Ameris Bancorp 10-Q Summary
Business Context and Reporting Period
Ameris Bancorp, headquartered in Moultrie, Georgia, operates Ameris Bank across Georgia, Alabama, Florida and South Carolina. At September 30, 2014, the Bank operated 74 retail branches and 11 mortgage offices. This unaudited Form 10-Q covers the three and nine months ended September 30, 2014, compared with the corresponding 2013 periods.
Key Financial Metrics
| Metric | Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 |
|---|---|---|---|---|
| Net interest income | $39.1 million | $29.3 million | $108.9 million | $87.1 million |
| Provision for loan losses | $1.7 million | $2.9 million | $4.8 million | $10.0 million |
| Noninterest income | $17.9 million | $12.3 million | $46.5 million | $35.0 million |
| Noninterest expense | $38.6 million | $28.7 million | $109.1 million | $84.3 million |
| Net income available to common shareholders | $11.7 million | $6.2 million | $27.9 million | $17.3 million |
| Diluted EPS | $0.43 | $0.26 | $1.07 | $0.71 |
| Net interest margin, tax-equivalent | 4.50% | 4.80% | 4.57% | 4.85% |
| Return on average assets | 1.17% | 0.94% | 1.01% | 0.89% |
| Return on average common equity | 13.19% | 10.75% | 10.73% | 10.11% |
At September 30, 2014, total assets were $4.00 billion, compared with $3.67 billion at December 31, 2013 and $2.82 billion at September 30, 2013. Total deposits were $3.37 billion, compared with $3.00 billion and $2.44 billion, respectively. Stockholders’ equity was $353.8 million.
- Gross loans, including mortgage loans held for sale, purchased non-covered loans and covered loans, were approximately $2.95 billion, versus $2.52 billion at December 31, 2013 and $2.08 billion at September 30, 2013.
- Legacy loans were $1.85 billion; purchased non-covered loans were $673.7 million; and FDIC-covered loans were $313.6 million.
- The allowance for loan losses was $22.2 million, equal to 1.20% of legacy loans, compared with $23.9 million, or 1.50%, at September 30, 2013.
- Nonperforming assets were $88.8 million, or 2.22% of total assets, compared with $69.7 million, or 2.47%, at September 30, 2013.
- Net charge-offs were $1.6 million in the quarter and $4.2 million for nine months, compared with $2.8 million and $8.5 million in the 2013 comparable periods.
- Other borrowings were $147.4 million at quarter-end. The Company also had $65.1 million of subordinated deferrable interest debentures and $32.4 million of repurchase agreements.
- Cash and due from banks were $69.4 million, federal funds sold and interest-bearing accounts were $40.2 million, and available-for-sale securities were $529.5 million.
- The Company reported $163.6 million of cash provided by investing activities, offset by $152.3 million used in financing activities and $4.9 million used in operating activities during the first nine months.
- At September 30, 2014, $320.8 million was available under FHLB borrowing lines and $425.1 million was available through the Federal Reserve discount window. Management stated that liquidity ratios were satisfactory and identified no expected material liquidity change.
Material Changes Versus Prior Comparable Period
- Net income available to common shareholders increased approximately 87% in the third quarter and 61% for the first nine months, driven by larger earning assets, higher noninterest income and lower loan-loss provisions.
- Net interest income increased substantially because of the Prosperity acquisition completed in December 2013 and the Coastal acquisition completed June 30, 2014. The benefit was partly offset by lower net interest margins and lower loan yields.
- Noninterest income increased 46% in the quarter and 33% year to date. Mortgage banking income increased to $7.5 million in the quarter and $19.5 million year to date, supported by more mortgage bankers and higher production.
- Noninterest expense increased 34% in the quarter and 29% year to date, primarily because of acquisitions, mortgage volume and integration-related costs. Year-to-date merger and conversion charges were $3.9 million, compared with $0.5 million in 2013.
- The Coastal acquisition added six banking locations, issued 1,598,998 Ameris common shares valued at $34.5 million and generated preliminary goodwill of $23.8 million. The filing states that acquisition fair values remain subject to refinement.
- Ameris redeemed its remaining 28,000 TARP preferred shares in March 2014. No preferred shares remained outstanding at September 30, 2014, and the Company declared common dividends of $0.05 per share in the third quarter.
- The FDIC loss-share receivable declined to $38.2 million from $65.4 million at December 31, 2013 and $81.8 million at September 30, 2013. Covered loans and covered OREO also declined.
Guidance, Outlook, Risks and Unusual Items
Management did not provide formal quantitative earnings guidance. Management expects improving economic conditions and increased loan demand to support consistent interest income, while acknowledging that deposit-cost savings may be limited in the current rate environment.
- Interest-rate risk remains material: management targets a decline in net interest income of no more than 5% under a 200-basis-point rate change over 24 months. The quarter-end tax-equivalent net interest margin declined to 4.50% from 4.80% a year earlier.
- Credit risk is concentrated in commercial real estate. CRE loans were $1.60 billion, or 57% of total loans, including 45% in nonfarm nonresidential loans.
- Management cited continued real estate collateral devaluation as a reason loan-loss provisions remain necessary. OREO liquidation values may be affected by extended marketing periods, particularly for raw land and subdivision lots.
- Purchased non-covered loans carried $17.0 million of nonaccrual loans at September 30, 2014, up from $6.7 million at December 31, 2013, primarily reflecting the Coastal acquisition.
- FDIC loss-sharing estimates, acquired-loan cash flows, acquisition fair values, goodwill, deferred tax assets and OREO valuations involve significant judgment. Actual collections and reimbursements could differ from recorded amounts.
- Off-balance-sheet commitments included $332.8 million of commitments to extend credit, $9.2 million of standby letters of credit and $2.3 million of mortgage interest-rate-lock commitments.
- The Company identified regulatory, competitive, economic, interest-rate, commodity-price, weather, natural-disaster and acquisition-related risks as factors that could cause actual results to differ from forward-looking statements.
- Ameris Bank was considered well capitalized under all regulatory capital measures at September 30, 2014. The consolidated leverage ratio was 8.83%, core capital ratio was 12.47% and total capital ratio was 13.27%.
Investor Verification Checklist
- Verify the sustainability of earnings growth after separating acquisition-related accretion, mortgage banking activity and other unusual items.
- Monitor the declining net interest margin, legacy loan yields and the cost of subordinated debt and other borrowings.
- Assess credit quality across legacy, purchased non-covered and FDIC-covered portfolios, including nonaccrual loans, classified loans, OREO and CRE concentrations.
- Reconcile the effect of the Prosperity and Coastal acquisitions on reported balances, earnings, goodwill, deferred tax assets and future expenses.
- Evaluate the collectability and timing of the $38.2 million FDIC loss-share receivable and related $5.9 million clawback liability.
- Review liquidity, borrowing maturities and the impact of potential interest-rate changes on funding costs and net interest income.
- Confirm the final regulatory capital treatment and any subsequent changes to the preliminary acquisition fair values.