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Section 1: 10-Q (10-Q)

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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 March 31, 2018
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-13901  

 
393441634_bancorplogoa03.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 38,327,081 shares of Common Stock outstanding as of May 1, 2018.




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)
 
March 31,
2018
 
December 31,
2017
Assets
 

 
 

Cash and due from banks
$
123,945

 
$
139,313

Federal funds sold and interest-bearing deposits in banks
210,930

 
191,345

Cash and cash equivalents
334,875

 
330,658

 
 
 
 
Investment securities available for sale, at fair value
848,585

 
810,873

Other investments
32,227

 
42,270

Loans held for sale, at fair value
111,135

 
197,442

 
 
 
 
Loans
5,051,986

 
4,856,514

Purchased loans
818,587

 
861,595

Purchased loan pools
319,598

 
328,246

Loans, net of unearned income
6,190,171

 
6,046,355

Allowance for loan losses
(26,200
)
 
(25,791
)
Loans, net
6,163,971

 
6,020,564

 
 
 
 
Other real estate owned, net
9,171

 
8,464

Purchased other real estate owned, net
6,723

 
9,011

Total other real estate owned, net
15,894

 
17,475

 
 
 
 
Premises and equipment, net
116,381

 
117,738

Goodwill
208,513

 
125,532

Other intangible assets, net
12,562

 
13,496

Cash value of bank owned life insurance
80,007

 
79,641

Deferred income taxes, net
28,677

 
28,320

Other assets
70,001

 
72,194

Total assets
$
8,022,828

 
$
7,856,203

 
 
 
 
Liabilities
 

 
 

Deposits:
 

 
 

Noninterest-bearing
$
1,867,900

 
$
1,777,141

Interest-bearing
4,578,265

 
4,848,704

Total deposits
6,446,165

 
6,625,845

Securities sold under agreements to repurchase
23,270

 
30,638

Other borrowings
555,535

 
250,554

Subordinated deferrable interest debentures
85,881

 
85,550

Other liabilities
43,033

 
59,137

Total liabilities
7,153,884

 
7,051,724

 
 
 
 
Commitments and Contingencies (Note 9)


 


 
 
 
 
Shareholders’ Equity
 

 
 

Preferred stock, stated value $1,000 (5,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2018 and December 31, 2017)

 

Common stock, par value $1 (100,000,000 shares authorized; 39,819,918 and 38,734,873 shares issued at March 31, 2018 and December 31, 2017, respectively)
39,820

 
38,735

Capital surplus
559,040

 
508,404

Retained earnings
296,366

 
273,119

Accumulated other comprehensive income (loss), net of tax
(10,823
)
 
(1,280
)
Treasury stock, at cost (1,492,837 shares and 1,474,861 shares at March 31, 2018 and December 31, 2017, respectively)
(15,459
)
 
(14,499
)
Total shareholders’ equity
868,944

 
804,479

Total liabilities and shareholders’ equity
$
8,022,828

 
$
7,856,203


 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
March 31,
 
2018
 
2017
Interest income
 

 
 

Interest and fees on loans
$
73,267

 
$
61,521

Interest on taxable securities
5,207

 
4,800

Interest on nontaxable securities
322

 
416

Interest on deposits in other banks and federal funds sold
716

 
313

Total interest income
79,512

 
67,050

 
 
 
 
Interest expense
 

 
 

Interest on deposits
6,772

 
3,763

Interest on other borrowings
3,939

 
2,697

Total interest expense
10,711

 
6,460

 
 
 
 
Net interest income
68,801

 
60,590

Provision for loan losses
1,801

 
1,836

Net interest income after provision for loan losses
67,000

 
58,754

 
 
 
 
Noninterest income
 

 
 

Service charges on deposit accounts
10,228

 
10,563

Mortgage banking activity
11,900

 
11,215

Other service charges, commissions and fees
719

 
709

Gain on sale of securities
37

 

Other noninterest income
3,580

 
3,219

Total noninterest income
26,464

 
25,706

 
 
 
 
Noninterest expense
 

 
 

Salaries and employee benefits
32,089

 
27,794

Occupancy and equipment expense
6,198

 
5,877

Data processing and communications costs
7,135

 
6,572

Credit resolution-related expenses
549

 
933

Advertising and marketing expense
1,229

 
1,106

Amortization of intangible assets
934

 
1,036

Merger and conversion charges
835

 
402

Other noninterest expenses
10,129

 
9,373

Total noninterest expense
59,098

 
53,093

 
 
 
 
Income before income tax expense
34,366

 
31,367

Income tax expense
7,706

 
10,214

Net income
26,660

 
21,153

 
 
 
 
Other comprehensive income
 

 
 

Net unrealized holding losses arising during period on investment securities available for sale, net of tax benefit of $2,500 and $105
(9,403
)
 
(194
)
Reclassification adjustment for gains on investment securities included in earnings, net of tax of ($8) and $0
(29
)
 

Unrealized gains on cash flow hedges arising during period, net of tax expense of $75 and $23
281

 
43

Other comprehensive income (loss)
(9,151
)
 
(151
)
Total comprehensive income
$
17,509

 
$
21,002

 
 
 
 
Basic earnings per common share
$
0.70

 
$
0.59

Diluted earnings per common share
$
0.70

 
$
0.59

Dividends declared per common share
$
0.10

 
$
0.10

Weighted average common shares outstanding (in thousands)
 

 
 

Basic
37,967

 
35,664

Diluted
38,250

 
36,040


See notes to unaudited consolidated financial statements.

2



AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (unaudited)
(dollars in thousands)
 
 
Three Months Ended
March 31, 2018
 
Three Months Ended
March 31, 2017
 
 
Shares
 
Amount
 
Shares
 
Amount
Common Stock
 
 

 
 

 
 

 
 

Balance at beginning of period
 
38,734,873

 
$
38,735

 
36,377,807

 
$
36,378

Issuance of common stock
 
944,586

 
944

 
2,141,072

 
2,141

Issuance of restricted shares
 
77,755

 
78

 
67,721

 
68

Proceeds from exercise of stock options
 
62,704

 
63

 
16,349

 
16

Issued at end of period
 
39,819,918

 
$
39,820

 
38,602,949

 
$
38,603

 
 
 
 
 
 
 
 
 
Capital Surplus
 
 

 
 

 
 

 
 

Balance at beginning of period
 
 

 
$
508,404

 
 

 
$
410,276

Share-based compensation
 
 

 
897

 
 

 
673

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

 
49,067

 
 

 
92,359

Issuance of restricted shares
 
 

 
(78
)
 
 

 
(68
)
Proceeds from exercise of stock options
 
 

 
750

 
 

 
303

Balance at end of period
 
 

 
$
559,040

 
 

 
$
503,543

 
 
 
 
 
 
 
 
 
Retained Earnings
 
 

 
 

 
 

 
 

Balance at beginning of period
 
 

 
$
273,119

 
 

 
$
214,454

Cumulative effect of change in accounting for derivatives
 
 
 
28

 
 
 

Reclassification of stranded income tax effects from accumulated other comprehensive income
 
 
 
392

 
 
 

Adjusted balance at beginning of period
 
 
 
273,539

 
 
 
214,454

Net income
 
 

 
26,660

 
 

 
21,153

Dividends on common shares
 
 

 
(3,833
)
 
 

 
(3,713
)
Balance at end of period
 
 

 
$
296,366

 
 

 
$
231,894

 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss), Net of Tax
 
 

 
 

 
 

 
 

Unrealized gains (losses) on securities and derivatives:
 
 

 
 

 
 

 
 

Balance at beginning of period
 
 

 
$
(1,280
)
 
 

 
$
(1,058
)
Reclassification of stranded income tax effects to retained earnings
 
 
 
(392
)
 
 
 

Adjusted balance at beginning of period
 
 
 
(1,672
)
 
 
 
(1,058
)
Other comprehensive income during the period
 
 

 
(9,151
)
 
 

 
(151
)
Balance at end of period
 
 

 
$
(10,823
)
 
 

 
$
(1,209
)
 
 
 
 
 
 
 
 
 
Treasury Stock
 
 

 
 

 
 

 
 

Balance at beginning of period
 
1,474,861

 
$
(14,499
)
 
1,456,333

 
$
(13,613
)
Purchase of treasury shares
 
17,976

 
(960
)
 
17,902

 
(1,002
)
Balance at end of period
 
1,492,837

 
$
(15,459
)
 
1,474,235

 
$
(14,615
)
 
 
 
 
 
 
 
 
 
Total Shareholders’ Equity
 
 

 
$
868,944

 
 

 
$
758,216

  
See notes to unaudited consolidated financial statements.
 

3



AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 
 
Three Months Ended
March 31,
 
 
2018
 
2017
Operating Activities
 
 

 
 

Net income
 
$
26,660

 
$
21,153

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

 
 

Depreciation
 
2,274

 
2,341

Net losses on sale or disposal of premises and equipment including write-downs
 
583

 
295

Provision for loan losses
 
1,801

 
1,836

Net losses (gains) on sale of other real estate owned including write-downs
 
33

 
(127
)
Share-based compensation expense
 
1,441

 
673

Amortization of intangible assets
 
934

 
1,036

Provision for deferred taxes
 
2,432

 
(580
)
Net amortization of investment securities available for sale
 
1,595

 
1,697

Net gains on securities available for sale
 
(37
)
 

Accretion of discount on purchased loans
 
(1,571
)
 
(3,097
)
Amortization of premium on purchased loan pools
 
511

 
1,148

Net accretion (amortization) on other borrowings
 
33

 
(57
)
Amortization of subordinated deferrable interest debentures
 
331

 
331

Originations of mortgage loans held for sale
 
(358,038
)
 
(311,813
)
Payments received on mortgage loans held for sale
 
367

 
430

Proceeds from sales of mortgage loans held for sale
 
377,748

 
294,045

Net gains on sale of mortgage loans held for sale
 
(6,759
)
 
(9,200
)
Originations of SBA loans
 
(7,168
)
 
(19,003
)
Proceeds from sales of SBA loans
 
10,497

 
4,600

Net gains on sale of SBA loans
 
(918
)
 
(1,407
)
Increase in cash surrender value of bank owned life insurance
 
(366
)
 
(389
)
Changes in FDIC loss-share payable, net of cash payments received
 
785

 
735

Change attributable to other operating activities
 
(4,671
)
 
28,606

Net cash provided by operating activities
 
48,497

 
13,253

 
 
 
 
 
Investing Activities
 
 

 
 

Purchases of securities available for sale
 
(121,865
)
 
(40,145
)
Proceeds from prepayments and maturities of securities available for sale
 
33,970

 
30,119

Proceeds from sales of securities available for sale
 
36,685

 

Net increase in other investments
 
(13,809
)
 
(642
)
Net increase in loans, excluding purchased loans
 
(134,063
)
 
(117,681
)
Payments received on purchased loans
 
43,971

 
63,061

Payments received on purchased loan pools
 
16,158

 
38,067

Purchases of premises and equipment
 
(1,133
)
 
(1,219
)
Proceeds from sales of premises and equipment
 
427

 

Proceeds from sales of other real estate owned
 
3,106

 
4,568

Payments paid to FDIC under loss-share agreements
 
(333
)
 
(559
)
Net cash proceeds paid in acquisitions
 
(21,421
)
 

Net cash used in investing activities
 
(158,307
)
 
(24,431
)
 
 
 
 
 
 
 
 

 
(Continued)


4



AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 
 
Three Months Ended
March 31,
 
 
2018
 
2017
Financing Activities, net of effects of business combinations
 
 

 
 

Net increase (decrease) in deposits
 
$
(179,680
)
 
$
67,206

Net decrease in securities sold under agreements to repurchase
 
(7,368
)
 
(13,090
)
Proceeds from other borrowings
 
455,000

 
518,755

Repayment of other borrowings
 
(150,052
)
 
(485,350
)
Issuance of common stock
 

 
88,656

Proceeds from exercise of stock options
 
813

 
319

Dividends paid - common stock
 
(3,726
)
 
(3,492
)
Purchase of treasury shares
 
(960
)
 
(1,002
)
Net cash provided by financing activities
 
114,027

 
172,002

 
 
 
 
 
Net increase in cash and cash equivalents
 
4,217

 
160,824

Cash and cash equivalents at beginning of period
 
330,658

 
198,385

Cash and cash equivalents at end of period
 
$
334,875

 
$
359,209

 
 
 
 
 
Supplemental Disclosures of Cash Flow Information
 
 

 
 

Cash paid during the period for:
 
 

 
 

Interest
 
$
11,602

 
$
6,348

Income taxes
 
2

 
18

Loans (excluding purchased loans) transferred to other real estate owned
 
1,176

 
1,657

Purchased loans transferred to other real estate owned
 
457

 
1,489

Loans transferred from loans held for sale to loans held for investment
 
73,374

 
45,828

Loans transferred from loans held for investment to loans held for sale
 
2,796

 

Loans provided for the sales of other real estate owned
 

 
264

Assets acquired in business acquisitions
 
82,981

 

Liabilities assumed in business acquisitions
 
5,705

 

Issuance of common stock in acquisitions
 
50,011

 

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
 
(9,432
)
 
(194
)
Change in unrealized gain (loss) on cash flow hedge, net of tax
 
281

 
43

 
 
 
 
 
 
 
 

 
(Concluded)

 
See notes to unaudited consolidated financial statements.
 


5



AMERIS BANCORP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
 
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 March 31, 2018, 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 March 31, 2018 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, 2017.
 
Cash and Cash Equivalents
 
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items in process of collection, amounts due from banks, interest-bearing deposits in banks and federal funds sold. The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank of Atlanta. The reserve requirement as of March 31, 2018 and December 31, 2017 was $46.0 million and $44.1 million, respectively, and was met by cash on hand which is reported on the Company's consolidated balance sheet in cash and due from banks.

Reclassifications

Certain reclassifications of prior year amounts have been made to conform with the current year presentations.
 
Accounting Standards Adopted in 2018

ASU 2018-02 - Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02").  Issued in February 2018, ASU 2018-02 seeks to help entities reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (the "Tax Reform Act"), enacted on December 22, 2017.  ASU 2018-02 was issued in response to concerns regarding current accounting guidance that requires deferred tax assets and deferred tax liabilities to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income, rather than net income, and as a result the stranded tax effects would not reflect the appropriate tax rate.  The amendments of ASU 2018-02 allow an entity to make a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects, which is the difference between the historical corporate income tax rate of 35.0% and the newly enacted corporate income tax rate of 21.0%.  ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 31, 2018; however, public business entities are allowed to early adopt the amendments of ASU 2018-02 in any interim period for which the financial statements have not yet been issued.  The amendments of ASU 2018-02 may be applied either at the beginning of the period (annual or interim) of adoption or retrospectively

6



to each of the period(s) in which the effect of the change in the U.S. federal corporate tax rate in the Tax Reform Act is recognized.  As a result of the remeasurement of the Company's deferred tax assets and deferred tax liabilities following the enactment of the Tax Reform Act, accumulated other comprehensive loss included $392,000 of stranded tax effects at December 31, 2017.  The Company early adopted ASU 2018-02 during the first quarter of 2018 and made an election to reclassify the stranded tax effects from accumulated other comprehensive loss to retaining earnings at the beginning of the period of adoption.  The reclassification of the stranded tax effects resulted in an increase of $392,000 in accumulated other comprehensive loss and a corresponding increase of $392,000 in retained earnings.

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. During the first quarter of 2018, the Company early adopted the provisions of ASU 2017-12, and the adoption did not have a material impact on the Company's consolidated financial statements.
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 share-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. During the first quarter of 2018, the Company adopted the provisions of ASU 2017-09, and the adoption did not have a material impact on the Company's consolidated financial statements.

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. During the first quarter of 2018, the Company adopted the provisions of ASU 2017-01, and the adoption did not have a material impact on the Company's consolidated financial statements.

ASU 2016-01 – Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01").  ASU 2016-01 (1) requires equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value with changes recognized through net income; (2) simplifies the impairment assessment of equity investments without readily determinable fair values by allowing a qualitative assessment similar to those performed on long-lived assets, goodwill or intangibles to be utilized at each reporting period; (3) eliminates the use of the entry price method requiring all preparers to utilize the exit price notion consistent with Topic 820, Fair Value Measurement in disclosing the fair value of financial instruments measured at amortized cost; (4) requires separate disclosure within other comprehensive income of changes in the fair value of liabilities due to instrument-specific credit risk when the fair value option has been elected; and (5) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. ASU 2016-01 is effective for annual reporting periods beginning after December 15, 2017, and interim periods. During the first quarter of 2018, the Company adopted ASU 2016-01. Other than changing from the entry price method to an exit price notion in disclosing fair value of financial instruments at amortized cost, the adoption did not have a material impact on the Company's consolidated financial statements.
ASU 2014-09 – Revenue from Contracts with Customers (“ASU 2014-09”). On January 1, 2018, the Company adopted ASU 2014-09 and all subsequent amendments to the ASU (collectively "ASC 606") which (1) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (2) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as other real estate owned ("OREO"). The majority of the Company's revenues come from interest income and other sources, including loans, leases, investment securities and derivative financial instruments, that are outside the scope of ASC 606. With the exception of gains/losses on the sale of OREO, the Company's services that fall within the scope of ASC 606 are presented within noninterest income and are recognized as revenue as the Company satisfies its obligations to the customer. Services within the scope of ASC 606 reported in noninterest income include service charges on deposit accounts, debit card interchange fees, and ATM fees. The net of gains and losses on the sale of OREO are recorded in credit resolution

7



related expenses in the Company's consolidated statement of income and comprehensive income. The adoption of ASC 606 did not change the timing or amount of revenue recognized for in-scope revenue streams. Accordingly, no cumulative effect adjustment was recorded under the modified retrospective transition method. See Note 15 for further discussion on the Company's accounting policies for revenue sources with the scope of ASC 606.

Accounting Standards Pending Adoption

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 2016-13 – Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current incurred loss approach with an expected loss model, referred to as the current expected credit loss (“CECL”) model. The new standard will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. ASU 2016-13 simplifies the accounting for purchased credit-impaired debt securities and loans and expands the disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Upon adoption, ASU 2016-13 provides for a modified retrospective transition by means of a cumulative effect adjustment to equity as of the beginning of the period in which the guidance is effective. 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 equity and 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.
 

 

8



NOTE 2. PENDING ACQUISITIONS

Hamilton State Bancshares, Inc.

On January 25, 2018, the Company and Hamilton State Bancshares, Inc., a Georgia corporation (“Hamilton”), entered into an Agreement and Plan of Merger (the "Hamilton Merger Agreement") pursuant to which Hamilton will merge into Ameris, with Ameris as the surviving entity and immediately thereafter, Hamilton State Bank, a Georgia bank wholly owned by Hamilton, will be merged into Ameris Bank, with Ameris Bank as the surviving entity. Hamilton State Bank operates 28 full-service banking locations, 24 of which are located in the Atlanta, Georgia MSA, two of which are located in the Gainesville, Georgia MSA, and two of which are located just outside the Atlanta, Georgia MSA. Under the terms of the Hamilton Merger Agreement, Hamilton's shareholders will receive $0.93 in cash and 0.16 shares of Ameris common stock for each share of Hamilton common stock they hold. The estimated purchase price is $405.7 million in the aggregate based upon the $53.45 per share closing price of the Company’s common stock as of January 25, 2018. The merger is subject to customary closing conditions, including the receipt of regulatory approvals and the approval of Hamilton's shareholders. The transaction is expected to close during the third quarter of 2018. As of December 31, 2017, Hamilton reported assets of $1.79 billion, gross loans of $1.30 billion and deposits of $1.55 billion. The purchase price will be allocated among the net assets of Hamilton acquired as appropriate, with the remaining balance being reported as goodwill.

Atlantic Coast Financial Corporation

On November 16, 2017, the Company and Atlantic Coast Financial Corporation, a Maryland corporation (“Atlantic”), entered into an Agreement and Plan of Merger (the "Atlantic Merger Agreement") pursuant to which Atlantic will merge into Ameris, with Ameris as the surviving entity and immediately thereafter, Atlantic Coast Bank, a Florida bank wholly owned by Atlantic, will be merged into Ameris Bank, with Ameris Bank as the surviving entity. Atlantic Coast Bank operates 12 full-service banking locations, eight of which are located in the Jacksonville, Florida MSA, three of which are located in the Waycross, Georgia MSA, and one of which is located in the Douglas, Georgia MSA. Under the terms of the Atlantic Merger Agreement, Atlantic's stockholders will receive $1.39 in cash and 0.17 shares of Ameris common stock for each share of Atlantic common stock they hold. The estimated purchase price is $145.0 million in the aggregate based upon the $47.30 per share closing price of the Company’s common stock as of November 16, 2017. All regulatory and stockholder approvals required for the merger have been received, and the transaction is expected to close in May 2018. As of December 31, 2017, Atlantic reported assets of $983.3 million, gross loans of $851.4 million and deposits of $675.8 million. The purchase price will be allocated among the net assets of Atlantic acquired as appropriate, with the remaining balance being reported as goodwill.


NOTE 3 – BUSINESS COMBINATION

US Premium Finance Holding Company

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

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

9



will assess and record the deferred tax assets and deferred tax liabilities resulting from differences in the carrying value of acquired assets and assumed liabilities for financial reporting purposes and their basis for income tax purposes.

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

Prior to January 31, 2018, USPF was a private entity and the information necessary to complete the initial accounting for the business combination is incomplete at this time. Management has not yet finalized its determination of the fair value of the assets acquired and liabilities assumed in the USPF acquisition. Accordingly, as of March 31, 2018, the entire $83.0 million purchase price is reflected as goodwill in the Company's consolidated balance sheet, pending finalization of the fair value of the assets acquired and liabilities assumed. The assets acquired are expected to include identifiable intangible assets related to insurance agent relationships that refer insurance premium finance loans to USPF, customer relationships that result in repeat premium finance loans for insurance policy renewals, the US Premium Finance trade name and a non-compete agreement with a former USPF shareholder. The goodwill is not expected to be deductible for tax purposes.

The results of operations of USPF subsequent to its acquisition date are included in the Company’s consolidated statements of income and comprehensive income. The following unaudited pro forma information reflects the Company’s estimated consolidated results of operations as if the acquisitions had occurred on January 1, 2017, unadjusted for potential cost savings.
 
Three Months Ended
March 31,
(dollars in thousands, except per share data; shares in thousands)
2018
 
2017
Net interest income and noninterest income
$
95,265

 
$
86,296

Net income
$
26,876

 
$
22,174

Net income available to common shareholders
$
26,876

 
$
22,174

Income per common share available to common shareholders – basic
$
0.70

 
$
0.61

Income per common share available to common shareholders – diluted
$
0.70

 
$
0.60

Average number of shares outstanding, basic
38,246

 
36,633

Average number of shares outstanding, diluted
38,529

 
37,009



NOTE 4 – 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.
 

10



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
March 31, 2018
 
 
 
 
 
 
 
 
State, county and municipal securities
 
105,821

 
987

 
(534
)
 
106,274

Corporate debt securities
 
57,134

 
598

 
(635
)
 
57,097

Mortgage-backed securities
 
699,990

 
456

 
(15,232
)
 
685,214

Total debt securities
 
$
862,945

 
$
2,041

 
$
(16,401
)
 
$
848,585

 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
State, county and municipal securities
 
135,968

 
1,989

 
(163
)
 
137,794

Corporate debt securities
 
46,659

 
721

 
(237
)
 
47,143

Mortgage-backed securities
 
630,666

 
1,762

 
(6,492
)
 
625,936

Total debt securities
 
$
813,293

 
$
4,472

 
$
(6,892
)
 
$
810,873


The amortized cost and estimated fair value of available for sale securities at March 31, 2018 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
 
$
11,606

 
$
11,643

Due from one year to five years
 
46,869

 
46,432

Due from five to ten years
 
64,190

 
64,842

Due after ten years
 
40,290

 
40,454

Mortgage-backed securities
 
699,990

 
685,214

 
 
$
862,945

 
$
848,585

 
Securities with a carrying value of approximately $368.3 million serve as collateral to secure public deposits, securities sold under agreements to repurchase and for other purposes required or permitted by law at March 31, 2018, compared with $403.3 million at December 31, 2017.
 
The following table details the gross unrealized losses and estimated fair value of securities aggregated by category and duration of continuous unrealized loss position at March 31, 2018 and December 31, 2017.
 
 
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
March 31, 2018
 
 

 
 

 
 

 
 

 
 

 
 

State, county and municipal securities
 
54,182

 
(448
)
 
4,662

 
(86
)
 
58,844

 
(534
)
Corporate debt securities
 
492

 
(126
)
 
18,501

 
(509
)
 
18,993

 
(635
)
Mortgage-backed securities
 
422,035

 
(8,322
)
 
172,548

 
(6,910
)
 
594,583

 
(15,232
)
Total debt securities
 
$
476,709

 
$
(8,896
)
 
$
195,711

 
$
(7,505
)
 
$
672,420

 
$
(16,401
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 

 
 

 
 

 
 

 
 

 
 

State, county and municipal securities
 
33,976

 
(115
)
 
4,725

 
(48
)
 
38,701

 
(163
)
Corporate debt securities
 
3,465

 
(35
)
 
18,853

 
(202
)
 
22,318

 
(237
)
Mortgage-backed securities
 
262,353

 
(2,401
)
 
190,368

 
(4,091
)
 
452,721

 
(6,492
)
Total debt securities
 
$
299,794

 
$
(2,551
)
 
$
213,946

 
$
(4,341
)
 
$
513,740

 
$
(6,892
)
 
As of March 31, 2018, the Company’s securities portfolio consisted of 390 securities, 277 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 March 31, 2018, the Company held 226 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

11



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 March 31, 2018.

At March 31, 2018, the Company held 41 state, county and municipal securities and 10 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 March 31, 2018.
 
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 March 31, 2018 or December 31, 2017.
 
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 March 31, 2018, 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 March 31, 2018, these investments are not considered impaired on an other-than-temporary basis.
 
At March 31, 2018 and December 31, 2017, 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 three months ended March 31, 2018 and 2017:
(dollars in thousands)
 
March 31,
2018
 
March 31,
2017
Gross gains on sales of securities
 
$
332

 
$

Gross losses on sales of securities
 
(295
)
 

Net realized gains on sales of securities available for sale
 
$
37

 
$

 
 
 
 
 
Sales proceeds
 
$
36,685

 
$

 
NOTE 5 – LOANS

The Bank engages in a full complement of lending activities, including real estate-related loans, agriculture-related loans, commercial and financial loans and consumer installment loans within select markets in Georgia, Alabama, Florida and South Carolina. The Bank purchased residential mortgage loan pools during 2015 and 2016 collateralized by properties located outside our Southeast markets, specifically in California, Washington and Illinois. During the third quarter of 2016, the Bank began purchasing from unrelated third parties consumer installment home improvement loans made to borrowers throughout the United States. As of March 31, 2018 and December 31, 2017, the net carrying value of these consumer installment home improvement loans was approximately $280.3 million and $273.7 million, respectively, and such loans are reported in the consumer installment loan category. During the fourth quarter of 2016, the Bank purchased a pool of commercial insurance premium finance loans made to borrowers throughout the United States and began to originate, administer and service these types of loans. As of March 31, 2018 and December 31, 2017, the net carrying value of commercial insurance premium loans was approximately $501.9 million and $482.5 million, respectively, and such loans are reported in the commercial, financial and agricultural loan category.
 
The Bank concentrates the majority of its lending activities in real estate loans. While risk of loss in the Company’s portfolio is primarily tied to the credit quality of the various borrowers, risk of loss may increase due to factors beyond the Company’s control, such as local, regional and/or national economic downturns. General conditions in the real estate market may also impact the relative risk in the real estate portfolio. A substantial portion of the Bank’s loans are secured by real estate in the Bank’s primary market area. In addition, a substantial portion of the OREO is located in those same markets. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio and the recovery of a substantial portion of the carrying amount of OREO are susceptible to changes in real estate conditions in the Bank’s primary market area.

12



Commercial, financial and agricultural loans include both secured and unsecured loans for working capital, expansion, crop production, commercial insurance premium finance, and other business purposes. Commercial, financial and agricultural loans also include SBA loans and municipal loans. Short-term working capital loans are secured by non-real estate collateral such as accounts receivable, crops, inventory and equipment. The Bank evaluates the financial strength, cash flow, management, credit history of the borrower and the quality of the collateral securing the loan. The Bank often requires personal guarantees and secondary sources of repayment on commercial, financial and agricultural loans.
 
Real estate loans include construction and development loans, commercial and farmland loans and residential loans. Construction and development loans include loans for the development of residential neighborhoods, one-to-four family home residential construction loans to builders and consumers, and commercial real estate construction loans, primarily for owner-occupied properties. The Company limits its construction lending risk through adherence to established underwriting procedures. Commercial real estate loans include loans secured by owner-occupied commercial buildings for office, storage, retail and warehouse space as well as farmland. They also include non-owner occupied commercial buildings such as leased retail and office space. Commercial real estate loans may be larger in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent on successful operation or management of the properties. The Company’s residential loans represent permanent mortgage financing and are secured by residential properties located within the Bank's market areas, along with warehouse lines of credit secured by residential mortgages.
 
Consumer installment loans include home improvement loans, automobile loans, boat and recreational vehicle financing, and secured and unsecured personal loans. Consumer loans carry greater risks than other loans, as the collateral can consist of rapidly depreciating assets such as automobiles and equipment that may not provide an adequate source of repayment of the loan in the case of default.
 
Loans are stated at unpaid balances, net of unearned income and deferred loan fees. Balances within the major loans receivable categories are presented in the following table, excluding purchased loans:
(dollars in thousands)
March 31,
2018
 
December 31,
2017
Commercial, financial and agricultural
$
1,387,437

 
$
1,362,508

Real estate – construction and development
631,504

 
624,595

Real estate – commercial and farmland
1,636,654

 
1,535,439

Real estate – residential
1,080,028

 
1,009,461

Consumer installment
316,363

 
324,511

 
$
5,051,986

 
$
4,856,514

 
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 $818.6 million and $861.6 million at March 31, 2018 and December 31, 2017, 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)
March 31,
2018
 
December 31,
2017
Commercial, financial and agricultural
$
64,612

 
$
74,378

Real estate – construction and development
48,940

 
65,513

Real estate – commercial and farmland
465,870

 
468,246

Real estate – residential
236,453

 
250,539

Consumer installment
2,712

 
2,919

 
$
818,587

 
$
861,595

 
A rollforward of purchased loans for the three months ended March 31, 2018 and 2017 is shown below:
(dollars in thousands)
March 31,
2018
 
March 31,
2017
Balance, January 1
$
861,595

 
$
1,069,191

Charge-offs, net of recoveries
(151
)
 
(803
)
Accretion
1,571

 
3,097

Transfers to purchased other real estate owned
(457
)
 
(1,489
)
Payments received
(43,971
)
 
(63,061
)
Ending balance
$
818,587

 
$
1,006,935



13



The following is a summary of changes in the accretable discounts of purchased loans during the three months ended March 31, 2018 and 2017:
(dollars in thousands)
March 31,
2018
 
March 31,
2017
Balance, January 1
$
20,192

 
$
30,624

Accretion
(1,571
)
 
(3,097
)
Accretable discounts removed due to charge-offs

 
(13
)
Transfers between non-accretable and accretable discounts, net
146

 
(659
)
Ending balance
$
18,767

 
$
26,855

 
Purchased loan pools are defined as groups of residential mortgage loans that were not acquired in bank acquisitions or FDIC-assisted transactions. As of March 31, 2018, purchased loan pools totaled $319.6 million and consisted of whole-loan residential mortgages on properties outside the Company’s markets, with principal balances totaling $316.2 million and $3.4 million of remaining purchase premium paid at acquisition. As of December 31, 2017, purchased loan pools totaled $328.2 million with principal balances totaling $324.4 million and $3.8 million of remaining purchase premium paid at acquisition. At March 31, 2018 and December 31, 2017, one loan in the purchased loan pools with a principal balance of $902,000 and $904,000, respectively, was classified as a troubled debt restructuring and risk-rated grade 7, while all other loans included in the purchased loan pools were performing current loans risk-rated grade 3. During the second quarter of 2017, this troubled debt restructuring defaulted on its restructured terms and was placed on nonaccrual status. During the fourth quarter of 2017, this troubled debt restructuring was returned to accrual status. At March 31, 2018 and December 31, 2017, the Company had allocated $1.0 million and $1.1 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.


14



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)
March 31,
2018
 
December 31,
2017
Commercial, financial and agricultural
$
1,548

 
$
1,306

Real estate – construction and development
518

 
554

Real estate – commercial and farmland
3,555

 
2,665

Real estate – residential
8,311

 
9,194

Consumer installment
488

 
483

 
$
14,420

 
$
14,202

The following table presents an analysis of purchased loans accounted for on a nonaccrual basis:
(dollars in thousands)
March 31,
2018
 
December 31,
2017
Commercial, financial and agricultural
$
796

 
$
813

Real estate – construction and development
3,112

 
3,139

Real estate – commercial and farmland
4,347

 
5,685

Real estate – residential
7,648

 
5,743

Consumer installment
37

 
48

 
$
15,940

 
$
15,428


15



The following table presents an analysis of past-due loans, excluding purchased past-due loans as of March 31, 2018 and December 31, 2017
(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
March 31, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
10,081

 
$
5,750

 
$
3,430

 
$
19,261

 
$
1,368,176

 
$
1,387,437

 
$
2,383

Real estate – construction and development
1,202

 
168

 
166

 
1,536

 
629,968

 
631,504

 

Real estate – commercial and farmland
4,189

 
590

 
1,288

 
6,067

 
1,630,587

 
1,636,654

 

Real estate – residential
11,907

 
3,058

 
7,207

 
22,172

 
1,057,856

 
1,080,028

 

Consumer installment
1,033

 
639

 
413

 
2,085

 
314,278

 
316,363

 
114

Total
$
28,412

 
$
10,205

 
$
12,504

 
$
51,121

 
$
5,000,865

 
$
5,051,986

 
$
2,497

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
8,124

 
$
3,285

 
$
6,978

 
$
18,387

 
$
1,344,121

 
$
1,362,508

 
$
5,991

Real estate – construction and development
810

 
23

 
288

 
1,121

 
623,474

 
624,595

 

Real estate – commercial and farmland
869

 
787

 
1,940

 
3,596

 
1,531,843

 
1,535,439

 

Real estate – residential
8,772

 
2,941

 
7,041

 
18,754

 
990,707

 
1,009,461

 

Consumer installment
1,556

 
472

 
329

 
2,357

 
322,154

 
324,511

 

Total
$
20,131

 
$
7,508

 
$
16,576

 
$
44,215

 
$
4,812,299

 
$
4,856,514

 
$
5,991

 
The following table presents an analysis of purchased past-due loans as of March 31, 2018 and December 31, 2017
 
(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
March 31, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
103

 
$

 
$
778

 
$
881

 
$
63,731

 
$
64,612

 
$

Real estate – construction and development
473

 
31

 
2,561

 
3,065

 
45,875

 
48,940

 

Real estate – commercial and farmland
1,589

 
1,022

 
1,515

 
4,126

 
461,744

 
465,870

 

Real estate – residential
4,228

 
591

 
5,594

 
10,413

 
226,040

 
236,453

 

Consumer installment
20

 

 
33

 
53

 
2,659

 
2,712

 

Total
$
6,413

 
$
1,644

 
$
10,481

 
$
18,538

 
$
800,049

 
$
818,587

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$

 
$
33

 
$
760

 
$
793

 
$
73,585

 
$
74,378

 
$

Real estate – construction and development
87

 
31

 
2,517

 
2,635

 
62,878

 
65,513

 

Real estate – commercial and farmland
1,190

 
701

 
2,724

 
4,615

 
463,631

 
468,246

 

Real estate – residential
2,722

 
1,585

 
2,320

 
6,627

 
243,912

 
250,539

 

Consumer installment
57

 
4

 
43

 
104

 
2,815

 
2,919

 

Total
$
4,056

 
$
2,354

 
$
8,364

 
$
14,774

 
$
846,821

 
$
861,595

 
$

 




16



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.
 

17



The following is a summary of information pertaining to impaired loans, excluding purchased loans: 
 
As of and for the Period Ended
(dollars in thousands)
March 31,
2018
 
December 31,
2017
 
March 31,
2017
Nonaccrual loans
$
14,420

 
$
14,202

 
$
18,281

Troubled debt restructurings not included above
11,375

 
13,599

 
13,659

Total impaired loans
$
25,795

 
$
27,801

 
$
31,940

 
 
 
 
 
 
Interest income recognized on impaired loans
$
239

 
$
1,010

 
$
240

Foregone interest income on impaired loans
$
190

 
$
197

 
$
274

 
The following table presents an analysis of information pertaining to impaired loans, excluding purchased loans as of March 31, 2018, December 31, 2017 and March 31, 2017:
(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
March 31, 2018
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
1,874

 
$
985

 
$
602

 
$
1,587

 
$
136

 
$
1,467

Real estate – construction and development
746

 
567

 
127

 
694

 
1

 
833

Real estate – commercial and farmland
9,515

 
522

 
7,639

 
8,161

 
1,216

 
7,753

Real estate – residential
14,908

 
4,912

 
9,946

 
14,858

 
980

 
14,891

Consumer installment
526

 
495

 

 
495

 

 
492

Total
$
27,569

 
$
7,481

 
$
18,314

 
$
25,795

 
$
2,333

 
$
25,436

 
(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
December 31, 2017
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
1,453

 
$
734

 
$
613

 
$
1,347

 
$
145

 
$
1,900

Real estate – construction and development
1,467

 
471

 
500

 
971

 
48

 
1,065

Real estate – commercial and farmland
10,646

 
729

 
8,873

 
9,602

 
1,047

 
8,910

Real estate – residential
17,416

 
4,828

 
10,565

 
15,393

 
1,005

 
14,294

Consumer installment
523

 
488

 

 
488

 

 
493

Total
$
31,505

 
$
7,250

 
$
20,551

 
$
27,801

 
$
2,245

 
$
26,662

(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
March 31, 2017
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
3,891

 
$
202

 
$
2,503

 
$
2,705

 
$
637

 
$
2,283

Real estate – construction and development
1,875

 

 
1,048

 
1,048

 
356

 
1,140

Real estate – commercial and farmland
12,450

 
5,655

 
5,795

 
11,450

 
1,572

 
12,163

Real estate – residential
14,344

 
2,422

 
13,727

 
16,149

 
2,645

 
16,866

Consumer installment
666

 

 
588

 
588

 
6

 
601

Total
$
33,226

 
$
8,279

 
$
23,661

 
$
31,940

 
$
5,216

 
$
33,053

 

18



The following is a summary of information pertaining to purchased impaired loans: 
 
As of and for the Period Ended
(dollars in thousands)
March 31,
2018
 
December 31,
2017
 
March 31,
2017
Nonaccrual loans
$
15,940

 
$
15,428

 
$
23,606

Troubled debt restructurings not included above
20,649

 
20,472

 
20,448

Total impaired loans
$
36,589

 
$
35,900

 
$
44,054

 
 
 
 
 
 
Interest income recognized on impaired loans
$
696

 
$
379

 
$
379

Foregone interest income on impaired loans
$
245

 
$
281

 
$
337


The following table presents an analysis of information pertaining to purchased impaired loans as of March 31, 2018, December 31, 2017 and March 31, 2017:
(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
March 31, 2018
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial and agricultural
$
4,050

 
$
52

 
$
744

 
$
796

 
$
396

 
$
805

Real estate – construction and development
9,012

 
426

 
3,720

 
4,146

 
913