State Bank CEO Hunts for Loans and Deals in Georgia

Joe Evans, the chairman and CEO of State Bank Financial Corp., founded the $2.8 billion-asset company in July 2009, raising $300 million. The Atlanta company is the parent of State Bank & Trust, which has branches in three metropolitan markets in Georgia — Atlanta, Macon and Warner Robins.

Georgia's position as the leader in bank failures has been good to State Bank, which has bought 10 failed banks including Security Bank Corp. of Macon and Buckhead Community Bank in Atlanta. Those deals, along with a hiring spree, helped the company report a 23% increase in second-quarter earnings from a year earlier, to $23.4 million.

Since August, State Bank's new employee additions have included executives from Morris, Manning & Martin; Whitney Holding Corp and First Horizon National Corp.

Before founding State Bank, Evans was the chairman and CEO of Flag Financial Corp., which was sold to a U.S. unit of Royal Bank of Canada in 2006 for $456 million. He discussed a wide range of topics in an interview during a recent conference in Atlanta hosted by FIG Partners LLC.

How are things going with State Bank?

JOE EVANS: We continue to be very pleased with how all the pieces are coming together. The clean-up side is working out very much within projections. We're extremely pleased with both the metrics and the pace. We're also very pleased with the pace at which the core bank is maturing and we've hired some really good bankers. We've added some exciting capabilities in cash management, particularly in the commercial space of electronic banking. And we just believe there is an exciting opportunity in front of us, in this marketplace, to have a balance sheet with the strength we've accumulated. To have a clean balance sheet with a lot of capital, and to have assembled such a critical mass of skills, this is going to play very well for a long time.

Can you talk about what you're seeing in loan demand at the core bank?

In aggregate there is absolutely no credit expansion going on right now. I don't see where the catalyst is coming from that will cause us to go from a no-growth credit environment to one where people start saying, OK, I see opportunity and I'm going to take on some leverage to take advantage of it. Most of the lending opportunity right now is coming from one of two places. Fortunately, we have the capacity to finance the real estate acquisitions of opportunistic real estate investors right now. The real lending to those well-capitalized and opportunistic buyers are the best quality real estate loans that I've seen since the (Resolution Trust Corp.) days. Your buyers are buying at prices substantially lower than these same assets sold for three-to-four years ago. And the terms are much more conservative from a lender's standpoint. You're talking about significant capital equity commitments. We're fortunate to have the capacity to add real estate at this end of the cycle. Other things are, by and large, rearranging debt chairs. We may pick up a relationship with no new credit, where we're moving it from some other bank, perhaps a bank whose financial condition is not as strong as ours, or where a relationship follows a banker that we've hired. But there is some rearranging of relationships going on right now. But the bottom line is that there is no real expansion of credit.

In the rearranging of debt chairs, is State Bank taking the place of bigger banks?

You've got a variety of things that would cause a customer to consider a different bank. One would be the customer of a bank who is concerned about the financial viability of their bank. Another would be if there is any significant change going on in that bank. You'll always have customers who play where a bank has been acquired and policies and procedures and terms change, so there is some of all of that going on, both at the smaller end and the larger end of the spectrum.

Are you seeing any new projects being financed?

There clearly are pockets. For things that come to mind that are new projects we've financed, we've done several things in the assisted living space. As people my age get closer to being put out to pasture, there is this great need for places to put the baby boomers. We have done some new projects in assisted living.

On the public finance side, we've done a number of things in the tax-free public finance area in smaller markets where the typical providers of public finance to those smaller governments and municipalities either don't need the tax-free income or don't have the capital to support the size. We're actively soliciting the business of typically the non-rated governments. If a county is large enough to have a rating, the capital market providers can take care of them at prices that wouldn't make sense on our balance sheet. There are a lot of well-managed, small governmental units out there and we're very pleased to accommodate them.

Can you talk about FDIC-assisted transactions, and do you see any in your future?

I certainly hope so. But that depends on the intersection of two things I don't have control over. One, the FDIC blessing us on being able to bid. And, two, being able to put in a bid that's a winning bid on terms that satisfy our yield requirements. We have capacity in our resolutions group. We think we're good at both the practical problem-asset resolution business, and we also think we've built the systems to do that in conformity within the expectations of the FDIC's loss-share management folks. I would like to see the life expectancy of that resolutions unit extend for a couple of years.

Would you go out of state to buy a failed bank?

No. And, I would also say that I don't want to go out of market. I really would like to focus on small, in-market, fill-in transactions where there is a lot of synergy with our existing branch infrastructure and we feel like we add value as workout people dealing with local problems. We don't have a desire to go out of market, metro Atlanta and middle Georgia. From a failed bank standpoint, Savannah or south Georgia would be out of market. Clearly there would be other places we would go in the state of Georgia on a healthy bank deal, if we found the right degree of compatibility, good management, a compatible business, a meeting of the minds on price. But on a failed bank deal, we would not plow new geographic ground.

A number of banks say they have more deposits than they know what to do with. What's your situation?

We certainly have more deposits than we have loan demand right now. And what we're doing about that is probably nothing that the rest of the folks in this circumstance aren't doing. We continue to work down cost of funds. We continue to work on deficiency of our platform and the combination of those two things works down the yield requirement of an asset to be able to profitably lend. So, we're trying to build an efficient, low-cost funding platform that will allow us to make a living during this difficult asset-generation environment, and be a platform that is appropriately expandable when circumstances turn.

State Bank continues to be the most exciting business opportunity that I've ever found myself in. But as I look down the road, to be in the marketplace that we find ourselves in, with the accumulative history we have in that marketplace, with this balance sheet, and this capital structure. At this stage of the economy, I think the outlook is very exciting. Are we going to blow the growth out next year? No. But do we do have a platform that will become a very significant financial institution in this geographic space? We absolutely are. And it's the optimism of that outlook that we're bringing in folks like David Black, we're starting to think about a generation of bankers that can take this company into the future past that point where I need to be out to pasture. It really is a fascinating moment in time to be in the circumstances we're in. We're humbly appreciative of the circumstances we find ourselves in.

Is the competition for failed bank deals more intense than it had been?

It appears to be so. Clearly, the deals like we struck in 2009, I just don't think those deals are out there anymore. But it will also be interesting, and I think it all depends on who shows up and how many people show up. The last two transactions we did are the prototype of the in-market, average size $200 million deal. It will be interesting to see on the smaller, inside-our footprint bank, just what the competitive situation will be, how many people show up. And there have been banks that, as you look back on pricing, I say, gosh, it wouldn't have mattered if we'd been in the hunt for that one, I wouldn't have bid that aggressively. But again, the last two we did, we're very pleased with the economics. But I don't think those economics would have worked out nearly as well for anyone but an in-market buyer because of the synergies. They're in market so you get to apply cost-savings synergies that an out-of-market player wouldn't be able to take advantage of. I'm cautiously optimistic we'll find a few more.