Ameris Bancorp 2020 Form 10-K Summary
Business Context and Reporting Period
Ameris Bancorp is a financial holding company operating primarily through Ameris Bank, a full-service regional bank serving selected markets in Georgia, Alabama, Florida and South Carolina. The filing covers the fiscal year ended December 31, 2020; fourth-quarter results are also disclosed. The Company operated 164 full-service banking offices and had 2,671 full-time-equivalent employees at year-end.
| Year-end balance sheet | December 31, 2020 |
|---|---|
| Total assets | $20.44 billion |
| Loans, gross | $14.48 billion |
| Loans, net | $14.28 billion |
| Total deposits | $16.96 billion |
| Shareholders’ equity | $2.65 billion |
Financial Performance and Key Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $1.08 billion | $703.3 million | +54.2% |
| Net interest income | $637.8 million | $505.2 million | +26.2% |
| Noninterest income | $446.5 million | $198.1 million | +125.4% |
| Provision for credit losses | $145.4 million | $19.8 million | Material increase |
| Noninterest expense | $598.6 million | $471.9 million | +26.8% |
| Net income | $262.0 million | $161.4 million | +62.3% |
| Diluted EPS | $3.77 | $2.75 | +37.1% |
| Net interest margin | 3.70% | 3.88% | Down 18 bps |
| Efficiency ratio | 55.21% | 67.11% | Improved |
| Return on average assets | 1.36% | 1.10% | Improved |
| Return on average common equity | 10.35% | 8.19% | Improved |
Fourth-quarter 2020 net income was $94.3 million, or $1.36 diluted EPS, compared with $61.2 million, or $0.88 diluted EPS, in the fourth quarter of 2019.
Mortgage banking was the principal growth driver. Mortgage banking income increased to $374.1 million from $119.4 million, while retail mortgage production increased to $9.8 billion from $4.3 billion. Management reported adjusted net income of $300.5 million, adjusted return on average assets of 1.56%, and adjusted return on average tangible common equity of 19.77%; these are non-GAAP measures.
Liquidity, Capital, Debt and Cash Flow
- Cash and cash equivalents increased to $2.12 billion from $621.8 million.
- Operating activities generated $798.4 million of cash, compared with $940.2 million used in 2019. Investing activities used $1.20 billion, primarily reflecting net loan growth of $1.73 billion. Financing activities provided $1.90 billion, including a $2.93 billion increase in deposits.
- The loan-to-deposit ratio declined to 85.39% from 91.38%. Noninterest-bearing deposits represented 36.27% of total deposits at year-end, compared with 29.94% in 2019.
- Other borrowings totaled $425.2 million, down from $1.40 billion. Subordinated deferrable interest debentures totaled $124.3 million.
- In September 2020, Ameris issued $110.0 million of 3.875% fixed-to-floating subordinated notes due 2030. Total subordinated notes payable, including assumed bank debt, were approximately $376.2 million at year-end.
- The Bank had $3.08 billion of available FHLB borrowing capacity and $1.90 billion available at the Federal Reserve discount window. It also maintained $127.0 million of federal funds purchasing capacity.
- At December 31, 2020, consolidated CET1, Tier 1, total capital and Tier 1 leverage ratios were 11.14%, 11.14%, 15.27% and 8.99%, respectively. The Bank was categorized as well capitalized, with corresponding ratios of 12.87%, 12.87%, 14.19% and 10.39%.
Material Changes Versus the Prior Comparable Period
- Organic loan growth was $1.66 billion, or 13.0%; growth excluding PPP loans was $834.8 million, or 6.5%. PPP loans totaled $827.4 million at December 31, 2020.
- Deposits increased 20.9%, while the mix improved toward lower-cost, noninterest-bearing deposits.
- The Federal Reserve’s low-rate environment reduced asset yields and compressed net interest margin, but lower funding costs and higher earning-asset balances increased net interest income.
- Ameris adopted CECL on January 1, 2020. The adoption increased the loan allowance by $78.7 million, increased the allowance for unfunded commitments by $12.7 million and reduced retained earnings by $56.7 million, net of tax effects.
- The allowance for credit losses on loans increased to $199.4 million, or 1.38% of loans, from $38.2 million, or 0.30%. The provision for credit losses rose to $145.4 million, primarily due to COVID-19-related economic forecasts and loan growth.
- Net charge-offs increased to 0.31% of average loans from 0.10%. A fourth-quarter sale of selected hotel loans generated $17.2 million of charge-offs; excluding that sale, the ratio was 0.18%.
- Nonperforming assets declined to $97.2 million, or 0.48% of total assets, from $101.3 million, or 0.56%. Other real estate owned declined to $11.9 million from $19.5 million.
- Merger and conversion charges declined sharply to $1.4 million from $73.1 million, principally because the Fidelity integration was largely completed.
- The 2019 Fidelity acquisition affects comparability, including the addition of 62 branches and significant changes in asset, deposit, expense and revenue levels.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal quantitative earnings or revenue guidance. Management expects to continue expanding in existing markets and pursuing acquisitions consistent with available capital and management capacity.
- COVID-19 remained the principal near-term uncertainty. More than 11,000 temporary loan modifications totaling approximately $2.4 billion were granted during 2020. At year-end, 1,395 loans totaling $332.8 million, or 2.3% of the loan portfolio, remained in deferral.
- Management’s credit-loss estimates depend on economic forecasts, collateral values, unemployment, GDP, risk-rating migration and model assumptions. Further deterioration could require additional provisions.
- Real estate represented approximately 67.0% of the loan portfolio. Construction and development loans equaled 74.2% of capital, while commercial real estate excluding owner-occupied loans equaled 240.8% of capital.
- The Company faces interest-rate risk. Management described the one-year position as asset sensitive and estimated that a parallel 100-basis-point increase could increase projected 12-month net interest income by 4.5%; a 100-basis-point decline could reduce it by 1.3%.
- LIBOR transition affects approximately $2.51 billion of loans, $304.4 million of debt securities, $88.8 million of investment securities and certain derivatives. The filing does not identify a final replacement framework for every affected contract.
- Mortgage banking activity benefited from unusually high production and favorable pricing but is exposed to refinancing, prepayment, servicing-right valuation and interest-rate risks. The Company recorded $40.1 million of servicing-right impairment in 2020.
- The Company incurred $3.1 million of expenses related to an SEC and DOJ investigation concerning US Premium Finance, loan sales and related disclosures. The investigation remained unresolved, and the Company could not assure its outcome or potential impact.
- Pending litigation involving former US Premium Finance-related parties was considered by management and counsel unlikely to have a material adverse effect, although the filing states that an adverse outcome remains possible for a particular period.
- The Company stated that a material weakness in internal control over financial reporting identified at December 31, 2019 was remediated during 2020. Management and the independent auditor concluded that internal control was effective at December 31, 2020.
Most Important Facts for Investors to Verify
- Whether COVID-19 deferrals, PPP forgiveness and economic normalization lead to additional delinquencies, charge-offs or CECL provisions.
- The sustainability of mortgage banking production, gain-on-sale margins and servicing-right valuations after the unusually strong 2020 mortgage market.
- Exposure to commercial real estate, hotels and other economically sensitive borrowers, including collateral values and concentrations.
- The status and potential financial, legal or reputational consequences of the SEC and DOJ investigation and related litigation.
- The Company’s progress in transitioning loans, debt, derivatives and securities away from LIBOR.
- Whether deposit growth and liquidity remain strong while maintaining the reported capital ratios and well-capitalized Bank status.
- The extent to which reported growth and prior-period comparability are affected by the Fidelity acquisition and other acquisition-related accounting items.