Ameris Bancorp 2018 First-Quarter Form 10-Q Summary
Business context and reporting period
Ameris Bancorp is a Georgia-based financial holding company operating primarily through Ameris Bank. As of March 31, 2018, the bank operated 97 branches across Georgia, Alabama, Florida and South Carolina. The filing covers the three months ended March 31, 2018, with comparisons to the three months ended March 31, 2017 and balance-sheet comparisons to December 31, 2017. The interim financial statements are unaudited.
Key financial metrics
| Metric | Q1 2018 | Comparable period or date |
|---|---|---|
| Net interest income | $68.8 million | $60.6 million in Q1 2017 |
| Net interest income, tax-equivalent | $69.8 million | $62.1 million in Q1 2017 |
| Noninterest income | $26.5 million | $25.7 million in Q1 2017 |
| Noninterest expense | $59.1 million | $53.1 million in Q1 2017 |
| Provision for loan losses | $1.8 million | $1.8 million in Q1 2017 |
| Net income | $26.7 million | $21.2 million in Q1 2017 |
| Diluted earnings per share | $0.70 | $0.59 in Q1 2017 |
| Adjusted diluted EPS | $0.73 | $0.60 in Q1 2017 |
| Return on average assets | 1.38% | 1.24% in Q1 2017 |
| Return on average common equity | 12.73% | 12.33% in Q1 2017 |
| Tax-equivalent net interest margin | 3.92% | 3.97% in Q1 2017 |
| Total assets | $8.02 billion | $7.86 billion at December 31, 2017 |
| Total loans, net of unearned income | $6.19 billion | $6.05 billion at December 31, 2017 |
| Total deposits | $6.45 billion | $6.63 billion at December 31, 2017 |
| Cash and cash equivalents | $334.9 million | $330.7 million at December 31, 2017 |
| Other borrowings | $555.5 million | $250.6 million at December 31, 2017 |
| Shareholders’ equity | $868.9 million | $804.5 million at December 31, 2017 |
Operating cash flow was $48.5 million, compared with $13.3 million in Q1 2017. Investing activities used $158.3 million, including $121.9 million for securities purchases, $134.1 million for net growth in loans excluding purchased loans, and $21.4 million of net cash paid in the US Premium Finance acquisition. Financing activities provided $114.0 million, primarily reflecting $305.0 million of net proceeds from other borrowings, partly offset by a $179.7 million decrease in deposits.
Material changes versus prior comparable periods
- Net income increased 26.0% and diluted EPS increased 18.6%, benefiting from higher net interest income, lower income taxes and business growth.
- Average interest-earning assets increased 13.7% to $7.22 billion. Average legacy loans increased 33.3% to $4.90 billion.
- Net interest margin declined to 3.92% from 3.97%, as funding costs increased. The average cost of interest-bearing liabilities rose to 0.84% from 0.57%.
- Mortgage banking income increased 6.1% to $11.9 million, while mortgage production increased to $356.1 million from $311.8 million. The gain-on-sale spread declined to 2.62% from 3.45%.
- Noninterest expense increased 11.3%, principally from higher salaries and employee benefits, incentive compensation, staffing for premium finance and equipment finance, and investments in the Bank Secrecy Act compliance function.
- The effective tax rate declined to 22.4% from 32.6%, primarily because of the Tax Cuts and Jobs Act.
- Legacy loans increased $195.5 million from year-end, while purchased loans declined $43.0 million and purchased loan pools declined $8.7 million.
- Nonperforming assets totaled $48.8 million, or approximately 0.61% of total assets, compared with $53.1 million, or 0.68%, at December 31, 2017. The narrative contains one inconsistent reference stating 0.68% at March 31, 2018; the detailed table supports approximately 0.61%.
Guidance, outlook, risks and unusual items
Management stated that improving economic conditions and increased loan demand were expected to support consistent interest income. The filing provides no formal earnings or revenue guidance. Results for the quarter are not necessarily indicative of full-year results.
- Ameris completed the acquisition of the remaining 70% of US Premium Finance Holding Company on January 31, 2018. Total purchase consideration was $83.0 million, including $21.4 million of cash, $55.9 million of Ameris shares and $5.7 million of estimated contingent consideration. The entire purchase price was initially recorded as goodwill pending final allocation.
- The company expected the Atlantic Coast Financial transaction, with an estimated purchase price of $145.0 million, to close in May 2018. The Hamilton State Bancshares transaction, with an estimated purchase price of $405.7 million, was expected to close in the third quarter of 2018, subject to approvals.
- Merger and conversion charges were $835,000, and losses on the sale of premises were $583,000. Excluding these items, adjusted net income was $27.8 million, or $0.73 per diluted share.
- Investment securities had $16.4 million of gross unrealized losses, primarily related to mortgage-backed securities. Management considered the losses temporary and did not identify other-than-temporary impairment.
- Commercial real estate represented 31% of total loans, excluding owner-occupied exposure as defined by the company’s methodology. Management identified real estate conditions, economic downturns, interest rates, competition, regulatory developments, weather events and acquisition execution as significant risks.
- The allowance for loan losses increased to $26.2 million, or 0.42% of total loans. Net charge-offs were $1.4 million, compared with $506,000 in Q1 2017; legacy net charge-offs were $1.7 million, or 0.14% of average legacy loans.
- At March 31, 2018, the bank was considered well capitalized under all regulatory capital measures. The bank’s CET1, Tier 1 leverage and total capital ratios were 12.48%, 10.57% and 12.89%, respectively.
- Liquidity was described as satisfactory. Available borrowing included $665.0 million through the Federal Home Loan Bank, $30.0 million under a revolving credit arrangement, and $732.7 million through the Federal Reserve discount window. On April 25, 2018, the revolving credit commitment was increased to $100.0 million.
- Off-balance-sheet commitments included $1.10 billion of commitments to extend credit, $153.8 million of mortgage interest-rate lock commitments and $97.0 million of mortgage forward contracts with positive fair value.
- The company disclosed no material pending legal proceedings and no material changes to the risk factors in its 2017 Form 10-K.
Most important facts for investors to verify
- Completion timing, consideration and integration risks for the Atlantic Coast and Hamilton acquisitions.
- Final purchase-accounting allocation for US Premium Finance and the potential $5.8 million earn-out.
- Whether loan growth can continue without deterioration in commercial real estate, residential real estate, consumer and premium-finance credit quality.
- The effect of rising deposit and wholesale funding costs on the 3.92% net interest margin.
- Trends in net charge-offs, nonaccrual loans, criticized loans, troubled debt restructurings and the adequacy of the $26.2 million allowance.
- The impact of unrealized securities losses and interest-rate changes on accumulated other comprehensive income and regulatory capital.
- The accuracy of the filing’s inconsistent narrative reference to the March 31, 2018 nonperforming-asset ratio; the detailed figures indicate approximately 0.61%.