Ameris Bancorp 2022 Q2 Form 10-Q Summary
Business context and reporting period
Ameris Bancorp is an Atlanta-based financial holding company operating primarily through Ameris Bank. At June 30, 2022, the Bank operated 164 branches across Georgia, Alabama, Florida, North Carolina and South Carolina. Reported segments include Banking, Retail Mortgage, Warehouse Lending, SBA and Premium Finance. This unaudited filing covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods, and the balance sheet is compared with December 31, 2021.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total interest income | $202.6 million | $173.8 million | $385.9 million | $351.7 million |
| Net interest income | $191.4 million | $161.9 million | $363.9 million | $326.8 million |
| Provision for credit losses | $14.9 million | $0.1 million | $21.2 million | $(28.4) million |
| Noninterest income | $83.8 million | $89.2 million | $170.8 million | $207.2 million |
| Noninterest expense | $142.2 million | $135.8 million | $286.0 million | $284.6 million |
| Net income | $90.1 million | $88.3 million | $171.8 million | $213.3 million |
| Diluted EPS | $1.30 | $1.27 | $2.47 | $3.06 |
| Net interest margin | 3.66% | 3.34% | 3.51% | 3.45% |
| Return on average assets | 1.54% | 1.64% | 1.48% | 2.03% |
| Return on average equity | 11.87% | 12.66% | 11.47% | 15.66% |
Q2 adjusted net income, excluding servicing-right recovery and bank-premises gains, was $81.5 million, or $1.18 per diluted share, versus $87.5 million, or $1.25 per diluted share, in Q2 2021. Six-month adjusted net income, excluding specified servicing-right recoveries, merger and conversion charges, and other unusual items, was $156.5 million, or $2.25 per diluted share, versus $203.3 million, or $2.91 per diluted share.
Balance sheet, credit and liquidity
- Total assets were $23.69 billion at June 30, 2022, compared with $23.86 billion at December 31, 2021.
- Loans held for investment increased 10.6% to $17.56 billion from $15.87 billion, primarily from organic growth. Gross loans including loans held for sale were $18.12 billion.
- Total deposits were $19.68 billion, broadly unchanged from $19.67 billion at year-end. Noninterest-bearing deposits increased to $8.26 billion from $7.77 billion, while interest-bearing deposits declined to $11.42 billion from $11.89 billion.
- Cash and cash equivalents declined to $2.31 billion from $4.06 billion, mainly reflecting loan growth, securities purchases and repayment of borrowings.
- Other borrowings declined to $425.6 million from $739.9 million. The Bank reported $4.19 billion of available FHLB borrowing capacity and $2.21 billion available through the Federal Reserve discount window.
- Loan commitments to extend credit were $5.42 billion, unused home-equity lines were $303.4 million, standby letters of credit were $30.3 million and mortgage interest-rate-lock commitments were $320.3 million.
- The loan-to-deposit ratio increased to 89.21% from 80.72% at year-end. Management stated that liquidity ratios were satisfactory and that it was aware of no events or trends likely to cause a material liquidity change.
- The Bank was considered well capitalized. At June 30, 2022, the Bank reported a 10.30% Tier 1 leverage ratio, 11.54% CET1 ratio, 11.54% Tier 1 capital ratio and 12.61% total capital ratio.
Material changes versus prior comparable periods
- Net interest income improved: Q2 net interest income increased 18.2%, and the tax-equivalent net interest margin expanded 32 basis points to 3.66%, supported by earning-asset growth and disciplined deposit pricing.
- Mortgage activity weakened: Q2 mortgage banking income fell 16.3% to $58.8 million. Mortgage production declined to $1.73 billion from $2.39 billion, and the retail mortgage pipeline fell to $832.3 million from $1.75 billion at June 30, 2021.
- Six-month earnings declined: Net income fell 19.5% and diluted EPS fell from $3.06 to $2.47, primarily because of lower mortgage banking income, the prior-year reserve release, and higher credit-loss provisions.
- Credit provisions normalized upward: The six-month provision changed from a $28.4 million release in 2021 to a $21.2 million expense in 2022, largely reflecting loan growth.
- Credit quality deteriorated modestly: Nonaccrual loans increased 44.2% to $122.9 million, and total nonperforming assets increased to $132.4 million, or 0.56% of assets, from $101.8 million, or 0.43%, at year-end. Management attributed the increase primarily to rebooked GNMA loans and a $10.4 million commercial real estate loan.
- Allowance coverage declined: The allowance for credit losses increased to $172.6 million, but declined to 0.98% of loans from 1.06% at year-end. Six-month net charge-offs declined to $5.4 million from $6.9 million.
- Balboa acquisition effects: The December 2021 Balboa Capital acquisition contributed fee income and expenses, increased intangible-asset amortization and occupancy costs, and resulted in $977,000 of six-month merger and conversion charges.
- Securities losses affected equity: Accumulated other comprehensive income moved from a $15.6 million gain at year-end to a $12.6 million loss at June 30, 2022, primarily due to $28.2 million of after-tax unrealized losses on available-for-sale securities. Management identified only $88,000 as credit-related impairment.
Guidance, outlook, commentary and risks
- The filing does not provide formal quantitative earnings or revenue guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Management expects continued sensitivity to interest rates, net interest margin, loan growth, deposit pricing, mortgage production and credit performance. Its stated risk policy seeks to limit the change in net interest income to no more than 20% under selected 200-basis-point rate changes over a 24-month period.
- Commercial real estate represented approximately 40% of total loans, including $1.75 billion of construction and development loans and $4.54 billion of nonfarm, nonresidential loans excluding owner-occupied properties. This concentration exposes the Company to real estate demand, collateral values, refinancing and construction risks.
- COVID-19 remains a risk to borrowers in hotels, restaurants and retail businesses and could increase delinquencies, problem assets, foreclosures, credit-loss provisions and collateral or intangible-asset impairments.
- Other material risks include economic and unemployment conditions, changing interest rates, competition, regulatory and legislative changes, LIBOR transition, acquisition integration and realization of expected synergies, natural disasters and geopolitical events.
- The Company had $41.8 million of troubled debt restructurings at June 30, 2022, down from $76.6 million at year-end, with no commitments to lend additional funds to those borrowers.
- Pending accounting matters include evaluation of ASU 2022-02 relating to troubled debt restructurings and ASU 2020-04 and ASU 2021-01 relating to reference-rate reform. The filing does not state a quantified expected impact.
- Legal and regulatory matters arise in the ordinary course. Management does not currently believe they will materially affect consolidated results, but acknowledges that an adverse resolution could be material for a particular period.
- The common-stock repurchase authorization runs through October 31, 2022. As of June 30, 2022, $41.7 million, representing 952,910 shares, had been repurchased under the program.
Most important facts for investors to verify
- Whether mortgage production and the open pipeline continue to decline as rates rise, and the resulting effect on mortgage banking revenue and compensation expense.
- Whether loan growth remains strong without a further increase in nonaccrual loans, nonperforming assets or credit-loss provisions.
- The sustainability of the 3.66% quarterly net interest margin as interest rates and deposit competition evolve.
- The effect of the 40% commercial real estate concentration and related collateral values on future credit costs.
- Liquidity and capital trends as the loan-to-deposit ratio rises and cash balances decline.
- The valuation sensitivity of mortgage servicing rights, which totaled $262.1 million, to prepayment speeds and discount rates.
- The ongoing financial contribution, integration costs and expense burden of the Balboa Capital acquisition.
- Future impacts of unrealized securities losses, LIBOR transition, CECL-related estimates and adoption of ASU 2022-02.