Ameris Bancorp 2017 Form 10-K Summary
Business context and reporting period
Ameris Bancorp is a Georgia-based financial holding company whose primary subsidiary, Ameris Bank, provides retail and commercial banking, mortgage banking, warehouse lending, SBA lending and commercial insurance-premium financing. Operations are concentrated in Georgia, Florida, Alabama and South Carolina through 97 banking offices. The filing covers the fiscal year ended December 31, 2017, with unaudited fourth-quarter comparisons.
At year-end, Ameris reported approximately $7.86 billion of assets, $6.24 billion of total loans, $6.63 billion of deposits and $804.5 million of shareholders’ equity.
Financial performance and condition
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Total revenue | $364.6 million | Not clearly provided in the selected data | +12.1% |
| Net interest income | $260.1 million | $219.4 million | +18.6% |
| Noninterest income | $104.5 million | $105.8 million | -1.3% |
| Provision for loan losses | $8.4 million | $4.1 million | Higher |
| Noninterest expense | $231.9 million | $215.8 million | +7.5% |
| Net income | $73.5 million | $72.1 million | +2.0% |
| Diluted EPS | $1.98 | $2.08 | -4.8% |
| Net interest margin | 3.95% | 3.99% | -4 basis points |
| Efficiency ratio | 63.62% | 66.38% | Improved |
| Return on average assets | 1.00% | 1.17% | Lower |
| Return on average common equity | 9.55% | 11.75% | Lower |
Net interest income benefited from substantial asset and loan growth, while higher funding costs reduced the net interest margin. Deposit costs increased to 0.34% from 0.24%. Excluding purchase-accounting accretion, management reported that net interest margin increased to 3.79% from 3.74%.
- Loan growth: Total loans, including purchased loans and loan pools, were $6.05 billion, up from $5.26 billion. Organic legacy loan growth was $941.0 million, or 20.3%.
- Deposit growth: Deposits increased 18.8% to $6.63 billion. Noninterest-bearing deposits grew 12.9% and represented 26.8% of total deposits.
- Fee businesses: Net income from retail mortgage, warehouse lending, SBA and premium-finance operations increased 44.0% to $26.4 million. Mortgage banking income was essentially flat at $48.5 million.
- Credit quality: Nonaccrual loans declined to $29.6 million from approximately $41.1 million. Nonperforming assets were $53.1 million, or 0.68% of total assets, versus $64.5 million, or 0.94%, in 2016. The filing contains one apparent year-label error stating the 0.68% ratio was at December 31, 2016; the MD&A comparison supports 2017 as the correct year.
- Loss provisioning: Net charge-offs increased to $6.5 million from $1.2 million, while the allowance for loan losses increased to $25.8 million. The allowance was 0.43% of total loans and 0.44% of legacy loans.
- Capital: Consolidated total risk-based capital, Tier 1 risk-based capital, CET1 and leverage ratios were 13.14%, 11.58%, 10.29% and 9.71%, respectively. Ameris Bank was classified as well capitalized.
Fourth-quarter 2017
| Metric | Q4 2017 | Q4 2016 |
|---|---|---|
| Net interest income | $69.5 million | $57.3 million |
| Provision for loan losses | $2.5 million | $1.7 million |
| Noninterest income | $23.6 million | $24.3 million |
| Noninterest expense | $58.9 million | $54.7 million |
| Income tax expense | $22.1 million | $7.0 million |
| Net income | $9.2 million | $18.2 million |
| Diluted EPS | $0.24 | $0.52 |
Fourth-quarter earnings were materially reduced by approximately $13.6 million of additional income tax expense from remeasuring deferred tax assets and liabilities following the 2017 Tax Cuts and Jobs Act.
Cash flow, debt and liquidity
- Cash and cash equivalents increased to $330.7 million from $198.4 million.
- Net cash used in operating activities was $62.6 million; net cash used in investing activities was $666.9 million, primarily reflecting loan growth; and net cash provided by financing activities was $861.7 million, principally from deposit growth and borrowings.
- Other borrowings were $250.6 million, down from $492.3 million. The balance included $150.0 million of FHLB advances and $73.8 million of subordinated notes.
- Ameris issued $75.0 million of 5.75% fixed-to-floating subordinated notes due 2027 and completed a $93.6 million common-stock offering, generating approximately $88.7 million of net proceeds.
- Trust preferred and related junior subordinated debt had a net carrying value of $85.6 million.
- FHLB borrowing capacity was approximately $1.06 billion; Federal Reserve discount-window borrowing capacity was approximately $726.6 million; and $30.0 million was available under a regional-bank revolving credit agreement.
- The loans-to-deposits ratio was 91.25%. Off-balance-sheet commitments totaled approximately $1.31 billion, including $1.11 billion of commitments to extend credit and $11.4 million of standby letters of credit.
Material changes versus the prior comparable period
- Assets increased 14.0%, loans expanded substantially and deposits increased 18.8%, reflecting continued balance-sheet growth.
- Net interest income increased 18.6%, but interest expense increased 73.8% as funding balances and deposit costs rose.
- Net income increased only modestly because of higher provision expense, higher operating costs and the tax-law-related deferred-tax remeasurement charge. Diluted EPS declined because of both the charge and a larger share count.
- Noninterest expense included $14.3 million related to the new premium-finance division, $5.2 million of compliance-related charges, $915,000 of merger-related charges, and $410,000 of Hurricane Irma charges.
- The FDIC consent order related to Bank Secrecy Act compliance weaknesses was terminated on December 11, 2017.
- The company’s common dividend increased from $0.30 per share in 2016 to $0.40 per share in 2017, or $0.10 per quarter.
Outlook, transactions, risks and unusual items
- No formal earnings or financial guidance is provided in the filing. Management continues to emphasize organic growth, expansion in existing markets and an acquisition-oriented strategy.
- After year-end, Ameris agreed to acquire Atlantic Coast Financial Corporation for an estimated $145.0 million, with closing expected in the second quarter of 2018 subject to shareholder and regulatory approvals.
- Ameris also agreed to acquire Hamilton State Bancshares for an estimated $405.7 million, with closing expected in the third quarter of 2018. Hamilton reported $1.79 billion of assets, $1.30 billion of gross loans and $1.55 billion of deposits at December 31, 2017.
- Ameris completed the acquisition of the remaining 70% of US Premium Finance on January 31, 2018 for $8.92 million in cash and 830,301 shares, with potential additional earn-out payments of up to approximately $5.83 million. Initial purchase accounting was incomplete at filing.
- If both pending bank mergers close, the combined company is expected to exceed $10 billion in assets, potentially triggering additional stress testing, CFPB oversight, FDIC assessment changes and debit-card interchange-fee limits.
- Key risks include rising funding costs and interest-rate sensitivity, real-estate and commercial-real-estate concentrations, credit losses, geographic concentration in the Southeast, acquisition integration, regulatory changes, cybersecurity, mortgage-market disruption and natural disasters.
- The company is mildly liability-sensitive over a one-year horizon; management’s model projected a slight decline in 12-month net interest income under a 100-basis-point rate increase.
- Management reported no pending or threatened legal proceedings expected to have a material adverse effect. A previously reported $2.9 million lender-liability judgment was reversed on appeal, and the case was concluded in Ameris’s favor.
Important facts for investors to verify
- Reconcile the reported $13.6 million tax remeasurement charge and assess normalized earnings and effective tax rate; the filing reports a 40.8% effective rate versus approximately 29.9% excluding the charge.
- Review the sustainability and credit performance of the rapid loan growth, particularly commercial real estate, construction and development, premium-finance and consumer home-improvement loans.
- Confirm the allowance methodology and potential impact of the upcoming CECL accounting standard, including the expected one-time adjustment when adopted.
- Evaluate deposit pricing, brokered deposits of $228.6 million and the effect of rising interest rates on the 3.95% net interest margin.
- Assess funding needs, subordinated debt and trust-preferred obligations in connection with the Atlantic and Hamilton acquisitions.
- Verify regulatory approvals, closing conditions, purchase-price allocations and integration costs for the pending acquisitions.
- Monitor whether the combined company exceeds $10 billion in assets and quantify the resulting regulatory and interchange-revenue effects.
- Review the filing’s inconsistent year reference for the 0.68% nonperforming-assets ratio and confirm the figure against the audited financial statements.