Ameris Bancorp (NASDAQ:ABCB) Q4 2022 Earnings Call Transcript

Ameris Bancorp (NASDAQ:ABCB) Q4 2022 Earnings Call Transcript January 27, 2023

Operator: Hello everyone and welcome to the Ameris Bancorp fourth quarter 2022 conference call, and thank you for standing by. My name is Daisy and I will be coordinating your call today. If you would like to register a question, please press star followed by one on your telephone keypad. I’ll now hand over to your host, Nicole Stokes, Chief Financial Officer to begin. Nicole, please go ahead.

Nicole Stokes: Great, thank you Daisy, 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 Jon Edwards, our Chief Credit Officer. Palmer will begin with some opening comments and then I will discuss 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 these factors that might cause results to differ in our press release and 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. With that, I’ll turn it over to Palmer.

Palmer Proctor: Thank you Nicole. Good morning everyone. I appreciate you taking the time to join our call today. We were very pleased with the financial results we reported yesterday, and I’m also excited to be able to share some of the financial highlights in addition to our overall strategic view, before Nicole gets into some of the details. For the fourth quarter, we reported net income of $82.2 million or $1.18 per diluted share, and for the year we earned net income of $346.5 million or $4.99 per diluted share. We had another quarter of margin expansion where our margin improved by six basis points to just over 4%, and then our net interest income increased over 5%. One of the metrics we’re really proud of is for the full year of 2022, our growth in net interest income was over $145 million and more than replaced the decline in revenue that we experienced from the mortgage industry refi boom and the PPP income from 2020 and 2021.

As a company, our pre-tax, pre-provision increased 13.9% in 2022 to $524.8 million from $460.7 million in 2021. This resulted in a PPNR ROA of 2.22% for 2022 compared with 2.11% in 2021. This revenue growth and our disciplined expense control improved our overall operating efficiency to 49.9% this quarter and 52.5% for the year. As for capital, our capital position remains strong. Our PPE ratio was 8.67 at the end of the year, and we’ve consistently said we’re focused on tangible book value growth which we believe is a main driver for building shareholder value, and we grew tangible book value this year by 13.9% to end at $29.92 per share. On the balance sheet side of things, we’re pleased with our loan growth as well as our deposit balances.

Loans grew over a billion dollars during the quarter, which includes an asset purchase of approximately $472 million of cash value life insurance-secured loans. Excluding this purchase, organic loan growth was $576 million or 12% annualized for the fourth quarter. Our full year 2022 organic loan growth was $3.5 billion or 22%. We continue to anticipate 2023 loan growth to moderate but are still guiding, though, in the mid single digit loan growth for 2023. The total deposits were relatively flat for the quarter and ended at $19.5 billion compared to $19.7 billion last year, and our total non-interest bearing deposits still represent about 41% of our total deposits. We’re going to continue to work diligently to protect these relationships, and we still have less than 1% in broker deposits or brokered CDs. On the credit side, overall quality remains strong.

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We recorded a $33 million provision expense this quarter due to loan growth and our updated economic forecast, and none of this provisioning expense was due to credit deterioration. Our annualized net charge-off ratio improved to only 8 basis points of total loans for the quarter and the year, and our non-performing assets excluding the Ginnie Mae guaranteed loans as a percent of total assets was 34 basis points. Our allowance coverage ratio excluding unfunded commitments improved to 1.04% at the end of the year. To summarize, while the economic outlook seems to change daily, we’ve got strong fundamentals and we’re prepared for 2023, and I say this for several reasons. First, when you look, we have a slightly asset sensitive balance sheet that’s going to help protect us and protect the margin throughout the next few Fed hikes.

We also have a strong core deposit base. As you know, with deposit betas are better than modeled, we’re going to continue to target a pre-tax, pre-provision ROA greater than 2%, as it was 2.2% this year, as I mentioned earlier, and we’re also projecting an ROA in the 1.30 to 1.40 range and an ROTCE above 15%. What drives a lot of this is our culture. We’ve got a strong culture of expense control and expect to maintain a sub-55 efficiency ratio. We’ve got a diverse revenue stream among other lines of business and geography with over 73% of our net income coming from the core bank segment, and we’re going to continue to accrete capital and we expect to have double-digit tangible book value growth. Last but not least, when you look at how we’re positioned in terms of our markets and our experienced bankers, there’s no reason why we can’t achieve what I just mentioned.

I’ll stop there and turn it over to Nicole and let her discuss the financial results in more detail.

Nicole Stokes: Great, thank you Palmer. As you mentioned, for the fourth quarter we’re reporting net income of $82.2 million or $1.18 per diluted share. On an adjusted basis when you exclude the MSR gain, we earned $81.1 million or $1.17 per diluted share. Our adjusted return on assets in the fourth quarter was 1.32 and our adjusted return on tangible common equity was 15.78. For the full year ’22, we’re reporting net income of $346.5 million or $4.99 per diluted share. On an adjusted basis, we earned $329.4 million or $4.75 per diluted share, and that brings our full year ROA to 1.39 and our ROTCE to 16.92 for the year. We ended the quarter with tangible book value of $29.92 per share – that’s an increase of $1.30 this quarter, and for the year-to-date period we grew tangible book value by $3.66 or almost 14%, as Palmer mentioned.

We started at $26.26 at the beginning of the year and we ended at $29.92 at the end of the year. Moving onto net interest income and margin, our interest income for the quarter increased $39 million compared to third quarter and increased $95 million when you compare the fourth quarter of last year. In comparison, our interest expense only increased $28 million this quarter compared to last quarter, and just $38 million when compared to fourth quarter of last year. For the full year ’22, our interest income increased $191 million while our interest expense only increased $45 million, so we had a net increase in net interest income of about $146 million or just over 22% year-over-year. What’s really important there is we have to remember that that included the headwind of the PPP run-off, so when you look at the core bank segment, net interest income in the core bank increased $188.7 million or 41.2% this year.

That was attributable to both asset growth and to our margin expansion. On the margin expansion, we increased 6 basis points this quarter from 3.97% last quarter to 4.03% this quarter. Our yield on earning assets increased by 54 basis points while our total cost of deposits only increased 39 basis points. Due to competitive pressure, we have been more aggressive with raising deposit rates this quarter but we’re still below our modeled betas. Our cumulative deposit beta this year has been about 15% compared to an original model beta of 23%. We continue to be asset sensitive with NII increasing about 2% in an up 100 environment, and we’ve updated the interest rate sensitivity information on Slide 10. Non-interest income for the quarter decreased about $17 million, and $14.6 million of that was in the mortgage division.

Once again, our mortgage group did a great job reducing their expenses as production pulled back. Expenses in the mortgage division declined by $7.3 million and represent 50% of the revenue decline due to the variable expenses there. Purchase business stabilized this year closer to historic levels at 82% of total activity, and we really are prepared for the continued success pre-pandemic, pre-refi boom levels. Total non-interest expense decreased $4.5 million in the fourth quarter. We really do remain focused on our operating efficiency. Our adjusted efficiency ratio improved to 49.92% this quarter from 50.06% last quarter, and for the full year our efficiency ratio was 52.54% compared to 55% last year. We continue to look for expense reduction opportunities, and although there is always a cyclical first quarter bump, we still believe we can maintain an efficiency ratio in the low 50s next year, even with these slight non-interest expense increases.

On the balance sheet side, we ended the year with total assets of $25.1 billion compared to $23.8 billion last quarter and $23.9 billion last year. We were pleased with unit growth of $576.1 million or 12.25% annualized for the quarter, and for the year that was $3.5 billion or 22% for the full year. We do anticipate 2023 loan growth to flow and be in the mid single digits for next year–that’s this year, 2023. Total deposits were relatively flat at $19.5 billion for the quarter, and our non-interest bearing deposits still represent over 40% of our deposits, 40.74% to be exact. Then our total non-rate sensitive deposits, we include non-interest bearing now in savings, they represent over 65% of our total deposits, and as Palmer mentioned earlier, we’ve got minimal–less than 1% of our deposits are brokered.

With that, I will wrap it up and turn the call back over to Daisy for any questions from the group.

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Q&A Session

Operator: Our first question today comes from Casey Whitman from Piper Sandler. Casey, please go ahead, your line is open.

Casey Whitman: Hey, good morning.

Nicole Stokes: Good morning Casey.

Casey Whitman: Maybe first starting, Nicole, you mentioned, I think a 15% cumulative deposit beta versus your 23% model. Is it your expectation over the next few quarters that the beta will kind of grow towards that 23%, or has, I guess, your longer term beta outlook come in a bit? Maybe just touch on where deposits costs were at the end of the quarter versus where they were over the quarter, if that’s gone up meaningfully or not.

Nicole Stokes: Sure, so yes, our original model beta was about a 23 and our current model beta is about a 21, and so we were below that. When you look at–and again, that is modeled all in, so that’s including interest bearing and non-interest bearing, and so for the cycle, we’re at about 15% compared to that original 23 and our current model beta is about 21%. We are asset sensitive, still slightly asset sensitive, about 2%; but what I would say is with every rate hike, we have seen–definitely seen competitive pressure in the market, and so we would guide the margins to be peaking or near peak at this point and that, even though we are asset sensitive, if the Fed moves next week and they have one or two more moves, that we really have that extra beta, that catch-up beta to be able to protect our deposits. We would guide that the margin is stabilizing or peaking now.

Casey Whitman: Mm-hmm.

Nicole Stokes: Then for spot deposit costs at the end of the quarter, I might need to get back with you on that one, Casey.

Casey Whitman: Okay.

Nicole Stokes: I will say that with the latest move there, it’s going to be in CDs, and that our overall CD costs–I mean, I think our money markets and all of those are fairly consistent with what we reported for the quarter, but our CD costs for the spot costs–so our money market spot costs at the end of the year were about 2%, now they’re about for a total of about 1.53%.

Casey Whitman: Okay, I appreciate that. Maybe walk us through the strategy just with FHLB borrowings and, I guess, talk more broadly about total funding costs versus just deposit costs, and also your appetite for FHLB versus broker deposits and how it kind of applies to the loan growth guide and also the loan purchase this quarter.

Nicole Stokes: Sure, so we–going into this, when we purchased the loan portfolio, which we like that credit and we like that cash surrender value and we like the rate, and so when we model that, we modeled that with some wholesale funding, at least temporarily. The fact that we–when you look at our FHLB borrowings at 1.5 at the end of the year, a third of that was really to fund that portfolio purchase, which is accretive to ROA. So really, the remaining borrowings, about a $1 billion is FHLB borrowing, and we really look at that from a profitability, margin and an ROA perspective. But had we instead of doing brokered deposits–I’m sorry, instead of doing FHLB advances, if we had done broker, which we had room to do that because our brokers were less than 1%, so if we had booked those as brokered deposits instead of FHLB advances, our loan to deposit ratio would have been less than 95% because we would have grown that denominator.