Ameris Bancorp(ABCB) - 2019 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements. This section presents the unaudited consolidated financial statements and detailed notes for the periods ended June 30, 2019 Consolidated Balance Sheets Total assets grew to $11.89 billion driven by loan growth, while shareholders' equity increased to $1.54 billion Key Balance Sheet Metrics | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | 11,889,336 | 11,443,515 | 445,821 | 3.90% | | Loans, net | 9,018,077 | 8,483,095 | 534,982 | 6.31% | | Total Deposits | 9,582,370 | 9,649,313 | (66,943) | -0.69% | Shareholders' Equity | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Shareholders' Equity | 1,537,121 | 1,456,347 | 80,774 | 5.55% | Consolidated Statements of Income and Comprehensive Income Net income significantly increased for both the three and six-month periods ending June 30, 2019, driven by higher interest income Three-Month Net Income | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Income | 38,904 | 9,387 | 29,517 | 314.45% | Six-Month Net Income | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Income | 78,809 | 36,047 | 42,762 | 118.63% | Key Income Metrics (Six Months) | Metric | June 30, 2019 | June 30, 2018 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Basic EPS per common share | $1.66 | $0.93 | $0.73 | 78.49% | | Total Interest Income | 253,957 | 169,458 | 84,499 | 49.87% | Consolidated Statements of Shareholders' Equity Shareholders' equity grew to $1.54 billion, primarily due to net income and other comprehensive income gains Shareholders' Equity Growth | Metric | Dec 31, 2018 ($ thousands) | June 30, 2019 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Shareholders' Equity | 1,456,347 | 1,537,121 | 80,774 | 5.55% | Components of Change (Six Months Ended June 30, 2019) | Metric | June 30, 2019 ($ thousands) | | :--- | :--- | | Net Income | 78,809 | | Other Comprehensive Income (Loss) | 21,288 | Consolidated Statements of Cash Flows Operating cash flow improved significantly, while increased loan originations drove higher cash usage in investing activities Operating Activities | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | 28,876 | (55,465) | 84,341 | 152.08% | Investing Activities | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Cash Used in Investing Activities | (678,031) | (190,711) | (487,320) | 255.53% | Financing Activities | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Cash Provided by Financing Activities | 307,783 | 340,227 | (32,444) | -9.53% | Notes to Unaudited Consolidated Financial Statements These notes provide crucial context on accounting policies, business combinations, and specific financial statement items NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES The Company operates 114 branches and adopted a new lease accounting standard in Q1 2019 - Ameris Bancorp operates 114 branches in Georgia, Alabama, Florida, and South Carolina through its wholly-owned subsidiary, Ameris Bank[22] - The adoption of ASU 2016-02 (Leases) in Q1 2019 resulted in the recognition of a $27.3 million right-of-use asset and a $29.7 million lease liability[26][28] NOTE 2 – SUBSEQUENT EVENT On July 1, 2019, the Company completed its acquisition of Fidelity Southern Corporation, expanding its market presence - Ameris Bancorp completed the acquisition of Fidelity Southern Corporation on July 1, 2019[34] - The acquisition involved issuing approximately 22.2 million common shares at a fair value of $869.3 million as merger consideration[34] Fidelity Southern Corporation Key Metrics (at June 30, 2019) | Metric | Amount ($ billions) | | :--- | :--- | | Total Assets | 4.78 | | Gross Loans | 3.92 | | Deposits | 4.04 | NOTE 3 – BUSINESS COMBINATIONS This note details fair value adjustments and goodwill recognized for three acquisitions completed in 2018 - The Company uses the acquisition method of accounting, recording assets and liabilities at fair value and recognizing goodwill[36] - Hamilton State Bancshares, Inc. acquisition resulted in $220.8 million in goodwill from consideration of $349.4 million in shares and $47.8 million in cash[37][42] - Atlantic Coast Financial Corporation acquisition resulted in $90.3 million in goodwill from consideration of $147.8 million in shares and $21.5 million in cash[47][52] - US Premium Finance Holding Company (USPF) acquisition resulted in $64.5 million in goodwill from an aggregate purchase price of $83.0 million[56][61] NOTE 4 – INVESTMENT SECURITIES Investment securities available for sale increased to $1.27 billion, with unrealized losses deemed temporary - At June 30, 2019, 107 out of 485 securities were in an unrealized loss position, but these are considered temporary due to interest rate changes and no intent to sell before recovery[71][72][75] Debt Securities Summary | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Debt Securities (Fair Value) | 1,273,244 | 1,192,423 | 80,821 | 6.78% | | Gross Unrealized Gains (June 30, 2019) | 22,794 | | | | | Gross Unrealized Losses (June 30, 2019) | (1,880) | | | | Realized Gains on Sales | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Realized Gains on Sales of Securities | 58 | 37 | 21 | 56.76% | NOTE 5 – LOANS The loan portfolio grew, driven by commercial and real estate loans, while the allowance for loan losses increased Originated Loan Portfolio | Loan Category | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Commercial, financial and agricultural | 1,648,190 | 1,316,359 | 331,831 | 25.21% | | Real estate – construction and development | 788,409 | 671,198 | 117,211 | 17.46% | | Real estate – commercial and farmland | 2,046,347 | 1,814,529 | 231,818 | 12.78% | | Real estate – residential | 1,589,646 | 1,403,000 | 186,646 | 13.30% | | Consumer installment | 449,856 | 455,371 | (5,515) | -1.21% | | Total (excluding purchased loans) | 6,522,448 | 5,660,457 | 862,091 | 15.23% | Purchased Loan Portfolio | Loan Category | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Commercial, financial and agricultural | 252,621 | 372,686 | (120,065) | -32.22% | | Real estate – construction and development | 315,141 | 227,900 | 87,241 | 38.28% | | Real estate – commercial and farmland | 1,135,866 | 1,337,859 | (201,993) | -15.10% | | Real estate – residential | 558,458 | 623,199 | (64,741) | -10.39% | | Consumer installment | 24,339 | 27,188 | (2,849) | -10.48% | | Total Purchased Loans | 2,286,425 | 2,588,832 | (302,407) | -11.68% | Allowance for Loan Losses | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Balance of allowance for loan losses | 31,793 | 28,819 | 2,974 | 10.32% | | Net Charge-offs (Six Months Ended June 30) | 5,102 | 5,170 | (68) | -1.32% | NOTE 6 – OTHER REAL ESTATE OWNED Other Real Estate Owned (OREO) decreased, while purchased OREO remained stable Other Real Estate Owned (Excluding Purchased) | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Ending balance | 5,169 | 7,218 | (2,049) | -28.39% | Purchased Other Real Estate Owned | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Ending balance | 9,506 | 9,535 | (29) | -0.30% | NOTE 7 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Securities sold under repurchase agreements, classified as short-term borrowings, decreased significantly - All securities underlying these agreements were comprised of mortgage-backed securities[156] Repurchase Agreements | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Securities sold under agreements to repurchase | 3,307 | 20,384 | (17,077) | -83.78% | NOTE 8 – OTHER BORROWINGS Other borrowings increased substantially due to new FHLB advances, with significant remaining borrowing capacity - At June 30, 2019, $1.70 billion was available for borrowing on lines with the FHLB[159] - At June 30, 2019, the Company had $1.12 billion available for borrowing at the Federal Reserve discount window[161] Total Other Borrowings | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Other Borrowings | 564,636 | 151,774 | 412,862 | 272.03% | NOTE 9 – SHAREHOLDERS' EQUITY Shareholders' equity increased, supported by a stock repurchase program and significant share issuances from 2018 acquisitions - As of June 30, 2019, $10.6 million (296,335 shares) of the Company's common stock had been repurchased under the $100.0 million repurchase program[162] - Common stock issuances for the Hamilton, Atlantic, and USPF acquisitions in 2018 significantly increased shareholders' equity by $349.4 million, $147.8 million, and $44.5 million, respectively[163][164][167] NOTE 10 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) AOCI shifted from a loss to a gain, driven by unrealized gains on investment securities - Current year changes, net of tax, included $21.79 million in unrealized gains on securities and ($412) thousand in unrealized losses on derivatives[170] AOCI Summary | Metric | Jan 1, 2019 ($ thousands) | June 30, 2019 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Accumulated Other Comprehensive Income (Loss) | (4,826) | 16,462 | 21,288 | 441.07% | NOTE 11 – WEIGHTED AVERAGE SHARES OUTSTANDING Weighted average shares outstanding increased, reflecting share issuances related to acquisitions Weighted Average Shares | Metric | June 30, 2019 (thousands) | June 30, 2018 (thousands) | Change (thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Weighted Average Common Shares Outstanding (Diluted) (3 Months) | 47,338 | 39,710 | 7,628 | 19.21% | | Weighted Average Common Shares Outstanding (Diluted) (6 Months) | 47,395 | 38,981 | 8,414 | 21.59% | NOTE 12 – LEASES The Company recognized right-of-use assets and lease liabilities following the adoption of a new lease accounting standard - The weighted-average remaining lease term is 6.2 years, and the weighted-average discount rate is 2.93%[176] Lease Balances | Metric | June 30, 2019 ($ thousands) | | :--- | :--- | | Operating lease right-of-use assets | 24,519 | | Operating lease liabilities | 26,832 | NOTE 13 – FAIR VALUE MEASURES The Company measures certain assets at fair value, primarily using Level 2 inputs for recurring and Level 3 for non-recurring items - Total recurring assets measured at fair value were $1,475,709 thousand at June 30, 2019, with the majority classified as Level 2 ($1,474,209 thousand)[199] - Total nonrecurring assets measured at fair value were $105,672 thousand at June 30, 2019, with $40,899 thousand classified as Level 3[200] - Significant unobservable inputs for Level 3 assets included collateral discounts for impaired loans (weighted average 26%) and estimated costs to sell for OREO (weighted average 24%-33%)[204] NOTE 14 – COMMITMENTS AND CONTINGENCIES The Company has various off-balance-sheet commitments and is involved in legal proceedings not expected to have a material impact - The Company is involved in legal proceedings with William J Villari, former owner of USPF, but management believes these will not have a material adverse effect on the Company's financial condition or results of operations[373][374][375] Off-Balance-Sheet Instruments | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | | :--- | :--- | :--- | | Commitments to extend credit | 1,722,454 | 1,671,419 | | Unused home equity lines of credit | 108,910 | 112,310 | | Financial standby letters of credit | 25,419 | 24,596 | | Mortgage interest rate lock commitments | 204,087 | 81,833 | NOTE 15 – SEGMENT REPORTING The Company operates and reports on five business segments, with the Banking Division being the most profitable - The Company has five reportable segments: Banking Division, Retail Mortgage Division, Warehouse Lending Division, SBA Division, and Premium Finance Division[219] Segment Net Income | Segment | Net Income (Six Months Ended June 30, 2019, $ thousands) | | :--- | :--- | | Banking Division | 55,778 | | Retail Mortgage Division | 14,400 | | Warehouse Lending Division | 4,716 | | SBA Division | 2,477 | | Premium Finance Division | 1,438 | | Total | 78,809 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management discusses financial performance, key acquisitions, and regulatory impacts for the periods ended June 30, 2019 Cautionary Note Regarding Forward-Looking Statements This section disclaims that forward-looking statements are subject to risks and uncertainties and will not be updated - Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially[227][228] - The Company has no obligation to update, revise, or correct any forward-looking statements after the report date[229] Overview Management's analysis emphasizes the use of non-GAAP measures to evaluate performance and efficiency - Management uses non-GAAP measures such as tangible common equity, tangible book value per common share, and adjusted net income to evaluate the Company's performance[231] Fidelity Acquisition The acquisition of Fidelity Southern Corporation on July 1, 2019, expanded the Company's presence in Georgia and Florida - The acquisition of Fidelity Southern Corporation was completed on July 1, 2019, expanding Ameris Bank's presence in Georgia and Florida with 62 branches[236] - Ameris issued approximately 22.2 million common shares at a fair value of $869.3 million as merger consideration[236] Fidelity Southern Corporation Key Metrics (at June 30, 2019) | Metric | Amount ($ billions) | | :--- | :--- | | Total Assets | 4.78 | | Gross Loans | 3.92 | | Deposits | 4.04 | Acquisitions Completed in 2018 Three acquisitions in 2018 significantly expanded the Company's operations and market presence - USPF acquisition (January 31, 2018): Total consideration of $83.0 million, including $55.9 million in common stock and $21.4 million in cash[240] - Atlantic acquisition (May 25, 2018): Consideration included $147.8 million in common stock and $21.5 million in cash, acquiring $875.0 million in assets[242][243] - Hamilton acquisition (June 29, 2018): Consideration included $349.4 million in common stock and $47.8 million in cash, acquiring $1.79 billion in assets[244][245] Costs and Requirements for Exceeding $10 Billion in Total Assets Exceeding $10 billion in assets subjects the Company to increased regulatory oversight, costs, and revenue caps - Exceeding $10 billion in total assets subjects Ameris Bank to increased regulatory oversight, including enhanced risk management, stress testing, and CFPB examination authority[246][247] - New regulations will lead to additional compliance costs and reduced interchange revenue due to a cap on debit card transaction fees[248] Results of Operations for the Three Months Ended June 30, 2019 and 2018 Net income for Q2 2019 significantly increased to $38.9 million, with adjusted net income rising to $45.2 million Consolidated Earnings and Profitability Net income available to common shareholders more than tripled in Q2 2019 compared to Q2 2018 Q2 Earnings Summary | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Income Available to Common Shareholders | 38,904 | 9,387 | 29,517 | 314.45% | | Adjusted Net Income | 45,210 | 29,239 | 15,971 | 54.62% | | Adjusted Net Income Per Diluted Share | $0.96 | $0.74 | $0.22 | 29.73% | Net Interest Income and Margins Net interest income grew 33.5%, driven by asset growth from acquisitions, though the net interest margin slightly decreased - Average interest-earning assets increased by $2.73 billion, or 34.9%, to $10.55 billion in Q2 2019, primarily due to acquisitions and legacy loan growth[258] - Deposit costs increased from 0.47% in Q2 2018 to 0.97% in Q2 2019[262] Q2 Net Interest Income | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Tax-Equivalent Net Interest Income | 102,713 | 76,943 | 25,770 | 33.49% | Q2 Net Interest Margin | Metric | June 30, 2019 | June 30, 2018 | Change (bps) | | :--- | :--- | :--- | :--- | | Net Interest Margin | 3.91% | 3.95% | -4 | Provision for Loan Losses The provision for loan losses decreased in Q2 2019, and asset quality metrics improved - Non-performing assets as a percentage of total assets decreased from 0.55% at December 31, 2018, to 0.51% at June 30, 2019[264] - Net charge-offs on legacy loans decreased to 0.11% of average legacy loans (annualized) in Q2 2019, compared with 0.26% in Q2 2018[264] Q2 Provision | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Provision for Loan Losses | 4,668 | 9,110 | (4,442) | -48.76% | Noninterest Income Noninterest income increased, driven by higher service charges and mortgage banking activity - Service charges on deposit accounts increased by $1.6 million (14.7%) to $12.2 million in Q2 2019[265] - Income from mortgage banking activity increased by $3.1 million (20.3%) to $18.5 million in Q2 2019[265] Q2 Noninterest Income | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Noninterest Income | 35,236 | 31,307 | 3,929 | 12.55% | Noninterest Expense Noninterest expenses decreased due to lower merger charges, despite increases in other operational costs - Merger and conversion charges decreased from $18.4 million in Q2 2018 to $3.5 million in Q2 2019[267] - Salaries and employee benefits decreased by $1.3 million (3.4%) due to a 5.5% reduction in full-time equivalent employees[267] Q2 Noninterest Expense | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Noninterest Expense | 81,251 | 86,386 | (5,135) | -5.94% | Income Taxes Income tax expense increased significantly, raising the effective tax rate for Q2 2019 - The effective tax rate increased from 20.5% in Q2 2018 to 23.7% in Q2 2019[268] Q2 Income Tax Expense | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Income Tax Expense | 12,064 | 2,423 | 9,641 | 397.89% | Results of Operations for the Six Months Ended June 30, 2019 and 2018 Net income for the first six months of 2019 more than doubled to $78.8 million, with adjusted net income at $87.8 million Consolidated Earnings and Profitability Net income available to common shareholders more than doubled in the first half of 2019 compared to the prior year Six-Month Earnings Summary | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Income Available to Common Shareholders | 78,809 | 36,047 | 42,762 | 118.63% | | Adjusted Net Income | 87,797 | 57,019 | 30,778 | 53.98% | | Adjusted Net Income Per Diluted Share | $1.85 | $1.46 | $0.39 | 26.71% | Net Interest Income and Margins Net interest income grew 38.5%, driven by strong growth in interest-earning assets, while the net interest margin remained stable - Average interest-earning assets increased by $2.91 billion, or 38.7%, to $10.43 billion, driven by growth in legacy and purchased loans[277] - Total funding costs increased to 1.08% in the first six months of 2019, up from 0.69% in the same period of 2018[280] Six-Month Net Interest Income | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Tax-Equivalent Net Interest Income | 203,166 | 146,730 | 56,436 | 38.46% | Six-Month Net Interest Margin | Metric | June 30, 2019 | June 30, 2018 | Change (bps) | | :--- | :--- | :--- | :--- | | Net Interest Margin | 3.93% | 3.93% | 0 | Provision for Loan Losses The provision for loan losses decreased for the six-month period, and asset quality metrics improved - Non-performing assets as a percentage of total assets decreased from 0.55% at December 31, 2018, to 0.51% at June 30, 2019[282] - Net charge-offs on legacy loans decreased to 0.18% of average legacy loans (annualized) for the first six months of 2019, compared with 0.20% in 2018[282] Six-Month Provision | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Provision for Loan Losses | 8,076 | 10,911 | (2,835) | -25.98% | Noninterest Income Noninterest income grew, driven by higher service charges and mortgage-related activities - Service charges on deposit accounts increased by $3.0 million (14.3%) to $23.8 million for the first six months of 2019[283] - Income from mortgage-related activities increased by $5.5 million (19.9%) to $33.2 million for the first six months of 2019[283] Six-Month Noninterest Income | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Noninterest Income | 66,007 | 57,771 | 8,236 | 14.26% | Noninterest Expense Noninterest expenses increased due to higher operational costs from acquisitions, partially offset by lower merger charges - Merger and conversion charges decreased from $19.2 million in the first six months of 2018 to $5.5 million in the same period of 2019[284] - Amortization of intangible assets increased by $3.1 million (96.3%) to $6.3 million, primarily due to acquisitions[284] Six-Month Noninterest Expense | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Noninterest Expense | 156,676 | 145,484 | 11,192 | 7.70% | Income Taxes Income tax expense more than doubled, increasing the effective tax rate for the six-month period - The effective tax rate increased from 21.9% in the first six months of 2018 to 23.0% in the same period of 2019[285] Six-Month Income Tax Expense | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Income Tax Expense | 23,492 | 10,129 | 13,363 | 131.93% | Financial Condition as of June 30, 2019 This section details the Company's financial position, including assets, liabilities, capital, and liquidity Securities The investment portfolio grew to $1.27 billion, with all unrealized losses considered temporary - All unrealized losses on debt securities are considered temporary, as the Company does not intend to sell these securities at an unrealized loss position[289] Debt Securities (Fair Value) | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Debt Securities (Fair Value) | 1,273,244 | 1,192,423 | 80,821 | 6.78% | Loans and Allowance for Loan Losses Gross loans increased to $9.31 billion, driven by legacy loan growth, while the allowance for loan losses also grew - Legacy loans increased by $862.0 million, or 15.2%, to $6.52 billion at June 30, 2019[294] - Purchased loans decreased by $302.4 million, or 11.7%, to $2.29 billion at June 30, 2019, primarily due to paydowns[294] - The allowance for loan losses totaled $31.8 million at June 30, 2019, representing 0.35% of total loans and 0.44% of legacy loans[300][306] Gross Loans | Metric | June 30, 2019 ($ billions) | Dec 31, 2018 ($ billions) | Change ($ billions) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Gross Loans Outstanding | 9.31 | 8.62 | 0.69 | 8.00% | Purchased Assets Purchased loans decreased due to paydowns, while purchased OREO remained stable - Purchased loans decreased by $302.4 million (11.7%) to $2.29 billion at June 30, 2019, primarily due to paydowns[310] - Purchased OREO totaled $9.5 million at June 30, 2019, remaining stable compared to December 31, 2018[310] Purchased Loan Pools Purchased loan pools decreased due to payments and premium amortization - Purchased loan pools decreased by $21.6 million (8.2%) to $241.0 million at June 30, 2019, primarily due to payments and premium amortization[313][314] - An allowance for loan losses of $671,000 was allocated to the purchased loan pools at June 30, 2019[314] Non-Performing Assets Total non-performing assets decreased, improving the ratio of non-performing assets to total assets - The ratio of total non-performing assets to total assets decreased from 0.55% at December 31, 2018, to 0.51% at June 30, 2019[317] Non-Performing Assets Summary | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Non-Performing Assets | 60,767 | 63,034 | (2,267) | -3.60% | Troubled Debt Restructurings Troubled debt restructurings (TDRs) increased for legacy loans but decreased for purchased loans - Troubled debt restructurings (excluding purchased loans) increased to $14.5 million at June 30, 2019, from $11.1 million at December 31, 2018[320] - Troubled debt restructurings included in purchased loans decreased to $21.3 million at June 30, 2019, from $22.2 million at December 31, 2018[324] - The Company's policy requires TDRs to be assigned a substandard grade and placed on nonaccrual status until the borrower demonstrates six months of satisfactory payment history[126] Commercial Lending Practices The Company has a concentration in Commercial Real Estate (CRE) loans, which remain within internal limits CRE Loan Concentration | Metric | June 30, 2019 ($ thousands) | % of Total Loans | | :--- | :--- | :--- | | Total CRE Loans (excluding owner-occupied) | 3,059,292 | 34% | CRE Concentration vs. Internal Limits | Metric | Internal Limit | June 30, 2019 Actual | | :--- | :--- | :--- | | Construction and development loans to total risk-based capital | 100% | 91% | | Total CRE loans (excluding owner-occupied) to total risk-based capital | 300% | 253% | Short-Term Investments Short-term investments, including federal funds sold and bank deposits, decreased significantly Short-Term Investments Summary | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Short-Term Investments | 187,000 | 507,500 | (320,500) | -63.15% | Derivative Instruments and Hedging Activities The Company uses derivatives to manage interest rate risk for subordinated debentures and mortgage inventory - The Company has a cash flow hedge with a notional amount of $37.1 million, converting a variable rate to a fixed rate of 4.11%, which was a liability of $249,000 at June 30, 2019[337] - Mortgage banking derivative instruments had a net asset value of approximately $4.4 million at June 30, 2019[338] Capital The Company and Ameris Bank were considered "well capitalized" under all regulatory measures - Ameris Bank was considered "well capitalized" under all regulatory capital measurements as of June 30, 2019[355] - As of June 30, 2019, $10.6 million (296,335 shares) had been repurchased under the $100.0 million common stock repurchase program[340] Consolidated Capital Ratios | Metric | Consolidated (June 30, 2019) | | :--- | :--- | | Tier 1 Leverage Ratio | 9.47% | | CET1 Ratio | 9.75% | | Tier 1 Capital Ratio | 10.66% | | Total Capital Ratio | 11.74% | Interest Rate Sensitivity and Liquidity The Company manages interest rate risk through simulation modeling and maintains satisfactory liquidity ratios - The ALCO Committee aims to limit net interest income change to no more than 20% given a 200 basis point change in interest rates over any 24-month period[361] - The Company's and the Bank's liquidity ratios at June 30, 2019, were considered satisfactory[363] Key Liquidity Ratios | Metric | June 30, 2019 | | :--- | :--- | | Investment securities available for sale to total deposits | 13.29% | | Loans (net of unearned income) to total deposits | 94.44% | | Interest-earning assets to total assets | 90.87% | | Interest-bearing deposits to total deposits | 71.08% | Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company's primary market risk is interest rate risk, which is managed through an asset/liability program and hedging - The Company's primary market risk exposure is to U.S. dollar interest rate changes[364] - Hedging activities include a cash flow hedge for junior subordinated debentures and forward contracts for mortgage inventory, with a net asset value of approximately $4.4 million[365][366] - The Company has no exposure to foreign currency exchange rate risk, commodity price risk, or other market risks[367] Item 4. Controls and Procedures. Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2019[371] - No material changes in internal control over financial reporting were identified during the quarter ended June 30, 2019[372] PART II – OTHER INFORMATION Item 1. Legal Proceedings. The Company is involved in legal proceedings with a former business owner, which are not expected to have a material adverse effect - The Company is involved in multiple legal proceedings with William J Villari (former USPF owner), including claims for fraudulent inducement and breach of contract[373][374] - Management believes the allegations are without merit and does not expect a material adverse effect on the Company's consolidated results or financial condition[375] Item 1A. Risk Factors. There have been no material changes to the risk factors previously disclosed in the Company's 2018 Annual Report - No material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018[377] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. This section details common stock repurchases made during the quarter under the Company's repurchase program Stock Repurchase Activity (Q2 2019) | Metric | Value | | :--- | :--- | | Total Number of Shares Purchased | 296,630 | | Average Price Paid Per Share | $35.61 | | Shares Purchased Under Publicly Announced Program | 296,335 | | Approximate Dollar Value Remaining Under Program | $89,447,425 | Item 3. Defaults Upon Senior Securities. The Company reported no defaults upon senior securities - There were no defaults upon senior securities[381] Item 4. Mine Safety Disclosures. This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[381] Item 5. Other Information. No other information was reported under this item - No other information was reported under this item[381] Item 6. Exhibits. This section lists all exhibits filed as part of the Form 10-Q - Exhibits include corporate governance documents, employment agreements, CEO/CFO certifications, and XBRL financial data files[384] Signatures The report is duly signed on behalf of Ameris Bancorp by its Chief Financial Officer - The report was signed by Nicole S Stokes, Executive Vice President and Chief Financial Officer, on August 9, 2019[386]