Ameris Bancorp (NASDAQ:ABCB) Q2 2023 Earnings Call Transcript
Ameris Bancorp (NASDAQ:ABCB) Q2 2023 Earnings Call Transcript July 28, 2023
Operator: Thank you for standing by. My name is Ellie, and I will be your conference operator for today. At this time, I would like to welcome you to the Ameris Bancorp Conference Call. All lines have been placed on mute to prevent background noise. For now, I would like to hand you over to our first speaker for today, Nicole Stokes, you may now begin the conference.
Nicole Stokes: Great. Thank you, Ellie, 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 Jon Edwards, 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. But before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties and 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.
Palmer Proctor: Thank you, Nicole, and good morning, everyone. I appreciate you taking the time to join our call today. I'm very pleased with the second quarter financial results that we reported yesterday. I want to focus on three main things this morning: first, our core profitability; second, our improving credit metrics, including a strong allowance; and third, the strength of our diversified balance sheet. These three measures really reflect the strong quarter we had and summarized the value in our company is what creates a positive outlook we have for the future. And for the second quarter, we reported net income of $62.6 million or $0.91 per diluted share. We recorded a $45.5 million provision for credit losses, where we once again prudently set aside reserves due to our economic model, specifically for forecasted future declines in commercial real estate pricing.
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Even with this elevated provision expense, our ROA was almost 1% and our PPNR ROA continues to be above 2%. This is the second quarter in a row where we have a large provision expense driven by our forecast model and not related to credit deterioration in our loan portfolio. Our credit metrics improved this quarter, which is evidenced by our lower NPA ratio of just 30 basis points, excluding the Ginnie Mae's and after the provision this quarter, our allowance for credit losses, excluding unfunded commitments, represents a healthy 133 coverage ratio and 355% of net NPAs. Our charge-offs were 28 basis points this quarter compared to 28 basis points last quarter but we had two extraordinary items, which we've got in our slide deck on Page 21. If you exclude these two items, our charge-offs actually declined for the quarter.
And on the balance sheet, we said last quarter, we were going to use deposit growth as a governor for our loan growth, and that's exactly what we did. Deposits grew $546 million and loans grew $474 million, approximately 40% or $189 million of that growth was in the mortgage warehouse lines, which we are expected to decline back down towards the end of the year. We continue to have a strong capital position in addition to having minimal impact to AOCI from our bond portfolio, our TCE ratio improved to 8.80% at the end of the quarter. And before I turn it over to Nicole for more details on the financials, I'd like to summarize several reasons why we're confident in our future and ability to return shareholder value. And it really begins with our continued focus on growing tangible book value, which is evidenced by our 8% annualized growth rate and tangible book value this quarter.
Our core profitability with an above peer PPNR ROA of over 2%, a strong balance sheet with diversified earning assets in the strongest markets in the Southeast, a healthy allowance for credit losses to absorb potential economic challenges. Of course, we've got a solid granular core deposit base with low levels of uninsured uncollateralized funding. And then more importantly, a prudent culture of expense control, which is evidenced by our 53% efficiency ratio even in the current margin environment. And last but not least, is our solid capital and liquidity position. With that, I'll turn it over to Nicole to discuss our financial results in more detail.
Nicole Stokes: Great. Thank you, Palmer. As you mentioned for the second quarter, we're reporting net income of $62.6 million or $0.91 per diluted share. Our return on assets was 98 basis points, and our return on tangible common equity was 11.53%. And these were both after the $45.5 million provision expense -- so as Palmer mentioned, on a PPNR basis, we're still above 2% ROA. We ended the quarter with tangible book value of $31.42 a share. That's an increase of $0.63 or 8.2% annualized. Our tangible common equity ratio increased to 8.80% at the end of the quarter, that's compared to 8.55% at the end of last quarter. We continue to be well capitalized, and we feel very comfortable with our capital and our dividend levels. We do have a share repurchase program outstanding until October 31 of this year.
We repurchased about $8 million during the second quarter at an average price of $30.18, that leaves about $86.5 million left on the program. We don't necessarily anticipate aggressively purchasing in the next few months. We also redeemed about $9.5 million of our sub debt at a discount this quarter after receiving regulatory approval to do so. On the revenue side of things, our interest income for the quarter increased $26.2 million over last quarter and $119.4 million from the second quarter of last year. In comparison, our interest expense increased $28.3 million compared to last quarter and $101.2 million compared to the second quarter of last year. Due to the rising deposit costs, our net interest margin declined 16 basis points from 3.76% last quarter to a still strong 3.60% this quarter.
That's exactly in line with the guidance we gave last quarter. It actually came in on the higher side of our guidance. Our yield on earning assets increased 27 basis points while our cost of interest-bearing liabilities increased 58 basis points. Kind of the contributing factor to that 16 basis point margin compression or 19 basis points of the negative deposit mix, that's noninterest-bearing transitioning to interest-bearing. We had seven basis points of beta catch-up on the deposit side. And then all of that was offset by 10 basis points of expansion due to the higher loan yield and average balances. Total noninterest income increased by $11.3 million and total noninterest expense increased this quarter by $9 million, and that's really explained in three categories.
First, we had a decline in our deferred $591 million costs of about $2.5 million. Second, we had about $2.2 million increase in variable compensation related to the mortgage division, which was more than offset by their increased revenues. And then finally, we had an increase of $3.1 million in fraud, forgery and litigation resolution expenses. We really continue to do a good job maintaining other controllable expenses. Our adjusted efficiency ratio was 53.41% this quarter. So even with the margin compression we were within our 52% to 55% target range. On the balance sheet side, assets declined as expected to $25.8 billion [ph] from $26.1 billion last quarter. Total loans increased $473.9 million or 9.5% annualized. We reduced excess liquidity by about $700 million by paying off $875 million of FHLB advances early this quarter.
And our total deposits increased by $545.7 million during the quarter and that's core deposits increasing about $187.9 million and brokered CDs increasing $357.8 million. So with that, I will wrap it up by reiterating how we remain disciplined and focus on operating performance. We're optimistic about the remainder of '23. I certainly appreciate everyone's time today, and I'm going to turn the call back over to Ellie for questions from the group. Thank you, Ellie.
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