Ed Hortman - President and CEO Dennis Zember - COO Nicole Stokes - CFO.

Tyler Stafford - Stephens Brady Gailey - KBW Casey Whitman - Sandler O'Neill Peyton Green - Piper Jaffray.

Good morning and welcome to the Ameris Bancorp Fourth Quarter 2016 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Dennis Zember, Chief Operating Officer. Please go ahead..

Good morning and thank you. And thank you for all of you for joining the call today. During the call, we'll be referencing the slides and the press release that are available on the Investor Relations section of our website at amerisbank.com. I'm joined by Ed Hortman, President and CEO and Nicole Stokes who is Ameris Bank, CFO.

On today's call we will be the only presenters and will be available after our prepared comments to answer any specific questions you might have. 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 these results to differ materially in our press release and in our SEC filings which are available on our website and on the SEC's website.

We do not assume any obligation to update the forward-looking statements as a result of any new information, developments or otherwise, except as maybe required by law. During the call, we'll also discuss certain non-GAAP financial measures in reference to the company's performance.

You can see a reconciliation of these measures in our press release and in the appendix to our presentation. And with that, I'll turn it over to Ed Hortman..

Thank you, Dennis and good morning everyone and thank you for joining our fourth quarter and year-to-date 2016 earnings call. I'll give you a brief overview regarding our results and then an update on the BSA action that we discussed in December and then I'll turn it back over to Dennis for some additional details after that.

First on results front, we finished 2016 strong with full quarter adjusted net operating earnings of $0.62 per share, up 32% from the $0.47 per share we reported in the same quarter in 2015. This result was especially notable when you factor in the typical slowdown we experienced in the mortgage and Ag businesses in the fourth quarter.

We've managed through that slowdown with lower cost and strong spread revenue and had our third straight quarter with our operating return on assets over 1.3%. For the year our operating results came in at $2.30 per share up 39% from $1.66 that we reported during 2015.

We'll get to the details shortly but our year was mostly declined by 20% plus organic loan growth rate and a significant move in the efficiency ratio to 62.6%.

On our press release we break out the differences between our reported earnings and our adjusted operating earnings and you can see that even with the charges we're reporting 17% ROA for the year and earnings per share $2.08.

For the compliance related charge related to BSA that we discussed in December was $3.7 million after tax or $0.11 per share and it was the only material change that we incurred in the full quarter. For the year we saw 23% growth in total assets of about $1.3 billion to 34% growth in total loans.

Of that growth in loans about $660 million was from organic sources which gives us a year-to-date growth rate just north of 20%. Our growth rate is slower in the fourth quarter to about 10% annualized but that was expected given the paydowns in Ag lending and the generally slower quarter in mortgage warehouse.

Total revenue obviously benefited from the growth in loans but also from our non-interest income lines of business. On the spread side, the group total spread income in 2016 was about 25% to $220 million with almost all of the growth coming from loans. Dennis will discuss more on the move in yields and margins shortly.

On the noninterest income front, we had success in most every area. First we saw a 24% increase in service charges which related to full year with BofA and merchants in southern accounts that we acquired in the middle of 2015. Our current run rate on service charges indicates a slower pace of growth in 2017 but still moving in the right direction.

Mortgage had another great year with noninterest income moving higher by 31% but their net income contribution was higher by 44%.

We averaged about 82% purchase business and have continued to build this business by focusing on referral sources such as construction firms and real estate brokers as our clients and recruiting mortgage bankers who has been in the business for more than one cycle.

Our rates in 2017 will be a significant hit moving to the mortgage business but our strategy should materially protect our profitability level on an annual basis. A year ago we understood the momentum we had on asset growth and revenue side and committed to managing the operating expense very tightly to make significant improvement and efficiency.

Most of our efforts last year on the operating expense were reallocation and reengineering style efforts versus the strategies centered on reducing branches or staffing levels. This strategy was very successful in moving our efficiency ratio from 71.8% in 2015 to 62.5% in 2016. And for the fourth quarter we've moved just south of 60%.

As we go into 2017 our strategy is focused more maintaining that level of operating efficiency as we continue to grow at a similar pace as we experienced in '16. In addition to our operating results we're announcing that we hired a group of bankers to start a new division for Ameris Bank that will be focused on equipment finance.

These bankers formally ran a successful and profitable captive finance division for Caterpillar where they are focused on providing the financing for mid to large size businesses and construction, transportation and manufacturing sectors.

We've been working on developing a strategy with this group for several months and I'm confident that they share our passion for credit quality and profitability. We've mentioned this in the press release but it bears repeating. We view this opportunity as accretive to our overall risk profile, EPS growth rate, and our return on average assets.

This strategy augments our already strong levels of loan growth and provides a little more diversification away for being solely focused on CRE. Lastly before I turn it back over to Dennis, I'd like to update you on the BSA efforts.

We did take the charge that I mentioned earlier in the fourth quarter and I'm confident that it will be sufficient to cover the one-time costs associated with our efforts to comply with the FDIC agreement.

We've made certain strong hires in this group on the leadership side, as well as reallocating about 15 of our best retail bankers to this division. We've engaged several top-tier national firms with aggressive timelines to start the process with the look back and we're moving forward on that. Our approach is all hands on deck to working on this.

We're still on track with our aggressive timeline and remain confident that we will be in a position by the mid of this year to get this lifted and be back participating in M&A activity. With that, Dennis, I'll turn it back over to you..

Okay. I want to give a little color on the quarter mostly from a run rate perspective, as well as give you some insight on what we think about 2017. I've summarized a good bit of the 2017 outlook on the last slide of our - on last page of our slide-deck.

For the quarter our reported earnings including the compliance charge were $18.2 million or $0.52 per share. Excluding that charge on a adjusted operating basis, we're reporting $21.9 million or $0.62 per share. Several factors affected the fourth quarter's results.

The fourth quarter we all know obviously - is normally our weakest quarter given the Ag paydown and the slower commercial production that Ed alluded to earlier, as well as it being a tough quarter on mortgage revenues.

I'm delighted that we were able to grow spread revenue in the quarter by an annualized pace of about 5% and given those head winds we did experience a normal slowdown that we have in mortgage that contributed - mortgage contributed about $0.10 per share in the fourth quarter of 2016 compared to $0.14 per share in the third quarter of 2016.

For the quarter retail mortgage contributed about 12% of our operating net income which is down one percentage point from what it did in the fourth of 2015. Ed mentioned the growth and spread income for 2016 which was notable but I think just as notable is that we did that without materially affecting our loan yields.

Yield on legacy loans for the year moved down by just four basis points to 473. When you look at our yield on all loans excluding accretion, we move lower to about 4.51% during the year compared to about 480 in 2015 about two-thirds of that move relates to much higher average balances in the purchase mortgage pools as a percentage of earning assets.

We're experiencing a pretty fast pace of paydowns on those pools which we're fine we had given the growth that we're expecting on the organic side plus the new opportunities with premium finance and equipment finance both of which yield considerably more than the mortgage pools are given us.

In 2017 we don't expect to make any additional purchases of the mortgage pool so we expect those to just run-off to zero over time. In 2016 mortgage made about $13 million for us with 82% of our business being purchase-oriented business.

Obviously we're not - the headwinds that Ed mentioned on rates we're not going to be seeing the 25% and 30% growth in net income here but we do believe we can sustain the level of net income that we had in 2016 as we go into 2017.

This year we didn't do - especially in the second half of the year we didn't do a lot of hiring on the mortgage banker side, just given what we believe was going to be a changing landscape for the business but we are back looking for the kind of bankers that Ed described the ones that can fit our business model and develop the kind of leads that we're looking for.

Given that we've avoided the refinance trap, we don't feel like we have that big a hole to fill on new production. Operating expense was the main key to our fourth quarter results.

On an operating basis we came in about $4 million below where we were in the third quarter which was mostly related to variable compensation both mortgage commissions and commercial incentive accruals. We also benefited from about $0.5 million lower in lower credit costs and we benefited from pretty tight controls on the other categories.

As we move into 2017, we do expect higher revenues and profitability on the commercial and mortgage side and I expect that incentive accruals and mortgage commissions will bounce back but in a fashion that's accretive to the bottom line.

On the premium finance side, we finished the year with about $360 million in loans but we closed an additional $50 million or so in the first week or so of 2017. Today we have about 431 million in total loans in this division we're seeing the kind of production and profitability that we had discussed on our call last month.

Given that we closed this - the last half of December, the contribution earnings per share from U.S. premium finance was only about $0.01 per share in the fourth quarter but we expect to be closer to our announced run rate on this division in the first quarter of 2017. On the equipment finance side, the team that we hired are experts in the business.

I don’t want to repeat everything Ed said, but they are experts in the business. They have recently managed the $2 billion portfolio to the downturn with solid credit results, the bank established mid-to-large company looking to finance equipment for their business.

Like Ed said, we've been in discussions with them for quite a while and I really believe these guys fit our culture of being entrepreneurial focused on credit quality and managing top quartile operating performance. They're great fit Ameris Bank.

On the growth side we believe this group can grow 200 million to 250 million per year for the next few years.

We're not hiring - given that we're hiring the team with no previously originated assets and we're starting from scratch, we expect it to be a $0.02 diluted in the first quarter but expect this to be - expect to earn all of that bank over the year and think it will be $0.01 or $0.02 accretive to 2017 results.

In 2018, we expected to be much closer to sustainable run rate and fully accretive to our operating results meaning earnings per share, return on assets and our efficiency ratio.

Last item, we had a year impact adjustment that was in our favor for warrants and produced a lower effective tax rate compared to our annual effective rate that was just below 32% which is probably closer to our sustainable levels.

This adjustment gave us about $0.02 per share in the quarter which helped to offset the decline in mortgage contribution which again was about $0.04. So with that, I'll turn it back for questions. All right, the operator there..

[Operator Instructions] The first question comes today from Tyler Stafford with Stephens. Please go ahead..

Hi, good morning guys. Congratulations on a nice quarter. I wanted to start on the new equipment finance team. I appreciate the commentary about the expectations for growth out of that team.

As you look out a few years out, 3 to 5 years out, at what size of proportion of the loan portfolio do you guys feel comfortable that team representing?.

Tyler if you look out we think - for those guys we've been budging about 200 to 250 a year going out for about three years. I mean in the third quarter we'll start getting – they'll be producing at a faster pace but we'll start - will be having more payoffs.

So if you go out three years I think we'll probably be somewhere in the - call it $600 million to $700 million range. I guess that probably be given where the portfolio be then probably what 7% I think will be comfortable with this being under 10% of our total portfolio..

Okay.

And can you give us any color on how from a credit perspective that team did during the past cycle?.

Yes, I'll see here. The entire equipment finance business - I'm looking at - in our due diligence we looked at the entire industries loss rate and what we looked at was 2008 through 2010. In that cycle the industry averaged about 117 basis points of annualized losses in the worst of the downturn.

The group that - the portfolios that our group was managing was about 15% to 20% better than that. Once we got back into 2012 and beyond, the industry has been averaging about 30 basis points of losses and again this group that we're talking to - still 15% or so better than that. Long-term we think this is about 20 to 30 basis point.

We think we've been modeling about 20 to 30 basis points of losses given what we’re looking at. The industry too I'll say, our group is focused on equipment finance mostly construction, organic and manufacturing oriented. The entire equipment finance industry includes office, equipment and copy machines and stuff like that.

We're not - that's not the business we're getting into. We're looking at the equipment financing needs of larger businesses with bigger ticket prices..

Okay. Thanks Dennis. And maybe just one more for me on mortgage. Any color on what the production was this quarter again on sale margins and then as we look out to this next year with the hiring that you done can offset what the industry headwinds are, are you looking at the flattish mortgage revenue year..

Yes, I think if - I am turning to mortgage slide here, let me go in order. For the quarter we had $353 million of production that's up from $254 million in the same quarter a year ago but it's down from the third quarter $410 million. $353 million was pretty good.

About 80% of our business, 79.8% - 79.7% was purchase business so we're hanging in there right at 80% level. We've been as high as 85% but we're about 80%. The gain on sale margins came in at about 340 basis points which is down from 370 in the third quarter.

The two headwinds that we have on mortgage is some portion of our - some portion of our business has been re-fi oriented. That's not going to 100% go away but the majority of it will so there's - call it maybe $200 million of production annualized that we need to replace.

And then we're modeling in some tighter level of gain on sale just because a lot of the re-fi originators are probably going to make their way into the purchase space and so we think that will be a little tighter.

That being said, the fact that we've not been recruiting Tyler, we have been building sort of an inventory of mortgage recruits that we could bring on, as well as new construction firms, as well as new customers on the mortgage broker side.

So all that being said, we are confident that the 13 million - again given our run rate going into the end of the year that's a 13 million that we made in retail that we can get - that we can do that one more time.

Does that answer your question?.

Yes. That's great, thank you Dennis, I appreciate it..

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

Hi, good morning guys.

Dennis just to make sure I heard it right, so you're saying the tax rate for this year 2017 should be around 32%?.

That's what we experienced last year. And one thing that - one thing that affected that is our mortgage pools - obviously those assets are mostly California, so we've been paying California state tax as those start running off will be paying less and less California state tax.

We are earning - our taxable revenues are moving out faster than our non taxable so the two of those should offset and we should come in somewhere still a lot around 32..

Okay. And then organic growth, I feel like you'll talked about growing organically kind in the mid-teens level, kind of 15% or above, all put up 20% in 2016. I know you talked about doing the same thing in 2017.

So is 20% the right way to think about organic growth in loans for you'll this year?.

Brady I can't believe I'm going to say this but yes. I'm not being too cheeky with that. I just - we have been saying I remember last year we were saying 10% to 12% and we felt confident that we would be at the high end of that. I think on the organic side I don't see any weakness on what we've done, what we've been doing on the organic side.

I mean before premium finance and equipment finance, our efforts are only on organic there's nothing that's got weaker on the organic side. So, I feel good that we can keep doing that equipment finance and premium finance are just are going to augment that some.

Now what we will have during the year, we didn't experience - I mean mortgage pools because we bought one during the year mortgage pools only decline or about $30 million were less than that. But we're modeling about $180 million decline in mortgage pools, so that will offset it some.

Granted, those yields are a little below 3% so the incremental impact is not that noticeable but from a revenue standpoint there is something that we would lose there..

And on that topic remind me how do you - when you say 20% organic loan growth, are you talking about loans excluding covered in the mortgage pools or what bucket of loans are you talking about?.

We're talking about loans net of unearned income and purchased non-covered loans. So about $4.7 million was the - $4.7 million was the - the two together about 4.7 billion..

Okay. Then on last slide you talked about being comfortable with kind of where the street is in '17 and '18.

Are you including a couple of rate hikes per year in kind of the way you all look at your own estimates when comparing to the street?.

Brady I've got several questions about that even during the fourth quarter as rates started moving in.

We are asset sensitive, I'm not widely asset sensitive but we get above every time rates go up what we - and what we intend to do is be more aggressive, use whatever we get incrementally from that to be more aggressive on the deposit side especially given what you now just talked about on the asset rate side.

We just - for us staring down as much asset growth opportunities as we have we need to be more aggressive on the deposit side and we plan to use any pick up from a rate hike to just being more aggressive..

All right, great. Thanks for the color..

The next question is from Casey Whitman of Sandler O'Neill. Please go ahead..

Hi afternoon.

Just wondering with regard to the $5.7 million in compliance cost this quarter, are those all truly one time or I guess with some of those costs down to the removal of the consent order, in another words can you give us an update on the timing of those costs coming off?.

Casey the $5.7 million were all one-time costs. Consultants, lawyers, audits, things like that. What we will have as we move throughout the year is higher staffing levels.

I mean Ed eluded to the fact that we moved 15 of our best retail bankers - these are even - 15 of our best bankers we moved out of the bank into this department simply because we can't hire the kind of people we won't as fast as we need to so we put our best folks in there.

There will be - I mean that's going to - there is no bottom-line impact to that but there will be some additional hires probably somewhere in the $1.5 to $2 million by the time we get to the end of the year..

Okay, great.

And sticking with expenses, what kind or what's level of expense build we can assume for the equipment financing group and will that all be in the first quarter or do you expect to add to the team throughout the year?.

We expect to add to the team throughout the year. We're modeling about $2.5 million of operating expenses on the equipment finance team. The first quarter is going to be - the first quarter would probably be about $600,000.

We're going to have almost be at a full run rate on the operating expense side in the first quarter than most of what we had all throughout the year would be sales just on the sales side..

Okay.

One more question, just the margin outlook you guys gave in the slide-deck, does that include the impact of the USPF loans coming on and then also what kind of yield can we expect on the equipment financing book?.

On the equipment financing book we have been modeling 475 on - we have looked at 8 or 10 assets - pro forma assets and we came in at about 475 on those. That may move a little higher as rates go up but most of that work was down in the fourth quarter really before rates move. So maybe that might be a hair higher, Casey.

On the margin guidance, that's a good question, I did not - I did not factor in the effect of premium finance but I will after the call I will leave at and I will get that to you. I would expect that - that might be a couple of basis points accretive..

All right, great. Thanks..

[Operator Instructions] The next question comes from Peyton Green with Piper Jaffray. Please go ahead..

Yes, thank you. Dennis, you mentioned the balance sheet is asset sensitive, if we had 100 basis points move ramp.

How much would you expect that interest income to benefit?.

The next move we get is about a $1 million a year, so the next 25 basis points is a $1 million and it would a year and it would probably ramp to about a $1.8 or $2 million a year so, $4 million or $5 million on a 100 basis points..

Okay. And then as you think through growing the deposit base to accommodate the funding needs, how much of that would you give back. Would you expect to get back half of that or do you really care of your assets it's for most on a static basis if you are growing our yielding assets..

Yes, I think we'll be willing to give all of it back on the deposit side just because in our 2016 and our work coming out with 2017 results we're not modeling in higher margins. So, that's - again that’s not what we need.

I'm not saying I don’t won't higher margins but so the results that's not what we need, what we do need is to drive a lot more deposit in place. I don't want to get into the middle of the year and be on asset growth because we can get core deposits in here. And so I think I've be willing to get back….

We don't say we’ll need to but we’re willing to..

Okay. And then Ed you mentioned that 15 bankers or may be Dennis you mentioned it, but 15 bankers are moving into that BSA compliance effort on the front end. What affect do you think that will have on your ability to grow retail banking and over what time will those individuals get to go back to their - the part of their job they enjoy..

That's almost exactly the question they asked. Well, I mean, they're going to move - we expect they would move back to the job they enjoyed and they're very good at.

When we solve the issue with BSA, and there is no doubt given how good these folks are that we will suffer a little on the retail side, our bank presidents and our commercial bankers will allowing these folks pretty heavy but just reallocating resources we've had enough conference calls and enough in person meetings that our bankers just know what we got to do and you know - these retail bankers are not the only ones that are having - going to have to pick up the slack and do a little more.

I mean the rest of our bank is too..

The bank president, the market leaders that we have gotten support from these 15 people and they know that they going to have to step up a little bit during this time and they’re committed to doing that..

Okay. And then in terms of getting them back, I mean do you think it's over the next six months that they would begin to transition back or just in terms of trying to layer out that - think about layering all the incremental $1.5 million to $2 million in expenses..

I think that’s right, I think it will be over a period. It's difficult to hire the right expertise people and it takes some time and we don’t want to just hire people. So our good people can manage that until we can manage the - however the right people so that it could be through the six months or longer..

Okay. All right, great.

And then Ed one for you, what are you most optimistic about?.

We've got a lot of momentum. As I said earlier going into 2016 we were pretty optimistic of our revenue. We were more concerned and focused on our expense side and our goal was to give a number below 60, 59.99 and efficiency and we did that in the fourth quarter.

And so I’m most optimistic now that we've got both of those trending the right way and we have a lot of momentum. So, I feel good about revenue forecast, I feel good about - they're able to maintain that expense level as we grow and that's - I guess that's the primary thing. The other thing I’m encouraged by all the activity around BSA.

We had a really aggressive timeline and we're on track with that. And we had a lot of people putting their shoulder to the wheel and making that happen. So I'm encouraged by that as well..

Great, thank you very much for taking my questions..

I will add one other thing that I'm optimistic about we're not - we haven't done an M&A deal in 9 months but if you look at - if you look at the earnings gain that we're going to have from our line of businesses, I don't know that M&A deal that we could have done that would have given us that kind of earnings accretion.

So if you look at 2018 then you look at premium finance and equipment finance adding $0.25 to $0.30 a share that's really powerful. So, as we look into the middle part of the year and start seriously talking about an M&A deal, layering that on makes me really optimistic..

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

All right. Thank you for joining the call and look forward to talking to you again in 2017. Have a great day..

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