Ameris Bancorp 2019 Q1 Form 10-Q Summary
Business context and reporting period
Ameris Bancorp is a financial holding company headquartered in Moultrie, Georgia, operating primarily through Ameris Bank. At March 31, 2019, the Bank operated 114 branches across Georgia, Alabama, Florida and South Carolina. The filing covers the unaudited three months ended March 31, 2019, compared primarily with the three months ended March 31, 2018 and December 31, 2018.
Key financial metrics
| Metric | Q1 2019 | Comparable period |
|---|---|---|
| Net interest income | $99.4 million | $68.8 million in Q1 2018 |
| Net interest margin, tax equivalent | 3.95% | 3.92% in Q1 2018 |
| Noninterest income | $30.8 million | $26.5 million in Q1 2018 |
| Provision for loan losses | $3.4 million | $1.8 million in Q1 2018 |
| Noninterest expense | $75.4 million | $59.1 million in Q1 2018 |
| Net income | $39.9 million | $26.7 million in Q1 2018 |
| Diluted earnings per share | $0.84 | $0.70 in Q1 2018 |
| Return on average assets | 1.42% | 1.38% in Q1 2018 |
| Return on average common equity | 10.95% | 12.73% in Q1 2018 |
| Adjusted net income | $42.6 million, or $0.90 diluted EPS | $27.8 million, or $0.73 diluted EPS |
Total assets were $11.66 billion at March 31, 2019, compared with $11.44 billion at December 31, 2018. Loans, net of unearned income, were $8.48 billion, including $5.76 billion of legacy loans, $2.47 billion of purchased loans and $253.7 million of purchased loan pools. Total deposits were $9.80 billion, and shareholders’ equity was $1.50 billion.
Cash and cash equivalents increased to $857.0 million from $679.5 million at year-end. Operating activities provided $59.7 million of cash, investing activities used $11.6 million, and financing activities provided $129.4 million. Other borrowings were $151.5 million, subordinated deferrable interest debentures were $89.5 million, and securities sold under agreements to repurchase were $4.3 million. The Bank had $2.04 billion available through Federal Home Loan Bank lines, $1.11 billion available through the Federal Reserve discount window and $30.0 million available under a revolving credit arrangement.
Credit metrics remained relatively stable. Total nonperforming assets were $62.4 million, or 0.54% of total assets, versus $63.0 million, or 0.55%, at December 31, 2018. The allowance for loan losses was $28.7 million, or 0.34% of total loans. Legacy net charge-offs were $3.9 million, or 0.27% of average legacy loans on an annualized basis, compared with 0.14% in Q1 2018.
Material changes versus prior comparable period
- Net income increased 49.7%, while diluted EPS increased from $0.70 to $0.84. Results benefited substantially from the 2018 Atlantic and Hamilton acquisitions and related balance-sheet growth.
- Tax-equivalent net interest income increased 43.9% to $100.5 million, driven by a 43.0% increase in average interest-earning assets to $10.32 billion. The net interest margin increased three basis points.
- Average legacy loans increased 19.7% to $5.87 billion. However, purchased loans and purchased loan pools declined during the quarter due primarily to portfolio paydowns.
- Noninterest income increased 16.3%, supported by higher service charges, mortgage banking activity and other noninterest income. Mortgage production was approximately $356.0 million, similar to Q1 2018, while the gain-on-sale spread improved to 3.18% from 2.62%.
- Noninterest expense increased 27.6%, reflecting acquired employees and branches, higher data-processing costs, greater intangible amortization and higher merger-related expenses. Full-time equivalent employees increased 21.2% year over year to 1,766.
- The provision for loan losses increased to $3.4 million from $1.8 million, and net charge-offs increased to $3.6 million from $1.4 million.
- Noninterest-bearing deposits increased to $2.75 billion from $2.52 billion at December 31, 2018, while interest-bearing deposits declined to $7.05 billion from $7.13 billion.
Guidance, outlook, commentary, risks and unusual items
Management stated that improving economic conditions and increased loan demand were expected to support consistent interest income. The filing does not provide formal earnings or revenue guidance. Management noted that the results for the quarter are not necessarily indicative of the full year.
Q1 2019 included $2.1 million of merger and conversion charges, $245,000 of branch-consolidation restructuring charges, $919,000 of losses on premises sales and an $89,000 reduction related to the financial impact of hurricanes. Excluding these items, adjusted net income was $42.6 million, or $0.90 per diluted share.
Ameris had agreed to acquire Fidelity Southern Corporation in a stock merger with an estimated purchase price of $750.7 million. Fidelity operated 70 banking locations and reported $4.73 billion of assets, $3.92 billion of gross loans and $3.98 billion of deposits at December 31, 2018. The transaction was expected to close in Q2 2019 and remained subject to customary conditions and regulatory approvals.
The Company adopted the new lease accounting standard in Q1 2019, recognizing a $27.3 million right-of-use asset, a $29.7 million lease liability and a $276,000 cumulative reduction to retained earnings. The Company expects to adopt the current expected credit loss standard on January 1, 2020 and anticipates a one-time cumulative effect adjustment to equity and the allowance for loan losses; the amount was not yet clear from the filing.
Since surpassing $10 billion in assets after the Hamilton acquisition, Ameris is subject to additional regulatory, risk-management, stress-testing, FDIC assessment and consumer-finance requirements. Management also expects lower debit-card interchange revenue due to regulatory fee caps and higher compliance-related expenses.
Key risks include interest-rate and funding-cost pressure, credit deterioration, concentrations in commercial real estate, dependence on real estate collateral, integration and execution risk from acquisitions, regulatory requirements, market volatility and the potential impact of weather events. Commercial real estate represented approximately 34% of total loans, excluding owner-occupied properties. Management reported no pending legal proceedings expected to have a material adverse effect and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Completion, regulatory approval, accounting treatment and integration costs of the Fidelity transaction.
- The eventual January 1, 2020 CECL impact on equity, allowance levels, provision expense and capital ratios.
- Whether higher deposit costs and brokered-deposit usage pressure the 3.95% net interest margin.
- Trends in legacy net charge-offs, criticized loans, troubled debt restructurings and commercial real estate exposure.
- The sustainability of mortgage banking production and the improved 3.18% gain-on-sale spread.
- Incremental expenses and revenue effects from exceeding $10 billion in assets, including interchange-fee limitations and enhanced regulatory oversight.
- Ameris Bank’s regulatory capital strength: it was classified as well capitalized, with a 10.69% Tier 1 leverage ratio, 13.12% CET1 ratio, 13.12% Tier 1 capital ratio and 13.45% total capital ratio at March 31, 2019.
- The $100 million share-repurchase authorization had not been used for open-market repurchases as of March 31, 2019; 26,134 shares acquired during the quarter were surrendered for employee tax-withholding obligations.