Earnings call transcript: Ameris Bancorp Q2 2025 earnings beat expectations

Ameris Bancorp, a $4.7 billion market cap regional bank, reported strong financial results for the second quarter of 2025, surpassing analyst expectations with an earnings per share (EPS) of $1.59, compared to the forecasted $1.33. This represents a surprise of 19.55%. The company’s revenue also exceeded projections, coming in at $301.6 million against the expected $297.37 million. Following the earnings announcement, Ameris Bancorp’s stock rose 3.16%, closing at $66.44, reflecting positive investor sentiment. InvestingPro analysis shows the bank maintains a "GOOD" overall financial health score, with particularly strong marks in profitability metrics.

Key Takeaways

• Ameris Bancorp’s EPS of $1.59 beat forecasts by 19.55%.
• Revenue surpassed expectations, reaching $301.6 million.
• Stock price increased by 3.16% following the earnings release.
• Mortgage production grew significantly, contributing to revenue gains.
• The company expects continued growth in loans and deposits.

Company Performance

Ameris Bancorp demonstrated robust performance in Q2 2025, with a 21% year-over-year increase in net income to $109.8 million. The company reported a diluted EPS of $1.60 and a return on assets of 1.65%. These results underscore the bank’s strong position in the competitive Southeastern markets, where it has seen increased banking activity and customer engagement. According to InvestingPro data, the company has maintained dividend payments for 12 consecutive years and shows impressive revenue growth of 14% over the last twelve months. Two additional InvestingPro Tips highlight key investment considerations for this stock.

Financial Highlights

• Revenue: $301.6 million, above the forecast of $297.37 million.
• Earnings per share: $1.59, exceeding the forecast of $1.33.
• Net income: $109.8 million, up 21% year-over-year.
• Return on Tangible Common Equity: 15.8%.
• Efficiency Ratio: 51.63%.

Earnings vs. Forecast

Ameris Bancorp’s Q2 results exceeded expectations, with EPS at $1.59 compared to the anticipated $1.33, marking a 19.55% surprise. Revenue also outperformed, coming in at $301.6 million against a forecast of $297.37 million, a 1.42% surprise.

Market Reaction

Following the earnings announcement, Ameris Bancorp’s stock price increased by 3.16%, closing at $66.44. This movement reflects investor optimism, as the stock approaches its 52-week high of $74.56. The positive earnings surprise and strong financial metrics contributed to this upward trend. InvestingPro’s Fair Value analysis suggests the stock is currently undervalued, trading at an attractive PEG ratio of 0.39, indicating good value relative to its growth potential. For deeper insights, investors can access the comprehensive Pro Research Report, available for Ameris Bancorp along with 1,400+ other US stocks.

Outlook & Guidance

Looking ahead, Ameris Bancorp anticipates mid-single-digit growth in loans and deposits. The company expects its Net Interest Margin to stabilize above $3.60-$3.65. With a solid dividend yield of 1.2% and impressive dividend growth of 33% in the last year, Ameris Bancorp remains focused on organic growth and may consider stock buybacks and continued dividends as part of its strategic initiatives. The bank’s strong financial position is reflected in its conservative debt-to-equity ratio of 0.11, providing flexibility for future growth initiatives.

Executive Commentary

CEO Palmer Proctor emphasized the company’s focus on delivering top-class results and growing tangible book value per share. CFO Nicole Stokes highlighted the margin accretive nature of Ameris Bancorp’s growth. Proctor also noted increased customer activity in middle market lending, reflecting a dynamic competitive landscape.

Risks and Challenges

• Competitive pressures in the Southeastern markets could impact margins.
• Economic fluctuations may affect loan and deposit growth.
• Regulatory changes could pose compliance challenges.
• Interest rate volatility might impact Net Interest Margin.
• Dependence on mortgage production for revenue growth.

Q&A

During the earnings call, analysts inquired about margin expansion strategies and the focus on non-interest bearing deposit growth. Executives addressed the potential for mortgage refinancing and highlighted the company’s strong credit quality and reserve strategies.

Full transcript - Ameris Bancorp (ABCB) Q2 2025:

Wyatt, Conference Call Moderator: Good morning, and welcome to the Merus Bancorp Second Quarter Conference Call. All participants will be in listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Nicole Stokes, CFO.

Please go ahead.

Nicole Stokes, CFO, Merus Bancorp: Thank you, Wyatt, 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 comments, and then I will discuss the details of our financial results before we open up for Q and A. 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. With that, I’ll turn it over to Palmer.

Wyatt, Conference Call Moderator: Thank you, Nicole. Good morning, everyone. We appreciate you joining our call today. I’m very proud of our second quarter results, which again beat expectations and resulted in an increase in our return on assets, PPNR ROA, return on tangible common equity and an improved efficiency ratio. As you can see, we remain focused on enhancing revenue generation and positive operating leverage.

This is evidenced by our 20 plus percent annualized revenue growth in the quarter, which was almost double our expense growth, which pushed our efficiency ratio to below 52%. Our margin continued to expand during the quarter, while we grew loans 6.5% annualized, which is within our mid single digit guidance. Our 3.77 NIM remains well above most peer levels, particularly thanks to our strong 31 level of non interest bearing deposits. Capital ratios grew again in the quarter, which positions us well for future growth opportunities. Our strong second quarter earnings and capital generation increased our common equity Tier one to 13% and TCE to over 11%.

We also saw improvement across the board in all aspects of asset quality. We grew tangible book value this quarter by 15.5% annualized, passing through the $40 level for the first time to finish the quarter over $41 per share. We now have $50 of tangible book value on our sites. We were active in repurchasing stock, buying back $12,800,000 in the quarter. Our CRE and construction concentrations remained low at 2.6145% respectively.

Our strong loan growth is driven mostly by C and I. Deposits grew as well, but at a smaller pace. Non interest bearing deposits remained our core focus with those balances growing over 3% annualized. Our bankers are well positioned to take advantage of growth opportunities and disruption within our attractive Southeastern markets. In fact, production increased 29% from the first quarter with this quarter having the highest loan production since 2022.

Overall, we continue to stay focused on what we can control. When I look out for the back half of 2025, I’m encouraged as we continue to benefit from a robust margin, a solid non interest bearing deposit base, a diversified revenue stream, strong capital and liquidity, a healthy allowance and asset quality, proven culture of expense control and positive operating leverage, experienced local bankers in top Southeast markets and obviously notable scarcity value given our size and scale in those markets, which allows us to take advantage of the banking disruption the Southeast continues to experience. Overall, I’m extremely optimistic for the remainder of 2025 and into 2026. I’ll stop there and turn over to Nicole to discuss our financial results in more detail.

Nicole Stokes, CFO, Merus Bancorp: Great. Thank you, Palmer. We reported net income of $109,800,000 or $1.6 per diluted share in the second quarter, which is a notable 21% increase over the year ago quarter. As Palmer mentioned, our profitability improved to levels well ahead of our recent past with an ROA and return on tangible common equity both moving higher. Our efficiency ratios improved to 51.63% this quarter compared to 52.83% last quarter as we continue to focus on positive operating leverage evidenced by our revenue growth of 20.9% annualized well outpacing our expense growth.

This quarter, our return on assets was robust at a 165. Our PPNR ROA was two eighteen, and our return on tangible common equity was 15.8%. All of these profitability metrics remain top of class. Capital levels continue to strengthen and tangible book value per share increased to $41.32 per share, which was a strong 15.5% annualized growth or $1.54 per share in the quarter. Our tangible common equity ratio increased to 11.09% at the end of the quarter, and we did repurchase about $12,800,000 of common stock or about 212,000 shares during the second quarter.

We’ve got about 72,000,000 remaining through the October available to purchase. Our strong revenue growth was driven by increases in both net interest income and fee income. Our spread income grew by 10,000,000 in the quarter or 18% annualized. And I’ll note here that our average earning assets increased $564,000,000 or over 9% annualized this quarter. In addition to that, our net interest margin continued expanding, up four basis points this quarter to a strong three seventy seven.

And remember, this margin is a core margin. We have zero accretion in that margin. The modest margin expansion came mostly from the asset side with a three basis point positive impact on our loans and a one basis point from a higher bond yield. The previous benefit to our margin from the lower funding cost has been fully realized with our total cost of funds remaining flat during the quarter. We believe that we will see margin normalize above the $3.60 to three sixty five range over the next few quarters as we expect pressure on deposits as we see loan growth pick up the second half of the year.

We continue to be close to neutral on asset sensitivity. Noninterest income increased about 4,900,000.0 this quarter mostly from Better Mortgage. Our mortgage production grew 36% in the quarter to approximately 1,300,000,000.0 and our mortgage gain on sales climbed five basis points to 2.22%. Total non interest expense increased 4,200,000.0 in the second quarter mostly driven by higher salaries and employee benefits, which related to the stronger mortgage production and our annual merit increases. As I previously mentioned, our efficiency ratio was strong at 61.63%.

During the second quarter, our provision for credit losses was 2,800,000. Our reserve remained strong at 162% of loans or 408% of our portfolio NPL. Overall, asset quality trends were favorable with nonperforming assets, net charge offs and both classified and criticized all improving in the quarter. Our annualized net charge offs improved 14 basis points. Looking at our balance sheet, we ended the quarter with $700,000,000 of total assets compared to $26,500,000,000 last quarter.

Loan growth returned with an increase of $335,000,000 or 6.5% annualized in line with our loan growth guidance. Loan growth was mostly from C and I loans this quarter, particularly mortgage warehouse and premium finance. Total loan production in the quarter was 1,900,000,000.0, up nicely from last quarter’s 1,500,000,000.0 of production. And deposits increased 20,000,000 with a continued seasonal decline in cyclical municipal deposits of 77,000,000 offset by an increase in broker deposits of 82,000,000. We were able to grow non interest bearing deposits increasing our percentage to 31% of total deposits from 30.8 last quarter, and our brokered CDs represent only 5% of total deposits.

We continue to anticipate loan and deposit growth going forward in the mid single digit range and expect that longer term deposit growth will continue to be the governor of loan growth. With that, I’ll wrap it up and turn the call back over to Wyatt for any questions from the group.

Wyatt, Conference Call Moderator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you’re using a speaker phone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

Our first question will come from Steven Skoden with Piper Sandler. Please go ahead. Yeah. Good morning. Thanks, everyone.

Good morning. I guess maybe my first question would be around kinda loan growth trends, what you’re seeing from your customers. Maybe any sort of color into the existing pipelines and and maybe within that, the mortgage warehouse lending, if if this should be kind of a seasonal peak for that component of the loan book and how we should think about maybe the competition moving forward a little bit. Yeah. I’ll answer that question.

This is Palmer in reverse order. But the mortgage warehouse, certainly there’s seasonality to that. This was a very strong That quarter for being said, as it pertains to the other lines and pipelines and production, I think it’s probably very reflective of what we’re seeing in the market. There is a, I would call, a resurgence of activity, much better than what we saw in the first quarter. And I think that we’re hopeful that, that will continue throughout the remainder of the year and into 2026.

At the same time, I think there’s a bit of caution that still remains out there. But our bankers are seeing more opportunities, certainly becoming more competitive, which is always a good sign of that increased competition in terms of activity. So I would expect that third quarter would end up being very similar to second quarter in terms of activities that we’re seeing unless there’s some unforeseen event that takes place. Okay. Great.

That’s helpful. And then maybe thinking about kind of future growth opportunities, capital continues to build rapidly. I think you’ve said in the past kind of a measured approach to kind of how you would deploy that excess capital. But any kind of change in terms of maybe preferences, order of operations there, whether that’s new hires, potential M and A, additional balance sheet, kind of remixing and the like? Sure.

And I don’t want to sound like a broken record, but as we’ve said all along, know, when I look at our bankers and how we’re positioned in the growth markets we’re in, we have got the right talent in the right place to execute on our plan in terms of what we have. That doesn’t mean we’re not actively looking or won’t look for new talent that comes in. We’re, as you know, very consequential with talent and we expect it to produce. Year to date, when you look at revenue generators, we’ve brought in about 64 new revenue generators. At the same time, we’re very consequential moving out those that aren’t generating revenue.

But what I see now is the opportunity to really accelerate because of how we’re already positioned, need what we do, something we need to do to get positioned, but how we’re already positioned in the key Southeastern growth market. So I think when you look at the opportunities that are out there as it pertains capital, our first and foremost is growing organically. And then after that, there’s certainly, especially where we’re trading today, I wouldn’t say that stock buybacks aren’t off the table because relative to where we trade today and the value we’re creating, the stock is cheap in my opinion. And then also, we’ve got the dividend. We increased the dividend before, so I don’t see a whole lot of changes there.

And then the proverbial M and A question, it would take a lot to distract us. It has to be something very, very special because right now we’re firing on all cylinders. And so to distract us from something like that as well positioned as we are on a go forward basis, I think we will remain focused as we have been for the last five point five years on organic growth. Great. And maybe just one follow-up to that question is on the new hire activity, that seems to be the going trend at a accelerating pace.

I mean, I feel like relative to five years ago, six years ago. Everyone now is talking about team lift outs or, you know, new hires versus maybe M and A in the past. How do you differentiate yourself? And how do you to you know, how do you convince people to come to Ameris versus, you know, XYZ Bank that might also be trying to to bring that banker? Yeah.

I think what salespeople on our model is, you know, we’re we’re focused on market share, not just having a a pin on a map. So when you look at the density, we have a lot of our key growth markets. What bankers like is a presence and a commitment to a market, which we certainly make in everyone that we’re in. They also like to see that we’ve got some stability in those markets. They like to see that we’ve got an organic engine that can grow.

And in today’s world, they like an environment that’s not as volatile in terms of the work environment that they’re in. Our plans are very clear in terms of especially for the revenue generators on the core banking side. It’s very heavy on the deposit side focus relative to a lot of peer plans. And so they come in with clear expectations, but those expectations also allow them to understand that they need to deliver. And if they deliver, they’re well compensated for it.

If they don’t, we try to do what we can to coach them up. But I think it all comes down to accountability here. But I think, you know, to be able to work for a company that’s been around for fifty years, it’s got a clear business model, there’s not any noise out there and you can go ahead and focus on what you need to focus on and not get distracted, not a lot of changes. That’s probably the biggest selling point we have in today’s market. Perfect.

Thanks for all the color. Congrats on the fantastic quarter. Thank you. Our next question will come from Catherine Mealor with KBW. Please go ahead.

Nicole Stokes, CFO, Merus Bancorp: Thanks. Good morning. Good morning. That? Maybe talk about the margin and and maybe the the balance sheet.

I think just just to go back first on the balance sheet side. I noticed that you added some securities this quarter. And so curious, you know, you talked about mid single digit growth in loans, and that was so great see this quarter better than I expected. But in terms of the bond book, do do you expect to continue to build that through the back half of the year, or as loan growth improves, does that kind of tear back a little bit? Kathleen, you know, we like the optionality that we have there.

And this is kind of what I would call the tail end of that strategy of, you know, going back and not getting into the bond book and having the ACI issue several years ago. So we still, you know, historically, we would be about 9% of earning assets pre pandemic would be in our bond portfolio. So we could still add about another 200,000,000 to the portfolio to get there. We could add another 400,000,000 to get to about 10%. So we like that optionality we we have there, that we have both the the loan book that we can grow and the bond book.

So, you know, I would definitely say that we could do go either either place. What we do have also in the for the rest of the year, we have about 71,000,000 that’s gonna mature out, and that’s coming out at a three fifty rate. You know, what we’re putting on right now is coming in much higher than that, almost, you know, four seventy five, 5%. So as we’re circling that out, we like doing that in a bond book. And if we have some opportunities to put some 4475% bonds in there with a good duration, we’ll capitalize on that opportunity when we see it.

Okay. Great. That’s super helpful. And then maybe then circling back to margin. You had another margin beat in that you’re guiding for that to be, I think you said, normalize above the $3.60 or $3.65 range just because of deposit costs.

So I guess I’m just kind of curious your view on deposit costs, maybe how we think about that in in a stable rate environment than, I mean, the third quarter if we don’t see rate cuts this quarter. You know, it seems like you still think that will increase a little bit this quarter, and then how you’re thinking about deposit costs as we start to see cuts. Yep. So, yeah, assuming the Fed stays flat and you don’t see any cuts, I just feel like there’s gonna be some pressure on that deposit cost. You know, everybody is talking about loan growth in the second half of the year.

So I think as we start to see that loan growth demand pick up, we’re gonna see just as much demand because everybody’s going to be competing on the deposit side. So, you know, when you look at the second quarter, we brought in our interest bearing payment at two ninety nine kind of spot production for the quarter, and that’s compared to a book of two eighty three. So we already see that new production coming on a little bit higher than the current mix. And I just think that that’s going to get more aggressive and more pressure as we see the loan growth demand come in. And then assuming that the Fed did cut, we think that we would be just as aggressive as we have been in the past on reducing those.

So if the Fed were to cut, I think we could maybe see a little bit of bump in the margin just from getting that head you know, getting ahead of the curve there on the deposit side, knowing that the loan side would eventually catch up, but we could see a small little pop if the on the deposit side if the if the Fed cuts. Okay. Great. Very helpful. Great quarter, guys.

Appreciate it.

Wyatt, Conference Call Moderator: Thanks. Thank you. Our next question will come from David Feaster with Raymond James. Please go ahead. Hi.

Good morning, everybody. Good morning, David. Good morning. Just wanted to follow-up maybe on on the commentary on the growth side. It sounds like the increase in your origination activity that you saw, of course, is really more of a function of your bankers being increasingly productive and gaining share versus real improvement in demand.

Is that a fair characterization? And then I was hoping you could elaborate too on your commentary on the competitive landscape. Are there any segments or markets that are notably challenging and whether competition is primarily centered on pricing? Or have you seen competition shift towards more underwriting structure and standards too? Yes.

I think it depends on the business line. I would say across the board, we’re seeing more activity. And I don’t know if it’s I think it’s more of a reflection of customers and prospects becoming more active. Our bankers have been out actively calling. So it’s not like anybody’s sitting on the sidelines.

I think people are just now moving forward towards whatever initiatives they’ve got especially in that middle market space. And along those same lines, it’s a middle market type lending. You know, the nice thing about our company is we’ve got the scale and the size to do what we need to do in terms of accommodating borrowing needs, treasury management needs. So we focus heavily, especially on treasury management calling. That’s been very helpful on our deposit growth.

But I would tell you, is a lot of competition out there, and it’s starting to go beyond pricing now. There is some structural changes that are we’re starting to see out there of people getting aggressive. Nothing crazy, but it is different. And so I think that’s a sign just that more people are needing that growth, wanting that growth. And fortunately, hopefully, it will continue to come as we look out and look at the pipelines that we see.

If you break ours down by vertical, clearly the equipment finance and the premium finance mortgage warehouse has done well, retail mortgage volume just due to rates has been a little bit subdued. But if we see some rate improvement towards the end of the year there or next year, that’s certainly something that we can ramp up very quickly and capitalize on. I think the most encouraging thing for us though is the continued growth we’re seeing in our focus on deposits and leading with deposits instead of just leading with loans and pricing. So I would kind of give it a overall a more positive outlook for going into third quarter than what we had seen obviously in the first quarter. Does that answer your question?

Yes. No, that’s super helpful. And then maybe, Nicole, as you talk about that three sixty to three sixty five margin guide, is that purely a function of higher marginal funding costs to support the growth? Or does that incorporate any Fed cuts in that? And just kind of how do you think about the time line of hitting that range?

Is that kind of a step change that you would expect here in the third or fourth quarter? Just kinda curious some of some of your thoughts on that.

Nicole Stokes, CFO, Merus Bancorp: Yep. So that assumes no rate cuts. That’s kind of a it’s a flat environment. And and like I said, if we if the Fed did cut, we could actually see a little bit of bump because we feel like we would be aggressive on the deposit repricing side. And then, you know, eventually the loans would would catch up to us.

That $3.60, $3.65 guide is over the longer term. So I don’t think that’s a sudden drop in the third or fourth quarter. I think that’s just a longer term margin guide looking out, you know, eighteen months or so to say that we feel like there’s going to be some deposit pressure as we see the loan growth come back, and there’s going to be, again, that competitive pressure. So I think we’re gonna see some pressure on the deposit side paying up. We might see a little bit on the loan side as well as people get competitive for that.

So I just I think that we’re gonna get it squeezed a little bit and that we’re in a spot to compete with a a margin as strong as we have if we give up a little bit for the growth. You know, we continue to focus on the growth in net interest income and then the growth in earning assets.

Wyatt, Conference Call Moderator: Okay. And then maybe just last one. Just touching on the mortgage segment. You know, you know, nice to see the the seasonal increase still still primarily purchase driven. Just kinda curious maybe some of the underlying trends you’re seeing there.

How and how your capacity is today? I know you’ve made a lot of efficiency improvements. But how’s your capacity today if we do get a refi wave as rates potentially decline? We’ve seen what that can how quickly that can move. And then just any thoughts on on the gain on sale side as we look forward.

Nicole Stokes, CFO, Merus Bancorp: Sure. So for mortgage, I would say that the third quarter, I would see it being consistent with the second quarter, maybe down a little bit, just some of the trends that we’re seeing. But when I say a little bit, you know, 10% down on production, we’ve seen the gain on sale pick up from that 02/17 to the 02/22. I think kind of we we’ve seen that kind of hold. I mean, we’re only, you know, three weeks in.

But assuming that that kind of holds in that 02/15 to 02/25 range, and then as far so I think we’ll third quarter will be consistent with second quarter. As far as what we could do if we saw refi then our team’s ready to go. You know, we don’t need to add people, and we’ve got the resources that if a refi boom were to happen, rates come down and we see that opportunity, our folks are ready to go with it.

Wyatt, Conference Call Moderator: And, David, you know, as we’ve said, the nice thing about mortgage, when you look at the profitability of it as it stands today relative to peers, it’s it’s really phenomenal how well they’ve done. And this is kind of a baseline. So any improvement we get in rates from here would just be icing on the cake. Got it. That’s helpful.

Thanks, everybody. Our next question will come from Russell Gunther with Stephens. Please go ahead. Hey. Good morning, guys.

Nicole Stokes, CFO, Merus Bancorp: Good morning.

Wyatt, Conference Call Moderator: I have a margin follow-up question to start, please. Nicole, I’m hopeful to get a sense for the cadence of the NIM over the course of the quarter from that kind of three sixty nine in March start to where we ended up at three seventy seven, and if possible, any commentary on where the June 1 shipped out?

Nicole Stokes, CFO, Merus Bancorp: Yes. So the the margin was was kind of growing throughout the quarter. It was just a steady growth month over month. And then for the for the month of June, there were some anomalies. So I hate to get this number out because it was higher than the three seventy seven, but there were some anomalies in that margin.

So kind of bringing me back to saying kind of that flat three seventy seven margin may be a few basis points up or down in the third quarter, but eventually over the long term being willing to give up a little bit of our margin to to get the growth.

Wyatt, Conference Call Moderator: Okay. That’s very helpful. I appreciate the color. And then switching gears back to sort of the loan growth side, you guys mentioned strength in equipment finance. It’d be helpful to get a sense for kind of where those related loan balances are this quarter versus last, similarly on the charge off front.

And then just what’s your related balance sheet growth versus gain on sale expectations are there? On on Valvola, we ended at about a billion 5 or or sorry. Equipment Finance, about 7.2% of our loans. The charge offs overall for the company, you know, which equipment finance has contributed to You know, once we retool the credit box in 2023, it performed as we expected. And for the last rolling four quarters, we now have that in in the target range that we were seeking for equipment finance, those charge offs.

Okay. Got it. Thank you for that. And then just last one for me. Great expense results both this quarter and on a year over year basis, efficiency ratio lower on both those data points.

Nicole, it’d be helpful to just get a sense for how you’re thinking three q looks from a noninterest expense perspective.

Nicole Stokes, CFO, Merus Bancorp: Yeah. I think three q when you think about what you know, the bump in in second quarter compared to first quarter was really related to that increased production in mortgage. And so if we see that production, you know, come in consistent, those expenses should be consistent. And then we also have the merit increases that would go into effect April 1 for us. We had a full quarter of merit increases.

So I see the third quarter being consistent with the second quarter. I think consensus has it bumping up just a little bit, and I think that that kinda makes sense. That’s reasonable to me. So I say somewhere, know, in that one fifty six to one fifty eight, which is right kind of where consensus is and consistent with the second quarter.

Wyatt, Conference Call Moderator: Alright. Very good. Thank you guys for taking my questions.

Nicole Stokes, CFO, Merus Bancorp: Absolutely. Thanks.

Wyatt, Conference Call Moderator: Our next question will come from Christopher Marinac with Janney Montgomery Scott. Please go ahead.

Palmer Proctor, CEO, Merus Bancorp: Hey, thanks. Good morning. Nicole and Palmer, I wanted to dig into the deposits. I think it’s Slide 11 in terms of just the numbers of accounts as well as for the average. What’s the right way to think about that over time?

Not just quarter to quarter, but thinking of it from last year and

Wyatt, Conference Call Moderator: the prior year. You’ve been

Palmer Proctor, CEO, Merus Bancorp: giving us this data for a while.

Nicole Stokes, CFO, Merus Bancorp: Yeah. No. We have been very consistent. I think that’s one of the things that we probably don’t brag on ourselves enough about is our very, very granular deposit base. And that that you know, if you don’t get this kind of deposit base overnight, that this is a a fifty year history franchise of growing our deposits.

And when you look back at our deposits, we did a kind of back look of how many have been, you know, since the Fidelity acquisition, how many were came in from Fidelity, and then how many prior to that. And we have a really, really strong core deposit base that have been here for a long, long time. Even through our acquisitions, you know, those have they’ve had a long history, and we’ve been able to retain those deposits. So I I think this is very, very consistent, the very granular deposit base that we’ve had. This is not a new thing.

Palmer Proctor, CEO, Merus Bancorp: Great. And do you think that the pace of deposits will look different the next couple of quarters? I I know part of the margin guide kind of implies that. So just trying to think about if we should see an

Wyatt, Conference Call Moderator: acceleration in the next few quarters.

Nicole Stokes, CFO, Merus Bancorp: You know, we continue to look and and lead with deposits. And I’m so proud of our bankers for that that we we don’t just have loan officers, we have bankers, and that they’re asking for deposits and growing deposits. So I think the big question there for us is we know that we can grow deposits, but it’s at what rate can we grow deposits? And then, really, we’ve been so focused on the noninterest bearing. And to have 31% of our franchise in noninterest bearing.

The question is, can 31% of our growth be in noninterest bearing? So while we continue to focus on that growth in noninterest bearing, the percentage to the total may change a little bit. And then, obviously, coming in kind of the end of the third quarter into the fourth quarter, we have all those cyclical municipal funds that flow back in. So that always kind of makes us, you know, look a little bloated on deposits at the end of the year. But but, again, we remain focused on growing deposits.

And, you know, we we have some runway with FHLB advances or brokers or brokered CDs. You know, their brokered CDs are only 5% of our of our funding. But we’ve really focused on those growing those core deposits, and that’s definitely the goal is to continue to grow that. Hence, why my guidance is that we are willing to maybe pay up for that growth if we need to.

Palmer Proctor, CEO, Merus Bancorp: Okay. Great. Thank you for that background. That’s great. And I had a question on the reserve.

Just curious on if there’s any qualitative changes to some of the factors behind the scenes this quarter or are some of those possibilities as drivers of your reserve in next several quarters?

Wyatt, Conference Call Moderator: Yes, Chris. We did add a little bit of a key factor as it relates to investor office and the office slide. We now have that reserve at about 3.8% for that sector now.

Palmer Proctor, CEO, Merus Bancorp: And then in general, given just the low level of charge offs and overall low level of criticized, does that give you flexibility to simply grow into the reserve? Or do you think

Wyatt, Conference Call Moderator: of it any differently? No. We we do. I mean, having a robust reserve, which we do, you know, hit at the $1.62, we would we consider that among top of class amongst our peer. And you look at it through two different lenses.

One, the offensive strategy and that we grow into it, which is what we want to do. But if you turn into a credit cycle, it’s there as a defensive position as well.

Palmer Proctor, CEO, Merus Bancorp: Great. Thanks for taking all the questions this morning.

Wyatt, Conference Call Moderator: Thank you, Chris. Our next question will come from Manuel Navas with D. A. Davidson. Please go ahead.

Hey. Getting back to that kind of long term NIM range of $3.63 65, you’re gonna sit above it for some time. What could bring that range higher? Is this just like a steeper yield curve, success on deposits? Just kind of some the drivers there.

Nicole Stokes, CFO, Merus Bancorp: Also, it’s the all of the above. So, yes, I think that, you know, success on the deposit side would absolutely drive it higher. If the Fed cuts and we are able to reduce the deposit side as we typically would or historically would, that would give us a little margin pop. And then also right now, all of our growth is margin accretive right now. When you look at the second quarter, where our loan coming on rate, loan production rate versus our deposit production rate, all of our growth is margin accretive.

But I’ll tell you for this quarter, if you look at our loan rate of $6.76 kind of all in production and our interest bearing deposits were at $2.99. So that’s right at a three seventy seven. So what really is going to drive that is that growth in non interest bearing deposits. So if we get the growth in noninterest bearing deposits that brings down our total production of deposits, that’s really what could also kind of help the the margin there. But we are still proud to say that our growth is margin accretive at this point.

Wyatt, Conference Call Moderator: I was going to ask you about loan yields. I appreciate that kind of description of the marginal NIM. How are noninterest bearing pipelines right now? I know they’re lumpy. It’s hard to project, but just kind of some thoughts on that side of the deposit base.

Yes. I would tell you that they’re accelerating. It’s very similar. It kind of mirrors our loan production. And a lot of that, as I’ve mentioned earlier, is a tribute to our treasury management efforts in addition, obviously, to the bankers.

But we’re seeing more and more opportunities. And leading with deposits has really been helpful in our approach there, I think that’s really what’s driving the opportunities that we’re seeing as of recent. So I would tell you that we’re encouraged by what we’re seeing as we move into the second half of the year. I appreciate that. The securities yield increase, was there a, like, a onetime adjustment, anything securities, or is that just you’re adding those higher yielding securities this quarter?

Nicole Stokes, CFO, Merus Bancorp: That is adding our securities. So during the quarter, we got about 200,000,000 that came on at a $4.88, and we matured out about $260,000,000 that was at a $2.77.

Wyatt, Conference Call Moderator: Perfect. Perfect. I appreciate that. Thank you for the commentary. Sure.

This will conclude our question and answer session. I would like to turn the conference back over to Palmer Proctor for any closing remarks. Great. Thank you, Wyatt. I want to thank all of our teammates for another outstanding quarter.

We remain focused on producing top of class results, growing our tangible book value per share and maintaining our strong core deposit base. We are very well positioned to take advantage of future growth opportunities in our attractive Southeastern markets and we certainly appreciate your interest in Meris Bank. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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