Ameris Bancorp
NASDAQ:ABCB
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Ameris Bancorp
Earnings Call Analysis
Q4-2023 Analysis
Ameris Bancorp
Drawing a close to a year marked by discipline and resilience, the company reported steadfast efforts to strengthen the balance sheet in preparation for 2024. This disciplined approach yielded a robust 6% increase in deposits and a controlled 2% rise in loans, resulting in an improved loan-to-deposit ratio of 98%. With an impressive above-peer net interest margin of 3.61%, the company fortified its financial stability and demonstrated commendable fiscal responsibility. A substantial provision for credit losses totaling $142 million enhanced the firm's coverage ratio to a comfortable 1.52% of loans, underscoring its prudence in face of potential risks. The strategic capital preservation led to surpassing the target tangible common equity ratio with over 9% and a notable 12% increase in tangible book value. The firm begins 2024 from a position of strength, buoyed by a granular and loyal deposit base, diversified revenue streams, and a culture of careful expense management.
The company posted a robust net income of $65.9 million for the fourth quarter, translating to $0.96 per diluted share, with a slight adjustment reaching $73.6 million or $1.07 per diluted share. This performance delivered a solid adjusted return on assets of 1.15% and return on tangible common equity at 12.81%. Over the entire year, net earnings reached $269.1 million, equating to $3.89 per diluted share, and adjusted earnings slightly higher at $276.3 million, or $4 per diluted share, resulting in annual adjusted ROA and ROTC at 1.09% and 12.55% respectively. Excluding the impact of the FDIC assessment, the company's pre-provision net revenue return on assets stood firm at 2.01%. Notably, the tangible book value per share surged by 12.4% to $33.64, supported by a healthy increase in the tangible common equity ratio to 9.64%.
The company's interest income rose modestly by $1.7 million to $332.2 million for the quarter and significantly increased yearly by $387 million to $1.3 billion. Despite navigating through one of the most aggressive interest rate cycles in history, net interest income escalated by $34 million or over 4% for the year, with a stable margin of 3.54% for the quarter. The firm effectively paid off approximately $1 billion in wholesale funding and maintained a nearly neutral asset-liability sensitivity, setting a comfortable stage for upcoming Federal Reserve decisions. Noninterest income saw a seasonal decrease, predominantly in the mortgage division, which was effectively matched by a reduction in noninterest expenses. The adjusted efficiency ratio for the company was prudently managed to 52.87% for the quarter and 52.58% for the year, with the firm poised to maintain this sub-55% efficiency ratio into 2024 alongside modest noninterest expense increases.
In light of the current economic cycle, the company has prioritized the preservation of capital while remaining agile to deploy resources for growth acceleration when conducive conditions emerge. There remains a cautious, selective process for exploring new business opportunities, with efforts concentrated on servicing existing customers and maintaining strong relationships. The positive trend in the office and commercial real estate (CRE) portfolio is affirmed by stable performance, with a mere 2% on the watch list and CRE non-performing assets at only 6 basis points. The loan and deposit growth rate is projected to climb to mid-single digits, aligned with prior guidance, a testament to a robust strategic position aiming for a successful 2024.
A conscientious management approach, particularly within potentially volatile sectors like commercial trucking, has led to tightened credit criteria and careful monitoring of charge-offs, which are expected to decrease. The Balboa division, catering to small businesses, reflects the cautious but informed stance on credit adjustments and risk assessment. In terms of expenses at the bank level, a gradual increase influenced by factors such as salaries, benefits, and technology is anticipated, with a projected growth of roughly 3-5% for salaries and 2% for other categories. This strategic expense control, coupled with a focus on treasury and organic growth, further accentuates the company's readiness to navigate economic variations while safeguarding its financial health.
The company foresees positive developments in deposit pricing as interest rates fluctuate, expecting faster deposit betas on the downward trajectory. The maturity structure of retail and brokered CDs and minimal federal home loan bank advancements offers significant latitude for aggressive repricing. In the mortgage sector, any potential Fed rate cuts signal a robust opportunity for the company, which is well-equipped to capitalize on improvements in both volumes and gain on sale margins. The emphasis on relationship-driven deposit growth and retention, rather than merely transactional interactions, paves the way for a potentially bullish deposit growth trajectory, which may surpass loan growth, hinging on a balanced and cautious approach towards overall balance sheet expansion.
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Good day, and welcome to the Ameris Bancorp Fourth Quarter Conference Call. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Ms. Nicole Stokes, Chief Financial Officer. Please go ahead, ma'am.
Thank you, Chuck, 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 website at amerisbank.com.
I'm joined today by Palmer Proctor, our CEO; Jon Edwards, our Chief Credit Officer; and Doug Strange, our Managing Director of Credit who will be taking over for Jon when he retires at the end of this quarter.
Palmer will begin today with some general opening comments, and then I will begin to discussing 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 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 Palmer for opening comments.
Thank you, Nicole, and good morning, everyone. I appreciate you taking the time to join our call today. I'm very pleased with the financial results, we reported yesterday, and I'm excited to be able to share some of the highlights in our overall strategic view for 2024 before Nicole gets into some of the financial details.
2023 was certainly a year of discipline and resilience for our company, and the fourth quarter was a solid close to our plan. Throughout the year, we focused on strengthening the balance sheet to prepare ourselves for 2024 with a healthy margin, strong capital and increased reserves. We grew deposits this year by over 6% and then controlled loan growth of 2%, improving our loan-to-deposit ratio to 98%, all while maintaining an above-peer net interest margin of 3.61% for the year.
During the fourth quarter, we recorded $23 million provision for credit losses, bringing our year-to-date provision expense to over $142 million, and that improves our coverage ratio up to 1.52% of loans and 365% of portfolio NPAs. And once again, this provisioning was model-driven and not related to any credit deterioration. We built and preserved capital this year such that our TCE ratio is well over our stated goal of 9%, and we also grew tangible book value by over 12% this year.
So as we move into 2024, a lot of the confidence that we have is based on several factors. First, we have and will continue to fight to protect our margin, and we're starting the year from a position of strength there, fortunately. We also have, as you know, a very granular deposit base, a very sticky deposit base. And then when you combine that with a well-capitalized balance sheet and a healthy allowance and obviously, as we've proven a culture of expense control, we also have a diversified revenue stream that generates above peer PPNR ROA.
And last but not least, what gives us a lot of comfort too is just knowing that we have established individuals and a lot of the top growth markets throughout the Southeast. So when it's appropriate to accelerate growth, we can do so. So a lot of those are the main things that give us a lot of positive outlook as we look through the remainder of this year.
But with that, I'll turn it over to Nicole now to discuss our financial results in more detail.
Great. Thank you, Palmer. So for the fourth quarter, we're reporting net income of $65.9 million or $0.96 per diluted share. On an adjusted basis, that's $73.6 million or $1.07 per diluted share. That brings our adjusted return on assets for the quarter to 1.15% and our adjusted return on tangible common equity of 12.81%. For the full year, we're reporting net income of $269.1 million or $3.89 per diluted share. On an adjusted basis, we earned $276.3 million or $4 per diluted share. That brings our full year adjusted ROA to 1.09% and our full year adjusted ROTC to 12.55%. Excluding the FDIC special assessment, our PPNR ROA was just over 2% coming in right at 2.01%.
We continue to build capital throughout the year. We ended with tangible book value of $33.64. That's a $3.72 increase or 12.4% increase from the $29.92 at the beginning of the year. And the fourth quarter increase was $1.26.
Our tangible common equity ratio increased to 9.64% at the end of the quarter compared to 9.11% at the end of last quarter and 8.67% at the end of last year.
On the revenue side of things, interest income increased $1.7 million to $332.2 million for the quarter. And for the year, interest income increased $387 million to $1.3 billion. Our net interest income increased $34 million or just over 4% for the year, and that's been one of the most aggressive interest rate cycles we've seen in history.
Our margin remains above peer and was stable this quarter at 3.54%, and we're encouraged by that. Beta catch-up was about 8 basis points this quarter and was completely absorbed by our positive deposit mix and our asset yield. We were able to pay off about $1 billion of wholesale funding during the quarter, with that being about $700 million of FHLB advances and $324 million of brokered CDs. We continue to be very close to neutral on asset liability sensitivity, which positions us very well for the next Fed decision, whatever and whenever that is. We've updated our interest rate sensitivity information on Slide 11 in the presentation.
Our noninterest income for the quarter decreased about $6.9 million, mostly in the mortgage division due to the normal fourth quarter seasonality. But the good news there from a profitability standpoint is their noninterest expense declined in step with that decline in income as they do a great job managing their variable costs.
And as a company, we once again did a great job this quarter. Our adjusted expenses primarily excluding the $11.6 million FDIC assessment decreased $2.1 million, almost all those variable expenses in the mortgage divisions as I just mentioned. That brought our adjusted efficiency ratio to 52.87% for the quarter and 52.58% for the year. We continue to look for expense reduction opportunities. And although there's always a cyclical first quarter bumps, we still believe we can maintain an efficiency ratio below 55% next year -- or this year 2024, even with the low single-digit noninterest expense increases this year.
On the balance sheet side, we ended the year with total assets of $25.2 billion compared to $25.7 billion last quarter and $25.1 billion last year. Loans increased $68 million this quarter and $414 million for the year. Deposits grew $118 million during the quarter and $1.2 billion for the year. Noninterest-bearing deposits still represent 31% of our total deposits and represent just a minimal decline over last quarter.
We do anticipate 2024 loan and deposit growth to increase to mid-single digits, in line with our prior guidance. So I want to close by reiterating how well positioned we are and how focused we are on a successful 2024.
So with that, I'm going to turn the call back over to Chuck for any questions from the group, and we certainly appreciate everyone's time today.
[Operator Instructions] And the first question will come from Brady Gailey with KBW.
I wanted to start with the net interest margin. It was great to see that flat on a linked quarter basis. And I mean 3.5% is a great level. There's some of your peers that honestly are at 2.5%. But how do you think about -- you're neutral to rates. So how do you think about what the NIM could do as we look to 2024?
Yes, that's a great question, Brady. And I'll tell you that really -- we were very pleased with that stable margin for the quarter, but my margin guidance really hasn't changed. The stableness in the fourth quarter was really due to that deposit mix. We still expect that same single-digit compression that I had guided to last quarter. It's just that we were kind of able to punt that 1 quarter because of that mix, because of those public funds coming in and paying off those wholesale funding.
So we still say that we see some compression for 1 to 2 quarters. We were just able to punt it kind of buy ourselves 1 quarter of time. We still say that anything above 3.5% through this cycle would be a victory. We are very, very close to asset, liability sensitive neutral, as you can see on Slide 11. We do believe that deposit betas will be greater on the way down that if we do have the Fed cuts coming in potentially later in the year that we would be able to reduce rates faster on the way down, which would certainly help us. If that helps answer that question?
Yes. That's helpful. And then when I look at your capital base, you have the goal of 9% tangible common equity. You're at 9.6% now. And with your profitability pretty soon you'll be north of 10%. So what do you do with that excess capital? I mean, you bought back a little bit of stock in 4Q. Do you increase the dividend? Do you look for other ways to grow the company? What do you do with that excess?
Well, Brady, you mentioned a lot of optionality there, which is exactly what that creates for us. But I think I would tell you during this point in time, just on where we are in this economic cycle, until we get a lot more clarity, I think the most prudent thing for us is to continue to preserve that capital. But to your point, as soon as we feel comfortable or we see some green shoots to be able to accelerate any growth, we will certainly use that accordingly.
Okay. And then finally for me, Ameris screen is a little heavy in commercial real estate and specifically in office. Maybe just an update on how you guys are thinking about the office and CRE portfolio?
Brady, I don't know exactly where -- what you want to hear from that. But I mean, we haven't really been looking -- I think there were small -- 3 or 4 very small loans made during the quarter, but we're not really in the office sector really and haven't been for a while. But it's held up well. And we have less than 2% of office loans that are on our watch list and the performance of those in the -- better sectors, the essential use in the Class A has been pretty good. But we look at it a lot, right? I mean you've got to keep looking at it. You got to keep kind of dealing with turnover risk and things of that nature. So we stay on top of it pretty well.
And the rest of the portfolio, we've got the Slide 23 in there for you to get a good look at what the rest of the portfolio past dues and NPAs look like, and they're really not there. So overall, our NPAs in the CRE book were 6 basis points. And I think that's still -- that is very, very good for this time.
Okay. That's great to hear. And Jon, good luck in retirement. Great working with you over the years.
Thank you, Brady.
The next question will come from Casey Whitman with Piper Sandler.
Nicole, maybe just how are you thinking about expenses at the bank level here as we think about the growth rate that maybe we should expect in 2024. Can you just walk us through some of the puts and takes there?
Sure. So I think when we kind of look at our noninterest expense adjusted kind of take out the FDIC. And when I look at -- I'm looking at maybe about 3 to 5 -- and take out mortgage because of cyclicality of the mortgage and so much of that being variable. So take out the mortgage segment. If you look at a 3% to 5% salary and benefits, 2%, everything else, you probably got a little bit more in IT and risk a little bit less in some of the other more general categories blend to that 2% and everything else.
So when you put that together, you end up with maybe a 3% blended rate. I think right now, consensus has about 4.5% growth. And I think that excess between that 3% and 4.5% is in the mortgage group. When you built in some growth in mortgage with some of the potential rates coming down, build in some mortgage. So I think right now where that consensus is pretty close to where I think -- I mean, I think consensus has us about right, but that's kind of where I'm looking at it from an expense growth standpoint.
Okay. Got it. Helpful. And I guess, Palmer just bigger-picture question, just with your comments around the loan growth outlook, I mean, which I appreciate mid-single-digits is still really good for you guys. But I guess, what would you -- what do you think would need to change or will need to happen before we kind of that need to turn up the growth engine, I assume that, that's going to be largely dependent just on the general economy. But what do we need to see there?
Well, a lot of our pullback obviously was on the CRE front, too. And capital has certainly helped us improve there in terms of our ratios. But I would tell you, as we start seeing things improve and obviously, the consumer data came out this morning, which looked right on target in terms of estimates. And if things start to improve there in terms of the outlook and the optimism and we feel it and see it in the markets.
I will tell you the demand is still there. And that's -- the beauty of our footprint is that if and when we're ready, the opportunities are there. We're not going to have to be scrambling around to try and find those opportunities. They already exist. So we have put a governor on this that's been self-induced, not by a lack of demand in the markets we're in, and we're fortunate to be able to say that.
So right now, I would tell you, is more of a time for in my opinion, for people in the industry to probably continue to be a little more selective which we'll continue to do, and we continue to take good care of our existing customers. And obviously, any new relationship -- I mean, any new opportunities they have, we will certainly entertain. But we remain very discerning and selective in the new business front. So until we start seeing other improving metrics in CRE and in the economy overall, we'll kind of stay where we are.
The next question will come from Christopher Marinac with Janney.
Palmer, it's been 2 years since Balboa came on with the company. And I guess I just want to do a look back in terms of how you are adjusting the credit type that you're bringing in from that division? And then also the charge-off outlook either from Jon or Doug for what we should expect this year?
Yes. I'll touch on the strategy there and then Jon can chime in on the specifics on the charge-offs. I would tell you that line of business has been a great line of business for us. Obviously, it's a cyclical business in terms of the economy, and these are small business operators. So when the small business is under stress, we're certainly going to feel it. And more specifically, as we've talked about for us and many others that trucking industry has really been kind of the hot point. So we have pulled back on that.
And I think the important thing to understand there is that the credit box, obviously, there and the appetite for anything related to the trucking industry does not exist. So we'll have to work that through the system. And now all of those loans are obviously not troubled loans, but some of them are, and they're feeling the stress from the economy like a lot of other small businesses are.
But in terms of our -- being glad we have the business we are, I think it adds additional diversification. And as the market improves, I think that line of business will continue to deliver. The charge-offs are higher than we would like them. But we've done an excellent job of being able to reserve for any potential losses there, as you can see. And it still remains a small part of our balance sheet. And as we've said from the inception, it's got a cap in terms of what percentage it would become of the balance sheet, which is 10%.
I would tell you right now, it's kept pretty much right where it is until we start seeing some improvement in the overall economy. So that's kind of the overall. And Jon, you can kind of talk to the specifics in terms of the net charge-offs, if you like.
Chris, Palmer did a great job of overviewing that and I agree,100% with everything. The charge-offs just as a context, remember, the charge-offs in 2022 were only $8 million. And so clearly, what he said about trucking, and we took a little market share in '22, and that's what we really dealt with in '23. But we did tighten the box as we saw what was necessary. We tightened it a little more, and we're just continuing to tweak as we need to make sure that we're getting the credit in there that we really want.
And to his point, it's -- we're seeing good trend lines in terms of past dues and things of that nature that would make us believe that, I don't know -- if you want to call it egg through the snake is coming to the end, and I don't anticipate that this year we'll have the same level of charge-offs as last, certainly.
Great. That's very helpful. And then just a quick one for Nicole. Are you seeing any deposit rate exceptions? Or have those slowed down in the last quarter or so?
We have definitely seen some deposit rate exception slowing, and we have also seen competitive pressure starts to slow, specifically where we had seen some very heavy pressure in Florida from credit unions, we have started to see that slow, which is good.
The next question will come from David Feaster with Raymond James.
I'd like to follow up kind of on that deposit question side. I mean given the prospects of rate cuts, I'm curious how you think about your ability to reprice deposits if we do get Fed cuts this year? Or just given liquidity challenges in the industry competitive landscape and all that, would you expect this maybe to be a bit more challenging on the way down and betas are slower than they were -- than on the way up. I'm just curious how you think about your ability to reprice deposits lower if we do get cuts this year?
Yes. So we think that deposit betas are going to be faster on the way down. And then from a tactical perspective, we've got 95% of our retail CDs, that mature in 2024. And then all of our brokered CDs are short and they mature by June. And then we've got very short FHLB and very minimal FHLB advances.
So we definitely have some positive movement on the deposit side, where we feel like we'll be able to reprice those. And then you add in just the interest-bearing money market that they will reprice fairly quickly. So we feel like we could be aggressive, and then the 31% noninterest-bearing will certainly help that as well.
Okay. That's helpful. And maybe touching on again staying on with potential cuts. I'm curious, high level, how do you think about mortgage at this point and some of the trends you're seeing? And maybe how much activity, would you -- I mean, again, mortgage rates have started to come down a bit, could come down even more with rate cuts. I'm curious how you think about, a, mortgage volumes in the coming year? And any expectations for that gain on sale margin to start improving?
Yes. I think with the Fed cuts or potential Fed cuts, obviously, we'll see improvement in that margin. But I would tell you, as we mentioned last time, so many times in environments like this, we all have a tendency to look at headwinds and not focus on tailwinds. But this would certainly be a big tailwind for our operation just because of how well we're positioned. .
And what we've done and what we've been able to do in terms of garnering efficiencies and keeping the costs in line with the revenue decline, that seem is true on the flip side. So when the when the opportunity is there and the refis and the purchase activity picks back up, we are extremely well positioned there.
So I would tell you that as we look out and if we end up getting as many rate cuts as everyone thinks we are, that could be a tremendous lift for our organization, just knowing how we performed in the past and how we can perform in the future. And more importantly, how we're already positioned in terms of our bankers and also our operations.
So that could be a real bright spot. But a lot of that, as we touched on, is going to be predicated by the -- what the Fed does. Because that's the big driver, as you know of that consumer behavior.
Yes. That makes a lot of sense. And maybe just last one from me. I'm curious how you think about -- you guys have done a great job on the deposit -- managing deposits. And we talked about where we can cut -- how quickly we can cut betas or betas are going to be on the way down. I'm curious how you think about deposit growth going forward? And maybe just -- it seems like we've seen some more seasonality from some folks on the deposit front. Curious how you think about your ability to drive core deposit growth in this coming year and some initiatives that you put in place to maybe support that?
Yes. I would tell you that's probably something that we're very bullish on in the sense that if you look at the momentum that we created even during the liquidity this year, which was a very difficult year, if you can grow deposits in an environment like we've been in over the last 12 months and more importantly, retained deposits and maintain your deposit mix which we've done a very good job of doing, net of the pandemic deposits.
But I think part of the value there is, a lot of that came from a lot of our organic growth and long relationships, and we've always been focused more on relationships and transactions. And that has served us well, and that's what we continue to do. And if you look at investments that we've made this year, a lot of those -- we kept saying throughout the entire year from an expense standpoint that we did not have to load up on any more bankers out there to bring in volume and thank goodness we didn't because the volume was intentionally pulled back. But what we did invest in as treasury.
So our treasury platform has had a tremendous year, and a lot of that comes from our C&I initiatives and also from the hard work of a lot of the treasury offers we have. So that momentum is really what helped move a lot of the needle in fourth quarter, and I think that same momentum will be there throughout the year. So we've got a lot of initiatives in place there that are delivering now and we'll continue to deliver. So I probably feel a little more optimistic than most in terms of our ability to keep growing core funding.
I mean, so would you expect core funding to maybe outpace loan growth? Or would you expect maybe that remixing of the balance sheet to kind of keep deposits stable and just, again, improve the mix? Curious kind of how you think about growth prospects and overall balance sheet growth?
Yes. In the perfect world, obviously, would be all loans will be funded with core funding, but we know that's not a reality. So -- and then there's obviously a balance there in terms of our desire for loan growth. Right now, I'd tell you that loan growth desire is muted as we talked about earlier. So I think you're going to probably see a -- from a percentage standpoint, you'll probably see more core funding relative to loan growth. But once we start accelerating loan growth or feel it's appropriate to do so, then you would probably see more of a utilizing wholesale funding or other types of funding beyond just core funding.
This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Palmer Proctor for any closing remarks. Please go ahead, sir.
Yes. I'd just like to thank everyone once again for listening to our fourth quarter and full year 2023 earnings results. And I'd also like to give a special thank you and recognition to Jon Edwards, our Chief Credit Officer. This will be his last earnings call. But I'd like to thank him for his friendship and service to Ameris for over 25 years. We are certainly going to miss him, but he assures me that he's just a phone call away if we ever need him. But I want to thank everybody once again for their time and their interest in Ameris Bank. Have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.