Ameris Bancorp 2014 Q2 Form 10-Q Summary
Business Context and Reporting Period
Ameris Bancorp is a Georgia-based financial holding company operating primarily through Ameris Bank. At June 30, 2014, the Bank operated 74 branches across Georgia, Alabama, Florida and South Carolina. This unaudited Form 10-Q covers the three and six months ended June 30, 2014, compared with the corresponding 2013 periods, and balance-sheet comparisons include December 31, 2013.
On June 30, 2014, Ameris completed its acquisition of The Coastal Bankshares, Inc., adding six banking locations in coastal Georgia. The transaction involved approximately $34.5 million of common stock and $2.8 million of cash and was recorded using purchase accounting.
Key Financial Metrics
| Metric | Q2 2014 | Q2 2013 | Six Months 2014 | Six Months 2013 |
|---|---|---|---|---|
| Net interest income | $35.3 million | $29.5 million | $69.7 million | $57.8 million |
| Provision for loan losses | $1.4 million | $4.2 million | $3.1 million | $7.1 million |
| Noninterest income | $15.8 million | $11.4 million | $28.6 million | $22.7 million |
| Noninterest expense | $37.3 million | $26.7 million | $70.6 million | $55.6 million |
| Net income available to common shareholders | $8.1 million | $6.2 million | $16.2 million | $11.1 million |
| Diluted earnings per share | $0.32 | $0.26 | $0.63 | $0.46 |
| Net interest margin, tax-equivalent | 4.65% | 4.96% | 4.61% | 4.88% |
| Return on average assets | 0.93% | 0.95% | 0.95% | 0.85% |
| Return on average common equity | 10.53% | 10.66% | 11.32% | 9.60% |
Total assets were $4.0 billion at June 30, 2014, compared with $3.7 billion at December 31, 2013 and $2.8 billion at June 30, 2013. Total deposits were $3.4 billion, compared with $3.0 billion at year-end 2013 and $2.4 billion a year earlier. Stockholders’ equity was $343.4 million.
Legacy loans, excluding purchased non-covered and FDIC-covered loans, were $1.77 billion. Purchased non-covered loans were $702.1 million, and FDIC-covered loans were $331.3 million. The allowance for loan losses was $22.3 million, or 1.26% of legacy loans.
Six-month operating cash flow was $15.9 million, compared with $8.2 million in the prior-year period. Investing activities provided $165.4 million, principally reflecting changes in short-term investments, securities activity and loan collections. Financing activities used $163.3 million, including repayment of $174.0 million of other borrowings, redemption of $28.0 million of preferred stock and payment of $1.3 million in common dividends.
Other borrowings totaled $100.3 million at June 30, 2014, down from $194.6 million at December 31, 2013. Securities sold under repurchase agreements were $51.1 million, and subordinated deferrable interest debentures were $64.8 million. The Bank was considered well capitalized under all applicable regulatory capital measures; its leverage ratio was 9.77%, core capital ratio was 14.11% and total capital ratio was 15.04%.
Liquidity ratios were considered satisfactory by management and regulators. Loans net of unearned income represented 82.72% of total deposits, while available-for-sale securities represented 15.80% of deposits. Management reported no known events likely to cause a material change in liquidity.
Material Changes Versus Comparable Periods
- Quarterly net income available to common shareholders increased 30.4%, while six-month income increased 46.1%.
- Net interest income rose because of the Prosperity acquisition, loan growth and lower excess liquidity, although the tax-equivalent net interest margin declined from 4.96% to 4.65% in the quarter and from 4.88% to 4.61% year to date.
- Noninterest income increased 38.9% in the quarter and 25.6% year to date. Mortgage banking income increased to $7.0 million in the quarter and $12.2 million for the first six months, supported by additional mortgage personnel and higher production.
- Noninterest expense increased 39.8% in the quarter and 27.0% year to date, reflecting the Prosperity and Coastal acquisitions, higher mortgage-related activity and approximately $2.9 million of Coastal merger charges in the quarter. Management stated that approximately $1.9 million of the merger-related charges reduced after-tax earnings.
- The provision for loan losses declined materially, and six-month net charge-offs fell to $2.6 million from $5.7 million. However, nonperforming assets increased to $89.9 million from $73.5 million at year-end 2013 and $71.7 million at June 30, 2013, primarily because of acquired assets.
- Nonaccrual legacy loans declined to $22.1 million from $31.8 million a year earlier, but nonaccrual purchased non-covered loans increased to $15.8 million, compared with none in the prior-year period.
- The Company redeemed its remaining $28.0 million of preferred stock in March 2014 and declared a $0.05 per-share common dividend for the six months ended June 30, 2014.
Guidance, Outlook, Risks and Unusual Items
No formal earnings guidance was provided. Management expected improving economic conditions and increased loan demand to support interest income and continued efforts to grow quality loans.
Key risks include concentration in commercial real estate, which represented 57% of total loans, including 45% in nonfarm nonresidential loans; sensitivity to interest rates and funding costs; integration and fair-value risks associated with acquisitions; and potential losses on real estate collateral and acquired loans. Management noted that certain raw-land and subdivision properties may require extended marketing periods.
FDIC loss-sharing agreements covered $331.3 million of loans and $38.4 million of other real estate owned at June 30, 2014. The related FDIC loss-share receivable was $49.2 million, and the Company recorded a $5.2 million clawback liability. Although these agreements reduce expected credit losses, changes in collection estimates can affect accretion income, provisions and the indemnification asset.
Off-balance-sheet commitments included $285.1 million of commitments to extend credit and $8.4 million of standby letters of credit. The Company had a $37.1 million interest-rate cash-flow hedge and mortgage-related forward contracts and interest-rate lock commitments. Management stated that a 200-basis-point rate change should not reduce net interest income by more than 5% over 24 months under its risk policy.
Coastal acquisition fair values remained preliminary, including adjustments related to loans, other real estate owned and deferred tax assets. The filing states that these estimates could be refined during the measurement period.
Investor Verification Checklist
- Verify the final purchase-accounting adjustments and post-acquisition performance of Coastal and Prosperity.
- Monitor acquired non-covered loan performance, including the $15.8 million of nonaccrual purchased non-covered loans.
- Assess commercial real estate concentration, collateral values, classified loans and trends in nonperforming assets.
- Reconcile the decline in the net interest margin with loan growth, funding costs and the runoff of higher-yielding covered loans.
- Evaluate the sustainability of mortgage banking income and the effect of acquisition-related and integration expenses on operating efficiency.
- Review FDIC loss-share receivable estimates, clawback obligations and the timing of remaining reimbursements.
- Confirm regulatory capital ratios after the Coastal acquisition and the Company’s expected compliance with Basel III requirements effective January 1, 2015.