Ameris Bancorp (ABCB) 2017 Q1 法說會逐字稿

Good morning and welcome to the first quarter 2017 financial results conference call. All participants will be in listen-only mode. (Operator Instructions). Please note, this event is being recorded. I would now like to turn the conference over to Chief Operating Officer, Dennis Zember, please go ahead.

All right, thank you, Phil and thank you for everybody who has joined the call today. My apologies if you had to hear that twice. During the call today, we'll be referencing the press release and the financial highlights that are available within our Investor Relations section of our website at amerisbank.com. I'm joined today by Ed Hortman, President & CEO, and Nicole Stokes, CFO of Ameris Bank. Ed will make some opening comments about the quarter and some of the items we're focused on and then I'll spend some time going over some of the details.

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 materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update forward-looking statements as a result of new information, early developments or otherwise except as maybe required by law. Also during the call, we will discuss certain non-GAAP financial measures in reference to the Company's performance. We've provided a reconciliation of these measures and our GAAP financial measures in the appendix to our presentation. And with that, I will turn it over to Ed Hortman.

Thank you, Dennis and good morning everyone and thank you for taking the time to join our first quarter earnings call. I'm excited about the results that we reported this quarter and even more excited about the momentum we have going into the second quarter and the remainder of the year. We reported operating earnings of $0.60 per share, which is up 20% from the $0.50 per share we reported in the same quarter last year. Total operating earnings for the quarter were up 32% to $21.6 million, which reflect the additional shares we've issued in acquisitions as well as in the recent capital raise. Our results for this quarter reflect the additional earnings from the Jacksonville Bancorp acquisition that was not reflected in the first quarter results for 2016.

Additionally, earnings contribution from our joint venture with US Premium Finance was part of our growth story in the first quarter. Those collectively represent about half of our growth. The rest of the growth in earnings is from organic growth in the balance sheet coupled with really impressive management of operating expenses. Our organic growth with lower efficiency ratio is going to continue to be an impressive earnings driver that should hold our operating ratios in the favorable place they are today.

Speaking of operating ratios, operating return on assets for the first quarter came in at 1.27% compared to [1.18%] in the same quarter of last year. Our return on tangible capital was up slightly at 15.8% compared to 15.4% in the first quarter of 2016. Our margin excluding the effect of accretion was up about 6 basis points against the linked quarter which resulted primarily from the acquisition of the loan portfolio of US Premium Finance.

I guess the year-ago period were down about 1 basis point, which I consider a success given that we've grown earning assets by [over $1 billion or 19%] over the last year. Yields on earning assets improved about 4 basis points to 4.38% over the linked quarter, which mirrored the increase in our cost of funds which moved higher to 0.42%.

Our biggest win on the operating front was in our operating efficiency ratio, which fell to 60% compared to 65% in the first quarter last year. We've been able to manage this level in what is our slowest and most challenging quarter of the year. It gives me more confidence that we can hold efficiency at this level and that the EPS growth that we expect from our growth will materialize. On the growth side, we had [just over $100 million of growth in loans or about 8% annualized]. This is somewhat skewed because of a sizable drop in outstanding loans in our warehouse division, which saw really outsized balances at the end of 2016. We finished the quarter with pretty solid growth in commercial bank and in US Premium Finance. Pipelines across the Company in the bank and our lines of business are very strong and we're confident in our previous growth targets of something approaching 20% for the entire year.

We finished the quarter with stronger capital ratios than we've seen it sometime thanks to the successful capital raise earlier this year. Tangible book value increased to [$16.52 per share, up 26% from this time last year while tangible common equity to tangible assets increased to 8.85%]. Even with our return on assets in the 1.25% to 1.35% range, I expect that our balance sheet growth this year will bring the capital ratios down a bit, but we're in a great position to capitalize on the organic and M&A opportunities that are ahead of us with our stronger capital position.

I'll give you a quick update on BSA/AML. We continue to make excellent progress there and we remain on track to have every item of the consent order completed by June 30 as we've talked about previously. Currently, we only have the look-back process to complete and that's underway. We're working feverishly with the best consultants in the country to have that completed on schedule and we certainly expect to do that. While we obviously don't know what the findings will be, we're confident that there will be nothing of substance that will delay the project completion on our timeline.

On the M&A front, there continues to be a number of discussions around the M&A opportunities. So we're pushing hard to get back to that arena. Although we are excited about our organic growth for the foreseeable future, we're anxious to layer on some of the M&A opportunities that we see to further augment our strong profitability. Dennis, I think I'll stop there and ask you to take us through some more of the details on our results.

All right, thank you, Ed. Like I said earlier, I'll be referencing the financial highlights and the slides that we've published as I give you some more detail on the quarter. Let's start on net interest income and the margin. For the quarter, we're reporting $62.1 million of tax-equivalent net interest income, which is up about $3.2 million against the linked quarter and up almost $11 million against the year-ago period. Like Ed said, against the linked quarter, we really benefited from the boost that we got on the portfolio of United States Premium Finance, which more than offset the impact of a shorter quarter.

Our margin, excluding accretion income moved higher by 6 basis points, which was a combination of several events. Ed mentioned the impact that US Premium Finance gave us was about 7 basis points. We believe that's the impact that we'll see going forward. The capital raise and debt offering happened in the last month of the quarter. So the negative margin impact of this came in at only about 2 basis points. We've been saying that the capital raise and debt offering would be about 5 basis points to 6 basis points dilutive to the margin, but I've been using an investment rate of about 3%, which is probably low given the growth forecast we have. We think we may be able to neutralize the impact of that by the third or fourth quarter.

Lastly, we had a slightly better earning asset mix, a little more concentrated in loans, which gave us about 1 basis point in the margin. We aren't really seeing a tremendous amount of deposit pricing pressure yet, which I believe is driven by the industry seeing flat asset yield opportunities relative to where we were 50 basis points ago on fed funds.

On incremental deposit opportunities, we are being creative and aggressive knowing that we expect meaningful growth in the next couple of quarters. Essentially, our position is that we don't need margin expansion to hit our earnings numbers and to the extent that we get a lift in revenues from rate increases, we are using that to be as aggressive as we can to move the needle on funding. The provision was higher this quarter against last year, but total credit costs came in at about $2.7 million, which is pretty consistent with where we've been. The OREO and resolution side of this continues to [hint south] while our provision moves higher with the faster pace of loan growth.

Noninterest income in the quarter was higher by $1.4 million thanks to a rebound in mortgage revenues. The first quarter of the year is always pretty tough on mortgage as we build pipelines, but the sentiment has been pretty negative on the industry for most of the quarter. So we've been watching mortgage revenues pretty closely. In the end, two parts of our strategy in mortgage produced pretty solid results. First, the focus consistently being very reliable for our builders and our brokers meant that the flow of business that we saw was more reliable than what the industry experienced. Secondly, the southeastern markets where we originate are strong and growing and we are benefiting from that.

We mentioned that we became a Ginnie Mae qualified issuer in the quarter, which is very important given the expertise we have in government lending. During the first quarter, about 38% of our production was government oriented compared to about 39% for all of last year. The revenue pick-up from being Ginnie Mae approved varies depending on the market, but right now we're seeing about a 50 basis point pick-up in revenues from being Ginnie Mae qualified -- with Ginnie Mae approved. We think that we'll be ready to pick up some of that revenue probably by the third quarter.

Our SBA group had a great quarter with about $18.4 million in sold loans, which pushed net income in the group to $1.2 million. The pipeline is pretty strong at about $55 million and even more encouraging, we made a few new hires during the quarter bringing our total sales staff to 12 at the end of March. Our gain percentage was up a hair too, which is encouraging to 111.4% compared to 110.7% for all of 2016.

Our partnership with US Premium Finance delivered exactly what we had forecasted. Financially, it was very reliable and profitable and we grew assets in this division from about $360 million at the end of the year to about $437 million at the end of the first quarter. Outside of the financial aspects of this business, we are really pleased with the processes, the quality, the sales and administrative staff and the leadership in this group. While we're only three months into the agreement, we see all of the foundational parts that we need to lead us to believe we can hit or exceed the growth targets we have for this line of business.

On the expense side, I temporarily pleased Ed by getting an efficiency ratio with a five handle, I'm kidding, but in the quarter, we did come in at 59.7%, but in March alone, we were at 58.8%. So we feel like we've got some room between where we are now and 60%. I mean having done this in the first quarter of the year, when spread income suffers from slower production and a shorter quarter, I share Ed's confidence that we can hold the line on this efficiency level and find ourselves with some room to invest in the business either on the production side or in administrative centers that may need some additional resources as we approach $10 billion.

On the balance sheet side, Ed covered most of this, but we had core loan growth of $98.5 million or about 8.5% annualized. I know this is lower than what we have forecast, but we are still confident with respect to the kind of growth we expect in 2017. The first quarter was impacted by pay downs in mortgage warehouse that are kind of noticing that are industry-wide . Our pay downs were about $80 million, which is not the normal levels of pay downs that you expect between the end of the year and the first quarter. Some of this is a slower refinance market that is impacting mortgage industry volumes and the usage on our lines.

We believe the fourth quarter outstandings were impacted by about 75 basis points spike in 10-year right after the election that got a lot of borrowers off the fence and really filled up our warehouse lines. Going forward, we expect that at a minimum we can sustain the current level of production imbalances that you saw this quarter. So we don't think this will be a story second, third or fourth quarter.

On the equipment finance side, we built a significant pipeline. We hired the staff, we've got everybody integrated. The pipeline looks really promising for the next quarter or so. While we finished with just $5 million closed in this division, just seeing the pipeline and the kind of business that's coming across, we are confident we are going to hit the numbers we forecasted, which is $200 million to $250 million in this division by the end of the year.

Commercial side was very solid on both production and outstandings. Total production increased to $513 million, that's [up about 25%] from a year ago, $416 million. We are benefiting to some degree from commercial construction commitments that we made last year that are starting to fund up as well as new business. We saw flat yields on fixed-rate production, which is not surprising where the long end of the curve is, but we did see variable-rate production tick up about 36 basis points, which was encouraging. And then lastly just repeating what Ed said about the pipeline. I mean we're going into the second quarter of 2017 with what appears to be pretty exciting growth potential and is what's leading us to still be confident in our growth targets for this year.

On the deposit side, we saw $67 million of growth which was impacted by about $70 million of run-off in year-end municipal deposits. So all together really core growth about $137 million and considering this run-off, we are pleased with the pace of deposit growth and even more so that we did it without really causing a significant move in deposit pricing. We've said in our Investor meetings and almost all of our internal meetings that deposit growth and deposit growth strategies are a number one priority for 2017.

And lastly, I'll touch on -- I'll repeat something ED said about the capital raise as I hit the bullet points on the investment rationale. The capital raise did increase tangible book value by $1.67 a share and if you go back a year ago, some of the overhangs on the stock were or the two main overhangs on stock were really significant multiple on tangible book value, over 300% in the fourth quarter and sort of not having the consistency in our earnings that we wanted. Having the efficiency ratio back in the place it is right now, we've put together four or five consistent earnings quarters and we believe that the overhangs of earnings consistency and tangible book value are eroding and that over time, we believe the stock is going to trend more towards or it is our hope at least that it trends more towards a PE multiple that's in line with our peers. With that, I will turn it back you Phil for any questions that are out there.

(Operator Instructions) Brady Gailey, KBW.

One question just on the BSA issue. It seems like everything has kind of been done, you're looking at completing the look-back. When do you think the look-back will be done? It seems like that's kind of the last step?

Brady, the last thing I'd want to do is be critical, but we had a slight delay getting FDIC to approve, to act on to give us their non-objection. So that took too much, but our timeline is still intact. We are, on other parts of the project, we're 30 days ahead.

So all-in-all, the look-back is the final piece, but you don't know what you're going to find on the look-back. We certainly don't expect anything, but that's the only unknown at this point and we've heard comments from others that other banks are not getting out from under their order as quickly as we will have finished ours, but I would tell you, we've been working on it for almost a year, since August, we had our action plan in place in August of last year. So we've been working feverishly on it and we still expect to be totally finished with our part by June 30. I can't speak to what the FDIC timing will be, but they've indicated that they will be in on the visitation in June. So my expectation is, it won't be longer drawn out, but that's it in a nutshell.

Okay, all right, that's helpful. And then hopefully sometime soon, this BSA thing will be behind you all. As you look forward to additional M&A, you all have done some creative stuff here recently with some kind of non-bank related paths. Do you think going forward your M&A strategy will be bank-focused or would you also be open to doing some non-bank stuff?

We'd be open to do both honestly. I mean we've had significant conversations with conventional banks like we've done in the past and I think that's a real opportunity. We work in, as Dennis mentioned on as we approach the $10 billion and go beyond that, what gaps do we have, what resources do we need, we've been working on that and investing in that and we will continue to do that. As well, there is opportunity to leverage our premium finance business and other equipment finance business. So we'll look at those opportunities as well. I would just reiterate what we said, our number one focus is BSA, number two is organic and making sure we can execute the way we have this quarter, last quarter, last several quarters, but we absolutely intend to augment that with M&A.

Tyler Stafford, Stephens Incorporated.

[I missed your affair to March] I just hopped on, so apologize if you hit any of this then, but maybe first just on the new equipment finance team, it looks like they do have a strong pipeline, but can you just talk about any of the early successes you're seeing there and how that book is tracking relative to kind of your original expectations?

Yes, Tyler, I'll tell you. Right out the gate, one the pipeline, the growth in the pipeline is encouraging. We really didn't forecast having a lot of outstandings at the end of first quarter, so I'd tell you first that we're, while its $5 million, we feel like we're on track there. Really if there has been a surprise, it's the quality of the customer, really the size of the customer. I'm we're seeing in the C&I business, we're seeing C&I type business come through here that's much larger with companies that are much larger than what we would normally have looked at and so we are really, I mean we were comfortable with the quality having looked at historical loss rates, but we're even more comfortable with the quality given the kind of customers that we're seeing.

Second thing I would tell you on that is the inbound calls that we're getting from sales staff around the country that like what we're talking about and know some of the folks that we've hired is pretty encouraging. Ed just mentioned opportunity to do a little more than what we had forecasted has sort of starting to present itself and we're moving slowly there, but I think that's going to be an opportunity yield-wise, everything yield-wise and cost-wise, everything is right on track with what we had expected.

Okay, great. Thanks Dennis. Maybe just last one, I guess kind of the loan growth. So you guys consolidated the covered book into the purchase book this quarter and so just to be clear I guess a clarification question, the 20% growth that you guys are talking about, that is now the legacy plus the purchased loan categories, is that correct?

Correct. We reclassed about $19 million or $20 million is really where the covered book ended up. I mean that may run-off and historically Tyler, we've been removing any run-off in covered when we're talking about loan growth. Going forward it will be in there, but given that we're only at about $20 million of covered loans, it's just not going to be material.

Okay, on the margin, the security yields were up 23 bps or so [quarter-over-quarter]. Was that just a reflection of higher rates or was there any kind of one-time item that pushed those yields higher?

Honestly, Rob, top of my head, I'm not sure. I'll get that and let you know. I do know that generally we only purchase government and we're very plain vanilla. We have been dabbling in some of the subordinated debt that some larger banks have been putting out there. So the pickup that we've been getting from that. I know we did two or three of those in the fourth quarter and first quarter. So some of it just probably related to that. I'll get that number for sure and I'll fine tune it and send it out.

Yes, that's fine, thanks. And maybe just last one for me, on expenses, do you plan to make any more kind of BSA related [address] that the bulk of that investment already assumed in 1Q and with the payroll tax and the new hires that you are making from an expense standpoint, are we at a decent run rate in 1Q?

Yes, a couple of things are impacting that. I think we are probably -- if we are not at full capacity or full staff level on BSA, we're only one or two positions away. I think we're probably at 44, 45 people in that division. So we're very close if we're not fully staffed to be in there. So I don't think there is any more -- I think the run-rate on that is probably, we maybe [$200,000 or $300,000 in the first quarter since we staffed up during the quarter, maybe $200,000 or 300,000] that you'd see in the second quarter.

We generally have higher incentive accruals in the second and third quarter when mortgage is stronger, when the lines of business are stronger and the commercial side is stronger. So there's probably a pick-up of maybe $1 million a quarter you should see in both of those quarters and then sort of back to where we were now in the fourth quarter. So all-in-all, I think you're probably [maybe $1.2 million to $1.3 million] on the salary line.

Okay, this concludes our question-and-answer session. I would like to turn the conference back over to Chief Operating Officer, Dennis Zember, for closing remarks.

All right, thank you again for calling in. If you have any questions or comments, Ed and I are available and we look forward to hearing from you. Thanks, have a good day.