Ameris Bancorp today reported net income of $116.1 million, or $1.67 per diluted share, for the quarter ended September 30, 2020, compared with $21.4 million, or $0.31 per diluted share, for the quarter ended September 30, 2019.  The increase in net income is primarily attributable to increases in mortgage banking activity of $85.6 million and net interest income of $13.8 million and a decrease of merger and conversion charges of $65.2 million, partially offset by an increase of $11.7 million in provision for credit losses compared with the third quarter of 2019.  The Company reported adjusted net income of $116.9 million, or $1.69 per diluted share, for the quarter ended September 30, 2020, compared with $68.5 million, or $0.98 per diluted share, for the same period in 2019.  Adjusted net income excludes after-tax merger and conversion charges, servicing right valuation adjustments, restructuring charges related to branch consolidations and efficiency initiatives, certain legal expenses, (gain) loss on sale of bank premises and expenses related to natural disasters and the COVID-19 pandemic.

For the year-to-date period ending September 30, 2020, the Company reported net income of $167.7 million, or $2.42 per diluted share, compared with $100.2 million, or $1.83 per diluted share, for the same period in 2019.  The Company reported adjusted net income of $198.5 million, or $2.86 per diluted share, for the nine months ended September 30, 2020, compared with $156.3 million, or $2.85 per diluted share, for the same period in 2019.  Adjusted net income for the year-to-date period excludes the same items listed above for the Company's quarter-to-date period. 

Commenting on the Company's results, Palmer Proctor, the Company's Chief Executive Officer, said, "I couldn't be more proud of our Company and the financial results we are reporting this quarter.  Every division of our Company increased their financial performance in the third quarter, which resulted in record earnings and top of class results.  Throughout this pandemic, Ameris teammates have remained focused on our customers and our communities.  We continue to adapt to this new environment by offering innovative products and services which strengthens our relationships and our financial results.  Our outlook remains optimistic for the remainder of 2020 and beyond."

Significant items from the Company's results for the third quarter of 2020 include the following:

• Net income of $116.1 million, or $1.67 per diluted share, compared with $32.2 million, or $0.47 per diluted share, in the second quarter of 2020

• Tangible book value growth of $1.56 per share, or 7.5%, to $22.46 compared with $20.90 at June 30, 2020

• Growth in adjusted total revenue of $30.0 million, or 10.2%, compared with the second quarter of 2020

• Increase in income from mortgage banking activity of $33.7 million compared with the second quarter of 2020

• Adjusted efficiency ratio of 47.34%, compared with 51.08% in the second quarter of 2020

• Net interest margin of 3.64%, compared with 3.83% in the second quarter of 2020

• Adjusted return on average assets of 2.35%, compared with 0.89% in the second quarter of 2020

• Improvement in deposit mix such that noninterest bearing deposits represent 36.79% of total deposits, up from 29.94% at December 31, 2019 and 29.85% a year ago

• Annualized net charge-offs of 0.10% of average total loans

• Completed issuance of $110 million of subordinated debt at 3.875% fixed for first five years

Following is a summary of the adjustments between reported net income and adjusted net income:

Net Interest Income and Net Interest Margin

Net interest income on a tax-equivalent basis for the third quarter of 2020 totaled $163.9 million, compared with $165.2 million for the second quarter of 2020 and $149.9 million for the third quarter of 2019.  The Company's net interest margin was 3.64% for the third quarter of 2020, down from 3.83% reported for the second quarter of 2020 and from 3.84% reported for the third quarter of 2019.  The decrease in net interest margin in the current quarter is primarily attributable to a decrease in the yields on both loans and loans held for sale as market interest rates declined, partially offset by a decrease in the cost of interest-bearing liabilities.  Accretion income for the third quarter of 2020 decreased to $6.5 million, compared with $9.6 million for the second quarter of 2020, and increased from $4.2 million for the third quarter of 2019.  The decrease in accretion income in the third quarter is primarily attributable to increased payoffs of acquired loans during the second quarter of 2020. 

Yields on loans decreased to 4.42% during the third quarter of 2020, compared with 4.70% for the second quarter of 2020 and 5.27% reported for the third quarter of 2019.  Loan production in the banking division during the third quarter of 2020 totaled $869.0 million, with weighted average yields of 4.00%, compared with $472.1 million and 4.16%, respectively, in the second quarter of 2020 and $1.2 billion and 5.08%, respectively, in the third quarter of 2019.  Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to an additional $7.7 billion during the third quarter of 2020, with weighted average yields of 3.33%, compared with $7.2 billion and 3.17%, respectively, during the second quarter of 2020 and $4.2 billion and 4.51%, respectively, during the third quarter of 2019.  Loan production yields in the lines of business were materially impacted during the second quarter of 2020 by originations of Paycheck Protection Program ("PPP") loans in our SBA division.  Excluding PPP loans, loan production in the lines of business amounted to $6.1 billion during the second quarter of 2020, with weighted average yields of 3.53%.

Interest expense during the third quarter of 2020 decreased to $17.4 million, compared with $21.2 million in the second quarter of 2020 and $39.6 million in the third quarter of 2019.  The Company's total cost of funds moved 11 basis points lower to 0.41% in the third quarter of 2020 as compared with the second quarter of 2020.  Deposit costs decreased nine basis points during the third quarter of 2020 to 0.30%, compared with 0.39% in the second quarter of 2020.  Costs of interest-bearing deposits decreased during the quarter from 0.58% in the second quarter of 2020 to 0.47% in the third quarter of 2020.

Noninterest Income

Noninterest income increased $38.1 million, or 31.5%, in the third quarter of 2020 to $159.0 million, compared with $121.0 million for the second quarter of 2020, primarily as a result of increased mortgage banking activity. 

Mortgage banking activity increased $33.7 million, or 32.1%, to $138.6 million in the third quarter of 2020, compared with $104.9 million for the second quarter of 2020.  This increase was a result of both increased production and expansion in our gain on sale spread. Gain on sale spreads increased to 3.92% in the third quarter of 2020 from 3.53% for the second quarter of 2020. Total production in the retail mortgage division increased to $2.92 billion in the third quarter of 2020, compared with $2.67 billion for the second quarter of 2020. Mortgage banking activity was negatively impacted during the third quarter of 2020 by an $1.1 million servicing right impairment, compared with an impairment of $8.2 million for the second quarter of 2020. The retail mortgage open pipeline was $2.71 billion at the end of the third quarter of 2020, compared with $2.67 billion at June 30, 2020.

Service charge revenue increased $1.0 million, or 10.0%, to $10.9 million in the third quarter of 2020, compared with $9.9 million for the second quarter of 2020, resulting from an increase in volume. Other noninterest income increased $3.4 million, or 67.6%, in the third quarter of 2020 to $8.3 million, compared with $5.0 million for the second quarter of 2020, primarily as a result of an increase in the gain on sales of SBA loans of $2.8 million, as the SBA division shifted its focus from PPP loan production to its existing pipeline. 

Noninterest Expense

Noninterest expense decreased $2.1 million, or 1.3%, to $153.7 million during the third quarter of 2020, compared with $155.8 million for the second quarter of 2020.  During the third quarter of 2020, the Company recorded $647,000 of charges to earnings, related to restructuring charges associated with branch consolidations and efficiency initiatives, charges related to the previously announced SEC/DOJ investigation, merger and conversion charges, natural disaster and pandemic charges and (gain) loss on sale of premises, compared with $6.0 million in charges in the second quarter of 2020 that were related the same items.  Excluding these charges, adjusted expenses increased approximately $3.3 million, or 2.2%, to $153.0 million in the third quarter of 2020, from $149.8 million in the second quarter of 2020.  The majority of this increase is attributable to variable expenses related to increased mortgage production. The Company continues to focus on its operating efficiency ratio, such that the adjusted efficiency ratio improved from 51.08% in the second quarter of 2020 to 47.34% in the third quarter of 2020.

Income Tax Expense

The Company's effective tax rate for the third quarter of 2020 was 22.7%, compared with 21.1% in the second quarter of 2020. The increased rate for the third quarter of 2020 was primarily a result of increased state tax expense as a result of increased pre-tax income.

Balance Sheet Trends

Total assets at September 30, 2020 were $19.87 billion, compared with $18.24 billion at December 31, 2019.  Total loans, including loans held for sale, were $16.36 billion at September 30, 2020, compared with $14.48 billion at December 31, 2019.  Total loans held for investment were $14.94 billion at September 30, 2020, compared with $12.82 billion at December 31, 2019, an increase of $2.13 billion, or 16.6%, compared with December 31, 2019.  Loan production in the banking division during the third quarter of 2020 was up 84% from the second quarter of 2020 and down 26% from the third quarter of 2019.  Loan growth in the first nine months of 2020 was driven by PPP loan originations, which totaled $1.10 billion in outstanding balances at September 30, 2020, and increases in warehouse lending and portfolio mortgage loans. 

At September 30, 2020, total deposits amounted to $16.06 billion, or 94.1% of total funding, compared with $14.03 billion and 90.1%, respectively, at December 31, 2019.  At September 30, 2020, noninterest-bearing deposit accounts were $5.91 billion, or 36.8% of total deposits, compared with $4.20 billion, or 29.9% of total deposits, at December 31, 2019.  Noninterest-bearing deposit growth was meaningfully impacted by PPP loan originations.  Non-rate sensitive deposits (including noninterest-bearing, NOW and savings) totaled $9.56 billion at September 30, 2020, compared with $7.21 billion at December 31, 2019.  These funds represented 59.5% of the Company's total deposits at September 30, 2020, compared with 51.4% at the end of 2019.

Shareholders' equity at September 30, 2020 totaled $2.56 billion, an increase of $95.1 million, or 3.9%, from December 31, 2019.  The increase in shareholders' equity was primarily the result of earnings of $167.7 million during 2020, partially offset by the CECL adoption impact of $56.7 million and dividends declared.  Tangible book value per share was $22.46 at September 30, 2020, compared with $20.81 at December 31, 2019.  Tangible common equity as a percentage of tangible assets was 8.27% at September 30, 2020, compared with 8.40% at the end of the 2019.