Ameris Bancorp 2019 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 insurance premium finance services. Its primary markets are in Georgia, Alabama, Florida and South Carolina. The filing covers the fiscal year ended December 31, 2019; fourth-quarter information is included but is unaudited.
The July 1, 2019 acquisition of Fidelity Southern Corporation materially increased Ameris’s scale, adding 62 branches and contributing approximately $4.77 billion of acquired assets. At year-end, Ameris operated 170 full-service banking offices and had approximately 2,722 full-time-equivalent employees.
Key Financial Metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Total assets | $18.24 billion | $11.44 billion |
| Total loans, including purchased loans and loan pools | $12.82 billion | $8.51 billion |
| Total deposits | $14.03 billion | $9.65 billion |
| Shareholders’ equity | $2.47 billion | $1.46 billion |
| Total revenue | $703.3 million | Not separately stated in the selected data |
| Net interest income | $505.2 million | $343.4 million |
| Noninterest income | $198.1 million | $118.4 million |
| Net income | $161.4 million | $121.0 million |
| Diluted earnings per share | $2.75 | $2.80 |
| Net interest margin | 3.88% | 3.92% |
| Net income to average assets | 1.10% | 1.24% |
| Efficiency ratio | 67.11% | 63.59% |
| Net charge-offs to average loans | 0.10% | 0.18% |
Interest income increased 54.0% to $636.4 million, while interest expense increased 87.6% to $131.2 million. Average earning assets grew 48.2% to $13.13 billion, but higher funding costs compressed the net interest margin by four basis points. Noninterest income rose 67.3%, led by mortgage banking activities of $119.4 million, up 122.6%.
Reported net income included $73.1 million of merger and conversion charges, primarily related to Fidelity, compared with $20.5 million in 2018. Adjusted net income, a non-GAAP measure, was $222.9 million versus $146.2 million in 2018. Adjusted return on average assets was 1.52%, compared with 1.50% in 2018.
Fourth-quarter 2019 net income was $61.2 million, or $0.88 diluted EPS, compared with $43.5 million, or $0.91 diluted EPS, in the fourth quarter of 2018. Fourth-quarter results benefited from higher net interest income but included $2.4 million of merger and conversion charges.
Cash Flow, Debt and Liquidity
- Cash and cash equivalents were $621.8 million at December 31, 2019, compared with $679.5 million at year-end 2018.
- Net cash used in operating activities was $940.2 million, primarily reflecting substantial mortgage loan originations and growth in loans held for sale.
- Net cash used in investing activities was $487.1 million, including $1.93 billion of net growth in legacy loans and $244.2 million of net cash proceeds from acquisitions.
- Net cash provided by financing activities was $1.37 billion, supported by deposit growth and net borrowings.
- Loans-to-deposits increased to 91.38% from 88.21%. Noninterest-bearing deposits represented 29.94% of total deposits at year-end.
- Other borrowings increased to $1.40 billion from $151.8 million, principally reflecting FHLB advances and subordinated notes. The company issued $120 million of 4.25% fixed-to-floating subordinated notes due 2029 in December 2019.
- Trust preferred securities and related subordinated debentures had a net carrying value of $127.6 million. Other subordinated notes payable had a carrying value of $268.2 million.
- Ameris reported $1.66 billion of FHLB borrowing capacity and $1.49 billion available through the Federal Reserve discount window at year-end.
- Contractual commitments included $2.49 billion of commitments to extend credit, $262.1 million of unused home equity lines, $29.2 million of standby letters of credit and $288.5 million of mortgage interest-rate lock commitments.
Material Changes Versus the Prior Comparable Period
- Fidelity was acquired for approximately $869.3 million in Ameris common stock, with 22.18 million shares issued. The transaction added approximately $3.51 billion of loans at fair value, $4.04 billion of deposits and $430.5 million of goodwill.
- Total assets increased 59.4%, deposits increased 45.4% and shareholders’ equity increased 69.6%, substantially due to Fidelity and organic growth.
- Legacy loans increased 33.0% to $7.53 billion, while purchased loans increased to $5.08 billion from $2.59 billion. Organic legacy loan growth was $751.8 million, or 9.2%.
- Noninterest expense increased 60.7% to $471.9 million. Salaries and benefits, occupancy, data processing and amortization increased with the expanded branch network and operating platform.
- The allowance for loan losses increased to $38.2 million from $28.8 million. The allowance ratio for legacy loans remained 0.46%, while total nonperforming assets rose to $101.3 million, or 0.56% of total assets, from $63.0 million, or 0.55%.
- Mortgage loan production increased to $4.3 billion from $1.8 billion, although the gain-on-sale spread declined to 2.75% from 2.92%.
- Regulatory capital remained above minimum requirements, but the consolidated leverage ratio declined to 8.48% from 9.17%, reflecting the significant balance-sheet expansion.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal earnings or revenue guidance. Management emphasized continued growth in existing markets, disciplined organic lending and an acquisition-oriented strategy, subject to capital availability, regulatory approvals and integration capacity.
- CECL adoption: Ameris expected the new current expected credit loss standard to increase the allowance for loan losses to approximately $85 million to $120 million and to create a $10 million to $20 million liability for unfunded commitments. The final impact could differ materially.
- Internal controls: Management and the auditor identified a material weakness in internal control over financial reporting related to untimely research and resolution of general-ledger reconciliation items following the Fidelity core-system conversion. The auditor issued an adverse opinion on internal control effectiveness, while giving an unqualified opinion on the financial statements.
- Legal and regulatory investigations: The SEC and U.S. Attorney’s Office subpoenaed documents regarding the US Premium Finance acquisition, loan sales to CEBV and related disclosures. The company is cooperating but cannot predict the outcome or potential impact.
- Litigation: Ameris is involved in disputes with former USPF owner William Villari and related entities. An arbitration ruling favored Ameris, but other claims remained pending. Management did not believe a material loss was probable or estimable, while acknowledging that outcomes could affect a particular reporting period.
- Credit concentration: Commercial real estate represented a substantial portion of the portfolio. CRE concentration, net of owner-occupied loans, was 148.4% of capital excluding purchased covered assets and 238.4% including such assets.
- Interest-rate risk: The company was mildly asset-sensitive over a one-year horizon. Its model projected a 1.7% increase in 12-month net interest income under an instantaneous 100-basis-point rate increase and a 1.1% decrease under a 100-basis-point decline.
- LIBOR transition: Approximately $2.81 billion of loans and $57.8 million of derivatives were indexed to LIBOR, along with $309.5 million of debt securities and $109.9 million of investment securities. Transition to SOFR creates legal, operational and valuation risks.
- Acquisition and integration risk: Future performance depends on retaining deposits and personnel, achieving expected synergies and completing system conversions without further control failures or unexpected costs.
- Other risks: The filing highlights geographic concentration, real-estate values, credit losses, funding costs, mortgage-market conditions, regulatory burdens, cybersecurity, competition and economic or public-health disruptions.
Most Important Facts for Investors to Verify
- Whether remediation of the Fidelity-related material weakness has been implemented, tested and validated.
- The outcome and potential financial or disclosure consequences of the SEC and DOJ investigations involving USPF and CEBV.
- The actual first-quarter 2020 CECL adjustment compared with the estimated $85 million to $120 million allowance increase and $10 million to $20 million unfunded-commitment liability.
- Whether the elevated loan-to-deposit ratio, increased borrowings and rapid balance-sheet growth remain consistent with liquidity and capital objectives.
- Trends in nonperforming assets, nonaccrual loans, commercial real estate exposure and purchased-loan credit performance.
- The sustainability of mortgage banking revenue and gain-on-sale margins after the sharp 2019 increase in production.
- Progress on LIBOR-to-SOFR contract remediation and the effect of changing benchmark rates on funding and asset yields.
- Whether future acquisition-related costs, goodwill and intangible assets generate the expected earnings benefits without impairment.