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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 June 30, 2018
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-13901  

 
394586435_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 47,518,662 shares of Common Stock outstanding as of August 3, 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)
 
June 30,
2018
 
December 31,
2017
Assets
 

 
 

Cash and due from banks
$
151,539

 
$
139,313

Federal funds sold and interest-bearing deposits in banks
273,170

 
191,345

Cash and cash equivalents
424,709

 
330,658

 
 
 
 
Time deposits in other banks
11,558

 

Investment securities available for sale, at fair value
1,153,703

 
810,873

Other investments
44,769

 
42,270

Loans held for sale, at fair value
137,249

 
197,442

 
 
 
 
Loans
5,380,515

 
4,856,514

Purchased loans
2,812,510

 
861,595

Purchased loan pools
297,509

 
328,246

Loans, net of unearned income
8,490,534

 
6,046,355

Allowance for loan losses
(31,532
)
 
(25,791
)
Loans, net
8,459,002

 
6,020,564

 
 
 
 
Other real estate owned, net
8,003

 
8,464

Purchased other real estate owned, net
7,272

 
9,011

Total other real estate owned, net
15,275

 
17,475

 
 
 
 
Premises and equipment, net
144,484

 
117,738

Goodwill
504,764

 
125,532

Other intangible assets, net
53,561

 
13,496

Cash value of bank owned life insurance
103,059

 
79,641

Deferred income taxes, net
40,240

 
28,320

Other assets
98,324

 
72,194

Total assets
$
11,190,697

 
$
7,856,203

 
 
 
 
Liabilities
 

 
 

Deposits:
 

 
 

Noninterest-bearing
$
2,356,420

 
$
1,777,141

Interest-bearing
6,405,173

 
4,848,704

Total deposits
8,761,593

 
6,625,845

Securities sold under agreements to repurchase
11,002

 
30,638

Other borrowings
862,136

 
250,554

Subordinated deferrable interest debentures
88,646

 
85,550

FDIC loss-share payable, net
18,716

 
8,803

Other liabilities
76,708

 
50,334

Total liabilities
9,818,801

 
7,051,724

 
 
 
 
Commitments and Contingencies (Note 8)


 


 
 
 
 
Shareholders’ Equity
 

 
 

Preferred stock, stated value $1,000 (5,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2018 and December 31, 2017)

 

Common stock, par value $1 (100,000,000 shares authorized; 49,011,950 and 38,734,873 shares issued at June 30, 2018 and December 31, 2017, respectively)
49,012

 
38,735

Capital surplus
1,049,283

 
508,404

Retained earnings
301,656

 
273,119

Accumulated other comprehensive income (loss), net of tax
(12,571
)
 
(1,280
)
Treasury stock, at cost (1,493,288 shares and 1,474,861 shares at June 30, 2018 and December 31, 2017, respectively)
(15,484
)
 
(14,499
)
Total shareholders’ equity
1,371,896

 
804,479

Total liabilities and shareholders’ equity
$
11,190,697

 
$
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
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Interest income
 

 
 

 
 

 
 

Interest and fees on loans
$
82,723

 
$
65,464

 
$
155,990

 
$
126,985

Interest on taxable securities
6,321

 
5,195

 
11,528

 
9,995

Interest on nontaxable securities
179

 
401

 
501

 
817

Interest on deposits in other banks and federal funds sold
723

 
351

 
1,439

 
664

Total interest income
89,946

 
71,411

 
169,458

 
138,461

 
 
 
 
 
 
 
 
Interest expense
 

 
 

 
 

 
 

Interest on deposits
7,794

 
4,580

 
14,566

 
8,343

Interest on other borrowings
6,153

 
3,674

 
10,092

 
6,371

Total interest expense
13,947

 
8,254

 
24,658

 
14,714

 
 
 
 
 
 
 
 
Net interest income
75,999

 
63,157

 
144,800

 
123,747

Provision for loan losses
9,110

 
2,205

 
10,911

 
4,041

Net interest income after provision for loan losses
66,889

 
60,952

 
133,889

 
119,706

 
 
 
 
 
 
 
 
Noninterest income
 

 
 

 
 

 
 

Service charges on deposit accounts
10,613

 
10,616

 
20,841

 
21,179

Mortgage banking activity
14,890

 
13,943

 
26,790

 
25,158

Other service charges, commissions and fees
697

 
729

 
1,416

 
1,438

Gain (loss) on securities
(123
)
 
37

 
(86
)
 
37

Other noninterest income
5,230

 
2,864

 
8,810

 
6,083

Total noninterest income
31,307

 
28,189

 
57,771

 
53,895

 
 
 
 
 
 
 
 
Noninterest expense
 

 
 

 
 

 
 

Salaries and employee benefits
39,776

 
29,132

 
71,865

 
56,926

Occupancy and equipment expense
6,390

 
6,146

 
12,588

 
12,023

Data processing and communications costs
6,439

 
7,028

 
13,574

 
13,600

Credit resolution-related expenses
1,045

 
599

 
1,594

 
1,532

Advertising and marketing expense
1,256

 
1,259

 
2,485

 
2,365

Amortization of intangible assets
2,252

 
1,013

 
3,186

 
2,049

Merger and conversion charges
18,391

 

 
19,226

 
402

Other noninterest expenses
10,837

 
10,562

 
20,966

 
19,935

Total noninterest expense
86,386

 
55,739

 
145,484

 
108,832

 
 
 
 
 
 
 
 
Income before income tax expense
11,810

 
33,402

 
46,176

 
64,769

Income tax expense
2,423

 
10,315

 
10,129

 
20,529

Net income
9,387

 
23,087

 
36,047

 
44,240

 
 
 
 
 
 
 
 
Other comprehensive income
 

 
 

 
 

 
 

Net unrealized holding gains (losses) arising during period on investment securities available for sale, net of tax expense (benefit) of ($482), $1,487, ($2,982) and $1,382
(1,814
)
 
2,760

 
(11,217
)
 
2,566

Reclassification adjustment for gains on investment securities included in earnings, net of tax of $0, $13, $8 and $13

 
(24
)
 
(29
)
 
(24
)
Unrealized gains (losses) on cash flow hedges arising during period, net of tax expense (benefit) of $17, ($58), $92 and ($35)
66

 
(106
)
 
347

 
(63
)
Other comprehensive income (loss)
(1,748
)
 
2,630

 
(10,899
)
 
2,479

Total comprehensive income
$
7,639

 
$
25,717

 
$
25,148

 
$
46,719

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.24

 
$
0.62

 
$
0.93

 
$
1.21

Diluted earnings per common share
$
0.24

 
$
0.62

 
$
0.92

 
$
1.20

Dividends declared per common share
$
0.10

 
$
0.10

 
$
0.20

 
$
0.20

Weighted average common shares outstanding (in thousands)
 

 
 

 
 

 
 

Basic
39,432

 
37,163

 
38,703

 
36,418

Diluted
39,710

 
37,489

 
38,981

 
36,744


See notes to unaudited consolidated financial statements.

2



AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (unaudited)
(dollars in thousands)
 
 
Six Months Ended
June 30, 2018
 
Six Months Ended
June 30, 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
 
10,124,491

 
10,124

 
2,141,072

 
2,141

Issuance of restricted shares
 
85,855

 
86

 
80,169

 
80

Cancellation of restricted shares
 
(472
)
 

 
(472
)
 

Proceeds from exercise of stock options
 
67,203

 
67

 
99,189

 
99

Issued at end of period
 
49,011,950

 
$
49,012

 
38,697,765

 
$
38,698

 
 
 
 
 
 
 
 
 
Capital Surplus
 
 

 
 

 
 

 
 

Balance at beginning of period
 
 

 
$
508,404

 
 

 
$
410,276

Share-based compensation
 
 

 
3,183

 
 

 
1,497

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

 
537,003

 
 

 
92,359

Issuance of restricted shares
 
 

 
(86
)
 
 

 
(80
)
Proceeds from exercise of stock options
 
 

 
779

 
 

 
1,751

Balance at end of period
 
 

 
$
1,049,283

 
 

 
$
505,803

 
 
 
 
 
 
 
 
 
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
 
 

 
36,047

 
 

 
44,240

Dividends on common shares
 
 

 
(7,930
)
 
 

 
(7,435
)
Balance at end of period
 
 

 
$
301,656

 
 

 
$
251,259

 
 
 
 
 
 
 
 
 
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
 
 

 
(10,899
)
 
 

 
2,479

Balance at end of period
 
 

 
$
(12,571
)
 
 

 
$
1,421

 
 
 
 
 
 
 
 
 
Treasury Stock
 
 

 
 

 
 

 
 

Balance at beginning of period
 
1,474,861

 
$
(14,499
)
 
1,456,333

 
$
(13,613
)
Purchase of treasury shares
 
18,427

 
(985
)
 
18,528

 
(886
)
Balance at end of period
 
1,493,288

 
$
(15,484
)
 
1,474,861

 
$
(14,499
)
 
 
 
 
 
 
 
 
 
Total Shareholders’ Equity
 
 

 
$
1,371,896

 
 

 
$
782,682

  
See notes to unaudited consolidated financial statements.
 

3



AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 
 
Six Months Ended
June 30,
 
 
2018
 
2017
Operating Activities
 
 

 
 

Net income
 
$
36,047

 
$
44,240

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

 
 

Depreciation
 
4,546

 
4,649

Net losses on sale or disposal of premises and equipment including write-downs
 
91

 
865

Provision for loan losses
 
10,911

 
4,041

Net losses (gains) on sale of other real estate owned including write-downs
 
385

 
(266
)
Share-based compensation expense
 
4,151

 
1,497

Amortization of intangible assets
 
3,186

 
2,049

Provision for deferred taxes
 
(1,448
)
 
(1,781
)
Net amortization of investment securities available for sale
 
2,896

 
3,201

Net loss (gain) on securities
 
86

 
(37
)
Accretion of discount on purchased loans
 
(4,340
)
 
(6,165
)
Amortization of premium on purchased loan pools
 
1,016

 
2,109

Accretion on other borrowings
 
65

 
30

Accretion on subordinated deferrable interest debentures
 
661

 
661

Originations of mortgage loans held for sale
 
(882,484
)
 
(711,398
)
Payments received on mortgage loans held for sale
 
773

 
546

Proceeds from sales of mortgage loans held for sale
 
778,216

 
614,255

Net gains on sale of mortgage loans held for sale
 
(16,860
)
 
(23,019
)
Originations of SBA loans
 
(16,246
)
 
(41,332
)
Proceeds from sales of SBA loans
 
21,038

 
20,409

Net gains on sale of SBA loans
 
(1,840
)
 
(2,724
)
Increase in cash surrender value of bank owned life insurance
 
(782
)
 
(781
)
Changes in FDIC loss-share payable, net of cash payments received
 
1,611

 
1,449

Change attributable to other operating activities
 
2,856

 
19,174

Net cash used in operating activities
 
(55,465
)
 
(68,328
)
 
 
 
 
 
Investing Activities, net of effects of business combinations
 
 

 
 

Purchases of securities available for sale
 
(155,476
)
 
(53,268
)
Proceeds from prepayments and maturities of securities available for sale
 
69,948

 
54,969

Proceeds from sales of securities available for sale
 
46,437

 
3,090

Net decrease (increase) in other investments
 
9,171

 
(7,187
)
Net increase in loans, excluding purchased loans
 
(361,575
)
 
(499,713
)
Payments received on purchased loans
 
108,727

 
119,716

Payments received on purchased loan pools
 
37,742

 
71,471

Purchases of premises and equipment
 
(3,066
)
 
(2,373
)
Proceeds from sales of premises and equipment
 
507

 

Proceeds from sales of other real estate owned
 
5,875

 
7,535

Payments paid to FDIC under loss-share agreements
 
(1,017
)
 
230

Net cash proceeds paid in acquisitions
 
52,016

 

Net cash used in investing activities
 
(190,711
)
 
(305,530
)
 
 
 
 
 
 
 
 

 
(Continued)


4



AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 
 
Six Months Ended
June 30,
 
 
2018
 
2017
Financing Activities, net of effects of business combinations
 
 

 
 

Net increase (decrease) in deposits
 
$
(28,861
)
 
$
218,234

Net decrease in securities sold under agreements to repurchase
 
(19,636
)
 
(35,105
)
Proceeds from other borrowings
 
1,150,000

 
1,122,692

Repayment of other borrowings
 
(753,579
)
 
(935,452
)
Issuance of common stock
 

 
88,656

Proceeds from exercise of stock options
 
846

 
1,850

Dividends paid - common stock
 
(7,558
)
 
(7,205
)
Purchase of treasury shares
 
(985
)
 
(886
)
Net cash provided by financing activities
 
340,227

 
452,784

 
 
 
 
 
Net increase in cash and cash equivalents
 
94,051

 
78,926

Cash and cash equivalents at beginning of period
 
330,658

 
198,385

Cash and cash equivalents at end of period
 
$
424,709

 
$
277,311

 
 
 
 
 
Supplemental Disclosures of Cash Flow Information
 
 

 
 

Cash paid during the period for:
 
 

 
 

Interest
 
$
23,213

 
$
13,048

Income taxes
 
4,018

 
16,030

Loans (excluding purchased loans) transferred to other real estate owned
 
1,691

 
3,347

Purchased loans transferred to other real estate owned
 
536

 
3,281

Loans transferred from loans held for sale to loans held for investment
 
180,750

 
102,421

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

 

Loans provided for the sales of other real estate owned
 
53

 
949

Assets acquired in business acquisitions
 
3,058,197

 

Liabilities assumed in business acquisitions
 
2,408,837

 

Issuance of common stock in acquisitions
 
547,127

 

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
 
(11,585
)
 
2,542

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

 
(63
)
 
 
 
 
 
 
 
 

 
(Concluded)

 
See notes to unaudited consolidated financial statements.
 


5



AMERIS BANCORP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
June 30, 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 June 30, 2018, the Bank operated 126 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 June 30, 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 June 30, 2018 and December 31, 2017 was $54.7 million and $44.1 million, respectively, and was met by cash on hand which is reported on the Company's consolidated balance sheets 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 retained 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 14 for further discussion on the Company's accounting policies for revenue sources within 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 quantitative impairment test is necessary. The standard must be adopted using a prospective basis and the nature and reason for the change in accounting principle should be disclosed upon transition. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in reporting periods beginning after December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. The Company is currently evaluating the impact this 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. A software vendor has been selected by the Company for assistance in the Company's implementation of ASU 2016-02.
 

 



8




NOTE 2 – BUSINESS COMBINATIONS

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

Hamilton State Bancshares, Inc.

On June 29, 2018, the Company completed its acquisition of Hamilton State Bancshares, Inc. ("Hamilton"), a bank holding company headquartered in Hoschton, Georgia. Upon consummation of the acquisition, Hamilton was merged with and into the Company, with Ameris as the surviving entity in the merger. At that time, Hamilton's wholly owned banking subsidiary, Hamilton State Bank, was also merged with and into the Bank. The acquisition expanded the Company's existing market presence, as Hamilton State Bank had a total of 28 full-service branches located in Atlanta, Georgia and the surrounding area, as well as in Gainesville, Georgia. Under the terms of the merger agreement, Hamilton's shareholders received 0.16 shares of Ameris common stock and $0.93 in cash for each share of Hamilton voting common stock or nonvoting common stock they previously held. As a result, the Company issued 6,548,385 common shares at a fair value of $349.4 million and paid $47.7 million in cash to the former shareholders of Hamilton as merger consideration.



9



As of June 30, 2018, the Company recorded a preliminary allocation of the purchase price to Hamilton's tangible and identifiable intangible assets acquired and liabilities assumed based on estimated fair values as of June 29, 2018. The following table presents the assets acquired and liabilities assumed of Hamilton as of June 29, 2018, and their fair value estimates. The Company continues its evaluation of the facts and circumstances available as of June 29, 2018, to assign fair values to assets acquired and liabilities assumed which could result in further adjustments to the fair values presented below. Because final external valuations were not complete as of June 30, 2018, management continues to evaluate fair value adjustments related to loans, premises, intangibles, interest-bearing deposits, subordinated deferrable interest debentures and deferred tax assets.
(dollars in thousands)
As Recorded
by Hamilton
 
Initial Fair
Value
Adjustments
 
 
As Recorded
by Ameris
Assets
 
 
 
 
 
 
Cash and due from banks
$
14,405

 
$

 
 
$
14,405

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

 

 
 
102,156

Time deposits in other banks
11,558

 

 
 
11,558

Investment securities
288,206

 
(2,376
)
(a)
 
285,830

Other investments
2,094

 

 
 
2,094

Loans
1,314,264

 
(15,528
)
(b)
 
1,298,736

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

(c)
 

     Loans, net
1,303,081

 
(4,345
)
 
 
1,298,736

Other real estate owned
847

 

 
 
847

Premises and equipment
27,483

 

 
 
27,483

Other intangible assets, net
18,755

 
(2,755
)
(d)
 
16,000

Cash value of bank owned life insurance
4,454

 

 
 
4,454

Deferred income taxes, net
12,445

 
(6,308
)
(e)
 
6,137

Other assets
13,053

 

 
 
13,053

     Total assets
$
1,798,537

 
$
(15,784
)
 
 
$
1,782,753

Liabilities
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
     Noninterest-bearing
$
381,039

 
$

 
 
$
381,039

     Interest-bearing
1,201,324

 
(1,896
)
(f)
 
1,199,428

          Total deposits
1,582,363

 
(1,896
)
 
 
1,580,467

Other borrowings
10,687

 
(66
)
(g)
 
10,621

Subordinated deferrable interest debentures
3,093

 
(658
)
(h)
 
2,435

Other liabilities
10,460

 
2,391

(i)
 
12,851

     Total liabilities
1,606,603

 
(229
)
 
 
1,606,374

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

 
(15,555
)
 
 
176,379

Goodwill

 
220,713

 
 
220,713

Net assets acquired over liabilities assumed
$
191,934

 
$
205,158

 
 
$
397,092

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

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

 
 
 
 
 
          Company common stock issued
$
349,356

 
 
 
 
 
          Cash exchanged for shares
$
47,736

 
 
 
 
 
     Fair value of total consideration transferred
$
397,092

 
 
 
 
 
____________________________________________________________

Explanation of fair value adjustments
(a)
Adjustment reflects the fair value adjustments of the portfolio of investment securities as of the acquisition date.
(b)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired loan portfolio, net of the reversal of Hamilton's unamortized accounting adjustments from their prior acquisitions, loan premiums, loan discounts, deferred loan origination costs and deferred loan origination fees.
(c)
Adjustment reflects the elimination of Hamilton's allowance for loan losses.

10



(d)
Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts, net of reversal of Hamilton's remaining intangible assets from its past acquisitions.
(e)
Adjustment reflects the deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.
(f)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired deposits.
(g)
Adjustment reflects the reversal of Hamilton's unamortized accounting adjustments for other borrowings from its past acquisitions.
(h)
Adjustment reflects the fair value adjustment to the subordinated deferrable interest debenture at the acquisition date.
(i)
Adjustment reflects the fair value adjustment to the FDIC loss-share clawback liability included in other liabilities.

Goodwill of $220.7 million, which is the excess of the purchase price over the fair value of net assets acquired, was recorded in the Hamilton acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

In the acquisition, the Company purchased $1.30 billion of loans at fair value, net of $15.5 million, or 1.18%, estimated discount to the outstanding principal balance. Of the total loans acquired, management identified $18.8 million that were considered to be credit impaired and are accounted for under ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of the acquisition date for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

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

Non-accretable difference
(1,614
)
Cash flows expected to be collected
19,609

Accretable yield
(794
)
Total purchased credit-impaired loans acquired
$
18,815


The following table presents the acquired loan data for the Hamilton acquisition.
(dollars in thousands)
Fair Value of
Acquired Loans at
Acquisition Date
 
Gross Contractual
Amounts Receivable
at Acquisition Date
 
Estimate at
Acquisition Date of
Contractual Cash
Flows Not Expected
to be Collected
Acquired receivables subject to ASC 310-30
$
18,815

 
$
21,223

 
$
1,614

Acquired receivables not subject to ASC 310-30
$
1,279,921

 
$
1,441,534

 
$


Atlantic Coast Financial Corporation

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



11



As of June 30, 2018, the Company recorded a preliminary allocation of the purchase price to Atlantic's tangible and identifiable intangible assets acquired and liabilities assumed based on estimated fair values as of May 25, 2018. The following table presents the assets acquired and liabilities assumed of Atlantic as of May 25, 2018, and their fair value estimates. The Company continues its evaluation of the facts and circumstances available as of May 25, 2018, to assign fair values to assets acquired and liabilities assumed which could result in further adjustments to the fair values presented below. Because final external valuations were not complete as of June 30, 2018, management continues to evaluate fair value adjustments related to loans, intangibles, interest-bearing deposits and deferred tax assets.
(dollars in thousands)
As Recorded
by Atlantic
 
Initial Fair
Value
Adjustments
 
 
As Recorded
by Ameris
Assets
 
 
 
 
 
 
Cash and due from banks
$
3,990

 
$

 
 
$
3,990

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

 

 
 
22,149

Investment securities
35,186

 
(60
)
(a)
 
35,126

Other investments
9,576

 

 
 
9,576

Loans held for sale
358

 

 
 
358

Loans
777,605

 
(19,423
)
(b)
 
758,182

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

(c)
 

     Loans, net
769,032

 
(10,850
)
 
 
758,182

Other real estate owned
1,837

 
(796
)
(d)
 
1,041

Premises and equipment
12,591

 
(1,695
)
(e)
 
10,896

Other intangible assets, net

 
5,937

(f)
 
5,937

Cash value of bank owned life insurance
18,182

 

 
 
18,182

Deferred income taxes, net
5,782

 
709

(g)
 
6,491

Other assets
3,604

 
(634
)
(h)
 
2,970

     Total assets
$
882,287

 
$
(7,389
)
 
 
$
874,898

Liabilities
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
     Noninterest-bearing
$
69,761

 
$

 
 
$
69,761

     Interest-bearing
514,935

 
(554
)
(i)
 
514,381

          Total deposits
584,696

 
(554
)
 
 
584,142

Other borrowings
204,475

 

 
 
204,475

Other liabilities
8,367

 
(13
)
(j)
 
8,354

     Total liabilities
797,538

 
(567
)
 
 
796,971

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

 
(6,822
)
 
 
77,927

Goodwill

 
91,360

 
 
91,360

Net assets acquired over liabilities assumed
$
84,749

 
$
84,538

 
 
$
169,287

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

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

 
 
 
 
 
          Company common stock issued
$
147,760

 
 
 
 
 
          Cash exchanged for shares
$
21,527

 
 
 
 
 
     Fair value of total consideration transferred
$
169,287

 
 
 
 
 
____________________________________________________________

Explanation of fair value adjustments
(a)
Adjustment reflects the fair value adjustments of the portfolio of investment securities as of the acquisition date.
(b)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired loan portfolio, net of the reversal of Atlantic's unamortized accounting adjustments from loan premiums, loan discounts, deferred loan origination costs and deferred loan origination fees.
(c)
Adjustment reflects the elimination of Atlantic's allowance for loan losses.
(d)
Adjustment reflects the fair value adjustment based on the Company's evaluation of the acquired OREO portfolio.
(e)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired premises and equipment.

12



(f)
Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts.
(g)
Adjustment reflects the deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.
(h)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired other assets.
(i)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired deposits.
(j)
Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired other liabilities.

Goodwill of $91.4 million, which is the excess of the purchase price over the fair value of net assets acquired, was recorded in the Atlantic acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

In the acquisition, the Company purchased $758.2 million of loans at fair value, net of $19.4 million, or 2.50%, estimated discount to the outstanding principal balance. Of the total loans acquired, management identified $12.1 million that were considered to be credit impaired and are accounted for under ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of the acquisition date for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

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

Non-accretable difference
(2,795
)
Cash flows expected to be collected
13,282

Accretable yield
(1,199
)
Total purchased credit-impaired loans acquired
$
12,083


The following table presents the acquired loan data for the Atlantic acquisition.
(dollars in thousands)
Fair Value of
Acquired Loans at
Acquisition Date
 
Gross Contractual
Amounts Receivable
at Acquisition Date
 
Estimate at
Acquisition Date of
Contractual Cash
Flows Not Expected
to be Collected
Acquired receivables subject to ASC 310-30
$
12,083

 
$
16,077

 
$
2,795

Acquired receivables not subject to ASC 310-30
$
746,099

 
$
1,041,768

 
$


US Premium Finance Holding Company

On January 31, 2018, the Company closed on the purchase of the final 70% of the outstanding shares of common stock of US Premium Finance Holding Company, a Florida corporation ("USPF"), completing its acquisition of USPF and making USPF a wholly owned subsidiary of the Company. Through a series of three acquisition transactions that closed on January 18, 2017, January 3, 2018 and January 31, 2018, the Company issued a total of 1,073,158 shares of its common stock at a fair value of $55.9 million and paid $21.4 million in cash to the 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. As of the January 31, 2018 acquisition date, the present value of the contingent earn-out consideration expected to be paid was $5.7 million. Including the fair value of the Company's common stock issued, cash paid and the present value of the contingent earn-out consideration expected to be paid, the aggregate purchase price of USPF amounted to $83.0 million.

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.


13



As of June 30, 2018, the Company recorded a preliminary allocation of the purchase price to USPF's assets acquired and liabilities assumed based on estimated fair values as of January 31, 2018. The assets acquired include only identifiable intangible assets related to insurance agent relationships that lead to referral of insurance premium finance loans to USPF, the US Premium Finance trade name and a non-compete agreement with a former USPF shareholder. The following table presents the assets acquired and liabilities assumed of USPF as of January 31, 2018, and their fair value estimates. The Company continues its evaluations of the facts and circumstances available as of January 31, 2018, to assign fair values to assets acquired and liabilities assumed which could result in further adjustments to the fair values presented below. Because the final external valuation was not complete as of June 30, 2018, management continues to evaluate fair value adjustments related to the insurance agent relationships intangible and the deferred tax liability.
(dollars in thousands)
As Recorded
by USPF
 
Initial Fair
Value
Adjustments
 
 
As Recorded
by Ameris
Assets
 
 
 
 
 
 
Intangible asset - insurance agent relationships
$

 
$
20,000

(a)
 
$
20,000

Intangible asset - US Premium Finance trade name

 
1,136

(b)
 
1,136

Intangible asset - non-compete agreement

 
178

(c)
 
178

     Total assets
$

 
$
21,314

 
 
$
21,314

Liabilities
 
 
 
 
 
 
Deferred tax liability
$

 
$
5,492

(d)
 
$
5,492

Total liabilities

 
5,492

 
 
5,492

Net identifiable assets acquired over liabilities assumed

 
15,822

 
 
15,822

Goodwill

 
67,159

 
 
67,159

Net assets acquired over liabilities assumed
$

 
$
82,981

 
 
$
82,981

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

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

 
 
 
 
 
          Company common stock issued
$
55,855

 
 
 
 
 
          Cash exchanged for shares
$
21,421

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

 
 
 
 
 
     Fair value of total consideration transferred
$
82,981

 
 
 
 
 
____________________________________________________________

Explanation of fair value adjustments
(a)
Adjustment reflects the recording of the fair value of the insurance agent relationships intangible.
(b)
Adjustment reflect the recording of the fair value of the trade name intangible.
(c)
Adjustment reflects the recording of the fair value of the non-compete agreement intangible.
(d)
Adjustment reflects the deferred taxes on the differences in the carrying values of acquired intangible assets for financial reporting purposes and their basis for federal income tax purposes.
 
The preliminary allocation of the purchase price to identifiable intangible assets resulted in $1.3 million of amortization expense in the second quarter of 2018.  If this allocation had been applied as of the acquisition date, $504,000 of this amount would have been recorded in the first quarter of 2018.

Goodwill of $67.2 million, which is the excess of the purchase price over the fair value of net assets acquired, was recorded in the USPF acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

During the second quarter of 2018, the Company recorded $2.0 million in other noninterest income in the consolidated statements of income and comprehensive income to reflect a decrease in the estimated contingent consideration liability. This decrease in the estimated contingent consideration liability was based on the results of the Premium Finance Division for the three months ended June 30, 2018.



14



Pro Forma Financial Information

The results of operations of Hamilton, Atlantic and USPF subsequent to their respective acquisition dates are included in the Company’s consolidated statements of income and comprehensive income. The following unaudited pro forma information reflects the Company’s estimated consolidated results of operations as if the acquisitions had occurred on January 1, 2017, unadjusted for potential cost savings.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(dollars in thousands, except per share data; shares in thousands)
2018
 
2017
 
2018
 
2017
Net interest income and noninterest income
$
132,540

 
$
119,137

 
$
255,652

 
$
233,949

Net income
$
14,603

 
$
30,913

 
$
49,506

 
$
59,643

Net income available to common shareholders
$
14,603

 
$
30,913

 
$
49,506

 
$
59,643

Income per common share available to common shareholders – basic
$
0.31

 
$
0.65

 
$
1.04

 
$
1.28

Income per common share available to common shareholders – diluted
$
0.31

 
$
0.65

 
$
1.04

 
$
1.27

Average number of shares outstanding, basic
47,398

 
47,287

 
47,412

 
46,554

Average number of shares outstanding, diluted
47,676

 
47,614

 
47,689

 
46,881


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
June 30, 2018
 
 
 
 
 
 
 
 
State, county and municipal securities
 
$
158,836

 
$
803

 
$
(559
)
 
$
159,080

Corporate debt securities
 
66,935

 
843

 
(631
)
 
67,147

Mortgage-backed securities
 
944,710

 
422

 
(17,656
)
 
927,476

Total debt securities
 
$
1,170,481

 
$
2,068

 
$
(18,846
)
 
$
1,153,703

 
 
 
 
 
 
 
 
 
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 June 30, 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
 
$
12,384

 
$
12,407

Due from one year to five years
 
85,744

 
85,238

Due from five to ten years
 
95,997

 
96,826

Due after ten years
 
31,646

 
31,756

Mortgage-backed securities
 
944,710

 
927,476

 
 
$
1,170,481

 
$
1,153,703

 

15



Securities with a carrying value of approximately $475.0 million serve as collateral to secure public deposits, securities sold under agreements to repurchase and for other purposes required or permitted by law at June 30, 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 June 30, 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
June 30, 2018
 
 

 
 

 
 

 
 

 
 

 
 

State, county and municipal securities
 
$
82,129

 
$
(463
)
 
$
4,627

 
$
(96
)
 
$
86,756

 
$
(559
)
Corporate debt securities
 
2,475

 
(148
)
 
17,979

 
(483
)
 
20,454

 
(631
)
Mortgage-backed securities
 
633,023

 
(8,939
)
 
200,041

 
(8,717
)
 
833,064

 
(17,656
)
Total debt securities
 
$
717,627

 
$
(9,550
)
 
$
222,647

 
$
(9,296
)
 
$
940,274

 
$
(18,846
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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 June 30, 2018, the Company’s securities portfolio consisted of 586 securities, 388 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 June 30, 2018, the Company held 316 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 June 30, 2018.

At June 30, 2018, the Company held 61 state, county and municipal securities and 11 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 June 30, 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 June 30, 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 June 30, 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 June 30, 2018, these investments are not considered impaired on an other-than-temporary basis.
 
At June 30, 2018 and December 31, 2017, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.
 

16



The following table is a summary of sales activities in the Company’s investment securities available for sale for the six months ended June 30, 2018 and 2017:
(dollars in thousands)
 
June 30,
2018
 
June 30,
2017
Gross gains on sales of securities
 
$
332

 
$
38

Gross losses on sales of securities
 
(295
)
 
(1
)
Net realized gains on sales of securities available for sale
 
$
37

 
$
37

 
 
 
 
 
Sales proceeds
 
$
46,437

 
$
3,090


Total gain (loss) on securities reported on the consolidated statements of income and comprehensive income is comprised of the following for the six months ended June 30, 2018 and 2017:
(dollars in thousands)
 
June 30,
2018
 
June 30,
2017
Net realized gains on sales of securities available for sale
 
$
37

 
$
37

Unrealized holding losses on equity securities
 
(123
)
 

Total gain (loss) on securities
 
$
(86
)
 
$
37


 
NOTE 4 – LOANS

The Bank engages in a full complement of lending activities, including real estate-related loans, agriculture-related loans, commercial and financial loans and consumer installment loans within select markets in Georgia, Alabama, Florida and South Carolina. The Bank purchased residential mortgage loan pools during 2015 and 2016 collateralized by properties located outside our Southeast markets, specifically in California, Washington and Illinois. During the third quarter of 2016, the Bank began purchasing from unrelated third parties consumer installment home improvement loans made to borrowers throughout the United States. As of June 30, 2018 and December 31, 2017, the net carrying value of these consumer installment home improvement loans was approximately $339.2 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 June 30, 2018 and December 31, 2017, the net carrying value of commercial insurance premium loans was approximately $524.3 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.

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.

17



 
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)
June 30,
2018
 
December 31,
2017
Commercial, financial and agricultural
$
1,446,857

 
$
1,362,508

Real estate – construction and development
672,155

 
624,595

Real estate – commercial and farmland
1,640,411

 
1,535,439

Real estate – residential
1,245,370

 
1,009,461

Consumer installment
375,722

 
324,511

 
$
5,380,515

 
$
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 $2.81 billion and $861.6 million at June 30, 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)
June 30,
2018
 
December 31,
2017
Commercial, financial and agricultural
$
397,517

 
$
74,378

Real estate – construction and development
268,443

 
65,513

Real estate – commercial and farmland
1,428,490

 
468,246

Real estate – residential
679,205

 
250,539

Consumer installment
38,855

 
2,919

 
$
2,812,510

 
$
861,595

 
A rollforward of purchased loans for the six months ended June 30, 2018 and 2017 is shown below:
(dollars in thousands)
June 30,
2018
 
June 30,
2017
Balance, January 1
$
861,595

 
$
1,069,191

Charge-offs, net of recoveries
(1,060
)
 
(1,860
)
Additions due to acquisitions
2,056,918

 

Accretion
4,340

 
6,165

Transfers to purchased other real estate owned
(556
)
 
(3,281
)
Payments received
(108,727
)
 
(119,716
)
Ending balance
$
2,812,510

 
$
950,499


The following is a summary of changes in the accretable discounts of purchased loans during the six months ended June 30, 2018 and 2017:
(dollars in thousands)
June 30,
2018
 
June 30,
2017
Balance, January 1
$
20,192

 
$
30,624

Additions due to acquisitions
29,318

 

Accretion
(4,340
)
 
(6,165
)
Accretable discounts removed due to charge-offs
(4
)
 
(13
)
Transfers between non-accretable and accretable discounts, net
1,332

 
807

Ending balance
$
46,498

 
$
25,253

 
Purchased loan pools are defined as groups of residential mortgage loans that were not acquired in bank acquisitions or FDIC-assisted transactions. As of June 30, 2018, purchased loan pools totaled $297.5 million and consisted of whole-loan residential mortgages on properties outside the Company’s markets, with principal balances totaling $294.6 million and $2.9 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.

18