Q4 2019 Earnings Call
Good morning, and welcome to the Atlantic Capital Bank first quarter 2019 earnings conference call. All participants will be in listen-only mode, since you need assistance, just an oil conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press star than one on your telephone keypad to enjoy your question, please press start and to please note today's event is being recorded now. I'd like to turn the conference over to Ashley Carson Executive Vice President. Corporate Community Affairs, please go ahead.
Rocco and thank you all for joining us for our fourth quarter 2019 earnings call with me today to discuss our results are Doug Williams chief executive officer. Patrick Walsh Financial Officer gray Fleming. She's Chief risk officer and Kurt Schreiner president of corporate Financial Services. As a reminder. The Atlantic Capital earnings release is available in the investor relations section of our website. I wish to caution you that we will be making forward-looking statements during this call and then actual results May differ materially, we encourage you to review the disclaimer and the dog is released dealing with forward-looking information. This disclaimer applies equally to statements made in this call in addition some discussions may include references to non-GAAP financial measures information about those measures including reconciliation to gaap measures may be found in our SEC filings and in our earnings release and with that I will turn the call over to our CEO of Atlantic capital.
Doug Williams
Do you actually and good morning for the fourth quarter of 2019 and for all of 2019 Atlantic Apple reported strong growth in earnings per share average core deposits off an average loans while maintaining Sound Credit quality in a fortress balance sheet. We begin twenty-twenty with strong momentum in all of our businesses building and attractive of cultures a competitive weapon is a key priority of the Atlantic capital and we were pleased to report in 2019 that our company was recognized by the American Banker as a best back to work for and by the Atlanta business Chronicle as the best place to work two key elements of this purpose and performance-driven culture client-focused teamwork in Risk Management expertise are foundational to our results.
As you've seen from the earnings release Atlanta Capital reported net income from continuing operations of 7.1 million dollars or $0.32 per diluted share of the fourth quarter of 2018 and that income from continuing operations of twenty eight point two million dollars or a dollar $20 per diluted share for all of 2019.
Bridge loans from continuing operations grew at a 12 and a half percent annualized Pace in the fourth quarter and increased 10.6% from 2018 average deposits from continuing operations, 40% annualized in the fourth quarter and grew 21% year-over-year non-interest-bearing deposits were 33.5% of total deposits end in average balances were up 50% annualized in the fourth quarter and increased 20% for the year.
This strong loan and deposit growth from new and expanded client relationships is the direct product of a company aligned for the common purpose of fueling client Prosperity off with fault full and tailored credit and treasury Management Solutions and reliable Service delivery Atlanta capitals credit quality continues to be among the best in banking that charge all Salvage loans were seven basis points for the quarter and 11 basis points for the full-year non-performing assets. The total assets were 26 basis points at year end.
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Position enabled us to repurchase 452000 shares in the fourth quarter for eight point 1 million dollars in four point five million Shares are approximately six years since November of 2018 for $79 million dollars now Pat Oakes is going to review the financial with you in more detail. Thanks Doug and good morning. Everyone the net interest margin for the fourth quarter was 338 a 14 basis-point declined from the 352. Margin in the third quarter.
The decline was larger than anticipated and primarily the result of an increase in liquidity due to the strong deposit growth in the quarter this change in mixed lower than in by approximately 9 basis points wage as expected loan yields decreased 23 basis points to 495 during the fourth quarter, and I think we have now seen most of the impact from last year's decrease in the FED funds rate.
I'm particularly pleased with our progress and reducing the cost of deposits during the fourth quarter the cost of interest-bearing deposits decreased 22 basis points during the quarter to 1.36% as far as doing a good job working with our customers to reduce rates where possible.
overall cost of
Posits decrease 16 basis points to 90 basis points these Trends combined with solid growth and DVA were able to offset a significant part of the pressure from the loan side.
Even on pleased with our progress in reducing rates, we will continue to look for opportunities to further decrease deposit costs in the first quarter of 2020.
Considering all this I expect our name to increase in the first quarter from the 338. We reported in a fourth-quarter in addition to drop in our cost of funding was also nice to see another month strong deposit growth. Even if the fourth quarter numbers were inflated as a result of typical year and seasonality as a reminder due to the volatility with our deposit balances. It's important to focus on quarterly average balances rather than. And balances the fourth quarter was a good example with. And growth of 645 million compared to average growth of $197 billion.
I have two main approximately half of our half of the average deposit growth in the quarter was due to the run-up and you're in deposits that have already left a bank in the first quarter.
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We we have seen in some previous years. I would not be surprised to see deposits down slightly in the first quarter while continuing to see strong year-over-year growth.
One of our goals for 2019 was to improve our liquidity and replace some of the funding we lost as part of the branch sale and I think we can say we were successful the fourth quarter average deposit gross gross also included an increase of eighty million dollars and nine or sparing deposits from strong growth across many most of our lines of business particularly our payments business.
. And growth in the. Loan growth on the fourth quarter was thirty-seven Million that included a $9 reduction in mortgage where our slums as we moved to exit that business in the first quarter.
Multi-family loans increased thirty-eight million in the quarter primarily to do 228 million in construction loans that moved to permanent financing not a change in London Focus.
Not interested in coming the fourth quarter total 2.7 million this included another strong quarter for service charge income driven by continued strong growth in our payments business.
we expect
From Adam to continue and should be a nice source of Revenue growth in 2020.
SBA income decreased in the fourth quarter as a result of less gain-on-sale income due to fewer loan sales SBA loan production remains solid and expect to gain income in the first quarter to be ordered what we experienced in earlier quarters of 2019.
Finally, let me briefly touch on a few items that caused the increase in expenses in the fourth quarter salaries and benefits increased from the impact of support staff hires along with an increase in our incentive accrual the increase in data processing expense included the impact from growth in our payments business along with approximately 125,000 and one-time expenses now turn it back over to Doug. Thank you.
The strong momentum that we begin the year and substantial opportunity from Atlanta market growth and dislocation and from burgeoning prospects in the National High volt payments and fintech Arena Atlanta capital B Sharp.
Atlantic app will be sharply focused on number one accelerating growth and existing and new client relationships in our Atlanta businesses and number two growing deposits and service charge income from expanding the new payments and fintech relationships and alliances and 20/20.
Well uncertainties about data indicate that the US economy is firming and begins twenty-twenty on sound footing the Atlanta economy is diverse and growing at a vigorous Pace off in particular expected population growth in the Atlanta region over the next three years will be the second highest among the largest 10m essays in the US at life is a popular destination for corporate relocations and new business creation has been strong. There are over two hundred Twenty-One thousand businesses in the MSA and more than 4,000 of those have revenues between 1 million and 500 million dollars, which is our primary target market segment.
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well aware of the dislocation from m&a activity involving Atlanta area Banks over the last couple of years, particularly the merger of BB&T and SunTrust to create truest
We expect an historic opportunity to reorder the competitive landscape add bankers and clients and accelerate our growth as you know, we added 12 new producing Bankers in 2019, and we expect them to become productive this year. We'll also continue to opportunistically add Bankers over the course of twenty twenty.
Atlanta is Americas payment sub with an estimated 70% of all domestic payments flowing through Atlanta Atlanta capitals building a rapidly-growing payment banking business based on our treasury management expertise and a reliable transaction processing capability. We grew ACH payments volumes over 50,000 and see opportunity to expand deposit balances and non-interest income at a robust Pace as we add new payments relationships and form alliances with payments oriented fintech companies.
Sustained loan and deposit growth in the 10 to 12% range in 20 20 and more growth in non-interest income non-interest-bearing demand deposits. Assuming Stone no monetary policy without reductions in the federal funds rate the net interest margin should stabilize and the first quarter.
We have considerable Capital Management flexibility with over six million dollars remaining under our $85 million-dollar repurchase program authorized in November of 2018, We anticipate undertaking further Capital Management actions. When that when that program is completed, you'll remember that are fifty million dollar six and a quarter percent wage board a holding company notes are callable in September refinancing those notes in whole or part along with an additional share repurchase program or a regular dividend will be considered later in the first quarter.
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Pleased with our progress in 2019 and expect continued progress in 2020 now, we're ready to attempt to answer any questions you may have.
Thank you. We will now begin the question-and-answer session. Ask a question. You may press start on your telephone keypad. If you were using the speaker phone you please pick up the handset before pressing the keys to enjoy your question, please press stars and to at this time. We will pause momentarily to assemble our roster.
Today's first question comes from Jennifer dumbbell SunTrust, please go ahead.
Thank you. Good morning. Good morning. Jennifer Duggan said you are interested in more hiring this year if the opportunities arise I think you said you hired what a dozen people last year. I mean would you anticipate may be getting to half that this year or do you have any sense based off your pipeline is right now we're actively in the market recruiting and and I I would be surprised if we hired as many as we did in 2019 month, but we're we're opportunistic if we see good Bankers that fit with us will will be quick to hire them. We have fewer than that budget for four years, but I've told all our people, you know, don't be constrained by the budget if you find good people will hire them and and and benefit from the business they bring over.
Okay.
And Pat, could you talk about the Cecil adjustment what we're looking for this quarter rather? Yeah, so there won't be a material change to return earnings with the day was March and then going forward with Cecil will probably see a small decrease in our Lounge going forward the first quarter.
Okay. Thank you.
And ladies and gentlemen as a reminder. If you would like to ask a question, please press star than one at this time.
Today's next question comes from Steve, Marie of G research, please. Go ahead you guys good morning morning Steve. I wanted to ask about the deposits down pat. You kind of mentioned that you've seen a decent amount of the growth you said about half of the growth already run off through the first quarter and then after that, you mentioned the non wage growth as coming from growth in business. Should I interpret that as meaning the most of the runoff has come in the other categories or how should I think about that? Yeah, I would think so. It's going to come more and more she could probably then it will be a you may see a little bit of runoff in but I think most will come in money market.
Okay, that's good. Thank you, and then secondly.
On on sort of The Hires about what Jennifer was asking about maybe if you could could help us think about like sort of what the payback period is for that and how long it kind of takes new Bankers you bring on to hit the ground running and start producing producing loans. Yeah, in terms of sort of Break Even, you know, we would expect that in six to twelve months and we would expect them to begin to become, you know profitable in terms of producing some some payback in the twelve to eighteen month time frame.
Okay good. And and then maybe one more for me, you know, you talked about some of the like the capital actions you guys are considering maybe regular dividend or or further purchases. How do you think about that, you know kind of the the push and pull between the two options and like sort of does the Stock's valuation play a role there and how do you think about the evaluation certainly plays a role and there's a there's a third element in there too. And that's the you know, what we do about the subordinated notes and we could we could obviously redeem those wage could refinance them and hold her part. We could theoretically you'll do do a larger issue. It's so we've got all those leverage to play with and we're cognizant of you know, the foil Capital levels. We have four total risk-based capital and Tier 1 Capital at both the holding company in the bank level as we do that. So we've got a number of variables to play with dead.
Between the two that you mentioned regular dividend and and share repurchase. We generally see.
A share repurchase program is being a more efficient use of capital than a regular dividend, but that could change at certain share price levels. So we're keeping that all in front of us at this point and we'll make a decision is closer to the time when we have to make those decisions regarding the subordinated notes.
Okay, very good. That's all for me.
And our next question today comes from Christopher man, Janney Montgomery Scott, please go ahead. Thanks. Good morning. Pat. Just wanted to drill down on the non-recurring expenses that were mentioned. Is there anything meaningful there? I think what I highlighted a few things, right, you know salary and benefits maybe a little bit with a little bit higher incentive accrual in the data processing side. There were some wage expenses in that category not instruments may have had a little bit around some Franchise Tax, but that's really it.
Okay. So in terms of the absolute number on some of those one-time adjustments that those are the relatively small it's a few General. Okay, if you want a thousand, okay, that's why I wanted to get out great. And then we look at the the the overall deposits coming from Q4 into q1 does seasonality kind of work against you or work towards you and then we'll just curious kind of how you look at kind of net new clients coming in, you know on your both, you know demand deposits as well as just or deposits in general.
But let me make sure I understand your question. Chris seasonality does play a role in the fourth quarter and we begin to see some some run off in the first and second Quarters off and then, you know sort of build up in the third and fourth quarter. So there is some seasonality and the deposit build pattern if you will but underlying that is good Court wage growth good core client growth throughout the year. And so we really think rather than looking quarter-to-quarter at what happens with respect to deposit balances. You really need to look over your comparisons. And as you have seen those are those are quite strong and have been for sustained period of time.
Right that was getting at that too. I see that change in average that you had put in the The Press always which I think was good. So so again as we get in the first and second quarter of the seasonality is what it is, but the year of your life Harrison should still be quite positive like they just were yeah the average growth to be slower in the first quarter and then it builds up throughout the year from there. But you over a year is you should see continued strong growth. Okay, and one final thing you may have mentioned this I just missed it. Is there a basis point impact to kind of the excess deposits and liquidity the quarter does that that I'm sure that's part of the March charge. Yeah. Yeah, we may I tend my prepared remarks about 9 basis points.
So it's not great. Should that be narrower do you think and and any thoughts about how quickly that goes there gets to that point, right? So we'd expect and you know, hopefully get most of that back in the first quarter. That's why you might see a slight pickup in the margin in the first quarter.
Got it. Thanks for repeating that Pat. I appreciate it.
And our next question today comes from Steven Skelton 5% or please go ahead.
Hey, thanks guys. Hey quick clarification there at nine basis-point impact is that just on is that that's not on the Nim in cumulative? Is that or is that can you specify that? Yeah, so that's all that that was a negative impact of all that excess cash all the all the excess deposit growth sitting in cash and the fourth quarter.
So are those deposits leave and we lower our cash balances? You'll see a pick-up in the Nim that oil on the name.
Yes.
Okay, great. And then just kind of say something about you know, the the deposit run off that was seeing the first Corps that's really a function of the seasonal pattern. We talked about that business will come back and it's I you know, we'll see a lot of this business come back at the end of 2020. So, you know, it's
It's it's not one time. It's not temporary. It's just seasonal. So sure sure. That's great. And you guys had a good little pop here in motion family lending. It looked like can you talk a little bit about you know, maybe we're specifically that came from if that's Atlanta or if that's more diverse than just just in Atlanta and then maybe how you're thinking about that business today because you know over the last couple of years. I feel like that was a line of business people were shying away from a little bit. But but I haven't really seen any of those fears materialize and actual issues so curious to how may thinking about it and where that growth came from. So I think the growth in in multi-family was thirty-eight million dollars for the quarter $28 billion of that was migration from construction team to multi-family as those loans, you know switched from from construction loans to too many perm loans. So most of us just rep.
classification
We continue to have a generally defensive posture with respect to multi-family commitments. We are very selective. We haven't really changed our posture there at all other folks, you know, as you point out a lot of the fears about multi-family have yet to be realized or materialize at this point. Okay, perfect and then it just kind of thinking about the competitive landscape for you all here in Atlanta and with your customer base obviously got one large Regional kind of announcing an entry into this Market. We had another larger m o e that would sort of tangentially effects this market. So I'm kind of curious how you guys are thinking about your position in the marketplace and how you compete effectively against, you know, some of these new entrants and and in a volt bigger continual focus on the Atlanta MSA. Yeah, you know clearly this new competitors are coming is the market see the same things. We do in terms of the magnitude of the opportunity we welcome boo.
To Atlanta and we we expect to have good solid competition with them over time.
But we think we have a long lead over all of them particularly in the C and I and Commercial segments. Generally. We have a very strong team that's very effective in the marketplace as you've said, we've had good loan and deposit growth from this market for a sustained period of time and we like our competitive position.
Great. Thanks. Appreciate the color guys. Yes, sir. Thank you.
But just on this includes the question and answer session. I'd like to turn the conference back over to the management team for any final remarks. All right. Thank you very much, Rocco. We appreciate you all dialing in this morning. We're pleased with our progress in 2019. We expect continued progress in 2020, and we look forward to giving you more good reports as the year goes on. Please call us back today next week if you have any more questions. We look forward to talking with you. Thank you very much. Thank you. Today's conference has not concluded. We thank you all for attending today's presentation. You may disconnect your lines and have a wonderful day.