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 June 30, 2012, the Bank operated 67 branches across Georgia, Alabama, Florida and South Carolina. This unaudited Form 10-Q covers the three and six months ended June 30, 2012, with comparisons to the corresponding 2011 periods and December 31, 2011.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2012 | Three Months Ended June 30, 2011 | Six Months Ended June 30, 2012 | Six Months Ended June 30, 2011 |
|---|---|---|---|---|
| Net interest income | $28.9 million | $28.7 million | $56.6 million | $53.0 million |
| Provision for loan losses | $7.2 million | $9.1 million | $20.1 million | $16.2 million |
| Noninterest income | $8.9 million | $6.0 million | $36.1 million | $12.2 million |
| Noninterest expense | $26.6 million | $22.6 million | $60.9 million | $43.8 million |
| Net income | $2.5 million | $2.1 million | $7.9 million | $3.5 million |
| Net income available to common shareholders | $1.7 million | $1.3 million | $6.2 million | $1.9 million |
| Diluted earnings per share | $0.07 | $0.06 | $0.26 | $0.08 |
| Net interest margin, tax equivalent | 4.66% | 4.79% | 4.56% | 4.41% |
- Total assets were $2.92 billion at June 30, 2012, compared with $2.99 billion at December 31, 2011 and $2.86 billion at June 30, 2011.
- Total loans, including covered loans, were $1.97 billion, consisting of $1.37 billion of non-covered loans and $601.7 million of FDIC-covered loans.
- Deposits were $2.54 billion; noninterest-bearing deposits were $429.1 million and interest-bearing deposits were $2.12 billion.
- Stockholders’ equity was $300.9 million, compared with $293.8 million at December 31, 2011 and $277.2 million at June 30, 2011.
- Net cash provided by operating activities was $25.0 million and net cash provided by investing activities was $323.2 million for the first six months. Financing activities used $353.6 million, producing a $5.4 million decrease in cash and due from banks.
- The allowance for loan losses was $26.2 million, or 1.92% of total loans. Six-month net charge-offs were $27.6 million, or 4.07% annualized average loans.
- Nonperforming assets were $84.4 million, or 2.89% of total assets, compared with $122.1 million, or 4.27%, at June 30, 2011.
- The Bank was considered well capitalized under all regulatory capital measures. Its leverage, core capital and total capital ratios were 11.09%, 19.27% and 20.53%, respectively.
Material Changes Versus Prior Comparable Period
- Second-quarter net income available to common shareholders increased 28% to $1.7 million, while diluted EPS increased to $0.07 from $0.06.
- Six-month net income available to common shareholders increased to $6.2 million from $1.9 million, although the comparison was significantly affected by acquisition-related gains and other unusual items.
- Net interest income increased for the first half despite lower asset yields, primarily because funding costs declined. The six-month tax-equivalent net interest margin improved to 4.56% from 4.41%.
- Second-quarter provision expense declined from $9.1 million to $7.2 million, but first-half provision expense increased because of charges associated with the sale of nonperforming assets and losses on acquired loans.
- Noninterest income increased substantially, primarily because of a $20.0 million pretax gain from the Central Bank of Georgia acquisition and higher mortgage banking revenue. Excluding the acquisition gain and securities gains, first-half noninterest income increased approximately 35%.
- Noninterest expense increased materially, reflecting additional branches acquired through FDIC-assisted transactions, higher salaries and benefits, reinstated incentive compensation and board fees, and higher credit-related expenses.
- During the first quarter, Ameris sold approximately $31.2 million of nonperforming and classified assets, recording losses of approximately $16.1 million. This contributed to higher charge-offs and reduced nonperforming assets.
- On February 24, 2012, Ameris acquired substantially all assets and liabilities of Central Bank of Georgia through an FDIC-assisted transaction. The transaction produced a $20.0 million pretax gain and a $13.0 million after-tax gain.
- On June 14, 2012, the U.S. Treasury sold Ameris’s TARP preferred shares to new investors. The transaction did not change the company’s capital position but eliminated several TARP-related executive compensation and governance restrictions. The Treasury continued to hold the related warrant.
Outlook, Commentary, Risks and Unusual Items
- Management stated that loan demand remained limited by economic conditions, although it expected improving economic conditions and increased loan demand to create opportunities to deploy short-term assets into loans and higher-yielding investments.
- Management attributed lower funding costs to the low-rate environment, reduced pricing on certificates of deposit and a higher proportion of transaction deposits. Further deposit-cost savings may be limited.
- Credit quality trends improved, including lower nonaccrual loans and nonperforming assets. However, management continued to record provisions because of real estate collateral devaluation and elevated charge-offs.
- Commercial real estate represented approximately 54% of total loans, including covered loans. Management identified risks related to property values, construction activity, loan size and dependence on rental income, refinancing or property sales.
- FDIC loss-sharing agreements covered $601.7 million of loans and $83.5 million of other real estate owned. The related FDIC indemnification asset was $203.8 million. Changes in expected cash flows, collections and valuations could materially affect these balances and future earnings.
- Ameris reported $143.9 million of commitments to extend credit and $9.0 million of standby letters of credit at June 30, 2012.
- The company disclosed interest-rate risk, credit risk, liquidity risk, regulatory and legislative changes, competition, economic conditions, real estate markets, commodity prices, interest rates, weather and catastrophic events as significant risks. Management stated that liquidity ratios were satisfactory and identified no known events likely to cause a material change in liquidity.
- Subsequent to quarter-end, on July 6, 2012, the Bank acquired approximately $156.6 million of deposits and approximately $18.1 million of assets from Montgomery Bank & Trust in an FDIC-assisted transaction. The FDIC paid approximately $138.7 million to settle the transaction; management did not expect a material impact.
Most Important Facts for Investors to Verify
- Separate recurring operating performance from the $20.0 million acquisition gain and other acquisition-related effects.
- Assess whether lower nonperforming assets reflect sustainable credit improvement or primarily the first-quarter bulk sale of troubled assets.
- Review the adequacy of the $26.2 million allowance relative to charge-offs, criticized loans, commercial real estate exposure and collateral valuations.
- Monitor the collectability and valuation of the $203.8 million FDIC indemnification asset and the terms and remaining duration of FDIC loss-sharing agreements.
- Evaluate the sustainability of mortgage banking revenue, reduced deposit costs and the 4.56% year-to-date net interest margin in a low-rate environment.
- Confirm the effect of the July 2012 Montgomery Bank & Trust acquisition on deposits, liquidity, capital and future earnings.
- Review regulatory capital ratios, TARP preferred stock obligations, the remaining Treasury warrant and any restrictions on preferred dividends or redemption.