ABCB - NASDAQ

Good day, and welcome to the Ameris Bancorp Fourth Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] 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.

Thank you, Wyatt, 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 at amerisbank.com. I'm joined today by Palmer Proctor, our CEO; and Doug Strange, our Chief Credit Officer. Palmer will begin with some opening general comments and then I will discuss the details of our financial results before we open up for Q&A. Before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties. The actual results could vary materially. We list some of the factors that might cause results to differ in our press release and in our SEC filings which are available on our website. We do not assume any obligation to update any forward-looking statement as a result of new information, early developments, or otherwise, except as required by law. Also during the call, we will discuss certain non-GAAP financial measures in reference to the company's performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation. And with that, I'll turn it over to Palmer.

Thank you, Nicole, and good morning, everyone. I appreciate you taking the time to join the call. I'm very pleased with our top tier fourth quarter financial performance which we reported yesterday, as well as our exceptional full-year 2024 results. Before diving into the fourth-quarter performance. I'd like to emphasize our full-year 2024 achievements reflecting on both our core profitability and strong balance sheet management, which positions us well for 2025. This year we grew earnings per share, notably saw our adjusted ROA increase to North of 130, built our reserve and strengthened our capital base with our tangible common equity ratio now well over 10%, up almost 100 basis points over 2023. We also grew deposits by 5% while reducing broker deposits. For the fourth quarter, our profitability remained robust with an adjusted ROA of 143 above pure PPNR ROA of over 2% and a return on tangible common equity over 14%. Our fourth quarter margin was 3.64% with our net interest income continuing to increase. This strong margin resulted from our granular core deposit base and 30% DDA composition. Expense control remains intact as our adjusted efficiency ratio improved over 240 basis points this quarter to under 52%. We continue to focus on maximizing earnings per share through effective balance sheet management. We grew revenue almost 10% annualized, creating positive operating leverage. We maintained our average earning assets, strategically reduced our CRE and construction concentrations and lowered our loan-to-deposit ratio, all while growing margin in this rate environment. Organic capital generation remains a strength with common equity Tier 1 at 12.6%, thereby giving us optionality going forward to execute strategies within our high-growth Southeastern footprint. Our allowance for credit losses ended the year at a healthy 163, and we remain focused on growing tangible book value per share as evidenced by our 14.7% growth for the year. As we head into 2025, our strategic focus remains on maintaining top-tier profitability, enhancing revenue generation and positive operating leverage, sustaining a strong capital position, and leveraging growth opportunities within our dynamic footprint. The outlook is bright as we head into 2025 and we appreciate the continued support of all of our stakeholders. And I'll stop there now. And I turn it over to Nicole to discuss our financial results in more detail.

Thank you, Palmer. For the fourth quarter, we reported net income of $94.4 million or $1.37 per diluted share. We did incur a few one-time in nature items in the quarter, but excluding those small items, our adjusted net income was $95.1 million or $1.38 per diluted share. For the full-year 2024, we reported net income of $358.7 million or $5.19 per diluted share. On an adjusted basis, net income was $346.6 million or $5.02 per diluted share. That's about a 26% increase in year-over-year adjusted EPS. Our full-year adjusted ROA was a 1.33% and our full-year adjusted ROTCE was 13.93%, both of which improved from our 2023 levels and our PPNR ROA remains strong at 2.05% for the year. We continue to build capital in 2024 with ending tangible book value of $38.59 per share which is a $4.95, or 14.7% increase from the $33.64 at the end. The fourth quarter increase alone was $1.08 and also we increased our quarterly dividend 33% from $0.15 a share to $0.20 a share this quarter. Our tangible common equity ratio increased 10.59% at the end of the quarter compared to 10.24% at the end of last quarter and 9.64% at the end of last year. We did not repurchase any stock this quarter, but we did repurchase about $5 million in the full year of 2024 and our $100 million buyback authorization remains in place through October of '25. Our net interest income increased $7.7 million this quarter. Our margin expanded 13 basis points to 3.64% from 3.51% last quarter. This expansion partially came from an inflow of public fund deposits that we used to reduce higher-cost wholesale funding. That dynamic will be reversed when those public funds seasonally decline in the first half of the year and also with the recent Fed cut rates we've had great success lowering our deposit costs more than the decline in our loan yields which benefited the margin. We continue to be close to neutral in asset liability sensitivity. On the capital side, during the quarter we redeemed $105.8 million of sub-debt. This redemption is going to save us about 1 basis point to 2 basis points of margin in 2025 versus if we had kept it because the rate reset would have been about 300 basis points higher. Even with this redemption, our total risk-based capital was strong at 15.4% which was about 90 basis points higher than it was last year. During the fourth quarter, we recorded a $12.8 million provision for credit losses, increasing our coverage ratio to 1.63% of loans and improving to 313% of portfolio NPLs. Our total nonperforming assets as a percentage of assets remained low at 47 basis points and our charge-offs were stable again this quarter at 17 basis points compared to 15 basis points last quarter and for the year we were at 19 basis points. Adjusted non-interest income increased $4 million this quarter mostly in the gains on sale of SBA loans. Within our mortgage division both mortgage volumes and our gain on sale grew in the quarter and our gain on sale rebounded to 2.40% from 2.17% last quarter. We did a great job controlling expenses in the quarter. When you look at it, our adjusted total revenue increased 9.8% annualized, while our expenses shrank 1.9% giving us positive operating leverage, where our adjusted efficiency ratio improved to 51.82% for the quarter. There was about a $700,000 decrease in adjusted non-interest expense and it mostly came from lower data processing, advertising, and marketing spend. For the year, our adjusted efficiency ratio was 53.88%, well within our targeted 52% to 55% range. On the balance sheet side, we ended the quarter with total assets of $26.3 billion compared with $25.2 billion at the end of last year and our average earning assets were up to $24.4 billion, up from $23.2 billion a year ago. Loan balances declined slightly during the quarter, reflecting the seasonality in our mortgage warehouse, and premium finance businesses as well as accelerated average paydowns in our CRE book. However, the average balance of total loans during the quarter was roughly stable as higher loans held for sale offset the slightly down portfolio loans. Total loan production in the fourth quarter was $1.8 billion, the highest we've seen in the past two years and many of these loans will fund in future quarters. We strategically reduced our broker deposits by about $832 million and grew the core deposits by $675 million, or over 3% during the quarter. That growth included about $550 million of our cyclical municipal deposits that will run back out during early 2025. For the year 2024, deposits increased about a billion dollars, or almost 5%, while we reduced broker deposits by $340 million. Our non-interest-bearing deposits still represent a healthy 30% of total deposits and our brokered CDs represent less than 5% of total deposits. We continue to anticipate 2025 loan and deposit growth in the mid-single-digit and expect that deposit growth will continue to be the governor on loan growth. I just want to close by reiterating how well-positioned we are and how focused we are on a successful 2025. And with that, I'm going to wrap the call back over to Wyatt, for any questions from the group. Thank you, Wyatt.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Catherine Mealor with KBW. Please go ahead.

Thanks. Good morning.

Good morning.

Good morning, Catherine.

I want to start with the margin. The expansion was so great to see this quarter that the reduction deposit costs was really impressive. So just wanted to see your outlook for the margin this year, Nicole, I know you're rate neutral and so I guess depending on what happens with rates. It feels like kind of a stable margin, it feels like the best way to model it. But you're coming in from a higher level. So just kind of curious how you're thinking about if there's any additional opportunities to actually increase the margin from here over the course of '25? Thanks.

Sure. So you're exactly right. At the end of last quarter or the call last quarter, I kind of guided. We were at a 3.51% margin and I guided listen anything above a 3.50% we were pleased with and we kind of saw 2 basis points to 3 basis points maybe of some expansion and then we come out with 14 basis points of expansion. But what I want to emphasize is that focus on what caused that expansion and 10 basis points of that expansion was really related to some things that are going to come back. So, we have 7 basis points of that margin expansion that was coming from the deposit and the funding mix from those public funds coming in and paying off the wholesale. So as those public funds roll out and we go back into some broker, that 7 basis points is going to come back out of the margin. And then we also had 3 basis points of what I call repricing lags, where we repriced our deposit very quickly after the Fed cut and our loans are going to catch up to that. As soon as the Fed paused we knew that our loans were going to catch up. So I feel like the 7 basis points from the funding side and the 3 basis points from those what I'm calling repricing lags are going to come back. So that would bring our margin back down to that 3.54% range which is what I had guided last quarter. So I'm going to take a 10 basis point bump whenever I can. But I do think realistically the margin coming in kind of in that 3.50%, 3.55% is consistent with our previous guidance and still what I'm guiding to. So again, 3.64% was elevated by about 10 basis points. What I will say though on an expansion going forward notice is our -- when you look at our production, when you look at our loan and deposit production, everything that we're putting on at this point is margin accretive. So depending upon if we can continue to grow deposits, our bankers have been very, very successful on the deposit front. Also keeping that non-interest-bearing mix right at 30% has been very, very helpful. If you had asked me last year if we would be able to grow deposits like we did and maintain that 30%, it was very tough and we did it our bankers stepped up and did it. So that has helped as well. So those are kind of the headwinds and tailwinds going into margin next year.

Okay, that's helpful. So if we do want to model margin expansion, just start at 33.54%, instead of 3.60%.

Exactly.

Yes. That's great. Okay. And then maybe similar to fees, your SBA levels were very elevated this quarter, which was great. Just kind of curious what you're thinking about a run rate, appropriate run rate for that going into next year also?

Yes. So we're looking to model kind of fee income, excluding mortgage. So take mortgage out because they're at a little bit different growth rate. But fees are going to follow kind of our loan and deposit growth rate as well. So kind of in that 5% to 6%, 5% to 7% fee income increase.

And with this level of -- was this level of fees -- was there anything kind of, would you say elevated this quarter just to be aware of? That we have -- that projects maybe that were kind of pushed to this quarter that just that we want to kind of run rate to pull out as we go into the first quarter?

No, I appreciate that question because when you really look at kind of just GAAP non-interest income, remember in the second quarter we had the MSR sale gain. In the third quarter, we had the MSR sale gain. And then so it looks kind of flat for the fourth quarter. But we did have the -- if you take out the noise of those MSR sales, we did have the bump in the fourth quarter and it really came from our SBA group. There was maybe a little bit of elevated there as some of the demand had built up. But I think that as a starting run rate is a good spot.

Okay, great. Thank you. Great year and great quarter. Appreciate it.

Thank you.

And the next question will come from David Feaster with Raymond James. Please go ahead. David, your line may be muted.

Hey, good morning, everybody.

There you are. Good morning.

Good morning, David.

Sorry about that. I just wanted to start on the production side. It's great to hear such a strong increase. How do you think about what drove that, right. Is it you gaining market share? Just your team hit and stride. I know you guys have added some talent as well, or are you seeing a shift in demand? Just kind of curious, what do you think is driving that increase in origination activity?

I think it's just a reflection of consumer sentiment. There's a lot more optimism out there, I think more clarity in some folks' minds. I think getting post-election hopefully provide a little bit of clarity for folks. But a lot of our, especially our commercial customers in particular I think are feeling more optimistic as they look out, so and that's reflected obviously in that fourth quarter production. So I feel good about that, that run rate and I feel good as we look out in our growth market. So as I've always said, we're pretty blessed to be where we are in these high-growth markets and we're starting to see that optimism reflect that. But we have done a good job on the hiring front. So that would be incremental volume on top of what we have already generated. So when I look out across really all the verticals with the exception of mortgage, just driven by the rate environment more so -- we which could potentially be a tailwind for us depending on what happens with rates on the 10-year, but we feel pretty optimistic about the outlook.

Okay, that's helpful. And then -- I mean to that point, I mean how do you think about the pace of growth? It sounds like optimism is improving. We got an incremental production. Obviously, we had some elevated payoffs this quarter. How do you think about growth as we look out to 2025?

Well, you know, in our situation, we're pretty conservative, as you know. And so we're focused more on controlled growth. I do not think that until we kind of get moving forward in this new environment, we'll figure out where that goes. But the nice thing is, we're positioned to accelerate it or to maintain what we've got. So and then the nice thing too is that diversification within our balance sheet is having the ability to optimize margin versus just driving growth for the sake of growth. So when you look at asset mix or duration risk and profiles, we're able -- that's really what we focused on the last two years, especially in an environment where the yield curve was inverted. So I think as we look out, given the different levers that we can pull, we feel pretty bullish about our ability to deliver on, especially on our EPS growth.

That's great. And then on the other side of it, right, I mean, Nicole, you alluded to the strength in the expense control that you guys have done. We've got pretty good visibility into the revenue growth, right, just given the accelerating loan growth and some stability in the margin to potential expansion because everything's pretty accretive. I'm just curious, how do you think about expense growth next year? Is there opportunity to potentially bring forward some expenses as you continue to invest? I mean, we got the new hires that we talked about. I'm just curious, how do you think about expenses and your ability to drive positive operating leverage in 2025?

Yes, that's a great point. So I think when you look at kind of consensus expenses, I think for the year, they look very reasonable. Right now, I think, they're in about a 4.5% to 5% increase. I think they're a little bit light in the first quarter. I think when we always have some cyclical payroll that comes in the first quarter with everybody resetting FICA and 401k matches and all of that. So, I think the first quarter, when I look at consensus, might be a little bit light, but I think for the year, 4.5% to 5% growth in expenses is exactly spot on for consensus. I think just the first quarter, maybe we need to shift a little bit into the first quarter and out of kind of the third and fourth quarter, but I think the year-to-date is right.

And David, one of the things that we do that's maybe different from others, I don't know. But, we hired 24 bankers, for instance, commercial bankers this year -- this past year, and we also culled 24 bankers. And I think the mistake a lot of folks make is bringing on additional production folks to compensate for deficiencies or lack of production from others. And all you do is just add that to your run rate on your expense side. We've always been pretty consequential. And so, we brought in '24 and we eliminated '24. And when you kind of have that approach to things, it allows us to keep the expenses under control from a overhead standpoint and from a production standpoint, more importantly.

Thanks. Thanks, everybody.

And our next question will come from Russell Gunther with Stephens. Please go ahead.

Hey, good morning, guys.

Good morning.

Good morning.

Could you spend a minute on the mortgage banking gain on sale outlook for 2025, what you guys are thinking about both from a production and margin perspective?

Yes. So we're -- we went from 2.17% to 2.40%. We're kind of guiding in that 2.25% to 2.40%, just based on what we're seeing and what we're seeing with demand right now. Of course, that's very market-dependent. But based on what we're seeing today, kind of looking at a first, second quarter somewhere in that 2.25% to 2.40%. So kind of hovering about where it is today.

Okay, perfect. Thanks, Nicole. And then, guys, just last one for me, switching gears here onto the capital deployment front. Obviously, carry excess capital in reserves. You mentioned what you have left on the buyback. I think last quarter you talked about increased clarity around the election might provide a catalyst to accelerate that. So how are you guys thinking about balancing what sounds like a very strong organic growth trajectory with the buyback lever and potentially acquisitions?

Well, the first and foremost would be the organic growth and funding the organic growth. I would tell you buybacks right now would probably take a back seat to that. And then obviously, as opportunities come up, we'll take a look at them. But we are, as you know, very strategic in how we look at M&A and very different. And we don't like M&A just for the sake of just accumulating assets. It's got to be more strategic in nature. So if you were trying to prioritize, I would tell you organic growth would come first and then maybe some selective M&A in there, but it'd have to be very selective and then buybacks in that order.

I appreciate that, Palmer. And maybe just a follow-up. You guys have been very clear on the M&A front. It would take something special and strategic. And could you just give us a sense of the characteristics of what that would look like to Ameris, maybe from a size and geographic perspective?

Yes, our approach there has not changed. So, we obviously southeastern in nature. It could be something that could provide, we love as you know, core funding. It could be something with a strong core deposit base. It could be a bank that provides additional support for a business line that we're in more on the core bank side, less on the non-core bank side in terms of furthering an initiative there, whether it was on Commercial C&I, that could be of interest to us. And then it would have to be something that's a cultural fit. So those are kind of the boxes that would need to check for us.

All right. Very good. Guys, thank you very much for taking my questions.

The next question will come from Christopher Marinac with Janney Montgomery Scott. Please go ahead.

Thanks. Good morning. I wanted to talk about the reserve. And Palmer, we've had a couple quarters in a row of very low criticized and classified loans and curious if the reserve build is just for loan growth or is there any anticipation that you might see just some backing up of the criticized numbers over time?

Chris, hey, this is Doug. The model drives our CECL reserve. And so it's really just a function of that more so than anything. We lay out our indices that influence our CECL model on Slide 16, and then, obviously, you bake in your economic forecast for that quarter, and that produces our reserve need.

Got it. So at the end of the day, you're performing better than the model on losses for sure, which is perfectly fine, and you'll continue to grow into that as you have external growth.

That's true because CECL is a life of a loan. So, through a life of a loan, you can experience ups and downs. So -- but you're correct.

Okay. And then, perhaps asking M&A from another angle, Palmer, what's the opportunity to simply acquire businesses that aren't banks or teams of people? Do you see any more of that than what you've done in the last few years?

Well, I think right now, as an industry, more of the chatter is obviously bank-to-bank as opposed to bank-to-non-bank, but that doesn't mean there aren't some unique opportunities out there. I think the challenge of a lot of the non-banks is from a funding perspective. How are you going to fund it if they don't have any core funding? So given the importance of that and given our desire to hold on to our core funding and not watch that diminish, that would probably take a back seat to bank M&A -- traditional bank M&A.

Great. Thanks for taking all of our questions this morning.

You bet.

And our next question will come from Manuel Navas with D.A. Davidson. Please go ahead.

Hey, good morning. On the NIM. Could you go into a little bit more detail on what you're bringing on that's accretive -- the types of loan yields you're bringing on -- into that production that's accretive to NIM going forward?

Sure. Good morning. So from a loan production perspective, for the quarter, our total company was right at 7%. And that's kind of split up. The bank is kind of coming in around 8%. Premium finance is spot on -- that's right at 7%. Mortgage is a little bit lower at 6% and 6.5%-ish. So kind of that all-in blended rate for the company was about 7%. And then when you look at deposit production for the quarter, our blended total book came in at about 2.42% of new production, that's including the interest-bearing, that's compared to a book of 2.12%. So it's coming on a little bit higher than our average book. And then just on the interest-bearing deposits our production was about 3.25%, about 3.25%. And that's compared to a total book of right about 3%. So our coming on production is running about 25 basis points to 30 basis points higher than our total average book. But then when you compare that to coming on loan production of 7% you can see where that accretion, everything that we're putting on is accretable to margin is coming in at a wider spread. It's coming in about a 3.75% spread versus a 3.50% spread. The real question is whether we can continue to grow the non-interest-bearing at the pace that we're growing. Our bankers have just done a phenomenal job there.

I appreciate that. Is -- you talked about the lag where loan yields might still reprice a bit from the last rate cut. Is there a good amount? Are you kind of done on the deposit side with cutting deposit costs from the December cut? You're implying that there's more on the loan side than the deposit side. Could you just go into detail on that a bit more?

Sure, yes. So on our deposit side, our treasury teams, our operations teams, they've done a great job of we are ready to go the day after the Fed cuts. So we've been able to kind of get ahead of that and be aggressive. Our betas have been on the down has been a little bit better with these first two cuts and some of that's market-driven as well. So we've gotten ahead of the curve there and then we knew that as soon as the Fed cut that we were going to have, I'm sorry, as soon as the Fed stopped cutting that eventually those loans were going to reprice. The lag of the loans were going to start repricing down. So that's been -- that's kind of where I mean that we've been aggressive on the deposits and which has been great. And then -- but we know that we've got about $8 billion of loans that are going to reprice in the next year. The good news is that the weighted average on that, so even though it looks like there's some of that is like the premium finance production that's already been pricing, even though it's a fixed rate loan, it's behaving like a variable rate. So the average rate of those is a little less than 7.5%, and our current production is 7%. So when you think about that, I think we're spot on where we should be with what the repricing, if that all came down 50 basis points from that 7.40% down to a 7%, that would kind of be in line with what you're seeing with the recent Fed cut. So, I don't think we have any outlier there. I think it's just a natural progression of being able to be faster on the downside on the deposits than the loan side. And then Navas, we have some of our bond portfolio. We had some payoffs in the fourth quarter, and then we have some more payoffs coming in or some maturities coming in, in June. So we've been able to grow our bond portfolio at these higher rates. And so that's been helpful as well.

I appreciate that. In the Muni flows, so the expectation with the Muni flows that might come back out in the first quarter just on seasonality, is that that's going to be somewhat replaced by brokered and borrowings. Is that the right way to think about it?

That's right. And so, we always have our balance sheet. We always say that our balance sheet kind of bulges at the end of the year because we -- which we appreciate those customers, where we get in the public funds. And so that typically flows back out in the first quarter. That's about $500 million. So when that flows back out and so we purposely kind of looking at third quarter -- second and third quarter funding, we keep all of our funding short. But all of our funding right now is very short, all of our brokered CDs are very short. So they will reprice. We've got about $800 million of brokered right at 4.5%. And so, they will reprice down all in the first quarter.

I appreciate that. Thank you very much.

And our next question will come from again Russell Gunther with Stephens. Please go ahead.

Hey, guys, thanks for taking the follow-up. Nicole, just wanted to piggyback on Manuel's question and appreciate the color on sort of where deposit production costs were coming on during the quarter. Could you kind of tie that together for us and give us a sense for where the spot deposit costs are shaking out?

Yes. And I'm a little bit leery to do that why I gave the quarter because some of that is skewed a little bit by some of that public fund. So our kind of right -- you basically are asking for December spot costs?

That would be helpful if possible. Yes, it would be helpful if possible. Thank you.

Yes. So for spot cost December, they were right around 2%, but again that's skewed. I don't -- I want to make sure I'm very clear that that's skewed with some public funds and also with some of our -- we had a tremendous amount of non-interest-bearing growth that came in December. So I'd really rather -- if you kind of look at where a third-quarter to a fourth-quarter average, we were able to drop from about a 2.75% down to about a 2.40% for the quarter. So about 30 basis points down, which is good and we like that trend. But kind of our December growth and really we saw that biggest change was in CDs, where we saw our CD production in December about 25 basis points less than the quarterly average.

Okay. Got it. Hey, thanks for taking the follow-up. I appreciate it.

Sure. Absolutely.

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

Thank you, Wyatt. And I want to thank all of our teammates for another incredible year. I look at how we're set up for 2025. What gives me a lot of optimism is obviously our premier financial performance, but also our stable asset quality, our capital build, our revenue growth opportunities. We really appreciate your participation in today's call and we thank you all for your time and your interest in Ameris Bank.