Ameris Bancorp
NASDAQ:ABCB
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Ameris Bancorp
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Good morning. And welcome to the Ameris Bancorp First Quarter 2018 Financial Results 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 today’s event is being recorded.
I would now like to turn the conference over to Nicole Stokes, Chief Financial Officer. Please go ahead, ma’am.
Thank you, Rocco. 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 Web site at amerisbank.com. I am joined today by Ed Hortman, Executive Chairman, President and CEO of Ameris Bancorp and Dennis Zember, Executive Vice President and Chief Operating Officer of Ameris Bancorp and CEO of Ameris Bank. Ed will make some opening comments about the quarter and our pending acquisitions. I will spend some time going over the details of our financial results. And then Dennis will provide closing remarks.
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 these factors that might cause results to differ in our press release and in our SEC filings, which are available on our Web site. We do not assume any obligation to update any forward-looking statements 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 Ed Hortman for opening comments.
Thank you, Nicole, and good morning everyone. I appreciate to taking the time this morning to join our first quarter 2018 earnings call. On the call today, as Nicole said, we’ll discuss our earnings results and then I’ll provide some insight into next strategies and pending acquisitions. For the first quarter, we’re reporting operating earnings of $0.73 per share, which excludes about $1.1 million of after-tax merger financial costs. Including these charges, we’re reporting $26.7 million in net income or $0.70 per share.
Our operating ratios continue to be very strong. Our adjusted return on assets came in at 1.44% in the first quarter compared to 1.27% in the same quarter of 2017. The change in the tax law added 17 basis points to the ROA this quarter. So on an apples-to-apples basis, our return on assets was comparable to first quarter of last year. Dennis and Nicole did manage to squeak out an efficiency ratio just below 60%, which is excellent for the seasonally slow first quarter. And it puts us in a position to achieve a mid-50s ratio later this year. And lastly, our return on tangible common equity came in very strong at 17.09%, up from the 15.84% we reported in the first quarter last year.
Our quarter was highlighted by few items that I believe point to the time we’re expecting. First, we had a solid loan growth for the first quarter, which is seasonally a weak quarter for us. This year, we had a little better than 10% organic growth in loans, which is ahead of the same quarter last year at 8.5%. Secondly, we’re reporting a seasonal decline in deposit balances. We’re reporting that over last year. We’ve grown deposits by almost $804 million and funded about 92% of our incremental loan growth with deposit growth. Our pace of deposit growth and our success has continued to improve and our pending mergers will put us in larger markets where we expect to solidify our pace of growth of funding.
And lastly, our margin increased during the quarter by 2 basis points excluding the effect of accretion income. Considering that we lost about 6 basis points of margin from the reset on municipal loans and securities from the recent tax law, I’m delighted that we were able to overcome that and still post an improvement in the margin. I can’t brag on our bankers enough for what they’re doing in the marketplace, the competitive pressures are steep as we’ve seen quite some time but our focus continue to produce outstanding results on both growth and profitability. I am really proud of these results and excited about the year I think 2018 can be for Ameris Bank.
Nicole will talk more about our earnings for the quarter in a moment. So I’ll shift to give you an update on our pending acquisitions. During the first quarter of 2018, we successfully completed the acquisition of the remaining 95.01% of U.S. Premium Finance. We retained the management team and we continue to see solid growth in this division with exceptional credit quality and above average return on assets and efficiency ratio. We believe that we should get approval on the ACFC transaction in Jacksonville any day now, and we’re prepared to close right away.
Our conversion for this transaction is scheduled for mid-June and we’re very excited about the bankers who are going to be joining us in Orlando, Tampa here in Jacksonville. And lastly, we just decided about our pending acquisition with Hamilton State Bancshares in Atlanta and boost to our Atlanta franchise that this acquisition will add. We still expect this acquisition to close early in the third quarter of this year, and we should be complete with the integration efforts shortly thereafter.
On additional acquisitions, we’re continuing to have conversations on both the bank side and the non-bank side. I expect some of these conversations will continue throughout the year. And then as we close and integrate the two pending deals, we’ll be ready to move ahead with something else, hopefully, along the lines that we’ve outlined on previous calls on previous one-on-one meetings.
So Nicole, I’ll stop there and ask you cover more of the financial details of the quarter, and then Dennis can share the details on our outlook and strategy going forward.
Thank you. As Ed mentioned, we’re reporting earnings of $0.70 per share and operating earnings of $0.73 per share for the first quarter, which excludes about $835,000 of pre-tax merger charges and $583,000 of pre-tax losses on the sale of bank premises. Outside of these charges, we recorded net income of approximately $27.8 million or $0.73 per share compared to $21.6 million or $0.60 in the same quarter of 2017.
Due to the Tax Cuts and Jobs Act that was passed in the fourth quarter of 2017, our effective income tax rate declined to 22.4% in the first quarter compared with 32.6% in the same period of ’17. This equates to approximately $3.3 million of reduced income tax expense in the quarter and positively impacted our EPS by $0.08 a share. We believe our effective tax rate will be between 22.5% and 23.5% going forward.
One of the key metrics we continue to focus on in 2018 is our operating efficiency ratio. This ratio for the first quarter was 59.95%, an improvement from the 60.88% reported in the fourth quarter of last year. Our adjusted non-interest expenses declined $494,000 in the first quarter of 2018 compared to the fourth quarter of last year. Ed alluded to this earlier that the efficiencies we expect to gain from the pending acquisitions and our organic growth should drive our efficiency ratio throughout this year and we believe we could be in the mid-50s by the end of 2019.
As Ed mentioned, our operating return on assets or ROA in the quarter came in at 1.44%, up from 1.27% we reported in the same quarter of '17. The reduced effective tax rate discussed earlier positively impacts our ROA by 17 basis points. So assuming meaningful tax rate, our ROA was consistent at the 1.7%. This is noteworthy considering the organic growth we've had in this competitive environment and with the yield curve.
Additionally, we have half of the accretion income in the current quarter that we had a year ago, which otherwise would have lowered our ROA by 7 basis points. Essentially, all things being equal, our core bank and our lines of business have grown over the past year in a manner that was accretive to our already strong ROA and more than made up for the declining accretion income. This is outstanding in our opinion and reflects the hard work of our bankers in today's climate.
Our return on tangible common equity was 17.09% in the first quarter of '18 compared to 15.84% for the same period last year. Excluding the impact from the tax law change, our return on tangible common equity would have been 15.07. It increased from the fourth quarter of '17 but a slight decline from the first quarter of last year. That year-over-year decline is attributable to our increased capital levels. Our average tangible common equities have increased over 19% or over $105 million this year due to the final purchase of USPF and our strong earnings stream.
Our net interest margin exclusive of accretions improved by 2 basis points during the quarter from 3.82 in the fourth quarter of '17 to 3.84 in the first quarter this year. As announced, this is noteworthy given the impact of the tax law change that reduced our margin by 6 basis points related to our muni loans and muni investments. Our yield on earning assets increased by 3 basis points, mostly in our legacy loans.
Yields on new loan production increased to 5.19, up from 4.89 in the fourth quarter of '17. In addition, reduced levels of short term assets and steady deposit costs also helped improve the margins. Non-interest income increased to $26.5 million for the quarter, service charges on deposit accounts remain stable. Our rates on mortgage divisions had a really strong quarter. When compared to the first quarter of last year, their production increased at 14%, their revenue increased almost 23% and their net income increased to $4.7 million.
Our mortgage division continued to produce solid financial results. They remain focused on relationships with solid builders and real estate brokers, and they continue to benefit from many years of producing solid results for their customers.
One of the strongest success stories we have this quarter is a non-interest expense. Non-interest expense decreased $239,000 during the quarter to $59.1 million compared to the $59.3 million in the fourth quarter of last year. On an adjusted basis, our non-interest expense actually declined $494,000 to $57.7 million from the $58.2 million reported last quarter. Included in the first quarter was approximately $1.1 million of increased payroll taxes that are typically outsized the first quarter of each year and they tail off dramatically in coming quarters.
On the balance sheet side, total assets increased over $166 million and earning assets increased $105 million. Organic loan growth totaled $153.8 million or a 10.8% organic loan growth for the quarter. This compares to $138.2 million or 10.1% in the fourth quarter of last year and $98.5 million or 8.5% growth in the first quarter of last year. Pipelines remain strong and we’re optimistic about the growth opportunities in the second quarter.
Our loan growth continues to be diversified, both from product type and region. Commercial real estate accounted for over half of our loan growth with residential and consumer and C&I also showing strong growth. As a reminder, our C&I classification includes municipal, mortgage warehouse and premium finance. Our strongest loan growth markets during the quarter were Jacksonville, Atlanta and Charleston. We continue to see growth in our lines of business and we still believe that is sustainable going to the second quarter.
Loan production in the Premium Finance division remained strong as total production was $289 million for the quarter compared to $241 million last quarter, and $251 million in the first quarter of last year. That’s a 15% increase in production year-over-year. We believe we can sustain an annualized growth rate in this division of 10% to 15% over the next few years, while maintaining credit quality and profitability. Our asset quality remained strong as our annualized net charge-off ratio was 9 basis points to total loans and 14 basis points to non-purchase loans.
Our non-performing assets as a percent of total assets decreased to 61 basis points compared to 68 basis points at the end of the year. We have a nice move in non-performing assets, decreasing by $4.3 million or 8.2% during the quarter. As expected, we had a normal seasonal decline in deposits during the first quarter of approximately $180 million. However, compared to the end of the first quarter last year, deposits have increased almost $804 million, while our loans have grown $874 million, which means we have funded approximately 92% of our loan growth with related deposit growth. We believe the pending acquisitions, which will expand our presence in Atlanta and movements into Orlando and Tampa, will give us more opportunities for deposit and loan growth going forward.
With that, I’ll turn it over to Dennis for his comments.
Thank you, Nicole. And before I’ll dangerously go off script here for a second, and just recap something that, hearing Nicole and Ed, something that I’ve got it. Just from a high level, I mean we’re reporting 1.44% return on assets, little better in 17% return on tangible capital, sub-60 efficiency ratio it is below 60, and all of that on operating ratios, but still double-digit growth -- organic double-digit growth. And when you look at those four ratios and you combine it with Ed’s comments about the 2 deals that are pending. The two deals that are pending are accretive to all four of those ratios; our return on assets, current tangible capital, efficiency ratio and what we think is our long-term organic growth rate. The fact that we did 11% almost in the first quarter, which is seasonally our slowest quarter we’re pretty proud of.
The only thing, that only comment Nicole that was hard for me to not be able to be one -- be able to be the one to say those numbers, but that was good. The only comments I really want to make are about the environment we’re operating in, and Nicole alluded to it a little. And I’ve heard some comments on other earnings calls about the situation that banks are feeling with respect to loan yields and pressures to grow deposits and still hold close in line. And we're definitely feeling those pressures across the board.
Given that we came in with loan growth right under 11% in what's our toughest quarter, I am increasingly confident in our pretty bold loan growth goals for 2018. We're pretty bullish on the growth we're expecting at the team in Atlantic Coast and Hamilton, which can only be accretive to our growth rate given their lending efforts in Orlando, Tampa and Atlanta.
Looking at the pipelines -- looking at their pipelines and their current pace of activity and what they did in the first quarter in those markets, I believe they'll hit the ground running and be pretty successful in our credit culture. On the deposit side, we are bullish there. Every quarter, it seems we’re seeing our annual pace of deposit growth to continue to turn higher, getting closer to what we think is our long term sustainable growth rate in loans. Again, the new exposure we’re going to have in Orlando, Tampa and Atlanta, we expect that we'll be able to see another impressive reset in what our long term deposit growth radius.
From a margin perspective, we've been successful moving loan and deposit pricing in lock step and staying aggressive where we need to on both sides of the balance sheet. On pricing, loans and deposits, I will tell you that it is tough out there. There are still more disciplined players on credit structure and on credit pricing than there are crazy folks, but the crazy and a logical pricing seems to always get the headlines. We're aggressive occasionally where we need to be as well, but in aggregate, we seem to keep showing solid levels of production and we continue to get decent yields and margins, because we're looking for good relationships and taking care of the customers that have been with us for decades.
I would like to see more spread in the yield curve of course, but the fact is we haven't had a lot of spread in the yield curve for several years now. And we continue to put up impressive growth numbers and have held the margin slightly, have held the margin stable or even seen it increase slightly. So given that -- and again I don’t like the pricing pressures that are out there but the environment that we’re in is really not anything different than where we have been operating, and I believe we'll be able to operate as we have in the past and still deliver results.
So with that, I'll turn it back to Rocco for any questions.
Thank you sir. We will now begin the question-and-answer session [Operator Instructions]. Today's first question comes from Tyler Stafford with Stephens. Please go ahead.
Maybe just to start on the deposit side, Dennis just starting with your last comments there, you do sound clearly pretty bullish about the deposit growth this year. Can you just talk about the strategies that you guys have implemented or are focusing on to drive that deposit growth? What you're seeing out there from a deposit cost standpoint as well?
I’ll tell you the first strategy we have is how we’ve reset incentive plans. We have a higher percentage of our bankers’ incentive plan this year are deposit oriented, so that helps. We've been hiring deposit officers in our larger markets that are focused solely on driving deposits. We have individuals that are selling deposits solely to our lines of business. So in markets where we don’t have brand facilities but where we do have lending efforts, we’ve been cross-selling to those businesses.
I’ll tell you our willingness to be aggressive on the deposit side and moving lock step, again, we’re not. We like where the margin is and we like what it did this quarter especially. But we don’t feel like we’ve got to have the margin moving higher to hit our numbers. I think we’ll probably get more operating leverage off of the expense side, especially with the deals that are pending and our organic growth. So we’re not looking for the margin to go from 3.84, 3.85 to 3.95 or so. So we’re willing to be a little more aggressive on the deposit side if we need to be. Does that answer your question?
So staying within the margin, I think I missed this in your remarks. What was the FT adjustment on the loan yields from the municipal loan portfolio this quarter that negatively impacted this?
The expected point…
To total loan yields?
Yes, and to margins. The margin was affected negatively by 6 basis points because of the tax law change.
And can you help us -- so we’ve got the March hike obviously and ACFC and Hamilton that will be closing in 2Q and 3Q. With those I guess three dynamics going on with the funding cost pressure you’re seeing out there. Can you just help us with the 2Q and 3Q NIM trajectory from here?
I would tell you stable, definitely continue to be stable. I mean, Hamilton and ACFC are probably going to take -- several of our bankers in here tell you that we’re in a lot of pressure to grow deposits. I will tell you that there our bankers are delivering for us big time. I’ll repeat what Nicole said, really proud what our bankers are doing. The adding ACFC and Hamilton, I think it will take a little bit of pressure off, because again we’re almost funding 100% of our loan growth now. And when we get exposure to the markets that we’re about to move into, I think it’s going to take a little bit of pressure off.
So I think that pressure coming off I think would only help us on the margin. But again, we don’t want to -- the message is not right here that we’re trying to grow our margin, that’s not what our bankers are hearing. We’re trying to maintain the margin, keep it pretty stable and continue hitting the growth numbers that we’ve got laid out.
The impact to our margin on the tax impact was 6 basis points but I think you specifically asked about loans, loans was 8 basis point and then our no-taxable securities were 73 basis points. So that gave the overall earning asset yield to 6 basis points.
And then just last one from me. The tangible book value I think came in below forecast or estimates. I assume that partially had to do with the USPF. Can you just walk through the dynamics of the tangible book value this quarter?
Actually, there is two components but you’re correct that the bulk of it is the USPF, the final acquisition there. Conservatively, we booked the entire contingent consideration this quarter but it’s really -- we have that built-in in our models, but just not allocate in that first quarter. So our earn-back has not changed from our initial estimates, which is we have all of that contingent consideration and the purchase price in this first quarter. The second component is our -- accumulated our investment securities are often our [ANCI] about $9 million there.
That would be about $0.29.
That’s right.
And our next question will come from Brady Gailey of KBW. Please go ahead.
I was going to ask when you found the extra 5 basis points to get the efficiency ratio down to a 5 handle but I’ll leave that one alone…
We work safety until Ed came in and check his finger and he went digging again, I forewent my last pay check.
So my first question is just on mortgage. You had a record quarter first quarter. If you look at mortgage as a percent of earnings at 17% to 18% of 1Q earnings, which is getting on up there now Hamilton also help you out on the mortgage front. But maybe just bigger question, you're seeing nice growth on mortgage. Where do you think mortgage as a percentage of earnings tops out, will it continue to grow or do you think we're nearing the peak here?
I'd be pretty comfortable probably all the way up to 20%. But what I would tell you is that as strong as the mortgage folks are and they’re probably listening, I think we're going to outgrow on this year with Hamilton and Atlantic Coast on the core banking side. But sort of known that we were going to get back into -- what you're seeing in the results, known that we're going to get back into just traditional bank M&A. Our mortgage folks got out recruiting pretty hard in the third and fourth quarter of last year. And what you're seeing is some of the results of their recruiting. So it's just incremental volumes coming in.
And so I think after we do the ACFC deal and the Hamilton deal, you'll probably see it drop back to 14% or 15%. But I think we're going to continue to be very aggressive recruiting experienced mortgage bankers that have relationships with construction firms or real estate brokers. The Hamilton, one thing about Hamilton that we're pretty excited about is they've got an outstanding residential construction group in Atlanta. And we think the cross sale gain given how successful we are with construction firms, we think the opportunity to cross sale that in Atlanta and be pretty successful, that was even baked into our numbers when we made the deal announcement but something we’ve getting our mind around right now.
And then in the slide deck, I know you have to look, it talks about normalized ROTCE in the 16% to 18% range for 2018. You printed a 17 this quarter you have the two deals coming in later this year. I mean that will both increase earnings and leverage your capital a little bit. So to me it seems like that 16% to 18% is conservative and it could be a little higher than that. Or do you think 16% to 18% is really the right number?
Brady, Nicole maybe more conservative in her presentation skills than I am, but I mean, it’s hard -- you’re exactly right. Honestly and I can started off the ROA at 1.44%. The deals are accretive to our ROA. And I don’t mean by basis point or two. Given with this tax rate those deals easily just over 1.50% and that alone before any leverage or additional leverage is going to push ROTCE closer probably to 20%. It’s like last year when we have done 20% loan growth and I think it’s hard to acknowledge that was -- we’re able to going to be able to do that again year-after-year but 20% is hard to stay, that’s sustainable the fact and -- TCE the 8.30 and we want to build that back to 9%. So I don’t think we will get -- I don’t think we get leverage -- improved ROTCE from leverage as much as we want to get it from a higher return on assets, which we think is right around the corner.
And then the last one for me, you all mentioned a couple of times the mid-50% efficiency ratio. Is that from a timing point of view? Is that something that’s possible like later this year or is it -- I thought Nicole maybe mentioned by the end of ’19. Just what -- how you think about that from a timing point of view on when you can get to that 50% level?
Successfully integrating the deals that we have plus the organic growth that we are expecting this year should put is in the mid-50 by the end of this year, the fourth quarter of this year.
And our next question today comes from Jennifer Demba, SunTrust. Please go ahead.
If you’ve covered this, I apologize. Ed, can you just talk about your M&A interest as it stand right now given you got two deals still pending?
We having two deals pending has not slowed as down from having conversations and trying to have. And we think we know when the deals are going to be approved and closed and integrated. And so a lot of our conversations are centered on timing things out, so we’ll be ready probably into this year to do something else. And I guess the next question would be geography and I would tell you probably anything in Florida or metro Atlanta.
And could you remind us on sweet spot in terms of size, maximum size minimum size?
We look at a -- I guess pro forma we’re about $11.5 billion. So recently we look at $0.5 billion deal and it’s a good bank. But we did not get impressive earnings per share results or economics out of it. And it had nothing to do with the bank it had nothing to do with the assumptions or the market or anything like that, it just really had to do with $0.5 billion against $11.5 billion. So we used to probably say $500 million to $1.5 billion is probably, I'd say $1 billion is about at the small as we're going to be able get and still get good economic probably at $2 billion or $3 billion.
[Operator Instructions] Today's next question comes from Christopher Marinac of FIG Partners. Please go ahead.
Dennis, the follow up on the same M&A theme. What are the opportunities in Atlanta and also in Florida to take advantage of the merger that have already happened in terms of just picking up the additional customers, et cetera?
The question was if it wasn't M&A, what would we do organically?
It was organically taking advantage of the mergers that have already happened outside.
One of the things that we're seeing -- I mean M&A pricing is expensive. Some of the active acquirers are trading for close to 3 times book and everybody has got good or solid operating results. And all that reflected in some of the M&A pricing. And really for the last couple of quarters, we have been much more active in commercial banker recruiting. And I would tell you it's not -- most of that recruiting is centered on some of the big banks, larger bank who were trying to recruit teams, and I think maybe getting close on a few. But that’s centered in our larger market and some in the larger markets where we're going, not just where we already are. And maybe a few markets where we think we'll end up.
But I would tell you we're not outside of the markets where we're already operating and talking to some things that still pretty confident that we can do something this year. Outside of those markets, I think we want to be cautious. But we're definitely seeing more commercial banker, more opportunities to hire commercial bankers and commercial banker teams. And I think I like the timing of that given how price the M&A has been.
I still think given where our stock trades and how successful we've been with past integrations, we could still make M&A deals. So I'm not only by to hear that M&A is not an opportunity for us, I just saying it's pricy and economics that you get are not as good as they were say 18 months ago. We can still make M&A deals but we're liking the opportunities that we're seeing on the M&A -- on the commercial banker opportunity.
Chris, I would say -- I echo what Dennis says. But I would point out that when we had to pause on M&A and really focus much more diligently on our core and organic growth, it helped us realize some leverage of our people. And have this leverage our efficiency little and refine some of our processes and get prepared to grow faster as we do over $10 billion. But it helped us to be successful organically and that really was our focus and it continues to be a focus, it does not exclude M&A. But as you know we're really disciplined on M&A and economics have to be there, the strategic piece has to be there but economics have to be present as well. I mean it is more difficult to get over the economic hurdle today. So we think we can deliver double-digit growth without M&A. And so with M&A, we think we can do even better than that. So we’re really pleased with the position we’re in and we think we will have opportunities for M&A but that’s not the sole focus of opportunity either.
And this concludes our question-and-answer session. I’d like to turn the conference back over to Dennis Zember for any closing remarks.
Thank you again for your time this morning. If you have any questions or comments me or Nicole are always available. Thank you and have a great weekend.
Thank you, sir. Today’s conference has now concluded, and we thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.