Ameris Bancorp — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2012. The interim financial statements are unaudited. Ameris Bancorp operates primarily through Ameris Bank, which had 66 branches across Georgia, Alabama, Florida and South Carolina.
Financial performance and condition
| Metric | Three months ended Sept. 30, 2012 | Three months ended Sept. 30, 2011 | Nine months ended Sept. 30, 2012 | Nine months ended Sept. 30, 2011 |
|---|---|---|---|---|
| Net interest income | $28.2 million | $27.8 million | $84.8 million | $80.8 million |
| Net interest margin, tax equivalent | 4.52% | 4.44% | 4.55% | 4.40% |
| Provision for loan losses | $6.5 million | $7.6 million | $26.6 million | $23.7 million |
| Noninterest income | $9.8 million | $33.7 million | $46.0 million | $45.9 million |
| Noninterest expense | $28.8 million | $29.3 million | $89.7 million | $73.0 million |
| Net income | $1.9 million | $16.5 million | $9.8 million | $20.0 million |
| Net income available to common shareholders | $1.1 million | $15.6 million | $7.3 million | $17.5 million |
| Diluted EPS | $0.04 | $0.66 | $0.30 | $0.74 |
| Return on average assets | 0.26% | 2.14% | 0.44% | 0.79% |
- Total assets were $2.95 billion at September 30, 2012, compared with $2.99 billion at December 31, 2011 and $3.01 billion at September 30, 2011.
- Non-covered loans increased to $1.44 billion from $1.33 billion at December 31, 2011. Covered loans declined to $546.2 million from $571.5 million.
- Total deposits were $2.58 billion. Noninterest-bearing deposits increased to $464.5 million, or 18.0% of deposits, from $354.4 million, or 13.5%, a year earlier.
- Cash flow from operating activities was $28.9 million for the first nine months, versus $35.6 million in the comparable 2011 period. Investing activities provided $447.2 million, while financing activities used $484.4 million.
- Allowance for loan losses was $25.9 million, or 1.80% of non-covered loans. Net charge-offs were $33.6 million year to date, compared with $21.4 million in 2011.
- Nonperforming assets were $75.6 million, or 2.58% of total assets, versus $110.0 million, or 3.65%, a year earlier. Nonaccrual non-covered loans were $38.2 million, down from $59.1 million.
- Stockholders’ equity was $299.2 million. The consolidated leverage, core capital and total capital ratios were 11.33%, 18.91% and 20.16%, respectively.
- Borrowings from correspondent banks were zero at September 30, 2012, compared with $20.0 million at December 31, 2011. Available-for-sale securities totaled $361.1 million and short-term investments totaled $66.9 million.
Material changes versus prior comparable periods
- Third-quarter earnings declined substantially because the third quarter of 2011 included a $26.9 million pretax gain on an FDIC-assisted acquisition, generating an after-tax benefit of approximately $17.5 million. Excluding that gain, third-quarter noninterest income increased $2.8 million, or 38.9%.
- Nine-month net interest income increased 5.1%, supported by lower funding costs and a higher net interest margin. Interest expense fell to $12.1 million from $22.1 million.
- Mortgage banking income increased to $8.2 million for the first nine months from $1.5 million, reflecting increased mortgage production and staffing.
- Nine-month noninterest expense increased $16.7 million, primarily because of higher salaries and benefits, expanded branch operations, mortgage-related compensation and credit-related expenses.
- Credit quality improved in reported nonperforming assets and nonaccrual loans, but nine-month charge-offs and provision expense increased because of a first-quarter bulk sale of nonperforming and classified assets. The company sold approximately $31.2 million of such assets and recorded $16.1 million of related losses.
- Ameris completed the FDIC-assisted acquisition of Montgomery Bank & Trust on July 6, 2012, assuming approximately $156.6 million of deposits and receiving approximately $138.7 million in cash from the FDIC. The Central Bank of Georgia acquisition generated a $20.0 million pretax gain in the first quarter.
Outlook, risks, contingencies and unusual items
- Management stated that improving economic conditions and increased loan demand could support investment of short-term assets at higher yields. No quantified earnings or revenue guidance was provided.
- Management continues to identify and resolve problem assets while seeking quality loan growth. Real estate collateral values, economic conditions, unemployment, agricultural conditions and local market developments remain important allowance and credit-quality assumptions.
- Commercial real estate represented 54% of total loans, including 10% construction and development, 3% multifamily and 41% nonfarm nonresidential loans. The company reported actual concentration levels below its internal limits.
- FDIC loss-sharing agreements cover substantial acquired assets. At September 30, covered loans and covered OREO totaled $635.1 million, and the FDIC indemnification asset was $198.4 million. Changes in estimated cash flows could materially affect these balances and future income.
- The company holds $42.3 million of subordinated deferrable interest debentures and had a $37.1 million interest-rate swap. Mortgage lending activities also use forward contracts and other derivatives.
- The company’s stated risk exposures include credit, interest-rate, liquidity, regulatory, economic, competitive, acquisition, weather and catastrophic-event risks. Management considered liquidity ratios satisfactory and reported no known trend expected to cause a material liquidity change.
- In June 2012, the Treasury sold Ameris’s TARP preferred shares. In August 2012, Ameris repurchased the related warrant for $2.67 million. The preferred shares remain outstanding and accrue dividends at 5% initially and 9% thereafter, subject to declaration.
- On November 7, 2012, the company entered supplemental executive retirement agreements providing specified annual retirement benefits to certain executives, including $250,000 for the CEO, $200,000 for the CFO and $100,000 each for two other named executives.
Investor verification checklist
- Verify the sustainability of earnings excluding FDIC-assisted acquisition gains and other nonrecurring items.
- Assess whether increased charge-offs and the lower allowance balance adequately reflect remaining real estate and commercial credit risk.
- Review the valuation and collectability assumptions for covered loans, covered OREO and the $198.4 million FDIC indemnification asset.
- Monitor commercial real estate concentrations, troubled debt restructurings and future nonperforming-asset resolutions.
- Evaluate the effect of lower interest rates, deposit repricing and mortgage banking volatility on the net interest margin.
- Review the economic obligations and vesting terms of the newly adopted supplemental executive retirement agreements.