Ameris Bancorp 10-Q Summary
Business context and reporting period
Ameris Bancorp is a financial holding company headquartered in Moultrie, Georgia. Through Ameris Bank, it operated 102 branches across Georgia, Alabama, Florida and South Carolina as of June 30, 2016. The filing covers the unaudited three and six months ended June 30, 2016, compared primarily with the corresponding 2015 periods and December 31, 2015.
Ameris completed the acquisition of Jacksonville Bancorp, Inc. on March 11, 2016, adding eight Florida branches. The transaction included $72.5 million of common stock and $23.9 million of cash consideration and resulted in $31.4 million of goodwill.
Key financial metrics
| Metric | Three months ended June 30, 2016 | Three months ended June 30, 2015 | Six months ended June 30, 2016 | Six months ended June 30, 2015 |
|---|---|---|---|---|
| Net interest income | $54.6 million | $40.7 million | $105.0 million | $79.5 million |
| Noninterest income | $28.4 million | $20.6 million | $52.7 million | $38.2 million |
| Provision for loan losses | $0.9 million | $2.7 million | $1.6 million | $3.7 million |
| Noninterest expense | $52.4 million | $56.9 million | $108.0 million | $97.7 million |
| Net income | $20.0 million | $1.3 million | $32.4 million | $11.1 million |
| Diluted EPS | $0.57 | $0.04 | $0.95 | $0.35 |
| Tax-equivalent net interest margin | 4.01% | 4.14% | 4.02% | 4.26% |
| Return on average assets | 1.31% | 0.12% | 1.11% | 0.52% |
| Return on average common equity | 13.08% | 1.07% | 11.24% | 4.54% |
At June 30, 2016, total assets were $6.22 billion, total deposits were $5.18 billion, net loans were $4.60 billion, and stockholders’ equity was $625.9 million. Cash and cash equivalents were $184.5 million, compared with $355.2 million at June 30, 2015. The allowance for loan losses was $21.7 million, or 0.77% of legacy loans.
Six-month operating cash flow was negative $16.0 million, compared with negative $17.3 million in the prior-year period. Investing cash flow was negative $230.8 million, primarily reflecting loan growth and securities activity. Financing cash flow was positive $40.8 million, including $172.7 million of new borrowings. Total other borrowings increased to $260.2 million from $39.0 million at December 31, 2015.
The Bank was considered well capitalized under all regulatory capital measurements. At June 30, 2016, the Bank’s leverage ratio was 9.44%, CET1 ratio was 11.12%, core capital ratio was 11.12%, and total capital ratio was 11.54%.
Material changes versus prior comparable periods
- Second-quarter net income increased to $20.0 million from $1.3 million. The prior-year quarter included approximately $3.7 million of after-tax merger-related charges and $7.3 million of after-tax OREO write-downs and other credit-resolution expenses.
- Excluding those 2015 items, management reported operating net income of approximately $12.3 million for the second quarter of 2015, compared with $20.0 million in the second quarter of 2016. For the six months, operating net income was $36.5 million in 2016 versus $22.1 million in 2015.
- Net interest income benefited from acquisitions, organic loan growth and purchased loan pools. Average earning assets increased to $5.34 billion for the first six months from $3.82 billion in the prior-year period, while the tax-equivalent margin declined to 4.02% from 4.26%.
- Noninterest income increased, driven by service charges and mortgage banking. Second-quarter mortgage production was $375.7 million versus $285.6 million, and mortgage banking income increased to $14.1 million from $9.7 million.
- Noninterest expense declined year over year in the second quarter because merger and conversion charges and credit-resolution expenses were substantially lower. For the six months, expenses increased because of the Jacksonville Bancorp acquisition and prior acquisitions.
- Legacy net charge-offs for the first six months declined to $1.6 million from $2.4 million, and nonperforming assets excluding covered assets were $60.3 million versus $73.9 million at June 30, 2015. Total nonperforming assets were 0.97% of assets versus 1.42% a year earlier.
- Loans, net of unearned income, increased to $2.82 billion from $2.41 billion at December 31, 2015. Purchased non-covered loans increased to $1.07 billion, primarily because of the Jacksonville Bancorp acquisition; covered loans declined to $121.4 million.
Outlook, commentary, risks and unusual items
Management stated that improving economic conditions and increased loan demand were expected to support consistent interest income. The company also indicated that continued savings from lower deposit costs may be limited because deposit rates were already low. No formal earnings or revenue guidance was provided in the filing.
- Credit risk remains concentrated in real estate and commercial real estate. CRE loans represented 49% of total loans at June 30, 2016, including $1.78 billion of nonfarm nonresidential loans.
- A substantial portion of loans and OREO is secured by real estate in the company’s primary markets, making results sensitive to local and regional real estate conditions, economic downturns, commodity prices, unemployment and weather events.
- Purchased non-covered loans and loan pools involve estimates of expected cash flows, credit deterioration and recoveries. Changes in those estimates could affect interest income, provisions and asset values.
- Liquidity was described as satisfactory. Available borrowing included $204.4 million from the Federal Home Loan Bank, $532.4 million at the Federal Reserve discount window and $4.0 million under a regional-bank revolving agreement. Loans-to-deposits increased to 89.26% from 80.11% at December 31, 2015.
- The company disclosed a former-borrower lender-liability judgment of approximately $2.9 million that was on appeal. Management believed an adverse outcome was not probable or estimable and recorded no reserve.
- The company adopted certain accounting standards without material impact and was evaluating the future effects of the CECL credit-loss standard, employee share-based payment guidance, lease accounting and revenue-recognition guidance.
- Management’s forward-looking statements are subject to regulatory, competitive, economic, interest-rate, financing, acquisition, legal, weather and other risks. The filing stated that there were no material changes to the risk factors in the 2015 Form 10-K.
Important facts for investors to verify
- Whether loan growth, particularly in CRE, purchased non-covered loans and loan pools, is sustainable without deterioration in credit quality.
- The effect of lower purchased-loan-pool yields and the 4.02% year-to-date net interest margin on future earnings.
- Liquidity and funding needs following the increase in other borrowings to $260.2 million and the higher 89.26% loans-to-deposits ratio.
- The quality and valuation of Jacksonville Bancorp acquisition assets, including preliminary fair-value adjustments and $31.4 million of goodwill.
- Future trends in nonperforming assets, troubled debt restructurings, charge-offs and the $21.7 million allowance for loan losses.
- Mortgage banking production, gain-on-sale spreads and pipeline levels, which materially contributed to noninterest income.
- The status and potential exposure from the approximately $2.9 million lender-liability appeal.
- The eventual impact of CECL and other pending accounting standards on capital, earnings and disclosures.