Ameris Bancorp 10-Q Summary
Business Context and Reporting Period
Ameris Bancorp is a Georgia-based financial holding company operating primarily through Ameris Bank. At September 30, 2016, the Bank operated 99 branches in Georgia, Alabama, Florida and South Carolina. The filing covers the unaudited three- and nine-month periods ended September 30, 2016, with comparisons to September 30, 2015 and, for balance-sheet items, December 31, 2015.
Financial Performance and Position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Net interest income | $57.1 million | $47.4 million | $162.1 million | $126.9 million |
| Noninterest income | $28.9 million | $25.0 million | $81.5 million | $63.2 million |
| Noninterest expense | $53.2 million | $48.4 million | $161.2 million | $146.1 million |
| Provision for loan losses | $0.8 million | $1.0 million | $2.4 million | $4.7 million |
| Net income | $21.6 million | $15.6 million | $53.9 million | $26.7 million |
| Diluted EPS | $0.61 | $0.48 | $1.56 | $0.84 |
| Tax-equivalent net interest margin | 3.99% | 4.07% | 4.01% | 4.18% |
| Return on average assets | 1.35% | 1.19% | 1.19% | 0.74% |
| Return on average common equity | 13.39% | 12.53% | 12.01% | 7.21% |
At September 30, 2016, total assets were $6.49 billion, compared with $5.59 billion at December 31, 2015 and $5.22 billion at September 30, 2015. Total loans, net, were $4.82 billion, including $3.09 billion of legacy loans, $1.07 billion of purchased non-covered loans, $624.9 million of purchased loan pools and $62.3 million of covered loans. Total deposits were $5.31 billion, and stockholders’ equity was $642.6 million.
Gross loans, including mortgage loans held for sale, increased to approximately $4.97 billion from $4.02 billion at December 31, 2015. Mortgage loans held for sale were $126.3 million. Mortgage banking production was $410.8 million in the third quarter, compared with $311.0 million in the prior-year quarter.
Nine-month cash flow from operating activities was negative $62.3 million, compared with negative $18.0 million in 2015. Investing activities used $399.4 million, primarily reflecting loan growth and securities purchases. Financing activities provided $285.1 million, including $339.5 million of borrowing proceeds. Cash and cash equivalents ended the period at $214.1 million, compared with $235.3 million at September 30, 2015.
Other borrowings increased to $373.5 million from $39.0 million at both December 31, 2015 and September 30, 2015. The Bank reported $661.5 million of available Federal Home Loan Bank borrowing capacity and $574.7 million available at the Federal Reserve discount window. The Bank was considered well capitalized under all regulatory capital measurements; its September 30, 2016 consolidated leverage, CET1, core and total capital ratios were 9.09%, 9.08%, 10.67% and 11.11%, respectively.
Material Changes Versus Prior Comparable Period
- Net income increased 38% in the third quarter and more than doubled for the first nine months, benefiting from loan growth, acquisitions, higher mortgage banking income and lower credit-resolution costs.
- Tax-equivalent net interest income increased 20.6% in the third quarter, although the net interest margin declined to 3.99% from 4.07% and the nine-month margin declined to 4.01% from 4.18%.
- Noninterest income increased primarily from service charges and mortgage banking activity. Mortgage banking income rose to $14.1 million in the quarter and $38.4 million year to date.
- Noninterest expense increased, including salaries and benefits, data processing and marketing costs. The nine-month increase also reflects the Jacksonville Bancorp acquisition and prior acquisitions.
- The company completed its acquisition of Jacksonville Bancorp on March 11, 2016, issuing 2.55 million shares valued at $72.5 million and paying $23.9 million in cash. Preliminary goodwill of $32.5 million was recorded.
- Legacy loan balances grew $684.2 million from December 31, 2015, while purchased non-covered loans increased $295.5 million. Covered loans declined $75.2 million, partly because $45.9 million transferred to purchased non-covered loans after loss-sharing coverage expired.
- Credit metrics generally improved. Total non-performing assets excluding covered assets were $59.9 million, or 0.92% of total assets, compared with $64.2 million, or 1.23%, at September 30, 2015. The allowance for loan losses was $23.0 million, or 0.47% of total loans, versus $22.5 million, or 0.61%.
- The common dividend increased to $0.10 per share in the third quarter from $0.05 in the prior-year quarter; dividends declared for the first nine months were $0.20 per share versus $0.15.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal earnings or revenue guidance. Management stated that improving economic conditions and increased loan demand were expected to support interest income. The company also stated that liquidity ratios were satisfactory and that it was aware of no events or trends likely to result in a material change in liquidity.
- Key risks include credit deterioration, real estate concentration, commercial real estate exposure, interest-rate changes, competition, regulatory developments, economic conditions, commodity prices and weather-related disruptions.
- Commercial real estate represented 48% of total loans at September 30, 2016. Construction and development loans were 9%, multifamily loans 2% and nonfarm nonresidential loans 37% of total loans.
- The company began purchasing consumer home-improvement loans during the third quarter. It committed to purchase $12.5 million per month until reaching an aggregate commitment of $150.0 million; $32.8 million had been purchased by September 30.
- The FDIC loss-share receivable became a net payable of $7.8 million at September 30, 2016, including a clawback liability. Covered assets and loss-sharing protections continue to decline as agreements expire.
- A former borrower’s lender-liability judgment of approximately $2.9 million was on appeal. Management believed an adverse outcome was not probable and recorded no reserve; an adverse change in assessment could require a future liability.
- Third-quarter 2016 contained no merger and conversion charges, while the comparable 2015 quarter included $446,000. Nine-month 2016 included $6.4 million of merger and conversion charges, and 2015 included $6.2 million plus $11.2 million of nonrecurring credit-resolution expenses.
- Management was evaluating the future effects of CECL, share-based payment, lease and revenue-recognition standards. The filing does not provide a clear quantified impact.
- On November 7, 2016, after quarter-end, the Bank entered into supplemental retirement arrangements providing an annual benefit of $250,000 for five years for the CEO under specified conditions and extending a $100,000 annual benefit for an executive officer.
Investor Verification Items
- Verify whether rapid loan and deposit growth can be funded without further increases in higher-cost borrowings and whether the 3.99% margin is sustainable.
- Assess the credit performance of purchased non-covered loans and out-of-market purchased mortgage pools, including the increase in purchased non-covered nonaccrual loans to $18.0 million.
- Review commercial real estate concentration, collateral values, criticized loans and allowance adequacy as economic and interest-rate conditions change.
- Track the expiration of FDIC loss-sharing agreements, the $7.8 million payable and the potential for additional clawback or credit costs.
- Evaluate the sustainability of mortgage production and gain-on-sale income, which materially contributed to noninterest revenue growth.
- Confirm the outcome of the $2.9 million lender-liability appeal and any future accounting impact.
- Review acquisition accounting for Jacksonville Bancorp, including preliminary fair-value adjustments, goodwill and subsequent integration performance.