Ameris Bancorp (Nasdaq: ABCB) today reported net income of $90.1 million, or $1.30 per diluted share, for the quarter ended June 30, 2022, compared with $88.3 million, or $1.27 per diluted share, for the quarter ended June 30, 2021. The Company reported adjusted net income of $81.5 million, or $1.18 per diluted share, for the quarter ended June 30, 2022, compared with $87.5 million, or $1.25 per diluted share, for the same period in 2021. Adjusted net income excludes after-tax merger and conversion charges, servicing right valuation adjustments, gain on bank owned life insurance (“BOLI”) proceeds and gain/loss on sale of bank premises.
For the year-to-date period ending June 30, 2022, the Company reported net income of $171.8 million, or $2.47 per diluted share, compared with $213.3 million, or $3.06 per diluted share, for the same period in 2021. The Company reported adjusted net income of $156.5 million, or $2.25 per diluted share, for the six months ended June 30, 2022, compared with $203.3 million, or $2.91 per diluted share, for the same period in 2021. Adjusted net income for the year-to-date period excludes the same items listed above for the Company’s quarter-to-date period.
Commenting on the Company’s results, Palmer Proctor, the Company’s Chief Executive Officer, said, “Our strong second quarter financial results are attributable to our solid banking fundamentals. We grew revenue, improved our margin, expanded our earning asset base and grew tangible book value by $1.05 per share this quarter. We are well positioned for future interest rate hikes, and we continue to monitor our loan growth and credit metrics very closely. Southeastern markets where we operate continue to provide opportunities for responsible growth. We remain focused on our core fundamentals going into the third quarter.”
Increase in Net Interest Income and Net Interest Margin
Net interest income on a tax-equivalent basis (TE) increased to $192.3 million in the second quarter of 2022, an increase of $18.8 million, or 10.8%, from last quarter and an increase of $29.3 million, or 18.0%, compared to the second quarter of 2021. Interest income on a tax-equivalent basis increased by $19.2 million, or 10.4%, in the current quarter while interest expense increased only $374,000, or 3.5%, compared to the first quarter of 2022.
The Company’s net interest margin improved significantly to 3.66% for the second quarter of 2022, up from 3.35% reported for the first quarter of 2022 and 3.34% reported for the second quarter of 2021. While average earning assets remained consistent at $21.1 billion from the previous quarter, the mix of earning assets expanded the margin as the Company began to deploy excess liquidity through the investment portfolio and organic loan growth.
Yields on earning assets increased 32 basis points during the quarter to 3.88%, compared with 3.56% in the first quarter of 2022, and increased 30 basis points from 3.58% in the second quarter of 2021. Yields on loans decreased to 4.32% during the second quarter of 2022, compared with 4.37% for the first quarter of 2022 and 4.33% for the second quarter of 2021. Loan yields in the second quarter of 2022 were negatively impacted approximately four basis points by declines in fee income on Paycheck Protection Program (“PPP”) loans compared with the first quarter of 2022. In addition, the Company incurred net accretion expense in the second quarter of $379,000, compared with accretion income of $1.0 million in the first quarter of 2022 and $4.5 million for the second quarter of 2021.
Loan production in the banking division during the second quarter of 2022 was $1.07 billion, with weighted average yields of 5.24%, compared with $805.5 million and 5.17%, respectively, in the first quarter of 2022 and $911.3 million and 3.75%, respectively, in the second quarter of 2021. Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to an additional $5.3 billion during the second quarter of 2022, with weighted average yields of 4.29%, compared with $4.7 billion and 3.63%, respectively, during the first quarter of 2022 and $6.4 billion and 3.36%, respectively, during the second quarter of 2021.
The Company’s total cost of funds was unchanged at 0.22% in the second quarter of 2022 as compared with the first quarter of 2022. Deposit costs increased just one basis point during the second quarter of 2022 to 0.10%, compared with 0.09% in the first quarter of 2022. Costs of interest-bearing deposits increased during the quarter from 0.14% in the first quarter of 2022 to 0.17% in the second quarter of 2022.
Noninterest Income
Noninterest income decreased $3.1 million, or 3.5%, in the second quarter of 2022 to $83.8 million, compared with $86.9 million for the first quarter of 2022, primarily as a result of decreased mortgage banking activity, which declined by $4.2 million, or 6.6%, to $58.8 million in the second quarter of 2022, compared with $62.9 million for the first quarter of 2022. Gain on sale spreads decreased to 2.36% in the second quarter of 2022 from 2.94% for the first quarter of 2022. Total production in the retail mortgage division increased to $1.73 billion in the second quarter of 2022, compared with $1.53 billion for the first quarter of 2022. The retail mortgage open pipeline was $832.3 million at the end of the second quarter of 2022, compared with $1.41 billion at March 31, 2022. Mortgage banking activity included a $10.8 million recovery of servicing right impairment recorded in the second quarter of 2022, compared with a recovery of $9.7 million for the first quarter of 2022.
Other noninterest income increased $683,000, or 5.7%, in the second quarter of 2022 to $12.7 million, compared with $12.0 million for the first quarter of 2022, primarily as a result of a $1.6 million impact from the recently acquired Balboa Capital. Also contributing to the increase were increases in swap income of $326,000 and BOLI income of $179,000, partially offset by a decrease in gains on sale of SBA loans of $1.2 million.
Noninterest Expense
Noninterest expense decreased $1.6 million, or 1.1%, to $142.2 million during the second quarter of 2022, compared with $143.8 million for the first quarter of 2022. During the second quarter of 2022, the Company recorded a net gain of $39,000 related to bank premises, compared with a net gain on bank premises of $6,000 and merger and conversion charges of $977,000 during the first quarter of 2022. Excluding those charges, adjusted expenses decreased approximately $614,000, or 0.4%, to $142.2 million in the second quarter of 2022, from $142.8 million in the first quarter of 2022. The decrease in adjusted expenses resulted from cyclical payroll tax and 401(k) expenses in the first quarter of 2022, partially offset by an increase in advertising and marketing expenses.
Management continues to focus its efforts on improving the operating efficiency of the Company. The adjusted efficiency ratio decreased to 53.66% in the second quarter of 2022, compared with 56.95% in the first quarter of 2022.
Income Tax Expense
The Company’s effective tax rate for the second quarter of 2022 was 23.7%, compared with 25.3% in the first quarter of 2022. The decreased rate for the second quarter of 2022 was primarily a result of a discrete charge to the Company’s state tax liability and nondeductible merger expenses incurred in the first quarter of 2022.
Balance Sheet Trends
Total assets at June 30, 2022 were $23.69 billion, compared with $23.86 billion at December 31, 2021. While total assets have not materially changed, the Company improved the earning asset mix through a shift in reinvestment of excess liquidity to the securities portfolio and loans held for investment. Debt securities available-for-sale increased $459.6 million, or 77.6%, from $592.6 million at December 31, 2021 to $1.05 billion at June 30, 2022. Loans, net of unearned income, increased $1.69 billion, or 21.4% annualized, to $17.56 billion at June 30, 2022, compared with $15.87 billion at December 31, 2021. Organic loan growth in the second quarter of 2022 was $1.4 billion, or 35.1% annualized, which included managed growth in residential mortgage loans of $555 million and seasonal increases in mortgage warehouse and agricultural loans of $217 million and $40.5 million, respectively. As a result of the purposeful origination of residential mortgage loans into the portfolio, loans held for sale decreased $699.0 million from $1.25 billion at December 31, 2021 to $555.7 million at June 30, 2022.
At June 30, 2022, total deposits amounted to $19.68 billion, or 97.3% of total funding, compared with $19.67 billion and 95.8%, respectively, at December 31, 2021. At June 30, 2022, noninterest-bearing deposit accounts were $8.26 billion, or 42.0% of total deposits, compared with $7.77 billion, or 39.5% of total deposits, at December 31, 2021. Non-rate sensitive deposits (including noninterest-bearing, NOW and savings) totaled $13.06 billion at June 30, 2022, compared with $12.52 billion at December 31, 2021. These funds represented 66.3% of the Company’s total deposits at June 30, 2022, compared with 63.6% at the end of 2021, which continues to positively impact the cost of funds sensitivity in a rising rate environment.
Shareholders’ equity at June 30, 2022 totaled $3.07 billion, an increase of $106.9 million, or 3.6%, from December 31, 2021. The increase in shareholders’ equity was primarily the result of earnings of $171.8 million during the first six months of 2022, partially offset by dividends declared, share repurchases and the impact to other comprehensive income resulting from rising rates on our investment portfolio. The Company repurchased 118,157 shares of the Company’s common stock at a cost of $5.0 million during the second quarter of 2022. The Company recorded dilution of $0.16 per share, or less than 0.6%, to tangible book value this quarter from other comprehensive income related to the increase in net unrealized losses on the securities portfolio. Tangible book value per share was $27.89 at June 30, 2022, compared with $26.26 at December 31, 2021. Tangible common equity as a percentage of tangible assets was 8.58% at June 30, 2022, compared with 8.05% at the end of 2021.
Credit Quality
Credit quality remains strong in the Company. During the second quarter of 2022, the Company recorded a provision for credit losses of $14.9 million, compared with a provision of $6.2 million in the first quarter of 2022. This provision was primarily attributable to the $1.4 billion in organic loan growth during the quarter. Nonperforming assets as a percentage of total assets increased nine basis points to 0.56% during the quarter. The net charge-off ratio was four basis points for the second quarter of 2022, compared with nine basis points in the first quarter of 2022 and seven basis points in the second quarter of 2021.
Conference Call
The Company will host a teleconference at 9:00 a.m. Eastern time on Wednesday, July 27, 2022, to discuss the Company’s results and answer appropriate questions. The conference call can be accessed by dialing 1-844-200-6205 (or 1-929-526-1599 for international participants). The conference call access code is 603616. A replay of the call will be available one hour after the end of the conference call until August 10, 2022. To listen to the replay, dial 1-866-813-9403. The conference replay access code is 568609. The financial information discussed will also be available on the Investor Relations page of the Ameris Bank website at ir.amerisbank.com.
