respect posture with wide pretty that and build having Georgia. But lead continuing certainly over business. can – we

the how just also remind right are final us and you few deposit quarters? betas just And Okay. now, what next Could and you they question. your expect progressed over a where

Sure. Deposit betas?

Yes.

years’ over I XX%, as XX% just but in to little beta deposit we the less about on the XX%, about not forward XX% on the average hopefully it’s So We loan move be – model that don’t we deposits. there, than last forecast going to expect bit higher first here. roughly us I get than been think quarter.

Okay, great. Thank you.

comes ahead. from the next with Raymond Please go James. William line question Your of Wallace

line Your is open.

– you just Pat, more Thank missed keep this, maybe was trying obviously, about was Was missed margin around bit – is margin. to suggestion you on but more it remarks but anticipate used. you. Good had and morning, from guys. the expansion the still the like up level, that thought you’re expecting I I sounds you little some part the a hikes, word that, I prepared you it, why? while Maybe moderate that – I a believe I that

Yes.

So price the – up asset continue still hike look, nicely. going is to to our

going deposit I what we’re think side. on probably see pressure more to is little the

quarters range a have X basis would a we funds their XX Look margin to we’re nicely. each that previously to I see that the points end seen increase points. in higher Fed basis you I think expand guide around After number expand range trying – that X I’ve lower than it lower we’re that going given margin the the increase just rather So to level. for struggle last to of end. two at to

Okay.

though that So still don’t you – it but like would – quarter saying the sounds up betas think XX%. are all to to you’re the jump second deposit going way your in

maybe it’s think point of than do already this or So ramp get maybe basis little hike bit and will in we like hike, range less it’ll little there four that then we a if bit if quarter? higher get think quarter, we’re in this another would it about you a down and June, we a kind

to tell trying the like. quarter by early what impacted expand lower beta it is, increase. the going you more to really out in which range. It’s going to going of still I’m on still know to that’s to see We’ll deposit kind in flushes quarters, What happens next few that pressure look it’s cost is where We’ll that is in margin. put what and to

Okay.

Okay, And the to a all just maybe put great. then on expense bow commentary.

kind expense any we about – why trust quarter, rent, got got cetera, that and the we’re if we’ve rate, the and we we’ve second a out forget move million-ish So talking of and normalized, double $XX.X the quarter shaking just out? are by et kind third from the about of is run when we’ve

would that in the how it think out. be I low end, but we’ll flushes see

million $XX than Less probably.

Yes. Less than $XX million.

all it. time, guys. appreciate Thank your Okay, you. That’s I right.

[Operator of the Marinac comes Instructions] Your FIG from from final go question line Christopher Please Partners. ahead.

is line Your open.

the corollary, Thanks, year know future, And I data of as see ago now should XX% And I Charlotte payment wanted amount is out. Where little get good where as ask number we that a should about but that percentage in morning, there you in the the the the and DDA clients changes, that higher that with you a curious, number guys. into Doug, we gave the a go? that kind go should have I’m go than to noise future? release. of cleaned

a lot the Charlotte the connection What’s You’re of payments? to asking there.

was clients… year-over-year the looking I at just

business, start with in. you join Kurt I’ll and payments So the can

that a really growing nice seeing We’re at is business pace.

that making higher deposit seeing to higher the fee quite choice at historically happening XX% and deposit is, to get we of with or is is, need pay year, paid fee rates, so income, what’s income. keep people we’re I that the nicely at think, seen per growth we’ve just I income more And business. by in growing deposits less are balances group fee this not and think that a happening what’s point

in of side. kind to the numbers but that why that’s on Anything else are income add that? So seeing flattish, fee is we

Chris, have we could calling clients. very aggressive see And and we winning efforts

balances choice So around the between it’s makes the fees. a holding fluctuating whether or paying client that number

we’re in and per fees. awarded – growth got of in shows some the big there the second change big And and very year, up we that volume pipeline stream sort of that And some think increase the a the balances, trajectory is XX% in piece start it but shows competitive will We’ve in distinctive of quite XX% added quarter. business and good can quarter. the is business. in that we’ve The up clip quarter-to-quarter, posture business solid first on of a right opportunities, of increased in got that mix just that coming we a to a

Okay.

see piece the – reflect category may we’re and income again the well? going going payment fee of then dollars the and So to success the some the forward, as

Correct.

know Got or about goal it. or expenses looking time, go And third I the but you kind do morning, a of efficiency talked a in lot picture? quarter have a but at this where second either then, thought about should we over big not more

grow course basis and obviously over our percentage digits. The to mid-teens low have opportunities. year to continue should but – indicated, in in grow I’ve that over as to at as revenue below the The the south next. single low ratio, think, then – we’ll course a efficiency and progress you the by we expenses I Yes, in and XXXX that see this is be should of steady the direction drive of objective time, XX%. And

much. Great. Thanks, it very Doug. Appreciate

And the questions. presenters. to call no turn the there further are back I’ll now

thank Well, for morning. your you time this

any questions We’re available may you to answer other in. for Thank you have. dialing

today’s This call. concludes conference

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