State Bank Financial Corp. (NASDAQ:STBZ) Q1 2018 Earnings Conference Call April 26, 2018 11:00 AM ET
Sheila Ray – CFO
Tom Wiley – CEO
David Black – Chief Credit Officer
Joe Evans – Chairman
Stephen Scouten – Sandler O’Neill
Christopher Marinac – FIG Partners
Nancy Bush – NAB Research
Tyler Stafford – Stephens
Steven Comery – Gabelli and Company
Ladies and gentlemen, thank you for standing by. And welcome to the State Bank Financial Corporation’s Results for the First Quarter 2018.
During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. [Operator instructions] As a reminder, the conference is being recorded, Thursday, April 26, 2018.
I would now like to turn the conference over to Sheila Ray, Chief Financial Officer of State Bank Financial Corporation. Please go ahead.
Thank you, Operator. Good morning, and thank you for joining our call. Here with me on the call today are Chief Executive Officer, Tom Wiley; Chief Credit Officer, David Black; and Chairman, Joe Evans who will be available to answer question after we have finished the presentation.
Tom will begin with the highlights of the first quarter and I will then follow-up with the quarterly results in detail. David will discuss the loan portfolio and asset quality metrics and Tom will give closing remarks before we open the call for questions.
The first quarter earnings press release and slide presentation we will reference on this call are available in the Investor’s section of our website statebt.com. I need to remind you that comments made on this call are subject to our cautionary note, regarding the forward-looking statements in the press release and on Slide two of your earnings presentation.
I will now turn it over to Tom.
Thank you, Sheila and good morning, everyone. We are off to a great start in 2018, we had record earnings with net come of $17.4 million in the first quarter and 12.6% annual loan growth and a successful integration of AloStar Bank of Commerce. Our new team’s strong performance is reflect in this quarter’s financial results. And I look forward to seeing the ongoing benefits from the merger grow.
In addition, we increased our quarterly dividend 43% to $0.20 per share, which is among the highest yielding in the industry with the 2.5% current yield. As you can see we’ve had a lot of positive momentum and I’m extremely excited about the outflow for the reminder of the year.
And with that, I’d like to turn back to Sheila, she will provide more details on our first quarter results.
Thank you, Tom. We’ll pick up on slide three. As Tom said, we have $17.4 million in net income or $0.44 per diluted share leading to a return on assets of 1.45%, and return on equity of 10.96%. Merger expenses represented a $0.02 drag on earnings per share, but the good news is that we don’t believe there are material amounts of merger expense remaining for the rest of the year.
We also grew tangible booked value per share $0.15 from the previous quarter and $0.49 year-over-year. The effective tax rate for the quarter was 24%, a little higher than we expected because of the effect of the newly inactive reduction in Georgia State Income Tax Right. We believe the full year effective tax rate will be between 22% and 23%, which is in line with our previous guidance.
Now, turning to the top of slide four, interest income increased 3% from the previous quarter to $54.6 million, and is up 38% from the first quarter of 2017, due impart to AloStar. We also continue to see nice growth in interest income on invested funds, which was up 13% from the first quarter of 2017, despite the balance of our investment portfolio shrinking roughly $60 million year-over-year.
We have maintained a short duration, well-structured bond portfolio that allows us to reinvest more quickly in a raising rate environment, and should continue to move higher with short-term rate. The cash flow generated from the investment portfolio funded part of our loan growth this quarter, but we continue to maintain strong liquidity metrics.
Finally, accretion income was $5.9 million in the first quarter, down from $10.7 million in the previous quarter, due primarily to lower recovery income relating to the successful resolution of two AloStar loans during the fourth quarter. Base accretions of $4.3 million declined roughly $500,000 or 10% from the previous quarter, which is in line with the quarterly decline in PCI allowance.
Our accredible discount was relatively unchanged during the quarter, as we still have approximately $58 million remaining. Roughly $6 million was transferred from non-accredible to accredible discounts.
At the bottom of the slide is some detail on our net interest margin in yields, which highlights the benefit of our asset sensitivity. Our net interest margin declined only 5 basis points to 4.86% this quarter, despite a $4.7 million decline in PCI loan accretion, which was primarily related to the recovery income in the fourth quarter. Excluding accretion our net interest margin was 4.5%, a 32 basis point increase from the prior quarter.
Our NIM was positively impacted by a 26 basis points in loan yields as roughly 70% of our loans are variable rates with approximately 72% of those variable rate loans tied to LIBOR, which moved significantly higher during the quarter. We also benefited from a 29 basis point increase in invest in the yields due to a combination of the portfolio restructuring in December and just higher rates.
Moving on to slide five, non-interest income in the first quarter was $10.5 million, which is up 3% from the previous quarter and 11% year-over-year. Mortgage banking had a good quarter, with income of $2.9 million, and production of $112 million, both relatively in line with the first quarter of 2017. We have made some new hires in the Atlanta market and expect production to increase further due to their impact.
SBA income of $1.2 million was higher year-over-year, with $18 million in production in the first quarter. Roughly half of the new loans closed in the first quarter had a drawl period, which means those loans cannot be sold for premium income until they’re fully funded. This explains the quarterly decline in income despite higher production, as shown in the chart on slide five as fee income is not a linear correlation to loan production.
Transaction type, size and complexity are all factors related to timing of loan sale. Additionally we recognized impairment of the intangible servicing assets for SBA loans of $266,000 this quarter related primarily to the increase in short-term interest rates.
We have recently added the smart desk production channel and are beginning to pickup volume in these nationally sourced smaller SBA loans. Payroll and insurance income was up $265,000 or 18% year-over-year to $1.8 million. During the first quarter, our joint banking and payroll teams continue to have great success selling our packaged product set. We give clients a true value proposition due to the combination of banking, payroll and insurance. And we expect to continue to nice growth in this area.
Clients quickly recognize the benefit of combining payroll benefits, and appreciate being able to offset their routine payroll processing fees with deposit growth. Our fees offset by deposit balances have increased 43% year-over-year.
On slide six, you’ll see an update on expenses and efficiency. Overall our non-interest expense declined 3% compared to the fourth quarter of 2017, due primarily to lower merger-related expenses. We expect to continue seeing expenses decline, as we achieve the projected costs savings from the AloStar Merger. As we said last quarter, we expect the quarterly expense run-rate of $36 million to $37 million going forward. As you know, production volumes, which could result in higher commission expense may also affect our quarterly run-rates, but are obviously more than offset by increased revenues.
Taking on the fullest base of AloStar created a short-term headwind on our efficiency and burn ratios. However, we expect these ratios to improve measurably as we realize our projected costs saves. Lastly, I would like to discuss the decline in deposits records on slide 7 and 8. Total deposits declined $59 million during the quarter, as we experienced normal seasonal declines in municipal accounts and expected declines in legacy AloStar deposits.
Additionally, as few commercial real-estate clients redistributed deposits collected late last year, so that they could fund new projects. As I mentioned previously, we utilized a portion of the cash flow from our investment portfolio to fund loans. We also added some brokered and wholesale deposits during the quarter as needed, but these are primarily short-term, maturing in less than a year.
As the non-cored internet funding from AloStar matures we actively manage the replacement funding from the lowest cost alternatives. This varies from week to week, as we compare pricing of similar term to borrowings, brokerage funding and internet CDs. Our focus continues to be on growing low costs core deposits and increasing transaction deposit accounts, which we believe will be a significant benefit in the current rising rate environment.
However, this will be a gradual transition, given the large non-core funding added to the bank with the AloStar merger. To that end, we’ve introduced some new deposit initiatives that are designed to attract new clients and to grow existing relationships. During the quarter, we enjoyed a relatively low 8% deposit beta, but we do anticipate that deposit costs will increase throughout 2018. As we remain competitive and seek to grow client base.
This concludes my remarks and I’ll now turn the discussion over to David.
Thank you, Sheila, and good morning everyone. Picking up on slide nine, we had another solid quarter for loan originations, with new loan fundings that advances on existing commitments, totaling over $515 million. Pay downs were not the same headwinds we faced in prior quarter, resulting in a very strong point-to-point loan growth number for the quarter.
Organic loans were up $149 million, and this was relatively consistent across the board, from lines of business and a geography perspective with AloStar, Atlanta, Augusta, Athens and Patriot all having a particularly strong quarter. We experienced $45 million of contraction in the PNCI portfolio, which was in line with the expectation. The demographic and employment trends in our markets remain very positive, and it was great to see a diverse drivers of growth this quarter, which bodes well for our outlook.
However, we also recognize that with the relatively short duration of the portfolio we will continue to have some volatility in quarterly payoffs. Therefore, expectations from the non-PCI loan growth are more modest than the 12.6% we enjoyed this quarter.
Flipping to slide 10, we provide a breakout of loan portfolio highlighting the diversity across major sub-categories. During the quarter, our current credit concentrations, as a percent of risk-based capital increased slightly to 95% for AD&C and the 342% for total CRE compared to 89% and 335% for the prior quarter. This is largely driven by a nominal decrease in make level capital denominator as the bank made its normal annual dividend to the holding company. And we remain comfortable with these concentration levels. C&I growth was a real positive story for the quarter, with spot balances for organic and PNCI up $119 million.
As our previewed, this was led by solid core C&I growth in the banking group, as well as AloStar and Patriot.
I’ll wrap up with our credit quality metrics on slide 11. Overall, the bank’s credit metrics remain very sound with 30 day plus, pass due organic loans at 22 basis points, and annualized net charge-offs for the quarter at 9 basis points. Acknowledging that a few of the organic metrics ticked up for the quarter keep in mind the starting points. Organic non-performing loans increased to $9.7 million, but remained low at just 39 basis points of total organic.
We recorded $1.4 million provision for organic loans fundamentally influenced by organic loan growth during the quarter. And the resulting allowance as a percent of organic loans was 99 basis points. In addition, we recorded a $1.3 million provision on PNCI loans primarily through replenish the day 1 fair value mark on AloStar. The AloStar fair value mark accretes relatively quickly compared to the other PNCI portfolios and as influenced by the revolving loan balances.
Therefore we expect the need to replenish this credit mark to continue, but we also expect this to be offset by near-term future accretion as we experienced this quarter. The allowance, plus the unaccretive fair value mark for the PNCI portfolio is 1.19% and on a combined basis, the organic and PNCI allowance plus unaccretive fair value mark totaled 1.04%.
We also reported a $558,000 provision in the quarter on PCI loans. This provision was due to lower expected cash flows on a handful of loans. As a reminder, decreases in the expected cash flows lead to an impairment immediately, whereas increase in expected cash flows lead to first a recovery of any prior impairment and then as a perspective increase in the accredible yield. Overall, the performance of the PCI portfolio performed better than our prior estimation as evidenced by the $6 million transfer from non-accredible to accredible discount that Sheila previously mentioned.
At the bottom of slide 11, our PCI balances of loan accounts continue to decline down 10% quarter-over-quarter and remain a significant source of cash recoveries with $1.7 million embedded in the accretion line item this quarter. Overall, from a portfolio and economic standpoint we are seeing stability from our customer base and our metrics continue to compare very favorably to peers.
I’ll now turn the discussion back over to Tom.
Thanks, David. In summary, I am extremely proud of our team’s accomplishments in the first quarter. And I believe that we have set at the bar for even a better year in 2018. We were pleased with our loan growth in the quarter, which has set the table for continued growth on interest income on loans.
As Sheila discussed, we are aggressively seeking high quality core deposits and focused on attracting new clients, as well as growing the existing client relationships with our new money market products. We expect steady growth in our core business deposit as we have had solid momentum in selling our combined treasury payroll benefit offerings. Additionally, our new money market offering is showing signs of early success and our new [indiscernible] market.
With an expanded market footprint, supported by versatile scalable lines of business, and best-in-class client experience and a robust economic environment I believe State Bank will achieve even greater success this year.
And with that, operator, you’re free to open the line for questions.
Thank you, Mr. Wiley. [Operator Instructions]. Our first question comes from the line of Stephen Scouten with Sandler O’Neill. Please proceed with your questions.
Hey, good morning. How are you doing?
Wanted to ask you little bit about the NIM here moving forward. Obviously I know, Sheila, you said deposit betas will go up from here. But I’m curious if you think you can still expand the core NIM from here even with that slight increase given the concentration to LIBOR loans?
Steven it depends what’s going to happen the LIBOR in the next three months.
I thought you were going to tell me.
So if LIBOR hangs on and our deposit costs is a little bit of pressure as we speak to depositors than obviously we could have a little contraction, I don’t see a lot of contraction there, I think there is more opportunities for holding on and slightly expanding. I do think that our fee income we’ve seen uptick and we’re beginning to recognize the benefits of the fee income from AloStar, as they’re booking loans.
So I think we have more positive factors affecting this even if LIBOR just hangs out where it is than we have the negative going out and recruiting some new clients to money market right. I think that we are also as Tom mentioned in his conclusion, see some success in bringing back in some non-interest bearing deposits through our combined product offerings. And we have won couple of things recently — business opportunities recently that we think bodes well for our ability to continue in that market.
So I think there is modest expansion opportunity this quarter and it is going to very much depend on what happens with LIBOR and if we have another great widening of spreads and LIBOR continue to increase and obviously there is even more upside potential.
Okay, that makes sense. And maybe looking at the loan growth, I mean, production was pretty similar to four quarter levels, but obviously the net loan growth was a lot higher. Any specific dynamics there was there more migration from any of the acquired books into the organic loan book or is it just less paydowns and stronger net growth as a result?
Stephen, this is David. There was some migration from the purchase non-credit impaired book to organic, it was $13 million in the quarter, which actually is a little smaller than it has been in some prior quarters. But as you recognized the production was relatively consistent and we said in the two prior quarters where we didn’t post big point-to-point numbers that was primarily due to some payoffs and a big piece of that was in commercial real estate and we didn’t have the same headwind this quarter.
Got you, fair enough. And then just last one for me, obviously we have now seen kind of three M&A deals announced in Atlanta MSA in the last month or so I guess as it is. I know it’s too early to predict exactly what will happen, but how do you think about the potential dislocation there and opportunities for hiring other investments that may come as a result of those banks being sold?
I actually got that question was going to come another party. But same answer, yes, anytime to have disruption in a market where you saw you get opportunity both in clients get an opportunity to make a choice, bankers get an opportunity to make a choice and that typically has benefit to State Bank historically it’s been the case I think that will continue.
Okay, thanks guys appreciate the color.
[Operator Instructions] Our next question comes from the line of Brady Gailey with KBW. Please proceed with your question.
Hey guys. This is actually Woody on for Brady.
So, Tom I think last quarter you mentioned loan guidance between 5% and 7% could you — could we see that come above mix for the remaining of 2018 or do you still expect between 5% and 7%?
Hey, Woody, this is David. I think 5% to 7% is still a decent number for guidance for the year. Given the fast start that we have had, I would personally hope would be at the higher end of that range, but again it’s a bit — I feel confident in the team’s ability to continue to originate at the levels we have been and even at a greater pace as we pick up some synergies. But the hard thing to forecast is the customer behavior on the payoff side. So, I still think it’s decent guidance.
Great, that’s helpful. And then…
I would add something on that probably from the tables, [indiscernible] but I do think that we’re beginning to see some — David sort of touched on it in all areas of whether it’s community bank division or whether it’s AloStar or Patriot and we’re finally getting some maturation in some of the production. So again I want to be careful in that [indiscernible] has made the decisions on that, let’s just not take I think we are very close to cut off, and I think we are going to benefit from that.
Great, that’s helpful. And then for the CRE ratio is there a percentage were you all comfortable growing that out to around maybe 350 or would you all take it higher than that?
A – David Black
Hey, woody, this is David, again. So from an internal policy perspective we govern ourselves by a limit of 150 and 400, but embedded in that is some concentration limits that we oppose on ourselves from a sub-category standpoint to ensure the diversification within that commercial real estate portfolio something as a practical matter we won’t approach those hard stop limits that we’ve set for ourselves. But from where we sit today at 95 and 340 we think there is still room to prudently grow that portfolio.
Great, thanks that’s all my questions, guys.
Thank you, Woody.
Our next question comes from the line of Christopher Marinac with FIG Partners. Please proceed with your question.
Thanks, good morning. Wanted to look at the earning asset yield and sort of adjust for the accretion income. It seems that your net spread is better nicely than it was last quarterly and I am curious if we look out a couple of quarter should that spread widen or does that compress a little bit just as deposit costs play out, I was curious if you think yield can continue to rise and keep that same?
I think that the yields as I mentioned 70% of the lines are variable, 72% of those are tied to LIBOR. So we had a great boost from LIBOR I do think that the loan yields, because we were so asset sensitive. Again it continue to creep up, I don’t say and I think that we’ll continue to get benefit from say — so I would not expect there to be compression in the NIM even though we will have some deposit costs rise.
Okay, great. And then Sheila the increase we saw on the brokerage fund is that temporary or will you just have a slightly higher percentage going forward?
A – Sheila Roy
It depends. As I said, we — every week now because we are at different liquidity position than we were in a different composition than we were prior to the AloStar merger we look at the funding that is maturing from different avenues and we just determine what we replaced from our core deposit growth and what we’ve replaced from our end markets growth even in end market CD which are less expensive frankly than going that on the internet to get CD. And have real people behind them that we can bank.
So we look at those avenues first then we determine what the least costly way to fill the in funding gap we have is and so it just depend on a week-to-week basis it varies frankly as to whether the least cost approach in a brokered — a short-term brokered tranche, a short-term borrowing or an internet CD and we look at every option.
But our borrowings are short and our brokerage money is short while brokered fund has stayed — it’s still below 3% of our total deposits. We don’t expect it to grow significantly and those brokerage funds are at having state funds rate.
Got it, that’s very helpful. Thank you very much for the background.
Our next question comes from the line of Nancy Bush with NAB Research. Please proceed with your question.
Good morning. I had a quick question about AloStar. I was writing as fast as I could, but I couldn’t get down sort of all the puts and takes this quarter from AloStar. I heard that there was a $0.02 merger impact, but could you just kind of give us an overview there AloStar was accretive or costs a few cents this quarter and sort of where that all panned out?
AloStar contributed significantly this quarter.
We don’t account for AloStar as a public business segment. So we don’t really publish results, but I will tell you that the $0.02 drag on earnings per share the merger expenses was a very temporary kind of bang in the mirror now. But AloStar’s contribution to our growth in interest income, growth in fee income is going to be consistent.
We expect to get costs say from that were projected at merger in the second quarter predominantly with full recognition in the third quarter. So, I think AloStar contributed significantly in the fourth quarter, they contributed more in the first quarter of this year and we expect that contribution to grow each quarter this year.
And that would include any impact on credit as well, right?
I think so, David, what you think?
Yes, so, Nancy, the AloStar did have an impact on the provision for the purchased non-credit impaired portfolio. So that in total was 1.3 and AloStar was a meaningful part of that 1.3, but it somewhat just location of where that’s recognized on the income statement. So that was more than offset in the incremental accretion in the quarter associated with that purchased non-credit impaired book.
Okay, thank you. Secondly, when you say we’re aggressively going after core deposits, is this a product push, a rate push, can you just give us a little bit more color on your methods there?
Sure, it’s actually all — we have indeed obtained FI bankers and asked what accomplished this year it previous year it’s always been grow loans. This year you put demands for other than deposits. Our strategies all designed are incentives for the production people or design for deposits. We have a new tiered money market account that will help us grow not just current client relationships, but new client relationships and increased wallet share of the current clients.
We’ve identified a couple of articles to focus there or have deposits [indiscernible] and the strategies are being implemented now around that. So it’s a myriad of actually things that we are working on to just ensure that, particularly you take a market like Savannah, where we have no market share to speak up. We can have some fine investment grades to cost cutting [indiscernible] some of our competitor in that market, but it works well for us to grow our relationships.
Okay. And could you just speak to this the — I mean, you did this last quarter if you could just speak to sort of the overall deposit competition dynamic in Atlanta right now?
I think it stays competitive, the larger banks and in fact I got a solicitation via email last night I was reading [indiscernible] because I’m probably the only person that got that email that was willing to read the [indiscernible]. And they were proposing a 1.5% money market rate and then when you refund that that was only the three months. And then it’s down to under 50 basis points.
We compete with rates that are not teasers and so I think that when you really have conversation with the client and explain the difference, we compete those clients when they walk in the bank. But it is competitive, large banks go out with teasers, they kind of get their attention, there is a new market entrance that are trying to grab market share by offering some cash incentives to move your account.
And we are I think one-by-one dealing with our clients keeping their the existing clients here. And we are going to — as Tom said, we’re not going to get aggressive where we have the opportunity with some rates here and there to go after some of the same money. And on the flip side, I think that where we compete very well is on treasury product services, where we go after — where we can compete for operating account at all our small to middle market business clients. And layer on additional benefits to those clients, through our payroll and benefit offering.
And so, we have good success there, when we can get in front of the clients. And as Tom said, we’re starting to target more verticals where we can sell that combined package.
All right, thank you.
[Operator Instructions] Our next question, the question is from the line of Tyler Stafford with Stephens. Please proceed with your questions.
Hey, good morning everyone.
Hey. I wanted to go back to the deposit growth, I guess, the push that you’re making for the deposits right now, do you think that you’ll be able to match the core deposit growth related to that 5% to 7% loan growth, target this year?
I think so, again it is — we have every banker out in the markets that we are in totally focused on it and candidly until most recently we didn’t spend that a whole heck of a lot of time working on existing client basis for additional deposits. It’s certainly clearly a strategic intent for us this year. But we have an extremely capable team of treasury professionals that not only are now supporting the production people in the bank, they have their own calling desk that they’re working and it’s just one thing about State Bank when it does focus on something it typically gets it done.
And the tiered money market, I think, the thing is nice there is it gives our bankers a reason to proactively call someone and tell them how they can make more money. And, by bringing a few more dollars to us to push ever certain tiers, they can increase to yields and I think, our bankers are high quality people they want the best for their clients and they’re enjoying the opportunity to offer their client something that makes them more money.
Got it, okay. On expenses the deck mentioned that after the costs save or the conversion I guess, you expect another $1.2 million expense decline in 2Q, will there be any lingering cost saves from AloStar beyond that or will we have all of the kind of wrapped up in 2Q.
I think there’s a few lingering cost saves, I think there’s going to be some trailing bill that relates conversion and some relocation among facility. So, it won’t be that — it will be $200 million maybe the majority of it will be the core.
Okay. And then the provision, I know you touched on it a little bit earlier, but it was little bit higher than I thought, I know there’s some moving pieces with the AloStar reserve and I understand there is accretion that’s offset, but just for the remainder of the years is there any outlook can you give us on the actual provisioning from here?
Yes, Tyler, this is David. We’re looking to provide specific guidance particularly because there’s so many moving pieces that impact that provision calculation and I think organic fencing material migration trends and analysis that we do, I think it will largely be a factor of what we do on the growth side that we have still fair amount to call.
Talking about the PNCI book we talked about the need as we look at that, not only just as an allowance measure, but we disclosed a fair amount of remarks for the first time where we are looking at the allowance plus the fair value and think about that, which as a portfolio for purchased on a credit impaired is at 1.19%.
And so, if that number is elevated from a provision standpoint for the remainder of the year. So one, I don’t think it will be as elevated as it was this and any movement there really should be offset by incremental accretion. So it should be somewhat of a net wash to the bottom-line. And then the personal credit impaired portfolio is really difficult to forecast, when we are doing specific cash flows on given loans that there are times when you got to take a more conservative stance and that’s going to drive specific impairment in that given quarter and unfortunately just purchased accounting you take your bad news now and the good news gets spread out over the remaining life of the loan.
So you certainly see it, when we do some downward adjustments in a given quarter, but we’re kind of again keep in mind that the overall performance of that purchased credit impaired portfolio has been fantastic. And that wasn’t any different this quarter with $6 million moving into the accredible discount on a forward looking basis. And so, hope that’s helpful.
One thing I will add just clarification kind of layer on what David said. A difference in the AloStar dynamic than what we had in prior periods. In prior acquisitions, we mark the loan and then those loans amortized and the discounts to CRE. And there they kind of go along together in the AloStar portfolio because these were predominantly lines of credit, the discount is being accretive out on the straight line basis, but the balances are not necessarily declining they are holding their own, in some cases going up and then maybe a few declines as people go through their operating cycle.
And so it will not be that same linear direction and as it creeps up as David indicated, you got income coming in. So we are going to be providing for it and it is a very different dynamic.
Okay, thanks for that David and Sheila. And then just lastly for me, it was obviously nice to see the dividend increase this quarter, can you just remind us how you think about excess capital at this point?
Tyler, this is Joe. That’s one I’ll take. It’s better to have a little excess than not enough. It’s — our history has been to be opportunistic acquirers, it’s nice to have a little dry powder I think we have got it down to a level now that it’s not an every quarter conversation topic about what we’re going to do with it, it’s at a level that supports a nice dividend.
The earnings from the acquisitions are kicking in and we’re pleased with that and I feel really good about the balance that we have of capital level that’s been work down significantly from where it is, but still it’s at a level that gives us some optionality and you never know when really good opportunities are going to present themselves. And I am just really comfortable with where we are.
Okay, thanks, Joe. Appreciate that, that’s all for me.
Our last question comes from the line of Steven Comery with Gabelli and Co. Please proceed with your question.
Hey, thanks for taking my questions.
I just — most of my questions has been asked or answered, I just Tom want to sure I completely understand the expense guidance. So the costs saves come during quarter two on slide six that’s got a statement. Should we interpret that as sort of the $36 million to $37 million range starts in quarter three and Q2 be at a higher level than that?
No, I think you can interpret it as starting in Q2 and then Q3 may tick down again slightly, but still be in that range. So we maybe see it move around in Q2.
Okay. So it’s moving within the range between the two quarters.
Okay, very good. And then just kind of similar subject, the efficiency ratio goal of 55%, burn ratio goal 2% are those achievable for full year 2018 do you think or do you think it’s kind of further out?
We are going to work very diligently to achieve this in 2018. As we mentioned we had a little bit headwind, taking on the full AloStar expense carry in Q4 and Q1 carryover. So we’ll have some catching up to do, I think we’ll come close if we don’t make it.
Okay, very good. That’s all I had.
And we have no further questions at this time.
Okay. Well, again thank you for your participation and for questions. And we look forward to speaking next quarter.
Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you kindly disconnect your line. Have a good day everyone.
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