ABCB - NASDAQ

Good day, and welcome to the Ameris Bancorp Third Quarter Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nicole Stokes, CFO. Please go ahead.

Great. Thank you, Valentina, 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 results of our financials 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. With that, I'll turn it over to Palmer for comments.

Thank you, Nicole, and good morning, everyone. We appreciate you taking the time to join our earnings call today. Third quarter results again beat expectations with above peer performance across the board, including return on assets, PPNR ROA, return on tangible common equity, net interest margin and efficiency ratio. Two of our top focuses have long been growing our core deposit base and tangible book value per share. I'm proud to see our deposit growth at 5% annualized and tangible book value per share growth at over 15% annualized, both very strong metrics. We remain focused on generating revenue growth and positive operating leverage. This is evidenced by our 18% annualized revenue growth in the quarter. And when coupled with a modest decline in expenses and slight increase in margin, pushed our efficiency ratio below 50%. Our margin continued to expand during the quarter, while we grew loans 4% annualized, which is within our mid-single-digit guidance. Our 3.80% NIM remains above most peer levels, particularly thanks to our strong 30% level of noninterest-bearing deposits. Capital ratios grew again in the quarter, which positions us well for future growth opportunities. Our third quarter earnings and capital generation increased our common equity Tier 1 to 13.2% and TCE to 11.3%. Asset quality remained stable with net charge-offs and NPAs, excluding government-guaranteed mortgages at low levels. We grew tangible book value this quarter by over 15% annualized, almost $43 per share, and we're active in repurchasing stock, buying back $8.5 million. Our CRE and construction concentrations remain low at 261% and 42%, respectively. Our 4% annualized loan growth was driven mostly by a good mix of C&I and CRE. Our loan portfolio production also topped $2 billion in the quarter, the best level we've seen since 2022, and deposits grew at a similar pace of 5% annualized with noninterest-bearing deposits remaining over 30%. Our bankers are well positioned to take advantage of growth opportunities and disruption within our attractive Southeastern markets. Overall, we continue to stay focused on what we can control. When I look out at the end of 2025 and toward 2026, I'm very encouraged as we continue to benefit from a history of notable tangible book value growth as good stewards of shareholder value, a granular deposit base, a robust margin and diversified revenue stream, strong capital and liquidity, a healthy allowance and asset quality and a proven culture of expense control and positive operating leverage and a notable scarcity value given our size and scale in the Southeast top markets, which really allows us to take advantage of the banking disruption Southeast continues to experience. So overall, I'm very optimistic and confident about our franchise as we near the end of 2025 and look forward to 2026 and beyond. I'll stop there and turn it over to Nicole now to discuss our financial results in more detail.

Great. Thank you, Palmer. We reported net income of $106 million or $1.54 per diluted share in the third quarter. As Palmer mentioned, our profitability remained at levels well ahead of the industry with our return on assets at 1.56% and our return on tangible common equity at 14.6%, both very robust levels. This quarter, our PPNR ROA was at 2.35%, which is an improvement from 2.18% last quarter. Our efficiency ratio improved to 49.19% this quarter compared to 51.63% last quarter as we saw a modest decrease in expenses, but a really strong 17.8% annualized revenue growth, which is what fueled that positive operating leverage. Capital levels continue to increase with our tangible book value per share grew to $42.90 a share, which was a strong 15.2% annualized growth or $1.58 per share in the quarter. Our tangible common equity ratio increased to 11.31%. We repurchased about $8.5 million of common stock. That was about 126,000 shares at an average price of $67.36 during the quarter. Our Board recently also approved a new share repurchase plan of $200 million, which is double our last authorization of $100 million. Our strong revenue growth was driven by increases in both net interest income and fee income. Our spread income grew by $6 million in the quarter or 10.5% annualized. That growth came from interest income growth of $7 million, which outpaced our interest expense growth of only $1 million. Our net interest margin continued to expand, up 3 basis points to a strong 3.80%. And remember, that's a core margin as it includes 0 accretion. The NIM expansion this quarter really came from a 2 basis point positive impact on the asset side and a 1 basis point benefit from the funding side. We continue to believe we'll have some slight margin compression over the next few quarters due to the expected pressure on deposit costs as we see loan growth really pick up in 2026. We continue to be fairly neutral on asset sensitivity. Noninterest income increased $7.4 million this quarter, mostly from better equipment finance fees and also a $1.6 million nonrecurring gain on securities. Our mortgage production was approximately $1.1 billion with mortgage gain on sale at 2.20%. Our total noninterest expense decreased about $700,000 in the quarter, mostly driven by lower compensation costs in the lines of business, offset by some increased incentives and benefits in the banking division. And as I previously mentioned, our efficiency ratio was strong at 49.19%. While we did have positive operating leverage this quarter, the expanded net interest margin and noninterest income growth was the real driver of that lower efficiency ratio and not necessarily an expense savings initiative. And I do anticipate the efficiency ratio to return above 50% in the fourth quarter. During the third quarter, our provision for credit losses was $22.6 million, with over half of that provision related to reserves for unfunded commitments, which is a really positive sign for our future loan growth potential. Our reserve remained strong at 1.62%, the same as last quarter. Overall, asset quality trends remain good with nonperforming assets, net charge-offs in both classifieds and criticized all remaining low for the quarter. Annualized net charge-offs were stable at 14 basis points. Looking at our balance sheet, we ended the quarter with $27.1 billion of total assets compared to $26.7 billion last quarter. Earning assets increased $470 million or 7.6% annualized with the bond portfolio growing $287 million and loans growing $217 million or about 4% annualized, which is in line with our loan growth guidance. Loan growth was mostly from C&I and investor CRE this quarter. Deposits increased $295 million with really strong growth in our core bank of $355 million, a small increase in broker deposits of $67 million, and those were offset by a continued seasonal decline in those cyclical municipal deposits of $127 million. We were able to maintain our noninterest-bearing deposits at over 30%, finishing the quarter at 30.4% 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 be the governor of our loan growth. So with that, I'll wrap it up and turn the call back over to our operator for any questions from the group.

[Operator Instructions] The first question comes from David Feaster with Raymond James.

I wanted to start maybe on the loan side. It sounds like production remains pretty strong. We saw unfunded commitments increase. I'm curious, maybe first, just touching on demand. How is demand in the pipeline trending as we look forward? I know you reiterated the mid-single-digit guidance, but just kind of curious about the pipeline and the complexion of that? And then just how payoffs and paydowns are trending and how that's impacting growth near term?

Yes. I think one of the things that drives our optimism for the fourth quarter is the demand, and that's really across the board in all of our verticals that we're seeing. I will tell you, payoffs for the industry remain pretty steady, and we'll see the same thing in the fourth quarter. But in terms of the demand and the outlook going forward, that's where we really garner most of our optimism as we look into the end of '25 and into '26. So all in, payoffs, it's just a necessary evil, if you will, but it's also a sign of a healthy market. So we continue to remain very bullish.

Okay. And maybe just staying on that kind of -- to some degree, could you touch on competition and how the landscape is today? On one hand, you touched on a lot of the disruption and the opportunities that come out of that. But at the same time, everybody is -- it seems like competition is heating up for deals. Curious, some of the push-pull between those dynamics and where you're seeing competition? Is it primarily on pricing? Or are you seeing that creep into structure as well?

It's primarily on pricing. And fortunately, for us, we're accustomed to a very competitive environment with our footprint, a lot of it being in high-growth areas. But I will tell you, one of the mitigants to that, even though the pricing will continue to be a pressure point, I think the disruption will help us in terms of garnering additional volume. So we are well positioned for that and ready to capitalize on any disruption that might come. So right now, at this stage, I don't see a whole lot of compromise on structure, which is good for the industry, but I do see a lot of pressure on pricing.

And then just touching on the Equipment Finance side of the business. Could you touch on how production has been, how demand is trending there? And what segments of Equipment Finance you're seeing the most demand for? And then again, just any underlying credit trends within that business and some of the fee income opportunities that could come out of there as well? I know it's a lot, but just elaborate a bit on the Equipment Finance side.

Yes. I'll touch on the overall sentiment and then Doug can talk about the credit. But the -- I would tell you, I think it's a good reflection of -- these are small business operators. And so what we're encouraged to see is the demand there. It's obviously picking up. Our credit box is -- we're very pleased with, and you can see that in the declining charge-offs and NPAs. So that seems to be a bright spot for us as we go forward and the economy seems to be holding up. So I think it's a bigger, broader reflection of how well the small business operators are performing at this stage. And Doug, do you want to talk about the credit side of it and the metrics there?

Yes, sure. Thank you. David, the credit box, we retooled that at the end of '23 and into '24. And I think we have it about right now where we want it, and we've seen very good results, and we've seen charge-offs over the recent quarters kind of right in that target zone that we were looking at.

Okay. And then just the last part of that question was the fee income opportunities coming out of that business. You saw nice growth this quarter. Just curious some of the fee income opportunities you're seeing there.

Yes. I think the fee income -- we had a very strong fee income in that sector, in that vertical this quarter. And I think that will moderate. You can expect anywhere probably around 75% of that fee income to continue on a go-forward recurring basis. The other thing that we are excited about with increasing volume is we are -- we've got the ability now and are finalizing the opportunity to start securitizing that paper. And that way, we can increase production and still maintain some servicing and fee income there. So that could be a real contributor as we go forward in terms of prepayment penalties, late fees and everything else associated with the servicing. So that is an add to us in terms of that particular line of business.

The next question comes from Catherine Mealor with KBW.

I wanted to start first on expenses. It was nice to see the decline this quarter, but I assume per your comment that the efficiency ratio will move up next quarter, that will probably increase next quarter. And so maybe kind of the big picture question on expenses is, can you talk about a good growth rate to think about for expenses going into next year just with loan growth being better? And then the second part of that is how should we think about how the mortgage expense line looks as mortgage revenue also increases next year? I noticed the mortgage comp line relative to mortgage revenue this quarter declined. And so I was just curious if there was anything going on that's run ratable if that's just a onetime event.

Perfect. Thank you, Catherine. So I'll start kind of with general expenses, and I'll say that the efficiency ratio be down in the 49% is really driven from the revenue side, the fact that we had the margin expansion and we had some noninterest income growth there. So I don't necessarily think that expenses were unreasonably low. I think when we look at next quarter, consensus has us about the same as 3Q, and I think that looks very reasonable. And then when you look into 2026, again, kind of -- I hear your question on mortgage, and I'll take that in just a second. So kind of with regular expenses, I think consensus has us right now at about a 5.5% increase. And I think that looks a little -- I mean, I think that looks reasonable. You kind of think about salaries and benefits kind of increasing in that 4% to 5% range, other expenses coming in about 3% and then maybe some increased mortgage revenue or increased mortgage expenses with that increased revenue. So kind of blending all that into that 5%, 5.5% rate for noninterest expense growth next year looks very reasonable to me. On the mortgage expense side, I would say that if we see that tenure come down and we get some real strong tailwind into the mortgage production and we see mortgage pick up, we would have some additional mortgage expenses. I think the easiest way to probably model that out is through an efficiency ratio specialized in mortgage. They're currently running about a 60% efficiency ratio, 60% to 62% efficiency ratio. And as they get the volume back up, their fixed cost stay and the variable cost, which is really the compensation will probably drive them into closer to a 55% efficiency ratio. So as modeling out that growth, I would model out about a 55% efficiency ratio on the growth, if that helps.

Yes, that's awesome. Okay. And then maybe my second question, just on the margin. As you just beat us on the margin every quarter this quarter -- or every quarter this year, it's been really special. But I know you think that it's coming down next year, which I appreciate. And so within that, maybe if you could talk a little bit about just on the deposit side, where you think deposits will go? And I don't know if it's easier to talk about it on like a beta for the next 100 basis points, maybe how that looks relative to the past 100 basis points, but help us just think about where deposit costs can go as we see rate cuts.

Absolutely. So my margin guidance has said compression for several quarters now, and we haven't seen it. But I will say that we're starting to see it. And so when you look at -- and I say that based on a couple of things. One, we know that our deposits have repriced a little bit faster than our loans and that they were starting to catch up and then the Fed moved again. So we know we have some built-in compression in the future in the margin just from that lag of the loans catching up to deposits. And every time the Fed cuts, it kind of just pushes that lag out a little bit. So I do feel like it's eventually coming from that side. And then the second piece of my margin guide really comes from the competition that I think we will see and we are starting to see on the deposit side. As everybody is really starting to fight for the growth on the asset side, they have to fund it. And so we're starting to see that on the deposit side. So an example, when you look at our retail CDs in the fourth quarter, this is the first time that we've seen this where we have almost $1 billion of CDs maturing, and they're coming off at a 3.71% rate. But our third quarter production for CDs is at 3.89%. So where we've had kind of some tailwind coming into that CD rate up to this point, this is the first time that they're very close to not having that tailwind and maybe actually having a little bit of headwind, thanks to the competition. I will say that our overall growth is still accretive to margin, and it really has to do with that growth in noninterest-bearing. If you look at our loan production coming on at a [ 6.77% ] and our blended deposit rate of our interest-bearing deposits, that spread is about a [ 3.52% ]. But if you add in that noninterest-bearing growth, we flip from being dilutive to being accretive to margin. So the real answer there is can we continue to grow noninterest-bearing deposits. If we don't and we are only able to grow interest-bearing, then we will absolutely have some compression on the margin. But I will tell you that we stay very much focused on growth of NII. So even if we have a little margin compression, I would expect NII to continue to grow.

Next question comes from Russell Gunther from Stephens.

I wanted to follow up on loan growth commentary here on the mid-single digits. Just curious in terms of a potential upside scenario given the strength of your markets and considerable dislocation occurring within them. Is there a scenario where we could start to see that begin to accelerate next year from kind of the mid- to the high single-digit rate?

That's certainly what we hope and would like to anticipate. And I think the most important thing is being in a position to capitalize on that, which is where we are. So that's what gives us a lot of confidence in our ability to take it from mid-single digits to upper single digits or maybe even double digits. We're accustomed to growing at a 10% rate in a healthy environment. And given -- it depends on the macro economy, too, and what happens there. But if things start lining up and improving like we're seeing, whether it be in terms of foreign trade, tariffs, employment, GDP, I think you could see an elevated loan growth opportunity and then you compound that with disruption, that will be a huge opportunity for us to capitalize in our primary markets. So we remain, as I said last time, we're in the optimistic camp and not just cautiously optimistic, but we're very optimistic about what we see in front of us.

And then kind of in that scenario or perhaps maybe more near term, how should we think about the size of the investment portfolio going forward?

So our investment portfolio, as you know, we let it get down to about 3%. We're back up now to right at 9.3%. So we could maybe go up. Our goal is probably that 9% to 10%. So we're very close to being there. We could add about another $175 million or so to get us to that to the 10% range. But I think that's really where we feel comfortable. Although I will say we like the fact that we have the optionality that if we -- which keeps us focused on the deposit growth because we -- if we can grow the deposits, then we have some optionality between both loans and securities.

Got it. Okay. And then I guess just last one for me, maybe going back to the optimism around organic growth. Given that opportunity set, is there anything from an M&A perspective for depositories on the buy-side front that makes sense for you guys? Or is the organic, again, opportunity set sort of more of a priority at this point?

I would tell you, it's even more of a priority now the organic piece of it, just given the new opportunities with disruption. I think it would be a mistake for us to get distracted at a time where we've probably got far more opportunities organically going forward as we look out than getting distracted by an M&A deal.

The next question comes from Stephen Scouten with Piper Sandler.

So I like this optimism around loan growth. I'm wondering what part of that optimism would come from potential additional hirings. I know I think it was year-to-date last quarter, you'd hired 64 new lenders, but maybe -- and I know you tend to talk about that number in net and gross terms. So just kind of wondering what the scale of that opportunity might be and if that's a big focus and a push behind that organic growth optimism.

Yes. Our focus has and will remain -- we're focused on garnering customers more than we are having to have the dependency on doing lift-outs of teams to capitalize on that. And part of that is just because we're well established in these markets where you've got the disruption. That doesn't mean we won't be opportunistic and look at talent as it comes available. But the nice thing is, once again, for us to execute on our plan for growth, we have all the talent on board, and we're constantly assessing and reassessing that talent. So if you look at what we've done just this year, net, I think we're up 3 people in the commercial group, but that includes 10 new commercial hires. So I think it's important to constantly look at the caliber of the individuals you hire, not just the quantity, but look at the quality. And so that's really -- I think if you do that as you go along, you avoid potential pitfalls as you go forward. So we are certainly in a position to capitalize on what we see out there with our existing teammates. But if we see selective opportunities to bring in new talent, we will certainly consider that. But we are not dependent on that to capitalize on the opportunities we see going forward.

Got it. Appreciate that. And then you guys are kind of, in a lot of ways, in my mind, like tip of the spear around mortgage activity and inflection points. I'm wondering what you're seeing given where the 10-year has been moving and if there's any point where you think we could see a greater inflection around mortgage demand, both on the purchase side and the potential for a pickup in refinance activity?

We certainly hope so. And I think things are moving in that direction. Our applications are up tremendously. And I think people are realizing that it may move that direction. But I think if we can get down, if we talked about last time, something with a 5 handle on it in terms of the 30-year, I think you're going to see an accelerated activity in the industry in the mortgage space. And once again, we're well positioned to capitalize on that. We've got a lot of heavy purchase volume right now. But I think that if we start seeing some improvement in the 10-year that will definitely be a tailwind for us as we look into the end of this year and into 2026.

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

Great. Thank you. I want to thank our teammates again for another outstanding quarter. We remain focused on producing top-of-class metrics, maintaining our strong core deposit base and growing our tangible book value per share. The bank remains well positioned to take advantage of future growth opportunities and disruption in our attractive Southeastern footprint. We appreciate your interest in Ameris Bank. Have a great day.