Ameris Bancorp 2016 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. At March 31, 2016, the Bank operated 103 branches in Georgia, Alabama, Florida and South Carolina. The unaudited report covers the three months ended March 31, 2016, with comparisons to March 31, 2015 and December 31, 2015. Unless otherwise noted, amounts are in thousands.
On March 11, 2016, Ameris completed its acquisition of Jacksonville Bancorp, Inc. and its eight-branch Jacksonville Bank subsidiary. Consideration consisted of approximately $72.5 million of Ameris stock and $23.9 million of cash. The acquisition added approximately $401.1 million of loans at fair value, $401.4 million of deposits and $31.4 million of goodwill; purchase accounting remains subject to refinement.
Financial performance and condition
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Net interest income | $50.4 million | $38.8 million | 30% increase |
| Net interest income, tax equivalent | $51.2 million | $39.3 million | 30% increase |
| Provision for loan losses | $0.7 million | $1.1 million | 36% decrease |
| Noninterest income | $24.3 million | $17.6 million | 38% increase |
| Noninterest expense | $55.6 million | $40.8 million | 36% increase |
| Income before taxes | $18.4 million | $14.5 million | 27% increase |
| Net income | $12.3 million | $9.8 million | 26% increase |
| Diluted earnings per share | $0.37 | $0.32 | 16% increase |
Net interest margin on a tax-equivalent basis was 4.03%, compared with 4.39% in the prior-year quarter and 3.98% in the fourth quarter of 2015. The efficiency ratio was 74.41%, compared with 72.38% in Q1 2015. Return on average assets was 0.88% and return on average common equity was 9.14%.
- Total assets were $6.10 billion, up from $4.15 billion at March 31, 2015 and $5.59 billion at December 31, 2015.
- Total loans, net, were $4.42 billion, up from $2.87 billion year over year and $3.89 billion at year-end. Legacy loans were $2.53 billion; purchased non-covered loans were $1.13 billion; purchased loan pools were $656.7 million; and covered loans were $130.3 million.
- Total deposits were $5.23 billion, up from $3.48 billion year over year and $4.88 billion at year-end.
- Stockholders’ equity was $600.8 million, compared with $489.8 million a year earlier and $514.8 million at December 31, 2015.
- Cash and cash equivalents ended at $254.2 million, compared with $206.3 million a year earlier. Short-term investments were $107.4 million.
- Net cash provided by operating activities was $13.5 million. Investing activities used $100.8 million and financing activities used $49.0 million, producing a $136.3 million decrease in cash during the quarter.
- Other borrowings were $110.5 million, compared with $43.9 million a year earlier and $39.0 million at year-end. The Bank reported $309.4 million of available FHLB borrowing capacity, $432.0 million available at the Federal Reserve discount window and $4.0 million available under a revolving credit agreement.
- The Bank was considered well capitalized under all regulatory capital measurements. The consolidated leverage, CET1, core capital and total capital ratios were 8.49%, 8.71%, 10.22% and 10.66%, respectively.
Material changes versus the prior comparable period
- Growth was driven substantially by the 2015 acquisitions, the March 2016 Jacksonville Bancorp acquisition and organic loan growth. The acquisition-related increase in assets, deposits, goodwill and purchased loans materially affects year-over-year comparisons.
- Noninterest income benefited from higher service charges and mortgage banking activity. Mortgage production rose to $268.6 million from $188.3 million, while mortgage banking income increased to $10.2 million from $8.1 million.
- Noninterest expense increased by $14.8 million, including $6.4 million of merger and conversion charges related to Jacksonville Bancorp, compared with an immaterial amount in Q1 2015. Excluding the after-tax merger charges of approximately $4.2 million, management reported adjusted net income of $16.5 million, or $0.50 diluted EPS; this is a non-GAAP measure.
- The allowance for loan losses declined to $21.5 million from $21.9 million year over year, while the allowance-to-total-loans ratio declined to 0.85% from 1.09%, primarily because acquired loans are initially recorded at fair value without a carried-over allowance.
- Nonperforming assets excluding covered assets were $64.9 million, or 1.06% of total assets, compared with $84.3 million, or 2.03%, a year earlier. Nonaccrual legacy loans declined to $15.7 million from $20.8 million, while nonaccrual purchased non-covered loans increased to $19.2 million from $17.3 million.
- Commercial real estate represented 49% of total loans at March 31, 2016, up from 48% at year-end. Management reported actual exposures of 63% of risk-based capital for construction and development loans and 195% for commercial real estate, below internal limits of 100% and 300%.
Outlook, risks, contingencies and unusual items
Management stated that improving economic conditions and increased loan demand were expected to support interest income and consistent growth. It also identified additional potential deposit-cost savings, although the opportunity may be limited by already-low funding costs. No formal earnings or revenue guidance was provided.
- Net interest margin remains exposed to interest-rate changes, loan-yield compression and funding costs. Management’s stated risk limit is that net interest income should not decline by more than 5% under a 200-basis-point rate change over 24 months.
- The loan portfolio is concentrated in real estate, including commercial real estate. Economic downturns, changes in real estate values, interest rates, commodity prices, weather and local market conditions could increase credit losses.
- Purchased loans and loan pools require significant estimates regarding expected cash flows, accretion and credit deterioration. Fair values and purchase accounting for Jacksonville Bancorp remain preliminary and may change during the measurement period.
- FDIC loss-share support is declining. The FDIC loss-share receivable was $1.2 million, down from $23.3 million a year earlier, and the related clawback liability was $8.3 million.
- Off-balance-sheet exposures included $604.1 million of commitments to extend credit, $81.6 million of standby letters of credit and $135.3 million of mortgage interest-rate lock commitments.
- A former borrower obtained an approximately $2.9 million judgment against the Company in 2013. The matter was on appeal in South Carolina as of March 31, 2016. Management believed an adverse outcome was not probable and had recorded no reserve.
- Management stated that there were no material changes to the risk factors disclosed in the 2015 Form 10-K. Disclosure controls and procedures were reported effective.
Important facts for investors to verify
- Reconcile reported net income of $12.3 million with management’s adjusted net income of $16.5 million and confirm the treatment of the $6.4 million pretax merger and conversion charges.
- Assess the sustainability of earnings growth after separating acquisition effects, purchased-loan accretion and mortgage banking activity.
- Review Jacksonville Bancorp purchase accounting, including the $31.4 million goodwill balance, acquired loan marks and potential measurement-period adjustments.
- Monitor credit quality across legacy, purchased non-covered, purchased-pool and covered loans, including the $64.9 million of non-covered nonperforming assets and the $21.5 million allowance.
- Evaluate commercial real estate concentration, real estate collateral values and the impact of changing regional economic conditions.
- Confirm liquidity and capital capacity in light of the quarter’s $136.3 million cash decrease, $110.5 million of other borrowings and substantial loan commitments.
- Track the pending lender-liability appeal and the potential reduction or expiration of FDIC loss-share protection.