I've been a believer for a while now that there's value in banks. The hardest part is sifting through all of the wreckage. But if you know what you are looking for, then chances are you may just be able to find it. Such is the case for me this month as I'm buying Ameris Bancorp (Nasdaq: ABCB) for my Rising Stars portfolio.

You're doing what?!
Yes, I know. It's a small bank based out of Georgia. And in case you missed it, Georgia has been ground zero for banks throughout the financial crisis. But there are still good banks in the state -- and Ameris Bancorp is one of them.

The business
Founded in 1971 as American Banking Company, today's Ameris Bancorp operates 50 branches throughout Georgia, Florida, Alabama, and South Carolina. As a small, community-based bank, Ameris focuses on personalized service and building strong, long-lasting customer relationships. This, in turn, provides the bank with a substantial and reliable low-cost deposit base, and it seems to be working. Today, the bank manages 150,000 core customer accounts with $2.1 billion in deposits and $2.4 billion in assets. And thanks to the financial crisis, they are getting a little bigger.

Trouble meets opportunity
Housing is still a mess, and unemployment is as stubborn as my dog when I take her to the vet. Consequently, a lot of banks have gone belly up. But Ameris has fared better than most, and the bank's capital ratios indicate that it's well capitalized:


Ameris Bancorp

Minimum to be "well capitalized"

Leverage Ratio 12.01% Greater than or equal to 5%
Core Capital Ratio 17.75% Greater than or equal to 6%
Total Capital Ratio 19.01% Greater than or equal to 10%

Source: Ameris Bancorp's most recent 10Q.

And it isn't like this just happened either. Looking back to the same period last year, their ratios were respectively 8.69%; 11.28%; and 12.51%.

The Federal Deposit and Insurance Corporation has been working with Ameris to take over some of the smaller failed institutions in Georgia like Darby Bank & Trust and Tifton Banking Company. These acquisitions add almost $730 million in additional deposits for Ameris. And the agreement with the FDIC ensures that Ameris is extremely limited in its exposure to any potential losses. What this means ultimately is that the FDIC sees Ameris as part of the solution. The market, on the other hand, is pricing the stock like any other nebulous small banking operation.

Ameris also maintains a well-diversified book of loans without holding any tremendous exposure to one particular line. Here's the breakdown on types of loans and percentages:

Loan type

Percentage of portfolio

Consumer installment and residential 24%
Covered 11%
Owner occupied commercial real estate 17%
Non-owner occupied commercial real estate 19%
Construction 11%
Commercial and industrial 7%
Agriculture 11%

Source: Ameris Bancorp presentation.

This has got to be risky
There's no telling how far along we really are in working through this whole credit mess. And with Georgia's unemployment rate still higher than the national average, consumers are having a heck of a time paying the bills. Ameris will need to avoid taking on more than it can handle.

Smaller banks are also recovering from the financial crisis at a slower pace than banks like US Bancorp (NYSE: USB) and Wells Fargo (NYSE: WFC). Insiders own 3.5% of the shares outstanding, which gives me a little peace of mind, and I see it as a positive that the bank recently suspended their dividend in order to focus on keeping healthy. Note that Ameris' loan loss reserves are down from a year ago -- this is definitely something to keep an eye on.

Is it worth it?
Looking at return on assets is one way to value bank stocks, and in normal times Ameris can generate around a 1% return. With $2.5 billion in assets today, this translates into a little more than a dollar per share in earnings. Tack that on to a 10-year average P/E of 14 and the stock could be worth between $14 and $15. Alas, returns have not been so kind to banks over the past few years. In order to get this ratio back up to snuff, Ameris needs to focus on net interest margin, charge off ratio, and fee income from banking and lending services. If they can do this and successfully integrate their acquisitions, I see the stock being worth substantially more in a healthier economy.

Southern comfort
I'm going to fill my motley portfolio with several small caps along the way; Ameris Bancorp is the first and I'm giving it a 3% position in the context of a well-constructed basket. Here, we have a tiny bank in a brutal environment. But I do believe it's doing the right things to work through it. Agree? Don't agree? Swing on by my discussion board and let's talk. You can also follow me on Twitter. Here's to the future!