Ameris Bancorp
Ameris Bancorp details
Ameris Bancorp is a bank holding company headquartered in Atlanta, Georgia. The Company's banking subsidiary, Ameris Bank, had 164 locations in Georgia, Florida, South Carolina and Alabama at the end of the most recent quarter.
Ticker:ABCB
Employees: 2865
Filing
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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. Yes ý No ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated 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.
AMERIS BANCORP
TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 20 21 1
Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited) 2
Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited) 3
Consolidated Statements of Cash Flows for the N ine Months Ended September 30, 2022 and 2021 (unaudited) 5
Notes to Consolidated Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 36
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 57
Item 4. Controls and Procedures. 58
PART II – OTHER INFORMATION
Item 1. Legal Proceedings. 59
Item 1A. Risk Factors. 59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 59
Item 3. Defaults Upon Senior Securities. 59
Item 4. Mine Safety Disclosures. 59
Item 5. Other Information. 59
Item 6. Exhibits. 60
Signatures 61
Item 1. Financial Statements.
AMERIS BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands, except per share data)
September 30, 2022 (unaudited) December 31, 2021
Assets
Cash and due from banks $ 269,193 $ 307,813
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 Nine Months Ended
September 30, 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:
Gross Gross Estimated
(dollars in thousands) Amortized Unrealized Unrealized Fair
Securities available-for-sale Cost Allowance for Credit Losses Gains Losses 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
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The amortized cost and estimated fair value of securities held-to-maturity along with gross unrealized gains and losses are summarized as follows:
Gross Gross Estimated
(dollars in thousands) Amortized Unrealized Unrealized Fair
Securities held-to-maturity Cost Gains Losses 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
Amortized Amortized
( dollars in thousands) Cost Estimated Fair Value 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
Estimated Estimated Estimated
(dollars in thousands) Fair Unrealized Fair Unrealized Fair Unrealized
Securities available-for-sale Value Losses Value Losses Value 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 )
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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
Estimated Estimated Estimated
(dollars in thousands) Fair Unrealized Fair Unrealized Fair Unrealized
Securities held-to-maturity Value Losses Value Losses Value 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 $ —
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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.
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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
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The following table presents an analysis of past-due loans as of September 30, 2022 and December 31, 2021:
Loans 90
Days or
Loans Loans Loans 90 More Past
30-59 60-89 or More Total Due and
Days Past Days Days Past Loans Current Total Still
(dollars in thousands) Due Past Due Due Past Due Loans Loans 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.
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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.
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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
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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
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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
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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
Balance Balance Balance Balance
Loan Class # (in thousands) # (in thousands) # (in thousands) # (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.
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Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Balance Balance Balance Balance
Loan Class # (in thousands) # (in thousands) # (in thousands) # (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
Balance Balance
Loan Class # (in thousands) # (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
Balance Balance
Loan Class # (in thousands) # (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
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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.
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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
Commercial,
Financial and Consumer
(dollars in thousands) Agricultural 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 –
Commercial and Real Estate –
Real Estate – Construction and Development Farmland 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
Commercial,
Financial and Consumer
(dollars in thousands) Agricultural 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 –
Commercial and Real Estate –
Real Estate – Construction and Development Farmland 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
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Three Months Ended September 30, 2021
Commercial,
Financial and Consumer
(dollars in thousands) Agricultural 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 –
Commercial and Real Estate –
Real Estate – Construction and Development Farmland 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
Commercial,
Financial and Consumer
(dollars in thousands) Agricultural 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 –
Commercial and Real Estate –
Real Estate – Construction and Development Farmland 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
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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.
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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:
Unrealized Accumulated
Gain (Loss) Other Comprehensive
(dollars in thousands) on Securities 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 Nine Months Ended
September 30, 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
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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.
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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
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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:
Weighted
Valuation Range of Average
(dollars in thousands) Fair Value Technique Unobservable Inputs Discounts 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 0 % - 50 % 31 %
discount rates
Other real estate owned $ 92 Third-party appraisals and sales contracts Collateral discounts and estimated 24 % 24 %
costs to sell
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 0 % - 50 % 39 %
discount rates
Mortgage servicing rights $ 206,944 Discounted cash flows Discount rate 9 % - 10 % 9 %
Prepayment speed 10 % - 40 % 13 %
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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
Carrying
(dollars in thousands) 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
Carrying
(dollars in thousands) 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
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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.
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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
Retail Warehouse Premium
Banking Mortgage Lending SBA Finance
(dollars in thousands) Division Division Division Division 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
Retail Warehouse Premium
Banking Mortgage Lending SBA Finance
(dollars in thousands) Division Division Division Division 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
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Nine Months Ended
September 30, 2022
Retail Warehouse Premium
Banking Mortgage Lending SBA Finance
(dollars in thousands) Division Division Division Division 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
Retail Warehouse Premium
Banking Mortgage Lending SBA Finance
(dollars in thousands) Division Division Division Division 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
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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:
(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30,
Residential mortgage servicing rights 2022 2021 2022 2021
Beginning carrying value, net $ 257,112 $ 191,675 $ 206,944 $ 130,630
Additions 14,893 6,195 58,145 71,439
Amortization ( 6,939 ) ( 7,967 ) ( 20,515 ) ( 22,648 )
Recoveries 1,332 ( 1,397 ) 21,824 9,085
Disposals ( 121,634 ) — ( 121,634 ) —
Ending carrying value, net $ 144,764 $ 188,506 $ 144,764 $ 188,506
(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30,
Residential mortgage servicing valuation allowance 2022 2021 2022 2021
Beginning balance $ 5,290 $ 28,925 $ 25,782 $ 39,407
Additions — 1,397 — 1,397
Recoveries ( 1,332 ) — ( 21,824 ) ( 10,482 )
Reduction due to disposal ( 3,958 ) — ( 3,958 ) —
Ending balance $ — $ 30,322 $ — $ 30,322
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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.
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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
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income of $135,000 and $510,000, respectively. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Note Regarding Forward-Looking Statements
Certain of the statements made in this report are “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation, the following: general competitive, economic, 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.
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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.
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Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities, SBA activities and premium finance activities of the Company during the third quarter of 2022 and 2021, respectively:
Three Months Ended
September 30, 2022
Retail Warehouse Premium
Banking Mortgage Lending SBA Finance
(dollars in thousands) Division Division Division Division 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
Retail Warehouse Premium
Banking Mortgage Lending SBA Finance
(dollars in thousands) Division Division Division Division 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
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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
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rate Paid Balance Expense 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 of 5.29%, 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.
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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 Three Months Ended
September 30, 2022 September 30, 2021
Average Average Average Average
(dollars in thousands) Balance Cost Balance 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
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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.
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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.
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Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities, SBA activities and premium finance activities of the Company during the nine months ended September 30, 2022 and 2021, respectively:
Nine Months Ended
September 30, 2022
Retail Warehouse Premium
Banking Mortgage Lending SBA Finance
(dollars in thousands) Division Division Division Division 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
Retail Warehouse Premium
Banking Mortgage Lending SBA Finance
(dollars in thousands) Division Division Division Division 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
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Net Interest Income and Margins
The following table sets forth the average balance, interest income or interest expense, and average yield/rate paid for each category of interest-earning assets and interest-bearing liabilities, net interest spread, and net interest margin on average interest-earning assets for the nine months ended September 30, 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
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rate Paid Balance Expense 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
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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 Nine Months Ended
September 30, 2022 September 30, 2021
Average Average Average Average
(dollars in thousands) Balance Cost Balance 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.
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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.
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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
Fair Fair
(dollars in thousands) Amortized Cost Value Amortized Cost 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
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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:
State, County and
U.S. Treasuries U.S. Government-Sponsored Agencies Municipal Securities
(dollars in thousands) Yield Yield Yield
Securities available-for-sale (1) Amount (2) Amount (2) Amount (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) Yield Yield Yield
Securities available-for-sale (1) Amount (2) Amount (2) Amount (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) Yield Yield
Securities held-to-maturity (1) Amount (2)(3) Amount (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.
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The Company’s risk management processes include a loan review program designed to evaluate the credit risk in the loan portfolio and ensure credit grade accuracy. Through the loan review process, the Company conducts (1) a loan portfolio summary analysis, (2) charge-off and recovery analysis, (3) trends in accruing problem loan analysis, and (4) problem and past-due loan analysis. This analysis process serves as a tool to assist management in assessing the overall quality of the loan portfolio and the adequacy of the 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.
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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 %
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Loans
Loans are stated at amortized cost. Balances within the major loans receivable categories are presented in the following table:
(dollars in thousands) September 30, 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
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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
Balance Balance
Loan Class # (in thousands) # (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
Balance Balance
Loan Class # (in thousands) # (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:
Loans Currently Paying
September 30, 2022 Under Restructured Terms Loans that have Defaulted Under Restructured Terms
Balance Balance
Loan Class # (in thousands) # (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
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Loans Currently Paying
December 31, 2021 Under Restructured Terms Loans that have Defaulted Under Restructured Terms
Balance Balance
Loan Class # (in thousands) # (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
Balance Balance
Type of Concession # (in thousands) # (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
Balance Balance
Type of Concession # (in thousands) # (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
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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
Balance Balance
Collateral Type # (in thousands) # (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
Balance Balance
Collateral Type # (in thousands) # (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:
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(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:
September 30, 2022 December 31, 2021
% of Total % of Total
(dollars in thousands) Balance Loans Balance Loans
Construction and development loans $ 2,009,726 11% $ 1,452,339 9%
Multi-family loans 714,833 4% 596,000 4%
Nonfarm non-residential loans (excluding owner-occupied) 4,815,415 26% 4,341,436 27%
Total CRE Loans (excluding owner-occupied) 7,539,974 40% 6,389,775 40%
All other loan types 11,266,882 60% 9,484,483 60%
Total Loans $ 18,806,856 100% $ 15,874,258 100%
The following table outlines the percentage of construction and development loans and total CRE loans, net of owner-occupied loans, to the Bank’s 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.
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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
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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, June 30, March 31, December 31, September 30,
2022 2022 2022 2021 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
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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.
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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.
Total Number Approximate
of Shares Dollar Value of
Purchased as Shares That
Total Part of Publicly May Yet be
Number of Announced Purchased
Shares Average Price Plans or Under the Plans
Period Purchased (1) Paid Per Share Programs 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).
3.2 Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp’s Annual Report on Form 10-K filed with the SEC on March 26, 1999).
3.3 Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.9 to Ameris Bancorp’s Annual Report on Form 10-K filed with the SEC on March 31, 2003).
3.4 Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on December 1, 2005).
3.5 Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on November 21, 2008).
3.6 Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on June 1, 2011).
3.7 Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp's Quarterly Report on Form 10-Q filed with the SEC on August 10, 2020).
3.8 Bylaws of Ameris Bancorp, as amended and restated through June 11, 2020 (incorporated by reference to Exhibit 3.8 to Ameris Bancorp's Quarterly Report on Form 10-Q filed with the SEC on August 10, 2020).
10.1* 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).
31.1 Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer.
32.1 Section 1350 Certification by the Company’s Chief Executive Officer.
32.2 Section 1350 Certification by the Company’s Chief Financial Officer.
101.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.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 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)
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