Q2 2023 Ameris Bancorp Earnings Call

You named the vertical and we're all getting better yields and getting better deposit. So I think that discipline is in place. It has been but thats certainly a relief to us just given all the deposit pressures that are out in the market.

Got it got it thanks, and then I guess just.

Going off of funding costs and loan growth, obviously margins not.

As an output not an input, but just given rapidly rising funding costs. Just curious how you think about the NII and NIM trajectory here going forward.

I guess, assuming no more rate.

Great hikes I don't know what you guys have in your assumptions.

Just curious how you think about the NIM trajectory from here.

So we do not have any more rate, we don't have any rate assumptions built into our guidance. So this is based on flat rates, we have pragmatically gotten our balance sheet to be about as close to neutral as what we can get we are under that 1% plus or minus.

And those are plus or minus 100, 100 field, so very very close to neutral I.

I would say that the the real question of driver of margin is exactly. Your first question is that noninterest bearing mix. So for us about every $100 million that goes from noninterest bearing and you have to assume it goes somewhere so whether that goes in.

A higher rate CD or a <unk> event.

Or even a higher money market, assuming that it goes into the higher of that kind of a higher CD every $100 million of movement. There is about two basis points on the margin. So I certainly do not think I think we're very pleased with the $3 60 margin that I don't I'm not ready to say that we've troughs, even though we're very close to neutral I just think that that.

Movement from noninterest bearing to interest bearing as well as competitor pressure and what some of our competitors are doing with <unk>.

Still causing some pressure on the deposit side, so I feel like anything that we're going to get we're going to gain on the on the loan repricing side, we will probably be giving up on the deposit side.

So.

Again don't don't think that we've hit the bottom yet even though the model may show. It I think the practicality of what's going on in the market will can cause a little bit more compression over the next few quarters.

Got it I appreciate the color and just one last question and then I'll step back.

Just on expenses how are you.

Think about a good core expense run rate and how do you juggle cost saves at this point, obviously with NII pressures versus continued investment in the franchise.

Taking my questions sure.

There are definitely some things that are on the move what where we've seen kind of wage inflation stabilized over the last nine months.

What we are anticipating and it's probably more of a 2020 for expense.

The benefit side, just with healthcare costs, we anticipate some of the benefit costs going up for next year, we're already in that that modeling.

So while we do a really good job of controlling expenses I do see kind of a you know I think we've got a really no different than we've guided before kind of that 3% to 5% increase in expenses next year.

Again, we do a good job controlling what we can but between the increased FDIC insurance costs, and then also kind of health insurance and some of those benefit cost, where we're still in that kind of 3% to 5% and again that excluding kind of the variable cost of mortgage. So if you kind of take out mortgage and look at everything else, that's where I would guide that 3% to 5%.

Increase in noninterest expense.

Got it. Thank you congrats again on a good quarter.

Great. Thank you.

We have our next question from me coming from Brady Gailey from <unk>. Your line is now open.

Hey, Thanks, Good morning, guys good morning.

Brady.

I heard the expense guidance for next year, but I was just wondering.

When you look at expenses in the second quarter. They were a little heavier I know you called out a couple of one timers like fraud was up.

When you look at the back half of this year.

How do you think about expenses can expenses take a step down.

In the third quarter relative to <unk> just to add a couple of one timers.

Yes, I am.

Glad that is exactly the messaging is that we did have these three one timers or two I don't know that the deferred has 91 fee and I think that will continue but as far as the mortgage was variable. So when mortgage production comes back down kind of in the fourth quarter. So I think third quarter would be similar to second quarter and then some.

Jumping down in the fourth quarter, and then the fraud forgery and again the litigation.

Resolution that would be a nonrecurring or not expected to recur.

Okay, Alright, and then I know you guys have guided to an efficiency ratio of 52% to 55%.

As the margin has been coming down like if you look at the last three quarters. The efficiency ratio has gone from 50 to $52 50 for like it feels like just given the revenue headwinds for you guys and for the industry, but it feels like that efficiency ratio could potentially slip above that range.

In the near term is that is that you think thats possible or is there stuff you can do like cost cutting on the expense side to keep it.

At 55 or below you.

Yes, our target is still about 55% and and while it did creep up a little bit more and I think even when you go back to last year. When we gave the guidance started at 52 to 55 people said, that's a really big range. What is the difference there and we even said that's really where we see our margin 52 would be depending upon what rates do and it really a stronger margin 55.

Would be depending upon rates and a lower margin. So our forecast still has us in that 52% to 55, obviously closer to the 55 and when you take out some of these one off this quarter that 53, and a half kind of come down closer to a 53 that we were halfway between the or actually on the lower end of the 52% to 55 so.

Goal is still to stay under that 55 by the end of the year for the remainder of this year.

Okay.

And then finally for me I mean the reserves.

It took another step up this quarter is pretty at a pretty robust level now.

How do you think about continued reserve build from here do you think that.

Macro factors continue to decline a little bit Youll see some more reserve build or do you feel like you're really kind of frontloaded, it and youre going to be happy with where it's at for the near term.

Yeah no.

98% of our provision is it from this quarter is really model driven that's coming from those CRE pricing index.

We use a one year economic forecast, so I feel I can tell the forecast model start showing some improvement versus declining CRE prices.

And you know that said until it starts showing improving economic conditions.

<unk> builds could continue depending upon the forecast, but again it is all driven kind of by that forecast. This was not qualitative factors that drove this this was model driven.

Alright, great. Thanks for the color.

You bet.

We have our next question from.

Casey Weitzman from Piper Sandler Your line is now open.

Hey, good morning.

Good morning, James.

So piggybacking on some of the earlier questions. We may not have hit the bottom for the margin, but do you think that with loan growth that we maybe have reached an inflection point, where we might see.

NII stabilize or start to grow from the second quarter level in the back half of the year or do you think that's a little too optimistic.

I think that we should definitely see NII stabilizing and potentially increasing but again so much of that is based on that on the deposit side and I would say, 80% of my guidance is I'm hesitant because of the shift of noninterest bearing to interest bearing that's really the wildcard in all of this if we could maintain the mix that we have.

Half.

And grow deposits at that mix then.

Then even margin could not take as big of a trough. So I think we're close on NII as a trough in potential growth, but but again, it's really that deposit cost side is where were more focused we're seeing the pick up on the on the asset side as expected I think what wasn't expected with all of the deposit.

Pressure in the media pressure on the deposit side and I don't think thats any different than any other what youre hearing from your other banks, probably but the good news there is two Casey what we're seeing at least in most of our markets, which are heavy growth markets. As you know is there.

The.

The rate wars in terms of a lot of the specials that were offered out there those are all.

Maturing or expiring in terms of the sign up rates for those for some of the more aggressive banks out there so that that funding pressure at least in most of our urban markets has subsided and so with that.

People that have moved money have already moved it. So I think that we're hopefully getting towards the end of that that era, which should benefit all of us in terms of a more.

Relax deposit environment in terms of pricing.

Yes, okay, okay good to hear.

And then Palmer can you walk us through just how you're thinking about in ways with capital here now with the stock rebound.

Yes, I think you all saw we did have a.

Buybacks this quarter, which is hard not to do when you were trading below tangible book value at the time and it's.

Creative to tangible book, obviously non dilutive. So we did have a small buyback but for us it's that capital preservation, we're very comfortable with where the dividend is we do have the buybacks in place that arrows in our quiver, but I don't anticipate any activity there this quarter.

So right now.

More about the capital preservation as we go forward.

Okay.

Thank you guys.

You bet.

Kelly or operator are we ready for the next question.

Okay.

Okay.

Your next question comes from Brandon King with tourists Securities. Your line is open.

Hey, good morning, Thanks for taking my questions good morning.

So I wanted to give more insight into your funding strategy going forward, what is kind of expectation for broker deposits from here are you looking to kind of grow broker deposits or do you think you achieve more growth through more of those core deposits.

The goal and the intent is absolutely to grow core deposits.

And.

You talked about kind of the mortgage warehouse lines and how those grew at about 40% of our loan growth with that to kind of think about that being funded by some of the brokered.

But really the core we've said that within our company that we are going to let <unk>.

Posit grows kind of be the governor on loan growth and we are aiming for core deposit growth not necessarily brokered having said that we're still only at about 8% broker. So theres room, if we needed it from a liquidity standpoint that the intent is to grow core deposits.

Got you so just assuming mortgage warehouses strawberry, gaining the third quarter, we could see an uptick in brokerage right.

We would look at brokered or <unk> and then remember on our balance sheet typically near the end of the third quarter and fourth quarter. We ended up having a lot of cyclical I mean.

Miscible money come in so that would kind of start to flow in the remainder of this year as well kind of end of third quarter and fourth quarter. So that's another funding source for us.

Okay and could you also remind us for the municipal money.

Sort of rates would that come on.

Sure.

Yes, we typically it's very competitive with what our current.

Bought cost would be.

Money markets in that 253%.

Now you know that 150 to 175 savings around 1% R&D savings, but those were kind of our spot cost at quarter end, so assuming that those stay fairly level with no change in fed rates, we would expect those municipals to come on that maybe a little bit less because they are uncollateralized.

Okay.

I'm, assuming those are the hope maybe potentially pay down some broker deposits what is kind of the duration of the book.

Local deposits and what are you expecting to mature later this year.

Yes, we have those structures. So they are very structured and we have a certain amount maturing every month, so that as we're able to grow core deposits, we can pay those off but we haven't structured.

It's not it's not very it's not like one big lumpy brokered we havent staggered from now to the end of the year to be able to.

Ratio kind of in that 11% is where we're targeting.

That's helpful. And then I wanted to ask about the office building that was charged off could you give us a sense of how large that loan was and kind of what is.

As a unique factors regarding that situation compared to the rest of the year office portfolio.

Okay Brandon.

The loan itself is something that we've been.

Kind of in one.

Part of the collection or another for a little over a year. So it really has been.

We've dealt with for a while the original out amount was.

And excess or right around a $10 million mark.

So it's.

A smaller property.

Relative to maybe what you have in mind, but it was it was an acquired loan.

When we get down to the final.

Foreclosure on it we updated our appraisal as a.

An empty building is sort of a conservative.

<unk> on that even though there is a tenant in there and.

At the time that we did that and moved it finally into four into Oreo, we took that write down on it but it is something thats been I guess the difference maker. There is as the collection efforts on that started really.

Over a year ago, so, it's not really indicative of kind of where offices overall.

Okay.

Very helpful. That's all I had.

Thanks for taking my questions. Thank you Brandon.

Your next question comes from Russell Gunther with Stephens. Your line is open.

Hey, Good morning, guys. Just a quick follow up on the loan growth discussion I think you had mentioned sort of a mid single digit core target for the back half of the year just any color you can share in terms of what's going to drive that from a mix perspective.

Yes, I think what Youll see is obviously the mortgage warehouse will moderate towards the end of the year, which is a big part of the growth you saw there was in excess of the mid single digits, but it'll beep.

Pretty even across the board, we're still seeing and still have good opportunities in C&I.

Some owner occupied CRE, and then obviously mortgage and some of the equipment finance. So I think the growth in all of those areas is going to be pretty consistent it wont be concentrated in any one area other than as we talked about was mortgage warehouse.

Okay, great. Thanks, Palmer and then just switching gears last couple for me would be.

From a net charge off perspective, so just curious on what came out of <unk>. This quarter was it just that the.

Two three that was charged off or was there kind of additional losses there.

As a follow up would be curious as a reminder, as to what do you think from a.

Kind of a lifetime loss perspective is for that portfolio.

Yes.

The losses in the equipment Finance division actually in the second quarter were almost spot on what they were in the first quarter.

Which was about $9 $9 million. So the two three was extraordinary as as Paul mentioned earlier.

Really was.

Group of nonperforming loans that were.

3rd% reserved at the acquisition date, and we went through collection efforts over that since that time and decided that that kind of run its course and that we decided that those loans. The remaining balance of those loans related charge those off so it didn't really impact your earnings in that regard and so the net.

That particular extraordinary item would really drive.

The losses in the second quarter equipment finance down.

Yeah.

The whole portfolio is somewhat of a barometer of the business cycle Thats little bit reason, why we've got a little higher.

The amount of charge off run rate today than we saw last year.

But.

I don't anticipate that it's.

Certainly you would grow from this point I think it's stable to probably trending a little bit lower going forward. So.

Certainly is well managed and somewhat anticipated well it was anticipated when we did due diligence back 18 months ago that we would bring on additional losses I guess the opposite side of the added just to be fair about it is that.

Going on rate for new business is.

Little bit sub 13, so we do have the <unk>.

Offsetting revenue side, which is what is contributing to keeping us above 2% P. PNR. So can lead to kind of balance the one against the other.

Yes, understood and I appreciate the color there and then just last one the follow up.

As you think about the bank as a whole how are you guys thinking about potential net charge off range for kind of this year and next.

So that's a great question.

The.

Pre pandemic normal I guess, if you tried to pull out.

Been a normal for us pre pandemic was around 19 basis points for the five years or so that preceded the pandemic.

And so I think.

18% to 25 basis points is likely to be.

Kind of the normal for us.

In a normal business environment. So.

I think thats sort of what I would.

I would look at as a normalized rate.

Okay, Great. That's it for me guys. Thanks for taking my questions.

Thank you.

Your next question comes from Christopher <unk> with Janney Montgomery Scott Your line is open.

Thanks, Good morning, I, just wanted to keep on the theme of Bel power, what should the risk adjusted losses be for that portfolio. As we go forward as the charge offs may modify a little bit as you just said and then also kind of loan yields reset for the portfolio.

Thats a great question. So when we I guess theres a couple of different numbers to share with you on that Chris.

We modeled it in the one five range was Canada five years preceding the acquisition date.

Last year.

We achieved much less than that.

But if you take sort of the 19 months since the acquisition in early December of 2021, and take all of the losses, we've had and annualize it back it's about $1 80.

So.

When you take it in a longer outlook I guess, just the quarter or the months that kind of thing then you start seeing more normalized rates.

Think that.

That.

On a three to five year sort of average we are probably going to see that.

That number that kind of one eight to may be two to as as sort of a fluctuation, but sort of more normalized especially from what we saw in the first quarter or first half of this year.

And remember we.

We did have.

The collateral.

Primary losses were coming out of love secured but trucks medium duty trucks and so we did have a glut of those which drove down.

Valuation of that when we took those to sales so.

But a strengthening there will impact losses also so there are several things, but I think in terms of sort of longer run.

You're probably looking at kind of at one eight to two.

Great that's really helpful and going back to the 2021. This really was a surrogate for not buying securities. So youre still way ahead of that from that deployment of excess cash.

Absolutely absolutely.

My follow up just has to go back to the deposit base and maybe Nicole as deposits kind of stabilize in terms of rates over the next few quarters.

What should the kind of average relationship in.

And that $4 five year category on average for all of your customer relationships or is it longer in some cases it.

It is longer we actually did an analysis and interestingly, it's split almost a third a third and a third is that a third are very very long time customers. They go.

Go back.

Many many years.

And then about a third is kind of in the last kind of in between like the last five years prior to the pandemic and then the other third is kind of new since the pandemic. It's a third a third a third almost evenly split so we definitely have some long tenure in our in our deposit portfolio.

Which is part of wired, it's so granular and why our average balances. So small we don't have a large large lumpy deposits I mean, we're just very much core funded.

Right.

Correct.

50 year old bank to have some of that so when you look at our 10 year plus there is a huge swath of that's about a third of it and then as Nicole said then you have your five to 10 is another third and then less than that so it is very granular.

Super Thank you for that that's very helpful.

Thank you.

Okay.

Seeing no further questions I will now turn the call back over to the presenters.

Great. Thank you very much and I'd like to thank everybody again for listening to our second quarter earnings call clear.

Clearly, our discipline and creating strengthen the balance sheet in loans deposits and capital as well as our core profitability and stable credit metrics has positioned us well for the future and we've got the skill set we've got the markets and we certainly have the talent to execute on our strategies and we remain committed to top of class results, but I wanted to thank everybody again for your time and your <unk>.

<unk> and <unk>.

This concludes today's conference call. Thank you for your attendance you may now disconnect.

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