Ameris Bancorp 2020 Q3 Form 10-Q Summary
Business Context and Reporting Period
Ameris Bancorp is an Atlanta-based financial holding company operating primarily through Ameris Bank, which had 170 branches in Georgia, Alabama, Florida and South Carolina at September 30, 2020. Reported results cover the three and nine months ended September 30, 2020; interim financial statements are unaudited. The company reports Banking, Retail Mortgage, Warehouse Lending, SBA and Premium Finance segments.
The period reflects the continuing integration of the July 2019 Fidelity Southern Corporation acquisition, adoption of the CECL credit-loss model on January 1, 2020, and operating impacts from the COVID-19 pandemic and the SBA Paycheck Protection Program.
Key Financial Metrics
| Metric | Q3 2020 | Q3 2019 | Change |
|---|---|---|---|
| Net interest income | $162.5 million | $148.8 million | 9.3% increase |
| Provision for credit losses | $17.7 million | $6.0 million | Increase |
| Noninterest income | $159.0 million | $77.0 million | 106.5% increase |
| Noninterest expense | $153.7 million | $192.7 million | 20.2% decrease |
| Net income | $116.1 million | $21.4 million | Increase |
| Diluted EPS | $1.67 | $0.31 | Increase |
| Tax-equivalent net interest margin | 3.64% | 3.84% | 20 basis-point decrease |
| Return on average assets | 2.33% | 0.49% | Increase |
| Return on average common equity | 18.27% | 3.49% | Increase |
| Metric | Nine Months 2020 | Nine Months 2019 | Change |
|---|---|---|---|
| Net interest income | $474.3 million | $349.8 million | 35.6% increase |
| Provision for credit losses | $146.9 million | $14.1 million | Increase |
| Noninterest income | $334.4 million | $143.0 million | 133.8% increase |
| Noninterest expense | $447.5 million | $349.4 million | 28.1% increase |
| Net income | $167.7 million | $100.2 million | 67.4% increase |
| Diluted EPS | $2.42 | $1.83 | Increase |
| Tax-equivalent net interest margin | 3.72% | 3.89% | 17 basis-point decrease |
- Total assets were $19.87 billion at September 30, 2020, compared with $18.24 billion at December 31, 2019.
- Total loans increased 16.6% to $14.94 billion from $12.82 billion, driven primarily by approximately $1.10 billion of PPP loans and organic growth. Loans held for sale were $1.41 billion, down from $1.66 billion.
- Total deposits increased to $16.06 billion from $14.03 billion, including noninterest-bearing deposits of $5.91 billion versus $4.20 billion.
- Cash and cash equivalents were $751.8 million, compared with $621.8 million at year-end 2019.
- Other borrowings declined to $875.3 million from $1.40 billion. The Bank reported $2.91 billion of available FHLB borrowing capacity and $2.00 billion available through the Federal Reserve discount window.
- Shareholders’ equity was $2.56 billion, compared with $2.47 billion at December 31, 2019. Book value per common share was $36.91 and tangible book value per common share was $22.46.
- Nine-month operating cash flow was $379.4 million, compared with cash used in operations of $587.3 million in the prior-year period. Investing activities used $1.71 billion, while financing activities provided $1.46 billion, producing a $129.9 million net increase in cash.
Material Changes Versus Prior Comparable Period
- Mortgage banking activity increased to $138.6 million in Q3 and $278.9 million for the first nine months, compared with $53.0 million and $86.2 million, respectively. Mortgage production was $2.92 billion in Q3 and $6.95 billion year to date.
- Q3 net interest income benefited from 15.8% growth in average interest-earning assets and lower funding costs, but the net interest margin contracted as asset yields declined in the low-rate environment.
- Q3 noninterest expense fell largely because 2019 included $65.2 million of Fidelity-related merger and conversion charges. For the first nine months, expense increased because of the acquisition, higher mortgage commissions, staffing, FDIC insurance, servicing costs and other production-related costs.
- CECL adoption increased the loan allowance by $78.7 million, increased the unfunded-commitment allowance by $12.7 million and reduced retained earnings by $56.7 million, net of deferred tax effects.
- The allowance for credit losses on loans rose to $231.9 million, or 1.55% of loans, from $38.2 million, or 0.30%, at December 31, 2019. Nine-month net charge-offs were $17.1 million versus $7.4 million.
- Nonaccrual loans increased 83.9% to $138.2 million, total nonperforming assets increased to $163.4 million from $101.3 million, and nonperforming assets as a percentage of total assets rose to 0.82% from 0.56%.
- Mortgage servicing rights were impaired by $30.2 million during the first nine months, compared with no impairment in the prior-year period. Total servicing rights were $120.6 million at September 30, 2020.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal earnings or financial guidance. Management states that future results remain highly uncertain because of the COVID-19 pandemic, economic conditions, interest rates, credit performance and the duration of government support programs.
- At September 30, $648.5 million of loans, or 4.3% of total loans, remained in COVID-19-related payment deferral. Approximately $2.71 billion of loans had been modified under the disaster relief program during the first nine months.
- COVID-19-related credit risks include higher delinquencies, nonperforming assets, foreclosures, collateral losses and future allowance requirements, particularly for hotels, restaurants, retail and other affected businesses.
- The commercial real estate portfolio was $5.11 billion, or 34% of total loans, excluding owner-occupied properties. This concentration increases sensitivity to real estate values, property cash flows and refinancing conditions.
- PPP loans carry low fixed rates and depend on SBA guarantees and potential forgiveness. The company disclosed risks relating to eligibility, compliance, fraud, litigation and possible denial or reduction of SBA guarantees. Ameris is a defendant in an agent-fee-related PPP lawsuit.
- Q3 unusual items included $268,000 of expenses related to SEC and DOJ investigations, $470,000 of pandemic expenses, $412,000 of servicing-right impairment, $50,000 of restructuring charges and a $44,000 merger and conversion credit. Nine-month unusual items included $30.6 million of servicing-right impairment, $3.0 million of SEC and DOJ investigation expenses and $3.1 million of pandemic expenses.
- Adjusted net income was $116.9 million, or $1.69 per diluted share, in Q3 and $198.5 million, or $2.86 per diluted share, for the first nine months. These are non-GAAP measures and exclude specified unusual items.
- Goodwill totaled $928.0 million. Interim testing identified no impairment, but management noted that valuation depends on significant assumptions and could change with market or economic conditions.
- Disclosure controls and internal control over financial reporting were not effective because of a continuing material weakness involving general ledger reconciliations following the Fidelity core-platform conversion. Management is implementing remediation, but the weakness was not yet considered remediated.
- The Bank was considered well capitalized under all regulatory capital measures. At September 30, the Bank’s Tier 1 leverage, CET1, Tier 1 and total capital ratios were 10.27%, 12.51%, 12.51% and 13.94%, respectively.
Important Facts for Investors to Verify
- Whether COVID-19 deferrals convert into delinquencies, nonaccrual loans, charge-offs or additional troubled debt restructurings after relief periods expire.
- The adequacy of the $231.9 million loan allowance under changing unemployment, GDP, real estate and hospitality assumptions.
- The sustainability of unusually strong mortgage production, gain-on-sale margins and the $2.71 billion mortgage pipeline.
- The effect of low interest rates and PPP loan runoff on asset yields, net interest margin and future earnings.
- The status and potential financial impact of the SEC, DOJ and PPP-related legal matters.
- Progress in remediating the material weakness in financial reporting controls and whether subsequent filings report effective controls.
- Future goodwill and mortgage servicing-right valuations, including sensitivity to interest rates, prepayment speeds and economic conditions.
- Remaining capacity and terms under the share repurchase program, which was extended through October 31, 2021 after the reporting date.