Ameris Bancorp (ABCB) is based in Moultrie, Georgia. It has taken over the assets of several failed banks in Georgia this year, which suggests that it is a strong bank to do so and will likely prosper once again when the economy gets going. I assume it will be more profitable now that has an expanded geographic footprint and asset base.
Here I am taking a look at all the relevant historical data for Ameris to see whether it has been profitable and prudent in the past, and what that might mean for the future.
The following chart is for the yearly returns on assets and equity since 1992. (click for larger size)
Ameris has been very profitable in the past, with a very high ROE ranging from the mid-teens to mid-twenties up until 2006, where all banks’ returns started to slide down a steep hill (or off a cliff in some cases). ROE and ROA are just barely below zero at the moment, but I don’t think this is something to worry about. It might take a few years to get back to the historical average, but I think Ameris will get there again.
The following chart shows the historical cost of funding assets and net interest margins since 1992. (click for larger size)
A bank makes its money by borrowing money and attracting deposits and then loaning this money out at a higher rate. The cost of funding assets is basically the yield at which the bank is borrowing its money – an investor wants to see as low a number as possible here. The net interest margin is the spread between the rate at which the bank borrows and the yield it earns by making loans – you want to see as large a number as possible here. Though I think Ameris has not had a very low cost of assets (I’ve seen plenty of banks with 1.5% and below), Ameris most definitely has had a very high net interest margin, higher than most banks I have seen. Even now, Ameris has a very high net interest margin for the current state of the economy and compared to other banks. Net interest margin will eventually get back to normal.
The following chart shows several metrics that describe the condition of the bank: noncurrent loans ratio, loss allowance ratio, and tier 1 ratio. (click for larger size)
Noncurrent loans since 1992 have not gone higher than 2% of total loans until 2007-2008, which suggests that Ameris is a fairly prudent lender. Hopefully, this ratio will not increase any further, but if they do, I would be careful to ask whether it is due to bad loans they have made or the bad loans they have acquired from failed banks.
The loss allowance ratio (the amount of money the bank has set aside for bad loans) has increased slightly, but I’m not sure if it has increased as much as it needs to given the amount of noncurrent loans. Also, the tier 1 ratio has remained fairly static throughout the years, meaning that the banks has been well-capitalized through good times and bad.
Conclusion
Ameris seems to have a pretty long history of profitability up until recently. Ameris has also acquired several failed banks which suggests to me that it is a strong, well-capitalized bank. And really, would regulators allow a crappy bank to acquire the assets of a failed bank? I don’t think so. I think chances are good Ameris will pull through this downturn and emerge stronger and will regain most of its former profitability.
I’m not exactly sure if Ameris is a bargain at the moment (that requires a look at tangible book value and earnings power) but I am certainly more confident in what the future might hold for Ameris.
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