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EX-32.2 - EXHIBIT 32.2 - Ameris Bancorpabcb-093017x10xqexhibit322.htm
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EX-31.2 - EXHIBIT 31.2 - Ameris Bancorpabcb-093017x10xqexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Ameris Bancorpabcb-093017x10xqexhibit311.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
 
(Mark One)
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2017
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-13901  

 
 bancorplogoa01.jpg
AMERIS BANCORP
(Exact name of registrant as specified in its charter)

GEORGIA
58-1456434
(State of incorporation)
(IRS Employer ID No.)
 
310 FIRST STREET, S.E., MOULTRIE, GA 31768
(Address of principal executive offices)
 
(229) 890-1111
(Registrant’s telephone number) 
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No   ¨
 
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 
 
 
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
 
 
 
Emerging growth company
¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
 
There were 37,231,049 shares of Common Stock outstanding as of November 3, 2017.




AMERIS BANCORP
TABLE OF CONTENTS

 
 
Page
 
 
 
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 






Item 1. Financial Statements.
 
AMERIS BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
(dollars in thousands, except per share data)
 
September 30,
2017
 
December 31,
2016
Assets
 

 
 

Cash and due from banks
$
131,071

 
$
127,164

Federal funds sold and interest-bearing deposits in banks
112,844

 
71,221

Investment securities available for sale, at fair value
819,593

 
822,735

Other investments
47,977

 
29,464

Loans held for sale, at fair value
137,392

 
105,924

 
 
 
 
Loans
4,574,678

 
3,626,821

Purchased loans
917,126

 
1,069,191

Purchased loan pools
465,218

 
568,314

Loans, net of unearned income
5,957,022

 
5,264,326

Allowance for loan losses
(25,966
)
 
(23,920
)
Loans, net
5,931,056

 
5,240,406

 
 
 
 
Other real estate owned, net
9,391

 
10,874

Purchased other real estate owned, net
9,946

 
12,540

Total other real estate owned, net
19,337

 
23,414

 
 
 
 
Premises and equipment, net
119,458

 
121,217

Goodwill
125,532

 
125,532

Other intangible assets, net
14,437

 
17,428

Deferred income taxes, net
39,365

 
40,776

Cash value of bank owned life insurance
79,241

 
78,053

Other assets
72,517

 
88,697

Total assets
$
7,649,820

 
$
6,892,031

 
 
 
 
Liabilities
 

 
 

Deposits:
 

 
 

Noninterest-bearing
$
1,718,022

 
$
1,573,389

Interest-bearing
4,177,482

 
4,001,774

Total deposits
5,895,504

 
5,575,163

Securities sold under agreements to repurchase
14,156

 
53,505

Other borrowings
808,572

 
492,321

Subordinated deferrable interest debentures
85,220

 
84,228

Other liabilities
44,447

 
40,377

Total liabilities
6,847,899

 
6,245,594

 
 
 
 
Commitments and Contingencies (Note 9)


 


 
 
 
 
Shareholders’ Equity
 

 
 

Preferred stock, stated value $1,000 (5,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2017 and December 31, 2016)

 

Common stock, par value $1 (100,000,000 shares authorized; 38,705,910 and 36,377,807 shares issued at September 30, 2017 and December 31, 2016, respectively)
38,706

 
36,378

Capital surplus
506,779

 
410,276

Retained earnings
267,694

 
214,454

Accumulated other comprehensive income (loss), net of tax
3,241

 
(1,058
)
Treasury stock, at cost (1,474,861 shares and 1,456,333 shares at September 30, 2017 and December 31, 2016, respectively)
(14,499
)
 
(13,613
)
Total shareholders’ equity
801,921

 
646,437

Total liabilities and shareholders’ equity
$
7,649,820

 
$
6,892,031


 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,
 
2017
 
2016
 
2017
 
2016
Interest income
 

 
 

 
 

 
 

Interest and fees on loans
$
70,462

 
$
57,322

 
$
197,447

 
$
160,677

Interest on taxable securities
5,062

 
4,336

 
15,057

 
13,476

Interest on nontaxable securities
392

 
397

 
1,209

 
1,297

Interest on deposits in other banks and federal funds sold
406

 
155

 
1,070

 
659

Total interest income
76,322

 
62,210

 
214,783

 
176,109

 
 
 
 
 
 
 
 
Interest expense
 

 
 

 
 

 
 

Interest on deposits
5,136

 
3,074

 
13,479

 
8,730

Interest on other borrowings
4,331

 
2,069

 
10,702

 
5,287

Total interest expense
9,467

 
5,143

 
24,181

 
14,017

 
 
 
 
 
 
 
 
Net interest income
66,855

 
57,067

 
190,602

 
162,092

Provision for loan losses
1,787

 
811

 
5,828

 
2,381

Net interest income after provision for loan losses
65,068

 
56,256

 
184,774

 
159,711

 
 
 
 
 
 
 
 
Noninterest income
 

 
 

 
 

 
 

Service charges on deposit accounts
10,535

 
11,358

 
31,714

 
31,709

Mortgage banking activity
13,340

 
14,067

 
38,498

 
38,420

Other service charges, commissions and fees
699

 
791

 
2,137

 
2,869

Gain on sale of securities

 

 
37

 
94

Other noninterest income
2,425

 
2,648

 
8,508

 
8,437

Total noninterest income
26,999

 
28,864

 
80,894

 
81,529

 
 
 
 
 
 
 
 
Noninterest expense
 

 
 

 
 

 
 

Salaries and employee benefits
32,583

 
27,982

 
89,509

 
81,700

Occupancy and equipment expense
6,036

 
5,989

 
18,059

 
18,060

Data processing and communications costs
7,050

 
6,185

 
20,650

 
18,347

Credit resolution-related expenses
1,347

 
1,526

 
2,879

 
5,089

Advertising and marketing expense
1,247

 
1,249

 
3,612

 
2,908

Amortization of intangible assets
941

 
993

 
2,990

 
3,332

Merger and conversion charges
92

 

 
494

 
6,359

Other noninterest expenses
14,471

 
9,275

 
34,406

 
25,363

Total noninterest expense
63,767

 
53,199

 
172,599

 
161,158

 
 
 
 
 
 
 
 
Income before income tax expense
28,300

 
31,921

 
93,069

 
80,082

Income tax expense
8,142

 
10,364

 
28,671

 
26,159

Net income
20,158

 
21,557

 
64,398

 
53,923

 
 
 
 
 
 
 
 
Other comprehensive income
 

 
 

 
 

 
 

Net unrealized holding gains (losses) arising during period on investment securities available for sale, net of tax expense (benefit) of $966, ($1,481), $2,348 and $4,160
1,795

 
(2,752
)
 
4,361

 
7,724

Reclassification adjustment for gains on investment securities included in earnings, net of tax of $0, $0, $13 and $33

 

 
(24
)
 
(61
)
Unrealized gains (losses) on cash flow hedges arising during period, net of tax expense (benefit) of $14, $130, ($21) and ($306)
25

 
241

 
(38
)
 
(567
)
Other comprehensive income
1,820

 
(2,511
)
 
4,299

 
7,096

Total comprehensive income
$
21,978

 
$
19,046

 
$
68,697

 
$
61,019

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.54

 
$
0.62

 
$
1.76

 
$
1.58

Diluted earnings per common share
$
0.54

 
$
0.61

 
$
1.74

 
$
1.56

Dividends declared per common share
$
0.10

 
$
0.10

 
$
0.30

 
$
0.20

Weighted average common shares outstanding (in thousands)
 

 
 

 
 

 
 

Basic
37,225

 
34,870

 
36,690

 
34,156

Diluted
37,553

 
35,195

 
37,017

 
34,470


See notes to unaudited consolidated financial statements.

2



AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (unaudited)
(dollars in thousands)
 
 
Nine Months Ended
September 30, 2017
 
Nine Months Ended
September 30, 2016
 
 
Shares
 
Amount
 
Shares
 
Amount
Common Stock
 
 

 
 

 
 

 
 

Balance at beginning of period
 
36,377,807

 
$
36,378

 
33,625,162

 
$
33,625

Issuance of common stock
 
2,141,072

 
2,141

 
2,549,469

 
2,549

Issuance of restricted shares
 
84,147

 
84

 
125,581

 
126

Cancellation of restricted shares
 
(472
)
 

 
(7,085
)
 
(7
)
Proceeds from exercise of stock options
 
103,356

 
103

 
54,510

 
55

Issued at end of period
 
38,705,910

 
$
38,706

 
36,347,637

 
$
36,348

 
 
 
 
 
 
 
 
 
Capital Surplus
 
 

 
 

 
 

 
 

Balance at beginning of period
 
 

 
$
410,276

 
 

 
$
337,349

Share-based compensation
 
 

 
2,419

 
 

 
1,586

Issuance of common shares, net of issuance costs of $4,925 and $0
 
 

 
92,359

 
 

 
69,906

Issuance of restricted shares
 
 

 
(84
)
 
 

 
(126
)
Cancellation of restricted shares
 
 

 

 
 

 
7

Proceeds from exercise of stock options
 
 

 
1,809

 
 

 
908

Balance at end of period
 
 

 
$
506,779

 
 

 
$
409,630

 
 
 
 
 
 
 
 
 
Retained Earnings
 
 

 
 

 
 

 
 

Balance at beginning of period
 
 

 
$
214,454

 
 

 
$
152,820

Net income
 
 

 
64,398

 
 

 
53,923

Dividends on common shares
 
 

 
(11,158
)
 
 

 
(6,974
)
Balance at end of period
 
 

 
$
267,694

 
 

 
$
199,769

 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive Income, Net of Tax
 
 

 
 

 
 

 
 

Unrealized gains (losses) on securities and derivatives:
 
 

 
 

 
 

 
 

Balance at beginning of period
 
 

 
$
(1,058
)
 
 

 
$
3,353

Other comprehensive income during the period
 
 

 
4,299

 
 

 
7,096

Balance at end of period
 
 

 
$
3,241

 
 

 
$
10,449

 
 
 
 
 
 
 
 
 
Treasury Stock
 
 

 
 

 
 

 
 

Balance at beginning of period
 
1,456,333

 
$
(13,613
)
 
1,413,777

 
$
(12,388
)
Purchase of treasury shares
 
18,528

 
(886
)
 
42,556

 
(1,225
)
Balance at end of period
 
1,474,861

 
$
(14,499
)
 
1,456,333

 
$
(13,613
)
 
 
 
 
 
 
 
 
 
Total Shareholders’ Equity
 
 

 
$
801,921

 
 

 
$
642,583

  
See notes to unaudited consolidated financial statements.
 

3



AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 
 
Nine Months Ended
September 30,
 
 
2017
 
2016
Operating Activities
 
 

 
 

Net income
 
$
64,398

 
$
53,923

Adjustments reconciling net income to net cash provided by operating activities:
 
 

 
 

Depreciation
 
6,918

 
7,041

Net losses on sale or disposal of premises and equipment
 
956

 
112

Provision for loan losses
 
5,828

 
2,381

Net losses on sale of other real estate owned including write-downs
 
501

 
1,844

Share-based compensation expense
 
2,419

 
1,586

Amortization of intangible assets
 
2,990

 
3,332

Provision for deferred taxes
 
(962
)
 
(6,369
)
Net amortization of investment securities available for sale
 
4,815

 
5,086

Net gains on securities available for sale
 
(37
)
 
(94
)
Accretion of discount on purchased loans
 
(9,023
)
 
(12,926
)
Amortization of premium on purchased loan pools
 
2,943

 
4,149

Net accretion (amortization) on other borrowings
 
62

 
(57
)
Amortization of subordinated deferrable interest debentures
 
992

 
1,123

Originations of mortgage loans held for sale
 
(1,113,188
)
 
(1,051,812
)
Payments received on mortgage loans held for sale
 
799

 
1,167

Proceeds from sales of mortgage loans held for sale
 
961,831

 
982,898

Net gains on sale of mortgage loans held for sale
 
(36,451
)
 
(41,935
)
Originations of SBA loans
 
(25,720
)
 
(57,462
)
Proceeds from sales of SBA loans
 
23,952

 
21,656

Net gains on sale of SBA loans
 
(3,423
)
 
(3,054
)
Increase in cash surrender value of BOLI
 
(1,188
)
 
(1,318
)
Changes in FDIC loss-share receivable/payable, net of cash payments received
 
1,974

 
10,277

Change attributable to other operating activities
 
12,931

 
16,202

Net cash used in operating activities
 
(95,683
)
 
(62,250
)
 
 
 
 
 
Investing Activities, net of effects of business combinations
 
 

 
 

Purchase of securities available for sale
 
(83,090
)
 
(134,786
)
Proceeds from prepayments and maturities of securities available for sale
 
85,036

 
93,513

Proceeds from sales of securities available for sale
 
3,090

 
53,026

Net increase in other investments
 
(12,669
)
 
(13,050
)
Net increase in loans, excluding purchased loans
 
(786,548
)
 
(556,182
)
Payments received on purchased loans
 
155,033

 
186,319

Purchases of loan pools
 

 
(151,481
)
Payments received on purchased loan pools
 
95,533

 
115,409

Purchases of premises and equipment
 
(3,016
)
 
(8,250
)
Proceeds from sales of premises and equipment
 
16

 
207

Proceeds from sales of other real estate owned
 
11,989

 
18,329

Payments received from (payments to) FDIC under loss-share agreements
 
(97
)
 
4,770

Net cash proceeds paid in acquisitions
 

 
(7,205
)
Net cash used in investing activities
 
(534,723
)
 
(399,381
)
 
 
 
 
 
 
 
 

 
(Continued)


4



AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 
 
Nine Months Ended
September 30,
 
 
2017
 
2016
Financing Activities, net of effects of business combinations
 
 

 
 

Net increase in deposits
 
$
320,341

 
$
25,448

Net decrease in securities sold under agreements to repurchase
 
(39,349
)
 
(20,938
)
Proceeds from other borrowings
 
1,687,692

 
339,500

Repayment of other borrowings
 
(1,371,503
)
 
(53,513
)
Issuance of common stock
 
88,656

 

Proceeds from exercise of stock options
 
1,912

 
963

Dividends paid - common stock
 
(10,927
)
 
(5,096
)
Purchase of treasury shares
 
(886
)
 
(1,225
)
Net cash provided by financing activities
 
675,936

 
285,139

 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
45,530

 
(176,492
)
Cash and cash equivalents at beginning of period
 
198,385

 
390,563

Cash and cash equivalents at end of period
 
$
243,915

 
$
214,071

 
 
 
 
 
Supplemental Disclosures of Cash Flow Information
 
 

 
 

Cash paid during the period for:
 
 

 
 

Interest
 
$
23,369

 
$
13,791

Income taxes
 
28,212

 
30,969

Loans (excluding purchased loans) transferred to other real estate owned
 
4,043

 
2,101

Purchased loans transferred to other real estate owned
 
4,294

 
6,262

Loans transferred from loans held for sale to loans held for investment
 
165,352

 
94,601

Loans provided for the sales of other real estate owned
 
1,334

 
1,471

Assets acquired in business acquisitions
 

 
561,440

Liabilities assumed in business acquisitions
 

 
465,048

Issuance of common stock in acquisitions
 

 
72,455

Issuance of common stock in exchange for equity investment in US Premium Finance Holding Company
 
5,844

 

Change in unrealized gain (loss) on securities available for sale, net of tax
 
4,337

 
7,724

Change in unrealized gain (loss) on cash flow hedge, net of tax
 
(38
)
 
(567
)
 
 
 
 
 
 
 
 

 
(Concluded)

 
See notes to unaudited consolidated financial statements.
 


5



AMERIS BANCORP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
September 30, 2017
 
NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES
 
Nature of Business

Ameris Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered in Moultrie, Georgia. Ameris conducts substantially all of its operations through its wholly owned banking subsidiary, Ameris Bank (the “Bank”). At September 30, 2017, the Bank operated 97 branches in select markets in Georgia, Alabama, Florida and South Carolina. Our business model capitalizes on the efficiencies of a large financial services company while still providing the community with the personalized banking service expected by our customers. We manage our Bank through a balance of decentralized management responsibilities and efficient centralized operating systems, products and loan underwriting standards. The Company’s Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within our established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of his or her unique market.
 
Basis of Presentation

The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited but reflect all adjustments (consisting of normal recurring accruals) 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, 2017 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, 2016.
 
Accounting Policy Update

Other Investments Other investments include Federal Home Loan Bank (“FHLB”) stock, Federal Reserve Bank stock and a minority equity investment in US Premium Finance Holding Company, a Florida corporation (“USPF”). These investments do not have readily determinable fair values and are carried at cost. They are periodically reviewed for impairment based on ultimate recovery of par value or cost basis. Both stock and cash dividends are reported as income. For additional information regarding the Company’s minority equity investment in USPF, see Note 2.
 
Reclassifications

Certain reclassifications of prior year amounts have been made to conform with the current year presentations.
 
Accounting Standards Adopted in 2017

ASU 2016-09 – Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies various aspects of how share-based payments are accounted for and presented in the financial statements. Under ASU 2016-09, companies will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital. The standard eliminates the requirement that excess tax benefits be realized before companies can recognize them. The excess tax benefits will be reported as an operating activity on the statement of cash flows, and the cash paid to a tax authority when shares are withheld to satisfy a company’s statutory income tax withholding obligation will be reported as a financing activity on its statement of cash. In addition, the standard increases the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. ASU 2016-09 permits companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. The Company has elected to recognize forfeitures as they occur. ASU 2016-09 became effective on January 1, 2017 and did not have a material impact on the consolidated financial statements.


6



Accounting Standards Pending Adoption
 
ASU 2017-12 – "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). The purposes of ASU 2017-12 are to (1) improve the transparency and understandability of information conveyed in financial statements about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with the economic objectives of those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. ASU 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018 with early adoption in an interim period permitted. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the beginning of the fiscal year of adoption. The Company is currently evaluating the provisions of ASU 2017-12 to determine the potential impact the new standard will have on the Company’s results of operations, financial position and disclosures, but it is not expected to have a material impact.
ASU 2017-09 – “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 clarifies when changes to the terms of a share-based award must be accounted for as a modification. Companies must apply the modification accounting guidance if any of the following change: the shard-based award’s fair value, vesting provisions or classification as an equity instrument or a liability instrument. The new guidance should reduce diversity in practice and result in fewer changes to the terms of share-based awards being accounted for as modifications, as the guidance will allow companies to make certain non-substantive changes to share-based awards without accounting for them as modifications. ASU 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017 with early adoption permitted. ASU 2017-09 is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.
 
ASU 2017-08 – “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). ASU 2017-08 shortens the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. Under the current guidance, entities generally amortize the premium on a callable debt security as an adjustment of yield over the contractual life (to maturity date) of the instrument. This ASU does not require any accounting change in the accounting for debt securities held at a discount; the discount continues to be amortized as an adjustment of yield over the contractual life (to maturity) of the instrument. ASU 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, ASU 2017-08 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 adopted. The Company is currently evaluating the provisions of ASU 2017-08 to determine the potential impact the new standard will have on the Company’s results of operations, financial position and disclosures, but it is not expected to have a material impact.
 
ASU 2017-04 – Intangibles: Goodwill and Other: Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 from the goodwill impairment test to simplify the subsequent measurement of goodwill. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the qualitative impairment test is necessary. The standard must be adopted using a prospective basis and the nature and reason for the change in accounting principle should be disclosed upon transition. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in reporting periods beginning after December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on the Company’s results of operations, financial position and disclosures, but it is not expected to have a material impact.
 
ASU 2017-01 – Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides a framework to use in determining when a set of assets and activities is a business. The standard provides more consistency in applying the business combination guidance, reduces the costs of application, and makes the definition of a business more operable. ASU 2017-01 is effective for interim and annual periods within those annual periods beginning after December 15, 2017. The Company is currently evaluating the impact this standard will have on the Company’s results of operations, financial position and disclosures, but it is not expected to have a material impact.
 
ASU 2016-13 - Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). 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

7



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. While the Company is currently evaluating the impact this standard will have on the results of operations, financial position and disclosures, the Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective. The Company has established a steering committee which includes the appropriate members of management to evaluate the impact this ASU will have on Company’s financial position, results of operations and financial statement disclosures and determine the most appropriate method of implementing the amendments in this ASU as well as any resources needed to implement the amendments. This committee has identified the software vendor of choice for implementation, established an implementation timeline and continues to stay current on implementation issues and concerns.
 
ASU 2016-02 – Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 amends the existing standards for lease accounting effectively requiring most leases be carried on the balance sheets of the related lessees by requiring them to recognize a right-of-use asset and a corresponding lease liability. ASU 2016-02 includes qualitative and quantitative disclosure requirements intended to provide greater insight into the nature of an entity’s leasing activities. The standard must be adopted using a modified retrospective transition with a cumulative-effect adjustment to equity as of the beginning of the period in which it is adopted. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods with early adoption permitted. The Company has several leased facilities, which are currently treated as operating leases, and are not currently shown on the Company’s consolidated balance sheet. After ASU 2016-02 is implemented, the Company expects to begin reporting these lease agreements on the balance sheet as a right-of-use asset and a corresponding liability. The Company is currently evaluating the impact this standard will have on the Company’s consolidated statement of income and comprehensive income, consolidated statement of stockholders’ equity and consolidated statement of cash flows, but it is not expected to have a material impact.
 
ASU 2014-09 – Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 provides guidance that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective prospectively, for annual and interim periods, beginning after December 15, 2017. Management has substantially completed its evaluation of the impact ASU 2014-09 will have on the Company’s consolidated financial statements.  Based on this evaluation to date, management has determined that for the revenue streams of the Company within the scope of ASU 2014-09, the new accounting guidance will not change the timing or amount of revenue recognized.  The adoption of ASU 2014-09 is not expected to have a material impact on the Company's consolidated financial statements.
 
NOTE 2 – INVESTMENT IN US PREMIUM FINANCE HOLDING COMPANY

On December 15, 2016, the Bank entered into a Management and License Agreement with William J. Villari and USPF pursuant to which Mr. Villari will manage a division of the Bank to be operated under the name “US Premium Finance” and which is to be engaged in the business of soliciting, originating, servicing, administering and collecting loans made for purposes of funding insurance premiums and other loans made to persons engaged in the insurance business.
 
Also on December 15, 2016, the Company entered into a Stock Purchase Agreement with Mr. Villari pursuant to which the Company agreed to purchase from Mr. Villari 4.99% of the outstanding shares of common stock of USPF. As consideration for such shares, the Company agreed to issue to Mr. Villari 128,572 unregistered shares of its common stock in a private placement transaction pursuant to the exemptions from registration provided in Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder. Those transactions closed on January 18, 2017, and a registration statement was filed with the Securities and Exchange Commission on February 13, 2017 to register the resale or other disposition of the shares of common stock that were issued to Mr. Villari.
 
The Company’s 4.99% investment in USPF was valued at $5.8 million, based upon the closing price of the Company’s common stock immediately prior to the parties’ execution of the Stock Purchase Agreement, as follows:

8



(dollars in thousands, except per share amount)
 

Ameris common shares issued
128,572

Price per share of the Company's common stock
$
45.45

Fair value of consideration transferred
$
5,844

 
Because USPF does not have a readily determinable fair value and Ameris does not exercise significant influence over USPF, the investment is carried at cost and is included in other investments in the Company’s consolidated balance sheet. The net carrying value of the Company’s investment in USPF was $5.8 million as of September 30, 2017.
 
NOTE 3 – INVESTMENT SECURITIES

The Company’s investment policy blends the Company’s liquidity needs and interest rate risk management with its desire to increase income and provide funds for expected growth in loans. The investment securities portfolio consists primarily of U.S. government-sponsored mortgage-backed securities and state, county and municipal securities. The Company’s portfolio and investing philosophy concentrate activities in obligations where the credit risk is limited. For the small portion of the Company’s portfolio found to present credit risk, the Company has reviewed the investments and financial performance of the obligors and believes the credit risk to be acceptable.
 
The amortized cost and estimated fair value of investment securities available for sale, along with unrealized gains and losses, are summarized as follows:
(dollars in thousands)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
September 30, 2017
 
 
 
 
 
 
 
 
U.S. government sponsored agencies
 
$
1,000

 
$
4

 
$

 
$
1,004

State, county and municipal securities
 
140,190

 
3,271

 
(74
)
 
143,387

Corporate debt securities
 
46,704

 
661

 
(116
)
 
47,249

Mortgage-backed securities
 
626,927

 
3,774

 
(2,748
)
 
627,953

Total debt securities
 
$
814,821

 
$
7,710

 
$
(2,938
)
 
$
819,593

 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
U.S. government sponsored agencies
 
$
999

 
$
21

 
$

 
$
1,020

State, county and municipal securities
 
149,899

 
2,605

 
(469
)
 
152,035

Corporate debt securities
 
32,375

 
167

 
(370
)
 
32,172

Mortgage-backed securities
 
641,362

 
2,700

 
(6,554
)
 
637,508

Total debt securities
 
$
824,635

 
$
5,493

 
$
(7,393
)
 
$
822,735

 
The amortized cost and fair value of available-for-sale securities at September 30, 2017 by contractual maturity are summarized in the table below. Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers can prepay obligations without prepayment penalties. Therefore, these securities are not included in the following maturity summary.
(dollars in thousands)
 
Amortized
Cost
 
Estimated
Fair
Value
Due in one year or less
 
$
14,094

 
$
14,205

Due from one year to five years
 
57,385

 
58,204

Due from five to ten years
 
77,194

 
79,093

Due after ten years
 
39,221

 
40,138

Mortgage-backed securities
 
626,927

 
627,953

 
 
$
814,821

 
$
819,593

 
Securities with a carrying value of approximately $238.6 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, 2017, compared with $618.2 million at December 31, 2016.
 
The following table details the gross unrealized losses and fair value of securities aggregated by category and duration of continuous unrealized loss position at September 30, 2017 and December 31, 2016.

9



 
 
Less Than 12 Months
 
12 Months or More
 
Total
(dollars in thousands)
 
Estimated
Fair
Value
 
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
Losses
September 30, 2017
 
 

 
 

 
 

 
 

 
 

 
 

U.S. government sponsored agencies
 
$

 
$

 
$

 
$

 
$

 
$

State, county and municipal securities
 
11,333

 
(18
)
 
4,240

 
(56
)
 
15,573

 
(74
)
Corporate debt securities
 
8,131

 
(35
)
 
10,854

 
(81
)
 
18,985

 
(116
)
Mortgage-backed securities
 
225,258

 
(1,685
)
 
54,465

 
(1,063
)
 
279,723

 
(2,748
)
Total debt securities
 
$
244,722

 
$
(1,738
)
 
$
69,559

 
$
(1,200
)
 
$
314,281

 
$
(2,938
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 

 
 

 
 

 
 

 
 

 
 

U.S. government sponsored agencies
 
$

 
$

 
$

 
$

 
$

 
$

State, county and municipal securities
 
47,647

 
(469
)
 

 

 
47,647

 
(469
)
Corporate debt securities
 
18,377

 
(363
)
 
493

 
(7
)
 
18,870

 
(370
)
Mortgage-backed securities
 
414,300

 
(6,177
)
 
11,791

 
(377
)
 
426,091

 
(6,554
)
Total debt securities
 
$
480,324

 
$
(7,009
)
 
$
12,284

 
$
(384
)
 
$
492,608

 
$
(7,393
)
 
As of September 30, 2017, the Company’s securities portfolio consisted of 421 securities, 119 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s mortgage-backed securities, as discussed below.
 
At September 30, 2017, the Company held 101 mortgage-backed securities that were in an unrealized loss position, all of which were issued by U.S. government-sponsored entities and agencies. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2017.
 
At September 30, 2017, the Company held nine state, county and municipal securities and nine corporate debt securities that were in an unrealized loss position. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2017.
 
The Company’s investments in corporate debt include investments in regional and super-regional banks on which the Company prepares regular analysis through review of financial information and credit ratings. Investments in preferred securities are also concentrated in the preferred obligations of regional and super-regional banks through non-pooled investment structures. The Company did not have investments in “pooled” trust preferred securities at September 30, 2017 or December 31, 2016.
 
Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. While the majority of the unrealized losses on debt securities relate to changes in interest rates, corporate debt securities have also been affected by reduced levels of liquidity and higher risk premiums. Occasionally, management engages independent third parties to evaluate the Company’s position in certain corporate debt securities to aid management and the ALCO Committee in its determination regarding the status of impairment. The Company believes that each investment poses minimal credit risk and further, that the Company does not intend to sell these investment securities at an unrealized loss position at September 30, 2017, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at September 30, 2017, these investments are not considered impaired on an other-than-temporary basis.
 
At September 30, 2017 and December 31, 2016, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.
 
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, 2017 and 2016:
(dollars in thousands)
 
September 30,
2017
 
September 30,
2016
Gross gains on sales of securities
 
$
38

 
$
312

Gross losses on sales of securities
 
(1
)
 
(218
)
Net realized gains on sales of securities available for sale
 
$
37

 
$
94

 
 
 
 
 
Sales proceeds
 
$
3,090

 
$
53,026


10



 
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 an unrelated third party consumer installment home improvement loans made to borrowers throughout the United States. As of September 30, 2017 and December 31, 2016, the net carrying value of these consumer installment home improvement loans was approximately $148.0 million and $60.8 million, respectively. During the fourth quarter of 2016, the Bank purchased a pool of commercial insurance premium finance loans made to borrowers throughout the United States and began to originate, administer and service these types of loans. As of September 30, 2017 and December 31, 2016, the net carrying value of commercial insurance premium loans was approximately $487.9 million and $353.9 million, respectively, and such loans are reported in the commercial, financial and agricultural loan category.
 
The Bank concentrates the majority of its lending activities in real estate loans. While risk of loss in the Company’s portfolio is primarily tied to the credit quality of the various borrowers, risk of loss may increase due to factors beyond the Company’s control, such as local, regional and/or national economic downturns. General conditions in the real estate market may also impact the relative risk in the real estate portfolio. A substantial portion of the Bank’s loans are secured by real estate in the Bank’s primary market area. In addition, a substantial portion of the OREO is located in those same markets. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio and the recovery of a substantial portion of the carrying amount of OREO are susceptible to changes in real estate conditions in the Bank’s primary market area.
 
Commercial, financial and agricultural loans include both secured and unsecured loans for working capital, expansion, crop production, commercial insurance premium finance, and other business purposes. Commercial, financial and agricultural loans also include SBA loans and municipal loans. Short-term working capital loans are secured by non-real estate collateral such as accounts receivable, crops, inventory and equipment. The Bank evaluates the financial strength, cash flow, management, credit history of the borrower and the quality of the collateral securing the loan. The Bank often requires personal guarantees and secondary sources of repayment on commercial, financial and agricultural loans.
 
Real estate loans include construction and development loans, commercial and farmland loans and residential loans. Construction and development loans include loans for the development of residential neighborhoods, one-to-four family home residential construction loans to builders and consumers, and commercial real estate construction loans, primarily for owner-occupied properties. The Company limits its construction lending risk through adherence to established underwriting procedures. Commercial real estate loans include loans secured by owner-occupied commercial buildings for office, storage, retail, farmland and warehouse space. They also include non-owner occupied commercial buildings such as leased retail and office space. Commercial real estate loans may be larger in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent on successful operation or management of the properties. The Company’s residential loans represent permanent mortgage financing and are secured by residential properties located within the Bank's market areas, along with warehouse lines of credit secured by residential mortgages.
 
Consumer installment loans and other loans include home improvement loans, automobile loans, boat and recreational vehicle financing, and secured and unsecured personal loans. Consumer loans carry greater risks than other loans, as the collateral can consist of rapidly depreciating assets such as automobiles and equipment that may not provide an adequate source of repayment of the loan in the case of default.
 
Loans are stated at unpaid balances, net of unearned income and deferred loan fees. Balances within the major loans receivable categories are presented in the following table, excluding purchased loans:
(dollars in thousands)
September 30,
2017
 
December 31,
2016
Commercial, financial and agricultural
$
1,307,209

 
$
967,138

Real estate – construction and development
550,189

 
363,045

Real estate – commercial and farmland
1,558,882

 
1,406,219

Real estate – residential
969,289

 
781,018

Consumer installment
183,314

 
96,915

Other
5,795

 
12,486

 
$
4,574,678

 
$
3,626,821

 

11



Purchased loans are defined as loans that were acquired in bank acquisitions including those that are covered by a loss-sharing agreement with the Federal Deposit Insurance Corporation (the “FDIC”). Purchased loans totaling $917.1 million and $1.07 billion at September 30, 2017 and December 31, 2016, respectively, are not included in the above schedule.
 
Purchased loans are shown below according to major loan type as of the end of the periods shown:
(dollars in thousands)
September 30,
2017
 
December 31,
2016
Commercial, financial and agricultural
$
80,895

 
$
96,537

Real estate – construction and development
68,583

 
81,368

Real estate – commercial and farmland
500,169

 
576,355

Real estate – residential
264,312

 
310,277

Consumer installment
3,167

 
4,654

 
$
917,126

 
$
1,069,191

 
A rollforward of purchased loans for the nine months ended September 30, 2017 and 2016 is shown below:
(dollars in thousands)
September 30,
2017
 
September 30,
2016
Balance, January 1
$
1,069,191

 
$
909,083

Charge-offs, net of recoveries
(1,761
)
 
(3,122
)
Additions due to acquisitions

 
402,942

Accretion
9,023

 
12,926

Transfers to purchased other real estate owned
(4,294
)
 
(6,262
)
Payments received
(155,033
)
 
(186,276
)
Other

 
90

Ending balance
$
917,126

 
$
1,129,381

 
The following is a summary of changes in the accretable discounts of purchased loans during the nine months ended September 30, 2017 and 2016:
(dollars in thousands)
September 30,
2017
 
September 30,
2016
Balance, January 1
$
30,624

 
$
33,848

Additions due to acquisitions

 
9,991

Accretion
(9,023
)
 
(12,926
)
Accretable discounts removed due to charge-offs
(15
)
 
(161
)
Transfers between non-accretable and accretable discounts, net
923

 
2,544

Ending balance
$
22,509

 
$
33,296

 
Purchased loan pools are defined as groups of residential mortgage loans that were not acquired in bank acquisitions or FDIC-assisted transactions. As of September 30, 2017, purchased loan pools totaled $465.2 million and consisted of whole-loan, adjustable rate residential mortgages on properties outside the Company’s markets, with principal balances totaling $459.1 million and $6.1 million of remaining purchase premium paid at acquisition. As of December 31, 2016, purchased loan pools totaled $568.3 million with principal balances totaling $559.4 million and $8.9 million of remaining purchase premium paid at acquisition. At September 30, 2017 and December 31, 2016, one loan in the purchased loan pools with a principal balance of $915,000 and $925,000, respectively, was classified as a troubled debt restructuring and risk-rated grade 40, while all other loans included in the purchased loan pools were performing current loans risk-rated grade 20. During the second quarter of 2017, this troubled debt restructuring defaulted on its restructured terms and was placed on nonaccrual status. At September 30, 2017 and December 31, 2016, the Company had allocated $1.5 million and $1.8 million, respectively, of allowance for loan losses for the purchased loan pools. As part of the due diligence process prior to purchasing an individual mortgage pool, a complete re-underwrite of the individual loan files was conducted. The underwriting process included a review of all income, asset, credit and property related documentation that was used to originate the loan. Underwriters utilized the originating lender’s program guidelines, as well as general prudent mortgage lending standards, to assess each individual loan file.  Additional research was conducted to assess the real estate market conditions and market expectations in the geographic areas where a collateral concentration existed. As part of this review, an automated valuation model was employed to provide current collateral valuations and to support individual loan-to-value ratios.  Additionally, a sample of site inspections was completed to provide further assurance.  The results of the due diligence review were evaluated by officers of the Company in order to determine overall conformance to the Bank’s credit and lending policies.
 



12



Nonaccrual and Past-Due Loans

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged against interest income.  Interest on loans that are classified as nonaccrual is subsequently applied to principal until the loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.  Past-due loans are loans whose principal or interest is past due 30 days or more. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the original contractual terms.
 
The following table presents an analysis of loans accounted for on a nonaccrual basis, excluding purchased loans:
(dollars in thousands)
September 30,
2017
 
December 31,
2016
Commercial, financial and agricultural
$
2,409

 
$
1,814

Real estate – construction and development
735

 
547

Real estate – commercial and farmland
5,705

 
8,757

Real estate – residential
5,984

 
6,401

Consumer installment
492

 
595

 
$
15,325

 
$
18,114

 
The following table presents an analysis of purchased loans accounted for on a nonaccrual basis:
(dollars in thousands)
September 30,
2017
 
December 31,
2016
Commercial, financial and agricultural
$
2,086

 
$
692

Real estate – construction and development
3,255

 
2,611

Real estate – commercial and farmland
6,974

 
10,174

Real estate – residential
6,646

 
9,476

Consumer installment
88

 
13

 
$
19,049

 
$
22,966

 

13



The following table presents an analysis of past-due loans, excluding purchased past-due loans as of September 30, 2017 and December 31, 2016
(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, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
5,388

 
$
2,488

 
$
5,025

 
$
12,901

 
$
1,294,308

 
$
1,307,209

 
$
2,941

Real estate – construction and development
341

 
52

 
517

 
910

 
549,279

 
550,189

 

Real estate – commercial and farmland
2,369

 
1,097

 
5,203

 
8,669

 
1,550,213

 
1,558,882

 

Real estate – residential
3,293

 
1,938

 
4,165

 
9,396

 
959,893

 
969,289

 

Consumer installment loans
1,034

 
408

 
338

 
1,780

 
181,534

 
183,314

 

Other

 

 

 

 
5,795

 
5,795

 

Total
$
12,425

 
$
5,983

 
$
15,248

 
$
33,656

 
$
4,541,022

 
$
4,574,678

 
$
2,941

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
565

 
$
82

 
$
1,293

 
$
1,940

 
$
965,198

 
$
967,138

 
$

Real estate – construction and development
908

 
446

 
439

 
1,793

 
361,252

 
363,045

 

Real estate – commercial and farmland
6,329

 
1,711

 
6,945

 
14,985

 
1,391,234

 
1,406,219

 

Real estate – residential
6,354

 
1,282

 
5,302

 
12,938

 
768,080

 
781,018

 

Consumer installment loans
624

 
263

 
350

 
1,237

 
95,678

 
96,915

 

Other

 

 

 

 
12,486

 
12,486

 

Total
$
14,780

 
$
3,784

 
$
14,329

 
$
32,893

 
$
3,593,928

 
$
3,626,821

 
$

 
The following table presents an analysis of purchased past-due loans as of September 30, 2017 and December 31, 2016
 
(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, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
2,674

 
$
2

 
$
288

 
$
2,964

 
$
77,931

 
$
80,895

 
$

Real estate – construction and development
1,221

 
935

 
1,713

 
3,869

 
64,714

 
68,583

 

Real estate – commercial and farmland
2,842

 
1,318

 
1,823

 
5,983

 
494,186

 
500,169

 

Real estate – residential
3,308

 
440

 
3,435

 
7,183

 
257,129

 
264,312

 

Consumer installment loans
1

 
4

 
43

 
48

 
3,119

 
3,167

 

Total
$
10,046

 
$
2,699

 
$
7,302

 
$
20,047

 
$
897,079

 
$
917,126

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
113

 
$
18

 
$
593

 
$
724

 
$
95,813

 
$
96,537

 
$

Real estate – construction and development
161

 
11

 
2,518

 
2,690

 
78,678

 
81,368

 

Real estate – commercial and farmland
2,034

 
326

 
7,152

 
9,512

 
566,843

 
576,355

 

Real estate – residential
4,566

 
698

 
6,835

 
12,099

 
298,178

 
310,277

 

Consumer installment loans
22

 

 
13

 
35

 
4,619

 
4,654

 

Total
$
6,896

 
$
1,053

 
$
17,111

 
$
25,060

 
$
1,044,131

 
$
1,069,191

 
$

 


14



Impaired Loans

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

15



The following is a summary of information pertaining to impaired loans, excluding purchased loans: 
 
As of and for the Period Ended
(dollars in thousands)
September 30,
2017
 
December 31,
2016
 
September 30,
2016
Nonaccrual loans
$
15,325

 
$
18,114

 
$
16,570

Troubled debt restructurings not included above
12,452

 
14,209

 
14,013

Total impaired loans
$
27,777

 
$
32,323

 
$
30,583

 
 
 
 
 
 
Quarter-to-date interest income recognized on impaired loans
$
297

 
$
225

 
$
252

Year-to-date interest income recognized on impaired loans
$
857

 
$
1,033

 
$
808

Quarter-to-date foregone interest income on impaired loans
$
233

 
$
267

 
$
239

Year-to-date foregone interest income on impaired loans
$
753

 
$
977

 
$
710

 
The following table presents an analysis of information pertaining to impaired loans, excluding purchased loans as of September 30, 2017, December 31, 2016 and September 30, 2016:
(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, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
2,924

 
$
1,121

 
$
1,331

 
$
2,452

 
$
379

 
$
2,478

 
$
2,380

Real estate – construction and development
1,655

 
532

 
627

 
1,159

 
81

 
1,179

 
1,160

Real estate – commercial and farmland
11,451

 
536

 
9,938

 
10,474

 
806

 
10,669

 
11,416

Real estate – residential
15,211

 
4,558

 
8,636

 
13,194

 
1,058

 
13,683

 
14,814

Consumer installment loans
538

 
498

 

 
498

 

 
507

 
554

Total
$
31,779

 
$
7,245

 
$
20,532

 
$
27,777

 
$
2,324

 
$
28,516

 
$
30,324

 
(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, 2016
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
3,068

 
$
204

 
$
1,656

 
$
1,860

 
$
134

 
$
1,613

 
$
1,684

Real estate – construction and development
2,047

 

 
1,233

 
1,233

 
273

 
1,590

 
2,018

Real estate – commercial and farmland
13,906

 
6,811

 
6,065

 
12,876

 
1,503

 
12,948

 
12,845

Real estate – residential
15,482

 
2,238

 
13,503

 
15,741

 
3,080

 
15,525

 
14,453

Consumer installment loans
671

 

 
613

 
613

 
5

 
576

 
506

Total
$
35,174

 
$
9,253

 
$
23,070

 
$
32,323

 
$
4,995

 
$
32,252

 
$
31,506

(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, 2016
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
2,568

 
$
252

 
$
1,114

 
$
1,366

 
$
118

 
$
1,736

 
$
1,640

Real estate – construction and development
2,972

 

 
1,946

 
1,946

 
537

 
2,001

 
2,214

Real estate – commercial and farmland
14,015

 
5,499

 
7,520

 
13,019

 
873

 
12,776

 
12,837

Real estate – residential
14,350

 
2,046

 
11,667

 
13,713

 
2,648

 
13,686

 
13,516

Consumer installment loans
586

 

 
539

 
539

 
6

 
492

 
479

Total
$
34,491

 
$
7,797

 
$
22,786

 
$
30,583

 
$
4,182

 
$
30,691

 
$
30,686

 

16



The following is a summary of information pertaining to purchased impaired loans: 
 
As of and for the Period Ended
(dollars in thousands)
September 30,
2017
 
December 31,
2016
 
September 30,
2016
Nonaccrual loans
$
19,049

 
$
22,966

 
$
23,827

Troubled debt restructurings not included above
20,205

 
23,543

 
21,117

Total impaired loans
$
39,254

 
$
46,509

 
$
44,944

 
 
 
 
 
 
Quarter-to-date interest income recognized on impaired loans
$
493

 
$
377

 
$
1,493

Year-to-date interest income recognized on impaired loans
$
1,246

 
$
2,755

 
$
2,378

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

 
$
354

 
$
346

Year-to-date foregone interest income on impaired loans
$
958

 
$
1,637

 
$
1,283


The following table presents an analysis of information pertaining to purchased impaired loans as of September 30, 2017, December 31, 2016 and September 30, 2016:
(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, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
5,333

 
$
345

 
$
1,741

 
$
2,086

 
$
800

 
$
1,128

 
$
831

Real estate – construction and development
9,268

 
1,189

 
3,088

 
4,277

 
537

 
3,885

 
3,807

Real estate – commercial and farmland
16,492

 
1,516

 
11,766

 
13,282

 
1,140

 
13,658

 
16,063

Real estate – residential
22,462

 
7,224

 
12,297

 
19,521

 
762

 
20,088

 
21,308

Consumer installment loans
97

 
88

 

 
88

 

 
58

 
40

Total
$
53,652

 
$
10,362

 
$
28,892

 
$
39,254

 
$
3,239

 
$
38,817

 
$
42,049

(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, 2016
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
5,031

 
$
370

 
$
322

 
$
692

 
$

 
$
783

 
$
2,206

Real estate – construction and development
24,566

 
493

 
3,477

 
3,970

 
153

 
3,888

 
4,279

Real estate – commercial and farmland
36,174

 
3,598

 
15,036

 
18,634

 
385

 
17,806

 
19,872

Real estate – residential
27,022

 
7,883

 
15,306

 
23,189

 
1,088

 
23,201

 
23,163

Consumer installment loans
37

 
24

 

 
24

 

 
51

 
96

Total
$
92,830

 
$
12,368

 
$
34,141

 
$
46,509

 
$
1,626

 
$
45,729

 
$
49,616

(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, 2016
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
5,097

 
$
648

 
$
225

 
$
873

 
$

 
$
838

 
$
2,251

Real estate – construction and development
24,253

 
296

 
3,509

 
3,805

 
184

 
3,946

 
4,075

Real estate – commercial and farmland
41,098

 
1,861

 
15,116

 
16,977

 
402

 
18,196

 
19,569

Real estate – residential
26,908

 
7,473

 
15,740

 
23,213

 
935

 
23,103

 
22,893

Consumer installment loans
98

 
76

 

 
76

 

 
80

 
105

Total
$
97,454

 
$
10,354

 
$
34,590

 
$
44,944

 
$
1,521

 
$
46,163

 
$
48,893

 

17



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 10 – Prime Credit – This grade represents loans to the Company’s most creditworthy borrowers or loans that are secured by cash or cash equivalents.
 
Grade 15 – Good Credit – This grade includes loans that exhibit one or more characteristics better than that of a Satisfactory Credit. Generally, the debt service coverage and borrower’s liquidity is materially better than required by the Company’s loan policy.
 
Grade 20 – Satisfactory Credit – This grade is assigned to loans to borrowers who exhibit satisfactory credit histories, contain acceptable loan structures and demonstrate ability to repay.
 
Grade 23 – Performing, Under-Collateralized Credit – This grade is assigned to loans that are currently performing and supported by adequate financial information that reflects repayment capacity but exhibits a loan-to-value ratio greater than 110%, based on a documented collateral valuation.
 
Grade 25 – Minimum Acceptable Credit – This grade includes loans which exhibit all the characteristics of a Satisfactory 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 30 – Other Asset 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 40 – 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 50 – 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 60 – 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.
 

18



The following table presents the loan portfolio, excluding purchased loans, by risk grade as of September 30, 2017 and December 31, 2016 (in thousands): 
Risk
Grade 
 
Commercial,
Financial and
Agricultural
 
Real Estate -
Construction and
Development
 
Real Estate -
Commercial and
Farmland
 
Real Estate -
Residential
 
Consumer
Installment
Loans
 
Other
 
Total
September 30, 2017
10
 
$
495,116

 
$

 
$
6,029

 
$
49

 
$
9,068

 
$

 
$
510,262

15
 
559,781

 
959

 
75,462

 
55,759

 
256

 

 
692,217

20
 
117,904

 
48,640

 
1,005,945

 
800,557

 
24,332

 
5,795

 
2,003,173

23
 
343

 
4,403

 
4,242

 
5,986

 
3

 

 
14,977

25
 
121,558

 
488,956

 
431,862

 
86,702

 
148,891

 

 
1,277,969

30
 
8,350

 
4,458

 
17,568

 
5,674

 
93

 

 
36,143

40
 
4,150

 
2,773

 
17,774

 
14,562

 
671

 

 
39,930

50
 
7

 

 

 

 

 

 
7

60
 

 

 

 

 

 

 

Total
 
$
1,307,209

 
$
550,189

 
$
1,558,882

 
$
969,289

 
$
183,314

 
$
5,795

 
$
4,574,678

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
10
 
$
397,093

 
$

 
$
8,814

 
$
125

 
$
8,532

 
$

 
$
414,564

15
 
376,323

 
5,390

 
102,893

 
54,136

 
405

 

 
539,147

20
 
97,057

 
36,307

 
889,539

 
609,583

 
25,026

 
12,486

 
1,669,998

23
 
366

 
6,803

 
8,533

 
7,470

 
14

 

 
23,186

25
 
92,066

 
307,903

 
357,151

 
88,370

 
62,098

 

 
907,588

30
 
144

 
719

 
22,986

 
5,197

 
126

 

 
29,172

40
 
4,089

 
5,923

 
16,303

 
16,038

 
714

 

 
43,067

50
 

 

 

 
99

 

 

 
99

60
 

 

 

 

 

 

 

Total
 
$
967,138

 
$
363,045

 
$
1,406,219

 
$
781,018

 
$
96,915

 
$
12,486

 
$
3,626,821

 
The following table presents the purchased loan portfolio by risk grade as of September 30, 2017 and December 31, 2016 (in thousands):       
Risk
Grade 
 
Commercial,
Financial and
Agricultural
 
Real Estate -
Construction and
Development
 
Real Estate -
Commercial and
Farmland
 
Real Estate -
Residential
 
Consumer
Installment
Loans
 
Other
 
Total
September 30, 2017
10
 
$
3,377

 
$

 
$

 
$

 
$
662

 
$

 
$
4,039

15
 
4,969

 

 
5,327

 
96,570

 
231

 

 
107,097

20
 
9,497

 
13,548

 
198,960

 
52,646

 
1,204

 

 
275,855

23
 

 
2,302

 
6,936

 
10,621

 

 

 
19,859

25
 
47,822

 
40,500

 
243,216

 
79,374

 
864

 

 
411,776

30
 
12,817

 
7,617

 
22,829

 
7,378

 
55

 

 
50,696

40
 
2,413

 
4,616

 
22,901

 
17,723

 
151

 

 
47,804

50
 

 

 

 

 

 

 

60
 

 

 

 

 

 

 

Total
 
$
80,895

 
$
68,583

 
$
500,169

 
$
264,312

 
$
3,167

 
$

 
$
917,126

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
10
 
$
5,722

 
$

 
$

 
$

 
$
814

 
$

 
$
6,536

15
 
1,266

 

 
7,619

 
31,331

 
570

 

 
40,786

20
 
16,204

 
10,686

 
194,168

 
111,712

 
1,583

 

 
334,353

23
 
22

 
3,643

 
9,019

 
14,791

 

 

 
27,475

25
 
67,123

 
56,006

 
323,242

 
121,379

 
1,276

 

 
569,026

30
 
5,072

 
7,271

 
15,039

 
7,605

 
45

 

 
35,032

40
 
1,128

 
3,762

 
27,268

 
23,459

 
366

 

 
55,983

50
 

 

 

 

 

 

 

60
 

 

 

 

 

 

 

Total
 
$
96,537

 
$
81,368

 
$
576,355

 
$
310,277

 
$
4,654

 
$

 
$
1,069,191

 

19



Troubled Debt Restructurings
 
The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession. Concessions may include interest rate reductions to below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. The Company has exhibited the greatest success for rehabilitation of the loan by a reduction in the rate alone (maintaining the amortization of the debt) or a combination of a rate reduction and the forbearance of previously past due interest or principal. This has most typically been evidenced in certain commercial real estate loans whereby a disruption in the borrower’s cash flow resulted in an extended past due status, of which the borrower was unable to catch up completely as the cash flow of the property ultimately stabilized at a level lower than its original level. A reduction in rate, coupled with a forbearance of unpaid principal and/or interest, allowed the net cash flows to service the debt under the modified terms.
 
The Company’s policy requires a restructure request to be supported by a current, well-documented credit evaluation of the borrower’s financial condition and a collateral evaluation that is no older than six months from the date of the restructure. Key factors of that evaluation include the documentation of current, recurring cash flows, support provided by the guarantor(s) and the current valuation of the collateral. If the appraisal in the file is older than six months, an evaluation must be made as to the continued reasonableness of the valuation. For certain income-producing properties, current rent rolls and/or other income information can be utilized to support the appraisal valuation, when coupled with documented cap rates within our markets and a physical inspection of the collateral to validate the current condition.
 
The Company’s policy states that in the event a loan has been identified as a troubled debt restructuring, it should be assigned a grade of substandard and placed on nonaccrual status until such time the borrower has demonstrated the ability to service the loan payments based on the restructured terms – generally defined as six months of satisfactory payment history. Missed payments under the original loan terms are not considered under the new structure; however, subsequent missed payments are considered non-performance and are not considered toward the six month required term of satisfactory payment history. The Company’s loan policy states that a nonaccrual loan may be returned to accrual status when (i) none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest or (ii) it otherwise becomes well secured and in the process of collection. Restoration to accrual status on any given loan must be supported by a well-documented credit evaluation of the borrower’s financial condition and the prospects for full repayment and approved by the Company’s Chief Credit Officer.
 
In the normal course of business, the Company renews loans with a modification of the interest rate or terms that are not deemed as troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first nine months of 2017 and 2016 totaling $36.6 million and $58.2 million, respectively, under such parameters.
 
As of September 30, 2017 and December 31, 2016, the Company had a balance of $14.2 million and $18.2 million, respectively, in troubled debt restructurings, excluding purchased loans. The Company has recorded $2.8 million and $1.2 million in previous charge-offs on such loans at September 30, 2017 and December 31, 2016, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $1.2 million and $3.1 million at September 30, 2017 and December 31, 2016, respectively. At September 30, 2017, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.
 
During the nine months ended September 30, 2017 and 2016, the Company modified loans as troubled debt restructurings, excluding purchased loans, with principal balances of $783,000 and $2.9 million, respectively, and these modifications did not have a material impact on the Company’s allowance for loan loss. The following table presents the loans by class modified as troubled debt restructurings, excluding purchased loans, which occurred during the nine months ended September 30, 2017 and 2016
 
September 30, 2017
 
September 30, 2016
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
1
 
$
4

 
5
 
$
59

Real estate – construction and development
 

 
2
 
251

Real estate – commercial and farmland
2
 
226

 
4
 
1,658

Real estate – residential
10
 
526

 
7
 
887

Consumer installment
6
 
27

 
9
 
44

Total
19
 
$
783

 
27
 
$
2,899

 

20



Troubled debt restructurings, excluding purchased loans, with an outstanding balance of $1.2 million and $793,000 defaulted during the nine months ended September 30, 2017 and 2016, respectively, and these defaults did not have a material impact on the Company’s allowance for loan loss. The following table presents for loans, excluding purchased loans, the troubled debt restructurings by class that defaulted (defined as 30 days past due) during the nine months ended September 30, 2017 and 2016
 
September 30, 2017
 
September 30, 2016
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
4
 
$
58

 
5
 
$
51

Real estate – construction and development
1
 
25

 
 

Real estate – commercial and farmland
4
 
200

 
5
 
517

Real estate – residential
12
 
878

 
3
 
219

Consumer installment
7
 
25

 
2
 
6

Total
28
 
$
1,186

 
15
 
$
793

 
The following table presents the amount of troubled debt restructurings by loan class, excluding purchased loans, classified separately as accrual and nonaccrual at September 30, 2017 and December 31, 2016
September 30, 2017
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
4
 
$
44

 
13
 
$
129

Real estate – construction and development
7
 
424

 
2
 
34

Real estate – commercial and farmland
16
 
4,769

 
5
 
210

Real estate – residential
78
 
7,209

 
16
 
1,212

Consumer installment
4
 
6

 
36
 
130

Total
109
 
$
12,452

 
72
 
$
1,715

December 31, 2016
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
4
 
$
47

 
15
 
$
114

Real estate – construction and development
8
 
686

 
2
 
34

Real estate – commercial and farmland
16
 
4,119

 
5
 
2,970

Real estate – residential
82
 
9,340

 
15
 
739

Consumer installment
7
 
17

 
32
 
130

Total
117
 
$
14,209

 
69
 
$
3,987

 
As of September 30, 2017 and December 31, 2016, the Company had a balance of $26.0 million and $28.1 million, respectively, in troubled debt restructurings included in purchased loans. The Company has recorded $1.5 million in previous charge-offs on such loans at both September 30, 2017 and December 31, 2016. At September 30, 2017, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.
 
During the nine months ended September 30, 2017 and 2016, the Company modified purchased loans as troubled debt restructurings, with principal balances of $1.0 million and $1.9 million, respectively, and these modifications did not have a material impact on the Company’s allowance for loan loss. The following table presents the purchased loans by class modified as troubled debt restructurings, which occurred during the nine months ended September 30, 2017 and 2016
 
September 30, 2017
 
September 30, 2016
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
 
$

 
1
 
$
76

Real estate – construction and development
 

 
 

Real estate – commercial and farmland
 

 
3
 
708

Real estate – residential
8
 
1,005

 
8
 
1,130

Consumer installment
 

 
 

Total
8
 
$
1,005

 
12
 
$
1,914

 
Troubled debt restructurings included in purchased loans with an outstanding balance of $2.3 million and $733,000 defaulted during the nine months ended September 30, 2017 and 2016, respectively, and these defaults did not have a material impact on the Company’s allowance for loan loss.

21



The following table presents purchased loan troubled debt restructurings by class that defaulted (defined as 30 days past due) during the nine months ended September 30, 2017 and 2016:
 
September 30, 2017
 
September 30, 2016
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
1
 
$
5

 
2
 
$
76

Real estate – construction and development
 

 
1
 
10

Real estate – commercial and farmland
5
 
1,945

 
1
 
207

Real estate – residential
7
 
333

 
11
 
440

Consumer installment
1
 
3

 
 

Total
14
 
$
2,286

 
15
 
$
733

 
The following table presents the amount of troubled debt restructurings by loan class of purchased loans, classified separately as accrual and nonaccrual at September 30, 2017 and December 31, 2016
September 30, 2017
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
 
$

 
3
 
$
18

Real estate – construction and development
3
 
1,022

 
6
 
349

Real estate – commercial and farmland
15
 
6,308

 
11
 
3,834

Real estate – residential
119
 
12,875

 
25
 
1,627

Consumer installment
 

 
2
 
6

Total
137
 
$
20,205

 
47
 
$
5,834

December 31, 2016
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
1
 
$
1

 
4
 
$
91

Real estate – construction and development
6
 
1,358

 
3
 
30

Real estate – commercial and farmland
20
 
8,460

 
5
 
2,402

Real estate – residential
123
 
13,713

 
33
 
2,077

Consumer installment
3
 
11

 
1
 

Total
153
 
$
23,543

 
46
 
$
4,600

 
Allowance for Loan Losses
 
The allowance for loan losses represents an allowance for probable incurred losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on non-accruing, past-due and other loans that management believes might be potentially impaired or warrant additional attention. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio. In addition, based on internal reviews and external reviews performed by regulatory authorities, the Company further segregates the loan portfolio by loan grades based on an assessment of risk for a particular loan or group of loans. Certain reviewed loans are assigned specific allowances when a review of relevant data determines that a general allocation is not sufficient or when the review affords management the opportunity to adjust the amount of exposure in a given credit. In establishing allowances, management considers historical loan loss experience but adjusts this data with a significant emphasis on current loan quality trends, current economic conditions and other factors in the markets where the Company operates. Factors considered include, among others, current valuations of real estate in the Company’s markets, unemployment rates, the effect of weather conditions on agricultural related entities and other significant local economic events, such as major plant closings.
 
The Company has developed a methodology for determining the adequacy of the allowance for loan losses which is monitored by the Company’s Chief Credit Officer. Procedures provide for the assignment of a risk rating for every loan included in the total loan portfolio. Mortgage warehouse lines of credit, overdraft protection loans, commercial insurance premium finance loans, and certain consumer and mortgage loans serviced by outside processors are treated as pools for risk rating purposes. The risk rating schedule provides nine ratings of which five ratings are classified as pass ratings and four ratings are classified as criticized ratings. Each risk rating is assigned a percentage factor to be applied to the loan balance to determine the adequate amount of reserve. The Bank’s independent internal loan review department reviews on an annual basis a sample of relationships in excess of $500,000. Sampling is based on a number of factors unique to the Bank’s portfolio risks, including, but not limited to, lending divisions, industry, risk grades, and new originations. As a result of these loan reviews, certain loans may be identified as having deteriorating

22



credit quality. Other loans that surface as problem loans may also be assigned specific reserves. Past-due loans are assigned risk ratings based on the number of days past due. The calculation of the allowance for loan losses, including underlying data and assumptions, is reviewed regularly by the Company’s Chief Financial Officer and the independent internal loan review department.
 
Loan losses are charged against the allowance when management believes the collection of a loan’s principal is unlikely. Subsequent recoveries are credited to the allowance. Consumer loans are charged-off in accordance with the Federal Financial Institutions Examination Council’s (“FFIEC”) Uniform Retail Credit Classification and Account Management Policy. Commercial loans are charged-off when they are deemed uncollectible, which usually involves a triggering event within the collection effort. If the loan is collateral dependent, the loss is more easily identified and is charged-off when it is identified, usually based upon receipt of an appraisal. However, when a loan has guarantor support, the Company may carry the estimated loss as a reserve against the loan while collection efforts with the guarantor are pursued. If, after collection efforts with the guarantor are complete, the deficiency is still considered uncollectible, the loss is charged-off and any further collections are treated as recoveries. In all situations, when a loan is downgraded to an Asset Quality Rating of 60 (Loss per the regulatory guidance), the uncollectible portion is charged-off.

The following tables detail activity in the allowance for loan losses by portfolio segment for the three and nine-month periods ended September 30, 2017, the year ended December 31, 2016 and the three and nine-month periods ended September 30, 2016. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
(dollars in thousands)
Commercial,
Financial and
Agricultural
 
Real Estate –
Construction and
Development
 
Real Estate –
Commercial and
Farmland
 
Real Estate –
Residential
 
Consumer
Installment
Loans and
Other
 
Purchased 
Loans
 
Purchased
Loan
Pools
 
Total
Three Months Ended
September 30, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance, June 30, 2017
$
3,302

 
$
3,756

 
$
7,869

 
$
5,605

 
$
1,155

 
$
1,791

 
$
1,623

 
$
25,101

Provision for loan losses
910

 
(587
)
 
68

 
127

 
670

 
745

 
(146
)
 
1,787

Loans charged off
(1,091
)
 
(1
)
 
(18
)
 
(852
)
 
(320
)
 
(161
)
 

 
(2,443
)
Recoveries of loans previously charged off
409

 
126

 
26

 
56

 
17

 
887

 

 
1,521

Balance, September 30, 2017
$
3,530

 
$
3,294

 
$
7,945

 
$
4,936

 
$
1,522

 
$
3,262

 
$
1,477

 
$
25,966

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30, 2017:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance, December 31, 2016
$
2,192

 
$
2,990

 
$
7,662

 
$
6,786

 
$
827

 
$
1,626

 
$
1,837

 
$
23,920

Provision for loan losses
2,535

 
155

 
540

 
(9
)
 
1,539

 
1,428

 
(360
)
 
5,828

Loans charged off
(1,896
)
 
(95
)
 
(413
)
 
(2,031
)
 
(922
)
 
(1,472
)
 

 
(6,829
)
Recoveries of loans previously charged off
699

 
244

 
156

 
190

 
78

 
1,680

 

 
3,047

Balance, September 30, 2017
$
3,530

 
$
3,294

 
$
7,945

 
$
4,936

 
$
1,522

 
$
3,262

 
$
1,477

 
$
25,966

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period-end allocation:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment (1)
$
509

 
$
81

 
$
1,380

 
$
1,058

 
$

 
$
3,262

 
$
105

 
$
6,395

Loans collectively evaluated for impairment
3,021

 
3,213

 
6,565

 
3,878

 
1,522

 

 
1,372

 
19,571

Ending balance
$
3,530

 
$
3,294

 
$
7,945

 
$
4,936

 
$
1,522

 
$
3,262

 
$
1,477

 
$
25,966

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment (1)
$
3,204

 
$
627

 
$
10,512

 
$
8,636

 
$

 
$
32,032

 
$
915

 
$
55,926

Collectively evaluated for impairment
1,304,005

 
549,562

 
1,548,370

 
960,653

 
189,109

 
763,271

 
464,303

 
5,779,273

Acquired with deteriorated credit quality

 

 

 

 

 
121,823

 

 
121,823

Ending balance
$
1,307,209

 
$
550,189

 
$
1,558,882

 
$
969,289

 
$
189,109

 
$
917,126

 
$
465,218

 
$
5,957,022


(1) At September 30, 2017, 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.

23



(dollars in thousands)
Commercial,
Financial and
Agricultural
 
Real Estate –
Construction and
Development
 
Real Estate –
Commercial and
Farmland
 
Real Estate –
Residential
 
Consumer
Installment
Loans and
Other
 
Purchased 
Loans
 
Purchased
Loan
Pools
 
Total
Twelve Months Ended
December 31, 2016
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance, January 1, 2016
$
1,144

 
$
5,009

 
$
7,994

 
$
4,760

 
$
1,574

 
$

 
$
581

 
$
21,062

Provision for loan losses
2,647

 
(1,921
)
 
107

 
2,757

 
(523
)
 
(232
)
 
1,256

 
4,091

Loans charged off
(1,999
)
 
(588
)
 
(708
)
 
(1,122
)
 
(351
)
 
(1,559
)
 

 
(6,327
)
Recoveries of loans previously charged off
400

 
490

 
269

 
391

 
127

 
3,417

 

 
5,094

Balance, December 31, 2016
$
2,192

 
$
2,990

 
$
7,662

 
$
6,786

 
$
827

 
$
1,626

 
$
1,837

 
$
23,920

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period-end allocation:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment (1)
$
120

 
$
266

 
$
1,502

 
$
2,893

 
$

 
$
1,626

 
$

 
$
6,407

Loans collectively evaluated for impairment
2,072

 
2,724

 
6,160

 
3,893

 
827

 

 
1,837

 
17,513

Ending balance
$
2,192

 
$
2,990

 
$
7,662

 
$
6,786

 
$
827

 
$
1,626

 
$
1,837

 
$
23,920

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment (1)
$
501

 
$
659

 
$
12,423

 
$
12,697

 
$

 
$
34,141

 
$

 
$
60,421

Collectively evaluated for impairment
966,637

 
362,386

 
1,393,796

 
768,321

 
109,401

 
886,516

 
568,314

 
5,055,371

Acquired with deteriorated credit quality

 

 

 

 

 
148,534

 

 
148,534

Ending balance
$
967,138

 
$
363,045

 
$
1,406,219

 
$
781,018

 
$
109,401

 
$
1,069,191

 
$
568,314

 
$
5,264,326

 
(1) At December 31, 2016, 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.

24



(dollars in thousands)
Commercial,
Financial and
Agricultural
 
Real Estate –
Construction and
Development
 
Real Estate –
Commercial and
Farmland
 
Real Estate –
Residential
 
Consumer
Installment
Loans and
Other
 
Purchased 
Loans
 
Purchased
Loan
Pools
 
Total
Three Months Ended
September 30, 2016
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance, June 30, 2016
$
1,667

 
$
3,599

 
$
7,459

 
$
4,263

 
$
2,160

 
$
1,387

 
$
1,199

 
$
21,734

Provision for loan losses
677

 
(521
)
 
(554
)
 
2,649

 
(1,595
)
 
(654
)
 
809

 
811

Loans charged off
(326
)
 
(60
)
 

 
(292
)
 
(74
)
 
(699
)
 

 
(1,451
)
Recoveries of loans previously charged off
119

 
131

 
13

 
40

 
78

 
1,488

 

 
1,869

Balance, September 30, 2016
$
2,137

 
$
3,149

 
$
6,918

 
$
6,660

 
$
569

 
$
1,522

 
$
2,008

 
$
22,963

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30, 2016:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance, December 31, 2015
$
1,144

 
$
5,009

 
$
7,994

 
$
4,760

 
$
1,574

 
$

 
$
581

 
$
21,062

Provision for loan losses
1,987

 
(2,010
)
 
(559
)
 
2,415

 
(932
)
 
53

 
1,427

 
2,381

Loans charged off
(1,273
)
 
(324
)
 
(708
)
 
(883
)
 
(192
)
 
(1,261
)
 

 
(4,641
)
Recoveries of loans previously charged off
279

 
474

 
191

 
368

 
119

 
2,730

 

 
4,161

Balance, September 30, 2016
$
2,137

 
$
3,149

 
$
6,918

 
$
6,660

 
$
569

 
$
1,522

 
$
2,008

 
$
22,963

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period-end allocation:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment (1)
$
107

 
$
529

 
$
883

 
$
2,629

 
$

 
$
1,522

 
$

 
$
5,670

Loans collectively evaluated for impairment
2,030

 
2,620

 
6,035

 
4,031

 
569

 

 
2,008

 
17,293

Ending balance
$
2,137

 
$
3,149

 
$
6,918

 
$
6,660

 
$
569

 
$
1,522

 
$
2,008

 
$
22,963

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment (1)
$
424

 
$
1,154

 
$
11,699

 
$
11,571

 
$

 
$
34,991

 
$

 
$
59,839

Collectively evaluated for impairment
625,523

 
327,154

 
1,285,883

 
755,362

 
72,269

 
939,243

 
624,886

 
4,630,320

Acquired with deteriorated credit quality

 

 

 

 

 
155,147

 

 
155,147

Ending balance
$
625,947

 
$
328,308

 
$
1,297,582

 
$
766,933

 
$
72,269

 
$
1,129,381

 
$
624,886

 
$
4,845,306

 
(1) At September 30, 2016, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.

NOTE 5 – ASSETS ACQUIRED IN FDIC-ASSISTED ACQUISITIONS
 
From October 2009 through July 2012, the Company participated in ten FDIC-assisted acquisitions whereby the Company purchased certain failed institutions out of the FDIC’s receivership. These institutions include the following:
Bank Acquired 
 
Location 
 
Branches 
 
Date Acquired 
American United Bank (“AUB”)
 
Lawrenceville, Ga.
 
1
 
October 23, 2009
United Security Bank (“USB”)
 
Sparta, Ga.
 
2
 
November 6, 2009
Satilla Community Bank (“SCB”)
 
St. Marys, Ga.
 
1
 
May 14, 2010
First Bank of Jacksonville (“FBJ”)
 
Jacksonville, Fl.
 
2
 
October 22, 2010
Tifton Banking Company (“TBC”)
 
Tifton, Ga.
 
1
 
November 12, 2010
Darby Bank & Trust (“DBT”)
 
Vidalia, Ga.
 
7
 
November 12, 2010
High Trust Bank (“HTB”)
 
Stockbridge, Ga.
 
2
 
July 15, 2011
One Georgia Bank (“OGB”)
 
Midtown Atlanta, Ga.
 
1
 
July 15, 2011
Central Bank of Georgia (“CBG”)
 
Ellaville, Ga.
 
5
 
February 24, 2012
Montgomery Bank & Trust (“MBT”)
 
Ailey, Ga.
 
2
 
July 6, 2012
 
The determination of the initial fair values of loans at the acquisition date and the initial fair values of the related FDIC indemnification assets involves a high degree of judgment and complexity. The carrying values of the acquired loans and the FDIC indemnification assets reflect management’s best estimate of the fair value of each of these assets as of the date of acquisition.

25



However, the amount that the Company realizes on these assets could differ materially from the carrying values reflected in the financial statements included in this report, based upon the timing and amount of collections on the acquired loans in future periods. Because of the loss-sharing agreements with the FDIC on these assets, the Company does not expect to incur any significant losses. To the extent the actual values realized for the acquired loans are different from the estimates, the indemnification assets will generally be affected in an offsetting manner due to the loss-sharing support from the FDIC.
 
FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”), applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. ASC 310-30 prohibits carrying over or creating an allowance for loan losses upon initial recognition for loans which fall under the scope of this statement. At the acquisition dates, a majority of these loans were valued based on the liquidation value of the underlying collateral because the future cash flows are primarily based on the liquidation of underlying collateral. There was no allowance for credit losses established related to these ASC 310-30 loans at the acquisition dates, based on the provisions of this statement. Over the life of the acquired loans, the Company continues to estimate cash flows expected to be collected. If the expected cash flows expected to be collected increases, then the Company adjusts the amount of accretable discount recognized on a prospective basis over the loan’s remaining life. If the expected cash flows expected to be collected decreases, then the Company records a provision for loan loss in its consolidated statements of income and comprehensive income.
 
Each acquisition with loss-sharing agreements has separate agreements for the single family residential assets (“SFR”) and the non-single family assets (“NSF”). The SFR agreements cover losses and recoveries for ten years. The NSF agreements are for eight years. During the first five years, losses and recoveries are covered. During the final three years, only recoveries, net of expenses, are covered. The AUB SFR agreement was terminated during 2012 and Ameris received a payment of $87,000. The AUB and USB NSF agreements passed their five-year anniversaries during the fourth quarter of 2014, the SCB NSF agreement passed its five-year anniversary during the second quarter of 2015, the FBJ, TBC and DBT NSF agreements passed their five-year anniversaries during the fourth quarter of 2015, the HTB and OGB NSF agreements passed their five-year anniversaries during the third quarter of 2016, and the CBG NSF passed its five-year anniversary during the first quarter of 2017. Losses will no longer be reimbursed on these agreements. MBT did not have a loss-sharing agreement.
 
At September 30, 2017, the Company’s FDIC loss-sharing payable totaled $8.2 million, which is comprised of an accrued clawback liability of $9.6 million, less $419,000 in current activity incurred but not yet received from the FDIC (net charge-offs offset by reimbursable expenses) and remaining indemnification of $1.0 million (for reimbursements associated with anticipated losses in future quarters).
 

26



The following table summarizes components of all covered assets at September 30, 2017 and December 31, 2016 and their origin:
(dollars in thousands)
Covered
 Loans
 
Less: Fair
Value
Adjustments
 
Total 
Covered
Loans
 
OREO
 
Less: Fair
Value
Adjustments
 
Total 
Covered 
OREO
 
Total 
Covered
Assets
 
FDIC Loss-
Share
Receivable
(Payable)
September 30, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

AUB
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

USB
2,763

 
12

 
2,751

 

 

 

 
2,751

 
(1,752
)
SCB
2,541

 
27

 
2,514

 

 

 

 
2,514

 
(169
)
FBJ
3,647

 
394

 
3,253

 

 

 

 
3,253

 
(312
)
DBT
9,663

 
356

 
9,307

 
81

 

 
81

 
9,388

 
(4,442
)
TBC
1,667

 

 
1,667

 

 

 

 
1,667

 
(8
)
HTB
1,856

 
28

 
1,828

 

 

 

 
1,828

 
27

OGB
930

 
31

 
899

 

 

 

 
899

 
(1,032
)
CBG
10,329

 
678

 
9,651

 
161

 

 
161

 
9,812

 
(502
)
Total
$
33,396

 
$
1,526

 
$
31,870

 
$
242

 
$

 
$
242

 
$
32,112

 
$
(8,190
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

AUB
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$
(27
)
USB
3,199

 
13

 
3,186

 
51

 

 
51

 
3,237

 
(1,642
)
SCB
4,019

 
51

 
3,968

 

 

 

 
3,968

 
(32
)
FBJ
3,767

 
452

 
3,315

 

 

 

 
3,315

 
(234
)
DBT
12,166

 
565

 
11,601

 

 

 

 
11,601

 
(4,591
)
TBC
1,679

 

 
1,679

 

 

 

 
1,679

 
(33
)
HTB
1,913

 
33

 
1,880

 

 

 

 
1,880

 
734

OGB
1,077

 
32

 
1,045

 

 

 

 
1,045

 
(993
)
CBG
33,449

 
1,963

 
31,486

 
1,161

 
4

 
1,157

 
32,643

 
505

Total
$
61,269

 
$
3,109

 
$
58,160

 
$
1,212

 
$
4

 
$
1,208

 
$
59,368

 
$
(6,313
)
 
The shared-loss agreements are subject to the servicing procedures as specified in the agreement with the FDIC. The expected reimbursements under the shared-loss agreements were recorded as an indemnification asset at their estimated fair values on the acquisition dates. As of September 30, 2017 and December 31, 2016, the Company has recorded a clawback liability of $9.6 million and $9.3 million, respectively, which represents the obligation of the Company to reimburse the FDIC should actual losses be less than certain thresholds established in each loss-share agreement.

Changes in the FDIC shared-loss payable for the nine months ended September 30, 2017 and 2016 are as follows:
(dollars in thousands)
 
September 30,
2017
 
September 30,
2016
Beginning balance, January 1
 
$
(6,313
)
 
$
6,301

Payments to (received from) FDIC
 
97

 
(4,770
)
Amortization
 
(747
)
 
(3,351
)
Changes in clawback liability
 
(326
)
 
(682
)
Increase in receivable due to:
 
 

 
 

Net recoveries on covered loans
 
(1,097
)
 
(4,118
)
Loss (gain) on covered other real estate owned
 
(76
)
 
203

Reimbursable expenses on covered assets
 
401

 
604

Other activity, net
 
(129
)
 
(1,962
)
Ending balance
 
$
(8,190
)
 
$
(7,775
)
 
The FDIC loss-sharing payable is included in other liabilities in the consolidated balance sheets. The FDIC loss-sharing receivable is included in other assets in the consolidated balance sheets.
 
 

27



NOTE 6 – OTHER REAL ESTATE OWNED
 
The following is a summary of the activity in other real estate owned during the nine months ended September 30, 2017 and 2016:
(dollars in thousands)
September 30,
2017
 
September 30,
2016
Beginning balance, January 1
$
10,874

 
$
16,147

Loans transferred to other real estate owned
4,043

 
2,101

Net gains (losses) on sale and write-downs recorded in statement of income
(766
)
 
(1,276
)
Sales proceeds
(4,760
)
 
(6,580
)
Ending balance
$
9,391

 
$
10,392

 
The following is a summary of the activity in purchased other real estate owned during the nine months ended September 30, 2017 and 2016:
(dollars in thousands) 
September 30,
2017
 
September 30,
2016
Beginning balance, January 1
$
12,540

 
$
19,344

Loans transferred to other real estate owned
4,294

 
6,262

Acquired in acquisitions

 
1,838

Portion of gains (losses) on sale and write-downs payable to (receivable from) the FDIC under loss-sharing agreements
76

 

Net gains (losses) on sale and write-downs recorded in statement of income
265

 
(568
)
Sales proceeds
(7,229
)
 
(11,750
)
Ending balance
$
9,946

 
$
15,126

 
NOTE 7 – 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 securities underlying these agreements are included in investment securities in the Company’s consolidated balance sheets. At September 30, 2017 and December 31, 2016, 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 fall 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, 2017 and December 31, 2016.    
(dollars in thousands)
September 30,
2017
 
December 31, 2016
Securities sold under agreements to repurchase
$
14,156

 
$
53,505

 
At September 30, 2017 and December 31, 2016, the investment securities underlying these agreements were comprised of state, county and municipal securities and mortgage-backed securities.
 
NOTE 8 – OTHER BORROWINGS
 
The Company has, from time to time, utilized certain borrowing arrangements to fund growth in earning assets or provide additional liquidity when appropriate spreads can be realized. At September 30, 2017 and December 31, 2016, there were $808.6 million and $492.3 million, respectively, in outstanding other borrowings.


28



Other borrowings consist of the following:
(dollars in thousands)
September 30,
2017
 
December 31,
2016
FHLB borrowings:
 

 
 

Daily Rate Credit from FHLB with a variable interest rate (1.32% at September 30, 2017 and 0.80% at December 31, 2016)
$
168,000

 
$
150,000

Advance from FHLB due October 6, 2017; fixed interest rate of 1.16%
565,000

 

Advance from FHLB due January 6, 2017; fixed interest rate of 0.56%

 
292,500

Advance from FHLB due January 9, 2017; fixed interest rate of 1.40%

 
4,002

Advance from FHLB due May 30, 2017; fixed interest rate of 1.23%

 
5,006

Subordinated notes payable:
 

 
 

Subordinated notes payable due March 15, 2027 net of unamortized debt issuance cost of $1,238; fixed interest rate of 5.75% through March 14, 2022; variable interest rate thereafter at three-month LIBOR plus 3.616%
73,762

 

Other debt:
 

 
 

Advance from correspondent bank due October 5, 2019; secured by a loan receivable; fixed interest rate of 4.25%
56

 
77

Advance from correspondent bank due September 5, 2026; secured by a loan receivable; fixed interest rate of 2.09%
1,754

 
1,886

Advances under revolving credit agreement with a regional bank due September 26, 2020; secured by subsidiary bank stock; variable interest rate at 90-day LIBOR plus 3.50% (4.43% at December 31, 2016)

 
38,000

Advances under revolving credit agreement with a regional bank due January 7, 2017; fixed interest rate of 8.00%

 
850

Total
$
808,572

 
$
492,321

 
The advances from the FHLB are collateralized by a blanket lien on all first mortgage loans and other specific loans in addition to FHLB stock. At September 30, 2017, $347.4 million was available for borrowing on lines with the FHLB.
 
At September 30, 2017, $30.0 million was available for borrowing under the revolving credit agreement with a regional bank, secured by subsidiary bank stock.
 
As of September 30, 2017, the Company maintained credit arrangements with various financial institutions to purchase federal funds up to $82.0 million.
 
The Company also participates in the Federal Reserve discount window borrowings program. At September 30, 2017, the Company had $1.04 billion of loans pledged at the Federal Reserve discount window and had $678.1 million available for borrowing.

Subordinated Notes Payable

On March 13, 2017, the Company completed the public offering and sale of $75.0 million in aggregate principal amount of its 5.75% Fixed-To-Floating Rate Subordinated Notes due 2027 (the “subordinated notes”). The subordinated notes were sold to the public at par pursuant to an underwriting agreement and were issued pursuant to an indenture and a supplemental indenture. The subordinated notes will mature on March 15, 2027 and through March 14, 2022 will bear a fixed rate of interest of 5.75% per annum, payable semi-annually in arrears on September 15 and March 15 of each year. Beginning March 15, 2022, the interest rate on the subordinated notes resets quarterly to a floating rate per annum equal to the then-current three-month LIBOR plus 3.616%, payable quarterly in arrears on June 15, September 15, December 15, and March 15 of each year to the maturity date or earlier redemption.
 
On any scheduled interest payment date beginning March 15, 2022, the Company may, at its option, redeem the subordinated notes, in whole or in part, at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest.
 
The subordinated notes are unsecured and rank equally with all other unsecured subordinated indebtedness of the Company, including any subordinated indebtedness issued in the future under the indenture governing the subordinated notes. The subordinated notes are subordinated in right of payment to all senior indebtedness of the Company. The subordinated notes are obligations of the Company only and are not guaranteed by any subsidiaries, including the Bank. Additionally, the subordinated notes are structurally subordinated to all existing and future indebtedness and other liabilities of the Company’s subsidiaries, meaning that creditors of the Company’s subsidiaries (including, in the case of the Bank, its depositors) generally will be paid from those subsidiaries’ assets before holders of the subordinated notes have any claim to those assets.
 

29



For regulatory capital adequacy purposes, the subordinated notes qualify as Tier 2 capital for the Company. If in the future the subordinated notes no longer qualify as Tier 2 capital, the subordinated notes may be redeemed by the Company at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest, subject to prior approval by the Board of Governors of the Federal Reserve System.
 
NOTE 9 – 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,
2017
 
December 31,
2016
Commitments to extend credit
$
1,096,702

 
$
1,101,257

Unused home equity lines of credit
63,951

 
62,586

Financial standby letters of credit
13,192

 
14,257

Mortgage interest rate lock commitments
113,056

 
91,426

Mortgage forward contracts with positive fair value

 
150,000

 
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. These commitments, predominantly at variable interest rates, generally have fixed expiration dates of one year or less or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.
 
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral is required in instances which the Company deems necessary.
 
Other Commitments
 
As of September 30, 2017, a $75.0 million letter of credit issued by the FHLB was used to guarantee the Bank’s performance related to public fund deposit balances.

Contingencies
 
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
 
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
 

30



Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
 
A former borrower of the Company has filed a claim related to a loan previously made by the Company asserting lender liability.  The case was tried without a jury and a judgment was issued by the court against the Company awarding the borrower approximately $2.9 million on August 8, 2013. The judgment was appealed to the South Carolina Court of Appeals.  On May 24, 2017, the Court of Appeals filed its decision and unanimously found in favor of the Company and reversed the trial court judgment. The plaintiff has a filed a petition for rehearing with the Court of Appeals, which has been denied. The plaintiff has filed a writ of certiorari asking the Supreme Court of South Carolina to hear the case. The Company believes the likelihood the Supreme Court will hear the case is not probable, and, accordingly the Company does not expect to incur any loss as a result of this case.  Accordingly, the Company has not established any reserves related to this legal matter. In the event that the Company's assumptions used to evaluate this matter as neither probable nor estimable change in future periods, it may be required to record a liability for an adverse outcome.
 
NOTE 10 – SHAREHOLDERS’ EQUITY
 
On January 18, 2017, the Company issued 128,572 unregistered shares of its common stock to William J. Villari in exchange for 4.99% of the outstanding shares of common stock of USPF. A registration statement was filed with the Securities and Exchange Commission on February 13, 2017 to register the resale or other disposition of these shares. The issuance of the 128,572 common shares was valued at $45.45 per share, resulting in an increase in shareholders’ equity of $5.8 million. For additional information regarding the investment in USPF, see Note 2.
 
On March 6, 2017, the Company completed an underwritten public offering of 2,012,500 shares of the Company’s common stock at a price to the public of $46.50 per share. The Company received net proceeds from the issuance of approximately $88.7 million, after deducting $4.9 million in underwriting discounts and commissions and other issuance costs.
 
In March 2017, the Company made a capital contribution to the Bank in the amount of $110.0 million, using the net proceeds of the March 6, 2017 issuance of common stock as well as a portion of the net proceeds of the March 13, 2017 issuance of the Company’s 5.75% Fixed-To-Floating Rate Subordinated Notes due 2027 discussed in Note 8.

NOTE 11 – ACCUMULATED OTHER COMPREHENSIVE INCOME
 
Accumulated other comprehensive income for the Company consists of changes in net unrealized gains and losses on investment securities available for sale and an interest rate swap derivative designated as a cash flow hedge. The following tables present a summary of the accumulated other comprehensive income balances, net of tax, as of September 30, 2017 and 2016:
(dollars in thousands)
 
Unrealized
Gain (Loss)
on Derivatives
 
Unrealized
Gain (Loss)
on Securities
 
Accumulated
Other Comprehensive
Income (Loss)
Balance, January 1, 2017
 
$
176

 
$
(1,234
)
 
$
(1,058
)
Reclassification for gains included in net income, net of tax
 

 
(24
)
 
(24
)
Current year changes, net of tax
 
(38
)
 
4,361

 
4,323

Balance, September 30, 2017
 
$
138

 
$
3,103

 
$
3,241

(dollars in thousands) 
 
Unrealized
Gain (Loss)
on Derivatives
 
Unrealized
Gain (Loss)
on Securities
 
Accumulated
Other Comprehensive
Income (Loss)
Balance, January 1, 2016
 
$
152

 
$
3,201

 
$
3,353

Reclassification for gains included in net income, net of tax
 

 
(61
)
 
(61
)
Current year changes, net of tax
 
(567
)
 
7,724

 
7,157

Balance, September 30, 2016
 
$
(415
)
 
$
10,864

 
$
10,449

 

31



NOTE 12 – 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)
2017
 
2016
 
2017
 
2016
Average common shares outstanding
37,225

 
34,870

 
36,690

 
34,156

Common share equivalents:
 

 
 

 
 

 
 

Stock options
70

 
108

 
70

 
100

Nonvested restricted share grants
258

 
217

 
257

 
214

Average common shares outstanding, assuming dilution
37,553

 
35,195

 
37,017

 
34,470

 
For the three and nine-month periods ended September 30, 2017 and 2016, there were no potential common shares with strike prices that would cause them to be anti-dilutive.
 
NOTE 13 – 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 are carried at fair value and are comprised of the following:
(dollars in thousands)
September 30,
2017
 
December 31,
2016
Mortgage loans held for sale
$
132,201

 
$
105,924

SBA loans held for sale
5,191

 

Total loans held for sale
$
137,392

 
$
105,924

 
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. Net gains of $5.7 million and $4.9 million resulting from fair value changes of these mortgage loans were recorded in income during the nine months ended September 30, 2017 and 2016, respectively. The amount does not reflect changes in fair values of related derivative instruments used to hedge exposure to market-related risks associated with these mortgage loans. The change in fair value of both mortgage loans held for sale and the related derivative 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, 2017 and December 31, 2016:
(dollars in thousands) 
September 30,
2017
 
December 31,
2016
Aggregate fair value of mortgage loans held for sale
$
132,201

 
$
105,924

Aggregate unpaid principal balance
126,503

 
103,691

Past-due loans of 90 days or more

 

Nonaccrual loans

 

 

32



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, mortgage loans held for sale and derivatives are recorded at fair value on a recurring basis. From time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans and OREO. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.
 
Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
 
Level 1 Quoted prices in active markets for identical assets or liabilities.
 
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
The following methods and assumptions were used by the Company in estimating the fair value of its assets and liabilities recorded at fair value and for estimating the fair value of its financial instruments:
 
Cash, Due From Banks, Federal Funds Sold and Interest-Bearing Accounts: The carrying amount of cash, due from banks, federal funds sold and interest-bearing deposits in banks approximates fair value.
 
Investment Securities Available for Sale: The fair value of securities available for sale is determined by various valuation methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Level 2 securities include certain U.S. agency bonds, mortgage-backed securities, collateralized mortgage and debt obligations, and municipal securities. The Level 2 fair value pricing is provided by an independent third party and is based upon similar securities in an active market. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain residual municipal securities and other less liquid securities.
 
Other Investments: FHLB stock, Federal Reserve Bank stock and the Company’s minority equity investment in USPF are included in other investment securities at original cost basis. These investments do not have readily determinable fair values and are carried at original cost basis. It is not practical to determine the fair value of these investments due to restrictions placed on transferability. These investments are periodically evaluated for impairment based on ultimate recovery of par value or cost basis. Cost basis approximates fair value for these investments.
 
Loans Held for Sale: The Company records loans held for sale at fair value. The fair value of loans held for sale is determined on outstanding commitments from third party investors in the secondary markets and is classified within Level 2 of the valuation hierarchy.
 
Loans: The carrying amount of variable-rate loans that reprice frequently and have no significant change in credit risk approximates fair value. The fair value of fixed-rate loans is estimated based on discounted contractual cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The fair value of impaired loans is estimated based on discounted contractual cash flows or underlying collateral values, where applicable. A loan is determined to be impaired if the Company believes it is probable that all principal and interest amounts due according to the terms of the note will not be collected as scheduled. The fair value of impaired loans is determined in accordance with ASC 310-10, Accounting by Creditors for Impairment of a Loan, and generally results in a specific reserve established through a charge to the provision for loan losses. Losses on impaired loans are charged to the allowance when management believes the uncollectability of a loan is confirmed. Management has determined that the majority of impaired loans are Level 3 assets due to the extensive use of market appraisals.
 
Other Real Estate Owned: The fair value of other real estate owned (“OREO”) is determined using certified appraisals and internal evaluations that value the property at its highest and best uses by applying traditional valuation methods common to the industry. The Company does not hold any OREO for profit purposes and all other real estate is actively marketed for sale. In most

33



cases, management has determined that additional write-downs are required beyond what is calculable from the appraisal to carry the property at levels that would attract buyers. Because this additional write-down is not based on observable inputs, management has determined that other real estate owned should be classified as Level 3.
 
Intangible Assets: Intangible assets consist of core deposit premiums acquired in connection with business combinations and are based on the established value of acquired customer deposits. The core deposit premium is initially recognized based on a valuation performed as of the consummation date and is amortized over an estimated useful life of seven to ten years.
 
FDIC Loss-Share Receivable/Payable: Because the FDIC will reimburse the Company for certain acquired loans should the Company experience a loss, an indemnification asset is recorded at fair value at the acquisition date. The indemnification asset is recognized at the same time as the indemnified loans, and measured on the same basis, subject to collectability or contractual limitations. The shared loss agreements on the acquisition date reflect the reimbursements expected to be received from the FDIC, using an appropriate discount rate, which reflects counterparty credit risk and other uncertainties. The shared loss agreements continue to be measured on the same basis as the related indemnified loans, and the loss-share receivable/payable is impacted by changes in estimated cash flows associated with these loans.
 
Accrued Interest Receivable/Payable: The carrying amount of accrued interest receivable and accrued interest payable approximates fair value.
 
Cash Value of Bank Owned Life Insurance: The carrying value of cash value of bank owned life insurance approximates fair value.
 
Deposits: The carrying amount of demand deposits, savings deposits and variable-rate certificates of deposit approximates fair value. The fair value of fixed-rate certificates of deposit is estimated based on discounted contractual cash flows using interest rates currently being offered for certificates of similar maturities.
 
Securities Sold under Agreements to Repurchase and Other Borrowings: The carrying amount of variable rate borrowings and securities sold under repurchase agreements approximates fair value and are classified as Level 1. The fair value of fixed rate other borrowings is estimated based on discounted contractual cash flows using the current incremental borrowing rates for similar borrowing arrangements and are classified as Level 2.
 
Subordinated Deferrable Interest Debentures: The fair value of the Company’s trust preferred securities is based primarily upon discounted cash flows using rates for securities with similar terms and remaining maturities and are classified as Level 2.
 
Off-Balance-Sheet Instruments: Because commitments to extend credit and standby letters of credit are typically made using variable rates and have short maturities, the carrying value and fair value are immaterial for disclosure.
 
Derivatives: The Company has entered into derivative financial instruments to manage interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair value of the derivatives is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves derived from observable market interest rate curves).
 
The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting any applicable credit enhancements such as collateral postings, thresholds, mutual puts and guarantees.
 
Although the Company has determined that the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself or the counterparty. However, as of September 30, 2017 and December 31, 2016, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.
 

34



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, 2017 and December 31, 2016:
 
Recurring Basis
Fair Value Measurements
 
September 30, 2017
(dollars in thousands) 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 

 
 

 
 

 
 

U.S. government sponsored agencies
$
1,004

 
$

 
$
1,004

 
$

State, county and municipal securities
143,387

 

 
143,387

 

Corporate debt securities
47,249

 

 
45,749

 
1,500

Mortgage-backed securities
627,953

 

 
627,953

 

Loans held for sale
137,392

 

 
137,392

 

Mortgage banking derivative instruments
3,836

 

 
3,836

 

Total recurring assets at fair value
$
960,821

 
$

 
$
959,321

 
$
1,500

Financial liabilities:
 

 
 

 
 

 
 

Derivative financial instruments
$
723

 
$

 
$
723

 
$

Mortgage banking derivative instruments
237

 

 
237

 

Total recurring liabilities at fair value
$
960

 
$

 
$
960

 
$

 
Recurring Basis
Fair Value Measurements
 
December 31, 2016
(dollars in thousands)
Fair Value
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 

 
 

 
 

 
 

U.S. government sponsored agencies
$
1,020

 
$

 
$
1,020

 
$

State, county and municipal securities
152,035

 

 
152,035

 

Corporate debt securities
32,172

 

 
30,672

 
1,500

Mortgage-backed securities
637,508

 

 
637,508

 

Loans held for sale
105,924

 

 
105,924

 

Mortgage banking derivative instruments
4,314

 

 
4,314

 

Total recurring assets at fair value
$
932,973

 
$

 
$
931,473

 
$
1,500

Financial liabilities:
 

 
 

 
 

 
 

Derivative financial instruments
$
978

 
$

 
$
978

 
$

Total recurring liabilities at fair value
$
978

 
$

 
$
978

 
$

 
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, 2017 and December 31, 2016:
 
Nonrecurring Basis
Fair Value Measurements
(dollars in thousands)
Fair Value
 
Level 1
 
Level 2
 
Level 3
September 30, 2017
 

 
 

 
 

 
 

Impaired loans carried at fair value
$
28,790

 
$

 
$

 
$
28,790

Other real estate owned
435

 

 

 
435

Purchased other real estate owned
9,946

 

 

 
9,946

Total nonrecurring assets at fair value
$
39,171

 
$

 
$

 
$
39,171

 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 

 
 

Impaired loans carried at fair value
$
28,253

 
$

 
$

 
$
28,253

Other real estate owned
1,172

 

 

 
1,172

Purchased other real estate owned
12,540

 

 

 
12,540

Total nonrecurring assets at fair value
$
41,965

 
$

 
$

 
$
41,965

 
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 other real estate owned include market conditions, estimated marketing period or holding period, underlying collateral characteristics and discount rates.
 
For the nine months ended September 30, 2017 and the year ended December 31, 2016, there was not a change in the methods and significant assumptions used to estimate fair value.
 

35



The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities:
(dollars in thousands)
 
Fair Value
 
Valuation
Technique
 
Unobservable Inputs
 
Range of
Discounts
 
Weighted
Average
Discount
September 30, 2017
 
 

 
 
 
 
 
 
 
 
Recurring:
 
 

 
 
 
 
 
 
 
 
Investment securities available for sale
 
$
1,500

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

 
 
 
 
 
 
 
 
Impaired loans
 
$
28,790

 
Third-party appraisals and discounted cash flows
 
Collateral discounts and
discount rates
 
10% - 100%
 
25%
Other real estate owned
 
$
435

 
Third-party appraisals and sales contracts
 
Collateral discounts and estimated
costs to sell
 
15% - 20%
 
13%
Purchased other real estate owned
 
$
9,946

 
Third-party appraisals
 
Collateral discounts and estimated
costs to sell
 
10% - 74%
 
16%
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 

 
 
 
 
 
 
 
 
Recurring:
 
 

 
 
 
 
 
 
 
 
Investment securities available for sale
 
$
1,500

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

 
 
 
 
 
 
 
 
Impaired loans
 
$
28,253

 
Third-party appraisals and discounted cash flows
 
Collateral discounts and
discount rates
 
15% - 100%
 
28%
Other real estate owned
 
$
1,172

 
Third-party appraisals and sales contracts
 
Collateral discounts and estimated
costs to sell
 
15% - 74%
 
22%
Purchased other real estate owned
 
$
12,540

 
Third-party appraisals
 
Collateral discounts and estimated
costs to sell
 
10% - 74%
 
15%
 
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, 2017
(dollars in thousands)
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 

 
 

 
 

 
 

 
 

Cash and due from banks
$
131,071

 
$
131,071

 
$

 
$

 
$
131,071

Federal funds sold and interest-bearing accounts
112,844

 
112,844

 

 

 
112,844

Loans, net
5,902,267

 

 

 
5,871,518

 
5,871,518

Accrued interest receivable
25,068

 
25,068

 

 

 
25,068

Financial liabilities:
 

 
 

 
 

 
 

 
 

Deposits
$
5,895,504

 
$

 
$
5,896,989

 
$

 
$
5,896,989

Securities sold under agreements to repurchase
14,156

 
14,156

 

 

 
14,156

Other borrowings
808,572

 

 
809,810

 

 
809,810

Subordinated deferrable interest debentures
85,220

 

 
70,984

 

 
70,984

FDIC loss-share payable
8,190

 

 

 
9,077

 
9,077

Accrued interest payable
2,313

 
2,313

 

 

 
2,313

  

36



 
 
 
Fair Value Measurements
 
 
 
December 31, 2016
(dollars in thousands)
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 

 
 

 
 

 
 

 
 

Cash and due from banks
$
127,164

 
$
127,164

 
$

 
$

 
$
127,164

Federal funds sold and interest-bearing accounts
71,221

 
71,221

 

 

 
71,221

Loans, net
5,212,153

 

 

 
5,236,034

 
5,236,034

Accrued interest receivable
22,278

 
22,278

 

 

 
22,278

Financial liabilities:
 

 
 

 
 

 
 

 
 

Deposits
$
5,575,163

 
$

 
$
5,575,288

 
$

 
$
5,575,288

Securities sold under agreements to repurchase
53,505

 
53,505

 

 

 
53,505

Other borrowings
492,321

 

 
492,321

 

 
492,321

Subordinated deferrable interest debentures
84,228

 

 
67,321

 

 
67,321

FDIC loss-share payable
6,313

 

 

 
8,243

 
8,243

Accrued interest payable
1,501

 
1,501

 

 

 
1,501

 
NOTE 14 – SEGMENT REPORTING
 
The Company has the following five reportable segments: Banking Division, Retail Mortgage Division, Warehouse Lending Division, SBA Division and Premium Finance Division. The Banking Division derives its revenues from the delivery of full-service financial services, including commercial loans, consumer loans and deposit accounts. The Retail Mortgage Division derives its revenues from the origination, sales and servicing of one-to-four family residential mortgage loans. The Warehouse Lending Division derives its revenues from the origination and servicing of warehouse lines to other businesses that are secured by underlying one-to-four family residential mortgage loans. The SBA Division derives its revenues from the origination, sales and servicing of SBA loans. The Premium Finance Division derives its revenues from the origination and servicing of commercial insurance premium finance loans.
 
The Banking, Retail Mortgage, Warehouse Lending, SBA and Premium Finance Divisions are managed as separate business units because of the different products and services they provide. The Company evaluates performance and allocates resources based on profit or loss from operations. There are no material intersegment sales or transfers.
 

37



The following tables present selected financial information with respect to the Company’s reportable business segments for the three months ended September 30, 2017 and 2016:
 
Three Months Ended
September 30, 2017
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
 Finance
 Division
 
Total
Interest income
$
59,130

 
$
5,862

 
$
2,022

 
$
1,413

 
$
7,895

 
$
76,322

Interest expense
5,530

 
1,597

 
487

 
432

 
1,421

 
9,467

Net interest income
53,600

 
4,265

 
1,535

 
981

 
6,474

 
66,855

Provision for loan losses
1,037

 
262

 
215

 
(1
)
 
274

 
1,787

Noninterest income
13,007

 
12,257

 
583

 
1,130

 
22

 
26,999

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
20,554

 
9,792

 
129

 
858

 
1,250

 
32,583

Equipment and occupancy expenses
5,384

 
555

 
1

 
54

 
42

 
6,036

Data processing and telecommunications expenses
6,357

 
425

 
28

 
9

 
231

 
7,050

Other expenses
14,905

 
1,001

 
51

 
63

 
2,078

 
18,098

Total noninterest expense
47,200

 
11,773

 
209

 
984

 
3,601

 
63,767

Income before income tax expense
18,370

 
4,487

 
1,694

 
1,128

 
2,621

 
28,300

Income tax expense
4,850

 
1,475

 
580

 
394

 
843

 
8,142

Net income
$
13,520

 
$
3,012

 
$
1,114

 
$
734

 
$
1,778

 
$
20,158

 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
6,296,159

 
$
531,897

 
$
236,024

 
$
94,531

 
$
491,209

 
$
7,649,820

Goodwill
125,532

 

 

 

 

 
125,532

Other intangible assets, net
14,437

 

 

 

 

 
14,437

 
Three Months Ended
September 30, 2016
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
 Finance
 Division
 
Total
Interest income
$
55,369

 
$
3,679

 
$
2,073

 
$
1,089

 
$

 
$
62,210

Interest expense
3,716

 
1,054

 
225

 
148

 

 
5,143

Net interest income
51,653

 
2,625

 
1,848

 
941

 

 
57,067

Provision for loan losses
57

 
447

 
94

 
213

 

 
811

Noninterest income
13,949

 
13,198

 
555

 
1,162

 

 
28,864

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
18,323

 
8,940

 
103

 
616

 

 
27,982

Equipment and occupancy expenses
5,490

 
433

 
1

 
65

 

 
5,989

Data processing and telecommunications expenses
5,794

 
364

 
26

 
1

 

 
6,185

Other expenses
11,533

 
1,303

 
26

 
181

 

 
13,043

Total noninterest expense
41,140

 
11,040

 
156

 
863

 

 
53,199

Income before income tax expense
24,405

 
4,336

 
2,153

 
1,027

 

 
31,921

Income tax expense
7,733

 
1,518

 
754

 
359

 

 
10,364

Net income
$
16,672

 
$
2,818

 
$
1,399

 
$
668

 
$

 
$
21,557

 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
5,841,207

 
$
356,755

 
$
203,334

 
$
92,199

 
$

 
$
6,493,495

Goodwill
122,545

 

 

 

 

 
122,545

Other intangible assets, net
18,472

 

 

 

 

 
18,472

 

38



The following tables present selected financial information with respect to the Company’s reportable business segments for the nine months ended September 30, 2017 and 2016:
 
Nine Months Ended
September 30, 2017
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
 Finance
 Division
 
Total
Interest income
$
170,036

 
$
14,890

 
$
4,968

 
$
3,884

 
$
21,005

 
$
214,783

Interest expense
14,510

 
4,179

 
1,074

 
1,111

 
3,307

 
24,181

Net interest income
155,526

 
10,711

 
3,894

 
2,773

 
17,698

 
190,602

Provision for loan losses
4,510

 
617

 
159

 
98

 
444

 
5,828

Noninterest income
38,974

 
35,823

 
1,340

 
4,663

 
94

 
80,894

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
58,757

 
24,771

 
403

 
2,339

 
3,239

 
89,509

Equipment and occupancy expenses
16,068

 
1,684

 
3

 
159

 
145

 
18,059

Data processing and telecommunications expenses
18,778

 
1,182

 
80

 
12

 
598

 
20,650

Other expenses
34,355

 
3,030

 
137

 
533

 
6,326

 
44,381

Total noninterest expense
127,958

 
30,667

 
623

 
3,043

 
10,308

 
172,599

Income before income tax expense
62,032

 
15,250

 
4,452

 
4,295

 
7,040

 
93,069

Income tax expense
17,801

 
5,337

 
1,559

 
1,503

 
2,471

 
28,671

Net income
$
44,231

 
$
9,913

 
$
2,893

 
$
2,792

 
$
4,569

 
$
64,398

 
 
Nine Months Ended
September 30, 2016
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
 Finance
 Division
 
Total
Interest income
$
158,682

 
$
9,992

 
$
4,714

 
$
2,721

 
$

 
$
176,109

Interest expense
10,726

 
2,383

 
458

 
450

 

 
14,017

Net interest income
147,956

 
7,609

 
4,256

 
2,271

 

 
162,092

Provision for loan losses
1,471

 
540

 
94

 
276

 

 
2,381

Noninterest income
39,702

 
36,126

 
1,328

 
4,373

 

 
81,529

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
55,740

 
23,591

 
399

 
1,970

 

 
81,700

Equipment and occupancy expenses
16,541

 
1,326

 
3

 
190

 

 
18,060

Data processing and telecommunications expenses
17,299

 
974

 
71

 
3

 

 
18,347

Other expenses
39,040

 
3,392

 
77

 
542

 

 
43,051

Total noninterest expense
128,620

 
29,283

 
550

 
2,705

 

 
161,158

Income before income tax expense
57,567

 
13,912

 
4,940

 
3,663

 

 
80,082

Income tax expense
18,278

 
4,870

 
1,729

 
1,282

 

 
26,159

Net income
$
39,289

 
$
9,042

 
$
3,211

 
$
2,381

 
$

 
$
53,923

 
NOTE 15 – REGULATORY MATTERS
 
On December 16, 2016, the Bank entered into a Stipulation to the Issuance of a Consent Order with its bank regulatory agencies, the FDIC and the Georgia Department of Banking and Finance (the “GDBF”), consenting to the issuance of a consent order (the “Order”) relating to the Bank’s Bank Secrecy Act (together with its implementing regulations, the “BSA”) compliance program. In consenting to the issuance of the Order, the Bank did not admit or deny any charges of unsafe or unsound banking practices related to its BSA compliance program.
 
Under the terms of the Order, the Bank or its board of directors is required to take certain affirmative actions to comply with the Bank’s obligations under the BSA. These include, but are not limited to, the following: strengthening the board of directors’ oversight of BSA activities; enhancing and adopting a revised BSA compliance program; completing a BSA risk assessment; developing a revised system of internal controls designed to ensure full compliance with the BSA; reviewing and revising customer due diligence and risk assessment processes, policies and procedures; developing, adopting and implementing effective BSA training programs; assessing BSA staffing needs and resources and appointing a qualified BSA officer; establishing an independent BSA testing program; ensuring that all reports required by the BSA are accurately and properly filed; and engaging an independent firm to review past account activity to determine whether suspicious activity was properly identified and reported.
 
Prior to implementation, certain of the actions required by the Order were subject to review by, and approval or non-objection from, the FDIC and the GDBF. The Order will remain in effect and be enforceable until it is modified, terminated, suspended or

39



set aside by the FDIC and the GDBF. The Bank expects that it will continue to meet the required actions within the time periods specified in the Order based upon ongoing communications with its regulators.

40






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: legislative and regulatory initiatives; additional competition in our markets; potential business strategies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by us; state and federal banking regulations; changes in or application of environmental and other laws and regulations to which we are subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather, natural disasters and other catastrophic events; and other factors discussed in our filings with the Securities and Exchange Commission under the Exchange Act.
 
All written or oral forward-looking statements that are made by or are attributable to us are expressly qualified in their entirety by this cautionary notice. Our forward-looking statements apply only as of the date of this report or the respective date of the document from which they are incorporated herein by reference. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future events or otherwise.

Overview
 
The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of September 30, 2017, as compared with December 31, 2016, and operating results for the three- and nine-month periods ended September 30, 2017 and 2016. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

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

 


41



The following table sets forth unaudited selected financial data for the previous 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
(in thousands, except share and per share data)
Third
Quarter
2017
 
Second
Quarter
2017
 
First
Quarter
2017
 
Fourth
Quarter
2016
 
Third
Quarter
2016
 
September 30,
2017
 
September 30,
2016
Results of Operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
66,855

 
$
63,157

 
$
60,590

 
$
57,279

 
$
57,067

 
$
190,602

 
$
162,092

Net interest income (tax equivalent)
68,668

 
64,773

 
62,108

 
58,897

 
58,024

 
195,549

 
164,726

Provision for loan losses
1,787

 
2,205

 
1,836

 
1,710

 
811

 
5,828

 
2,381

Non-interest income
26,999

 
28,189

 
25,706

 
24,272

 
28,864

 
80,894

 
81,529

Non-interest expense
63,767

 
55,739

 
53,093

 
54,677

 
53,199

 
172,599

 
161,158

Income tax expense
8,142

 
10,315

 
10,214

 
6,987

 
10,364

 
28,671

 
26,159

Net income available to common shareholders
20,158

 
23,087

 
21,153

 
18,177

 
21,557

 
64,398

 
53,923

Selected Average Balances:
 

 
 

 
 

 
 

 
 

 
 

 
 

Investment securities
$
864,456

 
$
866,960

 
$
862,616

 
$
856,671

 
$
857,433

 
$
864,684

 
$
840,688

Loans held for sale
126,798

 
110,933

 
77,617

 
102,926

 
105,859

 
105,296

 
96,340

Loans
4,379,082

 
3,994,213

 
3,678,149

 
3,145,714

 
2,897,771

 
4,018,597

 
2,642,498

Purchased loans
937,595

 
973,521

 
1,034,983

 
1,101,907

 
1,199,175

 
982,033

 
1,147,821

Purchased loan pools
475,742

 
516,949

 
547,057

 
590,617

 
629,666

 
513,750

 
629,118

Earning assets
6,892,939

 
6,584,386

 
6,347,807

 
5,925,634

 
5,780,455

 
6,610,374

 
5,490,525

Assets
7,461,367

 
7,152,024

 
6,915,965

 
6,573,344

 
6,330,350

 
7,180,330

 
6,030,181

Deposits
5,837,154

 
5,671,394

 
5,491,324

 
5,490,657

 
5,221,219

 
5,667,891

 
5,102,729

Shareholders’ equity
796,856

 
774,664

 
695,830

 
653,991

 
640,382

 
756,153

 
599,817

Period-End Balances:
 

 
 

 
 

 
 

 
 

 
 

 
 

Investment securities
$
867,570

 
$
861,188

 
$
866,715

 
$
852,199

 
$
862,702

 
$
867,570

 
$
862,702

Loans held for sale
137,392

 
146,766

 
105,637

 
105,924

 
126,263

 
137,392

 
126,263

Loans
4,574,678

 
4,230,228

 
3,785,480

 
3,626,821

 
3,091,039

 
4,574,678

 
3,091,039

Purchased loans
917,126

 
950,499

 
1,006,935

 
1,069,191

 
1,129,381

 
917,126

 
1,129,381

Purchased loan pools
465,218

 
490,114

 
529,099

 
568,314

 
624,886

 
465,218

 
624,886

Earning assets
7,074,828

 
6,816,606

 
6,525,911

 
6,293,670

 
5,925,072

 
7,074,828

 
5,925,072

Total assets
7,649,820

 
7,397,858

 
7,094,856

 
6,892,031

 
6,493,495

 
7,649,820

 
6,493,495

Deposits
5,895,504

 
5,793,397

 
5,642,369

 
5,575,163

 
5,306,098

 
5,895,504

 
5,306,098

Shareholders’ equity
801,921

 
782,682

 
758,216

 
646,437

 
642,583

 
801,921

 
642,583

Per Common Share Data:
 

 
 

 
 

 
 

 
 

 
 

 
 

Earnings per share - basic
$
0.54

 
0.62

 
0.59

 
0.52

 
0.62

 
1.76

 
1.58

Earnings per share - diluted
$
0.54

 
0.62

 
0.59

 
0.52

 
0.61

 
1.74

 
1.56

Book value per common share
$
21.54

 
$
21.03

 
$
20.42

 
$
18.51

 
$
18.42

 
$
21.54

 
$
18.42

Tangible book value per common share
$
17.78

 
$
17.24

 
$
16.60

 
$
14.42

 
$
14.38

 
$
17.78

 
$
14.38

End of period shares outstanding
37,231,049

 
37,222,904

 
37,128,714

 
34,921,474

 
34,891,304

 
37,231,049

 
34,891,304


42



 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
(in thousands, except share and per share data)
Third
Quarter
2017
 
Second
Quarter
2017
 
First
Quarter
2017
 
Fourth
Quarter
2016
 
Third
Quarter
2016
 
September 30,
2017
 
September 30,
2016
Weighted Average Shares Outstanding:
 

 
 

 
 

 
 

 
 

 
 

 
 

Basic
37,225,418

 
37,162,810

 
35,664,420

 
34,915,459

 
34,869,747

 
36,689,934

 
34,155,556

Diluted
37,552,667

 
37,489,348

 
36,040,240

 
35,293,035

 
35,194,739

 
37,017,486

 
34,470,101

Market Price:
 

 
 

 
 

 
 

 
 

 
 

 
 

High intraday price
$
51.28

 
$
49.80

 
$
49.50

 
$
47.70

 
$
36.20

 
$
51.28

 
$
36.20

Low intraday price
$
41.05

 
$
42.60

 
$
41.60

 
$
34.61

 
$
28.90

 
$
41.05

 
$
24.96

Closing price for quarter
$
48.00

 
$
48.20

 
$
46.10

 
$
43.60

 
$
34.95

 
$
48.00

 
$
34.95

Average daily trading volume
168,911

 
169,617

 
242,982

 
191,894

 
166,841

 
193,555

 
211,351

Cash dividends declared per share
$
0.10

 
$
0.10

 
$
0.10

 
$
0.10

 
$
0.10

 
$
0.30

 
$
0.20

Closing price to book value
2.23

 
2.29

 
2.26

 
2.36

 
1.90

 
2.23

 
1.90

Performance Ratios:
 

 
 

 
 

 
 

 
 

 
 

 
 

Return on average assets
1.07
%
 
1.29
%
 
1.24
%
 
1.10
%
 
1.35
%
 
1.20
%
 
1.19
%
Return on average common equity
10.04
%
 
11.95
%
 
12.33
%
 
11.06
%
 
13.39
%
 
11.39
%
 
12.01
%
Average loans to average deposits
101.41
%
 
98.66
%
 
97.20
%
 
89.99
%
 
92.55
%
 
99.15
%
 
88.50
%
Average equity to average assets
10.68
%
 
10.83
%
 
10.06
%
 
9.95
%
 
10.12
%
 
10.53
%
 
9.95
%
Net interest margin (tax equivalent)
3.95
%
 
3.95
%
 
3.97
%
 
3.95
%
 
3.99
%
 
3.96
%
 
4.01
%
Efficiency ratio
67.94
%
 
61.02
%
 
61.52
%
 
67.05
%
 
61.91
%
 
63.57
%
 
66.15
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Measures Reconciliation -
 

 
 

 
 

 
 

 
 

 
 

 
 

Tangible book value per common share:
 

 
 

 
 

 
 

 
 

 
 

 
 

Total shareholders’ equity
$
801,921

 
$
782,682

 
$
758,216

 
$
646,437

 
$
642,583

 
$
801,921

 
$
642,583

Less:
 

 
 

 
 

 
 

 
 

 
 

 
 

Goodwill
125,532

 
125,532

 
125,532

 
125,532

 
122,545

 
125,532

 
122,545

Other intangible assets, net
14,437

 
15,378

 
16,391

 
17,428

 
18,472

 
14,437

 
18,472

Tangible common equity
$
661,952

 
$
641,772

 
$
616,293

 
$
503,477

 
$
501,566

 
$
661,952

 
$
501,566

End of period shares outstanding
37,231,049

 
37,222,904

 
37,128,714

 
34,921,474

 
34,891,304

 
37,231,049

 
34,891,304

Book value per common share
$
21.54

 
$
21.03

 
$
20.42

 
$
18.51

 
$
18.42

 
$
21.54

 
$
18.42

Tangible book value per common share
17.78

 
17.24

 
16.60

 
14.42

 
14.38

 
17.78

 
14.38



43



Results of Operations for the Three Months Ended September 30, 2017 and 2016
 
Consolidated Earnings and Profitability
 
Ameris reported net income available to common shareholders of $20.2 million, or $0.54 per diluted share, for the quarter ended September 30, 2017, compared with $21.6 million, or $0.61 per diluted share, for the same period in 2016. The Company’s return on average assets and average shareholders’ equity were 1.07% and 10.04%, respectively, in the third quarter of 2017, compared with 1.35% and 13.39%, respectively, in the third quarter of 2016. During the third quarter of 2017 the Company incurred pre-tax merger and conversion charges of $92,000, pre-tax BSA compliance resolution expenses of $4.7 million, pre-tax Hurricane Irma expenses of $410,000, and pre-tax losses on the sale of premises of $91,000. During the third quarter of 2016, the Company incurred pre-tax losses on the sale of premises of $238,000. Excluding these merger and conversion charges, compliance resolution expenses, Hurricane Irma expenses, and losses on the sale of premises, the Company’s net income would have been $23.6 million, or $0.63 per diluted share, for the third quarter of 2017 and $21.7 million, or $0.62 per diluted share, for the third quarter of 2016.
 
Below is a reconciliation of adjusted operating net income to net income, as discussed above.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands, except share and per share data)
2017
 
2016
 
2017
 
2016
Net income available to common shareholders
$
20,158

 
$
21,557

 
$
64,398

 
$
53,923

Adjustment items:
 

 
 

 
 

 
 

Merger and conversion charges
92

 

 
494

 
6,359

Certain compliance resolution expenses
4,729

 

 
4,729

 

Financial impact of Hurricane Irma
410

 

 
410

 

Losses on the sale of premises
91

 
238

 
956

 
562

Tax effect of management adjusted charges
(1,863
)
 
(83
)
 
(2,306
)
 
(2,422
)
After tax management-adjusted charges
3,459

 
155

 
4,283

 
4,499

Adjusted operating net income
$
23,617

 
$
21,712

 
$
68,681

 
$
58,422

 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
37,552,667

 
35,194,739

 
37,017,486

 
34,470,101

Earnings per diluted share
$
0.54

 
$
0.61

 
$
1.74

 
$
1.56

Adjusted operating net income per diluted share
$
0.63

 
$
0.62

 
$
1.86

 
$
1.69

 

44



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 2017 and 2016, respectively:
 
Three Months Ended
September 30, 2017
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
 Finance
 Division
 
Total
Interest income
$
59,130

 
$
5,862

 
$
2,022

 
$
1,413

 
$
7,895

 
$
76,322

Interest expense
5,530

 
1,597

 
487

 
432

 
1,421

 
9,467

Net interest income
53,600

 
4,265

 
1,535

 
981

 
6,474

 
66,855

Provision for loan losses
1,037

 
262

 
215

 
(1
)
 
274

 
1,787

Noninterest income
13,007

 
12,257

 
583

 
1,130

 
22

 
26,999

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
20,554

 
9,792

 
129

 
858

 
1,250

 
32,583

Equipment and occupancy expenses
5,384

 
555

 
1

 
54

 
42

 
6,036

Data processing and telecommunications expenses
6,357

 
425

 
28

 
9

 
231

 
7,050

Other expenses
14,905

 
1,001

 
51

 
63

 
2,078

 
18,098

Total noninterest expense
47,200

 
11,773

 
209

 
984

 
3,601

 
63,767

Income before income tax expense
18,370

 
4,487

 
1,694

 
1,128

 
2,621

 
28,300

Income tax expense
4,850

 
1,475

 
580

 
394

 
843

 
8,142

Net income
$
13,520

 
$
3,012

 
$
1,114

 
$
734

 
$
1,778

 
$
20,158

 
Three Months Ended
September 30, 2016
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
Finance
Division
 
Total
Interest income
$
55,369

 
$
3,679

 
$
2,073

 
$
1,089

 
$

 
$
62,210

Interest expense
3,716

 
1,054

 
225

 
148

 

 
5,143

Net interest income
51,653

 
2,625

 
1,848

 
941

 

 
57,067

Provision for loan losses
57

 
447

 
94

 
213

 

 
811

Noninterest income
13,949

 
13,198

 
555

 
1,162

 

 
28,864

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
18,323

 
8,940

 
103

 
616

 

 
27,982

Equipment and occupancy expenses
5,490

 
433

 
1

 
65

 

 
5,989

Data processing and telecommunications expenses
5,794

 
364

 
26

 
1

 

 
6,185

Other expenses
11,533

 
1,303

 
26

 
181

 

 
13,043

Total noninterest expense
41,140

 
11,040

 
156

 
863

 

 
53,199

Income before income tax expense
24,405

 
4,336

 
2,153

 
1,027

 

 
31,921

Income tax expense
7,733

 
1,518

 
754

 
359

 

 
10,364

Net income
$
16,672

 
$
2,818

 
$
1,399

 
$
668

 
$

 
$
21,557

 

45



Net Interest Income and Margins
 
The following table sets forth the average balance, interest income or interest expense, and average yield/rate paid for each category of interest-earning assets and interest-bearing liabilities, net interest spread, and net interest margin on average interest-earning assets for the three months ended September 30, 2017 and 2016. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 35% federal tax rate.
 
Quarter Ended
September 30,
 
2017
 
2016
(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 and interest-bearing deposits  in banks
$
109,266

 
$
406

 
1.47%
 
$
90,551

 
$
155

 
0.68%
Investment securities
864,456

 
5,665

 
2.60%
 
857,433

 
4,872

 
2.26%
Loans held for sale
126,798

 
1,131

 
3.54%
 
105,859

 
826

 
3.10%
Loans
4,379,082

 
53,394

 
4.84%
 
2,897,771

 
33,672

 
4.62%
Purchased loans
937,595

 
14,048

 
5.94%
 
1,199,175

 
19,296

 
6.40%
Purchased loan pools
475,742

 
3,491

 
2.91%
 
629,666

 
4,346

 
2.75%
Total interest-earning assets
6,892,939

 
78,135

 
4.50%
 
5,780,455

 
63,167

 
4.35%
Noninterest-earning assets
568,428

 
 

 
 
 
549,895

 
 

 
 
Total assets
$
7,461,367

 
 

 
 
 
$
6,330,350

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 

 
 
 
 

 
 

 
 
Interest-bearing liabilities:
 

 
 

 
 
 
 

 
 

 
 
Savings and interest-bearing demand deposits
$
3,162,448

 
$
2,963

 
0.37%
 
$
2,787,323

 
$
1,719

 
0.25%
Time deposits
1,020,239

 
2,173

 
0.85%
 
887,685

 
1,355

 
0.61%
Federal funds purchased and securities sold under agreements to repurchase
19,414

 
11

 
0.22%
 
37,305

 
18

 
0.19%
FHLB advances
608,413

 
1,849

 
1.21%
 
265,202

 
393

 
0.59%
Other borrowings
75,590

 
1,183

 
6.21%
 
49,345

 
479

 
3.86%
Subordinated deferrable interest debentures
85,040

 
1,288

 
6.01%
 
83,719

 
1,179

 
5.60%
Total interest-bearing liabilities
4,971,144

 
9,467

 
0.76%
 
4,110,579

 
5,143

 
0.50%
Demand deposits
1,654,467

 
 

 
 
 
1,546,211

 
 

 
 
Other liabilities
38,900

 
 

 
 
 
33,178

 
 

 
 
Shareholders’ equity
796,856

 
 

 
 
 
640,382

 
 

 
 
Total liabilities and shareholders’ equity
$
7,461,367

 
 

 
 
 
$
6,330,350

 
 

 
 
Interest rate spread
 

 
 

 
3.74%
 
 

 
 

 
3.85%
Net interest income
 

 
$
68,668

 
 
 
 

 
$
58,024

 
 
Net interest margin
 

 
 

 
3.95%
 
 

 
 

 
3.99%
 
On a tax-equivalent basis, net interest income for the third quarter of 2017 was $68.7 million, an increase of $10.6 million, or 18.3%, compared with $58.0 million reported in the same quarter in 2016. The higher net interest income is a result of growth in average interest earning assets which increased $1.11 billion, or 19.2%, from $5.78 billion in the third quarter of 2016 to $6.89 billion for the third quarter of 2017. The Company’s net interest margin decreased during the third quarter of 2017 to 3.95%, compared with 3.99% reported in the third quarter of 2016 but remained stable compared with 3.95% reported in the second quarter of 2017.
 
Total interest income, on a tax-equivalent basis, increased to $78.1 million during the third quarter of 2017, compared with $63.2 million in the same quarter of 2016. Yields on earning assets increased to 4.50% during the third quarter of 2017, compared with 4.35% reported in the third quarter of 2016. During the third quarter of 2017, loans comprised 85.9% of earning assets, compared with 83.6% in the same quarter of 2016. This increase is a result of growth in average legacy loans which increased $1.48 billion, or 51.1%, to $4.38 billion in the third quarter 2017 from $2.90 billion in the same period of 2016. Yields on legacy loans increased to 4.84% in the third quarter of 2017, compared with 4.62% in the same period of 2016. The yield on purchased loans decreased from 6.40% in the third quarter of 2016 to 5.94% during the third quarter of 2017. Accretion income for the third quarter of 2017 was $2.7 million, compared with $3.6 million in the third quarter of 2016. Excluding the effect of accretion on purchased loans, the yield on purchased loans was 5.21% for the third quarter of 2016, compared with 4.79% in the same period of 2017. Yields on purchased loan pools increased from 2.75% in the third quarter of 2016 to 2.91% in the same period in 2017. Management anticipates improving economic conditions and increased loan demand will provide consistent interest income.

46




The yield on total interest-bearing liabilities increased from 0.50% in the third quarter of 2016 to 0.76% in the third quarter of 2017. Total funding costs, inclusive of noninterest bearing demand deposits, increased to 0.57% in the third quarter of 2017, compared with 0.36% during the third quarter of 2016. Deposit costs increased from 0.23% in the third quarter of 2016 to 0.35% in the third quarter of 2017. Non-deposit funding costs increased from 1.89% in the third quarter of 2016 to 2.18% in the third quarter of 2017. The increase in non-deposit funding costs was driven primarily by an increased utilization of short-term FHLB advances coupled with an increase in the average rate paid on other borrowings related to the March 2017 issuance of $75.0 million of 5.75% Fixed-To-Floating Rate Subordinated Notes due 2027. Ongoing efforts to maintain the percentage of funding from transaction deposits have succeeded such that non-CD deposits averaged 82.5% of total deposits in the third quarter of 2017, compared with 83.0% during the third quarter of 2016. Average balances of interest bearing deposits and their respective costs for the third quarter of 2017 and 2016 are shown below:
 
Three Months Ended
September 30, 2017
 
Three Months Ended
September 30, 2016
(dollars in thousands)
Average
Balance
 
Average
Cost
 
Average
Balance
 
Average
Cost
NOW
$
1,201,151

 
0.20%
 
$
1,085,828

 
0.16%
MMDA
1,682,306

 
0.55%
 
1,435,151

 
0.34%
Savings
278,991

 
0.07%
 
266,344

 
0.07%
Retail CDs < $100,000
437,641

 
0.62%
 
431,570

 
0.45%
Retail CDs > $100,000
582,598

 
1.01%
 
451,115

 
0.75%
Brokered CDs

 
—%
 
5,000

 
0.64%
Interest-bearing deposits
$
4,182,687

 
0.49%
 
$
3,675,008

 
0.33%
 
Provision for Loan Losses
 
The Company’s provision for loan losses during the third quarter of 2017 amounted to $1.8 million, compared with $2.2 million in the second quarter of 2017 and $811,000 in the third quarter of 2016. At September 30, 2017, classified loans still accruing totaled $45.8 million, compared with $43.3 million at December 31, 2016. Non-performing assets as a percentage of total assets decreased from 0.94% at December 31, 2016 to 0.75% at September 30, 2017. Net charge-offs on legacy loans during the third quarter of 2017 were approximately $1.6 million, or 0.15% of average legacy loans on an annualized basis, compared with approximately $371,000, or 0.05%, in the third quarter of 2016. The Company’s allowance for loan losses allocated to legacy loans at September 30, 2017 was $21.2 million, or 0.46% of legacy loans, compared with $20.5 million, or 0.56% of legacy loans, at December 31, 2016. The Company’s total allowance for loan losses at September 30, 2017 was $26.0 million, or 0.44% of total loans, increasing from $23.9 million, or 0.45% of total loans, at December 31, 2016.
 
Noninterest Income
 
Total non-interest income for the third quarter of 2017 was $27.0 million, a decrease of $1.9 million, or 6.5%, from the $28.9 million reported in the third quarter of 2016.  Service charges on deposit accounts in the third quarter of 2017 decreased $823,000, or 7.2%, to $10.5 million, compared with $11.4 million in the third quarter of 2016. This decrease in service charge revenue was primarily attributable to lower overdraft fee income. Income from mortgage-related activities decreased $727,000, or 5.2%, from $14.1 million in the third quarter of 2016 to $13.3 million in the third quarter of 2017. Total production in the third quarter of 2017 amounted to $401.7 million, compared with $410.8 million in the same quarter of 2016, while spread (gain on sale) decreased to 3.30% in the current quarter compared with 3.69% in the same quarter of 2016. The retail mortgage open pipeline finished the third quarter of 2017 at $158.4 million, compared with $174.3 million at the beginning of the third quarter of 2017 and $145.4 million at the end of the third quarter of 2016. Other service charges, commissions and fees decreased $92,000, or 11.6%, to $699,000 during the third quarter of 2017, compared with $791,000 during the third quarter of 2016. The decrease in other service charges, commissions and fees was primarily attributable to lower ATM fees, reflecting the Company's decision to waive ATM fees for customers during Hurricane Irma. Other non-interest income decreased $223,000, or 8.4%, to $2.4 million for the third quarter of 2017, compared with $2.6 million during the third quarter of 2016. The decrease in other non-interest income was primarily attributable to lower bank owned life insurance income and lower check order fee income.
 
Noninterest Expense
 
Total non-interest expenses for the third quarter of 2017 increased $10.6 million, or 19.9%, to $63.8 million, compared with $53.2 million in the same quarter 2016. Salaries and employee benefits increased $4.6 million, or 16.4%, from $28.0 million in the third quarter of 2016 to $32.6 million in the third quarter of 2017 due to staff additions for the premium finance division, increased staffing related to the Company’s ongoing BSA compliance efforts, higher incentive accruals for production staff, increased commissions in the mortgage and SBA divisions, and staff additions for the equipment finance line of business. Occupancy and

47



equipment expenses remained stable at $6.0 million for both the third quarter of 2017 and the third quarter of 2016. Tighter controls on expenses held increases in these costs to a minimum. Data processing and telecommunications expense increased $865,000, or 14.0%, to $7.1 million in the third quarter of 2017, compared with $6.2 million in the third quarter of 2016, due to an increase in the number of accounts being processed by our core banking system and additional software fees incurred related to the buildout of our BSA compliance program which we expect to stabilize. Credit resolution-related expenses decreased from $1.5 million in the third quarter of 2016 to $1.3 million in the third quarter of 2017. Other noninterest expenses increased $5.2 million from $9.3 million in the third quarter of 2016 to $14.5 million in the third quarter of 2017 due primarily to consulting fees related to BSA compliance resolution, management and licensing fees associated with the premium finance division and loan servicing fees associated with consumer installment home improvement loans serviced by an unrelated third party.

Income Taxes
 
Income tax expense is influenced by the amount of taxable income, the amount of tax-exempt income and the amount of non-deductible expenses. For the third quarter of 2017, the Company reported income tax expense of $8.1 million, compared with $10.4 million in the same period of 2016. This decrease in income tax expense is directly correlated to the decrease in pre-tax income for the periods. The Company’s effective tax rate for the three months ending September 30, 2017 and 2016 was 28.8% and 32.5%, respectively.
 
Results of Operations for the Nine Months Ended September 30, 2017 and 2016
 
Consolidated Earnings and Profitability
 
Ameris reported net income available to common shareholders of $64.4 million, or $1.74 per diluted share, for the nine months ended September 30, 2017, compared with $53.9 million, or $1.56 per diluted share, for the same period in 2016. The Company’s return on average assets and average shareholders’ equity were 1.20% and 11.39%, respectively, for the nine months ended September 30, 2017, compared with 1.19% and 12.01%, respectively, for the nine months ended September 30, 2016. During the nine months ended September 30, 2017, the Company incurred pre-tax merger and conversion charges of $494,000, pre-tax BSA compliance resolution expenses of $4.7 million, pre-tax Hurricane Irma expenses of $410,000, and pre-tax losses on the sale of premises of $956,000. During the nine months ended September 30, 2016, the Company incurred pre-tax merger and conversion charges of $6.4 million and pre-tax losses on the sale of premises of $562,000. Excluding these merger and conversion charges, compliance resolution expenses, Hurricane Irma expenses, and losses on the sale of premises, the Company’s net income would have been $68.7 million, or $1.86 per diluted share, and $58.4 million, or $1.69 per diluted share, for the first nine months of 2017 and 2016, respectively.
 
Below is a reconciliation of adjusted operating net income to net income, as discussed above.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands, except share and per share data)
2017
 
2016
 
2017
 
2016
Net income available to common shareholders
$
20,158

 
$
21,557

 
$
64,398

 
$
53,923

Adjustment items:
 

 
 

 
 

 
 

Merger and conversion charges
92

 

 
494

 
6,359

Certain compliance resolution expenses
4,729

 

 
4,729

 

Financial impact of Hurricane Irma
410

 

 
410

 

Losses on the sale of premises
91

 
238

 
956

 
562

Tax effect of management adjusted charges
(1,863
)
 
(83
)
 
(2,306
)
 
(2,422
)
After tax management-adjusted charges
3,459

 
155

 
4,283

 
4,499

Adjusted operating net income
$
23,617

 
$
21,712

 
$
68,681

 
$
58,422

 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
37,552,667

 
35,194,739

 
37,017,486

 
34,470,101

Earnings per diluted share
$
0.54

 
$
0.61

 
$
1.74

 
$
1.56

Adjusted operating net income per diluted share
$
0.63

 
$
0.62

 
$
1.86

 
$
1.69

 

48



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 first nine months of 2017 and 2016, respectively:
 
Nine Months Ended
September 30, 2017
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
 Finance
 Division
 
Total
Interest income
$
170,036

 
$
14,890

 
$
4,968

 
$
3,884

 
$
21,005

 
$
214,783

Interest expense
14,510

 
4,179

 
1,074

 
1,111

 
3,307

 
24,181

Net interest income
155,526

 
10,711

 
3,894

 
2,773

 
17,698

 
190,602

Provision for loan losses
4,510

 
617

 
159

 
98

 
444

 
5,828

Noninterest income
38,974

 
35,823

 
1,340

 
4,663

 
94

 
80,894

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
58,757

 
24,771

 
403

 
2,339

 
3,239

 
89,509

Equipment and occupancy expenses
16,068

 
1,684

 
3

 
159

 
145

 
18,059

Data processing and telecommunications expenses
18,778

 
1,182

 
80

 
12

 
598

 
20,650

Other expenses
34,355

 
3,030

 
137

 
533

 
6,326

 
44,381

Total noninterest expense
127,958

 
30,667

 
623

 
3,043

 
10,308

 
172,599

Income before income tax expense
62,032

 
15,250

 
4,452

 
4,295

 
7,040

 
93,069

Income tax expense
17,801

 
5,337

 
1,559

 
1,503

 
2,471

 
28,671

Net income
$
44,231

 
$
9,913

 
$
2,893

 
$
2,792

 
$
4,569

 
$
64,398

 
Nine Months Ended
September 30, 2016
(dollars in thousands)
Banking
Division
 
Retail
Mortgage
Division
 
Warehouse
Lending
Division
 
SBA
Division
 
Premium
Finance
Division
 
Total
Interest income
$
158,682

 
$
9,992

 
$
4,714

 
$
2,721

 
$

 
$
176,109

Interest expense
10,726

 
2,383

 
458

 
450

 

 
14,017

Net interest income
147,956

 
7,609

 
4,256

 
2,271

 

 
162,092

Provision for loan losses
1,471

 
540

 
94

 
276

 

 
2,381

Noninterest income
39,702

 
36,126

 
1,328

 
4,373

 

 
81,529

Noninterest expense
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
55,740

 
23,591

 
399

 
1,970

 

 
81,700

Equipment and occupancy expenses
16,541

 
1,326

 
3

 
190

 

 
18,060

Data processing and telecommunications expenses
17,299

 
974

 
71

 
3

 

 
18,347

Other expenses
39,040

 
3,392

 
77

 
542

 

 
43,051

Total noninterest expense
128,620

 
29,283

 
550

 
2,705

 

 
161,158

Income before income tax expense
57,567

 
13,912

 
4,940

 
3,663

 

 
80,082

Income tax expense
18,278

 
4,870

 
1,729

 
1,282

 

 
26,159

Net income
$
39,289

 
$
9,042

 
$
3,211

 
$
2,381

 
$

 
$
53,923

 
Interest Income
 
Interest income, on a tax-equivalent basis, for the nine months ended September 30, 2017 was $219.7 million, an increase of $41.0 million, or 22.9%, as compared with $178.7 million for the same period in 2016. Average earning assets for the nine-month period increased $1.12 billion, or 20.4%, to $6.61 billion as of September 30, 2017, compared with $5.49 billion as of September 30, 2016. The increase in average earning assets is due to organic growth in the loan portfolio coupled with acquisition activity during the first quarter of 2016. Yield on average earning assets increased to 4.44% for the nine months ended September 30, 2017, compared with 4.35% in the first nine months of 2016. The increase in the yield on average earning assets was primarily attributable to the growth in legacy loans.
 
Interest Expense
 
Total interest expense for the nine months ended September 30, 2017 amounted to $24.2 million, reflecting a $10.2 million increase from the $14.0 million expense recorded in the same period of 2016. During the nine-month period ended September 30, 2017, the Company’s funding costs increased to 0.51% from 0.35% reported in 2016. Deposit costs increased to 0.32% during the nine-month period ended September 30, 2017, compared with 0.23% during the same period in 2016. Total non-deposit funding costs decreased to 1.99% during the nine-month period ended September 30, 2017, compared with 2.36% during the first nine months of 2016. The decrease in non-deposit funding costs was driven primarily by an increased utilization of lower rate short-term FHLB advances.
 

49



Net Interest Income
 
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, 2017 and 2016. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 35% federal tax rate.
 
Nine Months Ended
September 30,
 
2017
 
2016
(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 and interest-bearing deposits in banks
$
126,014

 
$
1,070

 
1.14%
 
$
134,060

 
$
659

 
0.66%
Investment securities
864,684

 
16,917

 
2.62%
 
840,688

 
15,227

 
2.42%
Loans held for sale
105,296

 
2,842

 
3.61%
 
96,340

 
2,402

 
3.33%
Loans
4,018,597

 
143,806

 
4.78%
 
2,642,498

 
93,887

 
4.75%
Purchased loans
982,033

 
43,986

 
5.99%
 
1,147,821

 
53,348

 
6.21%
Purchased loan pools
513,750

 
11,109

 
2.89%
 
629,118

 
13,220

 
2.81%
Total interest-earning assets
6,610,374

 
219,730

 
4.44%
 
5,490,525

 
178,743

 
4.35%
Noninterest-earning assets
569,956

 
 

 
 
 
539,656

 
 

 
 
Total assets
$
7,180,330

 
 

 
 
 
$
6,030,181

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 

 
 
 
 

 
 

 
 
Interest-bearing liabilities:
 

 
 

 
 
 
 

 
 

 
 
Savings and interest-bearing demand deposits
$
3,048,284

 
$
7,614

 
0.33%
 
$
2,740,368

 
$
4,922

 
0.24%
Time deposits
994,770

 
5,865

 
0.79%
 
872,209

 
3,808

 
0.58%
Federal funds purchased and securities sold under agreements to repurchase
29,612

 
44

 
0.20%
 
44,433

 
77

 
0.23%
FHLB advances
539,496

 
3,994

 
0.99%
 
126,855

 
571

 
0.60%
Other borrowings
66,420

 
2,900

 
5.84%
 
47,809

 
1,333

 
3.72%
Subordinated deferrable interest debentures
84,712

 
3,764

 
5.94%
 
79,912

 
3,306

 
5.53%
Total interest-bearing liabilities
4,763,294

 
24,181

 
0.68%
 
3,911,586

 
14,017

 
0.48%
Demand deposits
1,624,837

 
 

 
 
 
1,490,152

 
 

 
 
Other liabilities
36,046

 
 

 
 
 
28,626

 
 

 
 
Shareholders’ equity
756,153

 
 

 
 
 
599,817

 
 

 
 
Total liabilities and shareholders’ equity
$
7,180,330

 
 

 
 
 
$
6,030,181

 
 

 
 
Interest rate spread
 

 
 

 
3.76%
 
 

 
 

 
3.87%
Net interest income
 

 
$
195,549

 
 
 
 

 
$
164,726

 
 
Net interest margin
 

 
 

 
3.96%
 
 

 
 

 
4.01%
 
For the year-to-date period ending September 30, 2017, the Company reported $195.5 million of net interest income on a tax-equivalent basis, an increase of $30.8 million, or 18.7%, compared with $164.7 million of net interest income for the same period in 2016.  The average balance of earning assets increased $1.12 billion, or 20.4%, from $5.49 billion during the first nine months of 2016 to $6.61 billion during the first nine months of 2017. The increase in average earning assets is due to organic growth in the loan portfolio coupled with acquisition activity during the first quarter of 2016. The Company’s net interest margin decreased to 3.96% in the nine-month period ending September 30, 2017, compared with 4.01% in the same period in 2016. The decrease in the net interest margin was primarily attributable to the increase in yield on interest-bearing liabilities.
 
Provision for Loan Losses
 
The provision for loan losses increased to $5.8 million for the nine months ended September 30, 2017, compared with $2.4 million in the same period in 2016. For the nine-month period ended September 30, 2016, the Company had legacy net charge-offs totaling $3.9 million, compared with $1.9 million for the same period in 2016. Annualized legacy net charge-offs as a percentage of average legacy loans increased to 0.13% during the first nine months of 2017, compared with 0.10% during the first nine months of 2016. For the nine-month period ended September 30, 2017, the Company had total loan net charge-offs totaling $3.8 million, compared with $480,000 for the same period in 2016. Annualized total loan net charge-offs as a percentage of average total loans increased to 0.09% during the first nine months of 2017, compared with 0.01% during the first nine months of 2016. Non-performing assets declined to $57.6 million at September 30, 2017, compared with $66.6 million at September 30, 2016.

50




Noninterest Income
 
Non-interest income for the first nine months of 2017 decreased $635,000, or 0.8%, to $80.9 million, compared with $81.5 million in the same period in 2016. Service charges on deposit accounts remained stable at $31.7 million for both the first nine months of 2017 and the first nine months of 2016.  However, service charge revenues on both commercial and consumer accounts increased, while overdraft fee income declined. Income from mortgage banking activity increased slightly from $38.4 million in the first nine months of 2016 to $38.5 million in the first nine months of 2017, due to higher levels of production. Other service charges, commissions and fees decreased $732,000, or 25.5%, to $2.1 million in the first nine months of 2017, compared with $2.9 million in the first nine months of 2016. The decrease in other service charges, commissions and fees was primarily attributable to lower ATM fees and lower brokerage income. Other non-interest income increased slightly from $8.4 million during the first nine months of 2016 to $8.5 million during the first nine months of 2017.
 
Noninterest Expense
 
Total operating expenses for the first nine months of 2017 increased $11.4 million, or 7.1%, to $172.6 million, compared with $161.2 million in the same period in 2016. Salaries and benefits for the first nine months of 2017 increased $7.8 million as compared with the first nine months of 2016 due to staff additions for the premium finance division, increased staffing related to the Company’s ongoing BSA compliance efforts, staff additions for the equipment finance line of business, and the acquisition of Jacksonville Bancorp, Inc. (“JAXB”) during the first quarter of 2016. Occupancy and equipment expenses remained stable at $18.1 million for both the first nine months of 2017 and the first nine months of 2016. Data processing and telecommunications expenses increased from $18.3 million in the first nine months of 2016 to $20.7 million in the first nine months of 2017. Credit resolution-related expenses, including problem loan and OREO expense and OREO write-downs and losses, decreased to $2.9 million for the first nine months of 2017, compared with $5.1 million in the first nine months of 2016. Advertising and marketing expenses increased from $2.9 million for the first nine months of 2016 to $3.6 million for the first nine months of 2017. Amortization of intangible assets for the first nine months of 2017 decreased $342,000 as compared with the first nine months of 2016. Merger and conversion charges were $494,000 and $6.4 million for the nine months ended September 30, 2017 and 2016, respectively, reflecting the first quarter 2016 acquisition of JAXB. Other noninterest expense increased $9.0 million for the first nine months of 2017 as compared with the first nine months of 2016 due primarily to consulting fees related to BSA compliance resolution, management and licensing fees associated with the premium finance division, and loan servicing fees associated with consumer installment home improvement loans serviced by an unrelated third party.
 
Income Taxes
 
In the first nine months of 2017, the Company recorded income tax expense of $28.7 million, compared with $26.2 million in the same period of 2016. This increase in income tax expense is directly correlated to the increase in pre-tax income for the periods. The Company’s effective tax rate for the nine months ended September 30, 2017 and 2016 was 30.8% and 32.7%, respectively.

Financial Condition as of September 30, 2017
 
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. Equity securities, including restricted equity securities, are classified as other investment securities and are recorded at the lower of cost or market value.
 
The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the life of the securities. Realized gains and losses, determined on the basis of the cost of specific securities sold, are included in earnings on the trade date. Declines in the fair value of securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses.
 
In determining whether other-than-temporary impairment losses exist, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Substantially all of the unrealized losses on debt securities are related to

51



changes in interest rates and do not affect the expected cash flows of the issuer or underlying collateral. All unrealized losses are considered temporary because each security carries an acceptable investment grade and the Company does not intend to sell these investment securities at an unrealized loss position at September 30, 2017, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at September 30, 2017, these investments are not considered impaired on an other-than temporary basis.
 
The following table illustrates certain information regarding the Company’s investment portfolio with respect to yields, sensitivities and expected cash flows over the next twelve months assuming constant prepayments and maturities:
(dollars in thousands)
Amortized Cost
 
Fair
Value
 
Book
Yield
 
Modified
Duration
 
Estimated
Cash
Flows
12 Months
September 30, 2017
 
 
 
 
 
 
 
 
 
U.S. government sponsored agencies
$
1,000

 
$
1,004

 
3.20%
 
0.19
 
$
1,000

State, county and municipal securities
140,190

 
143,387

 
4.06%
 
4.82
 
14,048

Corporate debt securities
46,704

 
47,249

 
4.00%
 
5.34
 
3,000

Mortgage-backed securities
626,927

 
627,953

 
2.34%
 
3.91
 
102,846

Total debt securities
$
814,821

 
$
819,593

 
2.73%
 
4.14
 
$
120,894

 
 
 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 
 
 
 
 

U.S. government sponsored agencies
$
999

 
$
1,020

 
3.20%
 
0.92
 
$
1,000

State, county and municipal securities
149,899

 
152,035

 
3.73%
 
5.34
 
7,884

Corporate debt securities
32,375

 
32,172

 
2.94%
 
4.87
 
2,000

Mortgage-backed securities
641,362

 
637,508

 
2.38%
 
4.33
 
94,081

Total debt securities
$
824,635

 
$
822,735

 
2.65%
 
4.53
 
$
104,965

 
Loans and Allowance for Loan Losses
 
At September 30, 2017, gross loans outstanding (including purchased loans, purchased loan pools, and loans held for sale) were $6.09 billion, an increase from $5.37 billion reported at December 31, 2016. Loans held for sale increased from $105.9 million at December 31, 2016 to $137.4 million at September 30, 2017. Legacy loans (excluding purchased loans and purchased loan pools) increased $947.9 million, from $3.63 billion at December 31, 2016 to $4.57 billion at September 30, 2017, driven primarily by increased growth in commercial, financial and agricultural, construction and development, residential real estate, and commercial real estate loan categories. Purchased loans decreased $152.1 million, from $1.07 billion at December 31, 2016 to $917.1 million at September 30, 2017, due to paydowns of $155.0 million, transfers to other real estate owned of $4.3 million and charge-offs of $1.8 million, partially offset by accretion of $9.0 million. Purchased loan pools decreased $103.1 million, from $568.3 million at December 31, 2016 to $465.2 million at September 30, 2017 due to payments on the portfolio of $95.5 million and premium amortization of $2.9 million during the first nine months of 2017.
 
The Company regularly monitors the composition of the loan portfolio to evaluate the adequacy of the allowance for loan losses in light of the impact that changes in the economic environment may have on the loan portfolio. The Company focuses on the following loan categories: (1) commercial, financial and agricultural; (2) construction and development related real estate; (3) commercial and farmland real estate; (4) residential real estate; and (5) consumer. The Company’s management has strategically located its branches in select markets in South and Southeast Georgia, North Florida, Southeast Alabama and throughout South Carolina to take advantage of the growth in these areas.
 
The Company’s risk management processes include a loan review program designed to evaluate the credit risk in the loan portfolio and ensure credit grade accuracy. Through the loan review process, the Company conducts (1) a loan portfolio summary analysis, (2) charge-off and recovery analysis, (3) trends in accruing problem loan analysis, and (4) problem and past-due loan analysis. This analysis process serves as a tool to assist management in assessing the overall quality of the loan portfolio and the adequacy of the allowance for loan losses. Loans classified as “substandard” are loans which are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses and/or questionable collateral values. Loans classified as “doubtful” are those loans that have characteristics similar to substandard loans but have an increased risk of loss. Loans classified as “loss” are those loans which are considered uncollectible and are in the process of being charged-off.
 
The allowance for loan losses is a reserve established through charges to earnings in the form of a provision for loan losses. The provision for loan losses is based on management’s evaluation of the size and composition of the loan portfolio, the level of non-performing and past-due loans, historical trends of charged-off loans and recoveries, prevailing economic conditions and other

52



factors management deems appropriate. The Company’s management has established an allowance for loan losses which it believes is adequate for the probable incurred losses in the loan portfolio. Based on a credit evaluation of the loan portfolio, management presents a monthly review of the allowance for loan losses to the Company’s Board of Directors, which primarily focuses on risk by evaluating individual loans in certain risk categories. These categories have also been established by management and take the form of loan grades. By grading the loan portfolio in this manner the Company’s management is able to effectively evaluate the portfolio by risk, which management believes is the most effective way to analyze the loan portfolio and thus analyze the adequacy of the allowance for loan losses.
 
The allowance for loan losses is established by examining (1) the large classified loans, nonaccrual loans and loans considered impaired and evaluating them individually to determine the specific reserve allocation and (2) the remainder of the loan portfolio to allocate a portion of the allowance based on past loss experience and the economic conditions for the particular loan category. The Company also considers other factors such as changes in lending policies and procedures; changes in national, regional and/or local economic and business conditions; changes in the nature and volume of the loan portfolio; changes in the experience, ability and depth of either the market president or lending staff; changes in the volume and severity of past-due and classified loans; changes in the quality of the Company’s corporate loan review system; and other factors management deems appropriate.
 
At the end of the third quarter of 2017, the allowance for loan losses allocated to legacy loans totaled $21.2 million, or 0.46% of legacy loans, compared with $20.5 million, or 0.56% of legacy loans, at December 31, 2016. The decrease in the allowance for loan losses as a percentage of legacy loans reflects improvement in the credit risk of our portfolio, both from the mix of loan and collateral types and the credit quality of the loan portfolio. Our legacy nonaccrual loans decreased from $18.1 million at December 31, 2016 to $15.3 million at September 30, 2017. For the first nine months of 2017, our legacy net charge off ratio as a percentage of average legacy loans increased to 0.13%, compared with 0.10% for the first nine months of 2016. The total provision for loan losses for the first nine months of 2017 increased to $5.8 million, compared with $2.4 million for the first nine months of 2016. Our ratio of total nonperforming assets to total assets decreased from 0.94% at December 31, 2016 to 0.75% at September 30, 2017.
 
The balance of the allowance for loan losses allocated to loans collectively evaluated for impairment increased 11.8%, or $2.1 million, during the first nine months of 2017, while the balance of loans collectively evaluated for impairment increased 14.3%, or $723.9 million, during the same period. A significant portion of the loan growth was concentrated in lower risk categories such as commercial premium finance loans and municipal loans which did not require as large of an allowance for loan losses as other categories of loans. In addition to the change of type of loan growth, we also experienced a decline in our historical loss rates across nearly all loan portfolios. We consider a four year loss rate on all loan categories and our charge off ratios have been declining over that period. We have adjusted the qualitative factors to account for the inherent risks in the portfolio that are not captured in the historical loss rates, such as weak commodity prices for agriculture products, growth rates of certain loan types and other factors management deems appropriate. As a percentage of all loans collectively evaluated for impairment, the allowance allocated to those loans declined 1 basis point from 0.35% at December 31, 2016 to 0.34% at September 30, 2017. The largest decrease was in the legacy construction and development real estate category, which decreased from 0.75% at December 31, 2016 to 0.58% at September 30, 2017. The reason for this decline is the positive trend in net losses within that category.
 
The balance of the allowance for loan losses allocated to loans individually evaluated for impairment decreased slightly by 0.2%, or $12,000, during the first nine months of 2017, while the balance of loans individually evaluated for impairment decreased 7.4%, or $4.5 million, during the same period. Although the total allowance for loan losses allocated to loans individually evaluated for impairment changed by only $12,000 from December 31, 2016 to September 30, 2017, the amount allocated for the legacy residential real estate category declined by $1.8 million, while the amount allocated for purchased loans increased by $1.6 million.

53



The following tables present an analysis of the allowance for loan losses as of and for the nine months ended September 30, 2017 and 2016:
 
Nine Months Ended
September 30,
(dollars in thousands)
2017
 
2016
Balance of allowance for loan losses at beginning of period
$
23,920

 
$
21,062

Provision charged to operating expense
5,828

 
2,381

Charge-offs:
 

 
 

Commercial, financial and agricultural
1,896

 
1,273

Real estate – construction and development
95

 
324

Real estate – commercial and farmland
413

 
708

Real estate – residential
2,031

 
883

Consumer installment and Other
922

 
192

Purchased loans
1,472

 
1,261

Purchased loan pools

 

Total charge-offs
6,829

 
4,641

Recoveries:
 

 
 

Commercial, financial and agricultural
699

 
279

Real estate – construction and development
244

 
474

Real estate – commercial and farmland
156

 
191

Real estate – residential
190

 
368

Consumer installment and Other
78

 
119

Purchased loans
1,680

 
2,730

Purchased loan pools

 

Total recoveries
3,047

 
4,161

Net charge-offs
3,782

 
480

Balance of allowance for loan losses at end of period
$
25,966

 
$
22,963

 
 
As of and for the
Nine Months Ended
September 30, 2017
(dollars in thousands)
Legacy
Loans
 
Purchased
Loans
 
Purchased
Loan
Pools
 
Total
Allowance for loan losses at end of period
$
21,227

 
$
3,262

 
$
1,477

 
$
25,966

Net charge-offs (recoveries) for the period
3,990

 
(208
)
 

 
3,782

Loan balances:
 

 
 

 
 

 
 

End of period
4,574,678

 
917,126

 
465,218

 
5,957,022

Average for the period
4,018,597

 
982,033

 
513,750

 
5,514,380

Net charge-offs as a percentage of average loans
0.13
%
 
(0.03
)%
 
0.00
%
 
0.09
%
Allowance for loan losses as a percentage of end of period loans
0.46
%
 
0.36
 %
 
0.32
%
 
0.44
%
 
 
As of and for the
Nine Months Ended
September 30, 2016
(dollars in thousands)
Legacy
Loans
 
Purchased
Loans
 
Purchased
Loan
Pools 
 
Total
Allowance for loan losses at end of period
$
19,433

 
$
1,522

 
$
2,008

 
$
22,963

Net charge-offs (recoveries) for the period
1,949

 
(1,469
)
 

 
480

Loan balances:
 

 
 

 
 

 
 

End of period
3,091,039

 
1,129,381

 
624,886

 
4,845,306

Average for the period
2,642,498

 
1,147,821

 
629,118

 
4,419,437

Net charge-offs as a percentage of average loans
0.10
%
 
(0.17
)%
 
0.00
%
 
0.01
%
Allowance for loan losses as a percentage of end of period loans
0.63
%
 
0.13
 %
 
0.32
%
 
0.47
%
 


54



Purchased Assets
 
Loans that were acquired in transactions, including those that are covered by the loss-sharing agreements with the FDIC (“purchased loans”), totaled $917.1 million and $1.07 billion at September 30, 2017 and December 31, 2016, respectively. OREO that was acquired in transactions, including OREO that is covered by the loss-sharing agreements with the FDIC, totaled $9.9 million and $12.5 million, at September 30, 2017 and December 31, 2016, respectively.
 
The Bank initially recorded purchased loans at their fair values, taking into consideration certain credit quality, risk and liquidity marks. The Company believes its estimation of credit risk and its adjustments to the carrying balances of the acquired loans are adequate. If the Company determines that a loan or group of loans has deteriorated from its initial assessment of fair value, a reserve for loan losses will be established to account for that difference. If the Company determines that a loan or group of loans has improved from its initial assessment of fair value, then the increase in cash flows over those expected at the acquisition date is recognized as interest income prospectively. During the nine months ended September 30, 2017, the Company recorded for purchased loans a provision for loan loss of $745,000. During the nine months ended September 30, 2016, the Company recorded for purchased loans a reduction in provision for loan loss of $654,000 due to recoveries exceeding charge-offs for purchased loans.
 
Purchased loans are shown below according to loan type as of the end of the periods shown:
 
(dollars in thousands)
September 30,
2017
 
December 31, 2016
Commercial, financial and agricultural
$
80,895

 
$
96,537

Real estate – construction and development
68,583

 
81,368

Real estate – commercial and farmland
500,169

 
576,355

Real estate – residential
264,312

 
310,277

Consumer installment
3,167

 
4,654

 
$
917,126

 
$
1,069,191

 
Purchased Loan Pools
 
Purchased loan pools are defined as groups of residential mortgage loans that were not acquired in bank acquisitions or FDIC-assisted transactions. As of September 30, 2017, purchased loan pools totaled $465.2 million and consisted of whole-loan, adjustable rate residential mortgages on properties outside the Company’s markets, with principal balances totaling $459.1 million and $6.1 million of remaining purchase premium paid at acquisition. As of December 31, 2016, purchased loan pools totaled $568.3 million and consisted of whole-loan, adjustable rate residential mortgages on properties outside the Company’s markets, with principal balances totaling $559.4 million and $8.9 million of remaining purchase premium paid at acquisition. The Company has allocated approximately $1.5 million and $1.8 million of the allowance for loan losses to the purchased loan pools at September 30, 2017 and December 31, 2016, respectively.
 
Non-Performing Assets

Non-performing assets include nonaccrual loans, accruing loans contractually past due 90 days or more, repossessed personal property, and other real estate owned. Loans are placed on nonaccrual status when management has concerns relating to the ability to collect the principal and interest and generally when such loans are 90 days or more past due. Management performs a detailed review and valuation assessment of impaired loans on a quarterly basis and recognizes losses when impairment is identified. A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against current income.
 
Nonaccrual loans, excluding purchased loans, totaled $15.3 million at September 30, 2017, a decrease of 15.4% from $18.1 million reported at December 31, 2016. Nonaccrual purchased loans totaled $19.0 million at September 30, 2017, a decrease of 17.1%, compared with $23.0 million at December 31, 2016. At September 30, 2017, OREO, excluding purchased OREO, totaled $9.4 million, compared with $10.9 million at December 31, 2016. Purchased OREO totaled $9.9 million at September 30, 2017, compared with $12.5 million at December 31, 2016. 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 2017, total non-performing assets decreased to 0.75% of total assets, compared with 0.94% at December 31, 2016.
 

55



Non-performing assets at September 30, 2017 and December 31, 2016 were as follows:
(dollars in thousands)
September 30,
2017
 
December 31, 2016
Nonaccrual loans, excluding purchased loans
$
15,325

 
$
18,114

Nonaccrual purchased loans
19,049

 
22,966

Nonaccrual purchased loan pools
915

 

Accruing loans delinquent 90 days or more, excluding purchased loans
2,941

 

Accruing purchased loans delinquent 90 days or more

 

Foreclosed assets, excluding purchased assets
9,391

 
10,874

Purchased other real estate owned
9,946

 
12,540

Total non-performing assets
$
57,567

 
$
64,494

 
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, 2017 and December 31, 2016, the Company had a balance of $14.2 million and $18.2 million, respectively, in troubled debt restructurings, excluding purchased loans. The following table presents the amount of troubled debt restructurings by loan class, excluding purchased loans, classified separately as accrual and nonaccrual at September 30, 2017 and December 31, 2016
September 30, 2017
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
4
 
$
44

 
13
 
$
129

Real estate – construction and development
7
 
424

 
2
 
34

Real estate – commercial and farmland
16
 
4,769

 
5
 
210

Real estate – residential
78
 
7,209

 
16
 
1,212

Consumer installment
4
 
6

 
36
 
130

Total
109
 
$
12,452

 
72
 
$
1,715

December 31, 2016
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
4
 
$
47

 
15
 
$
114

Real estate – construction and development
8
 
686

 
2
 
34

Real estate – commercial and farmland
16
 
4,119

 
5
 
2,970

Real estate – residential
82
 
9,340

 
15
 
739

Consumer installment
7
 
17

 
32
 
130

Total
117
 
$
14,209

 
69
 
$
3,987



56



The following table presents the amount of troubled debt restructurings by loan class, excluding purchased loans, classified separately as those currently paying under restructured terms and those that have defaulted (defined as 30 days past due) under restructured terms at September 30, 2017 and December 31, 2016:
September 30, 2017
Loans Currently Paying
Under Restructured Terms
 
Loans that have Defaulted Under Restructured Terms
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
8
 
$
56

 
9
 
$
117

Real estate – construction and development
6
 
399

 
3
 
59

Real estate – commercial and farmland
17
 
4,778

 
4
 
201

Real estate – residential
80
 
7,425

 
14
 
996

Consumer installment
25
 
74

 
15
 
62

Total
136
 
$
12,732

 
45
 
$
1,435

 
December 31, 2016
Loans Currently Paying
Under Restructured Terms
 
Loans that have Defaulted Under Restructured Terms
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
12
 
$
82

 
7
 
$
79

Real estate – construction and development
8
 
686

 
2
 
34

Real estate – commercial and farmland
16
 
4,119

 
5
 
2,970

Real estate – residential
84
 
9,248

 
13
 
831

Consumer installment
25
 
76

 
14
 
71

Total
145
 
$
14,211

 
41
 
$
3,985

 
The following table presents the amount of troubled debt restructurings, excluding purchased loans, by types of concessions made, classified separately as accrual and nonaccrual at September 30, 2017 and December 31, 2016
September 30, 2017
Accruing Loans
 
Non-Accruing Loans
Type of Concession
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Forbearance of interest
12
 
$
2,622

 
4
 
$
172

Forgiveness of principal
3
 
1,256

 
 

Forbearance of principal
5
 
75

 
5
 
644

Rate reduction only
13
 
1,580

 
1
 
29

Rate reduction, forbearance of interest
33
 
2,431

 
20
 
491

Rate reduction, forbearance of principal
7
 
1,465

 
35
 
249

Rate reduction, forgiveness of interest
36
 
3,023

 
3
 
119

Rate reduction, forgiveness of principal
 

 
4
 
11

Total
109
 
$
12,452

 
72
 
$
1,715

 
December 31, 2016
Accruing Loans
 
Non-Accruing Loans
Type of Concession
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Forbearance of interest
11
 
$
1,685

 
5
 
$
146

Forgiveness of principal
3
 
1,303

 
 

Forbearance of principal
8
 
2,210

 
9
 
315

Rate reduction only
12
 
1,573

 
1
 
29

Rate reduction, forbearance of interest
38
 
2,618

 
21
 
1,647

Rate reduction, forbearance of principal
8
 
1,734

 
29
 
1,506

Rate reduction, forgiveness of interest
37
 
3,086

 
3
 
341

Rate reduction, forgiveness of principal
 

 
1
 
3

Total
117
 
$
14,209

 
69
 
$
3,987



57



The following table presents the amount of troubled debt restructurings, excluding purchased loans, by collateral types, classified separately as accrual and nonaccrual at September 30, 2017 and December 31, 2016
September 30, 2017
Accruing Loans
 
Non-Accruing Loans
Collateral Type
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Warehouse
3
 
$
445

 
1
 
$
80

Raw land
9
 
723

 
2
 
34

Hotel and motel
3
 
1,411

 
 

Office
4
 
667

 
 

Retail, including strip centers
5
 
2,189

 
3
 
85

1-4 family residential
78
 
7,002

 
18
 
1,259

Automobile/equipment/CD
6
 
13

 
47
 
255

Unsecured
1
 
2

 
1
 
2

Total
109
 
$
12,452

 
72
 
$
1,715

 
December 31, 2016
Accruing Loans
 
Non-Accruing Loans
Collateral Type
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Warehouse
5
 
$
763

 
 
$

Raw land
9
 
742

 
2
 
34

Apartments
 

 
3
 
1,505

Hotel and motel
3
 
1,525

 
 

Office
3
 
477

 
 

Retail, including strip centers
4
 
1,298

 
 

1-4 family residential
82
 
9,340

 
17
 
746

Church
 

 
2
 
1,465

Automobile/equipment/CD
10
 
61

 
44
 
233

Unsecured
1
 
3

 
1
 
4

Total
117
 
$
14,209

 
69
 
$
3,987

 
As of September 30, 2017 and December 31, 2016, the Company had a balance of $26.0 million and $28.1 million, respectively, in troubled debt restructurings included in purchased loans. The following table presents the amount of troubled debt restructurings by loan class of purchased loans, classified separately as accrual and nonaccrual at September 30, 2017 and December 31, 2016
September 30, 2017
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
 
$

 
3
 
$
18

Real estate – construction and development
3
 
1,022

 
6
 
349

Real estate – commercial and farmland
15
 
6,308

 
11
 
3,834

Real estate – residential
119
 
12,875

 
25
 
1,627

Consumer installment
 

 
2
 
6

Total
137
 
$
20,205

 
47
 
$
5,834

 
December 31, 2016
Accruing Loans
 
Non-Accruing Loans
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
1
 
$
1

 
4
 
$
91

Real estate – construction and development
6
 
1,358

 
3
 
30

Real estate – commercial and farmland
20
 
8,460

 
5
 
2,402

Real estate – residential
123
 
13,713

 
33
 
2,077

Consumer installment
3
 
11

 
1
 

Total
153
 
$
23,543

 
46
 
$
4,600

 

58



The following table presents the amount of troubled debt restructurings by loan class of purchased loans, classified separately as those currently paying under restructured terms and those that have defaulted (defined as 30 days past due) under restructured terms at September 30, 2017 and December 31, 2016
September 30, 2017
Loans Currently Paying
 Under Restructured Terms
 
Loans that have Defaulted Under Restructured Terms
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
1
 
$
12

 
2
 
$
6

Real estate – construction and development
8
 
1,365

 
1
 
6

Real estate – commercial and farmland
21
 
8,197

 
5
 
1,945

Real estate – residential
127
 
13,340

 
17
 
1,162

Consumer installment
1
 
3

 
1
 
3

Total
158
 
$
22,917

 
26
 
$
3,122

 
December 31, 2016
Loans Currently Paying
Under Restructured Terms
 
Loans that have Defaulted Under Restructured Terms
Loan Class
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Commercial, financial and agricultural
3
 
$
16

 
2
 
$
76

Real estate – construction and development
8
 
1,378

 
1
 
9

Real estate – commercial and farmland
25
 
10,862

 
 

Real estate – residential
126
 
13,484

 
30
 
2,306

Consumer installment
4
 
11

 
 

Total
166
 
$
25,751

 
33
 
$
2,391

 
The following table presents the amount of troubled debt restructurings included in purchased loans, by types of concessions made, classified separately as accrual and nonaccrual at September 30, 2017 and December 31, 2016
September 30, 2017
Accruing Loans
 
Non-Accruing Loans
Type of Concession
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Forbearance of interest
4
 
$
189

 
9
 
$
1,772

Forgiveness of principal
 

 
1
 
63

Forbearance of principal
6
 
1,934

 
5
 
1,588

Forbearance of principal, extended amortization
2
 
375

 
1
 
298

Rate reduction only
72
 
11,607

 
16
 
1,465

Rate reduction, forbearance of interest
19
 
1,913

 
10
 
454

Rate reduction, forbearance of principal
10
 
2,211

 
5
 
194

Rate reduction, forgiveness of interest
24
 
1,976

 
 

Total
137
 
$
20,205

 
47
 
$
5,834

December 31, 2016
Accruing Loans
 
Non-Accruing Loans
Type of Concession
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Forbearance of interest
12
 
$
3,553

 
4
 
$
207

Forbearance of principal
7
 
2,003

 
5
 
1,528

Forbearance of principal, extended amortization
1
 
78

 
1
 
323

Rate reduction only
78
 
12,710

 
13
 
1,385

Rate reduction, forbearance of interest
20
 
1,387

 
19
 
632

Rate reduction, forbearance of principal
11
 
1,617

 
3
 
231

Rate reduction, forgiveness of interest
24
 
2,195

 
1
 
294

Total
153
 
$
23,543

 
46
 
$
4,600

 

59



The following table presents the amount of troubled debt restructurings included in purchased loans, by collateral types, classified separately as accrual and nonaccrual at September 30, 2017 and December 31, 2016
September 30, 2017
Accruing Loans
 
Non-Accruing Loans
Collateral Type
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Warehouse
2
 
$
369

 
 
$

Raw land
3
 
1,045

 
7
 
846

Hotel and motel
1
 
151

 
1
 
497

Office
2
 
470

 
2
 
505

Retail, including strip centers
8
 
5,074

 
1
 
169

1-4 family residential
121
 
13,096

 
28
 
2,356

Church
 

 
2
 
1,390

Automobile/equipment/CD
 

 
6
 
71

Total
137
 
$
20,205

 
47
 
$
5,834

 
December 31, 2016
Accruing Loans
 
Non-Accruing Loans
Collateral Type
#
 
Balance
(in thousands)
 
#
 
Balance
(in thousands)
Warehouse
4
 
$
1,532

 
 
$

Raw land
7
 
1,919

 
4
 
86

Hotel and motel
1
 
154

 
1
 
558

Office
3
 
967

 
 

Retail, including strip centers
7
 
4,489

 
1
 
197

1-4 family residential
127
 
14,470

 
33
 
2,318

Church
 

 
1
 
1,298

Automobile/equipment/CD
4
 
12

 
6
 
143

Total
153
 
$
23,543

 
46
 
$
4,600

 
Commercial Lending Practices

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

Banks that are subject to the CRE guidance criteria are required to implement enhanced strategic planning, CRE underwriting policies, risk management and internal controls, portfolio stress testing, risk exposure limits, and other policies, including management compensation and incentives, to address the CRE risks. Higher allowances for loan losses and capital levels may also be appropriate.
 
As of September 30, 2017, the Company exhibited a concentration in the CRE loan category based on Federal Reserve Call codes. The primary risks of CRE lending are:
 
(1)
within CRE loans, construction and development loans are somewhat dependent upon continued strength in demand for residential real estate, which is reliant on favorable real estate mortgage rates and changing population demographics;
(2)
on average, CRE loan sizes are generally larger than non-CRE loan types; and
(3)
certain construction and development loans may be less predictable and more difficult to evaluate and monitor.


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The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of September 30, 2017 and December 31, 2016. The loan categories and concentrations below are based on Federal Reserve Call codes and include purchased loans: 
 
September 30,
2017
 
December 31,
2016
(dollars in thousands)
Balance
 
% of Total
Loans
 
Balance
 
% of Total
Loans
Construction and development loans
$
618,772

 
10%
 
$
444,412

 
8%
Multi-family loans
160,577

 
3%
 
130,723

 
3%
Nonfarm non-residential loans (excluding owner occupied)
1,012,661

 
17%
 
985,496

 
19%
Total CRE Loans  (excluding owner occupied)
1,792,010

 
30%
 
1,560,631

 
30%
All other loan types
4,165,012

 
70%
 
3,703,695

 
70%
Total Loans
$
5,957,022

 
100%
 
$
5,264,326

 
100%
 
The following table outlines the percentage of 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, 2017 and December 31, 2016
 
Internal
Limit
 
Actual
 
 
September 30,
2017
 
December 31,
2016
Construction and development
100%
 
76%
 
72%
Commercial real estate
300%
 
220%
 
253%
 
Short-Term Investments
 
The Company’s short-term investments are comprised of federal funds sold and interest-bearing deposits in banks. At September 30, 2017, the Company’s short-term investments were $112.8 million, compared with $71.2 million at December 31, 2016. At September 30, 2017, the Company did not have any federal funds sold and all $112.8 million was in interest-bearing deposit balances at correspondent banks and the Federal Reserve Bank of Atlanta.
 
Derivative Instruments and Hedging Activities
 
The Company has a cash flow hedge that matures September 15, 2020 with a notional amount of $37.1 million at September 30, 2017 and December 31, 2016 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 approximately $723,000 and $978,000 at September 30, 2017 and December 31, 2016, respectively.
 
The Company has fair value hedges with a combined notional amount of $22.7 million at September 30, 2017 for the purpose of hedging the change in fair value of certain fixed rate loans. These instruments have maturity dates that range from January 2023 to October 2031 and are indexed to the one-month LIBOR rate. The fair value of these instruments amounted to an asset of approximately $204,000 and a liability of approximately $96,000 at September 30, 2017. At December 31, 2016, the Company had fair value hedges with a combined notional amount of $20.2 million. These instruments have maturity dates that range from January 2023 to October 2031 and are indexed to the one-month LIBOR rate. The fair value of these instruments amounted to an asset of approximately $229,000 and a liability of approximately $96,000 at December 31, 2016.
 
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 approximately $3.8 million and $4.3 million at September 30, 2017 and December 31, 2016, respectively, and a liability of approximately $237,000 and $0 at September 30, 2017 and December 31, 2016, respectively.
 
No material hedge ineffectiveness from cash flow or fair value hedges was recognized in the statement of operations. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.
 
Capital
 
On January 18, 2017, the Company issued 128,572 unregistered shares of its common stock to William J. Villari in exchange for 4.99% of the outstanding shares of common stock of USPF. A registration statement was filed with the Securities and Exchange Commission on February 13, 2017 to register the resale or other disposition of these shares. The issuance of the 128,572 common shares was valued at $45.45 per share, resulting in an increase in shareholders’ equity of $5.8 million.

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On March 6, 2017, the Company completed an underwritten public offering of 2,012,500 shares of the Company’s common stock at a price to the public of $46.50 per share. The Company received net proceeds from the issuance of approximately $88.7 million, after deducting $4.9 million in underwriting discounts and commissions and other issuance costs.
 
In March 2017, the Company made a capital contribution to the Bank in the amount of $110.0 million, using the net proceeds of the March 6, 2017 issuance of common stock as well as a portion of the net proceeds of the March 13, 2017 issuance of the Company’s 5.75% Fixed-To-Floating Rate Subordinated Notes due 2027.
 
Capital management consists of providing equity to support both current and anticipated future operations. The Company is subject to capital adequacy requirements imposed by the Federal Reserve Board (the “FRB”) and the GDBF, and the Bank is subject to capital adequacy requirements imposed by the FDIC and the GDBF.
 
The FRB, the FDIC and the GDBF have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. These standards define and establish minimum capital requirements in relation to assets and off-balance sheet exposure, adjusted for credit risk. The risk-based capital standards currently in effect are designed to make regulatory capital requirements more sensitive to differences in risk profiles among bank holding companies and banks and to account for off-balance sheet exposure.
 
In July 2013, the Federal Reserve published final rules for the adoption of the Basel III regulatory capital framework (the "Basel III Capital Rules"). The Basel III Capital Rules defined a new capital measure called "Common Equity Tier 1" ("CET1"), established that Tier 1 capital consist of Common Equity Tier 1 and "Additional Tier 1 Capital" instruments meeting specified requirements, defined Common Equity Tier 1, established a capital conservation buffer and expanded the scope of the adjustments as compared with existing regulations. The capital conservation buffer is being increased by 0.625% per year until reaching 2.50% by 2019. The capital conservation buffer is being phased in from 0.0% for 2015 to, 0.625% for 2016, 1.25% for 2017, 1.875% for 2018, and 2.50% for 2019. The Basel III Capital Rules became effective for us on January 1, 2015 with certain transition provisions fully phased in on January 1, 2019.
 
The regulatory capital standards are defined by the following key measurements:
 
a) The “Tier 1 Leverage Ratio” is defined as Tier 1 capital to average assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a Tier 1 leverage ratio greater than or equal to 4.00%. For a bank to be considered “well capitalized,” it must maintain a Tier 1 leverage ratio greater than or equal to 5.00%.
 
b) The “CET1 Ratio” is defined as Common equity tier 1 capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a CET1 ratio greater than or equal to 4.50% (5.75% including the 1.25% capital conservation buffer for 2017; 5.125% including the 0.625% capital conservation buffer for 2016). 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% (7.25% including the 1.25% capital conservation buffer for 2017; 6.625% including the 0.625% capital conservation buffer for 2016). For a bank to be considered “well capitalized,” it must maintain a Tier 1 capital ratio greater than or equal to 8.00%.
 
d) The “Total Capital Ratio” is defined as total capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a total capital ratio greater than or equal to 8.00% (9.25% including the 1.25% capital conservation buffer for 2017; 8.625% including the 0.625% capital conservation buffer for 2016). For a bank to be considered “well capitalized,” it must maintain a total capital ratio greater than or equal to 10.00%.
 

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As of September 30, 2017, 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, 2017 and December 31, 2016
 
September 30,
2017
 
December 31, 2016
Tier 1 Leverage Ratio (tier 1 capital to average assets)
 
 
 
Consolidated
9.94%
 
8.68%
Ameris Bank
10.83%
 
9.27%
CET1 Ratio (common equity tier 1 capital to risk weighted assets)
 
 
 
Consolidated
10.35%
 
8.32%
Ameris Bank
12.69%
 
10.35%
Tier 1 Capital Ratio (tier 1 capital to risk weighted assets)
 
 
 
Consolidated
11.65%
 
9.69%
Ameris Bank
12.69%
 
10.35%
Total Capital Ratio (total capital to risk weighted assets)
 
 
 
Consolidated
13.25%
 
10.11%
Ameris Bank
13.10%
 
10.77%
 
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 Asset and Liability Committee (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 outside 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 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, 2017 and December 31, 2016, the net carrying value of the Company’s other borrowings was $808.6 million and $492.3 million, respectively. On March 13, 2017, the Company completed the public offering and sale of $75.0 million

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in aggregate principal amount of its 5.75% Fixed-To-Floating Rate Subordinated Notes due 2027. These subordinated notes are included in other borrowings at September 30, 2017 at a net carrying value of $73.8 million. See Note 8 for additional details on the subordinated notes.
 
The following liquidity ratios compare certain assets and liabilities to total deposits or total assets:
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
December 31, 2016
 
September 30, 2016
Investment securities available for sale to total deposits
13.90%
 
14.13%
 
14.72%
 
14.76%
 
15.80%
Loans (net of unearned income) to total deposits
101.04%
 
97.88%
 
94.31%
 
94.42%
 
91.32%
Interest-earning assets to total assets
92.48%
 
92.14%
 
91.98%
 
91.32%
 
91.25%
Interest-bearing deposits to total deposits
70.86%
 
71.12%
 
70.67%
 
71.78%
 
70.54%
 
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, 2017 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
The Company is exposed only to U.S. dollar interest rate changes, and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company’s hedging activities are limited to cash flow hedges and fair value hedges and are part of the Company’s program to manage interest rate sensitivity.
 
At September 30, 2017, the Company had one cash flow hedge with a notional amount of $37.1 million for the purpose of converting the variable rate on certain junior subordinated debentures to a fixed rate. The LIBOR rate swap exchanges fixed rate payments of 4.11% for floating rate payments based on the three-month LIBOR rate and matures September 2020. The fair value of this instrument was a liability of approximately $723,000 and $978,000 at September 30, 2017 and December 31, 2016, respectively.
 
At September 30, 2017, the Company had fair value hedges with a combined notional amount of $22.7 million for the purpose of hedging the change in fair value of certain fixed rate loans. These instruments have maturity dates that range from January 2023 to October 2031 and are indexed to the one-month LIBOR rate. The fair value of these instruments amounted to an asset of approximately $204,000 and a liability of approximately $96,000 at September 30, 2017. At December 31, 2016, the Company had fair value hedges with a combined notional amount of $20.2 million. These instruments have maturity dates that range from January 2023 to October 2031 and are indexed to the one-month LIBOR rate. The fair value of these instruments amounted to an asset of approximately $229,000 and a liability of approximately $96,000 at December 31, 2016.
 
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 $3.8 million and $4.3 million at September 30, 2017 and December 31, 2016, respectively, and a liability of $237,000 and $0 at September 30, 2017 and December 31, 2016, 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.



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Item 4. Controls and Procedures.
 
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act), as of the end of the period covered by this report, as required by paragraph (b) of Rules 13a-15 or 15d-15 of the Exchange Act. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.
 
During the quarter ended September 30, 2017, 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, as a normal incident of the nature and kind of business in which the Company is engaged, various claims or charges are asserted against the Company or the Bank. In the ordinary course of business, the Company and the Bank are also subject to regulatory examinations, information gathering requests, inquiries and investigations. Other than ordinary routine litigation incidental to the Company’s business, management believes based on its current knowledge and after consultation with legal counsel that there are no pending or threatened legal proceedings that will, individually or in the aggregate, have a material adverse effect on the consolidated results of operations or financial condition of the Company.
 
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, 2016.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.

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
 
 
 
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).
 
 
 
 
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).
 
 
 
 
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).
 
 
 
 
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).
 
 
 
 
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).
 
 
 
 
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).
 
 
 
 
Bylaws of Ameris Bancorp, as amended and restated effective July 18, 2017 (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on July 21, 2017).
 
 
 
 
Severance Protection and Restrictive Covenants Agreement by and among Ameris Bancorp, Ameris Bank and William D. McKendry dated as of October 3, 2017 (incorporated by reference to Exhibit 10.1 to Ameris Bancorp's Current Report on Form 8-K filed with the SEC on October 6, 2017).
 
 
 
 
Third Amendment to Loan Agreement dated October 20, 2017 by and between Ameris Bancorp and NexBank SSB (incorporated by reference to Exhibit 10.1 to Ameris Bancorp's Current Report on Form 8-K filed with the SEC on October 23, 2017).
 
 
 
 
Third Amended and Restated Revolving Promissory Note dated as of September 26, 2017 issued by Ameris Bancorp to NexBank SSB (incorporated by reference to Exhibit 10.2 to Ameris Bancorp's Current Report on Form 8-K filed with the SEC on October 23, 2017).
.
 
 
 
 
Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer.
 
 
 
 
Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer.
 
 
 
 
Section 1350 Certification by the Company’s Chief Executive Officer.
 
 
 
 
Section 1350 Certification by the Company’s Chief Financial Officer.
 
 
 
101
 
The following financial statements from Ameris Bancorp’s Form 10-Q for the quarter ended September 30, 2017, formatted as interactive data files in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income and Comprehensive Income; (iii) Consolidated Statements of Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.
 
 
 
* Management contract or a compensatory plan or arrangement.

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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 9, 2017
AMERIS BANCORP
 
 
 
/s/ Dennis J. Zember Jr.
 
Dennis J. Zember Jr.,
 
Executive Vice President, Chief Financial Officer and Chief Operating Officer
(duly authorized signatory and principal accounting and financial officer)
 


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