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Edited Transcript of ABCB earnings conference call or presentation 21-Jul-17 2:00pm GMT

Thomson Reuters StreetEvents

Q2 2017 Ameris Bancorp Earnings Call

MOULTRIE Aug 12, 2017 (Thomson StreetEvents) -- Edited Transcript of Ameris Bancorp earnings conference call or presentation Friday, July 21, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dennis J. Zember

Ameris Bancorp - CFO, COO, Executive VP, CFO of Ameris Bank and Executive VP of Ameris Bank

* Edwin W. Hortman

Ameris Bancorp - CEO, President, Director, CEO of Ameris Bank, President of Ameris Bank and Director of Ameris Bank

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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 - Director, Equity Research

* Peyton Nicholson Green

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* Tyler Stafford

Stephens Inc., Research Division - MD

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Presentation

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Operator [1]

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Good morning, and welcome to Ameris Bancorp Second Quarter 2017 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over Mr. Dennis Zember, Chief Operating Officer. Please go ahead.

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Dennis J. Zember, Ameris Bancorp - CFO, COO, Executive VP, CFO of Ameris Bank and Executive VP of Ameris Bank [2]

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Thank you, Phil. And thank you to all of you for joining us on today's call. During the call, we will be referencing the press release and the financial highlights that are available on our Investor Relations page on our website at amerisbank.com, or the SEC's website.

I'm joined today by Ed Hortman, President and CEO and Nicole Stokes, our Bank's Chief Financial Officer. Ed now will be making most of the opening comments and we'll all be available for Q&A after we're done. 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 materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update these statements as a result of new information, early developments or otherwise, except as required by law. During the call, we will discuss certain non-GAAP financial measures in reference to the company's performance. And we have a pretty exhausted reconciliation of these measures and our GAAP financial measures in the appendix to our presentation. And with that, I'll turn it over to Ed Hortman.

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Edwin W. Hortman, Ameris Bancorp - CEO, President, Director, CEO of Ameris Bank, President of Ameris Bank and Director of Ameris Bank [3]

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Thank you, Dennis. And good morning, everyone. I would like to thank you, as well for joining us this morning in our second quarter earnings call. We're excited about the updates we'll would provide you this morning and proud of the kind of the quarter that our bankers produced. I'll discuss briefly the results and then provide an update on BSA/AML. I am proud to report our sixth consecutive quarter with top quartile operating ROA. We've been focused on several initiatives, but achieving consistency in quality earnings metrics in earnings growth is at the top of our list. We're reporting operating earnings of $23.5 million or $0.63 per share for the second quarter 2017. Earnings are higher by about 15% when compared to the same quarter last year. Our earnings per share is higher by about 8% and reflects the impact of the capital raise we completed in the first quarter. Our operating results differ only slightly from the actual results in the quarter and as a result of about $371,000 of after-tax losses, we had on the sale of previously closed branches. Our operating ratios were mostly steady in the second quarter. Operating return on assets came in at 1.32% compared to 1.33% in the same quarter in 2016. Our reported margin including accretion tightened by 6 basis points to 3.95% as the level of accretion continue to decline, but we more than made up for this decline with the approved operating efficiency.

Our operating efficiency in the current quarter improved to 59.37% compared to 61.93% in the same period a year ago. Tangible book value increased nicely to $17.24 per share and our tangible capital ratios were substantially unchanged during the quarter despite the strong growth we're reporting.

We forecasted organic loan grow during the year to come in around 20% in our year-to-date growth rate were slightly ahead of those expectations. We started the year off on a slower pace, but had a very impressive second quarter with organic growth of $391 million or 32% annualized. For the year-to-date period, we've grown organic loans at a 21% pace. The growth was diversified and not solely limited to 1 asset class, we had impressive growth in our lines of business that are C&I oriented and CRE and then residential lending. Because we're not focused predominantly on 1 asset class, our CRE concentrations were stable at 229% and C&D with 73%.

Dennis will give a little more color on the asset growth and on deposit growth. What surprising to say we're still not funding as much of our loan growth with low-cost core deposits as we would like. During the quarter, we grew deposits by about 10.4% annualized or just over $150 million. We're more confident in our competitiveness on CD and money market pricing at the end of the quarter than we were earlier in the year. We've forecasted we would be more aggressive on deposit pricing as loan yields new tier and this is what we experienced in the second quarter.

Our margin excluding the effect of accretion was 3.77%, tighter by a couple of basis points against the late quarter when we reported 3.79%. All this decline resulted from the higher cost associated with our subordinated debt offering, which we completed late in the first quarter. We saw an update increase in loan yields and yields on earning assets that we were able to move more dramatically on deposit cost and believe that we will be able to materially improve our competitive position on deposits without materially impacting our margin. I expect that we would be able to see better deposit in place in the coming quarters from our current pricing position and do not anticipate that the pace of increase in deposit rates will continue going forward.

Non-interest income rebounded of a lower first quarter as we'd expect that it would, it came in at $28.2 million, about $200,000 lower than a year ago. Mortgage, which has been the biggest driver of our noninterest income success grew from a production standpoint, but then on sale margins have tightened as the competition for purchased business becomes more pronounced. Our gain on sale margin for the quarter came in at 3.46%, up 1 basis point from the prior quarter, but down 44 basis points from the year-ago. Net income in the retail mortgage group increased in the current quarter by 13.3% compared to the same period a year ago. And while this is the slower growth than our historical growth rate, we feel confident that mortgage can still grow profits at about the same pace as the bank through additional hiring and gains in efficiency. I touched on this earlier, but want to repeat that (inaudible) another quarter with an operating efficiency ratio below 60%. I'm especially proud of what we've done here because we're still ramping up in equipment finance and we've made substantial investments in BSA that goes significantly above the standards that the FDIC is expecting. We've managed to extremely tight as we work through the BSA order, deploying incremental investment dollars into the BSA/AML infrastructure. We noted in the press release that at the end of the quarter, we had a full run rate on staffing and BSA while expect its expense bear from this department moderate significantly.

As we've previously stated, we have all the production talent we need right now growing the company that I'm confident that between our growth rates on earning assets and revenue combined with our run rate on operating expenses, we can stay in the efficiency range that we're currently operating.

On the BSA/AML program, we expanded some of the rules and assumptions in our look back process at the behest of the FDIC that pushed our estimated completion date on the look back into August versus our targeted date of June 30. Our regular exam starts September 5 and I can assure you we've not only complied with each element of consent order, we built the BSA/AML program expense -- note expense that is extraordinarily comprehensive. And while completely scalable, it's currently [fabbed] and reinforced to accommodate the bank with priced assets and customers as we have today.

I'm very confident in our systems and the progress we've made in our program and then what I believe will be the outcome of our exam. On the M&A front, we're continuing to have more serious discussions with management teams and boards of potential acquisitions and we're ready to participate again in M&A once we exit the order. So Dennis, with that I'll turn it back over to you.

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Dennis J. Zember, Ameris Bancorp - CFO, COO, Executive VP, CFO of Ameris Bank and Executive VP of Ameris Bank [4]

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All right. Thanks, Ed. Let's start with some of the details affecting the margin. For the quarter, we are reporting a 3.77% margin excluding the effect of accretion that's tighter by 2 basis points from the first quarter's result. Again, the difference there, what Ed said the additional expense associated with the subordinated debt offering caused that decline. Leading that to the quarter, the Fed's rate movements have been positively impacting our loan yields, but our production yields have always been slightly behind our overall portfolio. Mostly offsetting the pick up that we normally would've seen. The second quarter was different, okay? Our production yields came in at 4.57% as you can see in our investor slides, which was 1 basis point higher than our beginning portfolio yield of 4.56%. The rate movement that occurred on June 15, so the effect of that movement is only minimally reflected in loan yields for the quarter. Collectively, we don't see anything that is related to loan yields going forward and we expect the pace of movement here will pickup as we move into the second half of 2017. On the interest expense side, we views most of the upwards energy on earning assets to get more aggressive on deposit rates to drive better deposit growth. In the quarter, we moved higher on deposit cost by only 4 basis points, but the move on the CDs in money market accounts was more pronounced. We finished the quarter in a much more aggressive posture, especially on our larger accounts and we do not anticipate that a similar pace of increase on deposits is necessary moving throughout the year. The competitive position we try to achieve on deposits did actually start to move more deposits in and although we came up short relative to loan growth, we did have a 10% annualized growth rate in deposits, which considering the outsized market shares we have in our legacy footprint, we're pretty pleased with.

All together, we're pretty confident that we can hold the margin that we reported this quarter and potentially add a basis point or 2 as we move to the end of the year. I mentioned deposit growth there, so let me back up and talk real quick about loan growth. We had a great quarter on our organic loan growth and generally the second and third quarters are our best quarters for growth. I'm pleased that we're diversified as we are in our efforts as we have been in the past. During the second quarter, we had a strong growth in our C&I efforts growing municipal mortgage warehouse premium finance and equipment finance collectively by about $190 million, which is about 49% of our reported growth. Residential lending was about $60 million, consumer was about $30 million, which leaves about $110 million for CRE growth or about 28% or so of what we did in the second quarter, we're pretty pleased with that. Again like Ed mentioned, it barely moved our concentrations on CRE or construction.

When you look at the -- When I'm looking at the pipeline, I'm thinking about the rest of the year. I think that we'll see stronger growth from equipment finance as we said in the press release and as the approved -- as those approved lines become to fund and that CRE will be stronger just from what we see in the pipeline and the kind of opportunities that are in front of us. Municipal may fall a little given how hard it is to find the yields that we're looking for. And of course, warehouse is cyclical so we expect a good third quarter, but the traditional softer fourth quarter. Summarizing and, I guess, repeating what Ed said or alluded to earlier, we're still confident that we're right on track to hit our 20% growth forecast for this year.

A quick comment about the reserve. We finished the quarter with a total reserve of $25.1 million, which does not include credit marks. Of course, we carry very small reserves of municipal premium finance and the purchase mortgage pools and when you exclude those balances and their reserves, we have about 70 basis points of reserves on the legacy portfolio compared to 67 basis points in the prior quarter. We also have non-accruable credit marks on the acquired portfolio and when you include those, the 70 basis points that I was just mentioning goes to 113 basis points, which is down from 124 in the first quarter of this year, but again notable that it's over 1%, given the headline reserve percentage. We did have more net charge offs this quarter, which related to existing specific allocations on 3 or 4 nonaccrual assets, where we think that there's going to be a resolution in the next few months, in basically in the third quarter. None of that charge-off activity related to new in migration or is reflective of a quality issues in the portfolio.

Lastly on our operating expenses and efficiency ratio. For the quarter, and I know Ed mentioned this, but given how hard it was to get below 60% we want to repeat this, we -- our reporting an operating efficiency ratio of 59.4%, which is a very slight improvement from the first quarter's level. We've been pretty steady at the bank level on expense editions, using most of our spare resources on administrative areas like Bank Secrecy Act or a Customer Care Center. Going into the third quarter, our current level of production resources are right where they need to be. We don't see a lot of investment that's needed there. At the administrative level, I'll tell you that we are much closer to being fully invested here and we don't expect much growth in the second half of the year at the admin level. While we want to see some continued improvement in efficiency, the pace of improvement in between the first and second quarter is probably the right pace for us throughout the rest of this year.

So with that, I'll turn it back to Phil to see if there are any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question come from Tyler Stafford with Stephens.

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

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Ed, may be just the start on M&A, I guess, it's been a year and a half or so since you guys did the JAXB deal and I'm just curious going back to some of your earlier M&A commentary, how the pricing environment as today versus the last year and a half or so? And if you still think that the financial metrics that you're able to get in past acquisitions are still achievable today with where pricing is at?

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Edwin W. Hortman, Ameris Bancorp - CEO, President, Director, CEO of Ameris Bank, President of Ameris Bank and Director of Ameris Bank [3]

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Tyler, we still think M&A is a pretty big part of our strategy going forward. And I said in my earlier comments, we're really confident on what we think the results of the exam should be and will be. And looking at the deal pricing, there's still some unrational expectations, but there are also, I think, several executable deals that are priced in my mind where they should be. So what I'm talking about is deals that would be -- that would not be diluted to book value or would be very, very minimally diluted, but would be appropriately accretive to earnings. So -- and in our -- with our current sheet, we still have some advantage there, so I think absolutely there's some opportunity for us in the near term.

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

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Okay. And may be just I guess within M&A in terms of what you're looking for obviously, deposit growth has been a challenge and just given the organic growth you've got on the loan side, are you -- I guess, primarily focused on kind of deposit heavy franchises or banks that might give you a new lending vertical or new metric presence? Any just commentary there?

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Edwin W. Hortman, Ameris Bancorp - CEO, President, Director, CEO of Ameris Bank, President of Ameris Bank and Director of Ameris Bank [5]

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Well I've got my Christmas list, but when I was a little boy, I never got everything that was on my list. So clearly what's important for us is something that's going to be accretable to earnings to justify the risk and the execution of the deal. But also we want to be in markets that are long-term accretive to our franchise, that have the right demographics. Clearly, deposits are really important and we've said previously that the biggest challenge for us this year is going to be the growth quality deposits at the rate of loans. And so we still have a big focus on that. We don't have any big campaigns or programs that are going to increase our cost, but we do have a huge emphasis and incentive plans geared towards deposit growth -- core deposit growth. So we'd love to see a transaction and I think could see a transaction that would either deposit rich or be in a market where deposit growth would exist.

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

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Okay. Got it. Dennis, may be just on fee income and the mortgage business. Should we still expect to see a large step up and again on sales with margins in the third quarter with the Ginnie Mae issuance? And just remind us how much of your production has government guaranteed and what that impact again on sale margins could be?

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Dennis J. Zember, Ameris Bancorp - CFO, COO, Executive VP, CFO of Ameris Bank and Executive VP of Ameris Bank [7]

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Okay. Real quick on mortgage, we did about 89% of our production was purchased. The $400 million, about $150 million is government. We -- Nicole and I talked to the mortgage President yesterday and we are issuing our first Ginnie Mae I think in the next week or so and we think we'll do about a $100 million of that in the third quarter, probably pick up about 50 basis points or so on that. I think that might be $0.5 million pick up as we ramp in, 50 basis points is probably on the low-end on what Ginnie Mae has added, it's been over 150 basis points. But we were comfortable that it's -- that we're going to get about 50 basis points on that portion of the production. Generally, it's -- that's about 40% or so of our production that would qualify.

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

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Okay. Got it.

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Edwin W. Hortman, Ameris Bancorp - CEO, President, Director, CEO of Ameris Bank, President of Ameris Bank and Director of Ameris Bank [9]

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And I will say. Let me just -- one more thing about mortgage. Ed mentioned mortgage, it's been -- we've been used to seeing mortgage growing at 20% -- 15%, 20%, 25%. And we're growing mortgage still, like Ed mentioned, income there -- net income is at 13%. We are flat on the number of mortgage producers and we have got a heavy focus right now on recruiting the kind of mortgage bankers that can give us confidence that next year we'll be able to grow mortgage at the same pace as the bank. That's more what our goal is than having mortgage outpaced the growth of the bank.

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

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Okay, good. All right. And then maybe just last one for me, I appreciate the new retail commercial real estate slide in the deck. After going to that deep dive, I am just curious if there is any interesting findings or conclusions you guys came to about your retail series portfolio?

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Edwin W. Hortman, Ameris Bancorp - CEO, President, Director, CEO of Ameris Bank, President of Ameris Bank and Director of Ameris Bank [11]

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I'll answer first and Dennis can add if he likes. But Tyler, I don't -- I mean there is no surprise to us except from what we watch and look at on a regular basis. But we're pleased with the portfolio quality. Our big emphasis in the last few years has been to improve the risk profile of earning assets and we believe we've done that. And when we look at that graph, I think within there, we're pretty comfortable with the coverage ratios and the collateral coverage ratios.

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Operator [12]

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The next question come from Brady Gailey with KBW.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [13]

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Maybe one more question on M&A. You all talked about geographies that are accretive to your franchise. What geographies do you have than those interest in acquiring into?

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Edwin W. Hortman, Ameris Bancorp - CEO, President, Director, CEO of Ameris Bank, President of Ameris Bank and Director of Ameris Bank [14]

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Well Brady, if you look at where we're located and we're trying to leverage some of our current staff and then you layer on markets that have the opportunity for really strong deposit growth then you're looking at the largest MSA markets. The same markets where we've been successful with asset growth. And primarily there, you're going to be looking at Jacksonville and Atlanta and then in South Carolina, a couple of markets there. So those are the most logical.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [15]

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Okay. That make sense. And then if you look at discount accretion, it's been running in the kind of plus or minus $3 million a quarter for the last year or so. Is that -- I'd expect that would probably continue a structure decline over time, but what's that right way to think about levels of discount accretion over the next year or so?

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Dennis J. Zember, Ameris Bancorp - CFO, COO, Executive VP, CFO of Ameris Bank and Executive VP of Ameris Bank [16]

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Brady. We finished the quarter with about $25 million nonaccretable. We finished the quarter with about $9.5 million of accretable. So -- the accretables is going to slow down, I guess, it was 2.8% or 2.9% this quarter. I think it's probably going to come in $300,000 or $400,000 a quarter for the next few quarters. Now some of the -- I'll tell you some of the $25 million nonaccretable keeps getting moved over the portfolio quality and the resolution on the asset that have those marks continue to improve, so you can't just compared the $9 million with a $3 million run rate because the pace of the nonaccretable moving over is actually a little faster than what we experienced may be a couple of years ago.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [17]

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All right. That's helpful. And then finally for me, you talked about kind of holding the margin where it said may be added 1 basis point or 2 basis point from here, are you talking about the core margin there or the reported margin?

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Edwin W. Hortman, Ameris Bancorp - CEO, President, Director, CEO of Ameris Bank, President of Ameris Bank and Director of Ameris Bank [18]

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The core margin at 3.77%. And our -- coming into the year and discussions with analysts and investors is we did not think that we needed to grow earnings or earnings per share or hit our targets with margin expansion. We really budgeted and forecasted, maintaining the margin with a kind of growth we were doing and just getting the earning growth from what we saw happening on the balance sheet. We're looking at other releases to and we're one of the few banks that sort of holding the margin. We like to see some margin expansion, but we think we've got enough balance sheet growth to hit the numbers. And given where we're getting the growth on the asset classes, I just don't know that we're going to be able to move the 3.77% margin up close to 4%.

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Operator [19]

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(Operator Instructions) The next question comes from Casey Whitman with Sandler O'Neill.

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Casey Cassiday Whitman, Sandler O'Neill + Partners, L.P., Research Division - Director, Equity Research [20]

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Just a follow-up on the margin outlook, what are you assuming for rate hikes to get there?

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Edwin W. Hortman, Ameris Bancorp - CEO, President, Director, CEO of Ameris Bank, President of Ameris Bank and Director of Ameris Bank [21]

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Well, going forward Casey, we are not really expecting and we are not forecasting any rate hikes. So given that where we think the margin -- given the margin at 3.77%, we think we're -- we can hold that margin with no rate hikes is what we're assuming. And Nicole is here telling me, let me, Casey -- let me jump in, Nicole is telling me that I have switched the numbers. We have $25 million of accretable and $9.5 million of nonaccretable. So I apologize, I had said that backwards. Okay. Go head Casey. I'm sorry.

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Casey Cassiday Whitman, Sandler O'Neill + Partners, L.P., Research Division - Director, Equity Research [22]

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Got it. And you guys talked about how you're feeling on deposit cost, sounds like you're feeling better about that here, so wondering what's driving -- virtually driving that optimism compared to how you're feeling earlier this year?

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Edwin W. Hortman, Ameris Bancorp - CEO, President, Director, CEO of Ameris Bank, President of Ameris Bank and Director of Ameris Bank [23]

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It's -- when I look at our largest money market accounts, where we really got aggressive in the quarter on a select group of money market accounts where we wanted to be defensive and sort of stopped the outflows and so once we got those money market accounts into the -- well, I don't want to sound (inaudible), but once we've got those money market accounts into a pretty aggressive posture, we feel like more confident that the outflows will die down, and we were experiencing some may be a small amount of -- a good amount of deposit sales, but then a decent amount of deposit runoff. And so we think, we've stopped a good bit of the deposit runoff or will have stopped a lot of that just given where we've got deposit prices.

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Casey Cassiday Whitman, Sandler O'Neill + Partners, L.P., Research Division - Director, Equity Research [24]

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Okay. And then my next question was just considering your trajectory for organic loan growth up against purchased loans and loan pools coming down. What's your outlook for overall balance sheet growth quarter-to-quarter?

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Edwin W. Hortman, Ameris Bancorp - CEO, President, Director, CEO of Ameris Bank, President of Ameris Bank and Director of Ameris Bank [25]

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As about what it was this quarter, we did about 15% growth this quarter. We don't think we'll do -- most of the difference comes in maybe some security investment portfolio, coming in a little, being a little smaller and from the purchased mortgage pools running off, we don't have a lot of excess cash that's able to be deployed. So if we're doing about 20% loan growth on the organic side, it really amounts to about 15% on the balance sheet.

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Casey Cassiday Whitman, Sandler O'Neill + Partners, L.P., Research Division - Director, Equity Research [26]

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Okay. And then last question, now that the completion look back has been pushed to around August, you got the exam starting in September. When do you think is the earliest you could possibly get out from the order?

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Edwin W. Hortman, Ameris Bancorp - CEO, President, Director, CEO of Ameris Bank, President of Ameris Bank and Director of Ameris Bank [27]

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Casey, the exam -- actually the exam starts before September 5, but they are in the bank again September 5. They would typically be here fully so then that process, I can't speak to, but I would not expect it before the end of September for sure. But I think, the first week or 2 of September will have a really good feeling when they confirm what we know. Let me go ahead and add that BSA/AML, we completed everything within our control and the look back will be completed sometime during the month of August. So we expect with the exam coming.

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Operator [28]

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(Operator Instructions) The next question comes from Peyton Green with Piper Jaffray.

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Peyton Nicholson Green, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [29]

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Dennis and Ed, I'm sorry, if I missed this from earlier comments, I'm a little late jumping on. But if we just kind of think year-over-year, well average loan growth was about $1.50 billion and the deposit growth was about $6.14 million, what kind of -- how comfortable are you letting the loan-to-deposit ratio move up going forward? And then what do you think, how optimistic are you that you can grow dollar volume deposits in the dollar volume of loan growth net of the mortgage pool runoff?

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Dennis J. Zember, Ameris Bancorp - CFO, COO, Executive VP, CFO of Ameris Bank and Executive VP of Ameris Bank [30]

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Payton, that's a good question. The deposit, I mean on the loan side and you've heard us say this to investors, on the loan side, we've been creative, we've got lines of business and are winning the battle on loan growth with 4 or 5 different strategies. But on the deposit side, we are still I little too relaxed on just sort of a branch footprint and sort of hand-to-hand combat honestly. Ed said earlier, that we don't have any deposit campaigns, I mean, we're of course cautious there because we've got billions of dollars of deposits at really attractive rates and we don't want to affect that. So really funding only half of our loan growth has been -- has taken us from high-80%s to real close to 100%. We're closer than we've ever been on creating some deposit niches. I don't think we'll hit the mark with those this quarter, Peyton. But I think as we go to the end of the year, we'll have some stuff ready to go next year that might take a 10% or 11% deposit growth. I think we can grow 10% or 11% out of our branch footprint without really affecting the cost too dramatically and that may take the -- I think our deposit strategies and niches might take 10% to 12%, may be 12% to 13%, 14% may be. So we can close that gap a little. Of course, I think the question earlier about M&A and what would we be focused on, we're definitely looking for deposit rich franchises and an M&A environment, either deposit rich in franchises or franchises that are in deposit rich markets where we can maybe get a little bit more aggressive and drive better deposit flows. That answer your question?

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Peyton Nicholson Green, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [31]

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Yes. No, that certainly helps. I guess the other way to think about is, you've got $490 million of the non-covered -- I mean of the pools, how -- could you sell those in current market conditions to create rather than just rely on runoff?

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Dennis J. Zember, Ameris Bancorp - CFO, COO, Executive VP, CFO of Ameris Bank and Executive VP of Ameris Bank [32]

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Yes. Actually Peyton, we have looked at that. You know, there's some -- there's a yield in 280-ish, 290 and so yes, our headline margin in the 370s, we pick up 6, 7, 8 basis points moving out of those and moving into more of a traditional portfolio. And given the growth that we have, and it might only take us a quarter, a quarter and a half to do that, it would be a little painful for a quarter or 2, but that's an option. And I think if the deposit niches -- if the deposit ideas and the deposit niches or an M&A doesn't materialize that's where we look at. And we do track the pricing on the mortgage pools and we're confident given the quality no past dues, no charge-offs, the underwriting metric that we could sell those and really come out whole.

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Peyton Nicholson Green, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [33]

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Okay. And what's your projection for runoff on those over the next 2 or 4 quarters?

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Dennis J. Zember, Ameris Bancorp - CFO, COO, Executive VP, CFO of Ameris Bank and Executive VP of Ameris Bank [34]

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This quarter was a little slower, but we're -- it still looks like it's about 2.5 year average life on those remaining. $60 million -- probably $60 million a quarter.

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Peyton Nicholson Green, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [35]

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Okay. All right. Great. And then anything lumpy on the expense side going forward over the next couple of quarters? Or you feel pretty good about where the run rate is?

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Dennis J. Zember, Ameris Bancorp - CFO, COO, Executive VP, CFO of Ameris Bank and Executive VP of Ameris Bank [36]

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We feel pretty good about the run rate. In fact, going Ed's first comment about consistency is, our goal is -- that's exactly what our goal is. Not -- we will obviously won't be high-performing, but doing it just 1 quarter out of 3 or 4 is not good enough and so getting the operation to be more reliable at these profitability levels has been our focus, I don't think it's going to be lumpy.

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Peyton Nicholson Green, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [37]

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Okay. Last question for me, I know we're in the -- only in the third week of the third quarter. But as you look at the mortgage business, how would you feel about it in this third quarter relative to how it performed a year ago when it was roughly flat versus the second quarter? Do think you can keep that kind of comp? Or do you think it's down a little this year?

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Dennis J. Zember, Ameris Bancorp - CFO, COO, Executive VP, CFO of Ameris Bank and Executive VP of Ameris Bank [38]

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Let's see here (inaudible). Give me just a second. That's a -- I like our profitability levels where they are right now, I think flat on that profitability level. Actually, I think flat may be upper tick given the Ginnie Mae activity and given the -- given where the pipeline is, compared -- going into the third quarter the pipeline is good. I will get fourth quarter is going to be what it normally is, but I think third quarter we will be a little more profitable. We'll see some profitability increase in mortgage.

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Operator [39]

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

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Dennis J. Zember, Ameris Bancorp - CFO, COO, Executive VP, CFO of Ameris Bank and Executive VP of Ameris Bank [40]

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All right. Thank you again everybody that joined. If you have any questions or comments please feel free to call or e-mail. Thank you. And have a good weekend.

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Operator [41]

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