Ameris Bancorp

Good day, and welcome to the Ameris Bancorp fourth quarter conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Nicole Stokes, Chief Financial Officer. Please go ahead, ma'am.

Thank you, Chester. And thank you to all who have joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the investor relations section of our website at AmerisBank.com. I'm joined today by Palmer Proctor, our CEO, John Edwards, our Chief Credit Officer, and Doug Strange, our Managing Director of Credit, who will be taking over for John when he retires at the end of this quarter. Palmer will begin today with some general opening comments, and then I will begin discussing the details of our financial results before we open up for Q&A. Before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties. The actual results could vary materially. We list some of the factors that might cause results to differ in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information early developments or otherwise, except as required by law. Also during the call, we will discuss certain non-GAAP financial measures in reference to the company's performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation. And with that, I'll turn it over to Palmer for opening comments.

Thank you, Nicole, and good morning, everyone. I appreciate you taking the time to join our call today. I'm very pleased with the financial results we reported yesterday, and I'm excited to be able to share some of the highlights and our overall strategic view for 2024 before Nicole gets into some of the financial details. 2023 was certainly a year of discipline and resilience for our company, and the fourth quarter was a solid close to our plan. Throughout the year, we focused on strengthening the balance sheet to prepare ourselves for 2024 with a healthy margin, strong capital, and increased reserves. We grew deposits this year by over 6% and then controlled loan growth to 2%, improving our loan-to-deposit ratio to 98%, all while maintaining an above-peer net interest margin of 3.61% for the year. During the fourth quarter, we recorded $23 million provision for credit losses, bringing our year-to-date provision expense to over $142 million. And that improves our coverage ratio up to 1.52% of loans, and 365% of portfolio MPAs. And once again, this provisioning was model-driven and not related to any credit deterioration. We built and preserved capital this year, such that our TCE ratio is well over our stated goal of 9%, and we also grew tangible book value by over 12% this year. So as we move into 2024, a lot of the confidence that we have is based on several factors. We have and will continue to fight to protect our margin. And we're starting the year from a position of strength there, fortunately. We also have, as you know, a very granular deposit base and very sticky deposit base. And then when you combine that with a well-capitalized balance sheet and a healthy allowance, and obviously, as we've proven, a culture of expense control, we also have a diversified revenue stream that generates above-peer PPNR ROA. And last but not least, what gives us a lot of comfort, too, is just knowing that we have established individuals in a lot of the top growth markets throughout the southeast. So when it's appropriate to accelerate growth, we can do so. So those are the main things that give us a lot of positive outlook as we look through the remainder of this year. But with that, I'll turn it over to Nicole now to discuss our financial results in more detail.

Great. Thank you, Palmer. So for the fourth quarter, we're reporting net income of $65.9 million. or $0.96 per diluted share. On an adjusted basis, that's $73.6 million, or $1.07 per diluted share. That brings our adjusted return on assets for the quarter to $1.15, and our adjusted return on tangible common equity is of $12.81. For the full year, we're reporting net income of $269.1 million, or $3.89 per diluted share. On an adjusted basis, we earn $276.3 million, or $4 per diluted share. That brings our full-year adjusted ROA to 109 and our full-year adjusted ROTC to 1255. You know, excluding the FDIC special assessment, our PPNR ROA was just over 2%, coming in right at 2.01%. We continued to build capital throughout the year. We ended with tangible book value of 33.64. That's a $3.72 increase, or 12.4% increase, from the 29.92 at the beginning of the year, and the fourth quarter increase was $1.26. Our tangible common equity ratio increased to 9.64% at the end of the quarter, compared to 9.11 at the end of last quarter, and 8.67 at the end of last year. On the revenue side of things, interest income increased 1.7 million to 332.2 million for the quarter, and for the year, interest income increased 387 million to 1.3 billion. Our net interest income increased 34 million, or just over 4% for the year, and that's in one of the most aggressive interest rate cycles we've seen in history. Our margin remains above peer and was stable this quarter at 354, and we're encouraged by that. You know, beta catch-up was about eight basis points this quarter and was completely absorbed by our positive deposit mix and our asset yield. We were able to pay off about $1 billion of wholesale funding during the quarter, with that being about $700 million of FATLB advances and $324 million of broker CDs. We continue to be very close to neutral on asset liability sensitivity, which positions us very well for the next Fed decision, whatever and whenever that is. We've updated our interest rate sensitivity information on slide 11 in the presentation. Our non-interest income for the quarter decreased about $6.9 million mostly in the mortgage division due to the normal fourth quarter seasonality. But the good news there from a profitability standpoint is their non-interest expense declined in step with that decline in income as they do a great job managing their variable costs. And as a company, we once again did a great job this quarter. Our adjusted expenses, primarily excluding the 11.6 million FDIC assessment, decreased 2.1 million, almost all those variable expenses in the mortgage divisions as I just mentioned. That brought our adjusted efficiency ratio to 52.87 for the quarter and 52.58 for the year. We continue to look for expense reduction opportunities, and although there's always those cyclical first quarter bumps, we still believe we can maintain an efficiency ratio below 55% next year, or this year, 2024, even with the low single-digit non-interest expense increases this year. On the balance sheet side, we ended the year with total assets of $25.2 billion compared to 25.7 last quarter and 25.1 last year. Loans increased 68 million this quarter and 414 million for the year. Deposits grew 118 million during the quarter and 1.2 billion for the year. Non-interest-bearing deposits still represent 31% of our total deposits and represent just a minimal decline over last quarter. We do anticipate 2024 loan and deposit growth to increase to mid-single digits. in line with our prior guidance. So I want to close by reiterating how well positioned we are and how focused we are on a successful 2024. So with that, I'm going to turn the call back over to Chuck for any questions from the group, and we certainly appreciate everyone's time today.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Brady Gailey with KBW. Please go ahead.

Hey, thanks. Good morning, guys.

Good morning, Brady.

I wanted to start with the net interest margin. It was great to see that flat on a link quarter basis. I mean, 3.5% is a great level. There's some of your peers that honestly are at like 2.5%. But how do you think about your neutral two rates? So how do you think about what the NIM could do as we looked at 2024?

Yeah, that's a great question, Brady. And I'll tell you that really we were very pleased with that stable margin for the quarter, but my margin guidance really hasn't changed. The stableness in the fourth quarter was really due to that deposit mix. We still expect that same single digit compression that I had guided to last quarter. It's just that we were kind of able to punt that one quarter because of that mix, because of those public funds coming in and paying off those wholesale funding. So we still say that we see some compression for one to two quarters. We were just able to punt it kind of by ourselves one quarter of time. We still say that anything above three and a half through this cycle would be a victory. We are very, very close to asset liability-sensitive neutral, as you can see on slide 11. We do believe that deposit betas will be greater on the way down, that if we do have the Fed cuts coming in potentially later in the year, that we would be able to reduce rates faster on the way down, which would certainly help us, if that helps answer that question.

That's helpful. When I look at your capital base, you have the goal of 9% tangible common equity. You're at 9.6% now. With your profitability, pretty soon you'll be north of 10%. What do you do with that excess capital? You bought back a little bit of stock in 4Q. Do you increase the dividend? Do you look for other ways to grow the company? What do you do with that excess?

Well, Brady, you mentioned a lot of optionality there, which is exactly what that creates for us. But I think I would tell you during this point in time, just in where we are in this economic cycle, until we get a lot more clarity, I think the most prudent thing for us is to continue to preserve that capital. But to your point, as soon as we feel comfortable or we see some green shoots to be able to accelerate any growth, we will certainly use that accordingly. Okay.

And then finally for me, you know, Ameris screens a little heavy in commercial real estate and specifically in office. Maybe just an update on, you know, how you guys are thinking about the office and Cree portfolio.

Brady, I don't know exactly what you want to hear from that, but, I mean, we haven't really been looking. I think there were a small three or four very small loans made during the quarter, but we're not really – in the office sector, really, and haven't been for a while. But it's held up well, and we have, you know, less than 2% of office loans are on our watch list. And, you know, the performance of those in the better sectors, the essential use and the class A's has been pretty good. But we look at it a lot, right? I mean, you've got to keep looking at it. You've got to keep kind of dealing with turnover risk and things of that nature. So we we stay on top of it pretty well. And, you know, the rest of the portfolio, we've got slide 23 in there for you to get a good look at what the rest of the portfolio past dues and NPAs look like, and they're really not there. So overall, you know, our NPAs in the CRE book were six basis points. And I think that still, you know, that is very, very good for this time.

Okay. That's great to hear. Hey, and John, good luck in retirement. Great working with you over the years. Thank you, Brady.

The next question will come from Casey Whitman with Piper Sandler. Please go ahead.

Hey, good morning.

Good morning, Casey.

Nicole, how are you thinking about expenses at the bank level here as we think about the growth rate that maybe we should expect in 2024? Can you just Walk us through some of the puts and takes there.

Sure. So I think when we kind of look at our non-interest expense adjusted, kind of take out the FDIC, and when I look at kind of a, you know, I'm looking at maybe about three to five, and take out mortgage because the cyclicality of the mortgage and so much of that being variable. So take out the mortgage segment. If you look at kind of a, you know, three to five percent salary and benefits, kind of two percent everything else, You probably got a little bit more in IT and risk, a little bit less in kind of some of the other more general categories, kind of blends to that 2% and everything else. So when you put that together, you end up with kind of maybe a 3% blended rate. I think right now consensus has us about 4.5% growth, and I think that excess between that 3% and 4.5% is in the mortgage group. When you've built in some growth in mortgage with some of the the potential rates coming down, build in some mortgage. So I think right now where that consensus is pretty close to where I think, I mean, I think consensus has us about right, but that's kind of where I'm looking at from an expense growth standpoint.

Okay, got it. Thank you. Helpful. And I guess, Palmer, just, you know, bigger picture question, just with your comments around a loan growth outlook. I mean, which I appreciate mid-single digits is still really good for you guys, but I guess what do you think would need to change or will need to happen before we kind of need to turn up the growth engine? I assume that that's going to be largely dependent just on the general economy, but what do we need to see there?

Well, you know, a lot of our pullback obviously was on the CRE front too, and capital has certainly helped us improve there in terms of our ratios, but I would tell you as we start seeing things improve, and obviously the consumer data came out this morning which looked you know, right on target in terms of estimates. And, you know, if things start to improve there in terms of the outlook and the optimism and we feel it and see it in the markets, I will tell you the demand is still there. And that's the beauty of our footprint is that if and when we're ready, the opportunities are there. We're not going to have to be scrambling around to try and find those opportunities. They already exist. So, We have put a governor on this that's been self-induced, not by a lack of demand in the markets we're in, and we're fortunate to be able to say that. So right now, I would tell you, is more of a time for, in my opinion, for people in the industry to probably continue to be a little more selective, which we'll continue to do. We continue to take good care of our existing customers, and obviously any new opportunities they have, we will certainly entertain them. But we remain very discerning and selective in the new business front. So until we start seeing other improving metrics in CRE and in the economy overall, we'll kind of stay where we are.

Makes sense. Thank you.

Thank you.

The next question will come from Christopher Maranac with Jannie. Please go ahead.

Hey, thanks. Good morning. Palmer, it's been two years since Balboa came on with the company, and I guess I just want to do a look back in terms of how you are adjusting the credit type that you're bringing in from that division, and then also the charge-off outlook, either from John or Doug, for what we should expect this year.

Yeah, I'll touch on the strategy there, and then John can chime in on the specifics on the charge-offs. I would tell you that line of business has been a great line of business for us. Obviously, it's a cyclical business in terms of the economy, and these are small business operators. So when the small business is under stress, we're certainly going to feel it. And more specifically, as we've talked about, for us and many others, that trucking industry has really been kind of the hot point. So we have pulled back on that, and I think the important thing to understand there is that the Credit box, obviously they're in the appetite for anything related to the trucking industry does not exist. So we'll have to work that through the system. And now all of those loans are obviously not troubled loans, but some of them are. And they're feeling the stress from the economy like a lot of the small businesses are. But in terms of our being glad we have the business we are, I think it adds additional diversification. And as the market improves, I think that line of business will continue to deliver The charge-offs are higher than we would like them, but we've done an excellent job of being able to reserve for any potential losses there, as you can see, and it still remains a small part of our balance sheet, and as we've said from the inception, it's got a cap in terms of what percentage it would become of the balance sheet, which is 10%. I would tell you right now, it's capped pretty much right where it is until we start seeing some improvement in the overall economy. So that's kind of the overall. And, John, you can kind of talk to the specifics in terms of the net charge-offs, if you like.

Christy, Paul did a great job of overviewing that, and I agree 100% with everything. You know, the charge-offs, just as a context, remember the charge-offs in 2022 were only $8 million. And so, you know, clearly what he said about trucking and we – You know, it took a little market share in 22, and that's, you know, what we really dealt with in 23. But, you know, we did tighten the box as we saw, you know, what was necessary. We tightened it a little more, and we're just continuing to tweak as we need to make sure that we're getting the credit in there that we really want. And to his point, you know, we're seeing good trend lines in terms of past dues and things of that nature that would make us believe that, You know, that, I don't know, you want to call it egg through the snake is coming, you know, to the end. And I don't anticipate that this year we'll have the same level of charge-offs as last, certainly.

Great. Thank you both for that. That's very helpful. And then just a quick one for Nicole. Are you seeing any deposit rate exceptions or have those slowed down in the last quarter or so?

We have definitely seen some deposit rate exceptions slowing. And we have also seen competitive pressure start to slow, specifically where we had seen some very heavy pressure in Florida from credit unions. We have started to see that slow, which is good.

Great. Thank you for taking my questions.

The next question will come from David Feaster with Raymond James. Please go ahead.

Hey, good morning, everybody. Good morning, David. I'd like to just follow it up kind of on that deposit question side. I mean, just given the prospects of rate cuts, I'm curious, how do you think about your ability to reprice deposits if we do get Fed cuts this year? Or just given liquidity challenges in the industry, competitive landscape and all that, would you expect this maybe to be a bit more challenging on the way down and betas are slower than they were on the way up? I'm just curious how you think about your ability to reprice deposits lower if we do get cuts this year.

Yeah. So we, we think that that deposit betas are going to be faster on the way down. And then from a tactical perspective, you know, we've got 95% of our retail CDs that mature in 2024. And then all of our broker CDs are short and they mature by June. Um, and then, um, And then we've got very short FHLB and very minimal FHLB advances. So we definitely have some positive movement on the deposit side where we feel like we'll be able to reprice those. And then you add in just the interest-bearing money market that will reprice fairly quickly. So we feel like we could be aggressive. And then the 31% non-interest-bearing will certainly help that as well.

Okay. That's helpful. And maybe touching on – you know, again, staying on with potential cuts. I'm curious, high level, how do you think about mortgage at this point and some of the trends you're seeing and maybe how much activity would you, I mean, again, mortgage rates have started to come down a bit, could come down even more with rate cuts. I'm curious how you think about, A, mortgage volumes in the coming year and any expectations for that gain on sale margin to start improving. Yeah.

Yeah, I think, you know, with the Fed cuts or potential Fed cuts, obviously we'll see improvement in that margin. But I would tell you, as we mentioned last time, so many times in environments like this, we all have a tendency to look at headwinds and not focus on tailwinds. But this would certainly be a big tailwind for our operation just because of how well we're positioned. And, you know, what we've done and what we've been able to do in terms of garnering efficiencies and keeping the cost in line with the revenue decline, that same – is true on the flip side. So when the opportunity is there and the refis and the purchase activity picks back up, we are extremely well positioned there. So I would tell you that as we look out and if we end up getting as many rate cuts as everyone thinks we are, that could be a tremendous lift for our organization, just knowing how we performed in the past and how we can perform in the future, and more importantly, how we're already positioned in terms of of our bankers and also our operations. So that could be a real bright spot. But a lot of that, as we touched on, is going to be predicated by what the Fed does, because that's the big driver, as you know, of that consumer behavior. Yeah, that makes a lot of sense.

And maybe just last one from me. I'm curious how you think about, you know, you guys have done a great job on, on the deposit, you know, managing deposits. And we talked about where we can, where we can cut, you know, how quickly we can cut betas or betas are going to be on the way down. I'm curious how you think about deposit growth going forward and maybe, you know, you know, just, it seems like we've seen some more seasonality from some folks on the deposit front. Seriously, how you think about your ability to drive core deposit growth and in this coming year and some initiatives that you've put in place to maybe support that?

Yeah, I would tell you that's probably something that we're very bullish on in the sense that if you look at the momentum that we created even during the liquidity this year, which was a very difficult year, if you can grow deposits in an environment like we've been in over the last 12 months and, more importantly, retain deposits and maintain your deposit mix, which we've done a very good job of doing, net of the pandemic deposits. But I think part of the value there is a lot of that came from a lot of our organic growth and long relationships. And we've always been focused more on relationships than transactions. And that has served us well. And that's what we continue to do. And if you look at investments that we've made this year, a lot of those, we kept saying throughout the entire year from an expense standpoint that we did not have to load up on any more bankers out there to bring in volume. And thank goodness we didn't because the volume was intentionally pulled back. But what we did invest in was Treasury. So our Treasury platform has had a tremendous year. And a lot of that comes from our CNI initiatives and also from the hard work of a lot of the Treasury officers we have. So that momentum is really what helped move a lot of the needle in fourth quarter. And I think that same momentum will be there throughout the year. So we've got a lot of initiatives in place there that are delivering now and will continue to deliver. So I probably feel a little more optimistic than most in terms of our ability to keep growing core funding.

I mean, so would you expect core funding to maybe outpace loan growth, or would you expect maybe that remixing of the balance sheet to kind of keep deposits stable and just, again, improve the mix? I'm curious kind of how you think about, you know, growth prospects and overall balance sheet growth.

Yeah, in a perfect world, obviously, all loans would be funded with core funding, but we know that's not a reality. And then there's obviously a balance there in terms of our desire for loan growth. Right now, I'll tell you that loan growth desire is muted, as we talked about earlier. So I think you're going to probably see, from a percentage standpoint, you'll probably see more core funding relative to loan growth. But once we start accelerating loan growth or feel it's appropriate to do so, then you would probably see more of a – utilizing wholesale funding or other types of funding beyond just core funding. Thanks, everybody.

This concludes the question and answer session. I would like to turn the conference back over to Mr. Palmer Proctor for any closing remarks. Please go ahead, sir.

Yes, I'd just like to thank everyone once again for listening to our fourth quarter and full year 2023 earnings results. And I'd also like to give a special thank you in recognition to John Edwards, our Chief Credit Officer. This will be his last earnings call, but I'd like to thank him for his friendship and service to Ameris for over 25 years. We are certainly going to miss him, but he assures me that he's just a phone call away if we ever need him. But I want to thank everybody once again for their time and their interest in Ameris Bank. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.