Good day. And welcome to the Ameris Bancorp First Quarter 2020 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [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.

Great. Thank you, Eric. And thank you to all who’ve joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com. I’m joined today by Palmer Proctor, our CEO; 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 it 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.

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’ve 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 2019 and first and foremost thanking our frontline 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, they are working effectively, including our call center in this environment. All of our drive-thru locations are open, and we’ve been able to perform business through the drive-thru. And 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-thru 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 the future outlook, primarily in migrating a lot of the late adopters hold outs to digital banking. So, we are pleased with that. I’d say, I’ll just emphasize that through the pandemic, we continue to serve…

Thank you, Palmer. For the first quarter, we earned $19.3 million or $0.28 per diluted share. That includes a $41 million pre-tax provision for loan loss expense and a $22 million pre-tax 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 one 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 two 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 commitments. We had approximately $4.4 million of net charge-off 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 1.47% reported last quarter and our adjusted return…

Great. Thank you, Nicole. Q1 was certainly an interesting quarter. When you think about it, January and February for everybody have shown great promise for growth and 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.

Thank you. We will now begin the question-and-answer session. [Operator instructions] Our first question today comes from Tyler Stafford with Stephens. Please go ahead with your question.

I wanted to start on credit for either Palmer or John, and just, I guess better understand your assessment of the risk of the portfolio today. You’ve got -- obviously, you’ve 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?

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 that includes the individual store locations, the 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 and business getting back to usual. I mean, that sounds pretty obvious. But, I mean that’s where it lies at the moment.

And Tyler, 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’ll 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 that’s to come. I think there are certain sectors that will immediately get back into business. I don’t want 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.

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.

Certainly. So, we used the Moody’s forecast that was the March 27th 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 believed 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, 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 six months. All of that was -- we needed to consider the impact of that and when that 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, and Nicole and I’ve been talking about it, from the most severe one that we reviewed were -- 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 210ish. 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 were reviewed based on that model.

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 in 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?

Sure. I appreciate that, Tyler. Hopefully on a 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-down. So, if you added that back into the segment mortgage and then look at their -- 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 base in the mortgage area and then really get their efficiency going. So, exclusive of that $4 million, it 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 and 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 claw-back those as well, those were related to one of the loss share agreements that expired, and there were some lingering expenses that were not going to be reimbursed by the FDIC and then also some additional claw-backs. And then the fraud, forgery, DDA loss, that was about almost close to $1 million increase that we are diligently working on -- working through. I mean, there were some things, sometimes you can’t -- I hate to say it like this, but you can’t control some of the fraud and forgery or DDA loss. And so, we’re certainly very cognizant of that and we put additional resources towards that. As a management team, we’re committed to continually looking for cost saves and to become more efficient and 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.

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

I would say, it’s closer to 7 to 8. These are the increased audit, the payroll taxes, the problem loans, FDIC, and the fraud. And obviously, the FDIC insurance is recurring.

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

I actually on this slide, I had it broken down even more, all the way down 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. And we still had some consulting fees related to CECL that will go away. We had 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 were able to recoup that. So there were some other noise in there that were smaller pieces that would add up to get you closer to the 9 or 10.

Okay, very helpful. Thanks, Nicole.

Okay. Thank you, Tyler.

Our next question will come from David Feaster of Raymond James. Please go ahead with your question.

Hey. Good morning, guys.

Good morning, David.

Good morning.

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 gotten 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?

Well, we will obviously continue to watch the economic forecasts from Moody’s that we adhere to for CECL. I will say -- and we will make the adjustments as needed of course, based on our portfolio. I will say and I did mention when Tyler -- is that there is -- 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 of that. But, I think it’s a little early to see, as we are maybe on the cusp of reopening certain places, at least 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 as necessary.

Okay. That’s helpful. Thank you. 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?

Well, I will tell you, the second round will be -- what I quoted, there was more on the units, not the dollars.

Okay.

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 first and foremost, and offering them this program. And we do have some external non-customers too that participated in the program. But, the majority of the loans that we’ve extended so far are existing customers with all the relationships. They don’t have deposit relationships. Certainly this is a prime opportunity to ensure that you’ve got that positive relationship for all the banks.

Okay. That makes sense. And just last one for me. And there is 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.

I’m going to be cautious on guidance. But, I will tell you that since mid single digit compression is possible going forward, and I’ll split it up into kind of three components. First, on the loan side. About half of our variable rate loans have floors and about 75% of those kind of hit the floors. Production held in at 4.55% compared to 4.70% last quarter, and early payoffs have slowed because of the economy. So, those three things all affect the margin going forward. On the funding side, if 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 at that zero rate environment 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 non-interest expense in order to get that to reprice down. And then, the third component that I wanted to talk about was the PPP and program, and the impact of that we have on our margins. We put in the slide deck kind of a breakdown of the fee categories. About 50% of ours are the 3% loans, about roughly 15% or so is the 1% and then about 35% to 37% is that 5%. So, that gives us an average fee of about 3.44. I know that the government has said these can be longer terms, but we’ve done all of ours, basically two 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 a weighted average duration of a year on the -- that would be a 3.44% fee, plus 1% rate. And we’re going to fund that with the PPP LS program at 35 basis points. So, that makes about a 4 to a 4.09 yield on $685 million of loan growth. But that will often affect the margin. So, those are kind of three key components looking at the margin going forward. Does that help clarify, or maybe more color to what you wanted?

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

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

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

Our next question will come from Woody Lay of KBW. Please go ahead with your question.

Hey. Just a follow-up on the 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?

I do not know that I have an exact number in front of me Woody. But I -- oh, actually, I do. I’m sorry. So, you wonder how much is in Q2? About 20%. And then, the remaining for 2020?

Yes.

Also greater than 50%.

And then, looking at the loan deferral program, I was just curious for any color surrounding the pace that these deferral requests came in. I would assume it was frontloaded 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?

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

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 had significant scale in that market. So, was just curious around that.

Yes, absolutely is 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 had been forced to utilize that in today’s environment and quite frankly have become accustomed to it and like it. 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 up, but it may be drive-thru 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 staff 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 that.

All right. That’s really interesting. Thanks, guys. That’s all I had.

Thank you, Woody.

[Operator Instructions] Our next question will come from Christopher Marinac of Janney Montgomery Scott. Please go ahead with your question.

Hello. Good morning. I 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.

Well, it’s a great question. And my take on the grading, and you see it in the press release and so much in this slide deck. But, is an increase -- you could see an increase in what is our grade five, 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 great change on it. But, that doesn’t necessarily mean that those are going to the watch list this next quarter. We’re trying to be very purposeful in how we deal with it -- with the customers and what their issue is. And so, we will evaluate those as we go. And the deferrals -- and I know Palmer has made this comment in the past. Several, 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’s 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 onto 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 -- 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.

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 frontend 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 a lot of the draw-downs we’re seeing on some of the lines of credit. But to me, that’s good cash management for them. And I view that as a positive as opposed to Alaska around where you were getting call the 11th hour, and all of a sudden, they couldn’t pay. So, if we start seeing this continued to escalate in terms of the percentage of deferments, I think that takes it into a different category. For right now, I think a lot of this was good business planning on the part of a lot of our companies.

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 customer coming in the door that are getting overlooked by your competitors?

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 non-customers that are upset with their primary banks that were not able to allow them to participate in the program. They did not receive funding. So, we have received and have accepted numerous assets on earlier than non-customers that we had allowed to participate in 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 had not gotten any response or communication from their primary bank. And it’s one of the 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 of a lot of the smaller banks will have and 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 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 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 the 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.

Great. That’s very helpful. And then, just one quick one for Nicole. You mentioned the liquidity I think being double 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?

I hate to give any guidance because if you’d asked me last quarter, we would have had a pandemic, I would have never said yes. So, we anticipate keeping our liquidity, keeping it fluid as we can for a little while, so we get through this.

Got it. That makes sense. Thanks very much.

Great. Thank you, Chris.

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.