Ameris Bancorp (Nasdaq: ABCB) (the "Company") today reported net income of $32.2 million, or $0.47 per diluted share, for the quarter ended June 30, 2020, compared with $38.9 million, or $0.82 per diluted share, for the quarter ended June 30, 2019.  The decrease in net income is primarily attributable to increases in provision for credit loss expense of $83.5 million and salaries and employee benefits of $19.2 million, partially offset by an increase of $86.4 million in mortgage banking activity compared with the second quarter of 2019.  The Company reported adjusted net income of $42.4 million, or $0.61 per diluted share, for the quarter ended June 30, 2020, compared with $45.2 million, or $0.96 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, loss on sale of bank premises and expenses related to natural disasters and the COVID-19 pandemic.

For the year-to-date period ending June 30, 2020, the Company reported net income of $51.6 million, or $0.74 per diluted share, compared with $78.8 million, or $1.66 per diluted share, for the same period in 2019.  The Company reported adjusted net income of $81.6 million, or $1.18 per diluted share, for the six months ended June 30, 2020, compared with $87.8 million, or $1.85 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, "The challenges of COVID-19 and the global economy certainly affect how we do business, but our bankers have quickly adapted to the new operating environment.  We successfully managed deposit costs to improve the margin by 13 basis points, allowing us to fund over $1.4 billion in new loan growth (including PPP loans), and our mortgage division continued to see historic production and profitability.  We increased our allowance for credit losses on loans to over $208 million, while still earning $32 million for the quarter.  We believe we are properly positioned for the future."

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

• Net income of $32.2 million, or $0.47 per diluted share, compared with $19.3 million, or $0.28 per diluted share, in the first quarter of 2020

• Growth in adjusted total revenue of $67.7 million, or 30.0%, compared with the first quarter of 2020

• Increase in income from mortgage banking activity of $69.6 million compared with the first quarter of 2020

• Adjusted efficiency ratio of 51.08%, compared with 59.87% in the first quarter of 2020

• Net interest margin of 3.83%, compared with 3.70% in the first quarter of 2020

• Adjusted return on average assets of 0.89%, compared with 0.87% in the first quarter of 2020

• Improvement in deposit mix such that noninterest bearing deposits represent 35.89% of total deposits, up from 29.94% at December 31, 2019 and 28.92% a year ago

• Annualized net charge-offs of 0.27% of average total loans

• Non-performing assets of 0.59% of total assets, compared with 0.56% at the end of 2019

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 second quarter of 2020 totaled $165.2 million, compared with $149.0 million for the first quarter of 2020 and $102.7 million for the second quarter of 2019.  The Company's net interest margin was 3.83% for the second quarter of 2020, up from 3.70% reported for the first quarter of 2020 and down from 3.91% reported for the second quarter of 2019.  The increase in net interest margin in the current quarter is primarily attributable to an increase in accretion income and a decrease in the cost of interest-bearing liabilities, partially offset by a decrease in the yield on loans as market interest rates declined.  Accretion income for the second quarter of 2020 increased to $9.6 million, compared with $6.6 million for the first quarter of 2020, and increased from $3.1 million for the second quarter of 2019.  The increase in accretion income in the second quarter is primarily attributable to payoffs of acquired loans. 

Yields on all loans decreased to 4.70% during the second quarter of 2020, compared with 5.02% for the first quarter of 2020 and 5.34% reported for the second quarter of 2019.  Loan production in the banking division during the second quarter of 2020 totaled $472.1 million, with weighted average yields of 4.16%, compared with $918.4 million and 4.55%, respectively, in the first quarter of 2020 and $854.7 million and 5.49%, respectively, in the second quarter of 2019.  Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to an additional $7.2 billion during the second quarter of 2020, with weighted average yields of 3.17%, compared with $3.9 billion and 4.15%, respectively, during the first quarter of 2020 and $2.6 billion and 5.20%, respectively, during the second quarter of 2019.  Loan production yields in the lines of business were materially impacted 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 second quarter of 2020 decreased to $21.2 million, compared with $34.8 million in the first quarter of 2020, and $27.4 million in the second quarter of 2019.  The Company's total cost of funds moved 39 basis points lower to 0.52% in the second quarter of 2020 as compared with the first quarter of 2020.  Deposit costs decreased 32 basis points during the second quarter of 2020 to 0.39%, compared with 0.71% in the first quarter of 2020.  Costs of interest-bearing deposits decreased during the quarter from 1.01% in the first quarter of 2020 to 0.58% in the second quarter of 2020.

Noninterest Income
Noninterest income increased $66.6 million, or 122.4%, in the second quarter of 2020 to $121.0 million, compared with $54.4 million for the first quarter of 2020, primarily as a result of increased mortgage banking activity. 

Mortgage banking activity increased $69.6 million, or 197.0%, to $104.9 million in the second quarter of 2020, compared with $35.3 million for the first 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 3.53% in the second quarter of 2020 from 2.88% for the first quarter of 2020. Total production in the retail mortgage division increased to $2.67 billion in the second quarter of 2020, compared with $1.36 billion for the first quarter of 2020. Mortgage banking activity was negatively impacted during the second quarter of 2020 by an $8.2 million servicing right impairment, compared with an impairment of $20.9 million for the first quarter of 2020. The retail mortgage open pipeline was $2.67 billion at the end of the second quarter of 2020, compared with $2.43 billion at March 31, 2020.

Service charge revenue decreased $1.9 million, or 16.2%, to $9.9 million in the second quarter of 2020, compared with $11.8 million for the first quarter of 2020.  This decrease was primarily attributable to a decrease of $2.6 million in NSF income resulting from a decrease in volume, partially offset by an increase in interchange income of $743,000.

Other noninterest income decreased $1.1 million, or 18.3%, in the second quarter of 2020 to $4.9 million, compared with $6.1 million for the first quarter of 2020, primarily as a result of a decrease in the gain on sales of SBA loans of $1.0 million, as the SBA division shifted its focus temporarily to PPP loan production during the second quarter.

Noninterest Expense
Noninterest expense increased $17.7 million, or 12.8%, to $155.8 million during the second quarter of 2020, compared with $138.1 million for the first quarter of 2020.  During the second quarter of 2020, the Company recorded $6.0 million of charges to earnings, related to restructuring charges associated with branch consolidations and efficiency initiatives, charges related to the previously announced SEC/DOJ investigations, merger and conversion charges, natural disaster and pandemic charges and loss on sale of premises, compared with $3.0 million in charges in the first quarter of 2020 that were related principally to merger and conversion charges, the SEC/DOJ investigations, natural disaster and pandemic expenses and loss on sale of premises.  Excluding these charges, adjusted expenses increased approximately $14.7 million, or 10.9%, to $149.8 million in the second quarter of 2020, from $135.1 million in the first 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 59.87% in the first quarter of 2020 to 51.08% in the second quarter of 2020.

Income Tax Expense
The Company's effective tax rate for the second quarter of 2020 was 21.1%, compared with 16.8% in the first quarter of 2020. The decreased rate for the first quarter of 2020 was primarily a result of loss carrybacks allowed as a result of the recently enacted CARES Act.

Balance Sheet Trends
Total assets at June 30, 2020 were $19.87 billion, compared with $18.24 billion at December 31, 2019.  Total loans, including loans held for sale, were $16.24 billion at June 30, 2020, compared with $14.48 billion at December 31, 2019.  Total loans held for investment were $14.50 billion at June 30, 2020, compared with $12.82 billion at December 31, 2019, an increase of $1.68 billion, or 13.1%, compared with December 31, 2019.  Loan production in the banking division during the second quarter of 2020 was down 49% from the first quarter of 2020 and 45% from the second quarter of 2019.  Loan growth in the first half of 2020 was principally driven by PPP loan originations, which totaled $1.06 billion in outstanding balances at June 30, 2020. 

At June 30, 2020, total deposits amounted to $15.59 billion, or 90.9% of total funding, compared with $14.03 billion and 90.1%, respectively, at December 31, 2019.  At June 30, 2020, noninterest-bearing deposit accounts were $5.60 billion, or 35.9% 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 fundings during the quarter.  Non-rate sensitive deposits (including noninterest-bearing, NOW and savings) totaled $9.02 billion at June 30, 2020, compared with $7.21 billion at December 31, 2019.  These funds represented 57.9% of the Company's total deposits at June 30, 2020, compared with 51.4% at the end of 2019.

Shareholders' equity at June 30, 2020 totaled $2.46 billion, a decrease of $9.5 million, or 0.4%, from December 31, 2019.  The decrease in shareholders' equity was primarily the result of the CECL adoption impact of $56.7 million and dividends declared, partially offset by earnings of $51.6 million during 2020.  Tangible book value per share was $20.90 at June 30, 2020, compared with $20.81 at December 31, 2019.  Tangible common equity as a percentage of tangible assets was 7.70% at June 30, 2020, compared with 8.40% at the end of the 2019.

Credit Quality
Credit quality remains strong in the Company.  During the second quarter of 2020, the Company recorded provision for credit losses of $88.2 million, compared with $41.0 million in the first quarter of 2020.  This increase in provision was primarily attributable to declines in forecast economic conditions, particularly levels of unemployment and GDP, compared with forecast conditions during the first quarter of 2020.  The Company has been prudently working with borrowers to support their credit needs during the challenging economic conditions and monitoring the level of modifications on a daily basis.  Nonperforming assets as a percentage of total assets decreased by two basis points to 0.59% during the quarter.  The net charge-off ratio was 27 basis points for the second quarter of 2020, compared with 14 basis points in the first quarter of 2020 and seven basis points in the second quarter of 2019.