Ameris Bancorp: Form 10-Q for the period ended Sep 30, 2023

Cautionary Note Regarding Forward-Looking Statements

Certain of the statements made in this report are “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation, the following: general competitive, economic, unemployment, political and market conditions and fluctuations, including real estate market conditions, and the effects of such conditions and fluctuations on the creditworthiness of borrowers, collateral values, asset recovery values and the value of investment securities; movements in interest rates and their impacts on net interest margin; expectations on credit quality and performance; competitive pressures on product pricing and services; legislative and regulatory changes; changes in U.S. government monetary and fiscal policy; investment security valuation and other performance measures; the potential impact of the phase-out of the London Interbank Offered Rate ("LIBOR") or other changes involving LIBOR; additional competition in our markets; changes in state and federal banking laws and regulations to which we are subject; financial market conditions and the results of financing efforts; the cost savings and any revenue synergies expected to result from acquisition transactions, which may not be fully realized within the expected timeframes if at all; the success and timing of other business strategies; our outlook and long-term goals for future growth; weather events, natural disasters, geopolitical events, acts of war or terrorism or other hostilities, public health crises and other catastrophic events beyond our control; and other factors discussed in our filings with the Securities and Exchange Commission (the “SEC”) under the Exchange Act.

All written or oral forward-looking statements that are made by or are attributable to us are expressly qualified in their entirety by this cautionary notice. Our forward-looking statements apply only as of the date of this report or the respective date of the document from which they are incorporated herein by reference. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future events or otherwise.

Overview

The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of September 30, 2023, as compared with December 31, 2022, and operating results for the three- and nine-month periods ended September 30, 2023 and 2022. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

This discussion contains certain performance measures determined by methods other than in accordance with GAAP. Management of the Company uses these non-GAAP measures in its analysis of the Company’s performance. These measures are useful when evaluating the underlying performance and efficiency of the Company’s operations and balance sheet. The Company’s management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results with prior periods and demonstrate the effects of significant gains and charges in the current period. The Company’s management believes that investors may use these non-GAAP financial measures to evaluate the Company’s financial performance without the impact of unusual items that may obscure trends in the Company’s underlying performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Non-GAAP measures include adjusted net income and adjusted net income per diluted share. The Company calculates the regulatory capital ratios using current regulatory report instructions. The Company’s management uses these measures to assess the quality of capital and believes that investors may find them useful in their evaluation of the Company. These capital measures may or may not be necessarily comparable to similar capital measures that may be presented by other companies.

Critical Accounting Policies

There have been no significant changes to our critical accounting policies from those disclosed in our 2022 Annual Report on Form 10-K, except as described below. The reader should refer to the notes to our consolidated financial statements in our 2022 Annual Report on Form 10-K for a full disclosure of all critical accounting policies.

Goodwill

Goodwill represents the excess of cost over the fair value of the net assets purchased in business combinations. Goodwill is required to be tested annually for impairment or whenever events occur that may indicate that the recoverability of the carrying amount is not probable. In the event of an impairment, the amount by which the carrying amount exceeds the fair value is charged to earnings. The Company performs its annual impairment testing of goodwill in the fourth quarter of each year.

Results of Operations for the Three Months Ended September 30, 2023 and 2022

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $80.1 million, or $1.16 per diluted share, for the quarter ended September 30, 2023, compared with $92.6 million, or $1.34 per diluted share, for the same period in 2022. The Company’s return on average assets and average shareholders’ equity were 1.25% and 9.56%, respectively, in the third quarter of 2023, compared with 1.56% and 11.76%, respectively, in the third quarter of 2022. During the third quarter of 2022, the Company recorded pre-tax servicing right impairment recovery of $1.3 million, pre-tax gain on bank owned life insurance (BOLI) proceeds of $55,000, pre-tax loss on sale of mortgage servicing rights of $316,000 and pre-tax natural disaster expenses of $151,000. Excluding these adjustment items, the Company’s net income would have been $91.8 million, or $1.32 per diluted share, for the third quarter of 2022.

Below is a reconciliation of adjusted net income to net income, as discussed above.

(in thousands, except share and per share data)

36

Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities, SBA activities and premium finance activities of the Company during the third quarter of 2023 and 2022, respectively:

(dollars in thousands)

(dollars in thousands)

37

Net Interest Income and Margins

The following table sets forth the average balance, interest income or interest expense, and average interest rate for each category of interest-earning assets and interest-bearing liabilities, net interest spread, and net interest margin on average interest-earning assets for the three months ended September 30, 2023 and 2022. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate.

(dollars in thousands)

On a tax-equivalent basis, net interest income for the third quarter of 2023 was $208.7 million, a decrease of $5.2 million, or 2.4%, compared with $213.9 million reported in the same quarter in 2022. The decrease in net interest income is primarily a result of increased cost of funds as market interest rates have risen, partially offset by growth in average earning assets and related rates. Average interest earning assets increased $2.03 billion, or 9.5%, from $21.36 billion in the third quarter of 2022 to $23.39 billion for the third quarter of 2023. This growth in interest-earning assets resulted primarily from organic loan growth and securities purchases, partially offset by a decline in excess liquidity. The Company’s net interest margin during the third quarter of 2023 was 3.54%, down 43 basis points from 3.97% reported in the third quarter of 2022. Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to $4.2 billion during the third quarter of 2023, with weighted average yields of 7.28%, compared with $4.6 billion and 5.29%, respectively, during the third quarter of 2022. Loan production in the banking division amounted to $621.0 million during the third quarter of 2023, with weighted average yields of 9.49%, compared with $1.1 billion and 6.26%, respectively, during the third quarter of 2022.

Total interest income, on a tax-equivalent basis, increased to $331.5 million during the third quarter of 2023, compared with $235.2 million in the same quarter of 2022. Yields on earning assets increased to 5.62% during the third quarter of 2023, compared with 4.37% reported in the third quarter of 2022. During the third quarter of 2023, loans comprised 89.1% of average earning assets, compared with 87.2% in the same quarter of 2022. Yields on loans increased to 5.81% in the third quarter of 2023, compared with 4.62% in the same period of 2022.

The yield on total interest-bearing liabilities increased from 0.71% in the third quarter of 2022 to 3.22% in the third quarter of 2023. Total funding costs, inclusive of noninterest-bearing demand deposits, increased to 2.24% in the third quarter of 2023, compared with 0.42% during the third quarter of 2022. Deposit costs increased from 0.29% in the third quarter of 2022 to 2.00% in the third quarter of 2023. Non-deposit funding costs increased from 4.83% in the third quarter of 2022 to 5.67% in the third quarter of 2023. Average balances of interest-bearing deposits and their respective costs for the third quarter of 2023 and 2022 are shown below:

(dollars in thousands)

Provision for Credit Losses

The Company’s provision for credit losses during the third quarter of 2023 amounted to $24.5 million, compared with $17.7 million in the third quarter of 2022. This increase was attributable to the updated economic forecast. The provision for credit losses for the third quarter of 2023 was comprised of $30.1 million related to loans, negative $5.6 million related to unfunded commitments and negative $2,000 related to other credit losses, compared with $17.5 million related to loans, $192,000 related to unfunded commitments and negative $9,000 related to other credit losses for the third quarter of 2022. Non-performing assets as a percentage of total assets decreased three basis points to 0.58% at September 30, 2023, compared with 0.61% at December 31, 2022. The decrease in non-performing assets is primarily attributable to a decrease in accruing loans delinquent 90 days or more of $6.0 million, partially offset by an increase in other real estate owned of $2.6 million. The Company recognized net charge-offs on loans during the third quarter of 2023 of approximately $12.1 million, or 0.23% of average loans on an annualized basis, compared with net charge-offs of approximately $5.2 million, or 0.11%, in the third quarter of 2022. Approximately $3.2 million of net charge-offs for the third quarter of 2023 related to acquired loans which were fully reserved at the acquisition date. The Company’s total allowance for credit losses on loans at September 30, 2023 was $290.1 million, or 1.44% of total loans, compared with $205.7 million, or 1.04% of total loans, at December 31, 2022. This increase is primarily attributable to updated forecast economic conditions.

Noninterest Income

Total noninterest income for the third quarter of 2023 was $63.2 million, a decrease of $2.1 million, or 3.3%, from the $65.3 million reported in the third quarter of 2022. Income from mortgage banking activities was $36.3 million in the third quarter of 2023, a decrease of $4.1 million, or 10.1%, from $40.4 million in the third quarter of 2022. Total production in the third quarter of 2023 amounted to $1.18 billion, compared with $1.26 billion in the same quarter of 2022, while spread (gain on sale) increased to 2.15% in the current quarter, compared with 2.10% in the same quarter of 2022. Mortgage banking activities for the third quarter of 2022 were positively impacted by a recovery of prior mortgage servicing right impairment of $1.3 million, compared with no such recovery in the third quarter of 2023 The retail mortgage open pipeline finished the third quarter of 2023 at $623.9 million, compared with $652.1 million at June 30, 2023 and $520.0 million at the end of the third quarter of 2022.

Service charges on deposit accounts increased $924,000, or 8.3%, to $12.1 million in the third quarter of 2023, compared with $11.2 million in the third quarter of 2022. Other noninterest income increased $737,000, or 5.7%, to $13.6 million for the third quarter of 2023, compared with $12.9 million during the third quarter of 2022. The increase in other noninterest income was primarily attributable to increased equipment finance fee income, BOLI income and SBA servicing income of $2.2 million, $568,000 and $253,000, respectively, partially offset by declines in gain on sale of SBA loans and trust income of $1.6 million and $1.1 million, respectively.

Noninterest Expense

Total noninterest expense for the third quarter of 2023 increased $1.9 million, or 1.3%, to $141.4 million, compared with $139.6 million in the same quarter 2022. Salaries and employee benefits increased $3.2 million, or 4.1%, from $78.7 million in the third quarter of 2022 to $81.9 million in the third quarter of 2023, due primarily to decreases in deferred origination costs of

$8.0 million, partially offset by declines in variable commissions tied to mortgage production of $2.5 million, and incentive compensation of $2.8 million. Occupancy and equipment expenses decreased $238,000, or 1.8%, to $12.7 million for the third quarter of 2023, compared with $13.0 million in the third quarter of 2022. Data processing and communications expenses increased $1.0 million, or 8.0%, to $13.0 million in the third quarter of 2023, compared with $12.0 million in the third quarter of 2022. Advertising and marketing expense was $2.7 million in the third quarter of 2023, compared with $3.6 million in the third quarter of 2022. This decrease was primarily related to a marketing campaign begun in the second quarter of 2022 which was narrowed in 2023. Amortization of intangible assets decreased $285,000, or 6.1%, from $4.7 million in the third quarter of 2022 to $4.4 million in the third quarter of 2023. This decrease was primarily related to a reduction in core deposit intangible amortization. Loan servicing expenses decreased $323,000, or 3.4%, from $9.6 million in the third quarter of 2022 to $9.3 million in the third quarter of 2023, primarily attributable to the sale of a portion of our mortgage servicing portfolio during the third quarter of 2022, partially offset by additional mortgage loans serviced added from mortgage production over the previous year. Other noninterest expenses increased $871,000, or 4.9%, from $17.9 million in the third quarter of 2022 to $18.8 million in the third quarter of 2023, due primarily to a decrease of $846,000 in deferred third-party origination costs in our equipment finance division.

Income Taxes

Income tax expense is influenced by the statutory rate, the amount of taxable income, the amount of tax-exempt income and the amount of nondeductible expenses. For the third quarter of 2023, the Company reported income tax expense of $24.9 million, compared with $28.5 million in the same period of 2022. The Company’s effective tax rate for the three months ended September 30, 2023 and 2022 was 23.7% and 23.6%, respectively.

Results of Operations for the Nine Months Ended September 30, 2023 and 2022

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $203.2 million, or $2.94 per diluted share, for the nine months ended September 30, 2023, compared with $264.3 million, or $3.81 per diluted share, for the same period in 2022. The Company’s return on average assets and average shareholders’ equity were 1.07% and 8.26%, respectively, in the nine months ended September 30, 2023, compared with 1.51% and 11.57%, respectively, in the same period in 2022. During the first nine months of 2023, the Company recorded pre-tax gain on BOLI proceeds of $486,000. During the first nine months of 2022, the Company recorded pre-tax merger and conversion charges of $977,000, pre-tax loss on sale of mortgage servicing rights of $316,000, pre-tax servicing right recovery of $21.8 million, pre-tax gain on BOLI proceeds of $55,000, pre-tax natural disaster expenses of $151,000 and pre-tax gain on bank premises of $45,000. Excluding these adjustment items, the Company’s net income would have been $202.7 million, or $2.93 per diluted share, for the nine months ended September 30, 2023 and $248.3 million, or $3.58 per diluted share, for the same period in 2022.

Below is a reconciliation of adjusted net income to net income, as discussed above.

(in thousands, except share and per share data)

41

Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities, SBA activities and premium finance activities of the Company during the nine months ended September 30, 2023 and 2022, respectively:

(dollars in thousands)

(dollars in thousands)

42

Net Interest Income and Margins

The following table sets forth the average balance, interest income or interest expense, and average yield/rate paid for each category of interest-earning assets and interest-bearing liabilities, net interest spread, and net interest margin on average interest-earning assets for the nine months ended September 30, 2023 and 2022. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate.

(dollars in thousands)

On a tax-equivalent basis, net interest income for the nine months ended September 30, 2023 was $631.8 million, an increase of $52.0 million, or 9.0%, compared with $579.8 million reported in the same period of 2022. The higher net interest income is a result of growth in average earning assets and increased market rates, partially offset by increased funding costs. Average interest earning assets increased $2.12 billion, or 10.0%, from $21.15 billion in the first nine months of 2022 to $23.27 billion for the first nine months of 2023. This growth in interest earning assets resulted primarily from organic growth in average loans and investment securities purchases, partially offset by a decline in excess liquidity and average loans held for sale. The Company’s net interest margin during the first nine months of 2023 was 3.63%, down four basis points from 3.67% reported for the first nine months of 2022. Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to $12.32 billion during the first nine months of 2023, with weighted average yields of 6.91%, compared with $14.53 billion and 4.39%, respectively, during the first nine months of 2022. Loan production in the banking division amounted to $1.7 billion during the first nine months of 2023 with weighted average yields of 9.20%, compared with $3.0 billion and 5.60%, respectively, during the first nine months of 2022.

Total interest income, on a tax-equivalent basis, increased to $951.1 million during the nine months ended September 30, 2023, compared with $623.2 million in the same period of 2022. Yields on earning assets increased to 5.46% during the first nine months of 2023, compared with 3.94% reported in the same period of 2022. During the first nine months of 2023, loans comprised 88.7% of average earning assets, compared with 84.1% in the same period of 2022. Yields on loans increased to 5.64% during the nine months ended September 30, 2023, compared with 4.44% in the same period of 2022.

The yield on total interest-bearing liabilities increased from 0.48% during the nine months ended September 30, 2022 to 2.86% in the same period of 2023. Total funding costs, inclusive of noninterest-bearing demand deposits, increased to 1.96% in the first nine months of 2023, compared with 0.29% during the same period of 2022. Deposit costs increased from 0.16% in the first nine months of 2022 to 1.65% in the same period of 2023. Non-deposit funding costs increased from 4.59% in the first nine months of 2022 to 5.29% in the same period of 2023. The increase in non-deposit funding costs was driven primarily by an increase in index rates. Average balances of interest bearing deposits and their respective costs for the nine months ended September 30, 2023 and 2022 are shown below:

(dollars in thousands)

Provision for Credit Losses

The Company’s provision for credit losses during the nine months ended September 30, 2023 amounted to $119.7 million, compared with $38.8 million in the nine months ended September 30, 2022. This increase was primarily attributable to the updated economic forecast and organic growth in loans during the first nine months of 2023. The provision for credit losses for the first nine months of 2023 was comprised of $123.1 million related to loans, negative $3.4 million related to unfunded commitments and $5,000 related to other credit losses, compared with $28.0 million related to loans, $11.0 million related to unfunded commitments and negative $135,000 related to other credit losses for the same period in 2022. Non-performing assets as a percentage of total assets decreased from 0.61% at December 31, 2022 to 0.58% at September 30, 2023. The decrease in non-performing assets is primarily attributable to a decrease in accruing loans delinquent 90 days or more of $6.0 million, partially offset by an increase in other real estate owned of $2.6 million. Net charge-offs on loans during the first nine months of 2023 were $37.0 million, or 0.25% of average loans on an annualized basis, compared with approximately $10.7 million, or 0.08%, in the first nine months of 2022. The Company’s total allowance for credit losses on loans at September 30, 2023 was $290.1 million, or 1.44% of total loans, compared with $205.7 million, or 1.04% of total loans, at December 31, 2022. This increase is primarily attributable to organic growth in loans and the updated economic forecast.

Noninterest Income

Total noninterest income for the nine months ended September 30, 2023 was $186.6 million, a decrease of $49.5 million, or 21.0%, from the $236.1 million reported for the nine months ended September 30, 2022. Income from mortgage banking activities decreased $53.6 million, or 33.1%, from $162.0 million in the first nine months of 2022 to $108.4 million in the same period of 2023. Total production in the first nine months of 2023 amounted to $3.45 billion, compared with $4.52 billion in the same period of 2022, while spread (gain on sale) decreased to 2.11% during the nine months ended September 30, 2023, compared with 2.48% in the same period of 2022. The retail mortgage open pipeline was $623.9 million at September 30, 2023, compared with $507.1 million at December 31, 2022 and $520.0 million at September 30, 2022. Mortgage banking activities was positively impacted during the first nine months of 2022 by a recovery of previous mortgage servicing right impairment of $21.8 million, compared with no such recovery for the same period in 2023.

Other noninterest income increased $3.1 million, or 8.4%, to $40.7 million for the first nine months of 2023, compared with $37.5 million during the same period of 2022. The increase in other noninterest income was primarily attributable to increases in fee income from equipment finance, BOLI income, gain on debt redemption and derivative fee income of $3.8 million, $1.3 million, $1.1 million and $1.2 million, respectively, partially offset by a decrease of $3.7 million in trust income after exiting this business at the end of 2022.

Noninterest Expense

Total noninterest expenses for the nine months ended September 30, 2023 increased $3.7 million, or 0.9%, to $429.3 million, compared with $425.6 million in the same period of 2022. Salaries and employee benefits decreased $379,000, or 0.2%, from $244.5 million in the first nine months of 2022 to $244.1 million in the same period of 2023. Data processing and communications expenses increased $2.7 million, or 7.4%, to $39.5 million in the first nine months of 2023, from $36.7 million reported in the same period of 2022. Credit resolution-related expenses increased $266,000, or 77.6%, from negative $343,000 in the first nine months of 2022 to negative $77,000 in the same period of 2023. Advertising and marketing expense was $8.9 million in the first nine months of 2023, compared with $8.7 million in the first nine months of 2022. Amortization of intangible assets decreased $1.2 million, or 8.1%, from $15.0 million in the first nine months of 2022 to $13.8 million in the first nine months of 2023. This decrease was primarily related to a reduction in core deposit intangible amortization. There were no merger and conversion charges in the first nine months of 2023, compared with $977,000 in the same period in 2022. Loan servicing expenses decreased $2.1 million, or 7.2%, from $28.5 million in the first nine months of 2022 to $26.4 million in the same period of 2023, primarily attributable to the sale of a portion of our mortgage servicing portfolio during the third quarter of 2022, partially offset by additional mortgage loans added from mortgage production over the previous year. Other noninterest expenses increased $5.3 million, or 10.0%, from $53.1 million in the first nine months of 2022 to $58.4 million in the same period of 2023, due primarily to increases of $5.8 million in FDIC insurance expenses and $1.7 million in legal and professional fees. These increases in other noninterest expenses were partially offset by a decrease from the first nine months of 2022 in fraud/forgery losses of $1.1 million and variable expenses tied to production in our mortgage division.

Income Taxes

Income tax expense is influenced by the statutory rate, the amount of taxable income, the amount of tax-exempt income and the amount of nondeductible expenses. For the nine months ended September 30, 2023, the Company reported income tax expense of $63.4 million, compared with $84.2 million in the same period of 2022. The Company’s effective tax rate for the nine months ended September 30, 2023 and 2022 was 23.8% and 24.2%, respectively. The decrease in the effective tax rate is primarily a result of a discrete charge to the Company's state tax liability and nondeductible merger and conversion charges incurred during the first nine months of 2022.

Financial Condition as of September 30, 2023

Securities

Debt securities classified as available-for-sale are recorded at fair value with unrealized holding gains and losses excluded from earnings and reported in accumulated other comprehensive income, net of the related deferred tax effect. Securities available-for-sale may be bought and sold in response to changes in market conditions, including, but not limited to, fluctuations in interest rates, changes in securities' prepayment risk, increases in loan demand, general liquidity needs and positioning the portfolio to take advantage of market conditions that create more economically attractive returns. Debt securities are classified as held-to-maturity based on management's positive intent and ability to hold such securities to maturity and are carried at amortized cost. Restricted equity securities are classified as other investment securities and are carried at cost and are periodically evaluated for impairment based on the ultimate recovery of par value or cost basis.

The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the expected life of the securities. Realized gains and losses, determined on the basis of the cost of specific securities sold, are included in earnings on the trade date.

Management and the Company’s ALCO Committee evaluate available-for-sale securities in an unrealized loss position on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation, to determine if credit-related impairment exists. Management first evaluates whether they intend to sell or more likely than not will be required to sell an impaired security before recovering its amortized cost basis. If either criteria is met, the entire amount of unrealized loss is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. If either of the above criteria is not met, management evaluates whether the decline in fair value is attributable to credit or resulted from other factors. If credit-related impairment exists, the Company recognizes an allowance for credit losses, limited to the amount by which the fair value is less than the amortized cost basis. Any impairment not recognized through an allowance for credit losses is recognized in other comprehensive income, net of tax, as a non credit-related impairment. The Company does not intend to sell these available-for-sale investment securities at an unrealized loss position at September 30, 2023, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Based on the results of management's review, at September 30, 2023, management determined that $80,000 was attributable to credit impairment and, accordingly, an allowance for credit losses was established. The remaining $78.1 million in unrealized loss was determined to be from factors other than credit.

The Company's held-to-maturity securities have no expected credit losses, and no related allowance for credit losses has been established.

The following table is a summary of our investment portfolio at the dates indicated:

(dollars in thousands)

46

The amounts of securities available-for-sale and held-to-maturity in each category as of September 30, 2023 are shown in the following table according to contractual maturity classifications: (i) one year or less; (ii) after one year through five years; (iii) after five years through ten years; and (iv) after ten years:

(1) The amortized cost of securities held-to-maturity and fair value of securities available-for-sale are presented based on contractual maturities. Actual cash flows may differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.

(2) Yields were computed using coupon interest, adding discount accretion or subtracting premium amortization, as appropriate, on a ratable basis over the life of each security. The weighted average yield for each maturity range was computed using the amortized cost of each security in that range.

(3) Yields on securities of state and political subdivisions are stated on a taxable-equivalent basis, using a tax rate of 21%.

Loans and Allowance for Credit Losses

At September 30, 2023, gross loans outstanding (including loans and loans held for sale) were $20.58 billion, up $335.2 million from $20.25 billion reported at December 31, 2022. Loans increased $345.8 million, or 1.7%, from $19.86 billion at December 31, 2022 to $20.20 billion at September 30, 2023, driven primarily by organic growth. Loans held for sale decreased from $392.1 million at December 31, 2022 to $381.5 million at September 30, 2023 primarily in our mortgage division.

The Company regularly monitors the composition of the loan portfolio to evaluate the adequacy of the allowance for credit losses ("ACL") on loans in light of the impact that changes in the economic environment may have on the loan portfolio. The Company focuses on the following loan categories: (1) commercial, financial and agricultural; (2) consumer; (3) indirect automobile; (4) mortgage warehouse; (5) municipal; (6) premium finance; (7) construction and development related real estate; (8) commercial and farmland real estate; and (9) residential real estate. The Company’s management has strategically located its branches in select markets in Georgia, Alabama, Florida, North Carolina and South Carolina to take advantage of the growth in these areas.

The Company’s risk management processes include a loan review program designed to evaluate the credit risk in the loan portfolio and ensure credit grade accuracy. Through the loan review process, the Company conducts (1) a loan portfolio summary analysis, (2) charge-off and recovery analysis, (3) trends in accruing problem loan analysis, and (4) problem and past-due loan analysis. This analysis process serves as a tool to assist management in assessing the overall quality of the loan portfolio and the adequacy of the ACL. Loans classified as “substandard” are loans which are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses and/or questionable collateral values. Loans classified as “doubtful” are those loans that have characteristics similar to substandard loans but have an increased risk of loss. Loans classified as “loss” are those loans which are considered uncollectible and are in the process of being charged off.

The Company estimates the ACL on loans based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL.

Expected credit losses are reflected in the ACL through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.

The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company currently uses the DCF method or the PD×LGD method which may be adjusted for qualitative factors.

The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert back to historical loss information on a straight-line basis over four quarters when the Company can no longer develop reasonable and supportable forecasts.

At the end of the third quarter of 2023, the ACL on loans totaled $290.1 million, or 1.44% of loans, compared with $205.7 million, or 1.04% of loans, at December 31, 2022. Our nonaccrual loans decreased from $134.8 million at December 31, 2022 to $134.6 million at September 30, 2023. For the first nine months of 2023, our net charge off ratio as a percentage of average loans increased to 0.25%, compared with 0.08% for the first nine months of 2022. The total provision for credit losses for the first nine months of 2023 was $119.7 million, increasing from a provision of $38.8 million recorded for the first nine months of 2022. Our ratio of total nonperforming assets to total assets was down three basis points from 0.61% at December 31, 2022 to 0.58% at September 30, 2023.

The following table presents an analysis of the allowance for credit losses on loans, provision for credit losses on loans and net charge-offs as of and for the nine months ended September 30, 2023 and 2022:

(dollars in thousands)

The following table presents an analysis of the allowance for credit losses on loans and net charge-offs for loans held for investment:

(dollars in thousands)

49

Loans

Loans are stated at amortized cost. Balances within the major loans receivable categories are presented in the following table:

(dollars in thousands)

Non-Performing Assets

Non-performing assets include nonaccrual loans, accruing loans contractually past due 90 days or more, repossessed personal property, and OREO. Loans are placed on nonaccrual status when management has concerns relating to the ability to collect the principal and interest and generally when such loans are 90 days or more past due. Management performs a detailed review and valuation assessment of non-performing loans over $250,000 on a quarterly basis. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against current income.

Nonaccrual loans totaled $134.6 million at September 30, 2023, a decrease of $250,000, or 0.2%, from $134.8 million at December 31, 2022. Accruing loans delinquent 90 days or more totaled $11.9 million at September 30, 2023, a decrease of $6.0 million, or 33.4%, compared with $17.9 million at December 31, 2022. At September 30, 2023, OREO totaled $3.4 million, an increase of $2.6 million, or 303.0%, compared with $843,000 at December 31, 2022. Management regularly assesses the valuation of OREO through periodic reappraisal and through inquiries received in the marketing process. At the end of the third quarter of 2023, total non-performing assets as a percent of total assets was down three basis points from 0.61% at December 31, 2022 to 0.58% at September 30, 2023.

Non-performing assets at September 30, 2023 and December 31, 2022 were as follows:

(dollars in thousands)

(1) Included in nonaccrual loans were $80.8 million and $69.6 million of serviced GNMA-guaranteed nonaccrual loans at September 30, 2023 and December 31, 2022, respectively.

Commercial Lending Practices

The federal bank regulatory agencies previously issued interagency guidance on commercial real estate lending and prudent risk management practices. This guidance defines commercial real estate (“CRE”) loans as loans secured by raw land, land development and construction (including one-to-four family residential construction), multi-family property and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property, excluding owner-occupied properties (loans for which 50% or more of the source of repayment is derived from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property) or the proceeds of the sale, refinancing or permanent financing of the property. Loans for owner-occupied CRE are generally excluded from the CRE guidance.

The CRE guidance is applicable when either:

(1) total loans for construction, land development, and other land, net of owner-occupied loans, represent 100% or more of a tier I capital plus allowance for credit losses on loans and leases; or

(2) total loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land development, and other land, net of owner-occupied loans, represent 300% or more of a bank’s tier I capital plus allowance for credit losses on loans and leases.

Banks that are subject to the CRE guidance criteria are required to implement enhanced strategic planning, CRE underwriting policies, risk management and internal controls, portfolio stress testing, risk exposure limits, and other policies, including management compensation and incentives, to address the CRE risks. Higher allowances for loan losses and capital levels may also be appropriate.

As of September 30, 2023, the Company exhibited a concentration in the CRE loan category based on Federal Reserve Call codes. The primary risks of CRE lending are:

(1) within CRE loans, construction and development loans are somewhat dependent upon continued strength in demand for residential real estate, which is reliant on favorable real estate mortgage rates and changing population demographics;

(2) on average, CRE loan sizes are generally larger than non-CRE loan types; and

(3) certain construction and development loans may be less predictable and more difficult to evaluate and monitor.

The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of September 30, 2023 and December 31, 2022. The loan categories and concentrations below are based on Federal Reserve Call codes:

(dollars in thousands)

The following table outlines the percentage of construction and development loans and total CRE loans, net of owner-occupied loans, to the Bank’s tier I capital plus allowance for credit losses on loans and leases, and the Company’s internal concentration limits as of September 30, 2023 and December 31, 2022:

51

Short-Term Investments

The Company’s short-term investments are comprised of federal funds sold and interest-bearing deposits in banks. At September 30, 2023, the Company’s short-term investments were $1.30 billion, compared with $833.6 million at December 31, 2022, all of which was in interest-bearing deposit balances at correspondent banks and the Federal Reserve Bank of Atlanta.

Derivative Instruments and Hedging Activities

The Company has forward contracts and IRLCs to economically hedge changes in the value of the mortgage inventory due to changes in market interest rates. The fair value of these instruments amounted to an asset of $8.8 million and $3.9 million at September 30, 2023 and December 31, 2022, respectively. The Company also enters into interest rate derivative agreements to facilitate the risk management strategies of certain clients. The Company mitigates this risk by entering into equal and offsetting interest rate swap agreements with highly rated third-party financial institutions. The fair value of these instruments amounted to an asset of $13.2 million and $4.6 million at September 30, 2023 and December 31, 2022, respectively, and a liability of $13.0 million and $4.6 million at September 30, 2023 and December 31, 2022, respectively.

Deposits

Total deposits at the Company increased $1.13 billion, or 5.8%, to $20.59 billion at September 30, 2023, compared with $19.46 billion at December 31, 2022. Noninterest-bearing deposits decreased $1.34 billion, or 16.9%, while interest-bearing deposits increased $2.47 billion, or 21.4%, during the first nine months of 2023. The decrease in noninterest-bearing deposits was attributable to a shift in consumer behavior to interest-bearing accounts as interest rates have risen. At September 30, 2023, the Company had approximately $1.47 billion in short-term brokered CDs, compared with none at December 31, 2022. As of September 30, 2023 and December 31, 2022, the Company had estimated uninsured deposits of $8.43 billion and $9.30 billion, respectively. These estimates were derived using the same methodologies and assumptions used for the Bank's regulatory reporting. Approximately $2.27 billion, or 26.9%, of the uninsured deposits at September 30, 2023 were for municipalities which are collateralized with investment securities or letters of credit.

Capital

Common Stock Repurchase Program

On September 19, 2019, the Company announced that its Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock through October 31, 2020. The Board has subsequently extended the share repurchase program each year since that original authorization, with the most recent extension, which also included the replenishment of the program to $100.0 million, being announced on October 26, 2023. As a result, the Company is currently authorized to engage in additional share repurchases up to $100.0 million through October 31, 2024. Repurchases of shares must be made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including share acquisition price, regulatory limitations and other market and economic factors. The program does not require the Company to repurchase any specific number of shares. As of September 30, 2023, an aggregate of $13.5 million, or 405,233 shares of the Company's common stock, had been repurchased under the program's October 27, 2022 renewal, which also included the replenishment of the program to $100.0 million.

Capital Management

Capital management consists of providing equity to support both current and anticipated future operations. The capital resources of the Company are monitored on a periodic basis by state and federal regulatory authorities.

Under the regulatory capital frameworks adopted by the Federal Reserve Board (the "FRB") and the Federal Deposit Insurance Corporation (the "FDIC"), the Company and the Bank must each maintain a common equity Tier 1 capital to total risk-weighted assets ratio of at least 4.5%, a Tier 1 capital to total risk-weighted assets ratio of at least 6%, a total capital to total risk-weighted assets ratio of at least 8% and a leverage ratio of Tier 1 capital to average total consolidated assets of at least 4%. The Company and the Bank are also required to maintain a capital conservation buffer of common equity Tier 1 capital of at least 2.5% of risk-weighted assets in addition to the minimum risk-based capital ratios in order to avoid certain restrictions on capital distributions and discretionary bonus payments.

In March 2020, the Office of the Comptroller of the Currency, the FRB and the FDIC issued an interim final rule that delays the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule provides banking organizations that implement CECL in 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. As a result, the Company and Bank elected the five-year transition relief allowed under the interim final rule effective March 31, 2020.

As of September 30, 2023, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. The following table sets forth the regulatory capital ratios of for the Company and the Bank at September 30, 2023 and December 31, 2022:

Interest Rate Sensitivity and Liquidity

The Company’s primary market risk exposures are credit risk, interest rate risk, and liquidity risk. The Bank operates under an Asset Liability Management Policy approved by the Company’s Board of Directors and the ALCO Committee. The policy outlines limits on interest rate risk in terms of changes in net interest income and changes in the net market values of assets and liabilities over certain changes in interest rate environments. These measurements are made through a simulation model which projects the impact of changes in interest rates on the Bank’s assets and liabilities. The policy also outlines responsibility for monitoring interest rate risk, and the process for the approval, implementation and monitoring of interest rate risk strategies to achieve the Bank’s interest rate risk objectives.

The ALCO Committee is comprised of senior officers of Ameris. The ALCO Committee makes all strategic decisions with respect to the sources and uses of funds that may affect net interest income, including net interest spread and net interest margin. The objective of the ALCO Committee is to identify the interest rate, liquidity and market value risks of the Company’s balance sheet and use reasonable methods approved by the Company’s Board of Directors and executive management to minimize those identified risks.

The normal course of business activity exposes the Company to interest rate risk. Interest rate risk is managed within an overall asset and liability framework for the Company. The principal objectives of asset and liability management are to predict the sensitivity of net interest spreads to potential changes in interest rates, control risk and enhance profitability. Funding positions are kept within predetermined limits designed to properly manage risk and liquidity. The Company employs sensitivity analysis in the form of a net interest income simulation to help characterize the market risk arising from changes in interest rates. In addition, fluctuations in interest rates usually result in changes in the fair market value of the Company’s financial instruments, cash flows and net interest income. The Company’s interest rate risk position is managed by the ALCO Committee.

The Company uses a simulation modeling process to measure interest rate risk and evaluate potential strategies. Interest rate scenario models are prepared using software created and licensed from an outside vendor. The Company’s simulation includes all financial assets and liabilities. Simulation results quantify interest rate risk under various interest rate scenarios. Management then develops and implements appropriate strategies. The ALCO Committee has determined that an acceptable level of interest rate risk would be for net interest income to increase/decrease no more than 20% given a change in selected interest rates of 200 basis points over any 24-month period.

Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of Ameris to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short- term assets at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks, which could provide funds on short notice, if needed. The Company has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is equal to 30% of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At September 30, 2023 and December 31, 2022, the net carrying value of the Company’s other borrowings was $1.21 billion and $1.88 billion, respectively. At September 30, 2023, the Company had availability with the FHLB and FRB Discount Window of $3.62 billion and $2.63 billion, respectively.

The following liquidity ratios compare certain assets and liabilities to total deposits or total assets:

The liquidity resources of the Company are monitored continually by the ALCO Committee and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s and the Bank’s liquidity ratios at September 30, 2023 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.

Goodwill Impairment Testing

The Company has goodwill at its Banking Division and Premium Finance Division (collectively "the divisions"). The carrying value of goodwill at the Banking Division was $951.1 million at both September 30, 2023 and December 31, 2022. The carrying value of goodwill at the Premium Finance Division was $64.5 million at both September 30, 2023 and December 31, 2022. The Company performs its annual impairment test at December 31 of each year and more frequently if a triggering event occurs. At December 31, 2022, the Company performed a qualitative assessment of goodwill at the divisions and determined it was more likely than not that, in each case, the reporting unit's fair value exceeded its carrying value. The Company performed an interim qualitative assessment at March 31, 2023 considering the decline in the Company's stock price relative to book value and the impact of recent bank failures on the economy and again determined that it was more likely than not that each reporting unit's fair value exceeded its carrying value.

During the second quarter of 2023, the Company assessed the indicators of goodwill impairment and determined a triggering event had occurred due to the sustained decline in the Company's stock price. The Company performed a quantitative analysis of goodwill at the divisions as of June 30, 2023. The Premium Finance Division was measured utilizing a discounted cash flow approach. The Banking Division was measured using multiple approaches. The primary approach for the Banking Division was the discounted cash flow approach, and the Company also used a market approach comparing to similar public companies' multiples and control premiums from transactions during prior distressed periods. The results from each of the primary approaches showed valuation of the reporting unit in excess of carrying value at June 30, 2023. The discounted cash flow approach for the Premium Finance Division resulted in a fair value approximately 8% higher than its carrying value. The discounted cash flow approach for the Banking Division indicated a fair value approximately 20% higher than its carrying value, and the market approach indicated a fair value approximately 9% higher than its carrying value. As a result, management determined no impairment existed at June 30, 2023. At September 30, 2023, the Company assessed the indicators of goodwill impairment and determined a triggering event had not occurred and no impairment test was performed. The Company will perform its annual impairment test at December 31, 2023.

Each of the valuation methods used by the Company requires significant assumptions. Depending on the specific method, assumptions are made regarding growth rates, discount rates for cash flows, control premiums, and selected multiples. Changes to any of the assumptions could result in significantly different results.

The Company is exposed only to U.S. dollar interest rate changes, and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading.

The Company also had forward contracts and IRLCs to economically hedge changes in the value of the mortgage inventory due to changes in market interest rates. The fair value of these instruments amounted to an asset of approximately $8.8 million and $3.9 million at September 30, 2023 and December 31, 2022, respectively. The Company also enters into interest rate derivative agreements to facilitate the risk management strategies of certain clients. The Company mitigates this risk by entering into equal and offsetting interest rate swap agreements with highly rated third-party financial institutions. The fair value of these instruments amounted to an asset of $13.2 million and $4.6 million at September 30, 2023 and December 31, 2022, respectively, and a liability of $13.0 million and $4.6 million at September 30, 2023 and December 31, 2022, respectively.

The Company has no exposure to foreign currency exchange rate risk, commodity price risk and other market risks.

Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as “interest rate risk.” The repricing of interest-earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of the Company’s asset/liability management program, the timing of repriced assets and liabilities is referred to as “gap management.”

The Company uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a 12-month and 24-month period is subjected to gradual and parallel shocks of 100, 200, 300 and 400 basis point increases and decreases in market rates and is monitored on a quarterly basis.

The following table presents the earnings simulation model’s projected impact of a change in interest rates on the projected baseline net interest income for the 12- and 24-month periods commencing October 1, 2023. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.

Earnings Simulation Model Results

Additional information required by Item 305 of Regulation S-K is set forth under Part I, Item 2 of this report.

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of the end of the period covered by this report, as required by paragraph (b) of Rules 13a-15 or 15d-15 of the Exchange Act. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2023, there was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have not been any material changes to the risk factors disclosed in Item 1A. of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2022, previously filed with the SEC.