Ameris Bancorp 2013 Q3 Form 10-Q Summary
Business Context and Reporting Period
Ameris Bancorp is a Georgia-based financial holding company operating primarily through Ameris Bank, which had 57 branches in Georgia, Alabama, Florida and South Carolina at September 30, 2013. The filing covers the unaudited three- and nine-month periods ended September 30, 2013, with comparisons to September 30, 2012 and balance-sheet comparisons to December 31, 2012.
Financial Performance and Condition
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Net interest income | $29.3 million, versus $28.2 million | $87.1 million, versus $84.8 million |
| Net interest margin | 4.80%, versus 4.52% | 4.85%, versus 4.55% |
| Provision for loan losses | $2.9 million, versus $6.5 million | $10.0 million, versus $26.6 million |
| Noninterest income | $12.3 million, versus $9.8 million | $35.0 million, versus $46.0 million |
| Noninterest expense | $28.7 million, versus $28.8 million | $84.3 million, versus $89.7 million |
| Net income | $6.7 million, versus $1.9 million | $18.6 million, versus $9.8 million |
| Net income available to common shareholders | $6.2 million, or $0.26 diluted EPS | $17.3 million, or $0.71 diluted EPS |
| Return on average assets | 0.94%, versus 0.26% | 0.89%, versus 0.44% |
| Return on average common equity | 10.75%, versus 3.12% | 10.11%, versus 5.38% |
At September 30, 2013, total assets were $2.82 billion, loans were $1.59 billion, covered loans were $417.6 million, mortgage loans held for sale were $69.6 million, and stockholders’ equity was $290.4 million. Total deposits were $2.44 billion. Other borrowings totaled $5.0 million, compared with none at the 2012 comparison dates, while subordinated deferrable interest debentures remained $42.3 million.
Liquidity included $53.5 million of cash and due from banks, $73.9 million of federal funds sold and interest-bearing accounts, and $312.2 million of available-for-sale securities. Management stated that liquidity ratios were satisfactory and identified no known event or trend likely to cause a material liquidity change. The Bank was considered well capitalized under all regulatory capital measures; the September 30, 2013 consolidated leverage, core capital and total capital ratios were 11.73%, 18.25% and 19.50%, respectively.
Material Changes Versus Prior Comparable Period
- Third-quarter net income available to common shareholders increased approximately 479% to $6.2 million, primarily from higher mortgage banking and other noninterest income and lower credit costs.
- Nine-month net income available to common shareholders increased approximately 137% to $17.3 million. The prior-year period included a $20.0 million gain on an FDIC-assisted acquisition, so reported noninterest income declined despite underlying improvement.
- Mortgage banking income increased to $5.2 million in the third quarter and $14.7 million year to date, compared with $3.7 million and $8.2 million, respectively, in the prior-year periods.
- Noninterest income excluding specified nonrecurring gains increased to approximately $34.9 million year to date from $25.9 million.
- Non-covered loans grew to $1.59 billion from $1.45 billion at December 31, 2012, while covered loans declined to $417.6 million from $507.7 million and $546.2 million at the prior-year comparison dates.
- Nonperforming assets declined to $69.7 million, or 2.47% of total assets, from $78.7 million, or 2.61%, at December 31, 2012. Nonaccrual non-covered loans declined to $31.7 million from $38.9 million.
- Year-to-date net charge-offs fell to $8.5 million from $33.6 million, and the annualized net charge-off ratio declined to 0.71% from 3.12%. The allowance for loan losses was $23.9 million, or 1.50% of non-covered loans, versus 1.80% at September 30, 2012.
- Deposits declined to $2.44 billion from $2.62 billion at December 31, 2012. Management attributed lower funding costs partly to a stronger transaction-deposit mix; non-CD deposits averaged 73.2% of total deposits in the third quarter.
Guidance, Outlook, Risks and Unusual Items
- Management expected improving economic conditions and increased loan demand to support interest income and continued loan growth, but the filing does not provide formal earnings or revenue guidance.
- Management stated that additional deposit-cost savings may be available but could be limited by the current low-rate environment.
- Credit risk remains concentrated in real estate. Commercial real estate loans, including covered loans, totaled $1.22 billion, or 61% of total loans. Management noted risks from property values, construction demand, larger loan sizes and the difficulty of evaluating and monitoring certain projects.
- FDIC-assisted acquisition assets remain material. Covered loans and covered other real estate owned totaled $470.2 million, supported by an $81.8 million FDIC loss-share receivable. The company notes that actual collections could differ materially from recorded estimates, although FDIC loss sharing is expected to offset a substantial portion of covered-asset losses.
- Mortgage banking activity is an increasingly important earnings contributor and introduces risks from secondary-market disruption, declining real estate values, representation-and-warranty claims, higher compliance costs and rising interest rates that could reduce originations.
- Ameris agreed to acquire The Prosperity Banking Company, whose subsidiary had 12 locations and reported June 30, 2013 assets of $754 million, loans of $485 million and deposits of $493 million. The transaction was expected to close in the fourth quarter of 2013, subject to shareholder and regulatory approvals. Consideration could be up to 50% cash, with an estimated value of approximately $15.7 million assuming all-stock consideration.
- Accumulated other comprehensive income declined to a $0.5 million loss from $6.6 million at December 31, 2012, primarily because of unrealized securities losses. Management considered the securities losses temporary.
- The company had $208.3 million of commitments to extend credit and $7.0 million of standby letters of credit at September 30, 2013.
- The filing identifies no legal proceedings, defaults upon senior securities or material control deficiencies. Management concluded disclosure controls and procedures were effective.
Most Important Facts to Verify
- Whether mortgage banking income remains sustainable as interest rates, housing activity and secondary-market conditions change.
- Whether nonperforming assets, criticized loans and real estate collateral values continue to improve without materially higher provisions or charge-offs.
- The collectability and timing of the $81.8 million FDIC loss-share receivable and the remaining covered assets.
- The final terms, regulatory approvals, funding mix and integration results of the Prosperity transaction.
- Whether loan growth can be maintained while deposits decline and the loan-to-deposit ratio increases.
- The effect of rising interest rates on the 4.80% quarterly net interest margin, securities valuations, deposit costs and mortgage originations.
- Compliance with the revised Basel III capital framework expected to apply beginning January 1, 2015.