Quarterly Report (10-q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2020
 
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number:  001-13901
ABCB-20200331_G1.JPG
AMERIS BANCORP
(Exact name of registrant as specified in its charter)


Georgia 58-1456434
(State of incorporation) (IRS Employer ID No.)

3490 Piedmont Rd N.E., Suite 1550
Atlanta Georgia 30305
(Address of principal executive offices)

(404) 639-6500
(Registrant’s telephone number) 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No   ¨
 
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý Accelerated filer ☐
       
Non-accelerated filer
☐ 
Smaller reporting company ☐
       
  Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐   No  ý



Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $1 per share ABCB Nasdaq Global Select Market

 There were 69,439,367 shares of Common Stock outstanding as of May 5, 2020.


AMERIS BANCORP
TABLE OF CONTENTS

    Page
     
PART I – FINANCIAL INFORMATION  
     
Item 1.  
     
 
1
     
 
2
     
 
3
     
 
4
     
 
6
     
Item 2.
40
     
Item 3.
59
     
Item 4.
60
     
 
     
Item 1.
60
     
Item 1A.
61
     
Item 2.
62
     
Item 3.
62
     
Item 4.
62
     
Item 5.
62
     
Item 6.
63
     
64
 
 




Item 1. Financial Statements.
 
AMERIS BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
(dollars in thousands, except per share data)
  March 31, 2020 December 31, 2019
Assets          
Cash and due from banks $ 255,312    $ 246,234   
Federal funds sold and interest-bearing deposits in banks 396,844    375,615   
Cash and cash equivalents 652,156    621,849   
Time deposits in other banks 249    249   
Investment securities available for sale, at fair value 1,353,040    1,403,403   
Other investments 81,754    66,919   
Loans held for sale, at fair value 1,398,229    1,656,711   
Loans, net of unearned income 13,094,106    12,818,476   
Allowance for credit losses (149,524)   (38,189)  
Loans, net 12,944,582    12,780,287   
Other real estate owned, net 21,027    19,500   
Premises and equipment, net 231,347    233,102   
Goodwill 931,947    931,637   
Other intangible assets, net 85,955    91,586   
Cash value of bank owned life insurance 176,239    175,270   
Deferred income taxes, net 24,196    2,180   
Other assets 323,827    259,886   
Total assets $ 18,224,548    $ 18,242,579   
Liabilities          
Deposits:          
Noninterest-bearing $ 4,226,253    $ 4,199,448   
Interest-bearing 9,618,365    9,827,625   
Total deposits 13,844,618    14,027,073   
Securities sold under agreements to repurchase 15,160    20,635   
Other borrowings 1,543,371    1,398,709   
Subordinated deferrable interest debentures 122,890    127,560   
FDIC loss-share payable, net 18,111    19,642   
Other liabilities 243,248    179,378   
Total liabilities 15,787,398    15,772,997   
Commitments and Contingencies (Note 11)
Shareholders’ Equity          
Preferred stock, stated value $1,000 (5,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2020 and December 31, 2019)
—    —   
Common stock, par value $1 (100,000,000 shares authorized; 71,651,986 and 71,499,829 shares issued at March 31, 2020 and December 31, 2019, respectively)
71,652    71,500   
Capital surplus 1,908,721    1,907,108   
Retained earnings 460,153    507,950   
Accumulated other comprehensive income (loss), net of tax 39,551    17,995   
Treasury stock, at cost (2,210,712 shares and 1,995,996 shares at March 31, 2020 and December 31, 2019, respectively)
(42,927)   (34,971)  
Total shareholders’ equity 2,437,150    2,469,582   
Total liabilities and shareholders’ equity $ 18,224,548    $ 18,242,579   

 See notes to unaudited consolidated financial statements.
1

AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income (unaudited)
(dollars in thousands, except per share data)
  Three Months Ended
March 31,
  2020 2019
Interest income    
Interest and fees on loans $ 171,242    $ 112,401   
Interest on taxable securities 10,082    9,043   
Interest on nontaxable securities 157    156   
Interest on deposits in other banks and federal funds sold 1,287    3,329   
Total interest income 182,768    124,929   
Interest expense    
Interest on deposits 24,102    21,684   
Interest on other borrowings 10,721    3,850   
Total interest expense 34,823    25,534   
Net interest income 147,945    99,395   
Provision for loan losses 37,047    3,408   
Provision for unfunded commitments 4,000    —   
Provision for credit losses 41,047    3,408   
Net interest income after provision for credit losses 106,898    95,987   
Noninterest income    
Service charges on deposit accounts 11,844    11,646   
Mortgage banking activity 35,333    14,677   
Other service charges, commissions and fees 1,128    789   
Net gain (loss) on securities (9)   66   
Other noninterest income 6,083    3,593   
Total noninterest income 54,379    30,771   
Noninterest expense    
Salaries and employee benefits 75,946    38,332   
Occupancy and equipment expense 12,028    8,204   
Data processing and communications expenses 11,954    8,391   
Credit resolution-related expenses 2,198    911   
Advertising and marketing expense 2,358    1,741   
Amortization of intangible assets 5,631    3,132   
Merger and conversion charges 540    2,057   
Other noninterest expenses 27,398    12,657   
Total noninterest expense 138,053    75,425   
Income before income tax expense 23,224    51,333   
Income tax expense 3,902    11,428   
Net income 19,322    39,905   
Other comprehensive income    
Net unrealized holding gains arising during period on investment securities available for sale, net of tax expense of $5,756 and $1,028
21,653    3,867   
Reclassification adjustment for gains on investment securities included in earnings, net of tax of $0 and $(12)
—    (46)  
Unrealized losses on cash flow hedges arising during period, net of tax benefit of $(26) and $(46)
(97)   (173)  
Other comprehensive income 21,556    3,648   
Total comprehensive income $ 40,878    $ 43,553   
Basic earnings per common share $ 0.28    $ 0.84   
Diluted earnings per common share $ 0.28    $ 0.84   
Weighted average common shares outstanding (in thousands)
   
Basic 69,248    47,366   
Diluted 69,502    47,456   
See notes to unaudited consolidated financial statements.
2

AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (unaudited)
(dollars in thousands)
Three Months Ended March 31, 2020
Common Stock Accumulated Other Comprehensive Income (Loss), Net of Tax Treasury Stock
Shares Amount Capital Surplus Retained Earnings Shares Amount Total Shareholders' Equity
Balance at beginning of period 71,499,829    $ 71,500    $ 1,907,108    $ 507,950    $ 17,995    1,995,996    $ (34,971)   $ 2,469,582   
Issuance of restricted shares 118,625    119    171    —    —    —    —    290   
Proceeds from exercise of stock options 33,532    33    668    —    —    —    —    701   
Share-based compensation —    —    774    —    —    —    —    774   
Purchase of treasury shares —    —    —    —    —    214,716    (7,956)   (7,956)  
Net income —    —    —    19,322    —    —    —    19,322   
Dividends on common shares ($0.15 per share)
—    —    —    (10,415)   —    —    —    (10,415)  
Cumulative effect of change in accounting for credit losses —    —    —    (56,704)   —    —    —    (56,704)  
Other comprehensive income (loss) during the period —    —    —    —    21,556    —    —    21,556   
Balance at end of period 71,651,986    $ 71,652    $ 1,908,721    $ 460,153    $ 39,551    2,210,712    $ (42,927)   $ 2,437,150   

Three Months Ended March 31, 2019
Common Stock Accumulated Other Comprehensive Income (Loss), Net of Tax Treasury Stock
Shares Amount Capital Surplus Retained Earnings Shares Amount Total Shareholders' Equity
Balance at beginning of period 49,014,925    $ 49,015    $ 1,051,584    $ 377,135    $ (4,826)   1,514,984    $ (16,561)   $ 1,456,347   
Issuance of restricted shares 103,794    103    812    —    —    —    —    915   
Proceeds from exercise of stock options 7,708    8    46    —    —    —    —    54   
Share-based compensation —    —    748    —    —    —    —    748   
Purchase of treasury shares —    —    —    —    —    26,134    (998)   (998)  
Net income —    —    —    39,905    —    —    —    39,905   
Dividends on common shares ($0.10 per share)
—    —    —    (4,759)   —    —    —    (4,759)  
Cumulative effect of change in accounting for leases —    —    —    (276)   —    —    —    (276)  
Other comprehensive income (loss) during the period —    —    —    —    3,648    —    —    3,648   
Balance at end of period 49,126,427    $ 49,126    $ 1,053,190    $ 412,005    $ (1,178)   1,541,118    $ (17,559)   $ 1,495,584   

See notes to unaudited consolidated financial statements. 
3

AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
  Three Months Ended
March 31,
  2020 2019
Operating Activities    
Net income $ 19,322    $ 39,905   
Adjustments reconciling net income to net cash provided by (used in) operating activities:    
Depreciation 3,916    2,623   
Net losses on sale or disposal of premises and equipment including write-downs 125    348   
Net write-downs on other assets 417    571   
Provision for credit losses 41,047    3,408   
Net losses on sale of other real estate owned including write-downs 885    9   
Share-based compensation expense 559    1,152   
Amortization of intangible assets 5,631    3,132   
Amortization of operating lease right-of-use assets 3,400    1,547   
Provision for deferred taxes (7,333)   2,963   
Net amortization of investment securities available for sale 1,385    819   
Net (gain) loss on securities 9    (66)  
Accretion of discount on purchased loans, net (6,320)   (2,632)  
Accretion on other borrowings 46    18   
Accretion on subordinated deferrable interest debentures 485    342   
Loan servicing asset impairment 22,165    —   
Originations of mortgage loans held for sale (1,252,379)   (296,197)  
Payments received on mortgage loans held for sale 14,957    194   
Proceeds from sales of mortgage loans held for sale 1,530,122    305,473   
Net gains on sale of mortgage loans held for sale (40,809)   (11,484)  
Originations of SBA loans (11,647)   (9,515)  
Proceeds from sales of SBA loans 20,062    11,870   
Net gains on sale of SBA loans (1,824)   (1,113)  
Increase in cash surrender value of bank owned life insurance (969)   (501)  
Changes in FDIC loss-share payable, net of cash payments (1,506)   1,141   
Change attributable to other operating activities (40,757)   5,670   
Net cash provided by operating activities 300,989    59,677   
Investing Activities, net of effects of business combinations    
Proceeds from maturities of time deposits in other banks —    3,441   
Purchases of securities available for sale —    (146,874)  
Proceeds from prepayments and maturities of securities available for sale 76,386    43,942   
Proceeds from sales of securities available for sale —    64,995   
Net (increase) decrease in other investments (14,844)   (694)  
Net (increase) decrease in loans (264,063)   24,041   
Purchases of premises and equipment (3,572)   (1,550)  
Proceeds from sales of premises and equipment —    275   
Proceeds from sales of other real estate owned 1,284    2,610   
Payments paid to FDIC under loss-share agreements (25)   (1,794)  
Net cash and cash equivalents received in acquisitions 2    —   
Net cash used in investing activities (204,832)   (11,608)  
    (Continued)

4

AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
  Three Months Ended
March 31,
  2020 2019
Financing Activities, net of effects of business combinations    
Net (decrease) increase in deposits $ (182,455)   $ 151,562   
Net decrease in securities sold under agreements to repurchase (5,475)   (16,125)  
Proceeds from other borrowings 2,770,000    —   
Repayment of other borrowings (2,625,084)   (338)  
Repayment of subordinated deferrable interest debentures (5,155)   —   
Proceeds from exercise of stock options 701    54   
Dividends paid - common stock (10,426)   (4,751)  
Purchase of treasury shares (7,956)   (998)  
Net cash provided by (used in) financing activities (65,850)   129,404   
Net increase in cash and cash equivalents 30,307    177,473   
Cash and cash equivalents at beginning of period 621,849    679,527   
Cash and cash equivalents at end of period $ 652,156    $ 857,000   
Supplemental Disclosures of Cash Flow Information    
Cash paid (received) during the period for:    
Interest $ 35,234    $ 25,741   
Income taxes (77)   49   
Loans transferred to other real estate owned 3,674    2,787   
Loans provided for the sales of other real estate owned 299    75   
Initial recognition of operating lease right-of-use assets —    27,286   
Initial recognition of operating lease liabilities —    29,651   
Right-of-use assets obtained in exchange for new operating lease liabilities 2,889    —   
Assets acquired in business acquisitions —    1,335   
Liabilities assumed in business acquisitions —    (792)  
Change in unrealized gain (loss) on securities available for sale, net of tax 21,653    3,821   
Change in unrealized gain (loss) on cash flow hedge, net of tax (97)   (173)  
    (Concluded)
 
See notes to unaudited consolidated financial statements.
 

5

AMERIS BANCORP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
March 31, 2020
 
NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES
 
Nature of Business

Ameris Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered in Atlanta, Georgia. Ameris conducts substantially all of its operations through its wholly owned banking subsidiary, Ameris Bank (the “Bank”). At March 31, 2020, the Bank operated 170 branches in select markets in Georgia, Alabama, Florida and South Carolina. Our business model capitalizes on the efficiencies of a large financial services company, while still providing the community with the personalized banking service expected by our customers. We manage our Bank through a balance of decentralized management responsibilities and efficient centralized operating systems, products and loan underwriting standards. The Company’s Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within our established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of his or her unique market.
 
Basis of Presentation

The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited but reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto and the report of our registered independent public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as amended.
 
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items in process of collection, amounts due from banks, interest-bearing deposits in banks and federal funds sold. The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank of Atlanta. The required reserve rate was set to 0% effective March 26, 2020 and, accordingly, the Bank had no reserve requirement at March 31, 2020. The reserve requirement as of December 31, 2019 was $109.7 million and was met by cash on hand and balances at the Federal Reserve Bank of Atlanta which are reported on the Company's consolidated balance sheets in cash and due from banks and federal funds sold and interest-bearing deposits in banks, respectively.

Reclassifications

Certain reclassifications of prior year amounts have been made to conform with the current year presentations. The reclassifications had no effect on net income or shareholders' equity as previously reported.
 
Accounting Standards Adopted in 2020

ASU 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). ASU 2018-15 requires that application development stage implementation costs incurred in a Cloud Computing Arrangement ("CCA") that are service contracts be capitalized and amortized over the term of the hosting arrangement, including renewal option terms if the customer entity is reasonably certain to exercise the option. Costs incurred in the preliminary project and post-implementation stages are expensed as incurred. Training costs and certain data conversion costs also cannot be capitalized for a CCA that is a service contract. Amortization expense of capitalized implementation costs will be presented in the same income statement caption as the CCA fees. Similarly, capitalized implementation costs will be presented in the same balance sheet caption as any prepaid CCA fees, and cash flows from capitalized implementation costs will be classified in the statement of cash flows in the same manner as payments made for the CCA fees. The requirements of ASU 2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the adoption date. ASU 2018-15 is
6

effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. During the first quarter of 2020, the Company adopted the provision of ASU 2018-15, and the adoption did not have a material impact on the Company's consolidated financial statements.

ASU 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13). ASU 2018-13 changes fair value measurement disclosure requirements by removing certain requirements, modifying certain requirements and adding certain new requirements. Disclosure requirements removed include the following: transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for determining when transfers between any of the three levels have occurred; the valuation processes for Level 3 measurements; and the changes in unrealized gains or losses presented in earnings for Level 3 instruments held at end of the reporting period. Disclosure requirements that have been modified include the following: for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee's assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and clarification that the Level 3 measurement uncertainty disclosure should communicate information about the uncertainty at the balance sheet date. New disclosure requirements include the following: the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 instruments held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used for Level 3 measurements or disclosure of other quantitative information in place of the weighted average to the extent that it would be a more reasonable and rational method to reflect the distribution of unobservable inputs. ASU 2018-13 is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. During the first quarter of 2020, the Company adopted the provision of ASU 2018-13, and the adoption did not have a material impact on the Company's consolidated financial statements.

ASU 2017-04 – Intangibles: Goodwill and Other: Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 from the goodwill impairment test to simplify the subsequent measurement of goodwill. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The standard must be adopted using a prospective basis and the nature and reason for the change in accounting principle should be disclosed upon transition. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in reporting periods beginning after December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. During the first quarter of 2020, the Company adopted the provision of ASU 2017-04, and the adoption did not have a material impact on the Company's consolidated financial statements.

ASU 2016-13 – Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current incurred loss approach with an expected loss model, referred to as the current expected credit loss (“CECL”) model. The new standard will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. ASU 2016-13 simplifies the accounting for purchased credit-impaired debt securities and loans and expands the disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Upon adoption, ASU 2016-13 provides for a modified retrospective transition by means of a cumulative effect adjustment to equity as of the beginning of the period in which the guidance is effective.

The Company adopted ASU 2016-13 and all related subsequent amendments thereto effective January 1, 2020 using the modified retrospective approach. The Company recognized an increase in the allowance for credit losses on loans of $78.7 million, an increase in the allowance for unfunded commitments of $12.7 million and a reduction of retained earnings of $56.7 million, net of the increase in deferred tax assets of $19.0 million.

The Company adopted ASU 2016-13 using the prospective transition approach for purchased financial assets with credit deterioration ("PCD") that were previously classified as purchased credit impaired ("PCI") and accounted for under ASU 310-30. In accordance with ASU 2016-13, the Company did not reassess whether PCI assets met the criteria of PCD assets as
7

of the date of adoption. The Company determined $15.6 million of existing discounts on PCD loans was related to credit factors and was reclassified to the ACL upon adoption. The remaining discount on the PCD assets was determined to be related to noncredit factors and will be accreted into interest income on a level-yield method over the life of the loans.

In addition, for available-for-sale debt securities, the new methodology replaces the other-than-temporary impairment model and requires the recognition of an allowance for reductions in a security’s fair value attributable to declines in credit quality, instead of a direct write-down of the security, when a valuation decline is determined to be other-than-temporary. There was no financial impact related to this implementation. The Company has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest in other assets in the consolidated balance sheets. A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to debt securities reversed against interest income for the three months ended March 31, 2020 and 2019. Accrued interest receivable on available-for-sale debt securities totaled $5.3 million as of March 31, 2020. Refer to Note 3 for additional information.

Allowance for Credit Losses – Loans

Under the current expected credit loss model, the allowance for credit losses (“ACL”) on loans is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

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. Accrued interest receivable on loans is reported in other assets on the consolidated balance sheets and totaled $43.6 million at March 31, 2020.

Expected credit losses are reflected in the allowance for credit losses through a charge to provision for credit losses. 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 uses the discounted cash flow (“DCF”) method, the vintage method, the PD×LGD method or a qualitative approach as discussed further below.

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 it can no longer develop reasonable and supportable forecasts.

The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:

Commercial, financial, and agricultural - These loans include both secured and unsecured loans for working capital, expansion, crop production and other business purposes. Commercial, financial and agricultural loans also include certain U.S. Small Business Administration (“SBA”) loans. Short-term working capital loans are secured by non-real estate collateral such as accounts receivable, crops, inventory and equipment. The Bank evaluates the financial strength, cash flow, management, credit history of the borrower and the quality of the collateral securing the loan. The Bank often requires personal guarantees and secondary sources of repayment on commercial, financial and agricultural loans.

Consumer installment - These loans include home improvement loans, direct automobile loans, boat and recreational vehicle financing, and both secured and unsecured personal loans. Consumer loans carry greater risks than other loans, as the collateral
8

can consist of rapidly depreciating assets such as automobiles and equipment that may not provide an adequate source of repayment of the loan in the case of default.

Indirect automobile - Indirect automobile loans are secured by automobile collateral, generally new and used cars and trucks from auto dealers that operate within selected states. Repayment of these loans depends largely on the personal income of the borrowers which can be affected by changes in economic conditions such as unemployment levels. Collateral consists of rapidly depreciating assets that may not provide an adequate source of repayment of the loan in the event of default.

Mortgage warehouse - Mortgage Warehouse facilities are provided to unaffiliated mortgage origination companies and are collateralized by one-to-four family residential loans or mortgage servicing rights. The originator closes new mortgage loans with the intent to sell these loans to third party investors for a profit. The Bank provides funding to the mortgage companies for the period between the origination and their sale of the loan. The Bank has a policy that requires that it separately validate that each residential mortgage loan was underwritten consistent with the underwriting requirements of the final investor or market standards prior to advancing funds. The Bank is repaid with the proceeds received from sale of the mortgage loan to the final investor.

Municipal - Municipal loans consists of loans made to counties, municipalities and political subdivisions. The source of repayment for these loans is either general revenue of the municipality or revenues of the project being financed by the loan. These loans may be secured by real estate, machinery, equipment or assignment of certain revenues.

Premium Finance - Premium finance provides loans for the acquisition of certain commercial insurance policies. Repayment of these loans is dependent on the cash flow of the insured which can be affected by changes in economic conditions. The Bank has procedures in place to cancel the insurance policy after default by the borrower to minimize the risk of loss.

Real Estate - Construction and Development - Construction and development loans include loans for the development of residential neighborhoods, one-to-four family home residential construction loans to builders and consumers, and commercial real estate construction loans, primarily for owner-occupied and investment properties. The Company limits its construction lending risk through adherence to established underwriting procedures.

Real Estate - Commercial and Farmland - Commercial real estate loans include loans secured by owner-occupied commercial buildings for office, storage, retail, farmland and warehouse space. They also include non-owner occupied commercial buildings such as leased retail and office space. Commercial real estate loans may be larger in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent on successful operation or management of the properties.

Real Estate - Residential - The Company's residential loans represent permanent mortgage financing and are secured by residential properties located within the Bank's market areas. Residential real estate loans also include purchased loan pools secured by residential properties located outside the Bank's market area.

Discounted Cash Flow Method

The Company uses the discounted cash flow method to estimate expected credit losses for the commercial, financial and agricultural, consumer installment, real estate - construction and development, real estate - commercial and farmland and real estate - residential loan segments. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data adjusted based upon peer data.

The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, the Company uses a combination of national and regional data including gross domestic product, home price indices, unemployment rates, retail sales, and rental vacancy rates depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses.

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

9

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An ACL is established for the difference between the instrument’s NPV and amortized cost basis.

Vintage Method

The Company uses a vintage method to estimate expected credit losses for the indirect automobile loans segment. The Company’s vintage analysis is based on loss rates by origination date and includes data on loan amounts, loan charge-offs and recoveries by date. Using this information, vintage tables are created to evaluate loss rate patterns and develop estimated losses by vintage year. Once the tables have been calculated, reserves are estimated by multiplying the balance of a given origination year by the remaining loss to be experienced by that vintage.

PD×LGD Method

The Company uses the PD×LGD method to estimate expected credit losses (“EL”) for the premium finance and municipal loan segments. Under the PD×LGD method, the loss rate is a function of two components: (1) the lifetime default rate (“PD”); and (2) the loss given default (“LGD”). For the premium finance loan segment, calculations of lifetime default rates and corresponding loss given default rates of static pools are performed. The PD×LGD method uses the default rates and loss given default rates of different static pools to quantify the relationship between those rates and the credit mix of the pools and applies that relationship on a going forward basis. The Company has not incurred any historical defaults or charge offs in its municipal portfolio. Therefore, in lieu of historical loss rates, the Company applies historical benchmarking PD and LGD ratios provided by a reputable and independent third party to the current municipal loan balance.

Qualitative Factors

The Company uses qualitative factors for model risk uncertainty as well as for loan segment specific risks that cannot be addressed in the quantitative methods. In particular, the warehouse loan segment uses a qualitative factor for fraud losses based upon historical fraud loss data since the Company has not experienced any credit related losses in this loan segment to date.

Individually Evaluated Assets

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring.

A loan that has been modified or renewed is considered a troubled debt restructuring (“TDR”) when two conditions are met: (1) the borrower is experiencing financial difficulty; and (2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics. The Company’s ACL reflects all effects of a TDR when an individual asset is specifically identified as a reasonably expected TDR. The Company has determined that a TDR is reasonably expected no later than the point when the lender concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession from the lender to avoid a default. Reasonably expected TDRs and executed non-performing TDRs are evaluated individually to determine the required ACL. TDRs performing in accordance with their modified contractual terms for a reasonable period of time may be included in the Company’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.

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Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’s consolidated statements of income. The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees and is included in other liabilities on the Company’s consolidated balance sheets.

Guidance on Non-TDR Loan Modifications due to COVID-19

In April 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued a revised interagency statement encouraging financial institutions to work with customers affected by the novel coronavirus pandemic (“COVID-19”) and providing additional information regarding loan modifications. The revised interagency statement clarifies the interaction between the interagency statement issued on March 22, 2020 and the temporary relief provided by Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Section 4013 allows financial institutions to suspend the requirements to classify certain loan modifications as troubled debt restructurings (“TDRs”). The revised statement also provides supervisory interpretations on past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital. This interagency guidance is expected to reduce the number of TDRs that will be reported in future periods; however, the amount is indeterminable and will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

Accounting Standards Pending Adoption

ASU No. 2020-04 – Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides optional guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments, which are elective, provide expedients and exceptions for applying GAAP to contract modifications and hedging relationships affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate that is expected to be discontinued due to reference rate reform. The optional expedients for contract modifications apply consistently for all contracts or transactions within the relevant Codification Topic, Subtopic, or Industry Subtopic that contains the guidance that otherwise would be required to be applied, while those for hedging relationships can be elected on an individual hedging relationship basis. Because the guidance is intended to assist stakeholders during the global market-wide reference rate transition period, it is in effect for a limited time, from March 12, 2020 through December 31, 2022. The Company has established a working committee with representatives from relevant functional areas to inventory the contracts and accounts that are tied to LIBOR and develop a transition plan for the affected items. The Company is currently evaluating the impact of adopting ASU 2020-04 on the consolidated financial statements.

ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain technical exceptions. ASU 2019-12 also clarifies and amends the accounting for income taxes in certain areas including, among others: (i) franchise taxes that are partially based on income; (ii) whether step ups in the tax basis of goodwill should be considered part of the acquisition to which it related or recognized as a separate transaction; and (iii) requiring the effect of an enacted change in tax laws or rates to be reflected in the annual effective tax rate computation in the interim period that includes the enactment date. The Company expects to apply the amendments in this update on a modified retrospective basis for the provision related to franchise taxes and prospectively for all other amendments. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated balance sheet, consolidated statement of income and comprehensive income, consolidated statement of shareholders’ equity and consolidated statement of cash flows, but it is not expected to have a material impact.

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NOTE 2 – BUSINESS COMBINATIONS

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

Fidelity Southern Corporation

On July 1, 2019, the Company completed its acquisition of Fidelity Southern Corporation ("Fidelity"), a bank holding company headquartered in Atlanta, Georgia. Upon consummation of the acquisition, Fidelity was merged with and into the Company, with Ameris as the surviving entity in the merger, and Fidelity's wholly owned banking subsidiary, Fidelity Bank, was merged with and into the Bank, with the Bank surviving. The acquisition expanded the Company's existing market presence in Georgia and Florida, as Fidelity Bank had a total of 62 branches at the time of closing, 46 of which were located in Georgia and 16 of which were located in Florida. Under the terms of the merger agreement, Fidelity's shareholders received 0.80 shares of Ameris common stock for each share of Fidelity common stock they previously held. As a result, the Company issued 22,181,522 shares of its common stock at a fair value of $869.3 million to Fidelity's shareholders as merger consideration.

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The following table presents the assets acquired and liabilities assumed of Fidelity as of July 1, 2019, and their fair value estimates. The fair value estimates were subject to refinement for up to one year after the closing date of the acquisition for new information obtained about facts and circumstances that existed at the acquisition date. The Company continues its evaluation of the facts and circumstances available as of July 1, 2019, to assign fair values to assets acquired and liabilities assumed, which could result in further adjustments to the fair values presented below. At March 31, 2020, management continues to evaluate fair value adjustments related to loans, premises, intangibles, interest-bearing deposits, other borrowings, subordinated deferrable interest debentures and deferred taxes.
(dollars in thousands) As Recorded
by Fidelity 		Initial
Fair Value
Adjustments 		Subsequent
Adjustments 		As Recorded
by Ameris
Assets
Cash and due from banks $ 26,264    $ —    $ 2    (o) $ 26,266   
Federal funds sold and interest-bearing deposits in banks 217,936    —    —    217,936   
Investment securities 299,341    (1,444)   (a)   —    297,897   
Other investments 7,449    —    —    7,449   
Loans held for sale 328,657    (1,290)   (b)   —    327,367   
Loans 3,587,412    (79,002)   (c)   3,235    (p) 3,511,645   
Less allowance for loan losses (31,245)   31,245    (d)   —    —   
     Loans, net 3,556,167    (47,757)   3,235    3,511,645   
Other real estate owned 7,605    (427)   (e)   —    7,178   
Premises and equipment 93,662    11,407    (f)   (2,431)   (q) 102,638   
Other intangible assets, net 10,670    39,940    (g)   —    50,610   
Cash value of bank owned life insurance 72,328    —    —    72,328   
Deferred income taxes, net 104    (104)   (h)   —    —   
Other assets 157,863    998    (i)   (14,710)   (r) 144,151   
     Total assets $ 4,778,046    $ 1,323    $ (13,904)   $ 4,765,465   
Liabilities
Deposits:
     Noninterest-bearing $ 1,301,829    $ —    $ —    $ 1,301,829   
     Interest-bearing 2,740,552    942    (j)   —    2,741,494   
          Total deposits 4,042,381    942    —    4,043,323   
Securities sold under agreements to repurchase 22,345    —    —    22,345   
Other borrowings 149,367    2,265    (k)   (300)   (s) 151,332   
Subordinated deferrable interest debentures 46,393    (9,675)   (l)   —    36,718   
Deferred tax liability, net 12,222    (11,401)   (m)   7,694    (t) 8,515   
Other liabilities 65,027    538    (n)   (839)   (u) 64,726   
     Total liabilities 4,337,735    (17,331)   6,555    4,326,959   
Net identifiable assets acquired over (under) liabilities assumed 440,311    18,654    (20,459)   438,506   
Goodwill —    410,348    20,459    430,807   
Net assets acquired over liabilities assumed $ 440,311    $ 429,002    $ —    $ 869,313   
Consideration:
     Ameris Bancorp common shares issued 22,181,522   
     Price per share of the Company's common stock 39.19   
          Company common stock issued $ 869,294   
          Cash exchanged for shares $ 19   
     Fair value of total consideration transferred $ 869,313   
____________________________________________________________

Explanation of fair value adjustments
(a)Adjustment reflects the fair value adjustments of the portfolio of investment securities as of the acquisition date.
(b)Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired loans held for sale.
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(c)Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired loan portfolio, net of the reversal of Fidelity's unamortized accounting adjustments from Fidelity's prior acquisitions, loan premiums, loan discounts, deferred loan origination costs and deferred loan origination fees.
(d)Adjustment reflects the elimination of Fidelity's allowance for loan losses.
(e)Adjustment reflects the fair value adjustment based on the Company's evaluation of the acquired OREO portfolio.
(f)Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired premises and equipment.
(g)Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts, net of reversal of Fidelity's remaining intangible assets from its past acquisitions.
(h)Adjustment reflects the reclassification of Fidelity's deferred tax asset against the deferred tax liability.
(i)Adjustment reflects the fair value adjustment to other assets.
(j)Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired deposits.
(k)Adjustment reflects the fair value adjustment to the other borrowings at the acquisition date, net of reversal of Fidelity's unamortized deferred issuance costs.
(l)Adjustment reflects the fair value adjustment to the subordinated deferrable interest debentures at the acquisition date.
(m)Adjustment reflects the deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes and reclassification of Fidelity's deferred tax asset against the deferred tax liability.
(n)Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired other liabilities.
(o)Subsequent to acquisition, cash and due from banks were adjusted for Fidelity reconciling items
(p)Adjustment reflects additional recording of fair value adjustments of the acquired loan portfolio.
(q)Adjustment reflects additional recording of fair value adjustments to premises and equipment.
(r)Adjustment reflects additional recording of fair value adjustments to other assets and includes a reclassification of deferred income taxes to current income taxes.
(s)Adjustment reflects additional recording of fair value adjustments to other borrowings.
(t)Adjustment reflects additional recording of deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes and includes a reclassification of deferred income taxes to current income taxes.
(u)Adjustment reflects additional recording of fair value adjustments to other liabilities.

Goodwill of $430.8 million, which is the excess of the purchase price over the fair value of net assets acquired, was recorded in the Fidelity acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

In the acquisition, the Company purchased $3.51 billion of loans at fair value, net of $75.8 million, or 2.11%, estimated discount to the acquired carrying value. Of the total loans acquired, management identified $120.7 million that were considered to be credit impaired and were accounted for under ASC Topic 310-30 prior to the adoption of ASC 326 on January 1, 2020. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of the acquisition date for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

(dollars in thousands)
Contractually required principal and interest $ 191,534   
Non-accretable difference (23,668)  
Cash flows expected to be collected 167,866   
Accretable yield (47,173)  
Total purchased credit-impaired loans acquired $ 120,693   

The following table presents the acquired loan data for the Fidelity acquisition.
(dollars in thousands) Fair Value of
Acquired Loans at
Acquisition Date 		Gross Contractual
Amounts Receivable
at Acquisition Date 		Estimate at
Acquisition Date of
Contractual Cash
Flows Not Expected
to be Collected
Acquired receivables subject to ASC 310-30 $ 120,693    $ 191,534    $ 23,668   
Acquired receivables not subject to ASC 310-30 $ 3,390,952    $ 4,217,890    $ 32,466   

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Pro Forma Financial Information

The results of operations of Fidelity subsequent to its acquisition date are included in the Company’s consolidated statements of income and comprehensive income. The following unaudited pro forma information reflects the Company’s estimated consolidated results of operations as if the acquisitions had occurred on January 1, 2019, unadjusted for potential cost savings. Merger and conversion charges are not included in the pro forma information below.
Three Months Ended
March 31,
(dollars in thousands, except per share data; shares in thousands) 2020 2019
Net interest income and noninterest income $ 202,324    $ 192,254   
Net income $ 19,750    $ 47,853   
Net income available to common shareholders $ 19,750    $ 47,853   
Income per common share available to common shareholders – basic $ 0.29    $ 0.69   
Income per common share available to common shareholders – diluted $ 0.28    $ 0.69   
Average number of shares outstanding, basic 69,248    69,548   
Average number of shares outstanding, diluted 69,502    69,638   

NOTE 3 – INVESTMENT SECURITIES
 
The amortized cost and estimated fair value of securities available for sale along with gross unrealized gains and losses are summarized as follows:
(dollars in thousands) Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Estimated
Fair
Value
March 31, 2020
U.S. government sponsored agencies $ 22,227    $ 484    $ —    $ 22,711   
State, county and municipal securities 94,318    2,785    —    97,103   
Corporate debt securities 51,700    495    (127)   52,068   
SBA pool securities 68,909    1,484    (118)   70,275   
Mortgage-backed securities 1,065,512    45,552    (181)   1,110,883   
Total debt securities $ 1,302,666    $ 50,800    $ (426)   $ 1,353,040   
December 31, 2019
U.S. government sponsored agencies $ 22,246    $ 116    $ —    $ 22,362   
State, county and municipal securities 102,952    2,310    (2)   105,260   
Corporate debt securities 51,720    1,281    (2)   52,999   
SBA pool securities 73,704    617    (409)   73,912   
Mortgage-backed securities 1,129,816    19,937    (883)   1,148,870   
Total debt securities $ 1,380,438    $ 24,261    $ (1,296)   $ 1,403,403   

The amortized cost and estimated fair value of debt securities available for sale securities as of March 31, 2020, by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying these securities may be called or repaid without penalty. Therefore, these securities are not included in the maturity categories in the following maturity summary:
(dollars in thousands)
Amortized
Cost 		Estimated
Fair
Value
Due in one year or less $ 32,753    $ 33,022   
Due from one year to five years 60,227    61,576   
Due from five to ten years 82,608    84,851   
Due after ten years 61,566    62,708   
Mortgage-backed securities 1,065,512    1,110,883   
  $ 1,302,666    $ 1,353,040   
 
Securities with a carrying value of approximately $658.5 million serve as collateral to secure public deposits, securities sold under agreements to repurchase and for other purposes required or permitted by law at March 31, 2020, compared with $679.6 million at December 31, 2019.
 
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The following table shows the gross unrealized losses and estimated fair value of securities aggregated by category and length of time that securities have been in a continuous unrealized loss position at March 31, 2020 and December 31, 2019.
  Less Than 12 Months 12 Months or More Total
(dollars in thousands) Estimated
Fair
Value 		Unrealized
Losses 		Estimated
Fair
Value 		Unrealized
Losses 		Estimated
Fair
Value 		Unrealized
Losses
March 31, 2020            
State, county and municipal securities $ 548    $ —    $ —    $ —    $ 548    $ —   
Corporate debt securities 13,438    (127)   —    —    13,438    (127)  
SBA pool securities 3,814    (13)   4,168    (105)   7,982    (118)  
Mortgage-backed securities 12,250    (112)   2,297    (69)   14,547    (181)  
Total debt securities $ 30,050    $ (252)   $ 6,465    $ (174)   $ 36,515    $ (426)  
December 31, 2019            
State, county and municipal securities $ 803    $ (2)   $ —    $ —    $ 803    $ (2)  
Corporate debt securities 2,573    (2)   —    —    2,573    (2)  
SBA pool securities 28,521    (285)   4,825    (124)   33,346    (409)  
Mortgage-backed securities 99,279    (416)   52,326    (467)   151,605    (883)  
Total debt securities $ 131,176    $ (705)   $ 57,151    $ (591)   $ 188,327    $ (1,296)  
 
As of March 31, 2020, the Company’s security portfolio consisted of 547 securities, 24 of which were in an unrealized loss position. At March 31, 2020, the Company held nine mortgage-backed securities that were in an unrealized loss position, all of which were issued by U.S. government-sponsored entities and agencies. At March 31, 2020, the Company held ten SBA pool securities, one state, county and municipal security and four corporate securities that were in an unrealized loss position.

During 2020 and 2019, the Company received timely and current interest and principal payments on all of the securities classified as corporate debt securities. The Company’s investments in subordinated debt include investments in regional and super-regional banks on which the Company prepares regular analysis through review of financial information and credit ratings. Investments in preferred securities are also concentrated in the preferred obligations of regional and super-regional banks through non-pooled investment structures. The Company did not have investments in “pooled” trust preferred securities at March 31, 2020 or December 31, 2019.
 
Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate securities in an unrealized loss position on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation, to determine if credit-related impairment exists. Management first evaluates whether they intend to sell or more likely than not will be required to sell an impaired security before recovering its amortized cost basis. If either criteria is met, the entire amount of unrealized loss is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. If either of the above criteria is not met, management evaluates whether the decline in fair value is attributable to credit or resulted from other factors. The Company does not intend to sell these investment securities at an unrealized loss position at March 31, 2020, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Based on the results of management's review, at March 31, 2020, management believes the unrealized losses have resulted from factors other than credit and no allowance for credit losses was recorded.
 
At March 31, 2020 and December 31, 2019, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.
 
The following table is a summary of sales activities in the Company’s investment securities available for sale for the three months ended March 31, 2020 and 2019:
(dollars in thousands) March 31, 2020 March 31, 2019
Gross gains on sales of securities $ —    $ 522   
Gross losses on sales of securities —    (464)  
Net realized gains on sales of securities available for sale $ —    $ 58   
Sales proceeds $ —    $ 64,995   

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Total gain (loss) on securities reported on the consolidated statements of income and comprehensive income is comprised of the following for the three months ended March 31, 2020 and 2019:
(dollars in thousands) March 31, 2020 March 31, 2019
Net realized gains on sales of securities available for sale $ —    $ 58   
Unrealized holding gains (losses) on equity securities (9)   8   
Total gain (loss) on securities $ (9)   $ 66   

NOTE 4 – LOANS

The Bank engages in a full complement of lending activities, including real estate-related loans, agriculture-related loans, commercial and financial loans and consumer installment loans within select markets in Georgia, Alabama, Florida and South Carolina. The Bank purchased residential mortgage loan pools during 2015 and 2016 collateralized by properties located outside our Southeast markets, specifically in California, Washington and Illinois. During the third quarter of 2016, the Bank began purchasing from unrelated third parties consumer installment home improvement loans made to borrowers throughout the United States. The Bank also offers certain SBA and commercial insurance premium finance loans nationally.

The Bank concentrates the majority of its lending activities in real estate loans. While risk of loss in the Company’s portfolio is primarily tied to the credit quality of the various borrowers, risk of loss may increase due to factors beyond the Company’s control, such as local, regional and/or national economic downturns. General conditions in the real estate market may also impact the relative risk in the real estate portfolio. A substantial portion of the Bank’s loans are secured by real estate in the Bank’s primary market area. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio is susceptible to changes in real estate conditions in the Bank’s primary market area.

Loans are stated at amortized cost. Balances within the major loans receivable categories are presented in the following table:
(dollars in thousands) March 31, 2020 December 31, 2019
Commercial, financial and agricultural $ 827,392    $ 802,171   
Consumer installment 520,592    498,577   
Indirect automobile 937,736    1,061,824   
Mortgage warehouse 547,328    526,369   
Municipal 749,633    564,304   
Premium finance 661,845    654,669   
Real estate – construction and development 1,628,367    1,549,062   
Real estate – commercial and farmland 4,516,451    4,353,039   
Real estate – residential 2,704,762    2,808,461   
  $ 13,094,106    $ 12,818,476   
 
The following is a summary of changes in the accretable discounts of purchased loans during the three months ended March 31, 2019:
(dollars in thousands) March 31, 2019
Balance, January 1 $ 40,496   
Additions due to acquisitions —   
Accretion (2,980)  
Accretable discounts removed due to charge-offs —   
Transfers between non-accretable and accretable discounts, net (1,869)  
Ending balance $ 35,647   
 
Nonaccrual and Past-Due Loans

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged against interest income. Interest on loans that are classified as nonaccrual is subsequently applied to principal until the loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are
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brought current and future payments are reasonably assured. Past-due loans are loans whose principal or interest is past due 30 days or more. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the original contractual terms.

The following table presents an analysis of loans accounted for on a nonaccrual basis:
(dollars in thousands) March 31, 2020 December 31, 2019
Commercial, financial and agricultural $ 10,457    $ 9,236   
Consumer installment 897    831   
Indirect automobile 1,732    1,746   
Premium finance 579    600   
Real estate – construction and development 2,437    1,988   
Real estate – commercial and farmland 26,575    23,797   
Real estate – residential 35,189    36,926   
  $ 77,866    $ 75,124   

There was no interest income recognized on nonaccrual loans during the three months ended March 31, 2020.

The following table presents an analysis of nonaccrual loans with no related allowance for credit losses:

(dollars in thousands) March 31, 2020
Real estate – commercial and farmland $ 610   
Real estate – residential 2,772   
$ 3,382   


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The following table presents an analysis of past-due loans as of March 31, 2020 and December 31, 2019:
(dollars in thousands) Loans
30-59
Days Past
Due 		Loans
60-89
Days
Past Due 		Loans 90
or More
Days Past
Due 		Total
Loans
Past Due 		Current
Loans 		Total
Loans 		Loans 90
Days or
More Past
Due and
Still
Accruing
March 31, 2020              
Commercial, financial and agricultural $ 5,511    $ 1,510    $ 6,211    $ 13,232    $ 814,160    $ 827,392    $ —   
Consumer installment 3,784    1,432    1,416    6,632    513,960    520,592    856   
Indirect automobile 4,698    712    1,462    6,872    930,864    937,736    10   
Mortgage warehouse —    —    —    —    547,328    547,328    —   
Municipal —    —    —    —    749,633    749,633    —   
Premium finance 9,066    2,031    11,665    22,762    639,083    661,845    11,086   
Real estate – construction and development 9,363    655    2,390    12,408    1,615,959    1,628,367    —   
Real estate – commercial and farmland 19,944    2,500    18,699    41,143    4,475,308    4,516,451    —   
Real estate – residential 34,179    9,939    30,691    74,809    2,629,953    2,704,762    22   
Total $ 86,545    $ 18,779    $ 72,534    $ 177,858    $ 12,916,248    $ 13,094,106    $ 11,974   
December 31, 2019              
Commercial, financial and agricultural $ 3,609    $ 2,251    $ 6,484    $ 12,344    $ 789,827    $ 802,171    $ —   
Consumer installment 3,488    1,336    1,452    6,276    492,301    498,577    922   
Indirect automobile 5,978    1,067    1,522    8,567    1,053,257    1,061,824    21   
Mortgage warehouse —    —    —    —    526,369    526,369    —   
Municipal —    —    —    —    564,304    564,304    —   
Premium finance 13,801    8,022    5,411    27,234    627,435    654,669    4,811   
Real estate – construction and development 7,785    1,224    1,583    10,592    1,538,470    1,549,062    —   
Real estate – commercial and farmland 7,404    3,405    15,598    26,407    4,326,632    4,353,039    —   
Real estate – residential 46,226    15,277    31,083    92,586    2,715,875    2,808,461    —   
Total $ 88,291    $ 32,582    $ 63,133    $ 184,006    $ 12,634,470    $ 12,818,476    $ 5,754   

Collateral-Dependent Loans

Collateral-dependent loans are loans where repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment. These loans are written down to the lower of cost or collateral value less estimated selling costs. As of March 31, 2020, there were $70.0 million of collateral-dependent loans which are primarily secured by real estate, equipment and receivables.
 
19

Impaired Loans

Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company would be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considered the borrower’s capacity to pay, which included such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. The Company individually assessed for impairment all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000 (including all troubled debt restructurings, whether or not currently classified as such). The tables below include all loans deemed impaired, whether or not individually assessed for impairment. If a loan was deemed impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured, in which case interest was recognized on a cash basis.
 
The following is a summary of information pertaining to impaired loans: 
  As of and for the Period Ended
(dollars in thousands) December 31, 2019 March 31, 2019
Nonaccrual loans $ 75,124    $ 41,879   
Troubled debt restructurings not included above 29,609    30,906   
Total impaired loans $ 104,733    $ 72,785   
Quarter-to-date interest income recognized on impaired loans $ 1,201    $ 854   
Quarter-to-date foregone interest income on impaired loans $ 1,044    $ 729   
 
The following table presents an analysis of information pertaining to impaired loans as of December 31, 2019 and March 31, 2019:
(dollars in thousands) Unpaid
Contractual
Principal
Balance 		Recorded
Investment
With No
Allowance 		Recorded
Investment
With
Allowance 		Total
Recorded
Investment 		Related
Allowance 		Three
Month
Average
Recorded
Investment
December 31, 2019            
Commercial, financial and agricultural $ 18,438    $ 1,911    $ 7,840    $ 9,751    $ 1,542    $ 9,073   
Consumer installment 2,179    839    —    839    —    420   
Indirect automobile 1,845    1,746    —    1,746    —    1,481   
Premium finance 757    —    757    757    156    758   
Real estate – construction and development 4,893    1,319    1,605    2,924    204    5,277   
Real estate – commercial and farmland 42,515    12,147    18,381    30,528    953    30,749   
Real estate – residential 62,675    13,413    44,775    58,188    3,592    70,723   
Total $ 133,302    $ 31,375    $ 73,358    $ 104,733    $ 6,447    $ 118,481   

(dollars in thousands) Unpaid
Contractual
Principal
Balance 		Recorded
Investment
With No
Allowance 		Recorded
Investment
With
Allowance 		Total
Recorded
Investment 		Related 
Allowance 		Three
 Month
Average
Recorded
Investment
March 31, 2019            
Commercial, financial and agricultural $ 12,886    $ 3,666    $ 1,687    $ 5,353    $ 180    $ 4,126   
Consumer installment 1,133    1,031    —    1,030    —    1,031   
Real estate – construction and development 15,022    1,226    7,103    8,329    706    8,250   
Real estate – commercial and farmland 20,514    2,209    15,406    17,615    1,248    18,414   
Real estate – residential 42,918    15,715    24,742    40,458    1,341    39,634   
Total $ 92,473    $ 23,847    $ 48,938    $ 72,785    $ 3,475    $ 71,455   
 
20

Credit Quality Indicators

The Company uses a nine category risk grading system to assign a risk grade to each loan in the portfolio. The following is a description of the general characteristics of the grades:
 
Grade 1 – Prime Credit – This grade represents loans to the Company’s most creditworthy borrowers or loans that are secured by cash or cash equivalents.
 
Grade 2 – Strong Credit – This grade includes loans that exhibit one or more characteristics better than that of a Good Credit. Generally, the debt service coverage and borrower’s liquidity is materially better than required by the Company’s loan policy.
 
Grade 3 – Good Credit – This grade is assigned to loans to borrowers who exhibit satisfactory credit histories, contain acceptable loan structures and demonstrate ability to repay.

Grade 4 – Satisfactory Credit – This grade includes loans which exhibit all the characteristics of a Good Credit, but warrant more than normal level of banker supervision due to (i) circumstances which elevate the risks of performance (such as start-up operations, untested management, heavy leverage and interim losses); (ii) adverse, extraordinary events that have affected, or could affect, the borrower’s cash flow, financial condition, ability to continue operating profitability or refinancing (such as death of principal, fire and divorce); (iii) loans that require more than the normal servicing requirements (such as any type of construction financing, acquisition and development loans, accounts receivable or inventory loans and floor plan loans); (iv) existing technical exceptions which raise some doubts about the Bank’s perfection in its collateral position or the continued financial capacity of the borrower; or (v) improvements in formerly criticized borrowers, which may warrant banker supervision.
 
Grade 5 – Fair Credit – This grade is assigned to loans that are currently performing and supported by adequate financial information that reflects repayment capacity but exhibits a loan-to-value ratio greater than 110%, based on a documented collateral valuation. Certain loans approved for modification in response to the COVID-19 pandemic were assigned risk grade 5 out of an abundance of caution.

Grade 6 – Other Assets Especially Mentioned – This grade includes loans that exhibit potential weaknesses that deserve management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.
 
Grade 7 – Substandard – This grade represents loans which are inadequately protected by the current credit worthiness and paying capacity of the borrower or of the collateral pledged, if any. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses or questionable collateral values.
 
Grade 8 – Doubtful – This grade includes loans which exhibit all of the characteristics of a substandard loan with the added provision that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable or improbable.
 
Grade 9 – Loss – This grade is assigned to loans which are considered uncollectible and of such little value that their continuance as active assets of the Bank is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing it off.
 
21

The following table presents the loan portfolio's amortized cost by class of financing receivable, risk grade and year of origination (in thousands). Generally, current period renewals of credit are underwritten again at the point of renewal and considered current period originations for purposes of the table below. There were no loans risk graded 9 at March 31, 2020.

Term Loans
As of March 31, 2020
2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Amortized Cost Basis Total
Commercial, Financial and Agricultural
Risk Grade:
1 $ 1,492    $ 4,751    $ 2,019    $ 771    $ 696    $ 5,647    $ 8,098    $ —    $ 23,474   
2 38    1,413    957    6,503    117    2,409    6,413    —    17,850   
3 29,139    66,134    22,793    18,347    10,487    6,613    78,883    —    232,396   
4 17,656    99,490    104,684    60,227    25,697    30,166    112,462    —    450,382   
5 7,082    14,084    12,095    11,354    3,017    11,995    16,199    —    75,826   
6 —    390    1,530    649    270    1,269    1,845    —    5,953   
7 —    333    1,158    2,599    711    3,738    12,733    —    21,272   
8 —    239    —    —    —    —    —    —    239   
Total commercial, financial and agricultural loans $ 55,407    $ 186,834    $ 145,236    $ 100,450    $ 40,995    $ 61,837    $ 236,633    $ —    $ 827,392   
Consumer Installment
Risk Grade:
1 $ 1,973    $ 6,918    $ 2,697    $ 1,065    $ 200    $ 112    $ 624    $ —    $ 13,589   
2 —    5    86    3    —    96    43    —    233   
3 5,623    12,432    5,632    2,162    2,016    954    3,735    —    32,554   
4 68,942    139,741    145,674    81,547    21,034    11,078    4,104    —    472,120   
5 10    58    20    69    91    385    9    —    642   
6 —    15    14    5    51    81    —    —    166   
7 —    193    143    175    213    452    112    —    1,288   
Total consumer installment $ 76,548    $ 159,362    $ 154,266    $ 85,026    $ 23,605    $ 13,158    $ 8,627    $ —    $ 520,592   
Indirect Automobile
Risk Grade:
2 $ —    $ —    $ 141    $ 40    $ 9,226    $ 6,177    $ —    $ —    $ 15,584   
3 —    50,064    269,735    291,917    175,293    129,460    —    —    916,469   
4 —    996    —    —    —    —    —    —    996   
7 —    35    473    711    1,594    1,874    —    —    4,687   
Total indirect automobile $ —    $ 51,095    $ 270,349    $ 292,668    $ 186,113    $ 137,511    $ —    $ —    $ 937,736   
Mortgage Warehouse
Risk Grade:
3 $ —    $ —    $ —    $ —    $ —    $ —    $ 547,328    $ —    $ 547,328   
Total mortgage warehouse $ —    $ —    $ —    $ —    $ —    $ —    $ 547,328    $ —    $ 547,328   
22

Term Loans
As of March 31, 2020
2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Amortized Cost Basis Total
Municipal
Risk Grade:
1 $ 199,851    $ 12,806    $ 36,333    $ 178,779    $ 176,282    $ 133,614    $ —    $ —    $ 737,665   
2 —    —    —    —    —    2,639    —    —    2,639   
3 —    806    —    6,300    —    1,627    —    —    8,733   
4 —    —    —    —    —    596    —    —    596   
Total municipal $ 199,851    $ 13,612    $ 36,333    $ 185,079    $ 176,282    $ 138,476    $ —    $ —    $ 749,633   
Premium Finance
Risk Grade:
2 $ 324,711    $ 320,085    $ 2,751    $ 1,352    $ 321    $ 960    $ —    $ —    $ 650,180   
7 —    7,990    113    —    3,466    96    —    —    11,665   
Total premium finance $ 324,711    $ 328,075    $ 2,864    $ 1,352    $ 3,787    $ 1,056    $ —    $ —    $ 661,845   
Real Estate – Construction and Development
Risk Grade:
2 $ —    $ —    $ —    $ —    $ —    $ 22    $ —    $ —    $ 22   
3 29,824    83,506    24,815    7,930    4,192    10,450    1,487    —    162,204   
4 94,621    638,391    302,673    102,194    13,439    38,513    88,208    —    1,278,039   
5 17    36,633    45,990    16,283    22,066    17,361    24,323    —    162,673   
6 —    3,889    7,595    2,805    761    4,719    115    —    19,884   
7 —    607    354    642    103    3,715    124    —    5,545   
Total real estate – construction and development $ 124,462    $ 763,026    $ 381,427    $ 129,854    $ 40,561    $ 74,780    $ 114,257    $ —    $ 1,628,367   
Real Estate – Commercial and Farmland
Risk Grade:
1 $ —    $ —    $ 204    $ —    $ —    $ —    $ —    $ —    $ 204   
2 842    574    579    2,248    5,310    17,267    1,998    —    28,818   
3 120,521    397,469    173,358    232,985    218,717    341,457    64,639    —    1,549,146   
4 66,287    421,177    370,277    280,928    231,586    538,615    31,941    —    1,940,811   
5 46,316    125,732    103,005    177,642    152,518    246,543    3,410    —    855,166   
6 —    7,793    8,615    8,363    13,160    33,336    355    —    71,622   
7 1,117    1,242    3,073    5,507    11,038    48,232    475    —    70,684   
Total real estate – commercial and farmland $ 235,083    $ 953,987    $ 659,111    $ 707,673    $ 632,329    $ 1,225,450    $ 102,818    $ —    $ 4,516,451   
23

Term Loans
As of March 31, 2020
2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Amortized Cost Basis Total
Real Estate - Residential
Risk Grade:
1 $ —    $ —    $ —    $ —    $ —    $ 25    $ —    $ —    $ 25   
2 —    428    32    130    1,686    66,302    1,869    —    70,447   
3 130,436    560,981    355,435    267,876    215,327    551,033    240,959    1,956    2,324,003   
4 8,257    22,733    26,359    14,195    14,311    71,260    53,612    61    210,788   
5 101    3,671    2,340    4,482    5,142    15,730    5,354    —    36,820   
6 —    1,295    894    200    335    5,438    1,097    —    9,259   
7 323    8,321    7,001    8,083    3,475    19,624    6,593    —    53,420   
Total real estate - residential $ 139,117    $ 597,429    $ 392,061    $ 294,966    $ 240,276    $ 729,412    $ 309,484    $ 2,017    $ 2,704,762   


The following table presents the loan portfolio by risk grade as of December 31, 2019 (in thousands): 
Risk
Grade  		Commercial,
Financial and
Agricultural 		Consumer Installment Indirect Automobile Mortgage Warehouse Municipal Premium Finance Real Estate -
Construction and
Development 		Real Estate -
Commercial and
Farmland 		Real Estate -
Residential 		Total
1 $ 22,396    $ 13,184    $ —    $ —    $ 552,062    $ —    $ —    $ 208    $ 27    $ 587,877   
2 18,937    1,233    18,354    —    2,690    654,069    17,535    35,299    92,255    840,372   
3 215,180    33,314    1,033,861    526,369    8,925    —    90,124    1,720,039    2,406,587    6,034,399   
4 482,146    449,224    4,009    —    627    —    1,377,674    2,348,083    222,779    4,884,542   
5 33,317    208    —    —    —    —    41,759    133,119    24,618    233,021   
6 4,901    213    —    —    —    —    17,223    53,941    10,132    86,410   
7 25,294    1,191    5,600    —    —    600    4,747    62,350    52,063    151,845   
8 —    8    —    —    —    —    —    —    —    8   
9 —    2    —    —    —    —    —    —    —    2   
Total $ 802,171    $ 498,577    $ 1,061,824    $ 526,369    $ 564,304    $ 654,669    $ 1,549,062    $ 4,353,039    $ 2,808,461    $ 12,818,476   
 

24

Troubled Debt Restructurings
 
The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession. Concessions may include interest rate reductions to below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. The Company has exhibited the greatest success for rehabilitation of the loan by a reduction in the rate alone (maintaining the amortization of the debt) or a combination of a rate reduction and the forbearance of previously past due interest or principal. This has most typically been evidenced in certain commercial real estate loans whereby a disruption in the borrower’s cash flow resulted in an extended past due status, of which the borrower was unable to catch up completely as the cash flow of the property ultimately stabilized at a level lower than its original level. A reduction in rate, coupled with a forbearance of unpaid principal and/or interest, allowed the net cash flows to service the debt under the modified terms.
 
The Company’s policy requires a restructure request to be supported by a current, well-documented credit evaluation of the borrower’s financial condition and a collateral evaluation that is no older than six months from the date of the restructure. Key factors of that evaluation include the documentation of current, recurring cash flows, support provided by the guarantor(s) and the current valuation of the collateral. If the appraisal in the file is older than six months, an evaluation must be made as to the continued reasonableness of the valuation. For certain income-producing properties, current rent rolls and/or other income information can be utilized to support the appraisal valuation, when coupled with documented cap rates within our markets and a physical inspection of the collateral to validate the current condition.
 
The Company’s policy states that in the event a loan has been identified as a troubled debt restructuring, it should be assigned a grade of substandard and placed on nonaccrual status until such time the borrower has demonstrated the ability to service the loan payments based on the restructured terms – generally defined as six months of satisfactory payment history. Missed payments under the original loan terms are not considered under the new structure; however, subsequent missed payments are considered non-performance and are not considered toward the six month required term of satisfactory payment history. The Company’s loan policy states that a nonaccrual loan may be returned to accrual status when (i) none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest or (ii) it otherwise becomes well secured and in the process of collection. Restoration to accrual status on any given loan must be supported by a well-documented credit evaluation of the borrower’s financial condition and the prospects for full repayment and approved by the Company’s Chief Credit Officer.
 
In the normal course of business, the Company renews loans with a modification of the interest rate or terms that are not deemed as troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first three months of 2020 and 2019 totaling $71.3 million and $26.9 million, respectively, under such parameters. During the three months ended March 31, 2020, the Company additionally modified $147.8 million in loans for borrowers impacted by the COVID-19 pandemic. These modifications primarily consisted of short-term payment deferrals or interest-only periods to assist customers. Modifications related to the COVID-19 pandemic and qualifying under the provisions of Section 4013 of the CARES Act are not deemed as troubled debt restructurings.
 
As of March 31, 2020 and December 31, 2019, the Company had a balance of $36.2 million and $35.2 million, respectively, in troubled debt restructurings. The Company has recorded $2.0 million and $1.9 million in previous charge-offs on such loans at March 31, 2020 and December 31, 2019, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $2.7 million and $3.7 million at March 31, 2020 and December 31, 2019, respectively. At March 31, 2020, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.
 
25

During the three months ended March 31, 2020 and 2019, the Company modified loans as troubled debt restructurings with principal balances of $1.0 million and $2.9 million, respectively, and these modifications did not have a material impact on the Company’s allowance for loan loss. The following table presents the loans by class modified as troubled debt restructurings which occurred during the three months ended March 31, 2020 and 2019: 
  March 31, 2020 March 31, 2019
Loan Class #
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural — $ —    1 $ 7   
Consumer installment 1 9    6 45   
Real estate – construction and development — —    — —   
Real estate – commercial and farmland 1 64    1 33   
Real estate – residential 8 903    17 2,849   
Total 10 $ 976    25 $ 2,934   
Troubled debt restructurings with an outstanding balance of $3.0 million and $1.7 million defaulted during the three months ended March 31, 2020 and 2019, respectively, and these defaults did not have a material impact on the Company’s allowance for loan loss. The following table presents for loans the troubled debt restructurings by class that defaulted (defined as 30 days past due) during the three months ended March 31, 2020 and 2019: 
  March 31, 2020 March 31, 2019
Loan Class #
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural 1 $ 200    1 $ 3   
Consumer installment — —    2 28   
Real estate – construction and development 2 287    — —   
Real estate – commercial and farmland 2 681    1 163   
Real estate – residential 19 1,800    15 1,474   
Total 24 $ 2,968    19 $ 1,668   
 
The following table presents the amount of troubled debt restructurings by loan class classified separately as accrual and nonaccrual at March 31, 2020 and December 31, 2019: 
March 31, 2020 Accruing Loans Non-Accruing Loans
Loan Class #
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural 5 $ 575    15 $ 334   
Consumer installment 4 4    27 105   
Premium finance 1 159    — —   
Real estate – construction and development 5 925    4 289   
Real estate – commercial and farmland 19 5,587    9 2,415   
Real estate – residential 212 22,775    39 3,078   
Total 246 $ 30,025    94 $ 6,221   

December 31, 2019 Accruing Loans Non-Accruing Loans
Loan Class #
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural 5 $ 516    17 $ 335   
Consumer installment 4 8    27 107   
Premium finance 1 156    — —   
Real estate – construction and development 6 936    3 253   
Real estate – commercial and farmland 21 6,732    8 2,071   
Real estate – residential 197 21,261    40 2,857   
Total 234 $ 29,609    95 $ 5,623   
 
 Allowance for Credit Losses
 
The allowance for credit losses represents an allowance for expected losses over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company reasonably expects to execute a troubled debt restructuring with a borrower. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio.
26

 
Loan losses are charged against the allowance when management believes the collection of a loan’s principal is unlikely. Subsequent recoveries are credited to the allowance. Consumer loans are charged off in accordance with the Federal Financial Institutions Examination Council’s (“FFIEC”) Uniform Retail Credit Classification and Account Management Policy. Commercial loans are charged off when they are deemed uncollectible, which usually involves a triggering event within the collection effort. If the loan is collateral dependent, the loss is more easily identified and is charged off when it is identified, usually based upon receipt of an appraisal. However, when a loan has guarantor support, the Company may carry the estimated loss as a reserve against the loan while collection efforts with the guarantor are pursued. If, after collection efforts with the guarantor are complete, the deficiency is still considered uncollectible, the loss is charged off and any further collections are treated as recoveries. In all situations, when a loan is downgraded to an Asset Quality Rating of 9 (Loss per the regulatory guidance), the uncollectible portion is charged off.

During the three months ended, March 31, 2020, the allowance for credit losses increases primarily due to deterioration in forecasted macroeconomic factors resulting from the COVID-19 pandemic. The current forecast reflects, among other things, a decline in GDP and elevated unemployment levels through the forecast period compared to the forecast at the time of adoption of ASC 326 on January 1, 2020. In addition, a specific qualitative factor was incorporated to reflect elevated collection risk in our premium finance loan segment resulting from governmental requirements to defer insurance premium loan payments for 60 days to borrowers experiencing financial difficulty in New York and New Jersey and allow deferred payments to be paid equally over twelve months.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three-month periods ended March 31, 2020 and March 31, 2019 and end of period balances by portfolio segment as of March 31, 2020, December 31, 2019 and March 31, 2019. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Three Months Ended March 31, 2020
(dollars in thousands) Commercial,
Financial and
Agricultural 		Consumer
Installment 		Indirect Automobile Mortgage Warehouse Municipal Premium Finance
Balance, December 31, 2019 $ 4,567    $ 3,784    $ —    $ 640    $ 484    $ 2,550   
Adjustment to allowance for adoption of ASU 2016-13 2,587    8,012    4,109    463    (92)   4,471   
Provision for loan losses 3,080    4,149    564    (1)   130    4,634   
Loans charged off (2,486)   (1,142)   (1,231)   —    —    (831)  
Recoveries of loans previously charged off 362    643    22    —    —    684   
Balance, March 31, 2020 $ 8,110    $ 15,446    $ 3,464    $ 1,102    $ 522    $ 11,508   
Real Estate – Construction and Development Real Estate –
Commercial and
Farmland 		Real Estate –
Residential 		Total
Balance, December 31, 2019 $ 5,995    $ 9,666    $ 10,503    $ 38,189   
Adjustment to allowance for adoption of ASU 2016-13 12,248    27,073    19,790    78,661   
Provision for loan losses 6,734    15,858    1,899    37,047   
Loans charged off —    (928)   (100)   (6,718)  
Recoveries of loans previously charged off 342    85    207    2,345   
Balance, March 31, 2020 $ 25,319    $ 51,754    $ 32,299    $ 149,524   

27

Prior to the adoption of ASC 326 on January 1, 2020, the Company calculated the allowance for loan losses under the incurred loss methodology. The following tables are disclosures related to the allowance for loan losses in prior periods.

(dollars in thousands) Commercial,
Financial and
Agricultural 		Consumer
Installment 		Indirect Automobile Mortgage Warehouse Municipal Premium Finance
December 31, 2019
Period-end allocation:            
Loans individually evaluated for impairment (1)
$ 1,543    $ —    $ —    $ —    $ —    $ 758   
Loans collectively evaluated for impairment 3,024    3,784    —    640    484    1,792   
Ending balance $ 4,567    $ 3,784    $ —    $ 640    $ 484    $ 2,550   
Loans:            
Individually evaluated for impairment (1)
$ 8,032    $ —    $ —    $ —    $ —    $ 6,768   
Collectively evaluated for impairment 789,252    498,363    1,056,811    526,369    564,304    647,901   
Acquired with deteriorated credit quality 4,887    214    5,013    —    —    —   
Ending balance $ 802,171    $ 498,577    $ 1,061,824    $ 526,369    $ 564,304    $ 654,669   
Real Estate – Construction and Development Real Estate –
Commercial and
Farmland 		Real Estate –
Residential 		Total
December 31, 2019
Period-end allocation:
Loans individually evaluated for impairment (1)
$ 204    $ 953    $ 3,704    $ 7,162   
Loans collectively evaluated for impairment 5,791    8,713    6,799    31,027   
Ending balance $ 5,995    $ 9,666    $ 10,503    $ 38,189   
Loans:
Individually evaluated for impairment (1)
$ 1,605    $ 19,759    $ 46,311    $ 82,475   
Collectively evaluated for impairment 1,532,786    4,256,397    2,737,095    12,609,278   
Acquired with deteriorated credit quality 14,671    76,883    25,055    126,723   
Ending balance $ 1,549,062    $ 4,353,039    $ 2,808,461    $ 12,818,476   
 
(1) At December 31, 2019, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.

28

(dollars in thousands) Commercial,
Financial and
Agricultural 		Consumer
Installment 		Indirect Automobile Mortgage Warehouse Municipal Premium Finance
Three Months Ended
March 31, 2019 		           
Balance, December 31, 2018 $ 2,352    $ 3,795    $ —    $ 640    $ 509    $ 1,426   
Provision for loan losses 300    1,823    —    —    (1)   714   
Loans charged off (684)   (1,897)   —    —    —    (1,320)  
Recoveries of loans previously charged off 222    215    —    —    —    1,010   
Balance, March 31, 2019 $ 2,190    $ 3,936    $ —    $ 640    $ 508    $ 1,830   
Period-end allocation:            
Loans individually evaluated for impairment (1)
$ 180    $ —    $ —    $ —    $ —    $ 500   
Loans collectively evaluated for impairment 2,010    3,936    —    640    508    1,330   
Ending balance $ 2,190    $ 3,936    $ —    $ 640    $ 508    $ 1,830   
Loans:            
Individually evaluated for impairment (1)
$ 1,687    $ —    $ —    $ —    $ —    $ 2,106   
Collectively evaluated for impairment 627,690    462,976    —    296,372    591,302    485,874   
Acquired with deteriorated credit quality 2,220    129    —    —    —    —   
Ending balance $ 631,597    $ 463,105    $ —    $ 296,372    $ 591,302    $ 487,980   
Real Estate – Construction and Development Real Estate –
Commercial and
Farmland 		Real Estate –
Residential 		Total
Three Months Ended
March 31, 2019
Balance, December 31, 2018 $ 4,210    $ 9,659    $ 6,228    $ 28,819   
Provision for loan losses 122    792    (342)   3,408   
Loans charged off (25)   (1,254)   (199)   (5,379)  
Recoveries of loans previously charged off 117    40    207    1,811   
Balance, March 31, 2019 $ 4,424    $ 9,237    $ 5,894    $ 28,659   
Period-end allocation:
Loans individually evaluated for impairment (1) $ 706    $ 1,248    $ 1,342    $ 3,976   
Loans collectively evaluated for impairment 3,718    7,989    4,552    24,683   
Ending balance $ 4,424    $ 9,237    $ 5,894    $ 28,659   
Loans:
Individually evaluated for impairment (1) $ 7,103    $ 15,406    $ 24,912    $ 51,214   
Collectively evaluated for impairment 901,586    3,106,929    1,876,367    8,349,096   
Acquired with deteriorated credit quality 7,287    53,117    19,276    82,029   
Ending balance $ 915,976    $ 3,175,452    $ 1,920,555    $ 8,482,339   
 
(1) At March 31, 2019, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.

29

NOTE 5 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Company classifies the sales of securities under agreements to repurchase as short-term borrowings. The amounts received under these agreements are reflected as a liability in the Company’s consolidated balance sheets and the investment securities underlying these agreements are included in investment securities in the Company’s consolidated balance sheets. At March 31, 2020 and December 31, 2019, all securities sold under agreements to repurchase mature on a daily basis. The market value of the securities fluctuate on a daily basis due to market conditions. The Company monitors the market value of the securities underlying these agreements on a daily basis and is required to transfer additional securities if the market value of the securities falls below the repurchase agreement price. The Company maintains an unpledged securities portfolio that it believes is sufficient to protect against a decline in the market value of the securities sold under agreements to repurchase.
 
The following is a summary of the Company’s securities sold under agreements to repurchase at March 31, 2020 and December 31, 2019.
(dollars in thousands) March 31, 2020 December 31, 2019
Securities sold under agreements to repurchase $ 15,160    $ 20,635   
 
At March 31, 2020 and December 31, 2019 the investment securities underlying these agreements were comprised of state, county and municipal securities and mortgage-backed securities.
30

NOTE 6 – OTHER BORROWINGS
 
Other borrowings consist of the following:
(dollars in thousands) March 31, 2020 December 31, 2019
FHLB borrowings:    
Fixed Rate Advance due January 10, 2020; fixed interest rate of 1.68%
$ —    $ 50,000   
Fixed Rate Advance due January 13, 2020; fixed interest rate of 1.68%
—    50,000   
Fixed Rate Advance due January 13, 2020; fixed interest rate of 1.67%
—    100,000   
Fixed Rate Advance due January 15, 2020; fixed interest rate of 1.71%
—    50,000   
Fixed Rate Advance due January 16, 2020; fixed interest rate of 1.69%
—    150,000   
Fixed Rate Advance due January 17, 2020; fixed interest rate of 1.70%
—    100,000   
Fixed Rate Advance due January 21, 2020; fixed interest rate of 1.71%
—    50,000   
Fixed Rate Advance due January 21, 2020; fixed interest rate of 1.71%
—    200,000   
Fixed Rate Advance due January 21, 2020; fixed interest rate of 1.70%
—    25,000   
Fixed Rate Advance due January 21, 2020; fixed interest rate of 1.71%
—    75,000   
Fixed Rate Advance due January 21, 2020; fixed interest rate of 1.71%
—    25,000   
Fixed Rate Advance due January 23, 2020; fixed interest rate of 1.71%
—    100,000   
Fixed Rate Advance due January 27, 2020; fixed interest rate of 1.73%
—    50,000   
Fixed Rate Advance due February 18, 2020; fixed interest rate of 1.72%
—    100,000   
Fixed Rate Advance due April 13, 2020; fixed interest rate of 1.68%
100,000    —   
Fixed Rate Advance due April 13, 2020; fixed interest rate of 0.72%
50,000    —   
Fixed Rate Advance due April 16, 2020; fixed interest rate of 0.65%
250,000    —   
Fixed Rate Advance due April 17, 2020; fixed interest rate of 1.70%
150,000    —   
Fixed Rate Advance due April 20, 2020; fixed interest rate of 0.35%
25,000    —   
Fixed Rate Advance due April 27, 2020; fixed interest rate of 0.18%
50,000    —   
Fixed Rate Advance due May 21, 2020; fixed interest rate of 1.70%
100,000    —   
Fixed Rate Advance due May 26, 2020; fixed interest rate of 0.324%
50,000    —   
Fixed Rate Advance due June 11, 2020; fixed interest rate of 1.71%
100,000    —   
Fixed Rate Advance due June 19, 2020; fixed interest rate of 0.35%
100,000    —   
Fixed Rate Advance due June 23, 2020; fixed interest rate of 0.36%
100,000    —   
Fixed Rate Advance due June 29, 2020; fixed interest rate of 0.18%
50,000    —   
Fixed Rate Advance due July 23, 2020; fixed interest rate of 0.38%
100,000    —   
Fixed Rate Advance due March 3, 2025; fixed interest rate of 1.208%
15,000    —   
Fixed Rate Advance due March 2, 2027; fixed interest rate of 1.445%
15,000    —   
Fixed Rate Advance due March 4, 2030; fixed interest rate of 1.606%
15,000    —   
Fixed Rate Advance due December 9, 2030; fixed interest rate of 4.55%
1,420    1,422   
Fixed Rate Advance due December 9, 2030; fixed interest rate of 4.55%
983    985   
Principal Reducing Advance due September 29, 2031; fixed interest rate of 3.095%
1,675    1,712   
Subordinated notes payable:    
Subordinated notes payable due March 15, 2027 net of unamortized debt issuance cost of $911 and $943, respectively; fixed interest rate of 5.75% through March 14, 2022; variable interest rate thereafter at three-month LIBOR plus 3.616%
74,089    74,057   
Subordinated notes payable due December 15, 2029 net of unamortized debt issuance cost of $2,347 and $2,408, respectively; fixed interest rate of 4.25% through December 14, 2024; variable interest rate thereafter at three-month SOFR plus 2.94%
117,653    117,592   
Subordinated notes payable due May 31, 2030 net of unaccreted purchase accounting fair value adjustment of $(1,252) and $(1,596), respectively; fixed interest rate of 5.875% through May 31, 2025; variable interest rate thereafter at three-month LIBOR plus 3.63%
76,252    76,595   
Other debt:    
Advance from correspondent bank due September 5, 2026; secured by a loan receivable; fixed interest rate of 2.09%
1,299    1,346   
Total $ 1,543,371    $ 1,398,709   
 
The advances from the FHLB are collateralized by a blanket lien on all eligible first mortgage loans and other specific loans in addition to FHLB stock. At March 31, 2020, $1.64 billion was available for borrowing on lines with the FHLB.
 
As of March 31, 2020, the Bank maintained credit arrangements with various financial institutions to purchase federal funds up to $157.0 million.
31

 
The Bank also participates in the Federal Reserve discount window borrowings program. At March 31, 2020, the Company had $2.31 billion of loans pledged at the Federal Reserve discount window and had $1.47 billion available for borrowing.
 
NOTE 7 – SHAREHOLDERS’ EQUITY

Common Stock Repurchase Program

On September 19, 2019, the Company announced that its Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock. Repurchases of shares, which are authorized to occur through October 31, 2020, will be made, if at all, 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 repurchase of any specific number of shares. As of March 31, 2020, $14.3 million, or 358,664 shares, of the Company's common stock had been repurchased under the new program.

Fidelity Acquisition

On July 1, 2019, the Company issued 22,181,522 shares of its common stock to the shareholders of Fidelity. Such shares had a value of $39.19 per share at the time of issuance, resulting in an increase in shareholders’ equity of $869.3 million.

For additional information regarding the Fidelity acquisition, see Note 2.

NOTE 8 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
Accumulated other comprehensive income (loss) for the Company consists of changes in net unrealized gains and losses on investment securities available for sale and interest rate swap derivatives. The reclassification for gains included in net income is recorded in gain (loss) on securities in the consolidated statement of income and comprehensive income. The following tables present a summary of the accumulated other comprehensive income (loss) balances, net of tax, as of March 31, 2020 and 2019:
(dollars in thousands)
Unrealized
Gain (Loss)
on Derivatives
Unrealized
Gain (Loss)
on Securities
Accumulated
Other Comprehensive
Income (Loss)
Balance, January 1, 2020 $ (147)   $ 18,142    $ 17,995   
Reclassification for gains included in net income, net of tax —    —    —   
Current year changes, net of tax (97)   21,653    21,556   
Balance, March 31, 2020 $ (244)   $ 39,795    $ 39,551   

(dollars in thousands) 
Unrealized
Gain (Loss)
on Derivatives
Unrealized
Gain (Loss)
on Securities
Accumulated
Other Comprehensive
Income (Loss)
Balance, January 1, 2019 $ 351    $ (5,177)   $ (4,826)  
Reclassification for gains included in net income, net of tax —    (46)   (46)  
Current year changes, net of tax (173)   3,867    3,694   
Balance, March 31, 2019 $ 178    $ (1,356)   $ (1,178)  
 
NOTE 9 – WEIGHTED AVERAGE SHARES OUTSTANDING

Earnings per share have been computed based on the following weighted average number of common shares outstanding: 
  Three Months Ended
March 31,
(share data in thousands) 2020 2019
Average common shares outstanding 69,248    47,366   
Common share equivalents:    
Stock options 93    —   
Nonvested restricted share grants 161    90   
Average common shares outstanding, assuming dilution 69,502    47,456   
32

 
For the three-month periods ended March 31, 2020 and 2019, there were no potential common shares with strike prices that would cause them to be anti-dilutive.
 
NOTE 10 – FAIR VALUE MEASURES
 
The fair value of an asset or liability is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair value is based on discounted cash flows or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability. The accounting standard for disclosures about the fair value measures excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
 
The Company's loans held for sale under the fair value option are comprised of the following:
(dollars in thousands) March 31, 2020 December 31, 2019
Mortgage loans held for sale $ 1,396,010    $ 1,647,900   
SBA loans held for sale 2,219    8,811   
Total loans held for sale $ 1,398,229    $ 1,656,711   
 
The Company has elected to record mortgage loans held for sale at fair value in order to eliminate the complexities and inherent difficulties of achieving hedge accounting and to better align reported results with the underlying economic changes in value of the loans and related hedge instruments. This election impacts the timing and recognition of origination fees and costs, as well as servicing value, which are now recognized in earnings at the time of origination. Interest income on mortgage loans held for sale is recorded on an accrual basis in the consolidated statements of income and comprehensive income under the heading interest income – interest and fees on loans. The servicing value is included in the fair value of the interest rate lock commitments (“IRLCs”) with borrowers. The mark to market adjustments related to mortgage loans held for sale and the associated economic hedges are captured in mortgage banking activities. A net gain of $15.1 million and a net loss of $150,000 resulting from fair value changes of these mortgage loans were recorded in income during the three months ended March 31, 2020 and 2019, respectively. A net loss of $2.6 million and a net gain $2.5 million resulting from changes in the fair value of the related derivative financial instruments used to hedge exposure to the market-related risks associated with these mortgage loans were recorded in income during the three months ended March 31, 2020 and 2019, respectively. The change in fair value of both mortgage loans held for sale and the related derivative financial instruments are recorded in mortgage banking activity in the consolidated statements of income and comprehensive income. The Company’s valuation of mortgage loans held for sale incorporates an assumption for credit risk; however, given the short-term period that the Company holds these loans, valuation adjustments attributable to instrument-specific credit risk is nominal.
 
The following table summarizes the difference between the fair value and the principal balance for mortgage loans held for sale measured at fair value as of March 31, 2020 and December 31, 2019:
(dollars in thousands) 
March 31, 2020 December 31, 2019
Aggregate fair value of mortgage loans held for sale $ 1,396,010    $ 1,647,900   
Aggregate unpaid principal balance of mortgage loans held for sale 1,331,108    1,598,057   
Past-due loans of 90 days or more 2,823    1,649   
Nonaccrual loans 2,823    1,649   
Unpaid principal balance of nonaccrual loans 2,706    1,616   
 
The following table summarizes the difference between the fair value and the principal balance for SBA loans held for sale measured at fair value as of March 31, 2020 and December 31, 2019:
(dollars in thousands) 
March 31, 2020 December 31, 2019
Aggregate fair value of SBA loans held for sale $ 2,219    $ 8,811   
Aggregate unpaid principal balance of SBA loans held for sale 1,987    8,206   
Past-due loans of 90 days or more —    —   
Nonaccrual loans —    —   

33

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale, loans held for sale and derivative financial instruments are recorded at fair value on a recurring basis. From time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as collateral-dependent impaired loans, loan servicing rights and OREO. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.
 
The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of March 31, 2020 and December 31, 2019:
Recurring Basis
Fair Value Measurements
  March 31, 2020
(dollars in thousands) 
Fair Value Level 1 Level 2 Level 3
Financial assets:        
U.S. government sponsored agencies $ 22,711    $ —    $ 22,711    $ —   
State, county and municipal securities 97,103    —    97,103    —   
Corporate debt securities 52,068    —    50,568    1,500   
SBA pool securities 70,275    —    70,275    —   
Mortgage-backed securities 1,110,883    —    1,110,883    —   
Loans held for sale 1,398,229    —    1,398,229    —   
Mortgage banking derivative instruments 48,793    —    48,793    —   
Total recurring assets at fair value $ 2,800,062    $ —    $ 2,798,562    $ 1,500   
Financial liabilities:        
Derivative financial instruments $ 310    $ —    $ 310    $ —   
Mortgage banking derivative instruments 48,075    —    48,075    —   
Total recurring liabilities at fair value $ 48,385    $ —    $ 48,385    $ —   

Recurring Basis
Fair Value Measurements
  December 31, 2019
(dollars in thousands) Fair Value Level 1 Level 2 Level 3
Financial assets:        
U.S. government sponsored agencies $ 22,362    $ —    $ 22,362    $ —   
State, county and municipal securities 105,260    —    105,260    —   
Corporate debt securities 52,999    —    51,499    1,500   
SBA pool securities 73,912    —    73,912    —   
Mortgage-backed securities 1,148,870    —    1,148,870    —   
Loans held for sale 1,656,711    —    1,656,711    —   
Mortgage banking derivative instruments 7,814    —    7,814    —   
Total recurring assets at fair value $ 3,067,928    $ —    $ 3,066,428    $ 1,500   
Financial liabilities:        
Derivative financial instruments $ 187    $ —    $ 187    $ —   
Mortgage banking derivative instruments 4,471    —    4,471    —   
Total recurring liabilities at fair value $ 4,658    $ —    $ 4,658    $ —   
 
34

The following table presents the fair value measurements of assets measured at fair value on a non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy as of March 31, 2020 and December 31, 2019:
  Nonrecurring Basis
Fair Value Measurements
(dollars in thousands) Fair Value Level 1 Level 2 Level 3
March 31, 2020        
Collateral-dependent loans $ 53,368    $ —    $ —    $ 53,368   
Other real estate owned 2,521    —    —    2,521   
Mortgage servicing rights 85,922    —    85,922    —   
SBA servicing rights 5,394    —    5,394    —   
Total nonrecurring assets at fair value $ 147,205    $ —    $ 91,316    $ 55,889   
December 31, 2019        
Impaired loans carried at fair value $ 43,788    $ —    $ —    $ 43,788   
Other real estate owned 17,289    —    —    17,289   
Total nonrecurring assets at fair value $ 61,077    $ —    $ —    $ 61,077   
 
The inputs used to determine estimated fair value of impaired loans include market conditions, loan terms, underlying collateral characteristics and discount rates. The inputs used to determine fair value of OREO include market conditions, estimated marketing period or holding period, underlying collateral characteristics and discount rates.
 
For the three months ended March 31, 2020 and the year ended December 31, 2019, there was not a change in the methods and significant assumptions used to estimate fair value.
 
The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets:
(dollars in thousands) Fair Value Valuation
Technique 		Unobservable Inputs Range of
Discounts 		Weighted
Average
Discount
March 31, 2020          
Recurring:          
Investment securities available for sale $ 1,500    Discounted par values Credit quality of underlying issuer 0% 0%
Nonrecurring:          
Collateral-dependent loans $ 53,368    Third-party appraisals and discounted cash flows Collateral discounts and
discount rates
1% - 95%
36%
Other real estate owned $ 2,521    Third-party appraisals and sales contracts Collateral discounts and estimated
costs to sell
15% - 26%
22%
December 31, 2019          
Recurring:          
Investment securities available for sale $ 1,500    Discounted par values Credit quality of underlying issuer 0% 0%
Nonrecurring:        
Impaired loans $ 43,788    Third-party appraisals and discounted cash flows Collateral discounts and
discount rates
1% - 95%
27%
Other real estate owned $ 17,289    Third-party appraisals and sales contracts Collateral discounts and estimated
costs to sell
9% - 89%
31%
 
35

The carrying amount and estimated fair value of the Company’s financial instruments, not shown elsewhere in these financial statements, were as follows.
Fair Value Measurements
    March 31, 2020
(dollars in thousands) Carrying
Amount 		Level 1 Level 2 Level 3 Total
Financial assets:          
Cash and due from banks $ 255,312    $ 255,312    $ —    $ —    $ 255,312   
Federal funds sold and interest-bearing accounts 396,844    396,844    —    —    396,844   
Time deposits in other banks 249    —    249    —    249   
Loans, net 12,891,214    —    —    12,949,045    12,949,045   
Accrued interest receivable 48,846    —    5,271    43,575    48,846   
Financial liabilities:          
Deposits 13,844,618    —    13,851,760    —    13,851,760   
Securities sold under agreements to repurchase 15,160    15,160    —    —    15,160   
Other borrowings 1,543,371    —    1,549,322    —    1,549,322   
Subordinated deferrable interest debentures 122,890    —    108,888    —    108,888   
FDIC loss-share payable 18,111    —    —    18,360    18,360   
Accrued interest payable 11,133    —    11,133    —    11,133   
  
Fair Value Measurements
    December 31, 2019
(dollars in thousands) Carrying
Amount 		Level 1 Level 2 Level 3 Total
Financial assets:          
Cash and due from banks $ 246,234    $ 246,234    $ —    $ —    $ 246,234   
Federal funds sold and interest-bearing accounts 375,615    375,615    —    —    375,615   
Time deposits in other banks 249    —    249    —    249   
Loans, net 12,736,499    —    —    12,806,709    12,806,709   
Accrued interest receivable 52,362    —    5,179    47,183    52,362   
Financial liabilities:          
Deposits 14,027,073    —    14,035,686    —    14,035,686   
Securities sold under agreements to repurchase 20,635    20,635    —    —    20,635   
Other borrowings 1,398,709    —    1,402,510    —    1,402,510   
Subordinated deferrable interest debentures 127,560    —    126,815    —    126,815   
FDIC loss-share payable 19,642    —    —    19,657    19,657   
Accrued interest payable 11,524    —    11,524    —    11,524   
 
NOTE 11 – COMMITMENTS AND CONTINGENCIES
 
Loan Commitments

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the Company’s balance sheets.

The Company’s exposure to credit loss is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. A summary of the Company’s commitments is as follows:
(dollars in thousands) March 31, 2020 December 31, 2019
Commitments to extend credit $ 2,561,808    $ 2,486,949   
Unused home equity lines of credit 259,717    262,089   
Financial standby letters of credit 32,738    29,232   
Mortgage interest rate lock commitments 1,415,744    288,490   
 
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. These commitments, predominantly at variable interest rates, generally have fixed expiration dates or other
36

termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.
 
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral is required in instances which the Company deems necessary. The Company has not been required to perform on any material financial standby letters of credit and the Company has not incurred any losses on financial standby letters of credit for the three months ended March 31, 2020 and the year ended December 31, 2019.

The Company maintains an allowance for credit losses on unfunded commitments which is recorded in other liabilities on the consolidated balance sheets. The following table presents activity in the allowance for unfunded commitments for the period presented:

(dollars in thousands) Three Months Ended
March 31, 2020
Balance at beginning of period $ 1,077   
Adjustment to reflect adoption of ASU 2016-13 12,714   
Provision for unfunded commitments 4,000   
Balance at end of period $ 17,791   

Other Commitments
 
As of March 31, 2020, letters of credit issued by the FHLB totaling $82.4 million were used to guarantee the Bank’s performance related to a portion of its public fund deposit balances.

Contingencies
 
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
 
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
 
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

COVID-19

In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. The COVID-19 pandemic has caused significant economic dislocation in the United States, as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slowdown in economic activity and a related increase in unemployment and unemployment claims. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the coronavirus, including the passage of the CARES Act and subsequent legislation, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion. The extent of such impact from the COVID-19 outbreak and related mitigation efforts will depend on future developments, which are highly uncertain, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or
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treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. This could cause a material, adverse effect on the Company’s business, financial condition, liquidity and results of operations, including increases in loan delinquencies, problem assets and foreclosures; decreases in the value of collateral securing our loans; and increases in our allowance for credit losses.
  
NOTE 12 – SEGMENT REPORTING
 
The Company has the following five reportable segments: Banking Division, Retail Mortgage Division, Warehouse Lending Division, SBA Division and Premium Finance Division. The Banking Division derives its revenues from the delivery of full-service financial services, including commercial loans, consumer loans and deposit accounts. The Retail Mortgage Division derives its revenues from the origination, sales and servicing of one-to-four family residential mortgage loans. The Warehouse Lending Division derives its revenues from the origination and servicing of warehouse lines to other businesses that are secured by underlying one-to-four family residential mortgage loans. The SBA Division derives its revenues from the origination, sales and servicing of SBA loans. The Premium Finance Division derives its revenues from the origination and servicing of commercial insurance premium finance loans.
 
The Banking, Retail Mortgage, Warehouse Lending, SBA and Premium Finance Divisions are managed as separate business units because of the different products and services they provide. The Company evaluates performance and allocates resources based on profit or loss from operations. There are no material intersegment sales or transfers.

The following tables present selected financial information with respect to the Company’s reportable business segments for the three months ended March 31, 2020 and 2019:
  Three Months Ended
March 31, 2020
(dollars in thousands) Banking
Division 		Retail
Mortgage
Division 		Warehouse
Lending
Division 		SBA
Division 		Premium
 Finance
 Division 		Total
Interest income $ 132,301    $ 33,411    $ 4,850    $ 3,728    $ 8,478    $ 182,768   
Interest expense 13,926    15,655    1,548    1,547    2,147    34,823   
Net interest income 118,375    17,756    3,302    2,181    6,331    147,945   
Provision for credit losses 35,997    1,997    (9)   (903)   3,965    41,047   
Noninterest income 17,773    34,369    960    1,277    —    54,379   
Noninterest expense            
Salaries and employee benefits 41,621    31,097    210    1,476    1,542    75,946   
Equipment and occupancy expenses 10,347    1,504    1    97    79    12,028   
Data processing and telecommunications expenses 10,797    986    41    13    117    11,954   
Other expenses 30,645    5,875    34    515    1,056    38,125   
Total noninterest expense 93,410    39,462    286    2,101    2,794    138,053   
Income before income tax expense 6,741    10,666    3,985    2,260    (428)   23,224   
Income tax expense 275    2,408    837    475    (93)   3,902   
Net income $ 6,466    $ 8,258    $ 3,148    $ 1,785    $ (335)   $ 19,322   
Total assets $ 13,201,373    $ 3,466,766    $ 548,837    $ 252,668    $ 754,904    $ 18,224,548   
Goodwill 867,449    —    —    —    64,498    931,947   
Other intangible assets, net 68,857    —    —    —    17,098    85,955   

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  Three Months Ended
March 31, 2019
(dollars in thousands) Banking
Division 		Retail
Mortgage
Division 		Warehouse
Lending
Division 		SBA
Division 		Premium
 Finance
 Division 		Total
Interest income $ 97,874    $ 12,512    $ 4,804    $ 2,174    $ 7,565    $ 124,929   
Interest expense 12,835    6,759    2,114    1,088    2,738    25,534   
Net interest income 85,039    5,753    2,690    1,086    4,827    99,395   
Provision for credit losses 2,058    136    —    231    983    3,408   
Noninterest income 14,370    14,290    379    1,730    2    30,771   
Noninterest expense            
Salaries and employee benefits 27,932    8,207    161    727    1,305    38,332   
Equipment and occupancy expenses 7,281    766    1    59    97    8,204   
Data processing and telecommunications expenses 7,592    330    30    2    437    8,391   
Other expenses 16,956    2,114    68    387    973    20,498   
Total noninterest expense 59,761    11,417    260    1,175    2,812    75,425   
Income before income tax expense 37,590    8,490    2,809    1,410    1,034    51,333   
Income tax expense 8,775    1,613    590    296    154    11,428   
Net income $ 28,815    $ 6,877    $ 2,219    $ 1,114    $ 880    $ 39,905   
Total assets $ 9,457,529    $ 1,184,097    $ 296,357    $ 142,769    $ 575,523    $ 11,656,275   
Goodwill 436,810    —    —    —    64,498    501,308   
Other intangible assets, net 35,455    —    —    —    20,102    55,557   

Net income

Net income

NOTE 13 – SUBSEQUENT EVENTS

On March 27, 2020, the CARES Act was enacted. The CARES Act, among other things, added a temporary product, loans under the Paycheck Protection Program (“PPP”), to the SBA's 7(a) loan program. The CARES Act provides for forgiveness of up to the full principal amount of the qualifying loans guaranteed by the SBA under the PPP. The Company generated approximately 7,200 loans totaling $1.1 billion to customers under the PPP though May 4, 2020. The Company has also received approval from the FRB to access its newly created PPP Liquidity Facility to fund PPP loans if needed. In addition, through April 30, 2020, the Company approved approximately 7,700 loans with outstanding balances of $2.5 billion for COVID-19 related payment modifications.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Cautionary Note Regarding Forward-Looking Statements
 
Certain of the statements made in this report are “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
 
All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation, the following: general competitive, economic, political and market conditions and fluctuations; movements in interest rates and our expectations regarding net interest margin; expectations on credit quality and performance; competitive pressures on product pricing and services; legislative and regulatory changes; 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; potential business strategies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by us; the successful integration of acquired businesses on a timely basis; the timely realization of expected cost savings and any revenue synergies from acquisition transactions; our outlook and long-term goals for future growth; weather events, natural disasters, geopolitical events, public health crises and other catastrophic events; and other factors discussed in our filings with the SEC under the Exchange Act.
 
All written or oral forward-looking statements that are made by or are attributable to us are expressly qualified in their entirety by this cautionary notice. Our forward-looking statements apply only as of the date of this report or the respective date of the document from which they are incorporated herein by reference. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future events or otherwise.

Overview
 
The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of March 31, 2020, as compared with December 31, 2019, and operating results for the three-month periods ended March 31, 2020 and 2019. 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 tangible common equity, tangible book value per common share, adjusted net income, and adjusted net income per diluted share. The Company calculates the regulatory capital ratios using current regulatory report instructions. The Company’s management uses these measures to assess the quality of capital and believes that investors may find them useful in their evaluation of the Company. These capital measures may or may not be necessarily comparable to similar capital measures that may be presented by other companies.


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The following table sets forth unaudited selected financial data for the most recent five quarters. This data should be read in conjunction with the unaudited consolidated financial statements and the notes thereto and the information contained in this Item 2.
           
(in thousands, except share and per share data) First
Quarter
2020 		Fourth
Quarter
2019 		Third
Quarter
2019 		Second
Quarter
2019 		First
Quarter
2019
Results of Operations:          
Net interest income $ 147,945    $ 155,351    $ 148,769    $ 101,651    $ 99,395   
Net interest income (tax equivalent) 149,018    156,454    149,896    102,714    100,453   
Provision for credit losses 41,047    5,693    5,989    4,668    3,408   
Noninterest income 54,379    55,113    76,993    35,236    30,771   
Noninterest expense 138,053    122,564    192,697    81,251    75,425   
Income tax expense 3,902    20,959    5,692    12,064    11,428   
Net income available to common shareholders 19,322    61,248    21,384    38,904    39,905   
Selected Average Balances:          
Investment securities $ 1,456,462    $ 1,514,494    $ 1,592,005    $ 1,264,415    $ 1,225,564   
Loans held for sale 1,587,131    1,537,648    856,572    154,707    101,521   
Loans 12,712,997    12,697,912    12,677,063    8,740,561    8,483,978   
Earning assets 16,203,479    16,077,986    15,478,774    10,547,095    10,319,954   
Assets 18,056,445    17,998,494    17,340,387    11,625,344    11,423,677   
Deposits 13,702,332    13,903,846    13,520,926    9,739,892    9,577,574   
Shareholders’ equity 2,456,617    2,437,272    2,432,182    1,519,598    1,478,462   
Period-End Balances:          
Investment securities $ 1,434,794    $ 1,470,322    $ 1,558,128    $ 1,305,725    $ 1,249,592   
Loans held for sale 1,398,229    1,656,711    1,187,551    261,073    112,070   
Loans 13,094,106    12,818,476    12,826,284    9,049,870    8,482,339   
Earning assets 16,324,222    16,321,373    15,858,175    10,804,385    10,563,571   
Total assets 18,224,548    18,242,579    17,764,277    11,889,336    11,656,275   
Deposits 13,844,618    14,027,073    13,659,594    9,582,370    9,800,875   
Shareholders’ equity 2,437,150    2,469,582    2,420,723    1,537,121    1,495,584   
Per Common Share Data:          
Earnings per share - basic $ 0.28    $ 0.88    $ 0.31    $ 0.82    $ 0.84   
Earnings per share - diluted $ 0.28    $ 0.88    $ 0.31    $ 0.82    $ 0.84   
Book value per common share $ 35.10    $ 35.53    $ 34.78    $ 32.52    $ 31.43   
Tangible book value per common share $ 20.44    $ 20.81    $ 20.29    $ 20.81    $ 19.73   
End of period shares outstanding 69,441,274    69,503,833    69,593,833    47,261,584    47,585,309   
 
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(in thousands, except share and per share data) First
Quarter
2020 		Fourth
Quarter
2019 		Third
Quarter
2019 		Second
Quarter
2019 		First
Quarter
2019
Weighted Average Shares Outstanding:          
Basic 69,247,661    69,429,193    69,372,125    47,310,561    47,366,296   
Diluted 69,502,022    69,683,999    69,600,499    47,337,809    47,456,314   
Market Price:          
High intraday price $ 43.79    $ 44.90    $ 40.65    $ 39.60    $ 42.01   
Low intraday price $ 17.89    $ 38.34    $ 33.71    $ 33.57    $ 31.27   
Closing price for quarter $ 23.76    $ 42.54    $ 40.24    $ 39.19    $ 34.35   
Average daily trading volume 461,692    353,783    461,289    352,684    387,800   
Cash dividends declared per share $ 0.15    $ 0.15    $ 0.15    $ 0.10    $ 0.10   
Closing price to book value 0.68    1.20    1.16    1.21    1.09   
Performance Ratios:          
Return on average assets 0.43  % 1.35  % 0.49  % 1.34  % 1.42  %
Return on average common equity 3.16  % 9.97  % 3.49  % 10.27  % 10.95  %
Average loans to average deposits 104.36  % 102.39  % 100.09  % 91.33  % 89.64  %
Average equity to average assets 13.61  % 13.54  % 14.03  % 13.07  % 12.94  %
Net interest margin (tax equivalent) 3.70  % 3.86  % 3.84  % 3.91  % 3.95  %
Efficiency ratio 68.23  % 58.24  % 85.35  % 59.36  % 57.95  %
Non-GAAP Measures Reconciliation -          
Tangible book value per common share:          
Total shareholders’ equity $ 2,437,150    $ 2,469,582    $ 2,420,723    $ 1,537,121    $ 1,495,584   
Less:          
Goodwill 931,947    931,637    911,488    501,140    501,308   
Other intangible assets, net 85,955    91,586    97,328    52,437    55,557   
Tangible common equity $ 1,419,248    $ 1,446,359    $ 1,411,907    $ 983,544    $ 938,719   
End of period shares outstanding 69,441,274    69,503,833    69,593,833    47,261,584    47,585,309   
Book value per common share $ 35.10    $ 35.53    $ 34.78    $ 32.52    $ 31.43   
Tangible book value per common share 20.44    20.81    20.29    20.81    19.73   

42

Fidelity Acquisition

In accounting for business combinations, the Company uses the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method of accounting, assets acquired, liabilities assumed and consideration exchanged are recorded at their respective acquisition date fair values. Any identifiable intangible assets that are acquired in a business combination are recognized at fair value on the acquisition date. Identifiable intangible assets are recognized separately if they arise from contractual or other legal rights or if they are separable (i.e., capable of being sold, transferred, licensed, rented or exchanged separately from the entity). If the consideration given exceeds the fair value of the net assets received, goodwill is recognized. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.

Under the acquisition method, income and expenses of the acquiree are recognized prospectively beginning from the date of acquisition.

Fidelity Southern Corporation

On July 1, 2019, the Company completed its acquisition of Fidelity. Upon consummation of the acquisition, Fidelity was merged with and into the Company, with Ameris as the surviving entity in the merger, and Fidelity's wholly owned banking subsidiary, Fidelity Bank, was merged with and into the Bank, with the Bank surviving. The acquisition expanded the Company's existing market presence, as Fidelity Bank had a total of 62 full-service branches at the time of closing, 46 of which were located in Georgia and 16 of which were located in Florida, providing financial products and services to customers primarily in the metropolitan markets of Atlanta, Georgia, and Jacksonville, Orlando, Tallahassee, and Sarasota-Bradenton, Florida. Under the terms of the merger agreement, Fidelity's shareholders received 0.80 shares of Ameris common stock, par value $1.00 per share, for each share of Fidelity common stock they held. As a result, the Company issued 22,181,522 shares of its common stock at a fair value of $869.3 million to Fidelity's shareholders as merger consideration.

In accounting for the Fidelity acquisition, the Company recorded assets (exclusive of goodwill) of $4.77 billion, investment securities of $297.9 million, loans held for investment of $3.51 billion, and deposits of $4.04 billion. For additional information regarding the Fidelity acquisition, see Note 2.

CECL Adoption

On January 1, 2020, the Company adopted ASC Topic 326 which replaces the current incurred loss approach for measuring credit losses with an expected loss model, referred to the current expected credit loss ("CECL") model. CECL applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The adoption of this guidance resulted in an increase of the allowance for credit losses of $78.7 million, an increase in the allowance for unfunded commitments of $12.7 million and a reduction of retained earnings of $56.7 million, net of the increase in deferred tax assets of $19.0 million.

Impact and Response to the COVID-19 Pandemic

The Company has locations and personnel located in multiple states. Many of these states have placed significant restrictions on companies and individuals in March and April 2020 as a result of the COVID-19 pandemic. As a financial institution, we are considered an essential business and therefore continue to operate on a modified basis to comply with governmental restrictions and public health guidelines. All branch drive thru facilities remain open, branch lobbies are available by appointment only and ATMs are available. Online and mobile banking platforms are also available to serve our customers. Approximately 75% of our workforce has transitioned to working remotely and those remaining in our offices are appropriately spaced.

At the same time, the Company enacted its disaster relief program, which allows 90-day extensions for borrowers impacted by the COVID-19 outbreak. During the three months ended March 31, 2020, the Company modified $148.8 million in loans under its disaster relief program. Additionally, the Company participated in the SBA's PPP program and approved approximately $1.1 billion in loans under the program through May 4, 2020.

The COVID-19 pandemic materially impacted the allowance for credit losses and related provision for credit losses during the first quarter of 2020. Updated economic forecasts during the reasonable and supportable forecast period showed, among other
43

things, a significant decline in expected GDP and an increase in expected unemployment rates. These factors were the primary drivers of the Company's $41.0 million provision for credit losses during the first quarter of 2020. Additionally, the Company incurred $548,000 in incremental expenses related to the COVID-19 pandemic primarily for additional sanitizing of our locations and “thank you” pay for certain of our employees who are unable to work remotely.

44

Results of Operations for the Three Months Ended March 31, 2020 and 2019
 
Consolidated Earnings and Profitability
 
Ameris reported net income available to common shareholders of $19.3 million, or $0.28 per diluted share, for the quarter ended March 31, 2020, compared with $39.9 million, or $0.84 per diluted share, for the same period in 2019. The Company’s return on average assets and average shareholders’ equity were 0.43% and 3.16%, respectively, in the first quarter of 2020, compared with 1.42% and 10.95%, respectively, in the first quarter of 2019. During the first quarter of 2020, the Company incurred pre-tax merger and conversion charges of $540,000, pre-tax servicing right impairment of $22.2 million, pre-tax expenses related to SEC and DOJ investigation of $1.4 million, pre-tax expenses related to the COVID-19 pandemic of $548,000 and pre-tax losses on the sale of premises of $470,000. During the first quarter of 2019, the Company incurred pre-tax merger and conversion charges of $2.1 million, pre-tax reduction in financial impact of hurricanes of $89,000, pre-tax restructuring charges related to branch consolidations of $245,000, and pre-tax losses on the sale of premises of $919,000. Excluding these adjustment items, the Company’s net income would have been $39.2 million, or $0.56 per diluted share, for the first quarter of 2020 and $42.6 million, or $0.90 per diluted share, for the first quarter of 2019.
 
Below is a reconciliation of adjusted net income to net income, as discussed above.
  Three Months Ended March 31,
(in thousands, except share and per share data) 2020 2019
Net income available to common shareholders $ 19,322    $ 39,905   
Adjustment items:       
Merger and conversion charges 540    2,057   
Restructuring charge —    245   
Servicing right impairment 22,165    —   
Expenses related to SEC and DOJ investigation 1,443    —   
Natural disaster and pandemic expenses 548    (89)  
Loss on the sale of premises 470    919   
Tax effect of adjustment items (Note 1)
(5,283)   (450)  
After tax adjustment items 19,883    2,682   
Adjusted net income $ 39,205    $ 42,587   
Weighted average common shares outstanding - diluted 69,502,022    47,456,314   
Net income per diluted share $ 0.28    $ 0.84   
Adjusted net income per diluted share $ 0.56    $ 0.90   
Note 1: A portion of the merger and conversion charges for both periods are nondeductible for tax purposes.
 
45

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 first quarter of 2020 and 2019, respectively:
  Three Months Ended
March 31, 2020
(dollars in thousands) Banking
Division 		Retail
Mortgage
Division 		Warehouse
Lending
Division 		SBA
Division 		Premium
 Finance
 Division 		Total
Interest income $ 132,301    $ 33,411    $ 4,850    $ 3,728    $ 8,478    $ 182,768   
Interest expense 13,926    15,655    1,548    1,547    2,147    34,823   
Net interest income 118,375    17,756    3,302    2,181    6,331    147,945   
Provision for credit losses 35,997    1,997    (9)   (903)   3,965    41,047   
Noninterest income 17,773    34,369    960    1,277    —    54,379   
Noninterest expense            
Salaries and employee benefits 41,621    31,097    210    1,476    1,542    75,946   
Equipment and occupancy expenses 10,347    1,504    1    97    79    12,028   
Data processing and telecommunications expenses 10,797    986    41    13    117    11,954   
Other expenses 30,645    5,875    34    515    1,056    38,125   
Total noninterest expense 93,410    39,462    286    2,101    2,794    138,053   
Income before income tax expense 6,741    10,666    3,985    2,260    (428)   23,224   
Income tax expense 275    2,408    837    475    (93)   3,902   
Net income $ 6,466    $ 8,258    $ 3,148    $ 1,785    $ (335)   $ 19,322   

  Three Months Ended
March 31, 2019
(dollars in thousands) Banking
Division 		Retail
Mortgage
Division 		Warehouse
Lending
Division 		SBA
Division 		Premium
Finance
Division 		Total
Interest income $ 97,874    $ 12,512    $ 4,804    $ 2,174    $ 7,565    $ 124,929   
Interest expense 12,835    6,759    2,114    1,088    2,738    25,534   
Net interest income 85,039    5,753    2,690    1,086    4,827    99,395   
Provision for credit losses 2,058    136    —    231    983    3,408   
Noninterest income 14,370    14,290    379    1,730    2    30,771   
Noninterest expense            
Salaries and employee benefits 27,932    8,207    161    727    1,305    38,332   
Equipment and occupancy expenses 7,281    766    1    59    97    8,204   
Data processing and telecommunications expenses 7,592    330    30    2    437    8,391   
Other expenses 16,956    2,114    68    387    973    20,498   
Total noninterest expense 59,761    11,417    260    1,175    2,812    75,425   
Income before income tax expense 37,590    8,490    2,809    1,410    1,034    51,333   
Income tax expense 8,775    1,613    590    296    154    11,428   
Net income $ 28,815    $ 6,877    $ 2,219    $ 1,114    $ 880    $ 39,905   
 
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Net Interest Income and Margins
 
The following table sets forth the average balance, interest income or interest expense, and average interest rate for each category of interest-earning assets and interest-bearing liabilities, net interest spread, and net interest margin on average interest-earning assets for the three months ended March 31, 2020 and 2019. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate.
  Quarter Ended March 31,
  2020 2019
(dollars in thousands) Average
Balance 		Interest
Income/
Expense 		Average
Yield/
Rate Paid 		Average
Balance 		Interest
Income/
Expense 		Average
Yield/
Rate Paid
Assets            
Interest-earning assets:            
Federal funds sold, interest-bearing deposits in banks, and time deposits in other banks $ 446,889    $ 1,287    1.16% $ 508,891    $ 3,329    2.65%
Investment securities 1,456,462    10,281    2.84% 1,225,564    9,240    3.06%
Loans held for sale 1,587,131    13,637    3.46% 101,521    1,152    4.60%
Loans 12,712,997    158,636    5.02% 8,483,978    112,266    5.37%
Total interest-earning assets 16,203,479    183,841    4.56% 10,319,954    125,987    4.95%
Noninterest-earning assets 1,852,966        1,103,723       
Total assets $ 18,056,445        $ 11,423,677       
Liabilities and Shareholders’ Equity            
Interest-bearing liabilities:            
Savings and interest-bearing demand deposits $ 6,936,013    $ 12,732    0.74% $ 4,630,092    $ 11,233    0.98%
Time deposits 2,685,399    11,370    1.70% 2,402,439    10,451    1.76%
Federal funds purchased and securities sold under agreements to repurchase 15,637    40    1.03% 15,879    11    0.28%
FHLB advances 1,267,303    5,109    1.62% 6,257    44    2.85%
Other borrowings 269,454    3,511    5.24% 145,473    2,227    6.21%
Subordinated deferrable interest debentures 127,731    2,061    6.49% 89,343    1,568    7.12%
Total interest-bearing liabilities 11,301,537    34,823    1.24% 7,289,483    25,534    1.42%
Demand deposits 4,080,920        2,545,043       
Other liabilities 217,371        110,689       
Shareholders’ equity 2,456,617        1,478,462       
Total liabilities and shareholders’ equity $ 18,056,445        $ 11,423,677       
Interest rate spread     3.32%     3.53%
Net interest income   $ 149,018        $ 100,453     
Net interest margin     3.70%     3.95%
 
On a tax-equivalent basis, net interest income for the first quarter of 2020 was $149.0 million, an increase of $48.6 million, or 48.3%, compared with $100.5 million reported in the same quarter in 2019. The higher net interest income is a result of growth in average interest earning assets which increased $5.88 billion, or 57.0%, from $10.32 billion in the first quarter of 2019 to $16.20 billion for the first quarter of 2020. This growth in interest earning assets resulted primarily from the Fidelity acquisition occurring in the third quarter of 2019, as well as organic growth in average loans and strong production in mortgage. The Company’s net interest margin during the first quarter of 2020 was 3.70%, down 25 basis points from 3.95% reported in the first quarter of 2019.
 
Total interest income, on a tax-equivalent basis, increased to $183.8 million during the first quarter of 2020, compared with $126.0 million in the same quarter of 2019.  Yields on earning assets decreased to 4.56% during the first quarter of 2020, compared with 4.95% reported in the first quarter of 2019. During the first quarter of 2020, loans comprised 88.3% of average earning assets, compared with 83.2% in the same quarter of 2019. Yields on loans decreased to 5.02% in the first quarter of 2020, compared with 5.37% in the same period of 2019. Accretion income for the first quarter of 2020 was $6.6 million, compared with $2.9 million in the first quarter of 2019.

The yield on total interest-bearing liabilities decreased from 1.42% in the first quarter of 2019 to 1.24% in the first quarter of 2020. Total funding costs, inclusive of noninterest-bearing demand deposits, decreased to 0.91% in the first quarter of 2020, compared with 1.05% during the first quarter of 2019. Deposit costs decreased from 0.92% in the first quarter of 2019 to 0.71% in the first quarter of 2020. Non-deposit funding costs decreased from 6.08% in the first quarter of 2019 to 2.57% in the
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first quarter of 2020. Average balances of interest bearing deposits and their respective costs for the first quarter of 2020 and 2019 are shown below:
  Three Months Ended
March 31, 2020 		Three Months Ended
March 31, 2019
(dollars in thousands) Average
Balance 		Average
Cost 		Average
Balance 		Average
Cost
NOW $ 2,287,947    0.49% $ 1,553,988    0.55%
MMDA 4,004,644    0.98% 2,677,015    1.37%
Savings 643,422    0.13% 399,089    0.08%
Retail CDs 2,624,209    1.70% 1,892,138    1.57%
Brokered CDs 61,190    2.01% 510,301    2.48%
Interest-bearing deposits $ 9,621,412    1.01% $ 7,032,531    1.25%
 
Provision for Credit Losses
 
The Company’s provision for credit losses during the first quarter of 2020 amounted to $41.0 million, compared with $3.4 million in the first quarter of 2019. This increase was primarily attributable to an updated economic forecast in our CECL model which reflects the impact of the coronavirus pandemic including, among other things, a corresponding decrease in forecasted GDP and increase in forecasted unemployment. The provision for credit losses for the first quarter of 2020 was comprised of $37.0 million related to loans and $4.0 million related to unfunded commitments while the $3.4 million recorded for the first quarter of 2019 related solely to loans. At March 31, 2020, classified loans still accruing increased to $80.1 million, compared with $78.2 million at December 31, 2019. Non-performing assets as a percentage of total assets increased from 0.55% at December 31, 2019 to 0.61% at March 31, 2020. The increase in non-performing assets is primarily attributable to an increase in accruing loans past due 90 days or more within our premium finance division. Net charge-offs on loans during the first quarter of 2020 were approximately $4.4 million, or 0.14% of average loans on an annualized basis, compared with approximately $3.6 million, or 0.17%, in the first quarter of 2019. The Company’s total allowance for loan losses at March 31, 2020 was $149.5 million, or 1.14% of total loans, compared with $38.2 million, or 0.30% of total loans, at December 31, 2019. This increase is primarily attributable to the adoption impact of CECL which increased the allowance for loan losses $78.7 million and the provision noted above.
 
Noninterest Income
 
Total noninterest income for the first quarter of 2020 was $54.4 million, an increase of $23.6 million, or 76.7%, from the $30.8 million reported in the first quarter of 2019.  Service charges on deposit accounts increased $198,000, or 1.7%, to $11.8 million in the first quarter of 2020, compared with $11.6 million in the first quarter of 2019. This increase in service charges on deposit accounts is due primarily to an increase in the number of deposit accounts resulting from the Fidelity acquisition in the third quarter of 2019 and organic growth, partially offset by the impact of the Durbin Amendment. Income from mortgage-related activities was $35.3 million in the first quarter of 2020, an increase of $20.7 million, or 140.7%, from $14.7 million in the first quarter of 2019. Total production in the first quarter of 2020 amounted to $1.36 billion, compared with $356.0 million in the same quarter of 2019, while spread (gain on sale) decreased to 2.88% in the current quarter, compared with 3.18% in the same quarter of 2019. The retail mortgage open pipeline finished the first quarter of 2020 at $2.43 billion, compared with $1.16 billion at December 31, 2019 and $200.9 million at the end of the first quarter of 2019. Mortgage-related activities was negatively impacted during the first quarter of 2020 by a mortgage servicing right impairment of $20.9 million compared with no such impairment in the first quarter of 2019.

Other service charges, commissions and fees increased $339,000, or 43.0%, to $1.1 million during the first quarter of 2020, compared with $789,000 during the first quarter of 2019, due primarily to increased ATM fees. Other noninterest income increased $2.5 million, or 69.3%, to $6.1 million for the first quarter of 2020, compared with $3.6 million during the first quarter of 2019. The increase in other noninterest income was primarily attributable to a $711,000 increase in gain on sale of SBA loans, an increase in servicing income from indirect automobile loans of $668,000, an increase of $468,000 in BOLI income and an increase in trust income of $526,000. These increases were partially offset by an impairment of $1.3 million on our SBA servicing rights.

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Noninterest Expense
 
Total noninterest expenses for the first quarter of 2020 increased $62.6 million, or 83.0%, to $138.1 million, compared with $75.4 million in the same quarter 2019. Salaries and employee benefits increased $37.6 million, or 98.1%, from $38.3 million in the first quarter of 2019 to $75.9 million in the first quarter of 2020, due primarily to an increase of 913, or 51.7%, full-time equivalent employees from 1,766 at March 31, 2019 to 2,679 at March 31, 2020, resulting from staff added as a result of the Fidelity acquisition which occurred in the third quarter of 2019. Also contributing to the increase in salary and employee benefits was an increase in variable incentive pay of $17.4 million resulting from an increase in mortgage production. Occupancy and equipment expenses increased $3.8 million, or 46.6%, to $12.0 million for the first quarter of 2020, compared with $8.2 million in the first quarter of 2019, due primarily to an increase of 56 branch locations from 114 at March 31, 2019 to 170 at March 31, 2020, resulting from branch locations added as a result of the Fidelity acquisition. Data processing and telecommunications expense increased $3.6 million, or 42.5%, to $12.0 million in the first quarter of 2020, compared with $8.4 million in the first quarter of 2019, due to the Fidelity acquisition. Credit resolution-related expenses increased $1.3 million, or 141.3%, from $911,000 in the first quarter of 2019 to $2.2 million in the first quarter of 2020. This increase primarily relates to an increase in write-downs on OREO. Advertising and marketing expense was $2.4 million in the first quarter of 2020, compared with $1.7 million in the first quarter of 2019. Amortization of intangible assets increased $2.5 million, or 79.8%, from $3.1 million in the first quarter of 2019 to $5.6 million in the first quarter of 2020 due to additional amortization of intangible assets recorded as part of the Fidelity acquisition. Merger and conversion charges were $540,000 in the first quarter of 2020, compared with $2.1 million in the same quarter of 2019. Other noninterest expenses increased $14.7 million, or 116.5%, from $12.7 million in the first quarter of 2019 to $27.4 million in the first quarter of 2020, due primarily to an increase of $1.2 million in accounting and audit fees principally related to additional work performed for our 2019 audit, an increase of $2.1 million in legal fees, an increase of $1.4 million in expenses principally related to final adjustments to the clawback liability on one of our FDIC loss share agreements and certain unreimbursed expenses related to that agreement, and an increase of $878,000 in deposit related losses. Also contributing to the increase in other noninterest expenses was an increase in volume in certain areas related to our acquisition of Fidelity and increases in 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 non-deductible expenses.  For the first quarter of 2020, the Company reported income tax expense of $3.9 million, compared with $11.4 million in the same period of 2019. The Company’s effective tax rate for the three months ending March 31, 2020 and 2019 was 16.8% and 22.3%, respectively. The decrease in the effective tax rate is primarily a result of loss carrybacks allowed as a result of the recently enacted CARES Act.


Financial Condition as of March 31, 2020
 
Securities
 
Debt securities with readily determinable fair values are classified as available for sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income, net of the related deferred tax effect. Restricted equity securities, are classified as other investment securities and are carried at cost and are periodically evaluated for impairment based on 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 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. Declines in the fair value of securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses.

Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate securities in an unrealized loss position on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation, to determine if credit-related impairment exists. Management first evaluates whether they intend to sell or more likely than not will be required to sell an impaired security before recovering its amortized cost basis. If either criteria is met, the entire amount of unrealized loss is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. If either of the above criteria is not met, management evaluates whether the decline in fair value is attributable to credit or resulted from other factors. The Company does not intend to sell these investment securities at an unrealized loss position at March 31, 2020, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity.
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Based on the results of management's review, at March 31, 2020, management believes the unrealized losses have resulted from factors other than credit and no allowance for credit losses was recorded. 
 
The following table is a summary of our investment portfolio at the dates indicated.
March 31, 2020 December 31, 2019
(dollars in thousands) Amortized Cost Fair
Value 		Amortized Cost Fair
Value
March 31, 2020        
U.S. government sponsored agencies $ 22,227    $ 22,711    $ 22,246    $ 22,362   
State, county and municipal securities 94,318    97,103    102,952    105,260   
Corporate debt securities 51,700    52,068    51,720    52,999   
SBA pool securities 68,909    70,275    73,704    73,912   
Mortgage-backed securities 1,065,512    1,110,883    1,129,816    1,148,870   
Total debt securities $ 1,302,666    $ 1,353,040    $ 1,380,438    $ 1,403,403   
 
The amounts of securities available for sale in each category as of March 31, 2020 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
Sponsored Agencies 		State, County and
Municipal Securities 		Corporate Debt Securities
(dollars in thousands) Amount Yield
(1) 		Amount Yield
(1)(2) 		Amount Yield
(1)
One year or less $ 5,015    2.12  % $ 20,181    3.34  % $ —    —  %
After one year through five years 16,550    1.92    28,373    3.42    14,573    2.77   
After five years through ten years 1,146    2.16    28,038    3.61    35,597    5.34   
After ten years —    —    20,511    3.51    1,898    5.65   
$ 22,711    1.97  % $ 97,103    3.47  % $ 52,068    4.63  %
SBA Pool Securities Mortgage-Backed Securities
(dollars in thousands) Amount Yield
(1) 		Amount Yield
(1)
One year or less $ —    —  % $ 122    3.19  %
After one year through five years 2,515    2.12    48,830    2.76   
After five years through ten years 26,750    2.19    303,522    2.84   
After ten years 41,010    2.66    758,409    2.64   
$ 70,275    2.46  % $ 1,110,883    2.70  %
(1)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.
(2)Yields on securities of state and political subdivisions are stated on a taxable-equivalent basis, using a tax rate of 21%.

Loans and Allowance for Credit Losses
 
At March 31, 2020, gross loans outstanding (including loans and loans held for sale) were $14.49 billion, essentially unchanged from $14.48 billion reported at December 31, 2019. Loans held for sale decreased from $1.66 billion at December 31, 2019 to $1.40 billion at March 31, 2020 primarily due to seasonal decrease in mortgage production levels in the first quarter of 2020. Loans increased $275.6 million, or 2.2%, from $12.82 billion at December 31, 2019 to $13.09 billion at March 31, 2020, driven primarily by growth in our municipal loan categories.
 
The Company regularly monitors the composition of the loan portfolio to evaluate the adequacy of the allowance for loan losses in light of the impact that changes in the economic environment may have on the loan portfolio. The Company focuses on the following loan categories: (1) commercial, financial and agricultural; (2) consumer installment; (3) indirect automobile; (4) mortgage warehouse; (5) municipal; (6) premium finance; (7) construction and development related real estate; (8) commercial and farmland real estate; and (9) residential real estate. The Company’s management has strategically located its branches in select markets in Georgia, Florida, Alabama and South Carolina to take advantage of the growth in these areas.
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The Company’s risk management processes include a loan review program designed to evaluate the credit risk in the loan portfolio and ensure credit grade accuracy. Through the loan review process, the Company conducts (1) a loan portfolio summary analysis, (2) charge-off and recovery analysis, (3) trends in accruing problem loan analysis, and (4) problem and past-due loan analysis. This analysis process serves as a tool to assist management in assessing the overall quality of the loan portfolio and the adequacy of the allowance for loan losses. 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 allowance for credit losses ("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.

Expected credit losses are reflected in the allowance for credit losses 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 uses the DCF method, the vintage 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 it can no longer develop reasonable and supportable forecasts.
 
At the end of the first quarter of 2020, the allowance for credit losses on loans totaled $149.5 million, or 1.14% of loans, compared with $38.2 million, or 0.30% of loans, at December 31, 2019. Our nonaccrual loans increased slightly from $75.1 million at December 31, 2019 to $77.9 million at March 31, 2020. For the first three months of 2020, our net charge off ratio as a percentage of average loans decreased to 0.14%, compared with 0.17% for the first three months of 2019. The total provision for credit losses for the first three months of 2020 was $41.0 million, increasing from $3.4 million recorded for the first three months of 2019. Our ratio of total nonperforming assets to total assets increased from 0.56% at December 31, 2019 to 0.61% at March 31, 2020.
 


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The following tables present an analysis of the allowance for loan losses as of and for the three months ended March 31, 2020 and 2019:
  Three Months Ended
March 31,
(dollars in thousands) 2020 2019
Balance of allowance for credit losses at beginning of period $ 38,189    $ 28,819   
Adjustment to allowance for adoption of ASU 2016-13 78,661    —   
Provision charged to operating expense 37,047    3,408   
Charge-offs:    
Commercial, financial and agricultural 2,486    684   
Consumer installment 1,142    1,897   
Indirect automobile 1,231    —   
Mortgage warehouse —    —   
Municipal —    —   
Premium finance 831    1,320   
Real estate – construction and development —    25   
Real estate – commercial and farmland 928    1,254   
Real estate – residential 100    199   
Total charge-offs 6,718    5,379   
Recoveries:
Commercial, financial and agricultural 362    222   
Consumer installment 643    215   
Indirect automobile 22    —   
Mortgage warehouse —    —   
Municipal —    —   
Premium finance 684    1,010   
Real estate – construction and development 342    117   
Real estate – commercial and farmland 85    40   
Real estate – residential 207    207   
Total recoveries 2,345    1,811   
Net charge-offs 4,373    3,568   
Balance of credit for loan losses at end of period $ 149,524    $ 28,659   
 
  As of and for the Three Months Ended
(dollars in thousands) March 31, 2020 March 31, 2019
Allowance for credit losses at end of period $ 149,524    $ 28,659   
Net charge-offs (recoveries) for the period 4,373    3,568   
Loan balances:
End of period 13,094,106    8,482,339   
Average for the period 12,712,997    8,483,978   
Net charge-offs as a percentage of average loans (annualized) 0.14  % 0.17  %
Allowance for credit losses as a percentage of end of period loans 1.14  % 0.34  %
 
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Loans

Loans are stated at amortized cost. Balances within the major loans receivable categories are presented in the following table:
(dollars in thousands) March 31, 2020 December 31, 2019
Commercial, financial and agricultural $ 827,392    $ 802,171   
Consumer installment 520,592    498,577   
Indirect automobile 937,736    1,061,824   
Mortgage warehouse 547,328    526,369   
Municipal 749,633    564,304   
Premium finance 661,845    654,669   
Real estate – construction and development 1,628,367    1,549,062   
Real estate – commercial and farmland 4,516,451    4,353,039   
Real estate – residential 2,704,762    2,808,461   
  $ 13,094,106    $ 12,818,476   
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 $77.9 million at March 31, 2020, an increase of $2.7 million, or 3.6%, from $75.1 million at December 31, 2019. Accruing loans delinquent 90 days or more totaled $12.0 million at March 31, 2020, an increase of $6.2 million, or 108.1%, compared with $5.8 million at December 31, 2019. At March 31, 2020, OREO totaled $21.0 million, an increase of $1.5 million, or 7.8%, compared with $19.5 million at December 31, 2019. Management regularly assesses the valuation of OREO through periodic reappraisal and through inquiries received in the marketing process.  At the end of the first quarter of 2020, total non-performing assets as a percent of total assets increased to 0.61% compared with 0.56% at December 31, 2019.
 
Non-performing assets at March 31, 2020 and December 31, 2019 were as follows:
(dollars in thousands) March 31, 2020 December 31, 2019
Nonaccrual loans $ 77,866    $ 75,124   
Accruing loans delinquent 90 days or more 11,974    5,754   
Repossessed assets 783    939   
Other real estate owned 21,027    19,500   
Total non-performing assets $ 111,650    $ 101,317   
 
Troubled Debt Restructurings
 
The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession.
 
As of March 31, 2020 and December 31, 2019, the Company had a balance of $36.2 million and $35.2 million, respectively, in troubled debt restructurings. The following table presents the amount of troubled debt restructurings by loan class classified separately as accrual and nonaccrual at March 31, 2020 and December 31, 2019: 
March 31, 2020 Accruing Loans Non-Accruing Loans
Loan Class #
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural 5 $ 575    15 $ 334   
Consumer installment 4 4    27 105   
Premium finance 1 159    — —   
Real estate – construction and development 5 925    4 289   
Real estate – commercial and farmland 19 5,587    9 2,415   
Real estate – residential 212 22,775    39 3,078   
Total 246 $ 30,025    94 $ 6,221   
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December 31, 2019 Accruing Loans Non-Accruing Loans
Loan Class #
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural 5 $ 516    17 $ 335   
Consumer installment 4 8    27 107   
Premium finance 1 156    — —   
Real estate – construction and development 6 936    3 253   
Real estate – commercial and farmland 21 6,732    8 2,071   
Real estate – residential 197 21,261    40 2,857   
Total 234 $ 29,609    95 $ 5,623   

The following table presents the amount of troubled debt restructurings by loan class classified separately as those currently paying under restructured terms and those that have defaulted (defined as 30 days past due) under restructured terms at March 31, 2020 and December 31, 2019:
March 31, 2020 Loans Currently Paying
Under Restructured Terms 		Loans that have Defaulted Under Restructured Terms
Loan Class #
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural 10 $ 566    10 $ 343   
Consumer installment 19 57    12 51   
Indirect automobile — —    — —   
Mortgage warehouse — —    — —   
Municipal — —    — —   
Premium finance — —    1 159   
Real estate – construction and development 7 926    2 287   
Real estate – commercial and farmland 21 5,533    7 2,470   
Real estate – residential 197 20,839    54 5,015   
Total 254 $ 27,921    86 $ 8,325   
 
December 31, 2019 Loans Currently Paying
Under Restructured Terms 		Loans that have Defaulted Under Restructured Terms
Loan Class #
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural 11 $ 121    11 $ 730   
Consumer installment 13 57    18 58   
Premium finance — —    1 156   
Real estate – construction and development 1 2    8 1,187   
Real estate – commercial and farmland 7 2,366    22 6,437   
Real estate – residential 55 4,454    182 19,664   
Total 87 $ 7,000    242 $ 28,232   
 
The following table presents the amount of troubled debt restructurings by types of concessions made, classified separately as accrual and nonaccrual at March 31, 2020 and December 31, 2019: 
March 31, 2020 Accruing Loans Non-Accruing Loans
Type of Concession #
Balance
(in thousands)
#
Balance
(in thousands)
Forbearance of interest 16 $ 1,850    12 $ 1,910   
Forgiveness of principal — —    1 666   
Forbearance of principal 21 4,077    15 1,488   
Forbearance of principal, extended amortization 17 2,827    2 217   
Rate reduction only 75 10,323    4 156   
Rate reduction, maturity extension — —    2 14   
Rate reduction, forbearance of interest 48 4,164    18 642   
Rate reduction, forbearance of principal 19 2,774    31 731   
Rate reduction, forgiveness of interest 50 4,010    8 396   
Rate reduction, forgiveness of principal — —    1 1   
Total 246 $ 30,025    94 $ 6,221   
 
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December 31, 2019 Accruing Loans Non-Accruing Loans
Type of Concession #
Balance
(in thousands)
#
Balance
(in thousands)
Forbearance of interest 16 $ 1,860    14 $ 1,993   
Forgiveness of principal — —    1 666   
Forbearance of principal 27 6,294    10 605   
Forbearance of principal, extended amortization — —    1 225   
Rate reduction only 72 9,887    7 538   
Rate reduction, maturity extension — —    2 15   
Rate reduction, forbearance of interest 49 4,250    19 793   
Rate reduction, forbearance of principal 19 3,267    30 264   
Rate reduction, forgiveness of interest 51 4,051    10 523   
Rate reduction, forgiveness of principal — —    1 1   
Total 234 $ 29,609    95 $ 5,623   

The following table presents the amount of troubled debt restructurings by collateral types, classified separately as accrual and nonaccrual at March 31, 2020 and December 31, 2019: 
March 31, 2020 Accruing Loans Non-Accruing Loans
Collateral Type #
Balance
(in thousands)
#
Balance
(in thousands)
Warehouse 4 $ 260    1 $ 323   
Raw land 4 859    5 670   
Hotel and motel 2 358    1 241   
Office 3 493    2 395   
Retail, including strip centers 9 4,427    1 367   
1-4 family residential 215 22,915    40 3,587   
Church — —    1 191   
Automobile/equipment/CD 8 554    41 444   
Livestock — —    1 2   
Unsecured 1 159    1 1   
Total 246 $ 30,025    94 $ 6,221   
 
December 31, 2019 Accruing Loans Non-Accruing Loans
Collateral Type #
Balance
(in thousands)
#
Balance
(in thousands)
Warehouse 4 $ 267    2 $ 442   
Raw land 5 869    5 732   
Apartments — —    — —   
Hotel and motel 2 364    1 241   
Office 3 531    1 342   
Retail, including strip centers 11 5,520    — —   
1-4 family residential 200 21,404    40 3,232   
Church — —    1 183   
Automobile/equipment/CD 8 498    43 436   
Livestock — —    1 14   
Unsecured 1 156    1 1   
Total 234 $ 29,609    95 $ 5,623   
 
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.
 
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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 of March 31, 2020, 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 of March 31, 2020 and December 31, 2019. The loan categories and concentrations below are based on Federal Reserve Call codes: 
  March 31, 2020 December 31, 2019
(dollars in thousands) Balance % of Total
Loans 		Balance % of Total
Loans
Construction and development loans $ 1,628,367    12% $ 1,549,062    12%
Multi-family loans 262,589    2% 297,317    2%
Nonfarm non-residential loans (excluding owner-occupied) 2,595,913    20% 2,358,987    18%
Total CRE Loans (excluding owner-occupied)
4,486,869    34% 4,205,366    33%
All other loan types 8,607,237    66% 8,613,110    67%
Total Loans $ 13,094,106    100% $ 12,818,476    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 March 31, 2020 and December 31, 2019: 
Internal
Limit 		Actual
  March 31, 2020 December 31, 2019
Construction and development loans 100% 89% 88%
Total CRE loans (excluding owner-occupied) 300% 245% 238%
 
Short-Term Investments
 
The Company’s short-term investments are comprised of federal funds sold and interest-bearing deposits in banks. At March 31, 2020, the Company’s short-term investments were $396.8 million, compared with $375.6 million at December 31, 2019. At March 31, 2020, the Company had $30.4 million in federal funds sold and $366.4 million was in interest-bearing deposit balances at correspondent banks and the Federal Reserve Bank of Atlanta.
 
Derivative Instruments and Hedging Activities
 
The Company has a cash flow hedge that matures September 15, 2020 with a notional amount of $37.1 million at March 31, 2020 and December 31, 2019 for the purpose of converting the variable rate on certain junior subordinated debentures to a fixed rate of 4.11%. The fair value of this instrument was a liability of $310,000 at March 31, 2020 and $187,000 at December 31, 2019. No material hedge ineffectiveness from cash flow was recognized in the statement of operations. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

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The Company also 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 $48.8 million and $7.8 million at March 31, 2020 and December 31, 2019, respectively, and a liability of $48.1 million and $4.5 million at March 31, 2020 and December 31, 2019, respectively.
 
Capital
 
Common Stock Repurchase Program

On September 19, 2019, the Company announced that its Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock.  Repurchases of shares, which are authorized to occur through October 31 2020, must be made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including share acquisition price, regulatory limitations and other market and economic factors. The program does not require the Company to repurchase any specific number of shares. As of March 31, 2020, $14.3 million, or 358,664 shares of the Company's common stock, had been repurchased under the program.

Fidelity Acquisition

On July 1, 2019, the Company issued 22,181,522 shares of its common stock to the shareholders of Fidelity. Such shares had a value of $39.19 per share at the time of issuance, resulting in an increase in shareholders’ equity of $869.3 million .

For additional information regarding the Fidelity acquisition, see Note 2.

Capital Management
 
Capital management consists of providing equity to support both current and anticipated future operations. The Company is subject to capital adequacy requirements imposed by the Federal Reserve Board (the “FRB”) and the Georgia Department of Banking and Finance (the "GDBF"), and the Bank is subject to capital adequacy requirements imposed by the FDIC and the GDBF.
 
The FRB, the FDIC and the GDBF have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. These standards define and establish minimum capital requirements in relation to assets and off-balance sheet exposure, adjusted for credit risk. The risk-based capital standards currently in effect are designed to make regulatory capital requirements more sensitive to differences in risk profiles among bank holding companies and banks and to account for off-balance sheet exposure.
 
In July 2013, the FRB published final rules for the adoption of the Basel III regulatory capital framework (the "Basel III Capital Rules"). The Basel III Capital Rules defined a new capital measure called "Common Equity Tier 1" ("CET1"), established that Tier 1 capital consist of Common Equity Tier 1 and "Additional Tier 1 Capital" instruments meeting specified requirements, defined Common Equity Tier 1, established a capital conservation buffer and expanded the scope of the adjustments as compared with existing regulations. The capital conservation buffer is 2.50% for 2020 and 2019.  

The regulatory capital standards are defined by the following key measurements:
 
a) The “Tier 1 Leverage Ratio” is defined as Tier 1 capital to average assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a Tier 1 leverage ratio greater than or equal to 4.00%. For a bank to be considered “well capitalized,” it must maintain a Tier 1 leverage ratio greater than or equal to 5.00%.
 
b) The “CET1 Ratio” is defined as Common equity tier 1 capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a CET1 ratio greater than or equal to 4.50% (7.00% including the 2.50% capital conservation buffer). For a bank to be considered “well capitalized,” it must maintain a CET1 ratio greater than or equal to 6.50%.
 
c) The “Tier 1 Capital Ratio” is defined as Tier 1 capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a Tier 1 capital ratio greater than or equal to 6.00% (8.50% including the 2.50% capital conservation buffer). For a bank to be considered “well capitalized,” it must maintain a Tier 1 capital ratio greater than or equal to 8.00%.
 
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d) The “Total Capital Ratio” is defined as total capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a total capital ratio greater than or equal to 8.00% (10.50% including the 2.50% capital conservation buffer). For a bank to be considered “well capitalized,” it must maintain a total capital ratio greater than or equal to 10.00%.
 
In March 2020, the Office of the Comptroller of the Currency, the FRB and the FDIC (collectively, the “agencies”) issued an interim final rule that delays the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule provides banking organizations that implement CECL in 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. As a result, the Company and Bank elected the five-year transition relief allowed under the interim final rule effective March 31, 2020.

As of March 31, 2020, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. The following table sets forth the regulatory capital ratios of for the Company and the Bank at March 31, 2020 and December 31, 2019.
  March 31, 2020 December 31, 2019
Tier 1 Leverage Ratio (tier 1 capital to average assets)
   
Consolidated 8.48% 8.48%
Ameris Bank 9.89% 9.73%
CET1 Ratio (common equity tier 1 capital to risk weighted assets)
   
Consolidated 9.82% 9.90%
Ameris Bank 11.45% 11.36%
Tier 1 Capital Ratio (tier 1 capital to risk weighted assets)
   
Consolidated 9.82% 9.90%
Ameris Bank 11.45% 11.36%
Total Capital Ratio (total capital to risk weighted assets)
   
Consolidated 12.94% 12.90%
Ameris Bank 12.41% 12.15%
 
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 and two independent members of the Company’s Board of Directors. 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
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acceptable level of interest rate risk would be for net interest income to increase/decrease no more than 20% given a change in selected interest rates of 200 basis points over any 24-month period.
 
Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of Ameris to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term assets at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks, which could provide funds on short notice, if needed. The Company has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is equal to 30% of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At March 31, 2020 and December 31, 2019, the net carrying value of the Company’s other borrowings was $1.54 billion and $1.40 billion, respectively.
 
The following liquidity ratios compare certain assets and liabilities to total deposits or total assets:
March 31,
2019 		December 31,
2019 		September 30,
2019 		June 30,
2019 		March 31,
2019
Investment securities available for sale to total deposits 9.77% 10.00% 10.92% 13.29% 12.60%
Loans (net of unearned income) to total deposits 94.58% 91.38% 93.90% 94.44% 86.55%
Interest-earning assets to total assets 89.57% 89.47% 89.27% 90.87% 90.63%
Interest-bearing deposits to total deposits 69.47% 70.06% 70.15% 71.08% 71.91%
 
The liquidity resources of the Company are monitored continuously by the ALCO Committee and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s and the Bank’s liquidity ratios at March 31, 2020 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
The Company is exposed only to U.S. dollar interest rate changes, and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company’s hedging activities are limited to cash flow hedges and are part of the Company’s program to manage interest rate sensitivity.
 
At March 31, 2020, the Company had one cash flow hedge with a notional amount of $37.1 million for the purpose of converting the variable rate on certain junior subordinated debentures to a fixed rate. The LIBOR rate swap exchanges fixed rate payments of 4.11% for floating rate payments based on the three-month LIBOR rate and matures September 2020. The fair value of this instrument was a liability of $310,000 at March 31, 2020 and $187,000 at December 31, 2019.
  
The Company also had 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 approximately $48.8 million and $7.8 million at March 31, 2020 and December 31, 2019, respectively, and a liability of $48.1 million and $4.5 million at March 31, 2020 and December 31, 2019, respectively.
 
The Company has no exposure to foreign currency exchange rate risk, commodity price risk and other market risks.
 
Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as “interest rate risk.” The repricing of interest-earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of the Company’s asset/liability management program, the timing of repriced assets and liabilities is referred to as “gap management.”

The Company uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a 12-month and 24-month period is subjected to gradual and parallel shocks of 100, 200, 300 and 400 basis point increases and decreases in market rates and is monitored on a quarterly basis.
 
Additional information required by Item 305 of Regulation S-K is set forth under Part I, Item 2 of this report.
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Item 4. Controls and Procedures.
 
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act), as of the end of the period covered by this report, as required by paragraph (b) of Rules 13a-15 or 15d-15 of the Exchange Act. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are not effective, due to the material weakness in internal control over financial reporting described below.

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s financial statements will not be prevented or detected on a timely basis.

We continue to have a material weakness in our internal control over financial reporting as disclosed in Management's Assessment of Internal Control over Financial Reporting in Item 9A. Controls and Procedures of our Annual Report on Form 10-K for the year ended December 31, 2019, as amended. Specifically, during the first quarter of 2020, the Company identified a control deficiency related to certain general ledger account reconciliations that began as of the conversion of Fidelity’s core platform on November 3, 2019. While the reconciliations were completed in a timely manner, various items, which were principally related to the acquired indirect auto loan portfolio, were not researched and resolved in a timely manner. This control deficiency creates a reasonable possibility that a material misstatement to the consolidated financial statements would not have been prevented or detected on a timely basis, and as such, management has concluded that the control deficiency represents a material weakness in internal control over financial reporting.

Because of this material weakness, management concluded that the Company did not maintain effective internal control over financial reporting as of March 31, 2020.

Remediation Plan

Management has been actively engaged during the first quarter of 2020 in implementing remediation plans to address the material weakness. These plans include: (i) additional training for accounting staff performing the reconciliations; (ii) development of more detailed reconciliation procedures to allow for more timely research and resolution of items; (iii) increased personnel in the accounting department to ensure timeliness of clearing reconciling items; and (iv) the review of the system interface to the general ledger such that the number of reconciling items among impacted balance sheet accounts will be reduced.

The Company’s material weakness will not be considered remediated until the remediation plans have been implemented and tested and management concludes these controls are operating effectively.
 
Changes in Internal Control Over Financial Reporting

On January 1, 2020, the Company adopted ASU 2016-13 – Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The Company implemented changes to the policies, processes, and controls over the allowance for credit losses. Many of the controls mirror controls over our prior incurred loss methodology. New controls were implemented over data quality of critical data elements used in the new model, unfunded commitments and reconciliations. Other than the controls related to ASU 2016-13 and remediation efforts as described above, during the quarter ended March 31, 2020, there was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
From time to time, the Company and the Bank are subject to various legal proceedings, claims and disputes that arise in the ordinary course of business. Additionally, in the ordinary course of business, the Company and the Bank are also subject to regulatory examinations, information gathering requests, inquiries and investigations. Based on the Company’s current knowledge, management presently does not believe that the liabilities arising from these legal matters will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows. However, it is possible
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that the ultimate resolution of these legal matters could have a material adverse effect on the Company’s results of operations and financial condition for any particular period.
 
Item 1A. Risk Factors.
 
There have been no material changes to the risk factors disclosed in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019, as amended, except as follows:

The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, financial condition and results of operations, and such effects will depend on future developments, which are highly uncertain and difficult to predict.

In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States, as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slowdown in economic activity and a related increase in unemployment and unemployment claims. In response to the COVID-19 outbreak, the Federal Reserve Board has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10- and 30-year treasury notes have declined to historic lows. The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and have provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.

Additionally, the spread of the coronavirus has caused us to modify our business practices, including the implementation of temporary branch and office closures. Although the Company has established a pandemic response plan and procedures, our workforce has been, is and may continue to be impacted by COVID-19. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the coronavirus or will otherwise be satisfactory to government authorities. In addition, the unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the coronavirus, including the passage of the CARES Act and subsequent legislation, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion. The extent of such impact from the COVID-19 outbreak and related mitigation efforts will depend on future developments, which are highly uncertain, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

As the result, we could be subject to any of the following risks, among others, any of which could have a material, adverse effect on our business, financial condition, liquidity and results of operations:

•demand for our products and services may decline, making it difficult to grow assets and income;
•if the economy is unable to substantially reopen, and high levels of unemployment continue, for an extended period of time, loan delinquencies, problem assets and foreclosures may increase, resulting in increased charges and reduced income;
•collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
•our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
•the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and
•as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business and prospects as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and the consequences of any recession that has occurred or may occur in the future.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
c) Issuer Purchases of Equity Securities.
 
The table below sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the three-month period ended March 31, 2020. 
Period Total
Number of
Shares
Purchased 		Average Price
Paid Per Share 		Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Approximate
Dollar Value of
Shares That
 May Yet be
Purchased
Under the Plans
or Programs(1)
January 1, 2020 through January 31, 2020 —    $ —    —    $ 93,151,027   
February 1, 2020 through February 29, 2020(2)
191,870    $ 38.30    181,416    $ 86,231,187   
March 1, 2020 through March 31, 2020(3)
22,846    $ 26.56    19,000    $ 85,723,412   
Total 214,716    $ 37.05    200,416    $ 85,723,412   
 
(1)On September 19, 2019, the Company announced that its Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock.  Repurchases of shares, which are authorized to occur through October 31, 2020, will be made, if at all, in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including share acquisition price, regulatory limitations and other market and economic factors. The program does not require the Company to repurchase any specific number of shares. As of March 31, 2020, $14.3 million, or 358,664 shares of the Company's common stock, had been repurchased under the new program.
(2)The shares purchased from February 1, 2020 through February 29, 2020 includes 10,454 shares of common stock surrendered to the Company in payment of the income tax withholding obligations relating to the vesting of shares of restricted stock.
(3)The shares purchased from March 1, 2020 through March 31, 2020 includes 3,846 shares of common stock surrendered to the Company in payment of the income tax withholding obligations relating to the vesting of shares of restricted stock.


Item 3. Defaults Upon Senior Securities.
 
None.
 
Item 4. Mine Safety Disclosures.
 
Not applicable.
 
Item 5. Other Information.

None.


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Item 6. Exhibits.
Exhibit
Number 		  Description
   
3.1   Articles of Incorporation of Ameris Bancorp, as amended (incorporated by reference to Exhibit 2.1 to Ameris Bancorp’s Regulation A Offering Statement on Form 1-A filed with the SEC on August 14, 1987).
     
3.2
  Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp’s Annual Report on Form 10-K filed with the SEC on March 26, 1999).
     
3.3
  Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.9 to Ameris Bancorp’s Annual Report on Form 10-K filed with the SEC on March 31, 2003).
     
3.4
  Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on December 1, 2005).
     
3.5
  Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on November 21, 2008).
     
3.6
  Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on June 1, 2011).
     
3.7
  Bylaws of Ameris Bancorp, as amended and restated through July 1, 2019 (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on July 1, 2019).
  Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer.
     
  Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer.
     
  Section 1350 Certification by the Company’s Chief Executive Officer.
     
  Section 1350 Certification by the Company’s Chief Financial Officer.
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.


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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Dated: May 11, 2020 AMERIS BANCORP
   
  /s/ Nicole S. Stokes
  Nicole S. Stokes
  Executive Vice President and Chief Financial Officer
(duly authorized signatory and principal accounting and financial officer)
 

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