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; 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 ofJune 30, 2022 , as compared withDecember 31, 2021 , and operating results for the three- and six-month periods endedJune 30, 2022 and 2021. These comments should be read in conjunction with the Company's unaudited consolidated financial statements and accompanying notes appearing elsewhere herein. This discussion contains certain performance measures determined by methods other than in accordance with GAAP. Management of the Company uses these non-GAAP measures in its analysis of the Company's performance. These measures are useful when evaluating the underlying performance and efficiency of the Company's operations and balance sheet. The Company's management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results with prior periods and demonstrate the effects of significant gains and charges in the current period. The Company's management believes that investors may use these non-GAAP financial measures to evaluate the Company's financial performance without the impact of unusual items that may obscure trends in the Company's underlying performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Non-GAAP measures include adjusted net income and adjusted net income per diluted share. The Company calculates the regulatory capital ratios using current regulatory report instructions. The Company's management uses these measures to assess the quality of capital and believes that investors may find them useful in their evaluation of the Company. These capital measures may or may not be necessarily comparable to similar capital measures that may be presented by other companies. 36 --------------------------------------------------------------------------------
Critical Accounting Policies
There have been no significant changes to our critical accounting policies from those disclosed in our 2021 Annual Report on Form 10-K. The reader should refer to the notes to our consolidated financial statements in our 2021 Annual Report on Form 10-K for a full disclosure of all critical accounting policies.
Results of Operations for the Three Months Ended
Consolidated Earnings and Profitability
Ameris reported net income available to common shareholders of$90.1 million , or$1.30 per diluted share, for the quarter endedJune 30, 2022 , compared with$88.3 million , or$1.27 per diluted share, for the same period in 2021. The Company's return on average assets and average shareholders' equity were 1.54% and 11.87%, respectively, in the second quarter of 2022, compared with 1.64% and 12.66%, respectively, in the second quarter of 2021. During the second quarter of 2022, the Company recorded pre-tax servicing right impairment recovery of$10.8 million and pre-tax gains on bank premises of$39,000 . During the second quarter of 2021, the Company recorded pre-tax servicing right impairment recovery of$749,000 and pre-tax gains on bank premises of$236,000 . Excluding these adjustment items, the Company's net income would have been$81.5 million , or$1.18 per diluted share, for the second quarter of 2022 and$87.5 million , or$1.25 per diluted share, for the second quarter of 2021.
Below is a reconciliation of adjusted net income to net income, as discussed above.
Three Months Ended June 30,
(in thousands, except share and per share data) 2022 2021
Net income $ 90,066 $ 88,327
Adjustment items:
Servicing right recovery (10,838) (749)
Gain on bank premises (39) (236)
Tax effect of adjustment items (Note 1) 2,284 206
After tax adjustment items (8,593) (779)
Adjusted net income $
81,473
Weighted average common shares outstanding - diluted 69,316,258 69,791,670 Net income per diluted share $ 1.30$ 1.27 Adjusted net income per diluted share $
1.18
Note 1: Tax effect is calculated utilizing a 21% rate for taxable adjustments.
37
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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 second quarter of 2022 and
2021, respectively:
Three Months Ended
June 30, 2022
Retail Warehouse Premium
Banking Mortgage Lending SBA Finance
(dollars in thousands) Division Division Division Division Division Total
Interest income $ 141,844 $ 38,055 $ 8,476 $ 4,757 $ 9,436 $ 202,568
Interest expense (10,278) 17,276 1,776 959 1,471 11,204
Net interest income 152,122 20,779 6,700 3,798 7,965 191,364
Provision for credit losses 10,175 4,499 867 (523) (94) 14,924
Noninterest income 23,469 57,795 1,041 1,526 10 83,841
Noninterest expense
Salaries and employee benefits 46,733 31,219 208 1,316 2,069 81,545
Occupancy and equipment 11,168 1,406 1 81 90 12,746
Data processing and communications expenses 10,863 1,123 48 29 92 12,155
Other expenses 21,123 12,812 212 539 1,064 35,750
Total noninterest expense 89,887 46,560 469 1,965 3,315 142,196
Income before income tax expense 75,529 27,515 6,405 3,882 4,754 118,085
Income tax expense 19,120 5,779 1,346 815 959 28,019
Net income $ 56,409 $ 21,736 $ 5,059 $ 3,067 $ 3,795 $ 90,066
Three Months Ended
June 30, 2021
Retail Warehouse Premium
Banking Mortgage Lending SBA Finance
(dollars in thousands) Division Division Division Division Division Total
Interest income $ 109,260 $ 34,085 $ 8,988 $ 14,050 $ 7,368 $ 173,751
Interest expense (1,410) 11,552 268 1,168 321 11,899
Net interest income 110,670 22,533 8,720 12,882 7,047 161,852
Provision for credit losses (3,949) 5,647 (155) (607) (794) 142
Noninterest income 16,171 69,055 1,333 2,677 4 89,240
Noninterest expense
Salaries and employee benefits 37,814 44,798 278 937 1,678 85,505
Occupancy and equipment 9,050 1,553 1 132 76 10,812
Data processing and communications expenses 10,280 1,435 68 - 94 11,877
Other expenses 18,763 7,638 30 284 852 27,567
Total noninterest expense 75,907 55,424 377 1,353 2,700 135,761
Income before income tax expense 54,883 30,517 9,831 14,813 5,145 115,189
Income tax expense 14,196 6,408 2,064 3,111 1,083 26,862
Net income $ 40,687 $ 24,109 $ 7,767 $ 11,702 $ 4,062 $ 88,327
38--------------------------------------------------------------------------------
Net Interest Income and Margins
The following table sets forth the average balance, interest income or interest expense, and average interest rate for each category of interest-earning assets and interest-bearing liabilities, net interest spread, and net interest margin on average interest-earning assets for the three months endedJune 30, 2022 and 2021. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate. Quarter Ended June 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$ 2,227,453 $ 4,495 0.81%$ 2,481,336 $ 607
0.10%
Investment securities 1,021,610 7,405 2.91% 857,079 5,420
2.54%
Loans held for sale 944,964 10,036 4.26% 1,705,167 11,773 2.77% Loans 16,861,674 181,602 4.32% 14,549,104 157,112 4.33% Total interest-earning assets 21,055,701 203,538 3.88% 19,592,686 174,912 3.58% Noninterest-earning assets 2,349,500 1,946,208 Total assets$ 23,405,201 $ 21,538,894 Liabilities and Shareholders' Equity Interest-bearing liabilities: Savings and interest-bearing demand deposits$ 9,790,029 $ 3,590 0.15%$ 9,063,721 $ 2,846 0.13% Time deposits 1,693,740 1,318 0.31% 2,006,265 2,929 0.59% Securities sold under agreements to repurchase 1,854 1 0.22% 6,883 5 0.29% FHLB advances 48,746 192 1.58% 48,910 193 1.58% Other borrowings 376,829 4,437 4.72% 376,376 4,683 4.99% Subordinated deferrable interest debentures 127,063 1,666 5.26% 125,068 1,243
3.99%
Total interest-bearing liabilities 12,038,261 11,204 0.37% 11,627,223 11,899 0.41% Demand deposits 7,955,765 6,874,471 Other liabilities 367,895 238,931 Shareholders' equity 3,043,280 2,798,269 Total liabilities and shareholders' equity$ 23,405,201 $ 21,538,894 Interest rate spread 3.51% 3.17% Net interest income$ 192,334 $ 163,013 Net interest margin 3.66% 3.34% On a tax-equivalent basis, net interest income for the second quarter of 2022 was$192.3 million , an increase of$29.3 million , or 18.0%, compared with$163.0 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$1.46 billion , or 7.5%, from$19.59 billion in the second quarter of 2021 to$21.06 billion for the second quarter of 2022. This growth in interest earning assets resulted primarily from organic loan growth, loans acquired fromBalboa Capital and excess liquidity from deposit growth. The Company's net interest margin during the second quarter of 2022 was 3.66%, up 32 basis points from 3.34% reported in the second quarter of 2021. Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to$5.3 billion during the second quarter of 2022, with weighted average yields of 4.29%, compared with$6.4 billion and 3.36%, respectively, during the second quarter of 2021. Loan production in the banking division amounted to$1.1 billion during the second quarter of 2022, with weighted average yields of 5.24%, compared with$911.3 million and 3.75%, respectively, during the second quarter of 2021. Total interest income, on a tax-equivalent basis, increased to$203.5 million during the second quarter of 2022, compared with$174.9 million in the same quarter of 2021. Yields on earning assets increased to 3.88% during the second quarter of 2022, compared with 3.58% reported in the second quarter of 2021. During the second quarter of 2022, loans comprised 84.6% of average earning assets, compared with 83.0% in the same quarter of 2021. Yields on loans decreased to 4.32% in the second quarter of 2022, compared with 4.33% in the same period of 2021. Accretion income for the second quarter of 2022 was negative$379,000 , compared with$4.5 million in the second quarter of 2021. 39 -------------------------------------------------------------------------------- The yield on total interest-bearing liabilities decreased from 0.41% in the second quarter of 2021 to 0.37% in the second quarter of 2022. Total funding costs, inclusive of noninterest-bearing demand deposits, decreased to 0.22% in the second quarter of 2022, compared with 0.26% during the second quarter of 2021. Deposit costs decreased from 0.13% in the second quarter of 2021 to 0.10% in the second quarter of 2022. Non-deposit funding costs increased from 4.41% in the second quarter of 2021 to 4.55% in the second quarter of 2022. Average balances of interest bearing deposits and their respective costs for the second quarter of 2022 and 2021 are shown below: Three Months Ended Three Months Ended June 30, 2022 June 30, 2021 Average Average Average Average (dollars in thousands) Balance Cost Balance Cost NOW$ 3,695,490 0.14%$ 3,314,334 0.10% MMDA 5,087,199 0.17% 4,872,500 0.16% Savings 1,007,340 0.06% 876,887 0.06% Retail CDs 1,693,740 0.31% 2,005,265 0.58% Brokered CDs - -% 1,000 3.21% Interest-bearing deposits$ 11,483,769 0.17%$ 11,069,986 0.21% Provision for Credit Losses The Company's provision for credit losses during the second quarter of 2022 amounted to$14.9 million , compared with a provision of$142,000 in the second quarter of 2021. This increase was attributable to organic growth in loans during the quarter. The provision for credit losses for the second quarter of 2022 was comprised of$13.2 million related to loans,$1.8 million related to unfunded commitments and negative$82,000 related to other credit losses, compared with negative$899,000 related to loans,$1.3 million related to unfunded commitments and negative$258,000 related to other credit losses for the second quarter of 2021. Non-performing assets as a percentage of total assets increased from 0.43% atDecember 31, 2021 to 0.56% atJune 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$10.4 million . The Company recognized net charge-offs on loans during the second quarter of 2022 of approximately$1.8 million , or 0.04% of average loans on an annualized basis, compared with net charge-offs of approximately$2.6 million , or 0.07%, in the second quarter of 2021. The Company's total allowance for credit losses on loans atJune 30, 2022 was$172.6 million , or 0.98% of total loans, compared with$167.6 million , or 1.06% of total loans, atDecember 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 second quarter of 2022 was$83.8 million , a decrease of$5.4 million , or 6.0%, from the$89.2 million reported in the second quarter of 2021. Income from mortgage banking activities was$58.8 million in the second quarter of 2022, a decrease of$11.5 million , or 16.3%, from$70.2 million in the second quarter of 2021. Total production in the second quarter of 2022 amounted to$1.73 billion , compared with$2.39 billion in the same quarter of 2021, while spread (gain on sale) decreased to 2.36% in the current quarter, compared with 2.77% in the same quarter of 2021. The retail mortgage open pipeline finished the second quarter of 2022 at$832.3 million , compared with$1.41 billion atMarch 31, 2022 and$1.75 billion at the end of the second quarter of 2021. Service charges on deposit accounts increased$141,000 , or 1.3%, to$11.1 million in the second quarter of 2022, compared with$11.0 million in the second quarter of 2021. This increase in service charges on deposit accounts is due primarily to an increase in volume, particularly in business accounts. Other noninterest income increased$5.7 million , or 82.7%, to$12.7 million for the second quarter of 2022, compared with$6.9 million during the second quarter of 2021. The increase in other noninterest income was primarily attributable to fee income from Balboa of$5.3 million and an increase in BOLI income of$614,000 , partially offset by a decrease in gains on sales of SBA loans of$1.1 million . Noninterest Expense Total noninterest expense for the second quarter of 2022 increased$6.4 million , or 4.7%, to$142.2 million , compared with$135.8 million in the same quarter 2021. Salaries and employee benefits decreased$4.0 million , or 4.6%, from$85.5 million in the second quarter of 2021 to$81.5 million in the second quarter of 2022, due primarily to decreases in variable compensation tied to mortgage production of$11.4 million , partially offset by salaries and employee benefits related to Balboa of$10.9 million . Occupancy and equipment expenses increased$1.9 million , or 17.9%, to$12.7 million for the second quarter of 2022, 40 -------------------------------------------------------------------------------- compared with$10.8 million in the second quarter of 2021, due primarily to additional expenses related to Balboa and an increase in real estate taxes. Data processing and communications expenses increased$278,000 , or 2.3%, to$12.2 million in the second quarter of 2022, compared with$11.9 million in the second quarter of 2021. Advertising and marketing expense was$3.1 million in the second quarter of 2022, compared with$1.9 million in the second quarter of 2021. This increase was primarily related to a new marketing campaign. Amortization of intangible assets increased$1.1 million , or 26.5%, from$4.1 million in the second quarter of 2021 to$5.1 million in the second quarter of 2022. This increase was primarily related to intangibles from the acquisition ofBalboa Capital Corporation inDecember 2021 , partially offset by a reduction in core deposit intangible amortization. Loan servicing expenses increased$5.0 million , or 101.9%, from$4.9 million in the second quarter of 2021 to$9.9 million in the second quarter of 2022, primarily attributable to additional mortgage loans serviced resulting from strong mortgage production over the previous year. Other noninterest expenses increased$1.0 million , or 6.5%, from$16.0 million in the second quarter of 2021 to$17.1 million in the second quarter of 2022, due primarily to an increase of$1.2 million in legal fees and an increase in insurance expense to theFederal Deposit Insurance Corporation (the "FDIC") of$385,000 . These increases in other noninterest expenses were partially offset by a decrease in problem loan expenses of$125,000 resulting from an increase in net gains on OREO.
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 second quarter of 2022, the Company reported income tax expense of$28.0 million , compared with$26.9 million in the same period of 2021. The Company's effective tax rate for the three months endingJune 30, 2022 and 2021 was 23.7% and 23.3%, respectively. The increase in the effective tax rate is primarily a result of increased state taxes in the second quarter of 2022 resulting from shifts in apportionment related to theBalboa Capital acquisition. 41 --------------------------------------------------------------------------------
Results of Operations for the Six Months Ended
Consolidated Earnings and Profitability
Ameris reported net income available to common shareholders of$171.8 million , or$2.47 per diluted share, for the six months endedJune 30, 2022 , compared with$213.3 million , or$3.06 per diluted share, for the same period in 2021. The Company's return on average assets and average shareholders' equity were 1.48% and 11.47%, respectively, in the six months endedJune 30, 2022 , compared with 2.03% and 15.66%, respectively, in the same period in 2021. During the first six months of 2022, the Company recorded pre-tax merger and conversion charges of$977,000 , pre-tax servicing right recovery of$20.5 million and pre-tax gain on bank premises of$45,000 . During the first six months of 2021, the Company recorded pre-tax servicing right recovery of$11.4 million , pre-tax gain on BOLI proceeds of$603,000 and pre-tax gain on bank premises of$500,000 . Excluding these adjustment items, the Company's net income would have been$156.5 million , or$2.25 per diluted share, for the six months endedJune 30, 2022 and$203.3 million , or$2.91 per diluted share, for the same period in 2021. Below is a reconciliation of adjusted net income to net income, as discussed above. Six Months Ended June 30, (in thousands, except share and per share data) 2022 2021 Net income available to common shareholders$ 171,764 $ 213,289 Adjustment items: Merger and conversion charges 977 - Servicing right recovery
(20,492) (11,388) Gain on BOLI proceeds - (603) Gain on bank premises (45) (500) Tax effect of adjustment items (Note 1) 4,308 2,496 After tax adjustment items (15,252) (9,995) Adjusted net income $
156,512
Weighted average common shares outstanding - diluted 69,484,508 69,764,923 Net income per diluted share$ 2.47 $ 3.06 Adjusted net income per diluted share $
2.25
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 six months endedJune 30, 2022 is nondeductible for tax purposes. 42 -------------------------------------------------------------------------------- Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities, SBA activities and premium finance activities of the Company during the six months endedJune 30, 2022 and 2021, respectively: Six Months Ended June 30, 2022 Retail Warehouse Premium Banking Mortgage Lending SBA Finance (dollars in thousands) Division Division Division Division Division Total Interest income$ 271,134 $ 70,887 $ 15,289 $ 11,537 $ 17,095 $ 385,942 Interest expense (14,733) 30,813 2,142 1,728 2,084 22,034 Net interest income 285,867 40,074 13,147 9,809 15,011 363,908 Provision for loan losses 15,401 6,086 645 (666) (311) 21,155 Noninterest income 44,833 119,444 2,442 4,017 16 170,752 Noninterest expense Salaries and employee benefits 95,928 62,833 491 2,587 3,987 165,826 Occupancy and equipment 22,242 2,877 2 180 172 25,473 Data processing and communications expenses 22,093 2,295 95 57 187 24,727 Other expenses 41,168 25,457 430 919 2,016 69,990 Total noninterest expense 181,431 93,462 1,018 3,743 6,362 286,016 Income before income tax expense 133,868 59,970 13,926 10,749 8,976 227,489 Income tax expense 36,116 12,594 2,925 2,257 1,833 55,725 Net income$ 97,752 $ 47,376 $ 11,001 $ 8,492 $ 7,143 $ 171,764 Six Months Ended June 30, 2021 Retail Warehouse Premium Banking Mortgage Lending SBA Finance (dollars in thousands) Division Division Division Division Division Total Interest income$ 221,639 $ 64,284 $ 19,315 $ 32,084 $ 14,379 $ 351,701 Interest expense (1,847) 22,767 689 2,567 696 24,872 Net interest income 223,486 41,517 18,626 29,517 13,683 326,829 Provision for loan losses (27,853) 1,094 (300) (1,154) (236) (28,449) Noninterest income 32,909 166,695 2,313 5,288 8 207,213 Noninterest expense Salaries and employee benefits 80,537 94,636 608 2,319 3,390 181,490 Occupancy and equipment 19,170 3,029 2 238 154 22,593 Data processing and communications expenses 20,481 2,981 117 1 181 23,761 Other expenses 38,473 15,827 63 579 1,773 56,715 Total noninterest expense 158,661 116,473 790 3,137 5,498 284,559 Income before income tax expense 125,587 90,645 20,449 32,822 8,429 277,932 Income tax expense 32,652 19,035 4,294 6,893 1,769 64,643 Net income$ 92,935 $ 71,610 $ 16,155 $ 25,929 $ 6,660 $ 213,289 43
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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 six months endedJune 30, 2022 and 2021. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate. Six Months Ended June 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$ 2,817,071 $ 5,878 0.42%$ 2,324,365 $ 1,141 0.10% Investment securities 862,178 11,879 2.78% 907,049 11,716 2.60% Loans held for sale 1,020,611 18,168 3.59% 1,496,155 22,600 3.05% Loans 16,344,409 352,000 4.34% 14,501,802 318,585 4.43% Total interest-earning assets 21,044,269 387,925 3.72% 19,229,371 354,042 3.71% Noninterest-earning assets 2,296,516 1,915,380 Total assets$ 23,340,785 $ 21,144,751 Liabilities and Shareholders' Equity Interest-bearing liabilities: Savings and interest-bearing demand deposits$ 9,844,422 $ 6,190 0.13%$ 8,915,964 $ 5,894 0.13% Time deposits 1,733,656 2,810 0.33% 2,036,668 6,679 0.66% Federal funds purchased and securities sold 2,931 4 0.28% 8,077 12
0.30%
under agreements to repurchase FHLB advances 48,766 382 1.58% 48,931 385 1.59% Other borrowings 410,058 9,601 4.72% 376,318 9,321 4.99% Subordinated deferrable interest debentures 126,814 3,047 4.85% 124,823 2,581
4.17%
Total interest-bearing liabilities 12,166,647 22,034 0.37% 11,510,781 24,872 0.44% Demand deposits 7,807,929 6,644,646 Other liabilities 347,109 242,402 Shareholders' equity 3,019,100 2,746,922 Total liabilities and shareholders' equity$ 23,340,785 $ 21,144,751 Interest rate spread 3.35% 3.27% Net interest income$ 365,891 $ 329,170 Net interest margin 3.51% 3.45% On a tax-equivalent basis, net interest income for the six months endedJune 30, 2022 was$365.9 million , an increase of$36.7 million , or 11.2%, compared with$329.2 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$1.81 billion , or 9.4%, from$19.23 billion in the first six months of 2021 to$21.04 billion for the first six months of 2022. This growth in interest earning assets resulted primarily from organic growth in average loans and loans acquired fromBalboa Capital . The Company's net interest margin during the first six months of 2022 was 3.51%, up six basis points from 3.45% reported for the first six months of 2021. Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to$10.0 billion during the first six months of 2022, with weighted average yields of 3.98%, compared with$13.9 billion and 3.25%, respectively, during the first six months of 2021. Loan production yields in the lines of business were negatively impacted seven basis points during the first six months of 2021 by originations of Paycheck Protection Program loans in our SBA division. Loan production in the banking division amounted to$1.9 billion during the first six months of 2022 with weighted average yields of 5.21%, compared with$1.5 billion and 3.77%, respectively, during the first six months of 2021. Total interest income, on a tax-equivalent basis, increased to$387.9 million during the six months endedJune 30, 2022 , compared with$354.0 million in the same period of 2021. Yields on earning assets increased to 3.72% during the first six months of 2022, compared with 3.71% reported in the same period of 2021. During the first six months of 2022, loans comprised 82.5% of average earning assets, compared with 83.2% in the same period of 2021. Yields on loans decreased to 44 -------------------------------------------------------------------------------- 4.34% during the six months endedJune 30, 2022 , compared with 4.43% in the same period of 2021. Accretion income for the first six months of 2022 was$627,000 , compared with$10.6 million in the first six months of 2021. The yield on total interest-bearing liabilities decreased from 0.44% during the six months endedJune 30, 2021 to 0.37% in the same period of 2022. Total funding costs, inclusive of noninterest-bearing demand deposits, decreased to 0.22% in the first six months of 2022, compared with 0.28% during the same period of 2021. Deposit costs decreased from 0.14% in the first six months of 2021 to 0.09% in the same period of 2022. Non-deposit funding costs increased from 4.44% in the first six months of 2021 to 4.47% in the same period of 2022. The increase in non-deposit funding costs was driven primarily by an increase in index rates. Average balances of interest bearing deposits and their respective costs for the six months endedJune 30, 2022 and 2021 are shown below: Six Months Ended Six Months Ended June 30, 2022 June 30, 2021 Average Average Average Average (dollars in thousands) Balance Cost Balance Cost NOW$ 3,690,161 0.11%$ 3,248,655 0.11% MMDA 5,163,636 0.15% 4,817,197 0.16% Savings 990,625 0.06% 850,112 0.06% Retail CDs 1,733,656 0.33% 2,035,668 0.66% Brokered CDs - -%
1,000 2.82%
Interest-bearing deposits
Provision for Credit Losses
The Company's provision for credit losses during the six months endedJune 30, 2022 amounted to$21.2 million , compared with negative$28.4 million in the six months endedJune 30, 2021 . This increase was primarily attributable to organic growth in loans during the first six months of 2022 and a release of reserves in the six months endedJune 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 six months of 2022 was comprised of$10.5 million related to loans,$10.8 million related to unfunded commitments and negative$126,000 related to other credit losses compared with negative$17.5 million related to loans, negative$10.5 million related to unfunded commitments and negative$431,000 related to other credit losses for the same period in 2021. Non-performing assets as a percentage of total assets increased from 0.43% atDecember 31, 2021 to 0.56% atJune 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$10.4 million . Net charge-offs on loans during the first six months of 2022 were$5.4 million , or 0.07% of average loans on an annualized basis, compared with approximately$6.9 million , or 0.10%, in the first six months of 2021. The Company's total allowance for credit losses on loans atJune 30, 2022 was$172.6 million , or 0.98% of total loans, compared with$167.6 million , or 1.06% of total loans, atDecember 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 six months endedJune 30, 2022 was$170.8 million , a decrease of$36.5 million , or 17.6%, from the$207.2 million reported for the six months endedJune 30, 2021 . Income from mortgage banking activities decreased$47.0 million , or 27.9%, from$168.7 million in the first six months of 2021 to$121.7 million in the same period of 2022. Total production in the first six months of 2022 amounted to$3.26 billion , compared with$5.03 billion in the same period of 2021, while spread (gain on sale) decreased to 2.63% during the six months endedJune 30, 2022 , compared with 3.39% in the same period of 2021. The retail mortgage open pipeline was$832.3 million atJune 30, 2022 , compared with$1.62 billion atDecember 31, 2021 and$1.75 billion atJune 30, 2021 . Mortgage-related activities was positively impacted during the first six months of 2022 by a recovery of previous mortgage servicing right impairment of$20.5 million , compared with a recovery of$11.4 million for the same period in 2021. Other noninterest income increased$10.1 million , or 69.1%, to$24.7 million for the first six months of 2022, compared with$14.6 million during the same period of 2021. The increase in other noninterest income was primarily attributable to an increase in fee income fromBalboa Capital of$9.0 million , an increase in BOLI income of$1.6 million and an increase in trust income of$473,000 , partially offset by a decrease of$603,000 in gain on BOLI proceeds. 45 --------------------------------------------------------------------------------
Noninterest Expense
Total noninterest expenses for the six months endedJune 30, 2022 increased$1.5 million , or 0.5%, to$286.0 million , compared with$284.6 million in the same period of 2021. Salaries and employee benefits decreased$15.7 million , or 8.6%, from$181.5 million in the first six months of 2021 to$165.8 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$27.7 million and$1.5 million , respectively, partially offset by an increase in salaries and employee benefits related toBalboa Capital of$17.6 million . Occupancy and equipment expenses increased$2.9 million , or 12.7%, to$25.5 million for the first six months of 2022, compared with$22.6 million in the same period of 2021, due primarily to the addition ofBalboa Capital and an increase in real estate taxes. Data processing and communications expenses increased$966,000 , or 4.1%, to$24.7 million in the first six months of 2022, from$23.8 million reported in the same period of 2021. Credit resolution-related expenses decreased$1.6 million , or 140.1%, from$1.2 million in the first six months of 2021 to negative$469,000 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$1.2 million . Advertising and marketing expense was$5.1 million in the first six months of 2022, compared with$3.4 million in the first six months of 2021. Amortization of intangible assets increased$2.1 million , or 26.1%, from$8.2 million in the first six months of 2021 to$10.3 million in the first six months of 2022. This increase was primarily related to amortization of intangibles from the acquisition ofBalboa Capital Corporation inDecember 2021 , partially offset by a reduction in core deposit intangible amortization. There were$977,000 in merger and conversion charges in the first six months of 2022, compared with none in the same period in 2021. Loan servicing expenses increased$8.0 million , or 74.2%, from$10.8 million in the first six months of 2021 to$18.8 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 increased$2.0 million , or 6.2%, from$33.2 million in the first six months of 2021 to$35.2 million in the same period of 2022, due primarily to an increase of$2.9 million in legal fees and an increase of$1.3 million inFDIC insurance expense. These increases in other noninterest expenses were partially offset by decreases in other losses of$569,000 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 six months endedJune 30, 2022 , the Company reported income tax expense of$55.7 million , compared with$64.6 million in the same period of 2021. The Company's effective tax rate for the six months endedJune 30, 2022 and 2021 was 24.5% and 23.3%, respectively. The increase in the effective tax rate is primarily a result of a discrete charge to the Company's state tax liability and nondeductible merger and conversion charges incurred during the first six months of 2022. 46 --------------------------------------------------------------------------------
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 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 atJune 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, atJune 30, 2022 , management determined that$88,000 was attributable to credit impairment and, accordingly, an allowance for credit losses was established. The remaining$16.7 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:
June 30, 2022 December 31, 2021
Fair Fair
(dollars in thousands) Amortized Cost Value Amortized Cost Value
Securities available-for-sale
U.S. Treasuries $ 314,613 $ 312,889 $ - $ -
U.S. government-sponsored agencies 2,050 2,021 7,084 7,172
State, county and municipal securities 41,428 40,963 45,470 47,812
Corporate debt securities 15,897 15,463 27,897 28,496
SBA pool securities 35,854 34,431 44,312 45,201
Mortgage-backed securities 658,508 646,501 448,124 463,940
Total debt securities available-for-sale $ 1,068,350 Securities held-to-maturity
State, county and municipal securities$ 31,905
Mortgage-backed securities 79,749 69,518 70,945 69,495 Total debt securities held-to-maturity$ 111,654 $ 97,144 $ 79,850 $ 78,206 47
-------------------------------------------------------------------------------- The amounts of securities available-for-sale and held-to-maturity in each category as ofJune 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 $ - - % $ 1,008 1.92 %$ 4,769 3.05 % After one year through five years 312,889 2.53 1,013 2.16 13,715 4.07 After five years through ten years - - - - 15,252 4 4.01 After ten years - - - - 7,227 3.70$ 312,889 2.53 % $ 2,021 2.04 %$ 40,963 3.86 % 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 % $ 477 2.10 %$ 21 2.40 % After one year through five years - - 9,663 2.07 113,977 2.99 After five years through ten years 13,244 4.71 2,589 3.04 225,714 2.94 After ten years 1,719 5.59 21,702 2.50 306,789 3.03$ 15,463 4.79 % $ 34,431 2.42 %$ 646,501 2.99 % 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 - - 11,044 1.01 After five years through ten years - - 26,103 2.03 After ten years 31,905 3.93 42,602 1.68$ 31,905 3.93 % $ 79,749 1.70 % (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
AtJune 30, 2022 , gross loans outstanding (including loans and loans held for sale) were$18.12 billion , up$987.8 million from$17.13 billion reported atDecember 31, 2021 . Loans increased$1.69 billion , or 10.6%, from$15.87 billion atDecember 31, 2021 to$17.56 billion atJune 30, 2022 , driven primarily by organic growth. Loans held for sale decreased from$1.25 billion atDecember 31, 2021 to$555.7 million atJune 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 inGeorgia ,Alabama ,Florida ,North Carolina andSouth Carolina to take advantage of the growth in these areas. 48 -------------------------------------------------------------------------------- The Company's risk management processes include a loan review program designed to evaluate the credit risk in the loan portfolio and ensure credit grade accuracy. Through the loan review process, the Company conducts (1) a loan portfolio summary analysis, (2) charge-off and recovery analysis, (3) trends in accruing problem loan analysis, and (4) problem and past-due loan analysis. This analysis process serves as a tool to assist management in assessing the overall quality of the loan portfolio and the adequacy of the ACL. Loans classified as "substandard" are loans which are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses and/or questionable collateral values. Loans classified as "doubtful" are those loans that have characteristics similar to substandard loans but have an increased risk of loss. Loans classified as "loss" are those loans which are considered uncollectible and are in the process of being charged off. The Company estimates the ACL on loans based on the underlying assets' amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL, except for loans modified under the Disaster Relief Program. Expected credit losses are reflected in the ACL through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received. The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company currently uses the DCF method or the PD×LGD method which may be adjusted for qualitative factors. The Company's methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company's methodologies revert back to historical loss information on a straight-line basis over four quarters when the Company can no longer develop reasonable and supportable forecasts. At the end of the second quarter of 2022, the ACL on loans totaled$172.6 million , or 0.98% of loans, compared with$167.6 million , or 1.06% of loans, atDecember 31, 2021 . Our nonaccrual loans increased from$85.3 million atDecember 31, 2021 to$122.9 million atJune 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$10.4 million . For the first six months of 2022, our net charge off ratio as a percentage of average loans decreased to 0.07%, compared with 0.10% for the first six months of 2021. The total provision for credit losses for the first six months of 2022 was$21.2 million , increasing from a provision release of$28.4 million recorded for the first six months of 2021. Our ratio of total nonperforming assets to total assets increased from 0.43% atDecember 31, 2021 to 0.56% atJune 30, 2022 . 49 -------------------------------------------------------------------------------- The following table presents an analysis of the allowance for credit losses on loans, provision for credit losses on loans and net charge-offs as of and for the six months endedJune 30, 2022 and 2021: Six Months Ended June 30, (dollars in thousands) 2022 2021
Balance of allowance for credit losses on loans at beginning
$ 199,422 of period Provision charged to operating expense 10,493 (17,478)
Charge-offs:
Commercial, financial and agricultural 8,805 5,899 Consumer installment 2,562 3,117 Indirect automobile 129 970 Premium finance 2,435 2,537 Real estate - construction and development - 212 Real estate - commercial and farmland 1,364 1,422 Real estate - residential 137 555 Total charge-offs 15,432 14,712 Recoveries: Commercial, financial and agricultural 5,681 1,352 Consumer installment 388 568 Indirect automobile 540 1,072 Premium finance 2,360 3,588 Real estate - construction and development 573 251 Real estate - commercial and farmland 81 226 Real estate - residential 376 781 Total recoveries 9,999 7,838 Net charge-offs 5,433 6,874 Balance of allowance for credit losses on loans at end of period$ 172,642 $ 175,070
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 Six Months Ended
(dollars in thousands) June 30, 2022 June 30, 2021
Allowance for credit losses on loans at end of period
$ 175,070 Net charge-offs for the period 5,433 6,874 Loan balances: End of period 17,561,022 14,780,791 Average for the period 16,344,409 14,501,802 Net charge-offs as a percentage of average loans 0.07 % 0.10 %
(annualized)
Allowance for credit losses on loans as a percentage of end 0.98 % 1.18 %
of period loans
50--------------------------------------------------------------------------------
Loans
Loans are stated at amortized cost. Balances within the major loans receivable categories are presented in the following table:
(dollars in thousands) June 30, 2022 December 31, 2021 Commercial, financial and agricultural$ 2,022,845 $ 1,875,993 Consumer installment 167,237 191,298 Indirect automobile 172,245 265,779 Mortgage warehouse 949,191 787,837 Municipal 529,268 572,701 Premium finance 942,357 798,409 Real estate - construction and development 1,747,284
1,452,339
Real estate - commercial and farmland 7,156,017 6,834,917
Real estate - residential 3,874,578 3,094,985
$ 17,561,022 $ 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 $122.9 million at June 30, 2022 , an increase of $37.6
million , or 44.2%, from $85.3 million at December 31, 2021 . Accruing loans
delinquent 90 days or more totaled $8.5 million at June 30, 2022 , a decrease of
$4.1 million , or 32.5%, compared with $12.6 million at December 31, 2021 . At
June 30, 2022 , OREO totaled $835,000 , a decrease of $3.0 million , or 78.1%,
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 second quarter of 2022,
total non-performing assets as a percent of total assets increased to 0.56%
compared with 0.43% at December 31, 2021 .
Non-performing assets at June 30, 2022 and December 31, 2021 were as follows:
(dollars in thousands) June 30, 2022 December 31, 2021
Nonaccrual loans $ 122,912 $ 85,266
Accruing loans delinquent 90 days or more 8,542 12,648
Repossessed assets 122 84
Other real estate owned 835 3,810
Total non-performing assets $ 132,411 $ 101,808
51--------------------------------------------------------------------------------
Troubled Debt Restructurings
The restructuring of a loan is considered a "troubled debt restructuring" if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession.
As ofJune 30, 2022 andDecember 31, 2021 , the Company had a balance of$41.8 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 atJune 30, 2022 andDecember 31, 2021 : June 30, 2022 Accruing Loans Non-Accruing Loans Balance Balance Loan Class # (in thousands) # (in thousands) Commercial, financial and agricultural 9 $ 964 3 $ 364 Consumer installment 4 9 10 14 Indirect automobile 196 759 30 122 Premium finance 6 993 - - Real estate - construction and development 2 706 - - Real estate - commercial and farmland 18 8,213 4 788 Real estate - residential 210 24,456 31 4,369 Total 445$ 36,100 78$ 5,657 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 atJune 30, 2022 andDecember 31, 2021 : Loans Currently Paying Loans that have Defaulted Under June 30, 2022 Under Restructured Terms Restructured Terms Balance Balance Loan Class # (in thousands) # (in thousands) Commercial, financial and agricultural 11 $ 971 1 $ 357 Consumer installment 8 13 6 10 Indirect automobile 182 697 44 184 Premium finance 6 993 - - Real estate - construction and development 2 706 - - Real estate - commercial and farmland 21 8,993 1 8 Real estate - residential 198 23,052 43 5,773 Total 428$ 35,425 95$ 6,332 52
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Loans Currently Paying Loans that have Defaulted Under
December 31, 2021 Under Restructured Terms 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 June 30,
2022 and December 31, 2021 :
June 30, 2022 Accruing Loans Non-Accruing Loans
Balance Balance
Type of Concession # (in thousands) # (in thousands)
Forgiveness of interest 3 $ 283 - $ -
Forbearance of interest 15 1,070 1 41
Forbearance of principal 288 21,748 49 4,725
Rate reduction only 54 5,311 2 160
Rate reduction, forbearance of interest 32 2,385 2 25
Rate reduction, forbearance of principal 17 2,336 21 573
Rate reduction, forgiveness of interest 36 2,967 3 133
Total 445 $ 36,100 78 $ 5,657
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
53--------------------------------------------------------------------------------
The following table presents the amount of troubled debt restructurings by
collateral types, classified separately as accrual and nonaccrual at
June 30, 2022 Accruing Loans Non-Accruing Loans
Balance Balance
Collateral Type # (in thousands) # (in thousands)
Warehouse 3 $ 57 2 $ 251
Raw land 3 1,751 2 51
Hotel and motel 1 130 - -
Office 4 613 - -
Retail, including strip centers 7 3,978 1 496
1-4 family residential 210 24,456 30 4,359
Church 2 2,390 - -
Automobile/equipment/CD 209 1,732 43 500
Unsecured 6 993 - -
Total 445 $ 36,100 78 $ 5,657
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
54
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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 June 30, 2022 and December 31, 2021 . The loan categories
and concentrations below are based on Federal Reserve Call codes:
June 30, 2022 December 31, 2021
% of Total % of Total
(dollars in thousands) Balance Loans Balance Loans
Construction and development loans $ 1,747,284 10% $ 1,452,339 9%
Multi-family loans 693,382 4% 596,000 4%
Nonfarm non-residential loans (excluding
owner-occupied) 4,539,983 26% 4,341,436 27%
Total CRE Loans (excluding owner-occupied) 6,980,649 40% 6,389,775 40%
All other loan types 10,580,373 60% 9,484,483 60%
Total Loans $ 17,561,022 100% $ 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 June 30, 2022 and December 31, 2021 :
Internal Actual
Limit June 30, 2022 December 31, 2021
Construction and development loans 100% 72% 66%
Total CRE loans (excluding owner-occupied) 300% 288% 291%
Short-Term Investments
The Company's short-term investments are comprised of federal funds sold and
interest-bearing deposits in banks. At June 30, 2022 , the Company's short-term
investments were $1.96 billion , compared with $3.76 billion at December 31,
2021 . At June 30, 2022 , the Company had $5.0 million in federal funds sold and
$1.96 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$10.1 million and$11.9 million atJune 30, 2022 andDecember 31, 2021 , respectively, and a liability of$0 and$710,000 atJune 30, 2022 andDecember 31, 2021 , 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 ofJune 30, 2022 ,$41.7 million , or 952,910 shares of the Company's common stock, had been repurchased under the program. 55 --------------------------------------------------------------------------------
Capital Management
Capital management consists of providing equity to support both current and anticipated future operations. The capital resources of the Company are monitored on a periodic basis by state and federal regulatory authorities.
Under the regulatory capital frameworks adopted by theFederal Reserve Board (the "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 of
June 30, 2022 December 31, 2021
Tier 1 Leverage Ratio (tier 1 capital to average assets) Consolidated
9.01% 8.63%
Ameris Bank 10.30% 9.50%
CET1 Ratio (common equity tier 1 capital to risk weighted
assets)
Consolidated 10.11% 10.46%
Ameris Bank 11.54% 11.50%Tier 1 Capital Ratio (tier 1 capital to risk weighted assets) Consolidated
10.11% 10.46%
Ameris Bank 11.54% 11.50%
Total Capital Ratio (total capital to risk weighted assets)
Consolidated 13.27% 13.78%
Ameris Bank 12.61% 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. AtJune 30, 2022 andDecember 31, 2021 , the net carrying value of the Company's other borrowings was$425.6 million and$739.9 million , respectively. The following liquidity ratios compare certain assets and liabilities to total deposits or total assets: June 30, March 31, December 31, September 30, June 30, 2022 2022 2021 2021 2021 Investment securities available-for-sale to total deposits 5.35% 2.96% 3.01% 3.63% 4.26% Loans (net of unearned income) to total deposits 89.21% 82.41% 80.72% 78.71% 80.96% Interest-earning assets to total assets 89.88% 90.43% 90.56% 91.20% 90.79% Interest-bearing deposits to total deposits 58.02% 59.82% 60.46% 59.56% 61.75% 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 atJune 30, 2022 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.
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