Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Ken Posner – Chief of Investment Analytics and IR Executive

Gene Taylor – Chairman and CEO

Chris Marshall – CFO

Bruce Singletary – Chief Risk Officer

Analysts

Erika Najarian – Bank of America

Nick Harzan – Credit Suisse

Paul Miller – FBR

Brady Gaile – KBW

Matthew Keating – Barclays

Evan Judo – Compass Point

Blair Brantley – BB&T Capital Markets

Capital Bank Financial Corporation (CBF) Q4 2013 Earnings Call January 23, 2014 10:00 AM ET

Ken Posner

Thank you, Michelle, and good morning, everyone. I’m Ken Posner, Chief of Investment Analytics and Investor Relations Executive for Capital Bank Financial Corp. And I’d like to welcome you to our Fourth Quarter 2013 Conference Call. Today’s call is being recorded. Please see the press release for instructions in accessing the replay.

During today’s call we will discuss certain non-GAAP financial measures. You will find a reconciliation of those measures to the GAAP results in today’s new release and slide deck. You can find the slide deck by going to the Investors page of our website www.capitalbank-us.com and following the link to the fourth quarter earnings conference call.

As a reminder, this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding expected operating and financial performance.

Any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements the words, belief, anticipate, plan, expect and similar expressions are intended to identify forward-looking statements.

We caution that forward-looking statements may be effected by risk factors including those set forth in Capital Bank’s SEC filings, and consequently actual operations and results may differ materially from forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements.

At this time for opening remarks, I’ll turn the conference over to the company’s Chairman and Chief Executive Officer, Gene Taylor.

Gene Taylor

Good morning. Thanks for being with us today for our fourth quarter 2013 conference call. In addition to Ken Posner, I’m here this morning with our Chief Financial Officer, Chris Marshall; our Chief Credit Officer, Bruce Singletary; and our Chief Accounting Officer, Jack Partagas. We’ll make some remarks about fourth quarter results and our outlook for 2014 then take your questions.

Slide 3 lays out the goals we’ve articulated in our progress against them. Two key points, first, we continue to make steady progress, improving our return on assets. Second, this quarter we generated organic loan growth of $75 million, and important milestone for the company.

I will skip slides 4 and 5, which cover the Capital Banks story and go straight to our fourth quarter highlights on slide 6. The fourth quarter was a good quarter for us in terms of earnings and profitability. We reported net income of $12.2 million or $0.23 per share. On a core basis which we track internally as a measure the company’s earnings power, this translates into a record $13 million or $0.25 per share, 54% over the fourth quarter of last year.

Our core return on assets continues to improve reaching 79 in the fourth quarter, up 3 basis points from the third quarter and significantly higher than the 48 we reported in the fourth quarter of 2012.

The biggest news for us this quarter was the net loan portfolio growth at $75 million or 6.7% annualized. This growth was a result of strong originations which totaled $409 million up 62% year-over-year, and a new record for us.

The biggest driver continues to be commercial lending accounted for 55% of originations. As you know, we deliberately created the Capital Bank franchise through acquisitions it would give us a presence and attractive metropolitan markets, including Miami, Roy Dern and National as long as a number of other cities with strong demographics. These results clearly demonstrated customers who reaccepted to the Capital Bank story. They like having a responsive, strongly capitalized relationship focused bank in their local market.

You’ve heard us talk a lot about how we continually talked about the sales force in order to develop a team of professionals who we have the skills and credibility to call along high quality middle market companies in our footprint. You’re seeing the results of this process in terms of strong originations over time with our higher headcount.

I’m especially pleased with our performance in Tennessee, where our commercial things have got some traction under the new leadership we put in place. Tennessee volumes improved sequentially from $45 million to $121 million and accounted for 30% of the total which is where they – which is closer to where they should be given the size and opportunity that we have in Tennessee.

In addition to driving strong originations, we also made some adjustments to our defensive gang. As you recall, last quarter, we experienced an unusually high level of payoffs, some of which was by design, but some of which reflected aggressive competition.

We took steps to tighten scrutiny and accountability around retention and I was very pleased to see payoffs come back in line with our expectations in the fourth quarter.

Consumer products were almost flat sequentially but year-over-year it’s up 75%. We’ve applied the same thought writing process to our retail and mortgage sales forces. And we’ve also been investing in the back-office for the consumer buying.

Finally, I’ll mention that we’re seeing good progress in terms of reducing legacy credit expenses which were down 48% year-over-year consistent with the guidance we gave you this time a year ago.

I’ll let Bruce and Chris take you through the details of our credit performance which continues to be a positive story for us.

I’m now going to turn the call over to Chris, for more detail on the financial results. And then I’ll be back with some concluding remarks on our outlook.

Chris Marshall

Thank you, Gene, and good morning everyone. As Gene mentioned, our core net income was $13 million in the quarter or $0.25 per share. This translates into a core ROA of 79 basis points which is a significant improvement from the 48 basis points we generated a year ago, is up 3 basis points from last quarter.

Now we’re pleased with these numbers, and we remain very confident in our business plan and our strategies, in part because they reflect pride and true practices from our career with larger institutions. And we’re pleased to see that our consistent execution is leading to consistently stronger results.

The core income excludes non-core items that sum to approximately $800,000 after tax or about $0.02 a share. To summarize these non-core adjustments include approximately $600,000 but non-cash equity compensation expense $300,000 in contingent value right accruals and $100,000 in security stakes. And you’ll find details on these adjustments including pre and after tax amounts in the Appendix.

Now let me take a minute and give you a high level of summary the major items you’ll notice in our income statement. First, net interest income increased sequentially as lower deposit costs and higher security yields helped to offset pressure on loan yields.

Second, core non-interest income declined by $2.2 million sequentially, the most of this was reduction or FBIC asset which reflects strong credit performance in our covered portfolio. Third, the provision was up sequentially, the $3.3 million reflecting loan growth, a very strong loan growth that we saw in the quarter.

And finally, core non-interest expense declined by $4.3 million largely as a result of lower OREO expense. So, given this overview, let me move into a little greater detail starting with slide 8, which covers new loan production.

Last quarter we talked about our confidence and strong origination momentum and we’re very pleased with fourth quarter production of $409 million which is a new record for us, and is up 62% year-over-year and 40% sequentially. The biggest driver of our record production was commercial lending, which hit $227 million in the quarter, which is up 28% from a year ago.

As Gene, mentioned we also saw significantly better results out of Tennessee, which started to contribute meaningfully in the quarter, thanks to our new leadership and the senior lenders who joined our team earlier in the year. And we believe all three of our markets offer great growth opportunities and you should expect to see each of them contribute meaningfully to our growth over time.

You’ll notice that CRE landing was a little bit stronger this quarter at $91 million up from $61 million in the prior quarter, but we remain very selective on this asset class because it’s much more transaction oriented, less relationship based and commercial lending.

Last quarter, we talked about competition in the marketplace and how we’re avoiding deals with looser credit standards for longer terms. And while competition hasn’t eased, we were able to increase production in the fourth quarter meaningfully without compromising on our credit and interest rate risk standards.

And also let me remind you that we don’t buy loans and portfolios and we don’t participate in deals unless we have a direct relationship with the insurer’s management team.

Consumer lending was flat quarter-over-quarter reflecting headwinds in the mortgage business. But nonetheless, production was up 75% year-over-year. We’ve been applying the same top grading process to our residential mortgage lenders and retail branch managers. We believe we have room to grow production of residential, consumer and small business loans over time.

Last year we guided you to a 20% growth rate in originations. And actually we did somewhat better than that. We’re very proud of the teams we have in place and we’re all working very hard to drive another 20% lift in originations in 2014.

So, turning to slide 9, let’s look at net loan portfolio growth. As Gene, said, the loan portfolio did increase by $75 million during the quarter equivalent to an annualized growth rate of just under, 7%. In addition, strong originations, payoffs were more manageable within our expectations is clearly $266 million down from $338 million last quarter.

We did have some lumpiness in the third quarter including some weaker credits that we encouraged to exit the bank. But also as Gene mentioned, we took steps to intensity our scrutiny of the existing portfolio and tighten accountability for retention.

Organic loan portfolio growth is a top priority for the company and we’re very pleased with our fourth quarter results. We’re optimistic about our continued growth in 2014, but it may not be even from quarter to quarter. For one, the environment remains intensely competitive and we will continue to be extremely disciplined in respect to credit and interest rate risk. Also, we still have a large balance of special asset loans that we’re working diligently to disclose that.

So, turning to deposits, on slide 10, you can see, we continue to improve the quality of our deposit base and lower the cost with the deposits during the quarter. Deposit cost fell by another 4 basis points due to the continued run-off of legacy high-cost CDs.

Our core deposit cost were flat at 14 basis points which is a level that we’re very pleased with – especially as we’re able to grow core deposit balances by $49 million during the quarter, with more than half of that in check-in accounts.

Now as you all well know, check-in accounts are our lowest source of funds and if interest rates continue to rise, then they will be you’re most stable and valuable funding source as well.

So for that reason, our consumer bank remains intensely focused on check-in sales. But as you can see from the chart, we did lose momentum in that account growth during the quarter. Most of that relates to our ongoing purge of low balance on profitable relationships. And this purging is still very heavy in Tennessee. But on net basis, Florida and the Carolinas are doing very well.

We mention last quarter we made some changes to the consumer leadership team in Tennessee and they’re already having a very big impact. So, I would emphasize that we’re confident that Tennessee in that account growth will continue to improve over time to levels a comparable these are more mature markets. Overall, core deposits now stand at 72% of the total. And the company has now 95 deposit funded.

Turning to slide 11, let’s take a look at our net interest margin which expanded by 7 basis points from 4.45 in the third quarter to 4.52 in the fourth quarter. And as you know, we’ve consistently guided you to expect pressure on and on for the simple and obvious reason that new loans are going out of the books at much lower rates than the current yield. This dynamic is not changing but there were some one-time event that helped us in the fourth quarter.

First, we benefited from slightly higher yields in our securities portfolio thanks to rising interest rates and slower prepayment speeds. Second, as I mention, deposit costs continued to fall in the fourth quarter as we grew low cost core deposits while Legacy CDs continued to run-off. Third, loan yields declined by 5 basis points during the quarter, lower rates on new loans. Loan yields would have declined further but we had $1.3 million in recoveries. So, I’m fully charged off, acquiring impeded loans.

We had similar recoveries in previous quarters. And certainly we may have additional recoveries in future quarters, but we can’t accurately predict how much they would be one name will occur.

Regarding new loans, you’ll notice that new loan yields dropped from 4% last quarter to 3.5% in the fourth quarter. Now the big reason for that was that we did much more variable rate lending in the quarter, in fact, the ratio of variable to fixed rate lending was up about 20% in the quarter.

Additionally, we did more, larger transactions with very high quality commercial customers. The credit and interest rate risk in these deals met our standards and the lower yields on these deals, was warranted by the credit strength of the borrowers. And they associated lower expected losses.

As you know, our strategy is to position capital bank to grow over time with some of the premier commercial businesses in our footprint. And we did a really great job of that in Q4. So, I’d say once again, the margin turned out stronger than expected during 2013. But I’ll continue to guide you to expect around the margin over time.

Slide 12, addresses core non-interest income. And if you look past the FDIC indemnification line, which we think of is portable and legacy credit expenses, core fee revenues were down by about $800,000 sequentially largely on reduced gains out of our mortgage business which we indicated last quarter was likely to be the case.

The year-over-year comparisons show that we’ve made some progress in debit card fees and wealth management income. Conversely, we’ve lost ground on deposit service charges which reflects migration away from some of the low balanced rechecking products which some of our legacy banks offered before we acquired them. But our focus on net account growth, net checking account growth should help us grow this line over time.

Slide 13, shows you the trend in core non-interest expense. And if you peel back OREO expense or non-interest expense which was largely flat for us during 2013. Salary and benefits were down slightly year-over-year despite the fact that we have continued to top grade the commercial and consumer sales forces.

In addition to the sales forces, which are obviously critical generating more revenue, we’ve been investing in our back-office and the risk management in order to support efficient improvement growth.

During 2013, we made a number of key additions to our management team, including new commercial or consumer leadership in Tennessee, new heads of technology and operations, BSA, compliance and wealth management as well as hiring a new general counsel. And we feel that we made substantially – a substantial improvements in the talent in our organization and feel good that we’ve been able to do that while keeping our cost flat.

Looking ahead into 2014, you should expect to see a small increase in compensation, especially for sales teams to deliver on their production goals otherwise you should count us and keeping a very tight lid on costs.

I’ll just touch on slide 14 and pass things. I’m sufficed to say that we have ample liquidity and a very strong capital base. Our liquidity remains concentrated and highly liquid, low risk instruments, of which 82% consistent of agency guaranteed mortgage backed securities, CMOs and cash.

At year end, the modified duration of our securities portfolio was four years, up slightly from 3.7 years that we reported last quarter. We’re extremely disciplined, we expect interest rate risk management and we remain intent of maintaining the asset sensitive position.

During the quarter, we repurchased $7 million of our stock at an weighted average price of $21.99 and at the end of the quarter, our consolidated tier-1 leverage ratio was 14.9%.

So, with that, let me turn the call over to Bruce Singletary, our Chief Credit Officer to discuss credit trends.

Bruce Singletary

Thanks, Chris. Turning to slide 15, you can see that our originated portfolio is performing strongly. As in the region, pastures were very low at 13 basis points. Only 1.3%, the originated portfolio was criticized or classified consistent with the third quarter.

Non-accruals were 34 basis points down slightly from the third quarter. I continue to be very pleased with all these credit metrics. Lastly, during the quarter we provisioned $4.5 million for the originated portfolio to cover charge-offs and to increase reserves due to growth in the originated portfolio.

Going to slide 16, we provide an update of our special asset activity. Following outside reductions totaled $56 million for the quarter and $362 million for the year. We expected a percentage reduction in 2014 to be somewhere to 2013 reduction, however the dollar reduction will be lower than last year due to reduce that in the portfolio.

As to non-performing they fell to 5.4% with total loans from 5.9% in the prior quarter and 7.4% at the beginning of the year. Your inflows into non-performing status were $31 million, flat with last quarter and to give you some perspective on the progress we made over the past year, these inflows are 68% lower than the $97 million we experienced in fourth quarter of last year.

Going to OREO sales this quarter that was $13 million down from $18 million in the third quarter, new foreclosures were only $15.7 million in the fourth quarter less than one half the level a year ago. As a result, our OREO balances was flat sequentially.

Turning to slide 17, legacy credit expenses declined by $3.6 million or 36% sequentially and were down 48% year-over-year. A year ago, we told you that we were focused on bringing these expenses down while the taste has not been even from quarter to quarter, we are pleased with the progress and continue to expect progress in 2014.

During the fourth quarter, we did benefit from a $1.2 million reversal of impairment in the legacy portfolio. This reflects improved cash flow in this portfolio. Coming now to OREO expenses, they also declined to $4 million for the quarter. We still have more land and lots, they would be like. However, we are seeing less slide downs from our guided appraisals.

In summary, we are pleased with the reduction and legacy credit expenses, as we continue to resolve problem assets and benefits from stabilizing real-estate values, these costs are expected to be tending to decline. I’ll now turn the call over to Gene for concluding remarks.

Gene Taylor

Thanks, Bruce. Now, let me finish by talking about the outlook for 2014. And there is a reminder, we do not offer specific guidance as to EPS or specific line items and the income, but I’m sure that let me share with you some thoughts.

First of all, we’re very pleased with the progress we made last year improving the return on assets particularly in the face of low interest rates, the weak economic growth and intense competition.

Now that we’re into 2014, we’re hopeful that the environment will improve and especially in our markets because they have very strong demographic trends. Well, we’re not counting on that, our plans were 2014 depend on grinding out further productivity improvements in each part of our business. We’re confident in our team, our strategy and our market. And we fully expect to continue improving return on assets towards our goal of 1%.

As you know, organic on-growth is an important driver, strong earnings for us. We’ve made progress to upgrading the sales force in each of our markets and as a result are slowly but surely building up portfolio of commercial relationships with higher quality credit worthy borrowers. You should expect continued loan portfolio growth during the year, with contribution from both the commercial and the consumer product.

As we grow our earning assets, core deposits would be imported from these assets with the best possible spread. You should expect our consumer buying to consistently generate core deposit balance and net check and account growth during 2014.

As Bruce mentioned, we expect to continue driving down legacy credit expenses. As person I intend, where you enjoy the robust net interest margin during 2013. But he is right, he is guiding you to a compression going forward because we’re putting our new loans at longer rates than our current yield.

We working to improve the consistency and predictability of our results but bear in mind, we’re still relatively young coming. And our results may not be even from quarter to quarter. Now, let me switch gears to capital deployment which I you appreciate is critical to achieving our goal of double-digit return on tangible equity.

We continue to see a number of bands struggling in our footprint, either with one growing credit and capital issues, a problem is generating, consistent profit building good. We are in dialog with many of the institutions and during 2013 we analyzed a large number of potential transactions and met with many of their management teams, and directors. We were disappointed not to announce a transaction in 2013. But achievable terms that are truly value added from investors. We must remain disciplined and that means we can’t give you guidance on timing.

Having said that, I can assure that there is no letup in our intensity, focus our level of activity as we enter 2014. We remain optimistic about getting a transaction done in due course that would meet with your approval.

Ken Posner

Thanks, Gene. This completes our prepared remarks this morning. And now I’ll ask Michelle to open the floor for your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question will come from Erika Najarian of Bank of America. Please go ahead.

Erika Najarian – Bank of America

Hi, good morning.

Gene Taylor

Good morning, Erika. Welcome.

Erika Najarian – Bank of America

Thank you. My first question is we appreciate your comments on the outlook section. This year could be, you really more are focused on productivity improvement and same continued market share improvement. But as you talk to your clients’ offline, do you think 2014 could represent an inflexion point in terms of loan demand for the industry?

And you also noted that your markets because of demographics are better positioned than elsewhere. So if you could just give us a context on the color that you’re hearing, because it feels like we’re entering this year in a much better position as an industry than last?

Gene Taylor

I totally agree with that. We are reentering the business leaders I interact with and as each of them, you may recall though, I go on a lot of calls, so I get the opportunity to listen to many different industry leaders and every fast of commercial banking.

And what I hear consistently is that things are slightly better. Having said that, better cut means we’ll produce better results and better prospects give us the opportunity to grow. So we are pretty focused on identifying the best companies in the market and doing business with them. And I know everybody says that but that’s what we did in 2013. And we’re going to do that again in 2014.

And as we do that – our results would be – like should be continue to be in the same range as what we’ve done. We see plenty of room to grow market share as we attract better companies.

Erika Najarian – Bank of America

My second question, I’m tapping into your management team’s collective years of experience. Obviously deploying some of the excess capital has been part of the story. You know, with the economic outlook improving and obviously stock prices going up, how does that typically change or influence potential sellers’ mindsets. Are they, would – could they potentially be more eager or are they more eager to sell because their own stock prices have improved or are they less likely to sell because the organic backdrop has gotten better?

Gene Taylor

Erika, Chris and I had met with so many people and it’s been a very interesting story, he’d love to share with you some of the things we’re hearing.

Chris Marshall

Well, I think you’re right to focus on improving stock prices. But I think what we’re seeing that is more on the better companies. And as you know from our past, we tend to focus on those companies that are still struggling both with capital and profitability. And I think this is a good point as companies are starting to see their prospects for 2014. And it’s really a case of the house and they have not – we’re focusing on those companies that are still struggling for traction.

So we don’t see as much pressure there. There are other issues. And we are very mindful of transaction cost and regulatory issues and all the other things that go into getting deals closed. And as Gene said, we’re disappointed, we didn’t announce a deal towards last year, we really intended to. But you know, we are – we feel very good about our prospects going forward.

Erika Najarian – Bank of America

And just one last question and that’s about the queue. On a year-over-year basis, your core efficiency improved significantly. And it seems like you’re signaling for continued expense management. As we think about the next two years on our standalone basis for the company assuming no acquisitions. What is a good range for core sessions say that we should think about?

Gene Taylor

By the end of 2015, our goals to have a efficiency ratio of 60% or better, most of that improvement will come due to continued decreases in legacy credit cost. And if you were to look at our efficiency ratio, absent in our legacy credit cards, we’re almost at that level now. So, we think that’s a reasonable goal and something we’re very focused on achieving.

Erika Najarian – Bank of America

Okay. Thank you for taking my questions.

Operator

Thank you. The next question comes from Craig Siegenthaler of Credit Suisse. Please go ahead.

Nick Harzan – Credit Suisse

Good morning. This is Nick Harzan (ph) for Craig.

Gene Taylor

Good morning Nick.

Nick Harzan – Credit Suisse

I guess, first I appreciated your color earlier on the call on the loan growth. I was wondering if you have any additional feedback in terms of specific industries where you’re seeing strong growth or increased demand in the fourth quarter. And then, if you can give us a little bit more help and thinking about what the – where originations might trend year-over-year and where your internal targets are?

Gene Taylor

Yes, I’ll start and then Bruce can jump in as Credit Executive because he obviously overseas the approval of all those. Obviously, we’re in growth market and it’s across the board. As the economy is rebounded, we’re seeing improvements across the board. But make no mistake, we’ve been able to do more business with better companies and they – healthcare is a great example of for the better outperforming companies is like in then you to see consolidation and growth we have been able to participate in that. And that actually helped us in Tennessee. Bruce any other?

Bruce Singletary

Well, I would just comment that we are very focused on concentrations. And we’re delighted that we have no concentration, it’s a very diverse portfolio. And we’re not always focused on need particular industry segment.

Chris Marshall

And finally, this is Chris, I just – I guess underscore comment I made that we had expected to see 20% growth in originations. And this year we did better than that – but that was our expectation. And we have the same expectation in 2014, we should see 20% left in our originations year-over-year.

Nick Harzan – Credit Suisse

Thanks. And I guess as a follow-up, what’s the current reinvestment rate on the securities portfolio and how are you thinking about the duration of that portfolio?

Gene Taylor

Well, the duration is slightly up as I said at four years, that’s largely due to slower pre-payment speed. I’d say there has been about a 20%, it’s probably, I’m sorry about 20 basis points change in rates. But the best way, I don’t want to give you guidance on what to expect this year. I’d say looking at the 10 years is probably the best guidance and right now, reinvestment probably – probably assuming 185.

Nick Harzan – Credit Suisse

Got it. Thanks for taking my questions this morning.

Gene Taylor

Sure. Thank you, Nick.

Operator

Thank you. The next question comes from Paul Miller of FBR. Please go ahead.

Paul Miller – FBR

Yes, thank you very much. Hi guys, you talked about your new hires, you know how you improved some of your – some of your skill positions. Are you still bringing on lending teams or lending individuals? And then, what is your net gain on employment for the quarter?

Gene Taylor

Paul, the answer to the net gain on employment, I would have to check. I know that employment number is 12/31, but we’re – for quarter-over-quarter I’ll have to check. Bruce, you want to give any …

Bruce Singletary

I mean, there are 25 people from each corner of the world.

Paul Miller – FBR

And then specifically on lenders, the way we do the lenders Paul, now addresses before and it’s just simply in my very humble view a good – best variety. I’m more interested in getting all my lenders to produce at the level where we need what our target is. And so, we’re constantly top grading based on that. And as we bring in new people, we’re very specific about what the – what our effort ideas or what our credit process is, what our compensation is and more importantly what their performance has to be to meet our expectation.

Gene Taylor

And I mean, there is pretty good clarity about that and there is no – it’s just part of heaven I think of really good culture and the club and you’re saying okay, you’re here, we have capped we want to go out. We have a desire to help you be successful. And if you’re going to do these things, we ask then it is go make calls and call one people you’ve known, they were quite that worthy.

And they’ll play us for what we do for, we’d like do business with them both on the lending and departure side. And we put in play, it’s an infrastructure that allow them to be able to do that. So, it’s not that we’ve gone out now retains in anywhere it’s very watch-able shot. We almost, every single person we’ve hired, someone is known from our past. And pretty much in every category.

Paul Miller – FBR

And then relative to…. go ahead.

Gene Taylor

Correct, what I just told you that we hired about 25 people. Our net was flat quarter over quarter.

Paul Miller – FBR

Flat, yeah, okay. And then, you were – relative to your different…

Gene Taylor

And there Paul, by the way without spending too much time on that it’s’ about what we do, we hired somebody, we have somebody to go one. So, it’s ours has been a story even including acquisitions of not a whole lot of near headcount growth.

Paul Miller – FBR

And then, relative to your geographic regions, I mean, you definitely, you’re in Florida and you’re in Tennessee, North Carolina. Where are you seeing the most growth, where have you seen the most optimism, is it Florida or is it just all our markets?

Gene Taylor

I could say, across all albumin. And I don’t mean that just there is a broad statement. I mean, I attend, the Southeast is doing far better, I mean, more into argue it, it dropped a lot. But you know maybe not while you’ve done chapel over National, because they’ve been growth markets all along. But even Elsa, the major metropolitan market, that’s what I was alluding to in my comments is when I do see people and who are, you would call non-urban, they’re doing pretty well relative to where they were going to in two or three years, and that sounds obviously. But you know, what we try to do is identify these companies who have through the cycle performed well and will do business with us?

Paul Miller – FBR

Okay, guys. Thank you very much.

Gene Taylor

Thank you Paul.

Operator

Thank you. The next question comes from Brady Gaile of KBW, please go ahead.

Brady Gaile – KBW

Hi, good morning guys.

Gene Taylor

Good morning.

Brady Gaile – KBW

I was a little surprised there was not more buybacks in the quarter. Can you just remind us how much is left in the authorization and you know, if there is kind of $7 million run rate, is that something that we could expect for the next couple of quarter or do you think it will drift higher?

Gene Taylor

Well, we’ll not give you specific guidance on that, Brady. We have that $80 million which mean 20 to date we – as you remember our most recent authorization was 100. Buybacks are governed by our board and but are also limited by certain blackout periods and whenever potential for certain developments in the company. So that probably affected the level. But what it’s going to be going forward, I just leave it as we’ve got $80 million left in our current authorization.

Brady Gaile – KBW

You mean, you purchased, it looks like you repurchased it around $22 a share, now the stocks are couple of points higher than that. I mean, is there – even at today’s level, is it still at a value that you’ll are comfortable repurchasing to that?

Gene Taylor

We think the stock is very attractive. And so, you should expect to see us continue to buy back stock but I’m not going give you specific guidance on how much or when.

Brady Gaile – KBW

Okay. And then the 1% ROA goal, do you think that is achievable for next year 2015? Where do you think it’s further out beyond that. And that’s assuming you know no additional acquisition during anything?

Gene Taylor

We haven’t changed our thoughts about that – that might everybody else that our goal was to hit 1% ROA at the end of 2015. We feel confident that we can do that x, any acquisitions.

Brady Gaile – KBW

Okay. And then lastly, it’s great to see loan growth in 4Q of 7%. Yeah, do you think while it will be not be in 2014? Do you think that once the year shakes out this kind of mid to high single range is the right growth level for you all?

Gene Taylor

Again, I don’t want to not answer your question Brady but we don’t want to give you specific guidance on individual lines. But I think you heard we feel very good about our prospects for 2014, we expect originations to continue to grow and we expect payoffs to be much more going forward. And we’ll let you analyze that and come up with your own forecast for what actual loan growth would be. But we feel very good about 2014.

Brady Gaile – KBW

Okay. Thanks for the color.

Gene Taylor

Sure.

Chris Marshall

Thank you.

Operator

Thank you. The next question comes from Matthew Keating of Barclays, please go ahead.

Matthew Keating – Barclays

Good morning. I appreciate the color on the – I guess your intention is in terms of hiring commercial vendors. I’m hoping maybe you could provide some answer or commentary on whether understanding that you’re not looking to hire a bunch per say, it’s really has a little happy stat due to when people leave. But maybe you could provide some color, given the success the bank has had and originally and – are you finding it easier, you’re getting more calls in, people wanting to work at Capital Bank and then if you could just talk about that overall hiring environment? Thanks.

Gene Taylor

Matt, could you restate the last part of that, there was a little nice on the line. Were you saying the overall hiring environment?

Matthew Keating – Barclays

Yes, the overall hiring environment for commercial vendors in particular, how that’s been progressing over the past couple of quarters, given the faster companies has had that’s got a CE mark, just whether that expand any more broadly throughout the organization?

Gene Taylor

Matt, this is Gene. We’ve had no issue hiring anybody we want, any basis. We’ve been very – and I’ll use this word all the time about many different things. Within this we learned about what we’re willing to pay people.

The attractiveness to us is, almost universally I’m in hires are referred to us from other people we’ve hired that have been somewhere else. And they tell them that we’re very, focused and very clear about what we want to do and how we want to do it. And they decide for themselves does it fit their own career aspirations and compensation aspirations.

And there is nothing like having taken over seven (inaudible) and having people that had not gotten bonuses for a long time, being out telling their friends they’re making, they’re getting paid. And they have to earn it. And they don’t have the approval over the credits that they’re booking.

But they have the ability through their relationships to identify companies that fit our profile and bring them into a place where we can make a decision to do business with them or not. And that clarity is very unique and it produces a consistent, predictable, reliable source of resumes that we can pick from.

Matthew Keating – Barclays

Great. Thanks for the color. Much appreciate it.

Operator

Thank you. The next question comes from Evan Judo of Compass Point. Please go ahead.

Evan Judo – Compass Point

Hi, good morning guys.

Gene Taylor

Good morning Evan.

Evan Judo – Compass Point

Can you give us a sense of how your asset sensitivity has changed since last quarter or given the growth in the commercial portfolio?

Gene Taylor

It really hasn’t changed. I mean, you could say it’s slightly better because of the higher mix of variable lending. But I’d say overall it’s pretty much in line with what we reported on our last Q. And you shouldn’t expect a big change when we file it again.

Evan Judo – Compass Point

And just on the housekeeping side, how shall we think about the tax rate going forward?

Gene Taylor

I would assume a stable tax rate with what you’ve seen over the course of 2013.

Evan Judo – Compass Point

Okay, and final one here. On the – what kind of operating leverage do you guys see in 2014 just from the lenders you got outside in place right now?

Gene Taylor

Well, I guess, I’d go back and say, we expect to see originations up continually as we saw them in 2013, up by 20%. And we expect to keep costs relatively flat, while Legacy credit cards come down. So again we expect a 60% efficiency ratio over the next two years. We still have a long way to go there. So, costs should be coming down and revenue should be going up. So, leverage is very good.

Evan Judo – Compass Point

Thanks for taking my call.

Gene Taylor

Thank you very much.

Operator

(Operator Instructions). The next question comes from Blair Brantley of BB&T Capital Markets. Please go ahead.

Blair Brantley – BB&T Capital Markets

Good morning guys. I had a question on the loan growth. Can you give us a sense as to what these strategic commercial loans they paid down during this quarter and how should we think about that kind of going forward?

Gene Taylor

How should real-estate pay-downs, Blair, I probably have that data, but I probably have to search for it and give it to you offline, if you don’t mind we’ll follow-up.

Blair Brantley – BB&T Capital Markets

That’s fine. Yes, you guys used to break out that Peace Summit, I guess last quarter or two, as part of it there were pay-downs and there were also strategic pay-downs from your partnership?

Gene Taylor

That – we have broken that up and we’ll provide it to you shortly after the call.

Blair Brantley – BB&T Capital Markets

Okay. Thanks. And then also, turning to fee income, how should we think about that FDIC income line as you get closer to the end of last year, should that be picking up pace?

Chris Marshall

I think it is expected to remain relatively stable or at least within the range that we’ve seen over the last few quarters. It might pick up modestly. But I guess, if I go back to maybe giving an answer to that, overall we expect fee income to improve, that’s still an area we need quite a bit of improvement. And by the end of 2015, we’ve previously guided you to expect fee income to grow. It was about 16% in the quarter and we expect it to grow to about 20% by the end of 2015. So, FDIC that number may move around a little bit, but overall we expect fee income to improve.

Blair Brantley – BB&T Capital Markets

And that is what the FDIC income number in there or not?

Gene Taylor

Yes.

Blair Brantley – BB&T Capital Markets

Okay. Yes, that was my follow-up question was, given obviously where we are with the mortgage environment. I know you guys are still looking for growth there, I was just trying to see what your sense of – how is the growth for that market is now?

Gene Taylor

Well, we think the market is definitely going to shrink. I mean, the predictions out there are for roughly 25% reduction in originations. But the reason we think we still have growth opportunity is you know, if there is something we didn’t necessarily execute on as well as we expected with growing our sales force in Tennessee to reflect a large branch network we have there. So that’s still a goal for us this year. So, although we expect the market to contract, we think by expanding the sales force, again just to reflect our – the size of our network, that should help us offset that and still see a little bit of growth.

Blair Brantley – BB&T Capital Markets

Okay. And then, is there any other lines, business lines you are looking into or are you just – are you happy with what you have right now on the fee income side?

Chris Marshall

Blair, we’re happy with what we’ve got right now relative to business lines. And we kind of keep it pretty simple. The fact is, there are things I can do better and one of them is generate more fees off the existing business we do both on the retail side, meaning checking accounts. And on the commercial side, I think we’re doing transactions.

Blair Brantley – BB&T Capital Markets

Okay. Thank you very much.

Gene Taylor

Thanks Blair.

Operator

Thank you. There are no further questions at this time. We will turn the conference back to Mr. Taylor for closing remarks.

Gene Taylor

Thanks again to each of you for being with us today and for your questions. Don’t hesitate to call Ken Posner if you have additional questions. And we hope you have a great day. Thank you.

Operator

Ladies and gentlemen, this does conclude the conference call for today. You may have a great day. Please disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Capital Bank Financial's CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts