Ameris Bancorp Form 10-Q Summary
Business Context and Reporting Period
Ameris Bancorp is a Georgia-based financial holding company operating primarily through Ameris Bank. At March 31, 2013, the Bank operated 57 branches in Georgia, Alabama, Florida and South Carolina. The filing covers the unaudited three months ended March 31, 2013, compared with the three months ended March 31, 2012 and selected balance-sheet comparisons with December 31, 2012.
Key Financial Metrics
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Net interest income | $28.3 million | $27.7 million | +$0.6 million |
| Provision for loan losses | $2.9 million | $12.9 million | -$10.0 million |
| Noninterest income | $11.4 million | $27.3 million | -$15.9 million |
| Noninterest expense | $28.9 million | $34.2 million | -$5.4 million |
| Net income | $5.3 million | $5.4 million | -$0.1 million |
| Net income available to common shareholders | $4.8 million | $4.6 million | +$0.3 million |
| Diluted EPS | $0.20 | $0.19 | +$0.01 |
| Tax-equivalent net interest margin | 4.79% | 4.48% | +31 basis points |
| Return on average assets | 0.75% | 0.72% | Improved |
| Return on average common equity | 8.53% | 8.89% | Declined |
The filing reports $2.9 million of consolidated provision expense in the earnings statement. Management separately describes $2.6 million of provision charged to the primary allowance and $0.3 million related to acquired FDIC-assisted loans.
Operating cash flow was $30.9 million, compared with $7.7 million in Q1 2012. Investing activities provided $101.6 million, while financing activities used $162.3 million, primarily reflecting a $134.7 million decline in deposits and a $27.2 million reduction in repurchase-agreement funding. Cash and due from banks declined to $50.5 million from $80.3 million at December 31, 2012.
At March 31, 2013, total assets were $2.86 billion, total deposits were $2.49 billion, total liabilities were $2.58 billion and stockholders’ equity was $283.7 million. Loans, net of the allowance, were $1.93 billion, including $1.49 billion of non-covered loans and $460.7 million of FDIC-covered loans. The allowance for loan losses was $23.4 million, or 1.57% of total loans.
There were no outstanding correspondent-bank borrowings or other borrowings at March 31, 2013. Subordinated deferrable interest debentures totaled $42.3 million. Management stated that liquidity ratios were satisfactory and that it was aware of no events or trends likely to cause a material liquidity change. The Bank was considered well capitalized under all regulatory capital measurements, including a 10.88% leverage ratio, 17.43% core capital ratio and 18.68% total capital ratio.
Material Changes Versus Prior Comparable Period
- Net interest income increased modestly as lower funding costs more than offset lower interest income. Deposit costs declined to 0.36% from 0.63%, and total funding costs declined to 0.40% from 0.69%.
- The net interest margin improved to 4.79% from 4.48%, supported by a greater proportion of loans in earning assets and lower deposit costs.
- Noninterest income fell sharply because Q1 2012 included a $20.0 million acquisition gain. Excluding that gain, Q1 2013 noninterest income increased approximately 57%, driven principally by mortgage origination fees and service charges.
- Noninterest expense declined despite higher salaries and employee benefits, data processing costs and amortization. Credit-related expenses were $4.8 million versus $12.7 million in Q1 2012, when the Company conducted a bulk sale of problem assets.
- Non-covered loans increased to $1.49 billion from $1.45 billion at December 31, 2012 and $1.32 billion at March 31, 2012. Covered loans declined to $460.7 million from $507.7 million at year-end and $653.4 million a year earlier.
- Non-covered nonaccrual loans declined to $37.5 million from $52.3 million a year earlier. Total non-covered nonperforming assets were $77.9 million, or 2.72% of total assets, versus $88.7 million, or 2.91%, at March 31, 2012.
- Net charge-offs declined to $2.8 million, or 0.76% annualized, from $19.1 million, or 5.79%, in Q1 2012. The prior-year amount was substantially affected by the bulk sale of nonperforming loans.
- Deposits declined to $2.49 billion from $2.62 billion at December 31, 2012 and $2.67 billion at March 31, 2012, while the loan-to-deposit ratio increased to 59.95% from 49.67% a year earlier, excluding covered assets as applicable.
Outlook, Risks, Contingencies and Unusual Items
Management stated that improving economic conditions and increased loan demand could allow the Company to invest short-term assets at higher yields. No formal earnings or revenue guidance was provided. Management also indicated that opportunities for further deposit-cost reductions may be limited at current cost levels.
Credit risk remains concentrated in real estate. Commercial real estate loans totaled $1.21 billion, or 62% of total loans, including construction and development, multifamily and nonfarm nonresidential loans. Management noted risks related to collateral values, local economic conditions, construction demand, borrower cash flows and the concentration of larger commercial real estate exposures.
Other risks include interest-rate and liquidity risk, competition, regulatory and legislative changes, economic and political conditions, commodity prices, weather and natural disasters, and risks associated with acquisitions. The Company targets limiting the decline in net interest income to no more than 5% under selected 200-basis-point rate scenarios. It had a $37.1 million interest-rate swap and mortgage-related forward contracts with a fair value of approximately $1.6 million.
FDIC-assisted acquired assets remain material. Covered loans and covered other real estate owned totaled $538.6 million, supported by an FDIC loss-share receivable of $161.0 million. The filing cautions that realized collections could differ materially from estimates, although loss-sharing is expected to offset a substantial portion of covered-asset losses.
On May 2, 2013, after the reporting date, Ameris announced an agreement to acquire The Prosperity Banking Company. Prosperity reported $742 million of assets, $464 million of loans and $478 million of deposits at December 31, 2012. The transaction is expected to close in Q3 2013, subject to regulatory and shareholder approvals and other customary conditions. Consideration may be paid in cash or Ameris common stock, with cash limited to 50% of total consideration; an all-stock transaction was estimated at approximately $15.7 million.
The Company reported no material legal proceedings, no material changes to previously disclosed risk factors and effective disclosure controls and procedures.
Most Important Facts to Verify
- Reconcile the reported $2.9 million consolidated provision for loan losses with the $2.6 million primary allowance provision and $0.3 million acquired-loan provision described in management’s discussion.
- Monitor commercial real estate concentration, criticized loans, nonaccrual loans, OREO and the allowance coverage ratio as the legacy loan book expands.
- Assess the sustainability of the 4.79% net interest margin as low funding costs and short-term liquidity balances change.
- Evaluate deposit runoff and the resulting liquidity impact, including the decline in cash, deposits and repurchase-agreement funding during the quarter.
- Review the valuation and expected collections of FDIC-covered loans, covered OREO and the $161.0 million FDIC loss-share receivable.
- Confirm the final structure, regulatory approvals, purchase accounting and integration risks of the proposed Prosperity acquisition.
- Consider that Q1 2012 included a $20.0 million acquisition gain and unusually high credit costs, making reported year-over-year changes less comparable.