Ameris Bancorp 2018 Form 10-K Summary
Business context and reporting period
Ameris Bancorp is a financial holding company whose principal subsidiary, Ameris Bank, provides retail and commercial banking, mortgage banking, warehouse lending, SBA lending and premium-finance services. Its 125 banking offices are concentrated in Georgia, Florida, Alabama and South Carolina. This filing covers the fiscal year ended December 31, 2018, with quarterly information for the fourth quarter of 2018.
At year-end, Ameris reported approximately $11.44 billion of assets, $8.62 billion of total loans, $9.65 billion of deposits and $1.46 billion of shareholders’ equity. The Hamilton acquisition caused the Company and Bank to exceed $10 billion in assets during June 2018, triggering additional regulatory requirements.
Financial performance and condition
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Total assets | $11.44 billion | $7.86 billion | +45.6% |
| Total loans, including purchased loans and pools | $8.51 billion | $6.05 billion | +40.8% |
| Total deposits | $9.65 billion | $6.63 billion | +45.6% |
| Net interest income | $343.4 million | $260.1 million | +32.0% |
| Noninterest income | $118.4 million | $104.5 million | +13.4% |
| Net income | $121.0 million | $73.5 million | +64.6% |
| Diluted EPS | $2.80 | $1.98 | +41.4% |
| Net interest margin | 3.92% | 3.95% | Down 3 bps |
| Return on average assets | 1.24% | 1.00% | Up 24 bps |
| Efficiency ratio | 63.59% | 63.62% | Essentially stable |
Management reported total revenue of $461.8 million, up 26.7%. Excluding purchase-accounting accretion, net interest margin was stable at 3.79%. Adjusted net income was $146.2 million, compared with $92.3 million in 2017, although adjusted results exclude merger, restructuring, executive retirement, hurricane and other unusual items.
Fourth-quarter net income was $43.5 million, or $0.91 diluted EPS, compared with $9.2 million, or $0.24 diluted EPS, in the fourth quarter of 2017. The 2017 quarter included a significant tax remeasurement charge.
Cash flow, liquidity, debt and capital
- Cash and cash equivalents increased to $679.5 million from $330.7 million.
- Operating cash flow was negative $108.8 million, primarily reflecting mortgage-loan originations and other working-capital movements.
- Investing cash flow was negative $53.3 million, including loan growth and securities purchases, partially offset by acquisition-related cash proceeds.
- Financing activities provided $511.0 million, primarily from deposit growth and borrowing activity.
- The year-end loan-to-deposit ratio was 88.2%, down from 91.3%.
- Borrowings included $151.8 million of other borrowings, $89.2 million of subordinated deferrable-interest debentures and $20.4 million of repurchase agreements. The Company also had $70.0 million outstanding under a revolving credit arrangement and $73.9 million of subordinated notes payable.
- The FHLB provided approximately $1.93 billion of additional borrowing capacity, and the Federal Reserve discount window had approximately $1.14 billion available based on pledged collateral.
- Regulatory capital remained strong. Consolidated CET1, Tier 1, total risk-based and leverage ratios were 10.07%, 11.07%, 12.23% and 9.17%, respectively. Ameris Bank was categorized as well capitalized.
- Common dividends were $0.40 per share for 2018. The Board authorized a $100 million share-repurchase program in October 2018, but no shares had been repurchased under that program at year-end.
Material changes versus the prior comparable period
- Ameris completed the acquisitions of US Premium Finance, Atlantic Coast Financial and Hamilton State Bancshares in 2018. The transactions added branches, loans, deposits and goodwill, and materially affected year-over-year comparability.
- Hamilton and Atlantic contributed $547.1 million of common-stock issuance in the acquisitions and increased goodwill by $312.6 million in aggregate. Total goodwill rose to $503.4 million from $125.5 million.
- Loan growth included $482.6 million of organic growth, or 8.5%, while total loans increased substantially because of acquisitions. Purchased loans rose to $2.59 billion from $861.6 million.
- Provision for loan losses increased to $16.7 million from $8.4 million. Net charge-offs rose to $13.6 million from $6.5 million; management identified approximately $7.2 million of unusual charge-offs associated with two premium-finance relationships.
- Nonperforming assets improved to 0.55% of total assets from 0.68%, although legacy nonaccrual loans increased to $18.0 million from $14.2 million.
- Noninterest expense increased 26.6% to $293.6 million, including $20.5 million of merger and conversion charges, $8.4 million of executive retirement benefits, $983,000 of restructuring charges, $882,000 of Hurricane Michael costs and $1.0 million of losses on premises sales.
- The effective tax rate declined to 20.1% from 40.8%. The 2017 rate included a $13.6 million deferred-tax remeasurement charge following federal tax reform.
Guidance, outlook, management commentary and risks
The filing does not provide formal earnings or revenue guidance. Management emphasizes continued organic growth, expansion within existing markets and an acquisition-oriented strategy. The pending Fidelity Southern transaction was expected to close in the second quarter of 2019, subject to shareholder and regulatory approvals. The estimated purchase price was $750.7 million; Fidelity reported $4.73 billion of assets, $3.92 billion of gross loans and $3.98 billion of deposits at December 31, 2018.
Crossing the $10 billion asset threshold is expected to increase regulatory oversight, FDIC assessment costs and compliance expenses. The Bank is expected to become subject to the debit-card interchange fee cap and CFPB examination authority after the applicable transition periods.
- Interest-rate risk is significant because net interest income represented 74.4% of recurring revenue. Management described the one-year position as mildly asset sensitive and projected a 1.5% increase in net interest income under an instantaneous 100-basis-point rate increase, versus a 2.1% decline under a 100-basis-point decrease.
- Commercial real estate and other real-estate lending create exposure to collateral values, local economic conditions and concentration risk. Reported commercial real estate concentration, net of owner-occupied loans, was 154.6% of capital excluding purchased covered assets and 248.1% including them.
- Credit costs may rise if economic conditions weaken, real estate values decline or management’s loan-loss assumptions prove inaccurate. The allowance for loan losses was $28.8 million, or 0.34% of total loans.
- Ameris is preparing for CECL, effective for fiscal years beginning after December 15, 2019. Management expects a one-time adjustment to equity and the allowance but had not determined the magnitude.
- LIBOR-based contracts, including debt, trust-preferred securities and derivatives, expose the Company to transition risk as USD-LIBOR is expected to be phased out after 2021.
- Other material risks include acquisition integration, goodwill and intangible-asset valuation, deposit competition, mortgage-market disruption, cybersecurity, regulatory compliance, FDIC loss-share clawbacks and severe weather events.
Most important facts for an investor to verify
- Confirm the final closing terms, regulatory approvals, integration costs and realized benefits of the Fidelity merger.
- Assess whether post-acquisition loan and deposit growth can be sustained without margin compression or excessive funding costs.
- Review the increase in legacy charge-offs, particularly the unusual premium-finance losses, and monitor future provision and nonperforming-asset trends.
- Evaluate the effect of $10 billion-plus regulatory requirements on FDIC insurance expense, interchange revenue, compliance staffing and profitability.
- Determine the eventual CECL transition adjustment and its effects on capital, allowance levels and earnings volatility.
- Review the quality and valuation sensitivity of the $503.4 million goodwill balance and $58.7 million of intangible assets.
- Reconcile reported earnings with adjusted earnings by considering merger charges, executive retirement benefits, restructuring, hurricane costs, tax items and other unusual adjustments.