Ameris Bancorp: 2011 Second-Quarter 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, 2011, the Bank operated 59 branches in Georgia, Alabama, Florida and South Carolina. This unaudited Form 10-Q covers the three and six months ended June 30, 2011, with comparisons to the corresponding 2010 periods and December 31, 2010 balance-sheet data.
Financial performance and condition
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Net interest income | $28.7 million | $23.9 million | $53.0 million | $44.3 million |
| Net interest income, tax equivalent | $29.0 million | $24.6 million | $53.4 million | $45.2 million |
| Provision for loan losses | $9.1 million | $18.6 million | $16.2 million | $29.4 million |
| Noninterest income | $6.0 million | $13.0 million | $12.2 million | $17.9 million |
| Noninterest expense | $22.6 million | $23.4 million | $43.8 million | $40.3 million |
| Net income | $2.1 million | $(3.4) million | $3.5 million | $(5.0) million |
| Net income available to common shareholders | $1.3 million | $(4.2) million | $1.9 million | $(6.5) million |
| Diluted earnings per share | $0.06 | $(0.20) | $0.08 | $(0.37) |
| Net interest margin, tax equivalent | 4.79% | 4.43% | 4.41% | 4.19% |
| Return on average assets | 0.18% | (0.68%) | 0.13% | (0.47%) |
- Total assets were $2.86 billion, compared with $2.97 billion at December 31, 2010 and $2.42 billion at June 30, 2010.
- Legacy loans were $1.36 billion, down from $1.49 billion a year earlier. Covered loans acquired in FDIC-assisted transactions were $486.5 million, compared with $192.5 million at June 30, 2010.
- Total deposits were $2.51 billion, compared with $2.54 billion at year-end 2010 and $2.08 billion a year earlier. Noninterest-bearing deposits increased to $318.0 million from $218.0 million a year earlier.
- Cash and due from banks were $68.6 million, while federal funds sold and interest-bearing accounts were $218.3 million. The filing states that liquidity ratios were satisfactory and that no advances were outstanding on available credit lines.
- Debt and funding included $17.1 million of repurchase agreements and $42.3 million of subordinated deferrable interest debentures. Other borrowings were zero at June 30, 2011, compared with $43.5 million at December 31, 2010.
- Stockholders’ equity was $277.2 million. The Bank was considered well capitalized, with a 10.39% leverage ratio, 18.19% core capital ratio and 19.45% total capital ratio.
- Six-month operating cash flow was $9.9 million, investing cash flow was $104.3 million and financing cash flow was $(119.9) million, resulting in a $5.8 million decrease in cash and due from banks.
Material changes versus prior comparable periods
- Quarterly net income available to common shareholders improved to $1.3 million from a $4.2 million loss. Management attributed the improvement primarily to higher net interest income and lower credit costs.
- Tax-equivalent net interest income increased 18%, supported by growth in covered loans, approximately $3.8 million of covered-loan accretion in the quarter, and lower funding costs. The quarterly net interest margin increased 36 basis points to 4.79%.
- The provision for loan losses declined by $9.5 million in the quarter and $13.2 million year to date. Six-month net charge-offs declined to $14.6 million from $30.7 million, and annualized net charge-offs improved to 2.17% of average loans from 3.64%.
- Noninterest income declined because the second quarter and first half of 2010 included an $8.2 million gain on an FDIC-assisted acquisition. Excluding unusual gains, 2011 noninterest income increased from the prior-year period, primarily because of higher deposit service charges.
- Noninterest expense increased $3.4 million for the first six months, reflecting higher salaries, occupancy and data-processing costs associated with branch and asset growth.
- Nonaccrual loans declined to $60.5 million from $92.3 million a year earlier and $79.3 million at year-end 2010. Total nonperforming assets were $122.1 million, or 4.27% of assets, versus $133.4 million, or 5.51%, a year earlier.
- Other real estate owned increased to $61.5 million from $41.1 million a year earlier. Total covered assets declined from year-end levels as covered loans fell to $486.5 million, while covered OREO increased to $63.6 million.
Guidance, outlook, commentary, risks and unusual items
- The filing provides no formal earnings or revenue guidance. Management expects continued participation in FDIC-assisted acquisitions, improving economic conditions and increased loan demand to create opportunities to deploy short-term assets at higher yields.
- On July 15, 2011, subsequent to quarter-end, the Bank acquired substantially all assets and assumed substantially all liabilities of High Trust Bank and One Georgia Bank in FDIC-assisted transactions. Management estimated after-tax gains of less than $10.0 million and less than $4.0 million, respectively; the acquisitions were not expected to materially affect operations or financial condition.
- Credit risk remains concentrated in commercial real estate. CRE loans, including covered loans, totaled $1.00 billion, or 54% of total loans, at June 30, 2011. Construction and development loans represented 12%, and nonfarm nonresidential loans represented 39%.
- Management cited continued real-estate collateral devaluation, extended marketing periods for certain OREO properties, local economic conditions, unemployment, agriculture-related risks and slower loan demand as credit risks.
- FDIC loss-sharing agreements cover a substantial portion of acquired loans and OREO. The FDIC indemnification asset was $160.9 million. Changes in estimated cash flows could affect covered-asset carrying values, accretion income and provisions for loan losses.
- The allowance for loan losses was $34.5 million, or 2.54% of legacy loans. Management stated that the allowance was adequate, but the estimate depends on collateral values, economic conditions, loss experience and loan-grade assumptions.
- Interest-rate risk is managed through asset-liability modeling and cash-flow hedges. Management’s policy targets no more than a 5% decline in net interest income from a 200-basis-point rate change over 24 months.
- The company remains subject to restrictions associated with its $52 million Treasury Capital Purchase Program investment, including limitations on common dividends and share repurchases. No cash dividends were paid on common shares during the periods presented.
Important facts for investors to verify
- Whether the improvement in earnings is sustainable after separating recurring banking income from covered-loan accretion and FDIC-assisted acquisition gains.
- The pace and quality of legacy loan growth, particularly within the 54% CRE concentration, and the future trajectory of nonaccrual loans, OREO, charge-offs and required provisions.
- The collectability and valuation of the $160.9 million FDIC indemnification asset and the performance of covered assets under loss-sharing agreements.
- The financial and capital effects of the July 2011 High Trust Bank and One Georgia Bank acquisitions, including actual purchase accounting gains and integration costs.
- The adequacy of liquidity and deposit funding as deposits declined modestly from year-end, and the effect of future interest-rate changes on the 4.79% net interest margin.
- The continuation of Treasury CPP dividend, repurchase and executive-compensation restrictions and the terms for any future preferred-stock redemption.