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ABCB > SEC Filings for ABCB > Form 10-Q on 10-May-2013All Recent SEC Filings

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Form 10-Q for AMERIS BANCORP


10-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain of the statements made in this report are "forward-looking statements" within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as "may," "will," "anticipate," "assume," "should," "indicate," "would," "believe," "contemplate," "expect," "estimate," "continue," "plan," "point to," "project," "predict," "could," "intend," "target," "potential" and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation, legislative and regulatory initiatives; additional competition in Ameris' markets; potential business strategies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by Ameris; state and federal banking regulations; changes in or application of environmental and other laws and regulations to which Ameris is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather, natural disasters and other catastrophic events; and other factors discussed in Ameris' filings with the Securities and Exchange Commission under the Exchange Act.

All written or oral forward-looking statements that are made by or are attributable to us are expressly qualified in their entirety by this cautionary notice. Our forward-looking statements apply only as of the date of this report or the respective date of the document from which they are incorporated herein by reference. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future events or otherwise.


The following table sets forth unaudited selected financial data for the previous five quarters. This data should be read in conjunction with the consolidated financial statements and the notes thereto and the information contained in this Item 2.

                                    2013                                           2012
(in thousands, except share        First              Fourth             Third              Second             First
data, taxable equivalent)         Quarter            Quarter            Quarter            Quarter            Quarter
Results of Operations:
Net interest income             $     28,338       $     29,559       $     28,238       $     28,881       $     27,727
Net interest income (tax
equivalent)                           28,695             29,898             28,420             29,058             27,655
Provision for loan losses              2,923              4,442              6,540              7,225             12,882
Non-interest income                   11,360             11,904              9,831              8,875             27,264
Non-interest expense                  28,884             29,791             28,810             26,623             34,246
Income tax expense                     2,606              2,558                816              1,413              2,498
Preferred stock dividends                441              1,118                827                817                815
Net income available to
common Shareholders                    4,844              3,554              1,076              1,678              4,550
Selected Average Balances:
Loans, net of unearned
income                          $  1,488,326       $  1,471,065       $  1,430,227       $  1,378,448       $  1,329,146
Covered loans                        491,691            519,892            574,897            601,802            602,353
Investment securities                340,564            352,790            364,786            370,928            356,112
Earning assets                     2,428,720          2,503,381          2,502,908          2,505,744          2,482,070
Assets                             2,875,274          2,985,116          2,935,715          2,966,527          2,978,469
Deposits                           2,511,511          2,604,320          2,616,866          2,591,607          2,589,978
Common shareholders' equity          251,214            240,787            242,614            243,463            242,817
Period-End Balances:
Loans, net of unearned
income                          $  1,492,753       $  1,450,635       $  1,439,862       $  1,365,489       $  1,323,844
Covered loans                        460,724            507,712            546,234            601,737            653,377
Earning assets                     2,401,043          2,547,719          2,443,040          2,465,116          2,558,047
Total assets                       2,861,651          3,019,052          2,949,383          2,920,311          3,043,234
Deposits                           2,489,973          2,624,663          2,580,117          2,544,672          2,665,360
Common shareholders' equity          255,969            251,355            247,999            249,895            246,813
Per Common Share Data:
Earnings per share - Basic      $       0.20       $       0.15       $       0.05       $       0.07       $       0.19
Earnings per share - Diluted            0.20               0.15               0.04               0.07               0.19
Common book value per share            10.72              10.56              10.41              10.49              10.36
End of period shares
outstanding                       23,875,680         23,799,768         23,819,144         23,819,144         23,814,144
Weighted average shares
outstanding
Basic                             23,867,691         23,815,583         23,819,144         23,818,814         23,762,196
Diluted                           24,246,346         23,857,095         23,973,369         23,973,039         23,916,421
Market Data:
High closing price              $      14.51       $      12.71       $      12.88       $      13.40       $      13.32
Low closing price                      12.79              10.50              11.27              10.88              10.34
Closing price for quarter              14.35              12.49              12.59              12.60              13.14
Average daily trading volume          51,887             48,295             45,543             58,370             59,139
Cash dividends per share                  -                  -                  -                  -                  -
Stock dividend                            -                  -                  -                  -                  -
Price to earnings                      17.94              20.82              78.69              45.00              17.29
Closing price to book value             1.34               1.18               1.21               1.20               1.27
Performance Ratios:
Return on average assets                0.75 %             0.62 %             0.26 %             0.34 %             0.72 %
Return on average common
equity                                  8.53 %             7.72 %             3.12 %             4.12 %             8.89 %
Average loan to average
deposits                               78.84 %            76.45 %            76.62 %            76.41 %            74.58 %
Average equity to average
assets                                  9.70 %             9.39 %            10.01 %             9.93 %             9.86 %
Net interest margin (tax
equivalent)                             4.79 %             4.75 %             4.52 %             4.66 %             4.48 %
Efficiency ratio (tax
equivalent)                            72.76 %            71.85 %            75.68 %            70.51 %            62.28 %


Overview

The following is management's discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of March 31, 2013, as compared to December 31, 2012, and operating results for the three month periods ended March 31, 2013 and 2012. These comments should be read in conjunction with the Company's unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

Results of Operations for the Three Months Ended March 31, 2013

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $4.8 million, or $0.20 per diluted share, for the quarter ended March 31, 2013, compared to $4.6 million, or $0.19 per diluted share, for the same quarter in 2012. The Company's return on average assets and average stockholders' equity in the first quarter of 2013 was 0.75% and 8.53%, respectively, compared to 0.72% and 8.89%, respectively, in the first quarter of 2012. The Company's mortgage banking activities have had a significant impact on the overall financial results of the Company. Below is a more detailed analysis of the retail banking activities and mortgage banking activities of the Company.

                                           Retail Banking          Mortgage Banking          Total
                                                                (in thousands)
As of March 31, 2013:
Net interest income                        $        27,766        $              572        $ 28,338
Provision for loan losses                            2,923                        -            2,923
Non-interest income                                  6,896                     4,461          11,360
Non-interest expense
Salaries and employee benefits                      11,037                     2,769          13,806
Occupancy                                            2,765                       166           2,931
Data Processing                                      2,471                        99           2,570
Other expenses                                       8,890                       687           9,577

Total non-interest expense                          25,163                     3,721          28,884

Income before income taxes                           6,576                     1,315           7,891
Income tax expense                                   2,146                       460           2,606
Net income                                           4,430                       855           5,285
Preferred stock dividends                              441                        -              441

Net income available to common
Shareholders                               $         3,989        $              855        $  4,844


                                           Retail Banking          Mortgage Banking          Total
                                                                (in thousands)
As of March 31, 2012:
Net interest income                        $        27,586        $              141        $ 27,727
Provision for loan losses                           128823                        -           12,882
Non-interest income                                 25,789                     1,475          27,264
Non-interest expense
Salaries and employee benefits                      10,262                     1,184          11,446
Occupancy                                            3,253                        82           3,335
Data Processing                                      1,880                        45           1,925
Other expenses                                      17,368                       172          17,540

Total non-interest expense                          32,763                     1,483          34,246

Income before income taxes                           7,730                       133           7,863
Income tax expense                                   2,451                        47           2,498
Net income                                           5,279                        86           5,365
Preferred stock dividends                              815                        -              815

Net income available to common
Shareholders                               $         4,464        $               86        $  4,550


Net Interest Income and Margins

On a tax equivalent basis, net interest income for the first quarter of 2013 was $28.7 million, an increase of $1.0 million compared to the same quarter in 2012. Significant increases in the Company's net interest margin have been the result of flat yields on all classes of earning assets complemented by steady decreases in the Company's cost of funds. The Company's net interest margin increased during the first quarter of 2013 to 4.79%, compared to 4.48% during the first quarter of 2012. Steady improvements in the earning asset mix and decreased funding costs have positively impacted the Company's net interest margin over the past year.

Total interest income, on a tax equivalent basis, during the first quarter of 2013 was $31.2 million compared to $32.3 million in the same quarter of 2012. Yields on earning assets fell slightly to 5.21%, compared to 5.22% reported in the first quarter of 2012. During the first quarter of 2013, loans comprised 81.5% of earning assets, compared to 77.8% in the same quarter of 2012. Increased lending activities have provided opportunities to begin to grow the legacy loan portfolio. Yields on legacy loans increased slightly to 5.58% in the first quarter of 2013, compared to 5.57% in the same period of 2012. Covered loan yields declined from 7.33% in the first quarter of 2012 to 7.23% in the first quarter of 2013. Management anticipates improving economic conditions and increased loan demand will provide opportunities to invest a portion of the short-term assets at higher yields.

Total funding costs declined to 0.40% in the first quarter of 2013, compared to 0.69% during the first quarter of 2012. Deposit costs decreased from 0.63% in the first quarter of 2012 to 0.36% in the first quarter of 2013. Ongoing efforts to maintain the percentage of funding from transaction deposits have succeeded such that non-CD deposits averaged 72.1% of total deposits in the first quarter of 2013, compared to 66.0% during the first quarter of 2012. Lower costs on deposits were realized due mostly to the lower rate environment and the Company's ability to be less competitive on higher priced CDs due to its larger than normal position in short-term assets. Further opportunity to realize savings on deposits exists but may be limited due to current costs. Average balances of interest bearing deposits and their respective costs for the first quarter of 2013 and 2012 are shown below:

                                     March 31, 2013                 March 31, 2012
                                  Average        Average         Average        Average
    (Dollars in Thousands)        Balance         Cost           Balance         Cost
    NOW                         $   633,313          0.19 %    $   619,047          0.34 %
    MMDA                            592,842          0.36 %        598,956          0.56 %
    Savings                         102,380          0.11 %         87,219          0.16 %
    Retail CDs < $100,000           313,191          0.64 %        373,519          1.01 %
    Retail CDs > $100,000           368,577          0.78 %        444,838          1.12 %
    Brokered CDs                     19,448          3.52 %         61,287          3.29 %

    Interest bearing deposits   $ 2,029,751          0.44 %    $ 2,184,866          0.75 %

Provision for Loan Losses and Credit Quality

The Company's provision for loan losses during the first quarter of 2013 amounted to $2.9 million, compared to $4.4 million in the fourth quarter of 2012 and to $12.9 million in the first quarter of 2012. Although the Company has experienced improving trends in criticized and classified assets for several quarters, provision for loan losses has still been required to account for continued devaluation of real estate collateral. At March 31, 2013, classified loans still accruing totaled $28.6 million, compared to $32.4 million at March 31, 2012. Non-covered non-accrual loans at March 31, 2013 totaled $37.5 million, a 28.3% decrease from $52.3 million reported at the end of the first quarter of 2012.

At March 31, 2013, OREO (excluding covered OREO) totaled $40.4 million, compared to $36.4 million at March 31, 2012. Management regularly assesses the valuation of OREO through periodic reappraisal and through inquiries received in the marketing process. The Company has found that with a marketing window of 3-6 months, the liquidation of properties varies from 85% to 100% of current book value. Certain properties, mostly raw land and subdivision lots, have extended marketing periods because of excessive inventory and record low home building activity. At the end of the first quarter of 2013, total non-covered non-performing assets decreased to 2.72% of total assets compared to 2.91% at March 31, 2012. Management continues to aggressively identify and resolve problem assets while seeking quality credits to grow the loan portfolio.

Net charge-offs on loans during the first quarter of 2013 decreased to $2.8 million, or 0.76% of loans on an annualized basis, compared to $19.1 million, or 5.79% of loans, in the first quarter of 2012. The increased level of charge-offs in the first quarter of 2012 relates to the Company's bulk sale of non-performing loans during that quarter. Excluding amounts charged-off in the bulk sale, the Company's net charge-offs would have been $8.7 million, or 2.65% of loans on an annualized basis for the first quarter of 2012. The Company's allowance for loan losses at March 31, 2013 was $23.4 million, or 1.57% of total loans, compared to $28.7 million, or 2.17% of total loans, at March 31, 2012.


Non-interest Income

Total non-interest income for the first quarter of 2013 was $11.4 million, compared to $27.3 million in the first quarter of 2012. The Company recorded a $20.0 million gain on acquisition in the first quarter of 2012. Excluding the gain on acquisition, non-interest income increased $4.1 million, or 57.2%, in the first quarter of 2013, compared to the first quarter of 2012. Income from mortgage related activities continued to increase as a result of the Company's increased number of mortgage bankers and higher level of productions. Service charges on deposit accounts in the first quarter of 2013 increased to $4.8 million, compared to $4.4 million in the first quarter of 2012. This increase was driven by higher balances in accounts subject to service charges and continued growth of core accounts through the Company's FDIC-assisted acquisition strategy.

Non-interest Expense

Total non-interest expense for the first quarter of 2013 decreased to $28.9 million, compared to $34.2 million at the same time in 2012. Salaries and employee benefits increased from $11.4 million in the first quarter of 2012 to $13.8 million in the first quarter of 2013. The majority of the increase is due to the reinstatement of foregone compensation (including incentive accruals and board fees) during 2012. Occupancy and equipment expense decreased during the quarter from $3.3 million in the first quarter of 2012 to $2.9 million in the first quarter of 2013. Total data processing and telecommunications expense in the first quarter of 2013 was $2.6 million, compared to $1.9 million in the first quarter of 2012. Credit related expenses in the first quarter of 2013 totaled $4.8 million, compared to $12.7 million in the first quarter of 2012. The elevated credit costs in the first quarter of 2012 related to the Company's bulk sale of problem assets during that quarter.

Income taxes

Income tax expense is influenced by the amount of taxable income, the amount of tax-exempt income and the amount of non-deductible expenses. For the first quarter of 2013, the Company reported income tax expense of $2.6 million, compared to $2.5 million in the same period of 2012. The Company's effective tax rate for the three months ended March 31, 2013 and 2012 was 33.0% and 31.8%, respectively.

Balance Sheet Comparison

Securities

Debt securities with readily determinable fair values are classified as available for sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income, net of the related deferred tax effect. Equity securities, including restricted equity securities, are classified as other investment securities and are recorded at their fair market value.

The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the life of the securities. Realized gains and losses, determined on the basis of the cost of specific securities sold, are included in earnings on the settlement date. Declines in the fair value of securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses.

In determining whether other-than-temporary impairment losses exist, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Substantially all of the unrealized losses on debt securities are related to changes in interest rates and do not affect the expected cash flows of the issuer or underlying collateral. All unrealized losses are considered temporary because each security carries an acceptable investment grade and the Company does not intend to sell these investment securities at an unrealized loss position at March 31, 2013, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at March 31, 2013, these investments are not considered impaired on an other-than temporary basis.


The following table illustrates certain information regarding the Company's investment portfolio with respect to yields, sensitivities and expected cash flows over the next twelve months assuming constant prepayments and maturities:

                                                                                                        Estimated
                                                                                         Modified       Cash Flows
                                           Book Value       Fair Value      Yield        Duration       12 months
                                                                    Dollars in Thousands
March 31, 2013:
U.S. government agencies                  $      5,000     $      5,015       1.50 %          0.82     $      5,000
State, county and municipal securities    $    110,628     $    115,532       3.77 %          5.75     $      8,698
Corporate debt securities                 $     10,542     $     10,297       6.63 %          7.42     $         -
Mortgage-backed securities                $    188,492     $    193,185       2.44 %          3.41     $     42,921

Total debt securities                     $    314,662     $    324,029       3.04 %          4.33     $     56,619

March 31, 2012:
U.S. government agencies                  $     28,634     $     28,848       1.55 %          1.42     $     18,000
State, county and municipal securities    $     78,440     $     81,997       4.59 %          6.04     $      6,017
Corporate debt securities                 $     11,639     $     11,385       6.80 %          7.20     $      1,350
Mortgage-backed securities                $    244,232     $    249,561       2.88 %          2.82     $     75,992

Total debt securities                     $    362,945     $    371,791       3.28 %          3.54     $    101,359

Loans and Allowance for Loan Losses

At March 31, 2013, gross loans outstanding (including covered loans and mortgage loans held for sale) were $2.00 billion, a slight increase compared to the $1.99 billion reported at December 31, 2012. Mortgage loans held for sale decreased from $48.8 million at December 31, 2012 to $42.3 million at March 31, 2013. Other non-covered loans increased $42.1 million, from $1.45 billion at December 31, 2012 to $1.49 billion at March 31, 2013. Covered loans decreased $47.0 million, from $507.7 million at December 31, 2012 to $460.7 million at March 31, 2013.

The Company regularly monitors the composition of the loan portfolio to evaluate the adequacy of the allowance for loan losses in light of the impact that changes in the economic environment may have on the loan portfolio. The Company focuses on the following loan categories: (1) commercial, financial and agricultural; (2) residential real estate; (3) commercial and farmland real estate; (4) construction and development related real estate; and
(5) consumer. The Company's management has strategically located its branches in select markets in south and southeast Georgia, north Florida, southeast Alabama and throughout South Carolina to take advantage of the growth in these areas.

The Company's risk management processes include a loan review program designed to evaluate the credit risk in the loan portfolio and ensure credit grade accuracy. Through the loan review process, the Company conducts (1) a loan portfolio summary analysis, (2) charge-off and recovery analysis, (3) trends in accruing problem loan analysis and (4) problem and past due loan analysis. This analysis process serves as a tool to assist management in assessing the overall quality of the loan portfolio and the adequacy of the allowance for loan losses. Loans classified as "substandard" are loans which are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses and/or questionable collateral values. Loans classified as "doubtful" are those loans that have characteristics similar to substandard loans but have an increased risk of loss. Loans classified as "loss" are those loans which are considered uncollectible and are in the process of being charged-off.

The allowance for loan losses is a reserve established through charges to . . .

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