Ameris Bancorp: Q1 2017 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, 2017, the Bank operated 97 branches in Georgia, Alabama, Florida and South Carolina and reported five segments: Banking, Retail Mortgage, Warehouse Lending, SBA and Premium Finance. The filing presents unaudited results for the three months ended March 31, 2017, compared with the three months ended March 31, 2016, and balance-sheet data compared with December 31, 2016.
Key financial metrics
| Metric | Q1 2017 | Comparable period or prior date |
|---|---|---|
| Total interest income | $67.1 million | $54.6 million in Q1 2016 |
| Net interest income | $60.6 million | $50.4 million in Q1 2016 |
| Noninterest income | $25.7 million | $24.3 million in Q1 2016 |
| Provision for loan losses | $1.8 million | $0.7 million in Q1 2016 |
| Noninterest expense | $53.1 million | $55.6 million in Q1 2016 |
| Net income | $21.2 million | $12.3 million in Q1 2016 |
| Diluted EPS | $0.59 | $0.37 in Q1 2016 |
| Tax-equivalent net interest margin | 3.97% | 4.03% in Q1 2016; 3.95% in Q4 2016 |
| Return on average assets | 1.24% | 0.88% in Q1 2016 |
| Return on average common equity | 12.33% | 9.14% in Q1 2016 |
| Total assets | $7.09 billion | $6.89 billion at December 31, 2016 |
| Total deposits | $5.64 billion | $5.58 billion at December 31, 2016 |
| Loans, net of unearned income | $5.32 billion | $5.26 billion at December 31, 2016 |
| Shareholders’ equity | $758.2 million | $646.4 million at December 31, 2016 |
| Cash and cash equivalents | $359.2 million | $254.2 million at March 31, 2016 |
The filing does not present a conventional industrial-company revenue measure. For a bank, total interest income plus noninterest income was $92.8 million in Q1 2017, compared with $78.8 million on a pro forma basis for Q1 2016.
Cash flow, liquidity and debt
- Operating activities generated $13.3 million of cash, compared with $14.3 million in Q1 2016.
- Investing activities used $24.4 million, substantially less than the $101.6 million used in Q1 2016.
- Financing activities provided $172.0 million, driven by deposit growth, borrowings and the common-stock offering.
- Cash and cash equivalents increased by $160.8 million during the quarter.
- Other borrowings were $525.7 million, including $73.8 million net carrying value of subordinated notes issued in March 2017. Securities sold under repurchase agreements were $40.4 million.
- Available liquidity included $766.4 million of FHLB borrowing capacity, $60.0 million under a regional-bank revolving credit agreement and $594.7 million available through the Federal Reserve discount window.
- The Bank was considered well capitalized under all regulatory capital measurements. The March 31, 2017 consolidated and Bank Tier 1 leverage ratios were 9.92% and 10.79%, respectively.
Material changes versus prior comparable periods
- Net income increased 71.7% year over year, while diluted EPS increased to $0.59 from $0.37.
- Net interest income increased 20.1%, primarily from a 24.3% increase in average interest-earning assets to $6.35 billion. The net interest margin declined from 4.03% to 3.97% as funding costs increased.
- Legacy loans increased 52.6% on average year over year and ended the quarter at $3.79 billion. Total loans, including purchased loans and loan pools, increased to $5.32 billion.
- Noninterest income increased 5.8%, including higher deposit service charges and mortgage banking income. Mortgage production increased to $311.8 million from $268.6 million, although the gain-on-sale spread declined to 3.45% from 4.10%.
- Noninterest expense decreased 4.5%, mainly because merger and conversion charges fell to $0.4 million from $6.4 million related to the 2016 Jacksonville Bancorp acquisition. Salaries, data processing and other expenses increased.
- The allowance for loan losses rose to $25.3 million from $23.9 million, while net charge-offs were $0.5 million versus $0.3 million in Q1 2016. The allowance was 0.47% of total loans.
- Nonperforming assets were $65.0 million, or 0.92% of total assets, compared with $64.5 million, or 0.94%, at December 31, 2016.
- Shareholders’ equity increased substantially following a $88.7 million net common-stock offering and a $75.0 million subordinated-note offering. The Company contributed $110.0 million to the Bank in March.
Guidance, outlook, risks and unusual items
- Management stated that improving economic conditions and increased loan demand were expected to support consistent interest income; no formal earnings or revenue guidance was provided.
- Key risks include credit deterioration, economic and real-estate conditions, interest-rate changes, funding costs, competition, regulatory developments, acquisitions and catastrophic or weather-related events.
- The loan portfolio includes a significant concentration in commercial real estate: $1.65 billion, or 31% of total loans, at March 31, 2017. Management’s internal concentration limits were not exceeded.
- The Bank remains subject to a December 2016 regulatory consent order concerning its Bank Secrecy Act compliance program. Required actions include enhanced oversight, risk assessment, internal controls, training, staffing, independent testing and review of historical account activity.
- A former borrower has a lender-liability claim involving an approximately $2.9 million judgment currently on appeal in South Carolina. Management believes an adverse outcome is not probable and has recorded no reserve.
- FDIC loss-sharing balances remain subject to estimates of future collections and reimbursements. The FDIC loss-sharing payable was $6.5 million at March 31, 2017.
- The Company adopted ASU 2016-09 effective January 1, 2017 without a material impact. It expects a one-time cumulative equity adjustment when the current expected credit loss standard becomes effective, although the amount is not provided.
Important facts for investors to verify
- Whether loan growth, particularly commercial real estate and premium-finance lending, remains consistent with underwriting standards and concentration limits.
- Trends in nonaccrual loans, criticized loans, troubled debt restructurings, charge-offs and the adequacy of the allowance for loan losses.
- The effect of rising deposit and other funding costs on the 3.97% net interest margin.
- Progress under the Bank Secrecy Act consent order and any related compliance, staffing or remediation costs.
- Future accretion income and runoff from purchased loans and purchased loan pools.
- The outcome of the pending lender-liability appeal and any potential future reserve requirement.
- Liquidity and refinancing needs associated with short-term FHLB advances and other borrowings.
- Future effects of the CECL standard, including the expected initial allowance adjustment and ongoing provision volatility.