Ameris Bancorp 10-Q Summary
Business Context and Reporting Period
Ameris Bancorp is an Atlanta-based financial holding company operating primarily through Ameris Bank. At March 31, 2021, the bank operated 165 branches across Georgia, Alabama, Florida, North Carolina and South Carolina. Reported results cover the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020; balance-sheet comparisons are primarily with December 31, 2020.
Key Financial Metrics
| Metric | Q1 2021 | Comparable / Prior Period |
|---|---|---|
| Net income | $125.0 million | $19.3 million in Q1 2020 |
| Diluted EPS | $1.79 | $0.28 in Q1 2020 |
| Adjusted net income | $115.7 million | $39.2 million in Q1 2020 |
| Adjusted diluted EPS | $1.66 | $0.56 in Q1 2020 |
| Net interest income | $165.0 million | $147.9 million in Q1 2020 |
| Net interest margin | 3.57% | 3.70% in Q1 2020 |
| Total noninterest income | $118.0 million | $54.4 million in Q1 2020 |
| Mortgage banking activity | $98.5 million | $35.3 million in Q1 2020 |
| Total noninterest expense | $148.8 million | $138.1 million in Q1 2020 |
| Return on average assets | 2.44% | 0.43% in Q1 2020 |
| Return on average equity | 18.80% | 3.16% in Q1 2020 |
| Total assets | $21.43 billion | $20.44 billion at December 31, 2020 |
| Loans held for investment | $14.60 billion | $14.48 billion at December 31, 2020 |
| Loans held for sale | $1.51 billion | $1.17 billion at December 31, 2020 |
| Total deposits | $17.88 billion | $16.96 billion at December 31, 2020 |
| Cash and cash equivalents | $2.76 billion | $2.12 billion at December 31, 2020 |
| Allowance for loan losses | $178.6 million, or 1.22% of loans | $199.4 million, or 1.38%, at December 31, 2020 |
Net interest income increased despite a lower margin because average interest-earning assets grew 16.4% to $18.86 billion and funding costs declined materially. Total interest income decreased to $179.1 million on a taxable-equivalent basis from $183.8 million, while total interest-bearing liability costs fell to 0.46% from 1.24%.
Cash flow from operating activities was negative $464.6 million, primarily reflecting $2.34 billion of mortgage-loan originations held for sale, partly offset by $1.82 billion of mortgage-loan sale proceeds. Investing activities provided $199.6 million, and financing activities provided $906.8 million, mainly from a $918.1 million increase in deposits. Cash and cash equivalents increased $641.8 million during the quarter.
Other borrowings were $425.2 million, and subordinated deferrable interest debentures were $124.8 million at March 31, 2021. The bank had $3.55 billion of available FHLB borrowing capacity, $2.05 billion available at the Federal Reserve discount window, and $127.0 million of federal-funds purchase lines. The bank was considered well capitalized, with a 10.58% Tier 1 leverage ratio, 13.20% CET1 ratio and 14.31% total capital ratio.
Material Changes Versus Prior Periods
- Net income rose 547% year over year, driven primarily by higher mortgage banking income, lower credit-loss provisions and substantially lower deposit and borrowing costs.
- Mortgage production increased to $2.63 billion from $1.36 billion, and the mortgage open pipeline ended at $2.33 billion versus $2.43 billion at March 31, 2020 and $2.00 billion at December 31, 2020.
- Total noninterest income increased 116.9%, while salaries and employee benefits increased 26.4% due primarily to variable compensation tied to mortgage production.
- The provision for credit losses was a benefit of $28.6 million versus an expense of $41.0 million in Q1 2020. Management attributed the release primarily to improved forecast unemployment, home-price and commercial-real-estate assumptions.
- Nonaccrual loans declined to $71.2 million from $76.5 million, and total nonperforming assets declined to $86.0 million from $97.2 million. Net charge-offs were $4.3 million, or 0.12% of average loans, versus $4.4 million, or 0.14%, in Q1 2020.
- COVID-19-related loan deferrals declined to $235.4 million, or 1.6% of loans, from $332.8 million, or 2.3%, at December 31, 2020.
- Commercial real estate remained a significant concentration at $5.45 billion, or 37% of total loans, including 24% in nonfarm nonresidential loans excluding owner-occupied properties.
- Accumulated other comprehensive income declined to $26.1 million from $33.5 million, primarily due to lower unrealized gains on available-for-sale securities.
Outlook, Commentary, Risks and Unusual Items
The filing provides no formal earnings or revenue guidance. Management indicated that first-quarter results are not necessarily indicative of full-year results and emphasized that mortgage production, deposit pricing, interest rates and credit performance will affect future results.
Q1 2021 included a $10.6 million pre-tax servicing-right recovery, a $603,000 gain on bank-owned life insurance proceeds and a $264,000 gain on the sale of premises. Q1 2020 included a $22.2 million servicing-right impairment, $1.4 million of SEC and DOJ investigation expenses, $548,000 of pandemic and natural-disaster expenses, $540,000 of merger and conversion charges and a $470,000 loss on premises sales. Adjusted results exclude these items.
COVID-19 continues to expose the company to potential increases in delinquencies, problem assets, foreclosures, collateral losses and credit-loss provisions, particularly in hotels, restaurants, retail and other economically sensitive industries. Other principal risks include commercial real estate concentration, changing interest rates and net interest margin pressure, mortgage-volume and gain-on-sale volatility, LIBOR transition, regulatory changes, competition, liquidity and market conditions.
The SEC staff notified the company on March 29, 2021 that its investigation had concluded and that it did not intend to recommend enforcement action against the company. The filing states that the company remains unable to assure the outcome or potential impact of the related United States Attorney’s Office investigation.
The company is evaluating reference-rate-reform accounting guidance and has established a LIBOR transition working committee. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important Facts for Investors to Verify
- Whether the unusually strong mortgage banking results and $10.6 million servicing-right recovery are sustainable or represent temporary benefits.
- The effect of lower loan yields, a 3.57% net interest margin and future deposit-cost changes on net interest income.
- Whether the $28.6 million credit-provision release remains appropriate as COVID-19 relief programs end and deferrals mature.
- Credit performance in the $5.45 billion commercial real estate portfolio and the $87.1 million troubled-debt-restructuring balance.
- The resolution and potential consequences of the ongoing United States Attorney’s Office investigation.
- Future mortgage origination volumes, gain-on-sale spreads, servicing-right valuations and prepayment assumptions.
- Progress and financial effects of the LIBOR and broader reference-rate transition.
- Whether the reported liquidity resources, borrowing capacity and capital ratios remain satisfactory under adverse market and credit conditions.