Ameris Bancorp 2020 Q1 SEC Filing Summary
Business context and reporting period
Ameris Bancorp is an Atlanta-based financial holding company operating principally through Ameris Bank. At March 31, 2020, the Bank operated 170 branches across Georgia, Florida, Alabama and South Carolina. The unaudited Form 10-Q covers the three months ended March 31, 2020, with comparisons to the three months ended March 31, 2019 and the December 31, 2019 balance sheet.
Key financial metrics
| Metric | Q1 2020 | Comparable period or date |
|---|---|---|
| Net interest income | $147.9 million | $99.4 million in Q1 2019 |
| Net interest margin, tax equivalent | 3.70% | 3.95% in Q1 2019 |
| Noninterest income | $54.4 million | $30.8 million in Q1 2019 |
| Provision for credit losses | $41.0 million | $3.4 million in Q1 2019 |
| Noninterest expense | $138.1 million | $75.4 million in Q1 2019 |
| Net income | $19.3 million | $39.9 million in Q1 2019 |
| Diluted earnings per share | $0.28 | $0.84 in Q1 2019 |
| Return on average assets | 0.43% | 1.42% in Q1 2019 |
| Return on average equity | 3.16% | 10.95% in Q1 2019 |
| Net cash provided by operating activities | $301.0 million | $59.7 million in Q1 2019 |
Average earning assets increased 57.0% to $16.2 billion, primarily reflecting the July 2019 Fidelity Southern acquisition, organic loan growth and increased mortgage production. Average loans were $12.7 billion and average deposits were $13.7 billion.
At March 31, 2020, total assets were $18.2 billion, loans were $13.1 billion, loans held for sale were $1.4 billion, deposits were $13.8 billion and shareholders’ equity was $2.4 billion. Cash and cash equivalents totaled $652.2 million. Other borrowings were $1.54 billion, compared with $1.40 billion at December 31, 2019; subordinated deferrable interest debentures were $122.9 million.
The allowance for credit losses on loans was $149.5 million, or 1.14% of loans, compared with $38.2 million, or 0.30%, at December 31, 2019. Nonperforming assets were $111.7 million, or 0.61% of total assets, compared with $101.3 million, or 0.56%, at year-end 2019. Net charge-offs were $4.4 million, or 0.14% of average loans on an annualized basis.
Regulatory capital remained strong. Ameris Bank was considered well capitalized under all regulatory capital measures, including a 9.89% Tier 1 leverage ratio, 11.45% CET1 ratio, 11.45% Tier 1 capital ratio and 12.41% total capital ratio at March 31, 2020. The Company and Bank elected five-year regulatory capital transition relief for CECL.
Material changes versus prior comparable period
- Net income declined 51.6%, and diluted EPS declined from $0.84 to $0.28, primarily because of higher credit-loss provisions, servicing-right impairment, higher operating expenses and pandemic-related items.
- Net interest income increased 48.8%, supported by the Fidelity acquisition and substantial growth in earning assets, but the tax-equivalent net interest margin contracted 25 basis points to 3.70%.
- Noninterest income increased 76.7%, led by mortgage banking activity, which rose to $35.3 million from $14.7 million. Mortgage production increased to $1.36 billion from $356.0 million.
- Noninterest expense increased 83.0%, reflecting the Fidelity acquisition, 913 additional full-time equivalent employees, higher mortgage-related incentive compensation, expanded branch operations and higher legal, audit and other costs.
- Loans increased 2.2% from year-end 2019 to $13.09 billion, primarily due to municipal lending. Loans held for sale declined from $1.66 billion to $1.40 billion.
- Deposits declined 1.3% from year-end 2019, while cash and cash equivalents increased from $621.8 million to $652.2 million and other borrowings increased by $144.7 million.
Guidance, outlook, risks and unusual items
The filing does not provide quantitative earnings guidance. Management cautions that first-quarter results are not necessarily indicative of full-year results and that COVID-19 creates significant uncertainty.
Ameris adopted CECL on January 1, 2020. The adoption increased the loan allowance by $78.7 million, increased the allowance for unfunded commitments by $12.7 million and reduced retained earnings by $56.7 million after tax. COVID-19-related economic forecasts drove an additional $41.0 million provision for credit losses in the quarter, including $37.0 million for loans and $4.0 million for unfunded commitments.
Management reported $147.8 million of COVID-19-related loan modifications during the quarter, primarily payment deferrals or interest-only periods. Through May 4, 2020, the Company had approved approximately 7,200 Paycheck Protection Program loans totaling $1.1 billion. Through April 30, 2020, it had approved approximately 7,700 COVID-19-related payment modifications with outstanding balances of $2.5 billion.
Material Q1 2020 adjustment items included a $22.2 million servicing-right impairment, $1.4 million of expenses related to SEC and DOJ investigations, $548,000 of COVID-19 expenses, $540,000 of merger and conversion charges and $470,000 of losses on premises sales. Excluding disclosed adjustment items, adjusted net income was $39.2 million, or $0.56 per diluted share, versus $42.6 million, or $0.90, in Q1 2019.
COVID-19 risks include higher delinquencies, problem assets, foreclosures and credit-loss provisions; declining collateral values; reduced demand; pressure on liquidity; and further net interest margin compression following the Federal Reserve’s rate cuts. The Company also has significant commercial real estate exposure: non-owner-occupied CRE represented $4.49 billion, or 34% of loans, at March 31, 2020.
Disclosure controls and procedures were not effective because a material weakness in internal control over financial reporting continued. The weakness involved general-ledger reconciliations arising after the Fidelity core-platform conversion, particularly items related to the acquired indirect auto portfolio. Management described remediation involving additional training, more detailed procedures, increased accounting personnel and system-interface review.
Liquidity was described as satisfactory. Available borrowing capacity included approximately $1.64 billion through the FHLB and $1.47 billion through the Federal Reserve discount window. The Company reported no known trends expected to cause a material change in liquidity, but COVID-19 could materially alter that assessment.
Important facts for investors to verify
- Whether COVID-19 loan modifications convert into higher delinquencies, nonaccrual loans, charge-offs or additional CECL provisions.
- The performance and eventual forgiveness, repayment and funding economics of the $1.1 billion PPP loan portfolio.
- The sustainability of elevated mortgage banking revenue and the impact of mortgage servicing-right valuations.
- Progress in remediating the material weakness in financial-reporting controls and any resulting restatements or control deficiencies.
- Changes in net interest margin, deposit costs, funding costs and reliance on FHLB or Federal Reserve borrowings.
- Credit performance in commercial real estate, premium finance, indirect auto and other portfolios affected by the pandemic.
- The status and potential financial impact of the disclosed SEC and DOJ investigations; the filing does not provide a clear estimate of any potential ultimate liability.
- Whether capital ratios remain comfortably above regulatory minimums after applying CECL transition relief and absorbing potential future credit losses.