Ameris Bancorp 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, 2011, the Bank operated 62 branches in Georgia, Alabama, Florida and South Carolina. This unaudited Form 10-Q covers the three and nine months ended September 30, 2011, with comparisons to the 2010 periods and December 31, 2010 balance-sheet data.
Growth continued to be driven substantially by FDIC-assisted acquisitions. On July 15, 2011, Ameris acquired substantially all assets and liabilities of High Trust Bank and One Georgia Bank, adding covered loans, deposits and FDIC loss-share protection.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2011 | Three Months Ended September 30, 2010 | Nine Months Ended September 30, 2011 | Nine Months Ended September 30, 2010 |
|---|---|---|---|---|
| Net interest income | $27.8 million | $22.0 million | $80.8 million | $66.3 million |
| Net interest margin, tax equivalent | 4.44% | 4.04% | 4.40% | 4.04% |
| Provision for loan losses | $7.6 million | $9.7 million | $23.7 million | $39.1 million |
| Noninterest income | $33.7 million | $5.0 million | $45.9 million | $23.0 million |
| Noninterest expense | $29.3 million | $18.9 million | $73.0 million | $59.3 million |
| Net income available to common shareholders | $15.6 million | $(1.7) million | $17.5 million | $(8.3) million |
| Diluted earnings per share | $0.66 | $(0.07) | $0.74 | $(0.42) |
| Return on average assets | 2.04% | (0.28%) | 0.79% | (0.45%) |
| Efficiency ratio, tax equivalent | 47.56% | 70.08% | 57.65% | 66.40% |
At September 30, 2011, total assets were $3.01 billion, total deposits were $2.63 billion, loans were $1.37 billion, covered loans were $595.4 million, and total stockholders’ equity was $294.4 million. The allowance for loan losses was $35.2 million, or 2.57% of loans.
Gross loans including covered loans totaled $1.96 billion, up 1.8% from December 31, 2010 and from approximately $1.65 billion at September 30, 2010. Legacy loans declined 6.0% year over year to $1.37 billion, while covered loans increased materially through FDIC-assisted acquisitions.
Cash and due from banks were $55.8 million, federal funds sold and interest-bearing accounts were $170.3 million, and investment securities available for sale were $340.8 million. Cash flow from operating activities was $35.6 million for the first nine months, compared with $54.0 million in the prior-year period. Investing activities provided $264.8 million, while financing activities used $319.0 million, producing an $18.6 million net decrease in cash and due from banks.
Debt and other funding at September 30, 2011 included $13.2 million of repurchase agreements, $21.0 million of other borrowings, and $42.3 million of subordinated deferrable interest debentures. Management stated that reliance on volatile nondeposit funding remained low. The Bank was considered well capitalized under all regulatory capital measurements, with a 10.46% leverage ratio, 18.99% core capital ratio and 20.25% total capital ratio.
Material Changes Versus Prior Comparable Period
- Third-quarter net income available to common shareholders improved to $15.6 million from a $1.7 million loss, primarily because of FDIC-assisted acquisition gains and stronger net interest income.
- Nine-month net income available to common shareholders improved to $17.5 million from an $8.3 million loss.
- Net interest income increased 26.9% in the third quarter and 21.9% year to date, reflecting asset growth, favorable yields on covered loans and lower funding costs.
- The tax-equivalent net interest margin increased to 4.44% in the third quarter and 4.40% year to date, versus 4.04% in each 2010 comparison period.
- The provision for loan losses declined 22.4% in the third quarter and 39.4% year to date. Year-to-date net charge-offs declined to $21.4 million from $39.8 million.
- Noninterest income increased sharply because of a $26.9 million gain on the High Trust Bank and One Georgia Bank acquisitions. Excluding acquisition and securities gains, management reported year-to-date noninterest income of $18.8 million, up 29.0% from 2010.
- Noninterest expense increased 54.6% in the third quarter and 23.2% year to date, reflecting branch growth, acquisition-related costs and higher problem-asset expenses.
- Noninterest-bearing deposits increased to $354.4 million, or 13.5% of total deposits, from $235.6 million, or 11.2%, one year earlier.
- Nonaccrual non-covered loans declined to $59.1 million from $89.9 million at September 30, 2010. Reported nonperforming assets were $113.6 million, or 3.77% of total assets, versus 5.78% one year earlier.
Guidance, Outlook, Risks and Unusual Items
The filing provides no formal earnings or revenue guidance. Management indicated that lending growth remained slow because of economic conditions and limited acceptable loan opportunities. The Company continued to focus on resolving problem assets while seeking quality credits for portfolio growth.
Third-quarter results included several unusual items. The $26.9 million gain on FDIC-assisted acquisitions was partly offset by $1.4 million of severance, conversion and miscellaneous acquisition expenses. Ameris also accelerated sales of approximately $25.3 million of nonperforming or classified assets, generating $5.8 million of losses and related expenses. Excluding these items, management estimated third-quarter net income of $2.4 million, or $0.09 per diluted share.
FDIC loss-share agreements generally cover 80% of losses and recoveries on acquired assets. The FDIC indemnification asset was $239.7 million at September 30, 2011. Management cautioned that the value realized from acquired loans and the related indemnification assets could differ materially from current estimates, although the loss-sharing arrangements are expected to offset much of the exposure.
Key risks include continued weakness in commercial real estate and construction markets, collateral-value declines, credit losses, concentrations in commercial real estate, interest-rate changes, liquidity needs, regulatory requirements, competition, economic conditions, weather and catastrophic events. Commercial real estate represented 56% of total loans, including covered loans, at September 30, 2011.
The Company maintained one LIBOR cash-flow hedge with a $37.1 million notional amount, exchanging fixed payments of 4.15% for three-month LIBOR payments and maturing in December 2018. Management reported satisfactory liquidity and no known events likely to cause a material change in liquidity. Disclosure controls and procedures were determined to be effective.
Important Facts for Investors to Verify
- Separate recurring operating earnings from the $26.9 million acquisition gain and other unusual third-quarter items.
- Evaluate the sustainability of net interest margin gains from covered-loan accretion, FDIC loss-share accounting and unusually low deposit funding costs.
- Monitor covered-loan performance, FDIC indemnification assets and the duration and terms of the applicable loss-share agreements.
- Track commercial real estate exposure, nonaccrual covered loans of $144.3 million, non-covered nonaccrual loans of $59.1 million and other real estate owned of $54.5 million.
- Assess whether declining legacy loans and limited organic lending opportunities constrain future growth.
- Review the allowance for loan losses, collateral valuations and the effect of additional OREO write-downs or bulk asset sales.
- Confirm regulatory capital ratios, preferred-stock obligations, dividend restrictions and the $42.3 million of subordinated deferrable interest debentures.
- Reconcile management’s nonperforming-asset presentation with covered-asset disclosures and determine which measures include or exclude FDIC-covered assets.