Q1 2024 Ameris Bancorp Earnings Call

Participants

Nicole Stokes; Chief Financial Officer, Corporate Executive Vice President; Ameris Bancorp

Palmer Proctor; CEO & Director; Ameris Bancorp

Doug Strange; EVP & Chief Credit Officer; Ameris Bancorp

Casey Whitman; Analyst; Piper Sandler Companies

Will Jones; Analyst; Keefe, Bruyette & Woods, Inc.

Russell Gunther; Analyst; Stephens Inc.

Christopher Marinac; Analyst; Janney Montgomery Scott LLC

David Feaster; Analyst; Raymond James Financial, Inc.

Presentation

Operator

Good day and welcome to the Ameris Bancorp Fourth Quarter 2024 conference call. (Operator Instructions) 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.

Nicole Stokes

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 amerisafe.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.

Palmer Proctor

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 increase 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 about 5.6% annualized, and over $46 million of that deposit growth was in noninterest bearing. This supported our loan growth of 6.5% annualized while maintaining the same loan to deposit ratio and above-peer net interest margin of three 51 for the quarter.
Our balance sheet remains strong with a healthy reserve for credit losses. During the first quarter, we recorded $21 million provision for credit losses, bringing our coverage ratio up to one 55 of loans and 325% of portfolio NPAs. Once again, this provisioning was growth in 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 in 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 of 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 top Southeastern markets. That's really what helps drive our optimism.
I'm going to stop there and turn it over to Nicole to discuss our financial results in more detail.

Nicole Stokes

Great. Thank you, Palmer. For the first quarter, we reported net income of $74.3 million or $1.8 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 again, on boldly proceeds, our adjusted return on assets improved to one 20 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, and 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 remained strong at three 51. We were pleased with just three basis points of margin compression this quarter and very excited to still be above a three 50 margin this late in the cycle, our yield on earning assets increased by four basis points, while our total funding cost increased only nine basis points. I want to remind everyone that we continue to be close to neutral on our asset liability sensitivity as we've programmatically repositioned our balance sheet over the past two years to be ready for uncleared Fed decisions. We'll prepare for the next Fed decision, whatever. And whenever that is, we've updated the interest rate sensitivity information in our presentation on slide 5 and moving on to noninterest 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 to expense, our total adjusted noninterest expense increased about $6.5 million in the first quarter, most of which was due to the cyclical payroll taxes and foreign one k. matching contributions. Our adjusted efficiency ratio was 54 56 this quarter and was elevated because of the 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 2020 for 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 market.
And with that, I'm going to wrap it up and turn the call back over to Danielle for any questions from the group.

Question and Answer Session

Operator

(Operator Instructions) Casey Whitman, Piper Sandler.

Casey Whitman

Good morning and thanks for the call. I know you commented 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 Amyris to sort of reach and I inflection here, we might start to see that grow or is it too early for that?

Nicole Stokes

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 I don't want to oversell, but I do want to point out a few good things on the margin on. First of all, our beta 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 from.
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% non-interest 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 so that those four basis points in that one, that kind of five negative basis point. And then we had two positive basis points that asset sensitivity that picked up to kind of get it to that net three and compression. So the wildcard 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 after asset sensitive. It's just very, very slight asset sensitivity where we've got some loans repricing.

Casey Whitman

Okay. Thank you for all that. I'm just switching gears, any comments you can provide just to the outlook on mortgage and feel like the open pipeline and you had a higher gain on sale margins just suggest you're set up for a stronger year than last year. So sort of what are you seeing on the ground there and what is a good expectation for revenue growth this year, even if we don't get cuts?

Palmer Proctor

Yes, Casey, this is Palmer. I will tell you we are very pleased with the obviously the core bank's production this quarter. And then you obviously compound that 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, 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 at the way we operate that business, which is you know, very heavy purchase business, and that's encouraging to us 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 improved considerably.
But I think to expect that to continue maybe 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 is pretty wide range anywhere between two and 2.5 in terms of any guidance, but we're encouraged by what we see. But so much of that volume, as you will know, especially given the type of loans that we do and it's 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, there are a lot of people talk about seeing less seasonality. I think a lot of what we see was seasonality because of the markets we're into. So being heavy in Georgia and Florida, 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 on the outlook right now is just kind of anybody's crystal ball in terms of where rates go.

Casey Whitman

Okay, understood. Thanks for taking the questions and nice quarter. Thanks.

Operator

Will Jones, KBW.

Will Jones

Hey, great. Good morning.

Palmer Proctor

Good morning, Will.

Will Jones

Just sticking with the mortgage discussion, I mean, it was it was great to see it higher revenues. But I think another big big storyline was that we didn't see the same ramp and expenses as we did with revenues. So cost containment have remained relatively solid there as we think about mortgage trending seasonally higher from here, do you expect you can kind of keep the same low cost containment on the mortgage side.
And then I guess just a separate follow-up to that, Nicole, is the first quarter the expense run rate is that kind of a good jumping off point for the remainder of the year, obviously, knowing we have a little bit of seasonality ahead.

Nicole Stokes

Sure. So I'll take the mortgage question first on the mortgage side, they did have 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 on incentive 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 four one K match. So that will decline as the year goes on. So there will be a little bit out of the second quarter a little bit out of the third quarter on 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.

Palmer Proctor

I will just add that one of the things that we have kind of prided ourselves on and I give full credit to the to the mortgage operators is that the capacity that they've created in their ability to lever up that operation is tremendous relative to a lot of our peers. And a lot of it has to do with technology. And certainly a lot of it 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.

Will Jones

Yes, that's great. And it's certainly more desirable to be on the offense there. And then just one quick one for me. On credit trends that we're broadly clean, we even saw a tick down in the criticized or two down the criticized in NPAs, 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? Also some of the dynamics behind that reserve build?

Palmer Proctor

Well, I think you'll see if you look at the metrics on office right now? No, 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 and 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 signed at this stage of any credit deterioration.

Will Jones

Yes. Okay, that's great. Thank you.

Operator

Russell Gunther, Stephens.

Russell Gunther

Hey, good morning, guys and win. And circling back to the margin discussion, you guys mentioned in the deck. Can 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 do is and what you'd expect the pickup in yield potential to be?

Nicole Stokes

Sure. So when we look at it and from a repricing perspective, we've got about 36%, 37% of our loans that are repricing in the next year of those are coming in at about a seven 50 rate. So you think about the thing is there's a 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 <unk> 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 scale perspective that all of a sudden we've got a credit issue of people repricing firm and in firm The we also have the the warehouse lines that are fixed rate but they behave like a variable rate. So when you put that in, we're really more than 50% fixed, 50% variable.

Russell Gunther

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 it does more active stance on the buyback is something you'd consider in 24?

Palmer Proctor

Yes. At this stage of the game, I don't see any change in our approach there, and 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.

Casey Whitman

Okay, great. Thank you, Palmer. And then last one for me. You guys touched on the reserve a bit perhaps related to office and overall, just a really steady build above peer ratio? And where do you expect this to trend going forward? And then separately, just kind of follow-up would be helpful to get at charge off activity within Balboa and whether there's any change in that outlook type of part of 2014 in well.

Doug Strange

So with respect to the reserve. As Palmer noted, we are model driven with 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 one 55 based on Moody's forecasting as of March. And any future reserve changes would be would be learned on this model.
And second part of your question of charge-offs? Yes, we're 25 basis points for the quarter, a little bit better than Q4 last year. But on the charge-offs for equipment finance do remain a little elevated, but you got to remember that's a higher 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 of recognizing we did into the cloud business?

Russell Gunther

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 within that book. But if you look over a 10-year history, the loss rate for for equipment finance is probably sub to 1.5 in that range.

Palmer Proctor

Are you asking about this quarter in terms of a dollar amount or percentage or.

Russell Gunther

Yes, just trying to get us trying to get a sense of the 25 basis point kind of all in number.

Palmer Proctor

What Balboa contribution was for this quarter, but the bulk of that, probably 90% of that was was equipment there.

Russell Gunther

Got it. Okay. Great. Thank you all for taking my questions.

Operator

Christopher Marinac, Janney Montgomery Scott.

Christopher Marinac

Thanks. Good morning. On the call, but just trying 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?

Nicole Stokes

You know, Chris, as we've said from the beginning, that kind of if we could come out of this cycle with a plus three 50 margin that we would consider that a victory and to be at three 51 this late in the cycle, we feel like that is fantastic. And I say that if we have some short term compressions and a low single digit in the next quarter, I think I said last quarter that we have maybe two more quarters, which would have been this quarter and next quarter. So we are bouncing around between a three 43, 49 through 51 Sabia three, 52, somewhere in that range. That's still a really that is a really strong margin that we're pleased with. I'm probably the most cautious person to ever call it trough, um, but I will say that we like the three 50 ish margin that we're proud of that and the speed of our deposit price increases have definitely slowed. And we've got some really good tactical things as far as our retail CDs being very short, all of our broker CDs are short on a very short like they already 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.

Christopher Marinac

Great. That's helpful. Thank you for that. And I had a credit question as it relates to SBARM.s or anything that you see down the road on SBA that would be influential for either charge-offs or just credit in general?

Palmer Proctor

So Chris, not not materially. I mean, we've on that portfolio is under stress as most of people were allowed to small business when your lowest cost of capital is 10% or 10.5%. That does put pressure on the group of companies. But we we have the guarantee and we've been recognizing those losses as they occur, and we may see a little bit more of that. Again, that book overall is about 1% of the portfolio. And you know, we'll glass half full, but I'd love to see more volume coming out of that area.
Chris, we've talked about, but due to the fact we didn't have a whole lot of increased volume over the last couple of years on that because it was focused on PPP is you'll recall that that did help probably eliminate any additional potential risks that we have from a credit perspective in that overall portfolio because, as Doug mentioned, is minuscule in terms of the overall. But there will clearly be stress there I do think there'll 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 and dumb. But right now, we we feel pretty good about what we've got.

Christopher Marinac

Great. And then last question just has to do with the, I guess, the discipline that you've mentioned before about matching new loans and new deposits. Is that still the game plan going forward?

Palmer Proctor

Absolutely. And you know, Nicole used topical that margin and one of the things that you cannot overlook is the value of bringing in non-interest bearing deposits. We certainly track control we've already got. But more importantly, we're trying to look at what we can build and when you look at the DDA build this quarter, I think is 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, you know, treasury and aligning and controlling. And this 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.

Christopher Marinac

Great. Thank you for taking all my questions this morning. Okay. Thank you.

Operator

David Feaster, Raymond James.

David Feaster

Good morning, everybody. And some maybe just 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 in our now we're looking at some 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 considered.

Nicole Stokes

So we really we really are proud of the fact that we've done, I don't think we could have timed it any better to be this close to neutral this part of the cycle. So longer for high or 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 on with and we have been doing with our brokered CDs being short, our retail CDs being short so that we can become more liability-sensitive and 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 that would bring us up to about 8.8% of our bulk of our earning assets. So we have movement that we can do there. And we also have about $650 million of our bond portfolio that matures and we have a very short duration on our portfolio. This year, we've got about $300 million maturing this at a three 50 coupon and we've got about 335 ish maturing next year that fit it to 92 bonds. So there are some things that we can do on the balance sheet to pre kind of prefund some of those payoffs that will also help us from the becomes more liability-sensitive in the longer run.

David Feaster

Okay. That's helpful. And then maybe just kind of touching on the marketing margin side. I mean, Palmer, you just you nailed it the key to the margins really going to be deposit form, especially on the IB front and it's not lost on us that you saw in IB growth on a period-end basis. I'm just curious maybe some of the underlying trends you're seeing like I mean from the IB side, how our accounts are trending well and balances early into the quarter? And how you think about can I be in your kind of deposit growth strategy as we look forward?

Palmer Proctor

Yes, I don't think the nice thing, David, is we're not having to adjust our strategy because we've been we've always been up. I'd like to say we're deposit hounds. We've always focused on that. When you look at our deposit mix, I think it's perfectly reflective of that. And so when you look at our composition and with 37% consumer and 42% commercial. What we're seeing is that the focus that we placed on small business banking and on our C&I efforts, that's really as we all know, that's where the operating accounts come into 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 been where that additional expense has been, and that's where that value has been created. So we will continue with that. And I 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 more 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 was more transactional focused on the loan side.
And then you'd asked for the deposits. Now we ask the deposits and we have the deposits and we'll consider doing the loans. And that's a very different change in psychology and approach. And right now in this environment, it seems to be working pretty well.

David Feaster

Okay. That's great. And then maybe last one for 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 the capital preservation.

Palmer Proctor

Clearly, we've got the buybacks in place 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.

David Feaster

All right. Thanks, everybody, for being here.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Palmer Proctor for closing remarks.

Palmer Proctor

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 Amyris's bank.

Operator

The conference has now concluded, and thank you for attending today's presentation. You may now disconnect.