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ABCB > SEC Filings for ABCB > Form 10-Q on 8-Aug-2014All Recent SEC Filings

Show all filings for AMERIS BANCORP

Form 10-Q for AMERIS BANCORP


8-Aug-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 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 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.

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, 2014 as compared to December 31, 2013 and operating results for the three-and six-month periods ended June 30, 2014 and 2013. 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 2014         Quarter 2014         Quarter 2013         Quarter 2013         Quarter 2013          June 30, 2014          June 30, 2013
Results of Operations:
Net interest income                                        $      35,264        $      34,484        $      29,051        $      29,320        $      29,476        $        69,748        $        57,814
Net interest income (tax equivalent)                              35,626               34,808               29,325               29,542               29,666                 70,434                 58,360
Provision for loan losses                                          1,365                1,726                1,478                2,920                4,165                  3,091                  7,088
Non-interest income                                               15,819               12,754               11,517               12,288               11,384                 28,573                 22,744
Non-interest expense                                              37,318               33,239               37,624               28,749               26,688                 70,557                 55,572
Income tax expense                                                 4,270                3,923                   88                3,262                3,329                  8,193                  5,935
Preferred stock dividends                                             -                   286                  412                  443                  442                    286                    883
Net income available to common shareholders                        8,130                8,064                  966                6,234                6,236                 16,194                 11,080
Selected Average Balances:
Mortgage loans held for sale                               $      54,517        $      49,397        $      65,683        $      61,249        $      48,890        $        51,884        $        40,765
Loans, net of unearned income                                  1,706,564            1,639,672            1,602,942            1,564,311            1,572,544              1,673,493              1,489,902
Purchased non-covered loans                                      433,249              441,138               43,900                   -                    -                 437,068                     -
Covered loans                                                    354,766              379,460              401,045              427,482              444,616                367,045                468,024
Investment securities                                            468,129              462,343              327,993              312,541              321,582                465,252                331,021
Earning assets                                                 3,075,204            3,091,546            2,625,178            2,439,771            2,397,834              3,081,909              2,413,192
Assets                                                         3,494,466            3,521,588            2,937,434            2,806,799            2,820,863              3,507,952              2,853,494
Deposits                                                       3,010,142            2,975,305            2,552,819            2,439,150            2,448,171              2,992,821              2,479,667
Common shareholders' equity                                      309,696              290,462              248,429              246,489              251,240                304,222                251,227
Period-End Balances:
Mortgage loans held for sale                               $      81,491        $      51,693        $      67,278        $      69,634        $      62,580        $        81,491        $        62,580
Loans, net of unearned income                                  1,770,059            1,695,382            1,618,454            1,589,267            1,555,827              1,770,059              1,555,827
Purchased non-covered loans                                      702,131              437,269              448,753                   -                    -                 702,131                     -
Covered loans                                                    331,250              372,694              390,237              417,649              443,517                331,250                443,517
Earning assets                                                 3,465,361            3,062,428            3,215,941            2,462,697            2,421,996              3,465,361              2,421,996
Total assets                                                   3,973,135            3,487,984            3,667,649            2,818,502            2,808,675              3,973,135              2,808,675
Total deposits                                                 3,389,035            3,010,647            2,999,231            2,443,421            2,443,103              3,389,035              2,443,103
Common shareholders' equity                                      343,399              300,030              288,699              262,418              259,932                343,399                259,932
Per Common Share Data:
Earnings per share - basic                                 $        0.32        $        0.32        $        0.04        $        0.26        $        0.26        $          0.64        $          0.46
Earnings per share - diluted                                        0.32                 0.32                 0.04                 0.26                 0.26                   0.63                   0.46
Common book value per share                                        12.83                11.93                11.50                10.98                10.88                  12.83                  10.88
End of period shares outstanding                              26,771,821           25,159,073           25,098,427           23,907,509           23,894,327             26,771,821             23,894,327
Weighted average shares outstanding
Basic                                                         25,180,665           25,144,342           24,021,447           23,900,665           23,878,898             25,162,604             23,873,325
Diluted                                                       25,572,405           25,573,320           24,450,619           24,315,821           24,287,628             25,552,469             24,282,055
Market Price:
High closing price                                         $       23.90        $       24.00        $       21.42        $       19.79        $       16.94                  24.00                  16.94
Low closing price                                                  19.73                19.86                17.69                17.35                13.16                  19.73                  12.79
Closing price for quarter                                          21.56                23.30                21.11                18.38                16.85                  21.56                  16.85
Average daily trading volume                                      79,038              103,279               94,636               75,545               53,403                 90,963                 52,669
Closing price to book value                                         1.68                 1.95                 1.84                 1.67                 1.55                   1.68                   1.55
Performance Ratios:
Return on average assets                                            0.93 %               0.96 %               0.19 %               0.94 %               0.95 %                 0.95 %                 0.85 %
Return on average common equity                                    10.53 %              11.66 %               2.20 %              10.75 %              10.66 %                11.32 %                 9.60 %
Average loans to average deposits                                  84.68 %              84.35 %              82.79 %              84.17 %              82.39 %                84.52 %                80.60 %
Average equity to average assets                                    8.86 %               9.04 %               9.41 %               9.78 %               9.93 %                 8.67 %                 9.80 %
Net interest margin (tax equivalent)                                4.65 %               4.57 %               4.43 %               4.80 %               4.96 %                 4.61 %                 4.88 %
Efficiency ratio (tax equivalent)                                  73.05 %              70.36 %              92.74 %              69.09 %              65.32 %                71.76 %                68.98 %


Table of Contents

Results of Operations for the Three Months Ended June 30, 2014 and 2013

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 June 30, 2014, compared to $6.2 million, or $0.26 per diluted share, for the same period in 2013. The Company's return on average assets and average shareholders' equity of 0.93% and 10.53%, respectively, in the second quarter of 2014, compared to 0.95% and 10.66%, respectively, in the second quarter of 2013. During the second quarter of 2014, the Company completed the acquisition of Coastal Bankshares, Inc. ("Coastal") and recorded approximately $1.9 million of after-tax merger related charges. 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 2014 and 2013, respectively:

                                          Retail Banking          Mortgage Banking          Total
                                                               (in thousands)
For the three months ended June 30,
2014:
Net interest income                       $        33,925        $            1,339        $ 35,264
Provision for loan losses                           1,365                        -            1,365
Non-interest income                                 8,817                     7,002          15,819
Non-interest expense
Salaries and employee benefits                     13,005                     3,937          16,942
Occupancy                                           3,771                       300           4,071
Data processing                                     3,597                       343           3,940
Other expenses                                     11,053                     1,312          12,365

Total non-interest expense                         31,426                     5,892          37,318

Income before income taxes                          9,951                     2,449          12,400
Income tax expense                                  3,413                       857           4,270
Net income                                          6,538                     1,592           8,130
Preferred stock dividends                              -                         -               -

Net income available to common
shareholders                              $         6,538        $            1,592        $  8,130

                                          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


Table of Contents

Net Interest Income and Margins

The following tables set forth the amount of our interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net interest margin on average interest-earning assets. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 35% federal tax rate.

                                                                           Quarter Ended June 30,
                                                            2013                                           2012
                                                          Interest        Average                        Interest        Average
                                            Average        Income/        Yield/           Average        Income/        Yield/
                                            Balance        Expense       Rate Paid         Balance        Expense       Rate Paid
                                                                              ( in Thousands)
ASSETS
Interest-earning assets:
Loans                                     $ 2,549,096     $  35,550            5.59 %    $ 2,017,160     $  29,929            5.95 %
Investment securities                         474,758         3,374            2.85          328,584         2,183            2.66
Short-term assets                              51,350            45            0.35           52,090            29            0.22

Total interest- earning assets              3,075,204        38,969            5.08        2,397,834        32,141            5.38

Noninterest-earning assets                    419,262                                        423,029

Total assets                              $ 3,494,466                                    $ 2,820,863

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest-bearing demand
deposits                                  $ 1,606,928     $   1,053            0.26 %    $ 1,295,408     $     834            0.26 %
Time deposits                                 723,156         1,152            0.64          673,709         1,249            0.74
Other borrowings                               35,280           415            4.72               -             -               -
FHLB advances                                  28,626            26            0.36               -             -               -
Federal funds purchased and securities
sold under agreements to repurchase            40,008            31            0.31           20,530            29            0.57
Subordinated deferrable interest
debentures                                     55,789           666            4.79           42,269           363            3.44

Total interest-bearing liabilities          2,489,787         3,343            0.54        2,031,916         2,475            0.49

Demand deposits                               680,058                                        479,054
Other liabilities                              14,925                                         21,380
Stockholders' equity                          309,696                                        288,513

Total liabilities and stockholders'
equity                                    $ 3,494,466                                    $ 2,820,863

Interest rate spread                                                           4.54 %                                         4.89 %

Net interest income                                       $  35,626                                      $  29,666

Net interest margin                                                            4.65 %                                         4.96 %

On a tax equivalent basis, net interest income for the second quarter of 2014 was $35.6 million, an increase of $5.9 million compared to $29.7 million reported in 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 increased during the second quarter of 2014 to 4.65%, compared to 4.57% during the first quarter of 2014, but decreased compared to 4.96% reported in the second quarter of 2013.


Table of Contents

Total interest income, on a tax equivalent basis, during the second quarter of 2014 was $39.0 million compared to $32.1 million in the same quarter of 2013. Yields on earning assets fell slightly to 5.08%, compared to 5.38% reported in the second quarter of 2013. During the second quarter of 2014, loans comprised 82.9% of earning assets, compared to 84.1% in the same quarter of 2013. Increased lending activities have provided opportunities to grow the legacy loan portfolio. Yields on legacy loans decreased to 5.17% in the second quarter of 2014, compared to 5.37% in the same period of 2013. Covered loan yields declined from 8.18% in the second quarter of 2013 to 5.84% in the second quarter of 2014. The yield on purchased non-covered loans was 7.34% for the second quarter of 2014. Management anticipates improving economic conditions and increased loan demand will provide consistent interest income.

Total funding costs increased slightly to 0.42% in the second quarter of 2014, compared to 0.40% during the second quarter of 2013. Deposit costs decreased from 0.34% in the second quarter of 2013 to 0.29% in the second quarter of 2014, while non- deposit funding costs increased from 2.50% in the second quarter of 2013 to 2.86% in the second quarter of 2014. Continued shifts in the funding mix toward noninterest-bearing demand and other lower cost deposit categories were the primary reason for the decline in deposit costs. Ongoing efforts to maintain the percentage of funding from transaction deposits have succeeded such that non-CD deposits averaged 76.0% of total deposits in the second quarter of 2014, compared to 72.5% during the second quarter of 2013. Lower costs on deposits were realized due mostly to the lower rate environment and the Company's ability to rely less 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 second quarter of 2014 and 2013 are shown below:

                                      June 30, 2014                  June 30, 2013
                                  Average        Average         Average        Average
    (Dollars in Thousands)        Balance         Cost           Balance         Cost
    NOW                         $   691,353          0.17 %    $   579,312          0.17 %
    MMDA                            770,047          0.38 %        611,562          0.36 %
    Savings                         145,528          0.11 %        104,534          0.11 %
    Retail CDs < $100,000           356,483          0.54 %        298,553          0.59 %
    Retail CDs > $100,000           360,703          0.70 %        358,980          0.75 %
    Brokered CDs                      5,970          3.22 %         16,176          3.40 %

    Interest-bearing deposits   $ 2,330,084          0.38 %    $ 1,969,117          0.42 %

Provision for Loan Losses and Credit Quality

The Company's provision for loan losses during the second quarter of 2014 amounted to $1.4 million, compared to $1.7 million in the first quarter of 2014 and $4.2 million in the second quarter of 2013. 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 loan growth and continued devaluation of real estate collateral. At June 30, 2014, classified loans still accruing totaled $42.6 million, compared to $26.3 million at June 30, 2013. This increase is predominately due to the addition of classified loans in the Prosperity Bank and Coastal Bank acquisitions. Non-accrual loans, excluding purchased non-covered and covered loans, totaled $22.1 million at June 30, 2014, a 30.5% decrease from $31.8 million reported at the end of the second quarter of 2013. Nonaccrual purchased non-covered loans totaled $15.8 million at June 30, 2014. There were no nonaccrual purchased non-covered loans at the end of the second quarter of 2013.

At June 30, 2014, other real estate owned (excluding purchased non-covered and covered OREO) totaled $35.4 million, compared to $33.8 million at March 31, 2014 and $39.9 million at June 30, 2013. 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 2014, total non-performing assets were 2.26% of total assets, compared to 2.00% at December 31, 2013 and 2.55% at June 30, 2013. This increase is due to the Prosperity and Coastal acquisitions completed in the fourth quarter of 2013 and second quarter of 2014, respectively. Management continues to aggressively identify and resolve problem assets while seeking quality credits to grow the loan portfolio.


Table of Contents

Net charge-offs on loans during the second quarter of 2014 were $1.5 million, or 0.34% of loans on an annualized basis, compared to $2.9 million, or 0.74% of loans, in the second quarter of 2013. The Company's allowance for loan losses at June 30, 2014 was $22.3 million, or 1.26% of loans (excluding purchased non-covered and covered loans), compared to $24.2 million, or 1.56% of loans (excluding purchased non-covered and covered loans), at June 30, 201.

Noninterest Income

Total non-interest income for the second quarter of 2014 was $15.8 million, compared to $11.4 million in the second 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 levels of production. Service charges on deposit accounts in the second quarter of 2014 increased to $5.8 million, compared to $4.7 million in the second quarter of 2013. This increase was driven by the growth of core accounts through the acquisition of Prosperity Bank during . . .

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