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Edited Transcript of ACBI earnings conference call or presentation 28-Jul-17 2:00pm GMT

Thomson Reuters StreetEvents

Q2 2017 Atlantic Capital Bancshares Inc Earnings Call

Aug 12, 2017 (Thomson StreetEvents) -- Edited Transcript of Atlantic Capital Bancshares Inc earnings conference call or presentation Friday, July 28, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Michael Kramer

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

* Douglas L. Williams

Atlantic Capital Bancshares, Inc. - C.E.O & Director

* Patrick Timothy Oakes

Atlantic Capital Bancshares, Inc. - CFO, EVP, Treasurer & Secretary

* Richard A. Oglesby

Atlantic Capital Bancshares, Inc. - Chief Credit & Risk Mgmt Officer & EVP

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Conference Call Participants

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* Jennifer Haskew Demba

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Peter Finley Ruiz

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

* Steven Comery

G. Research, LLC - Research Analyst

* William Jefferson Wallace

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

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Presentation

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Operator [1]

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Good morning, thank you for standing by, and welcome to the Second Quarter 2017 Earnings Conference Call. (Operator Instructions) Thank you, Mr. Rich Oglesby, you may begin your conference.

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Richard A. Oglesby, Atlantic Capital Bancshares, Inc. - Chief Credit & Risk Mgmt Officer & EVP [2]

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Thank you, operator, and thank you all for joining us for our Second Quarter 2017 Earnings Call. Doug Williams, CEO; Mike Kramer, President and Chief Operating Officer; and Patrick Oakes, Chief Financial Officer are here with me to discuss the results.

As a reminder, the Atlantic Capital earnings release is available on the Investor Relations section of our website. We 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 in the earnings release 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'll turn the call over to the CEO of Atlantic Capital, Doug Williams.

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [3]

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Thank you and good morning. I'll highlight our results for the quarter before Pat Oakes will review the discussion -- the financials, I'll return to comment on the outlook, and then Pat, Mike Kramer, Rich Oglesby and I will be available to answer your questions.

For the second quarter 2017, Atlantic Capital recorded net income of $4.3 million or $0.17 per diluted share compared to $3.2 million or $0.13 per diluted share in the first quarter of 2017. These results reflect strong loan growth, net interest margin expansion, higher noninterest income and good expense control. Loans held for investment excluding mortgage warehouse outstandings grew $70.7 million or 15.3% annualized, over the first quarter of 2017. Loans in our core Corporate Banking and Business Banking businesses were up 16.5% annualized, while commercial real estate loans grew at an annualized rate of 19%.

After a surprisingly slow first quarter, it was good to see new momentum in the loan account. This momentum reflects a good business development activity, increased fundings under commitments, a lighter calendar of payoffs and refinancings and the deferral of some closings from the first quarter to the second rather than significantly improved organic loan demand. Despite the improved second quarter GDP report this morning, and broadly improved sentiment among business owners and managers, Federal Reserve data and main street reality indicate a much more modest level of loan demand and there is increasing evidence of late cycle competitive behavior. As a result of the March increase in the federal funds rate, the reported net interest margin expanded 6 basis points to 3.26%. Excluding yield accretion income, the net interest margin was up 8 basis points to 3.15%. Loan yields were up 21 basis points and interest-bearing deposit costs increased 9 basis points.

Higher noninterest income includes another solid quarter in our SBA business, growth in trust, mortgage and derivatives income and gains on sales of other real estate owned and a branch office. Credit quality remained strong, net charge-offs for the quarter were up 1 basis point. But nonperforming assets to total assets increased from 21 basis points to 52 basis points reflecting movement of 1 credit to nonaccrual status. This is the credit that we took a $2 million impairment on in the fourth quarter of 2016, there's been subsequent deterioration in that credit and we added $1 million to the impairment reserve at June 30. The total allowance for loans and lease losses was 111 basis points of loans at quarter end. Average deposits grew 8.8% annualized during the quarter and noninterest-bearing deposits averaged 29% of total deposits. Rollout of Atlantic Capital Exchange or ACE, our next-generation corporate treasury management platform continued during the quarter and is being received well by our clients.

Now Pat Oakes, will discuss the financials.

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

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Thank you, Doug, and good morning, everyone. Let me start with some additional detail on net interest margin. As Doug mentioned, our NIM for the second quarter was 3.26%, an increase of 6 basis points from the first quarter. Excluding the impact of purchase accounting, the core margin increased 8 basis point to 3.15%. Loan yield increased 21 basis points as we benefited from the March increase in the Fed Funds rate and higher loan fees. This is offset by lower accretion income. Our cost of deposits increased 7 basis points as we experienced an increase in deposit cost on certain deposit products. Overall we have approximately $500 million in rate-sensitive deposits that are highly correlated to each increase in the Fed Funds rates. We have seen limited increase in rates for the remainder of our deposits. We are pleased with the growth in noninterest income in the second quarter. Total noninterest income was $5.3 million, an increase of $1.4 million from the previous quarter. This increase included a $302,000 gain on the sale of our branch in Tennessee, a $240,000 gain on the sale of ORE and $426,000 gain on the sale of a tax credit investment. We also benefited from another solid quarter for SBA, an increase in mortgage activity along with higher trust income. Our trust department continues its solid growth and had the additional benefit in the second quarter from seasonally higher income related to tax season activity.

Noninterest expense decreased by $121,000 to $17.6 million in the second quarter. And included $304,000 in merger related expenses, related to the rebranding of the legacy First Security branches. Excluding these merger expenses, second quarter expenses were down [$425,000] as salaries and benefits decreased from seasonally higher payroll taxes in the first quarter. We are making progress with our new office in Charlotte, and have now hired our team of bankers and moved into our new office. The hiring took place throughout the second quarter so the full impact in expenses will occur in the third quarter.

The effective tax rate for the first half of 2017, excluding this [discrete] benefit from the accounting for stock-based compensation was 33.1%. Including this benefit, the rate was 30.7%. We continue to see a decrease in mortgage warehouse participations during second quarter. The mortgage warehouse was $48 million at June 30, a decrease of $10 million from March 31, and down from $171 million at September 30, 2016. Excluding the decrease in mortgage warehouse loans, loans held for investment increased $71 million during the quarter. Total average deposit in second quarter were $2.2 billion, an increase of $47 million or 8.8% annualized from the first quarter. This included a decrease of $29 million in average deposits for our payments business. As we have mentioned in previous quarters, these deposits have some seasonality, which can result in volatility to the balances each quarter. Deposits in the second quarter were also impacted by the sale of our Cleveland branch. The average deposits for this branch in the first quarter were $30.6 million compared to $13.8 million in the second quarter. Excluding these deposits, average deposits for the second quarter increased $63.4 million or 12.2% annualized.

Now I'll turn it back it over to Doug.

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [5]

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Thank you, Pat. You'll recall our priorities for 2017 are to improve performance in all of our lines of businesses and geographies particularly those that are underperforming. Invest in capacity for future growth and realize net interest margin expansion from rate increases and mix change. During our first quarter call, we reported that we had added new management in our Tennessee markets. Joe DiNicolantonio is doing great work there, and the early result of that work has been stabilization in those markets and new, although still modest momentum in loan and deposit growth. We've recently added 2 new bankers in Tennessee and are continuing to recruit new bankers for those markets. We have a long way to go in Tennessee, but it's good to see some progress there.

We now have a team of 4 bankers and a senior credit officer on the ground in Charlotte. We're excited about this team and our opportunities in Charlotte. They're active in the market and are building an attractive pipeline of loans and deposits.

We anticipate the third quarter benefit from the June rate increase similar to that from those in December and March. Our loan pipelines indicate capacity to grow new loans at or better than the pace of the second quarter and we expect a solid level of new fundings under existing commitments. However, the calendar of payoffs and refinancings is particularly heavy in the third quarter. In fact, we've had over $40 million in payoffs since quarter end. Accordingly, we expect net loan growth in third quarter to be more modest than that in the second quarter.

We grew loans in our core commercial businesses, those are corporate and business banking and commercial real estate finance at 9% pace in 2016, and 9% through the first 6 months of this year, very close to our target of 10% to 11% per annum. There has been a seasonal pattern of growth of demand deposits and other core deposit categories at Atlantic Capital with slower growth or declines in balances of some categories from year-end through the second quarter before building nicely in the second half of the year. Accordingly, second quarter growth came primarily in higher-priced deposit channels. We anticipate the mix of growth will be better balanced in the second half, but note the emergence of more rate-based competition as rates rise.

In summary, we are pleased with the improvement in our results in the second quarter and we're working hard to sustain that improvement. Now we'll be happy to answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from the line of [Mike Bone].

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Unidentified Analyst, [2]

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Just wanted to touch on the NIM, you guys continued to have some nice NIM expansion and you indicated, I think next quarter you kind of expect that trend to continue. For the next couple of rate hikes, can we expect maybe about the same 8 basis point increases in the NIM for every 25 basis point hike?

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

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Well, so the range we've kind of given is that 5 to 8 basis points. I would say the 8 basis points is probably in the high end of that. But it's still in that general range depending on (inaudible) deposit cost (inaudible).

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Unidentified Analyst, [4]

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That's helpful. And then in terms of deposit pricing, you mentioned you have about $500 million in balances that are very rate sensitive, but can you guys maybe give a little more color on kind of what you're seeing out there in the marketplace, have competitors just been generally increasing modestly? Or are people starting to get more aggressive at this point?

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David Michael Kramer, Atlantic Capital Bancshares, Inc. - President, COO & Director [5]

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Mike, this is Mike Kramer. When we talk about $500 million of deposit-sensitive businesses, probably the most sensitive in that mix is our financial institutions group. The pricing in that mix is tied to Fed Funds. So I think as we've said in the release, we've got a very strong correlation. In fact basically a beta of 1 on those deposits. So what we've been really focused on is trying to expand that business into other products without having to rely solely on money market pricing to drive the quality of the business that we are doing there. That's really at the end of the day, that's largely what's driving the deposit pricing increases that we're seeing, relative to just general core deposit business competition, I would say we haven't seen a tremendous amount of rate competition. It's more kind of still in a one-off category of dealing with specific deposit customers who may have some slightly higher rate demands, but nothing systemic.

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Unidentified Analyst, [6]

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Got you. That's very helpful. And then maybe one last one for me. I think we've seen about at least 5 hires this quarter, kind of -- maybe give an update on thoughts going forward in terms of hiring strategy?

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David Michael Kramer, Atlantic Capital Bancshares, Inc. - President, COO & Director [7]

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Again, this is Mike. From the hiring strategy, we -- at this stage of the game, I would define us as opportunistic. With some caveats. We are very intentional about trying to restaff in Tennessee. We have -- as Doug alluded to, we have hired 2 bankers, 1 in Knoxville, 1 in Chattanooga. We have staffed up in Charlotte. We have fully staffed Charlotte now with 4 bankers along with a senior credit officer in that market -- but again, I would describe it as largely an opportunistic situation in the other markets. We challenge our market leaders consistently to maintain a pipeline of the best bankers that they should be talking to. And we do that, we review that pretty consistently and these market leaders are regularly talking to other bankers from a recruiting standpoint.

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Operator [8]

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Your next question comes from the line of Stephen Scouten.

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Peter Finley Ruiz, Sandler O'Neill + Partners, L.P., Research Division - VP, Equity Research [9]

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This is actually Peter Ruiz on for Stephen. Just wanted to maybe get a little bit of color here on the added nonaccrual. What that looks like going forward specifically with that one? And maybe if there is anything else in the portfolio that maybe you've come through and looked at.

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [10]

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Rich Oglesby will take that one.

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Richard A. Oglesby, Atlantic Capital Bancshares, Inc. - Chief Credit & Risk Mgmt Officer & EVP [11]

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So as we said, we established this specific reserve on this credit back in December, and through the first 6 months of the year, things were looking like they were getting better, but as we closed out the quarter that particular loan ran into some more difficulty. We've reserved what we believe is the appropriate amount at this time, given that reserve, we've gone ahead and put the credit on non-perform. I don't really have a specific outcome for you right now, this is something that we're working on actively daily, and so I'm not really sure I can project much on that. With respect to the portfolio, our classified assets are at about 2.8% right now. We were at 2.2% at 12/31/16 that came down to 1.7% at 3/31. And so we're fluctuating around the 2% to 2.5% number. And as you can see, the specific reserve is basically related to that 1 credit and some other small things. We haven't increased it for these other increases in classified assets because we don't think it's necessary at this time. Does that help?

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Peter Finley Ruiz, Sandler O'Neill + Partners, L.P., Research Division - VP, Equity Research [12]

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Sure. Maybe just kind of -- what type of credit it was? And if there's anything else that could be related to that?

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Richard A. Oglesby, Atlantic Capital Bancshares, Inc. - Chief Credit & Risk Mgmt Officer & EVP [13]

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Yes, this company is a business services company here in Atlanta. We financed the headquarters building for it a while back, but the majority of the exposure is secured by working capital assets and equipment. I don't think this is any indication of broader problems, it's just a company that has run into some difficulties.

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Peter Finley Ruiz, Sandler O'Neill + Partners, L.P., Research Division - VP, Equity Research [14]

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Got it. That's great color. Appreciate that. I guess so you -- just maybe following up on loan growth, it sounds like the pipelines are building, but you may see some elevated pay-downs near term. Assuming maybe not necessarily in third quarter, but assuming more normalized pay-downs. With the recent hiring activity, do you think maybe loan growth kind of accelerates from that low double-digit range that you previously guided to, to maybe a mid-teens or high-teen eventually maybe in '18 -- in 2018?

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [15]

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I don't know if that's even desirable, frankly. We really like to focus on the sort of 10%, 11% pace of core loan growth. In the sustainable businesses, there was a lot of noise in 2016, but in those core businesses as I mentioned, we grew at 9%. That's been the pace of growth in those businesses so far this year. And I think we're very comfortable with that outlook. We do believe we can sustain that level of growth given the new hires and the new capacity that they bring. So assuming a continued economic expansion even at the somewhat modest levels we're seeing, I think it's realistic to expect a low double-digit loan growth number well into the future. So that's what we plan.

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Peter Finley Ruiz, Sandler O'Neill + Partners, L.P., Research Division - VP, Equity Research [16]

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Okay. Great, that makes sense. Maybe just one last quick one for me on expenses. You had a really nice drop this quarter. Is that kind of -- were there any one-timers in there that may not necessarily be run rate or is this kind of like a -- maybe a -- it'll be a little bit higher in third quarter with the full quarter of the new hires, but is there anything else in there that could change the expense base meaningfully?

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Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - CFO, EVP, Treasurer & Secretary [17]

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Well, excluding the merger-related expenses, at the $17.3 million, I would say that's a good -- probably good guidance going forward. You'll see a little bit of increase in salaries from some of these new hires, but there are some other areas that will come down, some of the stuff in equipment and software and some professional fees. That will drive it down a little bit. So hopefully, we can keep it around that general range.

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Operator [18]

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Your next question comes from the line of Steve Comery.

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Steven Comery, G. Research, LLC - Research Analyst [19]

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I just wanted to go back to deposits for a second, and I was wondering if you guys could talk about your gathering strategy for core deposits and your expectations for growth in the categories going forward.

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David Michael Kramer, Atlantic Capital Bancshares, Inc. - President, COO & Director [20]

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Steve, this is Mike Kramer. Yes, our core strategies really have remained unchanged, and we have a number of businesses that are focused exclusively on deposit gathering, payments probably being the most notable of those strategies. In addition, we do have a specialty deposit group that focuses on escrow account services, but really raising deposits is really everybody's business, I think one of the things that I am most pleased about is we continue to see nice growth in the branches for the quarter. The branches grew noninterest-bearing deposits about 7.5%. I think one of the real challenges that we have is given the branch sizes, we've got to increase deposit gathering activities at a much faster pace in those branch offices. Similarly, we -- Doug mentioned this in his opening remarks, we rolled out a new treasury management platform that we call Atlantic Capital Exchange, ACE. We believe that's really kind of next generation software from a treasury management standpoint for our larger business and commercial and corporate clients. We have a lot of confidence in the platform as we have converted to it, and now the real challenge is to have our treasury sales officers align with our corporate commercial and business bankers to do a better penetration job of selling that into the market and gathering deposits through that.

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Steven Comery, G. Research, LLC - Research Analyst [21]

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Okay. And it sounds like you expect these other categories to be sort of -- I mean it sounds like there's really only 1 category that's particularly rate sensitive, I know you guys talked about that earlier about that $500 million. How do you think about sort of ex that the rate sensitivity of your deposits?

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Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - CFO, EVP, Treasurer & Secretary [22]

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It's pretty minimal. We -- at least up to this point we have not seen much of an increase in the remainder of our deposit accounts. Kind of one-off and little things here and there but nothing significant.

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Steven Comery, G. Research, LLC - Research Analyst [23]

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Okay, and you think that's consistent through the June rate hike?

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Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - CFO, EVP, Treasurer & Secretary [24]

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So far.

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [25]

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Yes.

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Operator [26]

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Your next question comes from the line of [Nancy Bush].

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Unidentified Analyst, [27]

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If I could just ask, you spoke about the competitive conditions in lending. And everything I'm hearing is that it's pretty extreme right now. So could you speak to whether you're seeing competition across all your markets, whether it's particularly extreme in some markets? And how you're responding now? And how you plan to respond in the coming quarters?

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [28]

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Yes, the competition is intense in all of our markets. We see more deterioration in lending terms and pricing generally in our C&I or Corporate Banking business than we do in our Commercial Real Estate business. For instance, in the commercial real estate business, we haven't seen deterioration in advance rate and that sort of thing, you see some deterioration in support of guarantors and so forth, but that seems to be -- we seem to have absorbed the lessons from the financial crisis and the recession in that area. On the other hand, the C&I business is getting much more aggressive in terms of structure in lending terms and pricing as well. And that's really -- we're seeing that across all markets.

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Unidentified Analyst, [29]

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And your response, I mean do you guys just step out of that market? I mean how are you looking at it? You've been pretty conservative in the past, and I'm assuming that's not going to change, so do you just kind of let that business go by at this point?

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [30]

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We have to be very selective, for good credits, for relationships that we are trying to defend or relationships that we really want, we'll be competitive. But we do -- I think we are selective and there are things we will not do in this environment. And that obviously, has consequences going forward in terms of loan growth. So...

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Unidentified Analyst, [31]

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Okay. I think -- go ahead.

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [32]

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I was just going to say that, that's why we're really focused on what we think is a manageable level of loan growth as opposed to trying to reach for higher numbers.

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Unidentified Analyst, [33]

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Okay. If I could just go back to the discussion before on branches and that you need to increase deposit growth faster at the branches. Could you just remind us how many branches you have the right now? Sort of what the average deposit level is at the branches? And what your sort of near-term and longer-term goals are for that branch network?

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Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - CFO, EVP, Treasurer & Secretary [34]

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Yes. So 15 branches and roughly total deposits in those branches is little over $400 million -- $425 million roughly.

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Unidentified Analyst, [35]

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Okay. And thoughts about -- I mean are you putting more people in the branches to get the deposits -- I mean, how are you approaching this issue of increasing deposit growth at the branches? Is it a product issue? Is it a staffing issue? Et cetera.

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David Michael Kramer, Atlantic Capital Bancshares, Inc. - President, COO & Director [36]

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Nancy, this is Mike. It's a focus issue. Now that we have all of the integration noise completely behind us. It's really a matter of getting our branch managers and their staff refocused on being back on offense. So I think this is one of the areas where Joe DiNicolantonio has been extremely helpful in bringing a lot of the discipline around calling plans, calling activities and calling results back into the market. So we played defense for an awful lot of '16, and we clearly went back on offense in Q2, and we're just beginning to see some positive results from that. But there is no secret sauce here from a product standpoint. There is no silver bullet from a staffing standpoint. It's really a question of focus.

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [37]

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Nancy, this is really the problem at legacy First Security. A large branch network, branches with modest deposit levels and the expense that goes along with that. And as you know, we sold or divested -- we divested or closed 10 offices last year and early this year, and now we have these 15 offices with $425 million, $427 million of deposits, and obviously the key for better performance is improving that picture. It's a long road though.

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Unidentified Analyst, [38]

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I'm just wondering, I mean because it -- the branch network functions at this point as almost an appendage to the rest of the company. And so I'm wondering, as you develop that branch strategy and have success or not have success, does that influence your future thinking about putting out more branches, putting branches in different places, seeing it less as sort of separate from the rest of the company strategy?

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David Michael Kramer, Atlantic Capital Bancshares, Inc. - President, COO & Director [39]

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Well, strategically -- I'll jump in and then Doug, if you want to add to this. One of things that we have been doing really for the last several years is trying to get the branches refocused around small business calling. When we talk about calling efforts, we're really talking about the branch managers building a book of business in the small business communities that surround those branches, so if you think about all the branches that have been closed or divested over the last several years, we're down to a branch network that is largely centered in small cities or are in metropolitan areas. So these are markets where there is a plethora of small business all the way down to micro-businesses. That really -- that still require some branch support around cash needs. So as we think about branches, we're not thinking about them in terms of consumer driven activity as much as we're thinking about them in terms of small business activity. As we talk about the deposit mix, we have actually dropped account numbers pretty remarkably over the last 6 months, but we have continued to drive balances up in the branches and the analysis behind that tells you we are losing small balance consumer accounts but picking up larger balance small business (inaudible) and that's exactly what we want to do. We just need to do a lot more of it.

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [40]

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And accelerate the pace of that improvement and we're spending a lot of time evaluating that and searching for ways to improve the performance of the branch network. But that's a -- it's a big issue and it's a big issue that we're grappling with.

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Operator [41]

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(Operator Instructions) And your next question comes from the line of William Wallace.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [42]

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Maybe just to delve a little bit further into the line of questioning around your branch network. Have you -- what -- do you have a specific timeline that you have in mind? And specific goals as to where these branches need to be within what period of time before you need to consider alternatives? And if so, can you maybe talk about what some of those alternatives might be. I mean, can you close more, is there more opportunity for consolidation? Can you downsize? What can you do if you are not successful in hitting certain size?

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [43]

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Well, I won't give you a great answer to that, Wally. I'll tell you that there is a timeframe and we are evaluating alternatives and we'll continue to do that and come up with the right answer.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [44]

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Are these branches owned or leased?

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [45]

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Most of them are owned. Which is why...

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [46]

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Are they carried -- so they were purchased, so they're carried at value, correct? They have been marked?

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [47]

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They've been marked at fair value, right.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [48]

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Most of my other questions were asked. Just -- I know it's early, but if you can give any kind of early signs about how Charlotte is looking for you guys, just given all the disruption in North Carolina with M&A?

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [49]

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Yes, we think it's a great opportunity for us because of that disruption, and we're really like the team we've hired. They've really just been on the ground for about 6 weeks now. But the activity -- the market -- level of market activity, the calling activity is very good and they're building I think an attractive pipeline. We think they'll start to light up the score board in the second half of the year, and we're very optimistic about what we can do there. We see -- in the longer run, we see an opportunity to sort of replicate what we've done in Atlanta in that market, because we're approaching it in a similar fashion. We do have the initial staffing complement that we contemplated in place now, but as Mike said, we continue to be opportunistic, we've got a pipeline of other bankers that we're recruiting and if the right people present themselves at the right time, we'll be pretty aggressive in moving forward.

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

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Are you talking about in Charlotte? Or you're talking more general?

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [51]

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Yes, we are talking about more general, but we're talking specifically about Charlotte.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [52]

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So you are looking to continue to recruit lenders?

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [53]

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Yes.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [54]

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And then last question, it's just housekeeping. Pat, I believe in your prepared remarks you said that the tax rate kind of on a core basis excluding some of the stock compensation, impact was 33%, I'm curious what you would anticipate on a core basis for the back half of '17, and maybe into 2018?

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Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - CFO, EVP, Treasurer & Secretary [55]

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So that rate -- I would use that rate for the rest of the year. Excluding any impact from the stock compensation.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [56]

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And then as your earnings grow, that rate increases, correct?

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Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - CFO, EVP, Treasurer & Secretary [57]

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Yes. But when your -- the effective tax rate is based on our expectations for the year.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [58]

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Right. Because you'd said to 36% I believe, at the end -- towards the end of last year. Obviously expecting a higher earnings level. So you're not adjusting your securities portfolio or anything as your earnings grow? I guess is what I'm getting at and as your balance sheet grows.

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Patrick Timothy Oakes, Atlantic Capital Bancshares, Inc. - CFO, EVP, Treasurer & Secretary [59]

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A little bit but not much. At this point, I think this is based on expectations for the year.

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Operator [60]

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(Operator Instructions) And your next question comes from the line of Jennifer Demba.

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [61]

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My question was actually just covered. Thank you so much.

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Operator [62]

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(Operator Instructions) There are no further questions at this time.

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Douglas L. Williams, Atlantic Capital Bancshares, Inc. - C.E.O & Director [63]

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All right, thanks for dialing in and if there are any more questions feel free to call Pat or me later today or next week. Thanks a lot.

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Operator [64]

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This does conclude today's conference call. You may now disconnect your lines.