Ameris Bancorp — 2012 First-Quarter Form 10-Q
Business context and reporting period
Ameris Bancorp is a Georgia-based financial holding company operating primarily through Ameris Bank. At March 31, 2012, the Bank operated 67 branches in Georgia, Alabama, Florida and South Carolina. The filing covers the three months ended March 31, 2012; interim financial statements are unaudited.
Financial results and key metrics
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total interest income | $32.3 million | $32.1 million |
| Net interest income | $27.7 million | $24.2 million |
| Provision for loan losses | $12.9 million | $7.0 million |
| Noninterest income | $27.3 million | $6.2 million |
| Noninterest expense | $34.2 million | $21.2 million |
| Net income | $5.4 million | $1.4 million |
| Net income available to common shareholders | $4.6 million | $0.6 million |
| Diluted earnings per share | $0.19 | $0.02 |
| Net interest margin, tax equivalent | 4.48% | 4.04% |
| Return on average assets | 0.72% | 0.19% |
| Return on average common equity | 8.89% | 2.51% |
| Efficiency ratio, tax equivalent | 62.28% | 69.59% |
At March 31, 2012, total assets were $3.04 billion, deposits were $2.67 billion, net loans were $1.95 billion, and stockholders’ equity was $297.7 million. Gross loans, including covered loans, were approximately $1.98 billion. Short-term investments were $194.2 million, cash and due from banks were $65.0 million, and available-for-sale securities were $371.8 million.
Operating cash flow was $7.7 million, compared with $9.3 million in the prior-year quarter. Investing activities provided $215.0 million, primarily reflecting $75.0 million from the reduction of the FDIC indemnification asset and $65.1 million of cash proceeds from FDIC-assisted acquisitions. Financing activities used $223.3 million, including a $187.2 million decrease in deposits and debt repayments. Cash and due from banks ended at $65.0 million.
Borrowings included $3.8 million of other borrowings, $28.8 million of repurchase agreements and $42.3 million of subordinated deferrable interest debentures. The Bank’s March 31, 2012 regulatory capital ratios were 10.93% leverage, 19.01% core capital and 20.27% total capital; management stated that the Bank was well capitalized under applicable standards.
Material changes versus comparable periods
- Net income available to common shareholders increased to $4.6 million from $0.6 million, but the improvement was substantially affected by acquisition-related and credit-resolution items.
- Net interest income increased $3.5 million, while the tax-equivalent net interest margin expanded 44 basis points to 4.48%. Management attributed the improvement mainly to lower funding costs; deposit costs declined to 0.63% from 1.17%.
- Provision expense rose to $12.9 million from $7.0 million. Net charge-offs increased to $19.1 million, or 5.79% annualized average loans, from $6.2 million, or 1.88%. Management attributed most of the increase to a first-quarter bulk sale of nonperforming loans.
- The allowance for loan losses declined to $28.7 million, or 2.17% of loans, from $35.4 million, or 2.63%, at March 31, 2011.
- Nonperforming assets declined to $92.3 million, or 3.03% of total assets, from $130.6 million, or 4.48%. Nonaccrual loans declined to $52.3 million from $68.4 million, and non-covered OREO declined to $40.0 million from $62.3 million.
- Covered loans increased to $653.4 million from $526.0 million, primarily because of FDIC-assisted acquisitions. Covered OREO increased to $85.8 million from $59.8 million.
- Total deposits increased year over year but declined $187.2 million during the quarter, while noninterest-bearing deposits increased to $444.7 million from $316.1 million at March 31, 2011.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide formal earnings or financial guidance. Management stated that loan demand remained limited by economic conditions, although improving economic conditions and increased demand could create opportunities to invest short-term assets at higher yields. Management also stated that liquidity ratios were satisfactory and identified no known event or trend likely to cause a material change in liquidity.
Ameris completed the acquisition of substantially all assets and liabilities of Central Bank of Georgia on February 24, 2012. The transaction generated a $20.0 million pretax gain and a $13.0 million after-tax gain. The FDIC loss-sharing agreement generally covers 80% of losses and recoveries on covered assets. Covered assets and the related FDIC indemnification asset involve significant estimates of future collections and may differ materially from recorded values.
Management identified several nonrecurring Q1 items: the $20.0 million acquisition gain, $11.7 million of losses associated with the bulk sale of problem assets, and $2.6 million of additional OREO write-downs anticipated for properties to be sold in the second quarter. Excluding these items, management estimated Q1 net income of approximately $591,000, or $0.02 per diluted share.
Credit risk remains concentrated in real estate. Commercial real estate loans represented $1.10 billion, or 56% of total loans, including 11% construction and development, 3% multifamily and 42% nonfarm nonresidential loans. Covered impaired loans totaled $188.4 million and non-covered impaired loans totaled $79.1 million at March 31, 2012. Troubled debt restructurings totaled $31.7 million.
Principal risks include real estate collateral values, economic and employment conditions, interest-rate changes, loan demand, FDIC loss-sharing estimates, regulatory changes, competition, weather and other catastrophic events. The company reported no material changes to the risk factors in its 2011 Form 10-K, no material legal proceedings and effective disclosure controls.
Important facts for investors to verify
- Determine the sustainability of reported earnings after removing the $20.0 million acquisition gain and other unusual credit and OREO items.
- Review the bulk sale of nonperforming loans, including the $19.1 million of net charge-offs and $11.7 million of related losses.
- Assess the adequacy and future trend of the allowance for loan losses after its decline to $28.7 million despite elevated charge-offs.
- Monitor covered-loan performance, FDIC indemnification assets and the assumptions underlying loss-sharing reimbursements.
- Evaluate concentration and stress exposure in commercial real estate, construction and development lending.
- Confirm deposit trends, liquidity sources, borrowing capacity and the effect of continued low interest rates on the net interest margin.
- Review the terms and dividend restrictions associated with the $52 million Treasury preferred-stock investment and related warrant.