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Ameris Bancorp (NASDAQ:ABCB)
Q4 2018 Earnings Conference Call
Jan. 25, 2019 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

See all our earnings call transcripts.

Prepared Remarks:

Operator

Good morning, and welcome to the Ameris Bancorp fourth-quarter 2018 financial results conference call. [Operator instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Nicole Stokes, chief financial officer. Please go ahead, ma'am.

Nicole Stokes -- Chief Financial Officer

Great. Thank you, Rackam. And thank you to all who have joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com.

I'm joined today by Dennis Zember, president and CEO of Ameris Bancorp; and Jon Edwards, our chief credit officer. Dennis will begin with some opening general comments, and I will discuss the details of our financial results before we open up for Q&A. Before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties.

The actual results could vary materially. We list some of these 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 our appendix to our presentation. And with that, I'll turn it over to Dennis for opening comments. Dennis?

Dennis Zember -- President and Chief Executive Officer

Thank you, Nicole, and thank you to everyone who's taken the time to join us this morning on our fourth-quarter and year-to-date 2018 earnings conference call. Like I said in my press release quote, we are delighted with our results in 2018. And we believe we've got a lot of momentum carrying us into this new year. For the current quarter, we're reporting adjusted earnings per share of $0.96, which is an increase of 54% over the same quarter in 2017 when we reported $0.63 per share.

Our adjusted earnings excludes mostly merger-related costs, as well as some costs associated with a couple of executive retirements. Including these costs, our actual earnings came in at $0.91 per share compared to $0.24 in the fourth quarter of 2017. 2017 earnings were affected, if you remember, by the adjustment in deferred tax asset associated with the Tax Act. For the year-to-date period, we're reporting adjusted earnings of $3.38 per share compared to $2.48 in the same -- in -- excuse me, in 2017.

I remember being in investor conferences back a few years ago talking about our pathway to $1 per share for a year -- for a whole year. And so to see $3.38 for a whole year, and honestly quarterly earnings approaching $1 per share, we feel pretty accomplished here in Jacksonville. I'm going to go through some of the highlights in 2018, but I'm going to focus on the ones that are impactful as we consider our 2019 opportunity. The first item to highlight is where our operating ratios finish the year.

The fourth quarter of the year is normally one of our slower quarters. But during the quarter, we posted an impressive return on assets of over 1.60% and a return on tangible common equity of almost 21%. Granted some of this move higher compared to last year was due to the Tax Reform Act, but even when that is normalized and you're looking at comparable tax rates, we improved our core profitability by over 15%. We focused on two areas of the business to accomplish this.

Going into the year, we knew there was going to be an industry brawl for deposits, and we were prepared with good plans to deal with margin pressures. We redoubled our efforts to reinvest only the incremental revenues from the rate hikes into our deposit costs and we succeeded. The result is that we're reporting exactly the same margin in 2018 that we reported in 2017. Notable like the press release said, given a 46% increase in the balance sheet and that today we are very competitive with our deposit rates.

In other words, we didn't get this result by holding our deposit cost to such a low level that both the costs and the balances are unsustainable. Boiling this down to just two sentences on the call makes it sound so easy, but it has been such a granular effort at the customer level. It's not just happenstance that we managed to zero sensitivity in both years. And I want to commend our bankers and the leaders in our treasury group for seeing us through this rate cycle.

We also made the move in operating efficiency that we've been promising for some time. The announcement of Hamilton and Atlantic Coast, along with the growth we experienced over the past two years, gave us the opportunity to finally make this improvement. Jim and Nicole found an aggressive level of cost savings in our due diligence on these banks and didn't we get that number. We looked at what we were doing administratively, and we managed to bring these new banks on with little to no incremental staff or overhead.

The result is that we moved our efficiency ratio down to 54% in the fourth quarter compared to 60% in the same quarter a year ago. That alone is impressive enough to be the end of the story, but we kept working and found some additional savings opportunities that should push us closer to 50% level very soon. I mentioned briefly about the deals we announced that closed and integrated. All of the deals together amounted to about $3 billion of total assets, about 40 offices or -- and about 400 employees.

Our staff did a great job not only on the systems and customer conversions, but more importantly with the new employees that started wearing our jersey very quickly. I don't know how you can have a successful acquisition if you don't win over the new staff with an inspiring message about the company they're joining and without systems that let them serve their customers efficiently and quickly. Our staff has mastered this element of M&A, and I attribute a lot of our success in this area to their hard work. Credit quality has been a theme for the last half of this year.

And so we've added some slides to our presentation that looks at the portfolio at -- with various segments. We don't really intend to go over those today but are available to questions by phone or in upcoming conferences to discuss. We're looking at several things that give us real confidence about loan quality. First is our diversification in cross-loan-type and geography that inflates us to a real degree against a recession or a slowdown in one area or in one industry.

Secondly are the results. We have very low charge-offs, nonperformers and past dues, especially on the legacy side where we originated the loan. Even on the acquired side, we've performed better than our initial model. For the year, we're reporting 18 basis points of net charge-offs.

And 55% of that relates to the insurance agency fraud that we dealt with in the middle of the year. Just looking at our legacy portfolio to gauge the strength of our credit policies and our credit administration, we experienced only 4 basis points of net charge-offs in 2018 compared to 17 basis points in 2017. And we only have about 20 basis points of legacy NPA. Lastly, our organic growth.

For the year, we came in a little slower than we wanted, mostly due to maybe being too selective on some lower-yielding CRE opportunities. As our commercial construction book A then moved to permanent, we were are also seeing some investor CRE payoffs that surprised us, that neutralized really impressive production numbers out of the bank. The fourth quarter is seasonal for us, more so than in the past, given payoffs in premium finance, some municipal credits and ag production. So being flat this quarter doesn't shake my confidence in our growth goals for 2019.

On Page 11 of the investor presentation, and Nicole shows that loan production in the bank was $605 million, yielding $574 million. That production level is 30% higher than the same quarter last year. And the yield pickup reflects almost 85% of the move in rates this year. I'm looking at our pipeline in Atlanta and Orlando and they're growing.

The pipelines in the rest of our markets in our existing markets are very strong. And I'm confident we'll continue to have a growth story that's as impressive as our operating ratios. We reported double-digit deposit growth this year, which is outstanding given the kind of competition we've all seen. We have 42% growth in checking accounts.

And we reduced our dependency on non-deposit borrowings at the bank down to only 1.5% of assets. Our momentum on the deposit side is an additional strength we have going into 2019. And our loan-to-deposit ratio below 90% finally at the end of the year takes a little bit of pressure off of moving deposit cost higher. On fidelity, we are busy with Palmer and with his teams working on integration plan and on the future.

We're both recruiting bankers in Atlanta that can help us redeploy the cash flows we expect from the indirect portfolio, and we're looking forward to a merger date that we hope will be in the second quarter of this year. With that, I will turn it over to Nicole for some more details on the numbers.

Nicole Stokes -- Chief Financial Officer

Thank you, Dennis. As you mentioned today, we're reporting an adjusted earnings of $45.9 million or $0.96 per share for the fourth quarter. These adjusted results primarily exclude $997,000 of merger charges, $2 million of executive early retirement benefit, $754,000 of expenses related to restructuring in the branch consolidation, $882,000 of the financial impact from Hurricane Michael and $250,000 loss on the sale of the branch building. In addition, we had a prior-year tax benefit of $1.7 million that we excluded that benefit from adjusted earnings.

Including all of these items, we are reporting GAAP earnings of $43.5 million or $0.91 per share. For the full year, we're reporting earnings of $2.80 per share and adjusted earnings of $3.38 per share, which excludes those same-type items. We're reporting GAAP earnings of $121 million compared to $73.5 million for last year, and adjusted net income of $146.2 million compared to $92.3 million for last year. One of the key metrics we focused on in 2018 is the operating efficiency ratio.

Our adjusted efficiency ratio for the fourth quarter of 2018 was 54.1%. And the ratio for the full year was 56.19%. This is a significant improvement and something we're really proud of, especially when you compare it to our fourth-quarter ratio at 60.88% last year and at full year last year at 60.27%. We continue to press for consistent efficiency at low 50% levels due to our announced cost-savings initiatives, which go into effect in the first quarter of 2019, and the fact that we have fully integrated Hamilton and realized the cost savings we were expecting.

I just can't emphasize enough the gratitude I have to our team. Reducing inefficiency ratio down to 54% from over 60% while growing assets over 45% in the same time frame is quite an accomplishment. And it takes every single Ameris team member to make something like that happen. It truly speaks volume of our dedication and focus on financial results and strategy.

Our adjusted return on assets in the fourth quarter, which is normally a slower quarter for us, was 1.61%, and an increase from the 1.53% reported the last quarter and the 1.20% we reported in the fourth quarter of last year. And again, the Tax Reform Act had an impact on that 1.20%. But even on an apples-to-apples basis, our ROA would have been this higher by 15% over our adjusted results of 17%. We continue to believe in ROA north of 150% as an impressive representation of our core profitability in our business model.

We stay focused on key operating results for both acquisitions and organic growth. Our return on tangible common equity was 20.95% in the fourth quarter compared to 13.91% for the same quarter last year. Our tangible book value per share was $18.83 at the end of the year, an increase of $1.05 per share during the fourth quarter. Moving on to the net interest margin.

The yield curve has certainly not been our friend. The pressure on our margins in the yield curve have made margin expansion difficult, if not possible. We were able to maintain a stable margin during 2018 despite aggressive deposit pricing pressure as competitive betas on deposits have significantly risen from the Fed rate action along with economic factors that have limited upward movement for the long end of the curve that typically affects our long-term loan pricing. Our margin excluding accretion was 3.79% for both 2017 and '18 year to date.

On a quarter-over-quarter basis, our margin declined 2 basis points during the fourth quarter from 3.77% last quarter to 3.75% this quarter. Our normal influx of municipal liquidity in the last couple of months of the year always boost our short-term liquidity. And this year it costs us about 3 basis points in the margin in the fourth quarter. For the fourth quarter, our yield on earning assets increased by 3 basis points while our total funding cost increased 4 basis points.

Excluding accretion, our yield on total loans increased 5 basis points from the third quarter to the fourth quarter. Our core bank production yields was 5.74% for the quarter against 4.89% last year and 5.51% last quarter. On the deposit side, we were aggressive on the deposit pricing in the fourth quarter to protect our core deposit against competitive pricing pressure. Even with our aggressive deposit strategy, our year-to-date deposit beta was 40 basis points.

Because of our ability to maintain and grow deposits, we were able to reduce our average balance and home loan bank advances by 80%, which carries a much higher cost of funds of over 200 basis points compared to our average cost of deposits of 79 basis points. Noninterest income totaled $30.5 million in the fourth quarter compared to $30.2 million last quarter. Mortgage revenue, which is cyclical and tends to slow in the fourth quarter increased 10% compared to the fourth quarter last year. The gain on sale premium continues to improve, but still below the premiums that we saw fourth quarter of last year.

Our recruitment of strong producers with steady sources of referrals have helped us to maintain those levels of production. And in addition, we continue to see new home building and home sales in our market, although we're focused on watching credit and economic metric for any sign of weakness, which we have not yet seen. Since I'm discussing mortgage, I thought I'd hit some highlights from our other lines of business. Overall, growth in our lines of business have been strong.

I already mentioned the quarter rate production in the retail mortgage group. But the year-to-date production increased by over 17%.Production in the warehouse lending division increased almost $1.1 billion or 31% during the year compared to last year. Loan production in our SBA division remained strong as total production was over 19% higher this year than last year. And we believe we can continue to sustain long -- strong growth rate in these divisions for the next few years.

It seems like almost every quarter this year I've had to discuss our corporate tax rate, mostly because of clarification from the changes in tax law last year. This quarter, when we filed our 2017 income tax returns in the fourth quarter, we had a large provision to return benefit related to our state tax expense. We excluded that $1.7 million benefit from adjusted earnings. As a result of that same calculation, we also made an adjustment to our 2018 state tax liability in the fourth quarter, which lowered the fourth-quarter tax rate but brings our year-to-date tax rate in line at 21.5%.

This is slightly below the expected rate we had of 22.5%, but we believe is consistent going forward, so our tax rate could be between 21.5% and 23%. On the balance sheet side, I'll touch on that a little bit. Dennis has already touched on some of that. Our total assets increased over $3.5 billion or 45.7% for the year.

Excluding the acquisitions, total assets grew $522 million or 6.7% organically. Organic loan growth was slower this year coming in at $483 million or 8.5%. And as Dennis stated, production was strong but net growth was negatively impacted by early payoffs. On the deposit side, deposit growth has been a challenge and continues to be a focus as we enter 2019.

Exclusive of the effect of the acquisition, the year-over-year deposit growth was just over $549 million or 8.6%. I think that this is a really good time to point out that in this competitive environment we were able to grow core deposits at a faster pace than loans while we kept a steady margin. To repeat, exclusive of acquisitions, we grew loans $522 million. We grew core deposit $549 million.

And I think that's really something to be proud of as it not only grows the balance sheet but it grows the balance sheet in a sustainable way that increases the value of our company for our shareholders. We believe the fidelity announcement only strengthens of our ability to grow core deposits and funds our future growth as we reposition their balance sheet and their operating model into ours. In conclusion, we're proud of our 2018 financial results, but we are already moving forward into 2019 to make it more successful. We're confident in our ability to execute our integration plans while continuing to deliver top quartile results for our shareholders.

And with that, I will turn the call back over to Dennis for closing comments. 

Dennis Zember -- President and Chief Executive Officer

I don't have any comments. We will just go into question.

Nicole Stokes -- Chief Financial Officer

OK. Rackam, we are ready for questions. 

Questions and Answers:

Operator

[Operator instructions] Today's first question comes from Tyler Stafford of Stephens Inc. Please go ahead.

Tyler Stafford -- Stephens, Inc. -- Analyst

Hey, good morning, everyone.

Nicole Stokes -- Chief Financial Officer

Good morning.

Tyler Stafford -- Stephens, Inc. -- Analyst

Hey, Nicole, I just -- I missed it in your prepared remarks, what was the tax rate guidance for this year?

Nicole Stokes -- Chief Financial Officer

21.5% to 23%. From 21.5% to 22.5%.

Tyler Stafford -- Stephens, Inc. -- Analyst

OK, got it. Thanks. So the press release talked about in the first quarter realizing -- starting to realize the branch and the $20 million kind of efficiency initiative, just where are you in that process? Have you realized any so far? And what's the expectation for realizing those this year? And how much do you think might be reinvested to that?

Nicole Stokes -- Chief Financial Officer

Great. Thank you, Tyler. We -- all of those, we still expect, anticipate all of those. There's nothing that's been derailed from that plan.

The branch closing have already occurred. They occurred January 11. So those have already occurred, and the remaining cost savings are full. We current -- we have no plans to change any of those announcements.

Tyler Stafford -- Stephens, Inc. -- Analyst

Got it. OK. Just looking at this quarter expenses, both the intangible amortization and the expense line items were up. Do you have -- with fidelity in the fold, do you have what a reasonable intangible expense that would be for this year? And then was there anything more onetime in the other expense line item in this quarter?

Nicole Stokes -- Chief Financial Officer

Sure. So I'll touch on the intangible really quick. So the fourth quarter, there was a catch up as intangible amortization that was on our core deposit intangible. We finalized the evaluation of that.

And so we had to -- it came in a little bit higher than we had originally booked in June. So we had to catch up six months of amortization in that. So that run rate for the fourth quarter has about $0.5 million of extra that we're not -- it is a one-time catch up this quarter. With the fidelity numbers, I don't think that we've disclosed those quite yet.

Tyler Stafford -- Stephens, Inc. -- Analyst

OK. And then the other expense line, was there anything unusual there? Other than what you called out in the -- as onetime in the press release?

Nicole Stokes -- Chief Financial Officer

No, there's really not. I mean, everything that was kind of a one-time item, which include the executive retirement, the hurricane. The hurricane expenses came in a little bit lighter than we had originally thought, which is good. I mean, we're thankful that that was less than what we had originally anticipated.

Tyler Stafford -- Stephens, Inc. -- Analyst

OK, got it. Switching over to -- just to the margin and the deposit growth you saw this quarter, obviously, very strong NIB growth. And you touched on a little bit in the commentary, but can you just give us a little bit more sense of your expectation for continued noninterest-bearing growth this year, just given the strength you saw in the fourth quarter?

Dennis Zember -- President and Chief Executive Officer

I would -- excuse me -- I would tell you the -- going into this year, we have much more momentum in sales efforts -- successful our sales effort and strategies on the deposit side. I think this year it doesn't feel like there's as much rate pressure on the deposit side. Our name recognition in Atlanta, even though we've not closed the fidelity deal, our name recognition in Atlanta has already spurn some deposit opportunities that we probably wouldn't have expected to have this time last year. So outside of the fidelity transaction, just what we would do organically, I feel good.

And we would do better this year than last. And I'm not saying that -- we probably get 10% or 11% on the deposit growth this year. I'm not thinking it's going to go to 13% or 14% or 15%. But holding the line right there, double-digits on the larger balance sheet, I feel pretty confident here.

Tyler Stafford -- Stephens, Inc. -- Analyst

OK, got it. And then last one for me on USPF. Maybe a little bit more nuanced, but did those loans reprice each year at renewal? And then at renewal, are you able to pick up any higher spreads on those, just given the velocity of those loans?

Nicole Stokes -- Chief Financial Officer

Yes. Those loans typically have an average maturity of about 10 months. And so they reprice every 10 months.

Tyler Stafford -- Stephens, Inc. -- Analyst

And are you...

Nicole Stokes -- Chief Financial Officer

[Inaudible] pickup.

Tyler Stafford -- Stephens, Inc. -- Analyst

Hello?

Nicole Stokes -- Chief Financial Officer

Tyler?

Tyler Stafford -- Stephens, Inc. -- Analyst

Oh, sorry. I thought you were looking at something. What was...

Nicole Stokes -- Chief Financial Officer

No, I was just thinking.

Tyler Stafford -- Stephens, Inc. -- Analyst

What's the -- do you have any idea just what the typical pickup in spreads are on that?

Dennis Zember -- President and Chief Executive Officer

It's maybe about 60 basis points...

Nicole Stokes -- Chief Financial Officer

About 60 points over this year.

Tyler Stafford -- Stephens, Inc. -- Analyst

OK. Got it. All right, that's it for me. Nice quarter.

Thanks, guys.

Nicole Stokes -- Chief Financial Officer

Thank you, Tyler.

Operator

And our next question today comes from Brady Gailey of KBW.

Brady Gailey -- KBW -- Analyst

Hey, good morning, guys.

Dennis Zember -- President and Chief Executive Officer

Good morning.

Nicole Stokes -- Chief Financial Officer

Good morning, Brady.

Brady Gailey -- KBW -- Analyst

So maybe just start on the net interest margin. I mean, you talked about the pressure that the curve has put out there. You've all done a decent job holding that flat. Do you think that you can continue to hold the core margin flat from here? Or do you think there's some downside in '19?

Nicole Stokes -- Chief Financial Officer

No. It's interesting, because when I said last year internally, talked about our growth, our growth was cold and leaving our margins stable. I really had some shock spaces from our team and some pushback. And so the fact that we've been able to do that is remarkable.

So I think it would be hard for me to say that we expect any decline. And I really don't see an expansion. Knowing that our efforts -- kind of going back to Tyler's question, knowing that our effort -- this past year, we really focused on deposit growth. And looking into '19, we're already tweaking some of those initiatives that we have for deposit growth and focusing more on the noninterest-bearing that we all recognize that that's where we really are going to be able to sustain the margin, if not growing those noninterest-bearing deposits.

So that's our focus. So I'd like to say that a stable margin is absolutely our expectation.

Dennis Zember -- President and Chief Executive Officer

And Brady, I would add that if you look at loan production in the quarter going back to my comment that loan production dollars were up, but the yield is as well to 5.74%. If we're coming in at 5.74%, we've got the loan deposit ratio -- loan-to-deposit ratio below 90%. So we probably got a little -- a couple basis points of pickup when the loan-to-deposit ratio moves a little bit higher. But if loan yields are coming in at 5.74%, I just -- I see plenty of opportunity to maintain the margin where we were this quarter.

Brady Gailey -- KBW -- Analyst

All right. And then the back half of the year with LION is the mix, I know their margin is a little lower than yours. What's the impact to the core NIM on having LION in that? It's around, what, 5 or 10 basis points of a negative impact?

Dennis Zember -- President and Chief Executive Officer

I don't -- you may have it in front of you. I don't have that in front of me. When we model out fidelity, say, sort of 12 to 18 months out after we reinvested the order book into sort of more traditional commercial credit, we're not seeing -- their deposit cost are lower than ours. Their deposit mix is about as good as ours, maybe a little better.

So really it's just -- it all hinges on how fast we can reinvest the order book. And it kind of goes back to our desire to recruit as heavy and as hard as we can in Atlanta.

Nicole Stokes -- Chief Financial Officer

That's right. What we modeled -- to add to that Brady, what we modeled was about a 5% growth in fidelity's earning assets at a 3.50% margin. And if you take $400 million of reinvestment with a 250-basis pickup -- basis-point pickup on that indirect auto gets us back. And so we'll -- we feel like we can get their margins back in line with ours, as well as because of the noninterest-bearing deposit on the funding side.

Brady Gailey -- KBW -- Analyst

OK. All right. And then I understand the dynamics of the seasonality in 4Q. You mentioned all the loan categories that go down in the fourth quarter.

I think in the past we've talked about at that 12% to 14% loan growth -- organic loan growth piece. Is that still appropriate for '19 or do you think that growth will come a little -- at a slightly lower pace?

Dennis Zember -- President and Chief Executive Officer

I would say -- I know I really don't want to step out on that. You know, I know if I break it down into segments kind of how we look at it over here, what would the core bank would do, what mortgage would do, what premium finance, municipal, equipment, I -- we see a busy pathway, or a pathway to $1 billion, or maybe a little bit more, in loan growth. So we're at double -- we are, for sure, at double digits. I think it's -- the third and fourth quarter were softer really across the industry on loan growth.

And there's been so many questions about credit quality and when you're going to pull back or if you're going to pull back. The stuff coming through the pipeline is quality as what we've seen for not having to move around in the policy -- credit policy is to get things on the balance sheet. So we still feel pretty good about what we are looking. It's just been a little softer.

It's been a little softer. So I think we're good on $1 billion, I think is what we're seeing. $1 billion of growth. And probably 50% to 60% of that is coming out of the core bank.

Brady Gailey -- KBW -- Analyst

All right. And then last for me is just on the buyback. I know with LION, tending that may disallow you from doing it. And I know your stock still trades at a higher price to tangible, so -- and I know, Dennis, you're sensitive to any sort of dilution there? But at the same time, stock's trading at, like, eight times earnings.

So how do you think about -- I know you all have the $100 million buyback out there. How do you think about actually buying back your stock here?

Dennis Zember -- President and Chief Executive Officer

I have -- I have -- I mean, I'm having a little bit of a back and forth with my -- with our corporate attorney about whether or not we can buy back and with safe harbor rules and all that. And so we've not -- previously we've not got a kind of final statement. When we came out with that, we said, look, we like anything below two times tangible book. And really we are trading cheap on next year's earnings.

We -- so -- we were really always traded at a discount to earnings. We've tied it pretty well to tangible book. But even now we're trading right at or right below two times of book where we finish the quarter or the year. So we would definitely be inclined to buy the stock back, if we could get around safe harbor rules.

And I'd love to do that just to illustrate the company's confidence in 2019. So if we can get around that and get some attorney buy in, we would probably start participating, Brady.

Operator

And our next question today comes from Jennifer Demba of SunTrust. Please go ahead.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Thanks a lot. Appreciate it. Just want to ask a question on credit quality, Dennis. We've seen some issues with leverage loans with another bank this quarter.

Curious if you guys have any leverage loans in your loan portfolio? And if so, what the outstandings are?

Dennis Zember -- President and Chief Executive Officer

Yes. Like shared national credit?

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Or just C&I leverage loans? Not necessarily shared national credits, but could be both.

Dennis Zember -- President and Chief Executive Officer

Yes. We -- well, one, we don't have any shared national credits. Jon?

Jon Edwards -- Chief Credit Officer -- Analyst

No, Jennifer. We haven't really participated in C&I to the extent that we've been looking at any kind of leveraged deals.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

OK. All right. So as you look at your expectations fundamentally in '19, what do you think is the biggest risk right now in your budget?

Dennis Zember -- President and Chief Executive Officer

The biggest risk in the budget, that's probably growth. And I'd say the biggest risk. And I don't want anybody on the call to think that it's a mammoth risk. Again, when I look at the pipeline and the production levels and the referral sources and the way we're sourcing business all across on the one side.

Again, I have confidence. But I think that is probably -- the industry is experiencing softer growth than kind of where we were a year ago. That's probably the key place I think on the margin. I'm not worried about the margin given where loan production yields are and given that we have a lower loan-to-deposit ratio really than we've had in two years.

So we could squeeze out more margin and profitability by just moving higher own back. Deposits, we are competitive on deposit rates. I've looked at what our peers, where our peers are in all the way up to the super regionals. And we're not sitting here with 25 basis points behind that we've got to make up.

So I don't see deposit costs or deposit flows being an issue. Credit quality, I mean, we have 4 basis points of charge-offs on the legacy portfolio. Nonperformers keep going down. I don't really see a lot of risk.

I probably should've started off like that. If there was a risk, it would probably be on the growth side.

Nicole Stokes -- Chief Financial Officer

I think I would add to that one comment that on the growth side that one thing that we're not willing to do is give up quality for quantity. And that's been a question that we've had in several of our investor meetings, of when do you know that it's the right time to kind of take your foot off the accelerator on growth, and we do that know. And we've answered that when loans that come through committing no longer fit into our policy or the structure. And so far we have not seen that.

And that's not -- I mean, our production is still high. But I think that's one thing that's in all of our minds is that that -- going back to your question of the biggest risk and Dennis answer -- Dennis' answer about that -- the loan growth is that we're not willing to jeopardize quality for quantity.

Dennis Zember -- President and Chief Executive Officer

I mean, I...

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Dennis, are you surprised your quality has been so good that's allowed you to grow at that pace?

Dennis Zember -- President and Chief Executive Officer

I don't -- I'm not surprised with that given how strong the economy is. Given -- I mean, the tax rate change definitely made commercial customer stronger. There's no question about it. No, I'm not surprised.

Nicole Stokes -- Chief Financial Officer

It was just the diversification of our portfolio, our lines of business, and the market -- the expansion of our markets through some of these acquisitions that we entered. That has helped our growth rate.

Dennis Zember -- President and Chief Executive Officer

Yes. And I'd like to say, and I'm not trying to be too visionary here. But I mean, in the third and fourth quarter, when growth was slowing down, we didn't just sit on our hands. I mean, it's important to us to hit some numbers in 2019 so we came up with some of the strategies and even if rate -- even if growth does slow, between the things we're working on on the expense side, on the noninterest income side, margin, things we can do here or there.

Even if rates -- even if growth slows, we're going to be able to post an impressive growth in earnings per share that -- and so I don't have to chase a commercial real estate loan at LIBOR 200 when -- if we don't want to do. We can still hit the numbers without having to do that.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

OK. Last question is on, you said you wanted to hire some people in Atlanta. Do you have a specific goal in mind there?

Dennis Zember -- President and Chief Executive Officer

Well, we've got -- I mean, we want to have a $1 billion of growth. We -- along with fidelity, we'll have $1.5 billion or $1.6 billion of indirect auto that's going to cash flow probably in 24 to 36 months. So number-wise, I don't have a number. I have a number in my mind.

I don't want to say right now because it seems too big. But we are going to capitalize on the opportunity to be the No. 1 alternative to super regionals in Atlanta. And that means we've got a good bit of recruiting to do.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

OK. Thank you.

Nicole Stokes -- Chief Financial Officer

Thank you, Jennifer.

Operator

And our next question today comes from Casey Whitman of Sandler O'Neill. Please go ahead. Casey your line is open, please.

Casey Whitman -- Sandler O'Neill -- Analyst

Good morning.

Dennis Zember -- President and Chief Executive Officer

Good morning.

Nicole Stokes -- Chief Financial Officer

Good morning, Casey.

Casey Whitman -- Sandler O'Neill -- Analyst

Just circling back to Tyler's question on expenses. Congrats on getting that efficiency ratio down to 54%. So you referenced 50% efficiency ratio in your prepared remarks. And just wondering to get there, can we assume it takes the full cost saves from LION, so maybe get there in 2020? Or do you think it's possible we can get there even sooner with the efficiency initiatives you guys already announced?

Dennis Zember -- President and Chief Executive Officer

Casey, I'm going to answer before Nicole can say anything. At -- the 50% is -- I mean, just the $20 million cost-saving initiative alone will put us maybe at 50.3% or 50.4%. And I think Tyler did ask if there's going to some reinvestment. I mean, we are -- again, we're looking to hire people.

We're looking in there, especially on the production side. So net-net, we do expect that to be an impact to the bottom line. The growth that we expect this year and the way we expect to grow kind of flat on the administrative side and really with -- we can grow really with just the existing production of resources. That and the $20 million cost-saving initiative is what should carry us to 50%.

Long-term, we're not looking to be a bank with a 40% efficiency ratio. I don't -- we don't -- I don't have to be there. I don't -- we can deliver that kind of customer service. We need to be around 50% to deliver the kind of customer service that we want to have the kind of staffing and systems.

So I don't -- I'm not thinking that we're a bank that's going to cruise into the mid-40s. But we see a pathway with growth and this initiative to get to 50%.

Casey Whitman -- Sandler O'Neill -- Analyst

OK, great. And then maybe just thinking about expenses in the very near term with the efficiency program in place and as you make the hires, I'm guessing throughout the year, should we at least -- can we at least assume some expense reduction in the first quarter? Or do you think it sort of holds flat?

Nicole Stokes -- Chief Financial Officer

No. I think from an adjusted core operating expense run rate, we will have some of those cost saves in the first quarter. And so it will be flat to diminishing in the first quarter.

Casey Whitman -- Sandler O'Neill -- Analyst

OK. And then last question, just the provision this quarter, can you walk us through some of the dynamics, just how much was related to the hurricane? How much is related to premium finance? And then maybe give us a sense to where your outlook is for provisioning levels in 2019, you know, pre-LION?

Dennis Zember -- President and Chief Executive Officer

OK. Sure. The -- for the provision on the hurricane, we really have talked about it for 90 days as to how much of an impact that is and ended up with an additional factor -- key factor that would put in there that added a couple of hundred thousand dollars to the reserves. The impact of the changes that were in the earnings release on the loss factors for service finance and USPF have -- consumer profile and USPF amounted to collectively about $1.1 million, $1.2 million.

So of the increase that we had for the quarter, $1.2 million of it was related to the changes in the loss factors and the additional for agriculture on the hurricane.

Casey Whitman -- Sandler O'Neill -- Analyst

OK. And so how are you thinking about, I guess, provisioning levels in the first two quarters, the year before LION comes on board?

Dennis Zember -- President and Chief Executive Officer

Well, from a budget perspective, I think we're budgeting a provision expense that will accommodate the growth at the current provision that we have plus 15 -- 12 to 15 basis points of loss. So it's certainly down from the -- it's about what the run rate is.

Casey Whitman -- Sandler O'Neill -- Analyst

All right. Thank you.

Nicole Stokes -- Chief Financial Officer

Thank you, Casey.

Operator

And ladies and gentlemen, this concludes our question-and-answer session. I would turn the conference back over to the management team for any final remarks.

Dennis Zember -- President and Chief Executive Officer

All right. Thank you, again, for your time this morning. If you have any questions or comments, feel free to call me or Nicole, and we'll get back to you as fast as we can. Thanks, and have a great weekend.

Operator

[Operator signoff]

Duration: 43 minutes

Call Participants:

Nicole Stokes -- Chief Financial Officer

Dennis Zember -- President and Chief Executive Officer

Tyler Stafford -- Stephens, Inc. -- Analyst

Brady Gailey -- KBW -- Analyst

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Jon Edwards -- Chief Credit Officer -- Analyst

Casey Whitman -- Sandler O'Neill -- Analyst

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