Good morning, and welcome to the Ameris Bancorp third quarter conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Nicole Stokes, Chief Financial Officer. Ma'am, please go ahead.
Great. Thank you, Jamie. 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 opening comments, 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 statement as a result of new information, future 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. With that, I'll turn it over to Palmer.
Thank you, Nicole. Good morning, everyone. I appreciate you taking the time to join our third quarter earnings call today. Our focus at Ameris continues to be on building core franchise value through profitable growth, strong profitability metrics, and disciplined balance sheet management, including our priority of tangible book value growth. This quarter again supported all of these core fundamentals and resulted in a five-year record high EPS of $1.73 per diluted share. During the quarter, we experienced good organic growth and average earning assets at approximately 5% annualized and deposits at 6% annualized. Importantly, we were able to drive this growth while protecting our above-average margin of 3.87% in the quarter. All profitability metrics remain strong, including our ROA of over 1.60%, our PPNROA of 2.27%, and our return on tangible common equity of 15%, even with our strong capital levels.
We continue to concentrate on profitable growth and positive operating leverage, which is evident in the improvement in our efficiency ratio, hovering around 50% for the year. Our disciplined management of the balance sheet has us well positioned for the future. Our reserve coverage is strong at 162% of total loans, which represents 315% of portfolio NPAs. Our capital level with over 13% Common Equity Tier 1 positions us well for future organic growth in our attractive southeastern markets. We will also consider additional share buybacks as our board recently approved another $200 million repurchase authorization. On an annualized basis, reported tangible book value per share grew 5% in the quarter. Excluding the impact of AOCI, tangible book value growth would have been over 14%. Our loan growth production was $2.3 billion in the quarter, which was consistent with last quarter's remaining at a very healthy level.
Our profitable loan growth was driven by a mix of C&I, residential mortgage, and construction, and was partially offset by elevated CRE payoffs. On the deposit side, we saw growth in the mid-single digit range, with our focus being on core deposits and relationship banking. We have a granular deposit base and almost 30% of our funding from non-interest bearing accounts and almost 48% of our accounts are checking, both non-interest bearing and NOW accounts. Credit quality normalized some in the quarter, but remains very favorable compared to peer. CRE and construction concentrations finished the quarter at 251% and 50%, respectively. Overall, I am very pleased with our financial performance in the third quarter. We are well positioned as we go into 2027 as we continue to focus on organic and profitable growth in our attractive southeastern footprint.
I will stop there and turn it over to Nicole to discuss our third quarter financial results.
Great. Thank you, Palmer. In the third quarter, we reported net income of $116.1 million or $1.73 per diluted share. Our return on assets was a 1.61%, our PPNROA was 2.27%, and our return on tangible common equity was 15.01% for the quarter. Our adjusted efficiency ratio improved to 49.15% this quarter from 50.42% last quarter, as we saw an increase in revenue and a decrease in expenses. For the year, our adjusted efficiency ratio is 49.84%, and I anticipate ending the year around that 50% ratio. Capital levels continue to increase, and tangible book value per share grew to $45.65 during the quarter. Our tangible common equity ratio increased to 11.14%, and our total risk-based capital was back up to 15%. While we were not active in the buyback this quarter, our board has recently approved another $200 million share repurchase plan.
Net interest income increased $5.2 million this quarter for a total of $257.7 million. We were pleased with our net interest margin of 387 basis points, just one basis point below the 388 basis points we reported last quarter. Our loan yield improvement was offset by the increase in funding costs, and our bond portfolio declined slightly as expected, as we had a bump in the bond yield last quarter from the inflation bonds. Our asset liability sensitivity is very close to neutral, but we do believe that some margin compression is possible over the next few quarters due to higher deposit costs and competition. We continue to focus on profitable growth, and we expect that our net interest income will continue to grow through that earning asset growth. Adjusted non-interest income decreased approximately $2 million this quarter, mostly from lower mortgage revenue as the production fell.
Mortgage production declined about 13.7%, but our fees only declined about 10.1% this quarter. Again, another testament to our focus on profitable production and profitable growth. Adjusted non-interest expense also decreased this quarter by approximately $2.5 million, driven mostly by lower mortgage related compensation. Overall asset quality remains strong with non-performing assets and net charge-offs at low levels. Annualized net charge-offs improved to 19 basis points this quarter. We continue to anticipate net charge-offs in that 20-25 basis point range near term. On the provision, we recorded about $12.6 million of provision in the third quarter, which was a decline of about $4.7 million compared to last quarter. Our reserve coverage remains strong at 162 basis points.
Looking at our balance sheet, we ended the quarter with about $28.5 billion of total assets, up slightly from the second quarter, but our average earning assets grew $300.5 million in the quarter, or 4.5% annualized. Loans grew $173.1 million or about 3% annualized, with our loan pipelines and production remaining at healthy levels. Total deposits grew $319.4 million, partially helped by the beginning of our seasonal inflows of public funds. Our non-interest bearing mix remains strong at 29.2%. We project loan and deposit growth in the mid-single digit range near term and expect that longer term deposit growth will be the governor of loan growth. Overall, it was another outstanding quarter for us. With that, I'm going to wrap it up and turn it over to the operator for any questions from the group. James, please go ahead.
At this time, we'll begin the question and answer session. If you would like to ask a question, please press star and then one using a touch tone telephone. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. If you would like to withdraw your question for any reason, you may do so by pressing star and two. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from Russell Gunther from Stephens. Please go ahead with your question.
Hey, good morning, guys.
Good morning.
Morning, Palmer. Wanted to start off on the loan growth discussion, Nicole. Appreciate the mid-single digit near term outlook. I guess maybe could we start with how you're thinking about the mix of that growth in the fourth quarter, perhaps what the CRE paydowns easing might contribute there. Then just stepping back, bigger picture with the backup in rates and anticipated future hikes. Is there an absolute level of rates where demand destruction occurs and that general target of mid-single digit growth becomes at risk?
I would start by saying that the mix of the loan growth, I think will be very consistent with what you saw this quarter. Assuming that loan, that the CRE payoffs, if they slow a little bit, you could see some growth there as well. When we look at our production, we were really pleased with the production as diversified as it was, and some of that production will fund in future quarters. Again, looking at CRE, the premium finance, residential, we really have a lot of opportunity for diversification. So I think it'll be very consistent with what you saw this quarter. Hopefully, I always say I'm a split personality on these CRE payoffs. I certainly like seeing the payoffs that shows a healthy market, and again, when the payoffs are coming off 100 basis points less than our production, that's good for the margin.
I like it from that side. But then the other side of me as a CFO, I hate to lose earning assets. But again, if we can refill them at 100 basis points higher, we certainly will take that. Assuming CRE payoffs level off, we could see a little bit of growth in CRE next quarter as well. But I think it will be pretty diversified. Then I think your second question was on the loan rates, and at what point do we start seeing some pullback? I think for us, we have been so focused on profitable growth, and that we have said for many, many quarters now that we do not think we need to get bigger just to get bigger. We need to get bigger to get better. We have been focused on that profitable growth, and I think that will continue into next quarter.
Those loans, on the loan side, we expect the deposit side to be commensurate. We will continue to focus on that profitable growth and kind of mid-single digit loan growth going forward.
Got it. Okay. Excellent. Very helpful. Thank you. Then maybe just switching gears onto the expense side of things. You kind of gave us where you would expect the efficiency to shake out for the year. How are you thinking about 2027? What is a reasonable kind of growth rate as you guys contemplate continued investments in lending talent and tech?
Yeah, I think that right now consensus has us growing at about 6.8% - 7%. I think that might be a little bit aggressive, but I think the first quarter is very close. I think where we start getting into maybe consensus being a little bit high is when we look going into the second, third, and fourth quarter. That right now, I think consensus has expenses going up, but they also have mortgage revenue going up. Assuming mortgage revenue, again, kind of take that noise out for a minute and assume just core expenses. I think probably somewhere in the $165 million to $169 million a quarter for the year. I think consensus might be a little bit high there as we are getting more into our budget season. But I do think that mortgage, of course, could change that.
If something happened in the rate environment and we were surprised and we saw some room for mortgage to grow, you would see some expenses grow there. But we are at this point anticipating mortgage to be pretty consistent, maybe even down a little bit next year. So those expenses would be affected as well.
Okay. Understood. That is really helpful. Thank you guys for taking my question.
Thank you.
Our next question comes from Woody Ley from KBW. Please go ahead with your question.
Hey, good morning. Maybe a follow-up on the profitable growth. We saw a pretty big move in rates this past quarter, got the Fed rate hike. Are y'all seeing the benefit of that on new loan production, or is competition impacting some of that benefits?
Woody, good morning. Yeah, I would tell you, when you look at the growth in our markets, which are very competitive markets, but growth markets, the thing we're focused on, as Nicole touched on, was that profitable loan growth. Our growth is really going to be guided by the opportunities in our market and the economic conditions surrounding that. It will remain measured and disciplined and profitable. The thing we're focused on too is we have been able to grow mid-single digits while also protecting the NIM, and that is important to us. We do not feel like we need to chase deals. We are seeing a lot of irrational pricing out there. We would rather be measured in that approach than be foolish in trying to compete with some of the rates that we are seeing out there.
There is a lot of disruption, if that is part of your question, and so that does present opportunities. How those deals are priced will come down to our disciplines here at the bank, and we are pretty disciplined.
Got it. That is helpful. Maybe shifting over to deposit costs. I was just interested if how you all were thinking about deposit betas in an up rate cycle, especially if we got additional rate hikes. If you all had to spot deposit costs at the end of September with the September hike.
We do. When we look at betas, the rate hike was so late in the quarter that I hate to even give the betas out because I think a lot of that's going to happen in the first month of the fourth quarter, in October is really where we're going to see that. When you look at our prior up cycle betas and then our down cycle betas, we would expect this cycle to be very similar to the prior cycles. Right now we're beating that a little bit, but again, I think some of that could come out in the fourth quarter. When you look at our spot deposit rates for the end of the quarter, our production for the quarter on new production. I think there's two questions there, production versus spot rates.
New production was just slightly higher than the second quarter. But when you look at September production versus June production, they were actually almost exactly the same. When you look at spot deposit costs for the last month, just for the month of September, it was about 3 basis points higher than the quarter. But our assets were about 5 basis points higher. There was definitely a positive trend that we liked at the end of the quarter.
That's great to hear. I guess with deposit costs increasing quarter-over-quarter, I'm just curious if the increase is a reflection of the competition driving it up. It feels like the industry might have front ran the hike a little bit. It sounds like there will be that catch up in the fourth quarter as you talked about.
I do. I think you're actually right on both accounts, if that's possible. I do think that deposit competition. When we look at our margin, we've got some headwinds and some tailwinds, and it's always that way. From a tailwind perspective, we are slightly asset sensitive, so every 25 basis point hike should be about 1 basis point of margin from a modeling perspective. The steeper curve and Fed increasing helps us with our balance sheet. But then the headwind against that, which is exactly what you said, is that competitive pressure. We feel it definitely on the deposit side of the asset spread and the deposit pricing. We're watching both of those very closely. The other piece of that is that deposit mix. If we start seeing migration from non-interest bearing into interest bearing.
Both of those two things would affect the deposit cost, the mix as well as competitive pricing, which is why my margin guidance is down a little bit. I think we are going to bump around a few basis points up and down for a few quarters as all this settles.
But one other point on that I think is important to remember from an industry perspective is that, we like to talk about all these increasing deposit costs, but what you need to remember is, assuming you have got discipline, most people are going to also price up on the loan side to offset a lot of that deposit cost. I think people are under the assumption that loan rates are going to stay the same and deposit rates are going to go up. Well, that is If you are running that model, it is going to be short-lived. I would tell you that the way to look at it is, any increase you see in deposit costs, hopefully the majority of that will be passed along in the loan costs too. So there will be a balance there as we go forward as an industry.
Yeah. That is really helpful color. Well, that is all for me. Thanks for taking my questions.
Thanks, Woody.
Our next question comes from Stephen Scouten from Piper Sandler. Please go ahead with your question.
Yeah, good morning. Thanks. I want to maybe jump in a little bit off that last comment that you made, the ability to get higher loan rates as rates move higher and deposit costs seem to be going up. What do you feel like is the appetite for your customer base in your markets today, maybe kind of the economic stability and ability to kind of absorb slightly higher rates on the borrowing side?
Yeah, I think it's there. I think there's a lot of capacity there, not just for our bank, but for the industry, because when you look at the sponsorship behind a lot of deals today and the equity in the deals today and the cash in a lot of the deals today, and debt service coverage, more importantly, under stress scenarios, there's a lot of capacity there, unlike what we've had in prior times, especially during the recessionary times. I think a lot of customers, and especially if it's gradual, there's 25 basis points and 50 basis points. Now, if it's erratic and we jump up 75 basis points to 100 basis points in short order, that does have a shock effect. But in terms of especially our C&I group, to be able to absorb that additional rate increase, that capacity is there the way we underwrite.
I think the most important thing is just making sure you're being disciplined, not chasing deals in terms of getting tight on that debt service coverage from the start. Because if you're already tight from the beginning and then you do have an increase in rates, which we all expect, then that's where things can get a little heated. But right now, based on our book and what we're seeing under the stress scenarios which Doug and his team run, we've got plenty of capacity there, which is encouraging to see.
Okay, great. That is helpful. You guys, maybe if we could talk about the mortgage business a little bit, have always had a really stable, strong mortgage business, even in the face of a lot of volatility. Can you talk about maybe how the purchase business in particular is trending as of late? If you expect any material help from, if it holds, of course, this move back down slightly in the ten-year.
Yeah, it is all relative, right, in terms of timing in the mortgage industry. We are getting ready to move into some seasonally slower quarters in terms of fourth quarter and first quarter. What we have also done, as you have seen this quarter, is you have got to make sure that the expense side is proportionate to the revenue decline, and that is what we have done a good job of, is managing those expenses. I think right now, there is limited inventory. Our purchase mix right now still runs 90-plus percent purchase versus refi. When you are in transient markets like we are in some of the higher growth markets, there is still opportunity there.
I think a lot of folks, what we are going to find is if there is a pullback in the ten-year, that most folks are going to go ahead and take advantage of that, because I think people have come to the realization that rates are going to remain relatively or higher in a higher rate environment for an extended period of time. So what we are encouraging borrowers to do is go ahead and make that purchase and allow us to fund that, and then we can always refi later. I think any pullback we see could be very helpful to the volume, which for all of us has moderated considerably, especially as we move into fourth and first quarter.
Yeah, that makes sense. Just at a high level, how do you guys think about the efficiency ratio on average for that business versus the rest of the bank?
Well, it is running higher now than we would like. Typically for us, it runs in the 60 range, and now it is considerably higher than that just given where we are. We have been able to maintain. We had a little improvement in the gain on sale this quarter, too. I think the key to having that efficiency there is making sure that as your revenue declines, your expenses are also declining at the same time. Back to my earlier point, that is what has been evident in how we have operated our mortgage company, and we will continue to. On the flip side of that is you garner some benefit from technology and automating everything you have got in terms of being able to lever up the platform.
We spend equally as much time on trying to figure out how we can build capacity into the platform with what we have, as opposed to just whacking expenses.
Yeah. No, that is very helpful. Great. Thanks so much for all the color. Congrats on a really good quarter.
Yeah. Thank you.
Our next question comes from Christopher Marinac from Brean Capital. Please go ahead with your question.
Hey, thanks. Good morning. Just wanted to ask about a scenario where deposits grow faster than loans. Would you tend to kind of put the excess liquidity just in the short-term cash, or could you do more in the securities portfolio over time?
We could definitely do more in the bond book. We are at about 10% of earning assets. So we definitely have some room that if our deposit growth outpaced our loan growth, we could definitely put it in the bond book. When you look at what our purchases for the quarter in the bond book versus some coming on rates of some loan categories, we would definitely feel comfortable going into the bond book.
Great. Thank you for that. Then just a quick question about sort of hiring updates, whether it is on the loan side or other parts of the company, just in terms of how you see your team building out in the future.
Yeah, I hate to sound like a broken record here, Chris, but when I look at what our expectations are internally and for consensus out there in terms of mid-single-digit growth, we feel very comfortable with that with the existing team. Now we're always in a mode of being able to upskill and train our employees to make sure that the production's where it needs to be. But in terms of our necessity to have to go out and hire and load up on expensive new hires to obtain our objectives, that's not something we have to do. We're very fortunate that we've got a stable group of wonderful bankers that have been on board, and they know how to produce. For us, we try and maintain that kind of net zero, which is how we were this quarter.
We make some upgrades as we go, but don't feel the compulsion nor the need to have to go out and do excessive hiring. We're always looking for good talent, that being said, and we'll continue to be selective there. But that's kind of where we stand right now, and we feel very comfortable with the existing team we have in terms of maintaining and exceeding goal.
Oh, that's very helpful, Palmer. I appreciate that. I guess that just reinforces that there's still positive operating leverage that we should expect in the future.
Absolutely.
Thanks for taking my questions. I appreciate it.
You bet.
Thank you.
Our next question comes from David Feaster from Raymond James. Please go ahead with your question.
Hey, good morning, everybody.
Morning, David.
I wanted to start. Maybe let's start on the capital side. Look, you got a fortress balance sheet, right? Obviously, that's a huge advantage, a high-quality issue. But given your profitability, you're going to continue to accrete capital quickly, even as growth accelerates back towards a mid-single-digit pace. I'm just kind of curious, how do you think about priorities today? It's obviously not burning a hole in your pocket, but curious how you think about the buyback, or other opportunities for deploying that capital. I just wanted your thoughts.
Yeah. I would tell you that we've been very consistent in our response there, and that has not changed in terms of our priority stack. First and foremost would be obviously organic growth. I will tell you, having excess capital in this type of environment with as many crosscurrents as there are from a macro environment, and the economy as it stands today, we like where we are. If you look at our return on equity, it's still very solid, even given the excess capital we have, which is an important distinction. Secondary to that, you've got the opportunity for buybacks, and as we said in our earlier statement, the board have renewed a $200 million buyback. So we'll continue to be opportunistic there. Our dividend is very modest. I don't see a whole lot of change there with the dividend.
Last but not least would be selective M&A, but most of the targets that we like are not for sale. It takes something very. It's got to be a cultural fit, it's got to be a financial fit. Unless something like that unique unicorn kind of came along, that would probably be last on our list.
Okay. That's helpful. Touching on credit, I was hoping you could touch on, we saw criticized, classified NPAs all tick a bit higher. Curious if you could talk about what you're seeing on the credit front, what you're watching closely, and then any underlying trends in the Balboa equipment finance business and what you're seeing there.
Yeah. David, this is Doug. Thank you. If I can start at the back, equipment finance is still performing where we want it. You know that a couple of years ago we retooled the credit box and very happy where they're performing today. So that's going the way we want it to. If you look at the normalization, we had some migration in and out of non-pass, and sometimes that can be lumpy, but we're working through that with customers as we speak. We don't see this as being systemic, and we are, as Nicole said, we're reiterating our guidance of charge-offs at 20 - 25 basis points. If you step back and look at our criticized ratio at 115 basis points, when you compare it to peer and the midpoint for our peer group, we're less than half of where they are.
I'll just end where you used your term, you said fortress balance sheet. We do have a fortress balance sheet, which does include a very good reserve as well.
Yeah. That's great.
Yeah, I think credit always deserves scrutiny, David, but so does perspective. When you look at the asset quality, which ours is well above peer and remains really a clear strength for our franchise.
Yeah, for sure. Maybe just one more quick one. Just wanted to get a pulse of your clients from your perspective. You got a broad footprint across some really strong markets. Just curious, it sounds like production was really good. To your point, getting more payoffs and paydowns is indicative of a strong market. I'm curious how demand's trending. How's the pipeline looking heading into the fourth quarter? Are you starting to see anything fall out of the pipeline that may not pencil as rates are rising? Then just any commentary on the competitive landscape from the lending standpoint.
Yeah, I'll kind of take that in reverse order. The landscape remains competitive, but that's something we're accustomed to in our high growth markets. I will tell you just on calls that I've been on personally, the pipeline right now is, the good news is it was up at the end of the third quarter relative to where we were even in the second quarter. So the pipeline's remained full. We are not seeing any fallout at this point. I would tell you anything that's underway is still being pursued moving forward. The real question comes in on new projects and new opportunities and people having a little bit of cautious optimism, if that, in terms of moving forward. So I think it's really going to be predicated on the activity we see in the fourth quarter from a macro standpoint.
Right now, I think existing pipelines are full, and I don't see any fallout. I think as we move into next year, it'll be interesting to see how much people start to, and typically around election time anyway, people use that as an excuse to maybe hold off on new initiatives. It doesn't mean that they still have a business to operate and run. I think, just based on what we're seeing right now, everything we have is in the pipeline, will remain in the pipeline. I do think, to your point, we'll probably see some caution as we move into the fourth quarter and first quarter of next year.
If I could just ask one quick follow-on. Just kind of curious how the Nashville teams, they've only been here three or four months, but curious how they're contributing to that.
It's reminiscent of what we see in a lot of our high-growth Florida and Georgia markets. They're a small but mighty team. As I told everybody earlier, the way we're going to judge their success, if you will, over the short time they've been here at the end of the year, is going to be on the number of relationships they're building. That's probably what's most encouraging to me. When I look at the relationships they're building, they're leading with the deposit sides. When I look at the mix and the funding supporting the loan growth, it is exactly what we had hoped. It's measured in terms of the growth. But what we're seeing, we're really encouraged by and hope that that trend continues to where it becomes a more meaningful part of our operation.
That's great. Thanks, everybody.
You bet.
Our next question comes from Gary Tenner from D.A. Davidson. Please go ahead with your question.
Thanks. Good morning. Just wanted to ask a follow-up on the rate sensitivity conversation from earlier. I know you provided the amount of loans that reprice in the next year, I think $13.3 billion. Nicole, could you be a little more specific for us just in terms of the actual floating rate piece of that, just as we're modeling through changing rates?
Yes. I think what you're asking is over the next year, what do we have repricing?
Well, I think you specified $13.3 billion repricing. I'm just kind of asking how much of that is actually floating rate, immediate, if you will, prime or SOFR based.
Oh, I got it. Got it. About $8.5 million is within the next three months.
Okay, great. Thank you. I think there was a question earlier, just to maybe repeat it or recast it. In terms of the shift up in market rates and banks competing away or the tendency to compete away some of that benefit, even if you're seeing an absolute increase in production yields, are the spreads a bit tighter?
The spreads are kind of, yep. On the loan side, the spreads are, I mean, it is competitive. It is definitely competitive. I think that goes back to Palmer's point that we don't have to compete on some of this crazy pricing that we are starting to see in the market and that we really are focused on profitable growth. Then from a spread perspective to deposit rates and deposit production, which is really where we also focus, our growth this quarter was still margin accretive because of our non-interest-bearing mix. But if we had to fund all of our loan growth with just interest-bearing deposits, we would be slightly margin dilutive, about 25 basis points kind of spread difference between that interest-bearing deposit growth and the loan growth production rates. That's really why we continue to focus on that core deposit growth and that non-interest-bearing mix.
Very helpful. Thank you.
At this time, we'll be ending today's question and answer session. I'd like to turn the floor back over to Palmer Proctor for any closing remarks.
Great. Thank you, Jamie. I'd like to thank our teammates for another outstanding quarter. We remain focused on our core fundamentals while serving our customers and growing our attractive southeastern franchise. Thank you for listening to our third quarter call, and we appreciate your continued interest in Ameris Bancorp .
With that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.