QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number:
001-13901
AMERIS BANCORP
(Exact name of registrant as specified in its charter)
Georgia
58-1456434
(State of incorporation)
(IRS Employer ID No.)
3490 Piedmont Rd N.E., Suite 1550
Atlanta
Georgia
30305
(Address of principal executive offices)
(404)
639-6500
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $1 per share
ABCB
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý No ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesý 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
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
There were 69,351,709 shares of Common Stock outstanding as of October 31, 2022.
Federal funds sold and interest-bearing deposits in banks
1,061,975
3,756,844
Cash and cash equivalents
1,331,168
4,064,657
Debt securities available-for-sale, at fair value, net of allowance for credit losses of $79 and $—
1,255,149
592,621
Debt securities held-to-maturity, at amortized cost, net of allowance for credit losses of $— and $— (fair value of $107,814 and $78,206)
130,214
79,850
Other investments
60,560
47,552
Loans held for sale, at fair value
297,987
1,254,632
Loans, net of unearned income
18,806,856
15,874,258
Allowance for credit losses
(184,891)
(167,582)
Loans, net
18,621,965
15,706,676
Other real estate owned, net
843
3,810
Premises and equipment, net
222,694
225,400
Goodwill
1,023,071
1,012,620
Other intangible assets, net
110,903
125,938
Cash value of bank owned life insurance
386,533
331,146
Other assets
372,570
413,419
Total assets
$
23,813,657
$
23,858,321
Liabilities
Deposits:
Noninterest-bearing
$
8,343,200
$
7,774,823
Interest-bearing
11,123,719
11,890,730
Total deposits
19,466,919
19,665,553
Securities sold under agreements to repurchase
—
5,845
Other borrowings
725,664
739,879
Subordinated deferrable interest debentures
127,823
126,328
Other liabilities
374,181
354,265
Total liabilities
20,694,587
20,891,870
Commitments and Contingencies (Note 8)
Shareholders’ Equity
Preferred stock, stated value $1,000; 5,000,000 shares authorized; 0 shares issued and outstanding
—
—
Common stock, par value $1; 200,000,000 shares authorized; 72,247,386 and 72,017,126 shares issued
72,247
72,017
Capital surplus
1,932,906
1,924,813
Retained earnings
1,239,477
1,006,436
Accumulated other comprehensive income, net of tax
(50,734)
15,590
Treasury stock, at cost, 2,894,677 and 2,407,898 shares
(74,826)
(52,405)
Total shareholders’ equity
3,119,070
2,966,451
Total liabilities and shareholders’ equity
$
23,813,657
$
23,858,321
See notes to unaudited consolidated financial statements.
1
AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income (unaudited)
(dollars and shares in thousands, except per share data)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Interest income
Interest and fees on loans
$
216,400
$
166,358
$
584,706
$
505,276
Interest on taxable securities
10,324
5,296
21,627
16,658
Interest on nontaxable securities
363
139
818
419
Interest on deposits in other banks and federal funds sold
7,215
1,253
13,093
2,394
Total interest income
234,302
173,046
620,244
524,747
Interest expense
Interest on deposits
14,034
5,106
23,034
17,679
Interest on other borrowings
7,287
6,279
20,321
18,578
Total interest expense
21,321
11,385
43,355
36,257
Net interest income
212,981
161,661
576,889
488,490
Provision for loan losses
17,469
(3,984)
27,962
(21,462)
Provision for unfunded commitments
192
(5,516)
10,980
(16,056)
Provision for other credit losses
(9)
(175)
(135)
(606)
Provision for credit losses
17,652
(9,675)
38,807
(38,124)
Net interest income after provision for credit losses
195,329
171,336
538,082
526,614
Noninterest income
Service charges on deposit accounts
11,168
11,486
33,374
33,322
Mortgage banking activity
40,350
56,460
162,049
225,177
Other service charges, commissions and fees
970
1,154
2,907
3,226
Net gain (loss) on securities
(21)
530
200
519
Other noninterest income
12,857
6,932
37,546
21,531
Total noninterest income
65,324
76,562
236,076
283,775
Noninterest expense
Salaries and employee benefits
78,697
79,671
244,523
261,161
Occupancy and equipment
12,983
11,979
38,456
34,572
Data processing and communications expenses
12,015
10,681
36,742
34,442
Credit resolution-related expenses
126
377
(343)
1,546
Advertising and marketing
3,553
2,676
8,663
6,053
Amortization of intangible assets
4,710
3,387
15,035
11,578
Merger and conversion charges
—
183
977
183
Loan servicing expense
9,613
7,400
28,452
18,214
Other noninterest expenses
17,881
20,842
53,089
54,006
Total noninterest expense
139,578
137,196
425,594
421,755
Income before income tax expense
121,075
110,702
348,564
388,634
Income tax expense
28,520
29,022
84,245
93,665
Net income
92,555
81,680
264,319
294,969
Other comprehensive loss
Net unrealized holding losses arising during period on investment securities available-for-sale, net of tax benefit of $(10,128), $(834), $(17,631) and $(3,089)
(38,099)
(3,139)
(66,324)
(11,620)
Total other comprehensive loss
(38,099)
(3,139)
(66,324)
(11,620)
Comprehensive income
$
54,456
$
78,541
$
197,995
$
283,349
Basic earnings per common share
$
1.34
$
1.18
$
3.82
$
4.25
Diluted earnings per common share
$
1.34
$
1.17
$
3.81
$
4.23
Weighted average common shares outstanding
Basic
69,125
69,440
69,213
69,445
Diluted
69,327
69,756
69,428
69,772
See notes to unaudited consolidated financial statements.
2
AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (unaudited)
(dollars in thousands)
Three Months Ended September 30, 2022
Common Stock
Capital Surplus
Retained Earnings
Accumulated Other Comprehensive Income (Loss), Net of Tax
Treasury Stock
Total Shareholders' Equity
Shares
Amount
Shares
Amount
Balance, June 30, 2022
72,251,856
$
72,251
$
1,931,088
$
1,157,359
$
(12,635)
2,891,395
$
(74,687)
$
3,073,376
Forfeitures of restricted shares
(4,470)
(4)
(38)
—
—
—
—
(42)
Share-based compensation
—
—
1,856
—
—
—
—
1,856
Purchase of treasury shares
—
—
—
—
—
3,282
(139)
(139)
Net income
—
—
—
92,555
—
—
—
92,555
Dividends on common shares ($0.15 per share)
—
—
—
(10,437)
—
—
—
(10,437)
Other comprehensive loss during the period
—
—
—
—
(38,099)
—
—
(38,099)
Balance, September 30, 2022
72,247,386
$
72,247
$
1,932,906
$
1,239,477
$
(50,734)
2,894,677
$
(74,826)
$
3,119,070
Nine Months Ended September 30, 2022
Common Stock
Capital Surplus
Retained Earnings
Accumulated Other Comprehensive Income (Loss), Net of Tax
Treasury Stock
Total Shareholders' Equity
Shares
Amount
Shares
Amount
Balance, December 31, 2021
72,017,126
$
72,017
$
1,924,813
$
1,006,436
$
15,590
2,407,898
$
(52,405)
$
2,966,451
Issuance of restricted shares
164,346
164
1,177
—
—
—
—
1,341
Forfeitures of restricted shares
(13,889)
(14)
(119)
—
—
—
—
(133)
Proceeds from exercise of stock options
79,803
80
2,244
—
—
—
—
2,324
Share-based compensation
—
—
4,791
—
—
—
—
4,791
Purchase of treasury shares
—
—
—
—
—
486,779
(22,421)
(22,421)
Net income
—
—
—
264,319
—
—
—
264,319
Dividends on common shares ($0.45 per share)
—
—
—
(31,278)
—
—
—
(31,278)
Other comprehensive loss during the period
—
—
—
—
(66,324)
—
—
(66,324)
Balance, September 30, 2022
72,247,386
$
72,247
$
1,932,906
$
1,239,477
$
(50,734)
2,894,677
$
(74,826)
$
3,119,070
3
Three Months Ended September 30, 2021
Common Stock
Capital Surplus
Retained Earnings
Accumulated Other Comprehensive Income, Net of Tax
Treasury Stock
Total Shareholders' Equity
Shares
Amount
Shares
Amount
Balance, June 30, 2021
72,007,871
$
72,008
$
1,920,566
$
863,828
$
25,024
2,240,662
$
(44,422)
$
2,837,004
Forfeitures of restricted shares
(1,945)
(2)
(31)
—
—
—
—
(33)
Proceeds from exercise of stock options
10,000
10
278
—
—
—
—
288
Share-based compensation
—
—
2,151
—
—
—
—
2,151
Purchase of treasury shares
—
—
—
—
—
139,829
(6,652)
(6,652)
Net income
—
—
—
81,680
—
—
—
81,680
Dividends on common shares ($0.15 per share)
—
—
—
(10,529)
—
—
—
(10,529)
Other comprehensive loss during the period
—
—
—
—
(3,139)
—
—
(3,139)
Balance, September 30, 2021
72,015,926
$
72,016
$
1,922,964
$
934,979
$
21,885
2,380,491
$
(51,074)
$
2,900,770
Nine Months Ended September 30, 2021
Common Stock
Capital Surplus
Retained Earnings
Accumulated Other Comprehensive Income, Net of Tax
Treasury Stock
Total Shareholders' Equity
Shares
Amount
Shares
Amount
Balance, December 31, 2020
71,753,705
$
71,754
$
1,913,285
$
671,510
$
33,505
2,212,224
$
(42,966)
$
2,647,088
Issuance of restricted shares
99,308
99
500
—
—
—
—
599
Forfeitures of restricted shares
(2,695)
(3)
(50)
—
—
—
—
(53)
Proceeds from exercise of stock options
165,608
166
4,333
—
—
—
—
4,499
Share-based compensation
—
—
4,896
—
—
—
—
4,896
Purchase of treasury shares
—
—
—
—
—
168,267
(8,108)
(8,108)
Net income
—
—
—
294,969
—
—
—
294,969
Dividends on common shares ($0.45 per share)
—
—
—
(31,500)
—
—
—
(31,500)
Other comprehensive loss during the period
—
—
—
—
(11,620)
—
—
(11,620)
Balance, September 30, 2021
72,015,926
$
72,016
$
1,922,964
$
934,979
$
21,885
2,380,491
$
(51,074)
$
2,900,770
See notes to unaudited consolidated financial statements.
4
AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
Nine Months Ended September 30,
2022
2021
Operating Activities
Net income
$
264,319
$
294,969
Adjustments reconciling net income to net cash provided by (used in) operating activities:
Depreciation
13,808
12,864
Net losses on sale or disposal of premises and equipment
92
3,200
Net write-downs on other assets
—
260
Provision for credit losses
38,807
(38,124)
Net write-downs and (gains) losses on sale of other real estate owned
(1,773)
(581)
Share-based compensation expense
4,859
5,884
Amortization of intangible assets
15,035
11,578
Amortization of operating lease right of use assets
8,783
12,389
Provision for deferred taxes
(21,699)
32,074
Net amortization of investment securities available-for-sale
407
2,534
Net amortization of investment securities held-to-maturity
71
14
Net amortization of other investments
556
—
Net gain on securities
(200)
(519)
Accretion of discount on purchased loans, net
(30)
(13,537)
Net amortization on other borrowings
324
330
Amortization of subordinated deferrable interest debentures
1,495
1,485
Loan servicing asset recovery
(21,824)
(9,990)
Originations of mortgage loans held for sale
(3,265,190)
(6,231,286)
Payments received on mortgage loans held for sale
21,657
38,178
Proceeds from sales of mortgage loans held for sale
3,919,672
5,752,055
Net (gains) losses on sale of mortgage loans held for sale
83,975
(126,533)
Originations of SBA loans
(44,664)
(51,155)
Proceeds from sales of SBA loans
53,961
54,861
Net gains on sale of SBA loans
(5,191)
(5,059)
Increase in cash surrender value of bank owned life insurance
(5,433)
(3,628)
Gain on bank owned life insurance proceeds
(55)
(603)
Net gains on other loans held for sale
—
(457)
Loss on sale of mortgage servicing rights
316
—
Change attributable to other operating activities
711
1,244
Net cash provided by (used in) operating activities
1,062,789
(257,553)
Investing Activities, net of effects of business combinations
Proceeds from maturities of time deposits in other banks
—
249
Purchases of securities available-for-sale
(894,260)
—
Purchases of investment securities held-to-maturity
(52,111)
(64,517)
Proceeds from maturities and paydowns of securities available-for-sale
147,291
281,244
Proceeds from maturities and paydowns of securities held-to-maturity
1,676
52
Net (increase) decrease in other investments
(13,364)
1,102
Net increase in loans
(2,764,936)
(215,289)
Purchases of premises and equipment
(11,307)
(21,990)
Proceeds from sale of premises and equipment
46
993
Proceeds from sales of other real estate owned
5,086
10,141
Proceeds from sale of mortgage servicing rights
119,845
—
Purchases of bank owned life insurance
(50,000)
(100,000)
Proceeds from bank owned life insurance
101
1,309
Payments received on other loans held for sale
—
9,136
Proceeds from sales of other loans held for sale
—
156,803
Net cash and cash equivalents paid in acquisitions
(14,003)
—
Net cash provided by (used in) investing activities
(3,525,936)
59,233
(Continued)
5
AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
Nine Months Ended September 30,
2022
2021
Financing Activities, net of effects of business combinations
Net increase (decrease) in deposits
$
(198,634)
$
1,875,666
Net decrease in securities sold under agreements to repurchase
(5,845)
(7,139)
Proceeds from other borrowings
350,000
—
Repayment of other borrowings
(364,539)
(110)
Proceeds from exercise of stock options
2,324
4,499
Dividends paid - common stock
(31,227)
(31,354)
Purchase of treasury shares
(22,421)
(8,108)
Net cash provided by (used in) financing activities
(270,342)
1,833,454
Net increase (decrease) in cash, cash equivalents and restricted cash
(2,733,489)
1,635,134
Cash, cash equivalents and restricted cash at beginning of period
4,064,657
2,117,306
Cash, cash equivalents and restricted cash at end of period
$
1,331,168
$
3,752,440
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest
$
42,040
$
35,389
Income taxes
82,551
55,651
Loans transferred to other real estate owned
346
2,274
Loans transferred from loans held for sale to loans held for investment
192,425
134,941
Loans provided for the sales of other real estate owned
2,288
1,052
Right-of-use assets obtained in exchange for new operating lease liabilities
1,537
10,270
Assets acquired in business acquisitions
10,641
—
Liabilities assumed in business acquisitions
(3,362)
—
Change in unrealized loss on securities available-for-sale, net of tax
(66,324)
(11,620)
(Concluded)
See notes to unaudited consolidated financial statements.
6
AMERIS BANCORP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
September 30, 2022
NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Nature of Business
Ameris Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered in Atlanta, Georgia. Ameris conducts substantially all of its operations through its wholly owned banking subsidiary, Ameris Bank (the “Bank”). At September 30, 2022, the Bank operated 164 branches in select markets in Georgia, Alabama, Florida, North Carolina and South Carolina. Our business model capitalizes on the efficiencies of a large financial services company, while still providing the community with the personalized banking service expected by our customers. We manage our Bank through a balance of decentralized management responsibilities and efficient centralized operating systems, products and loan underwriting standards. The Company’s Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within our established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of his or her unique market.
Basis of Presentation
The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited but reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine month periods ended September 30, 2022 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 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
In preparing the consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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, federal funds sold and restricted cash. Restricted cash held for securitization investors, which are reported on the Company's consolidated balance sheets in cash and due from banks, was $0 and $43.0 million at September 30, 2022 and December 31, 2021, respectively.
Reclassifications
Certain reclassifications of prior year amounts have been made to conform with the current year presentations. The reclassifications had no effect on net income or shareholders' equity as previously reported.
Accounting Standards Pending Adoption
ASU No. 2022-02 – Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"). ASU 2022-02 eliminates the troubled debt restructuring ("TDR") measurement and recognition guidance and requires that entities evaluate whether the modification represents a new loan or a continuation of an existing loan consistent with the accounting for other loan modifications. Additional disclosures relating to modifications to borrowers experiencing financial difficulty are required under ASU 2022-02. ASU 2022-02 also requires disclosure of current-period gross write-offs by year of origination. ASU 2022-02 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The amendments of ASU 2022-02 should be adopted prospectively. The amendments related to the recognition and measurement of TDRs may optionally be adopted using a modified retrospective transition method.
7
Early adoption is permitted. The Company is currently evaluating the impact on the consolidated financial statements of adopting ASU 2022-02.
ASU No. 2021-01 – Reference Rate Reform (Topic 848): Scope ("ASU 2021-01"). ASU 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. Because the guidance is intended to assist stakeholders during the global market-wide reference rate transition period, it is in effect for a limited time, from March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact on the consolidated financial statements of adopting ASU 2021-01.
ASU No. 2020-04 – Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides optional guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments, which are elective, provide expedients and exceptions for applying GAAP to contract modifications and hedging relationships affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate that is expected to be discontinued due to reference rate reform. The optional expedients for contract modifications apply consistently for all contracts or transactions within the relevant Codification Topic, Subtopic, or Industry Subtopic that contains the guidance that otherwise would be required to be applied, while those for hedging relationships can be elected on an individual hedging relationship basis. Because the guidance is intended to assist stakeholders during the global market-wide reference rate transition period, it is in effect for a limited time, from March 12, 2020 through December 31, 2022. The Company has established a working committee with representatives from relevant functional areas to inventory the contracts and accounts that are tied to LIBOR and develop a transition plan for the affected items. The Company is currently evaluating the impact on the consolidated financial statements of adopting ASU 2020-04.
NOTE 2 – INVESTMENT SECURITIES
The amortized cost and estimated fair value of securities available-for-sale along with gross unrealized gains and losses are summarized as follows:
(dollars in thousands)
Securities available-for-sale
Amortized Cost
Allowance for Credit Losses
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value
September 30, 2022
U.S. Treasuries
$
520,085
$
—
$
—
$
(16,275)
$
503,810
U.S. government-sponsored agencies
1,039
—
—
(62)
977
State, county and municipal securities
40,842
—
10
(1,584)
39,268
Corporate debt securities
15,897
(79)
—
(522)
15,296
SBA pool securities
31,063
—
4
(2,216)
28,851
Mortgage-backed securities
710,523
—
12
(43,588)
666,947
Total debt securities available-for-sale
$
1,319,449
$
(79)
$
26
$
(64,247)
$
1,255,149
December 31, 2021
U.S. government-sponsored agencies
$
7,084
$
—
$
88
$
—
$
7,172
State, county and municipal securities
45,470
—
2,342
—
47,812
Corporate debt securities
27,897
—
719
(120)
28,496
SBA pool securities
44,312
—
958
(69)
45,201
Mortgage-backed securities
448,124
—
15,822
(6)
463,940
Total debt securities available-for-sale
$
572,887
$
—
$
19,929
$
(195)
$
592,621
8
The amortized cost and estimated fair value of securities held-to-maturity along with gross unrealized gains and losses are summarized as follows:
(dollars in thousands)
Securities held-to-maturity
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value
September 30, 2022
State, county and municipal securities
$
31,905
$
—
$
(6,832)
$
25,073
Mortgage-backed securities
98,309
—
(15,568)
82,741
Total debt securities held-to-maturity
$
130,214
$
—
$
(22,400)
$
107,814
December 31, 2021
State, county and municipal securities
$
8,905
$
4
$
(198)
$
8,711
Mortgage-backed securities
70,945
—
(1,450)
69,495
Total debt securities held-to-maturity
$
79,850
$
4
$
(1,648)
$
78,206
The amortized cost and estimated fair value of debt securities available-for-sale and held-to-maturity as of September 30, 2022, by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying these securities may be called or repaid without penalty. Therefore, these securities are not included in the maturity categories in the following maturity summary:
Available-for-Sale
Held-to-Maturity
(dollars in thousands)
Amortized Cost
Estimated Fair Value
Amortized Cost
Estimated Fair Value
Due in one year or less
$
5,874
$
5,861
$
—
$
—
Due from one year to five years
548,134
530,891
—
—
Due from five to ten years
25,568
24,709
—
—
Due after ten years
29,350
26,741
31,905
25,073
Mortgage-backed securities
710,523
666,947
98,309
82,741
$
1,319,449
$
1,255,149
$
130,214
$
107,814
Securities with a carrying value of approximately $663.6 million and $366.7 million at September 30, 2022 and December 31, 2021, respectively, serve as collateral to secure public deposits, securities sold under agreements to repurchase and for other purposes required or permitted by law.
The following table shows the gross unrealized losses and estimated fair value of available-for-sale securities aggregated by category and length of time that securities have been in a continuous unrealized loss position at September 30, 2022 and December 31, 2021:
Less Than 12 Months
12 Months or More
Total
(dollars in thousands)
Securities available-for-sale
Estimated Fair Value
Unrealized Losses
Estimated Fair Value
Unrealized Losses
Estimated Fair Value
Unrealized Losses
September 30, 2022
U.S. Treasuries
$
503,810
$
(16,275)
$
—
$
—
$
503,810
$
(16,275)
U.S. government-sponsored agencies
977
(62)
—
—
977
(62)
State, county and municipal securities
30,049
(1,584)
—
—
30,049
(1,584)
Corporate debt securities
12,596
(301)
1,200
(221)
13,796
(522)
SBA pool securities
26,326
(2,170)
2,191
(46)
28,517
(2,216)
Mortgage-backed securities
664,877
(43,588)
1
—
664,878
(43,588)
Total debt securities available-for-sale
$
1,238,635
$
(63,980)
$
3,392
$
(267)
$
1,242,027
$
(64,247)
December 31, 2021
Corporate debt securities
$
—
$
—
$
1,380
$
(120)
$
1,380
$
(120)
SBA pool securities
1,312
(6)
2,572
(63)
3,884
(69)
Mortgage-backed securities
5,514
(6)
1
—
5,515
(6)
Total debt securities available-for-sale
$
6,826
$
(12)
$
3,953
$
(183)
$
10,779
$
(195)
9
As of September 30, 2022, the Company’s available-for-sale security portfolio consisted of 441 securities, 425 of which were in an unrealized loss position. At September 30, 2022, the Company held 338 mortgage-backed securities that were in an unrealized loss position, all of which were issued by U.S. government-sponsored entities and agencies. At September 30, 2022, the Company held 33 U.S. Small Business Administration (“SBA”) pool securities, 30 state, county and municipal securities, five corporate securities, one U.S. government-sponsored agency security, and 18 U.S. Treasury securities that were in an unrealized loss position.
The following table shows the gross unrealized losses and estimated fair value of held-to-maturity securities aggregated by category and length of time that securities have been in a continuous unrealized loss position at September 30, 2022 and December 31, 2021:
Less Than 12 Months
12 Months or More
Total
(dollars in thousands)
Securities held-to-maturity
Estimated Fair Value
Unrealized Losses
Estimated Fair Value
Unrealized Losses
Estimated Fair Value
Unrealized Losses
September 30, 2022
State, county and municipal securities
$
24,323
$
(6,382)
$
750
$
(450)
$
25,073
$
(6,832)
Mortgage-backed securities
36,036
(3,065)
46,705
(12,503)
82,741
(15,568)
Total debt securities held-to-maturity
$
60,359
$
(9,447)
$
47,455
$
(12,953)
$
107,814
$
(22,400)
December 31, 2021
State, county and municipal securities
$
3,707
$
(198)
$
—
$
—
$
3,707
$
(198)
Mortgage-backed securities
69,495
(1,450)
—
—
69,495
(1,450)
Total debt securities held-to-maturity
$
73,202
$
(1,648)
$
—
$
—
$
73,202
$
(1,648)
As of September 30, 2022, the Company’s held-to-maturity security portfolio consisted of 24 securities, all of which were in an unrealized loss position. At September 30, 2022, the Company held 18 mortgage-backed securities and six state, county and municipal securities that were in an unrealized loss position.
During 2022 and 2021, the Company received timely and current interest and principal payments on all of the securities classified as corporate debt securities. The Company’s investments in subordinated debt include investments in regional and super-regional banks on which the Company prepares regular analysis through review of financial information and credit ratings. Investments in preferred securities are also concentrated in the preferred obligations of regional and super-regional banks through non-pooled investment structures. The Company did not have investments in “pooled” trust preferred securities at September 30, 2022 or December 31, 2021.
At September 30, 2022 and December 31, 2021, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.
Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate available-for-sale securities in an unrealized loss position on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation, to determine if credit-related impairment exists. Management first evaluates whether they intend to sell or more likely than not will be required to sell an impaired security before recovering its amortized cost basis. If either criteria is met, the entire amount of unrealized loss is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. If either of the above criteria is not met, management evaluates whether the decline in fair value is attributable to credit or resulted from other factors. The Company does not intend to sell these available-for-sale investment securities at an unrealized loss position at September 30, 2022, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Based on the results of management's review, at September 30, 2022, management determined that $79,000 was attributable to credit impairment and an allowance for credit losses was recorded. The remaining $64.2 million in unrealized loss was determined to be from factors other than credit.
(dollars in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
Allowance for credit losses
2022
2021
2022
2021
Beginning balance
$
88
$
81
$
—
$
112
Provision for expected credit losses
(9)
(81)
79
(112)
Ending balance
$
79
$
—
$
79
$
—
10
The Company's held-to-maturity securities have no expected credit losses, and no related allowance for credit losses has been established.
Total net gain (loss) on securities reported on the consolidated statements of income and comprehensive income is comprised of the following for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,
Nine Months Ended September 30,
(dollars in thousands)
2022
2021
2022
2021
Unrealized holding gains (losses) on equity securities
$
(21)
$
(2)
$
(70)
$
(13)
Net realized gains on sales of other investments
—
532
270
532
Net gain (loss) on securities
$
(21)
$
530
$
200
$
519
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans are stated at amortized cost. Balances within the major loans receivable categories are presented in the following table:
(dollars in thousands)
September 30, 2022
December 31, 2021
Commercial, financial and agricultural
$
2,245,287
$
1,875,993
Consumer installment
162,345
191,298
Indirect automobile
137,183
265,779
Mortgage warehouse
980,342
787,837
Municipal
516,797
572,701
Premium finance
1,062,724
798,409
Real estate – construction and development
2,009,726
1,452,339
Real estate – commercial and farmland
7,516,309
6,834,917
Real estate – residential
4,176,143
3,094,985
$
18,806,856
$
15,874,258
Accrued interest receivable on loans is reported in other assets on the consolidated balance sheets totaling $55.4 million and $54.8 million at September 30, 2022 and December 31, 2021, respectively. The Company recorded an allowance for credit losses of $0 and $214,000 related to deferred interest on loans modified under its Disaster Relief Program at September 30, 2022 and December 31, 2021, respectively.
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 to interest income. Interest on loans that are classified as nonaccrual is subsequently applied to principal until the loans are returned to accrual status. The Company’s loan policy states that a nonaccrual loan may be returned to accrual status when (i) none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest, or (ii) it otherwise becomes well secured and in the process of collection. Restoration to accrual status on any given loan must be supported by a well-documented credit evaluation of the borrower’s financial condition and the prospects for full repayment, approved by the Company’s Chief Credit Officer. 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.
11
The following table presents an analysis of loans accounted for on a nonaccrual basis:
(dollars in thousands)
September 30, 2022
December 31, 2021
Commercial, financial and agricultural
$
10,344
$
14,214
Consumer installment
412
476
Indirect automobile
393
947
Real estate – construction and development
168
492
Real estate – commercial and farmland
14,172
15,365
Real estate – residential
93,187
53,772
$
118,676
$
85,266
There was no interest income recognized on nonaccrual loans during the nine months ended September 30, 2022 and 2021.
The following table presents an analysis of nonaccrual loans with no related allowance for credit losses:
(dollars in thousands)
September 30, 2022
December 31, 2021
Commercial, financial and agricultural
$
—
$
164
Real estate – construction and development
—
209
Real estate – commercial and farmland
2,715
2,061
Real estate – residential
4,142
7,942
$
6,857
$
10,376
12
The following table presents an analysis of past-due loans as of September 30, 2022 and December 31, 2021:
(dollars in thousands)
Loans 30-59 Days Past Due
Loans 60-89 Days Past Due
Loans 90 or More Days Past Due
Total Loans Past Due
Current Loans
Total Loans
Loans 90 Days or More Past Due and Still Accruing
September 30, 2022
Commercial, financial and agricultural
$
7,515
$
2,494
$
10,382
$
20,391
$
2,224,896
$
2,245,287
$
2,075
Consumer installment
1,379
763
706
2,848
159,497
162,345
519
Indirect automobile
422
169
230
821
136,362
137,183
Mortgage warehouse
—
—
—
—
980,342
980,342
—
Municipal
—
—
—
—
516,797
516,797
—
Premium finance
12,432
7,499
9,340
29,271
1,033,453
1,062,724
9,340
Real estate – construction and development
20,430
2,003
492
22,925
1,986,801
2,009,726
444
Real estate – commercial and farmland
2,465
372
11,441
14,278
7,502,031
7,516,309
—
Real estate – residential
26,599
8,256
90,488
125,343
4,050,800
4,176,143
—
Total
$
71,242
$
21,556
$
123,079
$
215,877
$
18,590,979
$
18,806,856
$
12,378
December 31, 2021
Commercial, financial and agricultural
$
3,431
$
2,005
$
12,017
$
17,453
$
1,858,540
$
1,875,993
$
1,165
Consumer installment
1,786
871
891
3,548
187,750
191,298
584
Indirect automobile
772
185
473
1,430
264,349
265,779
—
Mortgage warehouse
—
—
—
—
787,837
787,837
—
Municipal
—
—
—
—
572,701
572,701
—
Premium finance
6,992
4,340
9,134
20,466
777,943
798,409
9,134
Real estate – construction and development
16,601
1,398
2,190
20,189
1,432,150
1,452,339
1,758
Real estate – commercial and farmland
6,713
1,150
5,924
13,787
6,821,130
6,834,917
7
Real estate – residential
17,729
4,266
49,839
71,834
3,023,151
3,094,985
—
Total
$
54,024
$
14,215
$
80,468
$
148,707
$
15,725,551
$
15,874,258
$
12,648
Collateral-Dependent Loans
Collateral-dependent loans are loans where repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty. If the Company determines that foreclosure is probable, these loans are written down to the lower of cost or fair value of the collateral less estimated costs to sell. When repayment is expected to be from the operation of the collateral, the allowance for credit losses is calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. The Company may, in the alternative, measure the allowance for credit loss as the amount by which the amortized cost basis of the financial asset exceeds the estimated fair value of the collateral.
13
The following table presents an analysis of individually evaluated collateral-dependent financial assets and related allowance for credit losses:
September 30, 2022
December 31, 2021
(dollars in thousands)
Balance
Allowance for Credit Losses
Balance
Allowance for Credit Losses
Commercial, financial and agricultural
$
7,365
$
6,646
$
2,613
$
723
Premium finance
—
—
2,989
30
Real estate – construction and development
280
—
1,432
45
Real estate – commercial and farmland
16,186
1,207
33,332
6,646
Real estate – residential
16,146
2,110
11,712
453
$
39,977
$
9,963
$
52,078
$
7,897
Credit Quality Indicators
The Company uses a nine category risk grading system to assign a risk grade to each loan in the portfolio. The following is a description of the general characteristics of the grades:
Pass (Grades 1 - 5) – These grades represent acceptable credit risk to the Company based on factors including creditworthiness of the borrower, current performance and nature of the collateral.
Other Assets Especially Mentioned (Grade 6) – This grade includes loans that exhibit potential weaknesses that deserve management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.
Substandard(Grade 7) – This grade represents loans which are inadequately protected by the current credit worthiness and paying capacity of the borrower or of the collateral pledged, if any. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses or questionable collateral values.
Doubtful (Grade 8) – This grade includes loans which exhibit all of the characteristics of a substandard loan with the added provision that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable or improbable.
Loss (Grade 9) – This grade is assigned to loans which are considered uncollectible and of such little value that their continuance as active assets of the Bank is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing it off.
The following tables present the loan portfolio's amortized cost by class of financing receivable, risk grade and year of origination (in thousands) as of September 30, 2022 and December 31, 2021. Generally, current period renewals of credit are underwritten again at the point of renewal and considered current period originations for purposes of the tables below. The Company had an immaterial amount of revolving loans which converted to term loans and the amortized cost basis of those loans is included in the applicable origination year. There were no loans risk graded 8 or 9 at September 30, 2022 or December 31, 2021.
14
As of September 30, 2022
Term Loans by Origination Year
Revolving Loans Amortized Cost Basis
2022
2021
2020
2019
2018
Prior
Total
Commercial, Financial and Agricultural
Risk Grade:
Pass
$
818,365
$
585,385
$
193,526
$
122,965
$
69,367
$
50,153
$
382,953
$
2,222,714
6
—
—
105
576
55
2,895
760
4,391
7
6,407
1,026
714
3,480
1,308
3,079
2,168
18,182
Total commercial, financial and agricultural
$
824,772
$
586,411
$
194,345
$
127,021
$
70,730
$
56,127
$
385,881
$
2,245,287
Consumer Installment
Risk Grade:
Pass
$
34,089
$
15,217
$
41,532
$
25,909
$
19,219
$
15,083
$
9,875
$
160,924
6
38
—
—
—
—
128
5
171
7
72
148
290
114
189
399
38
1,250
Total consumer installment
$
34,199
$
15,365
$
41,822
$
26,023
$
19,408
$
15,610
$
9,918
$
162,345
Indirect Automobile
Risk Grade:
Pass
$
—
$
—
$
—
$
13,565
$
60,812
$
61,749
$
—
$
136,126
6
—
—
—
—
—
15
—
15
7
—
—
—
43
194
805
—
1,042
Total indirect automobile
$
—
$
—
$
—
$
13,608
$
61,006
$
62,569
$
—
$
137,183
Mortgage Warehouse
Risk Grade:
Pass
$
—
$
—
$
—
$
—
$
—
$
—
$
942,279
$
942,279
6
—
—
—
—
—
—
18,895
18,895
7
—
—
—
—
—
—
19,168
19,168
Total mortgage warehouse
$
—
$
—
$
—
$
—
$
—
$
—
$
980,342
$
980,342
Municipal
Risk Grade:
Pass
$
17,385
$
46,009
$
188,438
$
9,820
$
4,605
$
250,540
$
—
$
516,797
Total municipal
$
17,385
$
46,009
$
188,438
$
9,820
$
4,605
$
250,540
$
—
$
516,797
Premium Finance
Risk Grade:
Pass
$
1,028,078
$
25,252
$
54
$
—
$
—
$
—
$
—
$
1,053,384
7
7,692
1,647
1
—
—
—
—
9,340
Total premium finance
$
1,035,770
$
26,899
$
55
$
—
$
—
$
—
$
—
$
1,062,724
Real Estate – Construction and Development
Risk Grade:
Pass
$
666,198
$
798,554
$
307,586
$
128,258
$
8,973
$
26,111
$
30,577
$
1,966,257
6
8,341
19,987
432
—
174
189
—
29,123
7
20
286
164
5
13,236
635
—
14,346
Total real estate – construction and development
$
674,559
$
818,827
$
308,182
$
128,263
$
22,383
$
26,935
$
30,577
$
2,009,726
15
As of September 30, 2022
Term Loans by Origination Year
Revolving Loans Amortized Cost Basis
2022
2021
2020
2019
2018
Prior
Total
Real Estate – Commercial and Farmland
Risk Grade:
Pass
$
1,535,883
$
2,039,201
$
1,091,901
$
868,208
$
469,560
$
1,312,867
$
96,329
$
7,413,949
6
607
119
—
31,118
1,125
19,252
—
52,221
7
361
5,235
2,905
11,859
6,734
23,028
17
50,139
Total real estate – commercial and farmland
$
1,536,851
$
2,044,555
$
1,094,806
$
911,185
$
477,419
$
1,355,147
$
96,346
$
7,516,309
Real Estate - Residential
Risk Grade:
Pass
$
1,249,401
$
1,226,383
$
559,613
$
277,910
$
120,863
$
407,922
$
228,525
$
4,070,617
6
447
147
94
693
369
3,419
422
5,591
7
1,824
15,915
20,652
26,903
11,772
20,911
1,958
99,935
Total real estate - residential
$
1,251,672
$
1,242,445
$
580,359
$
305,506
$
133,004
$
432,252
$
230,905
$
4,176,143
Total Loans
Risk Grade:
Pass
$
5,349,399
$
4,736,001
$
2,382,650
$
1,446,635
$
753,399
$
2,124,425
$
1,690,538
$
18,483,047
6
9,433
20,253
631
32,387
1,723
25,898
20,082
110,407
7
16,376
24,257
24,726
42,404
33,433
48,857
23,349
213,402
Total loans
$
5,375,208
$
4,780,511
$
2,408,007
$
1,521,426
$
788,555
$
2,199,180
$
1,733,969
$
18,806,856
As of December 31, 2021
Term Loans by Origination Year
Revolving Loans Amortized Cost Basis
2021
2020
2019
2018
2017
Prior
Total
Commercial, Financial and Agricultural
Risk Grade:
Pass
$
903,630
$
279,037
$
188,810
$
118,613
$
50,737
$
40,376
$
262,951
$
1,844,154
6
190
—
393
427
368
1,832
1,961
5,171
7
9,216
1,268
4,098
1,472
2,566
6,019
2,029
26,668
Total commercial, financial and agricultural
$
913,036
$
280,305
$
193,301
$
120,512
$
53,671
$
48,227
$
266,941
$
1,875,993
Consumer Installment
Risk Grade:
Pass
$
35,781
$
59,221
$
37,195
$
27,266
$
9,787
$
11,021
$
9,437
$
189,708
6
—
—
—
—
—
135
5
140
7
59
283
290
216
103
405
94
1,450
Total consumer installment
$
35,840
$
59,504
$
37,485
$
27,482
$
9,890
$
11,561
$
9,536
$
191,298
Indirect Automobile
Risk Grade:
Pass
$
—
$
—
$
20,276
$
101,969
$
90,294
$
51,468
$
—
$
264,007
6
—
—
—
24
10
19
—
53
7
—
—
55
234
384
1,046
—
1,719
Total indirect automobile
$
—
$
—
$
20,331
$
102,227
$
90,688
$
52,533
$
—
$
265,779
16
As of December 31, 2021
Term Loans by Origination Year
Revolving Loans Amortized Cost Basis
2021
2020
2019
2018
2017
Prior
Total
Mortgage Warehouse
Risk Grade:
Pass
$
—
$
—
$
—
$
—
$
—
$
—
$
787,837
$
787,837
Total mortgage warehouse
$
—
$
—
$
—
$
—
$
—
$
—
$
787,837
$
787,837
Municipal
Risk Grade:
Pass
$
44,727
$
219,385
$
14,831
$
5,494
$
109,040
$
179,224
$
—
$
572,701
Total municipal
$
44,727
$
219,385
$
14,831
$
5,494
$
109,040
$
179,224
$
—
$
572,701
Premium Finance
Risk Grade:
Pass
$
787,884
$
1,059
$
26
$
—
$
302
$
4
$
—
$
789,275
7
9,039
95
—
—
—
—
—
9,134
Total premium finance
$
796,923
$
1,154
$
26
$
—
$
302
$
4
$
—
$
798,409
Real Estate – Construction and Development
Risk Grade:
Pass
$
826,094
$
290,814
$
176,476
$
35,773
$
24,533
$
44,514
$
21,267
$
1,419,471
6
6,527
549
—
15,260
—
2,101
—
24,437
7
1,143
678
7
2,476
57
1,011
3,059
8,431
Total real estate – construction and development
$
833,764
$
292,041
$
176,483
$
53,509
$
24,590
$
47,626
$
24,326
$
1,452,339
Real Estate – Commercial and Farmland
Risk Grade:
Pass
$
2,186,291
$
1,205,578
$
1,119,239
$
542,295
$
486,477
$
1,103,675
$
80,379
$
6,723,934
6
416
—
1,036
14,760
5,334
21,665
—
43,211
7
4,709
2,682
11,109
9,076
4,861
35,315
20
67,772
Total real estate – commercial and farmland
$
2,191,416
$
1,208,260
$
1,131,384
$
566,131
$
496,672
$
1,160,655
$
80,399
$
6,834,917
Real Estate - Residential
Risk Grade:
Pass
$
1,171,008
$
638,232
$
329,247
$
149,990
$
108,538
$
408,240
$
217,982
$
3,023,237
6
145
66
1,106
505
356
3,717
49
5,944
7
2,405
10,167
21,239
11,376
4,597
13,970
2,050
65,804
Total real estate - residential
$
1,173,558
$
648,465
$
351,592
$
161,871
$
113,491
$
425,927
$
220,081
$
3,094,985
Total Loans
Risk Grade:
Pass
$
5,955,415
$
2,693,326
$
1,886,100
$
981,400
$
879,708
$
1,838,522
$
1,379,853
$
15,614,324
6
7,278
615
2,535
30,976
6,068
29,469
2,015
78,956
7
26,571
15,173
36,798
24,850
12,568
57,766
7,252
180,978
Total loans
$
5,989,264
$
2,709,114
$
1,925,433
$
1,037,226
$
898,344
$
1,925,757
$
1,389,120
$
15,874,258
Troubled Debt Restructurings
The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession. Concessions may include interest rate reductions to below market
17
interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.
The Company’s policy requires a restructure request to be supported by a current, well-documented credit evaluation of the borrower’s financial condition and a collateral evaluation that is no older than six months from the date of the restructure. Key factors of that evaluation include the documentation of current, recurring cash flows, support provided by the guarantor(s) and the current valuation of the collateral. If the appraisal in the file is older than six months, an evaluation must be made as to the continued reasonableness of the valuation. For certain income-producing properties, current rent rolls and/or other income information can be utilized to support the appraisal valuation, when coupled with documented cap rates within our markets and a physical inspection of the collateral to validate the current condition.
The Company’s policy states that in the event a loan has been identified as a troubled debt restructuring, it should be assigned a grade of substandard until such time the borrower has demonstrated the ability to service the loan payments based on the restructured terms – generally defined as six months of satisfactory payment history. Missed payments under the original loan terms are not considered under the new structure; however, subsequent missed payments are considered non-performance and are not considered toward the six month required term of satisfactory payment history.
In the normal course of business, the Company modifies loans with a modification of the interest rate or terms that are not deemed to be troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first nine months of 2022 and 2021 totaling $296.4 million and $322.8 million, respectively, under such parameters.
As of September 30, 2022 and December 31, 2021, the Company had a balance of $39.8 million and $76.6 million, respectively, in troubled debt restructurings. The Company has recorded $649,000 and $654,000 in previous charge-offs on such loans at September 30, 2022 and December 31, 2021, respectively. The Company’s balance in the allowance for credit losses allocated to such troubled debt restructurings was $2.6 million and $10.5 million at September 30, 2022 and December 31, 2021, respectively. At September 30, 2022, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.
The following table presents the loans by class modified as troubled debt restructurings which occurred during the three and nine months ended September 30, 2022 and 2021. These modifications did not have a material impact on the Company’s allowance for credit losses.
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Loan Class
#
Balance
(in thousands)
#
Balance
(in thousands)
#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural
1
$
450
—
$
—
3
$
916
6
$
532
Consumer installment
—
—
—
—
—
—
2
7
Premium finance
—
—
—
—
5
456
—
—
Real estate – construction and development
1
24
—
—
1
24
—
—
Real estate – commercial and farmland
1
17
—
—
2
99
5
16,257
Real estate – residential
2
268
9
1,818
6
1,335
21
3,270
Total
5
$
759
9
$
1,818
17
$
2,830
34
$
20,066
The following table presents the outstanding balance of troubled debt restructurings by class that defaulted (defined as 30 days past due) during the three and nine months ended September 30, 2022 and 2021. These defaults did not have a material impact on the Company's allowance for credit losses.
18
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Loan Class
#
Balance
(in thousands)
#
Balance
(in thousands)
#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural
—
$
—
1
$
1
1
$
348
1
$
1
Consumer installment
—
—
1
1
2
2
1
1
Indirect automobile
3
20
4
23
9
27
16
76
Real estate – construction and development
1
24
—
—
1
24
—
—
Real estate – commercial and farmland
—
—
—
—
1
8
—
—
Real estate – residential
14
1,398
4
489
23
2,801
15
1,111
Total
18
$
1,442
10
$
514
37
$
3,210
33
$
1,189
The following table presents the amount of troubled debt restructurings by loan class classified separately as accrual and nonaccrual at September 30, 2022 and December 31, 2021:
September 30, 2022
Accruing Loans
Non-Accruing Loans
Loan Class
#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural
8
$
1,342
3
$
353
Consumer installment
4
6
10
12
Indirect automobile
170
595
25
101
Premium finance
5
456
—
—
Real estate – construction and development
2
698
1
24
Real estate – commercial and farmland
17
8,091
3
66
Real estate – residential
206
24,515
29
3,494
Total
412
$
35,703
71
$
4,050
December 31, 2021
Accruing Loans
Non-Accruing Loans
Loan Class
#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural
12
$
1,286
6
$
83
Consumer installment
7
16
17
35
Indirect automobile
233
1,037
52
273
Real estate – construction and development
4
789
1
13
Real estate – commercial and farmland
25
35,575
5
5,924
Real estate – residential
213
26,879
39
4,678
Total
494
$
65,582
120
$
11,006
Allowance for Credit Losses on Loans
The allowance for credit losses represents an allowance for expected losses over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company reasonably expects to execute a troubled debt restructuring with a borrower. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio.
Loan losses are charged against the allowance when management believes the collection of a loan’s principal is unlikely. Subsequent recoveries are credited to the allowance. Consumer loans are charged off in accordance with the Federal Financial Institutions Examination Council’s (the “FFIEC”) Uniform Retail Credit Classification and Account Management Policy. Commercial loans are charged off when they are deemed uncollectible, which usually involves a triggering event within the collection effort. If the loan is collateral dependent, the loss is more easily identified and is charged off when it is identified, usually based upon receipt of an appraisal. However, when a loan has guarantor support, the Company may carry the estimated loss as a reserve against the loan while collection efforts with the guarantor are pursued. If, after collection efforts with the guarantor are complete, the deficiency is still considered uncollectible, the loss is charged off and any further collections are
19
treated as recoveries. In all situations, when a loan is downgraded to an Asset Quality Rating of 9 (Loss per the regulatory guidance), the uncollectible portion is charged off.
The Company’s methodologies for estimating the allowance for credit losses consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of loans with similar risk characteristics for which the historical loss experience was observed. The Company utilizes a one year reasonable and supportable forecast period. The Company’s methodologies revert back to historical loss information on a straight-line basis over four quarters after the reasonable and supportable forecast period.
During the nine months ended September 30, 2022, the allowance for credit losses increased due to organic loan growth, partially offset by improvement in forecasted macroeconomic factors. The allowance for credit losses was determined at September 30, 2022 using the Moody's baseline economic forecast. The allowance for credit losses was determined at December 31, 2021 using a weighting of five economic forecasts from Moody's. The Moody's baseline scenario was weighted at 10%, the downside 75th percentile S-2 scenario was weighted at 10%, the downside 90th percentile S-3 scenario was weighted at 50%, the slower trend growth scenario was weighted at 20% and the stagflation scenario was weighted at 10%. The current forecast reflects, among other things, improvements in forecast levels of home prices, commercial real estate prices and unemployment compared with the forecast at December 31, 2021.
20
The following tables detail activity and end of period balances in the allowance for credit losses by portfolio segment for the periods indicated. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
Three Months Ended September 30, 2022
(dollars in thousands)
Commercial, Financial and Agricultural
Consumer Installment
Indirect Automobile
Mortgage Warehouse
Municipal
Premium Finance
Balance, June 30, 2022
$
25,658
$
5,269
$
291
$
3,885
$
371
$
2,762
Provision for loan losses
9,568
(244)
(288)
(1,884)
(9)
(638)
Loans charged off
(4,722)
(1,228)
(50)
—
—
(1,205)
Recoveries of loans previously charged off
2,201
277
276
—
—
1,023
Balance, September 30, 2022
$
32,705
$
4,074
$
229
$
2,001
$
362
$
1,942
Real Estate – Construction and Development
Real Estate – Commercial and Farmland
Real Estate – Residential
Total
Balance, June 30, 2022
$
23,232
$
59,349
$
51,825
$
172,642
Provision for loan losses
3,227
(1,200)
8,937
17,469
Loans charged off
—
(2,014)
(53)
(9,272)
Recoveries of loans previously charged off
96
96
83
4,052
Balance, September 30, 2022
$
26,555
$
56,231
$
60,792
$
184,891
Nine Months Ended September 30, 2022
(dollars in thousands)
Commercial, Financial and Agricultural
Consumer Installment
Indirect Automobile
Mortgage Warehouse
Municipal
Premium Finance
Balance, December 31, 2021
$
26,829
$
6,097
$
476
$
3,231
$
401
$
2,729
Provision for loan losses
11,521
1,102
(884)
(1,230)
(39)
(530)
Loans charged off
(13,527)
(3,790)
(179)
—
—
(3,640)
Recoveries of loans previously charged off
7,882
665
816
—
—
3,383
Balance, September 30, 2022
$
32,705
$
4,074
$
229
$
2,001
$
362
$
1,942
Real Estate – Construction and Development
Real Estate – Commercial and Farmland
Real Estate – Residential
Total
Balance, December 31, 2021
$
22,045
$
77,831
$
27,943
$
167,582
Provision for loan losses
3,841
(18,399)
32,580
27,962
Loans charged off
—
(3,378)
(190)
(24,704)
Recoveries of loans previously charged off
669
177
459
14,051
Balance, September 30, 2022
$
26,555
$
56,231
$
60,792
$
184,891
21
Three Months Ended September 30, 2021
(dollars in thousands)
Commercial, Financial and Agricultural
Consumer Installment
Indirect Automobile
Mortgage Warehouse
Municipal
Premium Finance
Balance, June 30, 2021
$
6,889
$
7,824
$
1,080
$
3,365
$
777
$
4,539
Provision for loan losses
(1,471)
3,063
(268)
(287)
(27)
(456)
Loans charged off
(858)
(1,647)
(178)
—
—
(605)
Recoveries of loans previously charged off
1,986
199
278
—
—
649
Balance, September 30, 2021
$
6,546
$
9,439
$
912
$
3,078
$
750
$
4,127
Real Estate – Construction and Development
Real Estate – Commercial and Farmland
Real Estate – Residential
Total
Balance, June 30, 2021
$
18,999
$
88,338
$
43,259
$
175,070
Provision for loan losses
(6,423)
87
1,798
(3,984)
Loans charged off
—
(210)
(39)
(3,537)
Recoveries of loans previously charged off
45
266
241
3,664
Balance, September 30, 2021
$
12,621
$
88,481
$
45,259
$
171,213
Nine Months Ended September 30, 2021
(dollars in thousands)
Commercial, Financial and Agricultural
Consumer Installment
Indirect Automobile
Mortgage Warehouse
Municipal
Premium Finance
Balance, December 31, 2020
$
7,359
$
4,076
$
1,929
$
3,666
$
791
$
3,879
Provision for loan losses
2,606
9,360
(1,219)
(588)
(41)
(847)
Loans charged off
(6,757)
(4,764)
(1,148)
—
—
(3,142)
Recoveries of loans previously charged off
3,338
767
1,350
—
—
4,237
Balance, September 30, 2021
$
6,546
$
9,439
$
912
$
3,078
$
750
$
4,127
Real Estate – Construction and Development
Real Estate – Commercial and Farmland
Real Estate – Residential
Total
Balance, December 31, 2020
$
45,304
$
88,894
$
43,524
$
199,422
Provision for loan losses
(32,767)
727
1,307
(21,462)
Loans charged off
(212)
(1,632)
(594)
(18,249)
Recoveries of loans previously charged off
296
492
1,022
11,502
Balance, September 30, 2021
$
12,621
$
88,481
$
45,259
$
171,213
22
NOTE 4 – OTHER BORROWINGS
Other borrowings consist of the following:
(dollars in thousands)
September 30, 2022
December 31, 2021
FHLB borrowings:
Fixed Rate Advance due October 20, 2022; fixed interest rate of 3.15%
$
100,000
$
—
Fixed Rate Advance due October 24, 2022; fixed interest rate of 3.10%
100,000
—
Fixed Rate Advance due October 24, 2022; fixed interest rate of 3.10%
100,000
—
Fixed Rate Advance due March 3, 2025; fixed interest rate of 1.208%
15,000
15,000
Fixed Rate Advance due March 2, 2027; fixed interest rate of 1.445%
15,000
15,000
Fixed Rate Advance due March 4, 2030; fixed interest rate of 1.606%
15,000
15,000
Fixed Rate Advance due December 9, 2030; fixed interest rate of 4.55%
1,391
1,400
Fixed Rate Advance due December 9, 2030; fixed interest rate of 4.55%
963
969
Principal Reducing Advance due September 29, 2031; fixed interest rate of 3.095%
1,312
1,421
Subordinated notes payable:
Subordinated notes payable due June 1, 2026, net of unaccreted purchase accounting fair value adjustment of $— and $500, respectively; fixed interest rate of 5.50%
—
50,500
Subordinated notes payable due March 15, 2027 net of unamortized debt issuance cost of $583 and $681, respectively; fixed interest rate of 5.75% through March 14, 2022; variable interest rate thereafter at three-month LIBOR plus 3.616%
74,417
74,319
Subordinated notes payable due December 15, 2029 net of unamortized debt issuance cost of $1,740 and $1,923, respectively; fixed interest rate of 4.25% through December 14, 2024; variable interest rate thereafter at three-month SOFR plus 2.94%
118,260
118,077
Subordinated notes payable due May 31, 2030 net of unaccreted purchase accounting fair value adjustment of $936 and $1,028, respectively; fixed interest rate of 5.875% through May 31, 2025; variable interest rate thereafter at three-month LIBOR plus 3.63%
75,936
76,028
Subordinated notes payable due October 1, 2030 net of unamortized debt issuance cost of $1,615 and $1,766, respectively; fixed interest rate of 3.875% through September 30, 2025; variable interest rate thereafter at three-month SOFR plus 3.753%
108,385
108,234
Securitization Facilities:
Equipment contract backed notes, Series 2018-1 (BCC XIV) due on various dates through 2025 and bear a weighted-average interest rate of 5.11%
—
19,199
Equipment contract backed notes, Series 2019-1 (BCC XVI) due on various dates through 2027 and bear a weighted-average interest rate of 2.84%
—
139,329
Equipment contract backed notes, Series 2020-1 (BCC XVII) due on various dates through 2027 and bear a weighted-average interest rate of 1.48%
—
105,403
$
725,664
$
739,879
The advances from the FHLB are collateralized by a blanket lien on all eligible first mortgage loans and other specific loans in addition to FHLB stock. At September 30, 2022, $4.00 billion was available for borrowing on lines with the FHLB.
As of September 30, 2022, the Bank maintained credit arrangements with various financial institutions to purchase federal funds up to $127.0 million.
The Bank also participates in the Federal Reserve discount window borrowings program. At September 30, 2022, the Bank had $3.15 billion of loans pledged at the Federal Reserve discount window and had $2.36 billion available for borrowing.
NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income for the Company consists of changes in net unrealized gains and losses on investment securities available-for-sale. The reclassification for gains included in net income is recorded in net gain (loss) on securities in the consolidated statement of income and comprehensive income.
23
The following table presents a summary of the accumulated other comprehensive income balances as well as changes in each of the respective components, net of tax, for the periods indicated:
(dollars in thousands)
Unrealized Gain (Loss) on Securities
Accumulated
Other Comprehensive
Income (Loss)
Three Months Ended September 30, 2022
Balance, June 30, 2022
$
(12,635)
$
(12,635)
Reclassification for gains included in net income, net of tax
—
—
Current year changes, net of tax
(38,099)
(38,099)
Balance, September 30, 2022
$
(50,734)
$
(50,734)
Three Months Ended September 30, 2021
Balance, June 30, 2021
$
25,024
$
25,024
Reclassification for gains included in net income, net of tax
—
—
Current year changes, net of tax
(3,139)
(3,139)
Balance, September 30, 2021
$
21,885
$
21,885
Nine Months Ended September 30, 2022
Balance, December 31, 2021
$
15,590
$
15,590
Reclassification for gains included in net income, net of tax
—
—
Current year changes, net of tax
(66,324)
(66,324)
Balance, September 30, 2022
$
(50,734)
$
(50,734)
Nine Months Ended September 30, 2021
Balance, December 31, 2020
$
33,505
$
33,505
Reclassification for gains included in net income, net of tax
—
—
Current year changes, net of tax
(11,620)
(11,620)
Balance, September 30, 2021
$
21,885
$
21,885
NOTE 6 – WEIGHTED AVERAGE SHARES OUTSTANDING
Earnings per share have been computed based on the following weighted average number of common shares outstanding:
Three Months Ended September 30,
Nine Months Ended September 30,
(share data in thousands)
2022
2021
2022
2021
Average common shares outstanding
69,125
69,440
69,213
69,445
Common share equivalents:
Stock options
11
49
20
65
Nonvested restricted share grants
59
142
73
143
Performance stock units
132
125
122
119
Average common shares outstanding, assuming dilution
69,327
69,756
69,428
69,772
For the three and nine-month periods ended September 30, 2022 and 2021, there were no anti-dilutive securities excluded from the computation of earnings per share.
NOTE 7 – FAIR VALUE MEASURES
The fair value of an asset or liability is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair value is based on discounted cash flows or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability. The accounting standard for disclosures about the fair value
24
measures excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
The Company's loans held for sale under the fair value option are comprised of the following:
(dollars in thousands)
September 30, 2022
December 31, 2021
Mortgage loans held for sale
$
295,458
$
1,247,997
SBA loans held for sale
2,529
6,635
Total loans held for sale
$
297,987
$
1,254,632
The Company has elected to record mortgage loans held for sale at fair value in order to eliminate the complexities and inherent difficulties of achieving hedge accounting and to better align reported results with the underlying economic changes in value of the loans and related hedge instruments. This election impacts the timing and recognition of origination fees and costs, as well as servicing value, which are now recognized in earnings at the time of origination. Interest income on mortgage loans held for sale is recorded on an accrual basis in the consolidated statements of income and comprehensive income under the heading interest income – interest and fees on loans. The servicing value is included in the fair value of the interest rate lock commitments (“IRLCs”) with borrowers. The mark to market adjustments related to mortgage loans held for sale and the associated economic hedges are captured in mortgage banking activities.
Net losses of $11.9 million and $44.7 million resulting from changes in fair value of these mortgage loans were recorded in income during the three and nine months ended September 30, 2022, respectively. For the three and nine months ended September 30, 2021, a net gain of $5.8 million and a net loss of $9.3 million, respectively, resulting from changes in fair value of these mortgage loans were recorded in income. Net gains of $11.7 million and $10.5 million, respectively, resulting from changes in the fair value of the related derivative financial instruments used to hedge exposure to the market-related risks associated with these mortgage loans were recorded in income during the three and nine months ended September 30, 2022, respectively. For the three and nine months ended September 30, 2021, a net gain of $7.3 million and a net loss of $10.3 million, respectively, resulting from changes in the fair value of the related derivative financial instruments were recorded in income. The changes in fair value of both mortgage loans held for sale and the related derivative financial instruments are recorded in mortgage banking activity in the consolidated statements of income and comprehensive income. The Company’s valuation of mortgage loans held for sale incorporates an assumption for credit risk; however, given the short-term period that the Company holds these loans, valuation adjustments attributable to instrument-specific credit risk is nominal.
The following table summarizes the difference between the fair value and the principal balance for mortgage loans held for sale measured at fair value as of September 30, 2022 and December 31, 2021:
(dollars in thousands)
September 30, 2022
December 31, 2021
Aggregate fair value of mortgage loans held for sale
$
295,458
$
1,247,997
Aggregate unpaid principal balance of mortgage loans held for sale
303,786
1,211,646
Past-due loans of 90 days or more
464
746
Nonaccrual loans
464
746
Unpaid principal balance of nonaccrual loans
464
718
The following table summarizes the difference between the fair value and the principal balance for SBA loans held for sale measured at fair value as of September 30, 2022 and December 31, 2021:
(dollars in thousands)
September 30, 2022
December 31, 2021
Aggregate fair value of SBA loans held for sale
$
2,529
$
6,635
Aggregate unpaid principal balance of SBA loans held for sale
2,177
5,825
Past-due loans of 90 days or more
—
—
Nonaccrual loans
—
—
The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale, loans held for sale under the fair value option and derivative financial instruments are recorded at fair value on a recurring basis. From time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as collateral-dependent loans, loan servicing rights and OREO. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.
25
The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of September 30, 2022 and December 31, 2021:
Recurring Basis Fair Value Measurements
September 30, 2022
(dollars in thousands)
Fair Value
Level 1
Level 2
Level 3
Financial assets:
Investment securities available-for-sale:
U.S. Treasuries
$
503,810
$
503,810
$
—
$
—
U.S. government sponsored agencies
977
—
977
—
State, county and municipal securities
39,268
—
39,268
—
Corporate debt securities
15,296
—
14,096
1,200
SBA pool securities
28,851
—
28,851
—
Mortgage-backed securities
666,947
—
666,947
—
Loans held for sale
297,987
—
297,987
—
Mortgage banking derivative instruments
23,446
—
23,446
—
Total recurring assets at fair value
$
1,576,582
$
503,810
$
1,071,572
$
1,200
Financial liabilities:
Mortgage banking derivative instruments
$
1,681
$
—
$
1,681
$
—
Total recurring liabilities at fair value
$
1,681
$
—
$
1,681
$
—
Recurring Basis Fair Value Measurements
December 31, 2021
(dollars in thousands)
Fair Value
Level 1
Level 2
Level 3
Financial assets:
Investment securities available-for-sale:
U.S. government sponsored agencies
$
7,172
$
—
$
7,172
$
—
State, county and municipal securities
47,812
—
47,812
—
Corporate debt securities
28,496
—
27,116
1,380
SBA pool securities
45,201
—
45,201
—
Mortgage-backed securities
463,940
—
463,940
—
Loans held for sale
1,254,632
—
1,254,632
—
Mortgage banking derivative instruments
11,940
—
11,940
—
Total recurring assets at fair value
$
1,859,193
$
—
$
1,857,813
$
1,380
Financial liabilities:
Mortgage banking derivative instruments
$
710
$
—
$
710
$
—
Total recurring liabilities at fair value
$
710
$
—
$
710
$
—
The following table presents the fair value measurements of assets measured at fair value on a non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy as of September 30, 2022 and December 31, 2021:
Nonrecurring Basis Fair Value Measurements
(dollars in thousands)
Fair Value
Level 1
Level 2
Level 3
September 30, 2022
Collateral-dependent loans
$
30,014
$
—
$
—
$
30,014
Other real estate owned
92
—
—
92
Total nonrecurring assets at fair value
$
30,106
$
—
$
—
$
30,106
December 31, 2021
Collateral-dependent loans
$
44,181
$
—
$
—
$
44,181
Mortgage servicing rights
206,944
—
—
206,944
Total nonrecurring assets at fair value
$
251,125
$
—
$
—
$
251,125
26
The inputs used to determine estimated fair value of collateral-dependent loans include market conditions, loan term, underlying collateral characteristics and discount rates. The inputs used to determine fair value of OREO include market conditions, estimated marketing period or holding period, underlying collateral characteristics and discount rates.
For the nine months ended September 30, 2022 and the year ended December 31, 2021, there was not a change in the methods and significant assumptions used to estimate fair value.
The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets:
(dollars in thousands)
Fair Value
Valuation Technique
Unobservable Inputs
Range of Discounts
Weighted Average Discount
September 30, 2022
Recurring:
Debt securities available-for-sale
$
1,200
Discounted par values
Probability of Default
12%
12%
Loss Given Default
43%
43%
Nonrecurring:
Collateral-dependent loans
$
30,014
Third-party appraisals and discounted cash flows
Collateral discounts and discount rates
0% - 50%
31%
Other real estate owned
$
92
Third-party appraisals and sales contracts
Collateral discounts and estimated costs to sell
24%
24%
December 31, 2021
Recurring:
Debt securities available-for-sale
$
1,380
Discounted par values
Discount Rate
8%
8%
Nonrecurring:
Collateral-dependent loans
$
44,181
Third-party appraisals and discounted cash flows
Collateral discounts and discount rates
0% - 50%
39%
Mortgage servicing rights
$
206,944
Discounted cash flows
Discount rate
9% - 10%
9%
Prepayment speed
10% - 40%
13%
27
The carrying amount and estimated fair value of the Company’s financial instruments, not shown elsewhere in these financial statements, were as follows:
Fair Value Measurements
September 30, 2022
(dollars in thousands)
Carrying Amount
Level 1
Level 2
Level 3
Total
Financial assets:
Cash and due from banks
$
269,193
$
269,193
$
—
$
—
$
269,193
Federal funds sold and interest-bearing accounts
1,061,975
1,061,975
—
—
1,061,975
Debt securities held-to-maturity
130,214
—
107,814
—
107,814
Loans, net
18,591,951
—
—
18,289,190
18,289,190
Accrued interest receivable
61,828
—
6,436
55,392
61,828
Financial liabilities:
Deposits
19,466,919
—
19,463,748
—
19,463,748
Other borrowings
725,664
—
712,395
—
712,395
Subordinated deferrable interest debentures
127,823
—
120,121
—
120,121
Accrued interest payable
5,628
—
5,628
—
5,628
Fair Value Measurements
December 31, 2021
(dollars in thousands)
Carrying Amount
Level 1
Level 2
Level 3
Total
Financial assets:
Cash and due from banks
$
307,813
$
307,813
$
—
$
—
$
307,813
Federal funds sold and interest-bearing accounts
3,756,844
3,756,844
—
—
3,756,844
Debt securities held-to-maturity
79,850
—
78,206
—
78,206
Loans, net
15,662,495
—
—
15,509,410
15,509,410
Accrued interest receivable
56,917
—
2,373
54,544
56,917
Financial liabilities:
Deposits
19,665,553
—
19,667,612
—
19,667,612
Securities sold under agreements to repurchase
5,845
5,845
—
—
5,845
Other borrowings
739,879
—
760,829
—
760,829
Subordinated deferrable interest debentures
126,328
—
117,764
—
117,764
Accrued interest payable
4,313
—
4,313
—
4,313
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Loan Commitments
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the Company’s balance sheets.
The Company’s exposure to credit loss is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. A summary of the Company’s commitments is as follows:
(dollars in thousands)
September 30, 2022
December 31, 2021
Commitments to extend credit
$
5,861,437
$
4,328,749
Unused home equity lines of credit
327,974
272,029
Financial standby letters of credit
30,236
36,184
Mortgage interest rate lock commitments
245,168
417,126
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. These commitments, predominantly at variable interest rates, generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral
28
obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral is required in instances which the Company deems necessary. The Company has not been required to perform on any material financial standby letters of credit and the Company has not incurred any losses on financial standby letters of credit for the nine months ended September 30, 2022 and the year ended December 31, 2021.
The Company maintains an allowance for credit losses on unfunded commitments which is recorded in other liabilities on the consolidated balance sheets. The following table presents activity in the allowance for unfunded commitments for the periods presented:
Three Months Ended September 30,
Nine Months Ended September 30,
(dollars in thousands)
2022
2021
2022
2021
Balance at beginning of period
$
43,973
$
22,314
$
33,185
$
32,854
Provision for unfunded commitments
192
(5,516)
10,980
(16,056)
Balance at end of period
$
44,165
$
16,798
$
44,165
$
16,798
Other Commitments
As of September 30, 2022, letters of credit issued by the FHLB totaling $400.0 million were used to guarantee the Bank’s performance related to a portion of its public fund deposit balances.
Litigation and Regulatory Contingencies
From time to time, the Company and the Bank are subject to various legal proceedings, claims and disputes that arise in the ordinary course of business. The Company and the Bank are also subject to regulatory examinations, information gathering requests, inquiries and investigations in the ordinary course of business. Based on the Company’s current knowledge and advice of counsel, management presently does not believe that the liabilities arising from these legal matters will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows. However, it is possible that the ultimate resolution of these legal matters could have a material adverse effect on the Company’s results of operations and financial condition for any particular period.
The Company’s management and its legal counsel periodically assess contingent liabilities, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
NOTE 9 – SEGMENT REPORTING
The Company has the following five reportable segments: Banking Division, Retail Mortgage Division, Warehouse Lending Division, SBA Division and Premium Finance Division. The Banking Division derives its revenues from the delivery of full-service financial services, including commercial loans, consumer loans and deposit accounts. The Retail Mortgage Division derives its revenues from the origination, sales and servicing of one-to-four family residential mortgage loans. The Warehouse Lending Division derives its revenues from the origination and servicing of warehouse lines to other businesses that are secured by underlying one-to-four family residential mortgage loans. The SBA Division derives its revenues from the origination, sales and servicing of SBA loans. The Premium Finance Division derives its revenues from the origination and servicing of commercial insurance premium finance loans.
29
The Banking, Retail Mortgage, Warehouse Lending, SBA and Premium Finance Divisions are managed as separate business units because of the different products and services they provide. The Company evaluates performance and allocates resources based on profit or loss from operations. There are no material intersegment sales or transfers.
The following tables present selected financial information with respect to the Company’s reportable business segments for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30, 2022
(dollars in thousands)
Banking Division
Retail Mortgage Division
Warehouse Lending Division
SBA Division
Premium Finance Division
Total
Interest income
$
164,095
$
40,389
$
12,490
$
3,919
$
13,409
$
234,302
Interest expense
(10,412)
21,106
5,511
1,495
3,621
21,321
Net interest income
174,507
19,283
6,979
2,424
9,788
212,981
Provision for credit losses
10,551
9,043
(1,836)
52
(158)
17,652
Noninterest income
23,269
38,584
1,516
1,946
9
65,324
Noninterest expense
Salaries and employee benefits
48,599
25,813
1,055
1,412
1,818
78,697
Occupancy and equipment
11,357
1,460
1
82
83
12,983
Data processing and communications expenses
10,779
1,082
43
29
82
12,015
Other expenses
22,974
11,641
209
100
959
35,883
Total noninterest expense
93,709
39,996
1,308
1,623
2,942
139,578
Income before income tax expense
93,516
8,828
9,023
2,695
7,013
121,075
Income tax expense
22,706
1,854
1,895
566
1,499
28,520
Net income
$
70,810
$
6,974
$
7,128
$
2,129
$
5,514
$
92,555
Total assets
$
16,980,520
$
4,402,221
$
955,711
$
259,427
$
1,215,778
$
23,813,657
Goodwill
958,573
—
—
—
64,498
1,023,071
Other intangible assets, net
101,225
—
—
—
9,678
110,903
Three Months Ended September 30, 2021
(dollars in thousands)
Banking Division
Retail Mortgage Division
Warehouse Lending Division
SBA Division
Premium Finance Division
Total
Interest income
$
110,708
$
33,390
$
9,093
$
11,986
$
7,869
$
173,046
Interest expense
(2,816)
12,101
381
1,287
432
11,385
Net interest income
113,524
21,289
8,712
10,699
7,437
161,661
Provision for credit losses
(9,578)
1,678
(291)
(1,104)
(380)
(9,675)
Noninterest income
17,896
55,555
1,037
2,070
4
76,562
Noninterest expense
Salaries and employee benefits
40,020
36,373
264
1,320
1,694
79,671
Occupancy and equipment
10,196
1,590
—
116
77
11,979
Data processing and communications expenses
9,159
1,357
59
18
88
10,681
Other expenses
21,723
11,675
200
370
897
34,865
Total noninterest expense
81,098
50,995
523
1,824
2,756
137,196
Income before income tax expense
59,900
24,171
9,517
12,049
5,065
110,702
Income tax expense
17,784
5,076
1,999
2,530
1,633
29,022
Net income
$
42,116
$
19,095
$
7,518
$
9,519
$
3,432
$
81,680
Total assets
$
16,070,583
$
4,247,967
$
740,809
$
529,044
$
944,738
$
22,533,141
Goodwill
863,507
—
—
—
64,498
928,005
Other intangible assets, net
47,768
—
—
—
12,628
60,396
30
Nine Months Ended September 30, 2022
(dollars in thousands)
Banking Division
Retail Mortgage Division
Warehouse Lending Division
SBA Division
Premium Finance Division
Total
Interest income
$
435,229
$
111,276
$
27,779
$
15,456
$
30,504
$
620,244
Interest expense
(25,145)
51,919
7,653
3,223
5,705
43,355
Net interest income
460,374
59,357
20,126
12,233
24,799
576,889
Provision for credit losses
25,952
15,129
(1,191)
(614)
(469)
38,807
Noninterest income
68,102
158,028
3,958
5,963
25
236,076
Noninterest expense
Salaries and employee benefits
144,527
88,646
1,546
3,999
5,805
244,523
Occupancy and equipment
33,599
4,337
3
262
255
38,456
Data processing and communications expenses
32,872
3,377
138
86
269
36,742
Other expenses
64,142
37,098
639
1,019
2,975
105,873
Total noninterest expense
275,140
133,458
2,326
5,366
9,304
425,594
Income before income tax expense
227,384
68,798
22,949
13,444
15,989
348,564
Income tax expense
58,822
14,448
4,820
2,823
3,332
84,245
Net income
$
168,562
$
54,350
$
18,129
$
10,621
$
12,657
$
264,319
Nine Months Ended September 30, 2021
(dollars in thousands)
Banking Division
Retail Mortgage Division
Warehouse Lending Division
SBA Division
Premium Finance Division
Total
Interest income
$
332,347
$
97,674
$
28,408
$
44,070
$
22,248
$
524,747
Interest expense
(4,663)
34,868
1,070
3,854
1,128
36,257
Net interest income
337,010
62,806
27,338
40,216
21,120
488,490
Provision for credit losses
(37,431)
2,772
(591)
(2,258)
(616)
(38,124)
Noninterest income
50,805
222,250
3,350
7,358
12
283,775
Noninterest expense
Salaries and employee benefits
120,557
131,009
872
3,639
5,084
261,161
Occupancy and equipment
29,366
4,619
2
354
231
34,572
Data processing and communications expenses
29,640
4,338
176
19
269
34,442
Other expenses
60,196
27,502
263
949
2,670
91,580
Total noninterest expense
239,759
167,468
1,313
4,961
8,254
421,755
Income before income tax expense
185,487
114,816
29,966
44,871
13,494
388,634
Income tax expense
50,436
24,111
6,293
9,423
3,402
93,665
Net income
$
135,051
$
90,705
$
23,673
$
35,448
$
10,092
$
294,969
NOTE 10 – LOAN SERVICING RIGHTS
The Company sells certain residential mortgage loans and SBA loans to third parties. All such transfers are accounted for as sales and the continuing involvement in the loans sold is limited to certain servicing responsibilities. The Company has also acquired portfolios of residential mortgage, SBA and indirect automobile loans serviced for others. Loan servicing rights are initially recorded at fair value and subsequently recorded at the lower of cost or fair value and are amortized over the remaining service life of the loans, with consideration given to prepayment assumptions. Loan servicing rights are recorded in other assets on the consolidated balance sheets.
The carrying value of the loan servicing rights assets is shown in the table below:
(dollars in thousands)
September 30, 2022
December 31, 2021
Loan Servicing Rights
Residential mortgage
$
144,764
$
206,944
SBA
4,318
5,556
Total loan servicing rights
$
149,082
$
212,500
31
Residential Mortgage Loans
The Company sells certain first-lien residential mortgage loans to third party investors, primarily the Federal National Mortgage Association (“FNMA”), the Government National Mortgage Association (“GNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). The Company retains the related mortgage servicing rights (“MSRs”) and receives servicing fees on certain of these loans. The net gain on loan sales, MSRs amortization and recoveries/impairment, and ongoing servicing fees on the portfolio of loans serviced for others are recorded in the consolidated statements of income and comprehensive income as part of mortgage banking activity.
During the three- and nine-months ended September 30, 2022, the Company recorded servicing fee income of $18.2 million and $54.0 million, respectively. During the three- and nine-months ended September 30, 2021, the Company recorded servicing fee income of $13.8 million and $35.3 million, respectively. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.
The table below is an analysis of the activity in the Company’s MSRs and valuation allowance:
The key metrics and the sensitivity of the fair value to adverse changes in model inputs and/or assumptions are summarized below:
(dollars in thousands)
September 30, 2022
December 31, 2021
Residential mortgage servicing rights
Unpaid principal balance of loans serviced for others
$
9,708,757
$
16,786,442
Composition of residential loans serviced for others:
FHLMC
16.55
%
21.88
%
FNMA
48.85
%
60.26
%
GNMA
34.60
%
17.86
%
Total
100.00
%
100.00
%
Weighted average term (months)
353
341
Weighted average age (months)
21
20
Modeled prepayment speed
7.20
%
12.96
%
Decline in fair value due to a 10% adverse change
(5,103)
(8,368)
Decline in fair value due to a 20% adverse change
(10,248)
(16,157)
Weighted average discount rate
10.02
%
8.77
%
Decline in fair value due to a 10% adverse change
(6,316)
(6,984)
Decline in fair value due to a 20% adverse change
(12,501)
(13,504)
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in model inputs and/or assumptions generally cannot be extrapolated because the relationship of a change in input or assumption to the change in fair value may not be linear. In addition, the effect of an adverse variation in a particular input or assumption on the value of the residential mortgage servicing rights is calculated without changing any other input or assumption. In reality, a change in another factor may magnify or counteract the effect of the change in the first.
During the third quarter of 2022, the Company sold servicing rights on residential mortgage loans with an unpaid principal balance of approximately $9 billion, subject to certain post-closing adjustments, to an unrelated financial institution resulting in a reduction of the mortgage servicing right carrying value of $121.6 million.
SBA Loans
All sales of SBA loans, consisting of the guaranteed portion, are executed on a servicing retained basis. These loans, which are partially guaranteed by the SBA, are generally secured by business property such as real estate, inventory, equipment and accounts receivable. The net gain on SBA loan sales, amortization and impairment/recoveries of servicing rights, and ongoing servicing fees are recorded in the consolidated statements of income and comprehensive income as part of other noninterest income.
During the three- and nine-months ended September 30, 2022, the Company recorded servicing fee income of $907,000 and $2.8 million, respectively. During the three- and nine-months ended September 30, 2021, the Company recorded servicing fee income of $1.0 million and $3.0 million, respectively. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.
33
The table below is an analysis of the activity in the Company’s SBA loan servicing rights and valuation allowance:
(dollars in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
SBA servicing rights
2022
2021
2022
2021
Beginning carrying value, net
$
4,954
$
6,123
$
5,556
$
5,839
Additions
99
265
873
736
Amortization
(735)
(555)
(2,111)
(1,647)
Recoveries
—
—
—
905
Ending carrying value, net
$
4,318
$
5,833
$
4,318
$
5,833
(dollars in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
SBA servicing valuation allowance
2022
2021
2022
2021
Beginning balance
$
—
$
—
$
—
$
905
Recoveries
—
—
—
(905)
Ending balance
$
—
$
—
$
—
$
—
(dollars in thousands)
September 30, 2022
December 31, 2021
SBA servicing rights
Unpaid principal balance of loans serviced for others
$
364,548
$
410,167
Weighted average life (in years)
3.66
3.65
Modeled prepayment speed
18.12
%
17.68
%
Decline in fair value due to a 10% adverse change
(233)
(291)
Decline in fair value due to a 20% adverse change
(446)
(557)
Weighted average discount rate
14.62
%
11.92
%
Decline in fair value due to a 100 basis point adverse change
(112)
(144)
Decline in fair value due to a 200 basis point adverse change
(220)
(282)
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in model inputs and/or assumptions generally cannot be extrapolated because the relationship of a change in input or assumption to the change in fair value may not be linear. In addition, the effect of an adverse variation in a particular input or assumption on the value of the SBA servicing rights is calculated without changing any other input or assumption. In reality, a change in another factor may magnify or counteract the effect of the change in the first.
Indirect Automobile Loans
The Company previously acquired a portfolio of indirect automobile loans serviced for others. These loans, or portions of loans, were sold on a servicing retained basis. Amortization and impairment/recoveries of servicing rights, and ongoing servicing fees are recorded in the consolidated statements of income and comprehensive income as part of other noninterest income. The Company is not actively originating or selling indirect automobile loans.
(dollars in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
Indirect automobile servicing rights
2022
2021
2022
2021
Beginning carrying value, net
$
—
$
—
$
—
$
73
Amortization
—
—
—
(73)
Ending carrying value, net
$
—
$
—
$
—
$
—
During the three- and nine-months ended September 30, 2022, the Company recorded servicing fee income of $56,000 and $204,000, respectively. During the three- and nine-months ended September 30, 2021, the Company recorded servicing fee
34
income of $135,000 and $510,000, respectively. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.
35
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Certain of the statements made in this report are “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation, the following: general competitive, economic, unemployment, political and market conditions and fluctuations, including real estate market conditions, and the effects of such conditions and fluctuations on the creditworthiness of borrowers, collateral values, asset recovery values and the value of investment securities; movements in interest rates and their impacts on net interest margin; expectations on credit quality and performance; competitive pressures on product pricing and services; legislative and regulatory changes; changes in U.S. government monetary and fiscal policy; the impact of the COVID-19 pandemic on the general economy, our customers and the allowance for loan losses; the benefits that may be realized by our customers from government assistance programs and regulatory actions related to the COVID-19 pandemic; the potential impact of the phase-out of the London Interbank Offered Rate ("LIBOR") or other changes involving LIBOR; additional competition in our markets; changes in state and federal banking laws and regulations to which we are subject; financial market conditions and the results of financing efforts; the cost savings and any revenue synergies expected to result from acquisition transactions, which may not be fully realized within the expected timeframes if at all; the success and timing of other business strategies; our outlook and long-term goals for future growth; weather events, natural disasters, geopolitical events, acts of war or terrorism or other hostilities, public health crises and other catastrophic events beyond our control; and other factors discussed in our filings with the Securities and Exchange Commission (the “SEC”) under the Exchange Act.
All written or oral forward-looking statements that are made by or are attributable to us are expressly qualified in their entirety by this cautionary notice. Our forward-looking statements apply only as of the date of this report or the respective date of the document from which they are incorporated herein by reference. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future events or otherwise.
Overview
The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of September 30, 2022, as compared with December 31, 2021, and operating results for the three- and nine-month periods ended September 30, 2022 and 2021. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.
This discussion contains certain performance measures determined by methods other than in accordance with GAAP. Management of the Company uses these non-GAAP measures in its analysis of the Company’s performance. These measures are useful when evaluating the underlying performance and efficiency of the Company’s operations and balance sheet. The Company’s management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results with prior periods and demonstrate the effects of significant gains and charges in the current period. The Company’s management believes that investors may use these non-GAAP financial measures to evaluate the Company’s financial performance without the impact of unusual items that may obscure trends in the Company’s underlying performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Non-GAAP measures include adjusted net income and adjusted net income per diluted share. The Company calculates the regulatory capital ratios using current regulatory report instructions. The Company’s management uses these measures to assess the quality of capital and believes that investors may find them useful in their evaluation of the Company. These capital measures may or may not be necessarily comparable to similar capital measures that may be presented by other companies.
36
Critical Accounting Policies
There have been no significant changes to our critical accounting policies from those disclosed in our 2021 Annual Report on Form 10-K. The reader should refer to the notes to our consolidated financial statements in our 2021 Annual Report on Form 10-K for a full disclosure of all critical accounting policies.
Results of Operations for the Three Months Ended September 30, 2022 and 2021
Consolidated Earnings and Profitability
Ameris reported net income available to common shareholders of $92.6 million, or $1.34 per diluted share, for the quarter ended September 30, 2022, compared with $81.7 million, or $1.17 per diluted share, for the same period in 2021. The Company’s return on average assets and average shareholders’ equity were 1.56% and 11.76%, respectively, in the third quarter of 2022, compared with 1.47% and 11.27%, respectively, in the third quarter of 2021. During the third quarter of 2022, the Company recorded pre-tax loss on sale of mortgage servicing rights of $316,000, pre-tax servicing right impairment recovery of $1.3 million, pre-tax gain on bank owned life insurance (BOLI) proceeds of $55,000 and pre-tax natural disaster and pandemic charges of $151,000. During the third quarter of 2021, the Company recorded pre-tax merger and conversion charges of $183,000, pre-tax servicing right impairment of $1.4 million and pre-tax loss on bank premises of $1.1 million. Excluding these adjustment items, the Company’s net income would have been $91.8 million, or $1.32 per diluted share, for the third quarter of 2022 and $83.9 million, or $1.20 per diluted share, for the third quarter of 2021.
Below is a reconciliation of adjusted net income to net income, as discussed above.
Three Months Ended September 30,
(in thousands, except share and per share data)
2022
2021
Net income
$
92,555
$
81,680
Adjustment items:
Merger and conversion charges
—
183
Loss on sale of mortgage servicing rights
316
—
Servicing right impairment (recovery)
(1,332)
1,398
Gain on BOLI proceeds
(55)
—
Natural disaster and pandemic expenses
151
—
Loss on bank premises
—
1,136
Tax effect of adjustment items (Note 1)
182
(536)
After tax adjustment items
(738)
2,181
Adjusted net income
$
91,817
$
83,861
Weighted average common shares outstanding - diluted
69,327,414
69,756,135
Net income per diluted share
$
1.34
$
1.17
Adjusted net income per diluted share
$
1.32
$
1.20
Note 1: Tax effect is calculated utilizing a 21% rate for taxable adjustments. Gain on BOLI proceeds is non-taxable and no tax effect is included. A portion of the merger and conversion charges for the three months ended September 30, 2021 is nondeductible for tax purposes.
37
Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities, SBA activities and premium finance activities of the Company during the third quarter of 2022 and 2021, respectively:
Three Months Ended September 30, 2022
(dollars in thousands)
Banking Division
Retail Mortgage Division
Warehouse Lending Division
SBA Division
Premium Finance Division
Total
Interest income
$
164,095
$
40,389
$
12,490
$
3,919
$
13,409
$
234,302
Interest expense
(10,412)
21,106
5,511
1,495
3,621
21,321
Net interest income
174,507
19,283
6,979
2,424
9,788
212,981
Provision for credit losses
10,551
9,043
(1,836)
52
(158)
17,652
Noninterest income
23,269
38,584
1,516
1,946
9
65,324
Noninterest expense
Salaries and employee benefits
48,599
25,813
1,055
1,412
1,818
78,697
Occupancy and equipment
11,357
1,460
1
82
83
12,983
Data processing and communications expenses
10,779
1,082
43
29
82
12,015
Other expenses
22,974
11,641
209
100
959
35,883
Total noninterest expense
93,709
39,996
1,308
1,623
2,942
139,578
Income before income tax expense
93,516
8,828
9,023
2,695
7,013
121,075
Income tax expense
22,706
1,854
1,895
566
1,499
28,520
Net income
$
70,810
$
6,974
$
7,128
$
2,129
$
5,514
$
92,555
Three Months Ended September 30, 2021
(dollars in thousands)
Banking Division
Retail Mortgage Division
Warehouse Lending Division
SBA Division
Premium Finance Division
Total
Interest income
$
110,708
$
33,390
$
9,093
$
11,986
$
7,869
$
173,046
Interest expense
(2,816)
12,101
381
1,287
432
11,385
Net interest income
113,524
21,289
8,712
10,699
7,437
161,661
Provision for credit losses
(9,578)
1,678
(291)
(1,104)
(380)
(9,675)
Noninterest income
17,896
55,555
1,037
2,070
4
76,562
Noninterest expense
Salaries and employee benefits
40,020
36,373
264
1,320
1,694
79,671
Occupancy and equipment
10,196
1,590
—
116
77
11,979
Data processing and communications expenses
9,159
1,357
59
18
88
10,681
Other expenses
21,723
11,675
200
370
897
34,865
Total noninterest expense
81,098
50,995
523
1,824
2,756
137,196
Income before income tax expense
59,900
24,171
9,517
12,049
5,065
110,702
Income tax expense
17,784
5,076
1,999
2,530
1,633
29,022
Net income
$
42,116
$
19,095
$
7,518
$
9,519
$
3,432
$
81,680
38
Net Interest Income and Margins
The following table sets forth the average balance, interest income or interest expense, and average interest rate for each category of interest-earning assets and interest-bearing liabilities, net interest spread, and net interest margin on average interest-earning assets for the three months ended September 30, 2022 and 2021. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate.
Quarter Ended September 30,
2022
2021
(dollars in thousands)
Average Balance
Interest Income/ Expense
Average Yield/ Rate Paid
Average Balance
Interest Income/ Expense
Average Yield/ Rate Paid
Assets
Interest-earning assets:
Federal funds sold, interest-bearing deposits in banks, and time deposits in other banks
$
1,399,529
$
7,215
2.05%
$
3,102,413
$
1,253
0.16%
Investment securities
1,339,750
10,783
3.19%
803,953
5,472
2.70%
Loans held for sale
471,070
6,012
5.06%
1,497,320
10,618
2.81%
Loans
18,146,083
211,223
4.62%
14,685,878
156,861
4.24%
Total interest-earning assets
21,356,432
235,233
4.37%
20,089,564
174,204
3.44%
Noninterest-earning assets
2,242,033
1,998,078
Total assets
$
23,598,465
$
22,087,642
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Savings and interest-bearing demand deposits
$
9,758,158
$
12,706
0.52%
$
9,322,590
$
2,907
0.12%
Time deposits
1,506,761
1,328
0.35%
1,919,695
2,199
0.45%
Securities sold under agreements to repurchase
92
—
—%
5,133
4
0.31%
FHLB advances
94,357
527
2.22%
48,866
195
1.58%
Other borrowings
376,942
4,655
4.90%
376,489
4,640
4.89%
Subordinated deferrable interest debentures
127,560
2,105
6.55%
125,567
1,440
4.55%
Total interest-bearing liabilities
11,863,870
21,321
0.71%
11,798,340
11,385
0.38%
Demand deposits
8,259,625
7,168,717
Other liabilities
351,252
245,894
Shareholders’ equity
3,123,718
2,874,691
Total liabilities and shareholders’ equity
$
23,598,465
$
22,087,642
Interest rate spread
3.66%
3.06%
Net interest income
$
213,912
$
162,819
Net interest margin
3.97%
3.22%
On a tax-equivalent basis, net interest income for the third quarter of 2022 was $213.9 million, an increase of $51.1 million, or 31.4%, compared with $162.8 million reported in the same quarter in 2021. The higher net interest income is primarily a result of growth in investment securities and loans complemented by disciplined deposit repricing. Average interest earning assets increased $1.27 billion, or 6.3%, from $20.09 billion in the third quarter of 2021 to $21.36 billion for the third quarter of 2022. This growth in interest earning assets resulted primarily from organic loan growth, loans acquired from Balboa Capital and excess liquidity from deposit growth. The Company’s net interest margin during the third quarter of 2022 was 3.97%, up 75 basis points from 3.22% reported in the third quarter of 2021. Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to $4.6 billion during the third quarter of 2022, with weighted average yields of5.29%, compared with $5.8 billion and 3.37%, respectively, during the third quarter of 2021. Loan production in the banking division amounted to $1.1 billion during the third quarter of 2022, with weighted average yields of 6.26%, compared with $913.3 million and 3.56%, respectively, during the third quarter of 2021.
Total interest income, on a tax-equivalent basis, increased to $235.2 million during the third quarter of 2022, compared with $174.2 million in the same quarter of 2021. Yields on earning assets increased to 4.37% during the third quarter of 2022, compared with 3.44% reported in the third quarter of 2021. During the third quarter of 2022, loans comprised 87.2% of average earning assets, compared with 80.6% in the same quarter of 2021. Yields on loans increased to 4.62% in the third quarter of 2022, compared with 4.24% in the same period of 2021. Accretion income for the third quarter of 2022 was negative $597,000, compared with $2.9 million in the third quarter of 2021.
39
The yield on total interest-bearing liabilities increased from 0.38% in the third quarter of 2021 to 0.71% in the third quarter of 2022. Total funding costs, inclusive of noninterest-bearing demand deposits, increased to 0.42% in the third quarter of 2022, compared with 0.24% during the third quarter of 2021. Deposit costs increased from 0.11% in the third quarter of 2021 to 0.29% in the third quarter of 2022. Non-deposit funding costs increased from 4.48% in the third quarter of 2021 to 4.83% in the third quarter of 2022. Average balances of interest bearing deposits and their respective costs for the third quarter of 2022 and 2021 are shown below:
Three Months Ended September 30, 2022
Three Months Ended September 30, 2021
(dollars in thousands)
Average Balance
Average Cost
Average Balance
Average Cost
NOW
$
3,701,045
0.40%
$
3,447,909
0.09%
MMDA
5,026,815
0.68%
4,966,492
0.16%
Savings
1,030,298
0.14%
908,189
0.06%
Retail CDs
1,506,761
0.35%
1,919,184
0.45%
Brokered CDs
—
—%
511
3.11%
Interest-bearing deposits
$
11,264,919
0.49%
$
11,242,285
0.18%
Provision for Credit Losses
The Company’s provision for credit losses during the third quarter of 2022 amounted to $17.7 million, compared with a reversal of $9.7 million in the third quarter of 2021. This increase was attributable to organic growth in loans during the quarter. The provision for credit losses for the third quarter of 2022 was comprised of $17.5 million related to loans, $192,000 related to unfunded commitments and negative $9,000 related to other credit losses, compared with negative $4.0 million related to loans, negative $5.5 million related to unfunded commitments and negative $175,000 related to other credit losses for the third quarter of 2021. Non-performing assets as a percentage of total assets increased from 0.43% at December 31, 2021 to 0.55% at September 30, 2022. The increase in non-performing assets is primarily attributable to an increase in nonaccruing loans as a result of rebooked GNMA loans, which the Company has the right, but not the obligation, to repurchase, and one commercial real estate loan totaling $8.5 million. The Company recognized net charge-offs on loans during the third quarter of 2022 of approximately $5.2 million, or 0.11% of average loans on an annualized basis, compared with net recoveries of approximately $127,000, or 0.00%, in the third quarter of 2021. The Company’s total allowance for credit losses on loans at September 30, 2022 was $184.9 million, or 0.98% of total loans, compared with $167.6 million, or 1.06% of total loans, at December 31, 2021. This increase is primarily attributable to organic growth in loans, partially offset by improvement in forecast economic conditions.
Noninterest Income
Total noninterest income for the third quarter of 2022 was $65.3 million, a decrease of $11.2 million, or 14.7%, from the $76.6 million reported in the third quarter of 2021. Income from mortgage banking activities was $40.4 million in the third quarter of 2022, a decrease of $16.1 million, or 28.5%, from $56.5 million in the third quarter of 2021. Total production in the third quarter of 2022 amounted to $1.26 billion, compared with $2.06 billion in the same quarter of 2021, while spread (gain on sale) decreased to 2.10% in the current quarter, compared with 3.17% in the same quarter of 2021. The retail mortgage open pipeline finished the third quarter of 2022 at $520.0 million, compared with $832.3 million at June 30, 2022 and $1.93 billion at the end of the third quarter of 2021. Service charges on deposit accounts decreased $318,000, or 2.8%, to $11.2 million in the third quarter of 2022, compared with $11.5 million in the third quarter of 2021.
Other noninterest income increased $5.9 million, or 85.5%, to $12.9 million for the third quarter of 2022, compared with $6.9 million during the third quarter of 2021. The increase in other noninterest income was primarily attributable to fee income from Balboa of $4.9 million and an increase in derivative fee income of $1.1 million.
Noninterest Expense
Total noninterest expense for the third quarter of 2022 increased $2.4 million, or 1.7%, to $139.6 million, compared with $137.2 million in the same quarter 2021. Salaries and employee benefits decreased $1.0 million, or 1.2%, from $79.7 million in the third quarter of 2021 to $78.7 million in the third quarter of 2022, due primarily to decreases in variable compensation and overtime tied to mortgage production of $8.9 million and $504,000, respectively, and stock based compensation of $615,000, partially offset by salaries and employee benefits related to Balboa of $10.2 million. Occupancy and equipment expenses increased $1.0 million, or 8.4%, to $13.0 million for the third quarter of 2022, compared with $12.0 million in the third quarter of 2021, due primarily to additional expenses related to Balboa and an increase in real estate taxes. Data processing and
40
communications expenses increased $1.3 million, or 12.5%, to $12.0 million in the third quarter of 2022, compared with $10.7 million in the third quarter of 2021. Advertising and marketing expense was $3.6 million in the third quarter of 2022, compared with $2.7 million in the third quarter of 2021. This increase was primarily related to a new marketing campaign. Amortization of intangible assets increased $1.3 million, or 39.1%, from $3.4 million in the third quarter of 2021 to $4.7 million in the third quarter of 2022. This increase was primarily related to intangibles from the acquisition of Balboa Capital Corporation in December 2021, partially offset by a reduction in core deposit intangible amortization. Loan servicing expenses increased $2.2 million, or 29.9%, from $7.4 million in the third quarter of 2021 to $9.6 million in the third quarter of 2022, primarily attributable to additional mortgage loans serviced resulting from strong mortgage production over the previous year. Other noninterest expenses decreased $3.0 million, or 14.2%, from $20.8 million in the third quarter of 2021 to $17.9 million in the third quarter of 2022, due primarily to decreases of $1.6 million in other losses, $2.0 million in loss on sale of bank premises and $548,000 in check card losses. These decreases in other noninterest expenses were partially offset by an increase in forgery losses of $1.9 million.
Income Taxes
Income tax expense is influenced by the statutory rate, the amount of taxable income, the amount of tax-exempt income and the amount of nondeductible expenses. For the third quarter of 2022, the Company reported income tax expense of $28.5 million, compared with $29.0 million in the same period of 2021. The Company’s effective tax rate for the three months ending September 30, 2022 and 2021 was 23.6% and 26.2%, respectively. The decrease in the effective tax rate is primarily a result of a state tax liability adjustment in the third quarter of 2021.
41
Results of Operations for the Nine Months Ended September 30, 2022 and 2021
Consolidated Earnings and Profitability
Ameris reported net income available to common shareholders of $264.3 million, or $3.81 per diluted share, for the nine months ended September 30, 2022, compared with $295.0 million, or $4.23 per diluted share, for the same period in 2021. The Company’s return on average assets and average shareholders’ equity were 1.51% and 11.57%, respectively, in the nine months ended September 30, 2022, compared with 1.84% and 14.14%, respectively, in the same period in 2021. During the first nine months of 2022, the Company recorded pre-tax merger and conversion charges of $977,000, pre-tax loss on sale of mortgage servicing rights of $316,000, pre-tax servicing right recovery of $21.8 million, pre-tax gain on BOLI proceeds of $55,000, pre-tax natural disaster and pandemic charges of $151,000 and pre-tax gain on bank premises of $45,000. During the first nine months of 2021, the Company recorded pre-tax merger and conversion charges of $183,000, pre-tax servicing right recovery of $10.0 million, pre-tax gain on BOLI proceeds of $603,000 and pre-tax loss on bank premises of $636,000. Excluding these adjustment items, the Company’s net income would have been $248.3 million, or $3.58 per diluted share, for the nine months ended September 30, 2022 and $287.2 million, or $4.12 per diluted share, for the same period in 2021.
Below is a reconciliation of adjusted net income to net income, as discussed above.
Nine Months Ended September 30,
(in thousands, except share and per share data)
2022
2021
Net income available to common shareholders
$
264,319
$
294,969
Adjustment items:
Merger and conversion charges
977
183
Loss on sale of mortgage servicing rights
316
—
Servicing right recovery
(21,824)
(9,990)
Gain on BOLI proceeds
(55)
(603)
Natural disaster and pandemic charges
151
—
(Gain) loss on bank premises
(45)
636
Tax effect of adjustment items (Note 1)
4,490
1,960
After tax adjustment items
(15,990)
(7,814)
Adjusted net income
$
248,329
$
287,155
Weighted average common shares outstanding - diluted
69,427,522
69,772,084
Net income per diluted share
$
3.81
$
4.23
Adjusted net income per diluted share
$
3.58
$
4.12
Note 1: Tax effect is calculated utilizing a 21% rate for taxable adjustments. Gain on BOLI proceeds is non-taxable and no tax effect is included. A portion of the merger and conversion charges for the nine months ended September 30, 2022 and 2021 is nondeductible for tax purposes.
42
Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities, SBA activities and premium finance activities of the Company during the nine months ended September 30, 2022 and 2021, respectively:
Nine Months Ended September 30, 2022
(dollars in thousands)
Banking Division
Retail Mortgage Division
Warehouse Lending Division
SBA Division
Premium Finance Division
Total
Interest income
$
435,229
$
111,276
$
27,779
$
15,456
$
30,504
$
620,244
Interest expense
(25,145)
51,919
7,653
3,223
5,705
43,355
Net interest income
460,374
59,357
20,126
12,233
24,799
576,889
Provision for loan losses
25,952
15,129
(1,191)
(614)
(469)
38,807
Noninterest income
68,102
158,028
3,958
5,963
25
236,076
Noninterest expense
Salaries and employee benefits
144,527
88,646
1,546
3,999
5,805
244,523
Occupancy and equipment
33,599
4,337
3
262
255
38,456
Data processing and communications expenses
32,872
3,377
138
86
269
36,742
Other expenses
64,142
37,098
639
1,019
2,975
105,873
Total noninterest expense
275,140
133,458
2,326
5,366
9,304
425,594
Income before income tax expense
227,384
68,798
22,949
13,444
15,989
348,564
Income tax expense
58,822
14,448
4,820
2,823
3,332
84,245
Net income
$
168,562
$
54,350
$
18,129
$
10,621
$
12,657
$
264,319
Nine Months Ended September 30, 2021
(dollars in thousands)
Banking Division
Retail Mortgage Division
Warehouse Lending Division
SBA Division
Premium Finance Division
Total
Interest income
$
332,347
$
97,674
$
28,408
$
44,070
$
22,248
$
524,747
Interest expense
(4,663)
34,868
1,070
3,854
1,128
36,257
Net interest income
337,010
62,806
27,338
40,216
21,120
488,490
Provision for loan losses
(37,431)
2,772
(591)
(2,258)
(616)
(38,124)
Noninterest income
50,805
222,250
3,350
7,358
12
283,775
Noninterest expense
Salaries and employee benefits
120,557
131,009
872
3,639
5,084
261,161
Occupancy and equipment
29,366
4,619
2
354
231
34,572
Data processing and communications expenses
29,640
4,338
176
19
269
34,442
Other expenses
60,196
27,502
263
949
2,670
91,580
Total noninterest expense
239,759
167,468
1,313
4,961
8,254
421,755
Income before income tax expense
185,487
114,816
29,966
44,871
13,494
388,634
Income tax expense
50,436
24,111
6,293
9,423
3,402
93,665
Net income
$
135,051
$
90,705
$
23,673
$
35,448
$
10,092
$
294,969
43
Net Interest Income and Margins
The following table sets forth the average balance, interest income or interest expense, and average yield/rate paid for each category of interest-earning assets and interest-bearing liabilities, net interest spread, and net interest margin on average interest-earning assets for the nine months ended September 30, 2022 and 2021. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate.
Nine Months Ended September 30,
2022
2021
(dollars in thousands)
Average Balance
Interest Income/ Expense
Average Yield/ Rate Paid
Average Balance
Interest Income/ Expense
Average Yield/ Rate Paid
Assets
Interest-earning assets:
Federal funds sold, interest-bearing deposits in banks, and time deposits in other banks
$
2,339,364
$
13,093
0.75%
$
2,586,564
$
2,394
0.12%
Investment securities
1,023,118
22,662
2.96%
872,306
17,188
2.63%
Loans held for sale
835,418
24,180
3.87%
1,496,548
33,218
2.97%
Loans
16,951,566
563,223
4.44%
14,563,835
475,446
4.36%
Total interest-earning assets
21,149,466
623,158
3.94%
19,519,253
528,246
3.62%
Noninterest-earning assets
2,255,945
1,943,248
Total assets
$
23,405,411
$
21,462,501
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Savings and interest-bearing demand deposits
$
9,815,352
$
18,896
0.26%
$
9,052,996
$
8,801
0.13%
Time deposits
1,657,193
4,138
0.33%
1,997,248
8,878
0.59%
Federal funds purchased and securities sold under agreements to repurchase
1,974
4
0.27%
7,085
16
0.30%
FHLB advances
64,130
909
1.90%
48,909
580
1.59%
Other borrowings
398,898
14,256
4.78%
376,376
13,961
4.96%
Subordinated deferrable interest debentures
127,066
5,152
5.42%
125,073
4,021
4.30%
Total interest-bearing liabilities
12,064,613
43,355
0.48%
11,607,687
36,257
0.42%
Demand deposits
7,960,149
6,821,256
Other liabilities
326,293
243,579
Shareholders’ equity
3,054,356
2,789,979
Total liabilities and shareholders’ equity
$
23,405,411
$
21,462,501
Interest rate spread
3.46%
3.20%
Net interest income
$
579,803
$
491,989
Net interest margin
3.67%
3.37%
On a tax-equivalent basis, net interest income for the nine months ended September 30, 2022 was $579.8 million, an increase of $87.8 million, or 17.8%, compared with $492.0 million reported in the same period of 2021. The higher net interest income is a result of growth in average earning assets and disciplined deposit pricing. Average interest earning assets increased $1.63 billion, or 8.4%, from $19.52 billion in the first nine months of 2021 to $21.15 billion for the first nine months of 2022. This growth in interest earning assets resulted primarily from organic growth in average loans and loans acquired from Balboa Capital. The Company’s net interest margin during the first nine months of 2022 was 3.67%, up 30 basis points from 3.37% reported for the first nine months of 2021. Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to $14.5 billion during the first nine months of 2022, with weighted average yields of 4.39%, compared with $19.7 billion and 3.29%, respectively, during the first nine months of 2021. Loan production yields in the lines of business were negatively impacted five basis points during the first nine months of 2021 by originations of Paycheck Protection Program loans in our SBA division. Loan production in the banking division amounted to $3.0 billion during the first nine months of 2022 with weighted average yields of 5.60%, compared with $2.4 billion and 3.69%, respectively, during the first nine months of 2021.
Total interest income, on a tax-equivalent basis, increased to $623.2 million during the nine months ended September 30, 2022, compared with $528.2 million in the same period of 2021. Yields on earning assets increased to 3.94% during the first nine months of 2022, compared with 3.62% reported in the same period of 2021. During the first nine months of 2022, loans comprised 84.1% of average earning assets, compared with 82.3% in the same period of 2021. Yields on loans increased to
44
4.44% during the nine months ended September 30, 2022, compared with 4.36% in the same period of 2021. Accretion income for the first nine months of 2022 was $30,000, compared with $13.5 million in the first nine months of 2021.
The yield on total interest-bearing liabilities increased from 0.42% during the nine months ended September 30, 2021 to 0.48% in the same period of 2022. Total funding costs, inclusive of noninterest-bearing demand deposits, increased to 0.29% in the first nine months of 2022, compared with 0.26% during the same period of 2021. Deposit costs increased from 0.13% in the first nine months of 2021 to 0.16% in the same period of 2022. Non-deposit funding costs increased from 4.46% in the first nine months of 2021 to 4.59% in the same period of 2022. The increase in non-deposit funding costs was driven primarily by an increase in index rates. Average balances of interest bearing deposits and their respective costs for the nine months ended September 30, 2022 and 2021 are shown below:
Nine Months Ended September 30, 2022
Nine Months Ended September 30, 2021
(dollars in thousands)
Average Balance
Average Cost
Average Balance
Average Cost
NOW
$
3,693,829
0.21%
$
3,315,803
0.10%
MMDA
5,117,528
0.33%
4,867,509
0.16%
Savings
1,003,995
0.08%
869,684
0.06%
Retail CDs
1,657,193
0.33%
1,996,413
0.59%
Brokered CDs
—
—%
835
2.88%
Interest-bearing deposits
$
11,472,545
0.27%
$
11,050,244
0.21%
Provision for Credit Losses
The Company’s provision for credit losses during the nine months ended September 30, 2022 amounted to $38.8 million, compared with negative $38.1 million in the nine months ended September 30, 2021. This increase was primarily attributable to organic growth in loans during the first nine months of 2022 and a release of reserves in the nine months ended September 30, 2021 which resulted from an improved economic forecast, particularly levels of unemployment, home prices and gross domestic product. The provision for credit losses for the first nine months of 2022 was comprised of $28.0 million related to loans, $11.0 million related to unfunded commitments and negative $135,000 related to other credit losses compared with negative $21.5 million related to loans, negative $16.1 million related to unfunded commitments and negative $606,000 related to other credit losses for the same period in 2021. Non-performing assets as a percentage of total assets increased from 0.43% at December 31, 2021 to 0.55% at September 30, 2022. The increase in non-performing assets is primarily attributable to an increase in nonaccruing loans as a result of rebooked GNMA loans, which the Company has the right, but not the obligation, to repurchase, and one commercial real estate loan totaling $8.5 million. Net charge-offs on loans during the first nine months of 2022 were $10.7 million, or 0.08% of average loans on an annualized basis, compared with approximately $6.7 million, or 0.06%, in the first nine months of 2021. The Company’s total allowance for credit losses on loans at September 30, 2022 was $184.9 million, or 0.98% of total loans, compared with $167.6 million, or 1.06% of total loans, at December 31, 2021. This increase is primarily attributable to organic growth in loans, partially offset by improvement in forecast economic conditions.
Noninterest Income
Total noninterest income for the nine months ended September 30, 2022 was $236.1 million, a decrease of $47.7 million, or 16.8%, from the $283.8 million reported for the nine months ended September 30, 2021.Income from mortgage banking activities decreased $63.1 million, or 28.0%, from $225.2 million in the first nine months of 2021 to $162.0 million in the same period of 2022.Total production in the first nine months of 2022 amounted to $4.52 billion, compared with $7.09 billion in the same period of 2021, while spread (gain on sale) decreased to 2.48% during the nine months ended September 30, 2022, compared with 3.33% in the same period of 2021. The retail mortgage open pipeline was $520.0 million at September 30, 2022, compared with $1.62 billion at December 31, 2021 and $1.93 billion at September 30, 2021. Mortgage-related activities was positively impacted during the first nine months of 2022 by a recovery of previous mortgage servicing right impairment of $21.8 million, compared with a recovery of $9.1 million for the same period in 2021.
Other noninterest income increased $16.0 million, or 74.4%, to $37.5 million for the first nine months of 2022, compared with $21.5 million during the same period of 2021. The increase in other noninterest income was primarily attributable to an increase in fee income from Balboa Capital of $13.8 million and an increase in BOLI income of $1.7 million, partially offset by a decrease of $547,000 in gain on BOLI proceeds.
45
Noninterest Expense
Total noninterest expenses for the nine months ended September 30, 2022 increased $3.8 million, or 0.9%, to $425.6 million, compared with $421.8 million in the same period of 2021. Salaries and employee benefits decreased $16.6 million, or 6.4%, from $261.2 million in the first nine months of 2021 to $244.5 million in the same period of 2022 due primarily to decreases in variable compensation tied to mortgage production and overtime in our mortgage division of $36.6 million and $2.0 million, respectively, partially offset by an increase in salaries and employee benefits related to Balboa Capital of $27.8 million. Occupancy and equipment expenses increased $3.9 million, or 11.2%, to $38.5 million for the first nine months of 2022, compared with $34.6 million in the same period of 2021, due primarily to the addition of Balboa Capital, an increase in real estate taxes and a decrease in gain on lease termination. Data processing and communications expenses increased $2.3 million, or 6.7%, to $36.7 million in the first nine months of 2022, from $34.4 million reported in the same period of 2021. Credit resolution-related expenses decreased $1.9 million, or 122.2%, from $1.5 million in the first nine months of 2021 to negative $343,000 in the same period of 2022. This decrease in credit resolution-related expenses primarily resulted from an increase in gain on sale of OREO properties of $2.0 million. Advertising and marketing expense was $8.7 million in the first nine months of 2022, compared with $6.1 million in the first nine months of 2021. Amortization of intangible assets increased $3.5 million, or 29.9%, from $11.6 million in the first nine months of 2021 to $15.0 million in the first nine months of 2022. This increase was primarily related to amortization of intangibles from the acquisition of Balboa Capital Corporation in December 2021, partially offset by a reduction in core deposit intangible amortization. There were $977,000 in merger and conversion charges in the first nine months of 2022, compared with $183,000 in the same period in 2021. Loan servicing expenses increased $10.2 million, or 56.2%, from $18.2 million in the first nine months of 2021 to $28.5 million in the same period of 2022, primarily attributable to additional mortgage loans serviced resulting from strong mortgage production over the previous year. Other noninterest expenses decreased $917,000, or 1.7%, from $54.0 million in the first nine months of 2021 to $53.1 million in the same period of 2022, due primarily to decreases of $2.1 million in other losses, $1.5 million in loss on sale of bank premises and variable expenses tied to production in our mortgage division. These decreases in other noninterest expenses were partially offset by an increase in forgery losses of $3.9 million.
Income Taxes
Income tax expense is influenced by the statutory rate, the amount of taxable income, the amount of tax-exempt income and the amount of nondeductible expenses. For the nine months ended September 30, 2022, the Company reported income tax expense of $84.2 million, compared with $93.7 million in the same period of 2021. The Company’s effective tax rate for the nine months ended September 30, 2022 and 2021 was 24.2% and 24.1%, respectively.
46
Financial Condition as of September 30, 2022
Securities
Debt securities classified as available-for-sale are recorded at fair value with unrealized holding gains and losses excluded from earnings and reported in accumulated other comprehensive income, net of the related deferred tax effect. Securities available-for-sale may be bought and sold in response to changes in market conditions, including, but not limited to, fluctuations in interest rates, changes in securities' prepayment risk, increases in loan demand, general liquidity needs and positioning the portfolio to take advantage of market conditions that create more economically attractive returns. Debt securities are classified as held-to-maturity based on management's positive intent and ability to hold such securities to maturity and are carried at amortized cost. Restricted equity securities are classified as other investment securities and are carried at cost and are periodically evaluated for impairment based on the ultimate recovery of par value or cost basis.
The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the expected life of the securities. Realized gains and losses, determined on the basis of the cost of specific securities sold, are included in earnings on the trade date.
Management and the Company’s ALCO Committee evaluate available-for-sale securities in an unrealized loss position on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation, to determine if credit-related impairment exists. Management first evaluates whether they intend to sell or more likely than not will be required to sell an impaired security before recovering its amortized cost basis. If either criteria is met, the entire amount of unrealized loss is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. If either of the above criteria is not met, management evaluates whether the decline in fair value is attributable to credit or resulted from other factors. If credit-related impairment exists, the Company recognizes an allowance for credit losses, limited to the amount by which the fair value is less than the amortized cost basis. Any impairment not recognized through an allowance for credit losses is recognized in other comprehensive income, net of tax, as a non credit-related impairment. The Company does not intend to sell these available-for-sale investment securities at an unrealized loss position at September 30, 2022, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Based on the results of management's review, at September 30, 2022, management determined that $79,000 was attributable to credit impairment and, accordingly, an allowance for credit losses was established. The remaining $64.2 million in unrealized loss was determined to be from factors other than credit.
The Company's held-to-maturity securities have no expected credit losses, and no related allowance for credit losses has been established.
The following table is a summary of our investment portfolio at the dates indicated:
September 30, 2022
December 31, 2021
(dollars in thousands)
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Securities available-for-sale
U.S. Treasuries
$
520,085
$
503,810
$
—
$
—
U.S. government-sponsored agencies
1,039
977
7,084
7,172
State, county and municipal securities
40,842
39,268
45,470
47,812
Corporate debt securities
15,897
15,296
27,897
28,496
SBA pool securities
31,063
28,851
44,312
45,201
Mortgage-backed securities
710,523
666,947
448,124
463,940
Total debt securities available-for-sale
$
1,319,449
$
1,255,149
$
572,887
$
592,621
Securities held-to-maturity
State, county and municipal securities
$
31,905
$
25,073
$
8,905
$
8,711
Mortgage-backed securities
98,309
82,741
70,945
69,495
Total debt securities held-to-maturity
$
130,214
$
107,814
$
79,850
$
78,206
47
The amounts of securities available-for-sale and held-to-maturity in each category as of September 30, 2022 are shown in the following table according to contractual maturity classifications: (i) one year or less; (ii) after one year through five years; (iii) after five years through ten years; and (iv) after ten years:
U.S. Treasuries
U.S. Government-Sponsored Agencies
State, County and Municipal Securities
(dollars in thousands)
Securities available-for-sale (1)
Amount
Yield (2)
Amount
Yield (2)
Amount
Yield (2)(3)
One year or less
$
—
—
%
$
—
—
%
$
5,195
3.21
%
After one year through five years
503,810
2.77
977
2.16
18,187
3.96
After five years through ten years
—
—
—
—
8,997
4.20
After ten years
—
—
—
—
6,889
3.70
$
503,810
2.77
%
$
977
2.16
%
$
39,268
3.87
%
Corporate Debt Securities
SBA Pool Securities
Mortgage-Backed Securities
(dollars in thousands)
Securities available-for-sale (1)
Amount
Yield (2)
Amount
Yield (2)
Amount
Yield (2)
One year or less
$
500
3.88
%
$
166
2.56
%
$
7,527
3.07
%
After one year through five years
1,000
2.40
6,916
2.11
172,943
3.15
After five years through ten years
12,233
4.90
3,479
2.67
209,568
2.95
After ten years
1,563
6.75
18,290
2.70
276,909
3.14
$
15,296
4.93
%
$
28,851
2.56
%
$
666,947
3.08
%
State, County and Municipal Securities
Mortgage-Backed Securities
(dollars in thousands)
Securities held-to-maturity (1)
Amount
Yield (2)(3)
Amount
Yield (2)
One year or less
$
—
—
%
$
—
—
%
After one year through five years
—
—
11,009
1.01
After five years through ten years
—
—
38,753
2.67
After ten years
31,905
3.93
48,547
2.03
$
31,905
3.93
%
$
98,309
2.17
%
(1)The amortized cost of securities held-to-maturity and fair value of securities available-for-sale are presented based on contractual maturities. Actual cash flows may differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.
(2)Yields were computed using coupon interest, adding discount accretion or subtracting premium amortization, as appropriate, on a ratable basis over the life of each security. The weighted average yield for each maturity range was computed using the amortized cost of each security in that range.
(3)Yields on securities of state and political subdivisions are stated on a taxable-equivalent basis, using a tax rate of 21%.
Loans and Allowance for Credit Losses
At September 30, 2022, gross loans outstanding (including loans and loans held for sale) were $19.10 billion, up $1.98 billion from $17.13 billion reported at December 31, 2021. Loans increased $2.93 billion, or 18.5%, from $15.87 billion at December 31, 2021 to $18.81 billion at September 30, 2022, driven primarily by organic growth. Loans held for sale decreased from $1.25 billion at December 31, 2021 to $298.0 million at September 30, 2022 primarily in our mortgage division.
The Company regularly monitors the composition of the loan portfolio to evaluate the adequacy of the allowance for credit losses ("ACL") on loans in light of the impact that changes in the economic environment may have on the loan portfolio. The Company focuses on the following loan categories: (1) commercial, financial and agricultural; (2) consumer installment; (3) indirect automobile; (4) mortgage warehouse; (5) municipal; (6) premium finance; (7) construction and development related real estate; (8) commercial and farmland real estate; and (9) residential real estate. The Company’s management has strategically located its branches in select markets in Georgia, Alabama, Florida, North Carolina and South Carolina to take advantage of the growth in these areas.
48
The Company’s risk management processes include a loan review program designed to evaluate the credit risk in the loan portfolio and ensure credit grade accuracy. Through the loan review process, the Company conducts (1) a loan portfolio summary analysis, (2) charge-off and recovery analysis, (3) trends in accruing problem loan analysis, and (4) problem and past-due loan analysis. This analysis process serves as a tool to assist management in assessing the overall quality of the loan portfolio and the adequacy of the ACL. Loans classified as “substandard” are loans which are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses and/or questionable collateral values. Loans classified as “doubtful” are those loans that have characteristics similar to substandard loans but have an increased risk of loss. Loans classified as “loss” are those loans which are considered uncollectible and are in the process of being charged off.
The Company estimates the ACL on loans based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL, except for loans modified under the Disaster Relief Program.
Expected credit losses are reflected in the ACL through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.
The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company currently uses the DCF method or the PD×LGD method which may be adjusted for qualitative factors.
The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert back to historical loss information on a straight-line basis over four quarters when the Company can no longer develop reasonable and supportable forecasts.
At the end of the third quarter of 2022, the ACL on loans totaled $184.9 million, or 0.98% of loans, compared with $167.6 million, or 1.06% of loans, at December 31, 2021. Our nonaccrual loans increased from $85.3 million at December 31, 2021 to $118.7 million at September 30, 2022. The increase in nonaccrual loans is attributable to rebooked GNMA loans, which the Company has the right, but not the obligation, to repurchase, and one commercial real estate loan totaling $8.5 million. For the first nine months of 2022, our net charge off ratio as a percentage of average loans increased to 0.08%, compared with 0.06% for the first nine months of 2021. The total provision for credit losses for the first nine months of 2022 was $38.8 million, increasing from a provision release of $38.1 million recorded for the first nine months of 2021. Our ratio of total nonperforming assets to total assets increased from 0.43% at December 31, 2021 to 0.55% at September 30, 2022.
49
The following table presents an analysis of the allowance for credit losses on loans, provision for credit losses on loans and net charge-offs as of and for the nine months ended September 30, 2022 and 2021:
Nine Months Ended September 30,
(dollars in thousands)
2022
2021
Balance of allowance for credit losses on loans at beginning of period
$
167,582
$
199,422
Provision charged to operating expense
27,962
(21,462)
Charge-offs:
Commercial, financial and agricultural
13,527
6,757
Consumer installment
3,790
4,764
Indirect automobile
179
1,148
Premium finance
3,640
3,142
Real estate – construction and development
—
212
Real estate – commercial and farmland
3,378
1,632
Real estate – residential
190
594
Total charge-offs
24,704
18,249
Recoveries:
Commercial, financial and agricultural
7,882
3,338
Consumer installment
665
767
Indirect automobile
816
1,350
Premium finance
3,383
4,237
Real estate – construction and development
669
296
Real estate – commercial and farmland
177
492
Real estate – residential
459
1,022
Total recoveries
14,051
11,502
Net charge-offs
10,653
6,747
Balance of allowance for credit losses on loans at end of period
$
184,891
$
171,213
The following table presents an analysis of the allowance for credit losses on loans and net charge-offs for loans held for investment:
As of and for the Nine Months Ended
(dollars in thousands)
September 30, 2022
September 30, 2021
Allowance for credit losses on loans at end of period
$
184,891
$
171,213
Net charge-offs for the period
10,653
6,747
Loan balances:
End of period
18,806,856
14,824,539
Average for the period
16,951,566
14,563,835
Net charge-offs as a percentage of average loans (annualized)
0.08
%
0.06
%
Allowance for credit losses on loans as a percentage of end of period loans
0.98
%
1.15
%
50
Loans
Loans are stated at amortized cost. Balances within the major loans receivable categories are presented in the following table:
(dollars in thousands)
September 30, 2022
December 31, 2021
Commercial, financial and agricultural
$
2,245,287
$
1,875,993
Consumer installment
162,345
191,298
Indirect automobile
137,183
265,779
Mortgage warehouse
980,342
787,837
Municipal
516,797
572,701
Premium finance
1,062,724
798,409
Real estate – construction and development
2,009,726
1,452,339
Real estate – commercial and farmland
7,516,309
6,834,917
Real estate – residential
4,176,143
3,094,985
$
18,806,856
$
15,874,258
Non-Performing Assets
Non-performing assets include nonaccrual loans, accruing loans contractually past due 90 days or more, repossessed personal property, and OREO. Loans are placed on nonaccrual status when management has concerns relating to the ability to collect the principal and interest and generally when such loans are 90 days or more past due. Management performs a detailed review and valuation assessment of non-performing loans over $250,000 on a quarterly basis. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against current income.
Nonaccrual loans totaled $118.7 million at September 30, 2022, an increase of $33.4 million, or 39.2%, from $85.3 million at December 31, 2021. Accruing loans delinquent 90 days or more totaled $12.4 million at September 30, 2022, a decrease of $270,000, or 2.1%, compared with $12.6 million at December 31, 2021. At September 30, 2022, OREO totaled $843,000, a decrease of $3.0 million, or 77.9%, compared with $3.8 million at December 31, 2021. Management regularly assesses the valuation of OREO through periodic reappraisal and through inquiries received in the marketing process. At the end of the third quarter of 2022, total non-performing assets as a percent of total assets increased to 0.55% compared with 0.43% at December 31, 2021.
Non-performing assets at September 30, 2022 and December 31, 2021 were as follows:
(dollars in thousands)
September 30, 2022
December 31, 2021
Nonaccrual loans
$
118,676
$
85,266
Accruing loans delinquent 90 days or more
12,378
12,648
Repossessed assets
60
84
Other real estate owned
843
3,810
Total non-performing assets
$
131,957
$
101,808
51
Troubled Debt Restructurings
The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession.
As of September 30, 2022 and December 31, 2021, the Company had a balance of $39.8 million and $76.6 million, respectively, in troubled debt restructurings. These totals do not include COVID-19 loan modifications accounted for under Section 4013 of the CARES Act. The following table presents the amount of troubled debt restructurings by loan class classified separately as accrual and nonaccrual at September 30, 2022 and December 31, 2021:
September 30, 2022
Accruing Loans
Non-Accruing Loans
Loan Class
#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural
8
$
1,342
3
$
353
Consumer installment
4
6
10
12
Indirect automobile
170
595
25
101
Premium finance
5
456
—
—
Real estate – construction and development
2
698
1
24
Real estate – commercial and farmland
17
8,091
3
66
Real estate – residential
206
24,515
29
3,494
Total
412
$
35,703
71
$
4,050
December 31, 2021
Accruing Loans
Non-Accruing Loans
Loan Class
#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural
12
$
1,286
6
$
83
Consumer installment
7
16
17
35
Indirect automobile
233
1,037
52
273
Real estate – construction and development
4
789
1
13
Real estate – commercial and farmland
25
35,575
5
5,924
Real estate – residential
213
26,879
39
4,678
Total
494
$
65,582
120
$
11,006
The following table presents the amount of troubled debt restructurings by loan class classified separately as those currently paying under restructured terms and those that have defaulted (defined as 30 days past due) under restructured terms at September 30, 2022 and December 31, 2021:
September 30, 2022
Loans Currently Paying Under Restructured Terms
Loans that have Defaulted Under Restructured Terms
Loan Class
#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural
10
$
1,347
1
$
348
Consumer installment
7
6
7
12
Indirect automobile
156
519
39
177
Premium finance
5
456
—
—
Real estate – construction and development
2
698
1
24
Real estate – commercial and farmland
19
8,149
1
8
Real estate – residential
188
22,017
47
5,992
Total
387
$
33,192
96
$
6,561
52
December 31, 2021
Loans Currently Paying Under Restructured Terms
Loans that have Defaulted Under Restructured Terms
Loan Class
#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural
11
$
1,269
7
$
100
Consumer installment
10
17
14
34
Indirect automobile
233
1,052
52
258
Real estate – construction and development
4
789
1
13
Real estate – commercial and farmland
29
41,452
1
47
Real estate – residential
215
26,956
37
4,601
Total
502
$
71,535
112
$
5,053
The following table presents the amount of troubled debt restructurings by types of concessions made, classified separately as accrual and nonaccrual at September 30, 2022 and December 31, 2021:
September 30, 2022
Accruing Loans
Non-Accruing Loans
Type of Concession
#
Balance
(in thousands)
#
Balance
(in thousands)
Forgiveness of interest
3
$
280
1
$
55
Forbearance of interest
13
1,017
1
42
Forbearance of principal
264
21,855
41
3,261
Rate reduction only
52
5,038
3
257
Rate reduction, forbearance of interest
31
2,345
1
2
Rate reduction, forbearance of principal
14
2,530
21
302
Rate reduction, forgiveness of interest
35
2,638
3
131
Total
412
$
35,703
71
$
4,050
December 31, 2021
Accruing Loans
Non-Accruing Loans
Type of Concession
#
Balance
(in thousands)
#
Balance
(in thousands)
Forgiveness of interest
3
$
287
—
$
—
Forbearance of interest
16
1,218
1
15
Forbearance of principal
332
49,778
73
9,783
Rate reduction only
55
6,321
4
200
Rate reduction, maturity extension
—
—
1
1
Rate reduction, forbearance of interest
33
2,296
6
319
Rate reduction, forbearance of principal
18
2,694
29
363
Rate reduction, forgiveness of interest
37
2,988
6
325
Total
494
$
65,582
120
$
11,006
53
The following table presents the amount of troubled debt restructurings by collateral types, classified separately as accrual and nonaccrual at September 30, 2022 and December 31, 2021:
September 30, 2022
Accruing Loans
Non-Accruing Loans
Collateral Type
#
Balance
(in thousands)
#
Balance
(in thousands)
Warehouse
3
$
55
1
$
8
Raw land
3
1,717
3
73
Hotel and motel
1
129
—
—
Office
3
521
—
—
Retail, including strip centers
7
3,980
1
17
1-4 family residential
206
24,515
28
3,486
Church
2
2,388
—
—
Automobile/equipment/CD
182
1,942
38
466
Unsecured
5
456
—
—
Total
412
$
35,703
71
$
4,050
December 31, 2021
Accruing Loans
Non-Accruing Loans
Collateral Type
#
Balance
(in thousands)
#
Balance
(in thousands)
Warehouse
3
$
61
2
$
272
Raw land
6
3,776
1
13
Hotel and motel
4
22,069
1
4,798
Office
5
710
1
485
Retail, including strip centers
8
7,118
1
370
1-4 family residential
215
27,129
39
4,678
Church
2
2,393
—
—
Automobile/equipment/CD
251
2,326
75
390
Total
494
$
65,582
120
$
11,006
Commercial Lending Practices
The federal bank regulatory agencies previously issued interagency guidance on commercial real estate lending and prudent risk management practices. This guidance defines commercial real estate (“CRE”) loans as loans secured by raw land, land development and construction (including one-to-four family residential construction), multi-family property and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property, excluding owner-occupied properties (loans for which 50% or more of the source of repayment is derived from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property) or the proceeds of the sale, refinancing or permanent financing of the property. Loans for owner-occupied CRE are generally excluded from the CRE guidance.
The CRE guidance is applicable when either:
(1)total loans for construction, land development, and other land, net of owner-occupied loans, represent 100% or more of a tier I capital plus allowance for credit losses on loans and leases; or
(2)total loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land development, and other land, net of owner-occupied loans, represent 300% or more of a bank’s tier I capital plus allowance for credit losses on loans and leases.
Banks that are subject to the CRE guidance criteria are required to implement enhanced strategic planning, CRE underwriting policies, risk management and internal controls, portfolio stress testing, risk exposure limits, and other policies, including management compensation and incentives, to address the CRE risks. Higher allowances for loan losses and capital levels may also be appropriate.
As of September 30, 2022, the Company exhibited a concentration in the CRE loan category based on Federal Reserve Call codes. The primary risks of CRE lending are:
54
(1)within CRE loans, construction and development loans are somewhat dependent upon continued strength in demand for residential real estate, which is reliant on favorable real estate mortgage rates and changing population demographics;
(2)on average, CRE loan sizes are generally larger than non-CRE loan types; and
(3)certain construction and development loans may be less predictable and more difficult to evaluate and monitor.
The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of September 30, 2022 and December 31, 2021. The loan categories and concentrations below are based on Federal Reserve Call codes:
The following table outlines the percentage of construction and development loans and total CRE loans, net of owner-occupied loans, to the Bank’s tier I capital plus allowance for credit losses on loans and leases, and the Company’s internal concentration limits as of September 30, 2022 and December 31, 2021:
Internal Limit
Actual
September 30, 2022
December 31, 2021
Construction and development loans
100%
79%
66%
Total CRE loans (excluding owner-occupied)
300%
295%
291%
Short-Term Investments
The Company’s short-term investments are comprised of federal funds sold and interest-bearing deposits in banks. At September 30, 2022, the Company’s short-term investments were $1.06 billion, compared with $3.76 billion at December 31, 2021. At September 30, 2022, the Company had $5.0 million in federal funds sold and $1.06 billion was in interest-bearing deposit balances at correspondent banks and the Federal Reserve Bank of Atlanta.
Derivative Instruments and Hedging Activities
The Company has forward contracts and IRLCs to economically hedge changes in the value of the mortgage inventory due to changes in market interest rates. The fair value of these instruments amounted to an asset of $23.4 million and $11.9 million at September 30, 2022 and December 31, 2021, respectively, and a liability of $1.7 million and $710,000 at September 30, 2022 and December 31, 2021, respectively.
Capital
Common Stock Repurchase Program
On September 19, 2019, the Company announced that its Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock through October 31, 2020. The Company's Board of Directors has subsequently extended the share repurchase program each year since the original authorization, with the most recent extension, which also included the replenishment of the program to $100.0 million, being announced on October 27, 2022. As a result, the Company is currently authorized to engage in additional share repurchases up to $100.0 million through October 31, 2023. Repurchases of shares must be made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including share acquisition price, regulatory limitations and other market and economic factors. The program does not require the Company to repurchase any specific number of shares. As of September 30, 2022, an aggregate of $41.7 million, or 952,910 shares of the Company's common stock, had been repurchased under the program.
55
Capital Management
Capital management consists of providing equity to support both current and anticipated future operations. The capital resources of the Company are monitored on a periodic basis by state and federal regulatory authorities.
Under the regulatory capital frameworks adopted by the Federal Reserve Board (the "FRB") and the Federal Deposit Insurance Corporation (the "FDIC"), the Company and the Bank must each maintain a common equity Tier 1 capital to total risk-weighted assets ratio of at least 4.5%, a Tier 1 capital to total risk-weighted assets ratio of at least 6%, a total capital to total risk-weighted assets ratio of at least 8% and a leverage ratio of Tier 1 capital to average total consolidated assets of at least 4%. The Company and the Bank are also required to maintain a capital conservation buffer of common equity Tier 1 capital of at least 2.5% of risk-weighted assets in addition to the minimum risk-based capital ratios in order to avoid certain restrictions on capital distributions and discretionary bonus payments.
In March 2020, the Office of the Comptroller of the Currency, the FRB and the FDIC issued an interim final rule that delays the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule provides banking organizations that implement CECL in 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. As a result, the Company and Bank elected the five-year transition relief allowed under the interim final rule effective March 31, 2020.
As of September 30, 2022, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. The following table sets forth the regulatory capital ratios of for the Company and the Bank at September 30, 2022 and December 31, 2021:
September 30, 2022
December 31, 2021
Tier 1 Leverage Ratio (tier 1 capital to average assets)
Consolidated
9.32%
8.63%
Ameris Bank
10.70%
9.50%
CET1 Ratio (common equity tier 1 capital to risk weighted assets)
Consolidated
10.06%
10.46%
Ameris Bank
11.56%
11.50%
Tier 1 Capital Ratio (tier 1 capital to risk weighted assets)
Consolidated
10.06%
10.46%
Ameris Bank
11.56%
11.50%
Total Capital Ratio (total capital to risk weighted assets)
Consolidated
13.15%
13.78%
Ameris Bank
12.64%
12.45%
Interest Rate Sensitivity and Liquidity
The Company’s primary market risk exposures are credit risk, interest rate risk, and to a lesser degree, liquidity risk. The Bank operates under an Asset Liability Management Policy approved by the Company’s Board of Directors and the ALCO Committee. The policy outlines limits on interest rate risk in terms of changes in net interest income and changes in the net market values of assets and liabilities over certain changes in interest rate environments. These measurements are made through a simulation model which projects the impact of changes in interest rates on the Bank’s assets and liabilities. The policy also outlines responsibility for monitoring interest rate risk, and the process for the approval, implementation and monitoring of interest rate risk strategies to achieve the Bank’s interest rate risk objectives.
The ALCO Committee is comprised of senior officers of Ameris. The ALCO Committee makes all strategic decisions with respect to the sources and uses of funds that may affect net interest income, including net interest spread and net interest margin. The objective of the ALCO Committee is to identify the interest rate, liquidity and market value risks of the Company’s balance sheet and use reasonable methods approved by the Company’s Board of Directors and executive management to minimize those identified risks.
The normal course of business activity exposes the Company to interest rate risk. Interest rate risk is managed within an overall asset and liability framework for the Company. The principal objectives of asset and liability management are to predict the sensitivity of net interest spreads to potential changes in interest rates, control risk and enhance profitability. Funding positions are kept within predetermined limits designed to properly manage risk and liquidity. The Company employs sensitivity analysis
56
in the form of a net interest income simulation to help characterize the market risk arising from changes in interest rates. In addition, fluctuations in interest rates usually result in changes in the fair market value of the Company’s financial instruments, cash flows and net interest income. The Company’s interest rate risk position is managed by the ALCO Committee.
The Company uses a simulation modeling process to measure interest rate risk and evaluate potential strategies. Interest rate scenario models are prepared using software created and licensed from an outside vendor. The Company’s simulation includes all financial assets and liabilities. Simulation results quantify interest rate risk under various interest rate scenarios. Management then develops and implements appropriate strategies. The ALCO Committee has determined that an acceptable level of interest rate risk would be for net interest income to increase/decrease no more than 20% given a change in selected interest rates of 200 basis points over any 24-month period.
Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of Ameris to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term assets at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks, which could provide funds on short notice, if needed. The Company has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is equal to 30% of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At September 30, 2022 and December 31, 2021, the net carrying value of the Company’s other borrowings was $725.7 million and $739.9 million, respectively.
The following liquidity ratios compare certain assets and liabilities to total deposits or total assets:
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
Investment securities available-for-sale to total deposits
6.45%
5.35%
2.96%
3.01%
3.63%
Loans (net of unearned income) to total deposits
96.61%
89.21%
82.41%
80.72%
78.71%
Interest-earning assets to total assets
90.76%
89.88%
90.43%
90.56%
91.20%
Interest-bearing deposits to total deposits
57.14%
58.02%
59.82%
60.46%
59.56%
The liquidity resources of the Company are monitored continuously by the ALCO Committee and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s and the Bank’s liquidity ratios at September 30, 2022 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed only to U.S. dollar interest rate changes, and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company’s hedging activities are limited to cash flow hedges and are part of the Company’s program to manage interest rate sensitivity.
The Company also had forward contracts and IRLCs to economically hedge changes in the value of the mortgage inventory due to changes in market interest rates. The fair value of these instruments amounted to an asset of approximately $23.4 million and $11.9 million at September 30, 2022 and December 31, 2021, respectively, and a liability of $1.7 million and $710,000 at September 30, 2022 and December 31, 2021, respectively.
The Company has no exposure to foreign currency exchange rate risk, commodity price risk and other market risks.
Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as “interest rate risk.” The repricing of interest-earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of the Company’s asset/liability management program, the timing of repriced assets and liabilities is referred to as “gap management.”
The Company uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a 12-month and
57
24-month period is subjected to gradual and parallel shocks of 100, 200, 300 and 400 basis point increases and decreases in market rates and is monitored on a quarterly basis.
Additional information required by Item 305 of Regulation S-K is set forth under Part I, Item 2 of this report.
Item 4. Controls and Procedures.
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of the end of the period covered by this report, as required by paragraph (b) of Rules 13a-15 or 15d-15 of the Exchange Act. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.
During the quarter ended September 30, 2022, there was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
58
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Disclosure concerning legal proceedings can be found in Part I - "Financial Information, Item 1. Financial Statements, Notes to Unaudited Consolidated Financial Statements, Note 8 – Commitments and Contingencies" under the caption, "Litigation and Regulatory Contingencies," which is incorporated herein by reference.
Item 1A. Risk Factors.
There have been no material changes to the risk factors disclosed in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
c) Issuer Purchases of Equity Securities.
The table below sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the three-month period ended September 30, 2022.
Period
Total
Number of
Shares
Purchased(1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate
Dollar Value of
Shares That
May Yet be
Purchased
Under the Plans
or Programs(2)
July 1, 2022 through July 31, 2022
3,038
$
42.07
—
$
58,262,530
August 1, 2022 through August 31, 2022
244
$
48.06
—
$
58,262,530
September 1, 2022 through September 30, 2022
—
$
—
—
$
58,262,530
Total
3,282
$
42.52
—
$
58,262,530
(1)The shares purchased from July 1, 2022 through September 30, 2022 consist of shares of common stock surrendered to the Company in payment of the income tax withholding obligations relating to the vesting of shares of restricted stock.
(2)On September 19, 2019, the Company announced that its Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock through October 31, 2020. The Company’s Board of Directors has subsequently extended the share repurchase program each year since the original authorization, with the most recent extension, which also included the replenishment of the program to $100.0 million, being announced on October 27, 2022. As a result, the Company is currently authorized to engage in additional share repurchases totaling up to $100.0 million through October 31, 2023. Repurchases of shares must be made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including share acquisition price, regulatory limitations and other market and economic factors. The program does not require the Company to repurchase any specific number of shares. As of September 30, 2022, an aggregate of $41.7 million, or 952,910 shares of the Company's common stock, had been repurchased under the program.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
Exhibit Number
Description
3.1
Articles of Incorporation of Ameris Bancorp, as amended (incorporated by reference to Exhibit 2.1 to Ameris Bancorp’s Regulation A Offering Statement on Form 1-A filed with the SEC on August 14, 1987).
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp’s Annual Report on Form 10-K filed with the SEC on March 26, 1999).
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.9 to Ameris Bancorp’s Annual Report on Form 10-K filed with the SEC on March 31, 2003).
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on December 1, 2005).
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on November 21, 2008).
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on June 1, 2011).
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp's Quarterly Report on Form 10-Q filed with the SEC on August 10, 2020).
Bylaws of Ameris Bancorp, as amended and restated through June 11, 2020 (incorporated by reference to Exhibit 3.8 to Ameris Bancorp's Quarterly Report on Form 10-Q filed with the SEC on August 10, 2020).
Ameris Bancorp 2021 Omnibus Equity Incentive Plan, as amended and restated through July 26, 2022 (incorporated by reference to Exhibit 10.1 to Ameris Bancorp's Quarterly Report on Form 10-Q filed with the SEC on August 5, 2022).
Section 1350 Certification by the Company’s Chief Financial Officer.
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
* Management contract or a compensatory plan or arrangement.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 7, 2022
AMERIS BANCORP
/s/ Nicole S. Stokes
Nicole S. Stokes
Chief Financial Officer (duly authorized signatory and principal accounting and financial officer)