Ameris Bancorp 2021 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, 2021, the Bank operated 165 branches across Georgia, Alabama, Florida, North Carolina and South Carolina. Reported results cover the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. The financial statements are unaudited.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Change |
|---|---|---|---|
| Net interest income | $161.9 million | $163.8 million | Down 1.2% |
| Noninterest income | $89.2 million | $121.0 million | Down 26.2% |
| Provision for credit losses | $0.1 million | $88.2 million | Substantial decrease |
| Noninterest expense | $135.8 million | $155.8 million | Down 12.8% |
| Net income | $88.3 million | $32.2 million | Up 174.1% |
| Diluted EPS | $1.27 | $0.47 | Up $0.80 |
| Net interest margin | 3.34% | 3.83% | Down 49 basis points |
| Return on average assets | 1.64% | 0.67% | Improved |
| Return on average equity | 12.66% | 5.23% | Improved |
- For the six months ended June 30, 2021, net income was $213.3 million, or $3.06 diluted EPS, versus $51.6 million, or $0.74 diluted EPS, in the prior-year period.
- Six-month net interest income increased 4.8% to $326.8 million on a GAAP basis, while the tax-equivalent net interest margin declined to 3.45% from 3.77%.
- Six-month noninterest income increased 18.2% to $207.2 million, led by mortgage-related activities of $168.7 million.
- Total assets increased to $21.89 billion from $20.44 billion at December 31, 2020. Loans, net of the allowance, were $14.61 billion, and total deposits were $18.26 billion.
- Gross loans held for investment increased 2.1% from year-end to $14.78 billion. Loans held for sale were $1.21 billion.
- Cash and cash equivalents increased to $3.30 billion from $2.12 billion at year-end. The loans-to-deposits ratio was 80.96% at June 30, 2021.
- Allowance for credit losses on loans was $175.1 million, or 1.18% of total loans, compared with $199.4 million, or 1.38%, at December 31, 2020.
- Net charge-offs were $6.9 million for the first six months, or 0.10% of average loans on an annualized basis, compared with $13.6 million, or 0.20%, in the prior-year period.
- Six-month operating cash flow was negative $92.2 million, principally reflecting mortgage loan originations and related working-capital movements. Financing activities provided $1.28 billion, primarily from deposit growth, and cash increased by $1.19 billion.
- Other borrowings were $425.3 million and subordinated deferrable interest debentures were $125.3 million. The Bank had $3.35 billion of FHLB borrowing capacity and $2.25 billion available through the Federal Reserve discount window.
- The Bank was considered well capitalized. At June 30, 2021, the Bank's CET1, Tier 1 capital, total capital and Tier 1 leverage ratios were 13.38%, 13.38%, 14.46% and 10.65%, respectively.
Material changes versus comparable periods
- Quarterly earnings benefited from the near elimination of credit-loss provisioning: the provision was $0.1 million in Q2 2021 versus $88.2 million in Q2 2020. The six-month provision was a negative $28.4 million, reflecting a release, versus $129.2 million in 2020.
- Mortgage banking income declined 33.1% in Q2 to $70.2 million as production decreased to $2.39 billion from $2.67 billion and gain-on-sale spread declined to 2.77% from 3.53%. For the six-month period, mortgage income increased 20.3% to $168.7 million.
- Mortgage servicing-right recoveries materially improved results. The Company recorded a $0.7 million recovery in Q2 and an $11.4 million recovery for the first six months, compared with impairment charges of $8.0 million and $30.2 million, respectively, in the prior-year periods.
- Net interest margin contracted because average earning assets shifted toward lower-yielding cash and securities, despite lower deposit and borrowing costs. Average interest-earning assets grew 13.0% in Q2 and 14.7% for the six-month period.
- Noninterest expense decreased in Q2, while six-month expense decreased 3.2%. The changes reflected lower variable mortgage compensation, occupancy costs, FDIC insurance, legal and professional fees, COVID-19 costs and intangible amortization. No merger and conversion charges were recorded in 2021.
- Credit quality improved: nonperforming assets declined to $70.8 million, or 0.32% of total assets, from $97.2 million, or 0.48%, at year-end. Nonaccrual loans declined to $59.9 million from $76.5 million, and OREO declined to $5.8 million from $11.9 million.
- COVID-19-related payment deferrals declined to $127.7 million, or 0.9% of total loans, from $332.8 million, or 2.3%, at December 31, 2020.
- Commercial real estate concentration increased to 39% of total loans from 36% at year-end, while construction and development loans were 65% of total risk-based capital versus an internal limit of 100%.
Outlook, commentary, risks and unusual items
The filing does not provide formal earnings or revenue guidance. Management attributed the credit-loss release to improved economic forecasts, including better projected unemployment, home prices and commercial real estate prices. Management also reported that liquidity was satisfactory and was aware of no events or trends likely to cause a material change in liquidity.
- COVID-19 remains a material uncertainty, particularly for borrowers in hotels, restaurants, retail and other economically sensitive industries. A resurgence or new variant, reduced government support, weaker collateral values or slower economic recovery could increase delinquencies, foreclosures and credit-loss provisions.
- Interest-rate risk could affect net interest income, deposit pricing, loan yields, mortgage production and the value of mortgage-related hedges. Management's stated risk tolerance is for net interest income to change no more than 20% under a 200-basis-point rate movement over 24 months.
- Mortgage banking results are sensitive to production volumes, gain-on-sale spreads, interest rates, prepayment speeds and mortgage servicing-right valuations. At June 30, 2021, mortgage loans serviced for others totaled $15.49 billion, and the MSR carrying value was $191.7 million.
- The filing identifies LIBOR transition as an ongoing matter. Ameris established a working committee and was evaluating the effects of reference-rate reform accounting guidance.
- The Company had $3.55 billion of commitments to extend credit, $262.6 million of unused home-equity lines, $32.3 million of standby letters of credit and $674.5 million of mortgage interest-rate-lock commitments.
- Management did not believe pending legal or regulatory matters would have a material adverse effect based on current information, but stated that a future resolution could materially affect a particular period.
- Q2 adjusted net income was $87.5 million, or $1.25 adjusted diluted EPS, compared with $42.4 million, or $0.61, in Q2 2020. Six-month adjusted net income was $203.3 million, or $2.91 adjusted diluted EPS, versus $81.6 million, or $1.18, excluding listed unusual items.
Important facts for investors to verify
- Whether the substantial credit-loss release is sustainable or primarily reflects favorable model forecasts and improving economic assumptions.
- Future net interest margin trends as excess liquidity remains elevated and interest rates, deposit balances and loan pricing change.
- Mortgage banking production, gain-on-sale spreads, pipeline levels and the sensitivity of mortgage servicing rights to prepayments and discount rates.
- Credit performance in the 39% CRE concentration, particularly commercial and farmland real estate and construction and development loans.
- The pace at which the remaining COVID-19 deferrals and troubled debt restructurings perform after payment relief expires.
- Liquidity and capital levels after considering loan commitments, pledged collateral, subordinated debt and potential changes in regulatory capital treatment.
- The effect of LIBOR replacement on variable-rate subordinated notes, loan contracts, hedging instruments and related accounting.