Ameris Bancorp - Q3 2024

Transcript

Operator (participant)

Good day, and welcome to the Ameris Bancorp third quarter earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Nicole Stokes, Chief Financial Officer. Please go ahead.

Nicole Stokes (EVP and CFO)

Thank you, Danielle, and thank you to all who have joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com. I'm joined today by Palmer Proctor, our CEO, and Doug Strange, our Chief Credit Officer. Palmer will begin with some opening general comments, and then I'll discuss the details of our financial results before we open up for Q&A. But before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties. The actual results could vary materially. We list some of the factors that might cause results to differ in our press release and in our SEC filings, which are available on our website.

We do not assume any obligation to update any forward-looking statements as a result of new information, early developments, or otherwise, except as required by law. Also, during the call, we will discuss certain non-GAAP financial measures in reference to the company's performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation. An```d with that, I'll turn it over to Palmer for opening comments.

H. Palmer Proctor,Jr (CEO)

Thank you, Nicole, and good morning, everyone. I want to thank you all for taking the time to join our call today. I'm very pleased with the top-of-class third quarter financial performance we reported yesterday, as well as our outstanding year-to-date metrics. The fundamentals remained strong in the quarter as Ameris continues to be a peer leader in most key metrics. As you can see, we remain focused on growing tangible book value per share, as evidenced by our 19% annualized growth rate for the quarter. Over the last five years, our tangible book value has increased by a notable 85%. Our profitability remains strong, with an above peer PPNR ROA right at 2%, adjusted ROA of 1.43, and a return on tangible common equity at 15% in the quarter.

Capital continues to grow, with our TCE ratio now in the double digits at a healthy 10.2%. Common Equity Tier 1 is also strong at over 12%. These strong capital levels give us a lot of optionality as we look forward to explore additional growth opportunities within our attractive Southeastern footprint, as well as increased capital returns. We improved our CRE concentration to capital ratio down to 270, which is a nice move down from our 295 peak a couple of years ago. Our allowance for credit losses was stable in the quarter, representing a healthy 160 coverage ratio. Our third quarter margin of 351 remained well above peer levels this quarter, with our net interest income continuing to increase.

This strong margin has benefited from our granular core deposit base and our DDA composition, which we were able to keep above 30% in the quarter, another top-of-class level. We have a proven culture of expense control, and we're able to reduce our efficiency ratio to 54% from 55% last quarter. Also, during the quarter, we executed our second MSR sale of the year, this time selling most of our Ginnie Mae MSRs. This sale resulted in a pre-tax gain of over $5 million and helped to reduce our Ginnie Mae non-performing loans, which fell over 90% in the quarter. Finally, our earning asset base is diversified among both geographies and product types, and our average earning assets grew 7.6% annualized in the third quarter.

Our Southeast footprint is strong, which should allow us to enjoy continued growth when appropriate, as well as positive operating leverage. These highlights, along with our focus and discipline, are what really would drive our optimism for the remainder of this year and into 2025. I also wanted to mention that several pockets of our franchise were impacted by the two recent Southeastern storms, Helene and Milton. I'm very proud of how our team responded before, during, and after the storm, taking care of our franchise and our customers. Fortunately for us, most of our locations did not experience significant damage and were back open in short order. In addition, I was pleased that the Ameris Foundation was able to commit funds to the American Red Cross to support recovery efforts in our impacted markets.

Overall, I'm very proud of our team and the third quarter performance, which remains industry-leading and above peer levels. The future is bright here at Ameris, and we appreciate the continued support of our customers, teammates, and shareholders. I'll stop there now and turn it over to Nicole to discuss our financial results in more detail.

Nicole Stokes (EVP and CFO)

Great. Thank you, Palmer. For the third quarter, we're reporting net income of $99.2 million or $1.44 per diluted share. As Palmer mentioned, we recorded a $5.2 million gain on the sale of a second portion of our MSR portfolio in the quarter, and we also recorded about $150,000 of hurricane-related expenses. Excluding these items, our adjusted net income was $95.2 million or $1.38 per diluted share. You know, two signs of our strong core performance this quarter is our adjusted return on assets, which improved to 1.43%, and our adjusted return on tangible common equity that improved to 15%. We remain focused on growing shareholder value, and we added $1.72 per share to tangible book value this quarter.

That's an annualized growth rate of about 19.1% to end the quarter with tangible book at $37.51 per share. We didn't repurchase any stock this quarter, but the board did renew our buyback plan for another $100 million through October of 2025. Our interest income for the quarter increased $7.8 million over last quarter, while our interest expense only increased $5.7 million, allowing an increase in net interest income of about $2.1 million. However, as I mentioned last quarter, we had about $2.3 million of non-recurring bond interest income in the second quarter. So considering that known anomaly, our core net interest income actually grew about $4.4 million for the quarter, or 8% growth linked quarter over quarter. We continue to maintain a strong margin at 3.51%.

You know, remember last quarter, we had that four basis points of one-time margin expansion from the bond portfolio that I just mentioned, that we did not expect to reoccur this quarter, so we really only had three basis points of margin compression, which was right in line with our guidance on margin, kind of bouncing up or down around a few basis points each quarter, but maintaining right around 3.50%. You know, the three basis points of core margin compression was related to our funding mix this quarter and it was only slightly impacted by our asset sensitivity. During the quarter, we recorded a $6.1 million provision for credit losses, maintaining our coverage ratio at 1.60% of loans and improving to 336% of portfolio NPLs.

You know, while I'm on credit, let me mention that with the sale of our Ginnie Mae servicing assets, our total non-performing assets as a percentage of total assets improved from 74 basis points down to just 44 basis points, and our charge-offs improved again this quarter to just 15 basis points, compared to 18 basis points last quarter. Adjusted non-interest income decreased about $6.7 million this quarter, mostly in the mortgage division, due to the decrease in production and a reduced gain on sale margin of 217, which was down from 245 last quarter. We continue to focus on efficiency, and our adjusted efficiency ratio improved down to 54.25 in the third quarter. Total adjusted non-interest expense decreased $4.6 million in the quarter, mostly in the mortgage division, related to the variable comp from the decreased production.

On the balance sheet side, we ended the quarter with total assets of $26.4 billion, compared with $25.2 billion at the end of the year. Total earning assets ended at $24.3 billion, and our average earning assets increased 7.6% annualized from the second quarter to the third quarter. Loans, both held for sale and portfolio loans, were fairly flat quarter over quarter. However, the average balance of portfolio loans during the quarter increased $203 million from last quarter. Much of the increase in two key balances were from the summer seasonality in our warehouse lines, and those fluctuate day by day, so they happened to end the quarter down about $85 million. But total loan production in the quarter was $509 million, the highest we've seen in the past four quarters.

Many of these loans will fund in future quarters and are at a blended rate of a little over 9%, which will be accretive over our current loan yield of about 6%. For the year-to-date period, portfolio loans have increased $695.7 million, or 4.6% annualized, and deposits have increased $1.17 billion or 7.6% annualized. This success has improved our loan-to-deposit ratio, and our non-interest-bearing deposits still represent a healthy 30% of total deposits, and our brokered CDs represent only 7% of total deposits. We continue to anticipate 2024 loan and deposit growth in the mid-single digits and expect that deposit growth will continue to be the governor on loan growth. And with that, I'll wrap it up and turn the call back over to Danielle for any questions from the group.

Operator (participant)

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. The first question comes from Will Jones from KBW. Please go ahead.

Will Jones (Director)

Yeah. Hey, thanks. Good morning, everyone.

Nicole Stokes (EVP and CFO)

Good morning, Will.

Will Jones (Director)

Hey, so Nicole, wanted to start on the margin. You know, I know we kind of talked last quarter a little bit about, you know, how in the plus you were. You know, if you guys continue to see good growth, that maybe you're willing to give a little bit on net percentage, as long as, you know, the trade-off was still see Nll dollars grow, and then we kind of saw that come through a little bit this quarter. Just curious if you still carry that same kind of mindset as we roll through the balance of the year and into early 2025, or if there's a point where you feel like you may need to get a little bit more defensive on the margin?

Nicole Stokes (EVP and CFO)

No, I think that's a great point. And no, our guidance there really hasn't changed. I mean, we feel like we have a strong, healthy margin at, you know, even at 3.51%, it's above peer and a healthy margin. And, you know, we're very, very proud of our deposit base, and we will protect that deposit base, and then we will also, you know, look to continue to grow that. And when we think about margin expansion, you know, we're still right at just slightly asset sensitive. We're about as neutral as we can be. So any margin expansion that we see coming in is gonna come from growth in earning assets.

So we continue to look for that growth in NII, and focus on that, which again, we had, like you mentioned, about 8% linked quarter growth in NII this quarter, which was strong. So even though we had a little bit of margin compression, we still continue to see that NII growth, and that continues to be our focus.

Will Jones (Director)

Yeah. Okay. That's helpful. And just while we're on the margin, could you just remind us all where you guys stand with, you know, indexed or higher beta deposits? And then just maybe an early read on how you feel like deposit betas could trend as we start this easing cycle?

Nicole Stokes (EVP and CFO)

Yes. So we have very few, less than 2%, that are indexed deposits. However, we have a large portion that behave like index deposits. So and the approach that we've taken is that those higher beta deposits on the way up are the higher beta deposits on the way down. We were very aggressive with reducing deposits the day after the Fed moved. Our operations team did a great job implementing all of those changes. And we really, so far, knock on wood, have not seen any. You know, I think the big outlier could be is that if we start seeing competitors not move, and what we've seen so far is that our competitors moved as well.

So we don't have a lot of market disruption from anybody not being able to move, and so we don't have any reason to believe that we would not be able to continue that with Fed cuts, to continue to have a strong beta on the downside.

Will Jones (Director)

Yeah. Okay. Very helpful. Thanks for that. And then, Palmer, maybe just one for you. You know, I know we have, you know, seemingly the capital conversation most every quarter, and I certainly can appreciate you guys, you know, very, very thoughtful approach and prudent approach to just preserving capital. But, you know, at the same time, this is, you know, a really pretty powerful earnings environment for Ameris. You guys are accreting capital, you know, at a nice clip nearly every quarter. Is there a point in time where, you know, I don't think aggressive is the right term, but maybe you think more opportunistically about deploying some of your excess capital?

H. Palmer Proctor,Jr (CEO)

Absolutely. I don't think that time is now, though. I think to your point on being prudent and disciplined, we remain in that camp for now, I think, until we get a little more clarity, get post-election, see how things shake out. But it's a good problem to have, right? So we're very pleased with where our capital levels are. It gives us, once again, a lot of that optionality I talked about earlier. So for now, we're kind of in a capital building mode, and then we'll see how what kind of clarity we have after the first of the year. But the nice thing is we are in a position to capitalize on that through several different fronts, if we choose to do so.

Will Jones (Director)

Yeah. Certainly a nice position to be in for you guys. Well, thanks for the questions.

H. Palmer Proctor,Jr (CEO)

You bet.

Operator (participant)

The next question comes from Christopher Marinac from Janney. Please go ahead.

Christopher Marinac (Director of Research)

Thanks. Good morning. I had a question on the reserve as it pertains to: do you grow into the reserve from here, or would the reserve still kind of grow with loan growth? And then, obviously, quarter to quarter may vary on charge-offs and, you know, criticized trends.

Douglas D. Strange (Chief Credit Officer)

Chris, that's a good question. This is Doug. You know, the reserve is gonna be model driven. We're happy with the one sixty. We think that's that bodes well for us into the future, and you know, we would just let the models manage it from there on out, along with our indices that we have that influence our model.

Christopher Marinac (Director of Research)

And anything new on the C&I side in terms of trends on losses into next year? Would any of that differ from what we've seen recently?

Douglas D. Strange (Chief Credit Officer)

You know, our C&I book is very diversified, not only in loan product, but also, geography as well. So if you know, take $5 billion roughly in C&I, you've got equipment finance, premium finance, mortgage warehouse, life insurance. We've got. And then, you know, you strip those out, and then you get down to core C&I. To answer your question, you know, we've got about $1 billion of core C&I, and we don't see much stress, if any at all, in that portfolio. Maybe about 10 or 11 basis points of charge-offs for the year.

Christopher Marinac (Director of Research)

Sounds good, Doug. Thank you for that. And, Nicole, just a quick data question as it pertains to loan betas. How would those be similar on the way down in a rate easing cycle as we saw the last two years?

Nicole Stokes (EVP and CFO)

Yes, we don't have any reason to think that our loan betas are going to be different, and again, you know, our mix there is about 60/40 fixed/variable, but we have a lot of or some fixed rate loans that behave like variable rate, so we end up really kind of being more of a 50/50 split. When you think about, for example, premium finance lines, they are fixed rate, but they're a 10-month maturity, so they're going to behave like a variable. So when you think about behavior, it's going to be more 50/50 split.

Christopher Marinac (Director of Research)

Got it. Great. Thank you all for taking our questions this morning.

Douglas D. Strange (Chief Credit Officer)

Thank you, Chris.

Operator (participant)

The next question comes from Russell Gunther, from Stephens. Please go ahead.

Russell Gunther (MD and Senior Research Analyst)

Hey, good morning, guys.

H. Palmer Proctor,Jr (CEO)

Good morning.

Russell Gunther (MD and Senior Research Analyst)

Nicole, I wanted to follow up. Good morning, Palmer. To follow up on the NIM discussion, just to clarify, is the guide, and I understand the NII versus NIM component addressed. Is the near-term guide for the NIM unchanged in the 350-ish range, or how should we think about the next couple quarters with some additional cuts coming?

Nicole Stokes (EVP and CFO)

Yep. No, I think the guide in general stays the same, that we've said we'll, you know, up or down a few basis points each quarter, but bouncing around that three fifty. So maybe we dip to a three forty-eight, jump up to a three fifty-three, you know, but kind of hanging around that three fifty, which is the same guidance that we've been saying, because we're so close to asset sensitive neutral. We're, like I said, less than 1%. So about every 25 basis point is about one basis point of margin based on the model. But then every incremental growth is going to be margin accretive. So that's kind of what's driving that margin guidance, is knowing that growth is accretive to margin at this point.

But we still have some repricing asset sensitivity on the balance sheet.

Russell Gunther (MD and Senior Research Analyst)

Perfect. Thanks for the clarification. And then switching gears to loan growth, appreciate the comments you guys provided. Is the message the same there, too, in terms of diversified mid-single digits? And maybe just taking that as we look ahead into 2025, balancing some things like the potential for paydowns to pick up?

... And in the past, you've talked about maybe some gain on sale for Balboa. So just wondering how you're thinking about the volume outlook.

H. Palmer Proctor,Jr (CEO)

Yeah, we still feel very confident in our guidance, and when we started out the year, we're right in line with what we said. Obviously, with the volatility in the markets, you're going to have some quarters that are higher than others. As we saw last quarter, we saw the big growth in the warehouse lines, which we knew were gonna pull back. So when you look at the growth, we're right in line for the guidance. We feel comfortable with what we have guided to through the fourth quarter. And then as you look into twenty twenty-five, that's where I feel like we're just so well positioned, not only because of the diversification in the business lines, but also the markets that we operate in.

And if you, you know, look at this quarter, for instance, and exclude the Ginnie Mae sale, which was a very positive for us, it moved out a lot of the NPAs and the warehouse cyclicality. The loan growth was about 3% annualized for the third quarter. Then we feel like fourth quarter will stay right in line with what we've guided all year. And as we get more clarity into twenty twenty-five, we just feel very confident about our ability to capitalize on any growth opportunities that may exist out there, if and when it's appropriate. We've invested heavily in a lot of new hires, as you're well aware of, on the commercial front and through the treasury front throughout the year.

So we're well-positioned from a talent standpoint in a lot of these growth markets to jump on that and accelerate that when appropriate.

Russell Gunther (MD and Senior Research Analyst)

I appreciate it, Palmer. Thank you both for taking my questions.

H. Palmer Proctor,Jr (CEO)

Mm-hmm.

Operator (participant)

The next question comes from Manuel Navas from D.A. Davidson. Please go ahead.

Manuel Navas (VP and Research Analyst)

Hey, on mortgage, in the past, you've had up to about a hundred and fifty more employees in prior years. Do you-- is there any capacity constraints, if we do get a two hundred basis points decline or, or another hundred and fifty basis point decline in the Fed funds rate? And kind of how are you thinking about mortgage next year initially?

H. Palmer Proctor,Jr (CEO)

Yeah, you know, it's kind of looking through a crystal ball at this point. I think we had all anticipated more of a tailwind from the decline in rates earlier, but that has not correlated into the 10-year, having a whole lot of movement other than moving up. All I can tell you is with the infrastructure we have in place, and more importantly, the, when I say infrastructure, I'm talking about systems, technology, we are going to be able to capitalize on that. I don't feel there are any constraints, to answer your question specifically, in regards to a surge in activity. We've got the systems in place, the talent in place, more importantly, the relationships in place to capitalize on that. We run a very efficient model, as you know, through the mortgage operation.

Keep in mind, too, we would probably see that same type of... If there were an increase, we'd see the same lift in the warehouse activity, too. So that remains a tailwind for us, but I think in looking through my crystal ball now, I probably see that occurring, if we're fortunate as an industry, or in the second quarter next year, into second quarter next year, than we would in the first quarter, just given on where the long bond is right now. So we'll just have to wait and see what happens with the election and what kind of economic clarity we get going forward.

But that's certainly, you know, when you look at banks and look at tailwinds, and I like to use that term, that could certainly be a huge incremental lift for us in terms of income.

Manuel Navas (VP and Research Analyst)

That makes a lot of sense. I appreciate that. I understand the NIM guide in that three fifty-ish range. If we get to the end of rate cuts by middle of next year, this is hypothetical, and we're at a little bit steeper curve, could you kind of talk about what you could see happen to your NIM and growth prospects?

Nicole Stokes (EVP and CFO)

Yeah, no, if we get and again, this is really crystal ball. I typically don't guide three quarters out. But if we get to the middle of next year and the rates have come down, the curve has normalized, I think we're going to have two really big positives. One is going to be our potential tailwind from mortgage if rates come down. That's going to be a big tailwind to our non-interest income. And then on the margin side, if the economy hits a soft landing and everything works out, any growth that we anticipate putting on is coming in as margin accretive. So even though the model shows us as neutral, the more growth we have, the more upside we have for margin expansion from growth.

But again, margin expansion at this point is going to come from growth in NII and growth in earning assets, and not necessarily from the behavior of the current balance sheet.

Manuel Navas (VP and Research Analyst)

Yeah, that's helpful, and I understand it. Some of it is hypothetical. We've been waiting for a steeper yield curve for a while. Can I switch over just to deposit growth, kind of more near term? What are kind of the drivers that really benefited it this quarter, commercial versus retail? And kind of what's driving it near term to kind of really keep ahead of low growth right now? So just kind of could you talk through some of what's working on the deposit side?

Nicole Stokes (EVP and CFO)

... Sure. So I think there's a couple things different, is that, you know, we are a relationship bank, and we've been focused that way for a long time. And if you go back to two or three years ago when everybody was flush with deposits, we started thinking about how will we grow deposits? And we started making all of our you know, getting our employees and our what were loan officers to now be bankers, and really kind of changing the mindset there. And so we have had core organic deposit growth, quarter after quarter, and that comes from our organic strategies and our core strategies that we have going on within the relationship side of building relationships.

And when we look at the number of accounts we are growing, you can see that in the investor presentation that we continue to grow the number of accounts. And the way you do that is by new relationships and new customers. So we've been focused on that. We have a few, you know, I can't give all the secret sauce here, but we do have a few strategies that have been very successful for us on the deposit gathering side. Now, one thing that we haven't necessarily talked about is we have this cyclicality that comes in at the end of the year. So we bank several large public entities, so we will have an influx of deposits at the end of the year.

So every year, our balance sheet looks a little bulging, you know, $500 million-$600 million of public funds and some ag money that comes in. So when you really take that out of the year, if you adjust that kind of where we are, December to September, we've had very significant, strong core deposit growth for the year, and that comes from those just core banking strategies.

H. Palmer Proctor,Jr (CEO)

And the other thing that's encouraging always for us is the growth in relationship units that Nicole was talking about, and that's coming in two fronts. One, when you look at the retail side of the company, they're doing an excellent job of opening up new accounts. And granted, those are smaller balances, but with those balances and those relationships comes fee income and other opportunities. So we've seen a lot of growth through the retail sector. And then on top of that, the investments we made in treasury over the last two or three years have really started to pay off, too. So we're very encouraged by what we're seeing and the trends we're seeing on the deposit front, and that does remain, you know, a big governor for us in terms of our loan growth, too, as you well know.

Manuel Navas (VP and Research Analyst)

That's great, Nicole, I appreciate it. I'll step back into the queue.

Nicole Stokes (EVP and CFO)

Thank you.

Operator (participant)

The next question comes from David Feaster from Raymond James. Please go ahead.

David Feaster (MD)

Hey, good morning, everybody.

H. Palmer Proctor,Jr (CEO)

Good morning, David.

Nicole Stokes (EVP and CFO)

Good morning.

David Feaster (MD)

I wanted to follow up kind of on the deposit side. I mean, you touched on being pretty aggressive, repricing deposits lower, competition's helping that as well. They're, they're repricing stuff lower. I'm just curious, how has reception been with your clients thus far? How do you find that pressure points that where clients are going to accept a lower rate without leaving? And maybe where are you able to drive, you know, new core-- like, what, what blended rate are you able to drive core deposit growth today?

Nicole Stokes (EVP and CFO)

Sure. So I'll start with kind of the core deposit growth. So before the month of September, which is a pretty good judge for us, our blended coming on rate of new production was right under 3%, and that was split. Those CDs were a little bit high, about 4.25%, between 4.25% and 4.30%. Money markets came in between 3% and 3.25%. Now in savings, obviously, we're pretty low. So that kind of came in at a blended rate, right between 2.75% and 3%, when you take all deposit growth, including the non-interest bearing growth. So again, you know, a 3% kind of coming on rate.

I think your other question was how do we know the pressure point and how fast and furious can we cut? And so I think some of that has to do with communication. I think I've talked about this maybe before on some calls, that we have very good communication, and we have weekly pricing meetings, so we really can kind of keep our finger on the pulse of what's going on in the market. And we have conversations there about if we do see any competitors, we can also talk there about pricing exceptions, that our leaders are seeing. And so if we've cut a little bit too far or we haven't cut enough, we can get that just through open communication with our market leaders, and that set seems to be working very well.

H. Palmer Proctor,Jr (CEO)

But the biggest thing for us, David, as you know, we are big on the human touch side of things. So when you look at the commercial bank or even the retail side, that's where I think our folks do an exceptional job of staying in front of their customers, to the point where you always want to have the option to increase that rate, not have them just quietly go away and pull money out. So staying in front of the clients on a regular basis has always been part of our culture and DNA, and I think that relationship, community bank kind of high touch feel is really what's kept us close. And to Nicole's point, we monitor it to see if we're starting to see any swings from one way or the other.

But the real key to it is just staying on top of your customer base, which, kudos to the team out there for doing that on a regular basis.

David Feaster (MD)

Yeah, that's great. And I just wanna touch on premium finance for a second. I mean, that's been a pretty nice growth vehicle. Obviously, profitability in that segment has been really solid. Seems a nice operating leverage. I'm just kind of curious, you know, as you scale larger, I'm curious, what are you seeing in that vertical and the pipeline there? And just, you know, how do you think about premium finance broadly?

H. Palmer Proctor,Jr (CEO)

Yeah, no, that, that's probably one of the bright spots when you look at the different verticals that are out there, not just for us, but anybody that knows what they're doing in the space. From a credit standpoint, there are no problems in that space. If you do it right, it's more execution risk, as you well know. The yields are pretty good on that. I think we could probably do a better job on garnering additional deposits, which we're heavily focused on from some of these premium finance clients that we have. So we're heavily focused on that. But that, that is a line of business that I think when you look at volatility in the markets in terms of different verticals, that one has been pretty stable for us and been a good provider.

We feel very bullish about the opportunity to maintain and grow that particular sector.

David Feaster (MD)

Okay, that's helpful, and then just last one from me. I mean, you know, appreciate all the guidance on the margin. I don't wanna beat a dead horse here, but, I mean, you know, looking at it, I mean, given the commentary that we just talked about on the funding side, and then where you're repricing or you're putting on new loans and new originations, obviously, you know, the floating rate side could be a headwind, but it actually seems like there's some pretty healthy tailwinds on the margin front. I mean, I guess, at what point do you think we could start seeing margin expand? Cause, again, just given some of those repricing dynamics, it feels like maybe in the middle of next year, we could actually start seeing margin expand.

Is that a fair characterization, or am I thinking about it wrong?

H. Palmer Proctor,Jr (CEO)

I hope you're right, and I think the thing to think about is where you're starting with your margin. When you look at where we are relative to a lot of our peers, we're already at a high point relative to a lot of our peers. I would tell you that if we can stay where we are, incrementally garner additional margin, that would just be icing on the cake. I'm hopeful, to your point, that if we have a soft landing, and we see some development out there, opportunities for additional growth, to your point, it should be additional tailwinds for a company like ours, because our coupon rates on the loans are certainly improving, and then the cost of the deposits are going down.

So conceptually, you're right, and I hope that everything plays out that way. But we're starting from a position of strength, and so our focus is to maintain that and then grow it incrementally. And I think if the stars align in terms of the economy, we will be able to do that.

David Feaster (MD)

Okay. All right. Thanks, everybody.

Nicole Stokes (EVP and CFO)

Thanks, David.

Operator (participant)

The next question comes from Brandon King from Truist Securities. Please go ahead.

Brandon King (Equity Research Analyst and Director)

Hey, good morning.

Nicole Stokes (EVP and CFO)

Good morning.

Brandon King (Equity Research Analyst and Director)

Nicole, on the margin guide for 3.50%, what deposit beta are you assuming to get to that number?

Nicole Stokes (EVP and CFO)

We are assuming the same deposit betas that we had on the model going up, so about a 55 beta, and we're hoping that we can beat that.

Brandon King (Equity Research Analyst and Director)

Okay, and that's, initially? That's not no lag effects?

Nicole Stokes (EVP and CFO)

That's right.

Brandon King (Equity Research Analyst and Director)

The mortgage gain on sale margins declined in the quarter. Are you expecting that to bounce back up next quarter, or is it just a good runway to go off of going forward?

H. Palmer Proctor,Jr (CEO)

No, I think you'll see that bounce back next quarter. A lot of that, as you know, just has to do with timing, and so we expect that to go back up next quarter.

Brandon King (Equity Research Analyst and Director)

Okay. To levels near second quarter levels, is that fair to assume?

H. Palmer Proctor,Jr (CEO)

Yeah, we've kind of guided that would be between 250-275 on the high end. So we would expect to see it start bouncing back towards that.

Brandon King (Equity Research Analyst and Director)

Okay. Thank you for that. And then lastly, Palmer, in your remarks, you mentioned, you know, TCE is plus 10% now, and you mentioned taking advantage of growth opportunities in your footprint. So is it fair to assume, moving into twenty twenty-five, that you're potentially more open to M&A?

H. Palmer Proctor,Jr (CEO)

No, I don't think it's fair to assume that. I think what you have to assume is what the market environment looks like when we get to 2025, but what you can assume is that with the optionality we've created, you know, first and foremost, our focus is always going to be on organic, but having that excess capital does allow us to kind of look at things from an M&A front, if the right opportunity came along, but it would have to be something very special for us because we're pretty disciplined in that regard, and we want things that help raise the boat, not weigh it down, so that's certainly an option, but our focus remains primarily on organic growth.

Brandon King (Equity Research Analyst and Director)

All right. Thanks for taking my questions.

H. Palmer Proctor,Jr (CEO)

All right, you bet.

Nicole Stokes (EVP and CFO)

Thank you.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to Palmer Proctor for closing remarks.

H. Palmer Proctor,Jr (CEO)

Great. Thank you very much, and we appreciate your participation in today's call, and we look forward to sharing our results with you next quarter. We remain committed to top-of-class results, and we thank you again for your time and interest in Ameris.

Operator (participant)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.