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spk08: Good day and welcome to the Ameris Band Corp first quarter 2024 conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist 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. 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 Nicole Stokes, Chief Financial Officer. Please go ahead.
spk00: Great. Thank you, Danielle. 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, and Doug Strange, our Chief Credit Officer. Palmer will begin with some opening general comments, and then I will discuss the details of our financial results before we open up for Q&A. But 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.
spk02: Thank you, Nicole. Good morning, everyone. We appreciate you taking the time to join our call today. On our last earnings call, I reminded everyone how we spent 2023 strengthening our balance sheet to prepare ourselves for 2024 with a healthy margin strong capital, and increased reserves. In the first quarter of 2024, results were evidence of those efforts. Excluding the cyclical and special items, we continue to operate at a 2% PPNR ROA. Our discipline in creating diversification in both the loan and deposit franchise, as well as our revenue streams, has us well positioned. We grew deposits this quarter by 5.6% annualized, and over $46 million of that deposit growth was in non-interest bearing. This supported our loan growth of 6.5% annualized while maintaining the same loan-to-deposit ratio and an above-peer net interest margin of 351 for the quarter. Our balance sheet remained strong with a healthy reserve for credit losses. During the first quarter, we recorded a $21 million provision for credit losses, bringing our coverage ratio up to 155 of loans and 325% of portfolio NPAs. Once again, this provisioning was growth- and model-driven. and not related to credit deterioration. I'm very pleased with our capital position. We grew tangible book this quarter by over 10.5% annualized to end the quarter at $34.52 per share. Our TCE ratio is well over our stated goal of 9%, now coming in at 9.71%. And when I look out for the remainder of 2024, I remain encouraged as we continue to benefit from several things. First, obviously a solid core deposit base, a healthy margin, a diversified revenue stream, strong capital and liquidity positions, which certainly provides us with a lot of the optionality we keep talking about for economic changes that may occur, a well-capitalized balance sheet with a healthy allowance. And when you add that in with a proven culture of expense control and seasoned bankers and and top southeastern markets, that's really what helps drive our optimism. I'm going to stop there now and turn it over to Cole to discuss our financial results in more detail.
spk00: Great. Thank you, Palmer. For the first quarter, we're reporting net income of $74.3 million, or $1.08 per diluted share. On an adjusted basis, we earned $75.6 million, or $1.10 per diluted share, when you exclude the FDIC special assessment and the gain on BOLI proceeds. Our adjusted return on assets improved to 120 this quarter, and our adjusted return on tangible common equity improved to 1288. We continue to build capital, and we remain focused on growing shareholder value. We also purchased approximately 2.1 million of common stock during the first quarter, and we have approximately 94.7 million remaining available through the end of October. On the revenue side of things, our interest income for the quarter decreased 2.8 million over last quarter, almost all from day count, with February being a short month. In addition, most of the loan growth for the quarter came in March, so we didn't get the full benefit of that growth on the income statement for the quarter. As expected, deposit costs rose this quarter, causing our net interest income to decline about 4.7 million. But the pace of the deposit cost increases continue to moderate as the cycle matures. Our net interest margin remains strong at 351, We were pleased with just three basis points of margin compression this quarter and very excited to still be above a 350 margin this late in the cycle. Our yield on earning assets increased by four basis points, while our total funding costs increased only nine basis points. I want to remind everyone that we continue to be close to neutral on our assets liability sensitivity as we've programmatically repositioned our balance sheet over the past two years to be ready for unclear Fed decisions. We're prepared for the next Fed decision whatever and whenever that is. We've updated the interest rate sensitivity information in our presentation on slide five. Kind of moving on to non-interest income, that increased $9.6 million this quarter, mostly in the mortgage division due to the increase in gain on sale margins improving. And then moving into expense, our total adjusted non-interest expense increased about $6.5 million in the first quarter, most of which was due to the cyclical payroll taxes and 401 matching contributions. Our adjusted efficiency ratio was 54-56 this quarter and was elevated because of those cyclical payroll items. But we do anticipate maintaining an efficiency ratio below 55% for the remainder of the year. On the balance sheet side, we ended the quarter with total assets of $25.7 billion compared to $25.2 billion at the end of the year. Loans increased about $330 million this quarter, and deposits increased $289 million. That represents a 6.5% annualized loan growth and a 5.6% annualized deposit growth. We continue to anticipate 2024 loan and deposit growth in the mid-single digits, and we expect that deposit growth will be the governor on loan growth. We remain focused on a successful 2024 due to our well-positioned balance sheet and our strong markets. And with that, I'm going to wrap it up and turn the call back over to Danielle for any questions from the group.
spk08: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time a question has been addressed and you would like to withdraw your question, please press star then 2. The first question comes from Casey Whitman of Piper Sandler. Please go ahead.
spk07: Hey, good morning.
spk05: Good morning, Casey.
spk07: So, Nicole, I know you commented just about how you're in a relatively neutral position to rates, but can you walk us through sort of how you're viewing the margin over the next few quarters, and then is it safe to say for Ameris you've sort of reached an eye inflection here? We might start to see that grow, or is it too early for that?
spk00: Casey, I appreciate the question, and, you know, I've been so cautious to use some of those words of inflection and even trough. And so I don't want to oversell, but I do want to point out a few good things on the margin. First of all, our beta catch up this quarter was only four basis points. And when you compare that to last quarter, it was eight basis points last quarter, and a year ago it was 14 basis points. So that's certainly a trend that we appreciate. Then when you look at the deposit mix change, You know, typically our first quarter, we have a lot of cyclicality in our public funds, and that causes kind of some noise in our margin. But this quarter, we did a really good job protecting that 31% noninterest bearing mix. And so, our deposit mix change, even with those cyclical outflows, was only one negative basis point on the margin. And that compares to 18 basis points first quarter last year, where we normally hear that noise. So again, I don't want to oversell, but there's some good movement on the deposit side. And then, so that, you know, those four basis points and that one, that were kind of five negative basis points. And then we had two positive basis points of asset sensitivity that picked up to kind of get us to that net three compression. So the wild card in all of this is deposit costs and what those do going forward. But we can definitely say that the trend is the beta has definitely slowed. The deposit mix has stabilized. And then we still have that slightly asset sensitive, just very, very slight asset sensitivity where we've got some loans repricing.
spk07: Okay. Thank you for all that. Just switching gears, any comments you can provide just to the outlook on mortgage? I feel like the open pipeline and you had a higher gain on sale margins just suggests you're set up for a stronger year than last year. So just sort of what are you – being on the ground there and what is a good expectation for revenue growth this year, even if we don't get cuts.
spk02: Yeah, Casey, this is Palmer. I will tell you, we are very pleased with the, obviously the core banks production this quarter. And then you obviously compound that with, with mortgage. That was kind of the icing on the cake, but the mortgage outlook, I would tell you is positive. But then again, as we all saw over the last couple of days, the 10 year moves and then volume pulls back down. We have had a good, strong start to the first part of the year, and there is some momentum there, but so much of that is just driven by market conditions. The way we operate that business, which is, as you know, a very heavy purchase business, and that's encouraging to us to see that. I do think that mortgage trends and the desire for mortgage product is still there. and people are going ahead and buying homes and then just assuming they're going to refinance them down the road. So this quarter, when you look at the gain on sale, we did have those margins improve considerably, but I think to expect that to continue may be a little premature at this stage, just given where we are in the cycle. I do think we'll stay above the 2% range, but, you know, anywhere, and it's a pretty wide range, anywhere between 2% and 2.5% in terms of any guidance. But we're encouraged by what we see, but so much of that volume, as you well know, especially given the type of loans that we do, is driven by market rates. And right now we've had another swing the other way. So the pipelines look really good first part of the year. A lot of people are talking about seeing less seasonality. I think a lot of what we see was seasonality because of the markets we're in too. So being heavy in Georgia and Florida and the Carolinas, and mid-Atlantic, those southeastern markets have really paid dividends to us. So I think either way, we will fare better than most of our peers just based on how we're positioned. But the outlook right now is just kind of anybody's crystal ball in terms of where rates go.
spk07: Okay. Understood. Thanks for taking the questions and nice quarter.
spk02: Thank you.
spk08: Thank you. The next question comes from Will Jones from KBW. Please go ahead.
spk06: Hey, great. Good morning. Good morning. Hey, just sticking with the mortgage discussion, I mean, it was, you know, it was great to see the higher revenues, but I feel like another big, big storyline was that, you know, we didn't see the same ramp and expenses as we did with the revenues. So cost containment remained, you know, relatively solid there. You know, as we think about mortgage trending, you know, seasonally higher from here, do you expect you can kind of keep the same level of cost containment on the mortgage side? And then I guess just a separate follow-up to that, Nicole is, Is the first quarter, the expense run rate, is that kind of a good jump-off point for the remainder of the year? Obviously, we have a little bit of seasonality ahead.
spk00: Sure. So I'll take the mortgage question first. On the mortgage side, they did a fantastic job of controlling expenses. But as production ramps up, there is going to be some expense growth related to that as far as commissions, incentives, data processing. So they typically run around a 60% efficiency ratio. So you can kind of model that out as you're modeling the revenue growth, kind of model that expense growth as well. And then overall for a run rate from the first quarter, I would just caution that we have about $4 million in the first quarter that are cyclical payroll taxes and 401k match. So that will decline as the year goes on. So there'll be a little bit out of the second quarter, a little bit out of the third quarter, but that $4 million kind of bump is in the first quarter. Outside of that, there's no other anomalies really in the first quarter. from a run rate perspective.
spk02: Great. And Will, just to add to that, one of the things that we have kind of prided ourselves on, and I give full credit to the mortgage operators, is that the capacity that they've created and their ability to lever up that operation is tremendous relative to a lot of our peers. And a lot of that has to do with technology, and certainly a lot of that has to do with talent. So when you think about potential tailwinds for the industry or our ability to absorb additional volume in that area relative to our fixed cost, we're probably in a very good position relative to most others just because we've got that infrastructure in place and we have that talent in place.
spk06: Yeah, that's great. So certainly more desirable to be on their fence there. And then just one quick one for me on credit. You know, the trends that were broadly claimed, we even saw, you know, a takedown in criticized or Yeah, take down the criticized and MPAs, although you guys did build the office reserve. I know office is a little bit bigger for you guys, just relatively speaking. What were some of the drivers there? What were some of the dynamics behind that reserve build?
spk02: Well, I think you'll see if you look at the metrics on office right now, knock on wood, we have zero delinquencies and zero charge-offs, and it's pristine. And so ours is model-driven, as I said in my initial comments. So when we run our models, Moody's model, and we look at the CRE index and office in particular, that's really what's driving that. So there's no signs at this stage of any credit deterioration.
spk06: Okay, that's great. Thank you.
spk08: The next question comes from Russell Gunther from Stevens. Please go ahead. Hey, good morning, guys.
spk05: Good morning. Circling back to the margin discussion, you guys mentioned in the deck Could you quantify about $10 billion of loans repricing within the year, either maturities or floating rate? Just kind of focus on the fixed piece and what the magnitude coming due is and what you'd expect the pickup in yield potential to be.
spk00: Sure. So when we look at it from a repricing perspective, we've got about 36%, 37% of our loans that are repricing in the next year. those are coming in at about a 750 rate. So think about, the thing is there's so much of our portfolio is, or there's a portion of the fixed rate portfolio that behaves like a variable rate loan. For example, our premium finance, those have just about a 10 month duration, but they are technically fixed rate, but they behave like a variable rate. So those have really already repriced. So there's not as much emphasis from a credit scare perspective, that all of a sudden we've got a credit issue of people repricing. And then from the, we also have the warehouse lines that are fixed rate, but they behave like a variable rate. So when you put that in, we're really more of a 50% fixed, 50% variable.
spk05: Okay, got it. Thanks, Nicole. And then maybe just moving on to the Capital discussion, I mean, you're in a very healthy position, excess capital, bought back a little stock this quarter. How are you thinking about deployment priorities and does a more active stance on the buyback something you'd consider in 24?
spk02: Yeah, at this stage of the game, I don't see any change in our approach there. We're very pleased with the capital we've been able to accrete, and we certainly have the buybacks in our – quiver in terms of our ability to execute on that. But right now we're kind of just in a capital preservation mode as we work through this economic cycle.
spk05: Okay, great. Thank you, Palmer. And then last one for me, you guys touched on the reserve a bit, perhaps related to office. Overall, just a really steady build above peer ratio. Where do you expect this to trend going forward? And then separate, just kind of follow-up would be helpful to get charge-off activity within Balboa and whether there's any change in that outlook as a part of 24.
spk04: Okay. Well, so with respect to the reserve, as Palmer noted, you know, we are model-driven. Our models are based on indices that we think are relevant given our portfolio, our loan portfolio composition. And, you know, we're happy with 155 based on the Moody's forecasting as of March and any future reserve changes would be led by those models. Second part of your question, charge-offs, you know, we're 25 basis points for the quarter, which was a little bit better than fourth quarter last year, but the charge-offs for equipment finance do remain a little elevated, but you gotta remember that's a high-yield, higher-risk business, and so we expect some of that. Notwithstanding, we did take several steps in tightening up certain credit boxes with respect to that division. But we're recognizing we get good yields out of that line of business.
spk05: Yeah, no, I understand. I was just curious if you had the actual charge-off impact for the quarter and a reminder on sort of what the lifetime loss you expect range within that book.
spk04: If you look over, you know, a 10-year history, the loss rate for for equipment finances, you know, probably sub two, one and a half in that range. Are you asking about this quarter in terms of a dollar amount or a percentage or what do you have?
spk05: Yeah, I'm just trying to get a sense of the 25 basis point kind of all in number what Balboa's contribution was for this quarter.
spk04: The bulk of that, probably 90% of that was equipment finance.
spk05: Got it. Okay, great. Thank you all for taking my questions.
spk08: The next question comes from Christopher Marinac from Jannie Montgomery Scott. Please go ahead.
spk03: Thanks. Good morning, Nicole. I wanted to try to connect the dots with the net interest margin possibly bottoming sooner versus later, and then kind of what that means going forward to the PPNR ROA. Could you see that profitability get even stronger as margin possibly gets better?
spk00: You know, Christopher, we've said from the beginning that kind of if we could come out of this cycle with a 350 margin that we would consider that a victory. And to be at 351 this late in the cycle, we feel like that is fantastic. And I say that if we have some short-term compressions, that kind of low single digit in the next quarter, I think I said last quarter that we had maybe two more quarters, which would have been this quarter and next quarter. So if we are bouncing around between a 348, 349, 351, maybe a 352, somewhere in that range, That's still a really, that is a really strong margin that we're pleased with. You know, I'm probably the most cautious person to ever call a trough, but I will say that we like the 350-ish margin and we're proud of that. You know, the speed of our deposit price increases have definitely slowed. We've got some really good tactical things as far as our retail CDs being very short. All of our broker CDs are short. very short, like they all mature by July. And then about, like I said, about 37% of our loan book reprices. So we've got some good, we feel like we've positioned ourselves very well. And could we see a little bit more compression? Maybe, but I think it's definitely slowing.
spk03: Great. That's helpful. Thank you for that. And I had a credit question as it relates to SBA. Is there anything that you see down the road on SBA that would be influential for either charge-offs or just credit in general?
spk04: Chris, not materially. I mean, that portfolio is under stress, as most people realize, small business. When your lowest cost of capital is 10% or 10.5%, that does put pressure on the group of companies. But we have the guarantee, and we've been recognizing those losses as they occur, and we may see a little bit more. But, again, that book overall is about 1% of the portfolio.
spk02: And, you know, glass half full, but I'd love to see more volume coming out of that area, Chris, as we've talked about. But due to the fact we didn't have a whole lot of increased volume over the last couple years, you know, because everybody's focused on PPP, As you recall, that did help probably eliminate any additional potential risk that we have from a credit perspective in that overall portfolio because, as Doug mentioned, it's minuscule in terms of the overall. But there will clearly be stress there. I do think there will probably be some programs that the SBA will come out with in terms of deferments, similar to what they do in mortgage, to assist with some of the stress. But right now we feel pretty good about what we've got.
spk03: Great. And the last question just has to do with, I guess, the discipline that you've mentioned before about matching new loans and new deposits. Is that still the game plan going forward?
spk02: Absolutely. And, you know, Nicole, you just talked, Nicole, about margin. And one of the things that you cannot overlook is the value of bringing in non-interest-bearing deposits. We certainly try and control what we've already got. But more importantly, we're trying to look at what we can build And when you look at the DDA bill this quarter, I think it's evidence of our efforts there that are starting to come to fruition. So with the focus we've had over the last year, not anything new, it's on Treasury and aligning and controlling. And that's one of the benefits all banks have, if they're disciplined about it, is allowing deposits to kind of be the governor for the loan growth. And I think we're probably a good example of that. And that will continue.
spk03: Great. Thank you for taking all of our questions this morning. Okay. Thank you.
spk08: The next question comes from David Feaster from Raymond James. Please go ahead.
spk01: Hey, good morning, everybody.
spk08: Good morning.
spk01: Maybe just a high-level question. I'm curious, how do you all – you guys have done such a good job managing the balance sheet throughout this cycle, and you're pretty rate neutral at this point. And look, the rate outlook continues to change pretty rapidly. Last quarter, we're talking about cuts, and now we're looking at higher for longer. I'm just curious, how do you think about managing the balance sheet at this point, just kind of given the uncertainty on rates and maybe some initiatives that you have in place or strategies that you guys are considering?
spk00: Sure. So, you know, we really are proud of the fact that we've gotten – I don't think we could have timed it any better to be this close to neutral this part of the cycle. So higher for longer, we've always kind of been in that camp of higher for longer. So there are some things we can do specifically, and we have been doing, with our brokered CDs being short, our retail CDs being short, so that we can become more liability sensitive pretty quickly. The other thing is that our bond portfolio, we continue to have a smaller than usual bond portfolio. We're still only about 6.5% of our earning assets. in the bond portfolio, we could put another $300 million in there and it would bring us up to about 8% of our earning assets. So we have movement that we can do there. We also have about $650 million of our bond portfolio that matures. We have a very short duration on our portfolio. This year we've got about $300 million maturing that's at a $350 coupon, and we've got about $335-ish maturing next year that's at a $290 coupon. there are some things that we can do on the balance sheet to kind of pre-fund some of those payoffs that will also help us become more liability sensitive in the longer run.
spk01: Okay, that's helpful. And then maybe just kind of touching on the margin side, I mean, Palmer, you nailed it. The key to the margin is really going to be deposit performance, especially on the NIB front. And it's not lost on us that you saw NIB growth on a period and basis i'm just curious maybe some of the underlying trends that you're seeing like i mean from the nib side uh how are uh you know accounts trending um and balances uh early into the quarter and how you think about nib and your kind of deposit growth strategy as we look forward
spk02: Yeah, I don't think, you know, the nice thing, David, is we're not having to adjust our strategy because we've always been a, I like to say we're deposit hounds. We've always focused on that. And when you look at our deposit mix, I think it's perfectly reflective of that. And so when you look at our composition with, you know, 37% consumer and 42% commercial, what we're seeing is the focus that we placed on small business banking and on our C&I efforts is That's really, as we all know, that's where the operating accounts come in, the payroll accounts come in, and that's where our focus has been and on the treasury management side. So when we look at the hires that we had over the last 24 months, that's primarily been where that additional expense has been, and that's where that value has been created. So we will continue with that and hope that we can keep this trend going because it really just comes back to core fundamentals. And I do think right now there are a lot of folks that are probably more focused internally, which has given us more opportunity externally in terms of new relationships. And I think banks are doing a much better job of making sure that there's an alignment between loans and deposits, whereas in the past it was more transactional, focused on the loan side, and then you'd ask for the deposits. Now we ask for the deposits, and we have the deposits, then we'll consider doing the loans. And that's a very different change in psychology and approach. And And right now in this environment, it seems to be working pretty well. Okay.
spk01: That's great. And then maybe last one from me, just touching on capital priorities. You've got an extremely strong balance sheet. You're accreting capital. With kind of that slower loan growth and funding being the governor on loan growth, I'm just curious your capital priorities at this point, or is capital preservation just kind of the focus at this point?
spk02: Yeah, it'd be capital preservation. Clearly, we've got the buybacks in place if we choose to do so, but right now, I think at this point in the cycle, it's more prudent, as we have been consistently saying, to just keep accreting and preserving that capital.
spk01: All right. Thanks, everybody.
spk02: You bet.
spk08: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Palmer Proctor for closing remarks.
spk02: Thank you, Danielle, and we appreciate everybody's participation today on the call, and we look forward to sharing our results with you next quarter. Thank you again for your time and your interest in Ameris Bank.
spk08: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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