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Edited Transcript of ABCB earnings conference call or presentation 26-Jul-19 2:00pm GMT

Q2 2019 Ameris Bancorp Earnings Call

MOULTRIE Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Ameris Bancorp earnings conference call or presentation Friday, July 26, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* H. Palmer Proctor

Ameris Bancorp - President, CEO & Director

* Jon S. Edwards

Ameris Bancorp - Executive VP & Chief Credit Officer

* Nicole S. Stokes

Ameris Bancorp - Executive VP & CFO

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Conference Call Participants

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* Brady Matthew Gailey

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

* Casey Cassiday Whitman

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research

* 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

* Jennifer Haskew Demba

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Tyler Stafford

Stephens Inc., Research Division - MD

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Presentation

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Operator [1]

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Good day, and welcome to the Ameris Bancorp's Second Quarter 2019 Financial Results 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.

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

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Thank you, Nicole, 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 new 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 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, its early developments or otherwise, except as required by law.

Also during the call, we will discuss certain non-GAAP financial measures in reference to our 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 - President, CEO & Director [3]

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Thank you, Nicole, and thank you to everyone who's joined our second quarter 2019 earnings call today. This is my first earnings call as CEO of Ameris, and I'm excited to share not only my thoughts on earnings, but also my thoughts on strategy and integration as we go forward. Nicole is going to get into financial details in a minute, and I don't want to steal her thunder, but I do want to hit some of the highlights for the quarter.

We are in $45.2 million or $0.96 per diluted share on an adjusted basis, which is up 30% compared to the second quarter last year. This represents a 1.56% return on average assets and an 18.79% return on tangible equity. Our efficiency ratio improved to under 54% in the second quarter compare to over 57% at the same time in 2018. We had strong loan growth in the quarter as well as organic deposit growth, which I know Nicole will elaborate on.

And in summary, we're very pleased with these operating ratios, and I'm proud to be a part of the team that deliver these types of results in the future. In addition to the strong financial results in the second quarter, there's a lot of activity at Ameris. During the quarter, both Ameris and Fidelity received all approvals, both shareholder and regulatory, to complete our merger, and we officially merged on July 1.

As you know, on that same day, I became just the fourth CEO in the company's history, but my Ameris story started well before July 1. For the past 6 months, I have had the pleasure of working with the management teams on both the Fidelity and the Ameris side as we integrated our plans. And one of the things that made this merger work so well was our similar cultures and our willingness to look at all the processes and to put the egos beside us and decide the best integration option for the combined company, which is exactly what we're doing. And being so involved in those discussions makes it easy for me to say that I remain 100% committed to our original plans as we've stated.

On that note, I did want to speak briefly on our integration process with the legal close behind us, we have definitely turned our attention to system conversions and data integration. Our primary focus being mitigating the potential customer impact, I have been very impressed with how our operations teams are working together to be successful on that front, and we're on track for system conversion in the first weekend of November as we had originally planned. And that's a great lead into the inevitable M&A question. So I may as well touch on that right now. We as a management team are fully focused on the Fidelity integration and also on our organic opportunities we have within our markets due to a lot of the disruption. That being said, we are out for the M&A market for at least 4 to 6 quarters. We have a plan for successful integration and realization of cost saves identified by our combined management teams, and we intend to maintain our focus on that opportunity, so that we can deliver consistent disciplined results for several quarters. There is a tremendous amount of work to be done to be successful, and we don't plan on getting distracted with any M&A opportunities that may be out there.

Now I'll stop there and turn it over to Nicole to discuss some of our financial results in more detail.

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

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Great. Thank you, Palmer. As you mentioned, today, we're reporting adjusted earnings of $45.2 million or $0.96 per share for the second quarter. These adjusted results primarily exclude about $3.5 million of merger charges, $2.8 million of loss on branch buildings and a $1.5 million MSR impairment. Including these items, we're reporting total GAAP earnings of $38.9 million or $0.82 per share. The $0.96 per share operating or adjusted EPS represents a 30% increase over the $0.74 per share we earned in the second quarter last year. And as we stated previously, we projected that the Atlantic Coast and the Hamilton acquisitions that we completed in second quarter of last year would be 12% accretive to EPS. This is similar to the first quarter. We had better-than-expected results with that 30% increase, especially considering that we had Atlantic Coast for part of the second quarter last year.

Our adjusted return on assets in the second quarter was 1.56%, which was an increase from the 1.38% reported second quarter last year and above our goal of 1.50%. Our adjusted return on tangible common equity was 18.79% in the second quarter of this year compared to 17.26% for the same period last year.

And I was really pleased with our increase in tangible book value this quarter. We ended the quarter with tangible book value per share at $20.81. That's an increase of $1.08 per share during this quarter and an increase of $3.69 when compared to the same time last year. That's a 20% increase year-over-year in tangible book value, while absorbing the effect of 2 acquisitions last year and approximately $10 million of stock buyback during the most recent quarter.

Our tangible common equity ratio increased 22 basis points to 8.68% and even with the small amount of dilution we expect from Fidelity, we expect that our capital build will continue and that we will still plan on finishing 2019 with growth in tangible book value at somewhere in the mid-double-digit range.

Our GAAP net interest margin declined by 4 basis points during the quarter. We're turning to the 3.91% that we reported in the fourth quarter of last year. Margin excluding accretion decreased the same 4 basis points coming in at 3.79% compared with 3.83% last quarter.

During the second quarter, our yield on earning assets remained steady at 4.95% while our funding costs increased 5 basis points during the quarter. We continue to remain focused on our deposit costs, but we do believe we will seek some margin compression in the short term as we work to integrate Fidelity.

When you look at our margin as we grow the rates up, our margin was stable. We had a few basis point increase here and there and then a decline, but we were consistently stable due to our balance sheet sensitivity being so close to neutral.

Our core bank production yields declined to 5.49% for the quarter against 5.78% in the first quarter that increased from the same quarter last year. As we talked about last quarter, we became a little more competitive on pricing this quarter to offset some of the large payoffs we incurred in the first quarter while maintaining our underwriting standards.

On the deposit side, we continued the momentum on noninterest-bearing deposits, and we improved our mix such that noninterest-bearing deposits now represent almost 29%. I have to say 28.92%, but I'd like to round that to 29% of our total deposits compared to just 28% at the end of the first quarter and less than 27% this time last year.

Noninterest-bearing deposit production was 20% of our total deposit production this quarter. Noninterest income was strong as our lines of business continue to provide exceptional financial results.

During the second quarter, mortgage revenue grew over 26% compared to the first quarter of this year and over 20% from the same period last year. Mortgage production actually hit an all-time high for us, although we saw a small decline in the gain on sale percentage to 3.11% this quarter, down from 3.18% in the first quarter, but significantly better than the 2.94% seen at the same time last year.

Our warehouse lending division continues to deliver top results as they increase production by over 39%. The production was at a slightly lower rate, but they still improve their profitability by over 12%. We believe these mortgage divisions combined with the Fidelity mortgage groups can continue to provide strong financial results for us as they're in full swing of integration to become the mortgage leader in the southeast.

Our adjusted efficiency ratio continue to see improvement and was 53.77% in the second quarter of 2019 compared with 57.53% in the second quarter of last year and 55.12% in the first quarter of this year. Total noninterest expense was $81.3 million for the quarter. However, when you remove the margin targets in the loss on sale branches, adjusted noninterest expense was $74.9 million, up slightly about $2.6 million from the first quarter. The cyclical increase in mortgage salaries and commissions in the second quarter was $3.9 million of that difference and more than explains it. However, the company also did incur approximately $1.1 million of extra consulting fees during the quarter. That related to fee for implementation, call center integration and other consulting services, which we do not anticipate to be recurring in the future.

I feel the need to add some color here on the integration of Fidelity and the cost savings that we've identified. We've mentioned the 40% cost savings numerous times and I realize that, that's a big number and can look unreasonable. However, I assure you that we're fully aware of the tax at hand and we have a plan. We're going into this with an integration state of mind and not a data conversion state of mind. This is a full integration of like-minded cultures with repositioning of the balance sheet and operating processes to maintain our financial goals and efficiencies without affecting customer service. The 40% cost saves can be split into 3 general categories. Approximately 45% of the cost saves will be gained through administrative overlap and efficiencies; approximately 25% of the cost saves are driven from retail overlaps, which includes some branch closings as well as efficiencies in our branches from process changes. These process changes will not affect customer service or the managed approach away during business. The remaining 30% of the cost saves are result of lines of business integration such as mortgage, indirect auto and SBA lending. There are some things that Fidelity does more efficiently than ours and there are some things that we did more efficiently than them. We are working together to insert that we hit the target on the cost-saving plan, and these savings include not only personnel changes, but also system and technology changes.

Moving on to our tax rate. Our effective tax rate increased to just over 23.5% this quarter, but that was really due to the nondeductible acquisition costs, and we continue to expect that our tax rate will be in the 22.5% to 23.5% going forward.

On the balance sheet side, we had exceptional loan growth this quarter as organic loan growth came in at $581 million or just over 28% annualized. The details of this production have been added to the slides in the investor presentation, but it would split among our bank segment and our lines of business. Net growth was divided across the banks with about 30% of it in the core bank and the remaining gross split between Mortgage and warehouse, Premium Finance and our specialty lines or C&I.

Credit quality remains strong, although we continue to monitor it very closely. Our annualized net charge-off ratio was 7 basis points of total loans and 11 basis points of nonpurchased loans. Our nonperforming assets as a percent of total assets decreased to 51 basis points compared to 67 basis points at the same time last year.

The diversification across loan type and geography as well as how the Fidelity acquisition continues to help its diversification can be seen in the loan slides in our investor presentation. We continue to see strong deposit growth in the second quarter. We had approximately $310 million of brokered CD matured in the last 2 weeks of the quarter that we did not renew. Excluding those maturities, our core deposits increased $91.4 million during the quarter.

Our year-to-date loan growth was $538 million, and our year-to-date deposit growth was $254 million including the outflow of seasonal deposits that will flow back in before year-end at approximately $275 million. So I say all that to show how we continue to fund our growth organically through both loan and deposit growth.

With that, I will turn the call back over to Palmer for closing comments.

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

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Great. Thank you, Nicole. I have a few general closing comments that I would like to make kind of as the new CEO that I'd like to share with you this morning, and there are couple of attributes that I've always admired about Ameris from afar over the years and first and foremost is the strong established culture that this bank has had. Second is the -- I am honored to be working with this management team. I mean when I look at the depth and the expertise that we have here, it's incredible and it excites me. And of course, last but not least is their financial acumen. The kinds of results that we're discussing today, they don't come easy, and it's a result of a lot of planning, dedication and training. And it is important to us that everybody in the company understand our financial results and how their decisions impact those results from our bankers to our LION business to our operations and administrative support.

This is the culture and the financial discipline that we intend to fiercely protect. And while there's a lot of change and integration at our company right now, the one thing that will not change is the Ameris drive for success, as we remain dedicated to delivering solid results for our shareholders.

I'd like to thank everyone again for listening to our second quarter earnings results, and we look forward to the rest of 2019 and what it holds for us.

And I'll now turn it back over to Nicole for any questions from the group.

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Questions and Answers

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Operator [1]

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

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

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I wanted to start on Slide 23 with the net interest margin expectation in the third quarter with the impact of Fidelity. So low double-digit margin compression with a 25 basis point cut that includes the PAA impact. So that should be clear, so the GAAP margin of 3.91% in the second quarter you expect, call it, 10 to, I guess, 13 basis points, somewhere in that range step down inclusive of the rate cut in the third quarter?

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

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Sure. Tyler, that's a great question. So I'll touch a little bit more on the margin. So our GAAP margin was 3.91% in the second quarter and when you roll in second quarter Fidelity into that, our margin would have been 3.80%. So we have about a 11 basis point compression there. We have some tailwinds coming into the third quarter as well as some headwinds coming into the third quarter. Some of our tailwinds coming in is that we have our direct runoff, the indirect auto runoff that's going to come into some higher-yielding loan mix. We also have the increase in our noninterest-bearing DDA -- our nonrate-bearing DDA, sorry, and then also our wholesale funding that I touched on. We have about $500 million of brokered CD that were at a 2.50% rate. $310 million of that decline paid off in the end of the second quarter and the remaining $190 million all matured already this year -- this quarter so far in July. So that's about $500 million that we've put into a short-term FHLB, advanced with about a 20 to 25 basis point compression and that will reprice almost immediately when -- if the Fed cut. So we've got some good tailwind coming in there. We also have when you think about the indirect auto there at 3.50% margin, you think about basically 1/3 of that portfolio is being funded by this 2.30% -- say, 2.30% FHLB event. That's only about 100 and 120 basis point spread on that piece. So if we do not redeploy that into higher-yielding assets, we can pay off those short-term FHLB advances and pick up a little bit on our spread and our margin there as well. So kind of 2 options, both are tailwinds.

We do have some pullback or some headwinds. We do have in that, like you said, a 25 basis point Fed cut included. So we do have the headwinds and the tailwinds.

And then on the accretion side, so that was kind of a GAAP margin that you're exactly right that would come into low double-digit in that 10 to 11 range. And then on the kind of core margin excluding accretion, we do have some additional accretion coming in with Fidelity. It has slowed a little bit. We're still -- obviously, we're only 25 days into the acquisition, and we're still finalizing all of our day 1 purchase accounting with our third-party consultant that helps us on our fair value, but I will say that the indirect auto portfolio, when we first modeled this, we had a larger discount and there is good and bad to that. The bad being is that, that will decrease our accretion going forward. The good being we don't have that mark upfront, and it saved some tangible book value, day 1. We kind of -- we get that back day 1 as opposed to over the course of those -- that portfolio. That was probably a long-winded answer to your margin question.

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

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Yes, that was great. I just want to clarify a couple of things. So what would be the roughly ballpark kind of scheduled accretion that you expect to see in the third quarter?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [5]

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So we have it penciled right now between -- we were about $3.1 million in the second quarter, and we have that penciled next quarter to be between $4 million -- roughly $4 million to $4.5 million.

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Tyler Stafford, Stephens Inc., Research Division - MD [6]

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Okay. So similar, I guess, 12 basis point accretion impact to the overall GAAP margin similar to the second quarter. So then the core -- I just want to make sure I'm understanding this right, so the core margin would step down in tandem with the GAAP margin step down about 10 to 11 basis points.

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [7]

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Yes. I think the GAAP -- the core margin excluding accretion might be 1 or 2 basis point better than the GAAP margin, the decline. So I said in the slides low double-digit excluding purchase accounting, so that would be on the very low end of double-digit and then GAAP margin to be a little bit 11 to 13.

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Tyler Stafford, Stephens Inc., Research Division - MD [8]

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Got it. Okay. And then just, Nicole, how should we think about future rate cuts and the impact of the margin that does not have...

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [9]

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Sure. Yes. So future rate cuts, we use just about a 50% deposit data for those rate cuts. It's about 6 to 7 basis points for every rate cut. But again, I do want to caution that, that would be, if the balance sheet was static going forward when I look at fourth quarter into first quarter. Again, we have the indirect auto running off, we have some deposit growth, we always have deposits that come in -- the cyclical deposits that come in in the fourth quarter. So I don't -- I would guide less than 6 basis point with second rate cuts.

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Tyler Stafford, Stephens Inc., Research Division - MD [10]

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Okay. It's very helpful. And then just going back to, I guess, one of the earlier slides. Slide 4, just the headline of the slide of confidence in 2020 financial expectation. I just want to, I guess, get kind of the frame of reference for that tax. Is that pointing to, I guess, consensus 2020 estimates that you guys have confidence in that number right now because around $450 million, is that what you are alluding to? Or is it just more underlying fundamentals of the combined franchises?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [11]

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It is both. But yes, that is showing that we still believe that we are able to obtain that.

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Tyler Stafford, Stephens Inc., Research Division - MD [12]

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Okay. Very helpful. Palmer, welcome aboard. And we'll talk to you guys soon.

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H. Palmer Proctor, Ameris Bancorp - President, CEO & Director [13]

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Thanks, Tyler.

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Operator [14]

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Our next question comes from Casey Whitman of Sandler O'Neill.

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Casey Cassiday Whitman, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [15]

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Nice quarter. Nicole, last quarter, you gave an expense guidance 2020. I think it was around $420 million to $430 million. Has that moved up a bit just with new hires? Are you still comfortable in that range? And then another question on expenses would just be, sort of, what's your outlook for the efficiency ratio with the cost takes fully in there?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [16]

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Sure. So Casey, the $420 million to $430 million that is still our guidance going forward. We did have bake in already about 10 -- I'd say, 10 bankers. Some of that is attrition and some of that is new bankers, but some of that attrition we might reallocate those resources from other markets into a more metropolitan, might be a little bit more extensive market, but all of that was built into that $420 million, $430 million, so we still support that. Again, I think your question was efficiency ratio going forward. And we guided in the slide that we are -- we foresee obviously third and fourth quarter, we still have that overhang, especially third quarter. With the Fidelity acquisition, we still have 2 loan operations, 2 accounting departments, 2 with a lot of functions. And then the data conversion is set for November 1. So keeping our efficiency ratio under 60% for this year and the next year 2020, 52% to 54% efficiency ratio fully baked in cost base.

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Casey Cassiday Whitman, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [17]

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Got it. And then the 10 bankers or so you just referenced, is that on top of the -- I think you guys last quarter were talking about hiring maybe 20 or so or is that included in that?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [18]

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That's the same. That's kind of a net 10. So talking to maybe 20, but we know we have some of that are retiring. We'll have some natural attrition and so that would be a net 10.

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Casey Cassiday Whitman, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [19]

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Okay. Got it. And then just a question about the growth here. Can you remind us just how much you're expecting from the auto runoff from LION? And then what you sort of expect going forward the split to be in growth between the bank segment versus the various lines of businesses?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [20]

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Absolutely. So the indirect runoff is about -- expected this year about $300 million for the rest of this year and then about $700 million for next year. That portfolio was around $1.3 billion, $1.4 billion at the end of June or beginning of July. And so we still -- so that will take it down about $1 billion by the end of 2020, so about 2/3 of it will be gone by 2020. And then as far as segment growth for the future, when you take the Fidelity, our mortgage area has grown about 17%, warehouse is about another 5% to 6%, so that's about 20% to 22% mortgage and warehouse lines combined. When you put Fidelity in that, that bumps up to about 25% to 27%. We really are comfortable with that staying more in the 20% to 22%. So we do expect the bank to have additional -- to grow the bank further. We also add in -- the Fidelity has a wealth department, so that will pick up about 1% of our earnings. Premium Finance is about 5%. SBA is about 5%. And then again mortgage in the bank is remaining, about 70% to 75% bank and then 20% to 25%. Mortgage is about 20% and warehouse is about 5%.

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Casey Cassiday Whitman, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [21]

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All right. Great. Helpful. And then -- and the last question for me, I'll let someone else to hop on. You guys repurchased some shares this quarter. Just maybe can you talk about how aggressive you plan to be in using that actually in the future?

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H. Palmer Proctor, Ameris Bancorp - President, CEO & Director [22]

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Yes, Casey, I'll answer. This is Palmer. As we said last time, I wouldn't be surprised we did or didn't show up with additional purchases, we got the authorization out there and clearly executed on some of that this past quarter. At the same time, we're aware of capital preservation as well, so we've got that as a trigger to pull if we feel it's appropriate. But right now don't anticipate any buybacks at the moment.

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Operator [23]

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Our next question comes from Brady Gailey of KBW.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [24]

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So I just wanted to ask about the loan growth in the quarter. We saw flat loan balances for the last couple of quarters and then almost 30% growth this quarter, which was great to see. Maybe just talk about the dynamics as far as what boosted loan growth so much this quarter? I think I heard you talk about how maybe you are a little more competitive on the pricing side. What drove the outsized loan growth in 2Q versus kind of flat before that?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [25]

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Sure. That's a great question, Brady, and I want to make sure everybody understands that, that 28% annualized loan growth that we had in the second quarter is not expected for the rest of the year, and we did add some color in our slides as well because I think that the great concern is that people might have is that sounds like a really aggressive loan growth and it really came from several segments.

So we have the bank. We had quite a bit of production in the first quarter that did not find until the second quarter. If you remember when we talked about first quarter, we had all those large pay-offs that came in right at the end of the quarter, and we had a great quarter of production, but some of that doesn't fund. We fund about 68% of our production, and so we are working towards figuring out products that have a little bit higher production rate or funding rate from production. So a lot of that was just production from the first quarter. We also had an outstanding month of -- quarter of production at the bank level. So that was about 30% of the production.

Warehouse loans was about $165 million of the production, and that's really what warehouse and mortgage together just a really strong, which is very cyclical. Second and third quarter is always strongest for those. So we have that coming in. And then we also had C&I picked up and Premium Finance has picked up. We've kind of got some of the -- we have a new sales manager. We have a new President. That's really picked back up where we kind of had some -- a little bit of runoff in that division prior, and they've really picked back up. So again, it's diversified. It's not all in one place. It's not -- I think Jon did a great job of adding some details in the slides about that production, loan size, credit quality of those loans and that it's really diversified, it's not one big bucket anywhere.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [26]

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All right. That's helpful. And then I heard in your prepared remarks your ROA target had been 1.50%. You're operating over that now and that's going to go up as you integrate LION. You're comfortable with 2020 numbers, which -- and if you look at that $450 million in 2020, I think that is roughly like a 1.75%, maybe even a little bit better ROA. So is that the right way to think about kind of the ROA going forward somewhere in that 1.75% range plus or minus a little bit?

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

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No. Brady, it pains me to say this, that, that's how the math works out. And it's almost goes back to that same thing that it's hard for me to commit to an ROA that high just like it's hard for me to commit to an efficiency ratio below 50%. 1.30% ROA is good. A 1.50% ROA makes our people uncomfortable. A 1.60% is difficult. A 1.70% is painful. And -- so I think there is a happy medium somewhere between 1.50% and 1.65%. I don't know that we would be at a 1.75%, though there will be something that will come up. There will be some resource, some area, some new compliances. There will be something that we need to dedicate resources.

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Operator [28]

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Our next question comes from Jennifer Demba of SunTrust.

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [29]

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Looking at your slide deck, on one of your slides, it says -- did you purchase some loans during the second quarter as well?

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H. Palmer Proctor, Ameris Bancorp - President, CEO & Director [30]

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Yes, we did, Jennifer, about $130 million worth.

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [31]

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Okay. Can you give us some details on those loans just some color and your likelihood to purchase in the future?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [32]

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Part of this as well and I'm going to let Jon deliver some of this credit, but I did want to mention some of this was an opportunity that we had in knowing that that's going to be about the runoff of indirect in this next that we've got some of that. So some of this loan purchase was a little bit of starting of the balance sheet repositioning from the indirect into a higher-yielding asset. And then Jon, I didn't mean to interrupt you, if you want to?

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Jon S. Edwards, Ameris Bancorp - Executive VP & Chief Credit Officer [33]

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No, it's quite all right. And this purchase had been in the works for a while, Jennifer, so it just materialized in the second quarter. It doesn't mean necessarily that we're out looking for portfolios to purchase every quarter. It just happened to be one that we'd been working on for a little while. On Page -- on Slide 20 though, Jennifer, at the bottom right-hand corner, I'll try to give a little color about what those loans were. Average loan size is less than $100,000. The rates are good. We didn't buy any past dues or problem loans with those. So -- and it fit into a risk profile that we'd -- it looks a lot like loans that we make today organically. So we were okay with the purchase.

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [34]

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Okay. And was -- were those from a former Georgia Bank?

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Jon S. Edwards, Ameris Bancorp - Executive VP & Chief Credit Officer [35]

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Yes.

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Operator [36]

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Our next question comes from David Feaster of Raymond James.

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [37]

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I just wanted to clarify the loan growth guidance. Is that mid-single-digit growth guidance annualized? And it's on total loans pro forma for Fidelity ex warehouse?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [38]

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No, it's not ex warehouse. It's ex the -- well, loans held for sale. Is that what you mean by warehouse?

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [39]

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Yes. Yes.

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [40]

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Yes. Yes. So -- yes, that's correct.

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [41]

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Okay. So it's mid-single digits annually. Got it. Okay. And then -- I'd like to -- your noninterest-bearing deposit growth has been really impressive. Could you just talk about your deposit growth strategy? What's driving the noninterest-bearing growth? And I guess as a follow-on, given the brokered CD pay down and everything, do you think deposit costs have peaked here? And I guess just where you -- where do you think about -- where do you think deposits -- how do you think about deposit growth going forward? And where you're comfortable with that loan-to-deposit ratio?

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H. Palmer Proctor, Ameris Bancorp - President, CEO & Director [42]

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David, I'll take that one. This is Palmer. The -- we're encouraged by -- and part of the reason we're encouraged by is when you look at a lot of the growth that we are experiencing, a lot of it's coming in on the commercial side, which historically and traditionally for both our banks has brought in good core funding in terms of relationship deposits. And at the same time, we've been successfully running off a lot of our higher cost deposits. I do think with the anticipated debt cuts that we'll be able to make some adjustments there on our cost side. I do think deposit costs for us will continue to improve, as we move forward through the remainder of this year. And in terms of the loan deposit ratio, it did increase this quarter, but we're very comfortable with where we are.

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [43]

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Okay. Terrific. And then, I guess, just on asset quality, is there anything in your footprint that you're seeing that you're kind of slowing down. You've talked in the past about seeing some stretching on terms and underwriting standards. Did that abate at all in the quarter? Or again just kind of your general pulse in the market?

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H. Palmer Proctor, Ameris Bancorp - President, CEO & Director [44]

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Well, I think you have to look at each market individually, but the 2 primary markets for us been Atlanta and obviously, Jacksonville and parts of Florida. We are seeing a lot of competition out there in terms of structure, but in terms of underwriting and asset quality, we aren't seeing many people compromise on that front. You are seeing extended terms and obviously, aggressive pricing, but fortunately for most of our competitors out there, we're not seeing people making loans that they shouldn't be making. It's just the structure of those is far more competitive in today's market.

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Operator [45]

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(Operator Instructions) Our next question comes 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 [46]

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Nicole, you had mentioned in the ROA comment a few callers ago just about the idea of resources. And I was curious if that is more systems-based than it is branches or would it be kind of all the above?

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Nicole S. Stokes, Ameris Bancorp - Executive VP & CFO [47]

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No. We don't see any really growth in our branch network. There may be some analysis as far as if we have one branch in an area then another branch possibility in a better area that we might have a mover branch potentially. I mean that would be the closest that we would come to any new branches. And so it really would be on the kind of resource side, the administrative, compliance, technology, any kind of resources that we need to allocate there to become more efficient.

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Christopher William Marinac, Janney Montgomery Scott LLC, Research Division - Director of Research and Banks & Thrifts Analyst [48]

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Okay. Great. And then Palmer, as you think about capital allocation in the future way beyond the next couple of next quarters, to what extent, the dividends play a role of decisions you may make? I'm just sort of wondering -- if you could elaborate more on buybacks just well beyond the conversion time?

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H. Palmer Proctor, Ameris Bancorp - President, CEO & Director [49]

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I mean, to address the buyback upfront, that right now is certainly, as I mentioned, we've got the availability to do so but -- and that's a trigger we can always pull, but I don't anticipate any buybacks in the near future right now. And in terms of our capital allocation moving forward, I think what you'll see is, when you look at the balance sheet and that's one of the most intriguing things about this opportunity here with the combined companies is the diversification in the balance sheet. But -- where we'll start a channel and a lot of that capital is allocated towards the commercial front. That's where you'll see the probably the strongest allocation on a go-forward basis.

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Christopher William Marinac, Janney Montgomery Scott LLC, Research Division - Director of Research and Banks & Thrifts Analyst [50]

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And as that happens, that could be sort of margin-friendly for you as you sort of rightsize various parts of the loan and owning asset mix. Is that kind of a fair impression?

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H. Palmer Proctor, Ameris Bancorp - President, CEO & Director [51]

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Yes, from both sides of the balance sheet, right? Because unlike our indirect portfolio, which generated very little in the way of core funding, the commercial side certainly contributes to that and improves -- helps improve the NIM.

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Operator [52]

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(Operator Instructions) This concludes our question-and-answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.