Earnings Call Transcript - ABCB Q2 2025

Operator, Operator

Good morning, and welcome to the Ameris Bancorp Second Quarter Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Nicole Stokes, CFO. Please go ahead.

Nicole S. Stokes, CFO

Thank you, Wyatt, and thank you to all who have joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com. I'm joined today by Palmer Proctor, our CEO; and Doug Strange, our Chief Credit Officer. Palmer will begin with some opening comments, and then I will discuss the details of our financial results before we open up for Q&A. Before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties. The actual results could vary materially. We list some of the factors that might cause results to differ in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information, 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.

H. Palmer Proctor, CEO

Thank you, Nicole. Good morning, everyone. We appreciate you joining our call today. I am very proud of our second quarter results, which again beat expectations and resulted in an increase in our return on assets (PPNR ROA), return on tangible common equity, and an improved efficiency ratio. As you can see, we remain focused on enhancing revenue generation and positive operating leverage. This is evidenced by our 20-plus percent annualized revenue growth in the quarter, which was almost double our expense growth, which pushed our efficiency ratio to below 52%. Our margin continued to expand during the quarter while we grew loans 6.5% annualized, which is within our mid-single-digit guidance. Our 3.77% NIM remains well above most peer levels, particularly thanks to our strong 31% level of noninterest-bearing deposits. Capital ratios grew again in the quarter, which positions us well for future growth opportunities. Our strong second quarter earnings and capital generation increased our common equity Tier 1 to 13% and TCE to over 11%. We also saw improvement across the board in all aspects of asset quality. We grew tangible book value this quarter by 15.5% annualized, passing the $40 level for the first time to finish the quarter over $41 per share. We now have $50 of tangible book value in our sights. We were active in repurchasing stock, buying back $12.8 million in the quarter. Our CRE and construction concentrations remain low at 261% and 45%, respectively. Our strong loan growth was driven mostly by C&I. Deposits grew as well but at a smaller pace. Noninterest-bearing deposits remained our core focus with those balances growing over 3% annualized. Our bankers are well positioned to take advantage of growth opportunities and disruption within our attractive southeastern markets. In fact, production increased 29% from the first quarter, with this quarter having the highest loan production since 2022. Overall, we continue to stay focused on what we can control. When I look out for the back half of 2025, I'm encouraged as we continue to benefit from a robust margin, a solid noninterest-bearing deposit base, a diversified revenue stream, strong capital and liquidity, a healthy allowance and asset quality, a proven culture of expense control and positive operating leverage, experienced local bankers in top Southeast markets and obviously notable scarcity value, given our size and scale in those markets, which allows us to take advantage of the banking disruption the Southeast continues to experience. Overall, I'm extremely optimistic for the remainder of 2025 and into 2026. I'll stop there and turn it over to Nicole to discuss our financial results in more detail.

Nicole S. Stokes, CFO

Great. Thank you, Palmer. We reported net income of $109.8 million or $1.60 per diluted share in the second quarter, which is a notable 21% increase over the year-ago quarter. As Palmer mentioned, our profitability improved to levels well ahead of our recent path with an ROA and return on tangible common equity, both moving higher. Our efficiency ratio improved to 51.63% this quarter compared to 52.83% last quarter as we continue to focus on positive operating leverage, evidenced by our revenue growth of 20.9% annualized well outpacing our expense growth. This quarter, our return on assets was robust at 1.65%. Our PPNR ROA was 2.18%, and our return on tangible common equity was 15.8%. All of these profitability metrics remain top of class. Capital levels continue to strengthen and tangible book value per share increased to $41.32, which was a strong 15.5% annualized growth or $1.54 per share in the quarter. Our tangible common equity ratio increased to 11.09% at the end of the quarter. And we did repurchase about $12.8 million of common stock or about 212,000 shares during the second quarter. We've got about $72 million remaining through the end of October available to purchase. Our strong revenue growth was driven by increases in both net interest income and fee income. Our spread income grew by $10 million in the quarter or 18% annualized. And I'll note here that our average earning assets increased $564 million or over 9% annualized this quarter. In addition to that, our net interest margin continued to expand, up 4 basis points this quarter to a strong 3.77%. And remember, this margin is a core margin. We have zero accretion in that margin. The modest margin expansion came mostly from the asset side with a 3 basis point positive impact in our loans and a 1 basis point from a higher bond yield. The previous benefit to our margin from the lower funding cost has been fully realized with our total cost of funds remaining flat during the quarter. We believe that we will see margin normalize above the 3.60% to 3.65% range over the next few quarters as we expect pressure on deposits as we see loan growth pick up in the second half of the year. We continue to be close to neutral on asset sensitivity. Noninterest income increased about $4.9 million this quarter, mostly from better mortgage. Our mortgage production grew 36% in the quarter to approximately $1.3 billion, and our mortgage gain on sale climbed 5 basis points to 2.22%. Total noninterest expense increased $4.2 million in the second quarter, mostly driven by higher salaries and employee benefits, which related to the stronger mortgage production and our annual merit increases. As I previously mentioned, our efficiency ratio was strong at 51.63%. During the second quarter, our provision for credit losses was $2.8 million. Our reserve remained strong at 162% of loans or 408% of our portfolio nonperforming loans. Overall asset quality trends were favorable with nonperforming assets, net charge-offs and both classified and criticized all improving in the quarter. Our annualized net charge-off improved 14 basis points. Looking at our balance sheet, we ended the quarter with $26.7 billion of total assets compared to $26.5 billion last quarter. Loan growth returned with an increase of $335 million or 6.5% annualized, in line with our loan growth guidance. Loan growth was mostly from C&I loans this quarter, particularly mortgage warehouse and premium finance. Total loan production in the quarter was $1.9 billion, up nicely from last quarter's $1.5 billion of production. And deposits increased $20 million with the continued seasonal decline in cyclical municipal deposits of $77 million, offset by an increase in broker deposits of $82 million. We were able to grow noninterest-bearing deposits, increasing our percentage to 31% of total deposits from 30.8% last quarter, and our brokered CDs represent only 5% of total deposits. We continue to anticipate loan and deposit growth going forward in the mid-single-digit range and expect that longer-term deposit growth will continue to be the governor of loan growth. With that, I'll wrap it up and turn the call back over to Wyatt for any questions from the group.

Operator, Operator

Our first question will come from Stephen Scouten with Piper Sandler.

Stephen Kendall Scouten, Analyst

I guess maybe my first question would be around kind of loan growth trends, what you're seeing from your customers maybe any sort of color into the existing pipelines and maybe within that, the mortgage warehouse lending, if this should be kind of the seasonal peak for that component of the loan book and how we should think about maybe the competition moving forward a little bit?

H. Palmer Proctor, CEO

Yes, I'll answer that quickly. This is Palmer in reverse order, but the mortgage warehouse, certainly, there's seasonality to that. This was a very strong quarter for that. That being said, as it pertains to the other lines and pipelines and production, I think it's probably very reflective of what we're seeing in the market. There is a, I would call, a resurgence of activity much better than what we saw in the first quarter. And I think that we're hopeful that that will continue throughout the remainder of the year and into 2026. At the same time, I think there's a bit of caution that still remains out there. But our bankers are seeing more opportunities. It's certainly becoming more competitive, which is always a good sign of that increased competition in terms of activity. So I would expect that third quarter would end up being very similar to second quarter in terms of activities that we're seeing unless there's some unforeseen event that takes place.

Stephen Kendall Scouten, Analyst

Okay. Great. That's helpful. And then maybe thinking about kind of future growth opportunities, capital continues to build rapidly I think you said in the past kind of a measured approach to kind of how you would deploy that excess capital. But any kind of change in terms of maybe preferences, order of operations there whether that's new hires, potential M&A, additional balance sheet kind of remixing and the like?

H. Palmer Proctor, CEO

Sure. I don't want to sound repetitive, but I believe our bankers and our positioning in the growth markets are strong. We have the right talent in place to execute our plan. This doesn’t mean we aren’t looking for new talent, as we are very selective and expect that new hires will contribute positively. So far this year, we have brought in about 64 new revenue generators while also being conscious about letting go of those who aren’t performing. I see significant opportunities for acceleration due to our current positioning, particularly in the key southeastern growth market. Our main focus remains on organic growth, but we also recognize the potential for stock buybacks given our current trading value, which I find favorable. Additionally, we recently increased our dividend and I don’t foresee many changes in that area. Regarding mergers and acquisitions, it would take a lot for us to be distracted from our current trajectory. We are performing well, and we aim to stay focused on organic growth as we have for the past 5.5 years.

Stephen Kendall Scouten, Analyst

Great. And maybe just one follow-up to that question is on the new hire activity, I mean that seems to be the going trend at an accelerating pace. I mean, if you like, relative to 5 years ago, 6 years ago, everyone now is talking about team lift-outs or new hires versus maybe M&A in the past. How do you differentiate yourself? And how do you convince people to come to Ameris versus XYZ bank that might also be trying to bring that banker?

H. Palmer Proctor, CEO

Yes. I believe that what we emphasize to our salespeople is that we aim for market share rather than just having a presence. When you consider our strong presence in key growth markets, bankers appreciate our commitment and stability in those areas. They want to see that we have a robust organic growth engine and a work environment that is not overly volatile. Our strategy, especially for those generating revenue in core banking, is heavily focused on deposits compared to many of our peers. This allows for clear expectations; they know that if they meet their targets, they will be compensated accordingly. If they struggle, we support them through coaching. Ultimately, accountability is key. Working for a company with a 50-year history and a clear business model minimizes distractions, enabling our team to concentrate on what matters most, which we believe is a major advantage in today's market.

Stephen Kendall Scouten, Analyst

Congrats on a fantastic quarter.

Operator, Operator

Our next question will come from Catherine Mealor with KBW.

Catherine Fitzhugh Summerson Mealor, Analyst

Maybe talk about the margin and maybe the size of the balance sheet, maybe just to circle back first on the balance sheet side. I noticed that you added some securities this quarter. And so curious, you've talked about mid-single-digit growth in loans, and that was still great to see this quarter better than I had expected. But in terms of the bond book, do you expect to continue to build that through the back half of the year? Or as loan growth improves, does that kind of pare back a little bit?

Nicole S. Stokes, CFO

Catherine, we appreciate the flexibility we have in this situation. This reflects the later phase of our strategy to avoid entering the bond market following the AOCI issue a few years back. Historically, our bond portfolio made up about 9% of our earning assets before the pandemic, so we have the capacity to add approximately $200 million to reach that level again. An additional $400 million would bring us to about 10%. We value this flexibility as we can grow both the loan and bond portfolios. I can say we have options in either direction. Looking ahead for the rest of the year, we have about $71 million maturing at a 3.50% rate, and we are currently looking to reinvest at much higher rates, almost 4.75% to 5%. As we manage these maturities, we're keen on adding bonds with attractive yields and favorable durations whenever the opportunities arise.

Catherine Fitzhugh Summerson Mealor, Analyst

Great. Super helpful. And then maybe then to circling back to the margin. You had another margin beat and you're guiding for that to be, I think you said normalized above the 3.60%, 3.65% range just because of deposit costs. So I guess I'm just kind of curious your view on deposit costs, maybe how we think about that in a stable rate environment. So maybe in the third quarter if we don't see rate cuts this quarter, it seems like you still think that will increase a little bit this quarter and then how you're thinking about deposit costs as we start to see cuts?

Nicole S. Stokes, CFO

Yes. Assuming the Fed maintains current rates without any cuts, I believe there will be some pressure on deposit costs. Many are discussing loan growth in the second half of the year. As we see loan demand increase, competition for deposits will also intensify. In the second quarter, our interest-bearing deposits had a production rate of 2.99%, compared to a book rate of 2.83%. This indicates that new production is already slightly higher than our current mix, and I expect this trend to become more aggressive as loan demand rises. If the Fed decides to lower rates, we would likely respond aggressively, similar to our past actions, to reduce deposit costs. Consequently, if the Fed cuts rates, we might experience a slight improvement in our margin due to proactive adjustments on the deposit side, anticipating that loan growth will eventually follow.

Operator, Operator

Our next question will come from David Feaster with Raymond James.

David Pipkin Feaster, Analyst

I just wanted to follow up maybe on the commentary on the growth side. It sounds like the increase in your origination activity that you saw this quarter is really more of a function of your bankers being increasingly productive and gaining share versus a real improvement in demand. Is that a fair characterization? And then I was hoping you could elaborate too on your commentary on the competitive landscape. Are there any segments or markets that are notably challenging and whether competition is primarily centered on pricing? Or have you seen competition shift towards more underwriting structure and standards too?

H. Palmer Proctor, CEO

Yes, it depends on the business line. Overall, we're seeing increased activity, which seems to come from customers and prospects becoming more engaged. Our bankers are actively making calls, so no one is on the sidelines. People are moving forward with their initiatives, particularly in the middle market space. With our company's scale and size, we can effectively address borrowing and treasury management needs. We focus heavily on treasury management, which has positively impacted our deposit growth. However, there's significant competition out there that is now extending beyond just pricing. We're noticing some structural changes with increased aggressiveness in the market. It's a sign that more people are seeking growth, and we hope this trend continues as we monitor our pipelines. In specific verticals, Equipment Finance and premium finance are performing well, while retail mortgage volume has been somewhat subdued due to rates. If we see rate improvements later this year or next, we can quickly ramp up and take advantage of that. The most encouraging aspect for us is the continued growth in deposits, prioritizing deposits over just loans and pricing. Overall, I have a more positive outlook for the third quarter compared to what we experienced in the first quarter. Does that address your question?

David Pipkin Feaster, Analyst

Yes. No, that's super helpful. And then maybe, Nicole, as you talk about that 3.60% to 3.65% margin guide, is that purely a function of higher marginal funding costs to support the growth or does that incorporate any Fed cuts in that? And just kind of how do you think about the timeline of hitting that range? Is that kind of a step change that you would expect here in the third or fourth quarter? Just kind of curious some of your thoughts on that.

Nicole S. Stokes, CFO

Yes. That assumes no rate cuts, creating a flat environment. If the Fed were to cut rates, we might see a slight increase since we plan to be aggressive with deposit repricing, and eventually, loan pricing would align. The 3.60% to 3.65% guide is intended for the long term. I don't anticipate a sudden drop in the third or fourth quarter; rather, it's a long-term margin projection looking out about 18 months. We expect some pressure on deposits as loan growth returns, along with competitive pressures. We may need to raise deposit rates and potentially see some competition on the loan side too. Overall, I believe we will experience some compression in our margins, but we are positioned well to compete despite giving up a bit for growth. Our focus remains on increasing net interest income and growing earning assets.

David Pipkin Feaster, Analyst

I want to ask about the mortgage segment. It's good to see the seasonal increase is mostly driven by purchases. I'm interested in the underlying trends you're observing there and how your current capacity looks. I know you've improved efficiency significantly, but I wonder how prepared you are if we experience a refinancing wave as rates possibly decline. We've seen how quickly that can change. Additionally, what are your thoughts on the gain on sale aspect as we look ahead?

Nicole S. Stokes, CFO

For the mortgage segment in the third quarter, I expect it to be similar to the second quarter, possibly a slight decrease of around 5% to 10% in production based on current trends. The gain on sale has improved from 2.17% to 2.22%, and I hope it will remain in the 2.15% to 2.25% range. Overall, the third quarter will likely mirror the second quarter. In the event of a refinancing surge, our team is fully prepared and we do not need to hire more staff. We have the resources in place to take advantage of any opportunities that arise if rates decrease.

H. Palmer Proctor, CEO

And David, as we've said, the nice thing about mortgage, when you look at the profitability of it as it stands today relative to peers, it's really phenomenal how well they've done. And this is kind of a baseline. So any improvement we get in rates from here would just be icing on the cake.

Operator, Operator

Our next question will come from Russell Gunther with Stephens.

Russell Elliott Teasdale Gunther, Analyst

I had a margin follow-up question to start, please. Nicole, it would be helpful to get a sense for the cadence of the NIM over the course of the quarter from that kind of 3.69% March start to where we ended up at 3.77% and if possible, any commentary on where the June NIM shook out?

Nicole S. Stokes, CFO

Yes. So the margin was kind of growing throughout the quarter. It was just a steady growth month-over-month. And then for the month of June, there were some anomalies. So I hate to get this number out because it was higher than the 3.77%, but there were some anomalies in that margin. So kind of bring me back to saying kind of that flat 3.77% margin maybe a few basis points up or down in the third quarter, but eventually, over the long term, being willing to give up a little bit of our margin to get the growth.

H. Palmer Proctor, CEO

On Balboa, we ended at about $1.5 billion in Equipment Finance, which represents approximately 7.2% of our loans. The overall charge-offs for the company, which Equipment Finance has played a part in, have performed as we anticipated since we adjusted their credit box in 2023. Over the last four rolling quarters, we have aligned those charge-offs within the target range we were aiming for in Equipment Finance.

Russell Elliott Teasdale Gunther, Analyst

Okay. Got it. And then just last one for me. Great expense results, both this quarter and on a year-over-year basis, efficiency ratio lower on both those data points. On the call it would be helpful to just get a sense for how you're thinking 3Q looks from a noninterest expense perspective.

Nicole S. Stokes, CFO

Yes. I think 3Q, when you think about what the bump in second quarter compared to first quarter was really related to that increased production and mortgage. And so if we see that production come in consistent those expenses should be consistent. And then we also have the merit increases that we go into effect April 1 for us. So we had a full quarter of merit increases. So I see the third quarter being consistent with the second quarter. I think consensus has it bumping up just a little bit. And I think that kind of makes sense. That's reasonable to me. So I would say somewhere in that $156 million to $158 million, which is right kind of where consensus is and consistent with the second quarter.

Operator, Operator

Our next question will come from Christopher Marinac with Janney Montgomery Scott.

Christopher William Marinac, Analyst

Nicole and Palmer, I wanted to dig into the deposits. I think it's Slide 11 in terms of just the numbers of accounts as well as sort of the average. What's the right way to think about that over time, not just quarter-to-quarter but thinking of it from last year and the prior year, you've been giving us this data for a while.

Nicole S. Stokes, CFO

Yes. No, we have been very consistent. I think that's one of the things that we probably don't brag on ourselves enough about is our very, very granular deposit base and that you don't get this kind of deposit base overnight. So this is a 50-year history franchise of growing our deposits. And when you look back at our deposits, we did a kind of back look of how many have been since the Fidelity acquisition, how many came in from Fidelity and then how many prior to that. And we have a really strong core deposit base that have been here for a long, long time. Even through our acquisitions, those have had a long history, and we've been able to retain those deposits. So I think this is very, very consistent, the very granular deposit base that we've had. This is not a new thing.

Christopher William Marinac, Analyst

Great. And do you think that the pace of deposits will look different in the next couple of quarters? I know part of the margin guide kind of implies that. So I'm just trying to think about if we should see an acceleration in the next few quarters?

Nicole S. Stokes, CFO

We continue to look and lead with deposits. And I'm so proud of our bankers for that, that we don't just have loan officers; we have bankers and then they're asking for the deposits and growing deposits. So I think the big question there for us is we know that we can grow deposits, but it's at what rate can we grow deposits. And then really, we've been so focused on the noninterest-bearing and to have 31% of our franchise in noninterest-bearing. The question is, can 31% of our growth to be in noninterest-bearing. So while we continue to focus on that growth in noninterest-bearing, the percentage to the total may change a little bit. And then obviously, coming in kind of the end of the third quarter into the fourth quarter, we have all those cyclical municipal funds that flow back in. So that always kind of makes us look a little bloated on deposits at the end of the year. But again, we remain focused on growing deposits. And we have some runway with FHLB advances; our brokered CDs represent only 5% of our funding. But we've really focused on those, growing those core deposits and that's definitely the goal is to continue to grow that. Hence, why my guidance is that we are willing to maybe pay up for that growth if we need to.

Christopher William Marinac, Analyst

And then I had a question on the reserve. Just curious on if there's any qualitative changes to some of the factors behind the scenes this quarter or some of those possibilities as drivers of your reserve in the next several quarters?

H. Palmer Proctor, CEO

Yes, Chris, we did have a little bit of a key factor as it relates to investment office. And the office slide. We now have that reserve at about 3.8% for that sector now.

Christopher William Marinac, Analyst

And then in general, given just the low level of charge-offs and overall low level criticized, does that give you flexibility to simply grow into the reserve? Or do you think of it any differently?

H. Palmer Proctor, CEO

No, we do. I mean, having a robust reserve, which we do at the 1.62%, we consider that top of class among our peers and you look at it through two different lenses. One, the offensive strategy and that we grow into it, which is what we want to do. But if you turn into a credit cycle, it's there as a defensive position as well.

Operator, Operator

Our next question will come from Manuel Navas with D.A. Davidson.

Manuel Antonio Navas, Analyst

Getting back to that kind of long-term NIM range of 3.60% to 3.65%, you're going to sit above it for some time. What could bring that range higher? Is this just like a steeper yield curve, success on deposits? Just kind of some of the drivers there.

Nicole S. Stokes, CFO

I'll go with all of the above. So yes, I think that success on the deposit side would absolutely drive it higher if the Fed cuts and we are able to reduce the deposit side as we typically would or historically would. That would give us a little margin comp. And then also right now, all of our growth is margin accretive right now. When you look at the second quarter, what our loan coming on rate loan production rate versus our deposit production rate, all of our growth is margin accretive. But I'll tell you for this quarter, if you look at our loan rate of 6.76% kind of all-in production and our interest-bearing deposits were at 2.99%. So that's right out of 3.77%. So what really is going to drive that is that growth in noninterest-bearing deposits. So if we get the growth in noninterest-bearing deposits that brings down our total production of deposits, that's really what could also kind of help the margin there. But we are still proud to say that our growth is margin accretive at this point.

Manuel Antonio Navas, Analyst

I was going to ask you about loan yields. I appreciate that kind of description of the marginal NIM. How are noninterest-bearing pipelines right now? I know they're lumpy, it's hard to project, but just kind of some thoughts on that side of the deposit base?

H. Palmer Proctor, CEO

Yes. I would tell you that they're accelerating. It's very similar. It kind of mirrors our loan production. And a lot of that, as I mentioned earlier, is attributed to our treasury management efforts. In addition, obviously, just the bankers. But we're seeing more and more opportunities. And leading with deposits has really been helpful in our approach there. And I think that's really what's driving the opportunities that we're seeing as of recent. So I would tell you that we're encouraged by what we're seeing as we move into the second half of the year.

Manuel Antonio Navas, Analyst

I appreciate that. Was there a one-time adjustment in securities that led to the increase in yield, or are you simply adding higher-yielding securities this quarter?

Nicole S. Stokes, CFO

That is adding our securities. So during the quarter, we bought about $200 million that came on at $488 million, and we matured out about $260 million that was at $277 million.

Operator, Operator

This will conclude our question-and-answer session. I would like to turn the conference back over to Palmer Proctor for any closing remarks.

H. Palmer Proctor, CEO

Great. Thank you, Wyatt. I want to thank all of our teammates for another outstanding quarter. We remain focused on producing top-of-class results, growing our tangible book value per share, and maintaining our strong core deposit base. We are very well positioned to take advantage of future growth opportunities in our attractive Southeastern markets, and we certainly appreciate your interest in Ameris Bank.

Operator, Operator

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