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Edited Transcript of STBZ earnings conference call or presentation 26-Oct-17 3:00pm GMT

Q3 2017 State Bank Financial Corp Earnings Call

MACON Jun 13, 2019 (Thomson StreetEvents) -- Edited Transcript of State Bank Financial Corp earnings conference call or presentation Thursday, October 26, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David F. Black

State Bank Financial Corporation - Former Chief Credit Officer

* J. Thomas Wiley

State Bank Financial Corporation - Former Vice Chairman, CEO & President

* Joe Evans

* Sheila E. Ray

State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO

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Conference Call Participants

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* Christopher William Marinac

FIG Partners, LLC, Research Division - Former Director of Research

* Stephen Scouten

* Steven Comery

G. Research, LLC - Research Analyst

* Tyler Stafford

Stephens Inc., Research Division - MD

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the State Financial Corporation Results for the Third Quarter 2017 Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded, Thursday, October 26 of 2017.

I would now like to turn the conference over to Sheila Ray. Please go ahead, ma'am.

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [2]

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Thank you, operator. Good morning, and thank you for joining the State Bank Financial Corporation Earnings Call. Here with me today on the call are our Chief Executive Officer, Tom Wiley; our Chief Credit Officer, David Black; and Chairman, Joe Evans, who will be available to answer questions after we have finished the presentation.

Tom will begin with the highlights of the third quarter, and I will then follow up with quarterly results in detail. David will discuss the loan portfolio and asset quality metrics, and, finally, Tom will give some closing remarks.

As usual, the third quarter earnings press release and slide presentation we will reference on this call are available in the Investor Section of our website, statebt.com. I need to remind you that comments made on this call are subject to our cautionary note regarding forward-looking statements in the press release and on Slide 2 of our earnings presentation.

I will now turn it over to Tom.

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J. Thomas Wiley, State Bank Financial Corporation - Former Vice Chairman, CEO & President [3]

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Thank you, Sheila. Starting on Slide 3, I want to briefly talk about the closing of AloStar acquisition, which is one of the best we have done to date. Thanks to the hard work and diligence of the State Bank team and the AloStar team, with outstanding regulatory support, we were able to complete the merger in less than 4 months after the announcement.

As we've said before, AloStar's Atlanta-based team led by Andy McGhee, is a very talented, highly compatible group of bankers. The approximately $197 million transaction created minimal dilution to tangible book value, which should be earned back in less than 1 year.

Additionally, using all cash for the purchase, effectively deploys much of our excess capital, while providing significant earnings accretion that should exceed our original estimates of $8 million annually.

This acquisition fills a gap in our commercial banking arsenal and will be an all-around great addition to the future of State Bank.

Now turning to Slide 4. Overall, this was a solid quarter with $4.4 million in earnings, as our core bank continues to replace our reliance on accretion income, which was at a historical low during the quarter. With increased interest income from loan and investment portfolios, coupled with our discipline expense management, our core bank is more profitable and efficient.

Finally, I continue to be pleased with our deposit growth. Excluding AloStar, deposits grew 10% on an annualized basis while cost of funds remain static. Not an easy accomplishment in a rising rate environment.

I will now turn it over to Sheila who will provide more detail about our third quarter.

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [4]

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Thanks, Tom. Before I begin, I want to remind you that income statement items do not include any impact from our recent acquisition, as we closed this deal as of the close of business on September 30, 2017. For balance sheet metrics, AloStar is included in the period-end balance, but is not included in average balances. And we have tried to footnote appropriately on the slides to provide clarity, where necessary.

Picking up on Slide 4, as Tom said, it was a good quarter with over $14 million in earnings, or $0.37 per diluted share. Growth and interest income on loans, declining noninterest expense and recapturing a portion of the purchase credit impaired, or PCI, provision, helped offset a $2.7 million decline in accretion income from the previous quarter.

Year-to-date, earnings are $41.2 million or $1.06 per diluted share, which is a 5% increase over the same period in 2016. Tangible book value has increased $0.53 per share since the beginning of the year, while maintaining a dividend yield close to 2% and completing the acquisition of AloStar with all cash. At a tangible book value of $14.01, we are already $0.02 higher than we were at the end of the third quarter of 2016, which was prior to our NBG and S-Bank acquisitions.

Now turn with me to Slide 5. Benefiting from the acquisition of NBG and S-Bank and the 75 basis point increases in the fed funds rate since December 2016, interest income on loans and invested funds increased to $41.2 million, up 31.6% from the third quarter of 2016. For the quarter, total accretion was $6.5 million, including $4.2 million of base accretion which was down [almost] 7% from the second quarter. We expect base accretion to pick up in the fourth quarter with the addition of certain AloStar loans moving to the PCI portfolio book. We estimate base accretion will be in the $4.5 million to $5 million range in the fourth quarter of 2017, before returning to a comparable historical attrition rate.

Please note that the AloStar loans classified as purchase credit impaired are individually relatively large loans and any early payoff could accelerate accretion forward into loan recovery income, which would lower future scheduled base accretion.

The remaining $2.3 million of accretion income in the third quarter was due to loan recovery income, which was down $2.3 million from last quarter. As we have said before, recovery income is irregular and hard to forecast, and we do expect it to continue trending lower.

Also, please note that the PCI loan provision benefit of $881,000 during the quarter represents recovering income for previous impairment recognition.

The bottom of the slide provides more detail on the bank's net interest margin, which decreased 25 basis points this quarter to 4.51%. The margin was negatively affected by a 28 basis point decline in PCI accretion income and a 15 basis point decline in purchase non-credit impaired day 2 accretion. These declines were partially offset by an increase in loan income contribution of 18 basis points.

Looking at the potential impact of future changes in rates by the Federal Reserve, we continue to estimate that our loan portfolio will capture approximately half of any rate increases. However, due to volatility in our loan fee income because of prepayment, our net interest margin will continue to experience some minor fluctuations quarter-to-quarter.

Additionally, we expect our investment portfolio will continue to benefit from rising short-term rates. This quarter was an exception due to an increase in our cash position in the anticipation of the AloStar acquisition.

Looking ahead to possible future rate increases and the impact on the AloStar portfolio, the majority of the AloStar portfolio is floating rate, and we expect it to see a benefit equal to if not greater than the legacy State Bank portfolio.

Additionally, the higher yielding AloStar loan portfolio will increase the overall yield at the combined portfolio. When coupled with reducing low yielding assets from the AloStar balance sheet through the reduction of $200 million in cash investments as we've paid for the transaction, we expect any increases in our blended cost of funds will be offset and our overall net interest margin will improve.

When we exclude accretion, we estimate that AloStar will have an even more positive impact on our net interest margin.

Move with me to Slide 6. Noninterest income in the third quarter was down slightly from the previous quarter, but is up year-to-date over the same period in 2016. Mortgage banking income decreased 9.8% from last quarter, to $2.8 million. Some lending officer turnover in the Atlanta market contributed to a decrease in retail production. We believe the Atlanta team has stabilized now and we'll look to build some momentum heading into 2018.

Our SBA income was $1.5 million for this quarter, as FBA production declined compared to last quarter. As we seek to diversify our portfolio and migrate into new industries, we are seeing a decline in the size of the loans we originate. Our average loan size has declined from $941,000 in 2016, to $663,000 in 2017. So while we are closing a larger number of loans with greater diversity and asset class, we consequently have seen a downtick in dollars of production and, thus, fee income.

Payroll and insurance income was a bright spot. It was up 5% to $1.5 million from last quarter, and 14.6% compared to the third quarter of 2016.

Our value proposition of providing both payroll and benefits insurance together has gained some traction that we expect will continue in upcoming quarters. In a year-over-year comparison, the full revenue potential impact is muted by clients who offset their fees with earnings credit from their deposit accounts. The growth in fees offset by earnings credit is indicative of our success in selling payroll services and deposit accounts together.

On Slide 7, you'll see an update in the quarter's expenses and efficiency. Expense management remains top of mind, and we continue to work towards our stated goals of a 2% burden ratio and a 55% efficiency ratio.

Looking ahead to next quarter and the impact of the AloStar acquisition, we expect merger expenses in excess of $4 million over the next 2 quarters. The AloStar conversion is scheduled for March of next year, and we anticipate achieving the full 25% cost savings target by the end of the second quarter of 2018.

Excluding the impact of merger expenses, we expect AloStar to add roughly $6 million to $6.5 million in expenses in each of the next 2 quarters. We project this expense to decline in the second quarter of 2018, and reach a quarterly run rate of $4.5 million to $5 million in the third quarter of 2018. This would bring State Bank's quarterly noninterest income to a normalized level of about $36 million to $37 million after the AloStar systems conversion, given no other significant changes during that period.

Lastly, I would like to reference Slides 8 and 9 for our deposit results. We continue to focus on growing low-cost core deposits and increasing transaction deposit accounts by providing clients exceptional service and effective technology. Excluding the AloStar acquisition, deposit growth was up $82.7 million or 2.7% from last quarter. $67.5 million or 6.7% growth in noninterest-bearing deposits, helped keep our cost of funds flat at 38 basis points.

As Slide 8 shows, even with the inclusion of the AloStar deposit portfolio, noninterest-bearing deposits remain a healthy 28% of total deposits while CDs remain less than 20%.

Additionally, the third quarter pro forma blended cost of funds would have been roughly 50 basis points, and our deposit beta would have increased from a little under 5% to around 10%, with the 2 companies' pro forma together.

It is important to note that we view the 2 funding channels that AloStar provides us, especially Internet banking, as supplemental sources of funding, and an additional avenue to help us manage our balance sheet. At this time, they are not expected to be a part of our core funding growth strategy.

This concludes my remarks, and I will now turn the discussion over to David.

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David F. Black, State Bank Financial Corporation - Former Chief Credit Officer [5]

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Thank you, Sheila, and good morning, everyone. Picking up on Slide 10, you can see the AloStar acquisition meaningfully diversifies our portfolio by adding $545 million in C&I loans. We're excited about the addition of AloStar's asset-based lending and lender finance lines of business. The team brings a great reputation to the marketplace, a healthy top line, and we're optimistic this group will be a meaningful driver of future loan growth.

Excluding AloStar's loan portfolio, our organic loan growth of $29.2 million was offset by PNCI loan contraction of $46.5 million, resulting from a heightened level of payoffs during the quarter. Consistent with what other banks have stated this earnings season, there's a significant amount of competition for quality credits and structure and pricing are very aggressive. We have made a conscious decision not to compromise on credit for the sake of loan growth.

We've also remained disciplined when it comes to our own internal guidelines and risk management practices regarding specific project, borrower, and CRE concentration sub-limits.

With the AloStar acquisition on the horizon, we have been proactively managing the balance sheet, which includes having sold in excess of $110 million in committed loan balances this year. With that being said, we're still bullish about the markets we're in and are upbeat regarding the trajectory of our various lines of business. We see strong demographic and employment trends in our markets and are confident in our ability to execute.

Turning to Slide 11, with the AloStar acquisition, our current CRE concentrations as a percent of risk-based capital are 102% for AD&C and 353% for total CRE, compared to 94% and 336%, respectively, in the second quarter. We remain comfortable with these concentration levels and are attentive to our portfolio risk management practices.

I will wrap up with credit quality on Slide 12. The bank's credit metrics remain very sound, with past-due organic loans at just 12 basis points, and annualized organic net charge-offs for the quarter at 14 basis points.

Purchase credit impaired balances were up quarter-over-quarter as a result of a portion of the AloStar portfolio being transferred to PCI at acquisition.

OREO balances were at an all-time low of $1.3 million, down from $2.4 million in the previous quarter and $10.6 million from the third quarter of last year.

I'll now turn the discussion back over to Tom.

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J. Thomas Wiley, State Bank Financial Corporation - Former Vice Chairman, CEO & President [6]

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Okay. Thanks, David. Before we move to questions, I want to touch on a topic that you'll be hearing more about during upcoming quarters. Competition from bank and non-bank competitors has created an environment of rapid change. And as such, we are actively refining our strategies.

We recognize that our clients are the most valuable resource. They are our business associates and friends. They deserve the best we can offer. That is why we employ a group of bankers that I personally feel are the best in the markets we serve.

Now we are reviewing all of our processes, systems and procedures to produce a best-in-class client experience. I believe that the return on investment, from providing a premier client experience, will accelerate our growth and our profitability.

We already provide a great value to our clients, but we are excited to see where and how we can improve and set ourselves further apart from our competition. We will not get to where we desire to be by competing with regional and money center banks on price alone.

I look forward to sharing our results as we go forward. I'm pleased with our quarter, as I've said. Our team continues to have a lot of positive momentum, and the fundamental trend remains sound. I am extremely excited about the future of State Bank.

And with that, operator, we can open the line for questions.

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Questions and Answers

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Operator [1]

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Thank you. (Operator Instructions) And our first question comes from the line of Stephen Scouten of Sandler O'Neill.

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Stephen Scouten, [2]

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So wanted to ask you about maybe deposit costs. I mean, it was really, really impressive, I think especially this quarter, that you guys were able to keep your overall cost of deposits flat. And I know you talked about some increased noninterest-bearing deposits. But how do you keep that more stable moving forward when that's such a pressure on the industry today? And how do you think about especially with the funding needs for AloStar?

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J. Thomas Wiley, State Bank Financial Corporation - Former Vice Chairman, CEO & President [3]

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Tell you what. I'll start and then let Sheila back it up with facts. First of all, Stephen, we have spent really 8 years of our lives here focused on deposits and building a treasury platform that is best-in-class, in my opinion. Again, I hear this from our treasury professionals as they compete with money center banks. And our focus has been on operating accounts. And we have grown our noninterest-bearing accounts at a faster rate than the rest of our deposit base. And I think that has just been core to State Bank from our beginning.

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [4]

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And, Stephen, as you well know, couple of the lines of deposits that AloStar brings to the table the correspondent banking and Internet banking, certainly have a higher beta with interest rate increases than what we have in our core book at State Bank. So we did calculate that. And as I mentioned in the earlier portion of the call, the combined beta would have been right around 10%, which is higher than we've experienced. We think that's probably somewhat indicative because they've been recognizing these increases. Now, yes, you're starting to see more pressure in the market with other financial institutions and money market funding. That has not been our focus in funding. Our focus has been treasury services, as Tom said. And we continue to expect to do that. Now, will we be able to maintain the beta we have right now? I think it may increase somewhat, but I would still expect us to lag others.

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Stephen Scouten, [5]

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Okay, that's great. So in most of these categories, interest-bearing transaction, time deposits, I mean, you've seen almost no increases over the last 3, 4 quarters. You think that can continue even if we get a December hike? Am I hearing that correct?

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [6]

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I think that is the case. Now, what will happen with the new lines of deposit, you'll fully absorb that interest rate increase in the correspondent deposits, and as we reprice and go out to seek the -- to retain some of the Internet deposits, which we'll have to do, particularly as we continue to execute our growth strategy on core deposits, you'll see some rate increases. Those are very sensitive. And depending on what happens, historically we have had some deposit fall-off in the first quarter, and, if that happens again, then we'll fill in some funding sources or needs through Internet deposits potentially, or through borrowings. And we are agnostic as to which.

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Joe Evans, [7]

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This is Joe. Let me just add one thing to that. We mentioned this in some prior quarters. We operate in some markets with significant market share presence from banks that are subject to the liquidity coverage ratio. And as such, we feel that we've got a competitive advantage in our ability to service clients in their commercial deposits and commercial money market accounts at a point in time that we sense a defensive strategy on the part of the banks that are subject to LCR. I think we can still continue to make headway there.

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Stephen Scouten, [8]

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No, that makes sense. That makes sense. That's helpful, too. And you just touched on the loan growth front a little bit. Can you talk about production levels this quarter relative to previous quarters or maybe pay-down activity and if there's anything causing growth that we've seen over the last 2 quarters to be such a big delta from what we saw last year or if this is kind of the new run rate in this competitive environment.

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David F. Black, State Bank Financial Corporation - Former Chief Credit Officer [9]

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Yes. Stephen, this is David. From a production standpoint, the quarter was very much in line with what we've seen really for the last 2 years. We did have elevated pay downs in the quarter which were $394 million. These were pay downs and payoffs, in some cases, but I would not represent them as lost relationships, just the natural transactional turn that we see in our portfolio and maybe more so in our portfolio than others, given the short duration of our loan book. But from a portfolio management standpoint, we have been very attentive to the CRE concentration sub-limits. And if you look on an organic basis on a point-to-point, we were actually down in the top 4 CRE subcategories. We were down in retail. We were down in multifamily. We were down in hospitality. And we were down in office. That's just us being disciplined about driving diversification in the portfolio and knowing that we had capital deployment via the AloStar acquisition and we had some CRE that came on with that acquisition. So as we think on a outlook basis, we still think that there's opportunities that we can grow and from a non-purchase credit impaired portfolio, I think it's reasonable to assume that we can be in the mid- to high single-digits growth and it'll come from various lines of business. We are bullish about AloStar can represent from an ABL lender finance standpoint. Patriot continues to be a meaningful contributor or our loan growth. And we're still looking to grow in the commercial bank. We're adding a commercial team in the Savannah market and are optimistic about what that team can represent for us.

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Stephen Scouten, [10]

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Okay. And maybe one follow-up to that. Is there anything that you guys see that could diminish the level of pay downs moving forward? Or is this kind of where we are as an industry and that's, you know, with the rate environment and permanent financing markets what they are, that's just going to continue for a bit?

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J. Thomas Wiley, State Bank Financial Corporation - Former Vice Chairman, CEO & President [11]

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I think, again, speaking to our longtime relationships, they are value purchasers. And I think at this point in the cycle, they're not seeing the value purchases and some are actually, they're selling real estate or going ahead and taking it out to capital markets. And whether this is the seventh inning or the middle of the eighth is sort of hard to project. I still, as David said, I'm very bullish about Georgia in general and Atlanta specifically. And so it's one of those things that we follow very closely and will continue to follow. I do not, I think in terms of relationships. If the business is out there, we'll get it.

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Stephen Scouten, [12]

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Great. Okay, that's helpful. And thanks for all your color there. And congrats on getting that AloStar deal done so quickly. That was really impressive. So congratulations.

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J. Thomas Wiley, State Bank Financial Corporation - Former Vice Chairman, CEO & President [13]

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Thank you.

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Operator [14]

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Thank you. (Operator Instructions) Our next question comes from the line of Christopher Marinac of FIG Partners.

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Christopher William Marinac, FIG Partners, LLC, Research Division - Former Director of Research [15]

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I had a deposit question to begin. It seems that the core deposits, excluding AloStar, grew faster than the total deposits. I'm just removing CDs in that calculation. Am I kind of generally in the right ballpark with that impression?

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [16]

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You are.

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Christopher William Marinac, FIG Partners, LLC, Research Division - Former Director of Research [17]

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Okay, great. And then what are the various things that you are doing or can do to kind of incent both the AloStar team to bring more deposits in, as well as sort of kind of retraining the customers in some of the low-hanging fruit that may exist in the client book?

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J. Thomas Wiley, State Bank Financial Corporation - Former Vice Chairman, CEO & President [18]

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Chris, this is Tom. I think candidly we're sort of early in the game for that. I think we're still learning their business and they're still learning our business. But have not attempted to pile on a lot of additional products for them to sell. And, obviously, Andy McGhee is a banker and he gets it. And I think that will come over time.

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Christopher William Marinac, FIG Partners, LLC, Research Division - Former Director of Research [19]

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Okay. I understand. And, Tom, I guess on the loan side part of that question, do you think that it will be maybe 2, 3 quarters from now that we kind of step back and judge how it's going, particularly once the systems conversion is behind us? Is that a fair time to kind of circle back with that question?

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J. Thomas Wiley, State Bank Financial Corporation - Former Vice Chairman, CEO & President [20]

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Yes, I think that's fair. And I will say the AloStar pipelines are robust.

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Christopher William Marinac, FIG Partners, LLC, Research Division - Former Director of Research [21]

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Got you. And then last question, perhaps for Sheila, is just on expenses. The incremental investment you guys are making in systems and just trying to create that world-class customer experience, how much of that investment's already in the run rate that you have today? I'm just curious of additional spend that you may have just for some of those strategic kind of product build that you're speaking to.

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [22]

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Yes, a lot of that is in the run rate right now, and some of it will be replacing other expenses that are in the run rate. We've had some elevated expenses this year. We'll likely have a little bit along the same trend next year, and then we'll start eliminating some of the systems being replaced. Overall, from a systems perspective, we don't think our cost increase is significantly beyond normal growth of the bank, but we will have a little bit of transition time going on. But you've actually already been seeing that through a project that we call Project [North Star].

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Operator [23]

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Thank you. (Operator Instructions) Our next question comes from the line of Tyler Stafford of Stephens.

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Tyler Stafford, Stephens Inc., Research Division - MD [24]

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I just want to start on one more for me on loan growth. And, David, just following up on your mid- to high single-digit loan growth, I guess kind of target that you laid out there. Can you just remind us on which balances you're thinking about for that growth? I know you've got a few different buckets, whether it's the organic bucket, the purchase noncredit impaired, purchase credit impaired. What are you including in that kind of mid- to high single-digits expectation?

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David F. Black, State Bank Financial Corporation - Former Chief Credit Officer [25]

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I'm including organic and PNCI. So I'm excluding the purchase credit impaired from that expectation.

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Tyler Stafford, Stephens Inc., Research Division - MD [26]

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Okay, got it. Thank you.

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David F. Black, State Bank Financial Corporation - Former Chief Credit Officer [27]

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From a PNCI book, that's [going to track]. So that's the headwind. And I will, from a goal standpoint for us to be outpacing the organic growth and make up for that PNCI contraction.

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Tyler Stafford, Stephens Inc., Research Division - MD [28]

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Yes. That clears that up, okay. Thanks. And then can you just I guess talk bigger picture about the credit quality of AloStar now that it's on your books and you've had more time to digest it? I was a little bit surprised by the amount of PCI loans that AloStar added to the balance sheet. It looks like, I don't know, 10% or 11% of the loans came over as PCIs. I'm just curious if you got any commentary from a credit perspective.

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David F. Black, State Bank Financial Corporation - Former Chief Credit Officer [29]

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Yes. Some of the designation as far as what falls into PCI versus PNCI is really the accounting guidance on the percentage loss content. And we, as you might imagine, tend to take a fairly conservative view in all of our diligence exercises and the marks that we apply there. The total, what was designated from a PCI standpoint relative to their grades, watch and worse, there was a correlation there relatively close in proximity. But we feel comfortable about where we have the total loan mark, which was at $27 million on the portfolio and that's embedded in the day 1 numbers as it comes across both in the PCI and PNCI.

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Joe Evans, [30]

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It's probably worth to mention just where, what types of loans those marks were on because I think that's material.

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David F. Black, State Bank Financial Corporation - Former Chief Credit Officer [31]

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Yes. The predominance of the mark, Tyler, was on the commercial real estate portfolio, and that's the predominant makeup of what we mapped into purchase credit impaired.

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [32]

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It was [77%] what was mapped in.

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Tyler Stafford, Stephens Inc., Research Division - MD [33]

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So did the final credit mark change from that original 3.5% mark?

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David F. Black, State Bank Financial Corporation - Former Chief Credit Officer [34]

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No.

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Tyler Stafford, Stephens Inc., Research Division - MD [35]

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Well, I guess their 6/30 balances were around $780 million of loans and you guys brought on $719 million. So that's, I don't know roughly 8% or so delta there. So if the mark didn't change, I'm just wondering, if I'm doing my math right, what happened to the other 4.5% or 5% of those loan balances?

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [36]

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There's also a interest rate mark that goes at least to fair market value. That was about $2 million.

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David F. Black, State Bank Financial Corporation - Former Chief Credit Officer [37]

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But I think the bigger delta would just be between 6/30 and 9/30, that they had some payoffs, and they --

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [38]

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That is true. They had a couple of significant payoffs in there.

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David F. Black, State Bank Financial Corporation - Former Chief Credit Officer [39]

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Yes.

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Tyler Stafford, Stephens Inc., Research Division - MD [40]

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Okay. Yes, that must be the difference then. Okay. And then just last from me, Sheila, just back on expenses, with all the AloStar cost savings in the run rate in the back half of '18, any framework you can give us on where you'd be trending towards your burn ratio goal?

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [41]

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I think we're going to be looking at it and maybe setting a new goal, Tyler.

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Operator [42]

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Thank you. Our next question comes from the line of Steven Comery of Gabelli.

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Steven Comery, G. Research, LLC - Research Analyst [43]

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Just wanted to talk about yields for a second. You guys said you had an 18 basis point increase in loan yields. That's obviously pretty good. Is most of that from the rate hike kind of bleeding through into the portfolio? And then kind of just getting away from fixed versus floating, what are you guys seeing for pricing? Are you able to bring loans on the book at a higher rate this quarter than the previous quarter? Kind of how is that shaking out?

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [44]

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I think a lot of it is just that we have a mostly variable rate portfolio. But we also have a changing mix in the portfolio with some higher yielding loans taking some extra percentage of the portfolio with the Patriot equipment finance loans coming on. So I think you've got a little bit of mix and then I think you have a lot of benefit, frankly, from that rate increase.

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Steven Comery, G. Research, LLC - Research Analyst [45]

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Okay. Yes, thanks for that. And then just going to expenses for a second. On the merger costs, is it $4 million per quarter or $4 million total? Just want to be clear on that.

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [46]

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No, no, no, no. Thank you for clarifying that. It is $4 million in total.

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Steven Comery, G. Research, LLC - Research Analyst [47]

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$4 million total, okay. And then just finally on expenses again, on the AloStar expenses, $6 million per quarter until the back half of next year. Is this quarter's expense rate a good place to start and then you add the $6 million onto that? Just want to be sure I'm interpreting that correctly.

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [48]

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Yes, I think it is. You are interpreting it correctly. And the one thing I would say there as well is, obviously, our commissions and benefits were down a little bit this quarter because of the noninterest income. So there's always that delta as well, that if our noninterest income lines bounce up, then our commissions and benefits will increase. But it'll obviously be more than paid for with the increase in revenue.

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Operator [49]

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Thank you. Please continue with your presentation or closing remarks, as we do not have any additional questions from the phone lines.

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J. Thomas Wiley, State Bank Financial Corporation - Former Vice Chairman, CEO & President [50]

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Well, again, first of all, thank you all for joining and taking some time with us, being patient with us. And we, again, I've said it, we had a solid quarter, and look forward to speaking with you next quarter.

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Sheila E. Ray, State Bank Financial Corporation - Former Executive VP, Secretary, CFO & COO [51]

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Thank you.

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Operator [52]

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Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.