Good morning and welcome to the Ameris Bancorp third quarter 2018 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, this event is being recorded. I would now like to turn the conference over to Nicole Stokes, Chief Financial Officer. Please go ahead.

Thank you Chad 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 am joined today by Dennis Zember, President and CEO of Ameris Bancorp and Jon Edwards, our Chief Credit Officer. Dennis will begin with some opening general comments, I will discuss the details of our financial results and Jon will make a few comments about credit quality to include the expected impact of Hurricane Michael on our portfolio before Dennis provides closing remarks. Before we begin, I will 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 in our press release. And with that, I will turn it over to Dennis Zember for opening comments.

Thank you Nicole and good morning everyone. I appreciate you taking the time this morning to join us on our third quarter 2018 earnings call. We are really excited about our results this quarter and the momentum we have with earnings and in our operating ratios. For the third quarter, we are reporting operating earnings of $0.91 a share or $43.3 million, which excludes about $1.5 million of executive retirement, merger and acquisition costs and some branch consolidation cost. Including those charges, we are reporting $41.4 million in net income and $0.87 per share. Besides the move in earnings this quarter, our operating ratios came in very strong, particularly given the momentum I know that we still have in key. Our operating return on assets came in at 1.53% in the current quarter compared to 1.26% in the same quarter in 2017. Talking about the return on assets, I remember earlier in the year at a conference or in some meeting, the question was how was the industry going to invest the tax cut? The fear, I guess, was that margins would come down or that spending would go up and really, the industry would just punch out the same results with a little less going to Washington. That didn't happen here. To test this, I grossed up our third quarter results from last year using this quarter's tax rate. And when I do that, I see that our core apples-to-apples profitability ratios higher now by 11.3%. In other words, we have managed the current rate environment with a stable margin, we have grown our balance sheet by almost 50% through organic and acquisition strategy and we have improved our overall operating performance by double digits. We didn't just rest on the fact that the tax law would make us…

Great. Thank you Dennis. As you mentioned, today we are reporting operating earnings at $43.3 million or $0.91 per share for the third quarter which was approximately an 83% improvement over the same quarter in 2017. These operating results primarily exclude merger charges, executive early retirement benefits and expenses related to the branch consolidation plan announced in September. Including all of these charges, we are reporting total earnings of $41.1 million or $0.87 per share. You will notice that our effective tax rate increased to over 24% in the third quarter. This was a result of the 162(m) calculation on the executive retirement expense from last quarter that was deemed not deductible this quarter. We correctly presented this impact in the adjusted net income Table 9A as an add-back. With this adjustment, our effective tax rate is 23% and in line with our expectations of an effective tax rate of 22.5% and 23.5% going forward. Our operating return on assets in the third quarter was 1.53%, which was an increase from the 1.26% we reported in the third quarter of 2017 and the 1.38% reported last quarter. We are proud of this ROA and we believe an ROA north of 1.50% is an impressive representation of our core profitability. We have been able to grow the balance sheet, both through acquisitions and organically while keeping focus on key operating results such as margin and efficiency. The yield curve continues to make the margin a challenge. Our margin excluding accretion, as Dennis mentioned, declined four basis points during the quarter from 3.81% last quarter to 3.775 this quarter. As Dennis mentioned, we had excess liquidity on our balance sheet during the third quarter such that our short-term assets to earning assets ratio increased to over 4%. Excluding this approximately $200 million…

Thank you Nicole. Good morning everyone. First let me speak to our third quarter asset quality. Overall, most of our asset quality metrics improved in the third quarter versus second quarter. Nonperforming assets decreased 9% over second quarter and totaled 60 basis points of total assets. That improvement was primarily the result of payments and other collection activities, but also certain loans placed back on accrual after having demonstrated sustained satisfactory performance. Similarly, classified assets decreased during the third quarter and totaled less than 15% of total bank capital. Past due loans remain nominal and concentrations of credit remain manageable and within the regulatory guidance. Our charge-offs were the one thing that was a little higher during the quarter and that was due primarily to certain premium finance loans that were really subject to the second quarter reserve build and were charged off in the third quarter. Overall, our primary markets remain robust. We are not seeing any segment of our portfolio that's currently experiencing any material deterioration. So it was a good quarter overall. Now let me say a few words about the impact of Hurricane Michael. First, as everyone knows, that storm has had a devastating effect on many individuals and businesses. Ameris Bank will do whatever is necessary to aid in their recovery. In reality, it's too early to know with full certainty what the real impact will be to those communities, our customers or our bank. But in response to Hurricane Matthew in 2016 and Irma in 2017, we developed strategies to help our customers and we will likely follow that template for this storm also. Of note, when I speak about the primary impacted areas, I am primarily referencing those coastal communities between Pensacola to the west and St. George Island on the east side.…

Well, on that note, okay, I would like to thank everyone again for listening to our third quarter earnings results and would like to turn it back to Chad, I guess, to see if there are any questions.

[Operator Instructions]. The first question will come from Brady Gailey with KBW. Please go ahead.

Hi guys. This is actually Woody, on for Brady.

Hi Woody.

Okay. So first, I know you said the rise in deposit costs was largely related to the two acquisitions. So I was wondering if you could give some color on how the legacy bank's deposit cost performed over the quarter?

Sure. Sorry, we were shuffling papers real quick.

It's okay.

So there is quite a bit of noise, for sure, because of everything coming on, but the core bank, we did see increase and 11% of that increase was in non-interest-bearing which helped the overall cost. But we did see our money market was part of that was we felt like we were maybe a little bit behind the curve. And if you think back to second quarter, our deposit beta in the second quarter was pretty low. So we knew that we were going to have catch that up a little bit in the third quarter. So we did raise our money market account rate and then as CD rates. So we did have some increase in the core bank but the majority of it did come from those acquisitions. And we believe that the fourth quarter is going to be consistent. We did have a huge increase at the end of the quarter that's going to have a larger impact next quarter. We feel like that increase was throughout the entire third quarter.

And I will say it too, just sort of adding on top of that, like I said, the deposit cost that we inherited with the Atlantic Coast and Hamilton transactions, I am not thinking of the past when deposit competition was not as fierce. We would have taken those deposits and immediately had some rightsizing where we would have sort of moved them to our levels. But given how fierce deposit competition is in Atlanta and Orlando and Tampa, we didn't want to do that. So we have kind of left those sort of where they are. So I think going forward what you would see on the those deposit, especially as almost the deposit beta of zero, probably for the next couple of moves as, in ours we just continue to keep inching up as asset revenues come in. I mean our strategy for two years has been to take whatever incremental revenues we get from a higher rate move and apply those back in a smart way into the deposit cost so that we can remain competitive, continue to grow core deposits but do it in a manner that doesn't affect the margin. I mean I know the deposit cost and deposit betas are top of everybody's mind, but we are not managing just the deposit beta, we are managing deposit cost so that in conjunction with our asset yields and our production levels, so that we keep the margin right there at 3.80%.

Okay. That's really helpful. And then looking at those asset yields, they also saw a pretty big jump this quarter. Was that also driven from the two acquisitions?

Yes. It was some from the acquisition and then it was also due to some of the rising rates in our loan production. Our loan production yields increased and they have increased over the last year. But yes, it's both.

Got it. Thanks. That's all of my questions. Thank you.

Great.

Great. Thank you.

The next question comes from Tyler Stafford with Stephens Inc. Please go ahead.

Hi. Good morning guys.

Good morning.

Good morning.

Maybe just to start on credit. So last quarter, obviously you had the USPF issues. So it was nice to see no issues this quarter. You have got a peer bank out this morning reporting some pretty sizeable CRE issues. Just bigger picture across Ameris' balance sheet. How do you feel about the credit environment? Anything in particular you are seeing that is worrisome? And then anything within the USPF specifically, just as relates to last quarter as well?

I will take the first part first. I mentioned that our primary markets and you know, we have got about seven or eight markets that probably carry 80% or more of our production are still pretty vibrant. There is new investment going on. Property values are holding pretty good. We haven't seen any real deterioration across any of those markets. And so I am still feeling really good about commercial real estate right now. So we are looking out for new construction projects and thinking about lease-up terms in the next 18 months to two years and so on and so forth. But right now there has not been any change. I am feeling pretty good about it. On the USPS side, we are watching that segment really a little more closely and feel pretty good about the downpayments that they are getting, the terms that they would get. There has got to be some small things that will fall out, I am sure, towards the end of the year, but I feel pretty good about the fact that we really sort of encapsulated the issues very quickly in the second quarter, primarily.

Okay. Very helpful. Thanks. Just on the remaining cost savings with Hamilton. How much is remaining in total? And how much would you expect to realize in the fourth quarter?

So we anticipate the fourth quarter earnings after tax is about $2 million that will be incurred in the third quarter. We did our Hamilton acquisition last weekend actually and so that system integration is complete. So we have a few more expenses for a few weeks, but it's about $2 million. And then the cost savings that we announced in September, those will be fully implemented in the first quarter of next year.

Okay. Got it. On the loan repositioning that you talked about, can you just size up how much of an impact that was to the third quarter loan growth?

Yes. I have got that right here. So our total payoffs were right about --

It was about $100 million.

From the Atlantic and Hamilton acquisitions, it was about $100 million. Half of that was in construction and then the remaining we have multi-family, commercial real estate and some C&I that made up that $100 million.

Nicole and I are calculating that alone impacted the annualized growth rate by about 4%, a little more than 4%, just that repositioning.

Okay. Got it. And then just one more from me on the margins. I just want to make sure I am thinking about this correctly. So fourth quarter total deposit costs will move up modestly I guess as just pricing continues to be there, but overall cost to fund should be relatively flattish as you offset those deposit costs with lower overall FHLB balances and cost there and then you get a lift on the asset side. Is that basically what you are saying? And then so we are at 3.80% margin?

Yes, exactly.

Okay.

We think the asset yields are going to continue to move up with the last rate move we just got. And deposit costs are going to keep inching like they have. We keep benefiting I mean we still have the mortgage portfolio, the purchase mortgage pools, those keep paying off. And so every quarter, there's probably a 300 basis point pickup on all of those renewals. Yes, I think I didn't make a big deal about it, but we have a 93% loan-to-deposit ratio right now and we pretty much have the exact same margin we had a year ago when the loan-to-deposit ratio was about 100%. So even where we have sort of repositioned loans as a percentage of total earning asset, we have still held the margin. I am not sitting here worried that the margin is going to fall apart on us, really, at all. I hope I have sounded pretty confident there.

Yes. I think that's coming across. Thanks Dennis.

All right.

The next question will be from Casey Whitman of Sandler O'Neill.

Good morning.

Good morning.

I appreciate the color on the core margin. Just so we can get a sense of where the reported marginal shake out, I mean how much can we assume you are going to get in accretion income next year? Just the best guess would be helpful.

So we are estimating about $3 million a quarter. So about $12 million for the year.

Okay. Great. And then can you remind us how much of your loan portfolio is variable today? And then how much of that is tied to LIBOR versus prime? If you have it?

Yes, sorry.

We are going through. No, it's found.

I am sorry, it's right here. The fixed rate is about 65% and variable rate is 35%.

The fixed rate includes one year, includes the $500 million, $600 million from premium finance, which are really one year credit. So I mean really it's probably, really we are probably in the high 50s on fixed rate. Probably in the high 50s on fixed rate and then the rest variable. And as prime versus LIBOR?

Yes. As far as that goes, the mix is probably, it's moved up quite a bit. It's probably 80% based of LIBOR and still about 20% based of prime.

Okay. Great. And I apologize if you already kind of walked through this. But maybe just give us a little more help in terms of what's going on with the strategy between using broker deposits and FHLB borrowings this quarter? And then sort of what we might see next quarter?

Sure. So during the second quarter, we entered into broker deposits that have a shorter term maturity. They are a year or less. And so we entered into those broker deposits and then we also have the FHLB advances. But those are on a very, very short term, knowing that we have cyclical deposits. And part of that was in the second quarter in preparing for Atlantic Coast and Hamilton. And like Dennis mentioned, sometimes when we do those acquisitions, we like to have some excess liquidity just in case and we haven't experienced that this time. And so we are paying off, we have already paid off a significant portion of those FHLB advances in October.

And Casey, for broker deposits and home loan bank advances, we don't do long dated term deals. I mean, you may be on the call thinking that it would have been smart couple of years ago to have done some two-year CDs and maybe it would have been. But again, we are not trying to play margin games. We are not even trying to necessarily grow the margin. I think, for banker size, 3.80%, for the kind of customers we are having, 3.80% is a solid margin. So all we are trying to do is use this as short term funding that helps us maintain that margin.

Got it. Okay. So in fourth quarter we should see a normal seasonal inflow of your core deposits? And broker deposits will sort of start to come off, as those matures?

The broker deposits will stay for the fourth quarter, but the FHLB advances will be paid down.

Okay. Got it. All right. Helpful. Just so we are on the same page here, just can you remind us how you get to your calculation for organic loans? I mean just what categories of loans you include in there?

Sure. And It's difficult to calculate because what we do is we take the legacy, what we call legacy loans and then we do have loans that shift from either the covert category into PNC, the purchase non-covered or the purchased loans into legacy, once they are refinanced under our credit standards and so we exclude all of that. So then we are excluding the movement between buckets so that we are really just saying what is our true new loan growth in the bank.

So if you are looking at the balance sheet in Nicole's financial tables, really we are including loans and purchased loans. So if you include, I guess for this quarter we are including, it totals $5.543 billion and $2.711 billion and really the only thing we are excluding is movement in the purchase mortgage pools, which this quarter was $22 million is all.

Got it. Thanks so much.

All right.

Our next question comes from Jennifer Demba with SunTrust Robinson Humphrey.

Thank you. Good morning.

Good morning.

A question on your loan growth outlook. You continue to believe double digit makes sense and is achievable. Dennis, can you just talk about the competitive environment? Are you getting the quality credits you want in this environment and at this point in the economic cycle? And are you able to still produce double digit loan growth with the kind of quality you are going to require?

I think, right now, the answer is yes. Well, the answer is yes. If we were two years ago still sitting here with a 70% efficiency ratio, I would tell you no, because we could not compete for those best customers with the kind of yields they are demanding. But the fact that we have moved efficiency ratio down from kind of low 70% to mid 50s and going lower and the fact that we have still been able to grow core deposits, which are probably 30%, 40%, 50% cheaper than home loan bank or broker, I think we are in a position to compete. I mean, I know we are in a position to compete on them. And what we were doing two years ago was 20% loan growth. I mean, we can't do 20% anymore because we are sitting here with close to $8.5 billion or approaching $8.5 billion of loans and that's just not prudent. But being able to do the same nominal amount of loan growth still gives us loan growth in the low double digits, say 12%, 13% where we used to be talking about 20%. We are not really talking about a different nominal amount of loan growth that just shakes out percentagewise to something less. We are sitting here with really attractive concentration ratios. Jon briefly touched on the fact that we are not concentrated in just one asset class. I am not loaded up on commercial construction. I don't have the investor CRE pushing me over 300%. So I have got room to do CRE if we want to do that. We have got more room on premium finance, on mortgage warehouse if that stays an option and an opportunity. Municipal lending, there's still opportunities there. So even outside of our core bank, I would tell you, the core bank looks good, especially with Atlanta and Tampa and Orlando being new opportunities for us, where really they weren't or weren't as big an opportunity a year ago. I still feel good that we can do some loan growth like that.

Thanks Dennis. I appreciate it.

All right.

[Operator Instructions]. The next question will be from Christopher Marinac with FIG Partners. Please go ahead.

Thanks. Good morning. Dennis, I want to stay on the loan growth issue. As we get further along in the cycle, I mean what's the appropriate balance between growing strong, but not growing too much? I know that changes as we go along. I just kind of want to continue on that thought.

I think we will know. I am going back to Jennifer's question. I think I am sitting here thinking more and more about that. I think we will know. When we start seeing deals come across, when we start feeling like our bankers and I love the way our bankers work. If our bankers start trying to send deals through and we have got to get creative on loan structure, maybe do some things that we wouldn't have wanted to do in the past. If on big, commercial construction loans, we cannot talk a customer into getting it bonded anymore or they just refuse to give us any kind of guarantees or things like that, Chris, I think we will know that we are going to have to start tailing back on what kind of loan growth we are looking for. I would tell you, if that happens and I know the industry definitely believes that we are peaking on credit quality and you really might think that if look at what Jon is talking about where credit is and where net charge-offs are. If that's the case, I would tell you right now, I think we are ahead of the pack when it comes to evaluating cost structure and resources and managing costs and efficiency, so that we can hold our growth rate, our earnings growth rates, our EPS growth rate and our ROA at the same level. Maybe it is a little early to say this, but we will not continue to push loan growth as high as we possibly can for the sake of quality. I mean, I am only 49 years old. So I probably have to live through a couple of economic cycles. And in the next economic cycle, I want to be known for quality. And when we can get the loan growth and hold the quality, we will. When we can't get the quality or we have got to sacrifice, we will start tailing back what we want on loan growth and we will start looking for earnings growth in other places, whether it's fee income, cost structure. Does that makes sense?

No, it does and I appreciate the background. Just a quick follow-up. Can you remind us on how deep into Florida along the central I-4 corridor that you are getting in terms of calling on customers, not as much of a branch question as it is a sort of the customer penetration as you get deeper into Florida?

Yes. I know that I-4 was the end of the world. When Ed was here, I-4 was really the end of the world. We just really did not go south of I-4. I mean, Sarasota, for instance, south of I-4, but kind of really still considered maybe part of Tampa MSA or Tampa market at large. Really even that we didn't go there. So I would tell you, our concentration is very small. I mean there might not be anything. I said guarantee, I am pretty confident there's no construction south of I-4. We may have assisted living deal within eyesight of I-4, but construction wise there would be nothing.

Okay. Great. Thank you for the time this morning. I appreciate it.

All right.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Dennis Zember for any closing remarks.

Okay. Thank you again for your participation and your willingness. I think the call might have been a little longer than it has been in the past. Nicole and I are available if you have any questions. Jon, as well. So if we didn't answer a question or you want more detail, feel free to reach out to us, email or phone call. All right. Thank you and have a good weekend.

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