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ABCB > SEC Filings for ABCB > Form 10-Q on 9-Aug-2013All Recent SEC Filings

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Form 10-Q for AMERIS BANCORP


9-Aug-2013

Quarterly Report


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

Cautionary Note Regarding Any Forward-Looking Statements

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 our 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 our filings with the SEC 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.

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 June 30, 2013 as compared to December 31, 2012 and operating results for the three-and six-month periods ended June 30, 2013 and 2012. These comments should be read in conjunction with the Company's unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

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


Table of Contents
                                                           Second              First             Fourth              Third             Second                  For Six Months Ended
(in thousands, except share data, taxable equivalent)   Quarter 2013       Quarter 2013       Quarter 2012       Quarter 2012       Quarter 2012        June 30, 2013        June 30, 2012
Results of Operations:
Net interest income                                     $      29,476      $      28,338      $      29,559      $      28,238      $      28,881      $        57,814      $        56,608
Net interest income (tax equivalent)                           29,666             28,695             29,898             28,420             29,058               58,360               56,713
Provision for loan losses                                       4,165              2,923              4,442              6,540              7,225                7,088               20,107
Non-interest income                                            11,384             11,360             11,904              9,831              8,875               22,744               36,139
Non-interest expense                                           26,688             28,884             29,791             28,810             26,623               55,572               60,869
Income tax expense                                              3,329              2,606              2,558                816              1,413                5,935                3,911
Preferred stock dividends                                         442                441              1,118                827                817                  883                1,632
Net income available to common shareholders                     6,236              4,844              3,554              1,076              1,678               11,080                6,228
Selected Average Balances:
Loans, net of unearned income                           $   1,572,544      $   1,488,326      $   1,471,065      $   1,430,227      $   1,378,448      $     1,530,667      $     1,356,338
Covered loans                                                 444,616            491,691            519,892            574,897            601,802              468,024              601,507
Investment securities                                         321,582            340,564            352,790            364,786            370,928              331,021              364,189
Earning assets                                              2,397,834          2,428,720          2,503,381          2,502,908          2,505,744            2,413,192            2,502,571
Assets                                                      2,820,863          2,875,274          2,985,116          2,935,715          2,966,527            2,853,494            2,972,498
Deposits                                                    2,448,171          2,511,511          2,604,320          2,616,866          2,591,607            2,479,667            2,602,120
Common shareholders' equity                                   251,240            251,214            240,787            242,614            243,463              251,227              243,140
Period-End Balances:
Mortgage loans held for sale                            $      62,580      $      42,332      $      48,786      $      29,021      $      19,659      $        62,580      $        19,659
Loans, net of unearned income                               1,555,827          1,492,753          1,450,635          1,439,862          1,365,489            1,555,827            1,365,489
Covered loans                                                 443,517            460,724            507,712            546,234            601,737              443,517              601,737
Earning assets                                              2,421,996          2,401,043          2,547,719          2,443,040          2,465,116            2,421,996            2,465,116
Total assets                                                2,808,675          2,861,651          3,019,052          2,949,383          2,920,311            2,808,675            2,920,311
Total deposits                                              2,443,103          2,489,973          2,624,663          2,580,117          2,544,672            2,443,103            2,544,672
Common shareholders' equity                                   259,932            255,969            251,355            247,999            249,895              259,932              249,895
Per Common Share Data:
Earnings per share - basic                              $        0.26      $        0.20      $        0.15      $        0.05      $        0.07      $          0.46      $          0.26
Earnings per share - diluted                                     0.26               0.20               0.15               0.04               0.07                 0.46                 0.26
Common book value per share                                     10.88              10.72              10.56              10.41              10.49                10.88                10.49
End of period shares outstanding                           23,894,327         23,875,680         23,799,768         23,819,144         23,819,144           23,894,327           23,819,144
Weighted average shares outstanding
Basic                                                      23,878,898         23,867,691         23,815,583         23,819,144         23,818,814           23,873,325           23,790,505
Diluted                                                    24,287,628         24,246,346         23,857,095         23,973,369         23,973,039           24,282,055           23,944,730
Market Price:
High closing price                                      $       16.94      $       14.51      $       12.71      $       12.88              13.40                16.94                13.40
Low closing price                                               13.16              12.79              10.50              11.27              10.88                12.79                10.34
Closing price for quarter                                       16.85              14.35              12.49              12.59              12.60                16.85                12.60
Average daily trading volume                                   53,403             51,887             48,295             45,543             58,370               52,669               58,751
Cash dividends per share                                           -                  -                  -                  -                  -                    -                    -
Stock dividend                                                     -                  -                  -                  -                  -                    -                    -
Closing price to book value                                      1.55               1.34               1.18               1.21               1.20                 1.55                 1.20
Performance Ratios:
Return on average assets                                         0.95 %             0.75 %             0.62 %             0.26 %             0.34 %               0.85 %               0.53 %
Return on average common equity                                 10.66 %             8.53 %             7.72 %             3.12 %             4.12 %               9.60 %               6.49 %
Average loans to average deposits                               82.39 %            78.84 %            76.45 %            76.62 %            76.41 %              80.60 %              76.87 %
Average equity to average assets                                 9.93 %             9.70 %             9.39 %            10.01 %             9.93 %               9.80 %               9.90 %
Net interest margin (tax equivalent)                             4.96 %             4.79 %             4.75 %             4.52 %             4.66 %               4.88 %               4.56 %
Efficiency ratio (tax equivalent)                               65.32 %            72.76 %            71.85 %            75.68 %            70.51 %              68.98 %              65.63 %


Table of Contents

Results of Operations for the Three Months Ended June 30, 2013 and 2012

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $6.2 million, or $0.26 per diluted share, for the quarter ended June 30, 2013, compared to $1.7 million, or $0.07 per diluted share, for the same period in 2012. The Company's return on average assets and average shareholders' equity increased in the second quarter of 2013 to 0.95% and 10.66%, respectively, compared to 0.34% and 4.12%, respectively, in the second quarter of 2012. The increase in earnings and profitability during the quarter was primarily due to increased noninterest income and reduced credit costs. 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 during the second quarter of 2013 and 2012, respectively.

                                                    Retail Banking       Mortgage Banking        Total
                                                                       (in thousands)
For the three months ended June 30, 2013:
Net interest income                                $         28,517     $              959     $   29,476
Provision for loan losses                                     4,165                     -           4,165
Non-interest income                                           6,383                  5,001         11,384
Non-interest expense
Salaries and employee benefits                               10,478                  2,903         13,381
Occupancy                                                     2,781                    197          2,978
Data processing                                               2,634                    202          2,836
Other expenses                                                6,444                  1,049          7,493

Total non-interest expense                                   22,337                  4,351         26,688

Income before income taxes                                    8,398                  1,609         10,007
Income tax expense                                            2,766                    563          3,329
Net income                                                    5,632                  1,046          6,678
Preferred stock dividends                                       442                     -             442

Net income available to common shareholders        $          5,190     $            1,046     $    6,236

                                                    Retail Banking       Mortgage Banking        Total
                                                                       (in thousands)
For the three months ended June 30, 2012:
Net interest income                                $         28,704     $              177     $   28,881
Provision for loan losses                                     7,225                     -           7,225
Non-interest income                                           5,869                  3,006          8,875
Non-interest expense
Salaries and employee benefits                               10,727                  1,398         12,125
Occupancy                                                     2,807                     73          2,880
Data processing                                               2,832                     73          2,905
Other expenses                                                8,396                    317          8,713

Total non-interest expense                                   24,762                  1,861         26,623

Income before income taxes                                    2,586                  1,322          3,908
Income tax expense                                              950                    463          1,413
Net income                                                    1,636                    859          2,495
Preferred stock dividends                                       817                     -             817

Net income available to common shareholders        $            819     $              859     $    1,678

Net Interest Income and Margins

On a tax equivalent basis, net interest income for the second quarter of 2013 was $29.7 million, an increase of $607,000 compared to $29.1 million reported in 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 second quarter of 2013 to 4.96%, compared to 4.79% during the first quarter of 2013 and 4.66% during the second 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.


Table of Contents

Total interest income, on a tax equivalent basis, during the second quarter of 2013 was $32.1, million compared to $33.2 million in the same quarter of 2012. Yields on earning assets increased slightly to 5.38%, compared to 5.33% reported in the second quarter of 2012. During the second quarter of 2013, loans comprised 84.1% of earning assets, compared to 79.8% in the same quarter of 2012. Increased lending activities have provided opportunities to begin to grow the legacy loan portfolio. Yields on legacy loans decreased to 5.42% in the second quarter of 2013, compared to 5.75% in the same period of 2012. Covered loan yields increased from 7.22% in the second quarter of 2012 to 8.18% in the second quarter of 2013. Management anticipates improving economic conditions and increased loan demand will provide consistent interest income.

Total funding costs declined to 0.40% in the second quarter of 2013, compared to 0.62% during the second quarter of 2012. Interest-bearing deposit costs decreased from 0.68% in the second quarter of 2012 and 0.44% in the first quarter of 2013 to 0.42% in the second quarter of 2013. Ongoing efforts to maintain the percentage of funding from transaction deposits have succeeded such that non-CD deposits averaged 72.5% of total deposits in the second quarter of 2013 compared to 67.6% during the second quarter of 2012. Lower costs on deposits were due mostly to the lower rate environment and the improvement in the deposit mix. 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 second quarter of 2013 and 2012 are shown below:

    (Dollars in Thousands)            June 30, 2013                  June 30, 2012
                                  Average        Average         Average        Average
                                  Balance         Cost           Balance         Cost
    NOW                         $   579,312          0.17 %    $   605,494          0.30 %
    MMDA                            611,562          0.36 %        616,449          0.53 %
    Savings                         104,534          0.11 %         97,097          0.15 %
    Retail CDs < $100,000           298,553          0.59 %        369,651          0.91 %
    Retail CDs > $100,000           358,980          0.75 %        410,855          1.05 %
    Brokered CDs                     16,176          3.40 %         59,526          2.96 %


    Interest-bearing deposits   $ 1,969,117          0.42 %    $ 2,159,072          0.68 %

Provision for Loan Losses and Credit Quality

The Company's provision for loan losses during the second quarter of 2013 amounted to $4.2 million, compared to $2.9 million in the first quarter of 2013 and $7.2 million in the second quarter of 2012. Although the Company has experienced improving trends in criticized and classified assets for several quarters, provision for loan losses continues to be required to account for continued devaluation of real estate collateral. At June 30, 2013, classified loans still accruing totaled $26.3 million, compared to $34.4 million at December 31, 2012 and $37.3 million at June 30, 2012. Non-accrual loans at June 30, 2013 totaled $31.8 million, compared to $38.9 million reported at December 31, 2012 and $44.4 million reported at June 30, 2012.

At June 30, 2013, other real estate owned (excluding covered OREO) totaled $39.9 million, compared to $40.4 million at March 31, 2013 and $36.4 million at June 30, 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 three to six months, the liquidation of properties occurs between 85% and 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 second quarter of 2013, total non-performing assets decreased to 2.55% of total assets, compared to 2.61% at December 31, 2012 and 2.77% at June 30, 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 second quarter of 2013 were $2.9 million, or 0.74% of loans on an annualized basis, compared to $8.6 million, or 2.52% of loans, in the second quarter of 2012. The Company's allowance for loan losses at June 30, 2013 was $24.2 million, or 1.56% of non-covered loans, compared to $26.2 million, or 1.92% of non-covered loans, at June 30, 2012.

Non-interest Income

Total non-interest income for the second quarter of 2013 was $11.4 million, compared to $8.9 million in the second 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 second quarter of 2013 decreased slightly to $4.7 million, compared to $4.8 million in the first quarter of 2013 and $4.8 million in the second quarter of 2012.


Table of Contents

Non-interest Expense

Total non-interest expenses for the second quarter of 2013 increased slightly to $26.7 million, compared to $26.6 million in the same quarter in 2012. Salaries and benefits increased $1.3 million when compared to the second quarter of 2012, due to the growth in support costs and commissions in the mortgage division, which is proportionate to the growth in mortgage revenues. Excluding compensation costs in the mortgage operations, salaries and benefits declined $249,000 in the second quarter of 2013, compared to the second quarter of 2012. Occupancy and equipment expense increased during the quarter from $2.9 million in the second quarter of 2012 to $3.0 million in the second quarter of 2013. Data processing and telecommunications expenses decreased slightly to $2.8 million for the second quarter of 2013 from $2.9 million for the same period in 2012. Credit related expenses, including problem loan and OREO expense and OREO write-downs and losses, decreased to $2.3 million in the second quarter of 2013, compared to $3.4 million in the second quarter of 2012 due to improved economic conditions.

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 second quarter of 2013, the Company reported income tax expense of $3.3 million, compared to $1.4 million in the same period of 2012. The Company's effective tax rate for the three months ending June 30, 2013 and 2012 was 33.3% and 36.2%, respectively.

Results of Operations for the Six Months Ended June 30, 2013 and 2012

Ameris reported net income available to common shareholders of $11.1 million, or $0.46 per diluted share, for the six months ended June 30, 2013, compared to $6.2 million, or $0.26 per diluted share, for the same period in 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 during the first six months of 2013 and 2012, respectively.

                                                    Retail Banking       Mortgage Banking        Total
                                                                       (in thousands)
For the six months ended June 30, 2013:
Net interest income                                $         56,283     $            1,531     $   57,814
Provision for loan losses                                     7,088                     -           7,088
Non-interest income                                          13,279                  9,465         22,744
Non-interest expense
Salaries and employee benefits                               21,515                  5,672         27,187
Occupancy                                                     5,546                    363          5,909
Data processing                                               5,105                    301          5,406
Other expenses                                               15,334                  1,736         17,070

Total non-interest expense                                   47,500                  8,072         55,572

Income before income taxes                                   14,974                  2,924         17,898
Income tax expense                                            4,912                  1,023          5,935
Net income                                                   10,062                  1,901         11,963
Preferred stock dividends                                       883                     -             883

Net income available to common shareholders        $          9,179     $            1,901     $   11,080

                                                    Retail Banking       Mortgage Banking        Total
                                                                       (in thousands)
For the six months ended June 30, 2012:
Net interest income                                $         56,290     $              318     $   56,608
Provision for loan losses                                    20,107                     -          20,107
Non-interest income                                          31,658                  4,481         36,139
Non-interest expense
Salaries and employee benefits                               20,989                  2,582         23,571
Occupancy                                                     6,060                    155          6,215
Data processing                                               4,712                    118          4,830
Other expenses                                               25,764                    489         26,253

Total non-interest expense                                   57,525                  3,344         60,869

Income before income taxes                                   10,316                  1,455         11,771
Income tax expense                                            3,402                    509          3,911
Net income                                                    6,914                    946          7,860
Preferred stock dividends                                     1,632                     -           1,632

Net income available to common shareholders        $          5,282     $              946     $    6,228


Table of Contents

Interest Income

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