Companies: 10,793     total market cap: $134.237 T
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Ameris Bancorp
ABCB
#2963
Rank
$5.35 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$78.40
Share price
-0.13%
Change (1 day)
54.79%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Ameris Bancorp
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2020 Q3

Ameris Bancorp - 10-Q quarterly report FY2020 Q3


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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, 2020
 
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-13901
abcb-20200930_g1.jpg
AMERIS BANCORP
(Exact name of registrant as specified in its charter)


Georgia58-1456434
(State of incorporation)(IRS Employer ID No.)

3490 Piedmont Rd N.E., Suite 1550
AtlantaGeorgia30305
(Address of principal executive offices)

(404)639-6500
(Registrant’s telephone number) 

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

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 filerýAccelerated filer☐
    
Non-accelerated filer
☐ 
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

 There were 69,490,546 shares of Common Stock outstanding as of October 31, 2020.


AMERIS BANCORP
TABLE OF CONTENTS

  Page
   
PART I – FINANCIAL INFORMATION 
   
Item 1. 
   
 
1
   
 
2
   
 
3
   
 
5
   
 
7
   
Item 2.
47
   
Item 3.
72
   
Item 4.
72
   
 
   
Item 1.
73
   
Item 1A.
73
   
Item 2.
75
   
Item 3.
75
   
Item 4.
75
   
Item 5.
75
   
Item 6.
76
   
77
 
 




Item 1. Financial Statements.
 
AMERIS BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands, except per share data)
 September 30, 2020 (unaudited)December 31, 2019
Assets  
Cash and due from banks$257,026 $246,234 
Federal funds sold and interest-bearing deposits in banks494,765 375,615 
Cash and cash equivalents751,791 621,849 
Time deposits in other banks249 249 
Investment securities available for sale, at fair value, net of allowance for credit losses at $68 and $0 at September 30, 2020 and December 31, 2019, respectively
1,117,436 1,403,403 
Other investments47,329 66,919 
Loans held for sale (includes loan at fair value of $1,368,044 and $1,656,711, respectively)
1,414,889 1,656,711 
Loans, net of unearned income14,943,593 12,818,476 
Allowance for credit losses(231,924)(38,189)
Loans, net14,711,669 12,780,287 
Other real estate owned, net17,969 19,500 
Premises and equipment, net231,278 233,102 
Goodwill928,005 931,637 
Other intangible assets, net76,164 91,586 
Cash value of bank owned life insurance175,605 175,270 
Deferred income taxes, net53,039 2,180 
Other assets348,428 259,886 
Total assets$19,873,851 $18,242,579 
Liabilities  
Deposits:  
Noninterest-bearing$5,909,316 $4,199,448 
Interest-bearing10,154,490 9,827,625 
Total deposits16,063,806 14,027,073 
Securities sold under agreements to repurchase9,103 20,635 
Other borrowings875,255 1,398,709 
Subordinated deferrable interest debentures123,860 127,560 
FDIC loss-share payable, net19,476 19,642 
Other liabilities217,668 179,378 
Total liabilities17,309,168 15,772,997 
Commitments and Contingencies (Note 11)
Shareholders’ Equity  
Preferred stock, stated value $1,000 (5,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2020 and December 31, 2019)
— — 
Common stock, par value $1 (200,000,000 and 100,000,000 shares authorized at September 30, 2020 and December 31, 2019, respectively; 71,702,587 and 71,499,829 shares issued at September 30, 2020 and December 31, 2019, respectively)
71,703 71,500 
Capital surplus1,911,031 1,907,108 
Retained earnings587,657 507,950 
Accumulated other comprehensive income, net of tax37,252 17,995 
Treasury stock, at cost (2,212,041 shares and 1,995,996 shares at September 30, 2020 and December 31, 2019, respectively)
(42,960)(34,971)
Total shareholders’ equity2,564,683 2,469,582 
Total liabilities and shareholders’ equity$19,873,851 $18,242,579 

 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,
 2020201920202019
Interest income    
Interest and fees on loans$172,351 $175,046 $518,938 $404,457 
Interest on taxable securities7,259 11,354 26,688 29,780 
Interest on nontaxable securities159 168 473 426 
Interest on deposits in other banks and federal funds sold165 1,793 1,621 7,655 
Total interest income179,934 188,361 547,720 442,318 
Interest expense    
Interest on deposits11,822 29,425 50,197 74,563 
Interest on other borrowings5,574 10,167 23,226 17,940 
Total interest expense17,396 39,592 73,423 92,503 
Net interest income162,538 148,769 474,297 349,815 
Provision for loan losses26,692 5,989 132,188 14,065 
Provision for unfunded commitments(10,131)— 13,581 — 
Provision for other credit losses1,121 — 1,121 — 
Provision for credit losses17,682 5,989 146,890 14,065 
Net interest income after provision for credit losses144,856 142,780 327,407 335,750 
Noninterest income    
Service charges on deposit accounts10,914 13,411 32,680 37,225 
Mortgage banking activity138,627 53,041 278,885 86,241 
Other service charges, commissions and fees1,151 1,236 3,409 2,828 
Net gain on securities— 4 5 139 
Other noninterest income8,326 9,301 19,378 16,567 
Total noninterest income159,018 76,993 334,357 143,000 
Noninterest expense    
Salaries and employee benefits96,698 77,633 267,812 154,296 
Occupancy and equipment expense13,805 12,639 39,640 28,677 
Data processing and communications expenses12,226 10,372 34,694 27,151 
Credit resolution-related expenses802 1,094 3,950 2,984 
Advertising and marketing expense966 1,949 4,779 5,677 
Amortization of intangible assets4,190 5,719 15,422 11,972 
Merger and conversion charges(44)65,158 1,391 70,690 
Other noninterest expenses25,049 18,133 79,825 47,926 
Total noninterest expense153,692 192,697 447,513 349,373 
Income before income tax expense150,182 27,076 214,251 129,377 
Income tax expense34,037 5,692 46,548 29,184 
Net income116,145 21,384 167,703 100,193 
Other comprehensive income    
Net unrealized holding gains (losses) arising during period on investment securities available for sale, net of tax expense (benefit) of $(663), $(244), $5,080 and $5,549
(2,494)(921)19,110 20,873 
Reclassification adjustment for gains on investment securities included in earnings, $0, $0, $0 and $25
— — — (94)
Unrealized gains (losses) on cash flow hedges arising during period, net of tax expense (benefit) of $35, $(15), $39 and $(125)
133 (59)147 (471)
Other comprehensive income(2,361)(980)19,257 20,308 
Total comprehensive income$113,784 $20,404 $186,960 $120,501 
Basic earnings per common share$1.68 $0.31 $2.42 $1.83 
Diluted earnings per common share$1.67 $0.31 $2.42 $1.83 
Weighted average common shares outstanding (in thousands)
    
Basic69,231 69,372 69,243 54,762 
Diluted69,346 69,600 69,403 54,883 
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, 2020
Common StockCapital SurplusRetained EarningsAccumulated Other Comprehensive Income (Loss), Net of TaxTreasury StockTotal Shareholders' Equity
SharesAmountSharesAmount
Balance at beginning of period71,674,087 $71,674 $1,909,839 $481,948 $39,613 2,211,305 $(42,944)$2,460,130 
Issuance of restricted shares12,500 13 (13)— — — — — 
Proceeds from exercise of stock options16,000 16 264 — — — — 280 
Share-based compensation— — 941 — — — — 941 
Purchase of treasury shares— — — — — 736 (16)(16)
Net income— — — 116,145 — — — 116,145 
Dividends on common shares ($0.15 per share)
— — — (10,436)— — — (10,436)
Other comprehensive income (loss) during the period— — — — (2,361)— — (2,361)
Balance at end of period71,702,587 $71,703 $1,911,031 $587,657 $37,252 2,212,041 $(42,960)$2,564,683 

Nine Months Ended September 30, 2020
Common StockCapital SurplusRetained EarningsAccumulated Other Comprehensive Income (Loss), Net of TaxTreasury StockTotal Shareholders' Equity
SharesAmountSharesAmount
Balance at beginning of period71,499,829 $71,500 $1,907,108 $507,950 $17,995 1,995,996 $(34,971)$2,469,582 
Issuance of restricted shares164,476 164 125 — — — — 289 
Forfeitures of restricted shares(11,250)(11)(159)— — — — (170)
Proceeds from exercise of stock options49,532 50 931 — — — — 981 
Share-based compensation— — 3,026 — — — — 3,026 
Purchase of treasury shares— — — — — 216,045 (7,989)(7,989)
Net income— — — 167,703 — — — 167,703 
Dividends on common shares ($0.45 per share)
— — — (31,292)— — — (31,292)
Cumulative effect of change in accounting for credit losses— — — (56,704)— — — (56,704)
Other comprehensive income (loss) during the period— — — — 19,257 — — 19,257 
Balance at end of period71,702,587 $71,703 $1,911,031 $587,657 $37,252 2,212,041 $(42,960)$2,564,683 

3

AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (unaudited)
(dollars in thousands)

Three Months Ended September 30, 2019
Common StockCapital SurplusRetained EarningsAccumulated Other Comprehensive Income (Loss), Net of TaxTreasury StockTotal Shareholders' Equity
SharesAmountSharesAmount
Balance at beginning of period49,099,332 $49,099 $1,053,500 $446,182 $16,462 1,837,748 $(28,122)$1,537,121 
Issuance of common stock for acquisition22,181,522 22,182 847,112 — — — — 869,294 
Issuance of restricted shares30,452 30 (30)— — — — — 
Proceeds from exercise of stock options120,275 136 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 period71,431,581 $71,447 $1,904,789 $457,127 $15,482 1,837,748 $(28,122)$2,420,723 

Nine Months Ended September 30, 2019
Common StockCapital SurplusRetained EarningsAccumulated Other Comprehensive Income (Loss), Net of TaxTreasury StockTotal Shareholders' Equity
SharesAmountSharesAmount
Balance at beginning of period49,014,925 $49,015 $1,051,584 $377,135 $(4,826)1,514,984 $(16,561)$1,456,347 
Issuance of common stock for acquisition22,181,522 22,182 847,112 — — — — 869,294 
Issuance of restricted shares147,574 147 768 — — — — 915 
Forfeitures of restricted shares(40,423)(40)(484)— — — — (524)
Proceeds from exercise of stock options127,983 143 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 leases— — — (276)— — — (276)
Other comprehensive income (loss) during the period— — — — 20,308 — — 20,308 
Balance at end of period71,431,581 $71,447 $1,904,789 $457,127 $15,482 1,837,748 $(28,122)$2,420,723 

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,
 20202019
Operating Activities  
Net income$167,703 $100,193 
Adjustments reconciling net income to net cash provided by (used in) operating activities:  
Depreciation11,843 9,077 
Net (gains) losses on sale or disposal of premises and equipment including write-downs(125)159 
Net write-downs on other assets1,366 4,359 
Provision for credit losses146,890 14,065 
Net losses on sale of other real estate owned including write-downs715 158 
Share-based compensation expense2,708 2,450 
Amortization of intangible assets15,422 11,972 
Amortization of operating lease right-of-use assets12,408 7,145 
Provision for deferred taxes(28,652)12,084 
Net amortization of investment securities available for sale4,702 3,069 
Net gain on securities(5)(139)
Accretion of discount on purchased loans, net(22,663)(9,526)
Accretion on other borrowings152 33 
Accretion on subordinated deferrable interest debentures1,455 1,170 
Loan servicing asset impairment30,566 141 
Originations of mortgage loans held for sale(6,492,434)(2,376,070)
Payments received on mortgage loans held for sale38,919 4,438 
Proceeds from sales of mortgage loans held for sale6,888,287 1,660,599 
Net gains on sale of mortgage loans held for sale(270,503)(52,605)
Originations of SBA loans(104,160)(22,121)
Proceeds from sales of SBA loans99,369 42,647 
Net gains on sale of SBA loans(6,250)(4,220)
Increase in cash surrender value of bank owned life insurance(2,768)(1,861)
Gain on bank owned life insurance proceeds(948)(4,335)
Loss on sale of loans— 1,954 
Changes in FDIC loss-share payable, net of cash payments223 3,695 
Change attributable to other operating activities(114,858)4,166 
Net cash provided by (used in) operating activities379,362 (587,303)
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)
Proceeds from prepayments and maturities of securities available for sale306,886 176,760 
Proceeds from sales of securities available for sale— 64,995 
Net (increase) decrease in other investments18,095 (44,936)
Net increase in loans(2,029,595)(919,493)
Purchases of premises and equipment(14,164)(5,924)
Proceeds from sales of premises and equipment 421 5,330 
Proceeds from sales of other real estate owned7,777 7,448 
Payments paid to FDIC under loss-share agreements(389)(3,692)
Proceeds from bank owned life insurance3,381 8,178 
Proceeds from sales of loans— 96,162 
Net cash and cash equivalents received in acquisitions(2,417)244,181 
Net cash used in investing activities(1,710,005)(580,030)
  (Continued)

5

AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 Nine Months Ended
September 30,
 20202019
Financing Activities, net of effects of business combinations  
Net increase (decrease) in deposits$2,038,847 $(33,042)
Net decrease in securities sold under agreements to repurchase(11,532)(24,985)
Proceeds from other borrowings7,053,149 2,969,000 
Repayment of other borrowings(7,576,455)(1,921,267)
Repayment of subordinated deferrable interest debentures(5,155)— 
Proceeds from exercise of stock options981 3,587 
Dividends paid - common stock(31,262)(14,237)
Purchase of treasury shares(7,988)(11,561)
Net cash provided by financing activities1,460,585 967,495 
Net increase (decrease) in cash and cash equivalents129,942 (199,838)
Cash and cash equivalents at beginning of period621,849 679,527 
Cash and cash equivalents at end of period$751,791 $479,689 
Supplemental Disclosures of Cash Flow Information  
Cash paid (received) during the period for:  
Interest$78,705 $87,066 
Income taxes56,371 32,096 
Loans transferred to other real estate owned6,871 4,411 
Loans transferred from loans held for sale to loans held for investment135,689 — 
Loans transferred from loans held for investment to loans held for sale46,845 1,554 
Loans provided for the sales of other real estate owned592 144 
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 liabilities11,040 262 
Assets acquired in business acquisitions— 5,186,974 
Liabilities assumed in business acquisitions— 4,317,661 
Change in unrealized gain (loss) on securities available for sale, net of tax19,109 20,778 
Change in unrealized gain (loss) on cash flow hedge, net of tax147 (470)
  (Concluded)
 
See notes to unaudited consolidated financial statements.
 

6

AMERIS BANCORP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
September 30, 2020
 
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, 2020, the Bank operated 170 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 (“GAAP”) 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, 2020 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, 2019, as amended.

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 required reserve rate was set to 0% effective March 26, 2020 and, accordingly, the Bank had no reserve requirement at September 30, 2020. The reserve requirement as of December 31, 2019 was $109.7 million 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 2020

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
7

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. During the first quarter of 2020, the Company adopted the provision of ASU 2018-15, and the adoption did not have a material impact on the Company's consolidated financial statements.

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. During the first quarter of 2020, the Company adopted the provision of ASU 2018-13, and the adoption did not have a material impact on the Company's consolidated financial statements.

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. During the first quarter of 2020, the Company adopted the provision of ASU 2017-04, and the adoption did not have a material impact on the Company's consolidated financial statements.

ASU 2016-13 – Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets 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 will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. ASU 2016-13 simplifies the accounting for purchased credit-impaired debt securities and loans and expands the disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for loan and lease losses. In addition, entities will need to 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. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. 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 adopted ASU 2016-13 and all related subsequent amendments thereto effective January 1, 2020 using the modified retrospective approach. The Company recognized an increase in the allowance for credit losses on loans of $78.7 million, an increase in the allowance for unfunded commitments of $12.7 million and a reduction of retained earnings of $56.7 million, net of the increase in deferred tax assets of $19.0 million.

The Company adopted ASU 2016-13 using the prospective transition approach for purchased financial assets with credit deterioration ("PCD") that were previously classified as purchased credit impaired ("PCI") and accounted for under ASU
8

310-30. In accordance with ASU 2016-13, the Company did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The Company determined $15.6 million of existing discounts on PCD loans was related to credit factors and was reclassified to the ACL upon adoption. The remaining discount on the PCD assets was determined to be related to noncredit factors and will be accreted into interest income on a level-yield method over the life of the loans.

In addition, for available-for-sale debt securities, the new methodology replaces the other-than-temporary impairment model and requires the recognition of an allowance for reductions in a security’s fair value attributable to declines in credit quality, instead of a direct write-down of the security, when a valuation decline is determined to be other-than-temporary. There was no financial impact related to this implementation. The Company has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest in other assets in the consolidated balance sheets. A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to debt securities reversed against interest income for the three and nine months ended September 30, 2020 and 2019. Accrued interest receivable on available-for-sale debt securities totaled $4.5 million as of September 30, 2020. Refer to Note 3 for additional information.

Allowance for Credit Losses – Loans

Under the current expected credit loss model, the allowance for credit losses (“ACL”) on loans is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

The Company estimates the ACL on loans based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL. Accrued interest receivable on loans is reported in other assets on the consolidated balance sheets and totaled $76.0 million at September 30, 2020. During the third quarter of 2020, the Company established an ACL of $1.1 million related to deferred interest on loans modified under its Disaster Relief Program.

Expected credit losses are reflected in the allowance for credit losses through a charge to provision for credit losses. When the Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.

The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company uses the discounted cash flow (“DCF”) method, the vintage method, the PD×LGD method or a qualitative approach as discussed further below.

The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert back to historical loss information on a straight-line basis over four quarters when it can no longer develop reasonable and supportable forecasts.

The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:

Commercial, financial, and agricultural - These loans include both secured and unsecured loans for working capital, expansion, crop production and other business purposes. Commercial, financial and agricultural loans also include certain U.S. Small Business Administration (“SBA”) 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.

9

Consumer installment - These loans include home improvement loans, direct automobile loans, boat and recreational vehicle financing, and both 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.

Indirect automobile - Indirect automobile loans are secured by automobile collateral, generally new and used cars and trucks from auto dealers that operate within selected states. Repayment of these loans depends largely on the personal income of the borrowers which can be affected by changes in economic conditions such as unemployment levels. Collateral consists of rapidly depreciating assets that may not provide an adequate source of repayment of the loan in the event of default.

Mortgage warehouse - Mortgage Warehouse facilities are provided to unaffiliated mortgage origination companies and are collateralized by one-to-four family residential loans or mortgage servicing rights. The originator closes new mortgage loans with the intent to sell these loans to third party investors for a profit. The Bank provides funding to the mortgage companies for the period between the origination and their sale of the loan. The Bank has a policy that requires that it separately validate that each residential mortgage loan was underwritten consistent with the underwriting requirements of the final investor or market standards prior to advancing funds. The Bank is repaid with the proceeds received from sale of the mortgage loan to the final investor.

Municipal - Municipal loans consists of loans made to counties, municipalities and political subdivisions. The source of repayment for these loans is either general revenue of the municipality or revenues of the project being financed by the loan. These loans may be secured by real estate, machinery, equipment or assignment of certain revenues.

Premium Finance - Premium finance provides loans for the acquisition of certain commercial insurance policies. Repayment of these loans is dependent on the cash flow of the insured which can be affected by changes in economic conditions. The Bank has procedures in place to cancel the insurance policy after default by the borrower to minimize the risk of loss.

Real Estate - Construction and Development - 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 and investment properties. The Company limits its construction lending risk through adherence to established underwriting procedures.

Real Estate - Commercial and Farmland - Commercial real estate loans include loans secured by owner-occupied commercial buildings for office, storage, retail, farmland and warehouse space. They also include non-owner occupied commercial buildings such as leased retail and office space. Lodging (hotel / motel) loans are a subsegment of commercial real estate loans. 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.

Real Estate - Residential - The Company's residential loans represent permanent mortgage financing and are secured by residential properties located within the Bank's market areas. Residential real estate loans also include purchased loan pools secured by residential properties located outside the Bank's market area.

Discounted Cash Flow Method

The Company uses the discounted cash flow method to estimate expected credit losses for the commercial, financial and agricultural, consumer installment, real estate - construction and development, real estate - commercial and farmland and real estate - residential loan segments. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data adjusted based upon peer data.

The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, the Company uses a combination of national and regional data including gross domestic product, home price indices, unemployment rates, retail sales, and rental vacancy rates depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses.

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other
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internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An ACL is established for the difference between the instrument’s NPV and amortized cost basis.

Vintage Method

The Company uses a vintage method to estimate expected credit losses for the indirect automobile loans segment. The Company’s vintage analysis is based on loss rates by origination date and includes data on loan amounts, loan charge-offs and recoveries by date. Using this information, vintage tables are created to evaluate loss rate patterns and develop estimated losses by vintage year. Once the tables have been calculated, reserves are estimated by multiplying the balance of a given origination year by the remaining loss to be experienced by that vintage.

PD×LGD Method

The Company uses the PD×LGD method to estimate expected credit losses (“EL”) for the premium finance and municipal loan segments. Under the PD×LGD method, the loss rate is a function of two components: (1) the lifetime default rate (“PD”); and (2) the loss given default (“LGD”). For the premium finance loan segment, calculations of lifetime default rates and corresponding loss given default rates of static pools are performed. The PD×LGD method uses the default rates and loss given default rates of different static pools to quantify the relationship between those rates and the credit mix of the pools and applies that relationship on a going forward basis. The Company has not incurred any historical defaults or charge offs in its municipal portfolio. Therefore, in lieu of historical loss rates, the Company applies historical benchmarking PD and LGD ratios provided by a reputable and independent third party to the current municipal loan balance.

Qualitative Factors

The Company uses qualitative factors for model risk uncertainty as well as for loan segment specific risks that cannot be addressed in the quantitative methods. In particular, the warehouse loan segment uses a qualitative factor for fraud losses based upon historical fraud loss data since the Company has not experienced any credit related losses in this loan segment to date.

Individually Evaluated Assets

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring.

A loan that has been modified or renewed is considered a troubled debt restructuring (“TDR”) when two conditions are met: (1) the borrower is experiencing financial difficulty; and (2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics. The Company’s ACL reflects all effects of a TDR when an individual asset is specifically identified as a reasonably expected TDR. The Company has determined that a TDR is reasonably expected no later than the point when the lender concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession from the lender to avoid a default. Reasonably expected TDRs and executed non-performing TDRs are evaluated individually to determine the required ACL. TDRs performing in accordance with their modified contractual terms for a reasonable period of
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time may be included in the Company’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’s consolidated statements of income. The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees and is included in other liabilities on the Company’s consolidated balance sheets.

Guidance on Non-TDR Loan Modifications due to COVID-19

In April 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System (the "FRB") and the Federal Deposit Insurance Corporation (the "FDIC"), issued a revised interagency statement encouraging financial institutions to work with customers affected by the novel coronavirus pandemic (“COVID-19”) and providing additional information regarding loan modifications. The revised interagency statement clarifies the interaction between the interagency statement issued on March 22, 2020 and the temporary relief provided by Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Section 4013 of the CARES Act allows financial institutions to suspend the requirements to classify certain loan modifications as TDRs. The revised statement also provides supervisory interpretations on past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital. This interagency guidance is expected to reduce the number of TDRs that will be reported in future periods; however, the amount is indeterminable and will depend on future developments, which are highly uncertain and cannot be accurately predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic. The Company is evaluating borrowers requesting payment relief beyond two 90-day periods under its Disaster Relief Program against existing TDR guidance and not under Section 4013 of the CARES Act.

Accounting Standards Pending Adoption

ASU No. 2020-04 – Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides optional guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments, which are elective, provide expedients and exceptions for applying GAAP to contract modifications and hedging relationships affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate that is expected to be discontinued due to reference rate reform. The optional expedients for contract modifications apply consistently for all contracts or transactions within the relevant Codification Topic, Subtopic, or Industry Subtopic that contains the guidance that otherwise would be required to be applied, while those for hedging relationships can be elected on an individual hedging relationship basis. Because the guidance is intended to assist stakeholders during the global market-wide reference rate transition period, it is in effect for a limited time, from March 12, 2020 through December 31, 2022. The Company has established a working committee with representatives from relevant functional areas to inventory the contracts and accounts that are tied to LIBOR and develop a transition plan for the affected items. The Company is currently evaluating the impact of adopting ASU 2020-04 on the consolidated financial statements.

ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain technical exceptions. ASU 2019-12 also clarifies and amends the accounting for income taxes in certain areas including, among others: (i) franchise taxes that are partially based on income; (ii) whether step ups in the tax basis of goodwill should be considered part of the acquisition to which it related or recognized as a separate transaction; and (iii) requiring the effect of an enacted change in tax laws or rates to be reflected in the annual effective tax rate computation in the interim period that includes the enactment date. The Company expects to apply the amendments in this update on a modified retrospective basis for the provision related to franchise taxes and prospectively for all other amendments. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated balance sheet,
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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.

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.

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.

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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 finalized its fair value adjustments during the second quarter of 2020.
(dollars in thousands)As Recorded
by Fidelity		Initial
Fair Value
Adjustments		Subsequent
Adjustments		As Recorded
by Ameris
Assets
Cash and due from banks$26,264 $— $(2,417)(o)$23,847 
Federal funds sold and interest-bearing deposits in banks217,936 — — 217,936 
Investment securities299,341 (1,444)(a)— 297,897 
Other investments7,449 — — 7,449 
Loans held for sale328,657 (1,290)(b)250 (p)327,617 
Loans3,587,412 (79,002)(c)3,852 (q)3,512,262 
Less allowance for loan losses(31,245)31,245 (d)— — 
     Loans, net3,556,167 (47,757)3,852 3,512,262 
Other real estate owned7,605 (427)(e)— 7,178 
Premises and equipment93,662 11,407 (f)(3,820)(r)101,249 
Other intangible assets, net10,670 39,940 (g)— 50,610 
Cash value of bank owned life insurance72,328 — — 72,328 
Deferred income taxes, net104 (104)(h)— — 
Other assets157,863 998 (i)(17,138)(s)141,723 
     Total assets$4,778,046 $1,323 $(19,273)$4,760,096 
Liabilities
Deposits:
     Noninterest-bearing$1,301,829 $— $(2,114)(t)$1,299,715 
     Interest-bearing2,740,552 942 (j)— 2,741,494 
          Total deposits4,042,381 942 (2,114)4,041,209 
Securities sold under agreements to repurchase22,345 — — 22,345 
Other borrowings149,367 2,265 (k)(300)(u)151,332 
Subordinated deferrable interest debentures46,393 (9,675)(l)— 36,718 
Deferred tax liability, net12,222 (11,401)(m)497 (v)1,318 
Other liabilities65,027 538 (n)(839)(w)64,726 
     Total liabilities4,337,735 (17,331)(2,756)4,317,648 
Net identifiable assets acquired over (under) liabilities assumed440,311 18,654 (16,517)442,448 
Goodwill— 410,348 16,517 426,865 
Net assets acquired over liabilities assumed$440,311 $429,002 $— $869,313 
Consideration:
     Ameris Bancorp common shares issued22,181,522 
     Price per share of the Company's common stock39.19 
          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.
(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.
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(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.
(o)Subsequent to acquisition, cash and due from banks were adjusted for Fidelity reconciling items.
(p)Adjustment reflects additional recording of fair value adjustments to loans held for sale.
(q)Adjustment reflects additional recording of fair value adjustments of the acquired loan portfolio.
(r)Adjustment reflects additional recording of fair value adjustments to premises and equipment.
(s)Adjustment reflects additional recording of fair value adjustments to other assets and includes a reclassification of deferred income taxes to current income taxes.
(t)Subsequent to acquisition, noninterest-bearing deposits were adjusted for Fidelity reconciling items.
(u)Adjustment reflects additional recording of fair value adjustments to other borrowings.
(v)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 and includes a reclassification of deferred income taxes to current income taxes.
(w)Adjustment reflects additional recording of fair value adjustments to other liabilities.

Goodwill of $426.9 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 $75.2 million, or 2.09%, estimated discount to the acquired carrying value. Of the total loans acquired, management identified $121.3 million that were considered to be credit impaired and were accounted for under ASC Topic 310-30 prior to the adoption of ASC 326 on January 1, 2020. 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$191,534 
Non-accretable difference(23,058)
Cash flows expected to be collected168,476 
Accretable yield(47,173)
Total purchased credit-impaired loans acquired$121,303 

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$121,303 $191,534 $23,058 
Acquired receivables not subject to ASC 310-30$3,390,959 $4,217,890 $33,076 
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Pro Forma Financial Information

The results of operations of Fidelity subsequent to its acquisition date 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, 2019, 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)2020201920202019
Net interest income and noninterest income$321,556 $225,762 $808,654 $618,148 
Net income$116,111 $73,213 $168,804 $165,561 
Net income available to common shareholders$116,111 $73,213 $168,804 $165,561 
Income per common share available to common shareholders – basic$1.68 $1.06 $2.44 $2.38 
Income per common share available to common shareholders – diluted$1.67 $1.05 $2.43 $2.38 
Average number of shares outstanding, basic69,231 69,372 69,243 69,469 
Average number of shares outstanding, diluted69,346 69,600 69,403 69,590 

NOTE 3 – INVESTMENT SECURITIES
 
The amortized cost and estimated fair value of securities available for sale along with allowance for credit losses, gross unrealized gains and losses are summarized as follows:
(dollars in thousands)Amortized
Cost		Allowance for Credit LossesGross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value
September 30, 2020
U.S. government sponsored agencies$17,184 $— $420 $— $17,604 
State, county and municipal securities84,219 — 3,429 — 87,648 
Corporate debt securities51,659 (68)826 (276)52,141 
SBA pool securities62,204 — 3,019 (107)65,116 
Mortgage-backed securities855,083 — 39,942 (98)894,927 
Total debt securities$1,070,349 $(68)$47,636 $(481)$1,117,436 
December 31, 2019
U.S. government sponsored agencies$22,246 $— $116 $— $22,362 
State, county and municipal securities102,952 — 2,310 (2)105,260 
Corporate debt securities51,720 — 1,281 (2)52,999 
SBA pool securities73,704 — 617 (409)73,912 
Mortgage-backed securities1,129,816 — 19,937 (883)1,148,870 
Total debt securities$1,380,438 $— $24,261 $(1,296)$1,403,403 

The amortized cost and estimated fair value of debt securities available for sale securities as of September 30, 2020, by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying these securities may be called or repaid without penalty. Therefore, these securities are not included in the maturity categories in the following maturity summary:
(dollars in thousands)
Amortized
Cost		Estimated
Fair
Value
Due in one year or less$35,577 $35,851 
Due from one year to five years56,870 58,892 
Due from five to ten years68,527 71,211 
Due after ten years54,292 56,555 
Mortgage-backed securities855,083 894,927 
 $1,070,349 $1,117,436 
 
Securities with a carrying value of approximately $595.7 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, 2020, compared with $679.6 million at December 31, 2019.
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The following table shows the gross unrealized losses and estimated fair value of securities aggregated by category and length of time that securities have been in a continuous unrealized loss position at September 30, 2020 and December 31, 2019.
 Less Than 12 Months12 Months or MoreTotal
(dollars in thousands)Estimated
Fair
Value		Unrealized
Losses		Estimated
Fair
Value		Unrealized
Losses		Estimated
Fair
Value		Unrealized
Losses
September 30, 2020      
Corporate debt securities$9,906 $(276)$— $— $9,906 $(276)
SBA pool securities— — 4,276 (107)4,276 (107)
Mortgage-backed securities24,687 (98)2 — 24,689 (98)
Total debt securities$34,593 $(374)$4,278 $(107)$38,871 $(481)
December 31, 2019      
State, county and municipal securities$803 $(2)$— $— $803 $(2)
Corporate debt securities2,573 (2)— — 2,573 (2)
SBA pool securities28,521 (285)4,825 (124)33,346 (409)
Mortgage-backed securities99,279 (416)52,326 (467)151,605 (883)
Total debt securities$131,176 $(705)$57,151 $(591)$188,327 $(1,296)
 
As of September 30, 2020, the Company’s security portfolio consisted of 524 securities, 30 of which were in an unrealized loss position. At September 30, 2020, the Company held 17 mortgage-backed securities that were in an unrealized loss position, all of which were issued by U.S. government-sponsored entities and agencies. At September 30, 2020, the Company held seven SBA pool securities and six corporate securities that were in an unrealized loss position.

During 2020 and 2019, the Company received timely and current interest and principal payments on all of the securities classified as corporate debt securities. The Company’s investments in subordinated 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, 2020 or December 31, 2019.
 
Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate securities in an unrealized loss position on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation, to determine if credit-related impairment exists. Management first evaluates whether they intend to sell or more likely than not will be required to sell an impaired security before recovering its amortized cost basis. If either criteria is met, the entire amount of unrealized loss is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. If either of the above criteria is not met, management evaluates whether the decline in fair value is attributable to credit or resulted from other factors. The Company does not intend to sell these investment securities at an unrealized loss position at September 30, 2020, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Based on the results of management's review, at September 30, 2020, management determined $68,000 was attributable to credit impairment and increased the allowance for credit losses accordingly. The remaining $481,000 in unrealized loss was determined to be from factors other than credit.
(dollars in thousands)Nine Months Ended
September 30, 2020
Allowance for credit losses
Beginning balance$— 
Current-period provision for expected credit losses68 
Ending balance$68 
 
At September 30, 2020 and December 31, 2019, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.
 
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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, 2020 and 2019:
(dollars in thousands)September 30, 2020September 30, 2019
Gross gains on sales of securities$— $522 
Gross losses on sales of securities— (464)
Net realized gains on sales of securities available for sale$— $58 
Sales proceeds$— $64,995 

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, 2020 and 2019:
(dollars in thousands)September 30, 2020September 30, 2019
Net realized gains on sales of securities available for sale$— $58 
Unrealized holding gains on equity securities5 19 
Net realized gains on sales of other investments— 62 
Total gain on securities$5 $139 

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. The Bank also offers certain SBA and commercial insurance premium finance loans nationally. Loans outstanding under the SBA's Paycheck Protection Program ("PPP") 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. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio is susceptible to changes in real estate conditions in the Bank’s primary market area.

Loans are stated at amortized cost. Balances within the major loans receivable categories are presented in the following table:
(dollars in thousands)September 30, 2020December 31, 2019
Commercial, financial and agricultural$1,879,788 $802,171 
Consumer installment450,810 498,577 
Indirect automobile682,396 1,061,824 
Mortgage warehouse995,942 526,369 
Municipal725,669 564,304 
Premium finance710,890 654,669 
Real estate – construction and development1,628,255 1,549,062 
Real estate – commercial and farmland5,116,252 4,353,039 
Real estate – residential2,753,591 2,808,461 
 $14,943,593 $12,818,476 
 
18

The following is a summary of changes in the accretable discounts of purchased loans during the nine months ended September 30, 2019:
(dollars in thousands)September 30, 2019
Balance, January 1$40,496 
Additions due to acquisitions38,116 
Accretion(10,503)
Transfers between non-accretable and accretable discounts, net(2,052)
Ending balance$66,057 
 
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:
(dollars in thousands)September 30, 2020December 31, 2019
Commercial, financial and agricultural$11,844 $9,236 
Consumer installment947 831 
Indirect automobile1,936 1,746 
Premium finance— 600 
Real estate – construction and development5,666 1,988 
Real estate – commercial and farmland39,248 23,797 
Real estate – residential78,522 36,926 
 $138,163 $75,124 

There was no interest income recognized on nonaccrual loans during the nine months ended September 30, 2020.

The following table presents an analysis of nonaccrual loans with no related allowance for credit losses:

(dollars in thousands)September 30, 2020
Commercial, financial and agricultural$1,060 
Real estate – construction and development1,947 
Real estate – commercial and farmland9,650 
Real estate – residential24,920 
$37,577 


19

The following table presents an analysis of past-due loans as of September 30, 2020 and December 31, 2019:
(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, 2020       
Commercial, financial and agricultural$6,419 $1,892 $4,831 $13,142 $1,866,646 $1,879,788 $— 
Consumer installment2,552 1,441 1,942 5,935 444,875 450,810 1,305 
Indirect automobile2,603 796 1,440 4,839 677,557 682,396 — 
Mortgage warehouse— — — — 995,942 995,942 — 
Municipal— — — — 725,669 725,669 — 
Premium finance5,403 4,517 3,774 13,694 697,196 710,890 3,774 
Real estate – construction and development7,268 4,700 4,452 16,420 1,611,835 1,628,255 1,883 
Real estate – commercial and farmland9,962 1,407 9,969 21,338 5,094,914 5,116,252 — 
Real estate – residential16,808 4,070 73,188 94,066 2,659,525 2,753,591 41 
Total$51,015 $18,823 $99,596 $169,434 $14,774,159 $14,943,593 $7,003 
December 31, 2019       
Commercial, financial and agricultural$3,609 $2,251 $6,484 $12,344 $789,827 $802,171 $— 
Consumer installment3,488 1,336 1,452 6,276 492,301 498,577 922 
Indirect automobile5,978 1,067 1,522 8,567 1,053,257 1,061,824 21 
Mortgage warehouse— — — — 526,369 526,369 — 
Municipal— — — — 564,304 564,304 — 
Premium finance13,801 8,022 5,411 27,234 627,435 654,669 4,811 
Real estate – construction and development7,785 1,224 1,583 10,592 1,538,470 1,549,062 — 
Real estate – commercial and farmland7,404 3,405 15,598 26,407 4,326,632 4,353,039 — 
Real estate – residential46,226 15,277 31,083 92,586 2,715,875 2,808,461 — 
Total$88,291 $32,582 $63,133 $184,006 $12,634,470 $12,818,476 $5,754 

Collateral-Dependent Loans

Collateral-dependent loans are loans where repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment. These loans are written down to the lower of cost or collateral value less estimated selling costs. As of September 30, 2020, there were $164.0 million of collateral-dependent loans which are primarily secured by real estate, equipment and receivables.
 
20

Impaired Loans

Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would 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 would be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considered the borrower’s capacity to pay, which included 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 assessed 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 was deemed impaired, a specific valuation allowance was allocated, if necessary, so that the loan was 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 was expected solely from the collateral. Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured, in which case interest was recognized on a cash basis.
 
The following is a summary of information pertaining to impaired loans: 
 As of and for the Period Ended
(dollars in thousands)December 31, 2019September 30, 2019
Nonaccrual loans$75,124 $100,501 
Troubled debt restructurings not included above29,609 31,725 
Total impaired loans$104,733 $132,226 
Quarter-to-date interest income recognized on impaired loans$1,201 $904 
Year-to-date interest income recognized on impaired loans$4,131 $2,930 
Quarter-to-date foregone interest income on impaired loans$1,044 $1,579 
Year-to-date foregone interest income on impaired loans$4,100 $3,057 
 
The following table presents an analysis of information pertaining to impaired loans as of December 31, 2019 and September 30, 2019:
(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, 2019       
Commercial, financial and agricultural$18,438 $1,911 $7,840 $9,751 $1,542 $9,073$6,287
Consumer installment2,179 839 — 839 — 420767
Indirect automobile1,845 1,746 — 1,746 — 1,481592
Premium finance757 — 757 757 156 758524
Real estate – construction and development4,893 1,319 1,605 2,924 204 5,2777,278
Real estate – commercial and farmland42,515 12,147 18,381 30,528 953 30,74923,280
Real estate – residential62,675 13,413 44,775 58,188 3,592 70,72351,817
Total$133,302 $31,375 $73,358 $104,733 $6,447 $118,481$90,545 

21

(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$19,615 $4,218 $4,176 $8,394 $1,022 $6,717 $5,421 
Consumer installment— — — — — 466 749 
Indirect automobile3,986 1,216 — 1,216 — 608 304 
Premium finance759 — 759 759 601 932 466 
Real estate – construction and development15,275 674 6,956 7,630 375 8,484 8,367 
Real estate – commercial and farmland45,361 15,211 15,759 30,970 1,043 24,523 21,469 
Real estate – residential86,805 53,703 29,554 83,257 2,211 60,815 50,224 
Total$171,801 $75,022 $57,204 $132,226 $5,252 $102,545 $87,000 
 
22

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. This grade is also assigned to loans which received a second 90-day deferral under our Disaster Relief Program.

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.
 
23

The following table presents the loan portfolio's amortized cost by class of financing receivable, risk grade and year of origination (in thousands). Generally, current period renewals of credit are underwritten again at the point of renewal and considered current period originations for purposes of the table below. There were no loans risk graded 8 or 9 at September 30, 2020.

Term Loans
As of September 30, 2020
20202019201820172016PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to Term Loans Amortized Cost BasisTotal
Commercial, Financial and Agricultural
Risk Grade:
1$1,128,005 $1,379 $427 $5,700 $3,113 $511 $12,969 $— $1,152,104 
2815 864 1,070 1,035 1,719 201 9,130 — 14,834 
344,905 17,422 20,498 5,410 57,514 9,042 72,872 — 227,663 
462,651 92,559 49,128 28,498 89,217 22,108 88,512 — 432,673 
52,812 4,749 9,084 5,873 4,747 877 3,802 — 31,944 
649 1,372 880 1,275 166 206 958 — 4,906 
725 2,138 2,167 4,281 1,093 653 5,307 — 15,664 
Total commercial, financial and agricultural$1,239,262 $120,483 $83,254 $52,072 $157,569 $33,598 $193,550 $— $1,879,788 
Consumer Installment
Risk Grade:
1$5,631 $1,859 $707 $6 $3,872 $115 $1,378 $— $13,568 
2— 64 2 67 — — 39 — 172 
311,488 3,545 1,180 685 8,759 1,620 4,628 — 31,905 
4122,050 106,124 54,423 10,075 92,677 14,018 3,690 — 403,057 
555 33 29 246 137 6 8 — 514 
6— 14 3 75 15 49 — — 156 
721 132 157 608 219 180 121 — 1,438 
Total consumer installment$139,245 $111,771 $56,501 $11,762 $105,679 $15,988 $9,864 $— $450,810 
Indirect Automobile
Risk Grade:
2$— $88 $35 $3,990 $— $6,471 $— $— $10,584 
3— 212,956 218,057 72,465 39,310 124,285 — — 667,073 
6— 83 92 86 — 114 — — 375 
7— 607 702 1,550 172 1,333 — — 4,364 
Total indirect automobile$— $213,734 $218,886 $78,091 $39,482 $132,203 $— $— $682,396 
Mortgage Warehouse
Risk Grade:
3$— $— $— $— $— $— $995,942 $— $995,942 
Total mortgage warehouse$— $— $— $— $— $— $995,942 $— $995,942 
24

Term Loans
As of September 30, 2020
20202019201820172016PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to Term Loans Amortized Cost BasisTotal
Municipal
Risk Grade:
1$202,019 $37,222 $169,359 $101,611 $12,732 $157,070 $— $— $680,013 
211,679 — — 2,573 — 9,410 — — 23,662 
3— — 5,453 12,595 745 — — — 18,793 
4— — — 3,201 — — — — 3,201 
Total municipal$213,698 $37,222 $174,812 $119,980 $13,477 $166,480 $— $— $725,669 
Premium Finance
Risk Grade:
2$675,156 $832 $862 $295 $27,493 $2,478 $— $— $707,116 
71,925 — — — — 1,849 — — 3,774 
Total premium finance$677,081 $832 $862 $295 $27,493 $4,327 $— $— $710,890 
Real Estate – Construction and Development
Risk Grade:
3$27,414 $17,241 $8,969 $8,350 $7,701 $3,626 $682 $— $73,983 
4493,627 217,729 89,755 32,030 544,239 13,065 85,415 — 1,475,860 
51,372 3,239 331 8,672 24,738 17,827 109 — 56,288 
6— 5,190 1,014 4,604 1,916 528 — — 13,252 
7544 932 589 3,835 2,926 46 — — 8,872 
Total real estate – construction and development$522,957 $244,331 $100,658 $57,491 $581,520 $35,092 $86,206 $— $1,628,255 
Real Estate – Commercial and Farmland
Risk Grade:
1$— $193 $— $— $— $— $— $— $193 
22,942 520 2,192 11,653 544 4,460 1,141 — 23,452 
3581,108 156,745 204,384 305,731 378,130 206,226 72,033 — 1,904,357 
4250,925 454,581 326,258 575,402 537,223 297,567 41,814 — 2,483,770 
513,706 110,502 91,700 113,572 56,746 30,747 1,125 — 418,098 
6498 21,790 30,356 31,466 36,514 3,767 866 — 125,257 
7261 13,589 36,097 62,427 13,920 33,959 872 — 161,125 
Total real estate – commercial and farmland$849,440 $757,920 $690,987 $1,100,251 $1,023,077 $576,726 $117,851 $— $5,116,252 
Real Estate - Residential
Risk Grade:
1$— $— $— $21 $— $— $— $— $21 
238 13 124 51,698 408 1,348 1,636 — 55,265 
3486,558 268,355 198,299 406,482 533,460 160,532 214,075 1,792 2,269,553 
414,078 19,098 12,001 61,872 21,005 14,926 48,030 48 191,058 
57,852 18,870 17,092 37,919 38,570 12,707 3,647 — 136,657 
6251 909 60 3,946 1,750 288 351 — 7,555 
75,467 14,426 10,140 28,243 22,407 7,109 5,690 — 93,482 
Total real estate - residential$514,244 $321,671 $237,716 $590,181 $617,600 $196,910 $273,429 $1,840 $2,753,591 
25



The following table presents the loan portfolio by risk grade as of December 31, 2019 (in thousands): 
Risk
Grade 		Commercial,
Financial and
Agricultural		Consumer InstallmentIndirect AutomobileMortgage WarehouseMunicipalPremium FinanceReal Estate -
Construction and
Development		Real Estate -
Commercial and
Farmland		Real Estate -
Residential		Total
1$22,396 $13,184 $— $— $552,062 $— $— $208 $27 $587,877 
218,937 1,233 18,354 — 2,690 654,069 17,535 35,299 92,255 840,372 
3215,180 33,314 1,033,861 526,369 8,925 — 90,124 1,720,039 2,406,587 6,034,399 
4482,146 449,224 4,009 — 627 — 1,377,674 2,348,083 222,779 4,884,542 
533,317 208 — — — — 41,759 133,119 24,618 233,021 
64,901 213 — — — — 17,223 53,941 10,132 86,410 
725,294 1,191 5,600 — — 600 4,747 62,350 52,063 151,845 
8— 8 — — — — — — — 8 
9— 2 — — — — — — — 2 
Total$802,171 $498,577 $1,061,824 $526,369 $564,304 $654,669 $1,549,062 $4,353,039 $2,808,461 $12,818,476 
 

26

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 to be troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first nine months of 2020 and 2019 totaling $313.6 million and $168.6 million, respectively, under such parameters.
 
As of September 30, 2020 and December 31, 2019, the Company had a balance of $132.9 million and $35.2 million, respectively, in troubled debt restructurings. The Company has recorded $1.2 million and $1.9 million in previous charge-offs on such loans at September 30, 2020 and December 31, 2019, respectively. The Company’s balance in the allowance for credit losses allocated to such troubled debt restructurings was $9.4 million and $3.7 million at September 30, 2020 and December 31, 2019, respectively. At September 30, 2020, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.
 
27

During the nine months ended September 30, 2020 and 2019, the Company modified loans as troubled debt restructurings with principal balances of $103.4 million and $6.7 million, respectively, and these modifications did not have a material impact on the Company’s allowance for credit losses. The following table presents the loans by class modified as troubled debt restructurings which occurred during the nine months ended September 30, 2020 and 2019: 
 September 30, 2020September 30, 2019
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural2$725 2$392 
Consumer installment415 1165 
Indirect automobile5303,170 —— 
Premium finance—— 1158 
Real estate – construction and development119 —— 
Real estate – commercial and farmland2186,788 2224 
Real estate – residential9112,692 415,857 
Total649$103,409 57$6,696 
Troubled debt restructurings with an outstanding balance of $2.8 million and $2.1 million defaulted during the nine months ended September 30, 2020 and 2019, respectively, and these defaults did not have a material impact on the Company’s allowance for credit losses. The following table presents for loans the troubled debt restructurings by class that defaulted (defined as 30 days past due) during the nine months ended September 30, 2020 and 2019: 
 September 30, 2020September 30, 2019
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural1$198 2$4 
Consumer installment43 737 
Real estate – construction and development3689 —— 
Real estate – commercial and farmland3726 4666 
Real estate – residential161,142 211,375 
Total27$2,758 34$2,082 
 
The following table presents the amount of troubled debt restructurings by loan class classified separately as accrual and nonaccrual at September 30, 2020 and December 31, 2019: 

September 30, 2020Accruing LoansNon-Accruing Loans
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural5$459 12$1,002 
Consumer installment1136 2264 
Indirect automobile4812,689 49482 
Real estate – construction and development4510 5709 
Real estate – commercial and farmland3873,763 719,942 
Real estate – residential24328,777 454,477 
Total782$106,234 140$26,676 

December 31, 2019Accruing LoansNon-Accruing Loans
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural5$516 17$335 
Consumer installment48 27107 
Premium finance1156 —— 
Real estate – construction and development6936 3253 
Real estate – commercial and farmland216,732 82,071 
Real estate – residential19721,261 402,857 
Total234$29,609 95$5,623 
 
28

COVID-19 Deferrals

In response to the COVID-19 pandemic, the Company offered affected borrowers payment relief under its Disaster Relief Program. These modifications primarily consisted of short-term payment deferrals or interest-only periods to assist customers. Modifications related to the COVID-19 pandemic and qualifying under the provisions of Section 4013 of the CARES Act are not deemed to be troubled debt restructurings. As of September 30, 2020, $648.5 million in loans remained in payment deferral related to COVID-19 pandemic Disaster Relief Program.

The table below presents short-term deferrals related to the COVID-19 pandemic that were not considered TDRs.

(dollars in thousands)COVID-19 DeferralsDeferrals as a % of total loans
Commercial, financial and agricultural$49,526 2.6 %
Consumer installment2,421 0.5 %
Indirect automobile11,042 1.6 %
Real estate – construction and development42,915 2.6 %
Real estate – commercial and farmland368,607 7.2 %
Real estate – residential174,005 6.3 %
$648,516 4.3 %


Allowance for Credit Losses
 
The allowance for credit losses represents an allowance for expected losses over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company reasonably expects to execute a troubled debt restructuring with a borrower. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio.

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.

During the three and nine months ended September 30, 2020, the allowance for credit losses increased primarily due to deterioration in forecasted macroeconomic factors resulting from the COVID-19 pandemic. The current forecast reflects, among other things, a decline in GDP and elevated unemployment levels compared to the forecast the time of adoption of ASC 326 on January 1, 2020. During the third quarter of 2020, the Company added additional qualitative factors on its residential real estate, commercial real estate and hotel portfolios based principally on risk rating migrations, level of deferrals in the portfolio and expected collateral values.


29

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and nine-month periods ended September 30, 2020 and September 30, 2019 and end of period balances by portfolio segment as of September 30, 2020, December 31, 2019 and September 30, 2019. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Three Months Ended September 30, 2020
(dollars in thousands)Commercial,
Financial and
Agricultural		Consumer
Installment		Indirect AutomobileMortgage WarehouseMunicipalPremium Finance
Balance, June 30, 2020$7,938 $20,085 $3,381 $1,498 $507 $8,198 
Provision for loan losses5,533 (3,693)322 498 365 (2,316)
Loans charged off(1,715)(677)(697)— — (1,159)
Recoveries of loans previously charged off470 516 317 — — 1,224 
Balance, September 30, 2020$12,226 $16,231 $3,323 $1,996 $872 $5,947 
Real Estate – Construction and DevelopmentReal Estate –
Commercial and
Farmland		Real Estate –
Residential		Total
Balance, June 30, 2020$54,266 $83,593 $29,327 $208,793 
Provision for loan losses(10,208)18,419 17,772 26,692 
Loans charged off(9)(2,977)(137)(7,371)
Recoveries of loans previously charged off182 904 197 3,810 
Balance, September 30, 2020$44,231 $99,939 $47,159 $231,924 
Nine Months Ended September 30, 2020
(dollars in thousands)Commercial,
Financial and
Agricultural		Consumer
Installment		Indirect AutomobileMortgage WarehouseMunicipalPremium Finance
Balance, December 31, 2019$4,567 $3,784 $— $640 $484 $2,550 
Adjustment to allowance for adoption of ASU 2016-132,587 8,012 4,109 463 (92)4,471 
Provision for loan losses8,624 5,943 1,138 893 480 235 
Loans charged off(4,687)(2,781)(2,944)— — (3,893)
Recoveries of loans previously charged off1,135 1,273 1,020 — — 2,584 
Balance, September 30, 2020$12,226 $16,231 $3,323 $1,996 $872 $5,947 
Real Estate – Construction and DevelopmentReal Estate –
Commercial and
Farmland		Real Estate –
Residential		Total
Balance, December 31, 2019$5,995 $9,666 $10,503 $38,189 
Adjustment to allowance for adoption of ASU 2016-1312,248 27,073 19,790 78,661 
Provision for loan losses25,379 72,410 17,086 132,188 
Loans charged off(83)(10,220)(762)(25,370)
Recoveries of loans previously charged off692 1,010 542 8,256 
Balance, September 30, 2020$44,231 $99,939 $47,159 $231,924 

30

Prior to the adoption of ASC 326 on January 1, 2020, the Company calculated the allowance for loan losses under the incurred loss methodology. The following tables are disclosures related to the allowance for loan losses in prior periods.

(dollars in thousands)Commercial,
Financial and
Agricultural		Consumer
Installment		Indirect AutomobileMortgage WarehouseMunicipalPremium Finance
December 31, 2019
Period-end allocation:      
Loans individually evaluated for impairment (1)
$1,543 $— $— $— $— $758 
Loans collectively evaluated for impairment3,024 3,784 — 640 484 1,792 
Ending balance$4,567 $3,784 $— $640 $484 $2,550 
Loans:      
Individually evaluated for impairment (1)
$8,032 $— $— $— $— $6,768 
Collectively evaluated for impairment789,252 498,363 1,056,811 526,369 564,304 647,901 
Acquired with deteriorated credit quality4,887 214 5,013 — — — 
Ending balance$802,171 $498,577 $1,061,824 $526,369 $564,304 $654,669 
Real Estate – Construction and DevelopmentReal Estate –
Commercial and
Farmland		Real Estate –
Residential		Total
December 31, 2019
Period-end allocation:
Loans individually evaluated for impairment (1)
$204 $953 $3,704 $7,162 
Loans collectively evaluated for impairment5,791 8,713 6,799 31,027 
Ending balance$5,995 $9,666 $10,503 $38,189 
Loans:
Individually evaluated for impairment (1)
$1,605 $19,759 $46,311 $82,475 
Collectively evaluated for impairment1,532,786 4,256,397 2,737,095 12,609,278 
Acquired with deteriorated credit quality14,671 76,883 25,055 126,723 
Ending balance$1,549,062 $4,353,039 $2,808,461 $12,818,476 
 
(1) At December 31, 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		Consumer
Installment		Indirect AutomobileMortgage WarehouseMunicipalPremium Finance
Three Months Ended
September 30, 2019		      
Balance, June 30, 2019$2,816 $3,388 $— $640 $502 $2,984 
Provision for loan losses831 1,132 580 — (5)1,141 
Loans charged off(490)(1,245)(965)— — (1,267)
Recoveries of loans previously charged off300 476 385 — — 736 
Balance, September 30, 2019$3,457 $3,751 $— $640 $497 $3,594 
31

(dollars in thousands)Commercial,
Financial and
Agricultural		Consumer
Installment		Indirect AutomobileMortgage WarehouseMunicipalPremium Finance
Nine Months Ended
September 30, 2019		      
Balance, December 31, 2018$2,352 $3,795 $— $640 $509 $1,426 
Provision for loan losses1,848 3,289 580 — (12)3,224 
Loans charged off(1,647)(4,313)(965)— — (3,452)
Recoveries of loans previously charged off904 980 385 — — 2,396 
Balance, September 30, 2019$3,457 $3,751 $— $640 $497 $3,594 
Period-end allocation:      
Loans individually evaluated for impairment (1)
$1,022 $— $— $— $— $1,606 
Loans collectively evaluated for impairment2,435 3,751 — 640 497 1,988 
Ending balance$3,457 $3,751 $— $640 $497 $3,594 
Loans:      
Individually evaluated for impairment (1)
$4,176 $— $— $— $— $2,428 
Collectively evaluated for impairment918,162 500,067 1,108,717 562,598 578,267 654,142 
Acquired with deteriorated credit quality9,417 — 3,098 — — — 
Ending balance$931,755 $500,067 $1,111,815 $562,598 $578,267 $656,570 
Real Estate – Construction and DevelopmentReal Estate –
Commercial and
Farmland		Real Estate –
Residential		Total
Three Months Ended
September 30, 2019
Balance, June 30, 2019$4,763 $8,676 $8,024 $31,793 
Provision for loan losses(182)1,541 951 5,989 
Loans charged off— (1,315)(37)(5,319)
Recoveries of loans previously charged off930 74 166 3,067 
Balance, September 30, 2019$5,511 $8,976 $9,104 $35,530 
Nine Months Ended
September 30, 2019
Balance, December 31, 2018$4,210 $9,659 $6,228 $28,819 
Provision for loan losses254 2,283 2,599 14,065 
Loans charged off(268)(3,158)(391)(14,194)
Recoveries of loans previously charged off1,315 192 668 6,840 
Balance, September 30, 2019$5,511 $8,976 $9,104 $35,530 
Period-end allocation:
Loans individually evaluated for impairment (1)$552 $1,044 $2,227 $6,451 
Loans collectively evaluated for impairment4,959 7,932 6,877 29,079 
Ending balance$5,511 $8,976 $9,104 $35,530 
Loans:
Individually evaluated for impairment (1)$7,810 $16,120 $30,337 $60,871 
Collectively evaluated for impairment1,441,918 4,090,640 2,727,895 12,582,406 
Acquired with deteriorated credit quality18,968 91,999 59,525 183,007 
Ending balance$1,468,696 $4,198,759 $2,817,757 $12,826,284 
 
(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.

32

NOTE 5 – 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, 2020 and December 31, 2019, 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, 2020 and December 31, 2019.
(dollars in thousands)September 30, 2020December 31, 2019
Securities sold under agreements to repurchase$9,103 $20,635 
 
At September 30, 2020 and December 31, 2019 the investment securities underlying these agreements were comprised of state, county and municipal securities and mortgage-backed securities.
33

NOTE 6 – OTHER BORROWINGS
 
Other borrowings consist of the following:
(dollars in thousands)September 30, 2020December 31, 2019
FHLB borrowings:  
Fixed Rate Advance due January 10, 2020; fixed interest rate of 1.68%
$— $50,000 
Fixed Rate Advance due January 13, 2020; fixed interest rate of 1.68%
— 50,000 
Fixed Rate Advance due January 13, 2020; fixed interest rate of 1.67%
— 100,000 
Fixed Rate Advance due January 15, 2020; fixed interest rate of 1.71%
— 50,000 
Fixed Rate Advance due January 16, 2020; fixed interest rate of 1.69%
— 150,000 
Fixed Rate Advance due January 17, 2020; fixed interest rate of 1.70%
— 100,000 
Fixed Rate Advance due January 21, 2020; fixed interest rate of 1.71%
— 50,000 
Fixed Rate Advance due January 21, 2020; fixed interest rate of 1.71%
— 200,000 
Fixed Rate Advance due January 21, 2020; fixed interest rate of 1.70%
— 25,000 
Fixed Rate Advance due January 21, 2020; fixed interest rate of 1.71%
— 75,000 
Fixed Rate Advance due January 21, 2020; fixed interest rate of 1.71%
— 25,000 
Fixed Rate Advance due January 23, 2020; fixed interest rate of 1.71%
— 100,000 
Fixed Rate Advance due January 27, 2020; fixed interest rate of 1.73%
— 50,000 
Fixed Rate Advance due February 18, 2020; fixed interest rate of 1.72%
— 100,000 
Fixed Rate Advance due October 5, 2020; fixed interest rate of 0.22%
200,000 — 
Fixed Rate Advance due October 13, 2020; fixed interest rate of 0.22%
150,000 — 
Fixed Rate Advance due October 26, 2020; fixed interest rate of 0.22%
100,000 — 
Fixed Rate Advance due March 3, 2025; fixed interest rate of 1.208%
15,000 — 
Fixed Rate Advance due March 2, 2027; fixed interest rate of 1.445%
15,000 — 
Fixed Rate Advance due March 4, 2030; fixed interest rate of 1.606%
15,000 — 
Fixed Rate Advance due December 9, 2030; fixed interest rate of 4.55%
1,414 1,422 
Fixed Rate Advance due December 9, 2030; fixed interest rate of 4.55%
979 985 
Principal Reducing Advance due September 29, 2031; fixed interest rate of 3.095%
1,603 1,712 
Subordinated notes payable:  
Subordinated notes payable due March 15, 2027 net of unamortized debt issuance cost of $845 and $943, respectively; fixed interest rate of 5.75% through March 14, 2022; variable interest rate thereafter at three-month LIBOR plus 3.616%
74,155 74,057 
Subordinated notes payable due December 15, 2029 net of unamortized debt issuance cost of $2,226 and $2,408, respectively; fixed interest rate of 4.25% through December 14, 2024; variable interest rate thereafter at three-month SOFR plus 2.94%
117,774 117,592 
Subordinated notes payable due May 31, 2030 net of unaccreted purchase accounting fair value adjustment of $1,181 and $1,596, respectively; fixed interest rate of 5.875% through May 31, 2025; variable interest rate thereafter at three-month LIBOR plus 3.63%
76,181 76,595 
Subordinated notes payable due October 1, 2030 net of unamortized debt issuance cost of $1,851 and $0, respectively; fixed interest rate of 3.875% through September 30, 2025; variable interest rate thereafter at three-month SOFR plus 3.753%
108,149 — 
Other debt:  
Advance from correspondent bank due September 5, 2026; secured by a loan receivable; fixed interest rate of 2.09%
— 1,346 
Total$875,255 $1,398,709 
 
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, 2020, $2.91 billion was available for borrowing on lines with the FHLB.
 
As of September 30, 2020, the Bank maintained credit arrangements with various financial institutions to purchase federal funds up to $152.0 million.
 
The Bank also participates in the Federal Reserve discount window borrowings program. At September 30, 2020, the Company had $3.12 billion of loans pledged at the Federal Reserve discount window and had $2.00 billion available for borrowing. 




34

NOTE 7 – 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 through October 31, 2020. On October 22, 2020, the Company announced that its Board of Directors approved the extension of the share repurchase program through October 31, 2021. Repurchases of shares 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 repurchase of any specific number of shares. As of September 30, 2020, $14.3 million, or 358,664 shares, of the Company's common stock had been repurchased under the 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.

NOTE 8 – 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 interest rate swap derivatives. The reclassification for gains included in net income is recorded in gain (loss) 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, 2020 and 2019:
(dollars in thousands)
Unrealized
Gain (Loss)
on Derivatives
Unrealized
Gain (Loss)
on Securities
Accumulated
Other Comprehensive
Income (Loss)
Balance, January 1, 2020$(147)$18,142 $17,995 
Reclassification for gains included in net income, net of tax— — — 
Current year changes, net of tax147 19,110 19,257 
Balance, September 30, 2020$— $37,252 $37,252 

(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(471)20,873 20,402 
Balance, September 30, 2019$(120)$15,602 $15,482 
 
NOTE 9 – 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)2020201920202019
Average common shares outstanding69,231 69,372 69,243 54,762 
Common share equivalents:    
Stock options5 145 22 46 
Nonvested restricted share grants85 83 122 75 
Performance share units25 — 16 — 
Average common shares outstanding, assuming dilution69,346 69,600 69,403 54,883 
 
35

For the three and nine-month periods ended September 30, 2020, there were outstanding 252,765 and 253,765 options exerciseable for common shares, respectively, with strike prices that would cause the underlying shares to be anti-dilutive. Therefore, such option shares have been excluded. For the three and nine-month periods ended September 30, 2019, there were no outstanding options exerciseable for common shares with strike prices that would cause the underlying shares to be anti-dilutive.
 
NOTE 10 – 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, 2020December 31, 2019
Mortgage loans held for sale$1,348,193 $1,647,900 
SBA loans held for sale19,851 8,811 
Total loans held for sale$1,368,044 $1,656,711 
 
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 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 loss of $23.3 million and a net gain of $17.8 million resulting from fair value changes of these mortgage loans were recorded in income during the three and nine-month periods ended September 30, 2020, respectively. For the three and nine-months ended September 30, 2019, a net gain of $20.3 million and $23.0 million, respectively, resulting from fair value changes of these mortgage loans were recorded in income. A net gain of $21.4 million and $55.2 million 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 three and nine-month periods ended September 30, 2020, respectively. For the three and nine-months ended September 30, 2019, a net loss of $1.0 million and a net gain of $2.1 million, respectively, resulting from changes in the fair value of the related derivative financial instruments were recorded in income. 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, 2020 and December 31, 2019:
(dollars in thousands) 
September 30, 2020December 31, 2019
Aggregate fair value of mortgage loans held for sale$1,348,193 $1,647,900 
Aggregate unpaid principal balance of mortgage loans held for sale1,280,559 1,598,057 
Past-due loans of 90 days or more— 1,649 
Nonaccrual loans— 1,649 
Unpaid principal balance of nonaccrual loans— 1,616 
 
36

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, 2020 and December 31, 2019:
(dollars in thousands) 
September 30, 2020December 31, 2019
Aggregate fair value of SBA loans held for sale$19,851 $8,811 
Aggregate unpaid principal balance of SBA loans held for sale17,867 8,206 
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 collateral-dependent impaired loans, loan servicing rights and OREO. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.
 
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, 2020 and December 31, 2019:
Recurring Basis
Fair Value Measurements
 September 30, 2020
(dollars in thousands) 
Fair ValueLevel 1Level 2Level 3
Financial assets:    
U.S. government sponsored agencies$17,604 $— $17,604 $— 
State, county and municipal securities87,648 — 87,648 — 
Corporate debt securities52,141 — 50,956 1,185 
SBA pool securities65,116 — 65,116 — 
Mortgage-backed securities894,927 — 894,927 — 
Loans held for sale1,368,044 — 1,368,044 — 
Mortgage banking derivative instruments64,694 — 64,694 — 
Total recurring assets at fair value$2,550,174 $— $2,548,989 $1,185 
Financial liabilities:    
Mortgage banking derivative instruments$6,177 $— $6,177 $— 
Total recurring liabilities at fair value$6,177 $— $6,177 $— 

Recurring Basis
Fair Value Measurements
 December 31, 2019
(dollars in thousands)Fair ValueLevel 1Level 2Level 3
Financial assets:    
U.S. government sponsored agencies$22,362 $— $22,362 $— 
State, county and municipal securities105,260 — 105,260 — 
Corporate debt securities52,999 — 51,499 1,500 
SBA pool securities73,912 — 73,912 — 
Mortgage-backed securities1,148,870 — 1,148,870 — 
Loans held for sale1,656,711 — 1,656,711 — 
Mortgage banking derivative instruments7,814 — 7,814 — 
Total recurring assets at fair value$3,067,928 $— $3,066,428 $1,500 
Financial liabilities:    
Derivative financial instruments$187 $— $187 $— 
Mortgage banking derivative instruments4,471 — 4,471 — 
Total recurring liabilities at fair value$4,658 $— $4,658 $— 
 
37

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, 2020 and December 31, 2019:
 Nonrecurring Basis
Fair Value Measurements
(dollars in thousands)Fair ValueLevel 1Level 2Level 3
September 30, 2020    
Collateral-dependent loans$148,083 $— $— $148,083 
Other real estate owned4,239 — — 4,239 
Mortgage servicing rights114,396 — 114,396 — 
SBA servicing rights6,062 — 6,062 — 
Total nonrecurring assets at fair value$272,780 $— $120,458 $152,322 
December 31, 2019    
Impaired loans carried at fair value$43,788 $— $— $43,788 
Other real estate owned17,289 — — 17,289 
Total nonrecurring assets at fair value$61,077 $— $— $61,077 
 
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, 2020 and the year ended December 31, 2019, there was not a change in the methods and significant assumptions used to estimate fair value.
 
The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets:
(dollars in thousands)Fair ValueValuation
Technique		Unobservable InputsRange of
Discounts		Weighted
Average
Discount
September 30, 2020     
Recurring:     
Investment securities available for sale$1,185 Discounted cash flowsProbability of default14.6%14.6%
Loss given default31%31%
Nonrecurring:     
Collateral-dependent loans$148,083 Third-party appraisals and discounted cash flowsCollateral discounts and
discount rates
20% - 77%
45%
Other real estate owned$4,239 Third-party appraisals and sales contractsCollateral discounts and estimated
costs to sell
0% - 75%
21%
December 31, 2019     
Recurring:     
Investment securities available for sale$1,500 Discounted par valuesCredit quality of underlying issuer0%0%
Nonrecurring:    
Impaired loans$43,788 Third-party appraisals and discounted cash flowsCollateral discounts and
discount rates
1% - 95%
27%
Other real estate owned$17,289 Third-party appraisals and sales contractsCollateral discounts and estimated
costs to sell
9% - 89%
31%
 
38

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, 2020
(dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Total
Financial assets:     
Cash and due from banks$257,026 $257,026 $— $— $257,026 
Federal funds sold and interest-bearing accounts494,765 494,765 — — 494,765 
Time deposits in other banks249 — 249 — 249 
Loans, net14,563,586 — — 14,657,861 14,657,861 
Accrued interest receivable79,403 — 4,485 74,918 79,403 
Financial liabilities:     
Deposits16,063,806 — 16,076,073 — 16,076,073 
Securities sold under agreements to repurchase9,103 9,103 — — 9,103 
Other borrowings875,255 — 877,424 — 877,424 
Subordinated deferrable interest debentures123,860 — 116,193 — 116,193 
FDIC loss-share payable19,476 — — 19,639 19,639 
Accrued interest payable6,443 — 6,443 — 6,443 
  
Fair Value Measurements
  December 31, 2019
(dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Total
Financial assets:     
Cash and due from banks$246,234 $246,234 $— $— $246,234 
Federal funds sold and interest-bearing accounts375,615 375,615 — — 375,615 
Time deposits in other banks249 — 249 — 249 
Loans, net12,736,499 — — 12,806,709 12,806,709 
Accrued interest receivable52,362 — 5,179 47,183 52,362 
Financial liabilities:     
Deposits14,027,073 — 14,035,686 — 14,035,686 
Securities sold under agreements to repurchase20,635 20,635 — — 20,635 
Other borrowings1,398,709 — 1,402,510 — 1,402,510 
Subordinated deferrable interest debentures127,560 — 126,815 — 126,815 
FDIC loss-share payable19,642 — — 19,657 19,657 
Accrued interest payable11,524 — 11,524 — 11,524 

NOTE 11 – 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, 2020December 31, 2019
Commitments to extend credit$2,340,433 $2,486,949 
Unused home equity lines of credit259,421 262,089 
Financial standby letters of credit33,087 29,232 
Mortgage interest rate lock commitments1,658,214 288,490 
 
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 or other
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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. The Company has not been required to perform on any material financial standby letters of credit and the Company has not incurred any losses on financial standby letters of credit for the nine months ended September 30, 2020 and the year ended December 31, 2019.

The Company maintains an allowance for credit losses on unfunded commitments which is recorded in other liabilities on the consolidated balance sheets. The following table presents activity in the allowance for unfunded commitments for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2020201920202019
Balance at beginning of period$37,503 $— $1,077 $— 
Adjustment to reflect adoption of ASU 2016-13— — 12,714 — 
Addition due to acquisition— 1,077 — 1,077 
Provision for unfunded commitments(10,131)— 13,581 — 
Balance at end of period$27,372 $1,077 $27,372 $1,077 

Other Commitments
 
As of September 30, 2020, letters of credit issued by the FHLB totaling $427.3 million were used to guarantee the Bank’s performance related to a portion of its 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.

COVID-19

The COVID-19 pandemic has caused significant economic dislocation in the United States and an unprecedented slowdown in economic activity, as many state and local governments have intermittently ordered non-essential businesses to close and residents to shelter in place at home. As a result of the pandemic, commercial customers are experiencing varying levels of disruptions or restrictions on their business activity, and consumers are experiencing interrupted income or unemployment. We have outstanding loans to borrowers in certain industries that have been particularly susceptible to the effects of the pandemic, such as hotels, restaurants and other retail businesses. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The United States government has taken steps to attempt
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to mitigate some of the more severe anticipated economic effects of the coronavirus, including the passage of the CARES Act and subsequent legislation, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion. The extent of such impact from the COVID-19 outbreak and related mitigation efforts will depend on future developments, which are highly uncertain, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. This could cause a material, adverse effect on the Company’s business, financial condition, liquidity and results of operations, including increases in loan delinquencies, problem assets and foreclosures; decreases in the value of collateral securing our loans; increases in our allowance for credit losses; and decreases in the value of our intangible assets.
  
NOTE 12 – 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.

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, 2020 and 2019:
 Three Months Ended
September 30, 2020
(dollars in thousands)Banking
Division		Retail
Mortgage
Division		Warehouse
Lending
Division		SBA
Division		Premium
 Finance
 Division		Total
Interest income$123,593 $31,040 $6,844 $10,958 $7,499 $179,934 
Interest expense4,031 10,647 298 1,992 428 17,396 
Net interest income119,562 20,393 6,546 8,966 7,071 162,538 
Provision for credit losses487 15,051 495 4,297 (2,648)17,682 
Noninterest income15,265 137,583 1,064 5,106 — 159,018 
Noninterest expense      
Salaries and employee benefits39,718 53,500 266 1,572 1,642 96,698 
Equipment and occupancy expenses11,955 1,676 1 97 76 13,805 
Data processing and telecommunications expenses9,716 2,349 73 4 84 12,226 
Other expenses21,517 7,889 28 595 934 30,963 
Total noninterest expense82,906 65,414 368 2,268 2,736 153,692 
Income before income tax expense51,434 77,511 6,747 7,507 6,983 150,182 
Income tax expense13,453 16,112 1,431 1,577 1,464 34,037 
Net income$37,981 $61,399 $5,316 $5,930 $5,519 $116,145 
Total assets$13,098,562 $3,632,999 $1,002,027 $1,338,794 $801,469 $19,873,851 
Goodwill863,507 — — — 64,498 928,005 
Other intangible assets, net60,568 — — — 15,596 76,164 

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 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 $188,361 
Interest expense17,368 14,132 2,617 1,793 3,682 39,592 
Net interest income124,262 13,009 3,169 2,573 5,756 148,769 
Provision for credit losses3,549 1,490 — (15)965 5,989 
Noninterest income21,173 52,493 560 2,766 1 76,993 
Noninterest expense      
Salaries and employee benefits39,794 34,144 286 1,985 1,424 77,633 
Equipment and occupancy expenses10,750 1,686 2 66 135 12,639 
Data processing and telecommunications expenses9,551 660 41 22 98 10,372 
Other expenses87,059 3,484 27 503 980 92,053 
Total noninterest expense147,154 39,974 356 2,576 2,637 192,697 
Income (loss) before income tax expense(5,268)24,038 3,373 2,778 2,155 27,076 
Income tax expense (benefit)(1,269)5,048 708 584 621 5,692 
Net income (loss)$(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 
Goodwill846,990 — — — 64,498 911,488 
Other intangible assets, net78,728 — — — 18,600 97,328 

 Nine Months Ended
September 30, 2020
(dollars in thousands)Banking
Division		Retail
Mortgage
Division		Warehouse
Lending
Division		SBA
Division		Premium
 Finance
 Division		Total
Interest income$384,547 $99,165 $16,979 $23,443 $23,586 $547,720 
Interest expense26,280 36,714 2,105 5,262 3,062 73,423 
Net interest income358,267 62,451 14,874 18,181 20,524 474,297 
Provision for credit losses123,289 17,471 889 5,716 (475)146,890 
Noninterest income47,506 276,147 2,751 7,953 — 334,357 
Noninterest expense
Salaries and employee benefits121,762 134,600 685 5,660 5,105 267,812 
Equipment and occupancy expenses33,981 5,133 3 291 232 39,640 
Data processing and telecommunications expenses29,432 4,741 169 32 320 34,694 
Other expenses80,159 20,713 150 1,469 2,876 105,367 
Total noninterest expense265,334 165,187 1,007 7,452 8,533 447,513 
Income before income tax expense17,150 155,940 15,729 12,966 12,466 214,251 
Income tax expense5,146 32,751 3,317 2,723 2,611 46,548 
Net income$12,004 $123,189 $12,412 $10,243 $9,855 $167,703 

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 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 expense44,340 26,957 7,294 3,986 9,926 92,503 
Net interest income294,056 26,329 8,846 4,841 15,743 349,815 
Provision for credit losses7,913 2,235 — 394 3,523 14,065 
Noninterest income50,373 84,853 1,389 6,379 6 143,000 
Noninterest expense      
Salaries and employee benefits91,954 54,237 609 3,447 4,049 154,296 
Equipment and occupancy expenses25,065 3,122 4 190 296 28,677 
Data processing and telecommunications expenses24,778 1,384 109 27 853 27,151 
Other expenses126,743 7,983 170 1,249 3,104 139,249 
Total noninterest expense268,540 66,726 892 4,913 8,302 349,373 
Income before income tax expense67,976 42,221 9,343 5,913 3,924 129,377 
Income tax expense16,197 8,831 1,962 1,242 952 29,184 
Net income$51,779 $33,390 $7,381 $4,671 $2,972 $100,193 

NOTE 13 – LOAN SERVICING RIGHTS

The Company sells certain residential mortgage loans and SBA loans to third parties. All such transfers are accounted for as sales and the continuing involvement in the loans sold is limited to certain servicing responsibilities. The Company has also acquired portfolios of residential mortgage, SBA and indirect automobile loans serviced for others. Loan servicing rights are initially recorded at fair value and subsequently recorded at the lower of cost or fair value and are amortized over the remaining service life of the loans, with consideration given to prepayment assumptions. Loan servicing rights are recorded in other assets on the consolidated balance sheets. The carrying value of the loan servicing rights assets is shown in the table below:
(dollars in thousands)September 30, 2020December 31, 2019
Loan Servicing Rights
Residential mortgage$114,396 $94,902 
SBA6,062 7,886 
Indirect automobile117 247 
Total loan servicing rights$120,575 $103,035 

Residential Mortgage Loans

The Company sells certain first-lien residential mortgage loans to third party investors, primarily Federal National Mortgage Association (“FNMA”), Government National Mortgage Association (“GNMA”), and Federal Home Loan Mortgage Corporation (“FHLMC”). The Company retains the related mortgage servicing rights (“MSRs”) and receives servicing fees on certain of these loans. The net gain on loan sales, MSRs amortization and recoveries/impairment, and ongoing servicing fees on the portfolio of loans serviced for others are recorded in the consolidated statements of income and comprehensive income as part of mortgage banking activity.

During the three- and nine-months ended September 30, 2020, the Company recorded servicing fee income of $8.3 million and $21.4 million, respectively. During the three- and nine-months ended September 30, 2019, the Company recorded servicing fee income of $5.9 million and $7.7 million, respectively. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.
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The table below is an analysis of the activity in the Company’s MSRs and impairment:

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2020201920202019
Residential mortgage servicing rights
Beginning carrying value, net$91,381 $11,185 $94,902 $11,814 
Additions30,376 4,962 65,735 6,661 
Addition due to acquisition— 78,855 — 78,855 
Amortization(6,231)(3,564)(16,084)(4,432)
(Impairment)/recoveries(1,130)1,460 (30,157)— 
Ending carrying value, net$114,396 $92,898 $114,396 $92,898 


Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2020201920202019
Residential mortgage servicing impairment
Beginning balance$29,131 $1,460 $104 $— 
Additions1,130 — 30,157 — 
Recoveries— (1,460)— — 
Ending balance$30,261 $— $30,261 $— 

The fair value of MSRs, key metrics, and the sensitivity of the fair value to adverse changes in model inputs and/or assumptions are summarized below:

(dollars in thousands)September 30, 2020December 31, 2019
Residential mortgage servicing rights
Unpaid principal balance of loans serviced for others$12,185,383 $8,469,600 
Composition of residential loans serviced for others:
FHLMC21.97 %25.87 %
FNMA62.89 %65.35 %
GNMA15.14 %8.78 %
Total100.00 %100.00 %
Weighted average term (months)341341
Weighted average age (months)2333
Modeled prepayment speed21.03 %14.41 %
Decline in fair value due to a 10% adverse change(6,249)(4,455)
Decline in fair value due to a 20% adverse change(11,924)(8,520)
Weighted average discount rate9.67 %9.49 %
Decline in fair value due to a 10% adverse change(3,861)(3,557)
Decline in fair value due to a 20% adverse change(7,154)(6,810)

SBA Loans

All sales of SBA loans, consisting of the guaranteed portion, are executed on a servicing retained basis. These loans, which are partially guaranteed by the SBA, are generally secured by business property such as real estate, inventory, equipment and accounts receivable. The net gain on SBA loan sales, amortization and impairment/recoveries of servicing rights, and ongoing servicing fees are recorded in the consolidated statements of income and comprehensive income as part of other noninterest income.

During the three- and nine-months ended September 30, 2020, the Company recorded servicing fee income of $1.1 million and $3.3 million, respectively. During the three- and nine-months ended September 30, 2019, the Company recorded servicing fee income of $1.2 million and $2.4 million, respectively. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.
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The table below is an analysis of the activity in the Company’s SBA loan servicing rights and impairment:

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2020201920202019
SBA servicing rights
Beginning carrying value, net$5,241 $3,110 $7,886 $3,012 
Additions499 155 974 783 
Addition due to acquisition— 5,242 — 5,242 
Purchase accounting adjustment— — (1,214)— 
Amortization(396)(167)(1,175)(556)
(Impairment)/recovery718 — (409)(141)
Ending carrying value, net$6,062 $8,340 $6,062 $8,340 


Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2020201920202019
SBA servicing impairment
Beginning balance$1,268 $— $141 $— 
Additions— 141 409 141 
Recoveries(718)— — — 
Ending balance$550 $141 $550 $141 


(dollars in thousands)September 30, 2020December 31, 2019
SBA servicing rights
Unpaid principal balance of loans serviced for others$347,964 $339,247 
Weighted average life (in years)3.373.81
Modeled prepayment speed19.68 %17.86 %
Decline in fair value due to a 10% adverse change(391)(299)
Decline in fair value due to a 20% adverse change(739)(570)
Weighted average discount rate6.61 %11.47 %
Decline in fair value due to a 100 basis point adverse change(169)(144)
Decline in fair value due to a 200 basis point adverse change(329)(280)

Indirect Automobile Loans

The Company acquired a portfolio of indirect automobile loans serviced for others. These loans, or portions of loans, were sold on a servicing retained basis. Amortization and impairment/recoveries of servicing rights, and ongoing servicing fees are recorded in the consolidated statements of income and comprehensive income as part of other noninterest income. The Company is not actively originating or selling indirect automobile loans.

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2020201920202019
Indirect automobile servicing rights
Beginning carrying value, net$162 $— $247 $— 
Addition due to acquisition— 777 — 777 
Amortization(45)(125)(130)(125)
Ending carrying value, net$117 $652 $117 $652 

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During the three- and nine-months ended September 30, 2020, the Company recorded servicing fee income of $259,000 and $1.5 million, respectively. During the three- and nine-months ended September 30, 2019, the Company recorded servicing fee income of $1.1 million. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.

NOTE 14 – GOODWILL

The Company has goodwill at its Banking Division and Premium Finance Division (collectively "the divisions"). The carrying value of goodwill at the Banking Division was $863.5 million and $867.1 million at September 30, 2020 and December 31, 2019, respectively. The carrying value of goodwill at the Premium Finance Division was $64.5 million at both September 30, 2020 and December 31, 2019. The Company performs its annual impairment test at December 31 of each year and more frequently if a triggering event occurs. At December 31, 2019, the Company performed a qualitative assessment of goodwill at the divisions and determined it was more likely than not that the reporting unit's fair value exceeded its carrying value. The Company performed an interim qualitative assessment at March 31, 2020 considering the decline in the Company's stock price relative to book value and the impact of COVID-19 on the economy and determined that it was more likely than not that the reporting units fair values exceeded their carrying value.

During the second quarter of 2020, the Company assessed the indicators of goodwill impairment and determined a triggering event had occurred. Triggering events included sustained decline in the Company's share price, the impact of COVID-19 on the economy and low interest rate environment. The Company performed a quantitative analysis of goodwill at the divisions as of May 31, 2020. The Premium Finance Division was measured utilizing a discounted cash flow approach. The Banking Division was measured using multiple approaches. The primary approach for the Banking Division was the discounted cash flow approach, and the Company also used a market approach comparing to similar public companies' multiples and control premiums from transactions during prior distressed periods. The results from each of the primary approaches showed valuation of the reporting unit in excess of carrying value at May 31, 2020. The discounted cash flow approach for the Premium Finance Division resulted in a fair value approximately 11% higher than its carrying value. The discounted cash flow approach for the Banking Division indicated a fair value approximately 42% higher than its carrying value, and the market approach indicated a fair value approximately 5% higher than its carrying value. Economic conditions and forecasted results through June 30, 2020 were materially consistent with those modeled at May 31, 2020, and therefore, management determined no impairment existed at June 30, 2020.

At September 30, 2020, the Company performed an interim qualitative assessment and determined that it was more likely than not that the reporting units fair values exceeded their carrying values.

Each of the valuation methods used by the Company requires significant assumptions. Depending on the specific method, assumptions are made regarding growth rates, discount rates for cash flows, control premiums, and selected multiples. Changes to any of the assumptions could result in significantly different results.
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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; movements in interest rates and our expectations regarding net interest margin; expectations on credit quality and performance; competitive pressures on product pricing and services; legislative and regulatory changes; 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; our outlook and long-term goals for future growth; weather events, natural disasters, geopolitical events, public health crises 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, 2020, as compared with December 31, 2019, and operating results for the three- and nine-month periods ended September 30, 2020 and 2019. 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 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.


47

The following table sets forth unaudited selected financial data for the most recent five quarters. 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
2020		Second
Quarter
2020		First
Quarter
2020		Fourth
Quarter
2019		Third
Quarter
2019		20202019
Results of Operations:       
Net interest income$162,538 $163,814 $147,945 $155,351 $148,769 $474,297 $349,815 
Net interest income (tax equivalent)163,949 165,178 149,018 156,454 149,896 478,145 353,062 
Provision for credit losses17,682 88,161 41,047 5,693 5,989 146,890 14,065 
Noninterest income159,018 120,960 54,379 55,113 76,993 334,357 143,000 
Noninterest expense153,692 155,768 138,053 122,564 192,697 447,513 349,373 
Income tax expense34,037 8,609 3,902 20,959 5,692 46,548 29,184 
Net income available to common shareholders116,145 32,236 19,322 61,248 21,384 167,703 100,193 
Selected Average Balances:       
Investment securities$1,246,860 $1,382,699 $1,456,462 $1,514,494 $1,592,005 $1,361,586 $1,362,004 
Loans held for sale1,507,481 1,614,080 1,587,131 1,537,648 856,572 1,569,337 373,699 
Loans14,688,317 13,915,406 12,712,997 12,697,912 12,677,063 13,772,102 9,982,560 
Earning assets17,930,099 17,334,983 16,203,479 16,077,986 15,478,774 17,155,528 12,134,171 
Assets19,810,084 19,222,181 18,056,445 17,998,494 17,340,387 19,045,028 13,483,044 
Deposits15,799,774 14,890,348 13,702,332 13,903,846 13,520,926 14,801,144 10,960,575 
Shareholders’ equity2,529,471 2,478,373 2,456,617 2,437,272 2,432,182 2,500,689 1,813,575 
Period-End Balances:       
Investment securities$1,164,765 $1,315,349 $1,434,794 $1,470,322 $1,558,128 $1,164,765 $1,558,128 
Loans held for sale1,414,889 1,736,397 1,398,229 1,656,711 1,187,551 1,414,889 1,187,551 
Loans14,943,593 14,503,157 13,094,106 12,818,476 12,826,284 14,943,593 12,826,284 
Earning assets18,018,261 17,983,712 16,324,222 16,321,373 15,858,175 18,018,261 15,858,175 
Total assets19,873,851 19,872,629 18,224,548 18,242,579 17,764,277 19,873,851 17,764,277 
Deposits16,063,806 15,589,818 13,844,618 14,027,073 13,659,594 16,063,806 13,659,594 
Shareholders’ equity2,564,683 2,460,130 2,437,150 2,469,582 2,420,723 2,564,683 2,420,723 
Per Common Share Data:       
Earnings per share - basic$1.68 $0.47 $0.28 $0.88 $0.31 $2.42 $1.83 
Earnings per share - diluted$1.67 $0.47 $0.28 $0.88 $0.31 $2.42 $1.83 
Book value per common share$36.91 $35.42 $35.10 $35.53 $34.78 $36.91 $34.78 
Tangible book value per common share$22.46 $20.90 $20.44 $20.81 $20.29 $22.46 $20.29 
End of period shares outstanding69,490,546 69,462,782 69,441,274 69,503,833 69,593,833 69,490,546 69,593,833 
 
48

      Nine Months Ended
September 30,
(in thousands, except share and per share data)Third
Quarter
2020		Second
Quarter
2020		First
Quarter
2020		Fourth
Quarter
2019		Third
Quarter
2019		20202019
Weighted Average Shares Outstanding:       
Basic69,230,667 69,191,778 69,247,661 69,429,193 69,372,125 69,243,280 54,762,216 
Diluted69,346,141 69,292,972 69,502,022 69,683,999 69,600,499 69,403,104 54,883,122 
Market Price:       
High intraday price$27.81 $29.82 $43.79 $44.90 $40.65 $43.79 $42.01 
Low intraday price$19.91 $17.12 $17.89 $38.34 $33.71 $17.12 $31.27 
Closing price for quarter$22.78 $23.59 $23.76 $42.54 $40.24 $22.78 $40.24 
Average daily trading volume359,059 470,151 461,692 353,783 461,289 429,758 401,050 
Cash dividends declared per share$0.15 $0.15 $0.15 $0.15 $0.15 $0.45 $0.35 
Closing price to book value0.62 0.67 0.68 1.20 1.16 0.62 1.16 
Performance Ratios:       
Return on average assets2.33 %0.67 %0.43 %1.35 %0.49 %1.18 %0.99 %
Return on average common equity18.27 %5.23 %3.16 %9.97 %3.49 %8.96 %7.39 %
Average loans to average deposits102.51 %104.29 %104.36 %102.39 %100.09 %103.65 %94.49 %
Average equity to average assets12.77 %12.89 %13.61 %13.54 %14.03 %13.13 %13.45 %
Net interest margin (tax equivalent)3.64 %3.83 %3.70 %3.86 %3.84 %3.72 %3.89 %
Efficiency ratio47.80 %54.70 %68.23 %58.24 %85.35 %55.34 %70.89 %
Non-GAAP Measures Reconciliation -       
Tangible book value per common share:       
Total shareholders’ equity$2,564,683 $2,460,130 $2,437,150 $2,469,582 $2,420,723 $2,564,683 $2,420,723 
Less:       
Goodwill928,005 928,005 931,947 931,637 911,488 928,005 911,488 
Other intangible assets, net76,164 80,354 85,955 91,586 97,328 76,164 97,328 
Tangible common equity$1,560,514 $1,451,771 $1,419,248 $1,446,359 $1,411,907 $1,560,514 $1,411,907 
End of period shares outstanding69,490,546 69,462,782 69,441,274 69,503,833 69,593,833 69,490,546 69,593,833 
Book value per common share$36.91 $35.42 $35.10 $35.53 $34.78 $36.91 $34.78 
Tangible book value per common share22.46 20.90 20.44 20.81 20.29 22.46 20.29 

49

Fidelity Acquisition

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.

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 $4.76 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.

CECL Adoption

On January 1, 2020, the Company adopted ASC Topic 326 which replaces the current incurred loss approach for measuring credit losses with an expected loss model, referred to the current expected credit loss ("CECL") model. CECL applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The adoption of this guidance resulted in an increase of the allowance for credit losses of $78.7 million, an increase in the allowance for unfunded commitments of $12.7 million and a reduction of retained earnings of $56.7 million, net of the increase in deferred tax assets of $19.0 million.

Impact and Response to the COVID-19 Pandemic

The Company has locations and personnel in multiple states. Many of these states have intermittently placed significant restrictions on companies and individuals since March 2020 as a result of the COVID-19 pandemic. As a financial institution, we are considered an essential business and therefore continue to operate on a modified basis to comply with governmental restrictions and public health guidelines. All branch drive thru facilities remain open, certain of our branch lobbies have reopened and the remaining are available by appointment only and ATMs are available. Online and mobile banking platforms are also available to serve our customers. Much of our workforce has transitioned to working remotely and those remaining in our offices are appropriately spaced.

At the same time, the Company enacted its disaster relief program, which allows 90-day extensions for borrowers impacted by the COVID-19 outbreak. During the nine months ended September 30, 2020, the Company modified $2.71 billion in loans under its disaster relief program. Additionally, the Company participated in the SBA's PPP program and approximately $1.1 billion in loans under the program were outstanding at September 30, 2020. These loans bear interest at 1% and have two or five-year terms, depending on the date of origination. These loans also earn an origination fee of 1% to 5%, depending on the loan size, that is deferred and amortized over the estimated life of the loan using the effective yield method.

50

The COVID-19 pandemic materially impacted the allowance for credit losses and related provision for credit losses during the first nine months of 2020. Updated economic forecasts during the reasonable and supportable forecast period showed, among other things, a significant decline in expected GDP and an increase in expected unemployment rates relative to those at the adoption of CECL. More recent forecasts have begun to show moderate improvement compared with the June 30, 2020 forecast. These factors were the primary drivers of the Company's $146.9 million provision for credit losses during the first nine months of 2020. Additionally, the Company incurred $3.1 million in incremental expenses related to the COVID-19 pandemic primarily for additional sanitizing of our locations and “thank you” pay for certain of our employees who are unable to work remotely.

Critical Accounting Policies

There have been no significant changes to our critical accounting policies from those disclosed in our 2019 Annual Report on Form 10-K, as amended, except as described below related to the adoption of CECL. The reader should refer to the notes to our consolidated financial statements in our 2019 Annual Report on Form 10-K, as amended, for a full disclosure of all critical accounting policies.

Allowance for Credit Losses

The allowance for credit losses ("ACL") is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from financial assets measured at amortized cost to present the net amount expected to be collected on those assets. Management uses a systematic methodology to determine its ACL for loans and certain off-balance-sheet credit exposures. Management considers relevant information including past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects management’s best estimate within the range of expected credit losses. The Company recognizes in the consolidated statements of income and comprehensive income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. See Note 1 - Basis of Presentation and Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the ACL. See also Note 4 — Loans in this Quarterly Report on Form 10-Q, “Loans and Allowance for Credit Losses” in this Item 2.

51

Results of Operations for the Three Months Ended September 30, 2020 and 2019
 
Consolidated Earnings and Profitability
 
Ameris reported net income available to common shareholders of $116.1 million, or $1.67 per diluted share, for the quarter ended September 30, 2020, compared with $21.4 million, or $0.31 per diluted share, for the same period in 2019. The Company’s return on average assets and average shareholders’ equity were 2.33% and 18.27%, respectively, in the third quarter of 2020, compared with 0.49% and 3.49%, respectively, in the third quarter of 2019. During the third quarter of 2020, the Company recorded pre-tax merger and conversion charges of $(44,000), pre-tax restructuring charges related to branch consolidations and efficiency initiatives of $50,000, pre-tax servicing right impairment of $412,000, pre-tax gain on bank owned life insurance ("BOLI") proceeds of $103,000, pre-tax expenses related to SEC and DOJ investigation of $268,000, pre-tax expenses related to the COVID-19 pandemic of $470,000 and pre-tax gains on the sale of premises of $97,000. 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 BOLI proceeds of $4.3 million and pre-tax losses on the sale of premises of $889,000. Excluding these adjustment items, the Company’s net income would have been $116.9 million, or $1.69 per diluted share, for the third quarter of 2020 and $68.5 million, or $0.98 per diluted share, for the third quarter of 2019.
 
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)20202019
Net income available to common shareholders$116,145 $21,384 
Adjustment items:  
Merger and conversion charges(44)65,158 
Restructuring charge50 — 
Servicing right impairment (recovery)412 (1,319)
Gain on BOLI proceeds(103)(4,335)
Expenses related to SEC and DOJ investigation268 — 
Natural disaster and pandemic expenses470 — 
(Gain) loss on the sale of premises(97)889 
Tax effect of adjustment items (Note 1)
(222)(13,238)
After tax adjustment items734 47,155 
Adjusted net income$116,879 $68,539 
Weighted average common shares outstanding - diluted69,346,141 69,600,499 
Net income per diluted share$1.67 $0.31 
Adjusted net income per diluted share$1.69 $0.98 
Note 1: A portion of the merger and conversion charges for the three months ended September 30, 2019 are nondeductible for tax purposes.

52

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 2020 and 2019, respectively:
 Three Months Ended
September 30, 2020
(dollars in thousands)Banking
Division		Retail
Mortgage
Division		Warehouse
Lending
Division		SBA
Division		Premium
 Finance
 Division		Total
Interest income$123,593 $31,040 $6,844 $10,958 $7,499 $179,934 
Interest expense4,031 10,647 298 1,992 428 17,396 
Net interest income119,562 20,393 6,546 8,966 7,071 162,538 
Provision for credit losses487 15,051 495 4,297 (2,648)17,682 
Noninterest income15,265 137,583 1,064 5,106 — 159,018 
Noninterest expense      
Salaries and employee benefits39,718 53,500 266 1,572 1,642 96,698 
Equipment and occupancy expenses11,955 1,676 1 97 76 13,805 
Data processing and telecommunications expenses9,716 2,349 73 4 84 12,226 
Other expenses21,517 7,889 28 595 934 30,963 
Total noninterest expense82,906 65,414 368 2,268 2,736 153,692 
Income before income tax expense51,434 77,511 6,747 7,507 6,983 150,182 
Income tax expense13,453 16,112 1,431 1,577 1,464 34,037 
Net income$37,981 $61,399 $5,316 $5,930 $5,519 $116,145 

 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 $188,361 
Interest expense17,368 14,132 2,617 1,793 3,682 39,592 
Net interest income124,262 13,009 3,169 2,573 5,756 148,769 
Provision for credit losses3,549 1,490 — (15)965 5,989 
Noninterest income21,173 52,493 560 2,766 1 76,993 
Noninterest expense      
Salaries and employee benefits39,794 34,144 286 1,985 1,424 77,633 
Equipment and occupancy expenses10,750 1,686 2 66 135 12,639 
Data processing and telecommunications expenses9,551 660 41 22 98 10,372 
Other expenses87,059 3,484 27 503 980 92,053 
Total noninterest expense147,154 39,974 356 2,576 2,637 192,697 
Income before income tax expense(5,268)24,038 3,373 2,778 2,155 27,076 
Income tax expense(1,269)5,048 708 584 621 5,692 
Net income$(3,999)$18,990 $2,665 $2,194 $1,534 $21,384 
 
53

Net Interest Income and Margins
 
The following table sets forth the average balance, interest income or interest expense, and average interest rate 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, 2020 and 2019. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate.
 Quarter Ended September 30,
 20202019
(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$487,441 $166 0.14%$353,134 $1,793 2.01%
Investment securities1,246,860 7,462 2.38%1,592,005 11,567 2.88%
Loans held for sale1,507,481 10,365 2.74%856,572 7,889 3.65%
Loans14,688,317 163,352 4.42%12,677,063 168,239 5.27%
Total interest-earning assets17,930,099 181,345 4.02%15,478,774 189,488 4.86%
Noninterest-earning assets1,879,985   1,861,613   
Total assets$19,810,084   $17,340,387   
Liabilities and Shareholders’ Equity      
Interest-bearing liabilities:      
Savings and interest-bearing demand deposits$7,741,528 $4,329 0.22%$6,525,915 $15,710 0.96%
Time deposits2,276,083 7,493 1.31%2,954,419 13,715 1.84%
Federal funds purchased and securities sold under agreements to repurchase10,483 9 0.34%19,914 32 0.64%
FHLB advances799,034 661 0.33%810,384 4,618 2.26%
Other borrowings272,443 3,558 5.20%220,918 3,332 5.98%
Subordinated deferrable interest debentures123,604 1,346 4.33%133,519 2,185 6.49%
Total interest-bearing liabilities11,223,175 17,396 0.62%10,665,069 39,592 1.47%
Demand deposits5,782,163   4,040,592   
Other liabilities275,275   202,544   
Shareholders’ equity2,529,471   2,432,182   
Total liabilities and shareholders’ equity$19,810,084   $17,340,387   
Interest rate spread  3.40%  3.39%
Net interest income $163,949   $149,896  
Net interest margin  3.64%  3.84%
 
On a tax-equivalent basis, net interest income for the third quarter of 2020 was $163.9 million, an increase of $14.1 million, or 9.4%, compared with $149.9 million reported in the same quarter in 2019. The higher net interest income is a result of growth in average interest earning assets which increased $2.45 billion, or 15.8%, from $15.48 billion in the third quarter of 2019 to $17.93 billion for the third quarter of 2020. This growth in interest earning assets resulted primarily from organic growth in average loans, including PPP loans, and strong production in mortgage. The Company’s net interest margin during the third quarter of 2020 was 3.64%, down 20 basis points from 3.84% reported in the third quarter of 2019. Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to $7.7 billion during the third quarter of 2020, with weighted average yields of 3.33%, compared with $4.2 billion and 4.51%, respectively, during the third quarter of 2019. Loan production in the banking division amounted to $870.0 million during the third quarter of 2020 with weighted average yields of 4.00%, compared with $1.2 billion and 5.08%, respectively, during the third quarter of 2019.
 
Total interest income, on a tax-equivalent basis, decreased to $181.3 million during the third quarter of 2020, compared with $189.5 million in the same quarter of 2019.  Yields on earning assets decreased to 4.02% during the third quarter of 2020, compared with 4.86% reported in the third quarter of 2019. During the third quarter of 2020, loans comprised 90.3% of average earning assets, compared with 87.4% in the same quarter of 2019. Yields on loans decreased to 4.42% in the third quarter of 2020, compared with 5.27% in the same period of 2019. Accretion income for the third quarter of 2020 was $6.5 million, compared with $4.2 million in the third quarter of 2019.

The yield on total interest-bearing liabilities decreased from 1.47% in the third quarter of 2019 to 0.62% in the third quarter of 2020. Total funding costs, inclusive of noninterest-bearing demand deposits, decreased to 0.41% in the third quarter of 2020,
54

compared with 1.07% during the third quarter of 2019. Deposit costs decreased from 0.86% in the third quarter of 2019 to 0.30% in the third quarter of 2020. Non-deposit funding costs decreased from 3.40% in the third quarter of 2019 to 1.84% in the third quarter of 2020. The decrease in non-deposit funding costs was driven primarily by a shift in mix to short-term FHLB advances coupled with lower market interest rates being paid on FHLB advances. Average balances of interest bearing deposits and their respective costs for the third quarter of 2020 and 2019 are shown below:
 Three Months Ended
September 30, 2020		Three Months Ended
September 30, 2019
(dollars in thousands)Average
Balance		Average
Cost		Average
Balance		Average
Cost
NOW$2,718,315 0.20%$2,049,175 0.55%
MMDA4,273,899 0.26%3,815,185 1.31%
Savings749,314 0.06%661,555 0.16%
Retail CDs2,274,150 1.31%2,804,243 1.83%
Brokered CDs1,933 1.85%150,176 2.14%
Interest-bearing deposits$10,017,611 0.47%$9,480,334 1.23%
 
Provision for Credit Losses
 
The Company’s provision for credit losses during the third quarter of 2020 amounted to $17.7 million, compared with $6.0 million in the third quarter of 2019. This increase was primarily attributable to an updated economic forecast in our CECL model which reflects the impact of the coronavirus pandemic, including, among other things, a corresponding decrease in forecasted GDP and increase in forecasted unemployment. The provision for credit losses for the third quarter of 2020 was comprised of $26.7 million related to loans and $(10.1) million related to unfunded commitments and $1.1 million related to other credit losses while the $6.0 million recorded for the third quarter of 2019 related solely to loans. At September 30, 2020, classified loans still accruing increased to $146.9 million, compared with $73.9 million at December 31, 2019. Non-performing assets as a percentage of total assets increased from 0.56% at December 31, 2019 to 0.82% at September 30, 2020. The increase in non-performing assets is primarily attributable to an increase in nonaccruing loans as the Company migrated certain residential mortgage loans which completed their extension period and had not been formally modified or brought current at quarter end. Also contributing to the increase in nonperforming assets was one hotel relationship totaling $18.6 million migrating to nonaccrual and TDR status during the quarter. Net charge-offs on loans during the third quarter of 2020 were approximately $3.6 million, or 0.10% of average loans on an annualized basis, compared with approximately $2.3 million, or 0.07%, in the third quarter of 2019. The Company’s total allowance for credit losses on loans at September 30, 2020 was $231.9 million, or 1.55% of total loans, compared with $38.2 million, or 0.30% of total loans, at December 31, 2019. This increase is primarily attributable to the adoption impact of CECL which increased the allowance for credit losses on loans $78.7 million and the provision recorded year-to-date.
 
Noninterest Income
 
Total noninterest income for the third quarter of 2020 was $159.0 million, an increase of $82.0 million, or 106.5%, from the $77.0 million reported in the third quarter of 2019.  Income from mortgage-related activities was $138.6 million in the third quarter of 2020, an increase of $85.6 million, or 161.4%, from $53.0 million in the third quarter of 2019. Total production in the third quarter of 2020 amounted to $2.92 billion, compared with $1.81 billion in the same quarter of 2019, while spread (gain on sale) increased to 3.92% in the current quarter, compared with 2.67% in the same quarter of 2019. The retail mortgage open pipeline finished the third quarter of 2020 at $2.71 billion, compared with $2.67 billion at June 30, 2020 and $784.2 million at the end of the third quarter of 2019. Service charges on deposit accounts decreased $2.5 million, or 18.6%, to $10.9 million in the third quarter of 2020, compared with $13.4 million in the third quarter of 2019. This decrease in service charges on deposit accounts is due primarily to the impact of the Durbin Amendment and a decrease in NSF income.

Other noninterest income decreased $1.0 million, or 10.5%, to $8.3 million for the third quarter of 2020, compared with $9.3 million during the third quarter of 2019. The decrease in other noninterest income was primarily attributable to decreases in gain on BOLI proceeds of $4.2 million and indirect automobile servicing income of $806,000. These decreases were partially offset by an increase of $1.9 million in gain on sales of SBA loans and a decrease of $2.0 million in loss on sale of loans.

Noninterest Expense
 
Total noninterest expenses for the third quarter of 2020 decreased $39.0 million, or 20.2%, to $153.7 million, compared with $192.7 million in the same quarter 2019. Salaries and employee benefits increased $19.1 million, or 24.6%, from $77.6 million in the third quarter of 2019 to $96.7 million in the third quarter of 2020, due primarily to an increase in variable compensation tied to increased mortgage production of $19.9 million. Occupancy and equipment expenses increased $1.2 million, or 9.2%, to
55

$13.8 million for the third quarter of 2020, compared with $12.6 million in the third quarter of 2019, due primarily to $1.8 million in lease termination costs related to previously announced efficiency initiatives. Data processing and telecommunications expense increased $1.9 million, or 17.9%, to $12.2 million in the third quarter of 2020, compared with $10.4 million in the third quarter of 2019, due primarily to variable expenses related to increased mortgage production. Advertising and marketing expense was $1.0 million in the third quarter of 2020, compared with $1.9 million in the third quarter of 2019. Amortization of intangible assets decreased $1.5 million, or 26.7%, from $5.7 million in the third quarter of 2019 to $4.2 million in the third quarter of 2020. Core deposit intangibles are being amortized over an accelerated basis; therefore, the expense recorded will decline over the life of the asset. Merger and conversion charges were $(44,000) in the third quarter of 2020, compared with $65.2 million in the same quarter of 2019. Other noninterest expenses increased $6.9 million, or 38.1%, from $18.1 million in the third quarter of 2019 to $25.0 million in the third quarter of 2020, due primarily to an increase of $2.7 million in FDIC insurance, an increase of $2.9 million in mortgage servicing expenses, and an increase of $470,000 in natural disaster and pandemic charges related to the COVID-19 pandemic. Also contributing to the increase in other noninterest expenses was 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 nondeductible expenses.  For the third quarter of 2020, the Company reported income tax expense of $34.0 million, compared with $5.7 million in the same period of 2019. The Company’s effective tax rate for the three months ending September 30, 2020 and 2019 was 22.7% and 21.0%, respectively. The increase in the effective tax rate is primarily a result of decreased nontaxable gain on BOLI proceeds compared with the same period a year ago.
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Results of Operations for the Nine Months Ended September 30, 2020 and 2019

Consolidated Earnings and Profitability
 
Ameris reported net income available to common shareholders of $167.7 million, or $2.42 per diluted share, for the nine months ended September 30, 2020, compared with $100.2 million, or $1.83 per diluted share, for the same period in 2019. The Company’s return on average assets and average shareholders’ equity were 1.18% and 8.96%, respectively, in the nine months ended September 30, 2020, compared with 0.99% and 7.39%, respectively, in the same period in 2019. During the first nine months of 2020, the Company incurred pre-tax merger and conversion charges of $1.4 million, pre-tax restructuring charges related to branch consolidations and efficiency initiatives of $1.5 million, pre-tax servicing right impairment of $30.6 million, pre-tax gain on BOLI proceeds of $948,000, pre-tax expenses related to SEC and DOJ investigation of $3.0 million, pre-tax expenses related to the COVID-19 pandemic of $3.1 million and pre-tax losses on the sale of premises of $654,000. 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 gain on BOLI proceeds of $4.3 million, pre-tax reduction in financial impact of hurricanes of $39,000 and pre-tax losses on the sale of premises of $4.6 million. Excluding these adjustment items, the Company’s net income would have been $198.5 million, or $2.86 per diluted share, for the nine months ended September 30, 2020 and $156.3 million, or $2.85 per diluted share, for the same period in 2019.
 
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)20202019
Net income available to common shareholders$167,703 $100,193 
Adjustment items:  
Merger and conversion charges1,391 70,690 
Restructuring charge1,513 245 
Servicing right impairment30,566 141 
Gain on BOLI proceeds(948)(4,335)
Expenses related to SEC and DOJ investigation3,005 — 
Natural disaster and pandemic charges3,061 (39)
Loss on the sale of premises654 4,608 
Tax effect of adjustment items (Note 1)
(8,438)(15,167)
After tax adjustment items30,804 56,143 
Adjusted net income$198,507 $156,336 
Weighted average common shares outstanding - diluted69,403,104 54,883,122 
Net income per diluted share$2.42 $1.83 
Adjusted net income per diluted share$2.86 $2.85 
Note 1: A portion of the merger and conversion charges for all periods are nondeductible for tax purposes.

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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, 2020 and 2019, respectively:
 Nine Months Ended
September 30, 2020
(dollars in thousands)Banking
Division		Retail
Mortgage
Division		Warehouse
Lending
Division		SBA
Division		Premium
 Finance
 Division		Total
Interest income$384,547 $99,165 $16,979 $23,443 $23,586 $547,720 
Interest expense26,280 36,714 2,105 5,262 3,062 73,423 
Net interest income358,267 62,451 14,874 18,181 20,524 474,297 
Provision for loan losses123,289 17,471 889 5,716 (475)146,890 
Noninterest income47,506 276,147 2,751 7,953 — 334,357 
Noninterest expense
Salaries and employee benefits121,762 134,600 685 5,660 5,105 267,812 
Equipment and occupancy expenses33,981 5,133 3 291 232 39,640 
Data processing and telecommunications expenses29,432 4,741 169 32 320 34,694 
Other expenses80,159 20,713 150 1,469 2,876 105,367 
Total noninterest expense265,334 165,187 1,007 7,452 8,533 447,513 
Income before income tax expense17,150 155,940 15,729 12,966 12,466 214,251 
Income tax expense5,146 32,751 3,317 2,723 2,611 46,548 
Net income$12,004 $123,189 $12,412 $10,243 $9,855 $167,703 

 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 expense44,340 26,957 7,294 3,986 9,926 92,503 
Net interest income294,056 26,329 8,846 4,841 15,743 349,815 
Provision for loan losses7,913 2,235 — 394 3,523 14,065 
Noninterest income50,373 84,853 1,389 6,379 6 143,000 
Noninterest expense
Salaries and employee benefits91,954 54,237 609 3,447 4,049 154,296 
Equipment and occupancy expenses25,065 3,122 4 190 296 28,677 
Data processing and telecommunications expenses24,778 1,384 109 27 853 27,151 
Other expenses126,743 7,983 170 1,249 3,104 139,249 
Total noninterest expense268,540 66,726 892 4,913 8,302 349,373 
Income before income tax expense67,976 42,221 9,343 5,913 3,924 129,377 
Income tax expense16,197 8,831 1,962 1,242 952 29,184 
Net income$51,779 $33,390 $7,381 $4,671 $2,972 $100,193 
 
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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, 2020 and 2019. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate.
 Nine Months Ended
September 30,
 20202019
(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$452,503 $1,621 0.48%$415,908 $7,655 2.46%
Investment securities1,361,586 27,287 2.68%1,362,004 30,319 2.98%
Loans held for sale1,569,337 38,055 3.24%373,699 10,673 3.82%
Loans13,772,102 484,605 4.70%9,982,560 396,918 5.32%
Total interest-earning assets17,155,528 551,568 4.29%12,134,171 445,565 4.91%
Noninterest-earning assets1,889,500   1,348,873   
Total assets$19,045,028   $13,483,044   
Liabilities and Shareholders’ Equity      
Interest-bearing liabilities:      
Savings and interest-bearing demand deposits$7,345,828 $22,184 0.40%$5,248,058 $38,776 0.99%
Time deposits2,477,483 28,013 1.51%2,603,879 35,787 1.84%
Federal funds purchased and securities sold under agreements to repurchase12,849 74 0.77%13,017 45 0.46%
FHLB advances1,091,885 7,456 0.91%282,622 4,803 2.27%
Other borrowings270,407 10,556 5.21%170,891 7,769 6.08%
Subordinated deferrable interest debentures124,814 5,140 5.50%104,345 5,323 6.82%
Total interest-bearing liabilities11,323,266 73,423 0.87%8,422,812 92,503 1.47%
Demand deposits4,977,833   3,108,638   
Other liabilities243,240   138,019   
Shareholders’ equity2,500,689   1,813,575   
Total liabilities and shareholders’ equity$19,045,028   $13,483,044   
Interest rate spread  3.42%  3.44%
Net interest income $478,145   $353,062  
Net interest margin  3.72%  3.89%
 
On a tax-equivalent basis, net interest income for the nine months ended September 30, 2020 was $478.1 million, an increase of $125.1 million, or 35.4%, compared with $353.1 million reported in the same period of 2019. The higher net interest income is a result of growth in average interest earning assets which increased $5.02 billion, or 41.4%, from $12.13 billion in the first nine months of 2019 to $17.16 billion for the first nine months of 2020. This increase in average interest earning assets resulted primarily from the Fidelity acquisition occurring in the third quarter of 2019, as well as organic growth in average loans, including PPP loans, and strong production in mortgage. Average loans increased $3.79 billion, or 38.0%, to $13.77 billion in the first nine months of 2020 from $9.98 billion in the same period of 2019. The Company’s net interest margin was down 17 basis points during the first nine months of 2020 to 3.72%, compared with 3.89% for the first nine months of 2019.
 
Total interest income, on a tax-equivalent basis, increased to $551.6 million during the nine months ended September 30, 2020, compared with $445.6 million in the same period of 2019. Yields on earning assets decreased to 4.29% during the first nine months of 2020, compared with 4.91% reported in the same period of 2019. During the first nine months of 2020, loans comprised 89.4% of average earning assets, compared with 85.3% in the same period of 2019. Yields on loans decreased to 4.70% during the nine months ended September 30, 2020, compared with 5.32% in the same period of 2019. Accretion income for the first nine months of 2020 was $22.7 million, compared with $10.2 million in the first nine months of 2019.

The yield on total interest-bearing liabilities decreased from 1.47% during the nine months ended September 30, 2019 to 0.87% in the same period of 2020. Total funding costs, inclusive of noninterest-bearing demand deposits, decreased to 0.60% in the first nine months of 2020, compared with 1.07% during the same period of 2019. Deposit costs decreased from 0.91% in the first nine months of 2019 to 0.45% in the same period of 2020. Non-deposit funding costs decreased from 4.20% in the first
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nine months of 2019 to 2.07% in the same period of 2020. The decrease in non-deposit funding costs was driven primarily by a shift in mix to short-term FHLB advances coupled with lower market interest rates being paid on FHLB advances. Average balances of interest bearing deposits and their respective costs for the nine months ended September 30, 2020 and 2019 are shown below:
 Nine Months Ended
September 30, 2020		Nine Months Ended
September 30, 2019
(dollars in thousands)Average
Balance		Average
Cost		Average
Balance		Average
Cost
NOW$2,483,383 0.29%$1,705,108 0.57%
MMDA4,167,207 0.52%3,053,272 1.36%
Savings695,238 0.08%489,678 0.12%
Retail CDs2,455,833 1.51%2,222,942 1.73%
Brokered CDs21,650 2.03%380,937 2.45%
Interest-bearing deposits$9,823,311 0.68%$7,851,937 1.27%
 
Provision for Credit Losses
 
The Company’s provision for credit losses during the nine months ended September 30, 2020 amounted to $146.9 million, compared with $14.1 million in the nine months ended September 30, 2019. This increase was primarily attributable to an updated economic forecast in our CECL model which reflects the impact of the coronavirus pandemic including, among other things, a corresponding decrease in forecasted GDP and increase in forecasted unemployment. The provision for credit losses for the first nine months of 2020 was comprised of $132.2 million related to loans, $13.6 million related to unfunded commitments and $1.1 million related to other credit losses while the $14.1 million recorded for the same period in 2019 related solely to loans. At September 30, 2020, classified loans still accruing increased to $146.9 million, compared with $73.9 million at December 31, 2019. Non-performing assets as a percentage of total assets increased from 0.56% at December 31, 2019 to 0.82% at September 30, 2020. Net charge-offs on loans during the first nine months of 2020 were $17.1 million, or 0.17% of average loans on an annualized basis, compared with approximately $7.4 million, or 0.10%, in the first nine months of 2019. The Company’s total allowance for credit losses on loans at September 30, 2020 was $231.9 million, or 1.55% of total loans, compared with $38.2 million, or 0.30% of total loans, at December 31, 2019. This increase is primarily attributable to the adoption impact of CECL, which resulted in an increase in the allowance for credit losses on loans of $78.7 million and the provision noted above.
 
Noninterest Income
 
Total noninterest income for the nine months ended September 30, 2020 was $334.4 million, an increase of $191.4 million, or 133.8%, from the $143.0 million reported for the nine months ended September 30, 2019.  Income from mortgage-related activities increased $192.6 million, or 223.4%, from $86.2 million in the first nine months of 2019 to $278.9 million in the same period of 2020. Total production in the first nine months of 2020 amounted to $6.95 billion, compared with $2.75 billion in the same period of 2019, while spread (gain on sale) increased to 3.57% during the nine months ended September 30, 2020, compared with 2.83% in the same period of 2019. The retail mortgage open pipeline was $2.71 billion at September 30, 2020, compared with $1.16 billion at the beginning of 2020 and $784.2 million at September 30, 2019. Mortgage-related activities was negatively impacted during the first nine months of 2020 by a mortgage servicing right impairment of $30.2 million, compared with no such impairment for the same period in 2019. Service charges on deposit accounts in the first nine months of 2020 decreased $4.5 million, or 12.2%, to $32.7 million, compared with $37.2 million in the first nine months of 2019. This decrease in service charge revenue was primarily attributable to lower debit card interchange income resulting from the Durbin Amendment. Other service charges, commissions and fees were $3.4 million during the first nine months of 2020, compared with $2.8 million during the first nine months of 2019. Other noninterest income increased $2.8 million, or 17.0%, to $19.4 million for the first nine months of 2020, compared with $16.6 million during the same period of 2019. The increase in other noninterest income was primarily attributable to increases of $2.0 million in gain on sale of SBA loans, $762,000 in BOLI income and $1.2 million in trust income and a decrease of $2.0 million in loss on sale of loans for the nine months ended September 30, 2020 compared with the same period in 2019. These increases were partially offset by a decrease in gain on BOLI proceeds of $3.4 million.

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 Noninterest Expense
 
Total noninterest expenses for the nine months ended September 30, 2020 increased $98.1 million, or 28.1%, to $447.5 million, compared with $349.4 million in the same period of 2019. Salaries and employee benefits increased $113.5 million, or 73.6%, from $154.3 million in the first nine months of 2019 to $267.8 million in the same period of 2020 due to staff additions resulting from the Fidelity acquisition and an increase of $58.4 million in mortgage commissions related to production increases. Occupancy and equipment expenses increased $11.0 million, or 38.2%, to $39.6 million for the first nine months of 2020, compared with $28.7 million in the same period of 2019, due primarily to 62 branch locations being added during 2019 as a result of the Fidelity acquisition partially offset by branch consolidations subsequent to acquisition. Data processing and telecommunications expense increased $7.5 million, or 27.8%, to $34.7 million in the first nine months of 2020, from $27.2 million reported in the same period of 2019. This increase in data processing and telecommunications during the first nine months of 2020 reflects increased core banking system charges due to an increase in the number of accounts being processed by our core banking system and variable expenses related to increased mortgage production. Credit resolution-related expenses increased $1.0 million, or 32.4%, from $3.0 million in the first nine months of 2019 to $4.0 million in the same period of 2020. This increase in credit resolution-related expenses primarily resulted from additional write-downs on OREO properties. Amortization of intangible assets increased $3.5 million, or 28.8%, from $12.0 million in the first nine months of 2019 to $15.4 million in the first nine months of 2020, due primarily to additional amortization of intangible assets recorded as part of the Fidelity acquisition. Merger and conversion charges were $1.4 million in the first nine months of 2020, compared with $70.7 million in the same period in 2019. Merger and conversion charges for both periods principally related to the Fidelity acquisition. Other noninterest expenses increased $31.9 million, or 66.6%, from $47.9 million in the first nine months of 2019 to $79.8 million in the same period of 2020 resulting primarily from an increase of $7.5 million in FDIC insurance, an increase of $4.8 million in legal and other professional fees, an increase of $8.2 million in loan servicing expenses, an increase of $3.1 million in natural disaster and pandemic expenses and an increase in volume in certain areas related to our acquisition of Fidelity and increased production in our lines of business. These increases were partially offset by a decrease of $3.8 million in loss on sale of fixed assets.
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 nondeductible expenses. For the nine months ended September 30, 2020, the Company reported income tax expense of $46.5 million, compared with $29.2 million in the same period of 2019. The Company’s effective tax rate for the nine months ended September 30, 2020 and 2019 was 21.7% and 22.6%, respectively. The decrease in the effective tax rate is due to loss carrybacks allowed a result of the recently enacted CARES Act and a reduction in meals and entertainment expenses recognized during 2020 compared with 2019.

Financial Condition as of September 30, 2020
 
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.

Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate securities in an unrealized loss position on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation, to determine if credit-related impairment exists. Management first evaluates whether they intend to sell or more likely than not will be required to sell an impaired security before recovering its amortized cost basis. If either criteria is met, the entire amount of unrealized loss is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. If either of the above criteria is not met, management evaluates whether the decline in fair value is attributable to credit or resulted from other factors. The Company does not intend to sell these investment securities at an unrealized loss position at September 30, 2020, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Based on the results of management's review, at September 30, 2020, management determined that $68,000 was
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attributable to credit impairment and increased the allowance for credit losses accordingly. The remaining $481,000 in unrealized loss was determined to be from factors other than credit.

The following table is a summary of our investment portfolio at the dates indicated.
September 30, 2020December 31, 2019
(dollars in thousands)Amortized CostFair
Value		Amortized CostFair
Value
U.S. government sponsored agencies$17,184 $17,604 $22,246 $22,362 
State, county and municipal securities84,219 87,648 102,952 105,260 
Corporate debt securities51,659 52,141 51,720 52,999 
SBA pool securities62,204 65,116 73,704 73,912 
Mortgage-backed securities855,083 894,927 1,129,816 1,148,870 
Total debt securities$1,070,349 $1,117,436 $1,380,438 $1,403,403 

The amounts of securities available for sale in each category as of September 30, 2020 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
(dollars in thousands)AmountYield
(1)		AmountYield
(1)(2)		AmountYield
(1)
One year or less$— — %$14,694 3.35 %$— — %
After one year through five years16,452 1.92 26,506 3.72 14,718 2.72 
After five years through ten years1,152 2.16 28,799 3.86 35,735 5.34 
After ten years— — 17,649 4.45 1,688 4.40 
$17,604 1.93 %$87,648 3.85 %$52,141 4.57 %
SBA Pool SecuritiesMortgage-Backed Securities
(dollars in thousands)AmountYield
(1)		AmountYield
(1)
One year or less$— — %$24 3.41 %
After one year through five years2,015 2.09 42,383 2.76 
After five years through ten years24,014 2.20 278,580 2.73 
After ten years39,087 2.50 573,940 2.17 
$65,116 2.37 %$894,927 2.37 %
(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 Credit Losses

At September 30, 2020, gross loans outstanding (including loans and loans held for sale) were $16.36 billion, up $1.88 billion from $14.48 billion reported at December 31, 2019. Loans held for sale decreased from $1.66 billion at December 31, 2019 to $1.41 billion at September 30, 2020 primarily due to efficiencies in mortgage deliveries in our mortgage division. Loans increased $2.13 billion, or 16.6%, from $12.82 billion at December 31, 2019 to $14.94 billion at September 30, 2020, driven primarily by $1.10 billion in PPP loans and organic growth.

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) consumer installment; (3) indirect automobile; (4) mortgage warehouse; (5) municipal; (6) premium finance; (7) construction and development related real estate; (8) commercial and farmland real estate; and (9) residential real estate. 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.
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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 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 Company estimates the allowance for credit losses ("ACL") on loans based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL.

Expected credit losses are reflected in the allowance for credit losses through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.

The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company uses the DCF method, the vintage method, the PD×LGD method or a qualitative approach.

The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert back to historical loss information on a straight-line basis over four quarters when it can no longer develop reasonable and supportable forecasts.

At the end of the third quarter of 2020, the allowance for credit losses on loans totaled $231.9 million, or 1.55% of loans, compared with $38.2 million, or 0.30% of loans, at December 31, 2019. Our nonaccrual loans increased from $75.1 million at December 31, 2019 to $138.2 million at September 30, 2020. The increase in nonaccrual loans is primarily attributable to residential mortgages where deferment has been completed but the borrowers have not yet notified the Company of their intention to either bring their loan current or enter into a long term modification program. Also contributing to the increase in nonaccrual loans is one hotel relationship totaling $18.6 million which migrated to nonaccrual and TDR status during the third quarter of 2020. For the first nine months of 2020, our net charge off ratio as a percentage of average loans increased to 0.17%, compared with 0.10% for the first nine months of 2019. The total provision for credit losses for the first nine months of 2020 was $146.9 million, increasing from $14.1 million recorded for the first nine months of 2019. Our ratio of total nonperforming assets to total assets increased from 0.56% at December 31, 2019 to 0.82% at September 30, 2020.

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The following tables present an analysis of the allowance for loan losses as of and for the nine months ended September 30, 2020 and 2019:
Nine Months Ended
September 30,
(dollars in thousands)20202019
Balance of allowance for credit losses on loans at beginning of period$38,189 $28,819 
Adjustment to allowance for adoption of ASU 2016-1378,661 — 
Provision charged to operating expense132,188 14,065 
Charge-offs:  
Commercial, financial and agricultural4,687 1,647 
Consumer installment2,781 4,313 
Indirect automobile2,944 965 
Premium finance3,893 3,452 
Real estate – construction and development83 268 
Real estate – commercial and farmland10,220 3,158 
Real estate – residential762 391 
Total charge-offs25,370 14,194 
Recoveries:
Commercial, financial and agricultural1,135 904 
Consumer installment1,273 980 
Indirect automobile1,020 385 
Premium finance2,584 2,396 
Real estate – construction and development692 1,315 
Real estate – commercial and farmland1,010 192 
Real estate – residential542 668 
Total recoveries8,256 6,840 
Net charge-offs17,114 7,354 
Balance of allowance for credit losses on loans at end of period$231,924 $35,530 

As of and for the Nine Months Ended
(dollars in thousands)September 30, 2020September 30, 2019
Allowance for credit losses on loans at end of period$231,924 $35,530 
Net charge-offs for the period17,114 7,354 
Loan balances:
End of period14,943,593 12,826,284 
Average for the period13,772,102 9,982,560 
Net charge-offs as a percentage of average loans (annualized)0.17 %0.10 %
Allowance for credit losses on loans as a percentage of end of period loans1.55 %0.28 %

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Loans

Loans are stated at amortized cost. Balances within the major loans receivable categories are presented in the following table:
(dollars in thousands)September 30, 2020December 31, 2019
Commercial, financial and agricultural$1,879,788 $802,171 
Consumer installment450,810 498,577 
Indirect automobile682,396 1,061,824 
Mortgage warehouse995,942 526,369 
Municipal725,669 564,304 
Premium finance710,890 654,669 
Real estate – construction and development1,628,255 1,549,062 
Real estate – commercial and farmland5,116,252 4,353,039 
Real estate – residential2,753,591 2,808,461 
$14,943,593 $12,818,476 
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 non-performing loans over $250,000 on a quarterly basis. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against current income.

Nonaccrual loans totaled $138.2 million at September 30, 2020, an increase of $63.0 million, or 83.9%, from $75.1 million at December 31, 2019. Accruing loans delinquent 90 days or more totaled $7.0 million at September 30, 2020, an increase of $1.2 million, or 21.7%, compared with $5.8 million at December 31, 2019. At September 30, 2020, OREO totaled $18.0 million, a decrease of $1.5 million, or 7.9%, compared with $19.5 million at December 31, 2019. 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 2020, total non-performing assets as a percent of total assets increased to 0.82% compared with 0.56% at December 31, 2019.

Non-performing assets at September 30, 2020 and December 31, 2019 were as follows:
(dollars in thousands)September 30, 2020December 31, 2019
Nonaccrual loans$138,163 $75,124 
Accruing loans delinquent 90 days or more7,003 5,754 
Repossessed assets258 939 
Other real estate owned17,969 19,500 
Total non-performing assets$163,393 $101,317 

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, 2020 and December 31, 2019, the Company had a balance of $132.9 million and $35.2 million, respectively, in troubled debt restructurings. The following table presents the amount of troubled debt restructurings by loan class classified separately as accrual and nonaccrual at September 30, 2020 and December 31, 2019:
September 30, 2020Accruing LoansNon-Accruing Loans
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural5$459 12$1,002 
Consumer installment1136 2264 
Indirect automobile4812,689 49482 
Real estate – construction and development4510 5709 
Real estate – commercial and farmland3873,763 719,942 
Real estate – residential24328,777 454,477 
Total782$106,234 140$26,676 
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December 31, 2019Accruing LoansNon-Accruing Loans
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural5$516 17$335 
Consumer installment48 27107 
Premium finance1156 —— 
Real estate – construction and development6936 3253 
Real estate – commercial and farmland216,732 82,071 
Real estate – residential19721,261 402,857 
Total234$29,609 95$5,623 

The following table presents the amount of troubled debt restructurings by loan class 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, 2020 and December 31, 2019:
September 30, 2020Loans Currently Paying
Under Restructured Terms		Loans that have Defaulted Under Restructured Terms
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural10$1,191 7$270 
Consumer installment1647 1753 
Indirect automobile4532,532 77639 
Real estate – construction and development5511 4707 
Real estate – commercial and farmland4192,964 4741 
Real estate – residential25029,282 383,973 
Total775$126,527 147$6,383 

December 31, 2019Loans Currently Paying
Under Restructured Terms		Loans that have Defaulted Under Restructured Terms
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural11$730 11$121 
Consumer installment1858 1357 
Premium finance1156 —— 
Real estate – construction and development81,187 12 
Real estate – commercial and farmland226,437 72,366 
Real estate – residential18219,664 554,454 
Total242$28,232 87$7,000 

The following table presents the amount of troubled debt restructurings by types of concessions made, classified separately as accrual and nonaccrual at September 30, 2020 and December 31, 2019:
September 30, 2020Accruing LoansNon-Accruing Loans
Type of Concession#
Balance
(in thousands)
#
Balance
(in thousands)
Forbearance of interest18$2,147 8$1,255 
Forbearance of principal58484,570 7823,482 
Forbearance of principal, extended amortization—— 1209 
Rate reduction only699,273 4527 
Rate reduction, maturity extension—— 212 
Rate reduction, forbearance of interest473,868 9398 
Rate reduction, forbearance of principal192,434 29392 
Rate reduction, forgiveness of interest453,942 8400 
Rate reduction, forgiveness of principal—— 11 
Total782$106,234 140$26,676 

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December 31, 2019Accruing LoansNon-Accruing Loans
Type of Concession#
Balance
(in thousands)
#
Balance
(in thousands)
Forbearance of interest16$1,860 14$1,993 
Forgiveness of principal—— 1666 
Forbearance of principal276,294 10605 
Forbearance of principal, extended amortization—— 1225 
Rate reduction only729,887 7538 
Rate reduction, maturity extension—— 215 
Rate reduction, forbearance of interest494,250 19793 
Rate reduction, forbearance of principal193,267 30264 
Rate reduction, forgiveness of interest514,051 10523 
Rate reduction, forgiveness of principal—— 11 
Total234$29,609 95$5,623 

The following table presents the amount of troubled debt restructurings by collateral types, classified separately as accrual and nonaccrual at September 30, 2020 and December 31, 2019:
September 30, 2020Accruing LoansNon-Accruing Loans
Collateral Type#
Balance
(in thousands)
#
Balance
(in thousands)
Warehouse5$267 2$314 
Raw land64,676 61,087 
Hotel and motel1456,089 118,572 
Office3600 —— 
Retail, including strip centers114,775 —— 
1-4 family residential24528,893 464,980 
Church—— 1171 
Assisted living facilities27,772 —— 
Automobile/equipment/CD4963,162 821,549 
Livestock—— 12 
Unsecured—— 11 
Total782$106,234 140$26,676 

December 31, 2019Accruing LoansNon-Accruing Loans
Collateral Type#
Balance
(in thousands)
#
Balance
(in thousands)
Warehouse4$267 2$442 
Raw land5869 5732 
Apartments—— —— 
Hotel and motel2364 1241 
Office3531 1342 
Retail, including strip centers115,520 —— 
1-4 family residential20021,404 403,232 
Church—— 1183 
Automobile/equipment/CD8498 43436 
Livestock—— 114 
Unsecured1156 11 
Total234$29,609 95$5,623 

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 one-to-four 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.

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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, 2020, 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.

The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of September 30, 2020 and December 31, 2019. The loan categories and concentrations below are based on Federal Reserve Call codes:
September 30, 2020December 31, 2019
(dollars in thousands)Balance% of Total
Loans		Balance% of Total
Loans
Construction and development loans$1,628,255 11%$1,549,062 12%
Multi-family loans330,730 2%297,317 2%
Nonfarm non-residential loans (excluding owner-occupied)3,150,043 21%2,358,987 18%
Total CRE Loans (excluding owner-occupied)
5,109,028 34%4,205,366 33%
All other loan types9,834,565 66%8,613,110 67%
Total Loans$14,943,593 100%$12,818,476 100%

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, 2020 and December 31, 2019:
Internal
Limit		Actual
September 30, 2020December 31, 2019
Construction and development loans100%76%88%
Total CRE loans (excluding owner-occupied)300%237%238%

Short-Term Investments

The Company’s short-term investments are comprised of federal funds sold and interest-bearing deposits in banks. At September 30, 2020, the Company’s short-term investments were $494.8 million, compared with $375.6 million at December 31, 2019. At September 30, 2020, the Company had $20.0 million in federal funds sold and $474.8 million was in interest-bearing deposit balances at correspondent banks and the Federal Reserve Bank of Atlanta.

Derivative Instruments and Hedging Activities

The Company had a cash flow hedge that matured September 15, 2020 with a notional amount of $37.1 million at December 31, 2019 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 $187,000 at December 31, 2019. 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.

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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 $64.7 million and $7.8 million at September 30, 2020 and December 31, 2019, respectively, and a liability of $6.2 million and $4.5 million at September 30, 2020 and December 31, 2019, respectively.

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 through October 31, 2020. On October 22, 2020, the Company announced that its Board of Directors approved the extension of the share repurchase program through October 31, 2021.  Repurchases of shares 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. As of September 30, 2020, $14.3 million, or 358,664 shares of the Company's common stock, had been repurchased under the 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.

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 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 FRB 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 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 2.50% for 2020 and 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 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 a bank to be considered “well capitalized,” it must maintain a Tier 1 capital ratio greater than or equal to 8.00%.

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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 a bank to be considered “well capitalized,” it must maintain a total capital ratio greater than or equal to 10.00%.

In March 2020, the Office of the Comptroller of the Currency, the FRB and the FDIC issued an interim final rule that delays the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule provides banking organizations that implement CECL in 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. As a result, the Company and Bank elected the five-year transition relief allowed under the interim final rule effective March 31, 2020.

As of September 30, 2020, 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, 2020 and December 31, 2019.
September 30, 2020December 31, 2019
Tier 1 Leverage Ratio (tier 1 capital to average assets)
  
Consolidated8.57%8.48%
Ameris Bank10.27%9.73%
CET1 Ratio (common equity tier 1 capital to risk weighted assets)
  
Consolidated10.44%9.90%
Ameris Bank12.51%11.36%
Tier 1 Capital Ratio (tier 1 capital to risk weighted assets)
  
Consolidated10.44%9.90%
Ameris Bank12.51%11.36%
Total Capital Ratio (total capital to risk weighted assets)
  
Consolidated14.65%12.90%
Ameris Bank13.94%12.15%

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 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
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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, 2020 and December 31, 2019, the net carrying value of the Company’s other borrowings was $875.3 million and $1.40 billion, respectively.

The following liquidity ratios compare certain assets and liabilities to total deposits or total assets:
September 30,
2020		June 30,
2020		March 31,
2020		December 31,
2019		September 30,
2019
Investment securities available for sale to total deposits6.96%7.95%9.77%10.00%10.92%
Loans (net of unearned income) to total deposits93.03%93.03%94.58%91.38%93.90%
Interest-earning assets to total assets90.66%90.51%89.57%89.47%89.27%
Interest-bearing deposits to total deposits63.21%64.11%69.47%70.06%70.15%

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, 2020 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.

Goodwill Impairment Testing

The Company has goodwill at its Banking Division and Premium Finance Division (collectively "the divisions"). The carrying value of goodwill at the Banking Division was $863.5 million and $867.1 million at September 30, 2020 and December 31, 2019, respectively. The carrying value of goodwill at the Premium Finance Division was $64.5 million at both September 30, 2020 and December 31, 2019. The Company performs its annual impairment test at December 31 of each year and more frequently if a triggering event occurs. At December 31, 2019, the Company performed a qualitative assessment of goodwill at the divisions and determined it was more likely than not that the reporting unit's fair value exceeded its carrying value. The Company performed an interim qualitative assessment at March 31, 2020 considering the decline in the Company's stock price relative to book value and the impact of COVID-19 on the economy and determined that it was more likely than not that the reporting units fair values exceeded their carrying value.

During the second quarter of 2020, the Company assessed the indicators of goodwill impairment and determined a triggering event had occurred. Triggering events included sustained decline in the Company's share price, the impact of COVID-19 on the economy and low interest rate environment. The Company performed a quantitative analysis of goodwill at the divisions as of May 31, 2020. The Premium Finance Division was measured utilizing a discounted cash flow approach. The Banking Division was measured using multiple approaches. The primary approach for the Banking Division was the discounted cash flow approach, and the Company also used a market approach comparing to similar public companies' multiples and control premiums from transactions during prior distressed periods. The results from each of the primary approaches showed valuation of the reporting unit in excess of carrying value at May 31, 2020. The discounted cash flow approach for the Premium Finance Division resulted in a fair value approximately 11% higher than its carrying value. The discounted cash flow approach for the Banking Division indicated a fair value approximately 42% higher than its carrying value, and the market approach indicated a fair value approximately 5% higher than its carrying value. Economic conditions and forecasted results through June 30, 2020 were materially consistent with those modeled at May 31, 2020, and therefore, management determined no impairment existed at June 30, 2020.

At September 30, 2020, the Company performed an interim qualitative assessment and determined that it was more likely than not that the reporting units fair values exceeded their carrying values.
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Each of the valuation methods used by the Company requires significant assumptions. Depending on the specific method, assumptions are made regarding growth rates, discount rates for cash flows, control premiums, and selected multiples. Changes to any of the assumptions could result in significantly different results.

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 December 31, 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 exchanged fixed rate payments of 4.11% for floating rate payments based on the three-month LIBOR rate and matured September 2020. The fair value of this instrument was a liability of $187,000 at December 31, 2019.

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 $64.7 million and $7.8 million at September 30, 2020 and December 31, 2019, respectively, and a liability of $6.2 million and $4.5 million at September 30, 2020 and December 31, 2019, 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 not effective, due to the material weakness in internal control over financial reporting described below.

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s financial statements will not be prevented or detected on a timely basis.

We continue to have a material weakness in our internal control over financial reporting as disclosed in Management's Assessment of Internal Control over Financial Reporting in Item 9A. Controls and Procedures of our Annual Report on Form 10-K for the year ended December 31, 2019, as amended. Specifically, during the first quarter of 2020, the Company identified a control deficiency related to certain general ledger account reconciliations that began as of the conversion of Fidelity’s core platform on November 3, 2019. While the reconciliations were completed in a timely manner, various items, which were principally related to the acquired indirect auto loan portfolio, were not researched and resolved in a timely manner. This control deficiency creates a reasonable possibility that a material misstatement to the consolidated financial statements would not have been prevented or detected on a timely basis, and as such, management has concluded that the control deficiency represents a material weakness in internal control over financial reporting.

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Because of this material weakness, management concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2020.

Remediation Plan

Management has been actively engaged during the first nine months of 2020 in implementing remediation plans to address the material weakness. These plans include: (i) additional training for accounting staff performing the reconciliations; (ii) development of more detailed reconciliation procedures to allow for more timely research and resolution of items; (iii) increased personnel in the accounting department to ensure timeliness of clearing reconciling items; and (iv) the review of the system interface to the general ledger such that the number of reconciling items among impacted balance sheet accounts will be reduced.

The Company’s material weakness will not be considered remediated until the remediation plans have been implemented and tested and management concludes these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

On January 1, 2020, the Company adopted ASU 2016-13 – Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The Company implemented changes to the policies, processes, and controls over the allowance for credit losses. Many of the controls mirror controls over our prior incurred loss methodology. New controls were implemented over data quality of critical data elements used in the new model, unfunded commitments and reconciliations. Other than the controls related to ASU 2016-13 and remediation efforts as described above, during the quarter ended September 30, 2020, 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, 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, 2019, as amended, except as follows:

The ongoing COVID-19 pandemic and measures intended to prevent the disease's spread have adversely impacted our business, financial condition and results of operations and will likely continue to do so.

The COVID-19 pandemic has caused significant economic dislocation in the United States and an unprecedented slowdown in economic activity, as many state and local governments have intermittently ordered non-essential businesses to close and residents to shelter in place at home. As a result of the pandemic, commercial customers are experiencing varying levels of disruptions or restrictions on their business activity, and consumers are experiencing interrupted income or unemployment. We have outstanding loans to borrowers in certain industries that have been particularly susceptible to the effects of the pandemic, such as hotels, restaurants and other retail businesses. In response to the COVID-19 outbreak, the Federal Reserve Board reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10- and 30-year treasury notes declined to historic lows. The federal banking agencies have also encouraged financial institutions to prudently work with affected borrowers and have provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.

In addition, the spread of the coronavirus has caused us to modify our business practices, including the implementation of temporary branch and office closures. We may take further actions as may be required by government authorities or that we
73

determine are in the best interests of our employees, customers and business partners. Although we have initiated a remote work protocol and restricted business travel in our workforce, if significant portions of our workforce, including key personnel, are unable to work effectively because of illness, government actions or other restrictions in connection with the pandemic, the impact of the pandemic on our business could be exacerbated.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the coronavirus, including the passage of the CARES Act and subsequent legislation, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion. The extent of such impact from the COVID-19 outbreak and related mitigation efforts will depend on future developments, which are highly uncertain, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

As the result, we could be subject to any of the following risks, among others, any of which could have a material, adverse effect on our business, financial condition, liquidity and results of operations:

•demand for our products and services may decline, making it difficult to grow assets and income;
•if the economy is unable to substantially and successfully reopen, and high levels of unemployment continue, for an extended period of time, loan delinquencies, problem assets and foreclosures may increase, resulting in increased charges and reduced income;
•collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
•our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
•the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and
•as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets has declined and may continue to decline, to a greater extent even than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and adversely affecting our net income.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business and prospects as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and the consequences of any recession that has occurred or may occur in the future.

As a participating lender in the SBA’s Paycheck Protection Program (“PPP”), the Company is subject to added risks, including credit, fraud and litigation risks, that could adversely impact our financial condition and results of operations.

The Company participated in the PPP as an eligible lender with the benefit of a government guaranty of loans to small business clients, many of whom may face difficulties even after being granted such a loan. A significant amount of our loan growth since December 31, 2019 has been a direct result of PPP loans. However, PPP loan growth will not continue in the absence of further governmental action to extend the program.

As a participant in the PPP, we face increased risks, particularly in terms of credit, fraud and litigation risks. The PPP opened to borrower applications shortly after the enactment of its authorizing legislation, and, as a result, there is some ambiguity in the laws, rules and guidance regarding the program’s operation. Subsequent rounds of legislation and associated agency guidance have not provided needed clarity and in certain instances have potentially created additional inconsistencies and ambiguities. Accordingly, the Company is exposed to risks relating to compliance with PPP requirements.

We have additional credit risk with respect to PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded or serviced, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded or serviced by the Company, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.

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Also, PPP loans are fixed, low interest rate loans that are guaranteed by the SBA and subject to numerous other regulatory requirements, and a borrower may apply to have all or a portion of the loan forgiven. If PPP borrowers fail to qualify for loan forgiveness, we face a heightened risk of holding these loans at unfavorable interest rates for an extended period of time.

Furthermore, since the launch of the PPP, several larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP, and the Company may be exposed to the risk of litigation, from both customers and non-customers that approached the Company regarding PPP loans, relating to these or other matters. Also many financial institutions throughout the country have been named in putative class actions regarding the alleged nonpayment of fees that may be due to certain agents who facilitated PPP loan applications. The Company is currently named as a defendant in one such agent fee action. The costs and effects of litigation related to PPP participation could be material to us.

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, 2020. 
PeriodTotal
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, 2020 through July 31, 2020(2)
736 $21.70 — $85,723,412 
August 1, 2020 through August 31, 2020— $— — $85,723,412 
September 1, 2020 through September 30, 2020— $— — $85,723,412 
Total736 $21.70 — $85,723,412 
 
(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 through October 31, 2020.  On October 22, 2020, the Company announced that its Board of Directors approved the extension of the share repurchase program through October 31, 2021. Repurchases of shares 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. As of September 30, 2020, $14.3 million, or 358,664 shares of the Company's common stock, had been repurchased under the new program.
(2)The shares purchased from July 1, 2020 through July 31, 2020 consist of shares of common stock surrendered to the Company in payment of the income tax withholding obligations relating to the vesting of shares of restricted stock.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.
Exhibit
Number		 Description
  
1.1
Underwriting agreement dated September 23, 2020, by and between Ameris Bancorp, Keefe, Bruyette & Woods, Inc. and Piper Sandler & Co. (incorporated by reference to Exhibit 1.1 to Ameris Bancorp's Current Report on Form 8-K filed with the SEC on September 28, 2020).
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
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp's Quarterly Report on Form 10-Q filed with the SEC on August 10, 2020).
3.8
 Bylaws of Ameris Bancorp, as amended and restated through June 11, 2020 (incorporated by reference to Exhibit 3.8 to Ameris Bancorp's Quarterly Report on Form 10-Q filed with the SEC on August 10, 2020).
4.1
Third Supplemental Indenture, dated as of September 28, 2020, by and between Ameris Bancorp and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.2 to Ameris Bancorp's Current Report on Form 8-K filed with the SEC on September 28, 2020).
4.2
Form of 3.875% Fixed-to-Floating Subordinated Notes due 2030 (incorporated by reference to Exhibit 4.3 to Ameris Bancorp's Current Report on Form 8-K filed with the SEC on September 28, 2020).
31.1
 Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer.
   
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.INSXBRL 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.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover 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.

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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 6, 2020AMERIS BANCORP
  
 /s/ Nicole S. Stokes
 Nicole S. Stokes
 Chief Financial Officer
(duly authorized signatory and principal accounting and financial officer)
 

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