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ABCB > SEC Filings for ABCB > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for AMERIS BANCORP

Form 10-Q for AMERIS BANCORP


9-May-2014

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 us; state and federal banking regulations; changes in or application of environmental and other laws and regulations to which we are 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 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.


Table of Contents

Selected Financial Data

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.



                                                            2014                                         2013
                                                           First             Fourth            Third             Second            First
(in thousands, except share data, taxable equivalent)     Quarter           Quarter           Quarter           Quarter           Quarter
Results of Operations:
Net interest income                                     $     34,484      $     29,051      $     29,320      $     29,476      $     28,338
Net interest income (tax equivalent)                          34,808            29,325            29,542            29,666            28,695
Provision for loan losses                                      1,726             1,478             2,920             4,165             2,923
Non-interest income                                           12,754            11,517            12,288            11,384            11,360
Non-interest expense                                          33,239            37,624            28,749            26,688            28,884
Income tax expense                                             3,923                88             3,262             3,329             2,606
Preferred stock dividends                                        286               412               443               442               441
Net income available to common shareholders                    8,064               966             6,234             6,236             4,844
Selected Average Balances:
Mortgage loans held for sale                            $     49,397      $     65,683      $     61,249      $     48,890      $     32,639
Loans, net of unearned income                              1,639,672         1,602,942         1,564,311         1,523,654         1,455,687
Purchased non-covered loans                                  441,138            43,900                -                 -                 -
Covered loans                                                379,460           401,045           427,482           444,616           491,691
Investment securities                                        462,343           327,993           312,541           321,582           340,564
Earning assets                                             3,091,546         2,625,178         2,439,771         2,397,834         2,428,720
Assets                                                     3,521,588         2,937,434         2,806,799         2,820,863         2,875,274
Deposits                                                   2,975,305         2,552,819         2,439,150         2,448,171         2,511,511
Common shareholders' equity                                  290,462           248,429           246,489           251,240           251,214
Period-End Balances:
Mortgage loans held for sale                            $     51,693      $     67,278      $     69,634      $     62,580      $     42,332
Loans, net of unearned income                              1,695,382         1,618,454         1,589,267         1,555,827         1,492,753
Purchased non-covered loans                                  437,269           448,753                -                 -                 -
Covered loans                                                372,694           390,237           417,649           443,517           460,724
Earning assets                                             3,062,428         3,215,941         2,462,697         2,421,996         2,401,043
Total assets                                               3,487,984         3,667,649         2,818,502         2,808,675         2,861,651
Deposits                                                   3,010,647         2,999,231         2,443,421         2,443,103         2,489,973
Common shareholders' equity                                  300,030           288,699           262,418           259,932           255,969
Per Common Share Data:
Earnings per share - Basic                              $       0.32      $       0.04      $       0.26      $       0.26      $       0.20
Earnings per share - Diluted                                    0.32              0.04              0.26              0.26              0.20
Common book value per share                                    11.93             11.50             10.98             10.88             10.72
End of period shares
outstanding                                               25,159,073        25,098,427        23,907,509        23,894,327        23,875,680
Weighted average shares outstanding
Basic                                                     25,144,342        24,021,447        23,900,665        23,878,898        23,867,691
Diluted                                                   25,573,320        24,450,619        24,315,821        24,287,628        24,246,346
Market Data:
High closing price                                      $      24.00      $      21.42      $      19.79      $      16.94      $      14.51
Low closing price                                              19.86             17.69             17.35             13.16             12.79
Closing price for quarter                                      23.30             21.11             18.38             16.85             14.35
Average daily trading volume                                 103,279            94,636            75,545            53,403            51,887
Cash dividends per share                                          -                 -                 -                 -                 -
Stock dividend                                                    -                 -                 -                 -                 -
Closing price to book value                                     1.95              1.84              1.67              1.55              1.34
Performance Ratios:
Return on average assets                                        0.96 %            0.19 %            0.94 %            0.95 %            0.75 %
Return on average common equity                                11.66 %            2.20 %           10.75 %           10.66 %            8.53 %
Average loan to average deposits                               84.35 %           82.79 %           84.17 %           82.39 %           78.84 %
Average equity to average assets                                9.04 %            9.41 %            9.78 %            9.93 %            9.70 %
Net interest margin (tax equivalent)                            4.57 %            4.43 %            4.80 %            4.96 %            4.79 %
Efficiency ratio (tax equivalent)                              70.36 %           92.74 %           69.09 %           65.32 %           72.76 %


Table of Contents

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, 2014, as compared to December 31, 2013, and operating results for the three month periods ended March 31, 2014 and 2013. 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, 2014

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $8.1 million, or $0.32 per diluted share, for the quarter ended March 31, 2014, compared to $4.8 million, or $0.20 per diluted share, for the same quarter in 2013. The Company's return on average assets and average stockholders' equity in the first quarter of 2014 were 0.96% and 11.66%, respectively, compared to 0.75% and 8.53%, respectively, in the first quarter of 2013. 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, 2014:
Net interest income                       $        33,384        $            1,100        $ 34,484
Provision for loan losses                           1,726                        -            1,726
Non-interest income                                 7,590                     5,164          12,754
Non-interest expense
Salaries and employee benefits                     13,826                     3,568          17,394
Occupancy                                           3,762                       302           4,064
Data Processing                                     3,332                       122           3,454
Other expenses                                      7,512                       815           8,327

Total non-interest expense                         28,432                     4,807          33,239

Income before income taxes                         10,816                     1,457          12,273
Income tax expense                                  3,413                       510           3,923
Net income                                          7,403                       947           8,350
Preferred stock dividends                             286                        -              286

Net income available to common
Shareholders                              $         7,117        $              947        $  8,064


                                          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                     4,464          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


Table of Contents

Net Interest Income and Margins

On a tax equivalent basis, net interest income for the first quarter of 2014 was $34.8 million, an increase of $6.4 million compared to the same quarter in 2013. The higher net interest income is a result of the acquisition of The Prosperity Banking Company during the fourth quarter of 2013, along with steady yields on the loan portfolio, lower levels of excess liquidity than in previous quarters and steady decreases in the Company's cost of funds. The Company's net interest margin decreased during the first quarter of 2014 to 4.57%, compared to 4.74% during the first quarter of 2013, but increased compared to 4.43% reported in the fourth quarter of 2013.

Total interest income, on a tax equivalent basis, during the first quarter of 2014 was $38.2 million compared to $30.9 million in the same quarter of 2013. Yields on earning assets fell slightly to 5.01%, compared to 5.17% reported in the first quarter of 2013. During the first quarter of 2014, loans comprised 81.2% of earning assets, compared to 81.5% in the same quarter of 2013. Increased lending activities have provided opportunities to grow the legacy loan portfolio. Yields on legacy loans decreased to 5.11% in the first quarter of 2014, compared to 5.46% in the same period of 2013. Covered loan yields remained stable at 7.23% in the first quarter of 2014 and 2013. The yield on purchased non-covered loans was 6.31% for the first quarter of 2014. Management anticipates improving economic conditions and increased loan demand will provide consistent interest income.

Total funding costs increased slightly to 0.43% in the first quarter of 2014, compared to 0.40% during the first quarter of 2013. Deposit costs decreased from 0.36% in the first quarter of 2013 to 0.30% in the first quarter of 2014. Continued shifts in the funding mix toward noninterest-bearing demand and other lower cost deposit categories was the primary reason for the decline. Ongoing efforts to maintain the percentage of funding from transaction deposits have succeeded such that non-CD deposits averaged 75.1% of total deposits in the first quarter of 2014, compared to 72.1% during the first quarter of 2013. 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 2014 and 2013 are shown below:

    (Dollars in Thousands)           March 31, 2014                 March 31, 2013
                                  Average        Average         Average        Average
                                  Balance         Cost           Balance         Cost
    NOW                         $   675,199          0.17 %    $   633,313          0.19 %
    MMDA                            749,150          0.37 %        592,842          0.36 %
    Savings                         143,109          0.10 %        102,380          0.11 %
    Retail CDs < $100,000           373,523          0.53 %        313,191          0.64 %
    Retail CDs > $100,000           361,861          0.72 %        368,577          0.78 %
    Brokered CDs                      5,970          3.26 %         19,448          3.52 %

    Interest-bearing deposits   $ 2,308,812          0.38 %    $ 2,029,751          0.44 %

Provision for Loan Losses and Credit Quality

The Company's provision for loan losses during the first quarter of 2014 amounted to $1.7 million, compared to $1.5 million in the fourth quarter of 2013 and to $2.9 million in the first quarter of 2013. 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 loan growth and slight devaluation of real estate collateral. At March 31, 2014, classified loans still accruing totaled $39.7 million, compared to $28.6 million at March 31, 2013. This increase is predominately due to the addition of classified loans in the Prosperity Bank acquisition. Nonaccrual loans, excluding purchased non-covered and covered loans, totaled $26.7 million at March 31, 2014, a 28.7% decrease from $37.5 million reported at the end of the first quarter of 2013. Nonaccrual purchased non-covered loans totaled $15.3 million at March 31, 2014.

At March 31, 2014, OREO (excluding purchased non-covered and covered OREO) totaled $33.8 million, compared to $40.4 million at March 31, 2013. Purchased non-covered OREO totaled $3.9 million at March 31, 2014. 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 2014, total non-covered non-performing assets decreased to 2.29% of total assets compared to 2.72% at March 31, 2013. 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 2014 decreased to $1.1 million, or 0.27% of loans on an annualized basis, compared to $2.8 million, or 0.76% of loans, in the first quarter of 2013. The Company's allowance for loan losses at March 31, 2014 was $22.7 million, or 1.34% of total loans, compared to $23.4 million, or 1.57% of total loans, at March 31, 2013.


Table of Contents

Noninterest Income

Total noninterest income for the first quarter of 2014 was $12.8 million, compared to $11.4 million in the first quarter of 2013. 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 2014 increased to $5.6 million, compared to $4.8 million in the first quarter of 2013. This increase was driven by the growth of core accounts through the acquisition of Prosperity Bank during the fourth quarter of 2013, along with higher balances in accounts subject to service charges.

Noninterest Expense

Total noninterest expense for the first quarter of 2014 increased to $33.2 million, compared to $28.9 million at the same time in 2013. Increases in noninterest expenses were primarily the result of the acquisition of Prosperity Bank during the fourth quarter of 2013 and additional expenses related to increases in mortgage volume. Salaries and employee benefits increased from $13.8 million in the first quarter of 2013 to $17.4 million in the first quarter of 2014. Occupancy and equipment expense increased during the quarter from $2.9 million in the first quarter of 2013 to $4.1 million in the first quarter of 2014. Total data processing and telecommunications expense in the first quarter of 2014 was $3.5 million, compared to $2.6 million in the first quarter of 2013. Credit related expenses, including problem loan and OREO expense and OREO write-downs and losses, decreased to $2.2 million in the first quarter of 2014, compared to $4.8 million in the first quarter of 2013 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 first quarter of 2014, the Company reported income tax expense of $3.9 million, compared to $2.6 million in the same period of 2013. The Company's effective tax rate for the three months ended March 31, 2014 and 2013 was 32.0% and 33.0%, 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, 2014, 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, 2014, these investments are not considered impaired on an other-than temporary basis.


Table of Contents

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, 2014:
U.S. government agencies                   $     14,948     $     14,145       1.85 %          5.56     $         -
State, county and municipal securities     $    110,331     $    111,574       3.61 %          5.34     $      4,566
Corporate debt securities                  $     10,307     $     10,383       6.52 %          7.23     $         -
Mortgage-backed securities                 $    319,216     $    320,611       2.58 %          4.05     $     51,282

Total debt securities                      $    454,802     $    456,713       3.53 %          4.48     $     55,848

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

Loans and Allowance for Loan Losses

At March 31, 2014, gross loans outstanding (including purchased non-covered and covered loans and mortgage loans held for sale) were $2.56 billion, a slight increase compared to the $2.52 billion reported at December 31, 2013. Mortgage loans held for sale decreased from $67.3 million at December 31, 2013 to $51.7 million at March 31, 2014. Legacy loans (excluding purchased non-covered and covered loans) increased $76.9 million, from $1.62 billion at December 31, 2013 to $1.70 billion at March 31, 2014. Purchased non-covered loans decreased $11.5 million, from $448.8 million at December 31, 2013 to $437.3 million at March 31, 2014. Covered loans decreased $17.5 million, from $390.2 million at December 31, 2013 to $372.7 million at March 31, 2014.

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 . . .

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