U.S. Markets closed

Edited Transcript of ACBI earnings conference call or presentation 25-Oct-19 1:00pm GMT

Q3 2019 Atlantic Capital Bancshares Inc Earnings Call

Oct 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Atlantic Capital Bancshares Inc earnings conference call or presentation Friday, October 25, 2019 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Ashley C. Carson

Atlantic Capital Bancshares, Inc. - EVP of Corporate & Community Affairs

* Douglas L. Williams

Atlantic Capital Bancshares, Inc. - President, CEO & Director

* Patrick Timothy Oakes

Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO

================================================================================

Conference Call Participants

================================================================================

* Brady Matthew Gailey

Keefe, Bruyette, & Woods, Inc., Research Division - MD

* Christopher William Marinac

Janney Montgomery Scott LLC, Research Division - Director of Research and Banks & Thrifts Analyst

* Jennifer Haskew Demba

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Nancy Avans Bush

NAB Research, LLC, Research Division - Research Analyst

* Stephen Kendall Scouten

Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research

* Steven Comery

G. Research, LLC - Research Analyst

* William Jefferson Wallace

Raymond James & Associates, Inc., Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning and welcome to the Atlantic Capital Bank Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note today's event is being recorded.

I would now like to turn the conference over to Ashley Carson, Excusive Vice President, Corporate and Community Affairs Officer.

--------------------------------------------------------------------------------

Ashley C. Carson, Atlantic Capital Bancshares, Inc. - EVP of Corporate & Community Affairs [2]

--------------------------------------------------------------------------------

Thank you, Rocco, and thank you, all, for joining us for our third quarter 2019 earnings call. With me today to discuss our results are Doug Williams, Chief Executive Officer; and Patrick Oakes, Chief Financial Officer. 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 that actual results may differ materially. We encourage you to review the disclaimer and the earnings release dealing with forward-looking information. This disclaimer applies equally to statements made in the 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'll turn the call over to our CEO of Atlantic Capital, Doug Williams.

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Ashley, and good morning. With solid loan and deposit growth from new and expanded client relationships, disciplined expense management and sound credit quality, Atlantic Capital recorded another quarter of strong operating results.

As you've seen, we reported net income from continuing operations of $7.6 million or $0.33 per diluted share for the third quarter of 2019, compared to $7 million or $0.27 per diluted share for the third quarter of 2018, and $7 million or $0.29 per diluted share for the second quarter of 2019. Loans held for investment from continuing operations grew 10% annualized from the second quarter and 10% over the third quarter of 2018. Commercial and industrial and owner-occupied commercial real estate loans increased 14% linked quarter annualized and grew 20% from the third quarter of 2018. For the last 15 quarters, which is our history as a public company, this core category of loans from continuing operations has grown at a compound average annual rate of 20%. Average deposits in the third quarter were up 10% annualized over the second quarter and 18% compared to the third quarter of 2018. Average noninterest-bearing demand deposits increased 34% annualized compared to the second quarter and 14% from the third quarter of 2018. Noninterest bearing demand deposits were 33% of total average deposits during the third quarter and have grown at a compound average annual rate of over 18% for the last 15 quarters. This loan and deposit growth from new and expanded client relationships over the last 15 quarters is the direct product of a company aligned for the common purpose of fueling client prosperity with thoughtful and tailored credit and treasury management solutions and reliable service delivery. Building an attractive and distinctive culture as a competitive weapon is a key priority at Atlantic Capital, and we are pleased to report that our company was recognized last quarter by the American Banker as a best bank to work for.

Two key elements of this purpose and performance-driven culture, client-focused teamwork and risk management expertise, are foundational to our results. Our talented and experienced bankers, credit officers, treasury management officers and operational delivery and support professionals work well together to design and deliver solutions and service to our clients. Good teamwork is making our company more productive and efficient. While investing in new capacity to pursue opportunities in the Atlanta market and in our specialized treasury management and transaction processing businesses, noninterest expense in the third quarter of 2019 was actually down from that in the second quarter and grew at a modest pace year-over-year. Sound risk management practices enabled sustainable growth at Atlantic Capital, and our results show it. Net charge-offs for the quarter were 11 basis points of loans held for investment and 12 basis points year-to-date. Nonperforming assets were 29 basis points of assets at quarter end.

Now Pat Oakes will review the financials with you in more detail, and then I'll return to offer perspective on our priorities and the outlook for the fourth quarter. Pat?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [4]

--------------------------------------------------------------------------------

Thanks, Doug. And good morning, everyone. I'm happy to report on the strong results for Atlantic Capital and our first full quarter after the closing of the branch sale in April. This included net income from continuing operations of $0.33 per diluted share, an increase of 22% compared to the third quarter of 2018. Tangible book value per share of $13.91, also an increase of 22% from September 30, 2018. Another quarter of solid loan and deposit growth, a loan and deposit ratio of 92% and an emphasis on expense management.

We are pleased with these results, despite the decline in our net internet margin from the recent cuts in the fed funds rate. The NIM in the third quarter was 3.52%, a 9 basis point decline from the 3.61% margin in the second quarter. This was in line with our expectations. The main drivers of this quarterly reduction were lower loan yields due to the decline in short-term interest rates, mainly 1-month LIBOR and an increase in excess cash from higher volatility in our deposit balances. This is offset by a decrease in our cost of interest-bearing deposits and the solid growth in noninterest-bearing deposits Doug mentioned earlier. With the uncertainty of future rate cuts, providing further guidance on our NIM is difficult. The bank remains asset sensitive, with approximately 65% of our loan book floating rate and 50% of loans tied to 1-month LIBOR. This will continue to put pressure on our margin. For the third quarter loan yields decreased 16 basis points to 5.18%. During the third quarter, we were successful in reducing the cost of interest-bearing deposits 8 basis points to 1.58%. This included the benefit from lower rates in our market index deposits and rate sheets, along with some decrease in our negotiated rates, which account for about 45% of our interest-bearing deposits. Our bankers continue working with their customers to reduce deposit costs as much as competition will allow, but there is a lag with how quickly we can reduce these negotiated rates. Our overall cost of deposits decreased 9 basis points to 1.06%. Noninterest income totaled $2.8 million in the third quarter compared to $2.9 million in the prior quarter and $2.3 million in the third quarter of 2018. Service charge income grew 25% linked quarter annualized and 15% from the third quarter of 2018, driven by continued strong growth in our payments and Fintech businesses. The quarter also included a gain of $253,000 on the sale of securities as we extended the duration of the investment portfolio in order to reduce the asset sensitivity of the balance sheet by selling short-duration securities and began replacing with municipal securities. We have continued to purchase additional municipal securities in our held-to-maturity portfolio during the fourth quarter. This will improve income, and reduce our asset sensitivity but will result in some additional pressure on our NIM.

I'm pleased with our continued focus on managing expenses post the branch sale. Total expenses in the third quarter decreased $577,000 to $12.7 million. We benefited in the third quarter from an FDIC assessment credit that lowered the FDIC expense by $368,000 from the second quarter. Based on our remaining credits that can be applied to future invoices, we do not anticipate having an FDIC premium expense for the next few quarters. We continue to actively purchase shares under our $85 million share repurchase program. During the quarter, we purchased $20.1 million or 1.2 million shares at an average price of $17.29. This brings the total program repurchases to $70.9 million or 4.1 million shares, and has reduced our share count by approximately 16%. Given all this share repurchase activity, our tangible common equity ratio decreased to 12.9% at quarter end, down from 13.4% from June 30. We remain focused on capital management and improving both our return on equity and earnings per share.

Now, I will turn back over to Doug.

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

In earlier calls this year, we have shared the following priorities with you: #1, complete the transformational or rather reformational divestiture of our Tennessee and Northwest Georgia business; #2, invest in growth capacity for our Atlanta and specialty businesses; #3, focus on deposit growth by building treasury management and transaction processing-based relationships; #4, maintain best-in-class credit quality; and #5, employ shareholder return enhancing capital management strategies. I think you'll agree that we've addressed each of these priorities with energy and discipline, and that our results reflect compelling progress in building the value of our company. We expect more progress in the fourth quarter. Our bankers are energetically pursuing new opportunities, and new business pipelines remain solid. Good teamwork is improving our productivity and efficiency. Credit risk is well managed. While the effect of interest rate reductions will become more apparent in the fourth quarter, we expect to sustain these good operating trends. Our planning for 2020 is well underway. Although the course of the economy and interest rates is uncertain, we see considerable opportunity for Atlantic Capital in the midst of Atlanta market turmoil and in our specialty businesses. We're well positioned with an energetic and engaged team, new business development capacity and robust capital flexibility to address these opportunities.

Now we'll be happy to answer your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Today's first question comes from Brady Gailey of KBW.

--------------------------------------------------------------------------------

Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [2]

--------------------------------------------------------------------------------

I wanted to start with the buyback. I mean, you bought back a material amount of your stock over the last year. It feels like, at this pace, you'll have the $85 million done in the fourth quarter. When that happens, you're still going to have excess capital. So how do you think about additional buybacks in 2020?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [3]

--------------------------------------------------------------------------------

I'll start. I think the initial goal here is to complete the $85 million buyback program. We're still in planning processes -- capital planning process with the Board. And so I think more to come in January once we get this program finished about any additional steps we might take.

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [4]

--------------------------------------------------------------------------------

Yes. I'd just say that we're evaluating various strategies going forward. We're sharing those with the Board, and we'll have more information for you in January. We really like the capital position that we have finishing out the year. We have a lot of flexibility, as I've mentioned, and that capital can serve both defensive and offensive purposes.

--------------------------------------------------------------------------------

Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [5]

--------------------------------------------------------------------------------

Yes. Okay. And then Pat, you mentioned making some changes in the bond portfolio and buying the munis. If you look at the average balance of the bond book in the third quarter, it was about $340 million. Do you expect that to go a lot higher with these changes? Or is it more just a mix shift and those balances should stay fairly stable going forward?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [6]

--------------------------------------------------------------------------------

Well, part of the reason it's down is because of the sales that we did as we were doing the restructuring. So you'll see that build back up, and most likely, increase from what we -- the balance was in the second quarter.

--------------------------------------------------------------------------------

Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [7]

--------------------------------------------------------------------------------

Okay. And anything on CECL and the likely impact coming up here in 90 days?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [8]

--------------------------------------------------------------------------------

So we're still in the final stages of finalizing that. At this point, we don't expect a material change in what our allowance is going to be based on our business model being so commercial focused and a short-duration portfolio.

--------------------------------------------------------------------------------

Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [9]

--------------------------------------------------------------------------------

All right. And then just last for me. Your mortgage warehouse business, I know you all partner with another bank in that business, but it's gotten down to 1% of loans. That business has been a lot more robust recently, just given the backdrop of mortgage rates. I mean, do you expect to start to participate more in that program with the warehouse space being a lot more robust nowadays?

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [10]

--------------------------------------------------------------------------------

We do not, Brady. We -- I would anticipate those balances will continue to diminish over the next couple of quarters.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

And the next percentages come from Stephen Scouten of Sandler O'Neill .

--------------------------------------------------------------------------------

Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [12]

--------------------------------------------------------------------------------

Maybe to follow-up on Brady's last question there a little bit just around overall loan growth expectations, kind of, if you could give some color on how your pipelines are looking? And really what you're seeing from customers in regards to loan demand maybe -- loan demand, maybe quarter-over-quarter origination and pay down activity, kind of how that compares to what we've seen in the last few quarters?

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [13]

--------------------------------------------------------------------------------

Yes. We -- as I mentioned, the pipelines remain solid, and we think we can generally sustain the trajectories that we've been on in this year and prior years with respect to loan growth in various categories. Having said that, demand has softened up a bit this year, that's evident in the data and also anecdotally. And it's very difficult to calibrate that for not only the fourth quarter, but 2020. I think we guided you to high single-digit loan growth for the year and that still looks like a reasonable expectation. So finish the year out, probably, in the 7% to 9% range, I would guess.

--------------------------------------------------------------------------------

Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [14]

--------------------------------------------------------------------------------

That's helpful. And maybe following back on capital a little bit too. I know you said you're still in the planning stages, but how do you think about capital moving longer term I guess and what an appropriate level of capital would be whether that's TCE or total risk based or whatever ratio you look to most centrally, but how do you think about that long term, where you'd like to operate?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [15]

--------------------------------------------------------------------------------

So the biggest constraint for us is total risk-based capital at the bank and a lot of that's our business model. We have a lot of unfunded commitments that kind of require a little bit more capital associated with that. So that's our biggest constraint. We'd like to get TCE ratio down, obviously, from the almost 13% we're at now, but there is a constraint around that. But you're right, we are, well -- overcapitalized and well aware of that. Like Doug said, that's good offensively and defensively.

--------------------------------------------------------------------------------

Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [16]

--------------------------------------------------------------------------------

Okay. Great. And then maybe last thing for me. Just kind of can you talk about where you're investing today in the Atlanta marketplace? Whether that's certain segments? Pace of new hiring goals? Is there certain submarkets in the Atlanta MSA you're really focused on today? Just kind of give us a feel for what the direction of incremental investments will be?

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [17]

--------------------------------------------------------------------------------

As we told you in our second quarter call, we've hired over 25 people this year, including 12 new producers, I think 7 new credit officers and the remainder would be operational service delivery folks. The pace of hiring has slowed. We're anticipating the next few quarters here to absorb that growth and see it become more productive, particularly as we move into 2020. We'll remain very opportunistic with respect to hiring more people. When we find good people that want to work at Atlantic Capital, we'll be quick to hire them. But I think it will take a little time to absorb the folks we've hired and see them become productive. The hiring has been sort of across the scope of our businesses, both here in Atlanta and in our specialty businesses, and we have expectations for not only loan growth but deposit growth. And as you've seen we've had deposit growth this year that's been very strong and, in fact, has outpaced loan growth. That may well continue into the next few quarters.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

And the next question today comes from Jennifer Demba of SunTrust.

--------------------------------------------------------------------------------

Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [19]

--------------------------------------------------------------------------------

Question on credit, it's still very good for you. I'm just wondering, what you're seeing kind of underneath the covers, any cracks in any certain sectors? What's your trend in criticized loans, that kind of thing?

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [20]

--------------------------------------------------------------------------------

Yes, the credit stats remain solid. We're not seeing any unusual or broad-based problems. I'd say the migration trends are very stable. We're certainly mindful of late cycle management behavior, particularly in the C&I world. And we are cautious, as we told you, with respect to the CRE business at this point in the cycle. However, our charge-offs remain low, we have seen no meaningful change in classified loan levels. And in fact, with some expected payoffs, refinancing payoffs, away from us in the fourth quarter, we should see classified totals move down over time. So we feel good about credit at this point. There is always the possibility of the unexpected occurring, but we think credit quality is stable and likely to remain so.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

And our next question today come from Steve Comery of G. Research.

--------------------------------------------------------------------------------

Steven Comery, G. Research, LLC - Research Analyst [22]

--------------------------------------------------------------------------------

Just wanted to ask about deposit pricing, just kind of some general color on what you guys are seeing in your market? And whether or not you expect -- or just how you expect mix to kind of look going forward with the Fed policy?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [23]

--------------------------------------------------------------------------------

Now when you say mix, what are you referring to?

--------------------------------------------------------------------------------

Steven Comery, G. Research, LLC - Research Analyst [24]

--------------------------------------------------------------------------------

Yes, so I mean, there is a pretty substantial reduction in the quarter in broker deposits. Maybe just some comments on kind of how you look at that funding source this point?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [25]

--------------------------------------------------------------------------------

Well, the focus here has been growing on -- growing core deposits. And obviously, as you can see, we've been pretty successful at that. And what that allows us to do is pay off some of these higher cost deposits and wholesale funding. We had increased broker deposits with the branch sale in anticipation of that because, obviously, we sold off a significant amount of deposits. And with all the growth we've seen, we've been able to pay some of that off, which is great, it helps margin, it helps funding. So that's the goal going forward to continue to do that. And you can see that with our DDA at 32%, 33% of deposits.

--------------------------------------------------------------------------------

Steven Comery, G. Research, LLC - Research Analyst [26]

--------------------------------------------------------------------------------

Okay. And then just kind of generally, I mean how are you guys thinking about deposit competition? Are you seeing anything different following Fed changes or anything recently like that?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [27]

--------------------------------------------------------------------------------

So look, we're a commercial bank, so a lot of what we have is relationship based. So yes, we're competing with the overall relationship with other banks. So it's not necessarily a special that we see advertised somewhere. It's more just competing for the business individually. So it's a lot of negotiation with individual customers and the overall relationship, along with what's going on in the market, so it's a lot of one-offs.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

And the next question today comes from Nancy Bush of NAB Research.

--------------------------------------------------------------------------------

Nancy Avans Bush, NAB Research, LLC, Research Division - Research Analyst [29]

--------------------------------------------------------------------------------

Just a general question for you, Doug and Pat. The issues that we're seeing, the liquidity issues that we're seeing in the markets these days, which seem to vary from day-to-day, given your growing payments business, et cetera, do these issues hit you at all or do they concern you at all?

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [30]

--------------------------------------------------------------------------------

They haven't at this point, Nancy. As we've said, we've had really strong deposit growth this year. We maintain a lot of liquidity on the balance sheet and have a lot of access to liquidity from various sources. So we've been able to manage that day-to-day volatility, I think, very well up to this point, and I think we'll expect to continue to be able to do that.

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [31]

--------------------------------------------------------------------------------

Now one of the things we've discussed is -- approaching year-end is what -- potential liquidity issues at year-end, it's holding more cash. So you could potentially see our cash balances increase at the banks just as protection going into year-end.

--------------------------------------------------------------------------------

Nancy Avans Bush, NAB Research, LLC, Research Division - Research Analyst [32]

--------------------------------------------------------------------------------

So they -- but they -- you don't anticipate that, that itself would have a material impact on the margin?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [33]

--------------------------------------------------------------------------------

Not material.

--------------------------------------------------------------------------------

Nancy Avans Bush, NAB Research, LLC, Research Division - Research Analyst [34]

--------------------------------------------------------------------------------

Okay. Secondly, this whole issue of negotiated rates and negotiating negotiated rates, I guess you'd call it, you're hardly the only one who's in that process right now. And I'm just wondering if you can give some color on how those discussions go? I mean, do you have to say, "Okay, we'd like to negotiate the rates but we need to offer you -- we're going to offer you something in fees or whatever," I mean, how does that work?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [35]

--------------------------------------------------------------------------------

Look, a lot of this is an overall relationship, right? You're typically not negotiating anything besides that deposit rate because we've already got the rest of relationship. And look, we were fair with these customers as rates increased they're paying them higher rates. And the idea is we're expecting the same thing as rates move down. And I think most customers get that, most of our bankers get that. But look, this was a big change, rates moved very, very quickly, so it's getting everybody comfortable with that shift. So there's just a lag -- we don't want to lose a customer if we're cutting their deposit rate, but we also need to be fair on both sides. So it's just a work in progress.

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [36]

--------------------------------------------------------------------------------

And I would say with respect to sort of excess corporate cash, it's a national market, competition for that is national. So you see these very high money market rates from online banks or money market funds and so forth. And generally, what our relationship customers are looking for is just a nod in that direction. We don't necessarily have to match those rates, but we have to move in that direction. And then we could -- as Pat says, we find that they understand what's going on and they're willing to move down over a period of time. But there is a lag there and we expect to have more success as we move forward in terms of lowering rates than we've had so far this year with really just a quarter of lower rates.

--------------------------------------------------------------------------------

Nancy Avans Bush, NAB Research, LLC, Research Division - Research Analyst [37]

--------------------------------------------------------------------------------

Yes. And just ancillary to that, the deposit market in Atlanta has tended to do crazy things over time. And I'm wondering how the competitive situation, the sort of rationality situation in deposit pricing is shaping up right now?

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [38]

--------------------------------------------------------------------------------

Yes, I don't know that Atlanta is, at this point, a lot different from anywhere else in the country. I think we saw rates run up last year and earlier this year, and now they're coming off the competitive rates that are being offered in the market. But again, the progress is not as fast as we would like it to be. It's slower going down than it was going up.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

And our next question today comes from Christopher Marinac of Janney Montgomery Scott.

--------------------------------------------------------------------------------

Christopher William Marinac, Janney Montgomery Scott LLC, Research Division - Director of Research and Banks & Thrifts Analyst [40]

--------------------------------------------------------------------------------

Doug, you mentioned the FinTech businesses and success on deposits there, could you elaborate further on sort of what's happening there and sort of how that can be a further propellant for 2020?

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [41]

--------------------------------------------------------------------------------

Yes, it's really -- we think it's an exciting opportunity. We have positioned ourselves very nicely, I think, in the payments alley that is Atlanta. We're working with a number of companies here as well as across the country. We have really solid pipelines out into the next 2, 3 quarters in terms of new payments volume, ACH volume and that should result in higher demand deposits and higher service charge income going forward. So we're very optimistic about that. We think we've carved out a highly competitive niche in that business. We're very confident in treasury management services and item processing and this is a real area of strength for our company and it should show up in results over the next few quarters here.

--------------------------------------------------------------------------------

Christopher William Marinac, Janney Montgomery Scott LLC, Research Division - Director of Research and Banks & Thrifts Analyst [42]

--------------------------------------------------------------------------------

Okay, great. And is it possible that the DDA ratio just sort of rises slightly as a result of all this?

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [43]

--------------------------------------------------------------------------------

Well, we hope so. But I don't know if it will. You've sort of got some countervailing forces there at work. We've been pleased that it's held up sort of in excess of 30% for the last several quarters now and had good growth in those balances. Obviously, an important element of mitigating margin compression will be to gather more noninterest-bearing deposits. So that's core to our strategies and is particularly a part of this transaction processing, treasury management business that we have.

--------------------------------------------------------------------------------

Christopher William Marinac, Janney Montgomery Scott LLC, Research Division - Director of Research and Banks & Thrifts Analyst [44]

--------------------------------------------------------------------------------

Okay. Great. And then as a follow-up to Nancy's question about negotiated rates. What are you seeing on the ability of customers to do loan floors? Or even to negotiate something favorable for you in terms of prepayment penalties that get waived or at least are reasonable for both sides?

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [45]

--------------------------------------------------------------------------------

I think we're just starting to see some of that in the market. There are opportunities to refinance at lower fixed rates and so that's creating some interest among various customers here and elsewhere to do that. We also -- we're trying to get some LIBOR floors in some of our loans going forward. I think, that's a new aspect in the market, and we'll see if that -- if we're successful doing that going forward, but that's something that we're starting to do.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

And our next question come from William Wallace of Raymond James.

--------------------------------------------------------------------------------

William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [47]

--------------------------------------------------------------------------------

I'll be brief, most question have been asked. But as a quick follow-up to Chris' question on floors, do have any loans that are sitting at floors today?

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [48]

--------------------------------------------------------------------------------

We -- I don't think we do, Wally. If we do, it's de minimis. We haven't seen floors sort of competitively in the market for, I don't know, 3 years or so now. And so that's why I was saying we'd like to start getting some of those, whether that will work competitively it remains to be seen, and we're early in our effort to do that, but...

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [49]

--------------------------------------------------------------------------------

I think, Wally, we're having more success doing fixed rate, rather than doing floors. We have 35% of our loan portfolio is at fixed. Probably a higher percentage of our new business is doing fixed rate. So it's hard to move the needle significantly, but that's probably where we're having more luck.

--------------------------------------------------------------------------------

William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [50]

--------------------------------------------------------------------------------

Is that because you're doing less C&I loans, given where we are in the cycle? Or is that because you're shifting the focus...

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [51]

--------------------------------------------------------------------------------

Shifting the focus.

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [52]

--------------------------------------------------------------------------------

We're shifting the focus in response to borrower demand. There is more interest in doing fixed-rate financing now than there has been in the past.

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [53]

--------------------------------------------------------------------------------

And obviously, we have more interest in that.

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [54]

--------------------------------------------------------------------------------

And we have more interest in that. And as Pat says, incrementally we're seeing a good portion of our growth there. We are doing more C&I, we are doing more owner-occupied commercial real estate, which is C&I in a different regulatory call code. But the C&I business, as we broadly define, as we mentioned, has been growing at a very nice pace for 15 quarters now, 20% per annum compounded. So we have robust growth in that sector of our business, which is now about 60% of the total mix.

--------------------------------------------------------------------------------

William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [55]

--------------------------------------------------------------------------------

Okay. And then just 2 questions on NIM. Pat, do you have the -- what the net interest margin was for the month of September?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [56]

--------------------------------------------------------------------------------

Yes, but we normally don't disclose it.

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [57]

--------------------------------------------------------------------------------

Lower.

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [58]

--------------------------------------------------------------------------------

It was lower. So look -- well, I guess the best way to answer that is if we don't get any further rate cuts, we're going to see some more margin pressure here, even without any further rate cuts. Probably another -- just another 6 or 8 basis points, probably alone with that. And then you add in any rate cuts in October, December, obviously, will add on top of that, so...

--------------------------------------------------------------------------------

William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [59]

--------------------------------------------------------------------------------

And that does not -- does that -- that 6 to 8, does that include what we've already seen from LIBOR in October? Or that would be additional pressure?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [60]

--------------------------------------------------------------------------------

That would be the additional pressure from LIBOR. Obviously, we didn't see because the rate cut was so late in September, we didn't see a lot of the impact from lower LIBOR in September, we saw some but not all of it. We'll see more of that in October. And then, obviously, get a benefit in deposit cost cuts, but more to come with that. So as I've said before, there's going to be an initial lag with our margin really around the deposit side and hopefully we can start to catch up as soon as we get through these rate cuts.

--------------------------------------------------------------------------------

William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [61]

--------------------------------------------------------------------------------

Right. Understood. And Pat, I know you said it in the prepared remarks, but I couldn't write fast enough, what's the dollar amount tied to LIBOR and the dollar amount tied to prime?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [62]

--------------------------------------------------------------------------------

So dollar amount tied to LIBOR is just over -- it's $900 million. Hold on. I'll pull it up for you. Rogier, do you have it sitting there? I'll get it back to you.

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [63]

--------------------------------------------------------------------------------

It's roughly 50%.

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [64]

--------------------------------------------------------------------------------

Yes. About $900 million.

--------------------------------------------------------------------------------

William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [65]

--------------------------------------------------------------------------------

Yes. And another $900 million is on prime?

--------------------------------------------------------------------------------

Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - Executive VP, Secretary, Treasurer & CFO [66]

--------------------------------------------------------------------------------

And the prime is about $225 million.

--------------------------------------------------------------------------------

Operator [67]

--------------------------------------------------------------------------------

And ladies and gentlemen, this concludes the question-and-answer session, I'd like to turn the conference back over to the management team for any final remarks.

--------------------------------------------------------------------------------

Douglas L. Williams, Atlantic Capital Bancshares, Inc. - President, CEO & Director [68]

--------------------------------------------------------------------------------

All right. We appreciate you dialing in this morning. Very pleased with our results and we're available to have further discussion today and first part of next week for anybody that wants to. Thank you very much.

--------------------------------------------------------------------------------

Operator [69]

--------------------------------------------------------------------------------

Thank you, sir. Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect.