Earnings Call Transcript - ABCB Q4 2024

Operator, Operator

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

Nicole Stokes, CFO

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 website. 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.

Palmer Proctor, CEO

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.

Nicole Stokes, CFO

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 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 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 to 10.59% at the end of the quarter compared to 10.24% at the end of the 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 by $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 nonperforming loans. 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 by $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.

Operator, Operator

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

Catherine Mealor, Analyst

Thanks. Good morning.

Nicole Stokes, CFO

Good morning.

Palmer Proctor, CEO

Good morning, Catherine.

Catherine Mealor, Analyst

I want to start with the margin. The expansion was so great to see this quarter that the reduction in 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.

Nicole Stokes, CFO

Sure. You're right. At the end of last quarter, I indicated we were at a 3.51% margin and that we would be pleased with anything above 3.50%. We anticipated a slight expansion of 2 to 3 basis points, but we actually experienced a 14 basis point expansion. However, it's important to highlight the factors behind that growth. Ten basis points of the expansion were due to temporary factors that will revert. Specifically, 7 basis points of the margin increase came from a favorable funding mix from public funds that replaced wholesale funding. As these public funds diminish and we return to using brokers, that 7 basis points will likely decrease from the margin. Additionally, we had 3 basis points from what I refer to as repricing lags, where we quickly adjusted our deposit rates following the Fed's cuts, while our loan rates will eventually align. Once the Fed paused, we anticipated our loan rates would catch up. Thus, the 7 basis points from funding and the 3 basis points from repricing lags are expected to revert, bringing our margin back to the 3.54% range I previously indicated. I'm open to a 10 basis point increase whenever possible, but realistically, I expect the margin to remain between 3.50% and 3.55%, consistent with our previous guidance. The 3.64% figure was, in part, inflated by about 10 basis points. Looking forward, when we examine our production of loans and deposits, everything we are currently acquiring is enhancing the margin. If we can continue growing our deposits, our bankers have been quite successful in that area. Maintaining a non-interest-bearing mix at 30% has also been beneficial. A year ago, I would have found it hard to believe we could grow deposits at that rate while maintaining 30%, but our bankers rose to the occasion. So, those are the factors influencing our margin moving into next year.

Catherine Mealor, Analyst

Okay, that's helpful. So if we do want to model margin expansion, just start at 3.54%, instead of 3.60%.

Nicole Stokes, CFO

Exactly.

Catherine Mealor, Analyst

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?

Nicole Stokes, CFO

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.

Catherine Mealor, Analyst

Was there anything that elevated the fees this quarter that we should be aware of, such as projects that were pushed into this quarter? We want to determine the run rate as we move into the first quarter.

Nicole Stokes, CFO

No, I appreciate that question because when you look at GAAP non-interest income, remember we had gains from the MSR sale in both the second and third quarters. It may seem flat for the fourth quarter, but if you exclude the impact of those MSR sales, we actually experienced a boost in the fourth quarter, primarily from our SBA group. There may have been a bit of elevated demand as it had built up. However, I believe that starting run rate is a solid position.

Catherine Mealor, Analyst

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

Palmer Proctor, CEO

Thank you.

Operator, Operator

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

David Feaster, Analyst

Hey, good morning, everybody.

Nicole Stokes, CFO

There you are. Good morning.

Palmer Proctor, CEO

Good morning, David.

David Feaster, Analyst

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 hitting 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?

Palmer Proctor, CEO

I believe this increase reflects consumer sentiment, with greater optimism and clarity among many people. The post-election period should provide additional clarity. Many of our commercial customers are feeling more positive as they look ahead, which is evident in the fourth-quarter production numbers. I'm confident about our growth rate and optimistic about our position in high-growth markets. Additionally, we've made significant progress in hiring, which will contribute to increased volume on top of what we've already achieved. Across most verticals, aside from mortgages—affected by the current rate environment—we're generally optimistic regarding our outlook, especially if future rates on the 10-year yield support us.

David Feaster, Analyst

That's helpful. How do you perceive the pace of growth? It seems that optimism is on the rise. We experienced some additional production, and of course, there were higher payoffs this quarter. What are your thoughts on growth as we consider 2025?

Palmer Proctor, CEO

In our case, we're quite cautious and focused on controlled growth. We believe that as we advance in this new environment, we will better understand our direction. Fortunately, we're in a position to either speed up our growth or maintain our current status. Additionally, our diverse balance sheet allows us to optimize margins instead of just pursuing growth for its own sake. Over the past two years, particularly when the yield curve was inverted, we have concentrated on our asset mix and managing duration risk. Looking ahead, with the various strategies we can implement, we are quite optimistic about our ability to achieve our earnings per share growth.

David Feaster, Analyst

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 an 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?

Nicole Stokes, CFO

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.

Palmer Proctor, CEO

And David, one of the things that we do that might be different from others is that we hired 24 commercial bankers this past year while also eliminating 24 bankers. A common mistake is bringing on additional production staff to make up for the lack of production from others, which only increases expenses. We've always been careful in our approach. By hiring 24 and letting go of 24, we can keep our expenses under control from both an overhead and production perspective, which is more important.

David Feaster, Analyst

Thanks. Thanks, everybody.

Operator, Operator

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

Russell Gunther, Analyst

Hey, good morning, guys.

Palmer Proctor, CEO

Good morning.

Nicole Stokes, CFO

Good morning.

Russell Gunther, Analyst

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?

Nicole Stokes, CFO

We observed an increase from 2.17% to 2.40%, and we're projecting a range of 2.25% to 2.40% based on current demand trends. This is influenced by market conditions, but as of now, we anticipate that for the first and second quarters, it will be somewhere within that range, maintaining close to the current levels.

Russell Gunther, Analyst

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?

Palmer Proctor, CEO

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 would have to be very selective and then buybacks in that order.

Russell Gunther, Analyst

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?

Palmer Proctor, CEO

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.

Russell Gunther, Analyst

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

Operator, Operator

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

Christopher Marinac, Analyst

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?

Doug Strange, Chief Credit Officer

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.

Christopher Marinac, Analyst

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.

Doug Strange, Chief Credit Officer

That's true because CECL considers the entire duration of a loan, which means you can experience fluctuations over time. But you're correct.

Christopher Marinac, Analyst

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?

Palmer Proctor, CEO

I think that currently, there is more discussion within the banking industry itself rather than involving non-banking entities, but that doesn't mean there aren't unique opportunities available. The challenge for many non-banks lies in funding; if they lack core funding, how will they finance their operations? Given the significance of maintaining our core funding and avoiding any decline in it, traditional bank mergers and acquisitions would likely take precedence.

Christopher Marinac, Analyst

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

Palmer Proctor, CEO

You bet.

Operator, Operator

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

Manuel Navas, Analyst

Good morning. Can you provide more details on the types of loan yields you are bringing in that will positively impact NIM moving forward?

Nicole Stokes, CFO

Sure. Good morning. For the quarter, our total company loan production was around 7%. This is divided with the bank at approximately 8%, premium finance at 7%, and mortgage a bit lower at around 6% to 6.5%. The overall blended rate for the company was roughly 7%. Regarding deposit production for the quarter, our blended total came in at about 2.42% for new production, which includes interest-bearing deposits, compared to a previous book of 2.12%. This reflects a slightly higher rate than our average book. Specifically, for interest-bearing deposits, our production was about 3.25%, compared to a total book around 3%. Therefore, our new production is outperforming our average book by about 25 to 30 basis points. When looking at loan production of 7%, it shows that everything we're adding is beneficial to margin, currently yielding a spread of about 3.75% compared to 3.50%. The key question now is whether we can maintain the growth in non-interest-bearing deposits at the current rate; our bankers are doing an excellent job in this area.

Manuel Navas, Analyst

I appreciate that. You mentioned the lag in loan yields that might still adjust following the last rate cut. Is there a significant amount? Have you essentially finished cutting deposit costs since the December cut? It seems like you're suggesting there is more potential for rate changes on the loan side compared to the deposit side. Could you elaborate on that further?

Nicole Stokes, CFO

Our treasury and operations teams have worked hard to prepare for the day after the Fed cuts rates, allowing us to be proactive and aggressive. We've seen a slight improvement in our betas with the first two cuts, driven partly by market conditions. We anticipated that once the Fed stopped cutting rates, our loans would eventually start to reprice downwards. Currently, we have about $8 billion in loans expected to reprice in the next year. The good news is that the weighted average rate of these loans is just under 7.5%, while our current production is at 7%. Therefore, if we see a decrease of 50 basis points from the 7.40% rate, it aligns well with the recent Fed cut. We're down quicker on the deposits than on the loans, which is a natural progression. Additionally, we've experienced some payoffs in our bond portfolio in the fourth quarter, with more maturities expected in June, enabling us to grow our bond portfolio at higher rates, which has been beneficial.

Manuel Navas, Analyst

I appreciate that. Thank you very much.

Operator, Operator

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

Russell Gunther, Analyst

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?

Nicole Stokes, CFO

Yes, I'm a bit hesitant to provide that information because some of it is influenced by the public fund. So, are you specifically asking about December spot costs?

Russell Gunther, Analyst

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

Nicole Stokes, CFO

Yes. For December, the spot cost was around 2%, but I want to clarify that this is somewhat skewed due to some public funds and the significant amount of non-interest-bearing growth we experienced in December. If we look at the average from the third quarter to the fourth quarter, we were able to reduce the rate from approximately 2.75% to about 2.40% for the quarter, which is a decrease of around 30 basis points, and we are pleased with that trend. The most notable change in December was in CDs, where our production was about 25 basis points lower than the quarterly average.

Russell Gunther, Analyst

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

Nicole Stokes, CFO

Sure. Absolutely.

Operator, Operator

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

Palmer Proctor, CEO

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.

Operator, Operator

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