Ameris Bancorp 2015 Q3 Form 10-Q Summary
Business context and reporting period
Ameris Bancorp is a Georgia-based financial holding company operating primarily through Ameris Bank. At September 30, 2015, the Bank operated 103 branches across Georgia, Alabama, Florida and South Carolina. The filing covers the three and nine months ended September 30, 2015; interim financial statements are unaudited.
Results include the May 2015 acquisition of Merchants & Southern Bank and the June 2015 acquisition of 18 Bank of America branches. Ameris also announced a proposed merger with Jacksonville Bancorp, expected to close in the first quarter of 2016, subject to shareholder, regulatory and other customary approvals.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Net interest income | $47.4 million | $39.1 million | $126.9 million | $108.9 million |
| Noninterest income | $25.0 million | $17.9 million | $63.2 million | $46.5 million |
| Net income available to common shareholders | $15.6 million | $11.7 million | $26.7 million | $27.9 million |
| Diluted earnings per share | $0.48 | $0.43 | $0.84 | $1.07 |
| Net interest margin, tax-equivalent | 4.07% | 4.50% | 4.18% | 4.57% |
| Efficiency ratio, tax-equivalent | 66.87% | 67.64% | 76.85% | 70.25% |
| Return on average assets | 1.19% | 1.17% | 0.74% | 1.01% |
| Return on average common equity | 12.53% | 13.19% | 7.21% | 10.73% |
Amounts are presented in dollars unless otherwise noted. Total assets were $5.216 billion at September 30, 2015, compared with $4.037 billion at December 31, 2014 and $3.999 billion at September 30, 2014. Total deposits were $4.531 billion, and stockholders’ equity was $502.3 million.
- Legacy loans, excluding purchased and covered loans, were $2.291 billion, up from $1.890 billion at December 31, 2014. Purchased non-covered loans were $767.5 million, purchased loan pools were $410.1 million, and covered loans were $191.0 million.
- Investment securities available for sale were $811.4 million, compared with $541.8 million at December 31, 2014.
- Mortgage loans held for sale were $111.8 million. Mortgage banking activity generated $10.4 million of noninterest income in Q3 and $28.2 million for the first nine months.
- The allowance for loan losses was $22.5 million. Q3 provision expense was $986,000, and nine-month provision expense was $4.7 million.
- Net charge-offs were $237,000 in Q3 and $2.6 million for the first nine months, compared with $1.6 million and $4.2 million, respectively, in the comparable 2014 periods.
- Nonperforming assets excluding covered assets were $64.2 million, or 1.23% of total assets, versus $88.8 million, or 2.22%, at September 30, 2014.
- Cash and due from banks were $114.4 million. Nine-month cash flow from operating activities was negative $18.0 million, investing activities provided $1.0 million, and financing activities provided $53.4 million, producing a $36.4 million increase in cash and due from banks.
- Other borrowings were $39.0 million, securities sold under agreements to repurchase were $51.5 million, and subordinated deferrable interest debentures were $69.6 million. The Bank had $302.1 million available under Federal Home Loan Bank lines and $468.2 million available through the Federal Reserve discount window.
- The Bank was considered well capitalized under all regulatory capital measurements. The consolidated leverage ratio was 8.85%, CET1 ratio 10.04%, core capital ratio 11.52%, and total capital ratio 12.09%.
Material changes versus comparable periods
- Q3 net income available to common shareholders increased 34% year over year, while diluted EPS increased from $0.43 to $0.48. Nine-month net income declined 4% and diluted EPS declined from $1.07 to $0.84, primarily because of acquisition-related charges and credit-resolution expenses.
- Tax-equivalent net interest income increased 21.5% in Q3 and 16.9% for the first nine months, driven by acquisitions and organic loan growth. However, the net interest margin declined from 4.50% to 4.07% in Q3 and from 4.57% to 4.18% year to date, partly because of higher short-term assets and a lower asset yield mix.
- Noninterest income increased 39.5% in Q3 and 35.9% year to date, led by higher deposit service charges and mortgage banking revenue.
- Noninterest expense increased 25.5% in Q3 and 33.9% year to date, reflecting acquired operations, higher salaries, occupancy, data processing and merger costs.
- Management reported approximately $4.0 million of after-tax merger-related charges and $7.3 million of after-tax OREO write-downs and other credit-resolution expenses during the first nine months of 2015. It reported approximately $2.5 million of after-tax merger-related charges in the comparable 2014 period.
- Excluding identified acquisition and credit-resolution expenses, management reported adjusted nine-month net income of $38.0 million, or $1.19 per diluted share, versus $30.4 million, or $1.16 per diluted share, in 2014. These are management-presented adjustments and are not GAAP measures.
- Ameris issued 5.32 million common shares in a January 2015 private placement and received approximately $114.5 million of net proceeds to fund acquisitions, increasing the share base and contributing to lower reported year-to-date EPS.
Outlook, commentary, risks and unusual items
- Management expected improving economic conditions and increased loan demand to support interest income. It also stated that it intended to invest excess short-term assets in loans or securities by year-end.
- Management considered liquidity satisfactory and stated that it was aware of no events or trends likely to cause a material change in liquidity.
- Key risks include commercial real estate concentration, interest-rate movements, credit quality, market and liquidity conditions, competition, regulatory changes, economic conditions, commodity prices, weather and catastrophic events.
- Commercial real estate represented approximately 51% of total loans at September 30, 2015. The company’s stated internal concentration limits were not exceeded, but management identified construction and development lending and commercial real estate as areas requiring monitoring.
- The company had a $37.1 million LIBOR cash-flow hedge maturing in September 2020 and used mortgage-related forward contracts and interest-rate-lock commitments to hedge mortgage inventory.
- A former borrower’s lender-liability judgment of approximately $2.9 million was on appeal. Management believed an adverse outcome was not probable and had recorded no reserve.
- Two putative shareholder class actions were filed after the Jacksonville Bancorp merger announcement. The plaintiffs seek injunctive relief, possible rescission, unspecified damages and other relief. The company believes the claims are without merit, but stated that the outcome and impact cannot be predicted with certainty.
Important facts for investors to verify
- Whether the Jacksonville Bancorp transaction received required shareholder and regulatory approvals and closed on the expected terms.
- Whether merger-related costs, OREO write-downs and credit-resolution expenses remain elevated or normalize after the 2015 acquisitions.
- Whether loan growth can be sustained without deterioration in commercial real estate, purchased loan pools or other credit exposures.
- Whether the net interest margin stabilizes as excess short-term assets are deployed and as interest rates change.
- The quality and sustainability of mortgage banking, SBA and other fee income, which materially influenced earnings.
- Changes in nonperforming assets, criticized loans, charge-offs, allowance coverage and FDIC loss-share receivables.
- The resolution of the former-borrower appeal and the Jacksonville-related shareholder litigation.
- Future capital ratios, dilution, dividend policy and funding needs as the company continues its acquisition strategy.