Companies: 10,793     total market cap: $134.283 T
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Ameris Bancorp
ABCB
#2965
Rank
$5.35 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$78.40
Share price
-0.13%
Change (1 day)
54.57%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Ameris Bancorp
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2019 Q3

Ameris Bancorp - 10-Q quarterly report FY2019 Q3


Text size:
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iumFinanceDivisionMember2018-07-012018-09-300000351569abcb:WarehouseLendingMember2018-09-300000351569us-gaap:MortgageBankingMember2018-09-300000351569abcb:RetailBankingMember2018-01-012018-09-300000351569abcb:SbaDivisionMember2018-01-012018-09-300000351569abcb:WarehouseLendingMember2018-01-012018-09-300000351569us-gaap:MortgageBankingMember2018-01-012018-09-300000351569abcb:PremiumFinanceDivisionMember2018-01-012018-09-300000351569abcb:WarehouseLendingMember2019-01-012019-09-300000351569abcb:RetailBankingMember2019-01-012019-09-300000351569abcb:SbaDivisionMember2019-01-012019-09-300000351569us-gaap:MortgageBankingMember2019-01-012019-09-300000351569abcb:PremiumFinanceDivisionMember2019-01-012019-09-300000351569abcb:WarehouseLendingMember2019-07-012019-09-300000351569abcb:RetailBankingMember2019-07-012019-09-300000351569abcb:PremiumFinanceDivisionMember2019-07-012019-09-300000351569abcb:WarehouseLendingMember2019-09-300000351569abcb:SbaDivisionMember2019-07-012019-09-300000351569abcb:SbaDivisionMember2019-09-300000351569us-gaap:MortgageBankingMember2019-07-012019-09-300000351569abcb:PremiumFinanceDivisionMember2019-09-300000351569us-gaap:MortgageBankingMember2019-09-300000351569abcb:RetailBankingMember2019-09-30xbrli:purexbrli:sharesabcb:transactioniso4217:USDxbrli:sharesiso4217:USDabcb:branchabcb:contractabcb:securityabcb:loanabcb:leaseabcb:segment


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
(Mark One)
 
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2019
 
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 
001-13901
bancorplionclean.jpg
AMERIS BANCORP
(Exact name of registrant as specified in its charter)

Georgia
58-1456434
(State of incorporation)
(IRS Employer ID No.)
3490 Piedmont Rd NE, Suite 1550
Atlanta
Georgia
30305
(Address of principal executive offices)
(404)
639-6500
(Registrant’s telephone number) 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No   ¨
 
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
☐
 
 
 
 
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
Smaller reporting company
☐
 
 
 
 
 
 
Emerging growth company
☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ý




Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $1 per share
ABCB
Nasdaq Global Select Market

 There were 69,660,953 shares of Common Stock outstanding as of November 1, 2019.



AMERIS BANCORP
TABLE OF CONTENTS

 
 
Page
 
 
 
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements.
 
 
 
 
 
Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
1
 
 
 
 
Consolidated Statements of Income and Comprehensive Income for the Three and Nine-Month Periods Ended September 30, 2019 and 2018
2
 
 
 
 
Consolidated Statements of Shareholders’ Equity for the Three and Nine-Month Periods Ended September 30, 2019 and 2018
3
 
 
 
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018
5
 
 
 
 
Notes to Consolidated Financial Statements
7
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
50
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
77
 
 
 
Item 4.
Controls and Procedures.
78
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings.
78
 
 
 
Item 1A.
Risk Factors.
78
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
78
 
 
 
Item 3.
Defaults Upon Senior Securities.
79
 
 
 
Item 4.
Mine Safety Disclosures.
79
 
 
 
Item 5.
Other Information.
79
 
 
 
Item 6.
Exhibits.
80
 
 
 
Signatures
82
 
 





Item 1. Financial Statements.
 
AMERIS BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
(dollars in thousands, except per share data)
 
September 30,
2019
 
December 31,
2018
Assets
 

 
 

Cash and due from banks
$
193,976

 
$
172,036

Federal funds sold and interest-bearing deposits in banks
285,713

 
507,491

Cash and cash equivalents
479,689

 
679,527

 
 
 
 
Time deposits in other banks
499

 
10,812

Investment securities available for sale, at fair value
1,491,207

 
1,192,423

Other investments
66,921

 
14,455

Loans held for sale, at fair value
1,187,551

 
111,298

 
 
 
 
Loans
7,208,816

 
5,660,457

Purchased loans
5,388,336

 
2,588,832

Purchased loan pools
229,132

 
262,625

Loans, net of unearned income
12,826,284

 
8,511,914

Allowance for loan losses
(35,530
)
 
(28,819
)
Loans, net
12,790,754

 
8,483,095

 
 
 
 
Other real estate owned, net
4,925

 
7,218

Purchased other real estate owned, net
15,785

 
9,535

Total other real estate owned, net
20,710

 
16,753

 
 
 
 
Premises and equipment, net
239,428

 
145,410

Goodwill
911,488

 
503,434

Other intangible assets, net
97,328

 
58,689

Cash value of bank owned life insurance
174,442

 
104,096

Deferred income taxes, net
22,111

 
35,126

Other assets
282,149

 
88,397

Total assets
$
17,764,277

 
$
11,443,515

 
 
 
 
Liabilities
 

 
 

Deposits:
 

 
 

Noninterest-bearing
$
4,077,856

 
$
2,520,016

Interest-bearing
9,581,738

 
7,129,297

Total deposits
13,659,594

 
9,649,313

Securities sold under agreements to repurchase
17,744

 
20,384

Other borrowings
1,351,172

 
151,774

Subordinated deferrable interest debentures
127,075

 
89,187

FDIC loss-share payable, net
19,490

 
19,487

Other liabilities
168,479

 
57,023

Total liabilities
15,343,554

 
9,987,168

 
 
 
 
Commitments and Contingencies (Note 14)


 


 
 
 
 
Shareholders’ Equity
 

 
 

Preferred stock, stated value $1,000 (5,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2019 and December 31, 2018)
—

 
—

Common stock, par value $1 (100,000,000 shares authorized; 71,431,581 and 49,014,925 shares issued at September 30, 2019 and December 31, 2018, respectively)
71,447

 
49,015

Capital surplus
1,904,789

 
1,051,584

Retained earnings
457,127

 
377,135

Accumulated other comprehensive income (loss), net of tax
15,482

 
(4,826
)
Treasury stock, at cost (1,837,748 shares and 1,514,984 shares at September 30, 2019 and December 31, 2018, respectively)
(28,122
)
 
(16,561
)
Total shareholders’ equity
2,420,723

 
1,456,347

Total liabilities and shareholders’ equity
$
17,764,277

 
$
11,443,515


 See notes to unaudited consolidated financial statements.

1


AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income (unaudited)
(dollars in thousands, except per share data)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Interest income
 

 
 

 
 

 
 

Interest and fees on loans
$
175,046

 
$
110,470

 
$
404,457

 
$
266,460

Interest on taxable securities
11,354

 
8,792

 
29,780

 
20,320

Interest on nontaxable securities
168

 
204

 
426

 
705

Interest on deposits in other banks and federal funds sold
1,793

 
1,653

 
7,655

 
3,092

Total interest income
188,361

 
121,119

 
442,318

 
290,577

 
 
 
 
 
 
 
 
Interest expense
 

 
 

 
 

 
 

Interest on deposits
29,425

 
15,630

 
74,563

 
30,196

Interest on other borrowings
10,167

 
6,451

 
17,940

 
16,543

Total interest expense
39,592

 
22,081

 
92,503

 
46,739

 
 
 
 
 
 
 
 
Net interest income
148,769

 
99,038

 
349,815

 
243,838

Provision for loan losses
5,989

 
2,095

 
14,065

 
13,006

Net interest income after provision for loan losses
142,780

 
96,943

 
335,750

 
230,832

 
 
 
 
 
 
 
 
Noninterest income
 

 
 

 
 

 
 

Service charges on deposit accounts
13,411

 
12,690

 
37,225

 
33,531

Mortgage banking activity
53,041

 
14,082

 
86,241

 
41,771

Other service charges, commissions and fees
1,236

 
790

 
2,828

 
2,236

Net gain (loss) on securities
4

 
48

 
139

 
(38
)
Other noninterest income
9,301

 
2,561

 
16,567

 
10,442

Total noninterest income
76,993

 
30,171

 
143,000

 
87,942

 
 
 
 
 
 
 
 
Noninterest expense
 

 
 

 
 

 
 

Salaries and employee benefits
77,633

 
38,414

 
154,296

 
110,163

Occupancy and equipment expense
12,639

 
8,598

 
28,677

 
21,186

Data processing and communications expenses
10,372

 
8,518

 
27,151

 
22,092

Credit resolution-related expenses
1,094

 
1,248

 
2,984

 
2,842

Advertising and marketing expense
1,949

 
1,453

 
5,677

 
3,938

Amortization of intangible assets
5,719

 
2,676

 
11,972

 
5,862

Merger and conversion charges
65,158

 
276

 
70,690

 
19,502

Other noninterest expenses
18,133

 
11,170

 
47,926

 
32,252

Total noninterest expense
192,697

 
72,353

 
349,373

 
217,837

 
 
 
 
 
 
 
 
Income before income tax expense
27,076

 
54,761

 
129,377

 
100,937

Income tax expense
5,692

 
13,317

 
29,184

 
23,446

Net income
21,384

 
41,444

 
100,193

 
77,491

 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 

 
 

 
 

 
 

Net unrealized holding gains (losses) arising during period on investment securities available for sale, net of tax expense (benefit) of ($244), ($1,053), $5,549 and ($4,035)
(921
)
 
(3,964
)
 
20,873

 
(15,181
)
Reclassification adjustment for gains on investment securities included in earnings, net of tax of $0, $11, $25 and $19
—

 
(41
)
 
(94
)
 
(70
)
Unrealized gains (losses) on cash flow hedges arising during period, net of tax expense (benefit) of ($15), $0, ($125) and $92
(59
)
 
—

 
(471
)
 
347

Other comprehensive income (loss)
(980
)
 
(4,005
)
 
20,308

 
(14,904
)
Total comprehensive income
$
20,404

 
$
37,439

 
$
120,501

 
$
62,587

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.31

 
$
0.87

 
$
1.83

 
$
1.86

Diluted earnings per common share
$
0.31

 
$
0.87

 
$
1.83

 
$
1.85

Weighted average common shares outstanding (in thousands)
 

 
 

 
 

 
 

Basic
69,372

 
47,515

 
54,762

 
41,673

Diluted
69,600

 
47,685

 
54,883

 
41,845

See notes to unaudited consolidated financial statements.

2


AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (unaudited)
(dollars in thousands)
 
Three Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss), Net of Tax
 
Treasury Stock
 
 
 
Shares
 
Amount
 
Capital Surplus
 
Retained Earnings
 
 
Shares
 
Amount
 
Total Shareholders' Equity
Balance at beginning of period
49,099,332

 
$
49,099

 
$
1,053,500

 
$
446,182

 
$
16,462

 
1,837,748

 
$
(28,122
)
 
$
1,537,121

Issuance of common stock for acquisition
22,181,522

 
22,182

 
847,112

 
—

 
—

 
—

 
—

 
869,294

Issuance of restricted shares
30,452

 
30

 
(30
)
 
—

 
—

 
—

 
—

 
—

Proceeds from exercise of stock options
120,275

 
136

 
3,398

 
—

 
—

 
—

 
—

 
3,534

Share-based compensation
—

 
—

 
809

 
—

 
—

 
—

 
—

 
809

Net income
—

 
—

 
—

 
21,384

 
—

 
—

 
—

 
21,384

Dividends on common shares ($0.15 per share)
—

 
—

 
—

 
(10,439
)
 
—

 
—

 
—

 
(10,439
)
Other comprehensive income (loss) during the period
—

 
—

 
—

 
—

 
(980
)
 
—

 
—

 
(980
)
Balance at end of period
71,431,581

 
$
71,447

 
$
1,904,789

 
$
457,127

 
$
15,482

 
1,837,748

 
$
(28,122
)
 
$
2,420,723

 
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss), Net of Tax
 
Treasury Stock
 
 
 
Shares
 
Amount
 
Capital Surplus
 
Retained Earnings
 
 
Shares
 
Amount
 
Total Shareholders' Equity
Balance at beginning of period
49,014,925

 
$
49,015

 
$
1,051,584

 
$
377,135

 
$
(4,826
)
 
1,514,984

 
$
(16,561
)
 
$
1,456,347

Issuance of common stock for acquisition
22,181,522

 
22,182

 
847,112

 
—

 
—

 
—

 
—

 
869,294

Issuance of restricted shares
147,574

 
147

 
768

 
—

 
—

 
—

 
—

 
915

Forfeitures of restricted shares
(40,423
)
 
(40
)
 
(484
)
 
—

 
—

 
—

 
—

 
(524
)
Proceeds from exercise of stock options
127,983

 
143

 
3,444

 
—

 
—

 
—

 
—

 
3,587

Share-based compensation
—

 
—

 
2,365

 
—

 
—

 
—

 
—

 
2,365

Purchase of treasury shares
—

 
—

 
—

 
—

 
—

 
322,764

 
(11,561
)
 
(11,561
)
Net income
—

 
—

 
—

 
100,193

 
—

 
—

 
—

 
100,193

Dividends on common shares ($0.35 per share)
—

 
—

 
—

 
(19,925
)
 
—

 
—

 
—

 
(19,925
)
Cumulative effect of change in accounting for derivatives
—

 
—

 
—

 
(276
)
 
—

 
—

 
—

 
(276
)
Other comprehensive income (loss) during the period
—

 
—

 
—

 
—

 
20,308

 
—

 
—

 
20,308

Balance at end of period
71,431,581

 
$
71,447

 
$
1,904,789

 
$
457,127

 
$
15,482

 
1,837,748

 
$
(28,122
)
 
$
2,420,723


3


AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (unaudited)
(dollars in thousands)
 
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss), Net of Tax
 
Treasury Stock
 
 
 
Shares
 
Amount
 
Capital Surplus
 
Retained Earnings
 
 
Shares
 
Amount
 
Total Shareholders' Equity
Balance at beginning of period
49,011,950

 
$
49,012

 
$
1,049,283

 
$
301,656

 
$
(12,571
)
 
1,493,288

 
$
(15,484
)
 
$
1,371,896

Share-based compensation
—

 
—

 
1,469

 
—

 
—

 
—

 
—

 
1,469

Purchase of treasury shares
—

 
—

 
—

 
—

 
—

 
21,696

 
(1,077
)
 
(1,077
)
Net income
—

 
—

 
—

 
41,444

 
—

 
—

 
—

 
41,444

Dividends on common shares ($0.10 per share)
—

 
—

 
—

 
(4,750
)
 
—

 
—

 
—

 
(4,750
)
Other comprehensive income (loss) during the period
—

 
—

 
—

 
—

 
(4,005
)
 
—

 
—

 
(4,005
)
Balance at end of period
49,011,950

 
$
49,012

 
$
1,050,752

 
$
338,350

 
$
(16,576
)
 
1,514,984

 
$
(16,561
)
 
$
1,404,977

 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss), Net of Tax
 
Treasury Stock
 
 
 
Shares
 
Amount
 
Capital Surplus
 
Retained Earnings
 
 
Shares
 
Amount
 
Total Shareholders' Equity
Balance at beginning of period
38,734,873

 
$
38,735

 
$
508,404

 
$
273,119

 
$
(1,280
)
 
1,474,861

 
$
(14,499
)
 
$
804,479

Issuance of common stock for acquisitions
10,124,491

 
10,124

 
537,003

 
—

 
—

 
—

 
—

 
547,127

Issuance of restricted shares
85,855

 
86

 
(86
)
 
—

 
—

 
—

 
—

 
—

Forfeitures of restricted shares
(472
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Proceeds from exercise of stock options
67,203

 
67

 
779

 
—

 
—

 
—

 
—

 
846

Share-based compensation
—

 
—

 
4,652

 
—

 
—

 
—

 
—

 
4,652

Purchase of treasury shares
—

 
—

 
—

 
—

 
—

 
40,123

 
(2,062
)
 
(2,062
)
Net income
—

 
—

 
—

 
77,491

 
—

 
—

 
—

 
77,491

Dividends on common shares ($0.30 per share)
—

 
—

 
—

 
(12,680
)
 
—

 
—

 
—

 
(12,680
)
Reclassification of stranded income tax effects
—

 
—

 
—

 
392

 
(392
)
 
—

 
—

 
—

Cumulative effect of change in accounting for derivatives
—

 
—

 
—

 
28

 
—

 
—

 
—

 
28

Other comprehensive income (loss) during the period
—

 
—

 
—

 
—

 
(14,904
)
 
—

 
—

 
(14,904
)
Balance at end of period
49,011,950

 
$
49,012

 
$
1,050,752

 
$
338,350

 
$
(16,576
)
 
1,514,984

 
$
(16,561
)
 
$
1,404,977


See notes to unaudited consolidated financial statements. 

4


AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 
 
Nine Months Ended
September 30,
 
 
2019
 
2018
Operating Activities
 
 

 
 

Net income
 
$
100,193

 
$
77,491

Adjustments reconciling net income to net cash provided by (used in) operating activities:
 
 

 
 

Depreciation
 
9,077

 
7,359

Net losses on sale or disposal of premises and equipment including write-downs
 
159

 
78

Net write-downs on other assets
 
4,359

 
—

Provision for loan losses
 
14,065

 
13,006

Net losses on sale of other real estate owned including write-downs
 
158

 
947

Share-based compensation expense
 
2,450

 
5,433

Amortization of intangible assets
 
11,972

 
5,862

Amortization of operating lease right-of-use assets
 
7,145

 
—

Provision for deferred taxes
 
12,084

 
1,023

Net amortization of investment securities available for sale
 
3,069

 
3,909

Net (gain) loss on securities
 
(139
)
 
38

Accretion of discount on purchased loans
 
(10,503
)
 
(8,083
)
Amortization of premium on purchased loan pools
 
977

 
1,473

Accretion on other borrowings
 
33

 
98

Accretion on subordinated deferrable interest debentures
 
1,170

 
1,001

Originations of mortgage loans held for sale
 
(2,376,070
)
 
(1,361,509
)
Payments received on mortgage loans held for sale
 
4,438

 
840

Proceeds from sales of mortgage loans held for sale
 
1,660,599

 
1,188,493

Net gains on sale of mortgage loans held for sale
 
(52,605
)
 
(28,236
)
Originations of SBA loans
 
(22,121
)
 
(18,032
)
Proceeds from sales of SBA loans
 
42,647

 
27,275

Net gains on sale of SBA loans
 
(4,220
)
 
(2,246
)
Increase in cash surrender value of bank owned life insurance
 
(1,861
)
 
(1,311
)
Gain on bank owned life insurance proceeds
 
(4,335
)
 
—

Loss on sale of loans
 
1,954

 
—

Changes in FDIC loss-share payable, net of cash payments
 
3,695

 
1,823

Change attributable to other operating activities
 
4,307

 
(10,268
)
Net cash used in operating activities
 
(587,303
)
 
(93,536
)
 
 
 
 
 
Investing Activities, net of effects of business combinations
 
 

 
 

Proceeds from maturities of time deposits in other banks
 
10,313

 
—

Purchases of securities available for sale
 
(219,352
)
 
(234,711
)
Proceeds from prepayments and maturities of securities available for sale
 
176,760

 
112,119

Proceeds from sales of securities available for sale
 
64,995

 
68,727

Net (increase) decrease in other investments
 
(44,936
)
 
12,040

Net increase in loans, excluding purchased loans
 
(1,571,033
)
 
(437,513
)
Payments received on purchased loans
 
619,024

 
208,910

Payments received on purchased loan pools
 
32,516

 
60,042

Purchases of premises and equipment
 
(5,924
)
 
(7,335
)
Proceeds from sales of premises and equipment
 
5,330

 
576

Proceeds from sales of other real estate owned
 
7,448

 
7,461

Payments paid to FDIC under loss-share agreements
 
(3,692
)
 
(1,205
)
Proceeds from bank owned life insurance
 
8,178

 
—

Proceeds from sales of loans
 
96,162

 
—

Net cash and cash equivalents received in acquisitions
 
244,181

 
51,495

Net cash used in investing activities
 
(580,030
)
 
(159,394
)
 
 
 
 
 
 
 
 

 
(Continued)


5


AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 
 
Nine Months Ended
September 30,
 
 
2019
 
2018
Financing Activities, net of effects of business combinations
 
 

 
 

Net (decrease) increase in deposits
 
$
(33,042
)
 
$
389,884

Net decrease in securities sold under agreements to repurchase
 
(24,985
)
 
(16,567
)
Proceeds from other borrowings
 
2,969,000

 
1,530,000

Repayment of other borrowings
 
(1,921,267
)
 
(1,338,917
)
Proceeds from exercise of stock options
 
3,587

 
846

Dividends paid - common stock
 
(14,237
)
 
(11,655
)
Purchase of treasury shares
 
(11,561
)
 
(2,062
)
Net cash provided by financing activities
 
967,495

 
551,529

 
 
 
 
 
Net (decrease) increase in cash and cash equivalents
 
(199,838
)
 
298,599

Cash and cash equivalents at beginning of period
 
679,527

 
330,658

Cash and cash equivalents at end of period
 
$
479,689

 
$
629,257

 
 
 
 
 
Supplemental Disclosures of Cash Flow Information
 
 

 
 

Cash paid during the period for:
 
 

 
 

Interest
 
$
87,066

 
$
45,535

Income taxes
 
32,096

 
10,252

Loans (excluding purchased loans) transferred to other real estate owned
 
503

 
3,764

Purchased loans transferred to other real estate owned
 
3,908

 
2,434

Loans transferred from loans held for sale to loans held for investment
 
—

 
10,817

Loans transferred from loans held for investment to loans held for sale
 
1,554

 
8,831

Loans provided for the sales of other real estate owned
 
144

 
53

Initial recognition of operating lease right-of-use assets
 
27,286

 
—

Initial recognition of operating lease liabilities
 
29,651

 
—

Right-of-use assets obtained in exchange for new operating lease liabilities
 
262

 
—

Assets acquired in business acquisitions
 
5,186,974

 
3,059,856

Liabilities assumed in business acquisitions
 
4,317,661

 
2,410,453

Issuance of common stock in acquisitions
 
869,294

 
547,127

Change in unrealized gain (loss) on securities available for sale, net of tax
 
20,778

 
(15,590
)
Change in unrealized gain (loss) on cash flow hedge, net of tax
 
(470
)
 
294

 
 
 
 
 
 
 
 

 
(Concluded)

 
See notes to unaudited consolidated financial statements.
 


6


AMERIS BANCORP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
September 30, 2019
 
NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES
 
Nature of Business

Ameris Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered in Atlanta, Georgia. Ameris conducts substantially all of its operations through its wholly owned banking subsidiary, Ameris Bank (the “Bank”). At September 30, 2019, the Bank operated 172 branches in select markets in Georgia, Alabama, Florida and South Carolina. Our business model capitalizes on the efficiencies of a large financial services company, while still providing the community with the personalized banking service expected by our customers. We manage our Bank through a balance of decentralized management responsibilities and efficient centralized operating systems, products and loan underwriting standards. The Company’s Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within our established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of his or her unique market.
 
Basis of Presentation

The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited but reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto and the report of our registered independent public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
 
Cash and Cash Equivalents
 
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items in process of collection, amounts due from banks, interest-bearing deposits in banks and federal funds sold. The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank of Atlanta. The reserve requirement as of September 30, 2019 and December 31, 2018 was $102.5 million and $61.2 million, respectively, and was met by cash on hand and balances at the Federal Reserve Bank of Atlanta which are reported on the Company's consolidated balance sheets in cash and due from banks and federal funds sold and interest-bearing deposits in banks, respectively.

Reclassifications

Certain reclassifications of prior year amounts have been made to conform with the current year presentations. The reclassifications had no effect on net income or shareholders' equity as previously reported.
 
Accounting Standards Adopted in 2019

ASU 2016-02 – Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 amends the existing standards for lease accounting effectively requiring that most leases be carried on the balance sheets of the related lessees by requiring them to recognize a right-of-use asset and a corresponding lease liability. ASU 2016-02 includes qualitative and quantitative disclosure requirements intended to provide greater insight into the nature of an entity’s leasing activities. The standard may be adopted using a modified retrospective transition method with a cumulative effect adjustment to equity as of the beginning of the period in which it is adopted. Alternatively, the standard may be adopted using an optional transition method where initial application of the provisions of ASU 2016-02 are applied as the date of adoption, resulting in no adjustment to amounts reported in prior periods. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. The Company adopted ASU 2016-02 during the first quarter of 2019 and elected the optional transition method. The Company also elected the package of practical expedients provided in the guidance which permits the Company to not reassess under the new standard the prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the hindsight practical expedient to determine lease term and in assessing impairment of the Company's right-of-use asset. The adoption of

7


ASU 2016-02 resulted in the recognition of a right-of-use asset of $27.3 million, a lease liability of $29.7 million and a cumulative effect decrease to retained earnings of $276,000. The right-of-use asset and lease liability are recorded in the consolidated balance sheets in other assets and other liabilities, respectively.

Accounting Standards Pending Adoption

ASU 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). ASU 2018-15 requires that application development stage implementation costs incurred in a Cloud Computing Arrangement ("CCA") that are service contracts be capitalized and amortized over the term of the hosting arrangement, including renewal option terms if the customer entity is reasonably certain to exercise the option. Costs incurred in the preliminary project and post-implementation stages are expensed as incurred. Training costs and certain data conversion costs also cannot be capitalized for a CCA that is a service contract. Amortization expense of capitalized implementation costs will be presented in the same income statement caption as the CCA fees. Similarly, capitalized implementation costs will be presented in the same balance sheet caption as any prepaid CCA fees, and cash flows from capitalized implementation costs will be classified in the statement of cash flows in the same manner as payments made for the CCA fees. The requirements of ASU 2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the adoption date. ASU 2018-15 is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated balance sheet, consolidated statement of income and comprehensive income, consolidated statement of shareholders’ equity and consolidated statement of cash flows, but it is not expected to have a material impact.

ASU 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13). ASU 2018-13 changes fair value measurement disclosure requirements by removing certain requirements, modifying certain requirements and adding certain new requirements. Disclosure requirements removed include the following: transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for determining when transfers between any of the three levels have occurred; the valuation processes for Level 3 measurements; and the changes in unrealized gains or losses presented in earnings for Level 3 instruments held at end of the reporting period. Disclosure requirements that have been modified include the following: for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee's assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and clarification that the Level 3 measurement uncertainty disclosure should communicate information about the uncertainty at the balance sheet date. New disclosure requirements include the following: the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 instruments held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used for Level 3 measurements or disclosure of other quantitative information in place of the weighted average to the extent that it would be a more reasonable and rational method to reflect the distribution of unobservable inputs. ASU 2018-13 is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on the Company’s fair value measurement disclosures, but it is not expected to have a material impact.
 
ASU 2017-04 – Intangibles: Goodwill and Other: Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 from the goodwill impairment test to simplify the subsequent measurement of goodwill. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The standard must be adopted using a prospective basis and the nature and reason for the change in accounting principle should be disclosed upon transition. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in reporting periods beginning after December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. The Company is currently evaluating the impact this ASU will have on the Company’s results of operations, financial position and disclosures, but it is not expected to have a material impact.
 
ASU 2016-13 - Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”, “the ASU”). ASU 2016-13 significantly changes how entities will measure and report credit losses for financial assets measured at amortized cost and certain other instruments that are not measured at fair value through net income. The standard will replace the current incurred loss approach with an expected loss model, referred to as the current expected credit loss (“CECL”) model. The new standard applies to financial assets measured at amortized cost as well as certain off-balance-sheet credit exposures including, but not limited to, loans, receivables, leases, held-to-maturity securities, loan commitments and financial guarantees.

8


ASU 2016-13 simplifies the accounting for purchased credit-impaired debt securities and loans and expands the disclosure requirements regarding assumptions, models and methods for estimating the allowance for loan and lease losses. Among other requirements, entities must disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019 with early adoption permitted for interim and annual reporting periods beginning after December 15, 2018. The Company will adopt the new guidance on January 1, 2020. Upon adoption, ASU 2016-13 provides for a modified retrospective transition by means of a cumulative effect adjustment to equity as of the beginning of the period in which the guidance is effective.

The Company previously established a steering committee, including appropriate members of management, to evaluate the impact of the ASU adoption on the Company’s financial position, results of operations and financial statement disclosures. Under the direction of the committee, workstreams were established to execute the Company’s adoption plan. Workstreams including accounting and reporting; credit risk modeling; systems and data; and processes and controls meet regularly with senior management to report on progress and to make key decisions related to the adoption. The Company continues to make progress towards CECL readiness in each of these areas.

A key committee decision was the selection and implementation of software from a vendor of choice to estimate expected credit losses per the ASU. Other key decisions and milestones include the identification of financial assets within scope; the preparation of appropriate data for modeling; the establishment of a forecast period to estimate expected credit losses; the determination of a methodology for calculating expected credit losses; and the development of documentation to support the approach and accounting selections.

During the third quarter of 2019, the Company implemented the software and conducted a series of CECL modeling measurements using a discounted cash flow approach. As a result of these modeling measurements, the Company is calibrating its model and finalizing input decisions. Results from recent model runs have been consistent with prior projections and the Company’s expectations. The Company expects to continue to run CECL modeling in parallel with its current allowance process.
As the Company has progressed on implementation of the ASU, third-party and internal audit reviews have been conducted to assist with readiness. Identified issues have been addressed. In addition, the Company is in the progress of finalizing a third-party validation of its CECL model.

The Company continues to evaluate the impact of the ASU on results of operations, financial position and disclosures. The Company expects to recognize a one-time cumulative effect adjustment to equity and the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective. The cumulative effect adjustment as well as the ongoing impact of implementation will be influenced by the composition, characteristics and quality of our portfolios, as well as the economic conditions and forecasts at the adoption date.
NOTE 2 – BUSINESS COMBINATIONS

In accounting for business combinations, the Company uses the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method of accounting, assets acquired, liabilities assumed and consideration exchanged are recorded at their respective acquisition date fair values. Any identifiable intangible assets that are acquired in a business combination are recognized at fair value on the acquisition date. Identifiable intangible assets are recognized separately if they arise from contractual or other legal rights or if they are separable (i.e., capable of being sold, transferred, licensed, rented or exchanged separately from the entity). If the consideration given exceeds the fair value of the net assets received, goodwill is recognized. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available. In addition, management will assess and record the deferred tax assets and deferred tax liabilities resulting from differences in the carrying value of acquired assets and assumed liabilities for financial reporting purposes and their basis for income tax purposes, including acquired net operating loss carryforwards and other acquired assets with built-in losses that are expected to be settled or otherwise recovered in future periods where the realization of such benefits would be subject to applicable limitations under Section 382 of the Internal Revenue Code of 1986, as amended.


9


Fidelity Southern Corporation

On July 1, 2019, the Company completed its acquisition of Fidelity Southern Corporation ("Fidelity"), a bank holding company headquartered in Atlanta, Georgia. Upon consummation of the acquisition, Fidelity was merged with and into the Company, with Ameris as the surviving entity in the merger, and Fidelity's wholly owned banking subsidiary, Fidelity Bank, was merged with and into the Bank, with the Bank surviving. The acquisition expanded the Company's existing market presence in Georgia and Florida, as Fidelity Bank had a total of 62 branches at the time of closing, 46 of which were located in Georgia and 16 of which were located in Florida. Under the terms of the merger agreement, Fidelity's shareholders received 0.80 shares of Ameris common stock for each share of Fidelity common stock they previously held. As a result, the Company issued 22,181,522 shares of its common stock at a fair value of $869.3 million to Fidelity's shareholders as merger consideration.

10


The following table presents the assets acquired and liabilities assumed of Fidelity as of July 1, 2019, and their fair value estimates. The fair value estimates were subject to refinement for up to one year after the closing date of the acquisition for new information obtained about facts and circumstances that existed at the acquisition date. The Company continues its evaluation of the facts and circumstances available as of July 1, 2019, to assign fair values to assets acquired and liabilities assumed, which could result in further adjustments to the fair values presented below. Because final external valuations were not complete as of September 30, 2019, management continues to evaluate fair value adjustments related to loans, premises, intangibles, interest-bearing deposits, other borrowings, subordinated deferrable interest debentures and deferred taxes.
(dollars in thousands)
As Recorded
by Fidelity
 
Initial
 Fair Value
Adjustments
 
 
As Recorded
by Ameris
Assets
 
 
 
 
 
 
Cash and due from banks
$
26,264

 
$
—

 
 
$
26,264

Federal funds sold and interest-bearing deposits in banks
217,936

 
—

 
 
217,936

Investment securities
299,341

 
(1,444
)
(a)
 
297,897

Other investments
7,449

 
—

 
 
7,449

Loans held for sale
328,657

 
(1,290
)
(b)
 
327,367

Loans
3,587,412

 
(79,002
)
(c)
 
3,508,410

Less allowance for loan losses
(31,245
)
 
31,245

(d)
 
—

     Loans, net
3,556,167

 
(47,757
)
 
 
3,508,410

Other real estate owned
7,605

 
(427
)
(e)
 
7,178

Premises and equipment
93,662

 
11,407

(f)
 
105,069

Other intangible assets, net
10,670

 
39,940

(g)
 
50,610

Cash value of bank owned life insurance
72,328

 
—

 
 
72,328

Deferred income taxes, net
104

 
(104
)
(h)
 
—

Other assets
157,863

 
998

(i)
 
158,861

     Total assets
$
4,778,046

 
$
1,323

 
 
$
4,779,369

Liabilities
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
     Noninterest-bearing
$
1,301,829

 
$
—

 
 
$
1,301,829

     Interest-bearing
2,740,552

 
942

(j)
 
2,741,494

          Total deposits
4,042,381

 
942

 
 
4,043,323

Securities sold under agreements to repurchase
22,345

 
—

 
 
22,345

Other borrowings
149,367

 
2,265

(k)
 
151,632

Subordinated deferrable interest debentures
46,393

 
(9,675
)
(l)
 
36,718

Deferred tax liability, net
12,222

 
(11,401
)
(m)
 
821

Other liabilities
65,027

 
538

(n)
 
65,565

     Total liabilities
4,337,735

 
(17,331
)
 
 
4,320,404

Net identifiable assets acquired over (under) liabilities assumed
440,311

 
18,654

 
 
458,965

Goodwill
—

 
410,348

 
 
410,348

Net assets acquired over liabilities assumed
$
440,311

 
$
429,002

 
 
$
869,313

Consideration:
 
 
 
 
 
 
     Ameris Bancorp common shares issued
22,181,522

 
 
 
 
 
     Price per share of the Company's common stock
39.19

 
 
 
 
 
          Company common stock issued
$
869,294

 
 
 
 
 
          Cash exchanged for shares
$
19

 
 
 
 
 
     Fair value of total consideration transferred
$
869,313

 
 
 
 
 
____________________________________________________________

Explanation of fair value adjustments
(a)
Adjustment reflects the fair value adjustments of the portfolio of investment securities as of the acquisition date.
(b)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired loans held for sale.

11


(c)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired loan portfolio, net of the reversal of Fidelity's unamortized accounting adjustments from Fidelity's prior acquisitions, loan premiums, loan discounts, deferred loan origination costs and deferred loan origination fees.
(d)
Adjustment reflects the elimination of Fidelity's allowance for loan losses.
(e)
Adjustment reflects the fair value adjustment based on the Company's evaluation of the acquired OREO portfolio.
(f)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired premises and equipment.
(g)
Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts, net of reversal of Fidelity's remaining intangible assets from its past acquisitions.
(h)
Adjustment reflects the reclassification of Fidelity's deferred tax asset against the deferred tax liability.
(i)
Adjustment reflects the fair value adjustment to other assets.
(j)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired deposits.
(k)
Adjustment reflects the fair value adjustment to the other borrowings at the acquisition date, net of reversal of Fidelity's unamortized deferred issuance costs.
(l)
Adjustment reflects the fair value adjustment to the subordinated deferrable interest debentures at the acquisition date.
(m)
Adjustment reflects the deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes and reclassification of Fidelity's deferred tax asset against the deferred tax liability.
(n)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired other liabilities.


Goodwill of $410.3 million, which is the excess of the purchase price over the fair value of net assets acquired, was recorded in the Fidelity acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

In the acquisition, the Company purchased $3.51 billion of loans at fair value, net of $79.0 million, or 2.20%, estimated discount to the outstanding principal balance. Of the total loans acquired, management identified $119.3 million that were considered to be credit impaired and are accounted for under ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of the acquisition date for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

(dollars in thousands)
 
Contractually required principal and interest
$
186,118

Non-accretable difference
(25,715
)
Cash flows expected to be collected
160,403

Accretable yield
(41,084
)
Total purchased credit-impaired loans acquired
$
119,319



The following table presents the acquired loan data for the Fidelity acquisition.
(dollars in thousands)
Fair Value of
Acquired Loans at
Acquisition Date
 
Gross Contractual
Amounts Receivable
at Acquisition Date
 
Estimate at
Acquisition Date of
Contractual Cash
Flows Not Expected
to be Collected
Acquired receivables subject to ASC 310-30
$
119,319

 
$
186,118

 
$
25,715

Acquired receivables not subject to ASC 310-30
$
3,389,091

 
$
4,161,546

 
$
30,419




12


Hamilton State Bancshares, Inc.

On June 29, 2018, the Company completed its acquisition of Hamilton State Bancshares, Inc. ("Hamilton"), a bank holding company headquartered in Hoschton, Georgia. Upon consummation of the acquisition, Hamilton was merged with and into the Company, with Ameris as the surviving entity in the merger, and Hamilton's wholly owned banking subsidiary, Hamilton State Bank, was merged with and into the Bank, with the Bank surviving. The acquisition expanded the Company's existing market presence, as Hamilton State Bank had a total of 28 full-service branches located in Atlanta, Georgia and the surrounding area, as well as in Gainesville, Georgia, at the time of closing. Under the terms of the merger agreement, Hamilton's shareholders received 0.16 shares of Ameris common stock and $0.93 in cash for each share of Hamilton voting common stock or nonvoting common stock they previously held. As a result, the Company issued 6,548,385 shares of its common stock at a fair value of $349.4 million and paid $47.8 million in cash to Hamilton's shareholders as merger consideration.


13


The following table presents the assets acquired and liabilities assumed of Hamilton as of June 29, 2018, and their fair value estimates. The fair value estimates were subject to refinement for up to one year after the closing date of the acquisition for new information obtained about facts and circumstances that existed at the acquisition date. The Company finalized its fair value adjustments during the second quarter of 2019.
(dollars in thousands)
As Recorded
by Hamilton
 
Initial
 Fair Value
Adjustments
 
 
Subsequent
Adjustments
 
 
As Recorded
by Ameris
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
14,405

 
$
—

 
 
$
(478
)
(j)
 
$
13,927

Federal funds sold and interest-bearing deposits in banks
102,156

 
—

 
 
—

 
 
102,156

Time deposits in other banks
11,558

 
—

 
 
—

 
 
11,558

Investment securities
288,206

 
(2,376
)
(a)
 
—

 
 
285,830

Other investments
2,094

 
—

 
 
—

 
 
2,094

Loans
1,314,264

 
(15,528
)
(b)
 
(5,550
)
(k)
 
1,293,186

Less allowance for loan losses
(11,183
)
 
11,183

(c)
 
—

 
 
—

     Loans, net
1,303,081

 
(4,345
)
 
 
(5,550
)
 
 
1,293,186

Other real estate owned
847

 
—

 
 
—

 
 
847

Premises and equipment
27,483

 
—

 
 
1,488

(l)
 
28,971

Other intangible assets, net
18,755

 
(2,755
)
(d)
 
7,610

(m)
 
23,610

Cash value of bank owned life insurance
4,454

 
—

 
 
—

 
 
4,454

Deferred income taxes, net
12,445

 
(6,308
)
(e)
 
3,942

(n)
 
10,079

Other assets
13,053

 
—

 
 
(2,098
)
(o)
 
10,955

     Total assets
$
1,798,537

 
$
(15,784
)
 
 
$
4,914

 
 
$
1,787,667

Liabilities
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
     Noninterest-bearing
$
381,039

 
$
—

 
 
$
—

 
 
$
381,039

     Interest-bearing
1,201,324

 
(1,896
)
(f)
 
4,783

(p)
 
1,204,211

          Total deposits
1,582,363

 
(1,896
)
 
 
4,783

 
 
1,585,250

Other borrowings
10,687

 
(66
)
(g)
 
286

(q)
 
10,907

Subordinated deferrable interest debenture
3,093

 
(658
)
(h)
 
(143
)
(r)
 
2,292

Other liabilities
10,460

 
2,391

(i)
 
—

 
 
12,851

     Total liabilities
1,606,603

 
(229
)
 
 
4,926

 
 
1,611,300

Net identifiable assets acquired over (under) liabilities assumed
191,934

 
(15,555
)
 
 
(12
)
 
 
176,367

Goodwill
—

 
220,713

 
 
55

 
 
220,768

Net assets acquired over liabilities assumed
$
191,934

 
$
205,158

 
 
$
43

 
 
$
397,135

Consideration:
 
 
 
 
 
 
 
 
 
     Ameris Bancorp common shares issued
6,548,385

 
 
 
 
 
 
 
 
     Price per share of the Company's common stock
$
53.35

 
 
 
 
 
 
 
 
          Company common stock issued
$
349,356

 
 
 
 
 
 
 
 
          Cash exchanged for shares
$
47,779

 
 
 
 
 
 
 
 
     Fair value of total consideration transferred
$
397,135

 
 
 
 
 
 
 
 
____________________________________________________________

Explanation of fair value adjustments
(a)
Adjustment reflects the fair value adjustments of the portfolio of investment securities as of the acquisition date.
(b)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired loan portfolio, net of the reversal of Hamilton's unamortized accounting adjustments from their prior acquisitions, loan premiums, loan discounts, deferred loan origination costs and deferred loan origination fees.
(c)
Adjustment reflects the elimination of Hamilton's allowance for loan losses.
(d)
Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts, net of reversal of Hamilton's remaining intangible assets from its past acquisitions.
(e)
Adjustment reflects the deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.

14


(f)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired deposits.
(g)
Adjustment reflects the reversal of Hamilton's unamortized accounting adjustments for other borrowings from its past acquisitions.
(h)
Adjustment reflects the fair value adjustment to the subordinated deferrable interest debenture at the acquisition date.
(i)
Adjustment reflects the fair value adjustment to the FDIC loss-share clawback liability included in other liabilities.
(j)
Subsequent to acquisition, cash and due from banks were adjusted for Hamilton reconciling items.
(k)
Adjustment reflects additional recording of fair value adjustments to the acquired loan portfolio.
(l)
Adjustment reflects the recording of fair value adjustment to premises and equipment.
(m)
Adjustment reflects additional recording of fair value adjustments to the core deposit intangible on the acquired core deposit accounts.
(n)
Adjustment reflects additional recording of deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.
(o)
Adjustment reflects the fair value adjustment to other assets.
(p)
Adjustment reflects additional recording of fair value adjustments on the acquired deposits.
(q)
Adjustment reflects the fair value adjustment to other borrowings.
(r)
Adjustment reflects additional recording of fair value adjustments to the subordinated deferrable interest debenture.

Goodwill of $220.8 million, which is the excess of the purchase price over the fair value of net assets acquired, was recorded in the Hamilton acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

In the acquisition, the Company purchased $1.29 billion of loans at fair value, net of $21.1 million, or 1.60%, estimated discount to the outstanding principal balance. Of the total loans acquired, management identified $15.4 million that were considered to be credit impaired and are accounted for under ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of the acquisition date for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

(dollars in thousands)
 
Contractually required principal and interest
$
21,223

Non-accretable difference
(5,062
)
Cash flows expected to be collected
16,161

Accretable yield
(794
)
Total purchased credit-impaired loans acquired
$
15,367



The following table presents the acquired loan data for the Hamilton acquisition.
(dollars in thousands)
Fair Value of
Acquired Loans at
Acquisition Date
 
Gross Contractual
Amounts Receivable
at Acquisition Date
 
Estimate at
Acquisition Date of
Contractual Cash
Flows Not Expected
to be Collected
Acquired receivables subject to ASC 310-30
$
15,367

 
$
21,223

 
$
5,062

Acquired receivables not subject to ASC 310-30
$
1,277,819

 
$
1,441,534

 
$
—




15


Atlantic Coast Financial Corporation

On May 25, 2018, the Company completed its acquisition of Atlantic Coast Financial Corporation ("Atlantic"), a bank holding company headquartered in Jacksonville, Florida. Upon consummation of the acquisition, Atlantic was merged with and into the Company, with Ameris as the surviving entity in the merger, and Atlantic's wholly owned banking subsidiary, Atlantic Coast Bank, was merged with and into the Bank, with the Bank surviving. The acquisition expanded the Company's existing market presence, as Atlantic Coast Bank had a total of 12 full-service branches located in Jacksonville and Jacksonville Beach, Duval County, Florida, Waycross, Georgia and Douglas, Georgia, at the time of closing. Under the terms of the merger agreement, Atlantic's shareholders received 0.17 shares of Ameris common stock and $1.39 in cash for each share of Atlantic common stock they previously held. As a result, the Company issued 2,631,520 shares of its common stock at a fair value of $147.8 million and paid $21.5 million in cash to Atlantic's shareholders as merger consideration.



16


The following table presents the assets acquired and liabilities assumed of Atlantic as of May 25, 2018, and their fair value estimates. The fair value estimates were subject to refinement for up to one year after the closing date of the acquisition for new information obtained about facts and circumstances that existed at the acquisition date. The Company finalized its fair value adjustments during the second quarter of 2019.
(dollars in thousands)
As Recorded
by Atlantic
 
Initial
Fair Value
Adjustments
 
 
Subsequent
Adjustments
 
 
As Recorded
by Ameris
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
3,990

 
$
—

 
 
$
—

 
 
$
3,990

Federal funds sold and interest-bearing deposits in banks
22,149

 
—

 
 
—

 
 
22,149

Investment securities
35,186

 
(60
)
(a)
 
—

 
 
35,126

Other investments
9,576

 
—

 
 
—

 
 
9,576

Loans held for sale
358

 
—

 
 
—

 
 
358

Loans
777,605

 
(19,423
)
(b)
 
(2,478
)
(k)
 
755,704

Less allowance for loan losses
(8,573
)
 
8,573

(c)
 
—

 
 
—

     Loans, net
769,032

 
(10,850
)
 
 
(2,478
)
 
 
755,704

Other real estate owned
1,837

 
(796
)
(d)
 
—

 
 
1,041

Premises and equipment
12,591

 
(1,695
)
(e)
 
(161
)
(l)
 
10,735

Other intangible assets, net
—

 
5,937

(f)
 
1,551

(m)
 
7,488

Cash value of bank owned life insurance
18,182

 
—

 
 
—

 
 
18,182

Deferred income taxes, net
5,782

 
709

(g)
 
1,220

(n)
 
7,711

Other assets
3,604

 
(634
)
(h)
 
(11
)
(o)
 
2,959

     Total assets
$
882,287

 
$
(7,389
)
 
 
$
121

 
 
$
875,019

Liabilities
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
     Noninterest-bearing
$
69,761

 
$
—

 
 
$
—

 
 
$
69,761

     Interest-bearing
514,935

 
(554
)
(i)
 
1,025

(p)
 
515,406

          Total deposits
584,696

 
(554
)
 
 
1,025

 
 
585,167

Other borrowings
204,475

 
—

 
 
—

 
 
204,475

Other liabilities
8,367

 
(13
)
(j)
 
(1,922
)
(q)
 
6,432

     Total liabilities
797,538

 
(567
)
 
 
(897
)
 
 
796,074

Net identifiable assets acquired over (under) liabilities assumed
84,749

 
(6,822
)
 
 
1,018

 
 
78,945

Goodwill
—

 
91,360

 
 
(1,018
)
 
 
90,342

Net assets acquired over liabilities assumed
$
84,749

 
$
84,538

 
 
$
—

 
 
$
169,287

Consideration:
 
 
 
 
 
 
 
 
 
     Ameris Bancorp common shares issued
2,631,520

 
 
 
 
 
 
 
 
     Price per share of the Company's common stock
$
56.15

 
 
 
 
 
 
 
 
          Company common stock issued
$
147,760

 
 
 
 
 
 
 
 
          Cash exchanged for shares
$
21,527

 
 
 
 
 
 
 
 
     Fair value of total consideration transferred
$
169,287

 
 
 
 
 
 
 
 
____________________________________________________________

Explanation of fair value adjustments
(a)
Adjustment reflects the fair value adjustments of the portfolio of investment securities as of the acquisition date.
(b)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired loan portfolio, net of the reversal of Atlantic's unamortized accounting adjustments from loan premiums, loan discounts, deferred loan origination costs and deferred loan origination fees.
(c)
Adjustment reflects the elimination of Atlantic's allowance for loan losses.
(d)
Adjustment reflects the fair value adjustment based on the Company's evaluation of the acquired OREO portfolio.
(e)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired premises and equipment.
(f)
Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts.
(g)
Adjustment reflects the deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.

17


(h)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired other assets.
(i)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired deposits.
(j)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired other liabilities.
(k)
Adjustment reflects additional recording of fair value adjustments of the acquired loan portfolio.
(l)
Adjustment reflects additional recording of fair value adjustment to premises and equipment.
(m)
Adjustment reflects additional recording of fair value adjustments to the core deposit intangible on the acquired core deposit accounts.
(n)
Adjustment reflects additional recording of deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.
(o)
Adjustment reflects additional fair value adjustments on acquired other assets.
(p)
Adjustment reflects additional fair value adjustments on the acquired deposits.
(q)
Adjustment reflects additional fair value adjustments on acquired other liabilities.

Goodwill of $90.3 million, which is the excess of the purchase price over the fair value of net assets acquired, was recorded in the Atlantic acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

In the acquisition, the Company purchased $755.7 million of loans at fair value, net of $21.9 million, or 2.82%, estimated discount to the outstanding principal balance. Of the total loans acquired, management identified $10.8 million that were considered to be credit impaired and are accounted for under ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of the acquisition date for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

(dollars in thousands)
 
Contractually required principal and interest
$
16,077

Non-accretable difference
(4,115
)
Cash flows expected to be collected
11,962

Accretable yield
(1,199
)
Total purchased credit-impaired loans acquired
$
10,763



The following table presents the acquired loan data for the Atlantic acquisition.
(dollars in thousands)
Fair Value of
Acquired Loans at
Acquisition Date
 
Gross Contractual
Amounts Receivable
at Acquisition Date
 
Estimate at
Acquisition Date of
Contractual Cash
Flows Not Expected
to be Collected
Acquired receivables subject to ASC 310-30
$
10,763

 
$
16,077

 
$
4,115

Acquired receivables not subject to ASC 310-30
$
744,941

 
$
1,041,768

 
$
—



US Premium Finance Holding Company

On January 31, 2018, the Company closed on the purchase of the final 70% of the outstanding shares of common stock of US Premium Finance Holding Company, a Florida corporation ("USPF"), completing its acquisition of USPF and making USPF a wholly owned subsidiary of the Company. Through a series of three acquisition transactions that closed on January 18, 2017, January 3, 2018 and January 31, 2018, the Company issued a total of 1,073,158 shares of its common stock at a fair value of $55.9 million and paid $21.4 million in cash to the shareholders of USPF. Pursuant to the terms of the Stock Purchase Agreement dated January 25, 2018 under which the Company purchased the final 70% of the outstanding shares of common stock of USPF, the selling shareholders of USPF could receive additional cash payments aggregating up to $5.8 million based on the achievement by the Company's premium finance division of certain income targets, between January 1, 2018 and June 30, 2019. The total contingent consideration paid was $1.2 million based on results achieved through the applicable measurement dates. As of the January 31, 2018 acquisition date, the present value of the contingent earn-out consideration expected to be paid was $5.7 million. Including the fair value of the Company's common stock issued, cash paid and the present value of the contingent earn-out consideration expected to be paid, the aggregate purchase price of USPF amounted to $83.0 million.


18


Prior to the January 31, 2018 completion of the acquisition, the Company's 30% investment in USPF was carried at its $23.9 million original cost basis. Once the acquisition was completed, the $83.0 million aggregate purchase price equaled the fair value of USPF which was determined utilizing the incremental projected earnings. Accordingly, no gain or loss was recorded by the Company in the consolidated statement of income and comprehensive income as a result of remeasuring to fair value the prior minority equity investment in USPF held by the Company immediately before the business combination was completed.

The following table presents the assets acquired and liabilities assumed of USPF as of January 31, 2018 at their initial and subsequent fair value estimates, as recorded by the Company.  The fair value estimates were subject to refinement for up to one year after the closing date of the acquisition for new information obtained about facts and circumstances that existed at the acquisition date. The assets acquired include only identifiable intangible assets related to insurance agent relationships that lead to referral of insurance premium finance loans to USPF, the "US Premium Finance" trade name and a non-compete agreement with a former USPF shareholder.
(dollars in thousands)
As Recorded
by USPF
 
Initial
Fair Value
Adjustments
 
 
Subsequent
Adjustments
 
 
As Recorded
by Ameris
Assets
 
 
 
 
 
 
 
 
 
Intangible asset - insurance agent relationships
$
—

 
$
20,000

(a)
 
$
2,351

(e)
 
$
22,351

Intangible asset - US Premium Finance trade name
—

 
1,136

(b)
 
(42
)
(f)
 
1,094

Intangible asset - non-compete agreement
—

 
178

(c)
 
(16
)
(g)
 
162

     Total assets
$
—

 
$
21,314

 
 
$
2,293

 
 
$
23,607

Liabilities
 
 
 
 
 
 
 
 
 
Deferred tax liability
$
—

 
$
5,492

(d)
 
$
(368
)
(h)
 
$
5,124

Total liabilities
—

 
5,492

 
 
(368
)
 
 
5,124

Net identifiable assets acquired over liabilities assumed
—

 
15,822

 
 
2,661

 
 
18,483

Goodwill
—

 
67,159

 
 
(2,661
)
 
 
64,498

Net assets acquired over liabilities assumed
$
—

 
$
82,981

 
 
$
—

 
 
$
82,981

Consideration:
 
 
 
 
 
 
 
 
 
     Ameris Bancorp common shares issued
1,073,158

 
 
 
 
 
 
 
 
     Price per share of the Company's common stock
          (weighted average)
$
52.047

 
 
 
 
 
 
 
 
          Company common stock issued
$
55,855

 
 
 
 
 
 
 
 
          Cash exchanged for shares
$
21,421

 
 
 
 
 
 
 
 
          Present value of contingent earn-out consideration
               expected to be paid
$
5,705

 
 
 
 
 
 
 
 
     Fair value of total consideration transferred
$
82,981

 
 
 
 
 
 
 
 
____________________________________________________________

Explanation of fair value adjustments
(a)
Adjustment reflects the recording of the fair value of the insurance agent relationships intangible.
(b)
Adjustment reflect the recording of the fair value of the trade name intangible.
(c)
Adjustment reflects the recording of the fair value of the non-compete agreement intangible.
(d)
Adjustment reflects the deferred taxes on the differences in the carrying values of acquired intangible assets for financial reporting purposes and their basis for federal income tax purposes.
(e)
Adjustment reflects additional fair value adjustment for the insurance agent relationships intangible.
(f)
Adjustment reflects additional fair value adjustment for the trade name intangible.
(g)
Adjustment reflects additional fair value adjustment for the non-compete agreement intangible.
(h)
Adjustment reflects additional recording of deferred taxes on the differences in the carrying values of acquired intangible assets for financial reporting purposes and their basis for federal income tax purposes.
 
Goodwill of $64.5 million, which is the excess of the purchase price over the fair value of net assets acquired, was recorded in the USPF acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

During the second quarter of 2018, the Company recorded $2.0 million in other noninterest income in the consolidated statements of income and comprehensive income to reflect a decrease in the estimated contingent consideration liability. During the fourth quarter of 2018, the Company recorded $2.5 million in other noninterest income in the consolidated statements of income and comprehensive income to reflect a further decrease in the estimated contingent consideration liability. These decreases in the

19


estimated contingent consideration liability were based on projected results of the premium finance division for the entire measurement period from January 1, 2018 through June 30, 2019. No additional adjustment to the estimated contingent consideration liability was considered necessary for the first nine months of 2019.

Pro Forma Financial Information

The results of operations of Fidelity, Hamilton, Atlantic and USPF subsequent to their acquisition dates are included in the Company’s consolidated statements of income and comprehensive income. The following unaudited pro forma information reflects the Company’s estimated consolidated results of operations as if the acquisitions had occurred on January 1, 2018, unadjusted for potential cost savings. Merger and conversion charges are not included in the pro forma information below.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollars in thousands, except per share data; shares in thousands)
2019
 
2018
 
2019
 
2018
Net interest income and noninterest income
$
225,762

 
$
201,618

 
$
618,148

 
$
602,620

Net income
$
73,213

 
$
54,481

 
$
165,603

 
$
140,952

Net income available to common shareholders
$
73,213

 
$
54,481

 
$
165,603

 
$
140,952

Income per common share available to common shareholders – basic
$
1.06

 
$
0.78

 
$
2.38

 
$
2.02

Income per common share available to common shareholders – diluted
$
1.05

 
$
0.78

 
$
2.38

 
$
2.02

Average number of shares outstanding, basic
69,372

 
69,696

 
69,469

 
69,628

Average number of shares outstanding, diluted
69,600

 
69,867

 
69,590

 
69,800



NOTE 3 – INVESTMENT SECURITIES
 
The amortized cost and estimated fair value of investment securities available for sale, along with unrealized gains and losses, are summarized as follows:
(dollars in thousands)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
September 30, 2019
 
 
 
 
 
 
 
 
U.S. government sponsored agencies
 
$
22,265

 
$
95

 
$
—

 
$
22,360

State, county and municipal securities
 
113,607

 
2,742

 
—

 
116,349

Corporate debt securities
 
51,740

 
1,211

 
(33
)
 
52,918

Mortgage-backed securities
 
1,283,846

 
18,776

 
(3,042
)
 
1,299,580

Total debt securities
 
$
1,471,458

 
$
22,824

 
$
(3,075
)
 
$
1,491,207

 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
State, county and municipal securities
 
$
149,670

 
$
1,367

 
$
(304
)
 
$
150,733

Corporate debt securities
 
67,123

 
718

 
(527
)
 
67,314

Mortgage-backed securities
 
982,183

 
4,172

 
(11,979
)
 
974,376

Total debt securities
 
$
1,198,976

 
$
6,257

 
$
(12,810
)
 
$
1,192,423



The amortized cost and estimated fair value of available for sale securities at September 30, 2019 by contractual maturity are summarized in the table below. Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers can prepay obligations without prepayment penalties. Therefore, these securities are shown separately.
(dollars in thousands)
 
Amortized
Cost
 
Estimated
Fair
Value
Due in one year or less
 
$
16,799

 
$
16,858

Due from one year to five years
 
74,218

 
75,228

Due from five to ten years
 
67,248

 
69,498

Due after ten years
 
29,347

 
30,043

Mortgage-backed securities
 
1,283,846

 
1,299,580

 
 
$
1,471,458

 
$
1,491,207


 

20


Securities with a carrying value of approximately $513.7 million serve as collateral to secure public deposits, securities sold under agreements to repurchase and for other purposes required or permitted by law at September 30, 2019, compared with $510.0 million at December 31, 2018.
 
The following table details the gross unrealized losses and estimated fair value of securities aggregated by category and duration of continuous unrealized loss position at September 30, 2019 and December 31, 2018.
 
 
Less Than 12 Months
 
12 Months or More
 
Total
(dollars in thousands)
 
Estimated
Fair
Value
 
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
Losses
September 30, 2019
 
 

 
 

 
 

 
 

 
 

 
 

State, county and municipal securities
 
$
559

 
$
—

 
$
—

 
$
—

 
$
559

 
$
—

Corporate debt securities
 
1,470

 
(30
)
 
2,090

 
(3
)
 
3,560

 
(33
)
Mortgage-backed securities
 
345,451

 
(1,828
)
 
81,039

 
(1,214
)
 
426,490

 
(3,042
)
Total debt securities
 
$
347,480

 
$
(1,858
)
 
$
83,129

 
$
(1,217
)
 
$
430,609

 
$
(3,075
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 

 
 

 
 

 
 

 
 

 
 

State, county and municipal securities
 
$
23,784

 
$
(52
)
 
$
33,873

 
$
(252
)
 
$
57,657

 
$
(304
)
Corporate debt securities
 
17,291

 
(111
)
 
17,952

 
(416
)
 
35,243

 
(527
)
Mortgage-backed securities
 
119,745

 
(580
)
 
435,749

 
(11,399
)
 
555,494

 
(11,979
)
Total debt securities
 
$
160,820

 
$
(743
)
 
$
487,574

 
$
(12,067
)
 
$
648,394

 
$
(12,810
)

 
As of September 30, 2019, the Company’s securities portfolio consisted of 568 securities, 136 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s mortgage-backed securities, as discussed below.
 
At September 30, 2019, the Company held 133 mortgage-backed securities that were in an unrealized loss position, all of which were issued by U.S. government-sponsored entities and agencies. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019.

At September 30, 2019, the Company held one state, county and municipal security and two corporate debt securities that were in an unrealized loss position. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019.
 
The Company’s investments in corporate debt include investments in regional and super-regional banks on which the Company prepares regular analysis through review of financial information and credit ratings. Investments in preferred securities are also concentrated in the preferred obligations of regional and super-regional banks through non-pooled investment structures. The Company did not have investments in “pooled” trust preferred securities at September 30, 2019 or December 31, 2018.
 
Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. While the majority of the unrealized losses on debt securities relate to changes in interest rates, corporate debt securities have also been affected by reduced levels of liquidity and higher risk premiums. Occasionally, management engages independent third parties to evaluate the Company’s position in certain corporate debt securities to aid management and the ALCO Committee in its determination regarding the status of impairment. The Company believes that each investment poses minimal credit risk. Furthermore, the Company does not intend to sell these investment securities at an unrealized loss position at September 30, 2019, 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 September 30, 2019, these investments are not considered impaired on an other-than-temporary basis.
 
At September 30, 2019 and December 31, 2018, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.
 

21


The following table is a summary of sales activities in the Company’s investment securities available for sale for the nine months ended September 30, 2019 and 2018:
(dollars in thousands)
 
September 30,
2019
 
September 30,
2018
Gross gains on sales of securities
 
$
522

 
$
390

Gross losses on sales of securities
 
(464
)
 
(301
)
Net realized gains on sales of securities available for sale
 
$
58

 
$
89

 
 
 
 
 
Sales proceeds
 
$
64,995

 
$
68,727



Total gain on securities reported on the consolidated statements of income and comprehensive income is comprised of the following for the nine months ended September 30, 2019 and 2018:
(dollars in thousands)
 
September 30,
2019
 
September 30,
2018
Net realized gains on sales of securities available for sale
 
$
58

 
$
89

Unrealized holding gains (losses) on equity securities
 
19

 
(127
)
Net realized gains on sales of other investments
 
62

 
—

Total gain (loss) on securities
 
$
139

 
$
(38
)


NOTE 4 – LOANS

The Bank engages in a full complement of lending activities, including real estate-related loans, agriculture-related loans, commercial and financial loans and consumer installment loans within select markets in Georgia, Alabama, Florida and South Carolina. The Bank purchased residential mortgage loan pools during 2015 and 2016 collateralized by properties located outside our Southeast markets, specifically in California, Washington and Illinois. During the third quarter of 2016, the Bank began purchasing from unrelated third parties consumer installment home improvement loans made to borrowers throughout the United States. As of September 30, 2019 and December 31, 2018, the net carrying value of these consumer installment home improvement loans was approximately $404.7 million and $399.9 million, respectively, and such loans are reported in the consumer installment loan category. During the fourth quarter of 2016, the Bank purchased a pool of commercial insurance premium finance loans made to borrowers throughout the United States and began to originate, administer and service these types of loans. As of September 30, 2019 and December 31, 2018, the net carrying value of commercial insurance premium loans was approximately $648.7 million and $413.5 million, respectively, and such loans are reported in the commercial, financial and agricultural loan category.
 
The Bank concentrates the majority of its lending activities in real estate loans. While risk of loss in the Company’s portfolio is primarily tied to the credit quality of the various borrowers, risk of loss may increase due to factors beyond the Company’s control, such as local, regional and/or national economic downturns. General conditions in the real estate market may also impact the relative risk in the real estate portfolio. A substantial portion of the Bank’s loans are secured by real estate in the Bank’s primary market area. In addition, a substantial portion of the OREO is located in those same markets. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio and the recovery of a substantial portion of the carrying amount of OREO are susceptible to changes in real estate conditions in the Bank’s primary market area.

Commercial, financial and agricultural loans include both secured and unsecured loans for working capital, expansion, crop production, commercial insurance premium finance, and other business purposes. Commercial, financial and agricultural loans also include SBA loans and municipal loans. Short-term working capital loans are secured by non-real estate collateral such as accounts receivable, crops, inventory and equipment. The Bank evaluates the financial strength, cash flow, management, credit history of the borrower and the quality of the collateral securing the loan. The Bank often requires personal guarantees and secondary sources of repayment on commercial, financial and agricultural loans.
 
Real estate loans include construction and development loans, commercial and farmland loans and residential loans. Construction and development loans include loans for the development of residential neighborhoods, one-to-four family home residential construction loans to builders and consumers, and commercial real estate construction loans, primarily for owner-occupied properties. The Company limits its construction lending risk through adherence to established underwriting procedures. Commercial real estate loans include loans secured by owner-occupied commercial buildings for office, storage, retail and warehouse space as well as farmland. They also include non-owner-occupied commercial buildings such as leased retail and office space. Commercial real estate loans may be larger in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent on successful operation or management of the properties. The Company’s residential loans represent permanent mortgage financing and are secured by residential properties located within the Bank's market areas, along with warehouse lines of credit secured by residential mortgages.

22


Consumer installment loans include home improvement loans, automobile loans, boat and recreational vehicle financing, and secured and unsecured personal loans. Consumer loans carry greater risks than other loans, as the collateral can consist of rapidly depreciating assets such as automobiles and equipment that may not provide an adequate source of repayment of the loan in the case of default.
 
Loans are stated at unpaid balances, net of unearned income and deferred loan fees. Balances within the major loans receivable categories are presented in the following table, excluding purchased loans:
(dollars in thousands)
September 30,
2019
 
December 31,
2018
Commercial, financial and agricultural
$
1,781,237

 
$
1,316,359

Real estate – construction and development
947,371

 
671,198

Real estate – commercial and farmland
2,152,528

 
1,814,529

Real estate – residential
1,866,128

 
1,403,000

Consumer installment
461,552

 
455,371

 
$
7,208,816

 
$
5,660,457


 
Purchased loans are defined as loans that were acquired in bank acquisitions including those that are covered by a loss-sharing agreement with the Federal Deposit Insurance Corporation (the “FDIC”). Purchased loans totaling $5.39 billion and $2.59 billion at September 30, 2019 and December 31, 2018, respectively, are not included in the above schedule.
 
Purchased loans are shown below according to major loan type as of the end of the periods shown:
(dollars in thousands)
September 30,
2019
 
December 31,
2018
Commercial, financial and agricultural
$
385,355

 
$
372,686

Real estate – construction and development
521,324

 
227,900

Real estate – commercial and farmland
2,057,384

 
1,337,859

Real estate – residential
1,285,096

 
623,199

Consumer installment
1,139,177

 
27,188

 
$
5,388,336

 
$
2,588,832


 
A rollforward of purchased loans for the nine months ended September 30, 2019 and 2018 is shown below:
(dollars in thousands)
September 30,
2019
 
September 30,
2018
Balance, January 1
$
2,588,832

 
$
861,595

Charge-offs
(3,521
)
 
(1,314
)
Additions due to acquisitions
3,508,410

 
2,054,440

Accretion
10,503

 
8,083

Subsequent fair value adjustments recorded to goodwill
(4,854
)
 
—

Loans sold
(86,773
)
 
—

Transfers to loans held for sale
(1,554
)
 
—

Transfers to purchased other real estate owned
(3,908
)
 
(2,434
)
Payments received, net of principal advances
(618,799
)
 
(208,910
)
Ending balance
$
5,388,336

 
$
2,711,460



The following is a summary of changes in the accretable discounts of purchased loans during the nine months ended September 30, 2019 and 2018:
(dollars in thousands)
September 30,
2019
 
September 30,
2018
Balance, January 1
$
40,496

 
$
20,192

Additions due to acquisitions
38,116

 
29,318

Accretion
(10,503
)
 
(8,083
)
Accretable discounts removed due to charge-offs
—

 
(16
)
Transfers between non-accretable and accretable discounts, net
(2,052
)
 
1,569

Ending balance
$
66,057

 
$
42,980


 
Purchased loan pools are defined as groups of residential mortgage loans that were not acquired in bank acquisitions or FDIC-assisted transactions. As of September 30, 2019, purchased loan pools totaled $229.1 million and consisted of whole-loan residential mortgages on properties outside the Company’s markets, with principal balances totaling $228.0 million and $1.1 million of

23


remaining purchase premium paid at acquisition. As of December 31, 2018, purchased loan pools totaled $262.6 million with principal balances totaling $260.5 million and $2.1 million of remaining purchase premium paid at acquisition.

At September 30, 2019 and December 31, 2018, all loans in purchased loan pools were performing current loans risk-rated grade 3 (Good Credit). At September 30, 2019 and December 31, 2018, purchased loan pools had no loans on nonaccrual status and had no loans classified as troubled debt restructurings.

At September 30, 2019 and December 31, 2018, the Company had allocated $619,000 and $732,000, respectively, of allowance for loan losses for the purchased loan pools.

As part of the due diligence process prior to purchasing an individual mortgage pool, a complete re-underwrite of the individual loan files was conducted. The underwriting process included a review of all income, asset, credit and property related documentation that was used to originate the loan. Underwriters utilized the originating lender’s program guidelines, as well as general prudent mortgage lending standards, to assess each individual loan file.  Additional research was conducted to assess the real estate market conditions and market expectations in the geographic areas where a collateral concentration existed. As part of this review, an automated valuation model was employed to provide current collateral valuations and to support individual loan-to-value ratios.  Additionally, a sample of site inspections was completed to provide further assurance.  The results of the due diligence review were evaluated by officers of the Company in order to determine overall conformance to the Bank’s credit and lending policies.

Nonaccrual and Past-Due Loans

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged against interest income.  Interest on loans that are classified as nonaccrual is subsequently applied to principal until the loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.  Past-due loans are loans whose principal or interest is past due 30 days or more. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the original contractual terms.
 
The following table presents an analysis of loans accounted for on a nonaccrual basis, excluding purchased loans:
(dollars in thousands)
September 30,
2019
 
December 31,
2018
Commercial, financial and agricultural
$
3,103

 
$
1,412

Real estate – construction and development
1,357

 
892

Real estate – commercial and farmland
3,588

 
4,654

Real estate – residential
13,226

 
10,465

Consumer installment
465

 
529

 
$
21,739

 
$
17,952



The following table presents an analysis of purchased loans accounted for on a nonaccrual basis:
(dollars in thousands)
September 30,
2019
 
December 31,
2018
Commercial, financial and agricultural
$
5,370

 
$
1,199

Real estate – construction and development
5,326

 
6,119

Real estate – commercial and farmland
18,777

 
5,534

Real estate – residential
48,559

 
10,769

Consumer installment
730

 
486

 
$
78,762

 
$
24,107





24


The following table presents an analysis of past-due loans, excluding purchased past-due loans as of September 30, 2019 and December 31, 2018: 
(dollars in thousands)
Loans
30-59
Days Past
Due
 
Loans
60-89
Days
Past Due
 
Loans 90
or More
Days Past
Due
 
Total
Loans
Past Due
 
Current
Loans
 
Total
Loans
 
Loans 90
Days or
More Past
Due and
Still
Accruing
September 30, 2019
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
10,695

 
$
2,246

 
$
8,278

 
$
21,219

 
$
1,760,018

 
$
1,781,237

 
$
5,380

Real estate – construction and development
999

 
675

 
900

 
2,574

 
944,797

 
947,371

 
—

Real estate – commercial and farmland
4,101

 
326

 
2,813

 
7,240

 
2,145,288

 
2,152,528

 
—

Real estate – residential
12,898

 
3,235

 
12,139

 
28,272

 
1,837,856

 
1,866,128

 
—

Consumer installment
2,167

 
1,215

 
767

 
4,149

 
457,403

 
461,552

 
456

Total
$
30,860

 
$
7,697

 
$
24,897

 
$
63,454

 
$
7,145,362

 
$
7,208,816

 
$
5,836

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
6,479

 
$
5,295

 
$
4,763

 
$
16,537

 
$
1,299,822

 
$
1,316,359

 
$
3,808

Real estate – construction and development
1,218

 
481

 
725

 
2,424

 
668,774

 
671,198

 
—

Real estate – commercial and farmland
1,625

 
530

 
3,645

 
5,800

 
1,808,729

 
1,814,529

 
—

Real estate – residential
11,423

 
4,631

 
8,923

 
24,977

 
1,378,023

 
1,403,000

 
—

Consumer installment
2,344

 
1,167

 
735

 
4,246

 
451,125

 
455,371

 
414

Total
$
23,089

 
$
12,104

 
$
18,791

 
$
53,984

 
$
5,606,473

 
$
5,660,457

 
$
4,222

 
The following table presents an analysis of purchased past-due loans as of September 30, 2019 and December 31, 2018: 
 
(dollars in thousands)
Loans
30-59
Days Past
Due
 
Loans
60-89
Days
Past Due
 
Loans 90
or More
Days Past
Due
 
Total
Loans
Past Due
 
Current
Loans
 
Total
Loans
 
Loans 90
Days or
More Past
Due and
Still
Accruing
September 30, 2019
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
758

 
$
1,435

 
$
3,720

 
$
5,913

 
$
379,442

 
$
385,355

 
$
—

Real estate – construction and development
332

 
—

 
5,211

 
5,543

 
515,781

 
521,324

 
414

Real estate – commercial and farmland
2,416

 
1,480

 
13,498

 
17,394

 
2,039,990

 
2,057,384

 
66

Real estate – residential
24,707

 
7,092

 
23,453

 
55,252

 
1,229,844

 
1,285,096

 
—

Consumer installment
2,347

 
906

 
203

 
3,456

 
1,135,721

 
1,139,177

 
9

Total
$
30,560

 
$
10,913

 
$
46,085

 
$
87,558

 
$
5,300,778

 
$
5,388,336

 
$
489

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
421

 
$
416

 
$
1,015

 
$
1,852

 
$
370,834

 
$
372,686

 
$
—

Real estate – construction and development
627

 
370

 
5,273

 
6,270

 
221,630

 
227,900

 
—

Real estate – commercial and farmland
1,935

 
736

 
1,698

 
4,369

 
1,333,490

 
1,337,859

 
—

Real estate – residential
12,531

 
2,407

 
7,005

 
21,943

 
601,256

 
623,199

 
—

Consumer installment
679

 
237

 
249

 
1,165

 
26,023

 
27,188

 
—

Total
$
16,193

 
$
4,166

 
$
15,240

 
$
35,599

 
$
2,553,233

 
$
2,588,832

 
$
—


 

25


Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considers the borrower’s capacity to pay, which includes such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. The Company individually assesses for impairment all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000 (including all troubled debt restructurings, whether or not currently classified as such). The tables below include all loans deemed impaired, whether or not individually assessed for impairment. If a loan is deemed impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.
 

26


The following is a summary of information pertaining to impaired loans, excluding purchased loans: 
 
As of and for the Period Ended
(dollars in thousands)
September 30,
2019
 
December 31,
2018
 
September 30,
2018
Nonaccrual loans
$
21,739

 
$
17,952

 
$
15,986

Troubled debt restructurings not included above
13,430

 
9,323

 
10,943

Total impaired loans
$
35,169

 
$
27,275

 
$
26,929

 
 
 
 
 
 
Quarter-to-date interest income recognized on impaired loans
$
317

 
$
202

 
$
201

Year-to-date interest income recognized on impaired loans
$
782

 
$
827

 
$
625

Quarter-to-date foregone interest income on impaired loans
$
223

 
$
217

 
$
225

Year-to-date foregone interest income on impaired loans
$
630

 
$
853

 
$
636

 
The following table presents an analysis of information pertaining to impaired loans, excluding purchased loans as of September 30, 2019, December 31, 2018 and September 30, 2018:
(dollars in thousands)
Unpaid
Contractual
Principal
Balance
 
Recorded
Investment
With No
Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded
Investment
 
Related
Allowance
 
Three
 Month
Average
Recorded
Investment
 
Nine
 Month
Average
Recorded
Investment
September 30, 2019
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
4,242

 
$
773

 
$
2,979

 
$
3,752

 
$
1,569

 
$
3,724

 
$
2,645

Real estate – construction and development
2,019

 
505

 
921

 
1,426

 
113

 
1,350

 
1,280

Real estate – commercial and farmland
6,991

 
593

 
5,783

 
6,376

 
488

 
6,235

 
6,610

Real estate – residential
23,476

 
5,234

 
17,907

 
23,141

 
1,557

 
21,365

 
19,650

Consumer installment
496

 
474

 
—

 
474

 
—

 
451

 
471

Total
$
37,224

 
$
7,579

 
$
27,590

 
$
35,169

 
$
3,727

 
$
33,125

 
$
30,656

 
(dollars in thousands)
Unpaid
Contractual
Principal
Balance
 
Recorded
Investment
With No
Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded
Investment
 
Related
Allowance
 
Three
Month
Average
Recorded
Investment
 
Twelve
Month
Average
Recorded
Investment
December 31, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
1,902

 
$
1,155

 
$
513

 
$
1,668

 
$
4

 
$
1,736

 
$
1,637

Real estate – construction and development
1,378

 
613

 
424

 
1,037

 
3

 
1,229

 
984

Real estate – commercial and farmland
8,950

 
867

 
6,649

 
7,516

 
1,591

 
7,537

 
7,879

Real estate – residential
16,885

 
5,144

 
11,365

 
16,509

 
867

 
14,719

 
15,029

Consumer installment
561

 
545

 
—

 
545

 
—

 
584

 
534

Total
$
29,676

 
$
8,324

 
$
18,951

 
$
27,275

 
$
2,465

 
$
25,805

 
$
26,063


(dollars in thousands)
Unpaid
Contractual
Principal
Balance
 
Recorded
Investment
With No
Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded
Investment
 
Related 
Allowance
 
Three
 Month
Average
Recorded
Investment
 
Nine
 Month
Average
Recorded
Investment
September 30, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
2,216

 
$
966

 
$
838

 
$
1,804

 
$
5

 
$
1,791

 
$
1,629

Real estate – construction and development
1,444

 
720

 
701

 
1,421

 
46

 
1,110

 
971

Real estate – commercial and farmland
8,911

 
536

 
7,021

 
7,557

 
1,799

 
8,186

 
7,969

Real estate – residential
15,964

 
5,298

 
10,226

 
15,524

 
782

 
15,726

 
15,308

Consumer installment
658

 
623

 
—

 
623

 
—

 
571

 
531

Total
$
29,193

 
$
8,143

 
$
18,786

 
$
26,929

 
$
2,632

 
$
27,384

 
$
26,408

 

27


The following is a summary of information pertaining to purchased impaired loans: 
 
As of and for the Period Ended
(dollars in thousands)
September 30,
2019
 
December 31,
2018
 
September 30,
2018
Nonaccrual loans
$
78,762

 
$
24,107

 
$
27,764

Troubled debt restructurings not included above
18,295

 
18,740

 
20,363

Total impaired loans
$
97,057

 
$
42,847

 
$
48,127

 
 
 
 
 
 
Quarter-to-date interest income recognized on impaired loans
$
587

 
$
918

 
$
309

Year-to-date interest income recognized on impaired loans
$
2,148

 
$
2,203

 
$
1,285

Quarter-to-date foregone interest income on impaired loans
$
1,356

 
$
451

 
$
506

Year-to-date foregone interest income on impaired loans
$
2,427

 
$
1,483

 
$
1,032


The following table presents an analysis of information pertaining to purchased impaired loans as of September 30, 2019, December 31, 2018 and September 30, 2018:
(dollars in thousands)
Unpaid
Contractual
Principal
Balance
 
Recorded
Investment
With No
Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded
Investment
 
Related 
Allowance
 
Three
 Month
Average
Recorded
Investment
 
Nine
 Month
Average
Recorded
Investment
September 30, 2019
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
16,132

 
$
3,445

 
$
1,956

 
$
5,401

 
$
54

 
$
5,401

 
$
3,980

Real estate – construction and development
13,256

 
169

 
6,035

 
6,204

 
262

 
6,204

 
6,622

Real estate – commercial and farmland
38,382

 
14,629

 
9,977

 
24,606

 
555

 
24,606

 
18,018

Real estate – residential
63,328

 
48,469

 
11,647

 
60,116

 
654

 
60,116

 
40,808

Consumer installment
3,479

 
730

 
—

 
730

 
—

 
730

 
635

Total
$
134,577

 
$
67,442

 
$
29,615

 
$
97,057

 
$
1,525

 
$
97,057

 
$
70,063

(dollars in thousands)
Unpaid
Contractual
Principal
Balance
 
Recorded
Investment
With No
Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded
Investment
 
Related 
Allowance
 
Three
Month
Average
Recorded
Investment
 
Twelve
Month
Average
Recorded
Investment
December 31, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
5,717

 
$
473

 
$
757

 
$
1,230

 
$
—

 
$
1,101

 
$
836

Real estate – construction and development
13,714

 
623

 
6,511

 
7,134

 
476

 
7,240

 
5,712

Real estate – commercial and farmland
14,766

 
1,115

 
10,581

 
11,696

 
684

 
13,514

 
12,349

Real estate – residential
24,839

 
8,185

 
14,116

 
22,301

 
773

 
23,146

 
21,433

Consumer installment
526

 
486

 
—

 
486

 
—

 
487

 
229

Total
$
59,562

 
$
10,882

 
$
31,965

 
$
42,847

 
$
1,933

 
$
45,488

 
$
40,559

(dollars in thousands)
Unpaid
Contractual
Principal
Balance
 
Recorded
Investment
With No
Allowance
 
Recorded
Investment
With
Allowance
 
Total
Recorded
Investment
 
Related
Allowance
 
Three
Month
Average
Recorded
Investment
 
Nine
 Month
Average
Recorded
Investment
September 30, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
5,499

 
$
631

 
$
341

 
$
972

 
$
—

 
$
670

 
$
737

Real estate – construction and development
16,066

 
312

 
7,033

 
7,345

 
255

 
6,561

 
5,356

Real estate – commercial and farmland
20,297

 
3,013

 
12,319

 
15,332

 
872

 
13,282

 
12,513

Real estate – residential
27,028

 
8,393

 
15,598

 
23,991

 
886

 
22,932

 
21,217

Consumer installment
537

 
487

 
—

 
487

 
—

 
287

 
165

Total
$
69,427

 
$
12,836

 
$
35,291

 
$
48,127

 
$
2,013

 
$
43,732

 
$
39,988


 

28


Credit Quality Indicators

The Company uses a nine category risk grading system to assign a risk grade to each loan in the portfolio. The following is a description of the general characteristics of the grades:
 
Grade 1 – Prime Credit – This grade represents loans to the Company’s most creditworthy borrowers or loans that are secured by cash or cash equivalents.
 
Grade 2 – Strong Credit – This grade includes loans that exhibit one or more characteristics better than that of a Good Credit. Generally, the debt service coverage and borrower’s liquidity is materially better than required by the Company’s loan policy.
 
Grade 3 – Good Credit – This grade is assigned to loans to borrowers who exhibit satisfactory credit histories, contain acceptable loan structures and demonstrate ability to repay.

Grade 4 – Satisfactory Credit – This grade includes loans which exhibit all the characteristics of a Good Credit, but warrant more than normal level of banker supervision due to (i) circumstances which elevate the risks of performance (such as start-up operations, untested management, heavy leverage and interim losses); (ii) adverse, extraordinary events that have affected, or could affect, the borrower’s cash flow, financial condition, ability to continue operating profitability or refinancing (such as death of principal, fire and divorce); (iii) loans that require more than the normal servicing requirements (such as any type of construction financing, acquisition and development loans, accounts receivable or inventory loans and floor plan loans); (iv) existing technical exceptions which raise some doubts about the Bank’s perfection in its collateral position or the continued financial capacity of the borrower; or (v) improvements in formerly criticized borrowers, which may warrant banker supervision.
 
Grade 5 – Fair Credit – This grade is assigned to loans that are currently performing and supported by adequate financial information that reflects repayment capacity but exhibits a loan-to-value ratio greater than 110%, based on a documented collateral valuation.

Grade 6 – Other Assets Especially Mentioned – This grade includes loans that exhibit potential weaknesses that deserve management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.
 
Grade 7 – Substandard – This grade represents loans which are inadequately protected by the current credit worthiness and paying capacity of the borrower or of the collateral pledged, if any. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses or questionable collateral values.
 
Grade 8 – Doubtful – This grade includes loans which exhibit all of the characteristics of a substandard loan with the added provision that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable or improbable.
 
Grade 9 – Loss – This grade is assigned to loans which are considered uncollectible and of such little value that their continuance as active assets of the Bank is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing it off.
 

29


The following table presents the loan portfolio, excluding purchased loans, by risk grade as of September 30, 2019 and December 31, 2018 (in thousands): 
Risk
Grade 
 
Commercial,
Financial and
Agricultural
 
Real Estate -
Construction and
Development
 
Real Estate -
Commercial and
Farmland
 
Real Estate -
Residential
 
Consumer
Installment
 
Total
September 30, 2019
1
 
$
520,635

 
$
—

 
$
211

 
$
29

 
$
12,183

 
$
533,058

2
 
672,622

 
17,908

 
27,429

 
30,552

 
—

 
748,511

3
 
200,075

 
110,267

 
1,150,753

 
1,710,512

 
25,137

 
3,196,744

4
 
360,834

 
780,296

 
843,062

 
96,029

 
423,560

 
2,503,781

5
 
19,919

 
28,696

 
79,753

 
6,789

 
22

 
135,179

6
 
1,997

 
7,531

 
27,562

 
3,378

 
103

 
40,571

7
 
5,141

 
2,673

 
23,758

 
18,839

 
545

 
50,956

8
 
14

 
—

 
—

 
—

 
—

 
14

9
 
—

 
—

 
—

 
—

 
2

 
2

Total
 
$
1,781,237

 
$
947,371

 
$
2,152,528

 
$
1,866,128

 
$
461,552

 
$
7,208,816

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
1
 
$
530,864

 
$
40

 
$
500

 
$
16

 
$
10,744

 
$
542,164

2
 
452,250

 
681

 
37,079

 
33,043

 
48

 
523,101

3
 
174,811

 
74,657

 
888,433

 
1,246,383

 
23,844

 
2,408,128

4
 
137,038

 
582,456

 
814,068

 
94,143

 
419,983

 
2,047,688

5
 
13,714

 
6,264

 
30,364

 
8,634

 
78

 
59,054

6
 
5,130

 
4,091

 
20,959

 
4,881

 
57

 
35,118

7
 
2,552

 
3,009

 
23,126

 
15,900

 
617

 
45,204

8
 
—

 
—

 
—

 
—

 
—

 
—

9
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
1,316,359

 
$
671,198

 
$
1,814,529

 
$
1,403,000

 
$
455,371

 
$
5,660,457


 
The following table presents the purchased loan portfolio by risk grade as of September 30, 2019 and December 31, 2018 (in thousands):       
Risk
Grade 
 
Commercial,
Financial and
Agricultural
 
Real Estate -
Construction and
Development
 
Real Estate -
Commercial and
Farmland
 
Real Estate -
Residential
 
Consumer
Installment
 
Total
September 30, 2019
1
 
$
77,581

 
$
—

 
$
—

 
$
—

 
$
2,642

 
$
80,223

2
 
18,645

 
—

 
9,550

 
63,722

 
16,190

 
108,107

3
 
56,256

 
25,070

 
454,344

 
1,027,427

 
1,097,603

 
2,660,700

4
 
171,329

 
466,461

 
1,455,604

 
129,058

 
19,787

 
2,242,239

5
 
32,569

 
9,184

 
60,071

 
15,372

 
49

 
117,245

6
 
8,878

 
13,914

 
43,747

 
6,999

 
126

 
73,664

7
 
20,097

 
6,695

 
34,068

 
42,518

 
2,780

 
106,158

8
 
—

 
—

 
—

 
—

 
—

 
—

9
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
385,355

 
$
521,324

 
$
2,057,384

 
$
1,285,096

 
$
1,139,177

 
$
5,388,336

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
1
 
$
90,205

 
$
—

 
$
—

 
$
—

 
$
570

 
$
90,775

2
 
2,648

 
—

 
7,407

 
74,398

 
164

 
84,617

3
 
20,489

 
18,022

 
230,089

 
385,279

 
2,410

 
656,289

4
 
215,096

 
195,079

 
1,034,943

 
118,082

 
23,177

 
1,586,377

5
 
14,445

 
2,728

 
29,468

 
16,937

 
35

 
63,613

6
 
11,601

 
1,459

 
10,063

 
7,231

 
94

 
30,448

7
 
18,202

 
10,612

 
25,889

 
21,272

 
738

 
76,713

8
 
—

 
—

 
—

 
—

 
—

 
—

9
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
372,686

 
$
227,900

 
$
1,337,859

 
$
623,199

 
$
27,188

 
$
2,588,832


 


30


Troubled Debt Restructurings
 
The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession. Concessions may include interest rate reductions to below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. The Company has exhibited the greatest success for rehabilitation of the loan by a reduction in the rate alone (maintaining the amortization of the debt) or a combination of a rate reduction and the forbearance of previously past due interest or principal. This has most typically been evidenced in certain commercial real estate loans whereby a disruption in the borrower’s cash flow resulted in an extended past due status, of which the borrower was unable to catch up completely as the cash flow of the property ultimately stabilized at a level lower than its original level. A reduction in rate, coupled with a forbearance of unpaid principal and/or interest, allowed the net cash flows to service the debt under the modified terms.
 
The Company’s policy requires a restructure request to be supported by a current, well-documented credit evaluation of the borrower’s financial condition and a collateral evaluation that is no older than six months from the date of the restructure. Key factors of that evaluation include the documentation of current, recurring cash flows, support provided by the guarantor(s) and the current valuation of the collateral. If the appraisal in the file is older than six months, an evaluation must be made as to the continued reasonableness of the valuation. For certain income-producing properties, current rent rolls and/or other income information can be utilized to support the appraisal valuation, when coupled with documented cap rates within our markets and a physical inspection of the collateral to validate the current condition.
 
The Company’s policy states that in the event a loan has been identified as a troubled debt restructuring, it should be assigned a grade of substandard and placed on nonaccrual status until such time the borrower has demonstrated the ability to service the loan payments based on the restructured terms – generally defined as six months of satisfactory payment history. Missed payments under the original loan terms are not considered under the new structure; however, subsequent missed payments are considered non-performance and are not considered toward the six month required term of satisfactory payment history. The Company’s loan policy states that a nonaccrual loan may be returned to accrual status when (i) none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest or (ii) it otherwise becomes well secured and in the process of collection. Restoration to accrual status on any given loan must be supported by a well-documented credit evaluation of the borrower’s financial condition and the prospects for full repayment and approved by the Company’s Chief Credit Officer.
 
In the normal course of business, the Company renews loans with a modification of the interest rate or terms that are not deemed as troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first nine months of 2019 and 2018 totaling $168.6 million and $64.0 million, respectively, under such parameters.
 
As of September 30, 2019 and December 31, 2018, the Company had a balance of $15.1 million and $11.0 million, respectively, in troubled debt restructurings, excluding purchased loans. The Company has recorded $883,000 and $890,000 in previous charge-offs on such loans at September 30, 2019 and December 31, 2018, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $1.6 million and $820,000 at September 30, 2019 and December 31, 2018, respectively. At September 30, 2019, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.
 
During the nine months ended September 30, 2019 and 2018, the Company modified loans as troubled debt restructurings, excluding purchased loans, with principal balances of $5.0 million and $2.3 million, respectively, and these modifications did not have a material impact on the Company’s allowance for loan loss. The following table presents the loans by class modified as troubled debt restructurings, excluding purchased loans, which occurred during the nine months ended September 30, 2019 and 2018: 
 
September 30, 2019
 
September 30, 2018
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
3
 
$
550

 
10
 
$
302

Real estate – construction and development
—
 
—

 
1
 
3

Real estate – commercial and farmland
2
 
224

 
1
 
303

Real estate – residential
21
 
4,183

 
12
 
1,617

Consumer installment
7
 
26

 
6
 
36

Total
33
 
$
4,983

 
30
 
$
2,261


 

31


Troubled debt restructurings, excluding purchased loans, with an outstanding balance of $843,000 and $1.7 million defaulted during the nine months ended September 30, 2019 and 2018, respectively, and these defaults did not have a material impact on the Company’s allowance for loan loss. The following table presents for loans, excluding purchased loans, the troubled debt restructurings by class that defaulted (defined as 30 days past due) during the nine months ended September 30, 2019 and 2018: 
 
September 30, 2019
 
September 30, 2018
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
1
 
$
3

 
4
 
$
10

Real estate – construction and development
—
 
—

 
—
 
—

Real estate – commercial and farmland
3
 
341

 
2
 
548

Real estate – residential
4
 
481

 
17
 
1,155

Consumer installment
5
 
18

 
6
 
23

Total
13
 
$
843

 
29
 
$
1,736


 
The following table presents the amount of troubled debt restructurings by loan class, excluding purchased loans, classified separately as accrual and nonaccrual at September 30, 2019 and December 31, 2018: 
September 30, 2019
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
5
 
$
649

 
13
 
$
119

Real estate – construction and development
3
 
69

 
1
 
1

Real estate – commercial and farmland
12
 
2,788

 
3
 
530

Real estate – residential
88
 
9,915

 
20
 
925

Consumer installment
5
 
9

 
23
 
66

Total
113
 
$
13,430

 
60
 
$
1,641

December 31, 2018
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
5
 
$
256

 
14
 
$
138

Real estate – construction and development
5
 
145

 
1
 
2

Real estate – commercial and farmland
12
 
2,863

 
3
 
426

Real estate – residential
71
 
6,043

 
20
 
1,119

Consumer installment
6
 
16

 
24
 
69

Total
99
 
$
9,323

 
62
 
$
1,754


 
As of September 30, 2019 and December 31, 2018, the Company had a balance of $21.2 million and $22.2 million, respectively, in troubled debt restructurings included in purchased loans. The Company has recorded $1.1 million and $940,000 in previous charge-offs on such loans at September 30, 2019 and December 31, 2018, respectively. At September 30, 2019, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.
 
During the nine months ended September 30, 2019 and 2018, the Company modified purchased loans as troubled debt restructurings, with principal balances of $1.7 million and $1.9 million, respectively, and these modifications did not have a material impact on the Company’s allowance for loan loss. The following table presents the purchased loans by class modified as troubled debt restructurings, which occurred during the nine months ended September 30, 2019 and 2018: 
 
September 30, 2019
 
September 30, 2018
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
—
 
$
—

 
1
 
$
5

Real estate – construction and development
—
 
—

 
—
 
—

Real estate – commercial and farmland
—
 
—

 
1
 
69

Real estate – residential
20
 
1,674

 
16
 
1,791

Consumer installment
4
 
39

 
—
 
—

Total
24
 
$
1,713

 
18
 
$
1,865


 

32


Troubled debt restructurings included in purchased loans with an outstanding balance of $1.2 million and $2.4 million defaulted during the nine months ended September 30, 2019 and 2018, respectively, and these defaults did not have a material impact on the Company’s allowance for loan loss.

The following table presents purchased loan troubled debt restructurings by class that defaulted (defined as 30 days past due) during the nine months ended September 30, 2019 and 2018:
 
September 30, 2019
 
September 30, 2018
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
1
 
$
1

 
—
 
$
—

Real estate – construction and development
—
 
—

 
—
 
—

Real estate – commercial and farmland
1
 
325

 
1
 
69

Real estate – residential
17
 
895

 
23
 
2,302

Consumer installment
2
 
18

 
—
 
—

Total
21
 
$
1,239

 
24
 
$
2,371


 
The following table presents the amount of troubled debt restructurings by loan class of purchased loans, classified separately as accrual and nonaccrual at September 30, 2019 and December 31, 2018. 
September 30, 2019
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
1
 
$
31

 
3
 
$
25

Real estate – construction and development
4
 
878

 
2
 
257

Real estate – commercial and farmland
11
 
5,829

 
5
 
1,428

Real estate – residential
113
 
11,557

 
18
 
1,178

Consumer installment
—
 
—

 
7
 
54

Total
129
 
$
18,295

 
35
 
$
2,942

December 31, 2018
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
1
 
$
31

 
3
 
$
32

Real estate – construction and development
4
 
1,015

 
5
 
293

Real estate – commercial and farmland
12
 
6,162

 
7
 
1,685

Real estate – residential
115
 
11,532

 
24
 
1,424

Consumer installment
—
 
—

 
4
 
17

Total
132
 
$
18,740

 
43
 
$
3,451


 
Allowance for Loan Losses
 
The allowance for loan losses represents an allowance for probable incurred losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on non-accruing, past-due and other loans that management believes might be potentially impaired or warrant additional attention. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio. In addition, based on internal reviews and external reviews performed by regulatory authorities, the Company further segregates the loan portfolio by loan grades based on an assessment of risk for a particular loan or group of loans. Certain reviewed loans are assigned specific allowances when a review of relevant data determines that a general allocation is not sufficient or when the review affords management the opportunity to adjust the amount of exposure in a given credit. In establishing allowances, management considers historical loan loss experience but adjusts this data with a significant emphasis on current loan quality trends, current economic conditions and other factors in the markets where the Company operates. Factors considered include, among others, current valuations of real estate in the Company’s markets, unemployment rates, the effect of weather conditions on agricultural related entities and other significant local economic events, such as major plant closings.
 
The Company has developed a methodology for determining the adequacy of the allowance for loan losses which is monitored by the Company’s Chief Credit Officer. Procedures provide for the assignment of a risk rating for every loan included in the total loan portfolio. Commercial insurance premium finance loans, overdraft protection loans, and certain residential mortgage loans and consumer loans serviced by outside processors are treated as pools for risk rating purposes. The risk rating schedule provides nine ratings of which five ratings are classified as pass ratings and four ratings are classified as criticized ratings. Each risk rating is

33


assigned a percentage factor to be applied to the loan balance to determine the adequate amount of reserve. The Bank’s independent internal loan review department reviews on an annual basis a sample of relationships in excess of $1,000,000, as well as selective sampling of loans below this threshold. Sampling is based on a number of factors unique to the Bank’s portfolio risks, including, but not limited to, lending divisions, industry, risk grades, and new originations. As a result of these loan reviews, certain loans may be identified as having deteriorating credit quality. Other loans that surface as problem loans may also be assigned specific reserves. Past-due loans are assigned risk ratings based on the number of days past due. The calculation of the allowance for loan losses, including underlying data and assumptions, is reviewed regularly by the Company’s Chief Financial Officer and the independent internal loan review department.
 
Loan losses are charged against the allowance when management believes the collection of a loan’s principal is unlikely. Subsequent recoveries are credited to the allowance. Consumer loans are charged off in accordance with the Federal Financial Institutions Examination Council’s (“FFIEC”) Uniform Retail Credit Classification and Account Management Policy. Commercial loans are charged off when they are deemed uncollectible, which usually involves a triggering event within the collection effort. If the loan is collateral dependent, the loss is more easily identified and is charged off when it is identified, usually based upon receipt of an appraisal. However, when a loan has guarantor support, the Company may carry the estimated loss as a reserve against the loan while collection efforts with the guarantor are pursued. If, after collection efforts with the guarantor are complete, the deficiency is still considered uncollectible, the loss is charged off and any further collections are treated as recoveries. In all situations, when a loan is downgraded to an Asset Quality Rating of 9 (Loss per the regulatory guidance), the uncollectible portion is charged off.

The following tables detail activity in the allowance for loan losses by portfolio segment for the three and nine-month period ended September 30, 2019, the year ended December 31, 2018 and the three and nine-month period ended September 30, 2018. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
(dollars in thousands)
Commercial,
Financial and
Agricultural
 
Real Estate –
Construction and
Development
 
Real Estate –
Commercial and
Farmland
 
Real Estate –
Residential
 
Consumer
Installment
 
Purchased 
Loans
 
Purchased
Loan
Pools
 
Total
Three Months Ended
September 30, 2019
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance, June 30, 2019
$
6,302

 
$
4,269

 
$
7,269

 
$
7,451

 
$
3,388

 
$
2,443

 
$
671

 
$
31,793

Provision for loan losses
1,925

 
800

 
1,166

 
975

 
1,289

 
(114
)
 
(52
)
 
5,989

Loans charged off
(1,578
)
 
—

 
(14
)
 
(20
)
 
(1,195
)
 
(2,442
)
 
—

 
(5,249
)
Recoveries of loans previously charged off
845

 
2

 
—

 
49

 
269

 
1,832

 
—

 
2,997

Balance, September 30, 2019
$
7,494

 
$
5,071

 
$
8,421

 
$
8,455

 
$
3,751

 
$
1,719

 
$
619

 
$
35,530

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30, 2019
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance, December 31, 2018
$
4,287

 
$
3,734

 
$
8,975

 
$
5,363

 
$
3,795

 
$
1,933

 
$
732

 
$
28,819

Provision for loan losses
5,475

 
1,562

 
805

 
2,886

 
3,495

 
(45
)
 
(113
)
 
14,065

Loans charged off
(4,920
)
 
(247
)
 
(1,367
)
 
(80
)
 
(4,214
)
 
(3,296
)
 
—

 
(14,124
)
Recoveries of loans previously charged off
2,652

 
22

 
8

 
286

 
675

 
3,127

 
—

 
6,770

Balance, September 30, 2019
$
7,494

 
$
5,071

 
$
8,421

 
$
8,455

 
$
3,751

 
$
1,719

 
$
619

 
$
35,530

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period-end allocation:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment (1)
$
2,575

 
$
112

 
$
488

 
$
1,557

 
$
—

 
$
1,719

 
$
—

 
$
6,451

Loans collectively evaluated for impairment
4,919

 
4,959

 
7,933

 
6,898

 
3,751

 
—

 
619

 
29,079

Ending balance
$
7,494

 
$
5,071

 
$
8,421

 
$
8,455

 
$
3,751

 
$
1,719

 
$
619

 
$
35,530

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment (1)
$
4,648

 
$
921

 
$
5,783

 
$
17,907

 
$
—

 
$
31,612

 
$
—

 
$
60,871

Collectively evaluated for impairment
1,776,589

 
946,450

 
2,146,745

 
1,848,221

 
461,552

 
5,173,717

 
229,132

 
12,582,406

Acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
183,007

 
—

 
183,007

Ending balance
$
1,781,237

 
$
947,371

 
$
2,152,528

 
$
1,866,128

 
$
461,552

 
$
5,388,336

 
$
229,132

 
$
12,826,284



34


(1) At September 30, 2019, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.
(dollars in thousands)
Commercial,
Financial and
Agricultural
 
Real Estate –
Construction and
Development
 
Real Estate –
Commercial and
Farmland
 
Real Estate –
Residential
 
Consumer
Installment
 
Purchased 
Loans
 
Purchased
Loan
Pools
 
Total
Twelve Months Ended
December 31, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance, December 31, 2017
$
3,631

 
$
3,629

 
$
7,501

 
$
4,786

 
$
1,916

 
$
3,253

 
$
1,075

 
$
25,791

Provision for loan losses
10,690

 
277

 
1,636

 
1,002

 
5,569

 
(2,164
)
 
(343
)
 
16,667

Loans charged off
(13,803
)
 
(292
)
 
(338
)
 
(771
)
 
(4,189
)
 
(1,738
)
 
—

 
(21,131
)
Recoveries of loans previously charged off
3,769

 
120

 
176

 
346

 
499

 
2,582

 
—

 
7,492

Balance, December 31, 2018
$
4,287

 
$
3,734

 
$
8,975

 
$
5,363

 
$
3,795

 
$
1,933

 
$
732

 
$
28,819

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period-end allocation:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment (1)
$
570

 
$
3

 
$
1,591

 
$
867

 
$
—

 
$
1,933

 
$
—

 
$
4,964

Loans collectively evaluated for impairment
3,717

 
3,731

 
7,384

 
4,496

 
3,795

 
—

 
732

 
23,855

Ending balance
$
4,287

 
$
3,734

 
$
8,975

 
$
5,363

 
$
3,795

 
$
1,933

 
$
732

 
$
28,819

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment (1)
$
3,211

 
$
424

 
$
6,649

 
$
11,364

 
$
—

 
$
32,244

 
$
—

 
$
53,892

Collectively evaluated for impairment
1,313,148

 
670,774

 
1,807,880

 
1,391,636

 
455,371

 
2,468,996

 
262,625

 
8,370,430

Acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
87,592

 
—

 
87,592

Ending balance
$
1,316,359

 
$
671,198

 
$
1,814,529

 
$
1,403,000

 
$
455,371

 
$
2,588,832

 
$
262,625

 
$
8,511,914

 
(1) At December 31, 2018, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.

35


(dollars in thousands)
Commercial,
Financial and
Agricultural
 
Real Estate –
Construction and
Development
 
Real Estate –
Commercial and
Farmland
 
Real Estate –
Residential
 
Consumer
Installment
 
Purchased 
Loans
 
Purchased
Loan
Pools
 
Total
Three Months Ended
September 30, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance, June 30, 2018
$
8,400

 
$
3,789

 
$
8,215

 
$
5,136

 
$
2,877

 
$
2,339

 
$
776

 
$
31,532

Provision for loan losses
1,021

 
137

 
809

 
209

 
1,039

 
(1,148
)
 
28

 
2,095

Loans charged off
(6,121
)
 
(265
)
 
(27
)
 
(293
)
 
(923
)
 
(483
)
 
—

 
(8,112
)
Recoveries of loans previously charged off
939

 
1

 
134

 
44

 
178

 
1,305

 
—

 
2,601

Balance, September 30, 2018
$
4,239

 
$
3,662

 
$
9,131

 
$
5,096

 
$
3,171

 
$
2,013

 
$
804

 
$
28,116

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance, December 31, 2017
$
3,631

 
$
3,629

 
$
7,501

 
$
4,786

 
$
1,916

 
$
3,253

 
$
1,075

 
$
25,791

Provision for loan losses
9,080

 
201

 
1,630

 
750

 
3,617

 
(2,001
)
 
(271
)
 
13,006

Loans charged off
(11,314
)
 
(285
)
 
(169
)
 
(695
)
 
(2,724
)
 
(1,514
)
 
—

 
(16,701
)
Recoveries of loans previously charged off
2,842

 
117

 
169

 
255

 
362

 
2,275

 
—

 
6,020

Balance, September 30, 2018
$
4,239

 
$
3,662

 
$
9,131

 
$
5,096

 
$
3,171

 
$
2,013

 
$
804

 
$
28,116

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period-end allocation:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment (1)
$
821

 
$
46

 
$
1,800

 
$
782

 
$
—

 
$
2,013

 
$
2

 
$
5,464

Loans collectively evaluated for impairment
3,418

 
3,616

 
7,331

 
4,314

 
3,171

 
—

 
802

 
22,652

Ending balance
$
4,239

 
$
3,662

 
$
9,131

 
$
5,096

 
$
3,171

 
$
2,013

 
$
804

 
$
28,116

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment (1)
$
2,362

 
$
701

 
$
7,021

 
$
10,226

 
$
—

 
$
36,156

 
$
4,697

 
$
61,163

Collectively evaluated for impairment
1,419,790

 
641,129

 
1,797,244

 
1,264,975

 
399,858

 
2,573,182

 
270,055

 
8,366,233

Acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
102,122

 
—

 
102,122

Ending balance
$
1,422,152

 
$
641,830

 
$
1,804,265

 
$
1,275,201

 
$
399,858

 
$
2,711,460

 
$
274,752

 
$
8,529,518

 
(1) At September 30, 2018, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.

NOTE 5 – OTHER REAL ESTATE OWNED
 
The following is a summary of the activity in OREO during the nine months ended September 30, 2019 and 2018:
(dollars in thousands)
September 30,
2019
 
September 30,
2018
Beginning balance, January 1
$
7,218

 
$
8,464

Loans transferred to other real estate owned
503

 
3,764

Net gains (losses) on sale and write-downs recorded in statement of income
(434
)
 
(470
)
Sales proceeds
(2,362
)
 
(2,321
)
Other
—

 
(62
)
Ending balance
$
4,925

 
$
9,375


 

36


The following is a summary of the activity in purchased OREO during the nine months ended September 30, 2019 and 2018:
(dollars in thousands) 
September 30,
2019
 
September 30,
2018
Beginning balance, January 1
$
9,535

 
$
9,011

Loans transferred to other real estate owned
3,908

 
2,434

Acquired in acquisitions
7,178

 
1,888

Portion of gains (losses) on sale and write-downs payable to (receivable from) the FDIC under loss-sharing agreements
(24
)
 
—

Net gains (losses) on sale and write-downs recorded in statement of income
276

 
(477
)
Sales proceeds
(5,086
)
 
(5,140
)
Other
(2
)
 
(24
)
Ending balance
$
15,785

 
$
7,692


 
NOTE 6 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Company classifies the sales of securities under agreements to repurchase as short-term borrowings. The amounts received under these agreements are reflected as a liability in the Company’s consolidated balance sheets and the investment securities underlying these agreements are included in investment securities in the Company’s consolidated balance sheets. At September 30, 2019 and December 31, 2018, all securities sold under agreements to repurchase mature on a daily basis. The market value of the securities fluctuate on a daily basis due to market conditions. The Company monitors the market value of the securities underlying these agreements on a daily basis and is required to transfer additional securities if the market value of the securities falls below the repurchase agreement price. The Company maintains an unpledged securities portfolio that it believes is sufficient to protect against a decline in the market value of the securities sold under agreements to repurchase.
 
The following is a summary of the Company’s securities sold under agreements to repurchase at September 30, 2019 and December 31, 2018.    
(dollars in thousands)
September 30,
2019
 
December 31, 2018
Securities sold under agreements to repurchase
$
17,744

 
$
20,384


 
At September 30, 2019 the investment securities underlying these agreements were comprised of state, county and municipal securities and mortgage-backed securities. At December 31, 2018, the investment securities underlying these agreements were comprised of mortgage-backed securities.
 

37


NOTE 7 – OTHER BORROWINGS
 
Other borrowings consist of the following:
(dollars in thousands)
September 30,
2019
 
December 31,
2018
FHLB borrowings:
 

 
 

Convertible Flipper Advance due May 22, 2019; fixed interest rate of 4.68%
$
—

 
$
1,514

Principal Reducing Advance due June 20, 2019; fixed interest rate of 1.274%
—

 
500

Fixed Rate Advance due October 11, 2019; fixed interest rate of 2.14%
100,000

 
—

Fixed Rate Advance due October 15, 2019; fixed interest rate of 2.14%
50,000

 
—

Fixed Rate Advance due October 17, 2019; fixed interest rate of 2.23%
50,000

 
—

Fixed Rate Advance due October 21, 2019; fixed interest rate of 2.10%
100,000

 
—

Fixed Rate Advance due October 21, 2019; fixed interest rate of 2.10%
100,000

 
—

Fixed Rate Advance due October 24, 2019; fixed interest rate of 2.08%
50,000

 
—

Fixed Rate Advance due October 28, 2019; fixed interest rate of 2.02%
75,000

 
—

Fixed Rate Advance due October 30, 2019; fixed interest rate of 2.01%
200,000

 
—

Fixed Rate Advance due November 18, 2019; fixed interest rate of 2.11%
75,000

 
—

Fixed Rate Advance due November 19, 2019; fixed interest rate of 2.13%
75,000

 
—

Fixed Rate Advance due December 16, 2019; fixed interest rate of 2.05%
150,000

 
—

Fixed Rate Advance due December 23, 2019; fixed interest rate of 2.04%
100,000

 
—

Fixed Rate Advance due December 9, 2030; fixed interest rate of 4.55%
1,425

 
1,434

Fixed Rate Advance due December 9, 2030; fixed interest rate of 4.55%
987

 
993

Principal Reducing Advance due September 29, 2031; fixed interest rate of 3.095%
1,749

 
1,858

Subordinated notes payable:
 

 
 

Subordinated notes payable due March 15, 2027 net of unamortized debt issuance cost of $976 and $1,074, respectively; fixed interest rate of 5.75% through March 14, 2022; variable interest rate thereafter at three-month LIBOR plus 3.616%
74,024

 
73,926

Subordinated notes payable due May 31, 2030 net of unaccreted purchase accounting fair value adjustment of $1,596 and $0, respectively; fixed interest rate of 5.875% through May 31, 2025; variable interest rate thereafter at three-month LIBOR plus 3.630%
76,596

 
—

Other debt:
 

 
 

Advance from correspondent bank due October 5, 2019; secured by a loan receivable; fixed interest rate of 4.25%
—

 
20

Advance from correspondent bank due September 5, 2026; secured by a loan receivable; fixed interest rate of 2.09%
1,391

 
1,529

Advances under revolving credit agreement with a regional bank due September 26, 2020; secured by subsidiary bank stock; variable interest rate at 90-day LIBOR plus 3.50% (5.63% at September 30, 2019)
70,000

 
70,000

Total
$
1,351,172

 
$
151,774


 
The advances from the FHLB are collateralized by a blanket lien on all eligible first mortgage loans and other specific loans in addition to FHLB stock. At September 30, 2019, $1.72 billion was available for borrowing on lines with the FHLB.
 
At September 30, 2019, the Company had a revolving credit arrangement with a regional bank with a maximum line amount of $100.0 million.  This line of credit is secured by subsidiary bank stock, expires on September 26, 2020, and bears a variable interest rate of 90-day LIBOR plus 3.50%.  At September 30, 2019, there was $30.0 million available for borrowing under the revolving credit arrangement.
 
As of September 30, 2019, the Bank maintained credit arrangements with various financial institutions to purchase federal funds up to $157.0 million.
 
The Bank also participates in the Federal Reserve discount window borrowings program. At September 30, 2019, the Company had $1.84 billion of loans pledged at the Federal Reserve discount window and had $1.24 billion available for borrowing.
 
NOTE 8 – SHAREHOLDERS’ EQUITY

Common Stock Repurchase Program

On September 19, 2019, the Company announced that its Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock. Repurchases of shares, which are authorized to occur through October 31, 2020, will

38


be made, if at all, in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including share acquisition price, regulatory limitations and other market and economic factors. The program does not require the repurchase of any specific number of shares. It replaces the Company's prior share repurchase program which was set to expire in October 2019 and under which the Company repurchased $10.6 million of its outstanding common stock in the past year. As of September 30, 2019, no shares of the Company's common stock had been repurchased under the new program.

Fidelity Acquisition

On July 1, 2019, the Company issued 22,181,522 shares of its common stock to the shareholders of Fidelity. Such shares had a value of $39.19 per share at the time of issuance, resulting in an increase in shareholders’ equity of $869.3 million.

For additional information regarding the Fidelity acquisition, see Note 2.

Hamilton Acquisition

On June 29, 2018, the Company issued 6,548,385 shares of its common stock to the shareholders of Hamilton. Such shares had a value of $53.35 per share at the time of issuance, resulting in an increase in shareholders’ equity of $349.4 million.

For additional information regarding the Hamilton acquisition, see Note 2.

Atlantic Acquisition

On May 25, 2018, the Company issued 2,631,520 shares of its common stock to the shareholders of Atlantic. Such shares had a value of $56.15 per share at the time of issuance, resulting in an increase in shareholders’ equity of $147.8 million.

For additional information regarding the Atlantic acquisition, see Note 2.

USPF Acquisition

On January 18, 2017, in exchange for 4.99% of the outstanding shares of common stock of USPF, the Company issued 128,572 unregistered shares of its common stock to a selling shareholder of USPF. A registration statement was filed with the Securities and Exchange Commission (the “SEC”) on February 13, 2017 to register the resale or other disposition of these shares. The issuance of the 128,572 common shares, valued at $45.45 per share at the time of issuance, resulted in an increase in shareholders’ equity of $5.8 million.

On January 3, 2018, in exchange for 25.01% of the outstanding shares of common stock of USPF, the Company issued 114,285 unregistered shares of its common stock and paid $12.5 million in cash to a selling shareholder of USPF. The issuance of the 114,285 common shares, valued at $48.55 per share at the time of issuance, resulted in an increase in shareholders’ equity of $5.5 million.

On January 31, 2018, in exchange for the final 70% of the outstanding shares of common stock of USPF, the Company issued 830,301 unregistered shares of its common stock and paid $8.9 million in cash to the selling shareholders of USPF. The issuance of the 830,301 common shares, valued at $53.55 per share at the time of issuance, resulted in an increase in shareholders’ equity of $44.5 million. The selling shareholders of USPF could receive additional cash payments aggregating up to $5.8 million based on the achievement by the Company's premium finance division of certain income targets, between January 1, 2018 and June 30, 2019. The total contingent consideration paid was $1.2 million based on results achieved through the applicable measurement dates.

On February 16, 2018, a registration statement was filed with the SEC to register the resale or other disposition of the combined 944,586 shares issued on January 3, 2018 and January 31, 2018.

For additional information regarding the USPF acquisition, see Note 2.

NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
Accumulated other comprehensive income (loss) for the Company consists of changes in net unrealized gains and losses on investment securities available for sale and an interest rate swap derivative designated as a cash flow hedge. The reclassification of gains included in net income is recorded in gain on securities in the consolidated statement of income and comprehensive
income. The following tables present a summary of the accumulated other comprehensive income (loss) balances, net of tax, as of September 30, 2019 and 2018:
(dollars in thousands)
 
Unrealized
Gain (Loss)
on Derivatives
 
Unrealized
Gain (Loss)
on Securities
 
Accumulated
Other Comprehensive
Income (Loss)
Balance, January 1, 2019
 
$
351

 
$
(5,177
)
 
$
(4,826
)
Reclassification for gains included in net income, net of tax
 
—

 
(94
)
 
(94
)
Current year changes, net of tax
 
(505
)
 
20,907

 
20,402

Balance, September 30, 2019
 
$
(154
)
 
$
15,636

 
$
15,482

(dollars in thousands) 
 
Unrealized
Gain (Loss)
on Derivatives
 
Unrealized
Gain (Loss)
on Securities
 
Accumulated
Other Comprehensive
Income (Loss)
Balance, December 31, 2017
 
$
292

 
$
(1,572
)
 
$
(1,280
)
Reclassification to retained earnings due to change in federal corporate tax rate
 
(53
)
 
(339
)
 
(392
)
Adjusted balance, January 1, 2018
 
239

 
(1,911
)
 
(1,672
)
Reclassification for gains included in net income, net of tax
 
—

 
(70
)
 
(70
)
Current year changes, net of tax
 
347

 
(15,181
)
 
(14,834
)
Balance, September 30, 2018
 
$
586

 
$
(17,162
)
 
$
(16,576
)

 
NOTE 10 – WEIGHTED AVERAGE SHARES OUTSTANDING

Earnings per share have been computed based on the following weighted average number of common shares outstanding: 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(share data in thousands)
2019
 
2018
 
2019
 
2018
Average common shares outstanding
69,372

 
47,515

 
54,762

 
41,673

Common share equivalents:
 

 
 

 
 

 
 

Stock options
145

 
14

 
46

 
14

Nonvested restricted share grants
83

 
156

 
75

 
158

Average common shares outstanding, assuming dilution
69,600

 
47,685

 
54,883

 
41,845


 
For the three and nine-month periods ended September 30, 2019 and 2018, there were no potential common shares with strike prices that would cause them to be anti-dilutive.
 
NOTE 11 – LEASES

The Company has entered into various operating leases for certain branch locations, ATM locations, loan production offices, and corporate support services locations with terms extending through June 2028. Generally, these leases have initial lease terms of ten years or less. Many of the leases have one or more lease renewal options. The exercise of lease renewal options is at our sole discretion. The Company does not consider exercise of any lease renewal options reasonably certain. Certain of our lease agreements contain early termination options. No renewal options or early termination options have been included in the calculation of the operating right-of-use assets or operating lease liabilities. Certain of our lease agreements provide for periodic adjustments to rental payments for inflation. As the majority of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. The incremental borrowing rate is based on the term of the lease. Incremental borrowing rates on January 1, 2019 were used for operating leases that commenced prior to that date. Leases with an initial term of 12 months or less are not recorded on the balance sheet. For these short-term leases, lease expense is recognized on a straight-line basis over the lease term. At September 30, 2019, the Company had no leases classified as finance leases.

Operating lease cost was $3.3 million and $6.7 million for the three and nine months ended September 30, 2019, respectively. For the nine months ended September 30, 2019, the Company had no sublease income offsetting operating lease cost. Variable rent expense and short-term lease expense were not material for the nine months ended September 30, 2019.


39


The following table presents the impact of leases on the Company's consolidated balance sheet at September 30, 2019:
(dollars in thousands)
Location
 
September 30, 2019
Operating lease right-of-use assets
Other assets
 
$
39,611

Operating lease liabilities
Other liabilities
 
42,050



Future maturities of the Company's operating lease liabilities are summarized as follows:
(dollars in thousands)
 
 
Twelve Months Ended September 30,
 
Lease Liability
2020
 
$
11,497

2021
 
10,133

2022
 
7,155

2023
 
5,748

2024
 
3,304

After September 30, 2024
 
7,276

Total lease payments
 
$
45,113

Less: Interest
 
(3,063
)
Present value of lease liabilities
 
$
42,050



Supplemental lease information
 
(dollars in thousands)
September 30, 2019
Weighted-average remaining lease term (years)
5.1

Weighted-average discount rate
2.57
%
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases (cash payments)
$
6,628

Operating cash flows from operating leases (lease liability reduction)
$
6,610

Operating lease right-of-use assets obtained in exchange for leases entered into during the period, net of business combinations
$
3,370



NOTE 12 – FAIR VALUE MEASURES
 
The fair value of an asset or liability is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair value is based on discounted cash flows or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability. The accounting standard for disclosures about the fair value measures excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
 
The Company's loans held for sale under the fair value option are comprised of the following:
(dollars in thousands)
September 30,
2019
 
December 31,
2018
Mortgage loans held for sale
$
1,183,417

 
$
107,428

SBA loans held for sale
4,134

 
3,870

Total loans held for sale
$
1,187,551

 
$
111,298


 
The Company has elected to record mortgage loans held for sale at fair value in order to eliminate the complexities and inherent difficulties of achieving hedge accounting and to better align reported results with the underlying economic changes in value of the loans and related hedge instruments. This election impacts the timing and recognition of origination fees and costs, as well as servicing value, which are now recognized in earnings at the time of origination. Interest income on mortgage loans held for sale

40


is recorded on an accrual basis in the consolidated statements of income and comprehensive income under the heading interest income – interest and fees on loans. The servicing value is included in the fair value of the interest rate lock commitments (“IRLCs”) with borrowers. The mark to market adjustments related to mortgage loans held for sale and the associated economic hedges are captured in mortgage banking activities. A net gain of $23.0 million and a net loss of $1.4 million resulting from fair value changes of these mortgage loans were recorded in income during the nine months ended September 30, 2019 and 2018, respectively. Net gains of $2.1 million and $848,000 resulting from changes in the fair value of the related derivative financial instruments used to hedge exposure to the market-related risks associated with these mortgage loans were recorded in income during the nine months ended September 30, 2019 and 2018, respectively. The change in fair value of both mortgage loans held for sale and the related derivative financial instruments are recorded in mortgage banking activity in the consolidated statements of income and comprehensive income. The Company’s valuation of mortgage loans held for sale incorporates an assumption for credit risk; however, given the short-term period that the Company holds these loans, valuation adjustments attributable to instrument-specific credit risk is nominal.
 
The following table summarizes the difference between the fair value and the principal balance for mortgage loans held for sale measured at fair value as of September 30, 2019 and December 31, 2018:
(dollars in thousands) 
September 30,
2019
 
December 31,
2018
Aggregate fair value of mortgage loans held for sale
$
1,183,417

 
$
107,428

Aggregate unpaid principal balance of mortgage loans held for sale
1,148,283

 
103,319

Past-due loans of 90 days or more
—

 
—

Nonaccrual loans
—

 
—


 
The following table summarizes the difference between the fair value and the principal balance for SBA loans held for sale measured at fair value as of September 30, 2019 and December 31, 2018:
(dollars in thousands) 
September 30,
2019
 
December 31,
2018
Aggregate fair value of SBA loans held for sale
$
4,134

 
$
3,870

Aggregate unpaid principal balance of SBA loans held for sale
3,755

 
3,581

Past-due loans of 90 days or more
—

 
—

Nonaccrual loans
—

 
—



The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale, loans held for sale and derivative financial instruments are recorded at fair value on a recurring basis. From time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans and OREO. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.
 
Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
 
Level 1 – Quoted prices in active markets for identical assets or liabilities.
 
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
The following methods and assumptions were used by the Company in estimating the fair value of its assets and liabilities recorded at fair value and for estimating the fair value of its financial instruments:
 
Cash and Due From Banks, Federal Funds Sold and Interest-Bearing Deposits in Banks, and Time Deposits in Other Banks: The carrying amount of cash and due from banks, federal funds sold and interest-bearing deposits in banks, and time deposits in other banks approximates fair value.
 

41


Investment Securities Available for Sale: The fair value of securities available for sale is determined by various valuation methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Level 2 securities include certain U.S. agency bonds, mortgage-backed securities, collateralized mortgage and debt obligations, and municipal securities. The Level 2 fair value pricing is provided by an independent third party and is based upon similar securities in an active market. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and may include certain residual municipal securities and other less liquid securities.
 
Loans Held for Sale: The Company records loans held for sale at fair value. The fair value of loans held for sale is determined on outstanding commitments from third party investors in the secondary markets and is classified within Level 2 of the valuation hierarchy.
 
Loans: The fair value for loans held for investment is estimated using an exit price methodology.  An exit price methodology considers expected cash flows that take into account contractual loan terms, as applicable, prepayment expectations, probability of default, loss severity in the event of default, recovery lag and, in the case of variable rate loans, expectations for future interest rate movements. These cash flows are present valued at a risk adjusted discount rate, which considers the cost of funding, liquidity, servicing costs, and other factors.   Because observable quoted prices seldom exist for identical or similar assets carried in loans held for investment, Level 3 inputs are primarily used to determine fair value exit pricing. The fair value of impaired loans is estimated based on discounted contractual cash flows or underlying collateral values, where applicable. A loan is determined to be impaired if the Company believes it is probable that all principal and interest amounts due according to the terms of the note will not be collected as scheduled. The fair value of impaired loans is determined in accordance with ASC 310-10, Accounting by Creditors for Impairment of a Loan, and generally results in a specific reserve established through a charge to the provision for loan losses. Losses on impaired loans are charged to the allowance when management believes the uncollectability of a loan is confirmed. Management has determined that the majority of impaired loans are Level 3 assets due to the extensive use of market appraisals.
 
Other Real Estate Owned: The fair value of OREO is determined using certified appraisals and internal evaluations that value the property at its highest and best uses by applying traditional valuation methods common to the industry. The Company does not hold any OREO for profit purposes and all other real estate is actively marketed for sale. In most cases, management has determined that additional write-downs are required beyond what is calculable from the appraisal to carry the property at levels that would attract buyers. Because this additional write-down is not based on observable inputs, management has determined that OREO should be classified as Level 3.
 
Accrued Interest Receivable/Payable: The carrying amount of accrued interest receivable and accrued interest payable approximates fair value.

Deposits: The carrying amount of demand deposits, savings deposits and variable-rate certificates of deposit approximates fair value. The fair value of fixed-rate certificates of deposit is estimated based on discounted contractual cash flows using interest rates currently being offered for certificates of similar maturities.
 
Securities Sold under Agreements to Repurchase and Other Borrowings: The carrying amount of securities sold under agreements to repurchase approximates fair value and is classified as Level 1. The carrying amount of variable rate other borrowings approximates fair value and is classified as Level 1. The fair value of fixed rate other borrowings is estimated based on discounted contractual cash flows using the current incremental borrowing rates for similar borrowing arrangements and is classified as Level 2.
 
Subordinated Deferrable Interest Debentures: The fair value of the Company’s trust preferred securities is based on discounted cash flows using rates for securities with similar terms and remaining maturities and are classified as Level 2.

FDIC Loss-Share Payable: Because the FDIC will reimburse the Company for certain acquired loans should the Company experience a loss, an indemnification asset is recorded at fair value at the acquisition date. The indemnification asset is recognized at the same time as the indemnified loans, and measured on the same basis, subject to collectability or contractual limitations. The shared loss agreements on the acquisition date reflect the reimbursements expected to be received from the FDIC, using an appropriate discount rate, which reflects counterparty credit risk and other uncertainties. The shared loss agreements continue to be measured on the same basis as the related indemnified loans, and the loss-share receivable is impacted by changes in estimated cash flows associated with these loans.


42


Pursuant to the clawback provisions of the loss-sharing agreements for the Company’s FDIC-assisted acquisitions, the Company may be required to reimburse the FDIC should actual losses be less than certain thresholds established in each loss-sharing agreement. The amount of the clawback provision for each acquisition is measured and recorded at fair value. The clawback amount, which is payable to the FDIC upon termination of the applicable loss-sharing agreement, is discounted using an appropriate discount rate.
 
Off-Balance-Sheet Instruments: Because commitments to extend credit and standby letters of credit are typically made using variable rates and have short maturities, the carrying value and fair value are immaterial for disclosure.
 
Derivatives: The Company has entered into derivative financial instruments to manage interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair value of the derivatives is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves derived from observable market interest rate curves).
 
The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting any applicable credit enhancements such as collateral postings, thresholds, mutual puts and guarantees.
 
Although the Company has determined that the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself or the counterparty. However, as of September 30, 2019 and December 31, 2018, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.
 
The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of September 30, 2019 and December 31, 2018:
 
Recurring Basis
Fair Value Measurements
 
September 30, 2019
(dollars in thousands) 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 

 
 

 
 

 
 

U.S. government sponsored agencies
$
22,360

 
$
—

 
$
22,360

 
$
—

State, county and municipal securities
116,349

 
—

 
116,349

 
—

Corporate debt securities
52,918

 
—

 
51,418

 
1,500

Mortgage-backed securities
1,299,580

 
—

 
1,299,580

 
—

Loans held for sale
1,187,551

 
—

 
1,187,551

 
—

Mortgage banking derivative instruments
15,935

 
—

 
15,935

 
—

Total recurring assets at fair value
$
2,694,693

 
$
—

 
$
2,693,193

 
$
1,500

Financial liabilities:
 

 
 

 
 

 
 

Derivative financial instruments
$
237

 
$
—

 
$
237

 
$
—

Mortgage banking derivative instruments
1,195

 
—

 
1,195

 
—

Total recurring liabilities at fair value
$
1,432

 
$
—

 
$
1,432

 
$
—


43


 
Recurring Basis
Fair Value Measurements
 
December 31, 2018
(dollars in thousands)
Fair Value
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 

 
 

 
 

 
 

State, county and municipal securities
$
150,733

 
$
—

 
$
150,733

 
$
—

Corporate debt securities
67,314

 
—

 
65,814

 
1,500

Mortgage-backed securities
974,376

 
—

 
974,376

 
—

Loans held for sale
111,298

 
—

 
111,298

 
—

Derivative financial instruments
102

 
—

 
102

 
—

Mortgage banking derivative instruments
2,537

 
—

 
2,537

 
—

Total recurring assets at fair value
$
1,306,360

 
$
—

 
$
1,304,860

 
$
1,500

Financial liabilities:
 

 
 

 
 

 
 

Mortgage banking derivative instruments
$
1,276

 
$
—

 
$
1,276

 
$
—

Total recurring liabilities at fair value
$
1,276

 
$
—

 
$
1,276

 
$
—


 
The following table presents the fair value measurements of assets measured at fair value on a non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy as of September 30, 2019 and December 31, 2018:
 
Nonrecurring Basis
Fair Value Measurements
(dollars in thousands)
Fair Value
 
Level 1
 
Level 2
 
Level 3
September 30, 2019
 

 
 

 
 

 
 

Impaired loans carried at fair value
$
34,487

 
$
—

 
$
—

 
$
34,487

Other real estate owned
196

 
—

 
—

 
196

Purchased other real estate owned
15,784

 
—

 
—

 
15,784

Total nonrecurring assets at fair value
$
50,467

 
$
—

 
$
—

 
$
50,467

 
 
 
 
 
 
 
 
December 31, 2018
 

 
 

 
 

 
 

Impaired loans carried at fair value
$
28,653

 
$
—

 
$
—

 
$
28,653

Other real estate owned
408

 
—

 
—

 
408

Purchased other real estate owned
9,535

 
—

 
—

 
9,535

Total nonrecurring assets at fair value
$
38,596

 
$
—

 
$
—

 
$
38,596


 
The inputs used to determine estimated fair value of impaired loans include market conditions, loan terms, underlying collateral characteristics and discount rates. The inputs used to determine fair value of OREO include market conditions, estimated marketing period or holding period, underlying collateral characteristics and discount rates.
 
For the nine months ended September 30, 2019 and the year ended December 31, 2018, there was not a change in the methods and significant assumptions used to estimate fair value.
 

44


The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets:
(dollars in thousands)
 
Fair Value
 
Valuation
Technique
 
Unobservable Inputs
 
Range of
Discounts
 
Weighted
Average
Discount
September 30, 2019
 
 

 
 
 
 
 
 
 
 
Recurring:
 
 

 
 
 
 
 
 
 
 
Investment securities available for sale
 
$
1,500

 
Discounted par values
 
Credit quality of underlying issuer
 
0%
 
0%
Nonrecurring:
 
 

 
 
 
 
 
 
 
 
Impaired loans
 
$
28,653

 
Third-party appraisals and discounted cash flows
 
Collateral discounts and
discount rates
 
20% - 92%
 
28%
Other real estate owned
 
$
408

 
Third-party appraisals and sales contracts
 
Collateral discounts and estimated
costs to sell
 
15% - 42%
 
33%
Purchased other real estate owned
 
$
9,535

 
Third-party appraisals
 
Collateral discounts and estimated
costs to sell
 
8% - 91%
 
28%
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 

 
 
 
 
 
 
 
 
Recurring:
 
 

 
 
 
 
 
 
 
 
Investment securities available for sale
 
$
1,500

 
Discounted par values
 
Credit quality of underlying issuer
 
0%
 
0%
Nonrecurring:
 
 

 
 
 
 
 
 
 
 
Impaired loans
 
$
28,653

 
Third-party appraisals and discounted cash flows
 
Collateral discounts and
discount rates
 
3% - 53%
 
30%
Other real estate owned
 
$
408

 
Third-party appraisals and sales contracts
 
Collateral discounts and estimated
costs to sell
 
15% - 69%
 
31%
Purchased other real estate owned
 
$
9,535

 
Third-party appraisals
 
Collateral discounts and estimated
costs to sell
 
6% - 74%
 
39%

 

45


The carrying amount and estimated fair value of the Company’s financial instruments, not shown elsewhere in these financial statements, were as follows.
 
 
 
Fair Value Measurements
 
 
 
September 30, 2019
(dollars in thousands)
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 

 
 

 
 

 
 

 
 

Cash and due from banks
$
193,976

 
$
193,976

 
$
—

 
$
—

 
$
193,976

Federal funds sold and interest-bearing deposits in banks
285,713

 
285,713

 
—

 
—

 
285,713

Time deposits in other banks
499

 
—

 
499

 
—

 
499

Loans, net
12,756,267

 
—

 
—

 
12,759,699

 
12,759,699

Accrued interest receivable
50,077

 
—

 
6,012

 
44,065

 
50,077

Financial liabilities:
 

 
 

 
 

 
 

 
 

Deposits
$
13,659,594

 
$
—

 
$
13,658,398

 
$
—

 
$
13,658,398

Securities sold under agreements to repurchase
17,744

 
17,744

 
—

 
—

 
17,744

Other borrowings
1,351,172

 
—

 
1,352,726

 
—

 
1,352,726

Subordinated deferrable interest debentures
127,075

 
—

 
124,130

 
—

 
124,130

FDIC loss-share payable
19,490

 
—

 
—

 
19,489

 
19,489

Accrued interest payable
11,107

 
—

 
11,107

 
—

 
11,107

  
 
 
 
Fair Value Measurements
 
 
 
December 31, 2018
(dollars in thousands)
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 

 
 

 
 

 
 

 
 

Cash and due from banks
$
172,036

 
$
172,036

 
$
—

 
$
—

 
$
172,036

Federal funds sold and interest-bearing deposits in banks
507,491

 
507,491

 
—

 
—

 
507,491

Time deposits in other banks
10,812

 
—

 
10,812

 
—

 
10,812

Loans, net
8,454,442

 
—

 
—

 
8,365,293

 
8,365,293

Accrued interest receivable
36,970

 
—

 
5,456

 
31,514

 
36,970

Financial liabilities:
 

 
 

 
 

 
 

 
 

Deposits
$
9,649,313

 
$
—

 
$
9,645,617

 
$
—

 
$
9,645,617

Securities sold under agreements to repurchase
20,384

 
20,384

 
—

 
—

 
20,384

Other borrowings
151,774

 
—

 
152,873

 
—

 
152,873

Subordinated deferrable interest debentures
89,187

 
—

 
90,180

 
—

 
90,180

FDIC loss-share payable
19,487

 
—

 
—

 
19,576

 
19,576

Accrued interest payable
5,669

 
—

 
5,669

 
—

 
5,669


 
NOTE 13 – COMMITMENTS AND CONTINGENCIES
 
Loan Commitments

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the Company’s balance sheets.
 
The Company’s exposure to credit loss is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. 

A summary of the Company’s commitments is as follows:     
(dollars in thousands)
September 30,
2019
 
December 31,
2018
Commitments to extend credit
$
2,403,565

 
$
1,671,419

Unused home equity lines of credit
267,503

 
112,310

Financial standby letters of credit
30,308

 
24,596

Mortgage interest rate lock commitments
603,518

 
81,833


 

46


Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. These commitments, predominantly at variable interest rates, generally have fixed expiration dates of one year or less or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.
 
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral is required in instances which the Company deems necessary.
 
Other Commitments
 
As of September 30, 2019, $82.4 million in letters of credit issued by the FHLB was used to guarantee the Bank’s performance related to public fund deposit balances.

Contingencies
 
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
 
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
 
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
  
NOTE 14 – SEGMENT REPORTING
 
The Company has the following five reportable segments: Banking Division, Retail Mortgage Division, Warehouse Lending Division, SBA Division and Premium Finance Division. The Banking Division derives its revenues from the delivery of full-service financial services, including commercial loans, consumer loans and deposit accounts. The Retail Mortgage Division derives its revenues from the origination, sales and servicing of one-to-four family residential mortgage loans. The Warehouse Lending Division derives its revenues from the origination and servicing of warehouse lines to other businesses that are secured by underlying one-to-four family residential mortgage loans. The SBA Division derives its revenues from the origination, sales and servicing of SBA loans. The Premium Finance Division derives its revenues from the origination and servicing of commercial insurance premium finance loans.
 
The Banking, Retail Mortgage, Warehouse Lending, SBA and Premium Finance Divisions are managed as separate business units because of the different products and services they provide. The Company evaluates performance and allocates resources based on profit or loss from operations. There are no material intersegment sales or transfers.


47


The following tables present selected financial information with respect to the Company’s reportable business segments for the three and nine months ended September 30, 2019 and 2018:
 
Three Months Ended
September 30, 2019
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
 Finance
 Division
 
Total
Interest income
$
141,630

 
$
27,141

 
$
5,786

 
$
4,366

 
$
9,438

 
$
188,361

Interest expense
17,368

 
14,132

 
2,617

 
1,793

 
3,682

 
39,592

Net interest income
124,262

 
13,009

 
3,169

 
2,573

 
5,756

 
148,769

Provision for loan losses
3,549

 
1,490

 
—

 
(15
)
 
965

 
5,989

Noninterest income
21,173

 
52,493

 
560

 
2,766

 
1

 
76,993

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
39,794

 
34,144

 
286

 
1,985

 
1,424

 
77,633

Equipment and occupancy expenses
10,750

 
1,686

 
2

 
66

 
135

 
12,639

Data processing and telecommunications expenses
9,551

 
660

 
41

 
22

 
98

 
10,372

Other expenses
87,059

 
3,484

 
27

 
503

 
980

 
92,053

Total noninterest expense
147,154

 
39,974

 
356

 
2,576

 
2,637

 
192,697

Income before income tax expense
(5,268
)
 
24,038

 
3,373

 
2,778

 
2,155

 
27,076

Income tax expense
(1,269
)
 
5,048

 
708

 
584

 
621

 
5,692

Net income
$
(3,999
)
 
$
18,990

 
$
2,665

 
$
2,194

 
$
1,534

 
$
21,384

 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
13,031,554

 
$
3,156,895

 
$
564,297

 
$
262,719

 
$
748,812

 
$
17,764,277

Goodwill
846,990

 
—

 
—

 
—

 
64,498

 
911,488

Other intangible assets, net
78,728

 
—

 
—

 
—

 
18,600

 
97,328

 
Three Months Ended
September 30, 2018
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
 Finance
 Division
 
Total
Interest income
$
97,282

 
$
9,347

 
$
4,035

 
$
2,090

 
$
8,365

 
$
121,119

Interest expense
13,241

 
3,803

 
1,566

 
631

 
2,840

 
22,081

Net interest income
84,041

 
5,544

 
2,469

 
1,459

 
5,525

 
99,038

Provision for loan losses
1,229

 
122

 
—

 
41

 
703

 
2,095

Noninterest income
16,524

 
12,097

 
503

 
1,045

 
2

 
30,171

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
26,120

 
10,061

 
136

 
650

 
1,447

 
38,414

Equipment and occupancy expenses
7,871

 
618

 
2

 
58

 
49

 
8,598

Data processing and telecommunications expenses
7,589

 
347

 
30

 
1

 
551

 
8,518

Other expenses
13,461

 
1,828

 
69

 
242

 
1,223

 
16,823

Total noninterest expense
55,041

 
12,854

 
237

 
951

 
3,270

 
72,353

Income before income tax expense
44,295

 
4,665

 
2,735

 
1,512

 
1,554

 
54,761

Income tax expense
11,156

 
943

 
574

 
317

 
327

 
13,317

Net income
$
33,139

 
$
3,722

 
$
2,161

 
$
1,195

 
$
1,227

 
$
41,444

 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
9,616,931

 
$
789,402

 
$
297,979

 
$
134,172

 
$
590,510

 
$
11,428,994

Goodwill
440,147

 
—

 
—

 
—

 
65,457

 
505,604

Other intangible assets, net
33,125

 
—

 
—

 
—

 
21,604

 
54,729



48


 
 
Nine Months Ended
September 30, 2019
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
 Finance
 Division
 
Total
Interest income
$
338,396

 
$
53,286

 
$
16,140

 
$
8,827

 
$
25,669

 
$
442,318

Interest expense
44,340

 
26,957

 
7,294

 
3,986

 
9,926

 
92,503

Net interest income
294,056

 
26,329

 
8,846

 
4,841

 
15,743

 
349,815

Provision for loan losses
7,913

 
2,235

 
—

 
394

 
3,523

 
14,065

Noninterest income
50,373

 
84,853

 
1,389

 
6,379

 
6

 
143,000

Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
91,954

 
54,237

 
609

 
3,447

 
4,049

 
154,296

Equipment and occupancy expenses
25,065

 
3,122

 
4

 
190

 
296

 
28,677

Data processing and telecommunications expenses
24,778

 
1,384

 
109

 
27

 
853

 
27,151

Other expenses
126,743

 
7,983

 
170

 
1,249

 
3,104

 
139,249

Total noninterest expense
268,540

 
66,726

 
892

 
4,913

 
8,302

 
349,373

Income before income tax expense
67,976

 
42,221

 
9,343

 
5,913

 
3,924

 
129,377

Income tax expense
16,197

 
8,831

 
1,962

 
1,242

 
952

 
29,184

Net income
$
51,779

 
$
33,390

 
$
7,381

 
$
4,671

 
$
2,972

 
$
100,193

 
Nine Months Ended
September 30, 2018
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
 Finance
 Division
 
Total
Interest income
$
226,576

 
$
24,142

 
$
10,428

 
$
5,428

 
$
24,003

 
$
290,577

Interest expense
25,417

 
8,555

 
3,778

 
1,725

 
7,264

 
46,739

Net interest income
201,159

 
15,587

 
6,650

 
3,703

 
16,739

 
243,838

Provision for loan losses
2,883

 
585

 
—

 
1,025

 
8,513

 
13,006

Noninterest income
42,910

 
37,571

 
1,635

 
3,764

 
2,062

 
87,942

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
74,834

 
28,667

 
402

 
2,010

 
4,250

 
110,163

Equipment and occupancy expenses
19,032

 
1,756

 
2

 
171

 
225

 
21,186

Data processing and telecommunications expenses
19,504

 
1,119

 
93

 
19

 
1,357

 
22,092

Other expenses
54,478

 
5,337

 
176

 
884

 
3,521

 
64,396

Total noninterest expense
167,848

 
36,879

 
673

 
3,084

 
9,353

 
217,837

Income before income tax expense
73,338

 
15,694

 
7,612

 
3,358

 
935

 
100,937

Income tax expense (benefit)
18,114

 
3,262

 
1,598

 
705

 
(233
)
 
23,446

Net income
$
55,224

 
$
12,432

 
$
6,014

 
$
2,653

 
$
1,168

 
$
77,491




49


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Cautionary Note Regarding 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, the following: general competitive, economic, political and market conditions and fluctuations, including movements in interest rates; competitive pressures on product pricing and services; legislative and regulatory initiatives; additional competition in our markets; changes in state and federal banking laws and regulations to which we are subject; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; potential business strategies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by us; the successful integration of acquired businesses on a timely basis; the timely realization of expected cost savings and any revenue synergies from acquisition transactions; 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 September 30, 2019, as compared with December 31, 2018, and operating results for the three- and nine-month periods ended September 30, 2019 and 2018. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

This discussion contains certain performance measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Management of the Company uses these non-GAAP measures in its analysis of the Company’s performance. These measures are useful when evaluating the underlying performance and efficiency of the Company’s operations and balance sheet. The Company’s management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results with prior periods and demonstrate the effects of significant gains and charges in the current period. The Company’s management believes that investors may use these non-GAAP financial measures to evaluate the Company’s financial performance without the impact of unusual items that may obscure trends in the Company’s underlying performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Non-GAAP measures include tangible common equity, tangible book value per common share, adjusted net income, and adjusted net income per diluted share. The Company calculates the regulatory capital ratios using current regulatory report instructions. The Company’s management uses these measures to assess the quality of capital and believes that investors may find them useful in their evaluation of the Company. These capital measures may or may not be necessarily comparable to similar capital measures that may be presented by other companies.



50


The following table sets forth unaudited selected financial data for the most recent five quarters and for the nine months ended September 30, 2019 and 2018. This data should be read in conjunction with the unaudited consolidated financial statements and the notes thereto and the information contained in this Item 2.
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30,
(in thousands, except share and per share data)
Third
Quarter
2019
 
Second
Quarter
2019
 
First
Quarter
2019
 
Fourth
Quarter
2018
 
Third
Quarter
2018
 
2019
 
2018
Results of Operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
148,769

 
$
101,651

 
$
99,395

 
$
99,554

 
$
99,038

 
$
349,815

 
$
243,838

Net interest income (tax equivalent)
149,896

 
102,714

 
100,453

 
100,633

 
100,117

 
353,062

 
246,847

Provision for loan losses
5,989

 
4,668

 
3,408

 
3,661

 
2,095

 
14,065

 
13,006

Noninterest income
76,993

 
35,236

 
30,771

 
30,470

 
30,171

 
143,000

 
87,942

Noninterest expense
192,697

 
81,251

 
75,425

 
75,810

 
72,353

 
349,373

 
217,837

Income tax expense
5,692

 
12,064

 
11,428

 
7,017

 
13,317

 
29,184

 
23,446

Net income available to common shareholders
21,384

 
38,904

 
39,905

 
43,536

 
41,444

 
100,193

 
77,491

Selected Average Balances:
 

 
 

 
 

 
 

 
 

 
 

 
 

Investment securities
$
1,592,005

 
$
1,264,415

 
$
1,225,564

 
$
1,187,437

 
$
1,185,225

 
$
1,362,004

 
$
986,065

Loans held for sale
856,572

 
154,707

 
101,521

 
129,664

 
151,396

 
373,699

 
143,848

Loans
7,514,821

 
6,370,860

 
5,867,037

 
5,819,684

 
5,703,921

 
6,587,916

 
5,277,108

Purchased loans
4,927,839

 
2,123,754

 
2,359,280

 
2,402,610

 
2,499,393

 
3,148,726

 
1,483,029

Purchased loan pools
234,403

 
245,947

 
257,661

 
268,568

 
287,859

 
245,918

 
307,718

Earning assets
15,478,774

 
10,547,095

 
10,319,954

 
10,220,747

 
10,138,029

 
12,134,171

 
8,403,042

Assets
17,340,387

 
11,625,344

 
11,423,677

 
11,307,980

 
11,204,504

 
13,483,044

 
9,217,174

Deposits
13,520,926

 
9,739,892

 
9,577,574

 
9,452,944

 
8,962,170

 
10,960,575

 
7,327,179

Shareholders’ equity
2,432,182

 
1,519,598

 
1,478,462

 
1,428,341

 
1,395,479

 
1,813,575

 
1,094,233

Period-End Balances:
 

 
 

 
 

 
 

 
 

 
 

 
 

Investment securities
$
1,558,128

 
$
1,305,725

 
$
1,249,592

 
$
1,206,878

 
$
1,198,499

 
$
1,558,128

 
$
1,198,499

Loans held for sale
1,187,551

 
261,073

 
112,070

 
111,298

 
130,179

 
1,187,551

 
130,179

Loans
7,208,816

 
6,522,448

 
5,756,358

 
5,660,457

 
5,543,306

 
7,208,816

 
5,543,306

Purchased loans
5,388,336

 
2,286,425

 
2,472,271

 
2,588,832

 
2,711,460

 
5,388,336

 
2,711,460

Purchased loan pools
229,132

 
240,997

 
253,710

 
262,625

 
274,752

 
229,132

 
274,752

Earning assets
15,858,175

 
10,804,385

 
10,563,571

 
10,348,393

 
10,340,558

 
15,858,175

 
10,340,558

Total assets
17,764,277

 
11,889,336

 
11,656,275

 
11,443,515

 
11,428,994

 
17,764,277

 
11,428,994

Deposits
13,659,594

 
9,582,370

 
9,800,875

 
9,649,313

 
9,181,363

 
13,659,594

 
9,181,363

Shareholders’ equity
2,420,723

 
1,537,121

 
1,495,584

 
1,456,347

 
1,404,977

 
2,420,723

 
1,404,977

Per Common Share Data:
 

 
 

 
 

 
 

 
 

 
 

 
 

Earnings per share - basic
$
0.31

 
$
0.82

 
$
0.84

 
$
0.92

 
$
0.87

 
$
1.83

 
$
1.86

Earnings per share - diluted
$
0.31

 
$
0.82

 
$
0.84

 
$
0.91

 
$
0.87

 
$
1.83

 
$
1.85

Book value per common share
$
34.78

 
$
32.52

 
$
31.43

 
$
30.66

 
$
29.58

 
$
34.78

 
$
29.58

Tangible book value per common share
$
20.29

 
$
20.81

 
$
19.73

 
$
18.83

 
$
17.78

 
$
20.29

 
$
17.78

End of period shares outstanding
69,593,833

 
47,261,584

 
47,585,309

 
47,499,941

 
47,496,966

 
69,593,833

 
47,496,966

 

51


 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30,
(in thousands, except share and per share data)
Third
Quarter
2019
 
Second
Quarter
2019
 
First
Quarter
2019
 
Fourth
Quarter
2018
 
Third
Quarter
2018
 
2019
 
2018
Weighted Average Shares Outstanding:
 

 
 

 
 

 
 

 
 

 
 

 
 

Basic
69,372,125

 
47,310,561

 
47,366,296

 
47,501,150

 
47,514,653

 
54,762,216

 
41,672,792

Diluted
69,600,499

 
47,337,809

 
47,456,314

 
47,593,252

 
47,685,334

 
54,883,122

 
41,844,900

Market Price:
 

 
 

 
 

 
 

 
 

 
 

 
 

High intraday price
$
40.65

 
$
39.60

 
$
42.01

 
$
47.25

 
$
54.35

 
$
42.01

 
$
59.05

Low intraday price
$
33.71

 
$
33.57

 
$
31.27

 
$
29.97

 
$
45.15

 
$
31.27

 
$
45.15

Closing price for quarter
$
40.24

 
$
39.19

 
$
34.35

 
$
31.67

 
$
45.70

 
$
40.24

 
$
45.70

Average daily trading volume
461,289

 
352,684

 
387,800

 
375,773

 
382,622

 
401,050

 
291,061

Cash dividends declared per share
$
0.15

 
$
0.10

 
$
0.10

 
$
0.10

 
$
0.10

 
$
0.35

 
$
0.30

Closing price to book value
1.16

 
1.21

 
1.09

 
1.03

 
1.54

 
1.16

 
1.54

Performance Ratios:
 

 
 

 
 

 
 

 
 

 
 

 
 

Return on average assets
0.49
%
 
1.34
%
 
1.42
%
 
1.53
%
 
1.47
%
 
0.99
%
 
1.12
%
Return on average common equity
3.49
%
 
10.27
%
 
10.95
%
 
12.09
%
 
11.78
%
 
7.39
%
 
9.47
%
Average loans to average deposits
100.09
%
 
91.33
%
 
89.64
%
 
91.19
%
 
96.43
%
 
94.49
%
 
98.42
%
Average equity to average assets
14.03
%
 
13.07
%
 
12.94
%
 
12.63
%
 
12.45
%
 
13.45
%
 
11.87
%
Net interest margin (tax equivalent)
3.84
%
 
3.91
%
 
3.95
%
 
3.91
%
 
3.92
%
 
3.89
%
 
3.93
%
Efficiency ratio
85.35
%
 
59.36
%
 
57.95
%
 
58.30
%
 
56.00
%
 
70.89
%
 
65.66
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Measures Reconciliation -
 

 
 

 
 

 
 

 
 

 
 

 
 

Tangible book value per common share:
 

 
 

 
 

 
 

 
 

 
 

 
 

Total shareholders’ equity
$
2,420,723

 
$
1,537,121

 
$
1,495,584

 
$
1,456,347

 
$
1,404,977

 
$
2,420,723

 
$
1,404,977

Less:
 

 
 

 
 

 
 

 
 

 
 

 
 

Goodwill
911,488

 
501,140

 
501,308

 
503,434

 
505,604

 
911,488

 
505,604

Other intangible assets, net
97,328

 
52,437

 
55,557

 
58,689

 
54,729

 
97,328

 
54,729

Tangible common equity
$
1,411,907

 
$
983,544

 
$
938,719

 
$
894,224

 
$
844,644

 
$
1,411,907

 
$
844,644

End of period shares outstanding
69,593,833

 
47,261,584

 
47,585,309

 
47,499,941

 
47,496,966

 
69,593,833

 
47,496,966

Book value per common share
$
34.78

 
$
32.52

 
$
31.43

 
$
30.66

 
$
29.58

 
$
34.78

 
$
29.58

Tangible book value per common share
20.29

 
20.81

 
19.73

 
18.83

 
17.78

 
20.29

 
17.78



52


Acquisitions Completed in 2018 and 2019

Since January 1, 2018, the Company completed four acquisitions: US Premium Finance Holding Company, Atlantic Coast Financial Corporation, Hamilton State Bancshares, Inc. and Fidelity Southern Corporation.

In accounting for business combinations, the Company uses the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method of accounting, assets acquired, liabilities assumed and consideration exchanged are recorded at their respective acquisition date fair values. Any identifiable intangible assets that are acquired in a business combination are recognized at fair value on the acquisition date. Identifiable intangible assets are recognized separately if they arise from contractual or other legal rights or if they are separable (i.e., capable of being sold, transferred, licensed, rented or exchanged separately from the entity). If the consideration given exceeds the fair value of the net assets received, goodwill is recognized. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.

Under the acquisition method, income and expenses of the acquiree are recognized prospectively beginning from the date of acquisition.

US Premium Finance Holding Company

On January 31, 2018, the Company closed on the purchase of the final 70% of the outstanding shares of common stock of USPF, completing its acquisition of USPF and making USPF a wholly owned subsidiary of the Company. Through a series of three acquisition transactions that closed on January 18, 2017, January 3, 2018 and January 31, 2018, the Company issued a total of 1,073,158 shares of its common stock at a fair value of $55.9 million and paid $21.4 million in cash to the shareholders of USPF. Pursuant to the terms of the Stock Purchase Agreement dated January 25, 2018 under which Company purchased the final 70% of the outstanding shares of common stock of USPF, the selling shareholders of USPF could receive additional cash payments aggregating up to $5.8 million based on the achievement by the Company's premium finance division of certain income targets, between January 1, 2018 and June 30, 2019. The total contingent consideration paid was $1.2 million based on results achieved through the applicable measurement dates. As of the January 31, 2018 acquisition date, the present value of the contingent earn-out consideration expected to be paid was $5.7 million. Including the fair value of the Company's common stock issued, cash paid and the present value of the contingent earn-out consideration expected to be paid, the aggregate purchase price of USPF amounted to $83.0 million. For additional information regarding the USPF acquisition, see Note 2.

Atlantic Coast Financial Corporation

On May 25, 2018, the Company completed its acquisition of Atlantic. Upon consummation of the acquisition, Atlantic was merged with and into the Company, with Ameris as the surviving entity in the merger, and Atlantic's wholly owned banking subsidiary, Atlantic Coast Bank, was merged with and into the Bank, with the Bank surviving. The acquisition expanded the Company's existing market presence, as Atlantic Coast Bank had a total of 12 full-service branches located in Jacksonville and Jacksonville Beach, Duval County, Florida, Waycross, Georgia and Douglas, Georgia, at the time of closing. Under the terms of the merger agreement, Atlantic's shareholders received 0.17 shares of Ameris common stock and $1.39 in cash for each share of Atlantic common stock they previously held. As a result, the Company issued 2,631,520 shares of its common stock at a fair value of $147.8 million and paid $21.5 million in cash to Atlantic's shareholders as merger consideration.

In accounting for the Atlantic acquisition, the Company recorded assets (exclusive of goodwill) of $875.0 million, loans held for investment of $755.7 million, deposits of $585.2 million, and other borrowings of $204.5 million. For additional information regarding the Atlantic acquisition, see Note 2.

Hamilton State Bancshares, Inc.

On June 29, 2018, the Company completed its acquisition of Hamilton. Upon consummation of the acquisition, Hamilton was merged with and into the Company, with Ameris as the surviving entity in the merger, and Hamilton's wholly owned banking subsidiary, Hamilton State Bank, was merged with and into the Bank, with the Bank surviving. The acquisition expanded the Company's existing market presence, as Hamilton State Bank had a total of 28 full-service branches located in Atlanta, Georgia and the surrounding area as well as in Gainesville, Georgia, at the time of closing. Under the terms of the merger agreement, Hamilton's shareholders received 0.16 shares of Ameris common stock and $0.93 in cash for each share of Hamilton voting common stock or nonvoting common stock they previously held. As a result, the Company issued 6,548,385 shares of its common stock at a fair value of $349.4 million and paid $47.8 million in cash to Hamilton's shareholders as merger consideration.

53



In accounting for the Hamilton acquisition, the Company recorded assets (exclusive of goodwill) of $1.79 billion, investment securities of $285.8 million, loans held for investment of $1.29 billion, and deposits of $1.59 billion. For additional information regarding the Hamilton acquisition, see Note 2.

Fidelity Southern Corporation

On July 1, 2019, the Company completed its acquisition of Fidelity. Upon consummation of the acquisition, Fidelity was merged with and into the Company, with Ameris as the surviving entity in the merger, and Fidelity's wholly owned banking subsidiary, Fidelity Bank, was merged with and into the Bank, with the Bank surviving. The acquisition expanded the Company's existing market presence, as Fidelity Bank had a total of 62 full-service branches at the time of closing, 46 of which were located in Georgia and 16 of which were located in Florida, providing financial products and services to customers primarily in the metropolitan markets of Atlanta, Georgia, and Jacksonville, Orlando, Tallahassee, and Sarasota-Bradenton, Florida. Under the terms of the merger agreement, Fidelity's shareholders received 0.80 shares of Ameris common stock, par value $1.00 per share, for each share of Fidelity common stock they held. As a result, the Company issued 22,181,522 shares of its common stock at a fair value of $869.3 million to Fidelity's shareholders as merger consideration.

In accounting for the Fidelity acquisition, the Company recorded assets (exclusive of goodwill) of $4.78 billion, investment securities of $297.9 million, loans held for investment of $3.51 billion, and deposits of $4.04 billion. For additional information regarding the Fidelity acquisition, see Note 2.





54


Results of Operations for the Three Months Ended September 30, 2019 and 2018
 
Consolidated Earnings and Profitability
 
Ameris reported net income available to common shareholders of $21.4 million, or $0.31 per diluted share, for the quarter ended September 30, 2019, compared with $41.4 million, or $0.87 per diluted share, for the same period in 2018. The Company’s return on average assets and average shareholders’ equity were 0.49% and 3.49%, respectively, in the third quarter of 2019, compared with 1.47% and 11.78%, respectively, in the third quarter of 2018. During the third quarter of 2019, the Company incurred pre-tax merger and conversion charges of $65.2 million, pre-tax servicing right recovery of $1.3 million, pre-tax gain on bank owned life insurance ("BOLI") proceeds of $4.3 million, and pre-tax losses on the sale of premises of $889,000. During the third quarter of 2018, the Company incurred pre-tax merger and conversion charges of $276,000, pre-tax executive retirement benefits of $1.0 million, pre-tax restructuring charges related to branch consolidations of $229,000, and pre-tax losses on the sale of premises of $4,000. Excluding these merger and conversion charges, executive retirement benefits, restructuring charges, servicing right recovery, gain on BOLI proceeds and losses on the sale of premises, the Company’s net income would have been $68.5 million, or $0.98 per diluted share, for the third quarter of 2019 and $43.3 million, or $0.91 per diluted share, for the third quarter of 2018.
 
Below is a reconciliation of adjusted net income to net income, as discussed above.
 
Three Months Ended September 30,
(in thousands, except share and per share data)
2019
 
2018
Net income available to common shareholders
$
21,384

 
$
41,444

Adjustment items:
 

 
 

Merger and conversion charges
65,158

 
276

Executive retirement benefits
—

 
962

Restructuring charge
—

 
229

Servicing right recovery
(1,319
)
 
—

Gain on BOLI proceeds
(4,335
)
 
—

Loss on the sale of premises
889

 
4

Tax effect of adjustment items (Note 1)
(13,238
)
 
377

After tax adjustment items
47,155

 
1,848

Adjusted net income
$
68,539

 
$
43,292

 
 
 
 
Weighted average common shares outstanding - diluted
69,600,499

 
47,685,334

Net income per diluted share
$
0.31

 
$
0.87

Adjusted net income per diluted share
$
0.98

 
$
0.91

 
 
 
 
Note: A portion of the merger and conversion charges for both periods and the third quarter 2018 executive retirement benefits are nondeductible for tax purposes. Gain on BOLI proceeds is nontaxbable.
 

55


Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities, SBA activities and premium finance activities of the Company during the third quarter of 2019 and 2018, respectively:
 
Three Months Ended
September 30, 2019
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
 Finance
 Division
 
Total
Interest income
$
141,630

 
$
27,141

 
$
5,786

 
$
4,366

 
$
9,438

 
$
188,361

Interest expense
17,368

 
14,132

 
2,617

 
1,793

 
3,682

 
39,592

Net interest income
124,262

 
13,009

 
3,169

 
2,573

 
5,756

 
148,769

Provision for loan losses
3,549

 
1,490

 
—

 
(15
)
 
965

 
5,989

Noninterest income
21,173

 
52,493

 
560

 
2,766

 
1

 
76,993

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
39,794

 
34,144

 
286

 
1,985

 
1,424

 
77,633

Equipment and occupancy expenses
10,750

 
1,686

 
2

 
66

 
135

 
12,639

Data processing and telecommunications expenses
9,551

 
660

 
41

 
22

 
98

 
10,372

Other expenses
87,059

 
3,484

 
27

 
503

 
980

 
92,053

Total noninterest expense
147,154

 
39,974

 
356

 
2,576

 
2,637

 
192,697

Income before income tax expense
(5,268
)
 
24,038

 
3,373

 
2,778

 
2,155

 
27,076

Income tax expense
(1,269
)
 
5,048

 
708

 
584

 
621

 
5,692

Net income
$
(3,999
)
 
$
18,990

 
$
2,665

 
$
2,194

 
$
1,534

 
$
21,384

 
Three Months Ended
September 30, 2018
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
Finance
Division
 
Total
Interest income
$
97,282

 
$
9,347

 
$
4,035

 
$
2,090

 
$
8,365

 
$
121,119

Interest expense
13,241

 
3,803

 
1,566

 
631

 
2,840

 
22,081

Net interest income
84,041

 
5,544

 
2,469

 
1,459

 
5,525

 
99,038

Provision for loan losses
1,229

 
122

 
—

 
41

 
703

 
2,095

Noninterest income
16,524

 
12,097

 
503

 
1,045

 
2

 
30,171

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
26,120

 
10,061

 
136

 
650

 
1,447

 
38,414

Equipment and occupancy expenses
7,871

 
618

 
2

 
58

 
49

 
8,598

Data processing and telecommunications expenses
7,589

 
347

 
30

 
1

 
551

 
8,518

Other expenses
13,461

 
1,828

 
69

 
242

 
1,223

 
16,823

Total noninterest expense
55,041

 
12,854

 
237

 
951

 
3,270

 
72,353

Income before income tax expense
44,295

 
4,665

 
2,735

 
1,512

 
1,554

 
54,761

Income tax expense
11,156

 
943

 
574

 
317

 
327

 
13,317

Net income
$
33,139

 
$
3,722

 
$
2,161

 
$
1,195

 
$
1,227

 
$
41,444

 

56


Net Interest Income and Margins
 
The following table sets forth the average balance, interest income or interest expense, and average yield/rate paid for each category of interest-earning assets and interest-bearing liabilities, net interest spread, and net interest margin on average interest-earning assets for the three months ended September 30, 2019 and 2018. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate.
 
Quarter Ended
September 30,
 
2019
 
2018
(dollars in thousands)
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate Paid
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate Paid
Assets
 

 
 

 
 
 
 

 
 

 
 
Interest-earning assets:
 

 
 

 
 
 
 

 
 

 
 
Federal funds sold, interest-bearing deposits in banks, and time deposits in other banks
$
353,134

 
$
1,793

 
2.01%
 
$
310,235

 
$
1,653

 
2.11%
Investment securities
1,592,005

 
11,567

 
2.88%
 
1,185,225

 
9,050

 
3.03%
Loans held for sale
856,572

 
7,889

 
3.65%
 
151,396

 
1,566

 
4.10%
Loans
7,514,821

 
108,839

 
5.75%
 
5,703,921

 
73,178

 
5.09%
Purchased loans
4,927,839

 
57,661

 
4.64%
 
2,499,393

 
34,692

 
5.51%
Purchased loan pools
234,403

 
1,739

 
2.94%
 
287,859

 
2,059

 
2.84%
Total interest-earning assets
15,478,774

 
189,488

 
4.86%
 
10,138,029

 
122,198

 
4.78%
Noninterest-earning assets
1,861,613

 
 

 
 
 
1,066,475

 
 

 
 
Total assets
$
17,340,387

 
 

 
 
 
$
11,204,504

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 

 
 
 
 

 
 

 
 
Interest-bearing liabilities:
 

 
 

 
 
 
 

 
 

 
 
Savings and interest-bearing demand deposits
$
6,525,915

 
$
15,710

 
0.96%
 
$
4,430,646

 
$
7,109

 
0.64%
Time deposits
2,954,419

 
13,715

 
1.84%
 
2,210,673

 
8,521

 
1.53%
Federal funds purchased and securities sold under agreements to repurchase
19,914

 
32

 
0.64%
 
12,529

 
4

 
0.13%
FHLB advances
810,384

 
4,618

 
2.26%
 
513,460

 
2,745

 
2.12%
Other borrowings
220,918

 
3,332

 
5.98%
 
145,513

 
2,180

 
5.94%
Subordinated deferrable interest debentures
133,519

 
2,185

 
6.49%
 
88,801

 
1,522

 
6.80%
Total interest-bearing liabilities
10,665,069

 
39,592

 
1.47%
 
7,401,622

 
22,081

 
1.18%
Demand deposits
4,040,592

 
 

 
 
 
2,320,851

 
 

 
 
Other liabilities
202,544

 
 

 
 
 
86,552

 
 

 
 
Shareholders’ equity
2,432,182

 
 

 
 
 
1,395,479

 
 

 
 
Total liabilities and shareholders’ equity
$
17,340,387

 
 

 
 
 
$
11,204,504

 
 

 
 
Interest rate spread
 

 
 

 
3.39%
 
 

 
 

 
3.60%
Net interest income
 

 
$
149,896

 
 
 
 

 
$
100,117

 
 
Net interest margin
 

 
 

 
3.84%
 
 

 
 

 
3.92%
 
On a tax-equivalent basis, net interest income for the third quarter of 2019 was $149.9 million, an increase of $49.8 million, or 49.7%, compared with $100.1 million reported in the same quarter in 2018. The higher net interest income is a result of growth in average interest earning assets which increased $5.34 billion, or 52.7%, from $10.14 billion in the third quarter of 2018 to $15.48 billion for the third quarter of 2019. This growth in interest earning assets resulted primarily from the Fidelity acquisition occurring in the third quarter of 2019, as well as strong growth in average legacy loans which increased $1.81 billion, or 31.7%, to $7.51 billion in the third quarter 2019 from $5.70 billion in the same period of 2018. The Company’s net interest margin during the third quarter of 2019 was 3.84%, down eight basis points from 3.92% reported in the third quarter of 2018.
 
Total interest income, on a tax-equivalent basis, increased to $189.5 million during the third quarter of 2019, compared with $122.2 million in the same quarter of 2018.  Yields on earning assets increased to 4.86% during the third quarter of 2019, compared with 4.78% reported in the third quarter of 2018. During the third quarter of 2019, loans comprised 87.4% of average earning assets, compared with 85.2% in the same quarter of 2018. Yields on legacy loans increased to 5.75% in the third quarter of 2019, compared with 5.09% in the same period of 2018. The yield on purchased loans decreased from 5.51% in the third quarter of 2018 to 4.64% during the third quarter of 2019. Accretion income for the third quarter of 2019 was $4.2 million, compared with $3.7 million in the third quarter of 2018. Yields on purchased loan pools increased from 2.84% in the third quarter of 2018 to 2.94% in the same period in 2019.


57


The yield on total interest-bearing liabilities increased from 1.18% in the third quarter of 2018 to 1.47% in the third quarter of 2019. Total funding costs, inclusive of noninterest-bearing demand deposits, increased to 1.07% in the third quarter of 2019, compared with 0.90% during the third quarter of 2018. Deposit costs increased from 0.69% in the third quarter of 2018 to 0.86% in the third quarter of 2019. Non-deposit funding costs increased slightly from 3.37% in the third quarter of 2018 to 3.40% in the third quarter of 2019. Average balances of interest bearing deposits and their respective costs for the third quarter of 2019 and 2018 are shown below:
 
Three Months Ended
September 30, 2019
 
Three Months Ended
September 30, 2018
(dollars in thousands)
Average
Balance
 
Average
Cost
 
Average
Balance
 
Average
Cost
NOW
$
2,049,175

 
0.55%
 
$
1,567,111

 
0.29%
MMDA
3,815,185

 
1.31%
 
2,440,086

 
0.96%
Savings
661,555

 
0.16%
 
423,449

 
0.08%
Retail CDs
2,804,243

 
1.83%
 
1,722,987

 
1.26%
Brokered CDs
150,176

 
2.14%
 
487,686

 
2.48%
Interest-bearing deposits
$
9,480,334

 
1.23%
 
$
6,641,319

 
0.93%
 
Provision for Loan Losses
 
The Company’s provision for loan losses during the third quarter of 2019 amounted to $6.0 million, compared with $2.1 million in the third quarter of 2018. At September 30, 2019, classified loans still accruing decreased to $78.3 million, compared with $81.9 million at December 31, 2018. Non-performing assets as a percentage of total assets increased from 0.55% at December 31, 2018 to 0.73% at September 30, 2019. The increase in non-performing assets is primarily attributable to assets acquired in the Fidelity acquisition. Net charge-offs on legacy loans during the third quarter of 2019 were approximately $1.6 million, or 0.09% of average legacy loans on an annualized basis, compared with approximately $6.3 million, or 0.44%, in the third quarter of 2018. The decrease in net charge-offs on legacy loans during the third quarter of 2019 was primarily attributable to a decrease in charge-offs on commercial, financial, and agricultural loans. The Company’s allowance for loan losses allocated to legacy loans at September 30, 2019 was $33.2 million, or 0.46% of legacy loans, compared with $26.2 million, or 0.46% of legacy loans, at December 31, 2018. The Company’s total allowance for loan losses at September 30, 2019 was $35.5 million, or 0.28% of total loans, compared with $28.8 million, or 0.34% of total loans, at December 31, 2018.
 
Noninterest Income
 
Total noninterest income for the third quarter of 2019 was $77.0 million, an increase of $46.8 million, or 155.2%, from the $30.2 million reported in the third quarter of 2018.  Service charges on deposit accounts increased $721,000, or 5.7%, to $13.4 million in the third quarter of 2019, compared with $12.7 million in the third quarter of 2018. This increase in service charges on deposit accounts is due primarily to an increase in the number of deposit accounts resulting from the Fidelity acquisition in the third quarter of 2019 and organic growth. The Fidelity acquisition added $3.6 million in service charge revenue, which was offset by a decline of approximately $2.8 million in revenue as a result of the Durbin Amendment. Income from mortgage-related activities was $53.0 million in the third quarter of 2019, an increase of $39.0 million, or 276.7%, from $14.1 million in the third quarter of 2018. Total production in the third quarter of 2019 amounted to $1.8 billion, compared with $479.1 million in the same quarter of 2018, while spread (gain on sale) decreased to 2.67% in the current quarter, compared with 3.00% in the same quarter of 2018. The retail mortgage open pipeline finished the third quarter of 2019 at $784.2 million, compared with $287.4 million at June 30, 2019 and $162.4 million at the end of the third quarter of 2018. Other service charges, commissions and fees increased $446,000, or 56.5%, to $1.2 million during the third quarter of 2019, compared with $790,000 during the third quarter of 2018, due primarily to increased ATM fees. Other noninterest income increased $6.7 million, or 263.2%, to $9.3 million for the third quarter of 2019, compared with $2.6 million during the third quarter of 2018. The increase in other noninterest income was primarily attributable to a $4.3 million gain on BOLI proceeds due to the unfortunate death of a former officer of Fidelity, a $1.3 million increase in gain on sale of SBA loans and an increase in servicing income from indirect automobile loans of $1.0 million.


58


Noninterest Expense
 
Total noninterest expenses for the third quarter of 2019 increased $120.3 million, or 166.3%, to $192.7 million, compared with $72.4 million in the same quarter 2018. Salaries and employee benefits increased $39.2 million, or 102.1%, from $38.4 million in the third quarter of 2018 to $77.6 million in the third quarter of 2019, due primarily to an increase of 1,059, or 57.3%, full-time equivalent employees from 1,847 at September 30, 2018 to 2,906 at September 30, 2019, resulting from staff added as a result of the Fidelity acquisition which occurred in the third quarter of 2019. Also contributing to the increase in salary and employee benefits was an increase in variable incentive pay of $16.2 million resulting from an increase in mortgage production. Occupancy and equipment expenses increased $4.0 million, or 47.0%, to $12.6 million for the third quarter of 2019, compared with $8.6 million in the third quarter of 2018, due primarily to an increase of 47 branch locations from 125 at September 30, 2018 to 172 at September 30, 2019, resulting from branch locations added as a result of the Fidelity acquisition, partially offset by branch locations closed in connection with announced branch consolidations. Data processing and telecommunications expense increased $1.9 million, or 21.8%, to $10.4 million in the third quarter of 2019, compared with $8.5 million in the third quarter of 2018, due to the Fidelity acquisition. Credit resolution-related expenses decreased $154,000, or 12.3%, from $1.2 million in the third quarter of 2018 to $1.1 million in the third quarter of 2019. Advertising and marketing expense was $1.9 million in the third quarter of 2019, compared with $1.5 million in the third quarter of 2018. Amortization of intangible assets increased $3.0 million, or 113.7%, from $2.7 million in the third quarter of 2018 to $5.7 million in the third quarter of 2019 due to additional amortization of intangible assets recorded as part of the Fidelity acquisition. Merger and conversion charges were $65.2 million in the third quarter of 2019, compared with $276,000 in the same quarter of 2018. Other noninterest expenses increased $7.0 million, or 62.3%, from $11.2 million in the third quarter of 2018 to $18.1 million in the third quarter of 2019, due primarily to an increase of $885,000 in the loss on sale of premises and an increase of $1.7 million in consulting fees related to implementation of new support systems. Also contributing to the increase in other noninterest expenses was an increase in volume in certain areas related to our acquisition of Fidelity and increases in variable expenses tied to production in our lines of business.

Income Taxes
 
Income tax expense is influenced by the statutory rate, the amount of taxable income, the amount of tax-exempt income and the amount of non-deductible expenses.  For the third quarter of 2019, the Company reported income tax expense of $5.7 million, compared with $13.3 million in the same period of 2018. The Company’s effective tax rate for the three months ending September 30, 2019 and 2018 was 21.0% and 24.3%, respectively. The decrease in the effective tax rate is primarily related to a non-taxable gain on BOLI proceeds and a reduction in the Florida corporate income tax rate partially offset by certain non-deductible merger expenses.



59


Results of Operations for the Nine Months Ended September 30, 2019 and 2018

Consolidated Earnings and Profitability
 
Ameris reported net income available to common shareholders of $100.2 million, or $1.83 per diluted share, for the nine months ended September 30, 2019, compared with $77.5 million, or $1.85 per diluted share, for the same period in 2018. The Company’s return on average assets and average shareholders’ equity were 0.99% and 7.39%, respectively, in the nine months ended September 30, 2019, compared with 1.12% and 9.47%, respectively, in the same period in 2018. During the first nine months of 2019, the Company incurred pre-tax merger and conversion charges of $70.7 million, pre-tax restructuring charges related to branch consolidations of $245,000, pre-tax servicing right impairment of $141,000, pre-tax reduction in financial impact of hurricanes of $39,000, pre-tax gain on BOLI proceeds of $4.3 million and pre-tax losses on the sale of premises of $4.6 million. During the first nine months of 2018, the Company incurred pre-tax merger and conversion charges of $19.5 million, pre-tax executive retirement benefits of $6.4 million, pre-tax restructuring charges related to branch consolidations of $229,000 and pre-tax losses on the sale of premises of $783,000. Excluding these merger and conversion charges, executive retirement benefits, restructuring charges, servicing right impairment, the financial impact of hurricanes, gain on BOLI proceeds and losses on the sale of premises, the Company’s net income would have been $156.3 million, or $2.85 per diluted share, for the nine months ended September 30, 2019 and $100.3 million, or $2.40 per diluted share, for the same period in 2018.
 
Below is a reconciliation of adjusted net income to net income, as discussed above.
 
Nine Months Ended
September 30,
(in thousands, except share and per share data)
2019
 
2018
Net income available to common shareholders
$
100,193

 
$
77,491

Adjustment items:
 

 
 

Merger and conversion charges
70,690

 
19,502

Executive retirement benefits
—

 
6,419

Restructuring charge
245

 
229

Servicing right impairment
141

 
—

Financial impact of hurricanes
(39
)
 
—

Gain on BOLI proceeds
(4,335
)
 
—

Loss on the sale of premises
4,608

 
783

Tax effect of adjustment items (Note 1)
(15,167
)
 
(4,113
)
After tax adjustment items
56,143

 
22,820

Adjusted net income
$
156,336

 
$
100,311

 
 
 
 
Weighted average common shares outstanding - diluted
54,883,122

 
41,844,900

Net income per diluted share
$
1.83

 
$
1.85

Adjusted net income per diluted share
$
2.85

 
$
2.40

 
 
 
 
Note 1: A portion of the 2019 and 2018 merger and conversion charges and a portion of the 2018 executive retirement benefits are nondeductible for tax purposes. Gain on BOLI proceeds is nontaxable.

60


Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities, SBA activities and premium finance activities of the Company during the nine months ended September 30, 2019 and 2018, respectively:
 
Nine Months Ended
September 30, 2019
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
 Finance
 Division
 
Total
Interest income
$
338,396

 
$
53,286

 
$
16,140

 
$
8,827

 
$
25,669

 
$
442,318

Interest expense
44,340

 
26,957

 
7,294

 
3,986

 
9,926

 
92,503

Net interest income
294,056

 
26,329

 
8,846

 
4,841

 
15,743

 
349,815

Provision for loan losses
7,913

 
2,235

 
—

 
394

 
3,523

 
14,065

Noninterest income
50,373

 
84,853

 
1,389

 
6,379

 
6

 
143,000

Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
91,954

 
54,237

 
609

 
3,447

 
4,049

 
154,296

Equipment and occupancy expenses
25,065

 
3,122

 
4

 
190

 
296

 
28,677

Data processing and telecommunications expenses
24,778

 
1,384

 
109

 
27

 
853

 
27,151

Other expenses
126,743

 
7,983

 
170

 
1,249

 
3,104

 
139,249

Total noninterest expense
268,540

 
66,726

 
892

 
4,913

 
8,302

 
349,373

Income before income tax expense
67,976

 
42,221

 
9,343

 
5,913

 
3,924

 
129,377

Income tax expense
16,197

 
8,831

 
1,962

 
1,242

 
952

 
29,184

Net income
$
51,779

 
$
33,390

 
$
7,381

 
$
4,671

 
$
2,972

 
$
100,193

 
Nine Months Ended
September 30, 2018
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
Finance
Division
 
Total
Interest income
$
226,576

 
$
24,142

 
$
10,428

 
$
5,428

 
$
24,003

 
$
290,577

Interest expense
25,417

 
8,555

 
3,778

 
1,725

 
7,264

 
46,739

Net interest income
201,159

 
15,587

 
6,650

 
3,703

 
16,739

 
243,838

Provision for loan losses
2,883

 
585

 
—

 
1,025

 
8,513

 
13,006

Noninterest income
42,910

 
37,571

 
1,635

 
3,764

 
2,062

 
87,942

Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
74,834

 
28,667

 
402

 
2,010

 
4,250

 
110,163

Equipment and occupancy expenses
19,032

 
1,756

 
2

 
171

 
225

 
21,186

Data processing and telecommunications expenses
19,504

 
1,119

 
93

 
19

 
1,357

 
22,092

Other expenses
54,478

 
5,337

 
176

 
884

 
3,521

 
64,396

Total noninterest expense
167,848

 
36,879

 
673

 
3,084

 
9,353

 
217,837

Income before income tax expense
73,338

 
15,694

 
7,612

 
3,358

 
935

 
100,937

Income tax expense
18,114

 
3,262

 
1,598

 
705

 
(233
)
 
23,446

Net income
$
55,224

 
$
12,432

 
$
6,014

 
$
2,653

 
$
1,168

 
$
77,491

 

61


Net Interest Income and Margins
 
The following table sets forth the average balance, interest income or interest expense, and average yield/rate paid for each category of interest-earning assets and interest-bearing liabilities, net interest spread, and net interest margin on average interest-earning assets for the nine months ended September 30, 2019 and 2018. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate.
 
Nine Months Ended
September 30,
 
2019
 
2018
(dollars in thousands)
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate Paid
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate Paid
Assets
 

 
 

 
 
 
 

 
 

 
 
Interest-earning assets:
 

 
 

 
 
 
 

 
 

 
 
Federal funds sold, interest-bearing deposits  in banks, and time deposits in other banks
$
415,908

 
$
7,655

 
2.46%
 
$
205,274

 
$
3,092

 
2.01%
Investment securities
1,362,004

 
30,319

 
2.98%
 
986,065

 
21,212

 
2.88%
Loans held for sale
373,699

 
10,673

 
3.82%
 
143,848

 
4,091

 
3.80%
Loans
6,587,916

 
273,573

 
5.55%
 
5,277,108

 
195,857

 
4.96%
Purchased loans
3,148,726

 
117,826

 
5.00%
 
1,483,029

 
62,584

 
5.64%
Purchased loan pools
245,918

 
5,519

 
3.00%
 
307,718

 
6,750

 
2.93%
Total interest-earning assets
12,134,171

 
445,565

 
4.91%
 
8,403,042

 
293,586

 
4.67%
Noninterest-earning assets
1,348,873

 
 

 
 
 
814,132

 
 

 
 
Total assets
$
13,483,044

 
 

 
 
 
$
9,217,174

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 

 
 
 
 

 
 

 
 
Interest-bearing liabilities:
 

 
 

 
 
 
 

 
 

 
 
Savings and interest-bearing demand deposits
$
5,248,058

 
$
38,776

 
0.99%
 
$
3,861,389

 
$
16,784

 
0.58%
Time deposits
2,603,879

 
35,787

 
1.84%
 
1,438,645

 
13,412

 
1.25%
Federal funds purchased and securities sold under agreements to repurchase
13,017

 
45

 
0.46%
 
16,036

 
18

 
0.15%
FHLB advances
282,622

 
4,803

 
2.27%
 
529,917

 
7,585

 
1.91%
Other borrowings
170,891

 
7,769

 
6.08%
 
102,713

 
4,634

 
6.03%
Subordinated deferrable interest debentures
104,345

 
5,323

 
6.82%
 
86,874

 
4,306

 
6.63%
Total interest-bearing liabilities
8,422,812

 
92,503

 
1.47%
 
6,035,574

 
46,739

 
1.04%
Demand deposits
3,108,638

 
 

 
 
 
2,027,145

 
 

 
 
Other liabilities
138,019

 
 

 
 
 
60,222

 
 

 
 
Shareholders’ equity
1,813,575

 
 

 
 
 
1,094,233

 
 

 
 
Total liabilities and shareholders’ equity
$
13,483,044

 
 

 
 
 
$
9,217,174

 
 

 
 
Interest rate spread
 

 
 

 
3.44%
 
 

 
 

 
3.63%
Net interest income
 

 
$
353,062

 
 
 
 

 
$
246,847

 
 
Net interest margin
 

 
 

 
3.89%
 
 

 
 

 
3.93%
 
On a tax-equivalent basis, net interest income for the nine months ended September 30, 2019 was $353.1 million, an increase of $106.2 million, or 43.0%, compared with $246.8 million reported in the same period of 2018. The higher net interest income is a result of growth in average interest earning assets which increased $3.73 billion, or 44.4%, from $8.40 billion in the first nine months of 2018 to $12.13 billion for the first nine months of 2019. This increase in average interest earning assets is primarily a result of growth in average legacy loans and average purchased loans. Average legacy loans increased $1.31 billion, or 24.8%, to $6.59 billion in the first nine months of 2019 from $5.28 billion in the same period of 2018. Average purchased loans increased $1.67 billion, or 112.3%, to $3.15 billion in the first nine months of 2019 from $1.48 billion in the same period in 2018, resulting from the Fidelity acquisition which occurred in the third quarter of 2019 and the second quarter 2018 acquisitions of Atlantic and Hamilton. The Company’s net interest margin was down slightly during the first nine months of 2019 to 3.89%, compared with 3.93% for the first nine months of 2018.
 
Total interest income, on a tax-equivalent basis, increased to $445.6 million during the nine months ended September 30, 2019, compared with $293.6 million in the same period of 2018. Yields on earning assets increased to 4.91% during the first nine months of 2019, compared with 4.67% reported in the same period of 2018. During the first nine months of 2019, loans comprised 85.3% of average earning assets, compared with 85.8% in the same period of 2018. Yields on legacy loans increased to 5.55% during the nine months ended September 30, 2019, compared with 4.96% in the same period of 2018. The yield on purchased loans decreased from 5.64% in the first nine months of 2018 to 5.00% during the first nine months of 2019. Accretion income for the

62


first nine months of 2019 was $10.2 million, compared with $7.8 million in the first nine months of 2018. Yields on purchased loan pools increased from 2.93% in the first nine months of 2018 to 3.00% in the same period in 2019.

The yield on total interest-bearing liabilities increased from 1.04% during the nine months ended September 30, 2018 to 1.47% in the same period of 2019. Total funding costs, inclusive of noninterest-bearing demand deposits, increased to 1.07% in the first nine months of 2019, compared with 0.78% during the same period of 2018. Deposit costs increased from 0.55% in the first nine months of 2018 to 0.91% in the same period of 2019. Non-deposit funding costs increased from 3.01% in the first nine months of 2018 to 4.20% in the same period of 2019. The increase in non-deposit funding costs was driven primarily by an increase in the average balance of other borrowings and subordinated deferrable interest debentures which carry a higher interest rate coupled with higher market rates being paid on short-term FHLB advances. Average balances of interest bearing deposits and their respective costs for the nine months ended September 30, 2019 and 2018 are shown below:
 
Nine Months Ended
September 30, 2019
 
Nine Months Ended
September 30, 2018
(dollars in thousands)
Average
Balance
 
Average
Cost
 
Average
Balance
 
Average
Cost
NOW
$
1,705,108

 
0.57%
 
$
1,406,434

 
0.31%
MMDA
3,053,272

 
1.36%
 
2,122,138

 
0.84%
Savings
489,678

 
0.12%
 
332,817

 
0.07%
Retail CDs
2,222,942

 
1.73%
 
1,269,586

 
1.08%
Brokered CDs
380,937

 
2.45%
 
169,059

 
2.47%
Interest-bearing deposits
$
7,851,937

 
1.27%
 
$
5,300,034

 
0.76%
 
Provision for Loan Losses
 
The Company’s provision for loan losses during the nine months ended September 30, 2019 amounted to $14.1 million, compared with $13.0 million in the nine months ended September 30, 2018. Approximately $6.7 million of the provision for loan losses recorded during the nine months ended September 30, 2018 was attributable to two loan relationships within the premium finance division that became impaired during the second quarter of 2018. At September 30, 2019, classified loans still accruing decreased to $78.3 million, compared with $81.9 million at December 31, 2018, due primarily to classified loans still accruing which paid down or were upgraded during the nine months ended September 30, 2019. Non-performing assets as a percentage of total assets increased from 0.55% at December 31, 2018 to 0.73% at September 30, 2019. The increase in non-performing assets is primarily attributable to assets acquired from Fidelity. Net charge-offs on legacy loans during the first nine months of 2019 were $7.2 million, or 0.15% of average legacy loans on an annualized basis, compared with approximately $11.4 million, or 0.29%, in the first nine months of 2018. The decrease in net charge-offs on legacy loans during the first nine months of 2019 was primarily attributable to a decrease in commercial, financial and agricultural charge-offs, partially offset by a $1.2 million commercial real estate loan which was fully charged off during the first quarter of 2019 which previously was specifically reserved for at December 31, 2018. The Company’s allowance for loan losses allocated to legacy loans at September 30, 2019 was $33.2 million, or 0.46% of legacy loans, compared with $26.2 million, or 0.46% of legacy loans, at December 31, 2018. The Company’s total allowance for loan losses at September 30, 2019 was $35.5 million, or 0.28% of total loans, compared with $28.8 million, or 0.34% of total loans, at December 31, 2018.
 
Noninterest Income
 
Total noninterest income for the nine months ended September 30, 2019 was $143.0 million, an increase of $55.1 million, or 62.6%, from the $87.9 million reported for the nine months ended September 30, 2018.  Service charges on deposit accounts in the first nine months of 2019 increased $3.7 million, or 11.0%, to $37.2 million, compared with $33.5 million in the first nine months of 2018. This increase in service charge revenue was primarily attributable to higher debit card interchange income and an increase in the number of deposit accounts from organic growth and the Fidelity acquisition. Income from mortgage-related activities increased $44.5 million, or 106.5%, from $41.8 million in the first nine months of 2018 to $86.2 million in the same period of 2019. Total production in the first nine months of 2019 amounted to $2.75 billion, compared with $1.36 billion in the same period of 2018, while spread (gain on sale) decreased slightly to 2.83% during the nine months ended September 30, 2019, compared with 2.88% in the same period of 2018. The retail mortgage open pipeline was $784.2 million at September 30, 2019, compared with $119.2 million at the beginning of 2019 and $162.4 million at September 30, 2018. Other service charges, commissions and fees were $2.8 million during the first nine months of 2019, compared with $2.2 million during the first nine months of 2018. Other noninterest income increased $6.1 million, or 58.7%, to $16.6 million for the first nine months of 2019, compared with $10.4 million during the same period of 2018. The increase in other noninterest income was primarily attributable to a $4.3 million gain on BOLI proceeds resulting from the unfortunate death of a former officer of Fidelity and a $2.0 million increase in gain on sale of SBA loans for the nine months ended September 30, 2019 compared with the same period in 2018.


63


 Noninterest Expense
 
Total noninterest expenses for the nine months ended September 30, 2019 increased $131.5 million, or 60.4%, to $349.4 million, compared with $217.8 million in the same period of 2018. Salaries and employee benefits increased $44.1 million, or 40.1%, from $110.2 million in the first nine months of 2018 to $154.3 million in the same period of 2019 due to staff additions resulting from the Fidelity acquisition and an increase in variable incentive pay related to production increases partially offset by a reduction of $6.6 million in expense recorded during the first nine months of 2018 related to executive retirement benefits and staff reductions from branch consolidation efforts in 2019. Occupancy and equipment expenses increased $7.5 million, or 35.4%, to $28.7 million for the first nine months of 2019, compared with $21.2 million in the same period of 2018, due primarily to 90 branch locations being added during 2018 and 2019 as a result of the Atlantic, Hamilton and Fidelity acquisitions partially offset by branch consolidations during the first nine months of 2019. Data processing and telecommunications expense increased $5.1 million, or 22.9%, to $27.2 million in the first nine months of 2019, from $22.1 million reported in the same period of 2018. This increase in data processing and telecommunications during the first nine months of 2019 reflects increased core banking system charges due to an increase in the number of accounts being processed by our core banking system and a $1.4 million refund recorded in the second quarter of 2018 related to overcharges on prior billings from a data processing vendor. Credit resolution-related expenses increased $142,000, or 5.0%, from $2.8 million in the first nine months of 2018 to $3.0 million in the same period of 2019. Amortization of intangible assets increased $6.1 million, or 104.2%, from $5.9 million in the first nine months of 2018 to $12.0 million in the first nine months of 2019, due primarily to additional amortization of intangible assets recorded as part of the Atlantic, Hamilton and Fidelity acquisitions. Merger and conversion charges were $70.7 million in the first nine months of 2019, compared with $19.5 million in the same period in 2018. Merger and conversion charges in the first nine months of 2019 were primarily related to the Fidelity acquisition while charges for the first nine months of 2018 primarily related to the USPF, Atlantic and Hamilton acquisitions. Other noninterest expenses increased $15.7 million, or 48.6%, from $32.3 million in the first nine months of 2018 to $47.9 million in the same period of 2019 resulting primarily from increases in consulting fees related to the implementation of a new support system, loss on sale of fixed assets, variable expenses in our lines of business tied to production levels and an increase in volume in certain areas related to our acquisitions of Hamilton, Atlantic and Fidelity.
 
Income Taxes
 
Income tax expense is influenced by the statutory rate, the amount of taxable income, the amount of tax-exempt income and the amount of non-deductible expenses. For the nine months ended September 30, 2019, the Company reported income tax expense of $29.2 million, compared with $23.4 million in the same period of 2018. The Company’s effective tax rate for the nine months ended September 30, 2019 and 2018 was 22.6% and 23.2%, respectively. The decrease in the effective tax rate is due to a non-taxable gain on BOLI proceeds, a reduction in the Florida corporate income tax rate and a reduction in non-deductible executive retirement benefits recognized during 2019 compared with 2018.

Financial Condition as of September 30, 2019
 
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. Restricted equity securities, are classified as other investment securities and are carried at cost and are periodically evaluated for impairment based on ultimate recovery of par value or cost basis.
 
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 trade 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 September 30, 2019, and it is more likely than not that the Company will

64


not be required to sell these securities prior to recovery or maturity. Therefore, at September 30, 2019, these investments are not considered impaired on an other-than temporary basis.
 
The following table is a summary of our investment portfolio at the dates indicated.
 
September 30, 2019
 
December 31, 2018
(dollars in thousands)
Amortized Cost
 
Fair
Value
 
Amortized Cost
 
Fair
Value
September 30, 2019
 
 
 
 
 
 
 
U.S. government sponsored agencies
$
22,265

 
$
22,360

 
$
—

 
$
—

State, county and municipal securities
113,607

 
116,349

 
149,670

 
150,733

Corporate debt securities
51,740

 
52,918

 
67,123

 
67,314

Mortgage-backed securities
1,283,846

 
1,299,580

 
982,183

 
974,376

Total debt securities
$
1,471,458

 
$
1,491,207

 
$
1,198,976

 
$
1,192,423

 
The amounts of securities available for sale in each category as of September 30, 2019 are shown in the following table according to contractual maturity classifications: (i) one year or less, (ii) after one year through five years, (iii) after five years through ten years and (iv) after ten years.
 
 
U.S. Government
Sponsored Agencies
 
State, County and
Municipal Securities
 
Corporate Debt Securities
 
Mortgage-Backed Securities
(dollars in thousands)
 
Amount
 
Yield
 (1)
 
Amount
 
Yield
(1)(2)
 
Amount
 
Yield
(1)
 
Amount
 
Yield
(1)
One year or less
 
$
4,997

 
2.12
%
 
$
11,861

 
3.16
%
 
$
—

 
—
%
 
$
46

 
1.95
%
After one year through five years
 
16,269

 
1.92

 
44,232

 
3.37

 
14,727

 
2.80

 
46,132

 
2.67

After five years through ten years
 
1,094

 
2.16

 
32,184

 
3.51

 
36,220

 
5.40

 
355,141

 
2.81

After ten years
 
—

 
—

 
28,072

 
3.63

 
1,971

 
6.05

 
898,261

 
2.69

 
 
$
22,360

 
1.97
%
 
$
116,349

 
3.45
%
 
$
52,918

 
4.69
%
 
$
1,299,580

 
2.72
%
(1)
Yields were computed using coupon interest, adding discount accretion or subtracting premium amortization, as appropriate, on a ratable basis over the life of each security. The weighted average yield for each maturity range was computed using the amortized cost of each security in that range.
(2)
Yields on securities of state and political subdivisions are stated on a taxable-equivalent basis, using a tax rate of 21%.

Loans and Allowance for Loan Losses
 
At September 30, 2019, gross loans outstanding (including purchased loans, purchased loan pools, and loans held for sale) were $14.01 billion, an increase of $5.39 billion, or 62.5%, from $8.62 billion reported at December 31, 2018. Loans held for sale increased from $111.3 million at December 31, 2018 to $1.19 billion at September 30, 2019 primarily due to elevated mortgage production levels in the third quarter of 2019. Legacy loans (excluding purchased loans and purchased loan pools) increased $1.55 billion, or 27.4%, from $5.66 billion at December 31, 2018 to $7.21 billion at September 30, 2019, driven primarily by growth in all loan categories. Approximately half of the growth in legacy loans for the first nine months of 2019 was related to our lines of business with the remaining attributable to our banking segment. Purchased loans increased $2.80 billion, or 108.1%, from $2.59 billion at December 31, 2018 to $5.39 billion at September 30, 2019, due primarily to loans acquired from Fidelity of $3.51 billion, partially offset by paydowns of $618.8 million and loans sold totaling $86.8 million. Purchased loan pools decreased $33.5 million, or 12.8%, from $262.6 million at December 31, 2018 to $229.1 million at September 30, 2019, due primarily to payments on the portfolio of $32.5 million and premium amortization of $1.0 million during the first nine months of 2019.
 
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) construction and development related real estate; (3) commercial and farmland real estate; (4) residential real estate; and (5) consumer. The Company’s management has strategically located its branches in select markets in Georgia, Florida, Alabama and South Carolina to take advantage of the growth in these areas.
 
The Company’s risk management processes include a loan review program designed to evaluate the credit risk in the loan portfolio and ensure credit grade accuracy. Through the loan review process, the Company conducts (1) a loan portfolio summary analysis, (2) charge-off and recovery analysis, (3) trends in accruing problem loan analysis, and (4) problem and past-due loan analysis. This analysis process serves as a tool to assist management in assessing the overall quality of the loan portfolio and the adequacy of

65


the allowance for loan losses. Loans classified as “substandard” are loans which are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses and/or questionable collateral values. Loans classified as “doubtful” are those loans that have characteristics similar to substandard loans but have an increased risk of loss. Loans classified as “loss” are those loans which are considered uncollectible and are in the process of being charged off.
 
The allowance for loan losses is a reserve established through charges to earnings in the form of a provision for loan losses. The provision for loan losses is based on management’s evaluation of the size and composition of the loan portfolio, the level of non-performing and past-due loans, historical trends of charged off loans and recoveries, prevailing economic conditions and other factors management deems appropriate. The Company’s management has established an allowance for loan losses which it believes is adequate for the probable incurred losses in the loan portfolio. Based on a credit evaluation of the loan portfolio, management presents a monthly review of the allowance for loan losses to the Company’s Board of Directors, which primarily focuses on risk by evaluating individual loans in certain risk categories. These categories have also been established by management and take the form of loan grades. By grading the loan portfolio in this manner the Company’s management is able to effectively evaluate the portfolio by risk, which management believes is the most effective way to analyze the loan portfolio and thus analyze the adequacy of the allowance for loan losses.
 
The allowance for loan losses is established by examining (1) the large classified loans, nonaccrual loans and loans considered impaired and evaluating them individually to determine the specific reserve allocation and (2) the remainder of the loan portfolio to allocate a portion of the allowance based on past loss experience and the economic conditions for the particular loan category. The Company also considers other factors such as changes in lending policies and procedures; changes in national, regional and/or local economic and business conditions; changes in the nature and volume of the loan portfolio; changes in the experience, ability and depth of either the market president or lending staff; changes in the volume and severity of past-due and classified loans; changes in the quality of the Company’s corporate loan review system; and other factors management deems appropriate.
 
At the end of the third quarter of 2019, the allowance for loan losses allocated to legacy loans totaled $33.2 million, or 0.46% of legacy loans, compared with $26.2 million, or 0.46% of legacy loans, at December 31, 2018. Our legacy nonaccrual loans increased slightly from $18.0 million at December 31, 2018 to $21.7 million at September 30, 2019. For the first nine months of 2019, our legacy net charge off ratio as a percentage of average legacy loans decreased to 0.15%, compared with 0.29% for the first nine months of 2018. The total provision for loan losses for the first nine months of 2019 was $14.1 million, increasing from $13.0 million recorded for the first nine months of 2018. Our ratio of total nonperforming assets to total assets increased from 0.55% at December 31, 2018 to 0.73% at September 30, 2019, primarily resulting from assets acquired from Fidelity.
 
The balance of the allowance for loan losses allocated to all loans collectively evaluated for impairment increased 21.9%, or $5.2 million, during the first nine months of 2019, while the balance of all loans collectively evaluated for impairment increased 50.3%, or $4.21 billion, during the same period. The increase in the balance of all loans collectively evaluated for impairment is primarily attributable to growth in legacy loans and purchased loans, partially offset by paydowns on purchased loan pools. As a percentage of total loans collectively evaluated for impairment, the allowance allocated to those loans was down five basis points to 0.23% for September 30, 2019 compared with December 31, 2018.

The balance of the allowance for loan losses allocated to legacy loans collectively evaluated for impairment increased 23.1%, or $5.3 million, during the first nine months of 2019, while the balance of legacy loans collectively evaluated for impairment increased 27.3%, or $1.54 billion, during the same period. As a percentage of legacy loans collectively evaluated for impairment, the allowance allocated to those loans decreased one basis point from 0.41% at December 31, 2018 to 0.40% at September 30, 2019 due to the consistency in the mix of loan and collateral types and the overall credit quality of the loan portfolio.

For the allowance allocated to loans collectively evaluated expressed as a percentage of loans evaluated collectively for impairment, the largest change for the first nine months of 2019 was noted in the residential real estate loan category which increased five basis points, offset by decreases in all other categories from December 31, 2018 to September 30, 2019. The increase noted in the residential real estate category was due to a shift in the mix of loans within that category while the historical loss rates on all components declined over the same period. We consider a four year loss rate on all loan categories. We adjust the qualitative factors to account for the inherent risks in the portfolio that are not captured in the historical loss rates, such as volatile commodity prices for agriculture products, weather-related risks (droughts and hurricanes), growth rates of certain loan types and other factors management deems appropriate.
 
The balance of the allowance for loan losses allocated to loans individually evaluated for impairment increased 30.0%, or $1.5 million, during the first nine months of 2019, while the balance of loans individually evaluated for impairment increased 12.9%, or $7.0 million, during the same period. The increase in loan balances individually evaluated for impairment was primarily

66


attributable to increases of $6.5 million and $1.4 million in the residential real estate and commercial, financial and agricultural categories, respectively, partially offset by a decrease of $866,000 in the commercial and farmland real estate category. The increase in the allowance for loan losses allocated to loans individually evaluated for impairment from December 31, 2018 to September 30, 2019 was primarily related to a small number of loans which migrated to substandard over the same period.

The following tables present an analysis of the allowance for loan losses as of and for the nine months ended September 30, 2019 and 2018:
 
Nine Months Ended
September 30,
(dollars in thousands)
2019
 
2018
Balance of allowance for loan losses at beginning of period
$
28,819

 
$
25,791

Provision charged to operating expense
14,065

 
13,006

Charge-offs:
 

 
 

Commercial, financial and agricultural
4,920

 
11,314

Real estate – construction and development
247

 
285

Real estate – commercial and farmland
1,367

 
169

Real estate – residential
80

 
695

Consumer installment
4,214

 
2,724

Purchased loans
3,296

 
1,514

Purchased loan pools
—

 
—

Total charge-offs
14,124

 
16,701

Recoveries:
 

 
 

Commercial, financial and agricultural
2,652

 
2,842

Real estate – construction and development
22

 
117

Real estate – commercial and farmland
8

 
169

Real estate – residential
286

 
255

Consumer installment
675

 
362

Purchased loans
3,127

 
2,275

Purchased loan pools
—

 
—

Total recoveries
6,770

 
6,020

Net charge-offs
7,354

 
10,681

Balance of allowance for loan losses at end of period
$
35,530

 
$
28,116

 
 
As of and for the
Nine Months Ended
September 30, 2019
(dollars in thousands)
Legacy
Loans
 
Purchased
Loans
 
Purchased
Loan
Pools
 
Total
Allowance for loan losses at end of period
$
33,192

 
$
1,719

 
$
619

 
$
35,530

Net charge-offs (recoveries) for the period
7,185

 
169

 
—

 
7,354

Loan balances:
 

 
 

 
 

 
 

End of period
7,208,816

 
5,388,336

 
229,132

 
12,826,284

Average for the period
6,587,916

 
3,148,726

 
245,918

 
9,982,560

Net charge-offs as a percentage of average loans (annualized)
0.15
%
 
0.01
%
 
0.00
%
 
0.10
%
Allowance for loan losses as a percentage of end of period loans
0.46
%
 
0.03
%
 
0.27
%
 
0.28
%
 
 
As of and for the
Nine Months Ended
September 30, 2018
(dollars in thousands)
Legacy
Loans
 
Purchased
Loans
 
Purchased
Loan
Pools 
 
Total
Allowance for loan losses at end of period
$
25,299

 
$
2,013

 
$
804

 
$
28,116

Net charge-offs (recoveries) for the period
11,442

 
(761
)
 
—

 
10,681

Loan balances:
 

 
 

 
 

 
 

End of period
5,543,306

 
2,711,460

 
274,752

 
8,529,518

Average for the period
5,277,108

 
1,483,029

 
307,718

 
7,067,855

Net charge-offs as a percentage of average loans (annualized)
0.29
%
 
(0.07
)%
 
0.00
%
 
0.20
%
Allowance for loan losses as a percentage of end of period loans
0.46
%
 
0.07
 %
 
0.29
%
 
0.33
%
 

67


Loans Excluding Purchased Loans

Loans are stated at unpaid balances, net of unearned income and deferred loan fees. Balances within the major loans receivable categories are presented in the following table, excluding purchased loans:
(dollars in thousands)
September 30,
2019
 
December 31,
2018
Commercial, financial and agricultural
$
1,781,237

 
$
1,316,359

Real estate – construction and development
947,371

 
671,198

Real estate – commercial and farmland
2,152,528

 
1,814,529

Real estate – residential
1,866,128

 
1,403,000

Consumer installment
461,552

 
455,371

 
$
7,208,816

 
$
5,660,457


The following table summarizes the various loan types comprising the "Commercial, financial and agricultural" loan category displayed in the preceding table.
(dollars in thousands)
September 30,
2019
 
December 31,
2018
Municipal loans
$
498,595

 
$
510,600

Premium finance loans
656,570

 
410,381

Other commercial, financial and agricultural loans
626,072

 
395,378

 
$
1,781,237

 
$
1,316,359


Purchased Assets
 
Loans that were acquired in transactions, including those that are covered by the loss-sharing agreements with the FDIC (“purchased loans”), totaled $5.39 billion and $2.59 billion at September 30, 2019 and December 31, 2018, respectively. The increase in purchased loans of $2.80 billion, or 108.1%, resulted primarily from loans acquired from Fidelity of $3.51 billion, partially offset by paydowns of $618.8 million and loans sold of $86.8 million during the current year. OREO that was acquired in transactions, including OREO that is covered by the loss-sharing agreements with the FDIC, totaled $15.8 million at September 30, 2019 and $9.5 million at December 31, 2018.
 
The Bank initially records purchased loans at fair value, taking into consideration certain credit quality risk and interest rate risk. The Company believes its estimation of credit risk and its adjustments to the carrying balances of the acquired loans are adequate. If the Company determines that a loan or group of loans has deteriorated from its initial assessment of fair value, additional provision for loan loss expense will be recorded for the impairment in value. If the Company determines that a loan or group of loans has improved from its initial assessment of fair value, then the increase in cash flows over those expected at the acquisition date will result in the reversal of provision for loan loss expense to the extent of prior provisions or will be recognized as interest income prospectively if no provisions have been made or have been fully reversed.
 
Purchased loans are shown below according to loan type as of the end of the periods shown:
 
(dollars in thousands)
September 30,
2019
 
December 31, 2018
Commercial, financial and agricultural
$
385,355

 
$
372,686

Real estate – construction and development
521,324

 
227,900

Real estate – commercial and farmland
2,057,384

 
1,337,859

Real estate – residential
1,285,096

 
623,199

Consumer installment
1,139,177

 
27,188

 
$
5,388,336

 
$
2,588,832

 
Purchased Loan Pools
 
Purchased loan pools are defined as groups of residential mortgage loans that were not acquired in bank acquisitions or FDIC-assisted transactions. As of September 30, 2019, purchased loan pools totaled $229.1 million and consisted of whole-loan residential mortgages on properties outside the Company’s markets, with principal balances totaling $228.0 million and $1.1 million of remaining purchase premium paid at acquisition. As of December 31, 2018, purchased loan pools totaled $262.6 million and consisted of whole-loan, adjustable rate residential mortgages on properties outside the Company’s markets, with principal balances totaling $260.5 million and $2.1 million of remaining purchase premium paid at acquisition. The Company has allocated

68


approximately $619,000 and $732,000 of the allowance for loan losses to the purchased loan pools at September 30, 2019 and December 31, 2018, respectively.

Non-Performing Assets

Non-performing assets include nonaccrual loans, accruing loans contractually past due 90 days or more, repossessed personal property, and OREO. Loans are placed on nonaccrual status when management has concerns relating to the ability to collect the principal and interest and generally when such loans are 90 days or more past due. Management performs a detailed review and valuation assessment of impaired loans on a quarterly basis and recognizes losses when impairment is identified. A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against current income.
 
Nonaccrual loans, excluding purchased loans, totaled $21.7 million at September 30, 2019, an increase of $3.8 million, or 21.1%, from $18.0 million at December 31, 2018. Nonaccrual purchased loans totaled $78.8 million at September 30, 2019, an increase of $54.7 million, or 226.7%, compared with $24.1 million at December 31, 2018. Accruing loans delinquent 90 days or more, excluding purchased loans, totaled $5.8 million at September 30, 2019, an increase of $1.6 million, or 38.2%, compared with $4.2 million at December 31, 2018. At September 30, 2019, OREO, excluding purchased OREO, totaled $4.9 million, a decrease of $2.3 million, or 31.8%, compared with $7.2 million at December 31, 2018. Purchased OREO totaled $15.8 million at September 30, 2019, an increase of $6.3 million, or 65.5%, compared with $9.5 million at December 31, 2018. Management regularly assesses the valuation of OREO through periodic reappraisal and through inquiries received in the marketing process.  At the end of the third quarter of 2019, total non-performing assets as a percent of total assets increased to 0.73% compared with 0.55% at December 31, 2018, primarily from assets acquired from Fidelity.
 
Non-performing assets at September 30, 2019 and December 31, 2018 were as follows:
(dollars in thousands)
September 30,
2019
 
December 31, 2018
Nonaccrual loans, excluding purchased loans
$
21,739

 
$
17,952

Nonaccrual purchased loans
78,762

 
24,107

Nonaccrual purchased loan pools
—

 
—

Accruing loans delinquent 90 days or more, excluding purchased loans
5,836

 
4,222

Accruing purchased loans delinquent 90 days or more
489

 
—

Repossessed assets
1,258

 
—

Other real estate owned, excluding purchased assets
4,925

 
7,218

Purchased other real estate owned
15,785

 
9,535

Total non-performing assets
$
128,794

 
$
63,034

 
Troubled Debt Restructurings
 
The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession.
 
As of September 30, 2019 and December 31, 2018, the Company had a balance of $15.1 million and $11.1 million, respectively, in troubled debt restructurings, excluding purchased loans. The following table presents the amount of troubled debt restructurings by loan class, excluding purchased loans, classified separately as accrual and nonaccrual at September 30, 2019 and December 31, 2018: 
September 30, 2019
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
5
 
$
649

 
13
 
$
119

Real estate – construction and development
3
 
69

 
1
 
1

Real estate – commercial and farmland
12
 
2,788

 
3
 
530

Real estate – residential
88
 
9,915

 
20
 
925

Consumer installment
5
 
9

 
23
 
66

Total
113
 
$
13,430

 
60
 
$
1,641


69


December 31, 2018
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
5
 
$
256

 
14
 
$
138

Real estate – construction and development
5
 
145

 
1
 
2

Real estate – commercial and farmland
12
 
2,863

 
3
 
426

Real estate – residential
71
 
6,043

 
20
 
1,119

Consumer installment
6
 
16

 
24
 
69

Total
99
 
$
9,323

 
62
 
$
1,754


The following table presents the amount of troubled debt restructurings by loan class, excluding purchased loans, classified separately as those currently paying under restructured terms and those that have defaulted (defined as 30 days past due) under restructured terms at September 30, 2019 and December 31, 2018:
September 30, 2019
Loans Currently Paying
Under Restructured Terms
 
Loans that have Defaulted Under Restructured Terms
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
10
 
$
661

 
8
 
$
107

Real estate – construction and development
4
 
71

 
—
 
—

Real estate – commercial and farmland
11
 
2,736

 
4
 
582

Real estate – residential
89
 
9,643

 
19
 
1,197

Consumer installment
16
 
32

 
12
 
42

Total
130
 
$
13,143

 
43
 
$
1,928

 
December 31, 2018
Loans Currently Paying
Under Restructured Terms
 
Loans that have Defaulted Under Restructured Terms
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
10
 
$
282

 
9
 
$
112

Real estate – construction and development
5
 
147

 
1
 
—

Real estate – commercial and farmland
14
 
3,043

 
1
 
246

Real estate – residential
65
 
5,756

 
26
 
1,406

Consumer installment
18
 
36

 
12
 
49

Total
112
 
$
9,264

 
49
 
$
1,813

 
The following table presents the amount of troubled debt restructurings, excluding purchased loans, by types of concessions made, classified separately as accrual and nonaccrual at September 30, 2019 and December 31, 2018: 
September 30, 2019
Accruing Loans
 
Non-Accruing Loans
Type of Concession
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Forgiveness of interest
—
 
$
—

 
1
 
$
54

Forbearance of interest
10
 
1,391

 
4
 
424

Forgiveness of principal
1
 
674

 
—
 
—

Forbearance of principal
25
 
4,949

 
6
 
69

Rate reduction only
10
 
906

 
2
 
223

Rate reduction, forbearance of interest
26
 
2,251

 
12
 
305

Rate reduction, forbearance of principal
12
 
1,179

 
28
 
135

Rate reduction, forgiveness of interest
29
 
2,080

 
6
 
430

Rate reduction, forgiveness of principal
—
 
—

 
1
 
1

Total
113
 
$
13,430

 
60
 
$
1,641


70


 
December 31, 2018
Accruing Loans
 
Non-Accruing Loans
Type of Concession
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Forgiveness of interest
—
 
$
—

 
1
 
$
55

Forbearance of interest
9
 
1,361

 
5
 
509

Forgiveness of principal
1
 
686

 
—
 
—

Forbearance of principal
6
 
360

 
4
 
75

Rate reduction only
11
 
1,155

 
1
 
56

Rate reduction, forbearance of interest
27
 
2,149

 
13
 
618

Rate reduction, forbearance of principal
15
 
1,384

 
32
 
175

Rate reduction, forgiveness of interest
30
 
2,228

 
5
 
264

Rate reduction, forgiveness of principal
—
 
—

 
1
 
2

Total
99
 
$
9,323

 
62
 
$
1,754


The following table presents the amount of troubled debt restructurings, excluding purchased loans, by collateral types, classified separately as accrual and nonaccrual at September 30, 2019 and December 31, 2018: 
September 30, 2019
Accruing Loans
 
Non-Accruing Loans
Collateral Type
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Warehouse
3
 
$
249

 
2
 
$
289

Raw land
4
 
122

 
2
 
237

Hotel and motel
1
 
237

 
1
 
241

Office
1
 
156

 
—
 
—

Retail, including strip centers
6
 
2,093

 
—
 
—

1-4 family residential
89
 
9,943

 
19
 
689

Automobile/equipment/CD
8
 
472

 
35
 
184

Livestock
—
 
—

 
—
 
—

Unsecured
1
 
158

 
1
 
1

Total
113
 
$
13,430

 
60
 
$
1,641

 
December 31, 2018
Accruing Loans
 
Non-Accruing Loans
Collateral Type
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Warehouse
5
 
$
544

 
1
 
$
137

Raw land
7
 
435

 
1
 
2

Hotel and motel
1
 
260

 
1
 
246

Office
1
 
161

 
—
 
—

Retail, including strip centers
6
 
1,980

 
—
 
—

1-4 family residential
71
 
5,835

 
21
 
1,161

Automobile/equipment/CD
8
 
108

 
36
 
188

Livestock
—
 
—

 
1
 
18

Unsecured
—
 
—

 
1
 
2

Total
99
 
$
9,323

 
62
 
$
1,754

 
As of September 30, 2019 and December 31, 2018, the Company had a balance of $21.2 million and $22.2 million, respectively, in troubled debt restructurings included in purchased loans. The following table presents the amount of troubled debt restructurings by loan class of purchased loans, classified separately as accrual and nonaccrual at September 30, 2019 and December 31, 2018: 
September 30, 2019
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
1
 
$
31

 
3
 
$
25

Real estate – construction and development
4
 
878

 
2
 
257

Real estate – commercial and farmland
11
 
5,829

 
5
 
1,428

Real estate – residential
113
 
11,557

 
18
 
1,178

Consumer installment
—
 
—

 
7
 
54

Total
129
 
$
18,295

 
35
 
$
2,942

 

71


December 31, 2018
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
1
 
$
31

 
3
 
$
32

Real estate – construction and development
4
 
1,015

 
5
 
293

Real estate – commercial and farmland
12
 
6,162

 
7
 
1,685

Real estate – residential
115
 
11,532

 
24
 
1,424

Consumer installment
—
 
—

 
4
 
17

Total
132
 
$
18,740

 
43
 
$
3,451

 
The following table presents the amount of troubled debt restructurings by loan class of purchased loans, classified separately as those currently paying under restructured terms and those that have defaulted (defined as 30 days past due) under restructured terms at September 30, 2019 and December 31, 2018: 
September 30, 2019
Loans Currently Paying
 Under Restructured Terms
 
Loans that have Defaulted Under Restructured Terms
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
3
 
$
55

 
1
 
$
1

Real estate – construction and development
6
 
1,135

 
—
 
—

Real estate – commercial and farmland
14
 
6,744

 
2
 
513

Real estate – residential
97
 
10,209

 
34
 
2,526

Consumer installment
4
 
33

 
3
 
21

Total
124
 
$
18,176

 
40
 
$
3,061

 
December 31, 2018
Loans Currently Paying
Under Restructured Terms
 
Loans that have Defaulted Under Restructured Terms
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
4
 
$
63

 
—
 
$
—

Real estate – construction and development
8
 
1,305

 
1
 
3

Real estate – commercial and farmland
17
 
7,576

 
2
 
271

Real estate – residential
106
 
10,040

 
33
 
2,916

Consumer installment
3
 
14

 
1
 
3

Total
138
 
$
18,998

 
37
 
$
3,193

 
The following table presents the amount of troubled debt restructurings included in purchased loans, by types of concessions made, classified separately as accrual and nonaccrual at September 30, 2019 and December 31, 2018: 
September 30, 2019
Accruing Loans
 
Non-Accruing Loans
Type of Concession
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Forbearance of interest
5
 
$
440

 
9
 
$
1,317

Forbearance of principal
8
 
2,705

 
4
 
222

Forbearance of principal, extended amortization
—
 
—

 
1
 
233

Rate reduction only
64
 
9,559

 
4
 
344

Rate reduction, forbearance of interest
24
 
2,253

 
10
 
443

Rate reduction, forbearance of principal
7
 
1,717

 
4
 
184

Rate reduction, forgiveness of interest
21
 
1,621

 
3
 
199

Total
129
 
$
18,295

 
35
 
$
2,942

December 31, 2018
Accruing Loans
 
Non-Accruing Loans
Type of Concession
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Forbearance of interest
5
 
$
224

 
10
 
$
1,751

Forbearance of principal
6
 
2,368

 
3
 
226

Forbearance of principal, extended amortization
—
 
—

 
1
 
258

Rate reduction only
73
 
10,911

 
6
 
285

Rate reduction, forbearance of interest
24
 
2,304

 
14
 
356

Rate reduction, forbearance of principal
8
 
1,635

 
6
 
368

Rate reduction, forgiveness of interest
16
 
1,298

 
3
 
207

Total
132
 
$
18,740

 
43
 
$
3,451


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The following table presents the amount of troubled debt restructurings included in purchased loans, by collateral types, classified separately as accrual and nonaccrual at September 30, 2019 and December 31, 2018: 
September 30, 2019
Accruing Loans
 
Non-Accruing Loans
Collateral Type
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Warehouse
2
 
$
348

 
—
 
$
—

Raw land
2
 
759

 
3
 
625

Hotel and motel
1
 
142

 
—
 
—

Office
2
 
389

 
1
 
353

Retail, including strip centers
5
 
3,785

 
—
 
—

1-4 family residential
115
 
11,676

 
19
 
1,686

Church
1
 
1,165

 
1
 
188

Automobile/equipment/CD
1
 
31

 
11
 
90

Total
129
 
$
18,295

 
35
 
$
2,942

 
December 31, 2018
Accruing Loans
 
Non-Accruing Loans
Collateral Type
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Warehouse
2
 
$
356

 
—
 
$
—

Raw land
2
 
873

 
6
 
718

Hotel and motel
1
 
145

 
—
 
—

Office
2
 
419

 
2
 
457

Retail, including strip centers
5
 
3,882

 
—
 
—

1-4 family residential
118
 
11,837

 
26
 
2,009

Church
1
 
1,197

 
1
 
201

Automobile/equipment/CD
1
 
31

 
8
 
65

Total
132
 
$
18,740

 
43
 
$
3,450

 
Commercial Lending Practices

The federal bank regulatory agencies previously issued interagency guidance on commercial real estate lending and prudent risk management practices. This guidance defines commercial real estate (“CRE”) loans as loans secured by raw land, land development and construction (including 1-4 family residential construction), multi-family property and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property, excluding owner-occupied properties (loans for which 50% or more of the source of repayment is derived from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property) or the proceeds of the sale, refinancing or permanent financing of the property. Loans for owner-occupied CRE are generally excluded from the CRE guidance.
 
The CRE guidance is applicable when either:
 
(1)
total loans for construction, land development, and other land, net of owner-occupied loans, represent 100% or more of a bank’s total risk-based capital; or
(2)
total loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land development, and other land, net of owner-occupied loans, represent 300% or more of a bank’s total risk-based capital.

Banks that are subject to the CRE guidance criteria are required to implement enhanced strategic planning, CRE underwriting policies, risk management and internal controls, portfolio stress testing, risk exposure limits, and other policies, including management compensation and incentives, to address the CRE risks. Higher allowances for loan losses and capital levels may also be appropriate.
 
As of September 30, 2019, the Company exhibited a concentration in the CRE loan category based on Federal Reserve Call codes. The primary risks of CRE lending are:
 
(1)
within CRE loans, construction and development loans are somewhat dependent upon continued strength in demand for residential real estate, which is reliant on favorable real estate mortgage rates and changing population demographics;
(2)
on average, CRE loan sizes are generally larger than non-CRE loan types; and
(3)
certain construction and development loans may be less predictable and more difficult to evaluate and monitor.


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The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of September 30, 2019 and December 31, 2018. The loan categories and concentrations below are based on Federal Reserve Call codes and include purchased loans: 
 
September 30,
2019
 
December 31,
2018
(dollars in thousands)
Balance
 
% of Total
Loans
 
Balance
 
% of Total
Loans
Construction and development loans
$
1,468,696

 
11%
 
$
899,097

 
11%
Multi-family loans
269,623

 
2%
 
276,528

 
3%
Nonfarm non-residential loans (excluding owner-occupied)
2,291,551

 
18%
 
1,694,267

 
20%
Total CRE Loans (excluding owner-occupied)
4,029,870

 
31%
 
2,869,892

 
34%
All other loan types
8,796,414

 
69%
 
5,642,022

 
66%
Total Loans
$
12,826,284

 
100%
 
$
8,511,914

 
100%
 
The following table outlines the percentage of construction and development loans and total CRE loans, net of owner-occupied loans, to the Bank’s total risk-based capital, and the Company’s internal concentration limits as of September 30, 2019 and December 31, 2018: 
 
Internal
Limit
 
Actual
 
 
September 30,
2019
 
December 31,
2018
Construction and development loans
100%
 
84%
 
78%
Total CRE loans (excluding owner-occupied)
300%
 
231%
 
249%
 
Short-Term Investments
 
The Company’s short-term investments are comprised of federal funds sold and interest-bearing deposits in banks. At September 30, 2019, the Company’s short-term investments were $285.7 million, compared with $507.5 million at December 31, 2018. At September 30, 2019, the Company had $21.1 million in federal funds sold and $264.6 million was in interest-bearing deposit balances at correspondent banks and the Federal Reserve Bank of Atlanta.
 
Derivative Instruments and Hedging Activities
 
The Company has a cash flow hedge that matures September 15, 2020 with a notional amount of $37.1 million at September 30, 2019 and December 31, 2018 for the purpose of converting the variable rate on certain junior subordinated debentures to a fixed rate of 4.11%. The fair value of this instrument was a liability of $237,000 at September 30, 2019 and an asset of $102,000 at December 31, 2018.

The Company also has forward contracts and IRLCs to hedge changes in the value of the mortgage inventory due to changes in market interest rates. The fair value of these instruments amounted to an asset of $15.9 million and $2.5 million at September 30, 2019 and December 31, 2018, respectively, and a liability of $1.2 million and $1.3 million at September 30, 2019 and December 31, 2018, respectively.
 
No material hedge ineffectiveness from cash flow was recognized in the statement of operations. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

Capital
 
Common Stock Repurchase Program

On September 19, 2019, the Company announced that its Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock.  Repurchases of shares, which are authorized to occur through October 31 2020, must be made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including share acquisition price, regulatory limitations and other market and economic factors. The program does not require the Company to repurchase any specific number of shares. It replaces the Company's prior share repurchase program which was set to expire in October 2019 and under which the Company repurchased $10.6 million of its outstanding common stock in the past year. As of September 30, 2019, no shares of the Company's common stock, had been repurchased under the program.


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Fidelity Acquisition

On July 1, 2019, the Company issued 22,181,522 shares of its common stock to the shareholders of Fidelity. Such shares had a value of $39.19 per share at the time of issuance, resulting in an increase in shareholders’ equity of $869.3 million .

For additional information regarding the Fidelity acquisition, see Note 2.

Hamilton Acquisition

On June 29, 2018, the Company issued 6,548,385 shares of its common stock to the shareholders of Hamilton. Such shares had a value of $53.35 per share at the time of issuance, resulting in an increase in shareholders’ equity of $349.4 million.

For additional information regarding the Hamilton acquisition, see Note 2.

Atlantic Acquisition

On May 25, 2018, the Company issued 2,631,520 shares of its common stock to the shareholders of Atlantic. Such shares had a value of $56.15 per share at the time of issuance, resulting in an increase in shareholders’ equity of $147.8 million.

For additional information regarding the Atlantic acquisition, see Note 2.

USPF Acquisition

On January 18, 2017, in exchange for 4.99% of the outstanding shares of common stock of USPF, the Company issued 128,572 unregistered shares of its common stock to a selling shareholder of USPF. A registration statement was filed with the SEC on February 13, 2017 to register the resale or other disposition of these shares. The issuance of the 128,572 common shares, valued at $45.45 per share at the time of issuance, resulted in an increase in shareholders’ equity of $5.8 million.

On January 3, 2018, in exchange for 25.01% of the outstanding shares of common stock of USPF, the Company issued 114,285 unregistered shares of its common stock and $12.5 million in cash to a selling shareholder of USPF. The issuance of the 114,285 common shares, valued at $48.55 per share at the time of issuance, resulted in an increase in shareholders’ equity of $5.5 million.

On January 31, 2018, in exchange for the final 70% of the outstanding shares of common stock of USPF, the Company issued 830,301 unregistered shares of its common stock and paid $8.9 million in cash to the selling shareholders of USPF. The issuance of the 830,301 common shares, valued at $53.55 per share at the time of issuance, resulted in an increase in shareholders’ equity of $44.5 million. The selling shareholders of USPF could receive additional cash payments aggregating up to $5.8 million based on the achievement by the Company's premium finance division of certain income targets, between January 1, 2018 and June 30, 2019. The total contingent consideration paid was $1.2 million based on results achieved through the applicable measurement dates.

On February 16, 2018, a registration statement was filed with the SEC to register the resale or other disposition of the combined 944,586 shares issued on January 3, 2018 and January 31, 2018.

For additional information regarding the USPF acquisition, see Note 2.

Capital Management
 
Capital management consists of providing equity to support both current and anticipated future operations. The Company is subject to capital adequacy requirements imposed by the Federal Reserve Board (the “FRB”) and the Georgia Department of Banking and Finance (the "GDBF"), and the Bank is subject to capital adequacy requirements imposed by the FDIC and the GDBF.
 
The FRB, the FDIC and the GDBF have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. These standards define and establish minimum capital requirements in relation to assets and off-balance sheet exposure, adjusted for credit risk. The risk-based capital standards currently in effect are designed to make regulatory capital requirements more sensitive to differences in risk profiles among bank holding companies and banks and to account for off-balance sheet exposure.
 
In July 2013, the Federal Reserve published final rules for the adoption of the Basel III regulatory capital framework (the "Basel III Capital Rules"). The Basel III Capital Rules defined a new capital measure called "Common Equity Tier 1" ("CET1"), established

75


that Tier 1 capital consist of Common Equity Tier 1 and "Additional Tier 1 Capital" instruments meeting specified requirements, defined Common Equity Tier 1, established a capital conservation buffer and expanded the scope of the adjustments as compared with existing regulations. The capital conservation buffer is being increased by 0.625% per year until reaching 2.50% by 2019. The capital conservation buffer was being phased in from 0.0% for 2015 to, 0.625% for 2016, 1.25% for 2017, 1.875% for 2018, and 2.50% for 2019. The Basel III Capital Rules became effective for us on January 1, 2015 with certain transition provisions fully phased in on January 1, 2019. 

The regulatory capital standards are defined by the following key measurements:
 
a) The “Tier 1 Leverage Ratio” is defined as Tier 1 capital to average assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a Tier 1 leverage ratio greater than or equal to 4.00%. For a bank to be considered “well capitalized,” it must maintain a Tier 1 leverage ratio greater than or equal to 5.00%.
 
b) The “CET1 Ratio” is defined as Common equity tier 1 capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a CET1 ratio greater than or equal to 4.50% (7.00% including the 2.50% capital conservation buffer for 2019; 6.375% including the 1.875% capital conservation buffer for 2018). For a bank to be considered “well capitalized,” it must maintain a CET1 ratio greater than or equal to 6.50%.
 
c) The “Tier 1 Capital Ratio” is defined as Tier 1 capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a Tier 1 capital ratio greater than or equal to 6.00% (8.50% including the 2.50% capital conservation buffer for 2019; 7.875% including the 1.875% capital conservation buffer for 2018). For a bank to be considered “well capitalized,” it must maintain a Tier 1 capital ratio greater than or equal to 8.00%.
 
d) The “Total Capital Ratio” is defined as total capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a total capital ratio greater than or equal to 8.00% (10.50% including the 2.50% capital conservation buffer for 2019; 9.875% including the 1.875% capital conservation buffer for 2018). For a bank to be considered “well capitalized,” it must maintain a total capital ratio greater than or equal to 10.00%.
 
As of September 30, 2019, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. The following table sets forth the regulatory capital ratios of for the Company and the Bank at September 30, 2019 and December 31, 2018.
 
September 30,
2019
 
December 31, 2018
Tier 1 Leverage Ratio (tier 1 capital to average assets)
 
 
 
Consolidated
8.55%
 
9.17%
Ameris Bank
10.03%
 
10.46%
CET1 Ratio (common equity tier 1 capital to risk weighted assets)
 
 
 
Consolidated
9.75%
 
10.07%
Ameris Bank
11.42%
 
12.66%
Tier 1 Capital Ratio (tier 1 capital to risk weighted assets)
 
 
 
Consolidated
9.75%
 
11.07%
Ameris Bank
11.42%
 
12.66%
Total Capital Ratio (total capital to risk weighted assets)
 
 
 
Consolidated
11.04%
 
12.23%
Ameris Bank
12.20%
 
12.98%
 
Interest Rate Sensitivity and Liquidity
 
The Company’s primary market risk exposures are credit risk, interest rate risk, and to a lesser degree, liquidity risk. The Bank operates under an Asset Liability Management Policy approved by the Company’s Board of Directors and the ALCO Committee. The policy outlines limits on interest rate risk in terms of changes in net interest income and changes in the net market values of assets and liabilities over certain changes in interest rate environments. These measurements are made through a simulation model which projects the impact of changes in interest rates on the Bank’s assets and liabilities. The policy also outlines responsibility for monitoring interest rate risk, and the process for the approval, implementation and monitoring of interest rate risk strategies to achieve the Bank’s interest rate risk objectives.
 
The ALCO Committee is comprised of senior officers of Ameris and two independent members of the Company’s Board of Directors. The ALCO Committee makes all strategic decisions with respect to the sources and uses of funds that may affect net interest income, including net interest spread and net interest margin. The objective of the ALCO Committee is to identify the

76


interest rate, liquidity and market value risks of the Company’s balance sheet and use reasonable methods approved by the Company’s Board of Directors and executive management to minimize those identified risks.
 
The normal course of business activity exposes the Company to interest rate risk. Interest rate risk is managed within an overall asset and liability framework for the Company. The principal objectives of asset and liability management are to predict the sensitivity of net interest spreads to potential changes in interest rates, control risk and enhance profitability. Funding positions are kept within predetermined limits designed to properly manage risk and liquidity. The Company employs sensitivity analysis in the form of a net interest income simulation to help characterize the market risk arising from changes in interest rates. In addition, fluctuations in interest rates usually result in changes in the fair market value of the Company’s financial instruments, cash flows and net interest income. The Company’s interest rate risk position is managed by the ALCO Committee.
 
The Company uses a simulation modeling process to measure interest rate risk and evaluate potential strategies. Interest rate scenario models are prepared using software created and licensed from an outside vendor. The Company’s simulation includes all financial assets and liabilities. Simulation results quantify interest rate risk under various interest rate scenarios. Management then develops and implements appropriate strategies. The ALCO Committee has determined that an acceptable level of interest rate risk would be for net interest income to increase/decrease no more than 20% given a change in selected interest rates of 200 basis points over any 24-month period.
 
Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of Ameris to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term assets at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks, which could provide funds on short notice, if needed. The Company has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is equal to 30% of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At September 30, 2019 and December 31, 2018, the net carrying value of the Company’s other borrowings was $1.35 billion and $151.8 million, respectively.
 
The following liquidity ratios compare certain assets and liabilities to total deposits or total assets:
 
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
Investment securities available for sale to total deposits
10.92%
 
13.29%
 
12.60%
 
12.36%
 
12.66%
Loans (net of unearned income) to total deposits
93.90%
 
94.44%
 
86.55%
 
88.21%
 
92.90%
Interest-earning assets to total assets
89.27%
 
90.87%
 
90.63%
 
90.43%
 
90.48%
Interest-bearing deposits to total deposits
70.15%
 
71.08%
 
71.91%
 
73.88%
 
74.58%
 
The liquidity resources of the Company are monitored continuously by the ALCO Committee and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s and the Bank’s liquidity ratios at September 30, 2019 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
The Company is exposed only to U.S. dollar interest rate changes, and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company’s hedging activities are limited to cash flow hedges and are part of the Company’s program to manage interest rate sensitivity.
 
At September 30, 2019, the Company had one cash flow hedge with a notional amount of $37.1 million for the purpose of converting the variable rate on certain junior subordinated debentures to a fixed rate. The LIBOR rate swap exchanges fixed rate payments of 4.11% for floating rate payments based on the three-month LIBOR rate and matures September 2020. The fair value of this instrument was a liability of $237,000 at September 30, 2019 and an asset of $102,000 at December 31, 2018.
  
The Company also had forward contracts and IRLCs to hedge changes in the value of the mortgage inventory due to changes in market interest rates. The fair value of these instruments amounted to an asset of approximately $15.9 million and $2.5 million at

77


September 30, 2019 and December 31, 2018, respectively, and a liability of $1.2 million and $1.3 million at September 30, 2019 and December 31, 2018, respectively.
 
The Company has no exposure to foreign currency exchange rate risk, commodity price risk and other market risks.
 
Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as “interest rate risk.” The repricing of interest-earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of the Company’s asset/liability management program, the timing of repriced assets and liabilities is referred to as “gap management.”

The Company uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a 12-month and 24-month period is subjected to gradual and parallel shocks of 100, 200, 300 and 400 basis point increases and decreases in market rates and is monitored on a quarterly basis.
 
Additional information required by Item 305 of Regulation S-K is set forth under Part I, Item 2 of this report.

Item 4. Controls and Procedures.
 
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act), as of the end of the period covered by this report, as required by paragraph (b) of Rules 13a-15 or 15d-15 of the Exchange Act. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.
 
During the quarter ended September 30, 2019, there was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
From time to time, the Company and the Bank are subject to various legal proceedings, claims and disputes that arise in the ordinary course of business. Additionally, in the ordinary course of business, the Company and the Bank are also subject to regulatory examinations, information gathering requests, inquiries and investigations. Based on the Company’s current knowledge and advice of counsel, management presently does not believe that the liabilities arising from these legal matters will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows. However, it is possible that the ultimate resolution of these legal matters could have a material adverse effect on the Company’s results of operations and financial condition for any particular period.
 
Item 1A. Risk Factors.
 
There have been no material changes to the risk factors disclosed in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2018. 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
c) Issuer Purchases of Equity Securities.
 
The table below sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the three-month period ended September 30, 2019. 

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Period
 
Total
Number of
Shares
Purchased
 
Average Price
Paid Per Share
 
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
 
Approximate
Dollar Value of
Shares That
 May Yet be
Purchased
Under the Plans
or Programs(1)
July 1, 2019 through July 31, 2019
 
—

 
$
—

 
—

 
$
89,447,425

August 1, 2019 through August 31, 2019
 
—

 
$
—

 
—

 
$
89,447,425

September 1, 2019 through September 30, 2019
 
—

 
$
—

 
—

 
$
100,000,000

Total
 
—

 
$
—

 
—

 
$
100,000,000

 
(1)
On September 19, 2019, the Company announced that its Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock.  Repurchases of shares, which are authorized to occur through October 31, 2020, will be made, if at all, in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including share acquisition price, regulatory limitations and other market and economic factors. The program does not require the Company to repurchase any specific number of shares. It replaces the Company's prior share repurchase program which was set to expire in October 2019 and under which the Company repurchased $10.6 million of its outstanding common stock in the past year. As of September 30, 2019, no shares of the Company's common stock, had been repurchased under the new program.

Item 3. Defaults Upon Senior Securities.
 
None.
 
Item 4. Mine Safety Disclosures.
 
Not applicable.
 
Item 5. Other Information.

None.



79


Item 6. Exhibits.
Exhibit
Number
 
Description
 
 
 
3.1
 
Articles of Incorporation of Ameris Bancorp, as amended (incorporated by reference to Exhibit 2.1 to Ameris Bancorp’s Regulation A Offering Statement on Form 1-A filed with the SEC on August 14, 1987).
 
 
 
3.2
 
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp’s Annual Report on Form 10-K filed with the SEC on March 26, 1999).
 
 
 
3.3
 
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.9 to Ameris Bancorp’s Annual Report on Form 10-K filed with the SEC on March 31, 2003).
 
 
 
3.4
 
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on December 1, 2005).
 
 
 
3.5
 
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on November 21, 2008).
 
 
 
3.6
 
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on June 1, 2011).
 
 
 
3.7
 
Bylaws of Ameris Bancorp, as amended and restated through July 1, 2019 (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on July 1, 2019).
 
 
 
4.1
 
Indenture between Ameris Bancorp (as successor to Fidelity Southern Corporation) and U.S. Bank National Association, dated as of June 26, 2003 (incorporated by reference to Exhibit 4.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on July 1, 2019).
 
 
 
4.2
 
First Supplemental Indenture, among Ameris Bancorp, Fidelity Southern Corporation and U.S. Bank National Association, dated as of July 1, 2019 (incorporated by reference to Exhibit 4.2 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on July 1, 2019).
 
 
 
4.3
 
Form of Floating Rate Junior Subordinated Deferrable Interest Debentures due 2033 (incorporated by reference to Exhibit 4.3 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on July 1, 2019).
 
 
 
4.4
 
Indenture between Ameris Bancorp (as successor to Fidelity Southern Corporation) and Wilmington Trust Company, dated as of March 17, 2005 (incorporated by reference to Exhibit 4.4 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on July 1, 2019).
 
 
 
4.5
 
First Supplemental Indenture, among Ameris Bancorp, Fidelity Southern Corporation and Wilmington Trust Company, dated as of July 1, 2019 (incorporated by reference to Exhibit 4.4 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on July 1, 2019).
 
 
 
4.6
 
Form of Floating Rate Junior Subordinated Deferrable Interest Debentures due 2035 (incorporated by reference to Exhibit 4.6 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on July 1, 2019).
 
 
 
4.7
 
Indenture between Ameris Bancorp (as successor to Fidelity Southern Corporation) and Wilmington Trust Company, dated as of August 20, 2007 (incorporated by reference to Exhibit 4.7 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on July 1, 2019).
 
 
 
4.8
 
First Supplemental Indenture, among Ameris Bancorp, Fidelity Southern Corporation and Wilmington Trust Company, dated as of July 1, 2019 (incorporated by reference to Exhibit 4.8 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on July 1, 2019).
 
 
 
4.9
 
Form of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures due 2037 (incorporated by reference to Exhibit 4.9 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on July 1, 2019).
 
 
 
10.1
 
Employment Agreement by and among Ameris Bancorp, Ameris Bank and James B. Miller, Jr. dated as of December 17, 2018 (incorporated by reference to Exhibit 10.1 to Ameris Bancorp's Form 10-Q filed with the SEC on August 9, 2019).
 
 
 
10.2
 
Employment Agreement by and among Ameris Bancorp, Ameris Bank and H. Palmer Proctor, Jr. dated as of December 17, 2018 (incorporated by reference to Exhibit 10.2 to Ameris Bancorp's Form 10-Q filed with the SEC on August 9, 2019).
 
 
 
10.3
 
Amendment to Employment Agreement by and among Ameris Bancorp, Ameris Bank and H. Palmer Proctor, Jr. dated as of June 30, 2019 (incorporated by reference to Exhibit 10.3 to Ameris Bancorp's Form 10-Q filed with the SEC on August 9, 2019).
 
 
 
31.1
 
Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer.
 
 
 

80


Exhibit
Number
 
Description
31.2
 
Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer.
 
 
 
32.1
 
Section 1350 Certification by the Company’s Chief Executive Officer.
 
 
 
32.2
 
Section 1350 Certification by the Company’s Chief Financial Officer.
 
 
 
101.INS
 
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
 
101.SCH
 
Inline XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.DEF
 
Inline XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
101.LAB
 
Inline XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
104
 
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.



81


SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Dated: November 8, 2019
AMERIS BANCORP
 
 
 
/s/ Nicole S. Stokes
 
Nicole S. Stokes
 
Executive Vice President and Chief Financial Officer
(duly authorized signatory and principal accounting and financial officer)
 


82

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