AMERIS BANCORP 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 inU.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; changes in commodity prices and interest rates; 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 theSecurities 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 ofSeptember 30, 2021 , as compared withDecember 31, 2020 , and operating results for the three- and nine-month periods endedSeptember 30, 2021 and 2020. 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. 35 --------------------------------------------------------------------------------
Critical Accounting Policies
There have been no significant changes to our critical accounting policies from those disclosed in our 2020 Annual Report on Form 10-K. The reader should refer to the notes to our consolidated financial statements in our 2020 Annual Report on Form 10-K for a full disclosure of all critical accounting policies.
Results of Operations for the Three Months Ended
Consolidated Earnings and Profitability
Ameris reported net income available to common shareholders of$81.7 million , or$1.17 per diluted share, for the quarter endedSeptember 30, 2021 , compared with$116.1 million , or$1.67 per diluted share, for the same period in 2020. The Company's return on average assets and average shareholders' equity were 1.47% and 11.27%, respectively, in the third quarter of 2021, compared with 2.33% and 18.27%, respectively, in the third quarter of 2020. 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 losses on bank premises of$1.1 million . During the third quarter of 2020, the Company recorded pre-tax merger and conversion charges of negative$44,000 , pre-tax restructuring charges related to branch consolidations and efficiency initiatives of$50,000 , pre-tax servicing right impairment of$412,000 , pre-tax gain on BOLI proceeds of$103,000 , pre-tax expenses related toSEC and DOJ investigation of$268,000 , pre-tax expenses related to the COVID-19 pandemic of$470,000 and pre-tax gains on bank premises of$97,000 . Excluding these adjustment items, the Company's net income would have been$83.9 million , or$1.20 per diluted share, for the third quarter of 2021 and$116.9 million , or$1.69 per diluted share, for the third quarter of 2020.
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) 2021 2020
Net income $ 81,680 $ 116,145
Adjustment items:
Merger and conversion charges 183 (44)
Restructuring charge - 50
Servicing right impairment (recovery) 1,398 412
Gain on BOLI proceeds - (103)
Expenses related to SEC and DOJ investigation - 268
Natural disaster and pandemic expenses - 470
(Gain) loss on bank premises 1,136 (97)
Tax effect of adjustment items (Note 1) (536) (222)
After tax adjustment items 2,181 734
Adjusted net income $ 83,861 $ 116,879
Weighted average common shares outstanding - diluted 69,756,135 69,346,141
Net income per diluted share $ 1.17 $ 1.67
Adjusted net income per diluted share $ 1.20 $ 1.69
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.
36
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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 2021 and
2020, respectively:
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
Three Months Ended
September 30, 2020
Retail Warehouse Premium
Banking Mortgage Lending SBA Finance
(dollars in thousands) Division Division Division Division Division Total
Interest income $ 123,593 $ 31,040 $ 6,844 $ 10,958 $ 7,499 $ 179,934
Interest expense 4,031 10,647 298 1,992 428 17,396
Net interest income 119,562 20,393 6,546 8,966 7,071 162,538
Provision for credit losses 487 15,051 495 4,297 (2,648) 17,682
Noninterest income 15,265 137,583 1,064 5,106 - 159,018
Noninterest expense
Salaries and employee benefits 39,718 53,500 266 1,572 1,642 96,698
Occupancy and equipment 11,955 1,676 1 97 76 13,805
Data processing and communications expenses 9,716 2,349 73 4 84 12,226
Other expenses 21,517 7,889 28 595 934 30,963
Total noninterest expense 82,906 65,414 368 2,268 2,736 153,692
Income before income tax expense 51,434 77,511 6,747 7,507 6,983 150,182
Income tax expense 13,453 16,112 1,431 1,577 1,464 34,037
Net income $ 37,981 $ 61,399 $ 5,316 $ 5,930 $ 5,519 $ 116,145
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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 endedSeptember 30, 2021 and 2020. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate. Quarter Ended September 30, 2021 2020 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$ 3,102,413 $ 1,253 0.16%$ 487,441 $ 166
0.14%
Investment securities 803,953 5,472 2.70% 1,246,860 7,462
2.38%
Loans held for sale 1,497,320 10,618 2.81% 1,507,481 10,365 2.74% Loans 14,685,878 156,861 4.24% 14,688,317 163,352 4.42% Total interest-earning assets 20,089,564 174,204 3.44% 17,930,099 181,345 4.02% Noninterest-earning assets 1,998,078 1,879,985 Total assets$ 22,087,642 $ 19,810,084 Liabilities and Shareholders' Equity Interest-bearing liabilities: Savings and interest-bearing demand deposits$ 9,322,590 $ 2,907 0.12%$ 7,741,528 $ 4,329 0.22% Time deposits 1,919,695 2,199 0.45% 2,276,083 7,493 1.31% Federal funds purchased and securities sold under agreements to repurchase 5,133 4 0.31% 10,483 9 0.34% FHLB advances 48,866 195 1.58% 799,034 661 0.33% Other borrowings 376,489 4,640 4.89% 272,443 3,558 5.20% Subordinated deferrable interest debentures 125,567 1,440 4.55% 123,604 1,346
4.33%
Total interest-bearing liabilities 11,798,340 11,385 0.38% 11,223,175 17,396 0.62% Demand deposits 7,168,717 5,782,163 Other liabilities 245,894 275,275 Shareholders' equity 2,874,691 2,529,471 Total liabilities and shareholders' equity$ 22,087,642 $ 19,810,084 Interest rate spread 3.06% 3.40% Net interest income$ 162,819 $ 163,949 Net interest margin 3.22% 3.64% On a tax-equivalent basis, net interest income for the third quarter of 2021 was$162.8 million , a decrease of$1.1 million , or 0.7%, compared with$163.9 million reported in the same quarter in 2020. The lower net interest income is a result of a shift in mix to lower yielding interest-bearing cash, partially offset by disciplined deposit repricing and a reduction in borrowing costs. Average interest earning assets increased$2.16 billion , or 12.0%, from$17.93 billion in the third quarter of 2020 to$20.09 billion for the third quarter of 2021. This growth in interest earning assets resulted primarily from excess liquidity from deposit growth. The Company's net interest margin during the third quarter of 2021 was 3.22%, down 42 basis points from 3.64% reported in the third quarter of 2020. Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to$5.8 billion during the third quarter of 2021, with weighted average yields of 3.37%, compared with$7.7 billion and 3.33%, respectively, during the third quarter of 2020. Loan production in the banking division amounted to$913.3 million during the third quarter of 2021, with weighted average yields of 3.56%, compared with$870.0 million and 4.00%, respectively, during the third quarter of 2020. Total interest income, on a tax-equivalent basis, decreased to$174.2 million during the third quarter of 2021, compared with$181.3 million in the same quarter of 2020. Yields on earning assets decreased to 3.44% during the third quarter of 2021, compared with 4.02% reported in the third quarter of 2020. During the third quarter of 2021, loans comprised 80.6% of average earning assets, compared with 90.3% in the same quarter of 2020. Yields on loans decreased to 4.24% in the third quarter of 2021, compared with 4.42% in the same period of 2020. Accretion income for the third quarter of 2021 was$2.9 million , compared with$6.5 million in the third quarter of 2020. 38 -------------------------------------------------------------------------------- The yield on total interest-bearing liabilities decreased from 0.62% in the third quarter of 2020 to 0.38% in the third quarter of 2021. Total funding costs, inclusive of noninterest-bearing demand deposits, decreased to 0.24% in the third quarter of 2021, compared with 0.41% during the third quarter of 2020. Deposit costs decreased from 0.30% in the third quarter of 2020 to 0.11% in the third quarter of 2021. Non-deposit funding costs increased from 1.84% in the third quarter of 2020 to 4.48% in the third quarter of 2021. The increase in non-deposit funding costs was driven primarily by a shift in mix from short-term FHLB advances as excess liquidity reduced outstanding FHLB advances. Average balances of interest bearing deposits and their respective costs for the third quarter of 2021 and 2020 are shown below: Three Months Ended Three Months Ended September 30, 2021 September 30, 2020 Average Average Average Average (dollars in thousands) Balance Cost Balance Cost NOW$ 3,447,909 0.09%$ 2,718,315 0.20% MMDA 4,966,492 0.16% 4,273,899 0.26% Savings 908,189 0.06% 749,314 0.06% Retail CDs 1,919,184 0.45% 2,274,150 1.31% Brokered CDs 511 3.11% 1,933 1.85% Interest-bearing deposits$ 11,242,285 0.18%$ 10,017,611 0.47% Provision for Credit Losses The Company's provision for credit losses during the third quarter of 2021 amounted to a reversal of$9.7 million , compared with a provision of$17.7 million in the third quarter of 2020. This decrease was primarily attributable to an improved economic forecast in our CECL model, particularly levels of home prices and commercial real estate prices. The provision for credit losses for the third quarter of 2021 was comprised of negative$4.0 million related to loans, negative$5.5 million related to unfunded commitments and negative$175,000 related to other credit losses compared with$26.7 million related to loans, negative$10.1 million related to unfunded commitments and$1.1 million related to other credit losses for the third quarter of 2020. Non-performing assets as a percentage of total assets decreased from 0.48% atDecember 31, 2020 to 0.32% atSeptember 30, 2021 . The decrease in non-performing assets is primarily attributable to a decrease in nonaccruing loans as a result of collection activities and upgrades and continued success with OREO sales. The Company recognized net recoveries on loans during the third quarter of 2021 of approximately$127,000 , or 0.00% of average loans on an annualized basis, compared with net charge-offs of approximately$3.6 million , or 0.10%, in the third quarter of 2020. The Company's total allowance for credit losses on loans atSeptember 30, 2021 was$171.2 million , or 1.15% of total loans, compared with$199.4 million , or 1.38% of total loans, atDecember 31, 2020 . This decrease is primarily attributable to the provision release noted above and for the year-to-date period amounting to negative$21.5 million .
Noninterest Income
Total noninterest income for the third quarter of 2021 was$76.6 million , a decrease of$82.5 million , or 51.9%, from the$159.0 million reported in the third quarter of 2020. Income from mortgage-related activities was$56.5 million in the third quarter of 2021, a decrease of$82.2 million , or 59.3%, from$138.6 million in the third quarter of 2020. Total production in the third quarter of 2021 amounted to$2.06 billion , compared with$2.92 billion in the same quarter of 2020, while spread (gain on sale) decreased to 3.17% in the current quarter, compared with 3.92% in the same quarter of 2020. The retail mortgage open pipeline finished the third quarter of 2021 at$1.93 billion , compared with$1.75 billion atJune 30, 2021 and$2.71 billion at the end of the third quarter of 2020. Service charges on deposit accounts increased$572,000 , or 5.2%, to$11.5 million in the third quarter of 2021, compared with$10.9 million in the third quarter of 2020. This increase in service charges on deposit accounts is due primarily to an increase in volume, particularly in business accounts. Other noninterest income decreased$1.5 million , or 17.8%, to$6.9 million for the third quarter of 2021, compared with$8.4 million during the third quarter of 2020. The decrease in other noninterest income was primarily attributable to a decrease in gains on sales of SBA loans of$2.0 million , partially offset by an increase of$657,000 in BOLI income.
Noninterest Expense
Total noninterest expense for the third quarter of 2021 decreased$16.5 million , or 10.7%, to$137.2 million , compared with$153.7 million in the same quarter 2020. Salaries and employee benefits decreased$17.0 million , or 17.6%, from$96.7 million in the third quarter of 2020 to$79.7 million in the third quarter of 2021, due primarily to decreases in variable compensation tied to mortgage production and overtime of$15.6 million and$1.2 million , respectively. Occupancy and equipment expenses decreased$1.8 million , or 13.2%, to$12.0 million for the third quarter of 2021, compared with$13.8 million in the third 39 -------------------------------------------------------------------------------- quarter of 2020, due primarily to reductions in leased locations related to previously announced efficiency initiatives and real estate taxes. Data processing and communications expenses decreased$1.5 million , or 12.6%, to$10.7 million in the third quarter of 2021, compared with$12.2 million in the third quarter of 2020. Advertising and marketing expense was$2.7 million in the third quarter of 2021, compared with$1.0 million in the third quarter of 2020. Amortization of intangible assets decreased$803,000 , or 19.2%, from$4.2 million in the third quarter of 2020 to$3.4 million in the third quarter of 2021. Core deposit intangibles are being amortized over an accelerated basis; therefore, the expense recorded will decline over the life of the asset. There were$183,000 of merger and conversion charges in the third quarter of 2021, compared with negative$44,000 of such charges in the same quarter of 2020. Other noninterest expenses increased$3.2 million , or 12.7%, from$25.0 million in the third quarter of 2020 to$28.2 million in the third quarter of 2021, due primarily to an increase of$2.0 million in loan servicing expenses, an increase in loss on bank premises of$2.1 million and an increase of$897,000 in check card losses. These increases in other noninterest expenses were partially offset by decreases inFDIC insurance expense of$1.1 million , expenses related to the COVID-19 pandemic of$470,000 and variable expenses tied to production in our lines of business. 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 2021, the Company reported income tax expense of$29.0 million , compared with$34.0 million in the same period of 2020. The Company's effective tax rate for the three months endingSeptember 30, 2021 and 2020 was 26.2% and 22.7%, respectively. The increase in the effective tax rate is primarily a result of a state tax liability adjustment during the third quarter of 2021. 40 --------------------------------------------------------------------------------
Results of Operations for the Nine Months Ended
Consolidated Earnings and Profitability
Ameris reported net income available to common shareholders of$295.0 million , or$4.23 per diluted share, for the nine months endedSeptember 30, 2021 , compared with$167.7 million , or$2.42 per diluted share, for the same period in 2020. The Company's return on average assets and average shareholders' equity were 1.84% and 14.14%, respectively, in the nine months endedSeptember 30, 2021 , compared with 1.18% and 8.96%, respectively, in the same period in 2020. 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 . During the first nine months of 2020, the Company incurred pre-tax merger and conversion charges of$1.4 million , pre-tax restructuring charges related to branch consolidations of$1.5 million , pre-tax servicing right impairment of$30.6 million , pre-tax gain on BOLI proceeds of$948,000 , pre-tax expenses related toSEC and DOJ investigation of$3.0 million , pre-tax expenses related to the COVID-19 pandemic of$3.1 million and pre-tax loss on bank premises of$654,000 . Excluding these adjustment items, the Company's net income would have been$287.2 million , or$4.12 per diluted share, for the nine months endedSeptember 30, 2021 and$198.5 million , or$2.86 per diluted share, for the same period in 2020. Below is a reconciliation of adjusted net income to net income, as discussed above. Nine Months Ended September 30, (in thousands, except share and per share data) 2021 2020 Net income available to common shareholders$ 294,969 $ 167,703 Adjustment items: Merger and conversion charges 183 1,391 Restructuring charge - 1,513 Servicing right impairment (recovery) (9,990) 30,566 Gain on BOLI proceeds (603) (948) Expenses related to SEC and DOJ investigation - 3,005 Natural disaster and pandemic charges - 3,061 Loss on bank premises 636 654 Tax effect of adjustment items (Note 1) 1,960 (8,438) After tax adjustment items (7,814) 30,804 Adjusted net income
Weighted average common shares outstanding - diluted 69,772,084 69,403,104 Net income per diluted share$ 4.23 $ 2.42 Adjusted net income per diluted share
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 both periods is
nondeductible for tax purposes.
41
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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, 2021 and 2020, respectively:
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
Nine Months Ended
September 30, 2020
Retail Warehouse Premium
Banking Mortgage Lending SBA Finance
(dollars in thousands) Division Division Division Division Division Total
Interest income $ 384,547 $ 99,165 $ 16,979 $ 23,443 $ 23,586 $ 547,720
Interest expense 26,280 36,714 2,105 5,262 3,062 73,423
Net interest income 358,267 62,451 14,874 18,181 20,524 474,297
Provision for loan losses 123,289 17,471 889 5,716 (475) 146,890
Noninterest income 47,506 276,147 2,751 7,953 - 334,357
Noninterest expense
Salaries and employee benefits 121,762 134,600 685 5,660 5,105 267,812
Occupancy and equipment 33,981 5,133 3 291 232 39,640
Data processing and communications expenses 29,432 4,741 169 32 320 34,694
Other expenses 80,159 20,713 150 1,469 2,876 105,367
Total noninterest expense 265,334 165,187 1,007 7,452 8,533 447,513
Income before income tax expense 17,150 155,940 15,729 12,966 12,466 214,251
Income tax expense 5,146 32,751 3,317 2,723 2,611 46,548
Net income $ 12,004 $ 123,189 $ 12,412 $ 10,243 $ 9,855 $ 167,703
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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 endedSeptember 30, 2021 and 2020. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate. Nine Months Ended September 30, 2021 2020 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$ 2,586,564 $ 2,394 0.12%$ 452,503 $ 1,621 0.48% Investment securities 872,306 17,188 2.63% 1,361,586 27,287 2.68% Loans held for sale 1,496,548 33,218 2.97% 1,569,337 38,055 3.24% Loans 14,563,835 475,446 4.36% 13,772,102 484,605 4.70% Total interest-earning assets 19,519,253 528,246 3.62% 17,155,528 551,568 4.29% Noninterest-earning assets 1,943,248 1,889,500 Total assets$ 21,462,501 $ 19,045,028 Liabilities and Shareholders' Equity Interest-bearing liabilities: Savings and interest-bearing demand deposits$ 9,052,996 $ 8,801 0.13%$ 7,345,828 $ 22,184 0.40% Time deposits 1,997,248 8,878 0.59% 2,477,483 28,013 1.51% Federal funds purchased and securities sold 7,085 16 0.30% 12,849 74
0.77%
under agreements to repurchase FHLB advances 48,909 580 1.59% 1,091,885 7,456 0.91% Other borrowings 376,376 13,961 4.96% 270,407 10,556 5.21% Subordinated deferrable interest debentures 125,073 4,021 4.30% 124,814 5,140
5.50%
Total interest-bearing liabilities 11,607,687 36,257 0.42% 11,323,266 73,423 0.87% Demand deposits 6,821,256 4,977,833 Other liabilities 243,579 243,240 Shareholders' equity 2,789,979 2,500,689 Total liabilities and shareholders' equity$ 21,462,501 $ 19,045,028 Interest rate spread 3.20% 3.42% Net interest income$ 491,989 $ 478,145 Net interest margin 3.37% 3.72% On a tax-equivalent basis, net interest income for the nine months endedSeptember 30, 2021 was$492.0 million , an increase of$13.8 million , or 2.9%, compared with$478.1 million reported in the same period of 2020. The higher net interest income is a result of growth in average earning assets, disciplined deposit pricing and a reduction in borrowing costs, partially offset by a decline in the yield on earning assets. Average interest earning assets increased$2.36 billion , or 13.7%, from$17.16 billion in the first nine months of 2020 to$19.52 billion for the first nine months of 2021. This growth in interest earning assets resulted primarily from organic growth in average loans and excess liquidity from deposit growth. The Company's net interest margin during the first nine months of 2021 was 3.37%, down 35 basis points from 3.72% reported for the first nine months of 2020. Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to$19.7 billion during the first nine months of 2021, with weighted average yields of 3.29%, compared with$18.8 billion and 3.44%, respectively, during the first nine months of 2020. Loan production yields in the lines of business were negatively impacted five and 15 basis points during the first nine months of 2021 and 2020, respectively, by originations of PPP loans in our SBA division. Loan production in the banking division amounted to$2.4 billion during the first nine months of 2021 with weighted average yields of 3.69%, compared with$2.3 billion and 4.26%, respectively, during the first nine months of 2020. Total interest income, on a tax-equivalent basis, decreased to$528.2 million during the nine months endedSeptember 30, 2021 , compared with$551.6 million in the same period of 2020. Yields on earning assets decreased to 3.62% during the first nine months of 2021, compared with 4.29% reported in the same period of 2020. During the first nine months of 2021, loans comprised 82.3% of average earning assets, compared with 89.4% in the same period of 2020. Yields on loans decreased to 43 -------------------------------------------------------------------------------- 4.36% during the nine months endedSeptember 30, 2021 , compared with 4.70% in the same period of 2020. Accretion income for the first nine months of 2021 was$13.5 million , compared with$22.7 million in the first nine months of 2020. The yield on total interest-bearing liabilities decreased from 0.87% during the nine months endedSeptember 30, 2020 to 0.42% in the same period of 2021. Total funding costs, inclusive of noninterest-bearing demand deposits, decreased to 0.26% in the first nine months of 2021, compared with 0.60% during the same period of 2020. Deposit costs decreased from 0.45% in the first nine months of 2020 to 0.13% in the same period of 2021. Non-deposit funding costs increased from 2.07% in the first nine months of 2020 to 4.46% in the same period of 2021. The increase in non-deposit funding costs was driven primarily by a shift in mix from short-term FHLB advances as excess liquidity reduced outstanding FHLB advances. Average balances of interest bearing deposits and their respective costs for the nine months endedSeptember 30, 2021 and 2020 are shown below: Nine Months Ended Nine Months Ended September 30, 2021 September 30, 2020 Average Average Average Average (dollars in thousands) Balance Cost Balance Cost NOW$ 3,315,803 0.10%$ 2,483,383 0.29% MMDA 4,867,509 0.16% 4,167,207 0.52% Savings 869,684 0.06% 695,238 0.08% Retail CDs 1,996,413 0.59% 2,455,833 1.51% Brokered CDs 835 2.88% 21,650 2.03% Interest-bearing deposits$ 11,050,244 0.21%$ 9,823,311 0.68% Provision for Credit Losses The Company's provision for credit losses during the nine months endedSeptember 30, 2021 amounted to negative$38.1 million , compared with$146.9 million in the nine months endedSeptember 30, 2020 . This decrease was primarily attributable to an improved economic forecast in our CECL model, particularly levels of unemployment, home prices, gross domestic product and rental vacancies. The construction and development segment was the largest contributor to the decrease in provision as a result of both a decline in funded balances and an improvement in qualitative factors compared withDecember 31, 2020 . The improvement in qualitative factors is attributable to uncertainty in the forecast and loss drivers used in theDecember 31, 2020 provision estimate which Management determined were both properly addressed in the current estimate. The provision for credit losses for the first nine months of 2021 was comprised of negative$21.5 million related to loans, negative$16.1 million related to unfunded commitments and negative$606,000 related to other credit losses compared with$132.2 million related to loans,$13.6 million related to unfunded commitments and$1.1 million related to other credit losses for the same period in 2020. Non-performing assets as a percentage of total assets decreased from 0.48% atDecember 31, 2020 to 0.32% atSeptember 30, 2021 . The decrease in non-performing assets is primarily attributable to a decrease in nonaccruing loans as a result of collection activities and upgrades and continued success with OREO sales. Net charge-offs on loans during the first nine months of 2021 were$6.7 million , or 0.06% of average loans on an annualized basis, compared with approximately$17.1 million , or 0.17%, in the first nine months of 2020. The Company's total allowance for credit losses on loans atSeptember 30, 2021 was$171.2 million , or 1.15% of total loans, compared with$199.4 million , or 1.38% of total loans, atDecember 31, 2020 . This decrease is primarily attributable to the provision release noted above. Noninterest Income Total noninterest income for the nine months endedSeptember 30, 2021 was$283.8 million , a decrease of$50.6 million , or 15.1%, from the$334.4 million reported for the nine months endedSeptember 30, 2020 . Income from mortgage-related activities decreased$53.7 million , or 19.3%, from$278.9 million in the first nine months of 2020 to$225.2 million in the same period of 2021. Total production in the first nine months of 2021 amounted to$7.09 billion , compared with$6.95 billion in the same period of 2020, while spread (gain on sale) decreased to 3.33% during the nine months endedSeptember 30, 2021 , compared with 3.57% in the same period of 2020. The retail mortgage open pipeline was$1.93 billion atSeptember 30, 2021 , compared with$2.00 billion atDecember 31, 2020 and$2.71 billion atSeptember 30, 2020 . Mortgage-related activities was positively impacted during the first nine months of 2021 by a recovery of previous mortgage servicing right impairment of$9.1 million , compared with an impairment of$30.2 million for the same period in 2020. Other noninterest income increased$1.7 million , or 8.5%, to$21.5 million for the first nine months of 2021, compared with$19.8 million during the same period of 2020. The increase in other noninterest income was primarily attributable to an increase in BOLI income of$927,000 , an increase in merchant fee income of$942,000 and an increase in trust income of$1.3 million , partially offset by a decrease of$1.2 million in gain on sales of SBA loans. 44 --------------------------------------------------------------------------------
Noninterest Expense
Total noninterest expenses for the nine months endedSeptember 30, 2021 decreased$25.8 million , or 5.8%, to$421.8 million , compared with$447.5 million in the same period of 2020. Salaries and employee benefits decreased$6.7 million , or 2.5%, from$267.8 million in the first nine months of 2020 to$261.2 million in the same period of 2021 due primarily to decreases in variable compensation tied to mortgage production and overtime in our mortgage division of$3.9 million and$1.2 million , respectively. Occupancy and equipment expenses decreased$5.1 million , or 12.8%, to$34.6 million for the first nine months of 2021, compared with$39.6 million in the same period of 2020, due primarily to a reduction in leased locations related to previously announced efficiency initiatives. Data processing and communications expenses decreased$252,000 , or 0.7%, to$34.4 million in the first nine months of 2021, from$34.7 million reported in the same period of 2020. Credit resolution-related expenses decreased$2.4 million , or 60.9%, from$4.0 million in the first nine months of 2020 to$1.5 million in the same period of 2021. This decrease in credit resolution-related expenses primarily resulted from a reduction in write-downs on OREO properties of$492,000 , a$1.1 million decrease in problem loan expenses and an increase in gain on sale of OREO properties of$804,000 . Advertising and marketing expense was$6.1 million in the first nine months of 2021, compared with$4.8 million in the first nine months of 2020. Amortization of intangible assets decreased$3.8 million , or 24.9%, from$15.4 million in the first nine months of 2020 to$11.6 million in the first nine months of 2021. Core deposit intangibles are being amortized over an accelerated basis; therefore, the expense recorded will decline over the life of the asset. There were$183,000 in merger and conversion charges in the first nine months of 2021, compared with$1.4 million in the same period in 2020. Other noninterest expenses decreased$7.6 million , or 9.5%, from$79.8 million in the first nine months of 2020 to$72.2 million in the same period of 2021, due primarily to a decrease of$5.1 million inFDIC insurance expense, a decrease of$3.1 million in expenses related to the COVID-19 pandemic and a decrease of$4.5 million in legal and professional fees. These decreases in other noninterest expenses were partially offset by increases in loan servicing expenses of$2.7 million and variable expenses tied to production in our mortgage division.
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 endedSeptember 30, 2021 , the Company reported income tax expense of$93.7 million , compared with$46.5 million in the same period of 2020. The Company's effective tax rate for the nine months endedSeptember 30, 2021 and 2020 was 24.1% and 21.7%, respectively. The increase in the effective tax rate is primarily a result of increased pre-tax book income and the benefit recorded in the first quarter of 2020 for loss carrybacks allowed as a result of the CARES Act. 45 --------------------------------------------------------------------------------
Financial Condition as of
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 to position 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 atSeptember 30, 2021 , 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, atSeptember 30, 2021 , management determined that none was attributable to credit impairment and established the allowance for credit losses accordingly. The remaining$192,000 in unrealized loss was determined to be from factors other than credit.
The Company's held-to-maturity securities have zero 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, 2021 December 31, 2020
Fair Fair
(dollars in thousands) Amortized Cost Value Amortized Cost Value
Securities available-for-sale
U.S. government sponsored agencies $ 12,102
51,541 54,216 63,286 66,778
Corporate debt securities 33,397 33,998 51,639 51,896
SBA pool securities 46,354 47,917 59,973 62,497
Mortgage-backed securities 513,408 536,121 748,521 784,204
Total debt securities available-for-sale $ 656,802 Securities held-to-maturity
State, county and municipal securities $ 3,905$ 3,784 $ - $ - Mortgage-backed securities 60,546 59,520 - - Total debt securities held-to-maturity$ 64,451 $ 63,304 $ - $ - 46
-------------------------------------------------------------------------------- The amounts of securities available-for-sale and held-to-maturity in each category as ofSeptember 30, 2021 are shown in the following table according to contractual maturity classifications: (i) one year or less; (ii) after one year through five years; (iii) after five years through ten years; and (iv) after ten years: U.S. Government State, County and Sponsored Agencies Municipal Securities Corporate Debt Securities (dollars in thousands) Yield Yield Yield Securities available-for-sale (1) Amount (2) Amount (2)(3) Amount (2) One year or less$ 11,147 1.92 %$ 5,711 3.20 %$ 499 3.03 % After one year through five years 1,105 2.16 18,814 3.81 500
3.88
After five years through ten years - - 19,983 3.85 31,088 5.30
After ten years - - 9,708 3.82 1,911 4.24
$ 12,252 1.94 % $ 54,216 3.76 % $ 33,998 5.19 %
SBA Pool Securities Mortgage-Backed Securities
(dollars in thousands) Yield Yield
Securities available-for-sale (1) Amount (2) Amount (2)
One year or less $ - - % $ 3,373 2.00 %
After one year through five years 15,361 2.12 102,059 2.71
After five years through ten years 3,171 3.08 145,684 2.85
After ten years 29,385 2.49 285,005 2.45
$ 47,917 2.41 % $ 536,121 2.60 %
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 - - 2,261 0.74
After five years through ten years - - 16,007 1.62
After ten years 3,905 2.39 42,278 1.68
$ 3,905 2.39 % $ 60,546 1.63 %
(1)The amortized cost and fair value of debt securities 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
AtSeptember 30, 2021 , gross loans outstanding (including loans and loans held for sale) were$16.26 billion , up$611.8 million from$15.65 billion reported atDecember 31, 2020 . Loans held for sale increased from$1.17 billion atDecember 31, 2020 to$1.44 billion atSeptember 30, 2021 primarily in our mortgage division, partially offset by the sale of a consumer portfolio of$165.9 million . Loans increased$343.6 million , or 2.37%, from$14.48 billion atDecember 31, 2020 to$14.82 billion atSeptember 30, 2021 , driven primarily by organic growth net of PPP loan runoff. 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 47 --------------------------------------------------------------------------------
strategically located its branches in select markets in
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, the PD×LGD method or a qualitative approach. 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 2021, the ACL on loans totaled$171.2 million , or 1.15% of loans, compared with$199.4 million , or 1.38% of loans, atDecember 31, 2020 . Our nonaccrual loans decreased from$76.5 million atDecember 31, 2020 to$58.9 million atSeptember 30, 2021 . The decrease in nonaccrual loans is primarily attributable to collection activities and upgrades. For the first nine months of 2021, our net charge off ratio as a percentage of average loans decreased to 0.06%, compared with 0.17% for the first nine months of 2020. The total provision for credit losses for the first nine months of 2021 was negative$38.1 million , decreasing from$146.9 million recorded for the first nine months of 2020. Our ratio of total nonperforming assets to total assets decreased from 0.48% atDecember 31, 2020 to 0.32% atSeptember 30, 2021 . 48 -------------------------------------------------------------------------------- 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 endedSeptember 30, 2021 and 2020: Nine Months Ended September 30, (dollars in thousands) 2021 2020
Balance of allowance for credit losses on loans at beginning
$ 38,189 of period Adjustment to allowance for adoption of ASC 326 - 78,661 Provision charged to operating expense (21,462) 132,188
Charge-offs:
Commercial, financial and agricultural 6,757 4,687 Consumer installment 4,764 2,781 Indirect automobile 1,148 2,944 Premium finance 3,142 3,893 Real estate - construction and development 212 83 Real estate - commercial and farmland 1,632 10,220 Real estate - residential 594 762 Total charge-offs 18,249 25,370 Recoveries: Commercial, financial and agricultural 3,338 1,135 Consumer installment 767 1,273 Indirect automobile 1,350 1,020 Premium finance 4,237 2,584 Real estate - construction and development 296 692 Real estate - commercial and farmland 492 1,010 Real estate - residential 1,022 542 Total recoveries 11,502 8,256 Net charge-offs 6,747 17,114 Balance of allowance for credit losses on loans at end of period$ 171,213 $ 231,924
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 ,
2021
$ 231,924
Net charge-offs for the period 6,747 17,114
Loan balances:
End of period 14,824,539 14,943,593
Average for the period 14,563,835 13,772,102
Net charge-offs as a percentage of average loans 0.06 % 0.17 %
(annualized)
Allowance for credit losses on loans as a percentage of end 1.15 % 1.55 %
of period loans
49--------------------------------------------------------------------------------
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, 2021 December 31, 2020 Commercial, financial and agricultural $ 1,217,575$ 1,627,477 Consumer installment 207,111 306,995 Indirect automobile 325,057 580,083 Mortgage warehouse 768,577 916,353 Municipal 624,430 659,403 Premium finance 840,737 687,841 Real estate - construction and development 1,454,824
1,606,710
Real estate - commercial and farmland 6,409,704 5,300,006
Real estate - residential 2,976,524 2,796,057
$ 14,824,539 $ 14,480,925
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 $58.9 million at September 30, 2021 , a decrease of
$17.5 million , or 22.9%, from $76.5 million at December 31, 2020 . Accruing loans
delinquent 90 days or more totaled $7.5 million at September 30, 2021 , a
decrease of $854,000 , or 10.3%, compared with $8.3 million at December 31, 2020 .
At September 30, 2021 , OREO totaled $4.6 million , a decrease of $7.3 million , or
61.3%, compared with $11.9 million at December 31, 2020 . 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
2021, total non-performing assets as a percent of total assets decreased to
0.32% compared with 0.48% at December 31, 2020 .
Non-performing assets at September 30, 2021 and December 31, 2020 were as
follows:
(dollars in thousands) September 30, 2021 December 31, 2020
Nonaccrual loans $ 58,932 $ 76,457
Accruing loans delinquent 90 days or more 7,472 8,326
Repossessed assets 152 544
Other real estate owned 4,594 11,880
Total non-performing assets $ 71,150 $ 97,207
50--------------------------------------------------------------------------------
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 ofSeptember 30, 2021 andDecember 31, 2020 , the Company had a balance of$87.4 million and$85.0 million , respectively, in troubled debt restructurings. These totals do not include COVID-19 loan modifications accounted for under Section 4013 of the CARES Act. Further information on these loans is set forth under the heading "COVID-19 Deferrals" below. The following table presents the amount of troubled debt restructurings by loan class classified separately as accrual and nonaccrual atSeptember 30, 2021 andDecember 31, 2020 : September 30, 2021 Accruing Loans Non-Accruing Loans Balance Balance Loan Class # (in thousands) # (in thousands) Commercial, financial and agricultural 14 $ 1,683 7 $ 112 Consumer installment 8 22 19 38 Indirect automobile 282 1,284 52 297 Real estate - construction and development 5 887 3 271 Real estate - commercial and farmland 27 43,895 7 6,715 Real estate - residential 227 29,521 30 2,687 Total 563$ 77,292 118$ 10,120 December 31, 2020 Accruing Loans Non-Accruing Loans Balance Balance Loan Class # (in thousands) # (in thousands) Commercial, financial and agricultural 9 $ 521 11 $ 849 Consumer installment 10 32 20 56 Indirect automobile 437 2,277 51 461 Real estate - construction and development 4 506 5 707 Real estate - commercial and farmland 28 36,707 7 1,401 Real estate - residential 264 38,800 34 2,671 Total 752$ 78,843 128$ 6,145 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 atSeptember 30, 2021 andDecember 31, 2020 : Loans Currently Paying Loans that have Defaulted Under September 30, 2021 Under Restructured Terms Restructured Terms Balance Balance Loan Class # (in thousands) # (in thousands) Commercial, financial and agricultural 18 $ 1,767 3 $ 28 Consumer installment 10 21 17 39 Indirect automobile 283 1,316 51 265 Real estate - construction and development 7 1,144 1 14 Real estate - commercial and farmland 32 49,956 2 654 Real estate - residential 224 29,984 33 2,224 Total 574$ 84,188 107$ 3,224 51
--------------------------------------------------------------------------------
Loans Currently Paying Loans that have Defaulted Under
December 31, 2020 Under Restructured Terms Restructured Terms
Balance Balance
Loan Class # (in thousands) # (in thousands)
Commercial, financial and agricultural 11 $ 532 9 $ 839
Consumer installment 12 33 18 55
Indirect automobile 411 2,138 77 600
Real estate - construction and development 5 507 4 706
Real estate - commercial and farmland 29 36,512 6 1,595
Real estate - residential 249 35,348 49 6,123
Total 717 $ 75,070 163 $ 9,918 The following table presents the amount of troubled debt restructurings by types
of concessions made, classified separately as accrual and nonaccrual at
September 30, 2021 Accruing Loans Non-Accruing Loans
Balance Balance
Type of Concession # (in thousands) # (in thousands)
Forgiveness of interest 3 $ 289 - $ -
Forbearance of interest 16 1,248 4 911
Forbearance of principal 397 60,163 64 7,975
Rate reduction only 60 7,528 5 238
Rate reduction, maturity extension - - 1 2
Rate reduction, forbearance of interest 34 2,447 6 322
Rate reduction, forbearance of principal 18 2,673 30 288
Rate reduction, forgiveness of interest 35 2,944 8 384
Total 563 $ 77,292 118 $ 10,120
December 31, 2020 Accruing Loans Non-Accruing Loans
Balance Balance
Type of Concession # (in thousands) # (in thousands)
Forgiveness of interest 1 $ 73 - $ -
Forbearance of interest 19 2,255 7 1,044
Forbearance of principal 563 58,131 72 3,372
Forbearance of principal, extended
amortization - - 1 204
Rate reduction only 66 8,893 4 525
Rate reduction, maturity extension - - 1 5
Rate reduction, forbearance of interest 41 3,472 9 389
Rate reduction, forbearance of principal 21 2,609 25 193
Rate reduction, forgiveness of interest 41 3,410 8 412
Rate reduction, forgiveness of principal - - 1 1
Total 752 $ 78,843 128 $ 6,145
52--------------------------------------------------------------------------------
The following table presents the amount of troubled debt restructurings by
collateral types, classified separately as accrual and nonaccrual at
September 30, 2021 Accruing Loans Non-Accruing Loans
Balance Balance
Collateral Type # (in thousands) # (in thousands)
Warehouse 3 $ 63 2 $ 280
Raw land 6 3,820 4 642
Hotel and motel 7 29,483 1 4,902
Office 5 726 1 502
Retail, including strip centers 9 8,079 1 376
1-4 family residential 230 29,863 31 2,971
Church 2 2,394 - -
Automobile/equipment/CD 301 2,864 78 447
Total 563 $ 77,292 118 $ 10,120
December 31, 2020 Accruing Loans Non-Accruing Loans
Balance Balance
Collateral Type # (in thousands) # (in thousands)
Warehouse 4 $ 248 2 $ 305
Raw land 5 4,611 7 1,135
Hotel and motel 4 22,372 - -
Office 6 1,281 - -
Retail, including strip centers 13 8,627 - -
1-4 family residential 266 38,913 35 3,170
Church - - 1 166
Automobile/equipment/CD 454 2,791 82 1,368
Unsecured - - 1 1
Total 752 $ 78,843 128 $ 6,145
COVID-19 Deferrals
In response to the COVID-19 pandemic, the Company offered affected borrowers
payment relief under its Disaster Relief Program. These modifications primarily
consisted of short-term payment deferrals or interest-only periods to assist
customers. The Company has begun providing payment modifications to certain
borrowers in economically sensitive industries of various terms up to nine
months. Modifications related to the COVID-19 pandemic and qualifying under the
provisions of Section 4013 of the CARES Act are not deemed to be troubled debt
restructurings. As of September 30, 2021 , $76.5 million in loans remained in
payment deferral under the COVID-19 pandemic Disaster Relief Program compared
with $332.8 million at December 31, 2020 .
The table below presents short-term deferrals related to the COVID-19 pandemic
that were not considered TDRs as of September 30, 2021 and December 31, 2020 .
September 30, 2021 December 31, 2020
COVID-19 Deferrals as a% of COVID-19 Deferrals as a % of (dollars in thousands
Deferrals total loans Deferrals total loans
Commercial, financial and agricultural $ 755 0.1 % $ 12,471 0.8 %
Consumer installment - - % 1,418 0.5 %
Indirect automobile 1,302 0.4 % 8,936 1.5 %
Real estate - construction and
development - - % 11,049 0.7 %
Real estate - commercial and farmland 26,128 0.4 % 179,183 3.4 %
Real estate - residential 48,340 1.6 % 119,722 4.3 %
$ 76,525 0.5 % $ 332,779 2.3 %
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
53
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nonresidential property where the primary or a significant source of repayment
is derived from rental income associated with the property, excluding
owner-occupied properties (loans for which 50% or more of the source of
repayment is derived from the ongoing operations and activities conducted by the
party, or affiliate of the party, who owns the property) or the proceeds of the
sale, refinancing or permanent financing of the property. Loans for
owner-occupied CRE are generally excluded from the CRE guidance.
The CRE guidance is applicable when either:
(1)total loans for construction, land development, and other land, net of owner-occupied loans, represent 100% or more of a bank's total risk-based capital; or (2)total loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land development, and other land, net of owner-occupied loans, represent 300% or more of a bank's total risk-based capital. Banks that are subject to the CRE guidance criteria are required to implement enhanced strategic planning, CRE underwriting policies, risk management and internal controls, portfolio stress testing, risk exposure limits, and other policies, including management compensation and incentives, to address the CRE risks. Higher allowances for loan losses and capital levels may also be appropriate. As ofSeptember 30, 2021 , the Company exhibited a concentration in the CRE loan category based on Federal Reserve Call codes. The primary risks of CRE lending are: (1)within CRE loans, construction and development loans are somewhat dependent upon continued strength in demand for residential real estate, which is reliant on favorable real estate mortgage rates and changing population demographics; (2)on average, CRE loan sizes are generally larger than non-CRE loan types; and (3)certain construction and development loans may be less predictable and more difficult to evaluate and monitor. The following table outlines CRE loan categories and CRE loans as a percentage of total loans as ofSeptember 30, 2021 andDecember 31, 2020 . The loan categories and concentrations below are based on Federal Reserve Call codes: September 30, 2021 December 31, 2020 % of Total % of Total (dollars in thousands) Balance Loans Balance Loans Construction and development loans$ 1,454,824 10%$ 1,606,710 11% Multi-family loans 511,431 3% 347,951 2% Nonfarm non-residential loans (excluding owner-occupied) 4,057,309 27% 3,260,389 23% Total CRE Loans (excluding owner-occupied) 6,023,564 41% 5,215,050 36% All other loan types 8,800,975 59% 9,265,875 64% Total Loans$ 14,824,539 100%$ 14,480,925 100%
The following table outlines the percentage of construction and development
loans and total CRE loans, net of owner-occupied loans, to the Bank's total
risk-based capital, and the Company's internal concentration limits as of
Internal Actual
Limit September 30, 2021 December 31, 2020
Construction and development loans 100% 59% 74%
Total CRE loans (excluding owner-occupied) 300% 246% 241%
Short-Term Investments
The Company's short-term investments are comprised of federal funds sold and
interest-bearing deposits in banks. At September 30, 2021 , the Company's
short-term investments were $3.51 billion , compared with $1.91 billion at
December 31, 2020 . At September 30, 2021 , the Company had $20.0 million in
federal funds sold and $3.49 billion was in interest-bearing deposit balances at
correspondent banks and the Federal Reserve Bank of Atlanta .
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--------------------------------------------------------------------------------Derivative Instruments and Hedging Activities
The Company has forward contracts and IRLCs to hedge changes in the value of the mortgage inventory due to changes in market interest rates. The fair value of these instruments amounted to an asset of$25.1 million and$51.8 million atSeptember 30, 2021 andDecember 31, 2020 , respectively, and a liability of$0 and$16.4 million atSeptember 30, 2021 andDecember 31, 2020 , respectively.
Capital
Common Stock Repurchase Program
OnSeptember 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 throughOctober 31, 2020 . OnOctober 22, 2020 and again onOctober 28, 2021 , the Company announced that its Board of Directors had approved the extension of the share repurchase program for an additional year in each instance. As a result, the Company is currently authorized to engage in repurchases throughOctober 31, 2022 . 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 ofSeptember 30, 2021 ,$20.8 million , or 496,034 shares of the Company's common stock, had been repurchased under the program.
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 theFederal Reserve ("FRB") and theFDIC , 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. InMarch 2020 , theOffice of the Comptroller of the Currency , the FRB and theFDIC 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 effectiveMarch 31, 2020 . As ofSeptember 30, 2021 , 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 atSeptember 30, 2021 andDecember 31, 2020 :September 30, 2021 December 31, 2020
Tier 1 Leverage Ratio (tier 1 capital to average assets) Consolidated
9.32% 8.99%
Ameris Bank 10.80% 10.39%
CET1 Ratio (common equity tier 1 capital to risk weighted
assets)
Consolidated 11.74% 11.14%
Ameris Bank 13.59% 12.87%Tier 1 Capital Ratio (tier 1 capital to risk weighted assets) Consolidated
11.74% 11.14%
Ameris Bank 13.59% 12.87%
Total Capital Ratio (total capital to risk weighted assets)
Consolidated 15.31% 15.27%
Ameris Bank 14.60% 14.19%
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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 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. AtSeptember 30, 2021 andDecember 31, 2020 , the net carrying value of the Company's other borrowings was$425.4 million and$425.2 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, 2021 2021 2021 2020 2020 Investment securities available-for-sale to total deposits 3.63% 4.26% 4.81% 5.80% 6.96% Loans (net of unearned income) to total deposits 78.71% 80.96% 81.67% 85.39%
93.03%
Interest-earning assets to total assets 91.20% 90.79% 91.15% 90.88%
90.66%
Interest-bearing deposits to total deposits 59.56% 61.75% 61.93% 63.73% 63.21% 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 atSeptember 30, 2021 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity. 56
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