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Edited Transcript of ABCB earnings conference call or presentation 24-Apr-20 1:00pm GMT

Q1 2020 Ameris Bancorp Earnings Call

MOULTRIE Jun 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Ameris Bancorp earnings conference call or presentation Friday, April 24, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* H. Palmer Proctor

Ameris Bancorp - CEO & Director

* Jon S. Edwards

Ameris Bank - Executive VP & Chief Credit Officer

* Nicole S. Stokes

Ameris Bancorp - Executive VP & CFO

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Conference Call Participants

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* Christopher William Marinac

Janney Montgomery Scott LLC, Research Division - Director of Research and Banks & Thrifts Analyst

* David Pipkin Feaster

Raymond James & Associates, Inc., Research Division - Research Analyst

* Tyler Stafford

Stephens Inc., Research Division - MD

* Wood Neblett Lay

Keefe, Bruyette, & Woods, Inc., Research Division - Associate

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Presentation

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Operator [1]

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Good day, and welcome to the Ameris Bancorp First Quarter 2020 Financial Results Conference Call. (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.

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [2]

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Great. Thank you, Eric, 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 Procter, our CEO; and Jon Edwards, 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 it up for Q&A.

But 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.

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H. Palmer Proctor, Ameris Bancorp - CEO & Director [3]

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Thank you, Nicole, and thank you to everyone who's joined our call today. Obviously, today's discussion is going to be a little bit different than prior quarters because these are unusual times, and things are changing daily. As I said in the press release in the first quarter, this has been unprecedented this quarter, given that we had COVID, we had CECL, the Fed cuts and the stimulus package.

But I wanted to start off by talking about COVID-19 and first and foremost, thanking our front-line and all our teammates for their herculean efforts to accommodate our customers and our communities. Certainly, our investment in technology that we've made over the years has served us well. We've got about 75% of our teammates working remotely and more importantly, working effectively, including our call center, in this environment. All of our drive-through locations are open, and we've been able to perform business through the drive-through, our branch lobbies are obviously closed, except for appointment only.

I am pleased to say that we've experienced about a 23% increase in the growth of our number of mobile banking customers since the beginning of the pandemic, and we've seen a lot of strong increases in the number of remote deposits taken through the mobile banking app, as you would expect. But we continue to see people opening up checking accounts via our online portal and then also using our drive-through facilities. And we believe that these are some of the positive impacts, quite frankly, that the pandemic may have created for us in terms of future outlook, primarily in migrating a lot of the late adopters and hold outs of digital banking. So we are pleased with that.

I'd say I'll just emphasize that through the pandemic, we continue to serve our customers and our communities. Beginning on March 11, we enacted our DR Program, which allows borrowers impacted by the COVID-19 the opportunity to extend their payments for 90 days. And this, quite frankly, is the same program we enacted after the hurricanes, more specifically, Irma and Michael. So we've treated these extensions similar to those, which adhere to the published regulatory guidance.

As of April 15, we provided payment relief to almost 5,400 customers, totaling $2.2 billion of outstanding loans across all types and all markets. This equates to about 17% of total loans as referenced on the slide deck on Page 15 of the presentation. In addition, we've been an active participant in the Paycheck Protection Program. The amount of work that all the participating banks, quite frankly, have done to serve the customers during this time has been amazing. I've heard from many of the CEOs talking about how much time and energy it took to get this program up and going, and I certainly echo those statements. But if you ever want to see teams come together, this is a perfect example of that.

We were successful during the first round, having about 3,200 loans approved for a total of $685 million. And then we expect to do about the same number of units during the second round, and hopefully, the President will sign that around lunchtime today, and we'll get started on that. But as it pertains to capital, we have suspended our stock buyback program. We did purchase approximately $7 million earlier in the quarter before we suspended the program but our focus remains on capital preservation and growing tangible book value as we look forward. As it pertains to dividends, we are obviously very comfortable with where we are today, but we'll continue to monitor that with the economy and the environment.

I'm pleased to say, Jon Edwards, our Chief Credit Officer, is with us today, and he's available to take any questions after our prepared remarks, but I did want to hit a few main points in terms of credit before I turn it back over to Nicole for the financial performance. Our annualized net charge-off ratio was 14 basis points of total loans. Our nonperforming assets as a percentage of total assets increased slightly to 61 basis points and that compares to 56 basis points last quarter. We have no exposure to oil and gas, and we've included additional details on our hotel and restaurant exposure in the slide deck of our investor presentation as well as kind of showing you the diversification across all the loan types within our portfolio.

I'll stop there and turn it over to Nicole now to discuss our financial results.

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [4]

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Thank you, Palmer. For the first quarter, we earned $19.3 million or $0.28 per diluted share. That includes a $41 million pretax provision for loan loss expense and a $22 million pretax write-down of our mortgage and SBA servicing assets. Both of these items are largely due to general economic conditions driven by the COVID-19 pandemic and market interest rate and are not a reflection of our underwriting standards, which we've adhered to throughout the cycle.

On an adjusted basis, we earned $39.2 million or $0.56 per diluted share and that's when you exclude the merger charges, the servicing asset impairment, COVID-19 charges, legal fees from the ongoing SEC investigation and the loss on sale of bank premises. It does not, however, exclude the large provision for loan loss expense related to the economic forecast and COVID-19 impact. As Palmer mentioned, we implemented CECL on January 1 of this year. So our day 1 adjustment increased the allowance for credit losses by $91 million and reduced our capital by a little over $56 million. Our first quarter provision expense or the day 2 adjustment, as it's been called, was $41 million. Approximately $37 million of that expense was related to loan credit losses and $4 million was an increase for unfunded commitment. We had approximately $4.4 million of net charge-offs during the quarter. And our ending allowance for loan loss at March 31 was $149.5 million compared to $38.2 million at the end of the year. Including the unfunded commitment reserve, our total allowance for credit losses was $167.3 million at March 31 compared to $39.3 million at the end of the year.

Our adjusted return on assets in the first quarter was 87 basis points, which was a decrease from the 147 reported last quarter, and our adjusted return on tangible common equity was 10.98% compared to 18.45% last quarter. Those declines in the ratios are due to the increased provision for loan loss expense just described. Tangible book value declined $0.37 from $20.81 to $20.44 during the quarter. The CECL day 1 impact was $0.81 of dilution. That was partially offset by the $0.12 of retained earnings, $0.31 of unrealized gains in the securities portfolio and $0.01 from everything else, including the stock buyback completed during the quarter before it was suspended.

Our tangible common equity ratio decreased 15 basis points to 8.25% from 8.40% at the end of the year. Our net interest margin declined by 16 basis points from 3.86% to 3.70% during the quarter. Our yield on earning assets declined by 26 basis points, while our funding costs only decreased 9 basis points. However, our total interest-bearing deposit cost decreased 12 basis points as we continue to stay focused on deposit costs. We saw a decline in accretion income compared to last quarter. Because if you recall, we had a large acquired nonperforming loan that was resolved last quarter and that nonaccretable discount came into income through margin. Going forward under CECL with similar circumstances, those favorable outcomes would run through provision instead of margins. Our core bank production yields declined to 4.55% for the quarter against 4.70%.

On the deposit side, we continued the momentum on noninterest-bearing deposits and improved our mix. So this noninterest-bearing deposits now represent over 30.5% of our total deposits compared to 29.9% at the end of the year and 28% last year -- the same time last year. Noninterest-bearing deposit production was over 27% of our total deposit production. Excluding the write-down of mortgage and SBA servicing assets, our growth in noninterest income was exceptional during the quarter. Our mortgage group continues to have strong production and earnings due to the interest rate environment. Excluding the MSR write-down, during the first quarter, revenue in our retail mortgage division grew over 40%, while the noninterest expense in that division grew just a little over 11%, causing significant improvement in their efficiency ratio. We also saw an increase in the gain on sale percentage as we expected. It went up to 2.88% this quarter, up from 2.60% last quarter.

For the company, our adjusted efficiency ratio increased to 59.87% for the quarter compared to 55.61% last quarter. The reduction in net interest income from the margin compression accounted for about 45% or 190 basis points of the increase. Total noninterest expenses were $138.1 million. However, when you exclude those adjusted management items, such as COVID-19, merger and conversion, our adjusted noninterest expense was $135 million, up about $16.8 million from last quarter. Approximately $4 million of that increase was in the lines of business and are attributable to income growth, mostly in the mortgage area that I just discussed.

As you can see on Slide 11, the remaining $13 million of increased expense is related to the core bank and administrative functions and includes things such as close to $3 million of FDIC insurance that we didn't have in the fourth quarter because of the credit, $2 million of additional audit and legal fees, almost $2 million of cyclical payroll taxes and 401(k) match that are always elevated in the first quarter, a little over $1 million of problem loan and OREO expense and $1 million related to FDIC callback, both of those -- majority of those are related to one of the loss share agreements. And then $1 million of increased fraud, forgery and DDA charge-offs. Many of these items are not expected to reoccur in future quarters. We're pleased with where we are in the Fidelity cost savings, but we're committed to cost-saving strategies and improving our efficiency ratio to offset that margin squeeze. On the balance sheet side, we were pleased with our organic growth, both on the loan and deposit side as our loan-to-deposit ratio ended at about 94.5%.

Organic loan growth this quarter was $275 million -- a little over $275 million or just about 8.5% annualized. The details of that production is in the investor presentation, but it was split among our bank segment and our lines of business. Our total deposits declined by $182 million, but we reduced our broker deposits by almost $200 million. So really, core deposits grew during the first quarter, which is when we usually have seasonal runoff of municipal and ag deposits. We remain focused on core deposit growth. And as stated earlier, our noninterest-bearing deposit production was over 27% of our total deposit production, which is exceptional. We continue to be well capitalized and feel comfortable with our capital levels, and our liquidity position remains strong. As Palmer mentioned earlier, we were approved through the PPP LS program and plan to use that to fund the PPP loan.

In addition, our current liquidity ratio is over 21%, which is more than double our policy minimum, and we have ample liquidity available to us.

With that, I'll turn the call back over to Palmer for closing comments before the Q&A.

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H. Palmer Proctor, Ameris Bancorp - CEO & Director [5]

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Great. Thank you, Nicole. Q1 was certainly an interesting quarter. When you think about it, January and February for everybody is showing great promise for growth in earnings and along came March with COVID. And now we're all focused, obviously, on the safety and security of our teammates and our customers. And while we're certainly operating in a new world, I think it's important for everyone to think in terms of probabilities and not binary outcomes. At Ameris, we remain well capitalized, well focused and well positioned to ride out the storm. And of course, we're in this for the long haul. And I remain very confident in our ability and our strength to get through this.

I'll turn it back over to Eric now so we can jump into any questions the group might have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Tyler Stafford of Stephens.

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Tyler Stafford, Stephens Inc., Research Division - MD [2]

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Can you guys hear me?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [3]

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Tyler, we can hear you.

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Tyler Stafford, Stephens Inc., Research Division - MD [4]

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Okay. Perfect. I wanted to start on credit for either Palmer or Jon. And just, I guess, better understand your assessment of the risk of the portfolio today, you've got -- obviously, you built the reserve this quarter, and you've got some portfolios that historically don't have any losses and then others that do. Just where do you see the biggest potential loss content driving from? And then conversely, can you highlight some of the areas that have historically not had any losses that you expect to withstand the storm relatively better?

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Jon S. Edwards, Ameris Bank - Executive VP & Chief Credit Officer [5]

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Tyler, sure, I would take that. The portfolio, we spent a number of years remaking the portfolio into what it is today, well diversified, quality sponsors, good equities in the right places and the right deals. I have confidence that our portfolio is going to withstand this. In terms of concern or questions, I guess, we've got an unprecedented time and what comes out on the back end of this is what we don't know yet. So will there be changes to codes in hotels that are going to have to be handled and things of that nature. So my focus really right now kind of relates to our retail portfolio and that includes accommodation, it includes the individual store locations, strip centers, anchored stuff. I mean we've got -- on that side, I'm not -- we've had a lot of our customer base that has taken advantage of the payment extensions. And so we really need to see the retailers back open, customers in and business getting back to usual. I mean that sounds pretty obvious, but I mean that's where it lies at the moment.

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H. Palmer Proctor, Ameris Bancorp - CEO & Director [6]

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And Tyler, the only thing I'll add to that is I do think that when you look at the path of the virus and the economic recovery, I don't think it's a one size fits all. I think a lot of it is going to be specific to certain geographies. Obviously, as many of you know, Georgia is opening back up today for the most part. So it will be an interesting test case, quite frankly, to see how everything performs, but people are anxious to get back to work. I don't think people fully appreciate the long-term damaging effects that this pandemic has had on companies, those certain types of sectors, long term. And I think that's to come. I think there are certain sectors that will immediately get back into business. I don't want to say they'll rebound to where they were. But I think there's going to be a lot of pain to be felt longer term than most people anticipate as we look out over the next several quarters.

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Tyler Stafford, Stephens Inc., Research Division - MD [7]

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Okay. Great. Jon, maybe I guess sticking with you or Nicole, I was hoping you guys could provide a little color on the underpinnings of your CECL assumptions and what went into the -- especially the economic forecasted portion of the reserve build this quarter?

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Jon S. Edwards, Ameris Bank - Executive VP & Chief Credit Officer [8]

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Certainly. So we used the Moody's forecast that was the March 27 date, I believe. I know you all have heard that over and over. That was the date that we utilized for the forecast model. And we looked at several scenarios, of course, that we believe had -- we used some judgment after sort of taking that model at its face to determine whether we thought things would be a little better or a little worse or whether that model was right on the money. So of course, we made some adjustments. I don't think, at that time, the full impact of many of the government programs, you can list them out from the PPP to the stimulus checks, the payment extensions that, of course, the banks have made, the SBA stepping up to make payments for those loans for 6 months, all of that was -- we needed to consider the impact of that and when that might would impact the loan portfolio. So we exercised a little judgment on the scenarios that we reviewed and determined the one that we felt like was most representative of the forecast period that we were looking at.

So that's the one we went with. We looked at -- Nicole and I've been talking about it from the most severe one that we reviewed for the -- the upper band of the CECL range that we reviewed was about 180 in terms of the loan loss reserve and another 29 in unfunded, so 210-ish. And so we were within -- it was $43 million on the upper end, but we were kind of right in the middle of the ranges that we reviewed based on that model.

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Tyler Stafford, Stephens Inc., Research Division - MD [9]

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Okay. That's helpful, Jon. And then lastly, Nicole, I wanted to shift gears over to the expenses. Obviously, lots of moving pieces here this quarter, but they were kind of well ahead of expectations. And I appreciate the details in the slide deck of what potentially may fall out in the run rate here. And I get that expenses from the mortgage comp inflated, but it does look like those other expenses were higher as well. So can you just kind of help us better triangulate kind of what should stick around, what's going to be the run rate? What's going to fall out? And kind of how you see the expense and efficiency migration kind of moving forward throughout the year?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [10]

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Sure. No, I appreciate that, Tyler. So -- and I -- hopefully, on Slide 10 in the presentation, I tried to break that down. I did go over it fairly quickly in the script. So about $4 million of the increase was related to mortgage. And when you look at the income statement for mortgage, that number, the $34 million, that excludes -- I mean that includes the MSR write-downs. So if you added that back into the segment mortgage and then look at their -- so their expenses went up about $4 million but their income increased significantly more than that. And that's really where we were able to finish the cost saves in the mortgage area and then really get their efficiency going. So exclusive of that $4 million, there was about another $13 million. About $3 million of it was the FDIC insurance that we didn't have in the fourth quarter because we had the credit. The $2 million is increase in audit and legal fees that we don't anticipate recurring, some of that had to do with the end of the year audit and some additional testing and some additional work that went in because of the material weakness. The payroll taxes in the 401(k) match, that's always very cyclical and has always increased in the first quarter. The problem loan, OREO and the FDIC loss share callback, those as well. Those were related to one of the loss share agreements that expired, and there was some lingering expenses that were deemed that were not going to be reimbursed by the FDIC and then also some additional callback.

Again the fraud, forgery, DDA loss, that was about almost close to $1 million increase but we are diligently working through. I mean there were some things. Sometimes you can't -- I hate to say like this, but you can't control some of the fraud and the forgery or DDA loss. And so we are certainly very cognitive of that, and we've put additional resources towards that. As a management team, we are committed to continually looking for cost saves and to become more efficient and to use technology, especially knowing that we have that margin squeeze that we need to, we either have to grow revenue or reduce expenses to get our efficiency ratio back in line. We're very cognizant of that, and we are reacting to that actively.

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Tyler Stafford, Stephens Inc., Research Division - MD [11]

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Okay. So if I just I guess add up some of those items that you highlighted here on Slide 10, is it around $4 million to $5 million that should not persist in the run rate going forward? Is that a rough ballpark?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [12]

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That's what -- I would say it's closer to $7 million to $8 million. These are the increased audit, the payroll taxes, the problem loan, the FDIC and the fraud. Obviously, the FDIC insurance is recurring.

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Tyler Stafford, Stephens Inc., Research Division - MD [13]

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Got it. Okay. So 1Q is inflated by $7 million to $8 million and should fall out. Okay. Go ahead.

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [14]

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Actually -- sorry, I wasn't -- I actually, on this slide, I had it broken down even more, all the way down to some items that were like $200,000 that I decided that was way too granular. And it really clogged up the slide. But there are some other things that were smaller. We still had some consulting fees related to CECL that will go away. We have some -- we actually had about $200,000 of an FHLB prepayment penalty because we were able to recoup that when the rates fell so quickly, and we already recouped that. So there was some other noise in there that were smaller pieces that would add up to get you closer to the $9 million to $10 million.

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Operator [15]

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Our next question will come from David Feaster of Raymond James.

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [16]

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I just wanted to follow-up on the CECL discussion and the factors that drove it. I mean I guess given your commentary, Palmer, and just some of the continued weakness in economic data that we've got in the second quarter, I guess how do you think about future reserve build, near term? Do you think you maybe get towards the higher end of that range that you were just talking about?

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Jon S. Edwards, Ameris Bank - Executive VP & Chief Credit Officer [17]

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Well, we will obviously continue to watch the economic forecast that -- from Moody's that we adhere to for CECL. I will say, I mean -- and we will make the adjustments as needed, of course, based on our portfolio. I will say, and I did mention Tyler is that there is a -- we still have $50 million worth of accretable discounts that are in the portfolio that are there to help support the reserve if necessary on those particular loans. So there is an additional piece to that. But I think it's a little early to see as we are maybe on the cusp of reopening certain places at least here in Georgia, to know for certain that we would need to have a reserve build up to that range. But obviously, we will watch it closely enough and make the adjustments if necessary.

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [18]

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Okay. That's helpful. And then just on the PPP program, I appreciate the commentary that you kind of expect a similar size in the second round. Are you talking in terms of dollars or loans? And then I guess, just generally, are you looking at this as a way to gain share? Are you only focused on your existing clients? And are you using this as a way to potentially drive deposits as well?

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H. Palmer Proctor, Ameris Bancorp - CEO & Director [19]

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Well, I will tell you, the second round will be the -- what I quoted there was more on the units, not the dollars. The second round, what we found is the dollar limit is actually lower than the first round. But we have done a very good job. The team has -- focusing in on taking care of our clients and -- first and foremost, and offering this program, and we do have some external noncustomers too that had participated in the program. But the majority of the loans that we've extended so far are existing customers with deposit relationships. And if they don't have a deposit relationship, certainly, this is a prime opportunity to ensure that you've got that deposit relationship for all banks.

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [20]

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Okay. That makes sense. And just lastly for me. I know there are a lot of moving parts, but just with FHLB balances being up, lower rates, CECL, just any commentary that you could provide us on the core NIM to help us think through how that might progress going forward, just in light of all the moving parts would be helpful.

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [21]

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Sure. This is Nicole. That's a great question, David. I'm going to be cautious on guidance, but I will tell you that mid-single-digit compression is possible going forward. And I'll split it up into kind of 3 components. First, on the loan side. About half of our variable rate loans have floors and about 75% of those have hit the floors. Production held in at 455 compared to 470 last quarter. And early slow -- early payoffs have slowed because of the economy. So those 3 things all affect the margin going forward.

On the funding side, you think about the Fed cut, the drastic Fed cut coming in late -- very, very late in the quarter. We made wholesale deposit reductions in March when the Fed cut. And we really continue to grind down any remaining above market deposits down as the -- kind of the Fed is that 0 rate environment, it becomes more acceptable kind of in the competitive landscape. In addition, we have a CD book that's repricing around 70 basis points average than where we are right now. And we're able to retain -- historically, we've been retaining about 75% of that as it reprices down.

And then you mentioned FHLB. That's a great point. The first quarter, it was about 162, and that's dropping to about 50 basis points. And I already mentioned about a $200,000 prepayment penalty that was a noninterest expense in order to get that to reprice down. And then the third component that I wanted to talk about was the PPP program and the impact that, that would have on our margin. We put in the slide deck kind of a breakdown of the fee category. About 50% of ours are the 3% loans, about roughly 15% or so is the 1%, and then about 35% to 37% is the 5%. So that gives us an average fee of about 3.44%. I know that the government has said these can be longer term, but we've done all of ours for 2 years and that would be the technical duration. We believe that they're going to pay off -- as the program anticipates that they will pay off less than that. So if we assume the weighted average duration of a year on the -- that would be a 3.44% fee plus a 1% rate. And we're going to fund that with the PPP LS program at 35 basis points. So that nets about 4% to 4.09% yield on $685 million of loan growth. So that will also affect the margin. So those are kind of the 3 key components, looking at the margin going forward. Does that help clarify, or maybe more color to what you wanted?

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [22]

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No, that's very helpful. So you're thinking the PPP loans stay on closer to a year?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [23]

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I don't. I'm being very -- I think -- I went the middle of the road. I mean I think that the expectation for most is that these are 6 to 9 months. The technical duration is 2 years for us or the coupon duration is 2 years. So I kind of went middle of the road on that and say if we average a duration of a year, assume that, that would be -- -- comes in over a year, that would be 340 -- around 3.44%.

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H. Palmer Proctor, Ameris Bancorp - CEO & Director [24]

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And David, it will be interesting too, to see how the secondary market opens up for the -- potentially for the sale of some of these. And if it allows the banks to sell the loans or to retain them, but that's yet to be seen.

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Operator [25]

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Our next question will come from Wood Lay of KBW.

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Wood Neblett Lay, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [26]

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Just a follow-up on the margin. You mentioned CDs were repricing about 75 basis points lower. I was just curious what percent of the CD portfolio was set to reprice in 2Q? And what percent would reprice in 2020?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [27]

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I do not know that I have that exact number in front of me, Woody, but I -- actually, I do, I'm sorry. So you need to know -- you want to know how much is in Q2? About 20%. And then the remaining for 2020?

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Wood Neblett Lay, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [28]

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Yes.

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [29]

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Also greater than 50%.

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Wood Neblett Lay, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [30]

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Okay. That's great. And then looking at the loan deferral program. I was just curious for any color surrounding the pace at these deferral requests came in, I would assume it was front-loaded around the mid-March period when the program was first initiated. But are you starting to see a slowdown in these requests over the past couple of weeks?

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H. Palmer Proctor, Ameris Bancorp - CEO & Director [31]

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That's a great question. The answer is absolutely. In the first 2 weeks, we probably have had 75% of what we did, and it has -- every day seems to be less and less. But the pace of that is well below what it was in that first 2 weeks.

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Wood Neblett Lay, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [32]

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Okay. That makes sense. And then last for me, it was interesting to see the 23% increase in the mobile banking users since self-quarantine. I was wondering if you have a sense if consumer behavior might be changing long term. And if so, would you reconsider Ameris' branch strategy, especially in the Atlanta MSA where Fidelity, you've had significant scale in that market? So I was just curious around that.

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H. Palmer Proctor, Ameris Bancorp - CEO & Director [33]

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Yes, absolutely, the answer to that. And I think what's encouraging for us is, as I mentioned in my comments earlier, there were a lot of late adopters to the digital technology. And a lot of them have been forced to utilize that in today's environment. And quite frankly, have become accustomed to it and like it. And I think it kind of changes behaviors across the board in many of our markets. And I think all banks right now are realizing they can do a lot more with less in terms of their full scope branches. So you may find branches that you may keep open, but it may be drive-through only. And then you can utilize the lobby for other initiatives, for instance, the mortgage office or investment group rather than having the full overhead and staffing in the branches. But branch optimization is something that all banks are looking at now, and this is a good opportunity for us to take a look at it.

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Operator [34]

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(Operator Instructions) Our next question will come from Christopher Marinac of Janney Montgomery Scott.

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Christopher William Marinac, Janney Montgomery Scott LLC, Research Division - Director of Research and Banks & Thrifts Analyst [35]

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Just wanted to drill down on the large amount of deferrals. How do you think about that as it pertains to risk ratings in the portfolio? Are these loans that kind of come and go from risk ratings or would they ultimately become kind of future classified? Just kind of curious how you think about that in the big picture.

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Jon S. Edwards, Ameris Bank - Executive VP & Chief Credit Officer [36]

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Well, it's a great question. And my take on the grading and you see it in the press release, not so much in the slide deck, but is an increase. You could see an increase in what is our grade 5, which is the lowest pass grade. I felt like that we needed to identify if there was weakness in the industry or the borrower to go ahead and make a grade change on it. But that doesn't necessarily mean that those are not -- are going to the watch list this next quarter. We're trying to be very purposeful in how we deal with the customers and what their issue is and so we will evaluate those as we go. And several -- the deferrals, I know Palmer's made this comment in the past, several, what you would say, very strong customers took advantage of the payment deferral because of the fact that when it was available and it was prudent to conserve cash during this period of time. So I don't think it necessarily just was an automatic negative across the board is what I'm trying to say. We didn't want to just say everybody is treated the same. But because of just looking at them as they came available, we did make some movement on the internal grades but within the past category. I don't know, I mean I can tell you that 20% of those will migrate on the watch list or whatever. But when the 90 days is up, and we have to consider whether to extend that further, we'll know more about the -- hopefully, by that time, we'll know more about the economics, the reopening of the economy and so on and so forth to be able to make a little bit better judgment.

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H. Palmer Proctor, Ameris Bancorp - CEO & Director [37]

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And Chris, this is Palmer. I think during the last downturn, deferment was kind of a bad word. And I think the difference is in this go around is, I view it more as a positive, especially when you start seeing a lot of these being front-end loaded because these are generally companies that are being proactive rather than reactive. And in anticipation of preserving liquidity and cash flow, and that's really what we saw a lot of our commercial customers doing on the front end, similar to a lot of the drawdowns we're seeing on some of the lines of credit. So to me, that's good cash management for them. And I view that as a positive as opposed to the last go around where you were getting a call at the 11th hour, and all of a sudden, they couldn't pay. So if we start seeing this continue to escalate in terms of the percentage of deferments, I think that takes it into a different category. But for right now, I think a lot of this was good business planning on part of a lot of our companies.

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Christopher William Marinac, Janney Montgomery Scott LLC, Research Division - Director of Research and Banks & Thrifts Analyst [38]

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Got it. Okay. That's very helpful. I appreciate both your comments there. And I know it's early, but can you talk about kind of new opportunities you're seeing with customers, either your existing ones, where you can deepen your wallet or just even new customers coming in the door that are getting overlooked by your competitors?

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H. Palmer Proctor, Ameris Bancorp - CEO & Director [39]

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Well, the biggest opportunity we've got right now is probably the PPP plan and not so much in terms of participating in the plan as it is. There are a lot of noncustomers that are upset with their primary banks that were not able to allow them to participate in the program or they did not receive funding. So we have received and have accepted numerous, I touched on earlier, the noncustomers that we had allowed to participate in the program. And the way that worked was, was you'd receive a call and several of these are meaningful companies with meaningful deposits, and they have not gotten any response or communication from their primary bank, and it's one of these situations that, listen, if you can get us in this plan, we will move our entire relationship over, and we have certainly taken advantage of that. And I think that's one of the benefits a lot of the smaller banks will have, regional banks will have from some of the other competition. So we've capitalized on that. We certainly will capitalize on the growth from the PPP plan. Mortgage continues to be a busy bright spot for us.

And quite frankly, when I look at the -- even the commercial opportunities, companies right now are open to having discussions with other banks, and we certainly keep that in mind from a defensive posture as well. But I think you'll find that while the growth component may not be there as much as we'd all like for banks as we look over the next couple of quarters, the retention component is going to be far more favorable. So you won't have a runoff that we had all been experiencing earlier this year and fourth quarter of last year. So I think retention is key. And quite frankly, this environment kind of allows us to do a better job of the retention piece. We've seen it on the deposit front. We've also seen it on the renewal front when it comes to loans and competition.

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Christopher William Marinac, Janney Montgomery Scott LLC, Research Division - Director of Research and Banks & Thrifts Analyst [40]

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Great. That's very helpful. And then just one quick one for Nicole. You mentioned the liquidity being double of your policy. Does that sort of stay in effect, Nicole, this quarter? Or do you think that will kind of add-back down as this quarter plays out?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [41]

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No, I hate to give any guidance because if you had asked me last quarter, if we would have had a pandemic, I would have never said, yes. So we anticipate keeping our liquidity keeping as fluid as we can for a little while so we get through this.

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Operator [42]

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This concludes our question-and-answer session. The conference has now concluded. Thank you very much, everybody, for attending today's presentation. You may now disconnect.