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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 June 30, 2021
 
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-13901
abcb-20210630_g1.jpg
AMERIS BANCORP
(Exact name of registrant as specified in its charter)

Georgia58-1456434
(State of incorporation)(IRS Employer ID No.)
3490 Piedmont Rd N.E., Suite 1550
AtlantaGeorgia30305
(Address of principal executive offices)
(404)639-6500
(Registrant’s telephone number) 

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

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




 There were 69,766,395 shares of Common Stock outstanding as of July 31, 2021.



AMERIS BANCORP
TABLE OF CONTENTS
  Page
   
PART I – FINANCIAL INFORMATION 
   
Item 1. 
   
 
   
 
   
 
   
 
   
 
   
Item 2.
   
Item 3.
   
Item 4.
   
 
   
Item 1.
   
Item 1A.
   
Item 2.
   
Item 3.
   
Item 4.
   
Item 5.
   
Item 6.
   





Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands, except per share data)
 June 30, 2021 (unaudited)December 31, 2020
Assets  
Cash and due from banks$259,729 $203,349 
Federal funds sold and interest-bearing deposits in banks3,044,795 1,913,957 
Cash and cash equivalents3,304,524 2,117,306 
Time deposits in other banks 249 
Debt securities available-for-sale, at fair value, net of allowance for credit losses of $81 and $112
778,167 982,879 
Debt securities held-to-maturity, at amortized cost, net of allowance for credit losses of $0 and $0 (fair value of $29,008 and $0)
29,055  
Other investments27,621 28,202 
Loans held for sale (includes loans at fair value of $1,210,589 and $1,001,807)
1,210,589 1,167,659 
Loans, net of unearned income14,780,791 14,480,925 
Allowance for credit losses(175,070)(199,422)
Loans, net14,605,721 14,281,503 
Other real estate owned, net5,775 11,880 
Premises and equipment, net229,994 222,890 
Goodwill928,005 928,005 
Other intangible assets, net63,783 71,974 
Cash value of bank owned life insurance277,839 176,467 
Deferred income taxes, net9,081 33,314 
Other assets416,777 416,310 
Total assets$21,886,931 $20,438,638 
Liabilities  
Deposits:  
Noninterest-bearing$6,983,761 $6,151,070 
Interest-bearing11,274,236 10,806,753 
Total deposits18,257,997 16,957,823 
Securities sold under agreements to repurchase5,544 11,641 
Other borrowings425,303 425,155 
Subordinated deferrable interest debentures125,331 124,345 
Other liabilities235,752 272,586 
Total liabilities19,049,927 17,791,550 
Commitments and Contingencies (Note 9)
Shareholders’ Equity  
Preferred stock, stated value $1,000; 5,000,000 shares authorized; 0 shares issued and outstanding
  
Common stock, par value $1; 200,000,000 shares authorized; 72,007,871 and 71,753,705 shares issued
72,008 71,754 
Capital surplus1,920,566 1,913,285 
Retained earnings863,828 671,510 
Accumulated other comprehensive income, net of tax25,024 33,505 
Treasury stock, at cost, 2,240,662 and 2,212,224 shares
(44,422)(42,966)
Total shareholders’ equity2,837,004 2,647,088 
Total liabilities and shareholders’ equity$21,886,931 $20,438,638 

 See notes to unaudited consolidated financial statements.
1


AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income (unaudited)
(dollars and shares in thousands, except per share data)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Interest income    
Interest and fees on loans$167,761 $175,345 $338,918 $346,587 
Interest on taxable securities5,244 9,347 11,362 19,429 
Interest on nontaxable securities139 157 280 314 
Interest on deposits in other banks and federal funds sold607 169 1,141 1,456 
Total interest income173,751 185,018 351,701 367,786 
Interest expense    
Interest on deposits5,775 14,273 12,573 38,375 
Interest on other borrowings6,124 6,931 12,299 17,652 
Total interest expense11,899 21,204 24,872 56,027 
Net interest income161,852 163,814 326,829 311,759 
Provision for loan losses(899)68,449 (17,478)105,496 
Provision for unfunded commitments1,299 19,712 (10,540)23,712 
Provision for other credit losses(258) (431) 
Provision for credit losses142 88,161 (28,449)129,208 
Net interest income after provision for credit losses161,710 75,653 355,278 182,551 
Noninterest income    
Service charges on deposit accounts11,007 9,922 21,836 21,766 
Mortgage banking activity70,231 104,925 168,717 140,258 
Other service charges, commissions and fees1,056 949 2,072 1,910 
Net gain (loss) on securities1 14 (11)5 
Other noninterest income6,945 5,150 14,599 11,400 
Total noninterest income89,240 120,960 207,213 175,339 
Noninterest expense    
Salaries and employee benefits85,505 95,168 181,490 171,114 
Occupancy and equipment10,812 13,807 22,593 25,835 
Data processing and communications expenses11,877 10,514 23,761 22,468 
Credit resolution-related expenses622 950 1,169 3,148 
Advertising and marketing1,946 1,455 3,377 3,813 
Amortization of intangible assets4,065 5,601 8,191 11,232 
Merger and conversion charges 895  1,435 
Other noninterest expenses20,934 27,378 43,978 54,776 
Total noninterest expense135,761 155,768 284,559 293,821 
Income before income tax expense115,189 40,845 277,932 64,069 
Income tax expense26,862 8,609 64,643 12,511 
Net income88,327 32,236 213,289 51,558 
Other comprehensive income (loss)    
Net unrealized holding gains (losses) arising during period on investment securities available-for-sale, net of tax expense (benefit) of $(283), $(13), $(2,255) and $5,743
(1,066)(49)(8,481)21,604 
Net unrealized gains on cash flow hedge during the period, net of tax benefit of $0, $30, $0 and $4
 111  14 
Total other comprehensive income (loss)(1,066)62 (8,481)21,618 
Comprehensive income$87,261 $32,298 $204,808 $73,176 
Basic earnings per common share$1.27 $0.47 $3.07 $0.74 
Diluted earnings per common share$1.27 $0.47 $3.06 $0.74 
Weighted average common shares outstanding    
Basic69,497 69,192 69,448 69,235 
Diluted69,792 69,293 69,765 69,413 
See notes to unaudited consolidated financial statements.
2


AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (unaudited)
(dollars in thousands)
Three Months Ended June 30, 2021
Common StockCapital SurplusRetained EarningsAccumulated Other Comprehensive Income, Net of TaxTreasury StockTotal Shareholders' Equity
SharesAmountSharesAmount
Balance, March 31, 202171,954,088 $71,954 $1,917,990 $785,984 $26,090 2,240,662 $(44,422)$2,757,596 
Issuance of restricted shares13,233 13 (13)— — — —  
Forfeitures of restricted shares(750)(1)(19)— — — — (20)
Proceeds from exercise of stock options41,300 42 1,167 — — — — 1,209 
Share-based compensation— — 1,441 — — — — 1,441 
Purchase of treasury shares— — — — — — —  
Net income— — — 88,327 — — — 88,327 
Dividends on common shares ($0.15 per share)
— — — (10,483)— — — (10,483)
Other comprehensive loss during the period— — — — (1,066)— — (1,066)
Balance, June 30, 202172,007,871 $72,008 $1,920,566 $863,828 $25,024 2,240,662 $(44,422)$2,837,004 
Six Months Ended June 30, 2021
Common StockCapital SurplusRetained EarningsAccumulated Other Comprehensive Income, Net of TaxTreasury StockTotal Shareholders' Equity
SharesAmountSharesAmount
Balance, December 31, 202071,753,705 $71,754 $1,913,285 $671,510 $33,505 2,212,224 $(42,966)$2,647,088 
Issuance of restricted shares99,308 99 500 — — — — 599 
Forfeitures of restricted shares(750)(1)(19)— — — — (20)
Proceeds from exercise of stock options155,608 156 4,055 — — — — 4,211 
Share-based compensation— — 2,745 — — — — 2,745 
Purchase of treasury shares— — — — — 28,438 (1,456)(1,456)
Net income— — — 213,289 — — — 213,289 
Dividends on common shares ($0.30 per share)
— — — (20,971)— — — (20,971)
Other comprehensive loss during the period— — — — (8,481)— — (8,481)
Balance, June 30, 202172,007,871 $72,008 $1,920,566 $863,828 $25,024 2,240,662 $(44,422)$2,837,004 
3


Three Months Ended June 30, 2020
Common StockCapital SurplusRetained EarningsAccumulated Other Comprehensive Income, Net of TaxTreasury StockTotal Shareholders' Equity
SharesAmountSharesAmount
Balance, March 31, 202071,651,986 $71,652 $1,908,721 $460,153 $39,551 2,210,712 $(42,927)$2,437,150 
Issuance of restricted shares33,351 33 (33)— — — —  
Forfeitures of restricted shares(11,250)(11)(159)— — — — (170)
Share-based compensation— — 1,310 — — — — 1,310 
Purchase of treasury shares— — — — — 593 (17)(17)
Net income— — — 32,236 — — — 32,236 
Dividends on common shares ($0.15 per share)
— — — (10,441)— — — (10,441)
Other comprehensive income during the period— — — — 62 — — 62 
Balance, June 30, 202071,674,087 $71,674 $1,909,839 $481,948 $39,613 2,211,305 $(42,944)$2,460,130 
Six Months Ended June 30, 2020
Common StockCapital SurplusRetained EarningsAccumulated Other Comprehensive Income, Net of TaxTreasury StockTotal Shareholders' Equity
SharesAmountSharesAmount
Balance, December 31, 201971,499,829 $71,500 $1,907,108 $507,950 $17,995 1,995,996 $(34,971)$2,469,582 
Issuance of restricted shares151,976 152 137 — — — — 289 
Forfeitures of restricted shares(11,250)(11)(159)— — — — (170)
Proceeds from exercise of stock options33,532 33 668 — — — — 701 
Share-based compensation— — 2,085 — — — — 2,085 
Purchase of treasury shares— — — — — 215,309 (7,973)(7,973)
Net income— — — 51,558 — — — 51,558 
Dividends on common shares ($0.30 per share)
— — — (20,856)— — — (20,856)
Cumulative effect of change in accounting for credit losses— — — (56,704)— — — (56,704)
Other comprehensive income during the period— — — — 21,618 — — 21,618 
Balance, June 30, 202071,674,087 $71,674 $1,909,839 $481,948 $39,613 2,211,305 $(42,944)$2,460,130 

See notes to unaudited consolidated financial statements. 
4


AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 Six Months Ended
June 30,
 20212020
Operating Activities  
Net income$213,289 $51,558 
Adjustments reconciling net income to net cash provided by (used in) operating activities:  
Depreciation8,226 7,923 
Net losses on sale or disposal of premises and equipment920 8 
Net write-downs on other assets149 1,090 
Provision for credit losses(28,449)129,208 
Net write-downs and (gains) losses on sale of other real estate owned(558)873 
Share-based compensation expense3,454 1,700 
Amortization of intangible assets8,191 11,232 
Amortization of operating lease right of use assets5,866 6,599 
Provision for deferred taxes26,488 (32,544)
Net amortization of investment securities available-for-sale1,985 2,932 
Net amortization of investment securities held-to-maturity1  
Net (gain) loss on securities11 (5)
Accretion of discount on purchased loans, net(10,589)(16,138)
Net amortization on other borrowings222 94 
Amortization of subordinated deferrable interest debentures986 970 
Loan servicing asset impairment (recovery)(11,388)30,239 
Originations of mortgage loans held for sale(4,425,420)(3,799,622)
Payments received on mortgage loans held for sale24,477 34,849 
Proceeds from sales of mortgage loans held for sale4,198,098 3,724,287 
Net gains on mortgage loans held for sale(84,992)(129,450)
Originations of SBA loans(44,257)(28,595)
Proceeds from sales of SBA loans41,017 35,152 
Net gains on sale of SBA loans(3,453)(2,614)
Increase in cash surrender value of bank owned life insurance(2,078)(1,876)
Gain on bank owned life insurance proceeds(603)(845)
Net gains on other loans held for sale(457) 
Changes in FDIC loss-share payable, net of cash payments (562)
Change attributable to other operating activities(13,363)(52,715)
Net cash used in operating activities(92,227)(26,252)
Investing Activities, net of effects of business combinations  
Proceeds from maturities of time deposits in other banks249  
Purchases of investment securities held-to-maturity(29,056) 
Proceeds from prepayments and maturities of securities available-for-sale192,022 188,920 
Net (increase) decrease in other investments570 (9,529)
Net increase in loans(219,110)(1,591,894)
Purchases of premises and equipment(17,196)(9,267)
Proceeds from sale of premises and equipment 946 409 
Proceeds from sales of other real estate owned7,902 3,169 
Payments paid to FDIC under loss-share agreements (177)
Purchases of bank owned life insurance(100,000) 
Proceeds from bank owned life insurance1,309 2,980 
Payments received on other loans held for sale9,136  
Proceeds from sales of other loans held for sale156,803  
Net cash and cash equivalents received from acquisitions (2,417)
Net cash provided by (used in) investing activities3,575 (1,417,806)
  (Continued)

5


AMERIS BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
 Six Months Ended
June 30,
 20212020
Financing Activities, net of effects of business combinations  
Net increase in deposits$1,300,174 $1,564,859 
Net decrease in securities sold under agreements to repurchase(6,097)(7,756)
Proceeds from other borrowings 4,745,000 
Repayment of other borrowings(74)(4,725,167)
Repayment of subordinated deferrable interest debentures (5,155)
Proceeds from exercise of stock options4,211 701 
Dividends paid - common stock(20,888)(20,841)
Purchase of treasury shares(1,456)(7,973)
Net cash provided by financing activities1,275,870 1,543,668 
Net increase in cash and cash equivalents1,187,218 99,610 
Cash and cash equivalents at beginning of period2,117,306 621,849 
Cash and cash equivalents at end of period$3,304,524 $721,459 
Supplemental Disclosures of Cash Flow Information  
Cash paid during the period for:  
Interest$25,985 $60,725 
Income taxes30,924 7,934 
Loans transferred to other real estate owned1,239 8,165 
Loans transferred from loans held for sale to loans held for investment85,748 86,557 
Loans provided for the sales of other real estate owned1,052 299 
Right-of-use assets obtained in exchange for new operating lease liabilities2,932 8,844 
Change in unrealized gain (loss) on securities available-for-sale, net of tax(8,481)21,603 
Change in unrealized gain (loss) on cash flow hedge, net of tax 14 
  (Concluded)

See notes to unaudited consolidated financial statements.

6


AMERIS BANCORP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
June 30, 2021
 
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 June 30, 2021, the Bank operated 165 branches in select markets in Georgia, Alabama, Florida, North Carolina and South Carolina. Our business model capitalizes on the efficiencies of a large financial services company, while still providing the community with the personalized banking service expected by our customers. We manage our Bank through a balance of decentralized management responsibilities and efficient centralized operating systems, products and loan underwriting standards. The Company’s Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within our established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of his or her unique market.

Basis of Presentation

The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited but reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended June 30, 2021 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items in process of collection, amounts due from banks, interest-bearing deposits in banks 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 June 30, 2021 and December 31, 2020.

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 2021

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. During the first quarter of 2021, the Company adopted this ASU and applied the amendments in this update on a modified retrospective basis for the provision related to franchise taxes and prospectively for all other amendments. The adoption did not have a material impact on the Company's consolidated financial statements.
7


Accounting Standards Pending Adoption

ASU No. 2021-01 – Reference Rate Reform (Topic 848): Scope ("ASU 2021-01"). ASU 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. Because the guidance is intended to assist stakeholders during the global market-wide reference rate transition period, it is in effect for a limited time, from March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of adopting ASU 2021-01 on the consolidated financial statements.

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.

NOTE 2 – INVESTMENT SECURITIES

The amortized cost and estimated fair value of securities available-for-sale along with allowance for credit losses, gross unrealized gains and losses are summarized as follows:

(dollars in thousands)
Securities available-for-sale
Amortized
Cost
Allowance for Credit LossesGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
June 30, 2021
U.S. government sponsored agencies$12,120 $ $207 $ $12,327 
State, county and municipal securities58,016  2,820  60,836 
Corporate debt securities43,132 (81)810 (249)43,612 
SBA pool securities52,283  2,071 (73)54,281 
Mortgage-backed securities581,021  26,100 (10)607,111 
Total debt securities available-for-sale$746,572 $(81)$32,008 $(332)$778,167 
December 31, 2020
U.S. government sponsored agencies$17,161 $ $343 $ $17,504 
State, county and municipal securities63,286  3,492  66,778 
Corporate debt securities51,639 (112)602 (233)51,896 
SBA pool securities59,973  2,620 (96)62,497 
Mortgage-backed securities748,521  35,797 (114)784,204 
Total debt securities available-for-sale$940,580 $(112)$42,854 $(443)$982,879 

The amortized cost and estimated fair value of securities held-to-maturity along with gross unrealized gains and losses are summarized as follows:

(dollars in thousands)
Securities held-to-maturity
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
June 30, 2021
Mortgage-backed securities$29,055 $10 $(57)$29,008 
Total debt securities held-to-maturity$29,055 $10 $(57)$29,008 

8


The amortized cost and estimated fair value of debt securities available-for-sale and held-to-maturity as of June 30, 2021, by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying these securities may be called or repaid without penalty. Therefore, these securities are not included in the maturity categories in the following maturity summary:

Available-for-SaleHeld-to-Maturity
(dollars in thousands)
Amortized
Cost
Estimated Fair ValueAmortized
Cost
Estimated Fair Value
Due in one year or less$21,699 $21,889 $ $ 
Due from one year to five years43,270 44,969   
Due from five to ten years58,019 60,100   
Due after ten years42,563 44,098   
Mortgage-backed securities581,021 607,111 29,055 29,008 
 $746,572 $778,167 $29,055 $29,008 

Securities with a carrying value of approximately $389.6 million and $438.7 million at June 30, 2021 and December 31, 2020, respectively, serve as collateral to secure public deposits, securities sold under agreements to repurchase and for other purposes required or permitted by law.

The following table shows the gross unrealized losses and estimated fair value of available-for-sale securities aggregated by category and length of time that securities have been in a continuous unrealized loss position at June 30, 2021 and December 31, 2020:

 Less Than 12 Months12 Months or MoreTotal
(dollars in thousands)
Securities available-for-sale
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
June 30, 2021      
Corporate debt securities$2,920 $(249)$ $ $2,920 $(249)
SBA pool securities  2,983 (73)2,983 (73)
Mortgage-backed securities3,214 (7)424 (3)3,638 (10)
Total debt securities available-for-sale$6,134 $(256)$3,407 $(76)$9,541 $(332)
December 31, 2020      
Corporate debt securities$10,159 $(233)$ $ $10,159 $(233)
SBA pool securities  3,948 (96)3,948 (96)
Mortgage-backed securities24,120 (114)2  24,122 (114)
Total debt securities available-for-sale$34,279 $(347)$3,950 $(96)$38,229 $(443)

As of June 30, 2021, the Company’s available-for-sale security portfolio consisted of 470 securities, 17 of which were in an unrealized loss position. At June 30, 2021, 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 June 30, 2021, the Company held five U.S. Small Business Administration (“SBA”) pool securities and three corporate securities that were in an unrealized loss position.

The following table shows the gross unrealized losses and estimated fair value of held-to-maturity securities aggregated by category and length of time that securities have been in a continuous unrealized loss position at June 30, 2021:

 Less Than 12 Months12 Months or MoreTotal
(dollars in thousands)
Securities held-to-maturity
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
June 30, 2021
Mortgage-backed securities$9,583 $(57)$ $ $9,583 $(57)
Total debt securities held-to-maturity$9,583 $(57)$ $ $9,583 $(57)

As of June 30, 2021, the Company’s held-to-maturity security portfolio consisted of four mortgage-backed securities, two of which were in an unrealized loss position.
9


During 2021 and 2020, 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 June 30, 2021 or December 31, 2020.

At June 30, 2021 and December 31, 2020, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.

Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate available-for-sale securities in an unrealized loss position on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation, to determine if credit-related impairment exists. Management first evaluates whether they intend to sell or more likely than not will be required to sell an impaired security before recovering its amortized cost basis. If either criteria is met, the entire amount of unrealized loss is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. If either of the above criteria is not met, management evaluates whether the decline in fair value is attributable to credit or resulted from other factors. The Company does not intend to sell these available-for-sale investment securities at an unrealized loss position at June 30, 2021, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Based on the results of management's review, at June 30, 2021, management determined $81,000 was attributable to credit impairment and established the allowance for credit losses accordingly. The remaining $332,000 in unrealized loss was determined to be from factors other than credit.

(dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
Allowance for credit losses
2021202020212020
Beginning balance$101 $ $112 $ 
Provision for expected credit losses(20) (31) 
Ending balance$81 $ $81 $ 

The Company's held-to-maturity securities have zero expected credit losses and no related allowance for credit losses has been established.

Total gain (loss) on securities reported on the consolidated statements of income and comprehensive income is comprised of the following for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2021202020212020
Unrealized holding gains (losses) on equity securities$1 $14 $(11)$5 
Total gain (loss) on securities$1 $14 $(11)$5 

NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans are stated at amortized cost. Balances within the major loans receivable categories are presented in the following table:

(dollars in thousands)June 30, 2021December 31, 2020
Commercial, financial and agricultural$1,406,421 $1,627,477 
Consumer installment229,411 306,995 
Indirect automobile397,373 580,083 
Mortgage warehouse841,347 916,353 
Municipal647,578 659,403 
Premium finance780,328 687,841 
Real estate – construction and development1,527,883 1,606,710 
Real estate – commercial and farmland6,051,472 5,300,006 
Real estate – residential2,898,978 2,796,057 
 $14,780,791 $14,480,925 

10


Included in commercial, financial and agricultural loans at June 30, 2021 and December 31, 2020 above are $487.9 million and $827.4 million, respectively, related to the SBA's Paycheck Protection Program (“PPP”). Accrued interest receivable on loans is reported in other assets on the consolidated balance sheets totaling $62.3 million and $73.4 million at June 30, 2021 and December 31, 2020, respectively. The Company recorded an allowance for credit losses of $318,000 and $718,000 related to deferred interest on loans modified under its Disaster Relief Program at June 30, 2021 and December 31, 2020, respectively.

Nonaccrual and Past-Due Loans

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged to interest income. Interest on loans that are classified as nonaccrual is subsequently applied to principal until the loans are returned to accrual status. The Company’s loan policy states that a nonaccrual loan may be returned to accrual status when (i) none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest, or (ii) it otherwise becomes well secured and in the process of collection. Restoration to accrual status on any given loan must be supported by a well-documented credit evaluation of the borrower’s financial condition and the prospects for full repayment, approved by the Company’s Chief Credit Officer. Past-due loans are loans whose principal or interest is past due 30 days or more. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the original contractual terms.

The following table presents an analysis of loans accounted for on a nonaccrual basis:

(dollars in thousands)June 30, 2021December 31, 2020
Commercial, financial and agricultural$7,284 $9,836 
Consumer installment503 709 
Indirect automobile1,393 2,831 
Real estate – construction and development1,746 5,407 
Real estate – commercial and farmland17,385 18,517 
Real estate – residential31,610 39,157 
$59,921 $76,457 

There was no interest income recognized on nonaccrual loans during the six months ended June 30, 2021 and 2020.

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

(dollars in thousands)June 30, 2021December 31, 2020
Commercial, financial and agricultural$966 $764 
Real estate – construction and development66 416 
Real estate – commercial and farmland3,621 7,015 
Real estate – residential6,842 5,299 
$11,495 $13,494 

11


The following table presents an analysis of past-due loans as of June 30, 2021 and December 31, 2020:

(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
June 30, 2021       
Commercial, financial and agricultural$3,070 $1,012 $3,176 $7,258 $1,399,163 $1,406,421 $ 
Consumer installment1,575 1,027 869 3,471 225,940 229,411 556 
Indirect automobile699 345 895 1,939 395,434 397,373  
Mortgage warehouse    841,347 841,347  
Municipal    647,578 647,578  
Premium finance3,866 3,853 2,668 10,387 769,941 780,328 2,669 
Real estate – construction and development18,562 1,037 2,764 22,363 1,505,520 1,527,883 1,649 
Real estate – commercial and farmland1,160 618 6,412 8,190 6,043,282 6,051,472  
Real estate – residential10,093 4,608 27,883 42,584 2,856,394 2,898,978  
Total$39,025 $12,500 $44,667 $96,192 $14,684,599 $14,780,791 $4,874 
December 31, 2020       
Commercial, financial and agricultural$4,576 $2,018 $5,652 $12,246 $1,615,231 $1,627,477 $ 
Consumer installment2,189 1,114 2,318 5,621 301,374 306,995 1,755 
Indirect automobile3,293 1,006 2,171 6,470 573,613 580,083  
Mortgage warehouse    916,353 916,353  
Municipal    659,403 659,403  
Premium finance7,188 3,895 6,571 17,654 670,187 687,841 6,571 
Real estate – construction and development13,348 723 5,150 19,221 1,587,489 1,606,710  
Real estate – commercial and farmland5,370 1,701 8,651 15,722 5,284,284 5,300,006  
Real estate – residential20,519 3,125 34,081 57,725 2,738,332 2,796,057  
Total$56,483 $13,582 $64,594 $134,659 $14,346,266 $14,480,925 $8,326 

Collateral-Dependent Loans

Collateral-dependent loans are loans where repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty. If the Company determines that foreclosure is probable, these loans are written down to the lower of cost or fair value of the collateral less estimated costs to sell. When repayment is expected to be from the operation of the collateral, the allowance for credit losses is calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. The Company may, in the alternative, measure the allowance for credit loss as the amount by which the amortized cost basis of the financial asset exceeds the estimated fair value of the collateral.

12


The following table presents an analysis of individually evaluated collateral-dependent financial assets and related allowance for credit losses:

June 30, 2021December 31, 2020
(dollars in thousands)BalanceAllowance for Credit LossesBalanceAllowance for Credit Losses
Commercial, financial and agricultural$3,246 $889 $5,490 $2,252 
Premium finance258  3,523  
Real estate – construction and development2,244 693 4,173 512 
Real estate – commercial and farmland83,000 18,494 100,180 21,001 
Real estate – residential10,928 1,070 9,716 891 
$99,676 $21,146 $123,082 $24,656 

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 have one or more higher inherent risk characteristics.

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.

13


The following tables present the loan portfolio's amortized cost by class of financing receivable, risk grade and year of origination (in thousands) as of June 30, 2021 and December 31, 2020. Generally, current period renewals of credit are underwritten again at the point of renewal and considered current period originations for purposes of the tables below. The Company had an immaterial amount of revolving loans which converted to term loans and the amortized cost basis of those loans is included in the applicable origination year. There were no loans risk graded 9 at December 31, 2020.

As of June 30, 2021
Term Loans by Origination YearRevolving Loans Amortized Cost Basis
20212020201920182017PriorTotal
Commercial, Financial and Agricultural
Risk Grade:
1$376,496 $140,359 $2,340 $918 $219 $4,915 $125,123 $650,370 
2228 446 8,778 453 766 879 3,789 15,339 
3101,165 63,440 41,678 12,311 15,782 8,307 51,509 294,192 
462,535 67,264 53,086 67,882 26,090 29,502 88,234 394,593 
5181 3,946 3,882 3,713 5,470 4,130 6,821 28,143 
6 6 461 406 507 4,742 497 6,619 
7375 658 3,940 2,602 3,712 5,096 782 17,165 
Total commercial, financial and agricultural$540,980 $276,119 $114,165 $88,285 $52,546 $57,571 $276,755 $1,406,421 
Consumer Installment
Risk Grade:
1$3,954 $4,203 $2,252 $1,119 $393 $13 $3,099 $15,033 
2   24 1 55 36 116 
311,379 9,354 3,932 1,488 497 1,595 2,943 31,188 
410,160 71,425 41,168 32,182 12,267 10,878 3,130 181,210 
5 32 75 8 21 160  296 
6  5 8  141 6 160 
710 217 345 166 66 536 66 1,406 
9      2 2 
Total consumer installment$25,503 $85,231 $47,777 $34,995 $13,245 $13,378 $9,282 $229,411 
Indirect Automobile
Risk Grade:
2$ $ $ $68 $26 $4,862 $ $4,956 
3  27,695 139,757 132,451 90,484  390,387 
6   29 31 85  145 
7  37 296 327 1,225  1,885 
Total indirect automobile$ $ $27,732 $140,150 $132,835 $96,656 $ $397,373 
Mortgage Warehouse
Risk Grade:
3$ $ $ $ $ $ $841,347 $841,347 
Total mortgage warehouse$ $ $ $ $ $ $841,347 $841,347 
14


As of June 30, 2021
Term Loans by Origination YearRevolving Loans Amortized Cost Basis
20212020201920182017PriorTotal
Municipal
Risk Grade:
1$36,781 $93,621 $13,555 $7,227 $138,378 $192,462 $ $482,024 
21,842 72,018    12,968  86,828 
3 60,812 650  5,453 2,989  69,904 
4 6,140    2,682  8,822 
Total municipal$38,623 $232,591 $14,205 $7,227 $143,831 $211,101 $ $647,578 
Premium Finance
Risk Grade:
2$654,607 $119,382 $2,973 $109 $528 $60 $ $777,659 
7593 2,076      2,669 
Total premium finance$655,200 $121,458 $2,973 $109 $528 $60 $ $780,328 
Real Estate – Construction and Development
Risk Grade:
2$ $62 $ $ $ $ $ $62 
37,884 37,592 6,222 3,962 2,633 8,030 1,038 67,361 
4426,409 451,515 295,524 67,692 42,799 27,869 37,595 1,349,403 
5 528 16,913 44,673 13,946 27,151 105 103,316 
6  21 2,126  646  2,793 
71,546 13 170 295 624 2,300  4,948 
Total real estate – construction and development$435,839 $489,710 $318,850 $118,748 $60,002 $65,996 $38,738 $1,527,883 
Real Estate – Commercial and Farmland
Risk Grade:
1$ $ $ $146 $ $ $ $146 
256,737 7,332 354 448 2,058 12,776  79,705 
3566,934 853,282 410,581 171,064 169,835 485,822 43,381 2,700,899 
4227,946 424,926 580,795 432,688 241,782 631,786 31,889 2,571,812 
51,679 17,197 112,473 72,218 133,334 149,037 4,053 489,991 
6462  10,369 14,008 29,841 28,571 884 84,135 
72,184 6,791 36,428 16,648 6,430 56,298 5 124,784 
Total real estate – commercial and farmland$855,942 $1,309,528 $1,151,000 $707,220 $583,280 $1,364,290 $80,212 $6,051,472 
Real Estate - Residential
Risk Grade:
1$ $ $ $ $ $15 $ $15 
2 36 378  96 36,139 1,150 37,799 
3611,704 681,564 352,543 157,688 115,923 390,335 186,520 2,496,277 
416,340 12,494 16,410 12,529 8,699 49,078 35,969 151,519 
5532 19,488 43,677 22,071 13,844 54,793 2,787 157,192 
6618 417 933 870 399 3,556 107 6,900 
7408 4,042 12,503 11,053 4,215 14,001 3,054 49,276 
Total real estate - residential$629,602 $718,041 $426,444 $204,211 $143,176 $547,917 $229,587 $2,898,978 

15


As of December 31, 2020
Term Loans by Origination YearRevolving Loans Amortized Cost Basis
20202019201820172016PriorTotal
Commercial, Financial and Agricultural
Risk Grade:
1$829,710 $2,912 $1,055 $387 $490 $4,961 $36,373 $875,888 
21,213 1,512 668 996 172 967 14,317 19,845 
3109,352 54,266 16,932 17,968 7,027 3,905 68,806 278,256 
486,837 71,645 74,388 37,779 15,359 23,069 85,366 394,443 
54,061 4,269 4,772 7,443 804 5,842 4,352 31,543 
621 72 506 193 3,509 1,232 632 6,165 
73,312 3,460 2,579 3,573 1,294 5,214 1,886 21,318 
8      19 19 
Total commercial, financial and agricultural$1,034,506 $138,136 $100,900 $68,339 $28,655 $45,190 $211,751 $1,627,477 
Consumer Installment
Risk Grade:
1$6,782 $3,001 $1,550 $583 $95 $1 $667 $12,679 
2  46 2  63 42 153 
315,172 6,960 2,838 887 1,455 601 4,389 32,302 
4120,800 53,593 53,182 16,329 3,121 9,437 3,556 260,018 
549 127 28 30 3 242 8 487 
6 2 9   145  156 
730 209 72 105 134 553 97 1,200 
Total consumer installment$142,833 $63,892 $57,725 $17,936 $4,808 $11,042 $8,759 $306,995 
Indirect Automobile
Risk Grade:
2$ $ $81 $31 $5,356 $3,054 $ $8,522 
3 35,432 187,656 188,302 103,570 52,781  567,741 
6  57 70 62 85  274 
7 163 519 561 1,078 1,225  3,546 
Total indirect automobile$ $35,595 $188,313 $188,964 $110,066 $57,145 $ $580,083 
Mortgage Warehouse
Risk Grade:
3$ $ $ $ $ $ $916,353 $916,353 
Total mortgage warehouse$ $ $ $ $ $ $916,353 $916,353 
Municipal
Risk Grade:
1$91,692 $12,685 $8,944 $143,741 $124,929 $97,923 $ $479,914 
273,000    9,410   82,410 
339,990 713  5,453 7,204 5,489  58,849 
431,394     6,836  38,230 
Total municipal$236,076 $13,398 $8,944 $149,194 $141,543 $110,248 $ $659,403 
16


As of December 31, 2020
Term Loans by Origination YearRevolving Loans Amortized Cost Basis
20202019201820172016PriorTotal
Premium Finance
Risk Grade:
2$661,614 $18,236 $515 $746 $121 $38 $ $681,270 
75,811 760      6,571 
Total premium finance$667,425 $18,996 $515 $746 $121 $38 $ $687,841 
Real Estate – Construction and Development
Risk Grade:
3$59,325 $7,035 $6,870 $8,046 $3,415 $6,916 $1,293 $92,900 
4605,254 445,496 205,444 50,181 14,672 26,915 68,574 1,416,536 
51,614 26,720 9,612 13,261 17,712 10,127 107 79,153 
6685 1,036 3,646 1,302  4,564  11,233 
715 2,858 566 271 42 3,136  6,888 
Total real estate – construction and development$666,893 $483,145 $226,138 $73,061 $35,841 $51,658 $69,974 $1,606,710 
Real Estate – Commercial and Farmland
Risk Grade:
1$ $ $161 $ $ $ $ $161 
27,482 540 521 2,131 4,375 10,663 1,138 26,850 
3918,939 370,703 143,591 197,942 224,712 274,665 67,067 2,197,619 
4344,777 584,814 423,241 331,024 242,573 545,745 34,326 2,506,500 
54,027 39,216 69,173 80,726 25,561 94,461 1,274 314,438 
6 10,680 4,895 28,139 7,670 31,224  82,608 
7250 54,439 18,574 15,489 27,044 55,763 271 171,830 
Total real estate – commercial and farmland$1,275,475 $1,060,392 $660,156 $655,451 $531,935 $1,012,521 $104,076 $5,300,006 
Real Estate - Residential
Risk Grade:
1$ $ $ $ $ $19 $ $19 
237 398 12 121 1,275 47,286 1,402 50,531 
3763,101 529,268 254,632 186,531 154,285 388,825 203,491 2,480,133 
419,296 19,874 15,784 11,607 14,240 53,869 44,276 178,946 
5400 1,768 3,489 3,479 1,151 12,824 3,618 26,729 
6527 1,843 1,030 334 724 3,391 255 8,104 
73,442 9,387 12,339 4,667 2,157 16,659 2,944 51,595 
Total real estate - residential$786,803 $562,538 $287,286 $206,739 $173,832 $522,873 $255,986 $2,796,057 

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’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
17


continued reasonableness of the valuation. For certain income-producing properties, current rent rolls and/or other income information can be utilized to support the appraisal valuation, when coupled with documented cap rates within our markets and a physical inspection of the collateral to validate the current condition.

The Company’s policy states that in the event a loan has been identified as a troubled debt restructuring, it should be assigned a grade of substandard until such time the borrower has demonstrated the ability to service the loan payments based on the restructured terms – generally defined as six months of satisfactory payment history. Missed payments under the original loan terms are not considered under the new structure; however, subsequent missed payments are considered non-performance and are not considered toward the six month required term of satisfactory payment history.

In the normal course of business, the Company renews loans with a modification of the interest rate or terms that are not deemed to be troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first six months of 2021 and 2020 totaling $220.8 million and $139.6 million, respectively, under such parameters.

As of June 30, 2021 and December 31, 2020, the Company had a balance of $92.3 million and $85.0 million, respectively, in troubled debt restructurings. The Company has recorded $1.0 million and $1.2 million in previous charge-offs on such loans at June 30, 2021 and December 31, 2020, respectively. The Company’s balance in the allowance for credit losses allocated to such troubled debt restructurings was $14.2 million and $13.0 million at June 30, 2021 and December 31, 2020, respectively. At June 30, 2021, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

The following table presents the loans by class modified as troubled debt restructurings which occurred during the three and six months ended June 30, 2021 and 2020. These modifications did not have a material impact on the Company’s allowance for credit losses.

Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural2$165 1$731 6$591 1$731 
Consumer installment28 37 28 415 
Real estate – construction and development   120 
Real estate – commercial and farmland38,653  516,312 116 
Real estate – residential2472 5839 121,457 7610,496 
Total9$9,298 9$1,577 25$18,368 83$11,278 

The following table presents the outstanding balance of troubled debt restructurings by class that defaulted (defined as 30 days past due) during the three and six months ended June 30, 2021 and 2020. These defaults did not have a material impact on the Company's allowance for credit losses.

Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural$ $ 3$49 1$200 
Consumer installment 34 45 34 
Indirect automobile727  22112  
Real estate – construction and development  11 2285 
Real estate – commercial and farmland1202  35,382 2676 
Real estate – residential17940 4164 271,646 8567 
Total25$1,169 7$168 60$7,195 16$1,732 

18


The following table presents the amount of troubled debt restructurings by loan class classified separately as accrual and nonaccrual at June 30, 2021 and December 31, 2020:

June 30, 2021Accruing LoansNon-Accruing Loans
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural12$1,038 10$805 
Consumer installment928 1943 
Indirect automobile3361,647 47301 
Real estate – construction and development5898 4301 
Real estate – commercial and farmland2846,025 117,103 
Real estate – residential23831,570 312,515 
Total628$81,206 122$11,068 

December 31, 2020Accruing LoansNon-Accruing Loans
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural9$521 11$849 
Consumer installment1032 2056 
Indirect automobile4372,277 51461 
Real estate – construction and development4506 5707 
Real estate – commercial and farmland2836,707 71,401 
Real estate – residential26438,800 342,671 
Total752$78,843 128$6,145 

COVID-19 Deferrals

In response to the COVID-19 pandemic, the Company offered affected borrowers payment relief under its Disaster Relief Program. These modifications primarily consisted of short-term payment deferrals or interest-only periods to assist customers. The Company has also provided payment modifications to certain borrowers in economically sensitive industries of various terms up to nine months. Modifications related to the COVID-19 pandemic and qualifying under the provisions of Section 4013 of the CARES Act are not deemed to be troubled debt restructurings. As of June 30, 2021, $127.7 million in loans remained in payment deferral related to COVID-19 pandemic Disaster Relief Program compared with $332.8 million at December 31, 2020.

The table below presents short-term deferrals related to the COVID-19 pandemic that were not considered TDRs.

June 30, 2021December 31, 2020
(dollars in thousands)COVID-19 DeferralsDeferrals as a % of total loansCOVID-19 DeferralsDeferrals as a % of total loans
Commercial, financial and agricultural$2,539 0.2 %$12,471 0.8 %
Consumer installment29  %1,418 0.5 %
Indirect automobile1,126 0.3 %8,936 1.5 %
Real estate – construction and development873 0.1 %11,049 0.7 %
Real estate – commercial and farmland63,827 1.1 %179,183 3.4 %
Real estate – residential59,331 2.0 %119,722 4.3 %
$127,725 0.9 %$332,779 2.3 %

Allowance for Credit Losses on Loans

The allowance for credit losses represents an allowance for expected losses over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company reasonably expects to execute a troubled debt restructuring with a borrower. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio.

Loan losses are charged against the allowance when management believes the collection of a loan’s principal is unlikely. Subsequent recoveries are credited to the allowance. Consumer loans are charged off in accordance with the Federal Financial Institutions Examination Council’s (“FFIEC”) Uniform Retail Credit Classification and Account Management Policy.
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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.

The Company’s methodologies for estimating the allowance for credit losses consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of loans with similar risk characteristics for which the historical loss experience was observed. The Company utilizes a one year reasonable and supportable forecast period. The Company’s methodologies revert back to historical loss information on a straight-line basis over four quarters when it can no longer develop reasonable and supportable forecasts.

During the six months ended June 30, 2021, the allowance for credit losses decreased primarily due to improvement in forecasted macroeconomic factors. The allowance for credit losses was determined at June 30, 2021 using a weighting of three economic forecasts from Moody's. The Moody's baseline economic forecast, which Moody's defines as having a 50% probability the economy will perform better than the baseline projection and the same probability it will perform worse was weighted at 50%, the stagflation scenario was weighted at 35% and the downside 75th percentile S-2 scenario was weighted at 15%. The current forecast reflects, among other things, improvements in forecast levels of unemployment, home prices and commercial real estate prices compared with the forecast at December 31, 2020.

20


The following tables detail activity and end of period balances in the allowance for credit losses by portfolio segment for the periods indicated. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Three Months Ended June 30, 2021
(dollars in thousands)Commercial,
Financial and
Agricultural
Consumer
Installment
Indirect AutomobileMortgage WarehouseMunicipalPremium Finance
Balance, March 31, 2021$8,291 $8,790 $1,272 $3,521 $790 $4,100 
Provision for loan losses1,502 491 (423)(156)(13)(833)
Loans charged off(3,529)(1,669)(141)  (1,194)
Recoveries of loans previously charged off625 212 372   2,466 
Balance, June 30, 2021$6,889 $7,824 $1,080 $3,365 $777 $4,539 
Real Estate – Construction and DevelopmentReal Estate –
Commercial and
Farmland
Real Estate –
Residential
Total
Balance, March 31, 2021$22,858 $91,211 $37,737 $178,570 
Provision for loan losses(3,757)(3,031)5,321 (899)
Loans charged off(186)(27)(392)(7,138)
Recoveries of loans previously charged off84 185 593 4,537 
Balance, June 30, 2021$18,999 $88,338 $43,259 $175,070 
Six Months Ended June 30, 2021
(dollars in thousands)Commercial,
Financial and
Agricultural
Consumer
Installment
Indirect AutomobileMortgage WarehouseMunicipalPremium Finance
Balance, December 31, 2020$7,359 $4,076 $1,929 $3,666 $791 $3,879 
Provision for loan losses4,077 6,297 (951)(301)(14)(391)
Loans charged off(5,899)(3,117)(970)  (2,537)
Recoveries of loans previously charged off1,352 568 1,072   3,588 
Balance, June 30, 2021$6,889 $7,824 $1,080 $3,365 $777 $4,539 
Real Estate – Construction and DevelopmentReal Estate –
Commercial and
Farmland
Real Estate –
Residential
Total
Balance, December 31, 2020$45,304 $88,894 $43,524 $199,422 
Provision for loan losses(26,344)640 (491)(17,478)
Loans charged off(212)(1,422)(555)(14,712)
Recoveries of loans previously charged off251 226 781 7,838 
Balance, June 30, 2021$18,999 $88,338 $43,259 $175,070 

21


Three Months Ended June 30, 2020
(dollars in thousands)Commercial,
Financial and
Agricultural
Consumer
Installment
Indirect AutomobileMortgage WarehouseMunicipalPremium Finance
Balance, March 31, 2020$8,110 $15,446 $3,464 $1,102 $522 $11,508 
Provision for loan losses11 5,165 574 396 (15)(2,083)
Loans charged off(486)(962)(1,016)  (1,903)
Recoveries of loans previously charged off303 436 359   676 
Balance, June 30, 2020$7,938 $20,085 $3,381 $1,498 $507 $8,198 
Real Estate – Construction and DevelopmentReal Estate –
Commercial and
Farmland
Real Estate –
Residential
Total
Balance, March 31, 2020$25,319 $51,754 $32,299 $149,524 
Provision for loan losses28,853 38,133 (2,585)68,449 
Loans charged off(74)(6,315)(525)(11,281)
Recoveries of loans previously charged off168 21 138 2,101 
Balance, June 30, 2020$54,266 $83,593 $29,327 $208,793 
Six Months Ended June 30, 2020
(dollars in thousands)Commercial,
Financial and
Agricultural
Consumer
Installment
Indirect AutomobileMortgage WarehouseMunicipalPremium Finance
Balance, December 31, 2019$4,567 $3,784 $ $640 $484 $2,550 
Adjustment to allowance for adoption of ASC 3262,587 8,012 4,109 463 (92)4,471 
Provision for loan losses3,091 9,636 816 395 115 2,551 
Loans charged off(2,972)(2,104)(2,247)  (2,734)
Recoveries of loans previously charged off665 757 703   1,360 
Balance, June 30, 2020$7,938 $20,085 $3,381 $1,498 $507 $8,198 
Real Estate – Construction and DevelopmentReal 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 ASC 32612,248 27,073 19,790 78,661 
Provision for loan losses35,587 53,991 (686)105,496 
Loans charged off(74)(7,243)(625)(17,999)
Recoveries of loans previously charged off510 106 345 4,446 
Balance, June 30, 2020$54,266 $83,593 $29,327 $208,793 

NOTE 4 – 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 securities underlying these agreements are included in investment securities in the Company’s consolidated balance sheets. At June 30, 2021 and December 31, 2020, 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 fall 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.

22


The following is a summary of the Company’s securities sold under agreements to repurchase at June 30, 2021 and December 31, 2020:

(dollars in thousands)June 30, 2021December 31, 2020
Securities sold under agreements to repurchase$5,544 $11,641 

At June 30, 2021 and December 31, 2020 the investment securities underlying these agreements were comprised of state, county and municipal securities and mortgage-backed securities.

NOTE 5 – OTHER BORROWINGS

Other borrowings consist of the following:

(dollars in thousands)June 30, 2021December 31, 2020
FHLB borrowings:  
Fixed Rate Advance due March 3, 2025; fixed interest rate of 1.208%
$15,000 $15,000 
Fixed Rate Advance due March 2, 2027; fixed interest rate of 1.445%
15,000 15,000 
Fixed Rate Advance due March 4, 2030; fixed interest rate of 1.606%
15,000 15,000 
Fixed Rate Advance due December 9, 2030; fixed interest rate of 4.55%
1,406 1,411 
Fixed Rate Advance due December 9, 2030; fixed interest rate of 4.55%
973 977 
Principal Reducing Advance due September 29, 2031; fixed interest rate of 3.095%
1,493 1,567 
Subordinated notes payable:  
Subordinated notes payable due March 15, 2027 net of unamortized debt issuance cost of $747 and $812, respectively; fixed interest rate of 5.75% through March 14, 2022; variable interest rate thereafter at three-month LIBOR plus 3.616%
74,253 74,188 
Subordinated notes payable due December 15, 2029 net of unamortized debt issuance cost of $2,044 and $2,165, respectively; fixed interest rate of 4.25% through December 14, 2024; variable interest rate thereafter at three-month SOFR plus 2.94%
117,956 117,835 
Subordinated notes payable due May 31, 2030 net of unaccreted purchase accounting fair value adjustment of $1,089 and $1,150, respectively; fixed interest rate of 5.875% through May 31, 2025; variable interest rate thereafter at three-month LIBOR plus 3.63%
76,089 76,150 
Subordinated notes payable due October 1, 2030 net of unamortized debt issuance cost of $1,867 and $1,973, respectively; fixed interest rate of 3.875% through September 30, 2025; variable interest rate thereafter at three-month SOFR plus 3.753%
108,133 108,027 
$425,303 $425,155 

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 June 30, 2021, $3.35 billion was available for borrowing on lines with the FHLB.

As of June 30, 2021, the Bank maintained credit arrangements with various financial institutions to purchase federal funds up to $127.0 million.

The Bank also participates in the Federal Reserve discount window borrowings program. At June 30, 2021, the Bank had $3.24 billion of loans pledged at the Federal Reserve discount window and had $2.25 billion available for borrowing.

NOTE 6 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income for the Company consists of changes in net unrealized gains and losses on investment securities available-for-sale and interest rate swap derivatives. The reclassification for gains included in net income is recorded in net gain (loss) on securities in the consolidated statement of income and comprehensive income.

23


The following table presents a summary of the accumulated other comprehensive income balances as well as changes in each of the respective components, net of tax, for the periods indicated:

(dollars in thousands)Unrealized
Gain (Loss)
on Derivatives
Unrealized
Gain (Loss)
on Securities
Accumulated
Other Comprehensive
Income
Three Months Ended June 30, 2021
Balance, March 31, 2021$ $26,090 $26,090 
Reclassification for gains included in net income, net of tax   
Current year changes, net of tax (1,066)(1,066)
Balance, June 30, 2021$ $25,024 $25,024 
Three Months Ended June 30, 2020
Balance, March 31, 2020$(244)$39,795 $39,551 
Reclassification for gains included in net income, net of tax   
Current year changes, net of tax111 (49)62 
Balance, June 30, 2020$(133)$39,746 $39,613 
Six Months Ended June 30, 2021
Balance, December 31, 2020$ $33,505 $33,505 
Reclassification for gains included in net income, net of tax   
Current year changes, net of tax (8,481)(8,481)
Balance, June 30, 2021$ $25,024 $25,024 
Six Months Ended June 30, 2020
Balance, December 31, 2019$(147)$18,142 $17,995 
Reclassification for gains included in net income, net of tax   
Current year changes, net of tax14 21,604 21,618 
Balance, June 30, 2020$(133)$39,746 $39,613 


NOTE 7 – WEIGHTED AVERAGE SHARES OUTSTANDING

Earnings per share have been computed based on the following weighted average number of common shares outstanding:

 Three Months Ended
June 30,
Six Months Ended
June 30,
(share data in thousands)2021202020212020
Average common shares outstanding69,497 69,192 69,448 69,235 
Common share equivalents:    
Stock options64 9 74 33 
Nonvested restricted share grants151 75 153 130 
Performance stock units80 17 90 15 
Average common shares outstanding, assuming dilution69,792 69,293 69,765 69,413 

For the three and six-month periods ended June 30, 2021, there were no outstanding options exerciseable for common shares with strike prices that would cause the underlying shares to be anti-dilutive. For the three and six-month periods ended June 30, 2020, there were outstanding 252,765 and 56,000 options exerciseable for common shares, respectively, with strike prices that would cause the underlying shares to be anti-dilutive.

NOTE 8 – 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
24


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)June 30, 2021December 31, 2020
Mortgage loans held for sale$1,200,139 $998,050 
SBA loans held for sale10,450 3,757 
Total loans held for sale$1,210,589 $1,001,807 

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 $10.0 million and a net loss of $15.1 million resulting from fair value changes of these mortgage loans were recorded in income during the three and six months ended June 30, 2021, respectively. For the three and six months ended June 30, 2020, net gains of $26.1 million and $41.1 million, respectively, resulting from fair value changes of these mortgage loans were recorded in income. Net losses of $45.1 million and $17.6 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 and six months ended June 30, 2021, respectively. For the three and six months ended June 30, 2020, net gains of $36.4 million and $33.8 million, respectively, resulting from changes in the fair value of the related derivative financial instruments were recorded in income. 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 June 30, 2021 and December 31, 2020:

(dollars in thousands) 
June 30, 2021December 31, 2020
Aggregate fair value of mortgage loans held for sale$1,200,139 $998,050 
Aggregate unpaid principal balance of mortgage loans held for sale1,164,671 947,460 
Past-due loans of 90 days or more361  
Nonaccrual loans361  
Unpaid principal balance of nonaccrual loans352  

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 June 30, 2021 and December 31, 2020:

(dollars in thousands) 
June 30, 2021December 31, 2020
Aggregate fair value of SBA loans held for sale$10,450 $3,757 
Aggregate unpaid principal balance of SBA loans held for sale9,423 3,393 
Past-due loans of 90 days or more  
Nonaccrual loans  

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale, loans held for sale and derivative financial instruments are recorded at fair
25


value on a recurring basis. From time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as collateral-dependent loans, loan servicing rights and OREO. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.

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 June 30, 2021 and December 31, 2020:

Recurring Basis
Fair Value Measurements
 June 30, 2021
(dollars in thousands) 
Fair ValueLevel 1Level 2Level 3
Financial assets:    
Investment securities available-for-sale:
U.S. government sponsored agencies$12,327 $ $12,327 $ 
State, county and municipal securities60,836  60,836  
Corporate debt securities43,612  42,442 1,170 
SBA pool securities54,281  54,281  
Mortgage-backed securities607,111  607,111  
Loans held for sale1,210,589  1,210,589  
Mortgage banking derivative instruments20,314  20,314  
Total recurring assets at fair value$2,009,070 $ $2,007,900 $1,170 
Financial liabilities:    
Mortgage banking derivative instruments$2,546 $ $2,546 $ 
Total recurring liabilities at fair value$2,546 $ $2,546 $ 

Recurring Basis
Fair Value Measurements
 December 31, 2020
(dollars in thousands)Fair ValueLevel 1Level 2Level 3
Financial assets:    
Investment securities available-for-sale:
U.S. government sponsored agencies$17,504 $ $17,504 $ 
State, county and municipal securities66,778  66,778  
Corporate debt securities51,896  50,726 1,170 
SBA pool securities62,497  62,497  
Mortgage-backed securities784,204  784,204  
Loans held for sale1,001,807  1,001,807  
Mortgage banking derivative instruments51,756  51,756  
Total recurring assets at fair value$2,036,442 $ $2,035,272 $1,170 
Financial liabilities:    
Mortgage banking derivative instruments$16,415 $ $16,415 $ 
Total recurring liabilities at fair value$16,415 $ $16,415 $ 

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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 June 30, 2021 and December 31, 2020:

 Nonrecurring Basis
Fair Value Measurements
(dollars in thousands)Fair ValueLevel 1Level 2Level 3
June 30, 2021    
Collateral-dependent loans$78,530 $ $ $78,530 
Other real estate owned1,979   1,979 
Mortgage servicing rights191,675   191,675 
Total nonrecurring assets at fair value$272,184 $ $ $272,184 
December 31, 2020    
Collateral-dependent loans$98,426 $ $ $98,426 
Other real estate owned4,964   4,964 
Mortgage servicing rights130,630   130,630 
SBA servicing rights5,839  5,839  
Total nonrecurring assets at fair value$239,859 $ $5,839 $234,020 

The inputs used to determine estimated fair value of collateral-dependent loans include market conditions, loan term, underlying collateral characteristics and discount rates. The inputs used to determine fair value of OREO include market conditions, estimated marketing period or holding period, underlying collateral characteristics and discount rates.

For the six months ended June 30, 2021 and the year ended December 31, 2020, 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 ValueValuation
Technique
Unobservable InputsRange of
Discounts
Weighted
Average
Discount
June 30, 2021     
Recurring:     
Investment securities available-for-sale$1,170 Discounted par valuesProbability of default13.6%13.6%
Loss given default39%39%
Nonrecurring:     
Collateral-dependent loans$78,530 Third-party appraisals and discounted cash flowsCollateral discounts and
discount rates
20% - 57%
44%
Other real estate owned$1,979 Third-party appraisals and sales contractsCollateral discounts and estimated
costs to sell
15% - 38%
23%
Mortgage servicing rights$191,675 Discounted cash flowsDiscount rate
9% - 10%
9%
Prepayment speed
13% - 42%
15%
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December 31, 2020     
Recurring:     
Investment securities available-for-sale$1,170 Discounted par valuesProbability of default18.8%18.8%
Loss given default40%40%
Nonrecurring:    
Collateral-dependent loans$98,426 Third-party appraisals and discounted cash flowsCollateral discounts and
discount rates
20% - 90%
44%
Other real estate owned$4,964 Third-party appraisals and sales contractsCollateral discounts and estimated
costs to sell
15% - 59%
28%
Mortgage servicing rights$130,630 Discounted cash flowsDiscount rate
9% - 12%
10%
Prepayment speed
14% - 37%
19%

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
  June 30, 2021
(dollars in thousands)Carrying
Amount
Level 1Level 2Level 3Total
Financial assets:     
Cash and due from banks$259,729 $259,729 $ $ $259,729 
Federal funds sold and interest-bearing accounts3,044,795 3,044,795   3,044,795 
Time deposits in other banks     
Investment securities held-to-maturity29,055  29,008  29,008 
Loans, net14,527,191   14,407,763 14,407,763 
Accrued interest receivable64,906  2,919 61,987 64,906 
Financial liabilities:     
Deposits18,257,997  18,262,653  18,262,653 
Securities sold under agreements to repurchase5,544 5,544   5,544 
Other borrowings425,303  430,674  430,674 
Subordinated deferrable interest debentures125,331  117,735  117,735 
Accrued interest payable4,375  4,375  4,375 

Fair Value Measurements
  December 31, 2020
(dollars in thousands)Carrying
Amount
Level 1Level 2Level 3Total
Financial assets:     
Cash and due from banks$203,349 $203,349 $ $ $203,349 
Federal funds sold and interest-bearing accounts1,913,957 1,913,957   1,913,957 
Time deposits in other banks249  249  249 
Investment securities held-to-maturity     
Loans, net14,183,077   14,096,711 14,096,711 
Accrued interest receivable76,254  3,567 72,687 76,254 
Financial liabilities:     
Deposits16,957,823  16,968,606  16,968,606 
Securities sold under agreements to repurchase11,641 11,641   11,641 
Other borrowings425,155  431,783  431,783 
Subordinated deferrable interest debentures124,345  116,280  116,280 
Accrued interest payable5,487  5,487  5,487 

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NOTE 9 – 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)June 30, 2021December 31, 2020
Commitments to extend credit$3,550,269 $2,826,719 
Unused home equity lines of credit262,576 259,015 
Financial standby letters of credit32,291 33,613 
Mortgage interest rate lock commitments674,525 1,199,939 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. These commitments, predominantly at variable interest rates, generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral 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 six months ended June 30, 2021 and the year ended December 31, 2020.

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

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2021202020212020
Balance at beginning of period$21,015 $17,791 $32,854 $1,077 
Adjustment to reflect adoption of ASC 326   12,714 
Addition due to acquisition    
Provision for unfunded commitments1,299 19,712 (10,540)23,712 
Balance at end of period$22,314 $37,503 $22,314 $37,503 

Other Commitments

As of June 30, 2021, letters of credit issued by the FHLB totaling $490.0 million were used to guarantee the Bank’s performance related to a portion of its public fund deposit balances.

Litigation and Regulatory Contingencies

From time to time, the Company and the Bank are subject to various legal proceedings, claims and disputes that arise in the ordinary course of business. The Company and the Bank are also subject to regulatory examinations, information gathering requests, inquiries and investigations in the ordinary course of business. Based on the Company’s current knowledge and advice of counsel, management presently does not believe that the liabilities arising from these legal matters will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows. However, it is possible
29


that the ultimate resolution of these legal matters could have a material adverse effect on the Company’s results of operations and financial condition for any particular period.

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

COVID-19

The COVID-19 pandemic has caused significant economic dislocation in the United States and an unprecedented slowdown in economic activity, as many state and local governments have intermittently ordered non-essential businesses to close and residents to shelter in place at home. As a result of the pandemic, commercial customers are experiencing varying levels of disruptions or restrictions on their business activity, and consumers are experiencing interrupted income or unemployment. We have outstanding loans to borrowers in certain industries that have been particularly susceptible to the effects of the pandemic, such as hotels, restaurants and other retail businesses. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 pandemic 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 pandemic and related mitigation efforts will depend on future developments, which are highly uncertain, including, but not limited to, the duration of the pandemic and spread of the coronavirus, including a resurgence or additional waves or variants of the virus, the actions to contain the virus or treat its impact, including public acceptance of vaccines, 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 and results of operations, including increases in loan delinquencies, problem assets and foreclosures; decreases in the value of collateral securing our loans; increases in our allowance for credit losses; and decreases in the value of our intangible assets.

NOTE 10 – 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.

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The following tables present selected financial information with respect to the Company’s reportable business segments for the three and six months ended June 30, 2021 and 2020:
 Three Months Ended
June 30, 2021
(dollars in thousands)Banking
Division
Retail
Mortgage
Division
Warehouse
Lending
Division
SBA
Division
Premium
 Finance
 Division
Total
Interest income$109,260 $34,085 $8,988 $14,050 $7,368 $173,751 
Interest expense(1,410)11,552 268 1,168 321 11,899 
Net interest income110,670 22,533 8,720 12,882 7,047 161,852 
Provision for credit losses(3,949)5,647 (155)(607)(794)142 
Noninterest income16,171 69,055 1,333 2,677 4 89,240 
Noninterest expense      
Salaries and employee benefits37,814 44,798 278 937 1,678 85,505 
Occupancy and equipment9,050 1,553 1 132 76 10,812 
Data processing and communications expenses10,280 1,435 68  94 11,877 
Other expenses18,763 7,638 30 284 852 27,567 
Total noninterest expense75,907 55,424 377 1,353 2,700 135,761 
Income before income tax expense54,883 30,517 9,831 14,813 5,145 115,189 
Income tax expense14,196 6,408 2,064 3,111 1,083 26,862 
Net income$40,687 $24,109 $7,767 $11,702 $4,062 $88,327 
Total assets$15,561,628 $3,917,275 $779,234 $748,234 $880,560 $21,886,931 
Goodwill863,507    64,498 928,005 
Other intangible assets, net50,418    13,365 63,783 
 Three Months Ended
June 30, 2020
(dollars in thousands)Banking
Division
Retail
Mortgage
Division
Warehouse
Lending
Division
SBA
Division
Premium
 Finance
 Division
Total
Interest income$128,653 $34,714 $5,285 $8,757 $7,609 $185,018 
Interest expense8,323 10,412 259 1,723 487 21,204 
Net interest income120,330 24,302 5,026 7,034 7,122 163,814 
Provision for credit losses86,805 423 403 2,322 (1,792)88,161 
Noninterest income14,468 104,195 727 1,570  120,960 
Noninterest expense      
Salaries and employee benefits40,423 50,003 209 2,612 1,921 95,168 
Occupancy and equipment11,679 1,953 1 97 77 13,807 
Data processing and communications expenses8,919 1,406 55 15 119 10,514 
Other expenses27,997 6,949 88 359 886 36,279 
Total noninterest expense89,018 60,311 353 3,083 3,003 155,768 
Income (loss) before income tax expense(41,025)67,763 4,997 3,199 5,911 40,845 
Income tax expense (benefit)(8,582)14,231 1,049 671 1,240 8,609 
Net income (loss)$(32,443)$53,532 $3,948 $2,528 $4,671 $32,236 
Total assets$13,121,679 $3,905,683 $753,668 $1,310,077 $781,522 $19,872,629 
Goodwill863,507    64,498 928,005 
Other intangible assets, net64,007    16,347 80,354 
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 Six Months Ended
June 30, 2021
(dollars in thousands)Banking
Division
Retail
Mortgage
Division
Warehouse
Lending
Division
SBA
Division
Premium
 Finance
 Division
Total
Interest income$221,639 $64,284 $19,315 $32,084 $14,379 $351,701 
Interest expense(1,847)22,767 689 2,567 696 24,872 
Net interest income223,486 41,517 18,626 29,517 13,683 326,829 
Provision for credit losses(27,853)1,094 (300)(1,154)(236)(28,449)
Noninterest income32,909 166,695 2,313 5,288 8 207,213 
Noninterest expense
Salaries and employee benefits80,537 94,636 608 2,319 3,390 181,490 
Occupancy and equipment19,170 3,029 2 238 154 22,593 
Data processing and communications expenses20,481 2,981 117 1 181 23,761 
Other expenses38,473 15,827 63 579 1,773 56,715 
Total noninterest expense158,661 116,473 790 3,137 5,498 284,559 
Income before income tax expense125,587 90,645 20,449 32,822 8,429 277,932 
Income tax expense32,652 19,035 4,294 6,893 1,769 64,643 
Net income$92,935 $71,610 $16,155 $25,929 $6,660 $213,289 

 Six Months Ended
June 30, 2020
(dollars in thousands)Banking
Division
Retail
Mortgage
Division
Warehouse
Lending
Division
SBA
Division
Premium
 Finance
 Division
Total
Interest income$260,954 $68,125 $10,135 $12,485 $16,087 $367,786 
Interest expense22,249 26,067 1,807 3,270 2,634 56,027 
Net interest income238,705 42,058 8,328 9,215 13,453 311,759 
Provision for credit losses122,802 2,420 394 1,419 2,173 129,208 
Noninterest income32,241 138,564 1,687 2,847  175,339 
Noninterest expense
Salaries and employee benefits82,044 81,100 419 4,088 3,463 171,114 
Occupancy and equipment22,026 3,457 2 194 156 25,835 
Data processing and communications expenses19,716 2,392 96 28 236 22,468 
Other expenses58,642 12,824 122 874 1,942 74,404 
Total noninterest expense182,428 99,773 639 5,184 5,797 293,821 
Income (loss) before income tax expense(34,284)78,429 8,982 5,459 5,483 64,069 
Income tax expense (benefit)(8,307)16,639 1,886 1,146 1,147 12,511 
Net income (loss)$(25,977)$61,790 $7,096 $4,313 $4,336 $51,558 

NOTE 11 – LOAN SERVICING RIGHTS

The Company sells certain residential mortgage loans and SBA loans to third parties. All such transfers are accounted for as sales and the continuing involvement in the loans sold is limited to certain servicing responsibilities. The Company has also acquired portfolios of residential mortgage, SBA and indirect automobile loans serviced for others. Loan servicing rights are initially recorded at fair value and subsequently recorded at the lower of cost or fair value and are amortized over the remaining service life of the loans, with consideration given to prepayment assumptions. Loan servicing rights are recorded in other assets on the consolidated balance sheets.

The carrying value of the loan servicing rights assets is shown in the table below:

(dollars in thousands)June 30, 2021December 31, 2020
Loan Servicing Rights
Residential mortgage$191,675 $130,630 
SBA6,123 5,839 
Indirect automobile 73 
Total loan servicing rights$197,798 $136,542 

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Residential Mortgage Loans

The Company sells certain first-lien residential mortgage loans to third party investors, primarily Federal National Mortgage Association (“FNMA”), Government National Mortgage Association (“GNMA”), and Federal Home Loan Mortgage Corporation (“FHLMC”). The Company retains the related mortgage servicing rights (“MSRs”) and receives servicing fees on certain of these loans. The net gain on loan sales, MSRs amortization and recoveries/impairment, and ongoing servicing fees on the portfolio of loans serviced for others are recorded in the consolidated statements of income and comprehensive income as part of mortgage banking activity.

During the three- and six-months ended June 30, 2021, the Company recorded servicing fee income of $11.3 million and $21.5 million, respectively. During the three- and six-months ended June 30, 2020, the Company recorded servicing fee income of $6.9 million and $13.1 million, respectively. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.

The table below is an analysis of the activity in the Company’s MSRs and valuation allowance:

(dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
Residential mortgage servicing rights2021202020212020
Beginning carrying value, net$154,746 $85,922 $130,630 $94,902 
Additions43,377 19,298 65,244 35,359 
Amortization(7,197)(5,687)(14,681)(9,853)
Recoveries/(impairment)749 (8,152)10,482 (29,027)
Ending carrying value, net$191,675 $91,381 $191,675 $91,381 

(dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
Residential mortgage servicing valuation allowance2021202020212020
Beginning balance$29,674 $20,979 $39,407 $104 
Additions 8,152  29,027 
Recoveries(749) (10,482) 
Ending balance$28,925 $29,131 $28,925 $29,131 

The key metrics and the sensitivity of the fair value to adverse changes in model inputs and/or assumptions are summarized below:

(dollars in thousands)June 30, 2021December 31, 2020
Residential mortgage servicing rights
Unpaid principal balance of loans serviced for others$15,486,442 $13,764,529 
Composition of residential loans serviced for others:
FHLMC21.35 %21.55 %
FNMA61.30 %61.75 %
GNMA17.35 %16.70 %
Total100.00 %100.00 %
Weighted average term (months)340340
Weighted average age (months)1920
Modeled prepayment speed14.67 %18.82 %
Decline in fair value due to a 10% adverse change(8,237)(7,154)
Decline in fair value due to a 20% adverse change(15,818)(13,664)
Weighted average discount rate8.76 %9.50 %
Decline in fair value due to a 10% adverse change(6,866)(4,304)
Decline in fair value due to a 20% adverse change(13,193)(8,321)

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The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in model inputs and/or assumptions generally cannot be extrapolated because the relationship of the change in input or assumption to the change in fair value may not be linear. In addition, the effect of an adverse variation in a particular input or assumption on the value of the residential mortgage servicing rights is calculated without changing any other input or assumption. In reality, changes in one factor may magnify or counteract the effect of the change.

SBA Loans

All sales of SBA loans, consisting of the guaranteed portion, are executed on a servicing retained basis. These loans, which are partially guaranteed by the SBA, are generally secured by business property such as real estate, inventory, equipment and accounts receivable. The net gain on SBA loan sales, amortization and impairment/recoveries of servicing rights, and ongoing servicing fees are recorded in the consolidated statements of income and comprehensive income as part of other noninterest income.

During the three- and six-months ended June 30, 2021, the Company recorded servicing fee income of $980,000 and $2.0 million, respectively. During the three- and six-months ended June 30, 2020, the Company recorded servicing fee income of $1.0 million and $2.1 million, respectively. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.

The table below is an analysis of the activity in the Company’s SBA loan servicing rights and valuation allowance:

(dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
SBA servicing rights2021202020212020
Beginning carrying value, net$6,445 $5,394 $5,839 $7,886 
Additions241 100 471 475 
Purchase accounting adjustment   (1,214)
Amortization(563)(416)(1,092)(779)
Recoveries/(impairment) 163 905 (1,127)
Ending carrying value, net$6,123 $5,241 $6,123 $5,241 

(dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
SBA servicing valuation allowance2021202020212020
Beginning balance$ $1,431 $905 $141 
Additions   1,127 
Recoveries (163)(905) 
Ending balance$ $1,268 $ $1,268 

(dollars in thousands)June 30, 2021December 31, 2020
SBA servicing rights
Unpaid principal balance of loans serviced for others$431,185 $351,325 
Weighted average life (in years)3.593.46
Modeled prepayment speed18.37 %19.14 %
Decline in fair value due to a 10% adverse change(393)(335)
Decline in fair value due to a 20% adverse change(747)(636)
Weighted average discount rate7.77 %9.55 %
Decline in fair value due to a 100 basis point adverse change(187)(151)
Decline in fair value due to a 200 basis point adverse change(365)(295)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in model inputs and/or assumptions generally cannot be extrapolated because the relationship of the change in input or assumption to the change in fair value may not be linear. In addition, the
34


effect of an adverse variation in a particular input or assumption on the value of the SBA servicing rights is calculated without changing any other input or assumption. In reality, changes in one factor may magnify or counteract the effect of the change.
Indirect Automobile Loans

The Company previously acquired a portfolio of indirect automobile loans serviced for others. These loans, or portions of loans, were sold on a servicing retained basis. Amortization and impairment/recoveries of servicing rights, and ongoing servicing fees are recorded in the consolidated statements of income and comprehensive income as part of other noninterest income. The Company is not actively originating or selling indirect automobile loans.

(dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
Indirect automobile servicing rights2021202020212020
Beginning carrying value, net$29 $204 $73 $247 
Amortization(29)(42)(73)(85)
Ending carrying value, net$ $162 $ $162 

During the three- and six-months ended June 30, 2021, the Company recorded servicing fee income of $170,000 and $376,000, respectively. During the three- and six-months ended June 30, 2020, the Company recorded servicing fee income of $518,000 and $1.2 million, respectively. Servicing fee income includes servicing fees, late fees and ancillary fees earned for each period.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Note Regarding Forward-Looking Statements

Certain of the statements made in this report are “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation, the following: general competitive, economic, unemployment, political and market conditions and fluctuations, including real estate market conditions, and the effects of such conditions and fluctuations on the creditworthiness of borrowers, collateral values, asset recovery values and the value of investment securities; movements in interest rates and their impacts on net interest margin; expectations on credit quality and performance; competitive pressures on product pricing and services; legislative and regulatory changes; changes in U.S. government monetary and fiscal policy; the impact of the COVID-19 pandemic on the general economy, our customers and the allowance for loan losses; the benefits that may be realized by our customers from government assistance programs and regulatory actions related to the COVID-19 pandemic; the potential impact of the phase-out of the London Interbank Offered Rate ("LIBOR") or other changes involving LIBOR; additional competition in our markets; changes in state and federal banking laws and regulations to which we are subject; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; the cost savings and any revenue synergies expected to result from acquisition transactions, which may not be fully realized within the expected timeframes if at all; the success and timing of other business strategies; our outlook and long-term goals for future growth; weather events, natural disasters, geopolitical events, acts of war or terrorism or other hostilities, public health crises and other catastrophic events beyond our control; and other factors discussed in our filings with the Securities and Exchange Commission (the “SEC”) under the Exchange Act.

All written or oral forward-looking statements that are made by or are attributable to us are expressly qualified in their entirety by this cautionary notice. Our forward-looking statements apply only as of the date of this report or the respective date of the document from which they are incorporated herein by reference. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future events or otherwise.

Overview

The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of June 30, 2021, as compared with December 31, 2020, and operating results for the three- and six-month periods ended June 30, 2021 and 2020. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

This discussion contains certain performance measures determined by methods other than in accordance with GAAP. Management of the Company uses these non-GAAP measures in its analysis of the Company’s performance. These measures are useful when evaluating the underlying performance and efficiency of the Company’s operations and balance sheet. The Company’s management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results with prior periods and demonstrate the effects of significant gains and charges in the current period. The Company’s management believes that investors may use these non-GAAP financial measures to evaluate the Company’s financial performance without the impact of unusual items that may obscure trends in the Company’s underlying performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Non-GAAP measures include adjusted net income and adjusted net income per diluted share. The Company calculates the regulatory capital ratios using current regulatory report instructions. The Company’s management uses these measures to assess the quality of capital and believes that investors may find them useful in their evaluation of the Company. These capital measures may or may not be necessarily comparable to similar capital measures that may be presented by other companies.
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Critical Accounting Policies

There have been no significant changes to our critical accounting policies from those disclosed in our 2020 Annual Report on Form 10-K. The reader should refer to the notes to our consolidated financial statements in our 2020 Annual Report on Form 10-K for a full disclosure of all critical accounting policies.

Results of Operations for the Three Months Ended June 30, 2021 and 2020

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $88.3 million, or $1.27 per diluted share, for the quarter ended June 30, 2021, compared with $32.2 million, or $0.47 per diluted share, for the same period in 2020. The Company’s return on average assets and average shareholders’ equity were 1.64% and 12.66%, respectively, in the second quarter of 2021, compared with 0.67% and 5.23%, respectively, in the second quarter of 2020. During the second quarter of 2021, the Company recorded pre-tax servicing right recovery of $749,000 and pre-tax gains on the sale of premises of $236,000. During the second quarter of 2020, the Company incurred pre-tax merger and conversion charges of $895,000, pre-tax restructuring charges of $1.5 million, pre-tax servicing right impairment of $8.0 million, pre-tax gain on BOLI proceeds of $845,000, pre-tax expenses related to SEC and DOJ investigation of $1.3 million, pre-tax expenses related to the COVID-19 pandemic of $2.0 million and pre-tax losses on the sale of premises of $281,000. Excluding these adjustment items, the Company’s net income would have been $87.5 million, or $1.25 per diluted share, for the second quarter of 2021 and $42.4 million, or $0.61 per diluted share, for the second quarter of 2020.

Below is a reconciliation of adjusted net income to net income, as discussed above.
 Three Months Ended June 30,
(in thousands, except share and per share data)20212020
Net income$88,327 $32,236 
Adjustment items:  
Merger and conversion charges— 895 
Restructuring charge— 1,463 
Servicing right impairment (recovery)(749)7,989 
Gain on BOLI proceeds— (845)
Expenses related to SEC and DOJ investigation— 1,294 
Natural disaster and pandemic expenses— 2,043 
(Gain) loss on the sale of premises(236)281 
Tax effect of adjustment items (Note 1)
206 (2,933)
After tax adjustment items(779)10,187 
Adjusted net income$87,548 $42,423 
Weighted average common shares outstanding - diluted69,791,670 69,292,972 
Net income per diluted share$1.27 $0.47 
Adjusted net income per diluted share$1.25 $0.61 
Note 1: Tax effect is calculated utilizing a 21% rate for taxable adjustments. Gain on BOLI proceeds is non-taxable and no tax effect is included.

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Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities, SBA activities and premium finance activities of the Company during the second quarter of 2021 and 2020, respectively:

 Three Months Ended
June 30, 2021
(dollars in thousands)Banking
Division
Retail
Mortgage
Division
Warehouse
Lending
Division
SBA
Division
Premium
 Finance
 Division
Total
Interest income$109,260 $34,085 $8,988 $14,050 $7,368 $173,751 
Interest expense(1,410)11,552 268 1,168 321 11,899 
Net interest income110,670 22,533 8,720 12,882 7,047 161,852 
Provision for credit losses(3,949)5,647 (155)(607)(794)142 
Noninterest income16,171 69,055 1,333 2,677 89,240 
Noninterest expense      
Salaries and employee benefits37,814 44,798 278 937 1,678 85,505 
Occupancy and equipment9,050 1,553 132 76 10,812 
Data processing and communications expenses10,280 1,435 68 — 94 11,877 
Other expenses18,763 7,638 30 284 852 27,567 
Total noninterest expense75,907 55,424 377 1,353 2,700 135,761 
Income before income tax expense54,883 30,517 9,831 14,813 5,145 115,189 
Income tax expense14,196 6,408 2,064 3,111 1,083 26,862 
Net income$40,687 $24,109 $7,767 $11,702 $4,062 $88,327 

 Three Months Ended
June 30, 2020
(dollars in thousands)Banking
Division
Retail
Mortgage
Division
Warehouse
Lending
Division
SBA
Division
Premium
Finance
Division
Total
Interest income$128,653 $34,714 $5,285 $8,757 $7,609 $185,018 
Interest expense8,323 10,412 259 1,723 487 21,204 
Net interest income120,330 24,302 5,026 7,034 7,122 163,814 
Provision for credit losses86,805 423 403 2,322 (1,792)88,161 
Noninterest income14,468 104,195 727 1,570 — 120,960 
Noninterest expense      
Salaries and employee benefits40,423 50,003 209 2,612 1,921 95,168 
Occupancy and equipment11,679 1,953 97 77 13,807 
Data processing and communications expenses8,919 1,406 55 15 119 10,514 
Other expenses27,997 6,949 88 359 886 36,279 
Total noninterest expense89,018 60,311 353 3,083 3,003 155,768 
Income (loss) before income tax expense(41,025)67,763 4,997 3,199 5,911 40,845 
Income tax expense (benefit)(8,582)14,231 1,049 671 1,240 8,609 
Net income (loss)$(32,443)$53,532 $3,948 $2,528 $4,671 $32,236 
 
38


Net Interest Income and Margins

The following table sets forth the average balance, interest income or interest expense, and average interest rate for each category of interest-earning assets and interest-bearing liabilities, net interest spread, and net interest margin on average interest-earning assets for the three months ended June 30, 2021 and 2020. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate.

 Quarter Ended June 30,
 20212020
(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$2,481,336 $607 0.10%$422,798 $168 0.16%
Investment securities857,079 5,420 2.54%1,382,699 9,544 2.78%
Loans held for sale1,705,167 11,773 2.77%1,614,080 14,053 3.50%
Loans14,549,104 157,112 4.33%13,915,406 162,617 4.70%
Total interest-earning assets19,592,686 174,912 3.58%17,334,983 186,382 4.32%
Noninterest-earning assets1,946,208 1,887,198 
Total assets$21,538,894 $19,222,181 
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Savings and interest-bearing demand deposits$9,063,721 $2,846 0.13%$7,355,593 $5,123 0.28%
Time deposits2,006,265 2,929 0.59%2,473,177 9,150 1.49%
Federal funds purchased and securities sold under agreements to repurchase6,883 0.29%12,452 25 0.81%
FHLB advances48,910 193 1.58%1,212,537 1,686 0.56%
Other borrowings376,376 4,683 4.99%269,300 3,487 5.21%
Subordinated deferrable interest debentures125,068 1,243 3.99%123,120 1,733 5.66%
Total interest-bearing liabilities11,627,223 11,899 0.41%11,446,179 21,204 0.75%
Demand deposits6,874,471 5,061,578 
Other liabilities238,931 236,051 
Shareholders’ equity2,798,269 2,478,373 
Total liabilities and shareholders’ equity$21,538,894 $19,222,181 
Interest rate spread 3.17%3.57%
Net interest income $163,013 $165,178 
Net interest margin  3.34% 3.83%

On a tax-equivalent basis, net interest income for the second quarter of 2021 was $163.0 million, a decrease of $2.2 million, or 1.3%, compared with $165.2 million reported in the same quarter in 2020. The lower net interest income is a result of a shift in mix to lower yielding interest-bearing cash, partially offset by disciplined deposit repricing and a reduction in borrowing costs. Average interest earning assets increased $2.26 billion, or 13.0%, from $17.33 billion in the second quarter of 2020 to $19.59 billion for the second quarter of 2021. This growth in interest earning assets resulted primarily from organic growth in average loans and excess liquidity from deposit growth. The Company’s net interest margin during the second quarter of 2021 was 3.34%, down 49 basis points from 3.83% reported in the second quarter of 2020. Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to $6.4 billion during the second quarter of 2021, with weighted average yields of 3.36%, compared with $7.2 billion and 3.17%, respectively, during the second quarter of 2020. Loan production yields in the lines of business were negatively impacted three and 36 basis points during the second quarters of 2021 and 2020, respectively, by originations of PPP loans in our SBA division. Loan production in the banking division amounted to $911.3 million during the second quarter of 2021, with weighted average yields of 3.75%, compared with $472.1 million and 4.16%, respectively, during the second quarter of 2020.

Total interest income, on a tax-equivalent basis, decreased to $174.9 million during the second quarter of 2021, compared with $186.4 million in the same quarter of 2020.  Yields on earning assets decreased to 3.58% during the second quarter of 2021, compared with 4.32% reported in the second quarter of 2020. During the second quarter of 2021, loans comprised 83.0% of average earning assets, compared with 89.6% in the same quarter of 2020. Yields on loans decreased to 4.33% in the second
39


quarter of 2021, compared with 4.70% in the same period of 2020. Accretion income for the second quarter of 2021 was $4.5 million, compared with $9.6 million in the second quarter of 2020.

The yield on total interest-bearing liabilities decreased from 0.75% in the second quarter of 2020 to 0.41% in the second quarter of 2021. Total funding costs, inclusive of noninterest-bearing demand deposits, decreased to 0.26% in the second quarter of 2021, compared with 0.52% during the second quarter of 2020. Deposit costs decreased from 0.39% in the second quarter of 2020 to 0.13% in the second quarter of 2021. Non-deposit funding costs increased from 1.72% in the second quarter of 2020 to 4.41% in the second quarter of 2021. The increase in non-deposit funding costs was driven primarily by a shift in mix from short-term FHLB advances as excess liquidity reduced outstanding FHLB advances. Average balances of interest bearing deposits and their respective costs for the second quarter of 2021 and 2020 are shown below:

 Three Months Ended
June 30, 2021
Three Months Ended
June 30, 2020
(dollars in thousands)Average
Balance
Average
Cost
Average
Balance
Average
Cost
NOW$3,314,334 0.10%$2,441,305 0.21%
MMDA4,872,500 0.16%4,221,906 0.36%
Savings876,887 0.06%692,382 0.05%
Retail CDs2,005,265 0.58%2,471,134 1.49%
Brokered CDs1,000 3.21%2,043 2.76%
Interest-bearing deposits$11,069,986 0.21%$9,828,770 0.58%

Provision for Credit Losses

The Company’s provision for credit losses during the second quarter of 2021 amounted to $142,000, compared with $88.2 million in the second quarter of 2020. This decrease was primarily attributable to an improved economic forecast in our CECL model, particularly levels of unemployment, home prices and gross domestic product. The provision for credit losses for the second quarter of 2021 was comprised of negative $899,000 related to loans, $1.3 million related to unfunded commitments and negative $258,000 related to other credit losses compared with $68.4 million related to loans and $19.7 million related to unfunded commitments for the second quarter of 2020. Non-performing assets as a percentage of total assets decreased from 0.48% at December 31, 2020 to 0.32% at June 30, 2021. The decrease in non-performing assets is primarily attributable to a decrease in nonaccruing loans as a result of collection activities and upgrades and continued success with OREO sales. Net charge-offs on loans during the second quarter of 2021 were approximately $2.6 million, or 0.07% of average loans on an annualized basis, compared with approximately $9.2 million, or 0.27%, in the second quarter of 2020. The Company’s total allowance for credit losses on loans at June 30, 2021 was $175.1 million, or 1.18% of total loans, compared with $199.4 million, or 1.38% of total loans, at December 31, 2020. This decrease is primarily attributable to the provision release noted above and for the year-to-date period amounting to negative $17.5 million.

Noninterest Income

Total noninterest income for the second quarter of 2021 was $89.2 million, a decrease of $31.7 million, or 26.2%, from the $121.0 million reported in the second quarter of 2020.  Income from mortgage-related activities was $70.2 million in the second quarter of 2021, a decrease of $34.7 million, or 33.1%, from $104.9 million in the second quarter of 2020. Total production in the second quarter of 2021 amounted to $2.39 billion, compared with $2.67 billion in the same quarter of 2020, while spread (gain on sale) decreased to 2.77% in the current quarter, compared with 3.53% in the same quarter of 2020. The retail mortgage open pipeline finished the second quarter of 2021 at $1.75 billion, compared with $2.33 billion at March 31, 2021 and $2.67 billion at the end of the second quarter of 2020. Service charges on deposit accounts increased $1.1 million, or 10.9%, to $11.0 million in the second quarter of 2021, compared with $9.9 million in the second quarter of 2020. This increase in service charges on deposit accounts is due primarily to an increase in volume, particularly in business accounts.

Other noninterest income increased $1.8 million, or 34.9%, to $6.9 million for the second quarter of 2021, compared with $5.2 million during the second quarter of 2020. The increase in other noninterest income was primarily attributable to an increase in gains on sales of SBA loans of $1.5 million, an increase in BOLI income of $450,000 and an increase in merchant fee income of $390,000, partially offset by a decrease of $845,000 in gain on BOLI proceeds.

Noninterest Expense

Total noninterest expense for the second quarter of 2021 decreased $20.0 million, or 12.8%, to $135.8 million, compared with $155.8 million in the same quarter 2020. Salaries and employee benefits decreased $9.7 million, or 10.2%, from $95.2 million
40


in the second quarter of 2020 to $85.5 million in the second quarter of 2021, due primarily to a decrease in variable compensation tied to mortgage production of $5.1 million, a decrease in severance of $1.1 million related to branch consolidations and efficiency initiatives and a decrease in PPP related incentives of $625,000. Occupancy and equipment expenses decreased $3.0 million, or 21.7%, to $10.8 million for the second quarter of 2021, compared with $13.8 million in the second quarter of 2020, due primarily to a reduction in leased locations related to previously announced efficiency initiatives and real estate taxes. Data processing and communications expenses increased $1.4 million, or 13.0%, to $11.9 million in the second quarter of 2021, compared with $10.5 million in the second quarter of 2020. Advertising and marketing expense was $1.9 million in the second quarter of 2021, compared with $1.5 million in the second quarter of 2020. Amortization of intangible assets decreased $1.5 million, or 27.4%, from $5.6 million in the second quarter of 2020 to $4.1 million in the second quarter of 2021. Core deposit intangibles are being amortized over an accelerated basis; therefore, the expense recorded will decline over the life of the asset. There were no merger and conversion charges in the second quarter of 2021, compared with $895,000 of such charges in the same quarter of 2020. Other noninterest expenses decreased $6.4 million, or 23.5%, from $27.4 million in the second quarter of 2020 to $20.9 million in the second quarter of 2021, due primarily to a decrease of $1.8 million in FDIC insurance, a decrease of $2.0 million in expenses related to the COVID-19 pandemic, and a decrease of $2.0 million in legal and professional fees. These decreases in other noninterest expenses were partially offset by increases in loan servicing expenses of $657,000 and variable expenses tied to production in our lines of business.

Income Taxes

Income tax expense is influenced by the statutory rate, the amount of taxable income, the amount of tax-exempt income and the amount of nondeductible expenses.  For the second quarter of 2021, the Company reported income tax expense of $26.9 million, compared with $8.6 million in the same period of 2020. The Company’s effective tax rate for the three months ending June 30, 2021 and 2020 was 23.3% and 21.1%, respectively. The increase in the effective tax rate is primarily a result of increased pre-tax book income compared with the same period in 2020.

41


Results of Operations for the Six Months Ended June 30, 2021 and 2020

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $213.3 million, or $3.06 per diluted share, for the six months ended June 30, 2021, compared with $51.6 million, or $0.74 per diluted share, for the same period in 2020. The Company’s return on average assets and average shareholders’ equity were 2.03% and 15.66%, respectively, in the six months ended June 30, 2021, compared with 0.56% and 4.17%, respectively, in the same period in 2020. During the first six months of 2021, the Company recorded pre-tax servicing right recovery of $11.4 million, pre-tax gain on BOLI proceeds of $603,000 and pre-tax gain on the sale of premises of $500,000. During the first six months of 2020, the Company incurred pre-tax merger and conversion charges of $1.4 million, pre-tax restructuring charges related to branch consolidations of $1.5 million, pre-tax servicing right impairment of $30.2 million, pre-tax gain on BOLI proceeds of $845,000, pre-tax expenses related to SEC and DOJ investigation of $2.7 million, pre-tax expenses related to the COVID-19 pandemic of $2.6 million and pre-tax loss on the sale of premises of $751,000. Excluding these adjustment items, the Company’s net income would have been $203.3 million, or $2.91 per diluted share, for the six months ended June 30, 2021 and $81.6 million, or $1.18 per diluted share, for the same period in 2020.

Below is a reconciliation of adjusted net income to net income, as discussed above.
 Six Months Ended
June 30,
(in thousands, except share and per share data)20212020
Net income available to common shareholders$213,289 $51,558 
Adjustment items:  
Merger and conversion charges— 1,435 
Restructuring charge— 1,463 
Servicing right impairment (recovery)(11,388)30,154 
Gain on BOLI proceeds(603)(845)
Expenses related to SEC and DOJ investigation— 2,737 
Natural disaster and pandemic charges— 2,591 
(Gain) loss on the sale of premises(500)751 
Tax effect of adjustment items (Note 1)
2,496 (8,216)
After tax adjustment items(9,995)30,070 
Adjusted net income$203,294 $81,628 
Weighted average common shares outstanding - diluted69,764,923 69,413,027 
Net income per diluted share$3.06 $0.74 
Adjusted net income per diluted share$2.91 $1.18 
Note 1: Tax effect is calculated utilizing a 21% rate for taxable adjustments. Gain on BOLI proceeds is non-taxable and no tax effect is included. A portion of the merger and conversion charges for the six months ended June 30, 2020 are nondeductible for tax purposes.

42


Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities, SBA activities and premium finance activities of the Company during the six months ended June 30, 2021 and 2020, respectively:

 Six Months Ended
June 30, 2021
(dollars in thousands)Banking
Division
Retail
Mortgage
Division
Warehouse
Lending
Division
SBA
Division
Premium
 Finance
 Division
Total
Interest income$221,639 $64,284 $19,315 $32,084 $14,379 $351,701 
Interest expense(1,847)22,767 689 2,567 696 24,872 
Net interest income223,486 41,517 18,626 29,517 13,683 326,829 
Provision for loan losses(27,853)1,094 (300)(1,154)(236)(28,449)
Noninterest income32,909 166,695 2,313 5,288 207,213 
Noninterest expense
Salaries and employee benefits80,537 94,636 608 2,319 3,390 181,490 
Occupancy and equipment19,170 3,029 238 154 22,593 
Data processing and communications expenses20,481 2,981 117 181 23,761 
Other expenses38,473 15,827 63 579 1,773 56,715 
Total noninterest expense158,661 116,473 790 3,137 5,498 284,559 
Income before income tax expense125,587 90,645 20,449 32,822 8,429 277,932 
Income tax expense32,652 19,035 4,294 6,893 1,769 64,643 
Net income$92,935 $71,610 $16,155 $25,929 $6,660 $213,289 

 Six Months Ended
June 30, 2020
(dollars in thousands)Banking
Division
Retail
Mortgage
Division
Warehouse
Lending
Division
SBA
Division
Premium
Finance
Division
Total
Interest income$260,954 $68,125 $10,135 $12,485 $16,087 $367,786 
Interest expense22,249 26,067 1,807 3,270 2,634 56,027 
Net interest income238,705 42,058 8,328 9,215 13,453 311,759 
Provision for loan losses122,802 2,420 394 1,419 2,173 129,208 
Noninterest income32,241 138,564 1,687 2,847 — 175,339 
Noninterest expense
Salaries and employee benefits82,044 81,100 419 4,088 3,463 171,114 
Occupancy and equipment22,026 3,457 194 156 25,835 
Data processing and communications expenses19,716 2,392 96 28 236 22,468 
Other expenses58,642 12,824 122 874 1,942 74,404 
Total noninterest expense182,428 99,773 639 5,184 5,797 293,821 
Income (loss) before income tax expense(34,284)78,429 8,982 5,459 5,483 64,069 
Income tax expense (benefit)(8,307)16,639 1,886 1,146 1,147 12,511 
Net income (loss)$(25,977)$61,790 $7,096 $4,313 $4,336 $51,558 

43


Net Interest Income and Margins

The following table sets forth the average balance, interest income or interest expense, and average yield/rate paid for each category of interest-earning assets and interest-bearing liabilities, net interest spread, and net interest margin on average interest-earning assets for the six months ended June 30, 2021 and 2020. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate.

 Six Months Ended
June 30,
 20212020
(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$2,324,365 $1,141 0.10%$434,843 $1,455 0.67%
Investment securities907,049 11,716 2.60%1,419,580 19,825 2.81%
Loans held for sale1,496,155 22,600 3.05%1,600,606 27,690 3.48%
Loans14,501,802 318,585 4.43%13,308,960 321,253 4.85%
Total interest-earning assets19,229,371 354,042 3.71%16,763,989 370,223 4.44%
Noninterest-earning assets1,915,380   1,885,757   
Total assets$21,144,751   $18,649,746   
Liabilities and Shareholders’ Equity      
Interest-bearing liabilities:      
Savings and interest-bearing demand deposits$8,915,964 $5,894 0.13%$7,145,803 $17,855 0.50%
Time deposits2,036,668 6,679 0.66%2,579,288 20,520 1.60%
Federal funds purchased and securities sold under agreements to repurchase8,077 12 0.30%14,045 65 0.93%
FHLB advances48,931 385 1.59%1,239,920 6,795 1.10%
Other borrowings376,318 9,321 4.99%269,377 6,998 5.22%
Subordinated deferrable interest debentures124,823 2,581 4.17%125,426 3,794 6.08%
Total interest-bearing liabilities11,510,781 24,872 0.44%11,373,859 56,027 0.99%
Demand deposits6,644,646   4,571,249   
Other liabilities242,402   218,498   
Shareholders’ equity2,746,922   2,486,140   
Total liabilities and shareholders’ equity$21,144,751   $18,649,746   
Interest rate spread  3.27%  3.45%
Net interest income $329,170   $314,196  
Net interest margin  3.45%  3.77%

On a tax-equivalent basis, net interest income for the six months ended June 30, 2021 was $329.2 million, an increase of $15.0 million, or 4.8%, compared with $314.2 million reported in the same period of 2020. The higher net interest income is a result of disciplined deposit pricing and a reduction in borrowing costs, partially offset by a decline in the yield on earning assets. Average interest earning assets increased $2.47 billion, or 14.7%, from $16.76 billion in the first six months of 2020 to $19.23 billion for the first six months of 2021. This growth in interest earning assets resulted primarily from organic growth in average loans, including PPP loans, and excess liquidity from deposit growth. The Company’s net interest margin during the first six months of 2021 was 3.45%, down 32 basis points from 3.77% reported for the first six months of 2020. Loan production in the lines of business (including retail mortgage, warehouse lending, SBA and premium finance) amounted to $13.9 billion during the first six months of 2021, with weighted average yields of 3.25%, compared with $11.1 billion and 3.51%, respectively, during the first six months of 2020. Loan production yields in the lines of business were negatively impacted seven and 26 basis points during the first six months of 2021 and 2020, respectively, by originations of PPP loans in our SBA division. Loan production in the banking division amounted to $1.5 billion during the first six months of 2021 with weighted average yields of 3.77%, compared with $1.4 billion and 4.42%, respectively, during the first six months of 2020.

Total interest income, on a tax-equivalent basis, decreased to $354.0 million during the six months ended June 30, 2021, compared with $370.2 million in the same period of 2020. Yields on earning assets decreased to 3.71% during the first six months of 2021, compared with 4.44% reported in the same period of 2020. During the first six months of 2021, loans comprised 83.2% of average earning assets, compared with 88.9% in the same period of 2020. Yields on loans decreased to
44


4.43% during the six months ended June 30, 2021, compared with 4.85% in the same period of 2020. Accretion income for the first six months of 2021 was $10.6 million, compared with $16.1 million in the first six months of 2020.

The yield on total interest-bearing liabilities decreased from 0.99% during the six months ended June 30, 2020 to 0.44% in the same period of 2021. Total funding costs, inclusive of noninterest-bearing demand deposits, decreased to 0.28% in the first six months of 2021, compared with 0.71% during the same period of 2020. Deposit costs decreased from 0.54% in the first six months of 2020 to 0.14% in the same period of 2021. Non-deposit funding costs increased from 2.15% in the first six months of 2020 to 4.44% in the same period of 2021. The increase in non-deposit funding costs was driven primarily by a shift in mix from short-term FHLB advances as excess liquidity reduced outstanding FHLB advances. Average balances of interest bearing deposits and their respective costs for the six months ended June 30, 2021 and 2020 are shown below:

 Six Months Ended
June 30, 2021
Six Months Ended
June 30, 2020
(dollars in thousands)Average
Balance
Average
Cost
Average
Balance
Average
Cost
NOW$3,248,655 0.11%$2,364,626 0.34%
MMDA4,817,197 0.16%4,113,275 0.66%
Savings850,112 0.06%667,902 0.09%
Retail CDs2,035,668 0.66%2,547,671 1.59%
Brokered CDs1,000 2.82%31,617 2.04%
Interest-bearing deposits$10,952,632 0.23%$9,725,091 0.79%
 
Provision for Credit Losses
 
The Company’s provision for credit losses during the six months ended June 30, 2021 amounted to negative $28.4 million, compared with $129.2 million in the six months ended June 30, 2020. This decrease was primarily attributable to an improved economic forecast in our CECL model, particularly levels of unemployment, home prices and gross domestic product. The construction and development segment was the largest contributor to the decrease in provision as a result of both a decline in funded balances and an improvement in qualitative factors compared with December 31, 2020. The improvement in qualitative factors is attributable to uncertainty in the forecast and loss drivers used in the December 31, 2020 provision estimate which Management determined were both properly addressed in the current estimate. The provision for credit losses for the first six months of 2021 was comprised of negative $17.5 million related to loans, negative $10.5 million related to unfunded commitments and negative $431,000 related to other credit losses compared with $105.5 million related to loans and $23.7 million related to unfunded commitments for the same period in 2020. Non-performing assets as a percentage of total assets decreased from 0.48% at December 31, 2020 to 0.32% at June 30, 2021. The decrease in non-performing assets is primarily attributable to a decrease in nonaccruing loans as a result of collection activities and upgrades and continued success with OREO sales. Net charge-offs on loans during the first six months of 2021 were $6.9 million, or 0.10% of average loans on an annualized basis, compared with approximately $13.6 million, or 0.20%, in the first six months of 2020. The Company’s total allowance for credit losses on loans at June 30, 2021 was $175.1 million, or 1.18% of total loans, compared with $199.4 million, or 1.38% of total loans, at December 31, 2020. This decrease is primarily attributable to the provision release noted above.

Noninterest Income

Total noninterest income for the six months ended June 30, 2021 was $207.2 million, an increase of $31.9 million, or 18.2%, from the $175.3 million reported for the six months ended June 30, 2020.  Income from mortgage-related activities increased $28.5 million, or 20.3%, from $140.3 million in the first six months of 2020 to $168.7 million in the same period of 2021. Total production in the first six months of 2021 amounted to $5.03 billion, compared with $4.03 billion in the same period of 2020, while spread (gain on sale) increased to 3.39% during the six months ended June 30, 2021, compared with 3.31% in the same period of 2020. The retail mortgage open pipeline was $1.75 billion at June 30, 2021, compared with $2.00 billion at December 31, 2020 and $2.67 billion at June 30, 2020. Mortgage-related activities was positively impacted during the first six months of 2021 by a recovery of previous mortgage servicing right impairment of $10.5 million, compared with an impairment of $29.0 million for the same period in 2020.

Other noninterest income increased $3.2 million, or 28.1%, to $14.6 million for the first six months of 2021, compared with $11.4 million during the same period of 2020. The increase in other noninterest income was primarily attributable to an increase in gains on sales of SBA loans of $839,000, an increase in merchant fee income of $572,000, an increase in trust income of $640,000 and a decrease in SBA servicing asset impairment of $2.0 million, partially offset by a decrease of $852,000 in indirect automobile servicing income.
45


Noninterest Expense

Total noninterest expenses for the six months ended June 30, 2021 decreased $9.3 million, or 3.2%, to $284.6 million, compared with $293.8 million in the same period of 2020. Salaries and employee benefits increased $10.4 million, or 6.1%, from $171.1 million in the first six months of 2020 to $181.5 million in the same period of 2021 due primarily to an increase in variable compensation tied to increased mortgage production of $11.7 million. Occupancy and equipment expenses decreased $3.2 million, or 12.5%, to $22.6 million for the first six months of 2021, compared with $25.8 million in the same period of 2020, due primarily to a reduction in leased locations related to previously announced efficiency initiatives. Data processing and communications expenses increased $1.3 million, or 5.8%, to $23.8 million in the first six months of 2021, from $22.5 million reported in the same period of 2020. Credit resolution-related expenses decreased $2.0 million, or 62.9%, from $3.1 million in the first six months of 2020 to $1.2 million in the same period of 2021. This decrease in credit resolution-related expenses primarily resulted from a reduction in write-downs on OREO properties and a gain on sale of OREO properties of $714,000. Advertising and marketing expense was $3.4 million in the first six months of 2021, compared with $3.8 million in the first six months of 2020. Amortization of intangible assets decreased $3.0 million, or 27.1%, from $11.2 million in the first six months of 2020 to $8.2 million in the first six months of 2021. Core deposit intangibles are being amortized over an accelerated basis; therefore, the expense recorded will decline over the life of the asset. There were no merger and conversion charges in the first six months of 2021, compared with $1.4 million in the same period in 2020. Other noninterest expenses decreased $10.8 million, or 19.7%, from $54.8 million in the first six months of 2020 to $44.0 million in the same period of 2021, due primarily to a decrease of $4.0 million in FDIC insurance, a decrease of $2.6 million in expenses related to the COVID-19 pandemic and a decrease of $4.4 million in legal and professional fees. These decreases in other noninterest expenses were partially offset by increases in loan servicing expenses of $2.7 million and variable expenses tied to production in our mortgage division.

Income Taxes

Income tax expense is influenced by the statutory rate, the amount of taxable income, the amount of tax-exempt income and the amount of nondeductible expenses. For the six months ended June 30, 2021, the Company reported income tax expense of $64.6 million, compared with $12.5 million in the same period of 2020. The Company’s effective tax rate for the six months ended June 30, 2021 and 2020 was 23.3% and 19.5%, respectively. The increase in the effective tax rate is primarily a result of increased pre-tax book income and the benefit recorded in the first quarter of 2020 for loss carrybacks allowed as a result of the CARES Act.

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Financial Condition as of June 30, 2021

Securities

Debt securities classified as available-for-sale are recorded at fair value with unrealized holding gains and losses excluded from earnings and reported in accumulated other comprehensive income, net of the related deferred tax effect. Securities available-for-sale may be bought and sold in response to changes in market conditions including, but not limited to, fluctuations in interest rates, changes in securities' prepayment risk, increases in loan demand, general liquidity needs and to position the portfolio to take advantage of market conditions that create more economically attractive returns. Debt securities are classified as held-to-maturity based on management's positive intent and ability to hold such securities to maturity and are carried at amortized cost. Restricted equity securities are classified as other investment securities and are carried at cost and are periodically evaluated for impairment based on the ultimate recovery of par value or cost basis.

The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the expected life of the securities. Realized gains and losses, determined on the basis of the cost of specific securities sold, are included in earnings on the trade date. 

Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate available-for-sale securities in an unrealized loss position on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation, to determine if credit-related impairment exists. Management first evaluates whether they intend to sell or more likely than not will be required to sell an impaired security before recovering its amortized cost basis. If either criteria is met, the entire amount of unrealized loss is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. If either of the above criteria is not met, management evaluates whether the decline in fair value is attributable to credit or resulted from other factors. If credit-related impairment exists, the Company recognizes an allowance for credit losses, limited to the amount by which the fair value is less than the amortized cost basis. Any impairment not recognized through an allowance for credit losses is recognized in other comprehensive income, net of tax, as a non credit-related impairment. The Company does not intend to sell these available-for-sale investment securities at an unrealized loss position at June 30, 2021, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Based on the results of management's review, at June 30, 2021, management determined that $81,000 was attributable to credit impairment and established the allowance for credit losses accordingly. The remaining $332,000 in unrealized loss was determined to be from factors other than credit.

The Company's held-to-maturity securities have zero expected credit losses and no related allowance for credit losses has been established.

The following table is a summary of our investment portfolio at the dates indicated:

June 30, 2021December 31, 2020
(dollars in thousands)Amortized CostFair
Value
Amortized CostFair
Value
Securities available-for-sale
U.S. government sponsored agencies$12,120 $12,327 $17,161 $17,504 
State, county and municipal securities58,016 60,836 63,286 66,778 
Corporate debt securities43,132 43,612 51,639 51,896 
SBA pool securities52,283 54,281 59,973 62,497 
Mortgage-backed securities581,021 607,111 748,521 784,204 
Total debt securities available-for-sale$746,572 $778,167 $940,580 $982,879 
Securities held-to-maturity
Mortgage-backed securities$29,055 $29,008 $— $— 
Total debt securities held-to-maturity$29,055 $29,008 $— $— 

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The amounts of securities available-for-sale and held-to-maturity in each category as of June 30, 2021 are shown in the following table according to contractual maturity classifications: (i) one year or less; (ii) after one year through five years; (iii) after five years through ten years; and (iv) after ten years:

U.S. Government
Sponsored Agencies
State, County and
Municipal Securities
Corporate Debt Securities
(dollars in thousands)
Securities available-for-sale (1)
AmountYield
 (2)
AmountYield
(2)(3)
AmountYield
 (2)
One year or less$10,147 1.92 %$11,242 3.38 %$500 3.03 %
After one year through five years2,180 2.04 19,451 3.79 10,263 4.00 
After five years through ten years— — 18,893 3.87 31,153 5.30 
After ten years— — 11,250 3.88 1,696 4.24 
$12,327 1.94 %$60,836 3.75 %$43,612 4.92 %
SBA Pool SecuritiesMortgage-Backed Securities
(dollars in thousands)
Securities available-for-sale (1)
AmountYield
 (2)
AmountYield
 (2)
One year or less$— — %$3,567 2.11 %
After one year through five years13,075 2.20 99,564 2.74 
After five years through ten years10,054 2.27 173,392 2.79 
After ten years31,152 2.47 330,588 2.31 
$54,281 2.36 %$607,111 2.52 %
Mortgage-Backed Securities
(dollars in thousands)
Securities held-to-maturity (1)
AmountYield
 (2)
One year or less$— — %
After one year through five years— — 
After five years through ten years16,018 1.62 
After ten years13,037 1.84 
$29,055 1.72 %
(1)The amortized cost and fair value of debt securities are presented based on contractual maturities. Actual cash flows may differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.
(2)Yields were computed using coupon interest, adding discount accretion or subtracting premium amortization, as appropriate, on a ratable basis over the life of each security. The weighted average yield for each maturity range was computed using the amortized cost of each security in that range.
(3)Yields on securities of state and political subdivisions are stated on a taxable-equivalent basis, using a tax rate of 21%.

Loans and Allowance for Credit Losses

At June 30, 2021, gross loans outstanding (including loans and loans held for sale) were $15.99 billion, up $342.8 million from $15.65 billion reported at December 31, 2020. Loans held for sale increased from $1.17 billion at December 31, 2020 to $1.21 billion at June 30, 2021 primarily in our mortgage division, partially offset by the sale of a consumer portfolio of $165.9 million. Loans increased $299.9 million, or 2.07%, from $14.48 billion at December 31, 2020 to $14.78 billion at June 30, 2021, driven primarily by organic growth net of PPP loan runoff.

The Company regularly monitors the composition of the loan portfolio to evaluate the adequacy of the allowance for credit losses ("ACL") on loans in light of the impact that changes in the economic environment may have on the loan portfolio. The Company focuses on the following loan categories: (1) commercial, financial and agricultural; (2) consumer installment; (3) indirect automobile; (4) mortgage warehouse; (5) municipal; (6) premium finance; (7) construction and development related real estate; (8) commercial and farmland real estate; and (9) residential real estate. The Company’s management has
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strategically located its branches in select markets in Georgia, Alabama, Florida, North Carolina and South Carolina to take advantage of the growth in these areas.

The Company’s risk management processes include a loan review program designed to evaluate the credit risk in the loan portfolio and ensure credit grade accuracy. Through the loan review process, the Company conducts (1) a loan portfolio summary analysis, (2) charge-off and recovery analysis, (3) trends in accruing problem loan analysis, and (4) problem and past-due loan analysis. This analysis process serves as a tool to assist management in assessing the overall quality of the loan portfolio and the adequacy of the ACL. Loans classified as “substandard” are loans which are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses and/or questionable collateral values. Loans classified as “doubtful” are those loans that have characteristics similar to substandard loans but have an increased risk of loss. Loans classified as “loss” are those loans which are considered uncollectible and are in the process of being charged off.

The Company estimates the ACL on loans based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL, except for loans modified under the Disaster Relief Program.

Expected credit losses are reflected in the ACL through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.

The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company currently uses the DCF method, the PD×LGD method or a qualitative approach.

The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert back to historical loss information on a straight-line basis over four quarters when it can no longer develop reasonable and supportable forecasts.

At the end of the second quarter of 2021, the ACL on loans totaled $175.1 million, or 1.18% of loans, compared with $199.4 million, or 1.38% of loans, at December 31, 2020. Our nonaccrual loans decreased from $76.5 million at December 31, 2020 to $59.9 million at June 30, 2021. The decrease in nonaccrual loans is primarily attributable to collection activities and upgrades. For the first six months of 2021, our net charge off ratio as a percentage of average loans decreased to 0.10%, compared with 0.20% for the first six months of 2020. The total provision for credit losses for the first six months of 2021 was negative $28.4 million, decreasing from $129.2 million recorded for the first six months of 2020. Our ratio of total nonperforming assets to total assets decreased from 0.48% at December 31, 2020 to 0.32% at June 30, 2021.

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The following table presents an analysis of the allowance for credit losses on loans, provision for credit losses on loans and net charge-offs as of and for the six months ended June 30, 2021 and 2020:

Six Months Ended
June 30,
(dollars in thousands)20212020
Balance of allowance for credit losses on loans at beginning of period$199,422 $38,189 
Adjustment to allowance for adoption of ASC 326— 78,661 
Provision charged to operating expense(17,478)105,496 
Charge-offs:  
Commercial, financial and agricultural5,899 2,972 
Consumer installment3,117 2,104 
Indirect automobile970 2,247 
Premium finance2,537 2,734 
Real estate – construction and development212 74 
Real estate – commercial and farmland1,422 7,243 
Real estate – residential555 625 
Total charge-offs14,712 17,999 
Recoveries:
Commercial, financial and agricultural1,352 665 
Consumer installment568 1,420 
Indirect automobile1,072 40 
Premium finance3,588 1,360 
Real estate – construction and development251 510 
Real estate – commercial and farmland226 106 
Real estate – residential781 345 
Total recoveries7,838 4,446 
Net charge-offs6,874 13,553 
Balance of allowance for credit losses on loans at end of period$175,070 $208,793 

The following table presents an analysis of the allowance for credit losses on loans and net charge-offs for loans held for investment:

As of and for the Six Months Ended
(dollars in thousands)June 30, 2021June 30, 2020
Allowance for credit losses on loans at end of period$175,070 $208,793 
Net charge-offs for the period6,874 13,553 
Loan balances:
End of period14,780,791 14,503,157 
Average for the period14,501,802 13,308,960 
Net charge-offs as a percentage of average loans (annualized)0.10 %0.20 %
Allowance for credit losses on loans as a percentage of end of period loans1.18 %1.44 %

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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)June 30, 2021December 31, 2020
Commercial, financial and agricultural$1,406,421 $1,627,477 
Consumer installment229,411 306,995 
Indirect automobile397,373 580,083 
Mortgage warehouse841,347 916,353 
Municipal647,578 659,403 
Premium finance780,328 687,841 
Real estate – construction and development1,527,883 1,606,710 
Real estate – commercial and farmland6,051,472 5,300,006 
Real estate – residential2,898,978 2,796,057 
$14,780,791 $14,480,925 

Non-Performing Assets

Non-performing assets include nonaccrual loans, accruing loans contractually past due 90 days or more, repossessed personal property, and OREO. Loans are placed on nonaccrual status when management has concerns relating to the ability to collect the principal and interest and generally when such loans are 90 days or more past due. Management performs a detailed review and valuation assessment of non-performing loans over $250,000 on a quarterly basis. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against current income.

Nonaccrual loans totaled $59.9 million at June 30, 2021, a decrease of $16.5 million, or 21.6%, from $76.5 million at December 31, 2020. Accruing loans delinquent 90 days or more totaled $4.9 million at June 30, 2021, a decrease of $3.5 million, or 41.5%, compared with $8.3 million at December 31, 2020. At June 30, 2021, OREO totaled $5.8 million, a decrease of $6.1 million, or 51.4%, compared with $11.9 million at December 31, 2020. Management regularly assesses the valuation of OREO through periodic reappraisal and through inquiries received in the marketing process.  At the end of the second quarter of 2021, total non-performing assets as a percent of total assets decreased to 0.32% compared with 0.48% at December 31, 2020.

Non-performing assets at June 30, 2021 and December 31, 2020 were as follows:

(dollars in thousands)June 30, 2021December 31, 2020
Nonaccrual loans$59,921 $76,457 
Accruing loans delinquent 90 days or more4,874 8,326 
Repossessed assets226 544 
Other real estate owned5,775 11,880 
Total non-performing assets$70,796 $97,207 

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Troubled Debt Restructurings

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession.

As of June 30, 2021 and December 31, 2020, the Company had a balance of $92.3 million and $85.0 million, respectively, in troubled debt restructurings. These totals do not include COVID-19 loan modifications accounted for under Section 4013 of the CARES Act. Further information on these loans is set forth under the heading "COVID-19 Deferrals" below. The following table presents the amount of troubled debt restructurings by loan class classified separately as accrual and nonaccrual at June 30, 2021 and December 31, 2020:

June 30, 2021Accruing LoansNon-Accruing Loans
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural12$1,038 10$805 
Consumer installment928 1943 
Indirect automobile3361,647 47301 
Real estate – construction and development5898 4301 
Real estate – commercial and farmland2846,025 117,103 
Real estate – residential23831,570 312,515 
Total628$81,206 122$11,068 

December 31, 2020Accruing LoansNon-Accruing Loans
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural9$521 11$849 
Consumer installment1032 2056 
Indirect automobile4372,277 51461 
Real estate – construction and development4506 5707 
Real estate – commercial and farmland2836,707 71,401 
Real estate – residential26438,800 342,671 
Total752$78,843 128$6,145 

The following table presents the amount of troubled debt restructurings by loan class classified separately as those currently paying under restructured terms and those that have defaulted (defined as 30 days past due) under restructured terms at June 30, 2021 and December 31, 2020:

June 30, 2021Loans Currently Paying
Under Restructured Terms
Loans that have Defaulted Under Restructured Terms
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural18$1,746 4$97 
Consumer installment1333 1538 
Indirect automobile3211,613 62335 
Real estate – construction and development81,184 115 
Real estate – commercial and farmland3752,275 2853 
Real estate – residential23130,307 383,778 
Total628$87,158 122$5,116 

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December 31, 2020Loans Currently Paying
Under Restructured Terms
Loans that have Defaulted Under Restructured Terms
Loan Class#
Balance
(in thousands)
#
Balance
(in thousands)
Commercial, financial and agricultural11$532 9$839 
Consumer installment1233 1855 
Indirect automobile4112,138 77600 
Real estate – construction and development5507 4706 
Real estate – commercial and farmland2936,512 61,595 
Real estate – residential24935,348 496,123 
Total717$75,070 163$9,918 

The following table presents the amount of troubled debt restructurings by types of concessions made, classified separately as accrual and nonaccrual at June 30, 2021 and December 31, 2020:

June 30, 2021Accruing LoansNon-Accruing Loans
Type of Concession#
Balance
(in thousands)
#
Balance
(in thousands)
Forgiveness of interest1$72 $— 
Forbearance of interest141,086 102,004 
Forbearance of principal45363,098 637,733 
Forbearance of principal, extended amortization— 1178 
Rate reduction only628,160 4244 
Rate reduction, maturity extension— 1
Rate reduction, forbearance of interest392,969 7349 
Rate reduction, forbearance of principal192,537 28164 
Rate reduction, forgiveness of interest403,284 8393 
Total628$81,206 122$11,068 

December 31, 2020Accruing LoansNon-Accruing Loans
Type of Concession#
Balance
(in thousands)
#
Balance
(in thousands)
Forgiveness of interest1$73 $— 
Forbearance of interest192,255 71,044 
Forbearance of principal56358,131 723,372 
Forbearance of principal, extended amortization— 1204 
Rate reduction only668,893 4525 
Rate reduction, maturity extension— 1
Rate reduction, forbearance of interest413,472 9389 
Rate reduction, forbearance of principal212,609 25193 
Rate reduction, forgiveness of interest413,410 8412 
Rate reduction, forgiveness of principal— 1
Total752$78,843 128$6,145 

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The following table presents the amount of troubled debt restructurings by collateral types, classified separately as accrual and nonaccrual at June 30, 2021 and December 31, 2020:

June 30, 2021Accruing LoansNon-Accruing Loans
Collateral Type#
Balance
(in thousands)
#
Balance
(in thousands)
Warehouse4$233 2$289 
Raw land54,806 6724 
Hotel and motel729,728 14,903 
Office61,245 — 
Retail, including strip centers108,562 3856 
1-4 family residential24231,930 332,991 
Church12,181 1156 
Automobile/equipment/CD3532,521 761,149 
Total628$81,206 122$11,068 

December 31, 2020Accruing LoansNon-Accruing Loans
Collateral Type#
Balance
(in thousands)
#
Balance
(in thousands)
Warehouse4$248 2$305 
Raw land54,611 71,135 
Hotel and motel422,372 — 
Office61,281 — 
Retail, including strip centers138,627 — 
1-4 family residential26638,913 353,170 
Church— 1166 
Automobile/equipment/CD4542,791 821,368 
Unsecured— 1
Total752$78,843 128$6,145 

COVID-19 Deferrals

In response to the COVID-19 pandemic, the Company offered affected borrowers payment relief under its Disaster Relief Program. These modifications primarily consisted of short-term payment deferrals or interest-only periods to assist customers. The Company has begun providing payment modifications to certain borrowers in economically sensitive industries of various terms up to nine months. Modifications related to the COVID-19 pandemic and qualifying under the provisions of Section 4013 of the CARES Act are not deemed to be troubled debt restructurings. As of June 30, 2021, $127.7 million in loans remained in payment deferral under the COVID-19 pandemic Disaster Relief Program compared with $332.8 million at December 31, 2020.

The table below presents short-term deferrals related to the COVID-19 pandemic that were not considered TDRs as of June 30, 2021 and December 31, 2020.

June 30, 2021December 31, 2020
(dollars in thousandsCOVID-19 DeferralsDeferrals as a % of total loansCOVID-19 DeferralsDeferrals as a % of total loans
Commercial, financial and agricultural$2,539 0.2 %$12,471 0.8 %
Consumer installment29 — %1,418 0.5 %
Indirect automobile1,126 0.3 %8,936 1.5 %
Real estate – construction and development873 0.1 %11,049 0.7 %
Real estate – commercial and farmland63,827 1.1 %179,183 3.4 %
Real estate – residential59,331 2.0 %119,722 4.3 %
$127,725 0.9 %$332,779 2.3 %

Commercial Lending Practices

The federal bank regulatory agencies previously issued interagency guidance on commercial real estate lending and prudent risk management practices. This guidance defines commercial real estate (“CRE”) loans as loans secured by raw land, land development and construction (including one-to-four family residential construction), multi-family property and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with
54


the property, excluding owner-occupied properties (loans for which 50% or more of the source of repayment is derived from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property) or the proceeds of the sale, refinancing or permanent financing of the property. Loans for owner-occupied CRE are generally excluded from the CRE guidance.

The CRE guidance is applicable when either:

(1)total loans for construction, land development, and other land, net of owner-occupied loans, represent 100% or more of a bank’s total risk-based capital; or
(2)total loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land development, and other land, net of owner-occupied loans, represent 300% or more of a bank’s total risk-based capital.

Banks that are subject to the CRE guidance criteria are required to implement enhanced strategic planning, CRE underwriting policies, risk management and internal controls, portfolio stress testing, risk exposure limits, and other policies, including management compensation and incentives, to address the CRE risks. Higher allowances for loan losses and capital levels may also be appropriate.

As of June 30, 2021, the Company exhibited a concentration in the CRE loan category based on Federal Reserve Call codes. The primary risks of CRE lending are:

(1)within CRE loans, construction and development loans are somewhat dependent upon continued strength in demand for residential real estate, which is reliant on favorable real estate mortgage rates and changing population demographics;
(2)on average, CRE loan sizes are generally larger than non-CRE loan types; and
(3)certain construction and development loans may be less predictable and more difficult to evaluate and monitor.

The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of June 30, 2021 and December 31, 2020. The loan categories and concentrations below are based on Federal Reserve Call codes:

June 30, 2021December 31, 2020
(dollars in thousands)Balance% of Total
Loans
Balance% of Total
Loans
Construction and development loans$1,527,883 10%$1,606,710 11%
Multi-family loans536,386 4%347,951 2%
Nonfarm non-residential loans (excluding owner-occupied)3,742,159 25%3,260,389 23%
Total CRE Loans (excluding owner-occupied)
5,806,428 39%5,215,050 36%
All other loan types8,974,363 61%9,265,875 64%
Total Loans$14,780,791 100%$14,480,925 100%

The following table outlines the percentage of construction and development loans and total CRE loans, net of owner-occupied loans, to the Bank’s total risk-based capital, and the Company’s internal concentration limits as of June 30, 2021 and December 31, 2020:

Internal
Limit
Actual
June 30, 2021December 31, 2020
Construction and development loans100%65%74%
Total CRE loans (excluding owner-occupied)300%245%241%

Short-Term Investments

The Company’s short-term investments are comprised of federal funds sold and interest-bearing deposits in banks. At June 30, 2021, the Company’s short-term investments were $3.04 billion, compared with $1.91 billion at December 31, 2020. At June 30, 2021, the Company had $20.0 million in federal funds sold and $3.02 billion was in interest-bearing deposit balances at correspondent banks and the Federal Reserve Bank of Atlanta.

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Derivative Instruments and Hedging Activities

The Company has forward contracts and IRLCs to hedge changes in the value of the mortgage inventory due to changes in market interest rates. The fair value of these instruments amounted to an asset of $20.3 million and $51.8 million at June 30, 2021 and December 31, 2020, respectively, and a liability of $2.5 million and $16.4 million at June 30, 2021 and December 31, 2020, respectively.

Capital

Common Stock Repurchase Program

On September 19, 2019, the Company announced that its Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock through October 31, 2020. On October 22, 2020, the Company announced that its Board of Directors approved the extension of the share repurchase program through October 31, 2021.  Repurchases of shares must be made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including share acquisition price, regulatory limitations and other market and economic factors. The program does not require the Company to repurchase any specific number of shares. As of June 30, 2021, $14.3 million, or 358,664 shares of the Company's common stock, had been repurchased under the program.

Capital Management

Capital management consists of providing equity to support both current and anticipated future operations. The capital resources of the Company are monitored on a periodic basis by state and federal regulatory authorities.

Under the regulatory capital frameworks adopted by the Federal Reserve ("FRB") and the FDIC, the Company and the Bank must each maintain a common equity Tier 1 capital to total risk-weighted assets ratio of at least 4.5%, a Tier 1 capital to total risk-weighted assets ratio of at least 6%, a total capital to total risk-weighted assets ratio of at least 8% and a leverage ratio of Tier 1 capital to average total consolidated assets of at least 4%. The Company and the Bank are also required to maintain a capital conservation buffer of common equity Tier 1 capital of at least 2.5% of risk-weighted assets in addition to the minimum risk-based capital ratios in order to avoid certain restrictions on capital distributions and discretionary bonus payments.

In March 2020, the Office of the Comptroller of the Currency, the FRB and the FDIC issued an interim final rule that delays the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule provides banking organizations that implement CECL in 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. As a result, the Company and Bank elected the five-year transition relief allowed under the interim final rule effective March 31, 2020.

As of June 30, 2021, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. The following table sets forth the regulatory capital ratios of for the Company and the Bank at June 30, 2021 and December 31, 2020:

June 30, 2021December 31, 2020
Tier 1 Leverage Ratio (tier 1 capital to average assets)
  
Consolidated9.23%8.99%
Ameris Bank10.65%10.39%
CET1 Ratio (common equity tier 1 capital to risk weighted assets)
  
Consolidated11.61%11.14%
Ameris Bank13.38%12.87%
Tier 1 Capital Ratio (tier 1 capital to risk weighted assets)
  
Consolidated11.61%11.14%
Ameris Bank13.38%12.87%
Total Capital Ratio (total capital to risk weighted assets)
  
Consolidated15.31%15.27%
Ameris Bank14.46%14.19%

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Interest Rate Sensitivity and Liquidity

The Company’s primary market risk exposures are credit risk, interest rate risk, and to a lesser degree, liquidity risk. The Bank operates under an Asset Liability Management Policy approved by the Company’s Board of Directors and the ALCO Committee. The policy outlines limits on interest rate risk in terms of changes in net interest income and changes in the net market values of assets and liabilities over certain changes in interest rate environments. These measurements are made through a simulation model which projects the impact of changes in interest rates on the Bank’s assets and liabilities. The policy also outlines responsibility for monitoring interest rate risk, and the process for the approval, implementation and monitoring of interest rate risk strategies to achieve the Bank’s interest rate risk objectives.

The ALCO Committee is comprised of senior officers of Ameris. The ALCO Committee makes all strategic decisions with respect to the sources and uses of funds that may affect net interest income, including net interest spread and net interest margin. The objective of the ALCO Committee is to identify the interest rate, liquidity and market value risks of the Company’s balance sheet and use reasonable methods approved by the Company’s Board of Directors and executive management to minimize those identified risks.

The normal course of business activity exposes the Company to interest rate risk. Interest rate risk is managed within an overall asset and liability framework for the Company. The principal objectives of asset and liability management are to predict the sensitivity of net interest spreads to potential changes in interest rates, control risk and enhance profitability. Funding positions are kept within predetermined limits designed to properly manage risk and liquidity. The Company employs sensitivity analysis in the form of a net interest income simulation to help characterize the market risk arising from changes in interest rates. In addition, fluctuations in interest rates usually result in changes in the fair market value of the Company’s financial instruments, cash flows and net interest income. The Company’s interest rate risk position is managed by the ALCO Committee.

The Company uses a simulation modeling process to measure interest rate risk and evaluate potential strategies. Interest rate scenario models are prepared using software created and licensed from an outside vendor. The Company’s simulation includes all financial assets and liabilities. Simulation results quantify interest rate risk under various interest rate scenarios. Management then develops and implements appropriate strategies. The ALCO Committee has determined that an acceptable level of interest rate risk would be for net interest income to increase/decrease no more than 20% given a change in selected interest rates of 200 basis points over any 24-month period.

Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of Ameris to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term assets at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks, which could provide funds on short notice, if needed. The Company has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is equal to 30% of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At June 30, 2021 and December 31, 2020, the net carrying value of the Company’s other borrowings was $425.3 million and $425.2 million, respectively.

The following liquidity ratios compare certain assets and liabilities to total deposits or total assets:

June 30,
2021
March 31,
2021
December 31,
2020
September 30,
2020
June 30,
2020
Investment securities available-for-sale to total deposits4.26%4.81%5.80%6.96%7.95%
Loans (net of unearned income) to total deposits80.96%81.67%85.39%93.03%93.03%
Interest-earning assets to total assets90.79%91.15%90.88%90.66%90.51%
Interest-bearing deposits to total deposits61.75%61.93%63.73%63.21%64.11%

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 June 30, 2021 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed only to U.S. dollar interest rate changes, and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company’s hedging activities are limited to cash flow hedges and are part of the Company’s program to manage interest rate sensitivity.

The Company also had forward contracts and IRLCs to 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 $20.3 million and $51.8 million at June 30, 2021 and December 31, 2020, respectively, and a liability of $2.5 million and $16.4 million at June 30, 2021 and December 31, 2020, 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.

Item 4. Controls and Procedures.

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of the end of the period covered by this report, as required by paragraph (b) of Rules 13a-15 or 15d-15 of the Exchange Act. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

During the quarter ended June 30, 2021, there was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Disclosure concerning legal proceedings can be found in Part I - "Financial Information, Item 1. Financial Statements, Notes to Unaudited Consolidated Financial Statements, Note 9 – Commitments and Contingencies" under the caption, "Litigation and Regulatory Contingencies," which is incorporated herein by reference.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.
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).
   
 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).
   
 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).
   
 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).
   
 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).
   
 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).
Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp's Quarterly Report on Form 10-Q filed with the SEC on August 10, 2020).
 Bylaws of Ameris Bancorp, as amended and restated through June 11, 2020 (incorporated by reference to Exhibit 3.8 to Ameris Bancorp's Quarterly Report on Form 10-Q filed with the SEC on August 10, 2020).
Ameris Bancorp 2021 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit B to Ameris Bancorp’s definitive Proxy Statement filed with the Commission on April 26, 2021)
Form of Restricted Share Award Agreement under the 2021 Omnibus Equity Incentive Plan
Form of Restricted Share Unit Award Agreement under the 2021 Omnibus Equity Incentive Plan
Form of Performance Unit Award Agreement under the 2021 Omnibus Equity Incentive Plan
 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.INSXBRL 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.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover 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: August 9, 2021AMERIS BANCORP
  
 /s/ Nicole S. Stokes
 Nicole S. Stokes
 Chief Financial Officer
(duly authorized signatory and principal accounting and financial officer)

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