Ameris Bancorp: Form 10-Q for the period ended Jun 30, 2024

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; 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 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 June 30, 2024, as compared with December 31, 2023, and operating results for the three- and six-month periods ended June 30, 2024 and 2023. 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 2023 Annual Report on Form 10-K. The reader should refer to the notes to our consolidated financial statements in our 2023 Annual Report on Form 10-K for a full disclosure of all critical accounting policies.

Results of Operations for the Three Months Ended June 30, 2024 and 2023

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $90.8 million, or $1.32 per diluted share, for the quarter ended June 30, 2024, compared with $62.6 million, or $0.91 per diluted share, for the same period in 2023. The Company’s return on average assets and average shareholders’ equity were 1.41% and 10.34%, respectively, in the second quarter of 2024, compared with 0.98% and 7.63%, respectively, in the second quarter of 2023. During the second quarter of 2024, the Company a recorded pre-tax gain on sale of mortgage servicing rights (MSR) of $4.7 million, a pre-tax gain on conversion of Visa Class B-1 stock of $12.6 million, a pre-tax gain on bank owned life insurance (BOLI) proceeds of $466,000 and an adjustment related to FDIC special assessment of $895,000. Additionally, the Company recorded $4.8 million of tax expense related to BOLI restructuring during the period. Excluding these adjustment items, the Company’s net income would have been $80.8 million, or $1.17 per diluted share, for the second quarter of 2024 and $62.6 million, or $0.91 per diluted share, for the second quarter of 2023.

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

(in thousands, except share and per share data)

38

Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities and premium finance activities of the Company during the second quarter of 2024 and 2023, respectively:

(dollars in thousands)

(dollars in thousands)

39

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 June 30, 2024 and 2023. 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 second quarter of 2024 was $212.9 million, an increase of $2.4 million, or 1.14%, compared with $210.5 million reported in the same quarter in 2023. The increase in net interest income is primarily a result of increased yield on loans and investment securities in addition to growth in average earning assets, partially offset by increased cost of funds as market interest rates have risen. Average interest-earning assets increased $433.6 million, or 1.85%, from $23.48 billion in the second quarter of 2023 to $23.92 billion for the second quarter of 2024. This growth in interest-earning assets resulted primarily from organic loan growth. The Company’s net interest margin during the second quarter of 2024 was 3.58%, down two basis points from 3.60% reported in the second quarter of 2023. Loan production amounted to $5.1 billion during the second quarter of 2024, with weighted average yields of 7.45%, compared with $5.3 billion and 7.09%, respectively, during the second quarter of 2023.

Total interest income, on a tax-equivalent basis, increased to $348.3 million during the second quarter of 2024, compared with $322.9 million in the same quarter of 2023. Yields on earning assets increased to 5.86% during the second quarter of 2024, compared with 5.52% reported in the second quarter of 2023. During the second quarter of 2024, loans comprised 89.1% of average earning assets, compared with 88.3% in the same quarter of 2023. Yields on loans increased to 6.00% in the second quarter of 2024, compared with 5.66% in the same period of 2023.

The yield on interest-bearing deposits increased from 2.64% in the second quarter of 2023 to 3.37% in the second quarter of 2024. The yield on total interest-bearing liabilities increased from 2.96% in the second quarter of 2023 to 3.53% in the second quarter of 2024. Total funding costs, inclusive of noninterest-bearing demand deposits, increased to 2.48% in the second quarter of 2024, compared with 2.05% during the second quarter of 2023. Deposit costs increased from 1.76% in the second quarter of 2023 to 2.32% in the second quarter of 2024. Non-deposit funding costs increased from 5.26% in the second quarter of 2023 to 5.77% in the second quarter of 2024.

Provision for Credit Losses

The Company’s provision for credit losses during the second quarter of 2024 amounted to $18.8 million, compared with $45.5 million in the second quarter of 2023. This decrease was attributable to the updated economic forecast, partially offset by organic loan growth. The provision for credit losses for the second quarter of 2024 was comprised of $25.3 million related to loans, negative $6.6 million related to unfunded commitments and negative $5,000 related to other credit losses, compared with $43.6 million related to loans, $1.9 million related to unfunded commitments and no provision related to other credit losses for the second quarter of 2023. Non-performing assets as a percentage of total assets increased five basis points to 0.74% at June 30, 2024, compared with 0.69% at December 31, 2023. The increase in non-performing assets is primarily attributable to an increase in nonaccrual loans of $28.3 million, partially offset by decreases in other real estate owned and accruing loans delinquent 90 days or more of $4.0 million and $1.1 million, respectively. The Company recognized net charge-offs on loans during the second quarter of 2024 of approximately $9.2 million, or 0.18% of average loans on an annualized basis, compared with net charge-offs of approximately $14.2 million, or 0.28%, in the second quarter of 2023. The Company’s total allowance for credit losses on loans at June 30, 2024 was $336.2 million, or 1.60% of total loans, compared with $307.1 million, or 1.52% of total loans, at December 31, 2023. This increase is primarily attributable to updated forecast economic conditions and organic growth in loans.

Noninterest Income

Total noninterest income for the second quarter of 2024 was $88.7 million, an increase of $21.4 million, or 31.7%, from the $67.3 million reported in the second quarter of 2023. Income from mortgage banking activities was $46.4 million in the second quarter of 2024, an increase of $5.7 million, or 13.9%, from $40.7 million in the second quarter of 2023. Total production in the second quarter of 2024 amounted to $1.33 billion, unchanged from the same quarter of 2023, while gain on sale spread increased to 2.45% in the current quarter, compared with 2.18% in the same quarter of 2023. The retail mortgage open pipeline finished the second quarter of 2024 at $802.2 million, compared with $606.7 million at March 31, 2024 and $652.1 million at the end of the second quarter of 2023.

Service charges on deposit accounts increased $1.4 million, or 12.2%, to $12.7 million in the second quarter of 2024, compared with $11.3 million in the second quarter of 2023. Net gain (loss) on securities increased to $12.3 million in the second quarter of 2024, compared with negative $6,000 in the second quarter of 2023. This increase was primarily due to the conversion of Visa Class B-1 stock resulting in a gain of $12.6 million and related realized gain (loss) on subsequent sales and mark-to-market adjustments post-conversion. Other noninterest income increased $1.8 million, or 12.2%, to $16.1 million for the second quarter of 2024, compared with $14.3 million during the second quarter of 2023. The increase in other noninterest income was primarily attributable to a gain on sale of mortgage servicing rights of $4.7 million, partially offset by a decline in the gain on sale of SBA loans and fee income in our equipment finance division of $843,000 and $414,000, respectively.

Noninterest Expense

Total noninterest expense for the second quarter of 2024 increased $7.0 million, or 4.7%, to $155.4 million, compared with $148.4 million in the same quarter 2023. Salaries and employee benefits increased $6.9 million, or 8.4%, from $81.3 million in the second quarter of 2023 to $88.2 million in the second quarter of 2024, due primarily to increases in variable compensation related to mortgage production of $1.8 million and health insurance costs of $1.2 million and a decrease in deferred origination costs of $1.0 million. Data processing and communications expenses increased $1.7 million, or 13.0%, to $15.2 million in the second quarter of 2024, compared with $13.5 million in the second quarter of 2023. Advertising and marketing expense was $3.6 million in the second quarter of 2024, compared with $2.6 million in the second quarter of 2023, with the increase primarily due to a new deposit marketing campaign initiated in the second quarter of 2024. Amortization of intangible assets decreased $281,000, or 6.0%, from $4.7 million in the second quarter of 2023 to $4.4 million in the second quarter of 2024. This decrease was primarily related to a reduction in core deposit intangible amortization. Loan servicing expenses increased

$1.0 million, or 11.6%, from $8.8 million in the second quarter of 2023 to $9.8 million in the second quarter of 2024, primarily attributable to additional mortgage loans serviced added from mortgage production over the previous year. Other noninterest expenses decreased $3.4 million, or 13.9%, from $24.2 million in the second quarter of 2023 to $20.8 million in the second quarter of 2024, due primarily to a decrease of FDIC insurance expense of $2.2 million and a $2.7 million decrease in other losses, partially offset by an increase in variable expenses tied to mortgage production.

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 second quarter of 2024, the Company reported income tax expense of $35.7 million, compared with $20.3 million in the same period of 2023. The Company’s effective tax rate for the three months ended June 30, 2024 and 2023 was 28.2% and 24.5%, respectively. The increase in the effective tax rate is primarily a result of a $4.8 million tax expense related to BOLI surrender during the period.

Results of Operations for the Six Months Ended June 30, 2024 and 2023

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $165.1 million, or $2.39 per diluted share, for the six months ended June 30, 2024, compared with $123.1 million, or $1.78 per diluted share, for the same period in 2023. The Company’s return on average assets and average shareholders’ equity were 1.30% and 9.49%, respectively, in the six months ended June 30, 2024, compared with 0.98% and 7.58%, respectively, in the same period in 2023. During the first six months of 2024, the Company recorded a pre-tax gain on conversion of its Visa Class B-1 stock of $12.6 million, a pre-tax gain on sale of mortgage servicing rights of $4.7 million, a pre-tax FDIC special assessment of $2.0 million and a pre-tax gain on BOLI proceeds of $1.5 million. Additionally, the Company recorded $4.8 million in tax expense attributable to BOLI restructuring. During the first six months of 2023, the Company recorded pre-tax gain on BOLI proceeds of $486,000. Excluding these adjustment items, the Company’s net income would have been $156.4 million, or $2.27 per diluted share, for the six months ended June 30, 2024 and $122.6 million, or $1.77 per diluted share, for the same period in 2023.

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

(in thousands, except share and per share data)

43

Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities and premium finance activities of the Company during the six months ended June 30, 2024 and 2023, respectively:

(dollars in thousands)

(dollars in thousands)

44

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 six months ended June 30, 2024 and 2023. 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 six months ended June 30, 2024 was $415.2 million, a decrease of $7.9 million, or 1.86%, compared with $423.1 million reported in the same period of 2023. The lower net interest income is a result of increased yield on interest-bearing deposits, a shift in deposit mix as interest rates have risen and increased non-deposit funding costs, partially offset by growth in average earning assets and increased associated market rates. Average interest earning assets increased $354.1 million, or 1.53%, from $23.21 billion in the first six months of 2023 to $23.56 billion for the first six months of 2024. This growth in interest earning assets resulted primarily from organic growth in average loans, partially offset by paydowns on the securities portfolio and average loans held for sale. The Company’s net interest margin during the first six months of 2024 was 3.54%, down 14 basis points from 3.68% reported for the first six months of 2023. Loan production amounted to $8.9 billion during the first six months of 2024, with weighted average yields of 7.56%, compared with $9.2 billion and 7.00%, respectively, during the first six months of 2023.

Total interest income, on a tax-equivalent basis, increased to $678.7 million during the six months ended June 30, 2024, compared with $619.6 million in the same period of 2023. Yields on earning assets increased to 5.79% during the first six months of 2024, compared with 5.38% reported in the same period of 2023. During the first six months of 2024, loans comprised 89.0% of average earning assets, compared with 88.5% in the same period of 2023. Yields on loans increased to 5.96% during the six months ended June 30, 2024, compared with 5.55% in the same period of 2023.

The yield on total interest-bearing liabilities increased from 2.68% during the six months ended June 30, 2023 to 3.48% in the same period of 2024. Total funding costs, inclusive of noninterest-bearing demand deposits, increased to 2.44% in the first six months of 2024, compared with 1.82% during the same period of 2023. Deposit costs increased from 1.46% in the first six months of 2023 to 2.31% in the same period of 2024. Non-deposit funding costs increased from 5.17% in the first six months of 2023 to 5.88% in the same period of 2024.

Provision for Credit Losses

The Company’s provision for credit losses during the six months ended June 30, 2024 amounted to $39.9 million, compared with $95.2 million in the six months ended June 30, 2023. This decrease was primarily attributable to the updated economic forecast during the first six months of 2024. The provision for credit losses for the first six months of 2024 was comprised of $50.9 million related to loans, negative $11.0 million related to unfunded commitments and negative $1,000 related to other credit losses, compared with $93.0 million related to loans, $2.2 million related to unfunded commitments and $7,000 related to other credit losses for the same period in 2023. Non-performing assets as a percentage of total assets increased from 0.69% at December 31, 2023 to 0.74% at June 30, 2024. The increase in non-performing assets is primarily attributable to an increase in nonaccrual loans of $28.3 million, partially offset by decreases in other real estate owned and accruing loans delinquent 90 days or more of $4.0 million and $1.1 million, respectively. Net charge-offs on loans during the first six months of 2024 were $21.8 million, or 0.21% of average loans on an annualized basis, compared with approximately $24.9 million, or 0.25%, in the first six months of 2023. The Company’s total allowance for credit losses on loans at June 30, 2024 was $336.2 million, or 1.60% of total loans, compared with $307.1 million, or 1.52% of total loans, at December 31, 2023. This increase is primarily attributable to organic growth in loans and the updated economic forecast.

Noninterest Income

Total noninterest income for the six months ended June 30, 2024 was $154.6 million, an increase of $31.2 million, or 25.3%, from the $123.4 million reported for the six months ended June 30, 2023. Income from mortgage banking activities increased $13.7 million, or 19.0%, from $72.1 million in the first six months of 2023 to $85.8 million in the same period of 2024. Total production in the first six months of 2024 amounted to $2.24 billion, compared with $2.28 billion in the same period of 2023, while gain on sale spread increased to 2.47% during the six months ended June 30, 2024, compared with 2.09% in the same period of 2023. The retail mortgage open pipeline was $802.2 million at June 30, 2024, compared with $400.1 million at December 31, 2023 and $652.1 million at June 30, 2023.

Net gain (loss) on securities increased to $12.3 million for the six months ended June 30, 2024, compared with no such gain or loss for the six months ended June 30, 2023. This increase was primarily due to the conversion of Visa Class B-1 stock resulting in a gain of $12.6 million and related realized gain (loss) on subsequent sales and mark-to-market adjustments post-conversion. Other noninterest income increased $2.5 million, or 9.2%, to $29.6 million for the first six months of 2024, compared with $27.1 million during the same period of 2023. The increase in other noninterest income was primarily attributable to a gain on sale of mortgage servicing rights of $4.7 million, partially offset by a decline in derivative fee income of $1.7 million and a decline in the gain on sale of SBA loans of $795,000.

Noninterest Expense

Total noninterest expenses for the six months ended June 30, 2024 increased $16.2 million, or 5.6%, to $304.1 million, compared with $287.8 million in the same period of 2023. Salaries and employee benefits increased $8.9 million, or 5.5%, from $162.2 million in the first six months of 2023 to $171.1 million in the same period of 2024, due primarily to increases in variable compensation related to mortgage production of $1.7 million, health insurance costs of $1.7 million and stock-based compensation of $1.2 million in addition to a reduction in deferred origination costs of $2.0 million. Data processing and communications expenses increased $3.4 million, or 12.7%, to $29.8 million in the first six months of 2024, from $26.5 million reported in the same period of 2023. Amortization of intangible assets decreased $565,000, or 6.0%, from $9.4 million in the first six months of 2023 to $8.8 million in the first six months of 2024. This decrease was primarily related to a reduction in core deposit intangible amortization. Loan servicing expenses increased $2.1 million, or 12.4%, from $17.1 million in the first six months of 2023 to $19.2 million in the same period of 2024, primarily attributable to additional mortgage loans serviced added from mortgage production over the previous year. Other noninterest expenses increased $2.5 million, or 6.3%, from $39.6 million in the first six months of 2023 to $42.1 million in the same period of 2024, due primarily to $2.0 million in FDIC special assessment expenses as well as a $3.5 million increase in business license expense. These increases in other noninterest expenses were partially offset by decreases from the first six months of 2023 in legal and other professional fees of $1.4 million, fraud/forgery losses of $530,000 and other losses of $2.7 million.

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 six months ended June 30, 2024, the Company reported income tax expense of $58.9 million, compared with $38.5 million in the same period of 2023. The Company’s effective tax rate for the six months ended June 30, 2024 and 2023 was 26.3% and 23.8%, respectively. The increase in the effective tax rate is primarily a result of a $4.8 million tax expense related to BOLI restructuring during the period.

Financial Condition as of June 30, 2024

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 which are classified as held-to-maturity are done so 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 neither of the above criteria is 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 of the security. 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 June 30, 2024, 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 June 30, 2024, management determined that $68,000 was attributable to credit impairment and, accordingly, an allowance for credit losses was established. The remaining $48.2 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)

48

The amounts of securities available-for-sale and held-to-maturity in each category as of June 30, 2024 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 June 30, 2024, gross loans outstanding (including loans and loans held for sale) were $21.56 billion, up $1.01 billion from $20.55 billion reported at December 31, 2023. Loans increased $723.3 million, or 3.6%, from $20.27 billion at December 31, 2023 to $20.99 billion at June 30, 2024, driven by organic growth. Loans held for sale increased from $281.3 million at December 31, 2023 to $570.2 million at June 30, 2024 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 second quarter of 2024, the ACL on loans totaled $336.2 million, or 1.60% of loans, compared with $307.1 million, or 1.52% of loans, at December 31, 2023. Our nonaccrual loans increased from $151.1 million at December 31, 2023 to $179.4 million at June 30, 2024. For the first six months of 2024, our net charge off ratio as a percentage of average loans decreased to 0.21%, compared with 0.25% for the first six months of 2023. The total provision for credit losses for the first six months of 2024 was $39.9 million, decreasing from a provision of $95.2 million recorded for the first six months of 2023. Our ratio of total nonperforming assets to total assets was up five basis points from 0.69% at December 31, 2023 to 0.74% at June 30, 2024.

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 six months ended June 30, 2024 and 2023:

(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)

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Loans

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

(dollars in thousands)

Commercial real estate (“CRE”) represents the Company's largest loan category. The Company regularly monitors its CRE portfolio against regulatory concentration limits. Additionally, the Company manages its risk in the CRE portfolio through, among other things, established policy limits on loan-to-value or loan-to-cost at or below applicable regulatory guidance, use of internal lending limits on single loans to minimize exposure to a given project, annual reviews of borrowers and guarantors above certain total credit exposure thresholds, minimum required debt service coverage ratios and borrower equity levels. Exceptions to policy must be approved by an individual or committee with appropriate approval authority.

A summary of the Company's CRE portfolio by loan type and credit quality indicator as of June 30, 2024 and December 31, 2023 is below:

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The Company's non-owner occupied portfolio is well diversified. Below is a summary of the non-owner occupied CRE portfolio by property type as of June 30, 2024 and December 31, 2023:

(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 $179.4 million at June 30, 2024, an increase of $28.3 million, or 18.7%, from $151.1 million at December 31, 2023. Accruing loans delinquent 90 days or more totaled $15.9 million at June 30, 2024, a decrease of $1.1 million, or 6.4%, compared with $17.0 million at December 31, 2023. At June 30, 2024, OREO totaled $2.2 million, a decrease of $4.0 million, or 64.3%, compared with $6.2 million at December 31, 2023. Management regularly assesses the valuation of OREO through periodic reappraisal and through inquiries received in the marketing process. At the end of the second quarter of 2024, total non-performing assets as a percent of total assets was up five basis points from 0.69% at December 31, 2023 to 0.74% at June 30, 2024.

Non-performing assets at June 30, 2024 and December 31, 2023 were as follows:

(dollars in thousands)

(1) Included in nonaccrual loans were $93.5 million and $90.2 million of serviced GNMA-guaranteed nonaccrual loans at June 30, 2024 and December 31, 2023, 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 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 June 30, 2024, 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 June 30, 2024 and December 31, 2023. 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 June 30, 2024 and December 31, 2023:

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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 $5.3 million and $3.6 million at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024 there was no liability balance recorded. At December 31, 2023 a liability balance of $5.8 million was recorded. 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 derivative agreements with highly rated third-party financial institutions. The fair value of these instruments amounted to an asset of $10.3 million and $5.9 million at June 30, 2024 and December 31, 2023, respectively, and a liability of $10.4 million and $6.2 million at June 30, 2024 and December 31, 2023, respectively.

Deposits

Total deposits at the Company increased $735.6 million, or 3.6%, to $21.44 billion at June 30, 2024, compared with $20.71 billion at December 31, 2023. Noninterest-bearing deposits increased $157.6 million, or 2.4%, and interest-bearing deposits increased $578.1 million, or 4.1%, during the first six months of 2024. At June 30, 2024, the Company had approximately $1.23 billion in short-term brokered CDs, compared with $1.14 billion at December 31, 2023. As of June 30, 2024 and December 31, 2023, the Company had estimated uninsured deposits of $9.46 billion and $9.13 billion, respectively. These estimates were derived using the same methodologies and assumptions used for the Bank's regulatory reporting. Approximately $2.89 billion, or 30.5%, of the uninsured deposits at June 30, 2024 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 June 30, 2024, an aggregate of $8.3 million, or 194,274 shares of the Company's common stock, had been repurchased under the program's October 26, 2023 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 June 30, 2024, 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 June 30, 2024 and December 31, 2023:

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 June 30, 2024 and December 31, 2023, the net carrying value of the

Company’s other borrowings was $946.4 million and $509.6 million, respectively. At June 30, 2024, the Company had availability with the FHLB and FRB Discount Window of $3.88 billion and $2.61 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 June 30, 2024 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.

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 $5.3 million and $3.6 million at June 30, 2024 and December 31, 2023, respectively, and a liability of zero and $5.8 million at June 30, 2024 and December 31, 2023, 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 derivative agreements with highly rated third-party financial institutions. The fair value of these instruments amounted to an asset of $10.3 million and $5.9 million at June 30, 2024 and December 31, 2023, respectively, and a liability of $10.4 million and $6.2 million at June 30, 2024 and December 31, 2023, 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 July 1, 2024. 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 June 30, 2024, 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, 2023, previously filed with the SEC.