Ameris Bancorp reported net income of $19.3 million, or $0.28 per diluted share, for the quarter ended March 31, 2020, compared with $39.9 million, or $0.84 per diluted share, for the quarter ended March 31, 2019.  The decline in net income is attributable to a $37.6 million increase in provision for loan loss expense and a $22.2 million servicing asset write-down in the first quarter of 2020.  The Company reported adjusted net income of $39.2 million, or $0.56 per diluted share, for the quarter ended March 31, 2020, compared with $42.6 million, or $0.90 per diluted share, for the same period in 2019.  Adjusted net income excludes after-tax merger and conversion charges, servicing right valuation adjustments, restructuring charges related to previously announced branch consolidations, certain legal expenses, loss on sale of bank premises and expenses related to natural disasters and the COVID-19 pandemic, but does not exclude the increased provision for credit losses.

Commenting on the Company's results, Palmer Proctor, the Company's Chief Executive Officer, said, "While this has certainly been a historically unprecedented quarter, I am proud that our company could absorb over $41 million of provision for credit loss expense and a $22 million write-down of our servicing assets and still produce net income of over $19 million.  Our current allowance for loan loss ended the quarter at over $149 million, up from $38 million at year end, and our capital levels remain strong.  We have committed bankers who continue to serve our customers and our communities through the COVID-19 pandemic and have been successful in lending $685 million under the  Paycheck Protection Program ("PPP") in April.  We are prepared to face the challenges of today's environment and we remain confident in our position for the future in these uncertain times."

On January 1, 2020, the Company adopted ASC 326, which provides for an expected credit loss model, referred to as the "Current Expected Credit Loss" ("CECL") model.  The adoption of this standard resulted in the opening balances of the allowance for credit losses increasing $91.4 million and shareholders' equity decreasing $56.7 million.  In addition, the Company recorded $41.0 million of provision for credit loss expense in the first quarter of 2020, of which $37.0 million was expense for loan credit losses and $4.0 million was for an increase in unfunded commitment reserve.  Net charge-offs for the first quarter of 2020 were $4.4 million.  As a result of these items, at March 31, 2020, the allowance for loan loss was $149.5 million, and the total allowance for credit losses was $167.3 million, compared with $38.2 million and $39.3 million, respectively, at December 31, 2019.

Significant items from the Company's results for the first quarter of 2020 include the following:

Net income of $19.3 million, after pre-tax provision for credit losses of $41.0 million and servicing asset write-downs of $22.2 million

Growth in adjusted total revenue of $12.9 million, or 6.1% when compared with the fourth quarter of 2019

Adjusted efficiency ratio of 59.87%, compared with 55.61%, in the fourth quarter of 2019

Adjusted return on average assets of 0.87%, compared with 1.47% in the fourth quarter of 2019

Net interest margin of 3.70%, compared with 3.86% in the fourth quarter of 2019

Improvement in deposit mix such that noninterest bearing deposits represent 30.53% of total deposits, up from 29.94% at December 31, 2019 and 28.09% a year ago

Annualized net charge-offs of 0.14% of average total loans

Non-performing assets of 0.61% of total assets, compared with 0.56% at the end of 2019

Following is a summary of the adjustments between reported net income and adjusted net income:

Net Interest Income and Net Interest Margin
Net interest income on a tax-equivalent basis for the first quarter of 2020 totaled $149.0 million, compared with $156.5 million for the fourth quarter of 2019 and $100.5 million for the first quarter of 2019.  The Company's net interest margin was 3.70% for the first quarter of 2020, down from 3.86% reported for the fourth quarter of 2019 and 3.95% reported for the first quarter of 2019.  The decrease in net interest margin in the current quarter is primarily attributable to decreases in accretion income and the yield on loans as market interest rates declined, partially offset by a decrease in the cost of interest-bearing liabilities.  Accretion income for the first quarter of 2020 decreased to $6.6 million, compared with $9.7 million for the fourth quarter of 2019, and increased from $2.9 million for the first quarter of 2019.  The decrease in accretion income in the first quarter is primarily attributable to the successful resolution of an acquired non-performing loan during the fourth quarter of 2019 that had a substantial discount and stabilization in the level of payoffs of acquired loans. 

Yields on all loans decreased to 5.02% during the first quarter of 2020, compared with 5.28% for the fourth quarter of 2019 and 5.37% reported for the first quarter of 2019.  Loan production in the banking division during the first quarter of 2020 totaled $918.4 million, with weighted average yields of 4.55%, compared with $1.1 billion and 4.70%, respectively, in the fourth quarter of 2019 and $613.5 million and 5.78%, respectively, in the first quarter of 2019.  Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to an additional $3.9 billion during the first quarter of 2020, with weighted average yields of 4.15%, compared with $4.1 billion and 4.29%, respectively, during the fourth quarter of 2019 and $1.9 billion and 5.47%, respectively, during the first quarter of 2019.

Interest expense during the first quarter of 2020 decreased to $34.8 million, compared with $38.7 million in the fourth quarter of 2019, and increased from $25.5 million in the first quarter of 2019.  The Company's total cost of funds moved nine basis points lower to 0.91% in the first quarter of 2020 as compared with the fourth quarter of 2019.  Deposit costs also decreased nine basis points during the first quarter of 2020 to 0.71%, compared with 0.80% in the fourth quarter of 2019.  Costs of interest-bearing deposits decreased during the quarter from 1.13% in the fourth quarter of 2019 to 1.01% in the first quarter of 2020.

Noninterest Income
Noninterest income decreased $734,000, or 1.3%, in the first quarter of 2020 to $54.4 million, compared with $55.1 million for the fourth quarter of 2019, primarily as a result of decreased service charge revenue.  Service charge revenue decreased $1.7 million, or 12.7%, to $11.8 million in the first quarter of 2020, compared with $13.6 million for the fourth quarter of 2019.  This decrease was primarily attributable to a decline in interchange income of $626,000 and a decrease of $634,000 in NSF income resulting from a decrease in volume and a slight increase in waivers.

Mortgage banking activity increased $2.2 million, or 6.5%, to $35.3 million in the first quarter of 2020, compared with $33.2 million for the fourth quarter of 2019.  This increase was a result of expansion in our gain on sale spread. Gain on sale spreads increased to 2.88% in the first quarter of 2020 from 2.60% for the fourth quarter of 2019. Total production in the retail mortgage division decreased to $1.36 billion in the first quarter of 2020, compared with $1.57 billion for the fourth quarter of 2019.   Mortgage banking activity was negatively impacted during the first quarter of 2020 by a $20.9 million servicing right impairment, compared with an impairment of $104,000 for the fourth quarter of 2019. The retail mortgage open pipeline finished the first quarter of 2020 at $2.43 billion, compared with $1.16 billion at December 31, 2019.

Other noninterest income decreased $1.2 million, or 16.6%, in the first quarter of 2020 to $6.1 million, compared with $7.3 million for the fourth quarter of 2019, primarily as a result of an unfavorable fair value adjustment on our SBA servicing rights of $1.3 million for the first quarter of 2020.

Noninterest Expense
Noninterest expense increased $15.5 million, or 12.6%, to $138.1 million during the first quarter of 2020, compared with $122.6 million for the fourth quarter of 2019.  During the first quarter of 2020, the Company recorded $3.0 million of charges to earnings, related to the previously announced SEC/DOJ investigations, merger and conversion charges, natural disaster and pandemic charges and loss on sale of premises, compared with $4.3 million in charges in the fourth quarter of 2019 that were related principally to merger and conversion charges and loss on sale of premises.  Excluding these charges, adjusted expenses increased approximately $16.8 million, or 14.2%, to $135.1 million in the first quarter of 2020, from $118.3 million in the fourth quarter of 2019.  The majority of this increase is attributable to variable expenses related to increased mortgage production and seasonal increase in payroll tax expense, as well as increases in credit resolution-related expenses, professional fees and FDIC insurance. The Company continues to focus on its operating efficiency ratio. The Company's adjusted efficiency ratio increased from 55.61% in the fourth quarter of 2019 to 59.87% in the first quarter of 2020.

Income Tax Expense
The Company's effective tax rate for the first quarter of 2020 was 16.8%, compared with 25.5% in the fourth quarter of 2019. The decreased rate for the first quarter of 2020 was primarily a result of loss carrybacks allowed as a result of the recently enacted CARES Act. The elevated rate for the fourth quarter of 2019 resulted from a return to provision adjustment occurring when the Company filed its 2018 income tax returns during the fourth quarter of 2019 and additional tax expense in connection with merger-related compensation and acquired BOLI.

Balance Sheet Trends
Total assets at March 31, 2020 were $18.2 billion, which is essentially unchanged from December 31, 2019.  Total loans, including loans held for sale, were $14.49 billion at March 31, 2020, compared with $14.48 billion at December 31, 2019.  Total loans held for investment were $13.09 billion at March 31, 2020, compared with $12.82 billion at December 31, 2019.  Loans held for investment increased $275.6 million, or 8.6% annualized, compared with December 31, 2019.  Loan production in the banking division during the first quarter of 2020 was down 16% from the fourth quarter of 2019, but was 50% higher than the first quarter of 2019. 

At March 31, 2020, total deposits amounted to $13.84 billion, or 89.2% of total funding, compared with $14.03 billion and 90.1%, respectively, at December 31, 2019.  At March 31, 2020, noninterest-bearing deposit accounts were $4.23 billion, or 30.5% of total deposits, compared with $4.20 billion, or 29.9% of total deposits, at December 31, 2019.  Non-rate sensitive deposits (including non-interest bearing, NOW and savings) totaled $7.14 billion at March 31, 2020, compared with $7.21 billion at December 31, 2019.  These funds represented 51.6% of the Company's total deposits at March 31, 2020, compared with 51.4% at the end of 2019.

Shareholders' equity at March 31, 2020 totaled $2.44 billion, a decrease of $32.4 million, or 1.3%, from December 31, 2019.  The decrease in shareholders' equity was primarily the result of the CECL adoption impact of $56.7 million and dividends declared, partially offset by earnings of $19.3 million during the first quarter of 2020.  Tangible book value per share was $20.44 at March 31, 2020, compared with $20.81 at December 31, 2019.  Tangible common equity as a percentage of tangible assets was 8.25% at March 31, 2020, compared with 8.40% at the end of the 2019.

Credit Quality
Credit quality remains strong in the Company.  During the first quarter of 2020, the Company recorded provision for credit losses of $41.0 million, compared with $5.7 million in the fourth quarter of 2019.  This increase in provision was primarily attributable to declines in forecasted economic conditions, particularly levels of unemployment and GDP, compared with conditions at the adoption of CECL.  The Company has been prudently working with borrowers to support their credit needs during the challenging economic conditions and monitoring the level of modifications on a daily basis.  Certain loans modified in response to the COVID-19 pandemic were downgraded to risk grade 5 out of an abundance of caution.  Nonperforming assets as a percentage of total assets increased by five basis points to 0.61% during the quarter.  The increase in nonperforming assets is primarily a result of the migration of a small number of credits to nonaccrual and OREO and an increase in accruing loans delinquent 90 days or more in our premium finance division.  The net charge-off ratio was 14 basis points for the first quarter of 2020, compared with nine basis points in the fourth quarter of 2019 and 17 basis points in the first quarter of 2019.