Ameris Bancorp 2015 Form 10-K Summary
Business context and reporting period
Ameris Bancorp is a financial holding company whose primary subsidiary, Ameris Bank, provides retail and commercial banking, mortgage banking, warehouse lending and SBA services in Georgia, Alabama, Florida and South Carolina. The filing covers the fiscal year ended December 31, 2015, including fourth-quarter results. At year-end, Ameris operated 101 domestic banking offices, had approximately 1,304 full-time-equivalent employees, and had announced the consolidation of eight offices.
2015 included the acquisition of Merchants & Southern Banks of Florida and 18 branches from Bank of America. Ameris also entered into an agreement to acquire Jacksonville Bancorp, Inc.; the transaction had received required regulatory approvals and was expected to close in March 2016.
Key financial metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total assets | $5.589 billion | $4.037 billion | 38.5% increase |
| Total loans, including purchased and covered loans | Approximately $4.02 billion | Approximately $2.84 billion | Increase driven by growth and acquisitions |
| Total deposits | $4.879 billion | $3.431 billion | 42.2% increase |
| Stockholders’ equity | $514.8 million | $366.0 million | 40.6% increase |
| Net interest income | $175.5 million | $149.9 million | 17.1% increase |
| Noninterest income | $85.6 million | $62.8 million | 36.2% increase |
| Net income | $40.8 million | $38.7 million | 5.5% increase |
| Net income available to common shareholders | $40.8 million | $38.4 million | 6.3% increase |
| Diluted earnings per share | $1.27 | $1.46 | Decline due to share issuance and dilution |
| Net interest margin | 4.12% | 4.59% | 47 basis-point decline |
| Efficiency ratio | 76.25% | 70.92% | Deterioration |
| Provision for loan losses | $5.3 million | $5.6 million | Decrease |
| Net charge-offs to average loans | 0.22% | 0.34% | Improvement |
| Nonperforming assets to loans and OREO, excluding covered assets | 1.60% | 3.35% | Improvement |
Fourth-quarter 2015 net income available to common shareholders was $14.1 million, or $0.43 diluted per share, compared with $10.6 million, or $0.39 per share, in the fourth quarter of 2014.
Cash flow, liquidity and capitalization
- Net cash used in operating activities was $25.2 million, compared with $5.6 million used in 2014. The outflow reflected mortgage and SBA loan originations, securities activity and other operating items.
- Net cash used in investing activities was $167.9 million, primarily reflecting a $622.5 million purchase of loan pools, a $413.8 million increase in legacy loans and securities purchases, partly offset by acquisition-related cash proceeds and asset repayments.
- Net cash provided by financing activities was $413.3 million, including $354.0 million of deposit growth and $114.9 million of common-stock issuance. Cash and cash equivalents increased to $390.6 million from $170.4 million.
- At year-end, Ameris had $325.9 million available through FHLB lines, $16.0 million available under a regional-bank revolving credit agreement, $55 million of federal-funds purchasing capacity and $474.8 million available through the Federal Reserve discount window.
- Debt and similar funding included $63.6 million of repurchase agreements, $39.0 million of other borrowings and $69.9 million of subordinated deferrable-interest debentures. Contractual cash obligations totaled $5.095 billion, principally deposits.
- Consolidated regulatory ratios were 11.45% total risk-based capital, 10.96% Tier 1 risk-based capital, 9.54% common equity Tier 1 capital and 8.70% Tier 1 leverage. Ameris Bank was categorized as well capitalized.
Material changes versus the prior comparable period
- The Merchants acquisition and branch acquisition increased assets by approximately $1.14 billion, loans by approximately $195.5 million and deposits by approximately $1.05 billion. These transactions added $25.9 million of goodwill and $12.5 million of core deposit intangibles.
- Average earning assets increased 30.8% to $4.32 billion, but the taxable-equivalent yield declined to 4.47% from 5.03%. Lower funding costs partly offset asset-yield compression.
- Average noninterest-bearing deposits increased to $1.23 billion, or 29.2% of average deposits, from $751.9 million, or 23.5%, in 2014. Average deposit cost declined to 0.23% from 0.30%.
- Noninterest income growth was led by mortgage banking activity, which increased to $36.8 million from $26.0 million, and service charges on deposits, which increased to $34.5 million from $24.6 million.
- Noninterest expense increased to $199.1 million from $150.9 million. Acquisition expenses rose to $8.0 million, and the company recorded $11.2 million of pretax OREO write-downs and other credit-resolution costs in the second quarter.
- Legacy nonaccrual loans declined to $16.9 million from $21.7 million, legacy OREO declined to $16.1 million from $33.2 million, and covered loans declined to $137.5 million from $271.3 million as loss-sharing agreements expired and balances were resolved.
- Ameris completed a private placement of 5.32 million common shares at $22.50 per share, receiving approximately $114.5 million of net proceeds. The resulting increase in shares contributed to the decline in diluted EPS despite higher net income.
- The quarterly common dividend was $0.05 per share throughout 2015, or $0.20 for the year, compared with $0.15 in 2014.
Guidance, outlook, risks and unusual items
Management did not provide formal numerical earnings or revenue guidance in the filing. Its stated strategy is to expand the Ameris franchise through organic growth and acquisitions in existing and neighboring markets, subject to capital availability, regulatory approval and management capacity. The Jacksonville Bancorp transaction was expected to increase the combined company to approximately $6.0 billion in assets, $4.2 billion in loans and $5.2 billion in deposits.
- Interest-rate risk is material because net interest income represented 67.2% of recurring revenue. The company described its one-year position as mildly liability sensitive and projected that a gradual 200-basis-point increase in rates would reduce 12-month net interest income by approximately 0.4%.
- The loan portfolio remains concentrated in real estate. Including covered and purchased assets, construction and development loans were 63.0% of capital and commercial real estate loans, net of owner-occupied loans, were 189.0% of capital.
- Future credit costs could increase if local real estate markets, employment, agricultural conditions or borrower cash flows deteriorate. The allowance for loan losses was $21.1 million, or 0.85% of applicable loans, at year-end.
- FDIC loss-sharing protection is declining as agreements expire. The FDIC loss-share receivable fell to $6.3 million from $31.4 million, while the company retained a $8.2 million clawback liability.
- Mortgage banking results depend on loan originations, secondary-market liquidity, interest rates, prepayments, repurchase claims and representations-and-warranties exposure.
- Acquisition integration, deposit retention, goodwill and core-deposit-intangible valuations, and fair-value estimates for impaired loans and OREO involve significant management judgment.
- A former borrower’s approximately $2.9 million lender-liability judgment was on appeal. Management believed an adverse outcome was not probable or reasonably estimable and had recorded no reserve.
- Management reported effective disclosure controls and internal control over financial reporting. The Merchants operations, representing approximately 8.78% of consolidated assets, were excluded from management’s internal-control assessment for the permitted acquisition-year exclusion.
Most important facts for an investor to verify
- Reconcile reported loan balances across legacy, purchased non-covered, purchased loan-pool and FDIC-covered categories.
- Assess whether the lower net interest margin and higher efficiency ratio offset the benefit of balance-sheet growth and noninterest-income expansion.
- Review the sustainability of mortgage banking and SBA income, including sensitivity to interest rates and secondary-market conditions.
- Evaluate credit quality after the $11.2 million second-quarter OREO and credit-resolution write-downs and after further FDIC loss-share expirations.
- Confirm the financing, dilution, purchase accounting and integration effects of the Jacksonville Bancorp acquisition.
- Review liquidity availability, subordinated debt maturities, deposit composition and the company’s reliance on dividends from Ameris Bank.
- Examine the appeal and potential exposure related to the approximately $2.9 million lender-liability judgment.
- Verify the assumptions supporting allowance adequacy, OREO valuations, goodwill impairment testing and the remaining FDIC loss-share receivable.