Ameris Bancorp(ABCB) - 2019 Q4 - Annual Report

Part I Business Ameris Bancorp operates Ameris Bank, a financial holding company with $18.24 billion in assets, offering diversified banking services and pursuing acquisition-led growth, subject to extensive regulation Key Financial Metrics as of December 31, 2019 | Metric | Value (Billions) | | :--- | :--- | | Total Assets | $18.24 | | Total Loans | $14.48 | | Total Deposits | $14.03 | | Shareholders' Equity | $2.47 | - The company operates 170 full-service domestic banking offices primarily in Georgia, Alabama, Florida, and South Carolina, with no foreign operations[10] - Ameris's growth strategy is heavily oriented towards acquisitions, having completed several significant mergers, including Fidelity in 2019, Hamilton and Atlantic in 2018, and ten FDIC-assisted transactions between 2009 and 2012[25] - After crossing the $10 billion asset threshold in June 2018, the company became subject to heightened regulatory requirements, including supervision by the Consumer Financial Protection Bureau (CFPB) and caps on debit card interchange fees under the Durbin Amendment[76][77] Overview - Ameris Bancorp is a Georgia-based financial holding company conducting business through its wholly-owned subsidiary, Ameris Bank. The bank provides a full range of services to retail and commercial customers[10] - The company has assumed significant obligations related to trust preferred securities through a series of acquisitions, including those of Fidelity (2019), Hamilton (2018), JAXB (2016), Merchants (2015), Coastal (2014), Prosperity (2013), and FNB (2005)[15][16][22] Strategy - The company's strategy involves increasing its brand presence in its current markets (Georgia, Alabama, Florida, South Carolina) and expanding into attractive neighboring communities[24] - Growth is pursued through an acquisition-oriented strategy, complemented by a prudent operating strategy and a decentralized community banking philosophy that emphasizes personalized service[24][25] Banking Services - The company maintains a diversified loan portfolio of $14.48 billion, representing 79.3% of total assets, with services including commercial, agricultural, real estate, and consumer lending[26][27] - Commercial Real Estate loans represent the largest segment of the loan portfolio[27] - The company originates residential mortgage loans, a majority of which are sold in the secondary market. It also holds a portfolio of purchased residential mortgage loans totaling $213.2 million as of year-end 2019[28] - Funding sources are diverse, including customer deposits, advances from the Federal Home Loan Bank (FHLB), federal funds lines, and subordinated notes. In 2019, the company issued $120.0 million in 4.25% Fixed-To-Floating Rate Subordinated Notes due 2029[44][45] - Derivatives, such as forward sale commitments and interest rate lock commitments (IRLCs), are used to manage interest rate and pricing risk associated with mortgage lending activities[50] Corporate Restructuring and Business Combinations - On July 1, 2019, Ameris completed its acquisition of Fidelity Southern Corporation, issuing 22.2 million shares of common stock valued at $869.3 million. This expanded its presence with 62 additional branches in Georgia and Florida[51] - In 2018, Ameris completed three major acquisitions: Hamilton State Bancshares, Inc. for approximately $397.1 million, Atlantic Coast Financial Corporation for approximately $169.3 million, and the remaining 70% of US Premium Finance Holding Company (USPF) for an aggregate price of $83.0 million[52][54] Supervision and Regulation - As a financial holding company, Ameris is regulated by the Federal Reserve and its state-chartered bank is supervised by the FDIC and the Georgia Department of Banking and Finance (GDBF)[66][75] - The company must comply with Basel III capital adequacy standards. As of December 31, 2019, both Ameris and the Bank were considered "well capitalized" under these regulations[93][100] Capital Ratios as of December 31, 2019 | Ratio | Ameris Bancorp (Consolidated) | Ameris Bank | | :--- | :--- | :--- | | Total Risk-Based Capital | 12.94% | 12.18% | | Tier 1 Risk-Based Capital | 9.93% | 11.39% | | Common Equity Tier 1 Capital | 9.93% | 11.39% | | Leverage Ratio | 8.48% | 9.73% | - Since crossing $10 billion in assets, the Bank's FDIC deposit insurance assessment is based on a large institution classification, using a scorecard system that combines CAMELS ratings and financial measures[112][113] - The company is subject to various consumer protection laws enforced by the CFPB, anti-money laundering regulations under the Bank Secrecy Act and USA PATRIOT Act, and economic sanctions administered by OFAC[119][126][128] Risk Factors The company faces significant risks from economic conditions, interest rate volatility, real estate lending concentration, regulatory changes, operational issues, and its acquisition strategy - The company's financial performance is highly dependent on economic conditions in its geographically concentrated markets of Georgia, Alabama, Florida, and South Carolina[147][161] - A significant risk is the upcoming adoption of the Current Expected Credit Loss (CECL) accounting standard, which is expected to materially increase the allowance for loan losses by an estimated $85 million to $120 million[174][175] - A material weakness in internal control over financial reporting was identified as of December 31, 2019, related to deficiencies in general ledger account reconciliations following the Fidelity core platform conversion[194][195] - The transition away from LIBOR presents a significant risk, as the company had approximately $2.81 billion of loans and $57.8 million of derivatives indexed to LIBOR as of year-end 2019[186] - Cyberattacks and security breaches pose a material risk due to the sensitive customer information the company handles and its reliance on third-party service providers for technology and transaction processing[189][190][191] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[218] Properties The company's corporate headquarters is in Atlanta, Georgia, operating 170 owned and leased branch locations and 31 leased mortgage and loan production offices - The company operates 170 branch locations, with 148 owned and 22 leased. It also has 31 leased mortgage and loan production offices[219] Legal Proceedings The company is involved in legal disputes with a former owner and received subpoenas from the SEC and U.S. Attorney's Office, with management expecting no material adverse financial effect - The company is engaged in ongoing legal disputes with William J. Villari, former owner of USPF, regarding his termination and related compensation claims[220] - In November 2019, the company received subpoenas from the SEC and the U.S. Attorney's Office for the Northern District of Georgia requesting documents related to the USPF acquisition and the sale of certain loans to CEBV[224] - Management does not currently believe that the liabilities arising from these legal matters will have a material adverse effect on the company's consolidated financial condition, results of operations, or cash flows[225] Mine Safety Disclosures This item is not applicable to the company - Not applicable[226] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Ameris Bancorp's common stock trades on Nasdaq under "ABCB"; the company authorized a $100.0 million share repurchase program in 2019, with a five-year shareholder return of 73.09% - The company's common stock is listed on Nasdaq under the symbol "ABCB"[228] - A new stock repurchase program was authorized in September 2019 for up to $100.0 million. By December 31, 2019, the company had repurchased 158,248 shares for $6.8 million under this program[230] Five-Year Cumulative Total Shareholder Return (2014-2019) | Index | 12/31/2014 | 12/31/2019 | Cumulative Return | | :--- | :--- | :--- | :--- | | Ameris Bancorp | $100.00 | $173.09 | 73.09% | | NASDAQ Stock Market (US Companies) | $100.00 | $200.49 | 100.49% | | SNL U.S. Bank NASDAQ | $100.00 | $166.75 | 66.75% | Selected Financial Data Selected financial data shows significant growth from 2015 to 2019, with total assets reaching $18.24 billion and net income $161.4 million, though comparability is affected by acquisitions Selected Financial Data (2015-2019) | (in thousands) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Assets | $18,242,579 | $11,443,515 | $7,856,203 | $6,892,031 | $5,588,940 | | Total Loans | $12,818,476 | $8,511,914 | $6,046,355 | $5,264,326 | $3,908,923 | | Total Deposits | $14,027,073 | $9,649,313 | $6,625,845 | $5,575,163 | $4,879,290 | | Net Income | $161,441 | $121,027 | $73,548 | $72,100 | $40,847 | | Diluted EPS | $2.75 | $2.80 | $1.98 | $2.08 | $1.27 | - The comparability of financial data across years is significantly affected by numerous acquisitions, including Fidelity (2019), USPF, Atlantic, and Hamilton (2018), JAXB (2016), and Merchants and a branch acquisition (2015)[236] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2019, Ameris reported net income of $161.4 million, with total assets reaching $18.24 billion, driven by the Fidelity acquisition, while maintaining stable loan quality and strong capital ratios 2019 vs. 2018 Performance Highlights | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Income | $161.4M | $121.0M | | Diluted EPS | $2.75 | $2.80 | | Merger & Conversion Charges | $73.1M | $20.5M | | Return on Average Assets (ROA) | 1.10% | 1.24% | | Return on Average Equity (ROE) | 8.19% | 10.27% | | Net Interest Margin | 3.88% | 3.92% | - Organic loan growth was strong at $751.8 million, or 9.2%, in 2019[243] - The deposit mix improved, with noninterest-bearing deposits representing 29.9% of total deposits at year-end 2019[243] Critical Accounting Policies and Estimates - The allowance for loan losses is a critical accounting policy requiring significant management judgment regarding probable incurred losses in the loan portfolio[247] - Accounting for business combinations requires significant estimates, particularly in determining the fair value of acquired loan portfolios and identifying purchased credit-impaired loans[255] - Goodwill is tested for impairment annually, and the valuation of other intangible assets like core deposit premiums involves significant forward-looking assumptions[260][264] Results of Operations Net Interest Income Analysis (2018 vs. 2019) | (in millions) | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Interest Income | $636.4 | $413.3 | +54.0% | | Interest Expense | $131.2 | $69.9 | +87.6% | | Net Interest Income | $505.2 | $343.4 | +47.1% | | Net Interest Margin (Tax-Equiv.) | 3.88% | 3.92% | -4 bps | - The provision for loan losses increased to $19.8 million in 2019 from $16.7 million in 2018, while net charge-offs as a percentage of average legacy loans decreased to 0.15% from 0.27%[283] - Noninterest income grew 67.3% to $198.1 million, driven by a 122.6% increase in mortgage banking income to $119.4 million, resulting from the Fidelity acquisition and a favorable interest rate environment[287][290] - Noninterest expense rose 60.7% to $471.9 million, primarily due to $73.1 million in merger-related charges and a 50.2% increase in salaries and benefits from staff additions via the Fidelity acquisition[299][300] - The effective tax rate was 23.7% in 2019, compared to 20.1% in 2018 and 40.8% in 2017. The 2017 rate was elevated due to a $13.6 million charge from the remeasurement of deferred tax assets following federal tax legislation[314] Balance Sheet Comparison Loan Portfolio Composition (Legacy Loans) | Loan Type | 2019 Balance (in thousands) | 2018 Balance (in thousands) | | :--- | :--- | :--- | | Commercial, financial and agricultural | $1,646,438 | $1,316,359 | | Real estate – construction & development | $1,083,564 | $671,198 | | Real estate – commercial and farmland | $2,447,834 | $1,814,529 | | Real estate – residential | $1,901,352 | $1,403,000 | | Consumer installment | $450,799 | $455,371 | | Total | $7,529,987 | $5,660,457 | - Purchased loans (acquired in mergers) increased to $5.08 billion at year-end 2019 from $2.59 billion at year-end 2018, primarily due to the Fidelity acquisition[322] - The allowance for loan losses (ALLL) was $38.2 million, or 0.30% of total loans. Excluding purchased loans, the ALLL was 0.46% of loans, stable compared to 2018, as growth in lower-risk loan categories offset other factors[286][334] - Nonperforming loans, excluding purchased loans, increased to $29.3 million (0.39% of legacy loans) in 2019 from $18.0 million (0.32% of legacy loans) in 2018[340][345] - The investment portfolio, classified as available-for-sale, grew to $1.40 billion in 2019 from $1.19 billion in 2018, consisting primarily of mortgage-backed securities[374] - Total deposits increased to $14.03 billion in 2019 from $9.65 billion in 2018, with brokered deposits decreasing to $452.7 million from $846.7 million[380][695] Capital Adequacy - The company's capital increased by $1.01 billion in 2019, primarily due to the issuance of $869.3 million in common stock for the Fidelity acquisition and net income of $161.4 million[388] - Both the Company and the Bank met all capital adequacy requirements and were categorized as "well capitalized" as of December 31, 2019[821][822] Consolidated Capital Ratios vs. Requirements (as of Dec 31, 2019) | Ratio | Actual | Required for Adequacy* | | :--- | :--- | :--- | | CET1 Ratio | 9.925% | 7.000% | | Tier 1 Capital Ratio | 9.925% | 8.500% | | Total Capital Ratio | 12.940% | 10.500% | | Tier 1 Leverage Ratio | 8.476% | 4.000% | *Includes 2.50% capital conservation buffer. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is U.S. Dollar interest rate changes, managed by ALCO, with simulation showing a 1.7% net interest income increase for a +100 bps rate shift and a 1.1% decrease for -100 bps - The company is exposed only to U.S. Dollar interest rate risk and has no trading instruments or exposure to foreign currency, commodity, or other market risks[398] Projected Impact of Interest Rate Changes on Net Interest Income (as of Jan 1, 2020) | Rate Change (bps) | Impact over 12 Months | Impact over 24 Months | | :--- | :--- | :--- | | +200 | +3.1% | +9.4% | | +100 | +1.7% | +5.0% | | -100 | -1.1% | -4.2% | - The company is managing the transition away from LIBOR, as it has material contracts indexed to this rate. A working committee has been established to develop a transition plan[371] Financial Statements and Supplementary Data This section lists the consolidated financial statements and the Report of Independent Registered Public Accounting Firm included in the filing - This item refers to the full consolidated financial statements and related notes, which are included in the report[407] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[407] Controls and Procedures Management concluded that disclosure controls were ineffective due to a material weakness in internal control over financial reporting, stemming from general ledger reconciliation issues post-Fidelity core system conversion - A material weakness was identified in the company's internal control over financial reporting as of December 31, 2019[413][414] - The deficiency related to certain general ledger account reconciliations where items, principally from the acquired indirect auto loan portfolio, were not researched and resolved in a timely manner after the Fidelity core platform conversion[415] - Management has developed a remediation plan that includes additional staff training, more detailed procedures, increased personnel, and a review of the system interface to the general ledger[416] - The company's independent registered public accounting firm, Crowe LLP, issued an audit report expressing an adverse opinion on the effectiveness of the company's internal control over financial reporting[417][462] Other Information This item is not applicable to the company - Not applicable[419] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement for the 2020 Annual Meeting of Shareholders - The required information is incorporated by reference from the registrant's Proxy Statement for the 2020 Annual Meeting of Shareholders[421] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's Proxy Statement for the 2020 Annual Meeting of Shareholders - The required information is incorporated by reference from the registrant's Proxy Statement for the 2020 Annual Meeting of Shareholders[423] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2020 Proxy Statement, with 387,193 securities from outstanding options and 699,992 available for future issuance - The required information is incorporated by reference from the registrant's Proxy Statement for the 2020 Annual Meeting of Shareholders[424] Equity Compensation Plan Information (as of Dec 31, 2019) | Description | Number of Securities | | :--- | :--- | | To be issued upon exercise of outstanding options, warrants and rights | 387,193 | | Available for future issuance under equity compensation plans | 699,992 | Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's Proxy Statement for the 2020 Annual Meeting of Shareholders - The required information is incorporated by reference from the registrant's Proxy Statement for the 2020 Annual Meeting of Shareholders[427] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's Proxy Statement for the 2020 Annual Meeting of Shareholders - The required information is incorporated by reference from the registrant's Proxy Statement for the 2020 Annual Meeting of Shareholders[428] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report, including consolidated financial statements and an index of key corporate documents - This section contains the list of financial statements and schedules filed with the report, including the consolidated balance sheets, statements of income, comprehensive income, shareholders' equity, and cash flows[429] - An index of exhibits is provided, listing key corporate documents such as merger agreements with Fidelity, Hamilton, and Atlantic, as well as various indentures related to subordinated debt and trust preferred securities[431][432][434]