Ameris Bancorp
Q1 2019 Earnings Call Transcript

Published: 23 Apr 2019

[Operator:]

Good morning, and welcome to the Ameris Bank First Quarter 2019 Financial Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. 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:]

Thank you, Gavi. 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 Dennis Zember, President and CEO of Ameris Bancorp; and Jon Edwards, our Chief Credit Officer. Dennis will begin with some opening general comments, and I will discuss the details of our financial results, before we open up for Q&A.

[Dennis Zember:]

Thank you, Nicole, and thank you to everyone who has joined our call today. I want to share a few highlights about the quarter and why I'm excited about the rest of 2019, and I'll give you an update on our merger with Fidelity Bank. For the quarter, we earned $0.90 per share on an adjusted basis, which is up 23% compared to this time last year. Since the end of the first quarter of last year, we've closed both the Atlantic Coast transaction and the Hamilton State transaction. And in those merger announcements, we said the two deals combined for about a 12% lift in earnings per share. The economics on those deals call for us to get cost savings, balance sheet restructure and some modest growth in Atlanta and Orlando. We've hit all of those targets that we were looking for and we've delivered on the opportunity from those deals. The other half of the growth in our earnings per share, about 12%, resulted from organic growth, internal cost controls -- internal cost control strategies and growth in non-interest income lines of business. Growing earnings at a double-digit pace in this rate environment, especially during the integration of those two deals, is a solid achievement by our staff and our bankers, and I'm very proud and thankful to be reporting these earnings. Our margins, net of accretion, expanded this quarter to about 3.83%, resulting from several quarters of higher loan production yields and a move in overall loan yields. The move in the margin would have been nice to have reported on its own, but we accomplished this by having -- at the same time having more deposit growth than loan growth by a considerable amount, actually, over last year. We've moved our loan-to-deposit ratio back to 86% from 96% at this time in 2018 and done so without impacting our margins or our profitability.

[Nicole Stokes:]

Great. Thanks, Dennis. As he mentioned today, we're reporting adjusted earnings of $42.6 million or $0.90 per share for the first quarter. These adjusted results primarily exclude about $2 million of merger charges and $1 million of restructuring and loss on branch buildings. Including these items, we're reporting total GAAP earnings of $39.9 million or $0.84 per share. The $0.90 per share EPS represents a 23% increase over the $0.73 per share we earned in the first quarter last year.

[Dennis Zember:]

First, right to the Q&A.

[Nicole Stokes:]

All right. Gavi, we're ready to go live for the Q&A.

[Operator:]

Okay. We will now begin the question-and-answer session . The first question comes from Tyler Stafford with Stephens Inc. Please go ahead.

[Tyler Stafford:]

Hey, Nicole, I want to just start on one of your last comments, just about that $3 million of expenses of the -- the $72.3 million in the first quarter that you said is not repeatable. Is it the $3 million of $72.3 million or $3 million annualized that's not repeatable going forward?

[Nicole Stokes:]

No, it's $3 million of the $72 million.

[Tyler Stafford:]

Okay.

[Nicole Stokes:]

That's not repeatable.

[Tyler Stafford:]

Perfect. Okay. Thanks for clarifying that and then just sticking with expenses. Obviously, there's a lot of moving pieces with Fidelity coming on board, and the associated cost savings there. But there is an, call it, $80 million delta or so between the high and the low 2020 expenses from the Street, so I was hoping you could just connect the dots for us on the pro forma expense base on the combined companies with the cost savings for 2020.

[Nicole Stokes:]

Yes, the 2020 cost savings are projected to be around -- between $440 million and $450 million of expense for the year.

[Tyler Stafford:]

And then -- thanks for clarifying that. And then just lastly, maybe for Dennis, Slide 25 mentions the efforts working on the 20 commercial bankers, getting those to the finish line. I don't think you've mentioned that in the deck, hiring kind of expectations in the past, like that. So can you just talk about, geographically where those bankers are based, and is it fair to say those are a result of recent larger MOEs within the market, any more context you can give us there?

[Dennis Zember:]

I would -- some of it relates to us being a little more aggressive, knowing that we've got almost $2 billion of indirect auto and some mortgage pay-offs on the Fidelity balance sheet that we're going to have to reinvest. So some of it is feeling -- we feel like we need better loan production capacity. Some of it is from that and just us being more aggressive. I would say that some of the larger banks that are doing restructures and obviously SunTrust and BB&T with their pending merger, has definitely shaken loose some opportunities that we would not have been able to look at. All of the 20 that I mentioned are from banks larger than us. Thus I'll leave it at that.

[Tyler Stafford:]

Got it.

[Dennis Zember:]

And they are mostly commercial oriented, mostly C&I oriented. Not -- there are -- I mean, some of them have maybe more of a generalist, where they could potentially do some CRE as well, but we're focusing more on C&I. 15 of those 20 are in Atlanta.

[Tyler Stafford:]

Great. Thanks for that detail. And maybe just one more if I can sneak it in. Slide 24, around the Fidelity Southern expected EPS accretion mentions high single digits. And then Slide 28 mentions mid-single digits. Can you guys just clarify the current expectations for the combined EPS accretion from that acquisition?

[Dennis Zember:]

I think we came -- 6% to 7%.

[Tyler Stafford:]

Okay.

[Dennis Zember:]

So, 7% -- I mean, we said --

[Nicole Stokes:]

So, that would be high-mid

[Dennis Zember:]

Maybe, going forward, we're just going to say a percentage and not be coy.

[Operator:]

The next question comes from Brady Gailey with KBW. Please go ahead.

[Brady Gailey:]

So, we've seen -- we didn't see much loan growth this quarter. And your loan balances were kind of flat last quarter. It sounds like quarter-to-date it's picking up. But I think I have -- I think I remember you guys saying roughly $1 billion a year of annual loan growth. Is that -- do you think that is still achievable or do you think we're looking at something a little less than that for 2019?

[Dennis Zember:]

It's probably something a little less than that. I mean, we did dial back on -- we had been doing some mortgage portfolio. We've dialed that back a little. A lot of that has mortgage rates or for the balance sheet, aren't as attractive as they were this time last year. And that was -- so that was probably a $100 million to $150 million of that. So, I mean, when I say a little less, I don't mean $1 billion is going to $0.5 billion. We're probably more $800 million to $900 million, just given that mortgage portfolio -- portfolio banking from the mortgage side is not as attractive as it was. I think we're probably a little -- growth-wise, I'd say that premium finance, we feel a little better about that. I'd say, given where we finished the quarter on unfunded commitments with CRE, I think we feel a little better about that. We will land these -- some of these bankers, so C&I growth is going to be a little better. But like I said, unless we're willing to give on -- unless we are willing to give on the recourse side, I just don't think we're going to get a lot of growth in CRE, I think, outside of what we've already closed. And -- I mean our production does look good, but to really put on the growth that we would love to have, we're going to have to do something different on recourse and I don't know that we're going to go there wholly.

[Brady Gailey:]

All right, that makes sense. And then, I know last quarter you all had thought about the core NIM kind of being stable from here, but it was actually up -- what? About 8 basis points linked quarter, so it came a little better than you all had thought. Do you think at 3.83% the core NIM is stable from here or could it slip back to that kind of mid- 3.70% range that we saw kind in the back half of last year?

[Dennis Zember:]

I would tell you that -- linking to your last question -- Yes -- if we think we're going to maybe be 10% lower on the kind of loan growth we were expecting, 10% on growth. So maybe instead of $1 billion, $900 million, we're going to be getting a little less in loan growth, we are going to be pushing a little harder on the profitability side. I would tell you that we -- at 86% loan-to-deposit ratios, loans are somewhere like around 81% or so of earning asset. I've built -- that number is going to tick up a little. We had great growth in deposits this quarter, but for the year I still think loans will probably outpace deposit growth and you'll see a little more concentration of earning assets in loans, which are going to give us a little better NIM. I don't think the NIM is under pressure from here. I mean, especially given that we're sitting here with 86% loan-to-deposit ratio, when we've normally been a touch above 90%, I think that alone will sort of hold us where we are, or better.

[Brady Gailey:]

And then lastly for me, Dennis. If you look at where the Company is now, I mean, you're -- with LION in there you're going to be $16 billion, $17 billion. I meant that's multiples ahead of where you all were, say, a decade ago. So you have the scale, clearly you have the profitability with what we see in this quarter. I know, near term, you're going to be focused on LION and getting that thing closed and integrated. But I mean longer term, do you think that M&A will still be as big of a piece of the Ameris strategy? Or do you feel like you've kind of hit the level where you have scale, you have profitability, and M&A really won't be as big of a strategy as it has been over the last decade?

[Dennis Zember:]

I mean, I love M&A. And so, it's hard to say that it is not going to be as big a part. I mean, it will be different, for sure. Atlanta, it's the first time in Ameris' history that we got enough concentration in enough really top-tier markets that we can put up the earnings-per-share growth double-digit per -- earnings-per-share growth without having to do M&A, and the past decade has just been sort of messy. M&A is kind of messy, especially -- culturally and financially. But we've been able to grow the Company and grow earnings and grow operating ratios through M&A. Right now, I will tell you, we are so squarely focused on integrating Fidelity culturally and financially, and hitting those targets on that page that -- I mean, we still have phone calls -- incoming phone calls and we still have all the conversations we've had in the past, but to move us off -- to move us off a -- started to say something my mom wouldn't appreciate, a near perfect execution on the Fidelity deal is going to be pretty hard. Once we see our pathway clear on those six items, once I know for sure we're going to have the image in Atlanta it takes to move a lot of business off the other bank's balance sheet onto ours, same thing with their bankers. Once I see that the cash flows from the indirect auto are going into higher yielding commercial assets, got all the cost savings, once I see our pathway clear to that, I think we would be willing to look at M&A. I would -- I'm not going to be coy, I think M&A is still going to be part of our strategy. It's just not going to be part of our strategy until I know that we have executed near-perfectly on Fidelity.

[Operator:]

The next question comes from Jennifer Demba with SunTrust. Please go ahead.

[Jennifer Demba:]

Dennis, you mentioned that things are a bit more competitive in the larger markets like Atlanta, Orlando, Tampa. How do you think your credit policies are going to have to evolve over the next couple of years as you are getting more meaningful in these markets, particularly Atlanta with the LION deal, and the hiring you're aiming to do here?

[Dennis Zember:]

Probably we're going to have to -- getting to this point, we've not had to rely too heavily on C&I lending or middle-market type stuff. So we're going to fine-tune what we're doing there. I don't know if that's policy as much as that's just staffing up and getting a little more expertise in credit administration. Recourse, until we sort of found our way into Atlanta, in Atlanta we're trying to bank $10 million, $20 million, $30 million commercial real estate deals, a lot of times they have tenants that may not be credit tenants -- credit rated and all that, but they do have -- they do have balance sheets and operating histories that are maybe a little better than what we've seen in some of our more legacy markets. And so that's kind of what we're wrestling with internally. Do we treat those CRE deals that won't have a little more non-recourse, do we treat them a little more like C&I loans with covenants in the search. And we just -- right now we're just not there, we don't really feel like -- I don't feel like we've got to do much of that to be too creative to be -- like I said, step on the gas any harder, just sort of hit our EPS numbers and our profitability targets. I mean, we are going to be progressive and we're going to be creative where we need to be, but we're not going to alter. This is not the time, I don't think to do something to alter our risk profile. And I don't feel like we have to do that to redeploy the cash flows from Fidelity's auto book, or to get the growth that we're looking for.

[Jennifer Demba:]

Also, you said you're working on 20 new hires. What is budgeted for '19 and '20 in terms of hiring for Ameris?

[Dennis Zember:]

We -- before the Fidelity deal, probably 10 bankers. With the Fidelity deal, and knowing that we've got to redeploy all of those proceeds, we're probably closer to 30 or 35 bankers. So, I mean, had we not done Fidelity, I think we would have -- we had about -- we have about 110, 115 bankers, commercial bankers in the Company now. I think we probably would have hired another 10 or so, mostly in Orlando and Atlanta. I think now with the Fidelity deal and all the new proceeds, I think we're probably 20 or 25 better than that.

[Jennifer Demba:]

And that's per year or over the next couple of years?

[Dennis Zember:]

That's per -- over -- that's between now and middle of next year.

[Operator:]

The next question comes from Brett Rabatin with Piper Jaffray. Please go ahead.

[Brett Rabatin:]

Wanted to go back -- I joined a little bit late, but just want to make sure I -- I had a clear on the expenses and just you had the $3.1 million that you kind of take out. But I want to make sure I understood. So the $72.3 million, you're saying that -- and there's another $3 million that's kind of not ongoing, that was in 1Q?

[Nicole Stokes:]

That's right. There's about $3 million there. So you're exactly right. There is about $3 million excluded from GAAP expenses to operating expenses. And then included in that operating, there is about another $3 million. I think that were true operating expenses this quarter, but things that are not recurring, such as operating expenses for the one month that the branches were opened. Those payroll taxes that always hit the first quarter and then some other small lagging things and the cost saves that we didn't get a full quarter of and we put them all together, it's about $3 million.

[Brett Rabatin:]

Okay. Great. And then just wanted to ask on -- just thinking about growth and maybe more of the challenges today, is what you're seeing -- I'm just curious, does it change anything on your plan for LION? And just maybe I know some of that book was going to be run down. Do you change your plan on any of that related to auto or can you maybe just give us some color on -- updated thoughts on their loan book?

[Dennis Zember:]

It doesn't change our opinion on the auto book. And I mean, I have a high opinion of the auto book from a credit perspective. I mean that auto book outperformed our balance sheet by -- credit losses by 20% or 30%. I mean it was -- it did really well in the recession. The problem is, right now, yields to us with Fidelity are barely 3%. It may not even be 3%. It's just -- it's hard to originate and sell that paper. I mean, if rates dropped so precipitously over the next three months or six months, such that there was a lot of gains and lot of excess spread there, I mean maybe we would look at it. But the fact is it's -- that's not going to happen. We don't want to -- the auto book is sort of not core. We still like -- from our franchise value perspective, we have more franchise value, we have more yield, we have probably similar credit economics, if we went into, sort of, higher quality commercial assets. And I think really that's the goal here. We don't want to move to Atlanta in such a meaningful way and be doing indirect auto. And I'm not saying that -- I'm not saying that really critically of the indirect auto book, I'm just saying that we believe the way to maximize our franchise value is to move that into that amazing book of deposits they have into local commercial assets in the City of Atlanta, and that is our goal.

[Brett Rabatin:]

Okay. Appreciate the color. Thanks.

[Dennis Zember:]

All right.

[Nicole Stokes:]

Thanks, Brett. I was going to add real quick on something that I said earlier that maybe I can clarify, is when we look at 2020 run rate -- run rate of the expenses, including Fidelity, there is a lot of moving parts. And I think when I clarified kind of the run rate for 2020, maybe I wasn't clear that it's -- between four -- what we estimate to be our total run rate for 2020 operating expenses is closer to the $420 million, $430 million. I think I've got tangled on my answer there to Tyler, possibly on cost saves versus spending. And so, we really anticipate the 2020 expense rate to be closer to the $420-ish million, $430 million and that includes -- I think we originally estimated $410 million to $420 million. But as we start putting in some of the growth opportunities for these commercial lenders that we can plan on hiring, so we've increased that just slightly.

[Operator:]

This concludes the question-and-answer session. I would like to turn the conference back over to Dennis Zember for any closing remarks.

[Dennis Zember:]

All right. Thank you, Gavi. Appreciate your attendance on the call today. Nicole and I are available all day, really all week, I guess, really any time for questions or answers. Text or email, whatever you want to, we will be willing to get on the call with you. Thank you again, and we'll see you soon.

[Operator:]

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