Ameris Bancorp (NASDAQ:ABCB) Q1 2024 Earnings Call Transcript

Ameris Bancorp (NASDAQ:ABCB) Q1 2024 Earnings Call Transcript April 27, 2024

Ameris Bancorp  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the Ameris Bancorp First Quarter 2024 Conference Call. All participants will be in a listen-only mode. [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 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 would 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 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 noninterest 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 3.51% 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 1.55% 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 in top Southeastern markets, that’s really what helps drive our optimism. I’m going to stop there now 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’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 1.20% this quarter, and our adjusted return on tangible common equity improved to 12.88%. 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 3.51%. We were pleased with just 3 basis points of margin compression this quarter and very excited to still be above a 3.50% margin this late in the cycle. Our yield on earning assets increased by 4 basis points while our total funding cost increased only 9 basis points. Now, 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 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 into 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 401(k) 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 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.

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Casey Whitman of Piper Sandler. Please go ahead.

Casey Whitman: Hey, good morning.

Nicole Stokes: Good morning.

Palmer Proctor: Good morning, Casey.

Casey Whitman: 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 sort of reached NII 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 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 4 basis points. And when you compare that to last quarter, it was 8 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 1 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 4 basis points and that 1 basis point that was kind of 5 negative basis points. And then we had 2 positive basis points of asset sensitivity that picked up to kind of get us to that net 3 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, that 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.

Casey Whitman: Okay. Thank you for all that. Just switching gears, any comments you can provide just to the outlook on mortgage feeling 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 just 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 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, 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 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 it’s 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. There — 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 into.

So, being heavy in Georgia and Florida and 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.

Casey Whitman: Okay, understood. Thanks for taking the questions and a nice quarter.

Palmer Proctor: Thank you.

Nicole Stokes: Thank you.

Operator: The next question comes from Will Jones from KBW. Please go ahead.

Will Jones: Hey, great. Good morning.

Palmer Proctor: Good morning.

Nicole Stokes: Good morning.

Will Jones: Hey, just sticking with the mortgage discussion. I mean, it was — you know, it was great to see 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 revenues. So, the cost containment remained relatively solid there. As we think about mortgage trending 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 in the first quarter, the expense run rate, is that kind of a good jump it off point for the remainder of the year? Obviously, you know, we have a little bit of seasonality ahead.

Nicole Stokes: 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, 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 401(k) match. So that will decline as the year goes on. So they’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.