Ameris Bancorp 2015 Q2 SEC Filing Summary
Business context and reporting period
Ameris Bancorp is a Georgia-based financial holding company operating primarily through Ameris Bank. At June 30, 2015, the Bank operated 103 branches in Georgia, Alabama, Florida and South Carolina and conducted banking, retail mortgage, warehouse lending and SBA activities. This unaudited Form 10-Q covers the three and six months ended June 30, 2015, compared primarily with the corresponding 2014 periods and December 31, 2014 balance-sheet data.
During the quarter, Ameris completed the acquisition of Merchants & Southern Banks of Florida for $50.0 million and acquired 18 Bank of America branches for a $20.0 million deposit premium. The acquisitions added deposits, cash, loans, premises and core-deposit intangibles and materially increased the scale of the balance sheet.
Financial results and key metrics
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net interest income | $40.7 million | $35.3 million | $79.5 million | $69.7 million |
| Noninterest income | $20.6 million | $15.8 million | $38.2 million | $28.6 million |
| Provision for loan losses | $2.7 million | $1.4 million | $3.7 million | $3.1 million |
| Noninterest expense | $56.9 million | $37.3 million | $97.7 million | $70.6 million |
| Net income available to common shareholders | $1.3 million | $8.1 million | $11.1 million | $16.2 million |
| Diluted earnings per share | $0.04 | $0.32 | $0.35 | $0.63 |
| Tax-equivalent net interest margin | 4.14% | 4.65% | 4.26% | 4.61% |
| Return on average assets | 0.12% | 0.93% | 0.52% | 0.95% |
| Efficiency ratio | 92.74% | 73.05% | 82.99% | 71.76% |
Net interest income increased because of acquired balances and organic loan growth. Noninterest income benefited from higher deposit service charges, mortgage banking production and SBA loan-sale gains. Mortgage banking income was $9.7 million in Q2 and $17.8 million for the first six months.
Profitability was substantially reduced by acquisition-related charges and credit-resolution actions. Management reported 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 in Q2. Excluding these items, management stated that Q2 net income was approximately $12.3 million, or $0.38 per diluted share, and first-half net income was approximately $22.1 million, or $0.70 per diluted share.
Balance sheet, cash flow, debt and liquidity
- Total assets were $5.21 billion at June 30, 2015, compared with $4.04 billion at December 31, 2014 and $3.97 billion at June 30, 2014.
- Total deposits were $4.51 billion, up from $3.43 billion at December 31, 2014. Noninterest-bearing deposits were $1.28 billion, or approximately 28% of total deposits.
- Net loans were $3.44 billion, including $2.17 billion of legacy loans, $808.3 million of purchased non-covered loans, $269.0 million of purchased loan pools and $209.6 million of covered loans.
- Investment securities available for sale were $862.2 million, versus $541.8 million at June 30, 2014. The portfolio consisted primarily of mortgage-backed securities and municipal securities.
- Cash and due from banks were $115.4 million, and federal funds sold and interest-bearing accounts were $239.8 million.
- Other borrowings were $39.0 million, compared with $78.9 million at December 31, 2014 and $100.3 million at June 30, 2014. Securities sold under repurchase agreements were $75.1 million. Subordinated deferrable interest debentures were $69.3 million.
- Available borrowing capacity included approximately $297.5 million on Federal Home Loan Bank lines and $441.6 million available through the Federal Reserve discount window, subject to collateral requirements.
- Net cash used in operating activities was $17.3 million for the first six months, compared with $14.7 million used in the prior-year period. Net cash used in investing activities was $5.4 million, while financing activities provided $60.1 million, including approximately $114.9 million from common-stock issuance.
- Common stock issuance of 5.32 million shares at $22.50 per share generated approximately $114.5 million of net proceeds, primarily used to fund the Merchants and branch acquisitions.
Material changes versus prior comparable periods
- Assets, deposits and total loans expanded sharply because of the Merchants acquisition, the 18-branch acquisition and purchased loan pools.
- Q2 net income available to common shareholders declined 84% year over year, despite higher net interest and noninterest income, because noninterest expense rose by $19.5 million.
- The tax-equivalent net interest margin declined to 4.14% from 4.65% in Q2 2014, reflecting lower asset yields and a larger proportion of short-term assets and investments.
- Noninterest expense increased 38% year over year. The largest unusual items were $11.2 million of credit-resolution-related expense and $5.7 million of merger and conversion charges.
- Credit metrics improved overall: nonperforming assets excluding covered assets declined to $73.9 million from $89.9 million at June 30, 2014, and nonperforming assets as a percentage of total assets declined to 1.42% from 2.26%.
- The allowance for loan losses was $21.7 million, or 1.00% of legacy loans, compared with 1.26% one year earlier. Net annualized charge-offs declined to 0.22% of average legacy loans for the first six months from 0.30% in the prior-year period.
- Commercial real estate represented 53% of total loans at June 30, 2015, down from 57% at December 31, 2014, but remained a significant concentration.
Guidance, outlook, risks and unusual items
Management did not provide formal numerical earnings guidance. Management expected improving economic conditions and increased loan demand to support interest income and stated an intention to redeploy elevated short-term assets into loans or investment securities by year-end. Management also indicated that liquidity ratios were satisfactory and was not aware of events likely to cause a material change in liquidity.
- Interest-rate risk remains material. Management targets no more than a 5% decline in net interest income from a 200-basis-point rate change over a 24-month period. The Q2 margin was already affected by excess short-term liquidity and lower earning-asset yields.
- Credit risk is concentrated in commercial real estate, including construction and development, nonfarm nonresidential and multifamily lending. Loan performance depends on property values, borrower cash flows and regional economic conditions.
- Purchased non-covered and covered loans involve fair-value estimates, accretable discounts and assumptions about future collections. Covered assets also depend on FDIC reimbursement and loss-share provisions.
- OREO and credit-resolution expenses were unusually high in Q2 because management aggressively wrote down remaining nonperforming assets. Further valuation changes remain possible.
- The Company disclosed a former-borrower lender-liability judgment of approximately $2.9 million that is on appeal in South Carolina. Management believes an adverse outcome is not probable and has recorded no reserve; a future change in that assessment could require a liability.
- Fair values for impaired loans, OREO and certain securities rely on Level 3 assumptions, including collateral values, discount rates and estimated selling costs.
- The Bank was classified as well capitalized under all applicable regulatory capital measures at June 30, 2015. The consolidated leverage ratio was 10.21%, consolidated CET1 ratio was 10.21%, consolidated core capital ratio was 12.04% and consolidated total capital ratio was 12.63%.
Most important facts for an investor to verify
- Whether the acquired Merchants and Bank of America branches generate the expected deposit, loan and expense synergies after integration.
- Whether Q2 credit-resolution charges were primarily nonrecurring or whether additional OREO write-downs and elevated credit costs will recur.
- The sustainability of mortgage banking and SBA revenue, which materially supported noninterest income.
- Whether the net interest margin recovers as excess liquidity is invested and how it responds to changing interest rates.
- The quality and valuation of the expanded purchased-loan portfolio, including the $269.0 million purchased loan pools and $808.3 million of purchased non-covered loans.
- Future trends in commercial real estate concentrations, nonperforming assets, troubled debt restructurings, charge-offs and allowance coverage.
- The status and potential financial impact of the approximately $2.9 million lender-liability appeal.
- Regulatory capital ratios, liquidity availability and the terms of outstanding subordinated debt and other borrowings.