Q2 2020 Ameris Bancorp Earnings Call
Good morning.
Welcome to Ameris Bank Corp. second quarter 2020 financial results Conference call.
Participants will be in listen only mode should you need assistance leasing conference specialist by pressing the star Keith followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you. My press Star then one on your telephone keypad to withdraw your question. Please press Star then too.
Please note. This event is being recorded I would now like to turn the conference over to have coastal Chief Financial Officer. Please go ahead.
Great. Thank you Kate and thank you all have joined our call today during the call. It will be referencing the press release and the funny to highlight that are available on the Investor Relations section of our website Ameris Bank Dotcom I'm joined today by Palmer, Crocker, RC and John Edwards, our Chief Credit Officer.
I will begin with the opening general comments and then I'll discuss the details of our financial results before we open it up for culinary I think I'm supposed to mention here that were social different saying Oh, although we are the same ready we're social distancing for sure before we begin I'd remind you that our comments may include forward looking statements. These statements are subject to risks.
I see the actual results could vary materially we where some of the factors that may cause results to differ in our press release, and our FTC 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 or we 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 a reconciliation of these measures and GAAP financial measures in the appendix <unk> presentation, and with that I'll turn it over to polymer for any comments like into Colin. Thank you everyone is joined our call today I'm excited to share with you our second quarter results.
As we successfully navigate in this new environment.
Goals and update you on the detailed financial results on a few minutes, but I wanted to hit just a few of the highlights.
Quarter, we reported net income of 32.2 million or 47 cents per diluted share and that's inclusive of an $88 million provision for loan loss expense.
We're pleased with our operating ratios they moved in a positive direction this quarter or net interest margin improved 13 basis points to 3.83% as we lowered interest bearing deposit cost about 43 basis points during the quarter.
We also saw significant improvement or adjusted efficiency ratio, which improved to 51.08% most of that will do the efficiencies we garnered in our mortgage division during the quarter.
We continue to identify additional cost saves us wait for us to self fund future technology and innovation calls, we'll discuss some of that's when these initiatives later wrong indeed, the discussion today.
On the loan brought we exhibit cautious but solid growth in the second quarter, we extended up a $1 billion PPP loans to about 8200 customers an originator of record $2.9 billion in single family mortgages.
Excluding PPP loans organic loan growth was just over $384 million.
We also saw significant growth in deposit accounts noninterest bearing deposits now account for over 35% total deposits.
Next I want to give you an update on business in this new environment, we've adapted.
I have another 75% of our staff working remotely.
Our lobbies remain close to accept pull appointments.
We do continue to successfully serve our customers through digital channels and through the draft rule capabilities.
In fact, we're still opening more new d. accounts in the current environment than we did in prior quarters Spider lobbied been closed and we continue to see increased the number mobile banking customers. We view this as a real opportunity going forward.
Well our customers are also learning the new norm in this code that 19 world.
They are persevering.
Previously mentioned, we continue to see loan demand at the date, we have experienced marginal impact on our credit quality ratios.
On our last earnings call. We said, we have provided payment relates almost 5400 customers totaling $2.2 billion outstanding loans across all loan types in markets that equated to about 17% of total loans.
Those are the first to the 90 day modifications.
The speed level everquest it slowed down through July 15th we have provided payment relief to customers totaling $2.8 billion, but outstanding loans.
Thus far customers requesting the additional 90 day extension totaled just over $290 million the high concentration that in our hotel borrowers.
Well what is encouraging to see if the customer reverting back to the pre code. The terms of their agreements now exceeds a billion dollars through July 15th.
As it pertains to capital we remain highly focused on capital preservation of growing tangible book.
And as for dividends, we're very comfortable with where we are their dividends today do not anticipate any reduction at this time, but obviously we continue to monitor this is an option and finally as you're aware of stock buyback program remain suspended.
John Edwards, our chief credit officers with us today and he is available for questions. After our remarks, but I wanted to hit a few highlights in terms of credit as previously mentioned, we recorded an $88 million provision for loan loss expense in the second quarter, primarily due to the updated economic forecast as you can see all slot.
17 of our Investor deck. This brings our allowance coverage, including unfunded commitments to 1.52% net of the PPP loans.
Our annualized net charge off ratio was 27 basis points of total loans, our nonperforming assets as a percentage of total assets decreased slightly to 59 basis points compared to 61 basis points a prior quarter.
We have no direct exposure as we've stated before the oil and gas sector. We've included additional details in our hotel and restaurant exposure in the slide deck as well as detailed in the diversification across loan types within our loan portfolio.
We started to get some questions regarding M&A and whether we're ready to get back into the game and I'll tell you with the uncertainty of coated and the general economy are watching the market closely and we will wait for the right opportunity.
But we will be ready when that day columns.
I'll stop there now and turn it over to coal for some further updates on the financials great. Thank you Palmer.
The second quarter, we're reporting net income of 32.2 million or 47 cents per diluted share as Tom mentioned this includes $88 million a provision for loan loss expense primarily related to the update a more economic forecasts and not related to any specific credits within our portfolio.
On an adjusted basis, we earned 42.4 million or 61 cents per share when you exclude the merger restructuring charges, serving <unk> servicing asset impairment 'cause. It 19 expenses legal fees from the ongoing FCC investigation and the losses on it they failed bank Princess.
Our adjusted return on assets in the second quarter was 89, which was a slight increase from the 87 reported last quarter and our adjusted return on tangible common equity with 11 66 compared to 10 98.
Both of these ratios are less than historical levels due to the increased provision for why walks that.
Tangible book value increased 46 up from 2044 to 20 knotty during the quarter.
Our tangible common equity ratio decreased 55 basis points to 770 for 825 from the end of last quarter whoever the asset growth from P.P. was negatively impacted that 45 basis points. So excluding the P to P. One for total assets are Tc ratio would have been 815 at June 30.
We were extremely pleased with our positive readout in the margin this quarter and our net interest margin improved by 13 basis points from Threeseventy to 383 during the quarter as we were successful in quickly reducing funding costs.
During the quarter, our yield on earning assets declined by 25 basis point, but our funding costs decreased by 49 basis points and our total interest bearing deposit costs decreased 43 basis point as we continue to stay focused on our pricing and we really didn't see the competitive delay with the March fed cuts that we've seen in the past.
We saw an increase in accretion income compared to last quarter because of some pay off in the fidelity portfolio that we don't anticipate to recover in future quarters.
Our core bank production yields declined to 416 for the quarter against for 55 last quarter and on the deposit side. We continue the momentum on noninterest bearing deposit and improved our mix such that noninterest bearing now represent 35.8 nonpersonnel as our total deposits compared to 30.3 at the end of last quarter.
And 28.9 described last year, a large portion of the increases related to PPP deposit and we anticipate this gradually running off and we modeled that in our Alco modeling.
But I previously mentioned, our second quarter provision expense was $88 million approximately 68 million of that was related to one loss and 20 million like an increase for unfunded commitment.
You had approximately 9.2 million of net charge off for the quarter.
Our ending allowance for loan loss at June 30 was 208.8 million compared to 149 at the end of last quarter and 38 million at the end of year. If you add in the unfunded commitments reserve our total while it for credit losses was 246 million at the ended the quarter compared to 167 at the end of the first quarter and 39.
Looking at the end of last year.
Moving on our growth in noninterest income was exceptional during the second quarter, our mortgage group had record production efficiency and earnings due to the interest rate environment.
Mortgage production hit record levels at just over 2.6 billion for the quarter and the gain on sale increased to over three and half percent up from 288 last quarter.
Net income into retail mortgage division increased to 53.5 million for the quarter.
Total non interest expense were 155.8 million for the quarter. However, when you remove the cousin 19 expenses the merger restructuring.
The fees the attorney fees on the FCC investigation and the wall from Philip branches. Our adjusted non interest expense totaled 149 million that was up 14.7 million from last quarter. However expenses in the retail mortgage segment increased 20.8 million due to the variable costs associated with the in.
<unk> volume such as commission. So as you can see on slide 11, all of the increase in expenses are related to the one of the business and are more than offset by increased revenue I know, we expect it enough. We discussed on this call last quarter, excluding the lines of business our expenses in the core bank an administrative function decreased by seven.
4 million during the quarter.
This is what has to be extremely pleased with our efficiency ratio. Our adjusted efficiency ratio improved to 51.08 compared to 59.87 last quarter. The increase in mortgage revenue in the efficiency gain in the mortgage division significantly impacted this ratio.
We don't believe the ratio will increase we do believe the ratio will increase slightly in future quarters. As we don't anticipate this level of mortgage revenue and efficiency to be sustainable.
Calmer mentioned, we've identified several areas for additional costs right. We've identified nine branches that will be closing in the third quarter. We've identified several branches that will remain a drop through only after the pandemic EM and we're also have an initiative to reduce our lease expense on non retail banking offices that we can eliminate Arkansas.
Today into other facilities.
This is all of this is in addition to the 14 branches that we've already closed from the fidelity acquisition.
We've already terminated or negotiated out of a weapon leased spaces for an annual cost phase of over one and a half million dollars going forward and we continue to look for more opportunity.
We've initiated an employee incentive program to sharing the cost saves to really draw the cost based culture with our new employees.
We view these cost saves as a way for us to pay for the growth in technology and innovation going forward, while we can maintain our efficiency ratio in the mid to late fifties.
On the balance sheet thought we were pleased with organic growth both on the loan and deposit side loan growth. This quarter was 1.4 billion.
Including the 1.1 billion of T. P. P. One so excluding those loans our organic loan growth was about 384 million that's about a over just all over 11% annualized.
However, approximately half of that long growth was seasonal grows and our warehouse and AG line, which we anticipate will normalize later in the year and brings our lung grows back in line with our estimates of about 7% for the year.
More details of our loan production can be found on slide 21, and 22 in the Investor presentation.
Our total deposits increased by 1.7 billion during the quarter of which 1.4 billion wasn't noninterest bearing and was positively impacted by P.P.P. deposit as we discussed earlier our loan to deposit ratio ended at 93% compared to 94.6 at the end of the first quarter.
Tom I mentioned, we continue to be well capitalized we feel comfortable with our capital level and our liquidity position remained strong and with that I'll turn it back over to Palmer for closing comments for the Kuni. Thank you Nicole.
Thank you everyone again for listening to our second quarter results and closing share with you that we are obviously moving in the second half a 2020 and we're coming up the marketing strategy campaign, a back to business together and I think that's sitting for our company as well as our customers and our communities. While we think the code that 19 pandemic.
Who want the last longer than we had all anticipated we're adapting and we continue to.
The business oriented as we get back to business together.
I remain very optimistic about the future even in these uncertain times and that's primarily from just knowing the ability of our team and the power of our core operation. We will continue to remain diligent well positioned and focused on the future.
Now I'll turn it back or take for any questions from the group.
We will now begin the question and answer session to ask a question you. My Press Star then one on the Touchtone phone if you're using the speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
This time, we will pause momentarily to assemble our roster.
Our first question, if some David Feaster from Raymond James.
Go ahead.
Hey, good morning, everybody.
Worn David.
Oh I'm sure I appreciate the commentary on re deferral rate in the early read your I guess, if I look at its kind of a low 20% re deferral rate if I'm doing the math correctly I guess, how do you think about re deferrals going forward. I mean did you would just get a risk ratings for further we deferred mall and did you require any additional.
Lateral or personal guarantees.
Based on those trends going forward.
They all know referrals the.
We didn't we looked at each of them individually and as they were in the hotel sector primarily.
You know, we pretty well do because we've stayed in touch with our folks very closely pretty well new that's come so it wasn't a surprise anyway, we didn't go out and get into additional hotels collateral and personal guarantees are pretty well out there that that really I think is more a function and you don't do that.
Hotels, just had to come back, yes, and even though you know Disney and Universal are opening in Orlando, it's not impacted the hotels, yet so they just needed more time to get back on the rock flooding and so that's what that the second round is really designed to do.
Okay. Okay.
Okay. That's helpful. I'm not I guess, you know taking into account I mean, how do you think you bought reserve build going for it seems like most of the heavy lifting largely been done.
But you can continue to see return hurdles than maybe some risk rating downgrade and some modest grade migration would you expect to see additional reserve builds in the back half the year.
I think would you said is absolutely the right thing I think the heavy lifting has been done and what you would see from here I've got to be more on the individual side. So it'll be one off that can't get back on their feet timely it'll be the you know the TDR that we'll have to do going forward and so on and so forth, but from the economic.
And the forecast modeling that we had at our seasonal model I think that what you said is absolutely right thing and heavy lifting.
Okay I'm OK good.
He just any thoughts on origination activity going forward, obviously, the PPP program was a major abstraction quarter, but just curious your appetite for originations in the pulse of the market I mean, how much of the decline originations with strategic where you would tightening the credit box versus one of the demand and where are you seeing the.
Man to just any thoughts on Florida, you, obviously investor concern is really spiked given guidance here, but your footprint.
You know pretty good compared to where the the increase in itself or just curious any thoughts on you know loan growth origination activity a appetite for credit in your markets.
David Palmer, Yes. Good question. The right now you know, we kind of break it down by individual line of business and obviously by.
The demographics different states, but I will tell you that there is still.
As I mentioned before there's still solid loan demand out there are customers and banks, obviously would be more cautious but that being said, we will continue to see a strong demand obviously in single family residential mortgage lending with some new commercial initiatives, we have and some new hires we've got onboard I would expect.
To see continued growth and see an eye.
Residential construction lending remain robust and absorption as you will know absorption is very solid and all our markets across the board.
And so on the consumer side, we're obviously watching that very closely our indirect portfolio continues to run off but it continues to perform extremely well in terms of delinquencies and charge offs. There. So all in all we feel we feel confident in our ability to still have cautious but solid loan growth as we look into the second half of this year.
Yes.
Okay. That's helpful Great quarter, guys <unk>. Thank you.
Our next question is from Christopher Marinac from Janney Montgomery Scott go ahead.
Thanks, Good morning, our Palmer on the call keep talking about the mortgage gain on sale how strong it was this quarter and kind of where that could go in the near term and then maybe overload sort of the longer term kind of where do you think it should settle down under more normal circumstances.
Sure. So the gain on sale percentage came in right around 353 that was definitely elevated and some of that was.
We do anticipate that coming back down and then just our volume on the we did 2.6 billion in volumes for the for the quarter I feel like the third quarter, what we've seen so far in July 3rd quarter will be strong as well, but we definitely see that coming back down.
As we get any object to cyclicality of the fourth quarter in the first quarter and then so I definitely feel like that coming down enough that wanted my comments on the efficiency ratio that I know everybody can get very excited about a 51% efficiency ratio, but it's going to take a lot of work is that mortgage revenue Roald Dahl diligent work on our side to keep that in.
In the mid to low Fiftys as we see that revenue and we were very causes of adding more preparing for that.
Okay, great. Thanks for that and I guess, you know because the company's now much larger as a combined entity a year later does that allow the sort of downside risk to be less just gives you have natural efficiencies in that that margin. While it may go down still can be better than it was historically for ameristar fidelity yeah.
Yes.
Okay, Great and I guess the last question just has to do with local deposit activity do you think deposits may sort of give give back some of the success you've had or do you continue to think that deposits will be positive next few quarters.
Nothing that's a great question. So we do have the PPP effect, and we have probably about 70% of or what we would call TPP funding given all the pod they say between 650 $700 million.
Of those deposits are PPP funds that we anticipate will be used under the PPP programming will eventually flow out of the bank. So we have we're prepared for that in that we are had been approved for the P.P.L.S. programs that we can find those loans through that program that 35 basis point so.
And of course, and you do the math on it a billion dollars roughly 35 basis points, where it's coming out of non interest income and start coming out of noninterest bearing deposits and going into a 35 basis point, that's about two basis points of the bars on the margin two basis point compression on the margin from that impacted those deposits run out as expected.
Great. Thanks, very much for the information this morning.
Sure Great. Thank you Christopher.
Our next question is from Brady Gailey from KBW go ahead.
Hey, good morning.
Good morning.
So I mean youre one of the few that actually Saul.
Expansion this quarter, which was great to see what a lot of that.
From the reduction the cost of deposits, but maybe just talk about.
To continue to reduce the cost of deposits and then just the outlook for the net interest margin and <unk>.
How much the NIM was impacted from PBP this quarter.
Sure. It a great question Brady I appreciate Oh, there was for the May have the greatest place that we have to protect the man is on the deposit side. So I'm going I know I said last quarter expecting some single digit compression in the margin and then we ended up expanding the margin and that really I've got to do a little bit of a shout out to our bank.
Those who did a great job of controlling the deposit pricing and really as I said, we didnt have all the competitive pressure that we sometimes felt in the past that I think all banks by the same both with the fed cuts. So we did a great job of reducing deposit rates going forward I really I think our money markets are citing those are.
There's a very little room to improve those are real places to improve is on our seating we have about 46%, it's running about a billion dollars or 46% of RCD well, we price over the next six months the remainder of this year. Those are currently at a 158.
So in our April through Dream production. So our second quarter production was at 37 basis point. So again I've got about a billion dollars of Cds Rolling off at 158, and then over 2021 I've got another 44% of the CD portfolio without another just about another billion dollars. That's currently at.
118, so our second quarter total cost was about a 149 all production with 37 basis points. So that's really where I had the biggest ability to affect the margin in control. What did we do have some additional loan we expect some loans to reprice lower and as that happens kind of my defense is those.
You can call.
So to summarize all that I I hate to be a repeat of Blackwater, but I would still say on single digit the potential for some single digit margin compression going into the second half of the year.
Okay. All right. That's that's helpful and then any color on.
Where do you think discount accretion will be going forward. So I know it's lumpy.
Sounds like you had some kind of onetime repayments this quarter, which pushed off <unk> going forward <unk> outside of any sort of large.
Prepayments in the idea where accretable yield will wrong.
Well I will you say accretable yield how about if I kind of give you some guidance on the accretion income I think that's what I, probably normally give that Dod and so we had previously said 12 to 15 million for the year, we've hit that already because of those prepayments. So we anticipate it's about.
Four to 5 million a quarter going forward.
Alright, and then lastly from me.
Palmer plus maybe your M&A.
Sounds like when M&A does come back for the industry, you guys will be ready, but maybe just.
Update us on.
Any specific geography is that you would be interested in longer term.
So what the ideal target size would be for Ameris.
Yeah. If you look at our current footprint Brady, there's a lot opportunity I think within our existing footprint as we cover there just through the core banking operations in the traditional bank 40 States and then if you look at our our loan production offices that takes is that pretty much throughout southeast. So I think it would be obviously south eastern in nature.
In terms of our desire to grow some of those market.
In terms of deal size.
For US right now just given where we are I would I would expect a deal anywhere.
Anywhere from two and a half a billion dollars up.
Two and half from a low in so that's kind of what we would be that error sweet spot.
Great. Thanks.
<unk>.
Thank you Brady.
Our next question it sounds cannot sometime back from Suntrust.
Go ahead.
Thank you good morning.
We didn't huh.
I had two questions from me first of all Palmer you talked about the talent you hired.
Recently can you give us some more color on that and what the.
Outlook is in terms of a loan growth out of those individuals and my second question is on expenses I think you had 149 million in core expenses.
In the second quarter with the branch consolidation you announced.
Are we looking at sequentially lower expenses next quarter well in third quarter.
Right and you know we were pretty proactive in our approach on the branch optimization, we continue to look at that.
We'll have some bom cost saves there in addition to the leases that Niccolo mentioned.
In terms of opportunities with new hires.
We had higher touch only a few weeks ago leaves a former Suntrust bank or he's running our specialty lines and he comes to the vast amount of experienced a breath knowledge of capital markets and the specialty lending groups were excited to have in wallboard here in Atlanta, We also.
We're excited to announce we've got a new head of.
Got it Florida, just going around the Florida markets from Suntrust Bank are there as well and it's been running.
Pardon state Suntrust. So they'll be coming also means having a press release on that come out shortly.
And then we've also got a new initiative, a relatively new initiatives it'll start for us in a in Augusta, Georgia.
Former banker, who ran commercial banking for.
The prior statement for cadence for a remote rents and Rangers wanted to join us in Augusta and build out the market a bike. So we're excited to have those three core individuals that are focused on commercial workforce as we move forward and with that obviously the expectation of continued positive group.
<unk>.
And on the downside nickel.
So anything on the expense side when you look at the and you said the core expenses of about 150 about CRP thought of that was mortgage and about 20 to 23 of that was elevated because of the origination income. So if you look and I'm looking at slide 11, where I kind of look it just.
One of the the banking segment that Blue bar running about 83, I think that's a good number.
And then mortgage and a lot of the business are really what makes that fluctuate as we have identified these cost save a lot of that will be reinvested to pay we're kind of sense, finding a way to sign to self fund auto.
Innovation, our technology on some additional cost that we have as as we've grown so I think the core side will be fairly flat.
Okay, and can you give us a little more detail on on what investments, you're making a that you're talking about.
Sure So no across the board we have on digital technology that we're working on improving we're also doing a significant ATM upgrade to their ATM will be more compatible we've invested in some new treasury personnel as well as innovation with our Treasury products and then we also we are you know.
Trading some of our risk practices and allocating resources there as well.
No one day mile looked at two we've hired a somewhat ahead of treasury for us it's coming from a speech regions bank that will be also put in a press release that he's going to be spearheading that initiative for.
Thanks, so much.
Thanks Catherine.
Again, if you have a question. Please press Star then one.
Our next question is from Kevin Fitzsimmons from D.A. Davidson.
I had.
Hey, good morning, everyone.
Good morning.
Just wanted to.
See if we can get an update on PPP related fees and there's you know as you look out and I know it's not.
Crystal clear, but as we get closer toward a forgiveness period on the loans and.
Just wanted to get your outlook on when your best guess that would occur in if that occurs second quarter, what the remaining TPP fees would be and would you expect those two rolling.
On the forgive forgiven loans through the March <unk>. Thanks.
Kevin up that's a great question and I'll I'll try to get out my Crystal ball, but no. We still have about $35 million as fees that we've not taken into income yet about 95% of the P.P. loans has a two year maturity in about 5% have this audio Missouri. So that kind of gives you an idea of.
When if if there were no forgiveness and how that would roll when we do you have and I think we have it on slide 16, one of those bullet point.
About 80% of the total.
And the number of while this is not the dollar but in the number of long is about 81% are less than $150000. So if there is a blanket forgiveness piece there will be a.
Pretty good chunk of ours that will come in fact, or so we have modeled or duration to be about a year I anticipate that forgiveness coming in and I think fourth quarter first quarter, and maybe pushing into second quarter of next year just on a shearer rolling the majority of hours were all may have.
2020, so from a one year duration, what we used for modeling it half at all coming in kind of by May of 2021, if that helps did I answer all of your question.
Yes very helpful. Thank you and just one follow on just beyond the co bid sensitive buckets that we've talked about more broad based commercial real estate, just curious I would assume you're watching that very closely and how you what your senses, there and how you see things going.
Thanks.
[laughter] that's a good question our customer base.
We haven't really good quality customer base, they are still fairly active in our markets and so.
We are seeing.
Good deals that we have opportunities to do.
Although we haven't.
Morning changed our underwriting bucket, we have certainly become a little more conservative in a couple of areas in a down payment and and interest reserves that we are asking our customers put up so, whereas we're still active and we thank our customer base continues to be active.
We have then some sharpening the pencil to be on more conservative in our underwriting.
Okay. Thanks very much.
Thank you.
With no further questions. This kind of close the second quarter conference call.
The conference has now concluded.
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