Ameris Bancorp 2016 Form 10-K Summary
Business context and reporting period
Ameris Bancorp is a Georgia-based financial holding company conducting substantially all operations through Ameris Bank. The Bank provides retail and commercial banking, mortgage banking, warehouse lending and SBA services across selected markets in Georgia, Alabama, Florida and South Carolina. The filing covers the fiscal year ended December 31, 2016, including fourth-quarter results.
At year-end, Ameris operated 97 domestic banking offices and had approximately 1,298 full-time-equivalent employees. The March 2016 acquisition of Jacksonville Bancorp, Inc. expanded the Jacksonville, Florida franchise and materially affected comparability with 2015.
Key financial metrics
| Metric | 2016 | 2015 | Change or comment |
|---|---|---|---|
| Total assets | $6.892 billion | $5.589 billion | Up 23.3% |
| Total loans, including purchased and covered loans | Approximately $5.37 billion gross | Not stated in the same presentation | Organic legacy-loan growth was $660.4 million, or 20.8% |
| Total deposits | $5.575 billion | $4.879 billion | Up 14.3% |
| Stockholders’ equity | $646.4 million | $514.8 million | Up $131.7 million |
| Total revenue | $325.2 million | Approximately $261.1 million | Up 24.5% |
| Net interest income | $219.4 million | $175.5 million | Up 25.0% |
| Noninterest income | $105.8 million | $85.6 million | Up $20.2 million, primarily from mortgage banking and deposit service charges |
| Net income available to common shareholders | $72.1 million | $40.8 million | Up 76.6% |
| Diluted EPS | $2.08 | $1.27 | Up 63.8% |
| Net interest margin | 3.99% | 4.12% | Declined 13 basis points |
| Return on average assets | 1.17% | 0.85% | Improved |
| Efficiency ratio | 66.38% | 76.25% | Improved materially |
| Provision for loan losses | $4.1 million | $5.3 million | Decreased |
| Net charge-offs to average loans | 0.03% | 0.16% | Improved |
| Cash and cash equivalents | $198.4 million | $390.6 million | Decreased $192.2 million |
| Trust preferred and related subordinated debentures | $84.2 million carrying value | $69.9 million | Increased primarily from the Jacksonville acquisition |
Fourth-quarter results
Fourth-quarter 2016 net income was $18.2 million, or $0.52 diluted EPS, compared with fourth-quarter 2015 net income of $14.1 million, or $0.43 diluted EPS. Fourth-quarter 2016 included approximately $3.7 million of after-tax compliance-resolution expense related to the Bank Secrecy Act consent order. Merger and conversion expense was $17,000 in the quarter, compared with $1.8 million in fourth-quarter 2015.
Cash flow, liquidity and capital
- Operating activities used $69.8 million of cash in 2016, compared with $25.2 million used in 2015. The negative operating cash flow primarily reflected mortgage-loan originations and sales activity.
- Investing activities used $802.9 million, driven largely by $1.063 billion of net growth in legacy loans and securities purchases.
- Financing activities provided $680.5 million, including $635.9 million of new borrowings, $294.5 million of deposit growth and $231.0 million of borrowing repayments.
- Year-end available liquidity included approximately $736.4 million of FHLB borrowing capacity, $588.8 million available at the Federal Reserve discount window and $57.0 million of federal-funds purchasing capacity.
- At December 31, 2016, the consolidated total risk-based capital ratio was 10.11%, Tier 1 capital ratio was 9.69%, CET1 ratio was 8.32% and leverage ratio was 8.68%. Ameris Bank was categorized as well capitalized.
- The Bank had approximately $39.0 million of retained earnings available for dividends to the parent without prior regulatory approval.
Material changes versus the prior comparable period
- Ameris completed the $96.4 million Jacksonville Bancorp acquisition on March 11, 2016, issuing approximately 2.55 million shares and paying $23.9 million in cash. The transaction added eight branches, approximately $526 million of assets, $402.1 million of loans and $401.4 million of deposits, and generated $35.5 million of goodwill.
- Loan growth was strong, particularly in commercial and agricultural lending, commercial real estate, residential real estate and consumer installment loans. The Bank also expanded into commercial insurance-premium finance and purchased consumer home-improvement loans.
- Mortgage banking, warehouse lending and SBA income increased 35.7% to $20.6 million. Total mortgage banking activity increased to $48.3 million from $36.8 million.
- The net interest margin contracted because of lower earning-asset yields, although the increase in average earning assets drove higher net interest income.
- Nonperforming assets excluding covered assets improved to $58.7 million, or 0.85% of total assets, from $60.7 million, or 1.09%. Legacy OREO declined to $10.9 million from $16.1 million.
- Legacy nonaccrual loans increased to $18.1 million from $16.9 million, but declined as a percentage of legacy loans from 0.70% to 0.50%.
- Common dividends increased to $0.10 per share per quarter beginning in September 2016, resulting in $0.30 per-share dividends for the year versus $0.20 in 2015.
Outlook, unusual items and risks
- Management continues to pursue acquisition-oriented growth, expansion in existing markets and selective entry into neighboring markets. No quantified earnings or revenue guidance is provided.
- On December 16, 2016, the Bank consented to an FDIC and Georgia Department of Banking and Finance order addressing weaknesses in its Bank Secrecy Act compliance program. Required actions include enhanced board oversight, revised controls and risk assessments, improved customer due diligence, additional training and independent testing, staffing changes and review of past account activity. The order may increase expenses and could delay or limit expansionary regulatory approvals.
- Interest-rate risk is significant because net interest income represented 67.5% of recurring revenue. The Bank was mildly liability-sensitive over one year; management’s model projected a 1.0% decline in 12-month net interest income under a gradual 200-basis-point rate increase.
- The loan portfolio is concentrated in real estate and southeastern markets. Commercial real estate concentration was 204.7% of capital excluding owner-occupied loans and 269.4% including covered and non-covered purchased loans.
- Loss-sharing protection from FDIC-assisted acquisitions is declining or expiring for certain portfolios. At year-end, covered loans were $58.2 million and the net FDIC loss-share balance was a $6.3 million payable, including expected clawback obligations.
- Off-balance-sheet commitments included $1.101 billion of commitments to extend credit, $62.6 million of unused home-equity lines, $14.3 million of standby letters of credit, $91.4 million of mortgage rate-lock commitments and $150.0 million of mortgage forward contracts.
- A former borrower’s approximately $2.9 million lender-liability judgment remained on appeal. Management considered an adverse outcome not probable or reasonably estimable and recorded no reserve.
- On December 15, 2016, Ameris agreed to acquire an initial 4.99% interest in US Premium Finance and potentially an additional 25.01% interest for $12.0 million in cash and additional shares, subject to regulatory approvals. The initial closing occurred on January 18, 2017.
Most important facts for investors to verify
- Whether the Bank’s BSA compliance remediation satisfies regulators and the resulting level of recurring compliance expense.
- The sustainability of loan and deposit growth after separating organic growth from acquisitions, purchased loan pools and purchase-accounting accretion.
- Future net interest margin performance under rising rates, given the one-year liability-sensitive position.
- Credit quality in commercial real estate, construction and development, purchased non-covered loans and the new insurance-premium finance portfolio.
- The adequacy of the $23.9 million allowance for loan losses as the portfolio expands and the FDIC loss-sharing protection declines.
- Liquidity and refinancing needs associated with the $492.3 million of other borrowings, $84.2 million of subordinated debentures and substantial near-term deposit maturities.
- The regulatory and financial terms, integration progress and earnings contribution of the Jacksonville acquisition and US Premium Finance investment.
- The outcome and potential financial exposure of the pending lender-liability appeal.